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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-17589
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NTS-PROPERTIES VII, LTD
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Florida 61-1119232
- ---------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
10172 Linn Station Road
Louisville, Kentucky 40223
- ---------------------------------- ----------------------------------
(Address of principal (Zip Code)
executive offices)
(502) 426-4800
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
- --------------------------------------------------------------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of the Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
TABLE OF CONTENTS
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PART I
------
Pages
-----
Items 1. and 2. Business and Properties 3-10
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 10
PART II
-------
Item 5. Market for the Registrant's Limited Partnership
Interests and Related Partner Matters 11
Item 6. Selected Financial Data 12
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13-19
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk 20
Item 8. Financial Statements and Supplementary Data 21-44
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 45
PART III
--------
Item 10. Directors and Executive Officers of the Registrant 46
Item 11. Management Remuneration and Transactions 47
Item 12. Security Ownership of Certain Beneficial
Owners and Management 47-48
Item 13. Certain Relationships and Related Transactions 48-49
PART IV
-------
Item 14. Exhibits, Consolidated Financial Statement Schedules
and Reports on Form 8-K 50-52
Signatures 53
2
PART I
------
Items 1. and 2. Business and Properties
-----------------------
Development of Business
- -----------------------
NTS-Properties VII, Ltd., a Florida limited partnership (the "Partnership"), was
formed in 1987. The General Partner is NTS-Properties Associates VII, a Kentucky
limited partnership. As of December 31, 2000, the Partnership owned the
following properties and joint venture interest:
* The Park at the Willows, a 48-unit luxury apartment complex located on
a 2.8 acre tract in Louisville, Kentucky, acquired complete by the
Partnership.
* Park Place Apartments Phase II, a 132-unit luxury apartment complex
located on an 11 acre tract in Lexington, Kentucky, constructed by the
Partnership.
* A joint venture interest in Blankenbaker Business Center 1A, a
business center with approximately 50,000 net rentable ground floor
square feet and approximately 50,000 net rentable mezzanine square
feet, located in Louisville, Kentucky, acquired complete by the joint
venture between the Partnership and NTS-Properties Plus Ltd., an
affiliate of the General Partner of the Partnership. The joint venture
agreement was amended to admit NTS- Properties IV., Ltd., an affiliate
of the General Partner of the Partnership, ("NTS-Properties IV")
during 1994. The Partnership's percentage interest in the joint
venture was 31.34% at December 31, 2000.
The Partnership or the joint venture in which the Partnership is a partner has a
fee title interest in the above properties. In the opinion of the Partnership's
management, the properties are adequately covered by insurance.
As of December 31, 2000, the Partnership's properties or joint venture were
encumbered by mortgages as shown in the table below:
Interest Maturity Balance
Property Rate Date at 12/31/00
- -------- ---- ---- -----------
Park Place Apartments Phase II 7.37% 10/15/12 (1) $3,756,533
Blankenbaker Business Center 1A 8.50% 11/15/05 (2) $2,697,393
(1) Monthly principal payments are based upon a 19-year amortization schedule.
The outstanding principal balance at maturity based on the current rate of
amortization will be $1,435,723.
(2) Current monthly principal payments are based upon an 11-year amortization
schedule. At maturity, the mortgage will have been repaid based on the
current rate of amortization.
The Park at the Willows was not encumbered by any outstanding mortgages at
December 31, 2000.
3
Financial Information About Industry Segments
- ---------------------------------------------
The Partnership is presently engaged solely in the business of developing,
constructing, owning and operating residential apartments. A presentation of
information concerning industry segments is not applicable. See Part II, Item 8
- - Note 8 for information regarding the Partnership's operating segments.
Narrative Description of Business
- ---------------------------------
General
- -------
The current business of the Partnership is consistent with the original purpose
of the Partnership which was to acquire, directly or by joint venture,
unimproved or partially improved land, to construct and otherwise develop
thereon apartment complexes or commercial properties, and to own and operate the
completed properties. The original purpose also includes the ability of the
Partnership to invest in fully improved properties, either directly or by joint
venture. 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.
Description of Real Property
- ----------------------------
The Park at the Willows
- -----------------------
All units in The Park at the Willows are loft, studio or deluxe one-bedroom
apartments. All units have wall- to-wall carpeting, individually controlled
heating and air conditioning, dishwashers, ranges, refrigerators with ice
makers, garbage disposals and microwave ovens. Loft and deluxe units have
washer/dryer hook- ups. In addition, pursuant to an agreement with the Willows
of Plainview apartment community, which was developed adjacent to The Park at
the Willows and is owned by NTS-Properties IV and NTS-Properties V, two publicly
registered limited partnerships sponsored by an affiliate of the General
Partner, tenants of The Park at the Willows have access to and use of the
coin-operated washer/dryer facilities, clubhouse, management offices, swimming
pool, whirlpool and tennis courts at The Willows of Plainview. The Partnership
shares proportionately in the cost of maintaining and operating these
facilities.
Monthly rental rates at The Park at the Willows start at $604 for studio
apartments, $689 for deluxe units and $739 for lofts, with additional monthly
rental amounts for special features and locations. Tenants pay all costs of
heating, air conditioning and electricity. Most leases are for a period of one
year. Units will be rented in some cases, however, on a shorter term basis at an
additional charge. The occupancy levels at the apartment complex as of December
31 were 90% (2000), 81% (1999), 77% (1998), 96% (1997) and 83% (1996). See Part
II, Item 7 for average occupancy information.
4
Park Place Apartments Phase II
- ------------------------------
Units at Park Place Apartments Phase II include one-bedroom 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. Each unit
has either a washer/dryer hook-up or access to coin-operated washers and dryers.
Amenities include the clubhouse with a party room, swimming pool, tennis courts,
racquetball courts, exercise facility and management offices. The amenities are
shared with Phase I and Phase III of the Park Place Development which were
developed and constructed by NTS-Properties VI, an affiliate of the General
Partners. The cost to construct and operate the common amenities is shared
proportionately by each phase.
Monthly rental rates at Park Place Apartments Phase II start at $769 for
one-bedroom apartments, $1,009 for two-bedroom apartments and $1,169 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 77% (2000), 86%
(1999), 85% (1998), 92% (1997) and 90% (1996). See Part II, Item 7 for average
occupancy information.
Blankenbaker Business Center Joint Venture
- ------------------------------------------
Sykes HealthPlan Service Bureau, Inc. ("SHPS, Inc.") has leased 100% of the
Blankenbaker Business Center 1A building. The annual base rent, which does not
include the cost of utilities, is $7.48 per square foot. The lease term is for
11 years and expires on July 2005. SHPS, Inc. is a professional service oriented
organization which deals in insurance claim processing. The lease provides for
the tenant to contribute toward the payment of common area expenses, insurance
and real estate taxes. The occupancy level at the business center as of December
31, 2000, 1999, 1998, 1997 and 1996 was 100%. See Part II, Item 7 for average
occupancy information.
The following table contains approximate data concerning the lease in effect on
December 31, 2000:
Square Feet Current Annual
Year of and % of Rental
Tenant Expiration Net Rentable Area (1) per Square Foot
------ ---------- --------------------- ---------------
SHPS, Inc. 2005 100,640 $7.48
(1) Rentable area includes ground floor and mezzanine square feet.
It has previously been reported that SHPS, Inc. intended to consolidate its
operations and build its corporate headquarters in Jefferson County, Kentucky.
SHPS, Inc. occupies 100% of Blankenbaker Business Center 1A. The Partnership
believes that SHPS, Inc. no longer intends to build a corporate headquarters. As
of December 31, 2000, it is the Partnership's understanding that SHPS, Inc.,
intends to occupy the space at Blankenbaker Business Center 1A through the
duration of its lease term, which expires in July 2005.
5
Blankenbaker Business Center Joint Venture - Continued
- ------------------------------------------------------
Additional operating data regarding the Partnership's properties and joint
venture is furnished in the following table:
Federal Realty Annual
Tax Basis Tax Rate Realty Taxes
--------- -------- ------------
Wholly-Owned Properties
- -----------------------
The Park at the Willows $ 2,611,952 .010720 $ 16,599
Park Place Apartments Phase II $ 9,744,063 .009685 $ 71,413
Property Owned in Joint Venture
- -------------------------------
with NTS-Properties IV and
- --------------------------
NTS-Properties Plus Ltd.
- -----------------------
Blankenbaker Business Center 1A $ 7,354,221 .010520 $ 54,677
Depreciation for book purposes is computed using the straight-line method over
the estimated useful lives of the assets which are 7-30 years for land
improvements, 5-30 years for buildings and improvements and 5-30 years for
amenities. There are currently no planned renovations which would have an impact
on realty taxes.
Investment in Joint Venture
- ---------------------------
The Emerging Issues Tasks Force ("EITF") of the Financial Accounting Standards
Board ("FASB") has reached a consensus on Issue No. 00-1, "Applicability of the
Pro Rata Method of Consolidation to Investments in Certain Partnerships and
Other Unincorporated Joint Ventures." The EITF reached a consensus that a
proportionate gross financial statement presentation (referred to as
"proportionate consolidation" in the Notes to Financial Statements) is not
appropriate for an investment in an unincorporated legal entity accounted for by
the equity method of accounting, unless the investee is in either the
construction industry or an extractive industry where there is a longstanding
practice of its use.
The consensus is applicable to financial statements for annual periods ending
after June 15, 2000. The Partnership now uses the equity method to account for
its joint venture investment for the year ending December 31, 2000. The
Partnership has applied the consensus to all comparative financial statements,
restating them to conform with the consensus for all periods presented. The
application of this consensus did not result in a restatement of previously
reported partners' equity or net results of operations, but did result in a
recharacterization or reclassification of certain financial statements' captions
and amounts.
Blankenbaker Business Center Joint Venture
- ----------------------------------------------
On December 28, 1990, the Partnership entered into a joint venture agreement
with NTS-Properties Plus Ltd. to own and operate Blankenbaker Business Center 1A
and to acquire an approximately 2.49 acre parking lot that was being leased by
the business center from an affiliate of the General Partner. The use of the
parking lot is a provision of the tenants lease agreement with the business
center. On August 16, 1994, the Blankenbaker Business Center Joint Venture
Agreement was amended to admit NTS-Properties IV to the joint venture. The terms
of the joint venture shall continue until dissolved. Dissolution shall occur
upon, but not before, the first to occur of the following:
6
Investment in Joint Venture - Continued
- ---------------------------------------
Blankenbaker Business Center Joint Venture - Continued
- ------------------------------------------------------
(a) the withdrawal, bankruptcy or dissolution of a Partner or the
execution by a Partner of an assignment for the benefit of its
creditors;
(b) the sale, condemnation or taking by eminent domain of all or
substantially all of the assets of the Real Property and Parking Lot
and the sale and/or collection of any evidences of indebtedness
received in connection therewith;
(c) the vote or consent of each of the Partners to dissolve the
Partnership; or
(d) December 31, 2030.
In 1990 when the joint venture was originally formed, the Partnership
contributed $450,000 which was used for additional tenant improvements to the
business center and made a capital contribution to the joint venture of $325,000
to purchase the 2.49 acre parking lot. The additional tenant improvements were
made to the business center and the parking lot was purchased in 1991.
NTS-Properties Plus Ltd. contributed Blankenbaker Business Center 1A together
with improvements and personal property subject to mortgage indebtedness of
$4,715,000. During November 1994, this note payable was replaced with permanent
financing in the amount of $4,800,000. The outstanding balance at December 31,
2000 was $2,697,393. The mortgage is recorded as a liability of the joint
venture. The mortgage bears interest at a fixed rate of 8.5% and is due November
15, 2005. Currently monthly principal payments are based upon an 11-year
amortization schedule. At maturity, the mortgage will have been repaid based on
the current rate of amortization.
On April 28, 1994, the joint venture obtained $1,100,000 in debt financing to
fund a portion of the tenant finish and leasing costs which were associated with
the SHPS, Inc. lease renewal and expansion. The $1,100,000 note bore interest at
the Prime Rate +1.5%. In order for the joint venture to obtain the $4,800,000 of
permanent financing discussed above, it was necessary for the joint venture to
seek an additional joint venture partner to provide the funds necessary for the
tenant finish and leasing costs instead of debt financing. See the following
paragraph for information regarding the new joint venture partner. The
$1,100,000 note was retired in August 1994. This resulted in the joint venture's
debt being at a level where permanent financing could be obtained and serviced.
On August 16, 1994, the Partnership contributed $500,000 and NTS-Properties IV
contributed $1,100,000 in accordance with the agreement to amend the joint
venture. The need for additional capital by the joint venture was a result of
the lease renewal and expansion which was signed April 28, 1994 between the
joint venture and SHPS, Inc. The Partnership was not in a position to contribute
all of the capital required for the project, nor was NTS-Properties Plus Ltd. in
a position to contribute additional capital. NTS-Properties Plus Ltd. agreed to
the admission of NTS-Properties IV to the joint venture and to the capital
contributions by NTS-Properties IV and the Partnership with the knowledge that
its joint venture interest would, as a result, decrease. See the following
paragraph for a discussion of how the revised interests in the joint venture
were calculated with the admission of NTS-Properties IV. With this expansion,
SHPS, Inc. occupied 100% of the business center.
7
Investment in Joint Venture - Continued
- ---------------------------------------
In order to calculate the revised joint venture percentage interests, the assets
of the joint venture were revalued in connection with the admission of
NTS-Properties IV as a joint venture partner and the additional capital
contributions. The value of the joint venture's assets immediately prior to the
additional capital contributions was $6,764,322 and its outstanding debt was
$4,650,042, with net equity being $2,114,280. The difference between the value
of the joint venture's assets and the value at which they were carried on the
books of the joint venture was allocated to the Partnership and NTS-Properties
Plus Ltd. in determining each joint venture partner's percentage interest.
The Partnership's interest in the joint venture remained at 31.34%.
NTS-Properties Plus Ltd.'s interest in the joint venture decreased from 68.66%
to 39.05% as a result of the capital contributions by NTS-Properties IV and the
Partnership. NTS-Properties IV obtained a 29.61% interest in the joint venture
as a result of its capital contribution.
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
for any period shall mean the excess, if any of (A) the sum of (i) the gross
receipts of the joint venture property for such period, other than capital
contributions plus (ii) any funds released by the Partners from previously
established reserves (referred to in clause (B) (iv) below), over (B) the sum of
(i) all cash operating expenses paid by the joint venture property during such
period in the course of business, (ii) capital expenditures paid in cash during
such period, (iii) payments during such period on account of amortization of the
principal of any debts or liabilities of the joint venture property and (iv)
reserves for contingent liabilities and future expenses of the joint venture
property as established by the Partners; provided, however, that the amounts
referred to in (B) (i), (ii) and (iii) above shall only be taken into account to
the extent not funded by capital contributions or paid out of previously
established reserves. Percentage Interest means that percentage which the
capital contributions of a Partner bears to the aggregate capital contributions
of all the Partners.
Net income or net loss is allocated between the Partners in accordance with
their respective Percentage Interests pursuant to the joint venture agreement.
Competition
- -----------
The Partnership's residential properties are subject to competition from similar
types of properties (including, in certain areas, properties owned or managed by
affiliates of the General Partner) in the respective vicinities in which they
are located. Such competition is generally for the retention of existing tenants
or for new tenants when vacancies occur. The Partnership maintains the
suitability and competitiveness of its properties primarily on the basis of
effective rents, amenities and service provided to tenants. Competition is
expected to increase in the future as a result of the construction of additional
properties. As of December 31, 2000, properties under construction in the
respective vicinities in which the properties are located are as follows: In the
vicinity near Park Place Apartments Phase II, there are two apartment
communities, with 300+ apartment units a piece, scheduled to start construction
in 2001. In the vicinity near The Park at the Willows, there is one new
apartment complex with 328 apartment units under construction which is scheduled
to be completed by March 2001. 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.
8
Management of Properties
- ------------------------
NTS Development Company, an affiliate of the NTS-Properties Associates VII, 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 VII. Under the agreement, NTS Development Company establishes rental
policies and rates and directs the marketing activity of leasing personnel. It
also coordinates the purchase of equipment and supplies, maintenance activity
and the selection of all vendors, suppliers and independent contractors. As
compensation for its services, NTS Development Company received $83,823 from the
Partnership's residential properties. The fee is equal to 5% of gross revenues
from residential properties.
In addition, the agreement requires the Partnership to purchase all insurance
relating to the managed properties, to pay the direct out-of-pocket expenses of
NTS Development Company in connection with the operation of the properties,
including the cost of goods and materials used for and on behalf of the
Partnership, and to reimburse NTS Development Company for the salaries,
commissions, fringe benefits, and related employment expenses of on-site
personnel.
The term of the agreement between NTS Development Company and the Partnership
was initially for five years, and thereafter for succeeding one-year periods,
unless cancelled. The agreement is subject to cancellation by either party upon
60-days written notice. As of December 31, 2000, the agreement is still in
effect.
Working Capital Practices
- -------------------------
Information about the Partnership's working capital practices is included in
Management Discussion and Analysis of Financial Condition and Results of
Operations in Part II, Item 7.
Seasonal Operations
- -------------------
The Partnership does not consider its operations to be seasonal to any material
degree.
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 judgement
consistent with its fiduciary responsibility to the limited partners and the
Partnership's investment objectives and policies. The General Partner is
accountable to the limited partners as a fiduciary and consequently must
exercise good faith and integrity in handling the Partnership's affairs. A
provision has been made in the partnership agreement that the General Partner
will not be liable to the Partnership except for acts or omissions performed or
omitted fraudulently, in bad faith or with negligence. In addition, the
partnership agreement provides for indemnification by the General Partner of the
Partnership for liability resulting from errors in judgement or certain acts or
omissions. The General Partner and its affiliates retain a free right to compete
with the Partnership's properties including the right to develop
9
Conflict of Interest - Continued
- --------------------------------
competing properties now and in the future in addition to those existing
properties which may compete directly or indirectly.
NTS Development Company (the "Property Manager"), and an affiliate of the
General Partner, acts in a similar capacity for other affiliated entities in the
same geographic region where the Partnership has property interests. The
agreement with the Property Manager is on terms no less favorable to the
Partnership than those which could be obtained from a third party for similar
services in the same geographical region in which the properties are located.
The contract is terminable by either party without penalty upon 60-days written
notice.
There are no other agreements or relationships between the Partnership, the
General Partner and its affiliates other than those previously described.
Employees
- ---------
The Partnership has no employees; however, employees of an affiliate of the
General Partner are available to perform services for the Partnership. The
Partnership reimburses this affiliate for the actual costs of providing such
services. See Part II, Item 8 - Note 6 for further discussion of related party
transactions.
Governmental Contracts and Regulations
- --------------------------------------
No portion of the Partnership's business is subject to renegotiation of profits
or termination of contracts or sub-contracts at the election of the United
States Government.
Item 3. Legal Proceedings
-----------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
10
PART II
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Item 5. Market for Registrant's Limited Partnership Interests and Related
------------------------------------------------------------------
Partner Matters
---------------
There is no established trading market for the limited partnership interests.
The Partnership had 1,012 limited partners as of February 28, 2001. Cash
distributions and allocations of income (loss) are made as described in Note 1E
to the Partnership's 2000 consolidated financial statements.
Annual distributions totaling $0.15, $0.20 and $0.25 per limited partnership
Unit were paid during the years ended December 31, 2000, 1999 and 1998,
respectively. Quarterly distributions are determined based on current cash
balances, cash flow being generated by operations and cash reserves needed for
future leasing costs, tenant finish costs and capital improvements.
Distributions were paid quarterly as follows:
2000 1999 1998
---- ---- ----
First quarter $ .05 $ .05 $ .10
Second quarter .05 .05 .05
Third quarter .05 .05 .05
Fourth quarter - .05 .05
------- ------- -------
$ .15 $ .20 $ .25
======= ======= =======
The table below presents that portion of the distributions that represent a
return of capital on a Generally Accepted Accounting Principle basis for the
years ended December 31, 2000, 1999, and 1998.
Net Income Cash
(Loss) Distributions Return of
Allocated Declared Capital
--------- -------- -------
Limited partners:
2000 $ 28,759 $ 83,236 $ 54,477
1999 76,127 112,646 36,519
1998 (30,191) 144,299 144,299
General Partners
2000 $ 290 $ 840 $ 550
1999 769 1,138 369
1998 (305) 1,458 1,458
On January 24, 2001, the Partnership notified its limited partners that it would
be suspending distributions starting with the fourth quarter 2000. The
suspension is necessary to build up cash reserves in contemplation of the roof
replacements at Park Place Apartments Phase II. Once sufficient reserves are
accumulated, management (the General Partner) will review cash, working capital
levels and projections for their use, and resume distributions if appropriate.
For further information please see Item 8 - Note 7 Commitments and
Contingencies.
11
Item 6. Selected Financial Data
-----------------------
Years ended December 31, 2000, 1999, 1998, 1997 and 1996.
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Rental income $ 1,617,578 $ 1,649,799 $ 1,624,385 $ 1,770,326 $ 1,725,124
Other income 30,565 24,413 27,851 29,488 22,843
Income (loss) from
investment in joint venture (7,799) (13,497) (20,254) (39,156) (33,463)
Gain on sale of assets 4,118 -- -- -- --
Total expenses (1,615,413) (1,583,819) (1,662,478) (1,668,387) (1,841,392)
------------- ------------- ------------- ------------- -------------
Income (loss) before
extraordinary item 29,049 76,896 (30,496) 92,271 (126,888)
Extraordinary item -- -- -- (27,784) --
------------- ------------- ------------- ------------- -------------
Net income (loss) after
extraordinary item $ 29,049 $ 76,896 $ (30,496) $ 64,487 $ (126,888)
============= ============= ============= ============= =============
Net income (loss)
allocated to:
General Partner $ 290 $ 769 $ (305) $ 645 $ (1,269)
Limited partners $ 28,759 $ 76,127 $ (30,191) $ 63,842 $ (125,619)
Net income (loss) per
limited partnership Unit $ .05 $ .13 $ (.05) $ .11 $ (.20)
Weighted average number
of limited partnership Units 554,828 567,325 581,622 598,526 615,384
Cumulative net income
(loss) allocated to:
General Partner $ (25,664) $ (25,954) $ (26,723) $ (26,418) $ (27,063)
Limited partners $ (2,540,780) $ (2,569,539) $ (2,645,666) $ (2,615,475) $ (2,679,317)
Cumulative taxable income
(loss) allocated to:
General Partner $ 26,699 $ 26,100 $ 23,511 $ 21,995 $ 17,371
Limited partners $ (2,781,494) $ (2,809,106) $ (2,915,767) $ (2,941,722) $ (3,059,753)
Distributions declared:
General Partner $ 840 $ 1,138 $ 1,458 $ 2,417 $ 2,471
Limited partners $ 83,236 $ 112,646 $ 144,299 $ 239,288 $ 244,707
Cumulative distributions
declared to:
General Partner $ 27,445 $ 26,605 $ 25,467 $ 24,009 $ 21,592
Limited partners $ 2,717,046 $ 2,633,810 $ 2,521,164 $ 2,376,865 $ 2,137,577
At year end:
Cash and equivalents $ 307,173 $ 396,110 $ 394,778 $ 162,091 $ 277,422
Investment securities $ -- $ -- $ -- $ 338,129 $ --
Land, buildings and
amenities, net $ 8,088,455 $ 8,327,056 $ 8,601,080 $ 8,852,552 $ 9,271,291
Total assets $ 9,004,494 $ 9,282,186 $ 9,554,908 $ 9,947,927 $ 10,146,785
Mortgages and notes
payable $ 3,756,533 $ 3,876,398 $ 3,987,830 $ 4,091,369 $ 4,042,552
The above selected financial data should be read in conjunction with the
consolidated financial statements and related notes appearing elsewhere in this
Form 10-K report.
12
Item 7. Management's Discussion and Analysis of Financial Condition and
--------------------------------------------------------------------
Results of Operations
---------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations is structured in four major sections. The first section provides
information related to occupancy levels and rental and other income generated by
the Partnership's properties. The second analyzes results of operations on a
consolidated basis. The final sections address consolidated cash flows and
financial condition. Discussion of certain market risks and cautionary
statements also follow.
Management's analysis should be read in conjunction with the consolidated
financial statements in Item 8 and the cautionary statements below.
Occupancy Levels
- ----------------
The occupancy levels at the Partnership's properties and joint venture as of
December 31 were as follows:
Percentage
Ownership at
12/31/00 2000 (1) 1999 1998
-------- -------- ---- ----
Wholly-Owned Properties
-----------------------
The Park at the Willows 100% 90% 81% 77%
Park Place Apartments Phase II (2) 100% 77% 86% 85%
Property Owned in Joint Venture
-------------------------------
with NTS- Properties IV and
---------------------------
NTS-Properties Plus Ltd.
------------------------
Blankenbaker Business Center 1A 31.34% 100% 100% 100%
(1) Current occupancy levels are considered adequate to continue the operation
of the Partnership's properties.
(2) In the opinion of the General Partner of the Partnership, the decrease in
year ending occupancy is only a temporary fluctuation and does not
represent a permanent downward occupancy trend.
The average occupancy levels at the Partnership's properties and joint venture
as of December 31 were as follows:
Percentage
Ownership at
12/31/00 2000 1999 1998
-------- ---- ---- ----
Wholly-Owned Properties
-----------------------
The Park at the Willows (1) 100% 81% 90% 89%
Park Place Apartments Phase II (1) 100% 83% 87% 85%
Property Owned in Joint Venture
-------------------------------
with NTS- Properties IV and
---------------------------
NTS-Properties Plus Ltd.
------------------------
Blankenbaker Business Center 1A 31.34% 100% 100% 100%
(1) In the opinion of the General Partner of the Partnership, the decrease in
average year ending occupancy is only a temporary fluctuation and does not
represent a permanent downward occupancy trend.
13
Rental and Other Income
- -----------------------
Rental and other income generated by the Partnership's properties and joint
venture for the years ended December 31, 2000, 1999 and 1998 were as follows:
Percentage
Ownership at
12/31/00 2000 1999 1998
-------- ---- ---- ----
Wholly-Owned Properties
-----------------------
The Park at the Willows 100% $ 308,120 $ 337,595 $ 357,495
Park Place Apartments Phase II 100% $1,321,808 $1,320,563 $1,271,811
Property Owned in Joint Venture with
------------------------------------
NTS-Properties IV and NTS-Properties
------------------------------------
Plus Ltd.
---------
Blankenbaker Business Center 1A 31.34% $ 908,100 $ 914,526 $ 934,059
The following is an analysis of material changes in results of operations for
the periods ending December 31, 2000, 1999 and 1998. Items that did not have a
material impact on operations for the periods listed above have been eliminated
from this discussion.
Interest and other income increased approximately $6,000, or 25%, from 1999 to
2000. The increase is a result of increased interest earned on bank accounts due
to higher balances in 2000 as compared to 1999.
Income (loss) from joint venture increased approximately $7,000, or 33%, from
1998 to 1999. The Blankenbaker Business Center Joint Venture decreased its net
loss from 1998 to 1999 .
Operating expenses decreased approximately $61,000, or 14%, from 1998 to 1999,
primarily as a result of decreased repairs and maintenance expenses at Park
Place Apartments Phase II (interior painting, hot water heater repairs and
plumbing) and The Park at the Willows (deck cleaning). The decrease is also due
to decreased cable expense, landscaping costs and advertising at Park Place
Apartments Phase II. The decrease is partially offset by increased floor
covering costs, exterior painting and parking lot repairs at Park Place
Apartments Phase II.
Operating expenses - affiliated increased approximately $12,000, or 5%, from
1998 to 1999. The increase was mainly the result of increased property
management overhead.
Loss on disposal of assets for the twelve months ended December 31, 2000, is the
result of the retirement of assets that were not fully depreciated. The
retirements were due to a clubhouse renovation project at Park Place Apartments
Phase II and exterior renovations at The Park at the Willows.
Loss on disposal of assets for the twelve months ended December 31, 1998, is the
result of property renovations at Park Place Apartments Phase II for signage and
the pool area.
14
Rental and Other Income - Continued
- -----------------------------------
Professional and administrative expenses increased approximately $7,000, or 13%,
from 1998 to 1999, primarily as a result of 1) increased costs incurred in
connection with the tender offers, 2) increased employee search fees and
temporary services due to vacant positions in 1999 and 3) increased external
information processing services (used outside company to process 10-Q's and
10-K's).
Professional and administrative expenses - affiliated increased approximately
$10,000, or 22%, from 1999 to 2000, primarily as a result of increased finance
and accounting salary costs. Professional and administrative expenses -
affiliated are expenses incurred for services performed by employees of NTS
Development Company, an affiliate of the General Partner.
Professional and administrative expenses - affiliated decreased approximately
$9,000, or 17%, from 1998 to 1999, primarily as a result of decreased finance
and accounting salary costs.
Consolidated Cash Flows and Financial Condition
- -----------------------------------------------
The majority of the Partnership's cash flow is derived from operating
activities. Cash flows used in investing activities are for capital improvements
at the Partnership's properties. These improvements were funded by cash flow
from operations. Cash flows used in investing activities are also for the
purchases of investment securities. As part of its cash management activities,
the Partnership has periodically purchased certificates of deposit or securities
issued by the U.S. Government with initial maturities of greater than three
months to improve the return on its excess cash reserves. The Partnership held
the securities until maturity. Cash flows provided by investing activities are a
result of the maturity of investment securities. Cash flows used in financing
activities are for cash distributions, principal payments on mortgages payable,
payment of loan costs and repurchases of limited partnership Units. The
Partnership does not expect any material changes in the mix and relative cost of
capital resources from those in 2000.
Cash flows provided by (used in):
2000 1999 1998
---- ---- ----
Operating activities $ 378,575 $ 485,645 $ 452,604
Investing activities (248,571) (170,018) 140,266
Financing activities (218,941) (314,295) (360,183)
---------- ---------- ----------
Net (decrease) increase
in cash and equivalents $ (88,937) $ 1,332 $ 232,687
========== ========== ==========
Net cash provided by operating activities decreased approximately $107,000, or
22%, in 2000. The decrease in net cash provided by operating activities was
driven primarily by decreased accounts payable and by decreased net income. The
decrease is partially offset by increased collection of accounts receivable.
Net cash provided by operating activities increased approximately $33,000, or
7%, in 1999. The increase was primarily the result of increased net income and
increased accounts payable. The increase is partially offset by decreased
prepaid income (other liabilities) and increased accounts receivable.
The increase in net cash used in investing activities in 2000 was mainly the
result of increased capital expenditures for the clubhouse, fitness center and
exterior renovation projects at Park Place Apartments Phase II and studio
renovations and exterior renovations at The Park at the Willows.
15
Consolidated Cash Flows and Financial Condition - Continued
- -----------------------------------------------------------
The decrease in net cash provided by investing activities in 1999 was the result
of the maturity of investment securities in 1998 exceeding the purchase of
investment securities partially offset by decreased capital expenditures in
1999.
The decrease in net cash used in financing activities in 2000 was mainly a
result of 1) a decrease in the number of limited partnership units repurchased
and 2) a decrease in cash distributions paid (discontinued distributions
starting the fourth quarter of 2000). The decrease is partially offset by
increased principal payments made on debt and a decrease in cash reserved for
repurchases of limited partnership units.
The decrease in net cash used in financing activities in 1999 was mainly a
result of 1) a decrease in cash distributions, 2) decreased loan costs, and 3) a
decrease in the number of limited partnership units repurchased. The decrease
was partially offset by increased principal payments made on debt and a decrease
in cash reserved for repurchases of limited partnership units.
During the year ended December 31, 2000, the Partnership used cash flow from
operations and cash on hand to make a 1% (annualized) distribution of $84,076.
During the years ended December 31, 1999 and 1998, the Partnership used cash
flow from operations and cash on hand to make a 1% (1999) and 1.25% (1998)
(annualized) distribution of $113,784 and $145,757, respectively. 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
distribution is expected to be derived from cash generated by the Partnership's
properties after adequate cash reserves are established for future leasing,
renovations and tenant finish costs. It is anticipated that the cash flow from
operations and cash reserves will be sufficient to meet the needs of the
Partnership. Cash reserves (which are unrestricted cash and equivalents and
investment securities as shown on the Partnership's balance sheet as of December
31) were $ 307,173, $396,110 and $394,778 at December 31, 2000, 1999 and 1998,
respectively.
The table below presents that portion of the distributions that represent a
return of capital on a Generally Accepted Accounting Principle basis for the
years ended December 31, 2000, 1999 and 1998.
Net Income Cash
(Loss) Distributions Return of
Allocated Declared Capital
--------- -------- -------
Limited partners:
2000 $ 28,759 $ 83,236 $ 54,477
1999 76,127 112,646 36,519
1998 (30,191) 144,299 144,299
General Partner:
2000 $ 290 $ 840 $ 550
1999 769 1,138 369
1998 (305) 1,458 1,458
On January 24, 2001, the Partnership notified its limited partners that it would
be suspending distributions starting with the fourth quarter 2000. The
suspension is necessary to build up cash reserves in contemplation of the roof
replacements at Park Place Apartments Phase II (mentioned below). Once
sufficient reserves are accumulated, management (the General Partner) will
review cash, working capital levels and projections
16
Consolidated Cash Flows and Financial Condition - Continued
- -----------------------------------------------------------
for their use, and resume distributions if appropriate. It is anticipated that
the Partnership will require at least 12 months to generate sufficient reserves
to begin the roof replacements.
The demand on future liquidity is anticipated to increase as a result of the
replacement of the roofs at Park Place Apartments Phase II (17 buildings) all of
which were installed using shingles produced by a single manufacturer. The
shingles appear to contain defects which may cause roofs to fail before the end
of their expected useful lives. As the manufacturer has declared bankruptcy, the
Partnership does not expect to be able to recover any of the costs of the roof
replacements. The Partnership does not have sufficient working capital to make
all of the roof replacements at once and intends to make the replacements over
the next 24 months. The total costs of replacing all of the roofs is estimated
to be $340,000 ($20,000 per building). As of December 31, 2000, no roof
replacements have been started.
The Partnership had no other material commitments for renovation or capital
expenditures at December 31, 2000.
Pursuant to Section 16.4 of the Partnership's Amended and Restated Agreement of
Limited Partnership, the Partnership established an Interest Repurchase Reserve
in 1995. During the years ended December 31, 1998, 1997 and 1996, the
Partnership has funded $7,242, $38,918 and $121,270, respectively, to the
reserve. Through December 31, 1998, the Partnership had repurchased a total of
62,529 Units for $295,080 at a price ranging from $4.00 to $6.00 per Unit.
Repurchased Units have been retired by the Partnership, thus increasing the
percentage of ownership of each remaining limited partner investor. The Interest
Repurchase Reserve was funded from cash reserves. The funds remaining in the
Interest Repurchase Reserve at the commencement of the First Tender Offer
(discussed below) were returned to unrestricted cash for utilization in the
Partnership's operations.
On December 7, 1998, the Partnership and ORIG , LLC, an affiliate of the
Partnership, (the "Offerors") commenced a tender offer (the "First Tender
Offer") to purchase up to 20,000 of the Partnership's limited partnership Units
at a price of $6.00 per Unit as of the date of the First Tender Offer. The First
Tender Offer stated that the Partnership would purchase the first 10,000 Units
tendered and would fund its purchases and its portion of the expenses from cash
reserves. If more than 10,000 Units were tendered, ORIG, LLC would purchase up
to an additional 10,000 Units. If more than 20,000 Units were tendered, the
Partnership and ORIG, LLC could choose to acquire the additional Units on a pro
rata basis up to 20,000. Units that were acquired by the Partnership would be
retired. Units that were acquired by ORIG, LLC would be held by it. The General
Partner, NTS-Properties Associates VII, did not participate in the First Tender
Offer.
Under the terms of the First Tender Offer, the First Tender Offer expired on
March 6, 1999. As of that date, a total of 25,794 Units were tendered pursuant
to the First Tender Offer. The Offerors exercised their right under the terms of
the First Tender Offer to purchase more than 20,000 Units and all 25,794 Units
tendered were accepted by the Offerors, without proration. The Partnership
repurchased 10,000 Units and ORIG, LLC purchased 15,794 Units.
17
Consolidated Cash Flows and Financial Conditions - Continued
- ------------------------------------------------------------
On September 2, 1999, the Partnership and ORIG, LLC, (the "Offerors") commenced
a second tender offer (the "Second Tender Offer") to purchase up to 20,000 of
the Partnership's limited partnership Units at a price of $6.00 per Unit. The
Second Tender Offer provided that the Partnership would purchase the first
10,000 Units tendered and would fund its portion of the expenses, associated
with administering the Second Tender Offer from cash reserves. If more than
10,000 Units were tendered, ORIG, LLC would purchase up to an additional 10,000
Units. If more than 20,000 Units were tendered, the Offerors could choose to
acquire the additional Units on the same terms. Units that were acquired by the
Partnership would be retired. Units that were acquired by ORIG, LLC would be
held by it. The General Partner, NTS-Properties Associates VII did not
participate in the Second Tender Offer. The Second Tender Offer's initial
expiration date was November 30, 1999, but was extended to December 15, 1999.
Under the terms of the Second Tender Offer, the Second Tender Offer expired on
December 15, 1999. As of that date, a total of 41,652 Units were tendered
pursuant to the Second Tender Offer. The Offerors exercised their right under
the terms of the Second Tender Offer to purchase more than 20,000 Units and all
41,652 Units tendered were accepted by the Offerors, without proration. The
Partnership repurchased 10,000 Units and ORIG, LLC purchased 31,652 Units.
On March 24, 2000, the Partnership and ORIG, LLC, an affiliate of the
Partnership (the "Offerors"), filed a tender offer (the "Third Tender Offer")
with the Securities and Exchange Commission, commencing on March 27, 2000, to
purchase 5,000 of the Partnership's limited partnership Units at a price of
$6.00 per Unit. The Third Tender Offer stated that the Partnership would
purchase the first 2,500 Units tendered and would fund its purchases and its
portion of the expenses from cash reserves. If more than 2,500 Units were
tendered ORIG, LLC would purchase up to an additional 2,500 Units. If more than
5,000 Units were tendered, the Offerors had the option to acquire the additional
Units on a pro rata basis. The Third Tender Offer was scheduled to expire on
June 27, 2000.
On June 23, 2000, the Partnership and ORIG, LLC filed an amendment to the Third
Tender Offer which extended the expiration date of the Third Tender Offer to
August 15, 2000.
On August 15, 2000 the Third Tender Offer expired. A total of 39,220 Units were
tendered and the Offerors accepted all Units tendered. The Partnership
repurchased 2,500 Units at a cost of $15,000 and ORIG, LLC purchased 36,720
Units at a cost of $220,320. The expenses associated with the Third Tender Offer
were approximately $19,840 of which the Partnership incurred $2,204 and ORIG
incurred $17,636.
The offering prices per Unit were established by the General Partner in its sole
discretion and do not purport to represent the fair market value or liquidation
value of the Units.
In an effort to continue to improve occupancy at the Partnership's residential
properties, the Partnership has an on-site leasing staff, who are employees of
NTS Development Company, at each of the apartment communities. The staff handles
all on-site visits from potential tenants, coordinates local advertising with
NTS Development Company's marketing staff, makes visits to local companies to
promote fully furnished units and works with current residents on lease
renewals.
18
Consolidated Cash Flows and Financial Conditions - Continued
- ------------------------------------------------------------
The lease at Blankenbaker Business Center 1A provides for the tenant to
contribute toward the payment of common area expenses, insurance and real estate
taxes. This lease provision, 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.
Cautionary Statements
- ---------------------
Some of the statements included in Items 1 and 2, Business and Properties and
Item 7, Management's Discussion and Analysis of Financial Condition and Results
of Operations, may be considered to be "forward-looking statements" since such
statements relate to matters which have not yet occurred. For example, phrases
such as "the Partnership anticipates", "believes" or "expects" indicate that it
is possible that the event anticipated, believed or expected may not occur.
Should such event not occur, then the result which the Partnership expected also
may not occur or occur in a different manner, which may be more or less
favorable to the Partnership. The Partnership does not undertake any obligations
to publicly release the result of any revisions to these forward-looking
statements that may be made to reflect any future events or circumstances.
Any forward-looking statements included in Management's Discussion and Analysis
of Financial Condition and Results of Operations, or elsewhere in this report,
which reflect management's best judgement based on factors known, involve risks
and uncertainties. Actual results could differ materially from those anticipated
in any forward-looking statements as a result of a number of factors, including
but not limited to those discussed below. Any forward-looking information
provided by the Partnership pursuant to the safe harbor established by recent
securities legislation should be evaluated in the context of these factors.
The Partnership's liquidity, capital resources and results of operations are
subject to a number of risks and uncertainties including, but not limited to the
following: the ability of the Partnership to achieve planned revenues; the
ability of the Partnership to make payments due under its debt agreements; the
ability of the Partnership to negotiate and maintain terms with vendors and
service providers for operating expenses; competitive pressures from other real
estate companies, including large commercial and residential real estate
companies, which may affect the nature and viability of the Partnership's
business strategy; trends in the economy as a whole which may affect consumer
confidence and demand for the types of rental property held by the Partnership;
the ability of the Partnership to predict the demand for specific rental
properties; the ability of the Partnership to attract and retain tenants;
availability and costs of management and labor employed; real estate occupancy
and development costs, including the substantial fixed investment costs
associated with renovations necessary to obtain new tenants and retain existing
tenants; and the risk of a major commercial tenant defaulting on its lease due
to risks generally associated with real estate, many of which are beyond the
control of the Partnership, including general or local economic conditions,
competition, interest rates, real estate tax rates, other operating expenses and
acts of God.
19
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
Our primary market risk exposure with regards to financial instruments is to
changes in interest rates. The Partnership's debt bears interest at a fixed
rate. At December 31, 2000, a hypothetical 100 basis point increase in interest
rates would result in an approximate $218,000 decrease in the fair value of
debt.
20
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To NTS-Properties VII, Ltd.:
We have audited the accompanying consolidated balance sheets of NTS-Properties
VII, Ltd. (a Florida limited partnership) as of December 31, 2000 and 1999, and
the related consolidated statements of operations, consolidated statements of
partners' equity and consolidated statements of cash flows for each of the three
years in the period ended December 31, 2000. These consolidated financial
statements and the schedules referred to below are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
consolidated financial statements and schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of NTS-Properties VII,
Ltd. as of December 31, 2000 and 1999, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 2000 in
conformity with accounting principles generally accepted in the United States.
Our audits were made for the purpose of forming an opinion on the consolidated
financial statements taken as a whole. The schedules included on pages 51
through 52 are presented for purposes of complying with the Securities and
Exchange Commission's rules and are not part of the consolidated financial
statements. These schedules have been subjected to the auditing procedures
applied in our audits of the consolidated financial statements and, in our
opinion, fairly state in all material respects the financial data required to be
set forth therein in relation to the consolidated financial statements taken as
a whole.
ARTHUR ANDERSEN LLP
Louisville, Kentucky
March 9, 2001
21
NTS-PROPERTIES VII, LTD.
------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
AS OF DECEMBER 31, 2000 AND 1999
--------------------------------
2000 1999
---- ----
ASSETS
- ------
Cash and equivalents $ 307,173 $ 396,110
Cash and equivalents - restricted 26,175 27,824
Accounts receivable 62,978 87,585
Land, buildings and amenities, net 8,088,455 8,327,056
Investment in and advances to joint venture 446,072 398,003
Other assets 73,641 45,608
---------- ----------
TOTAL ASSETS $9,004,494 $9,282,186
========== ==========
LIABILITIES AND PARTNERS' EQUITY
- --------------------------------
Mortgage payable $3,756,533 $3,876,398
Accounts payable 14,438 92,775
Security deposits 25,325 26,475
Other liabilities 13,413 21,726
---------- ----------
TOTAL LIABILITIES 3,809,709 4,017,374
COMMITMENTS AND CONTINGENCIES (Note 7)
PARTNERS' EQUITY 5,194,785 5,264,812
---------- ----------
TOTAL LIABILITIES AND PARTNERS' EQUITY $9,004,494 $9,282,186
========== ==========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
22
NTS PROPERTIES VII, LTD.
------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
----------------------------------------------------
2000 1999 1998
---- ---- ----
REVENUES
- --------
Rental income $ 1,617,578 $ 1,649,799 $ 1,624,385
Interest and other income 30,565 24,413 27,851
Loss on investment in joint venture (7,799) (13,497) (20,254)
Gain on sale of assets 4,118 -- --
------------ ------------ ------------
TOTAL REVENUES 1,644,462 1,660,715 1,631,982
EXPENSES
- --------
Operating expenses 377,700 372,524 433,409
Operating expenses - affiliated 235,801 246,397 234,171
Loss on disposal of assets 54,533 -- 13,009
Interest expense 285,383 293,324 299,270
Management fees 83,823 85,781 83,462
Real estate taxes 88,011 89,485 91,008
Professional and administrative expenses 54,869 57,418 50,588
Professional and administrative expenses - affiliated 54,404 44,540 53,700
Depreciation and amortization 380,889 394,350 403,861
------------ ------------ ------------
TOTAL EXPENSES 1,615,413 1,583,819 1,662,478
------------ ------------ ------------
Net income (loss) $ 29,049 $ 76,896 $ (30,496)
============ ============ ============
Net income (loss) allocated to the limited partners $ 28,759 $ 76,127 $ (30,191)
============ ============ ============
Net income (loss) per limited partnership Unit $ 0.05 $ 0.13 $ (0.05)
============ ============ ============
Weighted average number of limited partnership
Units 554,828 567,325 581,622
============ ============ ============
The accompanying notes to consolidated financial statements are an integral part
of these statements.
23
NTS-PROPERTIES VII, LTD.
------------------------
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY (1)
-----------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
----------------------------------------------------
Limited General
Partners Partner Total
-------- ------- -----
PARTNERS' EQUITY
- ----------------
Balances at December 31, 1997 $ 5,783,172 $ (50,327) $ 5,732,845
Net loss (30,191) (305) (30,496)
Distributions declared (144,299) (1,458) (145,757)
Repurchase of limited partnership Units (134,892) -- (134,892)
------------ ------------ ------------
Balances at December 31, 1998 5,473,790 (52,090) 5,421,700
Net income 76,127 769 76,896
Distributions declared (112,646) (1,138) (113,784)
Repurchase of limited partnership Units (120,000) -- (120,000)
------------ ------------ ------------
Balances at December 31, 1999 5,317,271 (52,459) 5,264,812
Net income 28,759 290 29,049
Distributions declared (83,236) (840) (84,076)
Repurchase of limited partnership Units (15,000) -- (15,000)
------------ ------------ ------------
Balances at December 31, 2000 $ 5,247,794 $ (53,009) $ 5,194,785
============ ============ ============
(1) For the periods presented, there are no elements of other comprehensive
income as defined by the Financial Accounting Standards Board, Statement of
Financial Accounting Standards Statement No. 130, "Reporting Comprehensive
Income."
The accompanying notes to consolidated financial statements are an integral part
of these statements.
24
NTS-PROPERTIES VII, LTD.
------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
----------------------------------------------------
2000 1999 1998
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
- ------------------------------------
Net income (loss) $ 29,049 $ 76,896 $ (30,496)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Accrued interest on investment securities -- -- 1,737
Loss on disposal of assets 54,533 -- 13,009
Gain on sale of assets (4,118) -- --
Depreciation and amortization 380,889 394,350 403,861
Loss on investment in joint venture 7,799 13,497 20,254
Changes in assets and liabilities:
Cash and equivalents - restricted 1,649 543 7,958
Accounts receivable 24,607 (31,173) (17,946)
Other assets (28,033) 6,856 1,214
Accounts payable (78,337) 39,353 26,460
Security deposits (1,150) (1,926) (7,924)
Other liabilities (8,313) (12,751) 34,477
---------- ---------- ----------
Net cash provided by operating activities 378,575 485,645 452,604
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
Additions to land, buildings, and amenities (199,637) (120,326) (165,398)
Proceeds from sale of assets 6,934 -- --
Purchase of investment securities -- -- (200,000)
Maturity of investment securities -- -- 536,392
Investment in and advances to joint venture (55,868) (49,692) (30,728)
---------- ---------- ----------
Net cash (used in) provided by
investing activities (248,571) (170,018) 140,266
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
Principal payments on mortgage payable (119,865) (111,432) (103,539)
Cash distributions (84,076) (142,863) (177,105)
Repurchase of limited partnership Units (15,000) (120,000) (134,892)
Cash and equivalent-restricted -- 60,000 67,653
Additions to loan costs -- -- (12,300)
---------- ---------- ----------
Net cash used in financing activities (218,941) (314,295) (360,183)
---------- ---------- ----------
Net (decrease) increase in cash and equivalents (88,937) 1,332 232,687
CASH AND EQUIVALENTS, beginning of year 396,110 394,778 162,091
---------- ---------- ----------
CASH AND EQUIVALENTS, end of year $ 307,173 $ 396,110 $ 394,778
========== ========== ==========
Interest paid on a cash basis $ 285,047 $ 293,684 $ 300,431
========== ========== ==========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
25
NTS-PROPERTIES VII, LTD.
------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
----------------------------------------------------
1. Significant Accounting Policies
-------------------------------
A) Consolidation Policy and Joint Venture Accounting
-------------------------------------------------
The consolidated financial statements include the accounts of all
wholly-owned properties. Intercompany transactions and balances
have been eliminated. The less than 50% owned joint venture is
accounted for under the equity method. In conformity with
Generally Accepted Accounting Principles, management has used
estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses and the disclosure of
contingent assets and liabilities. Actual results could differ
from those estimates.
From inception, the Partnership used the proportionate
consolidation method of accounting for joint venture properties.
The Partnership's proportionate interest in the joint venture's
assets, liabilities, revenues, expenses and cash flows were
combined on a line-by-line basis with the Partnership's own
assets, liabilities, revenues, expenses and cash flows. All
intercompany accounts and transactions were eliminated in
consolidation.
Proportionate consolidation was utilized by the Partnership due
to the fact that the ownership of joint venture properties, in
substance, was not subject to joint control. The managing General
Partners of the sole 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 did not require the approval of different
partners.
Additionally, the joint venture properties are in the same
business/industry as their respective joint venture partners and
their asset, liability, revenue and expense accounts correspond
with the accounts of such partner. It is the belief of the
General Partner of the Partnership that the financial statement
disclosures resulting from proportionate consolidation provided
the most meaningful presentation of assets, liabilities,
revenues, expenses and cash flows given the commonality of the
Partnership's operations.
The Emerging Issues Tasks Force ("EITF") of the Financial
Accounting Standards Board ("FASB") has reached a consensus on
Issue No. 00-1, "Applicability of the Pro Rata Method of
Consolidation to Investments in Certain Partnerships and Other
Unincorporated Joint Ventures." The EITF reached a consensus that
a proportionate gross financial statement presentation (referred
to as "proportionate consolidation" in the Notes to Consolidated
Financial Statements) is not appropriate for an investment in an
unincorporated legal entity accounted for by the equity method of
accounting, unless the investee is in either the construction
industry or an extractive industry where there is a longstanding
practice of its use.
26
A) Consolidation Policy and Joint Venture Accounting - Continued
-------------------------------------------------------------
The consensus is applicable to financial statements for annual
periods ending after June 15, 2000. The Partnership now uses the
equity method to account for its joint venture investments for
the year ending December 31, 2000. The Partnership has applied
the consensus to all comparative financial statements, restating
them to conform with the consensus for all periods presented. The
application of this consensus did not result in a restatement of
previously reported partners' equity or results of operations,
but did result in a recharacterization or reclassification of
certain financial statements' captions and amounts.
Please see the accompanying Blankenbaker Business Center Joint
Venture financial statements and notes.
B) Organization
------------
NTS-Properties VII, LTD. (the "Partnership") is a limited
partnership organized under the laws of the state of Florida in
April 1987. The General Partner is NTS-Properties Associates VII
(a Kentucky limited partnership). The Partnership is in the
business of developing, constructing, owning and operating
apartment complexes and commercial real estate.
C) Properties
----------
The Partnership owns and operates the following properties:
* The Park at the Willows, a 48-unit luxury apartment complex
in Louisville, Kentucky.
* Park Place Apartments Phase II, a 132-unit luxury apartment
complex in Lexington, Kentucky.
* A 31.34% joint venture interest in Blankenbaker Business
Center Phase 1A, a business center with approximately 50,000
net rentable ground floor square feet and approximately
50,000 net rentable mezzanine square feet located in
Louisville, Kentucky.
D) Revenue Recognition
-------------------
The Partnership recognizes revenue in accordance with each
tenants respective lease agreement.
E) 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.
27
E) Allocation of Net Income (Loss) and Cash Distributions- Continued
-----------------------------------------------------------------
Net operating income (excluding net gains from sales and other
specially allocated items) shall be allocated to the limited
partners and the General Partner in proportion to their
respective cash distributions. Net operating income in excess of
cash distributions 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 distribution 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 partner and 1% to the
General Partner for all periods presented in the accompanying
financial statements.
F) Tax Status
----------
The Partnership has received a ruling from the Internal Revenue
Service stating that the Partnership is classified as a limited
partnership for federal income tax purposes. As such, the
Partnership makes no provision for income taxes. The taxable
income or loss is passed through to the holders of the
partnership interests for inclusion on their individual income
tax returns.
A reconciliation of net income (loss) for financial statement
purposes versus that for income tax reporting is as follows:
2000 1999 1998
---- ---- ----
Net income (loss) $ 29,049 $ 76,896 $(30,496)
Items handled differently
for tax purposes:
Depreciation and amortization (14,534) 29,324 4,531
Capitalized leasing costs 9,384 3,030 56,640
Gain/loss on disposal of assets 4,312 - (3,154)
--------- --------- ---------
Taxable income $ 28,211 $109,250 $ 27,521
========= ========= =========
G) 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.
H) Cash and Equivalents - Restricted
---------------------------------
Cash and equivalents - restricted represents funds received for
residential security deposits, funds reserved by the Partnership
for the repurchase of limited partnership Units (December 31,
1997) and funds reserved by the Partnership for the purchase of
limited partnership Units through tender offers (December 31,
1998 to present - see Note 3).
28
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 7-30 years for
land improvements, 5-30 years for building and improvements and
5-30 years for amenities. The aggregate costs of the
Partnership's properties for federal tax purposes as of December
31, 2000 is approximately $12,645,000.
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, 2000, 1999 and
1998 did not result in an impairment loss.
J) Advertising
-----------
The Partnership expenses advertising costs as incurred.
Advertising expense was immaterial to the Partnership during the
years ended December 31, 2000, 1999 and 1998.
K) Statements of Cash Flows
------------------------
For purposes of reporting cash flows, cash and equivalents
include cash on hand and short- term, highly liquid investments
with initial maturities of three months or less.
2. Concentration of Credit Risk
----------------------------
NTS-Properties VII, Ltd. owns and operates, through a joint venture, a
commercial property in Louisville, Kentucky. The sole tenant which
occupies 100% of the property is a business which has operations in
the Louisville area. The Partnership also owns and operates
residential properties in Louisville and Lexington, Kentucky.
3. Tender Offers
-------------
On December 7, 1998, the Partnership and ORIG, LLC an affiliate of the
Partnership, (the "Offerors") commenced a tender offer (the "First
Tender Offer") to purchase up to 20,000 of the Partnership's limited
partnership Units at a price of $6.00 per Unit. The First Tender Offer
stated that the Partnership would purchase the first 10,000 Units
tendered and would fund its purchases and its portion of the expenses
from cash reserves. If more than 20,000 Units were tendered, the
Partnership and ORIG, LLC could choose to acquire the additional Units
on the same terms. Other wise, tendered Units would be purchased on a
pro rata basis up to 20,000. Units that were acquired by the
Partnership would be retired. Units that were acquired by ORIG, LLC
would be held by it. The General Partner, NTS-Properties Associates
VII, did not participate in the First Tender Offer.
29
3. Tender Offers - Continued
-------------------------
Under the terms of the First Tender Offer, the First Tender Offer
expired on March 6, 1999. As of that date, a total of 25,794 Units
were tendered pursuant to the First Tender Offer. The Offerors
exercised their right under the terms of the First Tender Offer to
purchase more than 20,000 Units and all 25,794 Units tendered were
accepted by the Offerors, without proration. The Partnership
repurchased 10,000 Units and ORIG, LLC purchased 15,794 Units.
On September 2, 1999, the Partnership and ORIG, LLC, (the "Offerors")
commenced a tender offer (the "Second Tender Offer") to purchase up to
20,000 of the Partnership's limited partnership Units at a price of
$6.00 per Unit. The Second Tender Offer provided that the Partnership
would purchase the first 10,000 Units tendered and would fund its
purchases and its portion of the expenses, associated with
administering the Second Tender Offer from cash reserves. If more than
10,000 Units were tendered, ORIG, LLC would purchase up to an
additional 10,000 Units. If more than 20,000 Units were tendered, the
Offerors could choose to acquire the additional Units on the same
terms. Units that were acquired by the Partnership would be retired.
Units that were acquired by ORIG, LLC would be held by it. The General
Partner, NTS-Properties Associates VII did not participate in the
Second Tender Offer. The Second Tender Offer's initial expiration date
was November 30, 1999, but was extended to December 15, 1999.
Under the terms of the Second Tender Offer, the Second Tender Offer
expired on December 15, 1999. As of that date, a total of 41,652 Units
were tendered pursuant to the Second Tender Offer. The Offerors
exercised their right under the terms of the Second Tender Offer to
purchase more than 20,000 Units and all 41,652 Units tendered were
accepted by the Offerors, without proration. The Partnership
repurchased 10,000 Units and ORIG, LLC Purchased 31,652 Units.
On March 24, 2000, the Partnership and ORIG, LLC, an affiliate of the
Partnership (the "Offerors"), filed a tender offer (the "Third Tender
Offer") with the Securities and Exchange Commission, commencing on
March 27, 2000, to purchase 5,000 of the Partnership's limited
partnership Units at a price of $6.00 per Unit. The Third Tender Offer
stated that the Partnership would purchase the first 2,500 Units
tendered and would fund its purchases and its portion of the expenses
from cash reserves. If more than 2,500 Units were tendered ORIG, LLC
would purchase up to an additional 2,500 Units. If more than 5,000
Units were tendered, the Offerors had the option to acquire the
additional Units on a pro rata basis. The Third Tender Offer was
scheduled to expire on June 27, 2000.
On June 23, 2000, the Partnership and ORIG, LLC filed an amendment to
the Third Tender Offer which extended the expiration date of the Third
Tender Offer to August 15, 2000.
On August 15, 2000 the Third Tender Offer expired. A total of 39,220
Units were tendered and the Offerors accepted all Units tendered. The
Partnership repurchased 2,500 Units at a cost of $15,000 and ORIG, LLC
purchased 36,720 Units at a cost of $220,320. The expenses associated
with the Third Tender Offer were approximately $19,840 of which the
Partnership incurred $2,204 and ORIG incurred $17,636. Units acquired
by the Partnership will be retired. Units acquired by ORIG, LLC will
be held by it. The General Partner, NTS-Properties Associates VII, did
not participate in the Third Tender Offer.
30
3. Tender offers - Continued
-------------------------
Although the Offerors believed that each tender offer's price was
appropriate, the price per Unit may not equate to the fair market
value or the liquidation value of the Units, and was less than the
book value per Unit as of the date of the tender offers.
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:
2000 1999
---- ----
Land and improvements $ 3,091,979 $ 3,084,820
Building and improvements 10,094,796 10,000,078
------------ ------------
13,186,775 13,084,898
Less accumulated depreciation 5,098,320 4,757,842
------------ ------------
$ 8,088,455 $ 8,327,056
============ ============
5. Mortgage Payable
----------------
Mortgage payable as of December 31, consisted of the following:
2000 1999
---- ----
Mortgage payable to an insurance
company, bearing interest at a
fixed rate of 7.37%,
due October 15, 2012,
secured by land and buildings. $ 3,756,533 $ 3,876,398
------------ ------------
$ 3,756,533 $ 3,876,398
============ ============
The mortgage is payable in monthly aggregate installments of $33,467
(includes principal and interest).
Scheduled maturities of debt are as follows:
For the Years Ended December 31, Amount
-------------------------------- ------
2001 $ 129,105
2002 138,910
2003 149,501
2004 160,841
2005 173,193
Thereafter 3,004,983
-----------
$ 3,756,533
===========
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 $3,727,000.
31
6. Related Party Transactions
--------------------------
Pursuant to an agreement with the Partnership, NTS Development
Company, an affiliate of the General Partners of the Partnership,
receives property management fees on a monthly basis. The fee is equal
to 5% of the gross revenues from the Partnership's residential
properties. Also permitted by an agreement, NTS Development Company
will receive a repair and maintenance fee equal to 5.9% of costs
incurred which relate to capital improvements. These repair and
maintenance fees are capitalized as part of land, buildings and
amenities. The Partnership was charged the following amounts from NTS
Development Company for the years ended December 31, 2000, 1999 and
1998. These charges include items which have been expensed as
operating expenses - affiliated or professional and administrative
expenses - affiliated and items which have been capitalized as other
assets or as land, buildings and amenities.
For the Twelve Months Ended
December 31,
------------
2000 1999 1998
---- ---- ----
Property management fees $ 83,823 $ 85,781 $ 83,462
-------- -------- --------
Property management 138,777 129,491 174,665
Leasing 25,057 40,017 39,136
Administrative - operating 70,758 76,802 20,208
Other 1,209 87 162
-------- -------- --------
Total operating expenses - affiliated 235,801 246,397 234,171
-------- -------- --------
Professional and administrative
expenses - affiliated 54,404 44,540 53,700
-------- -------- --------
Repairs and maintenance fee 9,340 6,029 1,410
Loan costs - - 7,500
Construction management 116 - 23
-------- -------- --------
Total related party transactions
capitalized 9,456 6,029 8,933
-------- -------- --------
Total related party transactions $383,484 $382,747 $380,266
======== ======== ========
On February 7, 2000, ORIG, LLC (the "Affiliate") purchased Interests
in the Partnership and pursuant to an Agreement, Bill of Sale and
Assignment by and among the Affiliate and four investors in the
Partnership (the "Purchase Agreement"). The Affiliate purchased 2,251
Interests in the Partnership for a total consideration of $15,082 or
an average price of $6.70 per Interest. The Affiliate paid these
investors a premium above the purchase price previously offered for
Interests pursuant to prior tender offers because this purchase
allowed the Affiliate to purchase substantial numbers of Interests
without incurring the significant expenses involved with a tender
offer and multiple transfers.
32
7. Commitments and Contingencies
-----------------------------
The Partnership, as an owner of real estate, is subject to various
environmental laws of federal, state and local governments. Compliance
by the Partnership with existing laws has not had a material adverse
effect on the Partnership's financial condition and results of
operations. However, the Partnership cannot predict the impact of new
or changed laws or regulations on its current properties or on
properties that it may acquire in the future.
The Partnership does not believe there is any litigation threatened
against the Partnership other than routine litigation arising out of
the ordinary course of business some of which is expected to be
covered by insurance, none of which is expected to have a material
effect on the consolidated balance sheets and statements of operations
of the Partnership except as discussed herein.
The Partnership plans to replace the roofs at Park Place Apartments
Phase II (17 buildings) all of which were installed using shingles
produced by a single manufacturer. The shingles appear to contain
defects which may cause roofs to fail. As the manufacturer has
declared bankruptcy, the Partnership does not expect to be able to
recover any of the costs of the roof replacements in the event of any
such failures. The Partnership does not have sufficient working
capital to make the roof replacements. The total costs of replacing
all of the roofs is estimated to be $340,000 ($20,000 per building).
As of December 31, 2000, no roof replacements have been started. It is
anticipated that the Partnership will require at least 12 months to
generate sufficient reserves to begin the roof replacements.
8. Segment Reporting
-----------------
The Partnership's reportable operating segments include only one
segment - Residential Real Estate Operations.
9. Selected Quarterly Financial Data (Unaudited)
---------------------------------------------
For the Quarters Ended
----------------------
2000 March 31 June 30 September 30 December 31
---- -------- ------- ------------ -----------
Total revenues $ 461,295 $ 498,912 $ 500,471 $ 476,181
Total expenses 464,151 455,074 541,673 446,912
Net income (loss) (2,856) 43,838 (41,202) 29,269
Net income (loss) allocated to the
limited partners (2,827) 43,400 (40,790) 28,976
Net income (loss) per limited
partnership Unit (0.01) 0.08 (0.07) 0.05
33
9. Selected Quarterly Financial Data (Unaudited) - Continued
---------------------------------------------------------
For the Quarters Ended
----------------------
1999 March 31 June 30 September 30 December 31
---- -------- ------- ------------ -----------
Total revenues $ 468,566 $ 501,712 $ 519,397 $ 471,149
Total expenses 470,502 477,701 498,394 437,331
Net income (loss) (1,936) 24,011 21,003 33,818
Net income (loss) allocated to the
limited partners (1,917) 23,771 20,793 33,480
Net income (loss) per limited
partnership Unit -- 0.04 0.04 0.05
The information presented in the table above is based on previously
filed 10-Q and 10-K reports which were prepared using the
proportionate consolidation method. See Note 1A for further
information regarding the Partnership's change from the proportionate
consolidation method to the equity method.
34
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Blankenbaker Business Center Joint Venture:
We have audited the accompanying balance sheets of Blankenbaker Business Center
Joint Venture as of December 31, 2000 and 1999, and the related statements of
operations, partners' equity and cash flows for each of the three years in the
period ended December 31, 2000. These financial statements are the
responsibility of Blankenbaker Business Center Joint Venture's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the 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 audit provides 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 Blankenbaker Business Center
Joint Venture as of December 31, 2000 and 1999, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2000 in conformity with accounting principles generally accepted in
the United States.
ARTHUR ANDERSEN LLP
Louisville, Kentucky
March 9, 2001
35
BLANKENBAKER BUSINESS CENTER JOINT VENTURE
------------------------------------------
BALANCE SHEETS
--------------
AS OF DECEMBER 31, 2000 AND 1999
--------------------------------
2000 1999
---- ----
ASSETS
- ------
Cash and equivalents $ 52,019 $ 13,252
Cash and equivalents - restricted 5,858 39,118
Accounts receivable 31,931 --
Land, buildings and amenities, net 3,504,498 3,709,036
Other assets 189,795 227,853
---------- ----------
TOTAL ASSETS $3,784,101 $3,989,259
========== ==========
LIABILITIES AND PARTNERS' EQUITY
- --------------------------------
Mortgage payable $2,697,393 $3,121,473
Accounts payable 215,135 224,685
Security deposits -- --
Other liabilities 54,037 9,322
---------- ----------
TOTAL LIABILITIES 2,966,565 3,355,480
COMMITMENTS AND CONTINGENCIES (Note 7)
PARTNERS' EQUITY 817,536 633,779
---------- ----------
TOTAL LIABILITIES AND PARTNERS' EQUITY $3,784,101 $3,989,259
========== ==========
The accompanying notes to financial statements are an integral part of these
statements.
36
BLANKENBAKER BUSINESS CENTER JOINT VENTURE
------------------------------------------
STATEMENTS OF OPERATIONS
------------------------
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
-----------------------------------------------------
2000 1999 1998
---- ---- ----
REVENUES
- --------
Rental income $ 907,614 $ 914,503 $ 933,811
Interest and other income 486 23 248
---------- ---------- ----------
TOTAL REVENUES 908,100 914,526 934,059
EXPENSES
- --------
Operating expenses 100,128 50,572 86,328
Operating expenses - affiliated 33,802 62,946 62,954
Loss on disposal of assets 242 -- --
Interest expense 255,004 289,549 321,008
Management fees 54,486 53,825 57,091
Real estate taxes 54,677 55,850 56,482
Professional and administrative expenses - affiliated 200,000 210,000 180,000
Depreciation and amortization 204,296 204,501 204,470
---------- ---------- ----------
TOTAL EXPENSES 902,635 927,243 968,333
---------- ---------- ----------
Net income (loss) 5,465 (12,717) (34,274)
========== ========== ==========
The accompanying notes to financial statements are an integral part of these
statements.
37
BLANKENBAKER BUSINESS CENTER JOINT VENTURE
------------------------------------------
STATEMENTS OF PARTNERS' EQUITY (1)
----------------------------------
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
-----------------------------------------------------
Partners'
Equity
------
Balances at December 31, 1997 $ 423,369
Net loss (34,274)
Distributions declared (21,953)
Capital contributions 120,000
----------
Balances at December 31, 1998 487,142
Net loss (12,717)
Distributions declared (50,974)
Capital contributions 210,328
----------
Balances at December 31, 1999 633,779
Net income 5,465
Distributions declared (41,398)
Capital contributions 219,690
----------
Balances at December 31, 2000 $ 817,536
==========
(1) For the periods presented, there are no elements of other comprehensive
income as defined by the Financial Accounting Standards Board, Statement of
Financial Accounting Standards Statement No. 130, "Reporting Comprehensive
Income."
The accompanying notes to financial statements are an integral part of these
statements.
38
BLANKENBAKER BUSINESS CENTER JOINT VENTURE
------------------------------------------
STATEMENTS OF CASH FLOWS
------------------------
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
----------------------------------------------------
2000 1999 1998
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
- ------------------------------------
Net income (loss) $ 5,465 $ (12,717) $ (34,274)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Loss on disposal of assets 242 -- --
Depreciation and amortization 204,296 204,501 204,470
Changes in assets and liabilities:
Cash and equivalents - restricted 33,260 (638) 1,910
Accounts receivable (31,931) (17,455) 17,455
Other assets 38,057 39,652 37,683
Accounts payable (9,550) 32,250 34,616
Other liabilities 44,716 (12,336) --
---------- ---------- ----------
Net cash provided by operating activities 284,555 233,257 261,860
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
Additions to land, buildings, and amenities -- -- --
Net cash used in investing activities -- -- --
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
Principal payments on mortgages payable (424,080) (389,639) (357,996)
Cash distributions (41,398) (50,974) (21,953)
Capital contributions 219,690 210,328 120,000
---------- ---------- ----------
Net cash used in financing activities (245,788) (230,285) (259,949)
---------- ---------- ----------
Net increase in cash and equivalents 38,767 2,972 1,911
CASH AND EQUIVALENTS, beginning of year 13,252 10,280 8,369
---------- ---------- ----------
CASH AND EQUIVALENTS, end of year $ 52,019 $ 13,252 $ 10,280
========== ========== ==========
Interest paid on a cash basis $ 256,506 $ 290,929 $ 322,573
========== ========== ==========
The accompanying notes to financial statements are an integral part of these
statements.
39
BLANKENBAKER BUSINESS CENTER JOINT VENTURE
------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
----------------------------------------------------
1. Significant Accounting Policies
-------------------------------
A) Organization
------------
Blankenbaker Business Center Joint Venture (the "Joint Venture")
was organized on December 28, 1990, by NTS-Properties VII, Ltd.
and NTS-Properties Plus Ltd. to own and operate Blankenbaker
Business Center 1A and to acquire an approximately 2.49 acre
parking lot that was being leased by the business center from an
affiliate of the General Partner. On August 16, 1994, the
Blankenbaker Business Center Joint Venture agreement was amended
to admit NTS-Properties IV to the Joint Venture.
B) Properties
----------
Blankenbaker Business Center Joint Venture owns Blankenbaker
Business Center 1A, a business center with approximately 50,000
net rentable ground floor square feet and approximately 50,000
net rentable mezzanine square feet located in Louisville,
Kentucky.
C) Allocation of Net Income (Loss) and Cash Distributions
------------------------------------------------------
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 for any period shall mean the
excess, if any of A) the sum of (i) the gross receipts of the
joint venture property for such period, other than capital
contributions plus (ii) any funds released by the Partners for
previously established reserves (referred to in clause (B) (iv)
below), over (B) the sum of (i) all cash operating expenses paid
by the joint venture property during such period in the course of
business, (ii) capital expenditures paid in cash during such
period, (iii) payments during such period on account of
amortization of the principal of any debts or liabilities of the
joint venture property and (iv) reserves for contingent
liabilities and future expenses of the joint venture property as
established by the Partners; provided, however, that the amounts
referred to in (B) (i), (ii), and (iii) above shall only be taken
into account to the extent not funded by capital contributions or
paid out of previously established reserves. Percentage interest
means that percentage which the capital contribution 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 pursuant to
the Joint Venture agreement.
40
D) 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.
E) Cash and Equivalents - Restricted
---------------------------------
Cash and equivalents - restricted represents funds which have
been escrowed with a mortgage company for property taxes in
accordance with the loan agreement.
F) 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 10-30 years for
land improvements and 5-30 years for building and improvements.
The aggregate cost of Blankenbaker Business Center 1A for federal
tax purposes as of December 31, 2000 is $7,354,221.
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, 2000, 1999 and
1998 did not result in an impairment loss.
G) Revenue Recognition - Rental Income and Capitalized Leasing Costs
-----------------------------------------------------------------
For financial reporting purposes, the income from commercial
leases is recognized on a straight-line basis over the lease
term. There was no accrued income connected with commercial
leases as of December 31, 2000 and 1999 due to the renewal lease
having no scheduled and specified rent increases. All commissions
paid to commercial property leasing agents are deferred and
amortized on a straight-line basis over the applicable lease
term.
H) Advertising
-----------
The Joint Venture expenses advertising costs as incurred.
Advertising expense was immaterial to the Joint Venture during
the years ended December 31, 2000, 1999 and 1998.
41
2. Concentration of Credit Risk
----------------------------
The Joint Venture owns and operates a commercial property in
Louisville, Kentucky. The sole tenant which occupies 100% of the
property is a business which has operations in the Louisville area.
3. Land, Buildings and Amenities
-----------------------------
The following schedule provides an analysis of the Joint Venture
investment in property held for lease as of December 31:
2000 1999
---- ----
Land and improvements $ 2,232,929 $ 2,235,254
Building and improvements 5,121,291 5,121,291
----------- -----------
7,354,220 7,356,545
Less accumulated depreciation 3,849,722 3,647,509
----------- -----------
$ 3,504,498 $ 3,709,036
=========== ===========
4. Mortgage Payable
----------------
Mortgage payable as of December 31 consist of the following:
2000 1999
---- ----
Mortgage payable to an insurance
company, bearing interest at a
fixed rate of 8.5%, due November 15,
2005, secured by land and buildings. $ 2,697,393 $ 3,121,473
----------- -----------
$ 2,697,393 $ 3,121,473
=========== ===========
The mortgage is payable in monthly aggregate installments of $60,692
(includes principal, interest and tax).
Scheduled maturities of debt are as follows:
For the Years Ended December 31, Amount
-------------------------------- ------
2001 $ 461,565
2002 502,362
2003 546,767
2004 595,096
2005 591,603
-----------
$ 2,697,393
===========
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 $2,729,000.
42
5. Rental Income Under Operating Lease
-----------------------------------
The following is a schedule of minimum future rental income on
noncancellable operating leases as of December 31, 2000:
For the Years Ended December 31, Amount
-------------------------------- ------
2001 $ 752,787
2002 752,787
2003 752,787
2004 752,787
2005 439,126
-----------
$ 3,450,274
-----------
6. Related Party Transactions
--------------------------
Pursuant to an agreement with the partnerships which formed the
Blankenbaker Business Center Joint Venture, NTS Development Company,
an affiliate of the General Partners of the partnerships, receives
property management fees on a monthly basis. The fee is equal to 6% of
the gross revenues from the partnerships' commercial properties. Also
permitted by an agreement, NTS Development Company will receive a
repair and maintenance fee equal to 5.9% of costs incurred which
relate to capital improvements. These repair and maintenance fees are
capitalized as part of land, buildings and amenities. The Blankenbaker
Business Center Joint Venture was charged the following amounts from
NTS Development Company for the years ended December 31, 2000, 1999
and 1998. These charges include items which have been expensed as
operating expenses - affiliated or professional and administrative
expenses - affiliated and items which have been capitalized as other
assets or as land, buildings and amenities.
For the Twelve Months Ended
December 31,
------------
2000 1999 1998
---- ---- ----
Property management fees $ 54,486 $ 53,825 $ 57,091
-------- -------- --------
Property management 15,563 42,603 47,306
Leasing -- 250 --
Administrative - operating 17,268 19,133 11,231
Other 971 960 4,417
-------- -------- --------
Total operating expenses
- affiliated 33,802 62,946 62,954
-------- -------- --------
Professional and administrative
expenses - affiliated 200,000 210,000 180,000
-------- -------- --------
Total related party transactions $288,288 $326,771 $300,045
======== ======== ========
The professional and administrative expenses - affiliated includes a
cost recovery to provide for expenditures made on the Joint Venture's
behalf.
43
7. Commitments and Contingencies
-----------------------------
The Joint Venture, as an owner of real estate, is subject to various
environmental laws of federal, state and local governments. Compliance
by the Joint Venture with existing laws has not had a material adverse
effect on the Joint Venture's financial condition and results of
operations. However, the Joint Venture cannot predict the impact of
new or changed laws or regulations on its current property or on
properties that it may acquire in the future.
The Joint Venture does not believe there is any litigation threatened
against the Joint Venture other than routine litigation arising out of
the ordinary course of business some of which is expected to be
covered by insurance, none of which is expected to have a material
effect on the balance sheets and statements of operations of the Joint
Venture.
8. Segment Reporting
-----------------
The Joint Venture's reportable operating segments include only one
segment - Commercial Real Estate Operations.
44
Item 9. Changes in and Disagreements with Accountants on Accounting and
----------------------------------------------------------------------
Financial Disclosures
---------------------
None.
45
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 VII. 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 VII are as follows:
J. D. Nichols
- -------------
Mr. Nichols (age 59) is the managing General Partner of NTS-Properties
Associates VII and is Chairman of the Board of NTS Corporation (since 1985) and
NTS Development Company (since 1977).
NTS Capital Corporation
- -----------------------
NTS Capital Corporation (formerly NTS Corporation) is a Kentucky corporation
formed in October 1979. J. D. Nichols is Chairman of the Board and the sole
director of NTS Capital Corporation.
The Manager of the Partnership's properties is NTS Development Company, the
executive officers and/or directors of which are Messrs. J. D. Nichols, Brian F.
Lavin and Gregory A. Wells.
Brian F. Lavin
- --------------
Mr. Lavin (age 47), President of NTS Corporation and NTS Development Company,
joined the Manager in June 1997. From November 1994 through June 1997, Mr. Lavin
served as President of the Residential Division of Paragon Group, Inc., and as a
Vice President of Paragon's Midwest Division prior to November 1994. In this
capacity, he directed the development, marketing, leasing and management
operations for the firms expanding portfolios. Mr. Lavin attended the University
of Missouri where he received his Bachelor's Degree in Business Administration.
He has served as a Director of the Louisville Apartment Association. He is a
licensed Kentucky Real Estate Broker and Certified Property Manager. Mr. Lavin
is a member of the Institute of Real Estate Management, and council member of
the Urban Land Institute. He currently serves on the University of Louisville
Board of Overseers and is on the Board of Directors of the National
Multi-Housing Council and the Louisville Science Center.
Gregory A. Wells
- ----------------
Mr. Wells (age 42), Senior Vice President and Chief Financial Officer of NTS
Corporation and NTS Development Company, joined the Manager in July, 1999. From
May 1998 through July 1999, Mr. Wells served as Chief Financial Officer of
Hokanson Companies, Inc. and as Secretary and Treasurer of Hokanson Construction
Inc., Indianapolis, Indiana from January 1995 through May 1998. In these
capacities, he directed financial and operational activities for commercial
rental real estate, managed property, building and suite renovations, out of
ground commercial and residential construction and third party management. Mr.
Wells previously served as Vice President of Operations and Treasurer of
Executive Telecom Systems, Inc. a subsidiary of the Bureau of National Affairs,
Inc. (Washington, D.C.). Mr. Wells attended George Mason University, where he
received a Bachelor's Degree in Business Administration. Mr. Wells is a
Certified Public Accountant in both Virginia and Indiana and is active in
various charitable and philanthropic endeavors in the Louisville and
Indianapolis areas.
46
Item 11. Management Remuneration and Transactions
----------------------------------------
The officers and/or directors of the corporate General Partner received no
direct remuneration in such capacities. The Partnership is required to pay a
property management fee based on gross revenues to NTS Development Company. The
Partnership is also required to pay to NTS Development Company a repair and
maintenance fee on costs related to specific projects and a refinancing fee on
net cash proceeds from the refinancing of any Partnership property. Also, NTS
Development Company provides certain other services to the Partnership. See Note
6 to the consolidated financial statements which sets forth transactions with
affiliates to the General Partner for the years ended December 31, 2000, 1999
and 1998.
The General Partner is entitled to receive cash distributions and allocations of
profits and losses from the Partnership. See Note 1E to the consolidated
financial statements which describes the methods used to determine income
allocations and cash distributions.
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
The following provides details regarding owners of more than 5% of the total
outstanding limited partnership Units as of February 28, 2001.
ORIG, LLC 89,017 Units (16.09%)
10172 Linn Station Rd.
Louisville, Kentucky 40223
ORIG, LLC is a Kentucky limited liability company, the members of which are J.
D. Nichols (1%), Barbara M. Nichols (J.D. Nichols' wife) (74%), and Brian F.
Lavin (25%). J.D. Nichols and Brian F. Lavin are the Chairman and President,
respectively, of NTS Capital Corporation, a general partner of NTS Properties
Associates VII, the General Partner of the Partnership.
The General Partner is NTS-Properties Associates VII, a Kentucky limited
partnership, 10172 Linn Station Road, Louisville, Kentucky 40223. The general
partners of the General Partner and their total respective interests in
NTS-Properties Associates VII are as follows:
J. D. Nichols 36.05%
10172 Linn Station Road
Louisville, Kentucky 40223
NTS Capital Corporation 11.95%
10172 Linn Station Road
Louisville, Kentucky 40223
The remaining 52.00% interests are owned by various limited partners of
NTS-Properties Associates VII.
47
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------------
- Continued
-----------
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires that
certain persons, including persons who own more than ten percent of the
Partnership's limited partnership interests, file initial statements of
beneficial ownership (Form 3), and statements of changes in beneficial ownership
(Forms 4 or 5), with the U.S. Securities and Exchange Commission (the "SEC").
The SEC requires that these persons furnish the Partnership with copies of all
forms filed with the SEC.
To the Partnership's knowledge, based solely on its review of the copies for the
forms received by it, or written representations from certain reporting persons
that no additional forms were required for those persons, the Partnership
believes that ORIG, LLC was late in filing one Form 4 relating to one purchase
of the Partnership's limited partnership interests in connection with a tender
offer made during 2000.
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
Pursuant to an agreement with the Partnership, NTS Development Company, an
affiliate of the General Partner of the Partnership, receives property
management fees on a monthly basis. The fee is equal to 5% of gross revenues
from the residential properties. Also pursuant to an agreement with the
Partnership, NTS Development Company will receive a repair and maintenance fee
equal to 5.9 % of costs incurred which relate to capital improvements. These
repair and maintenance fees are capitalized as part of land, buildings and
amenities. The Partnership was charged the following amounts from NTS
Development Company for the years ended December 31, 2000, 1999, and 1998. These
charges include items which have been expensed as operating expenses -
affiliated or professional and administrative expenses - affiliated and items
which have been capitalized as other assets or as land, buildings and amenities.
These charges were as follows:
For the Twelve Months Ended
December 31,
------------
2000 1999 1998
---- ---- ----
Property management fees $ 83,823 $ 85,781 $ 83,462
-------- -------- --------
Property management 138,777 129,491 174,665
Leasing 25,057 40,017 39,136
Administrative - operating 70,758 76,802 20,208
Other 1,209 87 162
-------- -------- --------
Total operating expenses - affiliated 235,801 246,397 234,171
-------- -------- --------
Professional and administrative expenses -affiliated 54,404 44,540 53,700
-------- -------- --------
Repairs and maintenance fee 9,340 6,029 1,410
Loan costs -- -- 7,500
Construction management 116 -- 23
-------- -------- --------
Total related party transactions capitalized 9,456 6,029 8,933
-------- -------- --------
Total related party transactions $383,484 $382,747 $380,266
======== ======== ========
48
Item 13. Certain Relationships and Related Transactions - Continued
----------------------------------------------------------
On February 7, 2000, ORIG, LLC (the "Affiliate") purchased Interests in the
Partnership and pursuant to an Agreement, Bill of Sale and Assignment by and
among the Affiliate and four investors in the Partnership (the "Purchase
Agreement"). The Affiliate purchased 2,251 Interests in the Partnership for a
total consideration of $15,082 or an average price of $6.70 per Interest. The
Affiliate paid these investors a premium above the purchase price previously
offered for Interests pursuant to prior tender offers because this purchase
allowed the Affiliate to purchase substantial numbers of Interests without
incurring the significant expenses involved with a tender offer and multiple
transfers.
There are no other agreements or relationships between the Partnership, the
General Partner and its affiliates than those previously discussed.
49
PART IV
-------
Item 14. Exhibits, Consolidated Financial Statement Schedules, and Reports on
----------------------------------------------------------------------
Form 8-K
--------
1. Consolidated Financial Statements
---------------------------------
The financial statements for the years ended December 31, 2000, 1999,
and 1998, along with the report from Arthur Andersen, LLP dated March
9, 2001, appear in Part II, Item 8. The following schedules should be
read in conjunction with those consolidated financial statements.
2. Consolidated Financial Statement Schedules
------------------------------------------
Schedules Page No.
--------- --------
III-Real Estate and Accumulated Depreciation 51-52
All other schedules have been omitted because they are not applicable,
are not required, or because the required information is included in
the financial statements or notes thereto.
3. Exhibits
--------
Exhibit No. Page No.
----------- --------
3. Amended and Restated Agreement and Certificate *
of Limited Partnership of NTS-Properties VII, Ltd.,
a Florida limited partnership
10. Property Management and Construction Agreement *
between NTS Development Company and
NTS-Properties VII, Ltd.
* Incorporated by reference to documents filed with the Securities
and Exchange Commission in connection with the filing of the
Registration Statements on Form S-11 on May 15, 1987 (effective
October 29, 1987) under Commission File No. 33-14308.
4. Reports on Form 8-K
-------------------
None.
50
NTS-PROPERTIES VII, LTD.
------------------------
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
-------------------------------------------------------
AS OF DECEMBER 31, 2000
-----------------------
Park Place
The Park at Apartments
the Willows Phase II Total
----------- -------- -----
Encumbrances None (A)
Initial cost to partnership:
Land $ 457,048 $ 2,616,693 $ 3,073,741
Buildings and improvements 2,091,968 7,692,119 9,784,087
Cost capitalized subsequent to acquisition:
Improvements (net of retirements) 74,629 236,377 311,006
Gross amount at which carried
December 31, 2000 (B):
Land $ 458,517 $ 2,633,462 $ 3,091,979
Buildings and improvements 2,165,128 7,911,727 10,076,855
----------- ----------- -----------
Total $ 2,623,645 $10,545,189 $13,168,834 (D)
=========== =========== ===========
Accumulated depreciation $ 1,060,881 $ 4,032,057 $ 5,092,938 (D)
=========== =========== ===========
Date of construction N/A 02/90
Date Acquired 05/88 N/A
Life at which depreciation in latest
income statement is computed (C) (C)
(A) First mortgage held by an insurance company.
(B) Aggregate cost of real estate for tax purposes is $12,645,094.
(C) Depreciation is computed using the straight-line method over the estimated
useful lives of the assets which are 7-30 years for land improvements, 5-30
years for buildings and improvements and 5-30 years for amenities.
(D) Reconciliation, net of accumulated depreciation to consolidated financial
statements:
Total gross cost at December 31, 2000 $ 13,168,834
Additions to Partnership for computer hardware and software in 1998 8,797
Additions to Partnership for computer hardware and software in 1999 9,144
-------------
Balance at December 31, 2000 13,186,775
Less accumulated depreciation (5,092,938)
Less accumulated depreciation for Partnership computer hardware and
software (5,382)
-------------
Land, Buildings and Amenities, net at December 31, 2000 $ 8,088,455
=============
51
NTS-PROPERTIES VII, LTD.
------------------------
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
-------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
----------------------------------------------------
Real Accumulated
Estate Depreciation
------ ------------
Balances at December 31, 1997 $ 12,851,484 $ 3,998,932
Additions during period:
Improvements 165,398 --
Depreciation -- 403,860
Deductions during period:
Retirements (46,740) (33,730)
------------- -------------
Balances at December 31, 1998 12,970,142 4,369,062
Additions during period:
Improvements 120,326 --
Depreciation -- 394,350
Deductions during period:
Retirements (5,570) (5,570)
------------- -------------
Balances at December 31, 1999 13,084,898 4,757,842
Additions during period:
Improvements 199,637 --
Depreciation -- 380,890
Deductions during period:
Retirements (97,760) (40,412)
------------- -------------
Balances at December 31, 2000 $ 13,186,775 $ 5,098,320
============= =============
52
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NTS-PROPERTIES VII, LTD.
------------------------------------------
(Registrant)
BY: NTS-Properties Associates VII,
General Partner
BY: NTS Capital Corporation,
General Partner
/s/ Gregory A. Wells
------------------------------------------
Gregory A. Wells
Senior Vice President and Chief Financial
Officer of NTS Capital Corporation
Date: April 2, 2001
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
Form 10-K has been signed below by the following persons on behalf of the
registrant in their capacities and on the date indicated above.
Signature Title
--------- -----
/s/ J. D. Nichols
- --------------------------
J. D. Nichols General Partner of NTS-Properties Associates
VII and Chairman of the Board and Sole
Director of NTS Capital Corporation.
/s/ Brian F. Lavin
- --------------------------
Brian F. Lavin President and Chief Operating Officer of NTS
Capital Corporation
/s/ Gregory A. Wells
- --------------------------
Gregory A. Wells Senior Vice President and Chief Financial
Officer of NTS Capital Corporation
The Partnership is a limited partnership and no proxy material has been sent to
the limited partners. The Partnership will deliver to the limited partners an
annual report containing the Partnership's consolidated financial statements and
a message from the General Partner.
53