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,
1998
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
The total number of pages in this document is
11.<PAGE>
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
<TABLE>
<CAPTION>
ASSETS
March 31, December 31,
1998 1997
Real estate assets:
Multi-family apartment complexes, net of
accumulated depreciation of $11,737,589
<S> <C> <C>
and $11,454,014, respectively $ 8,866,889 $ 9,009,457
Retail center (Note 3) - 5,673,137
Total real estate assets 8,866,889 14,682,594
Cash and cash equivalents (Note 2) 4,375,863 2,254,160
Cash restricted for tenant security deposits 26,130 25,980
Prepaid expenses and other assets 408,278 742,453
Deferred expenses, net of accumulated
amortization of $103,874 and $132,911,
respectively (Note 4) 211,781 290,423
Total assets $ 13,888,941$ 17,995,610
LIABILITIES AND PARTNERS' EQUITY
Liabilities:
Mortgage notes payable (Notes 3 and 4) $ 10,395,362$ 14,502,371
Accrued expenses and other liabilities 509,342 808,885
Total liabilities 10,904,704 15,311,256
Partners' equity (deficit) (Note 5):
Investor Limited Partners (27,184
Units outstanding) 3,703,426 3,379,358
Original Limited Partner (457,438) (433,275)
General Partners (261,751) (261,729)
Total Partners' equity 2,984,237 2,684,354
Total liabilities and Partners' equity $ 13,888,941$ 17,995,610
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.<PAGE>
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
1998 1997
Revenue:
<S> <C> <C>
Rental $ 994,935 $1,196,040
Interest income 42,065 15,313
Total revenue 1,037,000 1,211,353
Expenses:
Operating (Note 6) 276,415 281,971
Maintenance 48,114 66,095
Real estate taxes 80,153 127,821
General and administrative (Note 6) 27,787 37,723
Management fees (Note 6) 47,882 50,088
Depreciation and amortization 377,712 336,571
Interest (Note 4) 253,370 273,480
Total expenses 1,111,433 1,173,749
Income (loss) before gain on sale of
property (74,433) 37,604
Gain on sale of property (Note 3) 676,360 -
Net income $ 601,927 $ 37,604
Allocation of net income (Note 5):
Investor Limited Partners
(27,184 Units outstanding):
Income (loss) before gain on sale of
property $ (73,689) $ 33,844
Gain on sale of property 669,597 -
Net income $ 595,908 $ 33,844
Investor Limited Partners Per Unit:
Income (loss) before gain on sale of
property $ (2.71) $ 1.24
Gain on sale of property 24.63 -
Net income $ 21.92 $ 1.24
Original Limited Partner:
Income (loss) before gain on sale of
property $ - $ 3,008
Gain on sale of property - -
Net income $ - $ 3,008
General Partners:
Income (loss) before gain on sale of
property $ (744) $ 752
Gain on sale of property 6,763 -
Net income $ 6,019 $ 752
The accompanying notes are an integral
part of the consolidated financial statements.<PAGE>
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months
Ended March 31,
1998 1997
Operating activities:
Net income $ 601,927$ 37,604
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 377,712 336,571
Gain on sale of property (676,360) -
Changes in assets and liabilities:
Increase in cash restricted for tenant
security deposits (150) (138)
Decrease in prepaid expenses and other
assets 199,282 39,802
Decrease in accrued expenses and other
liabilities (301,964) (83,265)
Net cash provided by operating
activities 200,447 330,574
Investing activities:
Deposits to replacement reserve escrow - (6,000)
Withdrawals from replacement reserve escrow - 3,877
Additions to fixed assets (171,343) (94,355)
Increase (decrease) in accrued expenses and other
liabilities related to fixed asset additions 2,421 (843)
Proceeds from sale of property, net 6,514,727 -
Net cash provided by (used in)
investing activities 6,345,805 (97,321)
Financing activities:
Repayment of mortgage note payable (4,084,038) -
Principal payments on mortgage notes payable
(22,971) (47,842)
Increase in deferred expenses (15,496) -
Distributions (302,044) (302,044)
Net cash used in financing activities (4,424,549) (349,886)
Net increase (decrease) in cash and
cash equivalents 2,121,703 (116,633)
Cash and cash equivalents, beginning of period 2,254,160 1,177,332
Cash and cash equivalents, end of period $4,375,863$1,060,699
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.<PAGE>
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, 1997
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 necessary to present fairly the
Partnership's consolidated financial position
as of March 31, 1998 and its results of
operations and cash flows for the three months
ended March 31, 1998 and 1997.
The results of operations for the three months
ended March 31, 1998 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:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
<S> <C> <C>
Cash and money market accounts $ 4,375,863 $ 1,857,152
Commercial paper - 397,008
$ 4,375,863 $ 2,254,160
</TABLE>
(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 $89,573. For financial
reporting purposes, the Partnership realized a
gain of $676,360 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)Mortgage Notes Payable
On July 30, 1997, the Partnership completed
the refinancing of the Courtyards Village
Apartments mortgage note. The property was
refinanced with a $5,280,000 non-recourse
mortgage note payable at the rate of 7.88% per
annum with monthly principal and interest
payments of $38,302. The mortgage note, which
is collateralized by the property, matures on
August 1, 2007 at which time the remaining
principal (approximately $4,658,637) and any
accrued interest are due. The note may be
prepaid, subject to a prepayment penalty, at
any time with 30 days notice. The Partnership
used the majority of the proceeds from the
refinancing to repay the existing mortgage
note on the property of $3,172,809, pay
closing costs of $151,536 and to establish
various escrows.
(5) Changes in Partners' Equity
A summary of changes in Partners' equity (deficit) for the
three months ended March 31, 1998 is as follows:
<TABLE>
<CAPTION>
Investor Original Total
Limited Limited General Partners'
Partners Partner Partners Equity
Balance at
<S> <C> <C> <C> <C>
December 31, 1997 $ 3,379,358$(433,275)$(261,729)$ 2,684,354
Distributions (271,840) (24,163) (6,041) (302,044)
Gain on sale of
property 669,597 - 6,763 676,360
Net loss (73,689) - (744) (74,433)
Balance at
March 31, 1998 $ 3,703,426$(457,438)$(261,751)$ 2,984,237
</TABLE>
(6)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.
Continued
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(6) Related Party Transactions, Continued
Amounts accrued or paid to the General Partners' affiliates
were as follows:
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
1998 1997
<S> <C> <C>
Property management fees $ 47,882 $ 50,088
Expense reimbursements 28,704 37,561
Charged to operations $ 76,586 $ 87,649
</TABLE>
Expense reimbursements due from affiliates of
$186,964 and $78,010 were included in prepaid
expenses and other assets at March 31, 1998
and December 31, 1997, 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.
<PAGE>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.
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 $89,573
(see Note 3).
The Partnership anticipates making a special
distribution of $77.95 per Unit in the second
quarter of 1998, based upon approximately 90%
of the proceeds of the sale. The remaining
proceeds will be retained to fund liabilities
of the Partnership and reserves for contingent
liabilities. The balance of the reserves
remaining after satisfaction of such
contingencies will be distributed in
accordance with the Partnership Agreement.
In order to remain competitive in their
respective markets, the Partnership's
properties have spent approximately $171,000
to date and are anticipated to spend
approximately $1,714,000 for fixed assets in
1998, primarily funded from 1997 refinancing
proceeds from Courtyards Village East
Apartments ("Courtyards"). These improvements
include an extensive $1,245,000 rehabilitation
project at Courtyards, interior and exterior
enhancements, carpeting and vinyl flooring
upgrades and roofing at Windsor Apartments.
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, 1998 and
1997. The sale of Nora Corners on January 30,
1998, significantly impacts the comparability
of the Partnership's operations between the
two periods.
Continued
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
Operations, Continued
Net income, net of Nora Corners's activity,
decreased during the three months ended March
31, 1998 as compared to the three months ended
March 31, 1997, as the increase in total
expenses more than offset the increase in
total revenue. Rental revenue increased as a
result of rental rate increases implemented at
both Courtyards and Windsor Apartments.
Interest income increased due to higher
average cash and cash equivalent balances
available for investment, as a result of the
sale of Nora Corners. Proceeds of
approximately $2,400,000 were received from
the sale.
Total expenses for the three months ended
March 31, 1998, net of Nora Corners's
activity, increased when compared to the same
period in 1997, due primarily to increases in
depreciation and interest expenses.
Depreciation expense increased in conjunction
with increased capital improvements completed
at the Partnership's properties. Interest
expense rose as a result of the refinancing of
the Courtyards mortgage note in 1997 (see Note
4 for further discussion of this matter).
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 SeniorSecurities
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
(a)Exhibits
Response: None
(b)Reports on Form 8-K
Date Event Reported Financial Statements
Filed
January 30, 1998 Disposition of Nora
CornersPro Forma Balance Sheet at Shopping
Center. September 30, 1997.
Pro Forma Statements of Operations for the
nine months ended September 30, 1997 and for
the year ended December 31, 1996.
<PAGE>
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 13, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Krupp Realty
Fund 7 Financial Statements for the three months ended March 31, 1998 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 4,375,863
<SECURITIES> 0
<RECEIVABLES> 196,700<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 237,708
<PP&E> 20,920,133<F2><F4>
<DEPRECIATION> (11,841,463)<F3><F4>
<TOTAL-ASSETS> 13,888,941
<CURRENT-LIABILITIES> 509,342
<BONDS> 10,395,362<F4><F5>
0
0
<COMMON> 2,984,237<F6>
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 13,888,941
<SALES> 0
<TOTAL-REVENUES> 1,037,000<F7>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 858,063<F8>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 253,370
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 676,360<F4>
<CHANGES> 0
<NET-INCOME> 601,927<F9>
<EPS-PRIMARY> 0<F9>
<EPS-DILUTED> 0<F9>
<FN>
<F1>Includes all receivables included in "prepaid expenses and other assets" on the
Balance Sheet.
<F2>Multi-family complexes of $20,604,478 and deferred expenses of $315,655.
<F4>The Partnership sold Nora Corners Shopping Center to unaffiliated third parties
with thirteen other properties for a total selling price of $138,000,000, of
which the Partnership received $6,604,300, less repayment of the mortgage note
payable and interest of $4,114,668 and its share of closing costs of $89,573.
For financial reporting purposes, the Partnership realized a gain of $676,360
on the sale.
<F3>Accumulated depreciation of $11,737,589 and accumulated amortization of
$103,874.
<F5>Represents mortgage notes payable.
<F6>Total deficit of the General Partners of ($261,751) and equity of Limited
Partners of $3,245,988.
<F7>Includes all revenue of the Partnership.
<F8>Includes operating expenses of $400,198, real estate taxes of $80,153 and
depreciation and amortization of $377,712.
<F9>Net income allocated $6,019 to the General Partners and $595,908 to the Limited
Partners. Average net income per Unit of Limited Partner interest is $21.92.
</FN>
</TABLE>
