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 September 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 0-10260
SHELTER PROPERTIES III
(Exact Name of Registrant as Specified in Its Charter)
South Carolina 57-0718508
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SHELTER PROPERTIES III
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
September 30, 2003
Assets
Cash and cash equivalents $ 164
Receivables and deposits 145
Restricted escrow 83
Other assets 583
Investment properties:
Land $ 945
Buildings and related personal property 22,495
23,440
Less accumulated depreciation (15,706) 7,734
$ 8,709
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 19
Tenant security deposit liabilities 75
Accrued property taxes 258
Other liabilities 293
Due to general partner 253
Mortgage notes payable 12,776
Partners' Deficit
General partners $ (73)
Limited partners (55,000 units issued and
outstanding) (4,892) (4,965)
$ 8,709
See Accompanying Notes to Consolidated Financial Statements
SHELTER PROPERTIES III
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
(Restated) (Restated)
Revenues:
Rental income $ 999 $ 967 $ 2,857 $ 2,962
Other income 88 105 239 296
Total revenues 1,087 1,072 3,096 3,258
Expenses:
Operating 558 527 1,522 1,427
General and administrative 50 66 212 218
Depreciation 214 209 657 643
Interest 236 242 705 732
Property taxes 87 80 259 246
Total expenses 1,145 1,124 3,355 3,266
Loss from continuing operations (58) (52) (259) (8)
Income from discontinued
operations -- 27 -- 91
Net (loss) income $ (58) $ (25) $ (259) $ 83
Net (loss) income allocated
to general partners (1%) $ (1) $ -- $ (3) $ 1
Net (loss) income allocated
to limited partners (99%) (57) (25) (256) 82
$ (58) $ (25) $ (259) $ 83
Per limited partnership unit:
Loss from continuing
operations $ (1.03) $ (0.95) $ (4.65) $ (0.15)
Income from discontinued
operations -- 0.49 -- 1.64
Net (loss) income $ (1.03) $ (0.46) $ (4.65) $ 1.49
Distribution per limited
partnership unit $ -- $ 4.00 $ -- $ 5.95
See Accompanying Notes to Consolidated Financial Statements
SHELTER PROPERTIES III
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partners Partners Total
Original capital contributions 55,000 $ 2 $27,500 $27,502
Partners' deficit at
December 31, 2002 55,000 $ (70) $(4,636) $(4,706)
Net loss for the nine months
ended September 30, 2003 -- (3) (256) (259)
Partners' deficit at
September 30, 2003 55,000 $ (73) $(4,892) $(4,965)
See Accompanying Notes to Consolidated Financial Statements
SHELTER PROPERTIES III
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
2003 2002
Cash flows from operating activities:
Net (loss) income $ (259) $ 83
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation 657 830
Amortization of discounts and loan costs 14 22
Change in accounts:
Receivables and deposits 37 55
Other assets (224) (26)
Accounts payable (165) --
Tenant security deposit liabilities 9 (3)
Accrued property taxes 122 21
Other liabilities (18) 160
Net cash provided by operating activities 173 1,142
Cash flows used in investing activities:
Property improvements and replacements (404) (347)
Cash flows from financing activities:
Payments on mortgage notes payable (271) (255)
Distributions to partners -- (330)
Net cash used in financing activities (271) (585)
Net (decrease) increase in cash and cash equivalents (502) 210
Cash and cash equivalents at beginning of period 666 237
Cash and cash equivalents at end of period $ 164 $ 447
Supplemental disclosure of cash flow information:
Cash paid for interest $ 737 $ 753
See Accompanying Notes to Consolidated Financial Statements
SHELTER PROPERTIES III
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements of Shelter
Properties III (the "Partnership" or "Registrant") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Item 310(b) of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The general partner responsible for management of the
Partnership's business is Shelter Realty III Corporation, a South Carolina
corporation (the "Corporate General Partner"). The Corporate General Partner is
a subsidiary of Apartment Investment and Management Company ("AIMCO"), a
publicly traded real estate investment trust. 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 nine month periods ended September 30, 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.
Effective January 1, 2002, the Partnership adopted Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets", which established standards for the way that public 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 North River Village Apartments as income from
discontinued operations due to its sale in December 2002.
Note B - Reconciliation of Cash Flows
As required by the Partnership Agreement, the following is a reconciliation of
"Net cash (used in) provided by operating activities" in the accompanying
consolidated statements of cash flows to "Net cash from operations", as defined
in the Partnership Agreement. However, "Net cash from operations" should not be
considered an alternative to net income as an indicator of the Partnership's
operating performance or to cash flows as a measure of liquidity.
For the Nine Months Ended
September 30,
2003 2002
(in thousands)
Net cash provided by operating activities $ 173 $1,142
Payments on mortgage notes payable (271) (255)
Property improvements and replacements (404) (347)
Changes in reserves for net operating assets 239 (207)
Additional reserves -- (333)
Net cash used in operations $ (263) $ --
For the nine months ended September 30, 2003, the Corporate General Partner
believed it to be in the best interest of the Partnership to use cash from
operations of approximately $263,000 to fund continuing capital improvements and
repairs in order for the properties to remain competitive. For the nine months
ended September 30, 2002, the Corporate General Partner reserved approximately
$333,000 to fund capital improvements and repairs at the Partnership's three
investment properties.
Note C - Transactions with Affiliated Parties
The Partnership has no employees and is dependent on the Corporate General
Partner and its affiliates for the management and administration of all
partnership activities. The Partnership Agreement provides for (i) 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 as compensation for providing
property management services. The Partnership paid to such affiliates
approximately $149,000 and $210,000 for the nine months ended September 30, 2003
and 2002, respectively, which are included in operating expenses and income from
discontinued operations.
An affiliate of the Corporate General Partner received reimbursement of
accountable administrative expenses amounting to approximately $119,000 and
$150,000 for the nine months ended September 30, 2003 and 2002, respectively,
which are 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 $3,000 for the nine months ended September 30, 2003. Fees for the
same period in 2002 were less than $1,000. The construction management service
fees are calculated based on a percentage of current year additions to the
investment properties.
During 1986, a liability of approximately $185,000 was incurred to the general
partners for sales commissions earned. Pursuant to the Partnership Agreement,
this liability cannot be paid until certain levels of returns are received by
the limited partners. As of September 30, 2003, the level of return to the
limited partners has not been met and the balance is included in due to general
partner in the accompanying consolidated balance sheet.
Pursuant to the Partnership Agreement and in connection with the sale of North
River Village Apartments in 2002, the Corporate General Partner is entitled to a
commission of up to 1% for its assistance in the sale. Payment of such
commission is subordinate to the limited partners receiving a cumulative 7%
return on their investment. This return has not yet been met, and accordingly,
$68,000 was accrued and is included in due to general partner in the
accompanying consolidated balance sheet at September 30, 2003.
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 nine months ended September 30, 2003 and
2002, the Partnership was charged by AIMCO and its affiliates approximately
$59,000 and $92,000, respectively, for insurance coverage and fees associated
with policy claims administration.
Note D - Disposition of Investment Property
On December 13, 2002, the Partnership sold North River Village Apartments to an
unrelated third party for a gross sale price of $6,800,000. The net proceeds
realized by the Partnership were approximately $6,613,000 after payment of
closing costs of approximately $187,000. The Partnership used approximately
$1,568,000 of the net proceeds to repay the mortgages encumbering the property.
The Partnership realized a gain of approximately $4,348,000 for the year ended
December 31, 2002, as a result of this sale. The property's operations, income
of approximately $27,000 and $91,000 and revenues of approximately $297,000 and
$859,000 for the three and nine months ended September 30, 2002, respectively,
are included in income from discontinued operations.
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.
In addition, 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.
On January 8, 2003, the parties filed a Stipulation of Settlement in proposed
settlement of the Nuanes action and the Heller action.
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
at least one round of tender offers 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. On August 12, 2003, an objector
filed an appeal seeking to vacate and/or reverse the order approving the
settlement and entering judgment thereto. The Corporate General Partner intends
to file a respondent's brief in support of the order approving settlement and
entering judgment thereto.
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.
On August 8, 2003 AIMCO Properties L.P., an affiliate of the Corporate General
Partner, was served with a Complaint in the United States District Court,
District of Columbia alleging that AIMCO Properties L.P. willfully violated the
Fair Labor Standards Act (FLSA) by failing to pay maintenance workers overtime
for all hours worked in excess of forty per week. The Complaint is styled as a
Collective Action under the FLSA and seeks to certify state subclasses in
California, Maryland, and the District of Columbia. Specifically, the plaintiffs
contend that AIMCO Properties L.P. failed to compensate maintenance workers for
time that they were required to be "on-call". Additionally, the Complaint
alleges AIMCO Properties L.P. failed to comply with the FLSA in compensating
maintenance workers for time that they worked in responding to a call while
"on-call". The Complaint also attempts to certify a subclass for salaried
service directors who are challenging their classification as exempt from the
overtime provisions of the FLSA. AIMCO Properties L.P. has filed an answer to
the Complaint denying the substantive allegations. Although the outcome of any
litigation is uncertain, in the opinion of the Corporate General Partner the
claims will not result in any material liability to the Partnership.
The Partnership is unaware of any other pending or outstanding litigation
matters involving it or its investment properties that are 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 three apartment complexes.
The following table sets forth the average occupancy of the properties for each
of the nine months ended September 30, 2003 and 2002:
Average
Occupancy
Property 2003 2002
Essex Park Apartments
Columbia, South Carolina 85% 83%
Colony House Apartments
Murfeesboro, Tennessee 95% 93%
Willowick Apartments
Greenville, South Carolina 90% 92%
Results of Operations
The Partnership's net loss was approximately $58,000 and $259,000 for the three
and nine months ended September 30, 2003, respectively, compared to a net loss
of approximately $25,000 for the three months ended September 30, 2002 and net
income of approximately $83,000 for the nine months ended September 30, 2002.
The increase in net loss for the three months ended September 30, 2003 is due to
a decrease in income from discontinued operations and an increase in total
expenses, partially offset by an increase in total revenues. The decrease in net
income for the nine months ended September 30, 2003 is due to a decrease in
income from discontinued operations, a decrease in total revenues, and an
increase in total expenses.
Effective January 1, 2002, the Partnership adopted Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets", which established standards for the way that public 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 North River Village Apartments as income from
discontinued operations due to its sale in December 2002.
On December 13, 2002, the Partnership sold North River Village Apartments to an
unrelated third party for a gross sale price of $6,800,000. The net proceeds
realized by the Partnership were approximately $6,613,000 after payment of
closing costs of approximately $187,000. The Partnership used approximately
$1,568,000 of the net proceeds to repay the mortgages encumbering the property.
The Partnership realized a gain of approximately $4,348,000 for the year ended
December 31, 2002, as a result of this sale. The property's operations, income
of approximately $27,000 and $91,000 for the three and nine months ended
September 30, 2002, respectively, and revenues of approximately $297,000 and
$859,000, respectively, are included in income from discontinued operations.
Excluding the discontinued operations, the Partnership realized a loss from
continuing operations of approximately $58,000 and $52,000, respectively, for
the three months ended September 30, 2003 and 2002, and a loss from continuing
operations of approximately $259,000 and $8,000 for the nine months ended
September 30, 2003 and 2002, respectively. The increase in loss from continuing
operations for the three months ended September 30, 2003 is due to an increase
in total expenses, partially offset by an increase in total revenues. The
increase in loss from continuing operations for the nine months ended September
30, 2003 is due to a decrease in total revenues and an increase in total
expenses. The increase in total revenues for the three months ended September
30, 2003 is due to an increase in rental income caused by an increase in
occupancy at all three investment properties partially offset by a decrease in
other income. The decrease in total revenues for the nine months ended September
30, 2003 is due to decreases in both rental and other income. Rental income
decreased due to a decrease in average rental rates at all three of the
Partnership's investment properties and a decrease in occupancy at Willowick
Apartments, partially offset by increases in occupancy at Colony House and Essex
Park Apartments. Other income decreased for the nine months ended September 30,
2003, primarily due to decreases in utility reimbursements and corporate housing
revenue at Essex Park Apartments. Other income decreased for the three months
ended September 30, 2003 primarily due to decreases in utility reimbursements.
The increase in total expenses for the three months ended September 30, 2003 is
due to an increase in operating expense. The increase in total expenses for the
nine months ended September 30, 2003 is due to an increase in operating expense,
partially offset by a decrease in interest expense. The increase in operating
expense for the three and nine months ended September 30, 2003 is primarily due
to an increase in contract maintenance expense at all of the properties,
partially offset by a decrease in property management fees as a result of the
decrease in rental income. Interest expense decreased due to the scheduled
payments on the mortgages encumbering the investment properties.
Included in general and administrative expense for the three and nine months
ended September 30, 2003 and 2002 are management reimbursements to the Corporate
General Partner as allowed under the Partnership Agreement. In addition, costs
associated with the quarterly and annual communications with investors and
regulatory agencies and the annual audit required by the Partnership Agreement
are also included in general and administrative expenses.
As part of the ongoing business plan of the Partnership, the Corporate General
Partner monitors the rental market environments of its investment properties to
assess the feasibility of increasing rents, maintaining or increasing occupancy
levels and protecting the Partnership from increases in expenses. As part of
this plan, the Corporate General Partner attempts to protect the Partnership
from the burden of inflation-related increases in expenses by increasing rents
and maintaining a high overall occupancy level. However, the Corporate General
Partner may use rental concessions and rental rate reductions to offset
softening market conditions, accordingly, there is no guarantee that the
Corporate General Partner will be able to sustain such a plan.
Liquidity and Capital Resources
At September 30, 2003, the Partnership had cash and cash equivalents of
approximately $164,000 compared to approximately $447,000 at September 30, 2002.
Cash and cash equivalents decreased approximately $502,000 from December 31,
2002 due to approximately $404,000 of cash used in investing activities and
approximately $271,000 of cash used in financing activities, partially offset by
approximately $173,000 of cash provided by operating activities. Cash used in
investing activities consisted of property improvements and replacements. Cash
used in financing activities consisted of payments of principal on the mortgages
encumbering the Partnership's properties. 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 Partnership 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 at each of the Partnership's properties are detailed below.
Essex Park Apartments
During the nine months ended September 30, 2003, the Partnership completed
approximately $257,000 of capital improvements at Essex Park Apartments,
consisting primarily of interior decoration, building and structural upgrades,
parking area and swimming pool upgrades and floor covering, appliance, and water
heater replacements. 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 $21,000 in capital
improvements during the remainder of 2003. The additional capital improvements
will consist primarily of pool improvements and appliance and floor covering
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.
Colony House Apartments
During the nine months ended September 30, 2003, the Partnership completed
approximately $64,000 of capital improvements at Colony House Apartments,
consisting primarily of water heater installations, plumbing upgrades, and floor
covering replacements. 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 $14,000 in capital
improvements during the remainder of 2003. The additional capital improvements
will consist primarily of floor covering, appliance, cabinet, fencing, and air
conditioning unit 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.
Willowick Apartments
During the nine months ended September 30, 2003, the Partnership completed
approximately $83,000 of capital improvements at Willowick Apartments,
consisting primarily of electrical upgrades, major landscaping, and floor
covering and appliance replacements. 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
$14,000 in capital improvements during the remainder of 2003. The additional
capital improvements will consist primarily of parking lot upgrades, structural
enhancements, building improvements, 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.
Additional capital expenditures will be incurred only if cash is available from
operations and Partnership reserves. To the extent that such budgeted capital
improvements are completed, the 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 encumbering all of the properties of approximately $12,776,000 is
amortized over 240 months and is scheduled to be fully amortized in January
2021.
The Partnership distributed the following amounts during the nine months ended
September 30, 2003 and 2002 (in thousands, except per unit data):
Per Limited Per Limited
Nine Months Ended Partnership Nine Months Ended Partnership
September 30, 2003 Unit September 30, 2002 Unit
Operations $ -- $ -- $ 330 $ 5.95
Future cash distributions will depend on the levels of net cash generated from
operations, the availability of cash reserves, and the timing of debt
maturities, refinancings, and/or property sales. The Partnership's cash
available for distribution is reviewed on a monthly basis. There can be no
assurance, however, that the Partnership will generate sufficient funds from
operations, after planned capital improvement expenditures, to permit any
distributions to its partners during the remainder of 2003 or subsequent
periods.
Other
In addition to its indirect ownership of the combined general partner interests
in the Partnership, AIMCO and its affiliates owned 35,663 limited partnership
units (the "Units") in the Partnership representing 64.84% of the outstanding
Units at September 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 AIMCO Properties, L.P., 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 64.84% of
the outstanding Units, AIMCO and its affiliates are in a position to influence
all such 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, but are not limited
to, 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 impairment of 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. 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.
In addition, 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.
On January 8, 2003, the parties filed a Stipulation of Settlement in proposed
settlement of the Nuanes action and the Heller action.
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
at least one round of tender offers 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. On August 12, 2003, an objector
filed an appeal seeking to vacate and/or reverse the order approving the
settlement and entering judgment thereto. The Corporate General Partner intends
to file a respondent's brief in support of the order approving settlement and
entering judgment thereto.
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.
On August 8, 2003 AIMCO Properties L.P., an affiliate of the Corporate General
Partner, was served with a Complaint in the United States District Court,
District of Columbia alleging that AIMCO Properties L.P. willfully violated the
Fair Labor Standards Act (FLSA) by failing to pay maintenance workers overtime
for all hours worked in excess of forty per week. The Complaint is styled as a
Collective Action under the FLSA and seeks to certify state subclasses in
California, Maryland, and the District of Columbia. Specifically, the plaintiffs
contend that AIMCO Properties L.P. failed to compensate maintenance workers for
time that they were required to be "on-call". Additionally, the Complaint
alleges AIMCO Properties L.P. failed to comply with the FLSA in compensating
maintenance workers for time that they worked in responding to a call while
"on-call". The Complaint also attempts to certify a subclass for salaried
service directors who are challenging their classification as exempt from the
overtime provisions of the FLSA. AIMCO Properties L.P. has filed an answer to
the Complaint denying the substantive allegations. Although the outcome of any
litigation is uncertain, in the opinion of the Corporate General Partner the
claims will not result in any material liability to the Partnership.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
3 Amended and Restated Certificate and Agreement of Limited
Partnership (Exhibit A to the Prospectus included in
Registrant's Amendment No. 1 to Registration Statement,
filed September 2, 1981 (File No. 2-72567), is incorporated
herein by reference).
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:
None filed during the quarter ended September 30, 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 III
By: Shelter Realty III Corporation
Corporate General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Paul J. McAuliffe
Paul J. McAuliffe
Executive Vice President
and Chief Financial Officer
Date: November 12, 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
III;
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: November 12, 2003
/s/Patrick J. Foye
Patrick J. Foye
Executive Vice President of Shelter Realty
III 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
III;
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: November 12, 2003
/s/Paul J. McAuliffe
Paul J. McAuliffe
Executive Vice President and Chief Financial
Officer of Shelter Realty III Corporation,
equivalent of the chief financial officer of
the Partnership
Exhibit 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 III
(the "Partnership"), for the quarterly period ended September 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: November 12, 2003
/s/Paul J. McAuliffe
Name: Paul J. McAuliffe
Date: November 12, 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.