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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-11176
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NTS-PROPERTIES III
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(Exact name of Registrant as specified in its charter)
Georgia 61-1017240
- ---------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
10172 Linn Station Road
Louisville, Kentucky 40223
- ---------------------------------- ----------------------------------
(Address of principal (Zip Code)
executive offices)
(502) 426-4800
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
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(Title of Class)
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, and (2) has been subject to such filing requirements
for the past 90 days.
[X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of the Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
TABLE OF CONTENTS
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PART I
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Pages
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Items 1. and 2. Business and Properties 3-8
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 8
PART II
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Item 5. Market for the Registrant's Limited Partnership
Interests and Related Partner Matters 9
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-17
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk 18
Item 8. Financial Statements and Supplementary Data 19-32
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 33
PART III
--------
Item 10. Directors and Executive Officers of the Registrant 34-35
Item 11. Management Remuneration and Transactions 35-36
Item 12. Security Ownership of Certain Beneficial
Owners and Management 36-37
Item 13. Certain Relationships and Related Transactions 37-38
PART IV
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Item 14. Exhibits, Consolidated Financial Statement Schedules
and Reports on Form 8-K 39-41
Signatures 42
2
PART I
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Items 1. and 2. Business and Properties
-----------------------
Development of Business
- -----------------------
NTS-Properties III (the "Partnership") is a limited partnership organized under
the laws of the state of Georgia on June 24, 1982. The General Partner is
NTS-Properties Associates, a Georgia limited partnership. As of December 31,
2000, the Partnership owned the following properties:
* Peachtree Corporate Center, a business park with approximately 189,000
net rentable square feet located in Norcross, Georgia, a suburb of
Atlanta. Acquired complete on January 26, 1983.
* NTS Center, an office complex with approximately 115,000 net rentable
square feet located in Jeffersontown, Kentucky, a suburb of
Louisville. Acquired complete on January 26, 1983.
* Plainview Center, an office complex with approximately 95,000 net
rentable square feet located in Jeffersontown, Kentucky. Acquired
complete on February 15, 1983.
In the second quarter of 1999, Plainview Plaza II was renamed NTS Center and
Plainview Triad North was renamed Plainview Center.
The Partnership has a fee title interest in the above properties. The General
Partner believes that the Partnership's properties are adequately covered by
insurance.
As of December 31, 2000, the Partnership's properties were encumbered by
mortgages as shown in the table below:
Interest Maturity Balance
Property Rate Date at 12/31/00
- -------- ---- ---- -----------
NTS Center 6.89% 04/10/15 (1) $6,182,848
Peachtree Corporate Center N/A N/A N/A
Plainview Center Prime - .25% 03/01/02 $2,533,305 (2)
(1) Current monthly principal payments are based upon a 17-year amortization
schedule. At maturity, the mortgage will have been repaid based on the
current rate of amortization.
(2) On May 9, 2000, the Partnership increased the $2,000,000 mortgage payable
to $3,500,000 and extended the maturity date from March 1, 2001 to March 1,
2002. The note is secured by Plainview Center and bears interest at Prime -
.25%.
Currently, the Partnership's plans for renovations and other major capital
expenditures include tenant finish improvements required by lease negotiations
at the Partnership's properties. Changes to current tenant improvements are a
typical part of any lease negotiation. Improvements generally include a revision
to the current floor plan to accommodate a tenant's needs, new carpeting and
paint and/or wallcovering. The extent and cost of the improvements are
determined by the size of the space being leased and whether the improvements
are for a new tenant or incurred because of a lease renewal. The tenant finish
improvements
3
Development of Business - Continued
- -----------------------------------
will be funded by cash flow from operations, cash reserves or additional
financing where necessary. As of December 31, 2000, the Partnership had a
commitment for approximately $35,000 for tenant finish improvements at Plainview
Center. Subsequent to December 31, 2000, the Partnership made a commitment for
approximately $95,000 for tenant finish improvements at Plainview Center.
During the third quarter of 1997, the Partnership received notice that one
tenant occupying approximately 65% of Plainview Center would vacate the property
at the end of the lease term, August 1998. The Partnership was able to negotiate
a 30-day renewal (through September 30, 1998) with the tenant for the
approximate 63,000 square feet that they leased. The Partnership was also able
to negotiate a renewal for approximately 11,000 square feet of the original
63,000 square feet through March 31, 1999. Costs associated with this renewal
were not significant. As a result of this tenant vacating the remainder of their
space on March 31, 1999, there has been, and will likely continue to be, a
protracted period for the property to become fully leased again. Substantial
funds, currently estimated to be approximately $400,000, will likely be needed
for leasing expenses; especially those needed to refinish space for new tenants.
At Plainview Center, the Partnership renovated the common areas and the
building's exterior. These renovations were designed to make the property more
competitive and enhance its value. The cost of the renovations, which began
during 1998 and were completed during the fourth quarter of 1999, was
approximately $1,000,000.
In August 1999, a portion of the vacant space at Plainview Center, discussed
above, was leased to a new tenant. The lease is for approximately 28,000 square
feet and has a term of five and one-half years. The tenant took occupancy of the
space during the fourth quarter of 1999. The Partnership incurred approximately
$500,000 of tenant finish improvements resulting from this lease.
On May 9, 2000, the Partnership increased the $2,000,000 mortgage payable,
secured by Plainview Center, to $3,500,000 and extended the maturity date from
March 1, 2001 to March 1, 2002. These additional funds will be used to meet
leasing expenses at Plainview Center and NTS Center and leasing and roof
replacement expenses at Peachtree Corporate Center. The Peachtree Corporate
Center roof replacement is expected to cost approximately $500,000 and is to be
complete in 2001.
On July 17, 2000, the Partnership made a commitment for approximately $257,000
for tenant improvements at Plainview Center. On November 1, 2000, the
improvements expanded the space of a current tenant by 19,000 square feet and
was funded by the $1,500,000 increase in the mortgage payable secured by
Plainview Center. This expansion increased the occupancy of Plainview Center
from 49% to 68%.
Financial Information About Industry Segments
- ---------------------------------------------
The Partnership is presently engaged solely in the business of owning and
operating commercial real estate. A presentation of information concerning
industry segments is not applicable. See Part II, Item 8 - Note 10 for
information regarding the Partnership's operating segments.
4
Narrative Description of Business
- ---------------------------------
General
- -------
The current business of the Partnership is consistent with the original purpose
of the Partnership which was to acquire, own and operate NTS Center, Peachtree
Corporate Center and Plainview Center. The Partnership's properties are in a
condition suitable for their intended use.
The Partnership intends to hold the properties until such time as sale or other
disposition appears to be advantageous with a view to achieving the
Partnership's investment objectives or it appears that such objectives will not
be met. In deciding whether to sell a property, the Partnership will consider
factors such as potential capital appreciation, cash flow and federal income tax
considerations, including possible adverse federal income tax consequences to
the limited partners.
NTS Center
- ----------
As of December 31, 2000, there were seven tenants leasing office space
aggregating approximately 109,000 square feet of the net rentable area at NTS
Center. All leases provide for tenants to contribute toward the payment of
increases in common area maintenance expenses, insurance, utilities and real
estate taxes. The tenants who occupy NTS Center are professional
service-orientated organizations. The principal occupations/professions
practiced include real estate, telecommunications, and grocery chain management.
Three tenants individually lease more than 10% of NTS Center's rentable area.
The following table contains approximate data concerning the major leases in
effect on December 31, 2000:
Square Feet Current Annual
Year of and % of Rental per
Expiration Net Rentable Area Square Foot
---------- ----------------- -----------
Major Tenant (1):
1 2004 20,368 (17.7%) $14.50
2 2003 16,937 (14.7%) $12.00
3 2004 53,435 (46.4%) $10.43 (2)
(1) Major tenants are those that individually occupy 10% or more of the
rentable square footage.
(2) In accordance with the lease agreement, the tenant pays their own
electricity and cleaning costs thus the base rent is below market.
Plainview Center
- ----------------
As of December 31, 2000, there were eight tenants leasing office space
aggregating approximately 63,600 square feet of the net rentable area at
Plainview Center. All leases provide for tenants to contribute toward the
payment of increases in common area maintenance expenses, insurance, utilities
and real estate taxes. The tenants who occupy Plainview Center are professional
service-orientated organizations. The principal occupation/professions practiced
include healthcare and a victim notification service. One tenant individually
leases more than 10% of Plainview Center's rentable area.
5
Plainview Center - Continued
- ----------------------------
The following table contains approximate data concerning the major lease in
effect on December 31, 2000:
Square Feet Current Annual
Year of and % of Rental per
Expiration Net Rentable Area Square Foot
---------- ----------------- -----------
Major Tenant (1):
1 2007 47,109 (49.5%) $14.41
(1) Major tenants are those that individually occupy 10% or more of the
rentable square footage.
Peachtree Corporate Center
- --------------------------
As of December 31, 2000, there were 46 tenants leasing office, warehouse and
storage space aggregating approximately 157,000 square feet of the net rentable
area at Peachtree Corporate Center. All leases provide for tenants to contribute
toward the payment of increases in common area maintenance expenses, insurance,
utilities and real estate taxes. The tenants who occupy Peachtree Corporate
Center are professional service- orientated organizations. The principal
occupation/profession practiced is sales-related services. There are no tenants
at Peachtree Corporate Center who individually lease 10% or more of the rentable
square footage.
Additional operating data regarding the Partnership's properties is furnished in
the following table:
Plainview Peachtree
NTS Center Center Corporate Center
---------- ------ ----------------
Federal tax basis $ 9,786,719 $ 7,783,370 $10,026,558
Realty tax rate .01072 .01072 .03141
Annual realty taxes $ 72,578 $ 41,497 $ 100,879
Depreciation for book purposes is computed using the straight-line method over
the estimated useful lives of the assets which are 6-30 years for land
improvements, 5-30 years for buildings and improvements, 3-27 years for
amenities and the applicable lease term for tenant improvements.
Competition
- -----------
The Partnership's properties are subject to competition from similar types of
properties (including, in certain areas, properties owned or managed by
affiliates of the General Partner) in the respective vicinities in which they
are located. Such competition is generally for the retention of existing tenants
or for new tenants when vacancies occur. The Partnership maintains the
suitability and competitiveness of its properties primarily on the basis of
effective rents, amenities and service provided to tenants. Competition is
expected to increase in the future as a result of the construction of additional
properties. As of December 31, 2000, there are no properties under construction
in the respective vicinities in which the properties are located. The
Partnership has not commissioned a formal market analysis of competitive
conditions in any market in which it owns properties, but relies upon the market
condition knowledge of the employees of NTS Development Company who manage and
supervise the leasing for each property.
6
Management of Properties
- ------------------------
NTS Development Company, an affiliate of the General Partner of the Partnership,
directs the management of the Partnership's properties pursuant to a written
agreement. NTS Development Company is a wholly- owned subsidiary of NTS
Corporation. Mr. J. D. Nichols has a controlling interest in NTS Corporation and
is a general partner of NTS-Properties Associates. Under the agreement, NTS
Development Company establishes rental policies and rates and directs the
marketing activity of leasing personnel. NTS Development Company also
coordinates the purchase of equipment and supplies, maintenance activity, and
the selection of all vendors, suppliers and independent contractors. As
compensation for its services, NTS Development Company received a fee totaling
$169,549 for the year ended December 31, 2000. The fee is equal to 5% of gross
revenues from the Partnership's properties.
In addition, the agreement requires the Partnership to purchase all insurance
relating to the managed properties, to pay the direct out-of-pocket expenses of
NTS Development Company in connection with the operation of the properties,
including the cost of goods and materials used for and on behalf of the
Partnership, and to reimburse NTS Development Company for the salaries,
commissions, fringe benefits, and related employment expenses of on-site
personnel.
The term of the agreement between NTS Development Company and the Partnership
was initially for five years, and thereafter for succeeding one-year periods,
unless cancelled. The agreement is subject to cancellation by either party upon
60-days written notice. As of December 31, 2000, the management agreement is
still in effect.
Working Capital Practices
- -------------------------
Information about the Partnership's working capital practices is included in
Management's Discussion and Analysis of Financial Condition and Results of
Operations in Part II, Item 7.
Seasonal Operations
- -------------------
The Partnership does not consider its operations to be seasonal to any material
degree.
Conflict of Interest
- --------------------
Because the principals of the General Partner and/or its affiliates own and/or
operate real estate properties other than those owned by the Partnership that
are, or could be, in competition with the Partnership, potential conflicts of
interest exist. Because the Partnership was organized by and is operated by the
General Partner, these conflicts are not resolved through arms-length
negotiations, but through the exercise of the General Partner's good judgement
consistent with its fiduciary responsibility to the limited partners and the
Partnership's investment objectives and policies. The General Partner is
accountable to the limited partners as a fiduciary and consequently must
exercise good faith and integrity in handling the Partnership's affairs. A
provision has been made in the partnership agreement that the General Partner
will not be liable to the Partnership except for acts or omissions performed or
omitted fraudulently, in bad faith or with negligence. In addition, the
partnership agreement provides for indemnification of the General Partner by the
Partnership for liability resulting from errors in judgement or certain acts or
omissions. The General Partner and its affiliates retain a free right to compete
with the Partnership's properties including the right to develop
7
Conflict of Interest - Continued
- --------------------------------
competing properties now and in the future, in addition to the existing
properties which may compete directly or indirectly.
NTS Development Company (the "Property Manager"), an affiliate of the General
Partner, acts in a similar capacity for other affiliated entities in the same
geographic region where the Partnership has property interests. The agreement
with the Property Manager is on terms no less favorable to the Partnership than
those which could be obtained from a third party for similar services in the
same geographical region in which the properties are located. The contract is
terminable by either party without penalty upon 60-days written notice.
There are no other agreements or relationships between the Partnership, the
General Partner and its affiliates other than those previously described.
Employees
- ---------
The Partnership has no employees; however, employees of an affiliate of the
General Partner are available to perform services for the Partnership. The
Partnership reimburses this affiliate for the actual costs of providing such
services. See Part II, Item 8 - Note 8 for further discussion of related party
transactions.
Governmental Contracts and Regulations
- --------------------------------------
No portion of the Partnership's business is subject to renegotiation of profits
or termination of contracts or sub-contracts at the election of the United
States Government.
Item 3. Legal Proceedings
-----------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
8
PART II
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Item 5. Market for Registrant's Limited Partnership Interests and Related
-----------------------------------------------------------------------
Partner Matters
---------------
The Partnership had 700 limited partners as of February 28, 2001. There is no
established trading market for the limited partnership interests, nor is one
likely to develop. Cash distributions and allocations of income (loss) are made
as described in Note 1D to the Partnership's 2000 consolidated financial
statements.
No distributions were paid during the years ended December 31, 2000, 1999 or
1998. Quarterly distributions are determined based on current cash balances,
cash flow being generated by operations and cash reserves needed for future
leasing costs, tenant finish costs and capital improvements.
Due to the fact that no distributions were made during 2000, 1999 or 1998, the
table which represents that portion of the distributions that represent a return
of capital on a Generally Accepted Accounting Principle basis has been omitted.
9
Item 6. Selected Financial Data
-----------------------
Years ended December 31, 2000, 1999, 1998, 1997 and 1996.
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Total revenues $ 3,480,110 $ 3,228,662 $ 3,698,431 $ 3,426,290 $ 3,265,631
Total expenses (3,785,957) (3,923,458) (3,426,517) (3,291,720) (3,076,384)
------------- ------------- ------------- ------------- -------------
Net income (loss) before extraordinary
item (305,847) (694,796) 271,914 134,570 189,247
Extraordinary item -- -- (65,258) -- --
------------- ------------- ------------- ------------- -------------
Net income (loss) $ (305,847) $ (694,796) $ 206,656 $ 134,570 $ 189,247
============= ============= ============= ============= =============
Net income (loss) allocated to:
General Partner $ (73,364) $ (78,012) $ (93,182) $ (104,636) $ (94,850)
Limited partners $ (232,483) $ (616,784) $ 299,838 $ 239,206 $ 284,097
Net income (loss) per limited
partnership Unit $ (18.21) $ (46.54) $ 21.64 $ 17.00 $ 19.70
Weighted average number of limited
partnership Units 12,769 13,253 13,855 14,072 14,418
Cumulative net income (loss)
allocated to:
General Partner $ (2,639,679) $ (2,566,315) $ (2,488,303) $ (2,395,121) $ (2,290,485)
Limited partners $ (474,628) $ (242,145) $ 374,639 $ 74,801 $ (164,405)
Cumulative taxable income (loss)
allocated to:
General Partner $ (2,633,988) $ (2,689,375) $ (2,578,046) $ (2,737,694) $ (2,845,410)
Limited partners $ (940,939) $ (974,971) $ (694,314) $ (851,088) $ (682,815)
Distributions declared:
General Partner $ -- $ -- $ -- $ -- $ --
Limited partners $ -- $ -- $ -- $ -- $ 108,018
Cumulative distributions declared to:
General Partner $ 206,985 $ 206,985 $ 206,985 $ 206,985 $ 206,985
Limited partners $ 11,349,845 $ 11,349,845 $ 11,349,845 $ 11,349,845 $ 11,349,845
At year end:
Land, buildings and amenities, net $ 11,000,173 $ 11,316,969 $ 10,219,334 $ 9,828,962 $ 9,428,016
Total assets $ 11,948,281 $ 12,326,606 $ 11,170,156 $ 11,122,316 $ 10,975,886
Mortgages payable $ 8,716,153 $ 8,073,856 $ 6,656,145 $ 6,734,603 $ 6,859,637
The above selected financial data should be read in conjunction with the
consolidated financial statements and related notes appearing elsewhere in this
Form 10-K report.
10
Item 7. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") is structured in four major sections. The first section
provides information related to occupancy levels and rental and other income
generated by the Partnership's properties. The second analyzes results of
operations on a consolidated basis. The final sections address consolidated cash
flows and financial condition. A discussion of certain market risks also
follows. The MD&A should be read in conjunction with the consolidated financial
statements in Item 8 and the cautionary statements below.
Results of Operations
- ---------------------
The occupancy levels at the Partnership's properties as of December 31 were as
follows:
2000 (1) 1999 1998
-------- ---- ----
NTS Center 95% 100% 100%
Plainview Center (2) 68% 48% 35%
Peachtree Corporate Center (3) 83% 84% 89%
(1) With the exception of Plainview Center, current occupancy levels are
considered adequate to continue the operation of the Partnership's
properties. See below for details.
(2) The current occupancy level is the result of one tenant vacating 52,000
square feet on September 30, 1998 and 11,000 square feet on March 31, 1999.
In the opinion of the General Partner of the Partnership, the year-ending
occupancy level is only a temporary situation and does not represent a
permanent downward occupancy trend.
(3) In the opinion of the General Partner of the Partnership, the decrease in
year-ending occupancy is only a temporary fluctuation and does not
represent a permanent downward occupancy trend.
The average occupancy levels at the Partnership's properties as of December 31
were as follows:
2000 (1) 1999 1998
-------- ---- ----
NTS Center 96% 100% 98%
Plainview Center (2) 52% 30% 75%
Peachtree Corporate Center (3) 80% 84% 87%
(1) With the exception of Plainview Center, current occupancy levels are
considered adequate to continue the operation of the Partnership's
properties. See below for details.
(2) The current occupancy level is the result of one tenant vacating 52,000
square feet on September 30, 1998 and 11,000 square feet on March 31, 1999.
In the opinion of the General Partner of the Partnership, the year-ending
occupancy level is only a temporary situation and does not represent a
permanent downward occupancy trend.
(3) In the opinion of the General Partner of the Partnership, the decrease in
year-ending occupancy is only a temporary fluctuation and does not
represent a permanent downward occupancy trend.
Rental and other income generated by the Partnership's properties for the years
ended December 31, 2000, 1999 and 1998 were as follows:
2000 1999 1998
---- ---- ----
NTS Center $ 1,481,121 $ 1,594,725 $ 1,484,593
Plainview Center $ 761,801 $ 410,490 $ 1,045,951
Peachtree Corporate Center $ 1,233,269 $ 1,211,827 $ 1,153,808
11
Results of Operations - Continued
- ---------------------------------
The following is an analysis of material changes in results of operations for
the periods ending December 31, 2000, 1999 and 1998. Items that did not have a
material impact on operations for the periods listed have been excluded from
this discussion.
Rental and other income increased approximately $251,000, or 8%, in 2000. The
increase is primarily a result of an increase in average occupancy at Plainview
Center. The increase is partially offset by decreased average occupancy at NTS
Center and decreased cost recovery income at Plainview Center.
Rental and other income decreased approximately $470,000, or 13%, in 1999. The
decrease is primarily a result of a decrease in average occupancy at Plainview
Center following the move-out of one tenant who previously occupied 63,000
square feet, or 65%, of the building (see Part II, Item 8 - Note 9). The
decrease at Plainview Center is partially offset by increased cost recovery
income at Peachtree Corporate Center and NTS Center.
Year-ending occupancy percentages represent occupancy only on a specific date;
therefore, the above analysis considers average occupancy percentages which are
more representative of the entire year's results.
In cases of tenants who cease making rental payments or abandon the premises in
breach of the lease terms, the Partnership pursues collection through the use of
collection agencies or other remedies available by law when practical. There
have been no funds recovered as a result of these transactions during the
periods ended December 31, 2000, 1999 or 1998. As of December 31, 2000, there
were no on-going cases.
Operating expenses increased approximately $66,000, or 8%, in 1999, primarily as
a result of increased repairs and maintenance expenses at Peachtree Corporate
Center and increased irrigation and building maintenance expenses at NTS Center.
Operating expenses - affiliated decreased approximately $103,000, or 21%, in
2000. The decrease is due primarily to decreased overhead costs allocated to the
Partnership as a result of personnel status changes. Operating expenses -
affiliated are expenses incurred for services performed by employees of NTS
Development Company, an affiliate of the General Partner.
Operating expenses - affiliated increased approximately $67,000, or 16%, in
1999, primarily as a result of increased leasing, administrative and
architectural salaries at Peachtree Corporate Center and Plainview Center. The
increase is partially offset by decreased architectural salaries at NTS Center.
The 1999 loss on disposal of assets is the result of a loss on the following
items: land improvements at Peachtree Corporate Center, building improvements at
NTS Center and Plainview Center and tenant improvements at Plainview Center. The
losses are the result of various property renovations including: resurfacing the
parking lot at Peachtree Corporate Center, replacing corridor carpet at NTS
Center, redesigning the lobby area at Plainview Center and accommodating new
leases and improving the marketability of vacant suites at Plainview Center. In
order to complete the renovations, it was necessary to replace improvements
which were not fully depreciated. The losses represent the costs of unamortized
assets which were replaced as a result of the renovations.
12
Results of Operations - Continued
- ---------------------------------
The 1998 loss on disposal of assets can primarily be attributed to renovations
of the common area lobbies, corridors and restrooms at NTS Center.
Interest expense increased approximately $126,000, or 24%, in 2000 and $47,000,
or 10%, in 1999, as a result of the mortgage payable for $2,000,000 secured by
Plainview Center in March 1999, which was increased to $3,500,000 in May 2000.
The note bears interest at Prime -.25%. The increase in interest expense is
partially offset by principal payments made on the Partnership's mortgage
secured by NTS Center.
Management fees are calculated as a percentage of cash collections; however,
revenue for reporting purposes is recorded on the accrual basis. As a result,
the fluctuations in revenue between years will differ from the fluctuations of
management fees expense. The approximate $12,000, or 8%, increase in management
fees in 2000, can be attributed to increased occupancy and related revenues at
Plainview Center. The approximate $29,000, or 16%, decrease in management fees
in 1999, can be attributed to decreased occupancy and related revenues at
Plainview Center.
Professional and administrative expenses decreased approximately $28,000, or
26%, in 2000 and increased approximately $35,000, or 47%, in 1999, primarily as
a result of costs incurred for legal fees related to the tender offers.
Professional and administrative expenses - affiliated increased approximately
$18,000, or 17%, in 2000 and decreased approximately $29,000, or 22%, in 1999,
primarily as a result of changes in accounting personnel. Professional and
administrative expenses - affiliated are expenses incurred for the services
performed by employees of NTS Development Company, an affiliate of the General
Partner.
Depreciation and amortization expense increased approximately $174,000, or 16%,
in 2000 and approximately $51,000, or 5%, in 1999, as the result of assets being
placed in service. Assets placed in service are tenant improvements and building
and land improvements at all the Partnership's properties. The increase in
depreciation and amortization expense is partially offset by a portion of the
Partnership's assets (primarily tenant finish improvements) becoming fully
depreciated. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets which are 6-30 years for land improvements,
5-30 years for buildings and improvements, 3-27 years for amenities and the
applicable lease term for tenant improvements. The aggregate costs of the
Partnership's properties for federal tax purposes is approximately $27,617,578.
The 1998 write-off of unamortized loan costs (recorded as an extraordinary item)
relates to the loan costs associated with two mortgages of the Partnership. The
unamortized loan costs were expensed due to the fact that the mortgages were
repaid on April 1, 1998, prior to their maturity (November 1998 and June 2001),
as a result of a new mortgage loan obtained on April 1, 1998.
13
Consolidated Cash Flows and Financial Condition
- -----------------------------------------------
Cash flows used in investing activities are for tenant finish improvements and
other capital additions and are funded by operating activities, cash reserves
and financing activities. Changes to current tenant improvements are a typical
part of any lease negotiation. Improvements generally include a revision to the
current floor plan to accommodate a tenant's needs, new carpeting and paint
and/or wallcovering. The extent and cost of these improvements are determined by
the size of the space and whether the improvements are for a new tenant or
incurred because of a lease renewal. Cash flows used in investing activities
also include the maturity of investment securities. Cash flows used in financing
activities include principal payments on the mortgage payable, the repurchase of
limited partnership Units, cash reserved by the Partnership to fund the tender
offers and the addition of loan costs. Cash flows provided by financing
activities represent the utilization of cash which has been reserved by the
Partnership for the repurchase of limited partnership Units and proceeds
received from new mortgage loans obtained in 2000, 1999 and 1998. The
Partnership does not expect any material changes in the mix and relative cost of
capital resources from those in 2000.
Cash flows provided by (used in):
2000 1999 1998
---- ---- ----
Operating activities $ 237,780 $ 1,058,433 $ 1,646,989
Investing activities (903,810) (2,461,264) (1,318,282)
Financing activities 606,662 1,273,519 (361,803)
------------ ------------ ------------
Net decrease in cash and equivalents $ (59,368) $ (129,312) $ (33,096)
============ ============ ============
Net cash provided by operating activities decreased approximately $821,000, or
78%, in 2000. The decrease was primarily driven by a decrease in accounts
payable offset by increased income from operations before depreciation.
Net cash provided by operating activities decreased approximately $589,000, or
36%, in 1999. The decrease was primarily driven by a decrease in income from
operations before depreciation as a result of decreased revenues from Plainview
Center, as well as net negative changes in various working capital accounts.
Net cash used in investing activities decreased approximately $1,557,000 in
2000, as compared to 1999, primarily as a result of decreased capital
expenditures. Net cash used in investing activities increased approximately
$1,143,000 in 1999, as compared to 1998, as a result of increased capital
expenditures.
14
Consolidated Cash Flows and Financial Condition - Continued
- -----------------------------------------------------------
Net cash provided by financing activities decreased approximately $667,000 in
2000, as compared to 1999, as a result of a decrease in funds drawn on the
mortgage loan obtained March 2, 1999, due to a decrease in renovations and
tenant finish activity. The decrease is partially offset by a decrease in the
repurchase of limited partnership Units. The approximate $1,635,000 increase in
net cash provided by financing activities in 1999, as compared to 1998, is
primarily the result of the new mortgage loan obtained March 2, 1999, to fund
renovations at Plainview Center.
The Partnership indefinitely suspended distributions starting December 31, 1996,
as a result of the anticipated decrease in occupancy at Plainview Center. Cash
reserves (which consist of unrestricted cash as shown on the Partnership's
balance sheets as of December 31) were $45,164 and $104,532 at December 31, 2000
and 1999, respectively.
In the next 12 months, the General Partner expects the demand on future
liquidity to increase as a result of future leasing activity driven primarily by
the decreased occupancy at Plainview Center. There has been and will likely
continue to be a protracted period for Plainview Center to become fully leased
again and substantial funds, currently estimated to be approximately $400,000,
will likely be needed for leasing expenses; especially those needed to refinish
space for new tenants. As of December 31, 2000, the Partnership had a commitment
for approximately $35,000 for tenant finish improvements at Plainview Center.
The demand on future liquidity will be managed by the General Partner through
funds from operations or additional borrowings secured by the Partnership's
properties. There can be no guarantee that such funds will be available, at
which time the General Partner will manage the demand on liquidity accordingly.
Subsequent to December 31, 2000, the Partnership made a commitment for
approximately $95,000 of tenant finish improvements at Plainview Center.
Due to the fact that no distributions were made during 2000, 1999 or 1998, the
table which represents that portion of the distribution that represent a return
of capital on a Generally Accepted Accounting Principle basis has been omitted.
Pursuant to Section 16.4 of the Partnership's Amended and Restated Agreement of
Limited Partnership, the Partnership established an Interest Repurchase Reserve
in 1995. During the years ended December 31, 1999 and 1998, the Partnership has
funded $0 and $75,000, respectively, to the reserve. For the year ending
December 31, 2000, the Partnership has funded $0 to the reserve. Through
September 30, 1998 (the commencement date of the Partnership's First Tender
Offer), the Partnership had repurchased a total of 1,830 Units, outside the
First Tender Offer, for $393,240, at a price ranging from $208 to $250 per Unit.
The offering price per Unit was established by the General Partner in its sole
discretion and does not purport to represent the fair market value or
liquidation value of the Units. Repurchased Units have been retired by the
Partnership, thus increasing the percentage of ownership of each remaining
limited partner investor. The Interest Repurchase Reserve was funded from cash
reserves. The balance in the reserve at December 31, 2000 was $0.
15
Consolidated Cash Flows and Financial Condition - Continued
- -----------------------------------------------------------
On September 30, 1998, the Partnership and ORIG , LLC, an affiliate of the
Partnership (the "Offerors"), commenced a tender offer (the "First Tender
Offer") to purchase up to 1,000 of the Partnership's limited partnership Units
at a price of $250 per Unit as of the date of the First Tender Offer. The
initial expiration date of the First Tender Offer was December 29, 1998, and
this expiration date was subsequently extended through March 31, 1999. A total
of 1,160 Units were tendered and the Offerors accepted all Units tendered. The
Partnership repurchased 500 Units and ORIG, LLC purchased 660 Units at a total
cost of $290,000 plus offering expenses.
On July 27, 1999, the Partnership and ORIG, LLC, an affiliate of the Partnership
(the "Offerors"), commenced a second tender offer (the "Second Tender Offer") to
purchase up to 1,000 of the Partnership's limited partnership Units at a price
of $250 per Unit. The initial expiration date of the Second Tender offer was
October 29, 1999 and this expiration date was subsequently extended through
December 8, 1999. A total of 938 Units were tendered and the Offerors accepted
all Units. The Partnership repurchased 500 Units and ORIG, LLC purchased 438
Units at a total cost of $234,500 plus offering expenses.
On September 21, 2000, the Partnership and ORIG, LLC (the "Offerors'), commenced
a third tender offer (the "Third Tender Offer") to purchase up to 200 limited
partnership Units at a price of $250 per Unit as of the date of the Third Tender
Offer. The expiration date of the offer was December 20, 2000. A total of 1,094
Units were tendered, pursuant to the Third Tender Offer, and the Offerors
accepted all Units tendered. The Partnership repurchased 100 Units and ORIG, LLC
repurchased 994 Units at a total cost of $273,500 plus offering expenses.
Although the Offerors believe that each tender offer's price is appropriate, the
price per Unit may not equate to the fair market value or liquidation value of
the Units, and is less than the book value per Unit as of the date of each
tender offer.
The following describes the efforts being taken by the Partnership to increase
the occupancy levels at the Partnership's properties. At Peachtree Corporate
Center in Norcross, Georgia, the Partnership has an on-site leasing agent, an
employee of NTS Development Company (an affiliate of the General Partner), who
makes calls to potential tenants, negotiates lease renewals with current tenants
and manages local advertising with the assistance of NTS Development Company's
marketing staff. The leasing and renewal negotiations for NTS Center and
Plainview Center are handled by leasing agents, employees of NTS Development
Company, located in Louisville, Kentucky. The leasing agents are located in the
same city as both commercial properties. All advertising for the Louisville
properties is also coordinated by NTS Development Company's marketing staff
located in Louisville, Kentucky.
Leases at all the Partnership's properties provide for tenants to contribute
toward the payment of increases in common area maintenance expenses, insurance,
utilities and real estate taxes. This lease provision should protect the
Partnership's operations from the impact of inflation and changing prices.
16
Cautionary Statements
- ---------------------
Some of the statements included in Part I, Items 1 and 2, Business and
Properties and Part II, Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations, may be considered to be
"forward-looking statements" since such statements relate to matters which have
not yet occurred. For example, phrases such as "the Partnership anticipates,"
"believes" or "expects" indicate that it is possible that the event anticipated,
believed or expected may not occur. Should such event not occur, then the result
which the Partnership expected also may not occur or occur in a different
manner, which may be more or less favorable to the Partnership. The Partnership
does not undertake any obligations to publicly release the result of any
revisions to these forward-looking statements that may be made to reflect any
future events or circumstances.
Any forward looking statements included in Management's Discussion and Analysis
of Financial Condition and Results of Operations, or elsewhere in this report,
which reflect management's best judgement based on factors known, involve risks
and uncertainties. Actual results could differ materially from those anticipated
in any forward-looking statements as a result of a number of factors, including
but not limited to those discussed below. Any forward-looking information
provided by the Partnership pursuant to the safe harbor established by recent
securities legislation should be evaluated in the context of these factors.
The Partnership's liquidity, capital resources and results of operations are
subject to a number of risks and uncertainties including, but not limited to the
following: the ability of the Partnership to achieve planned revenues; the
ability of the Partnership to make payments due under its debt agreements; the
ability of the Partnership to negotiate and maintain terms with vendors and
service providers for operating expenses; competitive pressures from other real
estate companies, including large commercial real estate companies, which may
affect the nature and viability of the Partnership's business strategy; trends
in the economy as a whole which may affect consumer confidence and demand for
the types of rental property held by the Partnership; the ability of the
Partnership to predict the demand for specific rental properties; the ability of
the Partnership to attract and retain tenants; availability and costs of
management and labor employed; real estate occupancy and development costs,
including substantial fixed investment costs associated with renovations
necessary to obtain new tenants and retain existing tenants; and the risk of a
major commercial tenant defaulting on its lease due to risks generally
associated with real estate, many of which are beyond the control of the
Partnership, including general or local economic conditions, competition,
interest rates, real estate tax rates, other operating expenses and acts of God.
At Plainview Center, there has been and will likely continue to be a protracted
period for the property to become fully leased again. Failure to lease the
vacant space at Plainview Center may have an adverse effect on the Partnership's
operations. The extent of the impact on the Partnership is unknown at this time.
17
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
Our primary market risk exposure with regards to financial instruments is
changes in interest rates. All of the Partnership's debt bears interest at a
fixed rate with the exception of the $3,500,000 note payable which the
Partnership obtained on May 9, 2000. At December 31, 2000, a hypothetical 100
basis point increase in interest rates would increase interest expense on the
variable rate mortgage by approximately $25,000 per year and decrease the fair
value of all debt approximately $326,000.
18
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To NTS-Properties III:
We have audited the accompanying consolidated balance sheets of NTS-Properties
III (a Georgia limited partnership), as of December 31, 2000 and 1999, and the
related consolidated statements of operations, consolidated statements of
partners' equity and consolidated statements of cash flows for each of the three
years in the period ended December 31, 2000. These consolidated financial
statements and the schedules referred to below are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
consolidated financial statements and schedules 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 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of NTS-Properties III
as of December 31, 2000 and 1999, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States.
Our audits were made for the purpose of forming an opinion on the consolidated
financial statements taken as a whole. The schedules included on pages 40
through 41 are presented for purposes of complying with the Securities and
Exchange Commission's rules and are not part of the consolidated financial
statements. These schedules have been subjected to the auditing procedures
applied in our audits of the consolidated financial statements and, in our
opinion, fairly state in all material respects the financial data required to be
set forth therein in relation to the consolidated financial statements taken as
a whole.
ARTHUR ANDERSEN LLP
Louisville, Kentucky
March 9, 2001
19
NTS-PROPERTIES III
------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
AS OF DECEMBER 31, 2000 AND 1999
--------------------------------
2000 1999
---- ----
ASSETS
- ------
Cash and equivalents $ 45,164 $ 104,532
Cash and equivalents - restricted 4,923 8,073
Accounts receivable, net of allowance
for doubtful accounts
of $0 (2000) and $15,512 (1999) 417,500 404,773
Land, buildings and amenities, net 11,000,173 11,316,969
Other assets 480,521 492,259
----------- -----------
TOTAL ASSETS $11,948,281 $12,326,606
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
- --------------------------------
Mortgages payable $ 8,716,153 $ 8,073,856
Accounts payable 228,959 890,032
Security deposits 136,837 142,573
Other liabilities 21,029 43,995
----------- -----------
TOTAL LIABILITIES 9,102,978 9,150,456
COMMITMENTS AND CONTINGENCIES (Note 9)
PARTNERS' EQUITY 2,845,303 3,176,150
----------- -----------
TOTAL LIABILITIES AND PARTNERS' EQUITY $11,948,281 $12,326,606
=========== ===========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
20
NTS-PROPERTIES III
------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
----------------------------------------------------
2000 1999 1998
---- ---- ----
REVENUES
- --------
Rental income, net of provision for
doubtful accounts of $5,762 (2000),
$19,081 (1999) and $1,943 (1998) $ 3,165,834 $ 2,919,927 $ 3,386,729
Rental income - affiliated 295,336 295,336 295,336
Interest and other income 18,940 13,399 16,366
------------ ------------ ------------
TOTAL REVENUES 3,480,110 3,228,662 3,698,431
EXPENSES
- --------
Operating expenses 928,655 948,995 882,594
Operating expense - affiliated 377,126 479,799 412,338
Loss on disposal of assets 11,230 332,333 48,108
Interest expense 650,428 523,950 477,263
Management fees 169,549 157,290 186,416
Real estate taxes 214,954 210,708 206,038
Professional and administrative expenses 81,067 109,381 74,514
Professional and administrative expenses
- affiliated 122,258 104,227 133,297
Depreciation and amortization 1,230,690 1,056,775 1,005,949
------------ ------------ ------------
TOTAL EXPENSES 3,785,957 3,923,458 3,426,517
------------ ------------ ------------
Net income (loss) before extraordinary item (305,847) (694,796) 271,914
Extraordinary item - write-off of unamortized
loan costs -- -- (65,258)
------------ ------------ ------------
Net income (loss) $ (305,847) $ (694,796) $ 206,656
============ ============ ============
Net income (loss) allocated to
the limited partners
Income (loss) before extraordinary item $ (232,483) $ (616,784) $ 364,443
Extraordinary item -- -- (64,605)
------------ ------------ ------------
Net income (loss) $ (232,483) $ (616,784) $ 299,838
============ ============ ============
Net income (loss ) per limited partnership Unit
Income (loss) before extraordinary item $ (18.21) $ (46.54) $ 26.30
Extraordinary item -- -- (4.66)
------------ ------------ ------------
Net income (loss) $ (18.21) $ (46.54) $ 21.64
============ ============ ============
Weighted average number of Units 12,769 13,253 13,855
============ ============ ============
The accompanying notes to consolidated financial statements are an integral part
of these statements.
21
NTS-PROPERTIES III
------------------
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY (1)
-----------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
----------------------------------------------------
Limited General
Partners Partner Total
-------- ------- -----
PARTNERS' EQUITY/(DEFICIT)
- --------------------------
Balances at December 31, 1997 $ 4,006,716 $ (17,426) $ 3,989,290
Net income (loss) 299,838 (93,182) 206,656
Repurchase of limited partnership Units (75,000) -- (75,000)
------------ ------------ ------------
Balances at December 31, 1998 4,231,554 (110,608) 4,120,946
Net loss (616,784) (78,012) (694,796)
Repurchase of limited partnership Units (250,000) -- (250,000)
------------ ------------ ------------
Balances at December 31, 1999 3,364,770 (188,620) 3,176,150
Net loss (232,483) (73,364) (305,847)
Repurchase of limited partnership Units (25,000) -- (25,000)
------------ ------------ ------------
Balances at December 31, 2000 $ 3,107,287 $ (261,984) $ 2,845,303
============ ============ ============
(1) For the periods presented, there are no elements of other comprehensive
income as defined by the Financial Accounting Standards Board, Statement of
Financial Accounting Standards Statement No. 130, "Reporting Comprehensive
Income."
The accompanying notes to consolidated financial statements are an integral part
of these statements.
22
NTS-PROPERTIES III
------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
----------------------------------------------------
2000 1999 1998
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
- ------------------------------------
Net income (loss) $ (305,847) $ (694,796) $ 206,656
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for doubtful accounts 5,762 19,081 1,943
Write-off of uncollectible accounts receivable (21,274) -- --
Accrued interest on investment securities -- -- 923
Loss on disposal of assets 11,230 332,333 48,108
Write-off unamortized loan costs -- -- 65,258
Depreciation and amortization 1,252,020 1,071,501 1,014,463
Changes in assets and liabilities:
Cash and equivalents - restricted 3,150 6,277 270,249
Accounts receivable 2,785 (239,527) 83,652
Other assets (20,271) (119,971) (38,906)
Accounts payable (661,073) 669,128 81,478
Security deposits (5,736) 43,962 (5,205)
Other liabilities (22,966) (29,555) (81,630)
------------ ------------ ------------
Net cash provided by operating activities 237,780 1,058,433 1,646,989
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
Additions to land, buildings and amenities (903,810) (2,461,264) (1,418,950)
Maturity of investment securities -- -- 100,668
------------ ------------ ------------
Net cash used in investing activities (903,810) (2,461,264) (1,318,282)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
Increase in mortgage payable 977,071 1,646,234 6,800,000
Principal payments on mortgages payable (334,774) (228,523) (6,878,458)
Increase in loan costs (10,635) (19,192) (83,345)
Repurchase of limited partnership Units (25,000) (250,000) (75,000)
Decrease (increase) cash and equivalents-restricted -- 125,000 (125,000)
------------ ------------ ------------
Net cash provided by (used in) financing activities 606,662 1,273,519 (361,803)
------------ ------------ ------------
Net decrease in cash and equivalents (59,368) (129,312) (33,096)
CASH AND EQUIVALENTS, beginning of year 104,532 233,844 266,940
------------ ------------ ------------
CASH AND EQUIVALENTS, end of year $ 45,164 $ 104,532 $ 233,844
============ ============ ============
Interest paid on a cash basis $ 621,449 $ 498,283 $ 444,145
============ ============ ============
The accompanying notes to consolidated financial statements are an integral part
of these statements.
23
NTS-PROPERTIES III
------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
----------------------------------------------------
1. Significant Accounting Policies
-------------------------------
A) Organization and Consolidation Policy
-------------------------------------
NTS-Properties III (the "Partnership") is a limited
partnership organized under the laws of the state of Georgia
on June 24, 1982. The General Partner is NTS-Properties
Associates, a Georgia limited partnership. The Partnership
is in the business of owning and operating commercial real
estate.
The consolidated financial statements include the accounts
of all wholly-owned properties. Intercompany transactions
and balances have been eliminated.
B) Properties
----------
The Partnership owns and operates the following properties:
* Peachtree Corporate Center, a business park with
approximately 189,000 net rentable square feet located
in Norcross, Georgia, a suburb of Atlanta.
* NTS Center, an office complex with approximately
115,000 net rentable square feet located in
Jeffersontown, Kentucky, a suburb of Louisville.
* Plainview Center, an office complex with approximately
95,000 net rentable square feet located in
Jeffersontown, Kentucky.
C) Changes in the Names of Properties Held by the Partnership
----------------------------------------------------------
In the second quarter of 1999, Plainview Plaza II was
renamed NTS Center and Plainview Triad North was renamed
Plainview Center.
D) Allocation of Net Income (Loss) and Cash Distributions
------------------------------------------------------
Net Cash Receipts, as defined in the partnership agreement,
will be distributed, to the extent made available, to the
limited partners in an amount equal to the greater of 10%
per year, non-cumulative, of their invested capital or their
pro rata share of such Net Cash Receipts, as defined in the
partnership agreement. The balance of the Net Cash Receipts,
as defined in the partnership agreement, would be available
for distribution to the General Partner until the General
Partner has received its pro rata share of such Net Cash
Receipts. At such time as the limited partners have received
cash distributions equal to their original capital
contributions, cash flow would be distributed 52% to the
limited partners and 48% to the General Partner. In general,
operating income and losses (exclusive of depreciation) are
allocated to the limited partners and the General Partner in
proportion to their respective distributions of cash for all
periods presented in the accompanying consolidated financial
24
D) Allocation of Net Income (Loss) and Cash Distributions
------------------------------------------------------
- Continued
-----------
statements. In no event, however, will the portion of any
item of Partnership income, gain, loss, deduction or credit
allocated to the General Partner be less than 1%. Starting
December 31, 1996, the Partnership has indefinitely
interrupted distributions.
Depreciation of the assets acquired on the date operations
commenced is allocated directly to the limited partners and
the General Partner based upon their respective tax basis in
the property. Depreciation of assets subsequently acquired
is allocated based on the limited partners' interests of 65%
and the General Partner's interest of 35%. In the
accompanying Statements of Operations, net income (loss) was
allocated 99% to the limited partners and 1% to the General
Partner, net of the effects of depreciation on contributed
assets in accordance with the partnership agreement.
E) Tax Status
----------
The Partnership has received a ruling from the Internal
Revenue Service stating that the Partnership is classified
as a limited partnership for federal income tax purposes. As
such, the Partnership makes no provision for income taxes.
The taxable income or loss is passed through to the holders
of the Partnership interests for inclusion on their
individual income tax returns.
A reconciliation of net income (loss) for financial
statement purposes versus that for income tax reporting is
as follows:
2000 1999 1998
---- ---- ----
Net income (loss) $(305,847) $(694,796) $ 206,656
Items handled differently
for tax purposes:
Depreciation 593,094 523,494 409,636
Write-off of unamortized
building and
tenant improvements (61,355) (231,592) (116,602)
Rental income (125,560) (44,971) (145,195)
Allowance for doubtful
accounts (15,512) 12,478 (39,001)
Other 4,828 43,401 928
---------- ---------- ----------
Taxable income (loss) $ 89,648 $(391,986) $ 316,422
========== ========== ==========
F) Use of Estimates in the Preparation of Financial Statements
-----------------------------------------------------------
The preparation of financial statements in conformity with
Generally Accepted Accounting Principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities, and disclosure of
contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
25
G) Cash and Equivalents - Restricted
---------------------------------
Cash and equivalents - restricted represents funds which
have been escrowed with a mortgage company for NTS Center's
property taxes in accordance with the loan agreement.
H) Basis of Property and Depreciation
----------------------------------
Land, buildings and amenities are stated at cost to the
Partnership as determined by the historical cost of the
property to the General Partner for its interest and by the
purchase price of the property to the Partnership for the
limited partners' interests. Depreciation is computed using
the straight-line method over the estimated useful lives of
the assets which are 6-30 years for land improvements, 5-30
years for buildings and improvements, 3-27 years for
amenities and the applicable lease term for tenant
improvements.
Statement of Financial Accounting Standards ("SFAS") No.
121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of, specifies
circumstances in which certain long-lived assets must be
reviewed for impairment. If such review indicates that the
carrying amount of an asset exceeds the sum of its expected
future cash flows, the asset's carrying value must be
written down to fair value. Application of this standard
during the years ended December 31, 2000, 1999 and 1998, did
not result in an impairment loss.
I) Revenue Recognition - Rental Income and Capitalized Leasing
------------------------------------------------------------
Costs
-----
The Partnership recognizes revenue in accordance with each
tenant's lease agreement. Certain of the Partnership's lease
agreements are structured to include scheduled and specified
rent increases over the lease term. For financial reporting
purposes, the income from these leases is being recognized
on a straight-line basis over the lease term. Accrued income
connected with these leases is included in accounts
receivable and totaled $241,177 and $136,323 December 31,
2000 and 1999, respectively. All commissions paid to leasing
agents are deferred and amortized on a straight-line basis
over the term of the lease to which they apply.
J) Advertising
-----------
The Partnership expenses advertising-type costs as incurred.
Advertising expense was immaterial to the Partnership during
the years ended December 31, 2000, 1999 and 1998.
K) Statements of Cash Flows
------------------------
For purposes of reporting cash flows, cash and equivalents
include cash on hand and short- term, highly liquid
investments with initial maturities of three months or less.
26
L) Reclassifications of 1999 and 1998 Financial Statements
-------------------------------------------------------
Certain reclassifications have been made to the December 31,
1999 and 1998 financial statements to conform with December
31, 2000 classifications. These reclassifications have no
material effect on previously reported operations.
2. Concentration of Credit Risk
----------------------------
NTS-Properties III is a limited partnership which owns and operates
commercial properties in Norcross, Georgia, a suburb of Atlanta, and
Jeffersontown, Kentucky, a suburb of Louisville. One tenant in NTS
Center occupies 46% of the office building's net rentable area.
Substantially all of the Partnership's tenants are local businesses or
are businesses which have operations in the location in which they
lease space.
3. Interest Repurchase Reserve
---------------------------
Pursuant to Section 16.4 of the Partnership's Amended and Restated
Agreement of Limited Partnership, the Partnership established an
Interest Repurchase Reserve in 1995. During the years ended December
31, 1999 and 1998, the Partnership has funded $0 and $75,000,
respectively, to the reserve. For the year ending December 31, 2000,
the Partnership has funded $0 to the reserve. Through September 30,
1998 (the commencement date of the Partnership's First Tender Offer),
the Partnership had repurchased a total of 1,830 Units for $393,240,
at a price ranging from $208 to $250 per Unit. The offering price per
Unit was established by the General Partner in its sole discretion and
does not purport to represent the fair market value or liquidation
value of the Units. Repurchased Units have been retired by the
Partnership, thus increasing the percentage of ownership of each
remaining limited partner investor. The Interest Repurchase Reserve
was funded from cash reserves. The balance in the reserve at December
31, 2000 was $0.
4. Tender Offers
-------------
On September 30, 1998, the Partnership and ORIG, LLC, an affiliate of
the Partnership (the "Offerors"), commenced a tender offer (the "First
Tender Offer") to purchase up to 1,000 of the Partnership's limited
partnership Units at a price of $250 per Unit as of the date of the
First Tender Offer. The initial expiration date of the First Tender
Offer was December 29, 1998, and this expiration date was subsequently
extended through March 31, 1999. A total of 1,160 Units were tendered
and the Offerors accepted all Units. The Partnership repurchased,
pursuant to the First Tender Offer, 500 Units and ORIG, LLC purchased
660 Units at a cost of $290,000 plus offering expenses.
On July 27, 1999, the Partnership and ORIG, LLC, and affiliate of the
Partnership, (the "Offerors") commenced a second tender offer (the
"Second Tender Offer") to purchase up to 1,000 of the Partnership's
limited partnership Units at a price of $250 per Unit as of the date
of the Second Tender Offer. The initial expiration date of the Second
Tender Offer was October 29, 1999 and this expiration date was
subsequently extended through December 8, 1999. A total of 938 Units
were tendered and the Offerors accepted all Units. The Partnership
repurchased, pursuant to the Second Tender Offer, 500 Units and ORIG,
LLC purchased 438 Units at a total cost of $234,500 plus offering
expenses.
27
4. Tender Offers - Continued
-------------------------
On September 21, 2000, the Partnership and ORIG, LLC (the "Offerors'),
commenced a third tender offer (the "Third Tender Offer") to purchase
up to 200 limited partnership Units at a price of $250 per Unit as of
the date of the Third Tender Offer. The expiration date of the offer
was December 20, 2000. A total of 1,094 Units were tendered, pursuant
to the Third Tender Offer, and the Offerors accepted all Units
tendered. The Partnership repurchased 100 Units and ORIG, LLC
repurchased 994 Units at a total cost of $273,500 plus offering
expenses.
Although the Offerors believe that each tender offer's price is
appropriate, the price per Unit may not equate to the fair market
value or the liquidation value of the Units, and is less than the book
value per Unit as of the date of each tender offer.
5. Land, Buildings and Amenities
-----------------------------
The following schedule provides an analysis of the Partnership's
investment in property held for lease as of December 31:
2000 1999
---- ----
Land and improvements $ 4,835,214 $ 4,817,717
Buildings and improvements 22,850,890 22,230,344
Amenities 157,187 148,876
------------ ------------
27,843,291 27,196,937
Less accumulated depreciation 16,843,118 15,879,968
------------ ------------
$ 11,000,173 $ 11,316,969
============ ============
6. Mortgages Payable
-----------------
Mortgages payable as of December 31 consist of the following:
2000 1999
---- ----
Mortgage payable to an insurance
company, bearing interest at 6.89%,
maturing April 10, 2015, secured
by land and buildings. $ 6,182,848 $ 6,427,622
Mortgage payable to a bank,
bearing a variable interest rate
of Prime -.25%, due March 1, 2002,
secured by land and a building.
The current rate at
December 31, 2000 is 9.25%. 2,533,305 1,646,234
----------- -----------
$ 8,716,153 $ 8,073,856
=========== ===========
28
6. Mortgages Payable - Continued
-----------------------------
Scheduled maturities of debt are as follows:
For the Years Ended December 31, Amount
-------------------------------- ------
2001 $ 382,182
2002 2,694,133
2003 300,800
2004 322,193
2005 345,106
Thereafter 4,671,739
-----------
$ 8,716,153
===========
Based on the borrowing rates currently available to the Partnership
for mortgages with similar terms and average maturities, the fair
value of long-term debt is approximately $8,299,000.
7. Rental Income Under Operating Lease
-----------------------------------
The following is a schedule of minimum future rental income on
noncancellable operating leases as of December 31, 2000:
For the Years Ended December 31, Amount
-------------------------------- ------
2001 $ 3,377,834
2002 2,935,725
2003 2,389,459
2004 1,713,488
2005 726,503
Thereafter 741,166
------------
$ 11,884,175
============
8. Related Party Transactions
--------------------------
Pursuant to an agreement with the Partnership, NTS Development
Company, an affiliate of the General Partner of the Partnership,
receives property management fees on a monthly basis. The fees are
paid in an amount equal to 5% of the gross revenues from the
Partnership's properties. Also pursuant to an agreement, NTS
Development Company receives a repair and maintenance fee equal to
5.9% of cost incurred which relate to capital improvements. These
repair and maintenance fees are capitalized as part of land, buildings
and amenities.
The Partnership was charged the following amounts from NTS Development
Company for the twelve months ended December 31, 2000, 1999 and 1998.
These charges include items which have been expensed as operating
expenses - affiliated or professional and administrative expenses -
affiliated and items which have been capitalized as other assets or as
land, buildings and amenities.
29
8. Related Party Transactions - Continued
--------------------------------------
Twelve Months Ended
December 31,
------------
2000 1999 1998
---- ---- ----
Property management fees $169,549 $157,290 $186,416
-------- -------- --------
Property management 204,586 252,627 230,315
Leasing 133,598 194,184 120,431
Administrative - operating 29,700 29,988 29,822
Other - operating 9,242 3,000 31,770
-------- -------- --------
Total operating expenses - affiliated 377,126 479,799 412,338
-------- -------- --------
Professional and administrative expenses -
affiliated 122,258 104,227 133,297
-------- -------- --------
Repairs and maintenance fee 34,762 141,626 80,897
Leasing commissions 75,124 68,324 48,864
Loan costs -- -- 3,240
Construction management 2,912 5,679 24,400
-------- -------- --------
Total related party transactions
capitalized 112,798 215,629 157,401
-------- -------- --------
Total related party transactions $781,731 $956,945 $889,452
======== ======== ========
During 2000, NTS Development Company leased 20,368 square feet in NTS
Center at a rental rate of $14.50 per square foot. The Partnership
received approximately $295,000 in rental payments from NTS
Development Company during 2000, 1999 and 1998.
Effective November 19, 1999, the NTS Development Company lease at NTS
Center was extended for two years to March 2004, at a rental rate of
$14.50 per square foot for 20,368 square feet. Leasing arrangements
contemplated allowances for certain tenant finishes. Expenses related
to such tenant finishes were capitalized within the line item land,
buildings and amenities in the accompanying balance sheets. Such
capital expenditures were approximately $235,000 and $225,000 as of
and for the years ended December 31, 2000 and 1999, respectively.
On February 7, 2000, ORIG, LLC (the "Affiliate") purchased Interests
in the Partnership pursuant to an Agreement, Bill of Sale and
Assignment by and among the Affiliate and four investors in the
Partnership (the "Purchase Agreement"). The Affiliate purchased 135
Interests in the Partnership for total consideration of $38,676, or an
average price of $286.49 per Interest. The Affiliate paid these
investors a premium above the purchase price previously offered for
Interests pursuant to prior tender offers because this purchase
allowed the Affiliate to purchase a substantial number of Interests
without incurring the expenses involved with a tender offer and
multiple transfers.
30
9. Commitments and Contingencies
-----------------------------
The Partnership, as an owner of real estate, is subject to various
environmental laws of federal, state and local governments. Compliance
by the Partnership with existing laws has not had a material adverse
effect on the Partnership's financial condition and results of
operations. However, the Partnership cannot predict the impact of new
or changed laws or regulations on its current properties or on
properties that it may acquire in the future.
The Partnership does not believe there is any litigation threatened
against the Partnership other than routine litigation arising out of
the ordinary course of business some of which is expected to be
covered by insurance, none of which is expected to have a material
effect on the consolidated balance sheets and statements of operations
of the Partnership except as discussed herein.
One tenant at Plainview Center occupied approximately 65% of the
building. During the third quarter of 1997, the Partnership received
notice that the tenant would vacate the property at the end of the
lease term, August 1998. A 30-day renewal extension was negotiated
(through September 30, 1998) with the tenant for approximately 63,000
leased square feet. A renewal for approximately 11,000 square feet of
the original 63,000 square feet was also negotiated through March 31,
1999. Costs associated with this renewal were not significant. As a
result of this tenant vacating the remainder of their space on March
31, 1999, there has been and will likely continue to be a protracted
period for the property to become fully leased again and substantial
funds, currently estimated to be approximately $400,000, will likely
be needed for leasing expenses; especially those needed to refinish
space for new tenants. Such costs will be funded from additional
available loan proceeds (see Note 6) and cash reserves.
10. Segment Reporting
-----------------
The Partnership's reportable operating segments include only one
segment that is commercial real estate operations.
11. Subsequent Event
----------------
Subsequent to December 31, 2000, the Partnership made a commitment for
approximately $95,000 of tenant finish improvements at Plainview
Center.
31
12. Selected Quarterly Financial Data (Unaudited)
---------------------------------------------
For the Quarters Ended
----------------------
2000 March 31 June 30 September 30 December 31
---- -------- ------- ------------ -----------
Total revenues $ 861,295 $ 854,099 $ 832,648 $ 932,068
Total expenses 898,544 959,139 977,202 951,072
Net loss (37,249) (105,040) (144,554) (19,004)
Net loss allocated to the
limited partners (19,301) (86,419) (125,528) (1,235)
Net loss per limited
partnership Unit (1.51) (6.77) (9.83) (0.10)
For the Quarters Ended
----------------------
1999 March 31 June 30 September 30 December 31
---- -------- ------- ------------ -----------
Total revenues $ 823,699 $ 760,699 $ 734,696 $ 909,568
Total expenses 860,323 869,538 1,220,201 973,396
Net loss (36,624) (108,839) (485,505) (63,828)
Net loss allocated to the
limited partners (13,952) (86,205) (463,167) (53,460)
Net loss per limited
partnership Unit (1.05) (6.50) (34.90) (4.09)
32
Item 9. Changes in and Disagreements with Accountants on Accounting and
--------------------------------------------------------------------
Financial Disclosure
--------------------
None.
33
PART III
--------
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
Because the Partnership is a limited partnership and not a corporation, it has
no directors or officers as such. Management of the Partnership is the
responsibility of the General Partner, NTS-Properties Associates. The
Partnership has entered into a management contract with NTS Development Company,
an affiliate of the General Partner, to provide property management services.
The General Partners of NTS-Properties Associates are as follows:
J. D. Nichols
- -------------
Mr. Nichols (age 59) is the managing general partner of NTS-Properties
Associates and is Chairman of the Board of NTS Corporation (since 1985) and NTS
Development Company (since 1977).
L. C. Aroh
- ----------
Mr. Aroh (age 71) has been an independent real estate developer for the past 25
years. He is a partner in other real estate developments with the principals of
NTS Development Company.
NTS Capital Corporation
- -----------------------
NTS Capital Corporation (formerly NTS Corporation) is a Kentucky corporation
formed in October 1979. J. D. Nichols is Chairman of the Board and the sole
director of NTS Capital Corporation.
Alliance Realty Corporation
- ---------------------------
Alliance Realty Corporation was formed in September 1982, and is a wholly-owned
subsidiary of S. N. Alliance, Inc. S.N. Alliance, Inc. is also the parent
corporation of Stifle, Nicolas & Company, Inc. which acted as the Dealer Manager
in connection with the offering for the interests.
Gary D. Adams
- -------------
Mr. Adams (age 55) is Senior Vice President of NTS Development Company. Since
joining the NTS organization in May 1977, Mr. Adams has been involved in the
development, construction and management of properties in the southeast region.
A. Toni Rizzo
- -------------
Mr. Rizzo (age 53) joined Abel Construction during 1995 as the Director of
Business Development. From 1985 to 1995, Mr. Rizzo was an officer of the
Huntington Group and prior to 1985 was an employee of NTS Development Company.
34
Item 10. Directors and Executive Officers of the Registrant - Continued
--------------------------------------------------------------
NTS Development Company is the "Manager"of the Partnership's properties, the
executive officers and/or directors of which are Messrs. J. D. Nichols, Brian F.
Lavin and Gregory A. Wells.
Brian F. Lavin
- --------------
Mr. Lavin (age 47) serves as President and Chief Operating Officer of NTS
Corporation and NTS Development Company. Mr. Lavin joined the Manager in June
1997. From November 1994 through June 1997, Mr. Lavin served as President of the
Residential Division of the Paragon Group, Inc., and as a Vice President of
Paragon's Midwest Division prior to November 1994. In this capacity, he directed
the development, marketing, leasing and management operations for the firms
expanding portfolios. Mr. Lavin attended the University of Missouri where he
received his Bachelor's Degree in Business Administration. He is a licensed
Kentucky Real Estate Broker and Certified Property Manager. Mr. Lavin is a
member of the Young President's Organization, the Institute of Real Estate
Management, council member of the Urban Land Institute and member of the
National Multi-Housing Council. He has served on the Boards of the Louisville
Science Center, Louisville Ballet, Greater Louisville Inc., National
Multi-Housing Council and Louisville Apartment Association. Currently, Mr. Lavin
serves on the Board of Overseers of the University of Louisville, the Board of
Trustees for the Louisville Olmsted Parks Conservancy, Inc., and the Home
Builders Association's Program Committee.
Gregory A. Wells
- ----------------
Mr. Wells (age 42), Senior Vice President and Chief Financial Officer of NTS
Corporation and NTS Development Company, joined the Manager in July, 1999. From
May 1998 through July 1999, Mr. Wells served as Chief Financial Officer of
Hokanson Companies, Inc. and as Secretary and Treasurer of Hokanson Construction
Inc., Indianapolis, Indiana from January 1995 through May 1998. In these
capacities, he directed financial and operational activities for commercial
rental real estate, managed property, building and suite renovations, out of
ground commercial and residential construction and third party management. Mr.
Wells previously served as Vice President of Operations and Treasurer of
Executive Telecom Systems, Inc. a subsidiary of the Bureau of National Affairs,
Inc. (Washington, D.C.). Mr. Wells attended George Mason University, where he
received a Bachelor's Degree in Business Administration. Mr. Wells is a
Certified Public Accountant in both Virginia and Indiana and is active in
various charitable and philanthropic endeavors in the Louisville and
Indianapolis areas.
Item 11. Management Remuneration and Transactions
----------------------------------------
The officers and/or directors of the corporate General Partner received no
direct remuneration in such capacities. The Partnership is required to pay a
property management fee of 5% based on gross revenues to NTS Development
Company. The Partnership is also required to pay to NTS Development Company a
repair and maintenance fee on costs related to specific projects and a
refinancing fee on net cash proceeds from the refinancing of any Partnership
property. Also, NTS Development Company provides certain other services to the
Partnership. See Part II, Note 8 to the Partnership's consolidated financial
statements which sets forth transactions with affiliates of the General Partner
for the years ended December 31, 2000, 1999 and 1998.
35
Item 11. Management Remuneration and Transactions - Continued
----------------------------------------------------
The General Partner is entitled to receive cash distributions and allocations of
profits and losses from the Partnership. Generally, the General Partner is
entitled to a 10% non-cumulative annual return on its capital contributions from
the cash income of the Partnership (after payment of a like amount to the
limited partners). At such time as the limited partners have received cash
distributions form all sources equal to their original capital contributions,
cash flow will be distributed 52% to limited partners and 48% to the General
Partner. In no event, however, will any portion of the Partnership's income,
gain, loss, deduction or credit allocated to the General Partner be less than
1%.
Item 12. Security Ownership of Certain Beneficial Owners and Management
---------------------------------------------------------------------
The following provides details regarding owners of more than 5% of the total
outstanding limited partnership Units as of February 28, 2001.
ORIG, LLC 2,389 Units (18.85%)
10172 Linn Station Rd.
Louisville, Kentucky 40223
ORIG, LLC is a Kentucky limited liability company, the members of which are J.
D. Nichols (1%), Barbara M. Nichols (J.D. Nichols' wife) (74%) and Brian F.
Lavin (25%). J.D. Nichols and Brian F. Lavin are the Chairman and President,
respectively, of NTS Capital Corporation, a general partner of NTS Properties
Associates, the General Partner of the Partnership.
The General Partner is NTS-Properties Associates, a Georgia limited partnership,
10172 Linn Station Road, Louisville, Kentucky 40223. The partners of the General
Partner and their total respective interests in NTS- Properties Associates are
as follows:
J. D. Nichols 86.07%
10172 Linn Station Road
Louisville, Kentucky 40223
L. C. Aroh 8.64%
10904 Old Bridge Place
Louisville, Kentucky 40223
Gary D. Adams 1.26%
3300 University Boulevard, Suite 150
Winter Park, Florida 32792
A. Toni Rizzo 1.26%
515 Willowhurst Place
Louisville, Kentucky 40223
36
Item 12. Security Ownership of Certain Beneficial Owners and Management -
----------------------------------------------------------------
Continued
---------
NTS Capital Corporation 2.67%
10172 Linn Station Road
Louisville, Kentucky 40223
Alliance Realty Corporation 0.10%
500 North Broadway
St. Louis, Missouri 63102
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires that
certain persons, including persons who own more than ten percent of the
Partnership's limited partnership interests, file initial statements of
beneficial ownership (Form 3), and statements of changes in beneficial ownership
(Forms 4 or 5), with the U.S. Securities and Exchange Commission (the "SEC").
The SEC requires that these persons furnish the Partnership with copies of all
forms filed with the SEC.
To the Partnership's knowledge, based solely on its review of the copies for the
forms received by it, or written representations from certain reporting persons
that no additional forms were required for those persons, the Partnership
believes that ORIG, LLC was late in filing one Form 4 relating to one purchase
of the Partnership's limited partnership interests in connection with a tender
offer made during 2000.
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
Pursuant to an agreement with the Partnership, NTS Development Company, an
affiliate of the General Partner of the Partnership, receives property
management fees on a monthly basis. The fees are paid in an amount equal to 5%
of the gross revenues from the Partnership's properties. Also pursuant to an
agreement, NTS Development Company receives a repair and maintenance fee equal
to 5.9% of cost incurred which relate to capital improvements. These repair and
maintenance fees are capitalized as part of land, buildings and amenities.
The Partnership was charged the following amounts from NTS Development Company
for the twelve months ended December 31, 2000, 1999 and 1998. These charges
include items which have been expensed as operating expenses - affiliated or
professional and administrative expenses - affiliated and items which have been
capitalized as other assets or as land, buildings and amenities.
37
Item 13. Certain Relationships and Related Transactions - Continued
----------------------------------------------------------
Twelve Months Ended
December 31,
------------
2000 1999 1998
---- ---- ----
Property management fees $169,549 $157,290 $186,416
-------- -------- --------
Property management 204,586 252,627 230,315
Leasing 133,598 194,184 120,431
Administrative - operating 29,700 29,988 29,822
Other - operating 9,242 3,000 31,770
-------- -------- --------
Total operating expenses - affiliated 377,126 479,799 412,338
-------- -------- --------
Professional and administrative expenses -
affiliated 122,258 104,227 133,297
-------- -------- --------
Repairs and maintenance fee 34,762 141,626 80,897
Leasing commissions 75,124 68,324 48,864
Loan costs -- -- 3,240
Construction management 2,912 5,679 24,400
-------- -------- --------
Total related party transactions
capitalized 112,798 215,629 157,401
-------- -------- --------
Total related party transactions $781,731 $956,945 $889,452
======== ======== ========
During 2000, NTS Development Company leased 20,368 square feet in NTS Center at
a rental rate of $14.50 per square foot. The Partnership received approximately
$295,000 in rental payments from NTS Development Company during 2000, 1999 and
1998.
Effective November 19, 1999, the NTS Development Company lease at NTS Center was
extended for two years to March 2004, at a rental rate of $14.50 per square foot
for 20,368 square feet. Leasing arrangements contemplated allowances for certain
tenant finishes. Expenses related to such tenant finishes were capitalized
within the line item land, buildings and amenities in the accompanying balance
sheets. Such capital expenditures were approximately $235,000 and $225,000 as of
and for the years ended December 31, 2000 and 1999, respectively.
On February 7, 2000, ORIG, LLC (the "Affiliate") purchased Interests in the
Partnership pursuant to an Agreement, Bill of Sale and Assignment by and among
the Affiliate and four investors in the Partnership (the "Purchase Agreement").
The Affiliate purchased 135 Interests in the Partnership for total consideration
of $38,676, or an average price of $286.49 per Interest. The Affiliate paid
these investors a premium above the purchase price previously offered for
Interests pursuant to prior tender offers because this purchase allowed the
Affiliate to purchase a substantial number of Interests without incurring the
expenses involved with a tender offer and multiple transfers.
38
PART IV
-------
Item 14. Exhibits, Consolidated Financial Statement Schedules, and Reports on
---------------------------------------------------------------------
Form 8-K
--------
1. Consolidated Financial Statements
---------------------------------
The financial statements for the years ended December 31, 2000, 1999
and 1998 along with the report from Arthur Andersen LLP dated March 9,
2001, appear in Part II, Item 8. The following schedules should be
read in conjunction with those consolidated financial statements.
2. Consolidated Financial Statement Schedules
------------------------------------------
Schedules Page No.
--------- --------
III-Real Estate and Accumulated Depreciation 40-41
All other schedules have been omitted because they are not applicable,
are not required, or because the required information is included in
the financial statements or notes thereto.
3. Exhibits
--------
Exhibit No. Page No.
----------- --------
3. Amended and Restated Agreement and Certificate *
of Limited Partnership of NTS-Properties III
10. Management Agreement between NTS Development *
Company and NTS-Properties III
* Incorporated by reference to documents filed with the Securities
and Exchange Commission in connection with the filing of the
Registration Statements on Form S-11 on June 25, 1982 (effective
October 13, 1982) under Commission File No. 2-78152.
4. Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the three months ended
December 31, 2000.
39
NTS-PROPERTIES III
------------------
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
-------------------------------------------------------
AS OF DECEMBER 31, 2000
-----------------------
Peachtree
NTS Plainview Corporate
Center Center Center Total
------ ------ ------ -----
Encumbrances (A) (B)
Initial cost to Partnership:
Land $ 1,379,172 $ 1,217,886 $ 1,408,375 $ 4,005,433
Buildings and improvements 4,963,604 4,512,172 6,231,114 15,706,890
Cost capitalized subsequent to acquisition:
Improvements 3,443,943 2,097,206 2,568,888 8,110,037
Carrying costs -- -- -- --
Gross amount at which carried
December 31, 2000 (C):
Land $ 1,765,889 $ 1,391,193 $ 1,678,133 $ 4,835,215
Buildings, improvements and amenities 8,020,830 6,436,071 8,530,244 22,987,145
----------- ----------- ----------- -----------
Total (E) $ 9,786,719 $ 7,827,264 $10,208,377 $27,822,360
=========== =========== =========== ===========
Accumulated depreciation $ 5,790,167 $ 3,763,208 $ 7,283,463 $16,836,838
=========== =========== =========== ===========
Date of construction N/A N/A N/A
Date acquired 01/83 02/83 01/83
Life at which depreciation in latest
income statement is computed (D) (D) (D)
(A) First mortgage held by an insurance company.
(B) First mortgage held by a bank.
(C) Aggregate cost of real estate for tax purposes is $27,617,578.
(D) Depreciation is computed using the straight-line method over the estimated
useful lives of the assets which are 6-30 years for land improvements, 5-30
years for buildings and improvements, 3-27 years for amenities and the
applicable lease term for tenant improvements.
(E) Reconciliation, net of accumulated depreciation to consolidated financial
statements:
Total gross cost at December 31, 2000 $ 27,822,360
Additions to Partnership for computer hardware
and software in 1998 and 1999
(no additions in 2000) 20,931
--------------
Balance at December 31, 2000 27,843,291
Less accumulated depreciation - per above (16,836,838)
Less accumulated depreciation for Partnership
computer hardware and software (6,280)
--------------
Land, buildings and amenities, net at December 31, 2000 $ 11,000,173
==============
40
NTS-PROPERTIES III,
-------------------
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
-------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
----------------------------------------------------
Real Accumulated
Estate Depreciation
------ ------------
Balances at December 31, 1997 $ 25,355,586 $ 15,526,624
Additions during period:
Improvements 1,418,950 --
Depreciation (a) -- 980,469
Deductions during period:
Retirements (433,336) (385,227)
------------- -------------
Balances at December 31, 1998 26,341,200 16,121,866
Additions during period:
Improvements 2,461,264 --
Depreciation (a) -- 1,031,295
Deductions during period:
Retirements (1,605,527) (1,273,193)
------------- -------------
Balances at December 31, 1999 27,196,937 15,879,968
Additions during period:
Improvements 903,810 --
Depreciation (a) -- 1,209,376
Deductions during period:
Retirements (257,456) (246,226)
------------- -------------
Balances at December 31, 2000 $ 27,843,291 $ 16,843,118
============= =============
(a) The additions charged to accumulated depreciation on this schedule will
differ from the depreciation and amortization on the Consolidated
Statements of Cash Flows due to the amortization of loan costs and
capitalized leasing costs.
41
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NTS-PROPERTIES III
-------------------------------------------
(Registrant)
BY: NTS-Properties Associates,
General Partner,
BY: NTS Capital Corporation,
General Partner
/s/ Gregory A. Wells
-------------------------------------------
Gregory A. Wells
Senior Vice President and
Chief Financial Officer of
NTS Capital Corporation
Date: April 2, 2001
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
Form 10-K has been signed below by the following persons on behalf of the
registrant in their capacities and on the date indicated above.
Signature Title
--------- -----
/s/ J. D. Nichols
- -------------------------
J. D. Nichols General Partner of NTS-Properties Associates
and Chairman of the Board and Sole Director
of NTS Capital Corporation
/s/ Brian F. Lavin
- -------------------------
Brian F. Lavin President and Chief Operating Officer of
NTS Capital Corporation
/s/ Gregory A. Wells
- -------------------------
Gregory A. Wells Senior Vice President and Chief Financial
Officer of NTS Capital Corporation
The Partnership is a limited partnership and no proxy material has been sent to
the limited partners. The Partnership will deliver to the limited partners an
annual report containing the Partnership's consolidated financial statements and
a message from the General Partner.
42