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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 JUNE 30, 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.
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Exact Name of Registrant as Specified in its Charter
Texas 75-1845682
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(State or other jurisdiction (I.R.S. Employer
of incorporation of organization) Identification No.)
5520 LBJ Freeway, Suite 500, Dallas, Texas 75240
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(Address of principal executive offices) (Zip code)
(972) 404-7100
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(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.
BALANCE SHEETS
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
2000 1999
(UNAUDITED)
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<S> <C> <C>
ASSETS
Real estate, at cost:
Land $ 962,216 $ 962,216
Building and improvements 7,890,916 7,863,701
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8,853,132 8,825,917
Less accumulated depreciation (6,095,694) (5,941,608)
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2,757,438 2,884,309
Cash and cash equivalents 142,480 203,840
Cash held in escrow 154,869 54,365
Restricted cash - replacement reserve 46,352 39,414
Accounts receivable 6,874 5,097
Other assets 54,884 69,716
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TOTAL ASSETS $ 3,162,897 $ 3,256,741
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LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
First mortgage note payable $ 6,312,979 $ 6,343,433
Accounts payable:
Trade 32,084 19,022
Affiliates 42,165 51,354
Accrued expenses and other liabilities 111,590 46,860
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Total Liabilities 6,498,818 6,460,669
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Partners' Deficit:
General Partners (119,971) (118,651)
Limited Partners (11,080 units outstanding) (3,215,950) (3,085,277)
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Total Partners' Deficit (3,335,921) (3,203,928)
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TOTAL LIABILITIES AND PARTNERS' DEFICIT $ 3,162,897 $ 3,256,741
============ ============
</TABLE>
STATEMENT OF PARTNERS' DEFICIT (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2000
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<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
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<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1999 $ (118,651) $ (3,085,277) $ (3,203,928)
Net loss (1,320) (130,673) (131,993)
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BALANCE AT JUNE 30, 2000 $ (119,971) $ (3,215,950) $ (3,335,921)
============ ============ ============
</TABLE>
See accompanying notes to the financial statements. 2
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S/M REAL ESTATE FUND VII, LTD.
STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
INCOME
Rental $ 337,052 $ 331,126 $ 678,108 $ 657,574
Interest and other 4,709 1,842 8,689 4,836
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Total Income 341,761 332,968 686,797 662,410
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EXPENSES
Property operating 190,382 201,436 345,969 374,780
Interest 114,444 115,469 229,162 229,937
Depreciation and amortization 106,817 100,775 209,591 200,780
General and administrative 18,077 11,337 34,068 38,934
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Total Expenses 429,720 429,017 818,790 844,431
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NET LOSS $ (87,959) $ (96,049) $ (131,993) $ (182,021)
========== ========== ========== ==========
NET LOSS ALLOCATED:
To the General Partners $ (880) $ (960) $ (1,320) $ (1,820)
To the Limited Partners (87,079) (95,089) (130,673) (180,201)
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$ (87,959) $ (96,049) $ (131,993) $ (182,021)
========== ========== ========== ==========
PER LIMITED PARTNERSHIP UNIT
(11,080 OUTSTANDING) $ (7.86) $ (8.58) $ (11.79) $ (16.26)
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</TABLE>
See accompanying notes to the financial statements. 3
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S/M REAL ESTATE FUND VII, LTD.
STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (131,993) $ (182,021)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 209,591 200,780
Loss on retirement of asset 25,966 14,410
Increase (decrease) in cash arising from changes in
operating assets and liabilities:
Cash held in escrow (100,504) (80,832)
Accounts receivable (1,777) 3,139
Other assets 11,775 (8,716)
Accounts payable 3,873 (10,771)
Accrued expenses and other liabilities 64,730 53,449
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Net cash provided by (used in) operating activities 81,661 (10,562)
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CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in restricted cash - replacement reserve (6,938) 51,099
Additions to real estate (105,629) (126,283)
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Net cash used in investing activities (112,567) (75,184)
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CASH FLOWS FROM FINANCING ACTIVITIES - Payments of principal
on first mortgage note payable (30,454) (29,679)
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Net decrease in cash and cash equivalents (61,360) (115,425)
Cash and cash equivalents, beginning of period 203,840 274,735
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 142,480 $ 159,310
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 229,162 $ 229,937
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SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES:
Write-off of fully depreciated building improvements $ 18,567 $ --
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</TABLE>
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 June 30, 2000 and the results of operations for the
three and six months ended June 30, 2000 and 1999, cash flows for the six
months ended June 30, 2000 and 1999, and the statement of partners' deficit
for the six months ended June 30, 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 six months ended June 30, 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 $5,060 and $5,800, respectively. Property and construction management fees
earned by an affiliate of the General Partners were $31,585 and $26,556 for
the six months ended June 30, 2000 and 1999, respectively.
The financial information included in this interim report as of June 30, 2000
and for the three and six months ended June 30, 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
funds for exterior improvements on the Partnership's property, Fifth Avenue
Apartments, ("Fifth Avenue"), a 198-unit apartment complex located in San
Antonio, Texas, 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 its total
annual 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 June 30, 2000, the balance in
this replacement reserve account was $46,352.
Cash and cash equivalents totaled $142,480 at June 30, 2000, compared to
$203,840 at December 31, 1999. The $61,360 decrease is primarily attributable
to fixed asset additions offset by an increase in cash provided by
operations.
Cash held in escrow increased to $154,869 at June 30, 2000 from $54,365 at
December 31, 1999. The $100,504 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 increased to $46,352 at June 30, 2000,
from $39,414 at December 31, 1999. The $6,938 increase is attributable to the
monthly contributions to the replacements reserve, offset in part by the
release of $17,598 for replacements and completed required lender repairs in
accordance with the terms of the loan agreement.
Other assets decreased from $69,716 at December 31, 1999, to $54,884 at June
30, 2000. The decrease is primarily due to decreases in prepaid insurance and
other prepaid expenses.
Accounts receivable totaled $6,874 at June 30, 2000, compared to $5,097 at
December 31, 1999. The increase is primarily attributable to the timing of
tenant rental receipts. Accounts payable totaled $74,249 at June 30, 2000,
compared to $70,376 at December 31, 1999.
Accrued expenses and other liabilities totaled $111,590 at June 30, 2000,
compared to $46,860 at December 31, 1999. The change is primarily
attributable to the timing of payments for real estate taxes, accounting
fees, and administrative costs.
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
Operations resulted in net losses of $87,959 and $131,993 for the three and
six-month periods ended June 30, 2000, respectively, compared with net losses
of $96,049 and $182,021 for the three and six-month periods ended June 30,
1999, respectively. The decreases for the three and six-months ended June 30,
2000 from the corresponding periods in 1999 are primarily attributable to
decreases in property operating expenses.
6
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S/M REAL ESTATE FUND VII, LTD.
Rental income totaled $337,052 and $678,108 for the three and six-month
periods ended June 30, 2000, respectively, compared to $331,126 and $657,574,
respectively, for the corresponding periods in 1999. Occupancy at Fifth
Avenue averaged approximately 93% for both the three and six-month periods
ended June 30, 2000, respectively, compared to 96% and 94% for the
corresponding periods in 1998, respectively. The average rental income per
occupied square foot at Fifth Avenue was $8.60 and $8.71 for the three and
six months ended June 30, 2000, respectively, compared to $8.15 and $8.30,
respectively, for the corresponding periods 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 and six-month periods ended June 30, 2000 were
$429,720 and $818,790, respectively, compared to $429,017 and $844,431,
respectively, for the three and six-month periods ended June 30, 1999. The
decrease for the six-month period in 2000 is primarily due to a decrease in
property operating 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 and six-month periods ended June 30, 2000 were
$190,382 and $345,969, respectively, compared to $201,436 and $374,780,
respectively, for the three and six-month periods ended June 30, 1999. The
decreases for the 2000 periods primarily are attributable to lower repairs
and maintenance costs for apartment preparation and lower insurance costs,
offset in part by an increase in retirement of assets of $11,556.
General and administrative expenses for the three and six-month periods ended
June 30, 2000 were $18,077 and $34,068, respectively, compared to $11,337 and
$38,934, respectively, for the three and six-month periods ended June 30,
1999. The decrease for the six-month period in 2000 is primarily related 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
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 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 June 30, 2000.
9
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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 2, 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: August 2, 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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EXHIBIT
NO. DESCRIPTION
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<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
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 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 Registrant's Form 8-K filed with the
Securities and Exchange Commission on December 14, 1998.
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