UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended June 30, 2002
[] 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
(Exact name of small business issuer as specified in its charter)
South Carolina 57-0755618
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SHELTER PROPERTIES VI
BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
June 30, 2002
Assets
Cash and cash equivalents $ 1,048
Receivables and deposits 491
Restricted escrows 798
Other assets 615
Investment properties:
Land $ 3,745
Buildings and related personal property 42,551
46,296
Less accumulated depreciation (27,270) 19,026
$ 21,978
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 75
Tenant security deposit liabilities 171
Accrued property taxes 644
Other liabilities 536
Due to affiliates 142
Mortgage notes payable 25,150
Partners' Deficit
General partners $ (253)
Limited partners (42,324 units issued and
outstanding) (4,487) (4,740)
$ 21,978
See Accompanying Notes to Financial Statements
SHELTER PROPERTIES VI
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
(restated)
Revenues:
Rental income $ 2,109 $ 2,045 $ 4,207 $ 4,088
Other income 220 222 439 467
Total revenues 2,329 2,267 4,646 4,555
Expenses:
Operating 832 901 1,682 1,793
General and administrative 96 124 227 234
Depreciation 472 447 938 891
Interest 544 454 983 928
Property taxes 204 211 409 419
Total expenses 2,148 2,137 4,239 4,265
Net income from continuing
operations 181 130 407 290
Income from discontinued operations -- -- -- 132
Net income $ 181 $ 130 $ 407 $ 422
Net income allocated
to general partners (1%) $ 2 $ 1 $ 4 $ 4
Net income allocated
to limited partners (99%) 179 129 403 418
$ 181 $ 130 $ 407 $ 422
Per Limited Partnership Unit:
Income from continuing operations $ 4.23 $ 3.05 $ 9.52 6.78
Income from discontinued
operations -- -- -- 3.10
Net income $ 4.23 $ 3.05 $ 9.52 $ 9.88
Distributions per limited
partnership unit $ 89.71 $ 21.55 $ 89.71 $ 71.90
See Accompanying Notes to Financial Statements
SHELTER PROPERTIES VI
STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(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 -- -- (3,797) (3,797)
Net income for the six months
ended June 30, 2002 -- 4 403 407
Partners' deficit at
June 30, 2002 42,324 $ (253) $(4,487) $(4,740)
See Accompanying Notes to Financial Statements
SHELTER PROPERTIES VI
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
2002 2001
Cash flows from operating activities:
Net income $ 407 $ 422
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 938 891
Amortization of discounts and loan costs 125 107
Loss on early extinguishment of debt 48 --
Change in accounts:
Receivables and deposits (319) 545
Other assets (122) (83)
Accounts payable (72) 21
Tenant security deposit liabilities 15 4
Accrued property taxes 72 97
Other liabilities 144 26
Net cash provided by operating activities 1,236 2,030
Cash flows from investing activities:
Property improvements and replacements (725) (739)
Net withdrawals from restricted escrows 114 117
Net cash used in investing activities (611) (622)
Cash flows from financing activities:
Repayment of mortgage notes payable (6,300) --
Proceeds from mortgage notes payable 10,654 --
Loan costs paid (292) --
Payments on mortgage note payable (407) (419)
Distributions to partners (3,797) (3,061)
Advances from affiliates 320 --
Repayment of advances from affiliates (320) --
Net cash used in financing activities (142) (3,480)
Net increase (decrease) in cash and cash equivalents 483 (2,072)
Cash and cash equivalents at beginning of period 565 2,780
Cash and cash equivalents at end of period $ 1,048 $ 708
Supplemental disclosure of cash flow information:
Cash paid for interest $ 789 $ 797
At December 31, 2001, approximately $139,000 of property improvements and
replacements were included in accounts payable and are included in property
improvements and replacements for the six months ended June 30, 2002.
See Accompanying Notes to Financial Statements
SHELTER PROPERTIES VI
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited financial statements of Shelter Properties VI (the
"Partnership" or "Registrant") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-QSB and Item 310 (b) of Regulation S-B. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. The general
partner responsible for management of the Partnership's business is Shelter
Realty VI 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, AIMCO Properties, L.P., is also an affiliate of AIMCO. In the
opinion of the Corporate General Partner, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three and six month periods ended June 30,
2002, are not necessarily indicative of the results that may be expected for the
fiscal year ending December 31, 2002. For further information, refer to the
financial statements and footnotes thereto included in the Partnership's Annual
Report on Form 10-KSB for the year ended December 31, 2001.
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
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 six months ended June 30, 2001
have been restated as of January 1, 2001 to reflect the operations of
Foxfire/Barcelona Apartments as income from discontinued operations due to its
sale in November 2000. During the first quarter of 2001, certain accruals of
approximately $132,000 established related to the sale of Foxfire/Barcelona
Apartments in November 2000 were reversed due to actual costs being less than
anticipated. This accrual reversal is included as income from discontinued
operations in the six month period ended June 30, 2001.
Effective April 1, 2002, the Partnership adopted SFAS No. 145, "Rescission of
FASB Statements No. 4, 44 and 64". SFAS No. 4 "Reporting Gains and Losses from
Extinguishment of Debt," required that all gains and losses from extinguishment
of debt be aggregated and, if material, classified as an extraordinary item.
SFAS No. 145 rescinds SFAS No. 4, and accordingly, gains and losses from
extinguishment of debt should only be classified as extraordinary if they are
unusual in nature and occur infrequently. Neither of these criteria applies to
the Partnership. As a result, the accompanying statements of operations reflect
the loss on early extinguishment of debt at River Reach Apartments (see "Note
C") as interest expense.
Note B - Reconciliation of Cash Flows
The following is a reconciliation of "Net cash provided by operating activities"
on the accompanying statements of cash flows to "Net cash from operations", as
defined in the partnership agreement of the Partnership (the "Partnership
Agreement"). However, "Net cash from operations" should not be considered an
alternative to net income as an indicator of the Partnership's operating
performance or to cash flows as a measure of liquidity.
Six Months Ended
June 30,
2002 2001
(in thousands)
Net cash provided by operating activities $ 1,236 $ 2,030
Payments on mortgage notes payable (407) (419)
Property improvements and replacements (725) (739)
Change in restricted escrows, net 114 117
Changes in reserves for net operating
liabilities 282 (610)
Additions to operating reserves (500) (379)
Net cash provided by operations $ 0 $ 0
During the six months ended June 30, 2002 and 2001, the Corporate General
Partner reserved approximately $500,000 and $379,000, respectively, to fund
capital improvements at its properties.
Note C - Refinancing of Mortgage Note Payable
On May 15, 2002, the Partnership refinanced the mortgage 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 six months ended June 30, 2002. The
Partnership recognized a loss on the early extinguishment of debt of
approximately $48,000 during the six months ended June 30, 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.
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 Registrant's properties as compensation for providing
property management services. The Partnership paid to such affiliates
approximately $235,000 and $229,000 for the six months ended June 30, 2002 and
2001, respectively, which is included in operating expenses.
Affiliates of the Corporate General Partner received reimbursements of
accountable administrative expenses amounting to approximately $224,000 and
$176,000 for the six months ended June 30, 2002 and 2001, respectively, which
are included in general and administrative expenses and investment properties.
Included in these amounts are fees related to construction management services
provided by an affiliate of the Corporate General Partner of approximately
$41,000 and $15,000 for the six months ended June 30, 2002 and 2001,
respectively. The construction management service fees are calculated based on a
percentage of current year additions to investment properties.
Pursuant to the Partnership Agreement and in connection with the sale of
Foxfire/Barcelona Village during 2000, 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 fee of approximately $142,000 was accrued and is included in due to
affiliates in the accompanying balance sheet at June 30, 2002.
During the six months ended June 30, 2002, the Corporate General Partner
advanced the Partnership funds to cover expenses related to the refinancing of
River Reach Apartments totaling approximately $320,000. This advance was repaid
by the Partnership prior to June 30, 2002. Interest was charged at prime plus
1%. Interest expense on this advance was approximately $1,000 for the six months
ended June 30, 2002.
Beginning in 2001, the Partnership began insuring 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 six months ended
June 30, 2002 and 2001, the Partnership paid AIMCO and its affiliates
approximately $102,000 and $125,000, respectively, for insurance coverage and
fees associated with policy claims administration.
Note E - Legal Proceedings
In March 1998, several putative unitholders 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
purports to assert claims on behalf of a class of limited partners and
derivatively on behalf of a number of limited partnerships (including the
Partnership) which are named as nominal defendants, challenging, among other
things, the acquisition of interests in certain Corporate General Partner
entities by Insignia Financial Group, Inc. ("Insignia") and entities which were,
at one time, affiliates of Insignia; past tender offers by the Insignia
affiliates to acquire limited partnership units; management of the partnerships
by the Insignia affiliates; and the 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 seek monetary
damages and equitable relief, including judicial dissolution of the Partnership.
On June 25, 1998, the Corporate General Partner filed a motion seeking dismissal
of the action. In lieu of responding to the motion, the plaintiffs filed an
amended complaint. The Corporate General Partner filed demurrers to the amended
complaint which were heard February 1999.
Pending the ruling on such demurrers, settlement negotiations commenced. On
November 2, 1999, the parties executed and filed a Stipulation of Settlement,
settling claims, subject to court approval, on behalf of the Partnership and all
limited partners who owned units as of November 3, 1999. Preliminary approval of
the settlement was obtained on November 3, 1999 from the Court, at which time
the Court set a final approval hearing for December 10, 1999. Prior to the
December 10, 1999 hearing, the Court received various objections to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of prior lead counsel to enter the settlement. On
December 14, 1999, the Corporate General Partner and its affiliates terminated
the proposed settlement. In February 2000, counsel for some of the named
plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who
negotiated the settlement. On June 27, 2000, the Court entered an order
disqualifying them from the case and an appeal was taken from the order on
October 5, 2000. On December 4, 2000, the Court appointed the law firm of Lieff
Cabraser Heimann & Bernstein LLP as new lead counsel for plaintiffs and the
putative class. Plaintiffs filed a third amended complaint on January 19, 2001.
On March 2, 2001, the Corporate General Partner and its affiliates filed a
demurrer to the third amended complaint. On May 14, 2001, the Court heard the
demurrer to the third amended complaint. On July 10, 2001, the Court issued an
order sustaining defendants' demurrer on certain grounds. On July 20, 2001,
Plaintiffs filed a motion for reconsideration of the Court's July 10, 2001 order
granting in part and denying in part defendants' demurrer. On September 7, 2001,
Plaintiffs filed a fourth amended class and derivative action complaint. On
September 12, 2001, the Court denied Plaintiffs' motion for reconsideration. On
October 5, 2001, the Corporate General Partner and affiliated defendants filed a
demurrer to the fourth amended complaint, which was heard on December 11, 2001.
On February 2, 2002, the Court served its order granting in part the demurrer.
The Court has dismissed without leave to amend certain of the plaintiffs'
claims. On February 11, 2002, plaintiffs filed a motion seeking to certify a
putative class comprised of all non-affiliated persons who own or have owned
units in the partnerships. The Corporate General Partner and affiliated
defendants oppose the motion. On April 29, 2002, the Court held a hearing on
plaintiffs' motion for class certification and took the matter under submission
after further briefing, as order by the court, was submitted by the parties. On
July 10, 2002, the Court entered an order vacating the current trial date of
January 13, 2003 (as well as the pre-trial and discovery cut-off dates) and
stayed the case in its entirety through November 7, 2002 so that the parties can
have an opportunity to discuss settlement.
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 first amended complaint in the Heller action is
brought as a purported derivative action, and asserts claims for among other
things breach of fiduciary duty; unfair competition; conversion, unjust
enrichment; and judicial dissolution. Plaintiffs in the Nuanes action filed a
motion to consolidate the Heller action with the Nuanes action and stated that
the Heller action was filed in order to preserve the derivative claims that were
dismissed without leave to amend in the Nuanes action by the Court order dated
July 10, 2001. On October 5, 2001, the Corporate General Partner and affiliated
defendants moved to strike the first amended complaint in its entirety for
violating the Court's July 10, 2001 order granting in part and denying in part
defendants' demurrer in the Nuanes action, or alternatively, to strike certain
portions of the complaint based on the statute of limitations. Other defendants
in the action demurred to the fourth amended complaint, and, alternatively,
moved to strike the complaint. On December 11, 2001, the court heard argument on
the motions and took the matters under submission. On February 4, 2002, the
Court served notice of its order granting defendants' motion to strike the
Heller complaint as a violation of its July 10, 2001 order in the Nuanes action.
On March 27, 2002, the plaintiffs filed a notice appealing the order striking
the complaint. The parties are currently in the midst of briefing that appeal.
The Corporate General Partner does not anticipate that any costs, 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 that
is not of a routine nature arising in the ordinary course of business.
Item 2. Management's Discussion and Analysis or Plan of Operation
The matters discussed in this Form 10-QSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-QSB and the other filings with the
Securities and Exchange Commission made by the Registrant from time to time. The
discussion of the Registrant's business and results of operations, including
forward-looking statements pertaining to such matters, does not take into
account the effects of any changes to the Registrant's business and results of
operations. Accordingly, actual results could differ materially from those
projected in the forward-looking statements as a result of a number of factors,
including those identified herein.
The Partnership's investment properties consist of five apartment complexes. The
following table sets forth the average occupancy of the properties for each of
the six months ended June 30, 2002 and 2001:
Average
Occupancy
Property 2002 2001
Rocky Creek Apartments
Augusta, Georgia 91% 97%
Carriage House Apartments
Gastonia, North Carolina 92% 86%
Nottingham Square Apartments
Des Moines, Iowa 96% 94%
River Reach Apartments
Jacksonville, Florida 96% 96%
Village Garden Apartments
Fort Collins, Colorado 91% 95%
The increase in average occupancy at Carriage House Apartments is attributed to
a more aggressive marketing campaign and an improved local economy. The decrease
in average occupancy at Rocky Creek is due to a decrease in short term leases.
The decrease in average occupancy at Village Garden Apartments is attributed to
changing economic conditions in the local market and more tenants purchasing
homes due to low interest rates.
Results of Operations
The Partnership realized net income of approximately $181,000 and $407,000 for
the three and six months ended June 30, 2002, compared to net income of
approximately $130,000 and $422,000 for the three and six months ended June 30,
2001. The increase in net income for the three months ended June 30, 2002 is due
to an increase in total revenues partially offset by an increase in total
expenses. The decrease in net income for the six months ended June 30, 2002 is
due to the reduction in 2001 of certain accruals related to the sale of
Foxfire/Barcelona Apartments during 2000 which is included in income from
discontinued operations, partially offset by an increase in total revenues and a
decrease in total epxenses. 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 have been restated as of
January 1, 2001 to reflect the operations of Foxfire/Barcelona Apartments as
income from discontinued operations due to its sale in November 2000.
The Partnership recognized income from continuing operations of approximately
$407,000 for the six months ended June 30, 2002, compared to income from
continuing operations of approximately $290,000 for the six months ended June
30, 2001. The Partnership recognized income from continuing operations of
approximately $181,000 for the three months ended June 30, 2002, compared to
income from continuing operations of approximately $130,000 for the three months
ended June 30, 2001.
The increase in income from continuing operations for the six months ended June
30, 2002 is due to an increase in total revenues and a slight decrease in total
expenses. The increase in continuing operations for the three months ended June
30, 2002 is due to an increase in total revenues partially offset by a slight
increase in total expenses. Total revenues increased for the three and six month
periods due to an increase in rental income partially offset by a decrease in
other income. Rental income increased primarily due to increases in occupancy at
Carriage House and Nottingham Square Apartments, a decrease in concessions at
all of the Registrant's investment properties and increases in average rental
rates at three of the Registrant's investment properties partially offset by
decreases in occupancy at Rocky Creek and Village Gardens Apartments and
decreases in average rental rates at Rocky Creek and Carriage House Apartments.
Other income decreased primarily due to a decrease in interest income as a
result of lower average cash balances in interest bearing accounts and reduced
cable TV revenue primarily at Nottingham Square Apartments, partially offset by
increased utility reimbursements and lease cancellation fees primarily at
Nottingham Square and River Reach Apartments.
Total expenses decreased for the six months ended June 30, 2002 primarily due to
decreases in operating, and general and administrative expenses partially offset
by an increase in depreciation and interest expense. Total expenses increased
for the three months ended June 30, 2002 due to increased depreciation and
interest expenses partially offset by reduced operating and general and
administrative expenses. Operating expenses decreased during the three and six
months ended June 30, 2002 primarily due to decreases in property and
maintenance expenses partially offset by an increase in insurance expense.
Property expenses decreased due to decreases in utilities at Nottingham Square
and Village Gardens Apartments and decreases in salaries at Village Gardens and
Carriage House Apartments. Maintenance expenses decreased primarily due to
decreases in snow removal costs at Nottingham Square Apartments, in contract
services at Rocky Creek Apartments and repairs completed at Nottingham Square
Apartments. Insurance expense increased primarily due to an increase in hazard
insurance at all five investment properties due to an increase in insurance
premiums. Depreciation expense increased due to property improvements and
replacements placed in service during the past twelve months at the
Partnership's investment properties. Interest expense increased for the three
and six months ended June 30, 2002 due to the refinance of River Reach
Apartments on May 15, 2002 which increased the debt balance and the loss on
early extinguishment of debt incurred at the time of the refinancing.
General and administrative expenses decreased for the three and six months ended
June 30, 2002 due to decreases in appraisal fees and professional and
administrative expenses necessary for the administration of the Partnership
partially offset by increases in the costs of services included in the
management reimbursements to the Corporate General Partner as allowed under the
Partnership Agreement. Also included in general and administrative expenses are
costs associated with quarterly and annual communications which 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, due to changing market conditions, which can result in the use of
rental concessions and rental reductions to offset softening market conditions,
there is no guarantee that the Corporate General Partner will be able to sustain
such a plan.
Liquidity and Capital Resources
At June 30, 2002, the Partnership held cash and cash equivalents of
approximately $1,048,000 compared to approximately $708,000 at June 30, 2001.
Cash and cash equivalents increased approximately $483,000 since December 31,
2001 due to approximately $1,236,000 of cash provided by operating activities
partially offset by approximately $611,000 and $142,000 of cash used in
investing and financing activities, respectively. Cash used in investing
activities consisted of property improvements and replacements which were
partially offset by withdrawals from restricted escrows maintained by the
mortgage lenders. Cash used in financing activities consisted of distributions
to the partners, repayments of mortgage notes payable and advance from
affiliates, loan costs paid and principal payments on mortgage notes payable
which were partially offset by proceeds from mortgage notes payable and advances
from affiliates. The Registrant 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, local, legal, and regulatory requirements. Capital improvements
planned for each of the Registrant's properties are detailed below.
Rocky Creek Apartments
During the six months ended June 30, 2002, the Partnership completed
approximately $59,000 in budgeted and non-budgeted capital improvements at Rocky
Creek Apartments primarily consisting of floor covering replacements, plumbing
enhancements and appliance replacements. The improvements were funded from
operating cash flow. Capital improvements of approximately $55,000 have been
budgeted for 2002 which include electrical enhancements and water heater, floor
covering and appliance replacements. Additional improvements may be considered
and will depend on the physical condition of the property as well as replacement
reserves and anticipated cash flow generated by the property.
Carriage House Apartments
During the six months ended June 30, 2002, the Partnership completed
approximately $65,000 in capital improvements at Carriage House Apartments
primarily consisting of floor covering replacements, plumbing enhancements, air
conditioning replacements and a water sub-metering project. These improvements
were funded from operating cash flow. Capital improvements of approximately
$80,000 have been budgeted for 2002 which include appliance and floor covering
replacements, water submetering project and air conditioning unit upgrades.
Additional improvements may be considered and will depend on the physical
condition of the property as well as replacement reserves and anticipated cash
flow generated by the property.
Nottingham Square Apartments
During the six months ended June 30, 2002, the Partnership completed
approximately $288,000 in capital improvements at Nottingham Square Apartments
primarily consisting of floor covering replacements, fire suppression
improvements, balcony and pool improvements. These improvements were funded from
operating cash flow. Capital improvements of approximately $371,000 have been
budgeted for 2002 which include floor covering replacements, swimming pool
improvements, fencing upgrades, parking lot improvements and structural
upgrades. Additional improvements may be considered and will depend on the
physical condition of the property as well as replacement reserves and
anticipated cash flow generated by the property.
River Reach Apartments
During the six months ended June 30, 2002, the Partnership completed
approximately $147,000 in capital improvements at River Reach Apartments
primarily consisting of floor covering and appliance replacements, structural
improvements, exterior painting and recreational facility enhancements. These
improvements were funded from operating cash and replacement reserves. Capital
improvements of approximately $318,000 have been budgeted for 2002 which include
floor covering, air conditioning, and appliance replacements, fitness equipment,
landscaping improvements, exterior painting, and plumbing and electrical
enhancements. Additional improvements may be considered and will depend on the
physical condition of the property as well as replacement reserves and
anticipated cash flow generated by the property.
Village Garden Apartments
During the six months ended June 30, 2002, the Partnership completed
approximately $27,000 in capital improvements at Village Garden Apartments
primarily consisting of floor covering replacements, electrical and plumbing
improvements. These improvements were funded from operating cash flow. Capital
improvements of approximately $116,000 have been budgeted for 2002 which include
floor covering and appliance replacements, fitness equipment and water heater
replacements. Additional improvements may be considered and will depend on the
physical condition of the property as well as replacement reserves and
anticipated cash flow generated by the property.
The additional capital expenditures will be incurred only if cash is available
from operations and Partnership reserves. To the extent that such budgeted
capital improvements are completed, the Registrant's distributable cash flow, if
any, may be adversely affected at least in the short term.
On May 15, 2002, the Partnership refinanced the mortgage 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 six months ended June 30, 2002. The
Partnership recognized a loss on the early extinguishment of debt of
approximately $48,000 during the six months ended June 30, 2002 due to the write
off of unamortized loan costs and debt discounts. 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.
The Partnership's current assets are thought to be sufficient for any near term
needs (exclusive of capital improvements) of the Partnership. Exclusive of River
Reach and Village Garden's mortgages, the mortgage indebtedness of approximately
$10,129,000, net of discounts, has a maturity date of November 2002 at which
time balloon payments totaling approximately $10,016,000 are due. The Corporate
General Partner is planning to refinance the debt maturing in November 2002. If
the properties cannot be refinanced or sold for a sufficient amount, the
Partnership will risk losing such properties through foreclosure.
The mortgages encumbering River Reach and Village Garden Apartments of
approximately $15,021,000 mature in June 2022 and January 2021, respectively, at
which time the mortgages are scheduled to be fully amortized.
The Partnership distributed the following amounts during the six months ended
June 30, 2002 and 2001 (in thousands except per unit data):
Six Months Per Limited Six Months Per Limited
Ended Partnership Ended Partnership
June 30, 2002 Unit June 30, 2001 Unit
Operations $ -- $ -- $1,824 $42.67
Sale (1) -- -- 1,237 29.23
Refinance (2) 3,797 89.71 -- --
$3,797 $89.71 $3,061 $71.90
(1) From the sale of Foxfire/Barcelona Apartments in 2000.
(2) From the refinance of River Reach Apartments in May, 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 further distributions to its
partners during the remainder of 2002 or subsequent periods. In addition, the
Partnership is restricted from making distributions if the amount in the reserve
account for each property maintained by the mortgage lender for three of the
five properties is less than $400 per apartment unit at each property. At June
30, 2002, the reserve account was adequately funded with a balance of
approximately $677,000.
Other
In addition to its indirect ownership of the general partner interests in the
Partnership, AIMCO and its affiliates owned 26,727 limited partnership units
(the "Units") in the Partnership representing 65.51% of the outstanding Units at
June 30, 2002. 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 of limited partnership interest in the Partnership
in exchange for cash or a combination of cash and units in the operating
partnership of AIMCO either through private purchases or tender offers. In this
regard, on June 25, 2002, a tender offer by AIMCO Properties, L.P., to acquire
any and all of the units not owned by affiliates of AIMCO for a purchase price
of $346.00 per unit expired. Pursuant to this offer, AIMCO acquired 945 units
during the quarter ended June 30, 2002. Under the Partnership Agreement,
unitholders holding a majority of the Units are entitled to take action with
respect to a variety of matters which would include voting on certain amendments
to the Partnership Agreement and voting to remove the Corporate General Partner.
As a result of its ownership of 65.51% of the outstanding Units, AIMCO is in a
position to control all voting decisions with respect to the Registrant.
Although the Corporate General Partner owes fiduciary duties to the limited
partners of the Partnership, the Corporate General Partner also owed fiduciary
duties to AIMCO as its sole Stockholder. As a result, the duties of the
Corporate General Partner, as managing general partner, to the Partnerships and
its limited partners may come into conflict with the duties of the Corporate
General Partner to AIMCO, as it sole stockholder.
Critical Accounting Policies and Estimates
The financial statements are prepared in accordance with accounting principles
generally accepted in the United States which require the Partnership to make
estimates and assumptions. The Partnership believes that of its significant
accounting policies, 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 changes in the
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 an impairment in 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 will offer rental concessions during particularly slow months or in
response to heavy competition from other similar complexes in the area.
Concessions are charged to income as incurred.
PART II - OTHER INFORMATION
ITEM 1. 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
purports to assert claims on behalf of a class of limited partners and
derivatively on behalf of a number of limited partnerships (including the
Partnership) which are named as nominal defendants, challenging, among other
things, the acquisition of interests in certain Corporate General Partner
entities by Insignia Financial Group, Inc. ("Insignia") and entities which were,
at one time, affiliates of Insignia; past tender offers by the Insignia
affiliates to acquire limited partnership units; management of the partnerships
by the Insignia affiliates; and the 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 seek monetary
damages and equitable relief, including judicial dissolution of the Partnership.
On June 25, 1998, the Corporate General Partner filed a motion seeking dismissal
of the action. In lieu of responding to the motion, the plaintiffs filed an
amended complaint. The Corporate General Partner filed demurrers to the amended
complaint which were heard February 1999.
Pending the ruling on such demurrers, settlement negotiations commenced. On
November 2, 1999, the parties executed and filed a Stipulation of Settlement,
settling claims, subject to court approval, on behalf of the Partnership and all
limited partners who owned units as of November 3, 1999. Preliminary approval of
the settlement was obtained on November 3, 1999 from the Court, at which time
the Court set a final approval hearing for December 10, 1999. Prior to the
December 10, 1999 hearing, the Court received various objections to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of prior lead counsel to enter the settlement. On
December 14, 1999, the Corporate General Partner and its affiliates terminated
the proposed settlement. In February 2000, counsel for some of the named
plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who
negotiated the settlement. On June 27, 2000, the Court entered an order
disqualifying them from the case and an appeal was taken from the order on
October 5, 2000. On December 4, 2000, the Court appointed the law firm of Lieff
Cabraser Heimann & Bernstein LLP as new lead counsel for plaintiffs and the
putative class. Plaintiffs filed a third amended complaint on January 19, 2001.
On March 2, 2001, the Corporate General Partner and its affiliates filed a
demurrer to the third amended complaint. On May 14, 2001, the Court heard the
demurrer to the third amended complaint. On July 10, 2001, the Court issued an
order sustaining defendants' demurrer on certain grounds. On July 20, 2001,
Plaintiffs filed a motion for reconsideration of the Court's July 10, 2001 order
granting in part and denying in part defendants' demurrer. On September 7, 2001,
Plaintiffs filed a fourth amended class and derivative action complaint. On
September 12, 2001, the Court denied Plaintiffs' motion for reconsideration. On
October 5, 2001, the Corporate General Partner and affiliated defendants filed a
demurrer to the fourth amended complaint, which was heard on December 11, 2001.
On February 2, 2002, the Court served its order granting in part the demurrer.
The Court has dismissed without leave to amend certain of the plaintiffs'
claims. On February 11, 2002, plaintiffs filed a motion seeking to certify a
putative class comprised of all non-affiliated persons who own or have owned
units in the partnerships. The Corporate General Partner and affiliated
defendants oppose the motion. On April 29, 2002, the Court held a hearing on
plaintiffs' motion for class certification and took the matter under submission
after further briefing, as order by the court, was submitted by the parties. On
July 10, 2002, the Court entered an order vacating the current trial date of
January 13, 2003 (as well as the pre-trial and discovery cut-off dates) and
stayed the case in its entirety through November 7, 2002 so that the parties can
have an opportunity to discuss settlement.
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 first amended complaint in the Heller action is
brought as a purported derivative action, and asserts claims for among other
things breach of fiduciary duty; unfair competition; conversion, unjust
enrichment; and judicial dissolution. Plaintiffs in the Nuanes action filed a
motion to consolidate the Heller action with the Nuanes action and stated that
the Heller action was filed in order to preserve the derivative claims that were
dismissed without leave to amend in the Nuanes action by the Court order dated
July 10, 2001. On October 5, 2001, the Corporate General Partner and affiliated
defendants moved to strike the first amended complaint in its entirety for
violating the Court's July 10, 2001 order granting in part and denying in part
defendants' demurrer in the Nuanes action, or alternatively, to strike certain
portions of the complaint based on the statute of limitations. Other defendants
in the action demurred to the fourth amended complaint, and, alternatively,
moved to strike the complaint. On December 11, 2001, the court heard argument on
the motions and took the matters under submission. On February 4, 2002, the
Court served notice of its order granting defendants' motion to strike the
Heller complaint as a violation of its July 10, 2001 order in the Nuanes action.
On March 27, 2002, the plaintiffs filed a notice appealing the order striking
the complaint. The parties are currently in the midst of briefing that appeal.
The Corporate General Partner does not anticipate that any costs, whether legal
or settlement costs, associated with these cases will be material to the
Partnership's overall operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 3, Amended and Restated Certificate and Agreement of
Limited Partnership (Exhibit A to the Prospectus included in
Registrant's Amendment No. 1 to Registration Statement,
filed March 21, 1984 (File No. 2-86995), is incorporated
herein by reference).
Exhibit 10(iii)(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.
Exhibit 99, Certification of Chief Executive Officer and Chief
Financial Officer.
b) Reports on Form 8-K filed during the quarter ended June 30, 2002:
None.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SHELTER PROPERTIES VI
By: Shelter Realty VI Corporation
Corporate General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Thomas C. Novosel
Thomas C. Novosel
Senior Vice President
and Chief Accounting Officer
Date: August 14, 2002
Exhibit 99
Certification of CEO and CFO
Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report on Form 10-QSB of Shelter Properties VI
Limited Partnership (the "Partnership"), for the quarterly period ended June 30,
2002 as filed with the Securities and Exchange Commission on the date hereof
(the "Report"), Patrick J. Foye, as the equivalent of the Chief Executive
Officer of the Partnership, and Paul J. McAuliffe, 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/Patrick J. Foye
Name: Patrick J. Foye
Date: August 14, 2002
/s/Paul J. McAuliffe
Name: Paul J. McAuliffe
Date: August 14, 2002
This certification accompanies the Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the
Sarbanes-Oxley Act of 2002, be deemed filed by the Partnership for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended.
Exhibit 10(iii)(i)
FHLMC Loan No. 002697823
MULTIFAMILY NOTE
(MULTISTATE - REVISION DATE 11-01-2000)
US $10,653,500.00 May _____, 2002
FOR VALUE RECEIVED, the undersigned ("Borrower") jointly and severally (if
more than one) promises to pay to the order of KEYCORP REAL ESTATE CAPITAL
MARKETS, INC., an Ohio corporation, the principal sum of Ten Million Six Hundred
Fifty-Three Thousand Five Hundred and No/100 Dollars (US $10,653,500.00), with
interest on the unpaid principal balance at the annual rate of Seven and
160/1000 percent (7.160%).
1. Defined Terms. As used in this Note, (i) the term "Lender" means the
holder of this Note, and (ii) the term "Indebtedness" means the principal of,
interest on, and any other amounts due at any time under, this Note, the
Security Instrument or any other Loan Document, including prepayment premiums,
late charges, default interest, and advances to protect the security of the
Security Instrument under Section 12 of the Security Instrument. "Event of
Default" and other capitalized terms used but not defined in this Note shall
have the meanings given to such terms in the Security Instrument.
2. Address for Payment. All payments due under this Note shall be payable at
KeyCorp Real Estate Capital Markets, Inc., c/o Key Commercial Mortgage, P.O. Box
801649, Kansas City, Missouri 64180-1649, or such other place as may be
designated by written notice to Borrower from or on behalf of Lender.
3. Payment of Principal and Interest. Principal and interest shall be
paid as follows:
(a) Unless disbursement of principal is made by Lender to Borrower on the
first day of the month, interest for the period beginning on the date of
disbursement and ending on and including the last day of the month in which such
disbursement is made shall be payable simultaneously with the execution of this
Note. Interest under this Note shall be computed on the basis of a 360-day year
consisting of twelve 30-day months.
(b) Consecutive monthly installments of principal and interest, each in
the amount of Eighty-Three Thousand Six Hundred Twenty-Two and 73/100 Dollars
(US $83,622.73), shall be payable on the first day of each month beginning on
July 1, 2002, until the entire unpaid principal balance evidenced by this Note
is fully paid.
(c) Any accrued interest remaining past due for 30 days or more may, at
Lender's discretion, be added to and become part of the unpaid principal balance
and shall bear interest at the rate or rates specified in this Note, and any
reference below to "accrued interest" shall refer to accrued interest which has
not become part of the unpaid principal balance. Any remaining principal and
interest shall be due and payable on June 1, 2022 or on any earlier date on
which the unpaid principal balance of this Note becomes due and payable, by
acceleration or otherwise (the "Maturity Date"). The unpaid principal balance
shall continue to bear interest after the Maturity Date at the Default Rate set
forth in this Note until and including the date on which it is paid in full.
(d) Any regularly scheduled monthly installment of principal and interest
that is received by Lender before the date it is due shall be deemed to have
been received on the due date solely for the purpose of calculating interest
due.
4. Application of Payments. If at any time Lender receives, from Borrower
or otherwise, any amount applicable to the Indebtedness which is less than all
amounts due and payable at such time, Lender may apply that payment to amounts
then due and payable in any manner and in any order determined by Lender, in
Lender's discretion. Borrower agrees that neither Lender's acceptance of a
payment from Borrower in an amount that is less than all amounts then due and
payable nor Lender's application of such payment shall constitute or be deemed
to constitute either a waiver of the unpaid amounts or an accord and
satisfaction.
5. Security. The Indebtedness is secured, among other things, by a
multifamily mortgage, deed to secure debt or deed of trust dated as of the date
of this Note (the "Security Instrument"), and reference is made to the Security
Instrument for other rights of Lender as to collateral for the Indebtedness.
6. Acceleration. If an Event of Default has occurred and is continuing,
the entire unpaid principal balance, any accrued interest, the prepayment
premium payable under Paragraph 10, if any, and all other amounts payable under
this Note and any other Loan Document shall at once become due and payable, at
the option of Lender, without any prior notice to Borrower (except if notice is
required by applicable law, then after such notice). Lender may exercise this
option to accelerate regardless of any prior forbearance.
7. Late Charge. If any monthly amount payable under this Note or under the
Security Instrument or any other Loan Document is not received by Lender within
ten (10) days after the amount is due (unless applicable law requires a longer
period of time before a late charge may be imposed, in which event such longer
period shall be substituted), Borrower shall pay to Lender, immediately and
without demand by Lender, a late charge equal to five percent (5%) of such
amount (unless applicable law requires a lesser amount be charged, in which
event such lesser amount shall be substituted). Borrower acknowledges that its
failure to make timely payments will cause Lender to incur additional expenses
in servicing and processing the loan evidenced by this Note (the "Loan"), and
that it is extremely difficult and impractical to determine those additional
expenses. Borrower agrees that the late charge payable pursuant to this
Paragraph represents a fair and reasonable estimate, taking into account all
circumstances existing on the date of this Note, of the additional expenses
Lender will incur by reason of such late payment. The late charge is payable in
addition to, and not in lieu of, any interest payable at the Default Rate
pursuant to Paragraph 8.
8. Default Rate. So long as (a) any monthly installment under this Note
remains past due for thirty (30) days or more, or (b) any other Event of Default
has occurred and is continuing, interest under this Note shall accrue on the
unpaid principal balance from the earlier of the due date of the first unpaid
monthly installment or the occurrence of such other Event of Default, as
applicable, at a rate (the "Default Rate") equal to the lesser of four (4)
percentage points above the rate stated in the first paragraph of this Note and
the maximum interest rate which may be collected from Borrower under applicable
law. If the unpaid principal balance and all accrued interest are not paid in
full on the Maturity Date, the unpaid principal balance and all accrued interest
shall bear interest from the Maturity Date at the Default Rate. Borrower also
acknowledges that its failure to make timely payments will cause Lender to incur
additional expenses in servicing and processing the Loan, that, during the time
that any monthly installment under this Note is delinquent for more than thirty
(30) days, Lender will incur additional costs and expenses arising from its loss
of the use of the money due and from the adverse impact on Lender's ability to
meet its other obligations and to take advantage of other investment
opportunities, and that it is extremely difficult and impractical to determine
those additional costs and expenses. Borrower also acknowledges that, during the
time that any monthly installment under this Note is delinquent for more than
thirty (30) days or any other Event of Default has occurred and is continuing,
Lender's risk of nonpayment of this Note will be materially increased and Lender
is entitled to be compensated for such increased risk. Borrower agrees that the
increase in the rate of interest payable under this Note to the Default Rate
represents a fair and reasonable estimate, taking into account all circumstances
existing on the date of this Note, of the additional costs and expenses Lender
will incur by reason of the Borrower's delinquent payment and the additional
compensation Lender is entitled to receive for the increased risks of nonpayment
associated with a delinquent loan.
9. Limits on Personal Liability.
(a) Except as otherwise provided in this Paragraph 9, Borrower shall have
no personal liability under this Note, the Security Instrument or any other Loan
Document for the repayment of the Indebtedness or for the performance of any
other obligations of Borrower under the Loan Documents, and Lender's only
recourse for the satisfaction of the Indebtedness and the performance of such
obligations shall be Lender's exercise of its rights and remedies with respect
to the Mortgaged Property and any other collateral held by Lender as security
for the Indebtedness. This limitation on Borrower's liability shall not limit or
impair Lender's enforcement of its rights against any guarantor of the
Indebtedness or any guarantor of any obligations of Borrower.
(b) Borrower shall be personally liable to Lender for the repayment of a
portion of the Indebtedness equal to zero percent (0%) of the original principal
balance of this Note, plus any other amounts for which Borrower has personal
liability under this Paragraph 9.
(c) In addition to Borrower's personal liability under Paragraph 9(b),
Borrower shall be personally liable to Lender for the repayment of a further
portion of the Indebtedness equal to any loss or damage suffered by Lender as a
result of (1) failure of Borrower to pay to Lender upon demand after an Event of
Default all Rents to which Lender is entitled under Section 3(a) of the Security
Instrument and the amount of all security deposits collected by Borrower from
tenants then in residence; (2) failure of Borrower to apply all insurance
proceeds and condemnation proceeds as required by the Security Instrument; or
(3) failure of Borrower to comply with Section 14(d) or (e) of the Security
Instrument relating to the delivery of books and records, statements, schedules
and reports.
(d) For purposes of determining Borrower's personal liability under
Paragraph 9(b) and Paragraph 9(c), all payments made by Borrower or any
guarantor of this Note with respect to the Indebtedness and all amounts received
by Lender from the enforcement of its rights under the Security Instrument shall
be applied first to the portion of the Indebtedness for which Borrower has no
personal liability.
(e) Borrower shall become personally liable to Lender for the repayment of
all of the Indebtedness upon the occurrence of any of the following Events of
Default: (1) Borrower's acquisition of any property or operation of any business
not permitted by Section 33 of the Security Instrument; (2) a Transfer
(including, but not limited to, a lien or encumbrance) that is an Event of
Default under Section 21 of the Security Instrument, other than a Transfer
consisting solely of the involuntary removal or involuntary withdrawal of a
general partner in a limited partnership or a manager in a limited liability
company; or (3) fraud or written material misrepresentation by Borrower or any
officer, director, partner, member or employee of Borrower in connection with
the application for or creation of the Indebtedness or any request for any
action or consent by Lender.
(f) In addition to any personal liability for the Indebtedness, Borrower
shall be personally liable to Lender for (1) the performance of all of
Borrower's obligations under Section 18 of the Security Instrument (relating to
environmental matters); (2) the costs of any audit under Section 14(d) of the
Security Instrument; and (3) any costs and expenses incurred by Lender in
connection with the collection of any amount for which Borrower is personally
liable under this Paragraph 9, including fees and out of pocket expenses of
attorneys and expert witnesses and the costs of conducting any independent audit
of Borrower's books and records to determine the amount for which Borrower has
personal liability.
(g) To the extent that Borrower has personal liability under this
Paragraph 9, Lender may exercise its rights against Borrower personally without
regard to whether Lender has exercised any rights against the Mortgaged Property
or any other security, or pursued any rights against any guarantor, or pursued
any other rights available to Lender under this Note, the Security Instrument,
any other Loan Document or applicable law. For purposes of this Paragraph 9, the
term "Mortgaged Property" shall not include any funds that (1) have been applied
by Borrower as required or permitted by the Security Instrument prior to the
occurrence of an Event of Default or (2) Borrower was unable to apply as
required or permitted by the Security Instrument because of a bankruptcy,
receivership, or similar judicial proceeding. To the fullest extent permitted by
applicable law, in any action to enforce Borrower's personal liability under
this Paragraph 9, Borrower waives any right to set off the value of the
Mortgaged Property against such personal liability.
10. Voluntary and Involuntary Prepayments.
(a) A prepayment premium shall be payable in connection with any
prepayment (any receipt by Lender of principal, other than principal required to
be paid in monthly installments pursuant to Paragraph 3(b), prior to the
scheduled Maturity Date set forth in Paragraph 3(c)) under this Note as provided
below:
(1) Borrower may voluntarily prepay all of the unpaid principal
balance of this Note on a Business Day designated as the date for such
prepayment in a written notice from Borrower to Lender given at least 30 days
prior to the date of such prepayment. Such prepayment shall be made by paying
(A) the amount of principal being prepaid, (B) all accrued interest, (C) all
other sums due Lender at the time of such prepayment, and (D) the prepayment
premium calculated pursuant to Paragraph 10(c). For all purposes including the
accrual of interest, any prepayment received by Lender on any day other than the
last calendar day of the month shall be deemed to have been received on the last
calendar day of such month. For purposes of this Note, a "Business Day" means
any day other than a Saturday, Sunday or any other day on which Lender is not
open for business. Unless expressly provided for in the Loan Documents, Borrower
shall not have the option to voluntarily prepay less than all of the unpaid
principal balance. However, if a partial prepayment is provided for in the Loan
Documents or is accepted by Lender in Lender's discretion, a prepayment premium
calculated pursuant to Paragraph 10(c) shall be due and payable by Borrower.
(2) Upon Lender's exercise of any right of acceleration under this
Note, Borrower shall pay to Lender, in addition to the entire unpaid principal
balance of this Note outstanding at the time of the acceleration, (A) all
accrued interest and all other sums due Lender, and (B) the prepayment premium
calculated pursuant to Paragraph 10(c).
(3) Any application by Lender of any collateral or other security to
the repayment of any portion of the unpaid principal balance of this Note prior
to the Maturity Date and in the absence of acceleration shall be deemed to be a
partial prepayment by Borrower, requiring the payment to Lender by Borrower of a
prepayment premium.
(b) Notwithstanding the provisions of Paragraph 10(a), no prepayment
premium shall be payable with respect to (A) any prepayment made during the
period from one hundred eighty (180) days before the scheduled Maturity Date to
the scheduled Maturity Date, or (B) any prepayment occurring as a result of the
application of any insurance proceeds or condemnation award under the Security
Instrument.
(c) Any prepayment premium payable under this Note shall be computed as
follows:
(1) If the prepayment is made between the date of this Note and the
date that is one hundred eighty (180) months after the first day of the first
calendar month following the date of this Note (the "Yield Maintenance Period"),
the prepayment premium shall be whichever is the greater of subparagraphs (i)
and (ii) below:
(i) 1.0% of the unpaid principal balance of this Note; or
(ii) the product obtained by multiplying:
(A) the amount of principal being prepaid, by (B) the excess
(if any) of the Monthly Note Rate over the
Assumed
Reinvestment Rate,
by
(C) the Present Value Factor.
For purposes of subparagraph (ii), the following definitions shall
apply:
Monthly Note Rate: one-twelfth (1/12) of the annual interest rate of
this Note, expressed as a decimal calculated to five digits.
Prepayment Date: in the case of a voluntary prepayment, the date on
which the prepayment is made; in the case of the application by
Lender of collateral or security to a portion of the principal
balance, the date of such application; and in any other case, the
date on which Lender accelerates the unpaid principal balance of
this Note.
Assumed Reinvestment Rate: one-twelfth (1/12) of the yield rate as
of the date 5 Business Days before the Prepayment Date, on the
8.750% U.S. Treasury Security due May 17, 2017, as reported in The
Wall Street Journal, expressed as a decimal calculated to five
digits. In the event that no yield is published on the applicable
date for the Treasury Security used to determine the Assumed
Reinvestment Rate, Lender, in its discretion, shall select the
non-callable Treasury Security maturing in the same year as the
Treasury Security specified above with the lowest yield published in
The Wall Street Journal as of the applicable date. If the
publication of such yield rates in The Wall Street Journal is
discontinued for any reason, Lender shall select a security with a
comparable rate and term to the Treasury Security used to determine
the Assumed Reinvestment Rate. The selection of an alternate
security pursuant to this Paragraph shall be made in Lender's
discretion.
Present Value Factor: the factor that discounts to present value the
costs resulting to Lender from the difference in interest rates
during the months remaining in the Yield Maintenance Period, using
the Assumed Reinvestment Rate as the discount rate, with monthly
compounding, expressed numerically as follows:
n = number of months remaining in Yield Maintenance Period
ARR = Assumed Reinvestment Rate
(2) If the prepayment is made after the expiration of the Yield
Maintenance Period but before the period set forth in Paragraph 10(b)(A) above,
the prepayment premium shall be 1.0% of the unpaid principal balance of this
Note.
(d) Any permitted or required prepayment of less than the unpaid principal
balance of this Note shall not extend or postpone the due date of any subsequent
monthly installments or change the amount of such installments, unless Lender
agrees otherwise in writing.
(e) Borrower recognizes that any prepayment of the unpaid principal
balance of this Note, whether voluntary or involuntary or resulting from a
default by Borrower, will result in Lender's incurring loss, including
reinvestment loss, additional expense and frustration or impairment of Lender's
ability to meet its commitments to third parties. Borrower agrees to pay to
Lender upon demand damages for the detriment caused by any prepayment, and
agrees that it is extremely difficult and impractical to ascertain the extent of
such damages. Borrower therefore acknowledges and agrees that the formula for
calculating prepayment premiums set forth in this Note represents a reasonable
estimate of the damages Lender will incur because of a prepayment.
(f) Borrower further acknowledges that the prepayment premium provisions
of this Note are a material part of the consideration for the Loan, and
acknowledges that the terms of this Note are in other respects more favorable to
Borrower as a result of the Borrower's voluntary agreement to the prepayment
premium provisions.
11. Costs and Expenses. To the fullest extent allowed by applicable law,
Borrower shall pay all expenses and costs, including fees and out-of-pocket
expenses of attorneys (including Lender's in-house attorneys) and expert
witnesses and costs of investigation, incurred by Lender as a result of any
default under this Note or in connection with efforts to collect any amount due
under this Note, or to enforce the provisions of any of the other Loan
Documents, including those incurred in post-judgment collection efforts and in
any bankruptcy proceeding (including any action for relief from the automatic
stay of any bankruptcy proceeding) or judicial or non-judicial foreclosure
proceeding.
12. Forbearance. Any forbearance by Lender in exercising any right or
remedy under this Note, the Security Instrument, or any other Loan Document or
otherwise afforded by applicable law, shall not be a waiver of or preclude the
exercise of that or any other right or remedy. The acceptance by Lender of any
payment after the due date of such payment, or in an amount which is less than
the required payment, shall not be a waiver of Lender's right to require prompt
payment when due of all other payments or to exercise any right or remedy with
respect to any failure to make prompt payment. Enforcement by Lender of any
security for Borrower's obligations under this Note shall not constitute an
election by Lender of remedies so as to preclude the exercise of any other right
or remedy available to Lender.
13. Waivers. Presentment, demand, notice of dishonor, protest, notice of
acceleration, notice of intent to demand or accelerate payment or maturity,
presentment for payment, notice of nonpayment, grace, and diligence in
collecting the Indebtedness are waived by Borrower and all endorsers and
guarantors of this Note and all other third party obligors.
14. Loan Charges. Neither this Note nor any of the other Loan Documents
shall be construed to create a contract for the use, forbearance or detention of
money requiring payment of interest at a rate greater than the maximum interest
rate permitted to be charged under applicable law. If any applicable law
limiting the amount of interest or other charges permitted to be collected from
Borrower in connection with the Loan is interpreted so that any interest or
other charge provided for in any Loan Document, whether considered separately or
together with other charges provided for in any other Loan Document, violates
that law, and Borrower is entitled to the benefit of that law, that interest or
charge is hereby reduced to the extent necessary to eliminate that violation.
The amounts, if any, previously paid to Lender in excess of the permitted
amounts shall be applied by Lender to reduce the unpaid principal balance of
this Note. For the purpose of determining whether any applicable law limiting
the amount of interest or other charges permitted to be collected from Borrower
has been violated, all Indebtedness that constitutes interest, as well as all
other charges made in connection with the Indebtedness that constitute interest,
shall be deemed to be allocated and spread ratably over the stated term of the
Note. Unless otherwise required by applicable law, such allocation and spreading
shall be effected in such a manner that the rate of interest so computed is
uniform throughout the stated term of the Note.
15. Commercial Purpose. Borrower represents that the Indebtedness is
being incurred by Borrower solely for the purpose of carrying on a business or
commercial enterprise, and not for personal, family, household, or agricultural
purposes.
16. Counting of Days. Except where otherwise specifically provided, any
reference in this Note to a period of "days" means calendar days, not
Business Days.
17. Governing Law. This Note shall be governed by the law of the
jurisdiction in which the Land is located.
18. Captions. The captions of the paragraphs of this Note are for
convenience only and shall be disregarded in construing this Note.
19. Notices; Written Modifications. All notices, demands and other
communications required or permitted to be given by Lender to Borrower pursuant
to this Note shall be given in accordance with Section 31 of the Security
Instrument. Any modification or amendment to this Note shall be ineffective
unless in writing signed by the party sought to be charged with such
modification or amendment; provided, however, that in the event of a Transfer
under the terms of the Security Instrument, any or some or all of the
Modification to Multifamily Note may be modified or rendered void by Lender at
Lender's option by notice to Borrower/transferee.
20. Consent to Jurisdiction and Venue. Borrower agrees that any
controversy arising under or in relation to this Note shall be litigated
exclusively in the jurisdiction in which the Land is located (the "Property
Jurisdiction"). The state and federal courts and authorities with jurisdiction
in the Property Jurisdiction shall have exclusive jurisdiction over all
controversies which shall arise under or in relation to this Note. Borrower
irrevocably consents to service, jurisdiction, and venue of such courts for any
such litigation and waives any other venue to which it might be entitled by
virtue of domicile, habitual residence or otherwise.
21. WAIVER OF TRIAL BY JURY. BORROWER AND LENDER EACH (A) AGREES NOT TO
ELECT A TRIAL BY JURY WITH RESPECT TO ANY ISSUE ARISING OUT OF THIS NOTE OR THE
RELATIONSHIP BETWEEN THE PARTIES AS LENDER AND BORROWER THAT IS TRIABLE OF RIGHT
BY A JURY AND (B) WAIVES ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO SUCH ISSUE
TO THE EXTENT THAT ANY SUCH RIGHT EXISTS NOW OR IN THE FUTURE. THIS WAIVER OF
RIGHT TO TRIAL BY JURY IS SEPARATELY GIVEN BY EACH PARTY, KNOWINGLY AND
VOLUNTARILY WITH THE BENEFIT OF COMPETENT LEGAL COUNSEL.
ATTACHED EXHIBIT. The following Exhibit is attached to this Note:
|X | Exhibit A Modifications to Multifamily Note
IN WITNESS WHEREOF, Borrower has signed and delivered this Note under seal
or has caused this Note to be signed and delivered under seal by its duly
authorized representative. Borrower intends that this Note shall be deemed to be
signed and delivered as a sealed instrument.
BORROWER:
SHELTER PROPERTIES VI LIMITED
PARTNERSHIP, a South Carolina limited
partnership
WITNESS: By: Shelter Realty VI Corporation,
a South Carolina corporation,
____________________________ General Partner
Name: ______________________
By:
----------------------------------
Patti K. Fielding
WITNESS: Senior Vice President
- ----------------------------
Name: ______________________
Borrower's Employer ID Number 57-0755618
PAY TO THE ORDER OF FREDDIE MAC WITHOUT RECOURSE, THIS __________ DAY OF
MAY, 2002.
KEYCORP REAL ESTATE CAPITAL MARKETS,
INC. an Ohio corporation
By:
Jeffrey S. Juster, Senior
Vice President
River Reach Apartments
Commitment No.: 002697823