FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY OR TRANSITIONAL REPORT
U. S. Securities And Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended April 30, 1999
[ ] TRANSITION REPORT PURSUANT TO 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)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act 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
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
SHELTER PROPERTIES VI
BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
April 30, 1999
Assets
Cash and cash equivalents $ 1,815
Receivables and deposits 856
Restricted escrows 1,291
Other assets 502
Investment properties:
Land $ 4,950
Buildings and related personal property 48,861
53,811
Less accumulated depreciation (27,711) 26,100
$ 30,564
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable $ 124
Tenant security deposit liabilities 228
Accrued property taxes 575
Other liabilities 392
Mortgage notes payable 25,795
Partners' Capital (Deficit)
General partners' $ (310)
Limited partners' (42,324 units
issued and outstanding) 3,760 3,450
$ 30,564
See Accompanying Notes to Financial Statements
b)
SHELTER PROPERTIES VI
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended Six Months Ended
April 30, April 30,
1999 1998 1999 1998
Revenues:
Rental income $ 2,501 $ 2,302 $ 4,906 $ 4,651
Other income 149 179 362 343
Total revenues 2,650 2,481 5,268 4,994
Expenses:
Operating 1,086 1,036 2,090 2,039
General and administrative 105 92 184 173
Depreciation 487 495 973 988
Interest 584 604 1,170 1,212
Property taxes 242 246 461 472
Total expenses 2,504 2,473 4,878 4,884
Net income $ 146 $ 8 $ 390 $ 110
Net income allocated
to general partners (1%) $ 1 $ -- $ 4 $ 1
Net income allocated
to limited partners (99%) 145 8 386 109
$ 146 $ 8 $ 390 $ 110
Net income per limited
partnership unit $ 3.43 $ .19 $ 9.12 $ 2.58
Distribution per limited
partnership unit $ -- $ -- $ 49.45 $ --
See Accompanying Notes to Financial Statements
c)
SHELTER PROPERTIES VI
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (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) capital
at October 31, 1998 42,324 $ (307) $ 5,467 $ 5,160
Net income for the six months
ended April 30, 1999 -- 4 386 390
Distribution to partners -- (7) (2,093) (2,100)
Partners (deficit) capital at
April 30, 1999 42,324 $ (310) $ 3,760 $ 3,450
See Accompanying Notes to Financial Statements
d)
SHELTER PROPERTIES VI
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
April 30,
1999 1998
Cash flows from operating activities:
Net income $ 390 $ 110
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 973 988
Amortization of discounts and loan costs 143 154
Change in accounts:
Receivables and deposits 58 20
Other assets (44) 89
Accounts payable (159) (271)
Tenant security deposit liabilities 19 (3)
Accrued property taxes (202) (55)
Other liabilities 131 11
Net cash provided by operating activities 1,309 1,043
Cash flows from investing activities:
Property improvements and replacements (388) (463)
Net withdrawals from (deposits to) restricted escrows 335 (36)
Insurance proceeds from casualty items -- 148
Net cash used in investing activities (53) (351)
Cash flows from financing activities:
Payments on mortgage notes payable (452) (420)
Distribution paid to partners (2,100) --
Net cash used in financing activities (2,552) (420)
Net (decrease) increase in cash and cash equivalents (1,296) 272
Cash and cash equivalents at beginning of period 3,111 2,632
Cash and cash equivalents at end of period $ 1,815 $ 2,904
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,027 $ 1,058
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. In the
opinion of Shelter Realty VI Corporation (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 April 30, 1999, are not necessarily indicative of the
results that may be expected for the fiscal year ending October 31, 1999. For
further information, refer to the financial statements and footnotes thereto
included in the Partnership's annual report on Form 10-KSB for the fiscal year
ended October 31, 1998.
NOTE B - TRANSFER OF CONTROL
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust
merged into Apartment Investment and Management Company ("AIMCO"), a publicly
traded real estate investment trust, with AIMCO being the surviving corporation
(the "Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in
the Corporate General Partner. The Corporate General Partner does not believe
that this transaction will have a material effect on the affairs and operations
of the Partnership.
NOTE C - RECONCILIATION OF CASH FLOWS
The following is a reconciliation of the subtotal on the accompanying statements
of cash flows captioned "Net cash provided by operating activities" to "Net cash
used in operations", as defined in the partnership agreement. However, "Net
cash used in 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
April 30,
1999 1998
(in thousands)
Net cash provided by operating activities $1,309 $1,043
Payments on mortgage notes payable (452) (420)
Property improvements and replacements (388) (463)
Change in restricted escrows, net 335 (36)
Changes in reserves for net operating
liabilities 197 209
Additional reserves (1,001) (333)
Net cash used in operations $ -- $ --
The Corporate General Partner believed it to be in the best interest of the
Partnership to reserve net cash from operations of approximately $1,001,000 and
$333,000 at April 30, 1999 and 1998, respectively, to fund continuing capital
improvements at the Partnership's six investment properties.
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 certain payments
to affiliates for services and the reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership. The following expenses were paid or
accrued to affiliates of the Corporate General Partner during the six months
ended April 30, 1999 and 1998:
1999 1998
(in thousands)
Property management fees (included in operating expenses) $265 $251
Reimbursements for services of affiliates (included in
operating and general and administrative expenses and 101 126
investment properties (1)
(1) Included in reimbursements for services of affiliates for the six months
ended April 30, 1999 and 1998, is approximately $2,000 and $19,000
respectively, of construction oversight reimbursements.
During the six months ended April 30, 1999 and 1998, affiliates of the Corporate
General Partner were entitled to receive 5% of gross receipts from all of the
Partnership's investment properties as compensation for providing property
management services. The Partnership paid to such affiliates approximately
$265,000 and $251,000 for the six months ended April 30, 1999 and 1998,
respectively.
An affiliate of the Corporate General Partner received reimbursements of
accountable administrative expenses amounting to approximately $101,000 and
$126,000 for the six months ended April 30, 1999 and 1998, respectively.
NOTE E - CASUALTY ITEMS
During the six months ended April 30, 1998, the Partnership received
approximately $148,000 in insurance proceeds, which were accrued at October 31,
1997. Approximately $35,000 of the proceeds were received in the first quarter
of 1998, relating to tornado damage at River Reach Apartments in May 1997. A
casualty loss of approximately $19,000 resulted and was recorded during the year
ended October 31, 1997. Approximately $113,000 of the proceeds were received in
the second quarter of 1998, relating to fire damage at Foxfire/Barcelona in
April 1997. A casualty gain of approximately $53,000 resulted and was recorded
during the quarter ended April 30, 1997.
NOTE F - DISTRIBUTIONS
A cash distribution of approximately $2,100,000 was paid to the partners during
the six months ended April 30, 1999. Approximately $1,412,000 ($33.36 per
limited partnership unit) was paid from the proceeds of a 1995 property sale and
approximately $688,000 ($16.09 per limited partnership unit) was paid from
operations. There were no distributions paid or declared during the six months
ended April 30, 1998.
NOTE G - SEGMENT REPORTING
Description of the Types of Products and Services from which the Reportable
Segment Derives its Revenues: The Partnership has one reportable segment:
residential properties. The Partnership's residential property segment consists
of six apartment complexes located in five states throughout the United States
as follows: one each in Georgia, Iowa, Florida, and Colorado and two in North
Carolina. The Partnership rents apartment units to tenants for terms that are
typically twelve months or less.
Measurement of Segment Profit or Loss: The Partnership evaluates performance
based on net income. The accounting policies of the reportable segment are the
same as those of the Partnership as described in the Partnership's annual report
on Form 10-KSB for the fiscal year ended October 31, 1998.
Factors management used to identify the Partnership's reportable segments: The
Partnership's reportable segments are investment properties that offer similar
products and services. Although each of the investment properties is managed
separately, they have been aggregated into one segment as they provide services
with similar types of products and customers.
Segment information for the six months ended April 30, 1999 and 1998 is shown in
the tables below (in thousands). The "Other" column includes partnership
administration related items and income and expense not allocated to the
reportable segment.
1999 RESIDENTIAL OTHER TOTALS
Rental income $ 4,906 $ -- $ 4,906
Other income 327 35 362
Interest expense 1,170 -- 1,170
Depreciation 973 -- 973
General and administrative
expense -- 184 184
Segment profit (loss) 539 (149) 390
Total assets 29,300 1,264 30,564
Capital expenditures for
investment properties 388 -- 388
1998 RESIDENTIAL OTHER TOTALS
Rental income $ 4,651 $ -- $ 4,651
Other income 282 61 343
Interest expense 1,212 -- 1,212
Depreciation 988 -- 988
General and administrative
expense -- 173 173
Segment profit (loss) 222 (112) 110
Total assets 29,919 2,742 32,661
Capital expenditures for
investment properties 463 -- 463
NOTE H - LEGAL PROCEEDINGS
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, the Corporate General Partner and several of their affiliated
partnerships and corporate entities. The complaint 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 the acquisition by Insignia Financial Group, Inc.
("Insignia") and entities which were, at one time, affiliates of Insignia
("Insignia Affiliates") of interests in certain general partner entities, past
tender offers by Insignia Affiliates to acquire limited partnership units, the
management of partnerships by Insignia Affiliates as well as a recently
announced agreement between Insignia and Apartment Investment and Management
Company. The complaint seeks 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 during
February 1999. No ruling on such demurrers has been received. The Corporate
General Partner does not anticipate that costs associated with this case, if
any, will be material to the Partnership's overall operations.
On July 30, 1998, certain entities claiming to own limited partnership interests
in certain limited partnerships whose general partners were, at the time,
affiliates of Insignia filed a complaint entitled Everest Properties, LLC. v.
Insignia Financial Group, Inc., et al. in the Superior Court of the State of
California, county of Los Angeles. This case was settled on March 3, 1999. The
Partnership is responsible for a portion of the settlement costs. These costs
have been paid and are included in general and administrative expenses at April
30, 1999. The expense did not have a material effect on 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 Partnership from time to time.
The discussion of the Partnership'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 Partnership's business and
results of operation. 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 six apartment complexes. The
following table sets forth the average occupancy of each of the investment
properties for the six months ended April 30, 1999 and 1998:
Average Occupancy
Property 1999 1998
Rocky Creek Apartments
Augusta, Georgia (1) 92% 89%
Carriage House Apartments
Gastonia, North Carolina (2) 92% 82%
Nottingham Square Apartments
Des Moines, Iowa (3) 93% 85%
Foxfire/Barcelona Apartments
Durham, North Carolina (4) 96% 91%
River Reach Apartments
Jacksonville, Florida (5) 94% 97%
Village Gardens Apartments
Fort Collins, Colorado 98% 96%
(1) The increase in average occupancy at Rocky Creek Apartments is attributable
to improved market conditions in the area combined with property
improvements made in order to increase curb appeal.
(2) The increase in average occupancy at Carriage House Apartments is due to an
increase in rental concessions and a more aggressive marketing campaign
during 1999 in an effort to take advantage of the improved local rental
market.
(3) The increase in average occupancy at Nottingham Square Apartments is
primarily the result of increased marketing efforts during 1999.
(4) The increase in average occupancy at Foxfire/Barcelona Apartments is due to
an increase in corporate unit rentals related to a contract signed with a
local hospital for its out-of-town contractors.
(5) The decrease in average occupancy at River Reach Apartments is due to an
increase in home purchases as opposed to rentals resulting from lower
interest rates in the area combined with an increase in rental rates during
1999.
Results of Operations
The Partnership realized net income of approximately $379,000 for the six months
ended April 30, 1999, compared to net income of approximately $110,000 for the
corresponding period in 1998. The Partnership realized net income of
approximately $135,000 for the three months ended April 30, 1999, compared to
net income of approximately $8,000 for the corresponding period in 1998. The
increase in net income for the three and six month periods ended April 30, 1999
is primarily attributable to an increase in total revenues slightly offset by an
increase in total expenses. Total revenues increased during the three and six
month periods ended April 30, 1999 as a result of an increase in rental income
and, to a lesser extent, other income, during the six months ended April 30,
1999. Rental income increased due to the increase in average occupancy at five
of the Partnership's six investment properties and to the increase in average
rental rates at five of the properties (see occupancy discussion above). Other
income increased due to the collection of lease cancellation fees primarily at
the Partnership's Nottingham property during the first quarter of 1999. The
decrease in other income during the three months ended April 30, 1999, is
primarily due to decreases in corporate units and in collections of late fees
and lease cancellation fees.
The increase in total expenses during the three and six month periods ended
April 30, 1999 is attributable primarily to an increase in operating expense
and, to a lesser extent, an increase in general and administrative expenses,
which was partially offset by a decrease in interest expense and, to a lesser
extent, to decreases in depreciation and property tax expense. Operating expense
increased primarily due to increases in advertising and administrative expenses
related to the Partnership's efforts to increase occupancy. General and
administrative expenses increased primarily due to an increase in legal fees
partially offset by decreases in general partner reimbursements and professional
fees. Interest expense decreased as a result of the principal payments made on
the debt encumbering all of the Partnership's properties. Included in general
and administrative expenses at both April 30, 1999 and 1998, are reimbursements
to the Corporate General Partner allowed under the Partnership Agreement
associated with its management of the Partnership. In addition, costs associated
with the quarterly and annual communication with investors and regulatory
agencies and the annual audit and appraisals required by the Partnership
Agreement are also included.
As part of the ongoing business plan of the Partnership, the Corporate General
Partner monitors the rental market environment of each of its investment
properties to assess the feasibility of increasing rents, maintaining or
increasing occupancy levels and protecting the Partnership from increases in
expense. As part of this plan, the Corporate General Partner attempts to
protect the Partnership from the burden of inflation-related increases in
expenses by increasing rents and maintaining a high overall occupancy level.
However, due to changing market conditions, which can result in the use of
rental concessions and rental reductions to offset softening market conditions,
there is no guarantee that the Corporate General Partner will be able to sustain
such a plan.
Liquidity and Capital Resources
At April 30, 1999, the Partnership had cash and cash equivalents of
approximately $1,815,000 as compared to approximately $2,904,000 at April 30,
1998. The decrease in cash and cash equivalents from the year ended October 31,
1998 is approximately $1,296,000 and is due to approximately $2,552,000 of cash
used in financing activities and to approximately $53,000 of cash used in
investing activities, which was partially offset by approximately $1,309,000 of
cash provided by operating activities. Cash used in financing activities
consisted primarily of a distribution to the partners and, to a lesser extent,
payments of principal made on the mortgages encumbering the Partnership's
properties. Cash used in investing activities consisted of property
improvements and replacements which was partially offset by net withdrawals from
restricted escrows maintained by the mortgage lender. The Partnership invests
its working capital reserves in money market 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. Capital
improvements planned for each of the Partnership's investment properties are
detailed below.
Rocky Creek
During the six months ended April 30, 1999, the Partnership expended
approximately $15,000 for capital improvements at Rocky Creek primarily
consisting of carpet and appliance replacement. These improvements were funded
from operating cash flow. Based on a report received from an independent third
party consultant analyzing necessary exterior improvements and estimates made by
the Corporate General Partner on interior improvements, it is estimated that the
property requires approximately $134,000 of capital improvements over the near
term. Capital improvements budgeted for 1999 include, but are not limited to,
landscaping, roof repairs, and flooring replacements, which are expected to cost
approximately $109,000.
Carriage House
During the six months ended April 30, 1999, the Partnership expended
approximately $33,000 for capital improvements at Carriage House primarily
consisting of floor covering, appliance replacement, and heating and air
conditioning upgrades. These improvements were funded from Partnership reserves
and operating cash flow. Based on a report received from an independent third
party consultant analyzing necessary exterior improvements and estimates made by
the Corporate General Partner on interior improvements, it is estimated that the
property requires approximately $166,000 of capital improvements over the near
term. Capital improvements budgeted for 1999 include, but are not limited to,
landscaping and exterior building improvements, which are expected to cost
approximately $176,000.
Nottingham Square
During the six months ended April 30, 1999, the Partnership expended
approximately $129,000 for capital improvements at Nottingham Square primarily
consisting of floor covering, appliance, and cabinet and countertop replacement.
These improvements were funded from Partnership reserves. Based on a report
received from an independent third party consultant analyzing necessary exterior
improvements and estimates made by the Corporate General Partner on interior
improvements, it is estimated that the property requires approximately $709,000
of capital improvements over the near term. Capital improvements budgeted for
1999 include, but are not limited to, wallcovering and cabinet replacements,
electrical upgrades, and parking lot repairs, which are expected to cost
approximately $750,000.
Foxfire/Barcelona
During the six months ended April 30, 1999, the Partnership expended
approximately $49,000 for capital improvements at Foxfire/Barcelona primarily
consisting of floor covering, appliance, and cabinet and countertop replacement,
and other building improvements. These improvements were funded from operating
cash flow. Based on a report received from an independent third party
consultant analyzing necessary exterior improvements and estimates made by the
Corporate General Partner on interior improvements, it is estimated that the
property requires approximately $569,000 of capital improvements over the near
term. Capital improvements budgeted for 1999 include, but are not limited to,
exterior painting, flooring replacement, and parking lot and structural repairs,
which are expected to cost approximately $608,000.
River Reach
During the six months ended April 30, 1999, the Partnership expended
approximately $116,000 for capital improvements at River Reach primarily
consisting of floor covering and appliance replacement, interior decoration,
wallcovering, air conditioning upgrades, and cabinet and countertop replacement.
These improvements were funded from Partnership reserves and operating cash
flow. Based on a report received from an independent third party consultant
analyzing necessary exterior improvements and estimates made by the Corporate
General Partner on interior improvements, it is estimated that the property
requires approximately $449,000 of capital improvements over the near term.
Capital improvements budgeted for 1999 include, but are not limited to,
landscaping, structural repairs, floor covering replacement, air conditioning
units, and outdoor lighting, which are expected to cost approximately $472,000.
Village Gardens
During the six months ended April 30, 1999, the Partnership expended
approximately $46,000 for capital improvements at Village Garden primarily
consisting of floor covering and water heater replacements. These improvements
were funded from operating cash flow. Based on a report received from an
independent third party consultant analyzing necessary exterior improvements and
estimates made by the Corporate General Partner on interior improvements, it is
estimated that the property requires approximately $264,000 of capital
improvements over the near term. Capital improvements budgeted for 1999 include,
but are not limited to, building painting, and swimming pool and roof repairs,
which are expected to cost approximately $285,000.
The additional capital expenditures will be incurred only if cash is available
from operations or from Partnership reserves. To the extent that such budgeted
capital improvements are completed, the Partnership's distributable cash flow,
if any, may be adversely affected at least in the short term.
The Partnership's assets are currently thought to be sufficient for any near
term needs (exclusive of capital improvements) of the Partnership. The mortgage
indebtedness of approximately $25,795,000, net of discounts, is being amortized
over 257 months with a balloon payment of approximately $23,008,000 due November
15, 2002. The Corporate General Partner will attempt to refinance such
indebtedness and/or sell the properties prior to such maturity date. If the
properties cannot be refinanced or sold for a sufficient amount, the Partnership
will risk losing such properties through foreclosure.
A cash distribution of approximately $2,100,000 was paid to the partners during
the six months ended April 30, 1999. Approximately $1,412,000 ($33.36 per
limited partnership unit) was paid from the proceeds of a 1995 property sale and
approximately $688,000 ($16.09 per limited partnership unit) was paid from
operations. There were no distributions paid or declared during the six months
ended April 30, 1998. The Partnership's distribution policy will be reviewed on
a quarterly basis. 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. There can be no
assurance, however, that the Partnership will generate sufficient funds from
operations, after required capital improvements, to permit further distributions
to its partners in 1999 or subsequent periods.
Potential Tender Offer
On May 19, 1999, AIMCO Properties, L.P., an affiliate of AIMCO commenced a
tender offer to purchase up to 12,163.27 (28.74% of the total outstanding units)
units of limited partnership interest in the Partnership for a purchase price of
$331.00 per unit. The offer is scheduled to expire on June 29, 1999, unless
extended. It is possible that subsequent to the consummation of this offer,
AIMCO or its affiliate will make one or more additional offers to acquire
additional limited partnership interests in the Partnership for cash or in
exchange for units in the operating partnership of AIMCO. While such an exchange
offer is possible, no definite plans exist as to when or whether to commence
such an exchange offer, or as to the terms of any such exchange offer, and it is
possible that none will occur.
A registration statement relating to the securities to be issued in an exchange
offer has been filed with the Securities and Exchange Commission but has not yet
become effective. These securities may not be sold nor may offers to buy be
accepted prior to the time the registration statement becomes effective. This
Form 10-QSB shall not constitute an offer to sell or the solicitation of an
offer to buy nor shall there be any sale of these securities in any state in
which such offer, solicitation or sale would be unlawful prior to the
registration or qualification under the securities laws of any such state.
Year 2000 Compliance
General Description of the Year 2000 Issue and the Nature and Effects of the
Year 2000 on Information Technology (IT) and Non-IT Systems
The Year 2000 issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. The Partnership
is dependent upon the Corporate General Partner and its affiliates for
management and administrative services ("Managing Agent"). Any of the computer
programs or hardware that have date-sensitive software or embedded chips may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
Over the past two years, the Managing Agent has determined that it will be
required to modify or replace significant portions of its software and certain
hardware so that those systems will properly utilize dates beyond December 31,
1999. The Managing Agent presently believes that with modifications or
replacements of existing software and certain hardware, the Year 2000 issue can
be mitigated. However, if such modifications and replacements are not made, or
not completed in time, the Year 2000 issue could have a material impact on the
operations of the Partnership.
The Managing Agent's plan to resolve Year 2000 issues involves four phases:
assessment, remediation, testing, and implementation. To date, the Managing
Agent has fully completed its assessment of all the information systems that
could be significantly affected by the Year 2000, and has begun the remediation,
testing and implementation phases on both hardware and software systems.
Assessments are continuing in regards to embedded systems. The status of each
is detailed below.
Status of Progress in Becoming Year 2000 Compliant, Including Timetable for
Completion of Each Remaining Phase
Computer Hardware:
During 1997 and 1998, the Managing Agent identified all of the computer systems
at risk and formulated a plan to repair or replace each of the affected systems.
In August 1998, the main computer system used by the Managing Agent became fully
functional. In addition to the main computer system, PC-based network servers,
routers and desktop PCs were analyzed for compliance. The Managing Agent has
begun to replace each of the non-compliant network connections and desktop PCs
and, as of April 30, 1999, had completed approximately 75% of this effort.
The total cost to the Managing Agent to replace the PC-based network servers,
routers and desktop PCs is expected to be approximately $1.5 million of which
$1.3 million has been incurred to date. The remaining network connections and
desktop PCs are expected to be upgraded to Year 2000 compliant systems by July
31, 1999.
Computer Software:
The Managing Agent utilizes a combination of off-the-shelf, commercially
available software programs as well as custom-written programs that are designed
to fit specific needs. Both of these types of programs were studied, and
implementation plans written and executed with the intent of repairing or
replacing any non-compliant software programs.
During 1998, the Managing Agent began converting the existing property
management and rent collection systems to its management properties Year 2000
compliant systems. The estimated additional costs to convert such systems at all
properties, is $200,000, and the implementation and the testing process is
expected to be completed by July 31, 1999.
The final software area is the office software and server operating systems.
The Managing Agent has upgraded all non-compliant office software systems on
each PC and has upgraded 80% of the server operating systems. The remaining
server operating systems are planned to be upgraded to be Year 2000 compliant by
July 31, 1999.
Operating Equipment:
The Managing Agent has operating equipment, primarily at the property sites,
which needed to be evaluated for Year 2000 compliance. In September 1997, the
Managing Agent began taking a census and inventory of embedded systems
(including those devices that use time to control systems and machines at
specific properties, for example elevators, heating, ventilating, and air
conditioning systems, security and alarm systems, etc.).
The Managing Agent has chosen to focus its attention mainly upon security
systems, elevators, heating, ventilating and air conditioning systems, telephone
systems and switches, and sprinkler systems. While this area is the most
difficult to fully research adequately, management has not yet found any major
non-compliance issues that put the Managing Agent at risk financially or
operationally. The Managing Agent intends to have a third-party conduct an
audit of these systems and report their findings by July 31, 1999.
Any of the above operating equipment that has been found to be non-compliant to
date has been replaced or repaired. To date, these have consisted only of
security systems and phone systems. As of May 31, 1999 the Managing Agent has
evaluated approximately 86% of the operating equipment for the Year 2000
compliance.
The total cost incurred for all properties managed by the Managing Agent as of
May 31, 1999 to replace or repair the operating equipment was approximately
$400,000. The Managing Agent estimates the cost to replace or repair any
remaining operating equipment is approximately $325,000, which is expected to be
completed by August 30, 1999.
The Managing Agent continues to have "awareness campaigns" throughout the
organization designed to raise awareness and report any possible compliance
issues regarding operating equipment within its enterprise.
Nature and Level of Importance of Third Parties and Their Exposure to the Year
2000
The Managing Agent continues to conduct surveys of its banking and other vendor
relationships to assess risks regarding their Year 2000 readiness. The Managing
Agent has banking relationships with three major financial institutions, all of
which have indicated their compliance efforts will be complete before July,
1999. The Managing Agent has updated data transmission standards with all of the
financial institutions. The Managing Agent's contingency plan in this regard is
to move accounts from any institution that cannot be certified Year 2000
compliant by August 1, 1999.
The Partnership does not rely heavily on any single vendor for goods and
services, and does not have significant suppliers and subcontractors who share
information systems (external agent). To date the Partnership is not aware of
any external agent with a Year 2000 compliance issue that would materially
impact the Partnership's results of operations, liquidity, or capital resources.
However, the Partnership has no means of ensuring that external agents will be
Year 2000 compliant.
The Managing Agent does not believe that the inability of external agents to
complete their Year 2000 remediation process in a timely manner will have a
material impact on the financial position or results of operations of the
Partnership. However, the effect of non-compliance by external agents is not
readily determinable.
Costs to Address Year 2000
The total cost of the Year 2000 project to the Managing Agent is estimated at
$3.5 million and is being funded from operating cash flows. To date, the
Managing Agent has incurred approximately $2.8 million ($0.6 million expensed
and $2.2 million capitalized for new systems and equipment) related to all
phases of the Year 2000 project. Of the total remaining project costs,
approximately $0.5 million is attributable to the purchase of new software and
operating equipment, which will be capitalized. The remaining $0.2 million
relates to repair of hardware and software and will be expensed as incurred.
The Partnership's portion of these costs are not material.
Risks Associated with the Year 2000
The Managing Agent believes it has an effective program in place to resolve the
Year 2000 issue in a timely manner. As noted above, the Managing Agent has not
yet completed all necessary phases of the Year 2000 program. In the event that
the Managing Agent does not complete any additional phases, certain worst case
scenarios could occur. The worst case scenarios could include elevators,
security and heating, ventilating and air conditioning systems that read
incorrect dates and operate with incorrect schedules (e.g., elevators will
operate on Monday as if it were Sunday). Although such a change would be
annoying to residents, it is not business critical.
In addition, disruptions in the economy generally resulting from Year 2000
issues could also adversely affect the Partnership. The Partnership could be
subject to litigation for, among other things, computer system failures,
equipment shutdowns or failure to properly date business records. The amount of
potential liability and lost revenue cannot be reasonably estimated at this
time.
Contingency Plans Associated with the Year 2000
The Managing Agent has contingency plans for certain critical applications and
is working on such plans for others. These contingency plans involve, among
other actions, manual workarounds and selecting new relationships for such
activities as banking relationships and elevator operating systems.
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. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, the Corporate General Partner and several of their affiliated
partnerships and corporate entities. The complaint 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 the acquisition by Insignia Financial Group, Inc.
("Insignia") and entities which were, at one time, affiliates of Insignia
("Insignia Affiliates") of interests in certain general partner entities, past
tender offers by Insignia Affiliates to acquire limited partnership units, the
management of partnerships by Insignia Affiliates as well as a recently
announced agreement between Insignia and Apartment Investment and Management
Company. The complaint seeks 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 during
February 1999. No ruling on such demurrers has been received. The Corporate
General Partner does not anticipate that costs associated with this case, if
any, will be material to the Partnership's overall operations.
On July 30, 1998, certain entities claiming to own limited partnership interests
in certain limited partnerships whose general partners were, at the time,
affiliates of Insignia filed a complaint entitled Everest Properties, LLC. v.
Insignia Financial Group, Inc., et al. in the Superior Court of the State of
California, county of Los Angeles. This case was settled on March 3, 1999. The
Partnership is responsible for a portion of the settlement costs. These costs
have been paid and are included in general and administrative expenses at April
30, 1999. The expense did not have a material effect on 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 6. EXHIBITS AND REPORTS ON FORM 8-K
a)Exhibits:
Exhibit 27, Financial Data Schedule, is filed as an exhibit to this report.
b)Reports on Form 8-K filed:
None filed during the quarter ended April 30, 1999.
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/Carla R. Stoner
Carla R. Stoner
Senior Vice President
Finance and Administration
Date: May 14, 1999