UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1994 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-14377 Krupp Realty Limited Partnership-VII Massachusetts 04-2842924 (State or other jurisdiction of (IRS employer incorporation or organization) identification no.) 470 Atlantic Avenue, Boston, Massachusetts 02210 (Address of principal executive offices) (Zip Code) (617) 423-2233 (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 PART I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS KRUPP REALTY LIMITED PARTNERSHIP-VII BALANCE SHEETS ASSETS June 30, December 31, 1994 1993 Multi-family apartment complexes, net of accumulated depreciation of $8,236,459 and $7,820,288, respectively $ 9,993,591 $10,349,433 Retail center, net of accumulated depreciation of $2,702,805 and $2,513,207, respectively 6,861,919 7,046,517 Total real estate assets 16,855,510 17,395,950 Cash 931,808 840,798 Cash restricted for tenant security deposits 54,525 61,363 Cash restricted for capital improvements 60,035 57,748 Prepaid expenses and other assets (Note 2) 520,792 327,862 Deferred expenses, net of accumulated amortization of $6,173 and $259,055, respectively (Notes 2 and 3) 201,254 45,975 Total assets $18,623,924 $18,729,696 LIABILITIES AND PARTNERS' EQUITY Mortgage notes payable (Note 3) $12,889,034 $12,682,032 Other liabilities 726,792 824,861 Total liabilities 13,615,826 13,506,893 Commitment (Note 3) Partners' equity (Note 4) 5,008,098 5,222,803 Total liabilities and partners' equity $18,623,924 $18,729,696 The accompanying notes are an integral part of the financial statements. -2- KRUPP REALTY LIMITED PARTNERSHIP-VII STATEMENTS OF OPERATIONS For the Three Months For the Six Months Ended June 30, Ended June 30, 1994 1993 1994 1993 Revenue: Rental income $1,065,111 $1,372,679 $2,094,554 $2,725,525 Interest income 5,683 5,706 11,299 10,482 Total revenue 1,070,794 1,378,385 2,105,853 2,736,007 Expenses: Operating (including reimbursements to affiliates of $42,068, $60,653, $83,138 and $121,158, respectively) 299,970 437,954 587,111 870,807 Maintenance 86,483 223,732 137,239 330,967 Real estate taxes 98,502 140,981 205,226 271,954 Management fees to an affiliate 47,444 61,166 88,381 123,925 Depreciation and amortization 344,249 381,430 657,918 756,743 Interest 300,133 410,933 600,519 821,739 General and administrative (including in reimbursements to affiliates of $12,901, $12,801, $25,834 and $25,674, respectively) 23,552 35,006 44,164 42,437 Total expenses 1,200,333 1,691,202 2,320,558 3,218,572 Net loss $ (129,539) $ (312,817) $ (214,705) $ (482,565) Allocation of net loss (Note 4): Per Unit of Investor Limited Partnership Interest (27,184 Units outstanding) $ (4.72) $ (11.39) $ (7.82) $ (17.57) General Partners $ (1,295) $ (3,129) $ (2,147) $ (4,826) The accompanying notes are an integral part of the financial statements. -3- KRUPP REALTY LIMITED PARTNERSHIP-VII STATEMENTS OF CASH FLOWS For the Six Months Ended June 30, 1994 1993 Operating activities: Net loss $ (214,705) $(482,565) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 657,918 756,743 Interest accumulated, not paid - 59,407 Decrease in cash restricted for tenant security deposits 6,838 2,875 Decrease (increase) in prepaid expenses and other assets (192,930) 65,236 Decrease in accrued expenses and other liabilities (98,069) (19,685) Net cash provided by operating activities 159,052 382,011 Investing activities: Additions to fixed assets (65,329) (136,262) Decrease (increase) in cash restricted for capital improvements (2,287) 6,232 Net cash used for investing activities (67,616) (130,030) Financing activity: Increase in deferred expenses (207,428) - Principal payments on mortgage notes payable (75,027) (77,214) Proceeds from refinancing mortgage note payable 5,300,000 - Payoff of mortgage note payable (5,017,971) - Net cash used for financing activities (426) (77,214) Net increase in cash 91,010 174,767 Cash, beginning of period 840,798 387,512 Cash, end of period $ 931,808 $ 562,279 The accompanying notes are an integral part of the financial statements. -4- KRUPP REALTY LIMITED PARTNERSHIP-VII NOTES TO FINANCIAL STATEMENTS 1. Significant Accounting Policies Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles 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 Krupp Corporation and The Krupp Company Limited Partnership-II, the General Partners of Krupp Realty Limited Partnership-VII (the "Partnership"), the disclosures contained in this report are adequate to make the information presented not misleading. See Notes to Financial Statements included in the Partnership's Annual Report on Form 10-K for the year ended December 31, 1993 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 financial statements reflect all adjustments (consisting of only normal recurring accruals) necessary to present fairly the Partnership's financial position as of June 30, 1994, its results of operations for the three and six months ended June 30, 1994 and 1993 and its cash flows for the six months ended June 30, 1994 and 1993. Certain prior year balances have been reclassified to conform with current year financial statement presentation. The results of operations for the three and six months ended June 30, 1994 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. Related Party Transactions Amounts paid to affiliates of the General Partners during the six months ended June 30, 1994 and for the year ended December 31, 1993 for costs related to refinancing activities of the Partnership's mortgage notes were $15,613 and $7,568, respectively. 3. Mortgage Notes Payable On April 13, 1994, the Partnership, completed the refinancing of Windsor Apartments. The property was refinanced with a $5,300,000 non-recourse mortgage note payable at the rate of 9.25% per annum with monthly principal and interest payments of $43,602, based on a 30 year amortization schedule. The mortgage note, which is collateralized by the property, matures on May 1, 2001 at which time the remaining principal (approximately $4,977,000) and any accrued interest are due. After October 13, 1997, the note may be prepaid subject to a prepayment penalty. The Partnership utilized the proceeds to repay the prior mortgage note with a remaining balance of $5,017,971 and to pay refinancing costs of $207,428. Continued -5- KRUPP REALTY LIMITED PARTNERSHIP-VII NOTES TO FINANCIAL STATEMENTS - Continued 4. Changes in Partners' Equity A summary of changes in partners' equity (deficit) for the six months ended June 30, 1994 is as follows: Investor Original Total Limited Limited General Partners' Partners Partner Partners Equity Balance at December 31, 1993 $5,716,673 $(277,053) $(216,817) $5,222,803 Net loss (212,558) - (2,147) (214,705) Balance at June 30, 1994 $5,504,115 $(277,053) $(218,964) $5,008,098 -6- KRUPP REALTY LIMITED PARTNERSHIP-VII Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 is also dependent upon 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 expenditures, debt service and 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. The Partnership's status has improved over the past years. This improvement was due to the sale of Westbrook/Willow Cove in 1993, thus favorably impacting future cash flows. In addition, the Partnership has taken advantage of the low interest rates by refinancing Windsor Apartments in April 1994. Also, the refinancing of Nora Corners is currently being finalized, with a tentative close date in August 1994. Due to these events the General Partners have determined that there is sufficient Distributable Cash Flow in 1994 to reinstate distributions. These distributions are commencing in August 1994 and thereafter are to be paid semiannually. On April 13, 1994, the Partnership successfully completed the refinancing of Windsor Apartments mortgage note payable. The new $5,300,000 note requires decreased debt service payments due to a lower interest rate of 9.25% per annum from the previous rate of 10.3% per annum. The reduced mortgage payments will provide additional liquidity to the Partnership that may be used to fund capital improvements at its properties or for distributions. The mortgage note at Nora Corners Shopping Center matured on June 1, 1994. The Partnership is finalizing the terms of a new note, with the same lender, for approximately $4,250,000, at an interest rate of 9%. The refinancing has a tentative close date of August 23, 1994. Cash Flow Shown below, as required by the Partnership Agreement, is the calculation of Cash Flow for the six months ended June 30, 1994: Rounded to $1,000 Net loss for tax purposes $(254,000) Items not requiring (requiring) the use of operating funds: Tax basis depreciation and amortization 701,000 Principal payments on mortgage notes payable (75,000) Capital improvement expenditures (65,000) Replacement reserves for capital improvement expenditures (2,000) Working capital reserves (169,000) Cash Flow $ 136,000 Continued -7- KRUPP REALTY LIMITED PARTNERSHIP-VII Operations The following discussion relates to the operations of the Partnership and its properties (Courtyards Village, Nora Corners and Windsor Apartments) for the three and six months ended June 30, 1994 and 1993. The sale of Westbrook Place/Willow Cove Apartments ("Westbrook"), in July 1993, significantly impacts the comparability of the Partnership's operations between the three and six month periods. During the first six months of 1994, as compared to 1993, the Partnership's rental revenues (net of Westbrook's rental revenues) increased by $69,000. This increase was primarily due to rental increases at Courtyards and Windsor as well as occupancy increases at Windsor. Property values increased at Courtyards and Windsor as a result of interior and exterior painting improvements and carpentry renovations, started in 1993 and completed in the first quarter of 1994. Landscaping and parking lot upgrades were also implemented at Courtyards in 1993. These improvements allowed the Partnership to obtain the rental increases at both properties. Occupancy at Windsor increased due to the stabilization of the Dallas economy, with home purchasing levelling off. As a result, all rental concessions at Windsor were eliminated in the first quarter of 1994. The Partnership's commercial property, Nora Corners, signed a new tenant, Food King, a Chinese restaurant, in the first quarter of 1994. For the three and six months ended June 30, 1994, as compared to the same periods in 1993, property expenses (excluding Westbrook) have remained relatively stable. Overall, year to date, operations at all of the Partnerships properties have improved, as compared to the first six months of 1993. The General Partners believe that this improvement will continue into the second half of 1994. -8- KRUPP REALTY LIMITED PARTNERSHIP-VII PART II - OTHER INFORMATION Item 1. Legal Proceedings Response: None Item 2. Changes in Securities Response: None Item 3. Defaults upon Senior Securities Response: None Item 4. Submission of Matters to a Vote of Security Holders Response: None Item 5. Other Information Response: None Item 6. Exhibits and Reports on Form 8-K Response: None (a) Exhibits Windsor Apartments (10.1) Promissory Note dated April 13, 1994 by and between Windsor Partners Limited Partnership and Sun Life Insurance Company of America. (10.2) 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. Ridger. (b) Reports on Form 8-K Response: None -9- SIGNATURES 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/Marianne Pritchard Marianne Pritchard Treasurer and Chief Accounting Officer of The Krupp Corporation, a General Partner. DATE: August 1, 1994 -10-