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 0-10255
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)
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SHELTER PROPERTIES I
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
June 30, 2002
Assets
Cash and cash equivalents $ 201
Receivables and deposits 117
Restricted escrows 5
Other assets 599
Investment properties:
Land $ 1,189
Buildings and related personal property 18,440
19,629
Less accumulated depreciation (13,902) 5,727
$ 6,649
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 410
Tenant security deposit liabilities 128
Accrued property taxes 109
Other liabilities 262
Due to affiliates 132
Mortgage notes payable 16,588
Partners' Deficit
General partners $ (69)
Limited partners (15,000 units issued and
outstanding) (10,911) (10,980)
$ 6,649
See Accompanying Notes to Consolidated Financial Statements
SHELTER PROPERTIES I
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 $ 1,110 $ 1,195 $ 2,278 $ 2,409
Other income 109 72 207 142
Total revenues 1,219 1,267 2,485 2,551
Expenses:
Operating 530 506 976 972
General and administrative 55 56 114 118
Depreciation 166 161 338 321
Interest 309 273 620 513
Property taxes 75 69 149 133
Total expenses 1,135 1,065 2,197 2,057
Net income $ 84 $ 202 $ 288 $ 494
Net income allocated
to general partners (1%) $ 1 $ 2 $ 3 $ 5
Net income allocated
to limited partners (99%) 83 200 285 489
$ 84 $ 202 $ 288 $ 494
Net income per limited
partnership unit $ 5.53 $ 13.33 $ 19.00 $ 32.60
Distributions per limited
partnership unit $ 9.80 $ 31.47 $ 9.80 $ 91.47
See Accompanying Notes to Consolidated Financial Statements
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)
Distributions to partners -- (16) (147) (163)
Net income for the six months
ended June 30, 2002 -- 3 285 288
Partners' deficit at
June 30, 2002 15,000 $ (69) $(10,911) $(10,980)
See Accompanying Notes to Consolidated Financial Statements
SHELTER PROPERTIES I
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
2002 2001
Cash flows from operating activities:
Net income $ 288 $ 494
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 338 321
Amortization of discounts and loan costs 14 18
Loss on early extinguishment of debt -- 31
Change in accounts:
Receivables and deposits (34) 313
Other assets (54) (23)
Accounts payable (54) (29)
Tenant security deposit liabilities (5) 10
Accrued property taxes (16) 9
Other liabilities 25 102
Due to affiliates 20 --
Net cash provided by operating activities 522 1,246
Cash flows from investing activities:
Property improvements and replacements (264) (154)
Net withdrawals from (deposits to) restricted escrows 16 (3)
Net cash used in investing activities (248) (157)
Cash flows from financing activities:
Payments on mortgage notes payable (201) (65)
Distributions to partners (163) (1,385)
Advance from affiliate 100 --
Payments on advance from affiliate (100) --
Repayment of mortgage note payable -- (2,850)
Proceeds from refinancing -- 5,225
Loan costs paid -- (120)
Net cash (used in) provided by financing
activities (364) 805
Net (decrease) increase in cash and cash equivalents (90) 1,894
Cash and cash equivalents at beginning of period 291 527
Cash and cash equivalents at end of period $ 201 $ 2,421
Supplemental disclosure of cash flow information:
Cash paid for interest $ 606 $ 440
Supplemental disclosure of non-cash activity:
Loan costs included in due to affiliates $ -- $ 52
Property improvements and replacements included in
accounts payable $ 370 $ --
See Accompanying Notes to Consolidated Financial Statements
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 non-corporate general
partner, AIMCO Properties, L.P. is also an affiliate of AIMCO. 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 year ended December 31, 2001. The Corporate
General Partner is a wholly owned subsidiary of Apartment Investment and
Management Company ("AIMCO"), a publicly traded real estate investment trust.
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 statements of operations reflect the loss on early
extinguishment of debt at Quail Hollow Apartments (see "Note D") in 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.
For the Six Months Ended
June 30,
(in thousands)
2002 2001
Net cash provided by operating activities $ 522 $ 1,246
Payments on mortgage notes payable (201) (65)
Loss on early extinguishment of debt -- 31
Property improvements and replacements (264) (154)
Change in restricted escrows, net 16 (3)
Changes in reserves for net operating
liabilities 118 (382)
Additional reserves (191) (673)
Net cash from operations $ -- $ --
At June 30, 2002 and 2001 the Corporate General Partner reserved an additional
$191,000 and $673,000, 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
$127,000 for both the six months ended June 30, 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 $93,000 and
$87,000 for the six months ended June 30, 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
$13,000 and $9,000 for the six months ended June 30, 2002 and 2001,
respectively. The construction management service fees are calculated based on a
percentage of current year 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 six months
ended June 30, 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 six months ended June 30, 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 June 30, 2002 these returns have not been met and the
Partnership has accrued approximately $132,000 of such commissions which are
included in due to affiliates.
The Partnership Agreement also provides for a commission to the Corporate
General Partner for its role in the refinancing of any of the Partnership's
investment properties. During the six months ended June 30, 2001 the Partnership
accrued a commission of approximately $52,000 related to the refinancing of
Quail Hollow Apartments (see "Note D"). The fee was capitalized and included in
other assets.
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 $58,000 and $53,000, respectively, for insurance coverage and fees
associated with policy claims administration.
Note D - Refinancing
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%. Interest on the old mortgage was 7.33%.
Principal and interest payments on the mortgage loan of approximately $42,000
are due monthly until the loan matures in October 2018 at which time a balloon
payment of approximately $1,284,000 is due. Total capitalized loan costs were
approximately $172,000 at June 30, 2001 of which approximately $52,000 was
payable to an affiliate of the Corporate General Partner at June 30, 2001. The
Partnership recognized a loss on the early extinguishment of debt of
approximately $31,000 due to the write-off of unamortized loan costs.
Note E - Casualty
During December 2001, there was a fire at Quail Hollow Apartments that damaged
eight apartment units. As of June 30, 2002, the Partnership estimated the damage
to be approximately $600,000 for the reconstruction of the property but is
unable to estimate the insurance proceeds ultimately to be received. Therefore,
the Corporate General Partner is unable to determine the overall affect to the
consolidated financial statements at this time. However, the Corporate General
Partner does not anticipate a casualty loss.
Note F - 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 held a hearing on
plaintiffs' motion for class certification and took the matter under submission
after further briefing, as order 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
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 six months ended June 30, 2002 and 2001:
Average
Occupancy
Property 2002 2001
Quail Hollow Apartments
West Columbia, South Carolina (1) 88% 95%
Windsor Hills Apartments
Blacksburg, Virginia (2) 94% 97%
Stone Mountain West Apartments
Stone Mountain, Georgia 94% 94%
(1) 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.
(2) The Corporate General Partner attributes the decrease in occupancy at
Windsor Hills Apartments to a softening market in Blacksburg, Virginia due
to state cutbacks at the local university and new apartment construction
in the area.
Results of Operations
The Registrant's net income for the three and six months ended June 30, 2002 was
approximately $84,000 and $288,000, respectively, as compared to approximately
$202,000 and $494,000, respectively for the three and six months ended June 30,
2001. The decrease in net income for both periods is due to an increase in total
expenses and a decrease in total revenues. Total expenses increased for the
three and six months ended June 30, 2002 primarily due to an increase in
interest expense partially offset by the recognition of a loss on early
extinguishment of debt in 2001 (see "Liquidity and Capital Resources"). In
addition, operating expenses increased for the three months ended June 30, 2002.
Interest expense increased due to the refinancing of the mortgages encumbering
Quail Hollow Apartments and Stone Mountain West Apartments in June and August
2001, respectively, which increased the debt balance at both properties.
Operating expenses increased for the three months ended June 30, 2002 due to an
increase in salaries and related benefits at Stone Mountain West and Windsor
Hills Apartments and contract services at Stone Mountain West Apartments.
Included in general and administrative expense for the six months ended June 30,
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.
Total revenues decreased due to a decrease in rental income partially offset by
an increase in other income. Rental income decreased primarily due to a decrease
in average occupancy at Quail Hollow Apartments and Windsor Hills Apartments,
increased concessions at Quail Hollow and Stone Mountain West Apartments and
increased bad debt expenses primarily at Stone Mountain West Apartments,
partially offset by increased rental rates at Quail Hollow and Windsor Hills
Apartments. Other income increased due to increases in late charges and utility
reimbursements at all properties and an increase in lease cancellation fees at
Stone Mountain West Apartments and Windsor Hills Apartments, partially offset by
reduced interest income due to lower average cash balances in interest bearing
accounts.
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 June 30, 2002, the Partnership had cash and cash equivalents of approximately
$201,000 compared to approximately $2,421,000 at June 30, 2001. Cash and cash
equivalents decreased approximately $90,000 since December 31, 2001 due to
approximately $248,000 and $364,000 of cash used in investing and financing
activities, respectively, partially offset by approximately $522,000 of cash
provided by operating activities. Cash used in investing activities consisted of
property improvements and replacements slightly offset by net withdrawals from
restricted escrows maintained by the mortgage lender. Cash used in financing
activities consisted of principal payments on the mortgages encumbering the
Partnership's properties, payments on an advance from an affiliate and
distributions to partners partially offset by an advance from an affiliate. 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 six months ended June 30, 2002, the Partnership completed
approximately $467,000 of budgeted and unbudgeted capital improvements at Quail
Hollow Apartments consisting primarily of repairs related to the December 2001
fire at the property, floor covering replacements, appliances, plumbing upgrades
and interior decoration. These improvements will be funded from operating cash
flow, insurance proceeds and replacement reserves. For 2002, the Partnership has
budgeted approximately $99,000 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 six months ended June 30, 2002, the Partnership completed
approximately $50,000 of capital improvements at Stone Mountain West Apartments
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 $59,000 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 six months ended June 30, 2002, the Partnership completed
approximately $117,000 of capital improvements at Window Hills Apartments
consisting primarily of floor covering and appliance replacements, interior
decoration, office computers, water submetering, and air conditioning upgrades.
These improvements were funded from operating cash flow. For 2002, the
Partnership has budgeted approximately $171,000 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 operating expenses at
Quail Hollow Apartments. The entire balance was repaid during the six months
ended June 30, 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 six months ended June 30, 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. Total capitalized loan costs were approximately $172,000 at June 30, 2001
of which approximately $52,000 was payable to an affiliate of the Corporate
General Partner at June 30, 2001. The Partnership recognized a loss on the early
extinguishment of debt of approximately $31,000 due to the write-off of
unamortized loan costs.
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 $16,588,000 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 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
Operations $ 163 $ 9.80 $1,327 $87.60
Refinancing (1) -- -- 58 3.87
$ 163 $ 9.80 $1,385 $91.47
(1) Remaining proceeds from Windsor Hills Apartments refinance in December 2000.
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 further
distributions to its partners in 2002 or subsequent periods.
Other
In addition to its indirect ownership of the general partner interests 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 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 78.63% 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
Partnerships and its limited partners may come into conflict with the duties of
the Corporate General Partner to AIMCO, as it 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 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 held a hearing on
plaintiffs' motion for class certification and took the matter under submission
after further briefing, as order 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 July 3, 1980 (File No. 2-67384), is
incorporated herein by reference).
99 Certification of Chief Executive Officer and Chief Financial Officer
b) Reports on Form 8-K filed during the quarter ended June 30, 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/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 I
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.