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 September 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)
September 30, 2002
Assets
Cash and cash equivalents $ 222
Receivables and deposits 108
Restricted escrows 5
Other assets 567
Investment properties:
Land $ 1,189
Buildings and related personal property 18,313
19,502
Less accumulated depreciation (13,886) 5,616
$ 6,518
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 42
Tenant security deposit liabilities 122
Accrued property taxes 138
Other liabilities 304
Due to affiliates 132
Mortgage notes payable 16,484
Partners' Deficit
General partners $ (80)
Limited partners (15,000 units issued and
outstanding) (10,624) (10,704)
$ 6,518
See Accompanying Notes to Consolidated Financial Statements
SHELTER PROPERTIES I
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
(Restated) (Restated)
Revenues:
Rental income $ 1,116 $ 1,129 $ 3,394 $ 3,538
Other income 128 74 335 216
Casualty gain (Note E) 352 -- 352 --
Total revenues 1,596 1,203 4,081 3,754
Expenses:
Operating 566 611 1,542 1,583
General and administrative 58 61 172 179
Depreciation 165 154 503 475
Interest 307 326 927 839
Property taxes 74 59 223 192
Total expenses 1,170 1,211 3,367 3,268
Net income (loss) $ 426 $ (8) $ 714 $ 486
Net income allocated to
general partners (1%) $ 4 $ -- $ 7 $ 5
Net income (loss) allocated
to limited partners (99%) 422 (8) 707 481
Net income (loss) $ 426 $ (8) $ 714 $ 486
Net income (loss) per
limited partnership unit $ 28.13 $ (.53) $ 47.13 $ 32.07
Distribution per limited
partnership $ 9.00 $239.33 $ 18.80 $330.80
See Accompanying Notes to Consolidated Financial Statements
SHELTER PROPERTIES I
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except per 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 -- (31) (282) (313)
Net income for the nine months
ended September 30, 2002 -- 7 707 714
Partners' deficit at
September 30, 2002 15,000 $ (80) $(10,624) $(10,704)
See Accompanying Notes to Consolidated Financial Statements
SHELTER PROPERTIES I
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
2002 2001
Cash flows from operating activities:
Net income $ 714 $ 486
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 503 475
Amortization of discounts and loan costs 22 25
Casualty gain (352) --
Loss on early extinguishment of debt -- 63
Change in accounts:
Receivables and deposits (25) 417
Other assets (30) (12)
Accounts payable (52) (53)
Tenant security deposit liabilities (11) 7
Accrued property taxes 13 33
Other liabilities 67 167
Due to affiliates 20 --
Net cash provided by operating activities 869 1,608
Cash flows from investing activities:
Property improvements and replacements (792) (453)
Insurance proceeds received 456 --
Net withdrawals from restricted escrows 16 13
Net cash used in investing activities (320) (440)
Cash flows from financing activities:
Payments on mortgage notes payable (305) (123)
Distributions to partners (313) (4,975)
Advance from affiliate 100 87
Payments on advance from affiliate (100) (87)
Repayment of mortgage note payable -- (5,850)
Proceeds from refinancing -- 10,170
Loan costs paid -- (385)
Net cash used in financing activities (618) (1,163)
Net (decrease) increase in cash and cash equivalents (69) 5
Cash and cash equivalents at beginning of period 291 527
Cash and cash equivalents at end of period $ 222 $ 532
Supplemental disclosure of cash flow information:
Cash paid for interest $ 906 $ 684
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. The Corporate
General Partner is a wholly owned subsidiary of Apartment Investment and
Management Company ("AIMCO"), a publicly traded real estate investment trust. In
the opinion of the Corporate General Partner, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and nine month periods ended
September 30, 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.
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 and Stone Mountain West 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 Nine Months Ended
September 30,
(in thousands)
2002 2001
Net cash provided by operating activities $ 869 $ 1,608
Payments on mortgage notes payable (305) (123)
Loss on early extinguishment of debt -- 63
Property improvements and replacements (792) (453)
Change in restricted escrows, net 16 13
Changes in reserves for net operating
liabilities 18 (559)
Release of (additions to) operating reserves 194 (143)
Net cash from operations $ -- $ 406
At September 30, 2002 the Corporate General Partner released previously reserved
funds of approximately $194,000. During the nine months ended September 30, 2001
the Corporate General Partner reserved approximately $143,000 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
$188,000 and $186,000 for the nine months ended September 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 $189,000 and
$341,000 for the nine months ended September 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 $70,000 and $224,000 for the nine months ended September 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 nine months
ended September 30, 2002. Interest was charged at prime plus 2% and amounted to
less than $1,000. During the nine months ended September 30, 2001, an affiliate
of the Corporate General Partner loaned the Partnership $87,000 to cover
operating expenses at Windsor Hills Apartments. The entire balance was repaid
during the nine months ended September 30, 2001. Interest was charged at the
prime rate plus 2% and amounted to less than $1,000.
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 September 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 nine months ended September 30, 2001 the
Partnership paid a commission of approximately $102,000 related to the
refinancing of Quail Hollow Apartments and Stone Mountain West 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 nine months ended
September 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 - Refinancings
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 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 $191,000 at September 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, which is included in interest expense at
September 30, 2001.
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 of approximately
$39,000 are due monthly until the loan matures in June 2019 at which time a
balloon payment of approximately $992,000 is due. Total capitalized loan costs
were approximately $194,000 at September 30, 2001. The Partnership recognized
loss on the early extinguishment of debt of approximately $32,000 due to the
write-off of unamortized loan costs which is included in interest expense at
September 30, 2001.
Note E - Casualty
During December 2001, there was a fire at Quail Hollow Apartments that damaged
eight apartment units. During the nine months ended September 30, 2002, a net
casualty gain of $352,000 was recorded as the result of insurance proceeds
received of approximately $456,000 less the net book value of the damaged assets
of approximately $104,000.
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. On October 30, 2002, the court
entered an order extending the stay in effect through January 10, 2003.
During the third quarter of 2001, a complaint (the "Heller action") was filed
against the same defendants that are named in the Nuanes action, captioned
Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed
a first amended complaint. The first amended complaint in the Heller action is
brought as a purported derivative action, and asserts claims for among other
things breach of fiduciary duty; unfair competition; conversion, unjust
enrichment; and judicial dissolution. Plaintiffs in the Nuanes action filed a
motion to consolidate the Heller action with the Nuanes action and stated that
the Heller action was filed in order to preserve the derivative claims that were
dismissed without leave to amend in the Nuanes action by the Court order dated
July 10, 2001. On October 5, 2001, the Corporate General Partner and affiliated
defendants moved to strike the first amended complaint in its entirety for
violating the Court's July 10, 2001 order granting in part and denying in part
defendants' demurrer in the Nuanes action, or alternatively, to strike certain
portions of the complaint based on the statute of limitations. Other defendants
in the action demurred to the fourth amended complaint, and, alternatively,
moved to strike the complaint. On December 11, 2001, the court heard argument on
the motions and took the matters under submission. On February 4, 2002, the
Court served notice of its order granting defendants' motion to strike the
Heller complaint as a violation of its July 10, 2001 order in the Nuanes action.
On March 27, 2002, the plaintiffs filed a notice appealing the order striking
the complaint. The 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 Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements in certain circumstances. The matters discussed
in this report contain certain forward-looking statements, including, without
limitation, statements regarding future financial performance and the effect of
government regulations. The discussions of the Registrant's business and results
of operations, including forward-looking statements pertaining to such matters,
do not take into account the effects of any changes to the Registrant's business
and results of operations. Actual results may differ materially from those
described in the forward-looking statements and will be affected by a variety of
risks and factors including, without limitation: national and local economic
conditions; the terms of governmental regulations that affect the Registrant and
interpretations of those regulations; the competitive environment in which the
Registrant operates; financing risks, including the risk that cash flows from
operations may be insufficient to meet required payments of principal and
interest; real estate risks, including variations of real estate values and the
general economic climate in local markets and competition for tenants in such
markets; and possible environmental liabilities. Readers should carefully review
the Registrant's financial statements and the notes thereto, as well as the risk
factors described in the documents the Registrant files from time to time with
the Securities and Exchange Commission.
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 nine months ended September 30, 2002 and 2001:
Average
Occupancy
Property 2002 2001
Quail Hollow Apartments
West Columbia, South Carolina (1) 90% 94%
Windsor Hills Apartments
Blacksburg, Virginia 91% 93%
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 finished
reconstruction in August 2002. In addition, occupancy was negatively
affected by tenants purchasing homes due to low interest rates.
Results of Operations
The Registrant's net income for the three and nine months ended September 30,
2002 was approximately $426,000 and $714,000, respectively, as compared to a net
loss of approximately $8,000 and net income of approximately $486,000,
respectively for the three and nine months ended September 30, 2001. The
increase in net income for the nine months ended September 30, 2002 is due to an
increase in total revenues partially offset by an increase in total expenses.
The increase in net income for the three months ended September 30, 2002 is due
to an increase in total revenues and a decrease in total expenses. Total
revenues increased for both periods due to an increase in other income and a
casualty gain recorded at Quail Hollow Apartments, partially offset by a
decrease in rental income. During December 2001, there was a fire at Quail
Hollow Apartments that damaged eight apartments units. During the nine months
ended September 30, 2002 a net casualty gain of $352,000 as recorded as the
result of insurance proceeds received of approximately $456,000 less the net
book value of the damaged assets of approximately $104,000. Other income
increased due to increases in late charges and utility reimbursements at all the
Partnership's properties and an increase in lease cancellation fees at Stone
Mountain West Apartments, partially offset by reduced interest income due to
lower average cash balances in interest bearing accounts. Rental income
decreased primarily due to a decrease in the average occupancy at Quail Hollow
and Windsor Hills 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.
Total expenses increased for the nine months ended September 30, 2002 due
primarily to increased depreciation, interest and property tax expenses
partially offset by reduced operating expenses. Total expenses decreased for the
three months ended September 30, 2002 due primarily to reduced operating and
interest expenses partially offset by increased depreciation and property tax
expenses. Depreciation expense increased for both periods due to capital
improvements completed during the past twelve months that are now being
depreciated. Property tax expense increased for both periods due to an increase
in property taxes at Quail Hollow Apartments in the fourth quarter of 2001, due
to an increase in the assessed value of the property. Operating expenses
decreased for both periods due to decreased property expenses partially offset
by increased insurance expense. Property expenses decreased due to reduced
utility expenses at Stone Mountain West Apartments, partially offset by
increased payroll and related benefit expenses at Stone Mountain West Apartments
and increased utility expenses at Quail Hollow Apartments. Insurance expense
increased due to increased hazard insurance premiums primarily at Windsor Hills
Apartments.
Interest expense increased for the nine months ended September 30, 2002 due to
the refinancing of the mortgages encumbering Quail Hollow and Stone Mountain
West Apartments in June and August 2001, respectively, which increased the debt
balance at both properties. This increase was partially offset by the loss on
early extinguishment of debt related to these refinancings. Effective April 1,
2002, the Partnership adopted Statement of Financial Accounting Standard
("SFAS") No. 145, "Rescission of FASB Statements No. 4,44, and 64". Interest
expense decreased for the three months ended September 30, 2002 due to the loss
on early extinguishment of debt incurred at Stone Mountain West Apartments
during 2001, partially offset by the increase in interest expense at Stone
Mountain West Apartments during 2002 due to the refinancing of its mortgage in
August 2001 as discussed above.
General and administrative expenses remained relatively constant for both
periods. Included in general and administrative expenses for the nine months
ended September 30, 2002 and 2001 are management reimbursements to the Corporate
General Partner allowed under the Partnership Agreement. Also included are costs
associated with the quarterly and annual communications with investors and
regulatory agencies and the annual audit required by the Partnership Agreement.
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 September 30, 2002, the Partnership had cash and cash equivalents of
approximately $222,000 compared to approximately $532,000 at September 30, 2001.
Cash and cash equivalents decreased approximately $69,000 since December 31,
2001 due to approximately $618,000 and $320,000 of cash used in financing and
investing activities, respectively, partially offset by approximately $869,000
of cash provided by operating activities. 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. Cash used in
investing activities consisted of property improvements and replacements
partially offset by insurance proceeds received for the casualty at Quail Hollow
Apartments and net withdrawals from restricted escrows maintained by the
mortgage lender. The Partnership invests its working capital reserves in
interest bearing accounts.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the properties to adequately maintain the physical
assets and other operating needs of the Registrant and to comply with Federal,
state, local, legal, and regulatory requirements. The Corporate General Partner
monitors developments in the area of legal and regulatory compliance and is
studying new federal laws, including the Sarbanes-Oxley Act of 2002. The
Sarbanes-Oxley Act of 2002 mandates or suggests additional compliance measures
with regard to governance, disclosure, audit and other areas. In light of these
changes, the Partnership expects that it will incur higher expenses related to
compliance, including increased legal and audit fees. Capital improvements
planned for each of the Registrant's properties are detailed below.
Quail Hollow Apartments
During the nine months ended September 30, 2002, the Partnership completed
approximately $525,000 of budgeted and unbudgeted capital improvements at Quail
Hollow Apartments consisting primarily of reconstruction related to the December
2001 fire at the property, floor covering replacements, appliances, plumbing
upgrades and interior decoration. These improvements were funded from operating
cash flow, insurance proceeds and replacement reserves. For 2002, the
Partnership has budgeted approximately $151,000 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 will depend on the physical condition of the property as well as
anticipated cash flow generated by the property.
Stone Mountain West Apartments
During the nine months ended September 30, 2002, the Partnership completed
approximately $67,000 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 $68,000 for capital
improvements at Stone Mountain West Apartments consisting primarily of floor
covering and appliance replacements. 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.
Windsor Hills Apartments
During the nine months ended September 30, 2002, the Partnership completed
approximately $200,000 of budgeted and unbudgeted capital improvements at
Windsor Hills Apartments consisting primarily of floor covering and appliance
replacements, interior decoration, water submetering, parking area improvements,
and air conditioning upgrades. These improvements were funded from operating
cash flow. For 2002, the Partnership has budgeted approximately $181,000 for
capital improvements at Windsor Hills Apartments consisting primarily of floor
covering replacements and a water submetering project. Additional improvements
may be considered and will 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 during the nine months ended
September 30, 2002 to cover operating expenses at Quail Hollow Apartments. The
entire balance was repaid during the nine months ended September 30, 2002.
Interest was charged at prime plus 2% and amounted to less than $1,000.
During the nine months ended September 30, 2001, an affiliate of the Corporate
General Partner loaned the Partnership $87,000 to cover operating expenses at
Windsor Hills Apartments. The entire balance was repaid during the nine months
ended September 30, 2001. Interest was charged at the prime rate plus 2% and
amounted to less than $1,000.
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 $191,000 at September 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 which is
included in interest expense.
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.
Total capitalized loan costs were approximately $194,000 at September 30, 2001.
The Partnership recognized a loss on the early extinguishment of debt of
approximately $32,000 due to the write-off of unamortized loan costs which is
included in interest expense.
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 $16,484,000 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 in January 2021.
The Partnership distributed the following amounts during the nine months ended
September 30, 2002 and 2001 (in thousands, except per unit data):
Nine Months Nine Months
Ended Per Limited Ended Per Limited
September 30, Partnership September 30, Partnership
2002 Unit 2001 Unit
Operations $ 313 $18.80 $1,327 $ 87.60
Refinancing (1) -- -- 3,648 243.20
$ 313 $18.80 $4,975 $330.80
(1) Remaining proceeds from Windsor Hills Apartments refinancing in December
2000 and refinance proceeds from the 2001 refinancing of Quail Hollow and
Stone Mountain West Apartments.
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 11,928.5 limited partnership units
(the "Units") in the Partnership representing 79.52% of the outstanding Units at
September 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
79.52% 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 owes 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 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.
ITEM 3. CONTROLS AND PROCEDURES
The principal executive officer and principal financial officer of the Corporate
General Partner, who are the equivalent of the Partnership's principal executive
officer and principal financial officer, respectively, have, within 90 days of
the filing date of this quarterly report, evaluated the effectiveness of the
Partnership's disclosure controls and procedures (as defined in Exchange Act
Rules (13a-14(c) and (15d-14(c)) and have determined that such disclosure
controls and procedures are adequate. There have been no significant changes in
the Partnership's internal controls or in other factors that could significantly
affect the Partnership's internal controls since the date of evaluation. The
Partnership does not believe any significant deficiencies or material weaknesses
exist in the Partnership's internal controls. Accordingly, no corrective actions
have been taken.
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. On October 30, 2002, the court
entered an order extending the stay in effect through January 10, 2003.
During the third quarter of 2001, a complaint (the "Heller action") was filed
against the same defendants that are named in the Nuanes action, captioned
Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed
a first amended complaint. The first amended complaint in the Heller action is
brought as a purported derivative action, and asserts claims for among other
things breach of fiduciary duty; unfair competition; conversion, unjust
enrichment; and judicial dissolution. Plaintiffs in the Nuanes action filed a
motion to consolidate the Heller action with the Nuanes action and stated that
the Heller action was filed in order to preserve the derivative claims that were
dismissed without leave to amend in the Nuanes action by the Court order dated
July 10, 2001. On October 5, 2001, the Corporate General Partner and affiliated
defendants moved to strike the first amended complaint in its entirety for
violating the Court's July 10, 2001 order granting in part and denying in part
defendants' demurrer in the Nuanes action, or alternatively, to strike certain
portions of the complaint based on the statute of limitations. Other defendants
in the action demurred to the fourth amended complaint, and, alternatively,
moved to strike the complaint. On December 11, 2001, the court heard argument on
the motions and took the matters under submission. On February 4, 2002, the
Court served notice of its order granting defendants' motion to strike the
Heller complaint as a violation of its July 10, 2001 order in the Nuanes action.
On March 27, 2002, the plaintiffs filed a notice appealing the order striking
the complaint. The 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 September 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: November 13, 2002
CERTIFICATION
I, Patrick J. Foye, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Shelter Properties I;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002
_______________________
Patrick J. Foye
Executive Vice President of Shelter Realty I
Corporation, equivalent of the chief
executive officer of the Partnership
CERTIFICATION
I, Paul J. McAuliffe, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Shelter Properties I;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002
_______________________
Paul J. McAuliffe
Executive Vice President and Chief Financial
Officer of Shelter Realty I Corporation,
equivalent of the chief financial officer of
the Partnership
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
September 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.
__________________
Name: Patrick J. Foye
Date: November 13, 2002
__________________
Name: Paul J. McAuliffe
Date: November 13, 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.