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 March 31, 2000 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 0-14377 Krupp Realty Limited Partnership-VII Massachusetts 04-2842924 (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 10. PART I. FINANCIAL INFORMATION Item 1. 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-VII AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS (Unaudited) March 31, December 31, 2000 1999 ----------- ----------- Multi-family apartment complexes, net of accumulated depreciation of $14,610,369 and $14,265,488, respectively $ 8,551,113 $ 8,809,883 Cash and cash equivalents 206,840 120,525 Cash restricted for tenant security deposits 27,404 27,256 Replacement reserve escrow 17,635 72,378 Prepaid expenses and other assets 428,603 663,021 Deferred expenses, net of accumulated amortization of $181,074 and $171,421, respectively 134,581 144,234 ----------- ----------- Total assets $ 9,366,176 $ 9,837,297 =========== =========== LIABILITIES AND PARTNERS' DEFICIT Liabilities: Mortgage notes payable $10,192,797 $10,220,052 Accrued expenses and other liabilities 502,876 625,590 ----------- ----------- Total liabilities 10,695,673 10,845,642 ----------- ----------- Partners' deficit (Note 2): Investor Limited Partners (27,184 Units outstanding) (465,731) (172,633) Original Limited Partner (547,849) (525,767) General Partners (315,917) (309,945) ----------- ----------- Total Partners' deficit (1,329,497) (1,008,345) ----------- ----------- Total liabilities and Partners' deficit $ 9,366,176 $ 9,837,297 =========== =========== The accompanying notes are an integral part of the consolidated financial statements. KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) For the Three Months Ended March 31, ------------------------------ 2000 1999 ----------- --------- Revenue: Rental $ 1,035,012 $ 970,570 Interest income 4,810 8,201 ----------- ----------- Total revenue 1,039,822 978,771 ----------- ----------- Expenses: Operating (Note 3) 246,781 229,879 Maintenance 64,614 93,547 Real estate taxes 110,757 136,200 General and administrative (Note 3) 34,881 24,336 Management fees (Note 3) 54,922 42,992 Depreciation and amortization 354,534 369,943 Interest 218,456 220,690 ----------- ----------- Total expenses 1,084,945 1,117,587 ----------- ----------- Net loss $ (45,123) $(138,816) =========== =========== Allocation of net loss: Investor Limited Partners (27,184 Units outstanding): Net loss $ (44,672) $ (137,428) =========== =========== Investor Limited Partners, Per Unit: Net loss $ (1.64) $ (5.06) =========== =========== Original Limited Partners Net loss $ - $ - =========== =========== General Partners: Net loss $ (451) $ (1,388) =========== =========== The accompanying notes are an integral part of the consolidated financial statements. KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the Three Months Ended March 31, 2000 1999 --------- ----------- Cash flows from operating activities: Net loss $ (45,123) $ (138,816) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Interest earned on replacement reserve escrow (179) (145) Depreciation and amortization 354,534 369,943 Changes in assets and liabilities: Increase in restricted cash for tenant security deposits (148) (162) Decrease in prepaid expenses and other assets 234,418 141,021 Decrease in accrued expenses and other liabilities (120,510) (120,507) --------- ---------- Net cash provided by operating activities 422,992 251,334 --------- ---------- Cash flows from investing activities: Deposits to replacement reserve escrow (12,600) (12,600) Withdrawals from replacement reserve escrow 67,522 151 Additions to fixed assets (86,111) (73,402) Decrease in accrued expenses and other liabilities related to fixed asset additions (2,204) (3,046) --------- ---------- Net cash used in investing activities (33,393) (88,897) --------- ---------- Cash flows from financing activities: Principal payments on mortgage notes payable (27,255) (25,021) Distributions (276,029) (276,029) --------- ---------- Net cash used in financing activities (303,284) (301,050) --------- ---------- Net increase (decrease) in cash and cash equivalents 86,315 (138,613) Cash and cash equivalents, beginning of period 120,525 629,483 --------- ---------- Cash and cash equivalents, end of period $ 206,840 490,870 ========= ========== The accompanying notes are an integral part of the consolidated financial statements. KRUPP REALTY LIMITED PARTNERSHIP-VII 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-VII and Subsidiaries (the "Partnership"), the disclosures contained in this report are adequate to make the information presented not misleading. See Notes to the Consolidated Financial Statements included in the Partnership's Annual Report on Form 10-K for the year ended December 31, 1999 for additional information relevant to significant accounting policies followed by the Partnership. 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 March 31, 2000, its results of operations and its cash flows for the three months ended March 31, 2000 and 1999. The results of operations for the three months ended March 31, 2000 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) Changes in Partners' Equity A summary of changes in Partners' deficit for the three months ended March 31, 2000 is as follows: Investor Original Total Limited Limited General Partners' Partners Partner Partners Deficit Balance at December 31, 1999 $ (172,633) $ (525,767) $ (309,945) $ (1,008,345) Distributions (248,426) (22,082) (5,521) (276,029) Net loss (44,672) - (451) (45,123) ---------- ---------- ---------- ------------ Balance at March 31, 2000 $ (465,731) $ (547,849) $ (315,917) $ (1,329,497) ========== ========== ========== ============ (3) 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 gross receipts from residential 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. KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (3) Related Party Transactions, Continued Amounts accrued or paid to the General Partners' affiliates were as follows: For the Three Months Ended March 31, -------------------------------- 2000 1999 -------- --------- Property management fees $ 54,922 $ 42,992 Expense reimbursements 41,734 33,967 -------- --------- Charged to operations $ 96,656 $ 76,959 ======== ========= Expense reimbursements due from affiliates of $131,577 and $237,012 were included in prepaid expenses and other assets at March 31, 2000 and December 31, 1999, respectively. KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES 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 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 successful operations of its real estate investments. Such ability would also be impacted by the future availability of bank borrowings and the future refinancing and sale of the Partnership's remaining real estate investments. 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. The General Partners, on an ongoing basis, assess the current and future liquidity needs in determining the levels 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 $18.28 per Unit, and is paid semiannually in February and August. 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 Partnerships 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 had, and does not expect to have, any Year 2000 related problems. Operations The following discussion relates to the operations of the Partnership and its properties (Courtyards Village and Windsor Apartments) for the three months ended March 31, 2000 and 1999. KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES ----------- Net loss decreased during the three months ended March 31, 2000 when compared to the three months ended March 31, 1999, as total revenues increased and total expenses decreased. 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 1999. Interest income decreased due to lower average cash and cash equivalent balances available for investment when compared to 1999. Total expenses for the three months ended March 31, 2000 decreased when compared to the three months ended March 31, 1999 with decreases in maintenance, real estate taxes and depreciation expense more than offsetting increases in operating and general and administrative expenses. Maintenance expense decreased in 2000 as payment of an insurance deductible for damage resulting from a December, 1998 fire at Windsor Apartments was charged to maintenance during the first quarter of 1999. Real estate taxes decreased due to abatements and refunds of prior year taxes received by Windsor Apartments. Depreciation expense decreased as fixed asset additions purchased in the previous years became fully depreciated. Operating expenses increased as a result of increases in payroll, insurance and refuse removal costs. General and administrative expenses increased as a result of increased investor communication costs including printing and mailing of quarterly and annual reports. KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES PART II - OTHER INFORMATION Item 1. Legal Proceedings Response: None Item 2. Changes in Securities Response: None Item 3. Defaults upon Senior Securities Response: None Item 4. Submission of Matters to a Vote of Security Holders Response: None Item 5. Other Information Response: None Item 6. Exhibits and Reports on Form 8-K Response: None 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-VII -------------------------------------- (Registrant) BY:/s/Wayne H. Zarozny -------------------------------------- Wayne H. Zarozny Treasurer and Chief Accounting Officer of The Krupp Corporation, a General Partner. DATE: May 15, 2000