FORM 10-QSB - QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Quarterly or Transitional Report
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2001
[ ] 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 0-10260
SHELTER PROPERTIES III
(Exact name of small business issuer as specified in its charter)
South Carolina 57-0718508
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 III
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
June 30, 2001
Assets
Cash and cash equivalents $ 370
Receivables and deposits 199
Restricted escrows 136
Other assets 483
Investment properties:
Land $ 1,281
Buildings and related personal property 27,189
28,470
Less accumulated depreciation (17,692) 10,778
$ 11,966
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 66
Tenant security deposit liabilities 103
Accrued property taxes 207
Other liabilities 504
Mortgage notes payable 15,149
Partners' Deficit
General partners $ (106)
Limited partners (55,000 units issued and
outstanding) (3,957) (4,063)
$ 11,966
See Accompanying Notes to Consolidated Financial Statements
b)
SHELTER PROPERTIES III
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
Revenues:
Rental income $1,343 $1,359 $2,657 $2,676
Other income 85 106 214 210
Total revenues 1,428 1,465 2,871 2,886
Expenses:
Operating 643 599 1,212 1,205
General and administrative 91 87 167 147
Depreciation 276 267 548 527
Interest 285 181 571 337
Property taxes 103 96 211 179
Total expenses 1,398 1,230 2,709 2,395
Net income $ 30 $ 235 $ 162 $ 491
Net income allocated
to general partners (1%) $ -- $ 2 $ 2 $ 5
Net income allocated
to limited partners (99%) 30 233 160 486
$ 30 $ 235 $ 162 $ 491
Net income per limited
partnership unit $ .55 $ 4.24 $ 2.91 $ 8.84
Distributions per limited
partnership unit $ 8.77 $10.44 $26.05 $10.44
See Accompanying Notes to Consolidated Financial Statements
c)
SHELTER PROPERTIES III
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partners Partners Total
Original capital contributions 55,000 $ 2 $27,500 $27,502
Partners' deficit at
December 31, 2000 55,000 $ (94) $(2,684) $(2,778)
Distributions to partners -- (14) (1,433) (1,447)
Net income for the six months
ended June 30, 2001 -- 2 160 162
Partners' deficit at
June 30, 2001 55,000 $ (106) $(3,957) $(4,063)
See Accompanying Notes to Consolidated Financial Statements
d)
SHELTER PROPERTIES III
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
2001 2000
Cash flows from operating activities:
Net income $ 162 $ 491
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 548 527
Amortization of discounts and loan costs 14 53
Change in accounts:
Receivables and deposits 279 276
Other assets (60) (33)
Accounts payable (28) 58
Tenant security deposit liabilities (1) 6
Accrued property taxes (63) 16
Other liabilities 130 (24)
Net cash provided by operating activities 981 1,370
Cash flows from investing activities:
Property improvements and replacements (252) (447)
Net withdrawals from (deposits to) restricted escrows 598 (257)
Net cash provided by (used in) investing
activities 346 (704)
Cash flows from financing activities:
Payments on mortgage notes payable (143) (136)
Loan costs paid (32) --
Partners' distributions (1,447) (580)
Net cash used in financing activities (1,622) (716)
Net decrease in cash and cash equivalents (295) (50)
Cash and cash equivalents at beginning of period 665 655
Cash and cash equivalents at end of period $ 370 $ 605
Supplemental disclosure of cash flow information:
Cash paid for interest $ 474 $ 307
See Accompanying Notes to Consolidated Financial Statements
e)
SHELTER PROPERTIES III
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements of Shelter
Properties III (the "Partnership" or "Registrant") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Item 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. The general partner responsible for management of the
Partnership's business is Shelter Realty III Corporation, a South Carolina
corporation (the "Corporate General Partner"). The Corporate General Partner is
a subsidiary of Apartment Investment and Management Company ("AIMCO"), a
publicly traded real estate investment trust. 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 and six month periods ended June 30, 2001, are not
necessarily indicative of the results that may be expected for the fiscal year
ending December 31, 2001. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Partnership's Annual
Report on Form 10-KSB for the year ended December 31, 2000.
Principles of Consolidation
The financial statements include all of the accounts of the Partnership and its
99.99% owned partnership. The Corporate General Partner of the consolidated
partnership is Shelter Realty III Corporation. Shelter Realty III Corporation
may be removed as the general partner of the consolidated partnership by the
Registrant; therefore, the consolidated partnership is controlled and
consolidated by the Registrant. All significant interpartnership balances have
been eliminated.
Segment Reporting
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosure about
Segments of an Enterprise and Related Information" established standards for the
way that public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports. It
also establishes standards for related disclosures about products and services,
geographic areas, and major customers. As defined in SFAS No. 131, the
Partnership has only one reportable segment. The Corporate General Partner
believes that segment-based disclosures will not result in a more meaningful
presentation than the consolidated financial statements as currently presented.
Note B - Reconciliation of Cash Flows
The following is a reconciliation of the subtotal on the accompanying
consolidated 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.
For the Six Months Ended
June 30,
2001 2000
(in thousands)
Net cash provided by operating activities $ 981 $ 1,370
Payments on mortgage notes payable (143) (136)
Property improvements and replacements (252) (447)
Change in restricted escrows, net 598 (257)
Changes in reserves for net operating
assets (257) (299)
Additional reserves (927) (231)
Net cash provided by operations $ -- $ --
The Corporate General Partner reserved approximately $927,000 and $231,000 at
June 30, 2001 and 2000, respectively, to fund capital improvements and repairs
at the Partnership's four 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 (i) payments to
affiliates for services and (ii) reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership. The following amounts were paid or
accrued to the Corporate General Partner and affiliates during the six months
ended June 30, 2001 and 2000.
2001 2000
(in thousands)
Property management fees (included in
operating expenses) $147 $146
Reimbursement for services of affiliates
(included in operating and general and
administrative expenses and investment properties) 91 63
Due to general partners (included in other liabilities) 185 185
Due from general partners (included in receivables and
deposits) 11 11
During the six months ended June 30, 2001 and 2000, affiliates of the Corporate
General Partner were entitled to receive 5% of gross receipts from all of the
Registrant's properties for providing property management services. The
Registrant paid to such affiliates approximately $147,000 and $146,000 for the
six months ended June 30, 2001 and 2000, respectively.
An affiliate of the Corporate General Partner received reimbursement of
accountable administrative expenses amounting to approximately $91,000 and
$63,000 for the six months ended June 30, 2001 and 2000, respectively.
During 1986 a liability of approximately $185,000 was incurred to the general
partners for sales commissions earned. Pursuant to the Partnership Agreement,
this liability cannot be paid until certain levels of returns are received by
the limited partners. As of June 30, 2001, the level of return to the limited
partners has not been met.
In addition to its indirect ownership of the combined general partner interests
in the Partnership, AIMCO and its affiliates currently own 34,581 limited
partnership units in the Partnership representing 62.87% of the outstanding
units. A number of these units were acquired pursuant to tender offers made by
AIMCO or its affiliates. It is possible that AIMCO or its affiliates will make
one or more additional offers to acquire additional limited partnership
interests in the Partnership for cash or in exchange for units in the operating
partnership of AIMCO. Under the Partnership Agreement, unitholders holding a
majority of the Units are entitled to take action with respect to a variety of
matters, which would include without limitation, voting on certain amendments to
the Partnership Agreement and voting to remove the general partners. As a result
of its ownership of 62.87% of the outstanding units, AIMCO is in a position to
influence all voting decisions with respect to the Registrant. When voting on
matters, AIMCO would in all likelihood vote the Units it acquired in a manner
favorable to the interest of the Corporate General Partner because of its
affiliation with the Corporate General Partner.
Note D - Distributions
During the six months ended June 30, 2001, the Partnership made distributions of
approximately $1,447,000 (approximately $1,433,000 to the limited partners or
$26.05 per limited partnership unit) from operations. Included in this amount
was approximately $8,000 which consisted of withholding taxes paid to the state
of South Carolina on behalf of the limited partners. During the six months ended
June 30, 2000, cash distributions of approximately $580,000 (approximately
$574,000 to the limited partners or $10.44 per limited partnership unit) were
paid from operations. Included in this amount was approximately $15,000 which
consisted of withholding taxes paid to the state of South Carolina on behalf of
the limited partners.
Note E - Legal Proceedings
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, its Corporate General Partner and several of their affiliated
partnerships and corporate entities. The action purports to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships (including the Partnership) which are named as nominal
defendants, challenging, among other things, the acquisition of interests in
certain general partner entities by Insignia Financial Group, Inc. ("Insignia")
and entities which were, at one time, affiliates of Insignia; past tender offers
by the Insignia affiliates to acquire limited partnership units; management of
the partnerships by the Insignia affiliates; and the series of transactions
which closed on October 1, 1998 and February 26, 1999 whereby Insignia and
Insignia Properties Trust, respectively, were merged into AIMCO. The plaintiffs
seek monetary damages and equitable relief, including judicial dissolution of
the Partnership. On June 25, 1998, the Corporate General Partner filed a motion
seeking dismissal of the action. In lieu of responding to the motion, the
plaintiffs filed an amended complaint. The Corporate General Partner filed
demurrers to the amended complaint which were heard February 1999.
Pending the ruling on such demurrers, settlement negotiations commenced. On
November 2, 1999, the parties executed and filed a Stipulation of Settlement,
settling claims, subject to court approval, on behalf of the Partnership and all
limited partners who owned units as of November 3, 1999. Preliminary approval of
the settlement was obtained on November 3, 1999 from the Court, at which time
the Court set a final approval hearing for December 10, 1999. Prior to the
December 10, 1999 hearing, the Court received various objections to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of prior lead counsel to enter the settlement. On
December 14, 1999, the Corporate General Partner and its affiliates terminated
the proposed settlement. In February 2000, counsel for some of the named
plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who
negotiated the settlement. On June 27, 2000, the Court entered an order
disqualifying them from the case and an appeal was taken from the order on
October 5, 2000. On December 4, 2000, the Court appointed the law firm of Lieff
Cabraser Heimann & Bernstein LLP as new lead counsel for plaintiffs and the
putative class. Plaintiffs filed a third amended complaint on January 19, 2001.
On March 2, 2001, the Corporate General Partner and its affiliates filed a
demurrer to the third amended complaint. On May 14, 2001, the Court heard the
demurrer to the third amended complaint. On July 10, 2001, the Court issued an
order sustaining defendants' demurrer on certain grounds. Plaintiffs have until
August 16, 2001 to file a fourth amended complaint. The Corporate General
Partner does not anticipate that any costs, whether legal or settlement costs,
associated with this case will be material to the Partnership's overall
operations.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
Item 2. Management's Discussion and Analysis or Plan of Operation
The matters discussed in this Form 10-QSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-QSB and the other filings with the
Securities and Exchange Commission made by the Registrant from time to time. The
discussions of the Registrant's business and results of operations, including
forward-looking statements pertaining to such matters, does not take into
account the effects of any changes to the Registrant's business and results of
operations. Accordingly, actual results could differ materially from those
projected in the forward-looking statements as a result of a number of factors,
including those identified herein.
The Partnership's investment properties consist of four apartment complexes. The
following table sets forth the average occupancy of the properties for each of
the six months ended June 30, 2001 and 2000:
Average
Occupancy
Property 2001 2000
Essex Park Apartments
Columbia, South Carolina 91% 92%
Colony House Apartments
Mufreesboro, Tennessee 88% 93%
North River Village Apartments
Atlanta, Georgia 93% 94%
Willowick Apartments
Greenville, South Carolina 94% 96%
The Corporate General Partner attributes the decrease in occupancy at Colony
House Apartments to the competitive market of the apartment industry in the
Mufreesboro area. The decrease is also attributable to the purchase of new homes
by tenants due to lower interest rates.
Results of Operations
The Registrant's net income for the three and six months ended June 30, 2001 was
approximately $30,000 and $162,000, respectively, as compared to approximately
$235,000 and $491,000 for the three and six months ended June 30, 2000. The
decrease in net income for the three and six months ended June 30, 2001, is due
to an increase in total expenses and, to a lesser extent, a decrease in total
revenues. The increase in total expenses for both periods was primarily due to
an increase in interest expense, property tax expense, depreciation expense, and
general and administrative expense. Interest expense increased due to the
refinancings of the mortgages encumbering Colony House Apartments, Essex Park
Apartments, and Willowick Apartments during December 2000. Property tax expense
increased due to an increase in the assessed values and timing and receipt of
invoices from the taxing authorities at Essex Park Apartments and Willowick
Apartments which affected the recorded property tax accruals. Depreciation
expense increased as a result of property improvements and replacements placed
into service during the past twelve months. Operating expense increased for the
three and six months ended June 30, 2001 due to expenses incurred for minor
repairs performed as a result of damage from an ice storm at Colony House
Apartments in January 2001. General and administrative expenses increased due to
an increase in audit fees and management reimbursements to the Corporate General
Partner allowed under the Partnership Agreement. Also included in general and
administrative expenses for the six months ended June 30, 2001 and 2000 were
costs associated with the quarterly and annual communications with investors and
regulatory agencies and the annual appraisals required by the Partnership
Agreement.
Total revenues for the three and six months ended June 30, 2001, decreased due
to a decrease in rental income. Rental income decreased due to a decrease in
occupancy at all of the Partnership's investment properties which was largely
offset by an increase in average rental rates.
As part of the ongoing business plan of the Registrant, the Corporate General
Partner monitors the rental market environments of its investment properties to
assess the feasibility of increasing rents, maintaining or increasing occupancy
levels and protecting the Partnership from increases in expenses. 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.
Liquidity and Capital Resources
At June 30, 2001, the Partnership had cash and cash equivalents of approximately
$370,000 compared to approximately $605,000 at June 30, 2000. The decrease in
cash and cash equivalents of approximately $295,000 for the six months ended
June 30, 2001, from the Partnership's calendar year end, is due to approximately
$1,622,000 of cash used in financing activities which was partially offset by
approximately $981,000 of cash provided by operating activities and
approximately $346,000 of cash provided by investing activities. Cash provided
by investing activities consisted of net withdrawals from restricted escrow
accounts maintained by the mortgage lender which were partially offset by cash
used for property improvements and replacements. Cash used in financing
activities consisted of partner distributions and, to a lesser extent, payments
of principal made on the mortgages encumbering the Registrant's properties and
additional loan costs related to the refinancing of the mortgages for three of
the investment properties in December 2000. The Registrant invests its working
capital reserves in interest bearing accounts.
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 investment properties to adequately maintain the
physical assets and other operating needs of the Registrant and to comply with
Federal, state and local legal and regulatory requirements. Capital improvements
completed at each of the Registrant's properties are detailed below.
Colony House Apartments
The Partnership has completed approximately $58,000 in capital expenditures as
of June 30, 2001, consisting primarily of floor covering and appliance
replacements, air conditioning improvements, and structural improvements. These
improvements were funded primarily from operations. The Partnership has
budgeted, but is not limited to, approximately $76,000 for capital improvements
during 2001 at Colony House Apartments, consisting primarily of appliance and
floor covering replacements and other building improvements.
Essex Park Apartments
The Partnership has completed approximately $64,000 in capital expenditures as
of June 30, 2001, consisting primarily of air conditioning improvements and
floor covering and appliance replacements. These improvements were funded
primarily from operations. The Partnership has budgeted, but is not limited to,
approximately $151,000 for capital improvements during 2001 at Essex Park
Apartments consisting primarily of appliance and floor covering replacements and
air conditioning replacements.
Willowick Apartments
The Partnership has completed approximately $40,000 in capital expenditures as
of June 30, 2001, consisting primarily of floor covering and appliance
replacements and major landscaping. These improvements were funded primarily
from operations. The Partnership has budgeted, but is not limited to,
approximately $66,000 for capital improvements during 2001 at Willowick
Apartments, consisting primarily of appliance and floor covering replacements,
air conditioning improvements, and major landscaping.
North River Village Apartments
The Partnership has completed approximately $90,000 in capital expenditures as
of June 30, 2001, consisting primarily of floor covering and appliance
replacements, plumbing improvements, cabinet improvements, structural
improvements and other building improvements. These improvements were funded
primarily from operations. The Partnership has budgeted, but is not limited to,
approximately $48,000 for capital improvements during 2001 at North River
Apartments, consisting primarily of appliance and floor covering replacements
and structural improvements. The Partnership is currently reviewing the proposed
budget.
The additional capital expenditures will be incurred only if cash is available
from operations and Partnership reserves. To the extent that such budgeted
capital improvements are completed, the Registrant's distributable cash flow, if
any, may be adversely affected at least in the short term.
The Registrant's current assets are thought to be sufficient for any near term
needs (exclusive of capital improvements) of the Registrant. The mortgage
indebtedness of approximately $15,149,000, net of discount, is amortized over
varying periods with balloon payments due from October 2003 to January 2021. The
Corporate General Partner will attempt to refinance such indebtedness and/or
sell the properties prior to such maturity dates. If the properties cannot be
refinanced or sold for a sufficient amount, the Registrant will risk losing such
properties through foreclosure.
During the six months ended June 30, 2001, the Partnership made distributions of
approximately $1,447,000 (approximately $1,433,000 to the limited partners or
$26.05 per limited partnership unit) from operations. Included in this amount
was approximately $8,000 which consisted of withholding taxes paid to the state
of South Carolina on behalf of the limited partners. During the six months ended
June 30, 2000, cash distributions of approximately $580,000 (approximately
$574,000 to the limited partners or $10.44 per limited partnership unit) were
paid from operations. Included in this amount was approximately $15,000 which
consisted of withholding taxes paid to the state of South Carolina on behalf of
the limited partners. Future cash distributions will depend on the levels of net
cash generated from operations, the availability of cash reserves, and the
timing of debt maturities, refinancings, and/or property sales. The
Partnership's distribution policy is reviewed on a monthly basis. There can be
no assurance, however, that the Partnership will generate sufficient funds from
operations, after planned capital improvement expenditures, to permit any
additional distributions to its partners in 2001 or subsequent periods. In
addition, the Partnership may be restricted from making distributions if the
amount in the reserve account for North River Village Apartments maintained by
the mortgage lender is less than $200 per apartment unit. As of June 30, 2001
the reserve account was fully funded with approximately $54,000 on deposit with
the mortgage lender.
In addition to its indirect ownership of the combined general partner interests
in the Partnership, AIMCO and its affiliates currently own 34,581 limited
partnership units in the Partnership representing 62.87% of the outstanding
units. A number of these units were acquired pursuant to tender offers made by
AIMCO or its affiliates. It is possible that AIMCO or its affiliates will make
one or more additional offers to acquire additional limited partnership
interests in the Partnership for cash or in exchange for units in the operating
partnership of AIMCO. Under the Partnership Agreement, unitholders holding a
majority of the Units are entitled to take action with respect to a variety of
matters, which would include without limitation, voting on certain amendments to
the Partnership Agreement and voting to remove the general partners. As a result
of its ownership of 62.87% of the outstanding units, AIMCO is in a position to
influence all voting decisions with respect to the Registrant. When voting on
matters, AIMCO would in all likelihood vote the Units it acquired in a manner
favorable to the interest of the Corporate General Partner because of its
affiliation with the Corporate General Partner.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, its Corporate General Partner and several of their affiliated
partnerships and corporate entities. The action purports to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships (including the Partnership) which are named as nominal
defendants, challenging, among other things, the acquisition of interests in
certain general partner entities by Insignia Financial Group, Inc. ("Insignia")
and entities which were, at one time, affiliates of Insignia; past tender offers
by the Insignia affiliates to acquire limited partnership units; management of
the partnerships by the Insignia affiliates; and the series of transactions
which closed on October 1, 1998 and February 26, 1999 whereby Insignia and
Insignia Properties Trust, respectively, were merged into AIMCO. The plaintiffs
seek monetary damages and equitable relief, including judicial dissolution of
the Partnership. On June 25, 1998, the Corporate General Partner filed a motion
seeking dismissal of the action. In lieu of responding to the motion, the
plaintiffs filed an amended complaint. The Corporate General Partner filed
demurrers to the amended complaint which were heard February 1999.
Pending the ruling on such demurrers, settlement negotiations commenced. On
November 2, 1999, the parties executed and filed a Stipulation of Settlement,
settling claims, subject to court approval, on behalf of the Partnership and all
limited partners who owned units as of November 3, 1999. Preliminary approval of
the settlement was obtained on November 3, 1999 from the Court, at which time
the Court set a final approval hearing for December 10, 1999. Prior to the
December 10, 1999 hearing, the Court received various objections to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of prior lead counsel to enter the settlement. On
December 14, 1999, the Corporate General Partner and its affiliates terminated
the proposed settlement. In February 2000, counsel for some of the named
plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who
negotiated the settlement. On June 27, 2000, the Court entered an order
disqualifying them from the case and an appeal was taken from the order on
October 5, 2000. On December 4, 2000, the Court appointed the law firm of Lieff
Cabraser Heimann & Bernstein LLP as new lead counsel for plaintiffs and the
putative class. Plaintiffs filed a third amended complaint on January 19, 2001.
On March 2, 2001, the Corporate General Partner and its affiliates filed a
demurrer to the third amended complaint. On May 14, 2001, the Court heard the
demurrer to the third amended complaint. On July 10, 2001, the Court issued an
order sustaining defendants' demurrer on certain grounds. Plaintiffs have until
August 16, 2001 to file a fourth amended complaint. The Corporate General
Partner does not anticipate that any costs, whether legal or settlement costs,
associated with this case will be material to the Partnership's overall
operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
None.
b) Reports on Form 8-K filed during the quarter ended June 30, 2001:
None.
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 III
By: Shelter Realty III Corporation
Corporate General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Martha L. Long
Martha L. Long
Senior Vice President and
Controller
Date: August 1, 2001