FORM 10-QSB--QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Quarterly or Transitional Report
(As last amended by 34-32231, eff. 6/3/93.)
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
or
[ ] 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 0-10260
SHELTER PROPERTIES III LIMITED PARTNERSHIP
(Exact name of small business issuer as specified in its charter)
South Carolina 57-0718508
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Insignia Financial Plaza, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (864) 239-1000
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 .
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a) SHELTER PROPERTIES III LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEET
(Unaudited)
March 31, 1996
Assets
Cash:
Unrestricted $ 1,303,322
Restricted--tenant security deposits 138,120
Accounts receivable 22,510
Escrow for taxes 122,035
Restricted escrows 846,276
Other assets 287,289
Investment properties:
Land $ 1,281,294
Buildings and related personal property 23,752,355
25,033,649
Less accumulated depreciation (12,587,655) 12,445,994
$15,165,546
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable $ 56,408
Tenant security deposits 136,518
Accrued taxes 81,533
Other liabilities 391,321
Mortgage notes payable 8,555,058
Partners' Capital (Deficit)
General partners $ (75,608)
Limited partners (55,000 units
issued and outstanding) 6,020,316 5,944,708
$15,165,546
See Accompanying Notes to Consolidated Financial Statements
b) SHELTER PROPERTIES III LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
1996 1995
Revenues:
Rental income $1,202,342 $1,156,824
Other income 86,305 97,321
Total revenues 1,288,647 1,254,145
Expenses:
Operating 368,002 355,451
General and administrative 55,999 47,991
Property management fees 63,402 61,938
Maintenance 165,468 199,285
Depreciation 222,776 203,489
Interest 196,146 198,461
Property taxes 81,533 66,628
Total expenses 1,153,326 1,133,243
Net income $ 135,321 $ 120,902
Net income allocated to
general partners (1%) $ 1,353 $ 1,209
Net income allocated to
limited partners (99%) 133,968 119,693
$ 135,321 $ 120,902
Net income per limited
partnership unit $ 2.44 $ 2.17
See Accompanying Notes to Consolidated Financial Statements
c) SHELTER PROPERTIES III LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION>
Limited
Partnership General Limited
Units Partners Partners Total
<S> <C> <C> <C> <C>
Original capital contributions 55,000 $ 2,000 $27,500,000 $27,502,000
Partners' (deficit) capital
at December 31, 1995 55,000 $ (76,961) $ 5,886,348 $ 5,809,387
Net income for the three
months ended March 31, 1996 -- 1,353 133,968 135,321
Partners' (deficit) capital
at March 31, 1996 55,000 $ (75,608) $ 6,020,316 $ 5,944,708
<FN>
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
d) SHELTER PROPERTIES III LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1995 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $ 135,321 $ 120,902
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 222,776 203,489
Amortization of discounts and loan costs 24,091 22,778
Change in accounts:
Restricted cash 4,466 (2,275)
Accounts receivable 7,891 (16,989)
Escrows for taxes 59,793 (40,512)
Accounts payable (214,219) 42,663
Tenant security deposit liabilities (4,482) (1,185)
Accrued taxes 27,536 15,716
Other liabilities (66,236) 66,498
Net cash provided by operating activities 196,937 411,085
Cash flows from investing activities:
Property improvements and replacements (134,268) (112,137)
Deposits to restricted escrows (10,883) (70,651)
Receipts from restricted escrows 7,232 14,996
Net cash used in investing activities (137,919) (167,792)
Cash flows from financing activities:
Payments on mortgage notes payable (49,608) (45,979)
Distributions paid -- (300,000)
Net cash used in financing activities (49,608) (345,979)
Net increase (decrease) in cash 9,410 (102,686)
Cash and cash equivalents at beginning of period 1,293,912 1,246,919
Cash and cash equivalents at end of period $1,303,322 $1,144,233
Supplemental disclosure of cash flow information:
Cash paid for interest $ 172,055 $ 175,683
<FN>
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
e) SHELTER PROPERTIES III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited financial statements 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 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, 1996, are not necessarily indicative of the results that
may be expected for the fiscal year ending December 31, 1996. 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,
1995.
Certain reclassifications have been made to the 1995 information to
conform to the 1996 presentation.
Cash and Cash Equivalents:
Unrestricted - Unrestricted cash includes cash on hand and in banks and
Certificates of Deposit with original maturities less than 90 days. At certain
times, the amount of cash deposited at a bank may exceed the limit on insured
deposits.
Restricted cash - tenant security deposits - The Partnership requires
security deposits from lessees for the duration of the lease and such deposits
are considered restricted cash. Deposits are refunded when the tenant vacates,
provided the tenant has not damaged its space and is current on its rental
payments.
Note B - 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.
Three Months Ended
March 31,
1996 1995
Net cash provided by operating activities $ 196,937 $ 411,085
Payments on mortgage notes payable (49,608) (45,979)
Property improvements and replacements (134,268) (112,137)
Change in restricted escrows, net (3,651) (55,655)
Changes in reserves for net operating
liabilities 185,251 (63,916)
Additional reserves (200,000) (150,000)
Net cash used in operations $ (5,339) $ (16,602)
In 1996 and 1995, the Corporate General Partner believed it to be in the
best interest of the Partnership to reserve an additional $200,000 and $150,000,
respectively, to fund continuing capital improvements and maintenance items at
the four properties.
Note C - 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 payments to
affiliates for services and as reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership. Balances and other transactions with
Insignia Financial Group, Inc. and its affiliates in 1996 and 1995 are as
follows:
Three Months Ended
March 31,
1996 1995
Property management fees $ 63,402 $ 61,938
Reimbursement for services of affiliates 36,107 30,955
Due to general partner 184,500 184,500
The Partnership insures its properties under a master policy through an
agency and insurer unaffiliated with the Corporate General Partner. An
affiliate of the Corporate General Partner acquired, in the acquisition of a
business, certain financial obligations from an insurance agency which was later
acquired by the agent who placed the current year's master policy. The current
agent assumed the financial obligations to the affiliate of the Corporate
General Partner, who receives payments on these obligations from the agent. The
amount of the Partnership's insurance premiums accruing to the benefit of the
affiliate of the Corporate General Partner by virtue of the agent's obligations
is not significant.
Note D - Contingencies
The Corporate General Partner owns 100 Limited Partnership Units ("Units").
On or about April 26 and 27, 1995, six entities ("Affiliated Purchaser")
affiliated with the Partnership commenced tender offers for limited partner
interests in six limited partnerships, including the Partnership (collectively,
the "Shelter Properties Partnerships"). On May 27, 1995, the Affiliated
Purchaser acquired 12,616 units of the Partnership pursuant to the tender offer.
On or about May 12, 1995, in the United States District Court for the District
of South Carolina, certain limited partners of the Shelter Properties
Partnerships commenced a lawsuit, on behalf of themselves, on behalf of a
putative class of plaintiffs, and derivatively on behalf of the partnerships,
challenging the actions taken by defendants (including Insignia, the acquiring
entities and certain officers of Insignia) in the management of the Shelter
Properties Partnerships and in connection with the tender offers and certain
other matters.
The plaintiffs alleged that, among other things: (i) the defendants
intentionally mismanaged the partnerships and acted contrary to the limited
partners' best interests by prolonging the existence of the partnerships in
order to perpetuate the revenues derived by Insignia (an affiliate of the
Corporate General Partner) and its affiliates from the partnerships, (ii) the
defendants' actions reduced the demand for the partnerships' limited partner
interests in the limited resale market by artificially depressing the trading
prices for limited partners interests in order to create a favorable environment
for the tender offers; (iii) through the tender offers, the acquiring entities
sought to acquire effective voting control over the partnerships while paying
highly inadequate prices; and (iv) the documents disseminated to the class in
connection with the tender offers contained false and misleading statements and
omissions of material facts concerning such issues as the advantages to limited
partners of tendering pursuant to the tender offers, the true value of the
interest, the true financial condition of the partnerships, the factors
affecting the likelihood that properties owned by the partnerships will be sold
or liquidated in the near future, the liquidity and true value of the limited
partner interests, the reasons for the limited secondary market for limited
partner interests, and the true nature of the market for the underlying real
estate assets owned by the partnerships, all in violation of the federal
securities laws.
On September 27, 1995, the parties entered into a stipulation to settle the
matter. The principal terms of the stipulation require supplemental payments to
tendering limited partners aggregating approximately $6 million to be paid by
the Affiliated Purchaser, of which approximately $713,000 is Shelter Properties
III's portion; waiver by the Shelter Properties Partnership's general partners
of any right to certain proceeds from a sale or refinancing of the partnerships'
properties; some restrictions on Insignia's ability to vote the limited partner
interests it acquired; payment of $1.25 million (which amount is divided among
the various partnerships and acquiring entities) for plaintiffs' attorney fees
and expenses in the litigation; and general releases of all the defendants. On
April 23, 1996, the court gave preliminary approval of the establishment of the
class for the purposes of the settlement and of the settlement terms, and
ordered that notice of the settlement be sent to the class. Notice has been
sent. A final hearing has been scheduled for June 24, 1996. If a certain
number of class members opt out, the settlement may be cancelled. Class members
also have the right to object to the settlement, which could lead to alterations
in the terms of settlement or even cancellation of the settlement. No assurance
can be given that this matter will be settled on the terms, set forth above or
otherwise.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Partnership's investment properties consist of four apartment
complexes. The following table sets forth the average occupancy of the
properties for the three months ended March 31, 1996 and 1995:
Average
Occupancy
Property 1996 1995
Essex Park Apartments
Columbia, South Carolina 89% 95%
Colony House Apartments
Murfreesboro, Tennessee 93% 98%
North River Village Apartments
Atlanta, Georgia 96% 94%
Willowick Apartments
Greenville, South Carolina 93% 98%
The Corporate General Partner attributes the decrease in occupancy at Essex
Park Apartments to increased competition and increased rental rates. In the
Essex Park market, a competitor is building a nine hundred unit complex. The
Corporate General Partner attributes the decreases in occupancy at Colony House
Apartments and Willowick Apartments to an increase in rental rates and tenants
purchasing homes due to lower interest rates. The Corporate General Partner
attributes the increase in occupancy at North River Village Apartments to
economic growth attributable to the Olympics coming to the Atlanta area this
year.
The Partnership's net income for the three months ended March 31, 1996, was
$135,321 versus $120,902 for the corresponding period of 1995. The increase in
net income is primarily attributable to a decrease in maintenance expense at
Colony House Apartments. In 1995 Colony House underwent a major renovation
project to improve the outside appearance by painting the exterior and repairing
all the gutters on the property. With these repairs and other repairs to Colony
House in 1995, fewer repairs have been needed to maintain the property's
appearance in 1996. Partially offsetting the increase in net income was an
increase in general and administrative expenses due to an increase in General
Partnership cost reimbursement and a decrease in other income due to a tax
refund for North River Village Apartments which was received in 1995.
As part of the ongoing business plan of the Partnership, the Corporate
General Partner monitors the rental market environment of its investment
property to assess the feasibility of increasing rent, maintaining or increasing
occupancy levels and protecting the Partnership from increases in expense. 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.
At March 31, 1996, the Partnership had unrestricted cash of $1,303,322
compared to $1,144,233 at March 31, 1995. Net cash provided by operating
activities decreased primarily as a result of a decrease in accounts payable due
to timing of payments to vendors and a decrease in other liabilities due to the
timing of prepaid rental income from tenants. These decreases were offset by
the increase in net income as discussed above. Net cash used in investing
activities decreased as a result of the decrease in cash deposited to restricted
escrows. Net cash used in financing activities decreased due to the Partnership
not making any distributions during the first three months of 1996.
The Partnership has no material capital programs scheduled to be performed in
1996, although certain routine capital expenditures and maintenance expenses
have been budgeted. These capital expenditures and maintenance expenses will be
incurred only if cash is available from operations or is received from the
capital reserve account.
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 property to adequately maintain the physical assets
and other operating needs of the Partnership. Such assets are currently thought
to be sufficient for any near-term needs of the partnership. The mortgage
indebtedness of $8,555,058, net of discount, is amortized over varying periods.
In addition, the mortgage notes require balloon payments ranging from November
15, 2002, to October 15, 2003, at which time the properties will either be
refinanced or sold. Future cash distributions will depend on the levels of net
cash generated from operations, property sales and the availability of cash
reserves. No cash distributions were made in the three month period ended March
31, 1996. During the three months ended March 31, 1995, distributions in the
amount of $300,000 were declared and paid. The Corporate General Partner
intends to make a distribution during the second quarter of 1996.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Corporate General Partner owns 100 Limited Partnership Units ("Units").
On or about April 26 and 27, 1995, six entities ("Affiliated Purchaser")
affiliated with the Partnership commenced tender offers for limited partner
interests in six limited partnerships, including the Partnership (collectively,
the "Shelter Properties Partnerships"). On May 27, 1995, the Affiliated
Purchaser acquired 12,616 units of the Partnership pursuant to the tender offer.
On or about May 12, 1995, in the United States District Court for the District
of South Carolina, certain limited partners of the Shelter Properties
Partnerships commenced a lawsuit, on behalf of themselves, on behalf of a
putative class of plaintiffs, and derivatively on behalf of the partnerships,
challenging the actions taken by defendants (including Insignia, the acquiring
entities and certain officers of Insignia) in the management of the Shelter
Properties Partnerships and in connection with the tender offers and certain
other matters.
The plaintiffs alleged that, among other things: (i) the defendants
intentionally mismanaged the partnerships and acted contrary to the limited
partners' best interests by prolonging the existence of the partnerships in
order to perpetuate the revenues derived by Insignia (an affiliate of the
Corporate General Partner) and its affiliates from the partnerships, (ii) the
defendants' actions reduced the demand for the partnerships' limited partner
interests in the limited resale market by artificially depressing the trading
prices for limited partners interests in order to create a favorable environment
for the tender offers; (iii) through the tender offers, the acquiring entities
sought to acquire effective voting control over the partnerships while paying
highly inadequate prices; and (iv) the documents disseminated to the class in
connection with the tender offers contained false and misleading statements and
omissions of material facts concerning such issues as the advantages to limited
partners of tendering pursuant to the tender offers, the true value of the
interest, the true financial condition of the partnerships, the factors
affecting the likelihood that properties owned by the partnerships will be sold
or liquidated in the near future, the liquidity and true value of the limited
partner interests, the reasons for the limited secondary market for limited
partner interests, and the true nature of the market for the underlying real
estate assets owned by the partnerships all in violation of the federal
securities laws.
On September 27, 1995, the parties entered into a stipulation to settle the
matter. The principal terms of the stipulation require supplemental payments to
tendering limited partners aggregating approximately $6 million to be paid by
the Affiliated Purchaser, of which approximately $713,000 is Shelter Properties
III's portion; waiver by the Shelter Properties Partnership's general partners
of any right to certain proceeds from a sale or refinancing of the partnerships'
properties; some restrictions on Insignia's ability to vote the limited partner
interests it acquired; payment of $1.25 million (which amount is divided among
the various partnerships and acquiring entities) for plaintiffs' attorney fees
and expenses in the litigation; and general releases of all the defendants. On
April 23, 1996, the court gave preliminary approval of the establishment of the
class for the purposes of the settlement and of the settlement terms, and
ordered that notice of the settlement be sent to the class. Notice has been
sent. A final hearing has been scheduled for June 24, 1996. If a certain
number of class members opt out, the settlement may be cancelled. Class members
also have the right to object to the settlement, which could lead to alterations
in the terms of settlement or even cancellation of the settlement. No assurance
can be given that this matter will be settled on the terms, set forth above or
otherwise.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 27, Financial Data Schedule, is filed as part of this
report.
b) Reports on Form 8-K:
None filed during the quarter ended March 31, 1996.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SHELTER PROPERTIES III LIMITED PARTNERSHIP
By: Shelter Realty III Corporation
Corporate General Partner
By:/s/ William H. Jarrard, Jr.
William H. Jarrard, Jr.
President and Director
By:/s/ Ronald Uretta
Ronald Uretta
Treasurer
(Principal Financial Officer
and Principal Accounting Officer)
Date: May 3, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Shelter
Properties III Ltd. 1996 First Quarter 10-QSB and is qualified in its entirety
by reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000353282
<NAME> SHELTER PROPERTIES III LTD.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,303,322
<SECURITIES> 0
<RECEIVABLES> 22,510
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 25,033,649
<DEPRECIATION> 12,587,655
<TOTAL-ASSETS> 15,165,546
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 8,555,058
0
0
<COMMON> 0
<OTHER-SE> 5,944,708
<TOTAL-LIABILITY-AND-EQUITY> 15,165,946
<SALES> 0
<TOTAL-REVENUES> 1,288,647
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,153,326
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 196,146
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 135,321
<EPS-PRIMARY> 2.44
<EPS-DILUTED> 0
<FN>
<F1>The Partnership has an unclassified balance sheet.
</FN>
</TABLE>
