UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________to _________
Commission file number 0-11574
SHELTER PROPERTIES V
(Exact Name of Registrant as Specified in Its Charter)
South Carolina 57-0721855
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, PO 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 V
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
March 31, 2003
Assets
Cash and cash equivalents $ 745
Receivables and deposits 932
Restricted escrows 400
Other assets 1,356
Investment properties:
Land $ 4,054
Buildings and related personal property 82,740
86,794
Less accumulated depreciation (53,754) 33,040
$ 36,473
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 379
Tenant security deposit liabilities 289
Accrued property taxes 248
Other liabilities 616
Mortgage notes payable 46,398
Partners' Deficit
General partners $ (372)
Limited partners (52,538 units
issued and outstanding) (11,085) (11,457)
$ 36,473
See Accompanying Notes to Consolidated Financial Statements
SHELTER PROPERTIES V
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended
March 31,
2003 2002
Revenues:
Rental income $ 3,101 $ 3,291
Other income 371 376
Casualty gain 369 376
Total revenues 3,841 4,043
Expenses:
Operating 1,522 1,418
General and administrative 126 136
Depreciation 832 790
Interest 875 915
Property taxes 244 251
Total expenses 3,599 3,510
Net income $ 242 $ 533
Net income allocated to general partners (1%) $ 2 $ 5
Net income allocated to limited partners (99%) 240 528
$ 242 $ 533
Net income per limited partnership unit $ 4.57 $ 10.05
See Accompanying Notes to Consolidated Financial Statements
SHELTER PROPERTIES V
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partners Partners Total
Original capital contributions 52,538 $ 2 $52,538 $52,540
Partners' deficit at
December 31, 2002 52,538 $ (374) $(11,325) $(11,699)
Net income for the three months
ended March 31, 2003 -- 2 240 242
Partners' deficit at
March 31, 2003 52,538 $ (372) $(11,085) $(11,457)
See Accompanying Notes to Consolidated Financial Statements
SHELTER PROPERTIES V
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
March 31,
2003 2002
Cash flows from operating activities:
Net income $ 242 $ 533
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation 832 790
Amortization of loan costs 21 20
Casualty gain (369) (376)
Change in accounts:
Receivables and deposits 51 363
Other assets 33 (254)
Accounts payable 95 66
Tenant security deposit liabilities -- 10
Accrued property taxes 28 (41)
Other liabilities (80) 101
Net cash provided by operating activities 853 1,212
Cash flows from investing activities:
Property improvements and replacements (566) (1,169)
Net withdrawals from restricted escrows 1 319
Insurance proceeds received -- 376
Net cash used in investing activities (565) (474)
Cash flows from financing activities:
Payments on mortgage notes payable (310) (278)
Advance from affiliate 219 --
Payments on advances from affiliate (239) --
Net cash used in financing activities (330) (278)
Net (decrease) increase in cash and cash equivalents (42) 460
Cash and cash equivalents at beginning of period 787 6,401
Cash and cash equivalents at end of period $ 745 $ 6,861
Supplemental disclosure of cash flow information:
Cash paid for interest $ 902 $ 755
Supplemental disclosure of non-cash activity:
Property improvements and replacements in accounts
payable $ 215 $ 189
At December 31, 2002 and 2001 approximately $291,000 and $287,000, respectively,
of property improvements and replacements were included in accounts payable.
At March 31, 2003, receivables and deposits include approximately $452,000 of
insurance proceeds received from a casualty at Tar River Estates Apartments held
on deposit with the mortgage lender.
See Accompanying Notes to Consolidated Financial Statements
SHELTER PROPERTIES V
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements of Shelter
Properties V (the "Partnership" or "Registrant") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Item 310(b) of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The general partner responsible for management of the
Partnership's business is Shelter Realty V Corporation (the "Corporate General
Partner"). In the opinion of the Corporate General Partner, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three month period
ended March 31, 2003 are not necessarily indicative of the results that may be
expected for the fiscal year ending December 31, 2003. 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, 2002. The Corporate General Partner is a a subsidiary of Apartment
Investment and Management Company ("AIMCO"), a publicly traded real estate
investment trust. The non-corporate general partner, AIMCO Properties, L.P., is
also an affiliate of AIMCO.
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.
Three Months Ended
March 31,
(in thousands)
2003 2002
Net cash provided by operating activities $ 853 $ 1,212
Payments on mortgage notes payable (310) (278)
Property improvements and replacements (566) (1,169)
Change in restricted escrows, net 1 319
Changes in reserves for net operating
liabilities (127) (245)
Net cash from operations $ (149) $ (161)
Note C - Transactions with Affiliated Parties
The Partnership has no employees and is dependent on the Corporate General
Partner and its affiliates for the management and administration of all
Partnership activities. The Partnership Agreement provides for (i) certain
payments to affiliates for services and (ii) reimbursement of certain expenses
incurred by affiliates on behalf of the Partnership.
During the three months ended March 31, 2003 and 2002, affiliates of the
Corporate General Partner were entitled to receive 5% of gross receipts from all
of the Registrant's properties for providing property management services. The
Registrant paid to such affiliates approximately $172,000 and $188,000 for the
three months ended March 31, 2003 and 2002, respectively, which are included in
operating expenses.
In accordance with the Partnership Agreement, the Corporate General Partner
loaned approximately $219,000 to the Partnership to cover real estate tax
payments at Woodland Village Apartments during the three months ended March 31,
2003. Interest was accrued at the prime rate plus 2% or 6.25% at March 31, 2003.
Interest expense was approximately $1,000 for the three months ended March 31,
2003. During the three months ended March 31, 2003, the Partnership repaid
advances of approximately $239,000 and related interest of approximately $1,000
to the Corporate General Partner with cash from operations. At March 31, 2003,
there were no outstanding loans or accrued interest. There were no loans from
the Corporate General Partner or associated interest expense during the three
months ended March 31, 2002.
Affiliates of the Corporate General Partner received reimbursement of
accountable administrative expenses amounting to approximately $139,000 and
$197,000 for the three months ended March 31, 2003 and 2002, respectively.
Included in these amounts are fees related to construction management services
provided by an affiliate of the Corporate General Partner of approximately
$41,000 and $98,000 for the three months ended March 31, 2003 and 2002,
respectively. The construction management service fees are calculated based on a
percentage of current additions to investment properties. These amounts are
included in general and administrative expenses and investment properties.
The Partnership insures 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 2003 and 2002, the Partnership's cost for
insurance coverage and fees associated with policy claims administration
provided by AIMCO and its affiliates will be approximately $192,000 and
$232,000, respectively.
Note D - Casualty Events
On January 18, 2003, there was a fire at Tar River Estates Apartments causing
damage to eight units. The property incurred damages of approximately $504,000
and lost rents of approximately $41,000. The Partnership recognized a gain of
approximately $369,000 as a result of the receipt of insurance proceeds of
approximately $452,000, which are on deposit with the mortgage lender, offset by
the write-off of the undepreciated damaged assets of approximately $83,000.
In September 1999, Tar River Estates Apartments was damaged by severe flooding
which affected certain areas of North Carolina. The property incurred damages of
approximately $6,323,000 as a result of this flooding. During 2000 and 2001,
insurance proceeds of approximately $5,316,000 were received to cover lost rents
and damage to the property, resulting in a casualty gain of approximately
$1,662,000 in 2000. In addition, the Partnership negotiated an agreement with
the city of Greenville, North Carolina, whereby a portion of the land was
condemned and sold to the city on October 17, 2001. Therefore, the apartment
units previously located on this land were not reconstructed. The remaining
damaged units have been completely reconstructed. An additional gain of
approximately $376,000 was recorded during the three months ended March 31, 2002
as a result of receiving additional insurance proceeds.
Note E - Legal Proceedings
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. (the "Nuanes action") in the Superior Court of the
State of California for the County of San Mateo. The plaintiffs named as
defendants, among others, the Partnership, its Corporate General Partner and
several of their affiliated partnerships and corporate entities. The action
purports to assert claims on behalf of a class of limited partners and
derivatively on behalf of a number of limited partnerships (including the
Partnership) which are named as nominal defendants, challenging, among other
things, the acquisition of interests in certain Corporate General Partner
entities by Insignia Financial Group, Inc. ("Insignia") and entities which were,
at one time, affiliates of Insignia; past tender offers by the Insignia
affiliates to acquire limited partnership units; management of the partnerships
by the Insignia affiliates; and the series of transactions which closed on
October 1, 1998 and February 26, 1999 whereby Insignia and Insignia Properties
Trust, respectively, were merged into AIMCO. The plaintiffs seek monetary
damages and equitable relief, including judicial dissolution of the Partnership.
On June 25, 1998, the Corporate General Partner filed a motion seeking dismissal
of the action. In lieu of responding to the motion, the plaintiffs filed an
amended complaint. The Corporate General Partner filed demurrers to the amended
complaint which were heard February 1999.
Pending the ruling on such demurrers, settlement negotiations commenced. On
November 2, 1999, the parties executed and filed a Stipulation of Settlement,
settling claims, subject to court approval, on behalf of the Partnership and all
limited partners who owned units as of November 3, 1999. Preliminary approval of
the settlement was obtained on November 3, 1999 from the Court, at which time
the Court set a final approval hearing for December 10, 1999. Prior to the
December 10, 1999 hearing, the Court received various objections to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of prior lead counsel to enter the settlement. On
December 14, 1999, the Corporate General Partner and its affiliates terminated
the proposed settlement. In February 2000, counsel for some of the named
plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who
negotiated the settlement. On June 27, 2000, the Court entered an order
disqualifying them from the case and an appeal was taken from the order on
October 5, 2000. On December 4, 2000, the Court appointed the law firm of Lieff
Cabraser Heimann & Bernstein LLP as new lead counsel for plaintiffs and the
putative class. Plaintiffs filed a third amended complaint on January 19, 2001.
On March 2, 2001, the Corporate General Partner and its affiliates filed a
demurrer to the third amended complaint. On May 14, 2001, the Court heard the
demurrer to the third amended complaint. On July 10, 2001, the Court issued an
order sustaining defendants' demurrer on certain grounds. On July 20, 2001,
Plaintiffs filed a motion for reconsideration of the Court's July 10, 2001 order
granting in part and denying in part defendants' demurrer. On September 7, 2001,
Plaintiffs filed a fourth amended class and derivative action complaint. On
September 12, 2001, the Court denied Plaintiffs' motion for reconsideration. On
October 5, 2001, the Corporate General Partner and affiliated defendants filed a
demurrer to the fourth amended complaint, which was heard on December 11, 2001.
On February 2, 2002, the Court served its order granting in part the demurrer.
The Court has dismissed without leave to amend certain of the plaintiffs'
claims. On February 11, 2002, plaintiffs filed a motion seeking to certify a
putative class comprised of all non-affiliated persons who own or have owned
units in the partnerships. The Corporate General Partner and affiliated
defendants oppose the motion. On April 29, 2002, the Court held a hearing on
plaintiffs' motion for class certification and took the matter under submission
after further briefing, as ordered by the court, was submitted by the parties.
On July 10, 2002, the Court entered an order vacating the 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 could have an
opportunity to discuss settlement. On October 30, 2002, the court entered an
order extending the stay in effect through January 10, 2003.
On January 8, 2003, the parties filed a Stipulation of Settlement in proposed
settlement of the Nuanes action and the Heller action described below. On April
4, 2003, the Court preliminarily approved the settlement and scheduled a hearing
on final approval for June 2, 2003.
In general terms, the proposed settlement provides for certification for
settlement purposes of a settlement class consisting of all limited partners in
this Partnership and others (the "Partnerships") as of December 20, 2002, the
dismissal with prejudice and release of claims in the Nuanes and Heller
litigation, payment by AIMCO of $9.9 million (which shall be distributed to
settlement class members after deduction of attorney fees and costs of class
counsel and certain costs of settlement) and up to $1 million toward the cost of
independent appraisals of the Partnerships' properties by a Court appointed
appraiser. An affiliate of the Corporate General Partner has also agreed to make
a tender offer to purchase all of the partnership interests in the Partnerships
within one year of final approval, if it is granted, and to provide partners
with the independent appraisals at the time of these tenders. The proposed
settlement also provides for the limitation of the allowable costs which the
Corporate General Partner or its affiliates will charge the Partnerships in
connection with this litigation and imposes limits on the class counsel fees and
costs in this litigation. On April 11, 2003, notice was distributed to limited
partners providing the details of the proposed settlement.
During the third quarter of 2001, a complaint (the "Heller action") was filed
against the same defendants that are named in the Nuanes action, captioned
Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed
a first amended complaint. The first amended complaint in the Heller action is
brought as a purported derivative action, and asserts claims for among other
things breach of fiduciary duty; unfair competition; conversion, unjust
enrichment; and judicial dissolution. Plaintiffs in the Nuanes action filed a
motion to consolidate the Heller action with the Nuanes action and stated that
the Heller action was filed in order to preserve the derivative claims that were
dismissed without leave to amend in the Nuanes action by the Court order dated
July 10, 2001. On October 5, 2001, the Corporate General Partner and affiliated
defendants moved to strike the first amended complaint in its entirety for
violating the Court's July 10, 2001 order granting in part and denying in part
defendants' demurrer in the Nuanes action, or alternatively, to strike certain
portions of the complaint based on the statute of limitations. Other defendants
in the action demurred to the fourth amended complaint, and, alternatively,
moved to strike the complaint. On December 11, 2001, the court heard argument on
the motions and took the matters under submission. On February 4, 2002, the
Court served notice of its order granting defendants' motion to strike the
Heller complaint as a violation of its July 10, 2001 order in the Nuanes action.
On March 27, 2002, the plaintiffs filed a notice appealing the order striking
the complaint. Before completing briefing on the appeal, the parties stayed
further proceedings in the appeal pending the Court's review of the terms of the
proposed settlement described above.
The Corporate General Partner does not anticipate that any costs to the
Partnership, whether legal or settlement costs, associated with these cases will
be material to the Partnership's overall operations.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The matters discussed in this 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 seven apartment complexes.
The following table sets forth the average occupancy of the properties for the
three months ended March 31, 2003 and 2002:
March 31,
Property 2003 2002
Foxfire Apartments
Atlanta, Georgia (1) 69% 91%
Old Salem Apartments
Charlottesville, Virginia (2) 94% 97%
Woodland Village Apartments
Columbia, South Carolina 91% 89%
Lake Johnson Mews Apartments
Raleigh, North Carolina (3) 89% 96%
The Lexington Green Apartments
Sarasota, Florida (4) 94% 97%
Millhopper Village Apartments
Gainesville, Florida 96% 96%
Tar River Estates Apartments
Greenville, North Carolina (5) 95% 86%
(1) The Corporate General Partner attributes the decrease in occupancy at
Foxfire Apartments to an increase in home purchases in the Atlanta area as
a result of lower home mortgage interest rates and to a casualty which
occurred in June 2002.
(2) The Corporate General Partner attributes the decrease in occupancy at Old
Salem Apartments to unfavorable economic conditions and increased
competition in the Charlottesville area.
(3) The Corporate General Partner attributes the decrease in occupancy at Lake
Johnson Mews Apartments to the slowdown in the economy and an increase in
home purchases in the Raleigh area as a result of lower home mortgage
interest rates.
(4) The Corporate General Partner attributes the decrease in occupancy at The
Lexington Green Apartments to the slowdown in the economy and increased
competition in the Sarasota area.
(5) The Corporate General Partner attributes the increase in occupancy at Tar
River Estates Apartments to completion of property amenities and an
increase in curb appeal.
Results of Operations
The Partnership's net income for the three months ended March 31, 2003 was
approximately $242,000 as compared to net income of approximately $533,000 for
the three months ended March 31, 2002. The decrease in net income is due to a
decrease in total revenues and an increase in total expenses. Total revenues
decreased primarily due to a decrease in rental income. Other income remained
relatively constant for the comparable periods. Rental income decreased
primarily due to the decreases in occupancy and the average rental rate at four
of the Partnership's investment properties, partially offset by the increases in
occupancy and the average rental rate at two of the investment properties and
reduced concessions at Woodland Village Apartments and Foxfire Apartments. The
casualty gains recognized in 2003 and 2002 are the result of two casualties
which occurred at Tar River Estates Apartments (as discussed below).
Total expenses increased due to increases in both operating and depreciation
expense, partially offset by decreases in interest, and general and
administrative expenses. Operating expenses increased primarily due to increases
in utility expenses, primarily at Old Salem Apartments and The Lexington Green
Apartments, contract maintenance expense at Lake Johnson Mews Apartments, Old
Salem Apartments, and The Lexington Green Apartments, and a decrease in the
capitalization of certain direct and indirect costs, primarily payroll related
costs, at most of the properties. Depreciation expense increased as a result of
property improvements and replacements placed into service during the past
twelve months. Interest expense decreased as a result of scheduled principal
payments made on the mortgages encumbering the Partnership's properties, which
reduced the carrying balance of the loans.
General and administrative expenses decreased primarily due to a decrease in
professional expenses associated with the management of the Partnership.
Included in general and administrative expenses for the three months ended March
31, 2003 and 2002 are management reimbursements to the Corporate General Partner
allowed under the Partnership Agreement. In addition, costs associated with the
quarterly and annual communications with investors and regulatory agencies and
the annual audit and appraisals required by the Partnership Agreement are also
included in general and administrative expenses.
On January 18, 2003, there was a fire at Tar River Estates Apartments causing
damage to eight units. The property incurred damages of approximately $504,000
and lost rents of approximately $41,000. The Partnership recognized a gain of
approximately $369,000 as a result of the receipt of insurance proceeds of
approximately $452,000, which are on deposit with the mortgage lender, offset by
the write-off of the undepreciated damaged assets of approximately $83,000.
In September 1999, Tar River Estates Apartments was damaged by severe flooding
which affected certain areas of North Carolina. The property incurred damages of
approximately $6,323,000 as a result of this flooding. During 2000 and 2001,
insurance proceeds of approximately $5,316,000 were received to cover lost rents
and damage to the property, resulting in a casualty gain of approximately
$1,662,000 in 2000. In addition, the Partnership negotiated an agreement with
the city of Greenville, North Carolina, whereby a portion of the land was
condemned and sold to the city on October 17, 2001. Therefore, the apartment
units previously located on this land were not reconstructed. The remaining
damaged units have been completely reconstructed. An additional gain of
approximately $376,000 was recorded during the three months ended March 31, 2002
as a result of receiving additional insurance proceeds.
As part of the ongoing business plan of the Registrant, the Corporate General
Partner monitors the rental market environment of each of its investment
properties to assess the feasibility of increasing rents, maintaining or
increasing occupancy levels and protecting the Partnership from increases in
expense. As part of this plan, the Corporate General Partner attempts to protect
the Partnership from the burden of inflation-related increases in expenses by
increasing rents and maintaining a high overall occupancy level. However, due to
changing market conditions, which can result in the use of rental concessions
and rental reductions to offset softening market conditions, there is no
guarantee that the Corporate General Partner will be able to sustain such a
plan.
Liquidity and Capital Resources
At March 31, 2003, the Partnership had cash and cash equivalents of
approximately $745,000, compared to approximately $6,861,000 at March 31, 2002.
The decrease in cash and cash equivalents of approximately $42,000 for the three
months ended March 31, 2003, from December 31, 2002, is due to approximately
$565,000 of cash used in investing activities and approximately $330,000 of cash
used in financing activities partially offset by approximately $853,000 of cash
provided by operating activities. Cash used in financing activities consisted of
payments of principal on the mortgages encumbering the Registrant's properties
and payments on advances from an affiliate of the Corporate General Partner,
partially offset by an advance from an affiliate of the Corporate General
Partner. Cash used in investing activities consisted of property improvements
and replacements, partially offset by net receipts from escrow accounts
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 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 planned for each of the Partnership's properties are detailed
below.
Millhopper Village Apartments: During the three months ended March 31, 2003, the
Partnership completed approximately $12,000 of capital improvements at
Millhopper Village Apartments, consisting primarily of floor covering
replacement. These improvements were funded from operations. The Partnership
evaluates the capital improvement needs of the property during the year and
currently expects to complete an additional $29,000 in capital improvements
during the remainder of 2003. The additional capital improvements will consist
primarily of exterior improvements and floor covering replacement. Additional
capital improvements may be considered and will depend on the physical condition
of the property as well as the anticipated cash flow generated by the property.
Foxfire Apartments: During the three months ended March 31, 2003, the
Partnership completed approximately $241,000 of capital improvements at Foxfire
Apartments, consisting primarily of plumbing upgrades, floor covering
replacement, and construction related to a fire which occurred in 2002. These
improvements were funded from operations. The Partnership evaluates the capital
improvement needs of the property during the year and currently expects to
complete an additional $85,000 in capital improvements during the remainder of
2003. The additional capital improvements will consist primarily of construction
related to the 2002 fire, HVAC upgrades, and floor covering and appliance
replacements. Additional capital improvements may be considered and will depend
on the physical condition of the property as well as the anticipated cash flow
generated by the property.
Lake Johnson Mews Apartments: During the three months ended March 31, 2003, the
Partnership completed approximately $75,000 of capital improvements at Lake
Johnson Mews Village Apartments, consisting primarily of swimming pool upgrades,
interior building improvements, and floor covering replacement. These
improvements were funded from operations. The Partnership evaluates the capital
improvement needs of the property during the year and currently expects to
complete an additional $330,000 in capital improvements during the remainder of
2003. The additional capital improvements will consist primarily of parking area
improvements, electrical upgrades, structural improvements, exterior painting,
and floor covering replacement. Additional capital improvements may be
considered and will depend on the physical condition of the property as well as
the anticipated cash flow generated by the property.
Woodland Village Apartments: During the three months ended March 31, 2003, the
Partnership completed approximately $44,000 of capital improvements at Woodland
Village Apartments, consisting primarily of interior improvements and floor
covering and appliance replacements. These improvements were funded from
operations. The Partnership evaluates the capital improvement needs of the
property during the year and currently expects to complete an additional
$194,000 in capital improvements during the remainder of 2003. The additional
capital improvements will consist primarily of floor covering and appliance
replacements. Additional capital improvements may be considered and will depend
on the physical condition of the property as well as the anticipated cash flow
generated by the property.
The Lexington Green Apartments: During the three months ended March 31, 2003,
the Partnership completed approximately $32,000 of capital improvements at The
Lexington Green Apartments, consisting primarily of floor covering replacement.
These improvements were funded from operations. The Partnership evaluates the
capital improvement needs of the property during the year and currently expects
to complete an additional $48,000 in capital improvements during the remainder
of 2003. The additional capital improvements will consist primarily of floor
covering replacement. Additional capital improvements may be considered and will
depend on the physical condition of the property as well as the anticipated cash
flow generated by the property and replacement reserves.
Tar River Estates Apartments: During the three months ended March 31, 2003, the
Partnership completed approximately $25,000 of capital improvements at Tar River
Estates Apartments, consisting primarily of cabinet upgrades and floor covering
replacement. These improvements were funded from operations. The Partnership
evaluates the capital improvement needs of the property during the year and
currently expects to complete an additional $187,000 in capital improvements
during the remainder of 2003. The additional capital improvements will consist
primarily of communications enhancements and floor covering replacement.
Additional capital improvements may be considered and will depend on the
physical condition of the property as well as the anticipated cash flow
generated by the property and replacement reserves.
Old Salem Apartments: During the three months ended March 31, 2003, the
Partnership completed approximately $61,000 of capital improvements at Old Salem
Apartments, consisting primarily of structural improvements. These improvements
were funded from operations. The Partnership evaluates the capital improvement
needs of the property during the year and currently expects to complete an
additional $269,000 in capital improvements during the remainder of 2003. The
additional capital improvements will consist primarily of exterior building
improvements and floor covering replacement. Additional capital improvements may
be considered and will depend on the physical condition of the property as well
as the anticipated cash flow generated by the property.
The additional capital expenditures will be incurred only if cash is available
from operations and from Partnership reserves. To the extent that such budgeted
capital improvements are completed, the Registrant's distributable cash flow, if
any, may be adversely affected at least in the short term.
The Registrant's assets are thought to be sufficient for any near-term needs
(exclusive of capital improvements) of the Registrant. The mortgage indebtedness
of approximately $46,398,000 is amortized over varying periods with maturity
dates ranging from November 1, 2019 to January 1, 2022, at which time the loans
will be fully amortized.
There were no distributions made to the partners during the three months ended
March 31, 2003 and 2002. Future cash distributions will depend on the levels of
net cash generated from operations, the availability of cash reserves, property
refinancings and/or property sales. The Partnership's cash available for
distribution is reviewed on a monthly basis. There can be no assurance, however,
that the Partnership will generate sufficient funds from operations, after
required capital expenditures, to permit any distributions to its partners in
2003 or subsequent periods.
Other
In addition to its indirect ownership of the general partner interests in the
Partnership, AIMCO and its affiliates owned 37,480 limited partnership units
(the "Units") in the Partnership representing 71.34% of the outstanding Units at
March 31, 2003. 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 71.34% of the
outstanding Units, AIMCO is in a position to control all voting decisions with
respect to the Partnership. 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 and
the Partnership fully reserves all balances outstanding over thirty days. 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 ordered by the court, was submitted by the parties.
On July 10, 2002, the Court entered an order vacating the 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 could have an
opportunity to discuss settlement. On October 30, 2002, the court entered an
order extending the stay in effect through January 10, 2003.
On January 8, 2003, the parties filed a Stipulation of Settlement in proposed
settlement of the Nuanes action and the Heller action described below. On April
4, 2003, the Court preliminarily approved the settlement and scheduled a hearing
on final approval for June 2, 2003.
In general terms, the proposed settlement provides for certification for
settlement purposes of a settlement class consisting of all limited partners in
this Partnership and others (the "Partnerships") as of December 20, 2002, the
dismissal with prejudice and release of claims in the Nuanes and Heller
litigation, payment by AIMCO of $9.9 million (which shall be distributed to
settlement class members after deduction of attorney fees and costs of class
counsel and certain costs of settlement) and up to $1 million toward the cost of
independent appraisals of the Partnerships' properties by a Court appointed
appraiser. An affiliate of the Corporate General Partner has also agreed to make
a tender offer to purchase all of the partnership interests in the Partnerships
within one year of final approval, if it is granted, and to provide partners
with the independent appraisals at the time of these tenders. The proposed
settlement also provides for the limitation of the allowable costs which the
Corporate General Partner or its affiliates will charge the Partnerships in
connection with this litigation and imposes limits on the class counsel fees and
costs in this litigation. On April 11, 2003, notice was distributed to limited
partners providing the details of the proposed settlement.
During the third quarter of 2001, a complaint (the "Heller action") was filed
against the same defendants that are named in the Nuanes action, captioned
Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed
a first amended complaint. The first amended complaint in the Heller action is
brought as a purported derivative action, and asserts claims for among other
things breach of fiduciary duty; unfair competition; conversion, unjust
enrichment; and judicial dissolution. Plaintiffs in the Nuanes action filed a
motion to consolidate the Heller action with the Nuanes action and stated that
the Heller action was filed in order to preserve the derivative claims that were
dismissed without leave to amend in the Nuanes action by the Court order dated
July 10, 2001. On October 5, 2001, the Corporate General Partner and affiliated
defendants moved to strike the first amended complaint in its entirety for
violating the Court's July 10, 2001 order granting in part and denying in part
defendants' demurrer in the Nuanes action, or alternatively, to strike certain
portions of the complaint based on the statute of limitations. Other defendants
in the action demurred to the fourth amended complaint, and, alternatively,
moved to strike the complaint. On December 11, 2001, the court heard argument on
the motions and took the matters under submission. On February 4, 2002, the
Court served notice of its order granting defendants' motion to strike the
Heller complaint as a violation of its July 10, 2001 order in the Nuanes action.
On March 27, 2002, the plaintiffs filed a notice appealing the order striking
the complaint. Before completing briefing on the appeal, the parties stayed
further proceedings in the appeal pending the Court's review of the terms of the
proposed settlement described above.
The Corporate General Partner does not anticipate that any costs to the
Partnership, whether legal or settlement costs, associated with these cases will
be material to the Partnership's overall operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
3 Amended and Restated Certificate and Agreement of Limited
Partnership (Exhibit A to the Prospectus included in
Registrant's Amendment No. 1 to Registration Statement,
filed June 8, 1982 (File No. 2-81308), is incorporated
herein by reference).
99 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
b) Reports on Form 8-K:
None filed during the quarter ended March 31, 2003.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SHELTER PROPERTIES V
By: Shelter Realty V Corporation
Corporate General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Thomas C. Novosel
Thomas C. Novosel
Senior Vice President
and Chief Accounting Officer
Date: May 14, 2003
CERTIFICATION
I, Patrick J. Foye, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Shelter Properties V;
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: May 14, 2003
/s/Patrick J. Foye
Patrick J. Foye
Executive Vice President of Shelter Realty V
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 V;
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: May 14, 2003
/s/Paul J. McAuliffe
Paul J. McAuliffe
Executive Vice President and Chief Financial
Officer of Shelter Realty V 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 V
(the "Partnership"), for the quarterly period ended March 31, 2003 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: May 14, 2003
/s/Paul J. McAuliffe
Name: Paul J. McAuliffe
Date: May 14, 2003
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.