-----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, EDS+Vs73tDyp2zjXLw6Eo+OtWEqVDQhf2OdmT8ETtx4bmZO96K4Wd26TX71OaP7M +RodW9aTgEWH7m7z3VA1tQ== 0000711642-01-000082.txt : 20010409 0000711642-01-000082.hdr.sgml : 20010409 ACCESSION NUMBER: 0000711642-01-000082 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010402 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SHELTER PROPERTIES VI LIMITED PARTNERSHIP CENTRAL INDEX KEY: 0000730013 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 570755618 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-13261 FILM NUMBER: 1591133 BUSINESS ADDRESS: STREET 1: 55 BEATTIE PLACE STREET 2: PO BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 BUSINESS PHONE: 8642391000 MAIL ADDRESS: STREET 1: 55 BEATTIE PLACE STREET 2: PO BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 10KSB 1 0001.txt YEAR ENDED DECEMBER 31, 2000 FORM 10-KSB--ANNUAL OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) Form 10-KSB [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] For the fiscal year ended December 31, 2000 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] For the transition period from _________to _________ Commission file number 0-13261 SHELTER PROPERTIES VI (Name of small business issuer in its charter) South Carolina 57-0755618 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 55 Beattie Place, PO Box 1089 Greenville, South Carolina 29602 (Address of principal executive offices) (864) 239-1000 Issuer's telephone number Securities registered under Section 12(b) of the Exchange Act: None Securities registered under Section 12(g) of the Exchange Act: Limited Partnership Units (Title of class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No___ Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of the registrant's knowledge in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X] State issuer's revenues for its most recent fiscal year. $19,116,000 State the aggregate market value of the voting partnership interests held by non-affiliates computed by reference to the price at which the partnership interests were sold, or the average bid and asked prices of such partnership interests, as of a specified date within the past 60 days. No market exists for the limited partnership interests of the Registrant, and, therefore, no aggregate market value can be determined. DOCUMENTS INCORPORATED BY REFERENCE None PART I Item 1. Description of Business Shelter Properties VI (the "Partnership" or "Registrant") was organized as a limited partnership under the laws of the State of South Carolina on August 3, 1983. The general partner responsible for management of the Partnership's business is Shelter Realty VI Corporation, a South Carolina corporation (the "Corporate General Partner"). The Corporate General Partner is a subsidiary of Apartment Investment and Management Company ("AIMCO"). See "Transfer of Control". The only other general partner of the Partnership was N. Barton Tuck, Jr. Mr. Tuck was not an affiliate of the Corporate General Partner and was effectively prohibited by the partnership agreement (the "Partnership Agreement") from participating in the management of the Partnership. In June 1999, Mr. Tuck's general partner interest was purchased by AIMCO Properties, L.P., an affiliate of the Corporate General Partner and AIMCO. The Registrant is engaged in the business of operating and holding real properties for investment. In 1984 and 1985 during its acquisition phase, the Registrant acquired eight existing apartment properties. The Registrant continues to own and operate five of these properties. See "Item 2. Description of Properties". The Partnership Agreement provides that the Partnership is to terminate on December 31, 2023, unless terminated prior to such date. Commencing March 22, 1984, the Registrant offered, pursuant to a Registration Statement filed with the Securities and Exchange Commission, up to 34,900 Units of Limited Partnership Interest (the "Units") at a purchase price of $1,000 per Unit with a minimum purchase of 5 Units ($5,000), or 2 Units ($2,000) for an Individual Retirement Account. By means of Supplement No. 4 dated September 28, 1984, the Partnership offered for sale an additional 15,000 Units. The Corporate General Partner purchased 100 units as required by the Partnership Agreement. The offering terminated in October 1984. Upon termination of the offering, the Registrant had accepted subscriptions for 42,324 Units, including 100 Units purchased by the Corporate General Partner, for an aggregate of $42,324,000. Unsold Units (numbering 7,676) were deregistered pursuant to Post Effective Amendment No. 1 to Registration Statement No. 2-93285 filed with the Securities and Exchange Commission on November 13, 1984. The Registrant invested approximately $30,300,000 of such proceeds in eight existing apartment properties. Since its initial offering, the Registrant has not received, nor are limited partners required to make, additional capital contributions. The Registrant has no employees. Management and administrative services are performed by the Corporate General Partner and by agents retained by the Corporate General Partner. The property management services are performed at the Partnership's properties by affiliates of the Corporate General Partner. The real estate business in which the Partnership is engaged is highly competitive. There are other residential properties within the market area of the Partnership's properties. The number and quality of competitive properties, including those which may be managed by an affiliate of the Corporate General Partner, in such market area could have a material effect on the rental market for apartment properties owned by the Partnership and the rents that may be charged for such properties. While the Corporate General Partner and its affiliates are a significant factor in the United States in the apartment industry, such units represent an insignificant percentage of the total apartment units in the United States and competition for apartments is local. Both the income and expenses of operating the properties owned by the Partnership are subject to factors outside of the Partnership's control, such as changes in the supply and demand of similar properties resulting from various market conditions, increases/decreases in unemployment or population shifts, changes in the availability of permanent mortgage financing, changes in zoning laws, or changes in patterns or needs of users. In addition, there are risks inherent in owning and operating residential properties because such properties are susceptible to the impact of economic and other conditions outside of the control of the Partnership. There have been, and it is possible there may be other, Federal, state and local legislation and regulations enacted relating to the protection of the environment. The Partnership is unable to predict the extent, if any, to which such new legislation or regulations might occur and the degree to which such existing or new legislation or regulations might adversely affect the properties owned by the Partnership. The Partnership monitors its properties for evidence of pollutants, toxins and other dangerous substances, including the presence of asbestos. In certain cases environmental testing has been performed, which resulted in no material adverse conditions or liabilities. In no case has the Partnership received notice that it is a potentially responsible party with respect to an environmental clean up site. A further description of the Partnership's business is included in "Management's Discussion and Analysis or Plan of Operation" included in "Item 6" of this Form 10-KSB. Transfer of Control Pursuant to a series of transactions which closed on October 1, 1998 and February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust ("IPT") merged into AIMCO, a publicly traded real estate investment trust, with AIMCO being the surviving corporation (the "Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in the Corporate General Partner. The Corporate General Partner does not believe that this transaction had had or will have a material effect on the affairs and operations of the Partnership. Item 2. Description of Properties The following table sets forth the Partnership's investments in properties:
Date of Property Purchase Type of Ownership Use Rocky Creek Apartments 06/29/84 Fee ownership subject Apartment Augusta, Georgia to first and second 120 units mortgages Carriage House Apartments 06/29/84 Fee ownership subject Apartment Gastonia, North Carolina to first and second 102 units mortgages Nottingham Square Apartments 08/31/84 Fee ownership subject Apartment Des Moines, Iowa to first and second 442 units mortgages River Reach Apartments 01/30/85 Fee ownership subject Apartment Jacksonville, Florida to first and second 298 units mortgages Village Garden Apartments 03/01/85 Fee ownership subject Apartment Fort Collins, Colorado to first mortgages 141 units
On November 14, 2000, the Partnership sold one of its properties, Foxfire/Barcelona, see "Item 6, Management's Discussion and Analysis a Plan of Operations" for more details. Schedule of Properties Set forth below for each of the Registrant's properties is the gross carrying value, accumulated depreciation, depreciable life, method of depreciation and Federal tax basis.
Gross Carrying Accumulated Federal Property Value Depreciation Rate Method Tax Basis (in thousands) (in thousands) Rocky Creek Apartments $ 4,751 $ 2,565 5-35 yrs SL $ 767 Carriage House Apartments 4,158 2,594 5-27 yrs SL 527 Nottingham Square Apartments 15,483 8,834 5-29 yrs SL 3,680 River Reach Apartments 15,208 8,213 5-27 yrs SL 3,780 Village Garden Apartments 4,587 2,343 5-30 yrs SL 1,359 $44,187 $24,549 $10,113
See "Note A" to financial statements in "Item 7" for a description of the Partnership's depreciation policy and "Note J" for change in accounting principle. Schedule of Property Indebtedness The following table sets forth certain information relating to the loans encumbering the Registrant's properties.
Principal Principal Balance At Balance December 31, Interest Period Maturity Due At Property 2000 Rate Amortized Date Maturity(3) (in thousands) (in thousands) Rocky Creek Apartments 1st mortgage $ 1,899 7.60% (1) 11/15/02 $ 1,737 2nd mortgage 74 7.60% (1) 11/15/02 74 Carriage House Apartments 1st mortgage 1,751 7.60% (1) 11/15/02 1,601 2nd mortgage 68 7.60% (1) 11/15/02 68 Nottingham Square Apartments 1st mortgage 6,854 7.60% (1) 11/15/02 6,268 2nd mortgage 268 7.60% (1) 11/15/02 268 River Reach Apartments 1st mortgage 6,442 7.60% (1) 11/15/02 5,890 2nd mortgage 252 7.60% (1) 11/15/02 252 Village Garden Apartments 1st mortgage 4,518 7.22% (2) 01/01/21 -- 22,126 $16,158 Less unamortized discount (391) $21,735
(1) The principal balance is being amortized over 257 months with a balloon payment due November 15, 2002. (2) The principal balance is being amortized over 240 months at which time it is expected to be fully amortized. (3) See "Item 7. Financial Statements - Note C" for information with respect to the Partnership's ability to prepay these loans and other specific details about the loans. On December 15, 2000, the Partnership refinanced the mortgage encumbering Village Gardens Apartments. The refinancing replaced mortgage indebtedness of approximately $2,325,000 with a new mortgage of $4,518,000. The mortgage was refinanced at a rate of 7.22% compared to the prior rate of 7.60%. Payments of approximately $36,000 are due on the first day of each month until the loan matures on January 1, 2021, at which time the loan is expected to be fully amortized. Capitalized loan costs incurred for the refinancing were approximately $108,000. Prepayment penalties of approximately $83,000 and the write-off of unamortized loan costs and mortgage discount of approximately $69,000 resulted in an extraordinary loss on early extinguishment of debt of approximately $152,000. Rental Rates and Occupancy Average annual rental rates and occupancy for the years ended December 31, 2000 and October 31, 1999 for the two months ended December 31, 1999 and 1998 for each property:
Average Annual Rental Rates Average Annual (annualized) Average Annual Rental Rates (per unit) Average Annual Occupancy (per unit) Two Months Occupancy Two Months Ended Ended Twelve Months Ended Twelve Months Ended December 31, October 31, December 31, December 31, October 31, December 31, 2000 1999 1999 1998 2000 1999 1999 1998 Rocky Creek Apartments $7,221 $7,051 $7,222 $6,951 92% 92% 92% 94% Carriage House Apartments 7,949 7,561 7,627 7,187 94% 93% 93% 90%(1) Nottingham Square Apartments 7,332 6,929 7,118 6,824 96% 94% 97% 90%(1) River Reach Apartments 8,988 8,569 8,746 8,480 96% 95% 95% 94% Village Garden Apartments 8,423 8,139 8,281 8,038 97% 97% 96% 99%(2)
(1) The increase in average occupancy for the two months ended December 31, 1999 as compared to 1998 for both Carriage House and Nottingham Square Apartments is attributed to a more aggressive marketing campaign during 1999. (2) The decrease in average occupancy for the two months ended December 31, 1999 as compared to 1998 for Village Garden Apartments is due to a change in demographics of the market area between 1998 and 1999. As noted under "Item 1. Description of Business", the real estate industry is highly competitive. All of the properties of the Partnership are subject to competition from other properties in the area. The Corporate General Partner believes that all of the properties are adequately insured. Each property is an apartment complex which leases units for lease terms of one year or less. No individual tenant leases 10% or more of the available rental space. All of the properties are in good physical condition, subject to normal depreciation and deterioration as is typical for assets of this type and age. Schedule of Real Estate Taxes and Rates Real estate taxes and rates in 2000 for each property were as follows: 2000 2000 Billing Rate (in thousands) Rocky Creek Apartments $ 40 2.82% Carriage House Apartments 41 1.32% Nottingham Square Apartments 447 3.23% River Reach Apartments 220 2.03% Village Garden Apartments 52 8.28% Capital Improvements Rocky Creek Apartments During the twelve months ended December 31, 2000, the Partnership expended approximately $93,000 for capital improvements at Rocky Creek Apartments primarily consisting of floor covering and appliance replacements, roof replacement, and structural improvements. These improvements were funded from Partnership reserves and operating cash flow. The Partnership is currently evaluating the capital improvement needs of the property for the upcoming year. The minimum amount to be budgeted is expected to be $275 per unit or $33,000. Additional improvements may be considered and will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. Carriage House Apartments During the twelve months ended December 31, 2000, the Partnership expended approximately $67,000 for capital improvements at Carriage House Apartments primarily consisting of floor covering and appliance replacements and air conditioning upgrades. These improvements were funded from operating cash flow. The Partnership is currently evaluating the capital improvement needs of the property for the upcoming year. The minimum amount to be budgeted is expected to be $275 per unit or $28,050. Additional improvements may be considered and will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. Nottingham Square Apartments During the twelve months ended December 31, 2000, the Partnership expended approximately $246,000 for capital improvements at Nottingham Square Apartments primarily consisting of floor covering and appliance replacements, air conditioning upgrades, and other building improvements. These improvements were funded from Partnership reserves and operating cash flow. The Partnership is currently evaluating the capital improvement needs of the property for the upcoming year. The minimum amount to be budgeted is expected to be $275 per unit or $121,550. Additional improvements may be considered and will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. Foxfire/Barcelona Apartments Prior to the sale of the property on November 14, 2000, the Partnership expended approximately $97,000 for capital improvements at Foxfire/Barcelona Apartments primarily consisting of floor covering replacements, plumbing enhancements and appliance replacements. These improvements were funded from operating cash flows. River Reach Apartments During the twelve months ended December 31, 2000, the Partnership expended approximately $576,000 for capital improvements at River Reach Apartments primarily consisting of floor covering and appliance replacements, interior decoration, air conditioning upgrades, major landscaping, plumbing enhancements, and swimming pool enhancements. These improvements were funded from Partnership reserves and operating cash flow. The Partnership is currently evaluating the capital improvement needs of the property for the upcoming year. The minimum amount to be budgeted is expected to be $275 per unit or $81,950. Additional improvements may be considered and will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. Village Gardens Apartments During the twelve months ended December 31, 2000, the Partnership expended approximately $121,000 for capital improvements at Village Gardens Apartments primarily consisting of floor covering and appliance replacements, plumbing enhancements, electrical upgrades, and water heater replacements. These improvements were funded from Partnership reserves and operating cash flow. The Partnership is currently evaluating the capital improvement needs of the property for the upcoming year. The minimum amount to be budgeted is expected to be $275 per unit or $38,775. Additional improvements may be considered and will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. The additional capital expenditures will be incurred only if cash is available from operations and Partnership reserves. To the extent that such budgeted capital improvements are completed, the Registrant's distributable cash flow, if any, may be adversely affected at least in the short term. Item 3. Legal Proceedings In March 1998, several putative unit holders of limited partnership units of the Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia Financial Group, Inc., et al. in the Superior Court of the State of California for the County of San Mateo. The plaintiffs named as defendants, among others, the Partnership, its Corporate General Partner and several of their affiliated partnerships and corporate entities. The action purports to assert claims on behalf of a class of limited partners and derivatively on behalf of a number of limited partnerships (including the Partnership) which are named as nominal defendants, challenging, among other things, the acquisition of interests in certain general partner entities by Insignia Financial Group, Inc. ("Insignia") and entities which were, at one time, affiliates of Insignia; past tender offers by the Insignia affiliates to acquire limited partnership units; management of the partnerships by the Insignia affiliates; and the Insignia Merger. The plaintiffs seek monetary damages and equitable relief, including judicial dissolution of the Partnership. On June 25, 1998, the Corporate General Partner filed a motion seeking dismissal of the action. In lieu of responding to the motion, the plaintiffs filed an amended complaint. The Corporate General Partner filed demurrers to the amended complaint which were heard February 1999. Pending the ruling on such demurrers, settlement negotiations commenced. On November 2, 1999, the parties executed and filed a Stipulation of Settlement, settling claims, subject to court approval, on behalf of the Partnership and all limited partners who owned units as of November 3, 1999. Preliminary approval of the settlement was obtained on November 3, 1999 from the Court, at which time the Court set a final approval hearing for December 10, 1999. Prior to the December 10, 1999 hearing, the Court received various objections to the settlement, including a challenge to the Court's preliminary approval based upon the alleged lack of authority of prior lead counsel to enter the settlement. On December 14, 1999, the Corporate General Partner and its affiliates terminated the proposed settlement. In February 2000, counsel for some of the named plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who negotiated the settlement. On June 27, 2000, the Court entered an order disqualifying them from the case and an appeal was taken from the order on October 5, 2000. On December 4, 2000, the Court appointed the law firm of Lieff Cabraser Heimann & Bernstein LLP as new lead counsel for plaintiffs and the putative class. Plaintiffs filed a third amended complaint on January 19, 2001. On March 2, 2001, the Corporate General Partner and its affiliates filed a demurrer to the third amended complaint. The Corporate General Partner does not anticipate that costs associated with this case will be material to the Partnership's overall operations. The Partnership is unaware of any other pending or outstanding litigation that is not of a routine nature arising in the ordinary course of business. Item 4. Submission of Matters to a Vote of Partners During the quarter ended December 31, 2000, no matter was submitted to a vote of unit holders through the solicitation of proxies or otherwise. PART II Item 5. Market for the Registrant's Common Equity and Related Security Holder Matters The Partnership, a publicly-held limited partnership, offered and sold 42,324 limited partnership units aggregating $42,324,000 inclusive of 100 units purchased by the Corporate General Partner. At December 31, 2000 the Partnership had 1,679 holders of record owning an aggregate of 42,324 Units. Affiliates of the Corporate General Partner owned 26,477 units or 62.56% at December 31, 2000. No public trading market has developed for the Units, and it is not anticipated that such a market will develop in the future. The following table sets forth the distributions made by the Partnership for the year ended October 31, 1999, the two month period ended December 31, 1999, the year ended December 31, 2000 and subsequent to December 31, 2000. Distributions Per Limited Aggregate Partnership Unit (in thousands) 11/1/98 - 10/31/99 $ 2,100 (1) $ 49.45 11/1/99 - 12/31/99 428 (2) 10.02 01/01/00 - 12/31/00 11,086 (3) 261.41 Subsequent to 12/31/00 2,144 (4) 50.35 (1) Consists of $688,000 of cash from operations to all partners and $1,412,000 to the limited partners of cash from previously undistributed surplus funds from a 1995 property sale. (2) Distribution was made from cash from operations to all partners. (3) Consists of approximately $2,200,000 of cash from operations to all partners, approximately $1,886,000 of cash from refinance proceeds of Village Gardens all to the limited partners and approximately $7,000,000 of cash from sale proceeds of Foxfire/Barcelona all to the limited partners. (4) Consists of approximately $1,305,000 of cash from operations to all partners and approximately $839,000 of additional sale proceeds of Foxfire/Barcelona all paid to the limited partners. Future cash distributions will depend on the levels of net cash generated from operations, the availability of cash reserves, and the timing of debt maturities, refinancings, and/or property sales. The Partnership's distribution policy is reviewed on a quarterly basis. There can be no assurance, however, that the Partnership will generate sufficient funds from operations after required capital expenditures to permit any additional distributions to its partners in 2001 or subsequent periods. In addition, the Partnership is restricted from making distributions if the amount in the reserve account for all of the properties, except Village Gardens, maintained by the mortgage lender is less than $400 per apartment unit at such property. The reserve accounts are currently fully funded. See "Item 6. Management's Discussion and Analysis or Plan of Operations" for information relating to anticipated capital expenditures at the properties. In addition to its indirect ownership of the general partner interest in the Partnership, AIMCO and its affiliates owned 26,477 limited partnership units in the Partnership representing approximately 62.56% of the outstanding units at December 31, 2000. A number of these units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will acquire additional limited partnership interests in the Partnership for cash or in exchange for units in the operating partnership of AIMCO either through private purchases or tender offers. In this regard, on February 8, 2001, AIMCO Properties, L.P., commenced a tender offer to acquire all of the Units not owned by affiliates of AIMCO for a purchase price of $531.00 per Unit. Pursuant to this offer, AIMCO acquired an additional 123 units resulting in its total ownership being increased to 26,600 units or 62.85% of the total outstanding units. Under the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters, which would include without limitation, voting on certain amendments to the Partnership Agreement and voting to remove the Corporate General Partner. As a result of its ownership of approximately 62.85% of the outstanding units, AIMCO is in a position to influence all voting decisions with respect to the Registrant. When voting on matters, AIMCO would in all likelihood vote the Units it acquired in a manner favorable to the interest of the Corporate General Partner because of their affiliation with the Corporate General Partner. Item 6. Management's Discussion and Analysis or Plan of Operation The matters discussed in this Form 10-KSB contain certain forward-looking statements and involve risks and uncertainties (including changing market conditions, competitive and regulatory matters, etc.) detailed in the disclosure contained in this Form 10-KSB and the other filings with the Securities and Exchange Commission made by the Registrant from time to time. The discussion of the Registrant's business and results of operations, including forward-looking statements pertaining to such matters, does not take into account the effects of any changes to the Registrant's business and results of operations. Accordingly, actual results could differ materially from those projected in the forward-looking statements as a result of a number of factors, including those identified herein. This item should be read in conjunction with the financial statements and other items contained elsewhere in this report. Results of Operations Year End December 31, 2000 vs Year End October 31, 1999 Effective November 1, 1999, the Partnership changed its fiscal year-end from October 31 to December 31. For comparative purposes, the years ended December 31, 2000 and October 31, 1999 are analyzed. The Partnership realized net income of approximately $8,211,000 for the year ended December 31, 2000 compared to net income of approximately $899,000 for the year ended October 31, 1999. The increase in net income is primarily due to the gain on sale of investment property in 2000, as discussed below, partially offset by an extraordinary loss on early extinguishment of debt in 2000, an increase in total expenses and a decrease in the cumulative effect on prior years of a change in accounting principle recognized at October 31, 1999. Excluding the impact of the operations and sale of Foxfire/Barcelona Apartments, the extraordinary loss on early extinguishment of debt and the cumulative effect on prior years of a change in accounting principle the Partnership had net income of approximately $367,000 for the year ended December 31, 2000, versus net income of approximately $121,000 for the year ended October 31, 1999. This increase is due to an increase in total revenues of approximately $705,000 partially offset by an increase in total expenses of approximately $459,000. Total revenues for the Partnership's remaining properties increased due to an increase in rental income and other income. Rental income increased due to an increase in average rental rates at all five of the Registrant's remaining properties and an increase in occupancy at three of the remaining investment properties. Other income increased primarily due to an increase in interest income as a result of higher average cash balances being maintained in interest-bearing accounts. Total expenses for the Partnership's remaining properties increased primarily due to an increase in operating, general and administrative, depreciation, and property tax expenses which were partially offset by a decrease in interest expense. Operating expense increased as a result of an increase in property expenses due to an increase in commissions and bonuses, increases in employee salaries and related employee benefits, and an increase in utilities at the Partnership's investment properties. General and administrative expenses increased as a result of an increase in costs associated with professional fees necessary to operate the Partnership and an increase in the costs of services included in the management reimbursements to the Corporate General Partner as allowed under the Partnership Agreement. Depreciation expense increased due to fixed assets placed into service during the last twelve months that are now being depreciated. Property tax expense increased due to the timing of the receipt of tax bills during 2000 and 1999 which affected the calculations of the appropriate tax accruals for the properties. Interest expense decreased as a result of scheduled principal payments made on the first mortgages encumbering the Partnership's properties. General and administrative expenses also include costs associated with the quarterly and annual communications with investors and regulatory agencies and the annual audit and appraisals required by the Partnership Agreement. On November 14, 2000, the Partnership sold Foxfire/Barcelona Apartments to an unaffiliated third party for $14,150,000. After payment of closing costs of approximately $226,000 the net proceeds received by the Partnership were approximately $13,924,000. The Partnership used some of the proceeds to pay off the mortgages encumbering the property of approximately $5,166,000. The sale of the property resulted in a gain on the sale during the fourth quarter of 2000 of approximately $8,067,000 and a loss on early extinguishment of debt of approximately $300,000 consisting of a prepayment penalty and the write-off of unamortized loan costs and mortgage discount. Two Months Ended December 31, 1999 vs Two Months Ended December 31, 1998 The Partnership realized net income of approximately $340,000 for the two months ended December 31, 1999, compared to net income of approximately $411,000 for the corresponding period in 1998. The decrease in net income for the two month period ended December 31, 1999, is primarily attributable to a cumulative effect on prior years of a change in accounting principle as of December 31, 1998 partially offset by an increase in total revenues and a decrease in total expenses for the two months ended December 31, 1999. Total revenues increased during the two month period ended December 31, 1999, as a result of an increase in rental income. Rental income increased due to the increase in average occupancy at three of the Partnership's investment properties and to an increase in average rental rates at all of the properties. The decrease in total expenses during the two month period ended December 31, 1999 is attributable to a decrease in depreciation, general and administrative, interest, and operating expenses. Depreciation decreased due to several assets at Rocky Creek and Village Gardens being fully depreciated. General and administrative expenses decreased due to a decrease in reimbursements to the Corporate General Partner and audit fees. Included in general and administrative expenses at both December 31, 1999 and 1998, are reimbursements to the Corporate General Partner allowed under the Partnership Agreement associated with the quarterly and annual communications with investors and regulatory agencies and the annual audit and appraisals required by the Partnership Agreement are also included. Interest expense decreased as a result of principal payments being made on the debt encumbering all of the Partnership's properties. Operating expenses decreased primarily due to decreases in interior building improvements and major landscaping partially offset by increased water and sewer expenses at Nottingham Square. Effective November 1, 1998, the Partnership changed its method of accounting to capitalize the cost of exterior painting and major landscaping. The Partnership believes that this accounting principle change is preferable because it provides a better matching of expenses with the related benefit of the expenditures and it is consistent with industry practice and the policies of the Corporate General Partner. The effect of the change in 1999 was to increase income before the change by approximately $186,000. The cumulative effect adjustment of approximately $253,000 is the result of applying the aforementioned change in accounting principle retroactively and is included in income for the two month period ended December 31, 1998 and the twelve month period ended October 31, 1999. The accounting principle change will not have an affect on cash flow, funds available for distribution or fees payable to the Corporate General Partner and affiliates. As part of the ongoing business plan of the Partnership, the Corporate General Partner monitors the rental market environment of each of its investment properties to assess the feasibility of increasing rents, maintaining or increasing occupancy levels and protecting the Partnership from increases in expense. As part of this plan, the Corporate General Partner attempts to protect the Partnership from the burden of inflation-related increases in expenses by increasing rents and maintaining a high overall occupancy level. However, due to changing market conditions, which can result in the use of rental concessions and rental reductions to offset softening market conditions, there is no guarantee that the Corporate General Partner will be able to sustain such a plan. Liquidity and Capital Resources At December 31, 2000, the Partnership had cash and cash equivalents of approximately $2,780,000 as compared to approximately $2,813,000 at October 31, 1999. The decrease in cash and cash equivalents of approximately $121,000 is due to approximately $15,832,000 of cash used in financing activities which was partially offset by approximately $12,684,000 of cash provided by investing activities, and approximately $3,027,000 of cash provided by operating activities. Cash used in financing activities consisted primarily of distributions to partners, repayment of mortgage notes payable, and to a lesser extent, payments of principal on the mortgages encumbering the Partnership's properties, the payment of loan costs and prepayment penalty partially offset by proceeds from the refinancing of Village Gardens Apartments. Cash provided by investing activities consisted of proceeds from the sale of Foxfire/Barcelona Apartments, which was partially offset by property improvements and replacements and net deposits to restricted escrows maintained by the mortgage lender. The Partnership invests its working capital reserves in interest bearing accounts. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the properties to adequately maintain the physical assets and other operating needs of the Registrant and to comply with Federal, state, and local legal and regulatory requirements. The minimum amount to be budgeted by the Partnership is expected to be $275 per unit or $303,325. Additional improvements may be considered and will depend on the physical condition of each property as well as replacement reserves and anticipated cash flow generated by each property. To the extent that such budgeted capital improvements are completed, the Registrant's distributable cash flow, if any, may be adversely affected at least in the short term. On December 15, 2000, the Partnership refinanced the mortgage encumbering Village Gardens Apartments. The refinancing replaced mortgage indebtedness of approximately $2,325,000 with a new mortgage of $4,518,000. The mortgage was refinanced at a rate of 7.22% compared to the prior rate of 7.60%. Payments of approximately $36,000 are due on the first day of each month until the loan matures on January 1, 2021, at which time the loan is expected to be fully amortized. Capitalized loan costs incurred for the refinancing were approximately $108,000. Prepayment penalties of approximately $83,000 and the write-off of unamortized loan costs and mortgage discount of approximately $69,000 resulted in an extraordinary loss on early extinguishment of debt of approximately $152,000. The Registrant's current assets are thought to be sufficient for any near-term needs (exclusive of capital improvements) of the Registrant. The mortgage indebtedness of approximately $21,735,000, net of discount, has maturity dates ranging from November 2002 to January 2021. The Corporate General Partner will attempt to refinance such indebtedness and/or sell the properties prior to such maturity date. If the properties cannot be refinanced or sold for a sufficient amount, the Registrant will risk losing such properties through foreclosure. During the year ended December 31, 2000, cash distributions of approximately $11,086,000 (approximately $11,064,000 to the limited partners or $261.41 per limited partnership unit) were paid to the partners. The distributions consisted of approximately $2,200,000 (approximately $2,178,000 to the limited partners or $51.46 per limited partnership unit) from operations $1,886,000 (approximately $44.56 per limited partnership unit) of cash from refinance proceeds of Village Gardens all to the limited partners and approximately $7,000,000 (approximately $165.39 per limited partnership unit) of cash from sale proceeds of Foxfire/Barcelona all to the limited partners. During the two months ended December 31, 1999, the Partnership distributed approximately $428,000 (approximately $424,000 to the limited partners or $10.02 per limited partnership unit) from operations. During the year ended October 31, 1999, the partnership distributed approximately $688,000 (approximately $681,000 to the limited partners or $16.09 per limited partnership unit) from operations and approximately $1,412,000 to the limited partners (approximately $33.36 per limited partnership unit) from 1995 sales proceeds. Subsequent to December 31, 2000 the Partnership declared and paid distributions which consisted of approximately $1,305,000 (approximately $1,292,000 to the limited partners or $30.53 per limited partnership unit) from operations and approximately $839,000 all paid to the limited partners (approximately $19.82 per limited partnership unit) of additional sale proceeds of Foxfire/Barcelona. Future cash distributions will depend on the levels of net cash generated from operations, the availability of cash reserves, and the timing of debt maturities, refinancings, and/or property sales. The Partnership's distribution policy is reviewed on a quarterly basis. There can be no assurance, however, that the Partnership will generate sufficient funds from operations after required capital expenditures to permit any additional distributions to its partners in 2001 or subsequent periods. In addition, the Partnership is restricted from making distributions if the amount in the reserve account for each property exclusive of Village Gardens maintained by the mortgage lender is less than $400 per apartment unit at such property. As of December 31, 2000, the Partnership has met the minimum reserve requirement. In addition to its indirect ownership of the general partner interest in the Partnership, AIMCO and its affiliates owned 26,477 limited partnership units in the Partnership representing approximately 62.56% of the outstanding units at December 31, 2000. A number of these units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will acquire additional limited partnership interests in the Partnership for cash or in exchange for units in the operating partnership of AIMCO either through private purchases or tender offers. In this regard, on February 8, 2001, AIMCO Properties, L.P., commenced a tender offer to acquire all of the Units not owned by affiliates of AIMCO for a purchase price of $531.00 per Unit. Pursuant to this offer, AIMCO acquired an additional 123 units resulting in its total ownership being increased to 26,600 units or 62.85% of the total outstanding units. Under the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters, which would include without limitation, voting on certain amendments to the Partnership Agreement and voting to remove the Corporate General Partner. As a result of its ownership of approximately 62.85% of the outstanding units, AIMCO is in a position to influence all voting decisions with respect to the Registrant. When voting on matters, AIMCO would in all likelihood vote the Units it acquired in a manner favorable to the interest of the Corporate General Partner because of their affiliation with the Corporate General Partner. Item 7. Financial Statements SHELTER PROPERTIES VI LIST OF FINANCIAL STATEMENTS Report of Ernst & Young LLP, Independent Auditors Balance Sheet - December 31, 2000 Statements of Operations - Years ended December 31, 2000 and October 31, 1999, and two months ended December 31, 1999 and 1998 (unaudited) Statements of Changes in Partners' (Deficit) Capital - Years ended December 31, 2000 and October 31, 1999, and two months ended December 31, 1999 and 1998 (unaudited) Statements of Cash Flows - Years ended December 31, 2000 and October 31, 1999 and two months ended December 31, 1999 and 1998 (unaudited) Notes to Financial Statements Report of Ernst & Young LLP, Independent Auditors The Partners Shelter Properties VI We have audited the accompanying balance sheet of Shelter Properties VI as of December 31, 2000, and the related statements of operations, changes in partners' (deficit) capital, and cash flows for the years ended December 31, 2000 and October 31, 1999, and for the two months ended December 31, 1999. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Partnership's management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Shelter Properties VI at December 31, 2000, and the results of its operations and its cash flows for the years ended December 31, 2000 and October 31, 1999 and for the two months ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. As discussed in Note J to the financial statements, the Partnership changed its method of accounting to capitalize the cost of exterior painting and major landscaping effective November 1, 1998. /s/ ERNST & YOUNG LLP Greenville, South Carolina March 15, 2001 SHELTER PROPERTIES VI BALANCE SHEET (in thousands, except unit data) December 31, 2000
Assets Cash and cash equivalents $ 2,780 Receivables and deposits 671 Restricted escrows 1,071 Other assets 301 Investment properties (Notes C and H): Land $ 3,759 Buildings and related personal property 40,428 44,187 Less accumulated depreciation (24,549) 19,638 $ 24,461 Liabilities and Partners' (Deficit) Capital Liabilities Accounts payable $ 425 Tenant security deposit liabilities 165 Accrued property taxes 554 Other liabilities 586 Mortgage notes payable (Note C) 21,735 Partners' (Deficit) Capital General partners $ (246) Limited partners (42,324 units issued and outstanding) 1,242 996 $ 24,461
SHELTER PROPERTIES VI STATEMENTS OF OPERATIONS (in thousands, except unit data)
Twelve Months Ended Two Months Ended December 31, October December 31, December 31, 31, 2000 1999 1999 1998 (unaudited) Revenues: Rental income $ 10,213 $ 9,972 $ 1,716 $ 1,623 Other income 836 757 123 135 Gain on sale of investment property 8,067 -- -- -- Total revenues 19,116 10,729 1,839 1,758 Expenses: Operating 4,419 4,295 655 669 General and administrative 523 399 29 52 Depreciation 2,282 2,165 295 338 Interest 2,244 2,331 375 391 Property taxes 985 893 145 150 Total expenses 10,453 10,083 1,499 1,600 Income before extraordinary item and cumulative effect of a change in accounting principle 8,663 646 340 158 Extraordinary loss on early extinguishment of debt (452) -- -- -- Income before cumulative effect of a a change in accounting principle 8,211 646 340 158 Cumulative effect on prior years of a change in accounting for the cost of exterior painting and major landscaping (Note J) -- 253 -- 253 Net income $ 8,211 $ 899 $ 340 $ 411 Net income allocated to general partners (1%) $ 82 $ 9 $ 3 $ 4 Net income allocated to limited partners (99%) 8,129 890 337 407 Net income $ 8,211 $ 899 $ 340 $ 411 Per limited partnership unit: Income before extraordinary item and cumulative effect of a change in accounting principle $ 202.64 $ 15.11 $ 7.96 $ 3.70 Extraordinary loss on debt extinguishment (10.57) -- -- -- Cumulative effect on prior years of a change in accounting for the cost of exterior painting and major landscaping -- 5.92 -- 5.92 Net income $ 192.07 $ 21.03 $ 7.96 $ 9.62 Distributions per limited partnership $ 261.41 $ 49.45 $ 10.02 $ 49.45
SHELTER PROPERTIES VI STATEMENTS OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL (in thousands, except unit data)
Limited Partnership General Limited Units Partners Partners Total Original capital contributions 42,324 $ 2 $42,324 $42,326 Partners' (deficit) capital at October 31, 1998 42,324 $ (307) $ 5,467 $ 5,160 Distribution to partners (7) (2,093) (2,100) Net income for the year ended October 31, 1999 -- 9 890 899 Partners' (deficit) capital at October 31, 1999 42,324 (305) 4,264 3,959 Distribution to partners (4) (424) (428) Net income for the two months ended December 31, 1999 -- 3 337 340 Partners' (deficit) capital at December 31, 1999 42,324 (306) 4,177 3,871 Distribution to partners (22) (11,064) (11,086) Net income for the year ended December 31, 2000 -- 82 8,129 8,211 Partners' (deficit) capital at December 31, 2000 42,324 $ (246) $ 1,242 $ 996
SHELTER PROPERTIES VI STATEMENTS OF CASH FLOWS (in thousands)
Twelve Months Ended Two Months Ended December October 31, December December 31, 31, 31, 2000 1999 1999 1998 (unaudited) Cash flows from operating activities: Net income $ 8,211 $ 899 $ 340 $ 411 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 2,282 2,165 295 338 Amortization of discounts and loan costs 343 296 41 47 Gain on sale of investment property (8,067) -- -- -- Extraordinary loss on early extinguishment of debt 452 -- -- -- Cumulative effect on prior year of a change in accounting principle -- (253) -- (253) Change in accounts: Receivables and deposits (9) 163 89 128 Other assets 23 (73) 103 4 Accounts payable (50) (64) (9) (89) Tenant security deposit liabilities (50) 5 1 2 Accrued taxes (101) (11) (111) (78) Other liabilities (7) 207 (164) 17 Net cash provided by operating 3,027 3,334 585 527 activities Cash flows from investing activities: Property improvements and replacements (935) (1,482) (328) (130) Net (deposits to) withdrawals from restricted escrows (305) 870 (10) 64 Proceeds from the sale of investment 13,924 -- -- -- property Net cash provided by (used in) investing activities 12,684 (612) (338) (66) Cash flows from financing activities: Payments on mortgage notes payable (986) (920) (159) (149) Repayments of mortgage notes payable (7,491) -- -- -- Proceeds from mortgage notes payable 4,518 -- -- -- Prepayment penalties (251) -- -- -- Loan costs paid (108) -- -- -- Distribution to partners (11,514) (2,100) -- (2,100) Net cash used in financing (15,832) (3,020) (159) (2,249) activities Net (decrease) increase in cash and cash equivalents (121) (298) 88 (1,788) Cash and cash equivalents at beginning of the year 2,901 3,111 2,813 3,111 Cash and cash equivalents at end of the $ 2,780 $ 2,813 $ 2,901 $ 1,323 year Supplemental disclosure of cash flow information: Cash paid for interest $ 1,927 $ 2,036 $ 334 $ 334 Supplemental disclosure of non-cash transaction: Distribution payable $ -- $ -- $ 428 $ -- Property improvements and replacements included in accounts payable $ 265 $ -- $ -- $ --
SHELTER PROPERTIES VI Note to Financial Statements December 31, 2000 Note A - Organization and Significant Accounting Policies Organization: Shelter Properties VI (the "Partnership" or "Registrant") was organized as a limited partnership under the laws of the State of South Carolina on August 3, 1983. The general partner responsible for management of the Partnership's business is Shelter Realty VI Corporation, a South Carolina corporation (the "Corporate General Partner"). The Corporate General Partner is a subsidiary of Apartment Investment and Management Company ("AIMCO") (see "Note B - Transfer of Control"). The only other general partner of the Partnership was N. Barton Tuck, Jr. Mr. Tuck was not an affiliate of the Corporate General Partner and was effectively prohibited by the partnership agreement (the "Partnership Agreement") from participating in the management of the Partnership. In June 1999, Mr. Tuck's general partner interest was purchased by AIMCO Properties, L.P., an affiliate of the Corporate General Partner and AIMCO. The directors and officers of the Corporate General Partner also serve as executive officers of AIMCO. The Partnership Agreement provides that the Partnership is to terminate on December 31, 2023 unless terminated prior to such date. The Partnership commenced operations on June 29, 1984, and completed its acquisition of apartment properties on March 28, 1985. The Partnership operates five apartment properties located in the South, Midwest and West. Uses of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles 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. Change in Fiscal Year End: On January 3, 2000, the Partnership elected to change its fiscal year end from October 31 to December 31, effective for the period ending December 31, 1999. Allocation of Cash Distributions: Cash distributions by the Partnership are allocated between general and limited partners in accordance with the provisions of the Partnership Agreement. The Partnership Agreement provides that net cash from operations means revenue received less operating expenses paid, adjusted for certain specified items which primarily include mortgage payments on debt, property improvements and replacements not previously reserved, and the effects of other adjustments to reserves. In the following notes to financial statements, whenever "net cash from (used by) operations" is used, it has the aforementioned meaning. The following is a reconciliation of the subtotal in the accompanying statements of cash flows captioned "net cash provided by operating activities" to "net cash from operations", as defined in the Partnership Agreement. However, "net cash from operations" should not be considered an alternative to net income as an indicator of the Partnership's operating performance or to cash flows as a measure of liquidity. SHELTER PROPERTIES VI Notes to Financial Statements (continued) Note A - Organization and Significant Accounting Policies (continued)
Twelve Months Ended Two Months Ended December 31, October 31, December 31, December 31, 2000 1999 1999 1998 (unaudited) (in thousands) (in thousands) Net cash provided by operating activities $ 3,027 $ 3,334 $ 585 $ 527 Payments on mortgage notes payable (986) (920) (159) (149) Property improvements and replacements (935) (1,482) (328) (130) Change in restricted escrows, net (305) 870 (10) 64 Changes in reserves for net operating liabilities 194 (227) 98 16 Release of additional operating reserves 310 (1,147) (186) (328) Net cash provided by operations $ 1,305 $ 428 $ -- $ --
During the twelve months ended December 31, 2000 the Corporate General Partner released previously reserved funds of approximately $310,000. The Corporate General Partner reserved approximately $1,147,000, $186,000 and $328,000 at October 31, 1999 and the two months ended December 31, 1999 and 1998, respectively, to fund capital improvements and repairs at its properties. The Partnership Agreement provides that 99% of distributions of net cash from operations are allocated to the limited partners until they receive net cash from operations for such fiscal year equal to 7% of their adjusted capital values (as defined in the Partnership Agreement), at which point the general partners will be allocated all net cash from operations until they have received distributions equal to 10% of the aggregate net cash from operations distributed to partners for such fiscal year. Thereafter, the general partners will be allocated 10% of any distributions of remaining net cash from operations for such fiscal year. All distributions of distributable net proceeds (as defined in the Partnership Agreement) from property dispositions and refinancings will be allocated to the limited partners until each limited partner has received an amount equal to a cumulative 7% per annum of the average of the limited partners' adjusted capital value, less any prior distributions of net cash from operations and distributable net proceeds, and has also received an amount equal to the limited partners' adjusted capital value. Thereafter, the general partners receive 1% of the selling price of properties sold where they acted as a broker, and then the limited partners will be allocated 85% of any remaining distributions of distributable net proceeds and the general partners will receive 15%. Distributions may be restricted by the requirement to deposit net operating income (as defined in the mortgage note) into the Reserve Account until the Reserve Account is funded in an amount equal to a minimum of $400 and a maximum of $1,000 per apartment unit for each respective property exclusive of Village Gardens for a total of approximately $385,000 to $962,000. As of December 31, 2000, the Partnership has deposits of approximately $923,000 in its Reserve Account. Allocation of Profits, Gains, and Losses: Profits, gains and losses of the Partnership are allocated between general and limited partners in accordance with the provisions of the Partnership Agreement. For any fiscal year, to the extent that profits, not including gains from property dispositions, do not exceed distributions of net cash from operations, such profits are allocated in the same manner as such distributions. In any fiscal year in which profits, not including gains from property dispositions, exceed distributions of net cash from operations, such excess is treated on a cumulative basis as if it constituted an equivalent of distributable net proceeds and is allocated together with, and in the same manner as, that portion of gain described in the second sentence of the following paragraph. Any gain from property dispositions attributable to the excess, if any, of the indebtedness relating to a property immediately prior to the disposition of such property over the Partnership's adjusted basis in the property shall be allocated to each partner having a negative capital account balance, to the extent of such negative balance. The balance of any gain shall be treated on a cumulative basis as if it constituted an equivalent amount of distributable net proceeds and shall be allocated to the general partners to the extent that general partners would have received distributable net proceeds in connection therewith; the balance shall be allocated to the limited partners. However, the interest of the general partners will be equal to at least 1% of each gain at all times during the existence of the Partnership. All losses, including losses attributable to property dispositions, are allocated 99% to the limited partners and 1% to the general partners. Accordingly, net income as shown in the statements of operations and changes in partners' (deficit) capital for all periods presented were allocated 99% to the limited partners and 1% to the general partners. Net income per limited partnership unit for each such period was computed as 99% of net income divided by 42,324 units outstanding. Cash and Cash Equivalents: Cash and cash equivalents include cash on hand, in banks, and money market accounts. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Cash balances include approximately $1,157,000 at December 31, 2000 that are maintained by the affiliated management company on behalf of affiliated entities in cash concentration accounts. Restricted Escrows: In relation to the mortgages at all five properties, the mortgage lenders have required a "Replacement Reserve" for certain capital improvements. These funds were established to cover necessary repairs and replacements of existing improvements, debt service, out of pocket expenses incurred for ordinary and necessary administrative tasks, and payment of real property taxes and insurance premiums. The Partnership is required to deposit net operating income (as defined in the mortgage note) from each property to the respective reserve account until the accounts equal the minimum balance of $400 for each respective property. At December 31, 2000, the balance was approximately $1,048,000. With the December 2000 refinancing of Village Gardens Apartments, the previous reserve requirement of $400 per apartment unit was released and the balance in these accounts of approximately $125,000 was returned to the Partnership subsequent to December 31, 2000. Capital Reserves: In connection with the December 2000 refinancing of Village Gardens Apartments approximately $24,000 of the net proceeds were placed in a capital reserve account to be used for property improvements as specified in the loan agreement. At December 31, 2000 the balance in this account was approximately $23,000. Other Reserves: The Corporate General Partner may also designate a portion of cash generated from operations as other reserves in determining net cash from operations. Per the Partnership Agreement, the Corporate General Partner designated as other reserves an amount equal to the net liabilities related to the operations of apartment properties during the current fiscal year that are expected to require the use of cash during the next fiscal year. The changes in other reserves for the year ending December 31, 2000 and October 31, 1999 was an increase of approximately $194,000 and a decrease of approximately $227,000, respectively. The changes in reserves for the two months ended December 31, 1999 and 1998 was an increase of approximately $98,000 and $16,000, respectively. These amounts were determined by considering changes in the balances of receivables and deposits, other assets, accounts payable, tenant security deposit liabilities, accrued proeprty taxes and other liabilities. At this time, the Corporate General Partner expects to continue to adjust other reserves based on the net change in the aforementioned account balances. Investment Properties: Investment properties consist of five apartment complexes and are stated at cost. Acquisition fees are capitalized as a cost of real estate. In accordance with Financial Accounting Standards Board Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", the Partnership records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. Costs of apartment properties that have been permanently impaired have been written down to appraised value. The Corporate General Partner relies on the annual appraisals performed by the outside appraisers for the estimated value of the Partnership's properties. There are three recognized approaches or techniques available to the appraiser. When applicable, these approaches are used to process the data considered significant to each to arrive at separate value indications. In all instances the experience of the appraiser, coupled with his objective judgment, plays a major role in arriving at the conclusions of the indicated value for which the final estimate of value is made. The three approaches commonly known are the cost approach, the sales comparison approach, and the income approach. The cost approach is often not considered to be reliable due to the lack of land sales and the significant amount of depreciation and, therefore, is often not presented. Upon receipt of the appraisals, any property which is stated on the books of the Partnership above the estimated value given in the appraisal, is written down to the estimated value given by the appraiser. The appraiser assumes a stabilized occupancy at the time of the appraisal and, therefore, any impairment of value is considered to be permanent by the Corporate General Partner. No adjustments for impairment of value were recorded in the years ended December 31, 2000 and October 31, 1999 or the two months ended December 31, 1999 and 1998. Depreciation: Depreciation is provided by the straight-line method over the estimated lives of the apartment properties and related personal property. For Federal income tax purposes, the accelerated cost recovery method is used (1) for real property over 15 years for the initial cost of Carriage House Apartments, 18 years for other additions acquired before May 9, 1985, and 19 years for additions after May 8, 1985, and before January 1, 1987, and (2) for personal property over 5 years for additions prior to January 1, 1987. As a result of the Tax Reform Act of 1986, for additions after December 31, 1986, the modified accelerated cost recovery method is used for depreciation of (1) real property additions over 27.5 years and (2) personal property additions over 7 years. Effective November 1, 1998, the Partnership changed its method of accounting to capitalize the cost of exterior painting and major landscaping (see "Note J"). Loan Costs: Loan costs of approximately $771,000, less accumulated amortization of approximately $536,000, are included in other assets and are being amortized on a straight-line basis over the life of the loans. Tenant Security Deposits: The Partnership requires security deposits from lessees for the duration of the lease and such deposits are included in receivables and deposits. Deposits are refunded when the tenant vacates, provided the tenant has not damaged its space and is current on its rental payments. Leases: The Partnership generally leases apartment units for twelve-month terms or less. The Partnership recognizes income as earned on its leases. In addition, the Corporate General Partner's policy is to offer rental concessions during particularly slow months or in response to heavy competition from other similar complexes in the area. Concessions are charged against rental income as incurred. Segment Reporting: Statement of Financial Standards ("SFAS") No. 131, "Disclosure about Segments of an Enterprise and Related Information" established standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. As defined in SFAS No. 131, the Partnership has only one reportable segment. The Corporate General Partner believes that segment-based disclosures will not result in a more meaningful presentation than the consolidated financial statements as currently presented. Advertising: The Partnership expenses the costs of advertising as incurred. Advertising expense, included in operating expense, was approximately $156,000 and $157,000 for the years ended December 31, 2000 and October 31, 1999, respectively. For the two months ended December 31, 1999 and 1998 advertising expense, included in operating expense, was approximately $24,000 for both periods. Fair Value of Financial Instruments: SFAS No. 107, "Disclosures about Fair Value of Financial Instruments", as amended by SFAS No. 119, "Disclosures about Derivative Financial Instruments and Fair Value of Financial Instruments", requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate fair value. Fair value is defined in the SFAS as the amount at which the instruments could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The Partnership believes that the carrying amount of its financial instruments (except for long term debt) approximates their fair value due to the short term maturity of these instruments. The fair value of the Partnership's long term debt, after discounting the scheduled loan payments at an estimated borrowing rate currently available to the Partnership, approximates its carrying balance. Note B - Transfer of Control Pursuant to a series of transactions which closed on October 1, 1998 and February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust merged into AIMCO, a publicly traded real estate investment trust, with AIMCO being the surviving corporation (the "Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in the Corporate General Partner. The Corporate General Partner does not believe that this transaction had had or will have a material effect on the affairs and operations of the Partnership. Note C - Mortgage Notes Payable
Principal Monthly Principal Balance At Payment Stated Balance December 31, Including Interest Maturity Due At Property 2000 Interest Rate Date Maturity (in thousands) (in thousands) Rocky Creek Apartments 1st mortgage $ 1,899 $ 19 7.60% 11/15/02 $ 1,737 2nd mortgage 74 (a) 7.60% 11/15/02 74 Carriage House Apartments 1st mortgage 1,751 17 7.60% 11/15/02 1,601 2nd mortgage 68 (a) 7.60% 11/15/02 68 Nottingham Square Apartments 1st mortgage 6,854 68 7.60% 11/15/02 6,268 2nd mortgage 268 2 7.60% 11/15/02 268 River Reach Apartments 1st mortgage 6,442 64 7.60% 11/15/02 5,890 2nd mortgage 252 2 7.60% 11/15/02 252 Village Garden Apartments 1st mortgage 4,518 36 7.22% 01/01/21 -- 22,126 $ 208 $16,158 Less unamortized discounts (391) Total $21,735
(a) Monthly payment including interest is less than $1,000. The Partnership exercised interest rate buy-down options for all of the properties except Village Gardens when the debt was refinanced in 1992, thereby, reducing the stated rate from 8.76% to 7.6%. The fee for the interest rate reduction amounted to approximately $1,535,000 and is being amortized as a loan discount on the interest method over the life of the loans. The unamortized discount fee is reflected as a reduction of the mortgage notes payable and increases the effective rate of the debt to 8.76%. On December 15, 2000, the Partnership refinanced the mortgage encumbering Village Gardens Apartments. The refinancing replaced mortgage indebtedness of approximately $2,325,000 with a new mortgage of $4,518,000. The mortgage was refinanced at a rate of 7.22% compared to the prior rate of 7.60%. Payments of approximately $36,000 are due on the first day of each month until the loan matures on January 1, 2021, at which time the loan is expected to be fully amortized. Capitalized loan costs incurred for the refinancing were approximately $108,000. Prepayment penalties of approximately $83,000 and the write-off of unamortized loan costs and mortgage discount of approximately $69,000 resulted in an extraordinary loss on early extinguishment of debt of approximately $152,000. The mortgage notes payable are non-recourse and are secured by pledge of the respective apartment properties and by pledge of revenues from the respective Note C - Mortgage Notes Payable (continued) apartment properties. The notes are subject to prepayment penalties if repaid prior to maturity. Further, the properties may not be sold subject to existing indebtedness. Scheduled principal payments of mortgage notes payable subsequent to December 31, 2000 are as follows (in thousands): 2001 $ 860 2002 16,956 2003 120 2004 129 2005 139 Thereafter 3,922 $22,126 Note D - Distributions During the year ended December 31, 2000, cash distributions of approximately $11,086,000 (approximately $11,064,000 to the limited partners or $261.41 per limited partnership unit) were paid to the partners. The distributions consisted of approximately $2,200,000 (approximately $2,178,000 to the limited partners or $51.46 per limited partnership unit) from operations, approximately $1,886,000 (approximately $44.56 per limited partnership unit) of cash from refinance proceeds of Village Gardens all to the limited partners and approximately $7,000,000 (approximately $165.39 per limited partnership unit) of cash from sale proceeds of Foxfire/Barcelona all to the limited partners. During the two months ended December 31, 1999, the Partnership distributed approximately $428,000 (approximately $424,000 to the limited partners or $10.02 per limited partnership unit) from operations. During the year ended October 31, 1999, the partnership distributed approximately $688,000 (approximately $681,000 to the limited partners or $16.09 per limited partnership unit) from operations and approximately $1,412,000 to the limited partners (approximately $33.36 per limited partnership unit) from 1995 sales proceeds. Subsequent to December 31, 2000 the Partnership declared and paid distributions which consisted of approximately $1,305,000 (approximately $1,292,000 to the limited partners or $30.53 per limited partnership unit) from operations and approximately $839,000 all paid to the limited partners (approximately $19.82 per limited partnership unit) of additional sale proceeds of Foxfire/Barcelona. Note E - Income Taxes The Partnership has received a ruling from the Internal Revenue Service that it will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss of the Partnership is reported in the income tax returns of its partners. The following is a reconciliation of reported net income and Federal taxable income (loss) (in thousands, except per unit data):
For The Twelve Months For The Two Months Ended Ended December 31, October 31, December 31, 2000 1999 1999 Net income as reported $ 8,211 $ 899 $ 340 Add (deduct): Amortization of present value discounts -- 9 (8) Depreciation differences 28 (264) (56) Change in prepaid rental income (190) 69 103 Cumulative effect on prior years of a change in accounting principle -- (253) 253 Other 2,401 9 (302) Federal taxable income (loss) $10,450 $ 469 $ 330 Federal taxable income (loss) per limited partnership unit $243.02 $ 10.96 $7.73
The following is a reconciliation between the Partnership's reported amounts and Federal tax basis of net assets and liabilities (in thousands): Net assets as reported $ 996 Land and buildings 960 Accumulated depreciation (10,485) Syndication 5,286 Other 141 Net liabilities - tax basis $ (3,102) Note F - Sale of Property On November 14, 2000, the Partnership sold Foxfire/Barcelona Apartments to an unaffiliated third party for $14,150,000. After payment of closing costs of approximately $226,000, the net proceeds received by the Partnership were approximately $13,924,000. The Partnership used some of the proceeds to pay off the mortgage encumbering the property of approximately $5,166,000. The sale of the property resulted in a gain on the sale during the fourth quarter of 2000 of approximately $8,067,000 and a loss on early extinguishment of debt of approximately $300,000 consisting of a prepayment penalty and the write-off of unamortized loan costs and mortgage discount. Pursuant to the Partnership Agreement and in connection with the sale, the Corporate General Partner is entitled to a commission of up to 1% for its assistance in the sale. Payment of such commission is subordinate to the limited partners receiving a cumulative 7% return on their investment. This return has not yet been met and accordingly, the $141,500 was accrued and unpaid at December 31, 2000. The following unaudited pro-forma information reflects the operations of the Partnership as if Foxfire/Barcelona had been sold November 1, 1998 (in thousands, except unit data): Twelve Months Ended December 31, October 31, 2000 1999 Revenues $ 8,898 $ 8,193 Income before extraordinary item and cumulative effect of a change in accounting principle Extraordinary loss on early extinguishment of debt (152) -- Income before cumulative effect of a change in accounting principle 215 121 Cumulative effect of change in accounting principle -- 253 Net income 215 374 Net income per limited partnership unit 5.03 8.74 Note G - Transactions with Affiliated Parties The Partnership has no employees and is dependent on the Corporate General Partner and its affiliates for the management and administration of all partnership activities. The Partnership Agreement provides for (i) certain payments to affiliates for services and (ii) reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. The following transactions with the Corporate General Partner and/or its affiliates were incurred during the years ended December 31, 2000 and October 31, 1999 and the two months ended December 31, 1999 and 1998:
Twelve Months Ended Two Months Ended December 31, October 31, December December 31, 31, 2000 1999 1999 1998 (unaudited) (in thousands) (in thousands) Property management fees (included in operating expense) $ 560 $ 543 $ 90 $ 87 Reimbursement for services of affiliates (included in operating, general and administrative expenses, and investment properties) 348 204 34 35 Fee to Corporate General Partner (included in loan costs) 45 -- -- -- Commission to Corporate General Partner (included in gain on sale of investment property and other liabilities) 142 -- -- --
Affiliates of the Corporate General Partner are entitled to receive 5% of gross receipts from all of the Registrant's properties as compensation for providing property management services. The Registrant paid to such affiliates approximately $560,000 and $543,000 during the years ended December 31, 2000 and October 31, 1999, respectively. The Registrant paid to such affiliates approximately $90,000 and $87,000 during the two months ended December 31, 1999 and 1998 (unaudited), respectively. Affiliates of the Corporate General Partner received reimbursement of accountable administrative expenses amounting to approximately $348,000 and $204,000 for the years ended December 31, 2000 and October 31, 1999, respectively. Affiliates of the Corporate General Partner received reimbursement of accountable administrative expenses amounting to approximately $34,000 and $35,000 for the two months ended December 31, 1999 and 1998 (unaudited), respectively. Pursuant to the Partnership Agreement and in connection with the sale of Foxfire/Barcelona Village, the Corporate General Partner is entitled to a commission of up to 1% for its assistance in the sale. Payment of such commission is subordinate to the limited partners receiving a cumulative 7% return on their investment. This return has not yet been met, and accordingly, the $141,500 was accrued and is included in other liabilities in the accompanying balance sheet at December 31, 2000. In connection with the December 2000 refinancing of the mortgage encumbering Village Gardens Apartments, the Corporate General Partner was entitled to a fee of 1% for its assistance in obtaining the financing. Accordingly, approximately $45,000 was paid to the Corporate General Partner in December 2000 and is included in capitalized loan costs in the accompanying balance sheet at December 31, 2000. In addition to its indirect ownership of the general partner interest in the Partnership, AIMCO and its affiliates owned 26,477 limited partnership units in the Partnership representing approximately 62.56% of the outstanding units at December 31, 2000. A number of these units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will acquire additional limited partnership interests in the Partnership for cash or in exchange for units in the operating partnership of AIMCO either through private purchases or tender offers. In this regard, on February 8, 2001, AIMCO Properties, L.P., commenced a tender offer to acquire all of the Units not owned by affiliates of AIMCO for a purchase price of $531.00 per Unit. Pursuant to this offer, AIMCO acquired an additional 123 units resulting in its total ownership being increased to 26,600 units or 62.85% of the total outstanding units. Under the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters, which would include without limitation, voting on certain amendments to the Partnership Agreement and voting to remove the Corporate General Partner. As a result of its ownership of approximately 62.85% of the outstanding units, AIMCO is in a position to influence all voting decisions with respect to the Registrant. When voting on matters, AIMCO would in all likelihood vote the Units it acquired in a manner favorable to the interest of the Corporate General Partner because of their affiliation with the Corporate General Partner. Note H - Real Estate and Accumulated Depreciation Initial Cost To Partnership (in thousands) Buildings Cost and Related Capitalized Personal Subsequent to Description Encumbrances Land Property Acquisition (in thousands) (in thousands) Rocky Creek Apartments $ 1,973 $ 168 $ 3,821 $ 762 Carriage House Apartments 1,819 166 3,038 954 Nottingham Square Apartments 7,122 1,133 9,980 4,370 River Reach Apartments Apartments 6,694 1,872 10,854 2,482 Village Garden Apartments 4,518 420 3,050 1,117 Totals $22,126 $ 3,759 $30,743 $ 9,685 Gross Amount At Which Carried At December 31, 2000 (in thousands)
Buildings And Related Date of Depreciable Personal Accumulated Construc- Date Life- Description Land Property Total Depreciation tion Acquired Years Rocky Creek Apartments Augusta, Georgia $ 168 $ 4,583 $4,751 $ 2,565 1979 06/29/84 5-35 Carriage House Apartments Gastonia, North Carolina 166 3,992 4,158 2,594 1970-1971 06/29/84 5-27 Nottingham Square Apartments Des Moines, Iowa 1,133 14,350 15,483 8,834 1972 08/31/84 5-29 River Reach Apartments Jacksonville, Florida 1,872 13,336 15,208 8,213 1971 01/30/85 5-27 Village Garden Apartments Fort Collins, Colorado 420 4,167 4,587 2,343 1974 03/01/85 5-30 Totals $ 3,759 $40,428 $44,187 $24,549
Reconciliation of "Investment Properties and Accumulated Depreciation" (in thousands):
Twelve Months Ended Two Months Ended December 31, October 31, December 31, December 31, 2000 1999 1999 1998 (unaudited) Investment Properties Balance at beginning of period $55,486 $53,423 $55,158 $53,423 Property improvements 1,200 1,482 328 130 Property dispositions (12,499) -- -- -- Cumulative effect on prior years of a change in accounting principle -- 253 -- 253 Balance at end of period $44,187 $55,158 $55,486 $53,806 Accumulated Depreciation Balance at beginning of period $29,198 $26,738 $28,903 $26,738 Additions charged to expense 2,282 2,088 295 338 Property dispositions (6,931) -- -- -- Cumulative effect on prior years of a change in accounting principle -- 77 -- -- Balance at end of period $24,549 $28,903 $29,198 $27,076
The aggregate cost of the real estate for Federal income tax purposes at December 31, 2000 and October 31, 1999 is approximately $45,147,000 and approximately $58,536,000, respectively. The accumulated depreciation taken for Federal income tax purposes at December 31, 2000 and October 31, 1999 is approximately $35,034,000 and approximately $44,054,000, respectively. Note I - Legal Proceedings In March 1998, several putative unit holders of limited partnership units of the Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia Financial Group, Inc., et al. in the Superior Court of the State of California for the County of San Mateo. The plaintiffs named as defendants, among others, the Partnership, its Corporate General Partner and several of their affiliated partnerships and corporate entities. The action purports to assert claims on behalf of a class of limited partners and derivatively on behalf of a number of limited partnerships (including the Partnership) which are named as nominal defendants, challenging, among other things, the acquisition of interests in certain general partner entities by Insignia Financial Group, Inc. ("Insignia") and entities which were, at one time, affiliates of Insignia; past tender offers by the Insignia affiliates to acquire limited partnership units; management of the partnerships by the Insignia affiliates; and the Insignia Merger. The plaintiffs seek monetary damages and equitable relief, including judicial dissolution of the Partnership. On June 25, 1998, the Corporate General Partner filed a motion seeking dismissal of the action. In lieu of responding to the motion, the plaintiffs filed an amended complaint. The Corporate General Partner filed demurrers to the amended complaint which were heard February 1999. Pending the ruling on such demurrers, settlement negotiations commenced. On November 2, 1999, the parties executed and filed a Stipulation of Settlement, settling claims, subject to court approval, on behalf of the Partnership and all limited partners who owned units as of November 3, 1999. Preliminary approval of the settlement was obtained on November 3, 1999 from the Court, at which time the Court set a final approval hearing for December 10, 1999. Prior to the December 10, 1999 hearing, the Court received various objections to the settlement, including a challenge to the Court's preliminary approval based upon the alleged lack of authority of prior lead counsel to enter the settlement. On December 14, 1999, the Corporate General Partner and its affiliates terminated the proposed settlement. In February 2000, counsel for some of the named plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who negotiated the settlement. On June 27, 2000, the Court entered an order disqualifying them from the case and an appeal was taken from the order on October 5, 2000. On December 4, 2000, the Court appointed the law firm of Lieff Cabraser Heimann & Bernstein LLP as new lead counsel for plaintiffs and the putative class. Plaintiffs filed a third amended complaint on January 19, 2001. On March 2, 2001, the Corporate General Partner and its affiliates filed a demurrer to the third amended complaint. The Corporate General Partner does not anticipate that costs associated with this case will be material to the Partnership's overall operations. The Partnership is unaware of any other pending or outstanding litigation that is not of a routine nature arising in the ordinary course of business. Note J - Change in Accounting Principle Effective November 1, 1998, the Partnership changed its method of accounting to capitalize the cost of exterior painting and major landscaping. The Partnership believes that this accounting principle change is preferable because it provides a better matching of expenses with the related benefit of the expenditures and it is consistent with industry practice and the policies of the Corporate General Partner. The effect of the change in 1999 was to increase income before the change by approximately $186,000 ($4.35 per limited partnership unit). The cumulative effect adjustment of approximately $253,000 is the result of applying the aforementioned change in accounting principle retroactively and is included in income for 1999. The accounting principle change will not have an affect on cash flow, funds available for distribution or fees payable to the Corporate General Partner and affiliates. The effect of the new method for each quarter of 1999 on net income and net income per limited partnership unit before the cumulative effect is as follows: Increase/(Decrease) in Per limited Net income partnership unit First Quarter 1999 $(19,000) $ (.44) Second Quarter 1999 (10,000) (.23) Third Quarter 1999 170,000 3.98 Fourth Quarter 1999 45,000 1.04 Item 8. Changes in and Disagreements with Accountant on Accounting and Financial Disclosures None. PART III Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act The Registrant has no officers or directors. The corporate general partner is Shelter Realty VI Corporation ("Corporate General Partner"). The names and ages of, as well as the position and offices held by, the present executive officers and director of the Corporate General Partner are set forth below. There are no family relationships between or among any officers or directors. Name Age Position Patrick J. Foye 43 Executive Vice President and Director Martha L. Long 41 Senior Vice President and Controller Patrick J. Foye has been Executive Vice President and Director of the Corporate General Partner since October 1, 1998. Mr. Foye has served as Executive Vice President of AIMCO since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Martha L. Long has been Senior Vice President and Controller of the Managing General Partner since October 1998 as a result of the acquisition of Insignia Financial Group, Inc. As of February 2001, Ms. Long was also appointed head of the service business for AIMCO. From June 1994 until January 1997, she was the Controller for Insignia, and was promoted to Senior Vice President - Finance and Controller in January 1997, retaining that title until October 1998. From 1988 to June 1994, Ms. Long was Senior Vice President and Controller for The First Savings Bank, FSB in Greenville, South Carolina. One or more of the above persons are also directors and/or officers of a general partner (or general partner of a general partner) of limited partnerships which either have a class of securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, or are subject to the reporting requirements of Section 15(d) of such Act. Further, one or more of the above persons are also directors and/or officers of Apartment Investment and Management Company and the general partner of AIMCO Properties, L.P., entities that have a class of securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, or are subject to the reporting requirements of Section 15 (d) of such Act. The executive officers and director of the Corporate General Partner fulfill the obligations of the Audit Committee and oversee the Partnership's financial reporting process on behalf of the Corporate General Partner. Management has the primary responsibility for the financial statements and the reporting process including the systems of internal controls. In fulfilling its oversight responsibilities, the executive officers and director of the Corporate General Partner reviewed the audited financial statements with management including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements. The executive officers and director of the Corporate General Partner reviewed with the independent auditors, who are responsible for expressing an opinion on the conformity of those audited financial statements with generally accepted accounting principles, their judgments as to the quality, not just the acceptability, of the Partnership's accounting principles and such other matters as are required to be discussed with the Audit Committee or its equivalent under generally accepted auditing standards. In addition, the Partnership has discussed with the independent auditors the auditors' independence from management and the Partnership including the matters in the written disclosures required by the Independence Standards Board and considered the compatibility of non-audit services with the auditors' independence. The executive officers and director of the Corporate General Partner discussed with the Partnership's independent auditors the overall scope and plans for their audit. In reliance on the reviews and discussions referred to above, the executive officers and director of the Corporate General Partner has approved the inclusion of the audited financial statements in the Form 10-KSB for the year ended December 31, 2000 for filing with the Securities and Exchange Commission. The Corporate General Partner has reappointed Ernst & Young LLP as independent auditors to audit the financial statements of the Partnership for the current fiscal year. Fees for the last fiscal year were annual audit services of approximately $59,000 and non-audit services (principally tax-related) of approximately $29,000. Item 10. Executive Compensation None of the directors and officers of the Corporate General Partner received any remuneration from the Registrant. Item 11. Security Ownership of Certain Beneficial Owners and Management Except as noted below, no person or entity was known by the Registrant to be the beneficial owner of more than 5% of the Limited Partnership Units of the Registrant as of December 31, 2000. Entity Number of Units Percentage Cooper River Properties, LLC (an affiliate of AIMCO) 3,364 7.95% Insignia Properties LP (an affiliate of AIMCO) 11,547 27.28% AIMCO Properties, L.P. (an affiliate of AIMCO) 11,566 27.33% Cooper River Properties LLC and Insignia Properties LP are directly ultimately owned by AIMCO. Their business address is 55 Beattie Place, Greenville, South Carolina 29602. AIMCO Properties, L.P. is indirectly ultimately owned by AIMCO. Their business address is 2000 South Colorado Boulevard, Denver, Colorado 80222. No director or officer of the Corporate General Partner owns any units. The Corporate General Partner owns 100 units as required by the terms of the Partnership Agreement. AIMCO Properties, L.P., the other general partner, acquired 2,696 units during the current fiscal year and an additional 123 units subsequent to December 31, 2000 increasing its ownership to 11,689 or 27.62% of the outstanding units. Item 12. Certain Relationships and Related Transactions The Partnership has no employees and is dependent on the Corporate General Partner and its affiliates for the management and administration of all partnership activities. The Partnership Agreement provides for (i) certain payments to affiliates for services and (ii) reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. The following transactions with the Corporate General Partner and/or its affiliates were incurred during the years ended December 31, 2000 and October 31, 1999 and the two months ended December 31, 1999 and 1998:
Twelve Months Ended Two Months Ended December 31, October 31, December December 31, 31, 2000 1999 1999 1998 (in thousands) Property management fees $ 560 $ 543 $ 90 $ 87 Reimbursement for services of 348 204 34 35 affiliates Fee to Corporate General Partner 45 -- -- -- Commission to Corporate General 142 -- -- -- Partner
Affiliates of the Corporate General Partner are entitled to receive 5% of gross receipts from all of the Registrant's properties as compensation for providing property management services. The Registrant paid to such affiliates approximately $560,000 and $543,000 during the years ended December 31, 2000 and October 31, 1999, respectively. The Registrant paid to such affiliates approximately $90,000 and $87,000 during the two months ended December 31, 1999 and 1998, respectively. Affiliates of the Corporate General Partner received reimbursement of accountable administrative expenses amounting to approximately $348,000 and $204,000 for the years ended December 31, 2000 and October 31, 1999, respectively. Affiliates of the Corporate General Partner received reimbursement of accountable administrative expenses amounting to approximately $34,000 and $35,000 for the two months ended December 31, 1999 and 1998. Pursuant to the Partnership Agreement and in connection with the sale of Foxfire/Barcelona Village, the Corporate General Partner is entitled to a commission of up to 1% for its assistance in the sale. Payment of such commission is subordinate to the limited partners receiving a cumulative 7% return on their investment. This return has not yet been met, and accordingly, the $141,500 was accrued and is included in other liabilities in the accompanying balance sheet at December 31, 2000. In connection with the December 2000 refinancing of the mortgage encumbering Village Gardens Apartments, the Corporate General Partner was entitled to a fee of 1% for its assistance in obtaining the financing. Accordingly, approximately $45,000 was paid to the Corporate General Partner in December 2000 and is included in capitalized loan costs in the accompanying balance sheet at December 31, 2000. In addition to its indirect ownership of the general partner interest in the Partnership, AIMCO and its affiliates owned 26,477 limited partnership units in the Partnership representing approximately 62.56% of the outstanding units at December 31, 2000. A number of these units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will acquire additional limited partnership interests in the Partnership for cash or in exchange for units in the operating partnership of AIMCO either through private purchases or tender offers. In this regard, on February 8, 2001, AIMCO Properties, L.P., commenced a tender offer to acquire all of the Units not owned by affiliates of AIMCO for a purchase price of $531.00 per Unit. Pursuant to this offer, AIMCO acquired an additional 123 units resulting in its total ownership being increased to 26,600 units or 62.85% of the total outstanding units. Under the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters, which would include without limitation, voting on certain amendments to the Partnership Agreement and voting to remove the Corporate General Partner. As a result of its ownership of approximately 62.85% of the outstanding units, AIMCO is in a position to influence all voting decisions with respect to the Registrant. When voting on matters, AIMCO would in all likelihood vote the Units it acquired in a manner favorable to the interest of the Corporate General Partner because of their affiliation with the Corporate General Partner. PART IV Item 13. Exhibits and Reports on Form 8-K (a) Exhibits: None. (b) Reports on Form 8-K filed during the fourth quarter of 2000: Agreement of Purchase and Sale dated November 14, 2000, between Shelter Properties VI and Lane Realty Advisors, Inc., relating to the sale of Foxfire-Barcelona Apartments filed December 14, 2000. Multifamily Note dated December 15, 2000 between Shelter Properties VI and Reilly Mortgage Group, Inc., a District of Columbia corporation, securing Village Garden Apartments filed February 1, 2001 related to refinancing. SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SHELTER PROPERTIES VI By: Shelter Realty VI Corporation Corporate General Partner By: /s/Patrick J. Foye Patrick J. Foye Executive Vice President By: /s/Martha L. Long Martha L. Long Senior Vice President and Controller Date: April 2, 2001 In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities on the date indicated. /s/Patrick J. Foye Executive Vice President Date: April 2, 2001 Patrick J. Foye and Director /s/Martha L. Long Senior Vice President Date: April 2, 2001 Martha L. Long and Controller SHELTER PROPERTIES VI EXHIBIT INDEX Exhibit Number Description of Exhibit 3 See Exhibit 4(a) 4 (a) Amended and Restated Certificate and Agreement of Limited Partnership (included as Exhibit A to the Prospectus of Registrant dated March 22, 1984 contained in Amendment No. 1 to Registration Statement No. 2-86995, of Registrant filed March 21, 1984 (the "Prospectus") and incorporated herein by reference.) (b) Subscription Agreement and Signature Page (included as Exhibits 4(A) and 4 (B) 8 to the Prospectus and incorporated herein by reference). 10(i) Contracts related to acquisition of properties. (a) Purchase Agreement dated March 19, 1984 between ICA-Broad Reach Limited Partnership and U.S. Shelter Corporation to acquire River Village Apartments.* (b) Purchase Agreement dated March 8, 1984 between Rocky Creek Associates Limited Partnership and U.S. Shelter Corporation to acquire Rocky Creek Apartments.* (c) Purchase Agreement dated January 16, 1984 between Carriage House Associates Limited Partnership and U.S. Shelter Corporation to acquire Carriage House Apartments.* *Filed as Exhibits 10(D) through 10(F), respectively, to Amendment No. 1 of Registration Statement No. 2-86995 of Registrant filed March 21, 1984 and incorporated herein by reference. (d) Purchase Agreement dated May 8, 1984 between Daniel Realty Corporation and U.S. Shelter Corporation to acquire Marble Hill Apartments. (Filed as Exhibit 10(G) to Post-Effective Amendment No, 1 of Registration Statement No. 2-86995 of Registrant filed June 25, 1984 and incorporated herein by reference.) (e) Purchase Agreement dated June 6, 1984 between Charleston Court Associates and U.S. Shelter Corporation to acquire Nottingham Square Apartments. (Filed as Exhibit 10(H) to Post-Effective Amendment No, 2 of Registration Statement No. 2-86995 of Registrant filed July 18, 1984 and incorporated herein by reference.) (f) Purchase Agreement dated July 10, 1984 between National Properties Investors II and U.S. Shelter Corporation to acquire Foxfire Apartments. (Filed as Exhibit 10(I) to Post-Effective Amendment No, 2 of Registration Statement No. 2-86995 of Registrant filed July 18, 1984 and incorporated herein by reference.) (g) Purchase Agreement dated August 24, 1984 between American Century Corporation and U.S. Shelter Corporation to acquire River Reach Apartments. (Filed as Exhibit 10(I) to Post-Effective Amendment No, 2 of Registration Statement No. 2-86995 of Registrant filed July 18, 1984 and incorporated herein by reference.) (h) Purchase Agreement dated January 7, 1985 between Village Garden Apartments Fort Collins and U.S. Shelter Corporation to acquire Village Garden Apartments. (Filed as Exhibit a(5) to Form 10-QSB for the Quarter ended January 31, 1985 filed March 14, 1985 and incorporated herein by reference. (i) Purchase Agreement dated January 18, 1985 between Barcelona Investors and U.S. Shelter Corporation to acquire Barcelona Apartments. (Filed as Exhibit a(6) to Form 10-QSB for the Quarter ended January 31, 1985 filed March 14, 1985 and incorporated herein by reference. (ii) Form of Management Agreement with U.S. Shelter Corporation subsequently assigned to Shelter Management Group, L.P. (now known as Insignia Management Group, L.P.). (Filed with Amendment No. 1 of Registration Statement No. 2-86995 of Registrant filed March 21, 1984 and incorporation herein by reference). (iii) Contracts related to refinancing of debt: (a) First Deeds of Trust and Security Agreements dated October 28, 1992 between Shelter Properties VI and Joseph Philip Forte (Trustee) and First Commonwealth Realty Credit Corporation, a Virginia Corporation, securing the following properties: Rocky Creek, Carriage House, Marble Hills Nottingham, Foxfire/Barcelona, River Reach and Village Garden.* (b) Second Deeds of Trust and Security Agreements dated October 28, 1992 between Shelter Properties VI and Joseph Philip Forte (Trustee) and First Commonwealth Realty Credit Corporation, a Virginia Corporation, securing the following properties: Rocky Creek, Carriage House, Marble Hills Nottingham, Foxfire/Barcelona, River Reach and Village Garden.* (c) First Assignments of Leases and Rents dated October 28, 1992 between Shelter Properties VI and Joseph Philip Forte (Trustee) and First Commonwealth Realty Credit Corporation, a Virginia Corporation, securing the following properties: Rocky Creek, Carriage House, Marble Hills, Nottingham, Foxfire/Barcelona, River Reach and Village Garden. (d) Second Assignment of Leases and Rents dated October 28, 1992 between Shelter Properties VI and Joseph Philip Forte (Trustee) and First Commonwealth Realty Credit Corporation, a Virginia Corporation, securing the following properties: Rocky Creek, Carriage House, Marble Hills, Nottingham, Foxfire/Barcelona, River Reach and Village Garden.* (e) First Deeds of Trust Notes dated October 28, 1992 between Shelter Properties VI and First Commonwealth Realty Credit Corporation, relating to the following properties: Rocky Creek, Carriage House, Marble Hills, Nottingham, Foxfire/Barcelona, River Reach and Village Garden.* (f) Second Deeds of Trust Notes dated October 28, 1992 between Shelter Properties VI and First Commonwealth Realty Credit Corporation, relating to the following properties: Rocky Creek, Carriage House, Marble Hills, Nottingham, Foxfire/Barcelona, River Reach and Village Garden.* (g) Multifamily Note dated December 15, 2000 between Shelter Properties VI and Reilly Mortgage Group, Inc., a District of Columbia corporation, securing Village Gardens Apartments. (h) Multifamily Deed of Trust, Assignment of Rents, and Security Agreement dated December 15, 2000 between Shelter VI and Reilly Mortgage Group, Inc., a District of Columbia corporation, securing Village Gardens Apartments. *Filed as Exhibits 10 (iii) a through 10(iii) f, respectively, to Form 10-KSB - Annual or Transitional Report filed January 29, 1993 and incorporated herein by reference. (iv) Contracts related to disposition of properties: (a) Agreement of Purchase and Sale dated June 2, 1995, between Shelter Properties VI and United Dominion Realty Trust, Inc., relating to Marble Hills Apartments. (b) Agreement of Purchase and Sale dated November 14, 2000, between Shelter Properties VI and Land Realty Advisors, Inc., relating to Foxfire-Barcelona Apartments. (Filed with Form 8K on December 14, 2000). -----END PRIVACY-ENHANCED MESSAGE-----