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 March 31, 1996
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 AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, December 31,
1996 1995
Multi-family apartment complexes, net of
accumulated depreciation of $9,731,692 and
$9,521,601, respectively $ 8,837,227 $ 9,030,289
Retail center, net of accumulated
depreciation of $3,382,357 and $3,285,620,
respectively 6,281,083 6,376,225
Total real estate assets 15,118,310 15,406,514
Cash and cash equivalents 1,258,868 1,311,037
Cash restricted for tenant security deposits 37,181 35,979
Cash restricted for capital improvements 53,729 57,462
Prepaid expenses and other assets 540,935 568,775
Deferred expenses, net of accumulated
amortization of $64,478 and $55,514,
respectively 222,816 231,780
Total assets $17,231,839 $17,611,547
LIABILITIES AND PARTNERS' EQUITY
Accounts payable $ 9,699 $ 48,530
Mortgage notes payable 12,700,048 12,744,191
Accrued expenses and other liabilities 741,761 785,672
Total liabilities 13,451,508 13,578,393
Partners' equity (Note 2):
Investor Limited Partners (27,184
Units outstanding) 4,379,339 4,606,880
Original Limited Partner (357,687) (337,462)
General Partners (241,321) (236,264)
Total Partners' equity 3,780,331 4,033,154
Total liabilities and Partners' equity $17,231,839 $17,611,547
The accompanying notes are an integral
part of the consolidated financial statements.
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months
Ended March 31,
1996 1995
Revenue:
Rental $1,164,887 $1,099,574
Interest income 20,237 13,547
Total revenue 1,185,124 1,113,121
Expenses:
Operating (Note 3) 284,439 242,916
Maintenance 70,226 60,434
Real estate taxes 109,963 113,571
Management fees (Note 3) 49,259 47,435
Depreciation and amortization 315,792 313,661
Interest 277,292 280,807
General and administrative (Note 3) 28,932 16,456
Total expenses 1,135,903 1,075,280
Net income $ 49,221 $ 37,841
Allocation of net income (Note 2):
Investor Limited Partners
(27,184 Units outstanding) $ 44,299 $ 34,057
Per Unit of Investor Limited Partner
Interest $ 1.63 $ 1.25
Original Limited Partner $ 3,938 $ 3,027
General Partners $ 984 $ 757
The accompanying notes are an integral
part of the consolidated financial statements.
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the
Three Months
Ended March 31,
1996 1995
Operating activities:
Net income $ 49,221 $ 37,841
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 315,792 313,661
Decrease (increase) in cash restricted for
tenant security deposits (1,202) 14,253
Decrease in prepaid expenses and
other assets 27,840 9,667
Decrease in accounts payable (40,622) (25,182)
Decrease in accrued expenses and other
liabilities (43,911) (55,906)
Net cash provided by operating activities 307,118 294,334
Investing activities:
Additions to fixed assets (18,624) (33,587)
Decrease in cash restricted for capital
improvements 3,733 1,405
Increase in accounts payable related to fixed
asset additions 1,791 -
Net cash used in investing activities (13,100) (32,182)
Financing activities:
Principal payments on mortgage notes payable (44,143) (40,734)
Increase in deferred expenses - (5,475)
Distributions (302,044) (302,044)
Net cash used in financing activities (346,187) (348,253)
Net decrease in cash and cash equivalents (52,169) (86,101)
Cash and cash equivalents, beginning of period 1,311,037 1,021,464
Cash and cash equivalents, end of period $1,258,868 $ 935,363
The accompanying notes are an integral
part of the consolidated financial statements.
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
NOTES TO CONSOLIDATED 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 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 Consolidated
Financial Statements included in the Partnership's Annual Report on Form
10-K for the year ended December 31, 1995 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
March 31, 1996 and its results of operations and cash flows for the
three months ended March 31, 1996 and 1995. Certain prior period
balances have been reclassified to conform with current period
consolidated financial statement presentation.
The results of operations for the three months ended March 31, 1996 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 three
months ended March 31, 1996 is as follows:
Investor Original Total
Limited Limited General Partners'
Partners Partner Partners Equity
Balance at
December 31, 1995 $4,606,880 $(337,462) $(236,264) $4,033,154
Distributions (271,840) (24,163) (6,041) (302,044)
Net income 44,299 3,938 984 49,221
Balance at
March 31, 1996 $4,379,339 $(357,687) $(241,321) $3,780,331
3. Related Party Transactions
Commencing with the date of acquisition of the Partnership's properties,
the Partnership entered into agreements under which property management
fees are paid to an affiliate of the General Partners for services as
management agent. Such agreements provide for management fees payable
monthly at a rate of 4% of the gross receipts, net of leasing
commissions, from the commercial properties under management and 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 accounting, computer,
insurance, travel, legal and payroll; and with the preparation and
mailing of reports and other communications to the Limited Partners.
Amounts accrued or paid to the General Partners or their affiliates were
as follows:
For the Three Months
Ended March 31,
1996 1995
Property management fees $ 49,259 $ 47,435
Expense reimbursements 36,099 32,807
Charged to operations $ 85,358 $ 80,242
In addition to the amounts above, the following amounts relating to
refinancing and disposition activities were paid to the General
Partners or their affiliates.
March 31, December 31,
1996 1995
Cost reimbursements $ - $ 3,793
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
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 would also be impacted by 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 a rate of $5.00 per Unit and
increased in February 1995 to an annual rate of $20.00 per Unit.
The Partnership's properties (Courtyards Village, Nora Corners and Windsor
Apartments) have generated increased liquidity due to increased occupancy
and higher rental rates in 1996, as compared to 1995. Furthermore, the
Partnership has increased availability of funds due to reduced mortgage
payments resulting from the 1994 refinancings of mortgage notes payable at
Nora Corners and Windsor Apartments.
In 1996, Courtyards, Nora Corners and Windsor have scheduled capital
improvement expenditures totaling $312,000, $86,000 and $340,000,
respectively. The General Partners believe 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 of the Partnership for the three months ended March 31, 1996.
The General Partners provide certain of the information below to meet
requirements of the Partnership Agreement and because they believe that it
is an appropriate supplemental measure of operating performance. However,
Cash Flow should not be considered by the reader as a substitute to net
income, as an indicator of the Partnership's operating performance or to
cash flows as a measure of liquidity.
Rounded to $1,000
Net income for tax purposes $ 30,000
Items not requiring or (requiring) the use of
operating funds:
Tax basis depreciation and amortization 337,000
Principal payments on mortgage notes payable (44,000)
Expenditures for capital improvements (19,000)
Working capital reserves (153,000)
Cash Flow $ 151,000
Operations
Cash Flow for the first three months of 1996, net of working capital
reserves, has increased when compared to the same period in 1995 due
primarily to decreased capital improvements and increased net income. The
Partnership experienced a 30% increase in net income as the increase in
total revenue more than offset the increase in total expenses. The
increase in rental revenue is attributable to rises in occupancy and
rental rates at Courtyards and Windsor in the first quarter of 1996 as
compared to the same period in 1995. Interest income increased due to
additional investments in commercial paper yielding a higher rate of
return.
Total expenses for the three months ended March 31, 1996 when compared to
the same period in 1995 have remained relatively stable with the
exception of operating expense. Operating expense increased between the
two periods due primarily to a rise in utility expense in the first three
months of 1996 as compared to the first three months of 1995. Although
rates remained the same in 1996, higher utility consumption at Courtyards
is attributable to the severe weather experienced in the Chicago area
during the first quarter of 1996.
General
In accordance with Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of", which is effective for fiscal years beginning after December
15, 1995, the Partnership has implemented policies and practices for
assessing impairment of its real estate assets.
The investments in properties are carried at cost less accumulated
depreciation unless the General Partners believe there is a significant
impairment in value, in which case a provision to write down investments
in properties to fair value will be charged against income. At this time,
the General Partners do not believe that any assets of the Partnership are
significantly impaired.
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
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
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
(Registrant)
BY: /s/Robert A. Barrows
Robert A. Barrows
Treasurer and Chief Accounting Officer of the Krupp
Corporation, a General Partner.
DATE: May 1, 1996