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 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 31, 1997 [ ] 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 LIMITED PARTNERSHIP (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.) One Insignia Financial Plaza, 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 LIMITED PARTNERSHIP BALANCE SHEET (Unaudited) (in thousands, except unit data) July 31, 1997 Assets Cash and cash equivalents: Unrestricted $ 3,629 Restricted--tenant security deposits 201 Accounts receivable 28 Escrows for taxes 561 Restricted escrows 1,541 Other assets 901 Investment properties: Land $ 4,950 Buildings and related personal property 46,744 51,694 Less accumulated depreciation (24,084) 27,610 $34,471 Liabilities and Partners' Capital Liabilities Accounts payable $ 264 Tenant security deposits 201 Accrued taxes 768 Other liabilities 238 Mortgage notes payable 26,940 Partners' (Deficit) Capital General partners $ (298) Limited partners (42,324 units issued and outstanding) 6,358 6,060 $34,471 See Accompanying Notes to Financial Statements b) SHELTER PROPERTIES VI LIMITED PARTNERSHIP STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended Nine Months Ended July 31, July 31, 1997 1996 1997 1996 Revenues: Rental income $ 2,469 $ 2,352 $ 7,235 $ 7,000 Other income 183 173 516 500 Total revenues 2,652 2,525 7,751 7,500 Expenses: Operating 751 770 2,200 2,164 General and administrative 72 74 213 244 Maintenance 409 431 1,000 1,057 Depreciation 510 496 1,490 1,466 Interest 617 625 1,858 1,889 Property taxes 241 225 698 663 Total expenses 2,600 2,621 7,459 7,483 Net casualty gain (loss) 74 -- 342 (1) Net income (loss) $ 126 $ (96) $ 634 $ 16 Net income (loss) allocated to general partners (1%) $ 1 $ (1) $ 6 $ -- Net income (loss) allocated to limited partners (99%) 125 (95) 628 16 Net income (loss) $ 126 $ (96) $ 634 $ 16 Net income (loss) per limited partnership unit $ 2.95 $ (2.24) $ 14.84 $ .38 See Accompanying Notes to Financial Statements c) SHELTER PROPERTIES VI LIMITED PARTNERSHIP STATEMENT OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL (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, 1996 42,324 $ (304) $ 5,730 $ 5,426 Net income for the nine months ended July 31, 1997 -- 6 628 634 Partners' (deficit) capital at July 31, 1997 42,324 $ (298) $ 6,358 $ 6,060 See Accompanying Notes to Financial Statements d) SHELTER PROPERTIES VI LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) Nine Months Ended July 31, 1997 1996 Cash flows from operating activities: Net income $ 634 $ 16 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 1,490 1,466 Amortization of discounts and loan costs 230 222 Net casualty (gain) loss (342) 1 Change in accounts: Restricted cash (2) (9) Accounts receivable (6) 3 Escrows for taxes (123) (206) Other assets (28) (56) Accounts payable (172) (244) Tenant security deposit liabilities 4 12 Accrued taxes 158 147 Other liabilities (115) 12 Net cash provided by operating activities 1,728 1,364 Cash flows from investing activities: Property improvements and replacements (795) (702) Deposits to restricted escrows (46) (46) Receipts from restricted escrows 14 68 Net insurance proceeds from property damages 214 35 Net cash used in investing activities (613) (645) Cash flows from financing activities: Payments on mortgage notes payable (590) (547) Partners' distributions -- (1,000) Net cash used in financing activities (590) (1,547) Net increase (decrease) in unrestricted cash and cash equivalents 525 (828) Unrestricted cash and cash equivalents at beginning of period 3,104 3,710 Unrestricted cash and cash equivalents at end of period $ 3,629 $ 2,882 Supplemental disclosure of cash flow information: Cash paid for interest $ 1,628 $ 1,671 Supplemental disclosure of non-cash activity: Other assets and accounts payable were adjusted by approximately $211,000 and $183,000, respectively, for non-cash amounts in connection with the recording of the casualty items. See Accompanying Notes to Financial Statements SHELTER PROPERTIES VI LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (Unaudited) NOTE A - BASIS OF PRESENTATION The accompanying unaudited financial statements of Shelter Properties VI Limited Partnership (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" or "General Partner"), all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended July 31, 1997, are not necessarily indicative of the results that may be expected for the fiscal year ending October 31, 1997. 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, 1996. Certain reclassifications have been made to the 1996 information to conform to the 1997 presentation. NOTE B - 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. Nine Months Ended July 31, (in thousands) 1997 1996 Net cash provided by operating activities $ 1,798 $ 1,364 Payments on mortgage notes payable (590) (547) Property improvements and replacements (795) (702) Change in restricted escrows, net (32) 22 Changes in reserves for net operating liabilities 284 341 Additional reserves (666) (479) Net cash used in operations $ (1) $ (1) The Corporate General Partner believed it to be in the best interest of the Partnership to reserve net cash from operations of approximately $666,000 and $479,000 at July 31, 1997 and 1996, respectively, to fund continuing capital improvements at the Partnership's six investment properties. NOTE C - 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 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 an affiliate of the Corporate General Partner during the nine months ended July 31, 1997 and 1996: 1997 1996 (in thousands) Property management fees (included in operating expenses) $ 380 $ 370 Reimbursements for services of affiliates (included in general and administrative expenses) 134 109 The Partnership insures its properties under a master policy through an agency and insurer unaffiliated with the Corporate General Partner. An affiliate of the Corporate General Partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the current year's master policy. The current agent assumed the financial obligations to the affiliate of the Corporate General Partner who receives payments on these obligations from the agent. The amount of the Partnership's insurance premiums accruing to the benefit of the affiliate of the Corporate General Partner by virtue of the agent's obligations is not significant. NOTE D - CASUALTY GAINS AND LOSSES During the nine months ended July 31, 1997, the Partnership recorded the following casualty gains and losses. A casualty gain of approximately $232,000 resulted from the insurance proceeds from hail and wind storm damage at Nottingham Square Apartments that occurred in the second quarter of 1996. Approximately $27,000 of these proceeds were received during the second quarter of 1997 and the remaining $205,000 was received during the third quarter of 1997. In November 1996, a fire occurred at Carriage House Apartments which damaged one unit and caused smoke damage to two additional units and the common area. The estimated costs to repair the units exceeded the insurance proceeds received and thus resulted in a casualty loss of approximately $8,000. In March 1997, a fire occurred at Village Gardens Apartments which destroyed one unit and caused smoke and water damage to additional units. The estimated costs to repair the units exceeded the insurance proceeds expected to be received and thus resulted in a casualty loss of approximately $9,000. In April 1997, a fire occurred at Foxfire/Barcelona Apartments which destroyed an entire building, consisting of eight units. A casualty gain of approximately $139,000 resulted from the expected insurance proceeds exceeding the basis of the units destroyed, plus the total estimated non-capitalized costs to replace the assets. In May 1997, a tornado caused damage to River Reach Apartments resulting in uprooted trees, minor damage to the parking lot and roofs of two units. A casualty loss of approximately $12,000 resulted. The combination of these casualty events resulted in a casualty gain of approximately $342,000 for the nine months ended July 31, 1997. During the first quarter of 1996, the Partnership recorded a casualty loss resulting from a fire which destroyed the interiors of three units at Nottingham Square Apartments. Although the damage was covered by insurance, the damage resulted in a loss of approximately $1,000. The loss resulted from gross proceeds received of approximately $43,000, which were less than the basis of the property plus expenses to replace the damaged interiors. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The Partnership's investment properties consist of six apartment complexes. The following table sets forth the average occupancy of the properties for the nine months ended July 31, 1997 and 1996: Average Occupancy Property 1997 1996 Rocky Creek Apartments Augusta, Georgia 89% 84% Carriage House Apartments Gastonia, North Carolina 92% 97% Nottingham Square Apartments Des Moines, Iowa 92% 94% Foxfire/Barcelona Apartments Durham, North Carolina 95% 98% River Reach Apartments Jacksonville, Florida 98% 98% Village Gardens Apartments Fort Collins, Colorado 95% 94% The Corporate General Partner attributes the increase in occupancy at Rocky Creek Apartments to an increase in corporate and tenant referrals. The decrease in occupancy at Carriage House Apartments is attributable to an overall softness in apartment rentals and an increase in new apartment construction in the Gastonia area. The decrease in occupancy at Foxfire/Barcelona Apartments is attributable to tenants moving out of the complex as a result of a fire in April 1997 and the subsequent construction at the property. The Partnership realized net income of approximately $634,000 and $16,000 for the nine months ended July 31, 1997 and 1996 respectively. During the three months ended July 31, 1997 and 1996, the Partnership realized net income of $126,000 and a net loss of $96,000, respectively. The increase in net income for the three and nine months ended July 31, 1997, is largely attributable to the net casualty gains, as discussed below, and rental rate increases at all of the Partnership's investment properties. Also contributing to the increase in net income for the three and nine months ended July 31, 1997, was a decrease in general and administrative and maintenance expenses. The decrease in general and administrative expenses for the three and nine months ended July 31, 1997, is due to decreased printing and mailing costs and due to decreased audit and appraisal fees. The decrease in maintenance expense is primarily the result of gutter replacements and exterior painting at Foxfire/Barcelona Apartments during the nine months ended July 31, 1996. This decrease was partially offset by an increase in maintenance expense at River Reach Apartments, which resulted from exterior building improvements and exterior painting as part of a project to enhance the appearance of the property. During the nine months ended July 31, 1997, the Partnership recorded the following casualty gains and losses. A casualty gain of approximately $232,000 resulted from the insurance proceeds from hail and wind storm damage at Nottingham Square Apartments that occurred in the second quarter of 1996. Approximately $27,000 of these proceeds were received during the second quarter of 1997 and the remaining $205,000 was received during the third quarter of 1997. In November 1996, a fire occurred at Carriage House Apartments which damaged one unit and caused smoke damage to two additional units and the common area. The estimated costs to repair the units exceeded the insurance proceeds received and thus resulted in a casualty loss of approximately $8,000. In March 1997, a fire occurred at Village Gardens Apartments which destroyed one unit and caused smoke and water damage to additional units. The estimated costs to repair the units exceeded the insurance proceeds expected to be received and thus resulted in a casualty loss of approximately $9,000. In April 1997, a fire occurred at Foxfire/Barcelona Apartments which destroyed an entire building, consisting of eight units. A casualty gain of approximately $139,000 resulted from the expected insurance proceeds exceeding the basis of the units destroyed plus the total estimated non-capitalized costs to replace the assets. In May 1997, a tornado caused damage to River Reach Apartments resulting in uprooted trees, minor damage to the parking lot and roofs of two units. A casualty loss of approximately $12,000 resulted. The combination of these casualty events resulted in a casualty gain of approximately $342,000 for the nine months ended July 31, 1997. During the first quarter of 1996, the Partnership recorded a casualty loss resulting from a fire which destroyed the interiors of three units at Nottingham Square Apartments. Although the damage was covered by insurance, the damage resulted in a loss of approximately $1,000. The loss resulted from gross proceeds received of approximately $43,000, which were less than the basis of the property plus expenses to replace the damaged interiors. Included in maintenance expense is approximately $209,000 of major repairs and maintenance comprised of major landscaping, exterior building improvements and exterior painting for the nine months ended July 31, 1997. For the nine months ended July 31, 1996, approximately $235,000 comprised primarily of gutter repairs, exterior building improvements, exterior painting, major landscaping and swimming pool repairs were included in maintenance expense. 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. At July 31, 1997 the Partnership had unrestricted cash and cash equivalents of approximately $3,629,000, compared to approximately $2,882,000 at July 31, 1996. Net cash provided by operating activities increased as a result of increased rental income and decreased maintenance expenses, as discussed above. The increase is also attributable to the timing of payments of accounts payable, partially offset by a decrease in other liabilities. Net cash used in investing activities remained consistent primarily due to increased property improvements and replacements at the investment properties, offset by increased net insurance proceeds from property damages (See "Note D"). Net cash used in financing activities decreased due to approximately $1,000,000 of distributions to partners 1996. No distributions were made during the nine months ended July 31, 1997. 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. Such assets are currently thought to be sufficient for any near-term needs of the Partnership. The mortgage indebtedness of approximately $26,940,000, net of discount, is being amortized over 257 months with balloon payments of approximately $23,008,000 due on November 15, 2002, at which time the properties are expected to either be refinanced or sold. As mentioned previously, no cash distributions were paid during the first three quarters of 1997. Distributions of the proceeds from the sale of Marble Hills Apartments of $1,000,000 were paid in the first quarter of 1996. Future cash distributions will depend on the levels of net cash generated from operations, refinancing, property sales and cash reserves. The Corporate General Partner is currently evaluating the economic position of the Partnership and the Partnership's ability to make a distribution during fiscal year ended October 31, 1997. 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 during the quarter ended July 31, 1997: 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 LIMITED PARTNERSHIP By: Shelter Realty VI Corporation Corporate General Partner By: /s/ William H. Jarrard, Jr. William H. Jarrard, Jr. President and Director By: /s/ Ronald Uretta Ronald Uretta Principal Financial Officer and Principal Accounting Officer Date: September 15, 1997