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 September 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
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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
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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 September 30, 1996 and December 31, 1995 3
Statements of Operations
For the three months and nine months ended
September 30, 1996 and 1995 4
Statements of Cash Flows
For the three months and nine months ended
September 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
-2-
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
NTS-PROPERTIES III
BALANCE SHEETS AND STATEMENT OF PARTNERS' EQUITY
<CAPTION>
As of As of
September 30,1996 December 31,1995*
---------------------------- -------------------------
ASSETS
<S> <C> <C>
Cash and equivalents $ 541,814 $ 626,884
Cash and equivalents - restricted 506,430 387,796
Investment securities 379,782 103,055
Accounts receivable, net of
allowance for doubtful accounts of
$65,911 (1996) and $90,332 (1995) 218,372 176,811
Land, buildings and amenities, net 9,002,858 9,585,286
Construction in progress 485,152 --
Other assets 409,845 241,022
------------------ -------------------
$ 11,544,253 $ 11,120,854
================== ===================
LIABILITIES AND PARTNERS' EQUITY
Mortgages payable $ 6,886,784 $ 6,964,619
Accounts payable - operations 259,002 72,807
Accounts payable - construction 369,043 1,907
Distributions payable 35,375 37,125
Security deposits 93,123 95,494
Other liabilities 119,231 13,171
------------------ -------------------
7,762,558 7,185,123
Partners' equity 3,781,695 3,935,731
------------------ -------------------
$ 11,544,253 $ 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 171,143 (71,562) 99,581
Cash distributions
declared to date (11,349,844) (206,985) (11,556,829)
Repurchase of limited
partnership units (301,600) -- (301,600)
------------------- -------------------- -------------------
Balances at September 30, 1996 $ 3,671,197 $ 110,498 $ 3,781,695
=================== ==================== ===================
</TABLE>
* Reference is made to the audited financial statements in the Form 10-K as
filed with the Commission on March 29, 1996.
-3-
<PAGE>
<TABLE>
NTS-PROPERTIES III
STATEMENTS OF OPERATIONS
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------------- --------------------------------------
1996 1995 1996 1995
----------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
REVENUES:
Rental income, net of provision
for doubtful accounts of $36,974
(1996) and $62,788 (1995) $ 730,495 $ 680,406 $ 2,156,906 $ 2,027,124
Rental income - affiliated 78,165 78,165 236,334 234,495
Interest and other income 15,521 10,508 38,835 32,155
----------------- ---------------- ----------------- -----------------
824,181 769,079 2,432,075 2,293,774
EXPENSES:
Operating expenses 179,982 185,219 536,265 491,692
Operating expenses - affiliated 70,934 78,055 239,183 243,234
Write-off of unamortized tenant
and building improvements -- 15,420 -- 56,693
Interest expense 138,778 143,037 421,586 440,558
Management fees 39,278 40,308 116,964 118,558
Real estate taxes 51,485 54,295 159,070 162,835
Professional and administrative
expenses 14,708 15,322 47,691 42,663
Professional and administrative
expenses - affiliated 36,579 36,879 110,744 109,491
Depreciation and amortization 215,176 262,733 700,991 773,408
----------------- ---------------- ----------------- -----------------
746,920 831,268 2,332,494 2,439,132
----------------- ---------------- ----------------- -----------------
Net income (loss) $ 77,261 $ (62,189) $ 99,581 $ (145,358)
================= ================ ================= =================
Net income (loss) allocated to the
limited partners $ 100,673 $ (35,694) $ 171,143 $ (67,558)
================= ================ ================= =================
Net income (loss) per limited
partnership unit $ 7.04 $ (2.29) $ 11.79 $ (4.33)
================= ================ ================= =================
Weighted average number of units 14,296 15,600 14,521 15,600
================= ================ ================= =================
</TABLE>
-4-
<PAGE>
<TABLE>
NTS-PROPERTIES III
STATEMENTS OF CASH FLOWS
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------ -------------------------------------
1996 1995 1996 1995
----------------- ---------------- ----------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C> <C>
Net income (loss) $ 77,261 $ (62,189) $ 99,581 $(145,358)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Provision for doubtful accounts 18,636 21,224 36,974 62,788
Accrued interest on investment
securities (640) 3,884 (2,123) --
Write-off of unamortized tenant and
building improvements -- 15,420 -- 56,693
Depreciation and amortization 215,176 262,733 700,991 773,408
Changes in assets and liabilities:
Cash and equivalents - restricted (15,615) (17,775) (46,845) (51,953)
Accounts receivable (25,485) 20,834 (78,535) 4,183
Other assets (174,973) 6,793 (184,184) (28,622)
Accounts payable - operations 181,934 (5,487) 186,195 8,420
Security deposits (1,710) 869 (2,371) 7,563
Other liabilities 384 5,688 106,063 103,410
----------------- ---------------- ----------------- ----------------
Net cash provided by operating
activities 274,968 251,994 815,746 790,532
----------------- ---------------- ----------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to land, buildings,amenities
and construction in progress (173,652) (121,964) (221,221) (494,131)
Increase in cash and equivalents -
restricted (17,063) (21,192) (63,389) (64,749)
Purchase of investment securities (216,257) -- (855,999) (299,808)
Maturity of investment securities 479,742 299,808 581,395 299,808
----------------- ---------------- ----------------- ----------------
Net cash provided by (used in)
investing activities 72,770 156,652 (559,214) (558,880)
----------------- ---------------- ----------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgages
payable (26,537) (24,231) (77,835) (71,072)
Cash distributions (36,213) (39,000) (109,767) (117,000)
Repurchase of limited partnership
units (69,680) -- (145,600) --
Increase in cash and equivalents -
restricted (8,320) -- (8,400) --
----------------- ---------------- ----------------- ----------------
Net cash used in financing activities (140,750) (63,231) (341,602) (188,072)
----------------- ---------------- ----------------- ----------------
Net increase (decrease) in cash and
equivalents 206,988 345,415 (85,070) 43,580
CASH AND EQUIVALENTS, beginning of
period 334,826 432,368 626,884 734,203
----------------- ---------------- ----------------- ----------------
CASH AND EQUIVALENTS, end of period $ 541,814 $ 777,783 $ 541,814 $ 777,783
================= ================ ================= ================
Interest paid on a cash basis $ 139,491 $ 143,634 $ 423,097 $ 443,161
================= ================ ================= ================
</TABLE>
-5-
<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 nine months ended September 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 September 30, 1996, the
Partnership had repurchased a total of 1,450 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 nine months ended
September 30, 1996 and 1995, the Partnership sold no investment
securities. The following provides details regarding the investments held
at September 30, 1996:
Amortized Maturity Value At
Type Cost Date Maturity
---- -------------- -------------- -------------
Certificate of Deposit $ 17,872 11/01/96 $ 17,934
Fed. Farm Cr. Bank Discount
Note 144,283 11/04/96 145,000
FHLB Discount Note 99,083 12/05/96 100,000
FHLB Discount Note 118,544 12/26/96 120,000
-------------- -------------
$ 379,782 $ 382,934
============== =============
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:
September 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
September 30, 1996 is 7.46%. $ 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. 2,386,784 2,464,619
-------------- -------------
$ 6,886,784 $ 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 $7,250,000.
Effective October 1, 1996, the interest rate on the $4,500,000 mortgage
payable adjusted to 7.33%.
6. Related Party Transactions
Property management fees of $116,964 and $118,558 for the nine months
ended September 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 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. The Partnership has incurred $32,732 and $22,105 as a repair
and maintenance fee during the nine months ended September 30, 1996 and
1995, respectively, and has capitalized this cost as a part of land,
buildings and amenities.
As permitted by an agreement, the Partnership also was charged the
following amounts from NTS Development Company for the nine months ended
September 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 $ 117,283 $ 107,158
Administrative 132,724 131,388
Property manager 141,171 142,496
Other 12,827 9,710
------------------- ------------------
$ 404,005 $ 390,752
=================== ==================
During the nine months ended September 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 $235,000 in rental
payments from NTS Development Company during the nine months ended
September 30, 1996 and 1995. The lease expires February 1997.
-7-
<PAGE>
7. Reclassification of 1995 Financial Statements
Certain reclassifications have been made to the September 30, 1995
financial statements to conform with September 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 September 30 were as
follows:
1996 1995
---- ----
Plainview Plaza II 84% 86%
Plainview Triad North 94% 95%
Peachtree Corporate Center 96% 92%
The rental and other income generated by the Partnership's properties for the
three months and nine months ended September 30 was as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- ------------------------
1996 1995 1996 1995
----------- ----------- ----------- ----------
Plainview Plaza II $ 268,187 $ 276,913 $ 803,270 $ 829,970
Plainview Triad North $ 266,381 $ 238,297 $ 766,240 $ 708,827
Peachtree Corporate Center $ 276,708 $ 245,110 $ 828,878 $ 731,279
Plainview Plaza II's occupancy decreased 2% from September 30, 1995 to September
30, 1996 as a result of two tenants, who had occupied approximately 5,100 square
feet, vacating at the end of the lease terms. Partially offsetting the tenant
move-outs is a new lease for approximately 2,700 square feet. Average occupancy
at Plainview Plaza II decreased from 86% in 1995 to 82% in 1996 for the nine
months ended September 30 and decreased from 86% in 1995 to 83% in 1996 for the
three months ended September 30. The decrease in rental and other income at
Plainview Plaza II for the three months and nine months ended September 30, 1996
as compared to the same periods in 1995 is due to the decrease in average
occupancy.
Subsequent to September 30, 1996, Plainview Plaza II's occupancy increased to
89% as a result of a 5,417 square foot expansion and lease renewal by the Kroger
Company, a major tenant at Plainview Plaza II. The renewal extends the lease to
December 31, 2004.
Plainview Triad North's occupancy decreased 1% from September 30, 1995 to
September 30, 1996. Leasing activity during the period was minimal. Average
occupancy at Plainview Triad North increased from 93% (1995) to 95% (1996) for
the three months ended September 30 and remained constant at 94% for the nine
month periods. Rental and other income increased for the three months and nine
months ended September 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. The increase in rental and other income at Plainview
Triad North for the three month period can also be attributed to the increase in
average occupancy.
Peachtree Corporate Center's occupancy increased 4% from September 30, 1995 to
September 30, 1996 due to eight new leases totalling approximately 22,000 square
feet. Of this total, approximately 6,000 square feet represents expansions by
two current tenants. Partially offsetting the new leases are seven tenant move-
outs totalling approximately 13,800 square feet. Approximately 1,000 square feet
of this total represents one tenant who vacated and ceased making rental
payments in breach of the lease terms due principally to bankruptcy. Accrued
income associated with this lease was not significant. The remaining 12,800
square feet represents five tenants (occupied a total of approximately 11,600
square feet)
-9-
<PAGE>
Results of Operations - Continued
- ---------------------------------
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
91% (1995) to 96% (1996) for the three month period ended September 30 and
increased from 88% (1995) to 94% (1996) for the nine month period. Rental and
other income at Peachtree Corporate Center increased for the three months and
nine months ended September 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 nine months ended September 30, 1996.
Approximately $5,500 was recovered during the nine months ended September 30,
1995. As of September 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). Interest income has increased for the three months and nine months
ended September 30, 1996 as compared to the same periods in 1995 mainly as a
result of an increase in cash reserves available for investment.
Operating expenses increased for the nine months ended September 30, 1996 as
compared to the same period in 1995 as a result of increased janitorial costs
and increased HVAC repair and replacement costs at Plainview Plaza II and
Plainview Triad North and increased utility costs at Plainview Plaza II. The
increase in operating expenses during 1996 at Plainview Plaza II and Plainview
Triad North for the nine month period can also be attributed to an upgrade of
each building's security system. Operating expenses at Peachtree Corporate
Center remained fairly constant during the nine month period. The change in
operating expenses for the three month period ended September 30, 1996 as
compared to the same period in 1995 was not significant.
The decrease in operating expenses - affiliated for the three months ended
September 30, 1996 as compared to the same period in 1995 is due to a decrease
in property management costs at all the Partnership's properties. The change in
operating expenses - affiliated for the nine month period 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 nine months ended
September 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 September 1995 versus 7.65% January to June 1996 and 7.46% July to
-10-
<PAGE>
Results of Operations - Continued
- ---------------------------------
September 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 nine month periods is also due to a decrease in interest
expense on the $2,386,784 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.
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 nine months ended
September 30, 1996 as compared to the same periods in 1995 was not significant.
The increase in professional and administrative expenses for the nine months
ended September 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 nine months ended September 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 nine
months ended September 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 September 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 $815,746 and $790,532 for the
nine months ended September 30, 1996 and 1995, respectively. These funds, in
conjunction with cash on hand, were used to make a 1% (annualized) distribution
of $108,018 and $117,000 during the nine months ended September 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 September 30) were
$921,596 and $777,782 at September 30, 1996 and 1995, respectively.
As of September 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 fall below 7.65% per annum. After the fifth loan year, no
interest rate floor and/or ceiling applies. The current rate at September 30,
1996 was 7.46%. Effective October 1, 1996, the interest rate adjusted to 7.33%.
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.
-11-
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
As of September 30, 1996, the Partnership also had a mortgage payable to an
insurance company in the amount of $2,386,784. 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.
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 cash reserves. 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 and 1997. The
renovation is designed to make the property more competitive and enhance its
value. The project is anticipated to cost approximately $900,000. As of
September 30, 1996, approximately $475,000 of the total project cost has been
incurred. 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.
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 during 1996 and 1997. 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 September 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 153,083 square feet in leases expiring from October 1,
1996 to September 30, 1997 (Plainview Plaza II - 34,350 square feet, Plainview
Triad North - 76,073 square feet and Peachtree Corporate Center - 42,660 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 September 30, 1996, the
Partnership had no material commitments for tenant finish improvements.
-12-
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
As of September 30, 1996, the Partnership has 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 took occupancy of the expansion space
subsequent to September 30, 1996. The $168,000 commitment is included in the
accounts payable-operations balance at September 30, 1996. The Partnership had
no other material commitments as of September 30, 1996.
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 September 30, 1996, the Partnership had
repurchased a total of 1,450 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
nine months ended September 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 $171,143 $108,018 $ --
1995 (67,558) 117,000 117,000
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
None.
-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: November 8 , 1996
--------------------------
-15-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET AS OF SEPTEMBER 30, 1996 AND FROM THE STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,048,244
<SECURITIES> 379,782
<RECEIVABLES> 218,372
<ALLOWANCES> 65,911
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 9,002,858
<DEPRECIATION> 0<F2>
<TOTAL-ASSETS> 11,544,253
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 6,886,784
0
0
<COMMON> 0
<OTHER-SE> 3,781,695
<TOTAL-LIABILITY-AND-EQUITY> 11,544,253
<SALES> 2,393,240
<TOTAL-REVENUES> 2,432,075
<CGS> 0
<TOTAL-COSTS> 1,752,473
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 36,974
<INTEREST-EXPENSE> 421,586
<INCOME-PRETAX> 99,581
<INCOME-TAX> 0
<INCOME-CONTINUING> 99,581
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 99,581
<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>
