SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [ X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for use of
[ ] Definitive Proxy Statement Commissiononly (as
[ ] Definitive Additional Materials permitted by
[ ] Soliciting Material Pursuant to Rule 14a-6(a)(2))
Rule 14a-11(c) or Rule 14-12
Property Resources Fund VI
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In its Charter)
Property Resources Fund VI
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction
applies:
Limited Partnership Interests
2) Aggregate number of securities to which transaction applies:
21,585
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how
it was determined).
The proposed amount of the distribution to the Holders upon
dissolution of the Registrant is $4,772,000.
4) Proposed maximum aggregate value of transaction:
$4,772,000
5) Total fee paid:
$318.13
[ ] Fee paid previously with preliminary material.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
PROPERTY RESOURCES FUND VI
P. O. BOX 7777
SAN MATEO, CA 94403-7777
(650) 312-3000
CONSENT SOLICITATION STATEMENT
April __, 1998
PROPERTY RESOURCES FUND VI,
a California limited partnership
(the "Partnership")
Solicitation of Consent to Sell the Partnership's
Assets and Dissolve the Partnership
by
PROPERTY RESOURCES, INC.,
the general partner of the Partnership
(the "General Partner")
1800 Gateway Drive
San Mateo, CA 94404
To the Holders (the "Holders") of Units Representing Limited Partnership
Interests of the Partnership (the "Units"):
Property Resources, Inc. (the "General Partner"), in its capacity as General
Partner of Property Resources Fund VI, a California limited partnership (the
"Partnership"), is proposing a sale of the Partnership's two properties, Grouse
Run Apartments and Clearlake Village Apartments (together, the "Apartments"),
and a subsequent dissolution, termination and winding up of the Partnership. The
General Partner has listed both of the Partnership's properties for sale and
intends to negotiate and consummate their sales on behalf of the Partnership
upon receipt of offers which are acceptable in the sole discretion of the
General Partner.
The sale of each of the Apartments and the dissolution of the Partnership
following such sales is subject to the approval of Holders of record as of April
__, 1998 (the "Notice Date") holding a majority of the Units.
If the sale of the Apartments and the dissolution of the Partnership are
approved, following the sale of the Apartments, the net proceeds from these
sales will be disbursed in accordance with the terms of the Partnership's
Limited Partnership Agreement (the "Partnership Agreement"), the remaining
assets of the Partnership (if any) will be sold, the proceeds (if any) will be
distributed and the Partnership will be dissolved. Based upon the General
Partner's estimate of the gross purchase price for Grouse Run of $7,000,000, and
for CVA of $3,500,000, the General Partner estimates that a liquidation of the
Partnership would result in a distribution of approximately $221 per Unit to the
Holders. There can be no assurance that the General Partner will be able to
consummate sales of the Apartments at the estimated prices, or that
distributions to Holders will equal the amount set forth herein.
This Consent Solicitation is made by the General Partner on behalf of the
Partnership and seeks approval of the Holders of the sale of the Apartments and
the subsequent dissolution, termination and winding up of the Partnership. The
cost of this Consent Solicitation is being borne by the Partnership. The
approximate date on which this Consent Solicitation and form of consent are
first given to Holders will be April ___, 1998.
THE CONSENT SOLICITATION WILL EXPIRE AT 5:00 P.M. PACIFIC DAYLIGHT TIME ON APRIL
30, 1998 (THE "CONSENT DATE") UNLESS EXTENDED OR TERMINATED EARLIER. CONSENTS
MAY BE REVOKED AT ANY TIME UP TO THE CONSENT DATE (SEE "APPROVAL BY THE
HOLDERS").
ANY QUESTIONS ABOUT THIS CONSENT SOLICITATION, FORM OF CONSENT OR REQUESTS FOR
COPIES OF DOCUMENTS MAY BE DIRECTED TO THE GENERAL PARTNER, 1800 GATEWAY DRIVE,
SAN MATEO, CALIFORNIA 94404, PHONE NUMBER (650) 312-5789, FACSIMILE NUMBER (650)
312-5830.
PROPOSAL
The General Partner, in its capacity as such, proposes a sale of Grouse Run
Apartments, located in Oklahoma City, Oklahoma, and Clearlake Village
Apartments, located in Houston, Texas. After several years of depressed real
estate markets in these areas, the General Partner believes the markets for
apartment complexes have improved and that a sale of the Apartments at this time
will produce more favorable prices than has been possible in recent years.
If Holders of a majority of Units vote to sell the Apartments and liquidate the
Partnership, the sales of Grouse Run and CVA will be consummated if, in the sole
discretion of the General Partner, acceptable offers are received on the
Apartments. Thereafter and subject to the terms and conditions of the
Partnership Agreement, proceeds from the sales will be used first to repay all
accrued expenses of the Partnership, the balance owed on the first mortgages,
and any other debts owed by the Partnership including debts owed to the General
Partner. Thereafter, net proceeds will be distributed to the Holders, in
accordance with the terms of the Partnership Agreement, and the Partnership will
be terminated. THE GENERAL PARTNER BELIEVES THE SALE OF THE APARTMENTS AND THE
DISSOLUTION, TERMINATION AND
WINDING UP OF THE PARTNERSHIP AT THE PRESENT TIME IS IN THE BEST INTEREST OF THE
HOLDERS AND RECOMMENDS THAT HOLDERS VOTE TO APPROVE THESE TRANSACTIONS.
THE BUSINESS
The Partnership, formed in 1982, is a limited partnership organized under the
laws of the state of California. The Partnership was capitalized from the sale
of units of limited partnership interests, raising initial capital of
$10,796,000. The Partnership was organized for the purpose of investment in real
estate.
PROPERTIES
The Partnership acquired five properties and intended to dispose of them
approximately five to eight years after their acquisition. Three of these
properties were located in Texas and Oklahoma. At the time of the purchases,
this area's economy was booming due to a dramatic increase in oil prices and oil
company employment as well as a robust construction industry. With the
substantial fall in oil prices in the mid-1980s, the economic conditions of the
area turned from boom to bust. With declining oil industry employment, demand
for commercial real estate fell and the construction industry and its associated
employment fell into a severe downturn.
The economic downturn led to lowered occupancies and rental rates at the
Partnership's properties. Net cash flow from the properties turned negative and
began to deplete cash reserves. Continuing cash flow deficits exhausted the
Partnership's cash reserves by 1986. To avoid a possible bankruptcy of the
Partnership, the General Partner agreed to loan the Partnership sufficient funds
(bearing interest at the prime rate) to continue operations. In 1994, total
advances peaked at over $800,000. Since then, the Partnership has generated
sufficient cash flow to repay the principal portion of these advances. The
accrued interest on the advances, which has not yet been repaid, now totals
approximately $527,000.
In 1988, the Partnership sold one of its properties, an industrial building near
San Jose, California. As part of this sale, the purchaser of this property
issued a note receivable to the Partnership (the "Note Receivable"). This Note
Receivable, which has a current balance of approximately $181,000, matures in
November 1999.
In 1990 it became clear that one property, Waterbury Plaza in Salt Lake City,
had a value considerably less than the loan amount. No additional funds were
expended to pay the debt service at this property, and it was lost to
foreclosure. This foreclosure coupled with the sale in San Jose left the
Partnership with three properties.
In 1993 and 1994, Space Savers mini-storage in San Antonio, Texas and Grouse Run
Apartments in Oklahoma City, Oklahoma began to show signs of improvement. The
loan at Space Savers was due to mature in April 1994 and the loan at Grouse Run
Apartments was due to mature in December 1994. Because the General Partner
believed that Grouse Run held the greatest potential for appreciation, it
decided to sell Space Savers and use the proceeds to complete a loan
extension/modification with the lender at Grouse Run. Both these actions were
completed in 1994.
The Partnership now owns two properties: Grouse Run Apartments located in
Oklahoma City, Oklahoma and Clearlake Village Apartments located in Houston,
Texas.
GROUSE RUN APARTMENTS ("GROUSE RUN")
Grouse Run is a property built by the Partnership that consists of 31 two-story
apartment buildings with a total of 201,524 square feet of leasable area. As of
December 31, 1997, monthly rental rates ranged from $370 to $500 per unit and
the occupancy rate was 93%. The General Partner negotiated a loan secured by the
property in 1994 with a fixed interest rate of 9.96%, amortized on a 30-year
schedule. The Note has an original principal balance of $3,884,000 and it
matures on October 1, 1999.
The property was recently renovated extensively. However, as the property ages,
additional capital improvements will be required to maintain the physical
condition of the property. The General Partner has determined that it is in the
best interests of the Holders to sell Grouse Run. The General Partner has not
yet found a purchaser for Grouse Run, but estimates that its fair value is
approximately $7,000,000. There can be no assurance that the General Partner
will find a purchaser for Grouse Run, or that the purchaser will agree to pay
the estimated value for Grouse Run.
CLEARLAKE VILLAGE APARTMENTS ("CVA")
CVA is a 174 unit apartment complex located in the Clearlake region of southeast
Houston, Texas. CVA's total net rentable area is 119,580 square feet and the
monthly rental rates for its apartments range from $400 to $550.
In 1996, the General Partner refinanced the loan on CVA upon the condition that
CVA be owned by a single-asset entity. The General Partner and the Partnership
formed Property Resources Fund VI Subsidiary, a California limited partnership
(the "LP Sub") for this purpose. The General Partner is the General Partner for
the LP Sub, and the Partnership is its sole limited partner. The change in
ownership of CVA does not effect the economic arrangement among the Holders in
the Partnership, as the net economic burdens and benefits of CVA are shared in
the same manner as if the Partnership owned CVA directly.
The new loan provides that CVA is encumbered by a note and deed of trust payable
in monthly installments of principal and interest through August 11, 2006. As of
December 31, 1997, the principal balance of the loan was approximately
$2,140,000. Monthly installments include principal amounts amortized on a 25
year schedule and interest at 8.875%. The General Partner believes that this
loan will be assumed or paid off by a purchaser.
In 1996, annual revenues at CVA exceeded $850,000, up over $135,000 from 1990
and revenues rose above $860,000 in 1997. During 1997, occupancy at CVA has
averaged 92%. Property values grew not only as a result of increases in
revenues, but also due to a decline in "cap rates" or the yields that a
potential investor requires from an investment in income property. Cap rates
move in inverse relationship with property values. According to local real
estate sources, cap rates on apartment properties in Houston fell .50%-1.00%
since the end of 1996 and now range from 8.5 to 9.5%. Given its age, the sale
cap rate for CVA is expected to be at the high end of this range.
As CVA ages, the expense of increased maintenance and major capital items may
put increased demands on the Partnership's cash resources. Given the recent
improvements in operations and future risks of continued ownership, the General
Partner believes that a sale of CVA would yield a favorable sale price.
The Partnership also holds the Note Receivable described above secured by a
property located in Campbell, California. To liquidate the Partnership in 1998,
the Note Receivable must be paid off by the borrower (who is an unaffiliated
third party) or sold. The General Partner has contacted the borrower and
proposed that the loan be paid off. However, if the loan is not paid off, the
General Partner has agreed to purchase the Note from the Partnership at its par
value.
REASONS TO SELL NOW
Apartment construction in the Oklahoma City metro area has finally resumed after
years of dormancy. Local real estate sources indicate that twelve new apartment
complexes are being built in the metropolitan area, among them several upscale
complexes. Although total revenues at Grouse Run rose 48% from 1991 to 1996 and
in 1997 rose an additional 7% over 1996, the General Partner expects that
competition from these new projects will negatively impact Grouse Run's
operating income.
Similarly, Houston has experienced modest levels of new apartment construction
over the past two years, and there appears to be a significant increase in
supply on the horizon. According to local real estate brokers, as of October
1997, there were approximately 11,000 apartment units under construction or
permitted in the Houston area. These sources have identified an additional 8,700
units in the planning stages. In 1996, Houston absorbed 7,500 units and is
estimated to absorb an additional 8,500 units in 1997. The total supply in
Houston is approximately 400,000 apartment units and recently the vacancy rate
for apartments has hovered around 8%. As additional units are added to the
market, occupancy rates and rental rates may be negatively impacted. A fall in
rental rates and occupancy could also effect the demand for apartment properties
from potential buyers.
As described above, apartment revenues for Grouse Run and CVA have increased
substantially in 1997. The market for investment in apartments in Oklahoma City
and Houston appears to be active. The General Partner believes favorable sales
prices can be achieved this year for Grouse Run and CVA. Additional apartment
construction in Oklahoma City and Houston could lead to future increases in
vacancy and slower growth in revenues. Given these risks and the improved market
for apartment sales, THE GENERAL PARTNER BELIEVES THAT THE SALE OF GROUSE RUN
AND CVA IS IN THE BEST INTEREST OF THE HOLDERS AND RECOMMENDS THAT HOLDERS VOTE
TO APPROVE THE SALES AND THE DISSOLUTION, TERMINATION AND WINDING UP OF THE
PARTNERSHIP.
IF SALES ARE COMPLETED
Based upon (i) an estimated gross purchase price for Grouse Run of $7,000,000
and (ii) an estimated gross purchase price for CVA of $3,500,000, the General
Partner estimates that the sale of the Apartments will result in a total net
sale price of approximately $10,185,000 after third party selling commissions
and closing costs estimated at 3%. These sale proceeds first will be used to pay
any accrued expenses and Partnership liabilities, including the accrued interest
on the General Partner advances (as described above) totaling $527,000.
A provision of the Partnership Agreement requires the General Partner upon
dissolution of the Partnership to contribute to the Partnership an amount equal
to the balance of its negative capital account. As of December 31, 1997 and
given the estimates of sales price and net proceeds described above, this
provision of the Partnership Agreement will require the General Partner to
contribute to the Partnership approximately $405,000 upon its termination.
Therefore, the net amount of cash that will be received by the General Partner
upon liquidation will be approximately $122,000 (subject to adjustments to
capital accounts).
Based on the foregoing analysis, the General Partner estimates that
approximately $4,772,000 should be available for distribution to Holders. If the
sales are approved and the estimated sales prices are achieved, the estimated
amount of distributions to be received by each Holder upon liquidation of the
Partnership is approximately as follows:
TOTAL AMOUNT PER UNIT
$4,772,000 $221
THE AMOUNT OF THIS DISTRIBUTION IS AN ESTIMATION ONLY AND IS SUBJECT TO
VARIATION DUE TO CHANGES IN THE SALE PRICE OF THE APARTMENTS AND/OR ACCRUED
EXPENSES AND OTHER VARIABLES. THE ULTIMATE AMOUNT OF THE LIQUIDATING
DISTRIBUTION COULD BE MORE OR LESS THAN THE AMOUNT STATED ABOVE.
IF SALES ARE NOT APPROVED
If the Holders do not approve the sales, the General Partner intends to continue
to operate the Apartments until such time as another sale is proposed and
approved by the Holders. The exact timing of any subsequent sale proposal will
be determined by market conditions in Oklahoma City and Houston and the
financial condition of the Partnership.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a brief summary of certain of the material federal income tax
consequences of the sale of the Apartments and the liquidation of the
Partnership, as described in this Consent Solicitation. This discussion is
intended to address only those federal income tax considerations that are
generally applicable to all Holders in connection with the transactions
described above. The specific tax consequences of the transactions will vary for
each Holder because of the different circumstances of the various Holders. This
discussion is based on the Internal Revenue Code of 1986 (the "Code"), as
amended, existing and proposed Treasury Regulations thereunder, and current
administrative interpretations and court decisions.
It is not possible or practical to discuss here all aspects of federal income
tax law that may have relevance with respect to the transactions described
herein based on the individual circumstances of particular Holders in light of
their personal investment or tax circumstances, or to certain types of investors
(including insurance companies, financial institutions or broker/dealers,
tax-exempt organizations and foreign corporations and persons who are not
citizens or residents of the United States) subject to special treatment under
the federal income tax laws. The following description is general in nature, and
is not exhaustive of all possible tax considerations. This analysis is not tax
advice, and is not intended as a substitute for careful tax planning.
The discussion set forth below is based upon the assumption that interests in
the Partnership held by the Holders constitute capital assets in the hands of
such investors and that the Partnership is classified for federal income tax
purposes as a partnership, rather than an association taxable as a corporation.
Upon the formation of the Partnership in 1982, the Partnership received an
opinion from its tax counsel, Latham & Watkins, that the Partnership was
properly classified as a partnership for federal income tax purposes. The
Partnership did not request a ruling from the Internal Revenue Service as to its
tax status as a partnership, however. Moreover, the opinion of counsel referred
to above was and is subject to the continuous satisfaction by the Partnership of
certain factual conditions. If, for any reason, the Partnership is or was
classified for tax purposes as an association taxable as a corporation, the tax
consequences of the proposed transactions would differ materially from that
described below.
TAX CONSEQUENCES OF THE PROPOSED SALES
The sale of the Apartments (or other Partnership assets) by the Partnership will
be a fully taxable transaction in which the Partnership will recognize taxable
gain or loss in an amount equal to the difference between (i) the amount
realized on the sale (including the amount of any liabilities assumed or taken
subject to by Purchaser) of the Apartments (or other assets) over (ii) the
Partnership's adjusted tax basis in the Apartments (or other assets). Each
Holder will be required to recognize his or her allocable share of the taxable
gain or loss recognized by the Partnership, as set forth in the Partnership
Agreement. To the extent the Partnership's gain or loss is treated as realized
from the sale of "Section 1231" assets (i.e., real property and depreciable
assets used in a trade or business and held for more than one year), each Holder
would combine his or her share of gain or loss from the sale of the
Partnership's Section 1231 assets with any other Section 1231 gains and losses
recognized by such Holder in that year. If the result is a net loss, such loss
will be characterized as an ordinary loss. If the result is a net gain, such
gain will be characterized as capital gain; provided; however, that such gain
will be treated as ordinary income to the extent the Holder has "non-recaptured"
Section 1231 losses. For these purposes, "non-recaptured" Section 1231 losses
means a Holder's aggregate Section 1231 losses for the five most recent prior
years that have not previously been recaptured. In addition, a Holder's net gain
will be treated as ordinary income to the extent such gain is attributable to
depreciation recapture, sale of inventory or certain other items.
The Partnership may be required to withhold a portion of the distributions to be
made to any Holders who fail to provide appropriate certification as to their
non-foreign status or their status as a California resident.
LIQUIDATION OF THE PARTNERSHIP
In general, each Holder will recognize additional gain or loss on the
liquidation of the Partnership in an amount equal to the difference (if any)
between (a) the sum of (i) the amount of cash received and (ii) any reduction in
such Holder's share of liabilities of the Partnership, and (b) the Holder's
adjusted tax basis in his or her interest in the Partnership (including the
Holder's share of Partnership liabilities and as increased or decreased by his
or her share of the Partnership gain or loss from the sale of the Apartments and
other assets of the Partnership). The basis of each Holder's Unit should include
their allocable portion of syndication costs and other previously un-allowed
deductions of approximately $58 per Unit, which were charged to the Holders'
capital accounts on their prior year's Schedule K-1's.
A Holder's gain or loss (if any) will generally be capital gain or loss, and
will be long-term if the Holder has held his or her interest in the Partnership
for more than eighteen months.
As a result of a debt restructuring at Grouse Run in 1994, Holders were allowed
to reduce their basis in the Partnership as an alternative to recognizing
forgiveness of debt as ordinary income. Those Holders who made this election
("Electing Holders") will receive different tax consequences from the sale of
Grouse Run and the termination of the Partnership than those who did not make
the election ("Non-electing Holders"). TO DETERMINE WHICH TYPE HOLDER YOU ARE,
PLEASE REFER TO YOUR TAX RECORDS OR CONSULT YOUR TAX PROFESSIONAL. In the event
the Apartments are sold on the terms estimated above, it is estimated that the
Holders in each class will realize the following taxable income, losses, and
capital gain as a result of 1998 operations and the sale of the Apartments and
termination of the Partnership (all figures per Unit):
Non-Electing ELECTING HOLDERS
HOLDERS
Section 1231 taxable income from
prior installment sale $ 7 $ 7
Ordinary taxable income on sale of Apartments $ 45 $ 45
Capital gain on sale of Apartments $223 $178
Gain (loss) on investment in partnership ($ 64) ($ 57)
In addition, the Partnership will generate ordinary taxable income (loss) from
operations in 1998 that are estimated to be an immaterial amount.
The Partnership has generated passive losses from certain prior years that may
not have been deducted from ordinary income. If these losses were not used in
the year generated, they are then classified as SUSPENDED passive losses. The
MAXIMUM amount of suspended passive losses as a result of an investment in the
Partnership is estimated to be $49 per unit for Electing Holders, and $104 per
unit for Non-Electing Holders, assuming that the Holder has not previously used
any of them. Passive losses may have been used to offset income from forgiveness
of debt by Non-Electing Holders. Unused suspended passive losses can be used to
offset income and gains generated upon the sales of the Apartments and, to the
extent still unused upon termination of the Partnership, can be used to offset
other non-passive income, subject to the regular limitations on offsetting
capital losses against ordinary income.
As relevant to this discussion, for an individual Holder, net long term capital
gains (i.e., on sales of assets held for more than eighteen months) are
generally subject to a maximum federal income tax rate of 20%, except that net
gains realized on the sale of real estate are taxed at 25% to the extent they do
not exceed the amount of depreciation deductions previously taken on the real
estate for federal income tax purposes. For individuals, ordinary income and net
short term capital gain are subject to a maximum federal income tax rate of
39.6%.
HOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS,
ATTORNEYS OR ACCOUNTANTS WITH RESPECT TO THE FEDERAL,
STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF THE
TRANSACTIONS DESCRIBED HEREIN AND POTENTIAL CHANGES IN THE
APPLICABLE LAW.
APPROVAL BY THE HOLDERS
Holders of record as of the Notice Date holding more than 50% of the Units must
approve ("Majority Approval") the proposed sales as described above and the
termination, dissolution and winding up of the Partnership. Each Holder shall be
entitled to cast one vote for each Unit which he or she owns. The Partnership
Agreement permits this vote to be taken by written consent without a meeting of
the Holders.
Holders may vote to approve or disapprove the proposed sales and the
termination, dissolution and winding up of the Partnership, or may abstain.
Signed but unmarked Ballots returned to the General Partner will be deemed to
approve the proposed sales and the termination, dissolution and winding up of
the Partnership and will be deemed, pursuant to the Partnership Agreement, to
have directed the General Partner to vote to approve such sales. Because
Majority Approval is required, the failure to vote or a vote to abstain has the
same effect as a vote to disapprove.
As of March 31, 1998, there were 1,128 Holders of record owning 21,585 Units. No
person is known by the Partnership to own beneficially more than 5% of the
outstanding Units, and no Units are held by the General Partner or an affiliate
of the General Partner.
EXTENSION OF CONSENT DATE: TERMINATION AND AMENDMENT
The General Partner expressly reserves the right, in its sole discretion, at any
time and from time to time (i) to extend the Consent Date up to 60 days from the
date the first Consent Solicitation Statement was mailed or given to a Holder,
(ii) to terminate this Consent Solicitation at any time after Holders holding
more than 50% of the Units have voted to approve the proposed sales and the
distribution of proceeds, termination, dissolution and winding up of the
Partnership, or (iii) to amend or supplement this Consent Solicitation
Statement. Any extension, termination or amendment will be followed as promptly
as practicable by written notice. Without limiting the manner in which the
General Partner may choose to make any written notice, except as provided by
applicable law, the General Partner will have no obligation to publish,
advertise or otherwise communicate such notice by public announcement.
DISSENTER'S RIGHTS
Neither the Partnership Agreement nor California law provides any right for
Holders to have their respective Units appraised or redeemed in connection with
or as a result of this Consent Solicitation.
REVOCATION
Every consent given in accordance with this Consent Solicitation continues in
full force and effect unless otherwise revoked prior to the Consent Date. Such
revocation may be effected by a writing delivered to the General Partner stating
that the consent is revoked or by a subsequent consent executed by a Holder and
specifying that it supersedes the prior consent. The dates contained on the form
of consent shall determine the order of execution regardless of the postmark
dates on the envelopes in which they are mailed. A consent is not revoked by the
death or incapacity of the Holder unless, before the Consent Date, written
notice of such death or incapacity is received by the General Partner.
INCORPORATION BY REFERENCE
The Partnership incorporates by reference Part I and Part II of its Form 10-K
for the fiscal year ended December 31, 1997.
METHOD OF SOLICITATION
This solicitation of Consents is made by the General Partner on behalf of the
Partnership. This Consent Solicitation Statement is the primary method by which
the General Partner will solicit the consent of the Holders. Officers of the
General Partner will be available to answer questions from Holders regarding the
Consent Solicitation.
THIS SOLICITATION OF CONSENT EXPIRES ON APRIL 30, 1998,
UNLESS EXTENDED OR TERMINATED EARLIER.
Accordingly, it is important that Holders complete and return the enclosed form
of consent (or a facsimile thereof) so that it will be received before the
deadline. If you have any questions regarding this Consent Solicitation or the
transactions covered thereby, please contact the General Partner:
Property Resources, Inc.
By Telephone: (650) 312-5789
By Facsimile: (650) 312-3830
No other person has been authorized to give any information or to make any
representation on behalf of the Partnership or the General Partner not contained
herein and, if given or made, such information or representation must not be
relied upon as having been authorized.
A Certification of Non-Foreign Status (the "Certification") is also enclosed
with this Consent Solicitation Statement. This certification is required to be
completed and returned to the General Partner in order to avoid federal income
tax withholding on a Holder's distribution of proceeds from the proposed sale of
the Apartments and termination of the Partnership. Regardless of whether you
approve the proposed sales and termination of the Partnership or not, please
complete, sign and date the Certification and return it with the completed
consent. YOUR DISTRIBUTION WILL BE REDUCED AND THE REDUCED PORTION HELD BACK
UNTIL YOU RETURN THE CERTIFICATION.
Exhibit 1 - Parts I and II of Form 10-K for fiscal year ended December 31, 1997
PART 1
Item 1. BUSINESS
PROPERTY RESOURCES FUND VI (hereinafter referred to either as the
"Partnership" or the "Registrant") is a limited partnership formed in May
1982 under the Uniform Limited Partnership Act of the State of California.
The General Partner is Property Resources, Inc., a California corporation;
(the "General Partner") located at 1800 Gateway Drive, San Mateo, California
94404.
The Partnership was organized for the purpose of acquiring, improving,
developing, operating and holding for investment, income-producing real
properties from unaffiliated sellers. The Partnership intended to dispose of
its properties approximately five to eight years after their acquisition and
thereupon liquidate the Partnership. However, depressed real estate markets
in the areas where the Partnership's properties are located have required the
Partnership to extend its holding period in an effort to improve the
opportunity of recovering some of the loss in value of the portfolio. There
is no assurance that the Partnership will be successful in this regard.
As of December 31, 1997, the Partnership had acquired an interest in five
real estate assets located in Houston, Texas; San Antonio, Texas; Oklahoma
City, Oklahoma; Salt Lake City, Utah; and Campbell, California; as more
particularly described in Item 2. Properties. The Partnership later sold the
properties located in San Antonio, Texas; Salt Lake City, Utah and Campbell,
California.
Management is currently marketing the remaining properties for sale, and a
sale of one or both of the properties may occur in 1998.
The real estate business is competitive, and the Partnership is in
competition with many other entities engaged in real estate investment
activities, some of which have greater assets than the Partnership.
The Partnership will be subject to the risks generally associated with the
ownership of real property, including the possibility that operating expenses
and fixed costs may exceed property revenues; economic conditions may
adversely change further in the markets where the Partnership owns property
and the national market; the real estate investment climate may change; local
market conditions may change adversely due to general or local economic
conditions and neighborhood characteristics; interest rates may fluctuate and
the availability, costs and terms of mortgage financing may change;
unanticipated maintenance and renovations may arise, particularly in older
structures; changes in real estate tax rates and other operating expenses may
arise; governmental rules and fiscal policies may change; natural disasters,
including earthquakes, floods or tornadoes may result in uninsured losses;
the financial condition of the tenants of properties may deteriorate; and
other factors which are beyond the control of the Partnership may occur. The
Partnership's real estate investments in rental properties will be subject to
the risk of the Partnership's inability to attract or retain tenants and a
consequent decline in rental income.
While one of the Partnership's objectives is to generate cash flow, there can
be no guarantee that the properties will generate sufficient revenue to cover
operating expenses and meet any required payments on any debt obligations of
the Partnership.
The opportunities for sale, and the profitability of any sale, of any
particular property by the Partnership will be subject to the risk of adverse
changes in real estate market conditions, which may vary depending upon the
size, location and type of each property.
There may be shortages or increased costs of fuel, natural gas, water, or
electric power, or allocations thereof by suppliers or governmental
regulatory bodies in areas where the Partnership owns properties. In the
event of such shortages, price increases or allocations may occur, and the
operation of such properties may be adversely affected. It is also possible
that legislation on the state or local level may be enacted which may include
some form of rent control or changes in property tax assessments. There may
be changes to federal, state or local regulations enacted relating to the
protection of the environment.
The Partnership is unable to predict the extent, if any, to which such
shortages increased prices, legislation, regulations or allocations, might
occur and the degree to which the occurrence of such events might adversely
affect the properties owned by the Partnership.
Under various federal, state and local laws, ordinances and regulations, an
owner or operator of real property may become liable for the costs of removal
or remediation of certain hazardous substances released on or in its
property. Such laws often impose such liability without regard to whether
the owner or operator knew of, or was responsible for, the release of such
hazardous substances, the presence of such substances, or the failure to
properly remediate such substances, when released. As part of the
investigation of properties prior to acquisition, the Company typically has
obtained inspection reports concerning the condition of the property,
including specialized environmental inspection reports concerning the
presence of hazardous substances on the property. The Company intends to
continue this practice. Such inspection reports, however, do not necessarily
reveal all hazardous substances or sources thereof, and substances not
considered hazardous when a property is acquired may subsequently be
classified as such by amendments to local, state, and federal laws,
ordinances, and regulations. If it is ever determined that hazardous
substances on or in a Company property must be removed or the release of such
substances remediated, the Company could be required to pay all costs of any
necessary cleanup work, although under certain circumstances, claims against
other responsible parties could be made by the Company. The Company could
also experience lost revenues during any such cleanup, or lower lease rates,
decreased occupancy or difficulty selling or borrowing against the affected
property either prior to or following any such cleanup. The Company is not
aware of any hazardous substances on or in its properties and it has not been
notified by any governmental authority of any noncompliance, liability or
other claim in connection with the environmental condition of any of its
properties.
The Americans with Disabilities Act ("ADA"), which generally requires that
buildings be made accessible to people with disabilities, and has separate
compliance requirements for "public accommodations" and "commercial
facilities". If certain uses by tenants of a building constitute a "public
accommodation", the ADA imposes liability for non-compliance on both the
tenant and the owner/operator of the building. The Company has conducted
inspections of its properties to determine whether the exterior and common
area of such properties are in compliance with the ADA and it believes that
its properties are in compliance. If, however, it were ever determined that
one or more of the Company's properties were not in compliance, the Company
may be subjected to unanticipated expenditures incurred to remove access
barriers, or to pay fines or damages related to such non-compliance.
The Company's only business consists of the real estate investment activity
described above. Therefore, information about industry segments is not
applicable. The business is not seasonal.
Item 2. PROPERTIES
During its investment phase, the Partnership acquired four existing rental
properties and completed construction of a fifth property. The property
acquisitions were as follows: Clearlake Village Apartments (formerly Village
South) in August, 1982; Waterbury Plaza office complex in December, 1982;
Space Savers One and Space Savers Three mini-warehouses in April, 1983; and
1600 Dell Avenue office/warehouse in December, 1983. In July 1984, the
Partnership completed construction of a 244-unit apartment complex known as
Grouse Run Apartments in Oklahoma City, Oklahoma. The investment phase of
the Partnership is complete and the Partnership does not intend to purchase
additional properties. On June 26, 1990, the Waterbury Plaza office complex
was lost to foreclosure. On November 16, 1988, 1600 Dell Avenue was sold.
On June 6, 1994, Space Savers One and Space Savers Three mini-warehouses were
sold, but continued to be operated by the Company for one year after the sale
per the terms of a lease-back agreement.
The properties are managed by Continental Property Management Co. ("CPMC"),
an affiliate of the General Partner, which performs the leasing and
management related services for the properties.
The buildings and the land upon which the buildings are located are owned
directly by the Partnership in fee. Clearlake Village Apartments and Grouse
Run Apartments are subject to mortgages as more fully described in the notes
to the financial statements included in Item 8. In the opinion of
management, the level of insurance coverage is adequate for each property and
within industry standards.
CLEARLAKE VILLAGE APARTMENTS
The Clearlake Village Apartments are located in the Clearlake City area of
Houston, Harris County, Texas. The apartment complex was completed in 1976.
Situated on a 5-acre site, the complex consists of 174 garden style
apartments in 14 buildings. Apartment units include 24 two-bedroom, two-bath
units of 850 square feet; 40 two-bedroom, one-bath units of 800 square feet;
70 one-bedroom, one-bath units of 670 square feet; and 40 efficiency units of
507 square feet. The property's total net rentable area is 119,580 square
feet. As of December 31, 1997, monthly rental rates ranged from $400 to $550
and the occupancy rate was 92%. Amenities for residents include a 4,000
square foot clubhouse/exercise room, as well as a swimming pool, laundry, and
storage facilities. The secured loan is owed to an unaffiliated party,
carries interest at 8.875% and matures in 2006.
GROUSE RUN APARTMENTS
On August 19, 1983, the Partnership entered into various agreements with
Robertson Homes ("RH") a division of the Catwil Corporation. The agreements
included a purchase/sale agreement, construction management agreement and an
operating management agreement. Pursuant to these agreements, the
Partnership acquired a 10-acre site in northwest Oklahoma City and began
construction of the Grouse Run Apartments. The construction was completed in
phases by RH pursuant to a fixed-price agreement with final completion
occurring in July, 1984. The project consists of 31 two-story buildings with
a total of 201,524 square feet of leasable area. There are 244 rental units
as follows: 120 one-bedroom, one-bath units of 702 square feet, 44
two-bedroom, one-bath units of 871 square feet and 80 two-bedroom, two-bath
units of 987 square feet. As of December 31, 1997, monthly rental rates
ranged from $370 to $500 per unit and the occupancy rate was 93%. A loan
secured by the property was negotiated in 1994 with a fixed interest rate of
9.96% , amortized on a 30-year schedule. The Note has an original principal
balance of $3,884,000 and it matures on October 1, 1999.
Item 3. LEGAL PROCEEDINGS
There are no material legal proceedings pending to which the Partnership is a
party or which any of its properties is the subject, required to be reported
hereunder. From time to time, the Partnership may be a party to ordinary
routine litigation incidental to its business.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters have been submitted during the fourth quarter of the fiscal year
ended December 31, 1997, which required the vote of security holders.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
As of December 31, 1997, there were 21,585 limited partnership units
outstanding and 1,136 unit holders of record. There are no dividends.
However, the limited partnership unit holders may be entitled to certain cash
distributions as provided in the limited partnership agreement.
The units are not freely transferable and no market for the units presently
exists or is likely to develop.
Item 6. SELECTED FINANCIAL DATA
The following selected financial data for the Partnership is as of and for
the years ended, December 31, 1997, 1996, 1995, 1994 and 1993. The data was
derived from the audited financial statements of the Partnership and should
be read in conjunction with the financial statements and related notes
included in Item 8.
<TABLE>
<CAPTION>
(Dollars in Thousands,
except per unit amounts) 1997 1996 1995 1994 1993
- -------------------------------- ---------- ----------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Total revenue $2,122 $2,039 $2,178 $2,614 $2,275
Gain on note restructure - - - $272 -
Net income (loss) $455 $330 $430 $663 $(185)
Net income (loss) per unit1 $20.01 $14.50 $18.95 $29.56 $(8.15)
Number of limited partnership
units outstanding 21,585 21,585 21,585 21,585 21,585
Balance sheet data:
Total assets $7,661 $7,809 $7,696 $7,960 $9,848
Notes payable $6,559 $6,986 $6,942 $7,363 $10,108
Accumulated partners' capital
(deficit) $326 $(129) $(459) $(889) $1,552
Other Data:
Cash Flows
Operating $827 $466 $826 $545 $164
Investing $(117) $4 $14 $289 $(26)
Financing $(580) $(442) $(720) $(819) $(77)
Total rentable square footage
at the end of period: 321,104 321,104 321,104 321,104 423,519
Number of properties at end of
period 2 2 2 2 4
- ------------------------------
</TABLE>
1Per $500 limited partnership unit outstanding, exclusive of amounts
allocable to the General Partner.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO YEAR ENDED DECEMBER 31, 1996.
Net income for the year ended December 31, 1997 increased $125,000 (38%) as
compared to the prior year, primarily due to an increase in average rental
rates, as discussed below.
Total revenues increased $83,000 (4%) in the year ended December 31, 1997 to
$2,122,000, as compared to $2,039,000 for the year ended December 31, 1996.
Rental revenues increased at both properties, primarily as a result of
increased average rental rates. The average occupancy rates remained
relatively stable. The average occupancy rates for each of the properties in
1997 and 1996 respectively, were 94% and 93% at Grouse Run and 93% and 94% at
Clearlake.
Total expenses decreased $42,000 (2%) in 1997, as compared to 1996. This was
due to a decline in operating expenses of $23,000 and decreasing total
interest expenses. The decline in operating expenses was mainly a result of
lower utility and repair costs at the two apartment complexes. Interest
expense (including related party interest payments) declined $21,000 as a
result of the Partnership's payments to reduce debt in 1997. Interest
payments of $4,000 were charged to related party expense in 1997, compared to
$141,000 in 1996 (see note 2 to the Consolidated Financial Statements).
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31, 1995.
Net income for the year ended December 31, 1996 was $330,000, a decrease of
$100,000 as compared to net income of $430,000 in 1995. The decrease in net
income was primarily a result of the end of the lease back period of Space
Savers One and Three in June 1995 and other factors as more fully described
below.
Total revenue for the year ended December 31, 1996, decreased $139,000, or
6%, compared to 1995 primarily as a result of the reduced revenues after the
end of the lease back period of a tenant of $245,000 which was partially
offset by an increase in rental revenue at the remaining two properties of
the Partnership of $78,000. The increase in rental revenue at the
Partnership's two remaining properties resulted from an increase in the
rental rates at the properties and to an increase in the average occupancy
rate at the Grouse Run Apartments. The average occupancy rate at the Grouse
Run Apartments increased from 89% in 1995 to 93% in 1996. Clearlake Village
Apartment's average occupancy rate remained at 94%. In addition, interest
revenue decreased $6,000 due to the reduced balance of the note receivable.
Total expenses for the year ended December 31, 1996, decreased $39,000, or
2%, from $1,748,000 in 1995 to $1,709,000 in 1996. The decrease in total
expenses in 1996 was primarily attributable to a decrease in related party
expenses of $125,000 as a result of a decrease in accounting and data
processing expenses, interest earned on advances due to the reduced balance
of advances from the General Partner and interest earned on the note payable
to affiliate due to the note being paid off in August, 1996. Interest
expense increased $82,000 in 1996 as a result of the note payable to
affiliate being paid in full from the proceeds of a new loan from an
unaffiliated lender.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1997, the Partnership had two operating properties:
Clearlake Village Apartments, and Grouse Run Apartments. The Partnership owns
fee interests in the buildings and the land upon which the buildings are
located, and all Partnership properties are subject to mortgages, as more
fully described in Note 3 to the consolidated financial statements included
in Item 8.
As of December 31, 1997, cash and cash equivalents totaled $409,000. As of
December 31, 1997, the Partnership owed accrued interest of $527,000, to the
General Partner on advances that were made to pay for various capital
improvements and to support operating cash flow deficits. Although these
advances were fully repaid in 1997, the General Partner presently intends to
continue to make such advances to the Partnership, as necessary.
Consequently, management believes that the Partnership's current sources of
funds will be adequate to meet both its short-term and any long-term capital
commitments and operating requirements.
On August 12, 1996, the note payable to affiliate, collateralized by the
Clearlake Village Apartments, was repaid from the proceeds of a new loan from
an unaffiliated lender. In connection with the new loan, the Partnership
formed Property Resources Fund VI Subsidiary, L.P. (the "Subsidiary") and
contributed its fee interest in Clearlake Village Apartments to the
Subsidiary. Although the General Partner of the Partnership is a 1% sole
General Partner in the Subsidiary, the partnership agreement of the
Subsidiary is structured such that no economic benefit accrues to the General
Partner as a result of the asset contribution. Accordingly, the minority
interest of the Subsidiary's General Partner has not been accounted for in
the accompanying consolidated financial statements.
The Partnership presently believes that funds available from improved
operations and from its note receivable due in 1999 will permit it to repay
advances owed to the General Partner. The Partnership also believes that the
present trend toward improved operations at its properties will permit it to
repay the Grouse Run note payable due in 1999 either from the sale of the
property or a loan refinancing. Furthermore, management is currently
marketing the properties for sale, and a sale of one or both of the
properties may occur as early as 1998.
IMPACT OF INFLATION
The Partnership's management believes that inflation may have a positive
effect on the Partnership's property portfolio, but this effect generally
will not be fully realized until such properties are sold or exchanged.
YEAR 2000
The Partnership is in the process of assessing the impact of Year 2000 issues
on its computer systems and applications. At this time the Partnership
believes that the costs associated with resolving these issues will not have
a material effect on the financial statements.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
PAGE
Report of Independent Accountants 9
Consolidated Balance Sheets as of December 31, 1997 and 1996 10
Consolidated Statements of Income for the Years 11
Ended December 31, 1997, 1996 and 1995
Consolidated Statements of Partners' Capital (Deficit) for the 12
Years Ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the Years 13
Ended December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements 14 - 18
Schedule III - Real Estate and Accumulated 19 - 20
Depreciation
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been omitted.
REPORT OF INDEPENDENT ACCOUNTANTS
The Partners
Property Resources Fund VI
We have audited the accompanying consolidated balance sheets of Property
Resources Fund VI as of December 31, 1997 and 1996, the related consolidated
statements of income, partners' capital (deficit), and cash flows for each of
the three years in the period ended December 31, 1997, and the financial
statement schedule of Real Estate and Accumulated Depreciation. These
financial statements and the financial statement schedule are the
responsibility of Property Resources Fund VI management. Our responsibility
is to express an opinion on these financial statements and the financial
statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated statements referred to above present fairly,
in all material respects, the financial position of Property Resources Fund
VI as of December 31, 1997 and 1996, and the results of their operations and
their cash flows for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting principles. In
addition, in our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a
whole, presents fairly, in all material respects, the information required to
be included therein.
COOPERS & LYBRAND L.L.P.
San Francisco, California
January 26, 1998
PROPERTY RESOURCES FUND VI
(A CALIFORNIA LIMITED PARTNERSHIP)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(Dollars in thousands) 1997 1996
- --------------------------------------------------------------------------------
ASSETS:
Real estate:
Land $2,239 $2,239
Land improvements 781 763
Buildings and improvements 7,347 7,174
Furnishings and equipment 1,050 1,041
- --------------------------------------------------------------------------------
11,417 11,217
Less: accumulated depreciation 4,708 4,420
- --------------------------------------------------------------------------------
Total real estate, net 6,709 6,797
Cash and cash equivalents 409 279
Note receivable 237 320
Other assets, net 308 413
- --------------------------------------------------------------------------------
Total assets $7,661 $7,809
================================================================================
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT):
Liabilities:
Notes payable $6,559 $6,986
Advances from General Partner - 153
Accrued interest due to General Partner 527 524
Deposits and other liabilities 249 275
- --------------------------------------------------------------------------------
Total liabilities 7,335 7,938
- --------------------------------------------------------------------------------
Partners' capital (deficit):
Limited partners, 21,585 units issued and 766 334
outstanding
General Partner (440) (463)
- --------------------------------------------------------------------------------
Total partners' capital (deficit) 326 (129)
================================================================================
Total liabilities and partners' capital $7,661 $7,809
(deficit)
================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
PROPERTY RESOURCES FUND VI
(A CALIFORNIA LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(Dollars in thousands, except per unit amounts) 1997 1996 1995
- --------------------------------------------------------------------------------
REVENUES:
Rent $2,088 $2,000 $2,133
Interest and dividends 34 39 45
- --------------------------------------------------------------------------------
Total revenues 2,122 2,039 2,178
- --------------------------------------------------------------------------------
EXPENSES:
Interest, other than related party 204 88 6
Depreciation 288 291 287
Property Operating 1,032 1,055 1,054
Related party 126 254 379
General and administrative 17 21 22
- --------------------------------------------------------------------------------
Total expenses 1,667 1,709 1,748
- --------------------------------------------------------------------------------
NET INCOME $455 $330 $430
================================================================================
Net income allocable to limited partners $432 $313 $409
================================================================================
Net income allocable to General Partner $23 $17 $21
================================================================================
Net income per $500 limited partnership unit-based
on 21,585 units outstanding $20.01 $14.50 $18.95
================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
PROPERTY RESOURCES FUND VI
(A CALIFORNIA LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
LIMITED PARTNERS General
(Dollars in thousands) Units Amount Partner Total
- --------------------------------------------------------------------------------
Balance, January 1, 1995 21,585 $(388) $(501) $(889)
Net income - 409 21 430
- --------------------------------------------------------------------------------
Balance, December 31, 1995 21,585 21 (480) (459)
Net income - 313 17 330
- --------------------------------------------------------------------------------
Balance, December 31, 1996 21,585 334 (463) (129)
Net income - 432 23 455
- --------------------------------------------------------------------------------
Balance, December 31, 1997 21,585 $766 $(440) $326
================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
PROPERTY RESOURCES FUND VI
(A CALIFORNIA LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(Dollars in thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
Net income $455 $330 $430
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 301 304 293
Decrease (increase) in other assets 94 (260) 77
Increase in accrued interest 3 31 58
(Decrease) increase in deposits
and other liabilities (26) 61 (32)
- --------------------------------------------------------------------------------
Net cash provided by operating activities 827 466 826
Improvements to rental property (200) (58) (97)
Principal payments on note receivable 83 62 111
- --------------------------------------------------------------------------------
Net cash (used in) provided by investing activities (117) 4 14
Proceeds from note payable - 2,167 -
Increase in deferred loan costs - (133) -
Principal payments on notes payable (427) (2,123) (421)
Payments to General Partner (153) (353) (299)
- --------------------------------------------------------------------------------
Net cash used in financing activities (580) (442) (720)
- --------------------------------------------------------------------------------
Net increase in cash and cash equivalents 130 28 120
Cash and cash equivalents,
beginning of year 279 251 131
- --------------------------------------------------------------------------------
Cash and cash equivalents,
end of year $409 $279 $251
================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
PROPERTY RESOURCES FUND VI
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS ACTIVITY
Property Resources Fund VI (the "Partnership") is a California limited
partnership formed on May 3, 1982 for the purpose of investing in
income-producing real estate. Property Resources, Inc. is the General
Partner.
As of December 31, 1997, there were 21,585 limited partnership units
outstanding. The units are not freely transferable and no public market for
the units exists or is likely to develop.
As of December 31, 1997, the Partnership owned garden-style apartment rental
properties aggregating 418 units including Clearlake Village Apartments,
located in Houston, Texas, and Grouse Run Apartments, located in Oklahoma
City, Oklahoma. As discussed in Note 3, the fee interest in Clearlake
Village Apartments is held through the Partnership's consolidated subsidiary,
Property Resources Fund VI Subsidiary, L.P. (the "Subsidiary").
Management is currently marketing the properties for sale, and a sale of one
or both of the properties may occur as early as 1998.
SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Partnership and its majority-owned Subsidiary (Note 3). All significant
intercompany accounts and transactions have been eliminated.
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
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
REAL ESTATE
Real estate is stated at cost, adjusted for write-downs for impairment, and
depreciated using the straight-line method over 10 to 20 years for land
improvements, 10 to 35 years for buildings and improvements and 4 to 5 years
for furnishings and equipment. Significant improvements and betterments are
capitalized. The cost and related accumulated depreciation of assets sold
are removed from the accounts and any gain or loss is reflected in
operations. Maintenance and repairs are charged to expense when incurred.
Pursuant to the Company's historical investment objectives, property
purchased has been held for extended periods. During the holding period,
management periodically, but at least annually, evaluates whether rental
property has suffered an impairment in value. Management's analyses include
consideration of estimated undiscounted future cash flows during the expected
holding period in comparison with carrying values, prevailing market
conditions and other economic matters. In 1986 and 1987, the Partnership
recorded reductions in the carrying amounts of Clearlake Village Apartments
and Grouse Run Apartments to state the
PROPERTY RESOURCES FUND VI
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
carrying amounts at fair value at the date of the adjustments. Management
currently intends to dispose of the rental properties and, in that regard,
expects to commence marketing activity in 1998. As of December 31, 1997,
management believes that the net realizable value exceeds the current
carrying amount; however, there can be no assurance that the eventual sale of
the rental properties, which may occur in the forthcoming year, will not
result in additional losses.
CASH AND CASH EQUIVALENTS
The Partnership classifies all highly liquid investments with original
maturities of three months or less from the date acquired as cash equivalents.
INCOME TAXES
Under federal and state income tax regulations, the income or loss of a
partnership flows through to the partners and is reported on their individual
income tax returns; accordingly, no provision for income taxes is made in
these consolidated financial statements.
OTHER ASSETS
Other assets include deferred loan fees that are amortized over the life of
the related loan, which approximates the effective interest method. At
December 31, 1997, other assets also included impound accounts held by the
lender of the note payable collateralized by the Clearlake Village Apartments
for real estate taxes, insurance and capital improvements.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Partnership to
concentrations of credit risk consist principally of a note receivable and
money market securities. As of December 31, 1997, payments on the note
receivable are current.
The Partnership places excess cash in money market securities with Franklin
Money Fund, an investment company managed by an affiliate of the General
Partner, and in money market securities of companies with strong credit
ratings and, by policy, limits credit exposure to any one issuer.
The Partnership reserves for potential credit losses, as appropriate, and
such losses have been within management's expectations.
REVENUE RECOGNITION
The properties are leased to tenants under short-term operating leases for
typically six to twelve month periods. Revenue is recognized as earned.
PROPERTY RESOURCES FUND VI
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - NOTE RECEIVABLE
The note receivable is secured on a second deed of trust on a property
formerly owned by the Partnership and requires monthly principal and interest
payments of $9,863 until maturity on November 15, 1999.
NOTE 3 - NOTES PAYABLE
IN THOUSANDS 1997 1996
- ----------------------------------------------------------------------------
CLEARLAKE VILLAGE APARTMENTS
Note payable, collateralized by deed of trust,
bearing interest at a fixed rate of 8.875%, monthly
principal and interest payments of $17,571 until $2,143 $2,162
maturity in 2006.
GROUSE RUN APARTMENTS
Amended note payable, collateralized by deed of
trust,
bearing interest at a fixed rate of 9.96%, monthly
principal $4,416 4,824
payments of $33,970 until maturity in 1999.
-----------------------
$6,559 $6,986
=======================
On August 12, 1996, the note payable to affiliate, collateralized by the
Clearlake Village Apartments, was repaid from the proceeds of a new loan from
an unaffiliated lender. In connection with the new loan, the Partnership
formed Property Resources Fund VI Subsidiary, L.P. (the "Subsidiary") and
contributed its fee interest in Clearlake Village Apartments to the
Subsidiary. Although the General Partner of the Partnership is a 1% sole
General Partner in the Subsidiary, the partnership agreement of the
Subsidiary is structured such that no economic benefit accrues to the General
Partner as a result of the asset contribution. Accordingly, the minority
interest of the Subsidiary's General Partner has not been accounted for in
the accompanying consolidated financial statements.
On October 1, 1994, the Grouse Run note payable was amended. The amendment
was accounted for as a troubled debt restructuring and, in accordance with
Statement of Financial Accounting Standards No. 15, the Partnership is
carrying the amended note equal to the total future cash payments payable and
is not recognizing interest expense between the restructuring and the
maturity of the amended note.
Aggregate principal payments required in future years are as follows:
(Dollars in thousands)
1998 $429
1999 4,032
2000 26
2001 28
2002 31
Thereafter 2,013
- ------------------------------------------------
$6,559
================================================
Interest paid on notes payable for the years ended December 31, 1997, 1996
and 1995, was $191,000, $169,000, and $179,000, respectively.
PROPERTY RESOURCES FUND VI
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - DISTRIBUTION OF INCOME
ALLOCATIONS TO PARTNERS
The limited partnership agreement provides for the following
allocations to partners:
Cash available for distribution from operations, as defined, is allocated
95% to the limited partners in the ratio of capital contributions and 5%
to the General Partner as a partnership management fee.
Income and losses from operations are allocated 95% to the limited
partners in the ratio of their capital contributions and 5% to the
General Partner.
Net proceeds from the refinancing of debt or sale of partnership property
are allocated first to the limited partners in an amount which when added
to prior distributions will equal capital contributions plus a specified
return ranging from 6% to 10% per annum on adjusted invested capital, as
defined. After payment of a subordinated real estate commission to the
General Partner, any remaining proceeds are allocated 85% to the limited
partners and 15% to the General Partner.
NOTE 5 - TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES
TRANSACTIONS WITH GENERAL PARTNER
Under the partnership agreement, the General Partner and its affiliates may
receive compensation for services rendered to the Partnership and may receive
reimbursement for certain expenses incurred on behalf of the Partnership
summarized as follows.
(Dollars in thousands) 1997 1996 1995
- -----------------------------------------------------------------------------
Property management fees,
charged to related party expense $104 $99 $96
Reimbursement for accounting
and data processing expenses,
charged to related party expense $18 $14 $44
Interest on advances from the General Partner,
charged to related party expense $4 $30 $59
Interest on promissory note collateralized by
the property Clearlake Village Apartments,
charged to related party expense - $111 $180
PROPERTY RESOURCES FUND VI
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - TRANSACTIONS WITH GENERAL PARTNER AND AFFILIATES (CONTINUED)
A promissory note payable to Franklin Resources, Inc., the parent of the
General Partner, which was collateralized by the Clearlake Village Apartments
was repaid on August 12, 1996 from the proceeds of a new loan from an
unaffiliated lender (Note 3).
INTEREST DUE FROM GENERAL PARTNER
As of December 31, 1997, accrued interest due to the General Partner was
$527,000. This was accrued on advances that were required to pay for various
capital improvements and to support operating cash flow deficits. The
principal portion of the advances were fully repaid in 1997. Consequently,
management believes that the Partnership's current sources of funds will be
adequate to meet both its short-term and long-term capital commitments and
operating requirements.
NOTE 6 - RECONCILIATION TO FEDERAL INCOME TAX BASIS OF ACCOUNTING (UNAUDITED)
The differences between the accrual method of accounting for income tax
reporting and the accrual method of accounting used in the accompanying
financial statements are as follows:
- -------------------------------------------------------------------------------
(Dollars in thousands) 1997 1996 1995
- -------------------------------------------------------------------------------
Net income - financial statements $455 $330 $430
Differences resulting from:
Depreciation (54) (53) (106)
Interest expense (374) (374) (475)
Amortization of capitalized interest
on debt restructuring - - -
Gain on disposition of property 48 36 65
Gain on restructuring of note - - -
Other - (32) -
- -------------------------------------------------------------------------------
Net income (loss) income tax method $75 $(93) $(86)
===============================================================================
Net taxable income (loss) per limited
partnership unit and net of amounts
allocable to the General Partner $3.50 $(4.33) $(3.66)
===============================================================================
RESTATED
- -------------------------------------------------------------------------------
(Dollars in thousands) 1997 1996 1995
- -------------------------------------------------------------------------------
Partners' capital (deficit) - financial $326 $(129) $(459)
statements
Differences resulting from:
Depreciation (4,965) (4,911) (4,853)
Interest Expense (1,223) (849) (473)
Gain on disposition of property (138) (186) (222)
Write-down on rental property 1,452 1,452 1,452
Note restructuring 2,028 2,028 2,028
Note restructuring basis adjustment (2,305) (2,305) (2,285)
===============================================================================
Partners' capital (deficit) income tax method $(4,825) $(4,900) $(4,802)
===============================================================================
<TABLE>
<CAPTION>
PROPERTY RESOURCES FUND VI
SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION
AS OF, AND FOR THE YEAR ENDED DECEMBER 31,
1997
(Dollars in thousands)
Cost Capitalized
Initial Subsequent To Gross Amount at Which
COST TO FUND ACQUISITION CARRIED AT CLOSE OF PERIOD
Life on Which
Depreciation in
Accum- Latest Operations
Carry- Buildings ulated Date of Statement is
Encum- Improve- ing and Deprecia- construc- Date Computed
Description brances Land Buildings ments Costs Land Improvements Total tion tion Acquired
174 unit apartment
complex in Houston,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Texas $2,143 $999 $3,662 $436 - $999 $2,872 $3,871 $1,827 1976 08/82 Note 2
244 unit apartment
complex Oklahoma
City, Oklahoma 4,416 1,240 6,562 635 - 1,240 6,306 7,546 2,881 1984 07/84 Note 2
- -------------------- --------- --------- --------- ---------- ------- ------- ------------ ------------- --------- -------- --------
$6,559 $2,239 $10,224 $1,071 - $2,239 $9,178 $11,417 $4,708
Note 1 Note 3 Note 5
Note 4
==================== ========= ========= ========= ========== ======= ======= ============ ============= ========= ======== ========
</TABLE>
R E A L E S T A T E A N D A C C U M U L A T E D D E P R E C I A T I O N
NOTES:
(1) The aggregate cost for federal income tax purposes is $12,869
(2) Depreciation is computed using useful lives of 10-20 years for land
improvements, 10-35 years for buildings, improvements and 4-5 years for
furnishings and equipment and the life of the related lease for tenant
improvements.
(3) The total cost carried at the close of the period has been adjusted to
reflect the Partnership's reduction in the carrying values for the apartment
complexes located in Houston, Texas and Oklahoma City, Oklahoma.
(4) RECONCILIATION OF REAL ESTATE
1997 1996 1995
--------------------------------
Balance at beginning of period $11,217 $11,159 $11,062
Additions during period:
Improvements 200 58 97
--------------------------------
Balance at end of period $11,417 $11,217 $11,159
================================
(5) RECONCILIATION OF ACCUMULATED DEPRECIATION
------------------------------------------
1997 1996 1995
--------------------------------
Balance at beginning of period $4,420 $4,128 $3,841
Dispositions - - -
Depreciation expense for the 288 292 287
period
--------------------------------
Balance at end of period $4,708 $4,420 $4,128
================================
Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
