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 June 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: 0-11779
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 June 30, At December 31,
1998 1997
(unaudited) (audited)
Assets
Real estate, at cost:
Land $ 962,216 $ 962,216
Building and improvements 7,685,625 7,663,486
8,647,841 8,625,702
Less accumulated depreciation (5,391,169) (5,199,331)
3,256,672 3,426,371
Cash and cash equivalents 166,165 209,924
Cash held in escrow 167,162 201,966
Restricted cash - replacement reserve 77,123 88,004
Accounts receivable 1,935 1,987
Other assets 26,392 13,928
Total Assets $3,695,449 $3,942,180
Liabilities and Partners' Deficit
Liabilities:
First mortgage note payable $5,705,979 $5,738,101
Second mortgage note payable (less
unamortized discount based on imputed
interest rate of 10.5% - $219,041) 462,101 459,550
Accounts payable:
Trade 58,777 5,814
Affiliates 40,664 40,664
Accrued expenses and other liabilities 143,932 210,422
Total Liabilities 6,411,453 6,454,551
Partners' Deficit:
General Partners (113,772) (111,736)
Limited Partners (11,080 units outstanding) (2,602,232) (2,400,635)
Total Partners' Deficit (2,716,004) (2,512,371)
Total Liabilities and Partners' Deficit $3,695,449 $3,942,180
Statement of Partners' Deficit (unaudited)
For the six months ended June 30, 1998
General Limited
Partners Partners Total
Balance at December 31, 1997 $(111,736) $(2,400,635) $(2,512,371)
Net loss (2,036) (201,597) (203,633)
Balance at June 30, 1998 $(113,772) $(2,602,232) $(2,716,004)
Statements of Operations (unaudited)
Three months ended Six months ended
June 30, June 30,
1998 1997 1998 1997
Income
Rental $331,677 $333,792 $ 664,323 $ 661,314
Interest and other 2,419 3,973 5,260 8,878
Total Income 334,096 337,765 669,583 670,192
Expenses
Property operating 136,022 157,603 306,370 315,859
Interest 153,271 154,582 306,882 309,472
Depreciation 98,109 93,011 191,838 186,021
General and administrative 44,238 32,163 68,126 65,956
Total Expenses 431,640 437,359 873,216 877,308
Net Income (Loss) $(97,544) $(99,594) $(203,633) $(207,116)
Net Income (Loss) Allocated:
To the General Partners $ (975) $ (996) $ (2,036) $ (2,071)
To the Limited Partners (96,569) (98,598) (201,597) (205,045)
$(97,544) $(99,594) $(203,633) $(207,116)
Per limited partnership unit
(11,080 outstanding) $(8.72) $(8.90) $(18.19) $(18.51)
Statements of Cash Flows (unaudited)
For the six months ended June 30,
1998 1997
Cash Flows From Operating Activities:
Net loss $(203,633) $(207,116)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation 191,838 186,021
Increase (decrease) in cash arising from
changes in operating assets and liabilities:
Cash held in escrow 34,804 (35,952)
Accounts receivable 52 (485)
Other assets (12,464) (15,684)
Accounts payable 52,963 406
Due to affiliates 0 139
Accrued expenses and other liabilities (66,490) 16,509
Net cash used for operating activities (2,930) (56,162)
Cash Flows From Investing Activities:
Restricted cash - replacement reserve 10,881 8,378
Additions to real estate (22,139) 0
Net cash provided by (used for) investing activities (11,258) 8,378
Cash Flows From Financing Activities:
Payments of principal on first mortgage
of note payable (32,122) (29,113)
Amortization of discount on second mortgage
note payable 2,551 3,799
Net cash used for financing activities (29,571) (25,314)
Net decrease in cash and cash equivalents (43,759) (73,098)
Cash and cash equivalents, beginning of period 209,924 362,932
Cash and cash equivalents, end of period $166,165 $289,834
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $306,882 $309,472
Supplemental Disclosure of Non-Cash Investing Activities:
Write-off of fully depreciated
building improvements $ 0 $ 5,783
Notes to the Financial Statements
The unaudited financial statements should be read in conjunction with S/M Real
Estate Fund VII, Ltd.'s (the "Partnership") annual 1997 audited financial
statements within Form 10-K.
The unaudited financial statements include all normal and recurring adjustments
which are, in the opinion of management, necessary to present a fair statement
of financial position as of June 30, 1998 and the results of operations for the
three and six months ended June 30, 1998 and 1997, cash flows for the six
months ended June 30, 1998 and 1997, and the statement of partners' deficit for
the six months ended June 30, 1998. Results of operations for the period are
not necessarily indicative of the results to be expected for the full year.
Certain prior year amounts have been reclassified in order to conform to the
current period's presentation.
The following event has occurred subsequent to fiscal year 1997, or the
following material contingencies exist and require disclosure in this interim
report per Regulation S-X, Rule 10-01, Paragraph (a)(5).
On June 16, 1998, DA Group Holdings, Inc., a Delaware corporation ("DA"), and
Anterra Property Investors VIII, Inc., a Texas corporation ("Anterra"), entered
into a Stock Purchase Agreement (the "Agreement"). Pursuant to the Agreement,
Anterra purchased from DA all of the issued and outstanding shares of common
stock, $1.00 par value per share, of SM7 Apartment Investors, Inc., a Texas
corporation ("SM7"). SM7 is a general partner of the Partnership. Anterra is
an affiliate of Anterra Property Investors VII, Inc., which is a general
partner of Crozier Partners VII, Ltd., which in turn is a general partner of
the Partnership. The transaction did not affect the Partnership's operations.
Part I, Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Liquidity and Capital Resources
The Partnership executed a modification and extension agreement (the
"Modification Agreement") on May 30, 1996 with Federal National Mortgage
Association (the "Lender"), the lender of the first mortgage secured by the
Partnership's sole remaining property, the Fifth Avenue Apartments located in
San Antonio, Texas (the "Property"). At the time the Modification Agreement
was executed the first mortgage had an aggregate balance of $7,111,142,
representing $5,830,000 in original principal and $1,281,142 in accrued
interest. In accordance with the terms of the Modification Agreement, the
balance of the first mortgage remained $5,830,000, the interest rate was
reduced from 10.125% to 9.875%, and the first mortgage's maturity date was
extended five years to June 1, 2001 (the "New First Mortgage"). Pursuant to
the terms of the New First Mortgage, the Partnership is required to make fixed
monthly payments of principal and interest in the amount of $52,464.
As a condition of the New First Mortgage, the Partnership entered into a
Replacement Reserve and Security Agreement (the "Replacement Agreement") with
the Lender providing that, concurrently with the execution of the Replacement
Agreement, the Partnership was required to deposit with the Lender the sum of
$49,500 into a reserve account ("Replacement Reserve"). Per the terms of the
Replacement Agreement, on each date that a regularly scheduled payment of
principal or interest is due under the New First Mortgage, the Partnership
deposits with the Lender the applicable monthly deposit of $4,125. On a
quarterly basis, provided that no default exists under the Replacement
Agreement, upon written request from the Partnership, the Lender shall disburse
amounts from the Replacement Reserve necessary to reimburse the Partnership for
the actual approved costs of replacements as determined by the Lender. The
Replacement Reserve is reflected as "Restricted cash - replacement reserve" on
the Partnership's balance sheets.
The accrued interest on the first mortgage in the amount of $1,281,142 was
converted into a second mortgage which is coterminous with the New First
Mortgage (the "New Second Mortgage"). Upon execution of the Modification
Agreement, the Partnership made a $300,000 payment to the Lender, at which time
the Lender reduced the New Second Mortgage balance to $681,142. The New Second
Mortgage is non-interest 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, payments of principal, in monthly installments of $3,333 are
due on the first day of every month, commencing on July 1, 1996, and continuing
through June 1, 1998. After that date, principal is payable in monthly
installments of $5,000 on 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 on the first day of every month, beginning July
1, 2000 and continuing until maturity on June 1, 2001. The sum of the total
minimum monthly payments over the term of the New Second Mortgage is $300,000.
Pursuant to the Modification Agreement, if $500,000 in principal payments have
been received unconditionally and irrevocably by the Lender, the New Second
Mortgage's remaining unpaid principal in the amount $181,142 of unpaid
principal will be forgiven by the Lender.
It is anticipated that the Partnership will operate at a cash flow deficit
during 1998 in light of 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 the Partnership's existing
cash balances. However, there can be no assurance that the Partnership will
have sufficient cash to fund such deficits. The General Partners are pursuing
methods for improving operations, including reduction of administrative
expenses and interest expense through refinancing.
Cash and cash equivalents totaled $166,165 at June 30, 1998, compared to
$209,924 at December 31, 1997. The $43,759 decrease primarily is attributable
to cash used for financing and operating activities.
Cash held in escrow decreased from $201,966 at December 31, 1997 to $167,162 at
June 30, 1998. The $34,804 decrease primarily is attributable to payments for
insurance and real estate taxes exceeding escrow contributions.
Restricted cash - replacement reserve decreased to $77,123 at June 30, 1998,
from $88,004 at December 31, 1997. The $10,881 decrease primarily is
attributable to the release of replacement reserve funds to the Property, in
accordance with the terms of the Modification Agreement, which was partially
offset by contributions to the replacement reserve.
Other assets increased from $13,928 at December 31, 1997, to $26,392 at
June 30, 1998. The increase primarily is due to a higher amount of prepaid
insurance.
Accounts receivable totaled $1,935 at June 30, 1998, largely unchanged from
$1,987 at December 31, 1997. Accounts payable totaled $99,441 at June 30,
1998, compared to $46,478 at December 31, 1997. The increase primarily is
attributable to the timing of payments associated with insurance premiums for
1998 and 1999.
Accrued expenses and other liabilities totaled $143,932 at June 30, 1998,
compared to $210,422 at December 31, 1997. The change primarily is
attributable to the timing of payments for real estate taxes, audit fees, and
administrative costs.
Results of Operations
Operations resulted in net losses of $97,544 and $203,633 for the three and
six-month periods ended June 30, 1998, respectively, largely unchanged from net
losses of $99,594 and $207,116 for the three and six-month periods ended
June 30, 1997.
Rental income at the Property totaled $331,677 and $664,323 for the three and
six-month periods ended June 30, 1998, respectively, compared to $333,792 and
$661,314, respectively, for the corresponding periods in 1997. Occupancy at
the Property averaged approximately 94% for the three and six-month periods
ended June 30, 1998, unchanged from the corresponding periods in 1997. The
average rental income per occupied square foot at the Property was $8.11 and
$8.10 for the three and six months ended June 30, 1998, respectively, compared
to $8.33 and $8.29, respectively, for the corresponding periods in 1997.
Interest and other income totaled $2,419 and $5,260 for the three and six-month
periods ended June 30, 1998, respectively, compared to $3,973 and $8,878,
respectively, for the corresponding periods in 1997. The decreases primarily
are attributable to lower average invested cash balances during the 1998
periods.
Total expenses for the three and six-month periods ended June 30, 1998 were
$431,640 and $873,216, respectively, compared to $437,359 and $877,308,
respectively, for the three and six-month periods ended June 30, 1997. The
decreases for the three and six-month periods in 1998 primarily are due to
lower property operating and interest expenses, partially offset by higher
depreciation and general and administrative expenses.
Property operating expenses consisted primarily of on-site personnel expenses,
utility costs, repair and maintenance costs, property management fees,
advertising costs, insurance and real estate taxes. Property operating
expenses for the three and six-month periods ended June 30, 1998 were $136,022
and $306,370, respectively, compared to $157,603 and $315,859, respectively,
for the three and six-month periods ended June 30, 1997. The decreases for the
1998 periods primarily are attributable to lower repairs and maintenance
expenses, insurance costs and real estate taxes, which were partially offset by
higher administrative costs.
Interest expense totaled $153,271 and $306,882 for the three and six-month
periods ended June 30, 1998, respectively, largely unchanged from $154,582 and
$309,472, respectively, for the corresponding periods in 1997.
General and administrative expenses for the three and six-month periods ended
June 30, 1998 were $44,238 and $68,126, respectively, compared to $32,163 and
$65,956, respectively, for the three and six-month periods ended June 30, 1997.
The increase for the three-month period primarily is due to higher audit and
administrative expenses. The increase for the six-month period primarily is
due to higher audit expenses, which were partially offset by lower expenses in
all other areas.
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 -
On June 26, 1998, the Partnership filed a Form 8-K reporting
that on June 16, 1998, DA Group Holdings, Inc., a Delaware
corporation ("DA"), and Anterra Property Investors VIII,
Inc., a Texas corporation ("Anterra"), entered into a Stock
Purchase Agreement, whereby Anterra purchased from DA all of
the issued and outstanding shares of common stock, $1.00 par
value per share, of SM7 Apartment Investors, Inc., a Texas
corporation ("SM7"). SM7 is a general partner of the
Partnership. Anterra is an affiliate of Anterra Property
Investors VII, Inc., which is a general partner of Crozier
Partners VII, Ltd., which in turn is a general partner of the
Partnership.
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.
A General Partner
Date: August 13, 1998
BY: /s/ Richard E. Hoffmann
Name: Richard E. Hoffmann
Title: Director, President and Treasurer
By: MURRAY REALTY INVESTORS VII, INC.
A General Partner
Date: August 13, 1998
By: /s/Charles W. Karlen
Charles W. Karlen
Vice President
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-END> June-30-1998
<CASH> 410,450
<SECURITIES> 000
<RECEIVABLES> 1,935
<ALLOWANCES> 000
<INVENTORY> 000
<CURRENT-ASSETS> 26,392
<PP&E> 8,647,841
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<TOTAL-ASSETS> 3,695,449
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<BONDS> 6,168,080
<COMMON> 000
000
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<OTHER-SE> (2,716,004)
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<SALES> 664,323
<TOTAL-REVENUES> 669,583
<CGS> 000
<TOTAL-COSTS> 306,370
<OTHER-EXPENSES> 259,964
<LOSS-PROVISION> 000
<INTEREST-EXPENSE> 306,882
<INCOME-PRETAX> (203,633)
<INCOME-TAX> 000
<INCOME-CONTINUING> (203,633)
<DISCONTINUED> 000
<EXTRAORDINARY> 000
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<NET-INCOME> (203,633)
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