ITEM 1. BUSINESS
Krupp Realty Limited Partnership-V ("KRLP-V") was formed on June 16, 1983 by filing a Certificate of Limited Partnership in The Commonwealth of Massachusetts. The Krupp Corporation (a Massachusetts corporation) and The Krupp Company Limited Partnership-II (a Massachusetts limited partnership) are the General Partners of KRLP-V. KRLP-V issued all of the Original Limited Partner Interests to The Krupp Company Limited Partnership-II. On September 6, 1983, KRLP-V, pursuant to a sales agent agreement, commenced the marketing and sale of units of Investor Limited Partner Interest ("Units") for $1,000 per Unit, 35,200 of which were sold. For further details, see Note A to Consolidated Financial Statements included in Item 8 (Appendix A) of this report.
KRLP-V considers itself to be engaged only in the industry segment of investment in real estate. KRLP-V invested the net proceeds from the offering in leveraged real estate. KRLP-V originally invested in four multi-family apartment complexes (Century II, Marine Terrace, Fieldcrest Apartments and Park Place Tower Apartments) and a joint venture in Lakeview Tower Apartments (the "Joint Venture") with Krupp Realty Limited Partnership-IV, an affiliated limited partnership. The aggregate purchase price of the properties was approximately $67 million and KRLP-V originally funded approximately $2.3 million to the Joint Venture.
On March 20, 1989, the General Partners formed Krupp Realty Park Place-Chicago Limited Partnership ("Realty-V") as a prerequisite for the refinancing of Park Place Tower Apartments ("Park Place"). At the same time, the General Partners transferred ownership of Park Place to Realty-V. The General Partner of Realty-V is The Krupp Corporation ("Krupp Corp."). The Limited Partner of Realty-V is KRLP-V. Krupp Corp. has beneficially assigned its interest in Realty-V to KRLP- V. KRLP-V and Realty-V are collectively known as Krupp Realty Limited Partnership-V and Subsidiary (collectively referred to herein as the "Partnership").
The Partnership sold two of its apartment complexes, Fieldcrest Apartments and Marine Terrace, in 1992 and 1995, respectively. The Partnership also received a distribution of proceeds from the sale of the Joint Venture in 1992.
The Partnership's real estate investments are subject to some seasonal fluctuations resulting from changes in utility consumption and seasonal maintenance expenditures. However, the future performance of the Partnership will depend upon factors which cannot be predicted. Such factors include general economic and real estate market conditions, both on a national basis and in those areas where the Partnership's real estate investments are located, real estate tax rates, operating expenses, energy costs, government regulations and federal and state income tax laws. The requirements for compliance with federal, state and local regulations to date have not had an adverse effect on the Partnership's operations, and no adverse effect therefrom is anticipated in the future.
The Partnership's investments in real estate are also subject to such risks as (I) competition from existing and future projects held by other owners in the locations of the Partnership's properties, (ii) fluctuations in rental income due to changes in occupancy levels, (iii) possible adverse changes in mortgage interest rates, (iv) possible adverse changes in general economic and local conditions, such as competitive over-building, increases in unemployment, or adverse changes in real estate zoning laws, (v) the possible future adoption of rent control legislation which would not permit the full amount of increased costs to be passed on to tenants in the form of rent increases, and (vi) other circumstances over which the Partnership may have little or no control.
As of December 31, 1999, the Partnership did not employ any personnel.
Recent Development
On January 21, 2000, KR5 Acquisition, L.L.C. ("KR5"), KRF Company, L.L.C., and The Krupp Family Limited Partnership - 94, affiliates of the General Partner, filed a Transaction Statement on Schedule 13E-3 with the Securities and Exchange Commission (the "SEC") with respect to KR5's proposal to merge KRLP-V with and into KR5. Under the terms of the proposed merger, each unitholder of KRLP-V other than certain unitholders that have agreed to reinvest their units in KR5 will receive $1,200 in cash for each outstanding investor limited partnership interest owned by it. KR5 was formed for the purpose of merging with KRLP-V. The General Partners of the Partnership have filed definitive proxy materials with the SEC with respect to the proposed merger, which is subject to certain conditions, including approval by unitholders of the merger and related amendments to KRLP-V's partnership agreement. On March 24, 2000, the proxy statement was mailed to the unitholders of KRLP-V. KRLP-V estimates that the merger will be completed, if approved by unitholders, in the second quarter of 2000.
On December 23, 1999, ERP Operating Partnership, an Illinois limited partnership ("ERP"), made a third-party tender offer to acquire all of the outstanding units at a price of $1,100 per unit. ERP's offer terminated on January 21, 2000.
ITEM 2.
ITEM 2. PROPERTIES
As of December 31, 1999, the Partnership had leveraged investments in two apartment complexes having an aggregate of 1,369 units. One of the complexes has an additional 18,417 square feet of leasable commercial space.
A summary of the Partnership's real estate investments is presented below. Schedule III included in Item 8 (Appendix A) of this report contains additional detailed information with respect to individual properties.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Partnership was a defendant in a class action suit relating to the alleged unlawful practice of giving discounts for the early or timely payments of rent at Park Place Tower Apartments and Marine Terrace Apartments. In November 1999, the Court granted approval of the settlement agreement that was presented by both Plaintiff and Defense counsel. Upon payment of the settlement amount, the case was dismissed in December of 1999. The total cost of the settlement, including
legal fees related to the settlement, was approximately $646,535 of which $139,610 is included in accrued expenses and other liabilities on the balance sheet. All other costs of the lawsuit have been paid as of December 31, 1999. The Partnership recognized $328,630 in other income and $733,000 in expenses which is included in general and administrative expenses, during 1999 and 1998, respectively.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None. PART II ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The transfer of Units is subject to certain limitations contained in the Partnership Agreement. There is no public market for the Units and it is not anticipated that any such public market will develop.
The number of Investor Limited Partners as of December 31, 1999 was approximately 1,750.
One of the objectives of the Partnership is to generate cash available for distribution. The General Partners discontinued distributions during 1990 due to insufficient operating cash flow. However, during 1993, the Partnership distributed $27,888 which was equivalent to the required withholding tax for the state of Maryland which arose from the sale of Fieldcrest Apartments. This amount was paid to the state of Maryland for the benefit of all Partners.
In 1995, the General Partners determined that there was sufficient Cash Flow, as calculated under section 8.2 (a) of the Partnership Agreement ("Cash Flow"), and working capital reserves to reinstate distributions. These semiannual distributions, which commenced in the first quarter of 1996, were paid at an annual rate of $20.00 per Unit. The General Partners believed there was sufficient Cash Flow and working capital reserves to increase the annual distribution rate in 1997 to the current rate of $40.00 per Unit.
The Partnership made the following distributions to its Partners during the years ended December 31, 1999 and 1998:
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial information regarding the Partnership's consolidated financial position and operating results. This information should be used in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and Supplementary Data, which are included in Items 7 and 8 of this report, respectively.
The Selected Financial Data results for the periods presented are not comparable due to the sale of Marine Terrace on July 19, 1995.
The per Unit distributions for the years ended December 31, 1999, 1998, 1997, 1996 and 1995 were $40.00, $40.00, $40.00, $20.00 and $0, respectively, none of which represented a return of capital.
Prior performance of the Partnership is not necessarily indicative of future operations.
ITEM 7.
ITEM 7. 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 risk 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 operating performance of its real estate investments. Such ability would also be impacted by the future availability of bank borrowing sources as current debt matures. These sources of liquidity will be used by the 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. In 1995, the General Partners determined that there was sufficient Cash Flow and working capital reserves to reinstate distributions. These semiannual distributions commenced in the first quarter of 1996 at an annual rate of $20.00 per Unit. Beginning with the distribution paid in February 1997, the annual distribution rate was increased from $20.00 per Unit, to the current rate of $40.00 per Unit, based on sufficient Cash Flow and working capital reserves.
On December 10, 1997, the Partnership completed the refinancing of the Century II Apartments ("Century") mortgage note. The property was refinanced with a $11,000,000 non-recourse mortgage note payable at the rate of 6.75% per annum with monthly principal and interest payments of $71,346. The Partnership used the majority of the proceeds from the refinancing to repay the existing mortgage note on the property of $10,309,332, pay closing costs of $236,763, to pay a prepayment premium of $210,825 and to establish various escrows.
The Partnership's properties, Century and Park Place, have spent approximately $2,097,000 in 1999 and are expected to spend approximately $1,590,000 for capital improvements in 2000 in order to remain competitive in their respective markets. These improvements include boiler replacement, facade repairs and new membrane as well as interior improvements at the Partnership's properties. Future capital expenditures may increase above 1999 levels when replacement of aging systems at the Partnerships properties become necessary. The Partnership expects to fund these improvements from established reserves and cash generated from property operations.
Financial Accounting Standards Board Statement No.137. ("FAS 137") "Accounting for Derivative Instruments and Hedging Activities-deferral of the Effective Date of the Statement of Financial Accounting Standards No.133." FAS 137 amended FAS 133 by deferring the effective date to fiscal quarters of all fiscal years beginning after June 15, 2000. The General Partners believe that the implementation of FAS 137 will not have a material impact on the Partnership's financial statement.
Operations
The following discussion relates to the operations of the Partnership and its properties (Park Place Tower and Century II Apartments) for the years ended December 31, 1999, 1998 and 1997.
Year 2000
The General Partners of the Partnership have conducted an assessment of the Partnership's core internal and external computer information systems and have taken the necessary steps to understand the nature and extent of the work
required to make its systems Year 2000 ready. They have evaluated Year 2000 compliance issues with respect to its non-financial systems and have received assurances from third-party service providers (including but not limited to its telecommunications providers and banks) with regard to their Year 2000 readiness.
The General Partners completed the testing and conversion of the Partnership's financial accounting operating systems in February 1998. As a result, the General Partners have generated operating efficiencies and believe their financial accounting operating systems are Year 2000 ready. The General Partners incurred hardware costs as well as consulting and other expenses related to the infrastructure and facilities enhancements necessary to complete the upgrade and prepare for the Year 2000. There are no other significant internal systems or software that the Partnership is using at the present time.
To date, the Partnership has not incurred, and does not expect to incur, any significant cost associated with being Year 2000 compliant.
To date, the Partnership has not had, and does not expect to have, any Year 2000 related problems.
1999 compared to 1998
Net income increased in 1999 as compared to 1998, as rental revenue increased and expenses decreased.
In comparing 1999 to 1998, the increase in rental revenue is attributable to residential rental rate increases implemented at Park Place and Century.
Total expenses decreased when comparing 1999 to 1998, primarily due to decreases in general and administrative, real estate taxes, depreciation and interest expenses, partially offset by an increase in operating and maintenance expenses. The decrease in general and administrative expense is due to significant litigation costs recorded in 1998 that are not present in 1999. Real estate taxes decreased in 1999 due to an abatement, of approximately $245,000, and refund of prior years taxes received by Park Place. Depreciation expense decreased as fixed asset additions purchased in previous years at Park Place became fully depreciated. Operating expense increased in 1999 resulting from increases in payroll expense and an increase in liability and workmen's compensation expense over 1998 due to a favorable adjustment in 1998 as a result of favorable claims experience. Property management fees and maintenance fees increased in conjunction with the increase in rental revenue.
1998 compared to 1997
Net income increased in 1998 as compared to 1997, as rental revenue increased and expenses decreased.
In comparing 1998 to 1997, the increase in rental revenue is attributable to residential rental rate increases implemented at Park Place and Century.
Total expenses decreased when comparing 1998 to 1997, primarily due to decreases in operating, maintenance, real estate taxes and interest expenses, partially offset by an increase in general and administrative and depreciation expenses. The decrease in operating expense is mainly a result of decreases in utilities and insurance expenses. Lower gas expenditures are attributable to a more energy efficient system at Park Place. The decrease in insurance expense is due to a reduction in liability and workers compensation expense at the Partnership's properties, due to lower claims experience. Maintenance expense decreased primarily due to payment of an insurance deductible in 1997 for flood damage at Park Place. Real estate taxes decreased due to actual 1997 tax bills for Park Place lower than estimated. Interest expense decreased as a result of the refinancing of Century's mortgage note in December, 1997. The increase in general and
administrative expense is due to an increase in legal expense related to the litigation discussed in Note F to Consolidated Financial Statements included in Item 8
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Appendix A to this report.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership has no directors or executive officers. Information as to the directors and executive officers of The Krupp Corporation, which is a General Partner of KRLP-V and The Krupp Company Limited Partnership-II, the other General Partner of KRLP-V, is as follows:
Position with Name and Age The Krupp Corporation ------------ --------------------- Douglas Krupp (53) President and Co-Chairman of the Board
George Krupp (55) Co-Chairman of the Board
Wayne H. Zarozny (41) Treasurer
Douglas Krupp co-founded and serves as Co-Chairman and Chief Executive Officer of The Berkshire Group, an integrated real estate financial services firm engaged in real estate acquisitions, property management, mortgage banking, investment sponsorship, venture capital investing and financial management. Mr. Krupp has held the position of Co-Chairman since The Berkshire Group was established as The Krupp Companies in 1969 and he has served as the Chief Executive Officer since 1992. Mr. Krupp serves as a member of the Board of Trustees at Brigham & Women's Hospital. He is a graduate of Bryant College where he received an honorary Doctor of Science in Business Administration in 1989 and was elected trustee in 1990.
George Krupp is the Co-Founder and Co-Chairman of The Berkshire Group, an integrated real estate financial services firm engaged in real estate acquisitions, property management, mortgage banking, investment sponsorship, venture capital investing and financial management. Mr. Krupp has held the position of Co-Chairman since The Berkshire Group was established as The Krupp Companies in 1969. Mr. Krupp has been an instructor of history at the New Jewish High School in Waltham, Massachusetts since September of 1997. Mr. Krupp attended the University of Pennsylvania and Harvard University and holds a Master's Degree in History from Brown University.
Wayne H. Zarozny is Vice President of the Berkshire Group. Mr. Zarozny has held several positions within The Berkshire Group since joining the company in 1986 and is currently responsible for asset management, accounting, financial reporting and treasury activities. Prior to joining The Berkshire Group, he was an audit supervisor for Panell Kerr Forster International and on the audit staff of Deloitte, Haskins and Sells, in Boston. He received a B.S. degree from Bryant College, a Master's degree in Business Administration from Clark University and is a Certified Public Accountant.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The Partnership has no directors or executive officers.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of December 31, 1999, beneficial owners of record owning more than 5% of the Partnership's 35,200 outstanding Units were as follows:
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Partnership does not have any directors, executive officers or nominees for election as director. Please see "Business - Recent Developments" above and Note E to the Consolidated Financial Statements.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Consolidated Financial Statements - see Index to Consolidated Financial Statements and Schedule included under Item 8 (Appendix A),on page of this Report.
2. Consolidated Financial Statement Schedule - see Index to Consolidated Financial Statements and Schedule included under Item 8 (Appendix A), on page of this Report. All other schedules are omitted as they are not applicable, not required or the information is provided in the Consolidated Financial Statements or the Notes thereto. (b) Exhibits:
Number and Description Under Regulation S-K
The following reflects all applicable Exhibits required under Item 601 of Regulation S-K.
(4) Instruments defining the rights of security holders including indentures:
(4.1) Amended Agreement of Limited Partnership dated as of July 27, 1983 [Exhibit A to Prospectus included in Registrant's Registration Statement on Form S-11 (File 2-84645)].*
(4.2) Amended Certificate of Limited Partnership filed with the Massachusetts Secretary of State on December 16, 1983 [Exhibit 4.2 to Registrant's Report on Form 10-K for 1983 (File 2-84645)].*
(10) Material Contracts:
Park Place Apartments
(10.1) Purchase and Sale Agreement dated April 24, 1984 between Douglas Krupp and Sheldon J. Mandell, Howard J. Mandell, Jerome W. Mandell and Norman Mandell [Exhibit 1 to Registrant's Report on Form 8-K dated May 4, 1984 (File No. 2-84645)].*
(10.2) Assignment of Beneficial Interest in Land Trust dated May 1, 1984 by Sheldon J. Mandell, Howard J. Mandell, Jerome W. Mandell and Norman Mandell to Krupp Realty Limited Partnership-V. [Exhibit 10.9 to Registrant's Report on Form 10-K for the year ended November 30, 1984 (File No. 0-11985)].*
(10.3) Addendum to Management Agreement between Krupp Realty Park Place - Chicago Limited Partnership and Krupp Asset Management Company, now known as Berkshire Property Management [Exhibit 2 to Registrant's Report on Form 8-K dated April 27, 1989 (File No. 0-11985)].*
(10.4) Agreement of Limited Partnership of Krupp Realty Park Place - Chicago Limited Partnership dated March 15, 1989 [Exhibit 5 to Registrant's Report on Form 8-K dated April 27, 1989 (File No. 0-11985)].*
(10.5) Assignment of General Partners interests in Krupp Realty Park Place - Chicago Limited Partnership by The Krupp Corporation to Krupp Realty Limited Partnership-V dated
March 15, 1989 [Exhibit 6 to Registrant's Report on Form 8-K dated April 27, 1989 (File No. 0-11985)].*
(10.6) Written Consent of Directors of The Krupp Corporation dated April 18, 1989 assigning beneficial interest in Park Place Apartments to Krupp Realty Park Place - Chicago Limited Partnership [Exhibit 7 to Registrant's Report on Form 8-K dated April 27, 1989 (File No. 0-11985)].*
(10.7) Property Management Agreement, dated May 4, 1984 between Krupp Realty Limited Partnership-V, as Owner, and BRI OP Limited Partnership, formerly known as Berkshire Property Management, a subsidiary of Berkshire Realty Company, Inc. [Exhibit 10.18 to Registrant's Report on Form 10-K for the year ended November 30, 1984 (File No. 0-11985)].*
(10.8) Loan Modification/Cancellation Agreement dated September 14, 1993 between South Chicago Bank, as Trustee, and Krupp Realty Park Place - Chicago Limited Partnership (File No. 0-11985).*
(10.9) Modification to mortgage note dated September 14, 1993 between South Chicago Bank, as Trustee, and Government National Mortgage Association (File No. 0-11985).*
(10.10) Modification of mortgage dated September 14, 1993 between South Chicago Bank, as Trustee, and Government National Mortgage Association (File No. 0-11985).*
(10.11) Regulatory Agreement for Multifamily Housing Projects dated September 14, 1993, between South Chicago Bank, as Trustee, and Krupp Realty Park Place - Chicago Limited Partnership (File No. 0-11985).*
Century II Apartments
(10.12) Agreement of Sale, dated September 18, 1984 between the Partners of Century III Associates and Douglas Krupp and related exhibits including Mortgage Notes and Related Mortgages [Exhibit 1 to Registrant's Report on Form 8-K dated October 11, 1984 (File No. 0-11985)].*
(10.13) Assignment of Partnership Interest in Century III Associates dated October 10, 1984 by the Partners of Century III Associates to The Krupp Company Limited Partnership-II, The Krupp Corporation and Krupp Realty Limited Partnership-V [Exhibit 2 to Registrant's Report on Form 8-K dated October 11, 1984 (File No. 0-11985)].*
(10.14) Fifth, Sixth and Seventh Amended and Restated Limited Partnership Agreement of Century III Associates Limited Partnership [Exhibit 3 to Registrant's Report on Form 8-K dated October 11, 1984 (File No. 0-11985)].*
(10.15) Assignment of Beneficial Interest in Century III Associates from The Krupp Company Limited Partnership-II and The Krupp Corporation to Krupp Realty Limited Partnership-V. [Exhibit 10.32 to Registrant's Report on Form 10-K for the year ended November 30, 1984 (File No. 0-11985)].*
(10.16) Property Management Agreement, dated October 11, 1984 between Krupp Realty Limited Partnership-V, as Owner, and BRI OP Limited Partnership, formerly known as Berkshire Property Management, an affiliate of Berkshire Realty
Company, Inc. [Exhibit 10.33 to Registrant's Report on Form 10-K for the year ended November 30, 1984 (File No. 0-11985)].*
(10.17) Third Amended and Restated Promissory Note dated April 27, 1989 between Century III Associates Limited Partnership and Bankers United Life Assurance Company. [Exhibit 8 to Registrant's Report on Form 8-K dated April 27, 1989 (File No. 0-11985)].*
(10.18) Third Amended and Restated Deed of Trust dated April 27, 1989 between Century III Associates Limited Partnership and Bankers United Life Assurance Company. [Exhibit 9 to Registrant's Report on Form 8-K dated April 27, 1989 (File No. 0-11985)].*
(10.19) Multifamily Note dated December 10, 1997 between Century III Associates Limited Partnership and Reilly Mortgage Group, Inc.*
(10.20) Multifamily Deed of Trust, Assignment of Rents, and Security Agreement dated December 8, 1997 between Century III Associates Limited Partnership and Trust Company of Chicago and Reilly Mortgage Group, Inc.*
* Incorporated by reference.
(c) Reports on Form 8-K
During the last quarter of the fiscal year ended December 31, 1999, the Partnership did not file any reports on Form 8-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on the 30th day of March, 2000.
KRUPP REALTY LIMITED PARTNERSHIP-V
By: The Krupp Corporation, a General Partner
By: /s/ Douglas Krupp Douglas Krupp, President, Co-Chairman (Principal Executive Officer) and Director of The Krupp Corporation
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated, on the 30th day of March, 2000.
Signatures Titles - ---------- ------
/s/ Douglas Krupp President, Co-Chairman (Principal Executive Douglas Krupp Officer) and Director of The Krupp Corporation, a General Partner.
/s/ George Krupp Co-Chairman (Principal Executive Officer) and George Krupp Director of The Krupp Corporation, a General Partner.
/s/ Wayne H. Zarozny Treasurer (Principal Financial and Accounting Wayne H. Zarozny Officer) of The Krupp Corporation, a General Partner.
APPENDIX A
KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE ITEM 8 OF FORM 10-K
ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION For the Year Ended December 31, 1999
KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
Report of Independent Accountants
Consolidated Balance Sheets at December 31, 1999 and December 31, 1998
Consolidated Statements of Operations for the years ended December 31, 1999, 1998 and 1997
Consolidated Statements of Changes in Partners' Deficit for the years ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements -
Schedule III - Real Estate and Accumulated Depreciation -
All other schedules are omitted as they are not applicable, not required, or the information is provided in the consolidated financial statements or the notes thereto.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of Krupp Realty Limited Partnership-V and Subsidiary:
In our opinion, the consolidated financial statements and the financial statement schedule listed in the index on page present fairly, in all material respects, the financial position of Krupp Realty Limited Partnership-V and Subsidiary (the "Partnership") at December 31, 1999 and December 31, 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. These financial statements and financial statement schedule are the responsibility of the Partnership's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
February 25, 2000
KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS December 31, 1999 and 1998
ASSETS
The accompanying notes are an integral part of the consolidated financial statements.
KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS For the Years Ended December 31, 1999, 1998 and 1997
The accompanying notes are an integral part of the consolidated financial statements.
KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT For the Years Ended December 31, 1999, 1998 and 1997
The per Unit distributions for the years ended December 31, 1999, 1998 and 1997 were $40.00, $40.00 and $40.00, respectively, none of which represents a return of capital for tax purposes.
The accompanying notes are an integral part of the consolidated financial statements.
KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1999, 1998 and 1997
The accompanying notes are an integral part of the consolidated financial statements.
KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Organization
Krupp Realty Limited Partnership-V ("KRLP-V") was formed on June 16, 1983 by filing a Certificate of Limited Partnership in The Commonwealth of Massachusetts. KRLP-V terminates on December 31, 2020, unless earlier terminated upon the sale of the last of KRLP-V's properties or the occurrence of certain other events as set forth in the Partnership Agreement.
KRLP-V issued all of the General Partner Interests to The Krupp Corporation ("Krupp Corp.") (a Massachusetts corporation) and The Krupp Company Limited Partnership-II ("KCLP-II") (a Massachusetts limited partnership), in exchange for capital contributions aggregating $1,000. Except under certain limited circumstances upon termination of KRLP-V, the General Partners are not required to make any additional capital contributions. KRLP-V also issued all of the Original Limited Partner Interests to KCLP-II in exchange for a capital contribution of $4,000.
On September 6, 1983, KRLP-V commenced the marketing and sale of units of Investor Limited Partner Interest ("Units") for $1,000 per Unit. The public offering was closed on December 2, 1983 at which time a total of 35,200 Units had been sold for $35,200,000.
On March 20, 1989, the General Partners formed Krupp Realty Park Place- Chicago Limited Partnership ("Realty-V") as a prerequisite for the refinancing of Park Place Tower Apartments ("Park Place"). At the same time, the General Partners transferred ownership of Park Place to Realty-V. The General Partner of Realty-V is Krupp Corp. The Limited Partner of Realty-V is KRLP-V. Krupp Corp. has beneficially assigned its interest in Realty-V to KRLP-V. KRLP-V and Realty-V are collectively known as Krupp Realty Limited Partnership-V and Subsidiary (collectively referred to herein as the "Partnership").
B. Significant Accounting Policies
The Partnership uses the following accounting policies for financial reporting purposes, which may differ in certain respects from those used for federal income tax purposes (see Note J).
Basis of Presentation
The consolidated financial statements present the consolidated assets, liabilities and operations of the Partnership. All intercompany balances and transactions have been eliminated.
Risks and Uncertainties
The Partnership invests its cash primarily in deposits and money market funds with commercial banks. The Partnership has not experienced any losses to date on its invested cash.
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, contingent assets and liabilities and revenues and expenses during the reporting period. Actual results could differ from those estimates.
Continued
KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
B. Significant Accounting Policies, Continued
Cash and Cash Equivalents
The Partnership includes all short-term investments with maturities of three months or less from the date of acquisition in cash and cash equivalents. The cash investments are recorded at cost, which approximates current market values.
Rental Revenues
Leases require the payment of base rent monthly in advance. Rental revenues are recorded on the accrual basis. Depreciation
Depreciation is provided for by the use of the straight-line method over estimated useful lives of the related assets as follows:
Buildings and improvements 5 to 25 years Appliances, carpeting and equipment 3 to 8 years
Impairment of Long-Lived Assets
Real estate assets and equipment are stated at depreciated cost. Pursuant to Statement of Financial Accounting Standards Opinion No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of", impairment losses are recorded on long-lived assets used in operations on a property by property basis, when events and circumstances indicate that the assets might be impaired and the estimated undiscounted cash flows to be generated by those assets are less than the carrying amount of those assets. Upon determination that an impairment has occurred, those assets shall be reduced to fair value.
Deferred Expenses
Costs of obtaining and recording mortgages on the properties are amortized over the term of the related mortgage notes using the straight-line method which approximates the effective interest method.
Income Taxes
The Partnership is not liable for federal or state income taxes as Partnership income or loss is allocated to the Partners for income tax purposes. In the event that the Partnership's tax returns are examined by the Internal Revenue Service or state taxing authority and the examination results in a change in the Partnership's taxable income or loss, such change will be reported to the Partners.
Continued
KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
B. Significant Accounting Policies, Continued
Descriptive Information About Reportable Segments
The Partnership operates and develops apartment communities which generate rental and other income through the leasing of apartment units. The General Partners separately evaluate the performance of each of the Partnership's apartment communities. However, because each of the apartment communities have similar economic characteristics, facilities, services and tenants, the apartment communities have been aggregated into a single dominant apartment communities segment.
All revenues are from external customers and no revenues are generated from transactions with other segments. There are no tenants which contributed 10% or more of the Partnership's total revenue during 1999, 1998 or 1997.
C. Cash and Cash Equivalents
Cash and cash equivalents consisted of the following:
D. Mortgage Notes Payable
The properties owned by the Partnership are pledged as collateral for the non-recourse mortgage notes outstanding at December 31, 1999 and 1998. Mortgage notes payable consisted of the following:
Continued
KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
D. Mortgage Notes Payable, Continued
Century II Apartments
On December 10, 1997, the Partnership completed the refinancing of the Century II Apartments mortgage note. The property was refinanced with a $11,000,000 non-recourse mortgage note payable at the rate of 6.75% per annum with monthly principal and interest payments of $71,346. The mortgage note, which is collateralized by the property, matures on January 1, 2008 at which time the remaining principal (approximately $9,401,537) and accrued interest are due. The note may be prepaid, subject to a prepayment penalty, at any time with 30 days notice. The Partnership used the majority of the proceeds from the refinancing to repay the existing mortgage note on the property of $10,309,332, pay closing costs of $236,763, to pay a prepayment premium of $210,825 and to establish various escrows. The prepayment premium as well as unamortized deferred mortgage costs of $77,331, are reported in the Statement of Operations as an extraordinary loss from early extinguishment of debt for the year ended December 31, 1997.
Based on the borrowing rates currently available to the Partnership for bank loans with similar terms and average maturities, the fair value of long term debt is approximately $9,900,000 and $10,898,000 at December 31, 1999 and 1998, respectively.
Park Place Tower Apartments
The property is subject to a non-recourse mortgage note in the original amount of $33,000,000, dated September 15, 1993, held by the U.S. Department of Housing and Urban Development ("HUD"). The note is payable in equal monthly installments of principal and interest of $212,783, based on a 31-year amortization. At maturity, all unpaid principal (approximately $1,457,000) and any accrued interest are due. The note may be prepaid subject to a prepayment premium. In the event prepayment of principal occurs, a prepayment premium shall be due, based on a declining premium rate of 5% to 0% of the outstanding principal balance over a period of 5 years. As stipulated in the Regulatory Agreement with HUD, the Partnership makes monthly deposits of $17,743 in an established reserve for replacements to be used for improvements. Under the terms of the loan, HUD restricts the distribution of funds to Surplus Cash, as defined by HUD in the Regulatory Agreement.
Based on the borrowing rates currently available to the Partnership for bank loans with similar terms and average maturities, the fair value of long-term debt is approximately $27,076,000 and $31,766,000 at December 31, 1999 and 1998, respectively.
Due to restrictions on transfers and prepayment, the Partnership may be unable to refinance certain mortgage notes payable at such calculated fair value.
Continued
KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
D. Mortgage Notes Payable, Continued
The aggregate scheduled principal amounts of long-term borrowings due during the five years ending December 31, 2004 are $642,513, $687,250, $735,102, $786,286 and $841,029.
During the years ended December 31, 1999, 1998 and 1997, the Partnership paid $2,805,485, $2,844,807 and $3,221,886 of interest on its mortgage notes, respectively.
E. 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 during the years ended December 31, 1999, 1998 and 1997 were as follows:
Expense reimbursements due from affiliates of $4,941 and $1,456 were included in prepaid expenses and other assets for the year ended December 31, 1999 and 1998, respectively.
In addition to the amounts above, refinancing costs of $110,000 were paid to the General Partners' affiliates during the year ended December 31, 1997.
F. Legal Proceeding
The Partnership was a defendant in a class action suit relating to the alleged unlawful practice of giving discounts for the early or timely payments of rent at Park Place Tower Apartments and Marine Terrace Apartments. In November 1999, the Court granted approval of the settlement agreement that was presented by both Plaintiff and Defense counsel. Upon payment of the settlement amount, the case was dismissed in December of 1999. The total cost of the settlement, including legal fees related to the settlement, was approximately $646,535 of which $139,610 is included in accrued expenses and other liabilities on the balance sheet. All other costs of the lawsuit have been paid as of December 31, 1999. The Partnership recognized $328,630 in other income and $733,000 in expenses which is included in general and administrative expenses, during 1999 and 1998, respectively.
Continued
KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
G. Partners' Deficit
Under the terms of the Partnership Agreement, losses from operations are allocated 99% to the Investor Limited Partners and 1% to the General Partners and profits from operations are allocated 93% to the Investor Limited Partners, 6% to the Original Limited Partner and 1% to the General Partners until such time that the Investor Limited Partners have received a return of their total invested capital plus a 9% per annum cumulative return thereon and thereafter, 65% to the Investor Limited Partners, 28% to the Original Limited Partner and 7% to the General Partners.
Profits from Capital Transactions are allocated first, to the Investor Limited Partners until they have received a return of their total invested capital. Thereafter, profits from Capital Transactions are allocated in accordance with the Partnership Agreement. Losses from Capital Transactions are allocated 99% to the Investor Limited Partners and 1% to the General Partners. Notwithstanding anything above, the General Partners shall be allocated at least 1% of all profits and losses from Capital Transactions.
Under the Partnership Agreement, cash distributions are made on the same basis as the allocations of profits described above. Pursuant to the Partnership Agreement, proceeds from Capital Transactions shall first be applied to the payment of all debts and liabilities of the Partnership and second to fund reserves for contingent liabilities. The remaining net cash proceeds shall then be distributed in accordance with the Partnership Agreement.
Continued
KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
G. Partners' Deficit, Continued
As of December 31, 1999, the following cumulative partner contributions and allocations have been made since inception of the Partnership:
H. Future Base Rents Due Under Commercial Operating Leases
Future base rent receivable under commercial operating leases for the years 2000 through 2004 and thereafter is as follows:
I. Federal Income Taxes
For federal income tax purposes, the Partnership is depreciating property using the Accelerated Cost Recovery System ("ACRS") and the Modified Accelerated Cost Recovery System ("MACRS") depending on which is applicable.
Continued
KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
I. Federal Income Taxes, Continued
The reconciliation of the net income (loss) reported in the accompanying Consolidated Statement of Operations with the net income (loss) reported in the Partnership's federal income tax return for the years ended December 31, 1999, 1998 and 1997 is as follows:
The allocation of the net income for federal income tax purposes for 1999 is as follows:
During the years ended December 31, 1999, 1998 and 1997 the per Unit net income (loss) to the Investor Limited Partners for federal income tax purposes were $57.47, $48.63 and $(4.58), respectively.
The basis of the Partnership's assets for financial reporting purposes exceeded its tax basis by approximately $7,293,000 and $7,651,000 at December 31, 1999 and 1998, respectively. The basis of the Partnership's liabilities for financial reporting purposes exceeded its tax basis by approximately $154,000 and $1,015,000 at December 31, 1999 and 1998, respectively.
Continued
KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
J. Subsequent Events
On January 21, 2000, KR5 Acquisition, L.L.C. ("KR5"), KRF Company, L.L.C., and The Krupp Family Limited Partnership - 94, affiliates of the General Partner, filed a Transaction Statement on Schedule 13E-3 with the Securities and Exchange Commission (the "SEC") with respect to KR5's proposal to merge KRLP-V with and into KR5. Under the terms of the proposed merger, each unitholder of KRLP-V other than certain unitholders that have agreed to reinvest their units in KR5 will receive $1,200 in cash for each outstanding investor limited partnership interest owned by it. KR5 was formed for the purpose of merging with KRLP-V. The General Partners of the Partnership have filed definitive proxy materials with the SEC with respect to the proposed merger, which is subject to certain conditions, including approval by unitholders of the merger and related amendments to KRLP-V's partnership agreement. KRLP-V estimates that the merger, if approved by unitholders, will be completed in the second quarter of 2000.
KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1999
Continued
KRUPP REALTY LIMITED PARTNERSHIP-V AND SUBSIDIARY
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION, Continued
December 31, 1999
Reconciliation of Real Estate and Accumulated Depreciation for each of the three years in the period ended December 31, 1999:
Note: The Partnership uses the cost basis for property valuation for both income tax and financial statement purposes. The aggregate cost of the Partnership's real estate for federal income tax purposes was $75,991,870 and the aggregate accumulated depreciation for federal income tax purposes was $56,225,023, at December 31, 1999.