<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, 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[ ]
<PAGE> 2
REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Balance Sheets, September 30, 1997 and December 31, 1996 ........1
Statements of Operations,
Nine and Three Months Ended September 30, 1997 and 1996 ...2
Statement of Partners' Deficiency,
Nine Months Ended September 30, 1997 ......................3
Statements of Cash Flows,
Nine Months Ended September 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
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
(Unaudited) (Audited)
------------- -------------
<S> <C> <C>
INVESTMENTS IN LIMITED PARTNERSHIPS (Note 2) $ 16,764,277 $ 17,873,759
CASH 350,383 342,631
OTHER ASSETS 105,129 105,129
------------ ------------
TOTAL ASSETS $ 17,219,789 $ 18,321,519
============ ============
LIABILITIES AND PARTNERS' DEFICIENCY
LIABILITIES:
Notes payable (Note 3) $ 24,869,501 $ 24,869,501
Accrued interest payable (Note 3) 25,566,447 24,393,044
Accrued fees and expenses due general partner (Note 4) 3,576,584 3,213,854
Account payable and other liabilities 27,308 22,582
------------ ------------
54,039,840 52,498,981
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 4 and 5)
PARTNERS' DEFICIENCY:
General partners (691,331) (664,905)
Limited partners (36,128,720) (33,512,557)
------------ ------------
(36,820,051) (34,177,462)
------------ ------------
TOTAL LIABILITIES AND PARTNERS'
DEFICIENCY $ 17,219,789 $ 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
NINE AND THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
Nine months Three months Nine months Three months
ended ended ended ended
Sept. 30, 1997 Sept. 30, 1997 Sept. 30, 1996 Sept. 30, 1996
------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
INTEREST INCOME $ 11,744 $ 4,486 $ 13,643 $ 4,330
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Interest expense 1,758,594 586,198 1,742,569 580,856
Management fees - general partner 557,730 185,910 557,730 185,910
General and administrative 93,834 33,165 66,078 21,023
Legal and accounting 122,962 44,958 64,720 1,535
----------- ----------- ----------- -----------
2,533,120 850,231 2,431,097 789,324
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (2,521,376) (845,745) (2,417,454) (784,994)
DISTRIBUTIONS FROM LIMITED
PARTNERSHIPS RECOGNIZED AS
INCOME (Note 2) 46,787 6,000 57,515 --
EQUITY IN LOSS OF LIMITED
PARTNERSHIPS AND AMORTIZATION
OF ACQUISITION COSTS (168,000) (56,000) (99,000) (33,000)
----------- ----------- ----------- -----------
NET LOSS $(2,642,589) $ (895,745) $(2,458,939) $ (817,994)
=========== =========== =========== ===========
NET LOSS PER LIMITED PARTNERSHIP
INTEREST $ (127) $ (42) $ (118) $ (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
NINE MONTHS ENDED SEPTEMBER 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
----------- ------------- -------------
<S> <C> <C> <C>
PARTNERSHIP INTERESTS
September 30, 1997 20,802
============
PARTNERS' DEFICIENCY
at January 1, 1997 $ (664,905) $(33,512,557) $(34,177,462)
Net loss for the nine months
ended September 30, 1997 (26,426) (2,616,163) (2,642,589)
------------ ------------ ------------
PARTNERS' DEFICIENCY,
September 30, 1997 $ (691,331) $(36,128,720) $(36,820,051)
============ ============ ============
</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
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,651,218) $(2,458,939)
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 168,000 99,000
Increase in accrued interest payable 1,173,403 1,387,243
Increase in accrued fees and expenses
due general partner 362,730 397,729
Increase (decrease) in accounts payable and other liabilities 13,355 (12,930)
----------- -----------
Net cash used in operating activities (933,730) (587,897)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions from limited partnerships recognized
as a return of capital 941,482 483,809
----------- -----------
NET INCREASE (DECREASE) IN CASH 7,752 (104,088)
CASH, BEGINNING OF PERIOD 342,631 352,652
----------- -----------
CASH, END OF PERIOD $ 350,383 $ 248,564
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for interest $ 585,191 $ 355,326
=========== ===========
</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
SEPTEMBER 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 September 30, 1997, 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 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
<PAGE> 8
REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 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)
SEPTEMBER 30, 1997
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)
The following is a summary of the investment in limited partnerships for
the nine months ended September 30, 1997:
<TABLE>
<CAPTION>
<S> <C>
Balance, beginning of period $ 17,873,759
Cash distributions recognized as a return of capital (941,482)
Amortization of acquisition costs (144,000)
Equity in loss of limited partnerships (24,000)
------------
Balance, end of period $ 16,764,277
============
</TABLE>
The following are unaudited combined estimated statements of operations for
the nine months ended September 30, 1997 and 1996 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, 1997 Sept. 30, 1997 Sept. 30, 1996 Sept. 30, 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Rental and other $ 20,892,000 $ 6,964,000 $ 20,358,000 $ 6,786,000
Expenses:
Depreciation 4,104,000 1,368,000 4,047,000 1,349,000
Interest 3,051,000 1,017,000 3,129,000 1,043,000
Operating 14,985,000 4,995,000 14,400,000 4,800,000
------------ ------------ ------------ ------------
22,140,000 7,380,000 21,575,000 7,192,000
------------ ------------ ------------ ------------
Net loss $ (1,248,000) $ (416,000) $ (1,218,000) $ (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 which it
has invested. The Partnership has began to incur expenses in connection
with this review by various third party professionals, which amounted to
$36,224 for the nine months ended September 30, 1997.
7
<PAGE> 10
REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
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.
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 $558,000 for the nine
months ended September 30, 1997 and 1996.
The Partnership reimburses NAPICO for certain expenses. The reimbursement
to NAPICO was approximately $32,500 and $32,600 for the nine months ended
September 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)
SEPTEMBER 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 which it
has invested. The Partnership has began to incur expenses in connection
with this review by various third party professionals, which amounted to
$36,224 for the nine months ended September 30, 1997.
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, 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)
SEPTEMBER 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-10-1997
<PERIOD-END> SEP-30-1997
<CASH> 350,383
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 455,512
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 17,219,789
<CURRENT-LIABILITIES> 27,308
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (36,820,051)
<TOTAL-LIABILITY-AND-EQUITY> 17,219,789
<SALES> 0
<TOTAL-REVENUES> 58,531
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 942,526
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,758,594
<INCOME-PRETAX> (2,642,589)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,642,589)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,642,589)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
