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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 0-13400
NTS-PROPERTIES V, a Maryland Limited Partnership
(Exact name of registrant as specified in its charter)
Maryland 61-1051452
(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 54
Total Pages: 58
TABLE OF CONTENTS
-----------------
Pages
-----
PART I
Items 1 and 2 Business and Properties 3-18
Item 3 Legal Proceedings 18
Item 4 Submission of Matters to a Vote
of Security Holders 18
PART II
Item 5 Market for the Registrant's Limited
Partnership Interests and Related
Partner Matters 19
Item 6 Selected Financial Data 20
Item 7 Management's Discussion and Analysis
of Financial Condition and Results
of Operations 21-34
Item 8 Financial Statements and Supplementary
Data 35-50
Item 9 Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 51
PART III
Item 10 Directors and Executive Officers of
the Registrant 51-52
Item 11 Management Remuneration and Transactions 52
Item 12 Security Ownership of Certain Beneficial
Owners and Management 52
Item 13 Certain Relationships and Related
Transactions 53
PART IV
Item 14 Exhibits, Financial Statement Schedules
and Reports on Form 8-K 54-57
Signatures 58
- 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 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.
NTS-Properties V, a Maryland Limited Partnership, (the "Partnership") is a
limited partnership organized under the laws of the State of Maryland on April
30, 1984. The General Partner is NTS-Properties Associates V (a Kentucky limited
partnership). As of December 31, 1997, the Partnership owned the following
properties:
- Commonwealth Business Center Phase II, a business center with
approximately 61,000 net rentable ground floor square feet and
approximately 9,000 net rentable mezzanine square feet located in
Louisville, Kentucky, constructed by the Partnership.
- University Business Center Phase I, a business center with
approximately 82,000 net rentable first floor (office and service)
and second floor (office) square feet and approximately 16,000 net
rentable mezzanine square feet located in Orlando, Florida,
constructed by the Partnership.
- A joint venture interest in The Willows of Plainview Phase II, a
144-unit luxury apartment complex located in Louisville, Kentucky,
constructed by the joint venture between the Partnership and NTS-
Properties IV, an affiliate of the General Partner of the
Partnership. The Partnership's percentage interest in the joint
venture was 90% at December 31, 1997.
- 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 IV, 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 69% 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.
- 3 -
General - Continued
- -------------------
- 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 also owns approximately 6.21 acres of land, adjacent to the
University Place development (University Business Center III), in Orlando,
Florida, 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 II is encumbered by a note payable to a bank.
The outstanding balance of the mortgage at December 31, 1997 was $1,278,251 The
note is due February 1, 2009 and bears interest at the Prime Rate. Monthly
principal payments are based upon a 13-year amortization schedule. At maturity,
the note will have been repaid based on the current rate of amortization.
Subsequent to December 31, 1997, the Partnership received an additional $200,000
funding from the above note payable in accordance with the terms of the loan
agreement.
University Business Center Phase I is encumbered by a mortgage payable to an
insurance company. The outstanding balance of the mortgage at December 31, 1997
was $4,588,807. The mortgage is due February 1, 2008 and bears interest at a
fixed rate of 7.65%. Monthly principal payments are based upon a 12-year
amortization schedule. At maturity, the mortgage will have been repaid based on
the current rate of amortization.
The Willows of Plainview Phase II, a joint venture between the Partnership and
NTS-Properties IV, is encumbered by permanent mortgages with two insurance
companies. The outstanding balance of the mortgages at December 31, 1997 was
$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 $4,585,920 ($2,871,146 and $1,714,774). Both
mortgages currently bear interest at a fixed rate of 7.2% and are due January 5,
2013. Monthly principal payments are based upon a 15-year amortization schedule.
At maturity, the mortgages 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 IV, 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 $3,881,569,
$3,720,508 and $3,607,766, respectively, for a total of $11,209,843. 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
- 4 -
General - Continued
- -------------------
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 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 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. The tenant finish improvements will be funded by cash flow from
operations and, if needed, cash reserves.
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 15% 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 $207,000 or
69%. 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
- 5 -
General - Continued
- -------------------
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 $247,000 or 69%. 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, Commonwealth Business Center Phase II had a commitment
for tenant finish improvements of approximately $150,000 as a result of a new
five-year lease for approximately 8,000 square feet . The project is expected to
be completed during the first quarter of 1998. The source of funds for this
project is the $200,000 loan proceeds discussed above.
The Partnership had no other material commitments for renovations or capital
improvements as of December 31, 1997.
On December 21, 1997, Willows of Plainview Phase II obtained two mortgage loans
from insurance companies 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 $2,871,146 and
$1,714,774, respectively, for a total of $4,585,920. 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 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 $4,563,500 or 90%.
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's properties are in a condition suitable for
their intended use.
The Partnership intends to hold the properties until such time as sale or other
disposition appears to be advantageous with a view to achieving the
Partnership's investment objectives or it appears that such objectives will not
be met. In deciding whether to sell a property, the Partnership will consider
factors such as potential capital appreciation, cash flow and
- 6 -
General - Continued
- -------------------
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 Phases I and II and Phase III vacant
land.
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. At December 31, 1997, the carrying value of University Business
Center Phase I and Phase III vacant land is approximately $6,000,000 and is
encumbered by a mortgage of $4,588,807 and the carrying value of University
Business Center Phase II is approximately $7,500,000 and is encumbered by a
mortgage of $5,374,127. 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 a 69%
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 II
- -------------------------------------
Base annual rents, which exclude the cost of utilities, currently range from
$7.08 to $13.50 per square foot for ground floor office space, $3.42 to $5.86
per square foot for ground floor warehouse space, $6.38 to $8.64 per square foot
for mezzanine office space and $2.84 per square foot for mezzanine storage
space. The average base annual rental for all space leased as of December 31,
1997 was $8.41. 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 terminate between 1998 and 2001. 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 11 tenants leasing office,
warehouse and storage space aggregating approximately 47,012 square feet of
rentable area (1). The tenants who occupy Commonwealth Business Center Phase II
are professional service oriented organizations. The principal
occupations/professions practiced include engineering, an encoding center for
the United States Postal Service and a direct television provider. Three tenants
lease more than 10% of Commonwealth Business Center Phase II's rentable area:
Ogden Environmental (10.5%), Digital Television Services (18.7%) and the United
States Postal Service (22.9%). The occupancy levels at the business center as of
December 31 were 78% (1997), 84% (1996),67% (1995), 100% (1994) and 81% (1993).
(1) Rentable area includes only ground floor square feet (office and warehouse
space).
- 7 -
Commonwealth Business Center Phase 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(1) Rental Options
---- ---------- ------- ------ -------
Ogden Environmental 1999 6,325 (10.5%) $ 72,768 (16.2%) None
Digital Television
Services 1998 11,271 (18.7%) $112,704 (25.1%) 2 One-Year
United States Postal
Service 2001 13,846 (22.9%) $124,608 (27.8%) 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(1) Rental Options
------- ---------- ------- ------ -------
3 1998 4,075 (6.6%) $ 42,195 (9.4%) 2 3-Month
1 1999 3,494 (5.8%) $ 25,200 (5.6%) None
3 2000 6,373 (10.5%) $ 50,796 (11.3%) 1 3-Year
1 2001 1,628 (2.7%) $ 20,628 (4.6%) None
(1) Rentable area includes only ground floor square feet (office and warehouse
space).
University Business Center Phase I
- ----------------------------------
Base annual rents, which exclude the cost of utilities, currently range from
$10.02 to $14.56 per square foot for first floor office space, $7.55 to $14.12
per square foot for first floor service space, $10.00 to $13.50 per square foot
for second floor office space and $10.39 to $11.75 per square foot for mezzanine
office space. The average base rental for all types of space leased as of
December 31, 1997 was $11.40. Space is ordinarily leased for between two and
eight years with the majority of current square footage being leased for a term
of eight years (2). Current leases expire between 1998 and 2002 (2). 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 12 tenants
leasing office (first and second floor) and service space aggregating
approximately 79,275 square feet (3) of rentable area. The tenants who occupy
University Business Center Phase I are professional service-oriented
organizations. The principal occupations/professions practiced include
insurance, management offices for a utility company and an audio/video school
and studio. Three tenants lease more than 10% of University Business Center
Phase I's rentable area: Florida Power Corporation (13.2%), Full Sail Recorders,
Inc. (28.1%) and Combined Risk & Insurance Management Services, Inc. (30.4%).
The occupancy levels at the business center as of December 31 were 100% (1997),
98% (1996), 95% (1995), 90% (1994) and 88% (1993).
(2) Excluding the Full Sail Recorders, Inc. lease. This company leases five
suites with various terms. The majority of the space (approximately 17,556
square feet) is leased for a period of 14 years with the lease expiring in
2003.
(3) Excludes approximately 2,294 square feet which is occupied by the business
center's property management and leasing staff.
- 8 -
University Business Center Phase I - 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(1)(2) Rental Options
---- ---------- ---------- ------ -------
Florida Power
Corporation 1999 10,830 (13.2%) $157,468 (14.5%) None
Full Sail Recorders,
Inc. (3) 22,977 (28.1%) $343,644 (31.6%) None
Combined Risk &
Insurance
Management
Services, Inc. 2002 24,866 (30.4%) $368,412 (33.9%) 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)(2) Rental Options
------- ---------- ---------- ------ -------
2 1998 3,890 (4.7%) $ 39,540 (3.6%) None
4 1999 8,897 (10.8%) $ 90,132 (8.3%) None
1 2000 2,400 (2.9%) $ 32,400 (3.0%) 1 2-Year
2 2001 5,415 (6.6%) $ 55,008 (5.1%) None
(1) Excludes approximately 2,294 square feet which is occupied by the business
center's property management and leasing staff.
(2) Rentable area includes only ground floor square feet (office and
warehouse space).
(3) Full Sail Recorders, Inc. leases five suites with various terms. The
majority of the space (approximately 17,556 square feet) is leased for a
period of 14 years with the lease expiring in 2003.
The Willows of Plainview Phase II
- ---------------------------------
Units at The Willows of Plainview Phase II include one and two-bedroom loft and
deluxe apartments and two-bedroom town homes. 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, swimming pool, whirlpool and tennis
courts.
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. 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 90% (1997), 92%
(1996), 94% (1995), 93% (1994) and 91% (1993).
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 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
- 9 -
Lakeshore Business Center Phase I - Continued
- ---------------------------------------------
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. Home care 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. Home care
Infusion Therapy
Products of
Florida 1998 12,081 (11.7%) $135,912 (13.4%) (1)
(1) Tenant has option to renew its lease for an unspecified period of time.
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 28,293 (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 seven years with the majority of current
square footage being leased for a term of three 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 (2). The tenants who occupy Lakeshore Business Center Phase II are
professional service oriented
(2) Excludes approximately 1,218 square feet which is occupied by the business
center's property management and leasing staff.
- 10 -
Lakeshore Business Center Phase II - Continued
- ----------------------------------------------
organizations. The principal occupations/professions practiced include health
care services, insurance 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 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
---- ---------- --------------- ---------------- ----------
Northwest Medical
Center, Inc. 2000 10,132 (10.4%) $130,554 (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.
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 (Partnership's proportionate share is $207,000 or 69%). As of December
31, 1997, approximately 85,000 square feet of the business center (including
approximately 10,000 square feet of mezzanine space) is 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. Commencing February 1997,
these tenants began making lease payments, pursuant to the sub-lease
arrangements with Crosby, directly to the Joint Venture. The sub-tenants
occupying University Business Center Phase II are professional service oriented
organizations. The principal occupations/professions practiced include an
- 11 -
University Business Center Phase II - Continued
- -----------------------------------------------
audio/video school and studio and home building. Two tenants have sublet more
than 10% of University Business Center 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.
General
- -------
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 II $ 4,439,962 $ .010980 $ 46,270
University Business
Center Phase I 7,495,607 .020011 118,980
Property Owned in Joint
Venture with NTS-
Properties IV
- -----------------------
The Willows of
Plainview Phase II 7,893,189 .011180 58,069
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.
- 12 -
General - Continued
- -------------------
Depreciation for book purposes is computed using the straight-line method over
the estimated useful lives of the assets which are 10-30 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 IV 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 approximately $7,455,000, the construction and
carrying costs of the apartment complex, and NTS-Properties IV contributed land
valued at $800,000. 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 $4,585,920 ($2,871,146 and $1,714,774). Both mortgages
currently bear interest at a fixed rate of 7.2% and are due January 5, 2013.
Monthly principal payments are based upon a fifteen-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 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)
- 13 -
Investment in Joint Venture - Continued
- ---------------------------------------
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.
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 90%
at December 31, 1997.
The Partnership had 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 IV to develop,
construct, own and operate an office warehouse building in Ft. Lauderdale,
Florida known as Lakeshore Business Center Phase I.
The Partnership contributed approximately $9,170,000, the cost of constructing
and leasing the building and NTS-Properties IV contributed land valued at
$1,752,982. 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. See below for a further
discussion of the Lakeshore/University II Joint Venture.
NTS University Boulevard Joint Venture - On January 3, 1989, the Partnership
entered into a joint venture agreement with NTS-Properties Plus Ltd. to develop,
construct, own and operate Phase II of the University Business Center
development in Orlando, Florida.
The Partnership contributed land valued at $1,460,000 and NTS-Properties Plus
Ltd. contributed development and carrying costs of approximately $8,000,000. In
connection with the construction of University Business Center Phase I, the
Partnership incurred the cost of developing certain common areas which are used
by both University Business Center Phase I and Phase II. In 1989, NTS-Properties
Plus Ltd. paid approximately $747,000 to the Partnership for Phase II's share of
the common area costs. During the second quarter of 1994, the Partnership made
an approximate $79,000 capital contribution to the Joint Venture. The capital
contribution increased the Partnership's ownership percentage in the Joint
Venture from approximately 16% to approximately 17%. The contribution was made
to fund a portion of the Joint Venture's operating costs. On January 23, 1995,
the partners of the NTS University Boulevard Joint Venture contributed
University Business Center Phase II to the newly formed L/U II Joint Venture.
See below for a further discussion of the L/U II Joint Venture.
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 IV, 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.
(Continued on next page)
- 14 -
Investment in Joint Ventures - Continued
- ----------------------------------------
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 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, NTS-Properties IV
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 a 69% 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
- 15 -
Investment in Joint Ventures - Continued
- ----------------------------------------
The loans are recorded as a liability of the Joint Venture. The Partnership's
proportionate interest in the loans at December 31, 1997 is $11,209,843
($3,881,569, $3,720,508 and $3,607,766). 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 69%
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 services 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. 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 V, 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 V. Under the agreement, the Property Manager establishes rental
policies and rates and directs the marketing activity of 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 $352,933
for the year ended December 31, 1997. $291,716 was received from commercial
properties and $61,217 was received from the residential property. The fee is
equal to 6% of gross revenues from commercial properties and 5% of gross
revenues from residential properties.
- 16 -
Management of Properties - Continued
- ------------------------------------
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 for an initial period of 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 arm's length
negotiations but through the exercise of the General Partner's good judgement
consistent with its fiduciary responsibility to the Limited Partners and the
Partnership's investment objectives and policies. The General Partner is
accountable to the Limited Partners as a fiduciary and consequently must
exercise good faith and integrity in handling the Partnership's affairs. A
provision has been made in the Partnership Agreement that the General Partner
will not be liable to the Partnership except for acts or omissions performed or
omitted fraudulently, in bad faith or with negligence. In addition, the
Partnership Agreement provides for indemnification of the General Partner by the
Partnership for liability resulting from errors in judgement or certain acts or
omissions. The General Partner and its affiliates retain a free right to compete
with the Partnership's properties including the right to develop 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 third parties 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 those previously described.
Employees
- ---------
The Partnership has no employees; however, employees of an affiliate of the
General Partner are available to perform services for the Partnership. The
Partnership reimburses this affiliate for the actual costs of providing such
services.
Item 3. Legal Proceedings
-----------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
- 17 -
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,
nor is one likely to develop. The Partnership had 2,699 limited partners as of
March 6, 1998. Cash distributions and allocations of net income (loss) are made
as described in Note 1C to the Partnership's 1997 financial statements.
No distributions were paid during 1997, 1996 or 1995. Quarterly distributions
are determined based on current cash balances, cash flow being generated by
operations and cash reserves needed for future leasing costs, tenant finish
costs, and capital improvements.
Due to the fact that no distributions were made during 1997, 1996 and 1995, the
table which presents that portion of the distributions that represent a return
in capital on a Generally Accepted Accounting Principal basis has been omitted.
- 18 -
Item 6. Selected Financial Data
For the years ended December 31, 1997, 1996, 1995, 1994 and 1993.
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
Rental and other income $ 5,906,286 $ 5,693,700 $ 5,388,726 $ 3,787,118 $ 3,826,917
Total expenses (6,464,964) (6,479,552) (6,685,340) (4,292,057) (4,317,372)
------------ ------------ ------------ ------------ ------------
Loss before extraordinary
item (558,678) (785,852) (1,296,614) (504,939) (490,455)
Extraordinary item (49,346) (50,118) -- -- --
------------ ------------ ------------ ------------ ------------
Net loss $ (608,024) $ (835,970) $ (1,296,614) $ (504,939) $ (490,455)
============ ============ ============ ============ ============
Net loss allocated to:
General Partner $ (6,080) $ (8,360) $ (12,966) $ (5,049) $ (4,905)
Limited partners $ (601,944) $ (827,610) $ (1,283,648) $ (499,890) $ (485,550)
Net loss per limited
partnership unit $ (17.13) $ (23.23) $ (35.78) $ (13.93) $ (13.53)
Weighted average number
of limited partnership
units 35,136 35,632 35,876 35,876 35,876
Cumulative net income (loss) allocated to:
General Partner $ 27,388 $ 33,468 $ 41,828 $ 54,794 $ 59,843
Limited partners $ (8,554,517) $ (7,952,573) $ (7,124,963) $ (5,841,315) $ (5,341,425)
Cumulative taxable income (loss) allocated to:
General Partner $ 153,955 $ 149,844 $ 145,990 $ 148,475 $ 145,430
Limited partners $ (7,160,797) $ (7,217,069) $ (6,835,826) $ (6,069,120) $ (5,601,973)
Distributions declared:
General Partner $ -- $ -- $ -- $ 786 $ 3,145
Limited partners $ -- $ -- $ -- $ 77,851 $ 311,403
Cumulative distributions
declared:
General Partner $ 155,527 $ 155,527 $ 155,527 $ 155,527 $ 154,741
Limited partners $ 15,397,262 $ 15,397,262 $ 15,397,262 $ 15,397,262 $ 15,319,411
At year end:
Land, buildings and
amenities, net $ 23,750,773 $ 24,972,650 $ 26,149,956 $ 17,505,634 $ 18,082,922
Total assets $ 28,712,898 $ 30,334,256 $ 31,537,473 $ 21,447,138 $ 23,031,297
Mortgages and notes
payable $ 21,662,821 $ 22,688,331 $ 22,839,940 $ 11,743,884 $ 12,419,675
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.
- 19 -
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
Phase II 100% 78% 84% 67%
University Business Center
Phase I 100% 100% 98% 95%
Properties Owned in Joint Venture
with NTS-Properties IV
- ---------------------------------
The Willows of Plainview Phase II 90% 90% 92% 94%
Lakeshore Business Center Phase I N/A See See See
below below below
(1) (1) (1)
Property Owned in Joint Venture
with NTS-Properties Plus Ltd.
- -------------------------------
University Business Center
Phase II N/A See See See
below below below
(1) (1) (1)
Properties Owned Through
Lakeshore/University II Joint
Venture (L/U II Joint Venture)
- ------------------------------
Lakeshore Business Center
Phase I 69% 96% 92% 92%
Lakeshore Business Center
Phase II 69% 100% 89% 72%
University Business Center
Phase II 69% 99% 99% 95%
(1) During the first quarter of 1995, the Partnership's ownership interest in
the property changed. See below for a discussion regarding this change.
- 20 -
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 II 100% $ 541,348 $ 535,619 $ 587,304
University Business
Center Phase I 100% $1,530,842 $1,431,094 $1,359,802
Properties Owned in Joint
Venture with NTS-
Properties IV
- -------------------------
The Willows of Plainview
Phase II 90% $1,283,576 $1,150,113 $1,074,104
Lakeshore Business Center
Phase I N/A N/A N/A $ 74,043
(1)
Property Owned in Joint
Venture with NTS-
Properties Plus Ltd.
- -----------------------
University Business
Center Phase II N/A N/A N/A $ 17,263
(1)
Properties Owned Through
Lakeshore/University II
Joint Venture (L/U II
Joint Venture)
- ------------------------
Lakeshore Business Center
Phase I 69% $ 984,446 $ 920,643 $ 743,824
Lakeshore Business Center
Phase II 69% $ 977,016 $ 804,221 $ 745,307
University Business
Center Phase II 69% $ 576,088 $ 837,438 $ 768,180
Revenues shown in the table above 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 in the
property changed. The Partnership's proportionate share of rental and
other income from January 23, 1995 to December 31, 1995 is reflected
below (see L/U II Joint Venture). See below for a discussion regarding
this change.
- 21 -
Results of Operations - Continued
- ---------------------------------
The 6% decrease in year-ending occupancy at Commonwealth Business Center Phase
II from 1996 to 1997 is the result of three tenant move-outs totaling
approximately 21,600 square feet. The three tenants vacated at the end of their
lease terms. Partially offsetting the move-outs are five new leases totaling
approximately 18,100 square feet. Average occupancy decreased from 77% (1996) to
74% (1997). The increase in rental and other income at Commonwealth Business
Center Phase II for 1997 as compared to 1996 is primarily due to an increase in
pass through income and a decrease in the provision for bad debt. Increased pass
through income is a result of additional services, such as janitorial, being
provided to an approximately 14,000 square foot tenant. Reimbursement to the
Partnership by the tenant is in accordance with the lease terms. Tenants in
business centers are generally responsible for obtaining and managing these
types of services themselves. The increase in rental and other income at the
business center from 1997 to 1996 is partially offset by the effect of the
decrease in average occupancy.
As of December 31, 1997, Commonwealth Business Center Phase II had an additional
8,037 square feet leased. The new tenant took occupancy during February 1998.
Also at December 31, 1997, the business center had a second new lease signed for
2,029 square feet. The new tenant took occupancy during January 1998. With the
new leases, the business center's occupancy should improve to 95% during the
first quarter of 1998. See the Liquidity and Capital Resources section of this
item for the tenant finish commitment relating to the new leases.
The 17% increase in year-ending occupancy at Commonwealth Business Center Phase
II from 1995 to 1996 is a result of two new leases totaling approximately 15,400
square feet. Included in this total is a five year lease for approximately
14,000 square feet. Partially offsetting the new leases are three tenant
move-outs totaling approximately 5,200 square feet. Two of the tenants, which
occupied 3,600 square feet, vacated the premises at the end of the lease terms.
The third tenant, which had occupied approximately 1,600 square feet, vacated
prior to the end of its lease term due to bankruptcy. There was no accrued
income associated with this lease. Average occupancy decreased from 87% (1995)
to 77% (1996). The decrease in rental and other income at Commonwealth Business
Center Phase II for 1996 as compared to 1995 is primarily the result of the
decrease in average occupancy partially offset by an increase in common area
expense reimbursements. Tenants at Commonwealth Business Center Phase II
reimburse the Partnership for common area expenses as part of the lease
agreements.
The 2% increase in year-ending occupancy at University Business Center Phase I
from 1996 to 1997 is the result of an expansion lease of approximately 1,400
square feet by a current tenant. Average occupancy at University Business Center
Phase I increased from 96% (1996) to 100% (1997). The increase in rental and
other income is primarily due to the increase in average occupancy.
The 3% increase in year-ending occupancy at University Business Center Phase I
from 1995 to 1996 is a result of three new leases totaling approximately 6,200
square feet. Partially offsetting the new leases are three tenant move-outs of
approximately 3,500 square feet. Approximately 1,800 square feet of the
move-outs represents two tenants who vacated the premises at the end of the
lease term. The third tenant, who occupied approximately 1,700 square feet,
represents a tenant who vacated prior to the end of the lease term. The move-out
was the result of a downsizing by the tenant's parent company. The tenant has
paid the Partnership a lease termination fee of approximately $5,800 (recorded
as rental income). There was no accrued income associated with this lease.
Average occupancy at University Business Center Phase I increased from 91%
(1995) to 96% (1996). The increase in rental and other income at University
Business Center Phase I from 1995 to 1996 is primarily due to the increase in
average occupancy.
- 22 -
Results of Operations - Continued
- ---------------------------------
The Willows of Plainview Phase II's year-ending occupancy decreased from 92%
(1996) to 90% (1997) and average occupancy at The Willows of Plainview Phase II
decreased from 95% (1996) to 91% (1997). In the opinion of the General Partner
of the Partnership, the decrease in occupancy from 1996 to 1997 is only a
temporary fluctuation and does not represent a downward occupancy trend.
Occupancy at residential properties fluctuate on a continuous basis.
Period-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 period's results. The increase in rental and
other income at The Willow of Plainview Phase II from 1996 to 1997 is a result
of an increase in rental rates and an increase in income from fully-furnished
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). Average occupancy at The Willows of Plainview Phase II
increased from 92% (1995) to 95% (1996). The increase in rental and other income
at The Willows of Plainview Phase II 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.
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 $4,800 or 69%), 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 $3,500 or 69%), 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. 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 at Lakeshore Business Center Phase I 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 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 to 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 at Lakeshore Business Center Phase I increased from 1995 to 1996 as a
result of the increase in average occupancy. The increase in rental and other
income is also due to the fact that the Partnership acquired an interest in
- 23 -
Results of Operations - Continued
- ---------------------------------
Lakeshore Business Center Phase I as a result of the formation of the L/U II
Joint Venture in January 1995. (See below for a discussion regarding the Joint
Venture).
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.
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 despite a 4% increase in average
occupancy. This is primarily a result of a decrease in rental rates on lease
renewals. As discussed in prior 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 below 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 a portion of its leased space, occupancy has decreased. During
January 1997, Crosby vacated the remaining space it occupied at the business
center. See below for a further discussion of Crosby and its leased space.
The decrease in rental and other income at University Business Center Phase II
from 1996 to 1997 is 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 from and after 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 (see discussion below) are being made directly to the Joint Venture,
which are substantially less than what Crosby owed. Currently, the Joint Venture
is recognizing income to the extent of what is being 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 is approximately $48,000 or 69%.
- 24 -
Results of Operations - Continued
- ---------------------------------
The Partnership's proportionate share of the rental and other income at
University Business Center Phase II increased in 1996 compared to 1995 as a
result of the Partnership's increased ownership in the business center effective
January 23, 1995. (See below for a discussion regarding the change.) 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 was thought there could be a possible collection. There
have been no funds recovered as a result of these actions during 1996 and 1995.
During 1997, $300,000 was collected from Philip Crosby Associates, Inc., a
former tenant at University Business Center Phase II. The Partnership's share
was $207,000 or 69%. See below for a further discussion of this matter.
Current occupancy levels are considered adequate to continue the operation of
the Partnership's properties without the need of any additional financing. See
the Liquidity and Capital Resources section for a discussion regarding the cash
requirements of the Partnership's current debt financings.
The increase in interest and other income from 1996 to 1997 is primarily the
result of an insurance claim reimbursement for roof damage exceeding the cost to
repair the roof at The Willows of Plainview Phase II.
The decrease in interest and other income for 1996 as compared to 1995 is
primarily the result of approximately $21,600 of interest income being
recognized during the second quarter of 1995 on a receivable from a tenant at
University Business Center Phase I. Interest income was not recognized until the
receivable had been repaid in full due to the length of time it had taken the
tenant to reimburse the Partnership. Interest and other income also includes
interest earned from investments made by the Partnership with cash reserves. The
decrease in interest income for 1996 as compared to 1995 is also a result of a
decrease in cash reserves available for investment.
Operating expenses increased in 1997 as compared to 1996 due to increased
expenses associated with fully furnished units and increased advertising and
landscaping costs at The Willows of Plainview Phase II, increased janitorial
costs at all of the Partnership's commercial properties except University
Business Center Phase II, increased replacement costs at University Business
Center Phase I, and increased utility costs at Lakeshore Business Center Phase
I. Partially offsetting the increase in operating expenses are decreased
exterior painting costs at University Business Center Phase I, decreased legal
expenses at Lakeshore Business Center I and decreased janitorial costs at
University Business Center Phase II.
Operating expenses increased in 1996 as compared to 1995 due to increased
expenses associated with fully furnished units at The Willows of Plainview Phase
II, increased legal fees at Lakeshore Business Center Phase I, an increase in
vacant suite utility costs at Commonwealth Business Center Phase II, increased
exterior painting costs at University Business Center Phase I and increased
repairs and maintenance costs at Lakeshore Business Center Phase II. The
increase in operating expenses is also the result of the Partnership acquiring
an interest in the Lakeshore/University II Joint Venture in January 1995. (See
below for a discussion regarding the Joint Venture.) Partially offsetting the
increase in operating expenses are decreased exterior painting costs and
decreased carpet and wallcovering replacement costs at the Willows of Plainview
Phase II and decreased janitorial costs at University Business Center Phase II.
- 25 -
Results of Operations - Continued
- ---------------------------------
The increase in operating expenses - affiliated from 1996 to 1997 is due
primarily to the increase in leasing and property management costs at
Commonwealth Business Center Phase II, increased property management costs at
Lakeshore Business Center Phases I and II, and The Willows of Plainview Phase
II.
The increase in operating expenses - affiliated from 1995 to 1996 is due
primarily to the Partnership's acquisition of an interest in the L/U II Joint
Venture (discussed below). Operating expenses - affiliated are expenses incurred
for services performed by employees of NTS Development Company, an affiliate of
the General Partner of the Partnership.
The 1995 write-off of unamortized tenant improvements was not significant.
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 need, new carpeting and paint and/or wallcovering. In
order to complete the renovation, it is sometimes necessary to replace
improvements which have not been fully depreciated. This results in a write-off
of unamortized tenant improvements.
The 1997 write-off of unamortized loan costs (recorded as an extraordinary item)
relates to loan costs associated with The Willows of Plainview Phase II's notes
payable. The unamortized loan costs were expensed due to the fact that the notes
were retired in 1997 prior to their maturity (December 5, 2003).
The 1996 write-off of unamortized loan costs (recorded as an extraordinary item)
relates to loan costs associated with the Lakeshore/University 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 the amortization of capitalized leasing costs for 1997 as compared
to 1996 was not significant. The decrease in the amortization of capitalized
leasing costs for 1996 as compared to 1995 is due to the fact that the costs
capitalized during start-up at University Business Center Phase II became fully
amortized at the end of 1995.
Interest expense has decreased in 1997 as compared to 1996 and in 1996 as
compared to 1995 primarily as the result of lower interest rates on the
permanent financing obtained by the Partnership in January 1996 (secured by
University Business Center Phase I and Commonwealth Business Center Phase II)
and obtained by the L/U II Joint Venture in July 1996 (secured by the assets of
the Joint Venture). See the Liquidity and Capital Resources section of this item
for a discussion of these permanent financings. The decrease in interest expense
from 1995 to 1996 is partially offset by the Partnership acquiring an interest
in the L/U II Joint Venture in January 1995 (discussed below).
Management fees are calculated as a percentage of cash collections; however,
revenue for reporting purposes is on the accrual basis. As a result, the
fluctuations of revenues between periods will differ from the fluctuations of
management fee expense. The increase in management fees from 1995 to 1996 can
also be attributed to the Partnership acquiring an interest in the L/U II Joint
Venture in January 1995 (discussed below).
The increase in real estate taxes from 1996 to 1997 is primarily the result of
an increase in the 1997 property tax assessments for Lakeshore Business Center
Phases I and II as compared to the 1996 assessment. The increase in real estate
taxes from 1995 to 1996 is primarily a result of the Partnership acquiring an
interest in the L/U II Joint Venture in January 1995 (discussed below). The
increase is also due to an increase in the 1996 property tax assessment for
University Business Center Phase I and Lakeshore Business Center Phase I as
compared to the 1995 assessment.
- 26 -
Results of Operations - Continued
- ---------------------------------
The change in professional and administrative expenses from 1996 to 1997 was not
significant. The decrease in professional and administrative expenses from 1995
to 1996 is due primarily to decreased outside legal fees and litigation
settlement expense. The litigation was 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
IV, 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 IV of certain
monies without the admission of fault or wrongdoing.
Professional and Administrative expenses - affiliated increased from 1996 to
1997 and from 1995 to 1996 as a result of increased salary costs. Professional
and administrative expenses - affiliated are expenses incurred for services
performed by employees of NTS Development, an affiliate of the General Partner.
The change in depreciation and amortization expense from 1996 to 1997 was not
significant. Depreciation and amortization expense decreased from 1995 to 1996
as a result of a portion of the Partnership's assets (primarily tenant finish
improvements) having become fully depreciated. The decrease in depreciation and
amortization is partially offset by the Partnership acquiring an interest in the
L/U II Joint Venture in January 1995 (discussed below).
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets which are 10-30 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 $40,000,000.
Liquidity and Capital Resources
- -------------------------------
Cash provided by operating activities was $1,666,522 (1997), $919,765 (1996) and
$562,363 (1995). No distribution was declared during 1995 as a result of a loan
covenant (the $6,402,000 note payable) which required the Partnership to have
$500,000 remaining in cash or cash equivalents (excluding residential security
deposits and cash escrowed with a lending institution for the payment of
property taxes) following a distribution. The note payable was repaid in January
1996 (see below for a further discussion). No distributions were declared during
1996 or 1997. The Partnership plans to resume distributions once the Partnership
has established adequate cash reserves, which would include funds for future
tenant finish improvements, and the cash flow from operations is sufficient, in
management's opinion, to pay distributions. Cash reserves (which are
unrestricted cash and equivalents as shown on the Partnership's balance sheet at
December 31) were $473,362, $315,816 and $218,331 at December 31, 1997, 1996 and
1995, respectively.
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
capital improvements.
As previously disclosed in the Partnership's Form 10-K for the year ended
December 31, 1995, on January 23, 1995, a new joint venture known as
Lakeshore/University II Joint Venture (L/U II Joint Venture) was formed among
the Partnership and NTS-Properties IV, 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 adjacent to the
Lakeshore Business Center development.
- 27 -
Liquidity and Capital Resources - 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.
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 prior to the formation of
the joint venture. In addition to the above, NTS- Properties IV 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 a
69% partnership interest in the joint venture.
On January 29, 1996 the Partnership obtained permanent financing from a bank
totaling $1,600,000 with $200,000 held for future funding. The outstanding
balance at December 31, 1997 was $1,278,251. The note payable is due February 1,
2009, bears interest at the Prime Rate and is secured by Commonwealth Business
Center Phase II ("CBC II"). The remaining $200,000 will be disbursed by February
1, 1999 in one additional advance when the following conditions are met: 1) CBC
II reaches a minimum occupancy of 75% based on leases acceptable to the bank
with a minimum term of not less than three years, 2) CBC II achieves a minimum
gross monthly base rental income of $37,500 for at least three months, 3) the
Partnership is not in default on the loan and 4) the bank receives tenant
estoppel certificates from the tenants of CBC II. Monthly principal payments are
based on a 13-year amortization schedule. At maturity, the note will have been
repaid based on the current rate of amortization.
Subsequent to December 31, 1997, the Partnership received the additional funding
of $200,000. The proceeds will be used to fund tenant improvements at
Commonwealth Business Center Phase II.
On January 31, 1996, the Partnership obtained permanent financing from an
insurance company totaling $5,100,000. The outstanding balance at December 31,
1997 was $4,588,807. The mortgage payable is due February 1, 2008, bears
interest at a fixed rate of 7.65% and is secured by University Business Center
Phase I. Monthly principal payments are based on a 12-year amortization
schedule. At maturity, the mortgage will have been repaid based on the current
rate of amortization.
The proceeds of these permanent financings ($1,600,000 less $200,000 and
$5,100,000) were used to retire the Partnership's note payable, which had a
balance of $6,352,000, to fund loan closing costs and to increase the
Partnership's cash reserves.
- 28 -
Liquidity and Capital Resources - Continued
- -------------------------------------------
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 share in the loans at
December 31, 1997 was $3,881,569, $3,720,508, and $3,607,766, 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 fund loan closing
costs of approximately $280,000. The Partnership's proportionate interest in the
notes that were paid-off was approximately $11,600,000 or 69%. 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, Willows of Plainview Phase II obtained two mortgage loans
from insurance companies 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
proportionate interest in the loans at December 31, 1997 was $2,871,146 and
$1,714,774, respectively, for a total of $4,585,920. The mortgages bear interest
at a fixed rate of 7.2%, and are due January 5, 2013 and are secured by the
assets of the Joint Venture. Monthly principal payments are based upon a
fifteen-year amortization schedule. At maturity, the loans will have been repaid
based on the current rate of amortization. The proceeds 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
$4,563,500 or 90%. The notes which were paid off had a maturity date of December
5, 2003.
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 for other capital additions and are funded by operating
activities and 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 in 1995 also include cash which was being
escrowed for capital expenditures, leasing commissions and tenant improvements
at the properties owned by the L/U II Joint Venture as required by a 1995 loan
agreement. Cash flows provided by investing activities during 1996 were the
result of a release of these escrow funds. Cash flows provided by financing
activities are from debt refinancings (discussed above). Cash flows used in
financing activities are for loan costs, principal payments on mortgages and
notes payable and repurchases of limited partnership Units. The capital
contribution by a joint venture partner represents the Partnership's interest in
the L/U II Joint Venture's increase in cash which resulted from a capital
contribution. 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. The Partnership does not expect any material changes in
the mix and relative cost of capital resources except for the change in the cost
of capital resources as a result of the new financings which are secured by The
Willows of Plainview Phase Joint Venture II as discussed above.
- 29 -
Liquidity and Capital Resources - Continued
- -------------------------------------------
Due to the fact the no distributions were made during 1997, 1996 or 1995, the
table which presents that portion of the distributions that represent a return
of capital on a Generally Accepted Accounting Principal basis has been omitted.
As of December 31, 1996, the Partnership had accrued approximately $160,000
(included in the accounts payable - construction balance) for certain
improvements to the undeveloped land plus interest at the University Place
development. The purchaser of the approximately 1 acre tract of land at the
University Place development has paid for the cost of these improvements. The
Partnership is required to reimburse the purchaser for these costs, along with
interest at the Prime Rate, at the earlier of (1) the start of construction of
University Business Center Phase III, (2) the sale by the Partnership of any
portion of the remaining undeveloped land, or (3) five years from the date of
the Agreement (agreement dated November 1992). During November 1997, the
Partnership reimbursed the purchaser for the land improvements that were made
during 1992.
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 15% 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 $207,000 or
69%. 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
- 30 -
Liquidity and Capital Resources - Continued
- -------------------------------------------
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 $247,000 or 69%.
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, Commonwealth Business Center Phase II has a commitment
for tenant finish improvements of approximately $150,000 as a result of a new
five-year lease for approximately 8,000 square feet. The project is expected to
be completed during the first quarter of 1998. The source of the funds for this
project is expected to be the $200,000 loan proceeds discussed above.
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
worldwide 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 and
cash reserves. The amount expensed in 1997 was immaterial.
The Partnership had no other material commitments for renovations or capital
improvements at December 31, 1997.
In the next twelve months, the demand on future liquidity is anticipated to
increase as a result of the commitment made for a special tenant finish
allowance and as a result of the two mortgage loans secured by The Willows of
Plainview Phase II which were obtained December 21, 1997 (see discussions
above). The Partnership also expects the demand on future liquidity to increase
as a result of future leasing activity at Commonwealth Business Center Phase II,
University Business Center Phases I and II and Lakeshore Business Center Phases
I and II. At this time, the future leasing and tenant finish costs which will be
required to renew the current leases or obtain new tenants are unknown. It is
anticipated that the cash flow from operations and cash reserves will be
sufficient to meet the needs of the Partnership.
On June 28, 1996, the Partnership established an Interest Repurchase Reserve in
the amount of $50,000 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 funding, the Partnership
- 31 -
Liquidity and Capital Resources - Continued
- -------------------------------------------
was able to repurchase 370 Units at a price of $135 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 August 30,
1996, the Partnership elected to fund an additional $50,000 to its Interest
Repurchase Reserve. With this funding, the Partnership was able to repurchase an
additional 370 Units at a price of $135 per Unit. Through December 31, 1997, 740
units have been repurchased for $99,900. Repurchased Units are retired by the
Partnership, thus increasing the share of ownership of each remaining investor.
The Partnership funded the Interest Repurchase Reserve from cash reserves.
Subsequent to December 31, 1997, the Partnership elected to fund an additional
amount of $30,000 to its Interest Repurchase Reserve. With this funding, the
Partnership will be able to repurchase up to 200 additional Units at a price of
$150 per Unit. If the number of Units submitted for repurchase exceeds that
which can be repurchased by the Partnership with the current funding, 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 Partnership notified the limited partners of this action and
opportunity by mail during January 1998.
It is anticipated that the cash flow from operations and cash reserves will be
sufficient to meet the needs of the Partnership.
The following describes the efforts being taken by the Partnership to increase
the occupancy levels at the Partnership's properties. At Commonwealth Business
Center Phase II, the leasing and renewal negotiations are handled by leasing
agents, 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. At University Business Center Phases I and II in Orlando,
Florida, the Partnership has an on-site leasing agent, an employee of NTS
Development Company, who makes calls to potential tenants, negotiates lease
renewals with current tenants and manages local advertising with the assistance
of the NTS Development Company's marketing staff. The leasing and renewal
negotiations at Lakeshore Business Center Phases I and II are handled by a
leasing agent, an employee of NTS Development Company, located at the Lakeshore
Business Center development. At The Willows of Plainview Phase II, the
Partnership has an on-site leasing staff, employees of NTS Development Company,
who handle all on-site visits from potential tenants, make visits to local
companies to promote fully furnished units, negotiate lease renewals with
current residents and coordinate all local advertising with NTS Development
Company's marketing staff.
Leases at the Partnership's commercial properties provide for tenants to
contribute toward the payment of common area expenses, insurance and real estate
taxes. Leases at the Partnership's Florida commercial properties also provide
for rent increases which are based upon increases in the consumer price index.
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 Partnership owns approximately 6.21 acres of land, adjacent to the
University Place development, in Orlando, Florida which is zoned for commercial
development. Included in the cost of $2,125,246 is land cost, capitalized
interest and common area costs. At the current time, the Partnership is
negotiating the sale of Phase III vacant land along with University Business
Center Phases I and II to Full Sail Recorders, Inc. See below for a further
discussion of the possible sale. If this transaction does not occur, the
Partnership will continue to evaluate the possibility of building University
Business Center Phase III on the vacant land. The decision to build will be
based on market conditions, availability of financing and availability of the
necessary resources from the Partnership. In management's opinion, the net book
value of the asset approximates its fair market value.
- 32 -
Liquidity and Capital Resources - Continued
- -------------------------------------------
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 the University Business
Center Phase II office building, for an aggregate purchase price for all three
of $18,700,000. At December 31, 1997, the carrying value of University Business
Center Phase I and Phase III vacant land is approximately $6,000,000 and is
encumbered by a mortgage of $4,588,807 and the carrying value of University
Business Center Phase II is approximately $7,500,000 and is encumbered by a
mortgage of $5,374,127. 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 the properties.
Because no binding agreement exists for the purchase of these 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 a 69% 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.
The L/U II Joint Venture owns approximately 6.2 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 $1,152,868. The Joint Venture continues to actively market the asset for
sale. In management's opinion, the net book value of the asset held for sale
approximates the fair market value less cost to sell.
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 event not occur, then the result
which the Partnership expected also may 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 results 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.
- 33 -
Liquidity and Capital Resources - Continued
- -------------------------------------------
The Partnership's principal activity is the leasing and management of commercial
office buildings, business centers and an apartment complex. 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 lessee's 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.
A portion of the Partnership's debt service is based on a variable interest
rate, any fluctuations in which are beyond the control of the Partnership. These
variances could, for example, impact the Partnership's projected cash flow and
cash requirements as well as its ability to pay distributions to the limited
partners.
- 34 -
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To NTS-Properties V, a Maryland Limited Partnership:
We have audited the accompanying balance sheets of NTS-Properties V, a Maryland
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 V, a Maryland
Limited Partnership, 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 55
through 57 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 our 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
- 35 -
NTS-PROPERTIES V,
A Maryland Limited Partnership
BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996
1997 1996
----------- -----------
ASSETS
Cash and equivalents $ 473,362 $ 315,816
Cash and equivalents - restricted 69,858 84,992
Accounts receivable, net of allowance
for doubtful accounts of $13,304 (1997)
And $15,899 (1996) 291,504 517,267
Land, buildings and amenities, net 23,750,773 24,972,650
Asset held for development, net 2,125,246 2,279,098
Asset held for sale 1,152,868 1,152,868
Other assets 849,287 1,011,565
----------- -----------
$28,712,898 $30,334,256
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Mortgages and notes payable $21,662,821 $22,688,331
Accounts payable - operations 284,829 256,451
Accounts payable - construction 34,486 215,059
Security deposits 167,597 152,931
Other Liabilities 189,570 39,865
----------- -----------
22,339,303 23,352,637
Commitments and Contingencies
Partners' equity 6,373,595 6,981,619
----------- -----------
$28,712,898 $30,334,256
=========== ===========
The accompanying notes to financial statements are an integral part of these
statements.
- 36 -
NTS-PROPERTIES V,
A Maryland Limited Partnership
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 $3,045 (1997),
$9,566 (1996) and $34,423 (1995) $ 5,831,544 $ 5,665,972 $ 5,328,772
Interest and other income 74,742 27,728 59,954
----------- ----------- -----------
5,906,286 5,693,700 5,388,726
Expenses:
Operating expenses 1,189,163 1,077,906 960,770
Operating expenses - affiliated 566,492 515,018 504,206
Write-off of unamortized tenant
improvements -- -- 4,719
Amortization of capitalized leasing
costs 20,810 18,735 30,880
Interest expense 1,753,841 1,997,728 2,189,900
Management fees 352,933 342,292 322,257
Real estate taxes 576,997 548,428 526,099
Professional and administrative
expenses 117,016 117,174 203,413
Professional and administrative
expenses - affiliated 221,034 180,699 154,275
Depreciation and amortization 1,666,678 1,681,572 1,788,821
----------- ----------- -----------
6,464,964 6,479,552 6,685,340
----------- ----------- -----------
Loss before extraordinary item (558,678) (785,852) (1,296,614)
Extraordinary item - write-off of
unamortized loan costs (49,346) (50,118) --
----------- ----------- -----------
Net loss $ (608,024) $ (835,970) $(1,296,614)
=========== =========== ===========
Net income (loss) allocated to the
limited partners:
Income (loss) before extraordinary item $ (553,091) $ (777,993) $(1,283,648)
Extraordinary item (48,853) (49,617) --
----------- ----------- -----------
Net income (loss) $ (601,944) $ (827,610) $(1,283,648)
=========== =========== ===========
Net loss per limited partnership Unit:
Loss before extraordinary item $ (15.74) $ (21.84) $ (35.78)
Extraordinary item (1.39) (1.39) --
----------- ----------- -----------
Net loss $ (17.13) $ (23.23) $ (35.78)
=========== =========== ===========
Weighted average number of limited
partnership units 35,136 35,632 35,876
=========== =========== ===========
The accompanying notes to financial statements are an integral part of these
statements.
- 37 -
NTS-PROPERTIES V,
A Maryland Limited Partnership
STATEMENTS OF PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Limited General
Partners Partners Total
----------- ----------- -----------
Balances at December 31, 1994 $ 9,314,736 $ (100,633) $ 9,214,103
Net loss (1,283,648) (12,966) (1,296,614)
----------- ----------- -----------
Balances at December 31, 1995 8,031,088 (113,599) 7,917,489
Net loss (827,610) (8,360) (835,970)
Repurchase of Limited Partnership
Units (99,900) -- (99,900)
----------- ----------- -----------
Balances at December 31, 1996 7,103,578 (121,959) 6,981,619
Net loss (601,944) (6,080) (608,024)
----------- ----------- -----------
Balances at December 31, 1997 $ 6,501,634 $ (128,039) $ 6,373,595
=========== =========== ===========
The accompanying notes to financial statements are an integral part of these
statements.
- 38 -
NTS-PROPERTIES V,
A Maryland Limited Partnership
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (608,024) $ (835,970) $ (1,296,614)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Provision for doubtful accounts 3,045 9,566 34,423
Write-off of unamortized tenant improvements -- -- 4,719
Write-off of unamortized loan costs 49,346 50,118 --
Amortization of capitalized leasing costs 20,810 18,735 30,880
Depreciation and amortization 1,666,678 1,681,572 1,788,821
Changes in assets and liabilities:
Cash and equivalents - restricted 15,134 (42,395) (25,712)
Accounts receivable 222,718 239,791 215,134
Other assets 104,065 (102,413) 60,074
Accounts payable - operations 28,378 (108,980) 89,104
Security deposits 14,666 5,601 11,477
Other liabilities 149,706 4,140 (349,943)
------------ ------------ ------------
Net cash provided by operating activities 1,666,522 919,765 562,363
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to land, buildings and amenities (431,992) (310,458) (120,488)
Decrease (increase) in cash and equivalents -
restricted -- 13,721 (9,499)
------------ ------------ ------------
Net cash used in investing activities (431,992) (296,737) (129,987)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in mortgages payable 4,585,920 18,546,020 --
Principal payments on mortgages and notes
payable (5,611,430) (18,697,629) (738,350)
Capital contribution by a joint venture
partner -- -- 519,225
Additions to loan costs (51,474) (274,034) (202,520)
Repurchase of limited partnership Units -- (99,900) --
------------ ------------ ------------
Net cash used in financing activities (1,076,984) (525,543) (421,645)
------------ ------------ ------------
Net increase in cash and
equivalents 157,546 97,485 10,731
CASH AND EQUIVALENTS, beginning of year 315,816 218,331 207,600
------------ ------------ ------------
CASH AND EQUIVALENTS, end of year $ 473,362 $ 315,816 $ 218,331
============ ============ ============
Interest paid on a cash basis $ 1,865,183 $ 2,037,647 $ 2,188,847
============ ============ ============
The accompanying notes to financial statements are an integral part of these
statements.
- 39 -
NTS-PROPERTIES V,
A Maryland Limited Partnership
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1. Significant Accounting Policies
-------------------------------
A) Organization
------------
NTS-Properties V, a Maryland limited partnership, (the
"Partnership") is a limited partnership organized on April 30,
1984. The General Partner is NTS-Properties Associates V, 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 II, a business center with
approximately 61,000 net rentable ground floor square feet and
approximately 9,000 net rentable mezzanine square feet located
in Louisville, Kentucky
- University Business Center Phase I, a business center with
approximately 82,000 net rentable first floor (office and
service) and second floor (office) square feet and approximately
16,000 net rentable mezzanine square feet located in Orlando,
Florida
- A 90% joint venture interest in The Willows of Plainview Phase
II, a 144-unit luxury apartment complex located in Louisville,
Kentucky
- A 69% 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 net 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.
- 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.
The Partnership also owns approximately 6.21 acres of land,
adjacent to the University Place development (University Place
Phase III) in Orlando, Florida which is zoned for commercial
development.
- 40 -
1. Significant Accounting Policies - Continued
-------------------------------------------
C) Allocation of Net Income (Loss) and Cash Distributions
Operating Net Cash Receipts, as defined in the partnership
agreement and which are made available for distribution, will be
distributed 1) 99% to the limited partners and 1% to the General
Partner until the limited partners have received their 8% Preferred
Return as defined in the partnership agreement; 2) to the General
Partner in an amount equal to approximately 10% of the limited
partners 8% Preferred Return; 3) the remainder, 90% to the limited
partners and 10% to the General Partner.
Net operating income (loss), exclusive of depreciation, is
allocated to the limited partners and the General Partner in
proportion to their respective cash distributions. Net operating
income, exclusive of depreciation, in excess of cash distributions
shall be allocated as follows: (1) pro rata to all partners with a
negative capital account in an amount to restore their respective
negative capital account to zero; (2) 99% to the limited partners
and 1% to the General Partner until the limited partners have
received cash distributions from all sources equal to their
original capital; (3) the balance, 75% to the limited partners and
25% to the General Partner. Depreciation expense is 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 the partnership
interests for inclusion on their individual income tax returns.
A reconciliation of net loss for financial statement purposes
versus that for income tax reporting is as follows:
1997 1996 1995
----------- ----------- ----------
Net loss $(608,024) $(835,970) $(1,296,614)
Items handled differently
for tax purposes:
Depreciation and
amortization 342,809 254,781 422,071
Capitalized leasing
costs 14,484 14,484 514
Rental income 353,677 227,838 145,460
Allowance for doubtful
accounts (2,596) (37,682) 5,249
Write-off of unamortized
tenant improvements (39,966) (840) (45,871)
--------- --------- ---------
Taxable income (loss) $ 60,384 $(377,389) $(769,191)
========= ========= =========
- 41 -
1. Significant Accounting Policies - Continued
-------------------------------------------
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 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. 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 the joint venture properties, in
substance, is not subject to joint control. The managing General
Partners of the sole General 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 partner. 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 operations.
G) Cash and Equivalents - Restricted
---------------------------------
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.
Cash and equivalents - restricted at December 31, 1995 also
included escrow funds which were to be released as capital
expenditures, leasing commissions and tenant improvements were
incurred at the properties owned by the Lakeshore/University II
Joint Venture. In 1996, these escrow funds were released.
H) 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.
- 42 -
1. Significant Accounting Policies - Continued
-------------------------------------------
H) Basis of Property and Depreciation - Continued
----------------------------------------------
Statement of Financial Accounting Standards (SFAS) No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of, specifies circumstances in which
certain long-lived assets must be reviewed for impairment. If such
review indicates that the carrying amount of an asset exceeds the
sum of its expected future cash flows, the asset's carrying value
must be written down to fair value. Application of this standard
during the years ended December 31, 1997 and 1996 did not result in
an impairment loss.
I) 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 $254,533 and
$458,504 as of December 31, 1997 and 1996, respectively.
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 initial leasing of the properties are capitalized
and amortized over a five year period.
J) 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.
K) Statements of Cash Flows
------------------------
For purposes of reporting cash flows, cash and equivalents include
cash on hand and short-term, highly liquid investments with initial
maturities of three months or less.
2. Concentration of Credit Risk
----------------------------
NTS-Properties V owns and operates or has a joint venture investment in
commercial properties in Kentucky (Louisville) and Florida (Orlando and
Ft. Lauderdale). Substantially all of the tenants are local businesses or
are businesses which have operations in the location in which they lease
space. The Partnership also has a joint venture investment in a
residential property in Louisville, Kentucky. The apartment unit is
generally the principal residence of the tenant.
3. Investment in Joint Ventures
----------------------------
A) NTS Willows Phase II Joint Venture
----------------------------------
In 1984, the Partnership entered into a joint venture agreement
with NTS-Properties IV, 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. NTS-Properties IV contributed land
- 43 -
3. Investment in Joint Ventures - Continued
----------------------------------------
A) NTS Willows Phase II Joint Venture - Continued
----------------------------------------------
valued at $800,000 and the Partnership 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
90% at December 31, 1997. The Partnership's share of the joint
venture's net operating income was $22,809 (1997), $61,658 (1996),
and $39,402(1995).
B) NTS Ft. Lauderdale Office Joint Venture
---------------------------------------
In 1985, the Partnership entered into a joint venture agreement
with NTS-Properties IV to develop an approximately 103,000
square-foot commercial business center known as Lakeshore Business
Center Phase I, located in Fort Lauderdale, Florida.
NTS-Properties IV contributed land valued at $1,752,982 and the
Partnership contributed approximately $9,170,000, the construction
and carrying costs of the business center. The net income or net
loss is allocated each calendar quarter based on the respective
partnership's contribution. The Partnership's share of the joint
venture's net operating income was $10,809 (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 3D for a further discussion of the new joint venture.
C) NTS University Boulevard Joint Venture
--------------------------------------
In 1989, the Partnership entered into a joint venture agreement
with NTS-Properties Plus Ltd., an affiliate of the General Partner
of the Partnership, to develop an approximately 88,000 square foot
commercial business center (includes 10,000 square feet of
mezzanine space) known as University Business Center Phase II,
located in Orlando, Florida. The Partnership contributed land
valued at $1,460,000 and NTS-Properties Plus Ltd. contributed
development and carrying costs of approximately $8,000,000. In
connection with the construction of University Business Center
Phase I, the Partnership incurred the cost of developing certain
common areas which are used by both University Business Center
Phase I and Phase II. In 1989, NTS-Properties Plus Ltd. paid
approximately $747,000 to the Partnership for Phase II's share of
the common area costs. The net income or net loss is allocated each
calendar quarter based on the respective partnership's
contribution. The Partnership's share of the joint venture's net
operating income was $2,722 (1995).
On January 23, 1995, the partners of the NTS University Boulevard
Joint Venture contributed University Business Center Phase II to
the newly formed L/U II Joint Venture. Refer to Note 3D for a
further discussion of the new joint venture.
D) 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 IV, NTS-Properties
Plus Ltd. and NTS/Fort Lauderdale, Ltd., affiliates of the General
- 44 -
3. Investment in Joint Ventures - Continued
----------------------------------------
D) Lakeshore/University II Joint Venture - Continued
-------------------------------------------------
Partner of the Partnership, for purposes of owning Lakeshore
Business Center Phases I and II, University Business Center Phase
II and certain undeveloped tracts 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 have been 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 prior to the formation of the joint venture.
In addition to the above, NTS/Properties IV contributed $750,000 to
the L/U II Joint Venture. The Partnership's ownership share was 69%
at December 31, 1997. The Partnership's share of the joint ventures
net operating loss was $526,340 (1997), $683,988 (1996) and
$856,189 (1995).
4. 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 $ 9,791,949 $ 9,768,140
Buildings, improvements
and amenities 32,984,399 32,827,375
----------- -----------
42,776,348 42,595,515
Less accumulated depreciation 19,025,575 17,622,865
----------- -----------
$23,750,773 $24,972,650
=========== ===========
- 45 -
5. Asset Held for Development
--------------------------
As of December 31, 1997, the Partnership owned approximately 6.21 acres
of land adjacent to the University Place development in Orlando, Florida
which is zoned for commercial development. Included in the cost of
$2,125,246 million is land cost, capitalized interest and common area
costs. At the current time, the Partnership is exploring the possibility
of selling the vacant land along with University Business Center Phases I
and II. See Note 11 Commitments and Contingencies for a further
discussion of the possible sale. If this transaction does not occur, the
Partnership will continue to evaluate the possibility of building
University Business Center Phase III on the vacant land. The decision to
build will be based on market conditions, availability of financing and
availability of the necessary resources from the Partnership. In
management's opinion, the net book value of the asset approximates its
fair market value.
6. Asset Held for Sale
-------------------
As of December 31, 1997, the L/U II Joint Venture owned approximately 6.2
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 $1,152,868. In
management's opinion, the net book value of the asset held for sale
approximates the fair market value less cost to sell.
7. Mortgages and Note Payable
--------------------------
Mortgages and note payable as of December 31 consist of the following:
1997 1996
----------- -----------
Mortgage payable with an insurance
company bearing interest at a fixed
rate of 7.65%, due February 1, 2008,
secured by land and building $ 4,588,807 $ 4,876,477
Mortgage payable with an insurance
company bearing interest at fixed
rate of 8.125%, due August 1, 2008,
secured by land and building 3,881,569 4,101,627
Mortgage payable with an insurance
company bearing interest at a fixed
rate of 8.125%, due August 1, 2008
secured by land and building 3,720,508 3,931,435
Mortgage payable with an insurance
company bearing interest at a fixed
rate of 8.125%, due August 1, 2008
secured by land and building 3,607,766 3,812,300
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 2,871,146 --
(Continued next page)
- 46 -
1997 1996
------------ -------------
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 $ 1,714,774 $ --
Note payable with a bank bearing
interest at the Prime Rate, due
February 1, 2009, secured by land
and building 1,278,251 1,345,687
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 -- 2,893,401
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 -- 1,727,404
------------ -----------
$ 21,662,821 $ 22,688,331
============ ===========
The Prime Rate was 8.5% at December 31, 1997 and was 8.25% at December
31, 1996.
The mortgages are payable in aggregate monthly installments of $286,374
which include principal, interest and property tax escrow. Scheduled
maturities of debt are as follows:
For the Years Ended December 31, Amount
-------------------------------- -----------
1998 $ 1,234,191
1999 1,350,587
2000 1,461,247
2001 1,580,993
2002 1,710,576
Thereafter 14,325,227
-----------
$21,662,821
===========
Based on the borrowing rates currently available to the Partnership for
mortgages with similar terms and average maturities, the fair value of
long-term debt is approximately $21,700,000.
For additional information regarding the Partnership's $1,278,251
mortgage payable, see Note 12 Subsequent Events.
The 1997 write-off of unamortized loan costs (recorded as an
extraordinary item) relates to loan costs associated with The Willows of
Plainview Phase II's notes payable. The unamortized loan costs were
expensed due to the fact that the notes were retired in 1997 prior to
their maturity (December 5, 2003).
The 1996 write-off of unamortized loan costs (recorded as an
extraordinary item) relates to loan costs associated with the
Lakeshore/University 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).
- 47 -
8. Interest Repurchase Reserve
---------------------------
On June 28, 1996, the Partnership established an Interest Repurchase
Reserve in the amount of $50,000 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 repurchased 370 Units at a price of $135 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 August 30, 1996, the Partnership elected to
fund an additional $50,000 to its Interest Repurchase Reserve. With this
funding, the Partnership repurchased an additional 370 Units at a price
of $135 per Unit. Through December 31, 1997, 740 Units have been
repurchased for $99,900. Repurchased Units are retired by the
Partnership, thus increasing the share of ownership for remaining
investors. For additional information regarding the Interest Repurchase
Reserve, see Note 12 Subsequent Events.
9. 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 $ 3,185,967
1999 2,687,254
2000 2,052,599
2001 1,663,645
2002 1,182,354
Thereafter 807,760
------------
$ 11,579,579
============
10. Related Party Transactions
--------------------------
Pursuant to an agreement with the Partnership, property management fees
of $352,933 (1997), $342,292 (1996) and $322,257 (1995) were paid to NTS
Development Company, an affiliate of the General Partner. The fee is
equal to 5% of gross revenues from residential properties and 6% of gross
revenues from commercial properties. Also pursuant to 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 $25,763 and $17,511 as a repair and maintenance
fee during the years ended December 31, 1997 and 1996, respectively, and
has capitalized this cost as part of land, building 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 included 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, building and amenities.
1997 1996 1995
---------- ---------- ----------
Leasing $ 216,100 $ 242,890 $ 206,008
Administrative 279,933 236,800 175,982
Property manager 353,002 313,048 315,575
Other 5,752 28,846 9,108
---------- ---------- ----------
$ 854,787 $ 821,584 $ 706,673
========== ========== ==========
- 48 -
11. 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 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 15% 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
$207,000 or 69%. 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 $247,000 or 69%.
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 .
- 49 -
11. Commitments and Contingencies - 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.
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. At December
31, 1997, the carrying value of University Business Center Phase I and
Phase III vacant land is approximately $6,000,000 and is encumbered by a
mortgage of $4,588,807 and the carrying value of University Business
Center Phase II is approximately $7,500,000 and is encumbered by a
mortgage of $5,374,127. 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 a 69% 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.
As of December 31, 1997. Commonwealth Business Center Phase II had a
commitment for tenant finish improvements of approximately $150,000 as a
result of a new five-year lease for approximately 8,000 square feet. The
project is expected to be completed during the first quarter of 1998. The
source of the funds for this project is expected to be the $200,000 loan
proceeds received subsequent to December 31, 1997. See Note 12 Subsequent
Events for a discussion regarding this transaction.
12. Subsequent Events
-----------------
Subsequent to December 31, 1997, NTS-Properties V has elected to fund an
additional amount of $30,000 to its Interest Repurchase Reserve. With
this funding, the Partnership will be able to repurchase up to 200
additional Units at a price of $150 per Unit. If the number of Units
submitted for repurchase exceeds that which can be repurchased by the
Partnership with the current funding, 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 Partnership notified the limited partners of this action and
opportunity by mail during January 1998.
Subsequent to December 31, 1997, the Partnership received a $200,000
funding in accordance with the terms of the Commonwealth Business Center
Phase II loan agreement. The balance of the loan at December 31, 1997 was
$1,278,251.
- 50 -
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 V. The
Partnership has entered into a management contract with NTS Development Company,
an affiliate of the General Partner, to provide property management services.
The partners of NTS-Properties Associates V are as follows:
J. D. Nichols
- -------------
Mr. Nichols (age 56) is the managing General Partner of NTS-Properties
Associates V 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. J. D. Nichols is Chairman of the Board and the sole
director of NTS Capital Corporation.
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,
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 President of Jacques-Miller, Inc., a real estate syndication, property
management and financial planning firm 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 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 firm's
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.
- 51 -
Item 10. Directors and Executive Officers of the Registrant - Continued
--------------------------------------------------------------
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 specified
projects. NTS Development Company provides certain other services to the
Partnership. See Note 10 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 allocation and cash
distributions.
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
The following provides details regarding owners of more than 5% of the total
outstanding limited partnership Units as of March 6, 1998.
Oceanridge Investments, Ltd.
6110 North Ocean Blvd, #37
Boynton Beach , Florida 33435 2,061 Units (5.8%)
Oceanridge Investments, Ltd. is a limited partnership controlled by
members of the family of Mr. J. D. Nichols, a general partner of the
General Partner of the Partnership.
The General Partner is NTS-Properties Associates V, 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 V are as follows:
J. D. Nichols 59.90%
10172 Linn Station Road
Louisville, Kentucky 40223
NTS Capital Corporation .10%
10172 Linn Station Road
Louisville, Kentucky 40223
The remaining 40% interests are owned by various limited partners of NTS-
Properties Associates V.
- 52 -
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
Pursuant to an agreement with the Partnership, property management fees of
$352,933 (1997), $342,292 (1996) and $322,257 (1995) were paid to NTS
Development Company, an affiliate of the General Partner. The fee is equal to 5%
of gross revenues from residential properties and 6% of gross revenues from
commercial properties. Also pursuant to 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 $25,763 and $17,511
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 agents $216,100 $242,890 $206,008
Administrative 279,933 236,800 175,982
Property manager 353,002 313,048 315,575
Other 5,752 28,846 9,108
------- ------- -------
$854,787 $821,584 $706,673
======= ======= =======
There were no other agreements or relationships between the Partnership, the
General Partner and its affiliates than those previously described.
- 53 -
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 55-57
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 V, a Maryland
limited partnership
3a. First Amendment to Amended and Restated **
Agreement of Limited Partnership of
NTS-Properties V, a Maryland limited
partnership
10. Management Agreement between NTS *
Development Company and NTS-Properties
V, a Maryland limited partnership
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 1, 1984 (effective August 1, 1984) under
Commission File No. 2-90818.
** Incorporated by reference to Form 10-K filed with the
Securities and Exchange Commission for the fiscal year
ended December 31, 1987 under Commission File No. 0-
13400.
4. Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended December
31, 1997.
- 54 -
NTS-PROPERTIES V,
A Maryland Limited Partnership
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1997
Commonwealth University Lakeshore
Business Business The Willows Business
Center Center of Plainview Center
Phase II Phase I Phase II Phase I
----------- ---------- ----------- -----------
Encumbrances (A) (B) (B) (B)
Initial cost to partnership:
Land $ 946,039 $ 1,576,346 $ 1,604,739 $ 2,250,741
Buildings and improvements 1,574,747 2,650,105 5,654,188 3,592,918
Cost capitalized subsequent to
acquisition
Improvements 2,032,003 3,508,263 88,803 2,955,702
Other (C) -- -- -- (1,351,170)
Gross amount at which carried
December 31, 1997:
Land $ 994,796 $ 1,630,177 $ 1,618,785 $ 1,858,583
Buildings and improvements 3,557,993 6,104,537 5,728,945 5,589,608
----------- ------------ ----------- -----------
Total $ 4,552,789 $ 7,734,714 $ 7,347,730 $ 7,448,191
=========== ============ =========== ===========
Accumulated depreciation $ 2,609,103 $ 3,859,476 $ 3,427,092 $ 3,546,807
=========== ============ =========== ===========
Date of construction 09/85 02/87 08/85 05/86
Date Acquired N/A N/A N/A N/A
Life at which depreciation in
latest income statement is
computed (D) (D) (D) (D)
(A) First mortgage held by a bank.
(B) First mortgage held by an insurance company.
(C) Represents NTS-Properties V's decreased interest in Lakeshore Business
Center Phase I as a result of the formation of the Lakeshore/University II
Joint Venture in 1995.
(D) 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.
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NTS-PROPERTIES V,
A Maryland Limited Partnership
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1997
University Lakeshore
Business Business
Center Center Total
Phase II Phase II Pages 55-56
----------- ----------- -----------
Encumbrances (A) (A)
Initial cost to partnership:
Land $ 356,625 $ 2,554,955 $ 9,289,445
Buildings and improvements 1,038,524 5,849,946 20,360,428
Cost capitalized subsequent to
acquisition
Improvements 33,807 157,409 8,775,987
Other (B) 5,701,658 -- 4,350,488
Carrying costs -- -- --
Gross amount at which carried
December 31, 1996 (C):
Land $1,134,653 $ 2,554,955 $ 9,791,949
Buildings and improvements 5,995,961 6,007,355 32,984,399
----------- ----------- ----------
Total $7,130,614 $ 8,562,310 $42,776,348
=========== =========== ===========
Accumulated depreciation $2,439,815 $ 3,143,282 $19,025,575
=========== =========== ===========
Date of construction 12/90 N/A
Date Acquired N/A 01/95
Life at which depreciation in
latest income statement is
computed (D) (D)
(A) First mortgage held by an insurance company.
(B) Represents NTS-Properties V's increased interest in University Business
Center Phase II as a result of the formation of the Lakeshore/University II
Joint Venture in 1995.
(C) Aggregate cost of real estate for tax purposes is $40,000,810.
(D) Depreciation is computed using the straight-line method over the estimated
useful lives of the assets which are 10-30 years for land improvements,
5-30 years for buildings and improvements and 5-30 years for amenities.
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NTS-PROPERTIES V,
A Maryland Limited Partnership
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 $ 29,507,246 $ 12,001,612
Additions during period:
Improvements 190,456 --
Depreciation (a) -- 1,554,907
Other (b) 14,106,559 3,366,067
Deductions during period:
Retirements (64,804) (60,086)
Other (c) (1,351,170) (624,169)
------------ ------------
Balances at December 31, 1995 42,388,287 16,238,331
Additions during period:
Improvements 297,035 --
Depreciation (a) -- 1,474,241
Deductions during period:
Retirements (89,807) (89,707)
------------ ------------
Balances at December 31, 1996 42,595,515 17,622,865
Additions during period:
Improvements 252,121 --
Depreciation (a) -- 1,473,905
Deductions during period:
Retirements (71,288) (71,195)
------------ ------------
Balances at December 31, 1997 $ 42,776,348 $ 19,025,575
============ ============
(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 proportionate share of
University Business Center Phase II's land and buildings plus the
Partnership's proportionate share of Lakeshore Business Center Phase II's
land and buildings under the proportionate consolidation method. Both are
the result of the formation of the Lakeshore/University II Joint Venture.
(c) Represents the decrease in the Partnership's proportionate share of
Lakeshore Business Center Phase I's land and buildings under the
proportionate consolidation method as a result of the formation of the
Lakeshore/University II Joint Venture.
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SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, NTS-Properties V, a Maryland Limited Partnership, has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NTS-PROPERTIES V, a Maryland Limited
Partnership
(Registrant)
BY: NTS-Properties Associates V,
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 V 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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