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 September 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)
September 30, 2001
Assets
Cash and cash equivalents $ 260
Receivables and deposits 197
Restricted escrows 135
Other assets 467
Investment properties:
Land $ 1,281
Buildings and related personal property 27,585
28,866
Less accumulated depreciation (17,956) 10,910
$ 11,969
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 153
Tenant security deposit liabilities 99
Accrued property taxes 305
Other liabilities 538
Mortgage notes payable 15,062
Partners' Deficit
General partners $ (108)
Limited partners (55,000 units issued and
outstanding) (4,080) (4,188)
$ 11,969
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 Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
Revenues:
Rental income $1,288 $1,306 $3,945 $3,982
Other income 107 108 321 318
Total revenues 1,395 1,414 4,266 4,300
Expenses:
Operating 790 638 2,002 1,843
General and administrative 81 114 248 261
Depreciation 264 259 812 786
Interest 287 177 858 514
Property taxes 98 107 309 286
Total expenses 1,520 1,295 4,229 3,690
Net (loss) income $ (125) $ 119 $ 37 $ 610
Net (loss) income allocated
to general partners (1%) $ (1) $ 1 $ 0 $ 6
Net (loss) income allocated
to limited partners (99%) (124) 118 37 604
$ (125) $ 119 $ 37 $ 610
Net (loss) income per
limited partnership unit $(2.25) $ 2.14 $ .67 $10.98
Distributions per limited
partnership unit $ -- $ -- $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 nine months
ended September 30, 2001 -- 0 37 37
Partners' deficit at
September 30, 2001 55,000 $(108) $ (4,080) $(4,188)
See Accompanying Notes to Consolidated Financial Statements
d)
SHELTER PROPERTIES III
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
2001 2000
Cash flows from operating activities:
Net income $ 37 $ 610
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 812 786
Amortization of discounts and loan costs 21 78
Change in accounts:
Receivables and deposits 281 253
Other assets (50) (29)
Accounts payable 59 (55)
Tenant security deposit liabilities (5) 14
Accrued property taxes 35 123
Other liabilities 164 50
Net cash provided by operating activities 1,354 1,830
Cash flows from investing activities:
Property improvements and replacements (648) (755)
Net withdrawals from (deposits to) restricted escrows 599 (160)
Net cash used in investing activities (49) (915)
Cash flows from financing activities:
Loan costs paid (32) --
Payments on mortgage notes payable (231) (205)
Partners' distributions (1,447) (580)
Net cash used in financing activities (1,710) (785)
Net (decrease) increase in cash and cash equivalents (405) 130
Cash and cash equivalents at beginning of period 665 655
Cash and cash equivalents at end of period $ 260 $ 785
Supplemental disclosure of cash flow information:
Cash paid for interest $ 749 $ 460
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 nine month periods ended September 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 provided by operations", as defined in the Partnership
Agreement. However, "net cash provided by 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 Nine Months Ended
September 30,
2001 2000
(in thousands)
Net cash provided by operating activities $ 1,354 $ 1,830
Payments on mortgage notes payable (231) (205)
Property improvements and replacements (648) (755)
Change in restricted escrows, net 599 (160)
Changes in reserves for net operating
assets (417) (356)
Additional reserves (657) (132)
Net cash provided by operations $ -- $ 222
The Corporate General Partner reserved approximately $657,000 and $132,000 at
September 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 nine months
ended September 30, 2001 and 2000.
2001 2000
(in thousands)
Property management fees (included in
operating expenses) $220 $216
Reimbursement for services of affiliates
(included in operating and general and
administrative expenses and investment properties) 385 145
Due to general partners (included in other liabilities) 185 185
Due from general partners (included in receivables and
deposits) 11 11
During the nine months ended September 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 $220,000 and $216,000 for the
nine months ended September 30, 2001 and 2000, respectively.
An affiliate of the Corporate General Partner received reimbursement of
accountable administrative expenses amounting to approximately $385,000 and
$145,000 for the nine months ended September 30, 2001 and 2000, respectively.
Included in these amounts are approximately $249,000 and $3,000 of construction
service reimbursements.
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 September 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 34,621 limited
partnership units in the Partnership representing 62.95% 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 62.95% of the outstanding units, AIMCO is in a position to
control 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 nine months ended September 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 nine months ended September 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. (the "Nuanes action") 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. On July 20, 2001,
plaintiffs filed a motion for reconsideration of the Court's July 10, 2001 order
granting in part and denying in part defendants' demurrer. On September 7, 2001,
plaintiffs filed a fourth amended class and derivative action complaint. On
September 12, 2001, the Court denied plaintiffs' motion for reconsideration. On
October 5, 2001, the Corporate General Partner and affiliated defendants filed a
demurrer to the fourth amended complaint, which, together with a demurrer filed
by other defendants, is currently scheduled to be heard on November 15, 2001.
The Court has set the matter for trial in January 2003.
During the third quarter of 2001, a complaint (the "Heller action") was filed
against the same defendants that are named in the Nuanes action, captioned
Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed
a first amended complaint. The first amended complaint in the Heller action is
brought as a purported derivative action, and asserts claims for among other
things breach of fiduciary duty; unfair competition; conversion, unjust
enrichment; and judicial dissolution. Plaintiffs in the Nuanes action filed a
motion to consolidate the Heller action with the Nuanes action and stated that
the Heller action was filed in order to preserve the derivative claims that were
dismissed without leave to amend in the Nuanes action by the Court order dated
July 10, 2001. On October 5, 2001, the Corporate General Partner and affiliated
defendants moved to strike the first amended complaint in its entirety for
violating the Court's July 10, 2001 order granting in part and denying in part
defendants' demurrer in the Nuanes action, or alternatively, to strike certain
portions of the complaint based on the statute of limitations. Other defendants
in the action demurred to the fourth amended complaint, and, alternatively,
moved to strike the complaint. The matters are currently scheduled to be heard
on November 15, 2001.
The Corporate General Partner does not anticipate that any costs, whether legal
or settlement costs, associated with these cases 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 nine months ended September 30, 2001 and 2000:
Average
Occupancy
Property 2001 2000
Essex Park Apartments
Columbia, South Carolina 92% 91%
Colony House Apartments
Mufreesboro, Tennessee 85% 91%
North River Village Apartments
Atlanta, Georgia 94% 95%
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 nine months ended September 30, 2001 was
approximately $37,000 as compared to approximately $610,000 for the nine months
ended September 30, 2000. The Registrant's net loss for the three months ended
September 30, 2001 was approximately $125,000 as compared to net income of
approximately $119,000 for the three months ended September 30, 2000. The
decrease in net income for both periods is due to an increase in total expenses
and, to a lesser extent, a decrease in total revenues. Total revenues decreased
for the three and nine months ended September 30, 2001 due to a decrease in
rental income. Rental income decreased primarily due to a decrease in the
occupancy levels at three of the Partnership's investment properties. The
decrease in rental income was largely offset by an increase in average rental
rates at all investment properties and a slight increase in occupancy at Essex
Park Apartments.
The increase in total expenses for the three and nine months ended September 30,
2001 is due to an increase in depreciation expense, interest expense, and
operating expenses, which were partially offset by a decrease in general and
administrative expenses. Depreciation expense increased as a result of property
improvements and replacements placed into service during the past twelve months
at all four of the investment properties. Interest expense increased for both
periods due to the refinancing of the mortgages encumbering Colony House
Apartments, Essex Park Apartments and Willowick Apartments during December 2000
with increased debt balances. Operating expenses increased for the three and
nine months ended September 30, 2001 due to increases in property expenses at
Colony House Apartments and Essex Park Apartments and an increase in insurance
premiums for all of the investment properties. Property expenses increased as a
result of an increase in employee salaries and related benefits and an increase
in utilities paid on behalf of vacant apartments. Operating expense also
increased for the nine months ended September 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. Property tax expense decreased for the three
month period and increased for the nine month period ended September 30, 2001 as
a result of the changes in assessed values of the investment properties and the
timing and receipt of invoices from the taxing authorities.
General and administrative expenses decreased for the three and nine month
periods ended September 30, 2001 as a result of a decrease in General Partner
reimbursements allowed under the Partnership Agreement and a decrease in
Partnership legal costs. Also included in general and administrative expenses
for the nine months ended September 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.
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 September 30, 2001, the Partnership had cash and cash equivalents of
approximately $260,000 compared to approximately $785,000 at September 30, 2000.
The decrease in cash and cash equivalents of approximately $405,000 for the nine
months ended September 30, 2001, from the Partnership's calendar year end, is
due to approximately $1,710,000 of cash used in financing activities and
approximately $49,000 of cash used in investing activities which was partially
offset by approximately $1,354,000 of cash provided by operating activities.
Cash used in investing activities consisted of property improvements and
replacements which were partially offset by net withdrawals from escrow accounts
maintained by the mortgage lender. 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 $190,000 in capital expenditures as
of September 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 $173,000 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 $138,000 in capital expenditures as
of September 30, 2001, consisting primarily of air conditioning improvements,
floor covering and appliance replacements and other building improvements. These
improvements were funded primarily from operations. The Partnership has
budgeted, but is not limited to, approximately $206,000 for capital improvements
during 2001 at Essex Park Apartments consisting primarily of appliance and floor
covering replacements, air conditioning replacements, and other building
improvements.
Willowick Apartments
The Partnership has completed approximately $124,000 in capital expenditures as
of September 30, 2001, consisting primarily of structural improvements, 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 $144,000 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 $196,000 in capital expenditures as
of September 30, 2001, consisting primarily of floor covering and appliance
replacements, plumbing improvements, and other building improvements. These
improvements were funded primarily from operations. The Partnership has
budgeted, but is not limited to, approximately $105,000 for capital improvements
during 2001 at North River Apartments, consisting primarily of appliance and
floor covering replacements and structural improvements.
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 $15,062,000, 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 nine months ended September 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 nine months ended September 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 during the
remainder of 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 September 30, 2001 the reserve account was fully
funded with approximately $53,000 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 34,621 limited
partnership units in the Partnership representing 62.95% 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 62.95% of the outstanding units, AIMCO is in a position to
control 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. (the "Nuanes action") 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. On July 20, 2001,
plaintiffs filed a motion for reconsideration of the Court's July 10, 2001 order
granting in part and denying in part defendants' demurrer. On September 7, 2001,
plaintiffs filed a fourth amended class and derivative action complaint. On
September 12, 2001, the Court denied plaintiffs' motion for reconsideration. On
October 5, 2001, the Corporate General Partner and affiliated defendants filed a
demurrer to the fourth amended complaint, which, together with a demurrer filed
by other defendants, is currently scheduled to be heard on November 15, 2001.
The Court has set the matter for trial in January 2003.
During the third quarter of 2001, a complaint (the "Heller action") was filed
against the same defendants that are named in the Nuanes action, captioned
Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed
a first amended complaint. The first amended complaint in the Heller action is
brought as a purported derivative action, and asserts claims for among other
things breach of fiduciary duty; unfair competition; conversion, unjust
enrichment; and judicial dissolution. Plaintiffs in the Nuanes action filed a
motion to consolidate the Heller action with the Nuanes action and stated that
the Heller action was filed in order to preserve the derivative claims that were
dismissed without leave to amend in the Nuanes action by the Court order dated
July 10, 2001. On October 5, 2001, the Corporate General Partner and affiliated
defendants moved to strike the first amended complaint in its entirety for
violating the Court's July 10, 2001 order granting in part and denying in part
defendants' demurrer in the Nuanes action, or alternatively, to strike certain
portions of the complaint based on the statute of limitations. Other defendants
in the action demurred to the fourth amended complaint, and, alternatively,
moved to strike the complaint. The matters are currently scheduled to be heard
on November 15, 2001.
The Corporate General Partner does not anticipate that any costs, whether legal
or settlement costs, associated with these cases 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 September
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: November 6, 2001