SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended SEPTEMBER 30, 2001
Commission File Number 0-13112
REAL ESTATE ASSOCIATES LIMITED VI
(A California Limited Partnership)
I.R.S. Employer Identification No. 95-3778627
9090 WILSHIRE BLVD., SUITE 201
BEVERLY HILLS, CA. 90211
Registrant's Telephone Number,
Including Area Code (310) 278-2191
Indicate by check mark whether the registrant (1) has filed all documents and
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding twelve 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 [ ]
REAL ESTATE ASSOCIATES LIMITED VI
(A CALIFORNIA LIMITED PARTNERSHIP)
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2001
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets,
September 30, 2001 and December 31, 2000 ...........................1
Consolidated Statements of Operations,
Nine and Three Months Ended, September 30, 2001 and 2000............2
Consolidated Statement of Partners' Equity (Deficiency),
Nine Months Ended September 30, 2001 ...............................3
Consolidated Statements of Cash Flows,
Nine Months Ended September 30, 2001 and 2000 ......................4
Notes to Consolidated Financial Statements ...............................5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation ......................................13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...........................................................16
Item 6. Exhibits and Reports on Form 8-K ...........................................17
Signatures ..........................................................................18
REAL ESTATE ASSOCIATES LIMITED VI
(A CALIFORNIA LIMITED PARTNERSHIP)
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2001 AND DECEMBER 31, 2000
ASSETS
2001
(Unaudited) 2000
----------- -----------
INVESTMENTS IN LIMITED PARTNERSHIPS (Note 2) $ 535,738 $ 541,072
CASH AND CASH EQUIVALENTS (Note 1) 2,466,799 3,197,380
----------- -----------
TOTAL ASSETS $ 3,002,537 $ 3,738,452
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Notes payable and amounts due for partnership
interests (Notes 3 and 6) $ 1,765,000 $ 1,765,000
Accrued interest payable (Notes 3 and 6) 2,167,400 2,064,801
Accounts payable 9,528 16,429
----------- -----------
3,941,928 3,846,230
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 4 and 5)
PARTNERS' EQUITY (DEFICIENCY):
General partners (360,583) (352,267)
Limited partners (578,808) 244,489
----------- -----------
(939,391) (107,778)
----------- -----------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 3,002,537 $ 3,738,452
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
1
REAL ESTATE ASSOCIATES LIMITED VI
(A CALIFORNIA LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(Unaudited)
Nine months Three months Nine months Three months
ended ended ended ended
Sept 30, 2001 Sept 30, 2001 Sept 30, 2000 Sept 30, 2000
------------- ------------- ------------- -------------
REVENUE:
Interest income $ 89,900 $ 25,387 $ 135,342 53,720
---------- ---------- ---------- ----------
Operating expenses:
Management fees - general partner (Note 4) 154,826 51,609 154,825 51,875
General and administrative (Note 4) 201,627 122,284 161,718 30,482
Interest (Note 3) 102,600 34,200 102,600 34,200
---------- ---------- ---------- ----------
459,053 208,093 419,143 116,557
---------- ---------- ---------- ----------
LOSS FROM OPERATIONS (369,153) (182,706) (283,801) (62,837)
---------- ---------- ---------- ----------
EQUITY IN INCOME (LOSS) OF LIMITED
PARTNERSHIPS AND AMORTIZATION
OF ACQUISITION COSTS (Note 2) (471,724) (145,311) 36,000 12,000
DISTRIBUTIONS FROM LIMITED
PARTNERSHIPS RECOGNIZED AS
INCOME (Note 2) 9,264 -- 14,777 --
---------- ---------- ---------- ----------
NET LOSS $ (831,613) $ (328,017) $ (233,024) $ (50,837)
========== ========== ========== ==========
NET LOSS PER LIMITED PARTNERSHIP
INTEREST (Note 1) $ (49) $ (19) $ (14) $ (3)
========== ========== ========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
2
REAL ESTATE ASSOCIATES LIMITED VI
(A CALIFORNIA LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENT OF PARTNERS' EQUITY (DEFICIENCY)
NINE MONTHS ENDED SEPTEMBER 30, 2001
(Unaudited)
General Limited
Partners Partners Total
--------- --------- ---------
PARTNERSHIP INTERESTS 16,810
=========
DEFICIENCY,
January 1, 2001 $(352,267) $ 244,489 $(107,778)
Net loss for the nine months
ended September 30, 2001 (8,316) (823,297) (831,613)
--------- --------- ---------
DEFICIENCY,
September 30, 2001 $(360,583) $(578,808) $(939,391)
========= ========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
3
REAL ESTATE ASSOCIATES LIMITED VI
(A CALIFORNIA LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(Unaudited)
2001 2000
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (831,613) $ (233,024)
Adjustments to reconcile net loss to net
cash (used in) provided by operating activities:
Equity in loss (income) of limited partnerships
and amortization of acquisition costs 471,724 (36,000)
Decrease in other assets -- 239,770
Increase in accrued interest payable 102,599 87,466
Increase in accounts payable (6,901) 6,032
----------- -----------
Net cash (used in) provided by operating activities (264,191) 64,244
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital contribution -- (120,411)
Distributions from limited partnerships recognized as
a return of capital 40,441 14,680
Advances to limited partnerships (506,831) --
----------- -----------
Net cash used in investing activities (466,390) (105,731)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (730,581) (41,487)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,197,380 3,312,395
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,466,799 $ 3,270,908
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
4
REAL ESTATE ASSOCIATES LIMITED VI
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
The information contained in the following notes to the financial
statements is condensed from that which would appear in the audited
annual financial statements; accordingly, the financial statements
included herein should be reviewed in conjunction with the financial
statements and related notes thereto contained in the annual report for
the year ended December 31, 2000 prepared by Real Estate Associates
Limited VI and Subsidiaries (the "Partnership"). Accounting measurements
at interim dates inherently involve greater reliance on estimates than at
year end. The results of operations for the interim periods presented are
not necessarily indicative of the results for the entire year.
In the opinion of the Partnership, the accompanying unaudited financial
statements contain all adjustments (consisting primarily of normal
recurring accruals) necessary to present fairly the financial position of
the Partnership at September 30, 2001 and the results of operations and
changes in cash flows for the six and three months then ended.
The general partners have a 1 percent interest in profits and losses of
the Partnership. The limited partners have the remaining 99 percent
interest which is allocated in proportion to their respective individual
investments. National Partnership Investments Corp. (NAPICO) is the
managing general partner of the Partnership. Casden Properties Inc. owns
a 95.25% economic interest in NAPICO, with the balance owned by Casden
Investment Corporation ("CIC"). CIC, which is wholly owned by Alan I.
Casden, owns 95% of the voting common stock of NAPICO.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of
America.
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board issued SFAS No.
141, "Business Combinations" and SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 141 was effective immediately and SFAS 142
will be effective January 2002. The new standards are not expected to
have a significant impact on the Partnership's financial statements.
5
REAL ESTATE ASSOCIATES LIMITED VI
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2001
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and reported amounts
of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Real Estate
Associates Limited VI and its majority-owned general partnership. All
significant intercompany accounts and transactions have been eliminated
in consolidation.
METHOD OF ACCOUNTING FOR INVESTMENT IN THE UNCONSOLIDATED LIMITED
PARTNERSHIPS
The investments in unconsolidated limited partnerships are accounted for
on the equity method. Acquisition, selection and other costs related to
the acquisition of the projects are capitalized as part of the investment
account and are being amortized on a straight line basis over the
estimated lives of the underlying assets, which is generally 30 years.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of unrestricted cash and bank
certificates of deposit with maturities of three months or less. The
Partnership has its cash and cash equivalents on deposit with high credit
quality financial institutions. Such cash and cash equivalents are in
excess of the FDIC insurance limit.
NET LOSS PER LIMITED PARTNERSHIP INTEREST
Net loss per limited partnership interest was computed by dividing the
limited partners' share of net loss by the number of limited partnership
interests outstanding during the period. The number of limited
partnership interests was 16,810 for the periods presented.
6
REAL ESTATE ASSOCIATES LIMITED VI
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2001
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
No provision has been made for income taxes in the accompanying financial
statements since such taxes, if any, are the liability of the individual
partners.
IMPAIRMENT OF LONG-LIVED ASSETS
The Partnership reviews long-lived assets to determine if there has been
any permanent impairment whenever events or changes in circumstances
indicate that the carrying amount of the asset may not be recoverable. If
the sum of the expected future cash flows is less than the carrying
amount of the assets, the Partnership recognizes an impairment loss.
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS
The Partnership holds limited partnership interests in 20 limited
partnerships as of September 30, 2001. In addition, the Partnership holds
a general partner interest in REA III, which in turn, holds limited
partner interests in 3 additional limited partnerships. In total,
therefore, the Partnership holds interests, either directly or indirectly
through REA III, in 23 partnerships, located in 13 different states,
which owned as of September 30, 2001, residential low income rental
projects consisting of 1,369 apartment units. The mortgage loans of these
projects are payable to or insured by various governmental agencies.
The Partnership, as a limited partner, is entitled to between 90 percent
and 99 percent of the profits and losses of the limited partnerships it
has invested in directly. The Partnership is also entitled to 99.9
percent of the profits and losses of REA III. REA III holds a 99 percent
interest in each of the limited partnerships in which it has invested.
Equity in losses of unconsolidated limited partnerships is recognized in
the financial statements until the limited partnership investment account
is reduced to a zero balance or to a negative amount equal to further
capital contributions required. Losses incurred after the limited
partnership investment account is reduced to zero are not recognized. The
cumulative amount of the unrecognized equity in losses of unconsolidated
limited partnerships was in the aggregate approximately $11,220,000 and
$11,357,000 as of September 30, 2001 and December 31, 2000, respectively.
7
REAL ESTATE ASSOCIATES LIMITED VI
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2001
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIP (CONTINUED)
Distributions from the unconsolidated limited partnerships are accounted
for as a return of capital until the investment balance is reduced to
zero. Subsequent distributions received are recognized as income.
The following is a summary of the investment in unconsolidated limited
partnerships for the nine months ended September 30, 2001:
Balance, beginning of period $ 541,072
Equity in loss of limited partnerships (466,990)
Amortization of acquisition costs (4,734)
Advances to limited partnerships 506,831
Distribution recognized as a return of capital (40,441)
---------
Balance, end of period $ 535,738
=========
The following are unaudited combined estimated statements of operations
for the nine and three months ended September 30, 2001 and 2000 of the
unconsolidated limited partnerships in which the Partnership has
investments:
Nine months Three months Nine months Three months
ended ended ended ended
Sept. 30, 2001 Sept. 30, 2001 Sept. 30, 2000 Sept. 30, 2000
-------------- -------------- -------------- --------------
REVENUES:
Rental and other $ 7,422,000 $ 2,474,000 $ 7,446,000 $ 2,482,000
----------- ----------- ----------- -----------
EXPENSES:
Depreciation 1,209,000 403,000 1,202,000 401,000
Interest 1,941,000 647,000 2,006,000 669,000
Operating expenses 4,602,000 1,534,000 4,558,000 1,519,000
----------- ----------- ----------- -----------
Total expenses 7,752,000 2,584,000 7,766,000 2,589,000
----------- ----------- ----------- -----------
Net loss $ (330,000) $ (110,000) $ (320,000) $ (107,000)
=========== =========== =========== ===========
8
REAL ESTATE ASSOCIATES LIMITED VI
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2001
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIP (CONTINUED)
NAPICO, or one of its affiliates, is the general partner and property
management agent for certain of the limited partnerships included above.
The Local Partnerships pay the affiliate property management fees in the
amount of 5 percent of their gross rental revenues and data processing
fees. The amounts paid were approximately $86,195 for the nine months
ended September 30, 2001.
Under recently adopted law and policy, the United States Department of
Housing and Urban Development ("HUD") has determined not to renew the
Housing Assistance Payment ("HAP") Contracts on a long term basis on the
existing terms. In connection with renewals of the HAP Contracts under
such new law and policy, the amount of rental assistance payments under
renewed HAP Contracts will be based on market rentals instead of above
market rentals, which may be the case under existing HAP Contracts. The
payments under the renewed HAP Contracts may not be in an amount that
would provide sufficient cash flow to permit owners of properties subject
to HAP Contracts to meet the debt service requirements of existing loans
insured by the Federal Housing Administration of HUD ("FHA") unless such
mortgage loans are restructured. In order to address the reduction in
payments under HAP Contracts as a result of this new policy, the
Multi-family Assisted Housing Reform and Affordability Act of 1997
("MAHRAA"), which was adopted in October 1997, provides for the
restructuring of mortgage loans insured by the FHA with respect to
properties subject to the Section 8 program. Under MAHRAA, an FHA-insured
mortgage loan can be restructured into a first mortgage loan which will
be amortized on a current basis and a low interest second mortgage loan
payable to FHA which will only be payable on maturity of the first
mortgage loan. This restructuring results in a reduction in annual debt
service payable by the owner of the FHA-insured mortgage loan and is
expected to result in an insurance payment from FHA to the holder of the
FHA-insured loan due to the reduction in the principal amount. MAHRAA
also phases out project-based subsidies on selected properties serving
families not located in rental markets with limited supply, converting
such subsidies to a tenant-based subsidy.
When the HAP Contracts are subject to renewal, there can be no assurance
that the local limited partnerships in which the Partnership has an
investment will be permitted to restructure its mortgage indebtedness
under MAHRAA. In addition, the economic impact on the Partnership of the
combination of the reduced payments under the HAP Contracts and the
restructuring of the existing FHA-insured mortgage loans under MAHRAA is
uncertain.
9
REAL ESTATE ASSOCIATES LIMITED VI
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2001
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIP (CONTINUED)
On December 30, 1998, after obtaining the consent of the limited
partners, the Partnership sold its limited partnership interests in 10
local limited partnerships and its general partner interest in one local
general partnership to subsidiaries of Casden Properties Inc. The sale
resulted in cash proceeds to the Partnership of $1,397,081 which was
collected in 1999. In March 1999, the Partnership made cash distributions
of $2,769,110 to the limited partners and $27,971 to the general
partners, primarily using proceeds from the sale of the partnership
interests.
NOTE 3 - NOTES PAYABLE
Certain of the Partnership's investments involved purchases of
partnership interests from partners who subsequently withdrew from the
operating partnership. The purchase of these interests provides for
additional cash payments of approximately $325,000 based upon specified
events as outlined in the purchase agreements. Such amounts have been
recorded as liabilities. In addition, the Partnership is obligated on
non-recourse notes payable of $1,440,000 which bear interest at 9.5
percent per annum and have principal maturities ranging from December
1999 to December 2012.
The notes and related interest are payable from cash flow generated from
operations of the related rented properties as defined in the notes.
These obligations are collateralized by the Partnership's investments in
the limited partnerships. Unpaid interest is due at maturity of the
notes.
Maturity dates on the notes and related accrued interest payable are as
follows:
Year Ending Accrued
December 31, Notes Interest
------------ ---------- ----------
2001 $ 520,000 $ 835,437
2002
2003
2004
2005 750,000 965,147
Thereafter 170,000 366,816
---------- ----------
$1,440,000 $2,167,400
========== ==========
10
REAL ESTATE ASSOCIATES LIMITED VI
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2001
NOTE 3 - NOTES PAYABLE (CONTINUED)
Note and related accrued interest payable, aggregating $1,355,437 as of
September 30, 2001 became payable in 1999. Management is in the process
of attempting to negotiate an extension of the maturity date on the past
due note payable.
NOTE 4 - MANAGEMENT FEES AND EXPENSES DUE TO GENERAL PARTNER
Under the terms of the Restated Certificate and Agreement of Limited
Partnership, the Partnership is obligated to NAPICO for an annual
management fee of approximately .4 percent of the original invested
assets of the limited partnerships. Invested assets are defined as the
costs of acquiring project interests, including the proportionate amount
of the mortgage loans related to the Partnership's interests in the
capital accounts of the respective partnerships. This fee was
approximately $155,000 for the nine months ended September 30, 2001 and
2000.
The Partnership reimburses NAPICO for certain expenses. The reimbursement
to NAPICO was approximately $18,950 and $16,000 for the nine months ended
September 30, 2001 and 2000, respectively, and is included in general and
administrative expenses.
NOTE 5 - CONTINGENCIES
On September 6, 2001, a lawsuit was filed against the Partnership seeking
a monetary judgment in the amount of $2,495,465 pursuant to a promissory
note issued in connection with the acquisition of Century Plaza
Apartments, a 120-unit complex located in Hampton, Virginia. The
defendants contend that the note is nonrecourse and intend to contest
this action vigorously.
In April 2001, a lawsuit was filed against the Partnership by a limited
partner. The lawsuit seeks equitable relief for access to the
Partnership's books and records and unspecified damages for breach of
fiduciary duty. The Partnership has provided the plaintiff access to the
requested books and records and the matter is schedule for trial on May
15, 2002.
On August 27, 1998, two investors holding an aggregate of eight units of
limited partnership interests in Real Estate Associates Limited III (an
affiliated partnership in which NAPICO is the managing general partner)
and two investors holding an aggregate of five units of limited
partnership interest in the Partnership commenced an action in the United
States District Court
11
REAL ESTATE ASSOCIATES LIMITED VI
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2001
NOTE 5 - CONTINGENCIES (CONTINUED)
for the Central District of California against the Partnership, NAPICO
and certain other affiliated entities. The complaint alleges that the
defendants breached their fiduciary duty to the limited partners of
certain NAPICO managed partnerships and made materially false and
misleading statements in the consent solicitation statements sent to the
limited partners of such partnerships relating to approval of the
transfer of partnership interests in limited partnerships, owning certain
of the properties, to Casden Properties Inc., which was organized by an
affiliate of NAPICO. The plaintiffs seek equitable relief, as well as
compensatory damages and litigation related costs. On August 4, 1999, one
investor holding one unit of limited partnership interest in Housing
Programs Limited (another affiliated partnership in which NAPICO is the
managing general partner) commenced a virtually identical action in the
United States District Court for the Central District of California
against the Partnership, NAPICO and certain other affiliated entities.
The second action has been subsumed in the first action, which has been
certified as a class action. NAPICO, the managing general partner of such
partnerships, and the other defendants believe that the plaintiffs'
claims are without merit and are contesting the actions vigorously.
The managing general partner of the Partnership is involved in various
lawsuits and have also been named defendants in other lawsuits arising
from transactions in the ordinary course of business.
In the opinion of management and the corporate general partner, the above
claims will not result in any material liability to the Partnership.
NOTE 6 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosure about
Fair Value of Financial Instruments," requires disclosure of fair value
information about financial instruments, when it is practicable to
estimate that value. The notes payable and amounts due for partnership
interests are collateralized by the Partnership's investments in investee
limited partnerships and are payable only out of cash distributions from
the investee partnerships. The operations generated by the property and
investee limited partnerships are subject to various government rules,
regulations and restrictions which make it impracticable to estimate the
fair value of the notes payable and related accrued interest. The
carrying amounts of other assets and liabilities reported on the balance
sheets that require such disclosure approximate fair value due to their
short-term maturity.
12
REAL ESTATE ASSOCIATES LIMITED VI
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 2001
ITEM 2. MANAGEMENT'S ANALYSIS AND DISCUSSION OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's primary sources of funds include interest income on
short term investments and distributions from limited partnerships in
which the Partnership has invested. It is not expected that any of the
local limited partnerships in which the Partnership has invested will
generate cash flow sufficient to provide for distributions to limited
partners in any material amount. The Partnership made a distribution to
investors in September 30, 2001, previously using proceeds from the
disposition of its investments in certain limited partnerships.
RESULTS OF OPERATIONS
Rental operations consist primarily of rental income and depreciation
expense, debt service, and normal operating expenses to maintain the
properties. Variances in rental operations from the prior year to the
current year relate to the sale of the Drexel Property.
Partnership revenues consist primarily of interest income earned on
certificates of deposit and other temporary investment of funds not
required for investment in local partnerships.
Operating expenses consist primarily of recurring general and
administrative expenses and professional fees for services rendered to
the Partnership. In addition, an annual Partnership management fee in an
amount equal to .4 percent of invested assets is payable to the corporate
general partner.
The Partnership accounts for its investments in the local limited
partnerships on the equity method, thereby adjusting its investment
balance by its proportionate share of the income or loss of the local
limited partnerships. Losses incurred after the limited partnership
investment account is reduced to zero are not recognized in accordance
with the equity accounting method.
Distributions received from limited partnerships are recognized as return
of capital until the investment balance has been reduced to zero or to a
negative amount equal to future capital contributions required.
Subsequent distributions received are recognized as income.
13
REAL ESTATE ASSOCIATES LIMITED VI
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 2001
ITEM 2. MANAGEMENT'S ANALYSIS AND DISCUSSION OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Except for certificates of deposit and money market funds, the
Partnership's investments are entirely from interests in other limited
and general partnerships owning government assisted projects. Available
cash is invested in these funds earning interest income as reflected in
the statement of operations. These funds can be converted to cash to meet
obligations as they arise.
Under recently adopted law and policy, the United States Department of
Housing and Urban Development ("HUD") has determined not to renew the
Housing Assistance Payment ("HAP") Contracts on a long term basis on the
existing terms. In connection with renewals of the HAP Contracts under
such new law and policy, the amount of rental assistance payments under
renewed HAP Contracts will be based on market rentals instead of above
market rentals, which may be the case under existing HAP Contracts. The
payments under the renewed HAP Contracts may not be in an amount that
would provide sufficient cash flow to permit owners of properties subject
to HAP Contracts to meet the debt service requirements of existing loans
insured by the Federal Housing Administration of HUD ("FHA") unless such
mortgage loans are restructured. In order to address the reduction in
payments under HAP Contracts as a result of this new policy, the
Multi-family Assisted Housing Reform and Affordability Act of 1997
("MAHRAA"), which was adopted in October 1997, provides for the
restructuring of mortgage loans insured by the FHA with respect to
properties subject to the Section 8 program. Under MAHRAA, an FHA-insured
mortgage loan can be restructured into a first mortgage loan which will
be amortized on a current basis and a low interest second mortgage loan
payable to FHA which will only be payable on maturity of the first
mortgage loan. This restructuring results in a reduction in annual debt
service payable by the owner of the FHA-insured mortgage loan and is
expected to result in an insurance payment from FHA to the holder of the
FHA-insured loan due to the reduction in the principal amount. MAHRAA
also phases out project-based subsidies on selected properties serving
families not located in rental markets with limited supply, converting
such subsidies to a tenant-based subsidy.
14
REAL ESTATE ASSOCIATES LIMITED VI
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 2001
ITEM 2. MANAGEMENT'S ANALYSIS AND DISCUSSION OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
When the HAP Contracts are subject to renewal, there can be no assurance
that the local limited partnerships in which the Partnership has an
investment will be permitted to restructure its mortgage indebtedness
under MAHRAA. In addition, the economic impact on the Partnership of the
combination of the reduced payments under the HAP Contracts and the
restructuring of the existing FHA-insured mortgage loans under MAHRAA is
uncertain.
On December 30, 1998, the Partnership sold its limited partnership
interests in 10 local limited partnerships and its general partner
interest in one local general partnership to subsidiaries of Casden
Properties Inc. The sale resulted in cash proceeds to the Partnership of
$1,397,081 which was collected subsequent to year-end. In March 1999, the
Partnership made cash distributions of $2,769,110 to the limited partners
and $27,971 to the general partners, primarily using proceeds from the
sale of the partnership interests.
Note and related accrued interest payable, aggregating $1,355,437 as of
September 30, 2001 became payable in 1999. Management is in the process
of attempting to negotiate an extension of the maturity date on the past
due note payable.
15
REAL ESTATE ASSOCIATES LIMITED VI
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 2001
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On September 6, 2001, a lawsuit was filed against the Partnership seeking a
monetary judgment in the amount of $2,495,465 pursuant to a promissory note
issued in connect with the acquisition of Century Plaza Apartments, a 120-unit
complex located in Hampton, Virginia. The defendants contend that the note is
nonrecourse and intend to contest this action vigorously.
In April 2001, a lawsuit was filed against the Partnership by a limited partner.
The lawsuit seeks equitable relief for access to the Partnership's books and
records and unspecified damages for breach of fiduciary duty. The Partnership
has provided the plaintiff access to the requested books and records and the
matter is schedule for trial on May 15, 2002.
On August 27, 1998, two investors holding an aggregate of eight units of limited
partnership interests in Real Estate Associates Limited III (an affiliated
partnership in which NAPICO is the managing general partner) and two investors
holding an aggregate of five units of limited partnership interest in the
Partnership commenced an action in the United States District Court for the
Central District of California against the Partnership, NAPICO and certain other
affiliated entities. The complaint alleges that the defendants breached their
fiduciary duty to the limited partners of certain NAPICO managed partnerships
and made materially false and misleading statements in the consent solicitation
statements sent to the limited partners of such partnerships relating to
approval of the transfer of partnership interests in limited partnerships,
owning certain of the properties, to Casden Properties Inc., which was organized
by an affiliate of NAPICO. The plaintiffs seek equitable relief, as well as
compensatory damages and litigation related costs. On August 4, 1999, one
investor holding one unit of limited partnership interest in Housing Programs
Limited (another affiliated partnership in which NAPICO is the managing general
partner) commenced a virtually identical action in the United States District
Court for the Central District of California against the Partnership, NAPICO and
certain other affiliated entities. The second action has been subsumed in the
first action, which has been certified as a class action. NAPICO, the managing
general partner of such partnerships, and the other defendants believe that the
plaintiffs' claims are without merit and are contesting the actions vigorously.
The Partnership's managing general partner is involved in various lawsuits. None
of these lawsuits are related to the Partnership.
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REAL ESTATE ASSOCIATES LIMITED VI
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 2001
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) No exhibits are required per the provision of item 7 of regulation S-K
and no reports on Form 8-K were filed during the quarter ended
September 30, 2001.
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REAL ESTATE ASSOCIATES LIMITED VI
(A LIMITED PARTNERSHIP)
SEPTEMBER 30, 2001
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
REAL ESTATE ASSOCIATES LIMITED VI AND
SUBSIDIARIES (a California limited partnership)
By: National Partnership Investments
Corp., General Partner
/s/ BRUCE NELSON
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Bruce Nelson
President
Date: November 13, 2001
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/s/ BRIAN H. SHUMAN
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Brian H. Shuman
Chief Financial Officer
Date: November 13, 2001
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