-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TdxXuyen9AG07JJn4S/gzyYYA1ReUUIlhRdxhvak77pho63S87QXkyWf5Wlh7nnO qwAjpvfgYmxbRpH4WkaNGA== 0000950148-98-002051.txt : 19980819 0000950148-98-002051.hdr.sgml : 19980819 ACCESSION NUMBER: 0000950148-98-002051 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980818 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: REAL ESTATE ASSOCIATES LTD VII CENTRAL INDEX KEY: 0000722648 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 953290316 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-13810 FILM NUMBER: 98693515 BUSINESS ADDRESS: STREET 1: 9090 WILSHIRE BLVD STE 201 CITY: BEVERLY HILLS STATE: CA ZIP: 90211 BUSINESS PHONE: 3102782191 MAIL ADDRESS: STREET 1: 9090 WILSHIRE BLVD STREET 2: STE 201 CITY: BEVERLY HILLS STATE: CA ZIP: 90211 10-Q 1 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended JUNE 30, 1998 Commission File Number 0-13810 REAL ESTATE ASSOCIATES LIMITED VII (A California Limited Partnership) I.R.S. Employer Identification No. 95-3290316 9090 WILSHIRE BLVD., SUITE 201 BEVERLY HILLS, CALIF. 90211 Registrant's Telephone Number, Including Area Code (310) 278-2191 Indicate by check mark whether the registrant (1) has filed all documents and reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] 2 REAL ESTATE ASSOCIATES LIMITED VII (A CALIFORNIA LIMITED PARTNERSHIP) INDEX TO FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998 PART I. FINANCIAL INFORMATION Item 1. Financial Statements Balance Sheets, June 30, 1998 and December 31, 1997 ...............1 Statements of Operations, Six and Three Months Ended June 30, 1998 and 1997 ..........2 Statement of Partners' Deficiency, Six Months Ended June 30, 1998 .............................3 Statements of Cash Flows, Six Months Ended June 30, 1998 and 1997 ....................4 Notes to Financial Statements .....................................5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation ........................11 PART II. OTHER INFORMATION Item 1. Legal Proceedings................................................13 Item 6. Exhibits and Reports on Form 8-K.................................13 Signatures .............................................................14
3 REAL ESTATE ASSOCIATES LIMITED VII (A CALIFORNIA LIMITED PARTNERSHIP) BALANCE SHEETS JUNE 30, 1998 AND DECEMBER 31, 1997 ASSETS
1998 (Unaudited) 1997 ------------ ------------ INVESTMENTS IN LIMITED PARTNERSHIPS (Note 2) $ 16,507,530 $ 16,870,487 CASH 458,733 447,200 OTHER ASSETS 106,729 105,129 ------------ ------------ TOTAL ASSETS $ 17,072,992 $ 17,422,816 ============ ============ LIABILITIES AND PARTNERS' DEFICIENCY LIABILITIES: Notes payable (Note 3) $ 24,869,501 $ 24,869,501 Accrued interest payable (Note 3) 27,008,889 26,152,645 Accrued fees and expenses due general partner (Note 4) 4,134,314 3,762,494 Accounts payable and other liabilities 169,021 116,312 ------------ ------------ 56,181,725 54,900,952 ------------ ------------ COMMITMENTS AND CONTINGENCIES (Notes 4 and 5) PARTNERS' DEFICIENCY: General partners (714,218) (697,912) Limited partners (38,394,515) (36,780,224) ------------ ------------ (39,108,733) (37,478,136) ------------ ------------ TOTAL LIABILITIES AND PARTNERS' DEFICIENCY $ 17,072,992 $ 17,422,816 ============ ============
The accompanying notes are an integral part of these financial statements. 4 REAL ESTATE ASSOCIATES LIMITED VII (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF OPERATIONS SIX AND THREE MONTHS ENDED JUNE 30, 1998 AND 1997 (Unaudited)
Six months Three months Six months Three months ended ended ended ended June 30, 1998 June 30, 1998 June 30, 1997 June 30, 1997 ------------- ------------- ------------- ------------- REVENUE: Interest income $ 8,871 $ 4,490 $ 7,258 $ 4,353 ----------- ----------- ----------- ----------- OPERATING EXPENSES: Interest (Note 3) 1,164,708 582,354 1,172,396 592,842 Management fees - general partner (Note 4) 371,820 185,910 371,820 185,910 General and administrative (Notes 2 and 4) 257,300 123,056 60,669 37,891 Legal and accounting 85,465 51,222 78,004 37,779 ----------- ----------- ----------- ----------- 1,879,293 942,542 1,682,889 854,422 ----------- ----------- ----------- ----------- LOSS FROM OPERATIONS (1,870,422) (938,052) (1,675,631) (850,069) DISTRIBUTIONS FROM LIMITED PARTNERSHIP RECOGNIZED AS INCOME (Note 2) 209,825 102,198 40,787 16,159 EQUITY IN INCOME (LOSS) OF LIMITED PARTNERSHIPS AND AMORTIZATION OF ADDITIONAL BASIS AND ACQUISITION COSTS (Note 2) 30,000 15,000 (112,000) (56,000) ----------- ----------- ----------- ----------- NET $(1,630,597) $ (820,854) $(1,746,844) $ (889,910) =========== =========== =========== =========== NET LOSS PER LIMITED PARTNERSHIP INTEREST $ (78) $ (39) $ (84) $ (42) =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements. 5 REAL ESTATE ASSOCIATES LIMITED VII (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF PARTNERS' DEFICIENCY FOR THE SIX MONTHS ENDED JUNE 30, 1998 (Unaudited)
General Limited Partners Partners Total ------------ ------------ ------------ PARTNERSHIP INTERESTS 20,802 ============ DEFICIENCY January 1, 1998 $ (697,912) $(36,780,224) $(37,478,136) Net loss for the six months ended June 30, 1998 (16,306) (1,614,291) (1,630,597) ------------ ------------ ------------ DEFICIENCY June 30, 1998 $ (714,218) $(38,394,515) $(39,108,733) ============ ============ ============
The accompanying notes are an integral part of these financial statements. 6 REAL ESTATE ASSOCIATES LIMITED VII (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (Unaudited)
1998 1997 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(1,630,597) $(1,746,844) Adjustments to reconcile net loss to net cash used in operating activities: Equity in loss of limited partnerships and amortization of additional basis and acquisition costs (30,000) 112,000 Increase in other assets (1,600) -- Increase in accrued interest payable 856,244 596,802 Increase in accrued fees and expenses due general partner 371,820 276,820 Decrease in accounts payable and other liabilities 52,709 (13,381) ----------- ----------- Net cash used in operating activities (381,424) (774,603) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Distributions from limited partnerships recognized as a return of capital 392,957 927,973 ----------- ----------- NET INCREASE IN CASH 11,533 153,370 CASH, BEGINNING OF PERIOD 447,200 342,631 ----------- ----------- CASH, END OF PERIOD $ 458,733 $ 496,001 =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION CASH PAID DURING THE PERIOD FOR INTEREST $ 316,152 $ 575,594 =========== ===========
The accompanying notes are an integral part of these financial statements. 7 REAL ESTATE ASSOCIATES LIMITED VII (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS JUNE 30, 1998 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES GENERAL The information contained in the following notes to the financial statements is condensed from that which would appear in the annual financial statements; accordingly, the financial statements included herein should be reviewed in conjunction with the financial statements and related notes thereto contained in the Annual Report for the year ended December 31, 1997 prepared by Real Estate Associates Limited VII (the "Partnership."). Accounting measurements at interim dates inherently involve greater reliance on estimates than at year end. The results of operations for the interim periods presented are not necessarily indicative of the results for the entire year. In the opinion of the Partnership, the accompanying unaudited financial statements contain all adjustments (consisting primarily of normal recurring accruals), necessary to present fairly the financial position of the Partnership at June 30, 1998, and the results of operations for the six and three months then ended and changes in cash flows for the six months then ended. The general partners have a 1 percent interest in profits and losses of the Partnership. The limited partners have the remaining 99 percent interest which is allocated in proportion to their respective individual investments. National Partnership Investments Corp. (NAPICO) is the corporate general partner of the Partnership. NAPICO is a wholly owned subsidiary of Casden Investment Corporation, which is wholly owned by Alan I. Casden. USES OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. METHOD OF ACCOUNTING FOR INVESTMENT IN LIMITED PARTNERSHIPS The investment in limited partnerships is accounted for on the equity method. Acquisition, selection and other costs related to the acquisition of the projects were capitalized as part of the investment account and are being amortized on a straight line basis over the estimated lines of the underlying assets, which is generally 30 years. 5 8 REAL ESTATE ASSOCIATES LIMITED VII (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1998 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) NET LOSS PER LIMITED PARTNERSHIP INTEREST Net loss per limited partnership interest was computed by dividing the limited partners' share of net loss by the number of limited partnership interests outstanding during the year. The number of limited partnership interests was 20,802 for the periods presented. CASH The Partnership has its cash on deposit primarily with two high credit quality financial institutions. Such cash is in excess of the FDIC insurance limit. INCOME TAXES No provision has been made for income taxes in the accompanying financial statements since such taxes, if any, are the liability of the individual partners. IMPAIRMENT OF LONG-LIVED ASSETS The Partnership reviews long-lived assets to determine if there has been any permanent impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If the sum of the expected future cash flows is less than the carrying amount of the assets, the Partnership recognizes an impairment loss. NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS The Partnership holds limited partnership interests in 32 limited partnerships. In addition, the Partnership holds a general partner interest in REA IV, NAPICO is also the general partner in REA IV. REA IV, in turn, holds limited partner interests in 16 additional limited partnerships. In total, therefore, the Partnership holds interests, either directly or indirectly through REA IV, in 48 partnerships all of which own residential rental projects consisting of 4,731 apartment units. The mortgage loans of these projects are insured by the United States Department of Housing and Urban Development ("HUD") or state governmental agencies. The Partnership, as a limited partner, is entitled to between 98 percent and 99 percent of the profits and losses in the limited partnerships it has invested in directly. The Partnership is also entitled to 99 percent of the profits and losses of REA IV. REA IV holds a 99 percent interest in each of the limited partnerships in which it has invested. Equity in losses of limited partnerships is recognized in the financial statements until the limited partnership investment account is reduced to a zero balance. Losses incurred after the limited partnership investment account is reduced to zero are not recognized. 6 9 REAL ESTATE ASSOCIATES LIMITED VII (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1998 NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED) Distributions from the limited partnerships are accounted for as a return of capital until the investment balance is reduced to zero. Subsequent distributions received are recognized as income. The following is a summary of the investment in limited partnerships for the six months ended June 30, 1998:
1997 ------------ Balance, beginning of period $ 16,870,487 Cash distributions recognized as a return of capital (392,957) Amortization of acquisition costs (94,000) Equity in income of limited partnerships 124,000 ------------ Balance, end of period $ 16,507,530 ============
The following are unaudited combined estimated statements of operations for the six and three months ended June 30, 1998 and 1997 for the limited partnerships in which the Partnership has investments:
Six months Three months Six months Three months ended ended ended ended June 30, 1998 June 30, 1998 June 30, 1997 June 30, 1997 ------------- ------------- ------------- ------------- Revenues: Rental and other $ 6,474,000 $ 3,237,000 $ 13,928,000 $ 6,964,000 Expenses: Depreciation 1,070,000 535,000 2,736,000 1,368,000 Interest 736,000 368,000 2,034,000 1,017,000 Operating 5,288,000 2,644,000 9,990,000 4,995,000 ------------- ------------- ------------- ------------- 7,094,000 3,547,000 14,760,000 7,380,000 ------------- ------------- ------------- ------------- Net loss $ (620,000) $ (832,000) $ (832,000) $ (416,000) ============= ============= ============= =============
The difference between the investment per the accompanying balance sheets at June 30, 1998 and December 31, 1997, and the deficiency per the unaudited combined estimated statements of operations is due primarily to cumulative unrecognized equity in losses of certain limited partnerships, costs capitalized to the investment account and cumulative distributions recognized as income. NAPICO, or one of its affiliates, is the general partner and property management agent for certain of the limited partnerships included above. Under recently adopted law and policy, HUD has determined not to renew housing assistance payments contracts ("HAP Contracts") on their existing terms. In connection with renewals of the HAP Contracts under such new law and policy, the amount of rental assistance payments under renewed HAP Contracts will be based on market rentals instead of above market rentals, which was generally the case under existing HAP Contracts. As a result, existing HAP Contracts that are renewed in the future on projects insured by the Federal Housing Administration of HUD ("FHA") will not provide sufficient cash flow 7 10 REAL ESTATE ASSOCIATES LIMITED VII (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1998 NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED) to permit owners of properties to meet the debt service requirements of these existing FHA-insured mortgages. In order to address the reduction in payments under HAP Contracts as a result of this new policy, the Multi-family Assisted Housing Reform and Affordability Act of 1997("MAHRAA"), which was adopted in October 1997, provides for the restructuring of mortgage loans insured by the FHA with respect to properties subject to HAP Contracts that have been renewed under the new policy. The restructured loans will be held by the current lender or another lender. Under MAHRAA, an FHA-insured mortgage loan can be restructured to reduce the annual debt service on such loan. There can be no assurance that the Partnership will be permitted to restructure its mortgage indebtedness pursuant to the new HUD rules implementing MAHRAA or that the Partnership would choose to restructure such mortgage indebtedness if it were eligible to participate in the MAHRAA program. It should be noted that there are uncertainties as to the economic impact on the Partnership of the combination of the reduced payments under the HAP Contracts and the restructuring of the existing FHA-insured mortgage loans under MAHRAA. Accordingly, the General Partners are unable to predict with certainty their impact on the Partnership's future cash flow. As a result of the foregoing, the Partnership is undergoing an extensive review of the properties in which the limited partnerships have invested that are subject to HUD mortgages and which may be sold to the REIT as set forth below. The Partnership has incurred expenses in connection with this review by various third party professionals, including accounting, legal, valuation, structural review and engineering costs, which amounted to approximately $367,000 through June 30, 1998, including approximately $199,000 for the six months ended June 30, 1998, which are included in general and administrative expenses. A real estate investment trust ("REIT") organized by affiliates of NAPICO has advised the Partnership that it intends to make a proposal to purchase from the Partnership certain of the limited partnership interests held for investment by the Partnership. The REIT proposes to purchase such limited partnership interests for cash, which it plans to raise in connection with a private placement of its equity securities. The purchase is subject to, among other things, (i) consummation of such private placement by the REIT; (ii) the purchase of the general partnership interests in the local limited partnerships by the REIT; (iii) the approval of HUD and certain state housing finance agencies; (iv) the consent of the limited partners to the sale of the local limited partnership interests held for investment by REAL VII; and (v) the consummation of a minimum number of purchase transactions with other NAPICO affiliated partnerships. As of June 30, 1998, the REIT had completed buy-out negotiations with a majority of the general partners of the local limited partnerships. A consent solicitation statement will be sent to the limited partners setting forth the terms and conditions of the purchase of the limited partners' interests held for investment by the Partnership, together with certain amendments to the Partnership Agreement and other disclosures of various conflicts of interest in connection with the proposed transaction. 8 11 REAL ESTATE ASSOCIATES LIMITED VII (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1998 NOTE 3 - NOTES PAYABLE Certain of the Partnership's investments involved purchases of partnership interests from partners who subsequently withdrew from the operating partnership. The Partnership is obligated on non-recourse notes payable of $24,869,501, bearing interest at 9 1/2 percent, to the sellers of the Partnership interests. The notes have principal maturity dates ranging from December 1999 to December 2002 or upon sale or refinancing of the underlying partnership properties. These obligations are collateralized by the Partnership's investments in the investee partnerships and are payable out of cash distributions from the investee partnerships, as defined in the notes. Unpaid interest is due at maturity of the notes. NOTE 4 - ACCRUED FEES AND EXPENSES DUE GENERAL PARTNER Under the terms of the Restated Certificate and Agreement of Limited Partnership, the Partnership is obligated to NAPICO for an annual management fee equal to .5 percent of the invested assets of the partnerships. Invested assets is defined as the costs of acquiring project interests, including the proportionate amount of the mortgage loans related to the Partnership's interests in the capital accounts of the respective partnerships. The fee was approximately $372,000 for the six months ended June 30, 1998 and 1997. The Partnership reimburses NAPICO for certain expenses. The reimbursement to NAPICO was approximately $23,500 and $22,000 for the six months ended June 30, 1998 and 1997, respectively, and is included in administrative expenses. NOTE 5 - CONTINGENCIES The corporate general partner of the Partnership is a plaintiff in various lawsuits and has also been named a defendant in other lawsuits arising from transactions in the ordinary course of business. In the opinion of management and the corporate general partner, the claims will not result in any material liability to the Partnership. The Partnership has assessed the potential impact of the Year 2000 computer systems issue on its operations. The Partnership believes that no significant actions are required to be taken by the Partnership to address the issue and that the impact of the Year 2000 computer systems issue will not materially affect the Partnership's future operating results or financial condition. NOTE 6 - FAIR VALUE OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards No. 107, "Disclosure about Fair Value of Financial Instruments," requires disclosure of fair value information about financial instruments, when it is practicable to estimate that value. The notes payable are collateralized by the Partnership's investments in investee limited partnerships and are payable only out of cash distributions from the investee partnerships. The operations generated by the investee limited partnerships, which account for the Partnership's primary source of revenues, are subject to various government rules, regulations and 9 12 REAL ESTATE ASSOCIATES LIMITED VII (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1998 NOTE 6 - FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED) restrictions which make it impracticable to estimate the fair value of the notes payable and related accrued interest and amounts due general partner. The carrying amount of other assets and liabilities reported on the balance sheets that require such disclosure approximates fair value due to their short-term maturity. 10 13 REAL ESTATE ASSOCIATES LIMITED VII (A CALIFORNIA LIMITED PARTNERSHIP) JUNE 30, 1998 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES The Partnership's primary sources of funds include interest income earned from investing available cash and distributions from limited partnerships in which the Partnership has invested. It is not expected that any of the local limited partnerships in which the Partnership has invested will generate cash flow sufficient to provide for distributions to limited partners in any material amount. RESULTS OF OPERATIONS Partnership revenues consist primarily of interest income earned on certificates of deposit and other temporary investment of funds not required for investment in local partnerships. Operating expenses consist primarily of recurring general and administrative expenses and professional fees for services rendered to the Partnership. In addition, an annual Partnership management fee in an amount equal to .5 percent of invested assets is payable to the corporate general partner. The Partnership accounts for its investments in the local limited partnerships on the equity method, thereby adjusting its investment balance by its proportionate share of the income or loss of the local limited partnerships. Losses incurred after the limited partnership account is reduced to zero are not recognized. Distributions received from limited partnerships are recognized as return of capital until the investment balance has been reduced to zero or to a negative amount equal to future capital contributions required. Subsequent distributions received are recognized as income. Except for certificates of deposit and money market funds, the Partnership's investments are entirely interests in other limited and general partnerships owning government assisted projects. Available cash is invested in money market funds and certificates of deposit which provide interest income as reflected in the statement of operations. These temporary investments can be easily converted to cash to meet obligations as they arise. The Partnership intends to continue investing available funds in this manner. Under recently adopted law and policy, HUD has determined not to renew housing assistance payments contracts ("HAP Contracts") on their existing terms. In connection with renewals of the HAP Contracts under such new law and policy, the amount of rental assistance payments under renewed HAP Contracts will be based on market rentals instead of above market rentals, which was generally the case under existing HAP Contracts. As a result, existing HAP Contracts that are renewed in the future on projects insured by the Federal Housing Administration of HUD ("FHA") will not provide sufficient cash flow to permit owners of properties to meet the debt service requirements of these existing FHA-insured mortgages. In order to address the reduction in payments under HAP Contracts as a result of this new policy, the Multi-family Assisted Housing Reform and Affordability Act of 1997 ("MAHRAA"), which was adopted in October 1997, provides for the restructuring of mortgage loans insured by the FHA with 11 14 REAL ESTATE ASSOCIATES LIMITED VII (A CALIFORNIA LIMITED PARTNERSHIP) JUNE 30, 1998 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS (CONTINUED) respect to properties subject to HAP Contracts that have been renewed under the new policy. The restructured loans will be held by the current lender or another lender. Under MAHRAA, an FHA-insured mortgage loan can be restructured to reduce the annual debt service on such loan. There can be no assurance that the Partnership will be permitted to restructure its mortgage indebtedness pursuant to the new HUD rules implementing MAHRAA or that the Partnership would choose to restructure such mortgage indebtedness if it were eligible to participate in the MAHRAA program. It should be noted that there are uncertainties as to the economic impact on the Partnership of the combination of the reduced payments under the HAP Contracts and the restructuring of the existing FHA-insured mortgage loans under MAHRAA. Accordingly, the General Partners are unable to predict with certainty their impact on the Partnership's future cash flow. As a result of the foregoing, the Partnership is undergoing an extensive review of the properties in which the limited partnerships have invested that are subject to HUD mortgages and which may be sold to the REIT as set forth below. The Partnership has incurred expenses in connection with this review by various third party professionals, including accounting, legal, valuation, structural review and engineering costs, which amounted to approximately $367,000 through June 30, 1998, including approximately $199,000 for the six months ended June 30, 1998, which are included in general and administrative expenses. A real estate investment trust ("REIT") organized by affiliates of NAPICO has advised the Partnership that it intends to make a proposal to purchase from the Partnership certain of the limited partnership interests held for investment by the Partnership. The REIT proposes to purchase such limited partnership interests for cash, which it plans to raise in connection with a private placement of its equity securities. The purchase is subject to, among other things, (i) consummation of such private placement by the REIT; (ii) the purchase of the general partnership interests in the local limited partnerships by the REIT; (iii) the approval of HUD and certain state housing finance agencies; (iv) the consent of the limited partners to the sale of the local limited partnership interests held for investment by REAL VII; and (v) the consummation of a minimum number of purchase transactions with other NAPICO affiliated partnerships. As of June 30, 1998, the REIT had completed buy-out negotiations with a majority of the general partners of the local limited partnerships. A consent solicitation statement will be sent to the limited partners setting forth the terms and conditions of the purchase of the limited partners' interests held for investment by the Partnership, together with certain amendments to the Partnership Agreement and other disclosures of various conflicts of interest in connection with the proposed transaction. 12 15 REAL ESTATE ASSOCIATES LIMITED VII (A CALIFORNIA LIMITED PARTNERSHIP) JUNE 30, 1998 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Partnership's Corporate General Partner is involved in various lawsuits. None of these are related to REAL VII. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) No exhibits are required per the provision of Item 7 of regulation S-K. 13 16 REAL ESTATE ASSOCIATES LIMITED VII (A CALIFORNIA LIMITED PARTNERSHIP) JUNE 30, 1998 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. REAL ESTATE ASSOCIATES LIMITED VII (a California limited partnership) By: National Partnership Investments Corp., General Partner /s/ BRUCE NELSON --------------------------------------- Bruce Nelson President Date: 8/14/98 --------------------------------------- /s/ CHARLES H. BOXENBAUM --------------------------------------- Charles H. Boxenbaum Chief Executive Officer Date: 8/14/98 --------------------------------------- 14 EX-27 2 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE PARTNERSHIP'S STATEMENT OF EARNINGS AND BALANCE SHEETS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 458,733 0 0 0 0 458,733 0 0 17,072,992 169,021 0 0 0 0 (39,108,753) 17,072,992 0 248,696 0 0 714,585 0 1,164,708 (1,630,597) 0 (1,630,597) 0 0 0 (1,630,597) 0 0
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