FORM 10-QSB--QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Quarterly or Transitional Report
(As last amended by 34-32231, eff. 6/3/93.)
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
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 0-10255
SHELTER PROPERTIES I LIMITED PARTNERSHIP
(Exact name of small business issuer as specified in its charter)
South Carolina 57-0707398
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Insignia Financial Plaza, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (864) 239-1000
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X . No .
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a) SHELTER PROPERTIES I LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEET
(Unaudited)
March 31, 1996
Assets
Cash and cash equivalents:
Unrestricted $ 1,223,639
Restricted--tenant security deposits 141,031
Accounts receivable 13,638
Escrow for taxes 130,571
Restricted escrows 371,336
Other assets 163,445
Investment properties:
Land $ 1,427,509
Buildings and related personal property 17,620,646
19,048,155
Less accumulated depreciation (12,473,264) 6,574,891
$ 8,618,551
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 58,747
Tenant security deposits 138,203
Accrued taxes 65,263
Other liabilities 282,761
Mortgage notes payable 9,288,852
Partners' Deficit
General partners $ (51,523)
Limited partners (15,000 units
issued and outstanding) (1,163,752) (1,215,275)
$ 8,618,551
See Accompanying Notes to Consolidated Financial Statements
b) SHELTER PROPERTIES I LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
1996 1995
Revenues:
Rental income $1,137,562 $1,092,028
Other income 64,016 40,463
Total revenues 1,201,578 1,132,491
Expenses:
Operating 308,471 325,064
General and administrative 42,954 42,771
Property management fees 59,588 56,237
Maintenance 132,033 93,575
Depreciation 151,649 169,262
Interest 236,500 243,502
Property taxes 65,263 64,118
Total expenses 996,458 994,529
Net income $ 205,120 $ 137,962
Net income allocated to general partners (1%) $ 2,051 $ 1,380
Net income allocated to limited partners (99%) 203,069 136,582
$ 205,120 $ 137,962
Net income per limited partnership unit $ 13.54 $ 9.11
See Accompanying Notes to Consolidated Financial Statements
c) SHELTER PROPERTIES I LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
Limited
Partnership General Limited
Units Partners Partners Total
Original capital contributions 15,000 $ 2,000 $15,000,000 $15,002,000
Partners' deficit at
December 31, 1995 15,000 $(53,520) $(1,361,481) $(1,415,001)
Distributions to partners -- (54) (5,340) (5,394)
Net income for the three
months ended March 31, 1996 -- 2,051 203,069 205,120
Partners' deficit at
March 31, 1996 15,000 $(51,523) $(1,163,752) $(1,215,275)
<FN>
See Accompanying Notes to Consolidated Financial Statements
d) SHELTER PROPERTIES I LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
1996 1995
Cash flows from operating activities:
Net income $ 205,120 $ 137,962
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 151,649 169,262
Amortization of discounts and loan costs 30,338 29,894
Change in accounts:
Restricted cash (7,303) (6,015)
Accounts receivable (1,026) (4,187)
Escrows for taxes and insurance (44,248) (44,944)
Other assets (12,996) 4,998
Accounts payable (82,669) (54,665)
Tenant security deposit liabilities 6,317 7,174
Accrued taxes 65,263 64,118
Other liabilities (1,117) 12,402
Net cash provided by operating activities 309,328 315,999
Cash flows from investing activities:
Property improvements and replacements (39,909) (44,358)
Deposits to restricted escrows (12,889) (25,439)
Receipts from restricted escrows -- 26,869
Net cash used in investing activities (52,798) (42,928)
Cash flows from financing activities:
Payments on mortgage notes payable (95,405) (87,959)
Distributions to partners (5,394) (156,998)
Net cash used in financing activities (100,799) (244,957)
Net increase in cash 155,731 28,114
Cash and cash equivalents at beginning of period 1,067,908 757,301
Cash and cash equivalents at end of period $1,223,639 $ 785,415
Supplemental disclosure of cash flow information:
Cash paid for interest $ 206,161 $ 213,608
<FN>
See Accompanying Notes to Consolidated Financial Statements
e) SHELTER PROPERTIES I LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited financial statements of Shelter Properties I
Limited Partnership (the "Partnership") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-QSB and Article 310(b) of Regulation S-B.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of the Corporate General Partner, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended March 31,
1996, are not necessarily indicative of the results that may be expected for the
fiscal year ending December 31, 1996. For further information, refer to the
financial statements and footnotes thereto included in the Partnership's annual
report on Form 10-KSB for the year ended December 31, 1995.
Certain reclassifications have been made to the 1995 information to conform
to the 1996 presentation.
Cash and Cash Equivalents:
Unrestricted - Unrestricted cash includes cash on hand and in banks and
Certificates of Deposit with original maturities less than 90 days. At certain
times, the amount of cash deposited at a bank may exceed the limit on insured
deposits.
Restricted cash - tenant security deposits - The Partnership requires
security deposits from lessees for the duration of the lease and such deposits
are considered restricted cash. Deposits are refunded when the tenant vacates,
provided the tenant has not damaged its space and is current on its rental
payments.
Note B - Reconciliation of Cash Flows
The following is a reconciliation of the subtotal on the accompanying
statements of cash flows captioned "net cash provided by operating activities"
to "net cash used in operations," as defined in the partnership agreement.
However, "net cash used in operations" should not be considered an alternative
to net income as an indicator of the Partnership's operating performance or to
cash flows as a measure of liquidity.
Three Months Ended
March 31,
1996 1995
Net cash provided by operating activities $ 309,328 $ 315,999
Payments on mortgage notes payable (95,405) (87,959)
Property improvements and replacements (39,909) (44,358)
Change in restricted escrows, net (12,889) 1,430
Changes in reserves for net operating
liabilities 77,779 21,119
Additional reserves (240,000) (220,000)
Net cash used in operations $ (1,096) $ (13,769)
In 1996 and 1995, the Corporate General Partner believed it to be in the best
interest of the Partnership to reserve an additional $240,000 and $220,000,
respectively, to fund continuing capital improvements and maintenance items at
the four properties. In addition to the capital improvements, the Corporate
General Partner reserved additional amounts in 1996 for costs associated with
the possible refinancing of certain of the debt encumbering the Partnership's
investment properties.
Note C - Transactions with Affiliated Parties
The Partnership has no employees and is dependent on the Corporate General
Partner and its affiliates for the management and administration of all
partnership activities. The Partnership Agreement provides for payments to
affiliates for services and as reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership. Balances and other transactions with
Insignia Financial Group, Inc. ("Insignia") and certain of its affiliates in
1996 and 1995 are as follows:
Three Months Ended
March 31,
1996 1995
Property management fees $ 59,588 $ 56,237
Reimbursement for services of affiliates 21,601 15,978
Due to general partners 100,797 100,797
The Partnership insures its properties under a master policy through an
agency and insurer unaffiliated with the Corporate General Partner. An
affiliate of the Corporate General Partner acquired, in the acquisition of a
business, certain financial obligations from an insurance agency which was later
acquired by the agent who placed the current year's master policy. The current
agent assumed the financial obligations to the affiliate of the Corporate
General Partner, who receives payments on these obligations from the agent. The
amount of the Partnership's insurance premiums accruing to the benefit of the
affiliate of the Corporate General Partner by virtue of the agent's obligations
is not significant.
Note D - Contingencies
The Corporate General Partner owns 100 Limited Partnership Units ("Units").
On or about April 26 and 27, 1995, six entities ("Affiliated Purchaser")
affiliated with the Partnership commenced tender offers for limited partner
interests in six limited partnerships, including the Partnership (collectively,
the "Shelter Properties Partnerships"). On May 27, 1995, the Affiliated
Purchaser acquired 3,999 units of the Partnership pursuant to the tender offer.
On or about May 12, 1995, in the United States District Court for the District
of South Carolina, certain limited partners of the Shelter Properties
Partnerships commenced a lawsuit, on behalf of themselves, on behalf of a
putative class of plaintiffs, and derivatively on behalf of the partnerships,
challenging the actions taken by defendants (including Insignia, the acquiring
entities and certain officers of Insignia) in the management of the Shelter
Properties Partnerships and in connection with the tender offers and certain
other matters.
The plaintiffs alleged that, among other things: (i) the defendants
intentionally mismanaged the partnerships and acted contrary to the limited
partners' best interests by prolonging the existence of the partnerships in
order to perpetuate the revenues derived by Insignia (an affiliate of the
Corporate General Partner) and its affiliates from the partnerships, (ii) the
defendants' actions reduced the demand for the partnerships' limited partner
interests in the limited resale market by artificially depressing the trading
prices for limited partners interests in order to create a favorable environment
for the tender offers; (iii) through the tender offers, the acquiring entities
sought to acquire effective voting control over the partnerships while paying
highly inadequate prices; and (iv) the documents disseminated to the class in
connection with the tender offers contained false and misleading statements and
omissions of material facts concerning such issues as the advantages to limited
partners of tendering pursuant to the tender offers, the true value of the
interest, the true financial condition of the partnerships, the factors
affecting the likelihood that properties owned by the partnerships will be sold
or liquidated in the near future, the liquidity and true value of the limited
partner interests, the reasons for the limited secondary market for limited
partner interests, and the true nature of the market for the underlying real
estate assets owned by the partnerships all in violation of the federal
securities laws.
On September 27, 1995, the parties entered into a stipulation to settle the
matter. The principal terms of the stipulation require supplemental payments to
tendering limited partners aggregating approximately $6 million to be paid by
Affiliated Purchaser, of which approximately $570,000 is Shelter Properties I's
portion; waiver by the Shelter Properties Partnership's general partners of any
right to certain proceeds from a sale or refinancing of the partnerships'
properties; some restrictions on Insignia's ability to vote the limited partner
interests it acquired; payment of $1.25 million (which amount is divided among
the various partnerships and acquiring entities) for plaintiffs' attorney fees
and expenses in the litigation; and general releases of all the defendants. On
April 23, 1996, the court gave preliminary approval of the establishment of the
class for the purposes of the settlement and of the settlement terms, and
ordered that notice of the settlement be sent to the class. Notice has been
sent. A final hearing has been scheduled for June 24, 1996. If a certain
number of class members opt out, the settlement may be cancelled. Class members
also have the right to object to the settlement, which could lead to alterations
in the terms of settlement or even cancellation of the settlement. No assurance
can be given that this matter will be settled on the terms, set forth above or
otherwise.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Partnership's investment properties consists of four apartment
complexes. The following table sets forth the average occupancy of the
properties for the three months ended March 31, 1996 and 1995:
Average
Occupancy
Property 1996 1995
Quail Hollow Apartments
West Columbia, South Carolina 97% 93%
Windsor Hills Apartments
Blacksburg, Virginia 99% 99%
Rome Georgian Apartments
Rome, Georgia 89% 93%
Stone Mountain West Apartments
Stone Mountain, Georgia 98% 99%
The Corporate General Partner attributes the increase in occupancy at Quail
Hollow Apartments to increased efficiencies with respect to the preparation of
apartments for rent after move-outs and continued upgrading of the interior of
the apartments. The Corporate General Partner attributes the decrease in
occupancy at Rome Georgian Apartments to management's efforts to alleviate
problems associated with a college student tenant base. Management has improved
the appearance of the property and increased resident qualification standards in
order to reduce fluctuations in occupancy, repairs, and delinquencies normally
associated with college tenants. With these improvements, management foresees a
steady increase in occupancy in the upcoming quarters.
The Partnership's net income for the three months ended March 31, 1996, was
$205,120 versus $137,962 for the corresponding period in 1995. The increase in
net income is attributable to an increase in other income due to an increase in
fees related to tenant turnover and rate increases for pet and application fees.
Depreciation expense decreased as the original cost of the buildings were fully
depreciated by the year ended December 31, 1995. Partially offsetting the
increase in net income was an increase in maintenance expense due to increased
interior and exterior improvements, landscaping, yards and grounds, and
wallpaper expense incurred to maintain and improve curb appeal at all properties
within the Partnership. Also contributing to the increase in maintenance
expense was an increase in snow removal at Windsor Hills due to the harsh winter
and the cost of resurfacing the tennis court at Quail Hollow.
As part of the ongoing business plan of the Partnership, the Corporate
General Partner monitors the rental market environment of its investment
property to assess the feasibility of increasing rent, maintaining or increasing
occupancy levels and protecting the Partnership from increases in expense. As
part of this plan, the Corporate General Partner attempts to protect the
Partnership from the burden of inflation-related increases in expenses by
increasing rents and maintaining a high overall occupancy level. However, due
to changing market conditions which can result in the use of rental concessions
and rental reductions to offset softening market conditions, there is no
guarantee that the Corporate General Partner will be able to sustain such a
plan.
At March 31, 1996, the Partnership had unrestricted cash of $1,223,639 as
compared to $785,415 at March 31, 1995. Net cash provided by operating
activities remained relatively constant for the three months ended March 31,
1996, as compared to the same period in 1995. Net cash used in investing
activities increased for the three months ended March 31, 1996, as compared to
1995 due to net receipts from restricted escrows. Net cash provided by
restricted escrows decreased in 1996 due to reserves being used in the prior
year to fund capital improvements. Net cash used in financing activities
decreased in 1996 due to a decrease in distributions made to partners during the
three months ended March 31, 1996.
The Partnership has no material capital programs scheduled to be performed
in 1996, although certain routine capital expenditures and maintenance expenses
have been budgeted. These capital expenditures and maintenance expenses will be
incurred only if cash is available from operations or is received from the
capital reserve account.
The sufficiency of existing liquid assets to meet future liquidity and
capital expenditure requirements is directly related to the level of capital
expenditures required at the property to adequately maintain the physical assets
and other operating needs of the Partnership. Such assets are currently thought
to be sufficient for any near-term needs of the partnership. The mortgage
indebtedness of $9,288,852, net of discount, is amortized over varying periods.
In addition, the mortgage notes require balloon payments ranging from November
15, 2002 to May 1, 2006, at which time the properties will either be refinanced
or sold. The Corporate General Partner is currently assessing the feasibility of
refinancing the mortgages encumbering Quail Hollow, Rome Georgian and Stone
Mountain West. Future cash distributions will depend on the levels of net cash
generated from operations, refinancings, property sales and the availability of
cash reserves. During the first three months of 1996, distributions in the
amount of $5,394 were paid on behalf of the partners to the State of South
Carolina related to the taxable income generated by Quail Hollow in 1995.
During the first three months of 1995 distributions in the amount of $150,000
were declared and paid in addition to the distribution paid on behalf of the
partners to the State of South Carolina related to the taxable income on Quail
Hollow. The Corporate General Partner intends to make another distribution
during 1996.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Corporate General Partner owns 100 Limited Partnership Units ("Units").
On or about April 26 and 27, 1995, six entities ("Affiliated Purchaser")
affiliated with the Partnership commenced tender offers for limited partner
interests in six limited partnerships, including the Partnership (collectively,
the "Shelter Properties Partnerships"). On May 27, 1995, the Affiliated
Purchaser acquired 3,999 units of the Partnership pursuant to the tender offer.
On or about May 12, 1995, in the United States District Court for the District
of South Carolina, certain limited partners of the Shelter Properties
Partnerships commenced a lawsuit, on behalf of themselves, on behalf of a
putative class of plaintiffs, and derivatively on behalf of the partnerships,
challenging the actions taken by defendants (including Insignia, the acquiring
entities and certain officers of Insignia) in the management of the Shelter
Properties Partnerships and in connection with the tender offers and certain
other matters.
The plaintiffs alleged that, among other things: (i) the defendants
intentionally mismanaged the partnerships and acted contrary to the limited
partners' best interests by prolonging the existence of the partnerships in
order to perpetuate the revenues derived by Insignia (an affiliate of the
Corporate General Partner) and its affiliates from the partnerships, (ii) the
defendants' actions reduced the demand for the partnerships' limited partner
interests in the limited resale market by artificially depressing the trading
prices for limited partners interests in order to create a favorable environment
for the tender offers; (iii) through the tender offers, the acquiring entities
sought to acquire effective voting control over the partnerships while paying
highly inadequate prices; and (iv) the documents disseminated to the class in
connection with the tender offers contained false and misleading statements and
omissions of material facts concerning such issues as the advantages to limited
partners of tendering pursuant to the tender offers, the true value of the
interest, the true financial condition of the partnerships, the factors
affecting the likelihood that properties owned by the partnerships will be sold
or liquidated in the near future, the liquidity and true value of the limited
partner interests, the reasons for the limited secondary market for limited
partner interests, and the true nature of the market for the underlying real
estate assets owned by the partnerships all in violation of the federal
securities laws.
On September 27, 1995, the parties entered into a stipulation to settle the
matter. The principal terms of the stipulation require supplemental payments to
tendering limited partners aggregating approximately $6 million to be paid by
Affiliated Purchaser, of which approximately $570,000 is Shelter Properties I's
portion; waiver by the Shelter Properties Partnership's general partners of any
right to certain proceeds from a sale or refinancing of the partnerships'
properties; some restrictions on Insignia's ability to vote the limited partner
interests it acquired; payment of $1.25 million (which amount is divided among
the various partnerships and acquiring entities) for plaintiffs' attorney fees
and expenses in the litigation; and general releases of all the defendants. On
April 23, 1996, the court gave preliminary approval of the establishment of the
class for the purposes of the settlement and of the settlement terms, and
ordered that notice of the settlement be sent to the class. Notice has been
sent. A final hearing has been scheduled for June 24, 1996. If a certain
number of class members opt out, the settlement may be cancelled. Class members
also have the right to object to the settlement, which could lead to alterations
in the terms of settlement or even cancellation of the settlement. No assurance
can be given that this matter will be settled on the terms, set forth above or
otherwise.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 27, Financial Data Schedule, is filed as an exhibit to this
report.
b) Reports on Form 8-K:
None filed during the quarter ended March 31, 1996.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SHELTER PROPERTIES I LIMITED PARTNERSHIP
By: Shelter Realty I Corporation
Corporate General Partner
By:/s/ William H. Jarrard, Jr.
William H. Jarrard, Jr.
President and Director
By:/s/ Ronald Uretta
Ronald Uretta
Treasurer
(Principal Financial Officer
and Principal Accounting Officer)
Date: May 1, 1996