UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 2000
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission File number 0-14377
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Krupp Realty Limited Partnership-VII
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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)
(Registrant's telephone number, including area code) (617) 523-7722
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Units of Investor
Limited Partner
Interest
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of voting securities held by non-affiliates: Not
Applicable.
Documents incorporated by reference: Part IV, Item 14.
The exhibit index is located on pages 12-13.
The total number of pages in this document is 31.
PART I
This Form 10-K 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.
ITEM 1. BUSINESS
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Krupp Realty Limited Partnership-VII ("KRLP-VII") was formed on August 21,
1984 by filing a Certificate of Limited Partnership in the Commonwealth of
Massachusetts. KRLP-VII issued all of the General Partner Interests to two
General Partners, The Krupp Corporation, a Massachusetts corporation, and The
Krupp Company Limited Partnership-II, a Massachusetts limited partnership.
KRLP-VII also issued all of the Original Limited Partner Interests to The Krupp
Company Limited Partnership-II. On November 2, 1984, KRLP-VII commenced an
offering of up to 40,000 units of Investor Limited Partner Interest (the
"Units") for $1,000 per Unit. The public offering was closed on April 25, 1986,
at which time 27,184 Units had been sold. For additional details, see Note A to
Consolidated Financial Statements included in Item 8 (Appendix A) of this
report. The primary business of KRLP-VII is to invest in, operate, refinance and
ultimately dispose of a diversified portfolio of residential real estate.
KRLP-VII considers itself to be engaged in only one industry segment, investment
in real estate.
On December 19, 1984 the General Partners formed Krupp Realty Courtyards
Limited Partnership ("Realty-VII") as a prerequisite for the refinancing of
Courtyards Village East Apartments ("Courtyards Village"). At the same time, the
General Partners transferred ownership of Courtyards Village to Realty-VII. The
General Partner of Realty-VII is KRLP-VII. The Limited Partners of Realty-VII
are KRLP-VII and The Krupp Corporation ("Krupp Corp."). Krupp Corp. has
beneficially assigned its interest in Realty-VII to KRLP-VII.
On March 31, 1994, the General Partners formed Windsor Partners Limited
Partnership ("Windsor L.P.") as a prerequisite for the refinancing of Windsor
Apartments. At the same time, the General Partners transferred ownership of the
property to Windsor L.P. In exchange for the property, KRLP-VII received 99%
Limited Partnership interest in Windsor L.P. The General Partner of Windsor L.P.
is ST. Windsor Corporation, which has a 1% interest in Windsor L.P. and is 100%
owned by KRLP-VII.
KRLP-VII, Realty-VII and Windsor L.P. are collectively known as Krupp
Realty Limited Partnership-VII and Subsidiaries (collectively referred to herein
as the "Partnership").
On January 30, 1998, the Partnership sold Nora Corners Shopping Center
("Nora Corners"), a shopping center containing 89,432 leasable square feet,
located in Indianapolis, Indiana, to unaffiliated third parties (see Note E to
Consolidated Financial Statements, included in Item 8 (Appendix A) of this
report).
The Partnership's real estate investments are 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 real estate investments are located, the availability
and cost of borrowed funds, 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 affect on the Partnership's operations, and no adverse
affect 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) 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, 2000, the Partnership did not employ any personnel.
-2-
ITEM 2. PROPERTIES
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As of December 31, 2000, the Partnership had leveraged investments in two
apartment complexes having an aggregate of 524 units.
A summary of the Partnership's real estate investments as of December 31,
2000 is presented below. Schedule III included in Item 8 (Appendix A) to this
report contains additional detailed information with respect to individual
properties.
Average Occupancy For the Year Ended
December 31,
------------------------------------
Year of Total
Description Acquisition Units 2000 1999 1998 1997 1996
- ------------------------ ----------- ------ ------ ------ ------ ------ ------
Courtyards Village East
Apartments
Naperville, Illinois 1985 224 95% 95% 97% 97% 98%
Windsor Apartments
Garland, Texas 1984 300 95% 96% 97% 96% 96%
------
524 Units
======
ITEM 3. LEGAL PROCEEDINGS
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There are no material pending legal proceedings to which the Partnership is
a party or of which any of its property is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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None.
-3-
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
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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, 2000 was
approximately 1,365.
One of the objectives of the Partnership is to generate cash available for
distribution. The Partnership discontinued distributions during 1989 due to
insufficient operating Cash Flow. In 1994, however, the General Partners
determined that there was sufficient Cash Flow to reinstate distributions. These
distributions commenced in August 1994 at a rate of $5.00 per Unit and
thereafter were paid semiannually at an annual rate of $20.00 per Unit through
1998. In 1999 and thereafter the semiannual distributions were reduced to an
annual rate of $18.28 per Unit.
The Partnership made special capital distributions in 1998 totaling $86.14
per Unit with the funds received from the sale of Nora Corners in 1998. Pursuant
to the Partnership Agreement, distributions from capital transactions, such as
the sale of Nora Corners, are allocated 99% to Investor Limited Partners and 1%
to the General Partners. For details, see Note G to Consolidated Financial
Statements included in Item 8 (Appendix A) of this report.
The Partnership made the following distributions to its Partners during the
years ended December 31, 2000 and 1999:
Year Ended December 31,
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2000 1999
-------------------- --------------------
Amount Per Unit Amount Per Unit
---------- --------- ---------- ---------
Limited Partners:
Investor Limited Partners
(27,184 Units outstanding) $ 496,852 $ 18.28 $ 496,853 $ 18.28
Original Limited Partner 44,164 44,165
General Partners 11,042 11,041
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$ 552,058 $ 552,059
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ITEM 6. SELECTED FINANCIAL DATA
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The following table sets forth selected financial information regarding the
Partnership's 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 Notes thereto, which are included in Items 7 and 8 of this report,
respectively.
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
Total revenue $4,202,751 $3,997,617 $3,989,189 $4,795,059 $4,688,515
Income (loss) before gain
on sale of property (279,488) (549,227) (298,630) (151,137) 10,513
Gain on sale of property - - 676,316 - -
Net income (loss) (279,488) (549,227) 377,686 (151,137) 10,513
Net income (loss)
allocated to:
Investor Limited
Partners (276,693) (543,735) 373,909 (149,626) 9,462
Per Unit (10.18) (20.00) 13.75 (5.50) 0.35
Original Limited
Partner - - - - 841
General Partners (2,795) (5,492) 3,777 (1,511) 210
Total assets at
December 31, 8,985,092 9,837,297 10,974,526 17,995,610 16,855,594
Long-term obligations at
December 31, 5,028,109 10,108,246 10,220,786 14,345,624 12,366,197
Distributions:
Investor Limited
Partners 496,852 496,853 2,885,312 543,679 543,679
Per Unit 18.28 18.28 106.14 20.00 20.00
Original Limited
Partner 44,164 44,165 48,327 48,327 48,327
General Partners 11,042 11,041 35,460 12,082 12,082
Operating results for the periods presented are not comparable due to the sale
of Nora Corners on January 30, 1998.
The per Unit distributions for the years ended December 31, 2000, 1999, 1998,
1997 and 1996 were $18.28, $18.28, $106.14, $20.00, and $20.00, respectively, of
which $86.14 in 1998 represented a return of capital.
Prior performance of the Partnership is not necessarily indicative of future
operations.
-5-
ITEM 7.
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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 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. In August 1994, the Partnership began making distributions at a
rate of $5.00 per Unit which increased in February 1995 to a rate of $20.00 per
Unit. Additionally, the Partnership made special capital distributions in 1998
totaling $86.14 per Unit based on the remaining proceeds of the sale of Nora
Corners. Distributions of net cash proceeds from capital transactions are
allocated in accordance with the Partnership Agreement (as described in Note H
to the consolidated financial statements included in Item 8 (Appendix A) of this
report). Due to the special capital distributions as a result of the sale of
Nora Corners, and the subsequent decrease in the Investor Limited Partners'
Capital, the semiannual distributions were adjusted in 1999 to $18.28 per Unit,
beginning with the distribution payable in February 1999.
Over the past several years, real estate markets in general have improved,
and the General Partners feel it 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 12 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 are in the process of negotiating an extension of the
mortgage note payable on Windsor Apartments. It is anticipated that the note
will be extended under terms substantially similar to the current terms.
On January 30, 1998, the General Partners sold Nora Corners to unaffiliated
third parties. The property was included in a package with thirteen other
properties owned by affiliates of the General Partners. The total selling price
of the fourteen properties was $138,000,000, of which the Partnership received
$6,604,300 for the sale of its property, less the payoff of the mortgage note
and its share of the closing costs of $224,512 (see Note E to Consolidated
Financial Statements included in Item 8 (Appendix A) of this report).
On July 30, 1997, the Partnership successfully completed the refinancing of
the Courtyards Village East Apartments ("Courtyards Village") mortgage note. The
$5,280,000 note bears interest at an annual rate of 7.88%, requires equal
monthly principal and interest installments of $38,302, and matures on August 1,
2007. Net refinancing proceeds of approximately $1,860,000 provided additional
liquidity to fund capital improvements at the Partnership's properties,
Courtyards Village and Windsor Apartments.
-6-
In order to remain competitive in their respective markets, the
Partnership's properties spent approximately $362,000 for fixed assets in 2000.
During 2001, the Partnership's properties intend to spend approximately $507,000
for fixed assets with an emphasis in areas that will improve the return in the
event of a liquidation. These expenditures will be primarily funded from cash
generated from property operations. These improvements include interior and
exterior enhancements, installation of sprinkler system, pavement improvement,
and roofing at Windsor Apartments.
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
It requires recognition of all derivative instruments as either asset or
liabilities in the statement of financial position and measure those instruments
at fair value. This statement will be effective for the Partnership beginning
January 1, 2001. The Partnership did not hold any derivative instruments at
December 31, 2000, and as such, the Partnership does not expect this
pronouncement to have a significant impact on the Partnership's financial
statements.
Operations
The following discussion relates to the operations of the Partnership and
its properties (Courtyards Village and Windsor Apartments) for the years ended
December 31, 2000, 1999 and 1998. The sale of Nora Corners on January 30, 1998,
significantly impacts the comparability of the Partnership's operations for the
years ended December 31, 1999 and 1998.
2000 compared to 1999
Net loss decreased in 2000 when compared 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 in
2000 due to a lower average cash and cash equivalent balances available for
investment when compared to 1999.
Total expenses for 2000 decreased when compared to 1999. Depreciation
expense decreased as fixed asset additions purchased in the previous years
became fully depreciated. Maintenance expenses decreased in 2000 as capital
expenditures reduced the need for repairs and maintenance in some areas.
Operating expenses increased primarily as a result of increases in leasing,
utilities, and insurance costs.
1999 compared to 1998
Net income, net of Nora Corners' activity, decreased in 1999 when compared
to 1998 as increases in total expenses more than offset increases in total
revenue.
In comparing 1999 to 1998, the increase in rental revenue is attributable
to residential rental rate increases implemented at Courtyards and Windsor
Apartments. However this was substantially offset by decreases in interest
income due to lower average cash and cash equivalent balances available for
investment, resulting from the sale of Nora Corners.
Total expenses increased when compared to 1998, primarily due to increases
in operating expenses, real estate taxes, general and administrative, and
depreciation expense. Operating expense increased in 1999 as a result of an
increase in workmen's compensation expense over 1998 due to a favorable
adjustment to the liability and workmen's compensation reserve in 1998 as a
result of favorable claim experience. Real estate tax expense increased as a
result of a reassessment of Windsor Apartments' property value in 1998 by the
local taxing authority. General and administrative expenses increased due to
higher expenses incurred in connection with preparation and mailing of
Partnership reports and other investor communication. Depreciation expense
increased in conjunction with increased capital improvements completed at
Courtyards Village, particularly the rehab of eleven apartments during the first
quarter.
-7-
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------
The Partnership's future earnings, cash flows and fair values relevant to
financial instruments are dependent upon prevalent market rates. Market risk is
the risk of loss from adverse changes in market prices and interest rates. The
Partnership manages its market risk by matching projected cash inflows from
operating activities, investing activities and financing activities with
projected cash outflows to fund debt payments, acquisitions, capital
expenditures, distributions and other cash requirements. All of the
Partnership's debt (maturing at various times through 2007) has a fixed interest
rate, which minimizes the interest rate risk.
If market rates of interest increase by ten percent, the fair value of the
Partnership's total outstanding debt would decrease by approximately $193,000.
If market rates of interest decrease by ten percent, the fair value of the
Partnership's total outstanding debt would increase by approximately $201,000.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------
The financial statements and supplementary data are listed in the Index to
Financial Statements and Financial Statement Schedule appearing on Page F-2 of
this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
- ------- AND FINANCIAL DISCLOSURE
None.
-8-
PART III
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-VII, and The Krupp Company Limited Partnership-II, the
other General Partner of KRLP-VII, is as follows:
Name and Age Position with The Krupp Corporation
Douglas Krupp (54) Co-Chairman of the Board
George Krupp (56) Co-Chairman of the Board
Frank Apeseche (43) President
David C. Quade (57) Treasurer and Executive Vice
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.
Frank Apeseche is the President of The Berkshire Group. Mr. Apeseche joined
The Berkshire Group in 1986. He served as Chief Financial Officer and Chief
Planning Officer from 1992 to 1995. Mr. Apeseche was the founding Managing
Partner of BG Affiliates, a private equity investment firm. Prior to joining The
Berkshire Group he served as a manager with Andersen Consulting where he
specialized in providing technology solutions to Fortune 500 clients. Mr.
Apeseche received a BA with distinction from Cornell University and an MBA with
Honors from the University of Michigan.
David C. Quade is the Treasurer and Executive Vice President of The
Berkshire Group. Mr. Quade joined The Berkshire Group in 1998. Prior to joining
The Berkshire Group, he was a Principal and Executive V.P./CFO at Leggat McCall
Properties for eighteen years. At Leggatt McCall, Mr. Quade had extensive
experience in business strategic planning, financial workouts, funds management,
and corporate financing regarding asset management. Prior to that, Mr. Quade
worked in senior financial capacities for two NYSE companies, North American
Mortgage Investors and Equitable Life Mortgage & Realty Investors, and he also
worked at Coopers & Lybrand. He has a P.A.P. from the Northwestern University
Graduate School of Business, and a B.S. degree and a Master's degree in Business
Administration from Central Michigan University.
ITEM 11. EXECUTIVE COMPENSATION
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The Partnership has no directors or executive officers.
-9-
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------
As of February 15, 2001, beneficial owners of record owning more than 5% of
the Partnership's 27,184 outstanding Units were as follows:
Title Name and Address Amount and Nature Percent
of Of Of of
Class Beneficial Owner Beneficial Ownership Class
- ------------- -------------------------- ------------------- --------------
Investor Equity Resources Group,
Limited Incorporated
Partner Units 14 Story Street
Cambridge, MA 02138 1,664.00 Units (1) 6.12%
Investor Madison Avenue Investment
Limited Partners, LLC
Partner Units P.O. Box 7533
Incline Village, NV 89452 1,396.90 Units (2)(3) 5.14%
Investor First Equity Realty, LLC
Limited 555 Fifth Avenue,
Partner Units 9th Floor
New York, NY 10017 1,396.90 Units (2)(4) 5.14%
Investor The Harmony Group II, LLC
Limited P.O. Box 7533
Partner Units Incline Village, NV 89452 1,396.90 Units (2)(5) 5.14%
Investor Ronald M. Dickerman
Limited 555 Fifth Avenue,
Partner Units 9th Floor
New York, NY 10017 1,396.90 Units (2)(6) 5.14%
Investor Bryan E. Gordon
Limited P.O. Box 7533
Partner Units Incline Village, NV 89542 1,396.90 Units (2)(7) 5.14%
<FN>
(1) According to the statement on Schedule 13D originally filed on April 3,
1996 by Equity Resources Group, Incorporated, Equity Resource Cambridge
Fund Limited Partnership, Equity Resource General Fund Limited Partnership,
Equity Resource Brattle Fund Limited Partnership, Equity Resource Fund XV
Limited Partnership, Equity Resource Fund XVI Limited Partnership, Equity
Resource Fund XVII Limited Partnership, Equity Resource Fund XVIII Limited
Partnership, Equity Resource Fund XIX Limited Partnership, James E. Brooks,
Mark S.Thompson and Eggert Dagbjartsson, as amended by Amendment No. 1
thereto dated December 12, 1996 and Amendment No. 2 thereto dated April 21,
1997, Equity Resources Group, Incorporated, James E. Brooks, Mark S.
Thompson and Eggert Dagbjartsson, in their capacities as General Partners
of each of Equity Resource Cambridge Fund Limited Partnership, Equity
Resource General Fund Limited Partnership, Equity Resource Brattle Fund
Limited Partnership, Equity Resource Fund XV Limited Partnership, Equity
Resource Fund XVI Limited Partnership, Equity Resource Fund XVII Limited
Partnership, Equity Resource Fund XVIII Limited Partnership and Equity
Resource Fund XIX Limited Partnership, respectively, share the power to
vote or direct the vote and to dispose of or direct the disposition of
1,664 units.
(2) According to the statement on Schedule 13G originally filed on February 9,
2000 (the "Madison Schedule 13G"), by Madison Avenue Investment Partners,
LLC ("MAIP"), First Equity Realty, LLC ("First Equity"), The Harmony Group
II, LLC ("Harmony Group"), Ronald M. Dickerman and Bryan E. Gordon
(collectively, the "Reporting Persons"), each of MAIP, First Equity,
Harmony Group and Reporting Persons may be deemed to constitute a "group"
within the meaning of Section 13(d)(3) of the Exchange Act. According to
the Madison Schedule 13G, MAIP is the controlling person of various
entities which are the nominee owners of, or the successors by merger to
the assets of nominee owners of, Limited Partner Interest (the "Units") of
the Issuer. As stated in the Madison Schedule 13G, these nominees, none of
which beneficially own 5% or more of the Units, are ISA Partnership
Liquidity Investors, Madison/AG Partnership Value Partners III and Cobble
Hill Investments, LP.
-10-
According to the Madison Schedule 13G, the controlling members of MAIP are
The Harmony Group II, LLC, a Delaware limited liability company of which
Bryan E. Gordon is the Managing Member, and First Equity Realty, LLC, a New
York limited liability company of which Ronald M. Dickerman is the Managing
Member.
(3) According to the Madison Schedule 13G, Madison Avenue Investment Partners,
LLC has sole voting and dispositive power with respect to 1,396.90 units of
the Partnership.
(4) According to the Madison Schedule 13G, First Equity Realty, LLC has shared
voting and dispositive power with respect to 1,396.90 units of the
Partnership.
(5) According to the Madison Schedule 13G, The Harmony Group II, LLC has shared
voting and dispositive power with respect to 1,396.90 units of the
Partnership.
(6) According to the Madison Schedule 13G, Ronald M. Dickerman has shared
voting and dispositive power with respect to 1,396.90 units of the
Partnership.
(7) According to the Madison Schedule 13G, Bryan E. Gordon has shared voting
and dispositive power with respect to 1,396.90 units of the Partnership.
</FN>
The only interests held by management or its affiliates consist of its General
Partner and Original Limited Partner Interests.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------
The Partnership does not have any directors, executive officers or nominees
for election as director. Please see Note I to the Consolidated Financial
Statements (Appendix A).
-11-
PART IV
ITEM 14. EXHIBITS, CONSOLIDATED 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 F-2 to this report.
2. Consolidated Financial Statement Schedules - see Index to
Consolidated Financial Statements and Schedule included under Item
8 (Appendix A), on page F-2 to this report. 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.
(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
October 23, 1984 [Exhibit A to Prospectus included in
Registrant's Registration Statement on Form S-11
(File 2-92889)].*
(4.2) Thirty-Second Amendment and Restatement of
Certificate of Limited Partnership filed with the
Massachusetts Secretary of State on June 4, 1986
[Exhibit 4.2 to Registrant's Report on Form 10-K
dated October 31, 1986 (File No. 0-14377)].*
(10) Material Contracts
Windsor Apartments
(10.1) Purchase and Sale Agreement dated June 3, 1983
between Douglas Krupp, on behalf of himself and
others, and Garland Land Joint Venture [Exhibit 1 to
Registrant's Report on Form 8-K dated December 27,
1984 (File No.
2-92889)].*
(10.2) Property Management Agreement, dated December 27,
1984 between Krupp Realty Limited Partnership-VII, as
Owner and BRI OP Limited Partnership, formerly known
as Berkshire Property Management, a subsidiary of
Berkshire Realty Company, Inc. [Exhibit 10.4 to
Registrant's Report on Form 10-K for the fiscal year
ended October 31, 1984 (File No. 2-92889)].*
(10.3) Promissory Note dated April 13, 1994 by and between
Windsor Partners Limited Partnership and Sun Life
Insurance Company of America [Exhibit 10.1 to
Registrant's Report on Form 10-Q dated June 30, 1994
(File No. 0-14377)].*
(10.4) Deed of Trust, Security Agreement, Fixture Filing,
Financing Statement and Assignment of Leases and
Rents dated April 13, 1994 from the grantor, Windsor
Partners Limited Partnership, to the Trustee, Brian
C. Rider [Exhibit 10.2 to Registrant's Report on Form
10-Q dated June 30, 1994 (File No. 0-14377)].*
Courtyards Village East Apartments
(10.5) Purchase and Sale Agreement dated October 12, 1984
between Douglas Krupp on behalf of himself and
others, and The Courtyards Village and The Courtyards
Village Inn-East Apartments Partnership [Exhibit 1 to
Registrant's Report on Form 8-K dated April 1, 1985
(File 2-92889)].*
-12-
(10.6) Amended Trust Agreement dated May 6, 1976 between The
Courtyards Village and The Courtyards Village
Inn-East Apartments Partnership and American National
Bank and Trust Company of Chicago [Exhibit 2 to
Registrant's Report on Form 8-K dated April 1, 1985
(File No. 2-92889)].*
(10.7) Assignment of Trust of American National Bank and
Trust Company of Chicago dated April 1, 1985 [Exhibit
3 to Registrant's Report on Form 8-K dated April 1,
1985 (File No. 2-92889)].*
(10.8) Mortgage Note dated January 1, 1973 between American
National Bank and Trust Company of Chicago and
Republic Realty Mortgage Company [Exhibit 4 to
Registrant's Report on Form 8-K dated April 1, 1985
(File No. 2-92889)].*
(10.9) Modification Agreement dated May 1, 1975 between
American National Bank and Trust Company of Chicago
and Republic Realty Mortgage Corporation. [Exhibit 5
to Registrant's Report on Form 8-K dated April 1,
1985 (File No. 2-92889)].*
(10.10) Mortgage Note dated May 18, 1976 between American
National Bank and Trust Company of Chicago and
Republic Realty Mortgage Company [Exhibit 6 to
Registrant's Report on Form 8-K dated April 1, 1985
(File No.
2-92889)].*
(10.11) Mortgage Agreement dated May 18, 1976 between
American National Bank and Trust Company of Chicago
and Republic Realty Mortgage Corporation [Exhibit 7
to Registrant's Report on Form 8-K dated April 1,
1985 (File No. 2-92889)].*
(10.12) Amended HUD Regulatory Agreement dated May 18, 1976
between American National Bank and Trust Company of
Chicago and Republic Realty Mortgage Corporation
[Exhibit 8 to Registrant's Report on Form 8-K dated
April 1, 1985 (File No. 2-92889)].*
(10.13) Consolidation Agreement dated June 14, 1976 between
American Bank and Trust Company of Chicago, as
Trustee, and Republic Realty Mortgage Corporation
[Exhibit 9 to Registrant's Report on Form 8-K dated
April 1, 1985 (File No. 2-92889)].*
(10.14) Property Management Agreement, dated April 1, 1985
between Krupp Realty Limited Partnership-VII, as
Owner and BRI OP Limited Partnership, formerly known
as Berkshire Property Management, an affiliate of
Berkshire Realty Company, Inc. [Exhibit 10.20 to
Registrant's Report on Form 10-K for the year ended
October 31, 1985 (File No. 2-92889)].*
(10.15) Promissory Note dated July 30, 1997 between American
National Bank and Trust Company of Chicago and Reilly
Mortgage Group, Inc.*
(10.16) Multifamily Mortgage, Assignment of Rents, and
Security Agreement dated July 30, 1997 between
American National Bank 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 year ended December 31, 2000, the
Partnership did not file any reports on Form 8-K.
-13-
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, 2001.
Krupp Realty Limited Partnership-VII
----------------------------------------------------
(Registrant)
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 30th day of March 2001.
Signatures Titles
/s/ Douglas Krupp Co-Chairman (Principal Executive
- ----------------------------------------- Officer) and Director of The Krupp
Douglas Krupp Corporation, a General Partner.
/s/ George Krupp Co-Chairman (Principal Executive
- ----------------------------------------- Officer) and Director of the Krupp
George Krupp Corporation, a General Partner.
/s/ Frank Apeseche President of the Krupp Corporation,
- ----------------------------------------- a General Partner.
Frank Apeseche
/s/ David Quade Treasurer (Principal Financial and
- ----------------------------------------- Accounting Officer) of the Krupp
David Quade Corporation, a General Partner.
-14-
APPENDIX A
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
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, 2000
F-1
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
Report of Independent Accountants F-3
Consolidated Balance Sheets
at December 31, 2000 and December 31, 1999 F-4
Consolidated Statements of Operations
for the Years Ended December 31, 2000, 1999 and 1998 F-5
Consolidated Statements of Changes in Partners' Equity (Deficit)
for the Years Ended December 31, 2000, 1999 and 1998 F-6
Consolidated Statements of Cash Flows
for the Years Ended December 31, 2000, 1999 and 1998 F-7
Notes to Consolidated Financial Statements F-8 - F-15
Schedule III - Real Estate and Accumulated Depreciation F-16 - F-17
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.
F-2
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Krupp Realty Limited Partnership-VII and Subsidiaries:
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Krupp Realty Limited Partnership-VII and Subsidiaries (the
"Partnership") at December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2000 in conformity with accounting principles generally accepted in
the United States of America. In addition, in our opinion, the financial
statement schedule listed in the accompanying index presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. 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 of America, 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 our opinion.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
March 19, 2001
F-3
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2000 and 1999
-------
ASSETS
2000 1999
--------------- ---------------
Multi-family apartment complexes,
net of accumulated depreciation
of $15,671,250 and $14,265,488,
respectively (Note F) $ 7,766,297 $ 8,809,883
Cash and cash equivalents (Note C) 456,851 120,525
Cash restricted for tenant security
deposits 27,800 27,256
Replacement reserve escrow (Note F) 56,043 72,378
Due from affiliates (Note I) 31,115 237,015
Prepaid expenses and other assets 476,014 426,006
Investment in securities 65,340 -
Deferred expenses, net of accumulated
amortization of $210,020 and
$171,421, respectively 105,632 144,234
--------------- ---------------
Total assets $ 8,985,092 $ 9,837,297
=============== ===============
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Mortgage notes payable (Notes E
and F) $ 10,107,446 $ 10,220,052
Accrued expenses and other
liabilities (Note G) 717,537 625,590
--------------- ---------------
Total liabilities 10,824,983 10,845,642
Commitment (Note H)
Partners' deficit (Note H):
Investor Limited Partners
(27,184 Units outstanding) (946,178) (172,633)
Original Limited Partner (569,931) (525,767)
General Partners (323,782) (309,945)
--------------- ---------------
Total partners' deficit (1,839,891) (1,008,345)
--------------- ---------------
Total liabilities and
partners' deficit $ 8,985,092 $ 9,837,297
=============== ===============
The accompanying notes are an integral part of the
consolidated financial statements.
F-4
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2000, 1999 and 1998
2000 1999 1998
----------- ----------- -----------
Revenue:
Rental $ 4,184,217 $ 3,970,170 $ 3,853,006
Interest income (Note C) 18,534 27,447 136,183
----------- ----------- -----------
Total revenue 4,202,751 3,997,617 3,989,189
----------- ----------- -----------
Expenses:
Operating (Notes E and I) 1,045,932 1,010,972 964,827
Maintenance 321,259 341,331 331,021
Real estate taxes 418,345 428,806 360,747
General and administrative (Note I) 197,064 176,664 118,755
Management fees (Note I) 185,038 157,467 172,873
Depreciation and amortization 1,444,361 1,552,134 1,421,027
Interest (Note F) 870,240 879,470 918,569
----------- ----------- -----------
Total expenses 4,482,239 4,546,844 4,287,819
Loss before gain on sale of property (279,488) (549,227) (298,630)
Gain on sale of property (Note E) - - 676,316
----------- ----------- -----------
Net income (loss) (Note J) $ (279,488) $ (549,227) $ 377,686
=========== =========== ===========
Allocation of net income (loss) (Note H):
Investor Limited Partners
(27,184 Units outstanding):
Loss before gain on sale of
property $ (276,693) $ (543,735) $ (295,644)
Gain on sale of property - - 669,553
----------- ----------- ------------
Net income (loss) $ (276,693) $ (543,735) $ 373,909
=========== =========== ============
Investor Limited Partners, Per Unit:
Loss before gain on sale of
property $ (10.18) $ (20.00) $ (10.88)
Gain on sale of property - - 24.63
----------- ----------- -----------
Net income (loss) $ (10.18) $ (20.00) $ 13.75
=========== =========== ===========
Original Limited Partner:
Loss before gain on sale of
property $ - $ - $ -
Gain on sale of property - - -
----------- ----------- -----------
Net income (loss) $ - $ - $ -
=========== =========== ===========
General Partners:
Loss before gain on sale of
property $ (2,795) $ (5,492) $ (2,986)
Gain on sale of property - - 6,763
----------- ----------- -----------
Net income (loss) $ (2,795) $ (5,492) $ 3,777
=========== =========== ===========
The accompanying notes are an integral part of the
consolidated financial statements.
F-5
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' EQUITY (DEFICIT)
For the Years Ended December 31, 2000, 1999 and 1998
Total
Investor Original Partners'
Limited Limited General (Deficit)
Partners Partner Partners Equity
------------- ------------- ------------- --------------
Balance at
December 31, 1997 $ 3,379,358 $ (433,275) $ (261,729) $ 2,684,354
Net income 373,909 - 3,777 377,686
Distributions (2,885,312) (48,327) (35,460) (2,969,099)
------------- --------------- ------------- --------------
867,955 (481,602) (293,412) 92,941
Balance at
December 31, 1998
Net loss (543,735) - (5,492) (549,227)
Distributions (496,853) (44,165) (11,041) (552,059)
------------- --------------- ------------- --------------
(172,633) (525,767) (309,945) (1,008,345)
Balance at
December 31, 1999
Net loss (276,693) - (2,795) (279,488)
Distributions (496,852) (44,164) (11,042) (552,058)
------------- --------------- ------------- ---------------
Balance at
December 31, 2000 $ (946,178) $ (569,931) $ (323,782) $ (1,839,891)
============= =============== ============= ===============
The per Unit distributions for each of the years ended December 31, 2000, 1999
and 1998 was $18.28, $18.28 and $106.14, respectively, of which $0, $0 and
$86.14 represented a return of capital, respectively.
The accompanying notes are an integral part of the
consolidated financial statements.
F-6
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2000, 1999 and 1998
`
2000 1999 1998
---------- ---------- ----------
Cash flows from operating activities:
Net income (loss) $ (279,488) $ (549,227) $ 377,686
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Interest earned on replacement
reserve escrow (787) (1,023) (160)
Depreciation and amortization 1,444,361 1,552,133 1,421,027
Gain on sale of property - - (676,316)
Changes in assets and liabilities:
Increase in restricted cash for
tenant security deposits (544) (650) (626)
Decrease (increase) in prepaid
expenses and other assets and due
from affiliates 155,895 (59,107) 3,646
Increase (decrease) in accrued
expenses and other liabilities 28,811 68,729 (254,228)
---------- ---------- ----------
Net cash provided by operating
activities 1,348,248 1,010,855 871,029
---------- ---------- ----------
Cash flows from investing activities:
Deposits to replacement reserve
escrow (50,400) (50,400) (21,000)
Withdrawals from replacement
reserve escrow 67,522 205 -
Additions to fixed assets (362,176) (812,887) (1,829,349)
Increase (decrease) in accrued
expenses and other liabilities
related to fixed asset additions (2,204) (1,296) 3,500
Proceeds from sale of property, net - - 6,514,681
---------- ---------- ----------
Net cash (used in) provided by
investing activities (347,258) (864,378) 4,667,832
---------- ---------- ----------
Cash flows from financing activities:
Principal payments on mortgage notes
payable (112,606) (103,376) (94,906)
Repayment of mortgage notes payable - - (4,084,037)
Increase in deferred expenses - - (15,496)
Distributions (552,058) (552,059) (2,969,099)
---------- ---------- ----------
Net cash used in financing
activities (664,664) (655,435) (7,163,538)
---------- ---------- ----------
Net increase (decrease) in cash and cash
equivalents 336,326 (508,958) (1,624,677)
Cash and cash equivalents, beginning of
the year 120,525 629,483 2,254,160
---------- ---------- ----------
Cash and cash equivalents, end of year $ 456,851 $ 120,525 $ 629,483
========== ========== ==========
Non-cash investing activities:
Investment in securities $ 65,340
The accompanying notes are an integral part of the
consolidated financial statements.
F-7
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
A. Organization
Krupp Realty Limited Partnership-VII ("KRLP-VII") was formed on August 21,
1984 by filing a Certificate of Limited Partnership in the Commonwealth of
Massachusetts. KRLP-VII terminates on December 31, 2025 unless earlier
terminated upon the occurrence of certain events as set forth in the
Partnership Agreement. KRLP-VII issued all of the General Partner Interests
to two General Partners, The Krupp Corporation, a Massachusetts
corporation, and The Krupp Company Limited Partnership-II, a Massachusetts
limited partnership, in exchange for capital contributions aggregating
$1,000. In addition, the General Partners were required to make additional
capital contributions of $135,891 which were used to pay organization and
offering costs in excess of 5% of the gross proceeds of the offering.
Except under certain limited circumstances upon termination of KRLP-VII,
the General Partners are not required to make any other additional capital
contributions.
KRLP-VII also issued all of the Original Limited Partner Interests to The
Krupp Company Limited Partnership-II in exchange for a capital contribution
of $4,000.
On November 2, 1984, KRLP-VII commenced an offering of up to 40,000 units
of Investor Limited Partner Interest (the "Units") for $1,000 per Unit. The
public offering was closed on April 25, 1986, at which time 27,184 Units
had been sold for $27,184,000.
On December 19, 1984 the General Partners formed Krupp Realty Courtyards
Limited Partnership ("Realty-VII") as a prerequisite for the refinancing of
Courtyards Village East Apartments ("Courtyards Village"). At the same
time, the General Partners transferred ownership of Courtyards Village to
Realty-VII. The General Partner of Realty-VII is KRLP-VII. The Limited
Partners of Realty-VII are KRLP-VII and The Krupp Corporation ("Krupp
Corp."). Krupp Corp. has beneficially assigned its interest in Realty-VII
to KRLP-VII.
On March 31, 1994, the General Partners formed Windsor Partners Limited
Partnership ("Windsor L.P.") as a prerequisite for the refinancing of
Windsor Apartments. At the same time, the General Partners transferred
ownership of the property to Windsor L.P. In exchange for the property,
KRLP-VII received a 99% Limited Partnership interest in Windsor L.P. The
General Partner of Windsor L.P. is ST. Windsor Corporation which has a 1%
interest in Windsor L.P. and is 100% owned by KRLP-VII.
KRLP-VII, Realty-VII and Windsor L.P. are collectively known as Krupp
Realty Limited Partnership-VII and Subsidiaries (collectively referred to
herein as the "Partnership").
On January 30, 1998, the Partnership sold Nora Corners, a shopping center
containing 89,432 leasable square feet, located in Indianapolis, Indiana,
to Kejack, Inc. and its permitted assigns, which are unaffiliated third
parties. Nora Corners Shopping Center was included in a package with
thirteen other properties owned by affiliates of the General Partners (see
Note E).
Continued
F-8
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------
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 accounting
principals generally accepted in the United States of America 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.
Cash and Cash Equivalents
The Partnership includes all short-term investments with original
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 market values.
Rental Revenue
Leases require the payment of base rent monthly in advance. Rental
revenue are recorded on the accrual basis.
Real Estate
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 real estate assets might be
impaired and the estimated undiscounted cash flows, without interest
charges, 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 less estimated
costs to sell.
Expenditures for ordinary maintenance and repairs are expensed to
operations as they are incurred. Significant renovations and
improvements which improve or extend the useful life of the assets are
capitalized. Except for amounts attributed to land, rental property and
improvements are depreciated over their estimated useful lives using
the straight-line method. The estimated useful lives by asset category
are:
Buildings and improvements 3 to 25 years
Equipment, furnishings and fixtures 3 to 8 years
Continued
F-9
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------
B. Significant Accounting Policies, Continued
Real Estate, Continued
The Partnership classifies assets as available for sale upon the
General Partners committing to a formal plan of disposal. The
Partnership is in the process of determining the marketability of the
Partnership's real estate assets but the General Partners have not
committed to a formal plan of disposition and therefore no properties
have been classified as available for sale.
Deferred Expenses
Costs of obtaining and recording mortgages 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 the
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 taxable income or
loss, such change will be reported to the Partners.
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 has similar economic characteristics,
facilities, services and tenants, the apartment communities have been
aggregated into a single dominant apartment communities segment.
All revenue are from external customers and no revenue are generated
from transactions with other segments. There are no tenants who
contributed 10% or more of the Partnership's total revenue during 2000,
1999 or 1998.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of financial Accounting standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS
No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires recognition of all
derivative instruments as either assets or liabilities in the statement
of financial position and measure those instruments at fair value. This
statement will be effective for the Partnership beginning January 1,
2001. The Partnership did not hold any derivative instruments at
December 31, 2000, and as such, the Partnership does not expect this
pronouncement to have a significant impact on the Partnership's
financial statements.
Investment in Securities
Investment in securities is carried at its original issuance valuation
as the common stock is not listed or traded on an exchange and is not
considered a marketable security pursuant to Statement of Financial
Accounting Standards Opinion No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("FAS 115").
Continued
F-10
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------
C. Cash and Cash Equivalents
Cash and cash equivalents at December 31, 2000 and 1999 consisted of
the following:
December 31,
-------------------------
2000 1999
------------ ------------
Cash and money market accounts $ 456,851 $ 120,525
============ ============
D. Investment in Securities
On October 5, 2000, the Partnership, as a member of an alliance of major
multi-family real estate companies, executed a master lease agreement
("MLA") with a provider of high-speed internet, video and voice services to
multi-family communities. Pursuant to the MLA, the Partnership granted the
provider preferred lease, license and access rights to provide data
services, consisting of high-speed broadband internet access and video
services, to the residents at some of its multi-family communities for a
ten-year period. In exchange for these rights, the Partnership received
250,843 shares of common stock which were valued at $.2285 per share or
$57,341. In addition, the Partnership will receive 7.5% of the gross
revenues that the provider obtains from providing its services as well as a
fixed amount for each resident that executes a subscriber agreement. In
conjunction with the execution of the MLA, the Partnership made an
investment of $5,751 in exchange for 25,164 additional shares of common
stock also valued at $.2285 per share. The Partnership incurred
approximately $2,248 in closing costs related to the acquisition by the
Partnership and the closing costs incurred were recorded as an investment
in securities in the financial statements as of December 31, 2000.
E. Sale of Property
On January 30, 1998, the Partnership sold Nora Corners Shopping Center
("Nora Corners") to unaffiliated third parties. Nora Corners was included
in a package with thirteen other properties owned by affiliates of the
General Partners. The total selling price of the fourteen properties was
$138,000,000, of which the Partnership received $6,604,300, less repayment
of the existing mortgage note and interest of $4,114,668 and its share of
closing costs of $224,512. For financial reporting purposes, the
Partnership realized a gain of $676,316 on the sale. The gain was
calculated as the difference between the property's selling price less net
book value of the property and closing costs.
Nora Corners was situated on 11.21 acres of land, seven acres of which were
owned by certain non-affiliated third parties. These seven acres of land
were leased to the Partnership subject to a 99-year land lease which
expired in 2061. The land lease required annual rental payments of $17,280
from 1987 through 2012. On January 30, 1998, in conjunction with the sale
of Nora Corners, the land lease was assigned to the purchaser of the
property, under the terms of the land lease.
Continued
F-11
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------
F. Mortgage Notes Payable
The properties owned by the Partnership are pledged as collateral for the
respective non-recourse mortgage notes payable outstanding at December 31,
2000 and 1999. Mortgage notes payable consisted of the following:
Principal Annual
---------------------- ------------------------ Interest Maturity
Property 2000 1999 Rate Date
---------------------- ----------- ----------- -------- ---------
Courtyards Village $ 5,109,846 $ 5,164,455 7.88% August 1, 2007
Windsor Apartments 4,997,600 5,055,597 9.25% May 1, 2001
----------- -----------
Total $10,107,446 $10,220,052
=========== ===========
Courtyards Village
On July 30, 1997, the Partnership refinanced the Courtyards Village
mortgage note. The property was refinanced with a $5,280,000
non-recourse mortgage note payable at the rate of 7.88% per annum with
monthly principal and interest payments of $38,302. The mortgage note,
which is collateralized by the property, matures on August 1, 2007 at
which time the remaining principal (approximately $4,658,637) and any
accrued interest are due. The note may be prepaid, subject to a
prepayment premium, 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 $3,172,809, pay closing costs
of $136,040 and to establish various escrows. As part of the
refinancing, the Partnership was required to establish a $9,525 repair
escrow and a replacement reserve escrow. The replacement reserve escrow
required no initial deposit at the close and monthly deposits of $4,200
which began on September 1, 1998.
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 $5,309,000 and $5,076,000 for the years
ended December 31, 2000 and 1999, respectively.
Windsor Apartments
The property is subject to a non-recourse mortgage note payable in the
original amount of $5,300,000, based on a 30-year amortization and
payable at the rate of 9.25% per annum in equal monthly installments of
$43,602, consisting of principal and interest. At maturity, all unpaid
principal, approximately $5,021,000, and any accrued interest are due.
The note may be prepaid subject to a prepayment penalty.
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 $5,075,000 and $5,161,000 for the years
ended December 31, 2000 and 1999, respectively.
The General Partners are in the process of negotiating an extension of
the mortgage note payable on Windsor Apartments. It is anticipated that
the note will be extended under terms substantially similar to the
current terms.
Due to restrictions on transfers and prepayment, the Partnership may be
unable to refinance certain mortgage notes payable at such calculated fair
value.
Continued
F-12
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------
F. Mortgage Notes Payable, Continued
The aggregate scheduled principal amounts of long-term borrowings due
during the five years ending December 31, 2005 are $5,079,337, $63,481,
$68,668, $74,279 and $80,348.
The Partnership paid interest on its borrowings in the amounts of $870,240,
$879,470 and $918,569 during the years ended December 31, 2000, 1999 and
1998, respectively.
The weighted average interest rate on the Partnership's mortgage notes
payable is 8.56% at December 31, 2000.
G. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consisted of the following at
December 31, 2000 and 1999:
2000 1999
---------------- -----------------
Accounts payable $ 8,338 $ 18,550
Accrued real estate taxes 419,230 392,868
Other liabilities 203,556 132,502
Tenant security deposits 57,461 45,604
Prepaid rent 28,952 36,066
---------------- -----------------
$ 717,537 $ 625,590
================ =================
H. Partners' Equity
Under the terms of the Partnership Agreement, losses from operations are
allocated 99% to the Investor Limited Partners and 1% to the General
Partners. Profits from operations are allocated 90% to the Investor Limited
Partners, 8% to the Original Limited Partner and 2% 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, 69% to the Investor Limited Partners, 25% to
the Original Limited Partner and 6% 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 terms of 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 will then be distributed 99% to the Investor
Limited Partners until they have received a return of their total invested
capital and 1% to the General Partners, thereafter net cash proceeds will
be distributed in accordance with the Partnership Agreement and will be
distributed in part after payment by the Partnership of a certain
subordinated financial consulting fee as described below.
Continued
F-13
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------
H. Partners' Equity, Continued
The Partnership entered into a Sales Agent Agreement for the public
offering of Units. Under that Agreement, the Partnership was required to
pay to the sales agent underwriting commissions and related financial
consulting fees equal to 9% of the gross proceeds from the offering. In
addition, the sales agent will be entitled to receive, over the life of the
Partnership, a subordinated financial consulting fee based upon the net
cash proceeds received by the Partnership as a result of sales and
refinancings of Partnership properties, which fee shall be in an amount not
exceeding 1.5% of the gross proceeds of the offering of Units. No such fees
will, however, be payable unless and until all Partners have received a
return of their Invested Capital and the Investor Limited Partners have
received a 9% per annum cumulative return.
As of December 31, 2000, the following cumulative partner contributions and
allocations have been made since the inception of the Partnership:
Investor Original Total
Limited Limited General Partners'
Partners Partner Partners (Deficit)
----------------------- ----------- ---------- ----------- ------------
Capital contributions $ 27,184,000 $ 4,000 $ 136,891 $ 27,324,891
Syndication costs (3,697,375) - (135,891) (3,833,266)
Distributions:
Operation (6,466,199) (574,772) (143,692) (7,184,663)
Capital transaction (2,341,632) - (23,378) (2,365,010)
Income (loss):
Operations (15,477,758) 841 (156,225) (15,633,142)
Capital transaction (147,214) - (1,487) (148,701)
----------- --------- ---------- ------------
Balance at
December 31, 2000 $ (946,178) $(569,931) $ (323,782) $ (1,839,891)
=========== ========= ========== ============
I. 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 4% of the
gross receipts, net of leasing commissions, from the commercial property
which was under management until January 30, 1998 (see Note E) and 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.
Amounts accrued or paid to the General Partners' affiliates during the
years ended December 31, 2000, 1999 and 1998 were as follows:
2000 1999 1998
----------- ------------- ------------
Property management fees $ 185,038 $ 157,467 $ 172,873
Expense reimbursements 203,128 196,973 146,025
----------- ------------- ------------
Charged to operations $ 388,166 $ 354,440 $ 318,898
=========== ============= ============
Expense reimbursements due from affiliates of $31,115 and $237,015 were
included in due from affiliates at December 31, 2000 and 1999,
respectively.
In addition to the amounts above, costs associated with the sale of Nora
Corners of $4,171 were paid to the General Partners' affiliates during the
year ended December 31, 1998.
Continued
F-14
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------
J. 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.
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, 2000, 1999 and 1998 is as follows:
2000 1999 1998
-------------- -------------- --------------
Net income (loss) per
Consolidated Statement of
Operations $ (279,488) $ (549,227) $ 377,686
Difference in book and
tax depreciation and
amortization 432,720 215,924 152,684
Difference between book
and tax gain on sale
of property - - 977,707
Rental adjustment
required by generally
accepted accounting
principles (4,246) (399) 26,672
-------------- -------------- --------------
Net income (loss) for
federal income tax
purposes $ 148,986 $ (333,702) $ 1,536,749
============== ============== ==============
The allocation of the net income for federal income tax purposes for the
year ended December 31, 2000 is as follows:
Portfolio Passive
Income Income Total
---------- ------------ -----------
Investor Limited Partners $ 16,680 $ 117,407 $ 134,087
Original Limited Partner 1,483 10,436 11,919
General Partners 371 2,609 2,980
---------- ------------ -----------
$ 18,534 $ 130,452 $ 148,986
========== ============ ===========
For the years ended December 31, 2000, 1999 and 1998, the per Unit net
income (loss) to the Investor Limited Partners for federal income tax
purposes was $4.93, $12.15 and $55.97, respectively.
The basis of the Partnership's assets for financial reporting purposes
exceeds its tax basis by approximately $1,193,000 and $2,279,000 at
December 31, 2000 and 1999, respectively. The basis of the Partnership's
liabilities for financial reporting purposes is less than its tax basis by
approximately $3,483,000 and $3,520,000 at December 31, 2000 and 1999,
respectively.
F-15
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2000
----------
Costs
Capitalized
Initial Cost to Subsequent to
Partnership Acquisition
----------------------- ------------
Buildings & Buildings &
Description Encumbrances Land Improvements Improvements Life
- -------------------- ------------ ---------- ------------ ------------ -------
Courtyards Village
East Apartments
Naperville, Illinois $ 5,109,846 $ 487,529 $ 6,486,198 $ 5,008,883 3 to 25
years
Windsor Apartments
Garland, Texas 4,997,600 696,362 9,251,669 1,506,906 3 to 25
years
----------- ---------- ----------- -----------
Total $10,107,446 $1,183,891 $15,737,867 $ 6,515,789
=========== ========== =========== ============
Gross Amounts Carried at
End of Year
-----------------------------------
Buildings Year
and Accumulated Construction Date
Dexcription Land Improvements Total Depreciation Completed Acquired
- ------------- ---------- ------------ --------- ------------ --------- --------
Courtyards
Village East
Apartments
Naperville,
Illinois $ 487,529 $11,495,081 $11,982,610 $ 7,912,869 1973 4/1/85
Windsor
Apartments
Garland, Texas 696,362 10,758,575 11,454,937 7,758,381 1984 12/27/84
---------- ----------- ----------- -----------
Total $1,183,891 $22,253,656 $23,437,547 $15,671,250
========== ============ =========== ===========
Continued
F-16
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION, Continued
December 31, 2000
----------
Reconciliation of Real Estate and Accumulated Depreciation for each of the three
years in the period ended December 31, 2000:
2000 1999 1998
------------ ------------ ------------
Real Estate
Balance at beginning
of year $ 23,075,371 $ 22,262,484 $ 30,206,277
Acquisition and
improvements 362,176 812,887 1,829,349
Sale of property - - (9,773,142)
------------ ------------ ------------
Balance at end
of year $ 23,437,547 $ 23,075,371 $ 22,262,484
============ ============ ============
2000 1999 1998
------------ ------------ ------------
Accumulated Depreciation
Balance at beginning
of year $ 14,265,488 $ 12,751,953 $ 15,523,683
Depreciation expense 1,405,762 1,513,535 1,297,939
Sale of property - - (4,069,669)
------------ ------------ ------------
Balance at end
of year $ 15,671,250 $ 14,265,488 $ 12,751,953
============ ============ ============
The aggregate cost of the Partnership's real estate for federal income tax
purposes is $23,451,443 and the aggregate accumulated depreciation for federal
income tax purposes is $18,073,517.
F-17