Attached files

file filename
EX-31.1 - EXHIBIT 31.1 - Resource Real Estate Investors 6 LPr6-20150331xex311.htm
EX-32.2 - EXHIBIT 32.2 - Resource Real Estate Investors 6 LPr6-20150331xex322.htm
EX-31.2 - EXHIBIT 31.2 - Resource Real Estate Investors 6 LPr6-20150331xex312.htm
EX-32.1 - EXHIBIT 32.1 - Resource Real Estate Investors 6 LPr6-20150331xex321.htm
EXCEL - IDEA: XBRL DOCUMENT - Resource Real Estate Investors 6 LPFinancial_Report.xls

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q
(Mark One)
þ           QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2015
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 0-53652
Resource Real Estate Investors 6, L.P.
(Exact name of registrant as specified in its charter)
Delaware
 
37-1548084
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
One Crescent Drive, Suite 203, Navy Yard Corporate Center, Philadelphia, PA  19112
(Address of principal executive offices) (Zip code)
(215) 231-7050
(Registrant's telephone number, including area code)
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 þ 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 þ No o
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.
Large accelerated filer
¨
 
Accelerated filer
¨
Non-accelerated filer
¨
(Do not check if a smaller
reporting company)
Smaller reporting company
þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o No þ










RESOURCE REAL ESTATE INVESTORS 6, L.P.
INDEX TO QUARTERLY REPORT
ON FORM 10-Q

 
 
PAGE
PART I
FINANCIAL INFORMATION
 
 
 
 
ITEM 1.
Financial Statements
 
 
 
 
 
3 
 
 
 
 
 4
 
 
 
 
 
 
 
 
 6
 
 
 
 
 
 
 
ITEM 2.
 
 
 
ITEM 3.
 
 
 
ITEM 4.
 
 
 
PART II
OTHER INFORMATION
 
 
 
 
ITEM 6.
20 
 
 
 
 







PART I.     FINANCIAL INFORMATION
ITEM 1.    FINANCIAL STATEMENTS


RESOURCE REAL ESTATE INVESTORS 6, L.P.
CONSOLIDATED BALANCE SHEETS
(in thousands)
 
March 31,
 
December 31,
 
2015
 
2014
 
(unaudited)
 
 
ASSETS
 
 
 
Rental properties, at cost:
 
 
 
Land
$
7,430

 
$
7,430

Buildings and improvements
59,865

 
59,849

Personal property
2,416

 
2,384

 
69,711

 
69,663

Accumulated depreciation and amortization
(19,380
)
 
(18,774
)
 
50,331

 
50,889

 
 
 
 
Cash
503

 
474

Restricted cash
767

 
1,500

Tenant receivables
3

 
6

Receivables from related parties
65

 
100

Prepaid expenses and other assets
125

 
128

Deferred financing costs, net
341

 
381

Total assets
$
52,135

 
$
53,478

LIABILITIES AND PARTNERS’ CAPITAL
 

 
 

Liabilities:
 

 
 

Mortgage notes payable
$
44,452

 
$
44,559

Accounts payable and accrued expenses
605

 
596

Real estate taxes payable
285

 
1,057

Accrued interest
198

 
198

Payables to related parties
3,303

 
3,123

Prepaid rent
69

 
52

Security deposits
182

 
178

Total liabilities
49,094

 
49,763

Partners’ capital
3,041

 
3,715

Total liabilities and partners’ capital
$
52,135

 
$
53,478


 






The accompanying notes are an integral part of these consolidated financial statements.


RESOURCE REAL ESTATE INVESTORS 6, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per unit data)
(unaudited)



 
Three Months Ended 
 March 31,
 
2015
 
2014
Revenues:
 
 
 
Rental income
$
2,480

 
$
2,401

 
 
 
 
Expenses:
 
 
 
Rental operating
1,253

 
1,389

Management fees – related parties
221

 
219

General and administrative
165

 
153

Depreciation and amortization
614

 
655

Total expenses
2,253

 
2,416

 
 
 
 
Income before other (expense) income
227

 
(15
)
 
 
 
 
Other (expense) income:
 
 
 
Interest expense, net
(615
)
 
(644
)
Loss on sale or disposal of fixed assets
(5
)
 
(3
)
Net loss
$
(393
)
 
$
(662
)
 
 
 
 
Weighted average number of limited partner units outstanding
3,702

 
3,702

 
 
 
 
Net loss per weighted average limited partner unit
$
(0.11
)
 
$
(0.18
)
 


















The accompanying notes are an integral part of these consolidated financial statements.


RESOURCE REAL ESTATE INVESTORS 6, L.P.
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS’ CAPITAL
FOR THE THREE MONTHS ENDED MARCH 31, 2015
(in thousands, except units)
(unaudited)



 
General Partner
 
Limited Partners
 
 
 
 
Units
 
Amount
 
Total
Balance at January 1, 2014
$
1

 
3,701,890

 
$
3,714

 
$
3,715

Distributions

 

 
(281
)
 
(281
)
Net loss

 

 
(393
)
 
(393
)
Balance at March 31, 2015
$
1

 
3,701,890

 
$
3,040

 
$
3,041




 


































The accompanying notes are an integral part of this consolidated financial statements.








RESOURCE REAL ESTATE INVESTORS 6, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)



 
For the Three Months Ended March 31,
 
 
2015
 
2014
Cash flows from operating activities:
 
 
 
Net loss
$
(393
)
 
$
(662
)
Adjustments to reconcile net loss to net cash provided by
operating activities:
 

 
 

Depreciation and amortization
614

 
655

Amortization of deferred financing costs
40

 
63

Loss on sale or disposal of fixed assets
5

 
3

Changes in operating assets and liabilities:
 

 
 

Restricted cash
733

 
691

Tenant receivables, net
3

 
(4
)
Receivables from related parties
35

 
166

Prepaid expense and other assets
3

 
(6
)
Accounts payable and accrued expenses
9

 
43

Real estate tax payable
(772
)
 
(722
)
Payables to related parties
180

 
153

Prepaid rent
17

 
(7
)
Security deposits
4

 
4

Net cash provided by operating activities
478

 
377

 
 
 
 
Cash flows from investing activities:
 

 
 

Capital expenditures
(61
)
 
(55
)
Net cash used in investing activities
(61
)
 
(55
)
 
 
 
 
Cash flows from financing activities:
 

 
 

Principal payments on mortgage notes payable
(107
)
 
(102
)
Distributions to limited partners
(281
)
 
(279
)
Net cash used in financing activities
(388
)
 
(381
)
Net increase (decrease) in cash
29

 
(59
)
Cash at beginning of period
474

 
619

Cash at end of period
$
503

 
$
560










The accompanying notes are an integral part of this consolidated financial statements.





RESOURCE REAL ESTATE INVESTORS 6, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2015
(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 “Properties”).  The Partnership also has invested in subordinated notes secured by multifamily residential properties located in California and Nevada.  The Partnership was formed on July 26, 2007 and commenced operations on October 1, 2007.  The Partnership was capitalized by an offering of partnership units which was closed on May 19, 2008.  The General Partner, Resource Capital Partners, Inc. (“RCP”, the “General Partner” or the “GP”), is in the business of sponsoring and managing real estate investment limited partnerships.  RCP contributed $1,000 in cash as its minimum capital contribution to the Partnership.  In addition, RCP held a 5.55% and 5.54% limited partnership interest in the Partnership at March 31, 2015 and December 31, 2014, respectively.  RCP is an indirect wholly owned subsidiary of Resource America, Inc. (“RAI”), a publicly traded company (NASDAQ: REXI) operating in the real estate, financial fund management and commercial finance 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. At this time, the Partnership expects that the General Partner will exercise its right on or before June 30, 2015, to extend the Partnership's term in order to maximize the return to the Partnership's investors.
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 LPs until their Adjusted Capital Contributions (as defined in the Agreement) have been reduced to zero; and thereafter, 80% to the LPs and 20% to the GP.

The consolidated financial statements and the information and tables contained in the notes thereto as of March 31, 2015 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, 2014. The results of operations for the three months ended March 31, 2015 may not necessarily be indicative of the results of operations for the full year ending December 31, 2015.
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:


RESOURCE REAL ESTATE INVESTORS 6, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

Subsidiaries
 
Number of Units
 
Location
RRE Memorial Towers Holdings, LLC (“Memorial Towers”)
 
112
 
Houston, Texas
RRE Villas Holdings, LLC (“Villas”)
 
228
 
San Antonio, Texas
RRE Coach Lantern Holdings, LLC (“Coach Lantern”)
 
90
 
Scarborough, Maine
RRE Foxcroft Holdings, LLC (“Foxcroft”)
 
104
 
Scarborough, Maine
RRE Park Hill Holdings, LLC (“Park Hill”)
 
288
 
San Antonio, Texas
Total
 
822
 
 
The Partnership also owns a 100% interest in RRE Funding II, LLC (“Funding”), which owns two non-performing subordinated notes, Acacia Park (“Acacia”), and Southern Cove (“Southern Cove”), with a combined face value of $2.5 million. During the year ended December 31, 2012, the loans were deemed uncollectible and charged off.
All intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  The Partnership estimates the allowance for uncollectible receivables and loan losses and adjusts the balance quarterly.  The Partnership also estimates the liability for real estate taxes on the Texas properties and adjusts the balance quarterly. Actual results could differ from those estimates.
Supplemental Disclosure of Cash Flow Information
During the three months ended March 31, 2015 and 2014, the Partnership paid $576,000 and $581,000 in cash for interest, respectively.
Deferred Financing Costs
Costs incurred to obtain financing have been capitalized and are being amortized over the term of the related debt using the effective yield method.
Income Taxes
Income taxes or credits resulting from earnings or losses are payable by or accrue to the benefit of, the partners; accordingly, no provision has been made for income taxes in these consolidated financial statements.
The Partnership evaluates the benefits of tax positions taken or expected to be taken in its tax returns under a two-step recognition and measurement process.  Only the largest amount of benefits from the tax positions that will more likely than not be sustainable upon examination are recognized by the Partnership.  The Partnership does not have any unrecognized tax benefits, nor interest and penalties, recorded in the Consolidated Balance Sheets or Consolidated Statements of Operations and does not anticipate significant adjustments to the total amount of unrecognized tax benefits within the next twelve months.
The Partnership is subject to examination by the U.S. Internal Revenue Service and by the taxing authorities in those states in which the Partnership has significant business operations.  The Partnership is not currently undergoing any examinations by taxing authorities.  The Partnership may be subject to U.S. federal income tax and state/local income tax examinations for years 2011 through 2014.
Revenue Recognition
Revenue is primarily derived from the rental of residential housing units with lease agreement terms of generally one year or less.  The Partnership recognizes revenue in the period that rent is earned, which is on a monthly basis.  The Partnership recognizes rent as income on a straight-line basis over the term of the related lease.  Additionally, any incentives included in the lease are amortized on a straight-line basis over the term of the related lease.


RESOURCE REAL ESTATE INVESTORS 6, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

Included within rental income are other income amounts such as utility reimbursements, late fees, parking fees, pet fees and lease application fees which are recognized when earned or received.
The future minimum rental payments to be received from noncancelable operating leases total approximately $4.5 million and $66,000 for the twelve months ending March 31, 2015 and 2016, respectively, and none thereafter.
Loans Held for Investment, Net
The Partnership recognizes any revenue from the loans it holds for investment as interest income using the effective yield method.
The initial investment made in a purchased loan includes the amount paid to the seller plus any fees. The initial investment frequently differs from the related loan’s principal amount at the date of purchase. This difference is recognized as an adjustment of the yield over the life of the loan.
The Partnership initially records its loans at their respective purchase prices, and subsequently accounts for them based on their outstanding principal plus or minus any unamortized premiums or discounts.
Long-Lived Assets
The Partnership reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  If it is determined that an asset’s estimated future cash flows will not be sufficient to recover its carrying amount, an impairment charge will be recorded to reduce the carrying amount for that asset to its estimated fair value.   The Partnership has estimated that the future cash flows from its properties will be sufficient to recover their carrying amounts and, as a result, the Partnership did not recognize any impairment losses with respect to its Properties for either the three months ended March 31, 2015 or 2014.
Rental Properties
Rental properties are carried at cost, net of accumulated depreciation.  Buildings and improvements and personal property are depreciated for financial reporting purposes on the straight-line method over their estimated useful lives.  The value of in-place leases is amortized over twelve months on a straight-line basis.  Useful lives used for calculating depreciation for financial reporting purposes are as follows:
 
Buildings and improvements
5 - 27.5 years
 
 
Personal property
3 - 15 years
 
Advertising
The Partnership expenses advertising costs as they are incurred.  Advertising costs, which are included in rental operating expenses, totaled $28,000 and $17,000 for the three months ended March 31, 2015 and 2014, respectively.
Tenant Receivables
Tenant receivables are stated in the financial statements at amounts due from tenants net of an allowance for uncollectible receivables.  Payment terms vary and receivables outstanding longer than the payment terms are considered past due.  The Partnership determines its allowance by considering a number of factors, including the length of time receivables are past due, security deposits held, the Partnership’s previous loss history, the tenants’ current ability to pay their obligations to the Partnership, the general condition of the economy and the condition of the industry as a whole.  The Partnership writes off receivables when they become uncollectible.  At both March 31, 2015 and December 31, 2014, the allowance for uncollectible receivables was $0.
Redemptions
The LPs may request redemption of their units at any time.  The Partnership has no obligation to redeem any units and will do so only at the GP’s discretion.  If the Partnership redeems units, the redemption price is generally the amount of the initial investment less all distributions from the Partnership to the LP, and less all organization and offering expenses charged to the LP.



RESOURCE REAL ESTATE INVESTORS 6, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

Recent Accounting Standards
In April 2014, the Financial Accounting Standards Board ("FASB") issued authoritative guidance to change the criteria for reporting discontinued operations. Under the new guidance, only disposals representing a strategic shift in a company's operations and financial results should be reported as discontinued operations, with expanded disclosures. In addition, disclosure of the pre-tax income attributable to a disposal of a significant part of an organization that does not qualify as discontinued operations is required. This guidance was effective for the Partnership as of January 1, 2015. The Partnership believes this amendment will have no impact on its financial statements.
Accounting Standards Issued But Not Yet Effective.
In May 2014, FASB issued Accounting Standards Update (“ASU") No. 2014-09, “Revenue from Contracts with Customers”, which will replace most existing revenue recognition guidance in GAAP.  The core principle of ASU No. 2014-09 is that an entity should recognize revenue for the transfer of goods or services equal to the amount that it expects to be entitled to receive for those goods or services.  ASU No. 2014-09 requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments. ASU No. 2014-09 will be effective for the Partnership beginning January 1, 2017, including interim periods in 2017, and allows for both retrospective and prospective methods of adoption. The FASB has proposed a one-year deferral for implementing this new guidance. The Partnership is in the process of determining the method of adoption and assessing the impact of this guidance on the Partnership’s consolidated financial position, results of operations and cash flows.
            In August 2014, FASB issued ASU No. 2014-15, "Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern." Under the new guidance, an entity should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. The guidance is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early adoption is permitted. The adoption of the new requirements is not expected to have a significant impact on the Partnership's consolidated financial statements.
            In January 2015, FASB issued ASU No. 2015-01, "Income Statement - Extraordinary and Unusual Items (Subtopic 225-20), Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items." The amendments in ASU No. 2015-01 eliminate from GAAP the concept of extraordinary items. Although the amendment will eliminate the requirements for reporting entities to consider whether an underlying event or transaction is extraordinary, the presentation and disclosure guidance for items that are unusual in nature or occur infrequently will be retained and will be expanded to include items that are both unusual in nature and infrequently occurring.  ASU No. 2015-01 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The Partnership does not expect the adoption of ASU No. 2015-01 to have a significant impact on its consolidated financial statements.
In April 2015, the FASB issued ASU 2015-03, "Simplifying the Presentation of Debt Issuance Costs" ("ASU 2015-03"), which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected. Upon adoption, the Partnership will apply the new guidance on a retrospective basis and adjust the balance sheet of each individual period presented to reflect the period-specific effects of applying the new guidance. This guidance is effective for the Partnership beginning January 1, 2016. The Partnership is continuing to evaluate this guidance; however, it does not expect the adoption of ASU 2015-03 to have a significant impact on its consolidated financial statements.








RESOURCE REAL ESTATE INVESTORS 6, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(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):
 
March 31,
2015
 
December 31,
2014
Real estate taxes
$
263

 
$
1,122

Insurance
157

 
136

Capital improvements
347

 
242

Total
$
767

 
$
1,500

NOTE 4 - DEFERRED FINANCING COSTS
Deferred financing costs include unamortized costs incurred to obtain financing which are being amortized over the term of the related debt.  Accumulated amortization as of March 31, 2015 and December 31, 2014 was $1.8 million and $1.7 million, respectively.  Estimated amortization of the Properties’ existing deferred financing costs for the next three years ending March 31, is as follows (in thousands):
2015
 
$
159

2016
 
129

2017
 
53

 
 
$
341

NOTE 5 - MORTGAGE NOTES PAYABLE
The following is a summary of mortgage notes payable (in thousands, except percentages):
Property
 
Balance at March 31, 2015
 
Balance at December 31, 2014
 
Maturity
Date
 
Annual Interest Rate
 
Average Monthly Debt Service
 
Memorial Towers
 
$
7,187

 
$
7,214

 
1/1/2017
 
5.49%
 
$
42

(1) 
Villas
 
10,489

 
10,528

 
1/1/2017
 
5.48%
 
$
61

(1) 
Coach Lantern
 
7,884

 
7,884

 
2/1/2016
 
2.68%
 
$
32

(2) 
Foxcroft
 
8,760

 
8,760

 
2/1/2016
 
2.68%
 
$
36

(2) 
Park Hill
 
10,132

 
10,173

 
3/1/2018
 
5.05%
 
$
56

(3) 
Total
 
$
44,452

 
$
44,559

 
 
 
 
 
 

 
_________________
(1)
Interest only was payable through January 1, 2013; thereafter through the maturity date, monthly payment includes principal and interest.
(2)
Interest only is payable through the maturity date. The partnership has exercised the option to extend the maturity date for an additional one year to February 1, 2016. During the extension period, the interest rate is variable and calculated monthly based upon the one-month British Bankers Association London Interbank Offered Rate ("LIBOR") plus 2.5%. The LIBOR at March 31, 2015 was 18 basis points.
(3)
Interest only was payable through March 1, 2013; thereafter through the maturity date, monthly payment includes principal and interest.

Annual principal payments on the mortgage notes payable for each of the next three years ending March 31, are as follows (in thousands):
2016
 
17,062

2017
 
17,586

2018
 
9,804

 
 
$
44,452



RESOURCE REAL ESTATE INVESTORS 6, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

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 with respect to each property.  These exceptions are referred to as “carveouts”.  In general, carveouts relate to damages suffered by the lender for a subsidiary’s failure to pay rents, insurance or condemnation proceeds to the lender, to pay water, sewer and other public assessments or charges, to pay environmental compliance costs or to deliver books and records, in each case as required in the loan documents.  The exceptions also require the GP to guarantee payment of audit costs, lender’s enforcement of its rights under the loan documents and payment of the loan if the subsidiary voluntarily files for bankruptcy or seeks reorganization, or if a related party of the subsidiary does so with respect to the subsidiary.

NOTE 6 - CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

In the ordinary course of its business operations, the Partnership has ongoing relationships with several related entities.  Receivables from and payables to related parties are summarized as follows (in thousands):
 
 
March 31,
2015
 
December 31,
2014
Receivables from related parties:
 
 
 
 
     RAI and affiliates
 
$
65

 
$
100

 
 
 
 
 
Payables to related parties:
 
 

 
 

     RAI and affiliates
 
$
3,303

 
$
3,123


Substantially all of the receivables from related parties represent escrow funds held by RAI for self-insurance. The Partnership's properties participate in insurance pools with other properties directly and indirectly managed by RAI for both property insurance and general liability. RAI holds the escrow funds related to the insurance pool on its books. The insurance pool covers losses up to $2.5 million for property losses and $750,000 for general liability losses. Catastrophic insurance would cover property losses in excess of the insurance pool up to $85.0 million. Therefore, unforeseen or catastrophic losses in excess of the Partnership's insured limits could have a material adverse effect on the Partnership's financial condition and operating results.
RCP is entitled to receive an annual investment management fee, payable monthly, equal to 1% of the gross offering proceeds that have been depoloyed in real estate investments, net of any amounts otherwise attributable to LP interests owned by RCP.  During the term of the Partnership, RCP must subordinate up to 100% of its annual investment management fee to the receipt by the LPs of their Preferred Return.  Investment management fees due to RCP at March 31, 2015 and December 31, 2014 totaled $2.5 million and $2.4 million, respectively.
A wholly-owned subsidiary of RCP, Resource Real Estate Management, LLC (“RREML”) is entitled to receive property and debt management fees as set forth in the table below.  RREML engaged Resource Real Estate Management, Inc (“RREMI”), an indirect wholly owned subsidiary of RAI, to manage the Partnership’s properties.  Management fees due to RCP and affiliates at March 31, 2015 and December 31, 2014 totaled $504,000 and $435,000, respectively.
During the ordinary course of business, RCP and RREMI advance funds for ordinary operating expenses on behalf of the Properties.  Operating expense advances due to RCP and RREMI at March 31, 2015 and December 31, 2014 totaled $265,000 and $252,000, respectively.

    










RESOURCE REAL ESTATE INVESTORS 6, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)

The Partnership is obligated to pay fees and reimbursements of expenses to related parties.  These activities are summarized as follows (in thousands):
 
 
Three Months Ended
 
 
March 31,
 
 
2015
 
2014
RCP:
 
 
 
 
   Investment management fees
 
$
85

 
$
85

 
 
 
 
 
RREML:
 
 
 
 
   Property management fees (1) 
 
124

 
119

   Debt management fees (2) 
 
12

 
15

 
 
136

 
134

 
 
$
221

 
$
219

_______________
(1)
RREML is entitled to receive monthly property management fees equal to 5% of the gross operating revenues from the Partnership’s 100% owned properties for managing or obtaining and supervising third party managers.
(2)
RREML is also entitled to receive monthly debt management fees equal to 0.167% (2% per annum) of the gross offering proceeds that have been invested in loans held for investment.  The fee is earned for monitoring the performance of the Partnership’s loans held for investment.
NOTE 7 - FAIR VALUE OF FINANCIAL INSTRUMENTS
In analyzing the fair value of its financial instruments disclosed or accounted for on a fair value basis, the Partnership follows the fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.  The Partnership determines fair value based on quoted prices when available or, if quoted prices are not available, through the use of alternative approaches, such as discounting the expected cash flows using market interest rates commensurate with the credit quality and duration of the financial instruments.  The fair value of cash, tenant receivables, and accounts payables approximate their carrying values due to their short term nature.  The hierarchy followed defines three levels of inputs that may be used to measure fair value:
Level 1 - Quoted prices in active markets for identical assets that the reporting entity has the ability to access at the measurement date. 
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or can be corroborated with observable market data for substantially the entire contractual term of the asset.
Level 3 - Unobservable inputs that reflect the entity’s own assumptions about the assumptions that market participants would use in the pricing of the asset and are consequently not based on market activity, but rather through particular valuation techniques.
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: 
Mortgage notes payable.  Rates currently available to the Partnership for debt with similar terms and remaining maturities are used to estimate the fair value of existing debt.
The estimated fair value measurements of the mortgage note payables are classified within level 3 of the fair value hierarchy.






RESOURCE REAL ESTATE INVESTORS 6, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS − (Continued)
MARCH 31, 2015
(unaudited)


The carrying amount and estimated fair values of the Partnership’s financial instruments were as follows (in thousands):
 
 
March 31, 2015
 
December 31, 2014
 
 
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
Mortgage notes payable:
 
 
 
 
 
 
 
 
   Memorial Towers
 
$
7,187

 
$
7,499

 
$
7,214

 
$
7,503

   Villas
 
10,489

 
10,942

 
10,528

 
10,948

   Coach Lantern
 
7,884

 
7,904

 
7,884

 
7,904

   Foxcroft
 
8,760

 
8,782

 
8,760

 
8,782

   Park Hill
 
10,132

 
10,641

 
10,173

 
10,604

Total mortgage notes payable
 
$
44,452

 
$
45,768

 
$
44,559

 
$
45,741

NOTE 8 - SUBSEQUENT EVENTS
The Partnership has evaluated subsequent events and determined that no events have occurred which would require an adjustment to the consolidated financial statements.




ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (unaudited)

This report contains certain forward-looking statements. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expects,” “intend,” “may,” “plan,” “potential,” “project,” “should,” “will” and “would” or the negative of these terms or other comparable terminology. Such statements are subject to the risks and uncertainties inherent in partnerships that invest in real estate and real estate assets, including those referred to in our filings under the Securities Exchange Act of 1934. These risks and uncertainties could cause actual results to differ materially. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly revise or update these forward-looking statements to reflect events or circumstances after the date of this report, except as may be required under applicable law.

Overview
We are a Delaware limited partnership that was formed on July 26, 2007 and commenced operations on October 1, 2007.  Through our wholly owned subsidiaries, we own in fee, operate and invest in multifamily residential rental properties located in both Maine and Texas, which we refer to as our properties. Historically, we also invested through a wholly owned subsidiary in subordinated notes secured by multifamily residential rental properties located in California and Nevada.
As of March 31, 2015, we own five multifamily residential rental properties through our wholly-owned subsidiaries, as follows:
Subsidiary / Property
 
Purchase Date
 
Leverage Ratio (1)
 
Number of Units
 
Property
Location
RRE Memorial Towers Holdings, LLC, or Memorial Towers
 
12/18/2007
 
63%
 
112
 
Houston, Texas
RRE Villas Holdings, LLC, or Villas
 
12/27/2007
 
67%
 
228
 
San Antonio, Texas
RRE Coach Lantern Holdings, LLC, or Coach Lantern
 
1/29/2008
 
61%
 
90
 
Scarborough, Maine
RRE Foxcroft Holdings, LLC, or Foxcroft
 
1/29/2008
 
62%
 
104
 
Scarborough, Maine
RRE Park Hill Holdings, LLC, or Park Hill
 
2/29/2008
 
56%
 
288
 
San Antonio, Texas
Total
 
 
 
 
 
822
 
 
_______________
(1)
Face value of mortgage divided by the original total property capitalization, including original reserves, escrows, fees and closing costs.

The following table sets forth operating statistics about our multifamily residential rental properties: 
 
 
Average
Occupancy Rate (1)
 
Average Effective Rent
per Square Foot (2)
 
Ratio of Operating
Expense to Revenue (3)
 
 
Three Months Ended 
 March 31,
 
Three Months Ended 
 March 31,
 
Three Months Ended 
 March 31,
Property
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
Memorial Towers
 
96.5
%
 
94.1
%
 
$
1.39

 
$
1.33

 
64
%
 
72
%
Villas
 
95.9
%
 
90.3
%
 
$
0.99

 
$
0.93

 
55
%
 
63
%
Coach Lantern
 
92.7
%
 
96.4
%
 
$
1.13

 
$
1.12

 
33
%
 
39
%
Foxcroft
 
95.4
%
 
92.2
%
 
$
1.26

 
$
1.12

 
42
%
 
47
%
Park Hill
 
89.0
%
 
93.2
%
 
$
0.88

 
$
0.93

 
65
%
 
68
%
_______________
(1)
Number of occupied units divided by total units adjusted for any unrentable units; average calculated on a weekly basis.
(2)
Average rental revenue divided by total rentable square footage.  We calculate average rental revenue by dividing gross rental revenue by the number of months in a period.
(3)
Includes rental operating expenses and general and administrative expenses as a percentage of rental income.




We also own two subordinated notes, which we refer to as our Real Estate Debt Investments, through our wholly owned subsidiary, RRE Funding II, LLC, or Funding, which was formed to hold title to our Real Estate Debt Investments which, as of March 31, 2015, were as follows (in thousands, except units and percentages):
Real Estate Debt Investment
 
Face Value of Note
 
Carrying Value of Note
 
Stated Interest Rate
 
Number of Units
 
Location
Acacia Park
 
$
2,000

 
$

 
10.27
%
 
304
 
San Bernardino, California
Southern Cove
 
$
500

 
$

 
12.75
%
 
100
 
Las Vegas, Nevada
During the year ended December 31, 2012, the notes were deemed uncollectible and charged off.
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 remaining Real Estate Debt Investments.  We do not expect that we will sell Properties during the next year nor, in view of their defaulted status, do we expect any repayments from, or to be able to sell, our Real Estate Debt Investments.  Should economic conditions in the areas in which our Properties are located deteriorate, we could experience lower occupancy, lower rental revenues and higher operating costs, all of which could harm our operations and financial condition, reduce the value of our Properties and limit or eliminate our ability to make distributions to our limited partners.
Our operating results and cash flows from our Properties are affected by four principal factors:
Ÿ
occupancy and rental rates,
Ÿ
property operating expenses,
Ÿ
interest rates on the related financing, and
Ÿ
capital expenditures.
     The amount of rental revenues from our Properties depends upon their occupancy rates, rental rates, and concessions granted.  We seek to maximize our rental revenue through aggressive property-level programs, in particular, our Lease Rent Optimizer, or LRO, program which includes rent concessions and a substantial capital improvements program.  Under our LRO program, we seek to price our rents for apartment units on a daily basis, based upon inventory in the marketplace and competitors’ pricing.  Our Properties experienced an increase in the average occupancy rate during the three months ended March 31, 2015 of approximately 0.7% with an average occupancy rate of 93.9% as compared to an average occupancy rate of 93.2% during the same period in 2014.  The average effective rent per square foot increased by $0.045 across the Properties during the three months ended March 31, 2015 compared to the same period in 2014 which resulted in an increase of rental revenues.
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 2016 to 2018 with available extensions, we expect that our financing costs for Memorial Towers, Villas and Park Hill will remain stable during substantially all of our expected term. We have not yet determined if we will refinance or sell Foxcroft and Coach Lantern.
We are planning improvements to the Properties for the next three years based on the assumption that the General Partner will exercise its right to extend the term of the partnership for the two one-year extensions. At this time, we expect that the General Partner will, in fact, do so in order to maximize the return to our investors.









Three Months Ended March 31, 2015 Compared to Three Months Ended March 31, 2014
The following table sets forth the results of our operations for the periods indicated (in thousands, except per unit data):
 
March 31,
 
Increase (Decrease)
 
2015
 
2014
 
Amount
 
Percent
Revenues:
 
 
 
 
 
 
 
Rental income
$
2,480

 
$
2,401

 
$
79

 
3
 %
 
 
 
 
 
 
 
 
Expenses:
 

 
 

 
 

 
 
Rental operating
1,253

 
1,389

 
(136
)
 
(10
)%
Management fees – related parties
221

 
219

 
2

 
1
 %
General and administrative
165

 
153

 
12

 
8
 %
Depreciation and amortization
614

 
655

 
(41
)
 
(6
)%
Total expenses
2,253

 
2,416

 
(163
)
 
(7
)%
Income (loss) before other expenses
227

 
(15
)
 
242

 
(1,613
)%
 
 
 
 
 
 
 
 
Other income (expense):
 

 
 

 
 

 
 
Interest expense, net
(615
)
 
(644
)
 
(29
)
 
(5
)%
(Loss) on disposal of fixed assets, net
(5
)
 
(3
)
 
(2
)
 
(67
)%
Net loss
$
(393
)
 
$
(662
)
 
$
269

 
41
 %
 
 
 
 
 
 
 
 
Weighted average number of limited partner units
  outstanding
3,702

 
3,702

 
 

 
 

 
 
 
 
 
 
 
 
Net loss per weighted average limited partner unit
$
(0.11
)
 
$
(0.18
)
 
 

 
 

Revenues
Revenues for the three months ended March 31, 2015 as compared to the same period in 2014 increased by $79,000, or 3% because of a slight increase in average occupancy rates and revenue per square foot.  
Expenses
We attribute the $163,000 decrease in expenses across all Properties principally to:
Ÿ
a $136,000 decrease in rental operating expenses due to a decrease in insurance expenses as a result of reduced losses covered by our self-insurance pool during the three months ended March 31, 2015 compared to higher third-party insurance premiums during the same period in 2014; and
Ÿ a $41,000 decrease in depreciation and amortization due the disposal of carpeting, flooring and appliances.
Other income (expense)
The $27,000 decrease in other income (expense) is primarily due to a decrease in interest expense related to the reduction in principal balances outstanding.
Liquidity and Capital Resources
The following table sets forth our sources and uses of cash (in thousands):
 
Three Months Ended
 
March 31,
 
2015
 
2014
Provided by operating activities (1) 
$
478

 
$
377

Used in investing activities
(61
)
 
(55
)
Used in financing activities
(388
)
 
(381
)
Net increase (decrease) in cash
$
29

 
$
(59
)



_______________
(1)
Including changes in operating assets and liabilities.
Our liquidity needs consist principally of funds to pay the Properties’ debt service, operating expenses, capital expenditures and monthly distributions to the limited partners.  Our ability to meet our liquidity needs will be subject to our ability to generate cash from operations, and to control property operating expenses.  The ability to generate cash from operations will depend on the occupancy rates, rates charged to tenants compared with competing properties in the area and the ability of tenants to pay rent.  Occupancy rates can fluctuate based on changes in local market conditions where the Properties are located such as: excessive building resulting in an oversupply of similar properties, deterioration of surrounding areas, a decrease in market rates or local economic conditions including unemployment rates.  The rental rates charged to tenants compared to competing properties can be impacted by a lack of perceived safety, convenience and attractiveness of a property.
Under our capital improvements program, we review future possible expenditures periodically and adjust them based on both operating results and local market conditions. If market conditions improve and we believe we can achieve an acceptable return on the additional expenditures, we will consider property improvements to increase the Properties' appeal to tenants and to the extent possible, increase the value of the Properties. As of March 31, 2015, we had identified approximately $1.6 million of possible capital improvements. To the extent that we implement planned improvements to our Properties, we will seek to maintain our stable occupancy rates and, potentially, increase rental rates and our cash flow from operating activities in order to pay for these improvements.
The following table sets forth the capital expenditures incurred during the three months ended March 31, 2015 and estimated future capital expenditures which are discretionary in nature (in thousands):
Subsidiaries
 
Capital
Expenditures
 
Future Discretionary
Capital Expenditures
Memorial Towers
 
$
8

 
$
165

Villas
 
21

 
464

Coach Lantern
 
13

 
227

Foxcroft
 
8

 
213

Park Hill
 
11

 
549

Total
 
$
61

 
$
1,618

Funding for future discretionary capital expenditures over the remaining life of the Partnership will come principally from future operating cash flows and to a lesser extent, from cash on hand.  We review future expenditures periodically and adjust them based on both operating results, local market conditions and our expected return on the investment of capital.  We cannot assure you that we will complete any or all of the projects currently planned or that we will not change our plans in response to changes in market conditions. Any excess cash flow not used for future discretionary capital expenditures would be distributed to our investors.
Our restricted cash represents escrow deposits with lenders to be used to pay real estate taxes, insurance and capital improvements.
Our payables to related parties consist of investment management fees due to our General Partner, payable monthly, equal to 1% of the gross offering proceeds, net of any limited partnership interests owned by the General Partner.  The General Partner must subordinate up to 100% of its annual investment management fee to the receipt by the limited partners of their Preferred Return.  The limited partners have not received their Preferred Return over the seven years the Partnership has been operating and we do not anticipate they will receive the return in 2015. 
During the three months ended March 31, 2015, we began to make principal payments with respect to three of the mortgage loans on the Properties. The aggregate debt service requirement for all our mortgage loans over the next 12 months is $19.4 million. This includes $16.6 million from two of the interest only mortgage loans maturing in early 2016 and principal payments of $418,000 on the other three mortgage loans. We exercised the option to extend the maturity date of both the Coach Lantern and Foxcroft mortgage notes for an additional one year until February 1, 2016. We have not yet determined if we will refinance or sell Foxcroft and Coach Lantern.



Redemption of Units
We are permitted, in our General Partner’s sole discretion, to redeem units upon a unitholder’s request.  However, we have no obligation to redeem units at any time, and we can decline to redeem units for any reason.  As of March 31, 2015 and 2014 we have redeemed 11,602 units at an aggregate redemption price of $88,784. No units were redeemed in the three months ended March 31, 2015.
Legal Proceedings
We are a party to various routine legal proceedings arising out of the ordinary course of our business.  Management believes that none of these actions, individually or in the aggregate, will have a material adverse effect on our financial condition or results of operations.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP.  The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of our assets, liabilities, revenues and cost and expenses, and related disclosure of contingent assets and liabilities.  On an on-going basis, we evaluate our estimates, including those related to certain accrued liabilities.  We base our estimates on historical experience and on various other assumptions that we believe reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates under different assumptions or conditions.
For a discussion on our critical accounting policies and estimates, see the discussion in our Annual Report on Form 10-K for the year ended December 31, 2014.
Off-Balance Sheet Arrangements
As of March 31, 2015 and December 31, 2014, we did not have any off-balance sheet arrangements or obligations, including contingent obligations, other than guarantees by the General Partner of certain limited standard expectations to the non-recourse nature of the mortgage notes which are secured by the Properties.
ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Omitted pursuant to Regulation S-K, Item 305(e)

ITEM 4.    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 SEC’s rules and forms, and that such information is accumulated and communicated to our General Partner, including its chief executive officer and its chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Under the supervision of the chief executive officer and chief financial officer of our General Partner, we have carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, the chief executive officer and chief financial officer of our General Partner 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 quarter ended March 31, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.




PART II
OTHER INFORMATION
ITEM 6.     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 pursuant to Section 1350 18 U.S.C., as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
 
Certification of Chief Financial Officer pursuant to Section 1350 18 U.S.C., as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.1
 
The following information from the Partnership's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations; (iii) Consolidated Statement of Changes in Partners' Capital; and (iv) Consolidated Statements of Cash Flows.
_______________
(1)
Filed previously as an exhibit to the Partnership’s registration statement on Form 10 for the year ended December 31, 2008 and by this reference incorporated herein.




SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
RESOURCE REAL ESTATE INVESTORS 6, L.P.
 
By:  Resource Capital Partners, Inc., its general partner
 
 
May 13, 2015
By:         /s/ Kevin M. Finkel
 
KEVIN M. FINKEL
 
President
 
(Principal Executive Officer)

May 13, 2015
By:         /s/ Steven R. Saltzman
 
STEVEN R. SALTZMAN
 
Vice President - Finance
 
(Principal Financial and Accounting Officer)







21