1
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 MARCH 31, 1998
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 [ ]
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REAL ESTATE ASSOCIATES LIMITED VI
(A CALIFORNIA LIMITED PARTNERSHIP)
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1998
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets,
March 31, 1998 and December 31, 1997 ...............................1
Consolidated Statements of Operations,
Three Months Ended, March 31, 1998 and 1997.........................2
Consolidated Statement of Partners' Deficiency
Three Months Ended March 31, 1998 ..................................3
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1998 and 1997 .........................4
Notes to Consolidated Financial Statements ...............................5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation ......................................12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ..........................................................15
Item 6. Exhibits and Reports on Form 8-K ...........................................15
Signatures ..........................................................................16
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REAL ESTATE ASSOCIATES LIMITED VI
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
MARCH 31, 1998 AND DECEMBER 31, 1997
ASSETS
1998 1997
(Unaudited) (Audited)
------------ ------------
INVESTMENTS IN LIMITED PARTNERSHIPS (Note 2) $ 6,012,451 $ 5,885,699
RENTAL PROPERTY, net of accumulated depreciation (Note 1) 2,972,435 3,016,049
CASH AND CASH EQUIVALENTS (Note 1) 6,523,970 6,611,690
CASH, restricted (Note 3) 38,465 38,465
OTHER ASSETS 242,196 174,284
------------ ------------
TOTAL ASSETS $ 15,789,517 $ 15,726,187
============ ============
LIABILITIES AND PARTNERS' DEFICIENCY
LIABILITIES:
Mortgage note payable related to property (Notes 3 and 7) $ 4,828,404 $ 4,828,404
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) 6,219,167 6,103,244
Accounts payable 165,259 117,968
Other liabilities 38,465 38,465
------------ ------------
17,046,295 16,883,081
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 2, 5 and 6)
PARTNERS' DEFICIENCY:
General partners (363,500) (362,758)
Limited partners (893,021) (794,136)
------------ ------------
(1,256,778) (1,156,894)
------------ ------------
TOTAL LIABILITIES AND PARTNERS' DEFICIENCY $ 15,789,517 $ 15,726,187
============ ============
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
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
1998 1997
--------- ---------
RENTAL OPERATIONS:
Revenues $ 274,405 $ 263,374
--------- ---------
Expenses:
General and administrative 22,125 24,212
Operating 90,438 105,549
Depreciation and amortization (Note 1) 43,614 43,614
Interest 121,155 121,155
--------- ---------
277,332 294,530
--------- ---------
LOSS FROM RENTAL OPERATIONS (2,927) (31,156)
--------- ---------
PARTNERSHIP OPERATIONS:
Interest income 76,323 63,216
--------- ---------
Expenses:
Management fees - general partner (Note 5) 125,556 125,274
General and administrative 167,099 82,273
Interest 133,425 129,913
--------- ---------
426,080 337,460
--------- ---------
LOSS FROM PARTNERSHIP OPERATIONS (349,757) (274,244)
--------- ---------
EQUITY IN INCOME OF LIMITED
PARTNERSHIPS AND AMORTIZATION
OF ACQUISITION COSTS 182,000 149,000
DISTRIBUTIONS FROM LIMITED
PARTNERSHIPS RECOGNIZED AS
INCOME (Note 2) 70,800 70,800
--------- ---------
NET LOSS $ (99,884) $ (85,600)
========= =========
NET INCOME (LOSS) PER LIMITED
PARTNERSHIP INTEREST (Note 1) $ (6) $ (5)
========= =========
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 PARTNERS' DEFICIENCY
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(Unaudited)
General Limited
Partners Partners Total
----------- ----------- -----------
PARTNERSHIP INTERESTS 16,810
===========
DEFICIENCY,
January 1, 1998 $ (362,758) $ (794,136) $(1,156,894)
Net loss for the three months
ended March 31, 1998 (999) (98,885) (99,884)
----------- ----------- -----------
DEFICIENCY,
March 31, 1998 $ (363,757) $ (893,021) $(1,256,778)
=========== =========== ===========
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
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
1998 1997
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (99,884) $ (85,600)
Adjustments to reconcile net loss to net
cash used in operating activities:
Equity in income of limited partnerships
and amortization of acquisition costs (182,000) (149,000)
Depreciation and amortization 43,614 43,614
Increase in other assets (67,912) (1)
Increase in accrued interest payable 115,923 76,700
(Decrease) increase in accounts payable 47,291 24,011
Increase in restricted cash 0 (1,750)
----------- -----------
Net cash used in operating activities (142,968) (92,026)
CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions to limited partnerships recognized as
a return of capital 55,248 100,020
----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (87,720) 7,994
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 6,611,690 5,849,983
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6,523,970 $ 5,857,977
=========== ===========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the period year for interest $ 17,502 $ 174,368
=========== ===========
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)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
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, 1997 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 March 31, 1998 and the results of operations and
changes in cash flows for the 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
corporate general partner of the Partnership. NAPICO is a wholly owned
subsidiary of Casden Investment Corporation, which is wholly owned by Alan
I. Casden.
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)
MARCH 31, 1998
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 two high credit quality financial institutions.
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.
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.
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REAL ESTATE ASSOCIATES LIMITED VI
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS
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 the United States
Department of Housing and Urban Development ("HUD") or state 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 March 31, 1998, 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 three months ended March 31, 1998:
Balance, beginning of period $ 5,885,669
Equity in income of limited partnerships 212,000
Amortization of acquisition costs (30,000)
Cash distributions recognized as a return of capital (55,248)
-----------
Balance, end of period $ 6,012,451
===========
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REAL ESTATE ASSOCIATES LIMITED VI
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIP (CONTINUED)
The following are unaudited combined estimated statements of operations
for the three months ended March 31, 1998 and 1997 of the unconsolidated
limited partnerships in which the Partnership has investments:
Three months Three months
ended ended
March 31, 1998 March 31, 1997
----------- -----------
Revenues:
Rental and other $ 5,230,000 $ 5,311,000
----------- -----------
Expenses:
Depreciation 898,000 899,000
Interest 1,289,000 2,078,000
Operating expenses 3,529,000 2,803,000
----------- -----------
Total expenses 5,716,000 5,780,000
----------- -----------
Net loss $ (486,000) $ (469,000)
=========== ===========
NAPICO, or one of its affiliates, is the general partner and property
management agent for certain of the limited partnerships included above.
One of the limited partnerships (Drexel Park III) sold its property on May
1, 1997, upon the necessary regulatory approval from the Maryland
Community Development Agency. Drexel Park III was sold for $2,450,000.
After payment of closing costs, the limited partnership received net
proceeds of approximately $733,000, which were distributed to the
Partnership. The investment balance as of December 31, 1996 was $597,000.
Under recent adopted law and policy, HUD has determined not to renew
housing assistance payments contracts ("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 was generally the case under
existing HAP Contracts. As a result, existing HAP Contracts that are
renewed in the future on projects insured by the Federal Housing
Administration of HUD ("FHA") will not provide sufficient cash flow to
permit owners of properties to meet the debt service requirements of these
existing FHA-insured mortgages. 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 HAP Contracts that have been renewed under the new
policy. The restructured loans will be held by the current lender or
another lender. Under MAHRAA, an FHA-insured mortgage loan can be
restructured to reduce the annual debt service on such loan. There can be
no assurance that the Partnership will be permitted to restructure its
mortgage
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REAL ESTATE ASSOCIATES LIMITED VI
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIP (CONTINUED)
indebtedness pursuant to the new HUD rules implementing MAHRAA or that the
Partnership would choose to restructure such mortgage indebtedness if it
were eligible to participate in the MAHRAA program. It should be noted
that there are uncertainties as to 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.
Accordingly, the General Partners are unable to predict with certainty
their impact on the Partnership's future cash flow.
As a result of the foregoing, the Partnership is undergoing an extensive
review of properties for disposition to the REIT as set forth below,
refinancing or re-engineering alternatives for the properties in which the
limited partnerships have invested and are subject to HUD mortgage and
rental subsidy programs. The Partnership has incurred expenses in
connection with this review by various third party professionals,
including accounting, legal, valuation, structural and engineering costs,
which amounted to approximately $224,000 as of March 31, 1998, including
approximately $97,000 for the three months ended March 31, 1998.
A real estate investment trust ("REIT") organized by an affiliate of
NAPICO has advised the Partnership that it intends to make a proposal to
purchase from the Partnership certain of the limited partnership interests
held for investment by the Partnership.
The REIT proposes to purchase such limited partner interests for cash,
which it plans to raise in connection with a private placement of its
equity securities. The purchase is subject to, among other things, (i)
consummation of such private placement by the REIT; (ii) the purchase of
the general partner interests in the local limited partnerships by the
REIT; (iii) the approval of HUD and certain state housing finance -
agencies; (iv) the consent of the limited partners to the sale of the
local limited partnership interests held for investment by REAL VI; and
(v) the consummation of a minimum number of purchase transactions with
other NAPICO affiliated partnerships. As of March 31, 1998, the REIT had
completed buy-out negotiations with a majority of the general partners of
the local limited partnerships.
A proxy is contemplated to be sent to the limited partners setting forth
the terms and conditions of the purchase of the limited partners'
interests held for investment by the Partnership, together with certain
amendments to the Partnership Agreement and other disclosures of various
conflicts of interest in connection with the transaction.
NOTE 3 - MORTGAGE NOTE PAYABLE
The mortgage note has 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.
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REAL ESTATE ASSOCIATES LIMITED VI
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
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 or 10 percent per
annum and have principal maturities ranging from December 1999 to December
2012. Effective January 1, 1997, the interest rates for two notes
totalling $2,810,000 changed to 10 percent per terms of the note. 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.
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 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
$126,000 and $125,000 for the three months ended March 31, 1998 and 1997,
respectively.
The Partnership reimburses NAPICO for certain expenses. The reimbursement
to NAPICO was approximately $12,800 and $11,400 for the three months ended
March 31, 1998 and 1997, 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.
The Partnership has assessed the potential impact of the Year 2000
computer systems issue on its operations. The Partnership believes that no
significant actions are required to be taken by the Partnership to address
the issue and that the impact of the Year 2000 computer systems issue will
not materially affect the Partnership's future operating results or
financial condition.
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REAL ESTATE ASSOCIATES LIMITED VI
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
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 notes payable 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 mortgage note payable and the 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)
MARCH 31, 1998
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 March 31, 1998 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.
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.
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)
MARCH 31, 1998
ITEM 2. MANAGEMENT'S ANALYSIS AND DISCUSSION OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Under recent adopted law and policy, HUD has determined not to renew
housing assistance payments contracts ("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 was generally the case under
existing HAP Contracts. As a result, existing HAP Contracts that are
renewed in the future on projects insured by the Federal Housing
Administration of HUD ("FHA") will not provide sufficient cash flow to
permit owners of properties to meet the debt service requirements of these
existing FHA-insured mortgages. 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 HAP Contracts that have been renewed under the new
policy. The restructured loans will be held by the current lender or
another lender. Under MAHRAA, an FHA-insured mortgage loan can be
restructured to reduce the annual debt service on such loan. There can be
no assurance that the Partnership will be permitted to restructure its
mortgage indebtedness pursuant to the new HUD rules implementing MAHRAA or
that the Partnership would choose to restructure such mortgage
indebtedness if it were eligible to participate in the MAHRAA program. It
should be noted that there are uncertainties as to 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. Accordingly, the General Partners are unable to predict with
certainty their impact on the Partnership's future cash flow.
As a result of the foregoing, the Partnership is undergoing an extensive
review of properties for disposition to the REIT as set forth below,
refinancing or re-engineering alternatives for the properties in which the
limited partnerships have invested and are subject to HUD mortgage and
rental subsidy programs. The Partnership has incurred expenses in
connection with this review by various third party professionals,
including accounting, legal, valuation, structural and engineering costs,
which amounted to approximately $224,000 as of March 31, 1998, including
approximately $97,000 in general and administrative expenses for the
three months ended March 31, 1998.
A real estate investment trust ("REIT") organized by an affiliate of
NAPICO has advised the Partnership that it intends to make a proposal to
purchase from the Partnership certain of the limited partnership interests
held for investment by the Partnership.
The REIT proposes to purchase such limited partner interests for cash,
which it plans to raise in connection with a private placement of its
equity securities. The purchase is subject to, among other things, (i)
consummation of such private placement by the REIT; (ii) the purchase of
the general partner interests in the local limited partnerships by the
REIT; (iii) the approval of HUD and certain state housing finance
agencies; (iv) the consent of the limited partners to the sale of the
local limited partnership interests held for investment by REAL VI; and
(v) the consummation of a minimum number
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REAL ESTATE ASSOCIATES LIMITED VI
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 1998
ITEM 2. MANAGEMENT'S ANALYSIS AND DISCUSSION OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
of purchase transactions with other NAPICO affiliated partnerships. As of
March 31, 1998, the REIT had completed buy-out negotiations with a
majority of the general partners of the local limited partnerships.
A proxy is contemplated to be sent to the limited partners setting forth
the terms and conditions of the purchase of the limited partners'
interests held for investment by the Partnership, together with certain
amendments to the Partnership Agreement and other disclosures of various
conflicts of interest in connection with the transaction.
The Partnership has assessed the potential impact of the Year 2000
computer systems issue on its operations. The Partnership believes that no
significant actions are required to be taken by the Partnership to address
the issue and that the impact of the Year 2000 computer systems issue will
not materially affect the Partnership's future operating results or
financial condition.
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REAL ESTATE ASSOCIATES LIMITED VI
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 1998
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 5. OTHER INFORMATION
On October 20, 1997 the Partnership became aware of an unsolicited tender offer
from Equity Resources Fund XXI (the "Buyer") to buy up to 400 units of limited
partnership interests (the "Units") in the Partnership for a price of $250 per
Unit. The Buyer did not contact the Corporate General Partner prior to
commencing its tender offer. By letter dated October 30, 1997, the Corporate
General Partner advised limited partners that it had determined not to take a
position with respect to the tender offer but cautioned limited partners to
consider certain items before determining whether to tender their Units to the
Buyer. A copy of the letter is attached as an Exhibit to this form 10-Q.
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)
MARCH 31, 1998
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: May 18, 1998
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/s/ CHARLES H. BOXENBAUM
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Charles H. Boxenbaum
Chief Executive Officer
Date: May 18, 1998
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