<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, 1998
Commission File Number 0-13810
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 JUNE 30, 1998
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets, June 30, 1998 and December 31, 1997 ...............1
Statements of Operations,
Six and Three Months Ended June 30, 1998 and 1997 ..........2
Statement of Partners' Deficiency,
Six Months Ended June 30, 1998 .............................3
Statements of Cash Flows,
Six Months Ended June 30, 1998 and 1997 ....................4
Notes to Financial Statements .....................................5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation ........................11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................13
Item 6. Exhibits and Reports on Form 8-K.................................13
Signatures .............................................................14
</TABLE>
<PAGE> 3
REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
JUNE 30, 1998 AND DECEMBER 31, 1997
ASSETS
<TABLE>
<CAPTION>
1998
(Unaudited) 1997
------------ ------------
<S> <C> <C>
INVESTMENTS IN LIMITED PARTNERSHIPS (Note 2) $ 16,507,530 $ 16,870,487
CASH 458,733 447,200
OTHER ASSETS 106,729 105,129
------------ ------------
TOTAL ASSETS $ 17,072,992 $ 17,422,816
============ ============
LIABILITIES AND PARTNERS' DEFICIENCY
LIABILITIES:
Notes payable (Note 3) $ 24,869,501 $ 24,869,501
Accrued interest payable (Note 3) 27,008,889 26,152,645
Accrued fees and expenses
due general partner (Note 4) 4,134,314 3,762,494
Accounts payable and other liabilities 169,021 116,312
------------ ------------
56,181,725 54,900,952
------------ ------------
COMMITMENTS AND CONTINGENCIES
(Notes 4 and 5)
PARTNERS' DEFICIENCY:
General partners (714,218) (697,912)
Limited partners (38,394,515) (36,780,224)
------------ ------------
(39,108,733) (37,478,136)
------------ ------------
TOTAL LIABILITIES AND PARTNERS'
DEFICIENCY $ 17,072,992 $ 17,422,816
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 4
REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
SIX AND THREE MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
Six months Three months Six months Three months
ended ended ended ended
June 30, 1998 June 30, 1998 June 30, 1997 June 30, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUE:
Interest income $ 8,871 $ 4,490 $ 7,258 $ 4,353
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Interest (Note 3) 1,164,708 582,354 1,172,396 592,842
Management fees - general partner (Note 4) 371,820 185,910 371,820 185,910
General and administrative (Notes 2 and 4) 257,300 123,056 60,669 37,891
Legal and accounting 85,465 51,222 78,004 37,779
----------- ----------- ----------- -----------
1,879,293 942,542 1,682,889 854,422
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (1,870,422) (938,052) (1,675,631) (850,069)
DISTRIBUTIONS FROM LIMITED
PARTNERSHIP RECOGNIZED
AS INCOME (Note 2) 209,825 102,198 40,787 16,159
EQUITY IN INCOME (LOSS) OF LIMITED
PARTNERSHIPS AND AMORTIZATION
OF ADDITIONAL BASIS AND
ACQUISITION COSTS (Note 2) 30,000 15,000 (112,000) (56,000)
----------- ----------- ----------- -----------
NET $(1,630,597) $ (820,854) $(1,746,844) $ (889,910)
=========== =========== =========== ===========
NET LOSS PER LIMITED PARTNERSHIP
INTEREST $ (78) $ (39) $ (84) $ (42)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 5
REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' DEFICIENCY
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
------------ ------------ ------------
<S> <C> <C> <C>
PARTNERSHIP INTERESTS 20,802
============
DEFICIENCY
January 1, 1998 $ (697,912) $(36,780,224) $(37,478,136)
Net loss for the six months
ended June 30, 1998 (16,306) (1,614,291) (1,630,597)
------------ ------------ ------------
DEFICIENCY
June 30, 1998 $ (714,218) $(38,394,515) $(39,108,733)
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,630,597) $(1,746,844)
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 (30,000) 112,000
Increase in other assets (1,600) --
Increase in accrued interest payable 856,244 596,802
Increase in accrued fees and expenses
due general partner 371,820 276,820
Decrease in accounts payable and other liabilities 52,709 (13,381)
----------- -----------
Net cash used in operating activities (381,424) (774,603)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions from limited partnerships recognized
as a return of capital 392,957 927,973
----------- -----------
NET INCREASE IN CASH 11,533 153,370
CASH, BEGINNING OF PERIOD 447,200 342,631
----------- -----------
CASH, END OF PERIOD $ 458,733 $ 496,001
=========== ===========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
CASH PAID DURING THE PERIOD FOR INTEREST $ 316,152 $ 575,594
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 7
REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
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, 1997 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 June 30, 1998, 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. NAPICO is a wholly owned
subsidiary of Casden Investment Corporation, which is wholly owned by Alan
I. Casden.
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.
5
<PAGE> 8
REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
CASH
The Partnership has its cash on deposit primarily with two high credit
quality financial institutions. 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 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 the United States
Department of Housing and Urban Development ("HUD") or state 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.
6
<PAGE> 9
REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)
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 for
the six months ended June 30, 1998:
<TABLE>
<CAPTION>
1997
------------
<S> <C>
Balance, beginning of period $ 16,870,487
Cash distributions recognized as a return of capital (392,957)
Amortization of acquisition costs (94,000)
Equity in income of limited partnerships 124,000
------------
Balance, end of period $ 16,507,530
============
</TABLE>
The following are unaudited combined estimated statements of operations
for the six and three months ended June 30, 1998 and 1997 for the limited
partnerships in which the Partnership has investments:
<TABLE>
<CAPTION>
Six months Three months Six months Three months
ended ended ended ended
June 30, 1998 June 30, 1998 June 30, 1997 June 30, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Rental and other $ 6,474,000 $ 3,237,000 $ 13,928,000 $ 6,964,000
Expenses:
Depreciation 1,070,000 535,000 2,736,000 1,368,000
Interest 736,000 368,000 2,034,000 1,017,000
Operating 5,288,000 2,644,000 9,990,000 4,995,000
------------- ------------- ------------- -------------
7,094,000 3,547,000 14,760,000 7,380,000
------------- ------------- ------------- -------------
Net loss $ (620,000) $ (832,000) $ (832,000) $ (416,000)
============= ============= ============= =============
</TABLE>
The difference between the investment per the accompanying balance
sheets at June 30, 1998 and December 31, 1997, and the deficiency per
the unaudited combined estimated statements of operations is due
primarily to cumulative unrecognized equity in losses of certain limited
partnerships, costs capitalized to the investment account and cumulative
distributions recognized as income.
NAPICO, or one of its affiliates, is the general partner and property
management agent for certain of the limited partnerships included above.
Under recently adopted law and policy, HUD has determined not to renew
housing assistance payments contracts ("HAP Contracts") on their existing
terms. In connection with renewals of the HAP Contracts under such new
law and policy, the amount of rental assistance payments under renewed
HAP Contracts will be based on market rentals instead of above market
rentals, which was generally the case under existing HAP Contracts. As a
result, existing HAP Contracts that are renewed in the future on projects
insured by the Federal Housing Administration of HUD ("FHA") will not
provide sufficient cash flow
7
<PAGE> 10
REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)
to permit owners of properties to meet the debt service requirements of
these existing FHA-insured mortgages. In order to address the reduction
in payments under HAP Contracts as a result of this new policy, the
Multi-family Assisted Housing Reform and Affordability Act of
1997("MAHRAA"), which was adopted in October 1997, provides for the
restructuring of mortgage loans insured by the FHA with respect to
properties subject to HAP Contracts that have been renewed under the new
policy. The restructured loans will be held by the current lender or
another lender. Under MAHRAA, an FHA-insured mortgage loan can be
restructured to reduce the annual debt service on such loan. There can be
no assurance that the Partnership will be permitted to restructure its
mortgage indebtedness pursuant to the new HUD rules implementing MAHRAA
or that the Partnership would choose to restructure such mortgage
indebtedness if it were eligible to participate in the MAHRAA program. It
should be noted that there are uncertainties as to the economic impact on
the Partnership of the combination of the reduced payments under the HAP
Contracts and the restructuring of the existing FHA-insured mortgage
loans under MAHRAA. Accordingly, the General Partners are unable to
predict with certainty their impact on the Partnership's future cash
flow.
As a result of the foregoing, the Partnership is undergoing an extensive
review of the properties in which the limited partnerships have invested
that are subject to HUD mortgages and which may be sold to the REIT as
set forth below. The Partnership has incurred expenses in connection with
this review by various third party professionals, including accounting,
legal, valuation, structural review and engineering costs, which amounted
to approximately $367,000 through June 30, 1998, including approximately
$199,000 for the six months ended June 30, 1998, which are included in
general and administrative expenses.
A real estate investment trust ("REIT") organized by affiliates of NAPICO
has advised the Partnership that it intends to make a proposal to
purchase from the Partnership certain of the limited partnership
interests held for investment by the Partnership.
The REIT proposes to purchase such limited partnership interests for
cash, which it plans to raise in connection with a private placement of
its equity securities. The purchase is subject to, among other things,
(i) consummation of such private placement by the REIT; (ii) the purchase
of the general partnership interests in the local limited partnerships by
the REIT; (iii) the approval of HUD and certain state housing finance
agencies; (iv) the consent of the limited partners to the sale of the
local limited partnership interests held for investment by REAL VII; and
(v) the consummation of a minimum number of purchase transactions with
other NAPICO affiliated partnerships. As of June 30, 1998, the REIT had
completed buy-out negotiations with a majority of the general partners of
the local limited partnerships.
A consent solicitation statement will be sent to the limited partners
setting forth the terms and conditions of the purchase of the limited
partners' interests held for investment by the Partnership, together with
certain amendments to the Partnership Agreement and other disclosures of
various conflicts of interest in connection with the proposed
transaction.
8
<PAGE> 11
REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
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 $372,000 for the
six months ended June 30, 1998 and 1997.
The Partnership reimburses NAPICO for certain expenses. The reimbursement
to NAPICO was approximately $23,500 and $22,000 for the six months ended
June 30, 1998 and 1997, respectively, and is included in administrative
expenses.
NOTE 5 - CONTINGENCIES
The corporate general partner of the Partnership is a plaintiff in
various lawsuits and has also been named 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.
The Partnership has assessed the potential impact of the Year 2000
computer systems issue on its operations. The Partnership believes that
no significant actions are required to be taken by the Partnership to
address the issue and that the impact of the Year 2000 computer systems
issue will not materially affect the Partnership's future operating
results or financial condition.
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
9
<PAGE> 12
REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
NOTE 6 - FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
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.
10
<PAGE> 13
REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
JUNE 30, 1998
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.
Under recently adopted law and policy, HUD has determined not to renew
housing assistance payments contracts ("HAP Contracts") on their existing
terms. In connection with renewals of the HAP Contracts under such new law
and policy, the amount of rental assistance payments under renewed HAP
Contracts will be based on market rentals instead of above market rentals,
which was generally the case under existing HAP Contracts. As a result,
existing HAP Contracts that are renewed in the future on projects insured
by the Federal Housing Administration of HUD ("FHA") will not provide
sufficient cash flow to permit owners of properties to meet the debt
service requirements of these existing FHA-insured mortgages. In order to
address the reduction in payments under HAP Contracts as a result of this
new policy, the Multi-family Assisted Housing Reform and Affordability Act
of 1997 ("MAHRAA"), which was adopted in October 1997, provides for the
restructuring of mortgage loans insured by the FHA with
11
<PAGE> 14
REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
JUNE 30, 1998
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
respect to properties subject to HAP Contracts that have been renewed
under the new policy. The restructured loans will be held by the current
lender or another lender. Under MAHRAA, an FHA-insured mortgage loan can
be restructured to reduce the annual debt service on such loan. There can
be no assurance that the Partnership will be permitted to restructure its
mortgage indebtedness pursuant to the new HUD rules implementing MAHRAA or
that the Partnership would choose to restructure such mortgage
indebtedness if it were eligible to participate in the MAHRAA program. It
should be noted that there are uncertainties as to the economic impact on
the Partnership of the combination of the reduced payments under the HAP
Contracts and the restructuring of the existing FHA-insured mortgage loans
under MAHRAA. Accordingly, the General Partners are unable to predict with
certainty their impact on the Partnership's future cash flow.
As a result of the foregoing, the Partnership is undergoing an extensive
review of the properties in which the limited partnerships have invested
that are subject to HUD mortgages and which may be sold to the REIT as set
forth below. The Partnership has incurred expenses in connection with this
review by various third party professionals, including accounting, legal,
valuation, structural review and engineering costs, which amounted to
approximately $367,000 through June 30, 1998, including approximately
$199,000 for the six months ended June 30, 1998, which are included in
general and administrative expenses.
A real estate investment trust ("REIT") organized by affiliates of NAPICO
has advised the Partnership that it intends to make a proposal to purchase
from the Partnership certain of the limited partnership interests held for
investment by the Partnership.
The REIT proposes to purchase such limited partnership interests for cash,
which it plans to raise in connection with a private placement of its
equity securities. The purchase is subject to, among other things, (i)
consummation of such private placement by the REIT; (ii) the purchase of
the general partnership interests in the local limited partnerships by the
REIT; (iii) the approval of HUD and certain state housing finance
agencies; (iv) the consent of the limited partners to the sale of the
local limited partnership interests held for investment by REAL VII; and
(v) the consummation of a minimum number of purchase transactions with
other NAPICO affiliated partnerships. As of June 30, 1998, the REIT had
completed buy-out negotiations with a majority of the general partners of
the local limited partnerships.
A consent solicitation statement will be sent to the limited partners
setting forth the terms and conditions of the purchase of the limited
partners' interests held for investment by the Partnership, together with
certain amendments to the Partnership Agreement and other disclosures of
various conflicts of interest in connection with the proposed transaction.
12
<PAGE> 15
REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
JUNE 30, 1998
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Partnership's Corporate General Partner is involved in various lawsuits.
None of these are related to REAL VII.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) No exhibits are required per the provision of Item 7 of regulation
S-K.
13
<PAGE> 16
REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
JUNE 30, 1998
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
/s/ BRUCE NELSON
---------------------------------------
Bruce Nelson
President
Date: 8/14/98
---------------------------------------
/s/ CHARLES H. BOXENBAUM
---------------------------------------
Charles H. Boxenbaum
Chief Executive Officer
Date: 8/14/98
---------------------------------------
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
PARTNERSHIP'S STATEMENT 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 458,733
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 458,733
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 17,072,992
<CURRENT-LIABILITIES> 169,021
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (39,108,753)
<TOTAL-LIABILITY-AND-EQUITY> 17,072,992
<SALES> 0
<TOTAL-REVENUES> 248,696
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 714,585
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,164,708
<INCOME-PRETAX> (1,630,597)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,630,597)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
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