ITEM 1. BUSINESS
Krupp Associates 1980-1("KRLP-I") is a limited partnership formed on July 31, 1980, pursuant to the provisions of the Massachusetts Uniform Limited Partnership Act. The Krupp Company and The Krupp Corporation serve as the General Partners of KRLP-I. Chivas Square Associates serves as the Original Limited Partner of KRLP-I. On November 10, 1980, KRLP-I commenced an offering of $4,000,000 of Class A Limited Partner Interests in Units of $1,000 each, which was successfully completed on April 30, 1981. (For further details see Note A of Notes to Consolidated Financial Statements included in Item 8 (Appendix A) of this report). The primary business of KRLP-I has been to invest in, operate, refinance, and ultimately dispose of fully developed, income producing residential properties and related assets. KRLP-I considers itself to be engaged in the industry segment of investment in real estate.
On January 20, 1988, the General Partners formed Krupp Associates Riverside Limited Partnership ("Realty-I") as a prerequisite for the refinancing of Riverside Apartments. At the same time, the General Partners transferred ownership of the property to Realty-I. The General Partner of Realty-I is The Krupp Corporation ("Krupp Corp."). The Limited Partner of Realty-I is KRLP-I. Krupp Corp. has beneficially assigned its interest in Realty-I to KRLP-I. KRLP-I and Realty-I are collectively known as Krupp Realty Limited Partnership-I (collectively the "Partnership").
The Partnership's remaining real estate investment, Riverside I Apartments ("Riverside"), is a 140-unit apartment complex with approximately 30,000 square feet of commercial retail space located in Evansville, Indiana. Riverside is subject to some seasonal fluctuations due to 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 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 is anticipated in the future.
Riverside is also subject to such risks as (i) competition from existing and future projects held by other owners in the area in which the Partnership's property operates, (ii) possible reduction in rental income due to an inability to maintain high occupancy levels and rental rates, (iii) possible adverse changes in general economic and local conditions such as competitive over-building, increased unemployment, adverse changes in real estate zoning laws and 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 (iv) other circumstances over which the Partnership may have little or no control.
As of December 31, 1995, there were 8 full or part-time on-site project personnel employed by the Partnership.
ITEM 2.
ITEM 2. PROPERTIES
A summary of the Partnership's real estate investments is presented below. Schedule III included in Appendix A to this report contains additional detailed information with respect to the property.
Total Units/
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
None.
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 Class A Limited Partners as of December 31, 1995 was approximately 400.
One of the objectives of the Partnership is to generate cash available for distribution. However, there is no assurance that future operations will generate cash available for distribution. The Partnership has not made distributions since 1988 due to insufficient operating cash flow. The Partnership does not anticipate resuming distributions until the property generates sufficient operating cash flow.
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. The information is comparable and should be read in conjunction with Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations and the Financial Statements, which are included in Items 7 and 8 of this report, respectively.
(1) Includes demand notes payable, since the General Partners expect they will be long-term obligations.
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
Liquidity and Capital Resources
The Partnership's ability to generate cash adequate to meet its needs is dependent primarily upon the operating performance of Riverside. Such ability is also dependent upon the future sale of the asset. These sources of liquidity could be used by the Partnership for payment of expenses related to real estate operations, debt service and expenses. Cash Flow and Capital Transaction Proceeds, if any, as calculated under Section 8.2(a) ("Cash Flow") and 8.3(a) of the Partnership Agreement would then be available for distribution to the Partners. The Partnership has discontinued distributions due to insufficient operating cash flow.
The Partnership has experienced cash flow deficiencies for several years and currently has very limited liquidity. Expenditures are being monitored closely and capital improvements are made on an as-needed basis. To date, the General Partners have been able to arrange financing through borrowings, from an affiliate of the General Partners, to cover a substantial portion of these cash flow deficiencies. Also, one of the General Partners, The Krupp Company Limited Partnership ("The Krupp Company"), contributed an additional
$100,000 to the Partnership during 1991. In January 1993, The Krupp Company loaned an additional $135,000 to the Partnership in the form of a demand note to payoff a demand note from an unaffiliated bank. In addition, the affiliate lender has been willing to defer interest payments on the borrowings since late 1990. Furthermore, the General Partners, through annual negotiations, have continued to arrange for the waiver of property management fees and expense reimbursements payable to the management agent, also an affiliate of the General Partners.
The General Partners anticipate operating deficits to continue and cannot guarantee that they will be able to take actions that will cover any future deficits. If the property is unable to generate funds sufficient to cover these deficits, the Partnership could default on its mortgage payments and become subject to foreclosure proceedings. However, the Partnership is current on its mortgage payments.
In January 1996, the General Partners entered into a purchase and sale agreement for the sale of Riverside to an unaffiliated buyer scheduled in the second quarter of 1996 for the selling price of $4,500,000. In the event the property is ultimately sold, the Partnership would be liquidated. It is anticipated that all sale proceeds would be used to satisfy Partnership obligations and no funds would be available to investors for distribution.
Cash Flow (Deficit)
Shown below, as required by the Partnership Agreement, is the calculation of Cash Flow (Deficit) of the Partnership for the year ended December 31, 1995. The General Partners provide certain of the information below to meet requirements of the Partnership Agreement and because they believe that it is an appropriate supplemental measure of operating performance. However, Cash Flow (Deficit) should not be considered by the reader as a substitute to net income/loss, as an indicator of the Partnership's operating performance or to cash flows as a measure of liquidity.
Operations
1995 compared to 1994
In comparing 1995 to 1994, increase in cash deficit is attributable to increased capital expenditures. Net income improved by $30,000, as increases in rental revenue more than offset the increase in expenses. Riverside showed a 7% increase in rental revenue due to increased occupancy and management's successful effort in leasing 100% of the commercial space in the fourth quarter of 1995.
Overall total expenses increased approximately 4%, with a decrease in operating expense offset by increases in maintenance and interest expenses. Operating expense decreased due to lower leasing costs resulting from higher occupancy levels, decreased utilities expense because of the warmer winter season and a reduction in insurance expense due to a favorable claim history. Maintenance expense increased as a result of painting interior stairways and pavement repairs made to the sidewalks. The increase in interest expense is attributable to a rise in the prime rate from an average 7.1% in 1994 to 8.8% in 1995.
1994 compared to 1993
In comparing 1994 to 1993, cash deficits decreased approximately $61,000 primarily as a result of lower capital expenditures and improvements in operating cash flow. The improvements in operating cash flow can be attributed to increases in revenue due to residential rental increases and the acquisition of three new commercial tenants during the fourth quarter of 1993.
Overall, total expenses increased 5% with increases in operating costs primarily due to increases in utility rates and leasing expenses. This is offset by a decrease in maintenance expense as a result of the commercial unit improvement program completed in 1993. Additionally, interest expense increased as a result of a rise in prime rate in 1994.
Riverside Apartments residential occupancy averaged 97%, 96% and 97% for the years ended December 31, 1995, 1994, and 1993, respectively. For the years ended December 31, 1995, 1994 and 1993, occupancy of the commercial space averaged 90%, 87% and 83%, respectively.
General
In accordance with Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", which is effective for fiscal years beginning after December 15, 1995, the Partnership has implemented policies and practices for assessing impairment of its real estate asset.
The investment in the property is carried at cost less accumulated depreciation unless the General Partners believe there is a significant impairment in value, in which case a provision to write down investment in property to fair value will be charged against income. At this time, the General Partners do not believe that any assets of the Partnership are significantly impaired.
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 both a General Partner of KRLP-I and The Krupp Company, the other General Partner of KRLP-I, is as follows:
Position with Name and Age The Krupp Corporation
Douglas Krupp (49) Co-Chairman of the Board
George Krupp (51) Co-Chairman of the Board
Laurence Gerber (39) President
Robert A. Barrows (38) Senior Vice President and Corporate Controller
Douglas Krupp is Co-Chairman and Co-Founder of The Berkshire Group. Established in 1969 as the Krupp Companies, this real estate-based firm expanded over the years within its areas of expertise including investment program sponsorship, property and asset management, mortgage banking, healthcare facility ownership and the management of the Company. Today, The Berkshire Group is an integrated real estate, mortgage and healthcare company which is headquartered in Boston with regional offices throughout the country. A staff of approximately 3,400 are responsible for the more than $4 billion under management for institutional and individual clients. Mr. Krupp is a graduate of Bryant College. In 1989 he received an honorary Doctor of Science in Business Administration from this institution and was elected trustee in 1990. Mr. Krupp is Chairman of the Board and a Director of Berkshire Realty Company, Inc. (NYSE-BRI). George Krupp is Douglas Krupp's brother.
George Krupp is the Co-Chairman and Co-Founder of The Berkshire Group. Established in 1969 as the Krupp Companies, this real estate-based firm expanded over the years within its areas of expertise including investment program sponsorship, property and asset management, mortgage banking and healthcare facility ownership. Today, The Berkshire Group is an integrated real estate, mortgage and healthcare company which is headquartered in Boston with regional offices throughout the country. A staff of approximately 3,400 are responsible for more than $4 billion under management for institutional and individual clients. Mr. Krupp attended the University of Pennsylvania and Harvard University. Mr. Krupp also serves as Chairman of the Board and Trustee of Krupp Government Income Trust and as Chairman of the Board and Trustee of Krupp Government Income Trust II.
Laurence Gerber is the President and Chief Executive Officer of The Berkshire Group. Prior to becoming President and Chief Executive Officer in 1991, Mr. Gerber held various positions with The Berkshire Group which included overall responsibility at various times for: strategic planning and product development, real estate acquisitions, corporate finance, mortgage banking, syndication and marketing. Before joining The Berkshire Group in 1984, he was a management consultant with Bain & Company, a national consulting firm headquartered in Boston. Prior to that, he was a senior tax accountant with Arthur Andersen & Co., an international accounting and consulting firm. Mr. Gerber has a B.S. degree in Economics from the University of Pennsylvania, Wharton School and an M.B.A. degree with high distinction from Harvard Business School. He is a Certified Public Accountant. Mr. Gerber also serves as President and Director of Berkshire Realty Company, Inc. (NYSE-BRI) and President and Trustee of Krupp Government Income Trust and President and Trustee of Krupp Government Income Trust II.
Robert A. Barrows is Senior Vice President and Chief Financial Officer of Berkshire Mortgage Finance and Corporate Controller of The Berkshire Group. Mr. Barrows has held several positions within The Berkshire Group since joining the company in 1983 and is currently responsible for accounting and financial reporting, treasury, tax, payroll and office administrative activities. Prior to joining The Berkshire Group, he was an audit supervisor for Coopers & Lybrand L.L.P. in Boston. He received a B.S. degree from Boston College 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, 1995, no person owned of record or was known by the General Partners to own beneficially more than 5% of the Partnership's 4,000 outstanding Units. On that date, the General Partners or their affiliates owned 80 Units (2% of the total outstanding) of the Partnership in addition to their General Partner interests and a portion of the Original Limited Partner interest.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Partnership does not have any directors, executive officers or nominees for election as director. Additionally, as of December 31, 1995 no person of record owned or was known by the General Partners to own beneficially more than 5% of the Partnership's outstanding Units.
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 included under Item 8 (Appendix A) on page
to this report.
2. Consolidated Financial Statement Schedule III is included under Item 8 (Appendix A) on page . Certain 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 by 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 May 15, 1981 [Exhibit 4.1 to Registrant's Report on Form 10-K for 1982 (File 2-68727)].*
(4.2) Fourth Amendment to Certificate of Limited Partnership filed with the Massachusetts Secretary of State on October 19, 1981 [Exhibit 4.2 to Registrant's Report on Form 10-K for 1982 (File 2-68727)].*
(10) Material contracts:
Riverside I Apartments
(10.1) Contract and Certificate of Limited Partnership of Krupp Associates Riverside Limited Partnership dated January 20, 1988 between The Krupp Corporation (the "General Partner") and Krupp Associates 1980-1 (the "Limited Partner")[Exhibit 10.1 to Registrant's Report on Form 10-K for the year ended December 31, 1988 (File No. 2-68727)].*
(10.2) Assignment dated January 20, 1988 between Krupp Associates 1980-1("Assignee") and The Krupp Corporation ("Assignor") [Exhibit 10.2 to Registrant's Report on Form 10-K for the year ended December 31, 1988 (File No. 2-68727)].*
(10.3) Bill of Sale dated January 20, 1988 between Krupp Associates 1980-1 (as "Seller") and Krupp Associates Riverside Limited Partnership (as "Buyer")[Exhibit 10.3 to Registrant's Report on Form 10-K for the year ended December 31, 1988 (File No. 2-68727)].*
(10.4) Special Warranty Deed dated January 20, 1988 between Krupp Associates 1980-1 ("Grantor") and Krupp Associates Riverside Limited Partnership ("Grantee")[Exhibit 10.4 to Registrant's Report on Form 10-K for the year ended December 31, 1988 (File No. 2-68727)].*
(10.5) Assignment dated January 20, 1988 between Krupp Associates 1980-1 ("Assignor") and
Krupp Associates Riverside Limited Partnership ("Assignee")[Exhibit 10.5 to Registrant's Report on Form 10-K for the year ended December 31, 1988 (File No. 2- 68727)].*
(10.6) Management Agreement dated January 28, 1988 between Krupp Associates Riverside Limited Partnership, as Owner, and Krupp Asset Management Company, now known as Berkshire Property Management, as Agent. [Exhibit 10.6 to Registrant's Report on Form 10-K for the year ended December 31, 1988 (File No. 2-68727)].*
(10.7) Regulatory Agreement for Multifamily Housing Projects Co-insured by HUD dated January 21, 1988 between Krupp Associates Riverside Limited Partnership (the "Owner") and DRG Funding Corporation (the "Mortgagee") [Exhibit 10.7 to Registrant's Report on Form 10-K for the year ended December 31, 1988 (File No. 2-68727)].*
(10.8) Mortgage Note dated January 21, 1988, from Krupp Associates Riverside Limited Partnership, an Indiana limited partnership, to DRG Funding Corporation, a Delaware corporation. [Exhibit 10.6 to Registrant's Report on Form 10-K for the year ended December 31, 1987 (File No. 2- 68727)].*
(10.9) Mortgage dated January 21, 1988, from Krupp Associates Riverside Limited Partnership, an Indiana limited partnership, to DRG Funding Corporation, a Delaware corporation. [Exhibit 10.7 to Registrant's Report on Form 10-K for the year ended December 31, 1987 (File No. 2- 68727)].*
(10.10) Security Agreement dated January 21, 1988 between Krupp Associates Riverside Limited Partnership ("Debtor") and DRG Funding Corporation ("Creditor") [Exhibit 10.10 to Registrant's Report on Form 10-K for the year ended December 31, 1988 (File No. 2- 68727)].*
(10.11) Escrow Deposit Agreement dated January 21, 1988, between Krupp Associates Riverside Limited Partnership, an Indiana limited partnership, and DRG Funding Corporation, a Delaware corporation. [Exhibit 10.8 to Registrant's Report on Form 10-K for the year ended December 31, 1987 (File No. 2-
68727)].*
(10.12) Purchase and Sale Agreement dated January 22, 1996, between Krupp Associates Riverside Limited Partnership, an Indiana Limited Partnership ("Seller") and BluSky, Inc., an Indiana Corporation ("Buyer"). (File No. 2-68727).+
* Incorporated by reference + Incorporated herein.
(c) Reports on Form 8-K
During the last quarter of the year ended December 31, 1995, 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 21st day of March, 1996.
KRUPP ASSOCIATES 1980-1
By: The Krupp Corporation, a General Partner
By: /s/Douglas Krupp Douglas Krupp, 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 21st day of March, 1996.
Signatures Titles
/s/Douglas Krupp Co-Chairman (Principal Executive Officer) and Douglas Krupp Director of The Krupp Corporation, a General Partner.
/s/George Krupp Co-Chairman (Principal Executive Officer) George Krupp and Director of The Krupp Corporation, a General Partner.
/s/Laurence Gerber President of The Krupp Corporation, a Laurence Gerber General Partner.
/s/Robert A. Barrows Senior Vice President and Corporate Robert A. Barrows Controller of The Krupp Corporation, a General Partner.
APPENDIX A
KRUPP ASSOCIATES 1980-1 AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS ITEM 8 OF FORM 10-K
ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION For the Year Ended December 31, 1995 KRUPP ASSOCIATES 1980-1 AND SUBSIDIARY
Report of Independent Accountants
Consolidated Balance Sheets at December 31, 1995 and 1994
Consolidated Statements of Operations For the Years Ended December 31, 1995, 1994 and 1993
Consolidated Statements of Changes in Partners' Deficit For the Years Ended December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows For the Years Ended December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements -
Schedule III - Real Estate and Accumulated Depreciation
All other schedules are omitted as they are not applicable or 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 Associates 1980-1 and Subsidiary:
We have audited the consolidated financial statements and consolidated financial statement schedule of Krupp Associates 1980-1 and subsidiary (the "Partnership") listed in the index on page of this Form 10-K. These consolidated 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 in accordance with generally accepted auditing standards. Those standards 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 consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management of the Partnership, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Krupp Associates 1980-1 as of December 31, 1995 and 1994, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. In addition, in our opinion, the consolidated financial statement schedule referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information required to be incurred therein.
The accompanying consolidated financial statements have been prepared assuming that the Partnership will continue as a going concern. As discussed in Note K to the consolidated financial statements, the Partnership has experienced cash flow deficiencies in the past. In connection therewith the General Partners, to date, have been able to arrange financing to cover these deficits, and effective January 1, 1991 the General Partners obtained a waiver of management fees and expense reimbursements due to the affiliated management agent. The General Partners cannot guarantee that they will be able to continue to arrange for financing to cover deficits as they arise or that the arrangement with the management agent will continue. In addition, as disclosed in Note L, the Partnership's subsidiary entered into a purchase and sale agreement for the sale of the sole remaining property to an unaffiliated buyer for $4,500,000. In the event the property is ultimately sold, the Partnership would be liquidated. These factors raise substantial doubt about the ability of the Partnership to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
Boston, Massachusetts COOPERS & LYBRAND L.L.P. February 1, 1996
KRUPP ASSOCIATES 1980-1 AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS December 31, 1995 and 1994
ASSETS
The accompanying notes are an integral part of the consolidated financial statements.
KRUPP ASSOCIATES 1980-1 AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS For the Years Ended December 31, 1995, 1994 and 1993
The accompanying notes are an integral part of the consolidated financial statements.
KRUPP ASSOCIATES 1980-1 AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT For the Years Ended December 31, 1995, 1994 and 1993
The accompanying notes are an integral part of the consolidated financial statements.
KRUPP ASSOCIATES 1980-1 AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1995, 1994 and 1993
The accompanying notes are an integral part of the consolidated financial statements.
KRUPP ASSOCIATES 1980-1 AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Organization
KRLP-I was formed on July 31, 1980 by filing a Certificate of Limited Partnership in The Commonwealth of Massachusetts. KRLP- I issued all of the General Partner Interests to two General Partners (The Krupp Company and The Krupp Corporation) in exchange for capital contributions totalling $5,000.
The Class B Limited Partner Interests were issued to Chivas Square Associates (the "Original Limited Partner"), in connection with the transfer by the Original Limited Partner to KRLP-I of the real estate property which it formerly owned, subject to the related mortgage note payable.
The purchasers of 4,000 Units of Class A Investor Limited Partner Interests at a price of $1,000 per Unit are the Investor Limited Partners.
On January 20, 1988, the General Partners formed Krupp Associates Riverside Limited Partnership ("Realty-I") as a prerequisite for the refinancing of Riverside Apartments. At the same time, the General Partners transferred ownership of the property to Realty-I. The General Partner of Realty-I is The Krupp Corporation ("Krupp Corp."). The Limited Partner of Realty-I is KRLP-I. Krupp Corp. has beneficially assigned its interest in Realty-I to KRLP-I. KRLP-I and Realty-I are collectively known as Krupp Realty Limited Partnership-I (collectively the "Partnership"). B. Significant Accounting Policies
The Partnership uses the following accounting policies for financial reporting purposes, which 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 and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
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 equivalents 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. Leases generally contain provisions for additional rent based on a percentage of tenant sales and other provisions which are also recorded on the accrual basis, but are billed in arrears.
Depreciation
Depreciation is provided for by the use of the straight-line method over the estimated useful life of the related asset as follows:
Buildings and improvements 5-35 years Appliances, carpeting and equipment 3-5 years
Impairment of Long-Lived Asset
In accordance with Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", which is effective for fiscal years beginning after December 15, 1995, the Partnership has implemented policies and practices for assessing impairment of its real estate asset.
The investment in the property is carried at cost less accumulated depreciation unless the General Partners believe there is a significant impairment in value, in which case a provision to write down the investment in property to fair value will be charged against income. At this time, the General Partners do not believe that any assets of the Partnership are significantly impaired.
Deferred Expenses
The Partnership is amortizing the costs associated with refinancing the property over the term of the related mortgage using the straight-line 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.
Reclassifications
Certain prior year balances have been reclassified to conform with current year consolidated financial statement presentation.
C. Property
The Partnership purchased Riverside I Apartments ("Riverside"), a 140-unit apartment complex with approximately 30,000 square feet of commercial space located in Evansville, Indiana, on February 13, 1981. The total purchase price for Riverside was $3,518,000, of which $1,842,200 was paid in cash and $1,675,800 was financed with a 40-year non-recourse mortgage payable to the Department of Housing and Urban Development ("HUD").
On January 21, 1988, the Partnership refinanced Riverside under a $2,310,000 non-recourse first mortgage note payable between Realty-I (in which KRLP-I has a 100% beneficial interest) and HUD. (See below for additional information.) The note is collateralized by Riverside. The Partnership paid off the prior mortgage with a portion of the proceeds.
D. Mortgage Note Payable
The non-recourse first mortgage note is payable in equal monthly installments of $20,747 at an interest rate of 10.5% per annum based on a thirty-five year amortization schedule. The note matures on February 1, 2023, when the remaining principal and any accrued interest will be due and payable. Under the regulatory agreement with HUD, monthly deposits of $4,036 must be contributed to a reserve for replacements. The reserve for replacements is to be used to fund property improvements. In addition, the regulatory agreement requires HUD approval for any additional encumbrances or for transfer of title to the project, and limits distributions based on the project's operations to the extent of "surplus cash" as defined 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 $4,000,000.
Principal payments due on the mortgage note payable are $15,302, $16,988, $18,860, $20,939 and $23,246 for the five years 1996 through 2000, respectively.
During 1995, 1994 and 1993, the Partnership paid $235,059, $236,169, and $238,090, respectively, of interest on its mortgage note payable.
E. Notes Payable
The Partnership had demand notes outstanding with both the General Partners and an affiliate of the General Partners at December 31, 1995 and 1994, respectively, in the amount of $1,257,385. Interest accrues monthly at the prime rate of an unaffiliated bank (8.5% at December 31, 1995) plus one percent per annum. During 1995, 1994 and 1993, no interest was paid on these notes. The carrying value of the notes approximate fair value.
F. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities at December 31, 1995 and 1994 consisted of the following: 1995 1994
Accrued real estate taxes $133,334 $130,956 Tenant security deposits 32,004 33,191 Deferred income 4,230 7,102 Accrued expenses, other 60,731 56,678
$230,299 $227,927
G. Partners' Deficit
Under the terms of the Partnership Agreement, profits and losses from operations are allocated 90% to the Class A Limited Partners, 9% to the Original Limited Partner and 1% to the General Partners until such time that the Class A Limited Partners have received a return of their total invested capital. Thereafter, 40% shall be allocated to the Class A Limited Partners, 20% to the Original Limited Partner and 40% to the General Partners.
Under the terms of the Partnership Agreement, capital transactions are allocated 90% to the Class A Limited Partners, 9% to the Original Limited Partner and 1% to the General Partners, until such time that the Class A Limited Partners have received a return of their total invested capital and thereafter, allocated 40% to the Class A Limited Partners, 20% to the Original Limited Partner and 40% to the General Partners.
In general, the allocation of profits and losses are calculated based on the terms of the Partnership Agreement, as described above. However, the Internal Revenue Code contains rules which govern the allocation of tax losses among partners. For the years 1992 through 1995, the allocation of tax losses were calculated based on these rules. Under this code, tax losses are not allocated to a limited partner if a general partner bears the economic risk for that loss. Due to operating losses incurred during these years, the General Partners undertook additional liabilities on behalf of the Partnership. As a result, the Partnership allocated additional tax losses to the General Partners. In conjunction with the tax election referred to above, the financial statements presented herein reflect the allocation of net loss in accordance with the rules of the Internal Revenue Code.
As of December 31, 1995, the following cumulative partner contributions and allocations have been made since inception of the Partnership:
H. Related Party Transactions
Commencing with the date of acquisition of the Partnership's property, the Partnership entered into an agreement under which property management fees are paid to an affiliate of the General Partners for services as management agent. Such agreement provides for management fees payable monthly at a rate of 5% of the gross receipts from the property 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 property including accounting, computer, insurance, travel, legal and payroll costs relating to the preparation and mailing of reports and other communications to the Limited Partners. Since January 1, 1991, the General Partners arranged with the management agent for the annual waivers of management fees and expense reimbursements.
During 1995, 1994 and 1993, interest on borrowings accrued to the General Partners or affiliates of the General Partners were $125,279, $103,839 and $88,872, respectively.
During 1995, 1994 and 1993, amounts paid to the General Partners or their affiliates relating to disposition activities were $1,095, $8,711 and $0, respectively.
I. Future Base Rents Due Under Commercial Operating Leases
Future base rents due under commercial operating leases for the years 1996 through 2000 and thereafter are as follows:
1996 $260,677 1997 $266,328 1998 $269,608 1999 $272,252
2000 $272,710 Thereafter $ 0
J. Federal Income Taxes
For federal income tax purposes, the Partnership is depreciating its property using the accelerated cost recovery system ("ACRS") and the modified accelerated cost recovery system ("MACRS") depending on which is applicable.
The reconciliation of the net loss reported in the accompanying Consolidated Statement of Operations with the net loss reported in the Partnership's federal income tax return follows:
J. Federal Income Taxes - Continued
The allocation of net loss for federal income tax purposes for 1995 is as follows:
For the years ended December 31, 1995, 1994 and 1993, the per Unit net loss for the Class A Limited Partners for federal income tax purposes was $3.08, $19.75, and $10.87, respectively.
K. Operating Deficits
The Partnership has experienced cash flow deficiencies for several years. In connection therewith, the General Partners, to date, have been able to arrange financing through short-term borrowings from affiliates to cover a substantial portion of these deficits. Also, one of the General Partners, The Krupp Company, contributed an additional $100,000 to the Partnership during 1991, and the General Partners have arranged for the waiver of property management fees and expense reimbursements payable to the management agent. In January 1993, The Krupp Company loaned
$135,000 in the form of a demand note to the Partnership to payoff a demand note from an unaffiliated bank. The operating deficits could continue and the General Partners cannot guarantee that they will be able to take actions that will cover any future deficits. In that event, the Partnership could default on its mortgage payments and become subject to foreclosure proceedings. This would have a significant impact on the financial position and operations of the Partnership. However, the Partnership is current on its mortgage payments, and it cannot presently be determined if a foreclosure will occur in the future. Accordingly, the financial statements do not include any adjustments that might result from the outcome of these uncertainties, all of which raise substantial doubt about the ability of the Partnership to continue as a going concern.
In the event of the sale of Riverside, the Partnership would be liquidated. As a result of the liquidation, the partners would receive allocations of taxable income equivalent to any negative account balance they may have. In addition, there would be no cash available in connection with such income. Therefore, in the event that the partner does not have items which could offset such income, the partner would have to pay taxes with funds from other sources.
L. Subsequent Event
In January 1996, the General Partners entered into a purchase and sale agreement for the sale of Riverside to an unaffiliated buyer scheduled in the second quarter of 1996 for the selling price of $4,500,000. In the event the property is ultimately sold, the Partnership would be liquidated. It is anticipated that all sale proceeds would be used to satisfy Partnership obligations and no funds would be available to investors for distribution.
KRUPP ASSOCIATES 1980-1 AND SUBSIDIARY
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1995
Gross Amounts Carried at End of Year
Reconciliation of Real Estate and Accumulated Depreciation for each of the three years in the period ended December 31, 1995:
The Partnership uses the cost basis for property valuation for both income tax and financial statement purposes. The aggregate cost for income tax purposes at December 31, 1995 is $4,730,796.