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 March 31,1999
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.)
One Beacon Street, Boston, Massachusetts
02108
(Address of principal executive offices)
(Zip Code)
(617) 523-7722
(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
10.
PART I. FINANCIAL INFORMATION
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)
March 31, December 31,
1999 1998
Multi-family apartment complexes, net of
accumulated depreciation of $13,112,247
and $12,751,953, respectively $ 9,223,639$ 9,510,531
Cash and cash equivalents (Note 2) 490,870 629,483
Cash restricted for tenant security deposits 26,768 26,606
Replacement reserve escrow 33,754 21,160
Prepaid expenses and other assets 462,893 603,914
Deferred expenses, net of accumulated
amortization of $142,472 and $132,823,
respectively 173,183 182,832
Total assets $ 10,411,107$ 10,974,526
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities:
Mortgage notes payable (Note 3) $ 10,298,407$ 10,323,428
Accrued expenses and other liabilities 434,604 558,157
Total liabilities 10,733,011 10,881,585
Partners' equity (deficit) (Note 4):
Investor Limited Partners (27,184
Units outstanding) 482,100 867,955
Original Limited Partner (503,684) (481,602)
General Partners (300,320) (293,412)
Total Partners' equity (deficit) (321,904) 92,941
Total liabilities and Partners' equity
(deficit) $ 10,411,107$ 10,974,526
The accompanying notes are an integral
part of the consolidated financial statements.
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months
Ended March 31,
1999 1998
Revenue:
Rental $ 970,570 $ 994,935
Interest income (Note 2) 8,201 42,065
Total revenue 978,771 1,037,000
Expenses:
Operating (Note 5) 229,879 276,415
Maintenance 93,547 48,114
Real estate taxes 136,200 80,153
General and administrative (Note 5) 24,336 27,787
Management fees (Note 5) 42,992 47,882
Depreciation and amortization 369,943 377,712
Interest 220,690 253,370
Total expenses 1,117,587 1,111,433
Loss before gain on sale of property (138,816) (74,433)
Gain on sale of property (Note 3) - 676,360
Net income (loss) $ (138,816) $ 601,927
Allocation of net income (loss) (Note 4):
Investor Limited Partners
(27,184 Units outstanding):
Loss before gain on sale of property$(137,428) $ (73,689)
Gain on sale of property - 669,597
Net income (loss) $ (137,428) $ 595,908
Investor Limited Partners, Per Unit:
Loss before gain on sale of property$ (5.06) $ (2.71)
Gain on sale of property - 24.63
Net income (loss) $ (5.06) $ 21.92
Original Limited Partner:
Loss before gain on sale of property$ - $ -
Gain on sale of property - -
Net income (loss) $ - $ -
General Partners:
Loss before gain on sale of property$(1,388) $ (744)
Gain on sale of property - 6,763
Net income (loss) $ (1,388) $ 6,019
The accompanying notes are an integral
part of the consolidated financial statements.
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months
Ended March 31,
1999 1998
Cash flows from operating activities:
Net income (loss) $ (138,816)$ 601,927
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Interest earned on replacement reserve escrow(145) -
Depreciation and amortization 369,943 377,712
Gain on sale of property - (676,360)
Changes in assets and liabilities:
Increase in restricted cash for tenant
security deposits (162) (150)
Decrease in prepaid expenses and other
assets 141,021 199,282
Decrease in accrued expenses and other
liabilities (120,507) (301,964)
Net cash provided by operating
activities 251,334 200,447
Cash flows from investing activities:
Deposits to replacement reserve escrow (12,600) -
Withdrawals from replacement reserve escrow 151 -
Additions to fixed assets (73,402) (171,343)
Increase (decrease) in accrued expenses and other
liabilities related to fixed asset additions (3,046) 2,421
Proceeds from sale of property, net - 6,514,727
Net cash provided by (used in)
investing activities (88,897) 6,345,805
Cash flows from financing activities:
Repayment of mortgage note payable - (4,084,038)
Principal payments on mortgage notes payable (25,021) (22,971)
Increase in deferred expenses - (15,496)
Distributions (276,029) (302,044)
Net cash used in financing activities (301,050)(4,424,549)
Net increase (decrease) in cash and cash
equivalents (138,613) 2,121,703
Cash and cash equivalents, beginning of period 629,483 2,254,160
Cash and cash equivalents, end of period $ 490,870$4,375,863
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)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, 1998
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, 1999 and
its results of operations and cash flows for
the three months ended March 31, 1999 and
1998.
The results of operations for the three months
ended March 31, 1999 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) Cash and Cash Equivalents
Cash and cash equivalents consisted of the following:
March 31, December 31,
1999 1998
Cash and money market accounts $ 341,360 $ 479,625
Commercial paper 149,510 149,858
$ 490,870 $ 629,483
(3)Sale of Property
On January 30, 1998, the Partnership sold Nora
Corners Shopping Center ("Nora Corners") to
unaffiliated third parties. Nora Corners was
included in a package with thirteen other
properties owned by affiliates of the General
Partners. The total selling price of the
fourteen properties was $138,000,000, of which
the Partnership received $6,604,300, less
repayment of the existing mortgage note and
interest of $4,114,668 and its share of
closing costs of $224,512. For financial
reporting purposes, the Partnership realized a
gain of $676,360 on the sale as of March 31,
1998. The Partnership realized a final gain
of $676,316 on the sale as of December 31,
1998. The gain was calculated as the
difference between the property's selling
price less net book value of the property and
closing costs.
Nora Corners was situated on 11.21 acres of
land, seven acres of which were owned by
certain non-affiliated third parties. These
seven acres of land were leased to the
Partnership subject to a 99-year land lease
which expired in 2061. The land lease
required annual rental payments of $17,280
from 1987 through 2012. On January 30, 1998,
in conjunction with the sale of Nora Corners,
the land lease was assigned to the purchaser
of the property, under the terms of the land
lease.
Continued
KRUPP REALTY LIMITED PARTNERSHIP-VII AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS,
Continued
(4)Changes in Partners' Equity (Deficit)
A summary of changes in Partners' equity
(deficit) for the three months ended March 31,
1999 is as follows:
Investor Original Total
Limited Limited General Partners'
Partners Partner Partners Deficit
Balance at
December 31, 1998$867,955 $(481,602)$(293,412) $ 92,941
Distributions (248,427) (22,082) (5,520) (276,029)
Net loss (137,428) - (1,388) (138,816)
Balance at
March 31, 1999 $482,100 $(503,684)$(300,320)$ (321,904)
(5)Related Party Transactions
The Partnership pays property 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 4% of the gross
receipts, net of leasing commissions from the
commercial property which was under management
until January 30, 1998 (see Note 3), 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 administrative
expenses.
Amounts accrued or paid to the General
Partners' affiliates were as follows:
For the Three Months
Ended March 31,
1999 1998
Property management fees $ 42,992 $ 47,882
Expense reimbursements 33,967 28,704
Charged to operations $ 76,959 $ 76,586
Expense reimbursements due from affiliates
of $165,751 and $239,514 were included in
prepaid expenses and other assets at March
31, 1999 and December 31, 1998, respectively.
In addition to the amounts above, costs
paid to the General Partners' affiliates
associated with the sale of Nora Corners
were $4,171 during the three months ended
March 31, 1998.
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
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 improvements,
debt service and other 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.
Due to the special distribution in 1998, a
result of the sale of Nora Corners, and the
subsequent decrease in the Investor Limited
Partners' capital, the semiannual
distributions were decreased from $20.00 per
Unit in 1998 to $18.28 per Unit, beginning
with the distribution paid in February, 1999.
On January 30, 1998, the General Partners sold
Nora Corners to unaffiliated third parties.
The property was included in a package with
thirteen other properties owned by affiliates
of the General Partners. The total selling
price of the fourteen properties was
$138,000,000, of which the Partnership
received $6,604,300 for the sale of its
property, less the payoff of the mortgage note
and its share of the closing costs of $224,512
(see Note 3).
The Partnership's apartment markets are currently
experiencing an increase in competition from recently
renovated existing properties and new construction.
The General Partners are in the process of evaluating
strategies to improve the competitiveness of the Partnership's
properties.
The General Partners of the Partnership have
conducted an assessment of the Partnership's
core internal and external computer
information systems and have taken the further
necessary steps to understand the nature and
extent of the work required to make its
systems Year 2000 ready in those situations in
which it is required to do so. The Year 2000
readiness issue concerns the inability of
computerized information systems to accurately
calculate, store or use a date after 1999.
This could result in a system failure or
miscalculations causing disruptions of
operations. The Year 2000 issue affects
virtually all companies and all organizations.
In this regard, the General Partners of the
Partnership, along with certain affiliates,
began a computer systems project in 1997 to
significantly upgrade its existing hardware
and software. The General Partners completed
the testing and conversion of the financial
accounting operating systems in February 1998.
As a result, the General Partners have
generated operating efficiencies and believe
their financial accounting operating systems
are Year 2000 ready. Costs incurred by the
Partnership are not significant to date.
There are no other systems or software that
the Partnership is using at the present time.
Continued
KRUPP REALTY LIMITED PARTNERSHIP-VII AND
SUBSIDIARIES
Liquidity and Capital Resources, Continued
The General Partners of the Partnership are
currently in the process of identifying,
evaluating and remedying the Partnership's
Year 2000 compliance issues with respect to
its non-financial systems, such as computer
controlled elevators, boilers, chillers or
other miscellaneous systems. The General
Partners are in the process of completing the
Partnership's Year 2000 compliance initiatives
at its properties. Based on their
identification and assessment efforts to date,
the General Partners believe that certain of
the computer equipment and software the
Partnership currently uses will require
modification or replacement. However, the
General Partners do not believe that the
future efforts to achieve the Partnership's
Year 2000 compliance initiatives will result
in material cost to the Partnership or
significantly interrupt services or
operations.
The General Partners of the Partnership are in
the process of evaluating the potential
adverse impact that could result from the
failure of material third-party service
providers (including but not limited to its
banks and telecommunications providers) and
significant vendors to be Year 2000 ready. No
estimate can be made at this time as to the
impact of the readiness of such third parties.
However, if any of the third party service
providers cease to conduct business due to
Year 2000 related problems, the General
Partners expect to be able to contract with
alternate providers without experiencing any
material adverse effects on the Partnership's
financial condition and results of operations.
The Partnership is in the process of
coordinating their contingency plan with the
property manager in charge of operations.
Operations
The following discussion relates to the
operations of the Partnership and its
properties (Courtyards and Windsor Apartments)
for the three months ended March 31, 1999 and
1998. The sale of Nora Corners on January 30,
1998, significantly impacts the comparability
of the Partnership's operations between the
two periods.
Net income, net of Nora Corners's activity,
decreased during the three months ended March
31, 1999 as compared to the three months ended
March 31, 1998, as total expenses increased
and total revenue decreased. Rental revenue
increased as a result of rental rate increases
implemented at both Courtyards and Windsor
Apartments. However, this was offset by a
decrease in interest income due to higher
average cash and cash equivalent balances
available for investment in 1998, as a result
of the sale of Nora Corners.
Total expenses for the three months ended
March 31, 1999, net of Nora Corners's
activity, increased when compared to the same
period in 1998, due primarily to increases in
maintenance, real estate taxes and
depreciation expenses, partially offset by a
decrease in operating expense. Maintenance
expense increased primarily due to payment of
the insurance deductible for damage from a
December, 1998 fire at Windsor Apartments and
snow removal at Courtyards Apartments from a
severe 1999 winter season in the Chicago area.
Real estate tax expense increased as a result
of a reassessment of Windsor Apartments's
property value in 1998 by the local taxing
authority. Depreciation expense increased in
conjunction with increased capital
improvements completed at the Partnership's
properties. The increases discussed above
were offset by a decrease in operating expense
as a result of a reduction in insurance
liability and workers compensation expense at
the Partnership's properties, due to lower
claims experience.
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/Wayne H.
Zarozny Wayne H.
Zarozny
Treasurer and Chief Accounting
Officer of the Krupp
Corporation, a General Partner.
DATE: May 14, 1999