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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 June 30, 1997
Commission File Number 2-82090
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
----- -----
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REAL ESTATE ASSOCIATES LIMITED VI
(a California limited partnership)
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1997
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets,
June 30, 1997 and December 31, 1996 .....................1
Consolidated Statements of Operations,
Six and Three Months Ended, June 30, 1997 and 1996.......2
Consolidated Statement of Partners' Deficiency
Six Months Ended June 30, 1997 ..........................3
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1997 and 1996 .................4
Notes to Consolidated Financial Statements ..................5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation .........................10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...............................................12
Item 6. Exhibits and Reports on Form 8-K ...............................12
Signatures ..............................................................13
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REAL ESTATE ASSOCIATES LIMITED VI
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
ASSETS
1997 1996
(Unaudited) (Audited)
------------ ------------
INVESTMENTS IN LIMITED PARTNERSHIPS (Note 2) $ 5,569,526 $ 6,051,522
RENTAL PROPERTY, net of accumulated depreciation
(Notes 1 and 3) 3,071,241 3,158,470
CASH AND CASH EQUIVALENTS (Note 1) 6,550,035 5,849,983
CASH, restricted (Note 1) 35,750 35,750
OTHER ASSETS 205,644 190,643
------------ ------------
TOTAL ASSETS $ 15,432,196 $ 15,286,368
============ ============
LIABILITIES AND PARTNERS' DEFICIENCY
LIABILITIES:
Mortgage notes payable related to properties (Notes 3 and 7) $ 4,886,300 $ 4,886,300
Notes payable and amounts due for partnership
interests (Notes 4 and 7) 5,795,000 5,795,000
Accrued interest payable (Notes 4 and 7) 5,801,029 5,650,383
Accounts payable 39,654 47,372
Other liabilities 71,502 35,750
------------ ------------
16,593,485 16,414,805
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 2, 5 and 6)
PARTNERS' DEFICIENCY:
General partners (362,803) (362,474)
Limited partners (798,486) (765,963)
------------ ------------
(1,161,289) (1,128,437)
------------ ------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 15,432,196 $ 15,286,368
============ ============
The accompanying notes are an integral part of
these consolidated financial statements.
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REAL ESTATE ASSOCIATES LIMITED VI
(A CALIFORNIA LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX AND THREE MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
Six months Three months Six months Three months
ended ended ended ended
June 30, 1997 June 30, 1997 June 30, 1996 June 30, 1996
--------- --------- ----------- ---------
RENTAL OPERATIONS:
Revenues $ 529,671 $ 266,297 $ 696,313 $ 255,314
--------- --------- ----------- ---------
Expenses:
Operating 253,307 123,546 382,876 114,439
Depreciation and amortization (Note 1) 87,229 43,615 143,044 43,614
Interest 242,310 121,155 347,411 133,676
--------- --------- ----------- ---------
582,846 288,316 873,331 291,729
--------- --------- ----------- ---------
LOSS FROM RENTAL OPERATIONS (53,175) (22,019) (177,018) (36,415)
--------- --------- ----------- ---------
PARTNERSHIP OPERATIONS:
Interest income 131,195 67,979 77,588 41,382
--------- --------- ----------- ---------
Expenses:
Management fees - general partner (Note 3) 250,548 125,274 262,846 128,973
General and administrative 158,606 76,331 165,860 62,140
Interest expense 266,850 136,938 259,825 129,913
--------- --------- ----------- ---------
676,004 338,543 688,531 321,026
--------- --------- ----------- ---------
LOSS FROM PARTNERSHIP OPERATIONS (544,809) (270,564) (610,943) (279,644)
--------- --------- ----------- ---------
GAIN FROM SALE OF RENTAL PROPERTY (Note 1) -- -- 2,050,417 --
EQUITY IN INCOME OF LIMITED PARTNERSHIPS AND
AMORTIZATION OF ACQUISITION COSTS 298,000 149,000 346,000 173,000
DISTRIBUTIONS FROM LIMITED PARTNERSHIPS
RECOGNIZED AS INCOME (Note 2) 267,132 196,332 129,200 47,898
--------- --------- ----------- ---------
NET INCOME (LOSS) $ (32,852) $ 52,749 $ 1,737,656 $ (95,161)
========= ========= =========== =========
NET INCOME (LOSS) PER LIMITED PARTNERSHIP
INTEREST (Note 1) $ (2) $ 3 $ 103 $ (6)
========= ========= =========== =========
The accompanying notes are an integral part of
these consolidated financial statements.
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REAL ESTATE ASSOCIATES LIMITED VI AND SUBSIDIARIES
(A CALIFORNIA LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENT OF PARTNERS' DEFICIENCY
SIX MONTHS ENDED JUNE 30, 1997
(Unaudited)
General Limited
Partners Partners Total
--------- --------- -----------
PARTNERSHIP INTERESTS,
June 30, 1997 16,810
=========
DEFICIENCY, January 1, 1997 $(362,474) $(765,963) $(1,128,437)
Net loss for the six months
ended June 30, 1997 (329) (32,523) (32,852)
--------- --------- -----------
DEFICIENCY, June 30, 1997 $(362,803) $(798,486) $(1,161,289)
========= ========= ===========
The accompanying notes are an integral part of
these consolidated financial statements.
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REAL ESTATE ASSOCIATES LIMITED VI AND SUBSIDIARIES
(A CALIFORNIA LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
1997 1996
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (32,852) $ 1,737,656
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Equity in income of limited partnerships
and amortization of acquisition costs (298,000) (346,000)
Depreciation 87,229 143,044
Increase in receivables from limited partnerships -- (30,000)
(Increase) decrease in other assets (15,001) 261,096
Increase in accrued interest payable 150,646 137,289
Decrease in accounts payable (7,718) (163,020)
Increase (decrease) in other liabilities 35,752 (97,746)
Gain on sale of rental property -- (2,050,417)
----------- -----------
Net cash used in operating activities (79,944) (408,098)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions to limited partnerships recognized as
as a return of capital 779,996 108,282
Proceeds from sale of rental property -- 5,883,245
----------- -----------
Net cash provided by investing activities 779,996 5,991,527
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of mortgages -- (5,052,395)
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 700,052 531,034
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,849,983 4,895,340
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6,550,035 $ 5,426,374
=========== ===========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the period for interest $ 174,368 $ 122,536
=========== ===========
The accompanying notes are an integral part of
these consolidated financial statements.
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REAL ESTATE ASSOCIATES LIMITED VI
(a California limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
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, 1996 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 June 30, 1997 and the results of operations for
the six and three months then ended and changes in cash flows for the
six 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 corporate general partner of the Partnership.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles 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
partnerships. 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.
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REAL ESTATE ASSOCIATES LIMITED VI
(a California limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
JUNE 30, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 year. The number of
limited partnership interests was 16,810 for the periods presented.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of unrestricted cash and bank
certificates of deposit with maturities of three months or less.
Restricted cash consist of tenants' security and escrow deposits and
mortgage impounds. The Partnership has its cash and cash equivalents on
deposit primarily with one high credit quality financial institution.
Such cash and cash equivalents are in excess of the FDIC insurance
limit.
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.
RENTAL PROPERTY AND DEPRECIATION
Rental property is stated at cost. Depreciation is provided on the
straight-line and accelerated methods over the estimated useful lives
of the buildings and equipment. Pursuant to a purchase agreement in
which the Partnership acquired its interest from withdrawing general
partners, certain rental property was revalued to reflect the purchase
price.
Substantially all of the apartment units are leased on a month-to-month
basis.
On February 2, 1996, one of the consolidated general partnerships
(Drexel Park) sold its property for $6,300,000. After payment of
closings costs, the Partnership realized a gain of approximately
$2,000,000 and cash of $830,000.
IMPAIRMENT OF LONG-LIVED ASSETS
The Partnership adopted Statement of Financial Accounting Standards No.
121, Account for the Improvement of Long-Lived Assets and for
Long-Lived Assets To Be Disposed Of as of January 1, 1996 without a
significant effect on its financial statements. 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.
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REAL ESTATE ASSOCIATES LIMITED VI
(a California limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
JUNE 30, 1997
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS
As of June 30, 1997, the Partnership holds limited partnership
interests in 27 local limited partnerships and a general partner
interest in one general partnership. In addition, REAL VI holds a
general partner interest in Real Estate Associates III ("REA III"), a
California general partnership. NAPICO is also a general partner in REA
III. REA III, in turn, holds limited partner interests in seven local
limited partnerships. In total, therefore, the Partnership holds
interests, either directly or indirectly through REA III, in 34 limited
partnerships and one general partnership which own residential rental
projects consisting of 2,832 apartment units. The mortgage loans of
these projects are 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.
As of June 30, 1997, the Partnership is obligated, if certain
conditions are met, to invest an additional $90,500 in its investee
partnerships at various times in the future. This amount has not been
recorded as a liability in the accompanying financial statements.
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.
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 six months ended June 30, 1997:
Balance, beginning of period $6,051,522
Equity in income of limited partnerships 308,000
Amortization of acquisition costs (10,000)
Cash distributions recognized as a return of capital (779,996)
----------
Balance, end of period $5,569,526
==========
The following are unaudited combined estimated statements of operations
for the six months ended June 30, 1997 and 1996 of the unconsolidated
limited partnerships in which the Partnership has investments:
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REAL ESTATE ASSOCIATES LIMITED VI
(a California limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
JUNE 30, 1997
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIP (Continued)
Six months Three months Six months Three months
ended ended ended ended
June 30, 1997 June 30, 1997 June 30, 1996 June 30, 1996
------------- ------------- ------------- -------------
Revenues:
Rental and other $10,622,000 $5,311,000 $10,286,000 $5,143,000
Expenses:
Depreciation 1,798,000 899,000 1,764,000 882,000
Interest 4,156,000 2,078,000 2,860,000 1,430,000
Operating expenses 5,606,000 2,803,000 6,892,000 3,446,000
Total expenses 11,560,000 5,780,000 11,516,000 5,758,000
----------- ---------- ----------- ----------
Net loss $ (938,000) $ (469,000) $ 1,230,000) $ (615,000)
=========== ========== =========== ==========
NAPICO, or one of its affiliates, is the general partner and property
management agent for certain of the limited partnerships included
above.
The Partnership is undergoing an extensive review of disposition,
refinancing or re-engineering alternatives for the properties in its
Portfolio that are subject to governmental mortgage and rental subsidy
programs. The Partnership has begun to incur expenses in connection
with this review by various third party professionals. Amounts incurred
to date are not material to the operating results of the Partnership.
The sale of Drexel Park III closed on May 1, 1997, upon the necessary
regulatory approval from the Maryland Community Development Agency.
Drexel Park III was sold for $2,450,000. Net proceeds of approximately
$733,000 have been received after deducting existing debt, commissions
and other related closing costs. The investment balance as of December
31, 1996 was $597,000.
NOTE 3 - MORTGAGE NOTE PAYABLE
The mortgage note outstanding at June 30, 1997 had an interest rate of
8.78 percent per annum, with principal and interest payments due
monthly. The note matures in September 2006.
The note is collateralized by the underlying rental property.
NOTE 4 - 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 $5,470,000 which bear interest at 9.5
percent and have principal maturities through 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.
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REAL ESTATE ASSOCIATES LIMITED VI
(a California limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
JUNE 30, 1997
NOTE 5 - 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 the corporate general
partner 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 $251,000 and $263,000 for the six months ended
June 30, 1997 and 1996, respectively.
The Partnership reimburses NAPICO for certain expenses. The
reimbursement to NAPICO was approximately $24,000 and $22,000 for the
six months ended June 30, 1997 and 1996, and is included in general and
administrative expenses.
NOTE 6 - CONTINGENCIES
The corporate 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 claims will not
result in any material liability to the Partnership.
NOTE 7 - 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 mortgage notes payable are insured by HUD and
are collateralized by the rental properties. The operations generated
by the properties and investee limited partnerships are subject to
various government rules, regulations and restrictions which make it
impracticable to estimate the fair value of the mortgage notes payable
and related accrued interest. The carrying amount of other assets and
liabilities reported on the balance sheets that require such disclosure
approximates fair value due to their short-term maturity.
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REAL ESTATE ASSOCIATES LIMITED VI
(a California limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
JUNE 30, 1997
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.
The Partnership has committed as of June 30, 1997 to investments in
limited partnerships requiring additional capital contributions of
$90,500. The Partnership normally makes its capital contributions to
the local limited partnerships in stages, over a period of two to five
years, with each contribution due on a specified date, provided that
certain conditions regarding construction or operation of the project
have been fulfilled. The Partnership has no significant commitments
once the capital contributions have been made.
The sale of Drexel Park III closed on May 1, 1997, upon the necessary
regulatory approval from the Maryland Community Development Agency.
Drexel Park III was sold for $2,450,000. Net proceeds of approximately
$733,000 have been received after deducting existing debt, commissions
and other related closing costs. The investment balance as of December
31, 1996 was $597,000.
RESULTS OF OPERATIONS
On February 2, 1996, one of the consolidated general partnerships
(Drexel Park) sold its property for $6,300,000. After payment of
closings costs, the Partnership realized a gain of approximately
$2,000,000 and cash of $830,000.
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 is undergoing an extensive review of disposition,
refinancing or re-engineering alternatives for the properties in its
Portfolio that are subject to governmental mortgage and rental subsidy
programs. The Partnership has begun to incur expenses in connection
with this review by various third party professionals. Amounts incurred
to date are not material to the operating results of the Partnership.
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.
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REAL ESTATE ASSOCIATES LIMITED VI
(a California limited partnership)
JUNE 30, 1997
ITEM 2. MANAGEMENT'S ANALYSIS AND DISCUSSION OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
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.
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. Funds
temporarily not required for such investments in projects are invested
providing interest income as reflected in the statement of operations.
These funds can be converted to cash to meet obligations as they arise.
The Partnership intends to continue investing available funds in this
manner.
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REAL ESTATE ASSOCIATES LIMITED VI
(a California limited partnership)
JUNE 30, 1997
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Partnership's general partner is involved in various lawsuits. None of these
lawsuits are related to the Partnership.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) No exhibits are required per the provision of item 7 of
regulation S-K.
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REAL ESTATE ASSOCIATES LIMITED VI
(a limited partnership)
JUNE 30, 1997
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
--------------------------------------
Bruce Nelson
President
Date:
------------------------------------
--------------------------------------
Charles H. Boxenbaum
Chief Executive Officer
Date:
------------------------------------
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