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 January 31, 1998 [ ] 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) January 31, 1998 Assets Cash and cash equivalents $ 2,724 Receivables and deposits 825 Restricted escrows 1,576 Other assets 586 Investment properties: Land $ 4,950 Buildings and related personal property 47,357 52,307 Less accumulated depreciation (25,244) 27,063 $32,774 Liabilities and Partners' (Deficit) Capital Liabilities Accounts payable $ 225 Tenant security deposits 191 Accrued taxes 546 Other liabilities 236 Mortgage notes payable 26,636 Partners' (Deficit) Capital General partners $ (309) Limited partners (42,324 units issued and outstanding) 5,249 4,940 $32,774 See Accompanying Notes to Financial Statements b) SHELTER PROPERTIES VI LIMITED PARTNERSHIP STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except unit data) Three Months Ended January 31, 1998 1997 Revenues: Rental income $2,349 $2,371 Other income 164 167 Total revenues 2,513 2,538 Expenses: Operating 1,003 960 General and administrative 81 63 Depreciation 493 487 Interest 608 622 Property taxes 226 221 Total expenses 2,411 2,353 Net income $ 102 $ 185 Net income allocated to general partners (1%) $ 1 $ 2 Net income allocated to limited partners (99%) 101 183 $ 102 $ 185 Net income per limited partnership unit $ 2.39 $ 4.32 See Accompanying Notes to Financial Statements c) SHELTER PROPERTIES VI LIMITED PARTNERSHIP 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, 1997 42,324 $ (310) $ 5,148 $ 4,838 Net income for the three months ended January 31, 1998 1 101 102 Partners' (deficit) capital at January 31, 1998 42,324 $ (309) $ 5,249 $ 4,940 See Accompanying Notes to Financial Statements d) SHELTER PROPERTIES VI LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) Three Months Ended January 31, 1998 1997 Cash flows from operating activities: Net income $ 102 $ 185 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 493 487 Amortization of discounts and loan costs 78 76 Change in accounts: Receivables and deposits 15 39 Other assets 49 25 Accounts payable (57) 29 Tenant security deposit liabilities (2) (5) Accrued taxes (70) (73) Other liabilities 7 (222) Net cash provided by operating activities 615 541 Cash flows from investing activities: Property improvements and replacements (332) (222) Net increase in restricted escrows (18) (16) Insurance proceeds from casualty loss 35 -- Net cash used in investing activities (315) (238) Cash flows from financing activities: Payments on mortgage notes payable (208) (193) Net increase in unrestricted cash and cash equivalents 92 110 Cash and cash equivalents at beginning of period 2,632 3,104 Cash and cash equivalents at end of period $ 2,724 $ 3,214 Supplemental disclosure of cash flow information: Cash paid for interest $ 531 $ 546 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 months ended January 31, 1998, are not necessarily indicative of the results that may be expected for the fiscal year ending October 31, 1998. 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, 1997. Certain reclassifications have been made to the 1997 information to conform to the 1998 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. Three Months Ended January 31, (in thousands) 1998 1997 Net cash provided by operating activities $ 615 $ 541 Payments on mortgage notes payable (208) (193) Property improvements and replacements (332) (222) Change in restricted escrows, net (18) (16) Changes in reserves for net operating liabilities 58 207 Additional reserves (115) (315) Net cash provided by operations $ -- $ 2 The Corporate General Partner believed it to be in the best interest of the Partnership to reserve net cash from operations of approximately $115,000 and $315,000 at January 31, 1998 and 1997, 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 affiliates of the Corporate General Partner during the three months ended January 31, 1998 and 1997: 1998 1997 (in thousands) Property management fees (included in operating expenses) $ 127 $ 127 Reimbursements for services of affiliates (included in investment properties, operating, and general and administrative expenses) 70 45 Included in reimbursements for services of affiliates for the three month periods ended January 31, 1998 and 1997, is approximately $17,000 and $3,000, respectively, of reimbursements for construction oversight costs. For the period of November 1, 1996 to August 31, 1997, the Partnership insured 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 master policy. The agent assumed the financial obligations to the affiliate of the Corporate General Partner who receives payment on these obligations from the agent. The amount of the Partnership's insurance premiums that accrued to the benefit of the affiliate of the Corporate General Partner by virtue of the agent's obligations was not significant. NOTE D - CASUALTY LOSS During the first quarter of 1998, the Partnership received approximately $35,000 in insurance proceeds, which were accrued at October 31, 1997, relating to tornado damage at River Reach Apartments in May 1997. The tornado caused uprooted trees, minor damage to the parking lot, and damage to roofs of two units. A casualty loss of approximately $19,000 resulted, and was recorded during the year ended October 31, 1997. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION This item should be read in conjunction with the financial statements and other items contained elsewhere in this report. The Partnership's investment properties consist of six apartment complexes. The following table sets forth the average occupancy of the properties for the three months ended January 31, 1998 and 1997: Average Occupancy Property 1998 1997 Rocky Creek Apartments Augusta, Georgia (1) 87% 87% Carriage House Apartments Gastonia, North Carolina (2) 78% 92% Nottingham Square Apartments Des Moines, Iowa (3) 86% 89% Foxfire/Barcelona Apartments Durham, North Carolina (4) 92% 97% River Reach Apartments Jacksonville, Florida (5) 95% 99% Village Gardens Apartments Fort Collins, Colorado 96% 96% (1) The Corporate General Partner attributes the continued low occupancy level at Rocky Creek Apartments to an overall softness in the Augusta market due to a weakened job market. (2) The decrease in occupancy at Carriage House Apartments is attributable to an increase in home purchases and transfers to stronger job markets in areas outside the Gastonia market. (3) Occupancy decreased at Nottingham Square Apartments due to competition from new construction and an overall softness in the Des Moines market due to low job growth. (4) The decrease in occupancy at Foxfire/Barcelona Apartments is primarily the result of competition due to new construction in the Durham market. However, the overall market in the Durham area is strong, and occupancy is expected to increase subsequent to the first quarter of 1998. (5) The decrease in occupancy at River Reach Apartments is primarily attributable to an overall softness in the Jacksonville market. Also, there is competition from new construction in the area. The Partnership realized net income of approximately $102,000 for the three months ended January 31, 1998, versus approximately $185,000 for the corresponding period in 1996. The decrease in net income for the three months ended January 31, 1998, is primarily attributable to a decrease in rental income and an increase in operating expenses. The decrease in rental income is due to decreased occupancy as discussed above. Offsetting the impact of decreased occupancy is an increase in rental rates at most of the properties. Operating expenses increased due to an increase in maintenance expense at River Reach Apartments for the installation of a drainage system at the waterfront area of this property. Additional expenditures of approximately $100,000 are budgeted for 1998 to repair the seawall and water pipes due to drainage problems at River Reach Apartments. Another major capital improvement project totaling approximately $300,000 is budgeted to replace all the vinyl siding at Nottingham Square Apartments. Additionally, approximately $200,000 is budgeted for parking lot repairs during 1998 at Foxfire/Barcelona Apartments. Included in operating expense is approximately $39,000 of major repairs and maintenance comprised primarily of major landscaping and exterior painting for the three months ended January 31, 1998. For the three months ended January 31, 1997, approximately $42,000 comprised primarily of exterior building improvements and major landscaping is included in operating 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 January 31, 1998, the Partnership held cash and cash equivalents of approximately $2,724,000 compared to approximately $3,214,000 at January 31, 1997. For the quarter ended January 31, 1998, net cash increased approximately $92,000 compared to a net increase of approximately $110,000 for the quarter ended January 31, 1997. Net cash provided by operating activities increased primarily due to an increase in other liabilities. Net cash used in investing activities increased due to an increase in property improvements and replacements. Net cash used in financing activities remained consistent with a slight increase in payments on mortgage notes. 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 $26,636,000, net of discounts, 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. No cash distributions were paid during the first quarter of 1998 and 1997. 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 ending October 31, 1998. 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 January 31, 1998: 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 Vice President and Treasurer Date: March 13, 1998