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 September 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 September 30, December 31, 1995 1994 Multi-family apartment complexes, net of accumulated depreciation of $9,299,789, and $8,664,936, respectively $ 9,170,925 $ 9,665,226 Retail center, net of accumulated depreciation of $3,187,101 and $2,896,863, respectively 6,447,935 6,724,369 Total real estate assets 15,618,860 16,389,595 Cash and cash equivalents 1,041,112 1,021,464 Cash restricted for tenant security deposits 34,848 55,084 Cash restricted for capital improvements 59,619 54,189 Prepaid expenses and other assets 553,184 555,508 Deferred expenses, net of accumulated amortization of $46,548 and $19,538, respectively 240,746 261,143 Total assets $17,548,369 $18,336,983 LIABILITIES AND PARTNERS' EQUITY Mortgage notes payable $12,787,455 $12,912,152 Accrued expenses and other liabilities 706,401 762,988 Total liabilities 13,493,856 13,675,140 Partners' equity (Note 2): Limited Partners (27,184 Limited Partner interests outstanding) 4,628,024 5,174,914 Original Limited Partner (337,461) (289,135) General Partners (236,050) (223,936) Total Partners' equity 4,054,513 4,661,843 Total liabilities and Partners' equity $17,548,369 $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 Nine Months Ended September 30, Ended September 30, 1995 1994 1995 1994 Revenue: Rental $1,132,319 $1,093,652 $3,344,272 $3,188,206 Interest income 18,274 7,353 48,113 18,652 Total revenue 1,150,593 1,101,005 3,392,385 3,206,858 Expenses: Operating (including reimburse- ments to affiliates of $32,688, $40,769, $80,710 and $122,308 respectively) 286,275 288,585 769,235 875,696 Maintenance 125,375 96,253 256,627 233,492 Real estate taxes 106,905 99,107 329,217 304,333 Management fees to an affiliate 50,855 49,791 146,860 138,172 Depreciation and amortization 321,867 312,875 952,101 970,793 Interest 279,576 346,613 841,374 947,132 General and administrative (including reimbursements to affiliates of $7,644, $13,845, $23,022 and $41,278, respectively) 54,811 55,812 100,213 99,976 Total expenses 1,225,664 1,249,036 3,395,627 3,569,594 Net loss $ (75,071) $ (148,031) $ (3,242) $ (362,736) Allocation of net loss (Note 2): Per Unit of Investor Limited Partner Interest (27,184 Units outstanding) $ (2.73) $ (5.39) $ (.12) $ (13.21) General Partners $ (751) $ (1,480) $ (32) $ (3,627) The accompanying notes are an integral part of the financial statements. KRUPP REALTY LIMITED PARTNERSHIP-VII STATEMENTS OF CASH FLOWS For the Nine Months Ended September 30, 1995 1994 Operating activities: Net loss $ (3,242) $ (362,736) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 952,101 970,793 Decrease in restricted cash for tenant security deposits 20,236 6,562 Decrease (increase) in prepaid expenses and other assets 2,324 (245,699) Decrease in accrued expenses and other liabilities (56,587) (68,676) Net cash provided by operating activities 914,832 300,244 Investing activities: Additions to fixed assets (154,356) (139,187) Increase in cash restricted for capital improvements (5,430) (267) Net cash used in investing activities (159,786) (139,454) Financing activities: Principal payments on mortgage notes payable (124,697) (111,856) Proceeds from refinancing mortgage note payable - 5,300,000 Payoff of mortgage note payable - (5,017,971) Increase in deferred expenses (6,613) (208,723) Distributions (604,088) (151,022) Net cash used in financing activities (735,398) (189,572) Net increase (decrease) in cash 19,648 (28,782) Cash and cash equivalents, beginning of period 1,021,464 840,798 Cash and cash equivalents, end of period $1,041,112 $ 812,016 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 only of normal recurring accruals) necessary to present fairly the Partnership's financial position as of September 30, 1995, its results of operations for the three and nine months ended September 30, 1995 and 1994 and its cash flows for the nine months ended September 30, 1995 and 1994. Certain prior period balances have been reclassified to reflect current year financial statement presentation. The results of operations for the three and nine months ended September 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 nine months ended September 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 Loss (3,210) - (32) (3,242) Cash Distribution (543,680) (48,326) (12,082) (604,088) Balance at September 30, 1995 $4,628,024 $(337,461) $(236,050) $4,054,513 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 refinancing 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 September 30, 1995, capital improvement expenditures totaling $84,000 and $48,000 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 nine months ended September 30, 1995: Rounded to $1,000 Net loss for tax purposes $ (54,000) Items not requiring (requiring) the use of operating funds: Tax basis depreciation and amortization 1,003,000 Principal payments on mortgage notes payable (125,000) Capital improvement expenditures (154,000) Working capital reserves (368,000) 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 nine months ended September 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. The Partnership's commercial property, Nora Corners, is 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 in the second quarter of 1995, Ladies' Sportswear. In addition, the Accent Shop, a home retail store, renewed its lease. Interest income increased due to additional investments in commercial paper yielding higher rates of return. During the three and nine months ended September 30, 1995, as compared to the same period in 1994, total expenses of the Partnership have remained relatively stable, with the exception of operating, maintenance 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. Maintenance expense increased due to landscaping, parking lot and exterior building improvements implemented at Courtyards and Windsor during the third quarter of 1995. Interest expense 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 nine 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: November 2, 1995