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 September 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 (Zip code) offices) (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 preceeding 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) September 30, December 31, 2000 1999 ------------ ------------- Multi-family apartment complexes, net of accumulated depreciation of $15,295,488 and $14,265,488, respectively $ 8,054,215 $ 8,809,883 Cash and cash equivalents 185,957 120,525 Cash restricted for tenant security deposits 55,116 27,256 Replacement reserve escrow 56,445 72,378 Prepaid expenses and other assets 606,765 663,021 Deferred expenses, net of accumulated amortization of $200,370 and $171,421, respectively 115,285 144,234 ------------ ------------- Total assets $ 9,073,783 $ 9,837,297 ============ ============= LIABILITIES AND PARTNERS' DEFICIT Liabilities: Mortgage notes payable $ 10,136,507 $ 10,220,052 Accrued expenses and other liabilities 703,859 625,590 ------------ ------------- Total liabilities 10,840,366 10,845,642 ------------ ------------- Partners' deficit (Note 2): Investor Limited Partners (27,184 units outstanding) (873,603) (172,633) Original Limited Partner (569,931) (525,767) General Partners (323,049) (309,945) ------------ ------------- Total partners' deficit (1,766,583) (1,008,345) ------------ ------------- Total liabilities and partners' deficit $ 9,073,783 $ 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 For the Nine Months Ended Months Ended September 30, September 30, ------------------------ ------------------------ ----------- ----------- ----------- ----------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- Revenue: Rental $ 1,046,455 $ 1,006,136 $ 3,120,757 $ 2,938,789 Interest income 2,546 2,165 11,049 16,111 ----------- ----------- ----------- ----------- Total revenue 1,049,001 1,008,301 3,131,806 2,954,900 ----------- ----------- ----------- ----------- Expenses: Operating (Note 3) 270,530 256,714 769,655 740,027 Maintenance 72,144 48,796 240,268 271,149 Real estate taxes 108,937 97,617 313,188 327,584 General and administrative (Note 3) 50,861 50,221 151,950 128,342 Management fees (Note 3) 34,878 35,135 150,387 115,278 Depreciation and amortization 351,620 400,725 1,058,949 1,143,540 Interest 217,265 219,597 653,589 660,437 ----------- ----------- ----------- ----------- Total expenses 1,106,235 1,108,805 3,337,986 3,386,357 ----------- ----------- ----------- ----------- Net loss $ (57,234) $ (100,504) $ (206,180) $ (431,457) =========== =========== =========== =========== Allocation of net loss: Investor Limited Partners (27,184 units outstanding): Net loss $ (56,662) $ (99,499) $ (204,118) $ (427,142) =========== =========== =========== =========== Investor Limited Partners, Per Unit: Net loss $ (2.08) $ (3.66) $ (7.51) $ (15.71) =========== =========== =========== =========== Original Limited Partner Net loss $ - $ - $ - $ - =========== =========== =========== =========== General Partners Net loss $ (572) $ (1,005) $ (2,062) $ (4,315) =========== =========== =========== =========== 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 Nine Months Ended September 30, ------------------------- 2000 1999 ----------- ----------- Cash flows from operating activities: Net loss $ (206,180) $ (431,457) Adjustment to reconcile net loss to net cash provided by operating activities: Interest earned on replacement reserve escrow (219) (782) Depreciation and amortization 1,058,949 1,143,540 Changes in assets and liabilities: Increase in restricted cash for tenant security deposits (27,860) (487) Decrease (increase) in prepaid expenses and other assets 56,256 (291,040) Increase in accrued expenses and other liabilities 80,473 176,669 ----------- ----------- Net cash provided by operating activities 961,419 596,443 ----------- ----------- Cash flows from investing activities: Deposits to replacement reserve escrow (51,370) (37,800) Withdrawals from replacement reserve escrow 67,522 311 Additions to fixed assets (274,332) (522,755) Decrease in accrued expenses and other liabilities related to fixed asset additions (2,204) (3,500) ----------- ----------- Net cash used in investing activities (260,384) (563,744) ----------- ----------- Cash flows from financing activities: Principal payments on mortgage notes payable (83,545) (76,697) Distributions (552,058) (552,060) ----------- ----------- Net cash used in financing activities (635,603) (628,757) ----------- ----------- Net increase (decrease) in cash and cash equivalents 65,432 (596,058) Cash and cash equivalents, beginning of period 120,525 629,483 ----------- ----------- Cash and cash equivalents, end of period $ 185,957 $ 33,425 =========== =========== 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 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 September 30, 2000, its results of operation for the three and nine months ended September 30, 2000 and 1999, and its cash flows for the nine months ended September 30, 2000 and 1999. The results of operations for the three and nine months ended September 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' Deficit A summary of changes in Partners' deficit for nine months ended September 30, 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 (496,852) (44,164) (11,042) (552,058) Net loss (204,118) - (2,062) (206,180) ----------- ----------- ----------- ------------ Balance at September 30, 2000 $ (873,603) $ (569,931) $ (323,049) $ (1,766,583) =========== =========== =========== ============ KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (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 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 accrued or paid to the General Partners' affiliates were as follows: For the Three For the Nine Months Ended Months Ended September 30, September 30, ------------------------- -------------------------- ----------- ----------- ----------- ------------ 2000 1999 2000 1999 ----------- ----------- ----------- ------------ Property management fees $ 34,878 $ 35,135 $ 150,387 $ 115,278 Expenses reimbursement 53,877 54,606 149,558 142,951 ----------- ----------- ----------- ------------ Charged to operations $ 88,755 $ 89,741 $ 299,945 $ 258,229 =========== =========== =========== ============ Expense reimbursements due from affiliates of $191,848 and $237,015 were included in prepaid expenses and other assets at September 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, if any, as calculated under section 8.2 (a) of the Partnership Agreement, will then be available for distribution to the Partners. Over the past several years real estate markets in general have improved, and the General Partners feel this is an opportune time to formulate a liquidation strategy for the Partnership. As such, the General Partners intend to begin the process of more thoroughly assessing the property sales market in the Partnership's market areas and developing a disposition strategy which will yield the highest value to investors through an efficient and orderly liquidation of the Partnership. In keeping with this strategy, the General Partners intend to refinance mortgage loans which mature in the next 6 months with financing that leaves flexibility for the property sales. Assuming market conditions do not change, the assessment of the property sales market is consistent with the General Partners' expectations, and an acceptable disposition plan can be implemented the General Partners expect to complete the liquidation process over the next 15 months. However, there can be no assurance that such a liquidation will occur, or what amounts may be realized by the Partnership. The General Partners, on an ongoing basis, assess the current and future liquidity needs in determining the level 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 nine months ended September 30, 2000 and 1999. Net loss decreased during the three and nine months ended September 30, 2000 when compared to the three and nine months ended September 30, 1999, as total revenue 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 during the nine months ended September 30, 2000 due to a lower average cash and cash equivalent balances available for investment when compared to 1999. KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES Operations, Continued Total expenses for the three months ended September 30, 2000 decreased when compared to the three months ended September 30, 1999. Depreciation expense decreased as fixed asset additions purchased in the previous years became fully depreciated. Operating expenses increased as a result of increases in leasing, utilities, insurance, and rubbish removal costs. Maintenance expenses for the third quarter in 1999 were significantly lower than the same period in 2000 due to a reclassification of expenses resulting from the December 1998 fire at Windsor Apartments to an insurance receivable. Total expenses for the nine months ended September 30, 2000 decreased when compared to the nine months ended September 30, 1999 due to reasons discussed above as well as a decrease in maintenance expenses. Maintenance expenses decreased in 2000 as capital expenditures reduced the need for repairs and maintenance in some areas. 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: November 14, 2000