UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB/A
(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 0-10260
SHELTER PROPERTIES III
(Exact name of small business issuer as specified in its charter)
South Carolina 57-0718508
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
The issuer recently discovered that it had inadvertently omitted conformed
signatures on certain certifications included in its 10-QSB filing made November
14, 2002. Original signatures were complete and on file with the issuer at the
time the 10-QSB filing was made in November; however, due to a clerical error,
conformed signatures were not included in the electronic filing. This amendment
is being filed solely to correct this inadvertent clerical error.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SHELTER PROPERTIES III
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
September 30, 2002
Assets
Cash and cash equivalents $ 447
Receivables and deposits 183
Restricted escrows 136
Other assets 444
Investment properties:
Land $ 1,281
Buildings and related personal property 28,015
29,296
Less accumulated depreciation (19,059) 10,237
$ 11,447
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 77
Tenant security deposit liabilities 94
Accrued property taxes 306
Other liabilities 564
Mortgage notes payable 14,701
Partners' Deficit
General partners $ (108)
Limited partners (55,000 units issued and
outstanding) (4,187) (4,295)
$ 11,447
See Accompanying Notes to Consolidated Financial Statements
SHELTER PROPERTIES III
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
Revenues:
Rental income $1,216 $1,288 $3,723 $3,945
Other income 153 107 394 321
Total revenues 1,369 1,395 4,117 4,266
Expenses:
Operating 681 790 1,858 2,002
General and administrative 66 81 218 248
Depreciation 271 264 830 812
Interest 276 287 835 858
Property taxes 100 98 293 309
Total expenses 1,394 1,520 4,034 4,229
Net (loss) income $ (25) $ (125) $ 83 $ 37
Net (loss) income allocated
to general partners (1%) $ -- $ (1) $ 1 $ --
Net (loss) income allocated
to limited partners (99%) (25) (124) 82 37
$ (25) $ (125) $ 83 $ 37
Net (loss) income per
limited partnership unit $ (.46) $(2.25) $ 1.49 $ .67
Distributions per limited
partnership unit $ 4.00 $ -- $ 5.95 $26.05
See Accompanying Notes to Consolidated Financial Statements
SHELTER PROPERTIES III
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partners Partners Total
Original capital contributions 55,000 $ 2 $27,500 $27,502
Partners' deficit at
December 31, 2001 55,000 $ (106) $(3,942) $(4,048)
Distributions to partners -- (3) (327) (330)
Net income for the nine months
ended September 30, 2002 -- 1 82 83
Partners' deficit at
September 30, 2002 55,000 $ (108) $(4,187) $(4,295)
See Accompanying Notes to Consolidated Financial Statements
SHELTER PROPERTIES III
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
2002 2001
Cash flows from operating activities:
Net income $ 83 $ 37
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 830 812
Amortization of discounts and loan costs 22 21
Change in accounts:
Receivables and deposits 55 281
Other assets (26) (50)
Accounts payable -- 59
Tenant security deposit liabilities (3) (5)
Accrued property taxes 21 35
Other liabilities 160 164
Net cash provided by operating activities 1,142 1,354
Cash flows from investing activities:
Property improvements and replacements (347) (648)
Net withdrawals from restricted escrows -- 599
Net cash used in investing activities (347) (49)
Cash flows from financing activities:
Payments on mortgage notes payable (255) (231)
Loan costs paid -- (32)
Partners' distributions (330) (1,447)
Net cash used in financing activities (585) (1,710)
Net increase (decrease) in cash and cash equivalents 210 (405)
Cash and cash equivalents at beginning of period 237 665
Cash and cash equivalents at end of period $ 447 $ 260
Supplemental disclosure of cash flow information:
Cash paid for interest $ 753 $ 749
See Accompanying Notes to Consolidated Financial Statements
SHELTER PROPERTIES III
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements of Shelter
Properties III (the "Partnership" or "Registrant") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Item 310 (b) of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The general partner responsible for management of the
Partnership's business is Shelter Realty III Corporation, a South Carolina
corporation (the "Corporate General Partner"). The Corporate General Partner is
a subsidiary of Apartment Investment and Management Company ("AIMCO"), a
publicly traded real estate investment trust. In the opinion of the Corporate
General Partner, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three and nine month periods ended September 30, 2002, are not
necessarily indicative of the results that may be expected for the fiscal year
ending December 31, 2002. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Partnership's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 2001.
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,
2002 2001
(in thousands)
Net cash provided by operating activities $ 1,142 $ 1,354
Payments on mortgage notes payable (255) (231)
Property improvements and replacements (347) (648)
Change in restricted escrows, net -- 599
Changes in reserves for net operating
assets (207) (417)
Additional reserves (333) (657)
Net cash from operations $ -- $ --
The Corporate General Partner reserved approximately $333,000 and $657,000 at
September 30, 2002 and 2001, respectively, to fund capital improvements and
repairs at the Partnership's four investment properties.
Note C - Transactions with Affiliated Parties
The Partnership has no employees and is dependent on the Corporate General
Partner and its affiliates for the management and administration of all
partnership activities. The Partnership Agreement provides for (i) payments to
affiliates for services and (ii) reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership.
During the nine months ended September 30, 2002 and 2001, affiliates of the
Corporate General Partner were entitled to receive 5% of gross receipts from all
of the Registrant's properties for providing property management services. The
Partnership paid to such affiliates approximately $210,000 and $220,000 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 $150,000 and
$385,000 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 $1,000 and $249,000 for the nine months ended September 30, 2002
and 2001, respectively. The construction management service fees are calculated
based on a percentage of current additions to the investment properties.
During 1986, a liability of approximately $185,000 was incurred to the general
partners for sales commissions earned. Pursuant to the Partnership Agreement,
this liability cannot be paid until certain levels of returns are received by
the limited partners. As of September 30, 2002, the level of return to the
limited partners has not been met and the balance is included in other
liabilities in the accompanying consolidated balance sheet.
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 $62,000 and $82,000, respectively, for insurance
coverage and fees associated with policy claims administration.
Note D - Legal Proceedings
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. (the "Nuanes action") in the Superior Court of the
State of California for the County of San Mateo. The plaintiffs named as
defendants, among others, the Partnership, its Corporate General Partner and
several of their affiliated partnerships and corporate entities. The action
purports to assert claims on behalf of a class of limited partners and
derivatively on behalf of a number of limited partnerships (including the
Partnership) which are named as nominal defendants, challenging, among other
things, the acquisition of interests in certain Corporate General Partner
entities by Insignia Financial Group, Inc. ("Insignia") and entities which were,
at one time, affiliates of Insignia; past tender offers by the Insignia
affiliates to acquire limited partnership units; management of the partnerships
by the Insignia affiliates; and the series of transactions which closed on
October 1, 1998 and February 26, 1999 whereby Insignia and Insignia Properties
Trust, respectively, were merged into AIMCO. The plaintiffs seek monetary
damages and equitable relief, including judicial dissolution of the Partnership.
On June 25, 1998, the Corporate General Partner filed a motion seeking dismissal
of the action. In lieu of responding to the motion, the plaintiffs filed an
amended complaint. The Corporate General Partner filed demurrers to the amended
complaint which were heard February 1999.
Pending the ruling on such demurrers, settlement negotiations commenced. On
November 2, 1999, the parties executed and filed a Stipulation of Settlement,
settling claims, subject to court approval, on behalf of the Partnership and all
limited partners who owned units as of November 3, 1999. Preliminary approval of
the settlement was obtained on November 3, 1999 from the Court, at which time
the Court set a final approval hearing for December 10, 1999. Prior to the
December 10, 1999 hearing, the Court received various objections to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of prior lead counsel to enter the settlement. On
December 14, 1999, the Corporate General Partner and its affiliates terminated
the proposed settlement. In February 2000, counsel for some of the named
plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who
negotiated the settlement. On June 27, 2000, the Court entered an order
disqualifying them from the case and an appeal was taken from the order on
October 5, 2000. On December 4, 2000, the Court appointed the law firm of Lieff
Cabraser Heimann & Bernstein LLP as new lead counsel for plaintiffs and the
putative class. Plaintiffs filed a third amended complaint on January 19, 2001.
On March 2, 2001, the Corporate General Partner and its affiliates filed a
demurrer to the third amended complaint. On May 14, 2001, the Court heard the
demurrer to the third amended complaint. On July 10, 2001, the Court issued an
order sustaining defendants' demurrer on certain grounds. On July 20, 2001,
Plaintiffs filed a motion for reconsideration of the Court's July 10, 2001 order
granting in part and denying in part defendants' demurrer. On September 7, 2001,
Plaintiffs filed a fourth amended class and derivative action complaint. On
September 12, 2001, the Court denied Plaintiffs' motion for reconsideration. On
October 5, 2001, the Corporate General Partner and affiliated defendants filed a
demurrer to the fourth amended complaint, which was heard on December 11, 2001.
On February 2, 2002, the Court served its order granting in part the demurrer.
The Court has dismissed without leave to amend certain of the plaintiffs'
claims. On February 11, 2002, plaintiffs filed a motion seeking to certify a
putative class comprised of all non-affiliated persons who own or have owned
units in the partnerships. The Corporate General Partner and affiliated
defendants oppose the motion. On April 29, 2002, the Court held a hearing on
plaintiffs' motion for class certification and took the matter under submission
after further briefing, as 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 four 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
Essex Park Apartments
Columbia, South Carolina 83% 92%
Colony House Apartments
Mufreesboro, Tennessee 93% 85%
North River Village Apartments
Atlanta, Georgia 87% 94%
Willowick Apartments
Greenville, South Carolina 92% 94%
The Corporate General Partner attributes the increase in occupancy at Colony
House Apartments to an increase in the student population during the current
year. The decrease in occupancy at North River Village Apartments and Essex Park
Apartments is due to an increase in the number of tenants purchasing homes due
to lower interest rates and the competitive market of the apartment industry in
the Atlanta and Columbia areas.
Results of Operations
The Registrant's net income for the nine months ended September 30, 2002 was
approximately $83,000 as compared to approximately $37,000 for the nine months
ended September 30, 2001. The Registrant's net loss for the three months ended
September 30, 2002 was approximately $25,000 as compared to approximately
$125,000 for the three months ended September 30, 2001. The increase in net
income for the nine months ended September 30, 2002 is due to a decrease in
total expenses partially offset by a decrease in total revenues. The decrease in
net loss for the three months ended September 30, 2002 is due to a decrease in
total expenses partially offset by a decrease in total revenues. The decrease in
total revenues for the three and nine months ended September 30, 2002 is due to
a decrease in rental income partially offset by an increase in other income.
Rental income decreased due to an increase in bad debt expense and a decrease in
occupancy at Essex Park Apartments and North River Village Apartments partially
offset by a decrease in concessions and special promotions and an increase in
occupancy at Colony House Apartments. Other income increased due to an increase
in utility reimbursements at Essex Park Apartments and Colony House Apartments,
late charges at Essex Park Apartments and North River Village Apartments and
lease cancellation fees at Colony House Apartments and North River Village
Apartments partially offset by a decrease in interest income as a result of
lower cash balances maintained in interest bearing accounts at the Partnership
and its investment properties.
The decrease in total expenses for the three and nine months ended September 30,
2002 was primarily due to a decrease in operating and general and administrative
expenses partially offset by an increase in depreciation expense. Operating
expenses decreased due to a decrease in property expense, insurance expense and
maintenance expense. Property expense decreased due to a decrease in employee
salaries and utility expenses at Colony House Apartments and Willowick
Apartments partially offset by an increase in corporate unit housing expense at
Essex Park Apartments and utility expenses at North River Village Apartments.
Insurance expense decreased due to a decrease in hazard insurance premiums at
Essex Park Apartments and Willowick Apartments. Maintenance expense decreased
due to a decrease in contract work at Colony House Apartments and contract
painting and interior building improvements at Willowick Apartments partially
offset by an increase in contract work at North River Village Apartments.
General and administrative expense decreased due to a decrease in professional
fees and state operating taxes partially offset by an increase in the cost of
services included in the management reimbursements to the Corporate General
Partner allowed under the Partnership Agreement. Also included in the general
and administrative expenses for the three and nine months ended September 30,
2002 and 2001 are costs associated with the quarterly and annual communications
with investors and regulatory agencies and the annual audit required by the
Partnership Agreement. Depreciation expense increased due to property
improvements and replacements placed into service during the last twelve months
at North River Village Apartments.
As part of the ongoing business plan of the Registrant, the Corporate General
Partner monitors the rental market environments of its investment properties to
assess the feasibility of increasing rents, maintaining or increasing occupancy
levels and protecting the Partnership from increases in expenses. As part of
this plan, the Corporate General Partner attempts to protect the Partnership
from the burden of inflation-related increases in expenses by increasing rents
and maintaining a high overall occupancy level. However, due to changing market
conditions which can result in the use of rental concessions and rental
reductions to offset softening market conditions, there is no guarantee that the
Corporate General Partner will be able to sustain such a plan.
Liquidity and Capital Resources
At September 30, 2002, the Registrant had cash and cash equivalents of
approximately $447,000 as compared to approximately $260,000 at September 30,
2001. Cash and cash equivalents increased approximately $210,000 for the nine
months ended September 30, 2002 from the Registrant's year end, primarily due to
approximately $1,142,000 of cash provided by operating activities which was
partially offset by approximately $347,000 of cash used in investing activities
and approximately $585,000 of cash used in financing activities. Cash used in
investing activities consisted of property improvements and replacements. Cash
used in financing activities consisted of payments of principal made on the
mortgages encumbering the Registrant's properties and distributions to partners.
The Registrant invests its working capital reserves in interest bearing
accounts.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the investment properties to adequately maintain the
physical assets and other operating needs of the Registrant and to comply with
Federal, state and local legal and regulatory requirements. 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 completed at each of the Registrant's properties are detailed
below.
Essex Park Apartments
During the nine months ended September 30, 2002, the Partnership completed
approximately $168,000 of capital improvements at Essex Park Apartments
consisting primarily of structural enhancements, perimeter fencing, air
conditioning upgrades, plumbing improvements, appliance and floor covering
replacements and cabinet replacements. These improvements were funded from
operating cash flows. The Partnership has budgeted, but is not limited to,
approximately $197,000 for capital improvements during 2002 at Essex Park
Apartments consisting primarily of air conditioning upgrades, floor covering
replacements, structural enhancements 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.
Colony House Apartments
During the nine months ended September 30, 2002, the Partnership completed
approximately $61,000 of capital improvements at Colony House Apartments
consisting primarily of plumbing improvements, office computers, wall coverings,
air conditioning upgrades and appliance and floor covering replacements. These
improvements were funded from operating cash flows. The Partnership has
budgeted, but is not limited to, approximately $69,000 for capital improvements
during 2002 at Colony House Apartments consisting primarily of floor covering
replacements, door replacements, 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.
North River Village Apartments
During the nine months ended September 30, 2002, the Partnership completed
approximately $58,000 of capital improvements at North River Village Apartments
consisting primarily of floor covering replacements, wall covering and office
computers. These improvements were funded from operating cash flows. The
Partnership has budgeted, but is not limited to, approximately $58,000 for
capital improvements during 2002 at North River Village Apartments consisting
primarily of floor covering 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 and replacement reserves.
Willowick Apartments
During the nine months ended September 30, 2002, the Partnership completed
approximately $60,000 of capital improvements at Willowick Apartments consisting
primarily of floor covering replacements, air conditioning upgrades, office
computers, appliance replacements and major landscaping. These improvements were
funded from operating cash flows. The Partnership has budgeted, but it is not
limited to, approximately $78,000 for capital improvements during 2002 at
Willowick Apartments consisting primarily of floor covering replacements,
structural upgrades, air conditioning unit upgrades 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.
Additional capital expenditures will be incurred only if cash is available from
operations and Partnership reserves. To the extent that such budgeted capital
improvements are completed, the Registrant's distributable cash flow, if any,
may be adversely affected at least in the short term.
The Registrant's current assets are thought to be sufficient for any near term
needs (exclusive of capital improvements) of the Registrant. The mortgage
indebtedness of approximately $14,701,000, net of discount, is amortized over
varying periods. A balloon payment of $1,543,000 is due in October 2003 at North
River Village. All remaining debt is scheduled to be fully amortized in January
2021. The Corporate General Partner will attempt to refinance such indebtedness
and/or sell the properties prior to such maturity dates. If the properties
cannot be refinanced or sold for a sufficient amount, the Registrant will risk
losing such properties through foreclosure.
The Partnership distributed the following amounts during the nine months ended
September 30, 2002 and 2001 (in thousands, except per unit data):
Nine Months Per Nine Months Per
Ended Limited Ended Limited
September 30, Partnership September 30, Partnership
2002 Unit 2001 Unit
Operations $ 330 $ 5.95 $1,447 $26.05
Future cash distributions will depend on the levels of net cash generated from
operations, the availability of cash reserves, and the timing of debt
maturities, refinancings, and/or property sales. The Partnership's cash
available for distribution is reviewed on a monthly basis. There can be no
assurance, however, that the Partnership will generate sufficient funds from
operations, after planned capital improvement expenditures, to permit any
additional distributions to its partners during the remainder of 2002 or
subsequent periods. In addition, the Partnership may be restricted from making
distributions if the amount in the reserve account for North River Village
Apartments maintained by the mortgage lender is less than $200 per apartment
unit. As of September 30, 2002 the reserve account was fully funded with
approximately $53,000 on deposit with the mortgage lender.
Other
In addition to its indirect ownership of the combined general partner interests
in the Partnership, AIMCO and its affiliates owned 35,653 limited partnership
units in the Partnership representing 64.82% 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
64.82% of the outstanding units, AIMCO is in a position to control all such
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 its
sole stockholder.
Critical Accounting Policies and Estimates
The consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States which require the Partnership
to make estimates and assumptions. The Partnership believes that of its
significant accounting policies, the following may involve a higher degree of
judgment and complexity.
Impairment of Long-Lived Assets
Investment properties are recorded at cost, less accumulated depreciation,
unless considered impaired. If events or circumstances indicate that the
carrying amount of a property may be impaired, the Partnership will make an
assessment of its recoverability by estimating the undiscounted future cash
flows, excluding interest charges, of the property. If the carrying amount
exceeds the aggregate future cash flows, the Partnership would recognize an
impairment loss to the extent the carrying amount exceeds the fair value of the
property.
Real property investments are subject to varying degrees of risk. Several
factors may adversely affect the economic performance and value of the
Partnership's investment properties. These factors include changes in the
national, regional and local economic climate; local conditions, such as an
oversupply of multifamily properties; competition from other available
multifamily property owners and changes in market rental rates. Any adverse
changes in these factors could cause an impairment in the Partnership's assets.
Revenue Recognition
The Partnership generally leases apartment units for twelve-month terms or less.
Rental income attributable to leases is recognized monthly as it is earned. The
Partnership will offer rental concessions during particularly slow months or in
response to heavy competition from other similar complexes in the area.
Concessions are charged to income as incurred.
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 unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. (the "Nuanes action") in the Superior Court of the
State of California for the County of San Mateo. The plaintiffs named as
defendants, among others, the Partnership, its Corporate General Partner and
several of their affiliated partnerships and corporate entities. The action
purports to assert claims on behalf of a class of limited partners and
derivatively on behalf of a number of limited partnerships (including the
Partnership) which are named as nominal defendants, challenging, among other
things, the acquisition of interests in certain Corporate General Partner
entities by Insignia Financial Group, Inc. ("Insignia") and entities which were,
at one time, affiliates of Insignia; past tender offers by the Insignia
affiliates to acquire limited partnership units; management of the partnerships
by the Insignia affiliates; and the series of transactions which closed on
October 1, 1998 and February 26, 1999 whereby Insignia and Insignia Properties
Trust, respectively, were merged into AIMCO. The plaintiffs seek monetary
damages and equitable relief, including judicial dissolution of the Partnership.
On June 25, 1998, the Corporate General Partner filed a motion seeking dismissal
of the action. In lieu of responding to the motion, the plaintiffs filed an
amended complaint. The Corporate General Partner filed demurrers to the amended
complaint which were heard February 1999.
Pending the ruling on such demurrers, settlement negotiations commenced. On
November 2, 1999, the parties executed and filed a Stipulation of Settlement,
settling claims, subject to court approval, on behalf of the Partnership and all
limited partners who owned units as of November 3, 1999. Preliminary approval of
the settlement was obtained on November 3, 1999 from the Court, at which time
the Court set a final approval hearing for December 10, 1999. Prior to the
December 10, 1999 hearing, the Court received various objections to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of prior lead counsel to enter the settlement. On
December 14, 1999, the Corporate General Partner and its affiliates terminated
the proposed settlement. In February 2000, counsel for some of the named
plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who
negotiated the settlement. On June 27, 2000, the Court entered an order
disqualifying them from the case and an appeal was taken from the order on
October 5, 2000. On December 4, 2000, the Court appointed the law firm of Lieff
Cabraser Heimann & Bernstein LLP as new lead counsel for plaintiffs and the
putative class. Plaintiffs filed a third amended complaint on January 19, 2001.
On March 2, 2001, the Corporate General Partner and its affiliates filed a
demurrer to the third amended complaint. On May 14, 2001, the Court heard the
demurrer to the third amended complaint. On July 10, 2001, the Court issued an
order sustaining defendants' demurrer on certain grounds. On July 20, 2001,
Plaintiffs filed a motion for reconsideration of the Court's July 10, 2001 order
granting in part and denying in part defendants' demurrer. On September 7, 2001,
Plaintiffs filed a fourth amended class and derivative action complaint. On
September 12, 2001, the Court denied Plaintiffs' motion for reconsideration. On
October 5, 2001, the Corporate General Partner and affiliated defendants filed a
demurrer to the fourth amended complaint, which was heard on December 11, 2001.
On February 2, 2002, the Court served its order granting in part the demurrer.
The Court has dismissed without leave to amend certain of the plaintiffs'
claims. On February 11, 2002, plaintiffs filed a motion seeking to certify a
putative class comprised of all non-affiliated persons who own or have owned
units in the partnerships. The Corporate General Partner and affiliated
defendants oppose the motion. On April 29, 2002, the Court held a hearing on
plaintiffs' motion for class certification and took the matter under submission
after further briefing, as 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 September 2, 1981 (File No. 2-72567),
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 III
By: Shelter Realty III Corporation
Corporate General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Thomas C. Novosel
Thomas C. Novosel
Senior Vice President
and Chief Accounting Officer
Date: January 9, 2003
CERTIFICATION
I, Patrick J. Foye, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Shelter Properties
III;
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
/s/Patrick J. Foye
Patrick J. Foye
Executive Vice President of Shelter Realty
III 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
III;
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
/s/Paul J. McAuliffe
Paul J. McAuliffe
Executive Vice President and Chief Financial
Officer of Shelter Realty III 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 III
Limited Partnershipa (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.
/s/Patrick J. Foye
Name: Patrick J. Foye
Date: November 13, 2002
/s/Paul J. McAuliffe
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.