-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FR4c5RUB0lUnYII+CQ/WcW9Xqb+y/bva6CJdwNswlc74dYlG9mg2vtqviPW2MxsZ u5OPLMhrUknyHwp9yu+1pw== 0000711642-99-000008.txt : 19990318 0000711642-99-000008.hdr.sgml : 19990318 ACCESSION NUMBER: 0000711642-99-000008 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990130 FILED AS OF DATE: 19990317 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SHELTER PROPERTIES IV LIMITED PARTNERSHIP CENTRAL INDEX KEY: 0000702174 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 570721760 STATE OF INCORPORATION: SC FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-10884 FILM NUMBER: 99566818 BUSINESS ADDRESS: STREET 1: 1873 SOUTH BELLAIRE STREET STREET 2: 17TH FLOOR CITY: DENVER STATE: CO ZIP: 80222 BUSINESS PHONE: 3037578101 MAIL ADDRESS: STREET 1: 1873 SOUTH BELLAIRE STREET STREET 2: 17TH FLOOR CITY: DENVER STATE: CO ZIP: 80222 10QSB 1 FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 QUARTERLY OR TRANSITIONAL REPORT U. S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended January 31, 1999 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 0-10884 SHELTER PROPERTIES IV (Exact name of small business issuer as specified in its charter) South Carolina 57-0721760 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 55 Beattie Place, P.O. Box 1089 Greenville, South Carolina 29602 (Address of principal executive offices) (864) 239-1000 (Issuer's telephone number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS a) SHELTER PROPERTIES IV CONSOLIDATED BALANCE SHEET (Unaudited) (in thousands, except per unit data) January 31, 1999 Assets Cash and cash equivalents $ 1,518 Receivables and deposits 565 Restricted escrows 1,849 Other assets 374 Investment properties: Land $ 3,442 Buildings and related personal property 57,772 61,214 Less accumulated depreciation (34,688) 26,526 $30,832 Liabilities and Partners' (Deficit) Capital Liabilities Accounts payable $ 279 Tenant security deposit liabilities 244 Accrued property taxes 68 Other liabilities 244 Mortgage notes payable 23,340 Partners' (Deficit) Capital General partners $ (18) Limited partners (49,995 units issued and outstanding) 6,675 6,657 $30,832 See Accompanying Notes to Consolidated Financial Statements b) SHELTER PROPERTIES IV CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except unit data) Three Months Ended January 31, 1999 1998 Revenues: Rental income $2,789 $2,750 Other income 143 112 Total revenues 2,932 2,862 Expenses: Operating 1,111 1,209 General and administrative 68 76 Depreciation 487 472 Interest 532 546 Property taxes 175 201 Total expenses 2,373 2,504 Net income $ 559 $ 358 Net income allocated to general partners (1%) $ 6 $ 4 Net income allocated to limited partners (99%) 553 354 $ 559 $ 358 Net income per limited partnership unit $11.06 $ 7.08 Distribution per limited partnership unit $47.52 $ -- See Accompanying Notes to Consolidated Financial Statements c) SHELTER PROPERTIES IV CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL (Unaudited) (in thousands, except unit data) Limited Partnership General Limited Units Partners Partners Total Original capital contributions 50,000 $ 2 $50,000 $50,002 Partners' capital at October 31, 1998 49,995 $ -- $ 8,498 $ 8,498 Net income for the three months ended January 31, 1999 -- 6 553 559 Distributions to partners -- (24) (2,376) (2,400) Partners' (deficit) capital at at January 31, 1999 49,995 $ (18) $ 6,675 $ 6,657 See Accompanying Notes to Consolidated Financial Statements d) SHELTER PROPERTIES IV CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) Three Months Ended January 31, 1999 1998 Cash flows from operating activities: Net income $ 559 $ 358 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 487 472 Amortization of discounts and loan costs 69 69 Change in accounts: Receivables and deposits 671 538 Other assets 5 24 Accounts payable 116 60 Tenant security deposit liabilities (4) (8) Accrued property taxes (592) (563) Other liabilities (30) (3) Net cash provided by operating activities 1,281 947 Cash flows from investing activities: Property improvements and replacements (324) (116) Net deposits to restricted escrows (19) (19) Net cash used in investing activities (343) (135) Cash flows from financing activities: Partners' distributions (2,400) -- Payments on mortgage notes payable (201) (187) Net cash used in financing activities (2,601) (187) Net (decrease) increase in cash and cash equivalents (1,663) 625 Cash and cash equivalents at beginning of period 3,181 1,847 Cash and cash equivalents at end of period $ 1,518 $ 2,472 Supplemental disclosure of cash flow information: Cash paid for interest $ 463 $ 477 Supplemental disclosure of non-cash activity: Distribution payable $ -- $ 812 See Accompanying Notes to Consolidated Financial Statements e) SHELTER PROPERTIES IV NOTES TO FINANCIAL STATEMENTS (Unaudited) January 31, 1999 NOTE A - BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of Shelter Properties IV (the "Partnership" or "Registrant") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of Shelter Realty IV Corporation (the "Corporate General Partner"), all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended January 31, 1999, are not necessarily indicative of the results that may be expected for the fiscal year ending October 31, 1999. For further information, refer to the financial statements and footnotes thereto included in the Partnership's annual report on Form 10-KSB for the year ended October 31, 1998. Principles of Consolidation: The financial statements include all the accounts of the Partnership and its 99.99% owned partnership. The General Partner of the consolidated partnership is Shelter Realty IV Corporation. Shelter Realty IV Corporation may be removed by the Registrant; therefore, the consolidated partnership is controlled and consolidated by the Registrant. All significant interpartnership balances have been eliminated. NOTE B - TRANSFER OF CONTROL Pursuant to a series of transactions which closed on October 1, 1998 and February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust merged into Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust, with AIMCO being the surviving corporation (the "Insignia Merger"). As a result, AIMCO ultimately acquired a 100% ownership interest in Insignia Properties Trust ("IPT"), the entity which controls the Corporate General Partner. The Corporate General Partner does not believe that this transaction will have a material effect on the affairs and operations of the Partnership. NOTE C - RECONCILIATION OF CASH FLOWS The following is a reconciliation of the subtotal on the accompanying statements of cash flows captioned "net cash provided by operating activities" to "net cash 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. For the Three Months Ended January 31, 1999 1998 (in thousands) Net cash provided by operating activities $ 1,281 $ 947 Payments on mortgage notes payable (201) (187) Property improvements and replacements (324) (116) Changes in restricted escrows, net (19) (19) Changes in reserves for net operating liabilities (166) (48) Additional operating reserves (571) (577) Net cash from operations $ -- $ -- The Corporate General Partner believed it to be in the best interest of the Partnership to reserve net cash from operations of approximately $571,000 and $577,000 at January 31, 1999 and 1998, respectively to fund continuing capital improvements and repairs at the Partnership's three investment properties. NOTE D - TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no employees and is dependent on the Corporate General Partner and its affiliates for the management and administration of all partnership activities. The Partnership Agreement provides for certain payments to affiliates for services and as reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. The following payments were made to the Corporate General Partner and affiliates during the quarter ended January 31, 1999 and 1998: 1999 1998 (in thousands) Property management fees (included in operating expenses) $147 $143 Reimbursement for services of affiliates (included in operating, general and administrative expenses, and investment properties) (1) 45 58 (1) Included in "reimbursements for services of affiliates" for the three months ended January 31, 1998 is approximately $2,000, in reimbursements for construction oversight costs. No such costs were incurred for the three months ended January 31, 1999. During the quarter ended January 31, 1999 and 1998, affiliates of the Corporate General Partner were entitled to receive 5% of gross receipts from all of the Registrant's properties as compensation for providing property management services. The Registrant paid to such affiliates $147,000 and $143,000 for the quarters ended January 31, 1999 and 1998, respectively. Affiliates of the Corporate General Partner received reimbursement of accountable administrative expenses amounting to approximately $45,000 and $58,000 for the quarters ended January 31, 1999 and 1998, respectively. As a result of its ownership of 19,737 limited partnership units or 39.474% AIMCO could be 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 owns in a manner favorable to the interest of the Corporate General Partner because of its affiliation with the Corporate General Partner. NOTE E - SEGMENT REPORTING In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, Disclosure about Segments of an Enterprise and Related Information ("Statement 131"), which is effective for years beginning after December 15, 1997. 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. As defined by Statement 131, the Partnership has one reportable segment: residential properties. The Partnership's residential property segment consists of three apartment complexes located in three states: Florida, South Carolina, and North Carolina. The Partnership rents apartment units to people for terms that are typically less than twelve months. The Partnership evaluates performance based on net operating income, which is defined as income before interest expense, depreciation, amortization of intangibles, casualty expense, gain or loss on disposal of property, and gain or loss on extinguishment of debt. The accounting policies of the reportable segment are the same as those of the Partnership as described in the Partnership's annual report on Form 10-KSB for the fiscal year ended October 31, 1998. The Partnership's reportable segments are business units (investment properties) that offer similar products and services. Although each of the investment properties is managed separately, they have been aggregated into one segment as they provide services with similar types of products and customers. Segment information for the three months ended January 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 reportable segments. 1999 RESIDENTIAL OTHER TOTALS Rental income $ 2,789 $ -- $ 2,789 Other income 122 21 143 Interest expense 532 -- 532 Depreciation 487 -- 487 General and administrative expense -- 68 68 Segment profit (loss) 606 (47) 559 Total assets 29,688 1,144 30,832 Capital expenditures for investment properties 324 -- 324 1998 RESIDENTIAL OTHER TOTALS Rental income $ 2,750 $ -- $ 2,750 Other income 92 20 112 Interest expense 546 -- 546 Depreciation 472 -- 472 General and administrative expense -- 76 76 Segment profit (loss) 414 (56) 358 Total assets 30,820 1,970 32,790 Capital expenditures for investment properties 116 -- 116 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The Partnership's investment properties consist of three apartment complexes. The following table sets forth the average occupancy of the properties for each of the three months ended January 31, 1999 and 1998: Average Occupancy Property 1999 1998 Baymeadows Apartments 94% 93% Jacksonville, Florida Quail Run Apartments 91% 96% Columbia, South Carolina Countrywood Village Apartments 93% 95% Raleigh, North Carolina The Corporate General Partner attributes the decrease in average occupancy at Quail Run to several of their tenants which were renting under short term corporate leases moving out and other tenants moving out to purchase homes dues to low interest rates. Results of Operations The Registrant's net income for the three months ended January 31, 1999 was $559,000 as compared to $358,000 for the three months ended January 31, 1998. The increase in net income was primarily due to a decrease in total expenses and to a lesser extent, an increase in total revenue. Revenues increased due to an increase in rental income and other income. The increase in rental income is primarily attributable to the increase in average annual rental rates at all three of the Registrant's investment properties which more than offset the occupancy decreases at Quail Run and Countrywood Village. Other income increased primarily due to an increase in deposit forfeitures at Baymeadows Apartments. Expenses decreased primarily due to a reductions in operating expenses and to a lesser extent a reduction in interest, property taxes, and general and administrative expenses. Operating expenses decreased due to the completion prior to the first quarter of 1999 of major landscaping projects at Baymeadows and Countrywood Village which were in process during the first quarter of 1998. These costs were incurred to attract new tenants and increase the curb appeal at the properties. Interest expense decreased due to the reduction in mortgage balances encumbering the properties as a result of scheduled principal payments. General and administrative expense decreased slightly as a result of a decrease in management reimbursements to the Corporate General Partner allowed under the Partnership Agreement. Also included in general and administrative expenses are costs associated with the quarterly and annual communications with investors and regulatory agencies and the annual audits and appraisals required by the Partnership Agreement. 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 Registrant from increases in expense. As part of this plan, the Corporate General Partner attempts to protect the Registrant 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 January 31, 1999, the Registrant had cash and cash equivalents of approximately $1,518,000 as compared to approximately $2,472,000 at January 31, 1998. The decrease in cash and cash equivalents is due to, $343,000 of cash used in investing activities and $2,601,000 of cash used in financing activities which was partially offset by $1,281,000 of cash provided by operating activities. Cash used in investing activities consisted primarily of property improvements and replacements and deposits to escrow accounts maintained by the mortgage lender. Cash used in financing activities consisted primarily of partner distributions and, to a lesser extent, payments of principal made on the mortgages encumbering the Registrant's properties. The Registrant invests its working capital reserves in money market accounts. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the properties to adequately maintain the physical assets and other operating needs of the Registrant and to comply with federal, state, and local legal and regulatory requirements. The Registrant has budgeted approximately $4.6 million in capital improvements for all of the Registrant' properties in 1999. Budgeted capital improvements at Baymeadows include parking lot repairs, plumbing upgrades, major landscaping, roof replacement, major building repairs and improvements to its recreational facility. Budgeted capital improvements at Quail Run include roof replacement, major carpet replacement, and repairs to its air conditioning system. Countrywood has no major budgeted expenditures in 1999. The projects have been started with expenditures approximating budgeted amounts through January 1999. The additional capital expenditures will be incurred only if cash is available from operations or from partnership reserves. To the extent that such budgeted capital improvements are completed, the Registrant's distributable cash flow, if any, may be adversely affected at least in the short term. The Registrant's current assets are thought to be sufficient for any near-term needs (exclusive of capital improvements) of the Registrant. The mortgage indebtedness of approximately $23,340,000 net of discount, is amortized over 257 months with a balloon payment of approximately $20,669,000 due on November 15, 2002. The Corporate General Partner will attempt to refinance such indebtedness and/or sell the properties prior to such maturity date. If the properties cannot be refinanced or sold for a sufficient amount, the Registrant will risk losing such properties through foreclosure. A cash distribution from operations of approximately $2,400,000 was made during the quarter ended January 31, 1999. A cash distribution of approximately $812,000 was declared during the three months ended January 31, 1998 and paid in February 1998. The Registrant's distribution policy is reviewed on a quarterly basis. There can be no assurance, however, that the Registrant will generate sufficient funds from operations, after planned capital improvement expenditures, to permit further distributions to its partners in 1999 or subsequent periods. Year 2000 General Description of the Year 2000 Issue and the Nature and Effects of the Year 2000 on Information Technology (IT) and Non-IT Systems The Year 2000 Issue is the result of computer programs being written using two digits rather than four 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 computer programs or hardware that have date-sensitive software or embedded chips may recognize a date using "00" as the year 1900 rather than the year 2000. This could result 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. The Managing Agent has determined that it will be required to modify or replace significant portions of its software and certain hardware so that those systems will properly utilize dates beyond December 31, 1999. The Managing Agent presently believes that with modifications or replacements of existing software and certain hardware, the Year 2000 Issue can be mitigated. However, if such modifications and replacements are not made, or are not completed timely, the Year 2000 Issue could have a material impact on the operations of the Managing Agent and the Partnership. Status of Progress in Becoming Year 2000 Compliant The Managing Agent's plan to resolve the Year 2000 Issue involves the following four phases: assessment, remediation, testing and implementation. As of December 31, 1998, the Managing Agent has fully completed its assessment of all information systems that could be significantly affected by the Year 2000, and has begun the remediation, testing and implementation phase on both hardware and software systems. Assessments are continuing in regards to embedded systems in operating equipment. The Managing Agent anticipates having all phases complete by June 1, 1999. In addition to the areas the Partnership is relying on the Managing Agent to verify compliance with, the Partnership has certain operating equipment, primarily at the property sites, which needed to be evaluated for Year 2000 compliance. In this regard, the Corporate General Partner focused on the security systems, elevators, heating-ventilation-air-conditioning systems, telephone systems and switches, and sprinkler systems. The Corporate General Partner is currently engaged in the identification of all non-compliant operational systems, and is in the process of estimating the costs associated with any potential modifications or replacements needed to such systems in order for them to be Year 2000 compliant. It is not expected that such costs would have a material adverse effect upon the operations of the Partnership. Risk Associated with the Year 2000 The Corporate General Partner believes that the Managing Agent has an effective program in place to resolve the Year 2000 issue in a timely manner and has appropriate contingency plans in place for critical applications that could affect the Partnership's operations. To date, the Corporate General Partner is not aware of any external agent with a Year 2000 issue that would materially impact the Partnership's results of operations, liquidity or capital resources. However, the Corporate General Partner has no means of ensuring that external agents will be Year 2000 compliant. The Corporate General Partner does not believe that the inability of external agents to complete their Year 2000 resolution process in a timely manner will have a material impact on the financial position or results of operations of the Partnership. However, the effect of non-compliance by external agents is not readily determinable. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDING 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 complaint 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 as well as a recently announced agreement between Insignia and Apartment Investment and Management Company. The complaint seeks 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 has filed demurrers to the amended complaint which were heard during February 1999. No ruling on such demurrers has been received. On July 30, 1998, certain entities claiming to own limited partnership interests in certain limited partnerships whose general partners were, at the time, affiliates of Insignia filed a complaint entitled EVEREST PROPERTIES, LLC V. INSIGNIA FINANCIAL GROUP, INC. ET AL. in the Superior Court of the State of California, county of Los Angeles. This case was settled on March 3, 1999. The Partnership is responsible for a portion of the settlement costs. The expenses will not have a material effect on the Partnership's net income. 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 6. EXHIBITS AND REPORTS ON FORM 8-K a)Exhibits: Exhibit 27, Financial Data Schedule, is filed as an exhibit to this report. b)Reports on Form 8-K filed in the quarter ended January 31, 1999: None. 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 IV By: Shelter Realty IV Corporation Corporate General Partner By: /s/Patrick J. Foye Patrick J. Foye Executive Vice President and Director By: /s/Timothy R. Garrick Timothy R. Garrick Vice President - Accounting and Director Date: March 17, 1999 EX-27 2
5 This schedule contains summary financial information extracted from Shelter Properties IV Limited Partnership 1998 First Quarter 10-QSB and is qualified in its entirety by reference to such 10-QSB filing. 0000702174 SHELTER PROPERTIES IV LIMITED PARTNERSHIP 1,000 3-MOS OCT-31-1999 JAN-31-1999 1,518 0 0 0 0 0 61,214 34,688 30,832 0 23,340 0 0 0 6,657 30,832 0 2,932 0 0 2,373 0 532 0 0 0 0 0 0 559 11.06 0 Registrant has an unclassified balance sheet. Multiplier is 1.
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