-----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, AJkfd9zwKStwzWLgxaGekFsNv4gZ9onuVo1dmHjDufpR4DC/NGA7eZwOOX3lOhQl WAweIVSqQtWcUxnRqPmZmQ== 0000711642-04-000054.txt : 20040329 0000711642-04-000054.hdr.sgml : 20040329 20040329143712 ACCESSION NUMBER: 0000711642-04-000054 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20031231 FILED AS OF DATE: 20040329 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: 1934 Act SEC FILE NUMBER: 000-13261 FILM NUMBER: 04695698 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 sp6.txt SP6 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-KSB (Mark One) [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2003 [] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 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. $5,334,000 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 December 31, 2003. 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 The matters discussed in this report contain certain forward-looking statements, including, without limitation, statements regarding future financial performance and the effect of government regulations. Actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors including, without limitation: national and local economic conditions; the terms of governmental regulations that affect the Registrant and interpretations of those regulations; the competitive environment in which the Registrant operates; financing risks, including the risk that cash flows from operations may be insufficient to meet required payments of principal and interest; real estate risks, including variations of real estate values and the general economic climate in local markets and competition for tenants in such markets; litigation, including costs associated with prosecuting and defending claims and any adverse outcomes, and possible environmental liabilities. Readers should carefully review the Registrant's financial statements and the notes thereto, as well as the risk factors described in the documents the Registrant files from time to time with the Securities and Exchange Commission. 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") a publicly traded real-estate investment trust. The other general partner is AIMCO Properties, L.P., an affiliate of the Corporate General Partner and AIMCO. Commencing March 22, 1984, the Partnership offered 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 pursuant to a Registration Statement filed with the Securities and Exchange Commission. 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 Partnership 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. Since its initial offering, the Partnership has not received, nor are limited partners required to make, additional capital contributions. The Partnership is engaged in the business of operating and holding real properties for investment. In 1984 and 1985 during its acquisition phase, the Partnership invested approximately $30,300,000 in eight existing apartment properties. The Partnership continues to own and operate four 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. The Partnership 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. Risk Factors 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. Laws benefiting disabled persons may result in the Partnership's incurrence of unanticipated expenses. Under the Americans with Disabilities Act of 1990, or ADA, all places intended to be used by the public are required to meet certain Federal requirements related to access and use by disabled persons. Likewise, the Fair Housing Amendments Act of 1988, or FHAA, requires apartment properties first occupied after March 13, 1990 to be accessible to the handicapped. These and other Federal, state and local laws may require modifications to the Partnership's properties, or restrict renovations of the properties. Noncompliance with these laws could result in the imposition of fines or an award of damages to private litigants and also could result in an order to correct any non-complying feature, which could result in substantial capital expenditures. Although the Corporate General Partner believes that the Partnership's properties are substantially in compliance with present requirements, the Partnership may incur unanticipated expenses to comply with the ADA and the FHAA. 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. Item 2. Description of Properties The following table sets forth the Partnership's investment in properties:
Date of Property Purchase Type of Ownership Use Rocky Creek Apartments 06/29/84 Fee ownership subject Apartment Augusta, Georgia to first mortgage 120 units Carriage House Apartments 06/29/84 Fee ownership subject Apartment Gastonia, North Carolina to first mortgage 102 units River Reach Apartments 01/30/85 Fee ownership subject Apartment Jacksonville, Florida to first mortgage 298 units Village Gardens Apartments 03/01/85 Fee ownership subject Apartment Fort Collins, Colorado to first mortgage 141 units
Schedule of Properties Set forth below for each of the Partnership's properties is the gross carrying value, accumulated depreciation, depreciable life, method of depreciation and Federal tax basis.
Gross Carrying Accumulated Depreciable Federal Property Value Depreciation Life Method Tax Basis (in thousands) (in thousands) Rocky Creek Apartments $ 5,001 $ 3,054 5-35 yrs SL $ 581 Carriage House Apartments 4,612 3,172 5-27 yrs SL 666 River Reach Apartments 16,542 10,172 5-27 yrs SL 3,473 Village Gardens Apartments 4,925 2,972 5-30 yrs SL 1,091 $31,080 $19,370 $ 5,811
See "Note A" in "Item 7. Financial Statements" for a description of the Partnership's capitalization and depreciation policies. Schedule of Property Indebtedness The following table sets forth certain information relating to the loans encumbering the Partnership's properties.
Principal Principal Balance At Balance December 31, Interest Period Maturity Due At Property 2003 Rate Amortized Date Maturity(1) (in thousands) (in thousands) Rocky Creek Apartments 1st mortgage $ 2,289 (2) 30 years 9/01/07 $ 2,063 Carriage House Apartments 1st mortgage 1,856 (2) 30 years 9/01/07 1,673 River Reach Apartments 1st mortgage 10,274 7.16% 20 years 06/01/22 -- Village Gardens Apartments 1st mortgage 4,190 7.22% 20 years 01/01/21 -- $18,609 $ 3,736
(1) See "Item 7. Financial Statements - Note B" for information with respect to the Partnership's ability to prepay these loans and other specific details about the loans. (2) Adjustable rate based on the Fannie Mae discounted mortgage-backed security index ("DMBS") plus 85 basis points. The rate at December 31, 2003 was 1.92%. On May 15, 2002, the Partnership refinanced the mortgages encumbering River Reach Apartments. The refinancing replaced the first mortgage of approximately $6,048,000 and the second mortgage of approximately $252,000 with a new mortgage in the amount of $10,654,000. The new mortgage carries a stated interest rate of 7.16% compared to the 7.60% interest rate on the old mortgages. Payments on the mortgage loan are due monthly until the loan matures on June 1, 2022, at which time it is scheduled to be fully amortized. Total capitalized loan costs were approximately $292,000 during the year ended December 31, 2002. Additional loan costs of approximately $10,000 were capitalized during the year ended December 31, 2003. The Partnership recognized a loss on the early extinguishment of debt of approximately $48,000 during the year ended December 31, 2002 due to the write off of unamortized loan costs and debt discounts. This amount has been included in interest expense. In addition, the Partnership was required to deposit approximately $100,000 in a repair escrow account with the lender in order to complete required repairs at the property and approximately $87,000 of this amount remains on deposit as of December 31, 2003 and is included in restricted escrows. On September 16, 2002, the Partnership refinanced the mortgages encumbering Rocky Creek and Carriage House Apartments. The refinancing of Rocky Creek Apartments loans replaced the first mortgage of approximately $1,753,000 and second mortgage of approximately $74,000 with a new mortgage in the amount of $2,340,000. Total capitalized loan costs were approximately $105,000 during the year ended December 31, 2002. Additional loan costs of approximately $3,000 were capitalized during the year ended December 31, 2003. The Partnership recognized a loss on the early extinguishment of debt of approximately $5,000 during the year ended December 31, 2002 due to the write off of unamortized loan costs and debt discounts. This amount is included in interest expense. The refinancing of the Carriage House Apartments loans replaced the first mortgage of approximately $1,616,000 and second mortgage of approximately $68,000 with a new mortgage in the amount of $1,898,000. Total capitalized loan costs were approximately $88,000 during the year ended December 31, 2002. Additional loan costs of approximately $3,000 were capitalized during the year ended December 31, 2003. The Partnership recognized a loss on the early extinguishment of debt of approximately $5,000 during the year ended December 31, 2002 due to the write off of unamortized loan costs and debt discounts. This amount is included in interest expense. In addition, the Partnership was required to deposit approximately $198,000 in a repair escrow account with the lender in order to complete required repairs at the property and approximately $160,000 of this amount remains on deposit as of December 31, 2003 and is included in restricted escrows. Initially the September 16, 2002 refinancings of the mortgages encumbering Rocky Creek and Carriage House Apartments were under an interim credit facility ("Interim Credit Facility") which also provided for the refinancing of several other properties. The Interim Credit Facility created separate loans for each property refinanced thereunder, which loans were not cross-collateralized or cross-defaulted with each other. During the term of the Interim Credit Facility, the properties were required to make interest-only payments. The first month's interest rate for the properties was 2.78%. During December 2002 the loans encumbering Rocky Creek and Carriage House Apartments were transferred to a different lender. The credit facility ("Permanent Credit Facility") with the new lender matures in September 2007 with an option for the Partnership to elect one five-year extension. This Permanent Credit Facility created separate loans for each property refinanced thereunder, which loans are not cross-collateralized or cross-defaulted with each other. Each note under this Permanent Credit Facility is initially a variable rate loan, and after three years, the Partnership has the option of converting the note to a fixed rate loan. The interest rate on the variable rate loans is the Fannie Mae discounted mortgage-backed security index plus 85 basis points (1.92% per annum at December 31, 2003), and the rate resets monthly. Each loan automatically renews at the end of each month. In addition, monthly principal payments are required based on a 30-year amortization schedule, using the interest rate in effect during the first month that the property is financed by the Permanent Credit Facility. The loans may be prepaid without penalty. On November 15, 2002, the Partnership refinanced the mortgages encumbering Nottingham Square Apartments. The refinancing replaced the first mortgage of approximately $6,296,000 and the second mortgage of approximately $268,000 with a new mortgage of approximately $10,300,000 under the Initial Credit Facility as discussed above. Total capitalized loan costs were approximately $238,000 at the time of the refinance. The Partnership recognized a loss on early extinguishment of debt of approximately $247,000 during the year ended December 31, 2002 due to the write off of all unamortized loan costs and debt discounts due to the sale of the property in December 2002 (see "Item 7. Financial Statements - Note F" for further discussion). This amount is included in income from discontinued operations. In addition, at the time of the refinance, the Partnership was required to deposit approximately $456,000 in a repair escrow account with the lender in order to complete required repairs at the property. These funds were returned to the Partnership during 2003. Rental Rates and Occupancy Average annual rental rates and occupancy for the years ended December 31, 2003 and 2002 for each property: Average Annual Rental Rates Average Annual (per unit) Occupancy Year Ended December 31, Year Ended December 31, 2003 2002 2003 2002 Rocky Creek Apartments $7,221 $6,976 95% 93% Carriage House Apartments (1) 7,273 7,524 85% 91% River Reach Apartments 9,563 9,402 96% 96% Village Gardens Apartments (2) 8,389 8,649 74% 90% (1) The Corporate General Partner attributes the decrease in average occupancy at Carriage House Apartments to difficult market conditions due to the sluggish economy. (2) The Corporate General Partner attributes the decrease in average occupancy at Village Gardens Apartments to military deployments, low mortgage interest rates, and a slow economy in Fort Collins, Colorado. 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 2003 for each property were as follows: 2003 2003 Billing Rate (in thousands) Rocky Creek Apartments $ 29 2.99% Carriage House Apartments 47 1.42% River Reach Apartments 254 1.86% Village Gardens Apartments 52 8.81% Capital Improvements Rocky Creek Apartments During the year ended December 31, 2003, the Partnership expended approximately $54,000 in capital improvements at Rocky Creek Apartments consisting primarily of floor covering replacements and plumbing enhancements. The improvements were funded from operating cash flow. The Partnership is currently evaluating the capital improvement needs of the property for the upcoming year and currently expects to budget approximately $66,000. Additional improvements may be considered in 2004 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 year ended December 31, 2003, the Partnership expended approximately $224,000 in capital improvements at Carriage House Apartments consisting primarily of floor covering and appliance replacements, electrical and air conditioning unit upgrades and reconstruction costs related to a fire at the property. These improvements were funded from operating cash flow, replacement reserves and insurance proceeds. The Partnership is currently evaluating the capital improvement needs of the property for the upcoming year and currently expects to budget approximately $56,000. Additional improvements may be considered in 2004 and will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. River Reach Apartments During the year ended December 31, 2003, the Partnership expended approximately $205,000 in capital improvements at River Reach Apartments consisting primarily of floor covering and air conditioning unit replacements, water/sewer and electrical upgrades, roof replacements and other structural improvements. These improvements were funded from operating cash flow. The Partnership is currently evaluating the capital improvement needs of the property for the upcoming year and currently expects to budget approximately $164,000. Additional improvements may be considered in 2004 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 year ended December 31, 2003, the Partnership expended approximately $97,000 in capital improvements at Village Gardens Apartments consisting primarily of floor covering replacements, interior painting and interior decoration. These improvements were funded from operating cash flow and replacement reserves. The Partnership is currently evaluating the capital improvement needs of the property for the upcoming year and currently expects to budget approximately $78,000. Additional improvements may be considered in 2004 and will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. 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. (the "Nuanes action") 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 purported to assert claims on behalf of a class of limited partners and derivatively on behalf of a number of limited partnerships (including the Partnership) that are named as nominal defendants, challenging, among other things, the acquisition of interests in certain Corporate General Partner entities by Insignia Financial Group, Inc. ("Insignia") and entities that 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 series of transactions which closed on October 1, 1998 and February 26, 1999 whereby Insignia and Insignia Properties Trust, respectively, were merged into AIMCO. The plaintiffs sought monetary damages and equitable relief, including judicial dissolution of the Partnership. In addition, during the third quarter of 2001, a complaint (the "Heller action") was filed against the same defendants that are named in the Nuanes action, captioned Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed a first amended complaint. The Heller action was brought as a purported derivative action, and asserted claims for, among other things, breach of fiduciary duty, unfair competition, conversion, unjust enrichment, and judicial dissolution. On January 8, 2003, the parties filed a Stipulation of Settlement in proposed settlement of the Nuanes action and the Heller action. In general terms, the proposed settlement provides for certification for settlement purposes of a settlement class consisting of all limited partners in this Partnership and others (the "Partnerships") as of December 20, 2002, the dismissal with prejudice and release of claims in the Nuanes and Heller litigation, payment by AIMCO of $9.9 million (which shall be distributed to settlement class members after deduction of attorney fees and costs of class counsel and certain costs of settlement) and up to $1 million toward the cost of independent appraisals of the Partnerships' properties by a Court appointed appraiser. An affiliate of the Corporate General Partner has also agreed to make at least one round of tender offers to purchase all of the partnership interests in the Partnerships within one year of final approval, if it is granted, and to provide partners with the independent appraisals at the time of these tenders. The proposed settlement also provided for the limitation of the allowable costs which the Corporate General Partner or its affiliates will charge the Partnerships in connection with this litigation and imposes limits on the class counsel fees and costs in this litigation. On April 11, 2003, notice was distributed to limited partners providing the details of the proposed settlement. On June 13, 2003, the Court granted final approval of the settlement and entered judgment in both the Nuanes and Heller actions. On August 12, 2003, an objector ("Objector") filed an appeal seeking to vacate and/or reverse the order approving the settlement and entering judgment thereto. On November 24, 2003, the Objector filed an application requesting the Court order AIMCO to withdraw settlement tender offers it had commenced, refrain from making further offers pending the appeal and auction any units tendered to third parties, contending that the offers did not conform with the terms of the Settlement. Counsel for the Objector (on behalf of another investor) had alternatively requested the Court take certain action purportedly to enforce the terms of the settlement agreement. On December 18, 2003, the Court heard oral argument on the motions and denied them both in their entirety. On January 28, 2004, Objector filed his opening brief in his pending appeal. The Corporate General Partner is currently scheduled to file a brief in support of the order approving settlement and entering judgment thereto by April 23, 2004. On August 8, 2003 AIMCO Properties L.P., an affiliate of the Corporate General Partner, was served with a Complaint in the United States District Court, District of Columbia alleging that AIMCO Properties L.P. willfully violated the Fair Labor Standards Act (FLSA) by failing to pay maintenance workers overtime for all hours worked in excess of forty per week. The Complaint is styled as a Collective Action under the FLSA and seeks to certify state subclasses in California, Maryland, and the District of Columbia. Specifically, the plaintiffs contend that AIMCO Properties L.P. failed to compensate maintenance workers for time that they were required to be "on-call". Additionally, the Complaint alleges AIMCO Properties L.P. failed to comply with the FLSA in compensating maintenance workers for time that they worked in responding to a call while "on-call". The Complaint also attempts to certify a subclass for salaried service directors who are challenging their classification as exempt from the overtime provisions of the FLSA. AIMCO Properties L.P. has filed an answer to the Complaint denying the substantive allegations. Discovery is currently underway. The Corporate General Partner does not anticipate that any costs to the Partnership, whether legal or settlement costs, associated with these cases will be material to the Partnership's overall operations. Item 4. Submission of Matters to a Vote of Partners During the quarter ended December 31, 2003, no matter was submitted to a vote of unitholders 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 (the "Units") aggregating $42,324,000 inclusive of 100 units purchased by the Corporate General Partner. At December 31, 2003, the Partnership had 1,488 holders of record owning an aggregate of 42,324 Units. Affiliates of the Corporate General Partner owned 28,375 Units or 67.04% at December 31, 2003. No public trading market has developed for the Units, and it is not anticipated that such a market will develop in the future. The Partnership distributed the following amounts during the years ended December 31, 2003 and 2002 (in thousands except per unit data):
Year Ended Per Limited Year Ended Per Limited December 31, Partnership December 31, Partnership 2003 Unit 2002 Unit Operations $ 1,441 $ 33.72 $ 406 $ 9.50 Sale (1) 1,328 31.37 8,019 189.46 Refinance (2) -- -- 7,443 175.86 $ 2,769 $ 65.09 $15,868 $374.82
(1) From the sale of Nottingham Square Apartments in 2002. (2) From the refinance of River Reach Apartments in May 2002 and Rocky Creek and Carriage House Apartments in September 2002 and Nottingham Square Apartments in November 2002. 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 cash available for distribution is reviewed on a monthly basis. There can be no assurance that the Partnership will generate sufficient funds from operations after required capital improvements to permit any distributions to its partners in 2004 or subsequent periods. See "Item 2. Description of Properties - Capital Improvements" for information relating to anticipated capital expenditures at the properties. In addition to its indirect ownership of the general partner interests in the Partnership, AIMCO and its affiliates owned 28,375 limited partnership units (the "Units") in the Partnership representing 67.04% of the outstanding Units at December 31, 2003. 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 Units in exchange for cash or a combination of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO, either through private purchases or tender offers. Pursuant to the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters that include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the Corporate General Partner. As a result of its ownership of 67.04% of the outstanding Units, AIMCO and its affiliates are in a position to control all voting decisions with respect to the Partnership. Although the Corporate General Partner owes fiduciary duties to the limited partners of the Partnership, the Corporate General Partner also owes fiduciary duties to AIMCO as its sole stockholder. As a result, the duties of the Corporate General Partner, as managing general partner, to the Partnership and its limited partners may come into conflict with the duties of the Corporate General Partner to AIMCO, as its sole stockholder. Item 6. Management's Discussion and Analysis or Plan of Operation This item should be read in conjunction with the financial statements and other items contained elsewhere in this report. Results of Operations The Partnership's net loss for the year ended December 31, 2003 totaled approximately $120,000 compared to net income of approximately $13,371,000 for the year ended December 31, 2002. The decrease in net income for the year ended December 31, 2003 is primarily due to the gain on sale of Nottingham Square Apartments during 2002, a decrease in income from continuing operations and a decrease in income from discontinued operations. On December 20, 2002, the Partnership sold Nottingham Square Apartments to an unaffiliated third party for $20,000,000. After payment of closing costs of approximately $327,000, the net proceeds received by the Partnership were approximately $19,673,000. The Partnership used a portion of the proceeds to repay the mortgage encumbering the property of approximately $10,300,000. The sale of the property resulted in a gain on the sale during the fourth quarter of 2002 of approximately $13,106,000. In addition, the Partnership recorded a loss on early extinguishment of debt of approximately $247,000, as a result of the write off of unamortized loan costs and debt discounts, which is included in income from discontinued operations. 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 with 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, approximately $200,000 was accrued and unpaid at December 31, 2003. Effective January 1, 2002, the Partnership adopted Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which established standards for the way that public business enterprises report information about long-lived assets that are either being held for sale or have already been disposed of by sale or other means. The standard requires that results of operations for a long-lived asset that is being held for sale or has already been disposed of be reported as a discontinued operation on the statement of operations. As a result, the accompanying statements of operations for the years ended December 31, 2003 and 2002 reflect the operations of Nottingham Square Apartments as income from discontinued operations due to the property's sale in December 2002. The income from discontinued operations of approximately $17,000 for the year ended December 31, 2003 includes a refund of property taxes of approximately $193,000 offset by additional costs of approximately $176,000 related to the sale of Nottingham Square Apartments. The Partnership recognized a loss from continuing operations of approximately $137,000 for the year ended December 31, 2003 compared to income from continuing operations of approximately $86,000 for the year ended December 31, 2002. The decrease in income from continuing operations for the year ended December 31, 2003 was due to a decrease in total revenues partially offset by a decrease in total expenses. Total revenues decreased due to decreases in rental and other income, partially offset by a casualty gain at Carriage House Apartments during the year ended December 31, 2003. Rental income decreased primarily due to a decrease in occupancy and average rental rates at Carriage House and Village Gardens Apartments, increased concession costs at all of the Partnership's properties and increased bad debt expenses at Carriage House and River Reach Apartments, partially offset by increased average rental rates at Rocky Creek and River Reach Apartments and increased occupancy at Rocky Creek Apartments. Other income decreased due to decreases in utility reimbursements and fees collected at Village Gardens Apartments. In August 2002, Carriage House Apartments experienced an electrical fire, causing damage to two units and an outside storage building. A casualty gain of approximately $19,000 was recorded during the year ended December 31, 2003, due to the receipt of insurance proceeds of approximately $25,000 net of the write off of undepreciated damaged assets of approximately $6,000. Total expenses for the year ended December 31, 2003 decreased due to decreases in interest and general and administrative expenses, partially offset by increases in operating, depreciation, and property tax expenses. Operating expenses increased due to increases in maintenance, property and advertising expenses. Maintenance expense increased primarily due to increased contract services at Village Gardens, Carriage House and River Reach Apartments. Property expense increased due to an increase in salaries and related benefits at River Reach and Village Gardens Apartments, partially offset by a decrease in salaries and related benefits at Carriage House Apartments. Advertising expenses increased due to increases in internet and newspaper advertising and referral fees at Village Gardens Apartments. Depreciation expense increased due to fixed asset additions during the past twelve months at the Partnership's properties. Property tax expense increased due to an increase in the assessed value of River Reach Apartments. Interest expense decreased primarily due to the refinancing of several of the Partnership's properties in 2002 resulting in loss on early extinguishment of debt included in interest expense in 2002 and lowered interest rates for 2003. General and administrative expenses decreased for the year ended December 31, 2003 due to a decrease in the costs of services included in management reimbursements to the Corporate General Partner allowed under the Partnership Agreement. Also included in general and administrative expenses at December 31, 2003 are costs associated with the quarterly and annual communications with investors and regulatory agencies and the annual audit required by the Partnership Agreement. 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 expenses. 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, the Corporate General Partner may use rental concessions and rental rate reductions to offset softening market conditions, accordingly, there is no guarantee that the Corporate General Partner will be able to sustain such a plan. Liquidity and Capital Resources At December 31, 2003, the Partnership had cash and cash equivalents of approximately $255,000 compared to approximately $2,041,000 at December 31, 2002. The decrease in cash and cash equivalents of approximately $1,786,000 is due to approximately $3,256,000 of cash used in financing activities, partially offset by approximately $1,454,000 and $16,000 of cash provided by operating and investing activities, respectively. Cash used in financing activities consisted of loan costs paid, principal payments on the mortgages encumbering the Partnership's properties and distributions to partners. Cash provided by investing activities consisted of withdrawals from restricted escrows maintained by the mortgage lenders and insurance proceeds received, partially offset by property improvements and replacements. 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 investment properties to adequately maintain the physical assets and other operating needs of the Partnership and to comply with Federal, state, and local legal and regulatory requirements. The Corporate General Partner monitors developments in the area of legal and regulatory compliance and is studying new federal laws, including the Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act of 2002 mandates or suggests additional compliance measures with regard to governance, disclosure, audit and other areas. In light of these changes, the Partnership expects that it will incur higher expenses related to compliance, including increased legal and audit fees. The Partnership is currently evaluating the capital improvement needs of its properties for 2004 and currently expects to budget approximately $364,000. 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 May 15, 2002, the Partnership refinanced the mortgages encumbering River Reach Apartments. The refinancing replaced the first mortgage of approximately $6,048,000 and the second mortgage of approximately $252,000 with a new mortgage in the amount of $10,654,000. The new mortgage carries a stated interest rate of 7.16% compared to the 7.60% interest rate on the old mortgages. Payments on the mortgage loan are due monthly until the loan matures on June 1, 2022, at which time it is scheduled to be fully amortized. Total capitalized loan costs were approximately $292,000 during the year ended December 31, 2002. Additional loan costs of approximately $10,000 were capitalized during the year ended December 31, 2003. The Partnership recognized a loss on the early extinguishment of debt of approximately $48,000 during the year ended December 31, 2002 due to the write off of unamortized loan costs and debt discounts. This amount has been included in interest expense. In addition, the Partnership was required to deposit approximately $100,000 in a repair escrow account with the lender in order to complete required repairs at the property and approximately $87,000 of this amount remains on deposit as of December 31, 2003 and is included in restricted escrows. On September 16, 2002, the Partnership refinanced the mortgages encumbering Rocky Creek and Carriage House Apartments. The refinancing of Rocky Creek Apartments loans replaced the first mortgage of approximately $1,753,000 and second mortgage of approximately $74,000 with a new mortgage in the amount of $2,340,000. Total capitalized loan costs were approximately $105,000 during the year ended December 31, 2002. Additional loan costs of approximately $3,000 were capitalized during the year ended December 31, 2003. The Partnership recognized a loss on the early extinguishment of debt of approximately $5,000 during the year ended December 31, 2002 due to the write off of unamortized loan costs and debt discounts. This amount is included in interest expense. The refinancing of the Carriage House Apartments loans replaced the first mortgage of approximately $1,616,000 and second mortgage of approximately $68,000 with a new mortgage in the amount of $1,898,000. Total capitalized loan costs were approximately $88,000 during the year ended December 31, 2002. Additional loan costs of approximately $3,000 were capitalized during the year ended December 31, 2003. The Partnership recognized a loss on the early extinguishment of debt of approximately $5,000 during the year ended December 31, 2002 due to the write off of unamortized loan costs and debt discounts. This amount is included in interest expense. In addition, the Partnership was required to deposit approximately $198,000 in a repair escrow account with the lender in order to complete required repairs at the property and approximately $160,000 of this amount remains on deposit as of December 31, 2003 and is included in restricted escrows. Initially the September 16, 2002 refinancings of the mortgages encumbering Rocky Creek and Carriage House Apartments were under an interim credit facility ("Interim Credit Facility") which also provided for the refinancing of several other properties. The Interim Credit Facility created separate loans for each property refinanced thereunder, which loans were not cross-collateralized or cross-defaulted with each other. During the term of the Interim Credit Facility, the properties were required to make interest-only payments. The first month's interest rate for the properties was 2.78%. During December 2002 the loans encumbering Rocky Creek and Carriage House Apartments were transferred to a different lender. The credit facility ("Permanent Credit Facility") with the new lender matures in September 2007 with an option for the Partnership to elect one five-year extension. This Permanent Credit Facility created separate loans for each property refinanced thereunder, which loans are not cross-collateralized or cross-defaulted with each other. Each note under this Permanent Credit Facility is initially a variable rate loan, and after three years, the Partnership has the option of converting the note to a fixed rate loan. The interest rate on the variable rate loans is the Fannie Mae discounted mortgage-backed security index plus 85 basis points (1.92% per annum at December 31, 2003), and the rate resets monthly. Each loan automatically renews at the end of each month. In addition, monthly principal payments are required based on a 30-year amortization schedule, using the interest rate in effect during the first month that the property is financed by the Permanent Credit Facility. The loans may be prepaid without penalty. On November 15, 2002, the Partnership refinanced the mortgages encumbering Nottingham Square Apartments. The refinancing replaced the first mortgage of approximately $6,296,000 and the second mortgage of approximately $268,000 with a new mortgage of approximately $10,300,000 under the Initial Credit Facility as discussed above. Total capitalized loan costs were approximately $238,000 at the time of the refinance. The Partnership recognized a loss on early extinguishment of debt of approximately $247,000 during the year ended December 31, 2002 due to the write off of unamortized loan costs and debt discounts due to the sale of the property in December 2002. This amount is included in income from discontinued operations. In addition, at the time of the refinance the Partnership was required to deposit approximately $456,000 in a repair escrow account with the lender in order to complete required repairs at the property. These funds were returned to the Partnership during 2003. The Partnership's assets are thought to be sufficient for any near term needs (exclusive of capital improvements) of the Partnership. The mortgages encumbering River Reach and Village Gardens Apartments aggregating approximately $14,464,000 mature in June 2022 and January 2021, respectively, at which time the mortgages are scheduled to be fully amortized. The mortgages encumbering Rocky Creek and Carriage House Apartments aggregating approximately $4,145,000 have a maturity of September 1, 2007 at which time balloon payments totaling approximately $3,736,000 are due. The Corporate General Partner has the option to extend the maturity on the Rocky Creek and Carriage House Apartments loans for another five years. After that period the Corporate General Partner will attempt to refinance such indebtedness and/or sell the properties prior to the optional extended maturity date. If the properties cannot be refinanced or sold, the Partnership will risk losing such properties through foreclosure. The Partnership distributed the following amounts during the years ended December 31, 2003 and 2002 (in thousands except per unit data):
Year Ended Per Limited Year Ended Per Limited December 31, Partnership December 31, Partnership 2003 Unit 2002 Unit Operations $ 1,441 $ 33.72 $ 406 $ 9.50 Sale (1) 1,328 31.37 8,019 189.46 Refinance (2) -- -- 7,443 175.86 $ 2,769 $ 65.09 $15,868 $374.82
(1) From the sale of Nottingham Square Apartments in 2002. (2) From the refinance of River Reach Apartments in May 2002 and Rocky Creek and Carriage House Apartments in September 2002 and Nottingham Square Apartments in November 2002. 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 cash available for distribution is reviewed on a monthly basis. There can be no assurance that the Partnership will generate sufficient funds from operations, after required capital improvements, to permit any distributions to its partners during 2004 or subsequent periods. Other In addition to its indirect ownership of the general partner interests in the Partnership, AIMCO and its affiliates owned 28,375 limited partnership units (the "Units") in the Partnership representing 67.04% of the outstanding Units at December 31, 2003. 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 Units in exchange for cash or a combination of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO, either through private purchases or tender offers. Pursuant to the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters that include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the Corporate General Partner. As a result of its ownership of 67.04% of the outstanding Units, AIMCO and its affiliates are in a position to control all voting decisions with respect to the Partnership. Although the Corporate General Partner owes fiduciary duties to the limited partners of the Partnership, the Corporate General Partner also owes fiduciary duties to AIMCO as its sole stockholder. As a result, the duties of the Corporate General Partner, as managing general partner, to the Partnership and its limited partners may come into conflict with the duties of the Corporate General Partner to AIMCO, as its sole stockholder. Critical Accounting Policies and Estimates A summary of the Partnership's significant accounting policies is included in "Note A - Organization and Significant Accounting Policies" which is included in the financial statements in "Item 7. Financial Statements". The Corporate General Partner believes that the consistent application of these policies enables the Partnership to provide readers of the financial statements with useful and reliable information about the Partnership's operating results and financial condition. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the Partnership to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements as well as reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Judgments and assessments of uncertainties are required in applying the Partnership's accounting policies in many areas. The following may involve a higher degree of judgment and complexity. Impairment of Long-Lived Assets Investment properties are recorded at cost, less accumulated depreciation, unless considered impaired. If events or circumstances indicate that the carrying amount of a property may be impaired, the Partnership will make an assessment of its recoverability by estimating the undiscounted future cash flows, excluding interest charges, of the property. If the carrying amount exceeds the aggregate future cash flows, the Partnership would recognize an impairment loss to the extent the carrying amount exceeds the fair value of the property. Real property investments are subject to varying degrees of risk. Several factors may adversely affect the economic performance and value of the Partnership's investment properties. These factors include, but are not limited to, changes in national, regional and local economic climate; local conditions, such as an oversupply of multifamily properties; competition from other available multifamily property owners and changes in market rental rates. Any adverse changes in these factors could cause impairment of the Partnership's assets. Revenue Recognition The Partnership generally leases apartment units for twelve-month terms or less. Rental income attributable to leases is recognized monthly as it is earned. The Partnership evaluates all accounts receivable from residents and establishes an allowance, after the application of security deposits, for accounts greater than 30 days past due on current tenants and all receivables due from former tenants. The Partnership will offer rental concessions during particularly slow months or in response to heavy competition from other similar complexes in the area. Any concessions given at the inception of the lease are amortized over the life of the lease. Item 7. Financial Statements SHELTER PROPERTIES VI LIST OF FINANCIAL STATEMENTS Report of Ernst & Young LLP, Independent Auditors Balance Sheet - December 31, 2003 Statements of Operations - Years ended December 31, 2003 and 2002 Statements of Changes in Partners' Deficit - Years ended December 31, 2003 and 2002 Statements of Cash Flows - Years ended December 31, 2003 and 2002 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, 2003, and the related statements of operations, changes in partners' deficit, and cash flows for each of the two years in the period ended December 31, 2003. 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, 2003, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States. /s/ERNST & YOUNG LLP Greenville, South Carolina February 27, 2004 SHELTER PROPERTIES VI BALANCE SHEET (in thousands, except unit data) December 31, 2003
Assets Cash and cash equivalents $ 255 Receivables and deposits 178 Restricted escrows 247 Other assets 606 Investment properties (Notes B & E): Land $ 2,613 Buildings and related personal property 28,467 31,080 Less accumulated depreciation (19,370) 11,710 $ 12,996 Liabilities and Partners' Deficit Liabilities Accounts payable $ 103 Tenant security deposit liabilities 91 Accrued property taxes 91 Other liabilities 580 Due to Affiliates (Note D) 258 Mortgage notes payable (Note B) 18,609 Partners' Deficit General partners $ (16) Limited partners (42,324 units issued and outstanding) (6,720) (6,736) $ 12,996 See Accompanying Notes to Financial Statements
SHELTER PROPERTIES VI STATEMENTS OF OPERATIONS (in thousands, except per unit data)
Year Ended December 31, 2003 2002 Revenues: Rental income $ 4,895 $ 5,183 Other income 420 448 Casualty gain (Note G) 19 -- Total revenues 5,334 5,631 Expenses: Operating 2,341 2,163 General and administrative 272 393 Depreciation 1,292 1,257 Interest 1,189 1,388 Property taxes 377 344 Total expenses 5,471 5,545 (Loss) income from continuing operations (137) 86 Income from discontinued operations (Note A) 17 179 Gain on sale of discontinued operations (Note F) -- 13,106 Net (loss) income (Note C) $ (120) $13,371 Net (loss) income allocated to general partners $ (1) $ 260 Net (loss) income allocated to limited partners (119) 13,111 $ (120) $13,371 Per limited partnership unit: (Loss) income from continuing operations $ (3.21) $ 2.01 Income from discontinued operations 0.40 4.18 Gain on sale of discontinued operations -- 303.59 Net (loss) income per limited partnership $ (2.81) $309.78 Distributions per limited partnership unit $ 65.09 $374.82 See Accompanying Notes to Financial Statements
SHELTER PROPERTIES VI STATEMENTS OF CHANGES IN PARTNERS' DEFICIT (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 at December 31, 2001 42,324 $ (257) $ (1,093) $ (1,350) Distributions to partners -- (4) (15,864) (15,868) Net income for the year ended December 31, 2002 -- 260 13,111 13,371 Partners' deficit at December 31, 2002 42,324 (1) (3,846) (3,847) Distributions to partners -- (14) (2,755) (2,769) Net loss for the year ended December 31, 2003 -- (1) (119) (120) Partners' deficit at December 31, 2003 42,324 $ (16) $ (6,720) $ (6,736) See Accompanying Notes to Financial Statements
SHELTER PROPERTIES VI STATEMENTS OF CASH FLOWS (in thousands)
Year Ended December 31, 2003 2002 Cash flows from operating activities: Net (loss) income $ (120) $ 13,371 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation 1,292 1,867 Amortization of discounts and loan costs 64 205 Loss on early extinguishment of debt -- 305 Casualty gain (19) -- Gain on sale of investment property -- (13,106) Change in accounts: Receivables and deposits 87 (93) Other assets (9) 3 Accounts payable (149) (83) Tenant security deposit liabilities 4 (69) Accrued taxes 29 (510) Due to affiliates (84) -- Other liabilities 359 (171) Net cash provided by operating activities 1,454 1,719 Cash flows from investing activities: Property improvements and replacements (514) (1,301) Net withdrawals from restricted escrows 505 160 Insurance proceeds received 25 -- Proceeds from the sale of investment property -- 19,673 Net cash provided by investing activities 16 18,532 Cash flows from financing activities: Repayment of mortgage notes payable -- (26,675) Proceeds from mortgage notes payable -- 25,192 Loan costs paid (16) (723) Payments on mortgage notes payable (471) (701) Distributions to partners (2,769) (15,868) Advances from affiliates -- 481 Repayment of advances from affiliates -- (481) Net cash used in financing activities (3,256) (18,775) Net (decrease) increase in cash and cash equivalents (1,786) 1,476 Cash and cash equivalents at beginning of the year 2,041 565 Cash and cash equivalents at end of the year $ 255 $ 2,041 Supplemental disclosure of cash flow information: Cash paid for interest $ 1,132 $ 1,661 Property improvements and replacements included in accounts payable $ 66 $ -- See Accompanying Notes to Financial Statements
SHELTER PROPERTIES VI NOTE TO FINANCIAL STATEMENTS December 31, 2003 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"), a publicly traded real estate investment trust. The non-corporate general partner is AIMCO Properties, L.P., an affiliate of the Corporate General Partner and 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 four apartment properties located in Georgia, North Carolina, Florida and Colorado at December 31, 2003. Uses of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 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 defines net cash from operations as 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 provided by operations" is used, it has the aforementioned meaning. As required by the Partnership Agreement, the following is a reconciliation of "Net cash provided by operating activities" in the accompanying statement of cash flows to "Net cash provided by operations", as defined in the Partnership Agreement. However, "Net cash provided by 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. Years Ended December 31, 2003 2002 (in thousands) Net cash provided by operating activities $ 1,454 $ 1,719 Payments on mortgage notes payable (471) (701) Property improvements and replacements (514) (1,301) Change in restricted escrows, net 505 160 Changes in reserves for net operating liabilities (237) 923 Additional reserves (737) (800) Net cash provided by operations $ -- $ -- The Corporate General Partner reserved approximately $737,000 and $800,000 during the years ended December 31, 2003 and 2002, respectively. 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%. 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 years ending December 31, 2003 and 2002 was a decrease of approximately $237,000 and an increase of approximatley $923,000, respectively. These amounts were determined by considering changes in the balances of receivables and deposits, other assets, accounts payable, tenant security deposit liabilities, accrued property taxes, due to affiliate 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. 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. Cash and Cash Equivalents: Cash and cash equivalents include cash on hand and in banks. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Cash balances include approximately $176,000 at December 31, 2003 that are maintained by an affiliated management company on behalf of affiliated entities in cash concentration accounts. Restricted Escrows: In connection with the December 2000 refinancing of Village Gardens Apartments and the 2002 refinancings of Carriage House, River Reach and Nottingham Square Apartments approximately $778,000 of the net proceeds were placed in capital reserve accounts to be used for property improvements as specified in the loan agreements. At December 31, 2003 the balance in these accounts was approximately $247,000. Investment Properties: Investment properties consist of four apartment complexes and are stated at cost. Acquisition fees are capitalized as a cost of real estate. Expenditures in excess of $250 that maintain an existing asset which has a useful life of more than one year are capitalized as capital replacement expenditures and depreciated over the estimated useful life of the asset. Expenditures for ordinary repairs, maintenance and apartment turnover costs are expensed as incurred. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", 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. No adjustments for impairment of value were recorded in the years ended December 31, 2003 or 2002. 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 for real property over 18 years for additions acquired before May 9, 1985, and 19 years for additions after May 8, 1985, and before 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. Loan Costs: Loan costs of approximately $623,000, less accumulated amortization of approximately $91,000, are included in other assets and are being amortized by the straight-line method over the life of the loans. Amortization expense for 2003 was approximately $64,000 and is included in interest expense. Amortization expense is expected to be approximately $61,000 for each of the years 2004 through 2006 and approximately $53,000 and $21,000 for 2007 and 2008, respectively. 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. Rental income attributable to leases is recognized monthly as it is earned. The Partnership evaluates all accounts receivable from residents and establishes an allowance, after the application of security deposits, for accounts greater than 30 days past due on current tenants and all receivables due from former tenants. The Partnership will offer rental concessions during particularly slow months or in response to heavy competition from other similar complexes in the area. Any concessions given at the inception of the lease are amortized over the life of the lease. Segment Reporting: SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information" established standards for the way 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. Advertising: The Partnership expenses the costs of advertising as incurred. Advertising expense, included in operating expense, was approximately $108,000 and $87,000 for the years ended December 31, 2003 and 2002, respectively. 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 amounts of its financial instruments (except for long term debt) approximate their fair values due to the short term maturity of these instruments. The fair value of the Partnership's long term debt at the Partnership's incremental borrowing rate is approximately $19,788,000. Recent Accounting Pronouncements: Effective January 1, 2002, the Partnership adopted Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which established standards for the way that business enterprises report information about long-lived assets that are either being held for sale or have already been disposed of by sale or other means. The standard requires that results of operations for a long-lived asset that is being held for sale or has already been disposed of be reported as a discontinued operation on the statement of operations. As a result, the accompanying statements of operations for the years ended December 31, 2003 and 2002 reflect the operations of Nottingham Square Apartments as income from discontinued operations due to the sale of Nottingham Square in December 2002 (see "Note F" for further discussion). Note B - Mortgage Notes Payable
Principal Monthly Principal Balance At Payment Stated Balance December 31, Including Interest Maturity Due At Property 2003 Interest Rate Date Maturity (in thousands) (in thousands) Rocky Creek Apartments 1st mortgage $ 2,289 $ 9 (1) 09/01/07 $ 2,063 Carriage House Apartments 1st mortgage 1,856 7 (1) 09/01/07 1,673 River Reach Apartments 1st mortgage 10,274 84 7.16% 06/01/22 -- Village Gardens Apartments Apartments 1st mortgage 4,190 36 7.22% 01/01/21 -- $18,609 $ 136 $ 3,736
(1) Adjustable rate based on Fannie Mae discounted mortgage-backed security index plus 85 basis points. The rate at December 31, 2003 was 1.92%. On May 15, 2002, the Partnership refinanced the mortgages encumbering River Reach Apartments. The refinancing replaced the first mortgage of approximately $6,048,000 and the second mortgage of approximately $252,000 with a new mortgage in the amount of $10,654,000. The new mortgage carries a stated interest rate of 7.16% compared to the 7.60% interest rate on the old mortgages. Payments on the mortgage loan are due monthly until the loan matures on June 1, 2022, at which time it is scheduled to be fully amortized. Total capitalized loan costs were approximately $292,000 during the year ended December 31, 2002. Additional loan costs of approximately $10,000 were capitalized during the year ended December 31, 2003. The Partnership recognized a loss on the early extinguishment of debt of approximately $48,000 during the year ended December 31, 2002 due to the write off of unamortized loan costs and debt discounts. This amount has been included in interest expense. In addition, the Partnership was required to deposit approximately $100,000 in a repair escrow account with the lender in order to complete required repairs at the property and approximately $87,000 of this amount remains on deposit as of December 31, 2003 and is included in restricted escrows. On September 16, 2002, the Partnership refinanced the mortgages encumbering Rocky Creek and Carriage House Apartments. The refinancing of Rocky Creek Apartments loans replaced the first mortgage of approximately $1,753,000 and second mortgage of approximately $74,000 with a new mortgage in the amount of $2,340,000. Total capitalized loan costs were approximately $105,000 during the year ended December 31, 2002. Additional loan costs of approximately $3,000 were capitalized during the year ended December 31, 2003. The Partnership recognized a loss on the early extinguishment of debt of approximately $5,000 during the year ended December 31, 2002 due to the write off of unamortized loan costs and debt discounts. This amount is included in interest expense. The refinancing of the Carriage House Apartments loans replaced the first mortgage of approximately $1,616,000 and second mortgage of approximately $68,000 with a new mortgage in the amount of $1,898,000. Total capitalized loan costs were approximately $88,000 during the year ended December 31, 2002. Additional loan costs of approximately $3,000 were capitalized during the year ended December 31, 2003. The Partnership recognized a loss on the early extinguishment of debt of approximately $5,000 during the year ended December 31, 2002 due to the write off of unamortized loan costs and debt discounts. This amount is included in interest expense. In addition, the Partnership was required to deposit approximately $198,000 in a repair escrow account with the lender in order to complete required repairs at the property and approximately $160,000 of this amount remains on deposit as of December 31, 2003 and is included in restricted escrows. Initially the September 16, 2002 refinancings of the mortgages encumbering Rocky Creek and Carriage House Apartments were under an interim credit facility ("Interim Credit Facility") which also provided for the refinancing of several other properties. The Interim Credit Facility created separate loans for each property refinanced thereunder, which loans were not cross-collateralized or cross-defaulted with each other. During the term of the Interim Credit Facility, the properties were required to make interest-only payments. The first month's interest rate for the properties was 2.78%. During December 2002 the loans encumbering Rocky Creek and Carriage House Apartments were transferred to a different lender. The ("Permanent Credit Facility") credit facility with the new lender matures in September 2007 with an option for the Partnership to elect one five-year extension. This Permanent Credit Facility created separate loans for each property refinanced thereunder, which loans are not cross-collateralized or cross-defaulted with each other. Each note under this Permanent Credit Facility is initially a variable rate loan, and after three years, the Partnership has the option of converting the note to a fixed rate loan. The interest rate on the variable rate loans is the Fannie Mae discounted mortgage-backed security index plus 85 basis points (1.92% per annum at December 31, 2003), and the rate resets monthly. Each loan automatically renews at the end of each month. In addition, monthly principal payments are required based on a 30-year amortization schedule, using the interest rate in effect during the first month that the property is financed by the Permanent Credit Facility. The loans may be prepaid without penalty. On November 15, 2002, the Partnership refinanced the mortgages encumbering Nottingham Square Apartments. The refinancing replaced the first mortgage of approximately $6,296,000 and the second mortgage of approximately $268,000 with a new mortgage of approximately $10,300,000 under the Initial Credit Facility as discussed above. Total capitalized loan costs were approximately $238,000 at the time of the refinance. The Partnership recognized a loss on early extinguishment of debt of approximately $247,000 during the year ended December 31, 2002 due to the write off of unamortized loan costs and debt discounts due to the sale of the property in December 2002 (see "Note F" for further discussion). This amount is included in income from discontinued operations. In addition, at the time of the refinance, the Partnership was required to deposit approximately $456,000 in a repair escrow account with the lender in order to complete required repairs at the property. These funds were returned to the Partnership during 2003. 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 apartment properties. The notes on River Reach and Village Gardens Apartments 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, 2003 are as follows (in thousands): 2004 $ 510 2005 542 2006 577 2007 4,330 2008 541 Thereafter 12,109 $18,609 Note C - 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 (loss) income and Federal taxable income (in thousands, except per unit data): For The Twelve Months Ended December 31, 2003 2002 Net (loss) income as reported $ (120) $13,371 Add (deduct): Amortization of present value discounts -- 91 Depreciation differences 687 268 Change in prepaid rental income 12 (36) Casualty gain (19) -- Gain on disposal (100) 2,884 Other (25) 146 Federal taxable income $ 435 $16,724 Federal taxable income per limited partnership unit $ 10.18 $392.91 The following is a reconciliation between the Partnership's reported amounts and Federal tax basis of net assets and liabilities (in thousands): Net liabilities as reported $(6,736) Land and buildings (132) Accumulated depreciation (5,767) Syndication 5,286 Other 491 Net liabilities - tax basis $(6,858) Note D - 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. Affiliates of the Corporate General Partner are entitled to receive 5% of gross receipts from all of the Partnership's properties as compensation for providing property management services. The Partnership paid to such affiliates approximately $259,000 and $459,000 during the years ended December 31, 2003 and 2002, respectively, which is included in operating expenses and income from discontinued operations. Affiliates of the Corporate General Partner received reimbursement of accountable administrative expenses amounting to approximately $198,000 and $386,000 for the years ended December 31, 2003 and 2002, respectively, which is included in general and administrative expenses and investment properties. For the year ended December 31, 2003, the first three quarter were based on estimated amounts and in the fourth quarter of 2003, the reimbursements of accountable administrative costs were adjusted based on actual costs (see "Note H"). Included in these amounts are fees related to construction management services provided by an affiliate of the Corporate General Partner of approximately $21,000 and $84,000 for the years ended December 31, 2003 and 2002, respectively. The construction management service fees are calculated based on a percentage of additions to investment properties. Pursuant to the Partnership Agreement and in connection with the sale of Foxfire/Barcelona Village during 2000 and Nottingham Square Apartments in December 2002, 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 combined fees of approximately $342,000 have been accrued and are included in due to affiliates in the accompanying balance sheet at December 31, 2003. Subsequent to the year ended December 31, 2003, an affiliate of the Corporate General Partner advanced the Partnership approximately $250,000 to cover additional costs related to the sale of Nottingham Square Apartments. During the year ended December 31, 2002, the Partnership paid an affiliate of the Corporate General Partner approximately $252,000 for brokerage fees associated with the refinancing of River Reach, Rocky Creek, Carriage House, and Nottingham Square Apartments. Approximately $103,000 paid for Nottingham Square was written off when the property was sold (see "Note F"). Approximately $149,000 paid for River Reach, Rocky Creek and Carriage House Apartments is included in other assets as loan costs on the accompanying balance sheet. During the year ended December 31, 2002, the Corporate General Partner advanced the Partnership funds to cover expenses related to the refinancing of River Reach and Carriage House Apartments totaling approximately $481,000. These advances were repaid by the Partnership prior to December 31, 2002. Interest was charged at prime plus 1%. Interest expense on these advances was approximately $1,000 for the year ended December 31, 2002. The Partnership insures its properties up to certain limits through coverage provided by AIMCO which is generally self-insured for a portion of losses and liabilities related to workers compensation, property casualty and vehicle liability. The Partnership insures its properties above the AIMCO limits through insurance policies obtained by AIMCO from insurers unaffiliated with the Corporate General Partner. During the years ended December 31, 2003 and 2002, the Partnership was charged by AIMCO and its affiliates approximately $75,000 and $142,000, respectively, for insurance coverage and fees associated with policy claims administration. In addition to its indirect ownership of the general partner interests in the Partnership, AIMCO and its affiliates owned 28,375 limited partnership units (the "Units") in the Partnership representing 67.04% of the outstanding Units at December 31, 2003. 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 Units in exchange for cash or a combination of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO, either through private purchases or tender offers. Pursuant to the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters that include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the Corporate General Partner. As a result of its ownership of 67.04% of the outstanding Units, AIMCO and its affiliates are in a position to control all voting decisions with respect to the Partnership. Although the Corporate General Partner owes fiduciary duties to the limited partners of the Partnership, the Corporate General Partner also owes fiduciary duties to AIMCO as its sole stockholder. As a result, the duties of the Corporate General Partner, as managing general partner, to the Partnership and its limited partners may come into conflict with the duties of the Corporate General Partner to AIMCO, as its sole stockholder. Note E - 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 $ 2,289 $ 168 $ 3,821 $ 1,012 Carriage House Apartments 1,856 166 3,038 1,408 River Reach Apartments 10,274 1,872 10,854 3,816 Village Gardens Apartments 4,190 420 3,050 1,455 Totals $18,609 $ 2,626 $20,763 $ 7,691
Gross Amount At Which Carried At December 31, 2003 (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 $ 4,833 $5,001 $ 3,054 1979 06/29/84 5-35 Carriage House Apartments Gastonia, North Carolina 153 4,459 4,612 3,172 1970-1971 06/29/84 5-27 River Reach Apartments Jacksonville, Florida 1,872 14,670 16,542 10,172 1971 01/30/85 5-27 Village Gardens Apartments Fort Collins, Colorado 420 4,505 4,925 2,972 1974 03/01/85 5-30 Totals $2,613 $28,467 $31,080 $19,370
Reconciliation of "investment properties and accumulated depreciation" (in thousands): Twelve Months Ended December 31, 2003 2002 Investment Properties Balance at beginning of period $ 30,520 $ 45,710 Property improvements 580 1,162 Disposal of property (20) -- Sale of Nottingham Square Apartments -- (16,352) Balance at end of period $ 31,080 $ 30,520 Accumulated Depreciation Balance at beginning of period $ 18,092 $ 26,332 Additions charged to expense 1,292 1,867 Disposal of property (14) -- Sale of Nottingham Square Apartments -- (10,107) Balance at end of period $ 19,370 $ 18,092 The aggregate cost of the real estate for Federal income tax purposes at December 31, 2003 and 2002 is approximately $30,948,000 and $30,447,000, respectively. The accumulated depreciation taken for Federal income tax purposes at December 31, 2003 and 2002 is approximately $25,137,000 and $24,513,000, respectively. Note F - Sale of Investment Property On December 20, 2002, the Partnership sold Nottingham Square Apartments to an unaffiliated third party for $20,000,000. After payment of closing costs of approximately $327,000, the net proceeds received by the Partnership were approximately $19,673,000. The Partnership used a portion of the proceeds to repay the mortgage encumbering the property of approximately $10,300,000. The sale of the property resulted in a gain on the sale during the fourth quarter of 2002 of approximately $13,106,000. In addition, the Partnership recorded a loss on early extinguishment of debt of approximately $247,000, as a result of the write off of unamortized loan costs and debt discounts, which is included in income from discontinued operations. 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 with 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, approximately $200,000 was accrued and unpaid at December 31, 2003 related to this sale. The income from discontinued operations of approximately $17,000 for the year ended December 31, 2003 includes a refund of property taxes of approximately $193,000 offset by additional costs of approximately $176,000 related to the sale of Nottingham Square Apartments. Note G - Casualty Event In August 2002, Carriage House Apartments experienced an electrical fire, causing damage to two units and an outside storage building. A casualty gain of approximately $19,000 was recorded during the year ended December 31, 2003, due to the receipt of insurance proceeds of approximately $25,000 net of the write off of undepreciated damaged assets of approximately $6,000. Note H - Fourth Quarter Adjustment The Partnership's policy is to record management reimbursements to the Corporate General Partner as allowed under the Partnership Agreement on a quarterly basis, using estimated financial information furnished by an affiliate of the Corporate General Partner. For the first three quarters of 2003, these reimbursements of accountable administrative expenses were based on estimated amounts. During the fourth quarter of 2003, the Partnership recorded an adjustment to management reimbursements to the General Partner of approximately $84,000 due to a difference in the estimated costs and the actual costs incurred. The actual management reimbursements to the Corporate General Partner for the year ended December 31, 2003 were approximately $178,000, as compared to the estimated management reimbursements to the General Partner for the nine months ended September 30, 2003 of approximately $196,000. 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. (the "Nuanes action") 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 purported to assert claims on behalf of a class of limited partners and derivatively on behalf of a number of limited partnerships (including the Partnership) that are named as nominal defendants, challenging, among other things, the acquisition of interests in certain Corporate General Partner entities by Insignia Financial Group, Inc. ("Insignia") and entities that 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 series of transactions which closed on October 1, 1998 and February 26, 1999 whereby Insignia and Insignia Properties Trust, respectively, were merged into AIMCO. The plaintiffs sought monetary damages and equitable relief, including judicial dissolution of the Partnership. In addition, during the third quarter of 2001, a complaint (the "Heller action") was filed against the same defendants that are named in the Nuanes action, captioned Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed a first amended complaint. The Heller action was brought as a purported derivative action, and asserted claims for, among other things, breach of fiduciary duty, unfair competition, conversion, unjust enrichment, and judicial dissolution. On January 8, 2003, the parties filed a Stipulation of Settlement in proposed settlement of the Nuanes action and the Heller action. In general terms, the proposed settlement provides for certification for settlement purposes of a settlement class consisting of all limited partners in this Partnership and others (the "Partnerships") as of December 20, 2002, the dismissal with prejudice and release of claims in the Nuanes and Heller litigation, payment by AIMCO of $9.9 million (which shall be distributed to settlement class members after deduction of attorney fees and costs of class counsel and certain costs of settlement) and up to $1 million toward the cost of independent appraisals of the Partnerships' properties by a Court appointed appraiser. An affiliate of the Corporate General Partner has also agreed to make at least one round of tender offers to purchase all of the partnership interests in the Partnerships within one year of final approval, if it is granted, and to provide partners with the independent appraisals at the time of these tenders. The proposed settlement also provided for the limitation of the allowable costs which the Corporate General Partner or its affiliates will charge the Partnerships in connection with this litigation and imposes limits on the class counsel fees and costs in this litigation. On April 11, 2003, notice was distributed to limited partners providing the details of the proposed settlement. On June 13, 2003, the Court granted final approval of the settlement and entered judgment in both the Nuanes and Heller actions. On August 12, 2003, an objector ("Objector") filed an appeal seeking to vacate and/or reverse the order approving the settlement and entering judgment thereto. On November 24, 2003, the Objector filed an application requesting the Court order AIMCO to withdraw settlement tender offers it had commenced, refrain from making further offers pending the appeal and auction any units tendered to third parties, contending that the offers did not conform with the terms of the Settlement. Counsel for the Objector (on behalf of another investor) had alternatively requested the Court take certain action purportedly to enforce the terms of the settlement agreement. On December 18, 2003, the Court heard oral argument on the motions and denied them both in their entirety. On January 28, 2004, Objector filed his opening brief in his pending appeal. The Corporate General Partner is currently scheduled to file a brief in support of the order approving settlement and entering judgment thereto by April 23, 2004. On August 8, 2003 AIMCO Properties L.P., an affiliate of the Corporate General Partner, was served with a Complaint in the United States District Court, District of Columbia alleging that AIMCO Properties L.P. willfully violated the Fair Labor Standards Act (FLSA) by failing to pay maintenance workers overtime for all hours worked in excess of forty per week. The Complaint is styled as a Collective Action under the FLSA and seeks to certify state subclasses in California, Maryland, and the District of Columbia. Specifically, the plaintiffs contend that AIMCO Properties L.P. failed to compensate maintenance workers for time that they were required to be "on-call". Additionally, the Complaint alleges AIMCO Properties L.P. failed to comply with the FLSA in compensating maintenance workers for time that they worked in responding to a call while "on-call". The Complaint also attempts to certify a subclass for salaried service directors who are challenging their classification as exempt from the overtime provisions of the FLSA. AIMCO Properties L.P. has filed an answer to the Complaint denying the substantive allegations. Discovery is currently underway. The Corporate General Partner does not anticipate that any costs to the Partnership, whether legal or settlement costs, associated with these cases will be material to the Partnership's overall operations. The Partnership is unaware of any other pending or outstanding litigation matters involving it or its investment properties that are not of a routine nature arising in the ordinary course of business. Item 8. Changes in and Disagreements with Accountant on Accounting and Financial Disclosures None. Item 8a. Controls and Procedures (a) Disclosure Controls and Procedures. The Partnership's management, with the participation of the principal executive officer and principal financial officer of the Corporate General Partner, who are the equivalent of the Partnership's principal executive officer and principal financial officer, respectively, has evaluated the effectiveness of the Partnership's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report. Based on such evaluation, the principal executive officer and principal financial officer of the Corporate General Partner, who are the equivalent of the Partnership's principal executive officer and principal financial officer, respectively, have concluded that, as of the end of such period, the Partnership's disclosure controls and procedures are effective. (b) Internal Control Over Financial Reporting. There have not been any changes in the Partnership's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter of 2003 that have materially affected, or are reasonably likely to materially affect, the Partnership's internal control over financial reporting. PART III Item 9. Directors, Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act The Registrant has no directors or officers. 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 directors and officers of the Corporate General Partner are set forth below. There are no family relationships between or among any directors or officers. Name Age Position Peter K. Kompaniez 59 Director Martha L. Long 44 Director and Senior Vice President Harry G. Alcock 41 Executive Vice President Miles Cortez 60 Executive Vice President, General Counsel and Secretary Patti K. Fielding 40 Executive Vice President Paul J. McAuliffe 47 Executive Vice President and Chief Financial Officer Thomas M. Herzog 41 Senior Vice President and Chief Accounting Officer Peter K. Kompaniez has been Director of the Corporate General Partner since February 2004. Mr. Kompaniez has been Vice Chairman of the Board of Directors of AIMCO since July 1994 and was appointed President in July 1997. Mr. Kompaniez has also served as Chief Operating Officer of NHP Incorporated after it was acquired by AIMCO in December 1997. Effective April 1, 2004, Mr. Kompaniez resigned as President of AIMCO. Mr. Kompaniez will continue in his role as Director of the Corporate General Partner and Vice Chairman of AIMCO's Board and will serve AIMCO on a variety of special and ongoing projects in an operating role. Martha L. Long has been a Director and Senior Vice President of the Corporate General Partner since February 2004. Ms. Long has been with AIMCO since October 1998 and has served in various capacities. From 1998 to 2001, Ms. Long served as Senior Vice President and Controller of AIMCO and the Corporate General Partner. During 2002 and 2003, Ms. Long served as Senior Vice President of Continuous Improvement for AIMCO. Harry G. Alcock was appointed Executive Vice President of the Corporate General Partner in February 2004 and has been Executive Vice President and Chief Investment Officer of AIMCO since October 1999. Prior to October 1999 Mr. Alcock served as a Vice President of AIMCO from July 1996 to October 1997, when he was promoted to Senior Vice President-Acquisitions where he served until October 1999. Mr. Alcock has had responsibility for acquisition and financing activities of AIMCO since July 1994. Miles Cortez was appointed Executive Vice President, General Counsel and Secretary of the Corporate General Partner in February 2004 and of AIMCO in August 2001. Prior to joining AIMCO, Mr. Cortez was the senior partner of Cortez Macaulay Bernhardt & Schuetze LLC, a Denver law firm, from December 1997 through September 2001. Patti K. Fielding was appointed Executive Vice President - Securities and Debt of the Corporate General Partner in February 2004 and of AIMCO in February 2003. Ms. Fielding previously served as Senior Vice President - Securities and Debt of AIMCO from January 2000 to February 2003. Ms. Fielding is responsible for securities and debt financing and the treasury department. Ms. Fielding joined AIMCO in February 1997 and served as Vice President - Tenders, Securities and Debt until January 2000. Paul J. McAuliffe has been Executive Vice President and Chief Financial Officer of the Corporate General Partner since April 2002. Mr. McAuliffe has served as Executive Vice President of AIMCO since February 1999 and was appointed Chief Financial Officer of AIMCO in October 1999. From May 1996 until he joined AIMCO, Mr. McAuliffe was Senior Managing Director of Secured Capital Corp. Thomas M. Herzog was appointed Senior Vice President and Chief Accounting Officer of the Corporate General Partner in February 2004 and of AIMCO in January 2004. Prior to joining AIMCO in January 2004, Mr. Herzog was at GE Real Estate, serving as Chief Accounting Officer & Global Controller from April 2002 to January 2004 and as Chief Technical Advisor from March 2000 to April 2002. Prior to joining GE Real Estate, Mr. Herzog was at Deloitte & Touche LLP from 1990 until 2000, including a two-year assignment in the real estate national office. 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 board of directors of the Corporate General Partner does not have a separate audit committee. As such, the board of directors of the Corporate General Partner fulfills the functions of an audit committee. The board of directors has determined that Martha L. Long meets the requirement of an "audit committee financial expert". The directors and officers of the Corporate General Partner with authority over the Partnership are all employees of subsidiaries of AIMCO. AIMCO has adopted a code of ethics that applies to such directors and officers that is posted on AIMCO's website (www.AIMCO.com). AIMCO's website is not incorporated by reference to this filing. Item 10. Executive Compensation None of the directors and officers of the Corporate General Partner received any remuneration from the Partnership. 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, 2003. Entity Number of Units Percentage Cooper River Properties, LLC (an affiliate of AIMCO) 3,364 7.95% AIMCO IPLP, L.P. (an affiliate of AIMCO) 11,547 27.28% AIMCO Properties, L.P. (an affiliate of AIMCO) 13,464 31.81% Cooper River Properties LLC and AIMCO IPLP, L.P. (formerly known as Insignia Properties, L.P.) 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. Its business address is 4582 S. Ulster St. Parkway, Suite 1100, Denver, Colorado 80237. 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 602 units during the current fiscal year increasing its ownership to 13,464 or 31.81% 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. Affiliates of the Corporate General Partner are entitled to receive 5% of gross receipts from all of the Partnership's properties as compensation for providing property management services. The Partnership paid to such affiliates approximately $259,000 and $459,000 during the years ended December 31, 2003 and 2002, respectively, which is included in operating expenses and income from discontinued operations. Affiliates of the Corporate General Partner received reimbursement of accountable administrative expenses amounting to approximately $198,000 and $386,000 for the years ended December 31, 2003 and 2002, respectively, which is included in general and administrative expenses and investment properties. For the year ended December 31, 2003, the first three quarter were based on estimated amounts and in the fourth quarter of 2003, the reimbursements of accountable administrative costs were adjusted based on actual costs. Included in these amounts are fees related to construction management services provided by an affiliate of the Corporate General Partner of approximately $21,000 and $84,000 for the years ended December 31, 2003 and 2002, respectively. The construction management service fees are calculated based on a percentage of additions to investment properties. Pursuant to the Partnership Agreement and in connection with the sale of Foxfire/Barcelona Village during 2000 and Nottingham Square Apartments in December 2002, 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 combined fees of approximately $342,000 have been accrued and are included in due to affiliates in the accompanying balance sheet at December 31, 2003. Subsequent to the year ended December 31, 2003, an affiliate of the Corporate General Partner advanced the Partnership approximately $250,000 to cover additional costs related to the sale of Nottingham Square Apartments. During the year ended December 31, 2002, the Partnership paid an affiliate of the Corporate General Partner approximately $252,000 for brokerage fees associated with the refinancing of River Reach, Rocky Creek, Carriage House, and Nottingham Square Apartments. Approximately $103,000 paid for Nottingham Square was written off when the property was sold (see "Note F"). Approximately $149,000 paid for River Reach, Rocky Creek and Carriage House Apartments is included in other assets as loan costs on the accompanying balance sheet. During the year ended December 31, 2002, the Corporate General Partner advanced the Partnership funds to cover expenses related to the refinancing of River Reach and Carriage House Apartments totaling approximately $481,000. These advances were repaid by the Partnership prior to December 31, 2002. Interest was charged at prime plus 1%. Interest expense on these advances was approximately $1,000 for the year ended December 31, 2002. The Partnership insures its properties up to certain limits through coverage provided by AIMCO which is generally self-insured for a portion of losses and liabilities related to workers compensation, property casualty and vehicle liability. The Partnership insures its properties above the AIMCO limits through insurance policies obtained by AIMCO from insurers unaffiliated with the Corporate General Partner. During the years ended December 31, 2003 and 2002, the Partnership was charged by AIMCO and its affiliates approximately $75,000 and $142,000, respectively, for insurance coverage and fees associated with policy claims administration. In addition to its indirect ownership of the general partner interests in the Partnership, AIMCO and its affiliates owned 28,375 limited partnership units (the "Units") in the Partnership representing 67.04% of the outstanding Units at December 31, 2003. 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 Units in exchange for cash or a combination of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO, either through private purchases or tender offers. Pursuant to the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters that include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the Corporate General Partner. As a result of its ownership of 67.04% of the outstanding Units, AIMCO and its affiliates are in a position to control all voting decisions with respect to the Partnership. Although the Corporate General Partner owes fiduciary duties to the limited partners of the Partnership, the Corporate General Partner also owes fiduciary duties to AIMCO as its sole stockholder. As a result, the duties of the Corporate General Partner, as managing general partner, to the Partnership and its limited partners may come into conflict with the duties of the Corporate General Partner to AIMCO, as its sole stockholder. PART IV Item 13. Exhibits and Reports on Form 8-K (a) Exhibits: See Exhibit Index attached. (b) Reports on Form 8-K filed during the fourth quarter of 2003: None. Item 14. Principal Accountant Fees and Services The Corporate General Partner has reappointed Ernst & Young LLP as independent auditors to audit the financial statements of the Partnership for 2004. Audit Fees. The Partnership paid to Ernst & Young LLP audit fees of approximately $54,000 for both 2003 and 2002. Tax Fees. The Partnership paid to Ernst & Young LLP fees for tax services for 2003 and 2002 of approximately $15,000 and $21,000, respectively. 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/Martha L. Long Martha L. Long Senior Vice President By: /s/Thomas M. Herzog Thomas M. Herzog Senior Vice President and Chief Accounting Officer Date: March 29, 2004 In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Partnership and in the capacities and on the dates indicated. /s/Peter K. Kompaniez Director Date: March 29, 2004 Peter K. Kompaniez /s/Martha L. Long Director and Senior Vice Date: March 29, 2004 Martha L. Long President /s/Thomas M. Herzog Senior Vice President and Date: March 29, 2004 Thomas M. Herzog Chief Accounting Officer 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(iii) Contracts related to refinancings of debt: (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 filed as Exhibit 10(iii)(g) to the Partnership's Form 8-K Filed February 1, 2001 and incorporated herein by reference. (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 Exhibit 10(iii)(h) to the Partnership's Form 8-K filed February 1, 2001 and incorporated herein by reference. (i) Multifamily Note dated May 15, 2002 between Shelter Properties VI and Keycorp Real Estate Capital Markets, Inc., an Ohio corporation, securing River Reach Apartments. Filed as Exhibit 10(iii)(i) of the Partnership's Quarterly Report on Form 10-QSB for the quarter ended June 30, 2002 and incorporated herein by reference. (j) Loan Agreement by and among Shelter Properties VI, and other affiliated partnerships, and GMAC Commercial Mortgage Corporation, a California corporation, to secure credit facility, dated September 16, 2002. Filed as Exhibit 10(iii)(j) of the Partnership's Quarterly Report on Form 10-QSB for the quarter ended September 30, 2002 and incorporated herein by reference. (k) Multifamily Note by and among Shelter Properties VI and GMAC Commercial Mortgage Corporation, a California corporation, to secure loan for Rocky Creek Apartments. Filed as Exhibit 10(iii)(k) of the Partnership's Quarterly Report on Form 10-QSB for the quarter ended September 30, 2002 and incorporated herein by reference. (l) Multifamily Note by and among Shelter Properties VI and GMAC Commercial Mortgage Corporation, a California corporation, to secure loan for Carriage House Apartments. Filed as Exhibit 10(iii)(l) of the Partnership's Quarterly Report on Form 10-QSB for the quarter ended September 30, 2002 and incorporated herein by reference. (m) Multifamily Note by and among Shelter Properties VI and GMAC Commercial Mortgage Corporation, a California corporation, to secure loan for Nottingham Square Apartments filed as Exhibit 10(iii)(m) of the Partnership's Annual Report on Form 10-KSB for the year ended December 31, 2002 and incorporated herein by reference. 10(iv) Contracts related to disposition of properties: (c) Purchase and Sale Contract between Registrant and BH Equities, LLC, an Iowa limited liability company, dated October 8, 2002 filed with Form 8-K on January 6, 2003 and incorporated herein by reference. (d) First Amendment to Purchase and Sale Contract between Registrant and BH Equities, LLC, an Iowa limited liability company dated November 7, 2002 filed with Form 8-K on January 6, 2003 and incorporated herein by reference. (e) Second Amendment to Purchase and Sale Contract between Registrant and BH Equities, LLC, an Iowa limited liability company dated November 15, 2002 filed with Form 8-K on January 6, 2003 and incorporated herein by reference. (f) Assignment of Purchase Agreement between BH Equities, LLC, an Iowa limited liability company, and Nottingham Square Apartments, LP, an Iowa limited partnership dated November 25, 2002 filed with Form 8-K on January 6, 2003 and incorporated herein by reference. 31.1 Certification of equivalent of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of equivalent of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Exhibit 31.1 CERTIFICATION I, Martha L. Long, certify that: 1. I have reviewed this annual report on Form 10-KSB of Shelter Properties VI; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 29, 2004 /s/Martha L. Long Martha L. Long Senior Vice President of Shelter Realty VI Corporation, equivalent of the chief executive officer of the Partnership Exhibit 31.2 CERTIFICATION I, Thomas M. Herzog, certify that: 1. I have reviewed this annual report on Form 10-KSB of Shelter Properties VI; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 29, 2004 /s/Thomas M. Herzog Thomas M. Herzog Senior Vice President and Chief Accounting Officer of Shelter Realty VI Corporation, equivalent of the chief financial officer of the Partnership Exhibit 32.1 Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Annual Report on Form 10-KSB of Shelter Properties VI Limited Partnership (the "Partnership"), for the annual period ended December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Martha L. Long, as the equivalent of the chief executive officer of the Partnership, and Thomas M. Herzog, as the equivalent of the chief financial officer of the Partnership, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership. /s/Martha L. Long Name: Martha L. Long Date: March 29, 2004 /s/Thomas M. Herzog Name: Thomas M. Herzog Date: March 29, 2004 This certification is furnished with this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Partnership for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. -----END PRIVACY-ENHANCED MESSAGE-----