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, 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
(Unaudited)
September 30,December 31,
1998 1997
Real estate assets:
Multi-family apartment complexes, net of
accumulated depreciation of $12,390,026,
<S> <C> <C>
and $11,454,014, respectively $ 9,362,434$ 9,009,457
Retail center (Note 3) - 5,673,137
Total real estate assets 9,362,434 14,682,594
Cash and cash equivalents (Note 2) 1,288,792 2,254,160
Cash restricted for tenant security deposits 26,450 25,980
Replacement reserve escrow 8,400 -
Prepaid expenses and other assets 401,017 742,453
Deferred expenses, net of accumulated
amortization of $123,173 and $132,911,
respectively (Note 4) 192,482 290,423
Total assets $ 11,279,575$17,995,610
LIABILITIES AND PARTNERS' EQUITY
Liabilities:
Mortgage notes payable (Notes 3 and 4) $ 10,347,920$14,502,371
Accrued expenses and other liabilities 519,448 808,885
Total liabilities 10,867,368 15,311,256
Partners' equity (deficit) (Note 5):
Investor Limited Partners (27,184
Units outstanding) 1,184,301 3,379,358
Original Limited Partner (481,602) (433,275)
General Partners (290,492) (261,729)
Total Partners' equity 412,207 2,684,354
Total liabilities and Partners' equity$ 11,279,575$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
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
Revenue:
<S> <C> <C> <C> <C>
Rental $ 951,935 $1,156,264 $ 2,873,403$3,518,036
Interest income 24,415 23,301 120,211 51,359
Total revenue 976,350 1,179,565 2,993,614 3,569,395
Expenses:
Operating (Note 6) 215,706 290,816 734,007 857,714
Maintenance 95,339 81,969 227,350 269,575
Real estate taxes 92,790 111,620 269,677 346,431
General and administrative
(Note 6) 30,924 30,767 88,428 104,726
Management fees (Note 6) 40,127 49,536 131,330 153,972
Depreciation and amortization 371,278 371,563
1,049,449 1,045,461
Interest (Note 4) 221,736 303,519 697,350 849,510
Total expenses 1,067,900 1,239,790 3,197,591 3,627,389
Loss before gain on sale of
property (91,550) (60,225) (203,977) (57,994)
Gain on sale of property (Note 3) - - 676,316 -
Net income (loss) $ (91,550) $ (60,225) $ 472,339$ (57,994)
Allocation of net income (loss)
(Note 5):
Investor Limited Partners
(27,184 Units outstanding):
Loss before gain on sale of
property $ (90,634) $ (59,623) $ (201,937)$ (57,414)
Gain on sale of property - - 669,553 -
Net income (loss) $ (90,634) $ (59,623) $ 467,616$ (57,414)
Investor Limited Partners, Per
Unit:
Loss before gain on sale of
property $ (3.34) $ (2.19) $ (7.43)$ (2.11)
Gain on sale of property - - 24.63 -
Net income (loss) $ (3.34) $ (2.19) $ 17.20$ (2.11)
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 $ (916) $ (602) $ (2,040)$ (580)
Gain on sale of property - - 6,763 -
Net income (loss) $ (916)$ (602) $ 4,723$ (580)
</TABLE>
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
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
1998 1997
Operating activities:
<S> <C> <C>
Net income (loss) $ 472,339$ (57,994)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 1,049,449 1,045,461
Gain on sale of property (676,316) -
Changes in assets and liabilities:
Decrease (increase) in cash restricted
for tenant security deposits (470) 7,966
Decrease (increase) in prepaid expenses
and other assets 206,543 (4,022)
Decrease in accrued expenses and other
liabilities (289,437) (136,596)
Net cash provided by operating
activities 762,108 854,815
Investing activities:
Deposits to replacement reserve escrow (8,400) (12,000)
Withdrawals from replacement reserve escrow - 64,009
Additions to fixed assets (1,319,324) (611,826)
Decrease in accrued expenses and other liabilities
related to fixed asset additions - (3,315)
Proceeds from sale of property, net 6,514,681 -
Net cash provided by (used in)
investing activities 5,186,957 (563,132)
Financing activities:
Proceeds from mortgage note payable - 5,280,000
Repayment of mortgage note payable (4,084,038)(3,172,809)
Principal payments on mortgage notes payable (70,413) (129,615)
Increase in deferred expenses (15,496) (135,231)
Distributions (2,744,486) (604,089)
Net cash provided by (used in)
financing activities (6,914,433) 1,238,256
Net increase (decrease) in cash and cash equivalents
(965,368) 1,529,939
Cash and cash equivalents, beginning of period2,254,160 1,177,332
Cash and cash equivalents, end of period $1,288,792$2,707,271
</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 the 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 September 30, 1998, its results of
operations for the three and nine months ended
September 30, 1998 and 1997, and its cash
flows for the nine months ended September 30,
1998 and 1997.
The results of operations for the three and
nine months ended September 30, 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>
September 30, December 31,
1998 1997
<S> <C> <C>
Cash and money market accounts $ 791,095 $ 1,857,152
Commercial paper 497,697 397,008
$ 1,288,792 $ 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 $89,619. 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)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 nine months ended September
30, 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:
Operations (543,680) (48,327) (12,082) (604,089)
Capital
transaction (2,118,993) - (21,404) (2,140,397)
Loss before gain on
sale of property (201,937) - (2,040) (203,977)
Gain on sale of
property 669,553 - 6,763 676,316
Balance at
September 30, 1998$1,184,301$(481,602)$(290,492)$ 412,207
</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 For the Nine Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Property management fees $40,127 $49,536$ 131,330 $153,972
Expense reimbursements 37,127 41,787 102,958 120,802
Charged to operations$ 77,254 $91,323 $234,288$274,774
</TABLE>
Expense reimbursements due from affiliates of $129,414 and
$78,010 were included in prepaid expenses and other assets at
September 30, 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 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.
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 $89,617
(see Note 3).
On May 15, 1998, the Partnership made a
special distribution of $77.95 per Unit 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 $1,319,000
to date and are anticipated to spend
approximately $1,669,000 for fixed assets in
1998, funded from cash generated from property
operations and 1997 refinancing proceeds from
Courtyards Village East Apartments
("Courtyards"). These improvements include an
extensive $1,245,000 rehabilitation project at
Courtyards, interior enhancements, carpeting
and vinyl flooring upgrades and new doors on
all buildings at Courtyards and playground
improvements and roofing at Windsor
Apartments.
Financial Accounting Standards Board Statement
No. 130 ("FAS 130") "Reporting Comprehensive
Income" is effective for fiscal years
beginning after December 31, 1997, although
earlier application is permitted. FAS 130
establishes standards for reporting and
display of comprehensive income and its
components in financial statements. Financial
Accounting Standards Board Statement No. 131
("FAS 131") "Disclosures about Segments of an
Enterprise and Related Information"
establishes standards for disclosing measures
for profit or loss and total assets for each
reportable segment. FAS 131 is effective for
fiscal years beginning after December 15,
1997. The General Partners do not believe
that the implementation of FAS 130 or FAS 131
will have a material impact on the
Partnership's financial statements.
Continued
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
Liquidity and Capital Resources, Continued
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. The Partnership 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 systems or software that
the Partnership is using at the present time.
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.
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, 1998 and 1997. 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, 1998 when compared to the
three and nine months ended September 30,
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 in 1998. Interest
income increased as a result of interest
earned on the investment of proceeds received
from the sale of Nora Corners.
Total expenses for the three and nine months
ended September 30, 1998, net of Nora
Corners's activity, increased when compared to
the same periods 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).
<PAGE>
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
<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: November 10, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Krupp
Realty Fund 7 Financial Statements for the nine months ended September 30,
1998 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,288,792
<SECURITIES> 0
<RECEIVABLES> 149,295<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 286,572
<PP&E> 22,068,115<F2><F4>
<DEPRECIATION> (12,513,199)<F3><F4>
<TOTAL-ASSETS> 11,279,575
<CURRENT-LIABILITIES> 519,448
<BONDS> 10,347,920<F4><F5>
0
0
<COMMON> 412,207<F6>
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 11,279,575
<SALES> 0
<TOTAL-REVENUES> 2,993,614<F7>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,500,241<F8>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 697,350
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 676,316<F4>
<CHANGES> 0
<NET-INCOME> 472,339<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 $21,752,460 and deferred expenses of $315,655.
<F3>Accumulated depreciation of $12,390,026 and accumulated amortization of
$123,173.
<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 $89,619. For financial reporting purposes, the
Partnership realized a gain of $676,316 on the sale.
<F5>Represents mortgage notes payable.
<F6>Total deficit of the General Parnters of ($290,492) and equity of Limited
Partners of $702,699.
<F7>Includes all revenue of the Partnership.
<F8>Includes operating expenses of $1,181,115, real estate taxes of $269,677
and depreciation and amortization of $1,049,449.
<F9>Net income allocated $4,723 to the General Partners and $467,616 to the
Limited Partners. Average net income per Unit of Limited Partner interest
is $17.20 on 27,184 Units outstanding.
</FN>
</TABLE>
