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 March 31, 2005
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _________ to _________
Commission file number 0-10255
SHELTER PROPERTIES I
(Exact Name of Small Business Issuer 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)
Check whether the issuer (1) 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 I
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
March 31, 2005
Assets
Cash and cash equivalents $ 97
Receivables and deposits 63
Restricted escrows 5
Other assets 398
Investment properties:
Land $ 979
Buildings and related personal property 14,116
15,095
Less accumulated depreciation (11,198) 3,897
$ 4,460
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 1
Tenant security deposit liabilities 69
Accrued property taxes 60
Other liabilities 225
Mortgage notes payable 10,845
Partners' Deficit
General partners $ (113)
Limited partners (15,000 units issued and
outstanding) (6,627) (6,740)
$ 4,460
See Accompanying Notes to Consolidated Financial Statements
SHELTER PROPERTIES I
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended
March 31,
2005 2004
Revenues:
Rental income $ 779 $ 762
Other income 79 79
Total revenues 858 841
Expenses:
Operating 355 306
General and administrative 26 38
Depreciation 128 135
Interest 205 212
Property taxes 77 64
Total expenses 791 755
Net income $ 67 $ 86
Net income allocated to general partners (1%) $ 1 $ 1
Net income allocated to limited partners (99%) 66 85
$ 67 $ 86
Net income per limited partnership unit $ 4.40 $ 5.67
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, 2004 15,000 $ (114) $(6,693) $(6,807)
Net income for the three months
ended March 31, 2005 -- 1 66 67
Partners' deficit at
March 31, 2005 15,000 $ (113) $(6,627) $(6,740)
See Accompanying Notes to Consolidated Financial Statements
SHELTER PROPERTIES I
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
March 31,
2005 2004
Cash flows from operating activities:
Net income $ 67 $ 86
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 128 135
Amortization of loan costs 5 5
Change in accounts:
Receivables and deposits (2) (8)
Other assets (27) (68)
Accounts payable (14) 38
Tenant security deposit liabilities (2) 1
Accrued property taxes (45) (56)
Other liabilities (58) (2)
Due to affiliates (32) 16
Net cash provided by operating activities 20 147
Cash flows used in investing activities:
Property improvements and replacements (71) (45)
Cash flows from financing activities:
Payments on mortgage notes payable (88) (66)
Advance from affiliate 123 98
Payments on advance from affiliate (123) (98)
Net cash used in financing activities (88) (66)
Net (decrease) increase in cash and cash equivalents (139) 36
Cash and cash equivalents at beginning of period 236 115
Cash and cash equivalents at end of period $ 97 $ 151
Supplemental disclosure of cash flow information:
Cash paid for interest $ 202 $ 169
Included in property improvements and replacements for the three months ended
March 31, 2005 and 2004 are approximately $34,000 and $21,000, respectively, of
improvements which were included in accounts payable at December 31, 2004 and
2003, respectively.
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 month period ended March 31, 2005, are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2005. 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, 2004.
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 Three Months Ended
March 31,
(in thousands)
2005 2004
Net cash provided by operating activities $ 20 $ 147
Payments on mortgage notes payable (88) (66)
Property improvements and replacements (71) (45)
Changes in reserves for net operating
liabilities 180 79
Additions to operating reserves (41) (115)
Net cash from operations $ -- $ --
During the three months ended March 31, 2005 and 2004 the Corporate General
Partner reserved approximately $41,000 and $115,000, respectively, to fund
continuing capital improvements, repairs and operations at the Partnership's
investment properties.
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 depends 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 receive 5% of gross receipts from
both of the Partnership's properties for providing property management services.
The Partnership paid to such affiliates approximately $45,000 and $41,000 for
the three months ended March 31, 2005 and 2004, respectively, which is included
in operating expenses.
Affiliates of the Corporate General Partner charged the Partnership for
reimbursement of accountable administrative expenses amounting to approximately
$22,000 and $24,000 for the three months ended March 31, 2005 and 2004,
respectively, which is included in general and administrative expenses and
investment properties. The portion of these reimbursements included in
investment properties for the three months ended March 31, 2005 are fees related
to construction management services provided by an affiliate of the Corporate
General Partner of approximately $5,000. There were no such fees charged during
the three months ended March 31, 2004. The construction management service fees
are calculated based on a percentage of additions to investment properties.
In accordance with the Partnership Agreement, during the three months ended
March 31, 2005 and 2004 an affiliate of the Corporate General Partner loaned the
Partnership approximately $123,000 and $98,000, respectively, to cover real
estate taxes at Quail Hollow Apartments. The advance balances for both years
were repaid during the same quarter in which they were issued. Interest was
charged at prime plus 2% (7.75% at March 31, 2005) and amounted to approximately
$2,000 and $1,000 for the three months ended March 31, 2005 and 2004,
respectively.
The Partnership insures its property 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 property above the AIMCO limits through
insurance policies obtained by AIMCO from insurers unaffiliated with the
Corporate General Partner. During the three months ended March 31, 2005, the
Partnership was charged by AIMCO and its affiliates approximately $36,000 for
hazard insurance coverage and fees associated with policy claims administration.
Additional charges will be incurred by the Partnership during 2005 as other
insurance polices renew later in the year. The Partnership was charged by AIMCO
and its affiliates approximately $43,000 for insurance coverage and fees
associated with policy claims administration during the year ended December 31,
2004.
Note D - 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 captioned Heller v.
Insignia Financial Group (the "Heller action") was filed against the same
defendants that are named in the Nuanes action. 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 28, 2002, the trial court granted defendants
motion to strike the complaint.
On January 8, 2003, the parties filed a Stipulation of Settlement in proposed
settlement of the Nuanes action and the Heller action.
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 (the "Appeal") seeking to vacate and/or reverse the
order approving the settlement and entering judgment thereto. On May 4, 2004,
the Objector filed a second appeal challenging the court's use of a referee and
its order requiring Objector to pay those fees.
On March 21, 2005, the Court of Appeals issued an opinion in both pending
appeals. With regard to the settlement and judgment entered thereto, the Court
of Appeals vacated the trial court's order and remanded to the trial court for
further finding on the basis that the "state of the record is insufficient to
permit meaningful appellate review". With regard to the second appeal, the Court
of Appeals reversed the order requiring the Objector to pay reference fees. On
April 26, 2005, the Court of Appeals lifted the stay of a pending appeal related
to the Heller action and the trial court's order striking the complaint. On
April 28, 2005, the Objector filed a Petition for Review with the California
Supreme Court in connection with the opinion vacating the order approving
settlement and remanding for further findings. The Coroprate General Partner and
its affiliates are currently scheduled to file an answer to Objector's petition
on May 18, 2005.
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.
As previously disclosed, AIMCO Properties L.P. and NHP Management Company, both
affiliates of the Corporate General Partner, are defendants in a lawsuit
alleging that they 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 attempts to bring 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. and NHP Management Company failed to compensate maintenance workers for
time that they were required to be "on-call." Additionally, the complaint
alleges AIMCO Properties L.P. and NHP Management Company 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. Oral argument relating to
the certification of the collective action is scheduled for May 12, 2005.
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. 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.
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.
Environmental
Various Federal, state and local laws subject property owners or operators to
liability for management, and the costs of removal or remediation, of certain
hazardous substances present on a property. Such laws often impose liability
without regard to whether the owner or operator knew of, or was responsible for,
the release or presence of the hazardous substances. The presence of, or the
failure to manage or remedy properly, hazardous substances may adversely affect
occupancy at affected apartment communities and the ability to sell or finance
affected properties. In addition to the costs associated with investigation and
remediation actions brought by government agencies, the presence of hazardous
substances on a property could result in claims by private plaintiffs for
personal injury, disease, disability or other infirmities. Various laws also
impose liability for the cost of removal, remediation or disposal of hazardous
substances through a licensed disposal or treatment facility. Anyone who
arranges for the disposal or treatment of hazardous substances is potentially
liable under such laws. These laws often impose liability whether or not the
person arranging for the disposal ever owned or operated the disposal facility.
In connection with the ownership and operation of its properties, the
Partnership could potentially be liable for environmental liabilities or costs
associated with its properties.
Mold
The Partnership is aware of lawsuits against owners and managers of multifamily
properties asserting claims of personal injury and property damage caused by the
presence of mold, some of which have resulted in substantial monetary judgments
or settlements. The Partnership has only limited insurance coverage for property
damage loss claims arising from the presence of mold and for personal injury
claims related to mold exposure. Affiliates of the Corporate General Partner
have implemented a national policy and procedures to prevent or eliminate mold
from its properties and the Corporate General Partner believes that these
measures will eliminate, or at least minimize, the effects that mold could have
on residents. To date, the Partnership has not incurred any material costs or
liabilities relating to claims of mold exposure or to abate mold conditions.
Because the law regarding mold is unsettled and subject to change the Corporate
General Partner can make no assurance that liabilities resulting from the
presence of or exposure to mold will not have a material adverse effect on the
Partnership's consolidated financial condition or results of operations.
SEC Investigation
The Central Regional Office of the United States Securities and Exchange
Commission (the "SEC") is conducting a formal investigation relating to certain
matters. Although the staff of the SEC is not limited in the areas that it may
investigate, 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,
capitalization of payroll and certain other costs, and tax credit transactions.
At the end of the first quarter of 2005, the SEC added certain tender offers for
limited partnership interests as an area of investigation. AIMCO is cooperating
fully. AIMCO is not able to predict when the investigation will be resolved.
AIMCO does not believe that the ultimate outcome will have a material adverse
effect on its consolidated financial condition or results of operations.
Similarly, the Corproate 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.
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 three months ended March 31, 2005 and 2004:
Average
Occupancy
Property 2005 2004
Quail Hollow Apartments (1)
West Columbia, South Carolina 82% 87%
Windsor Hills Apartments (2)
Blacksburg, Virginia 92% 88%
(1) The Corporate General Partner attributes the decrease in occupancy at
Quail Hollow Apartments primarily to more stringent acceptance standards
for new tenants and tenants purchasing homes.
(2) The Corporate General Partner attributes the increase in occupancy at
Windsor Hills Apartments primarily to longer lease terms and additional
demand in the local market area.
The Partnership's financial results depend 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 environment of its investment properties to assess the feasibility
of increasing rents, maintaining or increasing occupancy levels and protecting
the Partnership from increases in expenses. As part of this plan, the Corporate
General Partner attempts to protect the Partnership from the burden of
inflation-related increases in expenses by increasing rents and maintaining a
high overall occupancy level. However, due to changing market conditions, which
can result in the use of rental concessions and rental reductions to offset
softening market conditions, there is no guarantee that the Corporate General
Partner will be able to sustain such a plan. Further, a number of factors that
are outside the control of the Partnership such as the local economic climate
and weather can adversely or positively affect the Partnership's financial
results.
Results of Operations
The Partnership's net income for the three months ended March 31, 2005 was
approximately $67,000 compared to approximately $86,000 for the three months
ended March 31, 2004. The decrease in net income for the three months ended
March 31, 2005 is due to an increase in total expenses partially offset by an
increase in total revenues.
Total expenses increased primarily due to increases in operating and property
tax expenses, partially offset by a decrease in general and administrative
expenses. Operating expenses increased due to increases in property and
advertising expenses, partially offset by a decrease in maintenance expense.
Property expense increased primarily due to increases in salaries and related
benefits at both of the Partnership's properties and an increase in utilities at
Windsor Hills Apartments. Advertising expense increased primarily due to leasing
promotions at Windsor Hills Apartments. Maintenance expense decreased primarily
due to decreases in contract services at both of the Partnership's properties.
Property tax expense increased primarily due to the loss of an appeal of the
2004 property tax rates at Quail Hollow Apartments.
General and administrative expenses decreased primarily due to a decrease in the
costs of services included in the management reimbursements paid to the
Corporate General Partner as allowed under the Partnership Agreement. Also
included in general and administrative expenses are costs associated with the
quarterly and annual communications with investors and regulatory agencies and
the annual audit required by the Partnership Agreement.
Total revenues increased primarily due to an increase in rental income. Rental
income increased due to an increase in occupancy at Windsor Hills Apartments, an
increase in the average rental rates at Quail Hollow Apartments and a decrease
in bad debt expense at both of the Partnership's properties partially offset by
a decrease in occupancy at Quail Hollow Apartments and reduced average rental
rates at Windsor Hills Apartments.
Liquidity and Capital Resources
At March 31, 2005, the Partnership had cash and cash equivalents of
approximately $97,000 compared to approximately $151,000 at March 31, 2004. Cash
and cash equivalents decreased approximately $139,000 since December 31, 2004
due to approximately $71,000 and $88,000 of cash used in investing and financing
activities, respectively, partially offset by approximately $20,000 of cash
provided by operating activities. Cash used in investing activities consisted of
property improvements and replacements. Cash used in financing activities
consisted of payments on mortgages encumbering the Partnership's properties and
repayment of advances from affiliates, partially offset by advances from
affiliates. 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. Capital improvements planned for each of
the Partnership's properties are detailed below.
Quail Hollow Apartments
During the three months ended March 31, 2005, the Partnership completed
approximately $22,000 of capital improvements at Quail Hollow Apartments
consisting primarily of floor covering and appliance replacements. These
improvements were funded from operating cash flow. The Partnership regularly
evaluates the capital improvement needs of the property. While the Partnership
has no material commitments for property improvements and replacements, certain
routine capital expenditures are anticipated during 2005. Such capital
expenditures will depend on the physical condition of the property as well as
anticipated cash flow generated by the property.
Windsor Hills Apartments
During the three months ended March 31, 2005, the Partnership completed
approximately $15,000 of capital improvements at Windsor Hills Apartments,
consisting primarily of floor covering replacements and water and sewer
upgrades. These improvements were funded from operating cash flow. The
Partnership regularly evaluates the capital improvement needs of the property.
While the Partnership has no material commitments for property improvements and
replacements, certain routine capital expenditures are anticipated during 2005.
Such capital expenditures will depend on the physical condition of the property
as well as anticipated cash flow generated by the property.
Capital improvements will be incurred only if cash is available from operations
or from Partnership reserves. To the extent that capital improvements are
completed, the Partnership's distributable cash flow, if any, may be adversely
affected at least in the short term.
In accordance with the Partnership Agreement, during the three months ended
March 31, 2005 and 2004 an affiliate of the Corporate General Partner loaned the
Partnership approximately $123,000 and $98,000, respectively, to cover real
estate taxes at Quail Hollow Apartments. The advance balances for both years
were repaid during the same quarter they were issued. Interest was charged at
prime plus 2% (7.75% at March 31, 2005) and amounted to approximately $2,000 and
$1,000 for the three months ended March 31, 2005 and 2004, respectively.
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
$10,845,000 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.
There were no distributions during the three months ended March 31, 2005 or
2004. Future cash distributions will depend on the levels of cash generated from
operations, and the timing of debt maturities, property sales and/or
refinancings. The Partnership's cash available for distribution is reviewed on a
monthly basis. There can be no assurance that the Partnership will generate
sufficient funds from operations to permit any distributions to its partners in
2005 or subsequent periods.
Other
In addition to its indirect ownership of the general partner interests, in the
Partnership, AIMCO and its affiliates owned 12,023.50 limited partnership units
("Units") in the Partnership representing 80.16% of the outstanding Units at
March 31, 2005. 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 80.16% 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.
The Partnership will offer rental concessions during particularly slow months or
in response to heavy competition from other similar complexes in the area.
Rental income attributable to leases, net of any concessions, is recognized on a
straight-line basis over the term of the lease. 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.
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 captioned Heller v.
Insignia Financial Group (the "Heller action") was filed against the same
defendants that are named in the Nuanes action. 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 28, 2002, the trial court granted defendants
motion to strike the complaint.
On January 8, 2003, the parties filed a Stipulation of Settlement in proposed
settlement of the Nuanes action and the Heller action.
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 (the "Appeal") seeking to vacate and/or reverse the
order approving the settlement and entering judgment thereto. On May 4, 2004,
the Objector filed a second appeal challenging the court's use of a referee and
its order requiring Objector to pay those fees.
On March 21, 2005, the Court of Appeals issued opinions in both pending appeals.
With regard to the settlement and judgment entered thereto, the Court of Appeals
vacated the trial court's order and remanded to the trial court for further
findings on the basis that the "state of the record is insufficient to permit
meaningful appellate review". With regard to the second appeal, the Court of
Appeals reversed the order requiring the Objector to pay referee fees. On April
26, 2005, the Court of Appeals lifted the stay of a pending appeal related to
the Heller action and the trial court's order striking the complaint. On April
28, 2005, the Objector filed a Petition for Review with the California Supreme
Court in connection with the opinion vacating the order approving settlement and
remanding for further findings. The Corporate General Partner and its affiliates
are currently scheduled to file an answer to Objector's petition on May 18,
2005.
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.
As previously disclosed, AIMCO Properties L.P. and NHP Management Company, both
affiliates of the Corporate General Partner, are defendants in a lawsuit
alleging that they 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 attempts to bring 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. and NHP Management Company failed to compensate maintenance workers for
time that they were required to be "on-call." Additionally, the complaint
alleges AIMCO Properties L.P. and NHP Management Company 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. Oral argument relating to
the certification of the collective action is scheduled for May 12, 2005.
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. 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.
Item 5. Other Information
None.
Item 6. Exhibits
See Exhibit Index Attached.
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/Martha L. Long
Martha L. Long
Senior Vice President
By: /s/Stephen B. Waters
Stephen B. Waters
Vice President
Date: May 12, 2005
EXHIBIT INDEX
Exhibit
4 (a) Amended and Restated Certificate and Agreement of Limited
Partnership (included as Exhibit A to the Prospectus of
Registrant dated July 3, 1980 contained in Amendment No. 1
to Registration Statement No. 2-67384 of Registrant filed
July 3, 1980 (the "Prospectus") and incorporated herein by
reference).
(b) Subscription Agreements and Signature Pages (Filed with
Amendment No. 1 of Registration Statement No. 2-67384 of
Registrant filed July 3, 1980 and incorporated herein by
reference).
10(i) Contracts related to acquisition or disposition of
properties.
(a) Purchase Agreement dated December 5, 1979, between Quail
Hollow Associates Limited Partnership and U.S. Shelter
Corporation to purchase Quail Hollow Apartments.*
(b) Purchase Agreement dated December 5, 1979, between Windsor
Associates and U.S. Shelter Corporation to purchase Windsor
Hills Apartments.*
*Filed as Exhibits 12(c) and 12(d), respectively, to
Registration Statement No. 2-67384 of Registrant filed April
16, 1980 and incorporated herein by reference.
10(iii) Contracts related to refinancing the debt:
(l) Multifamily Note secured by a Mortgage or Deed of Trust dated
December 15, 2000 between Windsor Hills I, LP and Reilly
Mortgage Group, Inc. relating to Windsor Hills Apartments.
Filed as Exhibit 10(iii)(l) to Annual Form 10-KSB of
Registrant for year ended December 31, 2000 and incorporated
herein by reference.
(m) Multifamily Note dated June 27, 2001, by and between Shelter
Properties I Limited Partnership, a South Carolina limited
partnership, and GMAC Commercial Mortgage Corporation. Filed
as Exhibit 10(iii)(m) to Form 10-QSB of Registrant for quarter
ended June 30, 2001 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.
31.2Certification 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 July 3, 1980, (included in
Registration Statement No. 2-67384, of Registrant) and
incorporated herein by reference.
(b) Agreement of Limited Partnership for Windsor Hills I, L.P.
between Shelter I GP Limited Partnership and Shelter I Limited
Partnership dated October 13, 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
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 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: May 12, 2005
/s/Martha L. Long
Martha L. Long
Senior Vice President of Shelter Realty I
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
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 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: May 12, 2005
/s/Stephen B. Waters
Stephen B. Waters
Vice President 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
Limited Partnership (the "Partnership"), for the quarterly period ended March
31, 2005 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: May 12, 2005
/s/Stephen B. Waters
Name: Stephen B. Waters
Date: May 12, 2005
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.