UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 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 identification no.) incorporation or organization) 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 9. 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) June 30, December 31, 2000 1999 ------------- ------------- Multi-family apartment complexes, net of accumulated depreciation of $14,953,516 and $14,265,488, respectively $ 8,302,694 $ 8,809,883 Cash and cash equivalents 334,961 120,525 Cash restricted for tenant security deposits 27,456 27,256 Replacement reserve escrow 30,275 72,378 Prepaid expenses and other assets 411,669 663,021 Deferred expenses, net of accumulated amortization of $190,721 and $171,421, respectively 124,931 144,234 ============= ============ Total assets $ 9,231,986 $ 9,837,297 ============= ============ LIABILITIES AND PARTNERS' DEFICIT Liabilities: Mortgage notes payable $ 10,164,953 $ 10,220,052 Accrued expenses and other liabilities 500,353 625,590 ------------- ------------ Total liabilities 10,665,306 10,845,642 Partners' Deficit (Note 2): Investor Limited Partners (27,184 units understanding) (568,516) (172,633) Original Limited Partner (547,849) (525,767) General Partners (316,955) (309,945) ------------- ------------ Total Partners' Deficit (1,433,320) (1,008,345) ============= ============ Total liabilities and Partners' $ 9,231,986 $ 9,837,297 deficit ============= ============ 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 For the Six Months Ended Months Ended June 30, June 30, ----------------------- ---------------------- 2000 1999 2000 1999 ----------- ---------- ---------- ---------- Revenue: Rental $ 1,039,290 $ 962,083 $2,074,302 $1,932,653 Interest income 3,693 5,745 8,503 13,946 ----------- ---------- ---------- ---------- Total revenue 1,042,983 967,828 2,082,805 1,946,599 ----------- ---------- ---------- ---------- Expenses: Operating (Note 3) 252,346 253,434 499,127 483,313 Maintenance 103,510 128,806 168,124 222,353 Real estate taxes 93,494 93,767 204,251 229,967 General and administrative (Note 3) 66,208 53,785 101,089 78,121 Management fees (Note 3) 60,587 37,151 115,509 80,143 Depreciation and amortization 352,793 372,872 707,327 742,815 Interest $ 217,868 $ 220,150 $ 436,324 $ 440,840 ----------- ---------- ---------- ---------- Total expenses 1,146,806 1,159,965 2,231,751 2,277,552 ----------- ---------- ---------- ---------- Net loss $ (103,823) $ (192,137) $ (148,946) $ (330,953) =========== ========== ========== ========== Allocation of net loss: Investor Limited Partners (27,184 units outstanding): Net loss $ (102,785)$ (190,216) $ (147,457) $ (327,643) =========== ========== ========== ========== Investor Limited Partners, Per Unit: Net loss $ (3.78) $ (7.00) $ (5.42) $ (12.05) =========== ========== ========== ========== Original Limited Partner Net loss - - - - =========== ========== ========== ========== General Partners: Net loss $ (1,038) $ (1,921) $ (1,489) $ (3,310) =========== ========== ========== ========== 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 Six Months Ended June 30, -------------------------------- 2000 1999 ------------- ------------ Cash flows from operating activities: Net loss $ (148,946) $ (330,953) Adjustment to reconcile net loss to net cash provided by operating activities: Interest earned on replacement reserve escrow (219) (460) Depreciation and amortization 707,327 742,815 Changes in assets and liabilities: Increase in restricted cash for tenant security deposits (27,704) (322) Decrease (increase) in prepaid expenses and other assets 251,352 (86,186) Decrease in accrued expenses and other liabilities (95,529) (107,577) ------------- ------------- Net cash provided by operating activities 686,281 217,317 ------------- ------------- Cash flows from investing activities: Deposits to replacement reserve escrow (25,200) (25,200) Withdrawals from replacement reserve escrow 67,522 151 Additions to fixed assets (180,835) (194,873) Decrease in accrued expenses and other liabilities related to fixed assets additions (2,204) (3,500) ------------- ------------- Net cash provided by (used in) investing activities (140,717) (223,422) ------------- ------------- Cash flows from financing activities: Principal payments on mortgage notes payable (55,099) (50,583) Distributions (276,029) (276,029) ------------- ------------- Net cash used in financing activities (331,128) (326,612) ------------- ------------- Net increase (decrease) in cash and cash equivalents 214,436 (332,717) Cash and cash equivalents, beginning of 120,525 629,483 period ------------- ------------- Cash and cash equivalents, end of period $ 334,961 $ 296,766 ============= ============= 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 principals 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 Statement 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 June 30, 2000, its results of operation for the three and six months ended June 30,2000 and 1999, and its cash flows for the six months ended June 30, 2000 and 1999. The results of operations for the three and six months ended June 30, 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 six months ended June 30, 2000 is as follows: Investor Original Total Limited Limited General Partners Partners Partners 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 (147,457) - (1,489) (148,946) --------- ---------- --------- ----------- Balance at June 30, 2000 $(568,516) $ (547,849) $(316,955) $ 1,433,320) ========= ========== ========= =========== 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 reimburse affiliates of the General Partners for certain expenses incurred in connection with the operation of the Partnership and its properties, including administrative expenses. Amounts accrue or paid to the General Partners' affiliates were as follows: For the Three For the Six Months Ended Months Ended June 30, June 30, ----------------------- --------------------- 2000 1999 2000 1999 ----------- ---------- ---------- ---------- Property management fees $ 60,587 $ 37,151 $ 115,509 $ 80,143 Expenses reimbursement 53,947 54,378 95,681 88,345 ----------- ---------- ---------- ---------- Charged to operations $ 114,534 $ 91,529 $ 211,190 $ 168,488 =========== ========== ========== ========== Expense reimbursements due from affiliates of $87,200 and $237,015 were included in prepaid expenses and other assets at June 30, 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, calculated under section 8.2 (a) of the Partnership Agreement, will then be if any, as 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 assessment. The current annual distribution rate is $18.28 per Unit, and is paid semiannually in February and August. Operations The following discussion relates to the operations of the Partnership and its properties (Courtyards Village and Windsor Apartments) for the three and six months ended June 30, 2000 and 1999. Net loss decreased during the three and six months ended June 30, 2000 when compared to the three and six months ended June 30, 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 2000. 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 June 30, 2000 decreased when compared to the three months ended June 30, 1999 with decreases in maintenance and depreciation expenses offset by an increase in general administrative reduced the need for repairs and maintenance in some areas. Depreciation expense expenses. Maintenance expense decreased in 2000 as capital expenditures decreased as fixed asset additions purchased in the previous years become fully depreciated. General and administrative expenses increased as a result of increased investor communication costs including printing and mailing of quarterly and annual reports. Total expenses for the six months ended June 30, 2000 decreased when compared to the six months ended June 30, 1999 due to the reasons discussed above as well as an increase in operating expenses. Operating expenses increased as a result of increases in utilities, insurance, and refuse removal costs. 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 it's 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: August 14, 2000