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 JUNE 30, 1999
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 JUNE 30, 1999
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets,
June 30, 1999 and December 31, 1998 ...................................1
Consolidated Statements of Operations,
Six and Three Months Ended, June 30, 1999 and 1998.....................2
Consolidated Statement of Partners' Deficiency
Six Months Ended June 30, 1999 ........................................3
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1999 and 1998 ...............................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 ...............................................16
Signatures ..............................................................................17
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REAL ESTATE ASSOCIATES LIMITED VI
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
JUNE 30, 1999 AND DECEMBER 31, 1998
ASSETS
1999
(Unaudited) 1998
----------- -----------
INVESTMENTS IN LIMITED PARTNERSHIPS (Note 2) $ 488,330 $ 500,744
CASH AND CASH EQUIVALENTS (Note 1) 3,566,456 5,477,969
CASH, restricted (Note 3) -- 1,397,081
OTHER ASSETS 57,085 50,985
----------- -----------
TOTAL ASSETS $ 4,111,871 $ 7,426,779
=========== ===========
LIABILITIES AND PARTNERS' DEFICIENCY
LIABILITIES:
Notes payable and amounts due for partnership
interests (Notes 4 and 7) $ 1,765,000 $ 1,765,000
Accrued interest payable (Notes 4 and 7) 1,885,584 1,817,184
Accounts payable 2,964 208,460
----------- -----------
3,653,548 3,790,644
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 5 and 6)
PARTNERS' DEFICIENCY:
General partners (346,606) (314,828)
Limited partners 804,929 3,950,963
----------- -----------
458,323 3,636,135
----------- -----------
TOTAL LIABILITIES AND PARTNERS' DEFICIENCY $ 4,111,871 $ 7,426,779
=========== ===========
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, 1999 AND 1998
(Unaudited)
Six months Three months Six months Three months
ended ended ended ended
June 30, 1999 June 30, 1999 June 30, 1998 June 30, 1998
--------- --------- --------- ---------
RENTAL OPERATIONS:
Revenues $ -- $ -- $ 554,380 $ 279,975
--------- --------- --------- ---------
Expenses:
General and administrative -- -- 44,586 22,461
Operating -- -- 193,305 102,867
Depreciation and amortization (Note 1) -- -- 87,229 43,615
Interest -- -- 242,310 121,155
--------- --------- --------- ---------
-- -- 567,430 290,098
--------- --------- --------- ---------
LOSS FROM RENTAL OPERATIONS -- -- (13,050) (10,123)
--------- --------- --------- ---------
PARTNERSHIP OPERATIONS:
Interest income 58,378 37,406 149,931 73,608
--------- --------- --------- ---------
Expenses:
Management fees - general partner (Note 5) 221,964 110,982 251,112 125,556
General and administrative (Notes 2 and 5) 220,358 86,153 370,969 203,870
Interest 68,400 34,200 266,850 133,425
--------- --------- --------- ---------
510,722 231,335 888,931 462,851
--------- --------- --------- ---------
LOSS FROM PARTNERSHIP OPERATIONS (452,344) (193,929) (739,000) (389,243)
--------- --------- --------- ---------
EQUITY IN INCOME OF LIMITED
PARTNERSHIPS AND AMORTIZATION
OF ACQUISITION COSTS 26,000 13,000 364,000 182,000
DISTRIBUTIONS FROM LIMITED
PARTNERSHIPS RECOGNIZED AS
INCOME (Note 2) 45,613 58,117 75,829 5,029
--------- --------- --------- ---------
NET LOSS $(380,731) $(122,812) $(312,221) $(212,337)
========= ========= ========= =========
NET LOSS PER LIMITED PARTNERSHIP
INTEREST (Note 1) $ (23) $ (7) $ (19) $ (13)
========= ========= ========= =========
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 PARTNERS' DEFICIENCY
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(Unaudited)
General Limited
Partners Partners Total
----------- ----------- -----------
PARTNERSHIP INTERESTS 16,810
===========
DEFICIENCY,
January 1, 1999 $ (314,828) $ 3,950,963 $ 3,636,135
Distributions (27,971) (2,769,110) (2,797,081)
Net loss for the six months
ended June 30, 1999 (3,807) (376,924) (380,731)
----------- ----------- -----------
DEFICIENCY,
June 30, 1999 $ (346,606) $ 804,929 $ 458,323
=========== =========== ===========
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 CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(Unaudited)
1999 1998
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (380,731) $ (312,221)
Adjustments to reconcile net loss to net
cash used in operating activities:
Equity in income of limited partnerships
and amortization of acquisition costs (26,000) (364,000)
Depreciation and amortization -- 87,229
Increase in other assets (6,100) (67,912)
Increase in accrued interest payable 68,400 182,391
(Decrease) increase in accounts payable (205,496) 44,354
----------- -----------
Net cash used in operating activities (549,927) (430,159)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions to limited partnerships recognized as
as a return of capital 38,414 76,706
Sales proceeds 1,397,081 --
----------- -----------
Net cash provided by investing activities 1,435,495 76,706
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners (2,797,081) --
----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 885,568 (430,159)
CASH AND CASH EQUIVALENTS, beginning of period 5,477,969 6,611,690
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 6,363,537 $ 6,181,531
=========== ===========
SUPPLEMENTAL DISCLOSURE OF
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for interest $ 198,450 $ 84,459
=========== ===========
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, 1999
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, 1998 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, 1999 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
corporate 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.
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.
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REAL ESTATE ASSOCIATES LIMITED VI
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
RENTAL PROPERTY AND DEPRECIATION
Rental property was stated at cost. Depreciation was provided on the
straight-line and accelerated methods over the estimated useful lives of
the buildings and equipment. The estimated useful lives for depreciation
were as follows:
Buildings 25 years
Equipment 3 to 5 years
Substantially all of the apartment units were leased on a month-to-month
basis.
On December 30, 1998, the Partnership sold the general partnership
interest which owned the rental property.
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.
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.
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REAL ESTATE ASSOCIATES LIMITED VI
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
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.
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 June 30, 1999, after selling its interests in 10
limited partnerships. 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 which owned as of June 30, 1999, 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.
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REAL ESTATE ASSOCIATES LIMITED VI
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
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 six months ended June 30, 1999:
Balance, beginning of period $ 500,744
Equity in income of limited partnerships 34,000
Distribution recognized as a return of capital (38,414)
Amortization of acquisition costs (8,000)
---------
Balance, end of period $ 488,330
=========
The following are unaudited combined estimated statements of operations
for the six and three months ended June 30, 1999 and 1998 of the
unconsolidated limited partnerships in which the Partnership has
investments:
Six months Three months Six months Three months
ended ended ended ended
June 30, 1999 June 30, 1999 June 30, 1998 June 30, 1998
------------- ------------- ------------- -------------
Revenues:
Rental and other $ 4,956,000 $ 2,478,000 $ 10,460,000 $ 5,230,000
------------ ------------ ------------ ------------
Expenses:
Depreciation 984,000 492,000 1,796,000 898,000
Interest 1,372,000 686,000 2,578,000 1,289,000
Operating expenses 2,896,000 1,448,000 7,058,000 3,529,000
------------ ------------ ------------ ------------
Total expenses 5,252,000 2,626,000 11,432,000 5,716,000
------------ ------------ ------------ ------------
Net loss $ (296,000) $ (148,000) $ (972,000) $ (486,000)
============ ============ ============ ============
NAPICO, or one of its affiliates, is the general partner and property
management agent for certain of the limited partnerships included above.
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REAL ESTATE ASSOCIATES LIMITED VI
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIP (CONTINUED)
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 was generally the case under existing HAP
Contracts. The payments under the renewed HAP Contracts are not expected
to 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.
MAHRAA provides that properties begin the restructuring process in
federal fiscal year 1999 (beginning October 1, 1998). On September 11,
1998, HUD issued interim regulations implementing MAHRAA and final
regulations are expected to be issued in 1999. With respect to the local
limited partnerships' expiring HAP Contracts, it is expected that the
HAP payments will be reduced or terminated pursuant to the terms of
MAHRAA.
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.
As a result of the foregoing, the Partnership in 1997 undertook an
extensive review of disposition, 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
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REAL ESTATE ASSOCIATES LIMITED VI
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIP (CONTINUED)
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 $520,586
through December 31, 1998, including $180,500 for the six months ended
June 30, 1998.
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 and a net gain of $7,497,969, after deducting selling costs.
The cash proceeds were held in escrow at December 31, 1998 and were
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.
Casden Properties Inc. purchased such limited partner interests for
cash, which it raised in connection with a private placement of its
equity securities. The purchase was subject to, among other things, (i)
the purchase of the general partner interests in the local limited
partnerships by Casden Properties Inc.; (ii) the approval of HUD and
certain state housing finance agencies; and (iii) the consent of the
limited partners to the sale of the local limited partnership interests
held for investment by the Partnership.
In August 1998, a consent solicitation statement was 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
proposed transaction. Prior to the sale of the partnership interests,
the consents of the limited partners to the sale and amendments to the
Partnership Agreement were obtained.
NOTE 3 - MORTGAGE NOTE PAYABLE
The mortgage note had an interest rate of 8.78 percent per annum, with
principal and interest payments due monthly. The note was assumed by the
buyer in connection with the sale of the general partner interest.
The note was 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)
JUNE 30, 1999
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 $1,440,000 which bear interest at 9.5 or
10 percent per annum and have principal maturities ranging from December
1999 to December 2012. The Partnership was relieved of notes payable in
the amount of $4,030,000 in connection to the sale of certain
partnership interests in 1998.
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 $221,000 and $251,000 for the six months ended June 30,
1999 and 1998, respectively.
The Partnership reimburses NAPICO for certain expenses. The
reimbursement to NAPICO was approximately $20,600 and $25,700 for the
six months ended June 30, 1999 and 1998, respectively, and is included
in general and administrative expenses.
NOTE 6 - CONTINGENCIES
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 Real Estate Associates Limited VI (another
affiliated partnership in which NAPICO is the managing general partner)
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
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REAL ESTATE ASSOCIATES LIMITED VI
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
NOTE 6 - CONTINGENCIES (CONTINUED)
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.
The managing general partner of such NAPICO managed partnerships and the
other defendants believe that the plaintiffs' claims are without merit
and intend to contest the action vigorously.
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.
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)
JUNE 30, 1999
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 distributions to
investors in June 30, 1999, 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.
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, 1999
ITEM 2. MANAGEMENT'S ANALYSIS AND DISCUSSION OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
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 was generally the case under existing HAP
Contracts. The payments under the renewed HAP Contracts are not expected
to 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.
MAHRAA provides that properties begin the restructuring process in
federal fiscal year 1999 (beginning October 1, 1998). On September 11,
1998, HUD issued interim regulations implementing MAHRAA and final
regulations are expected to be issued in 1999. With respect to the local
limited partnerships' expiring HAP Contracts, it is expected that the
HAP payments will be reduced or terminated pursuant to the terms of
MAHRAA.
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.
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REAL ESTATE ASSOCIATES LIMITED VI
(A CALIFORNIA LIMITED PARTNERSHIP)
JUNE 30, 1999
ITEM 2. MANAGEMENT'S ANALYSIS AND DISCUSSION OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
As a result of the foregoing, the Partnership in 1997 undertook an
extensive review of disposition, 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 $520,586
through December 31, 1998, including $180,500 for the six months ended
June 30, 1998.
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 and a net gain of $7,497,969, after deducting selling costs.
The cash proceeds were held in escrow at December 31, 1998 and were
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.
Casden Properties Inc. purchased such limited partner interests for
cash, which it raised in connection with a private placement of its
equity securities. The purchase was subject to, among other things, (i)
the purchase of the general partner interests in the local limited
partnerships by Casden Properties Inc.; (ii) the approval of HUD and
certain state housing finance agencies; and (iii) the consent of the
limited partners to the sale of the local limited partnership interests
held for investment by the Partnership.
In August 1998, a consent solicitation statement was 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
proposed transaction. Prior to the sale of the partnership interests,
the consents of the limited partners to the sale and amendments to the
Partnership Agreement were obtained.
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)
JUNE 30, 1999
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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 Real
Estate Associates Limited VI (another affiliated partnership in which NAPICO is
the managing general partner) 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. The managing
general partner of such NAPICO managed partnerships and the other defendants
believe that the plaintiffs' claims are without merit and intend to contest the
action vigorously.
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, 1999
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
----------------------------------------
Bruce Nelson
President
Date: August 13, 1999
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/s/ CHARLES H. BOXENBAUM
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Charles H. Boxenbaum
Chief Executive Officer
Date: August 13, 1999
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