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 March 31, 2002
[ ] 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
(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.)
55 Beattie Place, Post Office 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 I
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
March 31, 2002
Assets
Cash and cash equivalents $ 343
Receivables and deposits 114
Restricted escrows 5
Other assets 632
Investment properties:
Land $ 1,189
Buildings and related personal property 17,938
19,127
Less accumulated depreciation (13,736) 5,391
$ 6,485
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 60
Tenant security deposit liabilities 134
Accrued property taxes 86
Other liabilities 285
Due to affiliates 132
Mortgage notes payable 16,689
Partners' Deficit
General partners $ (54)
Limited partners (15,000 units issued and
outstanding) (10,847) (10,901)
$ 6,485
See Accompanying Notes to Consolidated Financial Statements
b)
SHELTER PROPERTIES I
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended
March 31,
2002 2001
Revenues:
Rental income $1,168 $1,214
Other income 98 70
Total revenues 1,266 1,284
Expenses:
Operating 446 466
General and administrative 59 62
Depreciation 172 160
Interest 311 240
Property taxes 74 64
Total expenses 1,062 992
Net income $ 204 $ 292
Net income allocated to general partners (1%) $ 2 $ 3
Net income allocated to limited partners (99%) 202 289
$ 204 $ 292
Net income per limited partnership unit $13.47 $19.27
Distributions per limited partnership unit $ -- $60.00
See Accompanying Notes to Consolidated Financial Statements
c)
SHELTER PROPERTIES I
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partners Partners Total
Original capital contributions 15,000 $ 2 $ 15,000 $ 15,002
Partners' deficit at
December 31, 2001 15,000 $ (56) $(11,049) $(11,105)
Net income for the three months
ended March 31, 2002 -- 2 202 204
Partners' deficit at
March 31, 2002 15,000 $ (54) $ (10,847) $(10,901)
See Accompanying Notes to Consolidated Financial Statements
d)
SHELTER PROPERTIES I
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
March 31,
2002 2001
Cash flows from operating activities:
Net income $ 204 $ 292
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 172 160
Amortization of discounts and loan costs 7 9
Change in accounts:
Receivables and deposits (31) 505
Other assets (80) (43)
Accounts payable (34) (53)
Tenant security deposit liabilities 1 7
Accrued property taxes (39) (10)
Other liabilities 48 50
Due to affiliates 20 --
Net cash provided by operating activities 268 917
Cash flows from investing activities:
Property improvements and replacements (132) (103)
Net withdrawals from (deposit to) restricted escrows 16 (15)
Net cash used in investing activities (116) (118)
Cash flows from financing activities:
Payments on mortgage notes payable (100) (26)
Distributions to partners -- (909)
Advance from affiliate 100 --
Payments on advance from affiliate (100) --
Net cash used in financing activities (100) (935)
Net increase (decrease) in cash and cash equivalents 52 (136)
Cash and cash equivalents at beginning of period 291 527
Cash and cash equivalents at end of period $ 343 $ 391
Supplemental disclosure of cash flow information:
Cash paid for interest $ 304 $ 189
See Accompanying Notes to Consolidated Financial Statements
e)
SHELTER PROPERTIES I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements of Shelter
Properties I (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 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. The general partner responsible for management of the
Partnership's business is Shelter Realty I 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 month period ended March 31, 2002, are not necessarily
indicative of the results that may be expected for the year ending December 31,
2002. 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, 2001.
Note B - Reconciliation of Cash Flows
As required by the Partnership Agreement, the following is a reconciliation of
"Net cash provided by operating activities" in the accompanying consolidated
statements of cash flows to "Net cash from operations", as defined in the
Partnership Agreement. However, "Net cash from 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 Three Months Ended
March 31,
(in thousands)
2002 2001
Net cash provided by operating activities $ 268 $ 917
Payments on mortgage notes payable (100) (26)
Property improvements and replacements (132) (103)
Change in restricted escrows, net 16 (15)
Changes in reserves for net operating
liabilities 115 (456)
Additional reserves (4) (103)
Net cash from operations $ 163 $ 214
At March 31, 2002 and 2001, the Corporate General Partner reserved an additional
$4,000 and $103,000, respectively to fund continuing capital improvements,
repairs and operations at the Partnership's three 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) certain
payments to affiliates for services and (ii) reimbursement of certain expenses
incurred by affiliates on behalf of the Partnership.
Affiliates of the Corporate General Partner are 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
$65,000 and $63,000 for the three months ended March 31, 2002 and 2001,
respectively, which is included in operating expenses.
An affiliate of the Corporate General Partner received reimbursement of
accountable administrative expenses amounting to approximately $44,000 and
$48,000 for the three months ended March 31, 2002 and 2001, respectively, which
is included in general and administrative expenses and investment properties.
Included in these amounts are fees related to construction management services
provided by an affiliate of the Corporate General Partner of approximately
$5,000 and $9,000 for the three months ended March 31, 2002 and 2001,
respectively. The construction management service fees are calculated based on a
percentage of certain additions to investment properties.
In accordance with the Partnership Agreement, an affiliate of the Corporate
General Partner loaned the Partnership $100,000 to cover operating expenses at
Quail Hollow Apartments. The entire balance was repaid during the three months
ended March 31, 2002. Interest was charged at prime plus 2% and amounted to less
than $1,000. There were no loans from the Corporate General Partner or
associated interest expense during the three months ended March 31, 2001.
The Partnership Agreement provides for a commission to the Corporate General
Partner upon the sale of the Partnership's investment properties. These
commissions are payable when certain levels of return are received by the
limited partners. As of March 31, 2002, the Partnership has accrued
approximately $132,000 of such commissions which are included in due to
affiliates.
Beginning in 2001, the Partnership began insuring its properties up to certain
limits through coverage provided by AIMCO which is generally self-insured for a
portion of losses and liabilities related to workers compensation, property
casualty and vehicle liability. The Partnership insures its properties above the
AIMCO limits through insurance policies obtained by AIMCO from insurers
unaffiliated with the Corporate General Partner. During the three months ended
March 31, 2002 and 2001, the Partnership was charged by AIMCO and its affiliates
approximately $58,000 and $53,000, respectively, for insurance coverage and fees
associated with policy claims administration.
Note D - Legal Proceedings
In March 1998, several putative unitholders 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 Corporate 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 was heard on December 11, 2001.
On February 2, 2002, the Court served its order granting in part the demurrer.
The Court has dismissed without leave to amend certain of the plaintiffs'
claims. On February 11, 2002, plaintiffs filed a motion seeking to certify a
putative class comprised of all non-affiliated persons who own or have owned
units in the partnerships. The Corporate General Partner and affiliated
defendants oppose the motion. On April 29, 2002, the Court heard argument on the
motion and ordered further briefing after which time the matter will be taken
under submission. 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. On December 11, 2001, the court heard argument on
the motions and took the matters under submission. On February 4, 2002, the
Court served notice of its order granting defendants' motion to strike the
Heller complaint as a violation of its July 10, 2001 order in the Nuanes action.
On March 27, 2002, the plaintiffs filed a notice appealing the order striking
the complaint.
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
discussion 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 three apartment complexes.
The following table sets forth the average occupancy of the properties for each
of the three months ended March 31, 2002 and 2001:
Average
Occupancy
Property 2002 2001
Quail Hollow Apartments
West Columbia, South Carolina 87% 96%
Windsor Hills Apartments
Blacksburg, Virginia 97% 99%
Stone Mountain West Apartments
Stone Mountain, Georgia 93% 93%
The Corporate General Partner attributes the decrease in occupancy at Quail
Hollow Apartments to a fire which occurred in December 2001 rendering eight
units uninhabitable. The Partnership does not expect to realize a loss from this
event and reconstruction and insurance settlement are currently in progress. In
addition, occupancy was negatively affected by tenants purchasing homes due to
low interest rates.
Results of Operations
The Partnership recognized net income of approximately $204,000 for the three
months ended March 31, 2002, compared to net income of approximately $292,000
for the three months ended March 31, 2001. The decrease in net income is due to
a decrease in total revenues and an increase in total expenses. The decrease in
total revenues is due to a decrease in rental income partially offset by an
increase in other income. Rental income decreased due to decreases in occupancy
at Quail Hollow and Windsor Hills Apartments partially offset by increases in
average rental rates at Quail Hollow and Windsor Hills Apartments. Other income
increased due to increases in utility reimbursements at all of the Partnership's
investment properties offset by a decrease in interest income as a result of
lower average cash balances being maintained in interest-bearing accounts.
Total expenses increased due to increases in depreciation and interest expenses,
partially offset by a decrease in operating expenses. Depreciation expense
increased due to property improvements and replacements placed in service during
the preceding twelve months. The increase in interest expense was due to the
refinancing of the mortgage notes payable encumbering Quail Hollow Apartments
and Stone Mountain West Apartments in June and August 2001, respectively, which
resulted in higher average debt balances. Operating expenses decreased due to
decreases in maintenance expense at all of the investment properties partially
offset by an increase in administrative expenses as a result of an increase in
property tax services at Quail Hollow Apartments.
Included in general and administrative expense for the three months ended March
31, 2002 and 2001 are management reimbursements to the Corporate General Partner
allowed under the Partnership Agreement. In addition, costs associated with the
quarterly and annual communications with investors and regulatory agencies and
the annual audit required by the Partnership Agreement are also included.
As part of the ongoing business plan of the Registrant, the Corporate General
Partner monitors the rental market environment of its investment properties to
assess the feasibility of increasing rents, maintaining or increasing occupancy
levels and protecting the Registrant from increases in expenses. As part of this
plan, the Corporate General Partner attempts to protect the Registrant 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 March 31, 2002, the Partnership had cash and cash equivalents of
approximately $343,000 compared to approximately $391,000 at March 31, 2001.
Cash and cash equivalents increased approximately $52,000 for the three months
ended March 31, 2002 due to approximately $268,000 of cash provided by operating
activities, partially offset by approximately $100,000 and $116,000 of cash used
in financing and investing activities, respectively. Cash used in financing
activities consisted of principal payments on the mortgages encumbering the
Partnership's properties, payments on an advance from an affiliate, partially
offset by an advance from an affiliate. Cash used in investing activities
consisted of property improvements and replacements slightly offset by net
withdrawals from restricted escrows maintained by the mortgage lender. The
Partnership 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 properties to adequately maintain the physical
assets and other operating needs of the Registrant and to comply with Federal,
state, local, legal, and regulatory requirements. Capital improvements planned
for each of the Registrant's properties are detailed below.
Quail Hollow Apartments
During the three months ended March 31, 2002, the Partnership spent
approximately $63,000 consisting primarily of floor covering replacements,
plumbing upgrades and interior decoration. These improvements were funded from
operating cash flow and replacement reserves. For 2002, the Partnership has
budgeted approximately $79,000 for capital improvements at Quail Hollow
Apartments consisting primarily of floor covering and appliance replacements and
air conditioning upgrades. Additional improvements may be considered and depend
on the physical condition of the property as well as anticipated cash flow
generated by the property.
Stone Mountain West Apartments
During the three months ended March 31, 2002, the Partnership spent
approximately $38,000 consisting primarily of floor covering replacements,
structural improvements and plumbing upgrades. These improvements were funded
from operating cash flow. For 2002, the Partnership has budgeted approximately
$53,000 for capital improvements at Stone Mountain West Apartments consisting
primarily of floor covering and appliance replacements. Additional improvements
may be considered and depend on the physical condition of the property as well
as anticipated cash flow generated by the property.
Windsor Hills Apartments
During the three months ended March 31, 2002, the Partnership spent
approximately $31,000 consisting primarily of floor covering and appliance
replacements, interior decoration, office computers and plumbing upgrades. These
improvements were funded from operating cash flow. For 2002, the Partnership has
budgeted approximately $162,000 for capital improvements at Windsor Hills
Apartments consisting primarily of floor covering replacements and a water
submetering project. Additional improvements may be considered and depend on the
physical condition of the property as well as anticipated cash flow generated by
the property.
The additional capital improvements 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.
In accordance with the Partnership Agreement, an affiliate of the Corporate
General Partner loaned the Partnership $100,000 to cover property taxes at Quail
Hollow Apartments. The entire balance was repaid during the three months ended
March 31, 2002. Interest was charged at prime plus 2% and amounted to less than
$1,000. There were no loans from the Corporate General Partner or associated
interest expense during the three months ended March 31, 2001.
On June 28, 2001, the Partnership refinanced the mortgage encumbering Quail
Hollow Apartments. The refinancing replaced indebtedness of approximately
$2,850,000 with a new mortgage in the amount of $5,225,000. The new mortgage
carries a stated interest rate of 7.48%. The interest rate on the old mortgage
was 7.33%. Principal and interest payments on the mortgage loan are due monthly.
This loan requires a balloon payment of approximately $1,284,000 in October
2018.
On August 31, 2001, the Partnership refinanced the mortgage encumbering Stone
Mountain West Apartments. The refinancing replaced indebtedness of approximately
$3,000,000 with a new mortgage in the amount of $4,945,000. The new mortgage
carries a stated interest rate of 7.06%. The interest rate on the old mortgage
was 7.33%. Principal and interest payments on the mortgage loan are due monthly.
This loan requires a balloon payment of approximately $992,000 in June 2019.
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 $16,689,000 requires monthly principal and
interest payments and matures between October 2018 and January 2021. The
mortgage indebtedness at Quail Hollow and Stone Mountain West Apartments require
balloon payments of approximately $1,284,000 and $992,000, respectively, at
maturity. Windsor Hills Apartments mortgage is scheduled to be fully amortized
at its maturity.
The Partnership distributed the following amounts during the three months ended
March 31, 2002 and 2001 (in thousands, except per unit data):
Three Months Per Limited Three Months Per Limited
Ended Partnership Ended Partnership
March 31, 2002 Unit March 31, 2001 Unit
Operations $ -- $ -- $ 909 $60.00
The Registrant's cash available for distribution is reviewed on a monthly basis.
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. There can be no assurance that
the Registrant will generate sufficient funds from operations to permit
distributions to its partners in 2002 or subsequent periods.
In addition to its indirect ownership of the general partner interest in the
Partnership, AIMCO and its affiliates owned 11,795 limited partnership units
(the "Units") in the Partnership representing 78.63% 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 voting on certain amendments to the Partnership Agreement and
voting to remove the Corporate General Partner. As a result of its ownership of
78.63% 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 unitholders 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 Corporate 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 was heard on December 11, 2001.
On February 2, 2002, the Court served its order granting in part the demurrer.
The Court has dismissed without leave to amend certain of the plaintiffs'
claims. On February 11, 2002, plaintiffs filed a motion seeking to certify a
putative class comprised of all non-affiliated persons who own or have owned
units in the partnerships. The Corporate General Partner and affiliated
defendants oppose the motion. On April 29, 2002, the Court heard argument on the
motion and ordered further briefing after which time the matter will be taken
under submission. 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. On December 11, 2001, the court heard argument on
the motions and took the matters under submission. On February 4, 2002, the
Court served notice of its order granting defendants' motion to strike the
Heller complaint as a violation of its July 10, 2001 order in the Nuanes action.
On March 27, 2002, the plaintiffs filed a notice appealing the order striking
the complaint.
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 March 31,
2002:
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 I
By: Shelter Realty I Corporation
Corporate General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President and Director
By: /s/Martha L. Long
Martha L. Long
Senior Vice President and
Controller
Date: May 14, 2002