Attached files
| file | filename |
|---|---|
| EX-32.1 - EXHIBIT 32.1 - Resource Real Estate Investors 6 LP | exh32_1.htm |
| EX-31.2 - EXHIBIT 31.2 - Resource Real Estate Investors 6 LP | exh31_2.htm |
| EX-31.1 - EXHIBIT 31.1 - Resource Real Estate Investors 6 LP | exh31_1.htm |
| EX-32.2 - EXHIBIT 32.2 - Resource Real Estate Investors 6 LP | exh32_2.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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R
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended September 30, 2010
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from __________ to __________
Commission file number 000-53652
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 ¨ 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 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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Accelerated filer ¨
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Non-accelerated filer ¨
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(Do not check if a smaller reporting company)
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Smaller reporting companyR
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the 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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13
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ITEM 3.
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18
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ITEM 4.
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18
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PART II
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OTHER INFORMATION
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ITEM 6.
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19
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20
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PART 1.
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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)
(unaudited)
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September 30,
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December 31,
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|||||||
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2010
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2009
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ASSETS
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||||||||
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Rental property, 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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57,845 | 57,805 | ||||||
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Personal property
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1,866 | 1,656 | ||||||
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Construction-in-progress
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87 | 7 | ||||||
| 67,228 | 66,898 | |||||||
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Accumulated depreciation and amortization
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(8,113 | ) | (6,145 | ) | ||||
| 59,115 | 60,753 | |||||||
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Cash
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2,820 | 3,712 | ||||||
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Restricted cash
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1,008 | 1,256 | ||||||
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Tenant receivables
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48 | 27 | ||||||
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Loans held for investment, net
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− | − | ||||||
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Prepaid expenses and other assets
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291 | 156 | ||||||
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Deferred financing costs, net
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1,418 | 1,736 | ||||||
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Total assets
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$ | 64,700 | $ | 67,640 | ||||
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LIABILITIES AND PARTNERS’ CAPITAL
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Liabilities:
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Mortgage notes payable
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$ | 45,274 | $ | 45,274 | ||||
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Accounts payable and accrued expenses
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1,077 | 1,216 | ||||||
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Accrued interest
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195 | 202 | ||||||
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Payables to related parties
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1,475 | 1,188 | ||||||
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Prepaid rent
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112 | 117 | ||||||
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Security deposits
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149 | 140 | ||||||
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Total liabilities
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48,282 | 48,137 | ||||||
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Partners’ capital
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16,418 | 19,503 | ||||||
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Total liabilities and partners’ capital
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$ | 64,700 | $ | 67,640 | ||||
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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Nine Months Ended
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September 30,
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September 30,
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|||||||||||||||
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2010
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2009
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2010
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2009
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Revenues:
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Rental income
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$ | 1,985 | $ | 1,946 | $ | 5,871 | $ | 5,663 | ||||||||
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Interest income from loans held for investment
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− | 111 | − | 256 | ||||||||||||
| 1,985 | 2,057 | 5,871 | 5,919 | |||||||||||||
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Expenses:
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Rental operating
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945 | 1,133 | 2,831 | 3,369 | ||||||||||||
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Management fees – related parties
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194 | 197 | 587 | 588 | ||||||||||||
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General and administrative
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133 | 176 | 419 | 524 | ||||||||||||
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Provision for loan losses
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− | 1,690 | − | 1,786 | ||||||||||||
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Depreciation and amortization
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661 | 619 | 1,968 | 1,895 | ||||||||||||
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Total expenses
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1,933 | 3,815 | 5,805 | 8,162 | ||||||||||||
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Income (loss) before interest expense, net
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52 | (1,758 | ) | 66 | (2,243 | ) | ||||||||||
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Interest expense, net
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(664 | ) | (647 | ) | (2,084 | ) | (1,909 | ) | ||||||||
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Net loss
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$ | (612 | ) | $ | (2,405 | ) | $ | (2,018 | ) | $ | (4,152 | ) | ||||
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Weighted average limited partner units outstanding
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3,710 | 3,712 | 3,710 | 3,713 | ||||||||||||
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Net loss per weighted average limited partner unit
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$ | (0.16 | ) | $ | (0.65 | ) | $ | (0.54 | ) | $ | (1.12 | ) | ||||
The accompanying notes are an integral part of these consolidated financial statements.
RESOURCE REAL ESTATE INVESTORS 6, L.P.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010
(in thousands, except units)
(unaudited)
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General Partner
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Limited Partners
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Total
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Amount
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Units
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Amounts
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Amount
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Balance at January 1, 2010
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$ | 1 | 3,711,742 | $ | 19,502 | $ | 19,503 | |||||||||
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Distributions
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− | − | (1,056 | ) | (1,056 | ) | ||||||||||
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Redemption, net
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− | (1,250 | ) | (11 | ) | (11 | ) | |||||||||
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Net loss
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− | − | (2,018 | ) | (2,018 | ) | ||||||||||
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Balance at September 30, 2010
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$ | 1 | 3,710,492 | $ | 16,417 | $ | 16,418 | |||||||||
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 Nine Months Ended
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September 30,
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||||||||
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2010
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2009
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Cash flows from operating activities:
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Net loss
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$ | (2,018 | ) | $ | (4,152 | ) | ||
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Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
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Depreciation and amortization
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1,968 | 1,895 | ||||||
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Amortization of deferred financing costs
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318 | 162 | ||||||
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Accretion of discount and direct loan fees and costs
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− | (88 | ) | |||||
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Provision for loan losses
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− | 1,786 | ||||||
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Changes in operating assets and liabilities:
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Restricted cash
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248 | 407 | ||||||
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Tenant receivables, net
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(21 | ) | 20 | |||||
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Prepaid expense and other assets
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(135 | ) | (78 | ) | ||||
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Insurance proceeds receivable
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− | 100 | ||||||
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Accounts payable and accrued expenses
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(139 | ) | (497 | ) | ||||
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Payables to related parties
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287 | 456 | ||||||
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Accrued interest expense
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(7 | ) | (7 | ) | ||||
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Prepaid rent
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(5 | ) | (74 | ) | ||||
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Security deposits
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9 | 32 | ||||||
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Net cash provided by (used in) operating activities
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505 | (38 | ) | |||||
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Cash flows from investing activities:
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Capital expenditures
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(330 | ) | (2,115 | ) | ||||
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Net cash used in investing activities
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(330 | ) | (2,115 | ) | ||||
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Cash flows from financing activities:
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Redemption, net
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(11 | ) | (15 | ) | ||||
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Distributions to partners
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(1,056 | ) | (1,495 | ) | ||||
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Net cash used in financing activities
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(1,067 | ) | (1,510 | ) | ||||
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Net decrease in cash
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(892 | ) | (3,663 | ) | ||||
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Cash at beginning of period
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3,712 | 8,227 | ||||||
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Cash at end of period
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$ | 2,820 | $ | 4,564 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
RESOURCE REAL ESTATE INVESTORS 6, L.P. AND SUBSIDIARIES
SEPTEMBER 30, 2010
(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. The Partnership also invested in subordinated notes secured by multifamily residential properties located in California, Alabama and Nevada. R-6 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” or “the 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 5.0% limited partnership interest in the Partnership at both September 30, 2010 and December 31, 2009. 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 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 September 30, 2010 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, 2009. The results of operations for the three and nine months ended September 30, 2010 may not necessarily be indicative of the results of operations for the full year ending December 31, 2010.
RESOURCE REAL ESTATE INVESTORS 6, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
SEPTEMBER 30, 2010
(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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Subsidiary / Apartment Complex
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Leverage
Ratio (1)
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Number
of Units
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Location
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RRE Memorial Towers Holdings, LLC, or Memorial Towers Apartments
(“Memorial Towers”)
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63%
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112
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Houston, Texas
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RRE Villas Holdings, LLC, or Villas at Henderson Pass Apartments (“Villas”)
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67%
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228
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San Antonio, Texas
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RRE Coach Lantern Holdings, LLC, or Coach Lantern Apartments
(“Coach Lantern”)
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61%
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90
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Scarborough, Maine
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RRE Foxcroft Holdings, LLC, or Foxcroft Apartments (“Foxcroft”)
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62%
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104
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Scarborough, Maine
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RRE Park Hill Holdings, LLC, or Park Hill Apartments (“Park Hill”)
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56%
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288
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San Antonio, Texas
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822
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(1)
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Face value of mortgage divided by total property capitalization, including reserves, escrows, fees and closing costs.
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The Partnership owns a 100% interest in RRE Funding II, LLC (“Funding”), which owns three subordinated notes with a combined face value of $2.9 million and a carrying amount of $0.
All material intercompany transactions and balances have been eliminated.
Supplemental Disclosure of Cash Flow Information
During the nine month periods ended September 30, 2010 and 2009, the Partnership paid $1.8 million and $1.8 million, respectively, in cash for interest.
Advertising
The Partnership expenses advertising costs as they are incurred. Advertising costs, which are included in rental operating expenses, totaled $91,000 and $150,000 for the nine months ended September 30, 2010 and 2009, respectively.
Tenant Receivables
The majority of the Partnership’s receivables are due from tenants. Tenant receivables are stated in the financial statements at amounts due from tenants net of an allowance for uncollectible receivables. Payment terms vary and receivables outstanding longer than the payment terms are considered past due. The Partnership determines its allowance by considering a number of factors, including the length of time receivables are past due, security deposits held, the Partnership’s previous loss history, the tenants’ current ability to pay their obligations to the Partnership, the condition of the general economy and the industry as whole. The Partnership writes off receivables when they become uncollectible. At both September 30, 2010 and December 31, 2009, there was no allowance for uncollectible receivables required.
RESOURCE REAL ESTATE INVESTORS 6, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
SEPTEMBER 30, 2010
(unaudited)
NOTE 3 − RESTRICTED CASH
Restricted cash represents escrow deposits with lenders to be used to pay real estate taxes, insurance, and capital improvements. A summary of the components of restricted cash follows (in thousands):
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Real Estate
Taxes
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Insurance
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Capital
Improvements
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Total
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September 30, 2010
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$ | 704 | $ | 60 | $ | 244 | $ | 1,008 | ||||||||
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December 31, 2009
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$ | 846 | $ | 88 | $ | 322 | $ | 1,256 | ||||||||
NOTE 4 − LOANS HELD FOR INVESTMENT, NET
A summary of loans held for investment, net, at both September 30, 2010 and December 31, 2009 follows (in thousands):
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Acacia
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Hillwood
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Southern Cove
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Totals
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Loan principal
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$ | 2,000 | $ | 400 | $ | 500 | $ | 2,900 | ||||||||
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Discount
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(400 | ) | (40 | ) | (10 | ) | (450 | ) | ||||||||
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Direct loan fees and costs
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79 | 18 | 24 | 121 | ||||||||||||
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Accumulated amortization and accretion, net
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29 | 4 | (1 | ) | 32 | |||||||||||
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Allowance for loan losses
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(1,708 | ) | (382 | ) | (513 | ) | (2,603 | ) | ||||||||
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Carrying amount of loan
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$ | − | $ | − | $ | − | $ | − | ||||||||
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Acacia
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Hillwood
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Southern Cove
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Maturity date
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08/11/16
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01/08/17
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05/08/17
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Interest rate
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10.27 | % | 10.97 | % | 12.75 | % | ||||||
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Average monthly contractual payment
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$ | 17,952 | $ | 3,799 | $ | 5,313 | ||||||
All loans are subordinate to first mortgage holders with payment terms of interest only through maturity. In 2009, the first mortgage holders informed the Partnership that the post default payment terms of the intercreditor agreements had become effective due to the continued default by the borrowers. Pursuant to these agreements, the first mortgage holders must be repaid in full before the Partnership may recover any current or accrued interest or principal. Based on management’s analysis, the Partnership placed all three loans on non-accrual status, discontinued the amortization and accretion of the discount and direct loan fees and costs and provided a specific allowance for each loan during 2009. For the nine months ended September 30, 2009, the Partnership recorded a provision for loan loss of $1.8 million with respect to the Acacia loan. As of December 31, 2009, the three subordinated loans owned by the Partnership were fully reserved. At September 30, 2010 and December 31, 2009, the allowance for loan losses was approximately $2.6 million.
The following table summarizes the activity in the allowance for loan losses (in thousands):
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For the Nine Months Ended
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September 30,
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||||||||
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2010
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2009
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Balance, beginning of period
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$ | 2,603 | $ | − | ||||
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Provision for loan losses
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− | 1,786 | ||||||
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Charge-offs
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− | − | ||||||
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Balance, end of period
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$ | 2,603 | $ | 1,786 | ||||
RESOURCE REAL ESTATE INVESTORS 6, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
SEPTEMBER 30, 2010
(unaudited)
NOTE 5 – 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 September 30, 2010 and December 31, 2009 was $708,000 and $390,000, respectively. Estimated amortization expense of the Partnership’s existing deferred financing costs for the next five years ending September 30 and thereafter is as follows (in thousands):
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2011
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$ | 281 | ||
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2012
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273 | |||
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2013
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273 | |||
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2014
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199 | |||
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2015
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141 | |||
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Thereafter
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251 | |||
| $ | 1,418 |
NOTE 6 – MORTGAGE NOTES PAYABLE
The following is a summary of mortgage notes payable (in thousands, except percentages):
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Balance at
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Average
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||||||||||||
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September 30, 2010
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Annual
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Monthly
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|||||||||||
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and
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Maturity
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Interest
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Debt
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||||||||||
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Property
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December 31, 2009
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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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$ | 7,400 |
01/01/2017
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5.49% | $ | 34 | (1) | ||||||
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Villas
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10,800 |
01/01/2017
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5.48% | $ | 49 | (1) | |||||||
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Coach Lantern
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7,884 |
02/01/2015
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4.92% | $ | 32 | (2) | |||||||
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Foxcroft
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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 |
03/01/2018
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5.05% | $ | 44 | (3) | |||||||
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Total
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$ | 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, will be $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, will be $56,000.
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Annual principal payments on the mortgage notes payable for each of the next five years, ending September 30, and thereafter, are as follows (in thousands):
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2011
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$ | − | ||
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2012
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− | |||
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2013
|
224 | |||
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2014
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389 | |||
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2015
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17,055 | |||
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Thereafter
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27,606 | |||
| $ | 45,274 |
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 GP has guaranteed (“carveouts”). These carveouts relate to the total debt and expire as the notes are paid down.
RESOURCE REAL ESTATE INVESTORS 6, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
SEPTEMBER 30, 2010
(unaudited)
NOTE 7 – RELATED PARTY TRANSACTIONS
In the ordinary course of its business operations, the Partnership has ongoing relationships with several related entities. Payables to related parties are summarized in the following table (in thousands):
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September 30,
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December 31,
|
|||||||
|
2010
|
2009
|
|||||||
|
Payables to related parties:
|
||||||||
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RCP (a)
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$ | 911 | $ | 666 | ||||
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Resource Real Estate Management, LLC (“RREML”) (b)
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527 | 479 | ||||||
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Resource Real Estate Management, Inc. (“RREMI”) (c)
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36 | 43 | ||||||
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Other Properties
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1 | - | ||||||
| $ | 1,475 | $ | 1,188 | |||||
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(a)
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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. At September 30, 2010 and December 31, 2009, the LPs had not received their Preferred Return; therefore, the balance includes $909,000 and $655,000, respectively, of investment management fees, as well as $2,000 and $11,000, respectively, due to RCP for the reimbursement of advances to cover ordinary operating expenses.
|
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(b)
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RREML is a wholly owned subsidiary of RCP and is entitled to receive property and debt management fees (see footnotes (2) and (3) to the following table). At September 30, 2010 and December 31, 2009, the balance includes accrued property management fees of $527,000 and $391,000, respectively, and accrued debt management fees of $0 and $88,000, respectively.
|
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(c)
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RREMI is an indirect wholly owned subsidiary of RAI which is engaged by RREML as the manager of the Partnership’s properties. During the ordinary course of business, RREMI advances funds for ordinary operating expenses on behalf of the properties; these advances are repaid within a few days.
|
The Partnership is obligated to pay fees and reimbursements of expenses to related parties. These activities are summarized in the following table (in thousands):
|
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
|
September 30,
|
September 30,
|
|||||||||||||||
|
2010
|
2009
|
2010
|
2009
|
|||||||||||||
|
RCP:
|
||||||||||||||||
|
Investment management fees (1)
|
$ | 85 | $ | 85 | $ | 254 | $ | 254 | ||||||||
|
RREML:
|
||||||||||||||||
|
Property management fees (2)
|
$ | 95 | $ | 97 | $ | 289 | $ | 280 | ||||||||
|
Debt management fees (3)
|
$ | 14 | $ | 14 | $ | 44 | $ | 44 | ||||||||
|
(1)
|
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 (see footnote (a) to the previous table).
|
|
(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 the Partnership’s properties or obtaining and supervising third party managers (see footnote (b) to the previous table).
|
|
(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 (see footnote (b) to the previous table).
|
RESOURCE REAL ESTATE INVESTORS 6, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
SEPTEMBER 30, 2010
(unaudited)
NOTE 8 – INSURANCE PROCEEDS
On September 13, 2008, a check valve failed causing substantial water damage to Memorial Towers. The repairs to the damaged property, totaling approximately $329,000 were expensed in 2008. As of September 30, 2010, the Partnership has received a total of $173,000 from the insurance company. The Partnership is still negotiating with the insurance company on a final settlement, net of a $10,000 deductible.
NOTE 9 – DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
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:
|
|
·
|
Loans held for investment, net. The fair value of the loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.
|
|
|
·
|
Mortgage notes payable. Rates currently available to the Partnership for debt with similar terms and remaining maturities are used to estimate fair value of existing debt.
|
The estimated fair values of the Partnership’s financial instruments are as follows (in thousands):
|
September 30, 2010
|
December 31, 2009
|
|||||||||||||||
|
Carrying Amount
|
Fair Value
|
Carrying Amount
|
Fair Value
|
|||||||||||||
|
Loans held for investment, net
|
$ | − | $ | − | $ | − | $ | − | ||||||||
|
Mortgage notes payable:
|
||||||||||||||||
|
Memorial Towers
|
$ | 7,400 | $ | 7,853 | $ | 7,400 | $ | 7,322 | ||||||||
|
Villas
|
10,800 | 11,454 | 10,800 | 10,680 | ||||||||||||
|
Coach Lantern
|
7,884 | 8,096 | 7,884 | 7,590 | ||||||||||||
|
Foxcroft
|
8,760 | 8,965 | 8,760 | 8,402 | ||||||||||||
|
Park Hill
|
10,430 | 10,872 | 10,430 | 10,037 | ||||||||||||
|
Total mortgage notes payable
|
$ | 45,274 | $ | 47,240 | $ | 45,274 | $ | 44,031 | ||||||||
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
|
|
|
AND RESULTS AND 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 more particularly described in Item 1A, under the caption “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2009 and in other of our public filings with the Securities and Exchange Commission. 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. We also invest through a wholly owned subsidiary in subordinated notes that are secured by multifamily residential rental properties located in California, Alabama and Nevada. We refer to our property investments as our Properties, our debt investments as our Real Estate Debt Investments, and collectively refer to our Properties and Real Estate Debt Investments as our Real Estate Investments.
As of September 30, 2010, we own five multifamily residential rental properties through our 100% owned subsidiaries, as follows:
|
Subsidiary / Apartment Complex
|
Purchase
Date
|
Leverage
Ratio (1)
|
Number
of Units
|
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
|
|||||
|
822
|
|
(1)
|
Face value of mortgage divided by total property capitalization, including reserves, escrows, fees and closing costs.
|
The following tables set forth operating statistics about our multifamily residential rental properties:
|
Apartment Complex
|
Average
Occupancy Rate (1)
|
Average Effective Rent
per Square Foot (2)
|
Ratio of Operating
Expense to Revenue (3)
|
|||||||||||||||||||||
|
Three Months Ended September 30,
|
2010
|
2009
|
2010
|
2009
|
2010
|
2009
|
||||||||||||||||||
|
Memorial Towers
|
92.3% | 90.2% | $ | 0.99 | $ | 1.01 | 77% | 79% | ||||||||||||||||
|
Villas
|
96.1% | 89.1% | $ | 0.83 | $ | 0.77 | 58% | 75% | ||||||||||||||||
|
Coach Lantern
|
97.0% | 95.2% | $ | 0.98 | $ | 0.94 | 40% | 45% | ||||||||||||||||
|
Foxcroft
|
94.9% | 95.2% | $ | 1.01 | $ | 0.96 | 47% | 51% | ||||||||||||||||
|
Park Hill
|
91.3% | 93.6% | $ | 0.72 | $ | 0.73 | 58% | 91% | ||||||||||||||||
|
Apartment Complex
|
Average
Occupancy Rate (1)
|
Average Effective Rent
per Square Foot (2)
|
Ratio of Operating
Expense to Revenue (3)
|
|||||||||||||||||||||
|
Nine Months Ended
September 30,
|
2010
|
2009 (4)
|
2010
|
2009
|
2010
|
2009
|
||||||||||||||||||
|
Memorial Towers
|
93.8% | 92.5% | $ | 1.02 | $ | 1.04 | 71% | 78% | ||||||||||||||||
|
Villas
|
94.1% | 90.9% | $ | 0.81 | $ | 0.80 | 62% | 79% | ||||||||||||||||
|
Coach Lantern
|
93.7% | 92.0% | $ | 0.94 | $ | 0.88 | 38% | 39% | ||||||||||||||||
|
Foxcroft
|
94.4% | 93.1% | $ | 0.98 | $ | 0.90 | 46% | 48% | ||||||||||||||||
|
Park Hill
|
92.6% | 85.7% | $ | 0.76 | $ | 0.67 | 61% | 75% | ||||||||||||||||
|
(1)
|
Number of occupied units divided by total units adjusted for any unrentable units.
|
|
(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 the period.
|
|
(3)
|
Property operating expenses as a percentage of rental revenue.
|
|
(4)
|
We revised the information in this column from that previously disclosed to reflect the weighted average occupancy rate. As disclosed in prior filings, the occupancy rates for the nine months ended September 30, 2009 were: Memorial Towers 81.9%, Villas 81.0%, Coach Lantern 81.6%, Foxcroft 82.3% and Park Hill 75.9%.
|
We also own three subordinated notes through our wholly owned subsidiary, RRE Funding II, LLC, or Funding, which was formed to hold title to our Real Estate Debt Investments, as follows (in thousands, except rates and units):
|
Apartment complex
|
Face Value
of Note
|
Carrying
Value of
Note
|
Interest
Rate
|
Number of
Units
|
Location
|
||||||||||||
|
Acacia Park
|
$ | 2,000 | $ | − | 10.27% | 304 |
San Bernardino, California
|
||||||||||
|
Hillwood
|
$ | 400 | $ | − | 10.97% | 118 |
Montgomery, Alabama
|
||||||||||
|
Southern Cove
|
$ | 500 | $ | − | 12.75% | 100 |
Las Vegas, Nevada
|
||||||||||
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 Real Estate Investments in late 2007 and early 2008, we do not expect that we will sell or refinance our Properties during at least the next year. Should the current recession continue or intensify, we could experience lower occupancy and lower rental revenues and higher operating costs all of which could harm our operations and financial condition, reduce the value of our Real Estate Investments and adversely affect the distributions to our limited partners.
Our Real Estate Debt Investments no longer generate revenue as a result of borrower defaults. In 2009, all three of our Real Estate Debt Investments were materially adversely affected by economic conditions in the United States, as discussed below, and were placed on non-accrual status. Once we place a loan on non-accrual, we recognize revenue only as cash is received. We have established an allowance for loan loss of approximately $2.6 million to fully reserve all three loans.
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, including, in particular, our lease assurance program and our Lease Rent Optimizer, or LRO, program which includes rent concessions and a substantial capital improvements program. Under our lease assurance program, we are marketing our apartment units to current and potential tenants who are worried about incurring substantial lease breakage penalties if they lose their jobs. The program allows tenants who sign new or renewal leases to terminate their leases without penalty within 45 days after they provide proof of an involuntary job loss. 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. As a result of these programs, our Properties experienced an overall increase in the average occupancy rate during the nine months ended September 30, 2010 of approximately 2.9%, with an average occupancy rate of 93.7% as compared to an average occupancy rate during the same period in 2009 of 90.8%. However, although we experienced an overall increase in the average occupancy rate, two of our properties experienced a decrease during the three months ended September 30, 2010 as compared to the three months ended September 30, 2009. Foxcroft experienced a 0.3% drop due to normal fluctuations in move-ins and move-outs. Park Hill Apartments experienced a 2% drop in occupancy to 91.3% due to extraordinary occurrences as detailed in the “Liquidity and Capital Resources” discussion below. We have increased tenant concessions and marketing in an attempt to increase occupancy at Park Hill.
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 $5.2 million in the next seven years for property improvements intended to increase the Properties’ appeal to tenants. As we implement planned improvements to our Properties, we seek to cause our occupancy rates and, potentially, rental rates and our cash flow from operating activities to increase.
The following table sets forth the results of our operations for the three months ended September 30, 2010 and 2009 (in thousands, except per unit data):
|
September 30,
|
Increase (Decrease)
|
|||||||||||||||
|
2010
|
2009
|
Dollars
|
Percent
|
|||||||||||||
|
Revenues:
|
||||||||||||||||
|
Rental income
|
$ | 1,985 | $ | 1,946 | $ | 39 | 2% | |||||||||
|
Interest income from loans held for investment
|
− | 111 | (111 | ) | (100%) | |||||||||||
|
Total revenues
|
1,985 | 2,057 | (72 | ) | (3%) | |||||||||||
|
Expenses:
|
||||||||||||||||
|
Rental operating
|
945 | 1,133 | (188 | ) | (17%) | |||||||||||
|
Management fees – related parties
|
194 | 197 | (3 | ) | (2%) | |||||||||||
|
General and administrative
|
133 | 176 | (43 | ) | (24%) | |||||||||||
|
Provision for loan losses
|
− | 1,690 | (1,690 | ) | (100%) | |||||||||||
|
Depreciation and amortization
|
661 | 619 | 42 | 7% | ||||||||||||
|
Total expenses
|
1,933 | 3,815 | (1,882 | ) | (49%) | |||||||||||
|
Income (loss) before interest expense, net
|
52 | (1,758 | ) | 1,810 | (103%) | |||||||||||
|
Interest expense, net
|
(664 | ) | (647 | ) | (17 | ) | (3%) | |||||||||
|
Net loss
|
$ | (612 | ) | $ | (2,405 | ) | $ | 1,793 | (75%) | |||||||
|
Weighted average limited partner units outstanding
|
3,710 | 3,712 | ||||||||||||||
|
Net loss per weighted average limited partner unit
|
$ | (0.16 | ) | $ | (0.65 | ) | ||||||||||
Revenues – Three Months Ended September 30, 2010 Compared to Three Months Ended September 30, 2009
We attribute the $72,000 decrease in revenues to a decrease of $111,000 in interest income from our Real Estate Debt Investments. We placed the loans on non-accrual and do not expect to receive any revenue from them in 2010. The decrease was offset, in part, by an increase of $39,000 in rental income principally due to an increase during the three month period of 1.8% in the weighted average occupancy rate for our Properties.
Expenses – Three Months Ended September 30, 2010 Compared to Three Months Ended September 30, 2009
We attribute the $1.9 million decrease in expenses principally to the following:
|
|
·
|
a $1.7 million decrease in provision for loan losses; the loans were fully reserved for at December 31, 2009;
|
|
|
·
|
a $188,000 decrease in rental operating expenses as a result of reduced real estate tax expense of $138,000 at three of the properties due to successful appeals of their tax assessments, and decreased electricity expense of $44,000 at Memorial Towers, as discussed in “Liquidity and Capital Resources,” below;
|
|
|
·
|
a $43,000 decrease in general and administrative expenses due to a reduction of professional fees at the fund level; partially offset by
|
|
|
·
|
a $42,000 increase in depreciation and amortization due to an increase in the amount of personal property at the Properties.
|
The following table sets forth the results of our operations for the nine months ended September 30, 2010 and 2009 (in thousands, except per unit data):
|
September 30,
|
Increase (Decrease)
|
|||||||||||||||
|
2010
|
2009
|
Dollars
|
Percent
|
|||||||||||||
|
Revenues:
|
||||||||||||||||
|
Rental income
|
$ | 5,871 | $ | 5,663 | $ | 208 | 4% | |||||||||
|
Interest income from loans held for investment
|
− | 256 | (256 | ) | (100%) | |||||||||||
|
Total revenues
|
5,871 | 5,919 | (48 | ) | (1%) | |||||||||||
|
Expenses:
|
||||||||||||||||
|
Rental operating
|
2,831 | 3,369 | (538 | ) | (16%) | |||||||||||
|
Management fees – related parties
|
587 | 588 | (1 | ) | (0)% | |||||||||||
|
General and administrative
|
419 | 524 | (105 | ) | (20%) | |||||||||||
|
Provision for loan losses
|
− | 1,786 | (1,786 | ) | (100%) | |||||||||||
|
Depreciation and amortization
|
1,968 | 1,895 | 73 | 4% | ||||||||||||
|
Total expenses
|
5,805 | 8,162 | (2,357 | ) | (29%) | |||||||||||
|
Income (loss) before interest expense, net
|
66 | (2,243 | ) | 2,309 | (103%) | |||||||||||
|
Interest expense, net
|
(2,084 | ) | (1,909 | ) | (175 | ) | (9%) | |||||||||
|
Net loss
|
$ | (2,018 | ) | $ | (4,152 | ) | $ | (2,134 | ) | (51%) | ||||||
|
Weighted average limited partner units outstanding
|
3,710 | 3,713 | ||||||||||||||
|
Net loss per weighted average limited partner unit
|
$ | (0.54 | ) | $ | (1.12 | ) | ||||||||||
Revenues – Nine Months Ended September 30, 2010 Compared to Nine Months Ended September 30, 2009
We attribute the $48,000 decrease to a $256,000 decrease in interest income from our Real Estate Debt Investments. We have placed the loans on non-accrual and do not expect that we will receive any revenue from them in 2010. The decrease is offset by a $208,000 increase in rental income principally due to an increase during the nine month period of 2.9% in the weighted average occupancy rate for our Properties.
Expenses – Nine Months Ended September 30, 2010 Compared to Nine Months Ended September 30, 2009
We attribute the $2.4 million decrease in expenses principally to the following:
|
|
·
|
a $538,000 decrease in rental operating expenses as a result of reduced real estate tax expense of $128,000 at three properties due to the successful appeals of their tax assessments, reduced turnover expenses of $93,000 for Villas and Park Hill, decreased utility expenses of $44,000 for Villas and Park Hill, decreased marketing expense of $53,000 and decreased payroll expense of $40,000 due to the completion of successful leasing efforts at Park Hill, as discussed in “Liquidity and Capital Resources,” below, and decreased electricity expense of $119,000 at Memorial Towers, as discussed in “Liquidity and Capital Resources,” below;
|
|
|
·
|
a $105,000 decrease in general and administrative expenses due to insurance proceeds received from a loss that occurred two years ago at Memorial Towers; and
|
|
|
·
|
a $1.7 million decrease in provision for loan loss; the loans were fully reserved for at December 31, 2009; partially offset by
|
|
|
·
|
a $73,000 increase in depreciation and amortization due to an increase in the amount of personal property at the properties.
|
We attribute the $175,000 increase in net interest expense to a modification of the calculation of the effective yield method of amortization of the deferred financing costs.
Liquidity and Capital Resources
During 2007 and 2008, we raised a total of $36.8 million through the issuance of limited partnership interests, including $1.8 million from our General Partner. The funds were used to purchase five properties and three subordinated notes, which completed our asset acquisition phase.
The following table sets forth our sources and uses of cash (in thousands):
|
Nine Months Ended
September 30,
|
||||||||
|
2010
|
2009
|
|||||||
|
Provided by (used in) operating activities (1)
|
$ | 505 | $ | (38 | ) | |||
|
Used in investing activities
|
(330 | ) | (2,115 | ) | ||||
|
Used in financing activities
|
(1,067 | ) | (1,510 | ) | ||||
|
Net decrease in cash
|
$ | (892 | ) | $ | (3,663 | ) | ||
|
(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.
During the nine months ended September 30, 2009, two of our Properties incurred one-time expenses, which we do not expect to occur in the future. At Park Hill, during late 2008 and early 2009, we experienced a decline in occupancy because a large number of residents worked for a government subcontractor whose contracts were cancelled; as a result, many residents terminated their leases and vacated the premises. The high volume of move-outs focused our efforts to quickly re-lease the property and increase occupancy. Park Hill’s average occupancy for the current quarter was 91.3%. The property is now stabilized. At Memorial Towers, in 2009 we had a major pipe replacement project which caused the electricity usage at the property to increase which in turn increased our electricity expense. The project has now been completed and the expense has since decreased. In addition, significant transition costs were incurred after we acquired the property in order to correct maintenance deferred by the previous owners. These costs have been treated as operating expenses in the consolidated financial statements.
The following table sets forth the capital expenditures incurred during the nine months ended September 30, 2010 and estimated future capital expenditures which are discretionary in nature (in thousands):
|
Apartment Complex
|
Capital
Expenditures
|
Future Discretionary Capital Expenditures
|
||||||
|
Memorial Towers
|
$ | 22 | $ | 674 | ||||
|
Villas
|
65 | 1,283 | ||||||
|
Coach Lantern
|
46 | 737 | ||||||
|
Foxcroft
|
54 | 770 | ||||||
|
Park Hill
|
143 | 1,690 | ||||||
|
Total
|
$ | 330 | $ | 5,154 | ||||
We spent $330,000 on capital expenditures during the nine months ended September 30, 2010. Funding for future discretionary capital expenditures over the remaining life of the Partnership will come from both the cash reserves established when the properties were purchased and future operating cash flows. Although our capital expenditures were nominal during the nine months ended September 30, 2010, we have planned a series of major capital projects for our Properties, such as repairs and renovations on the HVAC systems, parking improvements, and foundation work. We review future expenditures periodically and adjust them based on both operating results and local market conditions. 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. The $248,000 decrease in the balance from December 31, 2009 to September 30, 2010 is due to the payment of the 2009 real estate taxes on three of our properties in early 2010.
Critical Accounting Policies
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, 2009 under “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates.”
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Omitted as permitted under rules applicable to smaller reporting companies.
|
CONTROLS AND PROCEDURES
|
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 Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our General Partner, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, our General Partner 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 our General Partner’s principal executive officer and principal financial officer, 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 General Partner’s principal executive officer and principal 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 the three months ended September 30, 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
|
EXHIBITS
|
|
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 and Chief Financial 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 Executive Officer and Chief Financial Officer pursuant to Section 1350 18 U.S.C., as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
(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.
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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 hereunto duly authorized.
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RESOURCE REAL ESTATE INVESTORS 6, L.P.
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By: Resource Capital Partners, Inc., its general partner
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November 10, 2010
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By: /s/ Kevin M. Finkel
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Kevin M. Finkel
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President
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(Principal Executive Officer)
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November 10, 2010
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By: /s/ Steven R. Saltzman
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Steven R. Saltzman
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Vice President – Finance
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(Principal Financial and Accounting Officer)
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