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 0-10255
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)
September 30, 2003
Assets
Cash and cash equivalents $ 133
Receivables and deposits 85
Restricted escrows 5
Other assets 379
Investment properties:
Land $ 979
Buildings and related personal property 13,781
14,760
Less accumulated depreciation (10,406) 4,354
$ 4,956
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 79
Tenant security deposit liabilities 70
Accrued property taxes 143
Other liabilities 268
Mortgage notes payable 11,349
Partners' Deficit
General partners $ (115)
Limited partners (15,000 units issued and
outstanding) (6,838) (6,953)
$ 4,956
See Accompanying Notes to Consolidated Financial Statements
SHELTER PROPERTIES I
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
(Restated) (Restated)
Revenues:
Rental income $ 768 $ 845 $ 2,418 $ 2,499
Other income 78 58 245 179
Casualty gain (Note D) -- 352 232 352
Total revenues 846 1,255 2,895 3,030
Expenses:
Operating 465 393 1,211 1,013
General and administrative 38 58 137 172
Depreciation 130 124 401 372
Interest 210 219 641 661
Property taxes 68 51 207 159
Total expenses 911 845 2,597 2,377
(Loss) income from continuing
operations (65) 410 298 653
Income from discontinued
operations -- 16 -- 61
Net (loss) income $ (65) $ 426 $ 298 $ 714
Net (loss) income allocated to
general partners (1%) $ (1) $ 4 $ 3 $ 7
Net (loss) income allocated
to limited partners (99%) (64) 422 295 707
Net (loss) income $ (65) $ 426 $ 298 $ 714
Per limited partnership unit:
(Loss) income from continuing
operations (4.27) 27.07 19.67 43.13
Income from discontinued
operations -- 1.06 -- 4.00
Net (loss) income $ (4.27) $ 28.13 $ 19.67 $ 47.13
Distributions per limited
partnership unit $ 5.94 $ 9.00 $132.93 $ 18.80
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 -- (93) (1,994) (2,087)
Net income for the nine months
ended September 30, 2003 -- 3 295 298
Partners' deficit at
September 30, 2003 15,000 $ (115) $(6,838) $(6,953)
See Accompanying Notes to Consolidated Financial Statements
SHELTER PROPERTIES I
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
2003 2002
Cash flows from operating activities:
Net income $ 298 $ 714
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 401 503
Amortization of discounts and loan costs 12 22
Casualty gain (232) (352)
Change in accounts:
Receivables and deposits 224 (25)
Other assets (43) (30)
Accounts payable (11) (52)
Tenant security deposit liabilities (15) (11)
Accrued property taxes 25 13
Other liabilities 20 67
Due to affiliates (203) 20
Net cash provided by operating activities 476 869
Cash flows from investing activities:
Property improvements and replacements (362) (792)
Insurance proceeds received 232 456
Net withdrawals from restricted escrows -- 16
Net cash used in investing activities (130) (320)
Cash flows from financing activities:
Payments on mortgage notes payable (233) (305)
Distributions to partners (2,087) (313)
Advance from affiliate -- 100
Payments on advance from affiliate -- (100)
Net cash used in financing activities (2,320) (618)
Net decrease in cash and cash equivalents (1,974) (69)
Cash and cash equivalents at beginning of period 2,107 291
Cash and cash equivalents at end of period $ 133 $ 222
Supplemental disclosure of cash flow information:
Cash paid for interest $ 632 $ 906
Supplemental disclosure of non-cash flow information:
Property improvements and replacements included in
accounts payable $ 39 $ --
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 nine months ended September 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 nine month periods ended September
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 Nine Months Ended
September 30,
(in thousands)
2003 2002
Net cash provided by operating activities $ 476 $ 869
Payments on mortgage notes payable (233) (305)
Property improvements and replacements (58) (792)
Change in restricted escrows, net -- 16
Changes in reserves for net operating
liabilities 3 18
Additions to operating reserves (188) --
Net cash used in operations $ -- $ (194)
During the nine months ended September 30, 2003 the Corporate General Partner
reserved approximately $188,000 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 both of the Partnership's properties as compensation for providing
property management services. The Partnership paid to such affiliates
approximately $138,000 and $188,000 for the nine months ended September 30, 2003
and 2002, respectively, which is 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 $85,000 and
$189,000 for the nine months ended September 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 $70,000 for the nine months ended September 30, 2002. Less than
$1,000 in construction management services was paid for the nine months ended
September 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 nine months ended
September 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 nine months ended
September 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 nine months ended September 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 nine months ended September 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 nine months ended September 30, 2002, a net
casualty gain of $352,000 was recorded as the result of insurance proceeds
received of approximately $456,000 less the book value of the damaged assets of
approximately $104,000. During the nine months ended September 30, 2003, a net
casualty gain of approximately $232,000 was recorded as the result of additional
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.
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 two 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
Quail Hollow Apartments
West Columbia, South Carolina 91% 90%
Windsor Hills Apartments (1)
Blacksburg, Virginia 87% 91%
(1) The Corporate General Partner attributes the decrease in occupancy at
Windsor Hills Apartments primarily to a decrease in enrollment at Virginia
Tech University.
Results of Operations
The Partnership recognized a net loss of approximately $65,000 for the three
months ended September 30, 2003 and net income of approximately $298,000 for the
nine months ended September 30, 2003, compared to net income of approximately
$426,000 and $714,000 for the three and nine months ended September 30, 2002,
respectively. The decrease in net income for the three and nine months ended
September 30, 2003 is due to a decrease in total revenues, 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 a loss from continuing operations of approximately
$65,000 for the three months ended September 30, 2003 and income from continuing
operations of approximately $298,000 for the nine months ended September 30,
2003 compared to income of approximately $410,000 and $653,000 for the
corresponding periods in 2002. The decrease in income from continuing operations
for the three and nine months ended September 30, 2003 is due to a decrease in
total revenues and an increase in total expenses. The decrease in total revenues
for both periods is due to a decrease in rental income and a decrease in
casualty gain (as discussed below) partially offset by an increase in other
income. Rental income decreased primarily due to decreased occupancy and an
increase in concession costs at Windsor Hills Apartments and an increase in bad
debt expenses at Quail Hollow Apartments partially offset by an increase in
occupancy at Quail Hollow Apartments. Other income increased for both periods
due to increases in utility reimbursements at both properties and late charge
fees billed at Quail Hollow Apartments.
During December 2001, there was a fire at Quail Hollow Apartments that damaged
eight apartment units. During the nine months ended September 30, 2002, a net
casualty gain of $352,000 was recorded as the result of insurance proceeds
received of approximately $456,000 less the book value of the damaged assets of
approximately $104,000. During the nine months ended September 30, 2003, a net
casualty gain of approximately $232,000 was recorded as the result of additional
insurance proceeds received. All damaged assets were written off during 2002.
Total expenses increased for both periods ending September 30, 2003 due to
increases in operating, depreciation, and property tax expenses partially offset
by decreases in interest and general and administrative expenses. Operating
expenses increased due primarily to an increase in maintenance expenses.
Maintenance expenses increased due to increases in contract services, a decrease
in the capitalization of certain direct and indirect project costs, primarily
payroll related costs, and an increase in snow removal expenses 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 declining
of mortgage principal as a result of the payment of scheduled mortgage payments
at both properties.
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 nine months ended September 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.
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, 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 $133,000 compared to approximately $222,000 at September 30, 2002.
Cash and cash equivalents decreased approximately $1,974,000 since December 31,
2002 due to approximately $2,320,000 of cash used in financing activities and
approximately $130,000 of cash used in investing activities, partially offset by
approximately $476,000 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 nine months ended September 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 $16,000 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 nine months ended September 30, 2003, the Partnership completed
approximately $96,000 of capital improvements at Windsor Hills Apartments,
consisting primarily of floor covering replacements, interior decorations, air
conditioning upgrades, furniture and fixtures 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 $29,000 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 encumbering the Partnership's properties of approximately
$11,349,000 requires monthly principal and interest payments and matures between
October 2018 and January 2021. The mortgage indebtedness encumbering Quail
Hollow Apartments requires a balloon payment of approximately $1,284,000 at
maturity in October 2018. The mortgage indebtedness encumbering Windsor Hills
Apartments 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 nine months ended
September 30, 2003 and 2002 (in thousands, except per unit data):
Nine Months Ended Per Limited Nine Months Ended Per Limited
September 30, Partnership September 30, Partnership
2003 Unit 2002 Unit
Operations $ 325 $ 19.53 $ 313 $ 18.80
Sale (1) 1,762 113.40 -- --
$2,087 $132.93 $ 313 $ 18.80
(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
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 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, but are not limited
to, changes in 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 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.
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 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:
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 I
By: Shelter Realty I Corporation
Corporate General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President and Director
By: /s/Paul J. McAuliffe
Paul J. McAuliffe
Executive Vice President
and Chief Financial Officer
Date: November 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: November 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: November 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 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 13, 2003
/s/Paul J. McAuliffe
Name: Paul J. McAuliffe
Date: November 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.