PART I. FINANCIAL INFORMATION
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 2001
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OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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
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(State or other jurisdiction of (IRS employer identification no.)
incorporation or organization
One Beacon Street, Boston, Massachusetts 02108
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(Address of principal executive (Zip code)
offices)
(617) 523-7722
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
The total number of pages in this document is 10.
1
Item 1. FINANCIAL STATEMENTS
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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,
2001 2000
------------ ------------
Multi-family apartment communities, net of
accumulated depreciation of $7,975,323 and
$15,671,250, respectively $ 3,737,374 $ 7,766,297
Multi-family apartment communities available for
sale (Note 6) 3,650,276 -
Cash and cash equivalents 246,635 456,851
Cash restricted for tenant security deposits 28,022 27,800
Replacement reserve escrow 77,043 56,043
Due from affiliates (Note 5) 45,234 31,115
Prepaid expenses and other assets (Note 1) 327,235 476,014
Investment in securities (Note 2) 65,340 65,340
Deferred expenses, net of accumulated amortization
of $223,467 and $210,020, respectively 92,185 105,632
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Total assets $ 8,269,344 $ 8,985,092
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LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Mortgage notes payable (Note 3) $ 10,047,550 $ 10,107,446
Accrued expenses and other liabilities 621,134 717,537
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Total liabilities 10,668,684 10,824,983
Partners' deficit (Note 4):
Investor Limited Partners (27,184 units
outstanding) (1,475,198) (946,178)
Original Limited Partner (592,006) (569,931)
General Partners (332,136) (323,782)
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Total partners' deficit (2,399,340) (1,839,891)
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Total liabilities and partners' deficit $ 8,269,344 $ 8,985,092
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The accompanying notes are an integral part of the
consolidated financial statements.
2
KRUPP REALTY LIMITED PARTNERSHIP - VII AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended For the Six Months Ended
June 30, June 30,
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2001 2000 2001 2000
----------- ----------- ----------- -----------
Revenue:
Rental $ 1,051,531 $ 1,039,290 $ 2,109,834 $ 2,074,302
Interest income 2,225 3,693 5,594 8,503
----------- ----------- ----------- -----------
Total revenue 1,053,756 $ 1,042,983 2,115,428 2,082,805
Expenses:
Operating (Note 5) 287,630 252,346 587,155 499,127
Maintenance 102,575 103,510 190,022 168,124
Real estate taxes 118,951 93,494 226,954 204,251
General and
administrative
(Note 5) 58,759 66,208 158,578 101,089
Management fees
(Note 5) 45,189 60,587 92,301 115,509
Depreciation and
amortization 344,409 352,793 684,810 707,327
Interest 218,010 217,868 459,119 436,324
----------- ----------- ----------- -----------
Total expenses 1,175,523 1,146,806 2,398,939 2,231,751
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Net loss $ (121,767) $ (103,823) $ (283,511) $ (148,946)
=========== =========== =========== ===========
Allocation of net loss (Note 4):
Investor Limited
Partners (27,184
units outstanding):
Net loss $ (120,549) $ (102,785) $ (280,676) $ (147,457)
=========== =========== =========== ===========
Investor Limited
Partners, Per Unit:
Net loss $ (4.43) $ (3.78) $ (10.33) $ (5.42)
=========== =========== =========== ===========
Original Limited
Partner:
Net loss $ - $ - $ - $ -
=========== =========== =========== ===========
General Partners:
Net loss $ (1,218) $ (1,038) $ (2,835) $ (1,489)
=========== =========== =========== ===========
The accompanying notes are an integral part of the
consolidated financial statements.
3
KRUPP REALTY LIMITED PARTNERSHIP - VII AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months Ended
June 30,
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2001 2000
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Cash flows from operating activities:
Net loss $ (283,511) $ (148,946)
Adjustment to reconcile net loss to net cash
provided by operating activities:
Interest earned on replacement reserve escrow - (219)
Depreciation and amortization 684,810 707,327
Changes in assets and liabilities:
Increase in restricted cash for tenant
security deposits (222) (27,704)
Decrease in prepaid expenses and other
assets 134,660 251,352
Decrease in accrued expenses and other
liabilities (98,749) (95,529)
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Net cash provided by operating activities 436,988 686,281
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Cash flows from investing activities:
Deposits to replacement reserve escrow (21,000) (25,200)
Withdrawals from replacement reserve escrow - 67,522
Fixed asset additions (292,716) (180,835)
Increase (decrease) in accrued expenses and other
liabilities related to fixed assets additions 2,346 (2,204)
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Net cash used in investing activities (311,370) (140,717)
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Cash flows from financing activities:
Principal payments on mortgage notes payable (59,896) (55,099)
Distributions (275,938) (276,029)
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Net cash used in financing activities (335,834) (331,128)
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Net (decrease) increase in cash and cash equivalent (210,216) 214,436
Cash and cash equivalents, beginning of period 456,851 120,525
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Cash and cash equivalents, end of period $ 246,635 $ 334,961
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The accompanying notes are an integral part of the
consolidated financial statements.
4
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, 2000 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, 2001, its
results of operation for the three and six months ended June 30, 2001 and
2000, and its cash flows for the six months ended June 30, 2001 and 2000.
The results of operations for the three and six months ended June 30, 2001
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) 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 June 30, 2001 and December
31, 2000.
(3) Mortgage Notes Payable
On April 27, 2001, the General Partners signed an agreement extending the
mortgage note payable on Windsor Apartments, under the original terms,
until May 1, 2002. The Partnership paid an extension fee of $24,962 for
this privilege.
Continue
5
KRUPP REALTY LIMITED PARTNERSHIP - VII AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(4) Changes in Partners' Deficit
A summary of changes in Partners' deficit for the six months ended June 30,
2001 is as follows:
Investor Original Total
Limited Limited General Partners'
Partners Partner Partners Deficit
----------- ----------- ----------- -----------
Balance at
December 31, 2000 $ (946,178) $ (569,931) $ (323,782) $(1,839,891)
Net loss (280,676) - (2,835) (283,511)
Distributions (248,344) (22,075) (5,519) (275,938)
----------- ----------- ----------- -----------
Balance at
June 30, 2001 $(1,475,198) $ (592,006) $ (332,136) $(2,399,340)
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(5) Related Party Transactions
The Partnership pays property management fees to an affiliate of the
General Partners for management services. Pursuant to the management
agreements, management fees are payable monthly at a rate of 5% of gross
receipts from residential properties under management. The Partnership also
reimburses affiliates of the General Partners for certain expenses incurred
in connection with the operation of the Partnership and its properties,
including administrative expenses.
Amounts accrued or paid to the General Partners' affiliates were as
follows:
For the Three Months Ended For the Six Months Ended
June 30, June 30,
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2001 2000 2001 2000
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Property management
fees $ 45,189 $ 60,587 $ 92,301 $ 115,509
Expenses reimbursement 67,900 53,947 185,587 95,681
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Charged to operations $ 113,089 $ 114,534 $ 277,888 $ 211,190
=========== ============ =========== ===========
Expense reimbursements due from affiliates of $45,234 and $31,115 were
included in due from affiliates at June 30, 2001 and December 31, 2000,
respectively.
(6) Multi-Family Apartment Communities Available For Sale
The Partnership classifies assets as available for sale upon the General
Partners committing to a formal plan of disposal.
On June 12, 2001, the General Partners signed a purchase and sale agreement
on Courtyards Village Apartments, for a price of $12,768,000. The sale is
subject to the assumption of the current mortgage by the buyer and is
expected to close in August 2001. The property has a carrying value of
approximately $3,650,000 on the books of the Partnership at June 30, 2001
and is classified as available for sale.
6
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 it is an opportune time to formulate a liquidation
strategy for the Partnership. As previously disclosed, the General Partners have
begun the process of more thoroughly assessing the real estate 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 have extended the term of a mortgage loan which would otherwise have
matured with financing that leaves flexibility for the property sale.
Assuming market conditions do not change, the assessment of the real estate
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 9 months. However, there can be
no assurance that such a liquidation will occur, or what amounts may be realized
by the Partnership.
On April 27, 2001, the General Partners signed an agreement extending the
mortgage notes payable on Windsor Apartments, under the original terms, until
May 1, 2002. The Partnership paid an extension fee of $24,962 for this
privilege.
On June 12, 2001, the General Partners signed a purchase and sale agreement on
Courtyards Village Apartments, for a price of $12,768,000. The sale is subject
to the assumption of the current mortgage by the buyer and is expected to close
in August 2001. The property has a carrying value of approximately $3,650,000 on
the books of the Partnership at June 30, 2001.
The General Partners, on an ongoing basis, assess the current and future
liquidity needs to determine 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 Investor Limited Partner Unit, and is paid semi-annually in February
and August.
7
KRUPP REALTY LIMITED PARTNERSHIP - VII AND SUBSIDIARIES
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, 2001 and 2000.
Net loss increased during the three and six months ended June 30, 2001 when
compared to same period in 2000, as the increase in total expenses exceeded the
increase in total revenue. The increase in total revenue was primarily a result
of rental rate increases implemented at all of the Partnership's properties at
the end of the first quarter of 2001.
Total expenses for the three months ended June 30, 2001 increased when compared
to the three months ended June 30, 2000. Operating expenses increased as a
result of increases in payroll, leasing and utilities costs. Real estate taxes
increased due to an increase in the monthly accrual resulting from reassessment
of property values by local taxing authorities. Depreciation expense decreased
as fixed asset additions purchased in the previous years became fully
depreciated.
Total expenses for the six months ended June 30, 2001 increased when compared to
the same period in 2000. Operating expenses and real estate taxes increased due
to the reasons discussed above. Maintenance expense and interest expense also
increased when compared to 2000. General and administrative expenses increased
as a result of increases in investor communication costs including the annual
look-back adjustment which totaled approximately $43,000, recorded during the
three months ended March 31, 2001.
Item 3. 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.
A detailed analysis of quantitative and qualitative market risk exposures was
provided in the Partnership's Annual Report on Form 10-K for the year ended
December 31, 2000. There have been no material changes in market risk subsequent
to that date.
8
KRUPP REALTY LIMITED PARTNERSHIP - VII AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other information
None
Item 6. Exhibits and Reports on Form 8-K
None
9
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Krupp Realty Limited Partnership-VII
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(Registrant)
BY: /s/ David C. Quade
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David C. Quade
Treasurer (Principal Financial and
Accounting Officer) of The Krupp
Corporation, a General Partner
DATE: August 14, 2001