UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------------------
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, 2001
------------------------------------------
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
----------------- ----------------
Commission File number 0-14377
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Krupp Realty Limited Partnership-VII
- -------------------------------------------------------------------------------
Massachusetts 04-2842924
- ------------------------------------------- ---------------------------------
(State or other jurisdiction of (IRS employer identification no.)
incorporation or organization
One Beacon Street, Boston, Massachusetts 02108
- ------------------------------------------- ---------------------------------
(Address of principal executive (Zip code)
offices)
(Registrant's telephone number, including area code) (617) 523-7722
--------------------------
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 [ ]
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. [ X ]
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 11-12.
The total number of pages in this document is 30.
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
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 August 29, 2001, the Partnership sold Courtyards Village East Apartments
("Courtyards"), a 224-unit multi-family apartment community located in
Naperville, Illinois, to an unaffiliated third party (see Note E to Consolidated
Financial Statements, included in Item 8 (Appendix A) of this report).
On November 20, 2001, the Partnership sold Windsor Apartments ("Windsor"),
a 300-unit apartment community located in Garland, Texas, to an unaffiliated
third party (see Note E to Consolidated Financial Statements, included in Item 8
(Appendix A) of this report).
The future performance of the Partnership will depend upon factors which
cannot be predicted. Such factors include general economic, both on a national
basis and in those areas where the Partnership's real estate investments were
located, liquidation expenses, government regulations and federal and state
income tax laws as well as the ultimate settlement of contingent liabilities
associated with the sale of certain of the Partnerships real estate
investments.. The requirements for compliance with federal, state and local
regulations to date have not had an adverse effect on the Partnership's
operations, and no adverse effect therefrom is anticipated in the future.
As of December 31, 2001, the Partnership has no investment in any
multi-family apartment communities (see Note E).
As of December 31, 2001, the Partnership did not employ any personnel.
2
ITEM 2. PROPERTIES
As of December 31, 2001, the Partnership has no investment in any
multi-family apartment communities.
A summary of the Partnership's real estate investments as of December 31,
2001 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 2001 2000 1999 1998 1997
- ----------------------- ----------- ----- ------ ------ ------ ------ ------
Courtyards Village East
Apartments
Naperville, Illinois 1985 224 N/A 95% 95% 97% 97%
Windsor Apartments
Garland, Texas 1984 300 N/A 95% 96% 97% 96%
-----
524 Units
=====
ITEM 3. LEGAL PROCEEDINGS
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
None.
3
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
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, 2001 was
approximately 1,260.
One of the objectives of the Partnership is to generate cash available for
distribution. In 1999 and thereafter, the semiannual distributions were paid at
an annual rate of $18.28 per Unit.
In 2001, the Partnership distributed $218.80 per Unit with the proceeds
received from the sale of Courtyards. Pursuant to the Partnership Agreement,
distributions from capital transactions, such as the sale of Courtyards, are
allocated 99% to Investor Limited Partners and 1% to the General Partners. For
details, see Note H 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, 2001 and 2000:
Year Ended December 31,
----------------------------------------------
2001 2000
---------------------- ----------------------
Amount Per Unit Amount Per Unit
---------- ---------- ---------- ----------
Limited Partners:
Investor Limited Partners
(27,184 Units outstanding) $6,444,825 $ 237.08 $ 496,852 $ 18.28
Original Limited Partner 44,150 44,164
General Partners 71,120 11,042
---------- ----------
$6,560,095 $ 552,058
========== ==========
4
ITEM 6. SELECTED FINANCIAL DATA
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.
2001 2000 1999 1998 1997
----------- ----------- ----------- ----------- -----------
$ 3,370,568 $ 4,202,751 $ 3,997,617 $ 3,989,189 $ 4,795,059
Total revenue
Loss before gain
on sale of
property and
extraordinary
loss (347,038) (279,488) (549,227) (298,630) (151,137)
Gain on sale of
property 17,780,327 - - 676,316 -
Extraordinary
loss from early
extinguishment
of debt (90,922) - - - -
Net income
(loss) 17,342,367 (279,488) (549,227) 377,686 (151,137)
Net income (loss)
allocated to:
Investor
Limited
Partners 16,243,960 (276,693) (543,735) 373,909 (149,626)
Per Unit 597.56 (10.18) (20.00) 13.75 (5.50)
Original
Limited
Partner 614,081 - - - -
General
Partners 484,326 (2,795) (5,492) 3,777 (1,511)
Total assets at
December 31, 9,045,723 8,985,092 9,837,297 10,974,526 17,995,610
Long-term
obligations at
December 31, - 5,028,109 10,108,246 10,220,786 14,345,624
Distributions:
Investor
Limited
Partners 6,444,825 496,852 496,853 2,885,312 543,679
Per Unit 237.08 18.28 18.28 106.14 20.00
Original
Limited
Partner 44,150 44,164 44,165 48,327 48,327
General
Partners 71,120 11,042 11,041 35,460 12,082
Operating results for the periods presented are not comparable due to the sale
of Nora Corners on January 30, 1998, the sale of Courtyards on August 29, 2001,
and the sale of Windsor on November 20, 2001.
The per Unit distributions for the years ended December 31, 2001, 2000, 1999,
1998, and 1997 and were $237.08, $18.28, $18.28, $106.14, and $20.00,
respectively, of which $218.80 and $86.14 represented a return of capital in
2001 and 1998, respectively.
Prior performance of the Partnership is not necessarily indicative of future
operations.
5
ITEM 7. 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
On November 20, 2001, the Partnership sold Windsor, a 300-unit multi-family
apartment community to an unaffiliated third party. The Partnership received
$12,235,336, net of closing costs of $80,518 and payoff of mortgage payable and
accrued interest of $4,971,598.
On August 29, 2001, the Partnership sold Courtyards, a 224-unit
multi-family apartment complex to an unaffiliated third party. The Partnership
received $7,608,399 for the sale, net of closing costs of $83,648 and debt of
$5,075,953 assumed by the buyer, and repaid the mortgage note payable and
accrued interest of $30,106.
As of December 31, 2001, the Partnership has no investment in any
multi-family apartment communities.
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, 2001, 2000, and 1999. The sale of Courtyards Village and Windsor
Apartments as of December 31, 2001 significantly impacts the comparability of
the Partnership's operations between these periods.
2001 compared to 2000
Net income increased in 2001 when compared to 2000 as a result of the
Partnership recognizing a gain on the sale of its remaining real estate assets.
Total expenses decreased in 2001 when compared to 2000 due to the
Partnership's sale of its remaining real estate assets in August and November.
General and administrative costs increased as a result of increased investor
communication costs, including copying and mailing investor letters and annual
reports.
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.
6
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 has been repaid as of December 31, 2001.
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.
7
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 (55) Co-Chairman of the Board
George Krupp (57) Co-Chairman of the Board
Frank Apeseche (44) President
David C. Quade (58) Treasurer and Executive Vice President
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, the brother of Douglas 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, Mr. Apeseche 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
The Partnership has no directors or executive officers.
8
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of February 15, 2002, 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, Incorporated 1,664.00 Units (1) 6.12%
Limited
Partner 14 Story Street
Units Cambridge, MA 02138
Investor Madison Avenue Investment Partners, LLC
Limited
Partner P.O. Box 7533 1,812.90 Units(2)(3) 6.70%
Units Incline Village, NV 89452
Investor First Equity Realty, LLC
Limited
Partner 555 Fifth Avenue, 9th Floor 1,812.90 Units(2)(4) 6.70%
Units New York, NY 10017
Investor The Harmony Group II, LLC
Limited
Partner P.O. Box 7533 1,812.90 Units(2)(5) 6.70%
Units Incline Village, NV 89452
Investor Ronald M. Dickerman
Limited
Partner 555 Fifth Avenue, 9th Floor 1,812.90 Units(2)(6) 6.70%
Units New York, NY 10017
Investor Bryan E. Gordon
Limited
Partner P.O. Box 7533 1,812.90 Units(2)(7) 6.70%
Units Incline Village, NV 89542
(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 by Madison Avenue Investment Partners, LLC ("MAIP"), Madison Value
Fund, LLC ("MVF"), Madison Investment Partners 11, LLC ("MIP 11"), Madison
Investment Partners 10 ("MIP 10"), First Equity Realty, LLC ("First
Equity"), The Harmony Group II, LLC ("Harmony"), Ronald M. Dickerman and
Bryan E. Gordon (collectively, the "Reporting Persons"), as amended by
Amendment No. 1 therto dated February 9, 2001 and Amendment No. 2 thereto
dated February 14, 2002 (as amended, the "Madison Schedule 13G"), 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 Amended Madison Schedule 13G, MAIP is the controlling
person of various entities that are the nominee owners of, or the
successors by merger to the assets of nominee owners of, Units of Limited
Partner Interest (the "Units") of the Issuer. As stated in the Amended
Madison Schedule 13G, these nominees, none of which beneficially own 5% or
more of the Units, are Madison/AG
9
Value Partners III, Cobble Hill Investments, L.P., Madison/WP Value Fund
IV, LLC, Madison/WP Value Fund V, Madison Liquidity Investors 100, LLC,
Madison Liquidity Investors 103, LLC, Madision Liquidity Investors 111,
LLC, and Madison Liquidity Investors 107, LLC. Madison Liquidity Investors
112, LLC is the nominee holder of approximately 0.5% of the Units and is
controlled by MVF.
According to the Madison Schedule 13G, the controlling members of MAIP are
First Equity, of which Mr. Dickerman is the Managing Member, and Harmony,
of which Mr. Gordon is the Managing Member. The controlling member of MVF
is MIP 11. The controlling member of MIP 11 is MAIP. The controlling member
of MIP 10 is MAIP.
(3) According to the Madison Schedule 13G, Madison Avenue Investment Partners,
LLC has sole voting and dispositive power with respect to 1,812.90 units of
the Partnership.
(4) According to the Madison Schedule 13G, First Equity Realty, LLC has shared
voting and dispositive power with respect to 1,812.90 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 1,812.90 units of the
Partnership.
(6) According to the Madison Schedule 13G, Ronald M. Dickerman has shared
voting and dispositive power with respect to 1,812.90 units of the
Partnership.
(7) According to the Madison Schedule 13G, Bryan E. Gordon has shared voting
and dispositive power with respect to 1,812.90 units of the Partnership.
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).
10
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) Reports on Form 8-K
On December 5, 2001, the Partnership filed Form 8-K regarding the sale
of Windsor Apartments.
(c) 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)].*
11
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)].*
(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
12
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 1st day of
April, 2002.
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 1st day of April, 2002.
Signatures Titles
/s/ Douglas Krupp Co-Chairman (Principal Executive Officer)
- ----------------------------------- and Director of The Krupp Corporation,a
Douglas Krupp General Partner.
/s/ George Krupp Co-Chairman (Principal Executive Officer)
- ----------------------------------- and Director of the Krupp Corporation, a
George Krupp 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.
13
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, 2001
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, 2001 and December 31, 2000 F-4
Consolidated Statements of Operations
for the Years Ended December 31, 2001, 2000 and 1999 F-5 - F-6
Consolidated Statements of Changes in Partners' Equity (Deficit)
for the Years Ended December 31, 2001, 2000 and 1999 F-7
Consolidated Statements of Cash Flows
for the Years Ended December 31, 2001, 2000 and 1999 F-8
Notes to Consolidated Financial Statements F-9 - F-16
Schedule III - Real Estate and Accumulated Depreciation 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, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001 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.
As explained in Note A, the Partnership implemented a liquidation plan to
dispose of the remaining real estate assets of the Partnership. At December 31,
2001, the Partnership has completed its disposition of its real estate assets
and expects to complete the liquidation and dissolution of the Partnership in
2002. As such, at December 31, 2001, the Partnership has adopted the liquidation
basis of accounting.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
March 26, 2002
F-3
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (In Liquidation)
December 31, 2001 and 2000
ASSETS
2001 2000
------------- -------------
Multi-family apartment complexes, net of
accumulated depreciation
of $0 and $15,671,250, respectively
(Note F) $ - $ 7,766,297
Cash and cash equivalents (Note C) 8,968,487 456,851
Cash restricted for tenant security
deposits - 27,800
Replacement reserve escrow (Note F) - 56,043
Due from affiliates (Note I) 28,737 31,115
Prepaid expenses and other assets 48,499 476,014
Investment in securities - 65,340
Deferred expenses, net of accumulated
amortization of $0 and $210,020,
respectively - 105,632
------------- -------------
Total assets $ 9,045,723 $ 8,985,092
============= =============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities:
Mortgage notes payable (Notes E and F) $ - $ 10,107,446
Accrued expenses and other liabilities
(Note G) 103,342 717,537
------------- -------------
Total liabilities 103,342 10,824,983
Commitment (Note H)
Partners' equity (deficit) (Note H):
Investor Limited Partners (27,184 Units
outstanding) 8,852,957 (946,178)
Original Limited Partner - (569,931)
General Partners 89,424 (323,782)
------------- -------------
Total partners' equity (deficit) 8,942,381 (1,839,891)
------------- -------------
Total liabilities and partners'
equity (deficit) $ 9,045,723 $ 8,985,092
============= =============
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 (In Liquidation)
For the Years Ended December 31, 2001, 2000 and 1999
2001 2000 1999
------------ ------------ ------------
Revenue:
Rental $ 3,312,178 $ 4,184,217 $ 3,970,170
Interest income 58,390 18,534 27,447
------------ ------------ ------------
Total revenue 3,370,568 4,202,751 3,997,617
------------ ------------ ------------
Expenses:
Operating (Notes E and I) 892,526 1,045,932 1,010,972
Maintenance 294,118 321,259 341,331
Real estate taxes 367,532 418,345 428,806
General and administrative (Note I) 282,316 197,064 176,664
Management fees (Note I) 166,052 185,038 157,467
Depreciation and amortization 1,013,097 1,444,361 1,552,134
Interest (Note F) 701,965 870,240 879,470
------------ ------------ ------------
Total expenses 3,717,606 4,482,239 4,546,844
Loss before gain on sale of
properties and extraordinary
loss from early extinguishment
of debt (347,038) (279,488) (549,227)
Gain on sale of properties (Note E) 17,780,327 - -
------------ ------------ ------------
Income (loss) before extraordinary
loss from early
extinguishment of debt 17,433,289 (279,488) (549,227)
Extraordinary loss from early
extinguishment of debt (90,922) - -
------------ ------------ ------------
Net income (loss) (Note J) $ 17,342,367 $ (279,488) $ (549,227)
============ ============ ============
Continued
The accompanying notes are an integral part of the
consolidated financial statements.
F-5
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (In Liquidation), Continued
For the Years Ended December 31, 2001, 2000 and 1999
2001 2000 1999
------------ ------------ ------------
Allocation of net income (loss)
(Note H):
Investor Limited Partners
(27,184 Units outstanding):
Loss before gain on sale of
properties and
extraordinary loss $ (1,268,551) $ (276,693) $ (543,735)
Gain on sale of properties 17,602,524 - -
Extraordinary loss from early
extinguishment of
debt (90,013) - -
------------ ------------ ------------
Net income (loss) $ 16,243,960 $ (276,693) $ (543,735)
============ ============ ============
Investor Limited Partners, Per Unit:
Loss before gain on sale of
properties and
extraordinary loss $ (46.66) $ (10.18) $ (20.00)
Gain on sale of properties 647.53 - -
Extraordinary loss from early
extinguishment of
debt (3.31) - -
------------ ------------ ------------
Net income (loss) $ 597.56 $ (10.18) $ (20.00)
============ ============ ============
Original Limited Partner:
Loss before gain on sale of
properties and
extraordinary loss $ 614,081 $ - $ -
Gain on sale of properties - - -
Extraordinary loss from early
extinguishment of
debt - - -
------------ ------------ ------------
Net income (loss) $ 614,081 $ - $ -
============ ============ ============
General Partners:
Loss before gain on sale of
properties and
extraordinary loss $ 307,432 $ (2,795) $ (5,492)
Gain on sale of properties 177,803 - -
Extraordinary loss from early
extinguishment of
debt (909) - -
------------ ------------ ------------
Net income (loss) $ 484,326 $ (2,795) $ (5,492)
============ ============ ============
The accompanying notes are an integral part of the
consolidated financial statements.
F-6
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS'EQUITY (DEFICIT) (In Liquidation)
For the Years Ended December 31, 2001, 2000 and 1999
Total
Investor Original Partners'
Limited Limited General Equity/
Partners Partner Partners (Deficit)
----------- ----------- ------------ ------------
Balance at
December 31, 1998 $ 867,955 $ (481,602) $ (293,412) $ 92,941
Net loss (543,735) - (5,492) (549,227)
Distributions (496,853) (44,165) (11,041) (552,059)
----------- ----------- ------------ ------------
Balance at
December 31, 1999 (172,633) (525,767) (309,945) (1,008,345)
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)
Net income 16,243,960 614,081 484,326 17,342,367
Distributions (6,444,825) (44,150) (71,120) (6,560,095)
----------- ----------- ------------ ------------
Balance at
December 31, 2001 $ 8,852,957 $ - $ 89,424 $ 8,942,381
=========== =========== ============ ============
The per Unit distributions for each of the years ended December 31, 2001, 2000
and 1999 was $237.08, $18.28 and $18.28 , respectively, of which $218.80, $0 and
$0 represented a return of capital, respectively.
The accompanying notes are an integral part of the
consolidated financial statements.
F-7
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (In Liquidation)
For the Years Ended December 31, 2001, 2000 and 1999
2001 2000 1999
------------ ------------ ------------
Cash flows from operating activities:
Net income (loss) $ 17,342,367 $ (279,488) $ (549,227)
Adjustments to reconcile net
income (loss) to net
cash provided by operating
activities:
Depreciation and
amortization 1,013,097 1,444,361 1,552,133
Gain on sale of properties (17,780,327) - -
Extraordinary loss from
early retirement of debt 90,922 - -
Impairment of securities 65,340 - -
Changes in assets and
liabilities:
Decrease (increase) in
restricted cash for
tenant security deposits 27,800 (544) (650)
Decrease (increase) in
prepaid expenses and
other assets and due from
affiliates 429,893 155,895 (59,107)
Increase (decrease) in
accrued expenses and
other liabilities (614,195) 28,811 68,729
Interest earned on
replacement reserve
escrow - (787) (1,023)
------------ ------------ ------------
Net cash provided by
operating activities 574,897 1,348,248 1,010,855
------------ ------------ ------------
Cash flows from investing activities:
Deposits to replacement reserve
escrow (29,922) (50,400) (50,400)
Withdrawals from replacement
reserve escrow 85,965 67,522 205
Additions to fixed assets (371,451) (362,176) (812,887)
Decrease in accrued expenses and
other liabilities related to
fixed asset additions - (2,204) (1,296)
Proceeds from sale of property,
net 19,843,735 - -
------------ ------------ ------------
Net cash provided by
(used in) investing
activities 19,528,327 (347,258) (864,378)
------------ ------------ ------------
Cash flows from financing activities:
Principal payments on mortgage
notes payable (86,478) (112,606) (103,376)
Repayment of mortgage notes
payable (4,945,015) - -
Distributions (6,560,095) (552,058) (552,059)
------------ ------------ ------------
Net cash used in
financing activities (11,591,588) (664,664) (655,435)
------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents 8,511,636 336,326 (508,958)
Cash and cash equivalents, beginning
of year 456,851 120,525 629,483
------------ ------------ ------------
Cash and cash equivalents, end
of year $ 8,968,487 $ 456,851 $ 120,525
============ ============ ============
Non-cash investing and financing
activities:
Investment in securities $ - $ 65,340 $ -
Assumption of mortgage note
payable $ (5,075,953) $ - $ -
The accompanying notes are an integral part of the
consolidated financial statements.
F-8
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In Liquidation)
----------
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").
As described in Note E, the Partnership sold its remaining real estate
investments in 2001 and intends to liquidate the Partnership's remaining
assets, distribute its remaining cash and dissolve the Partnership in 2002.
Continued
F-9
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In Liquidation), 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 Realty-VII and Windsor L.P. All
intercompany balances and transactions have been eliminated.
In connection with its adoption of a liquidation plan during 2001, the
Partnership adopted the liquidation basis of accounting which, among
other specifications, requires that assets be stated at net realizable
value and that a net loss during the liquidation period, if any, be
accrued. Management believes there is currently no material
liquidation period losses that require accrual.
The accompanying financial statements have been prepared on the
accrual basis of accounting in accordance with accounting principles
generally accepted in the United States of America.
Risks and Uncertainties
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.
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.
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
Residential leases require the advance payment of monthly base rent.
Rental revenue are recorded on the accrual basis.
Real Estate Assets
Real estate assets and equipment are stated at depreciated cost.
Pursuant to Financial Accounting Standards Board's Statement 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.
Continued
F-10
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In Liquidation), Continued
B. Significant Accounting Policies, Continued
Real Estate Assets, Continued
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
Realized gains and losses from sale of real estate assets are
recognized when the sale is consummated, the earning process is
complete, and the Partnership does not have substantial continuing
involvement with the property.
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 operated and developed apartment communities which
generated rental and other income through the leasing of apartment
units. The General Partners separately evaluated 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
2001, 2000 or 1999.
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-11
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In Liquidation), Continued
C. Cash and Cash Equivalents
Cash and cash equivalents at December 31, 2001 and 2000 consisted of the
following:
2001 2000
------------- -------------
Cash and money market accounts $ 8,968,487 $ 456,851
============= =============
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.
On November 20, 2001, concurrent with the sale of the Partnership remaining
multi-family apartment community, the General Partners determined that the
MLA and the related common stock were worthless. The loss associated with
the write-off of these assets was approximately $8,000 and is included in
operating expenses on the Consolidated Statement of Operations for the year
ended December 31, 2001.
E. 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 $7,608,399, net of
closing costs of $83,648 and debt of $5,075,953 assumed by the buyer, and
repaid accrued interest of $30,106. For financial reporting purposes, the
Partnership realized a gain of $9,166,649 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.
On November 20, 2001, the Partnership sold Windsor Apartments ("Windsor")
to an unaffiliated third party. Windsor is a 300-unit multi-family
apartment located in Garland, Texas. The Partnership received $12,235,336,
less payoff of closing costs of $80,518 and payment of the mortgage note
payable and accrued interest of $4,971,598. A gain of $8,613,678 was
realized on the sale for financial reporting purposes, which was calculated
as the difference between the property's selling price less net book value
of the property and closing costs.
Continued
F-12
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In Liquidation), Continued
F. Mortgage Notes Payable
The properties that were owned by the Partnership were pledged as
collateral for the respective non-recourse mortgage notes payable
outstanding at December 31, 2000. Mortgage notes payable consisted of the
following:
Principal Annual
-------------------------- Interest Maturity
Property 2001 2000 Rate Date
--------------- ----------- ----------- ------------ ------------
Courtyards
Village
Apartments $ - $ 5,109,846 7.88% August 1, 2007
Windsor
Apartments $ - 4,997,600 9.25% May 1, 2001
----------- -----------
Total $ - $10,107,446
=========== ===========
Courtyards Village
Concurrent with the sale of Courtyards Village, the mortgage note was
assumed by the buyer on August 29, 2001.
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 was collateralized by the property, was scheduled to mature on
August 1, 2007 at which time the remaining principal (approximately
$4,658,637) and any accrued interest would have been due. The note
could 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.
Windsor Apartments
Concurrent with the sale of Windsor Apartments, the mortgage note
payable was repaid in full on November 20, 2001.
On April 27, 2001, the General Partners signed an agreement extending
the mortgage note payable on Windsor Apartments, under original terms,
until May 1, 2002. The Partnership paid an extension fee of $24,962
for this privilege. The property was 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 would have been due.
The Partnership paid interest on its borrowings in the amounts of $701,965,
$870,240, and $879,470 during the years ended December 31, 2001, 2000 and
1999, respectively.
Continued
F-13
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In Liquidation), Continued
G. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consisted of the following at
December 31, 2001 and 2000:
2001 2000
------------- -------------
Accounts payable $ 2,973 $ 8,338
Accrued real estate taxes - 419,230
Other liabilities 100,369 203,556
Tenant security deposits - 57,461
Prepaid rent - 28,952
------------- -------------
$ 103,342 $ 717,537
============= =============
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.
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 allocated and distributed 99% to
the Investor Limited Partners until they have received a return of their
total invested capital plus a 9% per annum cummulative return and 1% to the
General Partners, thereafter net cash proceeds will be distributed in
accordance with the Partnership Agreement.
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. The Partnership does not expect
to incur any subordinated financial consulting fees.
Continued
F-14
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In Liquidation), Continued
H. Partners' Equity, Continued
As of December 31, 2001, the following cumulative partner contributions and
allocations have been made since the inception of the Partnership:
Total
Investor Original Partners'
Limited Limited General Equity/
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 (6,962,887) (618,922) (154,730) (7,736,539)
Capital
transaction (8,289,769) - (83,460) (8,373,229)
Income (loss):
Operations (16,836,322) 614,922 150,298 (16,071,102)
Capital
transaction 17,455,310 - 176,316 17,631,626
----------- ----------- ------------ ------------
Balance at
December 31,
2001 $ 8,852,957 $ - $ 89,424 $ 8,942,381
=========== =========== ============ ============
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 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, 2001, 2000 and 1999 were as follows:
2001 2000 1999
------------ ------------ ------------
Property management fees $ 166,052 $ 185,038 $ 157,467
Expense reimbursements 313,823 203,128 196,973
------------ ------------ ------------
Charged to operations $ 479,875 $ 388,166 $ 354,440
============ ============ ============
Expense reimbursements due from affiliates of $28,737 and $31,115 were
included in due from affiliates at December 31, 2001 and 2000,
respectively.
Continued
F-15
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In Liquidation), 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, 2001, 2000 and 1999 is as follows:
2001 2000 1999
------------ ------------ ------------
Net income (loss) per
Consolidated Statement of
Operations $ 17,342,367 $ (279,488) $ (549,227)
Difference in book and tax
depreciation and
amortization 616,820 432,720 215,924
Difference between book and
tax gain on sale
of property 1,752,185 - -
Bonus and Severance Pay (44,230) - -
Rental adjustment required
by generally accepted
accounting principles (4,697) (4,246) (399)
------------ ------------ ------------
Net income (loss) for federal
income tax purposes $ 19,662,445 $ 148,986 $ (333,702)
============ ============ ============
The allocation of the net income for federal income tax purposes for the
year ended December 31, 2001 is as follows:
Portfolio Passive
Income Income Total
------------ ------------ ------------
Investor Limited Partners $ 52,550 $ 18,459,523 $ 18,512,073
Original Limited Partner 4,670 598,349 603,019
General Partners 1,167 546,186 547,353
------------ ------------ ------------
$ 58,387 $ 19,604,058 $ 19,662,445
============ ============ ============
For the years ended December 31, 2001, 2000 and 1999, the per Unit net
income (loss) to the Investor Limited Partners for federal income tax
purposes was $681.00, $4.93 and $(12.15), respectively.
The basis of the Partnership's assets for financial reporting purposes
exceeds its tax basis by approximately $97,000 and $1,193,000 at December
31, 2001 and 2000, respectively. The basis of the Partnership's liabilities
for financial reporting purposes exceeds its tax basis by approximately
$22,000 at December 31, 2001 and is less than its tax basis by
approximately $3,483,000 at December 31, 2000.
F-16
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2001
----------
Reconciliation of Real Estate and Accumulated Depreciation for each of the three
years in the period ended December 31, 2001:
2001 2000 1999
------------ ------------ ------------
Real Estate
Balance at beginning of year $ 23,437,547 $ 23,075,371 $ 22,262,484
Acquisition and improvements 371,451 362,176 812,887
Sale of property (23,808,998) - -
------------ ------------ ------------
Balance at end of year $ - $ 23,437,547 $ 23,075,371
============ ============ ============
2001 2000 1999
------------ ------------ ------------
Accumulated Depreciation
Balance at beginning of year $ 15,671,250 $ 14,265,488 $ 12,751,953
Depreciation expense 998,388 1,405,762 1,513,535
Sale of property (16,669,638) - -
------------ ------------ ------------
Balance at end of year $ - $ 15,671,250 $ 14,265,488
============ ============ ============
The aggregate cost of the Partnership's real estate for federal income tax
purposes is $0 and the aggregate accumulated depreciation for federal income tax
purposes is $0.
F-17