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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ______
Commission file number 0-14695
NTS-PROPERTIES VI, a Maryland Limited Partnership
(Exact name of registrant as specified in its charter)
Maryland 61-1066060
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10172 Linn Station Road
Louisville, Kentucky 40223
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (502) 426-4800
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. [X]
Exhibit Index: See page 39
Total Pages: 43
TABLE OF CONTENTS
Pages
PART I
Items 1 and 2 Business and Properties 3-11
Item 3 Legal Proceedings 11
Item 4 Submission of Matters to a Vote
of Security Holders 11
PART II
Item 5 Market for the Registrant's Limited
Partnership Interests and Related
Partner Matters 12
Item 6 Selected Financial Data 13
Item 7 Management's Discussion and Analysis
of Financial Condition and Results
of Operations 14-21
Item 8 Financial Statements and Supplementary
Data 22-35
Item 9 Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 36
PART III
Item 10 Directors and Executive Officers of
the Registrant 36-37
Item 11 Management Remuneration and Transactions 37
Item 12 Security Ownership of Certain Beneficial
Owners and Management 37
Item 13 Certain Relationships and Related
Transactions 37-38
PART IV
Item 14 Exhibits, Financial Statement Schedules
and Reports on Form 8-K 39-42
Signatures 43
- 2 -
PART I
Items 1. and 2. Business and Properties
-----------------------
General
- -------
Some of the statements included in Items 1. and 2., Business and Properties, may
be considered to be "forward-looking statements" since such statements relate to
matters which have not yet occurred. For example, phrases such as "the
Partnership anticipates", "believes" or "expects" indicate that it is possible
that the event anticipated, believed or expected may not occur. Should such
event not occur, then the result which the Partnership expected also may not
occur or occur in a different manner, which may be more or less favorable to the
Partnership. The Partnership does not undertake any obligations to publicly
release the result of any revisions to these forward-looking statements that may
be made to reflect any future events or circumstances.
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, 1997, the Partnership owned the
following properties:
- 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.
- 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% at December 31, 1997.
- A joint venture interest in Plainview Point III Office Center, an
office center with approximately 62,000 net rentable square feet,
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% at December 31,
1997.
The Partnership also owns approximately 15 acres of land, adjacent to the Park
Place Apartments development, in Lexington, Kentucky (Park Place Apartments
Phase III). The Partnership intends to use the land to construct Park Place
Apartments Phase III. It is anticipated that construction will begin in the
Spring of 1998.
The Partnership or Joint Venture in which the Partnership is a partner has a fee
title interest in the above listed properties. In the opinion of the
Partnership's management, the properties are adequately covered by insurance.
Sabal Park Apartments is encumbered by permanent mortgages with two insurance
companies. Both loans are secured by a first mortgage on the property. The
outstanding balance of the mortgages at December 31, 1997 was $4,700,000
($2,820,000 and $1,880,000). Both mortgages bear interest at a fixed rate of
7.38% and are due December 5, 2012. Monthly principal
- 3 -
General - Continued
- -------------------
payments on both mortgages are based upon a 15-year amortization schedule. At
maturity, the mortgages will have been repaid based upon the current rate of
amortization.
Park Place Apartments Phase I and Park Place Apartments Phase III (to be
constructed) are encumbered by a $12,200,000 permanent mortgage with an
insurance company. The outstanding balance of the mortgage at December 31, 1997
is $5,000,000. The remaining $7,200,000 loan proceeds will be advanced during
the construction of Park Place Apartments Phase III as needed in accordance with
the loan agreement. The mortgage bears interest at a fixed rate of 7.74%, is due
October 15, 2012 and is secured by the assets of Park Place Apartments Phase I
and Park Place Apartments Phase III. Until the construction of Park Place
Apartments Phase III is complete, the mortgage will require only monthly
interest payments. Upon the completion of Park Place Apartments Phase III, the
monthly principal payments will be based upon a 19-year amortization schedule.
At maturity, the principal balance of the loan will not be fully amortized.
However, due to the fact that it is not known when principal payments will
begin, the outstanding balance at maturity can not be determined at this time.
Willow Lake Apartments is encumbered by a permanent mortgage with an insurance
company. The outstanding balance at December 31, 1997 was $8,447,975. The
mortgage bears interest at a fixed rate of 7.32%. Monthly principal payments are
based upon a 15-year amortization schedule. The mortgage is due October 15,
2012. At maturity, the mortgage will have been repaid based upon the current
rate of amortization.
Golf Brook Apartments, a joint venture between the Partnership and NTS-
Properties IV, is encumbered by a mortgage payable to an insurance company. The
mortgage is recorded as a liability by the Partnership in accordance with the
Joint Venture Agreement. The outstanding balance at December 31, 1997 was
$8,724,588. The mortgage bears a fixed interest rate of 7.43% and is due May 14,
2009. 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.
Plainview Point III Office Center is not encumbered by an outstanding mortgage
at December 31, 1997.
For a further discussion regarding the terms of the debt financings see
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Item 7).
Currently, the Partnership's plans for renovations and other major capital
expenditures include tenant finish improvements at the Partnership's commercial
property as required by lease negotiations. Changes to current tenant finish
improvements are a typical part of any lease negotiation. Improvements generally
include a revision to the current floor plan to accommodate a tenant's needs,
new carpeting and paint and/or wallcovering. The extent and cost of the
improvements are determined by the size of the space being leased and whether
the improvements are for a new tenant or incurred because of a lease renewal.
The tenant finish improvements will be funded by cash flow from operations
and/or cash reserves. The Partnership also plans to begin, during Spring 1998,
the construction of Park Place Apartments Phase III (152 units) on the 15 acres
of land it owns which is adjacent to the existing Park Place Apartments in
Lexington, Kentucky. It is currently estimated that the cost of the project will
be $9,000,000. Construction costs will be funded by the $7,200,000 of loan
proceeds, as discussed above, and cash reserves. Through December 31, 1997,
approximately $100,000 of pre-development costs had been incurred. The
Partnership had no material commitments for renovations or capital improvements
at December 31, 1997.
- 4 -
General - Continued
- -------------------
The Partnership is presently engaged solely in the business of developing,
constructing, owning and operating residential apartments and commercial real
estate. A presentation of information concerning industry segments is not
applicable.
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.
The Partnership intends to hold the Properties until such time as sale or other
disposition appears to be advantageous with a view to achieving the
Partnership's investment objectives or it appears that such objectives will not
be met. In deciding whether to sell a Property, the Partnership will consider
factors such as potential capital appreciation, cash flow and federal income tax
considerations, including possible adverse federal income tax consequences to
the Limited Partners. The General Partner of the Partnership is currently
exploring the marketability of certain of its properties, and has not yet
determined if any of the properties might be sold in the next 12 months, and
there are no contracts for sale under negotiation at the present time.
Sabal Park Apartments
- ---------------------
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 clubhouse, management
offices, swimming pool and tennis courts.
Monthly rental rates at Sabal Park Apartments start at $879 for two-bedroom
apartments and $1,219 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 97% (1997), 90% (1996), 98% (1995), 91% (1994)and 94% (1993).
Park Place Apartments Phase I
- -----------------------------
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 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 I start at $709 for
one-bedroom apartments, $909 for two-bedroom apartments and $1,099 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
- 5 -
Park Place Apartments Phase I - Continued
- -----------------------------------------
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 89% (1997),
90% (1996), 92% (1995), 93% (1994) and $93% (1993).
Willow Lake Apartments
- ----------------------
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 $760 for one-bedroom
apartments, $965 for two-bedroom apartments and $1,155 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 88% (1997), 91% (1996), 93%
(1995), 92% (1994) and 84% (1993).
Golf Brook Apartments
- ---------------------
Units at Golf Brook Apartments include two and three-bedroom units. All units
have wall-to-wall carpeting, individually controlled heating and air
conditioning, dishwashers, ranges, refrigerators, garbage disposals and
washer/dryer hook-ups. Tenants have access to and use of clubhouse, management
offices, pool and tennis courts.
Monthly rental rates at Golf Brook Apartments start at $1,130 for two-bedroom
apartments and $1,360 for three-bedroom apartments, with additional monthly
rental amounts for special features and locations. Tenants pay all costs of
heating, air conditioning and electricity. Most leases are for a period of one
year. Units will be rented in some cases, however, on a shorter term basis at an
additional charge. The occupancy levels at the apartment complex as of December
31 were 96% (1997),97% (1996), 91% (1995), 93% (1994) and 91% (1993).
Plainview Point III Office Center
- ---------------------------------
Base annual rents, which include the cost of utilities, range from $13.90 to
$17.00 per square foot for first and second floor office space and $13.00 per
square foot for lower level office space. The average base annual rental for all
types of space leased as of December 31, 1997 was $14.42 per square foot. Office
space is ordinarily leased for between two and six years with the majority of
current square footage being leased for a term of five years. Current leases
terminate between 1998 and 2001. Some leases provide for renewal options of
between two and five years at rates which are based upon increases in the
consumer price index and/or are negotiated between lessor and lessee. All leases
provide for tenants to contribute toward the payment of increases in common area
maintenance expenses, insurance, utilities and real estate taxes. As of December
31, 1997, there were seven tenants leasing space aggregating approximately
60,121 square feet of rentable area. The tenants who occupy Plainview Point III
Office Center are professional service oriented organizations. The principal
occupations/professions practiced include real estate and insurance. Four
tenants lease more than 10% of the office center's rentable area: The Prudential
Company of America (10.3%), Underwriters Safety & Claims, Inc. (18.4%), Re/max
Properties East, Inc. (24.4%) and Univa Health Network (26.7%). The occupancy
levels at the office center as of December 31 were 96% (1997), 91% (1996), 91%
(1995), 91% (1994) and 87% (1993).
- 6 -
Plainview Point III Office Center - Continued
- ---------------------------------------------
The following table contains approximate data concerning the leases in effect on
December 31, 1997.
Major Tenants:
Current Base
Sq. Ft. and Annual Rental
% of Net and % of Gross
Year of Rentable Base Annual Renewal
Name Expiration Area Rental Options
---- ---------- ---- ------ -------
The Prudential Company
of America 1998 6,474 (10.3%) $ 95,964 (11.1%) 1 Five-Year
Underwriters Safety &
Claims, Inc. 2001 11,535 (18.4%) $149,952 (17.3%) None
Re/max Properties East,
Inc. 1999 15,300 (24.4%) $225,600 (26.0%) 1 Two-Year
Univa Health Network 2000 16,727 (26.7%) $232,500 (26.8%) 1 Five-Year
Other Tenants:
Current Base
Sq. Ft. and Annual Rental
% of Net and % of Gross
No. of Year of Rentable Base Annual Renewal
Tenants Expiration Area Rental Options
------- ---------- ---- ------ -------
None 1998-1999 -- -- --
3 2000 10,085 (16.1%) $163,140 (18.8%) 1 Three-Year
Additional operating data regarding the Partnership's properties is furnished in
the following table.
Federal Realty Annual
Tax Basis Tax Rate Realty Taxes
--------- -------- ------------
Wholly-Owned Properties
- -----------------------
Sabal Park Apartments $11,213,451 $.018636 $157,380
Park Place Apartments
Phase I 11,225,316 .009925 111,066
Willow Lake Apartments 15,532,184 .090642 228,280
Properties Owned in
Joint Venture with
NTS-Properties IV
- -----------------
Golf Brook Apartments 16,094,267 .018636 259,677
Plainview Point III
Office Center 4,193,863 .011180 34,849
Percentage ownership has not been applied to the information in the above table
for properties owned through a joint venture.
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 the completed Park Place
Apartments Phase III will be approximately $90,000. The estimated realty taxes
on all other planned renovations, primarily tenant
- 7 -
General - Continued
- -------------------
improvements, would not be material. See Management's Discussion and
Analysis of Financial Condition and Results of Operations (Item 7) for
explanations regarding the fluctuations of income and occupancy at the
Partnership's properties.
Investment in Joint Ventures
- ----------------------------
NTS Sabal Golf Villas Joint Venture - 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.
The Partnership contributed approximately $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, 1997.
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 $8,714,588 is recorded as a liability by the Partnership in
accordance with the Joint Venture Agreement. The mortgage payable bears interest
at a fixed rate of 7.43%, is due May 14, 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 in to account only to
the extent not funded by capital contributions or paid out of previously
established reserves. Percentage Interest means that percentage which the
capital contributions of a Partner bears to the aggregate capital contributions
of all the Partners.
- 8 -
Investment in Joint Ventures - Continued
- ----------------------------------------
Net income or net loss is allocated between the Partners in accordance with
their respective Percentage Interests. The Partnership's ownership share was 96%
at December 31, 1997.
The Partnership has no liability for funding losses of the joint venture as of
December 31, 1997.
Plainview Point III Joint Venture - On March 1, 1987, the Partnership entered
into a joint venture agreement with NTS-Properties 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.
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 of $550,000 which was secured by the land. The Partnership
also contributed the funds to retire the $550,000 note payable to the bank. No
future contributions are anticipated as of December 31, 1997.
As of December 31, 1997, Plainview Point III Office Center is not encumbered by
any mortgage indebtedness.
The Net Cash Flow for each calendar quarter is distributed to the Partners in
accordance with their respective Percentage Interests. The term Net Cash Flow
means the excess, if any, of (a) the sum of (i) the gross receipts of the Joint
Venture Property, for such period, other than capital contributions, plus (ii)
any funds from previously established reserves (referred to in clause (b) (iv)
below), over (b) the sum of (i) all cash expenses paid by the Joint Venture
Property during such period, (ii) all capital expenditures paid in cash during
such period, (iii) payments during such period on account of amortization of the
principal of any debts or liabilities of the Joint Venture Property, and (iv)
reserves for contingent liabilities and future expenses of the Joint Venture
Property, as established by the Partners; provided, however, that the amounts
referred to in (i), (ii) and (iii) above shall be taken in to account only to
the extent not funded by capital contributions or paid out of previously
established reserves. Percentage Interest means that percentage which the
capital contributions of a Partner bears to the aggregate capital contributions
of all the Partners.
Net income or net loss is allocated between the Partners in accordance with
their respective Percentage Interests. The Partnership's ownership share was 95%
at December 31, 1997.
The Partnership has no liability for funding losses of the joint venture as of
December 31, 1997.
- 9 -
Competition
- -----------
The Partnership's properties are subject to competition from similar types of
properties (including, in certain areas, properties owned or managed by
affiliates of the General Partner) in the respective vicinities in which they
are located. Such competition is generally for the retention of existing tenants
or for new tenants when vacancies occur. The Partnership maintains the
suitability and competitiveness of its properties primarily on the basis of
effective rents, amenities and service provided to tenants. Competition is
expected to increase in the future as a result of the construction of additional
properties. As of December 31, 1997, there are no properties under construction
in the respective vicinities in which the properties are located except for the
following: In close proximity to Sabal Park Apartments and Golf Brook
Apartments, there are 726 apartment units currently under construction which are
scheduled to be completed during 1998. In the vicinity near Park Place
Apartments, there are currently 760 apartment units currently under construction
which are scheduled to be completed during the second and third quarters of
1998. Also, at the Park Place Apartments development, plans are currently in
progress to build Phase III (152 units) of the development with ground breaking
scheduled for Spring 1998. See the discussion above for further details
regarding the planned construction. In the vicinity of Willow Lake Apartments,
there are currently 1,160 apartment units under construction which are scheduled
to be completed during 1998. At this time it is unknown the effect these new
units will have on occupancy at 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.
Management of Properties
- ------------------------
NTS Development Company, an affiliate of 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, the Property Manager establishes rental
policies and rates and directs the marketing activity of leasing personnel. It
also coordinates the purchase of equipment and supplies, maintenance activity
and the selection of all vendors, suppliers and independent contractors. As
compensation for its services, the Property Manager received a total of $480,335
for the year ended December 31, 1997. $46,099 was received from the commercial
property and $434,236 was received from residential properties. The fee is equal
to 6% of gross revenues from the commercial property and 5% of gross revenues
from residential properties.
In addition, the management agreement requires the Partnership to purchase all
insurance relating to the managed properties, to pay the direct out-of-pocket
expenses of the Property Manager in connection with the operation of the
properties, including the cost of goods and materials used for and on behalf of
the Partnership, and to reimburse the Property Manager for the salaries,
commissions, fringe benefits, and related employment expenses of on-site
personnel.
The term of the Management Agreement between NTS Development Company and the
Partnership was for an initial term of five years, and thereafter for succeeding
one-year periods, unless canceled. The Agreement is subject to cancellation by
either party upon sixty days written notice. As of December 31, 1997, the
Management Agreement is still in effect.
- 10 -
Conflict of Interest
- --------------------
Because the principals of the General Partner and/or its affiliates own and/or
operate real estate properties other than those owned by the Partnership that
are or could be in competition with the Partnership, potential conflicts of
interest exist. Because the Partnership was organized by and is operated by the
General Partner, these conflicts are not resolved through arms-length
negotiations but through the exercise of the General Partner's good judgment
consistent with its fiduciary responsibility to the Limited Partners and the
Partnership's investment objectives and policies. The General Partner is
accountable to the Limited Partners as a fiduciary and consequently must
exercise good faith and integrity in handling the Partnership's affairs. A
provision has been made in the Partnership Agreement that the General Partner
will not be liable to the Partnership except for acts or omissions performed or
omitted fraudulently, in bad faith or with negligence. In addition, the
Partnership Agreement provides for indemnification of the General Partner by the
Partnership for liability resulting from errors in judgement or certain acts or
omissions. With respect to these potential conflicts of interest, 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.
Item 3. Legal Proceedings
-----------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
- 11 -
PART II
Item 5. Market for Registrant's Limited Partnership Interests and Related
- ------- -----------------------------------------------------------------
Partner Matters
---------------
There is no established trading market for the limited partnership interests,
nor is one likely to develop. The Partnership had 3,976 limited partners as of
March 9, 1998. Cash distributions and allocations of net income (loss) are made
as described in Note 1C to the Partnership's 1997 financial statements.
Annual distributions totaling $20.00 per limited partnership unit were paid
during the years ended December 31, 1997, 1996 and 1995, 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:
1997 1996 1995
--------- --------- --------
First quarter $ 5.00 $ 5.00 $ 5.00
Second quarter 5.00 5.00 5.00
Third quarter 5.00 5.00 5.00
Fourth quarter 5.00 5.00 5.00
------ ------ -----
$20.00 $20.00 $20.00
====== ====== =====
The table below presents that portion of the distributions that represent a
return of capital on a Generally Accepted Accounting Principle basis for the
years ended December 31, 1997, 1996 and 1995.
Net Income Cash
(Loss) Distributions Return of
Allocated Declared Capital
--------- -------- -------
Limited Partners:
1997 $ 106,042 $ 853,625 $ 747,583
1996 224,783 886,000 661,217
1995 (324,417) 948,700 948,700
General Partners:
1997 $ 1,071 $ 8,622 $ 7,551
1996 2,271 8,950 6,679
1995 (3,277) 9,583 9,583
- 12 -
Item 6. Selected Financial Data
-----------------------
Years ended December 31, 1997, 1996, 1995, 1994 and 1993.
1997 1996 1995 1994 1993
------------- ------------- ------------- ------------- -------------
Total revenues $ 9,608,273 $ 9,670,261 $ 8,939,055 $ 8,796,072 $ 8,515,951
Total expenses (9,402,616) (9,443,207) (9,266,749) (9,607,971) (9,549,251)
------------ ------------ ------------ ------------ ------------
Income(loss) before
extraordinary item 205,657 227,054 (327,694) (811,899) (1,033,300)
Extraordinary item (98,544) -- -- -- --
------------ ------------ ------------ ------------ ------------
Net income (loss) $ 107,113 $ 227,054 $ (327,694) $ (811,899) $ (1,033,300)
============ ============ ============ ============ ============
Net income (loss)
allocated to:
General Partner $ 1,071 $ 2,271 $ (3,277) $ (8,119) $ (10,333)
Limited partners $ 106,042 $ 224,783 $ (324,417) $ (803,780) $ (1,022,967)
Net income (loss) per
limited partnership
unit $ 2.48 $ 4.97 $ (6.84) $ (16.94) $ (21.57)
Weighted average
number of limited
partnership units 42,817 45,243 47,435 47,435 47,435
Cumulative net income
(loss) allocated to:
General Partner $ (74,865) $ (75,936) $ (78,207) $ (74,930) $ (66,811)
Limited partners $(12,202,299) $(12,308,341) $(12,533,124) $(12,208,707) $(11,404,927)
Cumulative net
taxable income (loss)
allocated to:
General Partner $ 102,664 $ 1,192,830 $ 78,617 $ 64,858 $ 55,986
Limited partners $(15,174,826) $(16,357,888) $(15,401,294) $(14,859,402) $(13,885,668)
Distributions
declared:
General Partner $ 8,622 $ 8,950 $ 9,583 $ 8,984 $ 7,187
Limited partners $ 853,625 $ 886,000 $ 948,700 $ 889,380 $ 711,525
Cumulative
distributions
declared:
General Partner $ 112,066 $ 103,444 $ 94,494 $ 84,911 $ 75,927
Limited partners $ 11,094,531 $ 10,240,906 $ 9,354,906 $ 8,406,206 $ 7,516,826
At year end:
Cash and equivalents $ 276,891 $ 640,541 $ 393,552 $ 1,617,604 $ 1,394,905
Investment
securities $ 1,562,813 $ 1,085,267 $ 1,151,355 $ -- $ --
Land, buildings and
amenities, net $ 38,660,912 $ 40,436,784 $ 42,196,272 $ 43,872,072 $ 45,799,467
Total assets $ 43,289,608 $ 44,771,802 $ 46,813,791 $ 48,267,884 $ 50,221,728
Mortgages payable $ 26,872,563 $ 27,403,056 $ 27,653,044 $ 27,883,025 $ 28,101,474
The above selected financial data should be read in conjunction with the
financial statements and related notes appearing elsewhere in this Form 10-K
report.
- 13 -
Item 7. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
Results of Operations
The occupancy levels at the Partnership's properties as of December 31 were as
follows:
Percentage
Ownership
at 12/31/97 1997 1996 1995
----------- -------- -------- -------
Wholly-Owned Properties
- -----------------------
Sabal Park Apartments 100% 97% 90% 98%
Park Place Apartments
Phase I 100% 89% 90% 92%
Willow Lake Apartments 100% 88% 91% 93%
Properties Owned in Joint
Venture with NTS-
Properties IV
- -------------------------
Golf Brook Apartments 96% 96% 97% 91%
Plainview Point III
Office Center 95% 96% 91% 91%
Rental and other income generated by the Partnership's properties for the years
ended December 31, 1997, 1996 and 1995 were as follows:
Percentage
Ownership
at 12/31/97 1997 1996 1995
----------- ---------- ---------- ----------
Wholly-Owned Properties
Sabal Park Apartments 100% $1,725,980 $1,765,302 $1,675,795
Park Place Apartments
Phase I 100% $1,896,871 $1,843,808 $1,739,626
Willow Lake Apartments 100% $2,412,609 $2,434,696 $2,287,408
Properties Owned in Joint
Venture with NTS-
Properties IV
Golf Brook Apartments 96% $2,747,335 $2,801,744 $2,722,451
Plainview Point III
Office Center 95% $ 737,948 $ 729,647 $ 428,269
Revenues shown in the table above for properties owned through a joint venture
represent only the Partnership's percentage interest in those revenues.
Sabal Park Apartments' year-ending occupancy increased from 90% in 1996 to 97%
in 1997; however, average occupancy decreased from 94% in 1996 to 92%
- 14 -
Results of Operations - Continued
- ---------------------------------
in 1997. Occupancy at residential properties fluctuate on a continuous basis.
Year-ending occupancy percentages represent occupancy only on a specific date;
therefore, it is more meaningful to consider average occupancy percentages which
are more representative of the entire year's results. Rental and other income at
Sabal Park Apartments decreased from 1996 to 1997 as a result of a decrease in
average occupancy and increased rent concessions.
Sabal Park Apartments' year-ending occupancy decreased from 98% in 1995 to 90%
in 1996 and average occupancy increased from 92% in 1995 to 94% in 1996. Rental
and other income at Sabal Park Apartments increased from 1995 to 1996 as a
result of the increase in average occupancy, increased rental rates, increased
fees collected upon early lease terminations and increased fees collected for
short term and month-to-month leases.
Park Place Apartments Phase I's year-ending occupancy decreased from 90% in 1996
to 89% in 1997 and average occupancy decreased from 93% in 1996 to 91% in 1997.
Rental and other income at Park Place Apartments Phase I increased from 1996 to
1997 as a result of increased rental rates and increased income collected from
the rent of fully furnished units. Fully furnished units are apartments which
rent at an additional premium above base rent. Therefore, it is possible for
occupancy to decrease and revenue to increase when the number of fully furnished
units has increased.
Year-ending occupancy at Park Place Apartments Phase I decreased from 92% in
1995 to 90% in 1996 and average occupancy decreased from 94% in 1995 to 93% in
1996. Rental and other income at Park Place Apartments Phase I increased from
1995 to 1996 as a result of increased income collected from the rental of fully
furnished units, increased income collected for short term and month-to-month
leases and increased rental rates.
Willow Lake Apartments' year-ending occupancy decreased from 91% in 1996 to 88%
in 1997 and average occupancy decreased from 94% in 1996 to 90% in 1997. Rental
and other income at Willow Lake Apartments decreased from 1996 to 1997 as a
result of the decrease in average occupancy and decreased income collected from
the rental of fully furnished units.
Willow Lake Apartments' year-ending occupancy decreased from 93% in 1995 to 91%
in 1996; however, average occupancy increased 2% from 1995 to 1996. Rental and
other income at Willow Lake Apartments increased as a result of the increase in
average occupancy, increased rental rates, increased income collected from fully
furnished units and increased fees collected for short term and month-to-month
leases.
Golf Brook Apartments' year-ending occupancy decreased from 97% in 1996 to 96%
in 1997 and average occupancy decreased from 94% in 1996 to 93% in 1997. Rental
and other income at Golf Brook Apartments decreased from 1996 to 1997 as a
result of decreased average occupancy and increased rent concessions.
Year-ending occupancy at Golf Brook Apartments increased from 91% in 1995 to 97%
in 1996 while average occupancy remained constant at 94% in 1995 and 1996.
Rental and other income at Golf Brook Apartments increased from 1995 to 1996 as
a result of increased rental rates, increased non-refundable pet fees and
increased pet rent collected.
Plainview Point III Office Center's year-ending occupancy increased from 91% in
1996 to 96% in 1997 as a result of one new lease for approximately 4,800 square
feet. Partially offsetting the new lease is the downsizing of an existing tenant
by approximately 1,600 square feet. Average occupancy decreased from 93% (1996)
to 90% (1997). Rental and other income remained fairly constant at Plainview
Point III Office Center from 1996 to 1997.
- 15 -
Results of Operations - Continued
- ---------------------------------
Year-ending occupancy at Plainview Point III Office Center was 91% for 1995 and
1996 as a result of expansions by two current tenants of existing space totaling
approximately 2,500 square feet offset by one tenant move-out at the end of the
lease term totaling approximately 2,500 square feet. Average occupancy increased
from 55% in 1995 to 93% in 1996. Rental and other income increased at Plainview
Point III Office Center from 1995 to 1996 as a result of the increase in average
occupancy.
If present trends continue, the Partnership will be able to continue at its
current level of operations without the need of any additional financing.
Current occupancy levels are considered adequate to continue the operation of
the Partnership's properties.
Interest and other income includes interest income from investments made by the
Partnership with cash reserves. Interest income remained fairly constant during
1997 as compared to 1996.
The increase in interest and other income from 1995 to 1996 can be attributed to
increased miscellaneous income collected by the Partnership partially offset by
decreased interest income resulting from decreased cash reserves being available
for investment and decreased other income at the Partnership's residential
properties.
Operating expenses decreased from 1996 to 1997 as a result of decreased repairs
and maintenance costs at Sabal Park, Park Place Phase I, Golf Brook and Willow
Lake Apartments, decreased snow removal at Park Place Phase I and Willow Lake
Apartments, decreased landscaping costs at Sabal Park, Park Place Phase I and
Willow Lake Apartments, and decreased furniture rental costs associated with
fully furnished units at Willow Lake Apartments. These decreases are partially
offset by increased advertising at Sabal Park, Park Place Phase I, Willow Lake
Apartments and Plainview Point III Office Center, increased interior painting at
Sabal Park, Park Place Phase I and Golf Brook Apartments and Plainview Point III
Office Center, increased pool maintenance costs at Golf Brook and Willow Lake
Apartments, and increased replacement costs at Willow Lake, Park Place Phase I
and Sabal Park Apartments.
Operating expenses increased from 1995 to 1996 as a result of increased general
building costs at all the Partnership's properties, increased furniture rental
costs associated with fully furnished units at Willow Lake and Park Place Phase
I Apartments, increased replacement costs at Golf Brook, Willow Lake and Park
Place Phase I Apartments, increased utility costs at Park Place Phase I
Apartments, Willow Lake Apartments and Plainview Point III Office Center,
increased exterior maintenance costs at Golf Brook Apartments, increased
advertising costs at Golf Brook, Park Place Phase I and Willow Lake Apartments
and increased amortization of prepaid leasing commissions at Plainview Point III
Officer Center . These increases are partially offset by decreased exterior
painting costs at Willow Lake and Park Place Phase I Apartments and decreased
interior painting and carpet replacement costs at Sabal Park Apartments.
Operating expenses - affiliated increased from 1996 to 1997 as a result of
increased salary costs at the Partnership's residential properties. Operating
expenses - affiliated at Plainview Point III Office Center remained relatively
constant from 1996 to 1997. Operating expenses affiliated are expenses incurred
for services by employees of NTS Development Company, an affiliated of the
General Partner of the Partnership.
Operating expenses - affiliated decreased from 1995 to 1996 due to decreased
property management and leasing costs.
- 16 -
Results of Operations - Continued
- ---------------------------------
The 1997 write-off of unamortized loan costs (treated as an extraordinary item)
relates to loan costs associated with the Golf Brook, Park Place Phase I, Willow
Lake and Sabal Park Apartments mortgages payable. The unamortized loan costs
were expensed due to the fact that the mortgages were retired in 1997 prior to
their scheduled maturities - August 1, 1997, October 5, 2002, November 1, 1997
and January 5, 2003, respectively - as a result of new financing being obtained
during 1997. See the Liquidity and Capital Resources section of this item for
further discussion.
Amortization of capitalized leasing costs has increased from 1996 to 1997 as a
result of amortization of a special tenant allowance, at Plainview Point III
Office Center, which was paid during 1997.
Amortization of capitalized leasing costs decreased from 1995 to 1996 as a
result of a portion of the costs capitalized during start-up having become fully
amortized. Capitalized leasing costs were fully amortized during the second
quarter of 1995.
Interest expenses decreased from 1996 to 1997 due to the Partnership's
decreasing debt level as a result of principal payments made and a result of the
new debt financings at lower interest rates which were obtained May 15,
September 12, and October 8, 1997. The $9,200,000 mortgage, which was paid off
May 15, 1997, had an interest rate of 8.625% compared to 7.43% on the new
$9,000,000 loan. The approximately $8,500,000 which was paid off September 12,
1997, had an interest rate of 9.20% compared to 7.32% on the new $8,500,000
loan. The approximately $3,900,000 and $950,000 mortgages, which were paid off
October 8, 1997, had an interest rate of 8.375% compared to 7.74% on the new
$5,000,000 loan. Interest expense decreased from 1995 to 1996 due to the
Partnership's decreasing debt level as a result of principal payments made. See
the Capital Resources and Liquidity section of this item for details regarding
the Partnership's debt.
Management fees are calculated as a percentage of cash collections; however,
revenue for reporting purposes is on the accrual basis. As a result, the
fluctuations of revenues between periods will differ from the fluctuations of
management fee expense.
The change in real estate taxes from 1996 to 1997 was not significant. The
increase in real estate taxes from 1995 to 1996 is a result of increased
property assessments for Golf Brook and Sabal Park Apartments. The increase in
real estate taxes is partially offset by a decreased property assessment and
decreased tax rate for Willow Lake Apartments. The assessment for Park Place
Apartments Phase I and Plainview Point III Office Center remained constant from
1995 to 1996.
The increase in professional and administrative expenses from 1996 to 1997 is
the result of increased legal costs. The increase in professional and
administrative expenses from 1995 to 1996 is the result of increased costs
associated with the Interest Repurchase Program.
Professional and administrative expenses - affiliated increased from 1996 to
1997 and from 1995 to 1996 as a result of increased charges by NTS Development
Company for accounting personnel. Over the past several years the charges for
the annual partnership audit have stayed at a relatively consistent level
despite the increase in disclosure and audit requirements. This has been
accomplished by the increased utilization of NTS Development Company personnel's
preparation of the necessary audit documentation, workpapers, Securities and
Exchange Commission filings and EDGAR (Electronic Data Gathering, Analysis and
Retrieval) filings. In addition, administrative overhead costs have increased as
a result of the additional personnel costs related to investor relations and
asset management. Professional and administrative expenses - affiliated are
expenses incurred for services performed by employees of NTS Development
Company, an affiliate of the General Partner of the Partnership.
- 17 -
Results of Operations - Continued
- ---------------------------------
Amortization expense decreased from 1996 to 1997 as a result of decreased loan
cost amortization. The change in depreciation expense from 1996 to 1997 was not
significant. Depreciation and amortization decreased from 1995 to 1996 due to a
portion of the assets with shorter lives at the Partnership's residential
properties having become fully depreciated. The decrease in depreciation and
amortization from 1995 to 1996 is partially offset by depreciation of new tenant
finish improvements at Plainview Point III Office Center. 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 5-30 years for amenities. The aggregate cost
of the Partnership's properties for Federal tax purposes is approximately
$71,500,000.
Liquidity and Capital Resources
- -------------------------------
Cash provided from operations was $2,131,543, $2,257,823 and $1,648,106 during
the years ended December 31, 1997, 1996 and 1995, respectively. These funds in
conjunction with cash on hand were used to make, a 2% (annualized) cash
distribution of approximately $862,000 in 1997, a 2% (annualized) cash
distribution of approximately $895,000 in 1996, and a 2% (annualized) cash
distribution of approximately $958,000 in 1995. 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 after
adequate cash reserves are established for future leasing costs, tenant finish
costs and capital improvements. Cash reserves (which are unrestricted cash and
equivalents and investment securities as shown on the Partnership's balance
sheet as of December 31) were $1,839,704, $1,725,808 and $1,544,907 at December
31, 1997, 1996 and 1995, respectively.
On May 15, 1997, the Partnership obtained a mortgage loan from an insurance
company in the amount of $9,000,000. The outstanding balance of the loan at
December 31, 1997 was $8,714,588. The mortgage bears interest at a fixed rate of
7.43%, is due May 14, 2009 and is secured by the assets of Golf Brook
Apartments. The monthly principal payments are based upon a 12-year amortization
schedule. At maturity, the loan will have been repaid based on the current rate
of amortization. The proceeds from the loan along with cash reserves were used
to pay off the Partnership's $9,200,000 mortgage payable which was secured by
Golf Brook Apartments. The mortgage bore interest at a fixed rate of 8.625% and
had a maturity date of August 1, 1997.
On September 12, 1997, the Partnership obtained a mortgage loan from an
insurance company in the amount of $8,500,000. The outstanding balance of the
loan at December 31, 1977 was $8,447,975. The mortgage bears interest at a fixed
rate of 7.32%, is due October 15, 2012 and is secured by the assets of Willow
Lake Apartments. The monthly principal payments are based upon a 15-year
amortization schedule. At maturity, the loan will have been repaid based on the
current rate of amortization. The proceeds from the loan were used to pay off
the Partnership's $8,443,126 mortgage payable which was secured by Willow Lake
Apartments and to fund loan closing costs. The mortgage bore interest at a fixed
rate of 9.20% and had a maturity date of November 1, 1997.
On October 8, 1997, the Partnership obtained a mortgage loan from an insurance
company in the amount of $12,200,000. The outstanding balance of the loan at
December 31, 1997 was $5,000,000. The mortgage bears interest at a fixed rate of
7.74%, is due October 15, 2012 and is secured by the assets of Park Place
Apartments Phase I and Park Place Apartments Phase III (to be constructed). The
remaining $7,200,000 loan proceeds will be advanced during the construction of
Park Place Apartments Phase III as needed in accordance with the loan
agreements. Until the construction of
- 18 -
Liquidity and Capital Resources - Continued
- -------------------------------------------
Park Place Apartments Phase III is complete, the mortgage will require only
monthly interest payments. Upon the completion of Park Place Apartments Phase
III, the monthly principal payments will be based upon a 19-year amortization
schedule. Due to the fact that it is not known when principal payments will
begin, the outstanding balance at maturity can not be determined at this time.
On October 8, 1997, $5,000,000 of the loan proceeds were advanced and used to
pay off the Partnership's approximately $3,950,000 and $950,000 (total of
$4,900,000) mortgages payable, which were secured by Park Place Apartments Phase
I and to fund loan closing costs. The mortgages bore interest at a fixed rate of
8.375% and had maturity dates of October 5, 2002. The remaining $7,200,000 loan
proceeds will be advanced during the construction of Park Place Apartments Phase
III, as needed, in accordance with the loan agreement.
On November 21, 1997 the Partnership obtained two mortgage loans with an
insurance company in the amounts of $2,820,000 and $1,880,000. The outstanding
balances of the loans at December 31, 1997 were $2,820,000 and $1,880,000 for a
total of $4,700,000. Both mortgages bear interest at a fixed rate of 7.38%, are
due December 5, 2012, and are secured by the assets of Sabal Park Apartments.
The monthly principal payments are based upon a 15-year amortization schedule.
At maturity, the mortgage will have been repaid based upon the current rate of
amortization. The proceeds from the loans were used to pay off the Partnership's
mortgages payable in the amounts of approximately $2,800,000 and $1,900,000,
which were secured by Sabal Park Apartments and to fund loan closing costs. The
mortgages bore interest at a fixed rate of 7.25% and had maturity dates of
January 5, 2003.
The majority of the Partnership's cash flow is derived from operating
activities. The decrease in accounts receivable during 1995 represents a
settlement received from the insurance company of the manufacturer of the pipe
fittings which were used in the construction of Willow Lake Apartments. Cash
flows used in investing activities are for tenant finish improvements and other
capital improvements at the Partnership's properties. 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 are determined by the size of the
space and whether the improvements are for a new tenant or incurred because of a
lease renewal. The tenant finish improvements and other capital additions are
funded by cash flow from operations. Cash flows used in investing activities are
also for the purchase of investment securities. As part of its cash management
activities, the Partnership has purchased Certificates of Deposit or securities
issued by the U.S. Government with initial maturities of greater than three
months to improve the return on its cash reserves. The Partnership intends to
hold the securities until maturity. Cash flows provided by investing activities
are derived from the maturity of investment securities. Cash flows used in
financing activities are for cash distributions, principal payments on mortgages
payable, repurchase of limited partnership Units and payment of loan costs. Cash
flows used in financing activities also include cash which has been reserved by
the Partnership for the repurchase of limited partnership Units. 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. The Partnership does not expect any material
changes in the mix and relative cost of capital resources from those in 1997
except for the following: 1) future leasing and tenant finish costs, as
discussed below, 2) changes resulting from the new debt financings obtained by
the Partnership during 1997, as discussed above, and 3) the construction of Park
Place Apartments Phase III, as discussed below.
In the next 12 months, the demand on future liquidity is anticipated to increase
as a result of a 6,474 square feet lease having expired May 1997 at Plainview
Point III Office Center. Currently, the tenant is leasing the space on a
month-to-month basis. At this time, the future leasing and
- 19 -
Liquidity and Capital Resources - Continued
- -------------------------------------------
tenant finish costs which will be required to renew the current lease or obtain
new tenants are unknown. The Partnership also plans to begin, during Spring
1998, the construction of Park Place Apartments Phase III (152 units) on the 15
acres of land it owns which is adjacent to the existing Park Place Apartments in
Lexington, Kentucky. It is currently estimated that the cost of the project will
be $9,000,000. Construction costs will be funded by the $7,200,000 of loan
proceeds, as discussed above, and cash reserves. Through December 31, 1997,
approximately $100,000 of pre-development costs had been incurred. As of
December 31, 1997, the Partnership had no material commitments for renovations
or capital improvements. It is anticipated that the cash flow from operations,
cash reserves and loan proceeds will be sufficient to meet the needs of the
Partnership.
The Partnership has conducted a comprehensive review of its computer systems to
identify the systems that could be affected by the Year 2000 Issue and is
developing an implementation plan to resolve the issue. The Year 2000 Issue, a
worldwide problem, is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Partnership's
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in major systems
failures or miscalculations. The Partnership presently believes that, with
modifications to existing software and conversions to new software, the Year
2000 problem will not pose significant operational problems for the
Partnership's computer systems. The Partnership continues to evaluate
appropriate courses of corrective action, including replacement of certain
systems whose associated costs would be recorded as assets and amortized. The
Partnership does not expect the costs associated with the resolution of the Year
2000 Issue to have a material effect on its financial position or results of
operations. The associated costs will be funded by cash flow from operations or
cash reserves. The amount expensed in 1997 was immaterial.
As of December 31, 1995, the Partnership established an Interest Repurchase
Reserve in the amount of $474,350 pursuant to Section 16.4 of the Partnership's
Amended and Restated Agreement of Limited Partnership. The Partnership elected
to fund additional amounts of $455,380 on May 24, 1996 and $250,000 on October
17, 1996 to its Interest Repurchase Reserve. With these funds, the Partnership
would be able to repurchase up to 4,718 Units at a price of $250 per Unit. On
November 7, 1997, the Partnership elected to fund an additional $300,000 to the
Interest Repurchase Reserve. With this funding, the Partnership will be able to
repurchase up to 1,000 Units at a price of $300 per Unit. Repurchased Units are
retired by the Partnership, thus increasing the share of ownership of each
remaining investor. The Interest Repurchase Reserve was funded from cash
reserves. The above offering price per Unit was established by the General
Partner in its sole discretion and does not purport to represent the fair market
value or liquidation value of the Unit. Through December 31, 1997, the
Partnership has repurchased a total of 4,649 Units for $1,162,250. The amount
remaining in the Interest Repurchase Reserve at December 31, 1997 was $317,480.
The table below presents that portion of the distributions that represent a
return of capital on a Generally Accepted Accounting Principle basis for the
years ended December 31, 1997, 1996 and 1995.
Net Cash
Income(Loss) Distributions Return of
Allocated Declared Capital
--------- -------- -------
Limited Partners:
1997 $ 106,042 $ 853,625 $ 747,583
1996 224,783 886,000 661,217
1995 (324,417) 948,700 948,700
General Partner:
1997 $ 1,071 $ 8,622 $ 7,551
1996 2,271 8,950 6,679
1995 (3,277) 9,583 9,583
- 20 -
Liquidity and Capital Resources - Continued
- -------------------------------------------
In an effort to continue to improve occupancy at the Partnership's residential
properties, the Partnership has an on-site leasing staff, employees of NTS
Development Company, at each of the apartment communities. The staff handles all
on-site visits from potential tenants, coordinates local advertising with NTS
Development Company's marketing staff, makes visits to local companies to
promote fully furnished units and negotiates lease renewals with current
residents.
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 agent's 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. Leases at the office center also provide for
rent increases which are based upon increases in the consumer price index. These
lease provisions, along with the fact that residential leases are generally for
a period of one year, should protect the Partnership's operations from the
impact of inflation and changing prices.
The Partnership owns approximately 15 acres of land, adjacent to the Park Place
Apartments development, in Lexington, Kentucky (Park Place Apartments Phase
III). Included in the cost of approximately $1,800,000 is land cost, capitalized
interest, common area costs, amenity costs and pre-development costs associated
with the construction of Phase III. The Partnership intends to use the land to
construct Park Place Apartments Phase III. It is anticipated that construction
will begin in the Spring of 1998. In management's opinion, the net book value
approximates the fair market value.
Some of the statements included in Item 7, Management's Discussion and Analysis
of Financial Condition and Results of Operations, may be considered to be
"forward-looking statements" since such statements relate to matters which have
not yet occurred. For example, phrases such as "the Partnership anticipates",
"believes" or "expects" indicate that it is possible that the event anticipated,
believed or expected may not occur. Should such event not occur, then the result
which the Partnership expected also may not occur or occur in a different
manner, which may be more or less favorable to the Partnership. The Partnership
does not undertake any obligations to publicly release the result of any
revisions to these forward-looking statements that may be made to reflect any
future events or circumstances.
Any forward-looking statements included in Management's Discussion and Analysis
of Financial Condition and Results of Operations, or elsewhere in this report,
which reflect management's best judgement based on factors known, involve risks
and uncertainties. Actual results could differ materially from those anticipated
in any forward-looking statements as a result of a number of factors, including
but not limited to those discussed below. Any forward-looking information
provided by the Partnership pursuant to the safe harbor established by recent
securities legislation should be evaluated in the context of these factors.
The Partnership's principal activity is the leasing and management of a
commercial office building and apartment complexes. If a major commercial tenant
or a large number of apartment lessees default on their lease, the Partnership's
ability to make payments due under its debt agreements, payment of operating
costs and other partnership expenses would be directly impacted. A lessee's
ability to make payments are subject to risks generally associated with real
estate, many of which are beyond the control of the Partnership, including
general or local economic conditions, competition, interest rates, real estate
tax rates, other operating expenses and acts of God.
- 21 -
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 balance sheets of NTS-Properties VI, a Maryland
Limited Partnership, as of December 31, 1997 and 1996, and the related
statements of operations, partners' equity and cash flows for each of the three
years in the period ended December 31, 1997. These financial statements and the
schedules referred to below are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of NTS-Properties VI, a Maryland
Limited Partnership, as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules included on pages 40
through 42 are presented for purposes of complying with the Securities and
Exchange Commission's rules and are not a required part of the basic financial
statements. These schedules have been subjected to the auditing procedures
applied in our audits of the basic financial statements and, in our opinion,
fairly state in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Louisville, Kentucky
March 6, 1998
- 22 -
NTS-PROPERTIES VI,
A Maryland Limited Partnership
BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996
1997 1996
----------- -----------
ASSETS
Cash and equivalents $ 276,891 $ 640,541
Cash and equivalents - restricted 507,568 390,677
Investment securities 1,562,813 1,085,267
Accounts receivable 111,152 136,394
Land, buildings and amenities, net 38,660,912 40,436,784
Assets held for development, net 1,774,455 1,714,511
Other assets 395,817 367,628
----------- -----------
$43,289,608 $44,771,802
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Mortgages payable $26,872,563 $27,403,056
Accounts payable 195,165 349,168
Distributions payable 213,687 216,692
Security deposits 237,501 250,814
Other liabilities 67,340 52,086
----------- -----------
27,586,256 28,271,816
Commitments and contingencies
Partners' equity 15,703,352 16,499,986
----------- -----------
$43,289,608 $44,771,802
=========== ===========
The accompanying notes to financial statements are an integral part of these
statements.
- 23 -
NTS-PROPERTIES VI,
A Maryland Limited Partnership
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
----------- ----------- -----------
Revenues:
Rental income $ 9,493,634 $ 9,541,311 $ 8,817,265
Interest and other income 114,639 128,950 121,790
----------- ----------- -----------
9,608,273 9,670,261 8,939,055
Expenses:
Operating expenses 2,493,211 2,529,274 2,382,093
Operating expenses - affiliated 1,091,454 1,044,781 1,055,190
Amortization of capitalized leasing
costs 2,244 -- 1,091
Interest expense 2,194,368 2,344,531 2,365,542
Management fees 480,335 485,250 441,861
Real estate taxes 779,214 771,952 746,200
Professional and administrative
expenses 150,846 145,734 141,948
Professional and administrative
expenses - affiliated 300,159 203,818 191,677
Depreciation and amortization 1,910,785 1,917,867 1,941,147
----------- ----------- -----------
9,402,616 9,443,207 9,266,749
----------- ----------- -----------
Income (loss) before extraordinary item 205,657 227,054 (327,694)
Extraordinary item:
Write-off unamortized loan costs (98,544) -- --
----------- ----------- -----------
Net income (loss) $ 107,113 $ 227,054 $ (327,694)
=========== =========== ===========
Net income (loss) allocated to the
limited partners:
Income (loss) before extraordinary item $ 203,600 $ 224,783 $ (324,417)
Extraordinary item (97,558) -- --
----------- ----------- -----------
Net income (loss) $ 106,042 $ 224,783 $ (324,417)
=========== =========== ===========
Net income (loss) per limited
partnership Unit:
Income (loss) before extraordinary item $ 4.76 $ 4.97 $ (6.84)
Extraordinary item (2.28) -- --
----------- ----------- -----------
Net income (loss) $ 2.48 $ 4.97 $ (6.84)
=========== =========== ===========
Weighted average number of limited
partnership units 42,817 45,243 47,435
=========== =========== ===========
The accompanying notes to financial statements are an integral part of these
statements.
- 24 -
NTS-PROPERTIES VI,
A Maryland Limited Partnership
STATEMENTS OF PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Limited General
Partners Partners Total
-------- -------- -----
Balances at December 31, 1994 $ 19,734,350 $ (159,741) $ 19,574,609
Net loss (324,417) (3,277) (327,694)
Distributions declared (948,700) (9,583) (958,283)
------------ ------------ ------------
Balances at December 31, 1995 18,461,233 (172,601) 18,288,632
Net income 224,783 2,271 227,054
Distributions declared (886,000) (8,950) (894,950)
Repurchase of limited partnership
Units (1,120,750) -- (1,120,750)
------------ ------------ ------------
Balances at December 31, 1996 16,679,266 (179,280) 16,499,986
Net income 106,042 1,071 107,113
Distributions declared (853,625) (8,622) (862,247)
Repurchase of limited partnership
Units (41,500) -- (41,500)
------------ ------------ ------------
Balances at December 31, 1997 $ 15,890,183 $ (186,831) $ 15,703,352
============ ============ ============
The accompanying notes to financial statements are an integral part of these
statements.
- 25 -
NTS-PROPERTIES VI,
A Maryland Limited Partnership
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 107,113 $ 227,054 $ (327,694)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Accrued interest on investment securities (4,048) 7,498 (14,875)
Amortization of capitalized leasing costs 2,244 -- 1,091
Write-off unamortized loan costs 98,544 -- --
Depreciation and amortization 1,910,785 1,917,867 1,941,147
Changes in assets and liabilities:
Cash and equivalents - restricted 141,609 (30,047) (71,046)
Accounts receivable 25,242 22,035 223,026
Other assets 2,121 23,436 (94,952)
Accounts payable (154,003) 43,389 40,626
Security deposits (13,313) 15,627 (47,330)
Other liabilities 15,249 30,964 (1,887)
------------ ------------ ------------
Net cash provided by operating activities 2,131,543 2,257,823 1,648,106
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to land, buildings and
amenities (114,598) (103,508) (73,064)
Purchase of investment securities (3,931,387) (3,344,984) (2,642,085)
Maturity of investment securities 3,457,889 3,403,575 1,505,605
------------ ------------ ------------
Net cash used in investing activities (588,096) (44,917) (1,209,544)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgages payable (27,730,493) (249,988) (229,981)
Proceeds from mortgage loans 27,200,000 -- --
Cash distributions (865,252) (917,829) (958,283)
Repurchase of limited partnership Units (41,500) (1,120,750) --
Additions to loan costs (211,352) (92,720) --
Cash and equivalents - restricted (258,500) 415,370 (474,350)
------------ ------------ ------------
Net cash used in financing activities (1,907,097) (1,965,917) (1,662,614)
------------ ------------ ------------
Net increase (decrease) in cash and
equivalents (363,650) 246,989 (1,224,052)
CASH AND EQUIVALENTS, beginning of year 640,541 393,552 1,617,604
------------ ------------ ------------
CASH AND EQUIVALENTS, end of year $ 276,891 $ 640,541 $ 393,552
============ ============ ============
Interest paid on a cash basis $ 2,284,228 $ 2,346,643 $ 2,367,146
============ ============ ============
The accompanying notes to financial statements are an integral part of these
statements.
- 26 -
NTS-PROPERTIES VI,
A Maryland Limited Partnership
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1. Significant Accounting Policies
-------------------------------
A) Organization
------------
NTS-Properties 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 complexes and commercial real estate.
B) Properties
----------
The Partnership owns and operates the following properties:
- 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
- A 96% joint venture interest in Golf Brook Apartments, a 195-
unit luxury apartment complex in Orlando, Florida
- A 95% joint venture interest in Plainview Point III Office
Center, an office center with approximately 62,000 net rentable
square feet located in Louisville, Kentucky
The Partnership also owns approximately 15 acres of land in
Lexington, Kentucky which will be used for the construction of 152
apartments units (Park Place Apartments Phase III). See Note 10
Commitments and Contingencies for further information.
C) 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, 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.
- 27 -
1. Significant Accounting Policies - Continued
-------------------------------------------
C) Allocation of Net Income (Loss) and Cash Distributions - Continued
------------------------------------------------------------------
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; (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.
D) Tax Status
----------
The Partnership has received a ruling from the Internal Revenue
Service stating that the Partnership is classified as a limited
partnership for federal income tax purposes. As such, the
Partnership makes no provision for income taxes. The taxable income
or loss is passed through to the holders of the partnership
interests for inclusion on their individual income tax returns.
A reconciliation of net income (loss) for financial statement
purposes versus that for income tax reporting is as follows:
1997 1996 1995
---------- ---------- ----------
Net income (loss) $107,113 $ 227,054 $(327,694)
Items handled differently
for tax purposes:
Depreciation and
amortization (86,287) (139,371) (195,060)
Capitalized leasing
costs 34,898 34,134 35,750
Write-off of unamortized
tenant improvements -- (11,476) (22,832)
Rental income 37,172 47,278 (18,296)
--------- --------- ---------
Taxable income (loss) $ 92,896 $ 157,619 $ (528,132)
========= ========= =========
E) Use of Estimates in the Preparation of Financial Statements
-----------------------------------------------------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
F) Joint Venture Accounting
------------------------
The Partnership has adopted the proportionate consolidation method
of accounting for joint venture properties. The Partnership's
proportionate interest in the venture's assets, liabilities,
revenues, expenses and cash flows are combined on a line-by-line
basis with the Partnership's own assets, liabilities, revenues,
- 28 -
1. Significant Accounting Policies - Continued
-------------------------------------------
F) Joint Venture Accounting - Continued
------------------------------------
expenses and cash flows. All intercompany accounts and transactions
have been eliminated in consolidation.
Proportionate consolidation is utilized by the Partnership due to
the fact that the ownership of joint venture properties, in
substance, is not subject to joint control. The managing General
Partners of the sole General Partner of the NTS sponsored
partnerships which have formed joint ventures are substantially the
same. As such, decisions regarding financing, development, sale or
operations do not require the approval of different partners.
Additionally, the joint venture properties are in the same
business/industry as their respective joint venture partners and
their asset, liability, revenue and expense accounts correspond
with the accounts of such partner. It is the belief of the General
Partner of the Partnership that the financial statement disclosure
resulting from proportionate consolidation provides the most
meaningful presentation of assets, liabilities, revenues, expenses
and cash flows for the years presented given the commonality of the
Partnership's operations.
G) 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 repurchase of limited partnership Units.
H) Investment Securities
---------------------
Investment securities represent investments in Certificates of
Deposit or securities issued by the U.S. Government with initial
maturities of greater than three months. The investments are
carried at cost which approximates market value. The Partnership
intends to hold the securities until maturity. During 1997 and
1996, the Partnership sold no investment securities. The following
provides details regarding the investments held at December 31,
1997:
Amortized Maturity Value At
Type Costs Date Maturity
---- ------- ------ ---------
Certificate of Deposit $ 222,741 02/03/98 $ 223,805
Certificate of Deposit 205,392 02/12/98 206,654
Certificate of Deposit 101,154 03/02/98 102,042
Certificate of Deposit 101,246 03/12/98 102,272
Certificate of Deposit 205,082 03/27/98 207,639
Certificate of Deposit 125,678 03/30/98 127,336
Certificate of Deposit 150,226 03/30/98 152,215
Certificate of Deposit 150,226 04/06/98 152,373
Certificate of Deposit 100,151 04/15/98 101,718
(Continued on next page)
- 29 -
1. Significant Accounting Policies - Continued
-------------------------------------------
H) Investment Securities
---------------------
Amortized Maturity Value At
Type Costs Date Maturity
---- ------- ------ ---------
Certificate of Deposit $ 100,151 04/30/98 $ 101,944
Certificate of Deposit 100,766 05/08/98 102,569
---------- ---------
$1,562,813 $1,580,567
========== =========
The following provides details regarding the investments held at
December 31, 1996:
Amortized Maturity Value At
Type Costs Date Maturity
---- ------- ------ ---------
FHLB Discount Note $ 204,154 01/30/97 $ 205,000
Federal Farm Credit Bank 127,338 03/03/97 128,394
FNMA Discount Note 227,601 03/18/97 230,000
Certificate of Deposit 401,174 04/01/97 406,204
Certificate of Deposit 125,000 05/01/97 127,072
--------- ---------
$1,085,267 $1,096,670
========= =========
I) Basis of Property and Depreciation
----------------------------------
Land, buildings and amenities are stated at cost to the
Partnership. Costs directly associated with the acquisition,
development and construction of a project are capitalized.
Depreciation is computed using the straight-line method over the
estimated useful lives of the assets which are 5-30 years for land
improvements, 5-30 years for building and improvements, 5-30 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
must be written down to fair value. Application of this standard
during the years ended December 31, 1997 and 1996 did not result in
an impairment loss.
J) Capitalized Leasing Costs
-------------------------
The Partnership has capitalized certain costs associated with the
initial leasing of the properties. These costs are being amortized
over a five year period.
- 30 -
1. Significant Accounting Policies - Continued
-------------------------------------------
K) Rental Income and Deferred Leasing Commissions
----------------------------------------------
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 $75,984 and $98,024 at
December 31, 1997 and 1996, respectively. All commissions paid to
commercial leasing agents are deferred and amortized over the term of
the lease to which they apply.
L) Advertising
-----------
The Partnership expenses advertising-type costs as incurred.
Advertising expense was immaterial to the Partnership during the years
ended December 31, 1997, 1996 and 1995.
M) Statements of Cash Flows
------------------------
For purposes of reporting cash flows, cash and equivalents include
cash on hand and short-term, highly liquid investments with initial
maturities of three months or less.
2. Concentration of Credit Risk
----------------------------
The Partnership owns and operates, either wholly or through a joint
venture, residential properties in Kentucky (Louisville and Lexington),
Indiana (Indianapolis) and Florida (Orlando). The apartment unit is
generally the principal residence of the tenant. The Partnership also owns
and operates, through a joint venture, a commercial property in
Louisville, Kentucky. Substantially all of the tenants are local
businesses or are businesses which have operations in the Louisville area.
3. Investment in Joint Ventures
----------------------------
A) NTS Sabal Golf Villas Joint Venture
-----------------------------------
In 1985, the Partnership entered into a joint venture agreement with
NTS-Properties IV to develop and construct a 158-unit luxury apartment
complex on a 13.15-acre site located in Orlando, Florida, known as
Golf Brook Apartments Phase I. NTS-Properties IV contributed land
valued at $1,900,000 with an outstanding note payable to a bank of
$1,200,000 which was secured by the land. The Partnership contributed
the construction and carrying costs of the apartment complex.
In 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
Partnership contributed land, construction costs, and the cost of the
initial leasing of this second phase.
The Partnership made contributions of approximately $15,800,000 for
construction and carrying costs and retired the $1,200,000 note
payable in 1987, which increased the Partnership's percentage interest
in the joint venture.
The net income and net loss is allocated based on the respective
partnership's contribution as of the end of each calendar quarter. The
Partnership's ownership share was 96% at December 31, 1997. The
Partnership's share of the joint venture's net operating income was
$965,860 (1997) $1,023,900 (1996) and $1,058,691 (1995).
- 31 -
3. Investment in Joint Ventures - Continued
----------------------------------------
B) Plainview Point III Joint Venture
---------------------------------
In 1987, the Partnership entered into a joint venture agreement with
NTS-Properties IV to develop and construct an approximately 62,000
square foot office building located in Louisville, Kentucky known as
Plainview Point III Office Center.
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 contributed the construction and carrying
costs of the complex. The Partnership made contributions of
approximately $4,100,000 million for construction and carrying costs
and retired the $550,000 note payable in 1987, which increased the
Partnership's percentage interest in the joint venture. The net income
and net loss is allocated based on the respective partnership's
contribution as of the end of each calendar quarter. The Partnership's
ownership share was 95% at December 31, 1997. The Partnership's share
of the joint venture's net operating income (loss) was $(67,267)
(1997), $(31,953) (1996) and $12,423 (1995).
4. Land, Buildings and Amenities
-----------------------------
The following schedule provides an analysis of the Partnership's
investment in property held for lease as of December 31:
1997 1996
------ ------
Land and improvements $14,863,568 $14,863,110
Buildings, improvements and
amenities 46,659,837 46,648,416
----------- -----------
61,523,405 61,511,526
Less accumulated depreciation 22,862,493 21,074,742
----------- -----------
$38,660,912 $40,436,784
=========== ===========
5. Assets Held for Development
---------------------------
The Partnership owns approximately 15 acres of land, adjacent to the Park
Place Apartments development, in Lexington, Kentucky which will be used
for the construction of 152 apartment units (Park Place Apartments Phase
III). See Note 10 Commitments and Contingencies for further discussion.
Included in the cost of approximately $1,780,000 is land cost, capitalized
interest, common area costs, amenity costs and pre- development costs
associated with the construction of Phase III.
6. Interest Repurchase Reserve
---------------------------
As of December 31, 1995, the Partnership had established an Interest
Repurchase Reserve in the amount of $474,350 pursuant to Section 16.4 of
the Partnership's Amended and Restated Agreement of Limited Partnership.
The Partnership elected to fund additional amounts of $455,380 on May 24,
1996 and $250,000 on October 17, 1996 to its Interest Repurchase Reserve.
With these funds, the Partnership would be able to repurchase up to 4,718
Units at a price of $250 per Unit. On November 7, 1997, the Partnership
elected to fund an additional $300,000 to the Interest Repurchase Reserve.
With this funding, the Partnership will be able to repurchase an
additional 1,000 Units at a price of $300 per Unit. Repurchased Units are
retired by the Partnership, thus increasing the share of ownership of each
remaining investor. The Interest Repurchase Reserve was funded from cash
reserves. The above offering price per Unit was established by the General
Partner in its sole discretion and does not purport to represent fair
market value or liquidation value of the Unit. Through December 31, 1997,
the Partnership has repurchased a total of 4,649 Units for $1,162,250. The
amount remaining in the Interest Repurchase Reserve at December 31, 1997
was $317,480.
- 32 -
7. Mortgages Payable
-----------------
Mortgages payable as of December 31 consist of the following:
1997 1996
------ ------
Mortgage payable with an insurance
company bearing interest at 7.43%,
due May 14, 2009 secured by
certain land, buildings and
amenities $ 8,724,588 $ --
Mortgage payable with an insurance
company bearing interest at 7.32%,
due October 15, 2012 secured by
certain land, buildings and
amenities 8,447,975 --
Mortgage payable with an insurance
company bearing interest at 7.74%,
due October 15, 2012 secured by
certain land, buildings and
amenities 5,000,000 --
Mortgage payable with an insurance
company bearing interest at 7.38%,
due December 5, 2012 secured by
certain land, buildings and
amenities 2,820,000 --
Mortgage payable with an insurance
company bearing interest at 7.38%,
due December 5, 2012 secured by
certain land, buildings and
amenities 1,880,000 --
Mortgage payable with an insurance
company bearing interest at 8.625%,
due August 1, 1997 secured by
certain land, buildings and
amenities -- 9,200,000
Mortgage payable with an insurance
company bearing interest at 9.20%,
due November 1, 1997 secured by
certain land, buildings and
amenities -- 8,527,771
Mortgage payable with an insurance
company bearing interest at 8.375%,
due October 5, 2002 secured by
certain land, buildings and
amenities -- 3,994,992
Mortgage payable with an insurance
company bearing interest at 8.375%,
due October 5, 2002 secured by
certain land, buildings and
amenities -- 951,189
(Continued on next page)
- 33 -
7. Mortgages Payable - Continued
-----------------------------
1997 1996
------ ------
Mortgage payable with an insurance
company bearing interest at 7.25%,
due January 5, 2003 secured by
certain land, buildings and
amenities $ -- $ 2,837,462
Mortgage payable to an insurance
company, bearing interest at 7.25%,
due January 5, 2003 secured by
certain land, buildings and
amenities -- 1,891,642
---------- ----------
$26,872,563 $27,403,056
========== ==========
The mortgages are payable in aggregate monthly installments of $263,494
which includes principal, interest, property taxes and insurance.
Scheduled maturities of debt are as follows:
For the Years Ended December 31, Amount
-------------------------------- ------
1998 $ 1,010,042
1999 1,087,216
2000 1,245,523
2001 1,386,160
2002 1,492,555
Thereafter 20,651,067
-----------
$26,872,563
===========
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 $27,000,000.
The mortgage payable with an outstanding balance of $5,000,000 as of
December 31, 1997 has an additional availability of $7,200,000. The
proceeds will be used to fund the construction of Park Place Apartments
Phase III. See Note 10 Commitments and Contingencies for further
information.
The 1997 write-off of unamortized loan costs (treated as an extraordinary
item) relates to loan costs associated with the Golf Brook, Park Place
Phase I, Willow Lake and Sabal Park Apartments mortgages payable. The
unamortized loan costs were expensed due to the fact that the mortgages
were retired in 1997 prior to their scheduled maturities - August 1,
1997, October 5, 2002, November 1, 1997 and January 5, 2003, respectively
- as a result of new financing being obtained during 1997.
- 34 -
8. Rental Income Under Operating Leases
------------------------------------
The following is a schedule of minimum future rental income on
noncancellable operating leases as of December 31, 1997:
For the Years Ended December 31, Amount
-------------------------------- ------
1998 $ 610,792
1999 471,242
2000 371,592
2001 126,912
2002 --
Thereafter --
-----------
$ 1,580,538
===========
9. Related Party Transactions
--------------------------
Pursuant to an agreement with the Partnership, property management fees
of $480,335 (1997), $485,250 (1996) and $441,861 (1995) were paid to NTS
Development Company, an affiliate of the General Partner. The fee is
equal to 5% and 6% of gross revenues from the residential properties and
commercial properties, respectively. Also pursuant to an agreement, NTS
Development Company will receive a repair and maintenance fee equal to
5.9% of costs incurred which relate to capital improvements and major
repair and renovation projects. The Partnership has incurred $252 (1997),
$862 (1996) and $6,200 (1995) as a repair and maintenance fee and has
capitalized these costs 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, 1997, 1996 and 1995. These
charges include items which have been expensed as operating expenses -
affiliated or professional and administrative expenses - affiliated and
items which have been capitalized as other assets or as land, buildings
and amenities.
1997 1996 1995
---------- ---------- ----------
Administrative $ 359,864 $ 258,101 $ 245,369
Property manager 838,536 792,366 786,667
Leasing 191,370 212,358 229,309
Other 66,876 4,471 9,285
--------- --------- ---------
$1,456,646 $1,267,296 $1,270,630
========= ========= =========
10. Commitments and Contingencies
-----------------------------
The Partnership plans to begin, during Spring 1998, the construction of
Park Place Apartments Phase III (152 units) on the 15 acres of land it
owns which is adjacent to the existing Park Place Apartments in
Lexington, Kentucky. It is currently estimated that the cost of the
project will be $9,000,000. Construction costs will be funded by the
remaining loan proceeds ($7,200,000) of a mortgage loan obtained during
1997 and cash reserves. Through December 31, 1997, approximately $100,000
of pre-development costs had been incurred.
- 35 -
Item 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure
--------------------
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
Because the Partnership is a limited partnership and not a corporation, it has
no directors or officers as such. Management of the Partnership is the
responsibility of the General Partner, NTS-Properties Associates 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 56) is the managing General Partner of NTS-Properties
Associates VI and Chairman of the Board of NTS Corporation (since 1985) and NTS
Development Company (since 1977).
Richard L. Good
- ---------------
Mr. Good, (age 58) President and Chief Operating Officer of NTS Corporation and
President of NTS Development Company and Chairman of the Board of NTS
Securities, Inc., joined the Manager in January 1985. From 1981 through 1984, he
was Executive Vice President of Jacques-Miller, Inc., a real estate syndication,
property management and financial planning firm in Nashville, Tennessee.
NTS Capital Corporation
- -----------------------
NTS Capital Corporation (formerly NTS Corporation) is a Kentucky corporation
formed in October 1979. J. D. Nichols is Chairman of the Board and the sole
director of NTS Capital Corporation.
The Manager of the Partnership's properties is NTS Development Company, the
executive officers and/or directors of which are Messrs. J. D. Nichols, Richard
L. Good, Brian F. Lavin and John W. Hampton.
Brian F. Lavin
- --------------
Mr. Lavin (age 44) serves as Executive Vice President of NTS Development Company
and President of the Company's Income Properties. As such, Mr. Lavin is
responsible for all NTS commercial real estate development, land acquisitions
and oversees the management of all commercial office buildings, business centers
and multi-family residential communities. Prior to joining NTS, Mr. Lavin served
as President of the Residential Division of Paragon Group, Inc., and as a Vice
President of Paragon's Midwest Division. In this capacity, he directed the
development, marketing, leasing and management operations for the 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.
- 36 -
Item 10. Directors and Executive Officers of the Registrant - Continued
--------------------------------------------------------------
John W. Hampton
- ---------------
John W. Hampton (age 47) is Senior Vice President of NTS Corporation with
responsibility for all accounting operations. Before joining NTS in March 1991,
Mr. Hampton was Vice President - Finance and Chief Financial Officer of the
Sturgeon-Thornton-Marrett Development Company in Louisville, Kentucky for nine
years. Prior to that he was with Alexander Grant & Company CPA's. Mr. Hampton is
a Certified Public Accountant and a graduate of the University of Louisville
with a Bachelor of Science degree in Commerce. He is a member of the American
Institute of CPA's and the Kentucky Society of CPA's.
Item 11. Management Remuneration and Transactions
----------------------------------------
The officers and/or directors of the corporate General Partner receive no direct
remuneration in such capacities. The Partnership is required to pay a property
management fee based on gross rentals to NTS Development Company, an affiliate
of the General Partner. The Partnership is also required to pay to NTS
Development Company a repair and maintenance fee on costs related to specific
projects. Also, NTS Development Company provides certain other services to the
Partnership. See Note 9 to the financial statements which sets forth
transactions with NTS Development Company for the years ended December 31, 1997,
1996 and 1995.
The General Partner is entitled to receive cash distributions and allocations of
profits and losses from the Partnership. See Note 1C to the financial statements
which describes the methods used to determine income allocation and cash
distributions.
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
The 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 38.60%
10172 Linn Station Road
Louisville, Kentucky 40223
NTS Capital Corporation 9.95%
10172 Linn Station Road
Louisville, Kentucky 40223
Richard L. Good 10.00%
10172 Linn Station Road
Louisville, Kentucky 40223
The remaining 41.45% interests are owned by various limited partners of NTS-
Properties Associates VI.
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
Pursuant to an agreement with the Partnership, property management fees of
$480,335 (1997), $485,250 (1996) and $441,861 (1995) were paid to NTS
Development Company, an affiliate of the General Partner. The fee is equal to 5%
and 6% of gross revenues from the residential properties and commercial
properties, respectively. Also pursuant to an agreement, NTS Development Company
will receive a repair and maintenance fee equal to 5.9% of costs incurred which
relate to capital improvements and major repair and renovation projects. The
Partnership has incurred $252 (1997), $862 (1996)
- 37 -
Item 13. Certain Relationships and Related Transactions - Continued
----------------------------------------------------------
and $6,200 (1995) as a repair and maintenance fee and has capitalized these
costs 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, 1997, 1996 and 1995. These charges include items which have been expensed as
operating expenses - affiliated or professional and administrative expenses -
affiliated and items which have been capitalized as other assets or as land,
buildings and amenities.
1997 1996 1995
---------- ---------- ----------
Administrative $ 359,864 $ 258,101 $ 245,369
Property manager 838,536 792,366 786,667
Leasing 191,370 212,358 229,309
Other 66,876 4,471 9,285
--------- --------- ---------
$1,456,646 $1,267,296 $1,270,630
========= ========= =========
There are no other agreements or relationships between the Partnership, the
General Partner and its affiliates than those previously described.
- 38 -
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
---------------------------------------------------------------
1. Financial statements
The financial statements for the years ended December 31, 1997, 1996 and
1995 together with the report of Arthur Andersen LLP, dated March 6,
1998, appear in Item 8. The following financial statement schedules
should be read in conjunction with such financial statements.
2. Financial statement schedules
Schedules: Page No.
---------- --------
III-Real Estate and Accumulated Depreciation 40-42
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 *
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 and *
Construction Agreement between
NTS Development Company and
NTS-Properties VI, a Maryland
limited partnership
27. Financial Data Schedule Included
herewith
* Incorporated by reference to documents filed with the Securities
and Exchange Commission in connection with the filing of the
Registration Statements on Form S-11 on 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
Form 8-K, dated November 7, 1997, was filed to report in Item 5 the fact
that the Partnership has elected to fund an additional amount of
$300,000 to its Interest Repurchase Reserve.
- 39 -
NTS-PROPERTIES VI
A Maryland Limited Partnership
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1997
Park Place
Sabal Park Apartments Willow Lake
Apartments Phase I Apartments
---------- ---------- -----------
Encumbrances (A) (B) (B)
Initial cost to partnership:
Land $ 3,063,046 $ 2,320,938 $ 3,770,328
Buildings and improvements 8,417,719 9,630,935 12,616,655
Cost capitalized subsequent to
acquisition
Improvements 23,981 36,585 197,661
Gross amount at which carried
December 31, 1997:(C)
Land $ 3,063,046 $ 2,333,428 $ 3,770,328
Buildings and improvements 8,441,700 9,655,030 12,814,316
----------- ----------- -----------
Total $11,504,746 $11,988,458 $16,584,644
=========== =========== ===========
Accumulated depreciation $ 4,746,256 $ 4,473,789 $ 5,862,834
=========== =========== ===========
Date of construction 06/84 04/84 03/85
Date Acquired N/A N/A N/A
Life at which depreciation in
latest income statement is
computed (D) (D) (D)
(A) First mortgages held by two insurance companies.
(B) First mortgage held by an insurance company.
(C) Aggregate cost of real estate for tax purposes is $71,468,175.
(D) Depreciation is computed using the straight-line method over the estimated
useful lives of the assets which are 5-30 years for land improvements, 5-30
years for buildings and improvements and 5-30 years for amenities.
- 40 -
NTS-PROPERTIES VI
A Maryland Limited Partnership
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1997
Plainview
Golf Brook Point III Total
Apartments Office Center Pages 40-41
---------- ------------- -----------
Encumbrances (A) (B)
Initial cost to partnership:
Land $ 4,384,363 $ 1,268,339 $14,807,014
Buildings and improvements 12,302,319 2,270,729 45,238,357
Cost capitalized subsequent to
acquisition
Improvements 82,613 1,137,194 1,478,034
Gross amount at which carried
December 31, 1997:
Land $ 4,405,811 $ 1,290,955 $14,863,568
Buildings and improvements 12,363,484 3,385,307 46,659,837
----------- ----------- -----------
Total $16,769,295 $ 4,676,262 $61,523,405
=========== =========== ===========
Accumulated depreciation $ 5,954,694 $ 1,824,920 $22,862,493
=========== =========== ===========
Date of construction 05/88 01/88
Date Acquired N/A N/A
Life at which depreciation in
latest income statement is
computed (C) (C)
(A) First mortgage held by an insurance company.
(B) None.
(C) Depreciation is computed using the straight-line method over the estimated
useful lives of the assets which are 5-30 years for land improvements, 5-30
years for buildings and improvements and 5-30 years for amenities.
- 41 -
NTS-PROPERTIES VI,
A Maryland Limited Partnership
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Real Accumulated
Estate Depreciation
------------ ------------
Balances at December 31, 1994 $ 61,451,099 $ 17,579,027
Additions during period:
Improvements (a) 141,550 --
Depreciation (b) -- 1,815,820
Deductions during period:
Retirements (47,384) (45,854)
------------ ------------
Balances at December 31, 1995 61,545,265 19,348,993
Additions during period:
Improvements (a) 39,297 --
Depreciation (b) -- 1,797,649
Deductions during period:
Retirements (73,036) (71,900)
------------ ------------
Balances at December 31, 1996 61,511,526 21,074,742
Additions during period:
Improvements (a) 18,912 --
Depreciation (b) -- 1,794,784
Deductions during period:
Retirements (7,033) (7,033)
------------ ------------
Balances at December 31, 1997 $ 61,523,405 $ 22,862,493
============ ============
(a) The additions to real estate on this schedule will differ from the
expenditures for land, buildings and amenities on the Statements of Cash
Flows as a result of minor changes in the Partnership's joint venture
investment ownership percentages. Changes that may occur in the ownership
percentages are less than one percent.
(b) The additions charged to accumulated depreciation on this schedule will
differ from the depreciation and amortization on the Statements of Cash
Flows due to the amortization of loan costs and depreciation of a portion
of assets held for development.
- 42 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, NTS-Properties VI, a Maryland Limited Partnership, 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/ John W. Hampton
-------------------
John W. Hampton
Senior Vice President
Date: March 23, 1998
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
Form 10-K has been signed below by the following persons on behalf of the
registrant in their capacities and on the date indicated above.
Signature Title
/s/ J. D. Nichols General Partner of NTS-Properties
- ----------------- Associates VI and Chairman of the
J. D. Nichols Board and Sole Director of NTS
Capital Corporation
/s/ Richard L. Good General Partner of NTS-Properties
- ------------------- Associates VI and President of NTS
Richard L. Good Capital Corporation
/s/ John W. Hampton Senior Vice President of NTS Capital
- ------------------- Corporation
John W. Hampton
The Partnership is a limited partnership and no proxy material has been sent to
the limited partners.
- 43 -