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UNITED STATES |
SECURITIES AND EXCHANGE COMMISSION |
Washington, D.C. 20549 |
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Form 10-Q |
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2014 |
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________ |
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Commission file number 0-13112 |
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REAL ESTATE ASSOCIATES LIMITED VI |
(Exact name of registrant as specified in its charter) |
California | 95-3778627 |
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
PO Box 91274 |
Los Angeles, California 90009 |
(Address of principal executive offices) |
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(720) 387-8135 |
(Registrant’s telephone number, including area code) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [X] Yes [ ] No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] | Accelerated filer [ ] |
Non-accelerated filer [ ] (Do not check if a smaller reporting company) | Smaller reporting company [X] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No
PART I - FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
REAL ESTATE ASSOCIATES LIMITED VI |
|
BALANCE SHEETS |
(in thousands) |
| March 31, |
| December 31, |
| 2014 |
| 2013 |
| (Unaudited) |
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Assets |
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Investments in and advances to Local Limited |
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Partnerships | $ 1,507 |
| $ 1,416 |
Cash and cash equivalents | 966 |
| 1,062 |
Receivables – limited partners | 349 |
| 348 |
Total assets | $ 2,822 |
| $ 2,826 |
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Liabilities and Partners’ Capital (Deficiency) |
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Liabilities: |
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Accounts payable and accrued expenses | $ 7 |
| $ 26 |
Due to Affiliates | 15 |
| -- |
Taxes payable | 94 |
| 63 |
Total liabilities | 116 |
| 89 |
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Partners' capital (deficiency) |
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General partners | (324) |
| (324) |
Limited partners | 3,030 |
| 3,061 |
Total partners’ capital (deficiency) | 2,706 |
| 2,737 |
Total liabilities and partners' capital |
|
|
|
(deficiency) | $ 2,822 |
| $ 2,826 |
See Accompanying Notes to Financial Statements
1
REAL ESTATE ASSOCIATES LIMITED VI
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per interest data)
| Three Months Ended | ||
| March 31, | ||
| 2014 |
| 2013 |
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Revenues | $ -- |
| $ -- |
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Operating expenses: |
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Management fees - General Partner | 9 |
| 17 |
Legal and accounting | 36 |
| 24 |
Tax expense | 31 |
| 42 |
General and administrative | 8 |
| -- |
Interest |
|
| -- |
Total operating expenses | 84 |
| 83 |
Loss from partnership operations | (84) |
| (83) |
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Distributions from Local Limited Partnerships recognized |
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as income | -- |
| 4 |
Advances to Local Limited Partnerships recognized |
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as (expense) | (27) |
| -- |
Equity in income (loss) of Local Limited Partnership |
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and amortization of acquisition costs | 80 |
| 98 |
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Net income (loss) | $ (31) |
| $ 19 |
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Net income (loss) allocated to general partners (1%) | $ -- |
| $ -- |
Net income (loss) allocated to limited partners (99%) | $ (31) |
| $ 19 |
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Net income (loss) per limited partnership interest | $ (1.87) |
| $ 1.15 |
See Accompanying Notes to Financial Statements
2
REAL ESTATE ASSOCIATES LIMITED VI
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIENCY)
(Unaudited)
(in thousands)
| General |
| Limited |
|
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| Partners |
| Partners |
| Total |
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Partners' capital (deficiency), |
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December 31, 2013 | $ (324) |
| $ 3,061 |
| $ 2,737 |
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Net loss for the three months |
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ended March 31, 2014 | 0 |
| (31) |
| (31) |
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Partners' capital (deficiency), |
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March 31, 2014 | $ (324) |
| $ 3,030 |
| $ 2,706 |
|
|
|
|
|
|
See Accompanying Notes to Financial Statements
3
REAL ESTATE ASSOCIATES LIMITED VI
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
| Three Months Ended | ||||
| March 31, | ||||
| 2014 |
| 2013 | ||
Cash flows from operating activities: |
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Net income (loss) | $ (31) |
| $ 19 | ||
Adjustments to reconcile net income to net cash used in |
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operating activities: |
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Equity in income of Local Limited Partnership and |
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amortization of acquisition costs | (80) |
| (98) | ||
Advances to Local Limited Partnerships recognized as expense | 27 |
| -- | ||
Change in accounts: |
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Receivables | (1) |
| -- | ||
Taxes payable | 31 |
| 42 | ||
Accounts payable and accrued expenses | (4) |
| 6 | ||
Net cash used in operating activities | (58) |
| (31) | ||
Cash flows from investing activities: |
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Advances to Local Limited Partnerships | (38) |
| -- | ||
Net cash provided (used) by investing activities | (38) |
| -- | ||
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Net increase (decrease) in cash and cash equivalents | (96) |
| (31) | ||
Cash and cash equivalents, beginning of period | 1,062 |
| 1,473 | ||
Cash and cash equivalents, end of period | $ 966 |
| $ 1,442 | ||
See Accompanying Notes to Financial Statements
4
REAL ESTATE ASSOCIATES LIMITED VI
NOTES TO FINANCIAL STATEMENTS (continued)
(Unaudited)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
The information contained in the following notes to the unaudited 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 fiscal year ended December 31, 2013 prepared by Real Estate Associates Limited VI (the "Partnership" or "Registrant"). 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’s management, the accompanying unaudited financial statements contain all adjustments (consisting primarily of normal recurring items) considered necessary for a fair presentation. The balance sheet at December 31, 2013 has been derived from the audited financial statements at that date but does not include all of the information and disclosures required by generally accepted accounting principles for complete financial statements.
The general partners have a one 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 investments. The general partners of the Partnership are National Partnership Investments, LLC, a California limited liability company ("NAPICO" or the "General Partner"), and National Partnership Investments Associates, a California limited partnership. The General Partner is a subsidiary of Bethesda Holdings II, LLC, a privately held real estate asset management company (“Bethesda”).
At March 31, 2014 and December 31, 2013, there were 16,514 limited partnership interests outstanding.
Basis of Presentation
The accompanying unaudited financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Method of Accounting for Investments in Local Limited Partnerships
The investments in local limited partnerships (the “Local Limited Partnerships”) are accounted for using the equity method. Acquisition, selection fees and other costs related to the acquisition of the Local Limited Partnerships have been capitalized as part of the investment account and are being amortized by the straight line method over the estimated lives of the underlying assets, which is generally 30 years.
5
REAL ESTATE ASSOCIATES LIMITED VI
NOTES TO FINANCIAL STATEMENTS (continued)
(Unaudited)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Net Income Per Limited Partnership Interest
Net income per limited partnership interest was computed by dividing the limited partners’ share of net income by the number of limited partnership interests outstanding at the beginning of the year. The number of limited partnership interests used was 16,514 and 16,568 for the three months ended March 31, 2014 and 2013, respectively.
Variable Interest Entities
The Partnership consolidates any variable interest entities in which the Partnership holds a variable interest and is the primary beneficiary. Generally, a variable interest entity, or VIE, is an entity with one or more of the following characteristics: (a) the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support; (b) as a group the holders of the equity investment at risk lack (i) the ability to make decisions about an entity’s activities through voting or similar rights, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity; or (c) the equity investors have voting rights that are not proportional to their economic interests and substantially all of the entity’s activities either involve, or are conducted on behalf of, an investor that has disproportionately few voting rights. The primary beneficiary of a VIE is generally the entity that has (a) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, and (b) the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE.
In determining whether it is the primary beneficiary of a VIE, the Partnership considers qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIE’s economic performance and which party controls such activities; the amount and characteristics of the Partnership’s investment; the obligation or likelihood for the Partnership or other investors to provide financial support; and the similarity with and significance to the business activities of the Partnership and the other investors. Significant judgments related to these determinations include estimates about the current and future fair values and performance of real estate held by these VIEs and general market conditions.
At March 31, 2014 and December 31, 2013, the Partnership held variable interests in one VIE, for which the Partnership was not the primary beneficiary. The Partnership has concluded, based on its qualitative consideration of the partnership agreement, the partnership structure and the role of the general partner in the Local Limited Partnership, that the general partner of the Local Limited Partnership is the primary beneficiary of the respective Local Limited Partnership. In making this determination, the Partnership considered the following factors:
·
the general partner conducts and manages the business of the Local Limited Partnership;
·
the general partner has the responsibility for and sole discretion over selecting a property management agent for the Local Limited Partnership's underlying real estate properties;
·
the general partner is responsible for approving operating and capital budgets for the properties owned by the Local Limited Partnership;
·
the general partner is obligated to fund any recourse obligations of the Local Limited Partnership;
·
the general partner is authorized to borrow funds on behalf of the Local Limited Partnership; and
6
REAL ESTATE ASSOCIATES LIMITED VI
NOTES TO FINANCIAL STATEMENTS (continued)
(Unaudited)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
·
the Partnership, as a limited partner in the Local Limited Partnership, does not have the ability to direct or otherwise significantly influence the activities of the Local Limited Partnership that most significantly impact such entity's economic performance.
The VIE at March 31, 2014 consisted of a Local Limited Partnership that was directly engaged in the ownership and management of one apartment property with a total of 126 units. The Partnership is involved with the VIE as a non-controlling limited partner equity holder. The Partnership’s maximum exposure to loss as a result of its involvement with the unconsolidated VIE is limited to the Partnership’s recorded investments in and receivables from the VIE, which were approximately $1,507,000 and $1,416,000 at March 31, 2014 and December 31, 2013, respectively. The Partnership may be subject to additional losses to the extent of any financial support that the Partnership voluntarily provides in the future.
NOTE 2 - INVESTMENTS IN AND ADVANCES TO LOCAL LIMITED PARTNERSHIP
As of March 31, 2014 and December 31, 2013, the Partnership held limited partnership interests in one Local Limited Partnership. As of March 31, 2014 and December 31, 2013, the Local Limited Partnership owned a residential low-income rental project consisting of 126 apartment units. The Local Limited Partnership may be encumbered by mortgage notes payable to or insured by various governmental agencies.
The Partnership, as a limited partner, does not have a contractual relationship with the Local Limited Partnership or exercise control over the activities and operations, including refinancing or selling decisions, of the Local Limited Partnership that would require or allow for consolidation. Accordingly, the Partnership accounts for its investment in the Local Limited Partnership using the equity method. The Partnership is allocated profits and losses of the Local Limited Partnership based upon its respective ownership percentages (90%). Distributions of surplus cash from operations from the Local Limited Partnership is restricted by the Local Limited Partnership's Regulatory Agreement with the United States Department of Housing and Urban Development (“HUD”). These restrictions limit the distribution to a portion, generally less than 10% of the initial invested capital. The excess surplus cash is deposited into a residual receipts reserve, of which the ultimate realization by the Partnership is uncertain as HUD frequently retains it upon sale or dissolution of the Local Limited Partnership. The Partnership is allocated profits and losses and receives distributions from refinancings and sales in accordance with the Local Limited Partnership's partnership agreement. The agreement limits the Partnership’s distributions to an amount substantially less than its ownership percentage in the Local Limited Partnership.
The investment is carried at cost plus the Partnership’s share of the Local Limited Partnership’s profits less the Partnership’s share of the Local Limited Partnership’s losses, distributions and impairment charges. The Partnership is not legally liable for the obligations of the Local Limited Partnership and is not otherwise committed to provide additional support to it. Therefore, it does not recognize losses once its investment in the Local Limited Partnership reaches zero. Distributions from the Local Limited Partnership is accounted for as a reduction of the investment balance until the investment balance is reduced to zero. When the investment balance has been reduced to zero, subsequent distributions received are recognized as income in the accompanying statements of operations. An operating distribution of approximately $4,000 was received from one Local Limited Partnership, Oakridge Park II, during the three months ended March 31, 2013.
7
REAL ESTATE ASSOCIATES LIMITED VI
NOTES TO FINANCIAL STATEMENTS (continued)
(Unaudited)
NOTE 2 - INVESTMENTS IN AND ADVANCES TO LOCAL LIMITED PARTNERSHIPS (continued)
In September 2013, the Partnership assigned its limited partnership interest in Oakridge Park II to an affiliate of the Operating General Partner for a total of $13,200. This amount was recognized as a gain on sale of Local Limited Partnerships for the three months ended March 31, 2014 as the partnership had no investment balance remaining in Oakridge Park II at the date of the assignment.
In November 2013, Crockett Manor sold its investment property for net proceeds of approximately $40,000.
In December 2013, the Partnership assigned its limited partnership interest in Hummelstown for approximately $190,000 and Kentucky Manor for approximately $25,000.
For those investments where the Partnership has determined that the carrying value of its investments approximates the estimated fair value of those investments, the Partnership’s policy is to recognize equity in income of the Local Limited Partnerships only to the extent of distributions received and amortization of acquisition costs from those Local Limited Partnerships. Therefore, the Partnership limits its recognition of equity earnings to the amount it expects to ultimately realize.
As of March 31, 2014 and December 31, 2013, the Partnership had an investment balance in Park Place Limited Partnership.
At times, advances are made to the Local Limited Partnerships. Advances made by the Partnership to the individual Local Limited Partnerships are considered part of the Partnership’s investment in the Local Limited Partnership. Advances made to Local Limited Partnerships for which the investment has been reduced to zero are charged to expense. There were no advances from the Partnership to the Local Limited Partnerships during the three months ended March 31, 2013. As of March 31, 2014, the Partnership advanced approximately $11,000 to Park Place Limited Partnership for repairs and capital items. While not obligated to make advances to the Local Limited Partnerships, the Partnership made this advance to protect its economic investment in the Local Limited Partnership.
The following is a summary of the investments in the Local Limited Partnerships for the three months ended March 31, 2014 (in thousands):
Balance, beginning of period | $ 1,416 |
Equity in income of Local Limited Partnership | 82 |
Advance | 11 |
Amortization of acquisition costs | (2) |
Balance, end of period | $ 1,507 |
8
REAL ESTATE ASSOCIATES LIMITED VI
NOTES TO FINANCIAL STATEMENTS (continued)
(Unaudited)
The following are unaudited condensed combined estimated statements of operations for the three months ended March 31, 2014 and 2013 of Local Limited Partnerships in which the Partnership has invested (in thousands):
| Three Months Ended March 31, |
| Three Months Ended March 31, |
| 2014 |
| 2013 |
|
|
|
|
Revenues |
|
|
|
Rental and other | $ 415 |
| $ 407 |
|
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Expenses |
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Operating expenses | 207 |
| 190 |
Financial expenses | 54 |
| 46 |
Depreciation and amortization | 61 |
| 60 |
Total expenses | 322 |
| 296 |
|
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|
Income from continuing operations | $ 93 |
| $ 111 |
The combined results of operations for the three months ended and 2013 exclude the operations of Kentucky Manor, Crockett Manor, Oakridge Park II and Hummelstown due to their sale in 2013.
NOTE 3 - TRANSACTIONS WITH AFFILIATED PARTIES
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 0.5 percent of the original invested assets of the Local Limited Partnerships at the beginning of the year. 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 Local Limited Partnerships. The fee was approximately $9,000 and $17,000 for the three months ended March 31, 2014 and 2013, respectively.
In addition to being the General Partner, an affiliate of NAPICO is the general partner for the remaining Local Limited Partnership.
NOTE 4 – FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial Accounting Standards Board Accounting Standards Codification Topic 825, “Financial Instruments”, requires disclosure of fair value information about financial instruments, when it is practicable to estimate that value. At March 31, 2014, the carrying amounts of other assets and liabilities reported on the balance sheets that require such disclosure approximated their fair value due to the short-term maturity of these instruments.
NOTE 5 - CONTINGENCIES
The General Partner is involved in various lawsuits arising from transactions in the ordinary course of business. In the opinion of management and the General Partner, the claims will not result in any material liability to the Partnership.
Note 6 - Subsequent Event
The Partnership’s management evaluated subsequent events through the time this Quarterly Report on Form 10-Q was filed.
9
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements in certain circumstances. Certain information included in this Quarterly Report contains or may contain information that is forward-looking within the meaning of the federal securities laws. Actual results may differ materially from those described in these forward-looking statements and, in addition, will be affected by a variety of risks and factors, some of which are beyond the Partnership’s control, including, without limitation: financing risks, including the availability and cost of financing and the risk that the Partnership’s cash flows from operations may be insufficient to meet required payments of principal and interest; national and local economic conditions, including the pace of job growth and the level of unemployment; the terms of governmental regulations that affect the Partnership and its investment in limited partnerships and interpretations of those regulations; the competitive environment in which the Partnership operates; real estate risks, including fluctuations in real estate values and the general economic climate in local markets and competition for residents in such markets; litigation, including costs associated with prosecuting or defending claims and any adverse outcomes; and possible environmental liabilities, including costs, fines or penalties that may be incurred due to necessary remediation of contamination of properties presently owned or previously owned by the limited partnerships in which the Partnership has invested. Readers should carefully review the Partnership’s financial statements and the notes thereto, as well as the other documents the Partnership files from time to time with the Securities and Exchange Commission.
The General Partner monitors developments in the area of legal and regulatory compliance.
Liquidity and Capital Resources
The properties in which the Partnership has invested, through its investments in the Local Limited Partnership, receive one or more forms of assistance from the Federal Government. As a result, the Local Limited Partnership's ability to transfer funds to the Partnership in the form of cash distributions, loans or advances is generally restricted by these government assistance programs. These restrictions, however, are not expected to impact the Partnership’s ability to meet its cash obligations.
The Partnership's primary source of funds includes distributions from the Local Limited Partnership in which the Partnership has invested. It is not expected that the Local Limited Partnership 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. An infrequent source of funds is from the sale of a Local Limited Partnership property or the sale of the Partnership’s interest in a Local Limited Partnership. No distributions to partners were made during the three months ended March 31, 2014 or 2013.
Distributions received from the Local Limited Partnership are recognized as a reduction of the investment balance until the investment balance has been reduced to zero. Subsequent distributions received are recognized as income. No operating distributions were received from the Local Limited Partnership during the three months ended March 31, 2014. An operating distribution of approximately $4,000 was received from one Local Limited Partnership, Oakridge Park II, during the three months ended March 31, 2013.
As of March 31, 2014, the Partnership had cash and cash equivalents of approximately $966,000, compared with approximately $1,062,000 at December 31, 2013. All of this cash is on deposit with a financial institution. The decrease of approximately $96,000 is due primarily to operating expenses.
In September 2013, the Partnership assigned its limited partnership interest in Oakridge Park II to an affiliate of the Operating General Partner for a total of $13,200. This amount was recognized as a gain on sale of Local Limited Partnerships for the three months ended March 31, 2014 as the partnership had no investment balance remaining in Oakridge Park II at the date of the assignment.
In November 2013, Crockett Manor sold its investment property for net proceeds of approximately $40,000.
In December 2013, the Partnership assigned its limited partnership interest in Hummelstown for approximately $190,000 and Kentucky Manor for approximately $25,000.
Results of Operations
At March 31, 2014, the Partnership had investments in one Local Limited Partnership, which owns one housing project, that was substantially rented. The Partnership, as a limited partner, does not have a contractual relationship with the Local Limited Partnership or exercise control over the activities and operations, including refinancing or selling decisions, of the Local Limited Partnership that would require or allow for consolidation. Accordingly, the Partnership accounts for its investment in the Local Limited Partnership
10
using the equity method. Thus the investment is carried at cost plus the Partnership’s share of the Local Limited Partnership’s profits less the Partnership’s share of the Local Limited Partnership’s losses, distributions and any impairment charges. However, since the Partnership is not legally liable for the obligations of the Local Limited Partnership, or is not otherwise committed to provide additional support to it, it does not recognize losses once its investment in the Local Limited Partnership reaches zero. Distributions from the Local Limited Partnership are accounted for as a reduction of the investment balance until the investment balance is reduced to zero. Subsequent distributions received are recognized as income in the statements of operations. For those investments where the Partnership has determined that the carrying value of its investments approximates the estimated fair value of those investments, the Partnership’s policy is to recognize equity in income of the Local Limited Partnership only to the extent of distributions received and amortization of acquisition costs from the Local Limited Partnership. During the three months ended March 31, 2014 and 2013, the Partnership recognized equity in income and amortization of acquisition costs of approximately $80,000 and $98,000, respectively, from one Local Limited Partnership.
The Partnership still has an investment balance in Park Place Limited Partnership.
At times, advances are made to the Local Limited Partnership. Advances made by the Partnership to the Local Limited Partnership are considered part of the Partnership’s investment in the Local Limited Partnership. Advances made to Local Limited Partnership for which the investment has been reduced to zero are charged to expense. There were no advances from the Partnership to the Local Limited Partnerships during the three months ended March 31, 2013. As of March 31, 2014, the Partnership advanced approximately $11,000 to Park Place Limited Partnership for repairs and capital items. While not obligated to make advances to any of the Local Limited Partnerships, the Partnership made this advance to protect its economic investment in the Local Limited Partnership.
A recurring partnership expense is the annual management fee. The fee is payable to the General Partner and is calculated at 0.5 percent of the Partnership's original remaining invested assets at the beginning of the year. The management fee is paid to the General Partner for its continuing management of the Partnership’s affairs. Management fees were approximately $9,000 and $17,000 for the three months ended March 31, 2014 and 2013, respectively. The decrease in management fees is due to the sales of Crockett Manor and Kentucky Manor in 2013.
Operating expenses, other than management fees, consist of legal and accounting fees for services rendered to the Partnership and general and administrative expenses. Legal and accounting fees were approximately $36,000 and $24,000 for the three months ended March 31, 2014 and 2013, respectively. The increase in legal and accounting fees is primarily due to a decrease in audit and tax related expense partially offset by an increase in legal fees associated with the disposition of the partnership's Local Limited Partnership interests.
General and administrative expenses were approximately $8,000 and less than $1,000 for the three months ended March 31, 2014 and 2013, respectively.
The Partnership incurs expense for a New Jersey tax based upon the number of resident and non-resident limited partners and apportionment of income related to the Partnership’s investment in the Local Limited Partnership. For the three months ended March 31, 2014 and 2013, the expense was approximately $31,000 and $42,000, respectively. The decrease in tax expense is due to a decrease in the portion of the New Jersey tax that is based on the apportionment of income.
The Partnership, as a limited partner in the Local Limited Partnership in which it has invested, is subject to the risks incident to the construction, management and ownership of improved real estate. The Partnership’s 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 which could increase vacancy levels, rental payment defaults, and operating expenses, which in turn could substantially increase the risk of operating losses for the projects.
Off-Balance Sheet Arrangements
The Partnership owns limited partnership interests in the unconsolidated Local Limited Partnership, in which the Partnership’s ownership percentage is 90%. However, based on the provisions of the relevant partnership agreement, the Partnership, as a limited partner, does not have control or a contractual relationship with the Local Limited Partnership that would require or allow for consolidation under accounting principles generally accepted in the United States (see “Note 1 – Organization and Summary of Significant Accounting Policies” of the financial statements in “Item 1. Financial Statements”). There are no lines of credit, side agreements or any other derivative financial instruments between the Local Limited Partnership and the Partnership. Accordingly the Partnership’s maximum risk of loss related to the unconsolidated Local Limited Partnership is limited to the recorded investments in and receivables from the Local Limited Partnership. See “Note 2 – Investments in and Advances to Local Limited Partnership” of the financial statements in “Item 1. Financial Statements” for additional information about the Partnership’s investment in the unconsolidated Local Limited Partnership.
11
Other
Neither the General Partner nor its affiliates currently own any of the outstanding limited partnership interests in the Partnership at March 31, 2014. It is possible that Bethesda Holdings II, LLC (“Bethesda”) or its affiliates will acquire additional limited partnership interests in the Partnership, either through private purchases or tender offers. Pursuant to the Partnership Agreement, unitholders holding a majority of the limited partnership interests are entitled to take action with respect to a variety of matters that include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the General Partner. A “Unit” consists of two limited partnership interests. Although the General Partner and its affiliates do not currently own any of the outstanding limited partnership interests in the Partnership, Bethesda has entered into a management agreement with a holder of 879.5 Units or 1,759 limited partnership interests in the Partnership representing 10.65% of the outstanding limited partnership interests in the Partnership as of March 31, 2014. Pursuant to such management agreement, Bethesda manages the business of such holder in exchange for a management fee, part of which includes all payments received by such holder with respect to such holder’s ownership of limited partnership interests in the Partnership. Although the General Partner owes fiduciary duties to the limited partners of the Partnership, the General Partner also owes fiduciary duties to Bethesda as its sole stockholder. As a result, the duties of the General Partner, as general partner, to the Partnership and its limited partners may come into conflict with the duties of the General Partner to Bethesda as its sole stockholder.
12
Variable Interest Entities
The Partnership consolidates any variable interest entities in which the Partnership holds a variable interest and is the primary beneficiary. Generally, a variable interest entity, or VIE, is an entity with one or more of the following characteristics: (a) the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support; (b) as a group the holders of the equity investment at risk lack (i) the ability to make decisions about an entity’s activities through voting or similar rights, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity; or (c) the equity investors have voting rights that are not proportional to their economic interests and substantially all of the entity’s activities either involve, or are conducted on behalf of, an investor that has disproportionately few voting rights. The primary beneficiary of a VIE is generally the entity that has (a) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, and (b) the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE.
In determining whether it is the primary beneficiary of a VIE, the Partnership considers qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIE’s economic performance and which party controls such activities; the amount and characteristics of the Partnership’s investment; the obligation or likelihood for the Partnership or other investors to provide financial support; and the similarity with and significance to the business activities of the Partnership and the other investors. Significant judgments related to these determinations include estimates about the current and future fair values and performance of real estate held by these VIEs and general market conditions.
At March 31, 2014 and December 31, 2013, the Partnership held variable interests in one VIE for which the Partnership was not the primary beneficiary. The Partnership has concluded, based on its qualitative consideration of the partnership agreement, the partnership structure and the role of the general partner in the Local Limited Partnership, that the general partner of the Local Limited Partnership is the primary beneficiary of the respective Local Limited Partnership. In making this determination, the Partnership considered the following factors:
·
the general partner conducts and manages the business of the Local Limited Partnership;
·
the general partner has the responsibility for and sole discretion over selecting a property management agent for the Local Limited Partnership's underlying real estate properties;
·
the general partner is responsible for approving operating and capital budgets for the properties owned by the Local Limited Partnership;
·
the general partner is obligated to fund any recourse obligations of the Local Limited Partnership;
·
the general partner is authorized to borrow funds on behalf of the Local Limited Partnership; and
·
the Partnership, as a limited partner in the Local Limited Partnership, does not have the ability to direct or otherwise significantly influence the activities of the Local Limited Partnership that most significantly impact such entity’s economic performance.
The VIE at March 31, 2014 consisted of a Local Limited Partnership that was directly engaged in the ownership and management of one apartment property with a total of 126 units. The Partnership is involved with the VIE as a non-controlling limited partner equity holder. The Partnership’s maximum exposure to loss as a result of its involvement with the unconsolidated VIE is limited to the Partnership’s recorded investment in and receivables from the VIE, which were approximately $1,507,000 and $1,416,000 at March 31, 2014 and December 31, 2013, respectively. The Partnership may be subject to additional losses to the extent of any financial support that the Partnership voluntarily provides in the future.
Critical Accounting Policies and Estimates
The financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require the Partnership to make estimates and assumptions. Judgments and assessments of uncertainties are required in applying the Partnership’s accounting policies in many areas. The Partnership believes that of its critical accounting policies, the following may involve a higher degree of judgment and complexity.
Method of Accounting for Investments in Local Limited Partnerships
The Partnership, as a limited partner, does not have a contractual relationship with the Local Limited Partnership or exercise control over the activities and operations, including refinancing or selling decisions, of the Local Limited Partnership that would require or
13
allow for consolidation. Accordingly, the Partnership accounts for its investment in the Local Limited Partnership using the equity method. The Partnership is allocated profits and losses of the Local Limited Partnership based upon its ownership percentage (90%). Distributions of surplus cash from operations from the Local Limited Partnership is restricted by the Local Limited Partnership's Regulatory Agreement with the United States Department of Housing and Urban Development (“HUD”). These restrictions limit the distribution to a portion, generally less than 10%, of the initial invested capital. The excess surplus cash is deposited into a residual receipts reserve, of which the ultimate realization by the Partnership is uncertain as HUD frequently retains it upon sale or dissolution of the Local Limited Partnership. The Partnership is allocated profits and losses and receives distributions from refinancings and sales in accordance with the Local Limited Partnership's partnership agreement. The agreement limits the Partnership’s distributions to an amount substantially less than its ownership percentage in the Local Limited Partnership.
The investment is carried at cost plus the Partnership’s share of the Local Limited Partnership’s profits less the Partnership’s share of the Local Limited Partnership’s losses, distributions and impairment charges. The Partnership is not legally liable for the obligations of the Local Limited Partnership and is not otherwise committed to provide additional support to it. Therefore, it does not recognize losses once its investment in the Local Limited Partnership reaches zero. Distributions from the Local Limited Partnership are accounted for as a reduction of the investment balance until the investment balance is reduced to zero. When the investment balance has been reduced to zero, subsequent distributions received are recognized as income in the statements of operations.
For those investments where the Partnership has determined that the carrying value of its investments approximates the estimated fair value of those investments, the Partnership’s policy is to recognize equity in income of the Local Limited Partnership only to the extent of distributions received and amortization of acquisition costs from those Local Limited Partnerships. Therefore, the Partnership limits its recognition of equity earnings to the amount it expects to ultimately realize.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4.
CONTROLS AND PROCEDURES
(a)
Disclosure Controls and Procedures
The Partnership’s management, with the participation of the Senior Managing Director and Director of Reporting of Bethesda, who are the equivalent of the Partnership’s principal executive officer and principal financial officer, respectively, has evaluated the effectiveness of the Partnership’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the Senior Managing Director and Director of Reporting of Bethesda, who are the equivalent of the Partnership’s principal executive officer and principal financial officer, respectively, have concluded that, as of the end of such period, the Partnership’s disclosure controls and procedures are effective.
(b)
Changes in Internal Control Over Financial Reporting
There has been no change in the Partnership’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that has materially affected, or is reasonably likely to materially affect, the Partnership’s internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 6.
EXHIBITS
See Exhibit Index.
15
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 |
|
|
| By: National Partnership Investments, LLC |
| General Partner |
|
|
Date: May 15, 2014 | By: /s/Brian Flaherty |
| Brian Flaherty |
| Senior Managing Director |
|
|
Date: May 15, 2014 | By: /s/Joseph Dryden |
| Joseph Dryden |
| V.P. of Finance/CFO |
16
REAL ESTATE ASSOCIATES LIMITED VI
EXHIBIT INDEX
Exhibit
Description of Exhibit
3.1
Articles of incorporation and bylaws: The registrant is not incorporated. The Partnership Agreement was filed with Form S-11 #2-82090 which is hereby incorporated by reference.
3.2
Amendment to the Restated Certificate and Agreement of Limited Partnership of Real Estate Associates Limited VI, filed with the Partnership’s Current Report on Form 8-K dated December 29, 2004, which is hereby incorporated by reference.
31.1
Certification of equivalent of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of equivalent of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certification of the equivalent of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101
XBRL (Extensible Business Reporting Language). The following materials from Real Estate Associates Limited VI’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2014, formatted in XBRL: (i) balance sheets, (ii) statements of operations, (iii) statement of changes in partners’ capital (deficiency), (iv) statements of cash flows, and (v) notes to financial statements (1).
(1)
As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.
17
Exhibit 31.1
CERTIFICATION
I, Brian Flaherty, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of Real Estate Associates Limited VI;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: May 15, 2014
/s/Brian Flaherty
Brian Flaherty
Senior Managing Director of National Partnership Investments, LLC, equivalent of the chief executive officer of the Partnership
Exhibit 31.2
CERTIFICATION
I, Joseph Dryden, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of Real Estate Associates Limited VI;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: May 15, 2014
/s/Joseph Dryden
Joseph Dryden
V.P. of Finance/CFO
Exhibit 32.1
Certification of CEO and CFO |
Pursuant to 18 U.S.C. Section 1350, |
As Adopted Pursuant to |
Section 906 of the Sarbanes-Oxley Act of 2002 |
In connection with the Quarterly Report on Form 10-Q of Real Estate Associates Limited VI (the "Partnership"), for the quarterly period ended March 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Brian Flaherty, as the equivalent of the chief executive officer of the Partnership, and Joseph Dryden, as the equivalent of the chief financial officer of the Partnership, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:
(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership.
| /s/Brian Flaherty |
| Name: Brian Flaherty |
| Date: May 15, 2014 |
|
|
| /s/Joseph Dryden |
| Name: Joseph Dryden |
| Date: May 15, 2014 |
This certification is furnished with this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Partnership for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
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|
Note 4 - Fair Value of Financial Instruments
|
3 Months Ended |
|---|---|
|
Mar. 31, 2014
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| Notes | |
| Note 4 - Fair Value of Financial Instruments | NOTE 4 – FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial Accounting Standards Board Accounting Standards Codification Topic 825, “Financial Instruments”, requires disclosure of fair value information about financial instruments, when it is practicable to estimate that value. At March 31, 2014, the carrying amounts of other assets and liabilities reported on the balance sheets that require such disclosure approximated their fair value due to the short-term maturity of these instruments. |