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 March 31, 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 0-10256
SHELTER PROPERTIES II
(Exact name of small business issuer as specified in its charter)
South Carolina 57-0709233
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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___
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
SHELTER PROPERTIES II
BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
March 31, 2000
<TABLE>
<CAPTION>
Assets
<S> <C>
Cash and cash equivalents $ 1,425
Receivables and deposits 183
Restricted escrows 677
Other assets 199
Investment properties:
Land $ 1,814
Buildings and related personal property 25,073
26,887
Less accumulated depreciation (18,207) 8,680
$ 11,164
Liabilities and Partners' (Deficit) Capital
Liabilities
Accounts payable $ 52
Tenant security deposit liabilities 149
Accrued property taxes 112
Other liabilities 330
Mortgage notes payable 8,037
Partners' (Deficit) Capital
General partners $ (124)
Limited partners (27,500 units issued and
outstanding) 2,608 2,484
$ 11,164
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
b)
SHELTER PROPERTIES II
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended
March 31,
2000 1999
Revenues:
Rental income $1,501 $1,423
Other income 63 64
Total revenues 1,564 1,487
Expenses:
Operating 623 622
General and administrative 53 53
Depreciation 323 256
Interest 155 191
Property taxes 109 109
Total expenses 1,263 1,231
Net income $ 301 $ 256
Net income allocated to general partners (1%) $ 3 $ 3
Net income allocated to limited partners (99%) 298 253
$ 301 $ 256
Net income per limited partnership unit $10.84 $9.20
See Accompanying Notes to Financial Statements
<PAGE>
c)
SHELTER PROPERTIES II
STATEMENT OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL
(Unaudited)
(in thousands, except unit data)
<TABLE>
<CAPTION>
Limited
Partnership General Limited
Units Partners Partners Total
<S> <C> <C> <C> <C>
Original capital contributions 27,500 $ 2 $27,500 $27,502
Partners' (deficit) capital at
December 31, 1999 27,500 $ (127) $ 2,310 $ 2,183
Net income for the three months
ended March 31, 2000 -- 3 298 301
Partners' (deficit) capital at
March 31, 2000 27,500 $ (124) $ 2,608 $ 2,484
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
d)
SHELTER PROPERTIES II
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
Cash flows from operating activities:
<S> <C> <C>
Net income $ 301 $ 256
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 323 256
Amortization of discounts and loan costs 24 22
Change in accounts:
Receivables and deposits 186 71
Other assets (37) (51)
Accounts payable (86) (42)
Tenant security deposit liabilities (1) 9
Accrued property taxes (83) (124)
Other liabilities (112) 15
Net cash provided by operating activities 515 412
Cash flows from investing activities:
Property improvements and replacements (46) (129)
Net (deposits to) withdrawals from restricted escrows (292) 20
Net cash used in investing activities (338) (109)
Cash flows used in financing activities:
Payments on mortgage notes payable (79) (69)
Net increase in cash and cash equivalents 98 234
Cash and cash equivalents at beginning of period 1,327 576
Cash and cash equivalents at end of period $ 1,425 $ 810
Supplemental disclosure of cash flow information:
Cash paid for interest $ 158 $ 169
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
e)
SHELTER PROPERTIES II
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited financial statements of Shelter Properties II (the
"Partnership" or "Registrant") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-QSB and Item 310 (b) of Regulation S-B. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of Shelter Realty II 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 month
period ended March 31, 2000, are not necessarily indicative of the results that
may be expected for the fiscal year ending December 31, 2000. For further
information, refer to the financial statements and footnotes thereto included in
the Partnership's Annual Report on Form 10-KSB for the year ended December 31,
1999.
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 statements
of cash flows captioned "Net cash provided by operating activities" to "Net cash
used in operations", as defined in the partnership agreement. However, "Net cash
used in 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>
Three Months Ended
March 31,
2000 1999
(in thousands)
<S> <C> <C>
Net cash provided by operating activities $ 515 $ 412
Payments on mortgage notes payable (79) (69)
Property improvements and replacements (46) (129)
Change in restricted escrows, net (292) 20
Changes in reserves for net operating
liabilities 133 122
Additional operating reserves (231) (356)
Net cash from operations $ -- $ --
</TABLE>
<PAGE>
For the three months ended March 31, 2000 and 1999, the Corporate General
Partner believed it to be in the best interest of the Partnership to reserve an
additional $231,000 and $356,000, respectively to fund continuing capital
improvement needs in order for the properties to remain competitive.
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. Balances and other
transactions with affiliates of the Corporate General Partner for the three
months ended March 31, 2000 and 1999 are as follows:
2000 1999
(in thousands)
Property management fees (included in
operating expenses) $ 78 $ 76
Reimbursement for services of affiliates
(included in investment properties,
general and administrative expense and
operating expense) 32 28
Due to general partners 58 58
During the three months ended March 31, 2000 and 1999, affiliates of the
Corporate General Partner were entitled to receive 5% of gross receipts from all
of the Registrant's properties as compensation for providing property management
services. The Registrant paid to such affiliates approximately $78,000 and
$76,000 for the three months ended March 31, 2000 and 1999, respectively.
Affiliates of the Corporate General Partner received reimbursement of
accountable administrative expenses amounting to approximately $32,000 and
$28,000 for the three months ended March 31, 2000 and 1999, respectively.
During 1983, a liability of approximately $58,000 was incurred to the general
partners for sales commissions earned. Pursuant to the Partnership Agreement,
this liability cannot be paid until certain levels of return are received by the
limited partners. As of March 31, 2000, the level of return to the limited
partners has not been met.
On September 26, 1997, an affiliate of the Corporate General Partner purchased
Lehman Brothers' Class "D" subordinated bonds of SASCO 1992-M1. These bonds are
secured by 55 multi-family apartment mortgage loan pairs held in Trust,
including Parktown Townhouses, Raintree Apartments, and Signal Pointe Apartments
owned by the Partnership.
AIMCO and its affiliates currently own 16,524 limited partnership units in the
Partnership representing 60.087% 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. As a result of its
ownership of 60.087% 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 - Segment Reporting
The Partnership has one reportable segment: residential properties, consisting
of three apartment complexes one located in each of Texas, South Carolina, and
Florida. The Partnership rents apartment units to tenants for terms that are
typically twelve months or less.
The Partnership evaluates performance based on segment profit (loss) before
depreciation. The accounting policies of the reportable segment are the same as
those described in the Partnership's Annual Report on Form 10-KSB for the year
ended December 31, 1999.
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 month periods ended March 31, 2000 and 1999 is
shown in the tables below (in thousands). The "Other" column includes
Partnership administration related items and income and expense not allocated to
the reportable segment.
2000 Residential Other Totals
Rental income $ 1,501 $ -- $ 1,501
Other income 62 1 63
Interest expense 155 -- 155
Depreciation 323 -- 323
General and administrative expense -- 53 53
Segment profit (loss) 353 (52) 301
Total assets 11,119 45 11,164
Capital expenditures for investment
properties 46 -- 46
1999 Residential Other Totals
Rental income $ 1,423 $ -- $ 1,423
Other income 61 3 64
Interest expense 191 -- 191
Depreciation 256 -- 256
General and administrative expense -- 53 53
Segment profit (loss) 306 (50) 256
Total assets 10,177 257 10,434
Capital expenditures for investment
properties 129 -- 129
Note F - 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, the 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 by Insignia Financial Group, Inc.
("Insignia") and entities which were, at one time, affiliates of Insignia
("Insignia Affiliates") of interests in certain general partner entities, past
tender offers by Insignia Affiliates to acquire limited partnership units, the
management of partnerships by Insignia Affiliates and the Insignia Merger (see
"Note B - Transfer of Control"). 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 own units as
of November 3, 1999. Preliminary approval of the settlement was obtained on
November 3, 1999 from the Superior Court of the State of California, County of
San Mateo, 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 class plaintiffs' counsel
to enter the settlement. On December 14, 1999, the Corporate General Partner and
its affiliates terminated the proposed settlement. Certain plaintiffs have filed
a motion to disqualify some of the plaintiffs' counsel in the action. 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 three months ended March 31, 2000 and 1999:
Average
Occupancy
Property 2000 1999
Parktown Townhouses
Deer Park, Texas 94% 95%
Raintree Apartments
Anderson, South Carolina 96% 96%
Signal Pointe Apartments
Winter Park, Florida 94% 95%
Results of Operations
The Partnership realized net income for the three months ended March 31, 2000 of
approximately $301,000 compared to approximately $256,000 for the corresponding
period in 1999. The increase in net income was due to an increase in total
revenues partially offset by an increase in total expenses. Total revenues
increased due to increased rental income. Rental income increased primarily due
to increased average rental rates at all of the Partnership's properties.
Partially offsetting the increases in average rental rates for the three months
ended March 31, 2000 was a slight decrease in occupancy at Parktown Townhouses
and Signal Pointe Apartments.
Total expenses increased primarily due to an increase in depreciation expense
partially offset by a decrease in interest expense. Depreciation expense
increased due to property improvements and replacements completed during the
past twelve months that are now being depreciated. Interest expense decreased
due to a decrease in the average outstanding debt balances. General and
administrative expense remained stable over the comparable periods. Included in
general and administrative expenses at both March 31, 2000 and 1999, are
reimbursements to the Corporate General Partner 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 at each 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.
Liquidity and Capital Resources
At March 31, 2000, the Partnership had cash and cash equivalents of
approximately $1,425,000 compared to approximately $810,000 at March 31, 1999.
Cash and cash equivalents increased approximately $98,000 from the Partnership's
previous year ended December 31, 1999. The decrease is due to approximately
$338,000 of cash used in investing activities and approximately $79,000 of cash
used in financing activities which was offset by approximately $515,000 of cash
provided by operating activities. Cash used in investing activities consisted of
deposits to escrow accounts maintained by the mortgage lender and property
improvements and replacements. Cash used in financing activities consisted of
payments of principal made on the mortgages encumbering the Registrant's
properties.
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, local legal and regulatory requirements. Capital improvements planned for
each of the Registrant's properties are detailed below.
Parktown Townhouses
For 2000, the Partnership has budgeted approximately $113,000 for capital
improvements at Parktown Townhouses, consisting primarily of structural
improvements, floor covering replacements, appliance replacements and HVAC unit
replacements. During the three months ended March 31, 2000, the Partnership
completed approximately $28,000 of capital improvements, consisting primarily of
flooring covering replacements and office equipment. These improvements were
funded from operating cash flow.
Raintree Apartments
For 2000, the Partnership has budgeted approximately $73,000 for capital
improvements at Raintree Apartments, consisting primarily of major landscaping,
floor covering replacements and roof replacements. During the three months ended
March 31, 2000, the Partnership completed approximately $11,000 of capital
improvements, consisting primarily of flooring covering replacements, swimming
pool enhancements and appliance replacements. These improvements were funded
from operating cash flow.
Signal Pointe Apartments
For 2000, the Partnership has budgeted approximately $119,000 for capital
improvements at Signal Pointe Apartments, consisting primarily of floor covering
replacements, appliance replacements and HVAC unit replacements. During the
three months ended March 31, 2000, the Partnership completed approximately
$7,000 of capital improvements, consisting primarily of flooring covering
replacements and appliance replacements. These improvements were funded from
operating cash flow.
<PAGE>
The additional capital expenditures will be incurred only if cash is available
from operations and Partnership reserves. To the extent that such budgeted
capital improvements are completed, the 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 $8,037,000, net of discount, is amortized over 257
months with required balloon payments of approximately $7,370,000 due on
November 15, 2002. The Corporate General Partner will attempt to refinance such
indebtedness and/or sell the properties prior to such maturity date. If the
properties cannot be refinanced or sold for a sufficient amount, the Registrant
may risk losing such properties through foreclosure.
There were no distributions during the three months ended March 31, 2000 or
1999. Future cash distributions will depend on the levels of net cash generated
from operations, the availability of cash reserves, and the timing of debt
maturities, refinancings, and/or property sales. The Registrant's distribution
policy is reviewed on a semi-annual basis. Distributions may be restricted by
the requirement to deposit net operating income (as defined in the mortgage
note) into the reserve account until the reserve account is funded in an amount
equal to a minimum of $400 and a maximum of $1,000 per apartment unit for each
respective property for a total of approximately $341,000 to $853,000. The
reserve account balance at March 31, 2000 was approximately $654,000. There can
be no assurance, however, that the Partnership will generate sufficient funds
from operations after required capital expenditures to permit any distributions
to its partners in the remainder of 2000 or subsequent periods.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEDINGS
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, the 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 by Insignia Financial Group, Inc.
("Insignia") and entities which were, at one time, affiliates of Insignia
("Insignia Affiliates") of interests in certain general partner entities, past
tender offers by Insignia Affiliates to acquire limited partnership units, the
management of partnerships by Insignia Affiliates and the Insignia Merger (see
"Part I - Financial Information, Item 1. Financial Statements, Note B - Transfer
of Control"). 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 own units as
of November 3, 1999. Preliminary approval of the settlement was obtained on
November 3, 1999 from the Superior Court of the State of California, County of
San Mateo, 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 class plaintiffs' counsel
to enter the settlement. On December 14, 1999, the Corporate General Partner and
its affiliates terminated the proposed settlement. Certain plaintiffs have filed
a motion to disqualify some of the plaintiffs' counsel in the action. 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 March 31,
2000:
None.
<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 II
By: Shelter Realty II Corporation
Corporate General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Martha L. Long
Martha L. Long
Senior Vice President and
Controller
Date:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SHELTER
PROPERTIES II 2000 First Quarter 10-QSB and is qualified in its entirety by
reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000319723
<NAME> SHELTER PROPERTIES II
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,425
<SECURITIES> 0
<RECEIVABLES> 183
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0 <F1>
<PP&E> 26,887
<DEPRECIATION> (18,207)
<TOTAL-ASSETS> 11,164
<CURRENT-LIABILITIES> 0 <F1>
<BONDS> 8,037
0
0
<COMMON> 0
<OTHER-SE> 2,484
<TOTAL-LIABILITY-AND-EQUITY> 11,164
<SALES> 0
<TOTAL-REVENUES> 1,564
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,263
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 155
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 301
<EPS-BASIC> 10.84 <F2>
<EPS-DILUTED> 0
<FN>
<F1> Registrant has an unclassified balance sheet. <F2> Multiplier is 1.
</FN>
</TABLE>
