March 9, 2000
United States
Securities and Exchange Commission
Washington, D.C. 20549
RE: Shelter Properties VII Limited Partnership
Form 10-KSB
File No. 0-14369
To Whom it May Concern:
The accompanying Form 10-KSB for the year ended December 31, 1999 describes a
change in the method of accounting to capitalize exterior painting and major
landscaping, which would have been expensed under the old policy. The
Partnership believes that this accounting principle change is preferable because
it provides a better matching of expenses with the related benefit of the
expenditures and it is consistent with industry practice and the policies of the
Corporate General Partner.
Please do not hesitate to contact the undersigned with any questions or comments
that you might have.
Very truly yours,
Stephen Waters
Real Estate Controller
<PAGE>
-------------------------------------------------------------------------
FORM 10-KSB--ANNUAL OR TRANSITIONAL REPORT UNDER
SECTION 13 OR 15(d)
Form 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 [No Fee Required]
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [No Fee Required]
For the transition period from _________to _________
Commission file number 0-14369
SHELTER PROPERTIES VII LIMITED PARTNERSHIP
(Name of small business issuer in its charter)
South Carolina 54-0784852
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, PO Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
Issuer's telephone number
(864) 239-1000
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Units of Limited Partnership Interest
(Title of class)
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___
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the Partnership's knowledge in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. Yes X No___
State issuer's revenues for its most recent fiscal year. $4,025,000
State the aggregate market value of the voting partnership interests held by
non-affiliates computed by reference to the price at which the partnership
interests were sold, or the average bid and asked prices of such partnership
interests as of December 31, 1999. No market exists for the limited partnership
interests of the Registrant; and, therefore, no aggregate market value can be
determined.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
- --------------------------------------------------------------------------------
<PAGE>
PART I
Item 1. Description of Business
Shelter Properties VII (the "Partnership" or "Registrant") was organized as a
limited partnership under the laws of the State of South Carolina on October 29,
1984. The general partner responsible for management of the Partnership's
business is Shelter Realty VII Corporation, a South Carolina corporation (the
"Corporate General Partner"). The only other general partner of the Partnership
was N. Barton Tuck, Jr. Mr. Tuck was not an affiliate of the Corporate General
Partner and was effectively prohibited by the Partnership's partnership
agreement (the "Partnership Agreement") from participating in the management of
the Partnership. In June 1999, Mr. Tuck's general partnership interest in the
Registrant was purchased by AIMCO Properties, L.P., an affiliate of the
Corporate General Partner. The Corporate General Partner is a subsidiary of
Apartment Investment and Management Company ("AIMCO"). The Partnership Agreement
provides that the Partnership is to terminate on December 31, 2024 unless
terminated prior to such date.
The Registrant is engaged in the business of operating and holding real estate
properties for investment. The Registrant acquired two existing apartment
properties and a newly constructed apartment property during 1985 in its
acquisition phase. The Registrant continues to own and operate two of these
properties. See "Item 2. Description of Properties".
Commencing March 18, 1985 the Registrant offered, pursuant to a Registration
Statement filed with the Securities and Exchange Commission (the "SEC"), up to
40,000 Units of Limited Partnership Interest (the "Units") at a purchase price
of $1,000 per Unit with a minimum purchase of 5 Units ($5,000), or 2 Units
($2,000) for an Individual Retirement Account.
The offering terminated on November 5, 1985. Upon termination of the offering,
the Registrant had accepted subscriptions for 17,343 Units, including 100 Units
purchased by the Corporate General Partner, for an aggregate of $17,343,000.
Since its initial offering, the Registrant has not received, nor are limited
partners required to make any additional capital contributions.
There have been, and it is possible there may be other, Federal, state and local
legislation and regulations enacted relating to the protection of the
environment. The Partnership is unable to predict the extent, if any, to which
such new legislation or regulations might occur and the degree to which such
existing or new legislation or regulations might adversely affect the properties
owned by the Partnership.
The Partnership monitors its properties for evidence of pollutants, toxins and
other dangerous substances, including the presence of asbestos. In certain cases
environmental testing has been performed which resulted in no material adverse
conditions or liabilities. In no case has the Partnership received notice that
it is a potentially responsible party with respect to an environmental clean up
site.
Both the income and expenses of operating the properties owned by the
Partnership are subject to factors outside of the Partnership's control, such as
changes in the supply and demand for similar properties resulting from various
market conditions, increases/decreases in unemployment or population shifts,
changes in the availability of permanent mortgage financing, changes in zoning
laws, or changes in patterns or needs of users. In addition, there are risks
inherent in owning and operating residential properties because such properties
are susceptible to the impact of economic and other conditions outside of the
control of the Partnership.
The real estate business in which the Partnership is engaged is highly
competitive. There are other residential properties within the market area of
the Registrant's properties. The number and quality of competitive properties,
including those which may be managed by an affiliate of the Corporate General
Partner, in such market area could have a material effect on the rental market
for the apartments at the Partnership's properties and the rents that may be
charged for such apartments. While the Corporate General Partner and its
affiliates own and/or control a significant number of apartment units in the
United States, such units represent an insignificant percentage of total
apartment units in the United States and competition for the apartment is local.
The Registrant has no employees. Management and administrative services are
provided by the Corporate General Partner and by agents retained by the
Corporate General Partner. An affiliate of the Corporate General Partner has
been providing such property management services.
A further description of the Partnership's business is included in "Management's
Discussion and Analysis or Plan of Operation" included in "Item 6" of this Form
10-KSB.
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 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.
Item 2. Description of Properties:
-------------------------
The following table sets forth the Registrant's investments in properties:
<TABLE>
<CAPTION>
Date of
Properties Purchase Type of Ownership Use
<S> <C> <C> <C>
Hickory Ridge Apartments 08/27/85 Fee ownership, subject to Apartment
Memphis, Tennessee first mortgage. 378 units
Governor's Park Apartments 09/30/85 Fee ownership, subject to Apartment
Ft. Collins, Colorado first and second 188 units
mortgages (1)
</TABLE>
(1) Property is held by a Limited Partnership which the Registrant owns a
99.99% interest in.
<PAGE>
Schedule of Properties:
- ----------------------
Set forth below for each of the Registrant's properties is the gross carrying
value, accumulated depreciation, depreciable life, method of depreciation, and
Federal tax basis.
<TABLE>
<CAPTION>
Gross
Carrying Accumulated Federal
Properties Value Depreciation Rate Method Tax Basis
- ---------- ----- ------------ ---- ------ ---------
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C>
Hickory Ridge Apartments $15,062 $ 7,981 5-29 years S/L $ 6,419
Governor's Park Apartments 7,772 3,604 5-39 years S/L 2,922
------ ------ ------
Totals $22,834 $11,585 $ 9,341
====== ====== ======
</TABLE>
See "Note A" to the consolidated financial statements included in "Item 7" for a
description of the Partnership's depreciation policy and "Note J - Change in
Accounting Principle".
Schedule of Property Indebtedness:
- ---------------------------------
The following table sets forth certain information relating to the loans
encumbering the Registrant's properties.
<TABLE>
<CAPTION>
Principal Principal
Balance At Stated Balance
December 31, Interest Period Maturity Due At
Properties 1999 Rate Amortized Date Maturity (3)
- ---------- ---- ---- --------- ---- ------------
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C>
Hickory Ridge Apartments $ 6,233 7.50% (1) 03/01/01 $ 6,057
Governor's Park
Apartments
1st mortgage 4,397 7.83% (2) 10/15/03 4,083
2nd mortgage 147 7.83% none 10/15/03 147
------ ------
10,777 $10,287
======
Less unamortized
mortgage discounts (49)
------
Total $10,728
======
</TABLE>
(1) The principal balance is being amortized over 300 months with a balloon
payment due March 1, 2001.
(2) The principal balance is being over 344 months with a balloon payment due
October 15, 2003.
(3) See "Item 7, Financial Statements - Note D" for information with respect to
the Registrant's ability to repay these loans and other specific details
about the loans.
Schedule of Rental Rates and Occupancy:
- --------------------------------------
The following table sets forth the average annual rental rates and occupancy for
1999 and 1998 for each property.
Average Annual Average
Rental Rates Occupancy
------------ ---------
(per unit)
Properties 1999 1998 1999 1998
---------- ---- ---- ---- ----
Hickory Ridge Apartments $6,774 $6,517 95% 95%
Governor's Park 8,727 8,321 95% 96%
Apartments
<PAGE>
As noted under "Item 1. Description of Business", the real estate industry is
highly competitive. The Partnership's properties are subject to competition from
other residential apartment complexes in the area. The Corporate General Partner
believes that both of the properties are adequately insured. Each property is an
apartment complex which leases its units for lease terms of one year or less. No
tenant leases 10% or more of the available rental space. Both of the properties
are in good physical condition, subject to normal depreciation and deterioration
as is typical for assets of this type and age.
Schedule of Real Estate Taxes and Rates
Real estate taxes and rates in 1999 for each property were:
1999 1999
Billing Rate
------- ----
(in thousands)
Hickory Ridge Apartments $241 6.31%
Governor's Park Apartments 72 8.80%
Capital Improvements
Hickory Ridge:
The Partnership completed approximately $751,000 in capital expenditures at
Hickory Ridge Apartments as of December 31, 1999, consisting primarily of
parking lot improvements, appliances, electrical improvements, floor covering
replacements, major landscaping, and structural improvements. These improvements
were funded primarily from operations. The Partnership is currently evaluating
the capital improvement needs of the property for the upcoming year. The minimum
amount to be budgeted is expected to be $300 per unit or $113,400. Additional
improvements may be considered and will depend on the physical condition of the
property as well as replacement reserves and anticipated cash flow generated by
the property.
Governor's Park:
The Partnership completed approximately $122,000 in capital expenditures at
Governor's Park Apartments as of December 31, 1999, consisting primarily of
appliances, structural improvements and floor covering replacements. These
improvements were funded primarily from operations and replacement reserves. The
Partnership is currently evaluating the capital improvement needs of the
property for the upcoming year. The minimum amount to be budgeted is expected to
be $300 per unit or $56,400. Additional improvements may be considered and will
depend on the physical condition of the property as well as replacement reserves
and anticipated cash flow generated by the property.
<PAGE>
Item 3. 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
"Item 7. 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.
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.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
During the quarter ended December 31, 1999, no matter was submitted to a vote of
the Unit holders through the solicitation of proxies or otherwise.
<PAGE>
PART II
Item 5. Market for the Partnership Equity and Related Partner Matters
The Partnership, a publicly-held limited partnership, offered and sold 17,343
limited partnership units including 100 units purchased by the Corporate General
Partner aggregating $17,343,000. The Partnership currently has 845 holders of
record owning an aggregate of 17,343 Units. Affiliates of the Corporate General
Partner own 8,954 units or approximately 51.63% at December 31, 1999. No public
trading market has developed for the Units, and it is not anticipated that such
a market will develop in the future.
No distributions were made for the year ended December 31, 1998. The following
table sets forth the distributions made by the Partnership for the years ended
December 31, 1998 and 1999.
Distributions
Per Limited
Aggregate Partnership Unit
01/01/99 - 12/31/99 $1,267,000 (1) $72.13
(1) Distribution was made from cash from operations. The Partnership paid
approximately $6,000 to Colorado for state tax withholdings on behalf of
the limited partners which is included in the amount above.
The Partnership's distribution policy is reviewed on a semi-annual basis. Future
cash distributions will depend on the levels of net cash generated from
operations, the availability of cash reserves, and the timing of debt
maturities, refinancings, and/or property sales. There can be no assurance,
however, that the Partnership will generate sufficient funds from operations,
after required capital expenditures, to permit any additional distributions to
its partners in 2000 or subsequent periods. See "Item 2. Description of
Properties - Capital Improvements" for information relating to capital
expenditures at the properties. In addition, the Partnership may be restricted
from making distributions if the amount in the reserve account for Governor's
Park Apartments maintained by the mortgage lender is less than $200 per
apartment unit at such property. As of December 31, 1999, the reserve account
was fully funded with approximately $39,000 on deposit with the mortgage lender.
Several tender offers were made by various parties, including affiliates of the
general partners, during the years ended December 31, 1999 and 1998. As a result
of these tender offers, AIMCO and its affiliates currently own 8,954 units of
limited partnership interest in the Partnership representing approximately
51.63% of the outstanding units. 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. Consequently, AIMCO is in a position to
significantly influence all voting decisions with respect to the Registrant.
Under the Partnership Agreement, unitholders holding a majority of the Units are
entitled to take action with respect to a variety of matters. 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.
Item 6. Management's Discussion and Analysis or Plan of Operation
The matters discussed in this Form 10-KSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the disclosure
contained in this Form 10-KSB 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 operation. 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.
This item should be read in conjunction with the consolidated financial
statements and other items contained elsewhere in this report.
Results of Operations
The Registrant's net income for the year ended December 31, 1999 and 1998 was
approximately $545,000 and $336,000, respectively. The increase in net income is
due to an increase in rental income and a decrease in total expenses. Rental
income increased primarily due to an increase in the average annual rental rates
at both of the Registrant's investment properties which more than offset a
slight decrease in occupancy at Governor's Park. The increase in rental income
was partially offset by a slight decrease in other income. The decrease in other
income is due primarily to lower interest income as a result of a decrease in
interest bearing cash balances as a result of distributions paid during 1999.
Total expenses decreased due to a decrease in operating expense and depreciation
expense. The decrease in operating expense is primarily due to decreases in
maintenance, property and insurance expense. Maintenance expense decreased due
to interior and exterior building improvements which were completed during 1998
and a change in accounting policy during 1999 as discussed below. Property
expense decreased as a result of a decrease in salaries and related employee
benefits. The Registrant changed insurance carriers at the investment properties
during the fourth quarter of 1998 which contributed to the decrease in insurance
expense. Depreciation expense decreased due to assets becoming fully
depreciated.
The decrease in total expenses was partially offset by an increase in general
and administrative expense and property tax expense for the year ended December
31, 1999. General and administrative expense increased as a result of an
increase in legal costs, which include the Partnership's portion of settlement
costs paid in March 1999 as disclosed in the Partnership's annual report on Form
10-KSB for the year ended December 31, 1998. Included in general and
administrative expense at both December 31, 1999 and 1998 are management
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 and
appraisals required by the Partnership Agreement are also included. The increase
in property tax expense is due to the City of Memphis annexing Hickory Ridge
Apartments into the city limits resulting in the property being responsible for
city taxes for the first time in 1999. Partially offsetting this increase was an
adjustment in 1999 for an overaccrual of 1998 property taxes at Hickory Ridge
Apartments. Interest expense remained relatively constant for the comparable
periods.
Effective January 1, 1999, the Partnership changed its method of accounting to
capitalize the cost of exterior painting and major landscaping on a prospective
basis. The Partnership believes that this accounting principle change is
preferable because it provides a better matching of expenses with the related
benefit of the expenditures and it is consistent with industry practice and the
policies of the Corporate General Partner. The effect of the change in 1999 was
to increase net income by approximately $88,000 ($4.57 per limited partnership
unit). The cumulative effect, had this change been applied to prior periods, is
not material. The accounting principle change will not have an effect on cash
flow, funds available for distribution or fees payable to the Corporate General
Partner and affiliates.
As part of the ongoing business plan of the Registrant, the Corporate General
Partner monitors the rental market environment of each of its investment
properties to assess the feasibility of increasing rents, 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.
Liquidity and Capital Resources
At December 31, 1999, the Registrant had cash and cash equivalents of
approximately $474,000 compared to approximately $1,201,000 at December 31,
1998. The decrease in cash and cash equivalents of approximately $727,000 for
the year ended December 31, 1999 is due to approximately $821,000 of cash used
in investing activities and approximately $1,476,000 of cash used in financing
activities which was partially offset by approximately $1,570,000 of cash
provided by operating activities. Cash used in financing activities consisted
primarily of partner distributions and to a lesser extent principal payments
made on the mortgages encumbering the Registrant's properties. Cash used in
investing activities consisted of property improvements and replacements, which
was partially offset by withdrawals from escrow accounts maintained by the
mortgage lender. The Registrant invests its working capital reserves in a money
market 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 various properties to adequately maintain the
physical assets and other operating needs of the Registrant and to comply with
Federal, state, and local legal and regulatory requirements. The Partnership is
currently evaluating the capital improvement needs of the properties for the
upcoming year. The minimum to be budgeted is expected to be $300 per unit or
$169,800. Additional capital improvements will be incurred only if cash is
available from operations and Partnership reserves. To the extent that such
budgeted capital improvements are completed, the Registrant's distributable cash
flow, if any, may be adversely affected at least in the short term.
The Registrant's current assets are thought to be sufficient for any near-term
needs (exclusive of capital improvements) of the Partnership. The mortgage
indebtedness of approximately $10,728,000, net of discount, is amortized over
varying periods with balloon payments due at maturity, March 1, 2001 and October
15, 2003. The Corporate General Partner will attempt to refinance such remaining
indebtedness and/or sell the properties prior to such maturity dates. If the
properties cannot be refinanced or sold for a sufficient amount, the Registrant
may risk losing such properties through foreclosure.
During 1999 the Partnership paid a total of $1,267,000 in distributions to its
partners. The Partnership distributed approximately $1,251,000 (approximately
$72.13 per limited partnership unit) to the limited partners, approximately
$16,000 to the general partners. There were no cash distributions made in 1998.
The Partnership's distribution policy is reviewed on a semi-annual basis. Future
cash distributions will depend on the levels of net cash generated from
operations, the availability of cash reserves, and the timing of debt
maturities, refinancings, and/or property sales. There can be no assurance,
however, that the Partnership will generate sufficient funds from operations
after required capital expenditures, to permit any additional distributions to
its partners in 2000 or subsequent periods. Distributions may also 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 by an amount
equal to $200 per apartment unit at Governor's Park. As of December 31, 1999,
the reserve account is fully funded.
Tender Offers
Several tender offers were made by various parties, including affiliates of the
general partners, during the fiscal years ended December 31, 1999 and 1998. As a
result of these tender offers, AIMCO and its affiliates currently own 8,954
units of limited partnership interest in the Partnership representing
approximately 51.63% of the outstanding units. 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. Consequently, AIMCO is in a position to
significantly influence all voting decisions with respect to the Registrant.
Under the Partnership Agreement, unitholders holding a majority of the Units are
entitled to take action with respect to a variety of matters. 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.
Year 2000 Compliance
General Description
The Year 2000 issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. The Partnership is
dependent upon the Corporate General Partner and its affiliates for management
and administrative services ("Managing Agent"). Any of the Managing Agent's
computer programs or hardware that had date-sensitive software or embedded chips
might have recognized a date using "00" as the year 1900 rather than the year
2000. This could have resulted in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities.
<PAGE>
Computer Hardware, Software and Operating Equipment
In 1999, the Managing Agent completed all phases of its Year 2000 program by
completing the replacement and repair of any hardware or software system or
operating equipment that was not yet Year 2000 compliant. The Managing Agent's
hardware and software systems and its operating equipment are now Year 2000
compliant. No material failure or erroneous results have occurred in the
Managing Agent's computer applications related to the failure to reference the
Year 2000 to date.
Third Parties
To date, the Managing Agent is not aware of any significant supplier or
subcontractor (external agent) or financial institution of the Partnership that
has a Year 2000 issue that would have a material impact on the Partnership's
results of operations, liquidity or capital resources. However, the Managing
Agent has no means of ensuring or determining the Year 2000 compliance of
external agents. At this time, the Managing Agent does not believe that a Year
2000 issue of any non-compliant external agent will have a material impact on
the Partnership's financial position or results of operations.
Costs
The total cost of the Managing Agent's Year 2000 project was approximately $3.2
million and was funded from operating cash flows.
Risks Associated with the Year 2000
The Managing Agent completed all necessary phases of its Year 2000 program in
1999, and did not experience system or equipment malfunctions related to a
failure to reference the Year 2000. The Managing Agent or Partnership have not
been materially adversely effected by disruptions in the economy generally
resulting from the Year 2000 issue.
At this time, the Managing Agent does not believe that the Partnership's
businesses, results of operations or financial condition will be materially
adversely effected by the Year 2000 issue.
Contingency Plans Associated with the Year 2000
The Managing Agent has not had to implement contingency plans such as manual
workarounds or selecting new relationships for its banking or elevator operation
activities in order to avoid the Year 2000 issue.
<PAGE>
Item 7. Financial Statements
SHELTER PROPERTIES VII LIMITED PARTNERSHIP
LIST OF FINANCIAL STATEMENTS
Independent Auditors' Report
Consolidated Balance Sheet - December 31, 1999
Consolidated Statements of Operations - Years ended December 31, 1999
and 1998
Consolidated Statements of Changes in Partners' (Deficit) Capital - Years
ended December 31, 1999 and 1998
Consolidated Statements of Cash Flows - Years ended December 31, 1999
and 1998
Notes to Consolidated Financial Statements
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
The Partners
Shelter Properties VII Limited Partnership
We have audited the accompanying consolidated balance sheet of Shelter
Properties VII Limited Partnership as of December 31, 1999, and the related
consolidated statements of operations, changes in partners' (deficit) capital
and cash flows for each of the two years in the period ended December 31, 1999.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by the Partnership's management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Shelter Properties
VII Limited Partnership at December 31, 1999, and the consolidated results of
its operations and its cash flows for each of the two years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
As discussed in Note I to the consolidated financial statements, the Partnership
changed its method of accounting to capitalize the cost of exterior painting and
major landscaping effective January 1, 1999.
/s/ ERNST & YOUNG LLP
Greenville, South Carolina
February 24, 2000
<PAGE>
SHELTER PROPERTIES VII LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEET
(in thousands, except unit data)
December 31, 1999
<TABLE>
<CAPTION>
Assets
<S> <C> <C>
Cash and cash equivalents $ 474
Receivables and deposits 180
Restricted escrows 39
Other assets 124
Investment properties (Notes D and E):
Land $ 1,774
Buildings and personal property 21,060
------
22,834
Less accumulated depreciation (11,585) 11,249
------- ------
$12,066
Liabilities and Partners' (Deficit) Capital
Liabilities
Accounts payable $ 73
Tenant security deposit liabilities 79
Accrued property taxes 220
Other liabilities 189
Mortgage notes payable (Note D) 10,728
Partners' (Deficit) Capital
General partners $ (142)
Limited partners (17,343 units issued and
outstanding) 919 777
------ ------
$12,066
See Accompanying Notes to Consolidated financial Statements
</TABLE>
<PAGE>
SHELTER PROPERTIES VII LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except unit data)
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998
---- ----
<S> <C> <C>
Revenues:
Rental income $ 3,832 $ 3,745
Other income 193 199
------ ------
Total revenues 4,025 3,944
------ ------
Expenses:
Operating 1,268 1,464
General and administrative 230 163
Depreciation 823 856
Interest 889 884
Property taxes 270 241
------ ------
Total expenses 3,480 3,608
------ ------
Net income $ 545 $ 336
====== ======
Net income allocated to general partners (1%) $ 5 $ 3
Net income allocated to limited partners (99%) 540 333
------ ------
$ 545 $ 336
====== ======
Net income per limited partnership unit $ 31.14 $ 19.20
====== ======
Distributions per limited partnership unit $ 72.13 $ --
====== ======
</TABLE>
See Accompanying Notes to Consolidated financial Statements
<PAGE>
SHELTER PROPERTIES VII LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL
(in thousands, except unit data)
<TABLE>
<CAPTION>
Limited
Partnership General Limited
Units Partners Partners Total
<S> <C> <C> <C> <C>
Original capital contributions 17,343 $ 2 $17,343 $17,345
====== ====== ====== ======
Partners' (deficit) capital at
December 31, 1997 17,343 $ (134) $ 1,297 $ 1,163
Net income for the year ended
December 31, 1998 -- 3 333 336
------ ------ ------ ------
Partners' (deficit) capital at
December 31, 1998 17,343 (131) 1,630 1,499
Distributions paid to partners -- (16) (1,251) (1,267)
Net income for the year ended
December 31, 1999 -- 5 540 545
------ ------ ------ ------
Partners' (deficit) capital at
December 31, 1999 17,343 $ (142) $ 919 $ 777
====== ====== ====== ======
</TABLE>
See Accompanying Notes to Consolidated financial Statements
<PAGE>
<TABLE>
<CAPTION>
SHELTER PROPERTIES VII LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended December 31,
1999 1998
Cash flows from operating activities:
<S> <C> <C>
Net income $ 545 $ 336
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 823 856
Amortization of discounts and loan costs 45 39
Change in accounts:
Receivables and deposits 81 37
Other assets (25) 36
Accounts payable 46 (70)
Tenant security deposits liabilities 2 (1)
Accrued taxes (21) 57
Other liabilities 74 11
------ ------
Net cash provided by operating activities 1,570 1,301
------ ------
Cash flows from investing activities:
Property improvements and replacements (873) (514)
Net withdrawals from (deposits to) restricted escrows 52 (4)
------ ------
Net cash used in investing activities (821) (518)
------ ------
Cash flows from financing activities:
Payments on mortgage notes payable (209) (194)
Distributions paid to partners (1 267) --
------ ------
Net cash used in financing activities (1,476) (194)
------ ------
Net (decrease) increase in cash and cash equivalents (727) 589
Cash and cash equivalents at beginning of period 1,201 612
------ ------
Cash and cash equivalents at end of period $ 474 $ 1,201
====== ======
Supplemental disclosure of cash flow information:
Cash paid for interest $ 832 $ 847
====== ======
</TABLE>
See Accompanying Notes to Consolidated financial Statements
<PAGE>
SHELTER PROPERTIES VII LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1999
Note A - Organization and Significant Accounting Policies
Organization:
- ------------
Shelter Properties VII Limited Partnership (the "Partnership" or "Registrant")
was organized as a limited partnership under the laws of the State of South
Carolina on October 29, 1984. The general partner responsible for management of
the Partnership's business is Shelter Realty VII Corporation, a South Carolina
corporation (the "Corporate General Partner"). The only other general partner of
the Partnership was N. Barton Tuck, Jr. Mr. Tuck was not an affiliate of the
Corporate General Partner and was effectively prohibited by the Partnership's
partnership agreement (the "Partnership Agreement") from participating in the
management of the Partnership. In June 1999, Mr. Tuck's general partner interest
was purchased by AIMCO Properties, L.P., an affiliate of the Corporate General
Partner. The Corporate General Partner is a subsidiary of Apartment Investment
and Management Company ("AIMCO") (see "Note B - Transfer of Control"). The
directors and officers of the Corporate General Partner also serve as executive
officers of AIMCO. The Partnership Agreement provides that the Partnership is to
terminate on December 31, 2024 unless terminated prior to such date. The
Partnership commenced operations on August 27, 1985, and completed its
acquisition of apartment properties on December 6, 1985. The Partnership owns
two apartment properties located in Tennessee and Colorado.
Principles of Consolidation:
- ---------------------------
The Registrant's financial statements include all the accounts of the Registrant
and its 99.99% owned partnership. The General Partner of the consolidated
partnership is Shelter Realty VII Corporation. Shelter Realty VII Corporation
may be removed by the Registrant; therefore, the consolidated partnership is
controlled and consolidated by the Registrant. All significant interpartnership
transactions have been eliminated.
Use of Estimates:
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Allocation of Cash Distributions:
- --------------------------------
Cash distributions by the Partnership are allocated between general and limited
partners in accordance with the provisions of the Partnership Agreement. The
Partnership Agreement defines net cash from operations as revenue received less
operating expenses paid, adjusted for certain specified items which primarily
include mortgage payments on debt, property improvements and replacements not
previously reserved, and the effects of other adjustments to reserves including
reserve amounts deemed necessary by the Corporate General Partner. In the
following notes to the consolidated financial statements, whenever "net cash
from operations" is used, it has the aforementioned meaning. The following is a
reconciliation of the subtotal in the accompanying consolidated statements of
cash flows captioned "net cash provided by operating activities" to "net cash
from operations", as defined in the Partnership Agreement. However, "net cash
from 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.
Years Ended December 31,
1999 1998
---- ----
(in thousands)
Net cash provided by operating activities $1,570 $1,301
Property improvements and replacements (873) (514)
Payments on mortgage notes payable (209) (194)
Changes in reserves for net operating liabilities (157) (70)
Changes in restricted escrows, net 52 (4)
Additional reserves (383) --
----- -----
Net cash from operations $ -- $ 519
===== =====
The Corporate General Partner reserved approximately $383,000 at December 31,
1999 to fund capital improvements and repairs at its two properties. No amount
was reserved at December 31, 1998.
Distributions made from reserves no longer considered necessary by the Corporate
General Partner are considered to be additional net cash from operations for
allocation purposes.
No distributions were made for the year ended December 31, 1998. The following
table sets forth the distributions made by the Partnership for the years ended
December 31, 1998 and 1999.
Distributions
Per Limited
Aggregate Partnership Unit
01/01/99 - 12/31/99 $1,267,000 (1) $72.13
(1) Distribution was made from cash from operations. In addition, the
Partnership paid approximately $6,000 to Colorado for state tax
withholdings on behalf of the limited partners.
<PAGE>
The Partnership Agreement provides that 99% of distributions of net cash from
operations are allocated to the limited partners until they receive net cash
from operations for such fiscal year equal to 7% of their adjusted capital
values (as defined in the Partnership Agreement), at which point the general
partners will be allocated all net cash from operations until they have received
distributions equal to 10% of the aggregate net cash from operations distributed
to partners for such fiscal year. Thereafter, the general partners will be
allocated 10% of any distributions of remaining net cash from operations for
such fiscal year.
All distributions of distributable net proceeds (as defined in the Partnership
Agreement) from property dispositions and refinancings will be allocated to the
limited partners until each limited partner has received an amount equal to a
cumulative 7% per annum of the average of the limited partners' adjusted capital
value, less any prior distributions of net cash from operations and
distributable net proceeds, and has also received an amount equal to the limited
partners' adjusted capital value. Thereafter, the general partners receive 1% of
the selling prices of properties sold where they acted as a broker, and then the
limited partners will be allocated 85% of any remaining distributions of
distributable net proceeds and the general partners will receive 15%.
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 $200 per apartment unit for
Governor's Park Apartments. As of December 31, 1999, the Reserve Account is
fully funded.
Undistributed Net Proceeds from Refinancing:
- -------------------------------------------
At December 31, 1999, $567,000 of net proceeds from refinancings remained
undistributed.
Allocation of Profits, Gains and Losses:
- ---------------------------------------
Profits, gains, and losses of the Partnership are allocated between general and
limited partners in accordance with the provisions of the Partnership Agreement.
For any fiscal year, to the extent that profits, not including gains from
property dispositions, do not exceed distributions of net cash from operations,
such profits are allocated in the same manner as such distributions.
<PAGE>
Any gain from property dispositions attributable to the excess, if any, of the
indebtedness relating to a property immediately prior to the disposition of such
property over the Partnership's adjusted basis in the property shall be
allocated to each partner having a negative capital account balance, to the
extent of such negative balance. The balance of any gain shall be treated on a
cumulative basis as if it constituted an equivalent amount of distributable net
proceeds and shall be allocated to the general partners to the extent that
general partners would have received distributable net proceeds in connection
therewith; the balance shall be allocated to the limited partners. However, the
interest of the general partners will be equal to at least 1% of each gain at
all times during the existence of the Partnership. Accordingly, net income as
shown in the statement of operations and changes in partners' (deficit) capital
for 1999 was allocated 99% to the limited partners and 1% to the general
partners. Net income per limited partnership unit was computed by dividing the
net income allocated to the limited partners by 17,343 units outstanding.
All losses, including losses attributable to property dispositions, are
allocated 99% to the limited partners and 1% to the general partners.
Other Reserves:
- --------------
The Corporate General Partner may designate a portion of cash generated from
operations as "other reserves" in determining net cash from operations. The
general partners designated as other reserves an amount equal to the net
liabilities related to the operations of apartment properties during the current
fiscal year that are expected to require the use of cash during the next fiscal
year. The decrease in other reserves during 1999 was approximately $157,000, as
compared to a decrease of approximately $70,000 during 1998. These amounts were
determined by considering changes in the balance of, receivables and deposits,
other assets, accounts payable, tenant security deposits liabilities, accrued
property taxes and other liabilities. At this time, the Corporate General
Partner expects to continue to adjust other reserves based on the net change in
the aforementioned account balances.
Cash and Cash Equivalents:
- -------------------------
Cash and cash equivalents include cash on hand, cash in banks and money market
accounts. At certain times, the amount of cash deposited at a bank may exceed
the limit on insured deposits.
Restricted Escrows:
- ------------------
At the time of the refinancing of the Governor's Park mortgage note payable in
1993, a General Reserve Account was established with the refinancing proceeds
from Governor's Park. These funds were established to cover necessary repairs
and replacements of existing improvements, debt service, out of pocket expenses
incurred for ordinary and necessary administrative tasks, and payment of real
property taxes and insurance premiums. The Partnership is required to deposit
net operating income (as defined in the mortgage note) to the Governor's Park
reserve account until it equals a minimum of $200 per apartment unit or $37,600
in total. The balance in the reserve account at December 31, 1999, is
approximately $39,000, which includes interest earned on these funds.
Investment Properties:
- ---------------------
Investment properties consist of two apartment complexes and are stated at cost.
Acquisition fees are capitalized as a cost of real estate. In accordance with
Financial Accounting Standards Board Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
the Partnership records impairment losses on long-lived assets used in
operations when events and circumstances indicate that the assets might be
impaired and the undiscounted cash flows estimated to be generated by those
assets are less than the carrying amounts of those assets. Costs of apartment
properties that have been permanently impaired have been written down to
appraised value. The Corporate General Partner relies on the annual appraisals
performed by the outside appraisers for the estimated value of the Partnership's
properties. There are three recognized approaches or techniques available to the
appraiser. When applicable, these approaches are used to process the data
considered significant to each to arrive at separate value indications. In all
instances the experience of the appraiser, coupled with his objective judgment,
plays a major role in arriving at the conclusions of the indicated value for
which the final estimate of value is made. The three approaches commonly known
are the cost approach, the sales comparison approach, and the income approach.
The cost approach is often not considered to be reliable due to the lack of land
sales and the significant amount of depreciation and, therefore, is often not
presented. Upon receipt of the appraisals, any property which is stated on the
books of the Partnership above the estimated value given in the appraisal, is
written down to the estimated value given by the appraiser. The appraiser
assumes a stabilized occupancy at the time of the appraisal and, therefore, any
impairment of value is considered to be permanent by the Corporate General
Partner. No adjustments for impairment of value were recorded in the years ended
December 31, 1999 and 1998.
Depreciation:
- ------------
Depreciation is calculated by the straight-line method over the estimated lives
of the apartment properties and related personal property. For Federal income
tax purposes, the accelerated cost recovery method is used (1) for real property
over 15 years for additions prior to March 16, 1984, 18 years for additions
after March 15, 1984 and before May 9, 1985, and 19 years for additions after
May 8, 1985, and before January 1, 1987, and (2) for personal property over 5
years for additions prior to January 1, 1987. As a result of the Tax Reform Act
of 1986, for additions after December 31, 1986, the modified accelerated cost
recovery method is used for depreciation of (1) real property over 27 1/2 years
and (2) personal property additions over 5 years.
Effective January 1, 1999 the Partnership changed its method of accounting to
capitalize the cost of exterior painting and major landscaping (Note I).
Loan Costs:
- ----------
Loan costs of approximately $304,000, net of accumulated amortization of
approximately $206,000, are included in other assets and are being amortized on
a straight-line basis over the life of the loans.
Tenant Security Deposits:
- ------------------------
The Partnership requires security deposits from lessees for the duration of the
lease and such deposits are included in receivables and deposits. Deposits are
refunded when the tenant vacates, provided the tenant has not damaged its space
and is current on rental payments.
Fair Value of Financial Instruments:
- -----------------------------------
Statement of Financial Accounting Standards, ("SFAS") No. 107, "Disclosures
about Fair Value of Financial Instruments", as amended by SFAS No. 119,
"Disclosures about Derivative Financial Instruments and Fair Value of Financial
Instruments", requires disclosure of fair value information about financial
instruments, whether or not recognized in the balance sheet, for which it is
practicable to estimate fair value. Fair value is defined in the SFAS as the
amount at which the instruments could be exchanged in a current transaction
between willing parties, other than in a forced or liquidation sale. The
Partnership believes that the carrying amount of its financial instruments
(except for long term debt) approximates their fair value due to the short term
maturity of these instruments. The fair value of the Partnership's long term
debt, after discounting the scheduled loan payments to maturity, approximates
its carrying balance.
Leases:
- ------
The Partnership generally leases apartment units for twelve-month terms or less.
The Partnership recognizes income as earned on its leases. In addition, the
Corporate General Partner's policy is to offer rental concessions during
particularly slow months or in response to heavy competition from other similar
complexes in the area. Concessions are charged to rental income as incurred.
Advertising Costs:
- -----------------
The Partnership expenses the costs of advertising as incurred. Advertising costs
of approximately $68,000 and $71,000 for the years ended December 31, 1999 and
1998, respectively, were charged to operating expense as incurred.
Segment Reporting:
- -----------------
Statement of Financial Standards ("SFAS") No. 131, "Disclosure about Segments of
an Enterprise and Related Information" ("Statement 131"), established standards
for the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports. It also establishes standards for related disclosures about products
and services, geographic areas, and major customers. (See "Note G" for segment
disclosure.)
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 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 - Related Party Transactions
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) payments to
affiliates for services and (ii) reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership. The following payments were paid or
accrued to the Corporate General Partner and affiliates during the years ended
December 31, 1999 and 1998:
1999 1998
---- ----
(in thousands)
Property management fees (included in operating
expenses) $ 200 $ 196
Reimbursements for services of affiliates
(included in operating, general and
administrative expenses, and investment
properties) 75 93
During the years ended December 31, 1999 and 1998, affiliates of the Corporate
General Partner were entitled to receive 5% of gross receipts from both of the
Partnership's properties as compensation for providing property management
services. The Partnership paid to such affiliates approximately $200,000 and
$196,000 for the years ended December 31, 1999 and 1998, respectively.
An affiliate of the Corporate General Partner received reimbursement of
accountable administrative expenses amounting to approximately $75,000 and
$93,000 for the years ended December 31, 1999 and 1998, respectively.
Several tender offers were made by various parties, including affiliates of the
general partners, during the years ended December 31, 1999 and 1998. As a result
of these tender offers, AIMCO and its affiliates currently own 8,954 units of
limited partnership interest in the Partnership representing approximately
51.63% of the outstanding units. 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. Consequently, AIMCO is in a position to
significantly influence all voting decisions with respect to the Registrant.
Under the Partnership Agreement, unitholders holding a majority of the Units are
entitled to take action with respect to a variety of matters. 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 D - Mortgage Notes Payable
The principle terms of mortgage notes payable are as follows:
<TABLE>
<CAPTION>
Principal Monthly Principal
Balance At Payment Stated Balance
December 31, Including Interest Maturity Due At
1999 Interest Rate Date Maturity
Properties (in thousands) (in thousands)
- ----------
<S> <C> <C> <C> <C> <C>
Hickory Ridge Apartments $ 6,233 $ 51 7.50% 03/01/01 $ 6,057
Governor's Park
Apartments
1st mortgage 4,397 35 7.83% 10/15/03 4,083
2nd mortgage 147 1 7.83% 10/15/03 147
------ ----- ------
10,777 $ 87 $10,287
===== ======
Less unamortized
discounts (49)
------
$10,728
</TABLE>
The mortgage notes payable are nonrecourse and are secured by pledge of the
Partnership's rental properties and by pledge of revenues from the respective
rental properties. Prepayment penalties are required if repaid prior to
maturity. Further, the properties may not be sold subject to existing
indebtedness. The estimated fair value of the Partnership's aggregate debt is
approximately $10,728,000. This amount is not necessarily indicative of the
amount the Partnership may pay in actual market transactions.
Scheduled principal payments of the mortgage notes payable subsequent to
December 31, 1999 are as follows (in thousands):
2000 $ 225
2001 6,164
2002 88
2003 4,300
------
$10,777
<PAGE>
Note E - Real Estate and Accumulated Depreciation
<TABLE>
<CAPTION>
Initial Cost
To Partnership
--------------
(in thousands)
Buildings Cost
and Related Capitalized
Personal Subsequent to
Description Encumbrances Land Property Acquisition
- ----------- ------------ ---- -------- -----------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Hickory Ridge Apartments $ 6,233 $ 1,060 $11,839 $ 2,163
Memphis, Tennessee
Governor's Park Apartments 4,544 714 6,496 562
Ft. Collins, Colorado ------ ------ ------ ------
Totals $10,777 $ 1,774 $18,335 $ 2,725
====== ====== ====== ======
</TABLE>
Gross Amount At Which Carried
At December 31, 1999
(in thousands)
<TABLE>
Buildings
And Related
Personal Accumulated Date of Date Depreciation
Description Land Property Total Depreciation Construction Acquired Life-Years
<S> <C> <C> <C> <C> <C> <C> <C>
Hickory Ridge $ 1,060 $14,002 $15,062 $ 7,981 1971-1973 08/27/85 5-29
Memphis, Tennessee
Governor's Park 714 7,058 7,772 3,604 1983 09/30/85 5-39
Ft. Collins, Colorado ------ ------ ------ ------
Totals $ 1,774 $21,060 $22,834 $11,585
===== ====== ====== ======
</TABLE>
Reconciliation of "Real Estate and Accumulated Depreciation":
December 31,
1999 1998
---- ----
(in thousands)
Real Estate
Balance at beginning of year $21,961 $21,447
Property improvements 873 514
------ ------
Balance at end of year $22,834 $21,961
====== ======
Accumulated Depreciation
Balance at beginning of year $10,762 $ 9,906
Additions charged to expense 823 856
------ ------
Balance at end of year $11,585 $10,762
====== ======
The aggregate cost of investment property for Federal income tax purposes at
December 31, 1999 and 1998 is approximately $25,604,000 and $24,732,000,
respectively. The accumulated depreciation taken for Federal income tax purposes
at December 31, 1999 and 1998, is approximately $16,263,000 and $15,234,000,
respectively.
<PAGE>
Note F - Income Taxes
The Partnership has received a ruling from the Internal Revenue Service that it
will be classified as a partnership for Federal income tax purposes.
Accordingly, no provision for income taxes is made in the consolidated financial
statements of the Partnership. Taxable income or loss of the Partnership is
reported in the income tax returns of its partners.
The following is a reconciliation of reported net income and Federal taxable
income (in thousands, except per unit data):
1999 1998
---- ----
Net income as reported $ 545 $ 336
Add (deduct):
Depreciation differences (205) (133)
Unearned income (43) 23
Other 148 23
----- -----
Federal taxable income $ 445 $ 249
===== =====
Federal taxable income per limited
partnership unit $25.40 $14.22
===== =====
The following is a reconciliation between the Partnership's reported amounts and
Federal tax basis of net assets and liabilities (in thousands):
Net assets as reported $ 777
Buildings 2,770
Accumulated depreciation (4,676)
Syndication fees 2,292
Other 197
-----
Net assets - tax basis $1,360
=====
Note G - Segment Reporting
Description of the types of products and services from which the reportable
segment derives its revenues:
The Partnership has one reportable segment: residential properties. The
Partnership's residential properties segment consists of two apartment
complexes, located in Tennessee and Colorado. The Partnership rents apartment
units to tenants for terms that are typically twelve months or less.
<PAGE>
Measurement of segment profit or loss:
The Partnership evaluates performance based on segment profit (loss) before
depreciation. The accounting policies of the reportable segment are the same as
those of the Partnership as described in the summary of significant accounting
policies.
Factors management used to identify the enterprise's reportable segment:
The Partnership's reportable segment consists of investment properties that
offer similar products and services. Although each of the investment properties
is managed separately, they have been aggregated into one segment as they
provide services with similar types of products and customers.
Segment information for the years ended December 31, 1999 and 1998 is shown in
the tables below. The "Other" column includes partnership administration related
items and income and expense not allocated to the reportable segment.
1999 Residential Other Totals
---- ----------- ----- ------
(in thousands)
Rental income $ 3,832 $ -- $ 3,832
Other income 183 10 193
Interest expense 889 -- 889
Depreciation 823 -- 823
General and administrative expense -- 230 230
Segment profit (loss) 765 (220) 545
Total assets 11,896 170 12,066
Capital expenditures for investment
Properties 873 -- 873
1998 Residential Other Totals
---- ----------- ----- ------
(in thousands)
Rental income $ 3,745 $ -- $ 3,745
Other income 179 20 199
Interest expense 884 -- 884
Depreciation 856 -- 856
General and administrative expense -- 163 163
Segment profit (loss) 479 (143) 336
Total assets 12,380 508 12,888
Capital expenditures for investment
properties 514 -- 514
<PAGE>
Note H - Legal Proceedings
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, 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.
Note I - Change in Accounting Principle
Effective January 1, 1999, the Partnership changed its method of accounting to
capitalize the cost of exterior painting and major landscaping on a prospective
basis. The Partnership believes that this accounting principle change is
preferable because it provides a better matching of expenses with the related
benefit of the expenditures and it is consistent with industry practice and the
policies of the Corporate General Partner. The effect of the change in 1999 was
to increase net income by approximately $80,000 ($4.57 per limited partnership
unit). The cumulative effect, had this change been applied to prior periods, is
not material. The accounting principle change will not have an effect on cash
flow, funds available for distribution or fees payable to the Managing General
Partner and affiliates.
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
The Registrant has no officers or directors. The Corporate General Partner is
Shelter Realty VII Corporation. The names and ages of, as well as the positions
and offices held by, the present executive officers and director of the
Corporate General Partner are set forth below. There are no family relationships
between or among any officers or directors.
Name Age Position
Patrick J. Foye 42 Executive Vice President and Director
Martha L. Long 40 Senior Vice President and Controller
Patrick J. Foye has been Executive Vice President and Director of the Corporate
General Partner since October 1, 1998. Mr. Foye has served as Executive Vice
President of AIMCO since May 1998. Prior to joining AIMCO, Mr. Foye was a
partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to
1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow
offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long
Island Power Authority and serves as a member of the New York State
Privatization Council. He received a B.A. from Fordham College and a J.D. from
Fordham University Law School.
Martha L. Long has been Senior Vice President and Controller of the Corporate
General Partner and AIMCO since October 1998, as a result of the acquisition of
Insignia Financial Group, Inc. From June 1994 until January 1997, she was the
Controller for Insignia, and was promoted to Senior Vice President - Finance and
Controller in January 1997, retaining that title until October 1998. From 1988
to June 1994, Ms. Long was Senior Vice President and Controller for The First
Savings Bank, FSB in Greenville, South Carolina.
Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to
the Registrant under Rule 16a-3(e) during the Registrant's most recent fiscal
year and Forms 5 and amendments thereto furnished to the Registrant with respect
to its most recent fiscal year, the Registrant is not aware of any director,
officer, beneficial owner of more than ten percent of the units of limited
partnership interest in the Registrant that failed to file on a timely basis, as
disclosed in the above Forms, reports required by section 16(a) of the Exchange
Act during the most recent fiscal year or prior fiscal years except as follows:
AIMCO Properties, L.P. and its joint filers failed to timely file a Form 3 with
respect to its acquisition of Units and AIMCO and its joint filers failed to
timely file a Form 4 with respect to its acquisition of Units.
Item 10. Executive Compensation
None of the directors and officers of the Corporate General Partner received any
remuneration from the Registrant.
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
Except as noted below, no person or entity was known by the Registrant to be the
beneficial owner of more than 5% of the Limited Partnership Units of the
Registrant as of December 31, 1999.
Name and Address Number of Units Percentage of Total
Madison River Properties LLC 2,180 12.57%
(an affiliate of AIMCO)
Cooper River Properties LLC 1,450 8.36%
(an affiliate of AIMCO)
AIMCO Properties, L.P. 5,077 29.28%
(an affiliate of AIMCO)
Insignia Properties LP, Madison River Properties LLC and Cooper River Properties
LLC are all indirectly ultimately owned by AIMCO. Their business address is 55
Beattie Place, Greenville, SC 29602.
AIMCO Properties, L.P. is indirectly ultimately owned by AIMCO. Its business
address is 2000 South Colorado Blvd., Denver, Colorado 80222.
No director or officer of the Corporate General Partner owns any Units. The
Corporate General Partner owns 100 Units as required by the terms of the
Partnership Agreement governing the Partnership. AIMCO Properties, L.P., the
other general partner, acquired 5,077 Units during the current year.
Item 12. Certain Relationships and Related Transactions
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) payments to
affiliates for services and (ii) reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership. The following payments were paid or
accrued to the Corporate General Partner and affiliates during the years ended
December 31, 1999 and 1998:
1999 1998
---- ----
(in thousands)
Property management fees (included in operating
expenses) $ 200 $ 196
Reimbursements for services of affiliates
(included in operating, general and
administrative expenses, and investment
properties) 75 93
During the years ended December 31, 1999 and 1998, affiliates of the Corporate
General Partner were entitled to receive 5% of gross receipts from both of the
Partnership's properties as compensation for providing property management
services. The Partnership paid to such affiliates approximately $200,000 and
$196,000 for the years ended December 31, 1999 and 1998, respectively.
An affiliate of the Corporate General Partner received reimbursement of
accountable administrative expenses amounting to approximately $75,000 and
$93,000 for the years ended December 31, 1999 and 1998, respectively.
Several tender offers were made by various parties, including affiliates of the
general partners, during the years ended December 31, 1999 and 1998. As a result
of these tender offers, AIMCO and its affiliates currently own 8,954 units of
limited partnership interest in the Partnership representing approximately
51.63% of the outstanding units. 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. Consequently, AIMCO is in a position to
significantly influence all voting decisions with respect to the Registrant.
Under the Partnership Agreement, unitholders holding a majority of the Units are
entitled to take action with respect to a variety of matters. 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.
<PAGE>
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 18, Independent Accountants' Preferability Letter for Change
in Accounting Principle, is filed as an exhibit to this report.
Exhibit 27, Financial Data Schedule, is filed as an exhibit to this
report.
(b) Reports on Form 8-K filed in the fourth quarter of calendar year
1999:
None.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SHELTER PROPERTIES VII LIMITED PARTNERSHIP
By: Shelter Realty VII 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:
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Partnership and in the capacities and on the
dates indicated.
/s/Patrick J. Foye Executive Vice President Date:
- ------------------
Patrick J. Foye and Director
/s/Martha L. Long Senior Vice President Date:
- -----------------
Martha L. Long and Controller
<PAGE>
EXHIBIT INDEX
Exhibit
3 See Exhibit 4(a)
4 (a) Amended and Restated Certificate and Agreement of Limited
Partnership. [included as Exhibit A to the Prospectus of Registrant
dated March 18, 1985 contained in Amendment No. 1 to Registration
Statement No. 2-94604, of Registrant filed March 18, 1985 (the
"Prospectus") and incorporated herein by reference].
(b) Subscription Agreements and Signature Pages [Filed with Amendment No.
1 of Registration Statement No. 2-94604, of Registrant filed March 18,
1985 and incorporated herein by reference].
(c) Wrap around Deed of Trust Note and Deed of Trust and Personal Property
Security Agreement between Boyle Trust and Investment Company and
Shelter Properties VII to acquire Hickory Ridge Apartments.*
(d) Promissory Note and Combination Deed of Trust, Security Agreement and
Fixture Financing Statement between State Mutual Life Assurance
Company of America and Shelter Properties VII to acquire Governor's
Park Apartments.*
*Filed as Exhibit 4(d) and 4(e), respectively, to Form 10-K of Registrant
for year ended December 31, 1987 and incorporated herein by reference.
10(i) Contracts related to acquisition of properties.
(a) Purchase Agreement dated October 8, 1984 as Amended by Addendum dated
December 27, 1984 between Boyle Trust and Investment Company, Trustee
and U.S. Shelter Corporation to acquire Hickory Ridge Apartments.
[Filed as Exhibit 10(E) to Amendment No. 1 of Registration Statement
No. 2-94604 of the Registrant filed March 18, 1985 and incorporated
herein by reference].
(b) Purchase Agreement dated January 14, 1985, between NFC/TDM Joint
Venture and U.S. Shelter Corporation to acquire Governor's Park
Apartments. [Filed as Exhibit 10(F) to Post-Effective Amendment No. 2
of Registration Statement No. 2-94604 of the Registrant filed June 27,
1985 and incorporated herein by reference].
10(ii) Form of Management Agreement with U.S. Shelter Corporation
subsequently assigned to Shelter Management Group, L.P. (now known as
Insignia Management Group, L.P.). [Filed with Amendment No. 1 of
Registration Statement, No. 2-94604 of Registrant filed March 18, 1985
and incorporated herein by reference].
<PAGE>
10(iii) Contracts related to refinancing of debt:
2.1 Agreement and Plan of Merger, dated as of October 1, 1998, by and
between AIMCO and IPT [incorporated by reference to Exhibit 2.1 of
IPT's Current Report on Form 8-K, File No. 1-14179, dated October 1,
1998].
(a) Tennessee Deed of Trust and Security Agreement dated December 28, 1988
between Shelter Properties VII Limited Partnership and John Hancock
Mutual Life Insurance Company relating to Hickory Ridge Apartments.*
(b) Promissory Note dated December 28, 1988 between Shelter Properties VII
Limited Partnership and John Hancock Mutual Life Insurance Company, a
Massachusetts corporation, relating to Hickory Ridge Apartments. First
Amendment to Note and Certification and Release by Borrower between
John Hancock Mutual Life Insurance Company and Shelter Properties VII
Limited Partnership and dated July 5, 1992.*
*Filed as Exhibits 10(iii) (a) and (b), respectively, to Form 10-KSB for
the year ended December 31, 1992 and incorporated herein by reference.
(c) First Deed of Trust Note dated September 30, 1993 between Governor's
Park Apartments VII Limited Partnership and Lexington Mortgage
Company, a Virginia corporation, relating to Governor's Park.**
(d) Second Deed of Trust Note dated September 30, 1993 between Governor's
Park Apartments VII Limited Partnership and Lexington Mortgage
Company, a Virginia corporation, relating to Governor's Park.**
(e) First Deed of Trust and Security Agreement between Governor's Park
Apartments VII Limited Partnership and Lexington Mortgage Company, a
Virginia corporation, securing Governor's Park Apartments.**
(f) Second Deed of Trust and Security Agreement between Governor's Park
Apartments VII Limited Partnership and Lexington Mortgage Company, a
Virginia corporation, securing Governor's Park Apartments.**
(g) First Collateral Assignment of Leases and Rents dated September 30,
1993 between Governor's Park Apartments VII Limited Partnership and
Lexington Mortgage Company, a Virginia corporation, securing
Governor's Park Apartments.**
(h) Second Collateral Assignment of Leases and Rents dated September 30,
1993 between Governor's Park Apartments VII Limited Partnership and
Lexington Mortgage Company, a Virginia corporation, securing
Governor's Park Apartments.**
**Filed as Exhibits 10(iii) (a) through (h) to Form 10-QSB for the quarter
ended September 30, 1993 and incorporated herein by reference.
(i) Note Modification Agreement and Amended and Restated Promissory Note
both dated February 28, 1994 between Shelter Properties VII Limited
Partnership and John Hancock Mutual Life Insurance Company relating to
Hickory Ridge Apartments.***
(j) Modifications to Security Instruments dated February 28, 1994 between
Shelter Properties VII Limited Partnership and John Hancock Mutual
Life Insurance Company relating to Hickory Ridge Apartments.***
***Filed as Exhibits 10(iii) (i) through (j) to Form 10-KSB for the year
ended December 31, 1993 and incorporated herein by reference.
18 Independent Accountants' Preferability Letter for Change in Accounting
Principle.
22 Subsidiaries of the Registrant
27 Financial Data Schedule
99 (a) Prospectus of Registrant dated March 18, 1985 [included in
Registration Statement No. 2-94604 of Registrant] and incorporated
herein by reference.
(b) Agreement of Limited Partnership for Governor's Park Apartments VII
Limited Partnership between Shelter Properties VII GP Limited
Partnership and Shelter Properties VII Limited Partnership entered
into September 9, 1993.****
(c) Agreement of Limited Partnership for Shelter Properties VII GP Limited
Partnership between Shelter VII Limited Partnership and Shelter Realty
VII Corporation.****
****Filed as Exhibits 28 (a) and (b) to Form 10-QSB dated September 30,
1993 and incorporated herein by reference.
<PAGE>
EXHIBIT 22
SHELTER PROPERTIES VII LIMITED PARTNERSHIP
Subsidiary List
State of Incorporation/
Name of Subsidiary Formation Date
Governor's Park Apartments VII
Limited Partnership South Carolina 1993
Shelter VII GP Limited Partnership South Carolina 1993
<PAGE>
Exhibit 18
February 24, 2000
Mr. Patrick J. Foye
Executive Vice President
Shelter Realty VII Corporation
Corporate General Partner of Shelter Properties VII
55 Beattie Place
P.O. Box 1089
Greenville, South Carolina 29602
Dear Mr. Foye:
Note I of Notes to the Consolidated Financial Statements of Shelter Properties
VII included in its Form 10-KSB for the year ended December 31, 1999 describes a
change in the method of accounting to capitalize exterior painting and major
landscaping, which would have been expensed under the old policy. You have
advised us that you believe that the change is to a preferable method in your
circumstances because it provides a better matching of expenses with the related
benefit of the expenditures and is consistent with policies currently being used
by your industry and conforms to the policies of the Corporate General Partner.
There are no authoritative criteria for determining a preferable method based on
the particular circumstances; however, we conclude that the change in the method
of accounting for exterior painting and major landscaping is to an acceptable
alternative method which, based on your business judgment to make this change
for the reasons cited above, is preferable in your circumstances.
Very truly yours,
/s/ Ernst & Young LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Shelter
Properties VII 1999 Fourth Quarter 10-KSB and is qualified in its entirety by
reference to such 10-KSB filing.
</LEGEND>
<CIK> 0000758009
<NAME> Shelter Properties VII
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 474
<SECURITIES> 0
<RECEIVABLES> 180
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0 <F1>
<PP&E> 22,834
<DEPRECIATION> 11,585
<TOTAL-ASSETS> 12,066
<CURRENT-LIABILITIES> 0 <F1>
<BONDS> 10,728
0
0
<COMMON> 0
<OTHER-SE> 777
<TOTAL-LIABILITY-AND-EQUITY> 12,066
<SALES> 0
<TOTAL-REVENUES> 4,025
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,480
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 889
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 545
<EPS-BASIC> 72.13 <F2>
<EPS-DILUTED> 0
<FN>
<F1> Registrant has an unclassified balance sheet. <F2> Multiplier is 1.
</FN>
</TABLE>
