FORM 10-QSB--QUARTERLY 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, 1997
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
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 III LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEET
(in thousands, except unit data)
(Unaudited)
September 30, 1997
Assets
Cash and cash equivalents:
Unrestricted $ 1,512
Restricted--tenant security deposits 127
Accounts receivable 38
Escrow for taxes 278
Restricted escrows 896
Other assets 282
Investment properties:
Land $ 1,281
Buildings and related personal property 24,483
25,764
Less accumulated depreciation (13,988) 11,776
$14,909
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable $ 151
Tenant security deposits 127
Accrued property taxes 209
Other liabilities 375
Mortgage notes payable 8,319
Partners' Capital (Deficit)
General partners' $ (76)
Limited partners' (55,000 units
issued and outstanding) 5,804 5,728
$14,909
See Accompanying Notes to Consolidated Financial Statements
b) SHELTER PROPERTIES III LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except unit data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
Revenues:
Rental income $1,305 $1,272 $3,861 $3,753
Other income 111 92 332 260
Total revenues 1,416 1,364 4,193 4,013
Expenses:
Operating 526 456 1,481 1,363
General and administrative 49 46 151 158
Maintenance 218 233 570 626
Depreciation 240 236 700 686
Interest 188 195 572 585
Property taxes 84 99 263 261
Total expenses 1,305 1,265 3,737 3,679
Net income $ 111 $ 99 $ 456 $ 334
Net income allocated to
general partners' (1%) $ 1 $ 1 $ 4 $ 3
Net income allocated to
limited partners' (99%) 110 98 452 331
$ 111 $ 99 $ 456 $ 334
Net income per limited
partnership unit $ 2.00 $ 1.78 $ 8.21 $ 6.01
See Accompanying Notes to Consolidated Financial Statements
c) SHELTER PROPERTIES III LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(in thousands, except unit data)
(Unaudited)
Limited
Partnership General Limited
Units Partners' Partners' Total
Original capital contributions 55,000 $ 2 $27,500 $27,502
Partners' (deficit) capital
at December 31, 1996 55,000 $ (73) $ 6,045 $ 5,972
Net income for the nine months
ended September 30, 1997 -- 4 452 456
Distributions paid -- (7) (693) (700)
Partners' (deficit) capital
at September 30, 1997 55,000 $ (76) $ 5,804 $ 5,728
See Accompanying Notes to Consolidated Financial Statements
d) SHELTER PROPERTIES III LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Nine Months Ended
September 30,
1997 1996
Cash flows from operating activities:
Net income $ 456 $ 334
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 700 686
Amortization of discounts and loan costs 72 71
Change in accounts:
Restricted cash 10 3
Accounts receivable (13) 8
Escrows for taxes (9) (34)
Other assets (47) (22)
Accounts payable 101 (246)
Tenant security deposit liabilities (10) (2)
Accrued property taxes 5 140
Other liabilities (13) 5
Net cash provided by operating activities 1,252 943
Cash flows from investing activities:
Property improvements and replacements (358) (409)
Deposits to restricted escrows (27) (27)
Receipts from restricted escrows -- 10
Net cash used in investing activities (385) (426)
Cash flows from financing activities:
Payments on mortgage notes payable (164) (152)
Distributions paid (700) (250)
Net cash used in financing activities (864) (402)
Net increase in unrestricted cash and cash 3 115
equivalents
Unrestricted cash and cash equivalents at beginning
of period 1,509 1,294
Unrestricted cash and cash equivalents at end
of period $1,512 $1,409
Supplemental disclosure of cash flow information:
Cash paid for interest $ 501 $ 513
See Accompanying Notes to Consolidated Financial Statements
e) SHELTER PROPERTIES III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Shelter
Properties III Limited Partnership (the "Partnership") 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 III 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, 1997,
are not necessarily indicative of the results that may be expected for the
fiscal year ending December 31, 1997. 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, 1996.
Certain reclassifications have been made to the 1996 information to conform to
the 1997 presentation.
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 (amounts in thousands):
Nine Months Ended
September 30,
1997 1996
Net cash provided by operating activities $1,252 $ 943
Payments on mortgage notes payable (164) (152)
Property improvements and replacements (358) (409)
Change in restricted escrows, net (27) (17)
Changes in reserves for net operating
liabilities (24) 148
Additional reserves (679) (515)
Net cash used in operations $ -- $ (2)
In 1997 and 1996, the Corporate General Partner believed it to be in the best
interest of the Partnership to reserve an additional $679,000 and $515,000,
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. The following amounts were paid or
accrued to the Corporate General Partner and affiliates in 1997 and 1996:
Nine Months Ended
September 30,
(in thousands)
1997 1996
Property management fees (included in operating expenses) $204 $197
Reimbursement for services of affiliates, including
approximately $11,000 and $5,000 of construction oversight
reimbursements in 1997 and 1996, respectively (included in
general and administrative and maintenance expenses) 101 78
Due to general partner 185 185
For the period of January 1, 1996 to August 31, 1997, the Partnership insured
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 master policy. The agent assumed the financial obligations to the
affiliate of the Corporate General Partner, who received 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.
On September 26, 1997, an affiliate of the 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 Essex Park Apartments, Colony House Apartments and Willowick
Apartments owned by the Partnership.
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 each
of the nine months ended September 30, 1997 and 1996:
Average
Occupancy
Property 1997 1996
Essex Park Apartments
Columbia, South Carolina 95% 94%
Colony House Apartments
Murfreesboro, Tennessee 89% 92%
North River Village Apartments
Atlanta, Georgia 91% 96%
Willowick Apartments
Greenville, South Carolina 92% 94%
The Corporate General Partner attributes the decrease in occupancy at North
River Village Apartments to increased competition as a result of newly
constructed units which are also offering concessions. Also contributing to the
decrease in occupancy is increased crime rates in the area, which is causing
residents to move to gated complexes.
The Partnership's net income for the three and nine month periods ended
September 30, 1997, was approximately $111,000 and $456,000, respectively,
compared to net income of approximately $99,000 and $334,000, respectively, for
the corresponding periods of 1996. The increase in net income is primarily due
to increases in total revenues for both the three and nine month periods.
Also attributing to the increase in net income is the decrease in maintenance
expense. The increase in rental income is a result of increased rental rates at
all of the investment properties within the Partnership, except for Colony House
Apartments. These rental rate increases have been slightly offset by a decrease
in occupancy at all of the investment properties except for Essex Park
Apartments which has increased in comparison to the prior year. The increase in
other income has resulted from increased cash balances in interest bearing bank
accounts and increased interest rates. The increase in other income is also
attributable to utility fees being passed on to the tenants and the receipt of a
tax refund from North River Village's taxing authority pertaining to the 1996
tax year. The decrease in maintenance expense is attributable to a decrease in
exterior building improvements at both Colony House and Essex Park. These
expenditures performed in 1996 were related to an effort to improve curb appeal
and increase traffic. Partially offsetting the increase in net income was the
increase in operating expense due to increased concessions at all of the
investment properties, except Essex Park Apartments. Tax expense decreased for
the three month period ended September 30, 1997 due to a decrease in assessed
value at North River Village.
Included in maintenance expenses for 1997 is approximately $71,000 of major
repairs and maintenance comprised of major landscaping, construction oversight
costs, window coverings and tennis court repairs. In 1996 maintenance expenses
included approximately $124,000 of major repairs and maintenance comprised of
exterior and interior building repairs and improvements, major landscaping, and
exterior painting.
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 September 30, 1997 the Partnership had unrestricted cash and cash equivalents
of approximately $1,512,000 compared to approximately $1,409,000 at September
30, 1996. Net cash provided by operating activities increased primarily as a
result of an increase in net income, as discussed above, an increase in accounts
payable due to the timing of payments to vendors and a decrease in tax escrows.
These increases were offset by an increase in accounts receivable resulting from
the timing of collections from tenants and decreases in accrued taxes due to the
timing of tax payments. Net cash used in investing activities decreased as a
result of decreases in cash used to purchase property improvements and
replacements. Net cash used in financing activity increased due to an increase
in distributions during the nine month period ended September 30, 1997, as
compared to the nine months ended September 30, 1996.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the properties to adequately maintain the physical
assets and other operating needs of the Partnership. Such assets are currently
thought to be sufficient for any near-term needs of the Partnership. The
mortgage indebtedness of approximately $8,319,000, 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. A cash distribution was made in
the nine month period ended September 30, 1997 of $700,000. During the nine
month period ended September 30, 1996, a cash distribution of $250,000 was paid.
Future cash distributions will depend on the levels of net cash generated from
operations, property sales, and the availability of cash reserves.
PART II - OTHER INFORMATION
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 September 30, 1997.
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: November 13, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Shelter
Properties III Limited Partnership 1997 Third Quarter 10-QSB and is qualified in
its entirety by reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000353282
<NAME> SHELTER PROPERTIES III LIMITED PARTNERSHIP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,512
<SECURITIES> 0
<RECEIVABLES> 38
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 25,764
<DEPRECIATION> 13,988
<TOTAL-ASSETS> 14,909
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 8,319
0
0
<COMMON> 0
<OTHER-SE> 5,728
<TOTAL-LIABILITY-AND-EQUITY> 14,909
<SALES> 0
<TOTAL-REVENUES> 4,193
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,737
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 572
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 456
<EPS-PRIMARY> 8.21<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
