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 July 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 0-13261
SHELTER PROPERTIES VI
(Exact name of small business issuer as specified in its charter)
South Carolina 57-0755618
(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 Securities Exchange Act of 1934 during the preceding 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)
SHELTER PROPERTIES VI
BALANCE SHEET
(Unaudited)
(in thousands, except per unit data)
July 31, 1999
Assets
Cash and cash equivalents $ 2,372
Receivables and deposits 887
Restricted escrows 753
Other assets 497
Investment properties:
Land $ 4,950
Buildings and related personal property 49,426
54,376
Less accumulated depreciation (28,238) 26,138
$ 30,647
Liabilities and Partners' (Deficit) Capital
Liabilities
Accounts payable $ 130
Tenant security deposit liabilities 228
Accrued property taxes 781
Other liabilities 256
Mortgage notes payable 25,618
Partners' (Deficit) Capital
General partners $ (308)
Limited partners (42,324 units issued and
outstanding) 3,942 3,634
$ 30,647
See Accompanying Notes to Financial Statements
b)
SHELTER PROPERTIES VI
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended Nine Months Ended
July 31, July 31,
1999 1998 1999 1998
Revenues:
Rental income $2,489 $2,424 $7,395 $7,075
Other income 186 163 548 506
Total revenues 2,675 2,587 7,943 7,581
Expenses:
Operating 1,060 1,051 3,150 3,090
General and
administrative 91 68 275 241
Depreciation 527 527 1,500 1,515
Interest 584 602 1,754 1,814
Property taxes 229 243 690 715
Total expenses 2,491 2,491 7,369 7,375
Net income $ 184 $ 96 $ 574 $ 206
Net income allocated to
general partners (1%) $ 2 $ 1 $ 6 $ 2
Net income allocated to
limited partners (99%) 182 95 568 204
$ 184 $ 96 $ 574 $ 206
Net income per limited
partnership unit $ 4.30 $ 2.24 $13.42 $ 4.82
Distributions per
limited partnership
unit $ -- $ -- $49.45 $ --
See Accompanying Notes to Financial Statements
c)
SHELTER PROPERTIES VI
STATEMENT OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partners Partners Total
Original capital contributions 42,324 $ 2 $42,324 $42,326
Partners' (deficit) capital at
October 31, 1998 42,324 $ (307) $ 5,467 $ 5,160
Net income for the nine months
ended July 31, 1999 -- 6 568 574
Distribution to partners -- (7) (2,093) (2,100)
Partners' (deficit) capital at
July 31, 1999 42,324 $ (308) $ 3,942 $ 3,634
See Accompanying Notes to Financial Statements
d)
SHELTER PROPERTIES VI
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
July 31,
1999 1998
Cash flows from operating activities:
Net income $ 574 $ 206
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 1,500 1,515
Amortization of discounts and loan costs 222 234
Change in accounts:
Receivables and deposits 27 (217)
Other assets (63) 58
Accounts payable (153) (339)
Tenant security deposit liabilities 19 7
Accrued property taxes 4 164
Other liabilities (5) 43
Net cash provided by operating activities 2,125 1,671
Cash flows from investing activities:
Property improvements and replacements (953) (827)
Net withdrawals from (deposits to) restricted escrows 873 (53)
Insurance proceeds from casualty items -- 148
Net cash used in investing activities (80) (732)
Cash flows from financing activities:
Payments on mortgage notes payable (684) (637)
Distribution paid to partners (2,100) --
Net cash used in financing activities (2,784) (637)
Net (decrease) increase in cash and cash equivalents (739) 302
Cash and cash equivalents at beginning of period 3,111 2,632
Cash and cash equivalents at end of period $ 2,372 $ 2,934
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,533 $ 1,581
See Accompanying Notes to Financial Statements
e)
SHELTER PROPERTIES VI
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements of Shelter Properties VI (the
"Partnership" or "Registrant") 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 Shelter Realty VI Corporation (the "Corporate General Partner"), all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three and nine
month periods ended July 31, 1999, are not necessarily indicative of the results
that may be expected for the fiscal year ending October 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 October 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 ("AIMCO"), a publicly
traded real estate investment trust, with AIMCO being the surviving corporation
(the "Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in
the Corporate General Partner. The Corporate General Partner does not believe
that this transaction will have a material effect on the affairs and operations
of the Partnership.
NOTE C - RECONCILIATION OF CASH FLOWS
The following is a reconciliation of the subtotal on the accompanying statements
of cash flows captioned "net cash provided by operating activities" to "net cash
used in operations", as defined in the partnership agreement of the Partnership
(the "Partnership Agreement"). However, "net cash used in operations" should
not be considered an alternative to net income as an indicator of the
Partnership's operating performance or to cash flows as a measure of liquidity.
Nine Months Ended
July 31,
1999 1998
(in thousands)
Net cash provided by operating activities $ 2,125 $ 1,671
Payments on mortgage notes payable (684) (637)
Property improvements and replacements (953) (827)
Change in restricted escrows, net 873 (53)
Changes in reserves for net operating
liabilities 171 284
Additional reserves (1,532) (438)
Net cash used in operations $ -- $ --
The Corporate General Partner believed it to be in the best interest of the
Partnership to reserve net cash from operations of approximately $1,532,000 and
$438,000 at July 31, 1999 and 1998, respectively, to fund continuing capital
improvements and repairs at the Partnership's six investment properties.
NOTE D - TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership has no employees and is dependent on the Corporate General
Partner and its affiliates for the management and administration of all
partnership activities. The Partnership Agreement provides for certain payments
to affiliates for services and the reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership. The following transactions with the
Corporate General Partner and/or its affiliates were charged to expense for each
of the nine months ended July 31, 1999 and 1998:
1999 1998
(in thousands)
Property management fees (included in
operating expenses) $402 $380
Reimbursement for services of affiliates
(included in operating, general and
administrative expenses, and investment
properties) 147 187
During the nine months ended July 31, 1999 and 1998, affiliates of the Corporate
General Partner were entitled to receive 5% of gross receipts from all of the
Registrant's properties as compensation for providing property management
services. The Registrant paid to such affiliates approximately $402,000 and
$380,000 for the nine months ended July 31, 1999 and 1998, respectively.
An affiliate of the Corporate General Partner received reimbursements of
accountable administrative expenses amounting to approximately $147,000 and
$187,000 for the nine months ended July 31, 1999 and 1998, respectively.
Included in such costs for the nine months ended July 31, 1999 and 1998, is
approximately $10,000 and $31,000, respectively, of construction oversight
costs.
NOTE E - CASUALTY ITEMS
During the nine months ended July 31, 1998, the Partnership received
approximately $148,000 in insurance proceeds which were accrued at October 31,
1997. Approximately $35,000 of the proceeds were received in the first quarter
of 1998, relating to tornado damage at River Reach Apartments in May 1997. A
casualty loss of approximately $19,000 was recorded during the year ended
October 31, 1997. Approximately $113,000 of the proceeds were received in the
second quarter of 1998, relating to fire damage at Foxfire/Barcelona in April
1997. A casualty gain of approximately $53,000 was recorded during the quarter
ended April 30, 1997.
NOTE F - DISTRIBUTIONS
A cash distribution of approximately $2,100,000 was paid to the partners during
the nine months ended July 31, 1999. Approximately $1,412,000 ($33.36 per
limited partnership unit) was paid to the limited partners from the proceeds of
a 1995 property sale and approximately $688,000 (approximately $681,000 to the
limited partners, $16.09 per limited partnership unit) was paid from operations.
There were no distributions paid or declared during the nine months ended July
31, 1998.
NOTE G - 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 consisting of six apartment complexes located in five
states throughout the United States as follows: one each in Georgia, Iowa,
Florida, and Colorado, and two in North Carolina. 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 described in the summary of significant accounting policies in the
Partnership's Annual Report on Form 10-KSB for the year ended October 31, 1998.
Factors management used to identify the Partnership's reportable segment: The
Partnership's reportable segment consists of investment properties that offer
similar products and services. Although each of the investment properties are
managed separately, they have been aggregated into one segment as they provide
services with similar types of products and customers.
Segment information for the nine month periods ended July 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 $ 7,395 $ -- $ 7,395
Other income 504 44 548
Interest expense 1,754 -- 1,754
Depreciation 1,500 -- 1,500
General and administrative expense -- 275 275
Segment profit (loss) 805 (231) 574
Total assets 29,614 1,033 30,647
Capital expenditures for investment
properties 953 -- 953
1998 Residential Other Totals
Rental income $ 7,075 $ -- $ 7,075
Other income 416 90 506
Interest expense 1,814 -- 1,814
Depreciation 1,515 -- 1,515
General and administrative expense -- 241 241
Segment profit (loss) 357 (151) 206
Total assets 30,184 2,605 32,789
Capital expenditures for investment
properties 827 -- 827
NOTE H - 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 Corporate 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 Financial Group, Inc.
("Insignia") and entities which were, at one time, affiliates of Insignia
("Insignia Affiliates") of interests in certain general partner entities, past
tender offers by Insignia Affiliates to acquire limited partnership units, the
management of partnerships 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 Corporate General Partner filed a motion seeking dismissal
of the action. In lieu of responding to the motion, the plaintiffs filed an
amended complaint. The Corporate General Partner has filed demurrers to the
amended complaint which were heard during February 1999. No ruling on such
demurrers has been received. The Corporate 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 OPERATION
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
operations. 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 each of
the nine months ended July 31, 1999 and 1998:
Average
Occupancy
Property 1999 1998
Rocky Creek Apartments
Augusta, Georgia 91% 89%
Carriage House Apartments
Gastonia, North Carolina (1) 93% 85%
Nottingham Square Apartments
Des Moines, Iowa (1) 94% 87%
Foxfire/Barcelona Aparments
Durham, North Carolina (2) 96% 91%
River Reach Apartments
Jacksonville, Florida (3) 95% 98%
Village Gardens Apartments
Fort Collins, Colorado (1) 98% 95%
(1) The increase in average occupancy at Carriage House Apartments, Nottingham
Square Apartments, and Village Gardens Apartments is due to a more
aggressive marketing campaign during 1999.
(2) The increase in average occupancy at Foxfire/Barcelona Apartments is due to
an increase in corporate unit rentals related to a contract signed with a
local hospital for its out-of-town contractors.
(3) The decrease in average occupancy at River Reach Apartments is due to an
increase in home purchases resulting from lower interest rates during 1999.
Results of Operations
The Partnership realized net income of approximately $574,000 for the nine
months ended July 31, 1999, compared to net income of approximately $206,000 for
the corresponding period in 1998. The Partnership realized net income of
approximately $184,000 for the three months ended July 31, 1999, compared to net
income of approximately $96,000 for the corresponding period in 1998. The
increase in net income for the three and nine month periods ended July 31, 1999,
is primarily attributable to an increase in total revenues and a slight decrease
in total expenses for the nine months ended July 31, 1999. Total revenues
increased during the three and nine month periods ended July 31, 1999, as a
result of increases in rental income and other income during the same periods.
Rental income increased due to the increase in average occupancy at five of the
Partnership's six investment properties (see occupancy discussion above) and to
the increase in average rental rates at five of the properties. Other income
increased due to the collection of lease cancellation fees and laundry income
primarily at the Partnership's Nottingham property during the first quarter of
1999.
The decrease in total expenses during the nine month period ended July 31, 1999,
is attributable to a decrease in interest and property tax expenses which were
substantially offset by an increase in operating expense and general and
administrative expenses. Interest expense decreased as a result of the
principal payments made on the debt encumbering all of the Partnership's
properties. Property tax expense decreased due to an overaccrual of expenses in
1998. Operating expense increased primarily due to increases in property and
administrative expenses related to the Partnership's efforts to increase
occupancy. General and administrative expenses increased primarily due to an
increase in legal fees primarily due to a lawsuit settlement previously
disclosed in the Partnership's Form 10-QSB as of April 30, 1999, and was
partially offset by decreases in general partner reimbursements. Total expenses
for the three month period ended July 31, 1999, as compared to the three month
period ended July 31, 1998, remained constant as the increase in operating
expense and general and administrative expenses were offset by the decrease in
interest and property tax expenses. Included in general and administrative
expenses at both July 31, 1999 and 1998, are reimbursements to the Corporate
General Partner allowed under the Partnership Agreement associated with its
management of the Partnership. In addition, costs associated with the quarterly
and annual communication with investors and regulatory agencies and the annual
audit and appraisals required by the Partnership Agreement are also included.
As part of the ongoing business plan of the Partnership, the Corporate 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
expenses. As part of this plan, the Corporate 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 Corporate General Partner will be able to sustain
such a plan.
Liquidity and Capital Resources
At July 31, 1999, the Partnership had cash and cash equivalents of approximately
$2,372,000 as compared to approximately $2,934,000 at July 31, 1998. The
decrease in cash and cash equivalents from the year ended October 31, 1998 is
approximately $739,000 and is due to approximately $2,784,000 of cash used in
financing activities and to approximately $80,000 of cash used in investing
activities, which was partially offset by approximately $2,125,000 of cash
provided by operating activities. Cash used in financing activities consisted
primarily of partner distributions and, to a lesser extent, payments of
principal made on the mortgages encumbering the Registrant's properties. Cash
used in investing activities consisted of property improvements and
replacements, which was offset by net receipts from restricted escrows
maintained by the mortgage lender. The Registrant invests its working capital
reserves in money market accounts.
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 investment properties to adequately maintain the
physical assets and other operating needs of the Partnership and to comply with
Federal, state, local, legal, and regulatory requirements. Capital improvements
planned for each of the Registrant's properties are detailed below.
Rocky Creek
During the nine months ended July 31, 1999, the Partnership expended
approximately $26,000 for capital improvements at Rocky Creek primarily
consisting of floor covering, landscaping, structural improvements, and
appliance replacement. These improvements were funded from partnership
reserves. Based on a report received from an independent third party consultant
analyzing necessary exterior improvements and estimates made by the Corporate
General Partner on interior improvements, it is estimated that the property
requires approximately $134,000 of capital improvements over the next few years.
The Partnership has budgeted for, but is not limited to, capital improvements of
approximately $109,000 for 1999 at this property which include certain of the
required improvements and consist of landscaping, roof repairs, and flooring
replacements.
Carriage House
During the nine months ended July 31, 1999, the Partnership expended
approximately $67,000 for capital improvements at Carriage House primarily
consisting of floor covering, electrical upgrades, appliance replacement, and
heating and air conditioning upgrades. These improvements were funded from
Partnership 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 Corporate General Partner on interior improvements, it
is estimated that the property requires approximately $166,000 of capital
improvements over the next few years. The Partnership has budgeted for, but is
not limited to, capital improvements of approximately $176,000 for 1999 at this
property which include certain of the required improvements and consist of
landscaping and exterior building improvements.
Nottingham Square
During the nine months ended July 31, 1999, the Partnership expended
approximately $219,000 for capital improvements at Nottingham Square primarily
consisting of floor covering, appliance, and cabinet and countertop replacement.
These improvements were funded from Partnership reserves. Based on a report
received from an independent third party consultant analyzing necessary exterior
improvements and estimates made by the Corporate General Partner on interior
improvements, it is estimated that the property requires approximately $709,000
of capital improvements over the next few years. The Partnership has budgeted
for, but is not limited to, capital improvements of approximately $750,000 for
1999 at this property which include certain of the required improvements and
consist of wall covering and cabinet replacements, electrical upgrades, and
parking lot improvements.
Foxfire/Barcelona
During the nine months ended July 31, 1999, the Partnership expended
approximately $208,000 for capital improvements at Foxfire/Barcelona primarily
consisting of floor covering, appliance, and cabinet and countertop replacement,
pool enhancements, painting, and other building improvements. These
improvements were funded from Partnership reserves and operating cash flows.
Based on a report received from an independent third party consultant analyzing
necessary exterior improvements and estimates made by the Corporate General
Partner on interior improvements, it is estimated that the property requires
approximately $569,000 of capital improvements over the next few years. The
Partnership has budgeted for, but is not limited to, capital improvements of
approximately $608,000 for 1999 at this property which include certain of the
required improvements and consist of exterior painting, flooring replacement,
and parking lot and structural upgrades.
River Reach
During the nine months ended July 31, 1999, the Partnership expended
approximately $166,000 for capital improvements at River Reach primarily
consisting of floor covering, appliance replacement, interior decoration, wall
covering, air conditioning upgrades, landscaping, and cabinet and countertop
replacement. These improvements were funded from Partnership reserves. Based
on a report received from an independent third party consultant analyzing
necessary exterior improvements and estimates made by the Corporate General
Partner on interior improvements, it is estimated that the property requires
approximately $449,000 of capital improvements over the next few years. The
Partnership has budgeted for, but is not limited to, capital improvements of
approximately $472,000 for 1999 at this property which include certain of the
required improvements and consist of landscaping, structural repairs, floor
covering replacement, air conditioning units, and outdoor lighting.
Village Gardens
During the nine months ended July 31, 1999, the Partnership expended
approximately $267,000 for capital improvements at Village Gardens primarily
consisting of floor covering, structural improvements, recreation facility
improvements, painting, swimming pool enhancements, and water heater
replacements. These improvements were funded from Partnership reserves and
operating cash flows. Based on a report received from an independent third
party consultant analyzing necessary exterior improvements and estimates made by
the Corporate General Partner on interior improvements, it is estimated that the
property requires approximately $264,000 of capital improvements over the next
few years. The Partnership has budgeted for, but is not limited to, capital
improvements of approximately $285,000 for 1999 at this property which include
certain of the required improvements and consist of building painting and
swimming pool and roof enhancements.
The additional capital expenditures will be incurred only if cash is available
from operations and Partnership reserves. To the extent that such budgeted
capital improvements are completed, the Registrant's distributable cash flow, if
any, may be adversely affected at least in the short term.
The Partnership's assets are currently thought to be sufficient for any near
term needs (exclusive of capital improvements) of the Partnership. The mortgage
indebtedness of approximately $25,618,000, net of discounts, is being amortized
over 257 months with a balloon payment of approximately $23,008,000 due on
November 15, 2002. The Corporate General Partner will attempt to refinance such
indebtedness and/or sell the properties prior to such maturity date. If the
properties cannot be refinanced or sold for a sufficient amount, the Partnership
will risk losing such properties through foreclosure.
A cash distribution of approximately $2,100,000 was paid to the partners during
the nine months ended July 31, 1999. Approximately $1,412,000 ($33.36 per
limited partnership unit) was paid from the proceeds of a 1995 property sale and
approximately $688,000 ($16.09 per limited partnership unit) was paid from
operations. There were no distributions paid or declared during the nine months
ended July 31, 1998. Future cash distributions will depend on the levels of net
cash generated from operations, the availability of cash reserves, and the
timing of debt maturities, refinancings, and/or property sales. There can be no
assurance, however, that the Partnership will generate sufficient funds from
operations, after required capital improvements, to permit further distributions
to its partners in 1999 or subsequent periods.
Tender Offer
On May 19, 1999, AIMCO Properties, L.P., an affiliate of the Managing General
Partner commenced a tender offer to purchase up to 12,163.27 units of limited
partnership interest in the Partnership (28.74% of the total outstanding units)
for a purchase price of $331 per unit. The offer expired on July 30, 1999.
Pursuant to the offer, AIMCO Properties, L.P. acquired 486.00 units. As a
result, AIMCO and its affiliates currently own 15,935.00 units of limited
partnership interest in the Partnership representing 37.65% of the total
outstanding units. It is possible that AIMCO or its affiliate will make one or
more additional offers to acquire additional limited partnership interests in
the Partnership for cash or in exchange for units in the operating partnership
of AIMCO.
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 Corporate 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 main computer system used by the Managing Agent became fully
functional. In addition to the main computer system, 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 July 31, 1999, had completed approximately 90% 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
September 30, 1999. The completion of this process is scheduled to coincide
with the release of a compliant version of the Managing Agent's operating
system.
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.
In April, 1999 the Managing Agent embarked on a data center consolidation
project that unifies its core financial systems under its Year 2000 compliant
system. The estimated completion date for this project is October, 1999.
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 testing process was
completed in June, 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 90% of the server operating systems. The remaining
server operating systems are planned to be upgraded to be Year 2000 compliant by
September 30, 1999. The completion of this process is scheduled to coincide
with the release of a compliant version of the Managing Agent's operating
system.
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.
A pre-assessment of the properties by the Managing Agent has indicated no Year
2000 issues. A complete, formal assessment of all the properties by the
Managing Agent is in process and will be completed by September 30, 1999. Any
operating equipment that is found non-compliant will be repaired or replaced.
The total cost incurred for all properties managed by the Managing Agent as of
July 31, 1999 to replace or repair the operating equipment was approximately
$75,000. The Managing Agent estimates the cost to replace or repair any
remaining operating equipment is approximately $125,000.
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 July,
1999. The Managing Agent has updated data transmission standards with all of the
financial institutions. The Managing Agent's contingency plan was to move
accounts from any institution that could not be certified Year 2000 compliant by
September 1, 1999. All financial institutions have communicated that they are
Year 2000 complaint and accordingly no accounts were required to be moved from
the existing financial institutions.
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 $2.9 million ($0.7 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 PROCEDINGS
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 Corporate 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 Financial Group, Inc.
("Insignia") and entities which were, at one time, affiliates of Insignia
("Insignia Affiliates") of interests in certain general partner entities, past
tender offers by Insignia Affiliates to acquire limited partnership units, the
management of partnerships 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 Corporate General Partner filed a motion seeking dismissal
of the action. In lieu of responding to the motion, the plaintiffs filed an
amended complaint. The Corporate General Partner filed demurrers to the amended
complaint which were heard during February 1999. No ruling on such demurrers
has been received. The Corporate 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 filed:
None filed during the quarter ended July 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.
SHELTER PROPERTIES VI
By: Shelter Realty VI Corporation
Corporate General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President and Director
By: /s/Martha L. Long
Martha L. Long
Senior Vice President
and Controller
Date: September 13, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Shelter
Properties VI 1999 Third Quarter 10-QSB and is qualified in its entirety by
reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000730013
<NAME> SHELTER PROPERTIES VI
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-END> JUL-31-1999
<CASH> 2,372
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 54,376
<DEPRECIATION> 28,238
<TOTAL-ASSETS> 30,647
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 25,618
0
0
<COMMON> 0
<OTHER-SE> 3,634
<TOTAL-LIABILITY-AND-EQUITY> 30,647
<SALES> 0
<TOTAL-REVENUES> 7,943
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,615
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,754
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 574
<EPS-BASIC> 13.42<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
