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 0-10260
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 (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 III
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
March 31, 2005
Assets
Cash and cash equivalents $ 198
Receivables and deposits 102
Restricted escrows 84
Other assets 485
Investment properties:
Land $ 762
Buildings and related personal property 16,250
17,012
Less accumulated depreciation (12,031) 4,981
$ 5,850
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 5
Tenant security deposit liabilities 60
Accrued property taxes 71
Other liabilities 220
Due to affiliate (Note C) 511
Mortgage notes payable 9,034
Partners' Deficit
General partners $ (76)
Limited partners (55,000 units issued and
outstanding) (3,975) (4,051)
$ 5,850
See Accompanying Notes to Consolidated Financial Statements
SHELTER PROPERTIES III
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended
March 31,
2005 2004
Revenues: (Restated)
Rental income $ 645 $ 661
Other income 69 65
Total revenues 714 726
Expenses:
Operating 427 318
General and administrative 40 72
Depreciation 144 154
Interest 171 174
Property taxes 70 64
Total expenses 852 782
Loss from continuing operations (138) (56)
Gain on sale of discontinued operations (Note A) 124 --
Income from discontinued operations -- 104
Net (loss) income $ (14) $ 48
Net loss allocated to general partner $ (1) $ --
Net (loss) income allocated to limited partners (13) 48
$ (14) $ 48
Per limited partnership unit:
Loss from continuing operations $ (2.49) $ (1.00)
Gain on sale of discontinued operations 2.25 --
Income from discontinued operations -- 1.87
Net (loss) income per limited partnership unit $ (0.24) $ 0.87
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, 2004 55,000 $ (75) $(3,962) $(4,037)
Net loss for the three months
ended March 31, 2005 -- (1) (13) (14)
Partners' deficit at
March 31, 2005 55,000 $ (76) $(3,975) $(4,051)
See Accompanying Notes to Consolidated Financial Statements
SHELTER PROPERTIES III
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
March 31,
2005 2004
Cash flows from operating activities:
Net (loss) income $ (14) $ 48
Adjustments to reconcile net (loss) income to net cash
used in operating activities:
Depreciation 144 226
Amortization of loan costs 3 5
Gain on sale of discontinued operations (124) --
Casualty gain -- (47)
Bad debt expense 17 20
Change in accounts:
Receivables and deposits 22 (12)
Other assets (27) (120)
Accounts payable (65) 23
Tenant security deposit liabilities 5 (2)
Accrued property taxes (122) (234)
Due to affiliate (86) 55
Other liabilities (97) 26
Net cash used in operating activities (344) (12)
Cash flows from investing activities:
Property improvements and replacements (50) (218)
Net withdrawals from restricted escrows -- 95
Insurance proceeds received -- 47
Net cash used in investing activities (50) (76)
Cash flows from financing activities:
Payments on mortgage notes payable (76) (95)
Advances from an affiliate 193 135
Repayment of advances from affiliate -- (69)
Net cash provided by (used in) financing activities 117 (29)
Net decrease in cash and cash equivalents (277) (117)
Cash and cash equivalents at beginning of period 475 192
Cash and cash equivalents at end of period $ 198 $ 75
Supplemental disclosure of cash flow information:
Cash paid for interest $ 164 $ 192
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 month period ended March 31, 2005, are not necessarily
indicative of the results that may be expected for the fiscal 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 fiscal year ended December 31, 2004.
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 144,
the statement of operations for the three months ended March 31, 2004 has been
restated to reflect the operations of Colony House Apartments as income from
discontinued operations due to its sale in October 2004. Included in income from
discontinued operations for the three months ended March 31, 2004 is
approximately $403,000 of revenue generated by the property. The additional gain
on sale recognized during the three months ended March 31, 2005 is due to the
reversal of contingency and tax reserves that were no longer needed.
Certain 2004 balances have been reclassified to conform with the 2005
presentation.
Note B - Reconciliation of Cash Flows
As required by the Partnership Agreement, the following is a reconciliation of
"Net cash 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 Three Months Ended
March 31,
2005 2004
(in thousands)
Net cash used in operating activities $ (344) $ (12)
Payments on mortgage notes payable (76) (95)
Property improvements and replacements (50) (218)
Change in restricted escrows -- 95
Changes in reserves for net operating assets 370 264
Additional reserves -- (34)
Net cash from operations $ (100) $ --
For the three months ended March 31, 2004, the Corporate General Partner
reserved approximately $34,000 to fund capital improvements and repairs at the
Partnership's 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
the Partnership's properties as compensation for providing property management
services. The Partnership paid to such affiliates approximately $35,000 and
$53,000 during the three months ended March 31, 2005 and 2004, respectively,
which is included in operating expenses and income from discontinued operations.
An affiliate of the Corporate General Partner received reimbursement of
accountable administrative expenses amounting to approximately $26,000 and
$98,000 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 and 2004 are fees related to construction
management services provided by an affiliate of the Corporate General Partner of
approximately $1,000 and $43,000, respectively. The construction management
service fees are calculated based on a percentage of additions to the investment
properties.
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 approximately $68,000 for its assistance in the sale. In
connection with the sale of Colony House Apartments in 2004, the Corporate
General Partner earned a commission of approximately $61,000. Payment of such
commissions is subordinate to the limited partners receiving a cumulative 7%
return on their investment. This return has not yet been met and the balance of
approximately $314,000 is included in due to affiliates in the accompanying
consolidated balance sheet at March 31, 2005.
Pursuant to the Partnership Agreement, an affiliate of the Corporate General
Partner advanced the Partnership approximately $193,000 and $135,000 during the
three months ended March 31, 2005 and 2004, respectively, to aid in the payment
of property taxes at Essex Park Apartments. During the three months ended March
31, 2004, the Partnership made a payment on this advance of approximately
$69,000. Interest on advances is charged at the prime rate plus 2% or 7.75% at
March 31, 2005. Interest expense was approximately $3,000 and $1,000 for the
three months ended March 31, 2005 and 2004, respectively. At March 31, 2005, the
Partnership owed an affiliate of the Corporate General Partner approximately
$197,000 in advances and accrued interest which is included in due to affiliate.
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 three months ended March 31, 2005, the
Partnership was charged by AIMCO and its affiliates approximately $27,000 for
hazard insurance coverage and fees associated with policy claims administration.
Additional charges will be incurred by the Partnership during 2005 as other
insurance policies renew later in the year. The Partnership was charged by AIMCO
and its affiliates approximately $65,000 for insurance coverage and fees
associated with policy claims administration during the year ended December 31,
2004.
Note D - Casualty Gain
In May 2003, one of the Partnership's investment properties, Colony House
Apartments, incurred damages as a result of a hail storm. During the three
months ended March 31, 2004, the Partnership received insurance proceeds of
approximately $47,000, which were recognized as a casualty gain because the
damaged fixed assets had been written off during 2003. The casualty gain is
included in income from discontinued operations due to the sale of the property
in October 2004.
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 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.
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 took place on May 12, 2005 and the
parties await a ruling from the Court. 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 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 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
Essex Park Apartments
Columbia, South Carolina 86% 88%
Willowick Apartments
Greenville, South Carolina (1) 85% 91%
(1) The Corporate General Partner attributes the decrease in occupancy at
Willowick Apartments to increased credit standards for prospective
tenants.
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 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 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 had net loss of approximately $14,000 and net income of
approximately $48,000 for the three months ended March 31, 2005 and 2004,
respectively. The decrease in net income for the three months ended March 31,
2005 is due to a decrease in income from discontinued operations partially
offset by gain on sale of discontinued operations recognized during 2005.
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 144,
the statement of operations for the three months ended March 31, 2004 has been
restated to reflect the operations of Colony House Apartments as income from
discontinued operations due to its sale in October 2004. Included in income from
discontinued operations for the three months ended March 31, 2004 is
approximately $403,000 of revenue generated by the property. The additional gain
on sale recognized during the three months ended March 31, 2005 is due to the
reversal of contingency and tax reserves that were no longer needed.
Excluding the income from discontinued operations and gain on sale of
discontinued operations, the Partnership had loss from continuing operations of
approximately $138,000 and $56,000 for the three months ended March 31, 2005 and
2004, respectively. The increase in loss from continuing operations for the
three months ended March 31, 2005 is due to a decrease in total revenues and an
increase in total expenses.
Total revenues decreased due to a decrease in rental income. Rental income
decreased due to decreases in occupancy at both investment properties partially
offset by an increase in the average rental rates at Essex Park Apartments.
Total expenses increased for the three months ended March 31, 2005 due to an
increase in operating expenses partially offset by a decrease in general and
administrative expenses. Operating expenses increased due to increased property
expenses. Property expenses increased due to an increase in payroll and related
costs at both of the Partnership's investment properties.
General and administrative expenses decreased due to a decrease 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.
Liquidity and Capital Resources
At March 31, 2005, the Partnership had cash and cash equivalents of
approximately $198,000 compared to approximately $75,000 at March 31, 2004. The
decrease in cash and cash equivalents of approximately $277,000 from December
31, 2004 is due to approximately $344,000 of cash used in operating activities
and approximately $50,000 of cash used in investing activities partially offset
by approximately $117,000 of cash provided by financing activities. Cash used in
investing activities consisted of property improvements and replacements. Cash
provided by financing activities consisted of advances received from an
affiliate of the Corporate General Partner partially offset by principal
payments on the mortgages encumbering the Partnership's properties. The
Partnership invests its working capital reserves in interest bearing accounts.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the investment properties to adequately maintain the
physical assets and other operating needs of the Partnership and to comply with
Federal, state, and local legal and regulatory requirements. The Corporate
General Partner monitors developments in the area of legal and regulatory
compliance. 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
the Partnership's properties are detailed below.
Essex Park Apartments
During the three months ended March 31, 2005, the Partnership completed
approximately $33,000 of capital improvements at Essex Park Apartments,
consisting primarily of structural upgrades, maintenance equipment, and floor
covering 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 the anticipated cash flow generated by the
property.
Willowick Apartments
During the three months ended March 31, 2005, the Partnership completed
approximately $17,000 of capital improvements at Willowick Apartments consisting
primarily of floor covering 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 the anticipated cash flow generated by the
property.
Capital expenditures 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.
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 both of the investment properties of approximately
$9,034,000 is amortized over 240 months and is scheduled to be fully amortized
in January 2021.
No distributions were made during the three months ended March 31, 2005 and
2004.
Future cash distributions will depend on the levels of cash generated from
operations and the timing of the 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, after required capital expenditures, to permit
any distributions to its partners in the year 2005 or subsequent periods.
Other
In addition to its indirect ownership of the general partner interest in the
Partnership, AIMCO and its affiliates owned 36,382 limited partnership units
(the "Units") in the Partnership representing 66.15% 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 66.15% 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.
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.
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 took place on May 12, 2005 and the
parties await a ruling from the Court. 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.
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: May 13, 2005
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].
(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(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.
(b) Purchase Agreement dated July 31, 1981, between Southern
Associated Limited Partnership and U.S. Shelter Corporation
to purchase Essex Park Apartments.**
**Filed as Exhibit 12(b) to Amendment No. 1 of Registration
Statement No. 2-72567 of Registrant filed September 2, 1981
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:
(c) Purchase and Sale Contract between Registrant and The Dama
Realty Investors, LLC, dated August 18, 2004 (filed as exhibit
10 (iv)(c) on Form 8-K dated November 3, 2004).
(d) Assignment and Assumption of Real Estate Sale Agreement
between The Dama Realty Investors, LLC and Colony House
General Partnership, dated August 18, 2004 (filed as exhibit
10 (iv)(d) on Form 8-K dated November 3, 2004).
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 of the equivalent of the Chief Executive
Officer and Chief Financial Officer 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.
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: May 13, 2005
/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: May 13, 2005
/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 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; 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 13, 2005
/s/Stephen B. Waters
Name: Stephen B. Waters
Date: May 13, 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, as amended.