10-Q 1 realty4_q2.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2001 ------------------------------------------------- OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ----------------------- ---------------------- Commission file number 0-11987 ----------------------------------- Krupp Realty Limited Partnership -IV Massachusetts 04-2772783 -------------------------------------------------------------------------------- (State or other jurisdiction of (IRS employer incorporation or organization) identification no.) One Beacon Street, Boston, Massachusetts 02108 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (617) 523-7722 -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| The total number of pages in this document is 11. PART I. FINANCIAL INFORMATION Item 1. CONSOLIDATED FINANCIAL STATEMENTS ------ This Form 10 - Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Actual results could differ materially from those projected in the forward-looking statements as a result of a number of factors, including those identified herein. KRUPP REALTY LIMITED PARTNERSHIP - IV AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS

The accompanying notes are an integral part of the consolidated financial statements. 2 KRUPP REALTY LIMITED PARTNERSHIP - IV AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

The accompanying notes are an integral part of the consolidated financial statements. 3 KRUPP REALTY LIMITED PARTNERSHIP - IV SUBSIDUARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

The accompanying notes are an integral part of the consolidated financial statements 4 KRUPP REALTY LIMITED PARTNERSHIP - IV AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Accounting Policies Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted in this report on Form 10-Q pursuant to the Rules and Regulations of the Securities and Exchange Commission. In the opinion of the General Partners of Krupp Realty Limited Partnership - IV and Subsidiaries ( the "Partnership"), the disclosures contained in this report are adequate to make the information presented not misleading. See notes to Consolidated Financial Statements included in the Partnership's Annual Report on Form 10-K for the year ended December 31, 2000 for additional information relevant to significant accounting policies followed by the Partnership. The consolidated financial statements present consolidated assets, liabilities and operations of Pavillion Partners, Ltd., Westbridge Partners, Ltd., and Krupp Realty Limited Partnership-IV. Westcop Corporation has a 1% interest in the operations of Westbridge Partners, Ltd. and Pavillion Partners, Ltd. At June 30, 2001 and December 31, 2000, minority interest of $7,138 and $8,589, respectively, is included in other assets. In the opinion of the General Partners of the Partnership, the accompanying unaudited consolidated financial statements reflect all adjustments (consisting of only normal recurring accruals necessary to present fairly the Partnership's consolidated financial position as of June 30, 2001, its results of operations for the three and six months ended June 30, 2001 and 2000 and its cash flows for the six months ended June 30, 2001 and 2000. The results of operations for the three and six months ended June 30, 2001 are not necessarily indicative of the results which may be expected for the full year. See Management's Discussion and Analysis of Financial Condition and Results of Operations included in this report. (2) Investment in Securities On October 5, 2000, the Partnership, as a member of an alliance of major multi-family real estate companies, executed a master lease agreement ("MLA") with a provider of high-speed internet, video and voice services to multi-family communities. Pursuant to the MLA, the Partnership granted the provider preferred lease, license and access rights to provide data services, consisting of high-speed broadband internet access and video services, to the residents at some of its multi-family communities for a ten year period. In exchange for these rights, the Partnership received 366,691 shares of common stock which were valued at $.2285 per share or $83,823. In addition, the Partnership will receive 7.5% of the gross revenues that the provider obtains from providing its services as well as a fixed amount for each resident that executes a subscriber agreement. In conjunction with the execution of the MLA, the Partnership made an investment of $8,406 in exchange for 36,785 additional shares of common stock also valued at $.2285 per share. The Partnership incurred approximately $3,287 in closing costs related to the acquisition by the Partnership and the closing costs incurred were recorded as an investment in securities in the financial statements as of June 30, 2001 and of December 31, 2000. Continued 5 KRUPP REALTY LIMITED PARTNERSHIP - IV AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (3) Mortgage Notes Payable On November 9, 2000, the General Partners signed an agreement extending the mortgage note payable on Walden Pond Apartments, until November 1, 2002. Under the terms of the extension agreement the interest rate on the debt was reduced from prime + 0.5% to prime - 0.5%. The Partnership paid an extension fee of $29,555 for this privilege. As of December 31, 2000, the General Partners had signed agreements extending the mortgage note payable on Fenland Field Apartments, under the original terms, until June 1, 2002. The Partnership paid an extension fee of $5,000 for this privilege. On April 27, 2001, the General Partners signed an agreement extending the mortgage note payable on Pavillion Apartments, under the original terms, until May 1, 2002. The Partnership paid an extension fee of $32,969 for this privilege. (4) Changes in Partners' Deficit A summary of changes in Partners' deficit for the six months ended June 30, 2001 is as follows:

Continued 6 KRUPP REALTY LIMITED PARTNERSHIP - IV AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (5) Related Party Transactions The Partnership pays property management fees to an affiliate of the General Partners for management services. Pursuant to the management agreements, management fees are payable monthly at a rate of 5% of the gross receipts from the properties under management. The Partnership also reimburses affiliates of the General Partners for certain expenses incurred in connection with the operation of the Partnership and its properties, including administrative expenses. Amounts accrued or paid to the General Partners' affiliates were as follows:

Due to (from) affiliates consisted of expense reimbursements of $38,789 and $(28,007) at June 30, 2001 and December 31, 2000, respectively. (6) Subsequent Event On August 1, 2001, the Partnership sold Fenland Field Apartments to an unrelated third party for $14,500,000. The carrying value of Fenland Field Apartments was approximately $2,250,000. The sale included the payoff of the mortgage owed on the property of approximately $3,640,000 and the assumption of the remaining assets and liabilities. 7 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements including those concerning management's expectations regarding the future financial performance and future events. These forward-looking statements involve significant risks and uncertainties, including those described herein. Actual results may differ materially from those anticipated by such forward-looking statements. Liquidity and Capital Resources The Partnership's ability to generate cash adequate to meet its needs is dependent primarily upon the operations of its real estate investments. Such ability would also be impacted by the future availability of bank borrowings, and upon the future refinancing and sale of the Partnership's remaining real estate investments. These sources of liquidity will be used by Partnership for payment of expenses related to real estate operations, capital improvements, debt service and other expenses. Cash flow, if any as calculated under Section 8.2 (a) of the Partnership Agreement, will then be available for distribution to the Partners. Over the past several years, real estate markets in general have improved and the General Partners feel it is an opportune time to formulate a liquidation strategy for the Partnership. As previously disclosed, the General Partners have begun the process of more thoroughly assessing the real estate sales market in the Partnership's market areas and developing a disposition strategy which will yield the highest value to investors through an efficient and orderly liquidation of the Partnership. In keeping with this strategy, the General Partners have extended the term of the mortgage loan which would otherwise have matured with financing that leaves flexibility for the property sales. Assuming market conditions do not change, the assessment of the real estate sales market is consistent with the General Partners' expectations, and an acceptable disposition plan can be implemented, the General Partners expect to complete the liquidation process over the next 9 months. However, there can be no assurance that such a liquidation will occur, or what amounts may be realized by the Partnership. On April 27, 2001, the General Partners signed an agreement extending the mortgage notes payable on Pavillion Apartments, under the original terms, until May 1, 2002. The Partnership paid an extension fee of $24,962 for this privilege. On August 1, 2001, the Partnership sold Fenland Field Apartments to an unrelated third party for $14,500,000. The carrying value of Fenland Field Apartments was approximately $2,250,000. The sale included the payoff of the mortgage owed on the property of approximately $3,640,000 and the assumption of the remaining assets and liabilities. The General Partners, on an ongoing basis, assess the current and future liquidity needs to determine the level of working capital reserves the Partnership should maintain. Adjustments to distributions are made when appropriate to reflect such assessments. The current annual distribution rate is $24.69 per Unit, and is paid semiannually in February and August. 8 Operations The following discussion relates to the operation of the Partnership and its properties (Fenland Field, Pavillion and Walden Pond Apartments) for the three and six months ended June 30, 2001 and 2000. Net income increased during the three months ended June 30, 2001 when compared to the three months ended June 30, 2000 due to increases in total revenue more than offsetting increases in total expenses. The increase in total revenue is primarily a result of rental rate increases implemented at all of the Partnership's properties at the end of the first quarter of 2001. Total expenses for the three months ended June 30, 2001 increased when compared to the three months ended June 30, 2000, due to increases in operating expenses, and real estate taxes partially offset by a decrease in interest expense. Operating expenses increased as a result of increases in utilities and payroll expenses. Real estate tax expense increased as a result of a reassessment of property values by the local taxing authority for Pavillion. Interest expense decreased as a result of decreases in the prime lending rate. Net income decreased during the six months ended June 30, 2001 when compared to the six months ended June 30, 2000 due to increases in total expenses more than offsetting increases in total revenue. The increase in total revenue is primarily a result of rental rate increases implemented at all of the Partnership's properties at the end of the first quarter of 2001. Total expenses for the six months ended June 30, 2001 increased when compared to the six months ended June 30, 2000, due to increases in operating and general and administrative expense partially offset by decreases in real estate taxes and interest expense. Operating expenses increased as a result of increases in utilities and payroll expenses. General and administrative expenses increased as a result of increased investor communication costs, including the annual true-up during the three months ended March 31, 2001, which totaled approximately $49,000, which includes printing and mailing of quarterly and annual reports. Real estate tax expense decreased as a result of an adjustment to the prior year accrual for Walden Pond to correct historical under accruals. Interest expense decreased as a result of decreases in the prime lending rate Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Partnership's future earnings, cash flows and fair values relevant to financial instruments are dependent upon prevalent market rates. Market risk is the risk of loss from adverse changes in market prices and interest rates. The Partnership manages its market risk by matching projected cash inflows from operating activities, investing activities and financing activities with projected cash outflows to fund debt payments, acquisitions, capital expenditures, distributions and other cash requirements. The majority of the Partnership's outstanding debt (maturing at various times through 2002) has a fixed interest rate, which minimizes the interest rate risk. A detailed analysis of quantitative and qualitative market risk exposures was provided in the Partnership's Annual Report on Form 10-K for the year ended December 31, 2000. There have been no material changes in market risk subsequent to that date. 9 KRUPP REALTY LIMITED PARTNERSHIP - IV AND SUBSIDIARIES PART II - OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Changes in Securities None Item 3. Defaults upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K None 10 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Krupp Realty Limited Partnership - IV ---------------------------------------------- (Registrant) BY: /s/ David C. Quade ---------------------------------------------- Treasurer (Principal Financial and Accounting Officer) of The Krupp Corporation, a General Partner DATE: August 6, 2001 11

KRUPP REALTY LTD PARTNERSHIP IV 10-Q