UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _________to _________
Commission file number 0-10260
SHELTER PROPERTIES III
(Exact name of small business issuer as specified in its charter)
South Carolina 57-0718508
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
Check whether the issuer (i) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No ___
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SHELTER PROPERTIES III
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
June 30, 2004
Assets
Cash and cash equivalents $ 132
Receivables and deposits 153
Restricted escrows 84
Other assets 622
Investment properties:
Land $ 945
Buildings and related personal property 22,983
23,928
Less accumulated depreciation (16,285) 7,643
$ 8,634
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 127
Tenant security deposit liabilities 78
Accrued property taxes 167
Other liabilities 320
Due to affilate (Note C) 338
Mortgage notes payable 12,491
Partners' Deficit
General partners $ (71)
Limited partners (55,000 units issued and
outstanding) (4,816) (4,887)
$ 8,634
See Accompanying Notes to Consolidated Financial Statements
SHELTER PROPERTIES III
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended Six Months Ended
June 30, June 30,
2004 2003 2004 2003
Revenues:
Rental income $ 967 $ 939 $ 1,965 $ 1,858
Other income 106 82 190 151
Casualty gain (Note D) 39 -- 86 --
Total revenues 1,112 1,021 2,241 2,009
Expenses:
Operating 607 413 1,061 964
General and administrative 61 61 133 162
Depreciation 233 224 459 443
Interest 231 237 465 469
Property taxes 73 87 168 172
Total expenses 1,205 1,022 2,286 2,210
Net loss $ (93) $ (1) $ (45) $ (201)
Net loss allocated to general
partners (1%) $ (1) $ -- $ -- $ (2)
Net loss allocated to limited
partners (99%) (92) (1) (45) (199)
$ (93) $ (1) $ (45) $ (201)
Net loss per limited
partnership unit $ (1.67) $ (0.02) $ (0.82) $ (3.62)
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, 2003 55,000 $ (71) $(4,771) $(4,842)
Net loss for the six months
ended June 30, 2004 -- -- (45) (45)
Partners' deficit at
June 30, 2004 55,000 $ (71) $(4,816) $(4,887)
See Accompanying Notes to Consolidated Financial Statements
SHELTER PROPERTIES III
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
2004 2003
Cash flows from operating activities:
Net loss $ (45) $ (201)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation 459 443
Amortization of loan costs 9 9
Casualty gain (86) --
Change in accounts:
Receivables and deposits (10) 42
Other assets (81) (264)
Accounts payable 82 (164)
Tenant security deposit liabilities 3 9
Accrued property taxes (161) 36
Other liabilities 51 66
Due to affiliate 19 --
Net cash provided by (used in) operating activities 240 (24)
Cash flows from investing activities:
Property improvements and replacements (360) (216)
Net insurance proceeds received 91 --
Net withdrawals from restricted escrows 95 --
Net cash used in investing activities (174) (216)
Cash flows from financing activities:
Payments on mortgage notes payable (192) (179)
Advances received from affiliate 135 --
Repayment of advances from affiliate (69) --
Net cash used in financing activities (126) (179)
Net decrease in cash and cash equivalents (60) (419)
Cash and cash equivalents at beginning of period 192 666
Cash and cash equivalents at end of period $ 132 $ 247
Supplemental disclosure of cash flow information:
Cash paid for interest $ 419 $ 468
See Accompanying Notes to Consolidated Financial Statements
SHELTER PROPERTIES III
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements of Shelter
Properties III (the "Partnership" or "Registrant") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Item 310 (b) of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The general partner responsible for management of the
Partnership's business is Shelter Realty III Corporation, a South Carolina
corporation (the "Corporate General Partner"). The Corporate General Partner is
a subsidiary of Apartment Investment and Management Company ("AIMCO"), a
publicly traded real estate investment trust. In the opinion of the Corporate
General Partner, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three and six month periods ended June 30, 2004, are not
necessarily indicative of the results that may be expected for the fiscal year
ending December 31, 2004. 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, 2003.
Note B - Reconciliation of Cash Flows
As required by the Partnership Agreement, the following is a reconciliation of
"Net cash provided by (used in) operating activities" in the accompanying
consolidated statements of cash flows to "Net cash from operations", as defined
in the Partnership Agreement. However, "Net cash from operations" should not be
considered an alternative to net income as an indicator of the Partnership's
operating performance or to cash flows as a measure of liquidity.
For the Six Months Ended
June 30,
2004 2003
(in thousands)
Net cash provided by (used in) operating activities $ 240 $ (24)
Payments on mortgage notes payable (192) (179)
Property improvements and replacements (360) (216)
Change in restricted escrow 95 --
Changes in reserves for net operating assets 97 275
Net cash used in operations $ (120) $ (144)
Distributions made from reserves no longer considered necessary by the Corporate
General Partner are considered to be additional net cash from operations for
allocation purposes.
Note C - Transactions with Affiliated Parties
The Partnership has no employees and is dependent on the Corporate General
Partner and its affiliates for the management and administration of all
Partnership activities. The Partnership Agreement provides for (i) payments to
affiliates for services and (ii) reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership.
During the six months ended June 30, 2004 and 2003, affiliates of the Corporate
General Partner were entitled to receive 5% of gross receipts from all of the
Partnership's properties for providing property management services. The
Partnership paid to such affiliates approximately $106,000 and $96,000 for the
six months ended June 30, 2004 and 2003, respectively, which is included in
operating expenses.
An affiliate of the Corporate General Partner received reimbursement of
accountable administrative expenses amounting to approximately $137,000 and
$80,000 for the six months ended June 30, 2004 and 2003, 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
$43,000 and $3,000 for the six months ended June 30, 2004 and 2003,
respectively. The construction management service fees are calculated based on a
percentage of additions to the investment properties. At June 30, 2004, the
Partnership owed approximately $18,000 for accountable administrative expenses
which is included in due to affiliate.
During 1986, a liability of approximately $185,000 was incurred to the general
partners for sales commissions earned. In connection with the sale of North
River Village Apartments in 2002, the Corporate General Partner earned a
commission of $68,000 for its assistance in the sale. Payment of such
commissions is subordinate to the limited partners receiving a cumulative 7%
return on their investment. As of June 30, 2004, the level of return to the
limited partners has not been met and the balance of approximately $253,000 is
included in due to affiliate.
Pursuant to the Partnership Agreement, an affiliate of the Corporate General
Partner advanced the Partnership approximately $135,000 during the six months
ended June 30, 2004 to assist with the payment of property taxes at Essex Park
Apartments. During the six months ended June 30, 2004, the Partnership made a
payment on this advance of approximately $69,000. Interest on advances is
charged at the prime rate plus 2%. Interest expense for this loan was
approximately $2,000 for the six months ended June 30, 2004. At June 30, 2004,
the Partnership owed an affiliate of the Corporate General Partner approximately
$67,000 in advances and accrued interest, which is included in due to affiliate.
No such advances or payments were made during the six months ended June 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 six months ended June 30, 2004 and 2003,
the Partnership paid AIMCO and its affiliates approximately $38,000 and $59,000,
respectively, for insurance coverage and fees associated with policy claims
administration.
Note D - Casualty
In May 2003, one of the Partnership's investment properties, Colony House
Apartments, incurred damages as a result of a hail storm. During the year ended
December 31, 2003, approximately $151,000 of fixed assets and approximately
$86,000 of accumulated depreciation were written off resulting in a net write
off of approximately $65,000. During 2003, the property received approximately
$244,000 in proceeds from the insurance company to repair the damage and
recognized a casualty gain of approximately $179,000 as a result of the
difference between the proceeds received and the net book value of the buildings
which were damaged. During the six months ended June 30, 2004, the Partnership
received additional proceeds of approximately $91,000 and wrote off
approximately $5,000 of additional net assets which resulted in an additional
gain of approximately $86,000.
Note E - Contingencies
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
("Objector") filed an appeal seeking to vacate and/or reverse the order
approving the settlement and entering judgment thereto. On November 24, 2003,
the Objector filed an application requesting the Court order AIMCO to withdraw
settlement tender offers it had commenced, refrain from making further offers
pending the appeal and auction any units tendered to third parties, contending
that the offers did not conform with the terms of the Settlement. Counsel for
the Objector (on behalf of another investor) had alternatively requested the
Court take certain action purportedly to enforce the terms of the settlement
agreement. On December 18, 2003, the Court heard oral argument on the motions
and denied them both in their entirety.
On January 28, 2004, Objector filed his opening brief in his pending appeal. On
April 23, 2004, the Corporate General Partner and its affiliates filed a
response brief in support of the settlement and the judgment thereto. Plaintiffs
have also filed a brief in support of the settlement. On June 4, 2004, Objector
filed a reply to the briefs submitted by the Corporate General Partner and
Plaintiffs. No hearing has been scheduled in the matter.
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. On March 5, 2004 Plaintiffs
filed an amended complaint also naming NHP Management Company, which is also an
affiliate of the Corporate General Partner. 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 defendants have filed an answer to the amended complaint denying
the substantive allegations. Some discovery has taken place and settlement
negotiations continue. Although the outcome of any litigation is uncertain,
AIMCO Properties, L.P. does not believe that the ultimate outcome will have a
material adverse effect on its financial condition or results of operations
taken as a whole. Similarly, the Corporate General Partner does not believe that
the ultimate outcome will have a material adverse effect on the Partnership's
financial condition or results of operations taken as a whole.
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.
Note E - Contingencies (continued)
As previously disclosed, the Central Regional Office of the United States
Securities and Exchange Commission is conducting an investigation relating to
certain matters. AIMCO believes the areas of investigation include AIMCO's
miscalculated monthly net rental income figures in third quarter 2003,
forecasted guidance, accounts payable, rent concessions, vendor rebates, and
capitalization of expenses and payroll. AIMCO is cooperating fully. AIMCO does
not believe that the ultimate outcome will have a material adverse effect on its
consolidated financial condition or results of operations taken as a whole.
Similarly, the Corporate General Partner does not believe that the ultimate
outcome will have a material adverse effect on the Partnership's consolidated
financial condition or results of operations taken as a whole.
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 six months ended June 30, 2004 and 2003:
Average
Occupancy
Property 2004 2003
Essex Park Apartments
Columbia, South Carolina (1) 87% 84%
Colony House Apartments
Murfeesboro, Tennessee 92% 94%
Willowick Apartments (1)
Greenville, South Carolina 92% 89%
(1) The Corporate General Partner attributes the increase in occupancy at
Essex Park and Willowick Apartments to increased retention efforts from
property management and a more stable customer base.
The Partnership's financial results are dependent upon a number of factors
including the ability to attract and maintain tenants at the investment
properties, interest rates on mortgage loans, costs incurred to operate the
investment properties, general economic conditions and weather. 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. Further, a number of factors which
are outside the control of the Partnership such as the local economic climate
and weather can adversely or positively impact the Partnership's financial
results.
Results of Operations
The Partnership's net loss for the three and six months ended June 30, 2004 was
approximately $93,000 and $45,000, respectively, compared to net loss of
approximately $1,000 and $201,000 for the corresponding periods in 2003. The
increase in net loss for the three month period is due to an increase in total
expenses partially offset by an increase in total revenues. The decrease in net
loss for the six month period is due to an increase in total revenues partially
offset by an increase in total expenses. Total revenues for the three and six
months ended June 30, 2004 increased due to increases in rental and other income
and due to a casualty gain recognized in 2004. Rental income increased due to
increases in average rental rates at Colony House and Essex Park Apartments and
occupancy at Essex Park and Willowick Apartments. Other income increased due to
increases in late charges at Essex Park Apartments and lease cancellation fees
at all of the Partnership's investment properties.
In May 2003, one of the Partnership's investment properties, Colony House
Apartments, incurred damages as a result of a hail storm. During the year ended
December 31, 2003, approximately $151,000 of fixed assets and approximately
$86,000 of accumulated depreciation were written off resulting in a net write
off of approximately $65,000. During 2003, the property received approximately
$244,000 in proceeds from the insurance company to repair the damage and
recognized a casualty gain of approximately $179,000 as a result of the
difference between the proceeds received and the net book value of the buildings
which were damaged. During the six months ended June 30, 2004, the Partnership
received additional proceeds of approximately $91,000 and wrote off
approximately $5,000 of additional net assets which resulted in an additional
gain of approximately $86,000.
Total expenses increased for the three months ended June 30, 2004 due to
increases in operating and depreciation expenses partially offset by a decrease
in property tax expense. Total expenses increased for the six months ended June
30, 2004 due to increases in operating and depreciation expenses partially
offset by a decrease in general and administrative expense. Operating expenses
for both periods increased due to increases in property expenses and management
fees. Property expenses increased due to an increase in payroll and related
benefits at all of Partnership's investment properties. Management fees
increased due to an increase in rental income at the investment properties.
Depreciation expense for both periods increased due to capital improvements and
replacements placed into service during the past twelve months at all of the
Partnership's investment properties. Property tax expense decreased for the
three months ended June 30, 2004 due to an adjustment to the property tax
accrual at Colony House Apartments.
General and administrative expense decreased for the six months ended June 30,
2004 due to a decrease in taxes and licenses. Included in general and
administrative expense during the six months ended June 30, 2004 and 2003 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.
Liquidity and Capital Resources
At June 30, 2004, the Partnership had cash and cash equivalents of approximately
$132,000 compared to approximately $247,000 at June 30, 2003. Cash and cash
equivalents decreased approximately $60,000 from December 31, 2003 due to
approximately $174,000 and $126,000 of cash used in investing and financing
activities, respectively, partially offset by approximately $240,000 of cash
provided by operating activities. Cash used in investing activities consisted of
property improvements and replacements partially offset by net withdrawals from
restricted escrows and insurance proceeds received. Cash used in financing
activities consisted of payments of principal on the mortgages encumbering the
Partnership's properties and repayment of advances to an affiliate partially
offset by advances received from an affiliate. 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, and local legal and regulatory requirements. The Corporate General
Partner monitors developments in the area of legal and regulatory compliance.
For example, 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.
Essex Park Apartments
During the six months ended June 30, 2004, the Partnership completed
approximately $70,000 of capital improvements at Essex Park Apartments,
consisting primarily of structural upgrades 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 $106,000 in capital
improvements during the remainder of 2004. 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 six months ended June 30, 2004, the Partnership completed
approximately $246,000 of capital improvements at Colony House Apartments
consisting primarily of floor covering and appliance replacements and building
repairs related to damage from a hail storm. These improvements were funded from
operating cash flow, replacement reserves and insurance proceeds. The
Partnership evaluates the capital improvement needs of the property during the
year and currently expects to complete an additional $46,000 in capital
improvements during the remainder of 2004. Additional capital improvements may
be considered and will depend on the physical condition of the property as well
as replacement reserves and the anticipated cash flow generated by the property.
Willowick Apartments
During the six months ended June 30, 2004, the Partnership completed
approximately $44,000 of capital improvements at Willowick Apartments,
consisting primarily of floor covering and appliance replacements and furniture
and fixtures. 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 $55,000 in capital
improvements during the remainder of 2004. 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 the Partnership's properties of approximately
$12,491,000 is amortized over 240 months and is scheduled to be fully amortized
in January 2021.
No distributions were made during the six months ended June 30, 2004 and 2003.
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 2004 or subsequent
periods.
Other
In addition to its indirect ownership of the general partner interest in the
Partnership, AIMCO and its affiliates owned 36,370 limited partnership units
(the "Units") in the Partnership representing 66.13% of the outstanding Units at
June 30, 2004. 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 66.13% of
the outstanding Units, AIMCO and its affiliates are in a position to control 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. The
Partnership evaluates all accounts receivable from residents and establishes an
allowance, after the application of security deposits, for accounts greater than
30 days past due on current tenants and all receivables due from former tenants.
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
("Objector") filed an appeal seeking to vacate and/or reverse the order
approving the settlement and entering judgment thereto. On November 24, 2003,
the Objector filed an application requesting the Court order AIMCO to withdraw
settlement tender offers it had commenced, refrain from making further offers
pending the appeal and auction any units tendered to third parties, contending
that the offers did not conform with the terms of the Settlement. Counsel for
the Objector (on behalf of another investor) had alternatively requested the
Court take certain action purportedly to enforce the terms of the settlement
agreement. On December 18, 2003, the Court heard oral argument on the motions
and denied them both in their entirety.
On January 28, 2004, Objector filed his opening brief in his pending appeal. On
April 23, 2004, the Corporate General Partner and its affiliates filed a
response brief in support of the settlement and the judgment thereto. Plaintiffs
have also filed a brief in support of the settlement. On June 4, 2004, Objector
filed a reply to the briefs submitted by the Corporate General Partner and
Plaintiffs. No hearing has been scheduled in the matter.
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. On March 5, 2004 Plaintiffs
filed an amended complaint also naming NHP Management Company, which is also an
affiliate of the Corporate General Partner. 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 defendants have filed an answer to the amended complaint denying
the substantive allegations. Some discovery has taken place and settlement
negotiations continue. Although the outcome of any litigation is uncertain,
AIMCO Properties, L.P. does not believe that the ultimate outcome will have a
material adverse effect on its financial condition or results of operations
taken as a whole. Similarly, the Corporate General Partner does not believe that
the ultimate outcome will have a material adverse effect on the Partnership's
financial condition or results of operations taken as a whole.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
See Exhibit Index attached.
b) Reports on Form 8-K filed during the quarter ended June 30,
2004:
None.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SHELTER PROPERTIES III
By: Shelter Realty III Corporation
Corporate General Partner
By: /s/Martha L. Long
Martha L. Long
Senior Vice President
By: /s/Stephen B. Waters
Stephen B. Waters
Vice President
Date: August 13, 2004
Shelter Properties III
EXHIBIT INDEX
Exhibit
3 See Exhibit 4(a)
4 (a) Amended and Restated Certificate and Agreement of Limited
Partnership, [included as Exhibit A to the Prospectus of
Registrant dated September 2, 1981 contained in Amendment
No. 1 to Registration Statement No. 2-72567 of Registrant
filed September 2, 1981 (the "Prospectus") and
incorporated herein by reference].
(b) Subscription Agreements and Signature Pages [Filed with
Amendment No. 1 of Registration Statement No. 2-72567 of
Registrant and incorporated herein by reference].
(c) Real Estate Note and Deed to Secure Debt and Security
Agreement between Pacific Mutual Life Insurance Company and
Shelter Properties III to acquire North River Village
Apartments.*
(d) Modification Agreement between Citibank, N.A. and Southern
Associates Limited Partnership and a Title to Real Estate
between Southern Associates Limited Partnership and Shelter
Properties III to acquire Essex
Park Apartments.*
*Filed as Exhibit 4(c) and 4(d), respectively, to Form 10-K of
Registrant for year ended December 31, 1987 and incorporated
herein by reference.
10(i) Contract related to acquisition of properties.
(a) Purchase Agreement dated July 1, 1981 and First Addendum to
Purchase Agreement dated August 4, 1981 between Colony House
of Murfreesboro and U.S. Shelter Corporation to purchase
Colony House Apartments.**
(b) Purchase Agreement dated July 31, 1981, between Southern
Associated Limited Partnership and U.S. Shelter Corporation to
purchase Essex Park Apartments.**
**Filed as Exhibits 12(a) and 12(b), respectively, to
Amendment No. 1 of Registration Statement No. 2-72567 of
Registrant filed September 2, 1981 and incorporated
herein by reference.
(d) Purchase Agreement dated April 15, 1982 between North River
Village Joint Venture (a partnership) and U.S. Shelter
Corporation to purchase North River Village Apartments. [Filed
with Form 8-K of Registrant dated April 21, 1982 and
incorporated herein by reference.]
(e) Purchase Agreement dated May 14, 1982 between Lincoln
Willowick Greenville Associates and U.S. Shelter Corporation
to purchase Willowick Apartments. [Filed with Form 8-K of
Registrant dated May 14, 1982 and incorporated herein by
reference.]
10(ii) Form of Management Agreement with U.S. Shelter Corporation
subsequently assigned to Shelter Management Group, L.P. (now
known as Insignia Management, L.P.) [Filed with Amendment No.
1 to Registration Statement, No. 2-72567 of Registrant and
incorporated herein by reference.]
10(iii) Contracts related to refinancing the debt:
(m) Multifamily Note dated December 15, 2000 between Shelter
Properties III and Reilly Mortgage Group, Inc., a District of
Columbia corporation securing Colony House Apartments, Essex
Park Apartments, and Willowick Apartments (filed as Exhibit
10(iii)(m) on Form 8-K February 1, 2001 and incorporated
herein by reference).
(n) Multifamily Deed of Trust, Assignment of Rents, and Security
Agreement dated December 15, 2000 between Shelter Properties
III and Reilly Mortgage Group, Inc., a District of Columbia
corporation, securing Colony House Apartments, Essex Park
Apartments, and Willowick Apartments (filed as Exhibit
10(iii)(n) on Form 8-K February 1, 2001).
10(iv) Contracts related to disposition of properties:
(a) Purchase and Sale Contract between Registrant and Investors
Realty Group, Inc., effective December 13, 2002 (filed as
exhibit 10(iv)(a) on Form 8-K, December 27, 2002 and
incorporated herein by reference).
(b) Assignment of Purchase Agreement effective December 13,
2002(filed as exhibit 10(iv)(b) on Form 8-K, December 27, 2002
and 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.
99 (a) Prospectus of Registrant dated September 2, 1981
[included in Registration Statement No. 2-72567, of
Registrant] and incorporated herein by reference.
(b) Agreement of Limited Partnership for North River Village III
between Shelter III GP Limited Partnership and Shelter
Properties III entered into April 30, 1992. [Filed as Exhibit
28(b) to Form 10-KSB of Registrant for year ended December 31,
1992 and incorporated herein by reference.]
Exhibit 31.1
CERTIFICATION
I, Martha L. Long, 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 small business issuer as of, and for, the periods presented in this
report;
4. The small business issuer'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 small business issuer 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
small business issuer, 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 small business issuer'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 small business issuer's
internal control over financial reporting that occurred during the
small business issuer's most recent fiscal quarter (the small
business issuer's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
materially affect, the small business issuer's internal control over
financial reporting; and
5. The small business issuer's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the small business issuer's auditors and the audit
committee of the small business issuer'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 small business issuer'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 small business
issuer's internal control over financial reporting.
Date: August 13, 2004
/s/Martha L. Long
Martha L. Long
Senior Vice President of Shelter Realty III
Corporation, equivalent of the chief
executive officer of the Partnership
Exhibit 31.2
CERTIFICATION
I, Stephen B. Waters, 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 small business issuer as of, and for, the periods presented in this
report;
4. The small business issuer'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 small business issuer 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
small business issuer, 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 small business issuer'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 small business issuer's
internal control over financial reporting that occurred during the
small business issuer's most recent fiscal quarter (the small
business issuer's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
materially affect, the small business issuer's internal control over
financial reporting; and
5. The small business issuer's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the small business issuer's auditors and the audit
committee of the small business issuer'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 small business issuer'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 small business
issuer's internal control over financial reporting.
Date: August 13, 2004
/s/Stephen B. Waters
Stephen B. Waters
Vice President 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
Limited Partnership (the "Partnership"), for the quarterly period ended June 30,
2004 as filed with the Securities and Exchange Commission on the date hereof
(the "Report"), Martha L. Long, as the equivalent of the chief executive officer
of the Partnership, and Stephen B. Waters, 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/Martha L. Long
Name: Martha L. Long
Date: August 13, 2004
/s/Stephen B. Waters
Name: Stephen B. Waters
Date: August 13, 2004
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.