Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2014
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 number: 0-24855
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 5
| California | 33-0745418 | |
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) | |
| 17782 Sky Park Circle | ||
| Irvine, CA | 92614-6404 | |
| (Address of principal executive offices) | (Zip Code) |
(714) 662-5565
(Telephone number)
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 [X] No [ ]
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 (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes [X] 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. (Check one):
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X] Smaller reporting company [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 5
(A California Limited Partnership)
INDEX TO FORM 10 – Q
For the Quarterly Period Ended September 30, 2014
| 2 |
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 5
(A California Limited Partnership)
(unaudited)
| September 30, 2014 | March 31, 2014 | |||||||
| ASSETS | ||||||||
| Cash | $ | 55,246 | $ | 17,011 | ||||
| Investments in Local Limited Partnerships, net (Note 2) | - | - | ||||||
| Other assets | 6,147 | 12,917 | ||||||
| Advances to Local Limited Partnerships (Note 4) | - | - | ||||||
| Total Assets | $ | 61,393 | $ | 29,928 | ||||
| LIABILITIES AND PARTNERS’ EQUITY (DEFICIT) | ||||||||
| Liabilities: | ||||||||
| Accrued fees and expenses due to General Partner and affiliates (Note 3) | $ | 20,378 | $ | 1,322,527 | ||||
| Total Liabilities | 20,378 | 1,322,527 | ||||||
| Partners’ Equity (Deficit): | ||||||||
| General Partner | (365,235 | ) | 72,379 | |||||
| Limited Partners (25,000 Partnership Units authorized; 24,803 and 24,853 Partnership Units issued and outstanding, respectively) | 406,250 | (1,364,978 | ) | |||||
| Total Partners’ Equity (Deficit) | 41,015 | (1,292,599 | ) | |||||
| Total Liabilities and Partners’ Equity | $ | 61,393 | $ | 29,928 | ||||
See accompanying notes to condensed financial statements
| F-1 |
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 5
(A California Limited Partnership)
CONDENSED STATEMENTS OF OPERATIONS
For the Three and Six Months Ended September 30, 2014 and 2013
(unaudited)
| 2014 | 2013 | |||||||||||||||
| Three Months | Six Months | Three Months | Six Months | |||||||||||||
| Operating income: | ||||||||||||||||
| Reporting fees | $ | 2,125 | $ | 8,125 | $ | - | $ | - | ||||||||
| Total operating income | 2,125 | 8,125 | - | - | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Asset management fees (Note 3) | 8,198 | 17,291 | 12,110 | 24,220 | ||||||||||||
| Legal and accounting fees | 26,950 | 32,333 | 45,128 | 128,717 | ||||||||||||
| Write off of other assets | - | 1,480 | - | - | ||||||||||||
| Other | 4,501 | 6,519 | 5,369 | 10,793 | ||||||||||||
| Total operating expenses | 39,649 | 57,623 | 62,607 | 163,730 | ||||||||||||
| Loss from operations | (37,524 | ) | (49,498 | ) | (62,607 | ) | (163,730 | ) | ||||||||
| Gain on sale of Local Limited Partnerships | 1,518,907 | 1,838,612 | - | - | ||||||||||||
| Interest income | 3 | 5 | 1 | 1 | ||||||||||||
| Net income (loss) | $ | 1,481,386 | $ | 1,789,119 | $ | (62,606 | ) | $ | (163,729 | ) | ||||||
| Net income (loss) allocated to: | ||||||||||||||||
| General Partner | $ | 14,814 | $ | 17,891 | $ | (626 | ) | $ | (1,637 | ) | ||||||
| Limited Partners | $ | 1,466,572 | $ | 1,771,228 | $ | (61,980 | ) | $ | (162,092 | ) | ||||||
| Net income (loss) per Partnership Unit | $ | 59 | $ | 71 | $ | (3 | ) | $ | (7 | ) | ||||||
| Outstanding weighted Partnership Units | 24,803 | 24,803 | 24,903 | 24,903 | ||||||||||||
See accompanying notes to condensed financial statements
| F-2 |
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 5
(A California Limited Partnership)
CONDENSED STATEMENT OF PARTNERS’ EQUITY (DEFICIT)
For the Six Months Ended September 30, 2014
(unaudited)
| General | Limited | |||||||||||
| Partner | Partners | Total | ||||||||||
| Partners’ equity (deficit) at March 31, 2014 | $ | 72,379 | $ | (1,364,978 | ) | $ | (1,292,599 | ) | ||||
| Net income | 17,891 | 1,771,228 | 1,789,119 | |||||||||
| Return of capital (Note 5) | (455,505 | ) | - | (455,505 | ) | |||||||
| Partners’ equity (deficit) at September 30, 2014 | $ | (365,235 | ) | $ | 406,250 | $ | 41,015 | |||||
See accompanying notes to condensed financial statements
| F-3 |
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 5
(A California Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
For the Six Months Ended September 30, 2014 and 2013
(unaudited)
| 2014 | 2013 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | 1,789,119 | $ | (163,729 | ) | |||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
| Decrease in accounts payable | - | (10,609 | ) | |||||
| (Increase) decrease in other assets | 6,770 | (1,480 | ) | |||||
| Gain on sale of Local Limited Partnerships | (1,838,612 | ) | - | |||||
| Increase (decrease) in accrued fees and expenses due to General Partner and affiliates | (1,302,149 | ) | 165,209 | |||||
| Net cash used in operating activities | (1,344,872 | ) | (10,609 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Net proceeds from sale of Local Limited Partnerships | 1,838,612 | - | ||||||
| Net cash provided by investing activities: | 1,838,612 | - | ||||||
| Cash flows from financing activities: | ||||||||
| Return of capital | (455,505 | ) | - | |||||
| Net cash used in financing activities | (455,505 | ) | - | |||||
| Net increase (decrease) in cash | 38,235 | (10,609 | ) | |||||
| Cash, beginning of period | 17,011 | 27,618 | ||||||
| Cash, end of period | $ | 55,246 | $ | 17,009 | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
| Taxes paid | $ | - | $ | 800 | ||||
| NONCASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Advances made to the Partnership by the General Partner in prior years were converted to General Partner equity. | $ | - | $ | 71,000 | ||||
See accompanying notes to condensed financial statements
| F-4 |
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 5
(A California Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
For the Quarterly Period Ended September 30, 2014
(unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
The accompanying condensed unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q for quarterly reports under Section 13 or 15(d) of the Securities Exchange Act of 1934. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended September 30, 2014 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2015. For further information, refer to the financial statements and footnotes thereto included in the Partnership’s annual report on Form 10-K for the fiscal year ended March 31, 2014.
Organization
WNC Housing Tax Credit Fund VI, L.P., Series 5 a California Limited Partnership (the “Partnership”), was formed on March 3, 1997 under the laws of the State of California. The Partnership was formed to acquire limited partnership interests in other limited partnerships (“Local Limited Partnerships”) which own multi-family housing complexes (“Housing Complexes”) that are eligible for Federal low income housing tax credits (“Low Income Housing Tax Credits”). The local general partners (the “Local General Partners”) of each Local Limited Partnership retain responsibility for maintaining, operating and managing the Housing Complexes. Each Local Limited Partnership is governed by its agreement of limited partnership (the “Local Limited Partnership Agreement”).
WNC & Associates, Inc. is the general partner of the Partnership (the “General Partner” or “Associates”). The chairman and president owns all of the outstanding stock of Associates. The business of the Partnership is conducted primarily through Associates, as the Partnership has no employees of its own.
The Partnership shall continue to be in full force and effect until December 31, 2052 unless terminated prior to that date pursuant to the partnership agreement or law.
The financial statements include only activity relating to the business of the Partnership, and do not give effect to any assets that the partners may have outside of their interests in the Partnership, or to any obligations, including income taxes, of the partners.
The Partnership Agreement authorized the sale of up to 25,000 units of limited partnership interest (“Partnership Units”) at $1,000 per Partnership Unit. The offering of Partnership Units has concluded and 25,000 Partnership Units, representing subscriptions in the amount of $24,918,175, net of discounts of $54,595 for volume purchases and dealer discounts of $27,230 had been accepted. The General Partner has a 1% interest in operating profits and losses, taxable income and losses, in cash available for distribution from the Partnership and Low Income Housing Tax Credits of the Partnership. As of September 30, 2014 and March 31, 2014, a total of 24,803 and 24,853 Partnership Units, respectively, remain outstanding.
| F-5 |
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 5
(A California Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
For the Quarterly Period Ended September 30, 2014
(unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
The proceeds from the disposition of any of the Local Limited Partnership properties will be used first to pay debts and other obligations per the respective Local Limited Partnership Agreement. Any remaining proceeds will then be paid to the Partnership. The sale of a Housing Complex may be subject to other restrictions and obligations. Accordingly, there can be no assurance that a Local Limited Partnership will be able to sell its Housing Complex. Even if it does so, there can be no assurance that any significant amounts of cash will be distributed to the Partnership. Should such distributions occur, the Limited Partners will be entitled to receive distributions equal to their capital contributions and their return on investment (as defined in the Partnership Agreement) and the General Partner would then be entitled to receive proceeds equal to its capital contributions from the remainder. Any additional sale or refinancing proceeds will be distributed 90% to the Limited Partners (in proportion to their respective investments) and 10% to the General Partner.
Risks and Uncertainties
An investment in the Partnership and the Partnership’s investments in Local Limited Partnerships and their Housing Complexes are subject to risks. These risks may impact the tax benefits of an investment in the Partnership, and the amount of proceeds available for distribution to the Limited Partners, if any, on liquidation of the Partnership’s investments. Some of those risks include the following:
The Low Income Housing Tax Credit rules are extremely complicated. Noncompliance with these rules results in the loss of future Low Income Housing Tax Credits and the fractional recapture of Low Income Housing Tax Credits already taken. In most cases the annual amount of Low Income Housing Tax Credits that an individual can use is limited to the tax liability due on the person’s last $25,000 of taxable income. The Local Limited Partnerships may be unable to sell the Housing Complexes at a price which would result in the Partnership realizing cash distributions or proceeds from the transaction. Accordingly, the Partnership may be unable to distribute any cash to its Limited Partners. Low Income Housing Tax Credits may be the only benefit from an investment in the Partnership.
The Partnership has invested in a limited number of Local Limited Partnerships. Such limited diversity means that the results of operation of each single Housing Complex will have a greater impact on the Partnership. With limited diversity, poor performance of one Housing Complex could impair the Partnership’s ability to satisfy its investment objectives. Each Housing Complex is subject to mortgage indebtedness. If a Local Limited Partnership failed to pay its mortgage, it could lose its Housing Complex in foreclosure. If foreclosure were to occur during the first 15 years (the “Compliance Period”), the loss of any remaining future Low Income Housing Tax Credits, a fractional recapture of prior Low Income Housing Tax Credits, and a loss of the Partnership’s investment in the Housing Complex would occur. The Partnership is a limited partner or non-managing member of each Local Limited Partnership. Accordingly, the Partnership will have very limited rights with respect to management of the Local Limited Partnerships. The Partnership will rely totally on the Local General Partners. Neither the Partnership’s investments in Local Limited Partnerships, nor the Local Limited Partnerships’ investments in Housing Complexes, are readily marketable. To the extent the Housing Complexes receive government financing or operating subsidies, they may be subject to one or more of the following risks: difficulties in obtaining tenants for the Housing Complexes; difficulties in obtaining rent increases; limitations on cash distributions; limitations on sales or refinancing of Housing Complexes; limitations on transfers of interests in Local Limited Partnerships; limitations on removal of Local General Partners; limitations on subsidy programs; and possible changes in applicable regulations. Uninsured casualties could result in loss of property and Low Income Housing Tax Credits and recapture of Low Income Housing Tax Credits previously taken. The value of real estate is subject to risks from fluctuating economic conditions, including employment rates, inflation, tax, environmental, land use and zoning policies, supply and demand of similar properties, and neighborhood conditions, among others.
| F-6 |
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 5
(A California Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
For the Quarterly Period Ended September 30, 2014
(unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
The ability of Limited Partners to claim tax losses from the Partnership is limited. The IRS may audit the Partnership or a Local Limited Partnership and challenge the tax treatment of tax items. The amount of Low Income Housing Tax Credits and tax losses allocable to the Limited Partners could be reduced if the IRS were successful in such a challenge. The alternative minimum tax could reduce tax benefits from an investment in the Partnership. Changes in tax laws could also impact the tax benefits from an investment in the Partnership and/or the value of the Housing Complexes.
All of the Low Income Housing Tax Credits anticipated to be realized from the Local Limited Partnerships have been realized. The Partnership does not anticipate being allocated any Low Income Housing Tax Credits from the Local Limited Partnerships in the future. Until all Local Limited Partnerships have completed the 15 year Low Income Housing Tax Credit Compliance period, risks exist for potential recapture of prior Low Income Housing Tax Credits received.
No trading market for the Partnership Units exists or is expected to develop. Limited Partners may be unable to sell their Partnership Units except at a discount and should consider their Partnership Units to be a long-term investment. Individual Limited Partners will have no recourse if they disagree with actions authorized by a vote of the majority of Limited Partners.
Exit Strategy
The Compliance Period for a Housing Complex is generally 15 years following construction or rehabilitation completion. Associates was one of the first in the industry to offer syndicated investments in Low Income Housing Tax Credits. The initial programs have completed their Compliance Periods.
Upon the sale of a Local Limited Partnership Interest or Housing Complex after the end of the Compliance Period, there would be no recapture of Low Income Housing Tax Credits. A sale prior to the end of the Compliance Period could result in recapture if certain conditions are not met.
With that in mind, the General Partner is continuing its review of the Housing Complexes. The review considers many factors, including extended use requirements (such as those due to mortgage restrictions or state compliance agreements), the condition of the Housing Complexes, and the tax consequences to the Limited Partners from the sale of the Housing Complexes.
| F-7 |
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 5
(A California Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
For the Quarterly Period Ended September 30, 2014
(unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Upon identifying those Housing Complexes with the highest potential for a successful sale, refinancing or re-syndication, the Partnership expects to proceed with efforts to liquidate them. The objective is to maximize the Limited Partners’ return wherever possible and, ultimately, to wind down the Partnership. Local Limited Partnership interests may be disposed of any time by the General Partner in its discretion. While liquidation of the Housing Complexes continues to be evaluated, the dissolution of the Partnership was not imminent as of September 30, 2014.
As of March 31, 2014, the Partnership had sold its Local Limited Partnership Interest in Murfreesboro Villas, L.P., Concord Apartment Partners, L.P., Chillicothe Plaza Apartments, L.P., Enhance, L.P., El Reno Housing Associates, L.P., Austin Gateway Ltd. and Hughes Villas. The Housing Complexes of United Development Co., L.P. 97.1 and United Development Co., L.P. 97.2 had also been sold as of March 31, 2014.
During the period ended September 30, 2014, the Housing Complex of Hillcrest Heights was sold, terminating the Partnership’s interest in the Local Limited Partnership. Hillcrest Heights was appraised for $860,000 and had a mortgage balance of $385,000 as of December 31, 2013. The Partnership received $324,656 in cash proceeds, of which $249,656 was used to reimburse the General Partner or affiliates for expenses paid on its behalf and $75,000 was used to pay accrued asset management fees. The sales related expenses were $4,951 resulting in a gain on sale of $319,705. The investment balance was zero at the time of the sale of the Local Limited Partnership. The Compliance Period has been completed therefore there is no risk of recapture and investor approval was not required.
During the period ended September 30, 2014, the Housing Complex of Mark Twain Senior Community, L.P (Mark Twain) was sold, terminating the Partnership’s interest in the Local Limited Partnership. Mark Twain was appraised for $1,800,000 and had a mortgage balance of $1,454,000 as of December 31, 2013. The Partnership received $1,518,177 in cash proceeds, of which $108,240 was used to reimburse the General Partner or affiliates for expenses paid on its behalf, $674,976 was used to pay accrued asset management fees, $455,505 to reimburse the General Partner or its affiliates for debts previously written off, $259,351 for outstanding payables due to the General Partner or its affiliates for advances made to Local Limited Partnerships and $20,075 was placed in the Partnership’s reserves for future operating expenses. The sales related expenses were $7,770 resulting in a gain on sale of $1,510,407. The investment balance was zero at the time of the sale of the Local Limited Partnership. The Compliance Period has been completed therefore there is no risk of recapture and investor approval was not required.
During the period ended September 30, 2014, the Local Limited Partnership interest of Spring Valley Terrace Apartments, LLC (Spring Valley) was sold. Spring Valley was appraised for $215,000 and had a mortgage balance of $690,000 as of December 31, 2013. The Partnership received $10,000 in cash proceeds which was placed in the Partnership’s reserves for future operating expenses. The sales related expenses were $1,500 resulting in a gain on sale of $8,500. The investment balance was zero at the time of the sale of the Local Limited Partnership. The Compliance Period has been completed therefore there is no risk of recapture and investor approval was not required.
| F-8 |
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 5
(A California Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
For the Quarterly Period Ended September 30, 2014
(unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
As of September 30, 2014, the Partnership has identified the following Local Limited Partnerships for possible disposition as listed in the table below.
| Local Limited Partnerships | Expected closing date | Appraisal value | Mortgage balance of Local Limited Partnership as of 12/31/2013 | Estimated sales proceeds | Estimated sales related expenses | Estimated gain (loss) on sale | ||||||||||||||||
| Bradley Villas, L.P. | N/A | $ | 98,000 | $ | 509,000 | (*) | $ | 1,350 | (*) | |||||||||||||
| Mansur Wood Living Center, L.P. | N/A | 2,750,000 | 2,962,000 | 234,000 | 2,622 | $ | 231,378 | |||||||||||||||
| Apartment Housing of Theodore, LTD. | N/A | 425,000 | 981,000 | (*) | 2,175 | (*) | ||||||||||||||||
N/A- The estimated close date has yet to be determined. The Local Limited Partnership is not under contract to be purchased as of the report filing. Contracts have been drafted and are currently under review by potential purchasers of the Local Limited Partnership interest.
(*)-As of the date of this report, the estimated purchase price is still unknown.
The Compliance Period for Bradley Villas, L.P. and Apartment Housing of Theodore, LTD., has expired so there is no risk of tax credit recapture to the investors in the Partnerships and investor approval is not required. The Compliance Period for Mansur Wood Living Center, L.P. expires December 31, 2015. Once the sales are finalized, the Partnership will use the cash proceeds to reimburse the General Partner or an affiliate for expenses paid on its behalf or pay accrued asset management fees. Any remaining proceeds will be placed in the partnership’s reserves for future operating expenses. No distributions will be made to the Limited Partners.
Method of Accounting for Investments in Local Limited Partnerships
The Partnership accounts for its investments in Local Limited Partnerships using the equity method of accounting, whereby the Partnership adjusts its investment balance for its share of the Local Limited Partnerships’ results of operations and for any contributions made and distributions received. The Partnership reviews the carrying amount of an individual investment in a Local Limited Partnership for possible impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of such investment may not be recoverable. Recoverability of such investment is measured by the estimated value derived by management, generally consisting of the sum of the remaining future Low Income Housing Tax Credits estimated to be allocated to the Partnership and any estimated residual value to the Partnership. If an investment is considered to be impaired, the Partnership reduces the carrying value of its investment in any such Local Limited Partnership. The accounting policies of the Local Limited Partnerships, generally, are expected to be consistent with those of the Partnership. Costs incurred by the Partnership in acquiring the investments were capitalized as part of the investment and were being amortized over 30 years.
| F-9 |
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 5
(A California Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
For the Quarterly Period Ended September 30, 2014
(unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
“Equity in losses of Local Limited Partnerships” for the periods ended September 30, 2014 and 2013 has been recorded by the Partnership. Management’s estimate for the three and six-month periods is based on either actual unaudited results reported by the Local Limited Partnerships or historical trends in the operations of the Local Limited Partnerships. Equity in losses of Local Limited Partnerships allocated to the Partnership are not recognized to the extent that the investment balance would be adjusted below zero. If the Local Limited Partnerships report net income in future years, the Partnership will resume applying the equity method only after its share of such net income equals the share of net losses not recognized during the period(s) the equity method was suspended (see Note 2).
In accordance with the accounting guidance for the consolidation of variable interest entities, the Partnership determines when it should include the assets, liabilities, and activities of a variable interest entity (VIE) in its financial statements, and when it should disclose information about its relationship with a VIE. The analysis that must be performed to determine which entity should consolidate a VIE focuses on control and economic factors. A VIE is a legal structure used to conduct activities or hold assets, which must be consolidated by a company if it is the primary beneficiary because it has (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (2) the obligation to absorb losses or receive benefits that could potentially be significant to the VIE. If multiple unrelated parties share such power, as defined, no party will be required to consolidate the VIE. Further, the guidance requires continual reconsideration of the primary beneficiary of a VIE.
Based on this guidance, the Local Limited Partnerships in which the Partnership invests meet the definition of a VIE because the owners of the equity at risk in these entities do not have the power to direct their operations. However, management does not consolidate the Partnership’s interests in these VIEs, as it is not considered to be the primary beneficiary since it does not have the power to direct the activities that are considered most significant to the economic performance of these entities. The Partnership currently records the amount of its investment in these Local Limited Partnerships as an asset on its balance sheets, recognizes its share of partnership income or losses in the statements of operations, and discloses how it accounts for material types of these investments in its financial statements. The Partnership’s balance in investment in Local Limited Partnerships, plus the risk of recapture of tax credits previously recognized on these investments, represents its maximum exposure to loss. The Partnership’s exposure to loss on these Local Limited Partnerships is mitigated by the condition and financial performance of the underlying Housing Complexes as well as the strength of the Local General Partners and their guarantee against credit recapture to the investors in the Partnership.
Distributions received by the Partnership are accounted for as a reduction of the investment balance. Distributions received after the investment has reached zero are recognized as income. As of September 30, 2014, all of the investment balances had reached zero.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 materially differ from those estimates.
Cash and Cash Equivalents
The Partnership considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents. The Partnership had no cash equivalents for all periods presented.
| F-10 |
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 5
(A California Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
For the Quarterly Period Ended September 30, 2014
(unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Reporting Comprehensive Income
The Partnership had no items of other comprehensive income for all periods presented.
Income Taxes
The Partnership has elected to be treated as a pass-through entity for income tax purposes and, as such, is not subject to income taxes. Rather, all items of taxable income, deductions and tax credits are passed through to and are reported by its owners on their respective income tax returns. The Partnership’s federal tax status as a pass-through entity is based on its legal status as a partnership. Accordingly, the Partnership is not required to take any tax positions in order to qualify as a pass-through entity. The Partnership is required to file and does file tax returns with the Internal Revenue Service and other taxing authorities. Accordingly, these financial statements do not reflect a provision for income taxes and the Partnership has no other tax positions which must be considered for disclosure. Income tax returns filed by the Partnership are subject to examination by the Internal Revenue Service for a period of three years. While no income tax returns are currently being examined by the Internal Revenue Service, tax years since 2011 remain open.
Net Loss Per Partnership Unit
Net loss per Partnership Unit includes no dilution and is computed by dividing loss available to Limited Partners by the weighted average number of Partnership Units outstanding during the period. Calculation of diluted net loss per Partnership Unit is not required.
Revenue Recognition
The Partnership is entitled to receive reporting fees from the Local Limited Partnerships. The intent of the reporting fees is to offset (in part) administrative costs incurred by the Partnership in corresponding with the Local Limited Partnerships. Due to the uncertainty of the collection of these fees, the Partnership recognizes reporting fees as collections are made.
| F-11 |
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 5
(A California Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
For the Quarterly Period Ended September 30, 2014
(unaudited)
NOTE 2 - INVESTMENTS IN LOCAL LIMITED PARTNERSHIPS
As of September 30, 2014 and March 31, 2014, the Partnership owns limited partnership interests in 3 and 6 Local Limited Partnerships, each of which owns one Housing Complex consisting of an aggregate 175 and 333 apartment units, respectively. The respective Local General Partners of the Local Limited Partnerships manage the day to day operations of the entities. Significant Local Limited Partnership business decisions require approval from the Partnership. The Partnership, as a limited partner, is generally entitled to 99.9%, as specified in the Local Limited Partnership agreements, of the operating profits and losses, taxable income and losses, and Low Income Housing Tax Credits of the Local Limited Partnerships.
Selected financial information for the six months ended September 30, 2014 and 2013 from the unaudited combined condensed financial statements of the Local Limited Partnerships in which the Partnership has invested is as follows:
COMBINED CONDENSED STATEMENTS OF OPERATIONS
| 2014 | 2013 | |||||||
| Revenues | $ | 653,000 | $ | 1,197,000 | ||||
| Expenses: | ||||||||
| Interest expense | 142,000 | 240,000 | ||||||
| Depreciation and amortization | 279,000 | 413,000 | ||||||
| Operating expenses | 489,000 | 910,000 | ||||||
| Total expenses | 910,000 | 1,563,000 | ||||||
| Net loss | $ | (257,000 | ) | $ | (366,000 | ) | ||
| Net loss allocable to the Partnership | $ | (254,000 | ) | $ | (364,000 | ) | ||
| Net loss recorded by the Partnership | $ | - | $ | - | ||||
Certain Local Limited Partnerships have incurred significant operating losses and/or have working capital deficiencies. In the event these Local Limited Partnerships continue to incur significant operating losses, additional capital contributions by the Partnership may be required to sustain operations of such Local Limited Partnerships. The Compliance Period for a Housing Complex is generally 15 years following construction or rehabilitation completion. Associate was one of the first in the industry to offer syndicated investments in Low Income Housing Tax Credits. The initial programs have completed their Compliance Period.
| F-12 |
WNC HOUSING TAX CREDIT FUND VI, L.P., SERIES 5
(A California Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
For the Quarterly Period Ended September 30, 2014
(unaudited)
NOTE 3 - RELATED PARTY TRANSACTIONS
Under the terms of the Partnership Agreement, the Partnership has paid or is obligated to the General Partner or its affiliates the following fees:
| (a) | An annual asset management fee equal to 0.2% of the Invested Assets of the Partnership, as defined respectively. “Invested Assets” means the sum of the Partnership’s investment in Local Limited Partnership interests and the Partnership’s allocable share of mortgage loans on and other debts related to the Housing Complexes owned by such Local Limited Partnerships. Asset management fees of $17,291 and $24,220 were incurred during the six months ended September 30, 2014 and 2013, respectively, of which $749,976 and $0 was paid during the six months ended September 30, 2014 and 2013, respectively. | |
| (b) | The Partnership reimburses the General Partner or its affiliates for operating expenses incurred by the Partnership and paid for by the General Partner or its affiliates on behalf of the Partnership. Operating expense reimbursements of $357,896 and $0 were made during the six months ended September 30, 2014 and 2013, respectively. | |
| (c) | A subordinated disposition fee in an amount equal to 1% of the sales price of real estate sold. Payment of this fee is subordinated to the limited partners receiving a preferred return of 12% through December 31, 2008 and 6% thereafter (as defined in the Partnership Agreement) and is payable only if the General Partner or its affiliates render services in the sales effort. No such fee was incurred for all periods presented. |
The accrued fees and expenses due to the General Partner and affiliates consist of the following at:
| September 30, 2014 | March 31, 2014 | |||||||
| Expenses paid by the General Partner or an affiliate on behalf of the Partnership | $ | 12,180 | $ | 354,619 | ||||
| Advances made to the Partnership from the General Partner or affiliates | - | 227,025 | ||||||
| Asset management fee payable | 8,198 | 740,883 | ||||||
| Total | $ | 20,378 | $ | 1,322,527 | ||||
The General Partner and/or its affiliates do not anticipate that these accrued fees will be paid until such time as capital reserves are in excess of future foreseeable working capital requirements of the Partnership.
NOTE 4 - ADVANCES TO LOCAL LIMITED PARTNERSHIPS
As of September 30, 2014 and March 31, 2014, the Partnership in total had voluntarily advanced $279,580 and $312,223 to two Local Limited Partnerships, Hillcrest Heights, L.P. and Mansur Wood Living Center, L.P. No advances were made during the six months ended September 30, 2014. All advances were reserved for in full during the period they were advanced.
NOTE 5 - RETURN OF CAPITAL
During prior years, the Partnership was relieved of debt which was owed to the General Partner or an affiliate. The debt was a result of advances that had previously been made to the Partnership by the General Partner or affiliate to aid the Partnership in providing funding to several Local Limited Partnerships which were experiencing operational issues. During the six months ended September 30, 2014, $455,505 was reimbursed to the General Partner for repayment of the previously written off amounts, the repayment was a result of the sales proceeds that resulted from the disposition of one of the Local Limited Partnerships.
| F-13 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
With the exception of the discussion regarding historical information, this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other discussions elsewhere in this Form 10-Q contain forward looking statements. Such statements are based on current expectations subject to uncertainties and other factors which may involve known and unknown risks that could cause actual results of operations to differ materially from those projected or implied. Further, certain forward-looking statements are based upon assumptions about future events which may not prove to be accurate.
Risks and uncertainties inherent in forward looking statements include, but are not limited to, the Partnership’s future cash flows and ability to obtain sufficient financing, level of operating expenses, conditions in the Low Income Housing Tax Credit property market and the economy in general, as well as legal proceedings. Historical results are not necessarily indicative of the operating results for any future period.
Subsequent written and oral forward looking statements attributable to the Partnership or persons acting on its behalf are expressly qualified in their entirety by cautionary statements in this Form 10-Q and in other reports filed with the Securities and Exchange Commission.
The following discussion and analysis compares the results of operations for the three and six months ended September 30, 2014 and 2013, and should be read in conjunction with the condensed unaudited financial statements and accompanying notes included within this report.
Financial Condition
The Partnership’s assets at September 30, 2014 consisted of $55,000 in cash and $6,000 in other assets. Liabilities at September 30, 2014 consisted of $20,000 of accrued fees and expenses due to the General Partner and affiliates.
Results of Operations
Three Months Ended September 30, 2014 Compared to the Three Months Ended September 30, 2013. The Partnership’s net income for the three months ended September 30, 2014 was $1,481,000 reflecting an increase of approximately $1,544,000 from the $63,000 net loss experienced for the three months ended September 30, 2013. The increase was partially due to an increase of $1,519,000 in gain on sale of Local Limited Partnerships during the three months ended September 30, 2014. The gains recorded vary from period to period depending on sale prices and values of Local Limited Partnerships sold. For the three months ended September 30, 2014, legal and accounting expenses decreased by $18,000 compared to the three months ended September 30, 2013. This was due to legal expenses related to the Wells Fargo lawsuit against the Local General Partner of United Development Co., L.P. – 97.1 (“UD 97.1”) and United Development Co., L.P. – 97.2 (“UD 97.2) during the three months ended September 30, 2013. Reporting fees increased by $2,000 for the three months ended September 30, 2014. Local Limited Partnerships pay reporting fees to the Partnership when the Local Limited Partnerships’ cash flows will allow for payment. There was a $4,000 decrease in asset management fees during the three months ended September 30, 2014. These fees are calculated based on the Invested Assets. As Local Limited Partnerships are sold, the Invested Assets decrease, thereby decreasing the asset management fees that are incurred.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, continued
Six Months Ended September 30, 2014 Compared to the Six Months Ended September 30, 2013. The Partnership’s net income for the six months ended September 30, 2014 was $1,789,000, reflecting an increase of approximately $1,953,000 from the $164,000 net loss experienced for the six months ended September 30, 2013. The increase was partially due to an increase of $1,839,000 in gain on sale of Local Limited Partnerships during the six months ended September 30, 2014. The gains recorded vary from period to period depending on sale prices and values of Local Limited Partnerships sold. For the six months ended September 30, 2014, legal and accounting expenses decreased by $97,000 compared to the three months ended September 30, 2013. This was due to legal expenses related to the Wells Fargo lawsuit against the Local General Partner of United Development Co., L.P. – 97.1 (“UD 97.1”) and United Development Co., L.P. – 97.2 (“UD 97.2”) incurred during the six months ended September 30, 2013. Reporting fees increased by $8,000 for the six months ended September 30, 2014. Local Limited Partnerships pay reporting fees to the Partnership when the Local Limited Partnerships’ cash flows will allow for payment. There was a $7,000 decrease in asset management fees during the six months ended September 30, 2014. These fees are calculated based on the Invested Assets. As Local Limited Partnerships are sold, the Invested Assets decrease, thereby decreasing the asset management fees that are incurred. There was an increase of $1,000 in write off of other assets for the six months ended September 30, 2014. Capitalized costs from the potential disposition of Local Limited partnerships were expensed due to the length of time it had taken to dispose of the properties.
Liquidity and Capital Resources
Six Months Ended September 30, 2014 Compared to Six Months Ended September 30, 2013. The net increase in cash during the six months ended September 30, 2014 was $38,000 compared to a net decrease in cash during the six months ended September 30, 2013 of $11,000. The increase during the six months ended September 30, 2014 was due to a $1,839,000 increase in net cash proceeds from the disposition of its Local Limited Partnerships. Proceeds received from the disposition of Local Limited partnerships will vary from period to period as discussed above. Additionally, the Partnership paid $456,000 of disposition proceeds to the General partner for advances previously forgiven and $259,000 to the General Partner for outstanding payables for advances made to Local Limited Partnerships. During the six months ended September 30, 2014, there were no payments to outstanding accounts payable compared to $11,000 paid during the six months ended September 30, 2013. During the six months ended September 30, 2014, the Partnership paid to the General Partner or an affiliate for accrued asset management fees and reimbursements of operating expenses which were paid on its behalf $750,000 and $358,000 compared to no reimbursements made to the General Partner or an affiliate during the six months ended September 30, 2013.
During the six months ended September 30, 2014, accrued payables, which consist primarily of related party asset management fees and advances due to the General Partner, decreased by $1,302,000. The General Partner does not anticipate that the balance of the accrued fees and advances will be paid until such time as capital reserves are in excess of foreseeable working capital requirements of the Partnership.
Recent Accounting Changes
In January 2014, the FASB issued an amendment to the accounting and disclosure requirements for investments in qualified affordable housing projects. The amendments provide guidance on accounting for investments by a reporting entity in flow-through limited liability entities that manage or invest in affordable housing projects that qualify for the low-income housing tax credit. The amendments permit reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received, and recognizes the net investment performance in the income statement as a component of income tax expense (benefit). The amendments are effective for interim and annual periods beginning after December 15, 2014 and should be applied retrospectively to all periods presented. Early adoption is permitted. The adoption of this update is not expected to materially affect the Partnership’s financial statements.
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Item 3. Quantitative and Qualitative Disclosures About Market Risks
NOT APPLICABLE
Item 4. Controls and Procedures
| (a) | Disclosure controls and procedures |
As of the end of the period covered by this report, the Partnership’s General Partner, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer of Associates, carried out an evaluation of the effectiveness of the Partnership’s “disclosure controls and procedures” as defined in Securities Exchange Act of 1934 Rule 13a-15 and 15d-15. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, the Partnership’s disclosure controls and procedures were not effective to ensure that material information required to be disclosed in the Partnership’s periodic report filings with SEC is recorded, processed, summarized and reported within the time period specified by the SEC’s rules and forms, consistent with the definition of “disclosure controls and procedures” under the Securities Exchange Act of 1934.
The Partnership must rely on the Local Limited Partnerships to provide the Partnership with certain information necessary to the timely filing of the Partnership’s periodic reports. Factors in the accounting at the Local Limited Partnerships have caused delays in the provision of such information during past reporting periods, and resulted in the Partnership’s inability to file its periodic reports in a timely manner.
Once the Partnership has received the necessary information from the Local Limited Partnerships, the Chief Executive Officer and the Chief Financial Officer of Associates believe that the material information required to be disclosed in the Partnership’s periodic report filings with SEC is effectively recorded, processed, summarized and reported, albeit not in a timely manner. Going forward, the Partnership will use the means reasonably within its power to impose procedures designed to obtain from the Local Limited Partnerships the information necessary to the timely filing of the Partnership’s periodic reports.
| (b) | Changes in internal controls |
There were no changes in the Partnership’s internal control over financial reporting that occurred during the quarter ended September 30, 2014 that materially affected, or are reasonably likely to materially affect, the Partnership’s internal control over financial reporting.
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| 31.1 | Certification of the Principal Executive Officer pursuant to Rule 13a-14 and 15d-14, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002. (filed herewith) |
| 31.2 | Certification of the Principal Financial Officer pursuant to Rule 13a-14 and 15d-14, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002. (filed herewith) |
| 32.1 | Section 1350 Certification of the Chief Executive Officer. (filed herewith) |
| 32.2 | Section 1350 Certification of the Chief Financial Officer. (filed herewith) |
| 101 | Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Condensed Balance Sheets at September 30, 2014 and March 31, 2014, (ii) the Condensed Statements of Operations for the three and six months ended September 30, 2014 and September 30, 2013, (iii) the Condensed Statements of Cash Flows for the six months ended September 30, 2014 and September 30, 2013, (iv) the Statement of Partner’s Equity (Deficit) for the six months ended September 30, 2014 and (v) the Notes to Condensed Financial Statements. |
| Exhibits 32.1, 32.2 and 101 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that Section. Such exhibits shall not be deemed incorporated by reference into any filing under the Securities Act of 1933 or Securities Exchange Act of 1934. |
| 6 |
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.
| WNC HOUSING TAX CREDIT FUND VI, L.P. SERIES 5 | ||
| By: | WNC & ASSOCIATES, INC. General Partner | |
| By: | /s/ Wilfred N. Cooper, Jr. | |
| Wilfred N. Cooper, Jr. | ||
| President and Chief Executive Officer of WNC & Associates, Inc. | ||
| Date: | December 16, 2014 | |
| By: | /s/ Melanie R. Wenk | |
| Melanie R. Wenk | ||
| Senior Vice-President - Chief Financial Officer of WNC & Associates, Inc. | ||
| Date: | December 16, 2014 | |
| 7 |