-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, StCpQpXedOoR9vazEraL0B3Sr4Vm2rxkroICghhD+f9vrdhNTtAHSs02mhxK8WxA oYwvBmYj2SuzcftyCoC2EQ== 0000751570-98-000009.txt : 19981113 0000751570-98-000009.hdr.sgml : 19981113 ACCESSION NUMBER: 0000751570-98-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KRUPP REALTY LTD PARTNERSHIP VII CENTRAL INDEX KEY: 0000751570 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 042842924 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-14377 FILM NUMBER: 98745539 BUSINESS ADDRESS: STREET 1: 470 ATLANTIC AVE CITY: BOSTON STATE: MA ZIP: 02210 BUSINESS PHONE: 6174232233 MAIL ADDRESS: STREET 1: C/O BERKSHIRE REALTY AFFILIATES STREET 2: 470 ATLANTIC AVE CITY: BOSTON STATE: MA ZIP: 02210 10-Q 1 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. 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, 1998 1997 Real estate assets: Multi-family apartment complexes, net of accumulated depreciation of $12,390,026, 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
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, 1998 1997 1998 1997 Revenue: 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)
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, 1998 1997 Operating activities: 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
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, 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:
September 30, December 31, 1998 1997 Cash and money market accounts $ 791,095 $ 1,857,152 Commercial paper 497,697 397,008 $ 1,288,792 $ 2,254,160
(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:
Investor Original Total Limited Limited General Partners' Partners Partner Partners Equity Balance at 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
(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:
For the Three Months For the Nine Months Ended September 30, Ended September 30, 1998 1997 1998 1997 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
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). 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 10, 1998 EX-27 2
5 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. 9-MOS DEC-31-1998 SEP-30-1998 1,288,792 0 149,295 0 0 286,572 22,068,115 (12,513,199) 11,279,575 519,448 10,347,920 0 0 412,207 0 11,279,575 0 2,993,614 0 0 2,500,241 0 697,350 0 0 0 0 676,316 0 472,339 0 0 Includes all receivables included in "prepaid expenses and other assets" on the Balance Sheet. Multi-family complexes of $21,752,460 and deferred expenses of $315,655. Accumulated depreciation of $12,390,026 and accumulated amortization of $123,173. 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. Represents mortgage notes payable. Total deficit of the General Parnters of ($290,492) and equity of Limited Partners of $702,699. Includes all revenue of the Partnership. Includes operating expenses of $1,181,115, real estate taxes of $269,677 and depreciation and amortization of $1,049,449. 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.
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