UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

 

**FORM 10-Q**

 

(Mark One)

[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2009

 

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 registrant 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, PO Box 1089

Greenville, South Carolina  29602

(Address of principal executive offices)

 

(864) 239-1000

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has 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.  

[X] Yes  [ ] No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [ ] Yes  [ ] No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 
| Large accelerated filer [ ]                                               | Accelerated filer [ ]         |
|---------------------------------------------------------------------------|-------------------------------|
| Non-accelerated filer [ ] 

(Do not check if a smaller reporting company) | Smaller reporting company [X] |

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes  [X] No

 

### PART I – FINANCIAL INFORMATION
 

 

**ITEM 1.     FINANCIAL STATEMENTS**

 

 

SHELTER PROPERTIES IV

BALANCE SHEETS

 (in thousands, except unit data)

 

 

June 30,

December 31,

 

2009

2008

 

(Unaudited)

(Note)

Assets

 

 

Cash and cash equivalents

$    158

$    142

Receivables and deposits 

     456

     432

Other assets

     790

     698

Investment property:

 

 

Land

   1,883

   1,883

Buildings and related personal property

  83,257

  83,306

 

  85,140

  85,189

Less accumulated depreciation

  (51,094)

  (47,617)

 

  34,046

  37,572

 

$ 35,450

$ 38,844

 

 

 

Liabilities and Partners' Deficit

 

 

Liabilities

 

 

Accounts payable

$    289

$  1,319

Tenant security deposit liabilities

     240

     228

Accrued property taxes

     474

      --

Other liabilities

     346

     379

Due to affiliates (Note B)

  23,726

  22,164

Mortgage note payable

  38,502

  38,943

 

  63,577

  63,033

 

 

 

Partners' Deficit

 

 

General partners

      (74)

      (35)

Limited partners (49,995 units issued and

 

 

outstanding)

  (28,053)

  (24,154)

 

  (28,127)

  (24,189)

 

$ 35,450

$ 38,844

 

Note: The balance sheet at December 31, 2008 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by generally accepted accounting principles for complete financial statements.

 

*See Accompanying Notes to Financial Statements*

SHELTER PROPERTIES IV
STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except per unit data)

 

 

 

Three Months Ended

Six Months Ended

 

June 30,

June 30,

 

2009

2008

2009

2008

Revenues:

 

 

 

 

Rental income

$ 2,216

$ 2,166

$ 4,402

$ 4,312

Other income

    337

    205

    601

    463

Total revenues

  2,553

  2,371

  5,003

  4,775

 

 

 

 

 

Expenses:

 

 

 

 

Operating

  1,183

  1,517

  2,484

  2,995

General and administrative

     35

     56

     80

    106

Depreciation

  2,523

  1,781

  4,377

  3,582

Interest

    817

    849

  1,625

  1,720

Property taxes

    197

    168

    421

    283

Total expenses

  4,755

  4,371

  8,987

  8,686

 

 

 

 

 

Casualty gain (Note C)

     --

    237

     46

    255

 

 

 

 

 

Net loss

 $(2,202)

 $(1,763)

 $(3,938)

 $(3,656)

 

 

 

 

 

 

 

 

 

 

Net loss allocated to 

 

 

 

 

 general partners (1%)

 $   (22)

 $   (18)

 $   (39)

 $   (37)

Net loss allocated to 

 

 

 

 

 limited partners (99%)

  (2,180)

  (1,745)

  (3,899)

  (3,619)

 

 $(2,202)

 $(1,763)

 $(3,938)

 $(3,656)

 

 

 

 

 

 

 

 

 

 

Net loss per limited

 

 

 

 

  partnership unit

 $(43.60)

 $(34.90)

 $(77.98)

 $(72.39)

 

*See Accompanying Notes to Financial Statements*

 
 

SHELTER PROPERTIES IV

STATEMENT OF CHANGES IN PARTNERS' DEFICIT

(Unaudited)

(in thousands, except unit data)

 

 

 

 

Limited

 

 

 

 

Partnership

General

Limited

 

 
UnitsPartnersPartners
Total

 

 

 

 

 

Original capital contributions

50,000

$    2

$ 50,000

$ 50,002

 

 

 

 

 

Partners' deficit

 

 

 

 

at December 31, 2008

49,995

 $  (35)

 $(24,154)

 $(24,189)

 

 

 

 

 

Net loss for the six months

 

 

 

 

ended June 30, 2009

    --

    (39)

   (3,899)

   (3,938)

 

 

 

 

 

Partners' deficit

 

 

 

 

at June 30, 2009

49,995

 $  (74)

 $(28,053)

 $(28,127)

 

*See Accompanying Notes to Financial Statements*

SHELTER PROPERTIES IV
STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 

 

Six Months Ended

 

June 30,

 

2009

2008

Cash flows from operating activities:

 

 

Net loss

 $(3,938)

 $(3,656)

Adjustments to reconcile net loss to net cash provided

 

 

by operating activities:

 

 

Depreciation

  4,377

  3,582

Amortization of loan costs

     61

     61

Casualty gain

     (46)

    (255)

Bad debt expense

     66

     97

Change in accounts:

 

 

Receivables and deposits

     (70)

     (75)

Other assets

    (153)

    (195)

Accounts payable

      1

    (480)

Tenant security deposit liabilities

     12

     24

Due to affiliates

    554

    773

Accrued property taxes

    474

    337

Other liabilities

     (33)

     (49)

Net cash provided by operating activities

  1,305

    164

 

 

 

Cash flows from investing activities:

 

 

Property improvements and replacements

  (1,892)

  (2,310)

Insurance proceeds received

     36

    287

Net cash used in investing activities

  (1,856)

  (2,023)

 

 

 

Cash flows from financing activities:

 

 

Advances from affiliate

  1,230

  2,383

Repayment of advances from affiliate

    (222) 

     --

Payments on mortgage note payable

    (441)

    (420)

Net cash provided by financing activities

    567

  1,963

 

 

 

Net increase in cash and cash equivalents

     16

    104

Cash and cash equivalents at beginning of period

    142

    157

Cash and cash equivalents at end of period

$   158

$   261

 

 

 

Supplemental disclosure of cash flow information:

 

 

Cash paid for interest, net of capitalized interest

$ 1,060

$   963

 

 

 

Supplemental disclosure of non-cash activity:

 

 

Property improvements and replacements included in

 

 

    accounts payable

$    36

$    10

 

 

 

Insurance proceeds held on deposit with the mortgage

  lender

 

$    --

 

$     7

 

Included in property improvements and replacements for the six months ended June 30, 2009 and 2008 are approximately $1,067,000 and $1,531,000, respectively, of property improvements and replacements which were included in accounts payable at December 31, 2008 and 2007, respectively.

 

*See Accompanying Notes to Financial Statements*

SHELTER PROPERTIES IV
NOTES TO FINANCIAL STATEMENTS

(Unaudited)

** **

 

**Note A - Basis of Presentation**

 

The accompanying unaudited 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-Q and Article 8-03 of Regulation S-X. 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 and six month periods ended June 30, 2009 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2009. For further information, refer to the financial statements and footnotes thereto included in the Partnership's Annual Report on Form 10-K for the fiscal year ended December 31, 2008. The Corporate General Partner is a subsidiary of Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. 

 

The Partnership’s management evaluated for subsequent events through the time this Quarterly Report on Form 10-Q was filed on August 14, 2009.

 

Recent Accounting Pronouncement

 

In June 2009, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 168,*The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162,* or SFAS No. 168, which is effective for financial statements issued for interim and annual periods ending after September 15, 2009.  Upon the effective date of SFAS No. 168, the FASB Accounting Standards Codification, or the Codification, will become the single source of authoritative GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission, or SEC, under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The Codification will supersede all then-existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the Codification will become non-authoritative.  Following SFAS No. 168, the FASB will issue Accounting Standards Updates that serve to update the Codification. The Partnership does not anticipate that SFAS No. 168 will have a significant effect on its financial statements. 

 

**Note B - Transactions with Affiliated Parties**

 

The Partnership has no employees and depends 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 reimbursement of certain expenses incurred by affiliates on behalf of the Partnership.  

 

Affiliates of the Corporate General Partner receive 5% of gross receipts from the Partnership's property as compensation for providing property management services. During the six months ended June 30, 2009 and 2008, the Partnership paid to such affiliates approximately $244,000 and $236,000, respectively, which are included in operating expenses.

 

An affiliate of the Corporate General Partner charged the Partnership for reimbursement of accountable administrative expenses amounting to approximately $309,000 and $597,000 for the six months ended June 30, 2009 and 2008, respectively, which is included in general and administrative expenses and investment property.  The portion of these reimbursements included in investment property for the six months ended June 30, 2009 and 2008 are construction management services provided by an affiliate of the Corporate General Partner of approximately $261,000 and $522,000, respectively.  At June 30, 2009 and December 31, 2008, the Partnership owed approximately $527,000 and $467,000, respectively, for accountable administrative expenses, which are included in due to affiliates.
 

Pursuant to the Partnership Agreement, AIMCO Properties, L.P., an affiliate of the Corporate General Partner, advanced the Partnership approximately $1,230,000 and $2,383,000 during the six months ended June 30, 2009 and 2008, respectively, to fund capital improvements, redevelopment (see Note D) and operations at Baymeadows Apartments.  The interest rates charged on the outstanding advances made to the Partnership range from the prime rate plus 2% to a variable rate based on the prime rate plus a market rate adjustment for similar type loans.  Affiliates of the Corporate General Partner review the market rate adjustment quarterly.  The interest rates on outstanding advances at June 30, 2009 ranged from 5.25% to 9.60%.  Interest expense was approximately $612,000 and $687,000 for the six months ended June 30, 2009 and 2008, respectively. At June 30, 2009 and December 31, 2008, the total advances and accrued interest due to AIMCO Properties, L.P. was approximately $23,199,000 and $21,697,000, respectively, and is included in due to affiliates.  The Partnership may receive additional advances of funds from AIMCO Properties, L.P. although AIMCO Properties, L.P. is not obligated to provide such advances.  For more information on AIMCO Properties, L.P., including copies of its audited balance sheet, please see its reports filed with the Securities and Exchange Commission.

 

The Partnership insures its property up to certain limits through coverage provided by AIMCO which is generally self-insured for a portion of losses and liabilities related to workers’ compensation, property casualty, general liability and vehicle liability. The Partnership insures its property above the AIMCO limits through insurance policies obtained by AIMCO from insurers unaffiliated with the Corporate General Partner.  During the six months ended June 30, 2009, the Partnership was charged by AIMCO and its affiliates approximately $221,000 for insurance coverage and fees associated with policy claims administration.  Additional charges will be incurred by the Partnership during 2009 as other insurance policies renew later in the year.  The Partnership was charged by AIMCO and its affiliates approximately $235,000 for insurance coverage and fees associated withpolicy claims administration during the year ended December 31, 2008.

 

**Note C – Casualty Events**

 

In August 2008, Baymeadows Apartments sustained damages from Tropical Storm Fay.  The damages were approximately $797,000, including clean up costs of approximately $369,000. For the year ended December 31, 2008, the Partnership recognized a loss of approximately $44,000 due to the write off of undepreciated assets of approximately $44,000, as the Partnership does not expect to receive insurance proceeds to cover the damages. During the six months ended June 30, 2009, the Partnership recognized an additional loss of approximately $2,000, which is reflected as a reduction of casualty gain, due to the write off of undepreciated assets of approximately $2,000. For the six months ended June 30, 2009, approximately $57,000 of the clean up costs included above are included in operating expenses due to actual costs exceeding estimated costs.

 
In June 2008, Baymeadows Apartments experienced wind damages from a storm, causing damages of approximately $66,000. During the year ended December 31, 2008, the Partnership received approximately $20,000 in insurance proceeds, and the Partnership received approximately $36,000 in additional insurance proceedsduring the six months ended June 30, 2009. The Partnership recognized a casualty gain of approximately $48,000 during the six months ended June 30, 2009, due to the receipt of insurance proceeds net of the write off of undepreciated damaged assets of approximately $8,000.
 

On March 27, 2007, Baymeadows Apartments incurred approximately $32,000 in damages to one unit resulting from a fire.  During the six months ended June 30, 2008, the Partnership received insurance proceeds of approximately $22,000 and wrote off undepreciated damaged assets of approximately $4,000, resulting in a casualty gain of approximately $18,000.

 

In October 2007, Baymeadows Apartments experienced damages from a severe storm. During the six months ended June 30, 2008, the Partnership incurred approximately $282,000 in damages and clean up expenses of approximately $176,000, including approximately $105,000 of asbestos abatement.  All of the asbestos related work was complete as of June 30, 2008.  During the three and six months ended June 30, 2008, the Partnership received insurance proceeds of approximately $272,000, approximately $7,000 of which was held on deposit with the mortgage lender at June 30, 2008, and wrote off undepreciated damaged assets of approximately $35,000, resulting in a casualty gain of approximately $237,000.

**** 

**Note D – Redevelopment**

 

During the first quarter of 2008, Baymeadows Apartments completed a redevelopment project in order for the property to remain competitive in the Jacksonville area at a total cost of approximately $33,852,000, approximately $696,000 of which was completed during 2008.  During the construction period, certain expenses were capitalized and are being depreciated over the remaining life of the related assets.  No such costs were capitalized related to the redevelopment during the three and six months ended June 30, 2009.  The project was funded from operations and advances from AIMCO Properties, L.P.

 

As part of the redevelopment project, the Partnership replaced roofing on certain buildings at Baymeadows Apartments.  The Partnership has determined that the roofing work performed by the contractor was defective, forcing the Partnership to retain a different contractor to repair the defective work. As a result of the defective work, the Partnership wrote off the remaining net book value of the roofing of approximately $660,000 to depreciation expense during the three and six months ended June 30, 2009.  The Partnership is currently pursuing legal action against the contractor that installed the defective roofing.

 

In addition, a project was approved during the year ended December 31, 2005 to add 288 new apartment units at the property at a total estimated cost of approximately $26,953,000 of which approximately $254,000 was expended during 2005. The project to add the 288 new units is currently on hold as the Corporate General Partner has been informed by the city of Jacksonville that it will not allow permits for newunits in the area until litigation that is unrelated to the Partnership and Baymeadows Apartments is resolved. It is expected that the new construction will be funded by operating cash flow and advances from AIMCO Properties, L.P.

 

**Note E – Fair Value of Financial Instruments**

 

SFAS No. 107, "Disclosures about 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 Partnership estimates thefair value of its long-term debt by discounting future cash flows using a discount rate commensurate with that currently believed to be available to the Partnership for similar term, long-term debt.  At June 30, 2009, the fair value of the Partnership's long-term debt at the Partnership's incremental borrowing rate was approximately $37,034,000.
 

**Note F - Contingencies**

 

As previously disclosed, AIMCO Properties, L.P. and NHP Management Company, both affiliates of the Corporate General Partner, were defendants in a lawsuit, filed as a collective action in August 2003 in the United States District Court for the District of Columbia, alleging that they willfully violated the Fair Labor Standards Act (“FLSA”) by failing to pay maintenance workers overtime for time worked in excess of 40 hours per week (“overtime claims”).  The plaintiffs also contended that AIMCO Properties, L.P. and NHP Management Company failed to compensate maintenance workers for time that they were required to be "on-call" (“on-call claims”).  In March 2007, the court in the District of Columbia decertified the collective action.  In July 2007, plaintiffs’ counsel filed individual cases in Federal court in 22 jurisdictions.  In the second quarter of 2008, AIMCO Properties, L.P. settled the overtime cases involving 652 plaintiffs and established a framework for resolving the 88 remaining “on-call” claims and the attorneys’ fees claimed by plaintiffs’ counsel.  As a result, the lawsuits asserted in the 22 Federal courts have been dismissed.  During the fourth quarter of 2008, the settlement amounts for alleged unpaid overtime to employees were paid by those partnerships where the respective employees had worked.  The Partnership was not required to pay any settlement amounts.  At this time, the 88 remaining “on-call” claims and the attorneys’ fees claimed by plaintiffs’ counsel are not resolved.   The parties have selected six “on-call” claims that will proceed forward through the arbitration process and have selected arbitrators.  The arbitrations have not yet been scheduled.  The Corporate General Partner is uncertain as to the amount of any additional loss that may be allocable to the Partnership.  Therefore, the Partnership cannot estimate whether any additional loss will occur or a potential range of loss.

 

The Partnership is unaware of any other pending or outstanding litigation matters involving it or its investment property that are not of a routine nature arising in the ordinary course of business.

 

Environmental

 

Various Federal, state and local laws subject property owners or operators to liability for management, and the costs of removal or remediation, of certain hazardous substances present on a property, including lead-based paint. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release or presence of the hazardous substances. The presence of, or the failure to manage or remedy properly, hazardous substances may adversely affect occupancy at affected apartment communities and the ability to sell or finance affected properties. In addition to the costs associated with investigation and remediation actions brought by government agencies, and potential fines or penalties imposed by such agencies in connection therewith, the presence of hazardous substances on a property could result in claims by private plaintiffs for personal injury, disease, disability or other infirmities. Various laws also impose liability for the cost of removal, remediation or disposal of hazardous substances through a licensed disposal or treatment facility. Anyone who arranges for the disposal or treatment of hazardous substances is potentially liable under such laws. These laws often impose liability whether or not the person arranging for the disposal ever owned or operated the disposal facility. In connection with the ownership, operation and management of its property, the Partnership could potentially be liable for environmental liabilities or costs associated with its property.

 Mold
 

The Partnership is aware of lawsuits against owners and managers of multifamily properties asserting claims of personal injury and property damage caused by the presence of mold, some of which have resulted in substantial monetary judgments or settlements.  The Partnership has only limited insurance coverage for property damage loss claims arising from the presence of mold and for personal injury claims related to mold exposure.  Affiliates of the Corporate General Partner have implemented policies, procedures, third-party audits and training and the Corporate General Partner believes that these measures will prevent or eliminate mold exposure and will minimize the effects that mold may have on residents.  To date, the Partnership has not incurred any material costs or liabilities relating to claims of mold exposure or to abate mold conditions.  Because the law regarding mold is unsettled and subject to change the Corporate General Partner can make no assurance that liabilities resulting from the presence of or exposure to mold will not have a material adverse effect on the Partnership’s financial condition or results of operations.

 
****
**ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS   **
**           OF OPERATONS**

 

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements in certain circumstances. Certain information included in this Quarterly Report contains or may contain information that is forward-looking, including, without limitation, statements regarding the effect of redevelopments, the Partnership’s future financial performance, including the Partnership’s ability to maintain current or meet projected occupancy and rent levels, and the effect of government regulations. Actual results may differ materially from those described in these forward-looking statements and, in addition, will be affected by a variety of risks and factors some of which are beyond the Partnership’s control including, without limitation: financing risks, including the availability and cost of financing and the risk that the Partnership’s cash flows from operations may be insufficient to meet required payments of principal and interest; natural disasters and severe weather such as hurricanes; national and local economic conditions; the general level of interest rates; energy costs; the terms of governmental regulations that affect the Partnership’s property and interpretations of those regulations; the competitive environment in which the Partnership operates; real estate risks, including fluctuations inreal estate values and the general economic climate in local markets and competition for tenantsin such markets; insurance risk; development risks; litigation, including costs associated with prosecuting or defending claims and any adverse outcomes; and possible environmental liabilities, including costs, fines or penalties that may be incurred due to necessary remediation of contamination of properties presently owned or previously owned by the Partnership. Readers should carefully review the Partnership’s financial statements and the notes thereto and the other documents the Partnership files from time to time with the Securities and Exchange Commission.
 

The Partnership's investment property consists of one apartment complex. The following table sets forth the average occupancy of the property for each of the six months ended June 30, 2009 and 2008:

 

 

Average

 

Occupancy

Property

2009

2008

 

 

 

Baymeadows Apartments (1) 

93%

88%

  Jacksonville, Florida

 

 

 

(1)   The Corporate General Partner attributes the increase in occupancy at Baymeadows Apartments to competitive pricing efforts and the completion of the redevelopment of the property that has resulted in more units being available for rent.

 

The Partnership’s financial results depend upon a number of factors including the ability to attract and maintain tenants at the investment property, interest rates on mortgage loans, costs incurred to operate the investment property, general economic conditions and weather. As part of the ongoing business plan of the Partnership, the Corporate General Partner monitors the rental market environment of its investment property to assess the feasibility of increasing rents, maintaining or increasing occupancy levels and protecting the Partnership from increases in expenses. 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, the Corporate General Partner may use rental concessions and rental rate reductions to offset softening market conditions; accordingly, there is no guarantee that the Corporate General Partner will be able to sustain such a plan. Further, a number of factors that are outsidethe control of the Partnership such as the local economic climate and weather can adversely or positively affect the Partnership’s financial results.
 

Results of Operations

 

The Partnership’s net loss for the three and six months ended June 30, 2009 was approximately $2,202,000 and $3,938,000, respectively, compared to net loss of approximately $1,763,000 and $3,656,000, respectively, for the corresponding periods in 2008.  The increase in net loss for the three and six months ended June 30, 2009 is due to an increase in total expenses and a decrease in casualty gains, partially offset by an increase in total revenues. 

 

Total expenses increased for both periods due to increases in depreciation and property tax expenses, partially offset by decreases in operating, interest, and general and administrative expenses.  Operating expense decreased primarily due to decreases in insurance expense as a result of a decrease in the hazard insurance premium at the Partnership’s investment property and a decrease in clean up expenses related to the storm damage discussed below.  Interest expense decreased primarily due to a decrease in interest on advances from an affiliate of the Corporate General Partner as a result of a lower average interest rate charged on such advances.  Depreciation expense increased due to property improvements and replacements placed into service during the past twelve months, which are now being depreciated. In addition, as part of the redevelopment project completed in 2008, the Partnership replaced roofing on certain buildings at Baymeadows Apartments.  The Partnership has determined that the roofing work performed by the contractor was defective, forcing the Partnership to retain a different contractor to repair the defective work. As a result of the defective work, the Partnership wrote off the remaining net book value of the roofing of approximately $660,000 to depreciation expense during the three and six months ended June 30, 2009.  The Partnership is currently pursuing legal action against the contractor that installed the defective roofing. Property tax expense increased due to an increase in the assessed value of the property.

 

General and administrative expenses decreased for both periods primarily due to a decrease in the cost of services included in the management reimbursements charged by the Corporate General Partner as allowed under the Partnership Agreement. Also included in general and administrative expenses for the three and six months ended June 30, 2009 and 2008 are costs associated with the quarterly and annual communications with investors and regulatory agencies and the annual audit required by the Partnership Agreement.

 

Total revenues increased for both periods due to increases in both rental and other income.  Rental income increased for both periods due to increases in occupancy and a decrease in bad debt expense partially offset by a decrease in the average rental rate at Baymeadows Apartments.  Other income increased for both periods primarily due to increases in resident utility payments, application fees and income from the sale of land easement partially offset by a decrease in lease cancellation fees at Baymeadows Apartments.

 

In August 2008, Baymeadows Apartments sustained damages from Tropical Storm Fay.  The damages were approximately $797,000, including clean up costs of approximately $369,000. For the year ended December 31, 2008, the Partnership recognized a loss of approximately $44,000 due to the write off of undepreciated assets of approximately $44,000, as the Partnership does not expect to receive insurance proceeds to cover the damages. During the six months ended June 30, 2009, the Partnership recognized an additional loss of approximately $2,000, which is reflected as a reduction of casualty gain, due to the write off of undepreciated assets of approximately $2,000. For the six months ended June 30, 2009, approximately $57,000 of the clean up costs included above are included in operating expenses due to actual costs exceeding estimated costs.

 
In June 2008, Baymeadows Apartments experienced wind damages from a storm, causing damages of approximately $66,000. During the year ended December 31, 2008, the Partnership received approximately $20,000 in insurance proceeds, and the Partnership received approximately $36,000 in additional insurance proceedsduring the six months ended June 30, 2009. The Partnership recognized a casualty gain of approximately $48,000 during the six months ended June 30, 2009, due to the receipt of insurance proceeds net of the write off of undepreciated damaged assets of approximately $8,000.
 

On March 27, 2007, Baymeadows Apartments incurred approximately $32,000 in damages to one unit resulting from a fire.  During the six months ended June 30, 2008, the Partnership received insurance proceeds of approximately $22,000 and wrote off undepreciated damaged assets of approximately $4,000, resulting in a casualty gain of approximately $18,000.

 

In October 2007, Baymeadows Apartments experienced damages from a severe storm. During the six months ended June 30, 2008, the Partnership incurred approximately $282,000 in damages and clean up expenses of approximately $176,000, including approximately $105,000 of asbestos abatement.  All of the asbestos related work was complete as of June 30, 2008.  During the three and six months ended June 30, 2008, the Partnership received insurance proceeds of approximately $272,000, approximately $7,000 of which was held on deposit with the mortgage lender at June 30, 2008, and wrote off undepreciated damaged assets of approximately $35,000, resulting in a casualty gain of approximately $237,000.

 

Liquidity and Capital Resources

 

At June 30, 2009, the Partnership had cash and cash equivalents of approximately $158,000, compared to approximately $261,000 at June 30, 2008. Cash and cash equivalents increased approximately $16,000, from December 31, 2008, due to approximately $1,305,000 and $567,000 of cash provided by operating and financing activities, respectively, partially offset by approximately $1,856,000 of cash used in investing activities. Cash provided by financing activities consisted of advances from an affiliate, partially offset by principal payments made on the mortgage encumbering the Partnership’s investment property and repayment of advances from an affiliate. Cash used in investing activities consisted of property improvements and replacements, partially offset by insurance proceeds received. The Partnership invests its working capital reserves in interest bearing accounts.

 

Pursuant to the Partnership Agreement, AIMCO Properties, L.P., an affiliate of the Corporate General Partner, advanced the Partnership approximately $1,230,000 and $2,383,000 during the six months ended June 30, 2009 and 2008, respectively, to fund capital improvements, redevelopment and operations at Baymeadows Apartments.  The interest rates charged on the outstanding advances made to the Partnership range from the prime rate plus 2% to a variable rate based on the prime rate plus a market rate adjustment for similar type loans.  Affiliates of the Corporate General Partner review the market rate adjustment quarterly.  The interest rates on outstanding advances at June 30, 2009 ranged from 5.25% to 9.60%.  Interest expense was approximately $612,000 and $687,000 for the six months ended June 30, 2009 and 2008, respectively. At June 30, 2009 and December 31, 2008, the total advances and accrued interest due to AIMCO Properties, L.P. was approximately $23,199,000 and $21,697,000, respectively, and is included in due to affiliates.  The Partnership may receive additional advances of funds from AIMCO Properties, L.P. although AIMCO Properties, L.P. is not obligated to provide such advances.  For more information on AIMCO Properties, L.P., including copies of its audited balance sheet, please see its reports filed with the Securities and Exchange Commission.

 

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 investment property to adequately maintain the physical assets andother operating needs of the Partnership and to comply with Federal, state, and local legal and regulatory requirements. The Corporate General Partner monitors developments in the area of legal and regulatory compliance.  Capital improvements planned for the Partnership’s property are detailed below.
 

During the six months ended June 30, 2009, the Partnership completed approximately $861,000 of capital improvements at Baymeadows Apartments, which consisted primarily of roof replacement, exterior painting, water heater and floor covering replacements and construction related to the casualties discussed above. These improvements were funded from operating cash flow, insurance proceeds and advances from AIMCO Properties, L.P. The Partnership regularly evaluates the capital improvement needs of the property. While the Partnership has no material commitments for property improvements and replacements, certain routine capital expenditures are anticipated during the remainder of 2009. Such capital expenditures will depend on the physical condition of the property as well as anticipated cash flow generated by the property.

 

Capital expenditures will be incurred only if cash is available from operations, Partnership reserves or advances from AIMCO Properties, L.P, although AIMCO Properties, L.P. is not obligated to provide such advances. To the extent that capital improvements are completed, the Partnership's distributable cash flow, if any, may be adversely affected at least in the short term.

 

The Partnership’s assets are thought to be generally sufficient for any near-term needs (exclusive of capital improvements and repayment of advances from affiliates) of the Partnership. The mortgage indebtedness of approximately $38,502,000 encumbering Baymeadows Apartments requires monthly payments of principal and interest and requires a balloon payment of approximately $35,445,000 in 2012. The Corporate General Partner will attempt to refinance such indebtedness and/or sell the property prior to such maturity date. If the property cannot be refinanced and/or sold for a sufficient amount the Partnership will risk losing the property to foreclosure.

 

The Partnership made no distributions during the six months ended June 30, 2009 and 2008. Future cash distributions will depend on the levels of cash generated from operations and the timing of the debt maturity, property sale, and/or refinancing. The Partnership's cash available for distribution is reviewed on a monthly basis. Given the amounts owed to affiliates of the Corporate General Partner, it is not expected that the Partnership will generate sufficient funds from operations, after required capital expenditures, to permit any distributions to its partners in 2009 or subsequent periods.

 

The Partnership Agreement provides for partners to receive distributions from the net proceeds of the sales of properties, the net proceeds from refinancings and net cash from operations as those terms are defined in the Partnership Agreement. The Partnership Agreement requires that the limited partners be furnished with a statement of Net Cash from Operations as such term is defined in the Partnership Agreement. Net Cash from Operations should not be considered an alternative to net loss as an indicator of the Partnership's operating performance or to cash flows as a measure of liquidity. Below is a reconciliation of net cashprovided by operating activities as disclosed in the statements of cash flows included in “Item 1. Financial Statements” to Net Cash from Operations as defined in the Partnership Agreement.

 

 

For the six months ended

 

June 30,

 

2009

2008

 

(in thousands)

 

 

 

Net cash provided by operating activities

    $ 1,305

    $   164

Payments on mortgage note payable

       (441)

       (420)

Property improvements and replacements
     (1,892)

     (2,310)

Changes in reserves for net operating

 

 

  liabilities

       (851)

       (432)

Net cash used in operations

    $(1,879)

    $(2,998)

 

Other

 

In addition to its indirect ownership of the general partner interest in the Partnership, AIMCO and its affiliates owned 36,650 limited partnership units (the "Units") in the Partnership representing 73.31% of the outstanding Units at June 30, 2009. A number of these Units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will acquire additional Units in exchange for cash or a combination of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO, either through private purchases or tender offers. Pursuant to the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters that include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the Corporate General Partner. As a result of its ownership of 73.31% of the outstanding Units, AIMCO and its affiliates are in a position to control all such voting decisions with respect to the Partnership. Although the Corporate General Partner owes fiduciary duties to the limited partners of the Partnership, the Corporate General Partner also owes fiduciary duties to AIMCO as its sole stockholder. As a result, the duties of the Corporate General Partner, as corporate general partner, to the Partnership and its limited partners may come into conflict with the duties of the Corporate General Partner to AIMCO as its sole stockholder.

 

Critical Accounting Policies and Estimates

 

The financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require the Partnership to make estimates and assumptions. The Partnership believes that of its significant accounting policies, the following may involve a higher degree of judgment and complexity.

 

Impairment of Long-Lived Asset

 

Investment property is recorded at cost, less accumulated depreciation, unless the carrying amount of the asset is not recoverable.  If events or circumstances indicate that the carrying amount of the property may not be recoverable, the Partnership will make an assessment of its recoverability by comparing the carrying amount to the Partnership’s estimate of the undiscounted future cash flows, excluding interest charges, of the property.   If the carrying amount exceeds the aggregate undiscounted future cash flows, the Partnership would recognize an impairment loss to the extent the carrying amount exceeds the estimated fair value of the property.

 

Real property investment is subject to varying degrees of risk.  Several factors may adversely affect the economic performance and value of the Partnership’s investment property.  These factors include, but are not limited to, general economic climate; competition from other apartment communities and other housing options; local conditions, such as loss of jobs or an increase in the supply of apartments that might adversely affect apartment occupancy or rental rates; changes in governmental regulations and the related cost of compliance; increases in operating costs (including real estate taxes) due to inflation and other factors, which may not be offset by increased rents; and changes in tax laws and housing laws, including the enactment of rent control laws or other laws regulating multi-family housing.  Any adverse changes in these factors could cause impairment of the Partnership’s asset.

 

Capitalized Costs Related to Redevelopment and Construction Projects 

 

The Partnership capitalizes costs incurred in connection with capital expenditure activities, including redevelopment and construction projects. Costs including interest, property taxes and operating costs associated with redevelopment and construction projects are capitalized during periods in which redevelopment and construction projects are in progress in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 34, “Capitalization of Interest Costs”, and SFAS No. 67, “Accounting for Costs and the Initial Rental Operations of Real Estate Properties”. Included in these capitalized costs are payroll costs associated with time spent by site employees in connection with the planning, execution and control of all capital expenditure activities at the property level.
 

Revenue Recognition

 

The Partnership generally leases apartment units for twelve-month terms or less.  The Partnership will offer rental concessions during particularly slow months or in response to heavy competition from other similar complexes in the area.  Rental income attributable to leases, net of any concessions, is recognized on a straight-line basis over the term of the lease.  The Partnership evaluates all accounts receivable from residents and establishes an allowance, after the application of security deposits, for accounts greater than 30 days past due on current tenants and all receivables due from former tenants.

** **

**ITEM 4T.**    **CONTROLS AND PROCEDURES**

 

**(a)   Disclosure Controls and Procedures.**

 

The Partnership’s management, with the participation of the principal executive officer and principal financial officer of the Corporate General Partner, who are the equivalent of the Partnership’s principal executive officer and principal financial officer, respectively, has evaluated the effectiveness of the Partnership’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the principal executive officer and principal financial officer of the Corporate General Partner, who are the equivalent of the Partnership’s principal executive officer and principal financial officer, respectively, have concluded that, as of the end of such period, the Partnership’s disclosure controls and procedures are effective.

 

**(b)   Changes in Internal Control Over Financial Reporting.**

 

There has been no change in the Partnership’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that has materially affected, or is reasonably likely to materially affect, the Partnership’s internal control over financial reporting.

**PART II - OTHER INFORMATION**
** **

** **

**ITEM 1.    LEGAL PROCEEDINGS**

 

As previously disclosed, AIMCO Properties, L.P. and NHP Management Company, both affiliates of the Corporate General Partner, were defendants in a lawsuit, filed as a collective action in August 2003 in the United States District Court for the District of Columbia, alleging that they willfully violated the Fair Labor Standards Act (“FLSA”) by failing to pay maintenance workers overtime for time worked in excess of 40 hours per week (“overtime claims”).  The plaintiffs also contended that AIMCO Properties, L.P. and NHP Management Company failed to compensate maintenance workers for time that they were required to be "on-call" (“on-call claims”).  In March 2007, the court in the District of Columbia decertified the collective action.  In July 2007, plaintiffs’ counsel filed individual cases in Federal court in 22 jurisdictions.  In the second quarter of 2008, AIMCO Properties, L.P. settled the overtime cases involving 652 plaintiffs and established a framework for resolving the 88 remaining “on-call” claims and the attorneys’ fees claimed by plaintiffs’ counsel.  As a result, the lawsuits asserted in the 22 Federal courts have been dismissed.  During the fourth quarter of 2008, the settlement amounts for alleged unpaid overtime to employees were paid by those partnerships where the respective employees had worked.  The Partnership was not required to pay any settlement amounts.  At this time, the 88 remaining “on-call” claims and the attorneys’ fees claimed by plaintiffs’ counsel are not resolved.   The parties have selected six “on-call” claims that will proceed forward through the arbitration process and have selected arbitrators.  The arbitrations have not yet been scheduled.  The Corporate General Partner is uncertain as to the amount of any additional loss that may be allocable to the Partnership.  Therefore, the Partnership cannot estimate whether any additional loss will occur or a potential range of loss.

 

**ITEM 6.    EXHIBITS**

 

See Exhibit Index.

 

The agreements included as exhibits to this Form 10-Q contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:

 
-  should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;

 
-  have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;

 
-  may apply standards of materiality in a way that is different from what may be viewed as material to an investor; and

 
-  were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.

 

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. The Partnership acknowledges that, notwithstanding the inclusion of the foregoing cautionary statements, it is responsible for considering whether additional specificdisclosures of material information regarding material contractual provisions are required to make the statements in this Form 10-Q not misleading. Additional information about the Partnership may be found elsewhere in this Form 10-Q and the Partnership’s other public filings, which are available without charge through the SEC’s website at http://www.sec.gov.  ****
**SIGNATURES**
** **

** **

** **

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly 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

 

 

Date: August 14, 2009

By:  /s/Steven D. Cordes

 

      Steven D. Cordes

 

      Senior Vice President

 

 

Date: August 14, 2009

By:   /s/Stephen B. Waters

 

      Stephen B. Waters

 

      Senior Director

 

**                                SHELTER PROPERTIES IV**
** **

**                                    EXHIBIT INDEX**

 

**Exhibit****    Description of 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 June 8, 1982 contained in Amendment No. 1 to Registration Statement No. 2-77217, of Registrant filed June 8, 1982 (the "Prospectus") and incorporated herein by reference).

 

      (b)   Subscription Agreement and Signature Page (included as Exhibit 8 to the Prospectus and incorporated herein by reference).

 

10(i)       Contracts related to acquisition of property:

 

      (a)   Real Estate Sales Agreement dated May 5, 1982, First Modification to Real Estate Agreement dated June 18, 1982 (filed as Exhibit 12(b) to Amendment No. 1 to Registration Statement No. 2-77217 of Registrant filed June 8, 1982 and incorporated herein by reference) and Second Modification to Real Estate Sales Agreement dated September 30, 1982 between Baymeadows Associates and U.S. Shelter Corporation to purchase Baymeadows Apartments (filed as Exhibit 10(a) to Form 10-K of Registrant dated January 26, 1983 and incorporated herein by reference).

 

10(iii)     Contracts related to refinancing of debt:

 

(n)   Additional Mortgage Note, dated August 22, 2005 between Shelter Properties IV, L.P., a South Carolina limited partnership and Allstate Life Insurance Company, an Illinois corporation for Baymeadows Apartments (Filed as Exhibit 10(n) to Current Report on Form 8-K of Registrant dated August 22, 2005 and incorporated herein by reference).

 

(o)   Modification, Restatement and Consolidation of Notes dated August 22, 2005 between Shelter Properties IV, L.P. and Allstate Life Insurance Company (Filed as Exhibit 10(o) to Current Report on Form 8-K of Registrant dated August 22, 2005 and incorporated herein by reference).

 

(p)   Second Consolidated, Amended and Restated Multifamily Mortgage, Assignment of Rents and Security Agreement, dated August 22, 2005, between Shelter Properties IV, L.P. and Allstate Life Insurance Company (Filed as Exhibit 10(p) to Current Report on Form 8-K of Registrant dated August 22, 2005 and incorporated herein by reference).

 

(q)   Nonrecourse Exception Indemnity Agreement dated August 22, 2005 by AIMCO Properties, L.P., for the benefit of Allstate Life Insurance Company (Filed as Exhibit 10(q) to Current Report on Form 8-K of Registrant dated August 22, 2005 and incorporated herein by reference).

                  

31.1         Certification of equivalent of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.   

 

31.2         Certification of equivalent of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

32.1         Certification of the equivalent of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.