Item 1. BUSINESS
PROPERTY RESOURCES FUND VI (hereinafter referred to either as the "Partnership" or the "Registrant") is a limited partnership formed in May 1982 under the Uniform Limited Partnership Act of the State of California. The General Partner is Property Resources, Inc., a California corporation; (the "General Partner") located at 1800 Gateway Drive, San Mateo, California 94404.
The Partnership was organized for the purpose of acquiring, improving, developing, operating and holding for investment, income-producing real properties from unaffiliated sellers. The Partnership intended to dispose of its properties approximately five to eight years after their acquisition and thereupon liquidate the Partnership. However, depressed real estate markets in the areas where the Partnership's properties are located have required the Partnership to extend its holding period in an effort to improve the opportunity of recovering some of the loss in value of the portfolio. There is no assurance that the Partnership will be successful in this regard.
As of December 31, 1997, the Partnership had acquired an interest in five real estate assets located in Houston, Texas; San Antonio, Texas; Oklahoma City, Oklahoma; Salt Lake City, Utah; and Campbell, California; as more particularly described in Item 2.
Item 2. PROPERTIES
During its investment phase, the Partnership acquired four existing rental properties and completed construction of a fifth property. The property acquisitions were as follows: Clearlake Village Apartments (formerly Village South) in August, 1982; Waterbury Plaza office complex in December, 1982; Space Savers One and Space Savers Three mini-warehouses in April, 1983; and 1600 Dell Avenue office/warehouse in December, 1983. In July 1984, the Partnership completed construction of a 244-unit apartment complex known as Grouse Run Apartments in Oklahoma City, Oklahoma. The investment phase of the Partnership is complete and the Partnership does not intend to purchase additional properties. On June 26, 1990, the Waterbury Plaza office complex was lost to foreclosure. On November 16, 1988, 1600 Dell Avenue was sold. On June 6, 1994, Space Savers One and Space Savers Three mini-warehouses were sold, but continued to be operated by the Company for one year after the sale per the terms of a lease-back agreement.
The properties are managed by Continental Property Management Co. ("CPMC"), an affiliate of the General Partner, which performs the leasing and management related services for the properties.
The buildings and the land upon which the buildings are located are owned directly by the Partnership in fee. Clearlake Village Apartments and Grouse Run Apartments are subject to mortgages as more fully described in the notes to the financial statements included in Item 8. In the opinion of management, the level of insurance coverage is adequate for each property and within industry standards.
CLEARLAKE VILLAGE APARTMENTS
The Clearlake Village Apartments are located in the Clearlake City area of Houston, Harris County, Texas. The apartment complex was completed in 1976. Situated on a 5-acre site, the complex consists of 174 garden style apartments in 14 buildings. Apartment units include 24 two-bedroom, two-bath units of 850 square feet; 40 two-bedroom, one-bath units of 800 square feet; 70 one-bedroom, one-bath units of 670 square feet; and 40 efficiency units of 507 square feet. The property's total net rentable area is 119,580 square feet. As of December 31, 1997, monthly rental rates ranged from $400 to $550 and the occupancy rate was 92%. Amenities for residents include a 4,000 square foot clubhouse/exercise room, as well as a swimming pool, laundry, and storage facilities. The secured loan is owed to an unaffiliated party, carries interest at 8.875% and matures in 2006.
GROUSE RUN APARTMENTS
On August 19, 1983, the Partnership entered into various agreements with Robertson Homes ("RH") a division of the Catwil Corporation. The agreements included a purchase/sale agreement, construction management agreement and an operating management agreement. Pursuant to these agreements, the Partnership acquired a 10-acre site in northwest Oklahoma City and began construction of the Grouse Run Apartments. The construction was completed in phases by RH pursuant to a fixed-price agreement with final completion occurring in July, 1984. The project consists of 31 two-story buildings with a total of 201,524 square feet of leasable area. There are 244 rental units as follows: 120 one-bedroom, one-bath units of 702 square feet, 44 two-bedroom, one-bath units of 871 square feet and 80 two-bedroom, two-bath units of 987 square feet. As of December 31, 1997, monthly rental rates ranged from $370 to $500 per unit and the occupancy rate was 93%. A loan secured by the property was negotiated in 1994 with a fixed interest rate of 9.96% , amortized on a 30-year schedule. The Note has an original principal balance of $3,884,000 and it matures on October 1, 1999.
Item 3.
Item 3. LEGAL PROCEEDINGS
There are no material legal proceedings pending to which the Partnership is a party or which any of its properties is the subject, required to be reported hereunder. From time to time, the Partnership may be a party to ordinary routine litigation incidental to its business.
Item 4.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters have been submitted during the fourth quarter of the fiscal year ended December 31, 1997, which required the vote of security holders.
PART II
Item 5.
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
As of December 31, 1997, there were 21,585 limited partnership units outstanding and 1,136 unit holders of record. There are no dividends. However, the limited partnership unit holders may be entitled to certain cash distributions as provided in the limited partnership agreement.
The units are not freely transferable and no market for the units presently exists or is likely to develop.
Item 6.
Item 6. SELECTED FINANCIAL DATA
The following selected financial data for the Partnership is as of and for the years ended, December 31, 1997, 1996, 1995, 1994 and 1993. The data was derived from the audited financial statements of the Partnership and should be read in conjunction with the financial statements and related notes included in Item 8.
1Per $500 limited partnership unit outstanding, exclusive of amounts allocable to the General Partner.
Item 7.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO YEAR ENDED DECEMBER 31, 1996.
Net income for the year ended December 31, 1997 increased $125,000 (38%) as compared to the prior year, primarily due to an increase in average rental rates, as discussed below.
Total revenues increased $83,000 (4%) in the year ended December 31, 1997 to $2,122,000, as compared to $2,039,000 for the year ended December 31, 1996. Rental revenues increased at both properties, primarily as a result of increased average rental rates. The average occupancy rates remained relatively stable. The average occupancy rates for each of the properties in 1997 and 1996 respectively, were 94% and 93% at Grouse Run and 93% and 94% at Clearlake.
Total expenses decreased $42,000 (2%) in 1997, as compared to 1996. This was due to a decline in operating expenses of $23,000 and decreasing total interest expenses. The decline in operating expenses was mainly a result of lower utility and repair costs at the two apartment complexes. Interest expense (including related party interest payments) declined $21,000 as a result of the Partnership's payments to reduce debt in 1997. Interest payments of $4,000 were charged to related party expense in 1997, compared to $141,000 in 1996 (see note 2 to the Consolidated Financial Statements).
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31, 1995.
Net income for the year ended December 31, 1996 was $330,000, a decrease of $100,000 as compared to net income of $430,000 in 1995. The decrease in net income was primarily a result of the end of the lease back period of Space Savers One and Three in June 1995 and other factors as more fully described below.
Total revenue for the year ended December 31, 1996, decreased $139,000, or 6%, compared to 1995 primarily as a result of the reduced revenues after the end of the lease back period of a tenant of $245,000 which was partially offset by an increase in rental revenue at the remaining two properties of the Partnership of $78,000. The increase in rental revenue at the Partnership's two remaining properties resulted from an increase in the rental rates at the properties and to an increase in the average occupancy rate at the Grouse Run Apartments. The average occupancy rate at the Grouse Run Apartments increased from 89% in 1995 to 93% in 1996. Clearlake Village Apartment's average occupancy rate remained at 94%. In addition, interest revenue decreased $6,000 due to the reduced balance of the note receivable.
Total expenses for the year ended December 31, 1996, decreased $39,000, or 2%, from $1,748,000 in 1995 to $1,709,000 in 1996. The decrease in total expenses in 1996 was primarily attributable to a decrease in related party expenses of $125,000 as a result of a decrease in accounting and data processing expenses, interest earned on advances due to the reduced balance of advances from the General Partner and interest earned on the note payable to affiliate due to the note being paid off in August, 1996. Interest expense increased $82,000 in 1996 as a result of the note payable to affiliate being paid in full from the proceeds of a new loan from an unaffiliated lender.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1997, the Partnership had two operating properties: Clearlake Village Apartments, and Grouse Run Apartments. The Partnership owns fee interests in the buildings and the land upon which the buildings are located, and all Partnership properties are subject to mortgages, as more fully described in Note 3 to the consolidated financial statements included in Item 8.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
PAGE
Report of Independent Accountants 9
Consolidated Balance Sheets as of December 31, 1997 and 1996 10
Consolidated Statements of Income for the Years 11 Ended December 31, 1997, 1996 and 1995
Consolidated Statements of Partners' Capital (Deficit) for the 12 Years Ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the Years 13 Ended December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements 14 - 18
Schedule III - Real Estate and Accumulated 19 - 20 Depreciation
All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.
REPORT OF INDEPENDENT ACCOUNTANTS
The Partners Property Resources Fund VI
We have audited the accompanying consolidated balance sheets of Property Resources Fund VI as of December 31, 1997 and 1996, the related consolidated statements of income, partners' capital (deficit), and cash flows for each of the three years in the period ended December 31, 1997, and the financial statement schedule of Real Estate and Accumulated Depreciation. These financial statements and the financial statement schedule are the responsibility of Property Resources Fund VI management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated statements referred to above present fairly, in all material respects, the financial position of Property Resources Fund VI as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
San Francisco, California January 26, 1998
PROPERTY RESOURCES FUND VI (A CALIFORNIA LIMITED PARTNERSHIP)
CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1997 AND 1996
(Dollars in thousands) 1997 1996 - -------------------------------------------------------------------------------- ASSETS: Real estate: Land $2,239 $2,239 Land improvements 781 763 Buildings and improvements 7,347 7,174 Furnishings and equipment 1,050 1,041 - -------------------------------------------------------------------------------- 11,417 11,217 Less: accumulated depreciation 4,708 4,420 - -------------------------------------------------------------------------------- Total real estate, net 6,709 6,797
Cash and cash equivalents 409 279 Note receivable 237 320 Other assets, net 308 413 - -------------------------------------------------------------------------------- Total assets $7,661 $7,809 ================================================================================
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT): Liabilities: Notes payable $6,559 $6,986 Advances from General Partner - 153 Accrued interest due to General Partner 527 524 Deposits and other liabilities 249 275 - -------------------------------------------------------------------------------- Total liabilities 7,335 7,938 - --------------------------------------------------------------------------------
Partners' capital (deficit): Limited partners, 21,585 units issued and 766 334 outstanding General Partner (440) (463) - -------------------------------------------------------------------------------- Total partners' capital (deficit) 326 (129) ================================================================================ Total liabilities and partners' capital $7,661 $7,809 (deficit) ================================================================================
The accompanying notes are an integral part of these consolidated financial statements.
PROPERTY RESOURCES FUND VI (A CALIFORNIA LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(Dollars in thousands, except per unit amounts) 1997 1996 1995 - --------------------------------------------------------------------------------
REVENUES: Rent $2,088 $2,000 $2,133 Interest and dividends 34 39 45 - -------------------------------------------------------------------------------- Total revenues 2,122 2,039 2,178 - --------------------------------------------------------------------------------
EXPENSES: Interest, other than related party 204 88 6 Depreciation 288 291 287 Property Operating 1,032 1,055 1,054 Related party 126 254 379 General and administrative 17 21 22 - -------------------------------------------------------------------------------- Total expenses 1,667 1,709 1,748 - --------------------------------------------------------------------------------
NET INCOME $455 $330 $430 ================================================================================
Net income allocable to limited partners $432 $313 $409 ================================================================================
Net income allocable to General Partner $23 $17 $21 ================================================================================
Net income per $500 limited partnership unit-based on 21,585 units outstanding $20.01 $14.50 $18.95 ================================================================================
The accompanying notes are an integral part of these consolidated financial statements.
PROPERTY RESOURCES FUND VI (A CALIFORNIA LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL (DEFICIT) FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
LIMITED PARTNERS General (Dollars in thousands) Units Amount Partner Total - --------------------------------------------------------------------------------
Balance, January 1, 1995 21,585 $(388) $(501) $(889)
Net income - 409 21 430 - -------------------------------------------------------------------------------- Balance, December 31, 1995 21,585 21 (480) (459)
Net income - 313 17 330 - -------------------------------------------------------------------------------- Balance, December 31, 1996 21,585 334 (463) (129)
Net income - 432 23 455 - -------------------------------------------------------------------------------- Balance, December 31, 1997 21,585 $766 $(440) $326 ================================================================================
The accompanying notes are an integral part of these consolidated financial statements.
PROPERTY RESOURCES FUND VI (A CALIFORNIA LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(Dollars in thousands) 1997 1996 1995 - --------------------------------------------------------------------------------
Net income $455 $330 $430 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 301 304 293 Decrease (increase) in other assets 94 (260) 77 Increase in accrued interest 3 31 58 (Decrease) increase in deposits and other liabilities (26) 61 (32) - -------------------------------------------------------------------------------- Net cash provided by operating activities 827 466 826
Improvements to rental property (200) (58) (97) Principal payments on note receivable 83 62 111 - -------------------------------------------------------------------------------- Net cash (used in) provided by investing activities (117) 4 14
Proceeds from note payable - 2,167 - Increase in deferred loan costs - (133) - Principal payments on notes payable (427) (2,123) (421) Payments to General Partner (153) (353) (299) - -------------------------------------------------------------------------------- Net cash used in financing activities (580) (442) (720) - -------------------------------------------------------------------------------- Net increase in cash and cash equivalents 130 28 120 Cash and cash equivalents, beginning of year 279 251 131 - -------------------------------------------------------------------------------- Cash and cash equivalents, end of year $409 $279 $251 ================================================================================
The accompanying notes are an integral part of these consolidated financial statements.
PROPERTY RESOURCES FUND VI (A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS ACTIVITY
Property Resources Fund VI (the "Partnership") is a California limited partnership formed on May 3, 1982 for the purpose of investing in income-producing real estate. Property Resources, Inc. is the General Partner.
As of December 31, 1997, there were 21,585 limited partnership units outstanding. The units are not freely transferable and no public market for the units exists or is likely to develop.
As of December 31, 1997, the Partnership owned garden-style apartment rental properties aggregating 418 units including Clearlake Village Apartments, located in Houston, Texas, and Grouse Run Apartments, located in Oklahoma City, Oklahoma. As discussed in Note 3, the fee interest in Clearlake Village Apartments is held through the Partnership's consolidated subsidiary, Property Resources Fund VI Subsidiary, L.P. (the "Subsidiary").
Management is currently marketing the properties for sale, and a sale of one or both of the properties may occur as early as 1998.
SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the Partnership and its majority-owned Subsidiary (Note 3). All significant intercompany accounts and transactions have been eliminated.
ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
REAL ESTATE
Real estate is stated at cost, adjusted for write-downs for impairment, and depreciated using the straight-line method over 10 to 20 years for land improvements, 10 to 35 years for buildings and improvements and 4 to 5 years for furnishings and equipment. Significant improvements and betterments are capitalized. The cost and related accumulated depreciation of assets sold are removed from the accounts and any gain or loss is reflected in operations. Maintenance and repairs are charged to expense when incurred.
Pursuant to the Company's historical investment objectives, property purchased has been held for extended periods. During the holding period, management periodically, but at least annually, evaluates whether rental property has suffered an impairment in value. Management's analyses include consideration of estimated undiscounted future cash flows during the expected holding period in comparison with carrying values, prevailing market conditions and other economic matters. In 1986 and 1987, the Partnership recorded reductions in the carrying amounts of Clearlake Village Apartments and Grouse Run Apartments to state the
PROPERTY RESOURCES FUND VI (A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
carrying amounts at fair value at the date of the adjustments. Management currently intends to dispose of the rental properties and, in that regard, expects to commence marketing activity in 1998. As of December 31, 1997, management believes that the net realizable value exceeds the current carrying amount; however, there can be no assurance that the eventual sale of the rental properties, which may occur in the forthcoming year, will not result in additional losses.
CASH AND CASH EQUIVALENTS
The Partnership classifies all highly liquid investments with original maturities of three months or less from the date acquired as cash equivalents.
INCOME TAXES
Under federal and state income tax regulations, the income or loss of a partnership flows through to the partners and is reported on their individual income tax returns; accordingly, no provision for income taxes is made in these consolidated financial statements.
OTHER ASSETS
Other assets include deferred loan fees that are amortized over the life of the related loan, which approximates the effective interest method. At December 31, 1997, other assets also included impound accounts held by the lender of the note payable collateralized by the Clearlake Village Apartments for real estate taxes, insurance and capital improvements.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Partnership to concentrations of credit risk consist principally of a note receivable and money market securities. As of December 31, 1997, payments on the note receivable are current.
The Partnership places excess cash in money market securities with Franklin Money Fund, an investment company managed by an affiliate of the General Partner, and in money market securities of companies with strong credit ratings and, by policy, limits credit exposure to any one issuer.
The Partnership reserves for potential credit losses, as appropriate, and such losses have been within management's expectations.
REVENUE RECOGNITION
The properties are leased to tenants under short-term operating leases for typically six to twelve month periods. Revenue is recognized as earned.
PROPERTY RESOURCES FUND VI (A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - NOTE RECEIVABLE
The note receivable is secured on a second deed of trust on a property formerly owned by the Partnership and requires monthly principal and interest payments of $9,863 until maturity on November 15, 1999.
NOTE 3 - NOTES PAYABLE
IN THOUSANDS 1997 1996 - ----------------------------------------------------------------------------
CLEARLAKE VILLAGE APARTMENTS Note payable, collateralized by deed of trust, bearing interest at a fixed rate of 8.875%, monthly principal and interest payments of $17,571 until $2,143 $2,162 maturity in 2006.
GROUSE RUN APARTMENTS Amended note payable, collateralized by deed of trust, bearing interest at a fixed rate of 9.96%, monthly principal $4,416 4,824 payments of $33,970 until maturity in 1999. ----------------------- $6,559 $6,986 =======================
On August 12, 1996, the note payable to affiliate, collateralized by the Clearlake Village Apartments, was repaid from the proceeds of a new loan from an unaffiliated lender. In connection with the new loan, the Partnership formed Property Resources Fund VI Subsidiary, L.P. (the "Subsidiary") and contributed its fee interest in Clearlake Village Apartments to the Subsidiary. Although the General Partner of the Partnership is a 1% sole General Partner in the Subsidiary, the partnership agreement of the Subsidiary is structured such that no economic benefit accrues to the General Partner as a result of the asset contribution. Accordingly, the minority interest of the Subsidiary's General Partner has not been accounted for in the accompanying consolidated financial statements.
On October 1, 1994, the Grouse Run note payable was amended. The amendment was accounted for as a troubled debt restructuring and, in accordance with Statement of Financial Accounting Standards No. 15, the Partnership is carrying the amended note equal to the total future cash payments payable and is not recognizing interest expense between the restructuring and the maturity of the amended note.
Aggregate principal payments required in future years are as follows:
(Dollars in thousands) 1998 $429 1999 4,032 2000 26 2001 28 2002 31 Thereafter 2,013 - ------------------------------------------------ $6,559 ================================================
Interest paid on notes payable for the years ended December 31, 1997, 1996 and 1995, was $191,000, $169,000, and $179,000, respectively.
PROPERTY RESOURCES FUND VI (A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - DISTRIBUTION OF INCOME
ALLOCATIONS TO PARTNERS
The limited partnership agreement provides for the following allocations to partners:
Cash available for distribution from operations, as defined, is allocated 95% to the limited partners in the ratio of capital contributions and 5% to the General Partner as a partnership management fee.
Income and losses from operations are allocated 95% to the limited partners in the ratio of their capital contributions and 5% to the General Partner.
Net proceeds from the refinancing of debt or sale of partnership property are allocated first to the limited partners in an amount which when added to prior distributions will equal capital contributions plus a specified return ranging from 6% to 10% per annum on adjusted invested capital, as defined. After payment of a subordinated real estate commission to the General Partner, any remaining proceeds are allocated 85% to the limited partners and 15% to the General Partner.
NOTE 5 - TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES
TRANSACTIONS WITH GENERAL PARTNER
Under the partnership agreement, the General Partner and its affiliates may receive compensation for services rendered to the Partnership and may receive reimbursement for certain expenses incurred on behalf of the Partnership summarized as follows.
(Dollars in thousands) 1997 1996 1995 - -----------------------------------------------------------------------------
Property management fees, charged to related party expense $104 $99 $96
Reimbursement for accounting and data processing expenses, charged to related party expense $18 $14 $44
Interest on advances from the General Partner, charged to related party expense $4 $30 $59
Interest on promissory note collateralized by the property Clearlake Village Apartments, charged to related party expense - $111 $180
PROPERTY RESOURCES FUND VI (A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - TRANSACTIONS WITH GENERAL PARTNER AND AFFILIATES (CONTINUED)
A promissory note payable to Franklin Resources, Inc., the parent of the General Partner, which was collateralized by the Clearlake Village Apartments was repaid on August 12, 1996 from the proceeds of a new loan from an unaffiliated lender (Note 3).
INTEREST DUE FROM GENERAL PARTNER
As of December 31, 1997, accrued interest due to the General Partner was $527,000. This was accrued on advances that were required to pay for various capital improvements and to support operating cash flow deficits. The principal portion of the advances were fully repaid in 1997. Consequently, management believes that the Partnership's current sources of funds will be adequate to meet both its short-term and long-term capital commitments and operating requirements.
NOTE 6 - RECONCILIATION TO FEDERAL INCOME TAX BASIS OF ACCOUNTING (UNAUDITED)
The differences between the accrual method of accounting for income tax reporting and the accrual method of accounting used in the accompanying financial statements are as follows:
- ------------------------------------------------------------------------------- (Dollars in thousands) 1997 1996 1995 - -------------------------------------------------------------------------------
Net income - financial statements $455 $330 $430 Differences resulting from: Depreciation (54) (53) (106) Interest expense (374) (374) (475) Amortization of capitalized interest on debt restructuring - - - Gain on disposition of property 48 36 65 Gain on restructuring of note - - - Other - (32) - - ------------------------------------------------------------------------------- Net income (loss) income tax method $75 $(93) $(86) ===============================================================================
Net taxable income (loss) per limited partnership unit and net of amounts allocable to the General Partner $3.50 $(4.33) $(3.66) ===============================================================================
RESTATED - ------------------------------------------------------------------------------- (Dollars in thousands) 1997 1996 1995 - ------------------------------------------------------------------------------- Partners' capital (deficit) - financial $326 $(129) $(459) statements Differences resulting from: Depreciation (4,965) (4,911) (4,853) Interest Expense (1,223) (849) (473) Gain on disposition of property (138) (186) (222) Write-down on rental property 1,452 1,452 1,452 Note restructuring 2,028 2,028 2,028 Note restructuring basis adjustment (2,305) (2,305) (2,285) =============================================================================== Partners' capital (deficit) income tax method $(4,825) $(4,900) $(4,802) ===============================================================================
R E A L E S T A T E A N D A C C U M U L A T E D D E P R E C I A T I O N
NOTES:
(1) The aggregate cost for federal income tax purposes is $12,869
(2) Depreciation is computed using useful lives of 10-20 years for land improvements, 10-35 years for buildings, improvements and 4-5 years for furnishings and equipment and the life of the related lease for tenant improvements.
(3) The total cost carried at the close of the period has been adjusted to reflect the Partnership's reduction in the carrying values for the apartment complexes located in Houston, Texas and Oklahoma City, Oklahoma.
(4) RECONCILIATION OF REAL ESTATE
1997 1996 1995 --------------------------------
Balance at beginning of period $11,217 $11,159 $11,062
Additions during period:
Improvements 200 58 97 --------------------------------
Balance at end of period $11,417 $11,217 $11,159 ================================
(5) RECONCILIATION OF ACCUMULATED DEPRECIATION ------------------------------------------
1997 1996 1995 --------------------------------
Balance at beginning of period $4,420 $4,128 $3,841
Dispositions - - -
Depreciation expense for the 288 292 287 period --------------------------------
Balance at end of period $4,708 $4,420 $4,128 ================================
Item 9.
Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Item 10.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY AND THE ADVISOR
The Partnership does not now, nor will it in the future, have directors or executive officers. Property Resources, Inc. (the "General Partner"), manages and directs the affairs of the Partnership and has general responsibility in all matters affecting the business of the Partnership. The officers and directors of the General Partner are as follows:
NAME POSITION David P. Goss Chief Executive Officer, President and a Director Charles B. Johnson Director Rupert H. Johnson, Jr. Director Charles E. Johnson Director Richard S. Barone Senior Vice President - Legal and Secretary Martin L. Flanagan Vice President - Finance and Chief Financial Officer Mark A. TenBoer Vice President - Asset Management David P. Rath Vice President - Asset Management David N. Popelka Vice President - Asset Management
Principal officers of the subsidiary of the General Partner, Continental Property Management Co., are as follows:
Thomas J. Bennett President, Chief Financial Officer and Sole Director
DAVID P. GOSS, age 50, is Chief Executive Officer, President and Director of the General Partner (1987 to date). He is also Chief Executive Officer, President and Director of Property Resources Equity Trust (1987 to date), Franklin Properties, Inc. (1988 to date) and Franklin Select Realty Trust (1989 to date). Previously, he was Corporate Counsel of Franklin Resources, Inc. Prior to joining Franklin Resources, Inc., Mr. Goss served as Senior Vice President - -Legal of a real estate investment and property management company. Prior to that, he was with the Securities and Exchange Commission in San Francisco, California. Mr. Goss has a B.A. degree from the University of California, Berkeley, and a J.D. degree from the New York University School of Law. He is a registered principal with the National Association of Securities Dealers, Inc.
CHARLES B. JOHNSON, age 65, has served since 1985 as a Director of the General Partner. He is also President and a Director of Franklin Resources, Inc. and Franklin/Templeton Distributors, Inc.; Chairman of the Board and a Director of Franklin Advisers, Inc. and Franklin Asset Management Systems; President, Treasurer and a Director of Franklin Energy Corporation; and a Director of Franklin Institutional Services Corporation, Franklin Trust Company, Franklin/Templeton Investor Services, Inc., Franklin Bank, F.S. Capital Group, F.S. Properties, Inc., and Franklin Agency, Inc. He is also and officer and/or director, trustee or managing general partner, as the case may be, of most of the investment companies in the Franklin/Templeton Group of Funds. Mr. Johnson graduated from Yale University in 1954 where he received a B.A. degree in Economics. He is a registered securities principal with the National Association of Securities Dealers, Inc.
RUPERT H. JOHNSON, JR., age 57, has served since 1990 as Executive Vice President of Franklin Resources, Inc. He is also Executive Vice President and a Director of Franklin/Templeton Distributors, Inc.; President and a Director of Franklin Advisers, Inc.; Chairman of the Board and a Director of Franklin Management, Inc. and Franklin Institutional Services Corporation; Vice President and a Director of Franklin Asset Management Systems; Executive Vice President, Senior Investment Officer and a Director of Franklin Trust Company; Vice President of BWC Management Company; and a Director of Franklin/Templeton Investor Services, Inc., Franklin Agency, Inc., Franklin Energy Corporation, Franklin Bank, Franklin Properties, Inc., and the General Partner. He also currently serves as a Director or Trustee and Vice President of most of the mutual funds in the Franklin/Templeton Group of Funds. Mr. Johnson received a B.A. degree from Washington & Lee University. He is a registered principal with the National Association of Securities Dealers, Inc.
Charles B. Johnson and Rupert H. Johnson, Jr. are brothers.
CHARLES E. JOHNSON, age 41, is President and Chief Executive Officer of Templeton Worldwide, Inc. This company provides investment advisory services with respect to both international equity and fixed income securities, largely based upon fundamental research and a flexible policy of seeking undervalued securities throughout the world. Templeton Worldwide, Inc. employs more than 50 investment professionals worldwide and maintains marketing and/or research offices in over 15 separate countries. Mr. Johnson is also a Senior Vice President and Director of Franklin Resources, Inc., the parent company of the Templeton organization. He also services as a Director and/or Officer of many of the various Franklin and Templeton mutual funds and subsidiaries. He received a Masters degree in Business Administration from the Harvard University Graduate School of Business. He is a Certified Public Accountant and was previously affiliated with the accounting firm of Coopers & Lybrand in Los Angeles. He graduated with honors from the University of California at Los Angeles, earning a Bachelor of Arts degree in Economics.
RICHARD S. BARONE, age 47, is Senior Vice President - Legal and Secretary of the General Partner (1988 to date). He is also Secretary of Franklin Properties, Inc., Property Resources Equity Trust and Franklin Select Realty Trust (1989 to date). He is also Senior Vice President - Legal of Franklin Properties, Inc. (1988 to date) and Corporate Counsel of Franklin Resources, Inc. (1988 to date). Previously, Mr. Barone was employed by the Robert A. McNeil Corporation as Corporate Counsel from 1982 until June, 1987, during which period he also held the positions of Vice President-Legal (1984 to 1987) and Secretary (1986 to 1987). Prior to 1982, he was in a private law practice in San Mateo, California. Mr. Barone received a B.A. degree and a J.D. degree from the University of San Francisco. He is a member of the State Bar of California.
MARTIN L. FLANAGAN, age 37, is Vice President - Finance and Chief Financial Officer of the General Partner, Property Resources Equity Trust and Franklin Properties, Inc., Inc. (1993 to date). He is also Senior Vice President, and Chief Financial Officer of Franklin Resources, Inc.; Senior Vice President and Treasurer of Franklin/Templeton Distributors, Inc., Franklin Advisers, Inc., and Franklin Institutional Services Corporation; Treasurer of Franklin Management, Inc., and Franklin Trust Company; Senior Vice President of Franklin/Templeton Investor Services, Inc. and Franklin Agency, Inc.; a Director of Templeton/National Bank of Greece Management (Luxembourg), Templeton Investment Management (Singapore), Templeton Investment Management (Hong Kong), Templeton Funds Investment Annuity Company, Templeton Funds Trust Company, Templeton Funds Management, Inc., Templeton Holding Ltd., Templeton/Franklin Investment Services, Inc., Templeton Life Assurance Ltd., Templeton Quantitative Advisors, Inc., Templeton Emerging Markets, Templeton Management (Luxembourg), Templeton Unit Trust Managers, Ltd., and Templeton Investment Management, Ltd. (Edinburgh); Executive Vice President, Chief Operating Officer and a Director of Templeton Worldwide, Inc. and Templeton International, Inc.; Executive Vice President and a Director of T.G.H. Holdings, Ltd.; Chairman of the Board of Templeton Global Strategic Services, Inc.; General Manager of Templeton Financial Advisory Services, S.A.; Managing Director of Templeton Global Investors, Ltd.; President and Chief Executive Officer of Templeton Global Investors; and Executive Vice President and a Director of Templeton, Galbraith & Hansberger, Ltd. and Templeton Investment Counsel, Inc. From 1982 to 1983, he was an auditor for Arthur Andersen & Company. Mr. Flanagan received a B.A. degree from Southern Methodist University and is a Certified Public Accountant and a Chartered Financial Analyst. He is currently a member of the American Institute of Certified Public Accountants and the International Society of Financial Analysts.
MARK A. TENBOER, age 41, is Vice President - Asset Management for the General Partner, Property Resources, Inc. (1991 to date). He is also Vice President - Finance and Chief Financial Officer of Franklin Select Realty Trust (1993 to date). From 1983 to 1991 he was Director - Portfolio Management and Controller of the General Partner and Franklin Properties, Inc. Previous to his employment with the General Partner he was associated with Genstar Corporation as Supervisor - Internal Audit from 1980 to 1983 and with Deloitte Haskins & Sells as an auditor from 1978 to 1980. He received a B.S. degree in Accounting from the University of Illinois. Mr. TenBoer is a Certified Public Accountant and a real estate broker.
DAVID P. RATH, age 49, has served since 1992 as the Vice President - Asset Management for the General Partner, Property Resources, Inc. Previously, he was Assistant Vice President - Research and Analysis for Franklin Properties, Inc. Mr. Rath operated his own real estate investment company, Rath Investments, from 1987 to 1990. From 1980 to 1987, he was a partner with Edgewood Holdings Corporation which acquired, managed and disposed of U.S. investment real estate for foreign clients. From 1972 to 1980, Mr. Rath worked for the Dailey Mortgage Company, Bank of America and Redwood Bank and focused on mortgage banking, real estate investment trust advisory services and construction lending, respectively. Mr. Rath received a B.S. degree in Mechanical Engineering from Bucknell University and a Masters degree in Business Administration from the University of California at Berkeley Graduate School of Business.
DAVID N. POPELKA, age 45, has served since 1992 as Vice President - Asset Management for the General Partner, Property Resources, Inc. Prior to joining the General Partner, Mr. Popelka was Vice President - Portfolio Management for the Glenborough Management Company in Redwood City, California. Mr. Popelka is a graduate of Illinois State University and received a Masters degree in Business Administration from the University of Washington Graduate School of Business. He has been a guest lecturer on real estate investments and finance at Golden Gate University. Mr. Popelka is a real estate broker licensed by the State of California.
THOMAS J. BENNETT, age 49, has served since 1988 as the President of Continental and since 1989 as sole Director and Chief Financial Officer of Continental. Previously, he served as Regional Vice President, Utah Region, of Continental. From 1983 to 1986, Mr. Bennett was employed as Senior Property Manager with Prowswood Ltd., in Utah, and the Irvine Company, Irvine, California. He is a graduate of California State University at Long Beach and is a Certified Property Manager of the Institute of Real Estate Management.
Item 11.
Item 11. EXECUTIVE COMPENSATION
The Partnership is a limited partnership and has no officers or directors who were paid any direct remuneration. As discussed in Item 13 below, however, the Partnership is managed by its General Partner and does pay for various services provided by the General Partner.
Item 12.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of December 31, 1997, no person is known by the Registrant to own beneficially, more than five percent (5%) of the Units.
The Partnership is a limited partnership and has no officers or directors. As of December 31, 1996, no director, officer or employee of the General Partner, performing functions similar to those of an officer, beneficially owned, either directly or indirectly, any partnership units.
Item 13.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Partnership pays fees for various services provided by the General Partner to the Partnership. In connection with the formation of the Partnership, Property Resources, Inc. contributed $3,000 to the capital of the Partnership. Property Resources, Inc. will receive compensation in the following amounts for the following services rendered (capitalized terms are defined in the Certificate and Agreements of Limited Partnership as set forth in the Prospectus filed with the Securities and Exchange Commission pursuant to Rule 424(b) and are incorporated herein by reference):
1. For management of the Partnership properties, Continental Property Management Co. (CPMC), an affiliate of Property Resources, Inc., is entitled to receive a monthly management fee equal to 5% of the monthly collected gross revenues. However, such amounts are not to exceed the prevailing rates for comparable services in the localities where the properties are located. In 1997, property management fees of $104,000 were accrued or paid to CPMC.
2. As compensation for its services in managing the Partnership, Property Resources, Inc. is entitled to receive partnership management fees equal to 5% of the Adjusted Funds Provided by Operations After Debt Service. In 1997, no partnership management fees were paid to Property Resources, Inc.
3. As compensation to the General Partner in connection with the sale of the Partnership properties, the General Partner is entitled to receive a Subordinated Real Estate Commission from the Partnership. The Subordinated Real Estate Commission shall not exceed the lesser of (i) a percentage of the gross sales price of the property sold equal to one-half of the normal competitive rate charged for similar services by unaffiliated parties that render such services as an ongoing public activity in the same geographic location for comparable property; or (ii) three percent (3%) of the gross sales price of the property. The payment of the commission is also subject to other requirements as set forth in Paragraph 9.5 of the Limited Partnership Agreement. The payment of the Subordinated Real Estate Commission shall be made only after the Limited Partners receive an aggregate amount, in cash, which when added to prior Distributions, equal (i) to the total Original Invested Capital of the Limited Partners plus (ii) a per annum return on their Adjusted Invested Capital equal to six percent (6%) in the Partnership's first calendar year or a portion thereof, increasing annually in an amount of one percent (1%) until it reaches the rate of ten percent (10%) in the fifth year, then ten percent (10%) per annum thereafter, commencing at the time each original Limited Partner is admitted to the Partnership. In 1997, no Subordinated Real Estate Commissions were paid to the General Partner.
4. As additional compensation for services rendered in connection with the management and operation of the Partnership, the General Partner shall be entitled to receive a Subordinated Incentive Fee equal to 15% of the Cash From Sales or Refinancing remaining after the Partnership has distributed to the Limited Partners an aggregate amount which when added to prior Distributions to Holders is equal to: (i) the total of Original Invested Capital plus (ii) a per annum return on their Adjusted Invested Capital equal to 6% in the Partnership's first calendar year or portion thereof, increasing annually in an amount of 1% until it reaches a rate of 10% in the fifth year, then 10% per annum thereafter, commencing at the time each original Limited Partner is admitted to the Partnership. No Incentive Fees were paid to the General Partner in 1997.
5. Net income and net loss from operations of the Partnership is allocated 5% to the General Partner and 95% to the Limited Partners.
6. Under the Limited Partnership Agreement, the General Partner may receive reimbursement for certain expenses incurred on behalf of the Partnership. In 1997, the General Partner was reimbursed $18,000 for accounting and data processing costs and services provided to the Partnership.
Advances from the General Partner at December 31, 1997, totaled $0 plus accrued interest of $527,000, Interest on advances is accrued at the prime rate, which was 8.25% from January to March of 1997 and was 8.5% for the remainder of the year. Interest expense on advances for the year ended December 31, 1997 was $4,000.
The Partnership has not issued any warrants, options or rights to purchase its securities. No officer or member of management of the General Partner is indebted to the Partnership. There were no transactions in which any of the following persons had or is to have a direct or indirect material interest other than that set forth above: (i) any officer, director or nominee for election as director of the General Partner; (ii) any security holder owning more than 5% of the Partnership's securities; or (iii) any relative or spouse of any of the foregoing persons, or any relative to such spouse, who has the same home as such person or who is a director or officer of the General Partner of the Partnership.
PART IV
Item 14.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. The financial statements and schedules of the Partnership included in Item 8 of the report are listed on the index on page 8.
2. The supplemental financial statement schedule of the Partnership included in Item 8 of this report is listed on the index on page 8.
3. Exhibits:
(3) Partnership Agreement1 (10) Material contracts2 Franklin Resources, Inc. Promissory Note
1Documents were filed in the Partnership's Form S-11 Registration Statement (Registration No. 2-77330) and are incorporated herein by reference.
2Documents were filed on Form 8, dated December 30, 1993, and are incorporated herein by reference.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Registrant during the quarter ended December, 31, 1997.
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) 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.
PROPERTY RESOURCES FUND VI (Registrant)
Date: By: ------------------------------- David P. Goss Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant, and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ David P. Goss Chief Executive Officer - ----------------------- ------------------- David P. Goss
/s/ Charles B. Johnson Director - ----------------------- ------------------- Charles B. Johnson
/s/ Rupert H. Johnson, Jr. Director - ----------------------- ------------------- Rupert H. Johnson, Jr.
/s/ Charles E. Johnson Director - ----------------------- ------------------- Charles E. Johnson