UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended June 30, 2002
[] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from __________ to __________
Commission file number 0-11574
SHELTER PROPERTIES V
(Exact name of small business issuer as specified in its charter)
South Carolina 57-0721855
(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)
Issuer's telephone number (864) 239-1000
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SHELTER PROPERTIES V
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
June 30, 2002
Assets
Cash and cash equivalents $ 633
Receivables and deposits 261
Restricted escrows 422
Other assets 1,627
Investment properties:
Land $ 4,054
Buildings and related personal property 81,725
85,779
Less accumulated depreciation (51,721) 34,058
$ 37,001
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 90
Tenant security deposit liabilities 302
Accrued property taxes 428
Other liabilities 780
Mortgage notes payable 47,312
Partners' Deficit
General partners $ (380)
Limited partners (52,538 units
issued and outstanding) (11,531) (11,911)
$ 37,001
See Accompanying Notes to Consolidated Financial Statements
SHELTER PROPERTIES V
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
(Restated) (Restated)
Revenues:
Rental income $ 3,320 $ 3,262 $ 6,611 $ 6,553
Other income 333 340 709 713
Casualty gain -- -- 376 121
Total revenues 3,653 3,602 7,696 7,387
Expenses:
Operating 1,377 1,355 2,795 2,807
General and administrative 126 143 262 278
Depreciation 820 742 1,610 1,474
Interest 909 801 1,824 1,571
Property taxes 238 221 489 429
Total expenses 3,470 3,262 6,980 6,559
Net income $ 183 $ 340 $ 716 $ 828
Net income allocated to
general partners (1%) $ 2 $ 3 $ 7 $ 8
Net income allocated to
limited partners (99%) 181 337 709 820
$ 183 $ 340 $ 716 $ 828
Net income per limited partnership
unit $ 3.44 $ 6.41 $ 13.49 $ 15.61
Distributions per limited
partnership unit $119.23 $ 16.18 $119.23 $ 30.59
See Accompanying Notes to Consolidated Financial Statements
SHELTER PROPERTIES V
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partners Partners Total
Original capital contributions 52,538 $ 2 $ 52,538 $ 52,540
Partners' deficit at
December 31, 2001 52,538 $ (335) $ (5,976) $ (6,311)
Distributions to partners -- (52) (6,264) (6,316)
Net income for the six months
ended June 30, 2002 -- 7 709 716
Partners' deficit at June 30, 2002 52,538 $ (380) $(11,531) $(11,911)
See Accompanying Notes to Consolidated Financial Statements
SHELTER PROPERTIES V
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
2002 2001
Cash flows from operating activities:
Net income $ 716 $ 828
Adjustments to reconcile net income to net cash
provided by operating activities:
Casualty gain (376) (121)
Depreciation 1,610 1,474
Amortization of discounts and loan costs 42 50
Loss on early extinguishment of debt -- 74
Change in accounts:
Receivables and deposits 319 (364)
Other assets (178) (110)
Accounts payable (113) (240)
Tenant security deposit liabilities 17 12
Accrued property taxes 143 141
Due to Corporate General Partner -- 255
Other liabilities 182 (142)
Net cash provided by operating
activities 2,362 1,857
Cash flows from investing activities:
Property improvements and replacements (2,011) (2,604)
Net withdrawals from (deposits to) restricted escrows 397 (110)
Settlement for defective property improvements -- 153
Insurance proceeds received 376 121
Net cash used in investing activities (1,238) (2,440)
Cash flows from financing activities:
Payments on mortgage notes payable (572) (355)
Loan costs paid (4) (563)
Proceeds from mortgage notes payable -- 11,342
Repayment of mortgage notes payable -- (7,050)
Distributions to partners (6,316) (1,664)
Net cash (used in) provided by financing
activities (6,892) 1,710
Net (decrease) increase in cash and cash equivalents (5,768) 1,127
Cash and cash equivalents at beginning of period 6,401 2,544
Cash and cash equivalents at end of period $ 633 $ 3,671
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,645 $ 1,543
Supplemental disclosure of non-cash activity:
Property improvements and replacements in accounts
payable $ 72 $ 343
At December 31, 2001 and 2000, approximately $287,000 and $221,000,
respectively, of property improvements and replacements were included in
accounts payable.
See Accompanying Notes to Consolidated Financial Statements
SHELTER PROPERTIES V
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements of Shelter
Properties V (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 V Corporation (the "Corporate General
Partner"). 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, 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 fiscal year ended
December 31, 2001. The Corporate General Partner is a subsidiary of Apartment
Investment and Management Company ("AIMCO"), a publicly traded real estate
investment trust. The non-corporate general partner, AIMCO Properties, L.P., is
also an affiliate of AIMCO.
Effective April 1, 2002, the Partnership adopted Statement of Financial
Accounting Standards ("SFAS") No. 145, "Rescission of FASB Statements No. 4, 44
and 64". SFAS No. 4 "Reporting Gains and Losses from Extinguishment of Debt,"
required that all gains and losses from extinguishment of debt be aggregated
and, if material, classified as an extraordinary item. SFAS No. 145 rescinds
SFAS No. 4, and accordingly, gains and losses from extinguishment of debt should
only be classified as extraordinary if they are unusual in nature and occur
infrequently. Neither of these criteria applies to the Partnership. As a result,
the accompanying consolidated statements of operations have been restated to
reflect the loss on early extinguishment of debt at Lake Johnson Mews Apartments
and Millhopper Village Apartments in 2001 (see "Note E") in operations as
interest expense rather than as an extraordinary item.
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.
Six Months Ended
June 30,
(in thousands)
2002 2001
Net cash provided by operating activities $ 2,362 $ 1,857
Payments on mortgage notes payable (572) (355)
Property improvements and replacements (2,011) (2,604)
Change in restricted escrows, net 397 (110)
Changes in reserves for net operating
liabilities (370) 448
Releases from reserves 194 764
Net cash from operations $ -- $ --
For the six months ended June 30, 2002 and 2001, the Corporate General Partner
released previously reserved funds of approximately $194,000 and $764,000,
respectively.
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.
During the six months ended June 30, 2002 and 2001, 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 $372,000 and $363,000 for the
six months ended June 30, 2002 and 2001, respectively, which are included in
operating expenses.
Affiliates of the Corporate General Partner received reimbursement of
accountable administrative expenses amounting to approximately $390,000 and
$436,000 for the six months ended June 30, 2002 and 2001, respectively. Included
in these amounts are fees related to construction management services provided
by an affiliate of the Corporate General Partner of approximately $192,000 and
$240,000 for the six months ended June 30, 2002 and 2001, respectively. The
construction management service fees are calculated based on a percentage of
current additions to investment properties. These amounts are included in
general and administrative expenses and investment properties.
For services provided in connection with the refinancing of four of the
Partnership's investment properties between October 1999 and June 2001, the
Corporate General Partner was paid approximately $283,000 during the six months
ended June 30, 2001. These costs were capitalized and are included in other
assets.
In accordance with the Partnership Agreement, the Corporate General Partner
loaned the Partnership funds to cover reconstruction expense at Tar River
Estates Apartments during the six months ended June 30, 2001. At June 30, 2001
the amount of the outstanding loans and accrued interest was approximately
$255,000. Interest was accrued at the prime rate plus 2%. Interest expense was
approximately $2,000 for the six months ended June 30, 2001. During the third
quarter of 2001, this loan balance was repaid by the Partnership with a portion
of the refinance proceeds received on the two properties that refinanced on June
28, 2001, as discussed in "Note E". There were no loans from the Corporate
General Partner or associated interest expense during the six months ended June
30, 2002.
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 six months ended
June 30, 2002 and 2001, the Partnership was charged by AIMCO and its affiliates
approximately $165,000 and $217,000, respectively, for insurance coverage and
fees associated with policy claims administration.
Note D - Casualty Events
In September 1999, Tar River Estates Apartments was damaged by severe flooding
which affected certain areas of North Carolina. The property incurred damages of
approximately $6,323,000 as a result of this flooding. During 2000 and 2001,
insurance proceeds of approximately $5,316,000 were received to cover lost rents
and damage to the property, resulting in a casualty gain of approximately
$1,662,000 in 2000. In addition, the Partnership negotiated an agreement with
the city of Greenville, North Carolina, whereby a portion of the land was
condemned and sold to the city on October 17, 2001. Therefore, the apartment
units previously located on this land were not reconstructed. The remaining
damaged units have been completely reconstructed. As part of the reconstruction
process, the Partnership capitalized the portion of the interest expense
associated with the assets which were under construction during 2001. An
additional gain of approximately $376,000 was recorded during the six months
ended June 30, 2002 as a result of receiving additional insurance proceeds.
In July 1999, Woodland Village Apartments experienced a fire, which resulted in
the destruction of eight apartment units. The property incurred damages of
approximately $448,000 and estimated lost rents of approximately $36,000.
Insurance proceeds of approximately $332,000 were received during 1999 to cover
the damages and lost rents resulting in a casualty gain in 1999 of approximately
$210,000. The repairs were completed and an additional gain of approximately
$121,000 was recorded during the six months ended June 30, 2001 as a result of
receiving additional insurance proceeds.
Note E - Refinancing and Loss on Early Extinguishment of Debt
On June 28, 2001, the Partnership refinanced the mortgage notes encumbering Lake
Johnson Mews Apartments and Millhopper Village Apartments. The refinancings
replaced indebtedness of approximately $4,350,000 at Lake Johnson Mews
Apartments and $2,700,000 at Millhopper Village Apartments, with new mortgages
in the amounts of $7,117,000 and $4,225,000, respectively. The new mortgages
both carry a stated interest rate of 7.43% as compared to 7.33% on the previous
loans. Payments of principal and interest on the new mortgage loans are due
monthly until the loans mature on July 1, 2021, at which time they will be fully
amortized. The Partnership recognized a loss on the early extinguishment of debt
of approximately $38,000 at Lake Johnson Mews Apartments and approximately
$36,000 at Millhopper Village Apartments due to the write-off of unamortized
loan costs, which is included in interest expense. Total capitalized loan costs
for the new mortgages were approximately $221,000 for Lake Johnson Mews
Apartments and approximately $167,000 for Millhopper Village Apartments during
the six months ended June 30, 2001.
For the six months ended June 30, 2002 and 2001, the Partnership incurred
additional loan costs, which were capitalized, of approximately $4,000 and
$175,000, respectively. These costs related to the December 2001 financing of
Tar River and the 1999 and 2000 fourth quarter refinancings of The Lexington
Green Apartments, Foxfire Apartments and Old Salem Apartments.
Note F - Distributions
The Partnership distributed the following amounts during the six months ended
June 30, 2002 and 2001 (in thousands, except per unit data):
Six Months Per Limited Six Months Per Limited
Ended Partnership Ended Partnership
June 30, 2002 Unit June 30, 2001 Unit
Financing Proceeds (1) $3,785 $ 72.05 $ -- $ --
Sale Proceeds (2) 2,479 47.18 -- --
Other (3) 52 -- 41 --
Operations -- -- 1,623 30.59
Total $6,316 $119.23 $1,664 $30.59
(1) From proceeds from the new financing obtained on Tar River Estates
Apartments in December 2001.
(2) From remaining proceeds from the sale of a portion of land at Tar River
Estates Apartments in October 2001.
(3) Distribution to the general partner of the majority owned sub-tier limited
partnership in connection with the transfer of funds from the majority
owned sub-tier limited partnership to the Partnership.
Note G - 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 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 held a hearing on
plaintiffs' motion for class certification and took the matter under submission
after further briefing, as ordered by the court, was submitted by the parties.
On July 10, 2002, the Court entered an order vacating the current trial date of
January 13, 2003 (as well as the pre-trial and discovery cut-off dates) and
stayed the case in its entirety through November 7, 2002 so that the parties can
have an opportunity to discuss settlement.
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 parties are currently in the midst of briefing that appeal.
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
operation. 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 seven apartment complexes.
The following table sets forth the average occupancy of the properties for the
six months ended June 30, 2002 and 2001:
June 30,
Property 2002 2001
Foxfire Apartments
Atlanta, Georgia 92% 94%
Old Salem Apartments
Charlottesville, Virginia 96% 97%
Woodland Village Apartments
Columbia, South Carolina (2) 90% 94%
Lake Johnson Mews Apartments
Raleigh, North Carolina (3) 95% 92%
The Lexington Green Apartments
Sarasota, Florida 95% 97%
Millhopper Village Apartments
Gainesville, Florida 96% 94%
Tar River Estates Apartments
Greenville, North Carolina (1) 85% 62%
(1) During September 1999, Tar River Estates Apartments was damaged by severe
flooding which affected certain areas of North Carolina. The property
incurred extensive damage as a result of the flooding causing portions of
the property to be unavailable for occupancy since September 1999. The
occupancy for the units not damaged at the property was 82% at June 30,
2001. The Partnership completed reconstruction of the 220 remaining units
at the property by December 2001, therefore occupancy for the six months
ended June 30, 2002 as shown above is for the 220 remaining units. The
Partnership negotiated an agreement with the city of Greenville, North
Carolina, whereby a portion of the land containing 182 units was condemned
and sold to the city on October 17, 2001. Therefore, the 182 apartment
units previously located on this land were not reconstructed.
(2) The Corporate General Partner attributes the decrease in occupancy at
Woodland Village Apartments to an increase in home purchases in the
Columbia area as a result of lower home mortgage interest rates.
(3) The Corporate General Partner attributes the increase in occupancy at Lake
Johnson Mews Apartments to increased marketing efforts at the property
along with pricing rents to be very competitive with other properties in
the Raleigh area.
Results of Operations
The Partnership's net income for the three and six months ended June 30, 2002
was approximately $183,000 and $716,000, respectively, as compared to net income
of approximately $340,000 and $828,000 for the three and six months ended June
30, 2001, respectively. The decrease in net income for both the three and six
months ended June 30, 2002 is due to an increase in total expenses partially
offset by an increase in total revenues. Total expenses increased for both the
three and six months ended June 30, 2002 due to increases in depreciation,
interest and property tax expenses. The increase in total expenses for the three
months ended June 30, 2002 is also due to a slight increase in operating
expense, which remained relatively constant for the six months ended June 30,
2002. The increase in total expenses for both the three and six months ended
June 30, 2002 was partially offset by a decrease in general and administrative
expense. Depreciation expense increased at all of the Partnership's investment
properties as a result of property improvements and replacements placed into
service during the past twelve months. Interest expense increased at Woodland
Village Apartments, Millhopper Village Apartments, Lake Johnson Mews Apartments
and Tar River Estates Apartments as a result of an increase in their respective
loan balances due to refinancings in 2001. In addition, interest expense
increased for Tar River Estates Apartments as a result of a portion of interest
costs being capitalized during 2001. The increase in interest expense was
partially offset by the recognition of a loss on the early extinguishment of
debt at Millhopper Village Apartments and Lake Johnson Mews Apartments in 2001
(as discussed below). The increase in property tax expense is primarily due to
an increase in the assessed value at five of the Partnership's investment
properties. The increase in operating expense for the three months ended June
30, 2002 is primarily due to an increase in maintenance expense at most of the
Partnership's investment properties, partially offset by decreases in
payroll-related expenses at most properties and utility expenses at Old Salem
Apartments.
General and administrative expenses decreased primarily due to a decrease in
appraisal fees. Included in general and administrative expense at both June 30,
2002 and 2001 are management reimbursements to the Corporate General Partner
allowed under the Partnership Agreement. Also included in general and
administrative expenses are costs associated with the quarterly and annual
communications with investors and regulatory agencies and the annual audit
required by the Partnership Agreement.
The increase in total revenues for the three months ended June 30, 2002 is due
to an increase in rental income. The increase in total revenues for the six
months ended June 30, 2002 is primarily due to an increase in the recognition of
casualty gains and, to a lesser extent, an increase in rental income. Other
income remained relatively constant for the comparable periods. The casualty
gain recognized during the six months ended June 30, 2002 is a result of a
casualty at Tar River Estates Apartments (as discussed below). The casualty gain
recognized during the six months ended June 30, 2001 is a result of a casualty
at Woodland Village Apartments (as discussed below). Rental income increased
primarily due to increases in occupancy and the average rental rate at three of
the Partnership's investment properties with Tar River contributing the largest
increase, partially offset by a decrease in occupancy and the average rental
rate at four of the properties.
In September 1999, Tar River Estates Apartments was damaged by severe flooding
which affected certain areas of North Carolina. The property incurred damages of
approximately $6,323,000 as a result of this flooding. During 2000 and 2001,
insurance proceeds of approximately $5,316,000 were received to cover lost rents
and damage to the property, resulting in a casualty gain of approximately
$1,662,000 in 2000. In addition, the Partnership negotiated an agreement with
the city of Greenville, North Carolina, whereby a portion of the land was
condemned and sold to the city on October 17, 2001. Therefore, the apartment
units previously located on this land were not reconstructed. The remaining
damaged units have been completely reconstructed. An additional gain of
approximately $376,000 was recorded during the six months ended June 30, 2002 as
a result of receiving additional insurance proceeds. As part of the
reconstruction process, the Partnership capitalized the portion of the interest
expense associated with the assets under reconstruction during 2001. For the six
months ended June 30, 2001, approximately $95,000 of interest had been
capitalized.
In July 1999, Woodland Village Apartments experienced a fire, which resulted in
the destruction of eight apartment units. The property incurred damages of
approximately $448,000 and estimated lost rents of approximately $36,000.
Insurance proceeds of approximately $332,000 were received during 1999 to cover
the damages and lost rents resulting in a casualty gain in 1999 of approximately
$210,000. The repairs were completed and an additional gain of approximately
$121,000 was recorded during the six months ended June 30, 2001 as a result of
receiving additional insurance proceeds.
As part of the ongoing business plan of the Registrant, the Corporate General
Partner monitors the rental market environment of each of its investment
properties to assess the feasibility of increasing rents, maintaining or
increasing occupancy levels and protecting the Partnership from increases in
expense. As part of this plan, the Corporate General Partner attempts to protect
the Partnership from the burden of inflation-related increases in expenses by
increasing rents and maintaining a high overall occupancy level. However, due to
changing market conditions, which can result in the use of rental concessions
and rental reductions to offset softening market conditions, there is no
guarantee that the Corporate General Partner will be able to sustain such a
plan.
Liquidity and Capital Resources
At June 30, 2002, the Partnership had cash and cash equivalents of approximately
$633,000, compared to approximately $3,671,000 at June 30, 2001. The decrease in
cash and cash equivalents of approximately $5,768,000 for the six months ended
June 30, 2002, from the Partnership's calendar year end, is due to approximately
$6,892,000 of cash used in financing activities and approximately $1,238,000 of
cash used in investing activities, partially offset by approximately $2,362,000
of cash provided by operating activities. Cash used in investing activities
consisted of property improvements and replacements, partially offset by
insurance proceeds received for the casualty at Tar River Estates Apartments and
net receipts from escrow accounts maintained by the mortgage lender. Cash used
in financing activities consisted of distributions to partners, and, to a lesser
extent, payments of principal on the mortgages encumbering the Registrant's
properties, and additional loan costs related to the new financing obtained on
Tar River Estates Apartments in December 2001. 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 planned for each of the Registrant's properties are detailed below.
Millhopper Village Apartments: For 2002, the Partnership has budgeted
approximately $51,000 for capital improvements, consisting primarily of floor
covering replacement, appliances and office computers. The Partnership completed
approximately $25,000 in capital expenditures at Millhopper Village Apartments
for the six months ended June 30, 2002, consisting primarily of floor covering
replacement. These improvements were funded from operations. Additional
improvements may be considered and will depend on the physical condition of the
property as well as anticipated cash flow generated by the property.
Foxfire Apartments: For 2002, the Partnership has budgeted approximately
$117,000 for capital improvements, consisting primarily of floor covering
replacement. The Partnership completed approximately $198,000 in budgeted and
non-budgeted capital expenditures at Foxfire Apartments for the six months ended
June 30, 2002, consisting primarily of construction related to a fire which
occurred in 2001, plumbing upgrades, and floor covering replacement. These
improvements were funded from operations and insurance proceeds. Additional
improvements may be considered and will depend on the physical condition of the
property as well as anticipated cash flow generated by the property.
Lake Johnson Mews Apartments: For 2002, the Partnership has budgeted
approximately $311,000 for capital improvements, consisting primarily of parking
area improvements, electrical upgrades, structural improvements, and floor
covering replacement. The Partnership completed approximately $140,000 in
capital expenditures at Lake Johnson Mews Apartments for the six months ended
June 30, 2002, consisting primarily of interior building improvements,
structural upgrades, and floor covering replacement. These improvements were
funded from replacement reserves and operations. Additional improvements may be
considered and will depend on the physical condition of the property as well as
anticipated cash flow generated by the property.
Woodland Village Apartments: For 2002, the Partnership has budgeted
approximately $102,000 for capital improvements, consisting primarily of air
conditioning unit upgrades, interior improvements and floor covering and
appliance replacements. The Partnership completed approximately $71,000 in
capital expenditures at Woodland Village Apartments for the six months ended
June 30, 2002, consisting primarily of exterior painting, structural
improvements, plumbing fixtures, and floor covering replacement. These
improvements were funded from replacement reserves and operations. Additional
improvements may be considered and will depend on the physical condition of the
property as well as anticipated cash flow generated by the property.
The Lexington Green Apartments: For 2002, the Partnership has budgeted
approximately $221,000 for capital improvements, consisting primarily of
structural improvements, plumbing upgrades, cabinet and air conditioning unit
replacements and floor covering and appliance replacements. The Partnership
completed approximately $122,000 in capital expenditures at The Lexington Green
Apartments for the six months ended June 30, 2002, consisting primarily of
construction related to storm damage which occurred in 2001, plumbing upgrades,
and cabinet and floor covering replacements. These improvements were funded from
operations and insurance proceeds. Additional improvements may be considered and
will depend on the physical condition of the property as well as replacement
reserves and anticipated cash flow generated by the property.
Tar River Estates Apartments: For 2002, the Partnership has budgeted
approximately $230,000 for capital improvements, consisting primarily of cabinet
upgrades and appliance and floor covering replacements. The Partnership
completed approximately $1,140,000 in budgeted and non-budgeted capital
expenditures at Tar River Estates Apartments for the six months ended June 30,
2002, consisting primarily of swimming pool and clubhouse construction, cabinet
upgrades, floor covering replacement, and office equipment. These improvements
were funded from operations and insurance proceeds. Additional improvements may
be considered and will depend on the physical condition of the property as well
as replacement reserves and anticipated cash flow generated by the property.
Old Salem Apartments: For 2002, the Partnership has budgeted approximately
$134,000 for capital improvements, consisting primarily of floor covering
replacement. The Partnership completed approximately $100,000 in capital
expenditures at Old Salem Apartments for the six months ended June 30, 2002,
consisting primarily of swimming pool upgrades and floor covering replacement.
These improvements were funded from operations. Additional improvements may be
considered and will depend on the physical condition of the property as well as
anticipated cash flow generated by the property.
The additional capital expenditures will be incurred only if cash is available
from operations and from 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. On December 28,
2001, the Partnership obtained new financing on Tar River Estates Apartments.
Gross proceeds from the new financing were approximately $5,200,000. The new
note requires monthly principal and interest payments at a fixed rate of 7.23%
and matures January 1, 2022, at which time it will be fully amortized. The old
debt of approximately $4,342,000 carried a fixed interest rate of 7.60% and was
repaid with proceeds from the condemnation and sale of a portion of the land to
the city of Greenville, North Carolina (as discussed above).
On August 31, 2001, the Partnership refinanced the mortgage note at Woodland
Village Apartments. Gross proceeds from the refinancing were $8,050,000 of which
approximately $4,950,000 was used to repay the existing mortgage note. The new
note requires monthly principal and interest payments at a fixed rate of 7.11%
and matures September 1, 2021, at which time the loan will be fully amortized.
The old debt carried a fixed interest rate of 7.33%.
On June 28, 2001, the Partnership refinanced the mortgage notes encumbering Lake
Johnson Mews Apartments and Millhopper Village Apartments. The refinancings
replaced indebtedness of approximately $4,350,000 at Lake Johnson Mews
Apartments and $2,700,000 at Millhopper Village Apartments, with new mortgages
in the amounts of $7,117,000 and $4,225,000, respectively. The new mortgages
both carry a stated interest rate of 7.43% as compared to 7.33% on the previous
loans. Payments of principal and interest on the new mortgage loans are due
monthly until the loans mature on July 1, 2021, at which time they will be fully
amortized. The Partnership recognized a loss on the early extinguishment of debt
of approximately $38,000 at Lake Johnson Mews Apartments and approximately
$36,000 at Millhopper Village Apartments due to the write-off of unamortized
loan costs, which is included in interest expense.
The remaining mortgage indebtedness of approximately $23,144,000 is amortized
over varying periods with maturity dates ranging from November 1, 2019 to
January 1, 2021, at which time the loans will be fully amortized.
The Partnership distributed the following amounts during the six months ended
June 30, 2002 and 2001 (in thousands, except per unit data):
Six Months Per Limited Six Months Per Limited
Ended Partnership Ended Partnership
June 30, 2002 Unit June 30, 2001 Unit
Financing Proceeds (1) $3,785 $ 72.05 $ -- $ --
Sale Proceeds (2) 2,479 47.18 -- --
Other (3) 52 -- 41 --
Operations -- -- 1,623 30.59
Total $6,316 $119.23 $1,664 $30.59
(1) From proceeds from the new financing obtained on Tar River Estates
Apartments in December 2001.
(2) From remaining proceeds from the sale of a portion of land at Tar River
Estates Apartments in October 2001.
(3) Distribution to the general partner of the majority owned sub-tier limited
partnership in connection with the transfer of funds from the majority
owned sub-tier limited partnership to the Partnership.
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 cash available
for distribution is reviewed on a monthly basis. There can be no assurance,
however, that the Partnership will generate sufficient funds from operations,
after required capital improvement expenditures, to permit any additional
distributions to its partners during the remainder of 2002 or subsequent
periods.
Other
In addition to its indirect ownership of the general partner interests in the
Partnership, AIMCO and its affiliates owned 37,006 limited partnership units
(the "Units") in the Partnership representing 70.44% of the outstanding Units at
June 30, 2002. 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 acquire additional units of limited partnership interest in the Partnership
in exchange for cash or a combination of cash and units in the operating
partnership of AIMCO either through private purchases or tender offers. 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 70.44% of the
outstanding Units, AIMCO is in a position to control all voting decisions with
respect to the Registrant. Although the Corporate General Partner owes fiduciary
duties to the limited partners of the Partnership, the Corporate General Partner
also owed fiduciary duties to AIMCO as its sole Stockholder. As a result, the
duties of the Corporate General Partner, as corporate general partner, to the
Partnership and its limited partners may come into conflict with the duties of
the Corporate General Partner to AIMCO, as its sole stockholder.
Critical Accounting Policies and Estimates
The consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States which require the Partnership
to make estimates and assumptions. The Partnership believes that of its
significant accounting policies, the following may involve a higher degree of
judgment and complexity.
Impairment of Long-Lived Assets
Investment properties are recorded at cost, less accumulated depreciation,
unless considered impaired. If events or circumstances indicate that the
carrying amount of a property may be impaired, the Partnership will make an
assessment of its recoverability by estimating the undiscounted future cash
flows, excluding interest charges, of the property. If the carrying amount
exceeds the aggregate future cash flows, the Partnership would recognize an
impairment loss to the extent the carrying amount exceeds the fair value of the
property.
Real property investments are subject to varying degrees of risk. Several
factors may adversely affect the economic performance and value of the
Partnership's investment properties. These factors include changes in the
national, regional and local economic climate; local conditions, such as an
oversupply of multifamily properties; competition from other available
multifamily property owners and changes in market rental rates. Any adverse
changes in these factors could cause an impairment in the Partnership's assets.
Revenue Recognition
The Partnership generally leases apartment units for twelve-month terms or less.
Rental income attributable to leases is recognized monthly as it is earned. The
Partnership will offer rental concessions during particularly slow months or in
response to heavy competition from other similar complexes in the area.
Concessions are charged to income as incurred.
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 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 held a hearing on
plaintiffs' motion for class certification and took the matter under submission
after further briefing, as ordered by the court, was submitted by the parties.
On July 10, 2002, the Court entered an order vacating the current trial date of
January 13, 2003 (as well as the pre-trial and discovery cut-off dates) and
stayed the case in its entirety through November 7, 2002 so that the parties can
have an opportunity to discuss settlement.
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 parties are currently in the midst of briefing that appeal.
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:
3 Amended and Restated Certificate and Agreement of Limited Partnership
(Exhibit A to the Prospectus included in Registrant's Amendment No. 1
to Registration Statement, filed June 8, 1982 (File No. 2-81308), is
incorporated herein by reference).
99 Certification of Chief Executive Officer and Chief Financial Officer
b) Reports on Form 8-K:
None filed during the quarter ended June 30, 2002.
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 V
By: Shelter Realty V Corporation
Corporate General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Thomas C. Novosel
Thomas C. Novosel
Senior Vice President
and Chief Accounting Officer
Date: August 14, 2002
Exhibit 99
Certification of CEO and CFO
Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report on Form 10-QSB of Shelter Properties V
Limited Partnership (the "Partnership"), for the quarterly period ended June 30,
2002 as filed with the Securities and Exchange Commission on the date hereof
(the "Report"), Patrick J. Foye, as the equivalent of the Chief Executive
Officer of the Partnership, and Paul J. McAuliffe, as the equivalent of the
Chief Financial Officer of the Partnership, each hereby certifies, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that, to the best of his knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Partnership.
/s/Patrick J. Foye
Name: Patrick J. Foye
Date: August 14, 2002
/s/Paul J. McAuliffe
Name: Paul J. McAuliffe
Date: August 14, 2002
This certification accompanies the Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the
Sarbanes-Oxley Act of 2002, be deemed filed by the Partnership for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended.