10-Q 1 d89557e10-q.txt FORM 10-Q FOR QUARTER ENDED JUNE 30, 2001 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities ------- Exchange Act of 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001 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: 0-11779 S/M REAL ESTATE FUND VII, LTD. ---------------------------------------------------- Exact Name of Registrant as Specified in its Charter Texas 75-1845682 ------------------------------- ---------------- (State or other jurisdiction of (I.R.S. Employer incorporation of organization) Identification No.) 5520 LBJ Freeway, Suite 500, Dallas, Texas 75240 ------------------------------------------ --------- (Address of principal executive offices) (Zip code) (972) 404-7100 ---------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 --- --- 2 S/M REAL ESTATE FUND VII, LTD.

STATEMENT OF PARTNERS' DEFICIT (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 2001

See accompanying notes to the financial statements. 2 3 S/M REAL ESTATE FUND VII, LTD. STATEMENTS OF OPERATIONS (UNAUDITED)

See accompanying notes to the financial statements. 3 4 S/M REAL ESTATE FUND VII, LTD.

See accompanying notes to the financial statements. 4 5 S/M REAL ESTATE FUND VII, LTD. NOTES TO THE FINANCIAL STATEMENTS The quarterly unaudited financial statements for S/M Real Estate Fund VII, Ltd. (the "Partnership") include all normal and recurring adjustments which are, in the opinion of management, necessary to present a fair statement of financial position as of June 30, 2001, the results of operations for the three and six months ended June 30, 2001 and 2000, the cash flows for the six months ended June 30, 2001 and 2000, and the change in partners' deficit for the six months ended June 30, 2001. Results of operations for the period are not necessarily indicative of the results to be expected for the full year. No significant events have occurred subsequent to fiscal year 2000, and no material contingencies exist which would require disclosure in this interim report per Regulation S-X, Rule 10-01, Paragraph (a)(5). The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. During the six months ended June 30, 2001 and 2000, the General Partners or their affiliates were reimbursed for Partnership administrative and operating expenses, excluding property and construction management fees, in the amounts of $5,336 and $5,060, respectively. Property and construction management fees earned by an affiliate of the Partnership's General Partners were $28,638 and $31,585 for the six months ended June 30, 2001 and 2000, respectively. The financial information included in this interim report as of June 30, 2001 and for the three and six months ended June 30, 2001 and 2000 has been prepared by management without audit by independent public accountants. The Partnership's 2000 annual report contains audited financial statements including the notes to the financial statements and should be read in conjunction with the financial information contained in this interim report. 5 6 S/M REAL ESTATE FUND VII, LTD. PART I, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Liquidity and Capital Resources Under the terms of the Partnership's loan agreement with General Electric Capital Corporation (the "Loan Agreement"), the Partnership is required to make fixed monthly payments of principal and interest in the amount of $43,269 until maturity on January 1, 2009, at which time the entire outstanding principal balance and accrued interest is due. Under the terms of the Loan Agreement, the Partnership is required to make monthly contributions of $3,905 which are held by the lender pending application for the completion of certain required repairs to the Fifth Avenue property. At June 30, 2001, the balance in this replacement reserve account was $80,995. Cash and cash equivalents totaled $175,576 at June 30, 2001, compared to $136,606 at December 31, 2000. The $38,970 increase is primarily attributable to cash provided by operations offset by debt service payments and payments made to the replacement reserve account. Cash held in escrow increased to $165,942 at June 30, 2001, from $60,870 at December 31, 2000. The $105,072 increase is primarily attributable to contributions to the insurance and real estate tax escrow as required by the Loan Agreement. Other assets increased to $75,652 at June 30, 2001, from $61,821 at December 31, 2000. The increase is primarily due to increases in prepaid insurance offset by the amortization of loan costs. Accounts receivable totaled $4,017 at June 30, 2001, compared to $5,451 at December 31, 2000. Accounts payable totaled $38,558 at June 30, 2001, compared to $6,605 at December 31, 2000. The increase in accounts payable is primarily attributable to the timing of payments associated with repairs and maintenance for apartment preparation and property insurance. Accrued expenses and other liabilities totaled $119,275 at June 30, 2001, compared to $46,617 at December 31, 2000. The change is primarily attributable to the timing of payments for real estate taxes, accounting fees and administrative costs. The Partnership's General Partners currently expect funds from operations to be sufficient to pay all obligations for 2001, including debt service. In the event of any cash flow deficits, it is expected that such deficits will be funded by the Partnership's existing cash balances. However, there can be no assurance that the Partnership will have sufficient cash to fund such deficits. Results of Operations Operations resulted in net losses of $42,358 and $86,136 for the three and six-month periods ended June 30, 2001, respectively, compared with net losses of $87,959 and $131,993 for the three and six-month periods ended June 30, 2000, respectively. The decreases for the three and six-months ended June 30, 2001 from the corresponding periods in 2000 are primarily attributable to increases in rental income and decreases in property operating expenses. Rental income totaled $355,507 and $717,734 for the three and six-month periods ended June 30, 2001, respectively, compared to $337,052 and $678,108, respectively, for the corresponding periods in 2000. Occupancy at Fifth Avenue averaged approximately 95% for both the three and six-month periods ended June 30, 2001, respectively, compared to 93% for both the three and six-month periods ended June 30, 2000, respectively. The average rental income per occupied square foot at Fifth Avenue was $8.93 and $8.96 for the three and six months ended June 30, 2001, respectively, compared to $8.60 and $8.71, respectively, for the corresponding periods in 2000. The increase in the average rental income per occupied square foot in 2001 is primarily attributable to increases in rental rates and a decrease in rental concessions. 6 7 S/M REAL ESTATE FUND VII, LTD. Total expenses for the three and six-month periods ended June 30, 2001 were $402,095 and $811,436, respectively, compared to $429,720 and $818,790, respectively, for the three and six-month periods ended June 30, 2000. The decreases for the three and six-months ended June 30, 2001 from the corresponding periods in 2000 are primarily attributable to decreases in property operating expenses. Property operating expenses consist primarily of on-site personnel expenses, utility costs, repair and maintenance costs, property management fees, advertising costs, insurance and real estate taxes. Property operating expenses for the three and six-month periods ended June 30, 2001 were $162,974 and $330,743, respectively, compared to $190,382 and $345,969, respectively, for the three and six-month periods ended June 30, 2000. The decreases for the 2001 periods primarily are attributable to lower repairs and maintenance costs for apartment preparation and a decrease in retirement of assets of $25,966, offset in part by increases in on-site personnel expenses, utility costs and real estate taxes. General and administrative expenses for the three and six-month periods ended June 30, 2001 were $17,889 and $38,002, respectively, compared to $18,077 and $34,068, respectively, for the three and six-month periods ended June 30, 2000. The increase for the six-month period in 2001 is primarily related to higher professional expenses. General Words or phrases when used in this Form 10-Q or other filings with the Securities and Exchange Commission, such as "does not believe" and "believes", or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. PART I, ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes in the information related to the market risk of the Partnership since December 31, 2000. 7 8 S/M REAL ESTATE FUND VII, LTD. PART II OTHER INFORMATION ITEMS 1-5 Not applicable. ITEM 6 Exhibits and reports on Form 8-K. (a) Exhibits - 2a Voluntary Petition of Shearson-Murray Real Estate Fund VII, Ltd. to commence a case under Chapter 11 of the Federal Bankruptcy Code in the United States Bankruptcy Court for the Western District of Texas-Austin Division, as filed on June 6, 1989. Reference is made to Exhibit 2a to the Partnership's Annual Report on Form 10-K filed with the Securities and Exchange Commission on June 14, 1989. 2b Modified First Amended Plan of Reorganization of Shearson-Murray Real Estate Fund VII, Ltd. in the United States Bankruptcy Court for the Western District of Texas-Austin Division Case No. 89-11662-LC filed February 20, 1990. Reference is made to the Partnership's Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 12, 1990. 3 Agreement of Limited Partnership of Shearson-Murray Real Estate Fund VII, Ltd., as amended as of September 30, 1983. Reference is made to Partnership's Form 8-K filed with the Securities and Exchange Commission on October 26, 1983. Reference is made to Exhibit A to the Prospectus dated June 10, 1983 contained in Amendment No. 3 to Partnership's Form S-11 Registration Statement filed with the Securities and Exchange Commission June 10, 1983. 10a Assignment and Assumption Agreement between Murray Management Corporation and Anterra Management Corporation for property management and leasing services dated January 1, 1990. Reference is made to Exhibit 10u to the Partnership's Annual Report on Form 10-K filed with the Securities and Exchange Commission May 15, 1990. 10b Loan Agreement between S/M Real Estate Fund VII, Ltd. and General Electric Capital Corporation, dated December 3, 1998. Reference is made to Exhibit 10.1 to Partnership's Form 8-K filed with the Securities and Exchange Commission on December 14, 1998. 28a Pages A-16 to A-18 of Exhibit A to the Prospectus dated June 10, 1983, contained in Amendment No. 3 to Partnership's Form S-11 Registration Statement filed with the Securities and Exchange Commission on June 10, 1983. Reference is made to Exhibit 28a to the Partnership's Annual Report on Form 10-K filed with the Securities and Exchange Commission on May 12, 1988. 28b Pages 10-18 of the Prospectus dated June 10, 1983, contained in Amendment No. 3 to Partnership's Form S-11 Registration Statement filed with the Securities and Exchange Commission on June 10, 1983. Reference is made to Exhibit 28b to the Partnership's Annual Report on Form 10-K filed with the Securities and Exchange Commission on May 12, 1988. 8 9 S/M REAL ESTATE FUND VII, LTD. 99a Compromise Settlement Agreement between S/M Real Estate Fund VII, Ltd. and Federal National Mortgage Association, dated May 6, 1996. Reference is made to Exhibit 99.1 to the Partnership's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996 filed with the Securities and Exchange Commission. 99b $5,830,000 Multifamily Note and Addendum, dated May 30, 1996. Reference is made to Exhibit 99.2 to the Partnership's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996 filed with the Securities and Exchange Commission. 99c $681,142 Subordinate Multifamily Note and Addendum, dated May 30, 1996. Reference is made to Exhibit 99.3 to the Partnership's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996 filed with the Securities and Exchange Commission. 99d $6,400,000 Promissory Note, dated December 3, 1998. Reference is made to Exhibit 99.1 of the Partnership's Form 8-K filed with the Securities and Exchange Commission on December 14, 1998. (b) Reports on Form 8-K - No reports on Form 8-K were filed during the quarter ended June 30, 2001. 9 10 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. S/M REAL ESTATE FUND VII, LTD. BY: SM7 APARTMENT INVESTORS INC. A General Partner Date: August 8, 2001 BY: /s/ Richard E. Hoffmann ---------------------------------------- Name: Richard E. Hoffmann Title: Director, President and Treasurer (Principal Financial Officer) BY: MURRAY REALTY INVESTORS VII, INC. A General Partner Date: August 8, 2001 BY: /s/ Charles W. Karlen ---------------------------------------- Name: Charles W. Karlen Title: Vice President 10 11 INDEX TO EXHIBITS

S/M REAL ESTATE FUND VII LTD/TX 10-Q