FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY OR TRANSITIONAL REPORT
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1999
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission file number 0-11864
NATIONAL PROPERTY INVESTORS 6
(Exact name of small business issuer as specified in its charter)
California 13-3140364
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 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 .
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
NATIONAL PROPERTY INVESTORS 6
BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
March 31, 1999
Assets
Cash and cash equivalents $ 1,983
Receivables and deposits 539
Restricted escrows 596
Other assets 938
Investment properties:
Land $ 4,349
Buildings and related personal property 62,555
66,904
Less accumulated depreciation (44,846) 22,058
$ 26,114
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable $ 76
Tenant security deposit liabilities 201
Accrued property taxes 120
Payable to affiliate 916
Other liabilities 348
Mortgage notes payable 26,135
Partners' Capital (Deficit)
Limited partners' (109,600 units issued and
outstanding) $ (1,117)
General partner's (565) (1,682)
$ 26,114
See Accompanying Notes to Consolidated Statements
b)
NATIONAL PROPERTY INVESTORS 6
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended
March 31,
1999 1998
Revenues:
Rental income $ 2,545 $ 2,432
Other income 160 235
Casualty Gains 273 --
Total revenues 2,978 2,667
Expenses:
Operating 1,061 1,020
Interest 515 515
Depreciation 715 677
General and administrative 93 99
Property taxes 146 119
Total expenses 2,530 2,430
Equity in net income of tenant-in-common
property -- 60
Net income $ 448 $ 297
Net income allocated to general partner (1%) $ 4 $ 3
Net income allocated to limited partners (99%) 444 294
$ 448 $ 297
Net income per limited partnership unit $ 4.05 $ 2.68
See Accompanying Notes to Consolidated Statements
c)
NATIONAL PROPERTY INVESTORS 6
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner's Partners' Total
Original capital contributions 109,600 $ 1 $ 54,800 $ 54,801
Partners' deficit at
December 31, 1998 109,600 $ (569) $ (1,561) $ (2,130)
Net income for the three
months ended March 31, 1999 -- 4 444 448
Partners' deficit at
March 31, 1999 109,600 $ (565) $ (1,117) $ (1,682)
See Accompanying Notes to Consolidated Statements
d)
NATIONAL PROPERTY INVESTORS 6
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
March 31,
1999 1998
Cash flows from operating activities:
Net income $ 448 $ 297
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 715 677
Amortization of loan costs 36 36
Equity in net income of tenant-in-common property -- (60)
Casualty Gain (273) --
Change in accounts:
Receivables and deposits (24) (13)
Other assets (119) 84
Accounts payable (376) (48)
Tenant security deposit liabilities (6) (5)
Accrued property taxes (10) (35)
Other liabilities 2 13
Net cash provided by operating activities 393 946
Cash flows from investing activities:
Property improvements and replacements (627) (180)
Net insurance proceeds received 343 --
Net withdrawals from restricted escrows 373 80
Net cash provided by (used in) investing activities 89 (100)
Net increase in cash and cash equivalents 482 846
Cash and cash equivalents at beginning of period 1,501 2,329
Cash and cash equivalents at end of period $ 1,983 $ 3,175
Supplemental disclosure of cash flow information:
Cash paid for interest $ 479 $ 479
See Accompanying Notes to Financial Statements
e)
NATIONAL PROPERTY INVESTORS 6
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements of National Property Investors 6
(the "Partnership") have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of NPI Equity Investments, Inc. ("NPI Equity" or the "Managing General
Partner"), all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three month period ended March 31, 1999, are not necessarily indicative of the
results that may be expected for the fiscal year ending December 31, 1999. For
further information, refer to the financial statements and footnotes thereto
included in the Partnership's annual report on Form 10-KSB for the year ended
December 31, 1998.
NOTE B - TRANSFER OF CONTROL
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust
merged into Apartment Investment and Management Company, a publicly traded real
estate investment trust ("AIMCO"), with AIMCO being the surviving corporation
(the "Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in
the Managing General Partner. The Managing General Partner does not believe
that this transaction will have a material effect on the affairs and operations
of the Partnership.
NOTE C - TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership has no employees and is dependent on the Managing General
Partner and its affiliates for the management and administration of all
partnership activities. The Partnership Agreement provides for payments to
affiliates for services and as reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership.
The following transactions with affiliates of the Managing General Partner were
incurred during the three month periods ended March 31, 1999 and 1998:
1999 1998
(in thousands)
Property management fees (included in operating
expenses) $135 $132
Reimbursement for services of affiliates, including
approximately $24,000 of construction services
reimbursements in 1998 (included in investment
properties, and operating and general and
administrative expenses) 76 100
During the three months ended March 31, 1999 and 1998, affiliates of the
Managing General Partner were entitled to receive 5% of gross receipts from all
of the Partnership's properties for providing property management services. The
Partnership paid to such affiliates approximately $135,000 and $132,000 for the
three months ended March 31, 1999 and 1998, respectively.
Affiliates of the Managing General Partner received reimbursement of accountable
administrative expenses amounting to approximately $76,000 and $100,000 for the
three months ended March 31, 1999 and 1998, respectively.
In addition, approximately $916,000 of incentive management fees resulting from
the sale of The Village Apartments in June 1998 were accrued and are included on
the balance sheet as "payable to affiliate". These fees are payable to the
Managing General Partner but are subordinate to the limited partners receiving a
preferred return specified in the Partnership Agreement.
NOTE D - TENANT-IN-COMMON PROPERTY
The Partnership owned The Village as a tenant-in-common with National Property
Investors 5 ("NPI 5"), an affiliated public limited partnership. NPI 5 acquired
a 24.028% undivided interest with the Partnership owning the remaining 75.972%.
The property was accounted for under the equity method of accounting.
On June 30, 1998, The Village, located in Voorhees Township, New Jersey, was
sold to an unaffiliated party for an adjusted sales price of approximately
$30,102,000. After repayment of the mortgage note payable and closing expenses,
the net proceeds from the sale were approximately $18,211,000. The sale resulted
in a gain of approximately $19,946,000 for the tenant-in-common joint venture
and an extraordinary loss on early extinguishment of debt of approximately
$840,000, representing prepayment penalties and the write off of the remaining
unamortized loan costs.
The Village tenant-in-common joint venture with NPI 5 was terminated in 1998
after the distribution from the proceeds from the sale.
The condensed statement of operations of The Village for the three month period
ended March 31, 1998 is as follows (in thousands):
Revenue:
Rental income $ 1,082
Other income 52
Total revenues 1,134
Expenses:
Operating and other expenses 613
Depreciation 198
Mortgage interest 245
Total expenses 1,056
Net income $ 78
NOTE E - CASUALTY EVENTS
In November 1998, a fire at Fairway View I caused an estimated $96,000 of damage
to the property of which approximately $91,000 is covered by insurance. As of
March 31, 1999 approximately $76,000 of insurance proceeds relating to this
event have been received. In January 1999, a second fire at Fairway View I
caused an estimated $336,000 of damage to the property of which approximately
$318,000 is covered by insurance. As of March 31, 1999 approximately $261,000
of insurance proceeds relating to this event have been received. These fires
damaged 19 units and construction to rebuild the units has begun. Rental losses
of approximately $26,000 for the three months ended March 31, 1999, is covered
by insurance and the balance sheet reflects an insurance receivable in other
assets. The reconstruction of these units is expected to be completed by the
end of the third quarter 1999.
In addition, Panorama Terrace II and Ski Lodge incurred storm damage in late
1998. The costs of both casualty events are covered by insurance and repairs
are currently being made.
NOTE F - SEGMENT REPORTING
Description of the types of products and services from which the reportable
segment derives its revenues:
The Partnership has one reportable segment: residential properties. The
Partnership's residential property segment consists of six apartment complexes
in Alabama, Louisiana and Maryland. The Partnership rents apartment units to
tenants for terms that are typically twelve months or less.
Measurement of segment profit or loss:
The Partnership evaluates performance based on net income. The accounting
policies of the reportable segment are the same as those of the Partnership as
described in the Partnership's annual report on Form 10-KSB for the year ended
December 31, 1998.
Factors management used to identify the enterprise's reportable segment:
The Partnership's reportable segment consists of investment properties that
offer similar products and services. Although each of the investment properties
is managed separately, they have been aggregated into one segment as they
provide services with similar types of products and customers.
Segment information for the three months ended March 31, 1999 and 1998 is shown
in the tables below (in thousands). The "Other" column includes partnership
administration related items and income and expense not allocated to the
reportable segment.
1999
Residential Other Totals
Rental income $ 2,545 $ -- $ 2,545
Other income 150 10 160
Casualty gain 273 -- 273
Interest expense 515 -- 515
Depreciation 715 -- 715
General and administrative expense -- 93 93
Segment profit (loss) 531 (83) 448
Total assets 25,635 479 26,114
Capital expenditures for investment
properties 627 -- 627
1998
Residential Other Totals
Rental income $ 2,432 $ -- $ 2,432
Other income 197 38 235
Interest expense 515 -- 515
Depreciation 715 -- 677
General and administrative expense -- 99 99
Equity in income of tenant-in-common -- 60 60
Segment profit (loss) 298 (1) 297
Total assets 25,665 2,960 28,625
Capital expenditures for investment
properties 180 -- 180
NOTE G - LEGAL PROCEEDINGS
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, the Managing General Partner and several of their affiliated
partnerships and corporate entities. The complaint purports to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships (including the Partnership) which are named as nominal
defendants, challenging the acquisition by Insignia and entities which were, at
the time, affiliates of Insignia ("Insignia Affiliates") of interests in certain
general partner entities, past tender offers by Insignia Affiliates as well as a
recently announced agreement between Insignia and AIMCO. The complaint seeks
monetary damages and equitable relief, including judicial dissolution of the
Partnership. On June 25, 1998, the Managing General Partner filed a motion
seeking dismissal of the action. In lieu of responding to the motion, the
plaintiffs filed an amended complaint. The Managing General Partner has filed
demurrers to the amended complaint which were heard during February 1999. No
ruling on such demurrers has been received. The Managing General Partner does
not anticipate that costs associated with this case, if any, will be material to
the Partnership's overall operations.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The matters discussed in this Form 10-QSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-QSB and the other filings with the
Securities and Exchange Commission made by the Registrant from time to time.
The discussion of the Registrant's business and results of operations, including
forward-looking statements pertaining to such matters, does not take into
account the effects of any changes to the Registrant's business and results of
operation. Accordingly, actual results could differ materially from those
projected in the forward-looking statements as a result of a number of factors,
including those identified herein.
The Partnership's investment properties consist of six apartment complexes. The
following table sets forth the average occupancy of the properties for the three
months ended March 31, 1999 and 1998:
Average Occupancy
Property 1999 1998
Ski Lodge Apartments
Montgomery, Alabama 94% 94%
Panorama Terrace II Apartments
Birmingham, Alabama (1) 97% 91%
Place du Plantier Apartments
Baton Rouge, Louisiana (2) 95% 89%
Fairway View I Apartments
Baton Rouge, Louisiana (3) 98% 94%
Colony at Kenilworth Apartments
Towson, Maryland 87% 88%
Alpine Village Apartments
Birmingham, Alabama (4) 97% 91%
(1) The Managing General Partner attributes the increase in occupancy at
Panorama Terrace II Apartments to improved tenant retention.
(2) The Managing General Partner attributes the increase in occupancy at Place
du Plantier Apartments to improved management of rental rates.
(3) The Managing General Partner attributes the increase in occupancy at Fairway
View I Apartments to down units as a result of a fire earlier in the year.
(4) The Managing General Partner attributes the increase in occupancy at Alpine
Village Apartments to improved marketing.
Results of Operations
The Partnership's net income for the three month period ended March 31, 1999,
was approximately $448,000 as compared to approximately $297,000 at March 31,
1998. The increase in net income is due to an increase in total revenues
partially offset by an increase in total expenses.
Total revenues increased due to an increase in rental income and recognition of
casualty gains offset by a decrease in other income. Rental revenue increased
due to an increase in average occupancy at most of the Partnership's investment
properties. An increase in average rental rates at all of the Partnership's
investment properties except Alpine Village Apartments also contributed to the
increase in rental revenue. The casualty gains are the result of two fires at
Fairway View I and storm damage at Panorama Terrace and Ski Lodge. The decrease
in other revenue is primarily attributable to a decrease in interest income
resulting from a decrease in cash balances in interest bearing accounts and fees
collected from the tenants at Panorama Terrace II and Colony at Kenilworth
Apartments. The decrease in cash balances is the result of cash distributions
to the partners during June, July and December 1998. The increase in total
expenses is primarily due to increases in operating, depreciation and property
taxes expenses. The increase in operating expenses is primarily due to an
increase in administrative and maintenance salaries at Ski Lodge and the Colony
of Kenilworth. Depreciation expenses increased due to the additions of
depreciable assets at Place du Plantier, Fairway II, and Colony at Kenilworth
Apartments during 1998. The increase in property tax at Ski Lodge Apartments
and Alpine Village is due to an increase in the property's assessment value in
1998 not reflected until the fourth quarter of 1998. Also, partially offsetting
the increase in revenue was the recognition of equity in net income in tenant in
common property for the three months ended March 31, 1998 with respect to The
Village, which was sold in June 1998.
Included in general and administrative expenses for the three months ended March
31, 1999 and 1998, are reimbursements to the Managing General Partner allowed
under the Partnership Agreement associated with its management of the
Partnership. In addition, costs associated with the quarterly and annual
communications with investors and regulatory agencies and the annual audit
required by the Partnership Agreement are also included.
As part of the ongoing business plan of the Partnership, the Managing General
Partner monitors the rental market environment of each of its investment
properties to assess the feasibility of increasing rents, maintaining or
increasing occupancy levels and protecting the Partnership from increases in
expense. As part of this plan, the Managing General Partner attempts to protect
the Partnership from the burden of inflation-related increases in expenses by
increasing rents and maintaining a high overall occupancy level. However, due
to changing market conditions, which can result in the use of rental concessions
and rental reductions to offset softening market conditions, there is no
guarantee that the Managing General Partner will be able to sustain such a plan.
Capital Resources and Liquidity
At March 31, 1999, the Partnership had cash and cash equivalents of
approximately $1,983,000, as compared to approximately $3,175,000 at March 31,
1998. For the three months ended March 31, 1999, cash and cash equivalents
increased approximately $482,000 from the Partnership's year ended December 31,
1998. The increase in cash and cash equivalents is due to approximately
$393,000 of cash provided by operating activities and approximately $89,000 of
cash provided by investing activities. Cash used in investing activities
consists of property improvements and replacements partially offset by net
receipts from restricted escrows maintained by mortgage lenders and net
insurance proceeds. The Partnership invests its working capital reserves in a
money market account.
The Managing General Partner has extended to the Partnership a $500,000 line of
credit. At the present time, the Partnership has no outstanding amounts due
under this line of credit and the Managing General Partner does not anticipate
the need to borrow in the near future. Other than cash and cash equivalents,
the line of credit is the Partnership's only unused source of liquidity.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the various properties to adequately maintain the
physical assets and other operating needs of the Partnership and to comply with
Federal, state and local legal and regulatory requirements. Capital
improvements for each of the Partnership's properties are detailed below.
Ski Lodge Apartments
During the three months ended March 31, 1999, the Partnership completed
approximately $32,000 of capital improvement projects at Ski Lodge Apartments
consisting primarily of floor covering and appliance replacements. These
improvements were funded from replacement reserves and operating cash flow.
Based on a report received from an independent third party consultant analyzing
necessary exterior improvements and estimates made by the Managing General
Partner on interior improvements, it is estimated that the property requires
approximately $203,000 of capital improvements over the near term. Capital
improvement projects planned for 1999 include, but are not limited to, parking
lot repairs, recreational facility improvements, pool repairs, roof
replacements, structural improvements, grounds lighting, appliances and floor
covering replacements, and electrical and air conditioning upgrades. These
improvements are expected to cost approximately $322,000.
Panorama Terrace II Apartments
During the three months ended March 31, 1999, the Partnership completed
approximately $5,000 of capital improvement projects at Panorama Terrace II
consisting primarily of floor covering replacements, plumbing replacements and
building improvements. These improvements were funded from operating cash flow.
Based on a report received from an independent third party consultant analyzing
necessary exterior improvements and estimates made by the Managing General
Partner on interior improvements, it is estimated that the property requires
approximately $110,000 of capital improvements over the near term. Capital
improvements planned for 1999 include, but are not limited to, roof
replacements, appliances and carpet repairs. These improvements are expected to
cost approximately $116,000.
Place du Plantier Apartments
During the three months ended March 31, 1999, the Partnership completed
approximately $25,000 of capital improvement projects at Place du Plantier
Apartments, consisting primarily of floor covering replacements and appliances
upgrades and electrical upgrades. These improvements were funded from
replacement reserves. Based on a report received from an independent third
party consultant analyzing necessary exterior improvements and estimates made by
the Managing General Partner on interior improvements, it is estimated that the
property requires approximately $376,000 of capital improvements over the near
term. Capital improvement projects planned for 1999 include, but are not limited
to, plumbing upgrades, roof replacements, parking lot improvements, landscaping,
appliances, interior decoration upgrades, air conditioning upgrades and floor
covering replacements. These improvements are expected to cost approximately
$425,000.
Fairway View I Apartments
During the three months ended March 31, 1999, the Partnership completed
approximately $83,000 of capital improvement projects at Fairway View II,
consisting primarily of building improvements and appliance and floor covering
replacements. These improvements were funded from operating cash flow. Based on
a report received from an independent third party consultant analyzing necessary
exterior improvements and estimates made by the Managing General Partner on
interior improvements, it is estimated that the property requires approximately
$455,000 of capital improvements over the near term. Capital improvement
projects planned for 1999 include, but are not limited to, parking lot repairs,
roof replacements, recreational facility improvements, landscaping and fencing
and floor covering replacements. These improvements are expected to cost
approximately $401,000.
Colony of Kenilworth
During the three months ended March 31, 1999, the Partnership completed
approximately $462,000 of capital improvement projects at Colony of Kenilworth,
consisting primarily of building improvements, electrical upgrades, appliances,
and floor covering replacements. These improvements were funded from
replacement reserves and operating cash flow. Based on a report received from
an independent third party consultant analyzing necessary exterior improvements
and estimates made by the Managing General Partner on interior improvements, it
is estimated that the property requires approximately $2,840,000 of capital
improvements over the near term. Capital improvement projects planned for 1999
include, but are not limited to, building improvements, exterior painting, roof
replacements, carpet and vinyl replacements, and parking lot repairs. These
improvements are expected to cost approximately $1,184,000.
Alpine Apartments
During the three months ended March 31, 1999, the Partnership completed
approximately $20,000 of capital improvement projects at Alpine Apartments,
consisting primarily of plumbing, parking area, floor covering replacements,
appliances and electrical upgrades. These improvements were funded from
replacement reserves. Based on a report received from an independent third
party consultant analyzing necessary exterior improvements and estimates made by
the Managing General Partner on interior improvements, it is estimated that the
property requires approximately $96,000 of capital improvements over the near
term. Capital improvement projects planned for 1999 include, but are not limited
to, building improvements, air conditioning upgrades, appliance replacements,
and floor covering replacements. These improvements are expected to cost
approximately $115,000.
The additional capital expenditures will be incurred only if cash is available
from operations or from Partnership reserves. To the extent that such budgeted
capital improvements are completed, the Partnership's distributable cash flow,
if any, may be adversely affected at least in the short term.
The Partnership's current assets are thought to be sufficient for any near-term
needs (exclusive of capital improvements) of the Partnership. The mortgage
indebtedness of $26,135,000 is being amortized with balloon payments due
November 2003. The Managing General Partner will attempt to refinance such
remaining indebtedness and/or sell the properties prior to such maturity dates.
If the properties cannot be refinanced or sold for a sufficient amount, the
Partnership may risk losing such properties through foreclosure.
Future cash distributions will depend on the levels of cash generated from
operations, the timing of debt maturities, property sales, property refinancings
and the availability of cash reserves. No distributions were made during the
three months ended March 31, 1999 or 1998. The Partnership's distribution
policy is reviewed on a quarterly basis. There can be no assurance, however,
that the Partnership will generate sufficient funds from operations after
required capital improvements to permit distributions to its partners in 1999 or
subsequent periods.
Casualty Event
In November 1998, a fire at Fairway View I caused an estimated $96,000 of damage
to the property of which approximately $91,000 is covered by insurance. As of
March 31, 1999 approximately $76,000 of insurance proceeds relating to this
event have been received. In January 1999, a second fire at Fairway View I
caused an estimated $323,000 of damage to the property of which approximately
$318,000 is covered by insurance. As of March 31, 1999 approximately $261,000
of insurance proceeds relating to this event have been received. These fires
damaged 19 units and construction to rebuild the units has begun. Rental losses
of approximately $26,000 for the three months ended March 31, 1999, is covered
by insurance and the balance sheet reflects an insurance receivable in other
assets. The reconstruction of these units is expected to be completed by the
end of the third quarter of 1999.
Year 2000 Compliance
General Description of the Year 2000 Issue and the Nature and Effects of the
Year 2000 on Information Technology (IT) and Non-IT Systems
The Year 2000 issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. The Partnership
is dependent upon the Managing General Partner and its affiliates for management
and administrative services ("Managing Agent"). Any of the computer programs or
hardware that have date-sensitive software or embedded chips may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
Over the past two years, the Managing Agent has determined that it will be
required to modify or replace significant portions of its software and certain
hardware so that those systems will properly utilize dates beyond December 31,
1999. The Managing Agent presently believes that with modifications or
replacements of existing software and certain hardware, the Year 2000 issue can
be mitigated. However, if such modifications and replacements are not made, or
not completed in time, the Year 2000 issue could have a material impact on the
operations of the Partnership.
The Managing Agent's plan to resolve Year 2000 issues involves four phases:
assessment, remediation, testing, and implementation. To date, the Managing
Agent has fully completed its assessment of all the information systems that
could be significantly affected by the Year 2000, and has begun the remediation,
testing and implementation phases on both hardware and software systems.
Assessments are continuing in regards to embedded systems. The status of each
is detailed below.
Status of Progress in Becoming Year 2000 Compliant, Including Timetable for
Completion of Each Remaining Phase
Computer Hardware:
During 1997 and 1998, the Managing Agent identified all of the computer systems
at risk and formulated a plan to repair or replace each of the affected systems.
In August 1998, the mainframe system used by the Managing Agent became fully
functional. In addition to the mainframe, PC-based network servers, routers and
desktop PCs were analyzed for compliance. The Managing Agent has begun to
replace each of the non-compliant network connections and desktop PCs and, as of
March 31, 1999, had completed approximately 75% of this effort.
The total cost to the Managing Agent to replace the PC-based network servers,
routers and desktop PCs is expected to be approximately $1.5 million of which
$1.3 million has been incurred to date. The remaining network connections and
desktop PCs are expected to be upgraded to Year 2000 compliant systems by July
31, 1999.
Computer Software:
The Managing Agent utilizes a combination of off-the-shelf, commercially
available software programs as well as custom-written programs that are designed
to fit specific needs. Both of these types of programs were studied, and
implementation plans written and executed with the intent of repairing or
replacing any non-compliant software programs.
During 1998, the Managing Agent began converting the existing property
management and rent collection systems to its management properties Year 2000
compliant systems. The estimated additional costs to convert such systems at
all properties, is $200,000, and the implementation and the testing process is
expected to be completed by July 31, 1999.
The final software area is the office software and server operating systems.
The Managing Agent has upgraded all non-compliant office software systems on
each PC and has upgraded 80% of the server operating systems. The remaining
server operating systems are planned to be upgraded to be Year 2000 compliant by
July 31, 1999.
Operating Equipment:
The Managing Agent has operating equipment, primarily at the property sites,
which needed to be evaluated for Year 2000 compliance. In September 1997, the
Managing Agent began taking a census and inventory of embedded systems
(including those devices that use time to control systems and machines at
specific properties, for example elevators, heating, ventilating, and air
conditioning systems, security and alarm systems, etc.).
The Managing Agent has chosen to focus its attention mainly upon security
systems, elevators, heating, ventilating and air conditioning systems, telephone
systems and switches, and sprinkler systems. While this area is the most
difficult to fully research adequately, management has not yet found any major
non-compliance issues that put the Managing Agent at risk financially or
operationally. The Managing Agent intends to have a third-party conduct an
audit of these systems and report their findings by July 31, 1999.
Any of the above operating equipment that has been found to be non-compliant to
date has been replaced or repaired. To date, these have consisted only of
security systems and phone systems. As of March 31, 1999 the Managing Agent has
evaluated approximately 86% of the operating equipment for the Year 2000
compliance.
The total cost incurred for all properties managed by the Managing Agent as of
March 31, 1999 to replace or repair the operating equipment was approximately
$400,000. The Managing Agent estimates the cost to replace or repair any
remaining operating equipment is approximately $325,000, which is expected to be
completed by August 30, 1999.
The Managing Agent continues to have "awareness campaigns" throughout the
organization designed to raise awareness and report any possible compliance
issues regarding operating equipment within its enterprise.
Nature and Level of Importance of Third Parties and Their Exposure to the Year
2000
The Managing Agent continues to conduct surveys of its banking and other vendor
relationships to assess risks regarding their Year 2000 readiness. The Managing
Agent has banking relationships with three major financial institutions, all of
which have indicated their compliance efforts will be complete before May 1999.
The Managing Agent has updated data transmission standards with two of the three
financial institutions. The Managing Agent's contingency plan in this regard is
to move accounts from any institution that cannot be certified Year 2000
compliant by June 1, 1999.
The Partnership does not rely heavily on any single vendor for goods and
services, and does not have significant suppliers and subcontractors who share
information systems (external agent). To date the Partnership is not aware of
any external agent with a Year 2000 compliance issue that would materially
impact the Partnership's results of operations, liquidity, or capital resources.
However, the Partnership has no means of ensuring that external agents will be
Year 2000 compliant.
The Managing Agent does not believe that the inability of external agents to
complete their Year 2000 remediation process in a timely manner will have a
material impact on the financial position or results of operations of the
Partnership. However, the effect of non-compliance by external agents is not
readily determinable.
Costs to Address Year 2000
The total cost of the Year 2000 project to the Managing Agent is estimated at
$3.5 million and is being funded from operating cash flows. To date, the
Managing Agent has incurred approximately $2.8 million ($0.6 million expensed
and $2.2 million capitalized for new systems and equipment) related to all
phases of the Year 2000 project. Of the total remaining project costs,
approximately $0.5 million is attributable to the purchase of new software and
operating equipment, which will be capitalized. The remaining $0.2 million
relates to repair of hardware and software and will be expensed as incurred.
The Partnership's portion of these costs are not material.
Risks Associated with the Year 2000
The Managing Agent believes it has an effective program in place to resolve the
Year 2000 issue in a timely manner. As noted above, the Managing Agent has not
yet completed all necessary phases of the Year 2000 program. In the event that
the Managing Agent does not complete any additional phases, certain worst case
scenarios could occur. The worst case scenarios could include elevators,
security and heating, ventilating and air conditioning systems that read
incorrect dates and operate with incorrect schedules (e.g., elevators will
operate on Monday as if it were Sunday). Although such a change would be
annoying to residents, it is not business critical.
In addition, disruptions in the economy generally resulting from Year 2000
issues could also adversely affect the Partnership. The Partnership could be
subject to litigation for, among other things, computer system failures,
equipment shutdowns or failure to properly date business records. The amount of
potential liability and lost revenue cannot be reasonably estimated at this
time.
Contingency Plans Associated with the Year 2000
The Managing Agent has contingency plans for certain critical applications and
is working on such plans for others. These contingency plans involve, among
other actions, manual workarounds and selecting new relationships for such
activities as banking relationships and elevator operating systems.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, the Managing General Partner and several of their affiliated
partnerships and corporate entities. The complaint purports to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships (including the Partnership) which are named as nominal
defendants, challenging the acquisition by Insignia and entities which were, at
the time, affiliates of Insignia ("Insignia Affiliates") of interests in certain
general partner entities, past tender offers by Insignia Affiliates as well as a
recently announced agreement between Insignia and AIMCO. The complaint seeks
monetary damages and equitable relief, including judicial dissolution of the
Partnership. On June 25, 1998, the Managing General Partner filed a motion
seeking dismissal of the action. In lieu of responding to the motion, the
plaintiffs filed an amended complaint. The Managing General Partner has filed
demurrers to the amended complaint which were heard during February 1999. No
ruling on such demurrers has been received. The Managing General Partner does
not anticipate that costs associated with this case, if any, will be material to
the Partnership's overall operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 27, Financial Data Schedule, is filed as an exhibit to this report.
b) Reports on Form 8-K:
None filed during the quarter ended March 31, 1999.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NATIONAL PROPERTY INVESTORS 6
By: NPI EQUITY INVESTMENTS, INC.
Its Managing General Partner
By: /s/ Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/ Carla R. Stoner
Carla R. Stoner
Senior Vice President
Finance and Administration
Date: May 12, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from National
Property Investors 6 1999 First Quarter 10-QSB and is qualified in its entirety
by reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000708870
<NAME> NATIONAL PROPERTY INVESTORS 6
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,983
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 66,904
<DEPRECIATION> 44,846
<TOTAL-ASSETS> 26,114
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 26,135
0
0
<COMMON> 0
<OTHER-SE> (1,682)
<TOTAL-LIABILITY-AND-EQUITY> 26,114
<SALES> 0
<TOTAL-REVENUES> 2,978
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,530
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 515
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 448
<EPS-PRIMARY> 4.05<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
