-----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, Q17jEHRpUl0EkKf1pG5JNQgN+OQ+d7r2t+YLWR9QTLvkInzkwhj6GPmqX0BgFXpb ID86atmDq7ZD5Hq4wC/LwA== 0000751570-00-000004.txt : 20000331 0000751570-00-000004.hdr.sgml : 20000331 ACCESSION NUMBER: 0000751570-00-000004 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 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-K SEC ACT: SEC FILE NUMBER: 000-14377 FILM NUMBER: 585314 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-K 1 KRUPP REALTY LTD PARTNERSHIP VII UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the fiscal year ended December 31, 1999 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to Commission file number 0-14377 Krupp Realty Limited Partnership-VII (Exact name of registrant as specified in its charter) Massachusetts 04-2842924 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) One Beacon Street, Boston, Massachusetts 02108 (Address of principal executive offices) (Zip Code) (617) 523-7722 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Units of Investor Limited Partner Interest 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 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]. Aggregate market value of voting securities held by non-affiliates: Not applicable. Documents incorporated by reference: Part IV, Item 14. The exhibit index is located on pages 10-13. The total number of pages in this document is 31. PART I This Form 10-K 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. ITEM 1. BUSINESS Krupp Realty Limited Partnership-VII ("KRLP-VII") was formed on August 21, 1984 by filing a Certificate of Limited Partnership in The Commonwealth of Massachusetts. KRLP-VII issued all of the General Partner Interests to two General Partners, The Krupp Corporation, a Massachusetts corporation, and The Krupp Company Limited Partnership-II, a Massachusetts limited partnership. KRLP- VII also issued all of the Original Limited Partner Interests to The Krupp Company Limited Partnership-II. On November 2, 1984, KRLP-VII commenced an offering of up to 40,000 units of Investor Limited Partner Interest (the "Units") for $1,000 per Unit. The public offering was closed on April 25, 1986, at which time 27,184 Units had been sold. For additional details, see Note A to Consolidated Financial Statements included in Item 8 (Appendix A) of this report. The primary business of KRLP-VII is to invest in, operate, refinance and ultimately dispose of a diversified portfolio of residential and commercial real estate. KRLP-VII considers itself to be engaged in only one industry segment, investment in real estate. On December 19, 1984 the General Partners formed Krupp Realty Courtyards Limited Partnership ("Realty-VII") as a prerequisite for the refinancing of Courtyards Village East Apartments ("Courtyards Village"). At the same time, the General Partners transferred ownership of Courtyards Village to Realty-VII. The General Partner of Realty-VII is KRLP-VII. The Limited Partners of Realty-VII are KRLP-VII and The Krupp Corporation ("Krupp Corp."). Krupp Corp. has beneficially assigned its interest in Realty-VII to KRLP-VII. On March 31, 1994, the General Partners formed Windsor Partners Limited Partnership ("Windsor L.P.") as a prerequisite for the refinancing of Windsor Apartments. At the same time, the General Partners transferred ownership of the property to Windsor L.P. In exchange for the property, KRLP-VII received 99% Limited Partnership interest in Windsor L.P. The General Partner of Windsor L.P. is ST. Windsor Corporation which has a 1% interest in Windsor L.P. and is 100% owned by KRLP-VII. KRLP-VII, Realty-VII and Windsor L.P. are collectively known as Krupp Realty Limited Partnership-VII and Subsidiaries (collectively referred to herein as the "Partnership"). On January 30, 1998, the Partnership sold Nora Corners Shopping Center ("Nora Corners"), a shopping center containing 89,432 leasable square feet, located in Indianapolis, Indiana, to unaffiliated third parties (see Note D to Consolidated Financial Statements, included in Item 8 (Appendix A) of this report). The Partnership's real estate investments are subject to some seasonal fluctuations due to changes in utility consumption and seasonal maintenance expenditures. However, the future performance of the Partnership will depend upon factors which cannot be predicted. Such factors include general economic and real estate market conditions, both on a national basis and in those areas where the Partnership's real estate investments are located, the availability and cost of borrowed funds, real estate tax rates, operating expenses, energy costs, government regulations and federal and state income tax laws. The requirements for compliance with federal, state and local regulations to date have not had an adverse affect on the Partnership's operations, and no adverse affect therefrom is anticipated in the future. The Partnership's investments in real estate are also subject to such risks as (I) competition from existing and future projects held by other owners in the locations of the Partnership's properties, (ii) fluctuations in rental income due to changes in occupancy levels, (iii) possible adverse changes in mortgage interest rates, (iv) possible adverse changes in general economic and local conditions, such as competitive over-building, increases in unemployment, or adverse changes in real estate zoning laws, (v) the possible future adoption of rent control legislation which would not permit the full amount of increased costs to be passed on to tenants in the form of rent increases, and (vi) other circumstances over which the Partnership may have little or no control. As of December 31, 1999, the Partnership did not employ any personnel. ITEM 2. PROPERTIES As of December 31, 1999, the Partnership had leveraged investments in two apartment complexes having an aggregate of 524 units. A summary of the Partnership's real estate investments as of December 31, 1999 is presented below. Schedule III included in Item 8 (Appendix A) to this report contains additional detailed information with respect to individual properties.
Average Occupancy For the Year Ended December 31, Year of ------------------------ Description Acquisition Total Units 1999 1998 1997 1996 1995 - ----------- ----------- ------------- ---- ---- ---- ---- ---- Courtyards Village East Apartments Naperville, Illinois 1985 224 95% 97% 97% 98% 95% Windsor Apartments Garland, Texas 1984 300 96% 97% 96% 96% 95% -------- 524 Units
ITEM 3. LEGAL PROCEEDINGS There are no material pending legal proceedings to which the Partnership is a party or of which any of its property is the subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The transfer of Units is subject to certain limitations contained in the Partnership Agreement. There is no public market for the Units and it is not anticipated that any such public market will develop. The number of Investor Limited Partners as of December 31, 1999 was approximately 1,365. One of the objectives of the Partnership is to generate cash available for distribution. The Partnership discontinued distributions during 1989 due to insufficient operating Cash Flow. In 1994, however, the General Partners determined that there was sufficient Cash Flow to reinstate distributions. These distributions commenced in August, 1994 at a rate of $5.00 per Unit and thereafter were paid semiannually at an annual rate of $20.00 per Unit through 1998. In 1999 the semiannual distributions were reduced to an annual rate of $18.28 per Unit. The Partnership made special capital distributions in 1998 totaling $86.14 per Unit with the funds received from the sale of Nora Corners in 1998. Pursuant to the Partnership Agreement, distributions from capital transactions, such as the sale of Nora Corners, are allocated 99% to Investor Limited Partners and 1% to the General Partners. For details, see Note G to Consolidated Financial Statements included in Item 8 (Appendix A) of this report. The Partnership made the following distributions to its Partners during the years ended December 31, 1999 and 1998:
Year Ended December 31, --------------------------------------------- 1999 1998 --------------------- --------------------- Amount Per Unit Amount Per Unit ---------- -------- --------- --------- Limited Partners: Investor Limited Partners (27,184 Units outstanding) $ 496,853 $ 18.28 $2,885,312 $ 106.14 Original Limited Partner 44,165 48,327 General Partners 11,041 35,460 ---------- ---------- $ 552,059 $2,969,099 ========== ==========
ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial information regarding the Partnership's financial position and operating results. This information should be used in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and Notes thereto, which are included in Items 7 and 8 of this report, respectively.
1999 1998 1997 1996 1995 ----------- ----------- ----------- ----------- ----------- Total revenue $ 3,997,617 $ 3,989,189 $ 4,795,059 $ 4,688,515 $ 4,537,418 Income (loss) before gain on sale of property (549,227) (298,630) (151,137) 10,513 (24,601) Gain on sale of property - 676,316 - - - Net income (loss) (549,227) 377,686 (151,137) 10,513 (24,601) Net income (loss) allocated to: Investor Limited Partners (543,735) 373,909 (149,626) 9,462 (24,355) Per Unit (20.00) 13.75 (5.50) .35 (.90) Original Limited Partner - - - 841 - General Partners (5,492) 3,777 (1,511) 210 (246) Total assets at December 31, 9,837,297 10,974,526 17,995,610 16,855,594 17,611,547 Long-term obligations at December 31, 10,108,246 10,220,786 14,345,624 12,366,197 12,563,382 Distributions: Investor Limited Partners 496,853 2,885,312 543,679 543,679 543,679 Per Unit 18.28 106.14 20.00 20.00 20.00 Original Limited Partner 44,165 48,327 48,327 48,327 48,327 General Partners 11,041 35,460 12,082 12,082 12,082
Operating results for the periods presented are not comparable due to the sale of Nora Corners Shopping Center on January 30, 1998. The per Unit distributions for the years ended December 31, 1999, 1998, 1997, 1996 and 1995 were $18.28, $106.14, $20.00, $20.00 and $20.00, respectively, of which $86.14 in 1998 represented a return of capital. Prior performance of the Partnership is not necessarily indicative of future operations. ITEM 7. 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 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. In 1994, the General Partners determined that there was sufficient Cash Flow to reinstate semiannual distributions. These distributions commenced in August 1994 at a rate of $5.00 per Unit and increased in February 1995 to a rate of $20.00 per Unit. Additionally, the Partnership made special capital distributions in 1998 totaling $86.14 per Unit based on the remaining proceeds of the sale of Nora Corners. Distributions of net cash proceeds from capital transactions are allocated in accordance with the Partnership Agreement (as described in Note G to the consolidated financial statements included in Item 8 (Appendix A) of this report). Due to the special capital distributions as a result of the sale of Nora Corners, and the subsequent decrease in the Investor Limited Partners' Capital, the semiannual distributions were adjusted in 1999 to $18.28 per Unit, beginning with the distribution payable 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 D to Consolidated Financial Statements included in Item 8 (Appendix A) of this report). On July 30, 1997, the Partnership successfully completed the refinancing of the Courtyards Village East Apartments ("Courtyards Village") mortgage note. The $5,280,000 note bears interest at an annual rate of 7.88%, requires equal monthly principal and interest installments of $38,302, and matures on August 1, 2007. Net refinancing proceeds of approximately $1,860,000 provides additional liquidity to fund capital improvements at the Partnership's properties, Courtyards Village and Windsor Apartments. In order to remain competitive in their respective markets, the Partnership's properties spent approximately $813,000 in 1999 and are expecting to spend approximately $340,000 for fixed assets in 2000, primarily funded from cash generated from property operations. These improvements include interior and exterior enhancements, installation of sprinkler system, pavement improvement and roofing at Windsor Apartments. Financial Accounting Standards Board Statement No.137. ("FAS 137") "Accounting for Derivative Instruments and Hedging Activities-deferral of the Effective Date of the Statement of Financial Accounting Standards No.133." FAS 137 amended FAS 133 by deferring the effective date to fiscal quarters of all fiscal years beginning after June 15, 2000. The General Partners believe that the implementation of FAS 137 will not have a material impact on the Partnership's financial statement. Year 2000 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 necessary steps to understand the nature and extent of the work required to make its systems Year 2000 ready. They have evaluated Year 2000 compliance issues with respect to its non-financial systems and have received assurances from third-party service providers (including but not limited to its telecommunications providers and banks) with regard to their Year 2000 readiness. The General Partners completed the testing and conversion of the Partnerships 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. To date, the Partnership has not incurred, and does not expect to incur, any significant cost associated with being Year 2000 compliant. To date, the Partnership has not had, and does not expect to have, any Year 2000 related problems. Operations The following discussion relates to the operations of the Partnership and its properties (Courtyards Village and Windsor Apartments) for the years ended December 31, 1999, 1998 and 1997. The sale of Nora Corners on January 30, 1998, significantly impacts the comparability of the Partnership's operations between these years. 1999 compared to 1998 Net income, net of Nora Corners's activity, decreased in 1999 when compared to 1998 as increases in total expenses more than offset increases in total revenue. In comparing 1999 to 1998, the increase in rental revenue is attributable to residential rental rate increases implemented at Courtyards and Windsor Apartments. However this was substantially offset by decreases in interest income due to lower average cash and cash equivalent balances available for investment, resulting from the sale of Nora Corners. Total expenses increased when compared to 1998, primarily due to increases in operating expenses, real estate taxes, general and administrative, and depreciation expense. Operating expense increased in 1999 as a result of an increase in workmen's compensation expense over 1998 due to a favorable adjustment to the liability and workmen's compensation reserve in 1998 as a result of favorable claim experience. Real estate tax expense increased as a result of a reassessment of Windsor Apartments's property value in 1998 by the local taxing authority. General and administrative expenses increased due to higher expenses incurred in connection with preparation and mailing of Partnership reports and other investor communication. Depreciation expense increased in conjunction with increased capital improvements completed at Courtyards Village, particularly the rehab of eleven apartments during the first quarter. 1998 compared to 1997 Net income, net of Nora Corners's activity, decreased during 1998 when compared to 1997 as the increase in expenses more than offset the increase in total revenue. Rental revenue increased as a result of rental rate increases implemented at both Courtyards Village and Windsor Apartments. Interest income increased as a result of interest earned on the investment of proceeds received from the sale of Nora Corners. Total expenses in 1998, net of Nora Corners's activity, increased when compared to 1997 due primarily to increases in depreciation and interest expenses. This was partially offset by a decrease in operating expense. 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 E to Consolidated Financial Statements included in Item 8 (Appendix A) of this report). Operating expense decreased primarily as a result of a reduction in liability and workers compensation expense at the Partnership's properties, due to lower claims experience. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Appendix A to this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The Partnership has no directors or executive officers. Information as to the directors and executive officers of The Krupp Corporation, which is a General Partner of KRLP-VII, and The Krupp Company Limited Partnership-II, the other General Partner of KRLP-VII, is as follows: Position with Name and Age The Krupp Corporation ------------ --------------------- Douglas Krupp (53) President and Co-Chairman of the Board George Krupp (55) Co-Chairman of the Board Wayne H. Zarozny (41) Treasurer Douglas Krupp co-founded and serves as Co-Chairman and Chief Executive Officer of The Berkshire Group, an integrated real estate financial services firm engaged in real estate acquisitions, property management, mortgage banking, investment sponsorship, venture capital investing and financial management. Mr. Krupp has held the position of Co-Chairman since The Berkshire Group was established as The Krupp Companies in 1969 and he has served as the Chief Executive Officer since 1992. Mr. Krupp serves as a member of the Board of Trustees at Brigham & Women's Hospital. He is a graduate of Bryant College where he received an honorary Doctor of Science in Business Administration in 1989 and was elected trustee in 1990. George Krupp is the Co-Founder and Co-Chairman of The Berkshire Group, an integrated real estate financial services firm engaged in real estate acquisitions, property management, mortgage banking, investment sponsorship, venture capital investing and financial management. Mr. Krupp has held the position of Co-Chairman since The Berkshire Group was established as The Krupp Companies in 1969. Mr. Krupp has been an instructor of history at the New Jewish High School in Waltham, Massachusetts since September of 1997. Mr. Krupp attended the University of Pennsylvania and Harvard University and holds a Master's Degree in History from Brown University. Wayne H. Zarozny is Vice President of The Berkshire Group. Mr. Zarozny has held several positions within The Berkshire Group since joining the company in 1986 and is currently responsible for asset management, accounting, financial reporting and treasury activities. Prior to joining The Berkshire Group, he was an audit supervisor for Pannell Kerr Forster International and on the audit staff of Deloitte, Haskins and Sells in Boston. He received a B.S. degree from Bryant College, a Master's degree in Business Administration from Clark University and is a Certified Public Accountant. ITEM 11. EXECUTIVE COMPENSATION The Partnership has no directors or executive officers. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT As of February 9, 2000, beneficial owners of record owning more than 5% of the Partnership's 27,184 outstanding Units were as follows:
Title Name and Address Amount and Nature Percent of of of of Class Beneficial Owner Beneficial Ownership Class - -------- -------------------- -------------------- ------- Investor Equity Resources Group, Limited Incorporated Partner 14 Story Street Units Cambridge, MA 02138 1,664.00 Units(1) 6.12% Investor Madison Avenue Investment Limited Partners, LLC Partner P.O. Box 7533 Units Incline Village, NV 89452 1,396.90 Units(2)(3) 5.14% Investor First Equity Realty, LLC Limited Partner 555 Fifth Avenue, 9th Floor Units New York, NY 10017 1,396.90 Units(2)(4) 5.14% Investor The Harmony Group II, LLC Limited Partner P.O. Box 7533 Units Incline Village, NV 89452 1,396.90 Units(2)(5) 5.14% Investor Ronald M. Dickerman Limited Partner 555 Fifth Avenue, 9th Floor Units New York, NY 10017 1,396.90 Units(2)(6) 5.14% Investor Bryan E. Gordon Limited Partner P.O. Box 7533 Units Incline Village, NV 89452 1,396.90 Units(2)(7) 5.14% (1)According to the statement on Schedule 13D originally filed on April 3, 1996 by Equity Resources Group, Incorporated, Equity Resource Cambridge Fund Limited Partnership, Equity Resource General Fund Limited Partnership, Equity Resource Brattle Fund Limited Partnership, Equity Resource Fund XV Limited Partnership, Equity Resource Fund XVI Limited Partnership, Equity Resource Fund XVII Limited Partnership, Equity Resource Fund XVIII Limited Partnership, Equity Resource Fund XIX Limited Partnership, James E. Brooks, Mark S. Thompson and Eggert Dagbjartsson, as amended by Amendment No. 1 thereto dated December 12, 1996 and Amendment No. 2 thereto dated April 21, 1997, Equity Resources Group, Incorporated, James E. Brooks, Mark S. Thompson and Eggert Dagbjartsson, in their capacities as General Partners of each of Equity Resource Cambridge Fund Limited Partnership, Equity Resource General Fund Limited Partnership, Equity Resource Brattle Fund Limited Partnership, Equity Resource Fund XV Limited Partnership, Equity Resource Fund XVI Limited Partnership, Equity Resource Fund XVII Limited Partnership, Equity Resource Fund XVIII Limited Partnership and Equity Resource Fund XIX Limited Partnership, respectively, share the power to vote or direct the vote and to dispose of or direct the disposition of 1,664 units. (2)According to the statement on Schedule 13G originally filed on February 9, 2000 (the "Madison Schedule 13G"), by Madison Avenue Investment Partners, LLC("MAIP"), First Equity Realty , LLC ("First Equity"), The Harmony Group II, LLC ("Harmony Group"), Ronald M. Dickerman and Bryan E. Gordon (collectively, the "Reporting Persons"), (the "Madison Schedule 13G"), each of MAIP, First Equity, Harmony Group and Reporting Persons may be deemed to constitute a "group" within the meaning of Section 13(d)(3) of the Exchange Act. According to the Madison Schedule 13G, MAIP is the controlling person of various entities which are the nominee owners of, or the successors by merger to the assets of nominee owners of, Limited Partner Interest (the "Units") of the Issuer. As stated in the Madison Schedule 13G, these nominees, none of which beneficially own 5% or more of the Units, are ISA Partnership Liquidity Investors, Madison/AG Partnership Value Partners III and Cobble Hill Investments, LP. According to the Madison Schedule 13G, the controlling members of MAIP are The Harmony Group II, LLC, a Delaware limited liability company of which Bryan E. Gordon is the Managing Member, and First Equity Realty, LLC, a New York limited liability company of which Ronald M. Dickerman is the Managing Member. (3)According to the Madison Schedule 13G, Madison Avenue Investment Partners, LLC has sole voting and dispositive power with respect to 1,396.90 units of the Partnership. (4)According to the Madison Schedule 13G, First Equity Realty, LLC has shared voting and dispositive power with respect to 1,396.90 units of the Partnership. (5)According to the Madison Schedule 13G, The Harmony Group II, LLC has shared voting and dispositive power with respect to 1,396.90 units of the Partnership. (6)According to the Madison Schedule 13G, Ronald M. Dickerman has shared voting and dispositive power with respect to 1,396.90 units of the Partnership. (7)According to the Madison Schedule 13G, Bryan E. Gordon has shared voting and dispositive power with respect to 1,396.90 units of the Partnership.
The only interests held by management or its affiliates consist of its General Partner and Original Limited Partner Interests. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Partnership does not have any directors, executive officers or nominees for election as director. Please see Note H to the Consolidated Financial Statements. PART IV ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Consolidated Financial Statements - see Index to Consolidated Financial Statements and Schedule included under Item 8 (Appendix A), on page F-2 to this report. 2. Consolidated Financial Statement Schedules - see Index to Consolidated Financial Statements and Schedule included under Item 8 (Appendix A), on page F-2 to this report. All other schedules are omitted as they are not applicable or not required or the information is provided in the Consolidated Financial Statements or the Notes thereto. (b) Exhibits: Number and Description Under Regulation S-K The following reflects all applicable exhibits required under Item 601 of Regulation S-K: (4) Instruments defining the rights of security holders including indentures: (4.1) Amended Agreement of Limited Partnership dated as of October 23, 1984 [Exhibit A to Prospectus included in Registrant's Registration Statement on Form S-11 (File 2-92889)].* (4.2) Thirty-Second Amendment and Restatement of Certificate of Limited Partnership filed with the Massachusetts Secretary of State on June 4, 1986 [Exhibit 4.2 to Registrant's Report on Form 10-K dated October 31, 1986 (File No. 0- 14377)].* (10) Material Contracts Windsor Apartments (10.1) Purchase and Sale Agreement dated June 3, 1983 between Douglas Krupp, on behalf of himself and others, and Garland Land Joint Venture [Exhibit 1 to Registrant's Report on Form 8-K dated December 27, 1984 (File No. 2-92889)].* (10.2) Property Management Agreement, dated December 27, 1984 between Krupp Realty Limited Partnership-VII, as Owner and BRI OP Limited Partnership, formerly known as Berkshire Property Management, a subsidiary of Berkshire Realty Company, Inc. [Exhibit 10.4 to Registrant's Report on Form 10-K for the fiscal year ended October 31, 1984 (File No. 2-92889)].* (10.3) Promissory Note dated April 13, 1994 by and between Windsor Partners Limited Partnership and Sun Life Insurance Company of America [Exhibit 10.1 to Registrant's Report on Form 10- Q dated June 30, 1994 (File No. 0-14377)].* (10.4) Deed of Trust, Security Agreement, Fixture Filing, Financing Statement and Assignment of Leases and Rents dated April 13, 1994 from the grantor, Windsor Partners Limited Partnership, to the Trustee, Brian C. Rider [Exhibit 10.2 to Registrant's Report on Form 10-Q dated June 30, 1994 (File No. 0-14377)].* Courtyards Village East Apartments (10.5) Purchase and Sale Agreement dated October 12, 1984 between Douglas Krupp on behalf of himself and others, and The Courtyards Village and The Courtyards Village Inn-East Apartments Partnership [Exhibit 1 to Registrant's Report on Form 8-K dated April 1, 1985 (File 2-92889)].* (10.6) Amended Trust Agreement dated May 6, 1976 between The Courtyards Village and The Courtyards Village Inn-East Apartments Partnership and American National Bank and Trust Company of Chicago [Exhibit 2 to Registrant's Report on Form 8-K dated April 1, 1985 (File No. 2-92889)].* (10.7) Assignment of Trust of American National Bank and Trust Company of Chicago dated April 1, 1985 [Exhibit 3 to Registrant's Report on Form 8-K dated April 1, 1985 (File No. 2-92889)].* (10.8) Mortgage Note dated January 1, 1973 between American National Bank and Trust Company of Chicago and Republic Realty Mortgage Company [Exhibit 4 to Registrant's Report on Form 8-K dated April 1, 1985 (File No. 2-92889)].* (10.9) Modification Agreement dated May 1, 1975 between American National Bank and Trust Company of Chicago and Republic Realty Mortgage Corporation. [Exhibit 5 to Registrant's Report on Form 8-K dated April 1, 1985 (File No. 2-92889)].* (10.10) Mortgage Note dated May 18, 1976 between American National Bank and Trust Company of Chicago and Republic Realty Mortgage Company [Exhibit 6 to Registrant's Report on Form 8-K dated April 1, 1985 (File No. 2-92889)].* (10.11) Mortgage Agreement dated May 18, 1976 between American National Bank and Trust Company of Chicago and Republic Realty Mortgage Corporation [Exhibit 7 to Registrant's Report on Form 8-K dated April 1, 1985 (File No. 2-92889)].* (10.12) Amended HUD Regulatory Agreement dated May 18, 1976 between American National Bank and Trust Company of Chicago and Republic Realty Mortgage Corporation [Exhibit 8 to Registrant's Report on Form 8-K dated April 1, 1985 (File No. 2-92889)].* (10.13) Consolidation Agreement dated June 14, 1976 between American Bank and Trust Company of Chicago, as Trustee, and Republic Realty Mortgage Corporation [Exhibit 9 to Registrant's Report on Form 8-K dated April 1, 1985 (File No. 2-92889)].* (10.14) Property Management Agreement, dated April 1, 1985 between Krupp Realty Limited Partnership-VII, as Owner and BRI OP Limited Partnership, formerly known as Berkshire Property Management, an affiliate of Berkshire Realty Company, Inc. [Exhibit 10.20 to Registrant's Report on Form 10-K for the year ended October 31, 1985 (File No. 2-92889)].* (10.15) Promissory Note dated July 30, 1997 between American National Bank and Trust Company of Chicago and Reilly Mortgage Group, Inc.* (10.16) Multifamily Mortgage, Assignment of Rents, and Security Agreement dated July 30, 1997 between American National Bank and Trust Company of Chicago and Reilly Mortgage Group, Inc.* * Incorporated by reference (C) Reports on Form 8-K During the last quarter of the year ended December 31, 1999, the Partnership did not file any reports on Form 8-K. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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, on the 30th day of March, 2000. KRUPP REALTY LIMITED PARTNERSHIP-VII By: The Krupp Corporation, a General Partner By: /s/ Douglas Krupp Douglas Krupp, President, Co-Chairman (Principal Executive Officer) and Director of The Krupp Corporation Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated, on the 30th day of March, 2000. Signatures Titles - ---------- ------ /s/ Douglas Krupp President, Co-Chairman (Principal Executive Douglas Krupp Officer) and Director of The Krupp Corporation, a General Partner. /s/ George Krupp Co-Chairman (Principal Executive Officer) and George Krupp Director of The Krupp Corporation, a General Partner. /s/ Wayne H. Zarozny Treasurer (Principal Financial and Accounting Wayne H. Zarozny Officer) of The Krupp Corporation, a General Partner. APPENDIX A KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE ITEM 8 OF FORM 10-K ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION For the Year Ended December 31, 1999 KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE Report of Independent Accountants F-3 Consolidated Balance Sheets at December 31, 1999 and December 31, 1998 F-4 Consolidated Statements of Operations for the Years Ended December 31, 1999, 1998 and 1997 F-5 Consolidated Statements of Changes in Partners' Equity (Deficit) for the Years Ended December 31, 1999, 1998 and 1997 F-6 Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997 F-7 Notes to Consolidated Financial Statements F-8 - F-15 Schedule III - Real Estate and Accumulated Depreciation F-16 - F-17 All other schedules are omitted as they are not applicable, not required, or the information is provided in the consolidated financial statements or the notes thereto. F-2 REPORT OF INDEPENDENT ACCOUNTANTS To the Partners of Krupp Realty Limited Partnership-VII and Subsidiaries: In our opinion, the consolidated financial statements and the financial statement schedule listed in the index on page F-2 present fairly, in all material respects, the financial position of Krupp Realty Limited Partnership-VII and Subsidiaries (the "Partnership") at December 31, 1999 and December 31, 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. These financial statements and financial statement schedule are the responsibility of the Partnership's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PricewaterhouseCoopers LLP February 25, 2000 KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1999 and 1998
ASSETS 1999 1998 ----------- ----------- Multi-family apartment complexes, net of accumulated depreciation of $14,265,488 and $12,751,953, respectively (Note E) $ 8,809,883 $ 9,510,531 Cash and cash equivalents (Note C) 120,525 629,483 Cash restricted for tenant security deposits 27,256 26,606 Replacement reserve escrow (Note E) 72,378 21,160 Prepaid expenses and other assets 663,021 603,914 Deferred expenses, net of accumulated amortization of $171,421 and $132,823, respectively (Note H) 144,234 182,832 ----------- ----------- Total assets $ 9,837,297 $10,974,526 =========== =========== LIABILITIES AND PARTNERS' (DEFICIT) EQUITY Liabilities: Mortgage notes payable (Notes D and E) $10,220,052 $10,323,428 Accrued expenses and other liabilities (Note F) 625,590 558,157 ----------- ----------- Total liabilities 10,845,642 10,881,585 ----------- ----------- Commitment (Note G) Partners' (deficit) equity (Note G): Investor Limited Partners (27,184 Units outstanding) (172,633) 867,955 Original Limited Partner (525,767) (481,602) General Partners (309,945) (293,412) ----------- ----------- Total Partners' (deficit)equity (1,008,345) 92,941 ----------- ----------- Total liabilities and Partners' (deficit) equity $ 9,837,297 $10,974,526 =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. F-4 KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For the Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997 ----------- ----------- ----------- Revenue: Rental $ 3,970,170 $ 3,853,006 $ 4,718,640 Interest income (Note C) 27,447 136,183 76,419 ----------- ----------- ----------- Total revenue 3,997,617 3,989,189 4,795,059 ----------- ----------- ----------- Expenses: Operating (Notes D and H) 1,010,972 964,827 1,122,340 Maintenance 341,331 331,021 393,024 Real estate taxes 428,806 360,747 465,010 General and administrative (Note H) 176,664 118,755 128,855 Management fees (Note H) 157,467 172,873 204,023 Depreciation and amortization 1,552,134 1,421,027 1,468,094 Interest (Note E) 879,470 918,569 1,164,850 ----------- ----------- ----------- Total expenses 4,546,844 4,287,819 4,946,196 ----------- ----------- ----------- Loss before gain on sale of property (549,227) (298,630) (151,137) Gain on sale of property (Note D) - 676,316 - ----------- ----------- ----------- Net income (loss) (Note I) $ (549,227) $ 377,686 $ (151,137) =========== =========== =========== Allocation of net income (loss)(Note G): Investor Limited Partners (27,184 Units outstanding): Loss before gain on sale of property $ (543,735) $ (295,644) $ (149,626) Gain on sale of property - 669,553 - ----------- ----------- ----------- Net income (loss) $ (543,735) $ 373,909 $ (149,626) =========== =========== =========== Investor Limited Partners, Per Unit: Loss before gain on sale of property $ (20.00) $ (10.88) $ (5.50) Gain on sale of property - 24.63 - ----------- ----------- ----------- Net income (loss) $ (20.00) $ 13.75 $ (5.50) =========== =========== =========== 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 $ (5,492) $ (2,986) $ (1,511) Gain on sale of property - 6,763 - ----------- ----------- ----------- Net income (loss) $ (5,492) $ 3,777 $ (1,511) =========== =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. F-5 KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' EQUITY (DEFICIT) For the Years Ended December 31, 1999, 1998 and 1997
Investor Original Limited Limited General Total Partners' Partners Partner Partners (Deficit) Equity ----------- --------- ---------- ---------------- Balance at December 31, 1996 $ 4,072,663 $(384,948) $ (248,136) $ 3,439,579 Distributions (543,679) (48,327) (12,082) (604,088) Net loss (149,626) - (1,511) (151,137) ----------- --------- ---------- ----------- Balance at December 31, 1997 3,379,358 (433,275) (261,729) 2,684,354 Net income 373,909 - 3,777 377,686 Distributions (2,885,312) (48,327) (35,460) (2,969,099) ----------- --------- ---------- ----------- Balance at December 31, 1998 867,955 (481,602) (293,412) 92,941 Net loss (Note G) (543,735) - (5,492) (549,227) Distributions (Note G) (496,853) (44,165) (11,041) (552,059) ----------- --------- ---------- ----------- Balance at December 31, 1999 $ (172,633) $(525,767) $ (309,945) $(1,008,345) =========== ========= ========== ===========
The per Unit distributions for each of the years ended December 31, 1999, 1998 and 1997 was $18.28, $106.14 and $20.00, respectively, of which $0, $86.14 and $0 represented a return of capital, respectively. The accompanying notes are an integral part of the consolidated financial statements. F-6 KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997 ----------- ----------- ----------- Cash flows from operating activities: Net income (loss) $ (549,227) $ 377,686 $ (151,137) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Interest earned on replacement reserve escrow (1,023) (160) - Depreciation and amortization 1,552,133 1,421,027 1,468,094 Gain on sale of property - (676,316) - Changes in assets and liabilities: Decrease (increase) in restricted cash for tenant security deposits (650) (626) 10,843 Decrease (increase) in prepaid expenses and other assets (59,107) 3,646 (157,524) Increase (decrease) in accrued expenses and other liabilities 68,729 (254,228) (41,650) ----------- ----------- ----------- Net cash provided by operating activities 1,010,855 871,029 1,128,626 ----------- ----------- ----------- Cash flows from investing activities: Deposits to replacement reserve escrow (50,400) (21,000) (12,000) Withdrawals from replacement reserve escrow 205 - 64,009 Additions to fixed assets (812,887) (1,829,349) (1,300,570) Increase (decrease) in accrued expenses and other liabilities related to fixed asset additions (1,296) 3,500 (3,315) Proceeds from sale of property, net - 6,514,681 - ----------- ----------- ----------- Net cash (used in) provided by investing activities (864,378) 4,667,832 (1,251,876) ----------- ----------- ----------- Cash flows from financing activities: Principal payments on mortgage notes payable (103,376) (94,906) (166,985) Proceeds from mortgage note payable - - 5,280,000 Repayment of mortgage note payable - (4,084,037) (3,172,809) Increase in deferred expenses - (15,496) (136,040) Distributions (552,059) (2,969,099) (604,088) ----------- ----------- ----------- Net cash (used in) provided by financing activities (655,435) (7,163,538) 1,200,078 ----------- ----------- ----------- Net (decrease) increase in cash and cash equivalents (508,958) (1,624,677) 1,076,828 Cash and cash equivalents, beginning of year 629,483 2,254,160 1,177,332 ----------- ----------- ----------- Cash and cash equivalents, end of year $ 120,525 $ 629,483 $ 2,254,160 =========== =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. F-7 KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. Organization Krupp Realty Limited Partnership-VII ("KRLP-VII") was formed on August 21, 1984 by filing a Certificate of Limited Partnership in The Commonwealth of Massachusetts. KRLP-VII terminates on December 31, 2025 unless earlier terminated upon the occurrence of certain events as set forth in the Partnership Agreement. KRLP-VII issued all of the General Partner Interests to two General Partners, The Krupp Corporation, a Massachusetts corporation, and The Krupp Company Limited Partnership-II, a Massachusetts limited partnership, in exchange for capital contributions aggregating $1,000. In addition, the General Partners were required to make additional capital contributions of $135,891 which were used to pay organization and offering costs in excess of 5% of the gross proceeds of the offering. Except under certain limited circumstances upon termination of KRLP-VII, the General Partners are not required to make any other additional capital contributions. KRLP-VII also issued all of the Original Limited Partner Interests to The Krupp Company Limited Partnership-II in exchange for a capital contribution of $4,000. On November 2, 1984, KRLP-VII commenced an offering of up to 40,000 units of Investor Limited Partner Interest (the "Units") for $1,000 per Unit. The public offering was closed on April 25, 1986, at which time 27,184 Units had been sold for $27,184,000. On December 19, 1984 the General Partners formed Krupp Realty Courtyards Limited Partnership ("Realty-VII") as a prerequisite for the refinancing of Courtyards Village East Apartments ("Courtyards Village"). At the same time, the General Partners transferred ownership of Courtyards Village to Realty- VII. The General Partner of Realty-VII is KRLP-VII. The Limited Partners of Realty-VII are KRLP-VII and The Krupp Corporation ("Krupp Corp."). Krupp Corp. has beneficially assigned its interest in Realty-VII to KRLP-VII. On March 31, 1994, the General Partners formed Windsor Partners Limited Partnership ("Windsor L.P.") as a prerequisite for the refinancing of Windsor Apartments. At the same time, the General Partners transferred ownership of the property to Windsor L.P. In exchange for the property, KRLP-VII received a 99% Limited Partnership interest in Windsor L.P. The General Partner of Windsor L.P. is ST. Windsor Corporation which has a 1% interest in Windsor L.P. and is 100% owned by KRLP-VII. KRLP-VII, Realty-VII and Windsor L.P. are collectively known as Krupp Realty Limited Partnership-VII and Subsidiaries (collectively referred to herein as the "Partnership"). On January 30, 1998, the Partnership sold Nora Corners, a shopping center containing 89,432 leasable square feet, located in Indianapolis, Indiana, to Kejack, Inc. and its permitted assigns, which are unaffiliated third parties. Nora Corners Shopping Center was included in a package with thirteen other properties owned by affiliates of the General Partners (see Note D). Continued F-8 KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued B. Significant Accounting Policies The Partnership uses the following accounting policies for financial reporting purposes, which may differ in certain respects from those used for federal income tax purposes (see Note I): Basis of Presentation The consolidated financial statements present the consolidated assets, liabilities and operations of the Partnership. All intercompany balances and transactions have been eliminated. Risks and Uncertainties The Partnership invests its cash primarily in deposits and money market funds with commercial banks. The Partnership has not experienced any losses to date on its invested cash. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, contingent assets and liabilities and revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents The Partnership includes all short-term investments with original maturities of three months or less from the date of acquisition in cash and cash equivalents. The cash investments are recorded at cost, which approximates market values. Rental Revenues Leases require the payment of base rent monthly in advance. Rental revenues are recorded on the accrual basis. Depreciation Depreciation is provided for by the use of the straight-line method over estimated useful lives of the related assets as follows: Buildings and improvements 3 to 25 years Equipment, furnishings and fixtures 3 to 8 years Impairment of Long-Lived Assets Real estate assets and equipment are stated at depreciated cost. Pursuant to Statement of Financial Accounting Standards Opinion No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of", impairment losses are recorded on long-lived assets used in operations on a property by property basis, when events and circumstances indicate that the assets might be impaired and the estimated undiscounted cash flows to be generated by those assets are less than the carrying amount of those assets. Upon determination that an impairment has occurred, those assets shall be reduced to fair value less estimated costs to sell. Continued F-9 KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued B. Significant Accounting Policies, Continued Deferred Expenses Costs of obtaining and recording mortgages are amortized over the term of the related mortgage notes using the straight line method which approximates the effective interest method. Income Taxes The Partnership is not liable for federal or state income taxes as the Partnership income or loss is allocated to the Partners for income tax purposes. In the event that the Partnership's tax returns are examined by the Internal Revenue Service or state taxing authority and the examination results in a change in the Partnership taxable income or loss, such change will be reported to the Partners. Descriptive Information About Reportable Segments The Partnership operates and develops apartment communities which generate rental and other income through the leasing of apartment units. The General Partners separately evaluate the performance of each of the Partnership's apartment communities. However, because each of the apartment communities have similar economic characteristics, facilities, services and tenants, the apartment communities have been aggregated into a single dominant apartment communities segment. All revenues are from external customers and no revenues are generated from transactions with other segments. There are no tenants which contributed 10% or more of the Partnership's total revenue during 1999, 1998 or 1997. C. Cash and Cash Equivalents Cash and cash equivalents at December 31, 1999 and 1998 consisted of the following:
December 31, ------------------------- 1999 1998 ---------- ---------- Cash and money market accounts $ 120,525 $ 479,625 Commercial paper - 149,858 ---------- ---------- $ 120,525 $ 629,483 ========== ==========
Continued F-10 KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued D. 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. E. Mortgage Notes Payable The properties owned by the Partnership are pledged as collateral for the respective non-recourse mortgage notes payable outstanding at December 31, 1999 and 1998. Mortgage notes payable consisted of the following:
Principal Annual Interest Property 1999 1998 Rate Maturity Date ------------------ ----------- ----------- --------------- --------------- Courtyards Village East Apartments $ 5,164,455 $ 5,214,939 7.88% August 1, 2007 Windsor Apartments 5,055,597 5,108,489 9.25% May 1, 2001 ----------- ----------- Total $10,220,052 $10,323,428 =========== ===========
Courtyards Village East Apartments On July 30, 1997, the Partnership refinanced 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 premium, 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 $136,040 and to establish various escrows. As part of the refinancing, the Partnership was required to establish a $9,525 repair escrow and a replacement reserve escrow. The replacement reserve escrow required no initial deposit at the close and monthly deposits of $4,200 which began on September 1, 1998. Continued F-11 KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued E. Mortgage Notes Payable, Continued Courtyards Village East Apartments, Continued Based on the borrowing rates currently available to the Partnership for bank loans with similar terms and average maturities, the fair value of long-term debt is approximately $5,076,000 and $5,582,000 for the years ended December 31, 1999 and 1998, respectively. Nora Corners Shopping Center In conjunction with the sale of the property on January 30, 1998, the Partnership paid the outstanding principal of the non-recourse mortgage note of $4,084,037 (see Note D). Windsor Apartments The property is subject to a non-recourse mortgage note payable in the original amount of $5,300,000, based on a 30-year amortization and payable in equal monthly installments of $43,602, consisting of principal and interest. At maturity, all unpaid principal, approximately $5,021,000, and any accrued interest are due. The note may be prepaid subject to a prepayment penalty. Based on the borrowing rates currently available to the Partnership for bank loans with similar terms and average maturities, the fair value of long-term debt is approximately $5,161,000 and $5,416,000 for the years ended December 31, 1999 and 1998, respectively. Due to restrictions on transfers and prepayment, the Partnership may be unable to refinance certain mortgage notes payable at such calculated fair value. The aggregate scheduled principal amounts of long-term borrowings due during the five years ending December 31, 2004 are $111,806, $5,079,337, $63,481, $68,668 and $74,279. The Partnership paid interest on its borrowings in the amounts of $879,470, $918,569 and $1,155,562 during the years ended December 31, 1999, 1998 and 1997, respectively. F. Accrued Expenses and Other Liabilities Accrued expenses and other liabilities consisted of the following at December 31, 1999 and 1998:
1999 1998 ----------- ----------- Accounts payable $ 18,550 $ 4,306 Accrued real estate taxes 392,868 362,556 Other liabilities 132,502 126,445 Tenant security deposits 45,604 54,240 Prepaid rent 36,066 10,610 ----------- ----------- $ 625,590 $ 558,157 =========== ===========
Continued F-12 KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued G. Partners' Equity Under the terms of the Partnership Agreement, losses from operations are allocated 99% to the Investor Limited Partners and 1% to the General Partners. Profits from operations are allocated 90% to the Investor Limited Partners, 8% to the Original Limited Partner and 2% to the General Partners, until such time that the Investor Limited Partners have received a return of their total invested capital plus a 9% per annum cumulative return thereon and thereafter, 69% to the Investor Limited Partners, 25% to the Original Limited Partner and 6% to the General Partners. Profits from Capital Transactions are allocated first, to the Investor Limited Partners until they have received a return of their total invested capital. Thereafter, profits from Capital Transactions are allocated in accordance with the Partnership Agreement. Losses from Capital Transactions are allocated 99% to the Investor Limited Partners and 1% to the General Partners. Notwithstanding anything above, the General Partners shall be allocated at least 1% of all profits and losses from Capital Transactions. Under the terms of the Partnership Agreement, cash distributions are made on the same basis as the allocations of profits described above. Pursuant to the Partnership Agreement, proceeds from Capital Transactions shall first be applied to the payment of all debts and liabilities of the Partnership and second to fund reserves for contingent liabilities. The remaining net cash proceeds will then be distributed 99% to the Investor Limited Partners until they have received a return of their total invested capital and 1% to the General Partners, thereafter net cash proceeds will be distributed in accordance with the Partnership Agreement and will be distributed in part after payment by the Partnership of a certain subordinated financial consulting fee as described below. The Partnership entered into a Sales Agent Agreement for the public offering of Units. Under that Agreement, the Partnership was required to pay to the sales agent underwriting commissions and related financial consulting fees equal to 9% of the gross proceeds from the offering. In addition, the sales agent will be entitled to receive, over the life of the Partnership, a subordinated financial consulting fee based upon the net cash proceeds received by the Partnership as a result of sales and refinancings of Partnership properties, which fee shall be in an amount not exceeding 1.5% of the gross proceeds of the offering of Units. No such fees will, however, be payable unless and until all Partners have received a return of their Invested Capital and the Investor Limited Partners have received a 9% per annum cumulative return. Continued F-13 KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued G. Partners' Equity, Continued As of December 31, 1999, the following cumulative partner contributions and allocations have been made since the inception of the Partnership:
Investor Original Total Limited Limited General Partners' Partners Partner Partners (Deficit) ------------ ---------- --------- ------------ Capital contributions $ 27,184,000 $ 4,000 $ 136,891 $ 27,324,891 Syndication costs (3,697,375) - (135,891) (3,833,266) Distributions: Operations (5,969,347) (530,608) (132,650) (6,632,605) Capital transactions (2,341,632) - (23,378) (2,365,010) Income (loss): Operations (15,201,065) 841 (153,430) (15,353,654) Capital transactions (147,214) - (1,487) (148,701) ------------ ---------- --------- ------------ Balance at December 31, 1999 $ (172,633) $ (525,767) $(309,945) $ (1,008,345) ============ ========== ========= ============
H. 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 D) 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 during the years ended December 31, 1999, 1998 and 1997 were as follows:
1999 1998 1997 -------- -------- -------- Property management fees $157,467 $172,873 $204,023 Expense reimbursements 196,973 146,025 161,571 -------- -------- -------- Charged to operations $354,440 $318,898 $365,594 ======== ======== ========
Expense reimbursements due from affiliates of $237,015 and $239,514 were included in prepaid expenses and other assets at December 31, 1999 and 1998, respectively. In addition to the amounts above, costs associated with the sale of Nora Corners of $4,171 and Courtyards Village refinancing costs of $53,540 were paid to the General Partners' affiliates during the years ended December 31, 1998 and 1997, respectively. Continued F-14 KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued I. Federal Income Taxes For federal income tax purposes, the Partnership is depreciating property using the Accelerated Cost Recovery System ("ACRS") and the Modified Accelerated Cost Recovery System ("MACRS") depending on which is applicable. The reconciliation of the net income (loss) reported in the accompanying Consolidated Statement of Operations with the net income (loss) reported in the Partnership's federal income tax return for the years ended December 31, 1999, 1998 and 1997 is as follows:
1999 1998 1997 ----------- ----------- ----------- Net income (loss) per Consolidated Statement of Operations $ (549,227) $ 377,686 $ (151,137) Difference in book and tax depreciation and amortization 215,924 152,684 35,424 Difference between book and tax gain on sale of property - 977,707 - Rental adjustment required by Generally Accepted Accounting Principles (399) 28,672 (10,930) ---------- ----------- ----------- Net income (loss) for federal income tax purposes $ (333,702) $ 1,536,749 $ (126,643) ========== =========== ===========
The allocation of the net income for federal income tax purposes for the year ended December 31, 1999 is as follows:
Portfolio Passive Income Loss Total ---------- ---------- ----------- Investor Limited Partners $ 24,935 $ (355,300) $ (330,365) Original Limited Partner - - - General Partners 252 (3,589) (3,337) ---------- ---------- ----------- $ 25,187 $ (358,889) $ (333,702) ========== ========== ===========
For the years ended December 31, 1999, 1998 and 1997, the per Unit net income (loss) to the Investor Limited Partners for federal income tax purposes was $12.15, $55.97 and $(4.61), respectively. The basis of the Partnership's assets for financial reporting purposes exceeds its tax basis by approximately $2,279,000 and $2,830,800 at December 31, 1999 and 1998, respectively. The basis of the Partnership's liabilities for financial reporting purposes is less than its tax basis by approximately $3,520,000 at December 31, 1999. F-15 KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1999
Costs Capitalized Subsequent to Initial Cost to Partnership Acquisition --------------------------- ------------ Buildings & Buildings & Depreciable Description Encumbrances Land Improvements Improvements Life - ----------- ------------ ---------- ------------- ------------ ------------- Courtyards Village East Apartments Naperville, Illinois $ 5,164,455 $ 487,529 $ 6,486,198 $ 4,821,820 3 to 25 Years Windsor Apartments Garland, Texas 5,055,597 696,362 9,251,669 1,331,793 3 to 25 Years ------------ ---------- ----------- ------------ Total $ 10,220,052 $1,183,891 $15,737,867 $ 6,153,613 ============ ========== =========== ============
Gross Amounts Carried at End of Year -------------------------------- Buildings Year and Accumulated Construction Date Description Land Improvements Total Depreciation Completed Acquired - ----------- -------- ------------ ---------- ------------ ------------ -------- Courtyards Village East Apartments Naperville, Illinois $ 487,529 $ 11,308,018 $11,795,547 $ 6,943,011 1973 4/1/85 Windsor Apartments Garland, Texas 696,362 10,583,462 11,279,824 7,322,477 1984 12/27/84 ---------- ------------ ----------- ----------- Total $1,183,891 $ 21,891,480 $23,075,371 $14,265,488 ========== ============ =========== ===========
Continued F-16 KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued) December 31, 1999 Reconciliation of Real Estate and Accumulated Depreciation for each of the three years in the period ended December 31, 1999:
1999 1998 1997 ----------- ----------- ----------- Real Estate ----------- Balance at beginning of year $22,262,484 $30,206,277 $28,905,707 Acquisition and improvements 812,887 1,829,349 1,300,570 Sale of property - (9,773,142) - ----------- ----------- ----------- Balance at end of year $23,075,371 $22,262,484 $30,206,277 =========== =========== ===========
1999 1998 1997 ----------- ----------- ----------- Accumulated Depreciation ------------------------ Balance at beginning of year $12,751,953 $15,523,683 $14,097,123 Depreciation expense 1,513,535 1,297,939 1,426,560 Sale of property - (4,069,669) - ----------- ----------- ----------- Balance at end of year $14,265,488 $12,751,953 $15,523,683 =========== =========== ===========
The aggregate cost of the Partnership's real estate for federal income tax purposes is $23,089,267 and the aggregate accumulated depreciation for federal income tax purposes is $17,097,694. F-17 EX-27 2 FDS --
5 This schedule contains summary financial information extracted from Krupp Realty Fund 7 Financial Statements for the twelve months ended December 31, 1999 and is qualified in its entirety by reference to such financial statements. 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 120,525 0 244,193 0 0 518,462 23,391,023 (14,436,906) 9,837,297 625,590 10,220,052 0 0 0 (1,008,345) 9,837,297 0 3,997,617 0 0 3,667,374 0 879,470 0 0 0 0 0 0 (549,227) 0 0 Includes all receivables included in "prepaid expenses and other assets" on the Balance Sheet. Multi-family complexes of $23,075,371 and deferred expenses of $315,652. Accumulated depreciation of $14,265,488 and accumulated amortization of $171,418. Represents mortgage notes payable. Total deficit of the General Partners of ($309,945) and of the Limited Partners of ($698,400). Includes all revenue of the Partnership. Includes operating expenses of $1,686,434, real estate taxes of $428,806 and depreciation and amortization of $1,552,134. Net loss allocated ($5,492) to the General Partners and ($543,735) to the Limited Partners. Average net loss per Unit of Limited Partner interest is ($20.00) on 27,184 Units outstanding.
-----END PRIVACY-ENHANCED MESSAGE-----