<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 SEPTEMBER 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 SEPTEMBER 30, 1998
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets,
September 30, 1998 and December 31, 1997 .........................................1
Consolidated Statements of Operations,
Nine and Three Months Ended, September 30, 1998 and 1997..........................2
Consolidated Statement of Partners' Deficiency
Nine Months Ended September 30, 1998 .............................................3
Consolidated Statements of Cash Flows
Nine Months Ended September 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
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
ASSETS
1998
(Unaudited) 1997
------------ ------------
<S> <C> <C>
INVESTMENTS IN LIMITED PARTNERSHIPS (Note 2) $ 6,329,607 $ 5,885,699
RENTAL PROPERTY, net of accumulated depreciation (Note 1) 2,885,205 3,016,049
CASH AND CASH EQUIVALENTS (Note 1) 6,065,898 6,611,690
CASH, restricted (Note 3) 38,465 38,465
OTHER ASSETS 242,196 174,284
------------ ------------
TOTAL ASSETS $ 15,561,371 $ 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) 6,419,059 6,103,244
Accounts payable 112,525 117,968
Other liabilities 38,465 38,465
------------ ------------
17,193,453 16,883,081
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 2, 5 and 6)
PARTNERS' DEFICIENCY:
General partners (367,510) (362,758)
Limited partners (1,264,572) (794,136)
------------ ------------
(1,632,082) (1,156,894)
------------ ------------
TOTAL LIABILITIES AND PARTNERS' DEFICIENCY $ 15,561,371 $ 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
NINE AND THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
Nine months Three months Nine months Three months
ended ended ended ended
Sept. 30, 1998 Sept. 30, 1998 Sept. 30, 1997 Sept. 30, 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
RENTAL OPERATIONS:
Revenues $ 846,121 $ 291,741 $ 798,573 $ 268,902
----------- ----------- ----------- -----------
Expenses:
General and administrative 67,721 23,135 -- --
Operating 299,713 106,408 363,511 110,204
Depreciation and amortization (Note 1) 130,844 43,615 130,844 43,615
Interest 363,465 121,155 363,465 121,155
----------- ----------- ----------- -----------
861,743 294,313 857,820 274,974
----------- ----------- ----------- -----------
LOSS FROM RENTAL OPERATIONS (15,622) (2,572) (59,247) (6,072)
----------- ----------- ----------- -----------
PARTNERSHIP OPERATIONS:
Interest income 221,728 71,797 208,041 76,846
----------- ----------- ----------- -----------
Expenses:
Management fees - general partner (Note 5) 376,668 125,556 376,104 125,556
General and administrative (Notes 2 and 5) 573,642 202,674 237,063 69,829
Interest 400,275 133,425 400,275 133,425
----------- ----------- ----------- -----------
1,350,585 461,655 1,013,442 328,810
----------- ----------- ----------- -----------
LOSS FROM PARTNERSHIP OPERATIONS (1,128,857) (389,858) (805,401) (251,964)
----------- ----------- ----------- -----------
EQUITY IN INCOME OF LIMITED
PARTNERSHIPS AND AMORTIZATION
OF ACQUISITION COSTS 546,000 182,000 447,000 149,000
DISTRIBUTIONS FROM LIMITED
PARTNERSHIPS RECOGNIZED AS
INCOME (Note 2) 123,291 47,462 502,658 235,526
----------- ----------- ----------- -----------
NET (LOSS) INCOME $ (475,188) $ (162,968) $ 85,010 $ 126,490
=========== =========== =========== ===========
NET (LOSS) INCOME PER LIMITED
PARTNERSHIP INTEREST (Note 1) $ (28) $ (10) $ 5 $ 8
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
2
<PAGE> 5
REAL ESTATE ASSOCIATES LIMITED VI
(A CALIFORNIA LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF PARTNERS' DEFICIENCY
FOR THE NINE MONTHS ENDED SEPTEMBER 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 nine months
ended September 30, 1998 (4,752) (470,436) (475,188)
----------- ----------- -----------
DEFICIENCY,
September 30, 1998 $ (367,510) $(1,264,572) $(1,632,082)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE> 6
REAL ESTATE ASSOCIATES LIMITED VI
(A CALIFORNIA LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (475,188) $ 85,010
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Equity in income of limited partnerships
and amortization of acquisition costs (546,000) (447,000)
Depreciation and amortization 130,844 130,844
Increase in other assets (67,912) (25,118)
Increase in accrued interest payable 315,815 319,823
Increase in accounts payable (5,443) 2,009
----------- -----------
Net cash provided by (used in) operating activities (647,884) 65,568
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions to limited partnerships recognized as
as a return of capital 102,092 781,543
----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (545,792) 847,111
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 6,611,690 5,849,983
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6,065,898 $ 6,697,094
=========== ===========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the period for interest $ 447,925 $ 443,917
=========== ===========
</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
SEPTEMBER 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 September 30, 1998 and the results of operations
for the nine and three months then ended and changes in cash flows for
the nine 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)
SEPTEMBER 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)
SEPTEMBER 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 September 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 nine months ended September 30, 1998:
<TABLE>
<S> <C>
Balance, beginning of period $ 5,885,699
Equity in income of limited partnerships 636,000
Amortization of acquisition costs (90,000)
Cash distributions recognized as a return of capital (102,092)
-----------
Balance, end of period $ 6,329,607
</TABLE>
The difference between the investment per the accompanying balance
sheets at September 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)
SEPTEMBER 30, 1998
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIP (CONTINUED)
The following are unaudited combined estimated statements of operations
for the nine and three months ended September 30, 1998 and 1997 of the
unconsolidated limited partnerships in which the Partnership has
investments:
<TABLE>
<CAPTION>
Nine months Three months Nine months Three months
ended ended ended ended
Sept. 30, 1998 Sept. 30, 1998 Sept. 30, 1997 Sept. 30, 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Rental and other $ 10,460,000 $ 5,230,000 $ 15,933,000 $ 5,311,000
------------ ------------ ------------ ------------
Expenses:
Depreciation 1,796,000 898,000 2,697,000 899,000
Interest 2,578,000 1,289,000 6,234,000 2,078,000
Operating expenses 7,058,000 3,529,000 8,409,000 2,803,000
------------ ------------ ------------ ------------
Total expenses 11,432,000 5,716,000 17,340,000 5,780,000
------------ ------------ ------------ ------------
Net loss $ (972,000) $ (486,000) $ (1,407,000) $ (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.
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
8
<PAGE> 11
REAL ESTATE ASSOCIATES LIMITED VI
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIP (CONTINUED)
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 $449,000 through
September 30, 1998, including approximately $321,000 and $36,000 for
the nine months ended September 30, 1998 and 1997, respectively, 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.
A consent solicitation statement has been 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. As of November 2, 1998, the consents of the
limited partners to the sale of the partnership interests and
amendments to the Partnership Agreement have been obtained. In
addition, the REIT has completed buy-out negotiations with a majority
of the general partners of the local limited partnerships and has
obtained approval from HUD.
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)
SEPTEMBER 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 $377,000 for the nine months ended September 30, 1998 and
1997, respectively.
The Partnership reimburses NAPICO for certain expenses. The
reimbursement to NAPICO was approximately $39,000 and $36,000 for the
nine months ended September 30, 1998 and 1997, and is included in
general and administrative expenses.
NOTE 6 - CONTINGENCIES
On August 27, 1998, two investors holding an aggregate of eight units
of limited partnership interests in Real Estate Associates Limited III
(an affiliated partnership in which NAPICO is the managing general
partner) and two investors holding an aggregate of five units of
limited partnership interest in Real Estate Associates Limited VI
(another affiliated partnership in which NAPICO is the managing general
partner) commenced an action in the United States District Court for
the Central District of California against the Partnership, NAPICO and
certain other affiliated entities. The complaint alleges that the
defendants breached their fiduciary duty to the limited partners of
certain NAPICO managed partnerships and made materially false and
misleading statements in the consent solicitation statements sent to
the limited partners of such partnerships relating to approval of the
transfer of partnership interests in limited partnerships, owning
certain of the properties, to the REIT (Note 2). The plaintiffs seek
preliminary and permanent injunctive relief and other equitable relief,
as well as compensatory and punitive damages. The managing general
partner of such NAPICO partnerships and the other defendants believe
that the plaintiffs' claims are without merit and intend to contest the
action vigorously.
10
<PAGE> 13
REAL ESTATE ASSOCIATES LIMITED VI
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
NOTE 6 - CONTINGENCIES (CONTINUED)
The corporate general partner of the Partnership is involved in various
lawsuits and have also been named defendants in other lawsuits arising
from transactions in the ordinary course of business. In the opinion of
management and the corporate general partner, the claims will not
result in any material liability to the Partnership.
The Partnership has assessed the potential impact of the Year 2000
computer systems issue on its operations. The Partnership believes that
no significant actions are required to be taken by the Partnership to
address the issue and that the impact of the Year 2000 computer systems
issue will not materially affect the Partnership's future operating
results or financial condition.
NOTE 7 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosure about
Fair Value of Financial Instruments," requires disclosure of fair value
information about financial instruments, when it is practicable to
estimate that value. The mortgage notes payable are insured by HUD and
are collateralized by the rental properties. The notes payable are
collateralized by the Partnership's investments in investee limited
partnerships and are payable only out of cash distributions from the
investee partnerships. The operations generated by the property and
investee limited partnerships are subject to various government rules,
regulations and restrictions which make it impracticable to estimate
the fair value of the mortgage note payable and the notes payable and
related accrued interest. The carrying amount of other assets and
liabilities reported on the balance sheets that require such disclosure
approximates fair value due to their short-term maturity.
11
<PAGE> 14
REAL ESTATE ASSOCIATES LIMITED VI
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 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 September 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 in 1997.
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)
SEPTEMBER 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 $449,000 through
September 30, 1998 including approximately $321,000 and $36,000 for the
nine months ended September 30, 1998 and 1997, respectively, 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.
13
<PAGE> 16
REAL ESTATE ASSOCIATES LIMITED VI
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 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 has been 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. As of November 2, 1998, the consents of the
limited partners to the sale of the partnership interests and
amendments to the Partnership Agreement have been obtained. In
addition, the REIT has completed buy-out negotiations with a majority
of the general partners of the local limited partnerships and has
obtained approval from HUD.
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)
SEPTEMBER 30, 1998
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 27, 1998, two investors holding an aggregate of eight units of
limited partnership interests in Real Estate Associates Limited III (an
affiliated partnership in which NAPICO is the managing general partner)
and two investors holding an aggregate of five units of limited
partnership interest in Real Estate Associates Limited VI (another
affiliated partnership in which NAPICO is the managing general partner)
commenced an action in the United States District Court for the Central
District of California against the Partnership, NAPICO and certain other
affiliated entities. The complaint alleges that the defendants breached
their fiduciary duty to the limited partners of certain NAPICO managed
partnerships and made materially false and misleading statements in the
consent solicitation statements sent to the limited partners of such
partnerships relating to approval of the transfer of partnership
interests in limited partnerships, owning certain of the properties, to
the REIT (Note 2). The plaintiffs seek preliminary and permanent
injunctive relief and other equitable relief, as well as compensatory and
punitive damages. The managing general partner of such NAPICO
partnerships and the other defendants believe that the plaintiffs' claims
are without merit and intend to contest the action vigorously.
The Partnership's general partner is involved in various lawsuits. None
of these lawsuits are related to the Partnership.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A report 8-K relating to an unsolicited offer to buy units of limited
partnership interests (the "Units"), as discussed below, was filed with
the Securities and Exchange Commission during the quarter ended September
30, 1998.
On June 26, 1998, Bond Purchase, L.L.C. (the "Buyer") made an unsolicited
tender offer to buy a certain number of units in the Partnership for a
price of $333 per Unit. The Buyer did not contact the Corporate General
Partner prior to commencing its tender offer. By letter dated July 6,
1998, 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 from the
is attached as an Exhibit to the September 30, 1998 10-Q.
15
<PAGE> 18
REAL ESTATE ASSOCIATES LIMITED VI
(A LIMITED PARTNERSHIP)
SEPTEMBER 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/ PAUL PATIERNO
--------------------------------
Paul Patierno
Chief Financial Officer
Date:
/s/ CHARLES BOXENBAUM
--------------------------------
Charles Boxenbaum
Chief Executive Officer
Date:
16
<PAGE> 19
EXHIBIT 1
BOND PURCHASE, L.L.C.
P.O. Box 26730
Kansas City, MO 64196
June 26, 1998
To the Holders of Limited Partnership Interests in Real Estate Associates
Limited VI.
RE: OFFER TO PURCHASE LIMITED PARTNERSHIP INTERESTS FOR $333.00
Dear Investor:
We are offering you an opportunity to sell your limited partnership
interests (the "Units") in Real Estate Associates Limited VI (the
"Partnership") for cash in the amount of $333.00 per Unit (which amount will be
reduced by any cash distributions declared by the Partnership after the date of
this letter). Our offer provides you with an opportunity to sell your Units now
without the costly transfer fees and commission costs (typically up to 10%)
usually paid by the seller in secondary market sales. ALL TRANSFER COSTS AND
FEES WILL BE PAID BY BOND PURCHASE, L.L.C.
We believe that it is appropriate for investors to have financial choices.
Our offer gives you, the investor, the ability to make a decision about your
continued involvement with the Partnership. You may no longer wish to continue
with your investment in the Partnership for a number of reasons, including:
- NO FURTHER IRS FILING
- HIGHEST OFFER -- This offer is higher than the last reported trade of
$330 (November 1, 1997 to December 31, 1997) in the secondary market.
- If you sell your units, 1998 will be the final year for which you
receive a K-1 tax form from the partnership.
- You may be able to realize a tax loss that would reduce your taxes for
1998.
- The Partnership was closed fifteen years ago in 1983. Your money has
been tied up for this long period with minimal return.
- More immediate use for the cash tied up in your investment in the Units.
- The absence of a formal trading market for the Units and their resulting
relative illiquidity.
<PAGE> 20
- The lack of any current cash distributions.
- General disenchantment with real estate investments,
particularly long-term investments in limited partnerships;
Our offer is limited to 835 of the 16,800 outstanding Units. If we were
to acquire more than this amount, the administrative costs of our offer would
become burdensome.
We will accept for purchase properly documented Units on a
"first-received, first-buy" basis. You will be paid promptly following
confirmation of a valid properly executed Agreement of Transfer and other
required transfer documents. We will pay for all Partnership transfer fees and
costs. All tenders of Units will be irrevocable and may not be rescinded or
withdrawn.
We are real estate investors who are not affiliated with the Partnership
or the General Partners. The General Partners of the Partnership have not
analyzed, approved, endorsed or made any recommendation as to acceptance of the
offer. The purchase offer has been determined solely at the discretion of Bond
Purchase, L.L.C. and does not necessarily represent the true market value of
each unit. We are seeking to acquire Units for investment purposes only and not
with a view to their resale.
An Agreement of Transfer is enclosed which you can use to accept our
offer. Please execute page 3 of this document, as well as the Power of Attorney.
Obtain all other required signatures and return the documentation in the
enclosed envelope. Please note that all signatures must be medallion guaranteed.
The transfer cannot be processed without signatures that are medallion
guaranteed and failure to obtain them will result in needless delays. In
addition, place your Unit Certificate in the enclosed envelope. We encourage you
to act immediately if you are interested in accepting our offer as only 16,800
Units will be purchased.
OUR OFFER WILL EXPIRE AT 5:00 PM ON JULY 31, 1998, UNLESS EXTENDED.
Please call John Katzer at (816) 421-4670 if you have any questions.
Sincerely,
Bond Purchase, L.L.C.
<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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 6,065,898
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,346,559
<PP&E> 5,665,419
<DEPRECIATION> 2,780,214
<TOTAL-ASSETS> 15,561,371
<CURRENT-LIABILITIES> 112,525
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (1,632,082)
<TOTAL-LIABILITY-AND-EQUITY> 15,561,371
<SALES> 0
<TOTAL-REVENUES> 1,737,140
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,448,588
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 763,740
<INCOME-PRETAX> (475,188)
<INCOME-TAX> 0
<INCOME-CONTINUING> (475,188)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (475,188)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
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