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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required]
For the fiscal year ended December 31, 1995
Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from _________________ to _________________
Commission file number: 0-11779
S/M REAL ESTATE FUND VII, LTD.
(formerly Shearson-Murray Real Estate Fund VII, Ltd.)
Exact name of registrant as specified in its charter
Texas 75-1845682
State or other jurisdiction of
incorporation or organization I.R.S. Employer Identification No.
5520 LBJ Freeway, Suite 500, Dallas, Texas 75240
Address of principal executive offices zip code
Registrant's telephone number, including area code: (214) 404-7100
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS
Title of Class
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 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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
State aggregate market value of the voting stock held by non-affiliates of the
registrant: Not applicable
Documents Incorporated by Reference: Prospectus dated June 10, 1983, contained
in Amendment No. 3 to Registrant's Registration Statement on Form S-11 filed
with the Securities and Exchange Commission on June 10, 1983. (Parts I, II, III
& IV)
PART I
Item 1. Business.
S/M Real Estate Fund VII, Ltd. (the "Partnership"), formerly Shearson-Murray
Real Estate Fund VII, Ltd., was formed November 4, 1982 to acquire existing
garden apartment complexes. The general partners of the Partnership are SM7
Apartment Investors Inc., a Texas corporation ("SM7")(formerly Shearson
Apartment Investors XIV, Inc.), Murray Realty Investors VII, Inc. a Texas
corporation ("Murray") and Crozier Partners VII, Ltd., a Texas limited
partnership ("Crozier"). SM7, Murray and Crozier are hereinafter referred to
collectively as the "General Partners." See Item 10. "Directors and Executive
Officers of the Registrant."
The Partnership offered, on June 10, 1983, a minimum of 6,250 and a maximum of
14,000 limited partnership interests (the "Interests") in the Partnership at
$1,000 per Interest with a minimum required purchase of two Interests for
purchases made on behalf of Individual Retirement Accounts and five Interests
for all other purchasers. Additionally, the General Partners were given the
right to sell an additional 10,000 Interests in connection with the offering.
The offering of Interests was terminated on April 30, 1984, and the Partnership
accepted subscriptions for 11,080 Interests, for aggregate offering proceeds of
$11,080,000.
On July 29, 1983, the Partnership acquired Fifth Avenue Apartments ("Fifth
Avenue"), a 198-unit apartment complex located in San Antonio, Texas, for a
purchase price of $8,474,925. On August 31, 1983, the Partnership acquired
Rockcreek Apartments ("Rockcreek"), a 314-unit apartment complex located in
Austin, Texas, for a purchase price of $10,948,228. The two properties are
referred to collectively herein as the "Properties."
The San Antonio and Austin apartment markets deteriorated in the mid-1980s due
to overbuilding and the general economic decline of the Southwest economy.
Rental concessions and a decline in the Properties' operating results led to
the depletion of the Partnership's working capital reserve. In July 1986, the
General Partners suspended mortgage payments on the Partnership's two
Properties and commenced negotiations with the lenders in an effort to
restructure the terms of their respective mortgage loan agreements.
Subsequently, in November 1986 and March 1987, the Partnership executed letters
of intent with the holders of the Rockcreek and Fifth Avenue notes,
respectively to modify certain conditions and terms of the mortgage
obligations. The Partnership resumed payments in March 1987 in accordance with
the proposed modifications.
In April 1989, the General Partners commenced renegotiations and suspended debt
service payments on the mortgages secured by both Rockcreek and Fifth Avenue.
This action was necessitated by the diminishing balance of the Partnership's
cash and the capital improvement requirements at Rockcreek. The objective of
these negotiations was to reduce the debt service payments required under the
mortgage notes to a level that could be paid out of cash flow generated by the
Properties. Under the terms of these loan agreements, non-payment of debt
service represented an event of default.
In May 1989, two of the lenders for Rockcreek posted that property for
foreclosure on June 7, 1989. As the Partnership was unable to reach an
agreement with one of these lenders to forbear prior to foreclosure date, the
Partnership commenced a voluntary case under Chapter 11 of the Federal
Bankruptcy Code on June 6, 1989, in an attempt to protect its Limited Partners
from the effects of foreclosure and to reorganize the Partnership's finances.
On October 4, 1989, the Partnership filed a plan of reorganization ("The Plan")
together with a disclosure statement with the Bankruptcy Court. The Plan was
not approved, and the Partnership filed its modified plan of reorganization
(the "Modified Plan") and disclosure statement, which was confirmed on February
20, 1990, and became effective on March 1, 1990. The Modified Plan
restructured the liabilities of the Partnership in a manner which was intended
to permit such liabilities to be serviced by the Partnership's anticipated cash
flow. Additionally, the Modified Plan required the Partnership to issue
reorganization notes to holders of mortgage notes payable.
The first mortgage note secured by Phase I of the Rockcreek Apartments and the
wraparound mortgage note secured by a third mortgage on Rockcreek were
scheduled to mature on December 31, 1993. The General Partners had attempted
to either restructure the debt or sell the property (both Phases I and II) for
an amount greater than the outstanding debt. As a result of the General
Partners' efforts to sell the property, the General Partners secured an offer
to purchase the property in the amount of $8,521,055. Such offer was accepted
and the property was sold on December 17, 1993. Concurrently with their sales
efforts, the General Partners successfully negotiated an agreement with the
holder of the wraparound mortgage on Rockcreek, whereby the Partnership
received a release of all the mortgage liens on the property by paying a
discounted amount of the total outstanding debt of $8,082,311. After the
payment of debt and all costs associated with the sale closing, the Partnership
received net cash proceeds in the amount of $105,072, which were retained in
the Partnership's cash reserves.
The General Partners had commenced discussions in 1995 with the lender of the
mortgage secured by Fifth Avenue as a result of the scheduled debt maturity on
December 31, 1995. Such discussions continued past the December 31, 1995
maturity date, with the lender agreeing to forbear from foreclosing on the
property while such discussions continue. As a result of the General Partners'
efforts, a tentative agreement has been reached with the lender to modify and
extend the mortgage, although the terms of such agreement have not yet been
finalized. While the General Partners are hopeful that the agreement to modify
and extend the mortgage will be executed by the end of the second quarter of
1996, there can be no assurance that such agreement will be reached. If an
agreement is not reached, the lender may exercise its right to foreclose
upon the property.
Competition
- -----------
Fifth Avenue competes for tenants with other apartment complexes in San
Antonio. When evaluating a particular location to lease, a tenant may consider
many factors, including, but not limited to, space availability, rental rates,
lease terms, access, parking, quality of construction and quality of
management. While the General Partners believe that the property is generally
competitive in these factors, there can be no assurance that, in the view of a
prospective tenant, other properties may not be more attractive.
Fifth Avenue directly competes with the following five apartment complexes:
Number of Percent Occupied at
Property Units* December 31, 1995*
- ------------------------------------------------------------------------
1 185 93%
2 688 92%
3 265 90%
4 248 90%
5 273 90%
* This information has been obtained from sources believed to be reliable
by the Partnership, but the Partnership has not verified the accuracy
of such information.
Employees
- ---------
The Partnership has no employees. The Partnership's Properties are managed by
Anterra Management Corporation which provides certain administrative and
management services. See Item 13. "Certain Relationships and Related
Transactions."
Item 2. Properties.
As of December 31, 1995, the Partnership owned the property described below:
Fifth Avenue Apartments: A 198-unit apartment complex located in San Antonio,
Texas and situated on approximately 8.45 acres with 169,270 square feet of net
leasable space. At December 31, 1995, Fifth Avenue Apartments was 90%
occupied.
Item 3. Legal Proceedings.
There are no material pending legal proceedings to which the General Partners
or the Partnership is a party or to which its property is subject.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report through solicitation of
proxies or otherwise.
PART II
Item 5. Market for Registrant's Limited Partnership Units and Related Security
Holder Matters
A public market for Interests does not exist and is not likely to develop.
Consequently, Limited Partners may not be able to liquidate their investment
and Interests may not be readily accepted as collateral for a loan.
Furthermore, the transfer of Interests is subject to certain limitations,
including approval of the General Partners.
At December 31, 1995, there were 1,047 Limited Partners of record, owning an
aggregate of 11,080 Interests.
There have been no cash distributions to the Limited Partners since inception
of the Partnership.
Item 6. Selected Financial Data.
(dollars in thousands except per interest data)
For the years ended December 31,
1995(1) 1994(1) 1993(2) 1992 1991
- ------------------------------------------------------------------------------
Income $ 1,358 $ 1,361 $ 3,116 $ 2,872 $ 2,663
Loss Before Gain on Sale of Real
Estate and Extraordinary Item (270) (262) (820) (849) (1,081)
Net Income (Loss) (270) (262) 1,723 (849) (1,081)
Net Income (Loss) per Limited
Partnership Interest (3) (24.12) (23.45) 144.45 (75.86) (96.59)
Total Assets
at Year-End 5,213 5,543 6,028 12,823 13,570
Total Notes Payable
at Year-End 6,381 6,381 6,381 13,938 13,972
- ------------------------------------------------------------------------------
(1) Results for the years ended December 31, 1995 and 1994 solely reflect
operations of Fifth Avenue as Rockcreek was sold in December 1993.
(2) On December 17, 1993, the Partnership sold Rockcreek for $8,521,055
resulting in a gain on the sale of real estate assets of $2,055,240
and gain on debt forgiveness totalling $487,508. Reference is made to
Item 1 "Business" for a further discussion on the sale of Rockcreek.
(3) Based on the Interests outstanding at the end of such period and net
income or loss allocated to the Limited Partners.
There have been no cash distributions to the Limited Partners in the
Partnership's past five fiscal years.
The above selected financial data should be read in conjunction with the
Financial Statements and related notes appearing elsewhere in this report.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
- -------------------------------
For the year ended December 31, 1995, Fifth Avenue generated sufficient cash
flow to meet both operating expenses and minimum required debt service pursuant
to the Partnership's Modified Plan of Reorganization. Although the property
continues to generate cash flow to meet operating needs and required debt
service payments, there can be no assurances that such payments will be made in
the future.
Cash and cash equivalents totalled $935,994 at December 31, 1995, largely
unchanged from $933,424 at December 31, 1994. Cash held in escrow increased to
$105,901 at December 31, 1995, compared with $92,855 at December 31, 1994. The
$13,046 increase is primarily attributable to escrow contributions for
insurance and real estate taxes.
The General Partners had commenced discussions in 1995 with the lender of the
mortgage secured by Fifth Avenue as a result of the scheduled debt maturity on
December 31, 1995. Such discussions continued past the December 31, 1995
maturity date, with the lender agreeing to forbear from foreclosing on the
property while such discussions continue. As a result of the General Partners'
efforts, a tentative agreement has been reached with the lender to modify and
extend the mortgage, although the terms of such agreement have not yet been
finalized. While the General Partners are hopeful that the agreement to modify
and extend the mortgage will be executed by the end of the second quarter of
1996, there can be no assurance that such agreement will be reached. If an
agreement is not reached, the lender may exercise its right to foreclose upon
the property.
Other assets decreased from $30,562 at December 31, 1994 to $22,160 at December
31, 1995. The decrease is primarily attributable to a decrease in the
Partnership's prepaid insurance balance as a result of a change in the timing
of the renewal of annual insurance premiums.
Accounts payable totalled $65,803 at December 31, 1995 compared to $43,428 at
December 31, 1994. The increase is primarily attributable to outstanding
repair and maintenance costs and general and administrative expenses.
Accrued interest payable totalled $663,178 at December 31, 1995 compared to
$717,721 at December 31, 1994. The decrease is a result of interest payments
made on the Partnership's mortgage obligation during 1995.
Accrued expenses and other liabilities totalled $59,261 at December 31, 1995
compared to $86,965 at December 31, 1994. The decrease is primarily
attributable to the payment of real estate taxes for Fifth Avenue partially
offset by accruals for legal and other expenses associated with the
negotiations to modify Fifth Avenue's mortgage.
Results of Operations
- ---------------------
1995 versus 1994
Results of operations resulted in a net loss of $269,960 for the year ended
December 31, 1995 compared to a net loss of $262,436 for the year ended
December 31, 1994. The slight increase is primarily attributable to a decrease
in rental income and an increase in general and administrative expenses.
Rental income at Fifth Avenue totalled $1,307,901 for the year ended December
31, 1995 compared to $1,324,583 for the year ended December 31, 1994. The
decrease in rental income is attributable to a slight decrease in the overall
average occupancy at Fifth Avenue during 1995 as compared to 1994. Occupancy
at Fifth Avenue averaged 94% during 1995 compared with 96% during 1994. The
decrease in occupancy was partially offset by rental rate increases at the
property during the year, resulting in an increase in average rental income per
occupied square foot to $8.23 in 1995 as compared to $8.01 in 1994. At
December 31, 1995, the property was 90% occupied.
Interest and other income totalled $50,060 for the year ended December 31, 1995
compared to $36,077 for the year ended December 31, 1994. The increase is
primarily a result of higher interest rates earned on the Partnership's average
cash balances during 1995.
Property operating expenses consist primarily of on-site personnel expenses,
utility costs, repair and maintenance costs, property management fees,
insurance and real estate taxes. Property operating expenses for the year
ended December 31, 1995 totalled $710,198, largely unchanged from $716,154 for
the year ended December 31, 1994.
General and administrative expenses totalled $60,752 for the year ended
December 31, 1995 compared to $48,007 for the year ended December 31, 1994.
The increase is primarily attributable to legal and other costs incurred by the
Partnership in connection with the maturity of the Fifth Avenue mortgage on
December 31, 1995.
1994 versus 1993
Results of operations resulted in a net loss of $262,436 for the year ended
December 31, 1994 as compared to net income of $1,722,615 for the year ended
December 31, 1993. The difference was primarily attributable to the sale of
Rockcreek Apartments in December 1993 which resulted in the Partnership
recording a gain on sale of real estate of $2,055,240, and a gain on debt
forgiveness of $487,508. Without these gains, the Partnership would have
recognized a net loss of $820,133 for the year ended December 31, 1993. The
1994 results solely reflect the operations of Fifth Avenue.
Rental income at Fifth Avenue totalled $1,324,583 for the year ended December
31, 1994, compared to $1,260,867 for the year ended December 31, 1993. The
increase in rental income was attributable to rental rate increases instituted
during the past year.
Occupancy at Fifth Avenue averaged 96% during 1994, compared with 97% during
1993. The average rental income per occupied square foot was $8.01 in 1994, up
from $7.68 in 1993.
Interest and other income totalled $36,077 for the year ended December 31,
1994, compared to $100,923 for the year ended December 31, 1993. Interest and
other income for 1994 is comprised of interest earned on the Partnership's cash
balances. In addition to interest earned on the Partnership's cash balances,
interest and other income for 1993 included insurance proceeds received in
connection with damages caused by inclement weather and subsequent repairs
performed at Rockcreek.
Property operating expenses consist primarily of on-site personnel expenses,
utility costs, repair and maintenance costs, property management fees,
insurance and real estate taxes. Property operating expenses at Fifth Avenue
for the year ended December 31, 1994 increased to $716,154 from $616,965 in
1993. The increase was primarily attributable to pool deck repair costs,
higher insurance and real estate taxes and, to a lesser extent, an increase in
apartment preparation costs resulting from turnover in apartment units.
The sale of Rockcreek Apartments was the primary reason for the decrease in the
Partnership's interest, depreciation and general and administrative expenses
for the year ended December 31, 1994.
Item 8. Financial Statements and Supplementary Data.
The following financial statements are filed as part of this report:
Page
Number
Independent Auditors' Report F-1
Balance Sheets - At December 31, 1995 and 1994 F-2
Statements of Partners' Deficit - For the years ended
December 31, 1995, 1994 and 1993 F-2
Statements of Operations - For the years ended
December 31, 1995, 1994 and 1993 F-3
Statements of Cash Flows - For the years ended
December 31, 1995, 1994 and 1993 F-4
Notes to the Financial Statements F-5
Schedule III F-9
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Murray Realty Investors VII, Inc., a Texas corporation, SM7 Apartment Investors
Inc., a Texas corporation, and Crozier Partners VII, Ltd., a Texas limited
partnership, are the General Partners of the Partnership. Anterra Property
Investors VII, Inc. is the general partner of Crozier Partners VII, Ltd. The
following is a summary of certain information concerning the directors and
executive officers of Anterra Property Investors VII, Inc., Murray Realty
Investors VII, Inc. and SM7 Apartment Investors Inc., as of December 31, 1995.
Anterra Property Investors VII, Inc.,
general partner of Crozier Partners VII, Ltd.
- ---------------------------------------------
The directors and senior officers of Anterra Property Investors VII, Inc. at
December 31, 1995 were as follows:
Richard E. Hoffmann, 41, President, Treasurer and Director. For more than five
years prior to July 15, 1990, Mr. Hoffmann was a Vice President and Treasurer
of Murray Properties Company and various other affiliate corporations. He
resigned his position with substantially all of these corporations on July 15,
1990. Mr. Hoffmann was elected Senior Vice President, Treasurer and Director
of Anterra Realty Corporation in June of 1990 and was elected President of
Anterra Realty Corporation in July of 1994. He is Senior Vice President and
Director of Anterra Management Corporation and President, Treasurer and
Director of all other subsidiary corporations of Anterra Realty Corporation
including Anterra Property Investors VII, Inc. Mr. Hoffmann received a Master
of Business Administration degree from the University of Texas at Austin in
1979 and a B.S. from Tulane University in 1977. He is a Certified Public
Accountant.
Lynn D. Maynard, 43, Executive Vice President and Director. For more than five
years prior to December 26, 1989, Ms. Maynard was an officer of Murray
Properties Company and its affiliates. She was elected Vice President of
Murray Properties Company and Murray Realty Investors, Inc. in December of
1986. Ms. Maynard resigned her positions with substantially all Murray
Properties Company affiliates on December 26, 1989. Ms. Maynard became Senior
Vice President and Director of Anterra Realty Corporation in November 1989 and
is President and Director of Anterra Management Corporation and Executive Vice
President and Director of all other subsidiary corporations including Anterra
Property Investors VII, Inc. Ms. Maynard holds a Bachelor of Science Degree in
Accounting from the University of Texas at Dallas and is a Certified Public
Accountant. She is a member of the American Institute of Certified Public
Accountants, the Texas Society of Certified Public Accountants and the Dallas
Chapter of Certified Public Accountants.
Murray Realty Investors VII, Inc., Corporate General Partner
- ------------------------------------------------------------
The directors and senior officers of Murray Realty Investors VII, Inc. at
December 31, 1995 were as follows:
Fulton Murray, 55, President and Chairman of the Board. Mr. Murray has been
Chairman of the Board and Chief Executive Officer of Murray Properties Company
and Murray Financial Corporation for more than five years prior to the date of
this report. In addition, he is a director or officer of substantially all
affiliates of Murray Properties Company. His family, or trusts for their
benefit, own approximately 64% of the outstanding stock of Murray Financial
Corporation, which is the parent corporation of Murray Properties Company and
most of its affiliates. He holds a Bachelor of Business Administration degree
in Finance from Southern Methodist University.
Charles W. Karlen, 60, Vice President. Mr. Karlen is Senior Vice President and
Treasurer of Murray Financial Corporation. Prior to joining the Murray
Organization in 1971, he was employed by Peat Marwick Mitchell & Co., a public
accounting firm. Mr. Karlen is a Certified Public Accountant and holds a
Bachelor of Business Administration degree in Accounting from the University of
North Texas.
SM7 Apartment Investors Inc., Corporate General Partner
- -------------------------------------------------------
The directors and executive officers of SM7 Apartment Investors Inc. at
December 31, 1995 were as follows:
Kenneth L. Zakin, 48, Director and President. Mr. Zakin is a Senior Vice
President of Lehman Brothers and has held such title since November 1988. He
is currently a senior manager in Lehman Brothers' Diversified Asset Group and
was formerly group head of the Commercial Property Division of Shearson Lehman
Brothers' Direct Investment Management Group responsible for the management
and restructuring of limited partnerships owning commercial properties
throughout the United States. From January 1985 through November 1988, Mr.
Zakin was a Vice President of Shearson Lehman Brothers Inc. Mr. Zakin is a
director of Lexington Corporate Properties, Inc. He is a member of the Bar of
the State of New York and previously practiced as an attorney in New York City
from 1973 to 1984 specializing in the financing, acquisition, disposition, and
restructuring of real estate transactions. Mr. Zakin is a member of the Real
Estate Lender's Association and is currently an associate member of the Urban
Land Institute and a member of the New York District Council Advisory Services
Committee. He received a Juris Doctor degree from St. John's University
School of Law in 1973 and a B.A. degree from Syracuse University in 1969.
Daniel M. Palmier, 34, Vice President and Chief Financial Officer. Mr. Palmier
is a Vice President of Lehman Brothers Inc. in its Diversified Asset Group, and
has been employed by Lehman Brothers since June 1990. He is responsible for
the asset management and restructuring of a diverse portfolio of assets
including commercial real estate and mortgages. From March of 1988, Mr.
Palmier worked for LJ Hooker Corporation, Inc. and held positions of Senior
Associate of Mergers and Acquisitions/Corporate Finance and Vice President in
the Real Estate division. From September 1986, Mr. Palmier was a Real Estate
Acquisitions Officer at John Anthony Associates, Inc. in New York. From June
1983, Mr. Palmier worked in the public accounting field, most notably for the
firm Price Waterhouse. Mr. Palmier, a New York Certified Public Accountant,
earned a Master's Degree from New York University and graduated from the
University of Notre Dame in 1983 with a B.B.A. in Accounting.
Affiliated Bankruptcies
- -----------------------
Certain officers and directors of Murray Realty Investors VII, Inc. were also
officers and directors or general partners of affiliates of Murray Realty
Investors VII, Inc. which served as general partners of certain private
placements and affiliated public funds which had filed cases under Chapter 11
of the Federal Bankruptcy Code. Certain officers and directors of SM7
Apartment Investors Inc. were also officers and directors of affiliates which
served as general partners of these affiliated public funds. Additionally,
Fulton Murray was a general partner of a partnership that had an involuntary
bankruptcy petition filed against it, which was subsequently dismissed. All
the partnerships which commenced cases under the Federal Bankruptcy Code owned
real estate that was secured by significant amounts of debt. As a result of
the dramatic decline in the economy and overbuilding in the markets in which
the partnerships own real estate, those partnerships were unable to meet their
scheduled debt payments and commenced bankruptcy cases to protect the
Partnerships' Properties from foreclosure by the secured lender or lenders to
such partnerships.
Item 11. Executive Compensation.
(a, b, c & d)
The Partnership has not paid and does not propose to pay any cash compensation,
bonuses or deferred compensation, compensation pursuant to retirement or other
plans, or other compensation to the officers, directors, or partners of the
General Partners. During the operational and, in the event the Partnership is
liquidated, the liquidation stages of the Partnership, the General Partners and
their Affiliates may receive various fees and distributions. See Item 13.
"Certain Relationships and Related Transactions" for information on the fees
and other compensation or reimbursements paid to the General Partners or their
Affiliates during the year ended December 31, 1995.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
(a) Beneficial owners of 5% or more of Registrant's Securities
Amount and
Nature of
Beneficial Percent
Title of Class Beneficial Owner Ownership of Class
- -----------------------------------------------------------------------------
Limited Partnership Naomi Ruth 600 5.4%
Interest, $1,000 Wilden Trust (owned beneficially
per Interest 130 E. Main St., #299 and of record)
Medford, OR 97501-6004
(b) No General Partner or any officer or director of a General Partner
beneficially owned or owned of record directly or indirectly any
Interests as of December 31, 1995.
Item 13. Certain Relationships and Related Transactions.
(a) During the years ended December 31, 1995, 1994 and 1993, the General
Partners or their affiliates were reimbursed for Partnership
administrative and operating expenses, including property management
fees, in the amounts of $139,809, $131,089 and $328,192, respectively.
On January 1, 1990, Murray Management Corporation subcontracted
Anterra Management Corporation to provide certain administrative and
management services with respect to the Partnership and its Properties.
Anterra Management Corporation is a real estate related service company
formed by former executive officers of Murray and its affiliates, and
earned property management fees of $65,378, $65,670 and $151,203 for
the years ended December 31, 1995, 1994 and 1993, respectively.
First Data Investor Services Group, an unaffiliated company, provides
partnership accounting and investor relations services for the
Partnership. Prior to May 1993, these services were provided by an
affiliate of a General Partner. The Partnership's transfer agent and
certain tax reporting services are provided by Service Data
Corporation, an unaffiliated company.
(b) None.
(c) No management person is indebted to the Partnership.
(d) Not applicable.
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K.
(a) 1. Financial Statements - see Index to Financial Statements in Item 8
of this Form 10-K.
2. Financial Statement Schedule - see Index to Financial Statements
in Item 8 of this Form 10-K.
All other schedules have been omitted because they are not
required or the required information is shown in the financial
statements or notes thereto.
(b) Reports on Form 8-K filed during the last quarter of the
fiscal year: None
(c) 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 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.
4 Agreement of Limited Partnership of Shearson-Murray Real
Estate Fund VII, Ltd., as amended as of September 30, 1983.
Reference is made to 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 for the year ended December 31, 1989 filed
with the Securities and Exchange Commission May 15, 1990.
27 Financial Data Schedule
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 of the Registrant's 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 of the
Registrant's Form 10-K filed with the Securities and Exchange
Commission on May 12, 1988.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: March 29, 1996 BY: /s/ Kenneth L. Zakin
Kenneth L. Zakin
Director and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following members of the Board of Directors
and officers of SM7 Apartment Investors Inc., a corporate general partner of
the registrant, on behalf of the Registrant in the capacities and on the dates
indicated.
Date: March 29, 1996 BY: /s/ Kenneth L. Zakin
Kenneth L. Zakin
Director and President
Date: March 29, 1996 BY: /s/ Daniel M. Palmier
Daniel M. Palmier
Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following members of the Board of Directors
and officers of Anterra Property Investors VII, Inc., a corporate general
partner of the registrant, on behalf of the Registrant in the capacities and on
the dates indicated.
BY: CROZIER PARTNERS VII, LTD.
A general partner
BY: ANTERRA PROPERTY INVESTORS VII, INC.,
General Partner of Crozier Partners VII, Ltd.
Date: March 29, 1996 BY: /s/ Richard E. Hoffman
Richard E. Hoffman
President, Director
and Treasurer
Date: March 29, 1996 BY: /s/ Lynn D. Maynard
Lynn D. Maynard
Executive Vice President
and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following members of the Board of Directors
and officers of Murray Realty Investors VII, Inc., a corporate general partner
of the registrant, on behalf of the Registrant in the capacities and on the
dates indicated.
MURRAY REALTY INVESTORS VII, INC.
A General Partner
Date: March 29, 1996 BY: /s/ Fulton Murray
Fulton Murray
President and
Chairman of the Board
Date: March 29, 1996 BY: /s/ Charles W. Karlen
Charles W. Karlen
Vice President
REPORT OF INDEPENDENT AUDITORS
The Partners
S/M Real Estate Fund VII, Ltd.:
We have audited the financial statements of S/M Real Estate Fund VII, Ltd. (a
Texas Limited Partnership), as listed in the accompanying index. In connection
with our audits of the financial statements, we have also audited the financial
statement schedule as listed in the accompanying index. These financial
statements and financial statement schedule are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule 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 disclosure in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by 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 financial statements referred to above present fairly, in
all material respects, the financial position of S/M Real Estate Fund VII, Ltd.
as of December 31, 1995 and 1994, and the results of its operations and its
cash flows for each of the years in the three-year period ended December 31,
1995 in conformity with generally accepted accounting principles. Also in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
The accompanying financial statements and financial statement schedule have
been prepared assuming that the Partnership will continue as a going concern.
As discussed in Note 5 to the financial statements, the Partnership's mortgage
note payable, secured by its remaining property, matured on December 31, 1995.
The General Partners have had discussions with the mortgage lender to modify
and extend the mortgage obligation, however, terms of an agreement have not yet
been finalized. Market conditions may prevent the Partnership from obtaining
sufficient proceeds from a sale or refinancing to satisfy the mortgage
obligation, including accrued but unpaid interest. These factors raise
substantial doubt about the Partnership's ability to continue as a going
concern. The financial statements and financial statement schedule do not
include any adjustments relating to the recoverability and classification of
reported asset amounts or the amounts and classification of liabilities that
might result from the outcome of this uncertainty.
/s/ KPMG PEAT MARWICK LLP
Boston, Massachusetts
January 26, 1996
Balance Sheets
December 31, 1995 and 1994
Assets 1995 1994
- ----------------------------------------------------------------------------
Land $ 962,216 $ 962,216
Building and improvements 7,650,943 7,603,046
------------------------
8,613,159 8,565,262
Less-accumulated depreciation (4,464,838) (4,091,395)
------------------------
4,148,321 4,473,867
Cash and cash equivalents 935,994 933,424
Cash held in escrow 105,901 92,855
Accounts receivable 801 12,301
Other assets 22,160 30,562
------------------------
Total Assets $ 5,213,177 $ 5,543,009
========================
Liabilities and Partners' Deficit
Liabilities:
Note payable $ 6,380,912 $ 6,380,912
Accounts payable:
Trade 25,139 2,764
Affiliates 40,664 40,664
Accrued interest payable 663,178 717,721
Accrued expenses and other liabilities 59,261 86,965
------------------------
Total Liabilities 7,169,154 7,229,026
------------------------
Partners' Deficit:
General Partners (106,172) (103,472)
Limited Partners (11,080 units outstanding) (1,849,805) (1,582,545)
------------------------
Total Partners' Deficit (1,955,977) (1,686,017)
------------------------
Total Liabilities and
Partners' Deficit $ 5,213,177 $ 5,543,009
========================
Statements of Partners' Deficit
For the years ended December 31, 1995, 1994 and 1993
Limited General
Partners Partners Total
- ------------------------------------------------------------------------------
Balance at December 31, 1992 $ (2,923,215) $ (222,981) $ (3,146,196)
Net income 1,600,482 122,133 1,722,615
------------------------------------------
Balance at December 31, 1993 (1,322,733) (100,848) (1,423,581)
Net loss (259,812) (2,624) (262,436)
------------------------------------------
Balance at December 31, 1994 (1,582,545) (103,472) (1,686,017)
Net loss (267,260) (2,700) (269,960)
------------------------------------------
Balance at December 31, 1995 $ (1,849,805) $ (106,172) $ (1,955,977)
==========================================
Statements of Operations
For the years ended December 31, 1995, 1994 and 1993
Income 1995 1994 1993
- ------------------------------------------------------------------------------
Rental $ 1,307,901 $ 1,324,583 $ 3,014,910
Interest and other 50,060 36,077 100,923
----------------------------------------
Total Income 1,357,961 1,360,660 3,115,833
----------------------------------------
Expenses
Property operating 710,198 716,154 1,621,443
Interest 483,528 492,118 1,407,007
Depreciation and amortization 373,443 366,817 838,533
General and administrative 60,752 48,007 68,983
----------------------------------------
Total Expenses 1,627,921 1,623,096 3,935,966
----------------------------------------
Loss before gain on sale of
real estate and extraordinary item (269,960) (262,436) (820,133)
Gain on sale of real estate 0 0 2,055,240
----------------------------------------
Income (loss) before extraordinary
item (269,960) (262,436) 1,235,107
----------------------------------------
Extraordinary item:
Gain on debt forgiveness 0 0 487,508
----------------------------------------
Net Income (Loss) $ (269,960) $ (262,436) $ 1,722,615
========================================
Net Income (Loss) Allocated:
To the General Partners $ (2,700) $ (2,624) $ 122,133
To the Limited Partners (267,260) (259,812) 1,600,482
----------------------------------------
$ (269,960) $ (262,436) $ 1,722,615
========================================
Per limited partnership unit
(11,080 outstanding) $(24.12) $(23.45) $144.45
Statements of Cash Flows
For the years ended December 31, 1995, 1994 and 1993
Cash Flows from Operating Activities: 1995 1994 1993
- -------------------------------------------------------------------------------
Net income (loss) $ (269,960) $ (262,436) $ 1,722,615
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Gain on sale of real estate 0 0 (2,055,240)
Gain on debt forgiveness 0 0 (487,508)
Depreciation and amortization 373,443 366,817 838,533
Amortization of debt discount
and other assets 0 0 68,296
Increase (decrease) in cash arising
from changes in operating assets
and liabilities:
Cash held in escrow (13,046) 171,579 114,765
Accounts receivable 11,500 41,194 (42,845)
Other assets 8,402 (5,175) 9,286
Accounts payable 22,375 (11,772) 1,154
Accrued interest payable (54,543) (64,768) 137,065
Accrued expenses and other
liabilities (27,704) (145,611) (154,285)
---------------------------------------
Net cash provided by operating
activities 50,467 89,828 151,836
---------------------------------------
Cash Flows from Investing Activities:
Proceeds from sale of real estate 0 0 8,521,055
Additions to investment properties (47,897) (20,121) (94,883)
---------------------------------------
Net cash provided by (used for)
investing activities (47,897) (20,121) 8,426,172
---------------------------------------
Cash Flows from Financing Activities:
Payment of long-term debt 0 0 (8,082,311)
---------------------------------------
Net cash used for financing activities 0 0 (8,082,311)
---------------------------------------
Net increase (decrease) in cash and
cash equivalents 2,570 69,707 495,697
Cash and cash equivalents at beginning
of year 933,424 863,717 368,020
---------------------------------------
Cash and cash equivalents at end
of year $ 935,994 $ 933,424 $ 863,717
=======================================
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $ 538,071 $ 556,886 $ 1,201,646
Supplemental Disclosure of Noncash Investing Activities:
Write-off of fully depreciated
building improvements $ 0 $ 79,315 $ 0
Notes to the Financial Statements
December 31, 1995, 1994 and 1993
1. Organization and Basis of Accounting
S/M Real Estate Fund VII, Ltd. (the "Partnership") (see below) was organized on
November 4, 1982 pursuant to the filing of a Certificate of Limited Partnership
with the Secretary of State of the State of Texas. The Partnership was formed
for the purpose of acquiring existing garden style apartment complexes. The
general partners of the Partnership are SM 7 Apartment Investors Inc. (see
below), a Texas corporation, Murray Realty Investors VII, Inc., a Texas
corporation ("Murray") and Crozier Partners VII, Ltd., a Texas limited
partnership (collectively referred to as the "General Partners"). The
Partnership will continue until January 31, 2012, unless sooner terminated in
accordance with the terms of the Partnership Agreement.
On July 31, 1993, Shearson Lehman Brothers Inc. sold certain of its domestic
retail brokerage and asset management businesses to Smith Barney, Harris Upham
& Co. Incorporated ("Smith Barney"). Subsequent to the sale, Shearson Lehman
Brothers Inc. changed its name to Lehman Brothers Inc. The transaction did not
affect the ownership of the general partners. However, the assets acquired by
Smith Barney included the name "Shearson". Consequently, effective January 13,
1994, Shearson Apartment Investors XIV, Inc., a General Partner, changed its
name to SM7 Apartment Investors Inc. to delete any references to "Shearson".
In addition, effective February 15, 1994, the Partnership's name was changed
from Shearson-Murray Real Estate Fund VII, Ltd. to S/M Real Estate Fund VII,
Ltd.
2. Bankruptcy Proceedings and Liquidity
In April 1989, the General Partners of the Partnership commenced negotiations
and suspended debt service payments on the mortgages secured by both the
Rockcreek Apartments ("Rockcreek") and Fifth Avenue Apartments ("Fifth Avenue")
(the "Properties"). This action was necessitated by the diminishing balance of
Partnership cash and capital improvement requirements at Rockcreek. The
objective of these renegotiations was to reduce the debt service payments
required under the mortgage loans to a level that could be paid out of cash
flow generated by the Properties. Under the terms of the loan agreements,
non-payment of debt service represented an event of default.
In May 1989, two of the lenders for Rockcreek posted that property for
foreclosure on June 7, 1989. As the Partnership was unable to reach an
agreement with one of these lenders to forebear prior to the foreclosure date,
the Partnership commenced a voluntary case under Chapter 11 of the Federal
Bankruptcy Code on June 6, 1989, in order to protect its limited partners from
the effects of foreclosure and to reorganize the Partnership's finances.
Pursuant to the terms of a cash collateral order issued by the United States
Bankruptcy Court, the Partnership resumed debt service payments in September
1989 to the first mortgage lenders on the Properties.
On October 4, 1989, the Partnership filed its plan of reorganization (the
"Plan") and disclosure statement with the United States Bankruptcy Court. The
Plan was not approved and on February 20, 1990, the Partnership filed its
modified plan of reorganization (the "Modified Plan") and disclosure statement
which was subsequently confirmed by the United States Bankruptcy Court Western
District of Texas, and became effective as of March 1, 1990. The Modified Plan
incorporates a letter agreement (the "Letter Agreement"), which became
effective January 1, 1990, executed by the Partnership and the Federal National
Mortgage Association ("Fannie Mae"), lender on Fifth Avenue. The Modified Plan
reduced certain of the Partnership's debt service requirements to a level that
could be paid out of cash flow generated by the Properties.
On December 17, 1993, Rockcreek Apartments was sold to an independent third
party for $8,521,055 resulting in a gain on sale of $2,055,240. In conjunction
with the sale, the general partners negotiated an agreement with the holder of
the wraparound mortgage on Rockcreek, whereby the Partnership would receive a
release of all mortgage liens on the property by paying a discounted amount on
the total debt outstanding of $8,082,311. As a result of the discount, the
Partnership realized a gain on debt forgiveness totalling $487,508. After the
payment of debt and all costs associated with the sale of the Property, the
Partnership received net cash proceeds from the sale of $105,072.
3. Significant Accounting Policies
Basis of Accounting. The accompanying financial statements have been prepared
on the accrual basis of accounting principles applicable to a going concern
with the assumption that the Partnership will be able to continue to operate
its business in the ordinary course, and to the extent economically practical,
enhance or maximize recoveries from its properties. The accompanying financial
statements do not purport to give effect to adjustments, if any, that may be
necessary should the Partnership be unable to continue in existence and
therefore be required to realize its assets and liquidate its liabilities and
commitments in other than the normal course of business, which could
substantially reduce amounts realizable.
The mortgage note payable secured by Fifth Avenue matured on December 31, 1995.
Reference is made to Note 5 for a further discussion of the Partnership's
mortgage note obligation.
Real Estate Investments. Real estate investments, which consist of land,
apartment buildings and improvements, are recorded at cost less accumulated
depreciation. Cost includes the initial purchase price of the property plus
acquisition costs. Depreciation is computed using the straight-line method
based on estimated useful lives ranging from three to twenty-one years.
Accounting for Impairment. In March 1995, the Financial Accounting and
Standards Board issued Statement of Accounting Standards No. 121 "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of" ("FAS 121"), which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. FAS 121 also addresses the accounting
for long-lived assets that are expected to be disposed of. The Partnership
adopted FAS 121 during the fourth fiscal quarter of 1995. Based on current
circumstances, the adoption of FAS 121 had no impact on the financial
statements.
Lease Revenue. Revenue is recognized as rentals are earned and expenses
(including depreciation) are charged to operations when incurred. Leases on
the Properties typically have a term of one year or less.
The Partnership has determined that all leases associated with the rental of
space at the investment properties are operating leases.
Cash Equivalents. Cash equivalents consist of short-term highly liquid
investments which have maturities of three months or less from the date of
issuance. The carrying value approximates fair value because of the short
maturity of these instruments.
Income Taxes. The Partnership distributes all profits, losses and other taxable
items to the individual partners. No provision for income taxes is made in the
financial statements of the Partnership since the liability for such taxes is
that of the partners rather than the Partnership.
Net Income (Loss) Per Limited Partnership Unit. Net income (loss) per Limited
Partnership unit is based upon the limited partnership interests outstanding at
year-end and the net income (loss) allocated to the Limited Partners.
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 reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments. Statement of Financial Accounting
Standards No. 107, "Disclosures about Fair Value of Financial Instruments"
("FAS 107"), requires that the Partnership disclose the estimated fair values
of its financial instruments. Fair values generally represent estimates of
amounts at which a financial instrument could be exchanged between willing
parties in a current transaction other than in forced liquidation.
Fair value estimates are subjective and are dependent on a number of
significant assumptions based on management's judgement regarding future
expected loss experience, current economic conditions, risk characteristics of
various financial instruments, and other factors. In addition, FAS 107 allows
a wide range of valuation techniques, therefore, comparisons between entities,
however similar, may be difficult.
4. Partnership Agreement
Pursuant to the terms of the Partnership Agreement, all items of income, gain,
loss, deduction and credit are generally allocated 1% to Crozier Partners VII,
Ltd. and 99% to the Limited Partners except that (a) first, income and net gain
shall be allocated to the General Partners and the Limited Partners pro rata
based on and to the extent of their respective deficit balances in their
capital accounts in an amount sufficient to cause the aggregate deficits in the
Partners' capital accounts to not exceed the Minimum Gain (as defined), (b) net
gain shall then be allocated (i) to the Limited Partners in an amount
sufficient to cause each Limited Partner's capital account to equal its
unreturned Original Invested Capital plus any unpaid Preferred Return (as
defined) and (ii) then, to the Limited Partners and the General Partners in the
proportion between them of 85% to the Limited Partners and 15% to the General
Partners.
Cash distributions from operations, as defined, will be allocated 1% to Crozier
Partners VII, Ltd. and 99% to the Limited Partners. Cash distributions from
sales or refinancings of property will be allocated 99% to the Limited Partners
and 1% to Crozier Partners VII, Ltd. until the Limited Partners have received
an amount from cash distributions from sales or refinancings or property equal
to their original invested capital plus their Preferred Return (as defined).
Next, cash distributions from the sale or refinancing of property will be
allocated 1% to Crozier Partners VII, Ltd., and 99% to the Limited Partners and
the General Partners in the proportions between them of 85% to the Limited
Partners and 15% to the General Partners.
5. Mortgage Note Payable
Mortgage note payable at December 31, 1995 and 1994 is $6,380,912, which is
secured by the Fifth Avenue apartment complex in San Antonio, Texas. Interest
accrues at an effective rate of 10.125%, with a pay rate of 9.5% during 1994.
The mortgage note matured on December 31, 1995.
The terms of the Modified Plan and Letter Agreement executed between the
Partnership and the lender on the Fifth Avenue Apartments became effective
January 1, 1990. Under the modified terms, interest shall accrue at 10.125% on
the original principal balance of the loan, $5,830,000. Principal and accrued
interest in excess of $5,830,000 shall not bear interest. The maturity date is
December 31, 1995. From and after the effective date, the Partnership will pay
all net cash flow derived from the operations of the Fifth Avenue Apartments to
the lender on a monthly basis. From net cash flow, monthly payments of
interest only in arrears on the balance of $5,830,000 will be made at the
following pay rates:
Year Pay Rate
1990 6.5%
1991 7.5%
1992 8.0%
1993 9.0%
1994 9.5%
1995 10.125%
The difference between the accrual rate and pay rate does not bear interest.
The payments of net cash flow in excess of the interest due at the pay rates
noted above have been used to establish a repairs and replacements reserve
equal to $150 per unit or $29,700, which was fully depleted in 1994. Any net
cash flow remaining after payment of interest and establishment of the
replacements reserve will be available for capital expenditures mutually agreed
upon by the Partnership and the lender. Any further amounts remaining will be
used to establish a debt service reserve not to exceed $75,000, and then any
excess will be applied to accrued but unpaid interest. The lender will review
annually the property's cash flow to determine whether there is excess cash
flow and then to determine the allocation of the excess cash flow to reserve
accounts and/or in payment of accrued and unpaid interest. The Fifth Avenue
lender has not conducted a review since 1990. For the years ended December 31,
1995 and 1994, the property was operating at a deficit of $94,226 and $5,0 14,
respectively.
The General Partners had commenced discussions in 1995 with the lender of the
mortgage secured by Fifth Avenue as a result of the scheduled debt maturity on
December 31, 1995. Such discussions continued past the December 31, 1995
maturity date, with the lender agreeing to forbear from foreclosing on the
property while such discussions continue. As a result of the General Partners'
efforts, a tentative agreement has been reached with the lender to modify and
extend the mortgage, although the terms of such agreement have not yet been
finalized. While the General Partners are hopeful that the agreement to modify
and extend the mortgage will be executed by the end of the second quarter of
1996, there can be no assurance that such agreement will be reached. If an
agreement is not reached, the lender may exercise its right to foreclose
upon the property.
It is not practicable for the Partnership to estimate the fair value of this
class of financial instruments as no quoted market price exists and the cost of
obtaining an independent valuation appears excessive to the Partnership.
6. Transactions with General Partners and Affiliates
During the years ended December 31, 1995, 1994 and 1993, the General Partners
or their affiliates were reimbursed for Partnership administrative and
operating expenses, including property management fees, in the amounts of
$139,809, $131,089 and $328,192, respectively.
Certain cash and cash equivalents reflected on the Partnership's balance sheets
at December 31, 1995 and 1994 were on deposit with an affiliate of the General
Partner.
On January 1, 1990, Murray Management Corporation subcontracted Anterra
Management Corporation to provide certain administrative and management
services with respect to the Partnership and its Properties. Anterra
Management Corporation, is a real estate related service company formed by
former executive officers of Murray and its affiliates, and earned property
management fees of $65,378, $65,670 and $151,203 for the years ended December
31, 1995, 1994 and 1993, respectively.
7. Reconciliation of Financial Statement Net Income (Loss) and Partners'
Deficit to Federal Income Tax Basis Net Income (Loss) and Partners' Deficit
Reconciliation of financial statement net income (loss) to federal income tax
basis net income (loss):
Years Ended December 31,
1995 1994 1993
- ------------------------------------------------------------------------------
Financial statement basis net
income (loss) $ (269,960) $ (262,436) $ 1,722,615
Financial statement gain on sale
of property under tax basis gain
on sale of property 0 0 2,379,221
Financial statement depreciation
over (under) tax basis depreciation (14,635) 26,001 36,079
Financial statement amortization
over (under) tax basis amortization 0 0 62,810
Other 1,294 (8,734) 5,776
----------------------------------------
Federal income tax basis net income
over financial statement net income
or Federal income tax basis net (loss)
(over) under financial statement
net (loss) (13,341) 17,267 2,483,886
----------------------------------------
Federal income tax basis net
income (loss) $ (283,301) $ (245,169) $ 4,206,501
========================================
Reconciliation of financial statement partners' deficit to federal income tax
basis partners' deficit:
Years Ended December 31,
1995 1994 1993
- ------------------------------------------------------------------------------
Financial statement basis partners'
deficit $(1,955,977) $(1,686,017) $ (1,423,581)
Current year Federal income tax
basis net income over (under)
financial statement net income (13,341) 17,267 2,483,886
Cumulative federal income tax
basis net loss over financial
statement net loss (1,827,364) (1,844,631) (4,328,517)
----------------------------------------
Federal income tax basis
partners' deficit $(3,796,682) $(3,513,381) $ (3,268,212)
========================================
Because many types of transactions are susceptible to varying interpretations
under federal and state income tax laws and regulations, the amounts reported
above may be subject to change at a later date upon final determination by the
taxing authorities.
S/M REAL ESTATE FUND VII, LTD.
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1995
Cost Capitalized
Subsequent
Initial Cost to Partnership (A) To Acquisition
--------------------------------------- ------------
Building and Building and
Description Encumbrances Land Improvements Improvements
- ------------------------------------------------------------------------------
Fifth Avenue Apartments
San Antonio, TX $ 6,380,912 $ 962,216 $ 7,512,710 $ 138,233
------------------------------------------------------
$ 6,380,912 $ 962,216 $ 7,512,710 $ 138,233
======================================================
Gross Amount at Which Carried at
Close of Period (B)
--------------------------------
Building and Accumulated
Description Land Improvements Total Depreciation
- ------------------------------------------------------------------------------
Fifth Avenue Apartments
San Antonio, TX $ 962,216 $ 7,650,943 $ 8,613,159 $ 4,464,838
-------------------------------------------------------
$ 962,216 $ 7,650,943 $ 8,613,159 $ 4,464,838
=======================================================
Life on which
Depreciation
in Latest
Date of Date Income Statements
Description Construction Acquired is Computed
- --------------------------------------------------------------------------
Fifth Avenue Apartments
San Antonio, TX 1982 1983 3-21 years
(A) The initial cost to the Partnership represents the original purchase
price of the property.
(B) The aggregate cost of real estate at December 31, 1995, 1994 and 1993,
for Federal income tax purposes is $8,759,601, $8,759,601 and $21,506,035,
respectively.
A reconciliation of the carrying amount of real estate and accumulated
depreciation for the years ended December 31, 1995, 1994 and 1993:
Real Estate investments: 1995 1994 1993
---------------------------------------------
Beginning of year $ 8,565,262 $ 8,624,456 $ 19,744,169
Additions 47,897 20,121 5,516
Deletions 0 0 (11,125,229)
Retirements 0 (79,315) 0
--------------------------------------------
End of year $ 8,613,159 $ 8,565,262 $ 8,624,456
============================================
Accumulated Depreciation:
Beginning of year $ 4,091,395 $ 3,803,893 $ 7,714,141
Depreciation expenses 373,443 366,817 838,533
Deletions 0 0 (4,748,781)
Retirements 0 (79,315) 0
--------------------------------------------
End of year $ 4,464,838 $ 4,091,395 $ 3,803,893
============================================