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Securities registered pursuant to
Section 12(b) of the Act:
Title of each
class
Trading
Symbol(s)
Name of each exchange on which
registered
No
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
☒ No ☐
Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate
Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T
(232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit and
post such files). Yes ☒ No ☐
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the
definitions of "large accelerated filer,""accelerated filer" and
"smaller reporting company" in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer ☐
Accelerated filer ☐ Non-accelerated filer ☒
Smaller reporting
company ☐
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes ☐ No ☒
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
General
The accompanying condensed
unaudited financial statements have been prepared in accordance
with accounting principles generally accepted in the United States
of America for interim financial information and with the
instructions to Form 10-Q for quarterly reports under Section 13 or
15(d) of the Securities Exchange Act of 1934. Accordingly, they do
not include all of the information and footnotes required by
accounting principles generally accepted in the United States of
America for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included. Operating results for the nine months ended December 31,2019 are not necessarily indicative of the results that may be
expected for the fiscal year ending March 31, 2020. For further
information, refer to the financial statements and footnotes
thereto included in the Partnership's annual report on Form 10-K
for the fiscal year ended March 31, 2019.
Organization
WNC Housing
Tax Credit Fund VI, L.P., Series 13, a California Limited
Partnership (the “Partnership”), was formed on February7, 2005 under the laws of the State of California, and commenced
operations on December 14, 2005. The Partnership was formed to
invest primarily in other limited partnerships and limited
liability companies (the “Local Limited Partnerships”)
which own and operate multi-family housing complexes (the
“Housing Complexes”) that are eligible for Low Income
Housing Tax Credits. The local general partners (the “Local
General Partners”) of each Local Limited Partnership retain
responsibility for maintaining, operating and managing the Housing
Complex. Each Local Limited Partnership is governed by its
agreement of limited partnership (the “Local Limited
Partnership Agreement”).
The General
Partner of the Partnership is WNC National Partners, LLC (the
“General Partner”). The General Partner of the General
Partner is WNC & Associates, Inc. (“Associates”).
The chairman and the president of Associates owns all of the
outstanding stock of Associates. The business of the Partnership is
conducted primarily through Associates, as the Partnership and
General Partner have no employees of their own.
The Partnership shall continue in
full force and effect until December 31, 2070, unless terminated
prior to that date, pursuant to the partnership agreement or
law.
The financial statements include
only activity relating to the business of the Partnership and do
not give effect to any assets that the partners may have outside of
their interests in the Partnership, or to any obligations,
including income taxes of the partners.
Pursuant to a registration
statement filed with the U.S. Securities and Exchange Commission
(the “SEC”) on April 18, 2005, the Partnership
commenced a public offering of 25,000 units of limited partnership
interest (“Partnership Units”) at a price of $1,000 per
Partnership Unit. The required minimum offering amount of
$1,400,000 was achieved by December 14, 2005. Total subscriptions
for 20,981 Partnership Units had been accepted, representing
$20,965,400, which is net of volume discounts of $4,540 and dealer
discounts of $11,060. Holders of Partnership Units are referred to
herein as “Limited Partners.” As of December 31, 2019
and March 31, 2019, a total of
20,707 and 20,757 Partnership Units remain outstanding,
respectively. The General Partner has a 0.1% interest in operating
profits and losses, taxable income and losses, cash available for
distribution from the Partnership and tax credits. The Limited
Partners will be allocated the remaining 99.9% interest in
proportion to their respective investments.
The proceeds
from the disposition of any of the Housing Complexes will be used
first to pay debts and other obligations per the respective Local
Limited Partnership Agreement. Any remaining proceeds will then be
paid to the partners of the Local Limited Partnership, including
the Partnership, in accordance with the terms of the particular
Local Limited Partnership Agreement. The sale of a Housing Complex
may be subject to other restrictions and
obligations.
7
WNC HOUSING TAX
CREDIT FUND VI, L.P., SERIES 13
(A California Limited
Partnership)
NOTES TO
CONDENSED FINANCIAL STATEMENTS - CONTINUED
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
continued
Accordingly, there can be no
assurance that a Local Limited Partnership will be able to sell its
Housing Complex. Even if it does so, there can be no assurance that
any significant amounts of cash will be distributed to the
Partnership. Should such distributions occur, the Limited Partners
will be entitled to receive distributions from the proceeds
remaining after payment of Partnership obligations and funding
reserves, equal to their capital contributions and their return on
investment (as defined in the Partnership Agreement). The General
Partner would then be entitled to receive proceeds equal to its
capital contributions from the remainder. Any additional sale or
refinancing proceeds will be distributed 90% to the Limited
Partners (in proportion to their respective investments) and 10% to
the General Partner.
Risks
and Uncertainties
An investment in the Partnership
and the Partnership’s investments in Local Limited
Partnerships and their Housing Complexes are subject to risks.
These risks may impact the tax benefits of an investment in the
Partnership, and the amount of proceeds available for distribution
to the Limited Partners, if any, on liquidation of the
Partnership’s investments. Some of those risks include the
following:
The Low Income Housing Tax Credits
rules are extremely complicated. Noncompliance with these rules
results in the loss of future Low Income Housing Tax Credits and
the fractional recapture of Low Income Housing Tax Credits already
taken. In most cases the annual amount of Low Income Housing Tax
Credits that an individual can use is limited to the tax liability
due on the person’s last $25,000 of taxable income. The Local
Limited Partnerships may be unable to sell the Housing Complexes at
a price which would result in the Partnership realizing cash
distributions or proceeds from the transaction. Accordingly, the
Partnership may be unable to distribute any cash to its Limited
Partners. Low Income Housing Tax Credits may be the only benefit
from an investment in the Partnership.
The Partnership has invested in a
limited number of Local Limited Partnerships. Such limited
diversity means that the results of operation of each single
Housing Complex will have a greater impact on the Partnership. With
limited diversity, poor performance of one Housing Complex could
impair the Partnership’s ability to satisfy its investment
objectives. Each Housing Complex is subject to mortgage
indebtedness. If a Local Limited Partnership failed to pay its
mortgage, it could lose its Housing Complex in foreclosure. If
foreclosure were to occur during the first 15 years (the
“Compliance Period”), the loss of any remaining future
Low Income Housing Tax Credits, a fractional recapture of prior Low
Income Housing Tax Credits, and a loss of the Partnership’s
investment in the Housing Complex would occur. The Partnership is a
limited partner or a non-managing member of each Local Limited
Partnership. Accordingly, the Partnership will have very limited
rights with respect to management of the Local Limited
Partnerships. The Partnership will rely totally on the Local
General Partners. Neither the Partnership’s investments in
Local Limited Partnerships, nor the Local Limited
Partnerships’ investments in Housing Complexes, are readily
marketable. To the extent the Housing Complexes receive government
financing or operating subsidies, they may be subject to one or
more of the following risks: difficulties in obtaining tenants for
the Housing Complexes; difficulties in obtaining rent increases;
limitations on cash distributions; limitations on sales or
refinancing of Housing Complexes; limitations on transfers of
interests in Local Limited Partnerships; limitations on removal of
Local General Partners; limitations on subsidy programs; and
possible changes in applicable regulations. Uninsured casualties
could result in loss of property and Low Income Housing Tax Credits
and recapture of Low Income Housing Tax Credits previously taken.
The value of real estate is subject to risks from fluctuating
economic conditions, including employment rates, inflation, tax,
environmental, land use and zoning policies, supply and demand of
similar Housing Complexes, and neighborhood conditions, among
others.
8
WNC HOUSING TAX
CREDIT FUND VI, L.P., SERIES 13
(A California Limited
Partnership)
NOTES TO
CONDENSED FINANCIAL STATEMENTS - CONTINUED
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
continued
The ability of Limited Partners to
claim tax losses from the Partnership is limited. The IRS may audit
the Partnership or a Local Limited Partnership and challenge the
tax treatment of tax items. The amount of Low Income Housing Tax
Credits and tax losses allocable to Limited Partners could be
reduced if the IRS were successful in such a challenge. The
alternative minimum tax could reduce tax benefits from an
investment in the Partnership. Changes in tax laws could also
impact the tax benefits from an investment in the Partnership
and/or the value of the Housing Complexes.
The Partnership currently has
insufficient working capital to fund its operations. Associates has
agreed to continue providing advances sufficient enough to fund the
operations and working capital requirements of the Partnership
through February 28, 2021.
Anticipated future and existing
cash resources of the Partnership are not sufficient to pay
existing liabilities of the Partnership. A portion of the existing
liabilities are the payables to Local Limited Partnerships and
those payables are the first priority to be paid. If the
Partnership does not have enough cash to pay those liabilities the
General Partner or an affiliate will fund the necessary cash to pay
the liabilities. The remaining portion of the payables are due to
the General Partner or an affiliate. Though the amounts payable to
the General Partner and/or its affiliates are contractually
currently payable, the Partnership anticipates that the General
Partner and/or its affiliates will not require the payment of these
contractual obligations until capital reserves are in excess of the
aggregate of then existing contractual obligations and then
anticipated future foreseeable obligations of the Partnership. The
Partnership would be adversely affected should the General Partner
and/or its affiliates demand current payment of the existing
contractual obligations and/or suspend services for this or any
other reason.
No trading market for the
Partnership Units exists or is expected to develop. Limited
Partners may be unable to sell their Partnership Units except at a
discount and should consider their Partnership Units to be a
long-term investment. Individual Limited Partners will have no
recourse if they disagree with actions authorized by a vote of the
majority of Limited Partners.
Exit
Strategy
The Compliance Period for a Housing
Complex is generally 15 years following construction or
rehabilitation completion. Associates was one of the first in the
industry to offer syndicated investments in Low Income Housing Tax
Credits. The initial programs have completed their Compliance
Periods.
Upon the sale of a Local Limited
Partnership interest or Housing Complex after the end of the
Compliance Period, there would be no recapture of Low Income
Housing Tax Credits. A sale prior to the end of the Compliance
Period must satisfy the reasonable belief test outlined above to
avoid recapture. None of the remaining Housing Complexes have
completed their 15-year Compliance Period.
With that in mind, the General
Partner is continuing its review of the Housing Complexes. The
review considers many factors, including extended use requirements
(such as those due to mortgage restrictions or state compliance
agreements), the condition of the Housing Complexes, and the tax
consequences to the Limited Partners from the sale of the Housing
Complexes.
Upon identifying those Housing
Complexes with the highest potential for a successful sale,
refinancing or re-syndication, the Partnership expects to proceed
with efforts to liquidate them. The objective is to maximize the
Limited Partners’ return wherever possible and, ultimately,
to wind down the Partnership as Low Income Housing Tax Credits are
no longer available. Local Limited Partnership interests may be
disposed of any time by the General Partner in its discretion.
While liquidation of the Housing Complexes continues to be
evaluated, the dissolution of the Partnership was not imminent as
of December 31, 2019.
9
WNC HOUSING TAX
CREDIT FUND VI, L.P., SERIES 13
(A California Limited
Partnership)
NOTES TO
CONDENSED FINANCIAL STATEMENTS - CONTINUED
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
continued
During the
year ended March 31, 2011, the Partnership sold two Local Limited
Partnerships, Fernwood Meadows, L.P. (“Fernwood”) and
Sierra’s Run, L.P., (“Sierra’s Run”), in
order to generate sufficient equity to complete the purchase of
additional Low Income Housing Tax Credits for Davenport VII, L.P.
(“Davenport”).
Fernwood and
Sierra’s Run will complete their Compliance Periods in 2022;
therefore, there is a risk of tax credit recapture. The
maximum exposure of recapture (excluding the interest and penalties
related to the recapture) is $177,508 and $170,246, respectively,
for Fernwood and Sierra’s Run, which equates to $16.57 per
Partnership Unit in the aggregate. Under the circumstances,
the General Partner believes there is a reasonable expectation that
each Local Limited Partnership will continue to be operated as
qualified low-income housing for the balance of its Compliance
Period, and, accordingly, does not anticipate that there will be
any recapture.
As of
March 31, 2019, the underlying Housing complexes of Pleasant
Village Limited Partnership (“Pleasant Village”) and
Grove Village Limited Partnership (“Grove Village”) had
been sold, resulting in the termination of the Partnership’s
Local Limited Partnership interest. The Partnership had also gifted
its Local Limited Partnership interest in 909 4th YMCA Limited
Partnership to an unrelated nonprofit corporation. In addition, the
Partnership sold its Local Limited Partnership interest in Head
Circle, L.P. (“Head Circle”), FDI-Country
Square, LTD (“FDI-Country Square”) and FDI-Park Place,
LTD (“FDI-Park Place”).
The Compliance Period for Head Circle has been completed,
therefore, there is no risk of recapture to the investors of the
Partnership. The Compliance Periods for FDI-Country Square
and FDI-Park Place expire in 2021. A guaranty agreement was
executed with the General Partner to guarantee the repayment of any
recaptured tax credits and/or interest arising from any
non-compliance as provided in Section 42 of the Internal Revenue
Code arising after the date of the sale.
The proceeds from the disposition
of any of the Housing Complexes will be used first to pay debts and
other obligations per the respective Local Limited Partnership
Agreement. Any remaining proceeds will then be paid to the partners
of the Local Limited Partnership, including the Partnership, in
accordance with the terms of the particular Local Limited
Partnership Agreement. The sale of a Housing Complex may be subject
to other restrictions and obligations. Accordingly, there can be no
assurance that a Local Limited Partnership will be able to sell its
Housing Complex. Even if it does so, there can be no assurance that
any significant amounts of cash will be distributed to the
Partnership, as the proceeds first would be used to pay Partnership
obligations and funding of reserves.
Method
of Accounting for Investments in Local Limited
Partnerships
The Partnership accounts for its
investments in Local Limited Partnerships using the equity method
of accounting, whereby the Partnership adjusts its investment
balance for its share of the Local Limited Partnerships’
results of operations and for any contributions made and
distributions received. The Partnership reviews the carrying amount
of an individual investment in a Local Limited Partnership for
possible impairment at least annually or whenever events or changes
in circumstances indicate that the carrying amount of such
investment may not be recoverable. Recoverability of such
investment is measured by the estimated value derived by
management, generally consisting of the sum of the remaining future
Low Income Housing Tax Credits estimated to be allocable to the
Partnership and the estimated residual value to the Partnership. If
an investment is considered to be impaired, the Partnership reduces
the carrying value of its investment in any such Local Limited
Partnership. The accounting policies of the Local Limited
Partnerships, generally, are expected to be consistent with those
of the Partnership. Costs incurred by the Partnership in acquiring
the investments were capitalized as part of the investment account
and were being amortized over 27.5 years (see Note 2 and
3).
10
WNC HOUSING TAX
CREDIT FUND VI, L.P., SERIES 13
(A California Limited
Partnership)
NOTES TO
CONDENSED FINANCIAL STATEMENTS - CONTINUED
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
continued
“Equity in losses of Local
Limited Partnerships” for the periods ended December 31, 2019
and 2018 has been recorded by the Partnership. Management’s
estimate for the nine-month periods is based on either actual
unaudited results reported by the Local Limited Partnerships or
historical trends in the operations of the Local Limited
Partnerships. Equity in losses of Local Limited Partnerships
allocated to the Partnership is not recognized to the extent that
the investment balance would be adjusted below zero. If the Local
Limited Partnerships report net income in future years, the
Partnership will resume applying the equity method only after its
share of such net income equals the share of net losses not
recognized during the period(s) the equity method was
suspended.
In accordance with the accounting
guidance for the consolidation of variable interest entities, the
Partnership determines when it should include the assets,
liabilities, and activities of a variable interest entity (VIE) in
its financial
statements, and when it should
disclose information about its relationship with a VIE. The
analysis that must be performed to determine which entity should
consolidate a VIE focuses on control and economic factors. A VIE is
a legal structure used to conduct activities or hold assets, which
must be consolidated by a company if it is the primary beneficiary
because it has (1) the power to direct the activities of the VIE
that most significantly impact the VIE's economic performance and
(2) the obligation to absorb losses or receive benefits that could
potentially be significant to the VIE. If multiple unrelated
parties share such power, as defined, no party will be required to
consolidate the VIE. Further, the guidance requires continual
reconsideration of the primary beneficiary of a
VIE.
Based on this guidance, the Local
Limited Partnerships in which the Partnership invests meet the
definition of a VIE because the owners of the equity at risk in
these entities do not have the power to direct their operations.
However, management does not consolidate the Partnership's
interests in these VIEs, as it is not considered to be the primary
beneficiary since it does not have the power to direct the
activities that are considered most significant to the economic
performance of these entities. The Partnership currently records
the amount of its investment in these Local Limited Partnerships as
an asset on its balance sheets, recognizes its share of partnership
income or losses in the statements of operations, and discloses how
it accounts for material types of these investments in its
financial statements. The Partnership's balance in investment in
Local Limited Partnerships, plus the risk of recapture of tax
credits previously recognized on these investments, represents its
maximum exposure to loss. The Partnership's exposure to loss on
these Local Limited Partnerships is mitigated by the condition and
financial performance of the underlying Housing Complexes as well
as the strength of the Local General Partners and their guarantee
against credit recapture to the investors in the
Partnership.
Distributions received by the
Partnership are accounted for as a reduction of the investment
balance. Distributions received after the investment has reached
zero are recognized as income. As of December 31, 2019,
one of the remaining investment
balances had reached zero.
Use of
Estimates
The preparation of financial
statements in conformity with accounting principles generally
accepted in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reporting
period. Actual results could materially differ from those
estimates.
Cash
and Cash Equivalents
The Partnership considers all
highly liquid investments with original maturities of three months
or less when purchased to be cash equivalents. As of December 31,2019 and March 31, 2019, the Partnership had $228,275 and $224,898
of cash equivalents, respectively.
11
WNC HOUSING TAX
CREDIT FUND VI, L.P., SERIES 13
(A California Limited
Partnership)
NOTES TO
CONDENSED FINANCIAL STATEMENTS - CONTINUED
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
continued
Reporting
Comprehensive Income
The Partnership had no items of
other comprehensive income for all periods
presented.
Income
Taxes
The Partnership has elected to be
treated as a pass-through entity for income tax purposes and, as
such, is not subject to income taxes. Rather, all items of taxable
income, deductions and tax credits are passed through to and are
reported by its owners on their respective income tax
returns. The Partnership’s federal tax status as a
pass-through entity is based on its legal status as a partnership.
Accordingly, the Partnership is not required to take any tax
positions in order to qualify as a pass-through entity. The
Partnership is required to file and does file tax returns with the
Internal Revenue Service and other taxing authorities. Accordingly,
these financial statements do not reflect a provision for income
taxes and the Partnership has no other tax positions which must be
considered for disclosure. Income tax returns filed by the
Partnership are subject to examination by the Internal Revenue
Service for a period of three years. While no income tax returns
are currently being examined by the Internal Revenue Service, tax
years since 2016 remain open.
Net
Loss Per Partnership Unit
Net loss per Partnership Unit
includes no dilution and is computed by dividing loss available to
Limited Partners by the weighted average number of Partnership
Units outstanding during the period. Calculation of diluted net
loss per Partnership Unit is not required.
Revenue
Recognition
The Partnership is entitled to
receive investor service fees from the Local Limited Partnerships.
The intent of the investor service fee is to offset (in part)
administrative costs incurred by the Partnership in corresponding
with the Local Limited Partnerships. The fees are consideration
from the Local Limited Partnerships in exchange for a single
performance obligation satisfied at a point in time for assistance
with preparation of tax returns and annual reports. The
amount of fees the Partnership is entitled to collect is based on
the Local Limited Partnerships’ cash flow. Accordingly,
the variable consideration is constrained until the uncertainty
about the amount that will be collected is known. There were
no contract assets or contract liabilities at the beginning or the
end of the reporting period.
Impairment
The Partnership reviews its
investments in Local Limited Partnership for impairment at least
annually or whenever events or changes in circumstances indicate
that the carrying value of such investments may not be recoverable.
Recoverability is measured by a comparison of the carrying amount
of the investment to the sum of the total amount of the remaining
Low Income Housing Tax Credits allocated to the Partnership and any
estimated residual value of the investment. For the nine months
ended December 31, 2019 and 2018, impairment loss related to
investments in Local Limited Partnerships was $439,109 and
$511,512, respectively.
12
WNC HOUSING TAX
CREDIT FUND VI, L.P., SERIES 13
(A California Limited
Partnership)
NOTES TO
CONDENSED FINANCIAL STATEMENTS - CONTINUED
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
continued
Impact
of Recent Accounting Pronouncements
In
February 2015, the Financial Accounting Standards Board (the
“FASB”) issued ASU
No. 2015-02, “Consolidation (Topic 810): Amendments to
the Consolidation Analysis”. In addition, in October 2016,
the FASB issued ASU No. 2016-17, “Consolidation (Topic 810):
Interests Held Through Related Parties That Are Under Common
Control”, to provide further clarification guidance to ASU
No. 2015-02. This will improve certain areas of consolidation
guidance for reporting organizations that are required to evaluate
whether to consolidate certain legal entities such as limited
partnerships, limited liability corporations and securitization
structures. ASU 2015-02 and ASU 2016-17 simplifies and
improves GAAP by: eliminating the presumption that a general
partner should consolidate a limited partnership, eliminating the
indefinite deferral of FASB Statement No. 167, thereby reducing the
number of Variable Interest Entity (VIE) consolidation models from
four to two (including the limited partnership consolidation model)
and clarifying when fees paid to a decision maker should be a
factor to include in the consolidation of VIEs. ASU 2015-02 is
effective for periods beginning after December 15, 2015. ASU
2016-17 is effective for periods beginning after December 15, 2016.
The adoption of these updates did not materially affect the
Partnership's financial statements.
Change
in Accounting Principle
In May
2014, the FASB issued Accounting Standards Update 2014-09,
Revenue from Contracts with
Customers (Topic 606) (“ASU 2014-09”), as amended by
subsequent Accounting Standard Updates (collectively, “ASC
606”). The Partnership adopted ASC 606 during 2019 and
applied the guidance on a retrospective basis. There was no impact
as a result of the adoption of ASC 606 to recognize revenue on the
financial statements of the Partnership as of and for the periods
ended December 31, 2019 and 2018 as the reporting fee income is
immaterial.
In
August 2016, the Financial Accounting Standards Board (the
“FASB”) issued Accounting Standards Update
2016-15 Statement of Cash
Flows (Topic 230),
Classification of Certain Cash Receipts and Cash Payments. The
Partnership adopted the update on a retrospective basis. The effect
of the adoption was the application of an accounting policy
election to classify distributions received from investees using
the nature of the distribution approach. The Partnership classifies
distributions from tax credit investments as returns on investment
because the design of the local limited partnership is to generate
tax credits and losses rather than income from operations.
Application of the accounting policy election had no impact on the
presentation in the statements of cash flows in the current or
prior reporting periods.
NOTE 2 - INVESTMENTS IN LOCAL LIMITED
PARTNERSHIPS
As of December 31, 2019 and March31, 2019, the Partnership owned Local Limited Partnership interests
in 2 Local Limited Partnerships, each of which owns one Housing
Complex consisting of an aggregate of 44 apartment units. The
respective Local General Partners of the Local Limited Partnerships
manage the day to day operations of the entities. Significant Local
Limited Partnership business decisions require approval from the
Partnership. The Partnership, as a limited partner, is generally
entitled to 99.98%, as specified in the Local Limited Partnership
Agreements, of the operating profits and losses, taxable income and
losses, and Low Income Housing Tax Credits of the Local Limited
Partnerships.
13
WNC HOUSING TAX
CREDIT FUND VI, L.P., SERIES 13
(A California Limited
Partnership)
NOTES TO
CONDENSED FINANCIAL STATEMENTS - CONTINUED
Investments per balance sheet,
beginning of period
$666,713
$1,406,121
Equity in losses
of Local Limited Partnerships
(127,442)
(227,896)
Impairment loss
(439,109)
(511,512)
Investments per balance
sheet, end of period
$100,162
$666,713
Selected financial information for
the nine months ended December 31, 2019 and 2018 from the unaudited
combined condensed financial statements of the Local Limited
Partnerships in which the Partnership has invested is as
follows:
COMBINED
CONDENSED STATEMENTS OF OPERATIONS
2019
2018
Revenues
$210,000
$554,000
Expenses:
Interest
expense
24,000
116,000
Depreciation
and amortization
189,000
267,000
Operating
expenses
168,000
345,000
Total
expenses
381,000
728,000
Net
loss
$(171,000)
$(174,000)
Net loss allocable to
the Partnership
$(171,000)
$(174,000)
Net loss recorded by
the Partnership
$(127,000)
$(171,000)
Certain Local Limited Partnerships
have incurred significant operating losses and/or have working
capital deficiencies. In the event these Local Limited Partnerships
continue to incur significant operating losses, additional capital
contributions by the Partnership may be required to sustain
operations of such Local Limited Partnerships. If additional
capital contributions are not made when they are required, the
Partnership's investments in certain of such Local Limited
Partnerships could be impaired, and the loss and recapture of the
related Low Income Housing Tax Credits could
occur.
Troubled
Housing Complexes
Davenport started construction in
October 2006 and was scheduled to be completed in June 2008.
Construction was delayed due to the original Local General Partner
defaulting on his construction guarantee, and resulting in disputed
mechanic liens on the property. In November 2008, a co-Local
General Partner, Shelter Resource Corporation, was admitted into
the Partnership, due to restrictions implemented by the Iowa
Finance Authority (“IFA”). Subsequently, with
IFA’s approval, the defaulting original Local General Partner
was removed from the Partnership leaving Shelter Resource
Corporation as the sole Local General Partner.
14
WNC HOUSING TAX
CREDIT FUND VI, L.P., SERIES 13
(A California Limited
Partnership)
NOTES TO
CONDENSED FINANCIAL STATEMENTS - CONTINUED
NOTE 2- INVESTMENTS IN LOCAL LIMITED PARTNERSHIPS,
continued
As of March 31, 2010, the property
was 100% completed and a certificate of occupancy was granted for
both buildings in December 2009. The Partnership engaged all
sub-contractors to sign new construction contracts, along with lien
releases for any and all work done after their engagement. During
the year ended March 31, 2011, the Partnership voluntarily advanced
$846,175 to Davenport for construction related costs. There were no
additional advances made to Davenport due to the additional
investment made, as discussed below.
The project was fully completed as
of March 31, 2010 and it achieved stabilized operations by June
2010. In June 2010 the property achieved 85% occupancy and has
maintained occupancy of 80% to 100% to the date of this filing.
Davenport has been awarded state historical tax credits from the
State of Iowa, federal historical credits and federal Low Income
Housing Tax Credits. The State historical credits are given in the
form of a refund check from the State in conjunction with the State
tax return filing. The net amount of the check after applicable
federal taxes will be contributed back to the property to help fund
construction shortfalls. Davenport was also allocated additional
federal Low Income Housing Tax Credits as well as federal historic
tax credits. Upon the Limited Partners’ approval of the
dispositions of Sierra Run’s and Fernwood, the Partnership
made the additional investment in Davenport. See the exit strategy
in Note 1 regarding the dispositions of Sierra’s Run and
Fernwood. On July 1, 2010, the Partnership committed additional
capital to Davenport in the amount of $2,490,651. This additional
commitment generated $408,710 of federal historic credits and
$3,582,550 of additional federal Low Income Housing Tax Credits
which were allocated to the partners of the
Partnership.
As of December 31, 2019, Davenport
is on the watch list due to a low year-to-date DCR and depleted
replacement reserve account. The property has not generated
sufficient cash flow to make the required replacement reserve
deposits. The lender is aware of the underfunded replacement
reserve balance and, to date, has not issued a Notice of Default.
Although the property is operating at its budgeted .61 DCR, it is
still operating below break-even, due to increased utilities
expense and unanticipated snow removal expense, which were due to
result of the heavy snowfall during the first quarter
2019. Due to the small size of the property, any unanticipated
expenses will negatively impact operations and financial
performance. Two tenants recently vacated due to health
reasons. There is one application in process and the other is
being marketed. Operating deficits were paid through the
operating cash account, which had a balance of $1,098 as of
November 2019. While the operating deficit guarantee has expired,
the tax credit guaranty remains in place.
NOTE 3 - RELATED PARTY TRANSACTIONS
Under the terms of the Partnership
Agreement, the Partnership has paid or is obligated to the General
Partner or its affiliates for the following
fees:
(a)
An
annual asset management fee accrues in an amount equal to 0.5% of
the Invested Assets of the Partnership. “Invested
Assets” is defined as the sum of the Partnership’s
Investment in Local Limited Partnerships, plus the reserves of the
Partnership of up to 5% of gross Partnership Unit sales proceeds,
and the Partnership’s allocable share of the amount of the
mortgage loans and other debts related to the Housing Complexes
owned by such Local Limited Partnerships. Asset management fees of
$31,182 and $43,881 were incurred during the nine months ended
December 31, 2019 and 2018, respectively.
(b)
The
Partnership reimburses the General Partner or its affiliates for
operating expenses incurred by the Partnership and paid for by the
General Partner or its affiliates on behalf of the Partnership.
Operating expense reimbursements of $0 and $101,270 were made
during the nine months ended December 31, 2019 and 2018,
respectively.
(c)
A
subordinated disposition fee will be paid in an amount equal to 1%
of the sales price of real estate sold. Payment of this fee is
subordinated to the Limited Partners receiving a return on
investment (as defined in the Partnership Agreement) and is payable
only if the General Partner or its affiliates render services in
the sales effort. No disposition fees have been incurred for all
periods presented.
15
WNC HOUSING TAX
CREDIT FUND VI, L.P., SERIES 13
(A California Limited
Partnership)
NOTES TO
CONDENSED FINANCIAL STATEMENTS - CONTINUED
Expense paid by the General Partner
or an affiliate on behalf of the Partnership
84,044
40,350
Total
$1,507,786
$1,432,910
The General Partner and/or its
affiliates do not anticipate that these accrued fees will be paid
until such time as capital reserves are in excess of future
foreseeable working capital requirements of the
Partnership.
The
Partnership currently has insufficient working capital to fund its
operations. Associates has agreed to continue providing advances
sufficient enough to fund the operations and working capital
requirements of the Partnership through February 28,2021.
NOTE 4 – DUE FROM AFFILIATES, NET
The Partnership is not obligated to
fund advances to the Local Limited Partnerships. Occasionally, when
Local Limited Partnerships encounter operational issues the
Partnership may decide to advance funds to assist the Local Limited
Partnership with its operational issues.
As of December 31, 2019 and March31, 2019, the Partnership advanced $763,336, net of repayments, to
Davenport Housing VII, L.P., in which the Partnership is a limited
partner. All advances were reserved in full in the year they were
advanced.
NOTE 5 – PAYABLES TO LOCAL LIMITED
PARTNERSHIPS
Payables to Local Limited
Partnerships amounting to $245,113 at December 31, 2019 and March31, 2019, represent amounts which are due at various times based on
conditions specified in the Local Limited Partnership agreements.
These contributions are payable in installments and are generally
due upon the Local Limited Partnerships achieving certain operating
and development benchmarks (generally within two years of the
Partnership’s initial investment). The payables to Local
Limited Partnerships are subject to adjustment in certain
circumstances.
16
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Forward Looking
Statements
With the exception of the
discussion regarding historical information, this
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and other discussions
elsewhere in this Form 10-Q contain forward looking statements.
Such statements are based on current expectations subject to
uncertainties and other factors which may involve known and unknown
risks that could cause actual results of operations to differ
materially from those projected or implied. Further, certain
forward-looking statements are based upon assumptions about future
events which may not prove to be accurate.
Risks and uncertainties inherent in
forward looking statements include, but are not limited to, the
Partnership’s future cash flows and ability to obtain
sufficient financing, level of operating expenses, conditions in
the Low Income Housing Tax Credit property market and the economy
in general, as well as legal proceedings. Historical results are
not necessarily indicative of the operating results for any future
period.
Subsequent written and oral forward
looking statements attributable to the Partnership or persons
acting on its behalf are expressly qualified in their entirety by
cautionary statements in this Form 10-Q and in other reports filed
with the SEC.
The following discussion and
analysis compares the results of operations for the three and nine
months ended December 31, 2019 and 2018, and should be read in
conjunction with the condensed financial statements and
accompanying notes included within this report.
Financial
Condition
The Partnership’s assets at
December 31, 2019 consisted of $228,000 in cash and cash
equivalents and investments in Local Limited Partnerships of
$100,000 (See “Method of Accounting for Investments in Local
Limited Partnerships”). Liabilities at December 31, 2019
consisted of $245,000 of payables to Local Limited Partnerships and
$1,508,000 in accrued fees and expenses due to the General Partner
and affiliates.
Results of
Operations
Three Months Ended December 31, 2019 Compared
to Three Months Ended December 31, 2018 The
Partnership’s net loss for the three months ended December31, 2019 was $58,000, reflecting a decrease of $20,000 from the
$78,000 net loss experienced for the three months ended December31, 2018. Asset management fees
decreased by $4,000 during the three months ended December 31,2019. The fees are calculated based on the value of invested
assets, which decreased due to the sales of Local Limited
Partnerships. Legal and accounting fees increased by $1,000
during the three months ended in December 31, 2019 due to the
timing of accounting work performed. The equity in losses of Local
Limited Partnerships decreased by $16,000 for the three months
ended December 31, 2019. Equity in losses can vary based on the
operations of the underlying Housing Complexes of the Local Limited
Partnerships.
17
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations, continued
Nine Months Ended December 31, 2019 Compared to
Nine Months Ended December 31, 2018 The Partnership’s net loss
for the nine months ended December 31, 2019 was $638,000,
reflecting a decrease of $118,000 from the $756,000 net loss
experienced for the nine months ended December 31, 2018. Impairment
loss decreased by $72,000 for the nine months ended December 31,2019 compared to the nine months ended December 31, 2018.
Impairment loss can vary from year to year depending on the
operations of the Local Limited Partnerships and the amount of Low
Income Housing Tax Credits that are allocated each year to the
Partnership. Asset management fees
decreased by $13,000 during the nine months ended December 31,2019. The fees are calculated based on the value of invested
assets, which decreased due to the sales of Local Limited
Partnerships. Legal and accounting fees increased by $5,000
during the nine months ended December 31, 2019 due to the timing of
accounting work performed. Other expenses decreased by $1,000 due
mainly to property cost consulting
incurred during the nine months ended December 31, 2018. The
equity in losses of Local Limited Partnerships decreased by $44,000
for the nine months ended December 31, 2019. Equity in losses can
vary based on the operations of the underlying Housing Complexes of
the Local Limited Partnerships. Reporting fees and distribution
income decreased by $8,000 during the nine months ended December31, 2019 compared to the nine months ended December 2018. Reporting
fees and distributions vary depending on when the Local Limited
Partnerships’ cash flows will allow for the
payment.
Liquidity and
Capital Resources
Nine Months Ended December 31, 2019 Compared to
Nine Months Ended December 31, 2018 The increase in cash and
cash equivalents during the nine months ended December 31, 2019 was
$3,000 compared to a $90,000 decrease in cash and cash equivalents
during the nine months ended December 31, 2018. During the nine
months ended December 31, 2019, the Partnership paid $0 in
operating expenses to the General Partner or affiliates compared to
$101,000 paid during the nine months ended December 31, 2018. Each
quarter the Partnership evaluates its cash position and determines
how much of operating expense reimbursements will be paid to the
General Partner or affiliates. In addition, the Partnership
received $8,000 less in reporting fees and distribution income
during the nine months ended December 31, 2019 compared to the nine
months ended December 31, 2018. Reporting fees and distributions
vary depending on when the Local Limited Partnerships’ cash
flows will allow for the payment.
During the nine months ended
December 31, 2019, accrued payables, which consist primarily of
related party asset management fees and advances due to the General
Partner and affiliates, increased by $75,000. The General Partner
does not anticipate that these accrued fees and advances will be
paid until such time as capital reserves are in excess of
foreseeable working capital requirements of the
Partnership.
The Partnership expects its future
cash flows, together with its net available assets as of December31, 2019, to be insufficient to meet all currently foreseeable
future cash requirements. Associates has agreed to continue
providing advances sufficient enough to fund the operations and
working capital requirements of the Partnership through February28, 2021.
Recent Accounting Changes
In February
2015, the FASB issued ASU No. 2015-02, “Consolidation
(Topic 810): Amendments to the Consolidation Analysis”. In
addition, in October 2016, the FASB issued ASU No. 2016-17,
“Consolidation (Topic 810): Interests Held Through Related
Parties That Are Under Common Control”, to provide further
clarification guidance to ASU No. 2015-02. This will improve
certain areas of consolidation guidance for reporting organizations
that are required to evaluate whether to consolidate certain legal
entities such as limited partnerships, limited liability
corporations and securitization structures. ASU 2015-02 and
ASU 2016-17 simplifies and improves GAAP by: eliminating the
presumption that a general partner should consolidate a limited
partnership, eliminating the indefinite deferral of FASB Statement
No. 167, thereby reducing the number of Variable Interest Entity
(VIE) consolidation models from four to two (including the limited
partnership consolidation model) and clarifying when fees paid to a
decision maker should be a factor to include in the consolidation
of VIEs. ASU 2015-02 is effective for periods beginning after
December 15, 2015. ASU 2016-17 is effective for periods beginning
after December 15, 2016. The adoption of these updates did not
materially affect the Partnership's financial
statements.
18
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations, continued
Change in
Accounting Principle
In May
2014, the FASB issued Accounting Standards Update 2014-09,
Revenue from Contracts with
Customers (Topic 606) (“ASU 2014-09”), as amended by
subsequent Accounting Standard Updates (collectively, “ASC
606”). The Partnership adopted ASC 606 during 2019 and
applied the guidance on a retrospective basis. There was no impact
as a result of the adoption of ASC 606 to recognize revenue on the
financial statements of the Partnership as of and for the periods
ended December 31, 2019 and 2018 as the reporting fee income is
immaterial.
In
August 2016, the Financial Accounting Standards Board (the
“FASB”) issued Accounting Standards Update
2016-15 Statement of Cash
Flows (Topic 230),
Classification of Certain Cash Receipts and Cash Payments. The
Partnership adopted the update on a retrospective basis. The effect
of the adoption was the application of an accounting policy
election to classify distributions received from investees using
the nature of the distribution approach. The Partnership classifies
distributions from tax credit investments as returns on investment
because the design of the local limited partnership is to generate
tax credits and losses rather than income from operations.
Application of the accounting policy election had no impact on the
presentation in the statements of cash flows in the current or
prior reporting periods.
Other
Matters
Davenport started construction in
October 2006 and was scheduled to be completed in June 2008.
Construction was delayed due to the original Local General Partner
defaulting on his construction guarantee, and resulting in disputed
mechanic liens on the property. In November 2008, a co-Local
General Partner, Shelter Resource Corporation, was admitted into
the Partnership, due to restrictions implemented by the Iowa
Finance Authority (“IFA”). Subsequently, with
IFA’s approval, the defaulting original Local General Partner
was removed from the Partnership leaving Shelter Resource
Corporation as the sole Local General Partner.
As of March 31, 2010, the property
was 100% completed and a certificate of occupancy was granted for
both buildings in December 2009. The Partnership engaged all
sub-contractors to sign new construction contracts, along with lien
releases for any and all work done after their engagement. During
the year ended March 31, 2011, the Partnership voluntarily advanced
$846,175 to Davenport for construction related costs. There were no
additional advances made to Davenport due to the additional
investment made, as discussed below.
The project was fully completed as
of March 31, 2010 and it achieved stabilized operations by June
2010. In June 2010 the property achieved 85% occupancy and has
maintained occupancy of 80% to 100% to the date of this filing.
Davenport has been awarded state historical tax credits from the
State of Iowa, federal historical credits and federal Low Income
Housing Tax Credits. The State historical credits are given in the
form of a refund check from the State in conjunction with the State
tax return filing. The net amount of the check after applicable
federal taxes will be contributed back to the property to help fund
construction shortfalls. Davenport was also allocated additional
federal Low Income Housing Tax Credits as well as federal
historical tax credits. Upon the Limited Partners’ approval
of the dispositions of Sierra Run’s and Fernwood, the
Partnership made the additional investment in Davenport. See the
exit strategy in Note 1 regarding the dispositions of
Sierra’s Run and Fernwood. On July 1, 2010, the Partnership
committed additional capital to Davenport in the amount of
$2,490,651. This additional commitment generated $408,710 of
federal historic credits and $3,582,550 of additional federal Low
Income Housing Tax Credits which were allocated to the partners of
the Partnership.
As of December 31, 2019, Davenport
is on the watch list due to a low year-to-date DCR and depleted
replacement reserve account. The property has not generated
sufficient cash flow to make the required replacement reserve
deposits. The lender is aware of the underfunded replacement
reserve balance and, to date, has not issued a Notice of Default.
Although the property is operating at its budgeted .61 DCR, it is
still operating below break-even, due to increased utilities
expense and unanticipated snow removal expense, which were due to
result of the heavy snowfall during the first quarter
2019. Due to the small size of the property, any unanticipated
expenses will negatively impact operations and financial
performance. Two tenants recently vacated due to health
reasons. There is one application in process and the other is
being marketed. Operating deficits were paid through the
operating cash account, which had a balance of $1,098 as of
November 2019. While the operating deficit guarantee has
expired, the tax credit guaranty remains in
place.
19
Item 3. Quantitative and Qualitative Disclosures About
Market Risks
As of the end of the period covered
by this report, the Partnership’s General Partner, under the
supervision and with the participation of the Chief Executive
Officer and Chief Financial Officer of Associates, carried out an
evaluation of the effectiveness of the Partnership’s
“disclosure controls and procedures” as defined in
Securities Exchange Act of 1934 Rule 13a-15 and 15d-15. Based on
that evaluation, the Chief Executive Officer and Chief Financial
Officer have concluded that, as of the end of the period covered by
this report, the Partnership’s disclosure controls and
procedures were not effective to ensure that material information
required to be disclosed in the Partnership’s periodic report
filings with SEC is recorded, processed, summarized and reported
within the time period specified by the SEC’s rules and
forms, consistent with the definition of “disclosure controls
and procedures” under the Securities Exchange Act of
1934.
The Partnership must rely on the
Local Limited Partnerships to provide the Partnership with certain
information necessary to the timely filing of the
Partnership’s periodic reports. Factors in the accounting at
the Local Limited Partnerships have caused delays in the provision
of such information during past reporting periods, and resulted in
the Partnership’s inability to file its periodic reports in a
timely manner.
Once the Partnership has received
the necessary information from the Local Limited Partnerships, the
Chief Executive Officer and the Chief Financial Officer of
Associates believe that the material information required to be
disclosed in the Partnership’s periodic report filings with
SEC is effectively recorded, processed, summarized and reported,
albeit not in a timely manner. Going forward, the Partnership will
use the means reasonably within its power to impose procedures
designed to obtain from the Local Limited Partnerships the
information necessary to the timely filing of the
Partnership’s periodic reports.
(b)
Changes
in internal controls
There were no changes in the
Partnership’s internal control over financial reporting that
occurred during the quarter ended December 31, 2019 that materially
affected, or are reasonably likely to materially affect, the
Partnership’s internal control over financial
reporting.
Certification of the Principal
Executive Officer pursuant to Rule 13a-14 and 15d-14, as adopted
pursuant to section 302 of the Sarbanes-Oxley Act of 2002. (filed
herewith)
Certification of the Principal
Financial Officer pursuant to Rule 13a-14 and 15d-14, as adopted
pursuant to section 302 of the Sarbanes-Oxley Act of 2002. (filed
herewith)
Section 1350 Certification of the
Chief Financial Officer. (filed herewith)
101
Interactive data files pursuant to
Rule 405 of Regulation S-T: (i) the Condensed Balance Sheets at
December 31, 2019 and March 31, 2019, (ii) the Condensed Statements
of Operations for the three and nine months ended December 31, 2019
and December 31, 2018, (iii) the Condensed Statements of
Partners’ Equity (Deficit) for the nine months ended December31, 2019 and 2018, (iv) the Condensed Statements of Cash Flows for
the nine months ended December 31, 2019 and December 31, 2018 and
(v) the Notes to Condensed Financial
Statements.
Exhibits 32.1, 32.2 and 101
shall not be deemed “filed” for purposes of
Section 18 of the Securities Exchange Act of 1934, or
otherwise subject to the liability of that Section. Such exhibits
shall not be deemed incorporated by reference into any filing under
the Securities Act of 1933 or Securities Exchange Act of
1934.
21
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.