FORM 10-QSB - QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Quarterly or Transitional Report
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________ to _________
Commission file number 0-10255
SHELTER PROPERTIES I
(Exact name of small business issuer as specified in its charter)
South Carolina 57-0707398
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, Post Office Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No____
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
SHELTER PROPERTIES I
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except per unit data)
September 30, 2000
<TABLE>
<CAPTION>
Assets
<S> <C> <C>
Cash and cash equivalents $ 758
Receivables and deposits 383
Restricted escrows 521
Other assets 177
Investment properties:
Land $ 1,189
Buildings and related personal property 17,180
18,369
Less accumulated depreciation (12,770) 5,599
$ 7,438
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 37
Tenant security deposit liabilities 119
Accrued property taxes 108
Other liabilities 496
Mortgage notes payable 9,764
Partners' Deficit
General partners $ (44)
Limited partners (15,000 units issued and
outstanding) (3,042) (3,086)
$ 7,438
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
b)
SHELTER PROPERTIES I
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
Revenues:
<S> <C> <C> <C> <C>
Rental income $ 1,313 $ 1,311 $ 3,942 $ 3,881
Other income 98 64 278 186
Gain on sale of investment
property 1,832 -- 1,832 --
Total revenues 3,243 1,375 6,052 4,067
Expenses:
Operating 585 580 1,645 1,578
General and administrative 120 47 221 141
Depreciation 180 175 561 480
Interest 232 235 698 709
Property taxes 93 70 243 212
Total expenses 1,210 1,107 3,368 3,120
Income before extraordinary
item 2,033 268 2,684 947
Extraordinary loss on early
extinguishment of debt (77) -- (77) --
Net income $ 1,956 $ 268 $ 2,607 $ 947
Net income allocated
to general partners (1%) $ 20 $ 2 $ 26 $ 9
Net income allocated
to limited partners (99%) 1,936 266 2,581 938
Net income $ 1,956 $ 268 $ 2,607 $ 947
Per limited partnership unit:
Income before extraordinary
item $134.14 $ 17.73 $177.14 $ 62.53
Extraordinary item (5.07) -- (5.07) --
Net income $129.07 $ 17.73 $172.07 $ 62.53
Distribution per limited
partnership $ 83.60 $ 19.80 $195.60 $ 85.80
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
c)
SHELTER PROPERTIES I
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
<TABLE>
<CAPTION>
Limited
Partnership General Limited
Units Partners Partners Total
<S> <C> <C> <C> <C>
Original capital contributions 15,000 $ 2 $15,000 $15,002
Partners' deficit at
December 31, 1999 15,000 $ (52) $(2,689) $(2,741)
Distributions to partners -- (18) (2,934) (2,952)
Net income for the nine months
ended September 30, 2000 -- 26 2,581 2,607
Partners' deficit at
September 30, 2000 15,000 $ (44) $(3,042) $(3,086)
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
d)
SHELTER PROPERTIES I
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
2000 1999
Cash flows from operating activities:
<S> <C> <C>
Net income $ 2,607 $ 947
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 561 480
Amortization of discounts and loan costs 67 69
Gain on sale of investment property (1,832) --
Extraordinary loss on early extinguishment of debt 77 --
Change in accounts:
Receivables and deposits (85) (31)
Other assets (4) (44)
Accounts payable (105) (41)
Tenant security deposit liabilities (28) 11
Accrued property taxes 60 66
Other liabilities 75 14
Net cash provided by operating activities 1,393 1,471
Cash flows from investing activities:
Property improvements and replacements (826) (600)
Net (deposits to) withdrawals from restricted escrows (20) 185
Proceeds from sale of investment property 2,976 --
Net cash provided by (used in) investing
activities 2,130 (415)
Cash flows from financing activities:
Payments on mortgage notes payable (119) (110)
Distributions to partners (2,952) (1,300)
Debt extinguishment costs paid (42) --
Repayment of mortgage note (1,400) --
Net cash used in financing activities (4,513) (1,410)
Net decrease in cash and cash equivalents (990) (354)
Cash and cash equivalents at beginning of period 1,748 1,682
Cash and cash equivalents at end of period $ 758 $ 1,328
Supplemental disclosure of cash flow information:
Cash paid for interest $ 639 $ 640
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
e)
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. In the opinion of Shelter Realty I Corporation (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, 2000
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2000. 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, 1999.
Principles of Consolidation
The Registrant's financial statements include all of the accounts of the
Registrant and its 99.99% owned partnership. The general partner of the
consolidated partnership is Shelter Realty I Corporation. Shelter Realty I
Corporation may be removed by the Registrant; therefore, the consolidated
partnership is controlled and consolidated by the Registrant. All significant
interpartnership transactions have been eliminated.
Note B - Transfer of Control
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust
merged into Apartment Investment and Management Company ("AIMCO"), a publicly
traded real estate investment trust, with AIMCO being the surviving corporation
(the "Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in
the Corporate General Partner. The Corporate General Partner does not believe
that this transaction has had or will have a material effect on the affairs and
operations of the Partnership.
Note C - Reconciliation of Cash Flows
The following is a reconciliation of the subtotal on the accompanying
consolidated statements of cash flows captioned "net cash provided by operating
activities" to "net cash provided by operations", as defined in the Partnership
Agreement. However, "net cash provided by 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.
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
(in thousands)
2000 1999
<S> <C> <C>
Net cash provided by operating activities $ 1,393 $ 1,471
Payments on mortgage notes payable (119) (110)
Property improvements and replacements (826) (600)
Change in restricted escrows, net (20) 185
Changes in reserves for net operating
liabilities 87 25
Additional reserves (515) (971)
Net cash provided by operations $ -- $ --
</TABLE>
At September 30, 2000 and 1999, the Corporate General Partner reserved an
additional $515,000 and $971,000, respectively, to fund continuing capital
improvements and repairs at the Partnership's investment properties.
Note D - Transactions with Affiliated Parties
The Partnership has no employees and is dependent on the Corporate General
Partner and its affiliates for the management and administration of all
partnership activities. The Partnership Agreement provides for (i) certain
payments to affiliates for services and (ii) reimbursement of certain expenses
incurred by affiliates on behalf of the Partnership. The following payments were
paid or accrued to the Corporate General Partner and affiliates during the nine
months ended September 30, 2000 and 1999:
2000 1999
(in thousands)
Property management fees (included in
operating expenses) $212 $202
Reimbursement for services of affiliates
(included in operating and general and
administrative expense and investment properties) 137 88
Due to Corporate General Partner (included in other
liabilities) 176 101
During the nine months ended September 30, 2000 and 1999, affiliates of the
Corporate General Partner were entitled to receive 5% of gross receipts from all
of the Registrant's properties for providing property management services. The
Registrant paid to such affiliates approximately $212,000 and $202,000 for the
nine months ended September 30, 2000 and 1999, respectively.
An affiliate of the Corporate General Partner received reimbursement of
accountable administrative expenses amounting to approximately $137,000 and
$88,000 for both the nine months ended September 30, 2000 and 1999,
respectively. Approximately $44,000 of which was accrued and is included in
other liabilities at September 30, 2000.
During 1992, a liability of approximately $101,000 was incurred to the Corporate
General Partner for sales commissions earned. An additional liability to the
Corporate General Partner of approximately $31,000 was incurred during September
2000 in connection with the sale of Heritage Pointe Apartments. Pursuant to the
Partnership Agreement, these amounts can not be paid until certain levels of
return are received by the limited partners. As of September 30, 2000, the level
of return to the limited partners has not been met.
In addition to its indirect ownership of the general partner interest in the
Partnership, AIMCO and its affiliates currently own 10,505 limited partnership
units in the Partnership representing 70.033% of the outstanding units. 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 make one or more
additional offers to acquire additional limited partnership interests in the
Partnership for cash or in exchange for units in the operating partnership of
AIMCO. Under the Partnership Agreement, unitholders holding a majority of the
Units are entitled to take action with respect to a variety of matters, which
would include without limitation, voting on certain amendments to the
Partnership Agreement and voting to remove the Corporate General Partner. As a
result of its ownership of 70.033% of the outstanding units, AIMCO is in a
position to influence all voting decisions with respect to the Registrant. When
voting on matters, AIMCO would in all likelihood vote the Units it acquired in a
manner favorable to the interest of the Corporate General Partner because of
their affiliation with the Corporate General Partner.
Note E - Distributions
During the nine months ended September 30, 2000, a distribution of approximately
$1,150,000 ($76.67 per limited partnership unit) was paid to the limited
partners from sale proceeds on Heritage Pointe Apartments and cash distributions
from operations were paid of approximately $1,802,000 (approximately $1,784,000
of which was paid to limited partners, $118.93 per limited partnership unit).
During the nine months ended September 30, 1999, cash distributions from
operations of approximately $1,300,000 (approximately $1,287,000 of which was
paid to limited partners, $85.80 per limited partnership unit) were paid to the
partners.
<PAGE>
Note F - Sale of Investment Property
On September 14, 2000, the Partnership sold Heritage Pointe Apartments to an
unaffiliated third party for net sales proceeds of approximately $2,976,000
after payment of closing costs. A portion of the net proceeds were used to repay
the $1,400,000 mortgage encumbering the property and approximately $1,150,000
was distributed to the limited partners. The Partnership realized a gain of
approximately $1,832,000 on the sale. In addition, the Partnership recorded an
extraordinary loss on early extinguishment of debt of approximately $77,000 as a
result of unamortized loan costs being written off and the payment of a
prepayment penalty of approximately $42,000 relating to the prepayment of the
mortgage encumbering the property.
Note G - Segment Reporting
Description of the types of products and services from which the reportable
segment derives its revenues:
The Partnership has one reportable segment: residential properties. The
Partnership's residential property segment consists of three apartment complexes
located one each in Georgia, Virginia, and South Carolina. The Partnership rents
apartment units to tenants for terms that are typically twelve months or less.
Measurement of segment profit or loss:
The Partnership evaluates performance based on segment profit (loss) before
depreciation. The accounting policies of the reportable segment are the same as
those of the Partnership as described in the Partnership's Annual Report on Form
10-KSB for the year ended December 31, 1999.
Factors management used to identify the enterprise's reportable segment:
The Partnership's reportable segment consists of investment properties that
offer similar products and services. Although each of the investment properties
is managed separately, they have been aggregated into one segment as they
provide services with similar types of products and customers.
Segment information for the three and nine month periods ended September 30,
2000 and 1999 is shown in the tables below. The "Other" column includes
partnership administration related items and income and expense not allocated to
the reportable segment.
Three Months Ended September 30, 2000 Residential Other Totals
(in thousands)
Rental income $ 1,313 $ -- $ 1,313
Other income 98 -- 98
Interest expense 232 -- 232
Depreciation 180 -- 180
General and administrative expense -- 120 120
Gain on sale of investment property 1,832 -- 1,832
Extraordinary loss on early
extinguishment of debt (77) -- (77)
Segment profit (loss) 2,076 (120) 1,956
Nine Months Ended September 30, 2000 Residential Other Totals
(in thousands)
Rental income $ 3,942 $ -- $ 3,942
Other income 274 4 278
Interest expense 698 -- 698
Depreciation 561 -- 561
General and administrative expense -- 221 221
Gain on sale of investment property 1,832 -- 1,832
Extraordinary loss on early
extinguishment of debt (77) -- (77)
Segment profit (loss) 2,824 (217) 2,607
Total assets 7,119 319 7,438
Capital expenditures for investment
properties 826 -- 826
Three Months Ended September 30, 1999 Residential Other Totals
(in thousands)
Rental income $ 1,311 $ -- $ 1,311
Other income 60 4 64
Interest expense 235 -- 235
Depreciation 175 -- 175
General and administrative expense -- 47 47
Segment profit (loss) 311 (43) 268
Nine Months Ended September 30, 1999 Residential Other Totals
(in thousands)
Rental income $ 3,881 $ -- $ 3,881
Other income 170 16 186
Interest expense 709 -- 709
Depreciation 480 -- 480
General and administrative expense -- 141 141
Segment profit (loss) 1,072 (125) 947
Total assets 8,653 201 8,854
Capital expenditures for investment
properties 600 -- 600
Note H - 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. 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 purports to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships (including the Partnership) which are named as nominal
defendants, challenging the acquisition of interests in certain general partner
entities by Insignia Financial Group, Inc. ("Insignia") and entities which were,
at one time, affiliates of Insignia; past tender offers by the Insignia
affiliates to acquire limited partnership units; the management of partnerships
by the Insignia affiliates; and the Insignia Merger. The plaintiffs seek
monetary damages and equitable relief, including judicial dissolution of the
Partnership. On June 25, 1998, the Corporate General Partner filed a motion
seeking dismissal of the action. In lieu of responding to the motion, the
plaintiffs have filed an amended complaint. The Corporate General Partner filed
demurrers to the amended complaint which were heard February 1999.
Pending the ruling on such demurrers, settlement negotiations commenced. On
November 2, 1999, the parties executed and filed a Stipulation of Settlement,
settling claims, subject to final court approval, on behalf of the Partnership
and all limited partners who owned units as of November 3, 1999. Preliminary
approval of the settlement was obtained on November 3, 1999 from the Court, at
which time the Court set a final approval hearing for December 10, 1999. Prior
to the December 10, 1999 hearing, the Court received various objections to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of prior lead counsel to enter the settlement. On
December 14, 1999, the Corporate General Partner and its affiliates terminated
the proposed settlement. In February 2000, counsel for some of the named
plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who
negotiated the settlement. On June 27, 2000, the Court entered an order
disqualifying them from the case. The Court is considering applications for lead
counsel and has currently scheduled a hearing on the matter for November 20,
2000. The Corporate General Partner does not anticipate that costs associated
with this case will be material to the Partnership's overall operations.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
The matters discussed in this Form 10-QSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-QSB and the other filings with the
Securities and Exchange Commission made by the Registrant from time to time. The
discussion of the Registrant's business and results of operations, including
forward-looking statements pertaining to such matters, does not take into
account the effects of any changes to the Registrant's business and results of
operations. Accordingly, actual results could differ materially from those
projected in the forward-looking statements as a result of a number of factors,
including those identified herein.
The Partnership's investment properties consist of three apartment complexes.
The following table sets forth the average occupancy of the properties for each
of the nine months ended September 30, 2000 and 1999:
Average
Occupancy
Property 2000 1999
Quail Hollow Apartments
West Columbia, South Carolina 92% 94%
Windsor Hills Apartments
Blacksburg, Virginia 93% 94%
Stone Mountain West Apartments
Stone Mountain, Georgia 96% 95%
Results of Operations
The Registrant's net income for the three and nine months ended September 30,
2000 was approximately $1,956,000 and $2,607,000, respectively, as compared to
approximately $268,000 and $947,000, respectively, for the three and nine months
ended September 30, 1999. The increase in net income for the three and nine
months ended September 30, 2000 is primarily due to the increase in total
revenues resulting from the gain on sale of Heritage Pointe Apartments.
On September 14, 2000, the Partnership sold Heritage Pointe Apartments to an
unaffiliated third party for net sales proceeds of approximately $2,976,000
after payment of closing costs. A portion of the net proceeds were used to repay
the $1,400,000 mortgage encumbering the property and approximately $1,150,000
was distributed to the limited partners. The Partnership realized a gain of
approximately $1,832,000 on the sale. In addition, the Partnership recorded an
extraordinary loss on early extinguishment of debt of approximately $77,000 as a
result of unamortized loan costs being written off and the payment of a
prepayment penalty of approximately $42,000 relating to the prepayment of the
mortgage encumbering the property.
<PAGE>
Excluding the impact of the sale and operations of Heritage Pointe Apartments
and the extraordinary loss associated with the sale, net income decreased
approximately $19,000 for the three month period ended September 30, 2000,
compared to the corresponding period in 1999. Net income decreased approximately
$60,000 for the nine month period ended September 30, 2000, compared to the
corresponding period in 1999. The decrease in net income for the three and nine
month periods was due to an increase in total expenses partially offset by a
slight increase in total revenues. The increase in total revenues was due to an
increase in both rental income and other income. Rental income increased as a
result of an increase in the average rental rates at all of the Registrant's
remaining investment properties which was partially offset by a decrease in
occupancy at Quail Hollow Apartments and Windsor Hills Apartments. Other income
increased due to an increase in interest income at all of the remaining
properties.
Total expenses increased for the three and nine months ended September 30, 2000
primarily due to an increase in depreciation expense and general and
administrative expense. Depreciation expense increased at all of the
Registrant's remaining properties due to an increase in depreciable assets
placed into service. The increase in total expenses was partially offset by a
slight decrease in interest expense. In addition, for the nine months ended
September 30, 2000, operating expenses increased due to an increase in water and
sewer expenses, salaries and related employee benefits at the remaining
investment properties.
General and administrative expenses increased for the three and nine month
periods ended September 30, 2000 as a result of an increase in the cost of
services included in the management reimbursements to the Corporate General
Partner as allowed under the Partnership Agreement. In addition, costs
associated with the quarterly and annual communications with investors and
regulatory agencies and the annual audit required by the Partnership Agreement
are also included.
As part of the ongoing business plan of the Registrant, 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 Registrant from increases in expenses. As part of this
plan, the Corporate General Partner attempts to protect the Registrant 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.
Liquidity and Capital Resources
At September 30, 2000, the Partnership had cash and cash equivalents of
approximately $758,000 compared to approximately $1,328,000 at September 30,
1999. The decrease in cash and cash equivalents for the nine months ended
September 30, 2000 from the Partnership's year ended December 31, 1999 was
approximately $990,000. This decrease is due to approximately $4,513,000 of cash
used in financing activities partially offset by approximately $2,130,000 of
cash provided by investing activities and approximately $1,393,000 of cash
provided by operating activities. Cash used in financing activities consisted of
distributions to partners, debt extinguishment costs paid, payments of principal
made on the mortgage notes encumbering the Partnership's properties, and to the
repayment of the mortgage as a result of the sale of Heritage Pointe Apartments.
Cash provided by investing activities consisted of proceeds from the sale of
Heritage Pointe Apartments partially offset by property improvements and
replacements and net deposits to restricted escrows. The Registrant invests its
working capital reserves in money market 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 Registrant and to comply with Federal,
state and local legal and regulatory requirements. Capital improvements planned
for each of the Registrant's properties are detailed below.
Quail Hollow Apartments
The Partnership has budgeted approximately $520,000 for capital improvements at
Quail Hollow Apartments consisting primarily of exterior painting, floor
covering and appliance replacements, and exterior building improvements. During
the nine months ended September 30, 2000, the Partnership spent approximately
$472,000 on budgeted and nonbudgeted improvements consisting primarily of
appliances, roof replacements, floor covering replacements, exterior painting,
and exterior building improvements. These improvements were funded from
operating cash flow and replacement reserves.
Heritage Pointe Apartments
The Partnership had budgeted approximately $93,000 for capital improvements at
Heritage Pointe Apartments consisting primarily of plumbing upgrades, floor
covering and appliance replacements and air conditioning upgrades. Prior to the
sale of the property on September 14, 2000, the Partnership spent approximately
$60,000 consisting primarily of plumbing upgrades, appliances and floor covering
replacements. These improvements were funded from operating cash flow.
Stone Mountain West Apartments
The Partnership has budgeted approximately $166,000 for capital improvements at
Stone Mountain West Apartments consisting primarily of floor covering, appliance
replacements, plumbing enhancements, parking area upgrades and air conditioning
unit replacements. During the nine months ended September 30, 2000, the
Partnership spent approximately $173,000 on budgeted and nonbudgeted
improvements consisting primarily of major landscaping, floor covering
replacements, plumbing enhancements, and appliances. These improvements were
funded from operating cash flow and replacement reserves.
Windsor Hills Apartments
The Partnership has budgeted approximately $155,000 for capital improvements at
Windsor Hills Apartments consisting primarily of structural improvements, floor
covering and appliance replacements, and air conditioning unit replacements.
During the nine months ended September 30, 2000, the Partnership spent
approximately $121,000 on budgeted and nonbudgeted improvements consisting
primarily of floor covering replacements, parking lot upgrades, and appliance
replacements. These improvements were funded from operating cash flow.
The additional capital improvements will be incurred only if cash is available
from operations and Partnership reserves. To the extent that such budgeted
capital improvements are completed, the Registrant's distributable cash flow, if
any, may be adversely affected at least in the short term.
The Registrant's current assets are thought to be sufficient for any near term
needs (exclusive of capital improvements) of the Registrant. The mortgage
indebtedness of approximately $9,764,000, net of discount, is amortized over
varying periods with required balloon payments ranging from November 15, 2002 to
November 1, 2003. The Corporate General Partner will attempt to refinance such
indebtedness and/or sell the properties prior to such maturity dates. If the
properties cannot be refinanced or sold for a sufficient amount, the Registrant
will risk losing such properties through foreclosure.
During the nine months ended September 30, 2000, a distribution of approximately
$1,150,000 ($76.67 per limited partnership unit) was paid to the limited
partners from sale proceeds on Heritage Pointe Apartments and cash distributions
from operations were paid of approximately $1,802,000 (approximately $1,784,000
of which was paid to limited partners, $118.93 per limited partnership unit).
During the nine months ended September 30, 1999, cash distributions from
operations of approximately $1,300,000 (approximately $1,287,000 of which was
paid to limited partners, $85.80 per limited partnership unit) were paid to the
partners. The Registrant's distribution policy is reviewed on a semi-annual
basis. Future cash distributions will depend on the levels of net cash generated
from operations, the availability of cash reserves, and the timing of debt
maturities, refinancings, and/or property sales. There can be no assurance;
however, that the Registrant will generate sufficient funds from operations to
permit further distributions to its partners during the remainder of 2000 or
subsequent periods. Distributions may be further restricted by the requirement
to deposit net operating income (as described in the mortgage notes) into a
Reserve Account until the Reserve Account is funded in an amount equal to $300
to $325 per apartment unit for Quail Hollow and Stone Mountain West for a total
of $107,100 to $116,000. The mortgage agreement stipulates a minimum reserve of
$400 per apartment unit at Windsor Hills for a total of $120,000. As of
September 30, 2000 the Partnership had deposits of approximately $517,000 in its
Reserve Accounts.
<PAGE>
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. 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 purports to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships (including the Partnership) which are named as nominal
defendants, challenging the acquisition of interests in certain general partner
entities by Insignia Financial Group, Inc. ("Insignia") and entities which were,
at one time, affiliates of Insignia; past tender offers by the Insignia
affiliates to acquire limited partnership units; the management of partnerships
by the Insignia affiliates; and the Insignia Merger. The plaintiffs seek
monetary damages and equitable relief, including judicial dissolution of the
Partnership. On June 25, 1998, the Corporate General Partner filed a motion
seeking dismissal of the action. In lieu of responding to the motion, the
plaintiffs have filed an amended complaint. The Corporate General Partner filed
demurrers to the amended complaint which were heard February 1999.
Pending the ruling on such demurrers, settlement negotiations commenced. On
November 2, 1999, the parties executed and filed a Stipulation of Settlement,
settling claims, subject to final court approval, on behalf of the Partnership
and all limited partners who owned units as of November 3, 1999. Preliminary
approval of the settlement was obtained on November 3, 1999 from the Court, at
which time the Court set a final approval hearing for December 10, 1999. Prior
to the December 10, 1999 hearing, the Court received various objections to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of prior lead counsel to enter the settlement. On
December 14, 1999, the Corporate General Partner and its affiliates terminated
the proposed settlement. In February 2000, counsel for some of the named
plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who
negotiated the settlement. On June 27, 2000, the Court entered an order
disqualifying them from the case. The Court is considering applications for lead
counsel and has currently scheduled a hearing on the matter for November 20,
2000. The Corporate General Partner does not anticipate that costs associated
with this case will be material to the Partnership's overall operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 27, Financial Data Schedule, is filed as an exhibit to
this report.
b) Reports on Form 8-K filed during the quarter ended September
30, 2000:
Form 8-K dated September 14, 2000 and filed on October 4, 2000
disclosing sale of Heritage Pointe Apartments by the
Partnership.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SHELTER PROPERTIES I
By: Shelter Realty I Corporation
Corporate General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President and Director
By: /s/Martha L. Long
Martha L. Long
Senior Vice President and
Controller
Date: November 13, 2000
