<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, 2000
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 SEPTEMBER 30, 2000
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets, September 30, 2000 and December 31, 1999 .........................1
Statements of Operations,
Nine and Three Months Ended September 30, 2000 and 1999 ....................2
Statement of Partners' Deficiency,
Nine Months Ended September 30, 2000 .......................................3
Statements of Cash Flows,
Nine Months Ended September 30, 2000 and 1999 ..............................4
Notes to Financial Statements ....................................................5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation ........................................13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................................16
Item 6. Exhibits and Reports on Form 8-K..............................................16
Signatures.............................................................................17
</TABLE>
<PAGE> 3
REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
ASSETS
<TABLE>
<CAPTION>
2000
(Unaudited) 1999
------------ ------------
<S> <C> <C>
INVESTMENTS IN LIMITED PARTNERSHIPS (Note 2) $ 209,464 $ 239,464
CASH 115,156 96,379
------------ ------------
TOTAL ASSETS $ 324,620 $ 335,843
============ ============
LIABILITIES AND PARTNERS' DEFICIENCY
LIABILITIES:
Notes payable (Note 3) $ 17,424,501 $ 17,424,501
Accrued interest payable (Note 3) 24,816,548 23,588,625
Accrued fees and expenses
due general partner (Note 4) 5,399,237 5,006,313
Accounts payable and other liabilities 61,122 64,456
------------ ------------
47,701,408 46,083,895
------------ ------------
COMMITMENTS AND CONTINGENCIES
(Notes 4 and 5)
PARTNERS' DEFICIENCY:
General partners (796,898) (780,611)
Limited partners (46,579,890) (44,967,441)
------------ ------------
(47,376,788) (45,748,052)
------------ ------------
TOTAL LIABILITIES AND PARTNERS'
DEFICIENCY $ 324,620 $ 335,843
============ ============
</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, 2000 AND 1999
(Unaudited)
<TABLE>
<CAPTION>
Nine months Three months Nine months Three months
ended ended ended ended
Sept 30, 2000 Sept 30, 2000 Sept 30, 1999 Sept 30, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUE:
Interest income $ 2,182 $ 589 $ 1,066 $ 707
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Interest (Note 3) 1,227,923 409,308 1,227,923 409,308
Management fees - general partner (Note 4) 375,134 124,790 369,564 136,188
General and administrative (Notes 2 and 4) 80,844 19,501 113,683 20,700
Legal and accounting 56,921 2,700 115,736 49,276
----------- ----------- ----------- -----------
1,740,822 556,299 1,826,906 615,472
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (1,738,640) (555,710) (1,825,840) (614,765)
DISTRIBUTIONS FROM LIMITED
PARTNERSHIP RECOGNIZED
AS INCOME (Note 2) 139,904 15,840 357,494 124,178
EQUITY IN (LOSS) INCOME OF LIMITED
PARTNERSHIPS AND AMORTIZATION
OF ADDITIONAL BASIS AND
ACQUISITION COSTS (Note 2) (30,000) (10,000) 21,000 7,000
----------- ----------- ----------- -----------
NET LOSS $(1,628,736) $ (549,870) $(1,447,346) $ (483,587)
=========== =========== =========== ===========
NET LOSS PER LIMITED PARTNERSHIP
INTEREST $ (78) $ (26) $ (93) $ (31)
=========== =========== =========== ===========
</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
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
------------ ------------ ------------
<S> <C> <C> <C>
PARTNERSHIP INTERESTS 20,802
============
DEFICIENCY
January 1, 2000 $ (780,611) $(44,967,441) $(45,748,052)
Net loss for the nine months
ended September 30, 2000 (16,287) (1,612,449) (1,628,736)
------------ ------------ ------------
DEFICIENCY
September 30, 2000 $ (796,898) $(46,579,890) $(47,376,788)
============ ============ ============
</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
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,628,736) $(1,447,346)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Equity in loss of limited partnerships
and amortization of additional basis
and acquisition costs 30,000 (21,000)
Increase in accrued interest payable 1,227,923 1,202,413
Increase in accrued fees and expenses
due general partner 392,924 369,564
Decrease in accounts payable and other liabilities (3,334) (50,964)
----------- -----------
Net cash provided by operating activities 18,777 52,667
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions from limited partnerships recognized
as a return of capital -- 9,171
Sale proceeds -- 400,000
----------- -----------
Net cash provided from investing activities -- 409,171
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners -- (275,000)
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 18,777 186,838
CASH, BEGINNING OF PERIOD 96,379 --
----------- -----------
CASH, END OF PERIOD $ 115,156 $ 186,838
=========== ===========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Cash paid during the period for interest $ -- $ 25,510
=========== ===========
</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, 2000
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, 1999 prepared by Real Estate Associates Limited VII
(the "Partnership."). Accounting measurements at interim dates inherently
involve greater reliance on estimates than at year end. The results of
operations for the interim periods presented are not necessarily
indicative of the results for the entire year.
In the opinion of the Partnership, the accompanying unaudited financial
statements contain all adjustments (consisting primarily of normal
recurring accruals), necessary to present fairly the financial position
of the Partnership at September 30, 2000, 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. Casden Properties Inc. owns
a 95.25% economic interest in NAPICO, with the balance owned by Casden
Investment Corporation ("CIC"). CIC, which is wholly owned by Alan I.
Casden, owns 95% of the voting common stock of NAPICO.
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.
5
<PAGE> 8
REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity
with accounting principles generally in the United States of America.
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.
CASH
The Partnership has its cash on deposit with one 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.
6
<PAGE> 9
REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS
The Partnership holds limited partnership interests in 21 limited
partnerships. In addition, the Partnership holds a general partner
interest in Real Estate Associates IV ("REA IV"), which in turn, holds
limited partner interest in 15 additional limited partnerships. NAPICO is
also a general partner in REA IV. In total, therefore the Partnership
holds interests, either directly or indirectly through REAL VII, in 36
limited partnerships which own residential low income rental projects
consisting of 3,379 apartment units. The mortgage loans of these projects
are payable to or 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 for
the nine months ended September 30, 2000:
<TABLE>
<S> <C>
Balance, beginning of period $ 239,464
Amortization of acquisition costs (6,000)
Equity in loss of limited partnerships (24,000)
---------
Balance, end of period $ 209,464
=========
</TABLE>
7
<PAGE> 10
REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)
The following are unaudited combined estimated statements of operations
for the nine and three months ended September 30, 2000 and 1999 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, 2000 Sept. 30, 2000 Sept. 30, 1999 Sept. 30, 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
REVENUES:
Rental and other $ 14,719,000 $ 4,907,000 $ 14,511,000 $ 4,837,000
------------ ------------ ------------ ------------
EXPENSES:
Depreciation 2,543,000 848,000 3,057,000 1,019,000
Interest 1,145,000 382,000 1,230,000 410,000
Operating 11,298,000 3,766,000 10,977,000 3,659,000
------------ ------------ ------------ ------------
14,986,000 4,996,000 15,264,000 5,088,000
------------ ------------ ------------ ------------
Net loss $ (267,000) $ (89,000) $ (753,000) $ (251,000)
============ ============ ============ ============
</TABLE>
NAPICO, or one of its affiliates, is the general partner and property
management agent for certain of the limited partnerships included above.
Under recent adopted law and policy, the United States Department of
Housing and Urban Development ("HUD") has determined not to renew the
Housing Assistance Payment ("HAP") Contracts on a long term basis under
the 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 may be the case under existing HAP Contracts.
The payments under the renewed HAP Contracts may not be in an amount that
would provide sufficient cash flow to permit owners of properties subject
to HAP Contracts to meet the debt service requirements of existing loans
insured by the Federal Housing Administration of HUD ("FHA") unless such
mortgage loans
8
<PAGE> 11
REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)
are restructured. 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 the Section 8
program. Under MAHRAA, an FHA-insured mortgage loan can be restructured
into a first mortgage loan which will be amortized on a current basis and
a low interest second mortgage loan payable to FHA which will only be
payable on maturity of the first mortgage loan. This restructuring
results in a reduction in annual debt service payable by the owner of the
FHA-insured mortgage loan and is expected to result in an insurance
payment from FHA to the holder of the FHA-insured loan due to the
reduction in the principal amount. MAHRAA also phases out project-based
subsidies on selected properties serving families not located in rental
markets with limited supply, converting such subsidies to a tenant-based
subsidy.
When the HAP Contracts are subject to renewal, there can be no assurance
that the local limited partnerships in which the Partnership has an
investment will be permitted to restructure its mortgage indebtedness
under MAHRAA. In addition, 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 is
uncertain.
On December 30, 1998, after obtaining the consents of the limited
partners, the Partnership sold its limited partnership interests in 11
local limited partnerships to subsidiaries of Casden Properties Inc. The
sale resulted in cash proceeds to the Partnership of $400,000 which was
collected in 1999. In March 1999, the Partnership made cash distributions
of $272,500 to the limited partners and $2,750 to the general partners,
primarily using proceeds from the sale of the partnership interests.
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 $17,424,501, 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
9
<PAGE> 12
REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
NOTE 3 - NOTES PAYABLE (CONTINUED)
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.
Maturity dates on the notes and related accrued interest payable are as
follows:
<TABLE>
<CAPTION>
Accrued
Years Ending December 31, Notes Interest
------------------------- ----------- -----------
<S> <C> <C>
2000 $13,279,000 $18,869,578
2001 2,555,000 3,566,261
2002 1,590,501 2,380,709
----------- -----------
$17,424,501 $24,816,548
=========== ===========
</TABLE>
Notes and related accrued interest payable, aggregating $32,148,578
became payable in 1999. Due to the Partnership's lack of cash and
partners' deficiency, there is substantial doubt about its ability to
satisfy these obligations, which would result in the possible foreclosure
of the investments in the local limited partnerships. As a result, there
is substantial doubt about the Partnership's ability to continue as a
going concern.
In February 2000, the Partnership entered into an agreement with a lender
related to a note in the amount $2,200,000 plus accrued interest of
$2,934,572 as of December 31, 1999 that became payable in December 1999.
Subject to certain conditions, the lender agreed to cancel the note and
accrued interest and release from escrow a payment of $100,000 to the
Partnership in exchange for the Partnership surrendering its interest in
the Edgewood Terrace limited partnership. Upon satisfaction of all
conditions, the Partnership will recognize a gain on this transaction of
approximately $5,200,000 as it has a zero investment balance in this
limited partnership.
Management is in process of attempting to negotiate extensions of the
maturity dates on the other past due notes payable.
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
10
<PAGE> 13
REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
NOTE 4 - ACCRUED FEES AND EXPENSES DUE GENERAL PARTNER (CONTINUED)
interests in the capital accounts of the respective partnerships. The fee
was approximately $375,000 and $370,000 for the nine months ended
September 30, 2000 and 1999, respectively.
The Partnership reimburses NAPICO for certain expenses. The reimbursement
to NAPICO was approximately $25,160 and $17,000 for the nine months ended
September 30, 2000 and 1999, respectively, and is included in
administrative expenses.
NOTE 5 - CONTINGENCIES
On August 27, 1998, two investors holding an aggregate of eight units of
limited partnership interests in Real Estate Associates Limited III (an
affiliated partnership in which NAPICO is the managing general partner)
and two investors holding an aggregate of five units of limited
partnership interest in Real Estate Associates Limited VI (another
affiliated partnership in which NAPICO is managing general partner)
commenced an action in the United States District Court for the Central
District of California against the Partnership, NAPICO and certain other
affiliated entities. The complaint alleges that the defendants breached
their fiduciary duty to the limited partners of certain NAPICO managed
partnerships and made materially false and misleading statements in the
consent solicitation statements sent to the limited partners of such
partnerships relating to approval of the transfer of partnership
interests in limited partnerships, owning certain of the properties, to
subsidiaries of Casden Properties Inc. The plaintiffs seek equitable
relief, as well as compensatory damages and litigation related costs. On
August 4, 1999, one investor holding one unit of limited partnership
interest in Housing Programs Limited (another affiliated partnership in
which NAPICO is the managing general partner) commenced a virtually
identical action in the United States District Court for the Central
District of California against the Partnership, NAPICO and certain other
affiliated entities. The managing general partner of such NAPICO managed
partnerships and the other defendants believe that the plaintiffs' claims
are without merit and intend to contest the actions vigorously.
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.
11
<PAGE> 14
REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
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.
12
<PAGE> 15
REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 2000
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.
13
<PAGE> 16
REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 2000
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
Under recently adopted law and policy, the United States Department of
Housing and Urban Development ("HUD") has determined not to renew the
Housing Assistance Payment ("HAP") Contracts on a long term basis under
the 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 may be the case under existing HAP Contracts.
The payments under the renewed HAP Contracts may not be in an amount that
would provide sufficient cash flow to permit owners of properties subject
to HAP Contracts to meet the debt service requirements of existing loans
insured by the Federal Housing Administration of HUD ("FHA") unless such
mortgage loans are restructured. 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 the Section 8 program. Under MAHRAA, an FHA-insured
mortgage loan can be restructured into a first mortgage loan which will
be amortized on a current basis and a low interest second mortgage loan
payable to FHA which will only be payable on maturity of the first
mortgage loan. This restructuring results in a reduction in annual debt
service payable by the owner of the FHA-insured mortgage loan and is
expected to result in an insurance payment from FHA to the holder of the
FHA-insured loan due to the reduction in the principal amount. MAHRAA
also phases out project-based subsidies on selected properties serving
families not located in rental markets with limited supply, converting
such subsidies to a tenant-based subsidy.
When the HAP Contracts are subject to renewal, there can be no assurance
that the local limited partnerships in which the Partnership has an
investment will be permitted to restructure its mortgage indebtedness
under MAHRAA. In addition, 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 is
uncertain.
On December 30, 1998, after obtaining the consents of the limited
partners, the Partnership sold its limited partnership interests in 11
local limited partnerships to subsidiaries of Casden Properties Inc. The
sale resulted in cash proceeds to the Partnership of $400,000 which was
collected in 1999. In March 1999, the Partnership made cash distributions
of $272,500 to the limited partners and $2,750 to the general partners,
primarily using proceeds from the sale of the partnership interests.
14
<PAGE> 17
REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 2000
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 27, 1998, two investors holding an aggregate of eight units of limited
partnership interests in Real Estate Associates Limited III (an affiliated
partnership in which NAPICO is the managing general partner) and two investors
holding an aggregate of five units of limited partnership interest in Real
Estate Associates Limited VI (another affiliated partnership in which NAPICO is
the managing general partner) commenced an action in the United States District
Court for the Central District of California against the Partnership, NAPICO and
certain other affiliated entities. The complaint alleges that the defendants
breached their fiduciary duty to the limited partners of certain NAPICO managed
partnerships and made materially false and misleading statements in the consent
solicitation statements sent to the limited partners of such partnerships
relating to approval of the transfer of partnership interests in limited
partnerships, owning certain of the properties, to subsidiaries Casden
Properties Inc. The plaintiffs seek equitable relief, as well as compensatory
damages and litigation related costs. On August 4, 1999, one investor holding
one unit of limited partnership interest in Housing Programs Limited (another
affiliated partnership in which NAPICO is the managing general partner)
commenced a virtually identical action in the United States District Court for
the Central District of California against the Partnership, NAPICO and certain
other affiliated entities. The managing general partner of such NAPICO managed
partnerships and the other defendants believe that the plaintiffs' claims are
without merit and intend to contest the actions vigorously.
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 6 of regulation
S-K and no reports on Form 8-K were filed during the quarter ended
September 30, 2000.
15
<PAGE> 18
REAL ESTATE ASSOCIATES LIMITED VII
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 2000
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.,
its General Partner
By: /s/ BRUCE NELSON
-------------------------------------
Bruce Nelson
President
Date: November 14, 2000
------------------------------------
By: /s/ BRIAN H. SHUMAN
-------------------------------------
Brian H. Shuman
Chief Financial Officer
Date: November 14, 2000
------------------------------------
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