<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, 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
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, 1996
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets, March 31, 1996 and December 31, 1995 ...... 1
Statements of Operations,
Three Months Ended March 31, 1996 and 1995 ......... 2
Statement of Partners' Deficiency,
Three Months Ended March 31, 1996 .................. 3
Statements of Cash Flows,
Three Months Ended March 31, 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
<PAGE> 3
REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS
1996 1995
(UNAUDITED) (AUDITED)
------------ ------------
<S> <C> <C>
INVESTMENTS IN LIMITED PARTNERSHIPS $ 18,140,286 $ 18,600,961
CASH 432,185 352,652
SHORT TERM INVESTMENTS 125,000 125,000
OTHER ASSETS 105,129 105,129
------------ ------------
TOTAL ASSETS $ 18,802,600 $ 19,183,742
============ ============
LIABILITIES AND PARTNERS' DEFICIENCY
LIABILITIES:
NOTES PAYABLE $ 24,869,501 $ 24,869,501
ACCRUED INTEREST PAYABLE 22,769,138 22,427,527
ACCRUED FEES DUE GENERAL PARTNER 2,756,124 2,630,214
ACCOUNT PAYABLE AND OTHER LIABILITIES 38,886 13,519
------------ ------------
50,433,649 49,940,761
------------ ------------
PARTNERS' (DEFICIENCY):
General partners (639,441) (630,701)
Limited partners (30,991,608) (30,126,318)
------------ ------------
(31,631,049) (30,757,019)
------------ ------------
TOTAL LIABILITIES AND PARTNERS'
DEFICIENCY $ 18,802,600 $ 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
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
--------- -----------
<S> <C> <C>
INTEREST INCOME $ 4,597 $ 5,090
--------- -----------
OPERATING EXPENSES:
Interest expense 580,856 586,126
Management fees - general partner 185,910 185,910
General and administrative 21,086 22,409
Legal and accounting 57,775 48,840
--------- -----------
845,627 843,285
--------- -----------
LOSS FROM OPERATIONS (841,030) (838,195)
EQUITY IN LOSS OF LIMITED
PARTNERSHIPS AND AMORTIZATION
OF ACQUISITION COSTS (33,000) (225,000)
--------- -----------
NET LOSS $(874,030) $(1,063,195)
========= ===========
NET LOSS PER LIMITED PARTNERSHIP
INTEREST $ (42) $ (51)
========= ===========
</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, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
---------- ------------ ------------
<S> <C> <C> <C>
PARTNERSHIP INTERESTS
March 31, 1996 20,802
============
PARTNERS' DEFICIENCY
at January 1, 1996 $(630,701) $(30,126,318) $(30,757,019)
Net loss for the three months
ended March 31, 1996 (8,740) (865,290) (874,030)
--------- ------------ ------------
PARTNERS' DEFICIENCY,
March 31, 1996 $(639,441) $(30,991,608) $(31,631,049)
========= ============ ============
</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 FLOWS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
--------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(874,030) $(1,063,195)
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 33,000 225,000
Increase in other assets -- (3,561)
Increase in accrued interest payable 341,611 367,795
Increase in accrued fees and expenses
due general partner 125,910 175,910
Increase in accounts payable and other liabilities 25,367 14,844
--------- -----------
Net cash used in operating activities (348,142) (283,207)
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions from limited partnerships recognized
as a return of capital 427,675 374,229
Advances to limited partnership -- (72,000)
--------- -----------
Net cash provided by investing activities 427,675 302,229
--------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 79,533 19,022
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 352,652 498,954
--------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 432,185 $ 517,976
========= ===========
</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, 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 March 31, 1996, and the results of operations for the three
months then ended and changes in cash flows for the three 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
<PAGE> 8
REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 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
March 31, 1996:
<TABLE>
<S> <C>
Balance, beginning of period $18,600,961
Cash distributions recognized as a return of capital (427,675)
Amortization of acquisition costs (76,000)
Equity in loss of limited partnerships 43,000
-----------
Balance, end of period $18,140,286
===========
</TABLE>
6
<PAGE> 9
REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 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>
Three months Three months
ended ended
March 31, 1996 March 31, 1995
-------------- --------------
<S> <C> <C>
Revenues:
Rental and other $6,786,000 $6,627,000
---------- ----------
Expenses:
Depreciation 1,349,000 1,467,000
Interest 876,000 968,000
Operating 4,967,000 4,867,000
---------- ----------
7,192,000 7,302,000
---------- ----------
Net loss $ (406,000) $ (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 $22,769,138 at March 31, 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 approximately $186,000 for the three months ended March 31, 1996 and
1995.
7
<PAGE> 10
REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
NOTE 4 - ACCRUED FEES AND EXPENSES DUE TO GENERAL PARTNER (CONTINUED)
The Partnership reimburses NAPICO for certain expenses. The reimbursement to
NAPICO was $9,975 for the three months ended March 31, 1996 and 1995, 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)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 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 requred
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
<PAGE> 12
REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 1996
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As of March 31, 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
<PAGE> 13
REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 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
<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-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 432,185
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 662,314
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 18,802,60
<CURRENT-LIABILITIES> 38,886
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (31,631,049)
<TOTAL-LIABILITY-AND-EQUITY> 18,802,600
<SALES> 0
<TOTAL-REVENUES> 4,597
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 297,771
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 580,856
<INCOME-PRETAX> (874,030)
<INCOME-TAX> 0
<INCOME-CONTINUING> (874,030)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (874,030)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
