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 September 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
- ------------------------------------------- ----------------------------------
(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 12.
PART I. FINANCIAL STATEMENTS
Item 1. FINANCIAL STATEMENTS
This form 10-Q contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. Actual results could differ materially from those projected in the
forward-looking statements as a result of a number of factors, including those
identified herein.
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)
September 30, December 31,
2001 2000
------------- -------------
Multi-family apartment communities, net of
accumulated depreciation of $0 and
$15,671,250, respectively $ - $ 7,766,297
Multi-family apartment communities held for
sale (Note 7) 3,646,893 -
Cash and cash equivalents 1,676,328 456,851
Cash restricted for tenant security deposits 27,911 27,800
Replacement reserve escrow - 56,043
Due from affiliates (Note 6) 121,999 31,115
Prepaid expenses and other assets (Note 1) 258,746 476,014
Investment in securities (Note 2) 37,408 65,340
Deferred expenses, net of accumulated
amortization of $224,730 and $210,020,
respectively 90,922 105,632
------------- -------------
Total assets $ 5,860,207 $ 8,985,092
============= =============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities:
Mortgage notes payable (Note 3) $ 4,950,582 $ 10,107,446
Accrued expenses and other liabilities 445,205 717,537
------------- -------------
Total liabilities 5,395,787 10,824,983
Partners' equity (deficit) (Note 5):
Investor Limited Partners (27,184 units
outstanding) 1,384,779 (946,178)
Original Limited Partner (614,081) (569,931)
General Partners (306,278) (323,782)
------------- -------------
Total partners' equity (deficit) 464,420 (1,839,891)
------------- -------------
Total liabilities and partners'
equity (deficit) $ 5,860,207 $ 8,985,092
============= =============
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 Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Revenue:
Rental $ 887,186 $ 1,046,455 $ 2,997,020 $ 3,120,757
Interest income 24,992 2,546 30,586 11,049
------------ ------------ ------------ ------------
Total revenue 912,178 1,049,001 3,027,606 3,131,806
------------ ------------ ------------ ------------
Expenses:
Operating (Note 6) 252,629 270,530 839,784 769,655
Maintenance 62,314 72,144 252,336 240,268
Real estate taxes 93,898 108,937 320,852 313,188
General and
administrative
(Note 6) 60,206 50,861 218,784 151,950
Management fees
(Note 6) 40,761 34,878 133,062 150,387
Depreciation and
amortization 266,738 351,620 951,548 1,058,949
Interest 178,199 217,265 637,318 653,589
------------ ------------ ------------ ------------
Total expenses 954,745 1,106,235 3,353,684 3,337,986
------------ ------------ ------------ ------------
Loss before gain on sale
of property (42,567) (57,234) (326,078) (206,180)
Gain on sale of property
(Note 4) 9,190,484 - 9,190,484 -
------------ ------------ ------------ ------------
Net income (loss) $ 9,147,917 $ (57,234) $ 8,864,406 $ (206,180)
============ ============ ============ ============
The accompanying notes are an integral part of the
consolidated financial statements.
Continued
3
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS, Continued
(Unaudited)
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Allocation of net loss
(Note 5):
Investor Limited
Partners (27,184 units
outstanding):
Loss before gain on
sale of property $ (42,141) $ (56,662) $ (322,817) $ (204,118)
Gain on sale of
property 9,098,579 - 9,098,579 -
------------ ------------ ------------ ------------
Net income (loss)$ 9,056,438 $ (56,662) $ 8,775,762 $ (204,118)
============ ============ ============ ============
Investor Limited
Partners,
Per Unit:
Loss before gain on
sale of property $ (1.55) $ (2.08) $ (11.88) $ (7.51)
Gain on sale of
property 334.70 - 334.70 -
------------ ------------ ------------ ------------
Net income (loss)$ 333.15 $ (2.08) $ 322.82 $ (7.51)
============ ============ ============ ============
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 $ (426) $ (572) $ (3,261) $ (2,062)
Gain on sale of
property 91,905 - 91,905 -
------------ ------------ ------------ ------------
Net income (loss)$ 91,479 $ (572) $ 88,644 $ (2,062)
============ ============ ============ ============
The accompanying notes are an integral part of the
consolidated financial statements.
4
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended
September 30,
-------------------------------
2001 2000
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Cash flows from operating activities:
Net income (loss) $ 8,864,406 $ (206,180)
Adjustment to reconcile net loss to net
cash provided by
operating activities:
Interest earned on replacement reserve
escrow - (219)
Depreciation and amortization 951,548 1,058,949
Gain on sale of property (Note 4) (9,190,484) -
Changes in assets and liabilities:
Increase in restricted cash for
tenant security deposits (111) (27,860)
Decrease in prepaid expenses and
other assets 126,384 56,256
Increase (decrease) in accrued
expenses and other liabilities (244,400) 80,473
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Net cash provided by operating
activities 507,343 961,419
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Cash flows from investing activities:
Deposits to replacement reserve escrow (29,922) (51,370)
Withdrawals from replacement reserve escrow 85,965 67,522
Fixed asset additions (334,400) (274,332)
Decrease in accrued expenses and other
liabilities related to fixed assets
additions - (2,204)
Proceeds from sale of property (Note 4) 12,707,450 -
------------- -------------
Net cash provided by (used in)
investing activities 12,429,093 (260,384)
------------- -------------
Cash flows from financing activities:
Principal payments on mortgage notes
payable (80,911) (83,545)
Repayment of mortgage note payable (Note 4) (5,075,953) -
Distributions (6,560,095) (552,058)
------------- -------------
Net cash used in financing
activities (11,716,959) (635,603)
------------- -------------
Net increase in cash and cash equivalents 1,219,477 65,432
Cash and cash equivalents, beginning of period 456,851 120,525
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Cash and cash equivalents, end of period $ 1,676,328 $ 185,957
============= =============
The accompanying notes are an integral part of the
consolidated financial statements.
5
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 September 30, 2001,
its results of operation for the three and nine months ended September 30,
2001 and 2000, and its cash flows for the nine months ended September 30,
2001 and 2000.
The results of operations for the three and nine months ended September 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 August 29, 2001, concurrent with the sale of Courtyards Village
Apartments ("Courtyards"), the Partnership wrote down its investment in
securities by approximately $28,000. This amount was attributable to the
value of the investment related to the master lease agreement ("MLA")
signed with respect to Courtyards. The write-down was partially offset by
deferred revenue on the book totaling approximately $25,000, which was also
attributable to the MLA signed with respect to Courtyards.
On October 5, 2000, the Partnership, as a member of an alliance of major
multi-family real estate companies, executed a 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 September 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.
Continued
6
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(4) Sale of Property
On August 29, 2001, the Partnership sold Courtyards Village Apartments, a
224-unit multi-family apartment community, located in Naperville, Illinois,
to an unaffiliated third party. The Partnership received $12,707,450, net
of closing costs of $60,550 and repaid the mortgage note payable and
accrued interest of $5,075,953 and accrued interest of $30,106. For
financial reporting purposes, the Partnership realized a gain of $9,190,484
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.
(5) Changes in Partners' Deficit
A summary of changes in Partners' deficit for the nine months ended
September 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)
Loss before gain on
sale of property (322,817) - (3,261) (326,078)
Gain on sale of
property 9,098,579 - 91,905 9,190,484
Distributions:
Operations (496,688) (44,150) (11,038) (551,876)
Capital Transaction (5,948,117) - (60,102) (6,008,219)
------------ ------------ ------------ ------------
Balance at
September 30, 2001 $ 1,384,779 $ (614,081) $ (306,278) $ 464,420
============ ============ ============ ============
Continued
7
(6) 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 Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Property management fees $ 40,761 $ 34,878 $ 133,062 $ 150,387
Expenses reimbursement 69,735 53,877 255,322 149,558
------------ ------------ ------------ ------------
Charged to operations $ 110,496 $ 88,755 $ 388,384 $ 299,945
============ ============ ============ ============
Expense reimbursements due from affiliates of $121,999 and $31,115 were
included in due from affiliates at September 30, 2001 and December 31,
2000, respectively.
(7) Multi-Family Apartment Communities Held For Sale
The Partnership classifies assets as available for sale upon the General
Partners committing to a formal plan of disposal.
Multi-family apartment communities held for sale are stated at the lower of
their carrying amount or estimated fair value less disposal costs.
Depreciation is not recorded on assets classified as held for sale. In the
normal course of business the Partnership may receive offers for sale of
its properties, either solicited or unsolicited. For those offers that are
accepted, the prospective buyer will usually acquire a due diligence period
before consummation of the transaction. It is not unusual for matters to
arise that result in the withdrawal or rejection of the offer during this
process. As a result, multi-family apartment communities are classified as
`held for sale' once it is likely, in the opinion of management, that a
property will be disposed of in the near term.
On August 28, 2001, the General Partners signed a purchase and sale
agreement on Windsor Apartments, for a price of approximately $12,316,000.
The sale is subject to financing and is expected to close on or about
November 20, 2001. The property has a carrying value of approximately
$3,647,000 on the books of the Partnership at September 30, 2001 and is
classified as held for sale.
8
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.
As previously disclosed, the General Partners have begun an orderly sale of the
Partnership's multi-family apartment communities. The Partnership sold its
interest in Courtyards Village Apartments on August 29, 2001, and on August 28,
2001, signed a purchase-and-sale agreement to sell its interest in Windsor
Apartments. These transactions are more fully discussed below.
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 August 28, 2001, the Partnership signed a purchase-and-sale agreement with
Alexon Ventures LLC, an unrelated third party, to sell Windsor Apartments, a
300-unit apartment community located in Garland, Texas, for a price of
approximately $12,316,000. The sale is expected to close on or about November
20, 2001. The property has a carrying value of approximately $3,647,000 on the
book of the Partnership at September 30, 2001.
On August 29, 2001, the Partnership sold Courtyards to an unaffiliated third
party. The Partnership received $12,707,450, net of closing costs of $60,550 and
repaid the mortgage note payable and accrued interest of $5,075,953 and accrued
interest of $30,106. (See Note 4)
On September 25, 2001, the General Partners made a special distribution of
approximately $219 per Investor Limited Partner Unit, based on the net proceeds
from the sale of Courtyards, after providing for Partnership liabilities, and
maintaining reserves for contingent liabilities.
As of the August 14, 2001 distribution and as a result of the sale and impending
sales of the Partnership's real estate holdings, the Partnership does not expect
sufficient funds to make any further distributions from operations. The
Partnership does expect to make future distributions of the net proceeds from
the sale of the Partnership's properties during the next six to twelve months.
Per the Partnership agreement, any distributions from capital transactions will
be distributed 1% to the General Partners and 99% to the Investor Limited
Partners.
Continue
9
KRUPP REALTY LIMITED PARTNERSHIP - VII AND SUBSIDIARIES
Operations
The following discussion relates to the operations of the Partnership and its
property (Windsor Apartments) for the three and nine months ended September 30,
2001 and 2000. The sale of Courtyards Village on August 29, 2001 significantly
impacts the comparability of the Partnership's operations between these periods.
Net income, net of Courtyards Village's activity, increased during the three
months ended September 30, 2001 when compared to the same period in 2000, as the
increase in total revenue exceeded the increase in total expenses. Net loss, net
of Courtyards Village's activity, increased during the nine months ended
September 30, 2001 when compared to the nine months ended September 30, 2000, as
the increase in total revenue was not sufficient to offset the increase in total
expenses.
Total expenses, net of Courtyards Village's activity, for the three months ended
September 30, 2001 increased when compared to the same period in 2000. Operating
expenses increased as a result of increases in payroll and property insurance,
but were partially offset by decreases in advertising, leasing, and utilities
costs. General and administrative costs increased primarily as a result of
increased costs associated with investor communication costs, including costs
associated with copying and mailing investor letters and annual reports.
Total expenses, net of Courtyards Village's activity, for the nine months ended
September 30, 2001 increased when compared to the nine months ended September
30, 2000. Operating expenses increased due to the reasons discussed above.
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. Interest expense also increased due to a lower amortization in 2001 when
compared to 2000.
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 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.
10
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
Exhibits:
None
Reports on Form 8-K:
Form 8-K filed on September 13, 2001 regarding the sale of
Courtyards Village Apartments.
11
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Krupp Realty Limited Partnership-VII
--------------------------------------
(Registrant)
BY: /s/ David C. Quade
--------------------------------------
David C. Quade
Treasurer (Principal Financial and
Accounting Officer) of The Krupp
Corporation, a General Partner
DATE: November 14, 2001