<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to __________________
Commission File Number 0-11176
NTS-PROPERTIES III
(Exact name of registrant as specified in its charter)
Georgia 61-1017240
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10172 Linn Station Road
Louisville, Kentucky 40223
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number,
including area code (502) 426-4800
Not Applicable
-------------------------------------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report
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.
Yes X No
Exhibit Index: See page 14
Total Pages: 15
<PAGE>
TABLE OF CONTENTS
Pages
PART I
Item 1. Financial Statements
Balance Sheets and Statement of Partners' Equity
As of June 30, 1996 and December 31, 1995 3
Statements of Operations
For the three months and six months ended
June 30, 1996 and 1995 4
Statements of Cash Flows
For the three months and six months ended
June 30, 1996 and 1995 5
Notes to Financial Statements 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-13
PART II
1. Legal Proceedings 14
2. Changes in Securities 14
3. Defaults upon Senior Securities 14
4. Submission of Matters to a Vote of Security Holders 14
5. Other Information 14
6. Exhibits and Reports on Form 8-K 14
Signatures 15
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<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
NTS-PROPERTIES III
BALANCE SHEETS AND STATEMENT OF PARTNERS' EQUITY
<CAPTION>
As of As of
June 30, 1996 December 31, 1995*
------------- ------------------
ASSETS
<S> <C> <C>
Cash and equivalents $ 334,826 $ 626,884
Cash and equivalents - restricted 465,432 387,796
Investment securities 642,627 103,055
Accounts receivable, net of
allowance for doubtful accounts of
$47,275 (1996) and $90,332 (1995) 211,523 176,811
Land, buildings and amenities, net 9,184,451 9,585,286
Other assets 239,992 241,022
----------- -----------
$11,078,851 $11,120,854
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Mortgages payable $ 6,913,321 $ 6,964,619
Accounts payable - operations 77,068 72,807
Accounts payable - construction 29,078 1,907
Distributions payable 36,213 37,125
Security deposits 94,833 95,494
Other liabilities 118,850 13,171
----------- -----------
7,269,363 7,185,123
Partners' equity 3,809,488 3,935,731
----------- -----------
$11,078,851 $11,120,854
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Limited General
Partners Partner Total
-------- ------- -----
PARTNERS' EQUITY
<S> <C> <C> <C>
Initial equity $ 15,600,000 $ 8,039,710 $ 23,639,710
Adjustment to historical
basis -- (5,455,030) (5,455,030)
---------- ---------- ----------
15,600,000 2,584,680 18,184,680
Net Loss - prior years (448,502) (2,195,635) (2,644,137)
Net income (loss) -
current year 70,470 (48,151) 22,319
Cash distributions
declared to date (11,314,469) (206,985) (11,521,454)
Repurchase of limited
partnership units (231,920) -- (231,920)
------------- ------------- ------------
$ 3,675,579 $ 133,909 $ 3,809,488
============= ============== ============
<FN>
* Reference is made to the audited financial statements in the Form 10-K as
filed with the Commission on March 29, 1996.
</FN>
</TABLE>
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<PAGE>
<TABLE>
NTS-PROPERTIES III
STATEMENTS OF OPERATIONS
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Rental income, net of provision
for doubtful accounts of $18,338
(1996) and $41,564 (1995) $ 713,211 $ 665,027 $ 1,426,411 $ 1,346,718
Rental income - affiliated 78,165 78,165 158,169 156,330
Interest and other income 12,449 9,808 23,315 21,647
----------- ----------- ------------ ------------
803,825 753,000 1,607,895 1,524,695
EXPENSES:
Operating expenses 169,408 149,063 356,285 306,473
Operating expenses - affiliated 82,679 77,352 168,248 165,178
Write-off of unamortized tenant
and building improvements -- 33,031 -- 41,273
Interest expense 140,906 144,823 282,808 297,521
Management fees 41,950 39,761 77,686 78,251
Real estate taxes 53,793 54,243 107,585 108,540
Professional and administrative
expenses 14,552 12,288 32,983 27,342
Professional and administrative
expenses - affiliated 35,228 36,211 74,165 72,612
Depreciation and amortization 228,820 258,476 485,816 510,675
----------- ----------- ------------ ------------
767,336 805,248 1,585,576 1,607,865
----------- ----------- ------------ ------------
Net income (loss) $ 36,489 $ (52,248) $ 22,319 $ (83,170)
=========== =========== ============ ============
Net income (loss) allocated to the
limited partners $ 60,089 $ (25,844) $ 70,470 $ (31,865)
=========== =========== ============ ============
Net income (loss) per limited
partnership unit $ 4.13 $ (1.66) $ 4.82 $ (2.04)
=========== =========== ============ ============
Weighted average number of units 14,536 15,600 14,634 15,600
=========== =========== ============ ============
</TABLE>
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<PAGE>
<TABLE>
NTS-PROPERTIES III
STATEMENTS OF CASH FLOWS
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1996 1995 1996 1995
---- ---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C> <C>
Net income (loss) $ 36,489 $ (52,248) $ 22,319 $ (83,170)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Provision for doubtful accounts 6,380 17,090 18,338 41,564
Accrued interest on investment
securities (2,885) (3,884) (1,483) (3,884)
Write-off of unamortized tenant and
building improvements -- 33,031 -- 41,273
Depreciation and amortization 228,820 258,476 485,816 510,675
Changes in assets and liabilities:
Cash and equivalents - restricted (15,615) (17,775) (31,230) (34,178)
Accounts receivable 29,097 (50,242) (53,050) (16,651)
Other assets 9,870 (3,246) (9,211) (35,414)
Accounts payable - operations (39,990) (20,971) 4,261 13,907
Security deposits (95) (3,714) (661) 6,694
Other liabilities 37,090 51,391 105,679 97,722
------------ ------------ ------------ -------------
Net cash provided by operating
activities 289,161 207,908 540,778 538,538
------------ ------------ ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to land, buildings and
amenities (37,995) (191,541) (47,569) (372,167)
Increase in cash and equivalents -
restricted (23,363) (21,932) (46,406) (43,557)
Purchase of investment securities (639,742) (299,808) (639,742) (299,808)
Maturity of investment securities -- -- 101,653 --
------------ ------------ ------------ -------------
Net cash used in investing
activities (701,100) (513,281) (632,064) (715,532)
------------ ------------ ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgages
payable (25,940) (23,687) (51,298) (46,841)
Cash distributions (36,429) (39,000) (73,554) (78,000)
Repurchase of limited partnership
units (18,096) -- (75,920) --
Decrease in cash and equivalents -
restricted 17,176 -- -- --
------------ ------------ ------------ -------------
Net cash used in financing
activities (63,289) (62,687) (200,772) (124,841)
------------ ------------ ------------ -------------
Net decrease in cash and equivalents (475,228) (368,060) (292,058) (301,835)
CASH AND EQUIVALENTS, beginning of
period 810,054 800,428 626,884 734,203
------------ ------------ ------------ -------------
CASH AND EQUIVALENTS, end of period $ 334,826 $ 432,368 $ 334,826 $ 432,368
============ ============ ============ =============
Interest paid on a cash basis $ 141,511 $ 147,441 $ 283,606 $ 299,527
============ ============ ============ =============
</TABLE>
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<PAGE>
NTS-PROPERTIES III
NOTES TO FINANCIAL STATEMENTS
The financial statements included herein should be read in conjunction with the
Partnership's 1995 Annual Report. In the opinion of the General Partner, all
adjustments (only consisting of normal recurring accruals) necessary for a fair
presentation have been made to the accompanying financial statements for the
three months and six months ended June 30, 1996 and 1995.
1. Cash and Equivalents - Restricted
- ------------------------------------
Cash and equivalents - restricted represent 1) escrow funds which are to
be released as the heating, ventilating and air conditioning system and
asphalt paving at Peachtree Corporate center are replaced, 2) funds which
have been escrowed with a mortgage company for Plainview Plaza II's
property taxes in accordance with the loan agreement and 3) funds which
the Partnership has reserved for the repurchase of limited partnership
units.
2. Interest Repurchase Reserve
- ------------------------------
On January 3, 1996, the Partnership elected to fund an additional $100,000
to its Interest Repurchase Reserve which was established in 1995 pursuant
to Section 16.4 of the Partnership's Amended and Restated Agreement of
Limited Partnership. On May 24, 1996, the Partnership elected to fund an
additional amount of $143,700 to the Interest Repurchase Reserve. The 1995
and 1996 fundings will enable the Partnership to repurchase a total of
1,920 Units at a price of $208 per Unit. As of June 30, 1996, the
Partnership had repurchased a total of 1,115 Units. Repurchased Units are
retired by the Partnership, thus increasing the share of ownership of each
remaining investor.
3. Investment Securities
- ---------------------------
Investment securities represent investments in Certificates of Deposit or
debt securities issued by the U.S. Government and its agencies with
initial maturities of greater than three months. The investments are
carried at cost which approximates market value. The Partnership intends
to hold the securities until maturity. During the six months ended June
30, 1996 and 1995, the Partnership sold no investment securities. The
following provides details regarding the investments held at June 30,
1996:
Amortized Maturity Value At
Type Cost Date Maturity
FHLMC Discount Note $ 174,258 08/01/96 $ 175,000
Certificate of Deposit 110,624 08/30/96 111,490
FNMA Discount Note 197,745 09/20/96 200,000
Certificate of Deposit 17,686 11/01/96 17,934
Fed. Farm Cr. Bank Discount
Note 142,314 11/04/96 145,000
---------- -----------
$ 642,627 $ 649,424
========== ===========
4. New Accounting Pronouncement
- ----------------------------------
In March 1995, the Financial Accounting Standards Board issued Statement
No. 121 (the "Statement") on accounting for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to assets
to be held and used. The Statement also establishes accounting standards
for long-lived assets and certain identifiable intangibles to be disposed
of. The Partnership adopted the Statement as of January 1, 1996 as
required. No adjustments were required.
-6-
<PAGE>
5. Mortgages Payable
- -----------------------
Mortgages payable consist of the following:
June 30, December 31,
1996 1995
------------ -------------
Mortgage payable to an insurance
company maturing June 1, 2001, secured
by land and buildings, bearing a
variable interest rate based on the
10-year treasury bill rate plus 60
basis points. The rate is adjusted
quarterly. The current rate at June
30, 1996 is 7.65%. $ 4,500,000 $ 4,500,000
Mortgage payable to an insurance
company bearing interest at 9.125%,
maturing November 1, 1998, secured by
land and building. 2,413,321 2,464,619
------------ -------------
$ 6,913,321 $ 6,964,619
============ =============
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 $7,300,000.
Effective July 1, 1996, the interest rate on the $4,500,000 mortgage
payable adjusted to 7.46%.
6. Related Party Transactions
- --------------------------------
Property management fees of $77,686 and $78,251 for the six months ended
June 30, 1996 and 1995, respectively, were paid to NTS Development
Company, an affiliate of the General Partner, pursuant to an agreement
with the Partnership. The fee is equal to 5% of gross revenues from the
Partnership's properties. Also, as permitted by the partnership agreement,
NTS Development Company will receive a repair and maintenance fee equal to
5.9% of costs incurred which relate to capital improvements. The
Partnership has incurred $3,580 and $19,308 as a repair and maintenance
fee during the six months ended June 30, 1996 and 1995, respectively, and
has capitalized this cost as a part of land, buildings and amenities.
As permitted by the partnership agreement, the Partnership also was
charged the following amounts from NTS Development Company for the six
months ended June 30, 1996 and 1995. These charges include items which
have been expensed as operating expenses - affiliated or professional and
administrative expenses - affiliated and items which have been capitalized
as other assets or as land, buildings and amenities.
1996 1995
---- ----
Leasing $ 65,553 $ 78,045
Administrative 89,792 88,137
Property manager 102,593 95,634
Other 4,846 5,912
----------- -----------
$ 262,784 $ 267,728
=========== ===========
During the six months ended June 30, 1996 and 1995, NTS Development
Company leased approximately 23,000 square feet of the available space in
the Plainview Plaza II property at a base rent of approximately $13.50 per
square foot. The Partnership has received approximately $158,000 in rental
payments from NTS Development Company during the six months ended June 30,
1996 and 1995. The lease expires February 1997.
-7-
<PAGE>
7. Reclassification 1995 Financial Statements
- ------------------------------------------------
Certain reclassifications have been made to the June 30, 1995 financial
statements to conform with June 30, 1996 classifications. These
reclassifications have no effect on previously reported operations.
-8-
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
- ---------------------
The occupancy levels at the Partnership's properties as of June 30 were as
follows:
1996 1995
---- ----
Plainview Plaza II 82% 86%
Plainview Triad North 93% 94%
Peachtree Corporate Center 96% 92%
The rental and other income generated by the Partnership's properties for the
three months and six months ended June 30 was as follows:
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1996 1995 1996 1995
---- ---- ---- ----
Plainview Plaza II
$ 262,761 $ 267,895 $ 535,084 $ 553,058
Plainview Triad North $ 259,535 $ 244,017 $ 499,859 $ 470,530
Peachtree Corporate Center $ 269,689 $ 231,694 $ 552,170 $ 486,169
Plainview Plaza II's occupancy decreased 4% from June 30, 1995 to June 30, 1996
as a result of two tenants, who had occupied approximately 5,100 square feet,
vacating at the end of the lease terms. Average occupancy at Plainview Plaza II
decreased from 85% in 1995 to 82% in 1996 for the three months and six months
ended June 30. The decrease in rental and other income at Plainview Plaza II for
the three months and six months ended June 30, 1996 as compared to the same
periods in 1995 is due to the decrease in average occupancy.
The Partnership has negotiated a five-year lease renewal and expansion with the
Kroger Company, a major tenant at Plainview Plaza II. The renewal extends the
lease to December 31, 2004 and the expansion is for 5,417 square feet. When the
Kroger Company takes occupancy of the additional space during 1996, Plainview
Plaza II will be 86% occupied.
Plainview Triad North's occupancy decreased 1% from June 30, 1995 to June 30,
1996 as a result of a move-out by one tenant (occupied a total of approximately
1,200 square feet) and the downsizing (3,900 square feet) of one tenant.
Partially offsetting the tenant move-out and downsizing is a new lease totalling
approximately 4,900 square feet. Average occupancy at Plainview Triad North
decreased from 95% (1995) to 93% (1996) for the three months and six months
ended June 30. Rental and other income increased for the three months and six
months ended June 30, 1996 as compared to the same periods in 1995 due to an
increase in rental rates for lease renewals and a decrease in the provision for
doubtful accounts. Partially offsetting the increase in rental and other income
at Plainview Triad North is the slight decrease in average occupancy.
Peachtree Corporate Center's occupancy increased 4% from June 30, 1995 to June
30, 1996 due to 10 new leases totalling approximately 26,000 square feet. Of
this total, approximately 7,700 square feet represents expansions by three
current tenants. Partially offsetting the new leases are 8 tenant move-outs
totalling approximately 18,000 square feet. Approximately 4,600 square feet of
this total represents two tenants who vacated and ceased making rental payments
in breach of the lease terms due principally to bankruptcies. Accrued income
associated with these leases was not significant. The remaining 13,400 square
feet represents five tenants (occupied a total of approximately 12,200 square
-9-
<PAGE>
Results of Operations - Continued
- ---------------------------------
feet) who vacated at the end of the lease terms and the downsizing (1,200 square
feet) of one tenant. Average occupancy at Peachtree Corporate Center increased
from 90% (1995) to 94% (1996) for the three month period ended June 30 and from
87% (1995) to 93% (1996) for the six month period. Rental and other income at
Peachtree Corporate Center increased for the three months and six months ended
June 30, 1996 as compared to the same periods in 1995 as a result of an increase
in average occupancy and a decrease in the provision for doubtful accounts.
In cases of tenants who cease making rental payments or abandon the premises in
breach of their lease, the Partnership pursues collection through the use of
collection agencies or other remedies available by law when practical. In the
case of tenants who vacated Peachtree Corporate Center as a result of
bankruptcy, the Partnership has taken legal action when it was thought there
could be a possible collection. There have been no significant funds recovered
as a result of these actions during the six months ended June 30, 1996.
Approximately $5,500 was recovered during the six months ended June 30, 1995. As
of June 30, 1996 there were no on-going cases.
Current occupancy levels are considered adequate to continue the operation of
the Partnership's properties without the need for any additional financing.
Interest and other income includes interest income earned from short-term
investment made by the partnership with excess cash and from funds escrowed for
the replacement of the heating, ventilating, and air conditioning ("HVAC")
system and asphalt paving at Peachtree Corporate Center (Cash and equivalents
restricted). The change in interest income for the three months and six months
ended June 30, 1996 as compared to the same periods in 1995 was not significant.
Operating expenses increased for the three months and six months ended June 30,
1996 as compared to the same periods in 1995 as a result of increased janitorial
and landscaping costs at Plainview Plaza II and Plainview Triad North, increased
utility costs at Plainview Plaza II and increased HVAC repair and replacement
costs at Plainview Triad North. Operating expenses at Peachtree Corporate Center
remained fairly constant during the six month period. The increase in operating
expenses for the three month period is partially offset by decreased landscape
replacement costs at Peachtree Corporate Center.
The change in operating expenses - affiliated for the three months and six
months ended June 30, 1996 as compared to the same periods in 1995 was not
significant. Operating expenses - affiliated are expenses incurred for services
performed by employees of NTS Development Company, an affiliate of the General
Partner.
The 1995 write-off of unamortized tenant and building improvements can be
attributed to Peachtree Corporate Center (tenant improvements) and Plainview
Plaza II (building improvements). Changes to current tenant improvements are a
typical part of any lease negotiation. Improvements generally include a revision
to the current floor plan to accommodate a tenant's needs, new carpeting and
paint and/or wallcovering. In order to complete the renovation, it is sometimes
necessary to replace improvements which have not been fully depreciated. This
results in a write-off of unamortized tenant improvements. The write-off of
unamortized building improvements at Plainview Plaza II is the result of a
common area lobby renovation. The renovation included an upgrade of current
restroom facilities, new carpet and wallcoverings. The write-off represents the
cost of previous renovations which had not been fully depreciated.
The decrease in interest expense for the three months and the six months ended
June 30, 1996 as compared to the same periods in 1995 is due to the fact that
the interest rate on the $4,500,000 mortgage payable was lower in 1996 compared
to 1995. The interest rate was 8.41% January to March 1995 and 7.76% April to
June 1995 versus 7.65% in 1996. The interest rate on this note adjusts quarterly
to 60 basis points over the 10-year treasury bill rate. The decrease in interest
expense for the three month and the six month periods is also due to a decrease
in interest expense on the $2,413,321 mortgage payable as a result of continued
principal payments. See the Liquidity and Capital Resources section of this item
for details regarding the Partnership's debt.
-10-
<PAGE>
Results of Operations - Continued
- ---------------------------------
Management fees are calculated as a percentage of cash collections; however,
revenue for reporting purposes is on the accrual basis. As a result, the
fluctuations of revenues between periods will differ from the fluctuations of
management fee expense.
The change in real estate taxes for the three months and six months ended June
30, 1996 as compared to the same periods in 1995 was not significant.
The increase in professional and administrative expenses for the six months
ended June 30, 1996 as compared to the same period in 1995 is due to an increase
in outside legal fees which relate to the Partnership's Interest Repurchase
Program. The change in professional and administrative expenses for the three
month period was not significant.
Professional and administrative expenses - affiliated remained fairly constant
for the three months and six months ended June 30, 1996 as compared to the same
periods in 1995. Professional and administrative expenses - affiliated are
expenses incurred for services performed by employees of NTS Development
Company, an affiliate of the General Partner.
The decrease in depreciation and amortization for the three months and six
months ended June 30, 1996 as compared to the same periods in 1995 is due to the
fact that a portion of the Partnership's assets (primarily tenant finish
improvements) have become fully depreciated since June 30, 1995. Depreciation is
computed using the straight-line method over the estimated useful lives of the
assets which are 5 - 30 years for land improvements, 30 years for buildings, 5 -
30 years for building improvements and 3 - 30 years for amenities. The aggregate
cost of the Partnership's properties for Federal tax purposes is approximately
$24,000,000.
Liquidity and Capital Resources
- -------------------------------
The Partnership had cash flow from operations of $540,778 and $538,538 for the
six months ended June 30, 1996 and 1995, respectively. These funds, in
conjunction with cash on hand, were used to make a 1% (annualized) distribution
of $72,640 and $78,000 during the six months ended June 30, 1996 and 1995,
respectively. The annualized distribution rate is calculated as a percent of the
initial equity. The limited partners received 100% of these distributions. The
primary source of future liquidity and distributions is expected to be derived
from cash generated by the Partnership's properties after adequate cash reserves
are established for future leasing and tenant finish costs. Cash reserves (which
are unrestricted cash and equivalents and investment securities as shown on the
Partnership's balance sheet as of June 30) were $977,453 and $736,060 at June
30, 1996 and 1995, respectively.
As of June 30, 1996 the Partnership had a mortgage payable to an insurance
company in the amount of $4,500,000. The mortgage bears a variable interest rate
which adjusts quarterly to 60 basis points over the 10-year treasury bill rate.
At no time during the first five loan years (loan obtained May 1991) did the
rate exceed 11.65% or be less than 7.65% per annum. After the fifth loan year,
no interest rate floor and/or ceiling will apply. The current rate at June 30,
1996 was 7.65%. Effective July 1, 1996, the interest rate adjusted to 7.46%. The
loan is secured by a first mortgage on Plainview Triad North and Peachtree
Corporate Center with a second position behind the holder of the permanent
mortgage on Plainview Plaza II. The unpaid balance of the loan is due June 1,
2001.
As of June 30, 1996, the Partnership also had a mortgage payable to an insurance
company in the amount of $2,413,321. The mortgage bears a fixed interest rate of
9.125% and is due November 1, 1998. The outstanding balance at maturity based on
the current rate of amortization will be $2,140,539.
As previously discussed in the Partnership's Form 10-K for the year ended
December 31, 1995, the General Partner of the Partnership was exploring the
possibility of refinancing the current mortgages payable encumbering the
Partnership's properties. As a result of an increase in current interest rates,
the Partnership has suspended inquiries into alternative financings.
-11-
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
The majority of the Partnership's cash flow is derived from operating
activities. Cash flows used in investing activities are for tenant finish
improvements and other capital additions and are funded by operating activities.
Changes to current tenant improvements are a typical part of any lease
negotiation. Improvements generally include a revision to the current floor plan
to accommodate a tenant's needs, new carpeting and paint and/or wallcovering.
The extent and cost of these improvements are determined by the size of the
space and whether the improvements are for a new tenant or incurred because of a
lease renewal. Cash flows used in investing activities also include cash which
is being escrowed for the replacement of the HVAC system and asphalt paving at
Peachtree Corporate Center and cash used for the purchase of investment
securities. Cash flows provided by investing activities are from the maturity of
investment securities. As part of its cash management activities, the
Partnership has purchased Certificates of Deposit or securities issued by the
U.S. Government with initial maturities of greater than three months to improve
the return on its excess cash. The Partnership intends to hold the securities
until maturity. Cash flows used in financing activities include cash
distributions, principal payments on the $2.4 million mortgage payable,
repurchases of limited partnership Units and cash reserved by the Partnership
for the repurchase of limited partnership Units. The Partnership does not expect
any material changes in the mix and relative cost of capital resources.
A demand on future liquidity is anticipated as the exterior of the NTS Plainview
Plaza II property is being renovated and updated during 1996. The renovation is
designed to make the property more competitive and enhance its value. The
project is anticipated to cost approximately $900,000. The General Partner of
the Partnership anticipates the project will be funded with a combination of
debt financing, cash reserves and cash flow from operating activities.
Subsequent to June 30, 1996, the exterior renovation of this building was
started.
The General Partner also anticipates a demand on future liquidity as a result of
the Partnership's plans to complete the renovation of the common area lobbies at
Plainview Plaza II in 1996. The project is to include an upgrade of current
restroom facilities, improvement of handicap restroom facilities, new carpet and
wallcoverings. The project is anticipated to cost approximately $250,000. A
portion of this project was completed during the first and second quarters of
1995 at a cost of approximately $93,000. The remaining cost of this project is
expected to be funded from cash reserves and cash flow from operations. As of
June 30, 1996, the Partnership had no commitments for the remaining renovations.
In the next 12 months, the General Partner also expects a demand on future
liquidity as a result of 88,780 square feet in leases expiring from July 1, 1996
to June 30, 1997 (Plainview Plaza II - 34,350 square feet, Plainview Triad North
- - 7,120 square feet and Peachtree Corporate Center - 47,310 square feet). At
this time, the future leasing and tenant finish costs which will be required to
renew the current leases or obtain new tenants are unknown. It is anticipated
that the cash flow from operations and cash reserves will be sufficient to meet
the needs of the Partnership. As of June 30, 1996, the Partnership had no
material commitments for tenant finish improvements.
Subsequent to June 30, 1996, the Partnership made a commitment for a $168,000
special tenant finish allowance at Plainview Plaza II as a result of a lease
renewal and expansion with The Kroger Company. This replaces the commitment for
tenant finish improvements of approximately $95,000 reported in the
Partnership's Form 10-K for the year ended December 31, 1995. The expansion
increases the tenant's current leased space of approximately 48,000 square feet
by approximately 5,400 square feet and the renewal extends the lease through
December 2004. The Kroger Company is expected to take occupancy of the expansion
space during 1996. The source of funds for this project is expected to be cash
flow from operations and/or cash reserves.
-12-
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
During 1995, the Partnership established an Interest Repurchase Reserve in the
amount of $156,000 pursuant to Section 16.4 of the Partnership's Amended and
Restated Agreement of Limited Partnership. With these funds, the Partnership was
able to repurchase 750 Units at a price of $208 per Unit. During 1996, the
Partnership elected to fund an additional $243,700 to its Interest Repurchase
Reserve ($100,000 on January 3 and $143,700 on May 24). With these 1996
fundings, the Partnership will be able to repurchase an additional 1,170 Units
at a price of $208 per Unit. As of June 30, 1996, the Partnership had
repurchased a total of 1,115 units. Repurchased Units are retired by the
Partnership, thus increasing the share of ownership of each remaining investor.
The Interest Repurchase Reserve was funded from cash reserves.
The table below presents that portion of the distributions that represent a
return of capital on a Generally Accepted Accounting Principle basis for the six
months ended June 30, 1996 and 1995. The General Partner did not receive a
distribution during these periods. Distributions were funded by cash flow
derived from operating activities.
Net Income Cash
(Loss) Distributions Return of
Allocated Declared Capital
--------- -------- -------
Limited Partners
1996 $ 70,470 $ 72,640 $ 2,170
1995 (31,865) 78,000 78,000
The following describes the efforts being taken by the Partnership to increase
the occupancy levels at the Partnership's properties. At Peachtree Corporate
Center in Norcross, Georgia, the Partnership has an on-site leasing agent, an
employee of NTS Development Company (an affiliate of the General Partner), who
makes calls to potential tenants, negotiates lease renewals with current tenants
and manages local advertising with the assistance of NTS Development Company's
marketing staff. The leasing and renewal negotiations for Plainview Plaza II and
Plainview Triad North are handled by leasing agents, employees of NTS
Development Company, located in Louisville, Kentucky. The leasing agents are
located in the same city as both commercial properties. All advertising for the
Louisville properties is also coordinated by NTS Development Company's marketing
staff located in Louisville, Kentucky.
Leases at all the Partnership's properties provide for tenants to contribute
toward the payment of increases in common area maintenance expenses, insurance,
utilities and real estate taxes. This lease provision should protect the
Partnership's operations from the impact of inflation and changing prices.
-13-
<PAGE>
PART II. OTHER INFORMATION
1. Legal Proceedings
None
2. Changes in Securities
None
3. Defaults upon Senior Securities
None
4. Submission of Matters to a Vote of Security Holders
None
5. Other Information
None
6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27. Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K was filed May 24, 1996 to report in Item 5 the
Partnership's election to fund an additional $143,700 to its
Interest Repurchase Reserve.
-14-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 III
(Registrant)
BY: NTS-Properties Associates
BY: NTS Capital Corporation,
General Partner
/s/ John W. Hampton
John W. Hampton
Senior Vice President
Date: August 13 , 1996
-15-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET AS OF JUNE 30, 1996 AND FROM THE STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 800,258
<SECURITIES> 642,627
<RECEIVABLES> 211,523
<ALLOWANCES> 47,275
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 9,184,451
<DEPRECIATION> 0<F2>
<TOTAL-ASSETS> 11,078,851
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 6,913,321
0
0
<COMMON> 0
<OTHER-SE> 3,809,488
<TOTAL-LIABILITY-AND-EQUITY> 11,078,851
<SALES> 1,584,580
<TOTAL-REVENUES> 1,607,895
<CGS> 0
<TOTAL-COSTS> 1,195,620
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 18,338
<INTEREST-EXPENSE> 282,808
<INCOME-PRETAX> 22,319
<INCOME-TAX> 0
<INCOME-CONTINUING> 22,319
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,319
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>THE PARTNERSHIP HAS AN UNCLASSIFIED BALANCE SHEET; THEREFORE, THE VALUE
IS $0.
<F2>THIS INFORMATION IS NOT DISCLOSED IN THE PARTNERSHIP'S FORM 10-Q FILING.
</FN>
</TABLE>
