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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-14695
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NTS-PROPERTIES VI, A MARYLAND LIMITED PARTNERSHIP
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(Exact name of Registrant as specified in its charter)
Maryland 61-1066060
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
10172 Linn Station Road
Louisville, Kentucky 40223
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(Address of principal executive offices) (Zip Code)
(502) 426-4800
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of the Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
TABLE OF CONTENTS
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PART I
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Pages
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Items 1. and 2. Business and Properties 3-12
Item 3. Legal Proceedings 12-13
Item 4. Submission of Matters to a Vote of Security Holders 13
PART II
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Item 5. Market for the Registrant's Limited Partnership
Interests and Related Partner Matters 14
Item 6. Selected Financial Data 15
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16-25
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk 26
Item 8. Financial Statements and Supplementary Data 27-45
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 46
PART III
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Item 10. Directors and Executive Officers of the Registrant 47-48
Item 11. Management Remuneration and Transactions 48
Item 12. Security Ownership of Certain Beneficial
Owners and Management 48-49
Item 13. Certain Relationships and Related Transactions 49-50
PART IV
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Item 14. Exhibits, Consolidated Financial Statement Schedules
and Reports on Form 8-K 51-55
Signatures 56
2
PART I
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Items 1. and 2. Business and Properties
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Development of Business
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The Registrant, NTS-Properties VI, a Maryland Limited Partnership (the
"Partnership"), is a limited partnership formed in December 1984 under the laws
of the state of Maryland. The General Partner is NTS- Properties Associates VI,
a Kentucky limited partnership. As of December 31, 2000, the Partnership owned
the following properties and joint venture interests:
* Sabal Park Apartments, a 162-unit luxury apartment complex located on
a 13 acre tract in Orlando, Florida, constructed by the Partnership.
* Park Place Apartments Phase I, a 180-unit luxury apartment complex
located on an 18 acre tract in Lexington, Kentucky, constructed by the
Partnership.
* Park Place Apartments Phase III, 152-unit luxury apartment complex,
located on a 15 acre tract in Lexington, Kentucky. Construction was
completed in May 2000.
* Willow Lake Apartments, a 207-unit luxury apartment complex located on
an 18 acre tract in Indianapolis, Indiana, constructed by the
Partnership.
* A joint venture interest in Golf Brook Apartments, a 195-unit luxury
apartment complex located on a 16 acre tract in Orlando, Florida,
constructed by the joint venture between the Partnership and
NTS-Properties IV, Ltd. ("NTS-Properties IV"), an affiliate of the
General Partner of the Partnership. The Partnership's percentage
interest in the joint venture was 96.03% at December 31, 2000.
* A joint venture interest in Plainview Point III Office Center, an
office center with approximately 62,000 net rentable square feet
located in Louisville, Kentucky, constructed by the joint venture
between the Partnership and NTS-Properties IV. The Partnership's
percentage interest in the joint venture was 95.04% at December 31,
2000.
The Partnership or 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.
3
Development of Business - Continued
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As of December 31, 2000, the Partnership's properties and joint ventures were
encumbered by mortgages as shown in the table below:
Interest Maturity Balance
Property Rate Date at 12/31/00
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Park Place Apartments
Phase I and III 7.74% 10/15/2012 (1) $ 12,009,852
Golf Brook Apartments 7.57% 05/15/2009 (2) (3) $ 8,426,706
Willow Lake Apartments 7.32% 10/15/2012 (3) (4) $ 7,388,885
Plainview Point III Office Center 8.38% 12/01/2010 (5) $ 3,200,000
Sabal Park Apartments 7.38% 12/05/2012 (3) (4) $ 2,474,360
Sabal Park Apartments 7.38% 12/05/2012 (3) (4) $ 1,649,573
(1) Monthly principal payments are based upon a 19-year amortization schedule.
The outstanding balance at maturity will be $6,315,948.
(2) Monthly principal payments are based upon a 12-year amortization schedule.
(3) At maturity, the mortgage will have been repaid based on the current rate
of amortization.
(4) Monthly principal payments are based upon a 15-year amortization schedule.
(5) Monthly principal payments are based upon a 20-year amortization schedule.
The outstanding balance at maturity will be $2,243,300.
Currently, the Partnership's plans for renovations and other major capital
expenditures include tenant finish improvements at the Partnership's commercial
property as required by lease negotiations. Changes to current tenant
improvements are a typical part of any lease negotiation. Improvements generally
include a revision to the current floor plan to accommodate a tenant's needs,
new carpeting and paint and/or wallcovering. The extent and cost of the
improvements are determined by the size of the space being leased and whether
the improvements are for a new tenant or incurred because of a lease renewal.
The tenant finish improvements will be funded by cash flow from operations
and/or cash reserves. The Partnership expects no additional financing to be
necessary.
Financial Information About Industry Segments
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The Partnership is presently engaged solely in the business of developing,
constructing, owning and operating residential apartments and commercial real
estate. See Part II, Item 8 - Note 9 for information regarding the Partnership's
operating segments.
Narrative Description of Business
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General
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The current business of the Partnership is consistent with the original purpose
of the Partnership which was to purchase and develop parcels of unimproved or
partially improved land, directly or by joint venture, in order to construct and
otherwise develop thereon apartment complexes, business parks, and/or retail,
industrial and office buildings, and to own and operate the completed
properties. The Partnership's properties are in a condition suitable for their
intended use.
4
General - Continued
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The Partnership intends to hold the properties until such time as sale or other
disposition appears to be advantageous with a view to achieving the
Partnership's investment objectives, or it appears that such objectives will not
be met. In deciding whether to sell a property, the Partnership will consider
factors such as potential capital appreciation, cash flow and federal income tax
considerations, including possible adverse federal income tax consequences to
the limited partners.
Description of Real Property
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Sabal Park Apartments
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Units at Sabal Park Apartments include two and three-bedroom units. All units
have wall-to-wall carpeting, individually controlled heating and air
conditioning, ovens, dishwashers, ranges, refrigerators, garbage disposals and
washer/dryer hook-ups. Tenants have access to and use of the clubhouse,
management offices, swimming pool and tennis courts.
Monthly rental rates at Sabal Park Apartments start at $969 for two-bedroom
apartments and $1,309 for three-bedroom apartments, with additional monthly
rental amounts for special features and locations. Tenants pay all costs of
heating, air conditioning and electricity. Most leases are for a period of one
year. Units will be rented in some cases, however, on a shorter term basis at an
additional charge. The occupancy levels at the apartment complex as of December
31 were 98% (2000), 99% (1999), 94% (1998), 97% (1997) and 90% (1996).
Park Place Apartments Phase I
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Units at Park Place Apartments Phase I include one and two-bedroom apartments
and two-bedroom town homes. All units have wall-to-wall carpeting, individually
controlled heating and air conditioning, dishwashers, ranges, refrigerators with
ice makers, garbage disposals and microwave ovens. All units have access to
coin-operated washers and dryers and some units have a washer/dryer hook-up.
Amenities include the clubhouse with a party room, swimming pool, tennis courts,
racquetball courts, exercise facility and management offices. The amenities are
shared with Phase II and III of the Park Place Development. Park Place
Apartments Phase II is owned by NTS-Properties VII, Ltd., an affiliate of the
General Partner of the Partnership. Park Place Apartments Phase III is owned by
the Partnership, see discussion below. The cost to construct and operate the
common amenities is shared proportionately by each phase.
Monthly rental rates at Park Place Apartments Phase I start at $739 for
one-bedroom apartments, $949 for two-bedroom apartments and $1,139 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 72% (2000), 89%
(1999), 80% (1998), 89% (1997) and 90% (1996).
5
Park Place Apartments Phase III
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Units at Park Place Apartments Phase III include one, two and three-bedroom
apartments. All units have wall-to-wall carpeting, individually controlled
heating and air conditioning, dishwashers, ranges, refrigerators with ice
makers, garbage disposals and microwave ovens. All units have access to coin-
operated washers and dryers and some units have a washer/dryer hook-up.
Amenities include the clubhouse with a party room, swimming pool, tennis courts,
racquetball courts, exercise facility and management offices. The amenities are
shared with Phase I (see discussion above) and Phase II of the Park Place
Development. Park Place Apartments Phase II is owned by NTS-Properties VII,
Ltd., an affiliate of the General Partner of the Partnership. The cost to
construct and operate the common amenities is shared proportionately by each
phase.
Monthly rental rates at Park Place Apartments Phase III start at $725 for
one-bedroom apartments, $950 for two-bedroom apartments and $1,375 for
three-bedroom apartments, with additional monthly rental amounts for special
features and locations. Tenants pay all costs of heating, air conditioning and
electricity. Most leases are for a period of one year. Units will be rented in
some cases, however, on a shorter term basis at an additional charge. In May
2000, construction of Park Place Apartments Phase III was completed and all 152
apartments units were available for leasing. As of December 31, 2000, occupancy
at Park Place Apartments Phase III was 52%.
Willow Lake Apartments
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Units at Willow Lake Apartments include one and two-bedroom apartments and
two-bedroom town homes. All units have wall-to-wall carpeting, individually
controlled heating and air conditioning, dishwashers, ranges, refrigerators with
ice makers, garbage disposals and microwave ovens. All units have access to
coin- operated washers and dryers and some units have a washer/dryer hook-up.
Amenities include the clubhouse with a party room, swimming pool, tennis courts,
racquetball courts, exercise facility and management offices.
Monthly rental rates at Willow Lake Apartments start at $810 for one-bedroom
apartments, $1,055 for two- bedroom apartments and $1,270 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 83% (2000), 82% (1999), 81%
(1998), 88% (1997) and 91% (1996).
Golf Brook Apartments
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Units at Golf Brook Apartments include two and three-bedroom apartments. All
units have wall-to-wall carpeting, individually controlled heating and air
conditioning, dishwashers, ranges, refrigerators, garbage disposals and
washer/dryer hook-ups. Tenants have access to and use of the clubhouse,
management offices, pool and tennis courts.
6
Golf Brook Apartments - Continued
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Monthly rental rates at Golf Brook Apartments start at $1,195 for two-bedroom
apartments and $1,425 for three-bedroom apartments, with additional monthly
rental amounts for special features and locations. Tenants pay all costs of
heating, air conditioning and electricity. Most leases are for a period of one
year. Units will be rented in some cases, however, on a shorter term basis at an
additional charge. The occupancy levels at the apartment complex as of December
31 were 87% (2000), 95% (1999), 96% (1998), 96% (1997) and 97% (1996).
Plainview Point III Office Center
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As of December 31, 2000, there were 6 tenants leasing space aggregating
approximately 45,900 square feet of rentable area at Plainview Point III Office
Center. All leases provide for tenants to contribute toward the payment of
increases in common area maintenance expenses, insurance and real estate taxes.
The tenants who occupy Plainview Point III Office Center are professional
service oriented organizations. The principal occupation/profession practiced is
insurance claim processing. Two tenants individually lease more than 10% of
Plainview Point III's rentable area. The occupancy levels at the office center
as of December 31 were 73% (2000), 86% (1999), 81% (1998), 96% (1997) and 91%
(1996).
The following table contains approximate data concerning the major leases in
effect on December 31, 2000:
Square Feet Current Annual
Year of and % of Rental per
Expiration Net Rentable Area Square Foot
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Major Tenant (1):
1 2001 16,895 (27.10%) $13.29
2 2004 15,438 (24.70%) $16.00
(1) Major tenants are those that individually occupy 10% or more of the
rentable square footage.
Additional operating data regarding the Partnership's properties and joint
ventures is furnished in the following table:
Federal Tax Realty Tax Annual Realty
Basis Rate Taxes
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Wholly-Owned Properties
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Sabal Park Apartments $ 11,692,306 .017680 $ 168,065
Park Place Apartments Phase I $ 11,667,315 .009685 $ 97,381
Park Place Apartments Phase III $ 12,865,901 .009685 $ 59,795
Willow Lake Apartments $ 15,882,428 .098348 $ 305,930
Properties Owned in Joint Venture
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with NTS-Properties IV
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Golf Brook Apartments $ 16,606,041 .017680 $ 284,097
Plainview Point III Office Center $ 4,840,137 .010720 $ 33,415
7
Description of Real Property - Continued
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Depreciation for book purposes is computed using the straight-line method over
the estimated useful lives of the assets which are 5-30 years for land
improvements, 30 years for buildings, 5-30 years for building improvements and
3-30 years for amenities. The estimated realty taxes on all other planned
renovations, primarily tenant improvements, would not be material. See
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Part II, Item 7) for explanations regarding the fluctuations of
income and occupancy at the Partnership's properties and joint ventures.
Investment in Joint Ventures
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The Emerging Issues Tasks Force ("EITF") of the Financial Accounting Standards
Board ("FASB") has reached a consensus on Issue No. 00-1, "Applicability of the
Pro Rata Method of Consolidation to Investments in Certain Partnerships and
Other Unincorporated Joint Ventures." The EITF reached a consensus that a
proportionate gross financial statement presentation (referred to as
"proportionate consolidation" in the Notes to Consolidated Financial Statements)
is not appropriate for an investment in an unincorporated legal entity accounted
for by the equity method of accounting, unless the investee is in either the
construction industry or an extractive industry where there is a longstanding
practice of its use.
The consensus is applicable to financial statements for annual periods ending
after June 15, 2000. The Partnership now uses the equity method to account for
its joint venture investments for the year ending December 31, 2000. The
Partnership has applied the consensus to all comparative financial statements,
restating them to conform with the consensus for all periods presented. The
application of this consensus did not result in a restatement of previously
reported partners' equity or net results of operations, but did result in a
recharacterization or reclassification of certain financial statements' captions
and amounts.
NTS Sabal Golf Villas Joint Venture
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On September 1, 1985, the Partnership entered into a joint venture agreement
with NTS-Properties IV, an affiliate of the General Partner of the Partnership,
to develop, construct, own and operate a 158-unit luxury apartment complex on a
13.15 acre site in Orlando, Florida known as Golf Brook Apartments Phase I. On
January 1, 1987, the joint venture agreement was amended to include Golf Brook
Apartments Phase II, a 37-unit luxury apartment complex located on a 3.069 acre
site adjacent to Golf Brook Apartments Phase I. The term of the joint venture
shall continue until dissolved. Dissolution shall occur upon, but not before,
the first to occur of the following:
(a) the withdrawal, bankruptcy or dissolution of a Partner or the execution by
a Partner of an assignment for the benefit of its creditors;
(b) the sale, condemnation or taking by eminent domain of all or substantially
all of the assets of the Partnership, other than its cash and
cash-equivalent assets;
(c) the vote or consent of each of the Partners to dissolve the Partnership; or
(d) September 30, 2025.
8
Investment in Joint Ventures - Continued
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NTS Sabal Golf Villas Joint Venture - Continued
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The Partnership contributed land valued at $15,800,000, the cost of constructing
and leasing the apartments. NTS-Properties IV contributed land valued at
$1,900,000 with a related note payable to a bank of $1,200,000. The Partnership
also contributed funds to retire the $1,200,000 note payable to a bank. No
future contributions are anticipated as of December 31, 2000.
Golf Brook Apartments is encumbered by a mortgage payable to an insurance
company. The Partnership had originally obtained financing, secured by Golf
Brook Apartments, to fund a portion of its contribution to the joint venture.
The contribution loan has subsequently been refinanced. The current mortgage
payable of $8,426,706 is recorded as a liability by the Partnership. The
mortgage payable bears interest at a fixed rate of 7.57%, is due May 15, 2009
and is secured by the assets of Golf Brook Apartments. 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 net cash flow for each calendar quarter is distributed to the Partners in
accordance with their respective percentage interests. The term Net Cash Flow
means the excess, if any, of (a) the sum of (i) the gross receipts of the joint
venture property, for such period, other than capital contributions, plus (ii)
any funds from previously established reserves (referred to in clause (b) (iv)
below), over (b) the sum of (i) all cash expenses paid by the joint venture
property during such period, (ii) all capital expenditures paid in cash during
such period, (iii) payments during such period on account of amortization of the
principal of any debts or liabilities of the joint venture property, and (iv)
reserves for contingent liabilities and future expenses of the joint venture
property, as established by the Partners; provided, however, that the amounts
referred to in (i), (ii) and (iii) above shall be taken into account only to the
extent not funded by capital contributions or paid out of previously established
reserves. Percentage Interest means that percentage which the capital
contributions of a Partner bears to the aggregate capital contributions of all
the Partners.
Net income or net loss is allocated between the Partners in accordance with
their respective percentage interests. The Partnership's ownership share was
96.03% at December 31, 2000, 1999 and 1998.
Plainview Point III Joint Venture
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On March 1, 1987, the Partnership entered into a joint venture agreement with
NTS-Properties IV, an affiliate of the General Partner, to develop, construct,
own and operate an office building in Louisville, Kentucky known as Plainview
Point III Office Center. The terms of the Joint Venture shall continue until
dissolved. Dissolution shall occur upon, but not before, the first to occur of
the following:
(a) the withdrawal, bankruptcy or dissolution of a Partner or the execution by
a Partner of an assignment for the benefit of its creditors;
(b) the sale, condemnation or taking by eminent domain of all or substantially
all of the assets of the Real Property, unless such disposition is, in
whole or in part, represented by a promissory note of the purchaser;
(c) the vote or consent of each of the Partners to dissolve the Partnership; or
(d) December 30, 2026.
9
Investment in Joint Ventures - Continued
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Plainview Point III Joint Venture - Continued
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The Partnership contributed approximately $4,100,000, the cost to construct and
lease the building. NTS- Properties IV contributed land valued at $790,000 with
an outstanding note payable to a bank of $550,000 which was secured by the land.
The Partnership also contributed funds to retire the $550,000 note payable to
the bank. No future contributions are anticipated as of December 31, 2000.
The net cash flow for each calendar quarter is distributed to the Partners in
accordance with their respective percentage interests. The term Net Cash Flow
means the excess, if any, of (a) the sum of (i) the gross receipts of the joint
venture property, for such period, other than capital contributions, plus (ii)
any funds from previously established reserves (referred to in clause (b) (iv)
below), over (b) the sum of (i) all cash expenses paid by the joint venture
property during such period, (ii) all capital expenditures paid in cash during
such period, (iii) payments during such period on account of amortization of the
principal of any debts or liabilities of the joint venture property, and (iv)
reserves for contingent liabilities and future expenses of the joint venture
property, as established by the Partners; provided, however, that the amounts
referred to in (i), (ii) and (iii) above shall be taken into account only to the
extent not funded by capital contributions or paid out of previously established
reserves. Percentage Interest means that percentage which the capital
contributions of a Partner bears to the aggregate capital contributions of all
the Partners.
Net income or net loss is allocated between the Partners in accordance with
their respective percentage interests. The Partnership's ownership share was
95.04% at December 31, 2000.
Competition
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The Partnership's properties are subject to competition from similar types of
properties (including, in certain areas, properties owned or managed by
affiliates of the General Partner) in the respective vicinities in which they
are located. Such competition is generally for the retention of existing tenants
or for new tenants when vacancies occur. The Partnership maintains the
suitability and competitiveness of its properties primarily on the basis of
effective rents, amenities and service provided to tenants. Competition is
expected to increase in the future as a result of the construction of additional
properties. As of December 31, 2000, the properties under construction in the
respective vicinities in which the properties are located are as follows: In
close proximity to Sabal Park Apartments and Golf Brook Apartments, there is one
apartment complex under construction. At this time, the number of apartment
units to be included in the community is unknown as well as the target
completion date. The apartment community is to include shops, grocery stores and
restaurants. In the vicinity near the Park Place Apartments, there are two
apartment communities, with 300+ apartment units a piece, scheduled to start
construction in 2001. In the vicinity of Willow Lake Apartments, there is one
apartment community with 400 apartment units under construction. The scheduled
completion date is unknown at this time. At this time it is unknown the effect
these new apartment units will have on occupancy at the Partnership's
properties. 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.
10
Management of Properties
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NTS Development Company, an affiliate of the NTS-Properties Associates VI, 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 VI. Under the agreement, NTS Development Company 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, NTS Development Company received a total of
$558,123 for the year ended December 31, 2000. $506,603 was received from the
residential properties and $51,520 was received from the commercial property.
The fee is equal to 6% of gross revenues from the commercial property and 5% of
gross revenues from the residential properties.
In addition, the agreement requires the Partnership to purchase all insurance
relating to the managed properties, to pay the direct out-of-pocket expenses of
NTS Development Company in connection with the operation of the properties,
including the cost of goods and materials used for and on behalf of the
Partnership, and to reimburse NTS Development Company for the salaries,
commissions, fringe benefits, and related employment expenses of on-site
personnel.
The term of the agreement between NTS Development Company and the Partnership
was initially for five years, and thereafter for succeeding one-year periods,
unless cancelled. The agreement is subject to cancellation by either party upon
60-days written notice. As of December 31, 2000, the agreement is still in
effect.
Working Capital Practices
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Information about the Partnership's working capital practices is included in
Management Discussion and Analysis of Financial Condition and Results of
Operations in Part II, Item 7.
Seasonal Operations
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The Partnership does not consider its operations to be seasonal to any material
degree.
Conflict of Interest
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Because the principals of the General Partner and/or its affiliates own and/or
operate real estate properties other than those owned by the Partnership that
are, or could be in competition with the Partnership, potential conflicts of
interest exist. Because the Partnership was organized by and is operated by the
General Partner, these conflicts are not resolved through arms-length
negotiations but through the exercise of the General Partner's good judgement
consistent with its fiduciary responsibility to the limited partners and the
Partnership's investment objectives and policies. The General Partner is
accountable to the limited partners as a fiduciary and consequently must
exercise good faith and integrity in handling the Partnership's affairs. A
provision has been made in the partnership agreement that the General Partner
will not be liable to the Partnership except for acts or omissions performed or
omitted fraudulently, in bad faith or with negligence. In addition, the
partnership agreement provides for indemnification by the General Partner of the
Partnership
11
Conflict of Interest - Continued
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for liability resulting from errors in judgement or certain acts or omissions.
The General Partner and its affiliates retain a free right to compete with the
Partnership's properties including the right to develop competing properties now
and in the future in addition to those existing properties which may compete
directly or indirectly.
NTS Development Company (the "Property Manager"), and an affiliate of the
General Partner, acts in a similar capacity for other affiliated entities in the
same geographic region where the Partnership has property interests. The
agreement with the Property Manager is on terms no less favorable to the
Partnership than those which could be obtained from a third party for similar
services in the same geographical region in which the properties are located.
The contract is terminable by either party without penalty upon 60-days written
notice.
There are no other agreements or relationships between the Partnership, the
General Partner and its affiliates other than those previously described.
Employees
- ---------
The Partnership has no employees; however, employees of an affiliate of the
General Partner are available to perform services for the Partnership. The
Partnership reimburses this affiliate for the actual costs of providing such
services. See Part II, Item 8 - Note 7 for further information regarding the
Partnership's related party transactions.
Governmental Contracts and Regulations
- --------------------------------------
No portion of the Partnership's business is subject to renegotiation of profits
or termination of contracts or sub-contracts at the election of the United
States Government.
Item 3. Legal Proceedings
-----------------
The Partnership has been sued by Elder Construction & Associates, Inc. in
Jefferson Circuit Court, Louisville, Kentucky, in a lawsuit styled Elder
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Construction & Associates, Inc. V. NTS Development Company, Frontier Insurance
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Company, NTS-Properties VI, a Maryland Limited Partnership, NTS- Properties
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Associates VI, and NTS Capital Corporation. All of the named NTS entities are
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represented by Middleton & Reutlinger, a local law firm.
Elder Construction was hired to be the framing subcontractor with respect to
certain improvements at Phase III of Park Place Apartments in Lexington,
Kentucky. After being removed from the job for its failure to provide its
services in a professional, diligent and workmanlike manner, a complaint was
filed on behalf of Elder Construction in November 1999, alleging, inter alia,
----------
breach of contract. The Complaint requested judgement against the defendants in
the amount of $233,122 plus interest and other relief against the defendants.
12
Item 3. Legal Proceedings - Continued
-----------------------------
The Partnership and other defendants have answered the complaint, and have
asserted counterclaims against the plaintiff for, inter alia, breach of
-----------
contract. Discovery is proceeding, but because the case is in the early
discovery phase an outcome cannot be predicted at present. There is a trial date
set for November 6, 2001. The principals of NTS defendants have indicated that
the lawsuit brought by Elder Construction is without merit and will be
vigorously defended, including the prosecution by the defendants of
counterclaims against Elder Construction. The Partnership believes that the
resolution of these legal proceedings will not have a material effect on its
consolidated financial statements.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
13
PART II
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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 2,863 limited partners as of
February 28, 2001. Cash distributions and allocations of income (loss) are made
as described in Note 1D to the Partnership's 2000 consolidated financial
statements.
On March 21, 2000, the Partnership notified its limited partners that it would
be suspending distributions starting January 1, 2000. The suspension is
necessary due to significant capital improvements essential to maintaining the
buildings and facilities owned by the Partnership at Willow Lake Apartments,
Park Place Apartments Phase I, Sabal Park Apartments and Golf Brook Apartments.
The Partnership's cash position will be evaluated on an ongoing basis to
determine when resumption of distributions is appropriate.
Annual distributions totaling $10.00 and $12.50 per limited partnership unit
were paid during the years ended December 31, 1999 and 1998, respectively.
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. Distributions were paid quarterly
as follows:
1999 1998
---- ----
First quarter $ 2.50 $ 5.00
Second quarter 2.50 2.50
Third quarter 2.50 2.50
Fourth quarter 2.50 2.50
------- -------
$ 10.00 $ 12.50
======= =======
The table below presents that portion of the distributions that represent a
return of capital on a Generally Accepted Accounting Principle basis for the
years ended December 31, 2000, 1999 and 1998.
Net (Loss) Income Cash Distributions Return of
Allocated Declared Capital
--------- -------- -------
Limited partners:
2000 $ (853,403) $ - $ -
1999 (185,285) 396,514 396,514
1998 453,154 515,339 62,185
General Partners
2000 $ (8,620) $ - $ -
1999 (1,872) 4,005 4,005
1998 4,577 5,206 629
14
Item 6. Selected Financial Data
-----------------------
Years ended December 31, 2000, 1999, 1998, 1997 and 1996.
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Total revenues $ 10,802,175 $ 9,737,584 $ 9,974,045 $ 9,760,363 $ 9,824,167
Total expenses $ 11,601,261 $ 9,881,746 $ 9,477,349 $ 9,518,287 $ 9,556,452
------------- ------------- ------------- ------------- -------------
(Loss) income before
minority interest and
extraordinary item $ (799,086) $ (144,162) $ 496,696 $ 242,076 $ 267,715
Minority interest $ 42,216 $ 42,995 $ 38,965 $ 36,419 $ 40,661
------------- ------------- ------------- ------------- -------------
(Loss) income after minority
interest before
extraordinary item $ (841,302) $ (187,157) $ 457,731 $ 205,657 $ 227,054
Extraordinary item $ 20,721 $ -- $ -- $ 98,544 $ --
------------- ------------- ------------- ------------- -------------
Net (loss) income $ (862,023) $ (187,157) $ 457,731 $ 107,113 $ 227,054
============= ============= ============= ============= =============
Net (loss) income
allocated to:
General Partner $ (8,620) $ (1,872) $ 4,577 $ 1,071 $ 2,271
Limited partners $ (853,403) $ (185,285) $ 453,154 $ 106,042 $ 224,783
Net (loss) income per
limited partnership Units .. $ (21.85) $ (4.66) $ 10.96 $ 2.48 $ 4.97
Weighted average number
of limited partnership Units 39,053 39,751 41,334 42,817 45,243
Cumulative net income
(loss) allocated to:
General Partner $ (80,780) $ (72,160) $ (70,288) $ (74,865) $ (75,936)
Limited partners $(12,787,833) $(11,934,430) $(11,749,145) $(12,202,299) $(12,308,341)
Cumulative taxable income
(loss) allocated to:
General Partner $ 110,406 $ 111,613 $ 104,550 $ 102,664 $ 1,192,830
Limited partners $(16,097,799) $(15,165,626) $(14,759,062) $(15,174,826) $(16,357,888)
Distributions declared:
General Partner $ -- $ 4,005 $ 5,206 $ 8,622 $ 8,950
Limited partners $ -- $ 396,514 $ 515,339 $ 853,625 $ 886,000
Cumulative distributions
declared to:
General Partner $ 121,277 $ 121,277 $ 117,272 $ 112,066 $ 103,444
Limited partners $ 12,006,384 $ 12,006,384 $ 11,609,870 $ 11,094,531 $ 10,240,906
At year end:
Cash and equivalents $ 47,683 $ 909 $ 362,682 $ 277,209 $ 690,558
Investment securities $ -- $ -- $ -- $ 1,562,813 $ 1,085,267
Land, buildings and
amenities, net $ 47,498,726 $ 47,739,483 $ 41,136,516 $ 39,834,586 $ 41,577,666
Total assets $ 48,425,373 $ 48,606,629 $ 42,577,985 $ 42,701,043 $ 44,211,623
Mortgages payable $ 35,149,376 $ 33,312,443 $ 27,119,180 $ 26,872,563 $ 27,403,056
The above selected financial data should be read in conjunction with the
consolidated financial statements and related notes appearing elsewhere in this
Form 10-K report.
15
Item 7. Management's Discussion and Analysis of Financial Condition and
-------------------------------------------------------------------
Results of Operations
---------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations is structured in four major sections. The first section provides
information related to occupancy levels and information related to rental and
other income generated by the Partnership's properties and joint ventures. The
second analyzes results of operations on a consolidated basis. The final
sections address consolidated cash flows and financial condition. Discussion of
certain market risks and our cautionary statements also follow. Management's
analysis should be read in conjunction with the consolidated financial
statements in Item 8 and the cautionary statements below.
Occupancy Levels
- ----------------
The occupancy levels at the Partnership's properties and joint ventures as of
December 31 were as follows:
Percentage
Ownership
at 12/31/00 2000 (2) 1999 1998
----------- -------- ---- ----
Wholly-Owned Properties
-----------------------
Sabal Park Apartments (1) 100% 98% 99% 94%
Park Place Apartments Phase I (1) 100% 72% 89% 80%
Willow Lake Apartments 100% 83% 82% 81%
Park Place Apartments Phase III 100% 52% 50% (3) N/A
Properties Owned in Joint Venture with
--------------------------------------
NTS-Properties IV
-----------------
(ownership % at December 31, 2000)
----------------------------------
Golf Brook Apartments (1) 96.03% 87% 95% 96%
Plainview Point III Office Center (1) 95.04% 73% 86% 81%
(1) In the opinion of the General Partner of the Partnership, the decrease in
year ending occupancy is only a temporary fluctuation and does not
represent a permanent downward occupancy trend.
(2) With the exceptions of Park Place Apartments Phase III, current occupancy
levels are considered adequate to continue operation of the Partnership's
properties.
(3) Park Place Apartments Phase III had 34 units available for lease at
December 31, 1999 of which 17 were leased.
The average occupancy levels at the Partnership's properties and joint ventures
as of December 31 were as follows:
Percentage
Ownership
at 12/31/00 2000 1999 1998
----------- ---- ---- ----
Wholly-Owned Properties
-----------------------
Sabal Park Apartments 100% 97% 96% 95%
Park Place Apartments Phase I (1) 100% 82% 89% 85%
Willow Lake Apartments 100% 91% 78% 93%
Park Place Apartments Phase III (2) 100% N/A N/A N/A
Properties Owned in Joint Venture with
--------------------------------------
NTS-Properties IV
-----------------
Golf Brook Apartments (1) 96.03% 92% 94% 96%
Plainview Point III Office Center (1) 95.04% 88% 91% 92%
(1) In the opinion of the General Partner of the Partnership, the decrease in
average occupancy is only a temporary fluctuation and does not represent a
permanent downward occupancy trend.
(2) Average occupancy is not applicable for Park Place Apartments Phase III due
to the fact that the units did not start being certified for occupancy
until September 1999 and were not finished until May 2000. Because the
units were being turned over to leasing at different times, the occupancy
of one month is not comparable to the next month.
16
Rental and Other Income
- -----------------------
Rental and other income generated by the Partnership's properties and joint
ventures for the years ended December 31, 2000, 1999 and 1998 were as follows:
Percentage
Ownership
at 12/31/00 2000 1999 1998
----------- ---- ---- ----
Wholly-Owned Properties
-----------------------
Sabal Park Apartments 100% $ 1,955,982 $ 1,911,772 $ 1,823,286
Park Place Apartments Phase I 100% $ 1,697,890 $ 1,830,936 $ 1,780,445
Willow Lake Apartments 100% $ 2,415,538 $ 2,105,852 $ 2,392,740
Park Place Apartments Phase III 100% $ 589,562 $ 37,077 N/A
Properties Owned in Joint Venture
---------------------------------
with NTS-Properties IV
----------------------
Golf Brook Apartments 96.03% $ 3,271,227 $ 2,980,021 $ 3,047,139
Plainview Point III
Office Center 95.04% $ 848,522 $ 852,836 $ 822,168
The following is an analysis of material changes in results of operations for
the periods ending December 31, 2000, 1999 and 1998. Items that did not have a
material impact on operations for the periods listed above have been omitted
from this discussion.
Rental income increased approximately $740,000, or 8%, in 2000, primarily as a
result of income collected at Park Place Apartments Phase III (Park Place
Apartments Phase III was not in full operation at December 31, 1999). The
increase is also due to increased average occupancy at Willow Lake Apartments
and Sabal Park Apartments. The increase is partially offset by decreased average
occupancy at Park Place Apartments Phase I, Plainview Point III Office Center
and Golf Brook Apartments.
Year ending occupancy percentage represents occupancy only on a specific date;
therefore, the above analysis considers average occupancy percentage which is
representative of the entire year's results.
Interest and other income increased approximately $319,000, or 88%, from 1999 to
2000, primarily as a result of a settlement claim received for defective siding
at Golf Brook Apartments.
Interest and other income decreased approximately $83,000, or 65%, from 1998 to
1999, primarily as a result of the Partnership holding no investments in 1999,
therefore earning no interest.
Operating expenses increased approximately $341,000, or 14%, in 2000, primarily
due to the following: 1) expenses incurred by Park Place Apartments Phase III
(Park Place Apartments Phase III was not in full operation during the year ended
December 31, 1999), 2) increased repairs and maintenance at Golf Brook
Apartments (increased floor covering, heating and air conditioning expenses,
plumbing and appliances net of decreased interior painting and interior/exterior
repairs) and Park Place Apartments Phase I (wood replacement), 3) increased
administrative costs at Golf Brook Apartments (increased temporary services), 4)
increased advertising costs at Golf Brook Apartments and Willow Lake Apartments,
and 5) increased landscaping costs at Willow Lake Apartments and Park Place
Apartments Phase I. The increase is partially
17
Rental and Other Income - Continued
- -----------------------------------
offset by 1) decreased employee education expenditures at Golf Brook Apartments,
Willow Lake Apartments and Sabal Park Apartments, 2) decreased utility expenses
at Golf Brook Apartments (water and sewer costs) and Park Place Apartments Phase
I (cable costs), 3) decreased landscaping costs at Sabal Park Apartments, and 4)
decreased repairs and maintenance expenses at Plainview Point III Office Center
(interior repairs and painting).
Operating expenses - affiliated increased approximately $80,000, or 6%, in 2000,
primarily as a result of costs incurred for additional staff as a result of Park
Place Apartments Phase III becoming fully operational in May 2000 (which is
netted against the decrease at Park Place Apartments Phase I which is due to the
reallocation of salaries and overhead to include Park Place Apartments Phase
III). Operating expenses - affiliated are expenses incurred for services by
employees of NTS Development Company, as affiliate of the General Partner of the
Partnership.
Operating expenses - affiliated increased approximately $79,000, or 6%, in 1999,
primarily as a result of increased property management costs at all of the
Partnership's underlying properties. The increase is also a result of increased
leasing salaries and commissions at Sabal Park Apartments, Golf Brook Apartments
and Park Place Apartments Phase I and increased administrative salary costs at
Sabal Park Apartments and Golf Brook Apartments. These increases are partially
offset by decreased leasing salaries and commissions at Willow Lake Apartments.
The 2000 loss on disposal of assets can be attributed to retirements of assets,
that were not fully depreciated, as a result of clubhouse renovation projects at
Park Place Apartments, Golf Brook Apartments and Sabal Park Apartments.
The 1999 loss on disposal of assets can be attributed to Golf Brook Apartments,
Sabal Park Apartments, Willow Lake Apartments and Plainview Point III Office
Center. The loss is the result of various property renovations, including
painting and the replacement of exterior wood at Sabal Park Apartments and Golf
Brook Apartments, roof replacement at Willow Lake Apartments and carpet
replacement at Plainview Point III Office Center. The loss represents the costs
of unamortized assets, which were replaced as a result of the renovations.
The 1998 loss on disposal of assets can be attributed to Park Place Apartments
Phase I and Willow Lake Apartments. The loss is the result of property
renovations at Park Place Apartments Phase I for signage and deck replacements
and Willow Lake Apartments for roof replacements.
Interest expense increased approximately $695,000, or 34%, in 2000, as a result
of an increase in the Partnership's mortgage debt. The increase in interest
expense is also due to interest capitalized on the Park Place Apartments Phase
III construction decreasing from approximately $250,000 in 1999 to approximately
$26,000 in 2000. This reduction in capitalized interest has effectively
increased interest expense in 2000.
18
Rental and Other Income - Continued
- -----------------------------------
Management fees are calculated as a percentage of cash collections; however,
revenue for reporting purposes is recorded on the accrual basis. As a result,
the fluctuations in revenue between periods will differ from the fluctuations of
management fees expense. Management fees increased approximately $52,000, or
10%, in 2000, primarily as a result of increased revenue collected at Park Place
Apartments Phase III (Park Place Apartments Phase III was not fully operational
during the year ended December 31, 1999) and a settlement claim received for
defective siding at Golf Brook Apartments.
Real estate taxes increased approximately $51,000, or 6%, in 2000, primarily due
to increased real estate taxes for the Park Place Apartments due to Park Place
Apartments Phase III not being fully operational in 1999.
Real estate taxes increased approximately $70,000, or 8%, in 1999, primarily due
to additional accruals necessary related to estimated property taxes for Willow
Lake Apartments. The increase is also the result of increased assessments for
Sabal Park Apartments and Golf Brook Apartments.
Professional and administrative expenses decreased approximately $61,000, or
24%, in 2000, primarily as a result of 1) decreased external processing fees, 2)
decreased legal and professional costs for the tender offers and general
services, and 3) decreased employee recruiting and temporary services due to
various vacant positions being filled.
Professional and administrative expenses increased approximately $61,000, or
31%, in 1999, primarily as a result of legal costs incurred in connection with
tender offers (see below for information regarding the tender offers), increased
legal costs for general services and increased employee search fees and
temporary services due to various vacant positions.
Professional and administrative expenses - affiliated increased approximately
$80,000, or 33%, in 2000, primarily as a result of increased finance and
accounting salary costs. Professional and administrative expenses - affiliated
are expenses incurred for services performed by employees of NTS Development
Company, an affiliate of the General Partner.
Depreciation and amortization expense increased approximately $534,000, or 28%,
in 2000, primarily as a result of the following: 1) capitalization of Park Place
Apartments Phase III's construction costs (approximately $11,240,000), 2) tenant
finish and common area replacements at Plainview Point III Office Center, net of
retirements, and 3) building improvements and fitness center renovation costs,
net of retirements, at Golf Brook Apartments and Sabal Park Apartments. The
increase is partially offset by a portion of the original land improvements,
building improvements and amenities at the Partnership's underlying properties
becoming fully depreciated.
Depreciation is computed using the straight-line method over the useful lives of
the assets which are 5-30 years for land improvements, 30 years for buildings,
5-30 years for building and improvements and 3-30 years for amenities. The
aggregate cost of the Partnership's properties for federal tax purposes is
approximately $76,044,000.
19
Rental and Other Income - Continued
- -----------------------------------
Extraordinary item - early extinguishment of debt represents the write-off of
unamortized loan costs associated with Plainview Point III Office Center's note
payable. The unamortized loan costs were expensed due to the fact that the note
was retired in 2000 prior to its maturity (June 23, 2002) as a result of
permanent financing obtained by the Partnership in November 2000.
Consolidated Cash Flows and Financial Condition
- -----------------------------------------------
The majority of the Partnership's cash flow is typically derived from operating
activities. Cash flows used in investing activities are for tenant finish
improvements, other capital improvements at the Partnership's properties and
construction of Park Place Apartments Phase III. Changes to current tenant
improvements at commercial properties 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 is 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 and other capital additions have been
funded by cash flow from operations. Park Place Apartments Phase III
construction costs have been funded primarily by debt financing and also from
cash flows from operations. The total construction costs for Park Place
Apartments Phase III at December 31, 2000 were approximately $11,240,000. Cash
flows used in investing activities are also for the purchase of investment
securities. As part of its cash management activities, the Partnership had
periodically purchased certificates of deposit or securities issued by the U.S.
Government with initial maturities of greater than three months to improve the
return on its cash reserves. The Partnership held the securities until maturity.
Cash flows used in financing activities also include cash which has been
reserved by the Partnership for the repurchase of limited partnership Units
through the Interest Repurchase Program (through October 1998) or the tender
offers (October 1998 to present). Cash flows provided by financing activities
represent the utilization of cash which has been reserved by the Partnership for
the repurchase of limited partnership Units and proceeds from mortgage loans.
Cash flows provided by (used in):
2000 1999 1998
---- ---- ----
Operating activities $ 750,859 $ 3,035,567 $ 2,867,249
Investing activities (2,371,469) (8,737,997) (1,620,583)
Financing activities 1,667,384 5,340,657 (1,161,193)
------------ ------------ ------------
Net increase (decrease)
in cash and equivalents $ 46,774 $ (361,773) $ 85,473
============ ============ ============
Net cash provided by operating activities decreased approximately $2,285,000, or
75%, in 2000. The decrease was primarily driven by 1) decreased accounts
payable, 2) increased net loss, and 3) increased other assets. The decrease is
partially offset by an increased collection of accounts receivable.
Net cash provided by operating activities increased approximately $168,000, or
6%, in 1999, primarily due to an increase in accounts payable partially offset
by decreased net income.
The decrease in net cash used in investing activities in 2000 was primarily due
to decreased capital expenditures (construction of Park Place Apartments Phase
III was completed in 2000).
20
Consolidated Cash Flows and Financial Condition - Continued
- -----------------------------------------------------------
The increase in net cash used in investing activities in 1999 was primarily due
to increased capital expenditures (construction of Park Place Apartments Phase
III not finished until 2000).
The decrease in net cash provided by financing activities in 2000 was primarily
due to a decrease in proceeds from mortgage loans (only one draw made in 2000 -
final draw on Park Place Apartments Phase III construction loan), partially
offset by the decrease in cash distributions.
The increase in net cash provided by financing activities in 1999 was primarily
due to increased proceeds from mortgage loans (draws on the Park Place Phase III
construction loan, a new loan secured by Plainview Point III Office Center and
refinancing of the Golf Brook Apartments loan) and decreased cash distributions.
On March 21, 2000, the Partnership notified its limited partners that it would
be suspending distributions starting January 1, 2000. The suspension is
necessary due to significant capital improvements essential to maintaining the
buildings and facilities owned by the Partnership at Willow Lake Apartments,
Park Place Apartments Phase I, Sabal Park Apartments and Golf Brook Apartments.
The Partnership's cash position will be evaluated on an ongoing basis to
determine when resumption of distributions is appropriate.
During the year ended December 31, 1999, the Partnership declared 1.00%
(annualized) distribution of $400,519. During the year ended December 31, 1998,
the Partnership declared 1.25% (annualized) distribution of $520,545. Cash
distributions were reduced from 2% to 1% per quarter, effective June 30, 1998,
as a result of capital improvements at the Partnership's properties including
the construction of Park Place Apartments Phase III. The annualized distribution
rate is calculated as a percent of the original capital contribution. The
limited partners received 99% and the General Partner received 1% of these
distributions. The primary source of future liquidity and distributions is
expected to be derived from cash generated by the Partnership's properties and
joint ventures after the construction of Park Place Apartments Phase III and
other capital improvements are funded and adequate cash reserves are established
for future leasing and tenant finish costs. It is anticipated that the cash flow
from operations and cash reserves will be sufficient to meet the needs of the
Partnership. Cash reserves (which are unrestricted cash and equivalents and
investment securities as shown on the Partnership's balance sheet as of December
31) were $47,683, $909 and $362,682 at December 31, 2000, 1999 and 1998,
respectively.
The Partnership does not expect any material changes in the mix and relative
cost of capital resources from those in 2000 except for the completion of Park
Place Apartments Phase III, as discussed below.
21
Consolidated Cash Flows and Financial Conditions - Continued
- ------------------------------------------------------------
The table below presents that portion of the distributions that represent a
return of capital on a Generally Accepted Accounting Principle basis for the
years ended December 31, 2000, 1999 and 1998.
Net (Loss) Income Cash Distributions Return of
Allocated Declared Capital
--------- -------- -------
Limited partners:
2000 $ (853,403) $ -- $ --
1999 (185,285) 396,514 396,514
1998 453,154 515,339 62,185
General Partner:
2000 $ (8,620) $ -- $ --
1999 (1,872) 4,005 4,005
1998 4,577 5,206 629
The demand on future liquidity is anticipated to increase as the Partnership
continues its efforts in the leasing of Plainview Point III Office Center. At
this time, the future leasing and tenant finish costs which will be required to
renew the current leases that expire during 2001 or obtain new tenants are
unknown.
The demand on future liquidity will also increase as a result of the replacement
of the roofs at both the Willow Lake Apartments (26 buildings) and Park Place
Apartments Phase I (24 buildings) all of which were installed using shingles
produced by a single manufacturer. The shingles appear to contain defects which
may cause roofs to fail. As the manufacturer has declared bankruptcy, the
Partnership does not expect to be able to recover any of the costs of the roof
replacements. As of December 31, 2000, four buildings at Willow Lake Apartments
have had roofs replaced. The total cost of replacing all of the remaining roofs
is estimated to be $920,000 ($20,000 per building). The Partnership does not
have sufficient working capital to make the remaining roof replacements. It is
anticipated that the Partnership will require at least 12 months to generate
sufficient reserves to begin the remaining roof replacements.
Such demand as discussed above will be managed by the General Partner via funds
from operations or additional borrowings secured by the Partnership's
properties. There can be no guarantee that such funds will be available at which
time the General Partner will manage the demand on liquidity according to the
best interest of the Partnership.
The Partnership had no other material commitments for renovations or capital
expenditures at December 31, 2000.
Pursuant to Section 16.4 of the Partnership's Amended and Restated Agreement of
Limited Partnership, the Partnership established an Interest Repurchase Reserve
in December 1995. During the years ended December 31, 1998, 1997 and 1996, the
Partnership has funded $400,000, $300,000 and $705,380, respectively, to the
reserve. Through October 25, 1998 (the commencement of the First Tender Offer),
the Partnership had repurchased a total of 6,846 Units for $1,861,200 at a price
ranging from $250 to $350 per unit. Repurchased Units have been retired by the
Partnership, thus increasing the percentage of ownership of each remaining
limited partner investor. The Interest Repurchase Reserve was funded from cash
reserves. The funds remaining in the Interest Repurchase Reserve at the
commencement of the First Tender Offer (discussed below) were returned to
unrestricted cash for utilization in the Partnership's operations.
22
Consolidated Cash Flows and Financial Conditions - Continued
- ------------------------------------------------------------
On October 20, 1998, the Partnership and ORIG , LLC, an affiliate of the
Partnership, (the "Offerors") commenced a tender offer (the "First Tender
Offer") to purchase up to 1,250 of the Partnership's limited partnership Units
at a price of $350 per Unit. The initial expiration date of the First Tender
Offer was January 18, 1999, and this expiration date was subsequently extended
through March 31, 1999. A total of 2,103 Units were tendered and the Offerors
accepted all Units tendered. The Partnership repurchased 750 Units at a cost of
$262,500 and ORIG, LLC Purchased 1,353 Units at a total cost of $473,550. The
expenses associated with the First Tender Offer were approximately $52,000.
Units that were acquired by the Partnership were retired. Units that were
acquired by ORIG, LLC were held by it. The General Partner, NTS-Properties
Associates VI, did not participate in the First Tender Offer.
On June 25, 1999, the Partnership and ORIG, LLC, an affiliate of the
Partnership, (the "Offerors") commenced a second tender offer (the "Second
Tender Offer") to purchase up to 1,000 of the Partnership's limited partnership
Units at a price of $350 per Unit as of the date of the Second Tender Offer. The
initial expiration date of the Second Tender offer was August 31, 1999. On
August 23, 1999, the price was increased to $370 per Unit and the expiration
date was extended to September 30, 1999.
Under the terms of the Second Tender Offer, the Second Tender Offer expired on
September 30, 1999. As of that date, 2,801 Units were tendered, pursuant to the
Second Tender Offer, and the Offerors accepted all Units tendered. The
Partnership purchased 500 Units at a cost of $185,000 and ORIG, LLC purchased
2,301 Units at a cost of $851,370. The expenses associated with administering
the Second Tender Offer were approximately $38,000. The General Partner,
NTS-Properties Associates VI, did not participate in the Second Tender Offer.
On November 9, 1999, the Partnership and ORIG, LLC, an affiliate of the
Partnership, (the "Offerors") commenced a third tender offer (the "Third Tender
Offer") to purchase up to 500 of the Partnership's limited partnership Units at
a price of $380 per Unit as of the date of the Third Tender Offer. The Third
Tender Offer stated that the Partnership would purchase the first 250 Units
tendered and would fund its purchases and its portions of the expenses from cash
flow from operations. If more than 250 Units were tendered, ORIG, LLC would
purchase up to an additional 250 Units. If more than 500 Units were tendered,
the Offerors could choose to acquire the additional Units on a pro rata basis.
On December 23, 1999, the Third Tender Offer expired. As of that date a total of
1,085 Units were tendered, pursuant to the Third Tender Offer, and the Offerors
accepted all Units Tendered. The Partnership purchased 250 Units at a cost of
$95,000 and ORIG, LLC purchased 835 Units at a cost of $317,300. The expenses
associated with administering the Third Tender Offer were approximately $13,500.
Units that were acquired by the Partnership have been retired. Units that were
acquired by ORIG, LLC are being held by it. The General Partner, NTS-Properties
Associates VI, did not participate in the Third Tender Offer.
23
Consolidated Cash Flows and Financial Conditions - Continued
- ------------------------------------------------------------
On March 24, 2000, the Partnership and ORIG, LLC, an affiliate of the
Partnership (the "Offerors"), filed a tender offer (the "Fourth Tender Offer")
with the Securities and Exchange Commission, commencing on March 27, 2000, to
purchase up to 200 of the Partnership's limited partnership Units at a price of
$380 per Unit. The Fourth Tender Offer stated that the Partnership would
purchase the first 100 Units tendered and would fund its purchase and its
portion of the expenses from cash flow from operations. If more than 100 Units
were tendered, ORIG, LLC would purchase up to an additional 100 Units. If more
than 200 Units were tendered, the Offerors had the option to acquire the
additional Units on a pro rata basis. The Fourth Tender Offer was scheduled to
expire on June 27, 2000. On June 23, 2000, the Partnership filed an amendment to
the Fourth Tender Offer which extended the expiration date to August 15, 2000.
On August 15, 2000, the Fourth Tender Offer expired. A total of 3,685 Units were
tendered and the Offerors accepted all Units tendered. The Partnership
repurchased 100 Units at a cost of $38,000 and ORIG, LLC purchased 3,585 Units
at a cost of $1,362,300. The expenses associated with the Fourth Tender Offer
were approximately $25,116 of which the Partnership incurred $1,355 and ORIG
incurred $23,761. Units acquired by the Partnership were retired. Units acquired
by ORIG, LLC are being held by it. The General Partner, NTS-Properties
Associates VI, did not participate in the Fourth Tender Offer.
The offering price per unit was established by the General Partner in its sole
discretion and does not purport to represent the fair market value or
liquidation value of the units.
In an effort to continue to improve occupancy at the Partnership's residential
properties, the Partnership has an on-site leasing staff who are employees of
NTS Development Company, at each of the apartment communities. The staff handles
all on-site visits from potential tenants, coordinates local advertising with
NTS Development Company's marketing staff, makes visits to local companies to
promote fully furnished units and negotiates lease renewals with current
residents.
The leasing and renewal negotiations for the Partnership's commercial property
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
commercial property. All advertising for the commercial property is coordinated
by NTS Development Company's marketing staff located in Louisville, Kentucky.
Leases at Plainview Point III Office Center provide for tenants to contribute
toward the payment of increases in common area maintenance expenses, insurance,
utilities and real estate taxes. These lease provisions, along with the fact
that residential leases are generally for a period of one year, should protect
the Partnership's operations from the impact of inflation and changing prices.
24
Cautionary Statements
- ---------------------
Some of the statements included in Items 1 and 2, Business and Properties and
Item 7, Management's Discussion and Analysis of Financial Condition and Results
of Operations, may be considered to be "forward-looking statements" since such
statements relate to matters which have not yet occurred. For example, phrases
such as "the Partnership anticipates", "believes" or "expects" indicate that it
is possible that the event anticipated, believed or expected may not occur.
Should such event not occur, then the result which the Partnership expected also
may not occur or occur in a different manner, which may be more or less
favorable to the Partnership. The Partnership does not undertake any obligations
to publicly release the result of any revisions to these forward-looking
statements that may be made to reflect any future events or circumstances.
Any forward-looking statements included in Management's Discussion and Analysis
of Financial Condition and Results of Operations, or elsewhere in this report,
which reflect management's best judgement based on factors known, involve risks
and uncertainties. Actual results could differ materially from those anticipated
in any forward-looking statements as a result of a number of factors, including
but not limited to those discussed below. Any forward-looking information
provided by the Partnership pursuant to the safe harbor established by recent
securities legislation should be evaluated in the context of these factors.
The Partnership's liquidity, capital resources and results of operations are
subject to a number of risks and uncertainties including, but not limited to the
following: the ability of the Partnership to achieve planned revenues; the
ability of the Partnership to make payments due under its debt agreements; the
ability of the Partnership to negotiate and maintain terms with vendors and
service providers for operating expenses; competitive pressures from other real
estate companies, including large commercial and residential real estate
companies, which may affect the nature and viability of the Partnership's
business strategy; trends in the economy as a whole which may affect consumer
confidence and demand for the types of rental property held by the Partnership;
the ability of the Partnership to predict the demand for specific rental
properties; the ability of the Partnership to attract and retain tenants;
availability and costs of management and labor employed; real estate occupancy
and development costs, including the substantial fixed investment costs
associated with renovations necessary to obtain new tenants and retain existing
tenants; and the risk of a major commercial tenant defaulting on its lease due
to risks generally associated with real estate, many of which are beyond the
control of the Partnership, including general or local economic conditions,
competition, interest rates, real estate tax rates, other operating expenses and
acts of God.
The Partnership plans to replace the roofs at both the Willow Lake Apartments
(26 buildings) and Park Place Apartments Phase I (24 buildings) all of which
were installed using shingles produced by a single manufacturer. The shingles
appear to contain defects which may cause roofs to fail before the end of their
expected useful lives. As the manufacturer has declared bankruptcy, the
Partnership does not expect to be able to recover any of the costs of the roof
replacements in the event of any such failures. As of December 31, 2000, four
buildings at Willow Lake Apartments have had roofs replaced. The total cost of
replacing all of the remaining roofs is estimated to be approximately $920,000
(an estimated $20,000 per building). The Partnership does not have sufficient
working capital to make the remaining roof replacements. It is anticipated that
the Partnership will require at least 12 months to generate sufficient reserves
to begin the remaining roof replacements.
25
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
Our primary market risk exposure with regards to financial instruments is
changes in interest rates. All of the Partnership's debt bears interest at a
fixed rate. At December 31, 2000, a hypothetical 100 basis point increase in
interest rates would result in an approximate $1,050,500 decrease in the fair
value of debt.
26
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To NTS-Properties VI, a Maryland Limited Partnership:
We have audited the accompanying consolidated balance sheets of NTS-Properties
VI, a Maryland Limited Partnership, as of December 31, 2000 and 1999, and the
related consolidated statements of operations, consolidated partners' equity and
consolidated cash flows for each of the three years in the period ended December
31, 2000. These consolidated financial statements and the schedules referred to
below are the responsibility of the Partnership's management. Our responsibility
is to express an opinion on these consolidated financial statements and
schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of NTS-Properties VI, a
Maryland Limited Partnership, as of December 31, 2000 and 1999, and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 2000 in conformity with accounting principles generally
accepted in the United States.
Our audits were made for the purpose of forming an opinion on the consolidated
financial statements taken as a whole. The schedules included on pages 52
through 55 are presented for purposes of complying with the Securities and
Exchange Commission's rules and regulations and are not a required part of the
consolidated financial statements. These schedules have been subjected to the
auditing procedures applied in our audits of the consolidated financial
statements and, in our opinion, fairly state in all material respects the
financial data required to be set forth therein in relation to the consolidated
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Louisville, Kentucky
March 9, 2001
27
NTS-PROPERTIES VI,
------------------
A MARYLAND LIMITED PARTNERSHIP
------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
AS OF DECEMBER 31, 2000 AND 1999
--------------------------------
2000 1999
---- ----
ASSETS
- ------
Cash and equivalents $ 47,683 $ 909
Cash and equivalents - restricted 231,751 209,680
Accounts receivable 67,539 200,338
Land, buildings and amenities, net 47,498,726 47,739,483
Other assets 1,231,836 1,081,008
----------- -----------
TOTAL ASSETS $49,077,535 $49,231,418
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
- --------------------------------
Mortgages and note payable $35,149,376 $33,312,443
Accounts payable 476,492 1,662,641
Security deposits 260,683 219,076
Other liabilities 279,595 225,846
----------- -----------
TOTAL LIABILITIES 36,166,146 35,420,006
COMMITMENTS AND CONTINGENCIES (Note 8)
PARTNERS' EQUITY 12,911,389 13,811,412
----------- -----------
TOTAL LIABILITIES AND PARTNERS'
EQUITY $49,077,535 $49,231,418
=========== ===========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
28
NTS PROPERTIES VI,
------------------
A MARYLAND LIMITED PARTNERSHIP
------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
----------------------------------------------------
2000 1999 1998
---- ---- ----
REVENUES
- --------
Rental income $ 10,433,067 $ 9,693,133 $ 9,846,523
Interest and other income 363,920 44,451 127,522
Gain on sale of assets 5,188 -- --
------------- ------------- -------------
TOTAL REVENUES 10,802,175 9,737,584 9,974,045
EXPENSES
- --------
Operating expenses 2,846,334 2,505,632 2,596,268
Operating expense - affiliated 1,397,291 1,316,979 1,237,679
Loss on disposal of assets 208,709 260,883 65,828
Interest expense 2,713,539 2,018,575 1,986,162
Management fees 558,123 506,397 502,967
Real estate taxes 948,682 898,055 828,270
Professional and administrative expenses 192,700 253,413 192,866
Professional and administrative expenses - affiliated 325,298 244,834 260,266
Depreciation and amortization 2,410,585 1,876,978 1,807,043
------------- ------------- -------------
TOTAL EXPENSES 11,601,261 9,881,746 9,477,349
(Loss) income before minority interest and
extraordinary item (799,086) (144,162) 496,696
Minority interest 42,216 42,995 38,965
------------- ------------- -------------
(Loss) income after minority interest but before
extraordinary item (841,302) (187,157) 457,731
Extraordinary item - early extinguishment of debt 20,721 -- --
------------- ------------- -------------
Net (loss) income $ (862,023) $ (187,157) $ 457,731
============= ============= =============
Net (loss) income allocated to the limited partners:
(Loss) income before extraordinary item (832,889) (185,285) 453,154
Extraordinary item 20,514 -- --
------------- ------------- -------------
Net (loss) income $ (853,403) $ (185,285) $ 453,154
============= ============= =============
Net (loss) income per limited partnership Unit:
(Loss) income before extraordinary item (21.33) (4.66) 10.96
Extraordinary Item 0.52 -- --
------------- ------------- -------------
Net (loss) income per limited partnership Unit $ (21.85) $ (4.66) $ 10.96
============= ============= =============
Weighted average number of limited partnership
Units 39,053 39,751 41,334
============= ============= =============
The accompanying notes to consolidated financial statements are an integral part
of these statements.
29
NTS-PROPERTIES VI,
------------------
A MARYLAND LIMITED PARTNERSHIP
------------------------------
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY (1)
-----------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
----------------------------------------------------
Limited General
Partners Partner Total
-------- ------- -----
PARTNERS' EQUITY/(DEFICIT)
- --------------------------
Balances at December 31, 1997 $ 15,890,183 $ (186,831) $ 15,703,352
Net income 453,154 4,577 457,731
Distributions declared (515,339) (5,206) (520,545)
Repurchase of limited partnership Units (698,950) -- (698,950)
------------- ------------- -------------
Balances at December 31, 1998 15,129,048 (187,460) 14,941,588
Net loss (185,285) (1,872) (187,157)
Distributions declared (396,514) (4,005) (400,519)
Repurchase of limited partnership Units (542,500) -- (542,500)
------------- ------------- -------------
Balances at December 31, 1999 14,004,749 (193,337) 13,811,412
Net loss (853,403) (8,620) (862,023)
Repurchase of limited partnership Units (38,000) -- (38,000)
------------- ------------- -------------
Balances at December 31, 2000 $ 13,113,346 $ (201,957) $ 12,911,389
============= ============= =============
(1) For the periods presented, there are no elements of other comprehensive
income as defined by the Financial Accounting Standards Board, Statement of
Financial Accounting Standards Statement No. 130, "Reporting Comprehensive
Income."
The accompanying notes to consolidated financial statements are an integral part
of these statements.
30
NTS-PROPERTIES VI,
------------------
A MARYLAND LIMITED PARTNERSHIP
------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
----------------------------------------------------
2000 1999 1998
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
- ------------------------------------
Net (loss) income $ (862,023) $ (187,157) $ 457,731
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Accrued interest on investment securities -- -- 11,426
Loss on disposal of assets 208,709 260,883 65,828
Gain on sale of assets (5,188) -- --
Write-off of unamortized loan costs 20,721 -- --
Depreciation and amortization 2,453,012 1,909,065 1,831,072
Changes in assets and liabilities:
Cash and equivalents - restricted (22,071) (23,842) 6,667
Accounts receivable 132,799 (68,693) (14,725)
Other assets (126,523) 40,894 (51,756)
Accounts payable (1,186,149) 932,388 518,081
Security deposits 41,607 (8,570) (14,679)
Other liabilities 53,749 137,604 18,639
Minority interest 42,216 42,995 38,965
------------ ------------ ------------
Net cash provided by operating activities 750,859 3,035,567 2,867,249
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
Additions to land, buildings and amenities (2,380,205) (8,737,997) (3,171,970)
Proceeds from sale of assets 8,736 -- --
Minority interest (69,589) (36,363) (57,727)
Purchase of investment securities -- -- (1,004,314)
Maturity of investment securities -- -- 2,555,701
------------ ------------ ------------
Net cash used in investing activities (2,441,058) (8,774,360) (1,678,310)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
Principal payments on mortgages and note payable (4,647,493) (1,639,716) (1,010,041)
Proceeds from mortgage loans and note payable 6,484,426 7,832,979 1,256,658
Cash distributions -- (503,017) (631,736)
Repurchase of limited partnership Units (38,000) (542,500) (698,950)
Additions to loan costs (61,960) (33,226) (74,377)
Cash and equivalents - restricted -- 262,500 54,980
------------ ------------ ------------
Net cash provided by (used in) financing activities 1,736,973 5,377,020 (1,103,466)
------------ ------------ ------------
Net increase (decrease) in cash and equivalents 46,774 (361,773) 85,473
CASH AND EQUIVALENTS, beginning of year 909 362,682 277,209
------------ ------------ ------------
CASH AND EQUIVALENTS, end of year $ 47,683 $ 909 $ 362,682
Interest paid on a cash basis, net of amounts capitalized $ 2,730,050 $ 2,046,420 $ 1,989,632
============ ============ ============
The accompanying notes to consolidated financial statements are an integral part
of these statements.
31
NTS-PROPERTIES VI,
------------------
A MARYLAND LIMITED PARTNERSHIP
------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
----------------------------------------------------
1. Significant Accounting Policies
-------------------------------
A) Consolidation Policy and Joint Venture Accounting
-------------------------------------------------
The consolidated financial statements include the accounts of all
wholly-owned properties and majority-owned joint ventures.
Intercompany transactions and balances have been eliminated. In
conformity with Generally Accepted Accounting Principles,
management has used estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses
and the disclosure of contingent assets and liabilities. Actual
results could differ from those estimates.
From inception, the Partnership used the proportionate
consolidation method of accounting for joint venture properties.
The Partnership's proportionate interest in the joint venture's
assets, liabilities, revenues, expenses and cash flows were
combined on a line-by-line basis with the Partnership's own
assets, liabilities, revenues, expenses and cash flows. All
intercompany accounts and transactions were eliminated in
consolidation.
Proportionate consolidation was utilized by the Partnership due
to the fact that the ownership of joint venture properties, in
substance, was not subject to joint control. The managing General
Partners of the sole partner of the NTS sponsored partnerships
which have formed joint ventures are substantially the same. As
such, decisions regarding financing, development, sale or
operations did not require the approval of different partners.
Additionally, the joint venture properties are in the same
business/industry as their respective joint venture partners and
their asset, liability, revenue and expense accounts correspond
with the accounts of such partners. It is the belief of the
General Partner of the Partnership that the financial statement
disclosures resulting from proportionate consolidation provided a
meaningful presentation of assets, liabilities, revenues,
expenses and cash flows given the commonality of the
Partnership's operations.
The Emerging Issues Tasks Force ("EITF") of the Financial
Accounting Standards Board ("FASB") has reached a consensus on
Issue No. 00-1, "Applicability of the Pro Rata Method of
Consolidation to Investments in Certain Partnerships and Other
Unincorporated Joint Ventures." The EITF reached a consensus that
a proportionate gross financial statement presentation (referred
to as "proportionate consolidation" in the Notes to Consolidated
Financial Statements) is not appropriate for an investment in an
unincorporated legal entity accounted for by the equity method of
accounting, unless the investee is in either the construction
industry or an extractive industry where there is a longstanding
practice of its use.
32
A) Consolidation Policy and Joint Venture Accounting - Continued
-------------------------------------------------------------
The consensus is applicable to financial statements for annual
periods ending after June 15, 2000. The Partnership now uses the
equity method to account for its joint venture investments for
the year ending December 31, 2000. The Partnership has applied
the consensus to all comparative financial statements, restating
them to conform with the consensus for all periods presented. The
application of this consensus did not result in a restatement of
previously reported partners' equity or net results of
operations, but did result in a recharacterization or
reclassification of certain financial statements' captions and
amounts.
Other assets includes minority interest in the Partnership's
joint venture properties totaling approximately $652,000 and
$625,000 as of December 31, 2000 and 1999, respectively. These
amounts have been derived primarily from distributions of the
joint ventures in excess of the respective minority partner's
historical investment in the joint ventures used for financial
reporting purposes. This amount will be realized upon the sale of
the respective joint venture property or dissolution of the
respective joint venture. The underlying assets of the joint
ventures are assessed for asset impairment on a periodic basis.
B) Organization
------------
NTS-Properties VI, a Maryland Limited Partnership (the
"Partnership"), is a limited partnership organized under the laws
of the state of Maryland on December 27, 1984. The General
Partner is NTS-Properties Associates VI (a Kentucky limited
partnership). The Partnership is in the business of developing,
constructing, owning and operating apartment communities and
commercial real estate.
C) Properties and Joint Ventures
-----------------------------
The Partnership owns and operates the following properties and
joint ventures:
* Sabal Park Apartments, a 162-unit luxury apartment
complex in Orlando, Florida
* Park Place Apartments Phase I, a 180-unit luxury
apartment complex in Lexington, Kentucky
* Willow Lake Apartments, a 207-unit luxury apartment
complex in Indianapolis, Indiana
* Park Place Apartments Phase III, a 152-unit luxury
apartment complex in Lexington, Kentucky.
* A 96.03% joint venture interest in Golf Brook
Apartments, a 195-unit luxury apartment complex in
Orlando, Florida
* A 95.04% joint venture interest in Plainview Point III
Office Center, an office center with approximately
62,000 net rentable square feet in Louisville, Kentucky
33
D) Allocation of Net Income (Loss) and Cash Distributions
------------------------------------------------------
Pre-termination date net cash receipts and interim net cash
receipts, as defined in the partnership agreement and which are
made available for distribution, as defined in the partnership
agreement, will be distributed 99% to the limited partners and 1%
to the General Partner. Net Cash Proceeds, as defined in the
partnership agreement, will be distributed 1) 99% to the limited
partners and 1% to the General Partner until the limited partners
have received cash distributions from all sources (except
pre-termination date net cash receipts) equal to their original
capital and 2) the remainder, 80% to the limited partners and 20%
to the General Partner. Net operating income shall be allocated
to the limited partners and the General Partner in proportion to
their respective cash distributions.
Net operating income in excess of cash distributions and net
gains from sales shall be allocated as follows: (1) pro-rata to
all partners with a negative capital account in an amount to
restore the negative capital account to zero; (2) 99% to the
limited partners and 1% to the General Partner until the limited
partners have received an amount equal to their original capital
less cash distributions except distributions of pre-termination
date net cash receipts and (3) the balance, 80% to the limited
partners and 20% to the General partner. Net operating losses
shall be allocated 99% to the limited partners and 1% to the
General Partner for all periods presented in the accompanying
financial statements.
E) Tax Status
----------
The Partnership has received a ruling from the Internal Revenue
Service stating that the Partnership is classified as a limited
partnership for federal income tax purposes. As such, the
Partnership makes no provision for income taxes. The taxable
income or loss is passed through to the holders of the
partnership interests for inclusion on their individual income
tax returns.
A reconciliation of net income (loss) for financial statement
purposes versus that for income tax reporting is as follows:
2000 1999 1998
---- ---- ----
Net income (loss) $(862,023) $(187,157) $ 457,731
Items handled differently
for tax purposes:
Depreciation and amortization (49,381) (198,220) (117,115)
Retirement of fixed assets 31,443 (125,914) 15,420
Capitalized leasing costs (53,419) 86,459 51,951
Rental income -- 25,331 9,664
---------- ---------- ----------
Taxable income (loss) $ 933,380) $(399,501) $ 417,651
========== ========== ==========
34
F) Cash and Equivalents - Restricted
---------------------------------
Cash and equivalents - restricted represents funds received for
residential security deposits, funds which have been escrowed
with mortgage companies for property taxes and insurance in
accordance with the loan agreements and funds reserved by the
Partnership for the purchase of limited partnership Units under
the tender offers (see Note 4).
G) 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, 3-30
years for amenities and the applicable lease term for tenant
improvements.
Statement of Financial Accounting Standards ("SFAS") No. 121,
Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, specifies circumstances in
which certain long-lived assets must be reviewed for impairment.
If such review indicates that the carrying amount of an asset
exceeds the sum of its expected future cash flows, the asset's
carrying value may be written down to fair value. Application of
this standard by management during the years ended December 31,
2000, 1999 and 1998 did not result in an impairment loss.
H) Revenue Recognition - Rental Income and Capitalized Leasing Costs
-----------------------------------------------------------------
The Partnership recognizes revenues in accordance with each
tenant's lease agreement. Certain of the Partnership's lease
agreements at Plainview Point III Office Center 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 $36,155 and $46,967
at December 31, 2000 and 1999, respectively. All commissions paid
to commercial leasing agents are deferred and amortized over the
term of the lease to which they apply.
I) Advertising
-----------
The Partnership expenses advertising costs as incurred.
Advertising expense was immaterial to the Partnership during the
years ended December 31, 2000, 1999 and 1998.
J) 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.
35
2. Concentration of Credit Risk
----------------------------
The Partnership owns and operates either wholly or through a joint
venture, residential properties in Kentucky (Lexington), Indiana
(Indianapolis) and Florida (Orlando). The Partnership also owns and
operates, through a joint venture, a commercial property in
Louisville, Kentucky. Substantially all of the commercial property's
tenants are local businesses or are businesses which have operations
in the Louisville area.
3. Land, Buildings and Amenities
-----------------------------
The following schedule provides an analysis of the Partnership's
investment in property held for lease as of December 31:
2000 1999
---- ----
Land and improvements $16,452,744 $14,949,746
Buildings, improvements and amenities 59,470,033 59,103,281
----------- -----------
75,922,777 74,053,027
Less accumulated depreciation 28,424,051 26,313,544
----------- -----------
$47,498,726 $47,739,483
=========== ===========
4. Tender Offers
-------------
On October 20, 1998, the Partnership and ORIG, LLC, an affiliate of
the Partnership (the "Offerors"), commenced a tender offer (the "First
Tender Offer") to purchase up to 1,250 of the Partnership's limited
partnership Units at a price of $350 per Unit as of the date of the
First Tender Offer. The initial expiration date of the First Tender
Offer was January 18, 1999, and this expiration date was subsequently
extended through March 31, 1999. A total of 2,103 Units were tendered
and the Offerors accepted all Units tendered. The Partnership
repurchased 750 Units at a cost of $262,500 and ORIG, LLC purchased
1,353 Units at a cost of $473,550. The expenses associated with
administering the First Tender Offer were approximately $52,000. The
Units that were acquired by the Partnership were retired. Units that
were acquired by ORIG, LLC are being held by it. The General Partner,
NTS-Properties Associates VI, did not participate in the First Tender
Offer.
On June 25, 1999, the Partnership and ORIG, LLC, an affiliate of the
Partnership, (the "Offerors") commenced a second tender offer (the
"Second Tender Offer") to purchase up to 1,000 of the Partnership's
limited partnership Units at a price of $350 per Unit as of the date
of the Second Tender Offer. The initial expiration date of the Second
Tender Offer was August 31, 1999. On August 23, 1999, the price was
increased to $370 per Unit and the expiration date was extended to
September 30, 1999.
Under the terms of the Second Tender Offer, the Second Tender Offer
expired on September 30, 1999. As of that date, 2,801 Units were
tendered, pursuant to the Second Tender Offer, and the Offerors
accepted all Units tendered. The Partnership purchased 500 Units at a
cost of $185,000 and ORIG, LLC purchased 2,301 Units at a cost of
$851,370. The expenses associated with administering the Second Tender
Offer were approximately $38,000. The General Partner, NTS- Properties
Associates VI, did not participate in the Second Tender Offer.
36
4. Tender Offers - Continued
-------------------------
On November 9, 1999, the Partnership and ORIG, LLC, an affiliate of
the Partnership, (the "Offerors") commenced a third tender offer (the
"Third Tender Offer") to purchase up to 500 of the Partnership's
limited partnership Units at a price of $380 per Unit as of the date
of the Third Tender Offer. The Third Tender Offer stated that the
Partnership would purchase the first 250 Units tendered and would fund
its purchases and its portions of the expenses from cash flow from
operations. If more than 250 Units were tendered, ORIG, LLC would
purchase up to an additional 250 Units. If more than 500 Units were
tendered, the Offerors could choose to acquire the additional Units on
a pro rata basis.
On December 23, 1999, the Third Tender Offer expired. As of that date
a total of 1,085 Units were tendered, pursuant to the Third Tender
Offer, and the Offerors accepted all Units tendered. The Partnership
purchased 250 Units at a cost of $95,000 and ORIG, LLC purchased 835
Units at a cost of $317,300. The expenses associated with
administering the Third Tender Offer were approximately $13,500. Units
that were acquired by the Partnership have been retired. Units that
were acquired by ORIG, LLC are being held by it. The General Partner,
NTS-Properties Associates VI, did not participate in the Third Tender
Offer.
On March 24, 2000, the Partnership and ORIG, LLC, an affiliate of the
Partnership (the "Offerors"), filed a tender offer (the "Fourth Tender
Offer") with the Securities and Exchange Commission, commencing on
March 27, 2000, to purchase up to 200 of the Partnership's limited
partnership Units at a price of $380 per Unit. The Fourth Tender Offer
stated that the Partnership would purchase the first 100 Units
tendered and would fund its purchase and its portion of the expenses
from cash flow from operations. If more than 100 Units were tendered,
ORIG, LLC would purchase up to an additional 100 Units. If more than
200 Units were tendered, the Offerors had the option to acquire the
additional Units on a pro rata basis. The Fourth Tender Offer was
scheduled to expire on June 27, 2000. On June 23, 2000, the
Partnership filed an amendment to the Fourth Tender Offer which
extended the expiration date to August 15, 2000.
On August 15, 2000, the Fourth Tender Offer expired. A total of 3,685
Units were tendered and the Offerors accepted all Units tendered. The
Partnership repurchased 100 Units at a cost of $38,000 and ORIG, LLC
purchased 3,585 Units at a cost of $1,362,300. The expenses associated
with the Fourth Tender Offer were approximately $25,116 of which the
Partnership incurred $1,355 and ORIG incurred $23,761. Units acquired
by the Partnership were retired. Units acquired by ORIG, LLC are being
held by it. The General Partner, NTS-Properties Associates VI, did not
participate in the Fourth Tender Offer.
The offering price per unit was established by the General Partner in
its sole discretion and does not purport to represent the fair market
value or liquidation value of the units.
37
5. Mortgages Payable
-----------------
Mortgages payable as of December 31 consist of the following:
2000 1999
---- ----
Mortgage payable with an insurance
company, bearing interest at 7.74%,
due October 15, 2012, secured by
certain land, buildings and amenities. $12,009,852 $11,186,637
Mortgage payable with an insurance
company, bearing interest at 7.57%,
due May 15, 2009, secured by certain
land, buildings and amenities. 8,426,706 7,677,179
Mortgage payable with an insurance
company, bearing interest at 7.32%,
due October 15, 2012, secured by
certain land, buildings and amenities. 7,388,885 7,767,882
Mortgage payable with an insurance
company, bearing interest at 8.375%,
due December 1, 2010, secured by
certain land, buildings and amenities. 3,200,000 --
Mortgage payable with an insurance
company, bearing interest at 7.38%,
due December 5, 2012, secured by
certain land and building. 2,474,360 2,598,146
Note payable to a bank, bearing interest
at the Euro-Rate plus 225 basis points,
due June 23, 2002. At December 31, 1999,
the interest rate was approximately 8.75%. -- 2,298,001
Mortgage payable with an insurance
company, bearing interest at 7.38%,
due December 5, 2012, secured by
certain land, buildings and amenities. 1,649,573 1,732,098
Note payable to a bank, bearing interest
at the Prime Rate + 1%, due June 14,
2001 secured by certain land,
buildings and amenities. -- 52,500
----------- -----------
$35,149,376 $33,312,443
=========== ===========
On November 15, 2000, the Partnership obtained permanent financing in
the amount of $3,200,000 secured by the land and building of Plainview
Point III Office Center. The Partnership used the proceeds to pay off
the note payable with an outstanding balance of $2,298,001 at December
31, 1999 (outstanding balance at time of payoff was $3,200,000). The
transaction resulted in an extraordinary item of $20,721 related to
unamortized loan costs.
The mortgages and note are payable in aggregate monthly installments
of approximately $363,348 which includes principal and interest.
38
5. Mortgage Payable - Continued
----------------------------
Scheduled maturities of debt are as follows:
For the Years Ended December 31, Amount
-------------------------------- ------
2001 $ 1,739,285
2002 1,874,908
2003 2,021,425
2004 2,178,943
2005 2,349,922
Thereafter 24,984,893
-----------
$35,149,376
===========
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 $35,313,000.
6. Rental Income Under Operating Lease
-----------------------------------
The following is a schedule of minimum future rental income on
noncancellable operating leases as of December 31, 2000:
For the Years Ended December 31, Amount
2001 $ 861,753
2002 442,442
2003 420,562
2004 199,343
2005 98,491
-----------
$ 2,022,591
===========
7. Related Party Transactions
--------------------------
Pursuant to an agreement with the Partnership, NTS Development
Company, an affiliate of the General Partner, receives property
management fees on a monthly basis. The fee is equal to 5% and 6% of
the gross revenues from residential properties and commercial
properties, respectively. Also pursuant to an agreement, NTS
Development Company receives a repair and maintenance fee equal to
5.9% of costs incurred which relate to capital improvements and major
repair and renovation projects. These repair and maintenance fees are
capitalized as part of land, buildings and amenities.
The Partnership was charged the following amounts from NTS Development
Company for the years ended December 31, 2000, 1999 and 1998. These
charges include items which have been expensed as operating expenses -
affiliated or professional and administrative expenses - affiliated
and items which have been capitalized as other assets or as land,
buildings and amenities.
39
7. Related Party Transactions - Continued
--------------------------------------
For the Twelve Months Ended
December 31,
------------
2000 1999 1998
---- ---- ----
Property management fees $ 558,123 $ 506,397 $ 502,967
---------- ---------- ----------
Property management 890,447 789,426 957,010
Leasing 183,407 230,889 207,515
Administrative - operating 313,576 276,280 53,484
Other 9,861 20,384 19,670
---------- ---------- ----------
Total operating expenses - affiliated 1,397,291 1,316,979 1,237,679
---------- ---------- ----------
Professional and administrative expenses
- affiliated 325,298 244,834 260,266
---------- ---------- ----------
Repairs and maintenance fee 43,418 37,526 11,324
Fixed assets 299 1,337 410
Leasing commissions 14,586 15,787 11,711
Loan costs -- -- 48,302
Construction management 107,776 439,920 225,759
---------- ---------- ----------
Total related party transactions capitalized 166,079 494,570 297,506
---------- ---------- ----------
Total related party transactions $2,446,791 $2,562,780 $2,298,418
========== ========== ==========
On February 7, 2000, ORIG, LLC (the "Affiliate") purchased Interests
in the Partnership pursuant to an Agreement, Bill of Sale and
Assignment by and among the Affiliate and four investors in the
Partnership. The Affiliate purchased 675 Interests in the Partnership
for a total consideration of $281,128 or an average price of $416 per
Interest. The Affiliate paid these investors a premium above the
purchase price previously offered for Interests pursuant to prior
tender offers because this purchase allowed the Affiliate to purchase
substantial numbers of Interests without incurring the significant
expenses involved with a tender offer and multiple transfers.
8. Commitments and Contingencies
-----------------------------
The Partnership, as an owner of real estate, is subject to various
environmental laws of federal, state and local governments. Compliance
by the Partnership with existing laws has not had a material adverse
effect on the Partnership's financial condition and results of
operations. However, the Partnership cannot predict the impact of new
or changed laws or regulations on its current properties or on
properties that it may acquire in the future.
The Partnership does not believe there is any litigation threatened
against the Partnership other than routine litigation arising out of
the ordinary course of business, some of which is expected to be
covered by insurance, none of which is expected to have a material
effect on the consolidated financial statements of the Partnership
except as discussed herein.
40
8. Commitments and Contingencies - Continued
-----------------------------------------
On July 19, 2000, there was a fire at Golf Brook Apartments. Eight
apartment units sustained fire and/or smoke damage. The Partnership
filed a claim with its insurance company, and after meeting the $5,000
deductible, collected $100,000. It is unknown at this time, if the
costs of the repairs to the eight apartments will be completely
covered by the insurance claim. It is expected that the repairs will
be substantially completed during the second quarter of 2001.
The Partnership plans to replace the roofs at both Willow Lake
Apartments (26 buildings) and Park Place Apartments Phase I (24
buildings) all of which were installed using shingles produced by a
single manufacturer. The shingles appear to contain defects which may
cause the roofs to fail. As the manufacturer has declared bankruptcy,
the Partnership does not expect to be able to recover any of the costs
of the roof replacements in the event of such failures.
As of December 31, 2000, four buildings at Willow Lake Apartments have
had roofs replaced. The total cost of replacing all the remaining
roofs is estimated to be approximately $920,000 (an estimated $20,000
per building). The Partnership does not have sufficient working
capital to make the remaining roof replacements. It is anticipated
that the Partnership will require at least 12 months to generate
sufficient reserves to begin the roof replacements at Park Place
Apartments Phase I.
The roof replacements discussed above will be made using funds from
operations or additional borrowings secured by the Partnership's
properties. There can be no guarantee that such funds will be
available at which time the General Partner will manage the demand on
liquidity according to the best interest of the Partnership.
The Partnership has been sued by Elder Construction & Associates, Inc.
in Jefferson Circuit Court, Louisville, Kentucky, in a lawsuit styled
Elder Construction & Associates, Inc. V. NTS Development Company,
----------------------------------------------------------------------
Frontier Insurance Company, NTS-Properties VI, a Maryland Limited
----------------------------------------------------------------------
Partnership, NTS-Properties Associates VI, and NTS Capital
----------------------------------------------------------------------
Corporation. All of the named NTS entities are represented by
-----------
Middleton & Reutlinger, a local law firm.
Elder Construction was hired to be the framing subcontractor with
respect to certain improvements at Phase III of Park Place Apartments
in Lexington, Kentucky. After being removed from the job for its
failure to provide its services in a professional, diligent and
workmanlike manner, a complaint was filed on behalf of Elder
Construction in November 1999, alleging, inter alia, breach of
contract. The Complaint requested judgement against all defendants in
the amount of $233,122 plus interest and other relief against the
defendants.
The Partnership and the other defendants have answered the complaint,
and have asserted counterclaims against the plaintiff for, inter alia,
breach of contract. Discovery is proceeding, but an outcome cannot be
predicted at present. There is a trial date set for November 6, 2001.
The principals of the NTS defendants have indicated that the suit
brought by Elder Construction is without merit and will be vigorously
defended, including the prosecution by the defendants of counterclaims
against Elder Construction. The Partnership believes that the
resolution of these legal proceedings will not have a material effect
on its consolidated financial statements.
41
9. Segment Reporting
-----------------
The Partnership's reportable operating segments include residential
and commercial real estate operations. The Residential operations
represent the Partnership's ownership and operating results relative
to apartment complexes known as Willow Lake, Park Place Phase I, Sabal
Park, Park Place Phase III and Golf Brook. The Commercial operations
represent the Partnership's ownership and operating results relative
to suburban commercial office space known as Plainview Point III
Office Center.
The financial information of the operating segments have been prepared
using a management approach, which is consistent with the basis and
manner in which the Partnership's management internally disaggregates
financial information for the purposes of assisting in making internal
operating decisions. The Partnership evaluates performance based on
stand-alone operating segment net income.
2000
----
Residential Commercial Total
----------- ---------- -----
Rental income $ 9,596,768 $ 836,299 $10,433,067
Interest and other income 333,430 12,223 345,653
Gain on sale of assets 5,188 -- 5,188
------------ ------------ ------------
Total net revenues $ 9,935,386 $ 848,522 $10,783,908
------------ ------------ ------------
Operating expenses $ 3,870,165 $ 373,460 4,243,625
Interest expense 869,312 -- 869,312
Loss on disposal of assets 197,893 10,816 208,709
Management fees 506,603 51,520 558,123
Real estate taxes 915,267 33,415 948,682
Professional and administrative -- 240,000 240,000
Depreciation and amortization 2,117,229 204,035 2,321,264
------------ ------------ ------------
Total expenses $ 8,476,469 $ 913,246 $ 9,389,715
------------ ------------ ------------
Net Income (loss) $ 1,458,917 $ (64,724) $ 1,394,193
============ ============ ============
Land, buildings and amenities, net $45,021,285 $ 2,450,231 $47,471,516
============ ============ ============
Expenditures for land, buildings
and amenities $ 2,284,937 $ 95,268 $ 2,380,205
============ ============ ============
Segment liabilities $12,393,240 $ 416,776 $12,810,016
============ ============ ============
42
9. Segment Reporting - Continued
-----------------------------
1999
----
Residential Commercial Total
----------- ---------- -----
Rental income $ 8,841,609 $ 851,524 $ 9,693,133
Interest and other income 24,050 1,312 25,362
Gain on sale of assets -- -- --
----------- ----------- -----------
Total net revenues $ 8,865,659 $ 852,836 $ 9,718,495
----------- ----------- -----------
Operating expenses $ 3,441,499 $ 381,112 $ 3,822,611
Loss on disposal of assets 243,256 17,627 260,883
Management fees 452,712 53,685 506,397
Real estate taxes 864,048 34,007 898,055
Professional and administrative -- 50,000 50,000
Depreciation and amortization 1,621,961 173,971 1,795,932
----------- ----------- -----------
Total expenses $ 6,623,476 $ 710,402 $ 7,333,878
----------- ----------- -----------
Net Income $ 2,242,183 $ 142,434 $ 2,384,617
=========== =========== ===========
Land, buildings and amenities, net $45,131,045 $ 2,573,453 $47,704,498
=========== =========== ===========
Expenditures for land, buildings
and amenities $ 8,426,188 $ 291,997 $ 8,718,185
=========== =========== ===========
Segment liabilities $ 1,618,652 $ 247,455 $ 1,866,107
=========== =========== ===========
1998
----
Residential Commercial Total
----------- ---------- -----
Rental income $9,025,761 $ 820,762 $9,846,523
Interest and other income 17,848 1,406 19,254
Gain on sale of assets -- -- --
----------- ----------- -----------
Total net revenues $9,043,609 $ 822,168 $9,865,777
----------- ----------- -----------
Operating expenses $3,490,966 $ 342,981 $3,833,947
Loss on disposal of assets 65,362 466 65,828
Management fees 454,132 48,835 502,967
Real estate taxes 793,452 34,818 828,270
Professional and administrative -- 300,000 300,000
Depreciation and amortization 1,543,230 165,504 1,708,734
----------- ----------- -----------
Total expenses $6,347,142 $ 892,604 $7,239,746
----------- ----------- -----------
Net income (loss) $2,696,467 $ (70,436) $2,626,031
=========== =========== ===========
43
9. Segment Reporting - Continued
-----------------------------
A reconciliation of the totals reported for the operating segments to
the applicable line items in the consolidated financial statements is
necessary given amounts recorded at the Partnership level and not
allocated to the operating properties for internal reporting purposes:
2000 1999 1998
---- ---- ----
NET REVENUES
------------
Total revenues for reportable segments $ 10,783,908 $ 9,718,495 $ 9,865,777
Interest and other income for Partnership 18,267 19,089 108,268
------------- ------------- -------------
Total consolidated net revenues $ 10,802,175 $ 9,737,584 $ 9,974,045
============= ============= =============
INTEREST EXPENSE
----------------
Total interest expense for reportable segments $ 869,312 $ -- $ --
Partnership's interest expense 1,844,227 2,018,575 1,986,162
------------- ------------- -------------
Total interest expense $ 2,713,539 $ 2,018,575 $ 1,986,162
============= ============= =============
PROFESSIONAL AND ADMINISTRATIVE
-------------------------------
Total professional and administrative for reportable
segments $ 240,000 $ 50,000 $ 300,000
Professional administrative for Partnership 277,998 448,247 153,132
------------- ------------- -------------
Total professional and administrative $ 517,998 $ 498,247 $ 453,132
============= ============= =============
DEPRECIATION AND AMORTIZATION
-----------------------------
Total depreciation and amortization for reportable
segments $ 2,321,264 $ 1,795,932 $ 1,708,734
Depreciation and amortization for Partnership 89,321 81,046 98,309
------------- ------------- -------------
Total depreciation and amortization $ 2,410,585 $ 1,876,978 $ 1,807,043
============= ============= =============
NET INCOME (LOSS)
-----------------
Total net income for reportable segments $ 1,394,193 $ 2,384,617 $ 2,626,031
Less minority interest 42,216 42,995 38,965
Plus net loss for Partnership after extraordinary item (2,214,000) (2,528,779) (2,129,335)
------------- ------------- -------------
Total net (loss) income after extraordinary item $ (862,023) $ (187,157) $ 457,731
============= ============= =============
LAND, BUILDINGS AND AMENITIES
-----------------------------
Total land, buildings and amenities for reportable
segments $ 47,471,516 $ 47,704,498
Land, buildings and amenities for the Partnership 27,210 34,985
------------- -------------
Total land, buildings and amenities $ 47,498,726 $ 47,739,483
============= =============
EXPENDITURES
------------
Total expenditures for land, buildings and amenities for
reportable segments $ 2,380,205 $ 8,718,185
Expenditures for land, buildings and amenities for
Partnership -- 19,812
------------- -------------
Total expenditures $ 2,380,205 $ 8,737,997
============= =============
LIABILITIES
-----------
Total liabilities for reportable segments $ 12,810,016 $ 1,866,107
Liabilities for Partnership (1) 23,356,130 33,553,899
------------- -------------
Total liabilities $ 36,166,146 $ 35,420,006
============= =============
(1) These amounts primarily represent the mortgages held by
the Partnership secured by the assets of the operating
segments.
44
10. Selected Quarterly Financial Data (Unaudited)
---------------------------------------------
For the Quarters Ended
----------------------
2000 March 31 June 30 September 30 December 31
---- -------- ------- ------------ -----------
Total revenues $ 2,468,964 $ 2,581,790 $ 2,891,729 $ 2,687,738
Total expenses 2,628,032 2,891,355 3,087,649 2,885,208
Net income (loss) (159,068) (309,565) (195,920) (197,470)
Net income (loss) allocated to the
limited partners (157,477) (306,469) (193,961) (195,496)
Net income (loss) per limited
partnership Unit (4.03) (7.84) (4.97) (5.01)
For the Quarters Ended
----------------------
1999 March 31 June 30 September 30 December 31
---- -------- ------- ------------ -----------
Total revenues $ 2,362,922 $ 2,416,922 $ 2,355,209 $ 2,441,923
Total expenses 2,545,613 2,309,973 2,432,072 2,476,475
Net income (loss) (182,691) 106,949 (76,863) (34,552)
Net income (loss) allocated to the
limited partners (180,864) 105,879 (76,094) (34,206)
Net income (loss) per limited
partnership Unit (4.52) 2.65 (1.91) (0.88)
The information presented in the table above is based on previously
filed 10-Q and 10-K reports which were prepared using the
proportionate consolidation method. See Note 1A for further
information regarding the Partnership's change from the proportionate
consolidation method to the equity method.
45
Item 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------------
Financial Disclosures
---------------------
None.
46
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 VI. The
Partnership has entered into a management contract with NTS Development Company,
an affiliate of the General Partner, to provide property management services.
The General Partners of NTS-Properties Associates VI are as follows:
J. D. Nichols
- -------------
Mr. Nichols (age 59) is the managing General Partner of NTS-Properties
Associates VI 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, Brian F.
Lavin and Gregory A. Wells.
Brian F. Lavin
- --------------
Mr. Lavin (age 47), President of NTS Corporation and NTS Development Company,
joined the Manager in June 1997. From November 1994 through June 1997, Mr. Lavin
served as President of the Residential Division of Paragon Group, Inc., and as a
Vice President of Paragon's Midwest Division prior to November 1994. In this
capacity, he directed the development, marketing, leasing and management
operations for the firms expanding portfolios. Mr. Lavin attended the University
of Missouri where he received his Bachelor's Degree in Business Administration.
He 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.
Gregory A. Wells
- ----------------
Mr. Wells (age 42), Senior Vice President and Chief Financial Officer of NTS
Corporation and NTS Development Company, joined the Manager in July, 1999. From
May 1998 through July 1999, Mr. Wells served as Chief Financial Officer of
Hokanson Companies, Inc. and as Secretary and Treasurer of Hokanson Construction
Inc., Indianapolis, Indiana from January 1995 through May 1998. In these
capacities, he directed financial and operational activities for commercial
rental real estate, managed property, building and suite renovations, out of
ground commercial and residential construction and third party management. Mr.
Wells previously served as Vice President of Operations and Treasurer of
Executive Telecom Systems,
47
Item 10. Directors and Executive Officers of the Registrant - Continued
--------------------------------------------------------------
Inc., a subsidiary of the Bureau of National Affairs, Inc. (Washington, D.C.).
Mr. Wells attended George Mason University, where he received a Bachelor's
Degree in Business Administration. Mr. Wells is a Certified Public Accountant in
both Virginia and Indiana and is active in various charitable and philanthropic
endeavors in the Louisville and Indianapolis areas.
Item 11. Management Remuneration and Transactions
----------------------------------------
The officers and/or directors of the corporate General Partner received no
direct remuneration in such capacities. The Partnership is required to pay a
property management fee based on gross revenues to NTS Development Company, an
affiliate of the General Partner. The Partnership is also required to pay to NTS
Development Company a repair and maintenance fee on costs related to specific
projects and a refinancing fee on net cash proceeds from the refinancing of any
Partnership property. Also, NTS Development Company provides certain other
services to the Partnership. See Note 7 to the consolidated financial statements
which sets forth transactions with affiliates to the General Partner for the
years ended December 31, 2000, 1999 and 1998.
The General Partner is entitled to receive cash distributions and allocations of
profits and losses from the Partnership. See Note 1D to the consolidated
financial statements which describes the methods used to determine income
allocations 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 February 28, 2001.
ORIG, LLC 9,051 Units (23.21%)
10172 Linn Station Rd.
Louisville, Kentucky 40223
ORIG, LLC is a Kentucky limited liability company, the members of which are J.
D. Nichols (1%), Barbara M. Nichols (J.D. Nichols' wife) (74%) and Brian F.
Lavin (25%). J.D. Nichols and Brian F. Lavin are the Chairman and President,
respectively, of NTS Capital Corporation, a general partner of NTS Properties
Associates, the General Partner of the Partnership.
The General Partner is NTS-Properties Associates VI, 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 VI are as follows:
J. D. Nichols 44.05%
10172 Linn Station Road
Louisville, Kentucky 40223
NTS Capital Corporation 9.95%
10172 Linn Station Road
Louisville, Kentucky 40223
48
Item 12. Security Ownership of Certain Beneficial Owners and Management
---------------------------------------------------------------------
- Continued
-----------
The remaining 46.00% interests are owned by various limited partners of NTS
Properties Associates VI.
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires that
certain persons, including persons who own more than ten percent of the
Partnership's limited partnership interests, file initial statements of
beneficial ownership (Form 3), and statements of changes in beneficial ownership
(Forms 4 or 5), with the U.S. Securities and Exchange Commission (the "SEC").
The SEC requires that these persons furnish the Partnership with copies of all
forms filed with the SEC.
To the Partnership's knowledge, based solely on its review of the copies for the
forms received by it, or written representations from certain reporting persons
that no additional forms were required for those persons, the Partnership
believes that ORIG, LLC was late in filing one Form 4 relating to one purchase
of the Partnership's limited partnership interests in connection with a tender
offer made during 2000.
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
Pursuant to an agreement with the Partnership, NTS Development Company, an
affiliate of the General Partner, receives property management fees on a monthly
basis. The fee is equal to 5% and 6% of the gross revenues from residential
properties and commercial properties, respectively. Also pursuant to an
agreement, NTS Development Company receives a repair and maintenance fee equal
to 5.9% of costs incurred which relate to capital improvements and major repair
and renovation projects. These repair and maintenance fees are capitalized as
part of land, buildings and amenities.
The Partnership was also charged the following amounts from NTS Development
Company for the years ended December 31, 2000, 1999 and 1998. These charges
include items which have been expensed as operating expenses - affiliated or
professional and administrative expenses - affiliated and items which have been
capitalized as other assets or as land, buildings and amenities.
For the Twelve Months Ended
December 31,
------------
2000 1999 1998
---- ---- ----
Property management fees $ 558,123 $ 506,397 $ 502,967
---------- ---------- ----------
Property management 890,447 789,426 957,010
Leasing 183,407 230,889 207,515
Administrative - operating 313,576 276,280 53,484
Other 9,861 20,384 19,670
---------- ---------- ----------
Total operating expenses - affiliated 1,397,291 1,316,979 1,237,679
---------- ---------- ----------
Professional and administrative expenses - affiliated 325,298 244,834 260,266
---------- ---------- ----------
Repairs and maintenance fee 43,418 37,526 11,324
Fixed assets 299 1,337 410
Leasing commissions 14,586 15,787 11,711
Loan costs -- -- 48,302
Construction management 107,776 439,920 225,759
---------- ---------- ----------
Total related party transactions capitalized 166,079 494,570 297,506
---------- ---------- ----------
Total related party transactions $2,446,791 $2,562,780 $2,298,418
========== ========== ==========
49
Item 13. Certain Relationships and Related Transactions - Continued
----------------------------------------------------------
On February 7, 2000, ORIG, LLC (the "Affiliate") purchased Interests in the
Partnership pursuant to an Agreement, Bill of Sale and Assignment by and among
the Affiliate and four investors in the Partnership. The Affiliate purchased 675
Interests in the Partnership for a total consideration of $281,128 or an average
price of $416 per Interest. The Affiliate paid these investors a premium above
the purchase price previously offered for Interests pursuant to prior tender
offers because this purchase allowed the Affiliate to purchase substantial
numbers of Interests without incurring the significant expenses involved with a
tender offer and multiple transfers.
There are no other agreements or relationships between the Partnership, the
General Partner and its affiliates other than those previously described.
50
PART IV
-------
Item 14. Exhibits, Consolidated Financial Statement Schedules, and Reports on
----------------------------------------------------------------------
Form 8-K
--------
1. Consolidated Financial Statements
---------------------------------
The financial statements for the years ended December 31, 2000, 1999
and 1998 together with the report of Arthur Andersen LLP dated March
9, 2001, appear in Part II, Item 8. The following financial statement
schedules should be read in conjunction with such consolidated
financial statements.
2. Consolidated Financial Statement Schedules
------------------------------------------
Schedules: Page No.
---------- --------
III-Real Estate and Accumulated Depreciation 52-55
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 VI, a Maryland
Limited Partnership
3a. First Amendment to Amended and Restated Agreement **
of Limited Partnership of NTS-Properties VI, a Maryland
Limited Partnership
10. Property Management Agreement and Construction *
Agreement between NTS Development Company and
NTS-Properties VI, a Maryland Limited Partnership
* 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 March 22, 1985 (effective
June 25, 1985) under Commission File No. 2-96583.
** Incorporated by reference to Form 10-K filed with the Securities
and Exchange Commission for the fiscal year ended December 31,
1987 (Commission File No. 0- 14695).
4. Reports on Form 8-K
-------------------
None.
51
NTS-PROPERTIES VI,
------------------
A MARYLAND LIMITED PARTNERSHIP
------------------------------
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
-------------------------------------------------------
AS OF DECEMBER 31, 2000
-----------------------
Willow Lake Park Place
Apartments Apartments Phase III
---------- --------------------
Encumbrances (A) (A)
Initial cost to Partnership:
Land $ 3,770,328 $ 2,411,441
Buildings and improvements 12,616,655 11,156,959
Cost capitalized subsequent to acquisition:
Improvements 311,740 --
Gross amount at which carried
December 31, 2000: (B)
Land 3,770,328 2,411,441
Buildings and improvements 12,928,395 11,156,959
----------- -----------
Total $16,698,723 $13,568,400
=========== ===========
Accumulated depreciation $ 7,268,603 $ 856,234
=========== ===========
Date of construction 3/85 5/00
Date acquired N/A N/A
Life at which depreciation in latest income (C) (C)
statement is computed
(A) First mortgage held by an insurance company.
(B) Aggregate cost of real estate for tax purposes is $76,043,753.
(C) Depreciation is computed using the straight-line method over the estimated
useful lives of the assets which are 5-30 years for land improvements, 5-30
years for buildings and improvements and 3-30 years for amenities.
52
NTS-PROPERTIES VI,
------------------
A MARYLAND LIMITED PARTNERSHIP
------------------------------
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
-------------------------------------------------------
AS OF DECEMBER 31, 2000
-----------------------
Sabal Park Park Place
Apartments Apartments Phase I
---------- ------------------
Encumbrances (A) (B)
Initial cost to Partnership:
Land $ 3,063,046 $ 2,320,938
Buildings and improvements 8,417,719 9,630,935
Cost capitalized subsequent to
acquisition:
Improvements 345,410 247,995
Gross amount at which carried
December 31, 2000: (C)
Land 3,113,211 2,361,205
Buildings and improvements 8,712,964 9,838,663
----------- -----------
Total $11,826,175 $12,199,868
=========== ===========
Accumulated depreciation $ 5,509,712 $ 5,294,984
=========== ===========
Date of construction 06/84 04/84
Date acquired N/A N/A
Life at which depreciation in latest (D) (D)
income statement is computed
(A) First mortgage held by two insurance companies.
(B) First mortgage held by an insurance company.
(C) Aggregate cost of real estate for tax purposes is $76,043,753.
(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 3-30 years for amenities.
53
NTS-PROPERTIES VI
-----------------
A MARYLAND LIMITED PARTNERSHIP
------------------------------
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
-------------------------------------------------------
AS OF DECEMBER 31, 2000
-----------------------
Golf Brook Plainview Point III Total
Apartments Office Building Pages 52-54
---------- --------------- -----------
Encumbrances (A) (A)
Initial cost to Partnership:
Land $ 3,897,193 $ 837,550 $16,300,496
Buildings and improvements 12,776,885 2,387,013 56,986,166
Cost capitalized subsequent to
acquisition:
Improvements 385,836 1,306,262 2,597,243
Gross amount at which carried
December 31, 2000:
Land 3,941,535 855,024 16,452,744
Buildings and improvements 13,118,379 3,675,801 59,431,161
----------- ----------- -----------
Total $17,059,914 $ 4,530,825 $75,883,905 (C)
=========== =========== ===========
Accumulated depreciation $ 7,402,262 $ 2,080,594 $28,412,389 (C)
=========== =========== ===========
Date of construction 05/88 01/88
Date acquired N/A N/A
Life at which depreciation in latest
income statement is computed (B) (B)
(A) First mortgage held by an insurance company.
(B) 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 3-30 years for amenities.
(C) Reconciliation net of accumulated depreciation to consolidated financial
statements:
Total gross cost at December 31, 2000 $ 75,883,905
Additions to Partnership for computer
hardware and software in 1998 and 1999 38,872
-------------
Balance at December 31, 2000 75,922,777
Less accumulated depreciation (28,412,389)
Less accumulated depreciation for
Partnership computer hardware and software:
1999 (3,889)
2000 (7,773)
-------------
Land, buildings and amenities, net at December 31, 2000 $ 47,498,726
=============
54
NTS-PROPERTIES VI,
------------------
A MARYLAND LIMITED PARTNERSHIP
------------------------------
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
-------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
----------------------------------------------------
Real Accumulated
Estate Depreciation
------ ------------
Balances at December 31, 1997 $ 63,274,988 $ 23,440,402
Additions during period:
Improvements 3,171,970 --
Depreciation (a) -- 1,804,212
Deductions during period:
Retirements (304,047) (238,219)
------------- -------------
Balances at December 31, 1998 66,142,911 25,006,395
Additions during period:
Improvements 8,737,997 --
Depreciation (a) -- 1,874,147
Deductions during period:
Retirements (827,881) (566,998)
------------- -------------
Balances at December 31, 1999 74,053,027 26,313,544
Additions during period:
Improvements 2,380,205
Depreciation (a) 2,408,705
Deductions during period:
Retirements (510,455) (298,198)
------------- -------------
Balances at December 31, 2000 $ 75,922,777 $ 28,424,051
============= =============
(a) The additions charged to accumulated depreciation on this schedule will
differ from the depreciation and amortization on the Consolidated
Statements of Cash Flows due to the amortization of loan costs and special
tenant allowance.
55
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NTS-PROPERTIES VI,
A MARYLAND LIMITED PARTNERSHIP
---------------------------------------------
(Registrant)
By: NTS-Properties Associates VI,
General Partner
By: NTS Capital Corporation
General Partner
/s/ Gregory A. Wells
---------------------------------------------
Gregory A. Wells
Senior Vice President and
Chief Financial Officer of
NTS Capital Corporation
Date: April 2, 2001
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
Form 10-K has been signed below by the following persons on behalf of the
registrant in their capacities and on the date indicated above.
Signature Title
--------- -----
/s/ J. D. Nichols
- -----------------------------
J. D. Nichols General Partner of NTS-Properties
Associates VI and Chairman of the
Board and Sole Director of NTS
Capital Corporation.
/s/ Brian F. Lavin
- -----------------------------
Brian F. Lavin President and Chief Operating
Officer of NTS Capital Corporation
/s/ Gregory A. Wells
- -----------------------------
Gregory A. Wells Senior Vice President and Chief
Financial Officer of NTS Capital
Corporation
The Partnership is a limited partnership and no proxy material has been sent to
the limited partners. The Partnership will deliver to the limited partners an
annual report containing the Partnership's consolidated financial statements and
a message from the General Partner.
56