FORM 10-QSB--QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY OR TRANSITIONAL REPORT
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from.........to.........
Commission file number 0-14369
SHELTER PROPERTIES VII LIMITED PARTNERSHIP
(Exact name of small business issuer as specified 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
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act 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 .
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a) SHELTER PROPERTIES VII LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEET
(in thousands, except unit data)
(Unaudited)
September 30, 1997
Assets
Cash and cash equivalents:
Unrestricted $ 709
Restricted-tenant security deposits 74
Accounts receivable 22
Escrow for taxes 121
Restricted escrows 86
Other assets 195
Investment properties:
Land $ 1,774
Buildings and related personal property 19,318
21,092
Less accumulated depreciation (9,690) 11,402
$12,609
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable $ 35
Tenant security deposits 74
Accrued property taxes 135
Other liabilities 102
Mortgage notes payable 11,159
Partners' Capital (Deficit)
General partners' $ (134)
Limited partners' (17,343 units
issued and outstanding) 1,238 1,104
$12,609
See Accompanying Notes to Consolidated Financial Statements
b) SHELTER PROPERTIES VII LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except unit data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
Revenues:
Rental income $ 918 $ 886 $2,664 $2,615
Other income 47 42 129 114
Total revenues 965 928 2,793 2,729
Expenses:
Operating 291 251 783 734
General and administrative 32 29 100 97
Maintenance 189 131 442 384
Depreciation 204 192 590 562
Interest 224 229 678 689
Property taxes 45 40 136 128
Total expenses 985 872 2,729 2,594
Net income (loss) $ (20) $ 56 $ 64 $ 135
Net income allocated
to general partners (1%) $ -- $ -- $ 1 $ 1
Net income (loss) allocated
to limited partners (99%) (20) 56 63 134
$ (20) $ 56 $ 64 $ 135
Net income (loss) per limited
partnership unit $(1.15) $ 3.22 $ 3.65 $ 7.73
See Accompanying Notes to Consolidated Financial Statements
c) SHELTER PROPERTIES VII LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(in thousands, except unit data)
(Unaudited)
Limited
Partnership General Limited
Units Partners' Partners' Total
Original capital contributions 17,343 $ 2 $17,343 $17,345
Partners' capital (deficit)
at December 31, 1996 17,343 $(135) $ 1,479 $ 1,344
Net income for the nine months
ended September 30, 1997 -- 1 63 64
Distribution to partners -- -- (304) (304)
Partners' capital (deficit)
at September 30, 1997 17,343 $(134) $ 1,238 $ 1,104
See Accompanying Notes to Consolidated Financial Statements
d) SHELTER PROPERTIES VII LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $ 64 $ 135
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 590 562
Amortization of discounts and loan costs 31 32
Casualty gain (28) --
Loss on disposal of property 43 --
Change in accounts:
Restricted cash 6 6
Accounts receivable (14) 1
Escrows for taxes 39 36
Other assets 8 17
Accounts payable 48 (10)
Tenant security deposit liabilities (6) (6)
Accrued property taxes (40) (44)
Other liabilities (58) 4
Net cash provided by operating activities 683 733
Cash flows from investing activities:
Property improvements and replacements (641) (394)
Insurance proceeds received 52 --
Deposits to restricted escrows (3) (3)
Receipts from restricted escrows -- 24
Net cash used in investing activities (592) (373)
Cash flows from financing activities:
Payments on mortgage notes payable (133) (124)
Distributions to partners (304) --
Net cash used in financing activities (437) (124)
Net (decrease) increase in unrestricted cash
and cash equivalents (346) 236
Unrestricted cash and cash equivalents at beginning of period 1,055 680
Unrestricted cash and cash equivalents at end of period $ 709 $ 916
Supplemental disclosure of cash flow information:
Cash paid for interest $ 647 $ 657
<FN>
See Accompanying Notes to Consolidated Financial Statements
</FN>
</TABLE>
e) SHELTER PROPERTIES VII LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Shelter
Properties VII (the "Partnership") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-QSB and Article 310(b) of Regulation S-B.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of Shelter Realty VII Corporation (the "Corporate General
Partner"), all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three and nine month periods ended September 30, 1997, are not necessarily
indicative of the results that may be expected for the fiscal year ending
December 31, 1997. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Partnership's annual report on
Form 10-KSB for the year ended December 31, 1996.
Certain reclassifications have been made to the 1996 information to conform to
the 1997 presentation.
NOTE B - RECONCILIATION OF CASH FLOWS
The following is a reconciliation of the subtotal on the accompanying statements
of cash flows captioned "net cash provided by operating activities" to "net cash
used in operations," as defined in the partnership agreement. However, "net
cash used in 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 (amounts in thousands):
Nine Months Ended
September 30,
1997 1996
Net cash provided by operating activities $ 683 $ 733
Payments on mortgage notes payable (133) (124)
Property improvements and replacements (641) (394)
Change in restricted escrows, net (3) 21
Changes in reserves for net operating
liabilities 17 (4)
Additional reserves -- (235)
Net cash used in operations $ (77) $ (3)
At September 30, 1996, the Corporate General Partner believed it to be in the
best interest of the Partnership to reserve an additional $235,000 to fund
maintenance items and capital improvements including the vinyl siding project at
Hickory Ridge.
NOTE C - 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. The following amounts were paid to the
Corporate General Partner and affiliates in 1997 and 1996:
Nine Months Ended
September 30,
1997 1996
(in thousands)
Property management fees (included in operating expenses) $137 $135
Reimbursement for services of affiliates, including
approximately $45,000 and $13,000 in 1997 and 1996,
respectively, for construction oversight reimbursements
(included in general and administrative expenses,
maintenance expenses and investment properties) 103 57
For the period of January 1, 1996 to August 31, 1997, the Partnership insured
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 master policy. The agent assumed the financial obligations to the
affiliate of the Corporate General Partner who received payments 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Partnership's investment properties consist of two apartment complexes. The
following table sets forth the average occupancy of the properties for each of
the nine months ended September 30, 1997 and 1996:
Average
Occupancy
1997 1996
Hickory Ridge Apartments
Memphis, Tennessee 90% 97%
Governor's Park Apartments
Ft. Collins, Colorado 95% 94%
The Corporate General Partner attributes the decrease in occupancy at Hickory
Ridge to soft market conditions due to new construction. In an effort to
improve occupancy, the property has an exterior building improvement project in
progress.
The Partnership reported net income for the nine months ended September 30,
1997, of approximately $64,000 with a third quarter net loss of approximately
$20,000. The Partnership reported net income of $135,000 and $56,000 for the
corresponding periods in 1996. The decrease in net income for the three and
nine months ended September 30, 1997 was a result of increased operating
expenses and maintenance expenses. Operating expenses increased due to the loss
on disposal of property of $43,000 that relates to the roof write offs on both
of the Partnership's investment properties. Partially offsetting this increase
in operating expense is a casualty gain of $28,000 relating to the hail damage
at Governor's Park Apartments. The hail damage occurred in 1996, however, the
expenses were incurred during the nine months ended September 30, 1997 and the
insurance proceeds were received during the same period. Also contributing to
the increase in operating expenses was an increase in concessions and utility
expenses at Hickory Ridge Apartments. Maintenance expense increased due to the
expenses incurred at Hickory Ridge Apartments as a result of two fires during
the nine months ended September 30, 1997 and one fire at the end of 1996. The
insurance proceeds received on each of these fires were minimal due to the
property's deductible and minimal damage to the units. Also contributing to the
increase in maintenance is parking lot repairs at Governor's Park Apartments.
Included in maintenance expense for the period ended September 30, 1997, was
approximately $132,000 of major repairs and maintenance comprised of exterior
building improvements, parking lot repairs and construction oversight
reimbursements. Included in maintenance expense for the period ended September
30, 1996, was approximately $140,000 of major repairs and maintenance comprised
of exterior building improvements and exterior painting. The increase in these
expenses were partially offset by increases in rental income and other income.
Rental income increased due to an increase in rental rates at both investment
properties, offset by a decrease in occupancy at Hickory Ridge Apartments. Other
income increased due to increases in corporate unit collections at Governor's
Park and an increase in application fees and deposit forfeitures at Hickory
Ridge.
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 of
increasing occupancy levels and protecting the Partnership from increases in
expense. 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.
At September 30, 1997, the Partnership had unrestricted cash and cash
equivalents of approximately $709,000 compared to $916,000 for the corresponding
period in 1996. Net cash provided by operating activities decreased due to the
decrease in net income discussed above. Net cash used in investing activities
increased due to increased property improvements and replacements and decreased
receipts from restricted escrows in 1997 as compared to 1996. Partially
offsetting the increase in net cash used in investing activities was an increase
in insurance proceeds received. Net cash used in financing activities increased
due to the distributions paid to partners during the nine month period ended
September 30, 1997, as compared to the same period in 1996.
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 $11,159,000, 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. In May 1997, the Partnership distributed approximately $300,000 to the
limited partners and in April 1997, the Partnership paid approximately $4,000 to
Colorado for state tax withholdings on behalf of the limited partners. No cash
distributions were recorded in 1996. Future cash distributions will depend on
the levels of net cash generated from operations, property sales, and the
availability of cash reserves.
PART II - OTHER INFORMATION
ITEM 6. 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:
None filed during the quarter ended September 30, 1997.
SIGNATURES
In accordance with the requirements 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
By: /s/ Ronald Uretta
Ronald Uretta
Treasurer
(Principal Financial Officer
and Principal Accounting Officer)
Date: November 13, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Shelter
Properties VII Limited Partnership 1997 Third Quarter 10-QSB and is qualified in
its entirety by reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000758009
<NAME> SHELTER PROPERTIES VII LIMITED PARTNERSHIP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 709
<SECURITIES> 0
<RECEIVABLES> 22
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 21,092
<DEPRECIATION> 9,690
<TOTAL-ASSETS> 12,609
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 11,159
0
0
<COMMON> 0
<OTHER-SE> 1,104
<TOTAL-LIABILITY-AND-EQUITY> 12,609
<SALES> 0
<TOTAL-REVENUES> 2,793
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,729
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 678
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 64
<EPS-PRIMARY> 3.65<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
