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 September 30, 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 ___
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes ___ No _X_
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SHELTER PROPERTIES I
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
September 30, 2005
Assets
Cash and cash equivalents $ 86
Receivables and deposits 65
Restricted escrows 5
Other assets 295
Investment properties:
Land $ 459
Buildings and related personal property 7,050
7,509
Less accumulated depreciation (5,126) 2,383
Assets held for sale (Note A) 1,980
$ 4,814
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 169
Tenant security deposit liabilities 22
Due to affiliates (Note C) 404
Accrued property taxes 87
Other liabilities 245
Mortgage notes payable 4,672
Liabilities related to assets held for sale (Note A) 6,110
Partners' Deficit
General partners $ (115)
Limited partners (15,000 units issued and
outstanding) (6,780) (6,895)
$ 4,814
See Accompanying Notes to Consolidated Financial Statements
SHELTER PROPERTIES I
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
(Restated) (Restated)
Revenues:
Rental income $ 295 $ 324 $ 873 $ 911
Other income 31 39 104 103
Total revenues 326 363 977 1,014
Expenses:
Operating 257 185 598 516
General and administrative 36 19 102 98
Depreciation 61 61 180 189
Interest 96 94 281 282
Property taxes 29 31 104 93
Total expenses 479 390 1,265 1,178
Loss from continuing operations (153) (27) (288) (164)
Income from discontinued
Operations (Note A) 30 22 200 164
Net loss $ (123) $ (5) $ (88) $ --
Net loss allocated to general
partners (1%) $ (1) $ -- $ (1) $ --
Net loss allocated to limited
partners (99%) (122) (5) (87) --
Net loss $ (123) $ (5) $ (88) $ --
Per limited partnership unit:
Loss from continuing operations $(10.11) $ (1.78) $(19.00) $(10.82)
Income from discontinued
operations 1.98 1.45 13.20 10.82
Net loss per limited partnership
unit $ (8.13) $ (0.33) $ (5.80) $ --
See Accompanying Notes to Consolidated Financial Statements
SHELTER PROPERTIES I
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partners Partners Total
Original capital contributions 15,000 $ 2 $15,000 $15,002
Partners' deficit at
December 31, 2004 15,000 $ (114) $(6,693) $(6,807)
Net loss for the nine months
ended September 30, 2005 -- (1) (87) (88)
Partners' deficit at
September 30, 2005 15,000 $ (115) $(6,780) $(6,895)
See Accompanying Notes to Consolidated Financial Statements
SHELTER PROPERTIES I
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
2005 2004
Cash flows from operating activities:
Net loss $ (88) $ --
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation 386 403
Amortization of loan costs 14 14
Change in accounts:
Receivables and deposits (4) 15
Other assets (52) (79)
Accounts payable 28 (10)
Tenant security deposit liabilities 3 2
Accrued property taxes 12 5
Other liabilities (2) 20
Due to affiliates (18) 7
Net cash provided by operating activities 279 377
Cash flows used in investing activities:
Property improvements and replacements (550) (186)
Cash flows from financing activities:
Payments on mortgage notes payable (269) (234)
Advances from affiliates 513 98
Payments on advances from affiliate (123) (98)
Net cash provided by (used in) financing
activities 121 (234)
Net decrease in cash and cash equivalents (150) (43)
Cash and cash equivalents at beginning of period 236 115
Cash and cash equivalents at end of period $ 86 $ 72
Supplemental disclosure of cash flow information:
Cash paid for interest $ 597 $ 577
Supplemental disclosure of non-cash activities:
Property improvements and replacements included in
accounts payable $ 126 $ 27
Included in property improvements and replacements for the nine months ended
September 30, 2005 and 2004 are approximately $34,000 and $21,000 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 and nine month periods ended September
30, 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.
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets", the
accompanying statements of operations for the three and nine months ended
September 30, 2004 have been restated to reflect the operations of Windsor Hills
Apartments as income from discontinued operations. The Partnership has committed
to a plan to sell Windsor Hills Apartments within one year. In accordance with
SFAS No. 144, the assets and liabilities of Windsor Hills Apartments have been
classified as held for sale at September 30, 2005. Included in the income from
discontinued operations are revenues of approximately $501,000 and $1,511,000
for the three and nine months ended September 30, 2005, respectively, and
approximately $503,000 and $1,493,000 for the three and nine months ended
September 30, 2004, respectively.
Note B - Reconciliation of Cash Flows
As required by the Partnership Agreement, the following is a reconciliation of
"Net cash provided by operating activities" in the accompanying consolidated
statements of cash flows to "Net cash from operations", as defined in the
Partnership Agreement. However, "Net cash from operations" should not be
considered an alternative to net income as an indicator of the Partnership's
operating performance or to cash flows as a measure of liquidity.
For the Nine Months Ended
September 30,
(in thousands)
2005 2004
Net cash provided by operating activities $ 279 $ 377
Payments on mortgage notes payable (269) (234)
Property improvements and replacements (550) (186)
Changes in reserves for net operating
liabilities 33 40
Net cash used in operations $ (507) $ (3)
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 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 $124,000 and $121,000 for
the nine months ended September 30, 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
$104,000 and $72,000 for the nine months ended September 30, 2005 and 2004,
respectively, which is included in general and administrative expenses and
investment properties. Approximately $8,000 of these expenses were payable to
the Corporate General Partner at September 30, 2005 and are included in due to
affiliates. The portion of these reimbursements included in investment
properties for the nine months ended September 30, 2005 are fees related to
construction management services provided by an affiliate of the Corporate
General Partner of approximately $43,000. There were no such fees charged during
the nine months ended September 30, 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 nine months ended
September 30, 2005 and 2004 an affiliate of the Corporate General Partner
advanced the Partnership approximately $513,000 and $98,000, respectively, to
cover real estate taxes, operating expenses and capital expenditures at Quail
Hollow Apartments. The advance balance for the nine months ended September 30,
2004 was repaid during the same quarter in which it was issued. The Partnership
repaid approximately $123,000 of the advances made during the nine months ended
September 30, 2005. Interest is charged at prime plus 2% (8.75% at September 30,
2005) and amounted to approximately $7,000 and $1,000 for the nine months ended
September 30, 2005 and 2004, respectively. Total advances and accrued interest
of approximately $396,000 remain unpaid at September 30, 2005 and are included
in due to affiliates. Additionally, subsequent to September 30, 2005, the
Corporate General Partner advanced to the Partnership approximately $60,000 for
capital expenditures at Windsor Hills Apartments.
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, general
liability 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 nine months ended
September 30, 2005 and 2004, the Partnership was charged by AIMCO and its
affiliates approximately $45,000 and $43,000, respectively, for insurance
coverage and fees associated with policy claims administration.
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. Plaintiffs took an appeal from this order.
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. On June 10, 2005, the California Supreme Court
denied Objector's Petition for Review and the Court of Appeals sent the matter
back to the trial court on June 21, 2005. The parties intend to ask the trial
court to make further findings in connection with settlement consistent with the
Court of Appeal's remand order. With respect to the Heller appeal, on July 28,
2005, the Court of Appeals reversed the trial court's order striking the first
amended complaint.
On August 18, 2005, Objector and his counsel filed a motion to disqualify the
trial court based on a peremptory challenge and filed a motion to disqualify for
cause on October 17, 2005. On or about October 13, 2005 Objector filed a motion
to intervene and on or about October 19, 2005 filed both a motion to take
discovery relating to the adequacy of plaintiffs as derivative representatives
and a motion to dissolve the anti-suit injunction in connection with settlement.
On October 27, 2005, the Court denied Objector's peremptory challenge and struck
Objector's motion to disqualify for cause. No hearing has been set on Objector's
remaining motions. On November 3, 2005, Objector and his counsel filed a writ of
mandate to the Court of Appeals challenging the court's October 27, 2005 order.
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, filed in the United States District Court for the District of
Columbia, 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 excess of 40 hours
in a week. In June 2005 the Court conditionally certified the collective action
on both the on-call and overtime issues, which allows the plaintiffs to provide
notice of the collective action to all non-exempt maintenance workers from
August 7, 2000 through the present. Those employees will have the opportunity to
opt-in to the collective action, and AIMCO Properties, L.P. and NHP Management
Company will have the opportunity to move to decertify the collective action.
Because the court denied plaintiffs' motion to certify state subclasses, on
September 26, 2005, the plaintiffs filed a class action with the same
allegations in the Superior Court of California (Contra Costa County). 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
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.
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, and potential fines or
penalties imposed by such agencies in connection therewith, 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, operation and management 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 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") continues its 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 have included 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, tax credit transactions, and
tender offers for limited partnership interests. 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, one
of which is classified as held for sale at September 30, 2005 (as discussed in
"Results of Operations"). The following table sets forth the average occupancy
of the properties for each of the nine months ended September 30, 2005 and 2004:
Average
Occupancy
Property 2005 2004
Quail Hollow Apartments (1)
West Columbia, South Carolina 79% 87%
Windsor Hills Apartments
Blacksburg, Virginia 88% 87%
(1) The Corporate General Partner attributes the decrease in occupancy at
Quail Hollow Apartments to more stringent acceptance standards for new
tenants and tenants purchasing homes.
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 recognized a net loss of approximately $123,000 and $88,000 for
the three and nine months ended September 30, 2005, respectively, compared to
net loss of approximately $5,000 and net income of less than $1,000 for the
three and nine months ended September 30, 2004, respectively. The increase in
net loss for the three and nine months ended September 30, 2005 is due to an
increase in loss from continuing operations, partially offset by an increase in
income from discontinued operations.
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets", the
accompanying statements of operations for the three and nine months ended
September 30, 2004 have been restated to reflect the operations of Windsor Hills
Apartments as income from discontinued operations. The Partnership has committed
to a plan to sell Windsor Hills Apartments within one year. In accordance with
SFAS No. 144, the assets and liabilities of Windsor Hills Apartments have been
classified as held for sale at September 30, 2005.
Income from discontinued operations was approximately $30,000 and $200,000 for
the three and nine months ended September 30, 2005, respectively, compared to
income from discontinued operations of approximately $22,000 and $164,000 for
the three and nine months ended September 30, 2004, respectively. Included in
the income from discontinued operations are revenues of approximately $501,000
and $1,511,000 for the three and nine months ended September 30, 2005,
respectively, and approximately $503,000 and $1,493,000 for the three and nine
months ended September 30, 2004, respectively.
Loss from continuing operations was approximately $153,000 and $288,000 for the
three and nine months ended September 30, 2005, respectively, compared to loss
from continuing operations of approximately $27,000 and $164,000 for the three
and nine months ended September 30, 2004, respectively. Loss from continuing
operations increased for both periods due to an increase in total expenses and a
decrease in total revenues.
Total expenses increased for the nine months ended September 30, 2005 due to an
increase in operating expenses. Total expenses increased for the three months
ended September 30, 2005 due to increases in operating and general and
administrative expenses. Operating expenses increased for both the three and
nine months ended September 30, 2005 due to increases in property,
administrative and advertising expenses. Additionally, the increase in operating
expenses for the three months ended September 30, 2005 included an increase in
maintenance expense. Property expenses increased for both periods primarily due
to an increase in salaries and related benefits at Quail Hollow Apartments.
Administrative expense increased for both the three and nine months ended
September 30, 2005 primarily due to an increase in temporary agency help at
Quail Hollow Apartments. Advertising expense increased for the three and nine
months ended September 30, 2005 primarily due to an increase in web advertising
at Quail Hollow Apartments. Maintenance expense increased for the three months
ended September 30, 2005 due to increases in contract services and environmental
expenses, primarily mold remediation, at Quail Hollow Apartments.
General and administrative expenses increased for the three months ended
September 30, 2005 due to an increase in the costs associated with the annual
audit required by the Partnership Agreement. Also included in general and
administrative expenses for both the three and nine months ended September 30,
2005 and 2004 are management reimbursements paid to the Corporate General
Partner as allowed under the Partnership Agreement and costs associated with the
quarterly and annual communications with investors and regulatory agencies.
Total revenues decreased for the three and nine months ended September 30, 2005
due to a decrease in rental income. Additionally, the decrease in total revenues
for the three month period includes a decrease in other income. Rental income
decreased for the three and nine months ended September 30, 2005 due to a
decrease in occupancy at Quail Hollow Apartments partially offset by an increase
in average rental rates at Quail Hollow Apartments. Other income decreased for
the three months ended September 30, 2005 due to a decrease in lease
cancellation fees.
Liquidity and Capital Resources
At September 30, 2005, the Partnership had cash and cash equivalents of
approximately $86,000 compared to approximately $72,000 at September 30, 2004.
Cash and cash equivalents decreased approximately $150,000 since December 31,
2004 due to approximately $550,000 of cash used in investing activities,
partially offset by approximately $121,000 and $279,000 of cash provided by
financing and operating activities, respectively. Cash used in investing
activities consisted of property improvements and replacements. Cash provided by
financing activities consisted of advances from affiliates partially offset by
payments on mortgages encumbering the Partnership's properties and repayment of
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 nine months ended September 30, 2005, the Partnership completed
approximately $390,000 of capital improvements at Quail Hollow Apartments
consisting primarily of floor covering, balcony, gutter and roof replacement.
These improvements were funded from operating cash flow and advances from
affiliates. 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 nine months ended September 30, 2005, the Partnership completed
approximately $252,000 of capital improvements at Windsor Hills Apartments,
consisting primarily of floor covering and air conditioning unit replacements,
doors 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. The Partnership plans to sell the property within one year.
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 nine months ended
September 30, 2005 and 2004 an affiliate of the Corporate General Partner
advanced the Partnership approximately $513,000 and $98,000, respectively, to
cover real estate taxes, operating expenses and capital expenditures at Quail
Hollow Apartments. The advance balance for the nine months ended September 30,
2004 was repaid during the same quarter in which it was issued. The Partnership
repaid approximately $123,000 of the advances made during the nine months ended
September 30, 2005. Interest is charged at prime plus 2% (8.75% at September 30,
2005) and amounted to approximately $7,000 and $1,000 for the nine months ended
September 30, 2005 and 2004, respectively. Total advances and accrued interest
of approximately $396,000 remain unpaid at September 30, 2005 and are included
in due to affiliates.
Due to short-term cash shortfalls at Windsor Hill Apartments, the Partnership
obtained an advance from an affiliate of the Corporate General Partner of
approximately $88,000 subsequent to September 30, 2005. Other than this advance,
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
$10,664,000 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. The
partnership plans to sell Windsor Hills Apartments within one year. 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 nine months ended September 30, 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. Given the balance of outstanding loans to the Corporate General
Partner, it is not expected that the Partnership will generate sufficient funds
from operations, after required capital improvements, 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
September 30, 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. Plaintiffs took an appeal from this order.
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. On June 10, 2005, the California Supreme Court
denied Objector's Petition for Review and the Court of Appeals sent the matter
back to the trial court on June 21, 2005. The parties intend to ask the trial
court to make further findings in connection with settlement consistent with the
Court of Appeal's remand order. With respect to the Heller appeal, on July 28,
2005, the Court of Appeals reversed the trial court's order striking the first
amended complaint.
On August 18, 2005, Objector and his counsel filed a motion to disqualify the
trial court based on a peremptory challenge and filed a motion to disqualify for
cause on October 17, 2005. On or about October 13, 2005 Objector filed a motion
to intervene and on or about October 19, 2005 filed both a motion to take
discovery relating to the adequacy of plaintiffs as derivative representatives
and a motion to dissolve the anti-suit injunction in connection with settlement.
On October 27, 2005, the Court denied Objector's peremptory challenge and struck
Objector's motion to disqualify for cause. No hearing has been set on Objector's
remaining motions. On November 3, 2005, Objector and his counsel filed a writ of
mandate to the Court of Appeals challenging the court's October 27, 2005 order.
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, filed in the United States District Court for the District of
Columbia, 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 excess of 40 hours
in a week. In June 2005 the Court conditionally certified the collective action
on both the on-call and overtime issues, which allows the plaintiffs to provide
notice of the collective action to all non-exempt maintenance workers from
August 7, 2000 through the present. Those employees will have the opportunity to
opt-in to the collective action, and AIMCO Properties, L.P. and NHP Management
Company will have the opportunity to move to decertify the collective action.
Because the court denied plaintiffs' motion to certify state subclasses, on
September 26, 2005, the plaintiffs filed a class action with the same
allegations in the Superior Court of California (Contra Costa County). 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
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 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: November 14, 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 September 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.
31.2 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 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: November 14, 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: November 14, 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
September 30, 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: November 14, 2005
/s/Stephen B. Waters
Name: Stephen B. Waters
Date: November 14, 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.