Attached files
| file | filename |
|---|---|
| EXCEL - IDEA: XBRL DOCUMENT - Resource Real Estate Investors 6 LP | Financial_Report.xls |
| EX-31.2 - EXHIBIT 31.2 - Resource Real Estate Investors 6 LP | exh31_2.htm |
| EX-32.1 - EXHIBIT 32.1 - Resource Real Estate Investors 6 LP | exh32_1.htm |
| EX-32.2 - EXHIBIT 32.2 - Resource Real Estate Investors 6 LP | exh32_2.htm |
| EX-31.1 - EXHIBIT 31.1 - Resource Real Estate Investors 6 LP | exh31_1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
R QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2013
or
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission file no. 0-53652
Resource Real Estate Investors 6, L.P.
(Exact name of registrant as specified in its charter)
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Delaware
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37-1548084
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(State or other jurisdiction of
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(I.R.S. Employer
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incorporation or organization)
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Identification No.)
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One Crescent Drive, Suite 203, Navy Yard Corporate Center, Philadelphia, PA 19112
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(Address of principal executive offices) (Zip code)
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(215) 231-7050
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(Registrant's telephone number, including area code)
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Indicate by check mark whether the registrant: (1) has 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 R No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes R No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
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¨
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Accelerated filer
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¨
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Non-accelerated filer
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¨
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(Do not check if a smaller reporting company)
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Smaller reporting company
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R
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No R
RESOURCE REAL ESTATE INVESTORS 6, L.P.
ON FORM 10-Q
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PAGE
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PART I
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FINANCIAL INFORMATION
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ITEM 1.
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Financial Statements
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3
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4
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5
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6
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7
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ITEM 2.
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12
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ITEM 3.
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19
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ITEM 4.
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19
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PART II
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OTHER INFORMATION
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ITEM 6.
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20
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21
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PART I.
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FINANCIAL INFORMATION
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ITEM 1.
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FINANCIAL STATEMENTS
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RESOURCE REAL ESTATE INVESTORS 6, L.P.
(in thousands)
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March 31,
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December 31,
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|||||||
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2013
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2012
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|||||||
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(unaudited)
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||||||||
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ASSETS
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||||||||
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Rental properties, at cost:
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||||||||
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Land
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$ | 7,430 | $ | 7,430 | ||||
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Buildings and improvements
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59,592 | 59,542 | ||||||
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Personal property
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2,597 | 2,719 | ||||||
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Construction-in-progress
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5 | 19 | ||||||
| 69,624 | 69,710 | |||||||
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Accumulated depreciation and amortization
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(14,804 | ) | (14,254 | ) | ||||
| 54,820 | 55,456 | |||||||
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Cash
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566 | 546 | ||||||
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Restricted cash
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741 | 1,352 | ||||||
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Tenant receivables, net
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5 | 12 | ||||||
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Insurance receivable
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93 | 84 | ||||||
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Receivable from related party
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6 | 3 | ||||||
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Prepaid expenses and other assets
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113 | 204 | ||||||
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Deferred financing costs, net
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825 | 889 | ||||||
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Total assets
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$ | 57,169 | $ | 58,546 | ||||
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LIABILITIES AND PARTNERS’ CAPITAL
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Liabilities:
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Mortgage notes payable
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$ | 45,231 | $ | 45,274 | ||||
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Accounts payable and accrued expenses
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611 | 1,291 | ||||||
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Accrued interest
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202 | 200 | ||||||
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Payables to related parties
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1,953 | 1,833 | ||||||
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Prepaid rent
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58 | 88 | ||||||
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Security deposits
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175 | 182 | ||||||
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Total liabilities
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48,230 | 48,868 | ||||||
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Partners’ capital
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8,939 | 9,678 | ||||||
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Total liabilities and partners’ capital
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$ | 57,169 | $ | 58,546 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
RESOURCE REAL ESTATE INVESTORS 6, L.P.
(in thousands, except per unit data)
(unaudited)
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Three Months Ended
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||||||||
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March 31,
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||||||||
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2013
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2012
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Revenues:
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||||||||
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Rental income
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$ | 2,347 | $ | 2,161 | ||||
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Expenses:
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||||||||
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Rental operating
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1,107 | 985 | ||||||
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Management fees – related parties
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216 | 206 | ||||||
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General and administrative
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87 | 137 | ||||||
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Depreciation and amortization
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721 | 693 | ||||||
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Total expenses
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2,131 | 2,021 | ||||||
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Income before other expenses
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216 | 140 | ||||||
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Other (expenses) income:
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Interest expense, net
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(650 | ) | (656 | ) | ||||
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Casualty loss
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− | (9 | ) | |||||
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(Loss) gain on sale or disposal of fixed assets, net
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(27 | ) | 1 | |||||
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Net loss
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$ | (461 | ) | $ | (524 | ) | ||
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Comprehensive loss
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$ | (461 | ) | $ | (524 | ) | ||
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Weighted average number of limited partner units outstanding
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3,702 | 3,702 | ||||||
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Net loss per weighted average limited partner unit
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$ | (0.12 | ) | $ | (0.14 | ) | ||
The accompanying notes are an integral part of these consolidated financial statements.
RESOURCE REAL ESTATE INVESTORS 6, L.P.
FOR THE THREE MONTHS ENDED MARCH 31, 2013
(in thousands, except units)
(unaudited)
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General
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Limited Partners
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Partner
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Units
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Amount
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Total
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|||||||||||||
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Balance at January 1, 2013
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$ | 1 | 3,701,890 | $ | 9,677 | $ | 9,678 | |||||||||
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Distributions
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− | − | (278 | ) | (278 | ) | ||||||||||
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Net loss
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− | − | (461 | ) | (461 | ) | ||||||||||
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Balance at March 31, 2013
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$ | 1 | 3,701,890 | $ | 8,938 | $ | 8,939 | |||||||||
The accompanying notes are an integral part of this consolidated financial statement.
RESOURCE REAL ESTATE INVESTORS 6, L.P.
(in thousands)
(unaudited)
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For the Three Months Ended
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March 31,
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2013
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2012
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Cash flows from operating activities:
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Net loss
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$ | (461 | ) | $ | (524 | ) | ||
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Adjustments to reconcile net loss to net cash provided by
operating activities:
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Depreciation and amortization
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721 | 693 | ||||||
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Amortization of deferred financing costs
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64 | 64 | ||||||
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Casualty loss
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− | 9 | ||||||
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Loss (gain) on sale or disposal of fixed assets
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27 | (1 | ) | |||||
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Changes in operating assets and liabilities:
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Restricted cash
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611 | 519 | ||||||
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Tenant receivables
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7 | 7 | ||||||
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Receivable from related party
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(3 | ) | (1 | ) | ||||
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Insurance proceeds receivable
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(9 | ) | 57 | |||||
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Prepaid expense and other assets
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91 | 50 | ||||||
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Accounts payable and accrued expenses
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(679 | ) | (547 | ) | ||||
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Payables to related parties
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120 | 74 | ||||||
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Accrued interest
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2 | − | ||||||
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Prepaid rent
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(30 | ) | 11 | |||||
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Security deposits
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(7 | ) | 19 | |||||
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Net cash provided by operating activities
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454 | 430 | ||||||
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Cash flows from investing activities:
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Capital expenditures
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(113 | ) | (233 | ) | ||||
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Net cash used in investing activities
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(113 | ) | (233 | ) | ||||
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Cash flows from financing activities:
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Principal payments on mortgage notes payable
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(43 | ) | − | |||||
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Distributions to limited partners
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(278 | ) | (278 | ) | ||||
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Net cash used in financing activities
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(321 | ) | (278 | ) | ||||
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Net increase (decrease) in cash
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20 | (81 | ) | |||||
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Cash at beginning of period
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546 | 1,255 | ||||||
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Cash at end of period
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$ | 566 | $ | 1,174 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
RESOURCE REAL ESTATE INVESTORS 6, L.P.
MARCH 31, 2013
(unaudited)
NOTE 1 – NATURE OF BUSINESS AND OPERATIONS
Resource Real Estate Investors 6, L.P. (“R-6” or the “Partnership”) is a Delaware limited partnership which owns and operates multifamily residential rental properties located in Maine and Texas (referred to as the “Properties”). The Partnership also has invested in subordinated notes secured by multifamily residential properties located in California, Alabama and Nevada. The Partnership was formed on July 26, 2007 and commenced operations on October 1, 2007. The Partnership was capitalized by an offering of partnership units which was closed on May 19, 2008. The General Partner, Resource Capital Partners, Inc. (“RCP”, the “General Partner” or “GP”), is in the business of sponsoring and managing real estate investment limited partnership and tenant in common programs. RCP contributed $1,000 in cash as its minimum capital contribution to the Partnership. In addition, RCP holds a 5.54% limited partnership interest in the Partnership at March 31, 2013 and December 31, 2012, respectively. RCP is an indirect wholly owned subsidiary of Resource America, Inc. (“RAI”), a publicly traded company (NASDAQ: REXI) operating in the real estate, commercial finance and financial fund management sectors.
The Partnership will continue until July 30, 2015, unless terminated earlier in accordance with the First Amended and Restated Agreement of Limited Partnership (the “Agreement”). The GP has the right to extend the Partnership term for two one-year periods following the initial termination date, provided that all such extensions may not exceed two years in the aggregate.
The Agreement provides that income is allocated as follows: first, to the partners in proportion to and to the extent of the deficit balances, if any, in their respective capital accounts; second, to the partners in proportion to the allocations of Distributable Cash (as defined in the Agreement); and third, 100% to the limited partners (“LPs”). All losses are allocated as follows: first, 100% to the LPs until the LPs have been allocated losses equal to the excess, if any, of their aggregate capital account balances over the aggregate Adjusted Capital Contributions (as defined in the Agreement); second, to the partners in proportion to and to the extent of their respective remaining positive capital account balances, if any; and third, 100% to the LPs.
Distributable cash from operations, payable monthly, as determined by the GP, is first allocated 100% to the LPs until the LPs have received their Preferred Return (as defined in the Agreement); and thereafter, 80% to the LPs and 20% to the GP.
Distributable cash from capital transactions, as determined by the GP, is first allocated 100% to the LPs until the LPs have received their Preferred Return; second, 100% to the LP’s until their Adjusted Capital Contributions (as defined in the Agreement) have been reduced to zero; and thereafter, 80% to the LPs and 20% to the GP.
The consolidated financial statements and the information and tables contained in the notes thereto as of March 31, 2013 are unaudited. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). However, in the opinion of management, these interim financial statements include all the necessary adjustments to fairly present the results of the interim periods presented. The unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2012. The results of operations and comprehensive loss for the three months ended March 31, 2013 may not necessarily be indicative of the results of operations and comprehensive loss for the full year ending December 31, 2013.
RESOURCE REAL ESTATE INVESTORS 6, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2013
(unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in the preparation of the accompanying consolidated financial statements follows:
Principles of Consolidation
The consolidated financial statements include the accounts of the Partnership and its wholly owned subsidiaries, as follows:
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Subsidiaries
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Number of Units
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Location
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RRE Memorial Towers Holdings, LLC (“Memorial Towers”)
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112
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Houston, Texas
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RRE Villas Holdings, LLC (“Villas”)
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228
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San Antonio, Texas
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RRE Coach Lantern Holdings, LLC (“Coach Lantern”)
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90
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Scarborough, Maine
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RRE Foxcroft Holdings, LLC (“Foxcroft”)
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104
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Scarborough, Maine
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RRE Park Hill Holdings, LLC (“Park Hill”)
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288
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San Antonio, Texas
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Total
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822
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The Partnership also owns a 100% interest in RRE Funding II, LLC (“Funding”), which owns three non-performing subordinated notes, Acacia Park (“Acacia”), Hillwood (“Hillwood”) and Southern Cove (“Southern Cove”) with a combined face value of $2.9 million which, during the year ended December 31, 2012, were deemed uncollectible and charged off.
All material intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Partnership estimates the allowance for uncollectible receivables and loan losses and adjusts the balance quarterly. Actual results could differ from those estimates.
Supplemental Disclosure of Cash Flow Information
During the three month periods ended March 31, 2013 and 2012, the Partnership paid approximately $586,000 and $592,000, respectively, in cash for interest.
Deferred Financing Costs
Costs incurred to obtain financing have been capitalized and are being amortized over the term of the related debt using the effective yield method.
Income Taxes
Income taxes or credits resulting from earnings or losses are payable by or accrue to the benefit of the partners; accordingly, no provision has been made for income taxes in these consolidated financial statements.
The Partnership evaluates the benefits of tax positions taken or expected to be taken in its tax returns under a two-step recognition and measurement process. Only the largest amount of benefits from the tax positions that will more likely than not be sustainable upon examination are recognized by the Partnership. The Partnership does not have any unrecognized tax benefits, nor interest and penalties, recorded in the Consolidated Balance Sheets or Consolidated Statements of Operations and Comprehensive Loss and does not anticipate significant adjustments to the total amount of unrecognized tax benefits within the next twelve months.
RESOURCE REAL ESTATE INVESTORS 6, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2013
(unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (Continued)
Income Taxes – (Continued)
The Partnership is subject to examination by the U.S. Internal Revenue Service and by the taxing authorities in those states in which the Partnership has significant business operations. The Partnership is not currently undergoing any examinations by taxing authorities. The Partnership may be subject to U.S. federal income tax and state/local income tax examinations for years 2009 through 2012.
Revenue Recognition
Revenue is primarily derived from the rental of residential housing units with lease agreement terms of generally one year or less. The Partnership recognizes revenue in the period that rent is earned, which is on a monthly basis. The Partnership recognizes rent as income on a straight-line basis over the term of the related lease. Additionally, any incentives included in the lease are amortized on a straight-line basis over the term of the related lease.
Included within rental income are other income amounts such as utility reimbursements, late fees, parking fees, pet fees and lease application fees which are recognized when earned.
The future minimum rental payments to be received from noncancelable operating leases is approximately $4.0 million and $4,000 for the twelve months ending March 31, 2014 and 2015, respectively.
Long-Lived Assets
The Partnership reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If it is determined that an asset’s estimated future cash flows will not be sufficient to recover its carrying amount, an impairment charge will be recorded to reduce the carrying amount for that asset to its estimated fair value. During the periods covered by the consolidated financial statements, insurance covered all the impairments. As a result, the Partnership did not recognize any impairment losses with respect to its Properties for either the three months periods ended March 31, 2013 or March 31, 2012.
Rental Properties
Rental properties are carried at cost, net of accumulated depreciation. Buildings and improvements and personal property are depreciated for financial reporting purposes on the straight-line method over their estimated useful lives. The value of in-place leases is amortized over twelve months on a straight line basis. Useful lives used for calculating depreciation for financial reporting purposes are as follows:
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Buildings and improvements
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5 - 27.5 years
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Personal property
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3 - 15 years
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Advertising
The Partnership expenses advertising costs as they are incurred. Advertising costs, which are included in rental operating expenses, totaled $30,000 and $29,000 for the three months ended March 31, 2013 and 2012, respectively.
Tenant Receivables
Tenant receivables are stated in the financial statements at amounts due from tenants net of an allowance for uncollectible receivables. Payment terms vary and receivables outstanding longer than the payment terms are considered past due. The Partnership determines its allowance by considering a number of factors, including the length of time receivables are past due, security deposits held, the Partnership’s previous loss history, the tenants’ current ability to pay their obligations to the Partnership, the condition of the general economy and the industry as whole. The Partnership writes off receivables when they become uncollectible. At March 31, 2013 and December 31, 2012, the allowance for uncollectible receivables was $1,000 and $18,000, respectively.
RESOURCE REAL ESTATE INVESTORS 6, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2013
(unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES − (Continued)
Redemptions
The LPs may request redemption of their units at any time. The Partnership has no obligation to redeem any units and will do so only at the GP’s discretion. If the Partnership redeems units, the redemption price is generally the initial investment less all distributions from the Partnership to the LP, and less all organization and offering expenses charged to the LP.
NOTE 3 − RESTRICTED CASH
Restricted cash represents escrow deposits with lenders to be used to pay real estate taxes, insurance, and capital improvements. A summary of the components of restricted cash follows (in thousands):
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March 31,
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December 31,
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|||||||
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2013
|
2012
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Real estate taxes
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$ | 298 | $ | 823 | ||||
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Capital improvements
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380 | 352 | ||||||
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Insurance
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63 | 177 | ||||||
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Total
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$ | 741 | $ | 1,352 | ||||
NOTE 4 – DEFERRED FINANCING COSTS
Deferred financing costs include unamortized costs incurred to obtain financing which are being amortized over the term of the related debt. Accumulated amortization as of March 31, 2013 and December 31, 2012 was $1.3 and $1.2 million, respectively. Estimated amortization expense of the Properties’ existing deferred financing costs for the next five years ending March 31, and thereafter, is as follows (in thousands):
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2014
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$ | 254 | ||
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2015
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244 | |||
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2016
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145 | |||
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2017
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128 | |||
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2018
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54 | |||
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Thereafter
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− | |||
| $ | 825 |
NOTE 5 – MORTGAGE NOTES PAYABLE
The following is a summary of mortgage notes payable (in thousands, except percentages):
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Average
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|||||||||||||||||
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Annual
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Monthly
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Balance at
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Balance at
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Maturity
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Interest
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Debt
|
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Property
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March 31, 2013
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December 31, 2012
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Date
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Rate
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Service
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Memorial Towers
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$ | 7,382 | $ | 7,400 |
01/01/2017
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5.49% | $ | 42 | (1) | ||||||||
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Villas
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10,775 | 10,800 |
01/01/2017
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5.48% | $ | 61 | (1) | ||||||||||
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Coach Lantern
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7,884 | 7,884 |
02/01/2015
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4.92% | $ | 32 | (2) | ||||||||||
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Foxcroft
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8,760 | 8,760 |
02/01/2015
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4.92% | $ | 36 | (2) | ||||||||||
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Park Hill
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10,430 | 10,430 |
03/01/2018
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5.05% | $ | 56 | (3) | ||||||||||
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Total
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$ | 45,231 | $ | 45,274 | |||||||||||||
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(1)
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Interest only through January 1, 2013; monthly payment including principal and interest, effective February 1, 2013, is $42,000 for Memorial Towers and $61,000 for Villas.
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(2)
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Interest only through the maturity date.
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(3)
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Interest only through March 1, 2013; monthly payment including principal and interest, effective April 1, 2013, is $56,000.
|
RESOURCE REAL ESTATE INVESTORS 6, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2013
(unaudited)
NOTE 5 – MORTGAGE NOTES PAYABLE – (Continued)
Annual principal payments on the mortgage notes payable for each of the next five years ending March 31, and thereafter, are as follows (in thousands):
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2014
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$ | 379 | ||
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2015
|
17,044 | |||
|
2016
|
418 | |||
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2017
|
17,586 | |||
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2018
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9,804 | |||
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Thereafter
|
− | |||
| $ | 45,231 |
The mortgage notes payable are with recourse only to the Properties securing them subject to certain limited standard exceptions, as defined in the mortgage notes, which the General Partner has guaranteed by executing a guarantee with respect to each property. These exceptions are referred to as “carveouts”. In general, carveouts relate to damages suffered by the lender for a subsidiary’s failure to pay rents, insurance or condemnation proceeds to lender, to pay water, sewer and other public assessments or charges, to pay environmental compliance costs or to deliver books and records, in each case as required in the loan documents. The exceptions also require the General Partner to guarantee payment of audit costs, lender’s enforcement of its rights under the loan documents and payment of the loan if the subsidiary voluntarily files for bankruptcy or seeks reorganization, or if a related party of the subsidiary does so with respect to the subsidiary.
NOTE 6 – CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In the ordinary course of its business operations, the Partnership has ongoing relationships with several related entities. Receivables from and payables to related parties are summarized as follows (in thousands):
|
March 31,
|
December 31,
|
|||||||
|
2013
|
2012
|
|||||||
|
Receivables from related party:
|
||||||||
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RAI and affiliates
|
$ | 6 | $ | 3 | ||||
|
Payables to related parties:
|
||||||||
|
RAI and affiliates
|
$ | 1,953 | $ | 1,833 | ||||
During the year ended December 31, 2012, one property sold a piece of equipment to another property owned by a different partnership with the same General Partner. The resulting gain of $1,000 was netted against the loss on disposal of fixed assets in the consolidated statement of operations and comprehensive loss.
RCP is entitled to receive an annual investment management fee, payable monthly, equal to 1% of the gross offering proceeds, net of any LP interest owned by RCP. During the term of the Partnership, RCP must subordinate up to 100% of its annual investment management fee to the receipt by the LPs of their Preferred Return. Investment management fees due to RCP at March 31, 2013 and December 31, 2012 totaled $1.8 million and $1.7 million, respectively.
A wholly owned subsidiary of RCP, Resource Real Estate Management, LLC (“RREML”) is entitled to receive property and debt management fees as set forth in the table below. RREML engaged Resource Real Estate Management, Inc (“RREMI”), an indirect wholly owned subsidiary of RAI, to act as manager of the Partnership’s properties. Management fees due to RCP and affiliate at March 31, 2013 and December 31, 2012 totaled $144,000 and $127,000, respectively.
During the ordinary course of business, RCP and RREMI advance funds for ordinary operating expenses on behalf of the Properties; these advances are repaid within a few days. Operating expense advances due to RCP and RREMI at March 31, 2013 and December 31, 2012 totaled $43,000 and $24,000, respectively.
RESOURCE REAL ESTATE INVESTORS 6, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2013
(unaudited)
NOTE 6 – CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS – (Continued)
The Partnership is obligated to pay fees and reimbursements of expenses to related parties. These activities are summarized as follows (in thousands):
|
Three Months Ended
|
||||||||
|
March 31,
|
||||||||
|
2013
|
2012
|
|||||||
|
RCP:
|
||||||||
|
Investment management fees (1)
|
$ | 85 | $ | 85 | ||||
|
RREML:
|
||||||||
|
Property management fees (2)
|
116 | 106 | ||||||
|
Debt management fees (3)
|
15 | 15 | ||||||
| 131 | 121 | |||||||
| $ | 216 | $ | 206 | |||||
|
(1)
|
RCP is entitled to receive an annual investment management fee, payable monthly, equal to 1% of the gross proceeds from the offering of partnership units, net of any LP interest owned by RCP. During the term of the Partnership, RCP must subordinate up to 100% of its annual investment management fee to the receipt by the LPs of their Preferred Return.
|
|
(2)
|
RREML is entitled to receive monthly property management fees equal to 5% of the gross operating revenues from the Partnership’s 100% owned properties for managing or obtaining and supervising third party managers.
|
|
(3)
|
RREML is also entitled to receive monthly debt management fees equal to 0.167% (2% per annum) of the gross offering proceeds that have been invested in loans held for investment. The fee is earned for monitoring the performance of the Partnership’s loans held for investment.
|
NOTE 7 –FAIR VALUE OF FINANCIAL INSTRUMENTS
In analyzing the fair value of its financial instruments disclosed or accounted for on a fair value basis, the Partnership follows the fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The Partnership determines fair value based on quoted prices when available or, if quoted prices are not available, through the use of alternative approaches, such as discounting the expected cash flows using market interest rates commensurate with the credit quality and duration of the financial instruments. The fair value of cash, tenant receivables, and accounts payables approximate their carrying values due to their short term nature. The hierarchy followed defines three levels of inputs that may be used to measure fair value:
Level 1 - Quoted prices in active markets for identical assets that the reporting entity has the ability to access at the measurement date.
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or can be corroborated with observable market data for substantially the entire contractual term of the asset.
Level 3 - Unobservable inputs that reflect the entity’s own assumptions about the assumptions that market participants would use in the pricing of the asset and are consequently not based on market activity, but rather through particular valuation techniques.
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:
|
|
·
|
Mortgage notes payable. Rates currently available to the Partnership for debt with similar terms and remaining maturities are used to estimate the fair value of existing debt.
|
RESOURCE REAL ESTATE INVESTORS 6, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2013
(unaudited)
NOTE 7 –FAIR VALUE OF FINANCIAL INSTRUMENTS – (Continued)
The estimated fair value measurements of the mortgage notes payable are classified within level 3 of the fair value hierarchy.
The estimated fair values of the Partnership’s financial instruments are as follows (in thousands):
|
March 31, 2013
|
December 31, 2012
|
|||||||||||||||
|
Carrying Amount
|
Fair Value
|
Carrying Amount
|
Fair Value
|
|||||||||||||
|
Mortgage notes payable:
|
||||||||||||||||
|
Memorial Towers
|
$ | 7,382 | $ | 7,779 | $ | 7,400 | $ | 7,880 | ||||||||
|
Villas
|
10,775 | 11,350 | 10,800 | 11,496 | ||||||||||||
|
Coach Lantern
|
7,884 | 8,054 | 7,884 | 8,066 | ||||||||||||
|
Foxcroft
|
8,760 | 8,938 | 8,760 | 8,950 | ||||||||||||
|
Park Hill
|
10,430 | 11,062 | 10,430 | 11,090 | ||||||||||||
|
Total mortgage notes payable
|
$ | 45,231 | $ | 47,183 | $ | 45,274 | $ | 47,482 | ||||||||
NOTE 8 – INSURANCE CLAIM
On September 13, 2011, a fire damaged twelve units at Park Hill. The Partnership was insured for both the fire loss and the loss of rental income. The Partnership reduced the net carrying value of buildings and improvements for Park Hill by $399,000 and established a receivable for the expected net insurance proceeds of $975,000, net of the $25,000 deductible. During the year ended December 31, 2011, insurance proceeds of $293,000 were received and additional non-capitalized expenses incurred in conjunction with the claim were $19,000, and an additional receivable of $20,000 for loss of rental income was recorded. During the three months ended March 31, 2012, the Partnership received additional insurance proceeds of $83,000, recorded an additional receivable of $26,000 for the loss of rental income and recorded a casualty loss of $9,000. Additionally, during the year ended December 31, 2012, $619,000 in insurance proceeds was received and an additional receivable of $38,000 for loss of rental income was recorded. Also, during 2012, the property increased the receivable by $20,000 due to adjustments to awarded proceeds.
NOTE 9 – SUBSEQUENT EVENTS
The Partnership has evaluated subsequent events and determined that no events have occurred which would require an adjustment to the consolidated financial statements.
|
ITEM 2.
|
|
|
AND RESULTS OF OPERATIONS (unaudited)
|
This report contains certain forward-looking statements. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expects,” “intend,” “may,” “plan,” “potential,” “project,” “should,” “will” and “would” or the negative of these terms or other comparable terminology. Such statements are subject to the risks and uncertainties inherent in partnerships that invest in real estate and real estate assets, including those referred to in our filings under the Securities Exchange Act of 1934. These risks and uncertainties could cause actual results to differ materially. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly revise or update these forward-looking statements to reflect events or circumstances after the date of this report, except as may be required under applicable law.
Overview
We are a Delaware limited partnership that was formed on July 26, 2007 and commenced operations on October 1, 2007. Through our wholly owned subsidiaries, we own in fee, operate and invest in multifamily residential rental properties located in both Maine and Texas.
As of March 31, 2013, we own five multifamily residential rental properties through our 100% owned subsidiaries, as follows:
|
Subsidiary / Property
|
Purchase Date
|
Leverage Ratio (1)
|
Number of Units
|
Property
Location
|
||||
|
RRE Memorial Towers Holdings, LLC, or Memorial Towers
|
12/18/07
|
63%
|
112
|
Houston, Texas
|
||||
|
RRE Villas Holdings, LLC, or Villas
|
12/27/07
|
67%
|
228
|
San Antonio, Texas
|
||||
|
RRE Coach Lantern Holdings, LLC, or Coach Lantern
|
01/29/08
|
61%
|
90
|
Scarborough, Maine
|
||||
|
RRE Foxcroft Holdings, LLC, or Foxcroft
|
01/29/08
|
62%
|
104
|
Scarborough, Maine
|
||||
|
RRE Park Hill Holdings, LLC, or Park Hill
|
02/29/08
|
56%
|
288
|
San Antonio, Texas
|
||||
|
Total
|
822
|
|
(1)
|
Face value of mortgage divided by the original total property capitalization, including original reserves, escrows, fees and closing costs.
|
The following table sets forth operating statistics about our multifamily residential rental properties:
|
Average
Occupancy Rate (1)
|
Average Effective Rent
per Square Foot (2)
|
Ratio of Operating
Expense to Revenue (3)
|
||||||||||||||||||||||
|
Property
|
March 31, 2013
|
March 31, 2012
|
March 31, 2013
|
March 31, 2012
|
March 31, 2013
|
March 31, 2012
|
||||||||||||||||||
|
Memorial Towers
|
96.4% | 94.0% | $ | 1.27 | $ | 1.16 | 63.1% | 63.4% | ||||||||||||||||
|
Villas
|
94.0% | 96.8% | $ | 0.93 | $ | 0.89 | 50.6% | 50.5% | ||||||||||||||||
|
Coach Lantern
|
95.9% | 96.7% | $ | 1.06 | $ | 1.03 | 34.5% | 40.4% | ||||||||||||||||
|
Foxcroft
|
98.1% | 94.9% | $ | 1.17 | $ | 1.08 | 38.0% | 44.1% | ||||||||||||||||
|
Park Hill
|
95.9% | 95.0% | $ | 0.94 | $ | 0.87 | 52.0% | 60.8% | ||||||||||||||||
|
(1)
|
Number of occupied units divided by total units adjusted for any unrentable units; average calculated on a weekly basis.
|
|
(2)
|
Average rental revenue divided by total rentable square footage. We calculate average rental revenue by dividing gross rental revenue by the number of months in a period.
|
|
(3)
|
Includes rental operating expenses and general and administrative expenses as a percentage of rental income.
|
Results of Operations
We generate our income from the net revenues we receive from our Properties. We also may in the future, generate funds from the sale or refinancing of our Properties or the sale or repayment of our Real Estate Debt Investments. Because we acquired our Properties in late 2007 and early 2008, we do not expect that we will sell or refinance our Properties during the next year. Should economic conditions in the areas in which our Properties are located deteriorate, we could experience lower occupancy, lower rental revenues and higher operating costs, all of which could harm our operations and financial condition, reduce the value of our Properties and limit or eliminate our ability to make distributions to our limited partners.
Our operating results and cash flows from our Properties are affected by four principal factors:
|
|
●
|
occupancy and rental rates,
|
|
|
●
|
property operating expenses,
|
|
|
●
|
interest rates on the related financing, and
|
|
|
●
|
capital expenditures.
|
The amount of rental revenues from our Properties depends upon their occupancy rates and concessions granted. We seek to maximize our occupancy rates through aggressive property-level programs, in particular, our Lease Rent Optimizer, or LRO, program which includes rent concessions and a substantial capital improvements program. Under our LRO program, we seek to price our rents for apartment units on a daily basis, based upon inventory in the marketplace and competitors’ pricing. Our Properties experienced an overall increase in the average occupancy rate during the three months ended March 31, 2013 of approximately 0.6%, with an average occupancy rate of 96.1% as compared to an average occupancy rate of 95.5% during the same period in 2012. Our Properties also, experienced an overall increase in the average effective rent per square foot of $0.07 during the three months ended March 31, 2013 compared to the same period in 2012.
We seek to control operating expenses through our General Partner’s automated purchase order system that compares actual to budgeted expenses and requires management approval of variances, and through the use of third-party service providers to seek best available pricing.
Our existing financing is at fixed rates of interest and, accordingly, our interest cost has remained stable during the period of our ownership of the Properties. Because our existing financing extends through periods ranging from 2015 to 2018, we expect that our financing costs will remain stable during substantially all of our expected term.
Under our capital improvements program, more particularly described in “Liquidity and Capital Resources,” we expect to spend approximately $3.2 million in the next three to four years for property improvements intended to increase the Properties’ appeal to tenants. As we implement planned improvements to our Properties, we seek to maintain our stable occupancy rates and, potentially, increase rental rates and our cash flow from operating activities in order to pay for these improvements.
We are planning properties improvements for the next three to four years based on the assumption that the General Partner will exercise its right to extend the term of the partnership for the two one-year extensions.
Three Months Ended March 31, 2013 Compared to Three Months Ended March 31, 2012
The following table sets forth the results of our operations for the periods indicated (in thousands, except per unit data):
|
March 31,
|
Increase (Decrease)
|
|||||||||||||||
|
2013
|
2012
|
Amount
|
Percent
|
|||||||||||||
|
Revenues:
|
||||||||||||||||
|
Rental income
|
$ | 2,347 | $ | 2,161 | $ | 186 | 9% | |||||||||
|
Expenses:
|
||||||||||||||||
|
Rental operating
|
1,107 | 985 | 122 | 12% | ||||||||||||
|
Management fees – related parties
|
216 | 206 | 10 | 5% | ||||||||||||
|
General and administrative
|
87 | 137 | (50 | ) | (36)% | |||||||||||
|
Depreciation and amortization
|
721 | 693 | 28 | 4% | ||||||||||||
|
Total expenses
|
2,131 | 2,021 | 110 | 5% | ||||||||||||
|
Income before other expenses
|
216 | 140 | 76 | 54% | ||||||||||||
|
Other income (expenses):
|
||||||||||||||||
|
Interest expense, net
|
(650 | ) | (656 | ) | 6 | (1)% | ||||||||||
|
Casualty loss
|
− | (9 | ) | 9 | (100)% | |||||||||||
|
(Loss) gain on disposal of fixed assets
|
(27 | ) | 1 | (28 | ) | 2800% | ||||||||||
|
Net loss
|
$ | (461 | ) | $ | (524 | ) | $ | 63 | (12)% | |||||||
|
Comprehensive loss
|
$ | (461 | ) | $ | (524 | ) | $ | 63 | (12)% | |||||||
|
Weighted average number of limited partner units outstanding
|
3,702 | 3,702 | ||||||||||||||
|
Net loss per weighted average limited partner unit
|
$ | (0.12 | ) | $ | (0.14 | ) | ||||||||||
Revenues
We attribute the $186,000 increase in revenues principally to the increase in the average occupancy rate combined with the increase in the average effective rent per square foot at the Properties. Occupancy rates have varied within our expected range. We were able to increase rents as a result of stable occupancy and strong market demand.
Expenses
We attribute the $110,000 increase in expenses across all Properties principally to:
|
|
●
|
a $122,000 increase in rental operating expenses reflecting the following:
|
|
|
–
|
a $25,000 increase in insurance expense due to higher premiums as a result of loss experience;
|
|
|
–
|
a $6,000 increase in payroll and benefits expense due to annual salary increases;
|
|
|
–
|
a $49,000 increase in real estate taxes;
|
|
|
–
|
a $14,000 increase in leasing expense;
|
These increases were offset, in part, by:
|
|
●
|
a $50,000 decrease in general and administrative expenses due primarily to a decrease in professional fees; and
|
|
|
●
|
a $28,000 increase in depreciation and amortization due to an increase in the amount of personal property at the Properties as a result of our capital improvement programs.
|
Other income (expenses)
The $13,000 decrease in other income (expenses) is reflective of a $28,000 write down of fixed assets and a $6,000 decrease in interest expense.
Liquidity and Capital Resources
The following table sets forth our sources and uses of cash (in thousands):
|
March 31,
|
|||||||||
|
2013
|
2012
|
||||||||
|
Provided by operating activities (1)
|
$ | 454 | $ | 430 | |||||
|
Used in investing activities
|
(113 | ) | (233 | ) | |||||
|
Used in financing activities
|
(321 | ) | (278 | ) | |||||
|
Net increase (decrease) in cash
|
$ | 20 | $ | (81 | ) | ||||
|
(1)
|
Including changes in operating assets and liabilities.
|
Our liquidity needs consist principally of funds to pay the Properties’ debt service, operating expenses, capital expenditures and monthly distributions to the limited partners. Our ability to meet our liquidity needs will be subject to our ability to generate cash from operations, and to control property operating expenses. The ability to generate cash from operations will depend on the occupancy rates, rates charged to tenants compared with competing properties in the area and the ability of tenants to pay rent. Occupancy rates can fluctuate based on changes in local market conditions where the Properties are located such as: excessive building resulting in an oversupply of similar properties, deterioration of surrounding areas, a decrease in market rates or local economic conditions including unemployment rates. The rental rates charged to tenants compared to competing properties can be impacted by a lack of perceived safety, convenience and attractiveness of a property.
Under our capital improvements program, we could possibly spend approximately $3.2 million in the next three to four years for property improvements intended to increase the Properties’ appeal to tenants and to the extent possible, increase the value of the Properties. As we implement planned improvements to our Properties, we seek to maintain our stable occupancy rates and, potentially, increase rental rates and our cash flow from operating activities in order to pay for these improvements.
The following table sets forth the capital expenditures incurred during the three months ended March 31, 2013 and estimated future capital expenditures which are discretionary in nature (in thousands):
|
Subsidiary
|
Capital Expenditures
|
Future Discretionary Capital Expenditures
|
||||||
|
Memorial Towers
|
$ | 40 | $ | 511 | ||||
|
Villas
|
31 | 929 | ||||||
|
Coach Lantern
|
17 | 359 | ||||||
|
Foxcroft
|
10 | 405 | ||||||
|
Park Hill
|
15 | 996 | ||||||
|
Total
|
$ | 113 | $ | 3,200 | ||||
Funding for future discretionary capital expenditures over the remaining life of the Partnership will come from future operating cash flows. We have planned a series of major capital projects for our Properties, such as repairs and renovations to the HVAC systems, parking improvements, and foundation work. We review future expenditures periodically and adjust them based on both operating results, local market conditions and our expected return on the investment of capital. We cannot assure you that we will complete projects currently planned or that we will not change our plans in response to changes in market conditions.
Our restricted cash represents escrow deposits with lenders to be used to pay real estate taxes, insurance and capital improvements.
Our payables to related parties consist of investment management fees due to our General Partner, payable monthly, equal to 1% of the gross offering proceeds, net of any limited partnership interest owned by the General Partner. The General Partner must subordinate up to 100% of its annual investment management fee to the receipt by the limited partners of their Preferred Return. The limited partners have not received their Preferred Return over the five years the fund has been operating and we do not anticipate they will receive the return in 2013.
During the year ended 2013, three of our loans will start making principal payments, the debt service requirements for the next 12 months are $379,000.
Redemption of Units
We are permitted, in our General Partner’s sole discretion, to redeem units upon a unitholder’s request. However, we have no obligation to redeem units at any time, and we can decline to redeem units for any reason. For example, if our General Partner determines that we do not have the necessary cash flow, taking into account future distributions to our other limited partners, investments, and foreseeable operating expenses, a unitholder’s request may be declined. In addition, our General Partner may not approve the redemption of units if it concludes that the redemption might cause our total unit transfers in the year, subject to certain exceptions, to exceed 2% of our total capital or profits interests. All of these determinations are subjective and will be made in our General Partner’s sole discretion. We will also determine the redemption price based on provisions set forth in the First Amended and Restated Agreement of Limited Partnership, or the Partnership Agreement. To the extent the formula for arriving at the redemption price has any subjective determinations, they will fall within the sole discretion of our General Partner. If we lack the requisite liquidity to redeem the units, our General Partner, in its sole discretion, may purchase the units on generally the same terms as we would have redeemed the units. As of March 31, 2013, we have redeemed 11,602 units at an aggregrate redemption price of $88,784, although no units were redeemed during the quarter then ended.
Legal Proceedings
We are a party to various routine legal proceedings arising out of the ordinary course of our business. Management believes that none of these actions, individually or in the aggregate, will have a material adverse effect on our financial condition or results of operations.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of our assets, liabilities, revenues and cost and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to certain accrued liabilities. We base our estimates on historical experience and on various other assumptions that we believe reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
For a discussion on our critical accounting policies and estimates, see the discussion in our Annual Report on Form 10-K for the year ended December 31, 2012 under “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates.”
Off-Balance Sheet Arrangements
As of March 31, 2013 and December 31, 2012, we do not have any off-balance sheet arrangements or obligations, including contingent obligations, other than guarantees by the General Partner of certain limited standard expectations to the non-recourse nature of the mortgage notes which are secured by the Properties.
Omitted pursuant to Regulation S-K, Item 305(e).
|
ITEM 4.
|
Disclosure Controls
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic reports under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our General Partner, including its chief executive officer and its chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Under the supervision of the chief executive officer and chief financial officer of our General Partner, we have carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting that occurred during our first quarter ended March 31, 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II
|
ITEM 6.
|
|
Exhibit No.
|
Description
|
||
|
3.1
|
Amended and Restated Agreement of Limited Partnership. (1)
|
||
|
3.2
|
Certificate of Limited Partnership. (1)
|
||
|
4.1
|
Forms of letters sent to limited partners confirming their investment. (1)
|
||
|
31.1
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
||
|
31.2
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
||
|
32.1
|
Certification of Chief Executive Officer pursuant to Section 1350 18 U.S.C., as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
||
|
32.2
|
Certification of Chief Financial Officer pursuant to Section 1350 18 U.S.C., as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
||
|
101.1
|
The following information from the Partnership's annual report on Form 10-K for the year ended December 31, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations and Comprehensive Loss; (iii) Consolidated Statement of Changes in Partners' Capital; (iv) Consolidated Statements of Cash Flows.
|
|
(1)
|
Filed previously as an exhibit to the Partnership’s registration statement on Form 10 for the year ended December 31, 2008 and by this reference incorporated herein.
|
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
RESOURCE REAL ESTATE INVESTORS 6, L.P.
|
|
|
By: Resource Capital Partners, Inc., its general partner
|
|
|
May 9, 2013
|
By: /s/ Kevin M. Finkel
|
|
Kevin M. Finkel
|
|
|
President
|
|
|
(Principal Executive Officer)
|
|
May 9, 2013
|
By: /s/ Steven R. Saltzman
|
|
Steven R. Saltzman
|
|
|
Vice President – Finance
|
|
|
(Principal Financial and Accounting Officer)
|
21