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 September 30, 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
11.
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)
September 30,December 31,
1999 1998
Multi-family apartment complexes, net of
accumulated depreciation of $13,866,544
and $12,751,953, respectively $ 8,918,695 $ 9,510,531
Cash and cash equivalents (Note 2) 33,425 629,483
Cash restricted for tenant security deposits 27,093 26,606
Replacement reserve escrow 59,431 21,160
Prepaid expenses and other assets 894,957 603,914
Deferred expenses, net of accumulated
amortization of $161,772 and $132,823,
respectively 153,880 182,832
Total assets $10,087,481 $10,974,526
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities:
Mortgage notes payable (Note 3) $10,246,731 $10,323,428
Accrued expenses and other liabilities 731,326 558,157
Total liabilities 10,978,057 10,881,585
Partners' equity (deficit) (Note 4):
Investor Limited Partners (27,184
Units outstanding) (56,041) 867,955
Original Limited Partner (525,767) (481,602)
General Partners (308,768) (293,412)
Total Partners' equity (deficit) (890,576) 92,941
Total liabilities and Partners' equity
(deficit) $10,087,481 $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 For the Nine Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
Revenue:
Rental $1,006,136 $ 951,935 $ 2,938,789 $2,873,403
Interest income (Note 2) 2,165 24,415 16,111 120,211
Total revenue 1,008,301 976,350 2,954,900 2,993,614
Expenses:
Operating (Note 5) 256,714 215,706 740,027 734,007
Maintenance 48,796 95,339 271,149 227,350
Real estate taxes 97,617 92,790 327,584 269,677
General and administrative (Note 5) 50,221 30,924
128,342 88,428
Management fees (Note 5) 35,135 40,127 115,278 131,330
Depreciation and amortization 400,725 371,278 1,143,540 1,049,449
Interest 219,597 221,736 660,437 697,350
Total expenses 1,108,805 1,067,900 3,386,357 3,197,591
Loss before gain on sale of
property (100,504) (91,550) (431,457) (203,977)
Gain on sale of property
(Note 3) - - - 676,316
Net income (loss) $ (100,504) $(91,550) $ (431,457)$ 472,339
Allocation of net income (loss)
(Note 4):
Investor Limited Partners
(27,184 Units outstanding):
Loss before gain on
sale of property $ ( 99,499) $(90,634) $ (427,142)$ (201,937)
Gain on sale of property - - - 669,553
Net income (loss) $ ( 99,499) $(90,634) $ (427,142)$ 467,616
Investor Limited Partners, Per
Unit:
Loss before gain on
sale of property $ (3.66) $(3.34) $ (15.71)$ (7.43)
Gain on sale of property - - - 24.63
Net income (loss) $ (3.66) $ (3.34) $ (15.71)$ 17.20
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 $ (1,005) $ (916) $ (4,315)$ (2,040)
Gain on sale of property - - - 6,763
Net income (loss) $ (1,005) $ (916) $ (4,315)$ 4,723
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 Nine Months
Ended September 30,
1999 1998
Cash flows from operating activities:
Net income (loss) $(431,457)$472,339
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Interest earned on replacement reserve escrow (782) -
Depreciation and amortization 1,143,540 1,049,449
Gain on sale of property - (676,316)
Changes in assets and liabilities:
Increase in restricted cash for tenant
security deposits (487) (470)
Decrease (increase) in prepaid expenses
and other assets (291,040) 206,543
Increase (decrease) in accrued expenses
and other liabilities 176,669 (289,437)
Net cash provided by operating
activities 596,443 762,108
Cash flows from investing activities:
Deposits to replacement reserve escrow (37,800) (8,400)
Withdrawals from replacement reserve escrow 311 -
Additions to fixed assets (522,755)(1,319,324)
Decrease in accrued expenses and other liabilities
related to fixed asset additions (3,500) -
Proceeds from sale of property, net - 6,514,681
Net cash (used in) provided by
investing activities (563,744) 5,186,957
Cash flows from financing activities:
Repayment of mortgage note payable - (4,084,038)
Principal payments on mortgage notes payable(76,697) (70,413)
Increase in deferred expenses - (15,496)
Distributions (552,060)(2,744,486)
Net cash used in financing
activities (628,757)(6,914,433)
Net decrease in cash and cash equivalents (596,058) (965,368)
Cash and cash equivalents, beginning of period629,483 2,254,160
Cash and cash equivalents, end of period $ 33,425 $1,288,792
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 the 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 September 30, 1999,
its results of operations for the three and
nine months ended September 30, 1999 and 1998,
and its cash flows for the nine months ended
September 30, 1999 and 1998.
The results of operations for the three and
nine months ended September 30, 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:
September 30, December 31,
1999 1998
Cash and money market accounts
$33,425 $ 479,625
Commercial paper - 149,858
$ 33,425$ 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 $676,316 on the sale. 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
A summary of changes in Partners' equity (deficit) for the nine
months ended September 30, 1999 is as follows:
Total
Investor Original Partners'
Limited Limited General Equity
Partners Partner Partners (Deficit)
Balance at
December 31, 1998$867,955$(481,602) $(293,412)$ 92,941
Distributions (496,854)(44,165) (11,041) (552,060)
Net loss (427,142) - (4,315) (431,457)
Balance at
September 30, 1999$ ( 56,041)$(525,767)$(308,768)$ (890,576)
(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 For the Nine Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
Property management fees$35,135 $40,127 $115,278 $ 131,330
Expense reimbursements 54,606 37,127 142,951 102,958
Charged to operations$ 89,741$ 77,254 $258,229 $ 234,288
Expense reimbursements due from affiliates of
$429,768 and $239,514 were included in prepaid
expenses and other assets at September 30,
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 nine months ended September 30, 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 market of
Naperville, Illinois (Courtyards Village) is
currently experiencing an increase in
competition from new construction. Although
Courtyards Village has recently been
renovated, it is competing against over 3,000
new units added to the market in the past two
years. The General Partners are in the
process of evaluating strategies to improve
the competitiveness of the Partnership's
properties.
Year 2000
The General Partners of the Partnership
conducted an assessment of the Partnership's
core internal and external computer
information systems and have taken the
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 organizations.
Continued
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
Year 2000, Continued
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. The General Partners
incurred hardware costs as well as consulting
and other expenses related to the
infrastructure and facilities enhancements
necessary to complete the upgrade and prepare
for the Year 2000. There are no other
significant internal systems or software that
the Partnership is using at the present time.
The General Partners of the Partnership have
evaluated Year 2000 compliance issues with
respect to its non-financial systems, such as
computer controlled elevators, boilers,
chillers and other miscellaneous systems. The
General Partners do not anticipate any
problems in its non-financial systems.
The General Partners of the Partnership
surveyed the Partnership's material third-
party service providers (including but not
limited to its banks and telecommunications
providers) and significant vendors and
received assurances that such providers and
vendors are to be Year 2000 ready. The
General Partners do not anticipate any
problems with such providers and vendors that
would materially impact its results of
operations, liquidity or captial resources.
In addition, the Partnership is also subject
to external forces that might generally affect
industry and commerce, such as utility and
transportation company Year 2000 readiness
failures and related service interruptions.
However, the General Partners do not
anticipate these would materially impact its
results of operations, liquidity or capital
resources.
To date, the Partnership has not incurred, and
does not expect to incur, any significant cost
associated with being Year 2000 ready.
Operations
The following discussion relates to the
operations of the Partnership and its
properties (Courtyards Village and Windsor
Apartments) for the three and nine months
ended September 30, 1999 and 1998. The sale
of Nora Corners on January 30, 1998,
significantly impacts the comparability of the
Partnership's operations between these
periods.
Net income, net of Nora Corners's activity,
decreased during the three and nine months
ended September 30, 1999 when compared to the
three and nine months ended September 30, 1998
as increases in total expenses more than
offset increases in total revenue. Total
revenue increased due to increases in rental
revenue resulting from residential rental
rate increases implemented at both Courtyards
and Windsor Apartments in 1998 and during the
first quarter of 1999. However this was more
that offset by decreases in interest income
during the three and nine months ended
September 30, 1999 due to lower average cash
and cash equivalent balances available for
investment when compared to 1998, resulting
from the sale of Nora Corners.
Continued
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
Operations, Continued
Total expenses for the three months ended
September 30, 1999 increased when compared to
the same period in 1998, due primarily to
increases in operating, general and
administrative and depreciation expenses.
These increases were partially offset by
decreases in maintenance expense. Operating
expense increased in 1999 as a result of an
increase in workmen's compensation expense due
to an adjustment to the workmen's compensation
reserve in 1998. General and administrative
expenses increased due to higher expenses
incurred in connection with preparation and
mailing of Partnership reports and other
investor communications. Depreciation expense
increased in conjunction with increased
capital improvements completed at Courtyards
Village, particularly the rehab of eleven
apartments during the first quarter.
Maintenance is down as a result of additional
capital improvements completed during the
third quarter at Windsor and Courtyards.
Total expenses for the nine months ended
September 30, 1999, net of Nora Corner's
activity increased when compared to the same
period in 1999, due primarily to increases in
maintenance, general and administrative, real
estate tax, and depreciation. Re-stripping of
the parking lot and interior painting of the
buildings during the second quarter at Windsor
have resulted in the increases in maintenance
expenses. General and administrative expenses
increased due to higher expenses incurred in
connection with preparation and mailing of
Partnership reports and other investor
commnications. 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
Courtyards Village, particularly the rehab of
eleven apartments during the first quarter.
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: November 15, 1999