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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, 2000
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
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Texas 75-1845682
- ------------------------------------------------------------- -----------------------------------
(State or other jurisdiction of incorporation of organization) (I.R.S. Employer Identification No.)
5520 LBJ Freeway, Suite 500, Dallas, Texas 75240
- ------------------------------------------ ----------
(Address of principal executive offices) (Zip code)
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(972) 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
--- ---
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S/M REAL ESTATE FUND VII LTD.
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===============================================================================
BALANCE SHEETS AT MARCH 31, AT DECEMBER 31,
2000 1999
UNAUDITED)
---------- --------------
<S> <C> <C>
ASSETS
Real estate, at cost:
Land $ 962,216 $ 962,216
Building and improvements 7,893,022 7,863,701
----------- -----------
8,855,238 8,825,917
Less accumulated depreciation (6,024,287) (5,941,608)
----------- -----------
2,830,951 2,884,309
Cash and cash equivalents 194,832 203,840
Cash held in escrow 105,308 54,365
Restricted cash - replacement reserve 34,094 39,414
Accounts receivable 2,217 5,097
Other assets 60,749 69,716
----------- -----------
TOTAL ASSETS $ 3,228,151 $ 3,256,741
=========== ===========
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
First mortgage note payable $ 6,328,343 $ 6,343,433
Accounts payable:
Trade 6,802 19,022
Affiliates 47,523 51,354
Accrued expenses and other liabilities 93,445 46,860
----------- -----------
Total Liabilities 6,476,113 6,460,669
----------- -----------
Partners' Deficit:
General Partners (119,091) (118,651)
Limited Partners (11,080 units outstanding) (3,128,871) (3,085,277)
----------- -----------
Total Partners' Deficit (3,247,962) (3,203,928)
----------- -----------
TOTAL LIABILITIES AND PARTNERS' DEFICIT $ 3,228,151 $ 3,256,741
=========== ===========
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================================================================================
STATEMENT OF PARTNERS' DEFICIT (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2000
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GENERAL LIMITED
PARTNERS PARTNERS TOTAL
--------- ----------- -----------
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1999 $(118,651) $(3,085,277) $(3,203,928)
Net loss (440) (43,594) (44,034)
--------- ----------- -----------
BALANCE AT MARCH 31, 2000 $(119,091) $(3,128,871) $(3,247,962)
========= =========== ===========
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See accompanying notes to the financial statements. 2
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S/M REAL ESTATE FUND VII LTD.
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STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2000 1999
--------- ---------
<S> <C> <C>
INCOME
Rental $ 341,056 $ 326,448
Interest and other 3,980 2,994
--------- ---------
Total Income 345,036 329,442
--------- ---------
EXPENSES
Property operating 155,587 173,344
Interest 114,718 114,468
Depreciation and amortization 102,774 100,005
General and administrative 15,991 27,597
--------- ---------
Total Expenses 389,070 415,414
--------- ---------
NET LOSS $ (44,034) $ (85,972)
========= =========
NET LOSS ALLOCATED:
To the General Partners $ (440) $ (860)
To the Limited Partners (43,594) (85,112)
--------- ---------
$ (44,034) $ (85,972)
========= =========
PER LIMITED PARTNERSHIP UNIT
(11,080 OUTSTANDING) $ (3.93) $ (7.68)
--------- ---------
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See accompanying notes to the financial statements. 3
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=================================================================================================================
STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (44,034) $ (85,972)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 102,774 100,005
Increase (decrease) in cash arising from changes in
operating assets and liabilities:
Cash held in escrow (50,943) (51,305)
Accounts receivable 2,880 2,782
Other assets 7,439 6,683
Accounts payable (16,051) 6,187
Accrued expenses and other liabilities 46,585 21,769
--------- ---------
Net cash provided by operating activities 48,650 149
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in restricted cash - replacement reserve 5,320 (11,715)
Additions to real estate (47,888) (44,366)
--------- ---------
Net cash used in investing activities (42,568) (56,081)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES - Payments of principal
on first mortgage note payable (15,090) (15,340)
--------- ---------
Net decrease in cash and cash equivalents (9,008) (71,272)
Cash and cash equivalents, beginning of period 203,840 274,735
--------- ---------
Cash and cash equivalents, end of period $ 194,832 $ 203,463
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 114,718 $ 114,468
--------- ---------
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES:
Write-off of fully depreciated building improvements $ 18,567 $ --
--------- ---------
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See accompanying notes to the financial statements. 4
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S/M REAL ESTATE FUND VII, LTD.
NOTES TO THE FINANCIAL STATEMENTS
The quarterly unaudited financial statements for S/M Real Estate Fund VII, Ltd.
(the "Partnership") include all normal and recurring adjustments which are, in
the opinion of management, necessary to present a fair statement of financial
position as of March 31, 2000 and the results of operations for the three months
ended March 31, 2000 and 1999, cash flows for the three months ended March 31,
2000 and 1999, and the statement of partners' deficit for the three months ended
March 31, 2000. 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 1999, and no
material contingencies exist which would require disclosure in this interim
report per Regulation S-X, Rule 10-01, Paragraph (a)(5).
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.
During the three months ended March 31, 2000 and 1999, the General Partners or
their affiliates were reimbursed for Partnership administrative and operating
expenses, excluding property and construction management fees, in the amounts of
$2,713 and $3,165, respectively. Property and construction management fees
earned by an affiliate of the General Partners were $15,216 and $13,169 for the
three months ended March 31, 2000 and 1999, respectively.
The financial information included in this interim report as of March 31, 2000
and for the three months ended March 31, 2000 and 1999 has been prepared by
management without audit by independent public accountants. The Partnership's
1999 annual report contains audited financial statements including the notes to
the financial statements and should be read in conjunction with the financial
information contained in this interim report.
5
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S/M REAL ESTATE FUND VII, LTD.
PART I, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Liquidity and Capital Resources
In order to improve the financial condition of the Partnership and provide much
needed funds for exterior improvements on Fifth Avenue, on December 3, 1998, the
Partnership refinanced the mortgage note payable on Fifth Avenue (the
"Refinancing"). In accordance with the terms of the loan agreement, the
principal balance of the new mortgage totaling $6,400,000 is due January 1, 2009
and bears interest at a rate of 7.16%. The previous first and second mortgage
had a combined balance of $6,259,810 at an average interest rate of 8.97%. In
spite of having a slightly higher principal loan amount, the Partnership reduced
it's annual total debt service payments by approximately $170,000.
Under the terms of the loan agreement, the Partnership is required to make fixed
monthly payments of principal and interest in the amount of $43,269 commencing
on February 1, 1999 until maturity on January 1, 2009, at which time the entire
outstanding principal balance and accrued interest is due. Under the terms of
the loan agreement, the Partnership was required to deposit with the Lender
$114,375 and make monthly contributions of $3,905 which are held by the lender
pending application for the completion of certain required repairs to Fifth
Avenue. At March 31, 2000, the balance was $34,094.
Cash and cash equivalents totaled $194,832 at March 31, 2000, compared to
$203,840 at December 31, 1999. The $9,008 decrease is primarily attributable to
the increase in fixed asset additions offset by an increase in cash provided by
operations.
Cash held in escrow increased to $105,308 at March 31, 2000 from $54,365 at
December 31, 1999. The $50,943 increase is primarily attributable to
contributions to the insurance and real estate tax escrow, as required in the
Partnership's Loan Agreement.
Restricted cash - replacement reserve decreased to $34,094 at March 31, 2000,
from $39,414 at December 31, 1999. The $5,320 decrease is attributable to the
release of $17,598 for replacements and completed required lender repairs,
offset in part by monthly contributions to the replacements reserve in
accordance with the terms of the Loan Agreement.
Other assets decreased to $60,749 at March 31, 2000, from $69,716 at December
31, 1999. The decrease is primarily due to decreases in prepaid insurance and
other prepaid expenses.
Accounts receivable totaled $2,217 at March 31, 2000, compared to $5,097 at
December 31, 1999. The decrease is primarily attributable to the timing of
tenant rental receipts. Accounts payable totaled $54,325 at March 31, 2000,
compared to $70,376 at December 31, 1999. The decrease is primarily attributable
to the timing of payments associated with fixed asset expenditures.
Accrued expenses and other liabilities totaled $93,445 at March 31, 2000,
compared to $46,860 at December 31, 1999. The change is primarily attributable
to the timing of payments for real estate taxes and accounting fees.
As a result of the recent Refinancing and anticipated reductions in general and
administrative expenses, the General Partners currently expect funds from
operations to be sufficient to pay all obligations for 2000, including debt
service. In the event of any cash flow deficits, it is expected that such
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.
Results of Operations
Results of operations resulted in net losses of $44,034 for the three-month
period ended March 31, 2000, compared to $85,972 for the three-month period
ended March 31, 1999. The decreased net loss from 1999 to 2000 is primarily
attributable to an increase in rental income and decreases in property operating
expenses and general and administrative expenses.
6
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S/M REAL ESTATE FUND VII, LTD.
Rental income totaled $341,056 for the three-month period ended March 31, 2000,
compared with $326,448 for the three-month period ended March 31, 1999.
Occupancy at Fifth Avenue averaged approximately 92% for the three-month periods
ended March 31, 2000 and 1999, respectively. The average rental income per
occupied square foot at Fifth Avenue was $8.82 for the three-month period ended
March 31, 2000, compared to $8.45 for the corresponding period in 1999. The
increase in the average rental income per occupied square foot in 2000 is
primarily attributable to increases in rental rates.
Total expenses for the three-month period ended March 31, 2000 were $389,070
compared to $415,414 for the three-month period ended March 31, 1999. The
decrease is due to decreases in property operating expenses and general and
administrative expenses.
Property operating expenses consist 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-month period ended March 31, 2000 were $155,587 compared to
$173,344 for the three-month period ended March 31, 1999. The decrease is
primarily attributable to lower repair and maintenance costs for apartment
preparation.
General and administrative expenses for the three-month period ended March 31,
2000 were $15,991 compared to $27,597 for the three-month period ended March 31,
1999. The decrease is due primarily to lower legal fees.
General
Words or phrases when used in this Form 10-Q or other filings with the
Securities and Exchange Commission, such as "does not believe" and "believes",
or similar expressions are intended to identify "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
PART I, ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the information related to the market
risk of the Partnership since December 31, 1999.
7
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S/M REAL ESTATE FUND VII, LTD.
PART II OTHER INFORMATION
ITEMS 1-5 Not applicable.
ITEM 6 Exhibits and reports on Form 8-K.
(a) Exhibits -
2a Voluntary Petition of Shearson-Murray Real
Estate Fund VII, Ltd. to commence a case
under Chapter 11 of the Federal Bankruptcy
Code in the United States Bankruptcy Court
for the Western District of Texas-Austin
Division, as filed on June 6, 1989.
Reference is made to Exhibit 2a to the
Partnership's Annual Report on Form 10-K
filed with the Securities and Exchange
Commission on June 14, 1989.
2b Modified First Amended Plan of
Reorganization of Shearson-Murray Real
Estate Fund VII, Ltd. in the United States
Bankruptcy Court for the Western District
of Texas-Austin Division Case No.
89-11662-LC filed February 20, 1990.
Reference is made to the Partnership's
Annual Report on Form 10-K filed with the
Securities and Exchange Commission on
April 12, 1990.
3 Agreement of Limited Partnership of
Shearson-Murray Real Estate Fund VII,
Ltd., as amended as of September 30, 1983.
Reference is made to Partnership's Form
8-K filed with the Securities and Exchange
Commission on October 26, 1983. Reference
is made to Exhibit A to the Prospectus
dated June 10, 1983 contained in Amendment
No. 3 to Partnership's Form S-11
Registration Statement filed with the
Securities and Exchange Commission on June
10, 1983.
10a Assignment and Assumption Agreement
between Murray Management Corporation and
Anterra Management Corporation for
property management and leasing services
dated January 1, 1990. Reference is made
to Exhibit 10u to the Partnership's Annual
Report on Form 10-K filed with the
Securities and Exchange Commission on May
15, 1990.
10b Loan Agreement between S/M Real Estate
Fund VII, Ltd. and General Electric
Capital Corporation, dated December 3,
1998. Reference is made to Exhibit 10.1 to
Partnership's Form 8-K filed with the
Securities and Exchange Commission on
December 14, 1998.
27 Financial Data Schedule. Filed herewith.
28a Pages A-16 to A-18 of Exhibit A to the
Prospectus dated June 10, 1983, contained
in Amendment No. 3 to Partnership's Form
S-11 Registration Statement filed with the
Securities and Exchange Commission on June
10, 1983. Reference is made to Exhibit 28a
to the Partnership's Annual Report on Form
10-K filed with the Securities and
Exchange Commission on May 12, 1988.
28b Pages 10-18 of the Prospectus dated June
10, 1983, contained in Amendment No. 3 to
Partnership's Form S-11 Registration
Statement filed with the Securities and
Exchange Commission on June 10, 1983.
Reference is made to Exhibit 28b to the
Partnership's Annual Report on Form 10-K
filed with the Securities and Exchange
Commission on May 12, 1988.
8
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S/M REAL ESTATE FUND VII, LTD.
99a Compromise Settlement Agreement between
S/M Real Estate Fund VII, Ltd. and Federal
National Mortgage Association, dated May
6, 1996. Reference is made to Exhibit 99.1
to the Partnership's Quarterly Report on
Form 10-Q for the quarter ended June 30,
1996 filed with the Securities and
Exchange Commission.
99b $5,830,000 Multifamily Note and Addendum,
dated May 30, 1996. Reference is made to
Exhibit 99.2 to the Partnership's
Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996 filed with the
Securities and Exchange Commission.
99c $681,142 Subordinate Multifamily Note and
Addendum, dated May 30, 1996. Reference is
made to Exhibit 99.3 to the Partnership's
Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996 filed with the
Securities and Exchange Commission.
99d $6,400,000 Promissory Note, dated December
3, 1998. Reference is made to Exhibit 99.1
of the Partnership's Form 8-K filed with
the Securities and Exchange Commission on
December 14, 1998.
(b) Reports on Form 8-K - No reports on Form 8-K were
filed during the quarter ended March 31, 2000.
9
<PAGE> 10
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: April 26, 2000 BY: /s/ Richard E. Hoffmann
-----------------------
Name: Richard E. Hoffmann
Title: Director, President and
Treasurer
BY: MURRAY REALTY INVESTORS VII, INC.
A General Partner
Date: April 26, 2000 BY: /s/ Charles W. Karlen
---------------------
Name: Charles W. Karlen
Title: Vice President
10
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INDEX TO EXHIBITS
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Document
Number Description
<S> <C>
2a Voluntary Petition of Shearson-Murray Real Estate Fund VII,
Ltd. to commence a case under Chapter 11 of the Federal
Bankruptcy Code in the United States Bankruptcy Court for the
Western District of Texas-Austin Division, as filed on June 6,
1989. Reference is made to Exhibit 2a to the Partnership's
Annual Report on Form 10-K filed with the Securities and
Exchange Commission on June 14, 1989.
2b Modified First Amended Plan of Reorganization of
Shearson-Murray Real Estate Fund VII, Ltd. In the United
States Bankruptcy Court for the Western District of
Texas-Austin Division Case No. 89-11662-LC filed February 20,
1990. Reference is made to the Partnership's Annual Report on
Form 10-K filed with the Securities and Exchange Commission on
April 12, 1990.
3 Agreement of Limited Partnership of Shearson-Murray Real
Estate Fund VII, Ltd., as amended as of September 30, 1983.
Reference is made to Form 8-K filed with the Securities and
Exchange Commission on October 26, 1983. Reference is made to
Exhibit A to the Prospectus dated June 10, 1983 contained in
Amendment No. 3 to Partnership's Form S-11 Registration
Statement filed with the Securities and Exchange Commission on
June 10, 1983.
10a Assignment and Assumption Agreement between Murray Management
Corporation and Anterra Management Corporation for property
management and leasing services dated January 1, 1990.
Reference is made to Exhibit 10u to the Partnership's Annual
Report on Form 10-K filed with the Securities and Exchange
Commission on May 15, 1990.
10b Loan Agreement between S/M Real Estate Fund VII, Ltd. and
General Electric Capital Corporation, dated December 3, 1998.
Reference is made to Exhibit 10.1 to Partnership's Form 8-K
filed with the Securities and Exchange Commission on December
14, 1998.
27 Financial Data Schedule.
28a Pages A-16 to A-18 of Exhibit A to the Prospectus dated June
10, 1983, contained in Amendment No. 3 to Partnership's Form
S-11 Registration Statement filed with the Securities and
Exchange Commission on June 10, 1983. Reference is made to
Exhibit 28a to the Partnership's Annual Report on Form 10-K
filed with the Securities and Exchange Commission on May 12,
1988.
28b Pages 10-18 of the Prospectus dated June 10, 1983, contained
in Amendment No. 3 to Partnership's Form S-11 Registration
Statement filed with the Securities and Exchange Commission on
June 10, 1983. Reference is made to Exhibit 28b to the
Partnership's Form 10-K filed with the Securities and Exchange
Commission on May 12, 1988.
99a Compromise Settlement Agreement between S/M Real Estate Fund
VII, Ltd. and Federal National Mortgage Association, dated May
6, 1996. Reference is made to Exhibit 99.1 to the
Partnership's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996 filed with the Securities and Exchange
Commission.
99b $5,830,000 Multifamily Note and Addendum, dated May 30, 1996.
Reference is made to Exhibit 99.2 to the Partnership's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1996 filed with the Securities and Exchange Commission.
99c $681,142 Subordinate Multifamily Note and Addendum, dated May
30, 1996. Reference is made to Exhibit 99.3 to the
Partnership's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996 filed with the Securities and Exchange
Commission.
99d $6,400,000 Promissory Note, dated December 3, 1998. Reference
is made to Exhibit 99.1 of the Partnership's Form 8-K filed
with the Securities and Exchange Commission on December 14,
1998.
</TABLE>
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 334,234
<SECURITIES> 000
<RECEIVABLES> 2,217
<ALLOWANCES> 000
<INVENTORY> 000
<CURRENT-ASSETS> 397,200
<PP&E> 8,855,238
<DEPRECIATION> 6,024,287
<TOTAL-ASSETS> 3,228,151
<CURRENT-LIABILITIES> 147,770
<BONDS> 6,328,343
000
000
<COMMON> 000
<OTHER-SE> (3,247,962)
<TOTAL-LIABILITY-AND-EQUITY> 3,228,151
<SALES> 341,056
<TOTAL-REVENUES> 345,036
<CGS> 000
<TOTAL-COSTS> 155,587
<OTHER-EXPENSES> 118,765
<LOSS-PROVISION> 000
<INTEREST-EXPENSE> 114,718
<INCOME-PRETAX> (44,034)
<INCOME-TAX> 000
<INCOME-CONTINUING> (44,034)
<DISCONTINUED> 000
<EXTRAORDINARY> 000
<CHANGES> 000
<NET-INCOME> (44,034)
<EPS-BASIC> (3.93)
<EPS-DILUTED> (3.93)
</TABLE>
