-----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, U/MQzudEhgfk6K5V7jrHH0y5FlkXwIIb8TBi2HbUqsxHQGdguQgY/FTFeThYUAkW TWonZUTU3MrgjSJJ2awdMA== 0000950148-99-000820.txt : 19990416 0000950148-99-000820.hdr.sgml : 19990416 ACCESSION NUMBER: 0000950148-99-000820 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990415 FILER: COMPANY DATA: COMPANY CONFORMED NAME: REAL ESTATE ASSOCIATES LTD VI CENTRAL INDEX KEY: 0000715578 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 953778627 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-13112 FILM NUMBER: 99594076 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 SUITE 201 CITY: BEVERLY HILLS STATE: CA ZIP: 90211 10-K405 1 FORM 10-K405 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Fiscal Year Ended DECEMBER 31, 1998 Commission File Number 0-13112 REAL ESTATE ASSOCIATES LIMITED VI A CALIFORNIA LIMITED PARTNERSHIP I.R.S. Employer Identification No. 95-3778627 9090 WILSHIRE BLVD., SUITE 201, BEVERLY HILLS, CALIFORNIA 90211 Registrant's Telephone Number, Including Area Code (310) 278-2191 Securities Registered Pursuant to Section 12(b) or 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed with the Commission by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or 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 [ ] 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 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] 2 PART I. ITEM 1. BUSINESS Real Estate Associates Limited VI ("REAL VI" or the "Partnership") is a limited partnership which was formed under the laws of the State of California on October 12, 1982. On April 22, 1983, REAL VI offered 4,200 units consisting of 8,400 limited partnership interests and warrants to purchase a maximum of 8,400 additional limited partnership interests through a public offering managed by E.F. Hutton Inc. The general partners of REAL VI are National Partnership Investments Corp. ("NAPICO"), a California corporation, (the "Corporate General Partner"), and National Partnership Investments Associates ("NAPIA"). NAPIA is a limited partnership formed under the California Limited Partnership Act and consists of Messrs. Nicholas G. Ciriello, an unrelated individual, as general partner, and Mr. Charles H. Boxenbaum as limited partner. The business of REAL VI is conducted primarily by NAPICO. Prior to December 30, 1998, NAPICO was a wholly owned subsidiary of Casden Investment Corporation ("CIC"), which is wholly owned by Alan I. Casden. On December 30, 1998, Casden Properties Operating Partnership, L.P. (the "Operating Partnership"), a majority owned subsidiary of Casden Properties Inc., a real estate investment trust organized by Alan I. Casden, purchased a 95.25% economic interest in NAPICO. The current members of NAPICO's Board of Directors are Charles H. Boxenbaum, Bruce E. Nelson, Alan I. Casden and Henry C. Casden. REAL VI holds limited partnership interests in 20 local limited partnerships. REAL VI also holds a general partner interest in Real Estate Associates III ("REA III") which, in turn, holds limited partner interests in 3 local limited partnerships. The other general partner of REA III is NAPICO. Therefore, REAL VI currently holds interests either directly or indirectly in 23 local limited partnerships. Each of the local partnerships owns a low income housing project which is subsidized and/or has a mortgage note payable to or insured by agencies of the federal or local government. In December 1998, the Partnership sold its interests in 10 local limited partnerships and its general partner interest in one local general partnership to the Operating Partnership. In order to stimulate private investment in low income housing, the federal government and certain state and local agencies have provided significant ownership incentives, including among others, interest subsidies, rent supplements, and mortgage insurance, with the intent of reducing certain market risks and providing investors with certain tax benefits, plus limited cash distributions and the possibility of long-term capital gains. There remain, however, significant risks. The long-term nature of investments in government assisted housing limits the ability of REAL VI to vary its portfolio in `response to changing economic, financial and investment conditions; such investments are also subject to changes in local economic circumstances and housing patterns, as well as rising operating costs, vacancies, rent collection difficulties, energy shortages and other factors which have an impact on real estate values. These projects also require greater management expertise and may have higher operating expenses than conventional housing projects. Under recent adopted law and policy, the United States Department of Housing and Urban Development ("HUD") has determined not to renew the Housing Assistance Payment ("HAP") Contracts on a long term basis on the 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. The payments under the renewed HAP Contracts are not expected to be in an amount that would provide sufficient cash flow to permit owners of properties subject to HAP Contracts to meet the debt service requirements of existing loans insured by the Federal Housing Administration of HUD ("FHA") unless such mortgage loans are restructured. 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, 3 provides for the restructuring of mortgage loans insured by the FHA with respect to properties subject to the Section 8 program. Under MAHRAA, an FHA-insured mortgage loan can be restructured into a first mortgage loan which will be amortized on a current basis and a low interest second mortgage loan payable to FHA which will only be payable on maturity of the first mortgage loan. This restructuring results in a reduction in annual debt service payable by the owner of the FHA-insured mortgage loan and is expected to result in an insurance payment from FHA to the holder of the FHA-insured loan due to the reduction in the principal amount. MAHRAA also phases out project-based subsidies on selected properties serving families not located in rental markets with limited supply, converting such subsidies to a tenant-based subsidy. MAHRAA provides that properties begin the restructuring process in federal fiscal year 1999 (beginning October 1, 1998). On September 11, 1998, HUD issued interim regulations implementing MAHRAA and final regulations are expected to be issued in 1999. With respect to the local limited partnerships' expiring HAP Contracts, it is expected that the HAP payments will be reduced or terminated pursuant to the terms of MAHRAA. When the HAP contracts are subject to renewal, there can be no assurance that the local limited partnerships in which the Partnership has an investment will be permitted to restructure its mortgage indebtedness under MAHRAA. In addition, 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 is uncertain. The local partnerships in which REAL VI has invested were, at least initially, organized by private developers who acquired the sites, or options thereon, and applied for applicable mortgage insurance and subsidies. REAL VI became the principal limited or general partner in these local partnerships pursuant to arm's-length negotiations with these developers, or others, who normally act as general partners. As a limited partner, REAL VI's liability for obligations of the local limited partnership is limited to its investment. The local general partner of the local limited partnership retains responsibility for developing, constructing, maintaining, operating and managing the project. Under certain circumstances of default, REAL VI has the right to replace the general partner of the local limited partnerships. As discussed above, REAL VI is a general partner in certain of the local partnerships, but otherwise does not have control of sale or refinancing, etc. Although each of the partnerships in which REAL VI has invested will generally own a project which must compete in the marketplace for tenants, interest subsidies and rent supplements from governmental agencies make it possible to offer these dwelling units to eligible "low income" tenants at a cost significantly below the market rate for comparable conventionally financed dwelling units in the area. 4 During 1998, projects in which REAL VI had invested were substantially rented. The following is a schedule of the status, as of December 31, 1998, of the projects owned by local partnerships in which REAL VI, either directly or indirectly through REA III, has invested. SCHEDULE OF PROJECTS OWNED BY LOCAL LIMITED AND GENERAL PARTNERSHIPS IN WHICH REAL VI HAS AN INVESTMENT DECEMBER 31, 1998
Units Authorized For Rental No. of Assistance Under Units Percentage of Name & Location Units Section 8 Occupied Total Units - --------------- ----- ----------------- ----------- ------------ Local Partnerships Boynton Terrace 89 89 87 98% Boynton Beach, FL Cady Brook Apts. 40 None 40 100% Charlton, MA Cassidy Village 98 50 98 100% Columbus, Ohio Century Plaza 120 120 119 99% Hampton, VA Crockett Manor 38 38 34 89% Trenton, TN Eastridge Apts. 96 65 84 88% Briston, VA Filmore I 32 32 31 97% Phoenix, AZ Grant-Ko Enterprises 40 None 32 80% Platteville, WI Hummelstown Manor 51 50 50 98% Hummelstown, PA Kentucky Manor 48 None 46 96% Oak Grove, KY Lonsdale Housing 131 131 130 99% Providence, RI Marshall Plaza I 40 40 40 100% Lorain, Ohio
5 SCHEDULE OF PROJECTS OWNED BY LOCAL LIMITED AND GENERAL PARTNERSHIPS IN WHICH REAL VI HAS AN INVESTMENT DECEMBER 31, 1998 CONTINUED
Units Authorized For Rental No. of Assistance Under Units Percentage of Name & Location Units Section 8 Occupied Total Units - --------------- ----- ----------------- ----------- ------------ Marshall Plaza II 50 48 50 100% Lorain, Ohio New-Bel-Mo 34 None 24 71% New Glarus, Bellemont, Monticello, WI Oakridge Apts. II 48 None 48 100% Biloxi, MS Oakwood Manor 34 34 32 94% Milan, TN Park Place 126 125 120 95% Ewing, NJ Parkesedge Elderly Apts. 45 45 45 100% Parkesedge, PA Penneco II 76 76 69 91% Johnstown, PA Sauk-Ko Enterprises 30 None 24 80% Baraboo, WI Sol 413 12 12 12 100% Old San Juan, PR Valley Oaks Senior 50 None 49 98% Gault, CA Villas de Orocovix 41 41 41 100% Orocovix, PR ----- ----- ----- TOTALS 1,369 996 1,305 95% ===== ===== =====
6 ITEM 2. PROPERTIES The local limited partnerships in which REAL VI holds interests own various multi-family rental properties. See Item 1 for information pertaining to these properties. ITEM 3. LEGAL PROCEEDINGS On August 27, 1998, two investors holding an aggregate of eight units of limited partnership interests in Real Estate Associates Limited III (an affiliated partnership in which NAPICO is the managing general partner) and two investors holding an aggregate of five units of limited partnership interest in Real Estate Associates Limited VI (another affiliated partnership in which NAPICO is the managing general partner) commenced an action in the United States District Court for the Central District of California against the Partnership, NAPICO and certain other affiliated entities. The complaint alleges that the defendants breached their fiduciary duty to the limited partners of certain NAPICO managed partnerships and made materially false and misleading statements in the consent solicitation statements sent to the limited partners of such partnerships relating to approval of the transfer of partnership interests in limited partnerships, owning certain of the properties, to the REIT organized by an affiliate of NAPICO. The plaintiffs seek preliminary and permanent injunctive relief and other equitable relief, as well as compensatory and punitive damages. The managing general partner of such NAPICO managed partnerships and the other defendants believe that the plaintiffs' claims are without merit and intend to contest the action vigorously. As of December 31, 1998, the Partnership's General Partner was a plaintiff or defendant in several other lawsuits. None of these lawsuits were related to the Partnership. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS In August 1998, a consent solicitation statement was 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, by a real estate investment trust organized by an affiliate of NAPICO, together with certain amendments to the Partnership Agreement and other disclosures of various conflicts of interest in connection with the proposed transaction. Prior to the sale of the partnership interests, the consents of the limited partners to the sale and amendments to the Partnership Agreement were obtained. PART II. ITEM 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP INTERESTS AND RELATED SECURITY HOLDER MATTERS The Limited Partnership Interests are not traded on a public exchange but were sold through a public offering managed by E. F. Hutton Inc. It is not anticipated that any public market will develop for the purchase and sale of any partnership interests. Limited Partnership Interests may be transferred only if certain requirements are satisfied. At December 31, 1998, there were 3,446 registered holders of units in REAL VI. Distributions have not been made from the inception of the Partnership to December 31, 1998. The Partnership has invested in certain government assisted projects under programs which in many instances restrict the cash return available to project owners. The Partnership was not designed to provide cash distributions to investors in circumstances other than refinancing or disposition of its investments in limited partnerships. In March 1999, the Partnership made distributions of $2,769,110 to the limited partners and $27,971 to the general partners, which included using proceeds from the sale of the partnership interests. 7 ITEM 6. SELECTED FINANCIAL DATA
Year Ended December 31, -------------------------------------------------------------------------------- 1998 1997 1996 1995 1994 ------------ ------------ ------------ ------------ ------------ Loss from Rental Operations $ 45,723 $ (20,071) $ (175,242) $ (246,036) $ (238,520) Loss from Partnership Operations (1,436,418) (1,132,951) (1,129,499) (1,307,251) (1,110,060) Gain on Sale of Limited Partnership Interests and Rental Property 7,497,969 -- 1,902,022 -- -- Equity in (Loss) Income of Limited Partnerships and Amortization of Acquisition Costs (1,437,536) 625,025 603,934 415,526 433,356 Distribution from Limited Partnerships Recognized as Income 123,291 499,540 597,425 347,163 500,498 ------------ ------------ ------------ ------------ ------------ Net Income (Loss) $ 4,793,029 $ (28,457) $ 1,798,640 $ (790,598) $ (414,726) ============ ============ ============ ============ ============ Net Income (Loss) per Limited Partnership Interest $ 285 $ (2) $ 107 $ (47) $ (24) ============ ============ ============ ============ ============ Total Assets $ 7,426,779 $ 15,726,187 $ 15,286,368 $ 18,337,139 $ 18,725,681 ============ ============ ============ ============ ============ Investments in Limited Partnerships $ 500,744 $ 5,885,699 $ 6,051,522 $ 5,619,146 $ 5,213,864 ============ ============ ============ ============ ============ Rental Property $ -- $ 3,016,049 $ 3,158,470 $ 7,285,002 $ 7,638,829 ============ ============ ============ ============ ============ Mortgage Notes Payable $ -- $ 4,828,404 $ 4,886,300 $ 9,890,564 $ 9,993,001 ============ ============ ============ ============ ============ Notes Payable and Amounts Due for Partnership Interests $ 1,765,000 $ 5,795,000 $ 5,795,000 $ 5,795,000 $ 5,795,000 ============ ============ ============ ============ ============
8 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY The Partnership's primary sources of funds include interest income on money market funds and certificates of deposit and distributions from local partnership in which the Partnership has invested. It is not expected that any of the local partnerships in which the Partnership has invested will generate cash flow sufficient to provide for distributions to the Partnership's limited partners in any material amount. The Partnership made a cash distribution to investors in March 1999 using proceeds from the disposition of its investments in certain limited partnerships. The financial statements of the two general partnerships in which REAL VI is the majority general partner, have been consolidated in the accompanying financial statements. One of these partnerships is a local operating partnership which owns and operates an apartment building. The units are leased primarily on a month-to-month basis. These partnerships' primary source of funds are the rental payments from tenants. Expenditures primarily include normal operating expenses and debt service. CAPITAL RESOURCES REAL VI received $42,000,000 in subscriptions for units of limited partnership interests (at $5,000 per unit) during the period April 22, l983, to March 31, 1984, pursuant to a registration statement on Form S-11. RESULTS OF OPERATIONS The Partnership was formed to provide various benefits to its partners as discussed in Item 1. It is anticipated that the local limited partnerships in which REAL VI has invested could produce tax losses for as long as 20 years. Tax benefits will decline over time as the advantages of accelerated depreciation are greatest in the earlier years, as deductions for interest expense will decrease as mortgage principal is amortized and as the Tax Reform Act of 1986 limits the deductions available. On February 2, 1996, one of the consolidated general partnerships (Drexel Park) sold its property for $6,300,000. After payment of closings costs, the Partnership realized a gain of approximately $1,902,000 and received cash of $830,000. The sale of this property reduced rental operations in 1998 and 1997 as compared to 1996. At December 31, 1998, the Partnership has investments in 23 limited partnerships, all of which own housing projects that were substantially all rented. The Partnership, as a limited partner, is entitled to 90% to 99% of the profits and losses of the local limited partnerships. 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. Equity in losses of limited partnerships are 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. Limited partners are not liable for losses beyond their contributed capital. 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. The total losses from the 33 local limited partnerships that were allocated to the Partnership were $1,799,000, $1,933,000 and $1,869,000 for the years ended December 31, 1998, 1997 and 1996, respectively. However, because losses incurred after the investment account is reduced to a zero balance are not recognized, the Partnership recognized equity in (loss) income of limited partnerships of $(1,437,536), $625,025 and $603,934 9 for the years ended December 31, 1998, 1997 and 1996, respectively. The loss in 1998 is the result of an impairment of approximately $2,076,000 to the carrying values of the investments in certain local limited partnerships. The capital contributions for 1998 and 1997 were $67,912 and $32,912, respectively, for each year. The cumulative amount of the unrecognized equity in losses of certain limited partnerships was approximately $9,686,000 and $29,631,000 as of December 31, 1998 and 1997, respectively. Distributions from the local limited partnerships in which the Partnership did not have a positive investment balance were $123,291, $499,540 and $597,425 for the years ended December 31, 1998, 1997 and 1996, respectively. These amounts were recognized as income on the accompanying statements of operations, in accordance with the equity method of accounting. As of December 31, 1998, 1997 and 1996, the Partnership has cash and cash equivalents of $5,477,969, $6,611,690 and $5,849,983, respectively. These amounts are on deposit primarily with two high credit quality financial institutions, earning interest. As a result of changing financial institutions in 1997 where the cash and cash equivalents are on deposit, the interest rate earned on such deposits in 1998 and 1997 was significantly greater than in 1996. This resulted in the Partnership earning $291,598, 299,009 and $165,591 in interest income for the years ended December 31, 1998, 1997 and 1996, respectively. The amount of interest income varies with market rates available and with the amount of funds available for investment. Cash equivalents can be converted to cash to meet obligations of the Partnership as they arise. The Partnership intends to continue investing available funds in this manner. A recurring partnership expense is the annual management fee. The fee is payable to the Corporate General Partner of the Partnership and is calculated at .4 percent of the Partnership's invested assets. The management fee is paid to the Corporate General Partner for its continuing management of partnership affairs. The fee is payable beginning with the month following the Partnership's initial investment in a local limited partnership. Management fees were $502,224, $501,660 and $513,393 for the years ended December 31, 1998, 1997 and 1996, respectively. The fees have decreased due to the sales of properties owned by local partnerships, which reduced the invested assets. Under recent adopted law and policy, the United States Department of Housing and Urban Development ("HUD") has determined not to renew the Housing Assistance Payment ("HAP") Contracts on a long term basis on the 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. The payments under the renewed HAP Contracts are not expected to be in an amount that would provide sufficient cash flow to permit owners of properties subject to HAP Contracts to meet the debt service requirements of existing loans insured by the Federal Housing Administration of HUD ("FHA") unless such mortgage loans are restructured. 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 the Section 8 program. Under MAHRAA, an FHA-insured mortgage loan can be restructured into a first mortgage loan which will be amortized on a current basis and a low interest second mortgage loan payable to FHA which will only be payable on maturity of the first mortgage loan. This restructuring results in a reduction in annual debt service payable by the owner of the FHA-insured mortgage loan and is expected to result in an insurance payment from FHA to the holder of the FHA-insured loan due to the reduction in the principal amount. MAHRAA also phases out project-based subsidies on selected properties serving families not located in rental markets with limited supply, converting such subsidies to a tenant-based subsidy. MAHRAA provides that properties begin the restructuring process in federal fiscal year 1999 (beginning October 1, 1998). On September 11, 1998, HUD issued interim regulations implementing MAHRAA and final regulations are expected to be issued in 1999. With respect to the local limited partnerships' expiring HAP Contracts, it is expected that the HAP payments will be reduced or terminated pursuant to the terms of MAHRAA. 10 When the HAP Contracts are subject to renewal, there can be no assurance that the local limited partnerships in which the Partnership has an investment will be permitted to restructure its mortgage indebtedness under MAHRAA. In addition, 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 is uncertain. As a result of the foregoing, the Partnership in 1997 undertook an extensive review of disposition, refinancing or re-engineering alternatives for the properties in which the limited partnerships have invested and are subject to HUD mortgage and rental subsidy programs. The Partnership has incurred expenses in connection with this review by various third party professionals, including accounting, legal, valuation, structural and engineering costs, which amounted to $393,072 and $127,514 for the years ended December 31, 1998 and 1997, respectively, and are included in general administrative expenses. On December 30, 1998, the Partnership sold its limited partnership interests in 10 local limited partnerships, with a total carrying value of $3,878,866, and its general partner interest in one local general partnership, with a partner deficit of $1,507,828, to the Operating Partnership. The sale resulted in proceeds to the Partnership of a $1,397,081 and a net gain of $7,497,969, after being relieved of notes and interest payable of $8,712,920 and incurring selling expenses of $240,994. In March 1999, the Partnership made cash distributions of $2,769,110 to the limited partners and $27,971 to the general partners, which included using proceeds from the sale of the partnership interests. The Operating Partnership purchased such limited partner interests for cash, which it raised in connection with a private placement of its equity securities. The purchase was subject to, among other things, (i) the purchase of the general partner interests in the local limited partnerships by the Operating Partnership; (iii) the approval of HUD and certain state housing finance agencies; and (iii) the consent of the limited partners to the sale of the local limited partnership interests held for investment by the Partnership. In August 1998, a consent solicitation statement was 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. Prior to the sale of the partnership interests, the consents of the limited partners to the sale and amendments to the Partnership Agreement were obtained. General and administrative expenses were generally consistent for the three years presented. General and administrative expenses were $692,092, $396,600 and $262,047 for the years ended December 31, 1998, 1997 and 1996, respectively. Included in general and administrative expenses are reimbursements to NAPICO for certain expenses, which totaled $51,491, $51,487 and $47,231 for the years ended December 31, 1998, 1997 and 1996, respectively. Also included in partnership general and administrative expenses for 1998 and 1997 is $393,072 and $127,514, respectively, related to the aforementioned third-party review of the properties owned by the local partnerships. At December 31, 1998, the Partnership is obligated on non-recourse notes payable of $1,440,000 which bear interest at 9.5 percent per annum and have principal maturities ranging from December 1999 to December 2012. The Partnership was relieved of notes payable in the amount of $4,030,000 in connection with the sale of the partnership interests to the Operating Partnership. The notes and related interest are payable from cash flow generated from operations of the related rental properties as defined in the notes. These obligations are collateralized by the Partnership's investments in the limited partnerships. Unpaid interest is due at maturity of the notes. Since the Partnership was not relieved of any notes until the end of 1998 in connection with the sale of the limited partnership interests, interest expense has remained fairly constant at $533,700, $533,700 and $519,650 for 1998, 1997 and 1996, respectively. 11 The results of operations of the local limited partnerships were fairly constant during the years ended December 31, 1998, 1997 and 1996. Contributing to the relative stability of operations at the local partnerships is the fact that substantially all of the local partnerships are operating apartment projects which are subsidized and have mortgage notes payable to or insured by agencies of the federal or local government. Total revenue for the 22 local partnerships has remained fairly constant, and was $21,200,000, $20,921,000 and $21,246,000 for the years ended December 31, 1998, 1997 and 1996, respectively. Total expenses for the 22 local partnerships remained fairly consistent, and were $23,021,000, $22,866,000 and $23,123,000 for the years ended December 31, 1998, 1997 and 1996, respectively. The total net loss for the 22 local partnerships for 1998, 1997 and 1996 aggregated $1,821,000, $1,945,000 and $1,877,000, respectively. The losses allocable to the Partnership were $1,799,000, $1,933,000 and $1,869,000 for 1998, 1997 and 1996, respectively. During the year ended December 31, 1997, the local limited partnership that owns Drexel III consummated the sale of the apartment complex. The Partnership received distributions of $670,245 of which $597,601 was recognized as a return of capital and $72,644 was recognized as distributions to income. The Partnership financial statements reflect no investment in the Drexel III Local Partnership. The Partnership, as a limited or general partner in the local partnerships in which it has invested, is subject to the risks incident to the construction, management, and ownership of improved real estate. The Partnership investments are also subject to adverse general economic conditions and accordingly, the status of the national economy, including substantial unemployment, concurrent inflation and changing legislation, could increase vacancy levels, rental payment defaults, and operating expenses, which in turn, could substantially increase the risk of operating losses for the projects. 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. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Financial Statements and Supplementary Data are listed under Item 14. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 12 REAL ESTATE ASSOCIATES LIMITED VI AND SUBSIDIARIES (A California limited partnership) FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND INDEPENDENT PUBLIC ACCOUNTANTS' REPORT DECEMBER 31, 1998 13 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Partners of Real Estate Associates Limited VI (A California limited partnership) We have audited the accompanying balance sheets of Real Estate Associates Limited VI (a California limited partnership) as of December 31, 1998 and 1997, and the related statements of operations, partners' deficiency and cash flows for each of the three years in the period ended December 31, 1998. Our audits also included the financial statement schedules listed in the index in item 14. These financial statements and financial statement schedules are the responsibility of the management of the Partnership. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We did not audit the financial statements of certain limited partnerships, the investments in which are reflected in the accompanying financial statements using the equity method of accounting. The investments in these limited partnerships represent 35 percent and 35 percent of total assets as of December 31, 1998 and 1997, respectively, and the equity in income of these limited partnerships represents 17 percent, 17 percent and 12 percent of the total net income of the Partnership for the years ended December 31, 1998, 1997 and 1996, respectively, and represent a substantial portion of the investee information in Note 2 and the financial statement schedules. The financial statements of these limited partnerships are audited by other auditors. Their reports have been furnished to us and our opinion, insofar as it relates to the amounts included for these limited partnerships, is based solely on the reports of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits and the reports of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of Real Estate Associates Limited VI as of December 31, 1998 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. Also, in our opinion, based on our audits and the reports of other auditors, such financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Los Angeles, California April 6, 1999 14 REAL ESTATE ASSOCIATES LIMITED VI (A CALIFORNIA LIMITED PARTNERSHIP) BALANCE SHEETS DECEMBER 31, 1998 AND 1997 ASSETS
1998 1997 ------------ ------------ INVESTMENTS IN LIMITED PARTNERSHIPS (Note 2) $ 500,744 $ 5,885,699 RENTAL PROPERTY, net of accumulated depreciation (Note 1) -- 3,016,049 CASH AND CASH EQUIVALENTS (Note 1) 5,477,969 6,611,690 CASH, restricted (Note 3) -- 38,465 CASH DUE FROM ESCROW (Note 2) 1,397,081 -- OTHER ASSETS 50,985 174,284 ------------ ------------ TOTAL ASSETS $ 7,426,779 $ 15,726,187 ============ ============ LIABILITIES AND PARTNERS' EQUITY (DEFICIENCY) LIABILITIES: Mortgage notes payable related to properties (Notes 4 and 9) $ -- $ 4,828,404 Notes payable and amounts due for partnership interests (Notes 5 and 9) 1,765,000 5,795,000 Accrued interest payable (Notes 5 and 9) 1,817,184 6,103,244 Accounts payable 208,460 117,968 Other liabilities -- 38,465 ------------ ------------ 3,790,644 16,883,081 ------------ ------------ COMMITMENTS AND CONTINGENCIES (Notes 2, 6 and 7) PARTNERS' EQUITY (DEFICIENCY): General partners (314,828) (362,758) Limited partners 3,950,963 (794,136) ------------ ------------ 3,636,135 (1,156,894) ------------ ------------ TOTAL LIABILITIES AND PARTNERS' EQUITY (DEFICIENCY) $ 7,426,779 $ 15,726,187 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 15 REAL ESTATE ASSOCIATES LIMITED VI (A CALIFORNIA LIMITED PARTNERSHIP) CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998
1998 1997 1996 ------------ ------------ ------------ RENTAL OPERATIONS: Revenues $ 1,138,743 $ 1,070,895 $ 1,211,516 ------------ ------------ ------------ Expenses: General and administrative 148,874 84,870 162,929 Operating 310,249 369,779 395,170 Management fees - affiliate (Note 6) 55,985 53,500 76,862 Depreciation and amortization 156,480 156,480 210,414 Interest 421,432 426,337 541,383 ------------ ------------ ------------ 1,093,020 1,090,966 1,386,758 ------------ ------------ ------------ LOSS FROM RENTAL OPERATIONS 45,723 (20,071) (175,242) ------------ ------------ ------------ PARTNERSHIP OPERATIONS: Interest and other income 291,598 299,009 165,591 ------------ ------------ ------------ Expenses: Management fees - general partner (Note 6) 502,224 501,660 513,393 General and administrative 692,092 396,600 262,047 Interest 533,700 533,700 519,650 ------------ ------------ ------------ 1,728,016 1,431,960 1,295,090 ------------ ------------ ------------ LOSS FROM PARTNERSHIP OPERATIONS (1,436,418) (1,132,951) (1,129,499) ------------ ------------ ------------ GAIN ON SALE OF LIMITED PARTNERSHIP INTERESTS AND RENTAL PROPERTY (Notes 1 and 2) 7,497,969 -- 1,902,022 EQUITY IN INCOME OF LIMITED PARTNERSHIPS AND AMORTIZATION OF ACQUISITION COSTS (1,437,536) 625,025 603,934 DISTRIBUTIONS FROM LIMITED PARTNERSHIPS RECOGNIZED AS INCOME (Note 2) 123,291 499,540 597,425 ------------ ------------ ------------ NET INCOME (LOSS) $ 4,793,029 $ (28,457) $ 1,798,640 ============ ============ ============ NET INCOME (LOSS) PER LIMITED PARTNERSHIP INTEREST (Note 1) $ 285 $ (2) $ 107 ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 16 REAL ESTATE ASSOCIATES LIMITED VI (A CALIFORNIA LIMITED PARTNERSHIP) CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY (DEFICIENCY) FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
General Limited Partners Partners Total ----------- ----------- ----------- DEFICIENCY, January 1, 1996 $ (380,460) $(2,546,617) $(2,927,077) Net income, 1996 17,986 1,780,654 1,798,640 ----------- ----------- ----------- DEFICIENCY, December 31, 1996 (362,474) (765,963) (1,128,437) Net loss, 1997 (285) (28,172) (28,457) ----------- ----------- ----------- DEFICIENCY, December 31, 1997 (362,758) (794,136) (1,156,894) Net loss, 1998 47,930 4,745,099 4,793,029 ----------- ----------- ----------- (DEFICIENCY) EQUITY, December 31, 1998 $ (314,828) $ 3,950,963 $ 3,636,135 =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 17 REAL ESTATE ASSOCIATES LIMITED VI (A CALIFORNIA LIMITED PARTNERSHIP) CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996 ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 4,793,029 $ (28,457) $ 1,798,640 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Gain on sale of rental property (7,497,969) -- (1,902,022) Equity in loss (income) of limited partnerships and amortization of acquisition costs 1,437,536 (625,025) (603,934) Depreciation and amortization 156,480 156,480 210,414 (Increase) decrease in receivables from limited partnerships -- -- 1,000 Decrease in other assets 123,299 2,296 136,670 Increase in accrued interest payable 432,227 452,861 396,403 (Decrease) increase in accounts payable 90,482 70,596 (146,129) (Decrease) increase in other liabilities (38,465) 2,715 (95,421) ------------ ------------ ------------ Net cash provided by (used in) operating activities (503,381) 31,466 (204,379) ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Distributions to limited partnerships recognized as as a return of capital 136,465 823,764 176,852 Decrease in restricted cash 38,465 (2,715) 48,588 Decrease in short term investments -- -- 125,000 Capital contribution to investee limited partnership (67,912) (32,912) (5,294) Proceeds from sale of rental property -- -- 5,818,140 Costs related to sale of partnership interests (240,994) Cash transferred in connection with sale of partnership interest (433,175) -- -- ------------ ------------ ------------ Net cash provided by investing activities (567,151) 788,137 6,163,286 ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Payment of mortgages (63,189) (57,896) (5,004,264) ------------ ------------ ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,133,721) 761,707 954,643 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 6,611,690 5,849,983 4,895,340 ------------ ------------ ------------ CASH AND CASH EQUIVALENTS, END OF YEAR $ 5,477,969 $ 6,611,690 $ 5,849,983 ============ ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for interest $ 518,335 $ 507,176 $ 664,630 ============ ============ ============ SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES See Note 2 and Note 4 to financial statements regarding notes, interest and mortgage payable
The accompanying notes are an integral part of these consolidated financial statements. 18 REAL ESTATE ASSOCIATES LIMITED VI AND SUBSIDIARIES (a California limited partnership) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION Real Estate Associates Limited VI (the "Partnership"), was formed under the California Limited Partnership Act on October 12, 1982. The Partnership was formed to invest primarily in other limited partnerships or joint ventures which own and operate primarily federal, state or local government-assisted housing projects and to acquire, lease, sell or mortgage real or personal property. The general partners are National Partnership Investments Associates (NAPIA), a limited partnership, and National Partnership Investments Corp. (NAPICO). Prior to December 30, 1998, NAPICO was a wholly owned subsidiary of Casden Investment Corporation ("CIC"), which is wholly owned by Alan I. Casden. On December 30, 1998, Casden Properties Operating Partnership, L.P., (the "Operating Partnership") a majority owned subsidiary of Casden Properties Inc., a real estate investment trust organized by Alan I. Casden, purchased a 95.25% economic interest in NAPICO. The business of REAL VI is conducted primarily by NAPICO. The consolidated financial statements include the accounts of Real Estate Associates Limited VI and its majority-owned general partnerships. All significant intercompany accounts and transactions have been eliminated in consolidation. Losses in excess of the minority interest in equity that would otherwise be attributed to the minority interest are being allocated to the Partnership. The Partnership offered and issued 4,200 units of limited partner interests through a public offering. Each unit was comprised of two limited partner interests and a warrant granting the investor the right to purchase two additional limited partner interests. An additional 8,410 interests were issued from the exercise of warrants and the sale of interests associated with warrants not exercised. The general partners have a 1 percent interest in operating profits and losses of the Partnership. The limited partners have the remaining 99 percent interest in proportion to their respective investments. The Partnership shall be dissolved only upon the expiration of 50 complete calendar years (December 31, 2032) from the date of the formation of the partnership or the occurrence of various other events as specified in the Partnership agreement. Upon total or partial liquidation of the Partnership or the disposition or partial disposition of a project or project interest and distribution of the proceeds, the general partners will be entitled to a liquidation fee as stipulated in the Partnership agreement. The limited partners will have a priority return equal to their invested capital attributable to the project(s) or project interest(s) sold and shall receive from the sale of the project(s) or project interest(s) an amount sufficient to pay state and federal income taxes, if any, calculated at the maximum rate then in effect. The general partner's liquidation fee may accrue but shall not be paid until the limited partners have received distributions equal to 100 percent of their capital contributions. On December 30, 1998, the Partnership sold its interests in 10 local limited partnerships and its general partner interest in one local general partnership for net proceeds of $1,397,081 to the Operating Partnership. 5 19 REAL ESTATE ASSOCIATES LIMITED VI AND SUBSIDIARIES (a California limited partnership) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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 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 INVESTMENTS IN LIMITED PARTNERSHIPS The investments in limited partnerships are accounted for on the equity method. Acquisition, selection and other costs related to the acquisition of the projects have been capitalized as part of the investment account and are being amortized on a straight line basis over the estimated lives of the underlying assets, which is generally 30 years. RENTAL PROPERTY AND DEPRECIATION Rental property is stated at cost. Depreciation is provided on the straight-line and accelerated methods over the estimated useful lives of the buildings and equipment. Pursuant to a purchase agreement in which the Partnership acquired its interest from independent withdrawing general partners, certain rental property was revalued to reflect the purchase price. Substantially all of the apartment units are leased on a month-to-month basis. The costs of rental property and estimated useful lives for depreciation are as follows:
Estimated Useful Lives 1998 1997 ------------- ---- ---------- Land $ -- $1,557,180 Buildings 25 years -- 3,283,659 Equipment 3 to 5 years -- 824,580 ---- ---------- -- 5,665,419 Less-Accumulated Depreciation and Amortization -- 2,649,370 ---- ---------- $ -- $3,016,049 ==== ==========
On February 2, 1996, one of the consolidated general partnerships (Drexel Park) sold its property for $6,300,000. After payment of closings costs, the Partnership realized a gain of approximately $1,902,000 in 1996. On December 30, 1998, the Partnership sold its remaining consolidated general partnership interest (Peppertree Associates). 6 20 REAL ESTATE ASSOCIATES LIMITED VI AND SUBSIDIARIES (a California limited partnership) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) NET INCOME (LOSS) PER LIMITED PARTNERSHIP INTEREST Net income (loss) per limited partnership interest was computed by dividing the limited partners' share of net income (loss) by the number of limited partnership interests outstanding during the year. The number of limited partnership interests was 16,810 for all years presented. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of unrestricted cash and bank certificates of deposit with maturities of three months or less. The Partnership has its cash and cash equivalents on deposit primarily with two high credit quality financial institutions Such cash and cash equivalents are in excess of the FDIC insurance limit. 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. During 1998, the Partnership recognized an impairment loss of approximately $2,076,000 related to certain investments in local limited partnerships, which has been included in equity in loss of limited partnerships. 2. INVESTMENTS IN LIMITED PARTNERSHIPS The Partnership holds limited partnership interests in 20 limited partnerships. In addition, REAL VI holds a general partner interest in Real Estate Associates III ("REA III"), a California general partnership. NAPICO is also a general partner in REA III. REA III, in turn, holds limited partner interests in 3 limited partnerships. In total, therefore, the Partnership holds interests, either directly or indirectly through REA III, in 23 limited partnerships and one general partnership, which own residential low income rental projects consisting of 1,369 apartment units. The mortgage loans of these projects are payable to or insured by various governmental agencies. The Partnership, as a limited partner, is entitled to between 90 percent and 99 percent of the profits and losses of the limited partnerships it has invested in directly. The Partnership is also entitled to 99.9 percent of the profits and losses of REA III. REA III holds a 99 percent interest in each of the limited partnerships in which it has invested. Equity in losses of unconsolidated limited partnerships are recognized in the financial statements until the limited partnership investment account is reduced to a zero balance or to a negative amount equal to further capital contributions required. Losses incurred after the limited partnership investment account is reduced to zero are not recognized. The cumulative amount of the unrecognized equity in losses of 7 21 REAL ESTATE ASSOCIATES LIMITED VI AND SUBSIDIARIES (a California limited partnership) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 2. INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED) unconsolidated limited partnerships was approximately $9,686,000 and $29,631,000 as of December 31, 1998 and 1997, respectively. Distributions from the unconsolidated 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 investments in unconsolidated limited partnerships and reconciliation to the limited partnership accounts:
1998 1997 ------------ ------------ Investment balance, beginning of year $ 5,885,699 $ 6,051,522 Equity in (loss) income of limited partnerships (1,319,585) 742,980 Investment balance in partnership interests sold (3,878,866) -- Amortization of capitalized acquisition costs and fees (117,951) (117,951) Capital contributions 67,912 32,912 Distributions recognized as a return of capital (136,465) (823,764) ------------ ------------ Investment balance, end of year $ 500,744 $ 5,885,699 ============ ============
The difference between the investment per the accompanying balance sheets at December 31, 1998 and 1997, and the deficiency per the limited partnerships' combined financial statements is due primarily to cumulative unrecognized equity in losses of limited partnerships, additional basis and costs capitalized to the investment account, cumulative distributions recognized as income and impairment losses. Selected financial information from the combined financial statements at December 31, 1998 and 1997 and for each of the three years in the period ended December 31, 1998, of the limited partnerships in which the Partnership has invested directly or indirectly, is as follows: Balance Sheets
1998 1997 -------- -------- (in thousands) Land and buildings, net $ 23,969 $ 49,936 ======== ======== Total assets $ 32,650 $ 67,970 ======== ======== Mortgage loans payable $ 34,448 $ 67,569 ======== ======== Total liabilities $ 41,289 $ 98,879 ======== ======== Deficiency of the Real Estate Associates Limited VI $ (8,771) $(29,604) ======== ======== Equity (deficiency) of other partners $ 132 $ (1,306) ======== ========
8 22 REAL ESTATE ASSOCIATES LIMITED VI AND SUBSIDIARIES (a California limited partnership) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 2. INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED) Statements of Operations
1998 1997 1996 -------- -------- -------- (in thousands) Total revenue $ 21,200 $ 20,921 $ 21,246 ======== ======== ======== Interest expense $ 4,989 $ 5,155 $ 5,561 ======== ======== ======== Depreciation $ 3,321 $ 3,592 $ 3,597 ======== ======== ======== Total expenses $ 23,021 $ 22,866 $ 23,123 ======== ======== ======== Net loss $ (1,821) $ (1,945) $ (1,877) ======== ======== ======== Net loss allocable to the Partnership $ (1,799) $ (1,933) $ (1,869) ======== ======== ========
Land and buildings above have been adjusted for the amount by which the investments in the limited partnerships exceed the Partnership's share of the net book value of the underlying net assets of the investee which are recorded at historical costs. Depreciation on the adjustment is provided for over the estimated remaining useful lives of the properties. Prior to the sale of certain partnership interests on December 30, 1998, an affiliate of NAPICO was the general partner in 10 of the limited partnerships included above, and another affiliate received property management fees ranging from 5 percent to 7 percent of the revenue from four of these partnerships. The affiliate received property management fees of $67,409, $63,742 and $85,735 in 1998, 1997 and 1996, respectively. The following sets forth the significant data for the partnerships in which an affiliate of NAPICO was the general partner prior to the sale referred to above, reflected in the accompanying financial statements using the equity method of accounting:
1998 1997 1996 -------- -------- ------ (in thousands) Total assets $ 6,102 $ 9,443 ======== ======== Total liabilities $ 8,147 $ 13,178 ======== ======== Deficiency of Real Estate Associates Limited VI $ (1,961) $ (3,633) ======== ======== Deficiency of other partners $ (84) $ (102) ======== ======== Total revenue $ 2,629 $ 2,629 $3,213 ======== ======== ====== Net loss $ (307) $ (383) $ (340) ======== ======== ======
9 23 REAL ESTATE ASSOCIATES LIMITED VI AND SUBSIDIARIES (a California limited partnership) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 2. INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED) Subsequent to the sale of certain partnership interests, NAPICO is the general partner in 6 of the limited partnerships, and another affiliate manages 2 of the limited partnership's properties. During the year ended December 31, 1997, the local limited partnership that owns Drexel III consummated the sale of the apartment complex. The Partnership received distributions of $670,245 of which $597,601 was recognized as a return of capital and $72,644 was recognized as distributions to income. The Partnership financial statements reflect no investment in the Drexel III Local Partnership. Under recent adopted law and policy, the United States Department of Housing and Urban Development ("HUD") has determined not to renew the Housing Assistance Payment ("HAP") Contracts on a long term basis on the 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. The payments under the renewed HAP Contracts are not expected to be in an amount that would provide sufficient cash flow to permit owners of properties subject to HAP Contracts to meet the debt service requirements of existing loans insured by the Federal Housing Administration of HUD ("FHA") unless such mortgage loans are restructured. 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 the Section 8 program. Under MAHRAA, an FHA-insured mortgage loan can be restructured into a first mortgage loan which will be amortized on a current basis and a low interest second mortgage loan payable to FHA which will only be payable on maturity of the first mortgage loan. This restructuring results in a reduction in annual debt service payable by the owner of the FHA-insured mortgage loan and is expected to result in an insurance payment from FHA to the holder of the FHA-insured loan due to the reduction in the principal amount. MAHRAA also phases out project-based subsidies on selected properties serving families not located in rental markets with limited supply, converting such subsidies to a tenant-based subsidy. MAHRAA provides that properties begin the restructuring process in federal fiscal year 1999 (beginning October 1, 1998). On September 11, 1998, HUD issued interim regulations implementing MAHRAA and final regulations are expected to be issued in 1999. With respect to the local limited partnerships' expiring HAP Contracts, it is expected that the HAP payments will be reduced or terminated pursuant to the terms of MAHRAA. When the HAP Contracts are subject to renewal, there can be no assurance that the local limited partnerships in which the Partnership has an investment will be permitted to restructure its mortgage indebtedness under MAHRAA. In addition, 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 is uncertain. As a result of the foregoing, the Partnership in 1997 undertook an extensive review of disposition, refinancing or re-engineering alternatives for the properties in which the limited partnerships have 10 24 REAL ESTATE ASSOCIATES LIMITED VI AND SUBSIDIARIES (a California limited partnership) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 2. INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED) invested and are subject to HUD mortgage and rental subsidy programs. The Partnership has incurred expenses in connection with this review by various third party professionals, including accounting, legal, valuation, structural and engineering costs, which amounted to $393,072 and $127,514 for the years ended December 31, 1998 and 1997, respectively, and are included in general and administrative expenses. On December 30, 1998, the Partnership sold its limited partnership interests in 10 local limited partnerships, with a total carrying value of $3,878,866, and its general partner interest in one local general partnership, with a partner deficit of $1,507,828, to the Operating Partnership. The sale resulted in cash proceeds to the Partnership of a $1,397,081 and a net gain of $7,497,969, after being relieved of notes and interest payable of $8,712,920 and incurring selling expenses of $240,994. The cash proceeds were held in escrow at December 31, 1998 and were collected subsequent to year-end. In March 1999, the Partnership made cash distributions of $2,769,110 to the limited partners and $27,971 to the general partners, which included using proceeds from the sale of the partnership interests. The Operating Partnership purchased such limited partner interests for cash, which it raised in connection with a private placement of its equity securities. The purchase was subject to, among other things, (i) the purchase of the general partner interests in the local limited partnerships by the Operating Partnership; (iii) the approval of HUD and certain state housing finance agencies; and (iii) the consent of the limited partners to the sale of the local limited partnership interests held for investment by the Partnership. In August 1998, a consent solicitation statement was 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. Prior to the sale of the partnership interests, the consents of the limited partners to the sale and amendments to the Partnership Agreement were obtained. 3. CASH, RESTRICTED Restricted cash at December 31, 1997 consists of tenants' security deposits. 4. MORTGAGE NOTE PAYABLE RELATED TO PROPERTY Mortgage note payable related to property consists of the following at December 31, 1997:
1997 ---------- Mortgage note bears interest at 8.78 percent per annum, with monthly principal and interest payments of $40,385, due September 10, 2006. $4,828,404 ==========
11 25 REAL ESTATE ASSOCIATES LIMITED VI AND SUBSIDIARIES (a California limited partnership) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 4. MORTGAGE NOTE PAYABLE RELATED TO PROPERTY (CONTINUED) The note was collateralized by the rental properties and assumed by the buyer in connection with the sale of the partnership interest. 5. NOTES PAYABLE AND AMOUNTS DUE FOR PARTNERSHIP INTERESTS Certain of the Partnership's investments involved purchases of partnership interests from partners who subsequently withdrew from the operating partnership. The purchase of these interests provides for additional cash payments of approximately $325,000, based upon specified events as outlined in the purchase agreements. Such amounts have been recorded as liabilities. In addition, the Partnership is obligated on non-recourse notes payable of $1,440,000 which bear interest at 9.5 percent per annum and have principal maturities ranging from December 1999 to December 2012. The partnership was relieved of notes payable in the amount of $4,030,000 in connection with the sale of the partnership interests to the Operating Partnership. The notes and related interest are payable from cash flow generated from operations of the related rental properties as defined in the notes. These obligations are collateralized by the Partnership's investments in the limited partnerships. Unpaid interest is due at maturity of the notes. Maturity dates of the notes payable and related accrued interest are as follows:
Accrued Years Ending December 31, Notes Interest ------------------------- ---------- ---------- 1999 $ 520,000 $ 699,588 2000 2001 2002 2003 Thereafter 920,000 1,117,596 ---------- ---------- $1,440,000 $1,817,184 ========== ==========
6. FEES AND EXPENSES DUE TO GENERAL PARTNER AND AFFILIATE 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 .4 percent of the original 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. 12 26 REAL ESTATE ASSOCIATES LIMITED VI AND SUBSIDIARIES (a California limited partnership) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 6. FEES AND EXPENSES DUE TO GENERAL PARTNER AND AFFILIATE (CONTINUED) For one of the properties owned by the Partnership in 1996, an affiliate of NAPICO received a management fee of 5 percent of its gross revenues plus reimbursement of certain expenses. The Partnership paid management fees to the affiliate of approximately $12,000 in 1996. An affiliate of the minority general partner of a general partnership that is consolidated, manages the property owned by that partnership. The fee is calculated based on five percent of gross collections plus reimbursement of certain expenses. The Partnership paid management fees to the affiliate of approximately $58,000, $60,000 and $65,000 in 1998, 1997 and 1996, respectively. The Partnership reimburses NAPICO for certain expenses. The reimbursement to NAPICO was $51,491, $51,487 and $47,231 in 1998, 1997 and 1996, respectively, and is included in general and administrative expenses. 7. CONTINGENCIES On August 27, 1998, two investors holding an aggregate of eight units of limited partnership interests in Real Estate Associates Limited III (an affiliated partnership in which NAPICO is the managing general partner) and two investors holding an aggregate of five units of limited partnership interest in Real Estate Associates Limited VI (another affiliated partnership in which NAPICO is the managing general partner) commenced an action in the United States District Court for the Central District of California against the Partnership, NAPICO and certain other affiliated entities. The complaint alleges that the defendants breached their fiduciary duty to the limited partners of certain NAPICO managed partnerships and made materially false and misleading statements in the consent solicitation statements sent to the limited partners of such partnerships relating to approval of the transfer of partnership interests in limited partnerships, owning certain of the properties, to the Operating Partnership organized by an affiliate of NAPICO. The plaintiffs seek preliminary and permanent injunctive relief and other equitable relief, as well as compensatory and punitive damages. The managing general partner of such NAPICO managed partnerships and the other defendants believe that the plaintiffs' claims are without merit and intend to contest the action vigorously. 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. 13 27 REAL ESTATE ASSOCIATES LIMITED VI AND SUBSIDIARIES (a California limited partnership) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 8. 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. The major differences in tax and financial reporting result from the use of different bases and depreciation methods for the properties held by the limited partnerships. Differences in tax and financial reporting also arise as losses are not recognized for financial reporting purposes when the investment balance has been reduced to zero or to a negative amount equal to further capital contributions required. 9. 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 mortgage notes payable are insured by HUD and are collateralized by the rental properties. The operations generated by the properties and investee limited partnerships are subject to various government rules, regulations and restrictions which make it impracticable to estimate the fair value of the mortgage notes payable and related accrued interest. 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. FOURTH-QUARTER ADJUSTMENT The Partnership's policy is to record its equity in the loss of limited partnerships on a quarterly basis using estimated financial information furnished by the various local operating general partners. The equity in income (loss) of limited partnerships reflected in the accompanying annual consolidated financial statements is based primarily upon audited financial statements of the investee limited partnerships. The increase of approximately $1,984,000, between the estimated nine-month equity in income and the actual 1998 year end equity in loss, has been recorded in the fourth quarter. 14 28 SCHEDULE REAL ESTATE ASSOCIATES LIMITED VI INVESTMENTS IN LIMITED PARTNERSHIPS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
Year Ended December 31, 1998 ------------------------------------------------------------------------------------------- Cash From Distri- Balance butions/ Equity in Balance January 1, Capital Sale Income/ December 31, Limited Partnerships 1998 Contributions Received (Loss) Sale 1998 ---------- ------------- --------- ----------- ----------- ------------ Boynton Terrace $ $ $ $ $ $ Cady Brook Apts. 389,264 (4,775) (384,489) Cassidy Village 250,619 (9,233) (12,273) 229,113 City Heights* Crockett Manor 10,000 (10,000) Denny Place* Eastridge Apts. EchoValley Apts.* 65,987 121,911 (187,898) Filmore I Grant-Ko Enterprises Hudson Gardens* 402,727 (19,947) 89,041 (471,821) Hummelstown Manor Kentucky Manor Lakewind East Apts. Lonsdale Elderly 1,012,101 (34,371) (977,730) Mariner's Cove* Marshall Plaza I Marshall Plaza II Menlo Estates* Mulberry Towers* 2,905,355 (55,252) 221,312 (3,071,415) New-Bel-Mo Enterprises (25,500) 25,500 Oakridge Apts. Oakwood Manor 173,705 (5,444) (168,261) Park Place Apts., TX* Park Place Apts., NJ 375,202 (7,443) (96,128) 271,631 Parkesedge Elderly Apts. 234,385 (234,385) Paula Maria Apts. (Century Plaza) Penneco II (25,000) 25,000 Sauk-Ko Enterprises SOL 413 (22,000) 57,912 (35,912) Valley Oak Apts. Victory Square* 148,854 (1,122) (147,732) Villas de Orocovix Willow Wood* ---------- ------- --------- ----------- ----------- -------- $5,885,699 $67,912 $(136,465) $(1,437,536) $(3,878,866) $500,744 ========== ======= ========= =========== =========== ========
* The property was sold to the Operating Partnership in 1998. 29 SCHEDULE (CONTINUED) REAL ESTATE ASSOCIATES LIMITED VI INVESTMENTS IN LIMITED PARTNERSHIPS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
Year Ended December 31, 1997 ------------------------------------------------------------------------------------ Cash From Distri- Balance butions/ Equity in Balance Future January 1, Capital Sale Income/ December 31, Capital Limited Partnerships 1997 Contributions Received (Loss) 1997 Contributions - ----------------------------------- ---------- ------------- ---------- --------- ------------ ------------- Boynton Terrace $ $ $ $ $ $ Cady Brook Apts. 335,451 (4,777) 58,590 389,264 Cassidy Village 264,704 (957) (13,128) 250,619 City Heights Crockett Manor 7,000 (7,000) Denny Place 15,000 (15,000) Drexel Park III 597,601 3,118 (600,719) Eastridge Apts. EchoValley Apts. 22,392 (9,490) 53,085 65,987 Filmore I Grant-Ko Enterprises Hudson Gardens 350,946 (19,855) 71,636 402,727 Hummelstown Manor Kentucky Manor Lakewind East Apts. Lonsdale Elderly 883,427 (70,635) 199,309 1,012,101 Mariner's Cove Marshall Plaza I Marshall Plaza II Menlo Estates Mulberry Towers 2,800,336 (55,252) 160,271 2,905,355 New-Bel-Mo Enterprises (25,500) (25,500) 25,500 Oakridge Apts. Oakwood Manor 173,689 (15,697) 15,713 173,705 Park Place Apts., TX Park Place Apts., NJ 305,027 (40,825) 111,000 375,202 Parkesedge Elderly Apts. 214,016 20,369 234,385 18,000 Paula Maria Apts. (Century Plaza) 5,294 (5,294) Penneco II (25,000) (25,000) 25,000 Sauk-Ko Enterprises SOL 413 (22,000) 2,500 (2,500) (22,000) 22,000 Valley Oak Apts. Victory Square 176,433 (263) (27,316) 148,854 Villas de Orocovix Willow Wood ---------- ------- --------- -------- ---------- ------- $6,051,522 $32,912 $(823,764) $625,029 $5,885,699 $90,500 ========== ======= ========= ======== ========== =======
30 SCHEDULE (CONTINUED) REAL ESTATE ASSOCIATES LIMITED VI INVESTMENTS IN LIMITED PARTNERSHIPS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
Year Ended December 31, 1996 ------------------------------------------------------------------------------------------ Cash From Distri- Balance butions/ Equity in Balance Future January 1, Capital Sale Income/ December 31, Capital Limited Partnerships 1996 Contributions Received (Loss) 1996 Contributions - ------------------------ ---------- ------------- ---------- --------- ----------- ------------- Boynton Terrace $ $ $ $ $ Cady Brook Apts. 298,129 (4,778) 42,100 335,451 Cassidy Village 308,841 (2,397) (41,740) 264,704 City Heights Crockett Manor Denny Place Drexel Park III 572,502 (16,035) 41,134 597,601 Eastridge Apts. EchoValley Apts. 22,392 22,392 Filmore I Grant-Ko Enterprises Hudson Gardens 293,015 (19,747) 77,678 350,946 Hummelstown Manor Kentucky Manor Lakewind East Apts. Lonsdale Elderly 769,348 (34,597) 148,676 883,427 Mariner's Cove Marshall Plaza I Marshall Plaza II Menlo Estates Mulberry Towers 2,662,471 (55,252) 193,117 2,800,336 New-Bel-Mo Enterprises (25,500) (25,500) 25,500 Oakridge Apts. Oakwood Manor 166,065 (5,390) 13,014 173,689 Park Place Apts., TX Park Place Apts., NJ 230,507 (33,362) 107,882 305,027 Parkesedge Elderly Apts. 196,044 17,972 214,016 18,000 Paula Maria Apts. 5,294 (5,294) Penneco II (25,000) (25,000) 25,000 Sauk-Ko Enterprises SOL 413 (22,000) (22,000) 22,000 Valley Oak Apts. Victory Square 194,724 (18,291) 176,433 Villas de Orocovix Willow Wood ---------- ------ --------- -------- ---------- ------- $5,619,146 $5,294 $(176,852) $603,934 $6,051,522 $90,500 ========== ====== ========= ======== ========== =======
31 SCHEDULE (CONTINUED) REAL ESTATE ASSOCIATES LIMITED VI INVESTMENTS IN LIMITED PARTNERSHIPS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 NOTES: 1. Equity in losses represents the Partnership's allocable share of the net loss from the limited partnerships for the year. Equity in losses of the limited partnerships will be recognized until the investment balance is reduced to zero or below zero to an amount equal to future capital contributions to be made by the Partnership. 2. Cash distributions from the limited partnerships will be treated as a return of the investment and will reduce the investment balance until such time as the investment is reduced to an amount equal to additional contributions. Distributions subsequently received will be recognized as income. 32 SCHEDULE III REAL ESTATE ASSOCIATES LIMITED VI REAL ESTATE AND ACCUMULATED DEPRECIATION OF PROPERTY HELD BY LOCAL LIMITED PARTNERSHIPS IN WHICH REAL VI HAS INVESTMENTS DECEMBER 31, 1998
BUILDINGS, FURNISHINGS & EQUIPMENT TOTAL AMOUNT LAND NUMBER OUTSTANDING CARRIED BUILDINGS, OF MORTGAGE AT CLOSE OF FURNISHINGS ACCUMULATED CONSTRUCTION PARTNERSHIP/LOCATION UNITS LOAN LAND PERIOD & EQUIPMENT DEPRECIATION PERIOD - -------------------- ------ ----------- ----------- ------------ ----------- ----------- ------------ Boynton Terrace 89 $ 4,925,000 $ 208,001 $ 4,124,446 $ 4,332,447 $ 2,117,842 1983-1984 Boyton Beach, FL Cadybrook 40 1,019,760 89,225 1,827,237 1,916,462 634,506 (A) Charlton, MA Crockett Manor 38 1,022,439 10,000 1,259,214 1,269,214 679,205 (A) Trenton, TN Eastridge Apts 96 571,893 101,500 1,573,351 1,674,851 1,438,984 (A) Bristol, VA Filmore I 32 1,187,775 115,000 1,312,495 1,427,495 717,861 (A) Phoenix, AZ Grant-Ko Enterprises 40 1,233,087 100,000 1,414,043 1,514,043 725,622 (A) Platteville, WS Hummelstown Manor 51 1,736,464 96,839 1,746,828 1,843,667 1,688,008 1983 Hummelstown, PA Kentucky Manor 48 1,395,503 100,696 1,442,829 1,543,525 944,986 (A) Oak Grove, KY Lonsdale Housing 131 2,586,921 214,833 6,362,322 6,577,155 4,102,522 (A) Providence, RI New-Bel-Mo Enterprises 34 988,158 78,078 1,153,214 1,231,292 579,323 (A) New Glarus, Belleville, Monticello, WS Oakridge Apts 48 1,197,463 55,000 1,509,252 1,564,252 1,370,577 (A) Biloxi, MS Oakwood 34 636,880 61,538 777,542 839,080 315,483 (A) Milan, TN Park Place 126 5,656,390 312,418 7,364,112 7,676,530 2,890,742 1983-1984 Ewing, NJ Parkesedge Elderly Apts 45 1,473,661 160,000 1,833,070 1,993,070 764,614 (A) Parkesedge, PA Penneco II 76 1,861,356 79,627 2,795,927 2,875,554 1,563,793 (A) Johnstown, PA Sauk-Ko Enterprises 30 794,226 60,000 1,170,803 1,230,803 588,650 (A) Baraboo, WS SOL - 413 12 362,900 50,000 412,379 462,379 211,774 (A) Old San Juan, PR Valley Oaks Senior 50 1,771,000 121,464 1,913,903 2,035,367 1,100,527 (A) Galt, CA Villas de Orocovix 41 1,415,081 59,550 1,722,330 1,781,880 968,295 (A) Orocovix, PR Cassidy Village 98 1,057,957 156,850 2,021,621 2,178,471 971,496 (A) Columbus, OH Marshall Plaza I 40 220,932 68,414 709,014 777,428 340,723 (A) Loraine, OH Marshall Plaza II 50 290,039 78,901 919,854 998,755 442,044 (A) Loraine, OH Paula Maria I 120 1,043,396 215,730 2,832,932 3,048,662 1,689,767 (A) Hampton, VA Additional basis of XX 0 8,971 160,708 169,679 145,611 real estate due to REAL VI's capital contribution to limited partnership not recorded by investee limited partnership ----- ----------- ----------- ----------- ----------- ----------- 1,369 $34,448,281 $ 2,602,635 $48,359,426 $50,962,061 $26,992,955 ----- ----------- ----------- ----------- ----------- -----------
(A) This project was completed when REAL VI entered the Partnership. 33 SCHEDULE III REAL ESTATE ASSOCIATES LIMITED VI REAL ESTATE AND ACCUMULATED DEPRECIATION OF PROPERTY HELD BY LOCAL LIMITED PARTNERSHIPS IN WHICH REAL VI HAS INVESTMENTS DECEMBER 31, 1998 NOTES: 1. Each local partnership has developed, owns and operates the housing project. Substantially all project costs, including construction period interest expense, were capitalized by the local partnerships. 2. Depreciation is provided for by various methods over the estimated useful lives of the projects. The estimated composite useful lives of the buildings are generally from 25 to 40 years. 3. Investments in property and equipment - limited partnerships:
Buildings, Furnishings, And Land Equipment Total ----------- ------------- ------------- Balance, January 1, 1996 $ 4,561,545 $ 100,290,845 $ 104,852,390 Net additions, 1996 19,721 846,147 865,868 ----------- ------------- ------------- Balance, December 31, 1996 4,581,266 101,136,992 105,718,258 Net deletions, 1997 (77,442) (2,397,906) (2,475,348) ----------- ------------- ------------- Balance, December 31, 1997 4,503,824 98,739,086 103,242,910 Net additions, 1998 21,014 1,411,930 1,432,944 Sale of Properties (1,922,203) (51,791,590) (53,713,793) ----------- ------------- ------------- Balance, December 31, 1998 $ 2,602,635 $ 48,359,426 $ 50,962,061 =========== ============= =============
34 SCHEDULE III (CONTINUED) REAL ESTATE ASSOCIATES LIMITED VI REAL ESTATE AND ACCUMULATED DEPRECIATION OF PROPERTY HELD BY CONSOLIDATED LOCAL GENERAL PARTNERSHIP IN WHICH REAL VI HAS AN INVESTMENT DECEMBER 31, 1996
TOTAL LAND, BUILDINGS, BUILDINGS, FURNISHINGS FURNISHINGS PARTNERSHIP - NUMBER OF OUTSTANDING AND AND ACCUMULATED CONSTRUCTION LOCATION UNITS MORTGAGE LAND EQUIPMENT EQUIPMENT DEPRECIATION PERIOD - ----------------- --------- ----------- ---------- ------------ ------------ ------------ ------------ Peppertree Cypress, CA 136 4,886,300 1,557,180 4,108,239 5,665,419 2,506,949 (A) ---- ----------- ---------- ------------ ------------ ----------- TOTAL 2832 $75,906,803 $6,138,446 $105,245,231 $111,383,677 $54,095,081 ==== =========== ========== ============ ============ ===========
(A) This project was completed when REAL VI entered the Partnership. 35 SCHEDULE III (CONTINUED) REAL ESTATE ASSOCIATES LIMITED VI REAL ESTATE AND ACCUMULATED DEPRECIATION OF PROPERTY HELD BY LOCAL LIMITED PARTNERSHIPS IN WHICH REAL VI HAS INVESTMENTS DECEMBER 31, 1998
Buildings, Furnishings And Equipment ------------ Balance at January 1, 1996 $ 48,128,260 Net additions for 1996 3,459,872 ------------ Balance at December 31, 1996 51,588,132 Net additions for 1997 1,718,961 ------------ Balance at December 31, 1997 53,307,093 Net additions for 1998 4,166,622 Sale of Properties (30,480,760) ------------ Balance at December 31, 1998 $ 26,992,955 ============
36 SCHEDULE III (CONTINUED) REAL ESTATE ASSOCIATES LIMITED VI REAL ESTATE AND ACCUMULATED DEPRECIATION OF PROPERTY HELD BY CONSOLIDATED LOCAL PARTNERSHIPS IN WHICH REAL VI HAS INVESTMENTS DECEMBER 31, 1998 Investments in property and equipment - general partnerships (continued): The total cost of land, buildings, and equipment for federal income tax purposes at December 31, 1998 is approximately $5,665,419.
Buildings Furnishings, And Land Equipment Total ----------- ------------ ------------ Balance, January 1, 1996 $ 1,935,839 $ 10,141,782 $ 12,077,621 Deletions during 1996 (378,659) (6,033,543) (6,412,202) ----------- ------------ ------------ Balance, December 31, 1996 1,557,180 4,108,239 5,665,419 Activity during 1997 -- -- -- ----------- ------------ ------------ Balance, December 31, 1997 1,557,180 4,108,239 5,665,419 Sales of Properties (1,557,180) (4,108,239) (5,665,419) ----------- ------------ ------------ Balance, December 31, 1998 $ -- $ -- $ -- =========== ============ ============
37 SCHEDULE III (CONTINUED) REAL ESTATE ASSOCIATES LIMITED VI REAL ESTATE AND ACCUMULATED DEPRECIATION OF PROPERTY HELD BY CONSOLIDATED LOCAL PARTNERSHIPS IN WHICH REAL VI HAS INVESTMENTS DECEMBER 31, 1998
Buildings, Furnishings, And Equipment ----------- ACCUMULATED DEPRECIATION: Balance at January 1, 1996 $ 4,792,619 Net additions for 1996 198,237 Sale of Property (2,483,907) ----------- Balance at December 31, 1996 2,506,949 Net additions for 1997 142,421 ----------- Balance at December 31, 1997 2,649,370 Net additions for 1998 142,421 Sale of Property (2,791,791) ----------- Balance at December 31, 1998 $ -- ===========
38 PART III. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT: REAL ESTATE ASSOCIATES LIMITED VI (the "Partnership") has no directors or executive officers of its own. Prior to December 30, 1998, NAPICO was a wholly owned subsidiary of Casden Investment Corporation ("CIC"), which is wholly owned by Alan I. Casden. On December 30, 1998, Casden Properties Operating Partnership, L.P. (the "Operating Partnership"), a majority owned subsidiary of Casden Properties Inc., a real estate investment trust organized by Alan I. Casden, purchased a 95.25% economic interest in NAPICO. The following biographical information is presented for the directors and executive officers of NAPICO with principal responsibility for the Partnership's affairs. CHARLES H. BOXENBAUM, 69, Chairman of the Board of Directors and Chief Executive Officer of NAPICO. Mr. Boxenbaum has been associated with NAPICO since its inception. He has been active in the real estate industry since 1960, and prior to joining NAPICO was a real estate broker with the Beverly Hills firm of Carl Rhodes Company. Mr. Boxenbaum has been a guest lecturer at national and state realty conventions, certified properties exchanger's seminars, Los Angeles Town Hall, National Association of Home Builders, International Council of Shopping Centers, Society of Conventional Appraisers, California Real Estate Association, National Institute of Real Estate Brokers, Appraisal Institute, various mortgage banking seminars, and the North American Property Forum held in London, England. In 1963, he was the winner of the Snyder Award, the highest annual award offered by the National Association of Real Estate Boards for Best Exchange. He is one of the founders and a past director of the First Los Angeles Bank, organized in November 1974. Mr. Boxenbaum was a member of the Board of Directors of the National Housing Council. Mr. Boxenbaum received his Bachelor of Arts degree from the University of Chicago. BRUCE E. NELSON, 47, President and a director of NAPICO. Mr. Nelson joined NAPICO in 1980 and became President in February 1989. He is responsible for the operations of all NAPICO sponsored limited partnerships. Prior to that he was primarily responsible for the securities aspects of the publicly offered real estate investment programs. Mr. Nelson is also involved in the identification, analysis, and negotiation of real estate investments. From February 1979 to October 1980, Mr. Nelson held the position of Associate General Counsel at Western Consulting Group, Inc., private residential and commercial real estate syndicators. Prior to that time, Mr. Nelson was engaged in the private practice of law in Los Angeles. Mr. Nelson received his Bachelor of Arts degree from the University of Wisconsin and is a graduate of the University of Colorado School of Law. He is a member of the State Bar of California and is a licensed real estate broker in California and Texas. ALAN I. CASDEN, 53, Chairman of Casden Properties Inc. and The Casden Company, an affiliate of Casden Properties (formerly CoastFed Properties), a director and member of the audit committee of NAPICO, and chairman of the Executive Committee of NAPICO. Mr. Casden is Chairman of the Board, Chief Executive Officer and sole shareholder of The Casden Company and Casden Investment Company. He also became the Chairman of the Board of Casden Properties Inc. in 1998. Previously, he was the president and chairman of Mayer Group, Inc., which he joined in 1975. He is also chairman of Mayer Management, Inc., a real estate management firm. Mr. Casden has been involved in 39 approximately $3 billion of real estate financings and sales and has been responsible for the development and construction of more than 12,000 apartment units and 5,000 single-family homes and condominiums. Mr. Casden is a member of the American Institute of Certified Public Accountants and of the California Society of Certified Public Accountants. Mr. Casden is a member of the advisory board of the National Multi-Family Housing Conference, the Multi-Family Housing Council, and the President's Council of the California Building Industry Association. He also serves on the advisory board to the School of Accounting of the University of Southern California. He holds a Bachelor of Science degree and a Masters in Business Administration degree from the University of Southern California. HENRY C. CASDEN, 55, President, Chief Operating Officer and Secretary of The Casden Company and a director and secretary of NAPICO. Mr. Casden has been President and Chief Operating Officer of The Casden Company, as well as a director of NAPICO since February 1988. He became secretary of both companies in late 1994. He also became the President of Casden Properties Inc. in 1998. From 1982 to 1988, Mr. Casden was of counsel and a partner in the Los Angeles law firm of Troy, Casden & Gould. From 1978 to 1981, he was of counsel and a partner in the Los Angeles law firm of Loeb & Loeb. From 1972 to 1978, Mr. Casden was a member of the Beverly Hills law firm of Fink & Casden, Professional Corporation. Mr. Casden received his Bachelor of Arts degree from the University of California at Los Angeles, and is a graduate of the University of San Diego Law School. Mr. Casden is a member of the State Bar of California and has numerous professional affiliations. PAUL PATIERNO, 42, Chief Financial Officer. Mr. Patierno joined NAPICO in 1998 and is responsible for its financial affairs, as well as the limited partnerships sponsored by it. From 1995 until joining NAPICO in September 1998, Mr. Patierno was a senior manager in the affordable housing group of Altschuler, Melvoin and Glasser LLP, a national public accounting firm. From 1990 to 1995, he practiced public accounting with a firm specializing in real estate syndication. Mr. Patierno received his bachelor of science degree in accounting from California State University at Northridge, and is a member of the American Institute of Certified Public Accountants and the California Society of Certified Public Accountants. PATRICIA W. TOY, 69, Senior Vice President - Communications and Assistant Secretary. Mrs. Toy joined NAPICO in 1977, following her receipt of an MBA from the Graduate School of Management, UCLA. From 1952 to 1956, Mrs. Toy served as a U.S. Naval Officer in communications and personnel assignments. She holds a Bachelor of Arts Degree from the University of Nebraska. MARK L. WALTHER, 38, Executive Vice President, General Counsel and Assistant Secretary. Mr. Walther joined NAPICO in 1987 and is responsible for the legal affairs of the NAPICO sponsored limited partnerships. Prior to joining NAPICO, Mr. Walther worked in the San Francisco law firm of Browne and Kahn which specialized in construction litigation. Mr. Walther received his Bachelor of Arts Degree in Political Science from the University of California, Santa Barbara and is a graduate of the University of California, Davis, School of Law. He is a member of the State Bar of Hawaii. NAPICO and several of its officers, directors and affiliates, including Charles H. Boxenbaum, Bruce E. Nelson and Alan I. Casden, consented to the entry, on June 25, 1997, of an administrative cease and desist order by the U.S. Securities and Exchange Commission (the "Commission"), without admitting or denying any of the findings 40 made by the Commission. The Commission found that NAPICO and others had violated certain federal securities laws in connection with transactions unrelated to the Partnership. The Commission's order did not impose any cost, burden or penalty on any partnership managed by NAPICO and does not impact NAPICO's ability to serve as the Partnership's Managing General Partner. ITEM 11. MANAGEMENT REMUNERATION AND TRANSACTIONS Real Estate Associates Limited VI has no officers, employees, or directors. However, under the terms of the Restated Certificate and Agreement of Limited Partnership, the Partnership is obligated to pay the Corporate General Partner an annual management fee. The annual management fee is approximately equal to .5 percent of the invested assets, including the Partnership's allocable share of the mortgages related to real estate properties held by local limited partnerships. The fee is earned beginning in the month the Partnership makes its initial contribution to the local partnership. In addition, the Partnership reimburses the Corporate General Partner for certain expenses. The Corporate General Partner received mortgage brokerage fees in connection with the refinancing of certain limited partnerships' mortgages. In addition, an affiliate of the Corporate General Partner is responsible for the on-site property management for a property owned by the Partnership and for certain properties owned by the limited partnerships in which the Partnership has invested. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Security Ownership of Certain Beneficial Owners The general partners own all of the outstanding general partnership interests of REAL VI; no person is known to own beneficially in excess of 5% of the outstanding limited partnership interests. (b) With the exception of the initial limited partner, Bruce Nelson, who is an officer of the corporate general partner, none of the officers or directors of the corporate general partner own directly or beneficially any limited partnership interests in REAL VI. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Partnership has no officers, directors or employees of its own. All of its affairs are managed by the Corporate General Partner, National Partnership Investments Corp. ("NAPICO"). The Partnership is obligated to NAPICO for an annual management fee equal to .4 percent of the original invested assets of the limited 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 interest in the capital accounts of the respective partnerships. Management fees were $502,224, $501,660 and $513,393 for the years ended December 31, 1998, 1997 and 1996, respectively. The Partnership reimburses NAPICO for certain expenses. The reimbursement to NAPICO was $51,491, $51,487 and $47,231 in 1998, 1997 and 1996, respectively, and is included in operating expenses. For one of the properties owned by the Partnership in 1996, an affiliate of NAPICO received a management fee of 5 percent of its gross revenues plus reimbursement of certain expenses. The Partnership paid management fees to the affiliate of approximately $12,000 in 1996. An affiliate of the minority general partner of a general partnership that is consolidated, manages the property owned by that partnership. The fee is calculated based 41 on five percent of gross collections plus reimbursement of certain expenses. The Partnership paid management fees to the affiliate of approximately $58,000, $60,000 and $65,000 in 1998, 1997 and 1996, respectively. Prior to the sale of certain partnership interests on December 30, 1998, an affiliate of NAPICO was the general partner in 10 of the limited partnerships in which the Partnership had an investment, and another affiliate received property management fees of approximately 5 to 7 percent of revenue from four of these partnerships. The affiliate received property management fees of $67,409, $63,742 and $85,735 in 1998, 1997 and 1996, respectively. Subsequent to the sale of certain partnership interests, NAPICO is the general partner in 6 of the limited partnerships, and another affiliate manages 2 of the limited partnership's properties. On December 30, 1998, the Partnership sold its limited partnership interests in 10 local limited partnerships with a total carrying value of $3,878,866 and its general partner interest in one local general partnership with a partner deficit of $1,507,828 to the Operating Partnership. The sale resulted in net proceeds to the Partnership of a $1,397,081 and a net gain of $7,497,969 after being relieved of notes and interest payable of $8,712,920 and incurring selling expenses of $240,994. In March 1999, the Partnership made cash distributions of $2,769,110 to the limited partners and $27,971 to the general partners, which included using proceeds from the sale of the partnership interests. The Operating Partnership purchased such limited partner interests for cash, which it raised in connection with a private placement of its equity securities. The purchase was subject to, among other things, (i) the purchase of the general partner interests in the local limited partnerships by the Operating Partnership; (ii) the approval of HUD and certain state housing finance agencies; and (iii) the consent of the limited partners to the sale of the local limited partnership interests held for investment by the Partnership. In August 1998, a consent solicitation statement was 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. Prior to the sale of the partnership interests, the consents of the limited partners to the sale and amendments to the Partnership Agreement were obtained. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K: FINANCIAL STATEMENTS Report of Independent Public Accountants. Consolidated Balance Sheets as of December 31, 1998 and 1997. Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996. Consolidated Statements of Partners' Equity (Deficiency) for the years ended December 31, 1998, 1997 and 1996. Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996. Notes to Consolidated Financial Statements. 42 FINANCIAL STATEMENT SCHEDULES APPLICABLE TO REAL ESTATE ASSOCIATES LIMITED VI REAL ESTATE III AND THE LIMITED PARTNERSHIPS: Schedule - Investments in Limited Partnerships, December 31, 1998, 1997 and 1996. Schedule III - Real Estate and Accumulated Depreciation, December 31, 1998. The remaining schedules are omitted because any required information is included in the financial statements and notes thereto. EXHIBITS (3) Articles of incorporation and bylaws: The registrant is not incorporated. The Partnership Agreement was filed with Form S-11 #2-82090 incorporated herein by reference. (10) Material contracts: The registrant is not party to any material contracts, other than the Restated Certificate and Agreement of Limited Partnership dated October 12, l982, and the forty contracts representing the partnership investment in local limited and general partnerships as previously filed at the Securities Exchange Commission, File #2-282090 which is hereby incorporated by reference. REPORTS ON FORM 8-K A report on Form 8-K relating to an unsolicited offer to buy units of limited partnership interests (the "Units"), as discussed below, was filed with the Securities and Exchange Commission during the quarter ended September 30, 1998. On June 26, 1998, Bond Purchase, L.L.C. (the "Buyer") made an unsolicited tender offer to buy a certain number of Units in the Partnership for a price of $333 per Unit. The Buyer did not contact the Corporate General Partner prior to commencing its tender offer. By letter dated July 6, 1998, the Corporate General Partner advised limited partners that it had determined not to take a position with respect to the tender offer but cautioned limited partners to consider certain items before determining whether to tender their Units to the Buyer. 43 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 in the City of Los Angeles, State of California. REAL ESTATE ASSOCIATES LIMITED VI By: NATIONAL PARTNERSHIP INVESTMENTS CORP. General Partner /s/ CHARLES H. BOXENBAUM - ---------------------------------- Charles H. Boxenbaum Chairman of the Board of Directors and Chief Executive Officer /s/ BRUCE E. NELSON - ---------------------------------- Bruce E. Nelson Director and President /s/ ALAN I. CASDEN - ---------------------------------- Alan I. Casden Director /s/ HENRY C. CASDEN - ---------------------------------- Henry C. Casden Director /s/ PAUL PATIERNO - ---------------------------------- Paul Patierno Chief Financial Officer EX-27 2 FINANCIAL DATA SCHEDUEL
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE PARTNERSHIP'S STATEMENTS OF EARNINGS AND BALANCE SHEETS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 5,477,969 0 1,397,081 0 0 6,875,050 0 0 7,426,779 208,460 0 0 0 0 0 7,426,779 0 7,614,065 0 0 1,865,904 0 955,132 4,793,029 0 4,793,029 0 0 0 4,793,029 0 0
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