United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 1997
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: 0-11779
S/M REAL ESTATE FUND VII, LTD.
Exact Name of Registrant as Specified in its Charter
Texas 75-1845682
State or Other Jurisdiction of
Incorporation or Organization I.R.S. Employer Identification No.
5520 LBJ Freeway, Suite 500,
Dallas, Texas 75240
Address of Principal Executive Offices Zip Code
(214) 404-7100
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 ____
Balance Sheets
At March 31, At December 31,
1997 1996
Assets
Real estate, at cost:
Land $ 962,216 $ 962,216
Building and improvements 7,638,103 7,643,886
----------- -----------
8,600,319 8,606,102
Less accumulated depreciation (4,914,847) (4,827,620)
----------- -----------
3,685,472 3,778,482
Cash and cash equivalents 307,299 362,932
Cash held in escrow 110,399 94,916
Restricted cash - replacement reserve 71,813 78,345
Accounts receivable 1,771 2,186
Other assets 3,043 12,171
----------- -----------
Total Assets $ 4,179,797 $ 4,329,032
=========== ===========
Liabilities and Partners' Deficit
Liabilities:
First mortgage note payable $ 5,783,417 $ 5,797,795
Second mortgage note payable (less
unamortized discount based on imputed
interest rate of 10.5% - $227,519) 453,623 451,748
Accounts payable:
Trade 9,438 1,730
Affiliates 40,664 40,664
Accrued expense and other liabilities 95,291 132,209
----------- -----------
Total Liabilities 6,382,433 6,424,146
----------- -----------
Partners' Deficit:
General Partners (108,638) (107,563)
Limited Partners (11,080 units outstanding) (2,093,998) (1,987,551)
----------- -----------
Total Partners' Deficit (2,202,636) (2,095,114)
----------- -----------
Total Liabilities and Partners' Deficit $ 4,179,797 $ 4,329,032
=========== ===========
Statement of Partners' Deficit
For the three months ended March 31, 1997
General Limited
Partners Partners Total
Balance at December 31, 1996 $ (107,563) $ (1,987,551) $ (2,095,114)
Net loss (1,075) (106,447) (107,522)
---------- ------------ ------------
Balance at March 31, 1997 $ (108,638) $ (2,093,998) $ (2,202,636)
========== ============ ============
Statements of Operations
For the three months ended March 31, 1997 1996
Income
Rental $ 327,552 $ 319,757
Interest and other 4,875 11,723
---------- ----------
Total income 332,427 331,480
---------- ----------
Expenses
Property operating 158,256 165,078
Interest 154,890 120,574
Depreciation 93,010 92,682
General and administrative 33,793 11,236
---------- ----------
Total expenses 439,949 389,570
---------- ----------
Net Loss $ (107,522) $ (58,090)
========== ==========
Net Loss Allocated:
To the General Partners $ (1,075) $ (581)
To the Limited Partners (106,447) (57,509)
---------- ----------
$ (107,522) $ (58,090)
========== ==========
Per limited partnership unit
(11,080 outstanding) $ (9.61) $ (5.19)
---------- ----------
Statements of Cash Flows
For the three months ended March 31,
1997 1996
Cash Flows From Operating Activities:
Net loss $ (107,522) $ (58,090)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation 93,010 92,682
Increase (decrease) in cash arising from
changes in operating assets and liabilities:
Cash held in escrow (15,483) (47,459)
Restricted cash - replacement reserve 6,532 0
Accounts receivable 415 394
Other assets 9,128 (12,380)
Accounts payable 7,708 (21,223)
Accrued interest payable 0 (26,998)
Accrued expenses and other liabilities (36,918) 37,507
---------- ----------
Net cash used for operating activities (43,130) (35,567)
---------- ----------
Cash Flows From Financing Activities:
Payments of principal on first
mortgage note payable (14,378) 0
Amortization of discount on second mortgage
note payable 1,875 0
---------- ----------
Net cash used for financing activities (12,503) 0
---------- ----------
Net decrease in cash and cash equivalents (55,633) (35,567)
Cash and cash equivalents, beginning of period 362,932 935,994
---------- ----------
Cash and cash equivalents, end of period $ 307,299 $ 900,427
========== ==========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 154,890 $ 147,572
---------- ----------
Supplemental Disclosure of Non-Cash Investing Activities:
Write-off of fully depreciated
building improvements $ 5,783 $ 9,535
--------- ----------
Notes to the Financial Statements
The unaudited financial statements should be read in conjunction with the
Partnership's annual 1996 audited financial statements within Form 10-K.
The unaudited financial statements include all normal and reoccurring
adjustments which are, in the opinion of management, necessary to present a
fair statement of financial position as of March 31, 1997 and the results of
operations and cash flows for the three months ended March 31, 1997 and 1996
and the statement of partner's deficit for the three months ended March 31,
1997. Results of operations for the period are not necessarily indicative of
the results to be expected for the full year.
No significant events have occurred subsequent to fiscal year 1996, and no
material contingencies exist which would require disclosure in this interim
report per Regulation S-X, Rule 10- 01, Paragraph (a)(5).
Part I, Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Liquidity and Capital Resources
The General Partners of the Partnership executed a modification and extension
agreement (the "Agreement") on May 30, 1996 with the lender of the mortgage
secured by the Partnership's remaining property, Fifth Avenue Apartments
located in San Antonio, Texas (the "Property"), to modify the mortgage and
extend its maturity for five years. In accordance with the terms of the
Agreement, the principal balance of the original mortgage totaling $5,830,000
bears interest at a reduced interest rate of 9.875%, in comparison to the
prior rate of 10.125%, and the loan now matures on June 1, 2001 (the "New
First Mortgage"). Under the terms of the New First Mortgage with the Federal
National Mortgage Association (the "Lender"), the Partnership is required to
make fixed monthly payments of principal and interest in the amount of
$52,464, commencing on July 1, 1996 until maturity on June 1, 2001, at which
time the entire outstanding principal balance is due.
The remaining balance of the loan, representing accrued interest in the amount
of $1,281,142, was converted into a second mortgage which does not bear
interest (the "New Second Mortgage"). Upon execution of the Agreement, the
Partnership made a $300,000 payment to the Lender, at which time the Lender
reduced the second mortgage indebtedness by $600,000, reducing the second
mortgage balance to $681,142. The second mortgage loan is noninterest bearing
and is scheduled to be fully amortized over the five-year term and is
prepayable at any time. Under the terms of the New Second Mortgage with the
Lender, the payments of principal shall be made in consecutive monthly
installments of $3,333 each, on or before the first day of every month,
beginning July 1, 1996, and continuing through June 1, 1998. After that date,
principal is payable in monthly installments of $5,000 each, on or before the
first day of every month, beginning July 1, 1998 and continuing through June 1,
2000. After that date, principal is payable in monthly installments of $8,333
each, on or before the first day of every month, beginning July 1, 2000 and
continuing regularly until maturity on June 1, 2001. The sum of the total
monthly payments will be equal to $300,000. Per the loan agreement, if
$500,000 in principal payments have been received unconditionally and
irrevocably by the Lender, the balance of $181,142 of unpaid principal of the
New Second Mortgage shall be waived and forgiven by the Lender.
It is anticipated that the Partnership will operate at a cash flow deficit
during 1997 after giving consideration to capital replacement reserve
requirements at the Property and general and administrative expenses of the
Partnership. It is expected that cash flow deficits will be funded by
Partnership cash balances, however, there can be no assurances that the
Partnership will have sufficient cash balances over the life of the mortgage to
fund such deficits. In the event that the Partnership is unable to meet such
obligations in the future, at such time, the Partnership will explore other
options, including but not limited to, a sale of the Property.
Cash and cash equivalents totaled $307,299 at March 31, 1997, compared to
$362,932 at December 31, 1996. The $55,633 decrease is attributable to cash
used for operating and financing activities.
Cash held in escrow increased from $94,916 at December 31, 1996 to $110,399 at
March 31, 1997. The $15,483 increase is primarily attributable to escrow
contributions and payments for insurance and real estate taxes.
Restricted cash - replacement reserve decreased to $71,813 at March 31, 1997
from $78,345 at December 31, 1996. The replacement reserve was established for
the Partnership's Property, as required under the terms of the Agreement. The
$6,532 decrease is primarily attributable to the release of replacement reserve
funds to the Property, in accordance with the terms of the Agreement.
Other assets decreased from $12,171 at December 31, 1996 to $3,043 at March 31,
1997. The decrease is due to the amortization of prepaid insurance.
Accounts payable totaled $50,102 at March 31, 1997 compared to $42,394 at
December 31, 1996. The increase is primarily attributable to the timing of
payments for audit and administrative expenses.
Accrued expenses and other liabilities totaled $95,291 at March 31, 1997
compared to $132,209 at December 31, 1996. The decrease is primarily
attributable to the timing of payments for real estate taxes and administrative
costs.
Results of Operations
Results of operations resulted in a net loss of $107,522 for the three months
ended March 31, 1997, compared to a net loss of $58,090 for the three months
ended March 31, 1996. The increased net loss is primarily attributable to an
increase in interest expense and general and administrative expenses, and, to
a lesser extent, a decrease in interest and other income, which was partially
offset by a slight increase in rental income and a decrease in property
operating expenses.
Rental income at the Property totaled $327,552 for the three months ended
March 31, 1997, compared to $319,757 for the corresponding period in 1996.
Occupancy at the Property averaged approximately 94% for the three months ended
March 31, 1997, compared to approximately 93% for the corresponding period in
1996. The average rental income per occupied square foot at the Property was
$8.33 for the three months ended March 31, 1997, compared to $8.16 for the
corresponding period in 1996.
Interest and other income totaled $4,875 for the three months ended March 31,
1997, compared to $11,723 for the three months ended March 31, 1996. The
decrease is primarily attributable to a lower average invested cash balance
during 1997 as a result of payments made in connection with the remodification
of the mortgage secured by the Property during the second quarter of 1996.
Total expenses for the three months ended March 31, 1997 were $439,949,
compared to $389,570 for the corresponding period in 1996. The increase is
primarily attributable to an increase in interest expense and general and
administrative expenses, which were partially offset by lower property
operating expenses.
Property operating expenses consist primarily of on-site personnel expenses,
utility costs, repair and maintenance costs, property management fees,
insurance and real estate taxes. Property operating expenses for the three
months ended March 31, 1997 totaled $158,256, compared to $165,078 for the
three months ended March 31, 1996. The decrease is primarily attributable to
lower payroll expense, management fees and advertising expense in 1997.
Interest expense totaled $154,890 for the three months ended March 31, 1997,
compared with $120,574 for the three months ended March 31, 1996. The increase
is primarily attributable to an increase in the effective rate of interest
pursuant to the Agreement. For the three-month period in 1997, the interest
expense was calculated using an effective interest rate of 9.875%, and for the
three-month period in 1996, the interest expense was calculated using an
effective interest rate of 6.855%. Pursuant to the Agreement, during the
second quarter of 1996, the interest expense calculation was adjusted to
reflect the carryover (matured loan) rate of interest of 10.125%.
General and administrative expenses for the three months ended March 31, 1997
were $33,793, compared to $11,236 for the same period in 1996. During the 1997
period, certain expenses incurred by an unaffiliated third party service
provider in servicing the Partnership, which were voluntarily absorbed by
affiliates of SM7 Apartment Investors, Inc. in prior periods, were reimbursed
to SM7 Apartment Investors, Inc. and its affiliates.
Part II Other Information
Items 1-5 Not applicable.
Item 6 Exhibits and reports on Form 8-K.
(a) Exhibits -
(27) Financial Data Schedule
(b) Reports on Form 8-K - No reports on Form 8- K were filed
during the quarter ended March 31, 1997.
SIGNATURES
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.
S/M REAL ESTATE FUND VII, LTD.
BY: SM7 APARTMENT INVESTORS INC.
General Partner
Date: May 14, 1997
BY: /s/ Kenneth L. Zakin
--------------------
Name: Kenneth L. Zakin
Title: Director and President
Date: May 14, 1997
BY: /s/ Daniel M. Palmier
---------------------
Name: Daniel M. Palmier
Title: Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Mar-31-1997
<CASH> 489,511
<SECURITIES> 000
<RECEIVABLES> 1,771
<ALLOWANCES> 000
<INVENTORY> 000
<CURRENT-ASSETS> 3,043
<PP&E> 8,600,319
<DEPRECIATION> 4,914,847
<TOTAL-ASSETS> 4,179,797
<CURRENT-LIABILITIES> 145,393
<BONDS> 6,237,040
<COMMON> 000
000
000
<OTHER-SE> (2,202,636)
<TOTAL-LIABILITY-AND-EQUITY> 4,179,797
<SALES> 327,552
<TOTAL-REVENUES> 332,427
<CGS> 000
<TOTAL-COSTS> 158,256
<OTHER-EXPENSES> 126,803
<LOSS-PROVISION> 000
<INTEREST-EXPENSE> 154,890
<INCOME-PRETAX> (107,522)
<INCOME-TAX> 000
<INCOME-CONTINUING> (107,522)
<DISCONTINUED> 000
<EXTRAORDINARY> 000
<CHANGES> 000
<NET-INCOME> (107,522)
<EPS-PRIMARY> (9.61)
<EPS-DILUTED> (9.61)
</TABLE>
