UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1995 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, 1995 1994 Multi-family apartment complexes, net of accumulated depreciation of $9,084,164 and $8,664,936, respectively $ 9,321,534 $ 9,665,226 Retail center, net of accumulated depreciation of $3,089,825 and $2,896,863, respectively 6,534,611 6,724,369 Total real estate assets 15,856,145 16,389,595 Cash and cash equivalents 1,268,693 1,021,464 Cash restricted for tenant security deposits 40,648 55,084 Cash restricted for capital improvements 53,619 54,189 Prepaid expenses and other assets 464,990 555,508 Deferred expenses, net of accumulated amortization of $37,581 and $19,538, respectively 249,713 261,143 Total assets $17,933,808 $18,336,983 LIABILITIES AND PARTNERS' EQUITY Mortgage notes payable $12,829,858 $12,912,152 Accrued expenses and other liabilities 672,322 762,988 Total liabilities 13,502,180 13,675,140 Partners' equity (Note 2) 4,431,628 4,661,843 Total liabilities and partners' equity $17,933,808 $18,336,983 The accompanying notes are an integral part of the financial statements. KRUPP REALTY LIMITED PARTNERSHIP-VII STATEMENTS OF OPERATIONS For the Three Months For the Six Months Ended June 30, Ended June 30, 1995 1994 1995 1994 Revenue: Rental income $1,112,379 $1,065,111 $2,211,953 $2,094,554 Interest income 16,292 5,683 29,839 11,299 Total revenue 1,128,671 1,070,794 2,241,792 2,105,853 Expenses: Operating (including reimbursements to affiliates of $22,942, $42,068, $48,022 and $83,138, respectively) 238,429 299,970 482,961 587,111 Maintenance 70,818 86,483 131,252 137,239 Real estate taxes 108,741 98,502 222,312 205,226 Management fees to an affiliate 48,570 47,444 96,005 88,381 Depreciation and amortization 316,572 344,249 630,233 657,918 Interest 280,483 300,133 561,798 600,519 General and administrative (including in reimbursements to affiliates of $7,651, $12,801, $15,378 and $25,834, respectively) 31,070 23,552 45,402 44,164 Total expenses 1,094,683 1,200,333 2,169,963 2,320,558 Net income (loss) $ 33,988 $ (129,539) $ 71,829 $ (214,705) Allocation of net income (loss) (Note 2): Per Unit of Investor Limited Partnership Interest (27,184 Units outstanding) $ 1.13 $ (4.72) $ 2.38 $ (7.82) Original Limited Partner $ 2,719 $ - $ 5,746 $ - General Partners $ 680 $ (1,295) $ 1,437 $ (2,147) The accompanying notes are an integral part of the financial statements. KRUPP REALTY LIMITED PARTNERSHIP-VII STATEMENTS OF CASH FLOWS For the Six Months Ended June 30, 1995 1994 Operating activities: Net income (loss) $ 71,829 $ (214,705) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 630,233 657,918 Decrease in cash restricted for tenant security deposits 14,436 6,838 Decrease (increase) in prepaid expenses and other assets 90,518 (192,930) Decrease in accrued expenses and other liabilities (90,666) (98,069) Net cash provided by operating activities 716,350 159,052 Investing activities: Additions to fixed assets (78,740) (65,329) Decrease (increase) in cash restricted for capital improvements 570 (2,287) Net cash used for investing activities (78,170) (67,616) Financing activity: Increase in deferred expenses (6,613) (207,428) Principal payments on mortgage notes payable (82,294) (75,027) Proceeds from refinancing mortgage note payable - 5,300,000 Payoff of mortgage note payable - (5,017,971) Distributions (302,044) - Net cash used for financing activities (390,951) (426) Net increase in cash and cash equivalents 247,229 91,010 Cash and cash equivalents, beginning of period 1,021,464 840,798 Cash and cash equivalents, end of period $1,268,693 $ 931,808 The accompanying notes are an integral part of the financial statements. 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, 1994 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, 1995, its results of operations for the three and six months ended June 30, 1995 and 1994 and its cash flows for the six months ended June 30, 1995 and 1994. The results of operations for the three and six months ended June 30, 1995 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 (deficit) for the six months ended June 30, 1995 is as follows: Investor Original Total Limited Limited General Partners' Partners Partner Partners Equity Balance at December 31, 1994 $5,174,914 $(289,135) $(223,936) $4,661,843 Net income 64,646 5,746 1,437 71,829 Cash distributions (271,840) (24,163) (6,041) (302,044) Balance at June 30, 1995 $4,967,720 $(307,552) $(228,540) $4,431,628 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. In 1994, the General Partners determined that there was sufficient Cash Flow to reinstate semi-annual distributions. These distributions commenced in August 1994 at an annualized rate of 1% of invested capital and increased in February 1995 to an annualized rate of 2% of invested capital. The Partnership's properties (Courtyards Village, Nora Corners and Windsor Apartments) have generated increased liquidity due to increased occupancy and higher rental rates in 1995, as compared to 1994. Furthermore, the Partnership has increased availability of funds due to reduced mortgage payments resulting from the 1994 refinancings of the mortgage notes payable at Nora Corners and Windsor Apartments. In 1995, Courtyards and Windsor have scheduled capital improvement expenditures totaling $140,000 and $92,000, respectively. As of June 30, 1995, capital improvement expenditures totaling $41,000 and $31,000 have been completed at Courtyards and Windsor, respectively. Management believes these improvements will improve the appearance of the properties and allow the properties to remain competitive in their respective real estate markets. Cash Flow Shown below, as required by the Partnership Agreement, is the calculation of Cash Flow for the six months ended June 30, 1995: Rounded to $1,000 Net income for tax purposes $ 37,000 Items not requiring (requiring) the use of operating funds: Tax basis depreciation and amortization 669,000 Principal payments on mortgage notes payable (82,000) Capital improvement expenditures (79,000) Working Capital Reserves (243,000) Cash Flow $302,000 Continued KRUPP REALTY LIMITED PARTNERSHIP-VII Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Operations During the three and six months ended June 30, 1995, as compared to the same period in 1994, rental revenues increased primarily due to steady rental rate increases implemented at Courtyards and Windsor in 1994. Occupancy at Windsor also improved due to the stabilization of the Dallas economy, with home purchasing leveling off. The Partnership's commercial property, Nora Corners, is also maintaining its high level of occupancy with the signing of two new tenants in the first quarter of 1994, D.L. Lowry Salon, a hair salon, and Food King, a chinese food restaurant, and one new tenant, Ladies' Sportswear, in the second quarter of 1995. In addition, The Accent Shop, a home retail store, renewed its five-year lease. During the three and six months ended June 30, 1995, as compared to the same period in 1994, total expenses of the Partnership have remained relatively stable, with the exception of operating and interest expenses. The decrease in operating expense is primarily due to a reduction in insurance expense due to a favorable claim history as well as management's efforts to reduce reimbursable operating costs. Certain of these cost savings are anticipated to continue throughout 1995. Interest expense for the first and second quarter of 1995, as compared to the first and second quarter of 1994, decreased due to the refinancing of the mortgage notes payable at Windsor Apartments and Nora Corners in April and October of 1994, respectively. The new mortgage note at Windsor has a reduced interest rate of 9.25% per annum from the previous rate of 10.3% per annum. At Nora Corners, the new mortgage note has an interest rate of 9% per annum from the previous rate of 10.5% per annum. Overall, operations at all of the Partnership's properties have improved, as compared to the first six months of 1994. The General Partners believe that this improvement will be sustained at least through the end of 1995. 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 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 4, 1995