UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 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 0-10255
SHELTER PROPERTIES I
(Exact Name of Registrant as Specified in Its Charter)
South Carolina 57-0707398
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, Post Office Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
SHELTER PROPERTIES I
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
June 30, 2003
Assets
Cash and cash equivalents $ 210
Receivables and deposits 80
Restricted escrows 5
Other assets 376
Investment properties:
Land $ 979
Buildings and related personal property 13,719
14,698
Less accumulated depreciation (10,276) 4,422
$ 5,093
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 65
Tenant security deposit liabilities 81
Accrued property taxes 73
Other liabilities 235
Mortgage notes payable 11,428
Partners' Deficit
General partners $ (105)
Limited partners (15,000 units issued and
outstanding) (6,684) (6,789)
$ 5,093
See Accompanying Notes to Consolidated Financial Statements
SHELTER PROPERTIES I
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
(Restated) (Restated)
Revenues:
Rental income $ 811 $ 804 $ 1,650 $ 1,654
Other income 55 53 167 121
Casualty gain (Note D) -- -- 232 --
Total revenues 866 857 2,049 1,775
Expenses:
Operating 379 335 746 620
General and administrative 44 54 99 114
Depreciation 136 121 271 248
Interest 214 221 431 442
Property taxes 77 55 139 108
Total expenses 850 786 1,686 1,532
Income from continuing operations 16 71 363 243
Income from discontinued operations -- 13 -- 45
Net income $ 16 $ 84 $ 363 $ 288
Net income allocated to general
partners (1%) $ 1 $ 1 $ 4 $ 3
Net income allocated to limited
partners (99%) 15 83 359 285
$ 16 $ 84 $ 363 $ 288
Net income per limited partnership unit:
Income from continuing operations $ 1.00 $ 4.67 $ 23.93 $ 16.03
Income from discontinued operations -- .86 -- 2.97
Net income per limited partnership
unit $ 1.00 $ 5.53 $ 23.93 $ 19.00
Distributions per limited partnership
unit $ 36.47 $ 9.80 $126.93 $ 9.80
See Accompanying Notes to Consolidated Financial Statements
SHELTER PROPERTIES I
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partners Partners Total
Original capital contributions 15,000 $ 2 $ 15,000 $ 15,002
Partners' deficit at
December 31, 2002 15,000 $ (25) $ (5,139) $ (5,164)
Distributions to partners -- (84) (1,904) (1,988)
Net income for the six months
ended June 30, 2003 -- 4 359 363
Partners' deficit at
June 30, 2003 15,000 $ (105) $ (6,684) $ (6,789)
See Accompanying Notes to Consolidated Financial Statements
SHELTER PROPERTIES I
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
2003 2002
Cash flows from operating activities:
Net income $ 363 $ 288
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 271 338
Amortization of discounts and loan costs 9 14
Casualty gain (232) --
Change in accounts:
Receivables and deposits 229 (34)
Other assets (37) (54)
Accounts payable 14 (54)
Tenant security deposit liabilities (4) (5)
Accrued property taxes (45) (16)
Other liabilities (13) 25
Due to affiliates (203) 20
Net cash provided by operating activities 352 522
Cash flows from investing activities:
Property improvements and replacements (339) (264)
Insurance proceeds received 232 --
Net withdrawals from restricted escrows -- 16
Net cash used in investing activities (107) (248)
Cash flows from financing activities:
Payments on mortgage notes payable (154) (201)
Distributions to partners (1,988) (163)
Advance from affiliate -- 100
Payments on advances from affiliate -- (100)
Net cash used in financing activities (2,142) (364)
Net decrease in cash and cash equivalents (1,897) (90)
Cash and cash equivalents at beginning of period 2,107 291
Cash and cash equivalents at end of period $ 210 $ 201
Supplemental disclosure of cash flow information:
Cash paid for interest $ 422 $ 606
Property improvements and replacements included in
accounts payable $ -- $ 370
At December 31, 2002, accounts payable included approximately $304,000 of
property improvements and replacements which are included in property
improvements and replacements for the six months ended June 30, 2003.
See Accompanying Notes to Consolidated Financial Statements
SHELTER PROPERTIES I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements of Shelter
Properties I (the "Partnership" or "Registrant") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Article 310(b) of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The general partner responsible for management of the
Partnership's business is Shelter Realty I Corporation, a South Carolina
corporation (the "Corporate General Partner"). The Corporate General Partner is
a wholly owned 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. In the
opinion of the Corporate General Partner, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three and six month periods ended June 30,
2003, are not necessarily indicative of the results that may be expected for the
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 year ended December 31, 2002.
Effective January 1, 2002, the Partnership adopted Statement of Financial
Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets", which established standards for the way that
business enterprises report information about long-lived assets that are either
being held for sale or have already been disposed of by sale or other means. The
standard requires that results of operations for a long-lived asset that is
being held for sale or has already been disposed of be reported as discontinued
operations on the statement of operations. As a result, the accompanying
consolidated statements of operations have been restated as of January 1, 2002
to reflect the operations of Stone Mountain West Apartments, which sold December
27, 2002, as income from discontinued operations.
Note B - Reconciliation of Cash Flows
As required by the Partnership Agreement, the following is a reconciliation of
"Net cash provided by operating activities" in the accompanying consolidated
statements of cash flows to "Net cash from operations", as defined in the
Partnership Agreement. However, "Net cash from operations" should not be
considered an alternative to net income as an indicator of the Partnership's
operating performance or to cash flows as a measure of liquidity.
For the Six Months Ended
June 30,
(in thousands)
2003 2002
Net cash provided by operating activities $ 352 $ 522
Payments on mortgage notes payable (154) (201)
Property improvements and replacements (339) (264)
Change in restricted escrows, net -- 16
Changes in reserves for net operating
liabilities 59 118
Additional reserves -- (191)
Net cash from operations $ (82) $ --
During the six months ended June 30, 2002 the Corporate General Partner reserved
approximately $191,000 to fund continuing capital improvements, repairs and
operations at the Partnership's investment properties.
Note C - Transactions with Affiliated Parties
The Partnership has no employees and is dependent on the Corporate General
Partner and its affiliates for the management and administration of all
partnership activities. The Partnership Agreement provides for (i) certain
payments to affiliates for services and (ii) reimbursement of certain expenses
incurred by affiliates on behalf of the Partnership.
Affiliates of the Corporate General Partner are entitled to receive 5% of gross
receipts from all of the Partnership's properties for providing property
management services. The Partnership paid to such affiliates approximately
$97,000 and $127,000 for the six months ended June 30, 2003 and 2002,
respectively, which is included in operating expenses.
An affiliate of the Corporate General Partner received reimbursement of
accountable administrative expenses amounting to approximately $57,000 and
$93,000 for the six months ended June 30, 2003 and 2002, respectively, which is
included in general and administrative expenses and investment properties.
Included in these amounts are fees related to construction management services
provided by an affiliate of the Corporate General Partner of approximately
$13,000 for the six months ended June 30, 2002. No fees for construction
management services were paid for the six months ended June 30, 2003. The
construction management service fees are calculated based on a percentage of
current year additions to investment properties.
In accordance with the Partnership Agreement, during the six months ended June
30, 2002 an affiliate of the Corporate General Partner loaned the Partnership
$100,000 to cover operating expenses at Quail Hollow Apartments. The entire
balance was repaid during the same period. Interest was charged at prime plus 2%
and amounted to less than $1,000. There were no loans from the Corporate General
Partner or associated interest expense during the six months ended June 30,
2003.
The Partnership Agreement provides for a commission to the Corporate General
Partner upon the sale of the Partnership's investment properties. These
commissions are payable when certain levels of return are received by the
limited partners. During the six months ended June 30, 2003 these returns were
met and the Partnership paid approximately $203,000 of such commissions related
to the sale of Stone Mountain West Apartments in 2002, Heritage Pointe
Apartments in 2000, Lamplighter and Middle Plantation in 1984 and Yorktown
Apartments in 1983.
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 the six months ended June 30, 2003 and 2002,
the Partnership was charged by AIMCO and its affiliates approximately $51,000
and $85,000, respectively, for insurance coverage and fees associated with
policy claims administration.
Note D - Casualty
During December 2001, there was a fire at Quail Hollow Apartments that damaged
eight apartment units. During the six months ended June 30, 2003, a net casualty
gain of $232,000 was recorded as the result of insurance proceeds received. All
damaged assets were written off during 2002.
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
purported to assert claims on behalf of a class of limited partners and
derivatively on behalf of a number of limited partnerships (including the
Partnership) that 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 that 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 sought 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 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 opposed
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.
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 Heller action was brought as a purported
derivative action, and asserted 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 in light of a settlement.
On January 8, 2003, the parties filed a Stipulation of Settlement in proposed
settlement of the Nuanes action and the Heller action described below.
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 provided 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.
On June 13, 2003, the Court granted final approval of the settlement and entered
judgment in both the Nuanes and Heller actions.
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. 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; litigation, including costs associated with prosecuting and
defending claims and any adverse outcomes, 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 two apartment complexes. The
following table sets forth the average occupancy of the properties for each of
the six months ended June 30, 2003 and 2002:
Average
Occupancy
Property 2003 2002
Quail Hollow Apartments
West Columbia, South Carolina (1) 91% 88%
Windsor Hills Apartments (2)
Blacksburg, Virginia 91% 94%
(1) The Corporate General Partner attributes the increase in occupancy at
Quail Hollow Apartments primarily to increased customer service and
improving market conditions.
(2) The Corporate General Partner attributes the decrease in occupancy at
Windsor Hills Apartments primarily to a decrease in leases by students at
Virginia Tech University.
Results of Operations
The Partnership recognized net income of approximately $16,000 and $363,000 for
the three and six months ended June 30, 2003, compared to net income of
approximately $84,000 and $288,000 for the six months ended June 30, 2002. The
decrease in net income for the three months ended June 30, 2003 is due to an
increase in total expenses and a decrease in income from discontinued
operations, partially offset by a slight increase in total revenues. The
increase in net income for the six months ended June 30, 2003 is due to an
increase in total revenues partially offset by an increase in total expenses and
a decrease in income from discontinued operations.
Effective January 1, 2002, the Partnership adopted Statement of Financial
Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets", which established standards for the way that
business enterprises report information about long-lived assets that are either
being held for sale or have already been disposed of by sale or other means. The
standard requires that results of operations for a long-lived asset that is
being held for sale or has already been disposed of be reported as a
discontinued operation on the statement of operations. As a result, the
accompanying consolidated statements of operations have been restated as of
January 1, 2002 to reflect the operations of Stone Mountain West Apartments as
income from discontinued operations. The Partnership sold Stone Mountain West
Apartments in December 2002.
The Partnership recognized income from continuing operations of approximately
$16,000 and $363,000 for the three and six months ended June 30, 2003 compared
to approximately $71,000 and $243,000 for the corresponding period in 2002. The
decrease in income from continuing operations for the three months ended June
30, 2003 is due to an increase in total expenses, partially offset by a slight
increase in total revenues. The increase in income from continuing operations
for the six months ended June 30, 2003 is due to an increase in total revenues
partially offset by an increase in total expenses. The increase in total
revenues for both periods is due to an increase in other income at both
properties. Other income increased for both periods due to increases in utility
reimbursements at both properties and fees billed at Quail Hollow Apartments. In
addition, for the six months ended June 30, 2003, there was a casualty gain
recorded at Quail Hollow Apartments.
During December 2001, there was a fire at Quail Hollow Apartments that damaged
eight apartment units. During the six months ended June 30, 2003 a net casualty
gain of $232,000 was recorded as the result of additional insurance proceeds
received of approximately $232,000. All damaged assets were written off during
the third quarter of 2002.
Total expenses increased for both periods ending June 30, 2003 due to an
increase in operating, depreciation, and property tax expenses partially offset
by decreases in interest and general and administrative expenses. Operating
expense increased due primarily to increases in maintenance expense. Maintenance
expense increased due to an increase in contract services and an increase in
payroll related costs at both properties. Additionally, snow removal expenses
increased at Windsor Hills Apartments. Depreciation expense increased due to
property improvements and replacements placed into service during the past
twelve months which are now being depreciated. Property tax expense increased
due to an increase in the tax rates at both of the properties. Interest expense
decreased due to the payment of scheduled principal payments on the mortgages
encumbering the properties which has reduced the average outstanding balance
over the past twelve months.
General and administrative expenses decreased due to a decrease in the cost of
services included in the management reimbursements to the Corporate General
Partner as allowed under the Partnership Agreement. Also included in general and
administrative expense for the three and six months ended June 30, 2003 and 2002
are costs associated with the quarterly and annual communications with investors
and regulatory agencies and the annual audit required by the Partnership
Agreement are also included.
As part of the ongoing business plan of the Partnership, the Corporate General
Partner monitors the rental market environment of its investment properties to
assess the feasibility of increasing rents, maintaining or increasing occupancy
levels and protecting the 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 June 30, 2003, the Partnership had cash and cash equivalents of approximately
$210,000 compared to approximately $201,000 at June 30, 2002. Cash and cash
equivalents decreased approximately $1,897,000 since December 31, 2002 due to
approximately $2,142,000 used in financing activities and approximately $107,000
used in investing activities, partially offset by approximately $352,000 of cash
provided by operating activities. Cash used in financing activities consisted of
principal payments on the mortgages encumbering the Partnership's properties and
distributions to partners. Cash used in investing activities consisted of
property improvements and replacements partially offset by insurance proceeds
received for the casualty at Quail Hollow Apartments. The Partnership invests
its working capital reserves in interest bearing accounts.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the properties to adequately maintain the physical
assets and other operating needs of the Partnership and to comply with Federal,
state, local, legal, and regulatory requirements. The Corporate General Partner
monitors developments in the area of legal and regulatory compliance and is
studying new federal laws, including the Sarbanes-Oxley Act of 2002. The
Sarbanes-Oxley Act of 2002 mandates or suggests additional compliance measures
with regard to governance, disclosure, audit and other areas. In light of these
changes, the Partnership expects that it will incur higher expenses related to
compliance, including increased legal and audit fees. Capital improvements
planned for each of the Partnership's properties are detailed below.
Quail Hollow Apartments
During the six months ended June 30, 2003, the Partnership completed less than
$1,000 of capital improvements at Quail Hollow Apartments. The Partnership
evaluates the capital improvement needs of the property during the year and
currently expects to complete an additional $73,000 in capital improvements
during the remainder of 2003. The additional capital improvements will consist
primarily of roof, floor covering and pool deck 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.
Windsor Hills Apartments
During the six months ended June 30, 2003, the Partnership completed
approximately $34,000 of capital improvements at Windsor Hills Apartments,
consisting primarily of floor covering replacements, interior decorations, air
conditioning upgrades and office computers. These improvements were funded from
operating cash flow. The Partnership evaluates the capital improvement needs of
the property during the year and currently expects to complete an additional
$64,000 in capital improvements during the remainder of 2003. The additional
capital improvements will consist primarily of floor covering replacements, new
cabinets and exterior painting. 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 improvements will be incurred only if cash is available
from operations and Partnership reserves. To the extent that such budgeted
capital improvements are completed, the Partnership's distributable cash flow,
if any, may be adversely affected at least in the short term.
The Partnership's assets are thought to be sufficient for any near term needs
(exclusive of capital improvements) of the Partnership. The mortgage
indebtedness of approximately $11,428,000 requires monthly principal and
interest payments and matures between October 2018 and January 2021. The
mortgage indebtedness at Quail Hollow Apartments requires a balloon payment of
approximately $1,284,000 at maturity in October 2018. Windsor Hills Apartments
mortgage is scheduled to be fully amortized at its maturity in January 2021. The
Corporate General Partner will attempt to refinance the indebtedness of Quail
Hollow Apartments and/or sell the property prior to its maturity date. If the
property cannot be refinanced or sold for a sufficient amount, the Partnership
may risk losing the property through foreclosure.
The Partnership distributed the following amounts during the six months ended
June 30, 2003 and 2002 (in thousands, except per unit data):
Six Months Six Months
Ended Per Limited Ended Per Limited
June 30, Partnership June 30, Partnership
2003 Unit 2002 Unit
Operations $ 226 $ 13.53 $ 163 $ 9.80
Sale (1) 1,762 113.40 -- --
$1,988 $126.93 $ 163 $ 9.80
(1) Proceeds from Stone Mountain West Apartments sale in December 2002.
The Partnership's cash available for distribution is reviewed on a monthly
basis. Future cash distributions will depend on the levels of net cash generated
from operations, the availability of cash reserves, and the timing of debt
maturities, refinancings, and/or property sales. There can be no assurance that
the Partnership will generate sufficient funds from operations to permit further
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 11,938.50 limited partnership units
(the "Units") in the Partnership representing 79.59% of the outstanding Units at
June 30, 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 in exchange for cash or a combination of cash and
units in the operating partnership of AIMCO either through private purchases or
tender offers. Pursuant to the Partnership Agreement, unitholders holding a
majority of the Units are entitled to take action with respect to a variety of
matters that include, but are not limited to, voting on certain amendments to
the Partnership Agreement and voting to remove the Corporate General Partner. As
a result of its ownership of 79.59% of the outstanding Units, AIMCO and its
affiliates are 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 outstanding balances 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. Any
concessions given at the inception of the lease are amortized over the life of
the lease.
ITEM 3. Controls and Procedures
(a) Disclosure Controls and Procedures. The Partnership's management, with the
participation of 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, has
evaluated the effectiveness of the Partnership's disclosure controls and
procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end
of the period covered by this report. Based on such evaluation, 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 concluded that, as of the
end of such period, the Partnership's disclosure controls and procedures are
effective.
(b) Internal Control Over Financial Reporting. There have not been any changes
in the Partnership's internal control over financial reporting (as such term is
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the
fiscal quarter to which this report relates that have materially affected, or
are reasonably likely to materially affect, the Partnership's internal control
over financial reporting.
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
purported to assert claims on behalf of a class of limited partners and
derivatively on behalf of a number of limited partnerships (including the
Partnership) that 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 that 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 sought 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 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 opposed
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.
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 Heller action was brought as a purported
derivative action, and asserted 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 in light of a settlement.
On January 8, 2003, the parties filed a Stipulation of Settlement in proposed
settlement of the Nuanes action and the Heller action described below.
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 provided 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.
On June 13, 2003, the Court granted final approval of the settlement and entered
judgment in both the Nuanes and Heller actions.
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 July 3, 1980 (File No. 2-67384), is incorporated
herein by reference).
31.1 Certification of equivalent of Chief Executive Officer
pursuant to Securities Exchange Act Rules
13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2 Certification of equivalent of Chief Financial Officer
pursuant to Securities Exchange Act Rules
13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
32.1 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 filed during the quarter ended June 30, 2003:
None.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SHELTER PROPERTIES I
By: Shelter Realty I Corporation
Corporate General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President and Director
By: /s/Thomas C. Novosel
Thomas C. Novosel
Senior Vice President
and Chief Accounting Officer
Date: August 13, 2003
Exhibit 31.1
CERTIFICATION
I, Patrick J. Foye, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Shelter Properties
I;
2. Based on my knowledge, this 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
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, 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 report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such
evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: August 13, 2003
/s/Patrick J. Foye
Patrick J. Foye
Executive Vice President of Shelter Realty I
Corporation, equivalent of the chief
executive officer of the Partnership
Exhibit 31.2
CERTIFICATION
I, Paul J. McAuliffe, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Shelter Properties
I;
2. Based on my knowledge, this 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
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, 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 report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such
evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: August 13, 2003
/s/Paul J. McAuliffe
Paul J. McAuliffe
Executive Vice President and Chief Financial
Officer of Shelter Realty I Corporation,
equivalent of the chief financial officer of
the Partnership
Exhibit 32.1
Certification of CEO and CFO
Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report on Form 10-QSB of Shelter Properties I
(the "Partnership"), for the quarterly period ended June 30, 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: August 13, 2003
/s/Paul J. McAuliffe
Name: Paul J. McAuliffe
Date: August 13, 2003
This certification is furnished with this Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Partnership for
purposes of Section 18 of the Securities Exchange Act of 1934, as amended.