<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of
1934
FOR QUARTER ENDED MARCH 31, 1995
COMMISSION FILE NUMBER 2-84816
REAL ESTATE ASSOCIATES LIMITED VII
A CALIFORNIA LIMITED PARTNERSHIP
I.R.S. EMPLOYER IDENTIFICATION NO. 95-3290316
9090 Wilshire Blvd., Suite 201
Beverly Hills, Calif. 90211
Registrant's Telephone Number,
Including Area Code (310) 278-2191
Securities Registered Pursuant to
Section 12(b) or 12(g) of the Act
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed with the Commission by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding twelve 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
----- -----
<PAGE> 2
REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1995
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<S> <C>
Balance Sheets, March 31, 1995 and December 31, 1994 . . . . . . . . . . . . . . . . . . . . 1
Statements of Operations,
Three Months Ended March 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . 2
Statement of Partners' Deficiency,
Three Months Ended March 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Statements of Cash Flows,
Three Months Ended March 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . 4
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Item 2. Management's Analysis and Discussion of Financial
Condition and Results of Operation . . . . . . . . . . . . . . . . . . . . . . . . . . 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
<PAGE> 3
REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
MARCH 31, 1995 AND DECEMBER 31, 1994
ASSETS
<TABLE>
<CAPTION>
1995 1994
(Unaudited) (Audited)
------------ ------------
<S> <C> <C>
INVESTMENTS IN AND ADVANCES TO LIMITED
PARTNERSHIPS $19,230,365 $ 19,757,594
CASH 517,976 498,954
SHORT-TERM INVESTMENTS 125,000 125,000
OTHER ASSETS 33,129 29,568
------------ ------------
TOTAL ASSETS $ 19,906,470 $ 20,411,116
============ ============
LIABILITIES AND PARTNERS' DEFICIENCY
NOTES PAYABLE $ 24,869,501 $ 24,869,501
ACCRUED INTEREST PAYABLE 20,882,267 20,514,472
ACCRUED FEES DUE GENERAL PARTNER 2,217,484 2,041,574
ACCOUNTS PAYABLE AND OTHER LIABILITIES 31,945 17,101
------------ ------------
48,001,197 47,442,648
PARTNERS' DEFICIENCY (28,094,727) (27,031,532)
------------ ------------
TOTAL LIABILITIES AND PARTNERS' DEFICIENCY $ 19,906,470 $ 20,411,116
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE> 4
REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1995 AND 1994
(Unaudited)
<TABLE>
<CAPTION>
Three months Three months
ended ended
March 31, 1995 March 31, 1994
-------------- --------------
<S> <C> <C>
INTEREST INCOME $ 5,090 $ 2,643
----------- -----------
OPERATING EXPENSES:
Interest expense 586,126 586,126
Management fees 185,910 185,910
General and administrative 22,409 23,707
Legal and accounting 48,840 43,472
---------- -----------
Total operating expenses 843,285 839,215
---------- -----------
LOSS FROM OPERATIONS (838,195) (836,572)
EQUITY IN LOSS OF LIMITED PARTNERSHIPS
AND AMORTIZATION OF ACQUISITION COSTS (225,000) (142,000)
----------- -----------
NET LOSS $(1,063,195) $ (978,572)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 5
REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENT OF PARTNERS' DEFICIENCY
THREE MONTHS ENDED MARCH 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
--------- ------------ ------------
<S> <C> <C> <C>
BALANCE DEFICIENCY,
at January 1, 1995 $(593,446) $(26,438,086) $(27,031,532)
Net loss for the three months
ended March 31, 1995 (10,632) (1,052,563) (1,063,195)
---------- ------------ ------------
BALANCE DEFICIENCY,
at March 31, 1995 $(604,078) $(27,490,649) $(28,094,727)
========= ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 6
REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOW
THREE MONTHS ENDED MARCH 31, 1995 AND 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,063,195) $ (978,572)
Adjustments to reconcile net loss to net
cash used in operating activities:
Equity in loss of limited partnership 206,000 123,000
Amortization of acquisition costs 19,000 19,000
(Increase) decrease in other assets (3,561) -
Increase (decrease) in -
Accrued interest payable 367,795 508,241
Accrued fees due general partner 175,910 185,910
Accounts payable 14,844 6,046
----------- ----------
Net cash used in operating activities (283,207) (136,375)
----------- ----------
CASH FLOWS PROVIDED BY INVESTING ACTIVITIES:
Distributions from limited partnerships
recognized as a return of capital 374,229 552,320
Advances to limited partnership (72,000) -
----------- ----------
Net cash provided by investing activities 302,229 552,320
----------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 19,022 415,945
CASH AND CASH EQUIVALENTS, beginning of period 498,954 609,263
----------- ----------
CASH AND CASH EQUIVALENTS, end of period $ 517,976 $1,025,208
=========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 7
REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
The information contained in the following notes to the financial
statements is condensed from that which would appear in the annual
financial statements; accordingly, the financial statements included
herein should be reviewed in conjunction with the financial statements
and related notes thereto contained in the Annual Report for the year
ended December 31, 1994 prepared by Real Estate Associates Limited VII
(the "Partnership.") Accounting measurements at interim dates
inherently involve greater reliance on estimates than at year end.
The results of operations for the interim periods presented are not
necessarily indicative of the results for the entire year.
In the opinion of the Partnership, the accompanying unaudited
financial statements contain all adjustments (consisting primarily of
normal recurring accruals), necessary to present fairly the financial
position of the Partnership at March 31, 1995, and the results of
operations and changes in cash flows for the three months then ended.
METHOD OF ACCOUNTING FOR INVESTMENT IN LIMITED PARTNERSHIPS
The investment in limited partnerships is accounted for on the equity
method. Acquisition, selection and other costs related to the
acquisition of the projects were capitalized as part of the investment
account.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and bank certificates of
deposit.
SHORT TERM INVESTMENTS
Short term investments consist of bank certificates of deposit with
original maturities ranging from more than three months to twelve
months. The fair value of these securities, which have been
classified as held for sale, approximates their carrying value.
INCOME TAXES
No provision has been made for income taxes in the accompanying
financial statements since such taxes, if any, are the liability of
the individual partners.
5
<PAGE> 8
REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1995
NOTE 2 - INVESTMENT IN LIMITED PARTNERSHIPS
The Partnership holds limited partnership interests in 32 limited
partnerships. In addition, the Partnership holds a general partner
interest in REA IV, NAPICO is also the general partner in REA IV. REA
IV, in turn, holds limited partner interests in 16 additional limited
partnerships. In total, therefore, the Partnership holds interests,
either directly or indirectly through REA IV, in 48 partnerships all
of which own residential rental projects consisting of 4,731 apartment
units. The mortgage loans of these projects are insured by various
governmental agencies.
The Partnership, as a limited partner, is entitled to between 98
percent and 99 percent of the profits and losses in the limited
partnerships it has invested in directly. The Partnership is also
entitled to 99 percent of the profits and losses of REA IV. REA IV
holds a 99 percent interest in each of the limited partnerships in
which it has invested.
Equity in losses of limited partnerships is recognized in the
financial statements until the limited partnership investment account
is reduced to a zero balance. Losses incurred after the limited
partnership investment account is reduced to zero are not recognized.
Distributions from the limited partnerships are accounted for as a
return of capital until the investment balance is reduced to zero.
Subsequent distributions received are recognized as income.
The following is a summary of the investment in limited partnerships
as of March 31, 1995:
<TABLE>
<S> <C>
Balance, beginning of period $19,757,594
Cash distributions recognized as a return of capital (374,229)
Advances to limited partnerships 72,000
Amortization of acquisition costs (19,000)
Equity in loss of limited partnerships (206,000)
-----------
Balance, end of period $19,230,365
===========
</TABLE>
Selected operating information of the limited partnerships in which
the Partnership has investments is estimated as follows:
<TABLE>
<CAPTION>
Three months Three months
ended ended
March 31, 1995 March 31, 1994
-------------- --------------
<S> <C> <C>
Revenues:
Rental and other $6,627,000 $6,561,000
---------- ----------
Expenses:
Depreciation 1,467,000 1,338,000
Interest 968,000 1,075,000
Operating 4,867,000 4,658,000
---------- ----------
7,302,000 7,071,000
---------- ----------
Net loss $ (675,000) $ (510,000)
========== ==========
</TABLE>
6
<PAGE> 9
REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1995
NOTE 3 - NOTES AND CONTRIBUTIONS PAYABLE
Certain of the Partnership's investments involved purchases of
partnership interests from partners who subsequently withdrew from the
operating partnership. The Partnership is obligated on non-recourse
notes payable, bearing interest at 9 1/2 percent, to the sellers of the
Partnership interests. The notes have principal maturity dates ranging
from December 1996 to December 2002 or upon sale or refinancing of the
underlying partnership properties. These obligations are collateralized
by the Partnership's investments in the investee partnerships and are
payable out of cash distributions from the investee partnerships, as
defined in the notes.
Unpaid interest is due at maturity of the notes.
NOTE 4 - ACCRUED FEES AND EXPENSES DUE TO GENERAL PARTNER
Under the terms of the Restated Certificate and Agreement of Limited
Partnership, the Partnership is obligated to the general partners for an
annual management fee equal to .5 percent of the invested assets of the
partnerships. Invested assets is defined as the costs of acquiring
project interests, including the proportionate amount of the mortgage
loans related to the Partnership's interests in the capital accounts of
the respective partnerships. The fee was approximately $186,000 for the
three months ended March 31, 1995 and 1994.
The Partnership reimburses NAPICO for certain expenses. In 1995, the
reimbursement to NAPICO of $9,975 was paid and included in the
Partnership's operating expenses.
NOTE 5 - CONTINGENCIES
The corporate general partner of the Partnership is a plaintiff in
various lawsuits and has also been a defendant in other lawsuits arising
from transactions in the ordinary course of business. In the opinion of
management, and the corporate general partner, the claims will not result
in any material liability to the Partnership.
7
<PAGE> 10
REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1995
ITEM 2. MANAGEMENT'S ANALYSIS AND DISCUSSION OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's primary source of funds is the proceeds of its public
offering. Other sources include interest income earned from investing
available cash and distributions from limited partnerships in which the
Partnership has invested. It is not expected that any of the local
limited partnerships in which the Partnership has invested will generate
cash flow sufficient to provide for distributions to limited partners in
any material amount.
Certain of the Partnership's investments involved purchases of
partnership interests from partners who subsequently withdrew from the
operating partnership. The Partnership is obligated on non-recourse
notes payable, bearing interest at 9 1/2 percent, to the sellers of the
Partnership interests. The notes have principal maturity dates ranging
from December 1996 to December 2002 or upon sale or refinancing of the
underlying partnership properties. These obligations are collateralized
by the Partnership's investments in the investee partnerships and are
payable out of cash distributions from the investee partnerships, as
defined in the notes.
The Partnership will be able to meet its equity contribution commitments
as they become due from available cash. There are no expectations that
the Partnership will require the use of outside financing to satisfy any
of its current obligations.
RESULTS OF OPERATIONS
The Partnership was formed to provide various benefits to its partners as
discussed in Item 1 in the annual 10-K report. It is anticipated that
the local partnerships in which the Partnership has invested could
produce tax losses for as long as 20 years. The Partnership will seek to
defer income taxes from sale by not selling any projects or project
interests within 10 years, except to qualified tenant cooperatives, or
when proceeds of the sale would supply sufficient cash to enable the
Partners to pay applicable taxes.
Tax benefits will decline over time as the advantages of accelerated
depreciation are greatest in the earlier years, as deductions for
interest expense decrease as mortgage principal is amortized, and as the
Tax Reform Act of 1986 limits the deductions available.
The Partnership accounts for its investments in the local limited
partnerships on the equity method, thereby adjusting its investment
balance by its proportionate share of the income or loss of the local
limited partnerships.
8
<PAGE> 11
REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1995
ITEM 2. MANAGEMENT'S ANALYSIS AND DISCUSSION OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Distributions received from limited partnerships are recognized as return
of capital until the investment balance has been reduced to zero or to a
negative amount equal to future capital contributions required.
Subsequent distributions received are recognized as income.
Except for certificates of deposit and money market funds, the
Partnership's investments are entirely interests in other limited and
general partnerships owning government assisted projects. Available cash
is invested in money market funds and certificates of deposit which
provide interest income as reflected in the statement of operations.
These temporary investments can be easily converted to cash to meet
obligations as they arise. The Partnership intends to continue investing
available funds in this manner.
The management fee, a recurring Partnership expense, is payable monthly
to the corporate general partner of the Partnership and is calculated as
a percentage of the Partnership's invested assets. The fee is payable
beginning with the month following the Partnership's initial investment
in a local partnership.
Operating expenses consist substantially of general and administrative
expenses of the Partnership and professional fees or services rendered to
the Partnership.
The Partnership, as a limited partner in the local partnerships in which
it has invested, is subject to the risks incident to the construction,
management and ownership of improved real estate. The Partnership
investments are also subject to adverse general economic conditions and,
accordingly, the status of the national economy, including substantial
unemployment and concurrent inflation, could increase vacancy levels,
rental payment defaults and operating expenses, which in turn, could
substantially increase the risk of operating losses for the projects.
9
<PAGE> 12
REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1995
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As of March 31, 1995, the Partnership's Corporate General Partner was a
plaintiff or defendant in several suits, including the following related to
REAL VII:
Genevieve James v. Southpark Apartments, NAPICO et. al., Case No. 94CV112817,
Court of Common Pleas, Lorain County, Ohio. On August 18, 1994, the Plaintiff
filed a lawsuit. Plaintiff alleges that on March 14, 1994, she was on the
threshold steps to the common entrance to the apartment complex and fell due to
a loose step thereby causing permanent bodily injuries and suffering. The
Plaintiff is seeking judgment in the amount of $25,000. This matter was
submitted to Jack J. Stanton Insurance Agency (Nationwide Insurance Company)
and subsequently forwarded to Richard Gemperline Esq. In the opinion of Mr.
Gemperline and management, this case is not expected to result in any material
exposure to NAPICO or the Partnership.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) No exhibits are required per the provision of item 7 of regulation
S-K.
10
<PAGE> 13
REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 1995
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.
REAL ESTATE ASSOCIATES LIMITED VII
(a California limited partnership)
By: National Partnership Investments Corp.,
General Partner
Date: 5/12/95
--------------------------------------------
By: /s/ BRUCE E. NELSON
--------------------------------------------
Bruce E. Nelson
President
Date: 5/17/95
--------------------------------------------
By: /s/ SHAWN HORWITZ
--------------------------------------------
Shawn Horwitz
Executive Vice President and
Chief Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
PARTNERSHIP'S STATEMENTS OF EARNINGS AND BALANCE SHEETS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 517,976
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 642,976
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 19,906,470
<CURRENT-LIABILITIES> 31,945
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> (28,094,727)
<TOTAL-LIABILITY-AND-EQUITY> 19,906,470
<SALES> 0
<TOTAL-REVENUES> 5,090
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 482,159
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 586,126
<INCOME-PRETAX> (1,063,195)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,063,195)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,063,195)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
