UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-11655
NTS-PROPERTIES IV
Incorporated pursuant to the Laws of the State of Kentucky
Internal Revenue Service - Employer Identification No. 61-1026356
10172 Linn Station Road, Louisville, Kentucky 40223
(502) 426-4800
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No | |
TABLE OF CONTENTS
PART I
| Pages | ||||
| Item 1. | Financial Statements | |||
| Balance Sheets as of June 30, 2002 and December 31, 2001 | 3 | |||
| Statement of Partners' Equity as of June 30, 2002 | 3 | |||
| Statements of Operations for the Three Months and Six Months | ||||
| Ended June 30, 2002 and 2001 | 4 | |||
| Statements of Cash Flows for the Six Months | ||||
| Ended June 30, 2002 and 2001 | 5 | |||
| Notes to Financial Statements | 6-14 | |||
| Item 2. | Management's Discussion and Analysis of Financial | |||
| Condition and Results of Operations | 15-23 | |||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 23 | ||
PART II
| Item 1. | Legal Proceedings | 24 | ||
| Item 2. | Changes in Securities | 24 | ||
| Item 3. | Defaults Upon Senior Securities | 24 | ||
| Item 4. | Submission of Matters to a Vote of Security Holders | 24 | ||
| Item 5. | Other Information | 24 | ||
| Item 6. | Exhibits and Reports on Form 8-K | 24 | ||
| Signatures | 25 |
2
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
NTS-PROPERTIES IV
BALANCE SHEETS
As of As of
June 30, December 31,
2002 2001*
-------------------- --------------------
(UNAUDITED)
ASSETS
- ------
Cash and equivalents $ 262,619 $ 462,107
Cash and equivalents - restricted 77,792 27,757
Accounts receivable 145,611 143,553
Land, buildings and amenities, net 6,413,792 6,561,375
Investment in and advances to joint ventures 1,024,602 952,413
Other assets 156,540 172,924
-------------------- --------------------
TOTAL ASSETS $ 8,080,956 $ 8,320,129
==================== ====================
LIABILITIES AND PARTNERS' EQUITY
- --------------------------------
Mortgages and note payable $ 4,076,587 $ 4,356,152
Accounts payable 82,765 111,790
Security deposits 31,131 29,931
Other liabilities 98,629 38,061
-------------------- --------------------
TOTAL LIABILITIES 4,289,112 4,535,934
COMMITMENTS AND CONTINGENCIES (Note 11)
PARTNERS' EQUITY 3,791,844 3,784,195
-------------------- --------------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 8,080,956 $ 8,320,129
==================== ====================
STATEMENT OF PARTNERS' EQUITY
(UNAUDITED)
Limited General
Partners Partner Total
------------------- ------------------- -------------------
PARTNERS' EQUITY/(DEFICIT)
- --------------------------
Capital contributions net of offering costs $ 25,834,899 $ -- $ 25,834,899
Net income - prior years 725,120 7,326 732,446
Net income - current year 7,571 76 7,647
Cash distributions declared to date (21,586,280) (218,253) (21,804,533)
Repurchase of limited partnership Interests (978,615) -- (978,615)
------------------- ------------------- -------------------
BALANCES AT JUNE 30, 2002 $ 4,002,695 $ (210,851)$ 3,791,844
=================== =================== ===================
* Reference is made to the audited financial statements in the Form 10-K as filed with the Securities and Exchange
Commission on April 1, 2002.
The accompanying notes to financial statements are an integral part of these statements.
3
NTS-PROPERTIES IV
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- -----------------------------
2002 2001 2002 2001
------------- ------------- ------------- -------------
REVENUES
- --------
Rental income $ 580,498 $ 600,430 $ 1,160,936 $ 1,199,859
Income from investment in joint ventures 21,130 9,924 39,733 28,510
Interest and other income 2,770 5,791 4,716 11,674
Gain on sale of assets 249 -- 249 --
------------- ------------- ------------- -------------
TOTAL REVENUES 604,647 616,145 1,205,634 1,240,043
------------- ------------- ------------- -------------
EXPENSES
- --------
Operating expenses 133,582 183,014 273,192 303,429
Operating expenses - affiliated 106,615 109,156 207,805 202,470
Loss on disposal of assets 51,268 -- 51,268 2,138
Interest expense 79,541 90,759 161,931 183,511
Management fees 33,084 33,652 64,967 66,789
Real estate taxes 30,788 28,599 61,575 57,306
Professional and administrative expenses 28,298 36,395 58,107 75,994
Professional and administrative expenses -
affiliated 33,838 36,065 70,634 78,616
Depreciation and amortization 124,366 122,207 248,508 244,290
------------- ------------- ------------- -------------
TOTAL EXPENSES 621,380 639,847 1,197,987 1,214,543
------------- ------------- ------------- -------------
Net (loss) income $ (16,733) $ (23,702) $ 7,647 $ 25,500
============= ============= ============= =============
Net (loss) income allocated to the limited
partners $ (16,566) $ (23,465) $ 7,571 $ 25,245
============= ============= ============= =============
Net (loss) income per limited partnership
Interest $ (0.69) $ (0.97) $ 0.31 $ 1.05
============= ============= ============= =============
Weighted average number of limited
partnership Interests 24,109 24,109 24,109 24,109
============= ============= ============= =============
The accompanying notes to financial statements are an integral part of these statements.
4
NTS-PROPERTIES IV
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30,
------------------------------------------
2002 2001
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES
- ------------------------------------
Net income $ 7,647 $ 25,500
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss on disposal of assets 51,268 2,138
Gain on sale of assets (249) --
Depreciation and amortization 269,191 264,895
Income from investment in joint ventures (39,733) (28,510)
Changes in assets and liabilities:
Cash and equivalents - restricted (50,035) (37,106)
Accounts receivable (2,058) 86,090
Other assets (4,297) (5,979)
Accounts payable (29,025) 27,794
Security deposits 1,200 (3,251)
Other liabilities 60,568 62,152
------------------ ------------------
Net cash provided by operating activities 264,477 393,723
------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
Additions to land, buildings and amenities (152,193) (25,521)
Proceeds from sale of land, buildings and amenities 249 --
Investment in and advances to joint ventures (32,456) (34,394)
------------------ ------------------
Net cash used in investing activities (184,400) (59,915)
------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
Proceeds from note payable -- 70,046
Principal payments on mortgages and note payable (279,565) (292,170)
------------------ ------------------
Net cash used in financing activities (279,565) (222,124)
------------------ ------------------
Net (decrease) increase in cash and equivalents (199,488) 111,684
CASH AND EQUIVALENTS, beginning of period 462,107 389,963
------------------ ------------------
CASH AND EQUIVALENTS, end of period $ 262,619 $ 501,647
================== ==================
Interest paid on a cash basis $ 159,933 $ 181,366
================== ==================
The accompanying notes to financial statements are an integral part of these statements.
5
NTS-PROPERTIES IV NOTES TO FINANCIAL STATEMENTS
The unaudited financial statements included herein should be read in conjunction with the NTS- Properties IV's (the "Partnership") 2001 Form 10-K as filed with the Securities and Exchange Commission on April 1, 2002. In the opinion of the General Partner, all adjustments (only consisting of normal reoccurring accruals) necessary for a fair presentation have been made to the accompanying financial statements for the three months and six months ended June 30, 2002 and 2001.
Note 1 - Basis of Presentation and Joint Venture AccountingThe financial statements include the accounts of all wholly-owned properties. Intercompany transactions and balances have been eliminated. Less than 50% owned joint ventures are accounted for under the equity method. As used in this Form 10-Q the terms "we," "us" or "our," as the context requires, may refer to the Partnership or its interests in these properties and joint ventures.
Note 2 - Use of Estimates in the Preparation of Financial StatementsThe preparation of financial statements in accordance with accounting principles generally accepted in the United States ("GAAP") 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.
Note 3 - Concentration of Credit RiskNTS-Properties IV owns and operates, either wholly or through a joint venture, commercial properties in Louisville, Kentucky and Fort Lauderdale, Florida. In Louisville, Kentucky, one tenant occupies 100% of the Blankenbaker Business Center 1A property. We also own and operate, either wholly or through a joint venture, apartment communities in Louisville, Kentucky and Orlando, Florida.
Our financial instruments that are exposed to concentrations of credit risk consist of cash and equivalents. We maintain our cash accounts primarily with banks located in Kentucky. The total cash balances are insured by the FDIC up to $100,000 per bank account. We may at times, in certain accounts, have deposits in excess of $100,000.
Note 4 - Cash and EquivalentsCash and equivalents include cash on hand and short-term, highly liquid investments with initial maturities of three months or less. We have a cash management program which provides for the overnight investment of excess cash balances. Per an agreement with a bank, excess cash is invested in a repurchase agreement for U.S. government or agency securities on a nightly basis. As of June 30, 2002, approximately $74,000 of said investment was included in cash and cash equivalents.
6
Cash and equivalents - restricted represents funds received for residential security deposits and funds escrowed with mortgage companies for property taxes and insurance in accordance with the loan agreements with said mortgage companies.
Note 6 - Basis of Property and DepreciationLand, buildings and amenities are stated at historical cost, less accumulated depreciation. Costs directly associated with the acquisition, development and construction of a project are capitalized. Depreciation is computed using the straight-line method over the estimated useful lives of the assets which are 5-30 years for land improvements, 3-30 years for buildings and improvements, 3-30 years for amenities and the applicable lease term for tenant improvements. The aggregate cost of our properties for federal tax purposes is approximately $15,414,000.
Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," became effective January 1, 2002, and 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 by management during the period ended June 30, 2002 did not result in an impairment loss.
Note 7 - Investment in Joint VenturesThe unconsolidated joint ventures of NTS-Properties IV consist of NTS/Willows Phase II Joint Venture, NTS Sabal Golf Villas Joint Venture, Plainview Point III Joint Venture, Blankenbaker Business Center Joint Venture and Lakeshore/University II Joint Venture described as follows:
| • | A 9.70% joint venture interest in The Willows of Plainview Phase II, a 144-unit luxury apartment community in Louisville, Kentucky. |
| • | A 3.97% joint venture interest in Golf Brook Apartments, a 195-unit luxury apartment community in Orlando, Florida. |
| • | A 4.96% joint venture interest in Plainview Point III Office Center, an office center with approximately 62,000 net rentable square feet in Louisville, Kentucky. |
| • | A 29.61% joint venture interest in Blankenbaker Business Center 1A , a business center with approximately 50,000 net rentable ground floor square feet and approximately 50,000 net rentable mezzanine square feet in Louisville, Kentucky. |
| • | A 10.92% joint venture interest in the Lakeshore/University II Joint Venture. A description of the properties owned by the Joint Venture appears below: |
| • | Lakeshore Business Center Phase I - a business center with approximately 104,000 net rentable square feet located in Fort Lauderdale, Florida. |
7
| • | Lakeshore Business Center Phase II - a business center with approximately 97,000 net rentable square feet located in Fort Lauderdale, Florida. |
| • | Lakeshore Business Center Phase III - a business center with approximately 39,000 net rentable feet located in Fort Lauderdale, Florida. |
For the three months ended June 30, 2002 and 2001, the unconsolidated joint ventures had total revenues of $2,207,924 and $2,283,515, respectively and net income of $189,461 and $183,850, respectively. For the six months ended June 30, 2002 and 2001, the unconsolidated joint ventures had total revenues of $4,464,807 and $4,594,480, respectively, and net income of $352,425 and $487,916, respectively.
Note 8 - Tender OfferOn May 10, 2002, ORIG, LLC, ("ORIG") an affiliate of ours, filed a tender offer with the Securities and Exchange Commission, to purchase up to 2,000 of the limited partnership Interests at a price of $230 per Interest as of the date of the tender offer. Approximately $470,000 ($460,000 to purchase 2,000 Interests plus approximately $10,000 for expenses associated with the tender offer) is required to purchase all 2,000 Interests. If more than 2,000 Interests are tendered, ORIG may choose to acquire the additional Interests on a pro rata basis. Interests acquired by ORIG will be held by it. The tender offer will expire on August 9, 2002 unless extended. We are not participating in this tender offer.
Note 9 - Mortgages and Note PayableMortgages and note payable consist of the following:
June 30, December 31,
2002 2001
------------------- -------------------
Mortgage payable to an insurance company,
bearing interest at a fixed rate of 8.8%, due
October 1, 2004, secured by land and a building. $ 918,916 $ 1,092,538
Mortgage payable to an insurance company,
bearing interest at a fixed rate of 7.15%, due
January 5, 2013, secured by land, buildings and
amenities. 1,611,576 1,661,672
Mortgage payable to an insurance company,
bearing interest at a fixed rate of 7.15%, due
January 5, 2013, secured by land, buildings and
amenities. 1,534,143 1,581,832
Note payable to a bank, bearing interest the Prime
Rate, but no less than 6%, due March 27, 2003. At
June 30, 2002, the interest rate was 6.00%. 11,952 20,110
------------------- -------------------
$ 4,076,587 $ 4,356,152
=================== ===================
8
As of June 30, 2002, the fair value of long-term debt is approximately $4,200,000, based on the borrowing rates currently available to us for loans with similar terms and average maturities.
Note 10 - Related Party TransactionsPursuant to an agreement with us, NTS Development Company, an affiliate of our General Partner, receives property management fees on a monthly basis. The fees are paid in an amount equal to 5% of the gross revenues from our residential property and 6% of the gross revenues from our commercial properties. Also pursuant to an agreement, NTS Development Company receives a repair and maintenance fee equal to 5.9% of costs incurred which relate to capital improvements. These repair and maintenance fees are capitalized as part of land, buildings and amenities.
We were charged the following amounts from NTS Development Company for the six months ended June 30, 2002 and 2001. 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.
Six Months Ended
June 30,
---------------------------------------
2002 2001
----------------- ------------------
Property management fees $ 64,967 $ 66,789
----------------- ------------------
Property management 115,540 112,590
Leasing 58,120 57,169
Administrative - operating 32,165 30,455
Other 1,980 2,256
----------------- ------------------
Total operating expenses - affiliated 207,805 202,470
----------------- ------------------
Professional and administrative expenses - affiliated 70,634 78,616
----------------- ------------------
Repairs and maintenance fee 8,331 540
Leasing commissions 1,290 5,583
Construction management 5,287 --
----------------- ------------------
Total related party transactions capitalized 14,908 6,123
----------------- ------------------
Total related party transactions $ 358,314 $ 353,998
================= ==================
Note 11 - Commitments and Contingencies
We, as an owner of real estate, are subject to various environmental laws of federal, state and local governments. Compliance by us with existing laws has not had a material adverse effect on our financial condition or results of operations. However, we cannot predict the impact of new or changed laws or regulations on our current properties or properties that we may acquire in the future.
9
On December 12, 2001, three individuals filed an action in the Superior Court of the State of California for the County of Contra Costa against our General Partner, the general partners of four public partnerships affiliated with us and several individuals and entities affiliated with us. The action purports to bring claims on behalf of a class of limited partners based on, among other things, tender offers made by the public partnership and an affiliate of our General Partner. The plaintiffs allege, among other things, that the prices at which Interests were purchased in these tender offers were too low. The plaintiffs are seeking monetary damages and equitable relief, including an order directing the disposition of the properties owned by the public partnerships and the proceeds distributed. Our General Partner believes that this action is without merit, and is vigorously defending it. No amounts have been accrued as a liability for this action in our financial statements at June 30, 2002. Under an indemnification agreement with our General Partner, we are responsible for the costs of the defense of this action. During the six months ended June 30, 2002, our share of these legal costs was approximately $13,000, which was expensed.
We do not believe there is any other litigation threatened against us 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 our financial position or results of operations except as discussed herein. However, due to the event on September 11, 2001, affecting the insurance industry, we are unable to determine at what price we will be able to renew our insurance coverage when the current policies expire in September 2002, or if the coverage available will be adequate.
Note 12 - Segment ReportingOur reportable operating segments include Residential and Commercial Real Estate Operations. The residential operations represent our ownership and operating results relative to an apartment community known as The Willows of Plainview Phase I. The commercial operations represent our ownership and operating results relative to suburban commercial office space known as Commonwealth Business Center Phase I and Plainview Point Office Center Phases I and II.
The financial information of the operating segments has been prepared using a management approach, which is consistent with the basis and manner in which our management internally reports financial information for the purposes of assisting in making internal operating decisions. Our management evaluates performance based on stand-alone operating segment net income.
10
Three Months Ended June 30, 2002
---------------------------------------------------------
Residential Commercial Total
----------------- ----------------- ------------------
Rental income $ 240,529 $ 339,969 $ 580,498
Interest and other income 106 2,159 2,265
Gain on sale of assets 249 -- 249
----------------- ----------------- ------------------
Total net revenues $ 240,884 $ 342,128 $ 583,012
================= ================= ==================
Operating expenses and operating expenses -
affiliated $ 126,589 $ 117,708 $ 244,297
Loss on disposal of assets 51,268 -- 51,268
Interest expense 57,256 22,285 79,541
Management fees 12,197 20,887 33,084
Real estate taxes 15,020 15,768 30,788
Depreciation and amortization 51,319 71,518 122,837
----------------- ----------------- ------------------
Total expenses $ 313,649 $ 248,166 $ 561,815
================= ================= ==================
Net (loss) income $ (72,765) $ 93,962 $ 21,197
================= ================= ==================
Three Months Ended June 30, 2001
---------------------------------------------------------
Residential Commercial Total
----------------- ----------------- ------------------
Rental income $ 289,045 $ 311,385 $ 600,430
Interest and other income 485 1,208 1,693
----------------- ----------------- ------------------
Total net revenues $ 289,530 $ 312,593 $ 602,123
================= ================= ==================
Operating expenses and operating expenses -
affiliated $ 150,846 $ 141,324 $ 292,170
Interest expense 61,053 29,706 90,759
Management fees 14,415 19,237 33,652
Real estate taxes 15,105 13,494 28,599
Depreciation and amortization 50,739 69,939 120,678
----------------- ----------------- ------------------
Total expenses $ 292,158 $ 273,700 $ 565,858
================= ================= ==================
Net (loss) income $ (2,628) $ 38,893 $ 36,265
================= ================= ==================
11
Six Months Ended June 30, 2002
---------------------------------------------------------
Residential Commercial Total
----------------- ----------------- ------------------
Rental income $ 487,607 $ 673,329 $ 1,160,936
Interest and other income 338 3,121 3,459
Gain on sale of assets 249 -- 249
----------------- ----------------- ------------------
Total net revenues $ 488,194 $ 676,450 $ 1,164,644
================= ================= ==================
Operating expenses and operating expenses -
affiliated $ 257,851 $ 225,146 $ 482,997
Loss on disposal of assets 51,268 -- 51,268
Interest expense 115,445 46,486 161,931
Management fees 24,423 40,544 64,967
Real estate taxes 30,039 31,536 61,575
Depreciation and amortization 102,415 143,035 245,450
----------------- ----------------- ------------------
Total expenses $ 581,441 $ 486,747 $ 1,068,188
================= ================= ==================
Net (loss) income $ (93,247) $ 189,703 $ 96,456
================= ================= ==================
Six Months Ended June 30, 2001
---------------------------------------------------------
Residential Commercial Total
----------------- ----------------- ------------------
Rental income $ 571,121 $ 628,738 $ 1,199,859
Interest and other income 731 2,156 2,887
----------------- ----------------- ------------------
Total net revenues $ 571,852 $ 630,894 $ 1,202,746
================= ================= ==================
Operating expenses and operating expenses -
affiliated $ 258,724 $ 247,175 $ 505,899
Loss on disposal of assets 2,138 -- 2,138
Interest expense 122,343 61,168 183,511
Management fees 28,748 38,041 66,789
Real estate taxes 30,210 27,096 57,306
Depreciation and amortization 101,323 139,909 241,232
----------------- ----------------- ------------------
Total expenses $ 543,486 $ 513,389 $ 1,056,875
================= ================= ==================
Net income $ 28,366 $ 117,505 $ 145,871
================= ================= ==================
12
A reconciliation of the totals reported for the operating segments to the applicable line items in the financial statements for the three months and six months ended June 30, 2002 and 2001 is necessary given amounts recorded at the Partnership level and not allocated to the operating properties for internal reporting purposes.
Three Months Ended
June 30,
---------------------------------------------
2002 2001
------------------ -------------------
NET REVENUES
- ------------
Total revenues for reportable segments $ 583,012 $ 602,123
Other income for Partnership 505 4,098
Income from investment in joint ventures 21,130 9,924
------------------ -------------------
Total consolidated net revenues $ 604,647 $ 616,145
================== ===================
OPERATING EXPENSES
- ------------------
Total operating expenses for reportable segments $ 244,297 $ 292,170
Other operating expenses for Partnership (4,100) --
------------------ -------------------
Total operating expenses $ 240,197 $ 292,170
================== ===================
DEPRECIATION AND AMORTIZATION
- -----------------------------
Total depreciation and amortization for
reportable segments $ 122,837 $ 120,678
Depreciation and amortization for Partnership 1,529 1,529
------------------ -------------------
Total depreciation and amortization $ 124,366 $ 122,207
================== ===================
NET INCOME (LOSS)
- -----------------
Total net income for reportable segments $ 21,197 $ 36,265
Net loss for Partnership (37,930) (59,967)
------------------ -------------------
Total net loss $ (16,733) $ (23,702)
================== ===================
13
Six Months Ended June 30,
---------------------------------------------
2002 2001
------------------ -------------------
NET REVENUES
- ------------
Total revenues for reportable segments $ 1,164,644 $ 1,202,746
Other income for Partnership 1,257 8,787
Income from investment in joint ventures 39,733 28,510
------------------ -------------------
Total consolidated net revenues $ 1,205,634 $ 1,240,043
================== ===================
OPERATING EXPENSES
- ------------------
Operating expenses for reportable segments $ 482,997 $ 505,899
Other operating expenses for Partnership (2,000) --
------------------ -------------------
Total operating expenses $ 480,997 $ 505,899
================== ===================
DEPRECIATION AND AMORTIZATION
- -----------------------------
Total depreciation and amortization for reportable
segments $ 245,450 $ 241,232
Depreciation and amortization for Partnership 3,058 3,058
------------------ -------------------
Total depreciation and amortization $ 248,508 $ 244,290
================== ===================
NET INCOME (LOSS)
- -----------------
Total net income for reportable segments $ 96,456 $ 145,871
Net loss for Partnership (88,809) (120,371)
------------------ -------------------
Total net income $ 7,647 $ 25,500
================== ===================
Note 13 - Subsequent Event
On July 31, 2002, ORIG, LLC, ("ORIG") an affiliate of ours, filed an amendment to the May 10, 2002 tender offer filing. The amendment extended the tender offer expiration date from August 9, 2002 to September 9, 2002.
14
Item 2 - 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") should be read in conjunction with the Financial Statements in Item 1 and the Cautionary Statements below.
Critical Accounting PoliciesA critical accounting policy, for our business, is the assumption that our properties' occupancy will remain at a level which provides for debt payments and adequate working capital, currently and in the future. If occupancy were to fall below that level and remain at or below that level for a significant period of time, then our ability to make payments due under our debt agreements and to continue paying daily operational costs would be greatly affected. This would result in the impairment of the respective properties' assets in accordance with Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long- Lived Assets."
Cautionary StatementsSome of the statements included in this Item 2 may be considered "forward-looking statements" since such statements relate to matters which have not yet occurred. For example, phrases such as "we anticipate," "believe" or "expect," indicate that it is possible that the event anticipated, believed or expected may not occur. Should such event not occur, then the result which we expected also may not occur or occur in a different manner, which may be more or less favorable to us. We do 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 the MD&A section, or elsewhere in this report, which reflect management's best judgment, 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 us pursuant to the safe harbor established by recent securities legislation should be evaluated in the context of these factors.
Our liquidity, capital resources and results of operations are subject to a number of risks and uncertainties including, but not limited to the following:
15
The occupancy levels at our properties and joint ventures as of June 30, 2002 and 2001 were as follows:
Six Months Ended
June 30,
---------------------------------------------
2002 (1) 2001
------------------- -------------------
Wholly-Owned Properties
- -----------------------
Commonwealth Business Center Phase I 86% 86%
Plainview Point Office Center Phases I & II 86% 76%
The Willows of Plainview Phase I (2) 83% 88%
Property Owned in Joint Venture with NTS-
- -----------------------------------------
Properties V (Ownership % at June 30, 2002)
- -------------------------------------------
The Willows of Plainview Phase II (9.7%) (2) 83% 85%
Properties Owned in Joint Venture with NTS-
- -------------------------------------------
Properties VI (Ownership % at June 30, 2002)
- --------------------------------------------
Golf Brook Apartments (3.97%) 95% 86%
Plainview Point III Office Center (4.96%)(3) 56% 98%
Property Owned in Joint Venture with NTS-
- -----------------------------------------
Properties VII, Ltd. and NTS-Properties Plus Ltd.
- -------------------------------------------------
(Ownership % at June 30, 2002)
- ------------------------------
Blankenbaker Business Center 1A (29.61%) 100% 100%
(Continued on next page)
16
Six Months Ended
June 30,
---------------------------------------------
2002 (1) 2001
------------------- -------------------
Properties Owned through Lakeshore/University II
- ------------------------------------------------
Joint Venture (L/U II Joint Venture) (Ownership %
- -------------------------------------------------
at June 30, 2002)
- -----------------
Lakeshore Business Center Phase I (10.92%) 83% 79%
Lakeshore Business Center Phase II (10.92%) 87% 84%
Lakeshore Business Center Phase III (10.92%)(4) 37% 28%
The average occupancy levels at our properties and joint ventures during the three months and six months ended June 30, 2002 and 2001 were as follows:
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Wholly-Owned Properties
- -----------------------
Commonwealth Business Center Phase I 86% 86% 87% 86%
Plainview Point Office Center Phases I & II 86% 78% 86% 78%
The Willows of Plainview Phase I (1) 79% 88% 77% 88%
Property Owned in Joint Venture with NTS-
- -----------------------------------------
Properties V (Ownership % at June 30, 2002)
- -------------------------------------------
The Willows of Plainview Phase II (9.7%) (1) 81% 83% 80% 85%
Properties Owned in Joint Venture with NTS-
- -------------------------------------------
Properties VI (Ownership % at June 30, 2002)
- --------------------------------------------
Golf Brook Apartments (3.97%) 90% 87% 88% 88%
Plainview Point III Office Center (4.96%)(3) 55% 98% 54% 98%
Properties Owned in Joint Venture with NTS-
- -------------------------------------------
Properties VII, Ltd. and NTS-Properties Plus Ltd.
- --------------------------------------------------
(Ownership % at June 30, 2002)
- ------------------------------
Blankenbaker Business Center 1A (29.61%) 100% 100% 100% 100%
(Continued on next page)
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Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Properties Owned Through Lakeshore/ University II
- -------------------------------------------------
Joint Venture (L/U II Joint Venture) (Ownership % at
- -----------------------------------------------------
June 30, 2002)
- --------------
Lakeshore Business Center Phase I (10.92%) 82% 80% 83% 82%
Lakeshore Business Center Phase II (10.92%) 87% 83% 86% 80%
Lakeshore Business Center Phase III (10.92%)(2) 37% 28% 36% 25%
Rental and other income generated by our properties and joint ventures for the three months and six months ended June 30, 2002 and 2001 were as follows:
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- ------------------------
2002 2001 2002 2001
---------- ----------- ----------- ----------
Wholly-Owned Properties
- -----------------------
Commonwealth Business Center Phase I $ 194,089 $ 177,016 $ 377,101 $ 359,465
Plainview Point Office Center Phases I & II $ 148,039 $ 135,577 $ 299,349 $ 271,429
The Willows of Plainview Phase I $ 240,884 $ 289,530 $ 488,194 $ 571,852
Property Owned in Joint Venture with NTS-
- -----------------------------------------
Properties V (Ownership % at June 30, 2002)
- -------------------------------------------
The Willows of Plainview II (9.7%) $ 298,391 $ 308,465 $ 583,788 $ 628,423
Properties Owned in Joint Venture with NTS-
- -------------------------------------------
Properties VI (Ownership % at June 30, 2002)
- --------------------------------------------
Golf Brook Apartments (3.97%) $ 723,996 $ 704,277 $ 1,455,629 $1,423,665
Plainview Point III Office Center (4.96%) $ 136,393 $ 232,682 $ 282,241 $ 468,911
Property Owned in Joint Venture with NTS-
- -----------------------------------------
Properties VII, Ltd. and NTS-Properties Plus Ltd.
- -------------------------------------------------
(Ownership % at June 30, 2002)
- ------------------------------
Blankenbaker Business Center 1A (29.61%) $ 237,347 $ 232,199 $ 477,444 $ 470,695
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Three Months Ended Three Months Ended
June 30, June 30,
------------------------- --------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Property Owned Through Lakeshore/University II
- ----------------------------------------------
Joint Venture (L/U II Joint Venture) (Ownership %
- -------------------------------------------------
at June 30, 2002)
- -----------------
Lakeshore Business Center Phase I (10.92%) $ 400,984 $ 386,108 $ 810,002 $ 777,867
Lakeshore Business Center Phase II (10.92%) $ 337,040 $ 368,605 $ 712,568 $ 718,929
Lakeshore Business Center Phase III (10.92%) $ 73,773 $ 51,179 $ 143,135 $ 105,990
Ownership of Joint Ventures
On June 25, 2002, NTS-Properties Plus Ltd. merged with ORIG, LLC, ("ORIG") an affiliate of our general partner. ORIG is the surviving entity as a result of this merger. NTS-Properties IV continues to hold a 29.61% interest in the Blankenbaker Business Center Joint Venture and a 10.92% interest in the Lakeshore/University II Joint Venture after the completion of the NTS-Properties Plus, Ltd./ORIG Merger. ORIG now holds a 39.05% interest in the Blankenbaker Business Center Joint Venture and a 7.69% interest in the Lakeshore/University II Joint Venture.
Results of OperationsIf there has not been a material change in an item from June 30, 2001 to June 30, 2002, we have omitted any discussion concerning that item.
Income from Investment in Joint VenturesIncome from investment in joint ventures increased approximately $11,000, or 40%, for the six months ended June 30, 2002, as compared to the same period in 2001. The increase is a result of increased net income at Blankenbaker Business Center 1A and a decreased net loss on the Lakeshore/University II Joint Venture. The increase is partially offset by an increased net loss at The Willows of Plainview II and an increased net loss at Plainview Point Phase III.
Operating ExpensesOperating expenses decreased approximately $50,000, or 27%, and $30,000, or 10%, for the three months and six months ended June 30, 2002, respectively, as compared to the same periods in 2001, primarily as the result of a decrease in repairs and maintenance at Plainview Point Phases I and II and Commonwealth Business Center I. The decrease is also due to a decrease in landscaping at all three of our wholly owned properties.
Loss on Disposal of AssetsThe loss on disposal of assets for 2002 and 2001 can be attributed to the retirement of assets at The Willows of Plainview Phase I. The 2002 retirements are primarily the result of clubhouse renovations and the 2001 retirements are primarily the result of exterior lighting replacements. The loss represents the cost to retire assets, which were not fully depreciated at the time of replacement.
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Interest expense decreased approximately $11,000, or 12%, and $22,000, or 12%, for the three months and six months ended June 30, 2002, respectively, as compared to the same periods in 2001, primarily as a result of principal payments made on the Commonwealth Business Center Phase I and The Willows of Plainview Phase I mortgages.
Professional and Administrative ExpensesProfessional and administrative expenses decreased approximately $18,000, or 24%, for the six months ended June 30, 2002, as compared to the same period in 2001. The decrease is primarily due to a decrease in legal and professional fees.
Consolidated Cash Flows and Financial ConditionIn the next 12 months, the demand on future liquidity is anticipated to increase as a result of the replacement of the roofs at Lakeshore Business Center Phase I and Blankenbaker Business Center 1A and as we continue our efforts in the leasing of our commercial properties. There may be significant demands of future liquidity due to the lease up of Lakeshore Business Center Phase III and returning Plainview Point III Office Center to full occupancy. At this time, the future leasing and tenant finish costs which will be required to renew the current leases or obtain new tenants are not certain. It is anticipated that the cash flow from operations and cash reserves will be sufficient to meet most of our needs, while additional financing may be required.
Cash flows provided by (used in):
Six Months Ended
June 30,
---------------------------------------
2002 2001
----------------- ------------------
Operating activities $ 264,477 $ 393,723
Investing activities (184,400) (59,915)
Financing activities (279,565) (222,124)
----------------- ------------------
Net (decrease) increase in cash and equivalents $ (199,488) $ 111,684
================= ==================
Net cash provided by operating activities decreased approximately $129,000, or 33%, for the six months ended June 30, 2002, as compared to the same period in 2001. The decrease was primarily driven by a decrease in collections of accounts receivable and the change in accounts payable.
Net cash used in investing activities increased approximately $124,000, for the six months ended June 30, 2002, as compared to the same period in 2001. The increase is the result of increased capital expenditures, primarily related to the renovation of The Willows clubhouse.
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Net cash used in financing activities increased approximately $57,000, or 26% for the six months ended June 30, 2002, as compared to the same period in 2001. The increase is the result of continued principal payments partially offset by proceeds from a note payable obtained March 27, 2001 by The Willows of Plainview Phase I.
Due to the fact that no distributions were made during the six months ended June 30, 2002 or 2001, the table which presents that portion of the distributions that represents a return of capital in accordance with GAAP basis has been omitted.
Our plans for renovations, other major capital expenditures, and other commitments that will affect future liquidity are described below.
The demand on future liquidity is anticipated to increase as we continue our efforts in the leasing of Plainview Point III Office Center. One tenant which occupied 16,895 square feet, or 27%, of the building, vacated its space on November 30, 2001 at the end of their lease. This left Plainview Point III Office Center with only 54% occupancy. As a result of this vacancy, there will likely be a protracted period for the property to become fully leased again and substantial funds, currently estimated to be approximately $313,000 will likely be needed for tenant finish costs. Our share of these costs would be approximately $16,000.
We anticipate having to continue to fund the working capital deficit of the Lakeshore/University II Joint Venture. Due to the extended time necessary to lease the Lakeshore Business Center Phase III addition, it is unknown at this time how much working capital we will need to fund the operations of the Lakeshore/University II Joint Venture.
As of June 30, 2002 we anticipate making certain building improvements during 2002. These improvements include HVAC replacements at Commonwealth Business Center I ($24,000) and Plainview Point Phases I and II ($30,000) and parking lot repairs at Commonwealth Business Center I ($11,000). The tenant improvements will be funded in 2002 from existing working capital. We also anticipate replacing the roofs in 2002 at Lakeshore Business Center Phase I for a cost of approximately $200,000. Our share of this project will be approximately $22,000.
Blankenbaker Business Center 1A is expected to require a new roof in 2003. The roof replacement is expected to cost approximately $190,000. Our share of this cost is expected to be approximately $56,000.
Future liquidity will be affected by increased insurance expense. We have budgeted for an increase of approximately 25% upon renewal of our policies in September 2002, as compared to 2001.
We have no other material commitments for renovations or capital improvements as of June 30, 2002.
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The following describes the efforts being taken by us to increase the occupancy levels at our commercial properties. The leasing and renewal negotiations at the Lakeshore Business Center Development are conducted by an on-site leasing agent, an employee of NTS Development Company (an affiliate of our 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 our remaining commercial properties are managed by leasing agents, who are employees of NTS Development Company, located in Louisville, Kentucky. The leasing agents are located in the same city as the commercial properties. All advertising for these properties is coordinated by NTS Development Company's marketing staff located in Louisville, Kentucky.
In an effort to continue to improve occupancy at our residential properties, we have an on-site leasing staff, who are employees of NTS Development Company, at each of the apartment communities. The staff facilitates all on-site visits from potential tenants, coordinates local advertising with NTS Development Company's marketing staff, makes visits to local companies to promote fully furnished apartments and negotiates lease renewals with current residents.
Leases at Commonwealth Business Center Phase I, Blankenbaker Business Center 1A, and Lakeshore Business Center Phases I, II and III provide for tenants to contribute toward the payment of common area expenses, insurance and real estate taxes. Leases at Plainview Point Office Center Phases I, II and III provide for tenants to contribute toward the payment of increases in common area maintenance expenses, insurance, utilities and real estate taxes. These lease provisions, along with the fact that residential leases are generally for a period of one year, should protect our operations from the impact of inflation and changing prices.
Potential ConsolidationOur General Partner, along with the general partners of four other public limited partnerships affiliated with us, is investigating a consolidation of us with other entities affiliated with us. In addition to these entities, the consolidation would likely involve several private partnerships and other entities affiliated with us and our General Partner. The new combined entity would own all of the properties currently owned by the public limited partnerships, and the limited partners or other owners of these entities would receive an ownership interest in the combined entity. The number of ownership interests to be received by limited partners and the other owners of the entities participating in the consolidation would likely be determined based on the relative value of the assets contributed to the combined entity by each public limited partnership, reduced by any indebtedness assumed by the entity. The majority of the contributed assets would consist of real estate properties, whose relative values would be based on appraisals obtained at or near the consolidation date. The potential benefits of consolidating the entities include: reducing the administrative costs as a percentage of assets and revenues by reducing the number of public entities; diversifying limited partners' investments in real estate to include additional markets and types of properties; and creating an asset base and capital structure that may enable greater access to the capital markets. There are, however, also a number of potential adverse consequences such as, the expenses associated with a consolidation and the fact that the duration of the new entity would likely exceed
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our anticipated duration, and that the interests of our limited partners in the combined entity would be smaller on a percentage basis than their interests in us. Further, the new entity may adopt investment and management policies that are different from those presently used by our General Partner for us. A consolidation also requires approval of our limited partners and owners of the other proposed participants. Accordingly, there is no assurance that the consolidation will occur.
Item 3 - Quantitative and Qualitative Disclosures About Market RiskOur primary market risk exposure with regard to financial instruments is changes in interest rates. All of our debt bears interest at a fixed rate with the exception of the $11,952 note payable on The Willows of Plainview Phase I. At June 30, 2002, a hypothetical 100 basis point increase in interest rates would result in an approximate $156,000 decrease in the fair value of the debt and would not have a significant effect on interest expense of the variable rate note.
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Item 1 - Legal Proceedings
None.
Item 2 - Changes in Securities
None.
Item 3 - Defaults Upon Senior Securities
None.
Item 4 - Submission of Matters to a Vote of Security Holders
None.
Item 5 - Other Information
None.
Item 6 - Exhibits and Reports on Form 8-K
a) Exhibits:
99.1 Certification of Chief Executive Officer of the General Partner
99.2 Certification of Chief Financial Officer of the General Partner
b) Reports on Form 8-K:
Form 8-K was filed on May 29, 2002 to report in Item 4 that we have elected to change our
independent public accountant. This Form 8-K was amended on June 12, 2002.
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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 IV | |||
|---|---|---|---|
| By: | NTS-Properties Associates IV, | ||
| 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: August 14, 2002 |
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