<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 JUNE 30, 1997
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
----- -----
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REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1997
<TABLE>
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets, June 30, 1997 and December 31, 1996 ............1
Statements of Operations,
Six and Three Months Ended June 30, 1997 and 1996 .......2
Statement of Partners' Deficiency,
Six Months Ended June 30, 1997 ..........................3
Statements of Cash Flows,
Six Months Ended June 30, 1997 and 1996 .................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
JUNE 30, 1997 AND DECEMBER 31, 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
(Unaudited) (Audited)
------------ ------------
<S> <C> <C>
INVESTMENTS IN LIMITED PARTNERSHIPS (Note 2) $ 16,833,786 $ 17,873,759
CASH 496,001 342,631
OTHER ASSETS 105,129 105,129
------------ ------------
TOTAL ASSETS $ 17,434,916 $ 18,321,519
============ ============
LIABILITIES AND PARTNERS' DEFICIENCY
LIABILITIES:
Notes payable (Note 3) $ 24,869,501 $ 24,869,501
Accrued interest payable (Note 3) 24,989,846 24,393,044
Accrued fees and expenses due general partner (Note 4) 3,490,674 3,213,854
Account payable and other liabilities 9,201 22,582
------------ ------------
53,359,222 52,498,981
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 4 and 5)
PARTNERS' DEFICIENCY:
General partners (682,373) (664,905)
Limited partners (35,241,933) (33,512,557)
------------ ------------
(35,924,306) (34,177,462)
------------ ------------
TOTAL LIABILITIES AND PARTNERS'
DEFICIENCY $ 17,434,916 $ 18,321,519
============ ============
</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
SIX AND THREE MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
Six months Three months Six months Three months
ended ended ended ended
June 30, 1997 June 30, 1997 June 30, 1996 June 30, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INTEREST INCOME $ 7,258 $ 4,353 $ 9,313 $ 4,715
----------- ----------- ----------- ---------
OPERATING EXPENSES:
Interest expense 1,172,396 592,842 1,161,714 580,856
Management fees - general partner 371,820 185,910 371,820 185,910
General and administrative 60,669 37,891 45,056 23,970
Legal and accounting 78,004 37,779 63,185 5,410
----------- ----------- ----------- ---------
1,682,889 854,422 1,641,775 796,146
----------- ----------- ----------- ---------
LOSS FROM OPERATIONS (1,675,631) (850,069) (1,632,462) (791,431)
DISTRIBUTIONS FROM LIMITED
PARTNERSHIPS RECOGNIZED AS
INCOME (Note 2) 40,787 16159 57,515 57,515
EQUITY IN LOSS OF LIMITED
PARTNERSHIPS AND AMORTIZATION
OF ACQUISITION COSTS (112,000) (56,000) (66,000) (33,000)
----------- ----------- ----------- ---------
NET LOSS $(1,746,844) $ (889,910) $(1,640,947) $(766,916)
=========== =========== =========== =========
NET LOSS PER LIMITED PARTNERSHIP
INTEREST $ (84) $ (42) $ (79) $ (37)
=========== =========== =========== =========
</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
SIX MONTHS ENDED JUNE 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
--------- ------------ ------------
<S> <C> <C> <C>
PARTNERSHIP INTERESTS
June 30, 1997 20,802
============
PARTNERS' DEFICIENCY
at January 1, 1997 $(664,905) $(33,512,557) $(34,177,462)
Net loss for the six months
ended June 30, 1997 (17,468) (1,729,376) (1,746,844)
--------- ------------ ------------
PARTNERS' DEFICIENCY,
June 30, 1997 $(682,373) $(35,241,933) $(35,924,306)
========= ============ ============
</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
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,746,844) $(1,640,947)
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 112,000 66,000
Increase in accrued interest payable 596,802 822,668
Increase in accrued fees and expenses
due general partner 276,820 276,820
Decrease in accounts payable and other liabilities (13,381) (10,778)
----------- -----------
Net cash used in operating activities (774,603) (486,237)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions from limited partnerships recognized
as a return of capital 927,973 450,920
----------- -----------
NET INCREASE (DECREASE) IN CASH 153,370 (35,317)
CASH, BEGINNING OF PERIOD 342,631 352,652
----------- -----------
CASH, END OF PERIOD $ 496,001 $ 317,335
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for interest $ 575,594 $ 339,046
=========== ===========
</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
JUNE 30, 1997
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, 1996 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
he Partnership at June 30, 1997, and the results of operations for the six
and three months then ended and changes in cash flows for the six 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 and are
being amortized on a straight line basis over the estimated lines of the
underlying assets, which is generally 30 years.
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 (CONTINUED)
JUNE 30, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH
The Partnership has its cash on deposit primarily with one high credit
quality financial institution. Such cash is in excess of the FDIC
insurance limit.
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.
IMPAIRMENT OF LONG-LIVED ASSETS
The Partnership adopted Statement of Financial Accounting Standards No.
121, Account for the Improvement of Long-Lived Assets and for Long-Lived
Assets To Be Disposed Of as of January 1, 1996 without a significant
effect on its financial statements. The Partnership reviews long-lived
assets to determine if there has been any permanent impairment whenever
events or changes in circumstances indicate that the carrying amount of
the asset may not be recoverable. If the sum of the expected future cash
flows is less than the carrying amount of the assets, the Partnership
recognizes an impairment loss.
NOTE 2 - INVESTMENTS 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.
6
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REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)
The following is a summary of the investment in limited partnerships for
the six months ended June 30, 1997:
<TABLE>
<S> <C>
Balance, beginning of period $17,873,759
Cash distributions recognized as a return of capital (927,973)
Amortization of acquisition costs (96,000)
Equity in loss of limited partnerships (16,000)
-----------
Balance, end of period $16,833,786
===========
</TABLE>
The following are unaudited combined estimated statements of operations
for the six months ended June 30, 1997 and 1996 for the limited
partnerships in which the Partnership has investments:
<TABLE>
Six months Three months Six months Three months
ended ended ended ended
June 30, 1997 June 30, 1997 June 30, 1996 June 30, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Rental and other $ 13,928,000 $ 6,964,000 $ 13,572,000 $ 6,786,000
------------ ------------ ------------ -----------
Expenses:
Depreciation 2,736,000 1,368,000 2,698,000 1,349,000
Interest 2,034,000 1,017,000 2,086,000 1,043,000
Operating 9,990,000 4,995,000 9,600,000 4,800,000
------------ ------------ ------------ -----------
14,760,000 7,380,000 14,384,000 7,192,000
------------ ------------ ------------ -----------
Net loss $ (832,000) $ (416,000) $ (812,000) $ (406,000)
============ ============ ============ ===========
</TABLE>
NAPICO, or one of its affiliates, is the general partner and property
management agent for certain of the limited partnerships included above.
The Partnership is undergoing an extensive review of disposition,
refinancing or re-engineering alternatives for the properties in its
Portfolio that are subject to governmental mortgage and rental subsidy
programs. The Partnership has began to incur expenses in connection with
this review by various third party professionals. Amounts incurred to
date are not material to the operating results of the Partnership.
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 is due at maturity
of the notes.
7
<PAGE> 10
REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
NOTE 4 - ACCRUED FEES AND EXPENSES DUE 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 $372,000 for the
six months ended June 30, 1997 and 1996.
The Partnership reimburses NAPICO for certain expenses. The reimbursement
to NAPICO was approximately $22,000 and $20,000 for the six months ended
June 30, 1997 and 1996, respectively, and is included in administrative
expenses.
NOTE 5 - CONTINGENCIES
The corporate general partner of the Partnership and the Partnership are
involved in various 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
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REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
JUNE 30, 1997
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 is undergoing an extensive review of disposition,
refinancing or re-engineering alternatives for the properties in its
Portfolio that are subject to governmental mortgage and rental subsidy
programs. The Partnership has began to incur expenses in connection with
this review by various third party professionals. Amounts incurred to date
are not material to the operating results of the Partnership.
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)
JUNE 30, 1997
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Partnership's Corporate General Partner is involved in various lawsuits,
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)
JUNE 30, 1997
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
---------------------------------------
Bruce Nelson
President
Date:
--------------------------------------
---------------------------------------
Charles H. Boxenbaum
Chief Executive Officer
Date:
--------------------------------------
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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 496,001
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 601,130
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 17,434,916
<CURRENT-LIABILITIES> 9,201
<BONDS> 00
0
0
<COMMON> 0
<OTHER-SE> (35,924,306)
<TOTAL-LIABILITY-AND-EQUITY> 17,434,916
<SALES> 0
<TOTAL-REVENUES> 48,045
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 622,493
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,172,396
<INCOME-PRETAX> (1,746,844)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,746,844)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,746,844)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
