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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
______ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 0-11655
NTS-PROPERTIES IV
(Exact name of registrant as specified in its charter)
Kentucky 61-1026356
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10172 Linn Station Road
Louisville, Kentucky 40223
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (502) 426-4800
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
(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 (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______
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 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. [X]
Exhibit Index: See page 65
Total Pages: 70
TABLE OF CONTENTS
Pages
-----
PART I
Items 1 and 2 Business and Properties 3-23
Item 3 Legal Proceedings 24
Item 4 Submission of Matters to a Vote of
Security Holders 24
PART II
Item 5 Market for the Registrant's Limited Partnership
Interests and Related Partner Matters 25
Item 6 Selected Financial Data 26
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations 27-42
Item 8 Financial Statements and Supplementary Data 43-61
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 62
PART III
Item 10 Directors and Executive Officers of the
Registrant 62-63
Item 11 Management Remuneration and Transactions 63
Item 12 Security Ownership of Certain Beneficial
Owners and Management 64
Item 13 Certain Relationships and Related Transactions 64
PART IV
Item 14 Exhibits, Financial Statement Schedules
and Reports on Form 8-K 65-69
Signatures 70
- 2 -
PART I
Items 1. and 2. Business and Properties
-----------------------
General
- -------
Some of the statements included in Items 1. and 2., Business and Properties, 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 obligation to publicly
release the result of any revisions to these forwardlooking statements that may
be made to reflect any future events or circumstances.
NTS-Properties IV., Ltd., a Kentucky Limited Partnership, (the "Partnership" or
"NTS-Properties IV") is a limited partnership organized under the laws of the
Commonwealth of Kentucky on May 13, 1983. The General Partner is NTS-Properties
Associates IV, a Kentucky limited partnership. As of December 31, 1997, the
Partnership owned the following properties:
- Commonwealth Business Center Phase I, a business center with
approximately 57,000 net rentable ground floor square feet and
approximately 24,000 net rentable mezzanine square feet in
Louisville, Kentucky, constructed by the Partnership.
- Plainview Point Office Center Phases I and II, an office center with
approximately 56,000 net rentable square feet in Louisville,
Kentucky, acquired complete by the Partnership.
- The Willows of Plainview Phase I, a 118-unit luxury apartment complex
in Louisville, Kentucky, constructed by the Partnership.
- A joint venture interest in The Willows of Plainview Phase II, a
144-unit luxury apartment complex in Louisville, Kentucky,
constructed by the joint venture between the Partnership and NTS-
Properties V, a Maryland Limited Partnership, an affiliate of the
General Partner of the Partnership, ("NTS-Properties V"). The
Partnership's percentage interest in the joint venture was 10% at
December 31, 1997.
- A joint venture interest in Golf Brook Apartments, a 195-unit luxury
apartment complex in Orlando, Florida, constructed by the joint
venture between the Partnership and NTS-Properties VI, a Maryland
Limited Partnership, an affiliate of the General Partner of the
Partnership, ("NTS-Properties VI"). The Partnership's percentage
interest in the joint venture was 4% at December 31, 1997.
- A joint venture interest in Plainview Point III Office Center, an
office center with approximately 62,000 net rentable square feet in
Louisville, Kentucky, constructed by the joint venture between the
Partnership and NTS-Properties VI. The Partnership's percentage
interest in the joint venture was 5% at December 31, 1997.
- A 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 located in Louisville, Kentucky, acquired complete by a joint
venture between NTS-Properties Plus Ltd. and NTS-Properties VII,
Ltd., affiliates of the General Partner of the Partnership. The
Partnership's percentage interest in the joint venture was 30% at
December 31, 1997.
- 3 -
General - Continued
- -------------------
- A joint venture interest in the Lakeshore/University II Joint
Venture ("L/U II Joint Venture"). The L/U II Joint Venture was
formed on January 23, 1995 among the Partnership and NTS-
Properties V, NTS-Properties Plus Ltd. and NTS/Fort Lauderdale,
Ltd., affiliates of the General Partner of the Partnership. The
Partnership's percentage interest in the joint venture was 18% at
December 31, 1997.
A description of the properties owned by the L/U II Joint
Venture appears below:
- Lakeshore Business Center Phase I - a business center
with approximately 103,000 net rentable square feet
located in Fort Lauderdale, Florida, acquired complete
by the joint venture.
- Lakeshore Business Center Phase II - a business center
with approximately 97,000 net rentable square feet
located in Fort Lauderdale, Florida, acquired complete
by the joint venture.
- University Business Center Phase II - a business center
with approximately 78,000 net rentable first floor
(office and service) and second floor office square feet
and approximately 10,000 net rentable mezzanine square
feet located in Orlando, Florida, acquired complete by
the joint venture.
- Outparcel Building Sites - approximately 6.2 acres of
undeveloped land adjacent to the Lakeshore Business
Center development, which is zoned for commercial
development.
The Partnership or the joint venture in which the Partnership is a partner has a
fee title interest in the above properties. In the opinion of the Partnership's
management, the properties are adequately covered by insurance.
Commonwealth Business Center Phase I is encumbered by a mortgage payable to an
insurance company. The outstanding balance at December 31, 1997 was $2,238,591.
The mortgage bears interest at a fixed rate of 8.8% and is due October 1, 2004.
Monthly principal payments are based upon a 10-year amortization schedule. At
maturity, the mortgage will have been repaid based on the current rate of
amortization.
Plainview Point Office Center Phases I and II is not encumbered by any
outstanding mortgages at December 31, 1997.
The Willows of Plainview Phase I is encumbered by permanent mortgages with two
insurance companies. Both loans are secured by a first mortgage on the property.
The outstanding balance of the mortgages at December 31, 1997 was $3,900,000
($1,998,000 and $1,902,000). Both mortgages bear interest at a fixed rate of
7.2% and are due January 5, 2013. Monthly principal payments on both notes are
based upon a 15-year amortization schedule. At maturity, the loans will have
been repaid based on the current rate of amortization.
The Willows of Plainview Phase II, an apartment joint venture between the
Partnership and NTS-Properties V, is encumbered by permanent mortgages with two
insurance companies. The outstanding balances of the mortgages at December 31,
1997 was $5,100,000 ($3,193,000 and $1,907,000). The mortgages
- 4 -
General - Continued
- -------------------
are recorded as a liability of the Joint Venture. The Partnership's
proportionate interest in the mortgages at December 31, 1997 is $514,079
($321,854 and $192,225). Both mortgages bear interest at a fixed rate of 7.2%
and are due January 5, 2013. Monthly principal payments on both mortgages are
based upon a 15-year amortization schedule. At maturity, the loans will have
been repaid based on the current rate of amortization.
Golf Brook Apartments, a joint venture between the Partnership and NTS-
Properties VI, is encumbered by a mortgage payable to an insurance company. The
$9,000,000 mortgage payable is recorded as a liability by NTS-Properties VI in
accordance with the Joint Venture Agreement. The mortgage bears interest at a
fixed rate of 7.43% and matures May 15, 2009. The outstanding balance of the
loan at December 31, 1997 is $8,724,588.
Plainview Point III Office Center is not encumbered by any outstanding mortgages
as of December 31, 1997.
Blankenbaker Business Center 1A, a joint venture between the Partnership,
NTS-Properties VII, Ltd. and NTS-Properties Plus Ltd., is encumbered by a
mortgage payable to an insurance company. The outstanding balance at December
31, 1997 was $3,869,108. The mortgage is recorded as a liability of the Joint
Venture. The Partnership's proportionate interest in the mortgage at December
31, 1997 is $1,163,828. The mortgage bears interest at a fixed rate of 8.5% and
is due November 15, 2005. Monthly principal payments are based upon an 11-year
amortization schedule. At maturity, the mortgage will have been repaid based on
the current rate of amortization.
The properties owned by the Lakeshore/University II Joint Venture, a joint
venture between the Partnership, NTS-Properties V, NTS-Properties Plus Ltd. and
NTS/Fort Lauderdale, Ltd., are encumbered by mortgages payable to an insurance
company as follows:
Loan Balance
at 12/31/97 Encumbered Property
----------- -------------------
$5,606,774 Lakeshore Business Center Phase II
$5,374,127 University Business Center Phase II
$5,211,275 Lakeshore Business Center Phase I
The loans are recorded as a liability of the Joint Venture. The Partnership's
proportionate interest in the loans at December 31, 1997 was $1,000,809,
$959,282 and $930,213, respectively. The mortgages bear interest at a fixed rate
of 8.125%, are due August 1, 2008 and are secured by the assets of the Joint
Venture. Monthly principal payments are based upon a 12-year amortization
schedule. At maturity, the loans will have been repaid based on the current rate
of amortization.
For a further discussion regarding the terms of the debt financings see
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Item 7).
Currently, the Partnership's plans for renovations and other major capital
expenditures include tenant finish improvements as 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 and whether the
improvements are for a new tenant or incurred because of a lease renewal.
- 5 -
General - Continued
- -------------------
Philip Crosby Associates, Inc. ("Crosby") previously leased 100% of University
Business Center Phase II, which is owned by the Lakeshore/University II (L/U II)
Joint Venture. The original lease term was for seven years, and the tenant took
occupancy in April 1991. During 1994, 1995 and 1996, Crosby sub-leased, through
the end of their lease term, approximately 85,000 square feet (including
approximately 10,000 square feet of mezzanine space) of University Business
Center Phase II's approximately 88,000 square feet of net rentable area (or
96%). Of the total being sub-leased, approximately 73,000 square feet (or 86%)
was leased by Full Sail Recorders, Inc. ("Full Sail"), a major tenant at
University Business Center Phase I, a neighboring property owned by an affiliate
of the General Partner of the Partnership. During this period and through
December 1996, Crosby continued to make rent payments pursuant to the original
lease terms. During 1996, the Joint Venture received notice that Crosby did not
intend to pay full rental due under the original lease agreement, including and
subsequent to January 1997. The Partnership's proportionate share of the rental
income from this property accounted for approximately 6% of the partnership's
total revenues during 1996. Although the Joint Venture did not have formal lease
agreements with the sub-lessees noted above during this period, beginning
February 1997 rent payments from these sub-lessees have been made directly to
the Joint Venture.
During 1997, Crosby abandoned its business, sold all or most of its operating
assets and informed the Joint Venture that Crosby may be insolvent. During the
third quarter of 1997, a conditional settlement was reached at a mediation
conference with Crosby and its corporate parent, whereby, subject to the Joint
Venture's acceptance of the settlement terms, the corporate parent agreed to pay
a portion of Crosby's liability to the Joint Venture in full satisfaction of all
claims against Crosby and any of its affiliates. During the fourth quarter of
1997, the L/U II Joint Venture informed Crosby and its corporate parent that it
accepted the terms of the conditional settlement, whereby Crosby's parent paid
to the L/U II Joint Venture the sum of $300,000 in full satisfaction of all
claims. These funds were received by the L/U II Joint Venture on October 23,
1997. The Partnership's proportionate share of the settlement was $54,000 or
18%. The amount of the settlement was substantially less than the aggregate
liability of Crosby to the Joint Venture resulting from Crosby's default under
its lease. This deficit is partially offset by the rent payments received from
the sub-lessees, as discussed above.
In December 1995, Full Sail signed a 33 month lease with the L/U II Joint
Venture for approximately 41,000 square feet it sub-leased from Crosby. In
November 1996, Full Sail signed a lease amendment which increased the square
footage from 41,000 square feet to 48,000 square feet and extended the lease
term from 33 months to 76 months. In addition, in November 1996, Full Sail also
signed a 52 month lease for an additional approximately 21,000 square feet of
space it sub-leased from Crosby. Both leases aggregate 69,000 square feet or 78%
of the business center's net rentable area and commence April 1998 when the
Crosby original lease term ends. As part of the lease negotiations, Full Sail
will receive a total of $450,000 in special tenant allowances ($200,000
resulting from the original lease signed December 1995 and $250,000 resulting
from the lease amendment signed November 1996). Approximately $92,000 of the
total allowance is to be reimbursed by Full Sail to the L/U II Joint Venture
pursuant to the lease terms. The Partnership's proportionate share of the net
commitment ($450,000 less $92,000) is approximately $64,000 or 18%. The tenant
allowance will be due and payable to Full Sail pursuant to the previously
mentioned lease agreements, as appropriate invoices for tenant finish costs
incurred by Full Sail are submitted to the L/U II Joint Venture. The source of
funds for this commitment is expected to be cash flow from operations and/or
cash reserves .
- 6 -
General - Continued
- -------------------
The Joint Venture is currently negotiating directly with the other sublessees
discussed above to enter into leases for the remaining space available. The
future leasing and tenant finish costs which will be required to release this
space is unknown at this time but is not expected to be substantial.
As of December 31, 1997, the Partnership had a commitment for approximately
$42,500 of tenant finish improvements at Plainview Point Office Center Phases I
and II. The commitment is the result of a two-phase expansion by a current
tenant which increases the tenant's current leased space by approximately 2,000
square feet in the first phase and by approximately 6,400 square feet in the
second phase. The portion of the commitment relating to the first phase of the
expansion is approximately $13,000 and was completed during the first quarter of
1998. The commitment for the second phase of the expansion is approximately
$30,000 and is expected to occur during the fourth quarter of 1999. The source
of funds for this project is expected to be cash flow from operations and/or
cash reserves.
The Partnership had no other material commitments for renovations or capital
improvements as of December 31, 1997.
On December 21, 1997, the Partnership obtained two mortgage loans from an
insurance company totaling $3,900,000 ($1,998,000 and $1,902,000). The
outstanding balances of the loans at December 31, 1997 were $1,998,000 and
$1,902,000, respectively, for a total of $3,900,000. The mortgages bear interest
at a fixed rate of 7.2%, are due January 5, 2013 and are secured by The Willows
of Plainview Phase I. Monthly principal payments are based upon a 15-year
amortization schedule. At maturity, the loans will have been repaid based on the
current rate of amortization. The proceeds from the loans were used to pay off
the Partnership's mortgages payable of approximately $3,876,000 which bore
interest at a fixed rate of 7% and to fund loan closing costs. The loans which
were paid off had a maturity date of December 5, 2003.
On December 21, 1997, The Willows of Plainview Phase II, an apartment joint
venture between the Partnership and NTS-Properties V, obtained two mortgage
loans from an insurance company totaling $5,100,000 ($3,193,000 and $1,907,000).
The outstanding balances of the loans at December 31, 1997 were $3,193,000 and
$1,907,000, respectively, for a total of $5,100,000. The Partnership's
proportionate interest in the loans at December 31, 1997 was $321,854 and
$192,225, respectively, for a total of $514,079. The mortgages bear interest at
a fixed rate of 7.2%, are due January 5, 2013 and are secured by the assets of
the Joint Venture. Monthly principal payments are based upon a 15-year
amortization schedule. At maturity, the loans will have been repaid based on the
current rate of amortization. The proceeds from the loans were used to pay off
the property's mortgages payable of approximately $5,070,000 which bore interest
at a fixed rate of 7.5% and to fund loan closing costs. The Partnership's
proportionate interest in the notes which were paid off was approximately
$510,000 or 10%. The notes which were paid off had a maturity date of December
5, 2003.
The Partnership is engaged solely in the business of developing, constructing,
owning and operating residential apartments and commercial real estate. A
presentation about industry segments is not applicable.
The current business of the Partnership is consistent with the original purpose
of the Partnership which was to invest in real property, which was either under
development or proposed for development, on which it would develop, construct,
own and operate apartment complexes, business parks, and retail, industrial and
office buildings. The Partnership properties are in a condition suitable for
their intended use.
- 7 -
General - Continued
- -------------------
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. The General Partner of the Partnership is currently
exploring the marketability of certain of its properties, and has not yet
determined if any of the properties might be sold in the next 12 months.
Additionally, the outparcel building sites owned by the L/U II Joint Venture are
being marketed for sale. See below for a further discussion regarding the
possible sale of University Business Center Phase II.
On December 30, 1997, Full Sail delivered written notice to the Partnership that
Full Sail had (i) exercised its right of first refusal under its lease with
NTS-Properties V, an affiliate of the General Partner of the Partnership, to
purchase University Business Center Phase I office building and the Phase III
vacant land adjacent to the University Business Center development, and (ii)
exercised its right of first refusal under its lease with NTS University
Boulevard Joint Venture to purchase University Business Center Phase II office
building, for an aggregate purchase price for all three of $18,700,000. Full
Sail exercised its right of first refusal under the leases in response to a
letter of intent to purchase University I, University II and the Phase III land
which was previously received by the Partnership from an unaffiliated buyer.
Under its right of first refusal, Full Sail must purchase the properties on the
same terms and conditions as contemplated by the letter of intent. Full Sail
agreed in its notice to the Partnership to proceed to negotiate in good faith a
definitive purchase agreement for these properties. Because no binding agreement
exists for the purchase of the properties at this time, there can be no
assurance that a mutual agreement of purchase and sale will be reached among the
parties, nor that the sale of the properties will be consummated. As such, the
Partnership has not determined the use of net proceeds after repayment of
outstanding debt from any such sale nor has it determined the impact on the
future results of operations or financial position. The University II office
building is owned by the L/U II Joint Venture, the successor to the NTS
University Boulevard Joint Venture, in which the Partnership owns an 18% joint
venture interest. Under the terms of the right of first refusal, the closings of
the sale of University I, University II and the Phase III vacant land are to
occur simultaneously.
Commonwealth Business Center Phase I
- ------------------------------------
Base annual rents, which exclude the cost of utilities, currently range from
$8.09 to $11.83 per square foot for ground floor office space, $3.97 to $6.04
per square foot for ground floor warehouse space and $7.32 to $10.72 per square
foot for mezzanine office space. The average base annual rental for all space
leased as of December 31, 1997 was $8.03. Space is ordinarily leased for between
three and six years with the majority of current square footage being leased for
a term of five years (1). Current leases terminate between 1998 and 2004.
Several of the leases provide for renewal options ranging from three to five
years at rates which are based upon increases in the consumer price index and/or
are negotiated between lessor and lessee. All leases provide for tenants to
contribute toward the payment of common
(1) Excluding the Mid-America Data Processing, Inc. current lease which is for
10-years.
- 8 -
Commonwealth Business Center Phase I - Continued
- ------------------------------------------------
area expenses, insurance and real estate taxes. As of December 31, 1997, there
were 11 tenants leasing office and warehouse space aggregating approximately
49,022 square feet of rentable area (1). The tenants who occupy Commonwealth
Business Center Phase I are professional service oriented organizations. The
principal occupations/professions practiced include a stockbrokerage house,
insurance and machinery sales/service. One tenant leases more than 10% of
Commonwealth Business Center Phase I's rentable area: Mid-America Data
Processing, Inc. (33.8%). The occupancy levels at the business center as of
December 31 were 87% (1997), 86% (1996 and 1995), 82% (1994) and 75% (1993).
The following table contains approximate data concerning the leases in effect on
December 31, 1997:
Major Tenant:
Current Base
Sq. Ft. and Annual Rental
% of Net and % of Gross
Year of Rentable Base Annual Renewal
Name Expiration Area(1) Rental Options
---- ---------- ------- ------ -------
Mid-America Data
Processing, Inc. 2004 19,101 (33.8%) $304,116 (52.1%) None
Other Tenants:
Current Base
Sq. Ft. and Annual Rental
% of Net and % of Gross
No. of Year of Rentable Base Annual Renewal
Tenants Expiration Area(1) Rental Options
------- ---------- ------- ------ -------
3 1998 4,022 (7.0%) $ 28,347 (4.9%) Termination-
30 day
2 1999 7,634 (13.5%) $102,120 (17.4%) 2 Three-Year
3 2000 9,475 (16.7%) $ 82,272 (14.1%) (2)
1 2001 3,190 (5.6%) $ 22,870 (3.9%) None
1 2002 5,600 (9.9%) $ 44,520 (7.6%) None
(1) Rentable area includes only ground square feet (office and warehouse space).
(2) 3 Three-Year and 1 Five-Year.
Plainview Point Office Center Phases I and II
- ---------------------------------------------
Except as indicated in the table below, base annual rents, which include the
cost of utilities, currently range from $11.69 to $14.00 per square foot. The
average base annual rental as of December 31, 1997 was approximately $12.50 per
square foot. Office space is ordinarily leased for between two to five years
with the majority of current square footage being leased for a term of three
years (3). Current leases terminate between 1998 and 2006. One lease provides
for a renewal option of five years at a rate which will be negotiated between
lessor and lessee. All leases provide for tenants to contribute toward the
payment of increases in common area maintenance expenses, insurance, utilities
and real estate taxes. As of December 31, 1997, there were 8 tenants leasing
office space aggregating approximately 40,901 square feet of rentable area. The
tenants who occupy Plainview Point Office Center Phases I and II are
professional service oriented organizations. The principal
occupations/professions practiced include a business school, telemarketing
services and respiratory therapy services. Two tenants lease more than 10% of
Plainview Point Office Center's rentable area: ICT Group, Inc. (10.7%) and ITT
Educational Services, Inc. (36.0%). The occupancy levels at the office center as
of December 31 were 73% (1997), 88% (1996), 85% (1995), 74% (1994) and 43%
(1993).
(3) Excluding the ITT Educational Services, Inc. lease which is for 10 years
and the Independent Life and Accident Insurance lease which is for 10 1/2
years.
- 9 -
Plainview Point Office Center Phases I and II - Continued
- ---------------------------------------------------------
The following table contains approximate data concerning the leases in effect on
December 31, 1997:
Major Tenants:
Current Base
Sq. Ft. and Annual Rental
% of Net and % of Gross
Year of Rentable Base Annual Renewal
Name Expiration Area Rental Options
---- ---------- ---- ------ -------
ICT Group, Inc. 1998 6,031 (10.7%) $ 70,524 (15.2%) None
ITT Educational
Services, Inc. 2004 20,232 (36.0%) $204,948 (44.2%)(1) 1 Five-Year
(1) The lease provides that the tenant will pay its own electricity costs and
thus the base rent is below $12.50.
Other Tenants:
Current Base
Sq. Ft. and Annual Rental
% of Net and % of Gross
No. of Year of Rentable Base Annual Renewal
Tenants Expiration Area Rental Options
------- ---------- ---- ------ -------
4 1998 8,141 (14.5%) $108,720 (23.5%) None
1 1999 2,338 (4.2%) $ 29,225 (6.3%) None
None 2000-2005 -- -- None
1 2006 4,159 (7.4%) $ 49,908 (10.8%) None
The Willows of Plainview Phase I
- --------------------------------
Units at The Willows of Plainview Phase I include one and two-bedroom loft and
deluxe apartments and two-bedroom townhomes. All units have wall-to-wall
carpeting, individually controlled heating and air conditioning, dishwashers,
ranges, refrigerators and garbage disposals. All units, except one-bedroom
lofts, have washer/dryer hook-ups. The one-bedroom lofts have stackable washers
and dryers. Tenants have access to and the use of coin-operated washer/dryer
facilities, clubhouse, management offices, pool, whirlpool and tennis courts.
Monthly rental rates at The Willows of Plainview Phase I start at $639 for
one-bedroom apartments, $919 for two-bedroom apartments and $999 for two-bedroom
townhomes, with additional monthly rental amounts for special features and
locations. Tenants pay all costs of heating, air conditioning and electricity.
Most leases are for a period of one year. Units will be rented in some cases,
however, on a shorter term basis at an additional charge. The occupancy levels
at the apartment complex as of December 31 were 92% (1997), 89% (1996), 91%
(1995) and 87% (1994 and 1993).
The Willows of Plainview Phase II
- ---------------------------------
See the discussion under The Willows of Plainview Phase I. Monthly rental rates
at The Willows of Plainview Phase II start at $639 for one-bedroom apartments,
$919 for two-bedroom apartments and $1,019 for two-bedroom town homes, with
additional monthly rental amounts for special features and locations. The
occupancy levels at the apartment complex as of December 31 were 90% (1997), 92%
(1996), 94% (1995), 93% (1994) and 91% (1993).
Golf Brook Apartments
- ---------------------
Units at Golf Brook Apartments include two and three-bedroom units. All units
have wall-to-wall carpeting, individually controlled heating and air
conditioning, dishwashers, ranges, refrigerators, garbage disposals and
washer/dryer hook-ups. Tenants have access to and use of clubhouse, management
offices, pool and tennis courts.
- 10 -
Golf Brooks Apartments - Continued
- ----------------------------------
Monthly rental rates at Golf Brook Apartments start at $1,130 for two-bedroom
apartments and $1,360 for three-bedroom apartments, with additional monthly
rental amounts for special features and locations. Tenants pay all costs of
heating, air conditioning and electricity. Most leases are for a period of one
year. Units will be rented in some cases, however, on a shorter term basis at an
additional charge. The occupancy levels at the apartment complex as of December
31 were 96% (1997), 97% (1996), 91% (1995), 93% (1994) and 91% (1993).
Plainview Point III Office Center
- ---------------------------------
Base annual rents, which include the cost of utilities, range from $13.90 to
$17.00 per square foot for first and second floor office space and $13.00 per
square foot for lower level office space. The average base annual rental for all
types of space leased as of December 31, 1997 was $14.42 per square foot. Office
space is ordinarily leased for between two and six years with the majority of
current square footage being leased for a term of five years. Current leases
terminate between 1998 and 2001. Some leases provide for renewal options of
between two and five years at rates which are based upon increases in the
consumer price index and/or are negotiated between lessor and lessee. All leases
provide for tenants to contribute toward the payment of increases in common area
maintenance expenses, insurance, utilities and real estate taxes. As of December
31, 1997, there were seven tenants leasing space aggregating approximately
60,121 square feet of rentable area. The tenants who occupy Plainview Point III
Office Center are professional service oriented organizations. The principal
occupations/professions practiced include real estate and insurance. Four
tenants lease more than 10% of the office center's rentable area: The Prudential
Company of America (10.3%), Underwriters Safety & Claims, Inc. (18.4%), RE/MAX
Properties East, Inc. (24.4%) and Univa Health Network (26.7%). The occupancy
levels at the office center as of December 31 were 96% (1997), 91% (1996 ,1995
and 1994) and 87% (1993).
The following table contains approximate data concerning the leases in effect on
December 31, 1997:
Major Tenants:
Current Base
Sq. Ft. and Annual Rental
% of Net and % of Gross
Year of Rentable Base Annual Renewal
Name Expiration Area Rental Options
---- ---------- ---- ------ -------
The Prudential Company
of America 1998 6,474 (10.3%) $ 95,964 (11.1%) 1 Five-Year
Underwriters Safety &
Claims, Inc. 2001 11,535 (18.4%) $149,952 (17.3%) None
RE/MAX Properties East,
Inc. 1999 15,300 (24.4%) $225,600 (26.0%) 1 Two-Year
Univa Health Network 2000 16,727 (26.7%) $232,500 (26.8%) 1 Five-Year
Other Tenants:
Current Base
Sq. Ft. and Annual Rental
% of Net and % of Gross
No. of Year of Rentable Base Annual Renewal
Tenants Expiration Area Rental Options
- ------- ---------- ---- ------ -------
None 1998-1999 -- -- --
3 2000 10,085 (16.1%) $163,140 (18.8%) 1 Three-Year
- 11 -
Blankenbaker Business Center 1A
- -------------------------------
Prudential Service Bureau, Inc. has leased 100% of Blankenbaker Business Center
1A. The annual base rent, which does not include the cost of utilities, is $7.89
per square foot for ground floor office space and $7.10 per square foot for
second floor office space. The average base annual rental for all types of space
leased as of December 31, 1997 was $7.48. The lease term is for 11 years and
expires in July 2005. Prudential Service Bureau, Inc. is a professional service
oriented organization which deals in insurance claim processing. The lease
provides for the tenant to contribute toward the payment of common area
expenses, insurance and real estate taxes. The occupancy level at the business
center as of December 31, 1997, 1996, 1995, 1994 and 1993 was 100%.
The following table contains approximate data concerning the lease in effect as
of December 31, 1997:
Major Tenant:
Current Base
Sq. Ft. and Annual Rental
% of Net and % of Gross
Year of Rentable Base Annual Renewal
Name Expiration Area(1) Rental Options
---- ---------- ------- ------ -------
Prudential Service
Bureau, Inc. 2005 48,463 (100%) $752,787 (100%) None
(1) Rentable area includes only ground floor square feet.
Lakeshore Business Center Phase I
- ---------------------------------
Base annual rents, which exclude the cost of utilities, currently range from
$9.78 to $12.47 per square foot for first floor office space, $6.18 to $10.58
per square foot for first floor service space and $8.93 to $11.75 per square
foot for second floor office space. The average base annual rental for all space
leased as of December 31, 1997 was $10.23. Space is ordinarily leased for
between one and eight years with the majority of current square footage being
leased for a term of five years. Current leases expire between 1998 and 2002.
All leases provide for tenants to contribute toward the payment of common area
expenses, insurance and real estate taxes. As of December 31, 1997, there were
34 tenants leasing office space (first and second floor) and service space
aggregating approximately 99,268 square feet of rentable area. The tenants who
occupy Lakeshore Business Center Phase I are professional service oriented
organizations. The principal occupations/professions practiced include health
care services, telemarketing services and management offices for both a cellular
communications chain and a soft drink company. One tenant leases more than 10%
of Lakeshore Business Center Phase I's rentable area: U. S. Homecare Infusion
Therapy Products of Florida (11.7%). The occupancy levels at the business center
as of December 31 were 96% (1997), 92% (1996 and 1995), 80% (1994)and 58%
(1993).
The following table contains approximate data concerning the leases in effect on
December 31, 1997:
Major Tenant:
Current Base
Sq. Ft. and Annual Rental
% of Net and % of Gross
Year of Rentable Base Annual Renewal
Name Expiration Area Rental Options
---- ---------- ---- ------ -------
U.S. Homecare
Infusion Therapy
Products of
Florida 1998 12,081 (11.7%) $135,912 (13.4%) (2)
(2) Tenant has option to renew its lease for an unspecified period of time.
- 12 -
Lakeshore Business Center Phase I - Continued
- ---------------------------------------------
Other Tenants:
Current Base
Sq. Ft. and Annual Rental
% of Net and % of Gross
No. of Year of Rentable Base Annual Renewal
Tenants Expiration Area Rental Options
- ------- ---------- ---- ------ -------
12 1998 23,293 (22.8%) $229,916 (22.6%) None
7 1999 31,162 (30.1%) $303,516 (29.9%) 5 Three-Year
9 2000 22,932 (22.2%) $236,435 (23.3%) 2 Three-Year
1 2001 1,495 (1.4%) $ 17,568 (1.7%) 1 Three-Year
4 2002 8,305 (8.0%) $ 92,592 (9.1%) 2 Three-Year
Lakeshore Business Center Phase II
- ----------------------------------
Base annual rents, which exclude the cost of utilities, currently range from
$10.00 to $12.54 per square foot for first floor office space and $9.80 to
$14.95 per square foot for second floor office space. The average base annual
rental for all space leased as of December 31, 1997 was $11.33. Space is
ordinarily leased for between one and six years with the majority of current
square footage being leased for a term of five years. Current leases expire
between 1998 and 2003. Five leases provide for renewal options at rates which
are based upon increases in the consumer price index and/or are negotiated
between lessor and lessee. All leases provide for tenants to contribute toward
the payment of common area expenses, insurance and real estate taxes. As of
December 31, 1997, there were 22 tenants leasing office space (first and second
floor) and service space aggregating approximately 95,981 square feet of
rentable area (1). The tenants who occupy Lakeshore Business Center Phase II are
professional service oriented organizations. The principal
occupations/professions practiced include health care services, insurance
services and management offices for the Florida state lottery. Three tenants
lease more than 10% of Lakeshore Business Center Phase II's rentable area:
Northwest Medical Center, Inc. (10.4%), Progressive American Insurance (10.9%)
and Lambda Physik (13.0%). The occupancy levels at the business center as of
December 31 were 100% (1997), 89% (1996), 72% (1995), 78% (1994) and 75% (1993).
The following table contains approximate data concerning the leases in effect on
December 31, 1997:
Major Tenants:
Current Base
Sq. Ft. and Annual Rental
% of Net and % of Gross
Year of Rentable Base Annual Renewal
Name Expiration Area(1) Rental Options
---- ---------- ------- ------ -------
Northwest Medical
Center, Inc. 2000 10,132 (10.4%) $130,584 (11.9%) None
Progressive American
Insurance 1999 10,580 (10.9%) $127,176 (11.5%) 1 Three-Year
Lambda Physik 2002 12,644 (13.0%) $139,080 (12.6%) 1 Five-Year
Other Tenants:
Current Base
Sq. Ft. and Annual Rental
% of Net and % of Gross
No. of Year of Rentable Base Annual Renewal
Tenants Expiration Area (1) Rental Options
------- ---------- ---------------- ---------------- ----------
4 1998 18,028 (18.5%) $213,575 (19.4%) (2)
4 1999 11,566 (11.9%) $128,970 (11.6%) 1 Three-Year
7 2000 15,677 (16.2%) $176,050 (16.1%) None
2 2001 8,361 (8.6%) $ 84,912 (7.7%) None
1 2002 4,805 (4.9%) $ 53,444 (4.8%) 1 Three-Year
1 2003 4,188 (4.3%) $ 48,156 (4.4%) None
(1) Excludes approximately 1,218 square feet which is occupied by the business
center's property management and leasing staff.
(2) 1 Two-Year and 1 Three-Year.
- 13 -
University Business Center Phase II
- -----------------------------------
Philip Crosby Associates, Inc. ("Crosby") had leased 100% of University Business
Center Phase II. (See above for a further discussion regarding Crosby and its
lease with the Joint Venture). The original lease term was for seven years and
the tenant took occupancy in April 1991. During 1997, Crosby abandoned its
business, sold all or most of its assets and informed the Joint Venture that it
may be insolvent. During the fourth quarter of 1997, the L/U II Joint Venture
accepted $300,000 from Crosby's parent company in full satisfaction of all
claims (the Partnership's proportionate share is $54,000 or 18%). As of December
31, 1997, approximately 85,000 square feet of the business center (including
approximately 10,000 square feet of mezzanine space) was occupied by four
tenants who previously had sub-leases with Crosby. Sub-lease base annual rents,
which exclude the cost of utilities, currently range from $8.89 to $11.70 per
square foot for first floor office space, first floor service space, second
floor office space and mezzanine space. The average base annual rental for all
types of space sublet as of December 31, 1997 was $10.24. The sub-tenants
occupying University Business Center Phase II are professional service oriented
organizations. The principal occupations/professions practiced include an
audio/video school and studio and home building. Two tenants have sublet more
than 10% of University Business Center Phase II's rentable area (1): U.S. Home
Corporation (11.7%) and Full Sail Recorders, Inc.(80.9%). The occupancy levels
at the business center as of December 31 were 99% (1997 and 1996), 95% (1995)
and 100% (1994 and 1993).
The following table contains approximate data concerning the sub-leases in
effect as of December 31, 1997:
Major Tenants:
Current Base
Sq. Ft. and Annual Rental
% of Net and % of Gross
Year of Rentable Base Annual Renewal
Name Expiration Area (1) Rental Options
---- ---------- -------------- ---------------- ---------
U.S. Home Corporation 1998 9,132 (11.7%) $105,744 (12.2%) None
Full Sail Recorders 1998 62,912 (80.9%) $735,984 (84.6%) (2)
Other Tenants:
Current Base
Sq. Ft. and Annual Rental
% of Net and % of Gross
No. of Year of Rentable Base Annual Renewal
Tenants Expiration Area (1) Rental Options
------- ---------- ---------------- ---------------- ----------
2 1998 2,602 ( 3.3%) $ 29,056 ( 3.2%) None
(1) Rentable area includes only first floor (office and service)square feet and
second floor office square feet and excludes 1,791 square feet of
maintenance space.
(2) Full Sail Recorders has signed a lease for 48,667 square feet beginning
April 1998 through July 2004 at a rate of $11.76 per square foot. Full Sail
has also signed a lease for an additional 20,696 square feet beginning April
1998 through July 2002 at a rate of $12.73 per square foot.
- 14 -
General - Continued
- -------------------
Additional operating data regarding the Partnership's properties is furnished in
the following table:
Federal Realty Annual
Tax Basis Tax Rate Realty Taxes
--------- -------- ------------
Wholly-Owned Properties
- -----------------------
Commonwealth Business
Center Phase I $4,018,470 $.010980 $ 35,363
Plainview Point Office
Center Phases I and II 3,442,293 .011180 18,051
The Willows of
Plainview Phase I 7,359,299 .011180 50,810
Property Owned in Joint
Venture with NTS-
Properties V
- ------------
The Willows of
Plainview Phase II 7,893,189 .011180 58,069
Properties Owned in
Joint Venture with NTS-
Properties VI
- -------------
Golf Brook Apartments 16,100,810 .018637 259,677
Plainview Point III
Office Center 4,193,863 .011180 34,849
Property Owned in Joint
Venture with NTS-
Properties VII and NTS-
Properties Plus Ltd.
- -------------------
Blankenbaker Business
Center 1A 7,356,545 .010980 56,914
Properties Owned
Through Lakeshore/
University II Joint
Venture (L/U II Joint
Venture)
- -------
Lakeshore Business
Center Phase I 10,133,167 .026789 176,642
Lakeshore Business
Center Phase II 12,204,414 .026789 140,432
University Business
Center Phase II 7,104,723 .020011 107,161
Percentage ownership has not been applied to the information in the above table
for properties owned through a joint venture.
- 15 -
General - Continued
- -------------------
Depreciation for book purposes is computed using the straight-line method over
the estimated useful lives of the assets which are 5-30 years for land
improvements, 30 years for buildings, 5-30 years for building improvements and
5-30 years for amenities. The estimated realty taxes on planned renovations,
primarily tenant improvements, is not material.
See Management's Discussion and Analysis of Financial Condition and Results
of Operations (Item 7) for explanations regarding the fluctuations of income
and occupancy at the Partnership's properties.
Investment in Joint Ventures
- ----------------------------
NTS Willows Phase II Joint Venture - On September 1, 1984, the Partnership
entered into a joint venture agreement with NTS-Properties V to develop,
construct, own and operate a 144 - unit luxury apartment complex on an 8.29 acre
site in Louisville, Kentucky known as The Willows of Plainview Phase II. The
term of the Joint Venture shall continue until dissolved.
Dissolution shall occur upon, but not before, the first to occur of the
following:
(a) the withdrawal, bankruptcy or dissolution of a Partner or the
execution by a Partner of an assignment for the benefit of its
creditors;
(b) the sale, condemnation or taking by eminent domain of all or
substantially all of the assets of the Partnership, other than its
cash and cash equivalent assets;
(c) the vote or consent of each of the Partners to dissolve the
Partnership; or
(d) September 30, 2028.
The Partnership contributed land valued at $800,000 and NTS-Properties V
contributed approximately $7,455,000, the construction and carrying costs of the
apartment complex. No future contributions are anticipated as of December 31,
1997.
The apartment complex is encumbered by permanent mortgages with two insurance
companies. Both loans are secured by a first mortgage on the property. The
outstanding balance of the mortgages at December 31, 1997 is $5,100,000
($3,193,000 and $1,907,000). The mortgages are recorded as a liability of the
Joint Venture. The Partnership's proportionate interest in the mortgages at
December 31, 1997 is $514,079 ($321,854 and $192,225). Both mortgages bear
interest at a fixed rate of 7.2% and are due January 5, 2013. At maturity, the
loans will have been repaid based on the current rate of amortization. See
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Item 7) for a further discussion regarding the terms of the debt
financing.
The Net Cash Flow for each calendar quarter is distributed to the Partners in
accordance with their respective Percentage Interests. The term Net Cash Flow
means the excess, if any, of (A) the gross receipts from the operations of the
Joint Venture Property (including investment income) for such period plus any
funds released from previously established reserves (referred to in clause (iv)
below), over (B) the sum of (i) all cash operating expenses paid by the Joint
Venture Property during such period in the course of business, (ii) capital
expenditures during such period not funded by capital contributions, loans or
paid out of previously established reserves, (iii) payments during such period
on account of amortization of the principal of any debts or liabilities of the
Joint Venture property and (iv) reserves for
- 16 -
Investment in Joint Ventures - Continued
- ----------------------------------------
contingent liabilities and future expenses of the Joint Venture Property.
Percentage Interest means that percentage which the capital contributions of a
Partner bears to the aggregate capital contributions of all the Partners.
Net income or net loss is allocated between the Partners in accordance with
their respective Percentage Interests. The Partnership's ownership share was 10%
at December 31, 1997.
The Partnership has no liability for funding losses of the joint venture as of
December 31, 1997.
NTS Ft. Lauderdale Office Joint Venture - On April 1, 1985, the Partnership
entered into a joint venture agreement with NTS-Properties V to develop,
construct, own and operate an office warehouse building in Ft. Lauderdale,
Florida known as Lakeshore Business Center Phase I.
The Partnership contributed land valued at $1,752,982 and NTS-Properties V
contributed approximately $9,170,000, the cost of constructing and leasing the
building. On January 23, 1995, the partners of the NTS Ft. Lauderdale Office
Joint Venture contributed Lakeshore Business Center Phase I to the newly formed
Lakeshore/University II (L/U II) Joint Venture. For a further discussion of the
Lakeshore/University II Joint Venture, see below.
NTS Sabal Golf Villas Joint Venture - On September 1, 1985, the Partnership
entered into a joint venture agreement with NTS-Properties VI to develop,
construct, own and operate a 158-unit luxury apartment complex on a 13.15 acre
site in Orlando, Florida known as Golf Brook Apartments Phase I. On January 1,
1987, the joint venture agreement was amended to include Golf Brook Apartments
Phase II, a 37-unit luxury apartment complex located on a 3.069 acre site
adjacent to Golf Brook Apartments Phase I. The term of the Joint Venture shall
continue until dissolved. Dissolution shall occur upon, but not before, the
first to occur of the following:
(a) the withdrawal, bankruptcy or dissolution of a Partner or the
execution by a Partner of an assignment for the benefit of its
creditors;
(b) the sale, condemnation or taking by eminent domain of all or
substantially all of the assets of the Partnership, other than its
cash and cash-equivalent assets;
(c) the vote or consent of each of the Partners to dissolve the
Partnership; or
(d) September 30, 2025.
The Partnership contributed land valued at $1,900,000 with a related note
payable to a bank of $1,200,000. NTS-Properties VI contributed approximately
$15,800,000, the cost of constructing and leasing the apartments. NTS-Properties
VI also contributed funds to retire the $1,200,000 note payable to a bank. No
future contributions are anticipated as of December 31, 1997.
Golf Brook Apartments is encumbered by a mortgage payable to an insurance
company. The original borrowings obtained by the Partnership for Golf Brook
Apartments were used to fund a portion of the Partnership's contribution to the
Joint Venture. The current mortgage payable of $9,000,000 is recorded as a
liability by the Partnership in accordance with the Joint Venture Agreement. The
mortgage payable bears interest at a fixed rate of 7.43%, is due May 15, 2009
and is secured by the assets of Golf Brook Apartments. At maturity, the loan
will have been repaid based on the current rate of amortization.
- 17 -
Investment in Joint Ventures - Continued
- ----------------------------------------
The Net Cash Flow for each calendar quarter is distributed to the Partners in
accordance with their respective Percentage Interests. The Term Net Cash Flow
means the excess, if any, of (a) the sum of (i) the gross receipts of the Joint
Venture Property, for such period, other than capital contributions, plus (ii)
any funds from previously established reserves (referred to in clause (b) (iv)
below), over (b) the sum of (i) all cash expenses paid by the Joint Venture
Property during such period, (ii) all capital expenditures paid in cash during
such period, (iii) payments during such period on account of amortization of the
principal of any debts or liabilities of the Joint Venture Property, and (iv)
reserves for contingent liabilities and future expenses of the Joint Venture
Property, as established by the Partners; provided, however, that the amounts
referred to in (i), (ii) and (iii) above shall be taken in to account only to
the extent not funded by capital contributions or paid out of previously
established reserves. Percentage Interest means that percentage which the
capital contributions of a Partner bears to the aggregate capital contributions
of all the Partners.
Net income or net loss is allocated between the Partners in accordance with
their respective Percentage Interests. The Partnership's ownership share was 4%
at December 31, 1997.
The Partnership has no liability for funding losses of the joint venture as of
December 31, 1997.
Plainview Point III Joint Venture - On March 1, 1987, the Partnership entered
into a joint venture agreement with NTS-Properties VI to develop, construct, own
and operate an office building in Louisville, Kentucky known as Plainview Point
III Office Center. The terms of the Joint Venture shall continue until
dissolved. Dissolution shall occur upon, but not before, the first to occur of
the following:
(a) the withdrawal, bankruptcy or dissolution of a Partner or the
execution by a Partner of an assignment for the benefit of its
creditors;
(b) the sale, condemnation or taking by eminent domain of all or
substantially all of the assets of the Real Property, unless such
disposition is, in whole or in part, represented by a promissory
note of the purchaser;
(c) the vote or consent of each of the Partners to dissolve the
Partnership; or
(d) December 30, 2026.
The Partnership contributed land valued at $790,000 with an outstanding note
payable to a bank of $550,000 which was secured by the land. NTS-Properties VI
contributed approximately $4,100,000, the cost to construct and lease the
building. NTS-Properties VI also contributed funds to retire the $550,000 note
payable to the bank. No future contributions are anticipated as of December 31,
1997.
The office center is not encumbered by any outstanding mortgages as of December
31, 1997.
The Net Cash Flow for each calendar quarter is distributed to the Partners in
accordance with their respective Percentage Interests. The term Net Cash Flow
means the excess, if any, of (a) the sum of (i) the gross receipts of the Joint
Venture Property, for such period, other than capital contributions, plus (ii)
any funds from previously established reserves (referred to in clause (b) (iv)
below), over (b) the sum of (i) all cash expenses paid by the Joint Venture
Property during such period, (ii) all capital expenditures paid in cash during
such period, (iii) payments during such period on account of amortization of the
principal of any debts or liabilities of the Joint Venture Property, and (iv)
reserves for contingent
- 18 -
Investment in Joint Ventures - Continued
- ----------------------------------------
liabilities and future expenses of the Joint Venture Property, as established by
the Partners; provided, however, that the amounts referred to in (i), (ii) and
(iii) above shall be taken in to account only to the extent not funded by
capital contributions or paid out of previously established reserves. Percentage
Interest means that percentage which the capital contributions of a Partner
bears to the aggregate capital contributions of all the Partners.
Net income or net loss is allocated between the Partners in accordance with
their respective Percentage Interests. The Partnership's ownership share was 5%
at December 31, 1997.
The Partnership has no liability for funding losses of the joint venture as of
December 31, 1997.
Blankenbaker Business Center Joint Venture - On August 16, 1994, the
Blankenbaker Business Center Joint Venture agreement was amended to admit the
Partnership to the Joint Venture. The Joint Venture was originally formed on
December 28, 1990 between NTS-Properties Plus Ltd. and NTS- Properties VII,
Ltd., affiliates of the General Partner of the Partnership, to own and operate
Blankenbaker Business Center 1A and to acquire an approximately 2.49 acre
parking lot that was being leased by the business center from an affiliate of
the General Partner. The use of the parking lot is a provision of the tenant's
lease agreement with the business center. The terms of the Joint Venture shall
continue until dissolved. Dissolution shall occur upon, but not before, the
first to occur of the following:
(a) the withdrawal, bankruptcy or dissolution of a Partner or the
execution by a Partner of an assignment for the benefit of its
creditors;
(b) the sale, condemnation or taking by eminent domain of all or
substantially all of the assets of the Real Property and Parking
Lot and the sale and/or collection of any evidences of
indebtedness received in connection therewith;
(c) the vote or consent of each of the Partners to dissolve the
Partnership; or
(d) December 31, 2030.
In 1990 when the Joint Venture was originally formed, NTS-Properties VII, Ltd.
contributed $450,000 which was used for additional tenant improvements to the
business center, and contributed $325,000 to purchase the 2.49 acre parking lot.
The additional tenant improvements were made to the business center and the
parking lot was purchased in 1991. NTS-Properties Plus Ltd. contributed
Blankenbaker Business Center 1A together with improvements and personal property
subject to mortgage indebtedness of $4,715,000. During November 1994, this note
payable was replaced with permanent financing in the amount of $4,800,000. The
outstanding balance at December 31, 1997 was $3,869,108. The mortgage is
recorded as a liability of the Joint Venture. The Partnership's proportionate
interest in the mortgage at December 31, 1997 was $1,163,828. The mortgage bears
interest at a fixed rate of 8.5% and is due November 15, 2005. Monthly principal
payments are based upon an 11-year amortization. At maturity, the mortgage will
have been repaid based on the current rate of amortization.
On April 28, 1994, the Joint Venture obtained $1,100,000 in debt financing to
fund a portion of the tenant finish and leasing costs which were associated with
the Prudential Service Bureau, Inc. lease renewal and expansion. The $1,100,000
note bore interest at the Prime Rate + 1 1/2%. In order for the Joint Venture to
obtain the $4,800,000 of permanent financing discussed above, it was necessary
for the Joint Venture to seek an
- 19 -
Investment in Joint Ventures - Continued
- ----------------------------------------
additional Joint Venture partner to provide the funds necessary for the tenant
finish and leasing costs instead of debt financing. The $1,100,000 note was
retired in August 1994. This resulted in the Joint Venture's debt being at a
level where permanent financing could be obtained and serviced.
On August 16, 1994, NTS-Properties IV contributed $1,100,000 and NTS- Properties
VII, Ltd. contributed $500,000 in accordance with the agreement to amend the
Joint Venture. The need for additional capital by the Joint Venture was a result
of the lease renewal and expansion which was signed April 28, 1994 between the
Joint Venture and Prudential. NTS-Properties Plus Ltd. was not in a position to
contribute additional capital, nor was NTS-Properties VII, Ltd. in a position to
contribute all of the capital required for this project. NTS-Properties IV was
willing to participate in the Joint Venture and to contribute, together with
NTS-Properties VII, Ltd., the capital necessary with respect to the project.
NTS-Properties Plus Ltd. agreed to the admission of NTS-Properties IV to the
Joint Venture, and to the capital contributions by NTS-Properties IV and
NTS-Properties VII, Ltd. with the knowledge that its joint venture interest
would, as a result, decrease. With this expansion, Prudential occupied 100% of
the business center. No future contributions are anticipated as of December 31,
1997.
The Net Cash Flow for each calendar quarter is distributed to the Partners in
accordance with the respective Percentage Interests. The term Net Cash Flow for
any period shall mean the excess, if any, of (A) the sum of (i) the gross
receipts of the Joint Venture Property for such period, other than capital
contributions, plus (ii) any funds released by the Partners from previously
established reserves (referred to in clause (B) (iv) below), over (B) the sum of
(i) all cash operating expenses paid by the Joint Venture Property during such
period in the course of the business, (ii) capital expenditures paid in cash
during such period, (iii) payments during such period on account of amortization
of the principal of any debts or liabilities of the Joint Venture Property and
(iv) reserves for contingent liabilities and future expenses of the Joint
Venture Property as established by the Partners; provided, however, that the
amounts referred to in (B)(i), (ii) and (iii) above shall only be taken into
account to the extent not funded by capital contributions or paid out of
previously established reserves. Percentage Interest means that percentage which
the capital contributions of a Partner bears to the aggregate capital
contributions of all the Partners.
Net income or net loss is allocated between the Partners in accordance with
their respective Percentage Interests. The Partnership's ownership share was 30%
at December 31, 1997.
The Partnership has no liability for funding losses of the joint venture as of
December 31, 1997.
Lakeshore/University II Joint Venture - On January 23, 1995, a new joint venture
known as the Lakeshore/University II Joint Venture (L/U II Joint Venture) was
formed among the Partnership and NTS-Properties V, NTS- Properties Plus Ltd. and
NTS/Fort Lauderdale, Ltd., affiliates of the General Partner of the Partnership,
for purposes of owning Lakeshore Business Center Phases I and II, University
Business Center Phase II and certain undeveloped tracts of land adjacent to the
Lakeshore Business Center development.
- 20 -
Investment in Joint Ventures - Continued
- ----------------------------------------
The table below identifies which properties were contributed to the L/U II Joint
Venture and the respective owners of such properties prior to the formation of
the joint venture.
Property Contributing Owner
-------- ------------------
Lakeshore Business Center Phase I NTS-Properties IV and NTS-
Properties V
Lakeshore Business Center Phase II NTS-Properties Plus Ltd.
Undeveloped land adjacent to the NTS-Properties Plus Ltd.
Lakeshore Business Center
development (3.8 acres)
Undeveloped land adjacent to the NTS/Fort Lauderdale, Ltd.
Lakeshore Business Center
development (2.4 acres)
University Business Center Phase II NTS-Properties V and NTS-
Properties Plus Ltd.
The term of the Joint Venture shall continue until dissolved. Dissolution shall
occur upon, but not before, the first to occur of the following:
(a) the withdrawal, bankruptcy or dissolution of a Partner or the
execution by a Partner of an assignment for the benefit of its
creditors;
(b) the sale, condemnation or taking by eminent domain of all or
substantially all of the Real Property and the sale and/or
collection of any evidences of indebtedness received in connection
therewith;
(c) the vote or consent of each of the Partners to dissolve the
Partnership; or
(d) December 31, 2030.
Each of the properties was contributed to the L/U II Joint Venture subject to
existing indebtedness, except for Lakeshore Business Center Phase I which was
contributed to the joint venture free and clear of any mortgage liens, and all
such indebtedness was assumed by the joint venture. Mortgages were recorded on
Lakeshore Business Center Phase I in the amount of $5,500,000, and on University
Business Center Phase II in the amount of $3,000,000, in favor of the banks
which held the indebtedness on University Business Center Phase II, Lakeshore
Business Center Phase II and the undeveloped tracts of land prior to the
formation of the joint venture. In addition to the above, the Partnership also
contributed $750,000 to the L/U II Joint Venture. As a result of the valuation
of the properties contributed to the L/U II Joint Venture, the Partnership
obtained an 18% partnership interest in the joint venture.
The properties of the L/U II Joint Venture are encumbered by mortgages payable
to an insurance company as follows:
Loan Balance
at 12/31/97 Encumbered Property
----------- -------------------
$5,606,774 Lakeshore Business Center Phase II
$5,374,127 University Business Center Phase II
$5,211,275 Lakeshore Business Center Phase I
- 21 -
Investment in Joint Ventures - Continued
- ----------------------------------------
The loans are recorded as liabilities of the Joint Venture. The Partnership's
proportionate interest in the loans at December 31, 1997 was $2,890,304
($1,000,809, $959,282 and $930,213). The mortgages bear interest at a fixed rate
of 8.125% and are due August 1, 2008. Monthly principal payments are based upon
a 12-year amortization schedule. At maturity, the loans will have been repaid
based on the current rate of amortization.
The Net Cash Flow for each calendar quarter is distributed to the Partners in
accordance with their respective Percentage Interest. The term Net Cash Flow
means the excess, if any, of (A) the sum of (i) the gross receipts of the Joint
Venture Properties for such period (including loan proceeds), other than capital
contributions, plus (ii) any funds released from previously established reserves
(referred to in clause (B)(iv) below), over (B) the sum of (i) all cash
operating expenses paid by the Joint Venture during such period in the course of
business, (ii) capital expenditures paid in cash during such period, (iii)
payments during such period on account of amortization of the principal of any
debts or liabilities of the Joint Venture and (iv) reserves for contingent
liabilities and future expenses of the Joint Venture, as established by the
Partners; provided, however, that the amounts referred to in (B)(i), (ii) and
(iii) above shall only be taken into account to the extent not funded by capital
contributions or paid out of previously established reserves. Percentage
Interest means that percentage which the capital contributions of a Partner
bears to the aggregate capital contributions of all the Partners.
Net income or net loss is allocated between the partners in accordance with
their respective Percentage Interests. The Partnership's ownership share was 18%
at December 31, 1997.
The Partnership had no liability for funding losses of the joint venture as of
December 31, 1997.
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, 1997, there are no properties under construction
in the respective vicinities in which the properties are located, except for, in
the vicinity of Golf Brook Apartments, there are 726 apartment units currently
under construction which are scheduled to be completed during 1998. At this time
it is unknown the effect these new units will have on occupancy at Golf Brook
Apartments. 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 leasing for each property.
Management of Properties
- ------------------------
NTS Development Company, an affiliate of NTS-Properties Associates IV, 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 IV. Under the agreement, the Property Manager
establishes rental policies and rates and directs the marketing activity of
- 22 -
Management of Properties - Continued
- ------------------------------------
leasing personnel. It 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, the Property Manager received a
total of $208,837 for the year ended December 31, 1997. $138,351 was received
from commercial properties and $70,486 was received from residential properties.
The fee is equal to 6% of gross revenues from commercial properties and 5% of
gross revenues from residential properties.
In addition, the management agreement requires the Partnership to purchase all
insurance relating to the managed properties, to pay the direct out-of-pocket
expenses of the Property Manager 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 the Property Manager for the salaries,
commissions, fringe benefits, and related employment expenses of on-site
personnel.
The term of the Management Agreement between NTS Development Company and the
Partnership was initially for five years, and thereafter for succeeding one-year
periods, unless canceled. The Agreement is subject to cancellation by either
party upon sixty days written notice. As of December 31, 1997, the Management
Agreement is still in effect.
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 judgment
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 by the General Partner of 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 competing
properties now and in the future in addition to those existing properties which
may compete directly or indirectly. NTS Development Company, the Property
Manager and 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 than that 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.
- 23 -
Item 3. Legal Proceedings
-----------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
- 24 -
PART II
Item 5. Market for Registrant's Limited Partnership Interests and Related
-----------------------------------------------------------------
Partner Matters
---------------
There is no established trading market for the limited partnership interests.
The Partnership had 2,385 limited partners as of March 6, 1998. Cash
distributions and allocations of income and loss are made as described in Note
1C to the Partnership's 1997 financial statements.
Annual distributions totaling $8.00 (1996) and $37.00 (1995) were paid per
limited partnership unit. 1995 distributions include a $25 per unit special
distribution from the Partnership's cash reserves. No distribution was made
during 1997. Quarterly distributions are determined based on current cash
balances, cash flow being generated by operations and cash reserves needed, as
determined by the General Partner, for future leasing costs, tenant finish costs
and capital improvements. Distributions were paid quarterly as follows:
1997 1996 1995
---------- ---------- -------
First quarter $ -- $ 3.00 $28.00
Second quarter -- 3.00 3.00
Third quarter -- 2.00 3.00
Fourth quarter -- -- 3.00
------ ------ -----
$ -- $ 8.00 $37.00
====== ====== =====
The table below presents that portion of the distributions that represent a
return of capital on a Generally Accepted Accounting Principle basis for the
years ended December 31, 1997, 1996 and 1995.
Cash
Net Loss Distributions Return of
Allocated Declared Capital
--------- -------- -------
Limited Partners:
1997 $ (48,560) $ -- $ --
1996 (45,719) 222,842 222,842
1995 (422,220) 1,100,565 1,100,565
General Partner:
1997 $ (490) $ -- $ --
1996 (462) 2,251 2,251
1995 (4,265) 11,117 11,117
- 25 -
Item 6. Selected Financial Data
-----------------------
Years ended December 31, 1997, 1996, 1995, 1994 and 1993.
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
Rental and other income $ 3,708,597 $ 3,577,554 $ 3,285,430 $ 2,595,299 $ 2,184,317
Total expenses (3,680,643) (3,610,839) (3,711,915) (2,901,514) (2,448,865)
------------ ------------ ------------ ------------ ------------
Income (loss) before
extraordinary item 27,954 (33,285) (426,485) (306,215) (264,548)
Extraordinary item (77,004) (12,896) -- -- --
------------ ------------ ------------ ------------ ------------
Net loss $ (49,050) $ (46,181) $ (426,485) $ (306,215) $ (264,548)
============ ============ ============ ============ ============
Net loss allocated to:
General Partner $ (490) $ (462) $ (4,265) $ (3,062) $ (2,645)
Limited partners $ (48,560) $ (45,719) $ (422,220) $ (303,153) $ (261,903)
Net loss per limited
partnership unit $ (1.82) $ (1.63) $ (14.19) $ (10.19) $ (8.80)
Weighted average number
of limited partnership
units 26,708 28,012 29,745 29,745 29,745
Cumulative net income
(loss)allocated to:
General Partner $ 2,916 $ 3,406 $ 3,868 $ 8,133 $ 11,195
Limited partners $ 288,540 $ 337,100 $ 382,819 $ 805,039 $ 1,108,192
Cumulative taxable income (loss)allocated to:
General Partner $ (24,092) $ (24,618) $ (24,486) $ (20,830) $ (14,278)
Limited partners $ (2,385,433) $ (2,437,521) $ (2,424,353) $ (2,062,388) $ (1,413,707)
Distributions declared:
General Partner $ -- $ 2,251 $ 11,117 $ 3,479 $ 3,438
Limited partners $ -- $ 222,842 $ 1,100,565 $ 344,447 $ 340,282
Cumulative distributions
declared to:
General Partner $ 218,253 $ 218,253 $ 216,002 $ 204,885 $ 201,406
Limited partners $ 21,607,636 $ 21,607,636 $ 21,384,794 $ 20,284,229 $ 19,939,782
At year end:
Land, buildings and
amenities, net $ 13,023,781 $ 13,801,251 $ 14,617,818 $ 11,974,200 $ 9,808,367
Total assets $ 14,812,308 $ 15,406,286 $ 16,645,788 $ 15,483,541 $ 15,242,567
Mortgages and notes
payable $ 10,706,802 $ 11,236,625 $ 11,592,641 $ 8,895,313 $ 8,132,325
The above selected financial data should be read in conjunction with the
financial statements and related notes appearing elsewhere in this Form 10-K
report.
- 26 -
Item 7. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
Results of Operations
- ---------------------
The occupancy levels at the Partnership's properties as of December 31 were as
follows:
Percentage
Ownership at
12/31/97 1997 1996 1995
------------ ---- ---- ----
Wholly-Owned Properties
- -----------------------
Commonwealth Business Center 100% 87% 86% 86%
Phase I
Plainview Point Office Center 100% 73% 88% 85%
Phases I and II
The Willows of Plainview Phase I 100% 92% 89% 91%
Properties Owned in Joint Venture
with NTS-Properties V
- ---------------------------------
The Willows of Plainview Phase II 10% 90% 92% 94%
Lakeshore Business Center Phase I See
(See L/U II Joint Venture below) N/A N/A N/A below
(1)
Properties Owned in Joint Venture
with NTS-Properties VI
- ---------------------------------
Golf Brook Apartments 4% 96% 97% 91%
Plainview Point III Office Center 5% 96% 91% 91%
Property Owned in Joint Venture
with NTS-Properties VII, Ltd. and
NTS-Properties Plus Ltd.
- ---------------------------------
Blankenbaker Business Center 1A 30% 100% 100% 100%
Properties Owned Through
Lakeshore/University II Joint
Venture (L/U II Joint Venture)
- ------------------------------
Lakeshore Business Center Phase I 18% 96% 92% 92%
Lakeshore Business Center Phase II 18% 100% 89% 72%
University Business Center 18% 99% 99% 95%
Phase II
(1) During the first quarter of 1995, the Partnership's ownership interest in
Lakeshore Business Center Phase I changed. See below for a discussion
regarding this change.
- 27 -
Results of Operations - Continued
- ---------------------------------
The rental and other income generated by the Partnership's properties for the
years ended December 31, 1997, 1996 and 1995 were as follows:
Percentage
Ownership
at 12/31/97 1997 1996 1995
----------- ----------- ----------- --------
Wholly-Owned Properties
- -----------------------
Commonwealth Business
Center Phase I 100% $ 657,888 $ 684,996 $ 618,041
Plainview Point Office
Center Phases I and II 100% $ 571,950 $ 544,023 $ 462,855
The Willows of Plainview
Phase I 100% $1,231,150 $1,108,767 $1,043,360
Properties Owned in Joint
Venture with NTS-
Properties V
- -------------------------
The Willows of Plainview
Phase II 10% $ 137,881 $ 123,547 $ 115,380
Lakeshore Business Center
Phase I (See L/U II Joint $ 14,282
Venture below) N/A N/A N/A (1)
Properties Owned in Joint
Venture with NTS-
Properties VI
- -------------------------
Golf Brook Apartments 4% $ 113,578 $ 115,828 $ 112,549
Plainview Point III
Office Center 5% $ 38,512 $ 38,079 $ 22,351
Property Owned in Joint
Venture with NTS-
Properties VII, Ltd. And
NTS-Properties Plus Ltd.
- ------------------------
Blankenbaker Business
Center 1A 30% $ 277,713 $ 277,578 $ 275,378
(Continued next page)
Revenues shown in the table above and below for properties owned through a joint
venture represent only the Partnership's percentage interest in those revenues.
(1) During the first quarter of 1995, the Partnership's ownership interest in
Lakeshore Business Center Phase I changed. The Partnership's
proportionate share of rental and other income from January 23, 1995 to
December 31, 1995 is reflected below. See below for a discussion
regarding this change.
- 28 -
Results of Operations - Continued
- ---------------------------------
Percentage
Ownership
at 12/31/97 1997 1996 1995
----------- ----------- ----------- --------
Properties Owned through
Lakeshore/University II
Joint Venture (L/U II
Joint Venture)
- ------------------------
Lakeshore Business Center
Phase I 18% $ 253,826 $ 237,375 $ 191,785
Lakeshore Business Center
Phase II 18% $ 251,910 $ 207,357 $ 192,167
University Business
Center Phase II 18% $ 148,536 $ 215,922 $ 198,064
As previously discussed in the Partnership's Form 10-K for the year ended
December 31, 1996, on January 23, 1995, a new joint venture known as the
Lakeshore/University II Joint Venture (L/U II Joint Venture) was formed among
the Partnership and NTS-Properties V, NTS-Properties Plus Ltd. and NTS/Fort
Lauderdale, Ltd., affiliates of the General Partner of the Partnership, for
purposes of owning Lakeshore Business Center Phases I and II, University
Business Center Phase II and certain undeveloped tracts of land adjacent to the
Lakeshore Business Center development.
The table below identifies which properties were contributed to the L/U II Joint
Venture and the respective owners of such properties prior to the formation of
the joint venture.
Property Contributing Owner
-------- ------------------
Lakeshore Business Center Phase I NTS-Properties IV and NTS-
Properties V
Lakeshore Business Center Phase II NTS-Properties Plus Ltd.
Undeveloped land adjacent to the NTS-Properties Plus Ltd.
Lakeshore Business Center
development (3.8 acres)
Undeveloped land adjacent to the NTS/Fort Lauderdale, Ltd.
Lakeshore Business Center
development (2.4 acres)
University Business Center NTS-Properties V and NTS-Properties
Phase II Plus Ltd.
Each of the properties were contributed to the L/U II Joint Venture subject to
existing indebtedness, except for Lakeshore Business Center Phase I which was
contributed to the joint venture free and clear of any mortgage liens, and all
such indebtedness was assumed by the joint venture. Mortgages were recorded on
Lakeshore Business Center Phase I in the amount of $5,500,000, and on University
Business Center Phase II in the amount of $3,000,000, in favor of the banks
which held the indebtedness on University Business Center Phase II, Lakeshore
Business Center Phase II and the undeveloped tracts of land prior to the
formation of the joint venture. In addition to the above, the Partnership also
contributed $750,000 to the L/U II Joint Venture. As
- 29 -
Results of Operations - Continued
- ---------------------------------
a result of the valuation of the properties contributed to the L/U II Joint
Venture, the Partnership obtained an 18% partnership interest in the joint
venture.
The 1% increase in year-ending occupancy at Commonwealth Business Center Phase I
can be attributed to four new leases totaling approximately 7,500 square feet.
Included in the total are two expansions of approximately 5,000 square feet by
existing tenants. Partially offsetting the new leases are two tenant move-outs
of approximately 7,200 square feet. One tenant vacated at the end of the lease
term (4,000 square feet) and one tenant vacated the premises prior to the end of
the lease term due to a downsizing decision by the tenant's parent company
(3,200 square feet). The tenant paid the Partnership a lease termination fee of
$6,300 in the fourth quarter of 1996 (recorded as rental income). There was no
accrued income connected with this lease. Average occupancy decreased from 91%
in 1996 to 85% in 1997. Rental and other income at Commonwealth Business Center
Phase I decreased from 1996 to 1997 primarily as a result of the decrease in
average occupancy.
Year-ending occupancy at Commonwealth Business Center Phase I remained constant
at 86% from 1995 to 1996. During 1996, there was one new lease for a total of
3,600 square feet and an expansion of approximately 1,600 square feet by an
existing tenant. Offsetting the new lease and expansion is one tenant move-out
at the end of the lease term of approximately 5,500 square feet. Average
occupancy increased from 81% in 1995 to 91% in 1996. Rental and other income at
Commonwealth Business Center Phase I increased from 1995 to 1996 as a result of
the increase in average occupancy and an increase in common area expense
reimbursements. Tenants at Commonwealth Business Center Phase I reimburse the
Partnership for common area expenses as part of the lease agreements.
The 15% decrease in year-ending occupancy at Plainview Point Office Center
Phases I and II from 1996 to 1997 can be attributed to four tenant move-outs at
the end of the lease terms totaling approximately 9,500 square feet. Partially
offsetting the move-outs is one new lease of approximately 1,100 square feet.
Average occupancy at Plainview Point Office Center Phases I and II decreased
from 86% in 1996 to 83% in 1997. In the opinion of the General Partner of the
Partnership, the decrease in occupancy is only a temporary fluctuation and does
not represent a downward occupancy trend. Rental and other income at Plainview
Point Office Center Phases I and II increased from 1996 to 1997 primarily as a
result of an increase in common area expense reimbursements. Leases at Plainview
Point Office Center Phases I and II provide for tenants to contribute toward the
payment of increases in common area maintenance expenses, insurance, utilities
and real estate taxes.
As of December 31, 1997, Plainview Point Office Center Phases I and II has
approximately 8,400 square feet of additional office space leased to an existing
tenant which currently occupies approximately 20,000 square feet (or 36%) of the
building's total rentable area. The expansion is scheduled to occur in two
phases. The tenant took occupancy of the first phase, approximately 2,000 square
feet, during the first quarter of 1998. With the first phase of the expansion,
the office center's occupancy has improved to 76%. The second phase of the
expansion, approximately 6,400 square feet, is scheduled to occur during the
fourth quarter of 1999. See the Liquidity and Capital Resources section of this
item for the tenant finish commitment related to this lease.
The 3% increase in year-ending occupancy at Plainview Point Office Center
Phases I and II from 1995 to 1996 can be attributed to two new leases
totaling approximately 1,700 square feet. Included in this total is an
expansion of approximately 1,000 square feet by an existing tenant. There
- 30 -
Results of Operations - Continued
- ---------------------------------
were no tenant move-outs during 1996. Average occupancy at Plainview Point
Office Center Phases I and II has increased from 77% in 1995 to 86% in 1996.
Rental and other income at Plainview Point Office Center Phases I and II
increased in 1996 as compared to 1995 as a result of the increase in average
occupancy and an increase in rental rates.
Year-ending occupancy at The Willows of Plainview Phase I increased from 89%
(1996) to 92% (1997). Average occupancy increased from 89% (1996) to 93% (1997).
Occupancy at residential properties fluctuate on a continuous basis. Year-ending
occupancy percentages represent occupancy only on a specific date; therefore, it
is more meaningful to consider average occupancy percentages which are
representative of the entire year's results. The increase in rental and other
income at The Willow of Plainview Phase I from 1996 to 1997 is primarily due to
the increase in average occupancy.
Year-ending occupancy at The Willows of Plainview Phase I decreased from 91%
(1995) to 89% (1996). However, average occupancy from 1995 to 1996 increased
from 87% to 89%, respectively. The increase in rental and other income at The
Willows of Plainview Phase I from 1995 to 1996 is a result of the increase in
average occupancy, increased fees collected upon early lease terminations and an
increase in rental rates.
Year-ending occupancy at The Willows of Plainview Phase II decreased from 92%
(1996) to 90% (1997) and average occupancy decreased from 95% (1996) to 91%
(1997). The increase in rental and other income at The Willows of Plainview
Phase II is due primarily to an increase in income from fullyfurnished units.
Fully-furnished units are apartments which rent at an additional premium above
base rent. Therefore, it is possible for occupancy to decrease and revenues to
increase when the number of fully furnished units has increased.
The Willows of Plainview Phase II's year-ending occupancy decreased from 94%
(1995) to 92% (1996) and average occupancy increased from 92% (1995) to 95%
(1996). The increase in rental and other income from 1995 to 1996 is a result of
the increase in average occupancy, an increase in rental rates and an increase
in income from fully-furnished units.
Year-ending occupancy at Golf Brook Apartments decreased from 97% (1996) to 96%
(1997). Average occupancy decreased from 94% (1996) to 93% (1997). Golf Brook
Apartments' year-ending occupancy increased 6% from 1995 to 1996 while average
occupancy remained constant at 94% in 1995 and 1996. The change in rental and
other income at Golf Brook Apartments from 1996 to 1997 and from 1995 to 1996 is
not significant.
The 5% increase in year-ending occupancy at Plainview Point III Office Center
from 1996 to 1997 can be attributed to one new lease of approximately 4,800
square feet. Partially offsetting the new lease is the downsizing of an existing
tenant of approximately 1,600 square feet. Average occupancy decreased from 93%
(1996) to 90% (1997). Rental and other income remained fairly constant at
Plainview Point III Office Center from 1996 to 1997.
Year-ending occupancy at Plainview Point III Office Center remained constant
(91%) from 1995 to 1996. Two tenants expanded existing space for a total of
approximately 2,500 square feet and one tenant occupying 2,500 square feet
vacated at the end of the lease term. Average occupancy increased from 55%
(1995) to 93% (1996). Rental and other income increased at Plainview Point III
Office Center from 1995 to 1996 as a result of the increase in average
occupancy.
- 31 -
Results of Operations - Continued
- ---------------------------------
A wholly-owned subsidiary of The Prudential Insurance Company of America
(Prudential Service Bureau, Inc.) has leased 100% of Blankenbaker Business
Center 1A. In addition to monthly rent payments, Prudential Service Bureau, Inc.
is obligated to pay substantially all of the operating expenses attributable to
its space. The change in rental and other income at Blankenbaker Business Center
1A from 1996 to 1997 and from 1995 to 1996 was not significant.
The 4% increase in year-ending occupancy at Lakeshore Business Center Phase I
from 1996 to 1997 can be attributed to four new leases totaling approximately
6,400 square feet and an expansion by a current tenant of its existing space
totaling approximately 2,100 square feet. Partially offsetting the new leases
are three tenants vacating prior to the end of the lease term - one due to a
downsizing decision by the tenant's parent company (1,200 square feet - tenant
paid the L/U II Joint Venture a lease termination fee [recorded as rental
income] of approximately $7,000 of which the Partnership's proportionate share
is $1,300 or 18%), one due to a decision by management to allow a tenant to
terminate its lease early to accommodate a new long term tenant (1,900 square
feet - tenant paid the L/U II Joint Venture a lease termination fee [recorded as
rental income] of approximately $5,000 of which the Partnership's proportionate
share is $900 or 18%), and one due to a decision by management to allow a tenant
to terminate its lease early at Lakeshore Business Center Phase I (1,300 square
feet) and move into increased square footage at Lakeshore Business Center Phase
II in order to accommodate the tenant's needs. There was no accrued income
connected with these leases. Also partially offsetting the new leases is a
reduction of 466 square feet by a current tenant of its existing space. Average
occupancy at Lakeshore Business Center Phase I decreased from 97% in 1996 to 96%
in 1997. Rental and other income increased from 1996 to 1997 primarily as a
result of an increase in common area expense reimbursements. Tenants at the
business center reimburse the Partnership for common area expenses as part of
the lease agreements.
Year-ending occupancy at Lakeshore Business Center Phase I remained constant
(92%) from 1995 to 1996. Six new leases totaling approximately 10,600 square
feet, including approximately 3,400 square feet in expansions by two current
tenants, are offset by five tenant move-outs totaling approximately 10,000
square feet. The five move-outs consist of two tenants (2,700 square feet)
vacating at the end of the lease term, one tenant (1,600 square feet) exercising
a termination option, and two tenants vacating prior to the end of the lease
term - one due to a business decision to consolidate its office space at another
location (700 square feet - tenant paid rent through end of lease) and one due
to bankruptcy (5,000 square feet - tenant ceased rental payments). The write-off
of accrued income connected with these leases was not significant. Average
occupancy at Lakeshore Business Center Phase I increased from 84% in 1995 to 97%
in 1996. Rental and other income increased from 1995 to 1996 as a result of the
increase in average occupancy.
Year-ending occupancy at Lakeshore Business Center Phase II increased from 89%
(1996) to 100% (1997) as a result of five new leases totaling approximately
16,000 square feet which includes an approximately 1,800 square foot expansion
by Lambda Physik, a current tenant. Lambda Physik leases nearly 12,700 square
feet and has become the largest tenant in the building occupying approximately
13% of the building's total rentable square feet. Partially offsetting the new
leases is one tenant move-out, at the end of the lease term, of approximately
4,800 square feet. Average occupancy at Lakeshore Business Center Phase II
increased from 80% (1996) to 94% (1997). The increase in rental and other income
at Lakeshore Business Center Phase II from 1996 to 1997 is primarily a result of
the increase in average occupancy and an increase in common area expense
reimbursements.
- 32 -
Results of Operations - Continued
- ---------------------------------
Year-ending occupancy at Lakeshore Business Center Phase II increased from 72%
(1995) to 89% (1996) as a result of five new leases totaling approximately
19,200 square feet which includes approximately 7,000 square feet in expansions
by two current tenants. Partially offsetting the new leases and expansions is
one tenant move-out, totaling 2,800 square feet vacating prior to the end of the
lease term but continuing to pay rent through the end of the lease term (August
1997). Average occupancy at Lakeshore Business Center Phase II increased from
76% (1995) to 80% (1996). Overall, rental and other income at Lakeshore Business
Center Phase II remained fairly constant from 1995 to 1996 despite a 4% increase
in average occupancy. This is primarily a result of a decrease in rental rates
on lease renewals. As discussed in previous filings, prior to the Ft. Lauderdale
area experiencing an economic downturn, the property was able to negotiate
higher net effective rental rates than 1995 and 1996 market rental rates. As a
result, the leases that were renewed at the end of 1995 and the beginning of
1996 renewed at a lower net effective rental rate. The Partnership's
proportionate share of the rental and other income at Lakeshore Business Center
II, however, increased in 1996 as compared to 1995. This is due to the fact that
the Partnership acquired an interest in Lakeshore Business Center Phase II as a
result of the formation of the Lakeshore/University Joint Venture (L/U II Joint
Venture) on January 23, 1995. (See above for a discussion regarding the Joint
Venture.)
Philip Crosby Associates, Inc. ("Crosby") previously leased 100% of University
Business Center Phase II. The original lease term was for seven years and the
tenant took occupancy in April 1991. As a result of Crosby downsizing and
sub-leasing the majority of its leased space, occupancy has decreased to 99% at
December 31, 1997 and 1996 to 95% at December 31, 1995. During January 1997,
Crosby vacated the remaining space it occupied at the business center. See below
for further discussion of Crosby and its leased space. Rental and other income
at University Business Center Phase II decreased from 1996 to 1997 due to the
following. Through the end of 1996, Crosby continued to make rent payments
pursuant to the original lease term. During 1996, the Joint Venture received
notice that Crosby did not intend to pay full rental due under the lease
agreement including and subsequent to January 1997. Although the Joint Venture
does not presently have lease agreements(except as noted below) with Crosby's
sub-tenants, beginning February 1997, rent payments from Crosby's sub-tenants
have been made directly to the Joint Venture, which are substantially less than
what Crosby owed. During 1997, the Joint Venture recognized income to the extent
of what was collected from the sub-tenants. The decrease in rental and other
income is also due to the fact that approximately $70,000 of accrued income
connected with the Crosby lease was written-off during the first quarter of
1997, of which the Partnership's proportionate share was approximately $13,000
or 18%.
The Partnership's proportionate share of the rental and other income at
University Business Center Phase II increased from 1995 to 1996. This is due to
the fact that the Partnership acquired an interest in University Business Center
Phase II as a result of the formation of the L/U II Joint Venture on January 23,
1995. (See above for a discussion of the Joint Venture). Overall, rental and
other income at University Business Center Phase II remained fairly constant in
1996 as compared to 1995.
In cases of tenants who cease making rental payments or abandon the premises in
breach of their lease, the Partnership pursues collection through the use of
collection agencies or other remedies available by law when practical. In cases
where tenants have vacated as a result of bankruptcy, the Partnership has taken
legal action when it has thought there could be a possible collection. There
have been no funds recovered as a result of these actions during 1996 or 1995.
During 1997, $300,000 was collected from Philip Crosby Associates, Inc., a
former tenant at University Business Center Phase II. The Partnership's
proportionate share was $54,000 or 18%.
See below for a further discussion of this matter.
- 33 -
Results of Operations - Continued
- ---------------------------------
Current occupancy levels are considered adequate to continue the operation of
the Partnership's properties. See the Liquidity and Capital Resources section of
this item for a discussion regarding the Partnership's debt financing.
Interest and other income includes income from investments made by the
partnership with cash reserves. Interest income increased from 1996 to 1997 as a
result of an increase in cash reserves available for investment. The increase in
other income from 1996 to 1997 is a result of an insurance claim reimbursement
for roof damage exceeding the cost to repair the roof at The Willows of
Plainview Phases I and II. Interest and other income decreased from 1995 to 1996
as a result of a decrease in cash reserves available for investment.
The increase in operating expenses from 1996 to 1997 is due primarily to
increased landscaping costs and legal expenses at the Partnership's commercial
properties, increased exterior building renovations at Blankenbaker Business
Center 1A and increased advertising expenses at The Willows of Plainview Phases
I and II. There were no significant fluctuations in operating expenses at Golf
Brook Apartments from 1996 to 1997.
The increase in operating expenses from 1995 to 1996 is due partially to the
Partnership acquiring an interest in the L/U II Joint Venture in January 1995
(see discussion above). The increase in operating expenses is also due to
increased utility costs, increased general building maintenance costs and
increased legal expenses at the Partnership's commercial properties. There were
no significant fluctuations in operating expenses at the Partnership's
residential properties.
The increase in operating expenses-affiliated from 1996 to 1997 is due primarily
to increased property management costs at the Partnership's commercial
properties and at The Willows of Plainview Phases I and II. There were no
significant fluctuations in operating expenses-affiliated at Golf Brook
Apartments from 1996 to 1997. Operating expenses-affiliated are expenses for
services performed by employees of NTS Development Company, an affiliate of the
General Partner of the Partnership.
Operating expenses-affiliated decreased in 1996 as compared to 1995 primarily as
a result of decreased leasing and property management costs at Plainview Point
Office Center Phases I and II, Commonwealth Business Center Phase I and
Blankenbaker Business Center 1A. Partially offsetting the decrease in operating
expenses -affiliated is the Partnership's acquisition of an interest in the L/U
II Joint Venture in January 1995 (see discussion above). There were no
significant fluctuations in operating expenses- affiliated at the Partnership's
residential properties in 1996 as compared to 1995.
Both the 1996 and 1995 write-off of unamortized building improvements can be
attributed to Plainview Point Office Center Phases I and II. The 1996 write-off
is the result of an exterior stair replacement and represents the cost of the
stairs which were replaced that had not been fully depreciated. The 1995
write-off is the result of lobby renovations and represents the cost of previous
renovations that had not been fully depreciated.
The 1997 write-off of unamortized loan costs (treated as an extraordinary item)
relates to loan costs associated with The Willows of Plainview Phases I and II
mortgages payable. The unamortized loan costs were expensed due to the fact that
the mortgages were retired in 1997 prior to their maturity (December 5, 2003).
See the Liquidity and Capital Resources section of this item for further
discussion.
- 34 -
Results of Operations - Continued
- ---------------------------------
The 1996 write-off of unamortized loan costs relates to loan costs associated
with the L/U II Joint Venture's notes payable. The unamortized loan costs were
expensed due to the fact that the notes were retired in 1996 prior to their
maturity (January 31, 1998). See the Liquidity and Capital Resources section of
this item for further discussion.
The change in amortization of capitalized leasing costs from 1996 to 1997 is not
significant. The decrease in amortization of capitalized leasing costs from 1995
to 1996 is due primarily to costs capitalized during the initial lease-up at
University Business Center Phase II becoming fully amortized in 1995.
The decrease in interest expense from 1996 to 1997 is due primarily to a lower
interest rate on the permanent financing obtained by the L/U II Joint Venture in
July 1996 (8.125% compared to a rate of 10.6% on the previous debt). The
decrease is also due to continued principal payments on the mortgages payable by
the Partnership and its Joint Venture properties.
The decrease in interest expense in 1996 as compared to 1995 is due primarily to
continued principal payments on the mortgages and notes payable of the
Partnership and its joint venture properties. The decrease in interest expense
can also be attributed to a lower interest rate on the permanent financing
obtained by the L/U II Joint Venture on July 23, 1996. See the Liquidity and
Capital Resources section of this item for details regarding the Partnership's
debt.
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 of revenues between years will differ from the fluctuations of
management fee expense. The increase in management fee expense in 1996 as
compared to 1995 is also attributed to the Partnership acquiring an interest in
the L/U II Joint Venture in January 1995 (discussed above).
The change in real estate taxes from 1996 to 1997 is not significant. The
increase in real estate taxes from 1995 to 1996 is primarily due to the
Partnership acquiring an interest in the L/U II Joint Venture in January 1995
(discussed above). There were no significant fluctuations at the Partnership's
other properties from 1995 to 1996.
The increase in professional and administrative expenses from 1996 to 1997 is
due to an increase in outside legal fees. The decrease in professional and
administrative expenses from 1995 to 1996 is due mainly to a decrease in outside
legal fees and litigation settlement expenses. The litigation originally
instituted by an investor in the Partnership against her investment advisor and
involving claims between the investment advisor and the Partnership, its General
Partner and NTS-Properties V, an affiliate of the General Partner of the
Partnership, and its General Partner was settled during 1995. At a settlement
conference before the Court (U.S.D.C., S.D. NY), the parties agreed on a
confidential basis to settle the litigation, and any and all other claims of the
Third-Party Plaintiffs in exchange for the payment by the Partnership and
NTS-Properties V of certain monies, without the admission of fault or wrong
doing.
The decrease in professional and administrative expenses-affiliated from 1996 to
1997 is due mainly to decreased salary costs. Professional and administrative
expenses - affiliated are expenses for services performed by employees of NTS
Development Company, an affiliate of the General Partner.
The increase in professional and administrative expenses-affiliated from 1995 to
1996 is due mainly to increased salary costs.
- 35 -
Results of Operations - Continued
- ---------------------------------
The change in depreciation and amortization expense from 1996 to 1997 and from
1995 to 1996 was not significant. Depreciation is computed using the
straight-line method of depreciation over the estimated useful lives of the
assets which are 5-30 years for land improvements, 30 years for buildings, 5-30
years for building improvements and 5-30 years for amenities. The aggregate cost
of the Partnership's properties for Federal tax purposes is approximately
$24,600,000.
Liquidity and Capital Resources
- -------------------------------
Cash provided by operations was $1,176,545 (1997), $936,169 (1996) and $815,327
(1995). These funds, in conjunction with cash on hand, were used to make a 1.05%
(annualized) distribution of $225,093 (1996) and a 4.8% (annualized)
distribution of $1,111,682 (1995). The distribution made during the three months
ended March 31, 1995 included a special $751,136 distribution made from the
Partnership's cash reserves. The Partnership does not anticipate making another
special distribution in the near term. The annualized distribution rate is
calculated as a percent of the original capital contribution less a return of
capital of $235.64 per limited partnership unit made from the proceeds of the
sale of Sabal Club Apartments in 1988. The limited partners received 99% and the
General Partners received 1% of these distributions. No distributions were made
during the year ended December 31, 1997 or the quarter ended December 31, 1996
due to uncertainties involving the Crosby lease as discussed below.
Distributions will be resumed once the Partnership has established adequate cash
reserves and is generating cash from operations which, in management's opinion,
is sufficient to warrant future distributions. The primary source of future
liquidity and distributions is expected to be derived from cash generated by the
Partnership's properties after adequate cash reserves are established for future
leasing costs, tenant finish costs and other capital improvements. Cash reserves
(which are unrestricted cash and equivalents and investment securities as shown
on the Partnership's balance sheet as of December 31) were $698,481, $346,479,
and $681,197 at December 31, 1997, 1996 and 1995, respectively.
On July 23, 1996, the L/U II Joint Venture obtained three mortgage loans from an
insurance company totaling $17,400,000 ($6,025,000, $5,775,000 and $5,600,000).
The outstanding balances of the loans at December 31, 1997 were $5,606,774,
$5,374,127 and $5,211,275, respectively. The loans are recorded as a liability
of the Joint Venture. The Partnership's proportionate interest in the loans at
December 31, 1997 was $1,000,809, $959,282 and $930,213, respectively. The
mortgages bear interest at a fixed rate of 8.125%, are due August 1, 2008 and
are secured by the assets of the Joint Venture. Monthly principal payments are
based upon a 12-year amortization schedule. At maturity, the loans will have
been repaid based on the current rate of amortization. The proceeds from the
loans were used to pay off the Joint Venture's notes payable of approximately
$16,800,000 which bore interest at a fixed rate of 10.6% and to fund loan
closing costs of approximately $280,000. The Partnership's proportionate
interest in the notes which were paid off was approximately $3,000,000 or 18%.
The notes which were paid off had a maturity date of January 31, 1998. The
remaining proceeds will be used to fund Joint Venture tenant finish improvements
and leasing costs.
On December 21, 1997, the Partnership obtained two mortgage loans from an
insurance company totaling $3,900,000 ($1,998,000 and $1,902,000). The
outstanding balances of the loans at December 31, 1997 were $1,998,000 and
$1,902,000, respectively, for a total of $3,900,000. The mortgages bear interest
at a fixed rate of 7.2%, are due January 5, 2013 and are secured by The Willows
of Plainview Phase I. Monthly principal payments are based upon a 15-year
amortization schedule. At maturity, the loans will have been repaid based on the
current rate of amortization. The proceeds from the loans were used to pay off
the Partnership's mortgages payable of approximately $3,876,000 which bore
interest at a fixed rate of 7% and to fund loan closing costs. The notes which
were paid off had a maturity date of December 5, 2003.
- 36 -
Liquidity and Capital Resources - Continued
- -------------------------------------------
On December 21, 1997, The Willows of Plainview Phase II, an apartment joint
venture between the Partnership and NTS-Properties V, obtained two mortgage
loans from an insurance company totaling $5,100,000 ($3,193,000 and $1,907,000).
The outstanding balances of the loans at December 31, 1997 were $3,193,000 and
$1,907,000, respectively, for a total of $5,100,000. The Partnership's
proportionate interest in the loans at December 31, 1997 was $321,854 and
$192,225, respectively, for a total of $514,079. The mortgages bear interest at
a fixed rate of 7.2% , are due January 5, 2013 and are secured by the assets of
the Joint Venture. Monthly principal payments are based upon a 15-year
amortization schedule. At maturity, the loans will have been repaid based on the
current rate of amortization. The proceeds from the loans were used to pay off
the property's mortgages payable of approximately $5,070,000 which bore interest
at a fixed rate of 7.5% and to fund loan closing costs. The Partnership's
proportionate interest in the notes which were paid off was approximately
$510,000 or 10%. The notes which were paid off had a maturity date of December
5, 2003.
As of December 31, 1997, the Partnership has a mortgage payable with an
insurance company in the amount of $2,238,591. The mortgage payable is due
October 1, 2004, bears interest at a fixed rate of 8.8% and is secured by
Commonwealth Business Center Phase I. Monthly principal payments are based upon
a 10-year amortization schedule. At maturity, the mortgage will have been repaid
based on the current rate of amortization.
As of December 31, 1997, the Blankenbaker Business Center Joint Venture had a
mortgage payable with an insurance company in the amount of $3,869,108. The
mortgage is recorded as a liability of the Joint Venture and is secured by the
assets of the Joint Venture. The Partnership's proportionate interest in the
mortgage at December 31, 1997 is $1,163,828. The mortgage bears interest at a
fixed rate of 8.5% and is due November 15, 2005. Monthly principal payments are
based upon an 11-year amortization schedule. At maturity, the mortgage will have
been repaid based on the current rate of amortization.
The majority of the Partnership's cash flow is derived from operating
activities. Cash flows used in investing activities are for tenant finish
improvements and other capital additions and were funded by operating activities
or cash reserves. Changes to current tenant finish 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 are
also for the purchase of investment securities. As part of its cash management
activities, the Partnership has purchased Certificates of Deposit or securities
issued by the U.S. Government with initial maturities of greater than three
months to improve the return on its cash reserves. The Partnership intends to
hold the securities until maturity. Cash flows used in investing activities in
1995 also include cash which was escrowed for capital expenditures, leasing
commissions and tenant improvements at the properties owned by L/U II Joint
Venture. Cash flows provided by investing activities were the result of a
release of the escrowed funds and from the maturity of investment securities.
Cash flows used in financing activities are for cash distributions, payment of
loan costs, principal payments on mortgages and notes payable, repurchases of
limited partnership Units and an increase in funds reserved by the Partnership
for the repurchase of limited partnership Units. Cash flows provided by
financing activities represent an increase in mortgages payable. The 1995
capital contribution to a joint venture represents the Partnership's capital
contribution to the L/U II Joint Venture net of the Partnership's proportionate
interest in the joint venture's capital contributions. The Partnership utilizes
the proportionate consolidation method of accounting for joint venture
properties. The Partnership's interest in the joint venture's assets,
liabilities, revenues, expenses and cash flows are combined on a line-by-line
basis with the Partnership's own assets, liabilities, revenues, expenses and
cash flows.
- 37 -
Liquidity and Capital Resources - Continued
- -------------------------------------------
The Partnership does not expect any material changes in the mix and relative
cost of capital resources except for interest and principal payments required by
the debt financings obtained by the Partnership and The Willows of Plainview
Phase II Joint Venture on December 21, 1997 (see discussion above) and
renovations and other major capital expenditures, including tenant finish, which
may be required to be funded from cash reserves if they exceed cash flow from
operating activities.
The table below presents that portion of the distributions that represent a
return of capital on a Generally Accepted Accounting Principle basis for the
years ended December 31, 1997, 1996 and 1995.
Cash Return
Net Loss Distributions of
Allocated Declared Capital
--------- -------- -------
Limited Partners:
1997 $ (48,560) $ -- $ --
1996 (45,719) 222,842 222,842
1995 (422,220) 1,100,565 1,100,565
General Partner:
1997 $ (490) $ -- $ --
1996 (462) 2,251 2,251
1995 (4,265) 11,117 11,117
Philip Crosby Associates, Inc. ("Crosby") previously leased 100% of University
Business Center Phase II, which is owned by the Lakeshore/University II (L/U II)
Joint Venture. The original lease term was for seven years, and the tenant took
occupancy in April 1991. During 1994, 1995 and 1996, Crosby sub-leased, through
the end of their lease term, approximately 85,000 square feet (including
approximately 10,000 square feet of mezzanine space) of University Business
Center Phase II's approximately 88,000 square feet of net rentable area (or
96%). Of the total being sub-leased, approximately 73,000 square feet (or 86%)
was leased by Full Sail Recorders, Inc. ("Full Sail"), a major tenant at
University Business Center Phase I, a neighboring property owned by an affiliate
of the General Partner of the Partnership. During this period and through
December 1996, Crosby continued to make rent payments pursuant to the original
lease terms. During 1996, the Joint Venture received notice that Crosby did not
intend to pay full rental due under the original lease agreement, including and
subsequent to January 1997. The Partnership's proportionate share of the rental
income from this property accounted for approximately 6% of the partnership's
total revenues during 1996. Although the Joint Venture did not have formal lease
agreements with the sub-lessees noted above during this period, beginning
February 1997 rent payments from these sub-lessees have been made directly to
the Joint Venture.
During 1997, Crosby abandoned its business, sold all or most of its operating
assets and informed the Joint Venture that Crosby may be insolvent. During the
third quarter of 1997, a conditional settlement was reached at a mediation
conference with Crosby and its corporate parent, whereby, subject to the Joint
Venture's acceptance of the settlement terms, the corporate parent agreed to pay
a portion of Crosby's liability to the Joint Venture in full satisfaction of all
claims against Crosby and any of its affiliates. During the fourth quarter of
1997, the L/U II Joint Venture informed Crosby and its corporate parent that it
accepted the terms of the conditional settlement, whereby Crosby's parent paid
to the L/U II Joint Venture the sum of $300,000 in full satisfaction of all
claims. These funds were received by the L/U II Joint Venture on October 23,
1997. The Partnership's proportionate share of the settlement was $54,000 or
18%. The amount of the settlement was substantially less than the aggregate
liability of Crosby to the Joint Venture resulting from Crosby's default under
its lease. This deficit is partially offset by the rent payments received from
the sub-lessees, as discussed above.
- 38 -
Liquidity and Capital Resources - Continued
- -------------------------------------------
In December 1995, Full Sail signed a 33 month lease with the L/U II Joint
Venture for approximately 41,000 square feet it sub-leased from Crosby. In
November 1996, Full Sail signed a lease amendment which increased the square
footage from 41,000 square feet to 48,000 square feet and extended the lease
term from 33 months to 76 months. In addition, in November 1996, Full Sail also
signed a 52 month lease for an additional approximately 21,000 square feet of
space it sub-leased from Crosby. Both leases aggregate 69,000 square feet or 78%
of the business center's net rentable area and commence April 1998 when the
Crosby original lease term ends. As part of the lease negotiations, Full Sail
will receive a total of $450,000 in special tenant allowances ($200,000
resulting from the original lease signed December 1995 and $250,000 resulting
from the lease amendment signed November 1996). Approximately $92,000 of the
total allowance is to be reimbursed by Full Sail to the L/U II Joint Venture
pursuant to the lease terms. The Partnership's proportionate share of the net
commitment ($450,000 less $92,000) is approximately $64,000 or 18%. The tenant
allowance will be due and payable to Full Sail pursuant to the previously
mentioned lease agreements, as appropriate invoices for tenant finish costs
incurred by Full Sail are submitted to the L/U II Joint Venture. The source of
funds for this commitment is expected to be cash flow from operations and/or
cash reserves .
The Joint Venture is currently negotiating directly with the other sublessees
discussed above to enter into leases for the remaining space available. The
future leasing and tenant finish costs which will be required to release this
space is unknown at this time but is not expected to be substantial.
As of December 31, 1997, the Partnership had a commitment for approximately
$42,500 of tenant finish improvements at Plainview Point Office Center Phases I
and II. The commitment is the result of a two-phase expansion by a current
tenant which increases the tenant's current leased space by approximately 2,000
square feet in the first phase and by approximately 6,400 square feet in the
second phase. The portion of the commitment relating to the first phase of the
expansion is approximately $13,000 and was completed during the first quarter of
1998. The commitment for the second phase of the expansion is approximately
$30,000 and is expected to occur during the fourth quarter of 1999. The source
of funds for this project is expected to be cash flow from operations and/or
cash reserves.
The Partnership had no other material commitments for renovations or capital
improvements as of December 31, 1997.
In the next 12 months, the demand on future liquidity is anticipated to increase
as the Partnership continues its efforts in the leasing of the Partnership's
commercial properties. At this time, the future leasing and tenant finish costs
which will be required to renew current leases that expire during 1998 or obtain
new tenants are unknown.
The Partnership has conducted a comprehensive review of its computer systems to
identify the systems that could be affected by the Year 2000 Issue and is
developing an implementation plan to resolve the issue. The Year 2000 Issue, a
world wide problem, is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Partnership's
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in major systems
failures or miscalculations. The Partnership presently believes that, with
modifications to existing software and conversions to new software, the Year
2000 problem will not pose significant operational problems for the
Partnership's computer systems. The Partnership continues to evaluate
appropriate courses of corrective action, including replacement of certain
systems whose associated costs would be recorded as assets and amortized. The
Partnership does not expect the costs associated with the resolution of the Year
2000 Issue to have a material effect on its financial position or results of
operations. The associated costs will be funded by cash flow from operations or
cash reserves. The amount expensed in 1997 was immaterial.
- 39 -
Liquidity and Capital Resources - Continued
- -------------------------------------------
The primary source of future liquidity and distributions is expected to be
derived from cash generated by the Partnership's operating properties after
adequate cash reserves are established for future leasing and tenant finish
costs. It is anticipated that the cash flow from operations and cash reserves
will be sufficient to meet the needs of the Partnership.
On February 1, 1996, the Partnership established an Interest Repurchase Reserve
in the amount of $297,450 pursuant to Section 16.4 of the Partnership's Amended
and Restated Agreement of Limited Partnership. Under Section 16.4, limited
partners may request the Partnership to repurchase their respective interests
(Units) in the Partnership. With this Interest Repurchase Reserve, the
Partnership was able to repurchase 1,983 Units at a price of $150 per Unit. The
Partnership notified the limited partners by letter dated February 1, 1996 of
the establishment of the Interest Repurchase Reserve and the opportunity to
request that the Partnership repurchase Units at the established price.
On May 24, 1996, the Partnership elected to fund an additional amount of
$277,620 to its Interest Repurchase Reserve. With these funds, the Partnership
will be able to repurchase an additional 1,850 Units at a price of $150 per
Unit. Through December 31, 1997, 3,056 Units have been repurchased for $458,400.
Repurchased Units are being retired by the Partnership, thus increasing the
share of ownership of each remaining investor. The Interest Repurchase Reserve
was funded from cash reserves.
Due to uncertainties involving the Crosby lease as discussed above, the
Partnership has taken the following actions. On January 10, 1997, the repurchase
of limited partnership Units was interrupted. Second, effective December 30,
1996, distributions were indefinitely suspended.
A conditional settlement was reached at a court ordered mediation conference
with Crosby, its parent company, and the Joint Venture. The Joint Venture
accepted the settlement terms and their parent company has paid a portion of
Crosby's liability to the Joint Venture in full satisfaction of all claims
against Crosby and any of its affiliates (see above for a further discussion of
the Crosby settlement).
On November 7, 1997, the Partnership elected to fund an additional amount of
$45,000 to its Interest Repurchase Reserve. With this funding, the Partnership
will be able to repurchase up to 300 Units at a currently contemplated price of
$150 per Unit. The Partnership has notified the Limited Partners of the
additional funding to the Repurchase Reserve and this opportunity to request
that the Partnership repurchase Units at the established price by letter dated
November 7, 1997.
Subsequent to December 31, 1997, the Partnership elected to fund an additional
amount of $60,000 to its Interest Repurchase Reserve. With this funding, the
partnership will be able to repurchase up to 400 additional Units at a price of
$150 per Unit. The first units to be repurchased will be those previously
submitted and not repurchased with the earlier Interest Repurchase Reserve
fundings to the extent that those unit holders reconfirm their desire to sell
their Units. If the number of Units submitted for repurchase exceeds that which
can be repurchased by the Partnership with the remaining balance of the current
fundings, those additional Units may be repurchased in subsequent quarters. The
above 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 Unit.
The following describes the efforts being taken by the Partnership to increase
the occupancy levels at the Partnership's commercial properties. The leasing and
renewal negotiations at the Lakeshore Business Center development are handled by
an on-site leasing agent, an employee of NTS
- 40 -
Liquidity and Capital Resources - Continued
- -------------------------------------------
Development Company (an affiliate of the General Partner of the Partnership),
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 at University
Business Center Phase II are handled by a leasing agent, an employee of NTS
Development Company, located at the University Business Center development. The
leasing and renewal negotiations for the Partnership's remaining commercial
properties are handled by leasing agents, employees of NTS Development Company,
located in Louisville, Kentucky. The leasing agents are located in the same city
as 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 the Partnership's residential
properties, the Partnership has an on-site leasing staff, employees of NTS
Development Company, at each of the apartment communities. The staff handles 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 units and negotiates lease renewals with current
residents.
Leases at Commonwealth Business Center Phase I, Blankenbaker Business Center 1A,
University Business Center Phase II and Lakeshore Business Center Phases I and
II provide for tenants to contribute toward the payment of common area expenses,
insurance and real estate taxes. Leases at Lakeshore Business Center Phases I
and II and University Business Center Phase II also provide for rent increases
which are based upon increases in the consumer price index. Leases at Plainview
Point Office Center Phases I and II and Plainview Point III Office Center
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 the Partnership's operations from the impact
of inflation and changing prices.
The L/U II Joint Venture owns approximately 6 acres of land adjacent to the
Lakeshore Business Center development in Ft. Lauderdale, Florida. The
Partnership's proportionate interest at December 31, 1997 in the asset held for
sale is $297,251. The Joint Venture continues to actively market the land for
sale. In management's opinion, the net book value approximates the fair market
value less cost to sell.
On December 30, 1997, Full Sail delivered written notice to the Partnership that
Full Sail had (i) exercised its right of first refusal under its lease with
NTS-Properties V to purchase University Business Center Phase I office building
and the Phase III vacant land adjacent to the University Business Center
development, and (ii) exercised its right of first refusal under its lease with
NTS University Boulevard Joint Venture to purchase University Business Center
Phase II office building, for an aggregate purchase price for all three of
$18,700,000. Full Sail exercised its right of first refusal under the leases in
response to a letter of intent to purchase University I, University II and the
Phase III land which was previously received by the Partnership from an
unaffiliated buyer. Under its right of first refusal, Full Sail must purchase
the properties on the same terms and conditions as contemplated by the letter of
intent. Full Sail agreed in its notice to the Partnership to proceed to
negotiate in good faith a definitive purchase agreement for these properties.
Because no binding agreement exists for the purchase of the properties at this
time, there can be no assurance that a mutual agreement of purchase and sale
will be reached among the parties, nor that the sale of the properties will be
consummated. As such, the Partnership has not determined the use of net proceeds
after repayment of outstanding debt from any such sale nor has it determined the
impact on the future results of operations or financial positions. The
University II office building is owned by the L/U II Joint Venture, the
successor to the NTS University Boulevard Joint Venture, in which
- 41 -
Liquidity and Capital Resources - Continued
- -------------------------------------------
the Partnership owns an 18% joint venture interest. Under the terms of the right
of first refusal, the closings of the sale of University I, University II and
the Phase III vacant land are to occur simultaneously.
Some of the statements included in 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 events 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 principal activity is the leasing and management of commercial
office buildings, business centers and apartment complexes. If a major
commercial tenant or a large number of apartment lessees default on their
leases, the Partnership's ability to make payments due under its debt
agreements, payment of operating costs and other partnership expenses would be
directly impacted. A lessees ability to make payments are subject 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.
- 42 -
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To NTS-Properties IV,
We have audited the accompanying balance sheets of NTS-Properties IV, (a
Kentucky limited partnership), as of December 31, 1997 and 1996, and the related
statements of operations, partners' equity and cash flows for each of the three
years in the period ended December 31, 1997. These 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 financial
statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 financial statements referred to above present fairly, in
all material respects, the financial position of NTS-Properties IV as of
December 31, 1997 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1997 in conformity
with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules included on pages 66
through 69 are presented for purposes of complying with the Securities and
Exchange Commission's rules and are not a required part of the basic financial
statements. These schedules have been subjected to the auditing procedures
applied in the audits of the basic 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 basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Louisville, Kentucky
March 6, 1998
- 43 -
NTS-PROPERTIES IV
BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996
1997 1996
----------- -----------
ASSETS
Cash and equivalents $ 276,145 $ 346,479
Cash and equivalents - restricted 108,724 68,193
Investment securities 422,336 --
Accounts receivable, net of allowance
for doubtful accounts of $0 (1997)and
$7,551 (1996) 243,134 347,133
Land, buildings and amenities, net 13,023,781 13,801,251
Asset held for sale 297,251 297,251
Other assets 440,937 545,979
----------- -----------
$14,812,308 $15,406,286
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Mortgages payable $10,706,802 $11,236,625
Accounts payable - operations 113,724 136,332
Accounts payable - construction 8,694 5,831
Security deposits 83,390 83,911
Other Liabilities 65,473 26,412
----------- -----------
10,978,083 11,489,111
Commitments and Contingencies
Partners' equity 3,834,225 3,917,175
----------- -----------
$14,812,308 $15,406,286
=========== ===========
The accompanying notes to financial statements are an integral part of these
statements.
- 44 -
NTS-PROPERTIES IV
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
------------ ----------- -----------
Revenues:
Rental income, net of provision for
doubtful accounts of $0(1997 and 1996)
and $12,018 (1995) $ 3,616,883 $ 3,544,153 $ 3,231,420
Interest and other income 91,714 33,401 54,010
----------- ----------- -----------
3,708,597 3,577,554 3,285,430
Expenses:
Operating expenses 813,091 662,463 604,846
Operating expenses - affiliated 398,950 371,856 395,570
Write-off of unamortized tenant
and building improvements -- 6,871 31,636
Write-off of unamortized loan costs -- -- --
Amortization of capitalized leasing
costs 20,951 20,908 26,645
Interest expense 855,488 940,941 979,241
Management fees 208,837 204,165 186,176
Real estate taxes 224,345 220,956 215,165
Professional and administrative
expenses 102,345 94,799 203,990
Professional and administrative
expenses - affiliated 150,715 171,778 138,737
Depreciation and amortization 905,921 916,102 929,909
----------- ----------- -----------
3,680,643 3,610,839 3,711,915
----------- ----------- -----------
Income (loss) before extraordinary item 27,954 (33,285) (426,485)
Extraordinary item - write-off of
unamortized loan costs (77,004) (12,896) --
----------- ----------- -----------
Net loss $ (49,050) $ (46,181) $ (426,485)
=========== =========== ===========
Net income (loss) allocated to the limited partners:
Income (loss) before extraordinary item $ 27,674 $ (32,952) $ (422,220)
Extraordinary item (76,234) (12,767) --
----------- ----------- -----------
Net income (loss) $ (48,560) $ (45,719) $ (422,220)
=========== =========== ===========
Net income (loss) per limited partnership Unit:
Income (loss) before extraordinary item $ 1.03 $ (1.18) $ (14.19)
Extraordinary item (2.85) (.45) --
----------- ----------- -----------
Net loss per limited partnership Unit $ (1.82) $ (1.63) $ (14.19)
=========== =========== ===========
Weighted average number of limited
partnership units 26,708 28,012 29,745
=========== =========== ===========
The accompanying notes to financial statements are an integral part of these
statements.
- 45 -
NTS-PROPERTIES IV
STATEMENTS OF PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Limite General
Partners Partners Total
----------- ----------- -----------
Balances at December 31, 1994 $ 6,347,869 $ (196,753) $ 6,151,116
Net loss (422,220) (4,265) (426,485)
Distributions declared (1,100,565) (11,117) (1,111,682)
----------- ----------- -----------
Balances at December 31, 1995 4,825,084 (212,135) 4,612,949
Net loss (45,719) (462) (46,181)
Distributions declared (222,842) (2,251) (225,093)
Repurchase of limited partnership
Units (424,500) -- (424,500)
----------- ----------- -----------
Balances at December 31, 1996 4,132,023 (214,848) 3,917,175
Net loss (48,560) (490) (49,050)
Repurchase of limited partnership
Units (33,900) -- (33,900)
----------- ----------- -----------
Balances at December 31, 1997 $ 4,049,563 $ (215,338) $ 3,834,225
=========== =========== ===========
The accompanying notes to financial statements are an integral part of these
statements.
- 46 -
NTS-PROPERTIES IV
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
------------ ------------ ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (49,050) $ (46,181) $ (426,485)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Accrued interest on investment securities (3,877) 3,642 (3,642)
Provision for doubtful accounts -- -- 12,018
Write-off of unamortized tenant and building
improvements -- 6,871 31,636
Write-off of unamortized loan costs 77,004 12,896 --
Amortization of capitalized leasing costs 20,951 20,908 26,645
Depreciation and amortization 905,921 916,102 929,909
Changes in assets and liabilities:
Cash and equivalents - restricted 4,719 (8,834) (22,993)
Accounts receivable 103,999 84,639 260,173
Other assets 100,947 13,366 5,821
Accounts payable - operations (22,608) (76,265) 80,942
Security deposits (521) (84) 2,644
Other liabilities 39,060 9,109 (81,341)
----------- ----------- -----------
Net cash provided by operating activities 1,176,545 936,169 815,327
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to land, buildings and amenities (99,261) (108,563) (433,655)
Decrease (increase) in cash and equivalents -
restricted -- 2,450 (2,450)
Purchase of investment securities (799,777) -- (698,227)
Maturity of investment securities 381,318 400,945 297,282
----------- ----------- -----------
Net cash provided by (used in) investing
activities (517,720) 294,832 (837,050)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in mortgages payable 4,414,080 3,105,900 --
Principal payments on mortgages and notes
payable (4,943,902) (3,461,916) (354,010)
Capital contribution to a joint venture -- -- (616,125)
Cash distributions -- (315,228) (1,111,683)
Additions to loan costs (120,187) (64,888) (25,823)
Repurchase of limited partnership Units (33,900) (424,500) --
Increase in cash and equivalents - restricted (45,250) (500) --
----------- ----------- -----------
Net cash used in financing activities (729,159) (1,161,132) (2,107,641)
----------- ----------- -----------
Net increase (decrease) in cash and
equivalents (70,334) 69,869 (2,129,364)
CASH AND EQUIVALENTS, beginning of year 346,479 276,610 2,405,974
----------- ----------- -----------
CASH AND EQUIVALENTS, end of year $ 276,145 $ 346,479 $ 276,610
=========== =========== ===========
Interest paid on a cash basis $ 876,871 $ 950,760 $ 978,622
=========== =========== ===========
The accompanying notes to financial statements are an integral part of these
statements.
- 47 -
NTS-PROPERTIES IV
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1. Significant Accounting Policies
-------------------------------
A) Organization
------------
NTS-Properties IV (the "Partnership") is a limited partnership
organized under the laws of the Commonwealth of Kentucky on May 13,
1983. The General Partner is NTS-Properties Associates IV, a
Kentucky limited partnership. The Partnership is in the business of
developing, constructing, owning and operating residential
apartments and commercial real estate.
B) Properties
----------
The Partnership owns and operates the following properties:
- Commonwealth Business Center Phase I, a business center with
approximately 57,000 net rentable ground floor square feet and
approximately 24,000 net rentable mezzanine square feet in
Louisville, Kentucky.
- Plainview Point Office Center Phases I and II, an office center
with approximately 56,000 net rentable square feet in
Louisville, Kentucky.
- The Willows of Plainview Phase I, a 118-unit luxury apartment
complex in Louisville, Kentucky.
- A 10% joint venture interest in The Willows of Plainview Phase
II, a 144-unit luxury apartment complex in Louisville, Kentucky.
- A 4% joint venture interest in Golf Brook Apartments, a 195-unit
luxury apartment complex in Orlando, Florida.
- A 5% joint venture interest in Plainview Point III Office
Center, an office center with approximately 62,000 net rentable
square feet in Louisville, Kentucky.
- A 30% 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.
- An 18% 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 103,000 rentable square feet located in Fort
Lauderdale, Florida.
- Lakeshore Business Center Phase II - a business center with
approximately 97,000 net rentable square feet located in
Fort Lauderdale, Florida.
- 48 -
1. Significant Accounting Policies - Continued
-------------------------------------------
B) Properties - Continued
----------------------
- University Business Center Phase II - a business center
with approximately 78,000 net rentable first floor (office
and service) and second floor office square feet and
approximately 10,000 net rentable mezzanine square feet
located in Orlando, Florida.
- Outparcel Building Sites - approximately 6.2 acres of
undeveloped land adjacent to the Lakeshore Business Center
development which is zoned for commercial development.
C) Allocation of Net Income (Loss) and Cash Distributions
------------------------------------------------------
Net Cash Receipts made available for distribution, as defined in
the partnership agreement, will be distributed 1) 99% to the
limited partners and 1% to the General Partner until the limited
partners have received their 8% Preference Distribution as defined
in the partnership agreement; 2) to the General Partner in an
amount equal to approximately 10% of the limited partners' 8%
Preference Distribution; and 3) the remainder, 90% to the limited
partners and 10% to the General Partner. Starting December 31,
1996, the Partnership has indefinitely interrupted distributions.
Net Cash Proceeds, as defined in the partnership agreement, which
are available for distribution will be distributed 1) 99% to the
limited partners and 1% to the General Partner until the limited
partners have received distributions from all sources equal to
their Original Capital plus the amount of any deficiency in their
8% Cumulative Distribution as defined in the partnership agreement;
and 2) the remainder, 75% to the limited partners and 25% to the
General Partner. Net income (loss) is to be allocated 99% to the
limited partners and 1% to the General Partner.
D) 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 interests for
inclusion on their individual income tax returns.
(Notes continued next page)
- 49 -
1. Significant Accounting Policies - Continued
-------------------------------------------
D) Tax Status - Continued
----------------------
A reconciliation of net loss for financial statement purposes
versus that for income tax reporting is as follows:
1997 1996 1995
---------- ---------- ----------
Net loss $ (49,050) $ (46,181) $(426,485)
Items handled differently
for tax purposes:
Depreciation and
amortization (1,014) (18,531) (18,448)
Capitalized leasing
costs 237 111 6,635
Rental income 138,433 75,494 73,129
Write-off of unamortized
tenant improvements (28,620) (15,890) (12,556)
Allowance for doubtful
accounts (7,372) (8,303) 12,104
--------- --------- --------
Taxable income (loss) $ 52,614 $ (13,300) $(365,621)
========= ========= =========
E) 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.
F) Joint Venture Accounting
------------------------
The Partnership has adopted the proportionate consolidation method
of accounting for joint venture properties. The Partnership's
proportionate interest in the joint venture's assets, liabilities,
revenues, expenses and cash flows are combined on a line-by-line
basis with the Partnership's own assets, liabilities, revenues and
expenses and cash flows. All intercompany accounts and transactions
have been eliminated in consolidation.
Proportionate consolidation is utilized by the Partnership due to
the fact that the ownership of joint venture properties, in
substance, is not subject to joint control. The managing General
Partners of the sole partner of the NTS sponsored partnerships
which have formed joint ventures are substantially the same. As
such, decisions regarding financing, development, sale or
operations do not require the approval of different partners.
Additionally, the joint venture properties are in the same
business/industry as their respective joint venture partners and
their asset, liability, revenue and expense accounts correspond
with the accounts of such partners. It is the belief of the General
Partner of the Partnership that the financial statement disclosures
resulting from proportionate consolidation provides the most
meaningful presentation of assets, liabilities, revenues, expenses
and cash flows for the years presented given the commonality of the
Partnership's operations.
- 50 -
1. Significant Accounting Policies - Continued
-------------------------------------------
G) Cash and Equivalents - Restricted
---------------------------------
Cash and equivalents - restricted represent 1) funds received for
residential security deposits, 2) funds which have been escrowed
with mortgage companies for property taxes and insurance in
accordance with the loan agreements and 3) funds which the
Partnership has reserved for the repurchase of limited partnership
Units.
H) Investment Securities
---------------------
Investment securities represent investments in Certificates of
Deposit or securities issued by the U.S. Government with initial
maturities of greater than three months. The investments are
carried at cost which approximates market value. The Partnership
intends to hold the securities until maturity. During 1997, 1996
and 1995 the Partnership sold no investment securities.
The following provides details regarding the investments held at
December 31, 1997:
Amortized Maturity Value at
Type Cost Date Maturity
---- ------ ------ --------
Certificate of deposit $101,627 01/30/98 $102,052
Certificate of deposit 120,091 02/27/98 121,081
Certificate of deposit 100,467 03/31/98 101,808
Certificate of deposit 100,151 04/03/98 101,537
------- -------
$422,336 $426,478
======= =======
The Partnership held no investment securities with initial
maturities greater than three months during 1996.
I) Basis of Property and Depreciation
----------------------------------
Land, buildings and amenities are stated at cost to the
Partnership. 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, 5-30 years for building and improvements and 5-30
years for amenities.
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 market value. Application of this
standard during the years ended December 31, 1997 and 1996 did not
result in an impairment loss.
J) Rental Income and Capitalized Leasing Costs
Certain of the Partnership's lease agreements for the commercial
properties 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 $164,608 and
$264,019 at December 31, 1997 and 1996, respectively.
- 51 -
1. Significant Accounting Policies - Continued
-------------------------------------------
J) Rental Income and Capitalized Leasing Costs - Continued
-------------------------------------------------------
All commissions paid to commercial leasing agents and incentives
paid to tenants are deferred and amortized on a straight-line basis
over the applicable lease term. In addition, certain other costs
associated with the initial leasing of the properties are
capitalized and amortized over a five year period.
K) Advertising
-----------
The Partnership expenses advertising-type costs as incurred.
Advertising expense was immaterial to the Partnership during the
years ended December 31, 1997, 1996 and 1995.
L) 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.
2. Concentration of Credit Risk
----------------------------
NTS-Properties IV owns and operates commercial properties in Louisville,
Kentucky, Orlando, Florida and Ft. Lauderdale, Florida. Substantially all
of the Partnership's tenants are local businesses or are businesses which
have operations in the location in which they lease space. In Louisville,
Kentucky, one tenant occupies 100% of the Blankenbaker Business Center 1A
property. The Partnership also owns and operates, either wholly or
through a joint venture, residential properties in Louisville, Kentucky
and Orlando, Florida. The apartment unit is generally the principal
residence of the tenant.
3. Interest Repurchase Reserve
---------------------------
On February 1, 1996, the Partnership established an Interest Repurchase
Reserve in the amount of $297,450 pursuant to Section 16.4 of the
Partnership's Amended and Restated Agreement of Limited Partnership.
Under Section 16.4, limited partners may request the Partnership to
repurchase their respective interests (Units) in the Partnership. With
these funds, the Partnership was able to repurchase 1,983 Units at a
price of $150 per Unit. The Partnership notified the limited partners by
letter dated February 1, 1996 of the establishment of the Interest
Repurchase Reserve and the opportunity to request that the Partnership
repurchase Units at the established price.
On May 24, 1996, the Partnership elected to fund an additional amount of
$277,620 to its Interest Repurchase Reserve. With this funding, the
Partnership will be able to repurchase an additional 1,850 Units at a
price of $150 per Unit. Through December 31, 1997, 3,056 Units have been
repurchased for $458,400. Repurchased Units are being retired by the
Partnership, thus increasing the share of ownership of each remaining
investor. The Interest Repurchase Reserve was funded from cash reserves.
Due to uncertainties involving the Crosby lease as discussed in Note 10,
Commitments and Contingencies, the Partnership interrupted the repurchase
of limited partnership Units, effective January 10, 1997.
On November 7, 1997, the Partnership elected to fund an additional amount
of $45,000 to its Interest Repurchase Reserve. With this funding, the
Partnership will be able to repurchase up to 300 Units at
- 52 -
3. Interest Repurchase Reserve - Continued
---------------------------------------
a currently contemplated price of $150 per Unit. The Partnership notified
the Limited Partners of the additional funding to the Repurchase Reserve
and this opportunity to request that the Partnership repurchase Units at
the established price by letter dated November 7, 1997.
For additional information regarding the Interest Repurchase Reserve, see
Note 11, Subsequent Events.
4. Investment in Joint Ventures
----------------------------
A) NTS/Willows Phase II Joint Venture
----------------------------------
In 1984, the Partnership entered into a joint venture agreement
with NTS-Properties V, an affiliate of the General Partner of the
Partnership, to develop and construct a 144-unit luxury apartment
complex on an 8.29-acre site in Louisville, Kentucky known as The
Willows of Plainview Phase II. The Partnership contributed land
valued at $800,000 and NTS-Properties V contributed approximately
$7,455,000, the construction and carrying costs of the apartment
complex. The project was completed in August 1985. Net income or
net loss is allocated each calendar quarter based on the respective
partnership's contribution. The Partnership's ownership share was
10% at December 31, 1997. The Partnership's share of the joint
venture's net operating income was $2,450 (1997), $6,623 (1996) and
$4,233 (1995).
B) NTS Ft. Lauderdale Office Joint Venture
---------------------------------------
In 1985, the Partnership entered into a joint venture agreement
with NTS-Properties V to develop an approximately 103,000
square-foot commercial business center known as Lakeshore Business
Center Phase I, located in Fort Lauderdale, Florida. The
Partnership contributed land valued at $1,752,982 and NTS-
Properties V contributed approximately $9,170,000, the cost of
constructing and leasing the building. The net income or net loss
was allocated each calendar quarter based on the respective
partnership's contribution. The Partnership's share of the joint
venture's net operating income was $2,085 (1995).
On January 23, 1995, the partners of the NTS Ft. Lauderdale Office
Joint Venture contributed Lakeshore Business Center Phase I to the
newly formed Lakeshore/University II (L/U II) Joint Venture. Refer
to Note 4F for a further discussion of the new joint venture.
C) NTS Sabal Golf Villas Joint Venture
-----------------------------------
In 1985, the Partnership entered into a joint venture agreement
with NTS-Properties VI, an affiliate of the General Partner of the
Partnership, to develop and construct a 158-unit luxury apartment
complex on a 13.15-acre site in Orlando, Florida to be known as the
Golf Brook Apartments Phase I. The Partnership contributed land
valued at $1,900,000 with an outstanding note payable to a bank of
$1,200,000 which was secured by the land. On January 1, 1987, the
joint venture agreement was amended to include Golf Brook
Apartments Phase II, a 37-unit luxury apartment complex located on
a 3.069-acre site adjacent to Golf Brook Apartments Phase I. NTS-
Properties VI contributed approximately $15,800,000, the cost of
constructing and leasing the complexes. NTS-Properties VI also
contributed funds to retire the $1,200,000 note payable to the
bank.
- 53 -
4. Investment in Joint Ventures - Continued
----------------------------------------
C) NTS Sabal Golf Villas Joint Venture - Continued
-----------------------------------------------
Net income or net loss is allocated based on the respective
contribution of each partnership as of the end of each calendar
quarter. The Partnership's ownership share was 4% at December 31,
1997. The Partnership's share of the joint venture's net operating
income was $39,930 (1997), $42,329 (1996) and $43,768 (1995).
D) Plainview Point III Joint Venture
---------------------------------
In 1987, the Partnership entered into a joint venture agreement
with NTS-Properties VI to develop and construct an approximately
62,000 square foot office building located in Louisville, Kentucky
to be known as Plainview Point Phase III Office Center. The
Partnership contributed land valued at $790,000 with an outstanding
note payable to a bank of $550,000 which was secured by the land.
NTS-Properties VI contributed approximately $4,100,000, the cost to
construct and lease the building. NTS-Properties VI also
contributed funds to retire the $550,000 note payable to the bank.
Net income or net loss is allocated based on the respective
partnership's contribution as of the end of each calendar quarter.
The Partnership's ownership share was 5% at December 31, 1997. The
Partnership's share of the joint venture's net operating income
(loss) was ($3,511) (1997), $(1,668) (1996) and $648 (1995).
E) Blankenbaker Business Center Joint Venture
------------------------------------------
On August 16, 1994, the Blankenbaker Business Center Joint Venture
agreement was amended to admit the Partnership to the Joint
Venture. The Joint Venture was originally formed on December 28,
1990 between NTS-Properties Plus Ltd. and NTS-Properties VII, Ltd.,
affiliates of the General Partner of the Partnership, to own and
operate Blankenbaker Business Center 1A and to acquire an
approximately 2.49 acre parking lot that was being leased by the
business center from an affiliate of the General Partner. The use
of the parking lot is a provision of the tenants's lease agreement
with the business center.
In accordance with the Joint Venture Agreement Amendment, the
Partnership contributed $1,100,000 and NTS-Properties VII, Ltd.
contributed $500,000. The General Partner of the Partnership
determined the utilization of a portion of the Partnership's cash
reserves to participate in the Joint Venture would be consistent
with the investment objectives set forth in the Partnership's
partnership agreement, and should enhance the future returns of the
Partnership.
The need for additional capital by the Joint Venture was a result
of the lease renewal and expansion which was signed April 28, 1994
between the Joint Venture and Prudential Service Bureau, Inc.
("Prudential"). The lease expanded Prudential's leased space by
approximately 15,000 square feet and extended its current lease
term through July 2005. Approximately 12,000 square feet of the
expansion was into new space which had to be constructed on the
second level of the existing business center. With this expansion,
Prudential occupied 100% of the business center (approximately
101,000 square feet). The tenant finish and leasing costs connected
with the lease renewal and expansion were approximately $1,400,000.
- 54 -
4. Investment in Joint Ventures - Continued
----------------------------------------
E) Blankenbaker Business Center Joint Venture - Continued
------------------------------------------------------
In order to calculate the revised joint venture percentage
interests, the assets of the Joint Venture were revalued in
connection with the admission of the Partnership as a joint venture
partner and the additional capital contributions. The value of the
Joint Venture's assets immediately prior to the additional capital
contributions was $6,764,322 and its outstanding debt was
$4,650,042, with net equity being $2,114,280. The difference
between the value of the Joint Venture's assets and the value at
which they were carried on the books of the Joint Venture has been
allocated to NTS-Properties VII, Ltd. and NTS-Properties Plus Ltd.
in determining each Joint Venture partner's percentage interest.
As a result of its capital contribution, the Partnership obtained a
30% interest in the Joint Venture. NTS-Properties Plus Ltd.'s
interest in the Joint Venture decreased from 69% to 39% as a result
of the capital contributions made by NTS-Properties VII, Ltd. and
the Partnership. NTS-Properties VII, Ltd.'s interest in the Joint
Venture remained at 31%.
Net income or net loss is allocated based on the respective
contribution of each partner as of the end of each calendar
quarter. The Partnership's ownership share was 30% at December 31,
1997. The Partnership's share of the joint venture's net operating
loss was $51,817 (1997), $46,438 (1996) and $60,080 (1995).
F) Lakeshore/University II Joint Venture
-------------------------------------
On January 23, 1995, a new joint venture known as the
Lakeshore/University II Joint Venture (L/U II Joint Venture) was
formed among the Partnership and NTS-Properties V, NTS-Properties
Plus Ltd. and NTS/Fort Lauderdale, Ltd., affiliates of the General
Partner of the Partnership, for purposes of owning Lakeshore
Business Center Phases I and II, University Business Center Phase
II and certain undeveloped tracts of land adjacent to the Lakeshore
Business Center development. The table below identifies which
properties were contributed to the L/U II Joint Venture and the
respective owners of such properties prior to the formation of the
joint venture.
Property (Net Asset Contributed) Contributing Owner
-------------------------------- ------------------
Lakeshore Business Center NTS-Properties IV and NTS-
Phase I ($6,249,667) Properties V
Lakeshore Business Center NTS-Properties Plus Ltd.
Phase II (-$1,023,535)
Undeveloped land adjacent to the NTS-Properties Plus Ltd.
Lakeshore Business Center
development (3.8 acres)(-$670,709)
Undeveloped land adjacent to the NTS/Fort Lauderdale, Ltd.
Lakeshore Business Center
development (2.4 acres)($27,104)
University Business Center NTS-Properties V and NTS-
Phase II ($953,236) Properties Plus Ltd.
Each of the properties were contributed to the L/U II Joint Venture
subject to existing indebtedness, except for Lakeshore Business
Center Phase I which was contributed to the joint venture free and
clear of any mortgage liens, and all such indebtedness was assumed
by the L/U II joint venture. Mortgages were recorded on Lakeshore
- 55 -
4. Investment in Joint Ventures - Continued
----------------------------------------
F) Lakeshore/University II Joint Venture - Continued
-------------------------------------------------
Business Center Phase I in the amount of $5,500,000, and on
University Business Center Phase II in the amount of $3,000,000, in
favor of the banks which held the indebtedness on University
Business Center Phase II, Lakeshore Business Center Phase II and
the undeveloped tracts of land prior to the formation of the joint
venture. In addition to the above, the Partnership also contributed
$750,000 to the L/U II Joint Venture. The Partnership's ownership
share was 18% at December 31, 1997.
Net income or net loss is allocated based on the respective
contribution of each partner as of the end of each calendar
quarter. The Partnership's share of the joint venture's net
operating loss was $135,710 (1997), $176,357 (1996) and $220,756
(1995).
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:
1997 1996
---------- ----------
Land and improvements $ 5,551,534 $ 5,551,101
Buildings, improvements
and amenities 18,806,479 18,757,537
---------- ----------
24,358,013 24,308,638
Less accumulated depreciation 11,334,232 10,507,387
---------- ----------
$13,023,781 $13,801,251
========== ==========
6. Asset Held for Sale
-------------------
Asset held for sale of $297,251 at December 31, 1997 represents the
Partnership's proportionate share of approximately 6.2 acres of land
owned by the L/U II Joint Venture which is adjacent to the Lakeshore
Business Center development in Ft. Lauderdale, Florida. In management's
opinion, the net book value approximates the fair market value less cost
to sell.
- 56 -
7. Mortgages Payable
-----------------
Mortgages payable as of December 31 consist of the following:
1997 1996
----------- -----------
Mortgage payable with an insurance
company, bearing interest at a fixed
rate of 8.8%, due October 1, 2004,
secured by land and building $ 2,238,591 $ 2,467,606
Mortgage payable with an insurance
company, bearing interest at a fixed
rate of 7.2%, due January 5, 2013,
secured by land, buildings and
amenities 1,998,000 --
Mortgage payable with an insurance
company, bearing interest at a fixed
rate of 7.2%, due January 5, 2013,
secured by land, buildings and
amenities 1,902,000 --
Mortgage payable with an insurance
company, bearing interest at a fixed
rate of 7%, due December 5, 2003,
secured by land, buildings and
amenities -- 2,012,389
Mortgage payable with an insurance
company, bearing interest at a fixed
rate of 7%, due December 5, 2003
secured by land, building and
amenities -- 1,916,561
Mortgage payable with an insurance
company, bearing interest at a fixed
rate of 8.5%, due November 15, 2005,
secured by land and building 1,163,828 1,262,767
Mortgage payable with an insurance
company, bearing interest at a fixed
rate of 8.125% due August 1, 2008,
secured by land and building 1,000,809 1,057,548
Mortgage payable with an insurance
company bearing interest at a fixed
rate of 8.125%, due August 1, 2008,
secured by land and building 959,282 1,013,666
Mortgage payable with an insurance
company bearing interest at a fixed
rate of 8.125%, due August 1, 2008,
secured by land and building 930,213 982,949
Mortgage payable with an insurance
company, bearing interest at a fixed
rate of 7.2%, due January 5, 2013,
secured by land, buildings and
amenities 321,854 --
Mortgage payable with an insurance
company, bearing interest at a fixed
rate of 7.2%, due January 5, 2013,
secured by land, buildings and
amenities 192,225 --
(Continued on next page)
- 57 -
7. Mortgages Payable - Continued
-----------------------------
1997 1996
----------- -----------
Mortgage payable with an insurance
company, bearing interest at a fixed
rate of 7.5%, due December 5, 2003,
secured by land, buildings and
amenities $ -- $ 327,573
Mortgage payable with an insurance
company, bearing interest at a fixed
rate of 7.5%, due December 5, 2003,
secured by land, buildings and
amenities -- 195,566
----------- -----------
$10,706,802 $11,236,625
=========== ===========
The mortgages are payable in aggregate monthly installments of $144,631
which includes principal, interest, insurance escrow and property tax
escrow.
Scheduled maturities of debt are as follows:
For the Years Ended December 31, Amount
-------------------------------- -----------
1998 $ 691,079
1999 764,675
2000 829,746
2001 900,390
2002 977,086
Thereafter 6,543,826
-----------
$10,706,802
===========
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 approximates carrying value.
The 1997 write-off of unamortized loan costs (treated as an extraordinary
item) relates to loan costs associated with The Willows of Plainview
Phases I and II mortgages payable. The unamortized loan costs were
expensed due to the fact that the mortgages were retired in 1997 prior to
their maturity (December 5, 2003).
The 1996 write-off of unamortized loan costs (treated as an extraordinary
item)relates to loan costs associated with the L/U II Joint Venture's
notes payable. The unamortized loan costs were expensed due to the fact
that the notes were retired in 1996 prior to their maturity (January 31,
1998).
- 58 -
8. Rental Income Under Operating Leases
------------------------------------
The following is a schedule of minimum future rental income on
noncancellable operating leases as of December 31, 1997:
For the Years Ended December 31, Amount
-------------------------------- -----------
1998 $ 1,582,753
1999 1,405,305
2000 1,176,263
2001 1,068,153
2002 985,356
Thereafter 1,793,332
-----------
$ 8,011,162
===========
9. Related Party Transactions
--------------------------
Property management fees of $208,837 (1997), $204,165 (1996) and $186,176
(1995) were paid to NTS Development Company, an affiliate of the General
Partner of the Partnership. The fee is equal to 5% of gross revenues from
residential properties and 6% of gross revenues from commercial
properties pursuant to an agreement with the Partnership. As permitted by
an agreement, NTS Development Company will receive a repair and
maintenance fee equal to 5.9% of costs incurred which relate to capital
improvements. The Partnership has incurred $14,351 and $7,770 as a repair
and maintenance fee during the years ended December 31, 1997 and 1996
respectively, and has capitalized this cost as a part of land, buildings
and amenities.
As permitted by an agreement, the Partnership was also charged the
following amounts from NTS Development Company for the years ended
December 31, 1997, 1996 and 1995. 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.
1997 1996 1995
-------- -------- --------
Leasing $121,834 $108,913 $115,557
Administrative 196,182 214,530 178,910
Property manager 261,511 241,289 253,574
Other 5,015 8,674 9,291
-------- -------- --------
$584,542 $573,406 $557,332
======== ======== ========
On January 23, 1995, the Partnership contributed $750,000 to the L/U II
Joint Venture. For details regarding this transaction, refer to Note 4F.
10. Commitments and Contingencies
-----------------------------
Philip Crosby Associates, Inc. ("Crosby") previously leased 100% of
University Business Center Phase II, which is owned by the
Lakeshore/University II (L/U II) Joint Venture. The original lease term
was for seven years, and the tenant took occupancy in April 1991. During
1994, 1995 and 1996, Crosby sub-leased, through the end of their lease
term, approximately 85,000 square feet (including approximately 10,000
square feet of mezzanine space) of University Business Center Phase II's
approximately 88,000 square feet of net rentable area (or
- 59 -
10. Commitments and Contingencies - Continued
-----------------------------------------
96%). Of the total being sub-leased, approximately 73,000 square feet (or
86%) was leased by Full Sail Recorders, Inc. ("Full Sail"), a major
tenant at University Business Center Phase I, a neighboring property
owned by an affiliate of the General Partner of the Partnership. During
this period and through December 1996, Crosby continued to make rent
payments pursuant to the original lease terms. During 1996, the Joint
Venture received notice that Crosby did not intend to pay full rental due
under the original lease agreement, including and subsequent to January
1997. The Partnership's proportionate share of the rental income from
this property accounted for approximately 6% of the partnership's total
revenues during 1996. Although the Joint Venture did not have formal
lease agreements with the sub-lessees noted above during this period,
beginning February 1997 rent payments from these sub-lessees have been
made directly to the Joint Venture.
During 1997, Crosby abandoned its business, sold all or most of its
operating assets and informed the Joint Venture that Crosby may be
insolvent. During the third quarter of 1997, a conditional settlement was
reached at a mediation conference with Crosby and its corporate parent,
whereby, subject to the Joint Venture's acceptance of the settlement
terms, the corporate parent agreed to pay a portion of Crosby's liability
to the Joint Venture in full satisfaction of all claims against Crosby
and any of its affiliates. During the fourth quarter of 1997, the L/U II
Joint Venture informed Crosby and its corporate parent that it accepted
the terms of the conditional settlement, whereby Crosby's parent paid to
the L/U II Joint Venture the sum of $300,000 in full satisfaction of all
claims. These funds were received by the L/U II Joint Venture on October
23, 1997. The Partnership's proportionate share of the settlement was
$54,000 or 18%. The amount of the settlement was substantially less than
the aggregate liability of Crosby to the Joint Venture resulting from
Crosby's default under its lease. This deficit is partially offset by the
rent payments received from the sub-lessees, as discussed above.
In December 1995, Full Sail signed a 33 month lease with the L/U II Joint
Venture for approximately 41,000 square feet it sub-leased from Crosby.
In November 1996, Full Sail signed a lease amendment which increased the
square footage from 41,000 square feet to 48,000 square feet and extended
the lease term from 33 months to 76 months. In addition, in November
1996, Full Sail also signed a 52 month lease for an additional
approximately 21,000 square feet of space it sub-leased from Crosby. Both
leases aggregate 69,000 square feet or 78% of the business center's net
rentable area and commence April 1998 when the Crosby original lease term
ends. As part of the lease negotiations, Full Sail will receive a total
of $450,000 in special tenant allowances ($200,000 resulting from the
original lease signed December 1995 and $250,000 resulting from the lease
amendment signed November 1996). Approximately $92,000 of the total
allowance is to be reimbursed by Full Sail to the L/U II Joint Venture
pursuant to the lease terms. The Partnership's proportionate share of the
net commitment ($450,000 less $92,000) is approximately $64,000 or 18%.
The tenant allowance will be due and payable to Full Sail pursuant to the
previously mentioned lease agreements, as appropriate invoices for tenant
finish costs incurred by Full Sail are submitted to the L/U II Joint
Venture. The source of funds for this commitment is expected to be cash
flow from operations and/or cash reserves .
The Joint Venture is currently negotiating directly with the other
sublessees discussed above to enter into leases for the remaining space
available. The future leasing and tenant finish costs which will be
required to release this space is unknown at this time but is not
expected to be substantial.
On December 30, 1997, Full Sail delivered written notice to the
Partnership that Full Sail had (i) exercised its right of first refusal
under its lease with NTS-Properties V to purchase University Business
Center Phase I office building and the Phase III vacant land adjacent
- 60 -
10. Commitments and Contingencies - Continued
-----------------------------------------
to the University Business Center development, and (ii) exercised its
right of first refusal under its lease with NTS University Boulevard
Joint Venture to purchase University Business Center Phase II office
building, for an aggregate purchase price for all three of $18,700,000.
Full Sail exercised its right of first refusal under the leases in
response to a letter of intent to purchase University I, University II
and the Phase III land which was previously received by the Partnership
from an unaffiliated buyer. Under its right of first refusal, Full Sail
must purchase the properties on the same terms and conditions as
contemplated by the letter of intent. Full Sail agreed in its notice to
the Partnership to proceed to negotiate in good faith a definitive
purchase agreement for these properties. Because no binding agreement
exists for the purchase of the properties at this time, there can be no
assurance that a mutual agreement of purchase and sale will be reached
among the parties, nor that the sale of the properties will be
consummated. As such, the Partnership has not determined the use of net
proceeds after repayment of outstanding debt from any such sale nor has
it determined the impact on the future results of operations or financial
positions. The University II office building is owned by the L/U II Joint
Venture, the successor to the NTS University Boulevard Joint Venture, in
which the Partnership owns an 18% joint venture interest. Under the terms
of the right of first refusal, the closings of the sale of University I,
University II and the Phase III vacant land are to occur simultaneously.
11. Subsequent Events
-----------------
Subsequent to December 31, 1997, the Partnership elected to fund an
additional amount of $60,000 to its Interest Repurchase Reserve. With
this funding, the Partnership will be able to repurchase up to 400
additional Units at a price of $150 per Unit. The first units to be
repurchased will be those previously submitted and not repurchased with
the earlier Interest Repurchase Reserve fundings to the extent that those
unit holders reconfirm their desire to sell their Units. If the number of
Units submitted for repurchase exceeds that which can be repurchased by
the Partnership with the remaining balance of the current fundings, those
additional Units may be repurchased in subsequent quarters. The above
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 Unit.
- 61 -
Item 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure
--------------------
None.
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 IV. 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 IV are as follows:
J. D. Nichols
- -------------
Mr. Nichols (age 56) is the managing General Partner of NTS-Properties
Associates IV and is Chairman of the Board of NTS Corporation (since 1985) and
NTS Development Company (since 1977).
NTS Capital Corporation
- -----------------------
NTS Capital Corporation (formerly NTS Corporation) is a Kentucky corporation
formed in October 1979. At the present time its capital is $1,000 and it is not
anticipated that such capital will be significantly increased. J. D. Nichols is
Chairman of the Board and the sole director of NTS Capital Corporation.
NTS Sub-Partnership IV
- ----------------------
NTS Sub-partnership IV is a Kentucky limited partnership whose primary business
purpose is to acquire, own and hold an interest in NTS-Properties Associates IV.
The partners of NTS Sub-partnership IV include various management personnel of
NTS Corporation and its affiliates.
Alliance Realty Corporation
- ---------------------------
Alliance Realty Corporation was formed in September 1982, and is a wholly- owned
subsidiary of SN Alliance, Inc. SN Alliance, Inc. is also the parent corporation
of Stifel, Nicolaus & Company, Inc. which acted as the Dealer Manager in
connection with the offering for the interests.
The Manager of the Partnership's properties is NTS Development Company, the
executive officers and/or directors of which are Messrs. J. D. Nichols, Richard
L. Good, Brian F. Lavin and John W. Hampton.
Richard L. Good
- ---------------
Mr. Good, (age 58) President and Chief Operating Officer of NTS Corporation and
President of NTS Development Company and Chairman of the Board of NTS
Securities, Inc., joined the Manager in January 1985. From 1981 through 1984, he
was Executive Vice President of Jacques-Miller, Inc., a real estate syndication,
property management and financial planning firm in Nashville, Tennessee.
Brian F. Lavin
- --------------
Mr. Lavin (age 44) serves as Executive Vice President of NTS Development Company
and President of the Company's Income Properties. As such, Mr. Lavin is
responsible for all NTS commercial real estate development, land acquisitions
and oversees the management of all commercial office buildings, business centers
and multi-family residential communities. Prior to joining
- 62 -
Item 10. Directors and Executive Officers of the Registrant - Continued
--------------------------------------------------------------
Brian F. Lavin - Continued
- --------------------------
NTS, Mr. Lavin served as President of the Residential Division of Paragon Group,
Inc., and as a Vice President of Paragon's Midwest Division. 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 has
served as a Director of the Louisville Apartment Association. He is a licensed
Kentucky Real Estate Broker and Certified Property Manager. Mr. Lavin is a
member of the Institute of Real Estate Management, and council member of the
Urban Land Institute. He currently serves on the University of Louisville Board
of Overseers and is on the Board of Directors of the National Multi-Housing
Council and the Louisville Science Center.
John W. Hampton
- ---------------
Mr. Hampton, (age 48) is Senior Vice President of NTS Corporation with
responsibility for all accounting operations. Before joining NTS in March 1991,
Mr. Hampton was Vice President - Finance and Chief Financial Officer of the
Sturgeon-Thornton-Marrett Development Company in Louisville, Kentucky for nine
years. Prior to that he was with Alexander Grant & Company CPA's. Mr. Hampton is
a Certified Public Accountant and a graduate of the University of Louisville
with a Bachelor of Science degree in Commerce. He is a member of the American
Institute of CPA's and the Kentucky Society of CPA's.
Item 11. Management Remuneration and Transactions
----------------------------------------
The officers and/or directors of the corporate General Partner receive no direct
remuneration in such capacities. The Partnership is required to pay a property
management fee based on gross rentals to NTS Development Company, an affiliate
of the General Partner. 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 Note 9 to the financial statements which sets
forth transactions with affiliates of the General Partner for the years ended
December 31, 1997, 1996 and 1995.
The General Partner is entitled to receive cash distributions and allocations of
profits and losses from the Partnership. See Note 1C to the financial statements
which describes the methods used to determine income allocations and cash
distributions.
- 63 -
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
The General Partner is NTS-Properties Associates IV, a Kentucky limited
partnership, 10172 Linn Station Road, Louisville, Kentucky 40223. The partners
of the General Partner and their total respective interests in NTS-Properties
Associates IV are as follows:
J. D. Nichols 69.69%
10172 Linn Station Road
Louisville, Kentucky 40223
NTS Sub-partnership IV 30.00%
10172 Linn Station Road
Louisville, Kentucky 40223
NTS Capital Corporation .30%
10172 Linn Station Road
Louisville, Kentucky 40223
Alliance Realty Corporation .01%
500 North Broadway
St. Louis, Missouri 63102
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
Property management fees of $208,837 (1997), $204,165 (1996) and $186,176 (1995)
were paid to NTS Development Company, an affiliate of the General Partner of the
Partnership. The fee is equal to 5% of gross revenues from residential
properties and 6% of gross revenues from commercial properties pursuant to an
agreement with the Partnership. As permitted by an agreement, NTS Development
Company will receive a repair and maintenance fee equal to 5.9% of costs
incurred which relate to capital improvements. The Partnership has incurred
$14,351 and $7,770 as a repair and maintenance fee during the years ended
December 31, 1997 and 1996, respectively, and has capitalized this cost as a
part of land, buildings and amenities.
As permitted by an agreement, the Partnership was also charged the following
amounts from NTS Development Company for the years ended December 31, 1997, 1996
and 1995. 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.
1997 1996 1995
-------- -------- --------
Leasing $121,834 $108,913 $115,557
Administrative 196,182 214,530 178,910
Property manager 261,511 241,289 253,574
Other 5,015 8,674 9,291
-------- -------- --------
$584,542 $573,406 $557,332
======== ======== ========
On January 23, 1995, the Partnership contributed $750,000 to the L/U II Joint
Venture. For details regarding this transaction, refer to Note 4F of the
Partnership's 1997 financial statements and Items 1. and 2. Business and
Properties.
There are no other agreements or relationships between the Partnership, the
General Partner and its affiliates than those previously described.
- 64 -
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
----------------------------------------------------------------
1. Financial statements
The financial statements for the years ended December 31, 1997, 1996 and
1995 together with the report of Arthur Andersen LLP dated March 6,
1998, appear in Item 8. The following financial statement schedules
should be read in conjunction with such financial statements.
2. Financial statement schedules
Schedules: Page No.
-------
III-Real Estate and Accumulated Depreciation 66-69
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 IV
10. Property Management Agreement and Construction *
Management Agreement between NTS Development
Company and NTS-Properties IV
27. Financial Data Schedule Included
herewith
* 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 May 16,
1983 (effective August 1, 1983) under Commission File No.
2-83771.
4. Reports on Form 8-K
Form 8-K was filed November 7, 1997 to report in Item 5 that the
Partnership has elected to fund an additional amount of $45,000 to its
Interest Repurchase Reserve.
- 65 -
NTS-PROPERTIES IV
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1997
Commonwealth Plainview
Business Point Office The Willows The Willows
Center Center Phases of Plainview of Plainview
Phase I I and II Phase I Phase II
---------- ---------- ---------- ----------
Encumbrances (A) None (B) (B)
Initial cost to partnership:
Land $ 928,867 $ 356,048 $1,798,292 $ 170,808
Buildings and improvements 1,419,653 2,214,001 5,447,513 585,917
Cost capitalized subsequent to acquisition:
Improvements 1,713,495 872,244 170,939 50,195
Other -- -- -- --
Gross amount at which carried December 31, 1997:
Land $ 939,987 $ 454,262 $1,832,605 $ 181,465
Buildings and improvements 3,122,028 2,988,031 5,584,139 625,455
---------- ---------- ---------- ----------
Total $4,062,015 $3,442,293 $7,416,744 $ 806,920
========== ========== ========== ==========
Accumulated depreciation $2,253,252 $1,464,140 $3,515,692 $ 378,311
========== ========== ========== ==========
Date of construction 06/84 N/A 03/85 08/85
Date Acquired N/A 04/84 N/A N/A
Life at which depreciation in
latest income statement is
computed (C) (C) (C) (C)
(A) First mortgage held by an insurance company.
(B) First mortgage held by two insurance companies.
(C) Depreciation is computed using the straight-line method over the estimated
useful lives of the assets which are 5-30 years for land improvements, 5-30
years for buildings and improvements and 5-30 years for amenities.
- 66 -
NTS-PROPERTIES IV
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1997
Lakeshore
Plainview Blankenbaker Business
Golf Brook Point III Business Center
Apartments Office Center Center 1A Phase I
---------- ------------- ------------ ----------
Encumbrances (A) None (A) (A)
Initial cost to partnership:
Land $ 175,557 $ 65,211 $ 582,561 $ 422,983
Buildings and improvements 474,566 116,284 2,263,506 662,259
Cost capitalized subsequent to acquisition:
Improvements (1,987) 50,419 92,355 537,632
Other (B) -- -- -- 184,250
Gross amount at which carried December 31, 1997:
Land $ 174,986 $ 66,373 $ 672,364 $ 479,210
Buildings and improvements 473,150 165,541 2,266,058 1,327,914
---------- ------------- ------------ ----------
Total $ 648,136 $ 231,914 $ 2,938,422 $1,807,124
========== ============= ============ ==========
Accumulated depreciation $ 230,846 $ 91,257 $ 1,088,350 $ 890,814
========== ============= ============ ==========
Date of construction 05/88 01/88 N/A 05/86
Date Acquired N/A N/A 08/94 N/A
Life at which depreciation in
latest income statement is
computed (C) (C) (C) (C)
(A) First mortgage held by an insurance company.
(B) Represents NTS-Properties IV's increased interest in Lakeshore Business
Center Phase I as a result of the formation of the Lakeshore/University II
Joint Venture in 1995.
(C) Depreciation is computed using the straight-line method over the estimated
useful lives of the assets which are 5-30 years for land improvements, 5-30
years for buildings and improvements and 5-30 years for amenities.
- 67 -
NTS-PROPERTIES IV
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1997
Lakeshore University
Business Business
Center Center Total
Phase II Phase II Pages 66-68
---------- ----------- -----------
Encumbrances (A) (A)
Initial cost to partnership:
Land $ 658,760 $ 388,156 $ 5,547,243
Buildings and improvements 1,508,328 1,567,339 16,259,366
Cost capitalized subsequent to acquisition:
Improvements 40,593 -- 3,525,885
Other -- -- 184,250
Gross amount at which carried December 31, 1997 (B):
Land $ 658,760 $ 388,156 $ 5,848,168
Buildings and improvements 1,548,921 1,567,339 19,668,576
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Total $ 2,207,681 $ 1,955,495 $ 25,516,744
=========== =========== ============
Accumulated depreciation $ 810,452 $ 611,118 $ 11,334,232
=========== =========== ============
Date of construction N/A N/A
Date Acquired 01/95 01/95
Life at which depreciation in
latest income statement is
computed (C) (C)
(A) First mortgage held by an insurance company.
(B) Aggregate cost of real estate for tax purposes is $24,630,016.
(C) Depreciation is computed using the straight-line method over the estimated
useful lives of the assets which are 5-30 years for land improvements, 5-30
years for buildings and improvements and 5-30 years for amenities.
(D) Total gross cost at December 31, 1997 $25,516,744
Adjust land contribution from fair
market value to cost:
Golf Brook Apartments (662,731)
Plainview Point III Office Center (496,000)
-----------
$24,358,013
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NTS-PROPERTIES IV
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Real Accumulated
Estate Depreciation
------------ ------------
Balances at December 31, 1994 $ 19,803,452 $ 7,829,252
Additions during period:
Improvements 298,146 --
Depreciation (a) -- 896,863
Other (b) 4,306,835 1,032,864
Deductions during period:
Retirements (96,421) (64,785)
------------ ------------
Balances at December 31, 1995 24,312,012 9,694,194
Additions during period:
Improvements 73,741 --
Depreciation (a) -- 883,436
Deductions during period:
Retirements (77,115) (70,243)
------------ ------------
Balances at December 31, 1996 24,308,638 10,507,387
Additions during period:
Improvements 99,673 --
Depreciation (a) -- 877,005
Deductions during period:
Retirements (50,298) (50,160)
------------ ------------
Balances at December 31, 1997 $ 24,358,013 $ 11,334,232
============ ============
(a) The additions charged to accumulated depreciation on this schedule will
differ from the depreciation and amortization on the Statements of Cash
Flows due to the amortization of loan costs.
(b) Represents the increase in the Partnership's interest in Lakeshore Business
Center Phase I land and buildings and the Partnership's share of Lakeshore
Business Center Phase II's and University Business Center Phase II's land
and buildings recorded under the proportionate consolidation method. All
are the result of the formation of the
Lakeshore/University II Joint Venture in 1995.
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SIGNATURES
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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, NTS-Properties IV has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
NTS-PROPERTIES IV
-----------------
(Registrant)
BY: NTS-Properties Associates IV,
General Partner
BY: NTS Capital Corporation,
General Partner
/s/ John W. Hampton
---------------------
John W. Hampton
Senior Vice President
Date: March 26, 1998
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 General Partner of NTS-Properties
J. D. Nichols Associates IV and Chairman of the
Board and Sole Director of
NTS Capital Corporation
/s/ Richard L. Good President of NTS Capital Corporation
Richard L. Good
/s/ John W. Hampton Senior Vice President of NTS Capital
John W. Hampton Corporation
The Partnership is a limited partnership and no proxy material has been sent to
the limited partners.
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