UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-13400
NTS-PROPERTIES V,
A MARYLAND LIMITED PARTNERSHIP
Incorporated pursuant to the Laws of the State of Maryland
Internal Revenue Service - Employer Identification No. 61-1051452
10172 Linn Station Road, Louisville, Kentucky 40223
(502) 426-4800
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No | |
TABLE OF CONTENTS
PART I
| Pages | ||||
| Item 1. | Financial Statements | |||
| Consolidated Balance Sheets as of June 30, 2002 | ||||
| and December 31, 2001 | 3 | |||
| Consolidated Statement of Partners' Equity as of June 30, 2002 | 3 | |||
| Consolidated Statements of Operations for the Three Months | ||||
| and Six Months Ended June 30, 2002 and 2001 | 4 | |||
| Consolidated Statements of Cash Flows for the Six Months | ||||
| Ended June 30, 2002 and 2001 | 5 | |||
| Notes to Consolidated Financial Statements | 6-14 | |||
| Item 2. | Management's Discussion and Analysis of Financial | |||
| Condition and Results of Operations | 15-22 | |||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 22 | ||
PART II
| Item 1. | Legal Proceedings | 23 | ||
| Item 2. | Changes in Securities | 23 | ||
| Item 3. | Defaults Upon Senior Securities | 23 | ||
| Item 4. | Submission of Matters to a Vote of Security Holders | 23 | ||
| Item 5. | Other Information | 23 | ||
| Item 6. | Exhibits and Reports on Form 8-K | 23 | ||
| Signatures | 24 |
2
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
NTS-PROPERTIES V,
A MARYLAND LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
As of As of
June 30, December 31,
2002 2001*
-------------------- --------------------
(UNAUDITED)
ASSETS
- ------
Cash and equivalents $ 141,463 $ 682,448
Cash and equivalents - restricted 286,906 120,424
Accounts receivable, net of allowance for doubtful
accounts of $13,841 at June 30, 2002 and $0 at
December 31, 2001 314,965 237,700
Land, buildings and amenities, net 21,273,579 21,435,471
Other assets 818,072 792,410
-------------------- --------------------
TOTAL ASSETS $ 22,834,985 $ 23,268,453
==================== ====================
LIABILITIES AND PARTNERS' EQUITY
- --------------------------------
Mortgages and notes payable $ 13,325,223 $ 13,792,816
Accounts payable 522,506 586,621
Security deposits 204,529 214,132
Other liabilities 422,131 117,440
-------------------- --------------------
TOTAL LIABILITIES 14,474,389 14,711,009
MINORITY INTEREST 954,255 879,371
COMMITMENTS AND CONTINGENCIES (Note 10)
PARTNERS' EQUITY 7,406,341 7,678,073
-------------------- --------------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 22,834,985 $ 23,268,453
==================== ====================
STATEMENT OF PARTNERS' EQUITY
(UNAUDITED)
Limited General
Partners Partner Total
------------------- ------------------ -----------------
PARTNERS' EQUITY/(DEFICIT)
- --------------------------
Capital contributions, net of offering costs $ 30,582,037 $ 100 $ 30,582,137
Net (loss) income - prior years (5,121,151) 62,069 (5,059,082)
Net loss - current year (269,015) (2,717) (271,732)
Cash distributions declared to date (16,641,480) (168,177) (16,809,657)
Repurchase of limited partnership Interests (1,035,325) -- (1,035,325)
------------------- ----------------- ---------------
BALANCES AT JUNE 30, 2002 $ 7,515,066 $ (108,725) $ 7,406,341
=================== ================= ===============
* Reference is made to the audited financial statements in the Form 10-K as filed with the Securities and Exchange
Commission on April 1, 2002.
The accompanying notes to consolidated financial statements are an integral part of these statements.
3
NTS PROPERTIES V,
A MARYLAND LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- -----------------------------
2002 2001 2002 2001
------------- ------------- ------------- -------------
REVENUES
- --------
Rental income $ 1,251,855 $ 1,243,219 $ 2,513,672 $ 2,506,548
Interest and other income 1,691 16,098 21,363 35,900
Gain on sale of assets 280 -- 280 --
------------- ------------- ------------- -------------
TOTAL REVENUES 1,253,826 1,259,317 2,535,315 2,542,448
------------- ------------- ------------- -------------
EXPENSES
- --------
Operating expenses 342,937 401,451 687,295 753,813
Operating expenses - affiliated 166,688 176,464 349,126 317,141
Loss on disposal of assets 55,372 -- 55,372 2,518
Interest expense 258,699 288,342 522,488 583,158
Management fees 69,294 72,079 141,975 141,670
Real estate taxes 126,416 130,378 252,833 260,083
Professional and administrative expenses 33,936 30,649 77,053 59,696
Professional and administrative expenses -
affiliated 39,305 45,030 81,907 76,569
Depreciation and amortization 331,304 300,838 668,348 594,487
------------- ------------- ------------- -------------
TOTAL EXPENSES 1,423,951 1,445,231 2,836,397 2,789,135
------------- ------------- ------------- -------------
Loss before minority interest (170,125) (185,914) (301,082) (246,687)
Minority interest (15,663) (17,911) (29,350) (30,336)
------------- ------------- ------------- -------------
Net loss $ (154,462)$ (168,003)$ (271,732) $ (216,351)
============= ============= ============= =============
Net loss allocated to the limited partners $ (152,917)$ (166,323)$ (269,015) $ (214,187)
============= ============= ============= =============
Net loss per limited partnership Interest $ (5.01)$ (5.45)$ (8.81) $ (7.02)
============= ============= ============= =============
Weighted average number of limited
partnership Interests 30,521 30,521 30,521 30,521
============= ============= ============= =============
The accompanying notes to consolidated financial statements are an integral part of these statements.
4
NTS-PROPERTIES V,
A MARYLAND LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30,
----------------------------------------------
2002 2001
------------------- -------------------
CASH FLOWS FROM OPERATING ACTIVITIES
- ------------------------------------
Net loss $ (271,732) $ (216,351)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Provision for doubtful accounts 14,002 --
Write-off of uncollectible accounts receivable (161) --
Loss on disposal of assets 55,372 2,518
Gain on sale of assets (280) --
Depreciation and amortization 791,201 696,627
Minority interest loss (29,350) (30,336)
Changes in assets and liabilities:
Cash and equivalents - restricted (166,482) (238,110)
Accounts receivable (91,106) 7,989
Other assets (153,551) (115,940)
Accounts payable (64,115) (8,813)
Security deposits (9,603) (13,004)
Other liabilities 304,691 258,615
------------------- -------------------
Net cash provided by operating activities 378,886 343,195
------------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
Additions to land, buildings and amenities (556,792) (386,908)
Proceeds from sale of land, buildings and amenities 280 --
Investment in joint ventures by minority partners, net 104,234 42,116
------------------- -------------------
Net cash used in investing activities (452,278) (344,792)
------------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
Proceeds from mortgages and notes payable 136,332 1,702,042
Principal payments on mortgages and notes payable (603,925) (1,862,665)
Additions to loan costs -- (1,350)
------------------- -------------------
Net cash used in financing activities (467,593) (161,973)
------------------- -------------------
Net decrease in cash and equivalents (540,985) (163,570)
CASH AND EQUIVALENTS, beginning of period 682,448 1,096,857
------------------- -------------------
CASH AND EQUIVALENTS, end of period $ 141,463 $ 933,287
=================== ===================
Interest paid on a cash basis $ 498,798 $ 560,468
=================== ===================
The accompanying notes to consolidated financial statements are an integral part of these statements.
5
NTS-PROPERTIES V,
A MARYLAND LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The unaudited consolidated financial statements included herein should be read in conjunction with NTS-Properties V's (the "Partnership") 2001 Form 10-K as filed with the Securities and Exchange Commission on April 1, 2002. In the opinion of the General Partner, all adjustments necessary for a fair presentation have been made to the accompanying consolidated financial statements for the three months and six months ended June 30, 2002 and 2001.
Note 1 - Consolidation Policy and Joint Venture AccountingThe consolidated financial statements include the accounts of all wholly-owned properties and majority-owned joint ventures. Intercompany transactions and balances have been eliminated. As used in this Form 10-Q the terms "we," "us" or "our," as the context requires, may refer to the Partnership or its interests in this property and joint ventures. Less than 50% owned joint ventures are accounted for under the equity method.
Note 2 - Use of Estimates in the Preparation of Financial StatementsThe preparation of financial statements in accordance with accounting principles generally accepted in the United States ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Note 3 - Concentration of Credit RiskWe own and operate or have a joint venture investment in commercial properties in Louisville, Kentucky and Ft. Lauderdale, Florida. We also have a joint venture investment in a residential property in Louisville, Kentucky.
Our financial instruments that are exposed to concentrations of credit risk consist of cash and equivalents. We maintain our cash accounts primarily with banks located in Kentucky. The total cash balances are insured by the FDIC up to $100,000 per bank account. We may at times, in certain accounts, have deposits in excess of $100,000.
Note 4 - Cash and EquivalentsCash and equivalents include cash on hand and short-term, highly liquid investments with initial maturities of three months or less. We have a cash management program which provides for the overnight investment of excess cash balances. Per an agreement with a bank, excess cash is invested in a repurchase agreement for U.S. government or agency securities on a nightly basis. As of June 30, 2002, approximately $26,000 of said investment was included in cash and cash equivalents.
6
Cash and equivalents - restricted represents funds received for residential security deposits and funds which have been escrowed with mortgage companies for property taxes in accordance with the loan agreements with said mortgage companies.
Note 6 - Basis of Property and DepreciationLand, buildings and amenities are stated at historical cost, less accumulated depreciation. Costs directly associated with the acquisition, development and construction of a project are capitalized. Depreciation is computed using the straight-line method over the estimated useful lives of the assets which are 5-30 years for land improvements, 3-30 years for buildings and improvements, 3-7 years for amenities and the applicable lease term for tenant improvements. The aggregate cost of our properties for federal tax purposes is approximately $40,909,000.
Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," became effective January 1, 2002, and specifies circumstances in which certain long-lived assets must be reviewed for impairment. If such review indicates that the carrying amount of an asset exceeds the sum of its expected future cash flows, the asset's carrying value must be written down to fair value. Application of this standard by management during the period ended June 30, 2002 did not result in an impairment loss.
Note 7 - Tender OfferOn May 10, 2002, ORIG, LLC, ("ORIG") an affiliate of ours, filed a tender offer with the Securities and Exchange Commission, to purchase up to 2,000 of the limited partnership Interests at a price of $230 per Interest as of the date of the tender offer. Approximately $470,000 ($460,000 to purchase 2,000 Interests plus approximately $10,000 for expenses associated with the tender offer) is required to purchase all 2,000 Interests. If more than 2,000 Interests are tendered, ORIG may choose to acquire the additional Interests on a pro rata basis. Interests acquired by ORIG will be held by it. The tender offer will expire on August 9, 2002 unless extended. We are not participating in this tender offer.
7
Mortgages and notes payable consist of the following:
June 30, December 31,
2002 2001
------------------ ------------------
Mortgage payable to an insurance company, bearing
interest at a fixed rate of 8.125%, due August 1, 2008,
secured by land and a building. $ 3,810,194 $ 4,043,630
Mortgage payable to an insurance company, bearing
interest at a fixed rate of 8.125%, due August 1, 2008,
secured by land and buildings. 3,541,425 3,758,395
Mortgage payable to an insurance company, bearing
interest at a fixed rate of 7.2%, due January 5, 2013,
secured by land, buildings and amenities. 2,577,446 2,657,319
Mortgage payable to an insurance company, bearing
interest at a fixed rate of 7.2%, due January 5, 2013,
secured by land, buildings and amenities. 1,539,364 1,587,068
Mortgage payable to a bank, bearing interest at a
variable rate based on LIBOR daily rate plus 2.3%,
currently 4.17%, due on September 8, 2003, secured
by land and a building. 1,840,607 1,720,475
Note payable to a bank, bearing interest at the Prime
Rate, but not less than 6.0%, due April 5, 2003. At
June 30, 2002, the interest rate was 6.0%. 14,732 23,599
Note payable to a bank, bearing interest at the Prime
Rate, but not less than 6.0%, due April 5, 2003. At
June 30, 2002, the interests rate was 6.0%. 1,455 2,330
----------------- -----------------
$ 13,325,223 $ 13,792,816
================= =================
As of June 30, 2002, the fair value of long-term debt is approximately $13,600,000, based on the borrowing rates currently available to us for mortgages and notes with similar terms and average maturities.
Note 9 - Related Party TransactionsPursuant to an agreement with us, NTS Development Company, an affiliate of our General Partner, receives property management fees on a monthly basis. The fees are paid in an amount equal to 5% of the gross revenues from our residential property and 6% of the gross revenues from our commercial properties. Also pursuant to an agreement, NTS Development Company receives a repair and maintenance fee equal to 5.9% of costs incurred which relate to capital improvements. These repair and maintenance fees are capitalized as part of land, buildings and amenities.
8
We were charged the following amounts from NTS Development Company for the six months ended June 30, 2002 and 2001. These charges include items which have been expensed as operating expenses - affiliated or professional and administrative expenses - affiliated and items which have been capitalized as other assets or as land, buildings and amenities.
Six Months Ended
June 30,
-------------------------------------------
2002 2001
------------------ -------------------
Property management fees $ 141,975 $ 141,670
------------------ -------------------
Property management 229,844 181,603
Leasing 72,813 90,906
Administrative - operating 45,989 43,912
Other 480 720
------------------ -------------------
Total operating expenses - affiliated 349,126 317,141
------------------ -------------------
Professional and administrative expenses - affiliated 81,907 76,569
------------------ -------------------
Repairs and maintenance fee 25,910 18,579
Leasing commissions 76,151 62,672
Construction management 6,060 --
------------------ -------------------
Total related party transactions capitalized 108,121 81,251
------------------ -------------------
Total related party transactions $ 681,129 $ 616,631
================== ===================
Note 10 - Commitments and Contingencies
We, as an owner of real estate, are subject to various environmental laws of federal, state and local governments. Compliance by us with existing laws has not had a material adverse effect on our financial condition or results of operations. However, we cannot predict the impact of new or changed laws or regulations on our current properties or properties that we may acquire in the future.
On December 12, 2001, three individuals filed an action in the Superior Court of the State of California for the County of Contra Costa against our General Partner, the general partners of four public partnerships affiliated with us and several individuals and entities affiliated with us. The action purports to bring claims on behalf of a class of limited partners based on, among other things, tender offers made by the public partnership and an affiliate of our General Partner. The plaintiffs allege, among other things, that the prices at which Interests were purchased in these tender offers were too low. The plaintiffs are seeking monetary damages and equitable relief, including an order directing the disposition of the properties owned by the public partnerships and the proceeds distributed. Our General Partner believes that this action is without merit, and is vigorously defending it. No amounts have been accrued as a liability for this action in our financial statements at June 30, 2002. Under an indemnification agreement with our General Partner, we are responsible for the costs of the defense of this action. During the six months ended June 30, 2002, our share of these legal costs was approximately $25,000, which was expensed.
9
We do not believe there is any other litigation threatened against us other than routine litigation arising out of the ordinary course of business, some of which is expected to be covered by insurance, none of which is expected to have a material effect on our financial position or results of operations except as discussed herein. However, due to the event on September 11, 2001, affecting the insurance industry, we are unable to determine at what price we will be able to renew our insurance coverage when the current policies expire in September 2002, or if the coverage available will be adequate.
Note 11 - Segment ReportingOur reportable operating segments include Residential and Commercial Real Estate Operations. The residential operations represent our ownership and operating results relative to an apartment community known as The Willows of Plainview Phase II. The commercial operations represent our ownership and operating results relative to suburban commercial office space known as Commonwealth Business Center Phase II and Lakeshore Business Center Phases I, II and III. The financial information of the operating segments has been prepared using a management approach, which is consistent with the basis and manner in which our management internally reports financial information for the purposes of assisting in making internal operating decisions. Our management evaluates performance based on stand-alone operating segment net income.
10
Three Months Ended June 30, 2002
---------------------------------------------------------
Residential Commercial Total
------------------ ----------------- -----------------
Rental income $ 298,004 $ 953,851 $ 1,251,855
Interest and other income 108 1,024 1,132
Gain on sale of assets 280 -- 280
------------------ ----------------- -----------------
Total net revenues $ 298,392 $ 954,875 $ 1,253,267
================== ================= =================
Operating expenses and operating
expenses -affiliated $ 148,864 $ 358,661 $ 507,525
Loss on disposal of assets 55,372 -- 55,372
Interest expense 75,262 178,346 253,608
Management fees 15,591 53,703 69,294
Real estate taxes 16,333 110,083 126,416
Depreciation and amortization 55,807 270,842 326,649
------------------ ----------------- -----------------
Total expenses 367,229 971,635 1,338,864
================== ================= =================
Net loss $ (68,837)$ (16,760) $ (85,597)
================== ================= =================
Three Months Ended June 30, 2001
---------------------------------------------------------
Residential Commercial Total
------------------ ----------------- -----------------
Rental income $ 304,955 $ 938,264 $ 1,243,219
Interest and other income 3,509 2,995 6,504
------------------ ----------------- -----------------
Total net revenues $ 308,464 $ 941,259 $ 1,249,723
================== ================= =================
Operating expenses and operating
expenses - affiliated $ 184,540 $ 393,375 $ 577,915
Interest expense 79,894 203,357 283,251
Management fees 15,397 56,682 72,079
Real estate taxes 16,425 113,953 130,378
Depreciation and amortization 55,103 241,080 296,183
------------------ ----------------- -----------------
Total expenses 351,359 1,008,447 1,359,806
================== ================= =================
Net loss $ (42,895)$ (67,188) $ (110,083)
================== ================= =================
11
Six Months Ended June 30, 2002
---------------------------------------------------------
Residential Commercial Total
------------------ ----------------- -----------------
Rental income $ 582,584 $ 1,931,088 $ 2,513,672
Interest and other income 924 18,424 19,348
Gain on sale of assets 280 -- 280
------------------ ----------------- -----------------
Total net revenues $ 583,788 $ 1,949,512 $ 2,533,300
================== ================= =================
Operating expenses and operating
expenses -affiliated $ 298,612 $ 737,709 $ 1,036,321
Loss on disposal of assets 55,372 -- 55,372
Interest expense 151,743 360,564 512,307
Management fees 30,168 111,807 141,975
Real estate taxes 32,667 220,166 252,833
Depreciation and amortization 111,329 547,711 659,040
------------------ ----------------- -----------------
Total expenses 679,891 1,977,957 2,657,848
================== ================= =================
Net loss $ (96,103)$ (28,445) $ (124,548)
================== ================= =================
Six Months Ended June 30, 2001
---------------------------------------------------------
Residential Commercial Total
------------------ ----------------- -----------------
Rental income $ 624,639 $ 1,881,909 $ 2,506,548
Interest and other income 3,783 10,046 13,829
------------------ ----------------- -----------------
Total net revenues $ 628,422 $ 1,891,955 $ 2,520,377
================== ================= =================
Operating expenses and operating
expenses - affiliated $ 309,883 $ 761,071 $ 1,070,954
Loss on disposal of assets 2,518 -- 2,518
Interest expense 160,450 412,527 572,977
Management fees 31,087 110,583 141,670
Real estate taxes 32,850 227,233 260,083
Depreciation and amortization 110,033 475,146 585,179
------------------ ----------------- -----------------
Total expenses 646,821 1,986,560 2,633,381
================== ================= =================
Net loss $ (18,399)$ (94,605) $ (113,004)
================== ================= =================
12
A reconciliation of the totals reported for the operating segments to the applicable line items in the consolidated financial statements for the three months and six months ended June 30, 2002 and 2001 is necessary given amounts recorded at the Partnership level and not allocated to the operating properties for internal reporting purposes.
Three Months Ended
June 30,
-------------------------------------------
2002 2001
------------------ -------------------
NET REVENUES
- ------------
Total revenues for reportable segments $ 1,253,267 $ 1,249,723
Other income for Partnership 559 9,594
------------------ -------------------
Total consolidated net revenues $ 1,253,826 $ 1,259,317
================== ===================
OPERATING EXPENSES
- ------------------
Operating expenses for reportable segments $ 507,525 $ 577,915
Operating expenses for Partnership 2,100 --
------------------ -------------------
Total operating expenses $ 509,625 $ 577,915
================== ===================
INTEREST EXPENSE
- ----------------
Interest expense for reportable segments $ 253,608 $ 283,251
Interest expense for Partnership 5,091 5,091
------------------ -------------------
Total interest expense $ 258,699 $ 288,342
================== ===================
DEPRECIATION AND AMORTIZATION
- -----------------------------
Total depreciation and amortization for
reportable segments $ 326,649 $ 296,183
Depreciation and amortization for Partnership 4,655 4,655
------------------ -------------------
Total depreciation and amortization $ 331,304 $ 300,838
================== ===================
NET LOSS
- --------
Total net loss for reportable segments $ (85,597) $ (110,083)
Net loss for Partnership (84,528) (75,831)
Minority interest 15,663 17,911
------------------ -------------------
Total net loss $ (154,462) $ (168,003)
================== ===================
13
Six Months Ended
June 30,
-------------------------------------------
2002 2001
------------------ -------------------
NET REVENUES
- ------------
Total revenues for reportable segments $ 2,533,300 $ 2,520,377
Other income for Partnership 2,015 22,071
------------------ -------------------
Total consolidated net revenues $ 2,535,315 $ 2,542,448
================== ===================
OPERATING EXPENSES
- ------------------
Operating expenses for reportable segments $ 1,036,321 $ 1,070,954
Operating expenses for Partnership 100 --
------------------ -------------------
Total operating expenses $ 1,036,421 $ 1,070,954
================== ===================
INTEREST EXPENSE
- ----------------
Interest expense for reportable segments $ 512,307 $ 572,977
Interest expense for Partnership 10,181 10,181
------------------ -------------------
Total interest expense $ 522,488 $ 583,158
================== ===================
DEPRECIATION AND AMORTIZATION
- -----------------------------
Total depreciation and amortization for
reportable segments $ 659,040 $ 585,179
Depreciation and amortization for Partnership 9,308 9,308
------------------ -------------------
Total depreciation and amortization $ 668,348 $ 594,487
================== ===================
NET LOSS
- --------
Total net loss for reportable segments $ (124,548) $ (113,004)
Net loss for Partnership (176,534) (133,683)
Minority interest 29,350 30,336
------------------ -------------------
Total net loss $ (271,732) $ (216,351)
================== ===================
Note 12 - Subsequent Events
On July 16, 2002, we were approved for an $800,000 mortgage payable, bearing interest at a variable rate based on the one-month LIBOR rate plus 2.75%, secured by Commonwealth Business Center II. The proceeds of this loan will be used for capital additions and repairs.
On July 31, 2002, ORIG, LLC, ("ORIG") an affiliate of ours, filed an amendment to the May 10, 2002 tender offer filing. The amendment extended the tender offer expiration date from August 9, 2002 to September 9, 2002.
14
Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with the Consolidated Financial Statements in Item 1 and the Cautionary Statements below.
Critical Accounting PoliciesA critical accounting policy, for our business, is the assumption that our properties' occupancy will remain at a level which provides for debt payments and adequate working capital, currently and in the future. If occupancy were to fall below that level and remain at or below that level for a significant period of time, then our ability to make payments due under our debt agreements and to continue paying daily operational costs would be greatly affected. This would result in the impairment of the respective properties' assets in accordance with Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long- Lived Assets."
Cautionary StatementsSome of the statements included in this Item 2 may be considered "forward-looking statements" since such statements relate to matters which have not yet occurred. For example, phrases such as "we anticipate," "believe" or "expect," indicate that it is possible that the event anticipated, believed or expected may not occur. Should such event not occur, then the result which we expected also may not occur or occur in a different manner, which may be more or less favorable to us. We do not undertake any obligations to publicly release the result of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances.
Any forward-looking statements included in the MD&A section, or elsewhere in this report, which reflect management's best judgment, based on factors known, involve risks and uncertainties. Actual results could differ materially from those anticipated in any forward-looking statements as a result of a number of factors including, but not limited to, those discussed below. Any forward-looking information provided by us pursuant to the safe harbor established by recent securities legislation should be evaluated in the context of these factors.
Our liquidity, capital resources and results of operations are subject to a number of risks and uncertainties including, but not limited to the following:
15
The occupancy levels at our properties and joint ventures as of June 30, 2002 and 2001 were as follows:
Six Months Ended
June 30,
--------------------------------------------
2002 2001
------------------- -------------------
Wholly-Owned Properties
- -----------------------
Commonwealth Business Center Phase II (1) (2) 76% 81%
Property Owned in Joint Venture with NTS-Properties
- ---------------------------------------------------
IV (Ownership % at June 30, 2002)
- ---------------------------------
The Willows of Plainview Phase II (90.30%) (1) (2) 83% 85%
Properties Owned through Lakeshore/University II
- ------------------------------------------------
Joint Venture (L/U II Joint Venture) (Ownership % at
- ----------------------------------------------------
June 30, 2002)
- --------------
Lakeshore Business Center Phase I (81.19%) (1) 83% 79%
Lakeshore Business Center Phase II (81.19%) (1) 87% 84%
Lakeshore Business Center Phase III (81.19%) (3) 37% 28%
16
The average occupancy levels at our properties and joint ventures during the three months and six months ended June 30, 2002 and 2001 were as follows:
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Wholly-Owned Properties
- -----------------------
Commonwealth Business Center Phase II 78% 78% 79% 69%
Properties Owned in Joint Venture with NTS-
- -------------------------------------------
Properties IV (Ownership % at June 30, 2002)
- --------------------------------------------
The Willows of Plainview Phase II (90.30%) (1) 81% 83% 80% 85%
Properties Owned Through Lakeshore/ University
- ----------------------------------------------
II Joint Venture (L/U II Joint Venture)
- ----------------------------------------
(Ownership % at June 30, 2002)
- ------------------------------
Lakeshore Business Center Phase I (81.19%) 82% 80% 83% 82%
Lakeshore Business Center Phase II (81.19%) 87% 83% 86% 80%
Lakeshore Business Center Phase III (81.19%) (2) 37% 28% 36% 25%
Rental and other income generated by our properties and joint ventures for the three months and six months ended June 30, 2002 and 2001 were as follows:
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- --------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Wholly-Owned Properties
- -----------------------
Commonwealth Business Center Phase II $ 143,077 $ 135,367 $ 283,718 $ 289,169
Property Owned in Joint Venture with NTS-
- -----------------------------------------
Properties IV (Ownership % at June 30, 2002)
- --------------------------------------------
The Willows of Plainview II (90.30%) $ 298,392 $ 308,464 $ 583,788 $ 628,422
Property Owned Through Lakeshore/University II
- ----------------------------------------------
Joint Venture (L/U II Joint Venture) (Ownership % at
- ----------------------------------------------------
June 30, 2002)
- --------------
Lakeshore Business Center Phase I (81.19%) $ 400,985 $ 386,108 $ 810,002 $ 777,867
Lakeshore Business Center Phase II (81.19%) $ 337,040 $ 368,605 $ 712,657 $ 718,929
Lakeshore Business Center Phase III (81.19%) $ 73,773 $ 51,179 $ 143,135 $ 105,990
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On June 25, 2002, NTS-Properties Plus Ltd. merged with ORIG, LLC, ("ORIG") an affiliate of our general partner. ORIG is the surviving entity as a result of this merger. NTS-Properties V continues to hold a 81.19% interest in the Lakeshore/University II Joint Venture after the completion of the NTS-Properties Plus, Ltd./ORIG Merger. ORIG now holds a 7.69% interest in the Lakeshore/University Joint Venture.
Results of OperationsIf there has not been a material change in an item from June 30, 2001 to June 30, 2002, we have omitted any discussion concerning that item.
Other IncomeOther income decreased approximately $15,000, or 90%, and $15,000, or 41%, for the three months and six months ended June 30, 2002, as compared to the same periods in 2001, primarily as a result of a decrease in cash reserves available for investment as a result of funding the Lakeshore University II Joint Venture capital contributions.
Operating ExpensesOperating expenses decreased approximately $59,000, or 15%, and $67,000, or 9%, for the three months and six months ended June 30, 2002, as compared to the same periods in 2001, primarily as the result of decreased landscaping expense at all of our properties.
Operating Expenses - AffiliatedOperating expenses - affiliated increased approximately $32,000, or 10%, for the six months ended June 30, 2002, as compared to the same periods in 2001, primarily as a result of personnel changes at Lakeshore Business Center Phases I, II, and III. Operating expenses - affiliated are expenses for services performed by employees of NTS Development Company, an affiliate of our General Partner. These employee services include property management, leasing, maintenance, security and other services necessary to manage and operate the properties.
Loss on Disposal of AssetsThe loss on disposal of assets for 2002 and 2001 can be attributed to the retirement of assets at The Willows of Plainview Phase II. The 2002 retirements are primarily the result of clubhouse renovations and the 2001 retirements are primarily the result of exterior lighting replacements. The loss represents the cost to retire assets, which were not fully depreciated at the time of replacement.
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Interest expense decreased approximately $30,000, or 10%, and $61,000, or 10%, for the three months and six months ended June 30, 2002, as compared to the same period in 2001. The decrease is primarily a result of a decrease in funds drawn on the Lakeshore Business Center Phase III construction loan and continued principal payments on the debt of The Willows of Plainview Phase II and Lakeshore Business Center Phases I and II.
Professional and Administrative ExpensesProfessional and administrative expenses increased approximately $17,000 or 29%, for the six months ended June 30, 2002, as compared to the same period in 2001, primarily as a result of increased legal and accounting fees.
Depreciation and AmortizationDepreciation and amortization increased approximately $30,000, or 10%, and $74,000, or 12%, for the three months and six months ended June 30, 2002, as compared to the same periods in 2001, primarily due to management's change in the estimated useful life of all of the roof assets at Lakeshore Business Center Phase I. The estimated useful life was reduced from 30 years to 16.5 years in anticipation of replacing the roofs in 2002. The aggregate cost of the our properties for federal tax purposes is approximately $40,909,000.
Consolidated Cash Flows and Financial ConditionIn the next 12 months, we expect the demand on future liquidity to increase as a result of replacing the roofs at Lakeshore Business Center Phase I and of future leasing activity at Commonwealth Business Center Phase II and Lakeshore Business Center Phases I, II and III. There may be significant demands on future liquidity due to the lease up of Lakeshore Business Center Phase III. At this time, the future leasing and tenant finish costs which will be required to renew the current leases or obtain new tenants are not certain. It is anticipated that the cash flow from operations and cash reserves will be sufficient to meet most of our needs, while additional financing may be required.
Cash flows provided by (used in):
Six Months Ended
June 30,
--------------------------------------------
2002 2001
------------------ -------------------
Operating activities $ 378,886 $ 343,195
Investing activities (452,278) (344,792)
Financing activities (467,593) (161,973)
------------------ -------------------
Net decrease in cash and equivalents $ (540,985) $ (163,570)
================== ===================
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Net cash provided by operating activities increased approximately $36,000, or 10%, for the six months ended June 30, 2002, as compared to the same period in 2001. This increase was primarily a result of an increase in depreciation and amortization, as well as the change in other liabilities, partially offset by an increased net loss.
Net cash used in investing activities increased approximately $107,000, or 31%, for the six months ended June 30, 2002 as compared to the same period in 2001. The increase is primarily the result of increased capital expenditures, primarily for tenant improvements and clubhouse renovations at The Willows of Plainview II.
Net cash used in financing activities increased approximately $306,000 for the six months ended June 30, 2002, as compared to the same period in 2001, primarily as a result of a decrease of funds drawn on the Lakeshore Business Center Phase III loan and continued principal payments on the mortgages at Lakeshore Business Center Phases I and II and The Willows of Plainview Phase II.
Due to the fact that no distributions were paid during the six months ended June 30, 2002 or 2001, the table which presents that portion of the distributions that represents a return of capital in accordance with GAAP basis has been omitted.
We anticipate having to continue to fund the working capital deficit of the L/U II Joint Venture. Due to the extended time necessary to lease the Lakeshore Business Center Phase III addition, it is unknown at this time how much working capital we will need to fund the operations of the L/U II Joint Venture.
Currently, our plans for renovations and other major capital expenditures include tenant improvements at our properties as required by lease negotiations at our commercial properties. 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 the improvements are determined by the size of the space being leased and whether the improvements are for a new tenant or incurred because of a lease renewal. The tenant finish improvements will be funded by cash flow from operations, cash reserves or additional financing where necessary.
As of June 30, 2002, we have a commitment for approximately $36,000 for tenant improvements on 5,247 square feet at Lakeshore Business Center Phase I and approximately $79,000 for tenant improvements on 29,756 square feet at Lakeshore Business Center Phase II. We also have a commitment for approximately $57,000 for tenant improvements on 8,071 square feet at Commonwealth Business Center II. The tenant improvements will be funded in 2002 from additional financing and existing working capital.
As of June 30, 2002 we anticipate making certain building improvements during 2002 totaling approximately $235,000, which will be funded from additional financing and existing working capital. These improvements including replacing the roofs at Lakeshore Business Center Phase I ($200,000) and parking lot repairs and HVAC replacements at Commonwealth Business Center II
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($35,000). Management reassessed the useful lives of the existing roofs at Lakeshore Business Center Phase I and has adjusted them accordingly.
Future liquidity will be affected by increased insurance expense. We have budgeted for an increase of approximately 25% upon renewal of our policies in September 2002, as compared to 2001.
We have no other material commitments for renovations or capital improvements as of June 30, 2002.
The following describes the efforts being taken by us to increase the occupancy levels at our properties. At Commonwealth Business Center Phase II, the leasing and renewal negotiations are conducted by leasing agents, who are employees of NTS Development Company, located in Louisville, Kentucky. The leasing agents are located in the same city as the property. All advertising is coordinated by NTS Development Company's marketing staff located in Louisville, Kentucky. A leasing agent, an employee of NTS Development Company, located at Lakeshore Business Center, manages the leasing and renewal negotiations at Lakeshore Business Center Phases I, II and III. At The Willows of Plainview Phase II, we have an on-site leasing staff, who are employees of NTS Development Company. The staff facilitates all on-site visits from potential tenants, makes visits to local companies to promote fully furnished apartments, negotiates lease renewals with current residents and coordinates all local advertising with NTS Development Company's marketing staff. Leases at our commercial properties provide for tenants to contribute toward the payment of common area maintenance expenses, insurance and real estate taxes. These lease provisions, along with the fact that residential leases are generally for a period of one year, should protect our operations from the impact of inflation and changing prices.
Potential ConsolidationOur General Partner, along with the general partners of four other public limited partnerships affiliated with us, is investigating a consolidation of us with other entities affiliated with us. In addition to these entities, the consolidation would likely involve several private partnerships and other entities affiliated with us and our General Partner. The new combined entity would own all of the properties currently owned by the public limited partnerships, and the limited partners or other owners of these entities would receive an ownership interest in the combined entity. The number of ownership interests to be received by limited partners and the other owners of the entities participating in the consolidation would likely be determined based on the relative value of the assets contributed to the combined entity by each public limited partnership, reduced by any indebtedness assumed by the entity. The majority of the contributed assets would consist of real estate properties, whose relative values would be based on appraisals obtained at or near the consolidation date. The potential benefits of consolidating the entities include: reducing the administrative costs as a percentage of assets and revenues by reducing the number of public entities; diversifying limited partners' investments in real estate to include additional markets and types of properties; and creating an asset base and capital structure that may enable greater access to the capital markets. There are, however, also a number of potential adverse consequences such as, the expenses associated with a consolidation and the fact that the duration of the new entity would likely exceed
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our anticipated duration, and that the interests of our limited partners in the combined entity would be smaller on a percentage basis than their interests in us. Further, the new entity may adopt investment and management policies that are different from those presently used by our General Partner for us. A consolidation also requires approval of our limited partners and owners of the other proposed participants. Accordingly, there is no assurance that the consolidation will occur.
Item 3 - Quantitative and Qualitative Disclosures About Market RiskOur primary market risk exposure with regard to financial instruments is changes in interest rates. All of our debt bears interest at a fixed rate with the exception of the $1,840,607 mortgage payable on Lakeshore Business Center Phase III and the $14,732 and $1,455 notes payable on The Willows of Plainview Phase II. At June 30, 2002, a hypothetical 100 basis point increase in interest rates would result in an approximate $406,000 decrease in the fair value of the debt and would increase interest expense on the variable rate mortgage and notes by approximately $18,000 annually.
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Item 1 - Legal Proceedings
None.
Item 2 - Changes in Securities
None.
Item 3 - Defaults Upon Senior Securities
None.
Item 4 - Submission of Matters to a Vote of Security Holders
None.
Item 5 - Other Information
None.
Item 6 - Exhibits and Reports on Form 8-K
a) Exhibits:
99.1 Certification of Chief Executive Officer of the General Partner
99.2 Certification of Chief Financial Officer of the General Partner
b) Reports on Form 8-K:
Form 8-K was filed on May 29, 2002 to report in Item 4 that we have elected to change our
independent public accountant. This Form 8-K was amended on June 12, 2002.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| NTS-PROPERTIES V, | |||
|---|---|---|---|
| A MARYLAND LIMITED PARTNERSHIP | |||
| By: | NTS-Properties Associates V, | ||
| General Partner | |||
| By: NTS Capital Corporation, | |||
| General Partner | |||
| /s/ Gregory A. Wells |
| Gregory A. Wells |
| Senior Vice President and |
| Chief Financial Officer of |
| NTS Capital Corporation |
| Date: August 14, 2002 |
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