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, 2002
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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
incorporation or organization identification no.)
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 14.
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,
2002 2001
------------ ------------
Cash and cash equivalents $ 1,351,426 $ 8,968,487
Due from affiliates - 28,737
Prepaid expenses and other assets - 48,499
------------ ------------
Total assets $ 1,351,426 $ 9,045,723
============ ============
LIABILITIES AND PARTNERS' EQUITY
Liabilities:
Accrued expenses and other liabilities $ - $ 103,342
------------ ------------
Total liabilities - 103,342
Partners' equity (Note 2):
Investor Limited Partners (27,184 units
outstanding) 1,337,912 8,852,957
Original Limited Partner - -
General Partners 13,514 89,424
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Total partners' equity 1,351,426 8,942,381
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Total liabilities and partners' equity $ 1,351,426 $ 9,045,723
============ ============
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 For the Nine Months
Ended September 30, Ended September 30,
------------------------ ------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Revenue:
Rental $ 30,175 $ 887,186 $ 33,217 $ 2,997,020
Interest income 5,918 24,992 49,907 30,586
----------- ----------- ----------- -----------
Total revenue 36,093 912,178 83,124 3,027,606
Expenses:
Operating (Note 3) 27,615 252,629 31,461 839,784
Maintenance 8,891 62,314 9,876 252,336
Real estate taxes - 93,898 - 320,852
General and administrative
(Note 3) (10,647) 60,206 12,487 218,784
Management fees (Note 3) - 40,761 7,794 133,062
Depreciation and
amortization - 266,738 - 951,548
Interest - 178,199 - 637,318
----------- ----------- ----------- -----------
Total expenses 25,859 954,745 61,618 3,353,684
----------- ----------- ----------- -----------
Income (loss) before gain on
sale of property 10,234 (42,567) 21,506 (326,078)
Gain on sale of property
(Note 1) - 9,190,484 - 9,190,484
----------- ----------- ----------- -----------
Net income $ 10,234 $ 9,147,917 $ 21,506 $ 8,864,406
=========== =========== =========== ===========
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 For the Nine Months
Ended September 30, Ended September 30,
------------------------ ------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Allocation of net income
(Note 2):
Investor Limited Partners
(27,184 units outstanding):
Income (loss) before gain
on sale of Property $ 10,132 $ (42,141) 21,291 $ (322,817)
Gain on sale of property - 9,098,579 - 9,098,579
----------- ----------- ----------- -----------
Net income $ 10,132 $ 9,056,438 $ 21,291 $ 8,775,762
=========== =========== =========== ===========
Investor Limited Partners
Per Unit:
Income (loss) before gain
on sale of Property $ 0.37 $ (1.55) 0.78 $ (11.88)
Gain on sale of property - 334.70 - 334.70
----------- ----------- ----------- -----------
Net income $ 0.37 $ 333.15 $ 0.78 $ 322.82
=========== =========== =========== ===========
Original Limited Partner:
Income (loss) before gain
on sale of Property $ - $ - $ - -
Gain on sale of property - - - -
----------- ----------- ----------- -----------
Net income $ - $ - $ - $ -
=========== =========== =========== ===========
General Partners:
Income (loss) before gain
on sale of Property $ 102 $ (426) $ 215 $ (3,261)
Gain on sale of property - 91,905 - 91,905
----------- ----------- ----------- -----------
Net income $ 102 $ 91,479 $ 215 $ 88,644
=========== =========== =========== ===========
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,
----------------------------
2002 2001
------------ ------------
Cash flows from operating activities:
Net income $ 21,506 $ 8,864,406
Adjustment to reconcile net loss to net cash
provided by operating activities:
Interest earned on replacement reserve escrow - -
Depreciation and amortization - 951,548
Gain on sale of property - (9,190,484)
Changes in assets and liabilities:
Increase in restricted cash for tenant
security deposits - (111)
Decrease in prepaid expenses and other assets 77,236 126,384
Decrease in accrued expenses and other
liabilities (103,342) (244,400)
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Net cash (used in) provided by operating
activities (4,600) 507,343
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Cash flows from investing activities:
Deposits to replacement reserve escrow - (29,922)
Withdrawals from replacement reserve escrow - 85,965
Fixed asset additions - (334,400)
Proceeds from sale of property - 12,707,450
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Net cash provided by investing activities - 12,429,093
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Cash flows from financing activities:
Principal payments on mortgage notes payable - (80,911)
Repayment of mortgage note payable - (5,075,953)
Distributions (7,612,461) (6,560,095)
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Net cash used in financing activities (7,612,461) (11,716,959)
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Net (decrease) increase in cash and cash
equivalents (7,617,061) 1,219,477
Cash and cash equivalents, beginning of period 8,968,487 456,851
------------ ------------
Cash and cash equivalents, end of period $ 1,351,426 $ 1,676,328
============ ============
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, 2001 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, 2002,
its results of operation for the three and nine months ended September 30,
2002 and 2001, and its cash flows for the nine months ended September 30,
2002 and 2001.
During 2001, the Partnership sold its remaining real estate investments and
intends to liquidate the Partnership `s remaining assets, distribute its
remaining cash and dissolve the Partnership in 2002.
The results of operations for the three and nine months ended September 30,
2002 are not necessarily indicative of the results which may be expected
for the full year. See Management's Discussion and Analysis of Financial
Condition and Results of Operations included in this report.
(2) Changes in Partners' Equity
A summary of changes in Partners' equity for the nine months ended
September 30, 2002 is as follows:
Investor Original Total
Limited Limited General Partners'
Partners Partner Partners Equity
----------- ----------- ----------- -----------
Balance at
December 31, 2001 $ 8,852,957 $ - $ 89,424 $ 8,942,381
Net Income 21,291 - 215 21,506
Distributions (7,536,336) - (76,125) (7,612,461)
----------- ----------- ----------- -----------
Balance at
September 30, 2002 $ 1,337,912 $ - $ 13,514 $ 1,351,426
=========== =========== =========== ===========
Continued
6
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(3) Related Party Transactions
During 2001, the partnership paid 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 For the Nine Months
Ended September 30, Ended September 30,
------------------------ ------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Property management fees$ - $ 40,761 $ 7,794 $ 133,062
Expenses reimbursement 83 69,735 258 255,322
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Charged to operations $ 83 $ 110,496 $ 8,052 $ 388,384
=========== =========== =========== ===========
Expense reimbursements due from affiliates of $0 and $28,737 was included
in due from affiliates at September 30,2002 and December 31, 2001,
respectively.
7
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
On August 29, 2001, the Partnership sold Courtyards Village, 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.
On November 20, 2001, the Partnership sold Windsor Apartments, 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.
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 three and nine
months ended September 30, 2002 and 2001.
Net income decreased during the three and nine months ended September 30, 2002
when compared to same period in 2001 due to sale of the Partnership's remaining
real estate assets in August and November of 2001.
Total revenue for the nine months ended September 30, 2002 decreased when
compared to the nine months ended September 30, 2001. Interest income earned
increased substantially from the cash proceeds received from the sale of the
Partnership's real estate properties.
Total expenses for the quarter ended September 30, 2002 decreased significantly
when compared to the same period in 2001 since the Partnership no longer has
ownership in any real estate properties as of December 31, 2001.
8
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, 2001. There have been no material changes in market risk subsequent
to that date.
All of the Partnership's mortgage debt was repaid as of December 31, 2001.
9
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
10
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: November 14, 2002
11
Certifications
I, Douglas Krupp, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Krupp Realty Limited
Partnership - VII;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002
/s/ Douglas Krupp
---------------------------
Douglas Krupp
Principal Executive Officer
12
Certifications
I, David C. Quade, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Krupp Realty Limited
Partnership - VII;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
2. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
3. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
4. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
5. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002
/s/ David C. Quade
------------------------
David C. Quade
Principal Accounting Officer
13
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Krupp Realty Limited Partnership-VII
(the "Partnership") on Form 10-Q for the period ended September 30, 2002 as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, David C. Quade, Principal Financial and Accounting Officer of The
Krupp Corporation, a General Partner of the Partnership, certify, pursuant to
U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of
2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition of the Partnership as of
September 30, 2002 and the results of operations of the Partnership
for the three months period then ended.
/s/ David C. Quade
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David C. Quade
Principal Financial and Accounting Officer
14