<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended SEPTEMBER 30, 1996
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
Indicate by check mark whether the registrant (1) has filed all documents and
reports required to be filed 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 SEPTEMBER 30, 1996
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets, September 30, 1996 and December 31, 1995 . . . . . . . . . . . . . . . . . 1
Statements of Operations,
Nine and Three Months Ended September 30, 1996 and 1995 . . . . . . . . . . . . . . . 2
Statement of Partners' Deficiency,
Nine Months Ended September 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . 3
Statements of Cash Flows,
Nine Months Ended September 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . 4
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation . . . . . . . . . . . . . . . . . . . . . . . . . . 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
<PAGE> 3
REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
SEPTEMBER 30, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
(Unaudited) (Audited)
-------------- --------------
<S> <C> <C>
INVESTMENTS IN LIMITED PARTNERSHIPS (Note 2) $ 18,018,152 $ 18,600,961
CASH (Note 1) 248,564 352,652
SHORT TERM INVESTMENTS (Note 1) 125,000 125,000
OTHER ASSETS 105,129 105,129
-------------- --------------
TOTAL ASSETS $ 18,496,845 $ 19,183,742
============== ==============
LIABILITIES AND PARTNERS' DEFICIENCY
LIABILITIES:
NOTES PAYABLE (Note 3) $ 24,869,501 $ 24,869,501
ACCRUED INTEREST PAYABLE (Note 3) 23,814,770 22,427,527
ACCRUED FEES DUE GENERAL PARTNER (Note 4) 3,027,943 2,630,214
ACCOUNT PAYABLE AND OTHER LIABILITIES 589 13,519
-------------- --------------
51,712,803 49,940,761
-------------- --------------
PARTNERS' DEFICIENCY:
General partners (655,290) (630,701)
Limited partners (32,560,668) (30,126,318)
-------------- --------------
(33,215,958) (30,757,019)
-------------- --------------
TOTAL LIABILITIES AND PARTNERS'
DEFICIENCY $ 18,496,845 $ 19,183,742
============== ==============
</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
NINE AND THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
Nine months Three months Nine months Three months
ended ended ended ended
Sept. 30, 1996 Sept. 30, 1996 Sept. 30, 1995 Sept. 30, 1995
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
INTEREST INCOME $ 13,643 $ 4,330 $ 15,849 $ 4,854
--------------- --------------- --------------- ---------------
OPERATING EXPENSES:
Interest expense 1,742,569 580,856 1,742,569 580,856
Management fees - general partner 557,730 185,910 557,730 185,910
General and administrative 66,078 21,023 76,914 25,538
Legal and accounting 64,720 1,535 58,213 2,000
--------------- --------------- --------------- ---------------
2,431,097 789,324 2,435,426 794,304
--------------- --------------- --------------- ---------------
LOSS FROM OPERATIONS (2,417,454) (784,994) (2,419,577) (789,450)
DISTRIBUTIONS
RECOGNIZED AS INCOME 57,515 - 23,497 -
EQUITY IN LOSS OF
LIMITED PARTNERSHIPS
AND AMORTIZATION
OF ACQUISITION COSTS (99,000) (33,000) (675,000) (225,000)
--------------- --------------- --------------- ---------------
NET LOSS $ (2,458,939) $ (817,994) $ (3,071,080) $ (1,014,450)
=============== =============== =============== ===============
NET LOSS PER LIMITED
PARTNERSHIP INTEREST $ (118) $ (39) $ (148) $ (49)
=============== =============== =============== ===============
</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
NINE MONTHS ENDED SEPTEMBER 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
------------- ------------- -------------
<S> <C> <C> <C>
PARTNERSHIP INTERESTS
September 30, 1996 20,802
=============
PARTNERS' DEFICIENCY
at January 1, 1996 $ (630,701) $ (30,126,318) $ (30,757,019)
Net loss for the nine months
ended September 30, 1996 (24,589) (2,434,350) (2,458,939)
------------- ------------- -------------
PARTNERS' DEFICIENCY,
September 30, 1996 $ (655,290) $ (32,560,668) $ (33,215,958)
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,458,939) $ (3,071,080)
Adjustments to reconcile net loss to net cash
used in operating activities:
Equity in loss of limited partnerships
and amortization of additional basis
and acquisition costs 99,000 675,000
Increase in other assets - (3,561)
Increase in accrued interest payable 1,387,243 1,388,795
Increase in accrued fees and expenses
due general partner 397,729 522,730
Decrease in accounts payable and other liabilities (12,930) (5,400)
------------- -------------
Net cash used in operating activities (587,897) (493,516)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions from limited partnerships recognized
as a return of capital 483,809 635,201
Advances to limited partnership - (72,000)
Net cash provided by investing activities 483,809 563,201
------------- -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (104,088) 69,685
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 352,652 498,954
------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 248,564 $ 568,639
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
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, 1995 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 September 30, 1996, and the results of
operations for the nine and three months then ended and changes in
cash flows for the nine months then ended.
The general partners have a 1 percent interest in profits and losses
of the Partnership. The limited partners have the remaining 99
percent interest which is allocated in proportion to their respective
individual investments. National Partnership Investments Corp.
(NAPICO) is the corporate general partner of the Partnership.
USES OF ESTIMATES
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 reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates.
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.
NET LOSS PER LIMITED PARTNERSHIP INTEREST
Net loss per limited partnership interest was computed by dividing the
limited partners' share of net loss by the number of limited
partnership interests outstanding during the year. The number of
limited partnership interests was 20,802 for the periods presented.
5
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REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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 September 30, 1996:
<TABLE>
<S> <C>
Balance, beginning of period $18,600,961
Cash distributions recognized as a return of capital (483,809)
Amortization of acquisition costs (228,000)
Equity in income of limited partnerships 129,000
-----------
Balance, end of period $18,018,152
===========
</TABLE>
6
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REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
NOTE 2 - INVESTMENT IN LIMITED PARTNERSHIPS
The following are unaudited combined estimated statements of
operations for the limited partnerships in which the Partnership has
investments:
<TABLE>
<CAPTION>
Nine months Three months Nine months Three months
ended ended ended ended
Sept. 30, 1996 Sept. 30, 1996 Sept. 30, 1995 Sept. 30, 1995
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Rental and other $20,358,000 $6,786,000 $19,881,000 $6,627,000
----------- ---------- ----------- ----------
Expenses:
Depreciation 4,047,000 1,349,000 4,401,000 1,467,000
Interest 3,129,000 1,043,000 2,904,000 968,000
Operating 14,400,000 4,800,000 14,601,000 4,867,000
----------- ---------- ----------- ----------
21,575,000 7,192,000 21,906,000 7,302,000
----------- ---------- ----------- ----------
Net loss $(1,218,000) $ (406,000) $(2,025,000) $ (675,000)
============ =========== =========== ==========
</TABLE>
NAPICO, or one of its affiliates, is the general partner and property
management agent for certain of the limited partnerships included
above.
NOTE 3 - NOTES 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 of $24,869,501, bearing interest at 9 1/2 percent, to
the sellers of the Partnership interests. The notes have principal
maturity dates ranging from December 1999 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, was $23,814,770 at September 30, 1996, and 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 NAPICO 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 $557,730 for the nine
months ended September 30, 1996 and 1995.
7
<PAGE> 10
REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
NOTE 4 - ACCRUED FEES AND EXPENSES DUE TO GENERAL PARTNER (CONTINUED)
The Partnership reimburses NAPICO for certain expenses. The
reimbursement to NAPICO was approximately $32,600 and $29,900 for the
nine months ended September 30, 1996 and 1995, respectively, and is
included in administrative expenses.
NOTE 5 - CONTINGENCIES
The corporate general partner of the Partnership and the Partnership
are plaintiffs in various lawsuits and have also been named defendants
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.
NOTE 6 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosure about
Fair Value of Financial Instruments," requires disclosure of fair
value information about financial instruments, when it is practicable
to estimate that value. The notes payable are collateralized by the
Partnership's investments in investee limited partnerships and are
payable only out of cash distributions from the investee partnerships.
The operations generated by the investee limited partnerships, which
account for the Partnership's primary source of revenues, are subject
to various government rules, regulations and restrictions which make
it impracticable to estimate the fair value of the notes payable and
related accrued interest and amounts due general partner. The
carrying amount of other assets and liabilities reported on the
balance sheets that require such disclosure approximates fair value
due to their short-term maturity.
8
<PAGE> 11
REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 1996
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's primary sources of funds 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.
RESULTS OF OPERATIONS
Partnership revenues consist primarily of interest income earned on
certificates of deposit and other temporary investment of funds not
required for investment in local partnerships.
Operating expenses consist primarily of recurring general and
administrative expenses and professional fees for services rendered to
the Partnership. In addition, an annual Partnership management fee in
an amount equal to .5 percent of invested assets is payable to the
corporate general partner.
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. Losses incurred after the limited partnership
account is reduced to zero are not recognized.
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.
9
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REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 1996
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As of September 30, 1996, the Partnership's Corporate General Partner was a
plaintiff or defendant in several suits, including the following related to
REAL VII:
John Mitchell v. Oakwood Apartments, NAPICO et al., Case No. 94CV112108, Court
of Common Pleas, Lorain County, Ohio. On March 31, 1994, the Plaintiff filed a
lawsuit alleging that on May 5, 1992, while returning to his apartment (Oakwood
Apartments, Lorain, Ohio) he tripped and sustained mental and physical
injuries. The Plaintiff voluntarily dismissed his action and a Notice of
Voluntary Dismissal without prejudice was filed. The Plaintiff, however,
refiled the action which remains pending.
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
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REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 1996
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:
-----------------------------------------
By:
-----------------------------------------
Bruce Nelson
President
Date:
-----------------------------------------
By:
-----------------------------------------
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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 248,564
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 366,213
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 18,496,845
<CURRENT-LIABILITIES> 589
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (33,215,958)
<TOTAL-LIABILITY-AND-EQUITY> 18,496,845
<SALES> 0
<TOTAL-REVENUES> 71,158
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 787,528
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,742,569
<INCOME-PRETAX> 2,458,939
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,458,939
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,458,939
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
