<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended JUNE 30, 1998
Commission File Number 0-13112
REAL ESTATE ASSOCIATES LIMITED VI
(A California Limited Partnership)
I.R.S. Employer Identification No. 95-3778627
9090 WILSHIRE BLVD., SUITE 201
BEVERLY HILLS, CA. 90211
Registrant's Telephone Number,
Including Area Code (310) 278-2191
Indicate by check mark whether the registrant (1) has filed all documents and
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding twelve months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [ ]
<PAGE> 2
REAL ESTATE ASSOCIATES LIMITED VI
(A CALIFORNIA LIMITED PARTNERSHIP)
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets,
June 30, 1998 and December 31, 1997 ......................1
Consolidated Statements of Operations,
Six and Three Months Ended, June 30, 1998 and 1997........2
Consolidated Statement of Partners' Deficiency
Six Months Ended June 30, 1998 ...........................3
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1998 and 1997 ..................4
Notes to Consolidated Financial Statements .......................5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation ..............................12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.....................................................15
Item 6. Exhibits and Reports on Form 8-K .....................................15
Signatures ....................................................................16
</TABLE>
<PAGE> 3
REAL ESTATE ASSOCIATES LIMITED VI
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
JUNE 30, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
ASSETS
1998
(Unaudited) 1997
------------ ------------
<S> <C> <C>
INVESTMENTS IN LIMITED PARTNERSHIPS (Note 2) $ 6,172,993 $ 5,885,699
RENTAL PROPERTY, net of accumulated depreciation (Note 1) 2,928,820 3,016,049
CASH AND CASH EQUIVALENTS (Note 1) 6,258,237 6,611,690
CASH, restricted (Note 3) 38,465 38,465
OTHER ASSETS 242,196 174,284
------------ ------------
TOTAL ASSETS $ 15,640,711 $ 15,726,187
============ ============
LIABILITIES AND PARTNERS' DEFICIENCY
LIABILITIES:
Mortgage note payable related to property (Notes 3 and 7) $ 4,828,404 $ 4,828,404
Notes payable and amounts due for partnership
interests (Notes 4 and 7) 5,795,000 5,795,000
Accrued interest payable (Notes 4 and 7) 6,285,635 6,103,244
Accounts payable 162,322 117,968
Other liabilities 38,465 38,465
------------ ------------
17,109,826 16,883,081
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 2, 5 and 6)
PARTNERS' DEFICIENCY:
General partners (365,880) (362,758)
Limited partners (1,103,235) (794,136)
------------ ------------
(1,469,115) (1,156,894)
------------ ------------
TOTAL LIABILITIES AND PARTNERS' DEFICIENCY $ 15,640,711 $ 15,726,187
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
1
<PAGE> 4
REAL ESTATE ASSOCIATES LIMITED VI
(A CALIFORNIA LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX AND THREE MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
Six months Three months Six months Three months
ended ended ended ended
June 30, 1998 June 30, 1998 June 30, 1997 June 30, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
RENTAL OPERATIONS:
Revenues $ 554,380 $ 279,975 $ 529,671 $ 266,297
--------- --------- --------- ---------
Expenses:
General and administrative 44,586 22,461 -- --
Operating 193,305 102,867 253,307 123,546
Depreciation and amortization (Note 1) 87,229 43,615 87,229 43,615
Interest 242,310 121,155 242,310 121,155
--------- --------- --------- ---------
567,430 290,098 582,846 288,316
--------- --------- --------- ---------
LOSS FROM RENTAL OPERATIONS (13,050) (10,123) (53,175) (22,019)
--------- --------- --------- ---------
PARTNERSHIP OPERATIONS:
Interest income 149,931 73,608 131,195 67,979
--------- --------- --------- ---------
Expenses:
Management fees - general partner (Note 5) 251,112 125,556 250,548 125,274
General and administrative (Notes 2 and 5) 370,969 203,870 158,606 76,331
Interest 266,850 133,425 266,850 136,938
--------- --------- --------- ---------
888,931 462,851 676,004 338,543
--------- --------- --------- ---------
LOSS FROM PARTNERSHIP OPERATIONS (739,000) (389,243) (544,809) (270,564)
--------- --------- --------- ---------
EQUITY IN INCOME OF LIMITED
PARTNERSHIPS AND AMORTIZATION
OF ACQUISITION COSTS 364,000 182,000 298,000 149,000
DISTRIBUTIONS FROM LIMITED
PARTNERSHIPS RECOGNIZED AS
INCOME (Note 2) 75,829 5,029 267,132 196,332
--------- --------- --------- ---------
NET (LOSS) INCOME $(312,221) $(212,337) $ (32,852) $ 52,749
========= ========= ========= =========
NET (LOSS) INCOME PER LIMITED
PARTNERSHIP INTEREST (Note 1) $ (19) $ (13) $ (2) $ 3
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE> 5
REAL ESTATE ASSOCIATES LIMITED VI AND SUBSIDIARIES
(A CALIFORNIA LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF PARTNERS' DEFICIENCY
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
----------- ----------- -----------
<S> <C> <C> <C>
PARTNERSHIP INTERESTS 16,810
===========
DEFICIENCY,
January 1, 1998 $ (362,758) $ (794,136) $(1,156,894)
Net loss for the six months
ended June 30, 1998 (3,122) (309,099) (312,221)
----------- ----------- -----------
DEFICIENCY,
June 30, 1998 $ (365,880) $(1,103,235) $(1,469,115)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 6
REAL ESTATE ASSOCIATES LIMITED VI AND SUBSIDIARIES
(A CALIFORNIA LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (312,221) $ (32,852)
Adjustments to reconcile net loss to net
cash used in operating activities:
Equity in income of limited partnerships
and amortization of acquisition costs (364,000) (298,000)
Depreciation and amortization 87,229 87,229
Increase in other assets (67,912) (15,001)
Increase in accrued interest payable 182,391 150,646
(Decrease) increase in accounts payable 44,354 (7,718)
Increase (decrease) in other liabilities -- 35,752
----------- -----------
Net cash used in operating activities (430,159) (79,944)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions to limited partnerships recognized as
as a return of capital 76,706 779,996
----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (353,453) 700,052
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 6,611,690 5,849,983
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6,258,237 $ 6,550,035
=========== ===========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the period year for interest $ 84,459 $ 174,368
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 7
REAL ESTATE ASSOCIATES LIMITED VI
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
The information contained in the following notes to the financial
statements is condensed from that which would appear in the audited
annual financial statements; accordingly, the financial statements
included herein should be reviewed in conjunction with the financial
statements and related notes thereto contained in the annual report for
the year ended December 31, 1997 prepared by Real Estate Associates
Limited VI and Subsidiaries (the "Partnership"). Accounting
measurements at interim dates inherently involve greater reliance on
estimates than at year end. The results of operations for the interim
periods presented are not necessarily indicative of the results for the
entire year.
In the opinion of the Partnership, the accompanying unaudited financial
statements contain all adjustments (consisting primarily of normal
recurring accruals) necessary to present fairly the financial position
of the Partnership at June 30, 1998 and the results of operations for
the six and three months then ended and changes in cash flows for the
six months then ended.
The general partners have a 1 percent interest in profits and losses of
the Partnership. The limited partners have the remaining 99 percent
interest which is allocated in proportion to their respective
individual investments. National Partnership Investments Corp. (NAPICO)
is the corporate general partner of the Partnership. NAPICO is a wholly
owned subsidiary of Casden Investment Corporation, which is wholly
owned by Alan I. Casden.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Real
Estate Associates Limited VI and its majority-owned general
partnerships. All significant intercompany accounts and transactions
have been eliminated in consolidation.
METHOD OF ACCOUNTING FOR INVESTMENT IN THE UNCONSOLIDATED LIMITED
PARTNERSHIPS
The investments in unconsolidated limited partnerships are accounted
for on the equity method. Acquisition, selection and other costs
related to the acquisition of the projects are capitalized as part of
the investment account and are being amortized on a straight line basis
over the estimated lives of the underlying assets, which is generally
30 years.
5
<PAGE> 8
REAL ESTATE ASSOCIATES LIMITED VI
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET LOSS PER LIMITED PARTNERSHIP INTEREST
Net loss per limited partnership interest was computed by dividing the
limited partners' share of net loss by the number of limited
partnership interests outstanding during the year. The number of
limited partnership interests was 16,810 for the periods presented.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of unrestricted cash and bank
certificates of deposit with maturities of three months or less.
Restricted cash consist of tenants' security and escrow deposits and
mortgage impounds. The Partnership has its cash and cash equivalents on
deposit primarily with two high credit quality financial institutions.
Such cash and cash equivalents are in excess of the FDIC insurance
limit.
INCOME TAXES
No provision has been made for income taxes in the accompanying
financial statements since such taxes, if any, are the liability of the
individual partners.
RENTAL PROPERTY AND DEPRECIATION
Rental property is stated at cost. Depreciation is provided on the
straight-line and accelerated methods over the estimated useful lives
of the buildings and equipment. Pursuant to a purchase agreement in
which the Partnership acquired its interest from withdrawing general
partners, certain rental property was revalued to reflect the purchase
price.
Substantially all of the apartment units are leased on a month-to-month
basis.
IMPAIRMENT OF LONG-LIVED ASSETS
The Partnership reviews long-lived assets to determine if there has
been any permanent impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. If the sum of the expected future cash flows is less than
the carrying amount of the assets, the Partnership recognizes an
impairment loss.
6
<PAGE> 9
REAL ESTATE ASSOCIATES LIMITED VI
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS
The Partnership holds limited partnership interests in 27 local limited
partnerships and a general partner interest in one general partnership.
In addition, REAL VI holds a general partner interest in Real Estate
Associates III ("REA III"), a California general partnership. NAPICO is
also a general partner in REA III. REA III, in turn, holds limited
partner interests in seven local limited partnerships. In total,
therefore, the Partnership holds interests, either directly or
indirectly through REA III, in 34 limited partnerships and one general
partnership which own residential rental projects consisting of 2,832
apartment units. The mortgage loans of these projects are insured by
the United States Department of Housing and Urban Development ("HUD")
or state governmental agencies.
The Partnership, as a limited partner, is entitled to between 90
percent and 99 percent of the profits and losses of the limited
partnerships it has invested in directly. The Partnership is also
entitled to 99.9 percent of the profits and losses of REA III. REA III
holds a 99 percent interest in each of the limited partnerships in
which it has invested.
As of June 30, 1998, the Partnership is obligated, if certain
conditions are met, to invest an additional $90,500 in its investee
partnerships at various times in the future. This amount has not been
recorded as a liability in the accompanying financial statements.
Equity in losses of unconsolidated limited partnerships is recognized
in the financial statements until the limited partnership investment
account is reduced to a zero balance or to a negative amount equal to
further capital contributions required. Losses incurred after the
limited partnership investment account is reduced to zero are not
recognized.
Distributions from the unconsolidated limited partnerships are
accounted for as a return of capital until the investment balance is
reduced to zero. Subsequent distributions received are recognized as
income.
The following is a summary of the investment in unconsolidated limited
partnerships for the six months ended June 30, 1998:
<TABLE>
<CAPTION>
1997
----------
<S> <C>
Balance, beginning of period $5,885,699
Equity in income of limited partnerships 424,000
Amortization of acquisition costs (60,000)
Cash distributions recognized as a return of capital (76,706)
----------
Balance, end of period $6,172,993
==========
</TABLE>
The difference between the investment per the accompanying balance
sheets at June 30, 1998 and December 31, 1997, and the deficiency per
the unaudited combined estimated statements of operations is due
primarily to cumulative unrecognized equity in losses of certain
limited partnerships, costs capitalized to the investment account and
cumulative distributions recognized as income.
7
<PAGE> 10
REAL ESTATE ASSOCIATES LIMITED VI
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIP (CONTINUED)
The following are unaudited combined estimated statements of operations
for the six and three months ended June 30, 1998 and 1997 of the
unconsolidated limited partnerships in which the Partnership has
investments:
<TABLE>
<CAPTION>
Six months Three months Six months Three months
ended ended ended ended
June 30, 1998 June 30, 1998 June 30, 1997 June 30, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Rental and other $ 10,460,000 $ 5,230,000 $ 10,622,000 $ 5,311,000
------------ ------------ ------------ ------------
Expenses:
Depreciation 1,796,000 898,000 1,798,000 899,000
Interest 2,578,000 1,289,000 4,156,000 2,078,000
Operating expenses 7,058,000 3,529,000 5,606,000 2,803,000
------------ ------------ ------------ ------------
Total expenses 11,432,000 5,716,000 11,560,000 5,780,000
------------ ------------ ------------ ------------
Net loss $ (972,000) $ (486,000) $ (938,000) $ (469,000)
============ ============ ============ ============
</TABLE>
NAPICO, or one of its affiliates, is the general partner and property
management agent for certain of the limited partnerships included
above.
One of the limited partnerships (Drexel Park III) sold its property on
May 1, 1997, upon the necessary regulatory approval from the Maryland
Community Development Agency. Drexel Park III was sold for $2,450,000.
After payment of closing costs, the limited partnership received net
proceeds of approximately $733,000, which were distributed to the
Partnership. The investment balance as of December 31, 1996 was
$597,000.
Under recently adopted law and policy, HUD has determined not to renew
housing assistance payments contracts ("HAP Contracts") on their
existing terms. In connection with renewals of the HAP Contracts under
such new law and policy, the amount of rental assistance payments under
renewed HAP Contracts will be based on market rentals instead of above
market rentals, which was generally the case under existing HAP
Contracts. As a result, existing HAP Contracts that are renewed in the
future on projects insured by the Federal Housing Administration of HUD
("FHA") will not provide sufficient cash flow to permit owners of
properties to meet the debt service requirements of these existing
FHA-insured mortgages. In order to address the reduction in payments
under HAP Contracts as a result of this new policy, the Multi-family
Assisted Housing Reform and Affordability Act of 1997 ("MAHRAA"), which
was adopted in October 1997, provides for the restructuring of mortgage
loans insured by the FHA with respect to properties subject to HAP
Contracts that have been renewed under the new policy. The restructured
loans will be held by the current lender or another lender. Under
MAHRAA, an FHA-insured mortgage loan can be restructured to reduce the
annual debt service on such loan. There can be
8
<PAGE> 11
REAL ESTATE ASSOCIATES LIMITED VI
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIP (CONTINUED)
no assurance that the Partnership will be permitted to restructure its
mortgage indebtedness pursuant to the new HUD rules implementing MAHRAA
or that the Partnership would choose to restructure such mortgage
indebtedness if it were eligible to participate in the MAHRAA program.
It should be noted that there are uncertainties as to the economic
impact on the Partnership of the combination of the reduced payments
under the HAP Contracts and the restructuring of the existing
FHA-insured mortgage loans under MAHRAA. Accordingly, the General
Partners are unable to predict with certainty their impact on the
Partnership's future cash flow.
As a result of the foregoing, the Partnership is undergoing an
extensive review of the properties in which the limited partnerships
have invested that are subject to HUD mortgages and which may be sold
to the REIT as set forth below. The Partnership has incurred expenses
in connection with this review by various third party professionals,
including accounting, legal, valuation, structural review and
engineering costs, which amounted to approximately $308,000 through
June 30, 1998, including approximately $180,000 for the six months
ended June 30, 1998, which are included in general and administrative
expenses.
A real estate investment trust ("REIT") organized by affiliates of
NAPICO has advised the Partnership that it intends to make a proposal
to purchase from the Partnership certain of the limited partnership
interests held for investment by the Partnership.
The REIT proposes to purchase such limited partnership interests for
cash, which it plans to raise in connection with a private placement of
its equity securities. The purchase is subject to, among other things,
(i) consummation of such private placement by the REIT; (ii) the
purchase of the general partnership interests in the local limited
partnerships by the REIT; (iii) the approval of HUD and certain state
housing finance agencies; (iv) the consent of the limited partners to
the sale of the local limited partnership interests held for investment
by REAL VI; and (v) the consummation of a minimum number of purchase
transactions with other NAPICO affiliated partnerships. As of June 30,
1998, the REIT had completed buy-out negotiations with a majority of
the general partners of the local limited partnerships.
A consent solicitation statement will be sent to the limited partners
setting forth the terms and conditions of the purchase of the limited
partners' interests held for investment by the Partnership, together
with certain amendments to the Partnership Agreement and other
disclosures of various conflicts of interest in connection with the
proposed transaction.
NOTE 3 - MORTGAGE NOTE PAYABLE
The mortgage note has an interest rate of 8.78 percent per annum, with
principal and interest payments due monthly. The note matures in
September 2006.
The note is collateralized by the underlying rental property.
9
<PAGE> 12
REAL ESTATE ASSOCIATES LIMITED VI
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
NOTE 4 - NOTES PAYABLE
Certain of the Partnership's investments involved purchases of
partnership interests from partners who subsequently withdrew from the
operating partnership. The purchase of these interests provides for
additional cash payments of approximately $325,000 based upon specified
events as outlined in the purchase agreements. Such amounts have been
recorded as liabilities. In addition, the Partnership is obligated on
non-recourse notes payable of $5,470,000 which bear interest at 9.5 or
10 percent per annum and have principal maturities ranging from
December 1999 to December 2012. Effective January 1, 1997, the interest
rates for two notes totaling $2,810,000 changed to 10 percent per terms
of the note. The notes and related interest are payable from cash flow
generated from operations of the related rented properties as defined
in the notes. These obligations are collateralized by the Partnership's
investments in the limited partnerships. Unpaid interest is due at
maturity of the notes.
NOTE 5 - MANAGEMENT FEES AND EXPENSES DUE TO GENERAL PARTNER
Under the terms of the Restated Certificate and Agreement of Limited
Partnership, the Partnership is obligated to NAPICO for an annual
management fee of approximately .4 percent of the original invested
assets of the limited partnerships. Invested assets are defined as the
costs of acquiring project interests, including the proportionate
amount of the mortgage loans related to the Partnership's interests in
the capital accounts of the respective partnerships. This fee was
approximately $250,000 for the six months ended June 30, 1998 and 1997,
respectively.
The Partnership reimburses NAPICO for certain expenses. The
reimbursement to NAPICO was approximately $25,700 and $24,000 for the
six months ended June 30, 1998 and 1997, and is included in general and
administrative expenses.
NOTE 6 - CONTINGENCIES
The corporate general partner of the Partnership is involved in various
lawsuits and have also been named defendants in other lawsuits arising
from transactions in the ordinary course of business. In the opinion of
management and the corporate general partner, the claims will not
result in any material liability to the Partnership.
The Partnership has assessed the potential impact of the Year 2000
computer systems issue on its operations. The Partnership believes that
no significant actions are required to be taken by the Partnership to
address the issue and that the impact of the Year 2000 computer systems
issue will not materially affect the Partnership's future operating
results or financial condition.
10
<PAGE> 13
REAL ESTATE ASSOCIATES LIMITED VI
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
NOTE 7 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosure about
Fair Value of Financial Instruments," requires disclosure of fair value
information about financial instruments, when it is practicable to
estimate that value. The mortgage notes payable are insured by HUD and
are collateralized by the rental properties. The notes payable are
collateralized by the Partnership's investments in investee limited
partnerships and are payable only out of cash distributions from the
investee partnerships. The operations generated by the property and
investee limited partnerships are subject to various government rules,
regulations and restrictions which make it impracticable to estimate
the fair value of the mortgage note payable and the notes payable and
related accrued interest. The carrying amount of other assets and
liabilities reported on the balance sheets that require such disclosure
approximates fair value due to their short-term maturity.
11
<PAGE> 14
REAL ESTATE ASSOCIATES LIMITED VI
(A CALIFORNIA LIMITED PARTNERSHIP)
JUNE 30, 1998
ITEM 2. MANAGEMENT'S ANALYSIS AND DISCUSSION OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's primary sources of funds include interest income on
short term investments and distributions from limited partnerships in
which the Partnership has invested.
The Partnership has committed as of June 30, 1998 to investments in
limited partnerships requiring additional capital contributions of
$90,500. The Partnership normally makes its capital contributions to
the local limited partnerships in stages, over a period of two to five
years, with each contribution due on a specified date, provided that
certain conditions regarding construction or operation of the project
have been fulfilled. The Partnership has no significant commitments
once the capital contributions have been made.
RESULTS OF OPERATIONS
Rental operations consist primarily of rental income and depreciation
expense, debt service, and normal operating expenses to maintain the
properties. Variances in rental operations from the prior year to the
current year relate to the sale of the Drexel Property.
Partnership revenues consist primarily of interest income earned on
certificates of deposit and other temporary investment of funds not
required for investment in local partnerships.
Operating expenses consist primarily of recurring general and
administrative expenses and professional fees for services rendered to
the Partnership. In addition, an annual Partnership management fee in
an amount equal to .4 percent of invested assets is payable to the
corporate general partner.
The Partnership accounts for its investments in the local limited
partnerships on the equity method, thereby adjusting its investment
balance by its proportionate share of the income or loss of the local
limited partnerships. Losses incurred after the limited partnership
investment account is reduced to zero are not recognized in accordance
with the equity accounting method.
Distributions received from limited partnerships are recognized as
return of capital until the investment balance has been reduced to zero
or to a negative amount equal to future capital contributions required.
Subsequent distributions received are recognized as income.
Except for certificates of deposit and money market funds, the
Partnership's investments are entirely from interests in other limited
and general partnerships owning government assisted projects. Funds
temporarily not required for such investments in projects are invested
providing interest income as reflected in the statement of operations.
These funds can be converted to cash to meet obligations as they arise.
The Partnership intends to continue investing available funds in this
manner.
12
<PAGE> 15
REAL ESTATE ASSOCIATES LIMITED VI
(A CALIFORNIA LIMITED PARTNERSHIP)
JUNE 30, 1998
ITEM 2. MANAGEMENT'S ANALYSIS AND DISCUSSION OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Under recently adopted law and policy, HUD has determined not to renew
housing assistance payments contracts ("HAP Contracts") on their
existing terms. In connection with renewals of the HAP Contracts under
such new law and policy, the amount of rental assistance payments under
renewed HAP Contracts will be based on market rentals instead of above
market rentals, which was generally the case under existing HAP
Contracts. As a result, existing HAP Contracts that are renewed in the
future on projects insured by the Federal Housing Administration of HUD
("FHA") will not provide sufficient cash flow to permit owners of
properties to meet the debt service requirements of these existing
FHA-insured mortgages. In order to address the reduction in payments
under HAP Contracts as a result of this new policy, the Multi-family
Assisted Housing Reform and Affordability Act of 1997 ("MAHRAA"), which
was adopted in October 1997, provides for the restructuring of mortgage
loans insured by the FHA with respect to properties subject to HAP
Contracts that have been renewed under the new policy. The restructured
loans will be held by the current lender or another lender. Under
MAHRAA, an FHA-insured mortgage loan can be restructured to reduce the
annual debt service on such loan. There can be no assurance that the
Partnership will be permitted to restructure its mortgage indebtedness
pursuant to the new HUD rules implementing MAHRAA or that the
Partnership would choose to restructure such mortgage indebtedness if
it were eligible to participate in the MAHRAA program. It should be
noted that there are uncertainties as to the economic impact on the
Partnership of the combination of the reduced payments under the HAP
Contracts and the restructuring of the existing FHA-insured mortgage
loans under MAHRAA. Accordingly, the General Partners are unable to
predict with certainty their impact on the Partnership's future cash
flow.
As a result of the foregoing, the Partnership is undergoing an
extensive review of the properties in which the limited partnerships
have invested that are subject to HUD mortgages and which may be sold
to the REIT as set forth below. The Partnership has incurred expenses
in connection with this review by various third party professionals,
including accounting, legal, valuation, structural review and
engineering costs, which amounted to approximately $308,000 through
June 30, 1998, including approximately $180,000 for the six months
ended June 30, 1998, which are included in general and administrative
expenses.
A real estate investment trust ("REIT") organized by affiliates of
NAPICO has advised the Partnership that it intends to make a proposal
to purchase from the Partnership certain of the limited partnership
interests held for investment by the Partnership.
The REIT proposes to purchase such limited partnership interests for
cash, which it plans to raise in connection with a private placement of
its equity securities. The purchase is subject to, among other things,
(i) consummation of such private placement by the REIT; (ii) the
purchase of the general partnership interests in the local limited
partnerships by the REIT; (iii) the approval of HUD and certain state
housing finance agencies; (iv) the consent of the limited partners to
the sale of the local limited partnership interests held for investment
by REAL VI; and (v) the consummation of a minimum number of purchase
transactions with other NAPICO affiliated partnerships. As of June 30,
1998, the REIT had completed buy-out negotiations with a majority of
the general partners of the local limited partnerships.
13
<PAGE> 16
REAL ESTATE ASSOCIATES LIMITED VI
(A CALIFORNIA LIMITED PARTNERSHIP)
JUNE 30, 1998
ITEM 2. MANAGEMENT'S ANALYSIS AND DISCUSSION OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
A consent solicitation statement will be sent to the limited partners
setting forth the terms and conditions of the purchase of the limited
partners' interests held for investment by the Partnership, together
with certain amendments to the Partnership Agreement and other
disclosures of various conflicts of interest in connection with the
proposed transaction.
The Partnership has assessed the potential impact of the Year 2000
computer systems issue on its operations. The Partnership believes that
no significant actions are required to be taken by the Partnership to
address the issue and that the impact of the Year 2000 computer systems
issue will not materially affect the Partnership's future operating
results or financial condition.
14
<PAGE> 17
REAL ESTATE ASSOCIATES LIMITED VI
(A CALIFORNIA LIMITED PARTNERSHIP)
JUNE 30, 1998
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Partnership's general partner is involved in various lawsuits. None of these
lawsuits are related to the Partnership.
ITEM 5. OTHER INFORMATION
On October 20, 1997 the Partnership became aware of an unsolicited tender offer
from Equity Resources Fund XXI (the "Buyer") to buy up to 400 units of limited
partnership interests (the "Units") in the Partnership for a price of $250 per
Unit. The Buyer did not contact the Corporate General Partner prior to
commencing its tender offer. By letter dated October 30, 1997, the Corporate
General Partner advised limited partners that it had determined not to take a
position with respect to the tender offer but cautioned limited partners to
consider certain items before determining whether to tender their Units to the
Buyer. A copy of the letter is attached as an Exhibit to this form 10-Q.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) No exhibits are required per the provision of item 7 of
regulation S-K.
15
<PAGE> 18
REAL ESTATE ASSOCIATES LIMITED VI
(A LIMITED PARTNERSHIP)
JUNE 30, 1998
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
REAL ESTATE ASSOCIATES LIMITED VI AND
SUBSIDIARIES (a California limited partnership)
By: National Partnership Investments
Corp., General Partner
/s/ BRUCE NELSON
------------------------------------------
Bruce Nelson
President
Date: 8/14/98
------------------------------------------
/s/ CHARLES H. BOXENBAUM
------------------------------------------
Charles H. Boxenbaum
Chief Executive Officer
Date: 8/14/98
------------------------------------------
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
PARTNERSHIP'S STATEMENTS OF EARNINGS AND BALANCE SHEETS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 6,258,237
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,258,237
<PP&E> 5,665,419
<DEPRECIATION> 2,736,599
<TOTAL-ASSETS> 15,640,711
<CURRENT-LIABILITIES> 162,322
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (1,469,115)
<TOTAL-LIABILITY-AND-EQUITY> 15,640,711
<SALES> 0
<TOTAL-REVENUES> 1,144,140
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 947,201
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 509,160
<INCOME-PRETAX> 312,212
<INCOME-TAX> 0
<INCOME-CONTINUING> 312,212
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 312,212
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
