FORM 10-KSB--ANNUAL OR TRANSITIONAL REPORT UNDER
SECTION 13 OR 15(d)
(As last amended by 34-31905, eff. 4/26/93)
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 [No Fee Required]
For the fiscal year ended December 31, 1996
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [No Fee Required]
For the transition period.........to.........
Commission file number 0-14369
SHELTER PROPERTIES VII LIMITED PARTNERSHIP
(Name of small business issuer in its charter)
South Carolina 57-0784852
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Insignia Financial Plaza, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (864) 239-1000
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Units of Limited Partnership Interest
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act of 1934 during the past 12 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
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year. $3,687,000
State the aggregate market value of the voting partnership interests by non-
affiliates computed by reference to the price at which the partnership interests
were sold, or the average bid and asked prices of such partnership interests, as
of December 31, 1996. Market Value information for the Registrant's partnership
interests is not available. Should a trading market develop for these
interests, it is the Corporate General Partner's belief that such trading would
not exceed $25,000,000.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Prospectus of Registrant dated March 18, 1985 (included in
Registration Statement, No.2-94604, of Registrant) are incorporated by reference
into Parts I and III.
PART I
Item 1. Description of Business
Shelter Properties VII Limited Partnership (the "Registrant" or the
"Partnership") is engaged in the business of acquiring, operating and holding
real properties for investment. The Registrant acquired two existing apartment
properties and a newly constructed apartment property during 1985 and has been
operating them since that time with the exception of Sailpointe Apartments, upon
which the Partnership allowed the lender to foreclose on December 31, 1991.
Commencing March 18, 1985, the Registrant offered through E. F. Hutton & Company
Inc. ("Hutton") up to 49,900 Units of Limited Partnership Interest (the "Units")
at $1,000 per Unit with a minimum purchase of 5 Units ($5,000) or 2 Units
($2,000) for an Individual Retirement Account. An additional 100 Units were
purchased by the Corporate General Partner. Limited Partners are not required
to make any additional capital contributions.
The Units were registered under the Securities Act of 1933 pursuant to
Registration Statement No. 2-94604 (the "Registration Statement"). Reference is
made to the Prospectus of Registrant dated March 18, 1985, (the "Prospectus")
contained in said Registration Statement, which is incorporated herein by
reference thereto.
The offering terminated on November 5, 1985. Upon termination of the offering,
the Registrant had accepted subscriptions for 17,343 Units, including 100 Units
purchased by the Corporate General Partner, for an aggregate of $17,343,000.
Unsold Units (numbering 32,657) were deregistered pursuant to Post Effective
Amendment No. 3 filed with the Securities and Exchange Commission on November
13, 1985. The Registrant invested approximately $14,177,000 of such proceeds in
two existing apartment properties and one newly constructed apartment property
and thereby completed its acquisition program in December 1985.
During December 1991, after unsuccessful negotiations to refinance the mortgage
note on Sailpointe, the Partnership allowed the lender to foreclose on the
property. The remaining two properties continue to be held by the Partnership.
A further description of the Partnership's business is included in "Management's
Discussion and Analysis or Plan of Operation" included in "Item 6" of this Form
10-KSB.
The Registrant has no employees. Management and administrative services are
performed by Shelter Realty VII Corporation, the Corporate General Partner, and
by Insignia Residential Group, L.P., an affiliate of Insignia Financial Group,
Inc. ("Insignia"), the ultimate parent company of the Corporate General Partner.
Pursuant to a management agreement between them, Insignia Residential Group,
L.P. provides property management services to the Registrant.
The real estate business in which the Partnership is engaged is highly
competitive and the Partnership is not a significant factor in this industry.
The Registrant's properties are subject to competition from similar properties
in the vicinities in which the properties are located. In addition, various
limited partnerships have been formed by the General Partners and/or their
affiliates to engage in business which may be competitive with the Registrant.
Item 2. Description of Properties:
The following table sets forth the Registrant's investments in properties:
Date of
Property Purchase Type of Ownership Use
Hickory Ridge Apartments 08/27/85 Fee ownership subject to Apartment
Memphis, Tennessee first mortgage. 378 units
Governor's Park Apartments 09/30/85 Fee ownership subject to Apartment
Ft. Collins, Colorado first and second mortgages. 188 units
Schedule of Properties:
(in thousands)
Gross
Carrying Accumulated Federal
Property Value Depreciation Rate Method Tax Basis
Hickory Ridge Apts. $13,292 $6,290 5-29 yrs S/L $6,640
Governor's Park Apts. 7,261 2,844 5-39 yrs S/L 3,322
$20,553 $9,134 $9,962
See "Note A" to the financial statements in "Item 7" for a description of the
Partnership's depreciation policy.
Schedule of Mortgages:
(in thousands)
Principal Principal
Balance At Stated Balance
December 31, Interest Period Maturity Due At
Property 1996 Rate Amortized Date Maturity
Hickory Ridge $ 6,622 7.50% (1) 03/01/01 $6,057
Governor's Park
1st Mortgage 4,589 7.83% (2) 10/15/03 4,099
2nd Mortgage 147 7.83% none 10/15/03 147
11,358
Less unamortized
discounts (72)
Total $11,286
(1) The principal balance is being amortized over 300 months with a balloon
payment due March 1, 2001.
(2) The principal balance is being amortized over 344 months with a balloon
payment due October 15, 2003.
Average annual rental rate and occupancy for 1996 and 1995 for each property:
Average Annual Average Annual
Rental Rates Per Unit Occupancy
1996 1995 1996 1995
Hickory Ridge $5,971 $5,666 96% 97%
Governor's Park 7,637 7,356 95% 90%
The Corporate General Partner attributes the increase in occupancy at Governor's
Park to improved performance by the leasing staff, a tighter housing market, and
a decrease in tenant turnover.
As noted under "Item 1. Description of Business," the real estate industry is
highly competitive. All of the properties of the Partnership are subject to
competition from other residential apartment complexes in the area. The
Corporate General Partner believes that all of the properties are adequately
insured. The multi-family residential properties' lease terms are for one year
or less. No residential tenant leases 10% or more of the available rental
space.
Real estate taxes and rates in 1996 for each property were (dollars in
thousands):
1996 1996
Billing Rate
Hickory Ridge $109 3.16
Governor's Park 63 8.97
Item 3. Legal Proceedings
The Registrant is unaware of any pending or outstanding litigation that is not
of a routine nature. The Corporate General Partner of the Registrant believes
that all such pending or outstanding litigation is adequately covered by
insurance and will be resolved without a material adverse effect upon the
business, financial condition, or operations of the Partnership.
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter ended December 31, 1996, no matter was submitted to a
vote of Unit holders through the solicitation of proxies or otherwise.
PART II
Item 5. Market for Partnership Equity and Related Partner Matters
There is no established market for the Units and it is not anticipated that any
will occur in the foreseeable future. As of December 31, 1996, there were 1,731
holders of record owning an aggregate of 17,343 Units. No cash distributions
were made in 1996 or 1995. Future cash distributions will depend on the levels
of cash generated from operations, refinancings, property sales and cash
reserves. Distributions may also be restricted by the requirement to deposit
net operating income (as defined in the mortgage note) into the Reserve Account
until the Reserve Account is funded by an amount equal to $400 per apartment
unit at Governor's Park.
Item 6. Management's Discussion and Analysis or Plan of Operation
This item should be read in conjunction with the consolidated financial
statements and other items contained elsewhere in this report.
Results of Operations
The Partnership reported net income for the year ended December 31, 1996, of
approximately $220,000 and a net loss of approximately $78,000 for the year
ended December 31, 1995. The increase in net income is primarily attributable
to an increase in rental income due to increased occupancy at Governor's Park
and rental rate increases at both properties. Other income increased in 1996
due to an increase in cash balances held in interest bearing accounts, as well
as an increase in lease cancellation fees. Also contributing to the increase in
net income was the decrease in maintenance expense at Hickory Ridge. A major
renovation project was completed in 1995 to improve the curb appeal at that
complex.
Partially offsetting the increase in net income was an increase in general and
administrative expenses. General and administrative expenses increased as a
result of increased reimbursements to the General Partner as well as higher
insurance expense due to additional coverage.
Management relies on the annual appraisals performed by outside appraisers to
assess whether or not indicators of impairment exist with regard to the
Partnership's investment properties. There are three recognized approaches or
techniques available to the appraiser. When applicable, these approaches are
used to process the data considered significant to each to arrive at separate
value indications. In all instances the experience of the appraiser, coupled
with his objective judgment, plays a major role in arriving at the conclusions
of the indicated value from which the final estimate of value is made. The
three approaches commonly known are the cost approach, the sales comparison
approach, and the income approach. The cost approach is often not considered to
be reliable due to the lack of land sales and the significant amount of
depreciation and, therefore, is often not presented. Upon receipt of the
appraisals, any property, which is stated on the books of the Partnership above
the estimated value given in the appraisal, is compared to the undiscounted
future cash flows attributable to that property. If such undiscounted future
cash flows are not sufficient to recover the related property's carrying amount,
such property is written down to the estimated value given by the appraiser. The
appraiser assumes a stabilized occupancy at the time of the appraisal and,
therefore, any impairment of value is considered to be permanent by Management.
For the years ended December 31, 1996 and 1995, no adjustments for the
impairment of value were recorded.
As part of the ongoing business plan of the Partnership, the Corporate General
Partner monitors the rental market environment of each of its investment
properties to assess the feasibility of increasing rents, maintaining or
increasing occupancy levels and protecting the Partnership from increases in
expenses. As part of this plan, the Corporate General Partner attempts to
protect the Partnership from the burden of inflation-related increases in
expenses by increasing rents and maintaining a high overall occupancy level.
However, due to changing market conditions, which can result in the use of
rental concessions and rental reductions to offset softening market conditions,
there is no guarantee that the Corporate General Partner will be able to sustain
such a plan.
Liquidity and Capital Resources
At December 31, 1996, the Partnership had unrestricted cash of approximately
$1,055,000 compared to approximately $680,000 at December 31, 1995. Net cash
provided by operating activities increased primarily as a result of the increase
in net income as discussed above. Net cash used in investing activities
decreased primarily due to a decrease in property improvements and replacements
in 1996 as compared to 1995. The decrease is mainly attributable to vinyl
siding and other exterior renovations on the majority of buildings at Hickory
Ridge which were completed in 1995. Insurance proceeds from property damage
decreased as the Partnership's investment properties have not incurred any
material casualties in 1996 or 1995. Governor's Park received insurance
proceeds of approximately $31,000 in 1995 related to fire damage incurred in
1994. Net cash used in financing activities was comparable to that of 1995.
Included in maintenance expense is approximately $158,000 of major repairs and
maintenance. This amount is comprised primarily of exterior building and
landscaping expenses.
The Corporate General Partner has budgeted $210,000 in 1997 for vinyl siding and
other exterior renovations for the remaining buildings at Hickory Ridge
Apartments, which are to be funded from property operations and Partnership
reserves. The Partnership has no other material capital programs scheduled to
be performed in 1997, although certain routine capital expenditures and
maintenance expenses have been budgeted. These capital expenditures and
maintenance expenses will be incurred only if cash is available from operations
or is received from the capital reserve account.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the property to adequately maintain the physical assets
and other operating needs of the Partnership. Such assets are currently thought
to be sufficient for any near-term needs of the Partnership. The mortgage
indebtedness of approximately $11,286,000, net of discount, is amortized over
varying periods with required balloon payments ranging from March 1, 2001, to
October 15, 2003, at which time the properties will either be refinanced or
sold. No cash distributions were made in 1996 or 1995. Future cash
distributions will depend on the levels of cash generated from operations,
property sales, and the availability of cash reserves.
Item 7. Financial Statements
SHELTER PROPERTIES VII LIMITED PARTNERSHIP
LIST OF FINANCIAL STATEMENTS
Report of Independent Auditors
Consolidated Balance Sheet - December 31, 1996
Consolidated Statements of Operations - Years ended December 31, 1996 and
1995
Consolidated Statements of Changes in Partners' Capital (Deficit) - Years
ended December 31, 1996 and 1995
Consolidated Statements of Cash Flows - Years ended December 31, 1996 and
1995
Notes to Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Auditors
The Partners
Shelter Properties VII Limited Partnership
We have audited the accompanying consolidated balance sheet of Shelter
Properties VII Limited Partnership as of December 31, 1996, and the related
consolidated statements of operations, changes in partners' capital (deficit)
and cash flows for each of the two years in the period ended December 31, 1996.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
Partnership's management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Shelter
Properties VII Limited Partnership as of December 31, 1996, and the consolidated
results of its operations and its cash flows for each of the two years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
/s/ERNST & YOUNG LLP
Greenville, South Carolina
February 13, 1997
SHELTER PROPERTIES VII LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEET
(in thousands, except unit data)
December 31, 1996
Assets
Cash:
Unrestricted $ 1,055
Restricted--tenant security deposits 80
Accounts receivable 8
Escrow for taxes 160
Restricted escrows 83
Other assets 279
Investment properties: (Notes B & E)
Land $ 1,774
Buildings and related personal property 18,779
20,553
Less accumulated depreciation (9,134) 11,419
$13,084
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable $ 39
Tenant security deposits 80
Accrued taxes 175
Other liabilities 160
Mortgage notes payable (Note B) 11,286
Partners' Capital (Deficit)
General partners $ (135)
Limited partners (17,343 units
issued and outstanding) 1,479 1,344
$13,084
See Accompanying Notes to Consolidated Financial Statements
SHELTER PROPERTIES VII LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per unit data)
Years Ended December 31,
1996 1995
Revenues:
Rental income $3,517 $3,308
Other income 170 153
Total revenues 3,687 3,461
Expenses:
Operating 1,000 1,013
General and administrative 127 119
Maintenance 493 584
Depreciation 758 716
Interest 917 929
Property taxes 172 178
Total expenses 3,467 3,539
Net income (loss) (Note C) $ 220 $ (78)
Net income (loss) allocated
to general partners (1%) $ 2 $ (1)
Net income (loss) allocated
to limited partners (99%) 218 (77)
$ 220 $ (78)
Net income (loss) per limited
partnership unit $12.56 $(4.46)
See Accompanying Notes to Consolidated Financial Statements
SHELTER PROPERTIES VII LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partners Partners Total
Original capital contributions 17,343 $ 2 $17,343 $17,345
Partners' capital (deficit) at
December 31, 1994 17,343 $(136) $ 1,338 $ 1,202
Net loss for the year ended
December 31, 1995 (1) (77) (78)
Partners' capital (deficit) at
December 31, 1995 17,343 (137) 1,261 1,124
Net income for the year ended
December 31, 1996 2 218 220
Partners' capital (deficit) at
December 31, 1996 17,343 $(135) $ 1,479 $ 1,344
See Accompanying Notes to Consolidated Financial Statements
SHELTER PROPERTIES VII LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended December 31,
1996 1995
Cash flows from operating activities:
Net income (loss) $ 220 $ (78)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation 758 716
Amortization of discounts and loan costs 43 43
Change in accounts:
Restricted cash 11 (16)
Accounts receivable (4) (2)
Escrows for taxes 1 (11)
Other assets (59) (2)
Accounts payable 3 (47)
Tenant security deposit liabilities (11) 18
Accrued taxes -- 6
Other liabilities 62 (10)
Net cash provided by
operating activities 1,024 617
Cash flows from investing activities:
Property improvements and replacements (512) (653)
Deposits to restricted escrows (4) (8)
Receipts from restricted escrows 24 76
Insurance proceeds from property damage -- 31
Net cash used in investing activities (492) (554)
Cash flows from financing activities:
Payments on mortgage notes payable (157) (154)
Net cash used in financing activities (157) (154)
Net increase (decrease) in cash 375 (91)
Cash at beginning of year 680 771
Cash at end of year $1,055 $ 680
Supplemental disclosure of cash flow information:
Cash paid for interest $ 832 $ 886
See Accompanying Notes to Consolidated Financial Statements
SHELTER PROPERTIES VII LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
Note A - Organization and Significant Accounting Policies
Organization: Shelter Properties VII Limited Partnership (the "Partnership")
was organized as a limited partnership under the laws of the State of South
Carolina pursuant to a Certificate and Agreement of Limited Partnership filed
October 29, 1984. The general partner responsible for management of the
Partnership's business is Shelter Realty VII Corporation, a South Carolina
corporation (the "Corporate General Partner"). The only other general partner of
the Partnership, N. Barton Tuck, Jr. is effectively prohibited by the
Partnership's partnership agreement (the "Partnership Agreement") from
participating in the management of the Partnership. The Corporate General
Partner is an indirect subsidiary of Insignia Financial Group, Inc.
("Insignia"). The directors and officers of the Corporate General Partner also
serve as executive officers of Insignia. The partnership agreement terminates
December 31, 2024. The Partnership commenced operations on August 27, 1985, and
completed its acquisition of apartment properties on December 6, 1985. The
Partnership owns apartment properties in Tennessee and Colorado.
Principles of Consolidation: The financial statements include all the accounts
of the Partnership and its one 99.99% owned partnership. All significant
interpartnership balances have been eliminated.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Allocation of Cash Distributions: Cash distributions by the Partnership are
allocated between general and limited partners in accordance with the provisions
of the partnership agreement. The partnership agreement defines net cash from
operations as revenue received less operating expenses paid, adjusted for
certain specified items which primarily include mortgage payments on debt,
property improvements and replacements not previously reserved, and the effects
of other adjustments to reserves. In the following notes to financial
statements, whenever "net cash used by operations" is used, it has the
aforementioned meaning. The following is a reconciliation of the subtotal in
the accompanying statements of cash flows captioned "net cash provided by
operating activities" to net cash used by operations, as defined in the
partnership agreement. However, "net cash used by operations" should not be
considered an alternative to net income as an indicator of the Partnership's
operating performance or to cash flows as a measure of liquidity.
1996 1995
(in thousands)
Net cash provided by operating activities $1,024 $ 617
Property improvements and replacements (512) (653)
Payments on mortgage notes payable (157) (154)
Changes in reserves for net operating
liabilities (3) 64
Changes in restricted escrows, net 20 68
Insurance proceeds from property damage -- 31
Additional operating reserves (374) --
Net cash used by operations $ (2) $ (27)
The Corporate General Partner believed it to be in the best interest of the
Partnership to reserve an additional $374,000 at December 31, 1996, to fund the
continuing capital improvements at the various Partnership properties.
Distributions made from reserves no longer considered necessary by the Corporate
General Partner are considered to be additional net cash from operations for
allocation purposes.
The partnership agreement provides that 99% of distributions of net cash from
operations are allocated to the limited partners until they receive net cash
from operations for such fiscal year equal to 7% of their adjusted capital
values (as defined in the partnership agreement), at which point the general
partners will be allocated all net cash from operations until they have received
distributions equal to 10% of the aggregate net cash from operations distributed
to partners for such fiscal year. Thereafter, the general partners will be
allocated 10% of any distributions of remaining net cash from operations for
such fiscal year.
All distributions of distributable net proceeds (as defined in the partnership
agreement) from property dispositions and refinancings will be allocated to the
limited partners until each limited partner has received an amount equal to a
cumulative 7% per annum of the average of the limited partners' adjusted capital
value, less any prior distributions of net cash from operations and
distributable net proceeds, and has also received an amount equal to the limited
partners' adjusted capital value. Thereafter, the general partners receive 1%
of the selling prices of properties sold where they acted as a broker, and then
the limited partners will be allocated 85% of any remaining distributions of
distributable net proceeds and the general partners will receive 15%.
Undistributed Net Proceeds from Refinancing: At December 31, 1996, $871,000 of
net proceeds from refinancings remained undistributed.
Allocation of Profits, Gains and Losses: Profits, gains and losses of the
Partnership are allocated between general and limited partners in accordance
with the provisions of the partnership agreement.
For any fiscal year, to the extent that profits, not including gains from
property dispositions, do not exceed distributions of net cash from operations,
such profits are allocated in the same manner as such distributions. In any
fiscal year in which profits, not including gains from property disposition,
exceed distributions of net cash from operations, such excess is treated on a
cumulative basis as if it constituted an equivalent amount of distributable net
proceeds and is allocated together with, and in the same manner as, that portion
of gain described in the second sentence of the following paragraph.
Any gain from property dispositions attributable to the excess, if any, of the
indebtedness relating to a property immediately prior to the disposition of such
property over the Partnership's adjusted basis in the property shall be
allocated to each partner having a negative capital account balance, to the
extent of such negative balance. The balance of any gain shall be treated on a
cumulative basis as if it constituted an equivalent amount of distributable net
proceeds and shall be allocated to the general partners to the extent that
general partners would have received distributable net proceeds in connection
therewith; the balance shall be allocated to the limited partners. However, the
interest of the general partners will be equal to at least 1% of each gain at
all times during the existence of the Partnership. Accordingly, net income as
shown in the statement of operations and changes in partners' capital (deficit)
for 1996 was allocated 99% to the limited partners and 1% to the general
partners. Net income per limited partnership unit was computed by dividing the
net income allocated to the limited partners by 17,343 weighted average units
outstanding.
All losses, including losses attributable to property dispositions, are
allocated 99% to the limited partners and 1% to the general partners.
Accordingly, net loss as shown in the statements of operations and changes in
partners' capital (deficit) for 1995 was allocated 99% to the limited partners
and 1% to the general partners. Net loss per limited partnership unit was
computed as 99% of net loss divided by 17,343 weighted average units
outstanding.
Other Reserves: The Corporate General Partner may designate a portion of cash
generated from operations as "other reserves" in determining net cash from
operations. The general partners designated as other reserves an amount equal to
the net liabilities related to the operations of apartment properties during the
current fiscal year that are expected to require the use of cash during the next
fiscal year. The change in other reserves during 1996 and 1995 was
approximately ($3,000) and $64,000 respectively, which amounts were determined
by considering changes in the balances of, restricted cash, accounts receivable,
escrows for taxes, other assets, accounts payable, tenant security deposit
liabilities, accrued taxes and other liabilities. At this time, the Corporate
General Partner expects to continue to adjust other reserves based on the net
change in the aforementioned account balances.
Restricted Escrows: At the time of the refinancing of the Governor's Park
mortgage note payable in 1993, a General Reserve Account was established with
the refinancing proceeds from Governor's Park. These funds were established to
cover necessary repairs and replacements of existing improvements, debt service,
out of pocket expenses incurred for ordinary and necessary administrative tasks,
and payment of real property taxes and insurance premiums. The Partnership is
required to deposit and maintain net operating income (as defined in the
mortgage note) to the Governor's Park reserve account until it equals $400 per
apartment unit or $75,200 in total. The balance in the reserve account at
December 31, 1996, is approximately $82,000, which includes interest earned on
these funds.
Escrows for Taxes: Currently, these funds are held by the lender for Hickory
Ridge. Governor's Park's escrow is held by the Partnership. Escrow funds are
designated for the payment of real estate taxes.
Depreciation: Depreciation is calculated by the straight-line method over the
estimated lives of the apartment properties and related personal property. For
Federal income tax purposes, the accelerated cost recovery method is used (1)
for real property over 19 years for additions prior to January 1, 1987, and (2)
for personal property over 5 years for additions prior to January 1, 1987. As
a result of the Tax Reform Act of 1986, for additions after December 31, 1986,
the modified accelerated cost recovery method is used for depreciation of (1)
real property additions over 27 1/2 years and (2) personal property additions
over 7 years.
Loan Costs: Loan costs of approximately $304,000, net of accumulated
amortization of approximately $104,000, are included in other assets and are
being amortized on a straight-line basis over the life of the related loan.
Advertising Costs: Advertising costs of approximately $47,000 in 1996 and
$49,000 in 1995 were charged to expense as incurred and are included in
operating expenses.
Unrestricted Cash: Unrestricted cash includes cash on hand and in banks and
certificates of deposit with original maturities less than 90 days. At certain
times, the amount of cash deposited at a bank may exceed the limit on insured
deposits.
Restricted Cash - Tenant Security Deposits: The Partnership requires security
deposits from lessees for the duration of the lease and such deposits are
considered restricted cash. Deposits are refunded when the tenant vacates,
provided the tenant has not damaged the unit and is current on rental payments.
Leases: The Partnership generally leases apartment units for twelve-month terms
or less. The Partnership recognizes income as earned on its leases. In
addition, management finds it necessary to offer rental concessions during
particularly slow months or in response to heavy competition from other similar
complexes in the area. Concessions are charged to expense as incurred.
Investment Properties: The Partnership's investment properties consist of two
apartment complexes stated at cost. Prior to the fourth quarter of 1995, costs
of apartment properties that were permanently impaired were written down to
appraised value. The Corporate General Partner relied on the annual appraisals
performed by outside appraisers for the estimated value of the Partnership's
properties. There are three recognized approaches or techniques available to
the appraiser. When applicable, these approaches are used to process the data
considered significant to each to arrive at separate value indications. In all
instances, the experience of the appraiser, coupled with his objective judgment,
plays a major role in arriving at the conclusions of the indicated value from
which the final estimate of value is made. The three approaches commonly used
are the cost approach, the sales comparison approach, and the income approach.
The cost approach is often not considered to be reliable due to the lack of land
sales and the significant amount of depreciation and, therefore, is often not
presented. Upon receipt of the appraisals, any property which was stated on the
books of the Partnership above the estimated value given in the appraisal was
written down to the estimated value given by the appraiser. The appraiser
assumed a stabilized occupancy at the time of the appraisal and, therefore, any
impairment of value was considered to be permanent by the Corporate General
Partner.
During the fourth quarter of 1995, the Partnership adopted "FASB Statement No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," which requires impairment losses to be recognized for
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows are not sufficient to recover the related
asset's carrying amount. The impairment loss is measured by comparing the fair
value of the asset to its carrying amount. The adoption of "FASB No. 121" did
not have a material effect on the Partnership's financial statements. For the
years ended December 31, 1996 and 1995, no adjustments for impairment of value
were recorded.
Fair Value: The Partnership has implemented "FASB Statement No. 107, Disclosure
about Fair Value of Financial Instruments," which requires disclosure of fair
value information about financial instruments for which it is practicable to
estimate that value. The carrying amount of the Partnership's cash and
investments approximates fair value due to short-term maturities. The
Partnership estimates the fair value of its fixed rate mortgages by discounted
cash flow analysis, based on estimated borrowing rates currently available to
the Partnership.
Reclassifications: Certain reclassifications have been made to the 1995
information to conform to the 1996 presentation.
Note B - Mortgage Notes Payable
The principal terms of notes payable are as follows (dollars in thousands):
Principal Monthly Principal
Balance At Payment Stated Balance
December 31, Including Interest Maturity Due At
Property 1996 Interest Rate Date Maturity
Hickory Ridge $ 6,622 $ 51 7.50% 03/01/01 $6,057
Governor's Park
1st mortgage 4,589 35 7.83% 10/15/03 4,099
2nd mortgage 147 1 7.83% 10/15/03 147
11,358 $ 87
Less unamortized
discounts (72)
$11,286
The estimated fair value of the Partnership's aggregate debt approximates its
carrying value. This estimate is not necessarily indicative of the amounts the
Partnership may pay in actual market transactions.
The mortgage notes payable are non-recourse and are secured by pledge of all of
the Partnership's apartment properties and by pledge of revenues from the
apartment properties. Certain of the notes require prepayment penalties if
repaid prior to maturity and prohibit resale of the properties subject to
existing indebtedness.
Scheduled principal payments of mortgage notes payable subsequent to December
31, 1996, are as follows (in thousands):
1997 $ 190
1998 194
1999 210
2000 226
2001 6,150
Thereafter 4,388
$11,358
Note C - Income Taxes
The Partnership has received a ruling from the Internal Revenue Service that it
will be classified as a partnership for federal income tax purposes.
Accordingly, no provision for income taxes is made in the financial statements
of the Partnership. Taxable income or loss of the Partnership is reported in the
income tax returns of its partners.
The following is a reconciliation of reported net income (loss) and Federal
taxable income (loss) (in thousands, except per unit data):
1996 1995
Net income (loss) as reported $ 220 $ (78)
Add (deduct):
Depreciation differences (128) (154)
Unearned income (8) (23)
Other 10 (19)
Federal taxable loss $ 94 $ (274)
Federal taxable loss per limited
partnership unit $5.37 $(15.67)
The following is a reconciliation between the Partnership's reported amounts and
Federal tax basis of net assets and liabilities (in thousands):
Net assets as reported $ 1,344
Buildings 2,720
Accumulated depreciation (4,177)
Syndication fees 2,292
Other 16
Net assets - tax basis $ 2,195
Note D - Transactions with Affiliated Parties
The Partnership has no employees and is dependent on the Corporate General
Partner and its affiliates for the management and administration of all
partnership activities. The Partnership Agreement provides for payments to
affiliates for services and as reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership. Property management fees paid to
affiliates of Insignia during 1996 and 1995, are included in operating expenses
on the consolidated statements of operations. The Corporate General Partner and
its affiliates received reimbursements and fees as reflected in the following
table:
1996 1995
Property management fees $182 $171
Reimbursement for services of affiliates 97 68
Included in "reimbursements for services of affiliates" for 1996 is
approximately $18,000 in reimbursements for construction oversight costs.
The Partnership insures its properties under a master policy through an agency
and insurer unaffiliated with the Corporate General Partner. An affiliate of
the Corporate General Partner acquired, in the acquisition of a business,
certain financial obligations from an insurance agency which was later acquired
by the agent who placed the current year's master policy. The current agent
assumed the financial obligations to the affiliate of the Corporate General
Partner who receives payment on these obligations from the agent. The amount of
the Partnership's insurance premiums accruing to the benefit of the affiliate of
the Corporate General Partner by virtue of the agent's obligations is not
significant.
Note E - Real Estate and Accumulated Depreciation
Apartment Properties:
(in thousands)
Initial Cost
To Partnership
Buildings Cost
and Related Capitalized
Personal Subsequent to
Description Encumbrances Land Property Acquisition
Hickory Ridge Apts. $ 6,622 $1,060 $11,839 $ 393
Memphis, Tennessee
Governor's Park Apts. 4,736 714 6,496 51
Ft. Collins, Colorado
Totals $11,358 $1,774 $18,335 $ 444
<TABLE>
<CAPTION>
Gross Amount At Which Carried
At December 31, 1996
Buildings
And
Related
Personal Accumulated Date of Date Depreciation
Description Land Property Total Depreciation Construction Acquired Life-Years
<S> <C> <C> <C> <C> <C> <C> <C>
Hickory Ridge Apts. $1,060 $12,232 $13,292 $6,290 1971-1973 08/27/85 5-29
Memphis, Tennessee
Governor's Park Apts. 714 6,547 7,261 2,844 1983 09/30/85 5-39
Ft. Collins, Colorado
Totals $1,774 $18,779 $20,553 $9,134
</TABLE>
Reconciliation of "Real Estate and Accumulated Depreciation:"
Years Ended December 31,
1996 1995
Real Estate
Balance at beginning of year $20,041 $19,392
Property improvements 512 653
Disposal of property 0 (4)
Balance at End of Year $20,553 $20,041
Accumulated Depreciation
Balance at beginning of year $ 8,376 $ 7,663
Additions charged to expense 758 716
Disposal of property 0 (3)
Balance at End of Year $ 9,134 $ 8,376
The aggregate cost of the real estate for Federal income tax purposes at
December 31, 1996 and 1995, is approximately $23,273,000 and $22,761,000,
respectively. The accumulated depreciation taken for Federal income tax
purposes at December 31, 1996 and 1995, is approximately $13,311,000 and
$12,425,000.
Note F- Contingencies
The Partnership is unaware of any pending or outstanding litigation that is not
of a routine nature. The Corporate General Partner of the Partnership believes
that all such matters are adequately covered by insurance and will be resolved
without a material adverse effect upon the business, financial condition, or
operations of the Partnership.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons,
Compliance with Section 16(a) of the Exchange Act
The Registrant has no officers or directors. The Individual and Corporate
General Partners are as follows:
Individual General Partner - N. Barton Tuck, Jr., age 58, is the Individual
General Partner of the Registrant. Mr. Tuck is Chairman of GolfSouth
Management, Inc. Until August 1990, he served as Chairman and Chief Executive
Officer of U.S. Shelter Corporation ("Shelter"), the former parent of AmReal
Corporation (parent of the Corporate General Partner of the Partnership). For
six years prior to 1966, Mr. Tuck was employed in Greenville, South Carolina by
the certified public accounting firm of S.D. Leidesdorf & Company. From 1966 to
1970, he was a registered representative with the investment banking firm of
Harris Upham & Co., Inc. in Greenville, South Carolina. Since 1970, Mr. Tuck has
been engaged in arranging equity investments for individuals and partnerships.
Mr. Tuck is a graduate of the University of North Carolina. Mr. Tuck has
delegated to the Corporate General Partner all of his authority, as a general
partner of the Partnership, to manage and control the Partnership and its
business and affairs.
Corporate General Partner - The names and ages of, as well as the positions and
offices held by, the executive officers and directors of Shelter Realty VII
Corporation are set forth below. There are no family relationships between or
among any officers or directors.
Name Age Position
William H. Jarrard, Jr. 50 President and
Director
Ronald Uretta 41 Vice President and
Treasurer
John K. Lines, Esq. 37 Vice President and
Secretary
Kelley M. Buechler 39 Assistant Secretary
Mr. Jarrard, who had previously served as Vice President, became President in
August 1994. In June 1994, Mr. Lines became Vice President and Secretary and
Ms. Buechler, who had previously held the position of Secretary, became
Assistant Secretary.
William H. Jarrard, Jr. has been Managing Director - Partnership Administration
of Insignia since January 1991. Mr. Jarrard served as Managing Director -
Partnership Administration and Asset Management from July 1994 until January
1996.
Ronald Uretta has been Insignia's treasurer since January 1992. Since August
1996, he has also served as Chief Operating Officer. He has also served as
Secretary from January 1992 to June 1994 and as Chief Financial Officer from
January 1992 to August 1996. Since September 1990, Mr. Uretta has also served
as the Chief Financial Officer and Controller of Metropolitan Asset Group.
John K. Lines, Esq. has been Vice President and Secretary of the Corporate
General Partner since August 1994, Insignia's General Counsel since June 1994,
and General Counsel and Secretary since July 1994. From May 1993 until June
1994, Mr. Lines was the Assistant General Counsel and Vice President of Ocwen
Financial Corporation, West Palm Beach, Florida. From October 1991 until May
1993, Mr. Lines was a Senior Attorney with Banc One Corporation, Columbus, Ohio.
From May 1984 until October 1991, Mr. Lines was an attorney with Squire Sanders
& Dempsey, Columbus, Ohio.
Kelley M. Buechler has been Assistant Secretary of the Corporate General Partner
and Assistant Secretary of Insignia since 1991. During the five years prior to
joining Insignia in 1991, she served in similar capacities with U. S. Shelter.
Item 10. Executive Compensation
Neither the Individual General Partner nor any of the directors or officers of
the Corporate General Partner received any remuneration from the Registrant.
Item 11. Security Ownership of Certain Beneficial Owners and Management
As of December 31, 1996, no person was known by the Registrant to be the
beneficial owner of more than 5% of the Limited Partnership Units of the
Registrant.
No director or officer of the Corporate General Partner owns any Units. The
Corporate General Partner owns 100 Units as required by the terms of the
partnership agreement governing the Partnership.
Item 12. Certain Relationships and Related Transactions
The Individual General Partner and the Corporate General Partner received no
cash distributions from operations as General or Limited Partners during, or
with respect to, the fiscal year ended December 31, 1996. For a description of
the share of cash distributions from operations, if any, to which the general
partners are entitled, reference is made to the material contained in the
Prospectus under the heading PROFITS AND LOSSES AND CASH DISTRIBUTIONS.
The Registrant has a property management agreement with Insignia Residential
Group, L.P. pursuant to which Insignia Residential Group, L.P. has assumed
direct responsibility for day-to-day management of the Partnership's
properties. This service includes the supervision of leasing, rent collection,
maintenance, budgeting, employment of personnel, payment of operating expenses,
etc. Insignia Residential Group, L.P. receives a property management fee equal
to 5% of apartment revenues. During the fiscal year ended December 31, 1996,
Insignia Residential Group, L.P. received approximately $182,000 in fees for
property management.
For a more detailed description of the management fee that Insignia Residential
Group, L.P. is entitled to receive, see the material contained in the Prospectus
under the heading CONFLICTS OF INTEREST - Property Management Services.
For a further description of payments made by the Registrant to affiliates for
services and as reimbursement of certain expenses incurred by affiliates on
behalf of the Registrant, see "Note D" of notes to financial statements included
as part of this report.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 27, Financial Data Schedule, is filed as an exhibit to this report.
(b) Reports on Form 8-K filed in the fourth quarter of fiscal year 1996:
None.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SHELTER PROPERTIES VII LIMITED PARTNERSHIP
By: Shelter Realty VII Corporation
Corporate General Partner
By: /s/William H. Jarrard, Jr.
William H. Jarrard, Jr.
President and Director
Date: March 21, 1997
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the date indicated.
/s/William H. Jarrard, Jr. Date: March 21, 1997
William H. Jarrard, Jr.
President and Director
/s/Ronald Uretta Date: March 21, 1997
Ronald Uretta
Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
EXHIBIT INDEX
Exhibit
3 See Exhibit 4(a)
4 (a) Amended and Restated Certificate and Agreement of Limited Partnership
[included as Exhibit A to the Prospectus of Registrant dated March 18,
1985 contained in Amendment No. 1 to Registration Statement No. 2-
94604, of Registrant filed March 18, 1985 (the "Prospectus") and
incorporated herein by reference].
(b) Subscription Agreements and Signature Pages. [Filed with Amendment
No. 1 of Registration Statement No. 2-94604, of Registrant filed
March 18, 1985 and incorporated herein by reference].
(c) Wrap around Deed of Trust Note and Deed of Trust and Personal Property
Security Agreement between Boyle Trust and Investment Company and
Shelter Properties VII to acquire Hickory Ridge Apartments.*
(d) Promissory Note and Combination Deed of Trust, Security Agreement and
Fixture Financing Statement between State Mutual Life Assurance
Company of America and Shelter Properties VII to acquire Governor's
Park Apartments.*
*Filed as Exhibit 4(d) and 4(e), respectively, to Form 10-K of
Registrant for year ended December 31, 1987 and incorporated herein by
reference.
10(i) Contracts related to acquisition of properties.
(a) Purchase Agreement dated October 8, 1984 as Amended by Addendum dated
December 27, 1984 between Boyle and Trust and Investment Company,
Trustee and U.S. Shelter Corporation to acquire Hickory Ridge
Apartments. [Filed as Exhibit 10(E) to Amendment No. I of
Registration Statement No. 2-94604 of the Registrant filed March 18,
1985 and incorporated herein by reference.]
(b) Purchase Agreement dated January 14, 1985, between NFC/TDM Joint
Venture and U.S. Shelter Corporation to acquire Governor's Park
Apartments. [Filed as Exhibit 10(F) to Post-Effective Amendment No. 2
of Registration Statement No. 2-94604 of the Registrant filed June 27,
1985 and incorporated herein by reference.]
10(ii) Form of Management Agreement with U.S. Shelter Corporation
subsequently assigned to Shelter Management Group, L.P. (now known as
Insignia Management Group, L.P.). [Filed with Amendment No. 1 of
Registration Statement, No. 2-94604, of Registrant filed March 18,
1985 and incorporated herein by reference.]
(iii) Contracts related to refinancing of debt:
(a) Tennessee Deed of Trust and Security Agreement dated December 28, 1988
between Shelter Properties VII Limited Partnership and John Hancock
Mutual Life Insurance Company relating to Hickory Ridge Apartments. *
(b) Promissory Note dated December 28, 1988 between Shelter Properties VII
Limited Partnership and John Hancock Mutual Life Insurance Company, a
Massachusetts corporation, relating to Hickory Ridge Apartments.
First Amendment to Note and Certification and Release by Borrower
between John Hancock Mutual Life Insurance Company and Shelter
Properties VII Limited Partnership and dated July 5, 1992. *
*Filed as Exhibits 10(iii) (a) and (b), respectively, to Form 10KSB
for the year ended December 31, 1992 and incorporated herein by
reference.
(c) First Deed of Trust Note dated September 30, 1993 between Governor's
Park Apartments VII Limited Partnership and Lexington Mortgage
Company, a Virginia corporation, relating to Governor's Park. **
(d) Second Deed of Trust Note dated September 30, 1993 between Governor's
Park Apartments VII Limited Partnership and Lexington Mortgage
Company, a Virginia corporation, relating to Governor's Park. **
(e) First Deed of Trust and Security Agreement between Governor's Park
Apartments VII Limited Partnership and Lexington Mortgage Company, a
Virginia corporation, securing Governor's Park Apartments. **
(f) Second Deed of Trust and Security Agreement between Governor's Park
Apartments VII Limited Partnership and Lexington Mortgage Company, a
Virginia corporation, securing Governor's Park Apartments. **
(g) First Collateral Assignment of Leases and Rents dated September 30,
1993 between Governor's Park Apartments VII Limited Partnership and
Lexington Mortgage Company, a Virginia corporation, securing
Governor's Park Apartments. **
(h) Second Collateral Assignment of Leases and Rents dated September 30,
1993 between Governor's Park Apartments VII Limited Partnership and
Lexington Mortgage Company, a Virginia corporation, securing
Governor's Park Apartments. **
**Filed as Exhibits 10 (iii) (a) through (h) to Form 10QSB for the
quarter ended September 30, 1993 and incorporated herein by reference.
(i) Note Modification Agreement and Amended and Restated Promissory Note
both dated February 28, 1994 between Shelter Properties VII Limited
Partnership and John Hancock Mutual Life Insurance Company relating to
Hickory Ridge Apartments.
(j) Modification to Security Instruments dated February 28, 1994 between
Shelter Properties VII Limited Partnership and John Hancock Mutual
Life Insurance Company relating to Hickory Ridge Apartments.
***Filed as Exhibits 10(iii) (i) through (j) to Form 10-KSB for the
year ended December 31, 1993 and incorporated herein by reference.
22 Subsidiaries of the Registrant
27 Financial Data Schedule
99 (a) Prospectus of Registrant dated March 18, 1985 [included in
Registration Statement No. 2-94604, of Registrant] and incorporated
herein by reference.
(b) Agreement of Limited Partnership for Governor's Park Apartments VII
Limited Partnership between Shelter Properties VII GP Limited
Partnership and Shelter Properties VII Limited Partnership entered
into September 9, 1993. ****
(c) Agreement of Limited Partnership for Shelter Properties VII GP Limited
Partnership between Shelter VII Limited Partnership and Shelter Realty
VII Corporation. ****
****Filed as Exhibits 28(a) and (b) to Form 10QSB dated September 30,
1993 and incorporated herein by reference.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Shelter
Properties VII Limited Partnership 1996 Year-End 10-KSB and is qualified in its
entirety by reference to such 10-KSB filing.
</LEGEND>
<CIK> 0000758009
<NAME> SHELTER PROPERTIES VII LIMITED PARTNERSHIP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,055
<SECURITIES> 0
<RECEIVABLES> 8
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 20,553
<DEPRECIATION> (9,134)
<TOTAL-ASSETS> 13,084
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 11,286
0
0
<COMMON> 0
<OTHER-SE> 1,344
<TOTAL-LIABILITY-AND-EQUITY> 13,084
<SALES> 0
<TOTAL-REVENUES> 3,687
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,467
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 917
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 220
<EPS-PRIMARY> 12.56<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
EXHIBIT 22
SHELTER PROPERTIES VII LIMITED PARTNERSHIP
SUBSIDIARY LIST
Name of Subsidiary State of Incorporation/Formation Date
Governors Park Apartments VII
Limited Partnership South Carolina 1993
Shelter VII GP
Limited Partnership South Carolina 1993
