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 June 30, 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)
June 30, 1996
Assets
Cash:
Unrestricted $ 1,238,352
Restricted--tenant security deposits 139,445
Accounts receivable 26,974
Escrow for taxes 211,545
Restricted escrows 852,821
Other assets 277,039
Investment properties:
Land $ 1,281,294
Buildings and related personal property 23,848,068
25,129,362
Less accumulated depreciation (12,815,066) 12,314,296
$15,060,472
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable $ 50,286
Tenant security deposits 137,843
Accrued taxes 161,638
Other liabilities 399,315
Mortgage notes payable 8,517,052
Partners' Capital (Deficit)
General partners $ (74,612)
Limited partners (55,000 units
issued and outstanding) 5,868,950 5,794,338
$15,060,472
See Accompanying Notes to Consolidated Financial Statements
b) SHELTER PROPERTIES III LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues:
Rental income $1,278,707 $1,164,144 $2,481,049 $2,320,968
Other income 81,966 62,725 168,271 160,046
Total revenues 1,360,673 1,226,869 2,649,320 2,481,014
Expenses:
Operating 475,531 444,987 906,935 862,376
General & administrative 56,079 144,299 112,078 192,290
Maintenance 228,016 179,729 393,484 379,014
Depreciation 227,411 210,001 450,187 413,490
Interest 193,907 197,042 390,053 395,503
Property taxes 80,105 79,443 161,638 146,071
Total expenses 1,261,049 1,255,501 2,414,375 2,388,744
Net income (loss) $ 99,624 $ (28,632) $ 234,945 $ 92,270
Net income (loss) allocated
to general partners (1%) $ 996 $ (286) $ 2,349 $ 923
Net income (loss) allocated
to limited partners (99%) 98,628 (28,346) 232,596 91,347
$ 99,624 $ (28,632) $ 234,945 $ 92,270
Net income (loss) per
limited partnership unit $ 1.79 $ (.52) $ 4.23 $ 1.66
<FN>
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
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
Distributions paid partners -- (249,994) (249,994)
Net income for the six
months ended June 30, 1996 2,349 232,596 234,945
Partners' (deficit) capital
at June 30, 1996 55,000 $ (74,612) $ 5,868,950 $ 5,794,338
<FN>
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
d) SHELTER PROPERTIES III LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $ 234,945 $ 92,270
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 450,187 413,490
Amortization of discounts and loan costs 46,895 45,015
Change in accounts:
Restricted cash 3,141 (7,835)
Accounts receivable 3,427 (3,145)
Escrows for taxes (29,717) (127,498)
Accounts payable (220,341) 32,632
Tenant security deposit liabilities (3,157) 8,246
Accrued taxes 107,641 95,159
Other liabilities (58,242) 98,037
Net cash provided by operating activities 534,779 646,371
Cash flows from investing activities:
Property improvements and replacements (229,981) (291,922)
Deposits to restricted escrows (19,127) (80,433)
Receipts from restricted escrows 8,931 104,610
Net cash used in investing activities (240,177) (267,745)
Cash flows from financing activities:
Payments on mortgage notes payable (100,168) (92,839)
Distributions paid (249,994) (300,000)
Net cash used in financing activities (350,162) (392,839)
Net decrease in cash (55,560) (14,213)
Cash and cash equivalents at beginning of period 1,293,912 1,246,919
Cash and cash equivalents at end of period $1,238,352 $1,232,706
Supplemental disclosure of cash flow information:
Cash paid for interest $ 343,159 $ 350,488
<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 six month period ended June 30, 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.
Six Months Ended
June 30,
1996 1995
Net cash provided by operating activities $ 534,779 $ 646,371
Payments on mortgage notes payable (100,168) (92,839)
Property improvements and replacements (229,981) (291,922)
Change in restricted escrows, net (10,196) 24,177
Changes in reserves for net operating
liabilities 197,248 (95,596)
Additional reserves (395,000) (195,000)
Net cash used in operations $ (3,318) $ (4,809)
In 1996 and 1995, the Corporate General Partner believed it to be in the best
interest of the Partnership to reserve an additional $395,000 and $195,000,
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. (Insignia) and its affiliates in 1996 and 1995
are as follows:
Six Months Ended
June 30,
1996 1995
Property management fees $129,791 $123,180
Reimbursement for services of affiliates 67,270 58,853
Due to general partner 184,500 184,500
Note C - Transactions with Affiliated Parties - continued
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 Shelter Properties
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 Partnerships' 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 June 24, 1996, after notice to the class and a hearing on the fairness and
adequacy of notice and the terms of settlement, the court orally approved the
settlement. Plaintiffs' counsel has not yet submitted a formal written order
for approval. If no appeal is taken within thirty days after the court enters
that formal order, the settlement will become effective. No class member
appeared at the hearing to oppose the settlement and thus it appears that an
appeal is unlikely. While approximately 60 unit holders opted out of the
settlement, no more than 1% of the unit holders in any one of the Shelter
Properties Partnerships opted out.
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
six months ended June 30, 1996 and 1995:
Average
Occupancy
Property 1996 1995
Essex Park Apartments
Columbia, South Carolina 92% 94%
Colony House Apartments
Murfreesboro, Tennessee 93% 98%
North River Village Apartments
Atlanta, Georgia 96% 93%
Willowick Apartments
Greenville, South Carolina 95% 98%
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. The Corporate General Partner attributes the increase
in occupancy at North River Village Apartments to economic growth attributable
to the Olympics being held in the Atlanta area this summer.
The Partnership's net income for the six months and three months ended June 30,
1996, was $234,945 and $99,624, respectively. The Partnership reported net
income of $92,270 and a net loss of $28,632 for the six months and three months
ended June 30, 1995, respectively. The increase in net income is primarily
attributable to a decrease in general and administrative expense due to the
decrease in legal fees associated with the lawsuits disclosed in the Legal
Proceeding section below, as well as the decrease in professional expenses in
connection with the tender offerings in 1995. Other income also contributed to
the increase in net income for the three months ended June 30, 1996, due to
increases in fees related to tenant turnover and application fees. Partially
offsetting the increase in net income was an increase in maintenance expense for
the second quarter due to club house renovations and landscaping improvements at
Essex Park to improve the curb appeal and to remain competitive in its
respective market.
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 June 30, 1996, the Partnership had unrestricted cash of $1,238,352 compared
to $1,232,706 at June 30, 1995. Net cash provided by operating activities
decreased primarily as a result of a decrease in accounts payable due to the
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 and a decrease in tax escrow
deposits due to the timing of the payments. Net cash used in investing
activities decreased as a result of the decreases in cash used to purchase
property improvements and replacements which was offset by an increase in net
deposits to restricted escrows. Net deposits to restricted escrows increased
due to a reduction of receipts received for capital replacements during the six
months ended June 30, 1996. Net cash used in financing activities decreased due
to a decrease in distributions made during the six months ended June 30, 1996 as
compared to 1995.
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 $8,517,052, 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. A cash distribution of $249,994 was declared and paid during the six
month period ended June 30, 1996. During the six months ended June 30, 1995,
distributions in the amount of $300,000 were declared and paid.
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 Shelter Properties 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 Partnerships' 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 June 24, 1996, after notice to the class and a hearing on the fairness and
adequacy of notice and the terms of settlement, the court orally approved the
settlement. Plaintiffs' counsel has not yet submitted a formal written order
for approval. If no appeal is taken within thirty days after the court enters
that formal order, the settlement will become effective. No class member
appeared at the hearing to oppose the settlement and thus it appears that an
appeal is unlikely. While approximately 60 unit holders opted out of the
settlement, no more than 1% of the unit holders in any one of the Shelter
Properties Partnerships opted out.
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 June 30, 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: July 30, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Sheleter
Properties III Ltd. Partnership 1996 2nd Quarter 10-QSB and is qualified in its
entirety by reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000353282
<NAME> SHELTER PROPERTIES III LTD PARTNERSHIP
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,238,352
<SECURITIES> 0
<RECEIVABLES> 26,974
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 25,129,362
<DEPRECIATION> 12,815,066
<TOTAL-ASSETS> 15,060,472
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 8,517,052
0
0
<COMMON> 0
<OTHER-SE> 5,794,338
<TOTAL-LIABILITY-AND-EQUITY> 15,060,472
<SALES> 0
<TOTAL-REVENUES> 2,649,320
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,414,375
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 390,053
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 234,945
<EPS-PRIMARY> 4.23
<EPS-DILUTED> 0
<FN>
<F1>The Partnership has an unclassified balance sheet.
</FN>
</TABLE>
