-----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, R9ob01RUsFC00FkZT2T3Q32EgniKkq48/W8e2M+IKqAPpFDrrZXWgzrW1uVcH5HJ COCntpNjDYMdeJ1rtQJ7KQ== 0000950148-98-002050.txt : 19980819 0000950148-98-002050.hdr.sgml : 19980819 ACCESSION NUMBER: 0000950148-98-002050 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980818 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: REAL ESTATE ASSOCIATES LTD 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-Q SEC ACT: SEC FILE NUMBER: 000-13112 FILM NUMBER: 98693514 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-Q 1 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended JUNE 30, 1998 Commission File Number 0-13112 REAL ESTATE ASSOCIATES LIMITED VI (A California Limited Partnership) I.R.S. Employer Identification No. 95-3778627 9090 WILSHIRE BLVD., SUITE 201 BEVERLY HILLS, CA. 90211 Registrant's Telephone Number, Including Area Code (310) 278-2191 Indicate by check mark whether the registrant (1) has filed all documents and reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] 2 REAL ESTATE ASSOCIATES LIMITED VI (A CALIFORNIA LIMITED PARTNERSHIP) INDEX TO FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998
PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets, June 30, 1998 and December 31, 1997 ......................1 Consolidated Statements of Operations, Six and Three Months Ended, June 30, 1998 and 1997........2 Consolidated Statement of Partners' Deficiency Six Months Ended June 30, 1998 ...........................3 Consolidated Statements of Cash Flows Six Months Ended June 30, 1998 and 1997 ..................4 Notes to Consolidated Financial Statements .......................5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation ..............................12 PART II. OTHER INFORMATION Item 1. Legal Proceedings.....................................................15 Item 6. Exhibits and Reports on Form 8-K .....................................15 Signatures ....................................................................16
3 REAL ESTATE ASSOCIATES LIMITED VI (A CALIFORNIA LIMITED PARTNERSHIP) BALANCE SHEETS JUNE 30, 1998 AND DECEMBER 31, 1997
ASSETS 1998 (Unaudited) 1997 ------------ ------------ INVESTMENTS IN LIMITED PARTNERSHIPS (Note 2) $ 6,172,993 $ 5,885,699 RENTAL PROPERTY, net of accumulated depreciation (Note 1) 2,928,820 3,016,049 CASH AND CASH EQUIVALENTS (Note 1) 6,258,237 6,611,690 CASH, restricted (Note 3) 38,465 38,465 OTHER ASSETS 242,196 174,284 ------------ ------------ TOTAL ASSETS $ 15,640,711 $ 15,726,187 ============ ============ LIABILITIES AND PARTNERS' DEFICIENCY LIABILITIES: Mortgage note payable related to property (Notes 3 and 7) $ 4,828,404 $ 4,828,404 Notes payable and amounts due for partnership interests (Notes 4 and 7) 5,795,000 5,795,000 Accrued interest payable (Notes 4 and 7) 6,285,635 6,103,244 Accounts payable 162,322 117,968 Other liabilities 38,465 38,465 ------------ ------------ 17,109,826 16,883,081 ------------ ------------ COMMITMENTS AND CONTINGENCIES (Notes 2, 5 and 6) PARTNERS' DEFICIENCY: General partners (365,880) (362,758) Limited partners (1,103,235) (794,136) ------------ ------------ (1,469,115) (1,156,894) ------------ ------------ TOTAL LIABILITIES AND PARTNERS' DEFICIENCY $ 15,640,711 $ 15,726,187 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 1 4 REAL ESTATE ASSOCIATES LIMITED VI (A CALIFORNIA LIMITED PARTNERSHIP) CONSOLIDATED STATEMENTS OF OPERATIONS SIX AND THREE MONTHS ENDED JUNE 30, 1998 AND 1997 (Unaudited)
Six months Three months Six months Three months ended ended ended ended June 30, 1998 June 30, 1998 June 30, 1997 June 30, 1997 ------------- ------------- ------------- ------------- RENTAL OPERATIONS: Revenues $ 554,380 $ 279,975 $ 529,671 $ 266,297 --------- --------- --------- --------- Expenses: General and administrative 44,586 22,461 -- -- Operating 193,305 102,867 253,307 123,546 Depreciation and amortization (Note 1) 87,229 43,615 87,229 43,615 Interest 242,310 121,155 242,310 121,155 --------- --------- --------- --------- 567,430 290,098 582,846 288,316 --------- --------- --------- --------- LOSS FROM RENTAL OPERATIONS (13,050) (10,123) (53,175) (22,019) --------- --------- --------- --------- PARTNERSHIP OPERATIONS: Interest income 149,931 73,608 131,195 67,979 --------- --------- --------- --------- Expenses: Management fees - general partner (Note 5) 251,112 125,556 250,548 125,274 General and administrative (Notes 2 and 5) 370,969 203,870 158,606 76,331 Interest 266,850 133,425 266,850 136,938 --------- --------- --------- --------- 888,931 462,851 676,004 338,543 --------- --------- --------- --------- LOSS FROM PARTNERSHIP OPERATIONS (739,000) (389,243) (544,809) (270,564) --------- --------- --------- --------- EQUITY IN INCOME OF LIMITED PARTNERSHIPS AND AMORTIZATION OF ACQUISITION COSTS 364,000 182,000 298,000 149,000 DISTRIBUTIONS FROM LIMITED PARTNERSHIPS RECOGNIZED AS INCOME (Note 2) 75,829 5,029 267,132 196,332 --------- --------- --------- --------- NET (LOSS) INCOME $(312,221) $(212,337) $ (32,852) $ 52,749 ========= ========= ========= ========= NET (LOSS) INCOME PER LIMITED PARTNERSHIP INTEREST (Note 1) $ (19) $ (13) $ (2) $ 3 ========= ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 2 5 REAL ESTATE ASSOCIATES LIMITED VI AND SUBSIDIARIES (A CALIFORNIA LIMITED PARTNERSHIP) CONSOLIDATED STATEMENTS OF PARTNERS' DEFICIENCY FOR THE SIX MONTHS ENDED JUNE 30, 1998 (Unaudited)
General Limited Partners Partners Total ----------- ----------- ----------- PARTNERSHIP INTERESTS 16,810 =========== DEFICIENCY, January 1, 1998 $ (362,758) $ (794,136) $(1,156,894) Net loss for the six months ended June 30, 1998 (3,122) (309,099) (312,221) ----------- ----------- ----------- DEFICIENCY, June 30, 1998 $ (365,880) $(1,103,235) $(1,469,115) =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 3 6 REAL ESTATE ASSOCIATES LIMITED VI AND SUBSIDIARIES (A CALIFORNIA LIMITED PARTNERSHIP) CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (Unaudited)
1998 1997 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (312,221) $ (32,852) Adjustments to reconcile net loss to net cash used in operating activities: Equity in income of limited partnerships and amortization of acquisition costs (364,000) (298,000) Depreciation and amortization 87,229 87,229 Increase in other assets (67,912) (15,001) Increase in accrued interest payable 182,391 150,646 (Decrease) increase in accounts payable 44,354 (7,718) Increase (decrease) in other liabilities -- 35,752 ----------- ----------- Net cash used in operating activities (430,159) (79,944) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Distributions to limited partnerships recognized as as a return of capital 76,706 779,996 ----------- ----------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (353,453) 700,052 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 6,611,690 5,849,983 ----------- ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6,258,237 $ 6,550,035 =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period year for interest $ 84,459 $ 174,368 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 4 7 REAL ESTATE ASSOCIATES LIMITED VI (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1998 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES GENERAL The information contained in the following notes to the financial statements is condensed from that which would appear in the audited annual financial statements; accordingly, the financial statements included herein should be reviewed in conjunction with the financial statements and related notes thereto contained in the annual report for the year ended December 31, 1997 prepared by Real Estate Associates Limited VI and Subsidiaries (the "Partnership"). Accounting measurements at interim dates inherently involve greater reliance on estimates than at year end. The results of operations for the interim periods presented are not necessarily indicative of the results for the entire year. In the opinion of the Partnership, the accompanying unaudited financial statements contain all adjustments (consisting primarily of normal recurring accruals) necessary to present fairly the financial position of the Partnership at June 30, 1998 and the results of operations for the six and three months then ended and changes in cash flows for the six months then ended. The general partners have a 1 percent interest in profits and losses of the Partnership. The limited partners have the remaining 99 percent interest which is allocated in proportion to their respective individual investments. National Partnership Investments Corp. (NAPICO) is the corporate general partner of the Partnership. NAPICO is a wholly owned subsidiary of Casden Investment Corporation, which is wholly owned by Alan I. Casden. 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. PRINCIPLES OF CONSOLIDATION 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. METHOD OF ACCOUNTING FOR INVESTMENT IN THE UNCONSOLIDATED LIMITED PARTNERSHIPS The investments in unconsolidated limited partnerships are accounted for on the equity method. Acquisition, selection and other costs related to the acquisition of the projects are 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. 5 8 REAL ESTATE ASSOCIATES LIMITED VI (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1998 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) NET LOSS PER LIMITED PARTNERSHIP INTEREST Net loss per limited partnership interest was computed by dividing the limited partners' share of net loss by the number of limited partnership interests outstanding during the year. The number of limited partnership interests was 16,810 for the periods 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. Restricted cash consist of tenants' security and escrow deposits and mortgage impounds. 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. 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. 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 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. 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. 6 9 REAL ESTATE ASSOCIATES LIMITED VI (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1998 NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS The Partnership holds limited partnership interests in 27 local limited partnerships and a general partner interest in one general partnership. 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 seven local limited partnerships. In total, therefore, the Partnership holds interests, either directly or indirectly through REA III, in 34 limited partnerships and one general partnership which own residential rental projects consisting of 2,832 apartment units. The mortgage loans of these projects are insured by the United States Department of Housing and Urban Development ("HUD") or state governmental agencies. The Partnership, as a limited partner, is entitled to between 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. As of June 30, 1998, the Partnership is obligated, if certain conditions are met, to invest an additional $90,500 in its investee partnerships at various times in the future. This amount has not been recorded as a liability in the accompanying financial statements. Equity in losses of unconsolidated limited partnerships is 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. 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 investment in unconsolidated limited partnerships for the six months ended June 30, 1998:
1997 ---------- Balance, beginning of period $5,885,699 Equity in income of limited partnerships 424,000 Amortization of acquisition costs (60,000) Cash distributions recognized as a return of capital (76,706) ---------- Balance, end of period $6,172,993 ==========
The difference between the investment per the accompanying balance sheets at June 30, 1998 and December 31, 1997, and the deficiency per the unaudited combined estimated statements of operations is due primarily to cumulative unrecognized equity in losses of certain limited partnerships, costs capitalized to the investment account and cumulative distributions recognized as income. 7 10 REAL ESTATE ASSOCIATES LIMITED VI (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1998 NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIP (CONTINUED) The following are unaudited combined estimated statements of operations for the six and three months ended June 30, 1998 and 1997 of the unconsolidated limited partnerships in which the Partnership has investments:
Six months Three months Six months Three months ended ended ended ended June 30, 1998 June 30, 1998 June 30, 1997 June 30, 1997 ------------- ------------- ------------- ------------- Revenues: Rental and other $ 10,460,000 $ 5,230,000 $ 10,622,000 $ 5,311,000 ------------ ------------ ------------ ------------ Expenses: Depreciation 1,796,000 898,000 1,798,000 899,000 Interest 2,578,000 1,289,000 4,156,000 2,078,000 Operating expenses 7,058,000 3,529,000 5,606,000 2,803,000 ------------ ------------ ------------ ------------ Total expenses 11,432,000 5,716,000 11,560,000 5,780,000 ------------ ------------ ------------ ------------ Net loss $ (972,000) $ (486,000) $ (938,000) $ (469,000) ============ ============ ============ ============
NAPICO, or one of its affiliates, is the general partner and property management agent for certain of the limited partnerships included above. One of the limited partnerships (Drexel Park III) sold its property on May 1, 1997, upon the necessary regulatory approval from the Maryland Community Development Agency. Drexel Park III was sold for $2,450,000. After payment of closing costs, the limited partnership received net proceeds of approximately $733,000, which were distributed to the Partnership. The investment balance as of December 31, 1996 was $597,000. Under recently adopted law and policy, HUD has determined not to renew housing assistance payments contracts ("HAP Contracts") on their existing terms. In connection with renewals of the HAP Contracts under such new law and policy, the amount of rental assistance payments under renewed HAP Contracts will be based on market rentals instead of above market rentals, which was generally the case under existing HAP Contracts. As a result, existing HAP Contracts that are renewed in the future on projects insured by the Federal Housing Administration of HUD ("FHA") will not provide sufficient cash flow to permit owners of properties to meet the debt service requirements of these existing FHA-insured mortgages. In order to address the reduction in payments under HAP Contracts as a result of this new policy, the Multi-family Assisted Housing Reform and Affordability Act of 1997 ("MAHRAA"), which was adopted in October 1997, provides for the restructuring of mortgage loans insured by the FHA with respect to properties subject to HAP Contracts that have been renewed under the new policy. The restructured loans will be held by the current lender or another lender. Under MAHRAA, an FHA-insured mortgage loan can be restructured to reduce the annual debt service on such loan. There can be 8 11 REAL ESTATE ASSOCIATES LIMITED VI (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1998 NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIP (CONTINUED) no assurance that the Partnership will be permitted to restructure its mortgage indebtedness pursuant to the new HUD rules implementing MAHRAA or that the Partnership would choose to restructure such mortgage indebtedness if it were eligible to participate in the MAHRAA program. It should be noted that there are uncertainties as to the economic impact on the Partnership of the combination of the reduced payments under the HAP Contracts and the restructuring of the existing FHA-insured mortgage loans under MAHRAA. Accordingly, the General Partners are unable to predict with certainty their impact on the Partnership's future cash flow. As a result of the foregoing, the Partnership is undergoing an extensive review of the properties in which the limited partnerships have invested that are subject to HUD mortgages and which may be sold to the REIT as set forth below. The Partnership has incurred expenses in connection with this review by various third party professionals, including accounting, legal, valuation, structural review and engineering costs, which amounted to approximately $308,000 through June 30, 1998, including approximately $180,000 for the six months ended June 30, 1998, which are included in general and administrative expenses. A real estate investment trust ("REIT") organized by affiliates of NAPICO has advised the Partnership that it intends to make a proposal to purchase from the Partnership certain of the limited partnership interests held for investment by the Partnership. The REIT proposes to purchase such limited partnership interests for cash, which it plans to raise in connection with a private placement of its equity securities. The purchase is subject to, among other things, (i) consummation of such private placement by the REIT; (ii) the purchase of the general partnership interests in the local limited partnerships by the REIT; (iii) the approval of HUD and certain state housing finance agencies; (iv) the consent of the limited partners to the sale of the local limited partnership interests held for investment by REAL VI; and (v) the consummation of a minimum number of purchase transactions with other NAPICO affiliated partnerships. As of June 30, 1998, the REIT had completed buy-out negotiations with a majority of the general partners of the local limited partnerships. A consent solicitation statement will be sent to the limited partners setting forth the terms and conditions of the purchase of the limited partners' interests held for investment by the Partnership, together with certain amendments to the Partnership Agreement and other disclosures of various conflicts of interest in connection with the proposed transaction. NOTE 3 - MORTGAGE NOTE PAYABLE The mortgage note has an interest rate of 8.78 percent per annum, with principal and interest payments due monthly. The note matures in September 2006. The note is collateralized by the underlying rental property. 9 12 REAL ESTATE ASSOCIATES LIMITED VI (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1998 NOTE 4 - NOTES PAYABLE 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 $5,470,000 which bear interest at 9.5 or 10 percent per annum and have principal maturities ranging from December 1999 to December 2012. Effective January 1, 1997, the interest rates for two notes totaling $2,810,000 changed to 10 percent per terms of the note. The notes and related interest are payable from cash flow generated from operations of the related rented 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. NOTE 5 - MANAGEMENT FEES AND EXPENSES DUE TO GENERAL PARTNER Under the terms of the Restated Certificate and Agreement of Limited Partnership, the Partnership is obligated to NAPICO for an annual management fee of approximately .4 percent of the original invested assets of the limited partnerships. Invested assets are 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. This fee was approximately $250,000 for the six months ended June 30, 1998 and 1997, respectively. The Partnership reimburses NAPICO for certain expenses. The reimbursement to NAPICO was approximately $25,700 and $24,000 for the six months ended June 30, 1998 and 1997, and is included in general and administrative expenses. NOTE 6 - CONTINGENCIES The corporate general partner of the Partnership is involved in various lawsuits and have also been named defendants 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. 10 13 REAL ESTATE ASSOCIATES LIMITED VI (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1998 NOTE 7 - 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 notes payable are collateralized by the Partnership's investments in investee limited partnerships and are payable only out of cash distributions from the investee partnerships. The operations generated by the property 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 note payable and the 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. 11 14 REAL ESTATE ASSOCIATES LIMITED VI (A CALIFORNIA LIMITED PARTNERSHIP) JUNE 30, 1998 ITEM 2. MANAGEMENT'S ANALYSIS AND DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES The Partnership's primary sources of funds include interest income on short term investments and distributions from limited partnerships in which the Partnership has invested. The Partnership has committed as of June 30, 1998 to investments in limited partnerships requiring additional capital contributions of $90,500. The Partnership normally makes its capital contributions to the local limited partnerships in stages, over a period of two to five years, with each contribution due on a specified date, provided that certain conditions regarding construction or operation of the project have been fulfilled. The Partnership has no significant commitments once the capital contributions have been made. RESULTS OF OPERATIONS Rental operations consist primarily of rental income and depreciation expense, debt service, and normal operating expenses to maintain the properties. Variances in rental operations from the prior year to the current year relate to the sale of the Drexel Property. Partnership revenues consist primarily of interest income earned on certificates of deposit and other temporary investment of funds not required for investment in local partnerships. Operating expenses consist primarily of recurring general and administrative expenses and professional fees for services rendered to the Partnership. In addition, an annual Partnership management fee in an amount equal to .4 percent of invested assets is payable to the corporate general partner. The Partnership accounts for its investments in the local limited partnerships on the equity method, thereby adjusting its investment balance by its proportionate share of the income or loss of the local limited partnerships. Losses incurred after the limited partnership investment account is reduced to zero are not recognized in accordance with the equity accounting method. Distributions received from limited partnerships are recognized as return of capital until the investment balance has been reduced to zero or to a negative amount equal to future capital contributions required. Subsequent distributions received are recognized as income. Except for certificates of deposit and money market funds, the Partnership's investments are entirely from interests in other limited and general partnerships owning government assisted projects. Funds temporarily not required for such investments in projects are invested providing interest income as reflected in the statement of operations. These funds can be converted to cash to meet obligations as they arise. The Partnership intends to continue investing available funds in this manner. 12 15 REAL ESTATE ASSOCIATES LIMITED VI (A CALIFORNIA LIMITED PARTNERSHIP) JUNE 30, 1998 ITEM 2. MANAGEMENT'S ANALYSIS AND DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) RESULTS OF OPERATIONS (CONTINUED) Under recently adopted law and policy, HUD has determined not to renew housing assistance payments contracts ("HAP Contracts") on their existing terms. In connection with renewals of the HAP Contracts under such new law and policy, the amount of rental assistance payments under renewed HAP Contracts will be based on market rentals instead of above market rentals, which was generally the case under existing HAP Contracts. As a result, existing HAP Contracts that are renewed in the future on projects insured by the Federal Housing Administration of HUD ("FHA") will not provide sufficient cash flow to permit owners of properties to meet the debt service requirements of these existing FHA-insured mortgages. In order to address the reduction in payments under HAP Contracts as a result of this new policy, the Multi-family Assisted Housing Reform and Affordability Act of 1997 ("MAHRAA"), which was adopted in October 1997, provides for the restructuring of mortgage loans insured by the FHA with respect to properties subject to HAP Contracts that have been renewed under the new policy. The restructured loans will be held by the current lender or another lender. Under MAHRAA, an FHA-insured mortgage loan can be restructured to reduce the annual debt service on such loan. There can be no assurance that the Partnership will be permitted to restructure its mortgage indebtedness pursuant to the new HUD rules implementing MAHRAA or that the Partnership would choose to restructure such mortgage indebtedness if it were eligible to participate in the MAHRAA program. It should be noted that there are uncertainties as to the economic impact on the Partnership of the combination of the reduced payments under the HAP Contracts and the restructuring of the existing FHA-insured mortgage loans under MAHRAA. Accordingly, the General Partners are unable to predict with certainty their impact on the Partnership's future cash flow. As a result of the foregoing, the Partnership is undergoing an extensive review of the properties in which the limited partnerships have invested that are subject to HUD mortgages and which may be sold to the REIT as set forth below. The Partnership has incurred expenses in connection with this review by various third party professionals, including accounting, legal, valuation, structural review and engineering costs, which amounted to approximately $308,000 through June 30, 1998, including approximately $180,000 for the six months ended June 30, 1998, which are included in general and administrative expenses. A real estate investment trust ("REIT") organized by affiliates of NAPICO has advised the Partnership that it intends to make a proposal to purchase from the Partnership certain of the limited partnership interests held for investment by the Partnership. The REIT proposes to purchase such limited partnership interests for cash, which it plans to raise in connection with a private placement of its equity securities. The purchase is subject to, among other things, (i) consummation of such private placement by the REIT; (ii) the purchase of the general partnership interests in the local limited partnerships by the REIT; (iii) the approval of HUD and certain state housing finance agencies; (iv) the consent of the limited partners to the sale of the local limited partnership interests held for investment by REAL VI; and (v) the consummation of a minimum number of purchase transactions with other NAPICO affiliated partnerships. As of June 30, 1998, the REIT had completed buy-out negotiations with a majority of the general partners of the local limited partnerships. 13 16 REAL ESTATE ASSOCIATES LIMITED VI (A CALIFORNIA LIMITED PARTNERSHIP) JUNE 30, 1998 ITEM 2. MANAGEMENT'S ANALYSIS AND DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) RESULTS OF OPERATIONS (CONTINUED) A consent solicitation statement will be sent to the limited partners setting forth the terms and conditions of the purchase of the limited partners' interests held for investment by the Partnership, together with certain amendments to the Partnership Agreement and other disclosures of various conflicts of interest in connection with the proposed transaction. 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. 14 17 REAL ESTATE ASSOCIATES LIMITED VI (A CALIFORNIA LIMITED PARTNERSHIP) JUNE 30, 1998 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Partnership's general partner is involved in various lawsuits. None of these lawsuits are related to the Partnership. ITEM 5. OTHER INFORMATION On October 20, 1997 the Partnership became aware of an unsolicited tender offer from Equity Resources Fund XXI (the "Buyer") to buy up to 400 units of limited partnership interests (the "Units") in the Partnership for a price of $250 per Unit. The Buyer did not contact the Corporate General Partner prior to commencing its tender offer. By letter dated October 30, 1997, 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. A copy of the letter is attached as an Exhibit to this form 10-Q. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) No exhibits are required per the provision of item 7 of regulation S-K. 15 18 REAL ESTATE ASSOCIATES LIMITED VI (A LIMITED PARTNERSHIP) JUNE 30, 1998 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. REAL ESTATE ASSOCIATES LIMITED VI AND SUBSIDIARIES (a California limited partnership) By: National Partnership Investments Corp., General Partner /s/ BRUCE NELSON ------------------------------------------ Bruce Nelson President Date: 8/14/98 ------------------------------------------ /s/ CHARLES H. BOXENBAUM ------------------------------------------ Charles H. Boxenbaum Chief Executive Officer Date: 8/14/98 ------------------------------------------ 16 EX-27 2 EXHIBIT 27
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. 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 6,258,237 0 0 0 0 6,258,237 5,665,419 2,736,599 15,640,711 162,322 0 0 0 0 (1,469,115) 15,640,711 0 1,144,140 0 0 947,201 0 509,160 312,212 0 312,212 0 0 0 312,212 0 0
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