UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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
incorporation or organization) Identification No.)
10172 Linn Station Road
Louisville, Kentucky 40223 40223
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (502) 426-4800
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. [X]
Exhibit Index: See Page 36
Total Pages: 39
<PAGE>
TABLE OF CONTENTS
Pages
PART I
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 13-20
Item 8 Financial Statements and Supplementary
Data 21-31
Item 9 Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 32
PART III
Item 10 Directors and Executive Officers of
the Registrant 32-33
Item 11 Management Remuneration and Transactions 33
Item 12 Security Ownership of Certain Beneficial
Owners and Management 34
Item 13 Certain Relationships and Related
Transactions 34-35
PART IV
Item 14 Exhibits, Financial Statement Schedules
and Reports on Form 8-K 36-38
Signatures 39
- 2 -
<PAGE>
PART I
Items 1. and 2. Business and Properties
General
- -------
Some of the statements included in Items 1 and 2, Business and Properties, may
be considered to be "forward-looking statements" since such statements relate to
matters which have not yet occurred. For example, phrases such as "the
Partnership anticipates", "believes" or "expects" indicate that it is possible
that the event anticipated, believed or expected may not occur. Should such
event not occur, then the result which the Partnership expected also may not
occur or occur in a different manner, which may be more or less favorable to the
Partnership. The Partnership does not undertake any obligations to publicly
release the result of any revisions to these forward -looking statements that
may be made to reflect any future events or circumstances.
NTS-Properties III (the "Partnership") is a limited partnership organized under
the laws of the state of Georgia on June 24, 1982. The general partner is
NTS-Properties Associates, a Georgia limited partnership. As of December 31,
1996, the Partnership owned the following properties:
- Peachtree Corporate Center, a business park with approximately
192,000 net rentable square feet located in Norcross, Georgia, a
suburb of Atlanta. Acquired complete on January 26, 1983.
- Plainview Plaza II, an office complex with approximately 113,000 net
rentable square feet located in Jeffersontown, Kentucky, a suburb of
Louisville. Acquired complete on January 26, 1983.
- Plainview Triad North, an office complex with approximately 89,000
net rentable square feet located in Jeffersontown, Kentucky.
Acquired complete on February 15, 1983.
The Partnership has a fee title interest in the above properties. The General
Partner believes that the Partnership's properties are adequately covered by
insurance.
Plainview Plaza II is encumbered by a permanent mortgage payable to an insurance
company. The outstanding balance at December 31, 1996 was $2,359,637. The
mortgage is payable in monthly installments of $32,335 which includes principal,
interest and property taxes. The mortgage bears a fixed interest rate of 9.125%
and is due November 1, 1998. The outstanding principal balance at maturity based
on the current rate of amortization will be $2,140,539.
The Partnership's properties are encumbered by a mortgage payable to an
insurance company. The loan is secured by a first mortgage on Plainview Triad
North and Peachtree Corporate Center with a second mortgage behind the holder of
the permanent mortgage on Plainview Plaza II. The outstanding balance at
December 31, 1996 was $4,500,000. The mortgage is payable in monthly
installments of $26,025 (interest only). As part of the loan agreement, the
Partnership was required to place in escrow $6,500 each month during the first
five loan years (loan obtained May 1991). The Funds will be released as the
heating, ventilating and air conditioning ("HVAC") system and asphalt paving at
Peachtree Corporate Center are replaced. 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 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 December 31, 1996 was 7.33%.
Effective January 1, 1997, the interest rate adjusted to 6.94%. The unpaid
balance of the loan is due June 1, 2001. The mortgage was closed to prepayment
for the first year.
- 3 -
<PAGE>
Items 1. and 2. Business and Properties - Continued
General - Continued
- -------------------
Beginning the second year through the end of year five, prepayment was allowed
based on a 2% penalty on the outstanding balance. Starting year six, no
prepayment penalty will be charged.
Currently, the Partnership's plans for renovations and other major capital
expenditures include tenant finish improvements as required by lease
negotiations at the Partnership's properties. Changes to current tenant finish
improvements are a typical part of any lease negotiation. Improvements generally
include a revision to the current floor plan to accommodate a tenant's needs,
new carpeting and paint and/or wallcovering. The extent and cost of 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. Tenant
finish improvements will be funded by cash flow from operations and/or cash
reserves. As of December 31, 1996, the Partnership had no material commitments
for tenant finish improvements.
Subsequent to December 31, 1996, the Partnership made a commitment of
approximately $170,000 for tenant finish improvements at Plainview Plaza II as a
result of a lease renewal with NTS Development Company, an affiliate of the
General Partner. The renewal extends the lease for five years, through March
2002, and is at a rate of $13.75 per square foot for 20,368 square feet. The
project is expected to be completed during the first half of 1997. The source of
funds for this project is expected to be cash flow from operations and/or cash
reserves.
Subsequent to December 31, 1996, the Partnership also made a commitment of
approximately $31,000 for tenant finish improvements at Plainview Plaza II as a
result of a lease renewal and expansion with a current tenant. The expansion
increases the tenant's current leased space by approximately 3,200 square feet
and the renewal extends the lease for three and one-half years. The project is
expected to be completed during the first quarter of 1997. The source of funds
for this project is expected to be cash flow from operations and/or cash
reserves.
The Partnership's plans for renovations and other major capital expenditures
also include the replacement of the HVAC system at Peachtree Corporate Center.
The HVAC system at Peachtree Corporate Center is designed in such a manner that
each suite's system is separate in structure; therefore, individual units are
replaced only as needed. Effective July 1995, new leases and lease renewals at
Peachtree Corporate Center require the tenant to maintain and replace the HVAC
system in the leased space beginning one year from the date of occupancy. As of
December 31, 1996, approximately 43% of the center's tenants were subject to
this lease provision. Through May 1996 the Partnership was escrowing cash
monthly to fund the HVAC system replacements at Peachtree Corporate Center.
During 1996, $171,261 was released from the escrow account. (See the discussion
regarding the repair escrow on page 3.) The balance in the escrow account at
December 31, 1996 was $277,851.
At Plainview Plaza II, the Partnership's renovation plans include the remodeling
of common area lobbies. 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 $315,000. A
portion of this project was completed during the first and second quarter 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 flows from operations.
Subsequent to December 31, 1996, the Partnership made commitments of $222,000
for the remaining renovations.
- 4 -
<PAGE>
Item 1. and 2. Business and Properties - Continued
General - Continued
- --------------------
At Plainview Plaza II, the Partnership also expects to complete the renovation
of the exterior of the property during 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 December 31, 1996, approximately $555,000
of the total project cost has been incurred. The General Partner of the
Partnership anticipates that the project will be funded with a combination of
debt financing, cash reserves and cash flow from operating activities.
The Partnership had no other material commitments for renovations and capital
improvements at December 31, 1996 than those previously discussed.
The lease for Aetna Life Insurance Company, the largest tenant of Triad North,
occupying nearly 65% of the building, expires in 1997. Aetna accounts for nearly
22% of the NTS-Properties III total revenue. Aetna has requested a one year
extension on its leased space. It is the judgement of the General Partner of the
Partnership, considering the publicity about Aetna's downsizing, that the one
year extension will be all that can be anticipated at this time. If correct and
if Aetna vacates the property, there will likely be a protracted period for the
property to become fully leased again and substantial funds will likely be
needed for leasing expenses, especially tenant finish improvements.
The Partnership is engaged solely in the business of owning and operating
commercial real estate. A presentation of information concerning industry
segments is not applicable.
The current business of the Partnership is consistent with the original purpose
of the Partnership which was to acquire, own and operate Plainview Plaza II,
Peachtree Corporate Center and Plainview Triad North. The Partnership's
properties are in a condition suitable for their intended use.
The Partnership intends to hold the Properties until such time as sale or other
disposition appears to be advantageous with a view to achieving the
Partnership's investment objectives or it appears that such objectives will not
be met. In deciding whether to sell a Property, the Partnership will consider
factors such as potential capital appreciation, cash flow and Federal income tax
considerations, including possible adverse Federal income tax consequences to
the Limited Partners. The General Partner of the Partnership is currently
exploring the marketability of certain of its properties and has not yet
determined if any of the properties might be sold in the next 12 months and
there are no contracts for sale under negotiation at the present time.
Plainview Plaza II
- ------------------
Except as indicated in the table below, base annual rents, which include the
cost of utilities, currently range from $11.88 to $15.85 per square foot. The
average base annual rental as of December 31, 1996 was approximately $13.53 per
square foot. Office space is ordinarily leased for between one to five years
with the majority of current leases providing for five year terms (1). Current
leases terminate between 1997 and 2005. One lease provides for three, one-year
renewal options at a rate which is negotiated between lessor and lessee. All
leases provide for tenants to contribute toward the payment of increases in
common area maintenance expenses, insurance, utilities and real estate taxes. As
of December 31, 1996, there were 12 tenants leasing office space aggregating
approximately 101,000 square feet of rentable area. The tenants who occupy
Plainview Plaza II are
(1) Excluding the Kroger Company lease. The current lease term is for a
period of eight years and four months. The Kroger Company has been a
tenant of Plainview Plaza II since 1979.
- 5 -
<PAGE>
Items 1. and 2. Business and Properties - Continued
Plainview Plaza II - Continued
- ------------------------------
professional service-oriented organizations. The principal
occupations/professions practiced include real estate, architecture, a payroll
processing center and management offices for a regional grocery chain. Two
tenants lease more than 10% of Plainview Plaza II's rentable area: The Kroger
Company (47.2%) and NTS Development Company, an affiliate of the general partner
(20.5%). The lease terms between the Partnership and between the Partnership and
NTS Development Company are on terms no less favorable than those which could be
obtained from an unaffiliated third party. The occupancy levels as of December
31 were 89%(1996), 82% (1995), 88% (1994), 83% (1993) and 83% (1992).
The following table contains approximate data concerning the leases in effect on
December 31, 1996.
Major Tenants:
Current Base
Sq. Ft. and Annual Rental
% of Net and % of Gross
Year of Rentable Base Annual Renewal
Name Expiration Area Rental Options
---- ---------- ---- ------ -------
The Kroger Company 2005 53,435 (47.2%) $555,096 (47.1%)(1) None
NTS Development
Company 1997(2) 23,160 (20.5%) $312,660 (26.5%) None
(1) The Kroger Company lease provides that they pay their own electricity and
cleaning costs and thus the base rent is below $11.88 per square foot.
(2) Subsequent to December 31, 1996, the NTS Development Company lease was
extended for five years, through March 2002, and is at a rate of $13.75
per square foot for 20,368 square feet.
Other Tenants:
Current Base
Sq. Ft. and Annual Rental
% of Net and % of Gross
No. of Year of Rentable Base Annual Renewal
Tenants Expiration Area Rental Options
------- ---------- -------------- ------------------- ----------
6 1997 11,652 (10.3%) $127,008 (10.7%)(3) None
1 1998 3,771 ( 3.3%) $ 45,816 ( 3.9%) None
1 1999 1,154 ( 1.0%) $ 17,808 ( 1.5%) None
1 2000 5,145 ( 4.5%) $ 81,564 ( 6.9%) 3 One-Year
None 2001 -- -- --
1 2002 2,689 ( 2.4%) $ 38,988 ( 3.3%) None
(3) Included is a 2,950 square foot tenant whose base rent is below $11.88.
The tenant currently pays $6.78 per square foot as a result of a lease
renegotiation.
Plainview Triad North
- ---------------------
Base annual rentals, which include the cost of utilities, currently range from
$10.93 to $15.56 per square foot. The average base rental as of December 31,
1996 was approximately $12.10 per square foot. Office space is ordinarily leased
for one to six years with the majority of current leases providing for six year
terms. Current leases terminate between 1997 and 2001. All leases provide for
tenants to contribute toward the payment of increases in common area maintenance
expenses, insurance, utilities and real estate taxes. As of December 31, 1996,
there were 9 tenants leasing office space aggregating approximately 81,200
square feet of rentable area.
- 6 -
<PAGE>
Items 1. and 2. Business and Properties - Continued
Plainview Triad North - Continued
- ---------------------------------
The tenants who occupy Plainview Triad North are professional service- oriented
organizations. The principal occupations/professions practiced include
insurance, healthcare and sales. One tenant leases more than 10% of Plainview
Triad North's rentable area: Aetna Life Insurance Company (64.6%). The occupancy
levels at the office building as of December 31 were 91% (1996), 93% (1995), 95%
(1994), 91% (1993) and 85% (1992).
The following table contains approximate data concerning the leases in effect on
December 31, 1996:
Major Tenant:
Current Base
Sq. Ft. and Annual Rental
% of Net and % of Gross
Year of Rentable Base Annual Renewal
Name Expiration Area Rental Options
---- ---------- ---- ------ -------
Aetna Life
Insurance Company 1997 57,848 (64.6%) $683,400 (70.1%) None
Other Tenants:
Current Base
Sq. Ft. and Annual Rental
% of Net and % of Gross
No. of Year of Rentable Base Annual Renewal
Tenants Expiration Area Rental Options
------- ---------- -------------- --------------- ---------
4 1997 14,846 (16.5%) $178,046 (18.2%) None
2 1998 5,760 ( 6.4%) $ 73,767 ( 7.6%) None
1 1999 1,088 ( 1.2%) $ 13,800 ( 1.4%)
None 2000 -- -- --
1 2001 1,670 ( 1.9%) $ 25,992 ( 2.7%) None
Peachtree Corporate Center
- --------------------------
Base annual rentals, which exclude the cost of utilities, currently range from
$7.17 to $12.48 per square foot for office space, $3.71 to $6.72 per square foot
for warehouse space and $3.41 per square foot for mezzanine storage space. The
average base annual rental for all space leased as of December 31, 1996 was
$6.27 per square foot. Office, warehouse and/or mezzanine storage space is
ordinarily leased for between one and six years with the majority of current
leases providing for three year terms. Current leases terminate between 1997 and
2001. All leases provide for tenants to contribute toward the payment of
increases in common area maintenance expenses, insurance and real estate taxes.
As of December 31, 1996, there were 48 tenants leasing office, warehouse and
storage space aggregating approximately 160,200(1) square feet of rentable area,
none of which leased more than 10% of the business park's rentable area. The
tenants who occupy Peachtree Corporate Center are professional service-oriented
organizations. The principal occupations/professions practiced include
sales-related services. The occupancy levels at the business park as of December
31 were 85% (1996), 89% (1995), 80% (1994), 82% (1993) and 75% (1992).
(1) Excludes approximately 3,300 square feet which is occupied by the business
park's property management and leasing staff.
- 7 -
<PAGE>
Items 1. and 2. Business and Properties - Continued
Peachtree Corporate Center - Continued
- --------------------------------------
The following table contains approximate data concerning the leases in effect on
December 31, 1996:
Current Base
Sq. Ft. and Annual Rental
% of Net and % of Gross
No. of Year of Rentable Base Annual Renewal
Tenants Expiration Area (1) Rental Options
------- ----------- -------------- ---------------- ---------
12 1997 33,250 (17.3%) $187,584 (18.6%) None
18 1998 43,074 (22.2%) $266,280 (26.8%) None
13 1999 59,102 (30.8%) $353,904 (35.2%) None
4 2000 25,511 (13.3%) $184,392 (18.4%) None
1 2001 2,100 (1.1%) $ 12,768 (1.3%) None
(1) Rentable area includes only ground floor square feet (office and warehouse
space).
Additional operating data regarding the Partnership's properties is furnished in
the following table.
Peachtree
Plainview Plainview Corporate
Plaza II Triad North Center
-------- ----------- ------
Federal tax basis $ 7,967,237 $ 6,976,428 $ 9,553,955
Realty tax rate .01120 .01120 .03595
Annual realty taxes $ 63,248 $ 49,245 $ 103,732
Depreciation for book purposes is computed using the straight-line method over
the estimated useful lives of the assets which are 5 - 30 years for land
improvements, 30 years for buildings, 5 - 30 years for building improvements and
3 - 30 years for amenities. The estimated realty taxes on the exterior
renovation at Plainview Plaza II is approximately $9,000. The estimated realty
taxes on all other planned renovations, primarily tenant improvements, would not
be material.
See Management's Discussion and Analysis of Financial Condition and Results
of Operations (Item 7.) for explanations regarding the fluctuations of
income and occupancy at the Partnership's properties.
Competition
- -----------
The Partnership's properties are subject to competition from similar types of
properties (including, in certain areas, properties owned or managed by
affiliates of the General Partner) in the respective vicinities in which they
are located. Such competition is generally for the retention of existing tenants
or for new tenants when vacancies occur. The Partnership maintains the
suitability and competitiveness of its properties primarily on the basis of
effective rents 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, 1996, there are no properties under construction in the
respective vicinities in which the properties are located. 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 -
<PAGE>
Management of Properties
- ------------------------
NTS Development Company, an affiliate of NTS Properties Associates, 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. Under the agreement, the Property Manager establishes rental
policies and rates and directs the marketing activity of leasing personnel. It
also coordinates the purchase of equipment and supplies, maintenance activity
and the selection of all vendors, suppliers and independent contractors. As
compensation for its services, the Property Manager received $158,463 for the
year ended December 31, 1996. The fee is equal to 5% of gross revenues from the
Partnership's properties.
In addition, the management agreement requires the Partnership to purchase all
insurance relating to the managed properties, to pay the direct out-of-pocket
expenses of the Property Manager in connection with the operation of the
properties, including the cost of goods and materials used for and on behalf of
the Partnership, and to reimburse the Property Manager for the salaries,
commissions, fringe benefits, and related employment expenses of on-site
personnel.
The term of the Management Agreement between NTS Development Company and the
Partnership was for an initial term of five years, and thereafter for succeeding
one-year periods, unless canceled. The Agreement is subject to cancellation by
either party upon sixty days written notice. As of December 31, 1996, the
Management Agreement is still in effect.
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 and is operated by the
General Partner, these conflicts are not resolved through arm's length
negotiations but through the exercise of the General Partner's good judgment
consistent with its fiduciary responsibility to the Limited Partners and the
Partnership's investment objectives and policies. The General Partner is
accountable to the Limited Partners as a fiduciary and consequently must
exercise good faith and integrity in handling the Partnership's affairs. A
provision has been made in the Partnership Agreement that the General Partner
will not be liable to the Partnership except for acts or omissions performed or
omitted fraudulently in bad faith or with negligence. In addition, the
Partnership Agreement provides for indemnification by the Partnership of the
General Partner for liability resulting from errors in judgment or certain acts
or omissions. With respect to these potential conflicts of interest, the general
partner and its affiliates retain a free right to compete with the Partnership's
properties including the right to develop competing properties now and in the
future, in addition to those existing properties which may compete directly or
indirectly.
NTS Development Company, the Property Manager and an affiliate of the general
partner, acts in a similar capacity for other affiliated entities in the same
geographic region where the Partnership has property interests. The agreement
with the Property Manager is on terms no less favorable to the Partnership than
those which could be obtained from a third party for similar services in the
same geographical region in which the properties are located. The contract is
terminable by either party without penalty upon 60 days written notice.
- 9 -
<PAGE>
Items 1 and 2 Business and Properties - Continued
Conflict of Interest - Continued
- --------------------------------
There are no other agreements or relationships between the Partnership, the
General Partner and its affiliates other than those previously described.
Employees
- ---------
The Partnership has no employees; however, employees of an affiliate of the
general partner are available to perform services for the Partnership. The
Partnership reimburses this affiliate for the actual costs of providing such
services.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
- 10 -
<PAGE>
PART II
Item 5. Market for Registrant's Limited Partnership Interests and Related
Partner Matters
The Partnership had 1,079 limited partners as of February 27, 1997. There is no
established trading market for the limited partnership interests, nor is one
likely to develop.
Cash distributions and allocations of net income (loss) are made as described in
Note 1C to the Partnership's 1996 financial statements. Annual distributions
totalling $7.50 (1996), $10.00 (1995) and $2.50 (1994) were paid per limited
partnership unit. Quarterly distributions are determined based on current cash
balances, cash flow being generated by operations and required cash reserves, as
determined by the general partner, for future leasing costs, tenant finish costs
and capital improvements. Distributions were paid quarterly as follows:
1996 1995 1994
-------- ------- ------
First quarter $ 2.50 $ 2.50 $ --
Second quarter 2.50 2.50 --
Third quarter 2.50 2.50 --
Fourth quarter -- 2.50 2.50
------- ------- ------
$ 7.50 $ 10.00 $ 2.50
======= ======= ======
The table below presents that portion of the distributions that represent a
return of capital on a Generally Accepted Accounting Principle basis for the
years ended December 31, 1996, 1995 and 1994. The General Partner did not
receive a distribution during these years. Distributions were funded by cash
flow derived from operating activities.
Net Income Cash
(Loss) Distributions Return of
Allocated Declared Capital
--------- -------- -------
Limited Partners:
1996 $ 284,097 $ 108,018 $ --
1995 (86,496) 154,125 154,125
1994 (97,062) 39,000 39,000
- 11 -
<PAGE>
<TABLE>
Item 6. Selected Financial Data
For the years ended December 31, 1996, 1995, 1994, 1993 and 1992.
<CAPTION>
1996 1995 1994 1993 1992
----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Total revenues $ 3,265,631 $ 3,073,103 $ 2,960,275 $ 2,830,574 $ 2,739,725
Total expenses (3,076,384) (3,262,493) (3,157,866) (3,149,056) (3,175,135)
------------ ------------ ------------ ------------ ------------
Net income (loss) $ 189,247 $ (189,390) $ (197,591) $ (318,482) $ (435,410)
============ ============ ============ ============ ============
Net income(loss)
allocated to:
General partner $ (94,850) $ (102,894) $ (100,529) $ (103,802) $ (105,100)
Limited partners $ 284,097 $ (86,496) $ (97,062) $ (214,680) $ (330,310)
Net income (loss) per
limited partnership unit $ 19.70 $ (5.58) $ (6.22) $ (13.76) $ (21.17)
Weighted average number
of limited partnership
units 14,418 15,495 15,600 15,600 15,600
Cumulative net income
(loss) allocated to:
General partner $ (2,290,485) $ (2,195,635) $ (2,092,741) $ (1,992,212) $ (1,888,410)
Limited partners $ (164,405) $ (448,502) $ (362,006) $ (264,944) $ (50,264)
Cumulative taxable income
(loss) allocated to:
General partner $ (2,845,410) $ (2,696,785) $ (2,545,416) $ (2,390,433) $ (2,232,893)
Limited partners $ (682,815) $ (928,736) $ (926,612) $ (719,138) $ (503,072)
Distributions declared:
General partner $ -- $ -- $ -- $ -- $ --
Limited partners $ 108,018 $ 154,125 $ 39,000 $ -- $ 234,000
Cumulative distributions
declared:
General partner $ 206,985 $ 206,985 $ 206,985 $ 206,985 $ 206,985
Limited partner $ 11,349,845 $ 11,241,827 $ 11,087,702 $ 11,048,702 $ 11,048,702
At year end:
Land, buildings and
amenities, net $ 8,850,783 $ 9,585,286 $ 10,242,936 $ 10,783,103 $ 11,530,785
Total assets $ 10,975,886 $ 11,120,854 $ 11,862,286 $ 12,011,140 $ 12,391,021
Mortgages Payable $ 6,859,637 $ 6,964,619 $ 7,060,749 $ 7,148,009 $ 7,227,933
</TABLE>
The above selected financial data should be read in conjunction with the
financial statements and related notes appearing elsewhere in this Form 10-K
report.
- 12 -
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
- ---------------------
The occupancy levels at the Partnership's properties as of December 31 were as
follows:
1996 1995 1994
---- ---- ----
Plainview Plaza II 89% 82% 88%
Plainview Triad North 91% 93% 95%
Peachtree Corporate Center 85% 89% 80%
The rental and other income generated by the Partnership's properties for the
years ended December 31 were as follows:
1996 1995 1994
---- ---- ----
Plainview Plaza II $1,091,826 $1,098,934 $1,061,476
Plainview Triad North $1,017,816 $ 953,799 $ 935,643
Peachtree Corporate Center $1,108,933 $ 986,828 $ 939,859
Plainview Plaza II's year-ending occupancy increased 7% from 1995 to 1996 as a
result of four new leases totalling approximately 9,200 square feet. Of this
total, approximately 5,400 square feet represents an expansion and lease renewal
by the Kroger Company, a major tenant at Plainview Plaza II. The renewal extends
the lease to January 31, 2005. Average occupancy at Plainview Plaza II decreased
from 85% in 1995 to 84% in 1996. The decrease in rental and other income at
Plainview Plaza II from 1995 to 1996 is due to the decrease in average occupancy
during the year.
The 6% decrease in year-ending occupancy from 1994 to 1995 at Plainview Plaza II
can be attributed to five tenants, who had occupied approximately 10,900 square
feet, vacating at the end of the lease terms. Partially offsetting the tenant
move-outs is one new lease totalling approximately 3,800 square feet. The new
tenant took occupancy in June of 1995. Average occupancy increased from 83% in
1994 to 85% in 1995. The increase in rental and other income at Plainview Plaza
II from 1994 to 1995 can be attributed to the increase in average occupancy
during the year.
Plainview Triad North's year-ending occupancy decreased 2% from 1995 to 1996 as
a result of the move-out of one tenant (occupied approximately 3,400 square
feet) at the end of the lease term. Partially offsetting the move-out is a new
lease totalling approximately 1,100 square feet. Average occupancy decreased
from 94% in 1995 to 93% in 1996. Rental and other income increased from 1995 to
1996 due to an increase in rental rates for lease renewals and a decrease in the
provision for doubtful accounts.
- 13 -
<PAGE>
Results of Operations - Continued
- ---------------------------------
Plainview Triad North's year-ending occupancy decreased 2% from 1994 to 1995 as
a result of move-outs by three tenants (occupied approximately 2,900 square
feet) and the downsizing (3,900 square feet) of one tenant. Partially offsetting
the tenant move-outs and downsizing is a new lease totalling approximately 4,900
square feet. Average occupancy increased from 92% in 1994 to 94% in 1995. Rental
and other income increased from 1994 to 1995 at Plainview Triad North as a
result of the increase in average occupancy during the year.
Peachtree Corporate Center's year-ending occupancy decreased 4% from 1995 to
1996 as a result of move-outs by 10 tenants who had occupied approximately
27,100 square feet and the downsizing of one tenant by 1,200 square feet.
Approximately 12,400 square feet of the total move-outs represent four tenants
who vacated and ceased making rental payments in breach of the lease terms due
principally to bankruptcy. There was no accrued income associated with these
leases. Approximately 14,700 square feet of the total move-outs are the result
of six tenants who vacated at the end of the lease term. Partially offsetting
the move-outs and downsizing are seven new leases totalling approximately 21,000
square feet, of which approximately 6,000 square feet represents expansions by
two current tenants. Average occupancy at Peachtree Corporate Center increased
from 89% in 1995 to 93% in 1996. Rental and other income at Peachtree Corporate
Center increased from 1995 to 1996 as a result of an increase in average
occupancy and a decrease in the provision for doubtful accounts.
Peachtree Corporate Center's year-ending occupancy increased 9% from 1994 to
1995 due to 19 new leases totalling approximately 44,000 square feet. Of this
total, approximately 11,000 square feet represents expansions by five current
tenants. Partially offsetting the new leases are 10 tenant move-outs totalling
approximately 27,000 square feet. Approximately 15,600 square feet of this total
represents five tenants who vacated and ceased making rental payments in breach
of the lease terms due to bankruptcies. Accrued income associated with these
leases of approximately $11,000 was written off as uncollectible. The remaining
11,400 square feet represents five tenants who vacated at the end of the lease
terms. Average occupancy at Peachtree Corporate Center increased from 84% in
1994 to 89% in 1995.
The increase in rental and other income at Peachtree Corporate Center from 1994
to 1995 is due to an increase in average occupancy during 1995. Peachtree
Corporate Center receives rental income from the leasing of both office space
and warehouse space. Office space rents for approximately $8.00 to $9.00 per
square foot compared to $3.50 to $4.50 per square foot for warehouse space.
Rental and other income also increased from 1994 to 1995 because office space
occupied (at a correspondingly higher rental rate) as a percentage of the total
square feet occupied has increased in 1995 as compared to 1994. The increase in
rental and other income is partially offset by an increase 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 1996. Approximately $5,500 was recovered
during 1995. As of December 31, 1996, there were no on-going cases.
Current and projected future occupancy levels are considered adequate to
continue the operation of the Partnership's properties without the need for any
additional financing. See the discussion below regarding the Aetna Life
Insurance Company lease at Plainview Triad North.
- 14 -
<PAGE>
Results of Operations - Continued
- ---------------------------------
Interest and other income includes interest income earned from short-term
investments made by the Partnership with cash reserves and from funds escrowed
for the replacement of the heating, ventilating and air conditioning ("HVAC")
system and asphalt paving at Peachtree Corporate Center. The increase in
interest income in 1996 as compared to 1995 and in 1995 as compared to 1994 is a
result of an increase in interest earned on the Escrow Funds and an increase in
cash reserves available for investment.
Operating expenses increased from 1995 to 1996 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 can also be attributed to an upgrade of each
building's security system. Operating expenses at Peachtree Corporate Center
remained fairly constant during the year.
Operating expenses decreased from 1994 to 1995 as a result of decreased snow
removal costs at Plainview Plaza II and Plainview Triad North, decreased utility
costs at Triad North, and decreased repair and maintenance costs at Peachtree
Corporate Center. Partially offsetting the decrease in operating expenses from
1994 to 1995 is an increase in landscape replacement costs and exterior building
repairs at Peachtree Corporate Center.
The decrease in operating expenses - affiliated from 1995 to 1996 is a result of
decreased property management costs at all of the Partnership's properties and a
decrease in leasing costs at Peachtree Corporate Center. The decrease is
partially offset by an increase in leasing costs at Plainview Triad North and
Plainview Plaza II. Operating expenses affiliated are expenses incurred for
services performed by employees of NTS Development Company, an affiliate of the
General Partner.
The increase in operating expenses - affiliated from 1994 to 1995 is a result of
increased property management costs at all of the Partnership's properties.
The 1995 write-off of unamortized building and tenant improvements can be
attributed to Peachtree Corporate Center (tenant and building 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 Peachtree
Corporate Center is the result of exterior building renovations. 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 1994 write-off of unamortized tenant improvements can be attributed to
Peachtree Corporate Center and Plainview Triad North.
The decrease in interest expense from 1995 to 1996 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, 7.76% April to
September 1995, and 7.65% October to December 1995 versus 7.65% January to June
1996, 7.46% July to September 1996, and 7.33% October to December 1996. The
interest rate on this note adjusts quarterly to 60 basis points over the 10-year
treasury bill rate. The decrease in interest
- 15 -
<PAGE>
Results of Operations - Continued
- ---------------------------------
expense is also due to a decrease in interest expense on the $2,359,637 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.
Interest expense remained fairly constant from 1994 to 1995.
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 years will differ from the fluctuations of
management fee expense.
The decrease in real estate taxes from 1995 to 1996 is a result of a decrease in
the tax rates at all of the Partnership's properties. Real estate taxes remained
fairly constant from 1994 to 1995.
The increase in professional and administrative expenses from 1995 to 1996 is
due primarily to an increase in outside legal fees which relate to the
Partnership's Interest Repurchase Program and an increase in outside accounting
fees.
Professional and administrative expenses remained fairly constant from 1994 to
1995.
The change in professional and administrative expenses - affiliated from 1995 to
1996 and from 1994 to 1995 was not significant. 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 from 1995 to 1996 is due to the
fact that a portion of the Partnership's assets (primarily tenant finish
improvements) have become fully depreciated since December 31, 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 $24,500,000.
Depreciation and amortization increased from 1994 to 1995 due to approximately
$564,000 of new assets (principally tenant improvements and lobby renovation)
being placed in service. This is partially offset by a portion of the
Partnership's assets having become fully depreciated.
Liquidity and Capital Resources
- -------------------------------
The Partnership had cash flow from operations of $947,953 (1996), $1,055,054
(1995),and $789,379 (1994). These funds, in conjunction with cash on hand, were
used to make a .75% (annualized) distribution of $108,018 in 1996, a 1%
(annualized) distribution of $154,125 in 1995 and a .25% (annualized)
distribution of $39,000 in 1994. The annualized distribution rate is calculated
as a percent of the initial equity. The limited partners received 100% of these
distributions. The Partnership did not make a cash distribution during the nine
months ended September 30, 1994. The Partnership determined it necessary to
temporarily suspend cash distributions until adequate cash reserves for future
leasing costs, tenant finish and other capital improvements were established,
and sufficient cash was being generated from operations which, in management's
opinion, warranted a cash distribution. The Partnership has indefinitely
interrupted distributions starting December 31, 1996. See below for a further
discussion. Cash reserves (which are unrestricted cash and equivalents and
investment securities as shown on the Partnership's balance
- 16 -
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
sheet as of December 31) were $661,383, $729,939, and $734,203 at December 31,
1996, 1995 and 1994, respectively.
As of December 31, 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 December 31,
1996 was 7.33%. Effective January 1, 1997, the interest rate adjusted to 6.94%.
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 December 31, 1996, the Partnership also had a mortgage payable to an
insurance company in the amount of $2,359,637. 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 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.
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 purchases 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 held the securities until maturity. Cash flows provided by investing
activities are from the release of the escrow funds mentioned above and the
maturity of investment securities. Cash flows used in financing activities
include cash distributions, principal payments on the $2.4 million mortgage
payable and repurchases of limited partnership Units. The Partnership does not
expect any material changes in the mix and relative cost of capital resources.
In the next 12 months, the General Partner expects a demand on future liquidity
as a result of 114,710 square feet in leases expiring during 1997 (Plainview
Plaza II - 11,652 square feet, Plainview Triad North - 70,078 square feet and
Peachtree Corporate Center - 32,980 square feet). The majority of the square
feet in leases which expire in 1997 relate to a single tenant (Aetna Life
Insurance Company) at Plainview Triad North. See below for a discussion
regarding the lease for this tenant. 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
- 17 -
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
that the cash flow from operations and cash reserves will be sufficient to meet
the needs of the Partnership. As of December 31, 1996, the Partnership had no
material commitments for tenant finish improvements.
A demand on future liquidity is anticipated as the renovation of the exterior of
the NTS Plainview Plaza II property is completed during 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 December 31, 1996,
approximately $555,000 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 plan to complete the renovation of the common area lobbies at
Plainview Plaza II during 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 $315,000. 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.
Subsequent to December 31, 1996, the Partnership made commitments of $222,000
for the remaining renovations.
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 December 31, 1996, the Partnership had
repurchased a total of 1,504 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. As of December
17, 1996, the repurchase of limited partnership Units was suspended. See below
for further discussion.
The lease for Aetna Life Insurance Company, the largest tenant of Triad North,
occupying nearly 65% of the building, expires in 1997. Aetna accounts for nearly
22% of the NTS Properties III total revenue. Aetna has requested a one year
extension on its leased space. Any costs associated with this renewal would not
be significant. It is the judgement of the General Partner of the Partnership,
considering the publicity about Aetna's downsizing, that the one year extension
will be all that can be anticipated at this time. If correct and if Aetna
vacates the property, there will likely be a protracted period for the property
to become fully leased again and substantial funds will likely be needed for
leasing expenses, especially tenant finish improvements.
Accordingly, to conserve funds in anticipation of the loss of Aetna, repurchase
of Limited Partnership Units has been indefinitely interrupted effective
December 17, 1996. In addition, distributions were suspended starting December
31, 1996.
Subsequent to December 31, 1996, the Partnership made a commitment of
approximately $170,000 for tenant finish improvements at Plainview Plaza II as a
result of the lease renewal with NTS Development Company, an affiliate of the
General Partner. The renewal extends the lease for five years, through March
2002, and is at a rate of $13.75 per square foot for 20,368
- 18 -
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
square feet. The project is expected to be completed during the first half of
1997. The source of funds for this project is expected to be cash flow from
operations and/or cash reserves.
Subsequent to December 31, 1996, the Partnership made a commitment of
approximately $31,000 for tenant finish improvements at Plainview Plaza II as a
result of a lease renewal and expansion with a current tenant. The expansion
increases the tenant's current leased space by approximately 3,200 square feet
and the renewal extends the lease for three and one-half years. The project is
expected to be completed during the first quarter of 1997. The source of funds
for this project is expected to be cash flow from operations and/or cash
reserves.
The Partnership had no other material commitments for renovations or capital
improvements as of December 31, 1996.
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, 1996, 1995 and 1994. The General Partner did not
receive a distribution during these years. Distributions were funded by cash
flow derived from operating activities.
Net Income Cash
(Loss) Distributions Return of
Allocated Declared Capital
--------- -------- -------
Limited Partners:
1996 $ 284,097 $ 108,018 $ --
1995 (86,496) 154,125 154,125
1994 (97,062) 39,000 39,000
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.
Some of the statements included in Item 7, Management's Discussion and Analysis
of Financial Condition and Results of Operations, may be considered to be
"forward-looking statements" since such statements relate to matters which have
not yet occurred. For example, phrases such as "the Partnership anticipates",
"believes" or "expects" indicate that it is possible that the event anticipated,
believed or expected may not occur. Should such event not occur, then the result
which the Partnership expected also may not occur or occur in a different
manner, which may be more or less favorable to the Partnership. The Partnership
does not undertake any obligations to publicly release the result of any
revisions to these forward -looking statements that may be made to reflect any
future events or circumstances.
- 19 -
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
Any forward-looking statements included in Managements's Discussion and Analysis
of Financial Condition and Results of Operations, or elsewhere in this report,
which reflect management's best judgement based on factors known, involve risks
and uncertainties. Actual results could differ materially from those anticipated
in any forward-looking statements as a result of a number of factors, including
but not limited to those discussed below. Any forward-looking information
provided by the Partnership pursuant to the safe harbor established by recent
securities legislation should be evaluated in the context of these factors.
The Partnership's principal activity is the leasing and management of commercial
office buildings and a business center. If a major commercial tenant defaults on
its lease, the Partnership's ability to make payments due under its debt
agreements, payment of operating costs and other partnership expenses would be
directly impacted. A lessee's ability to make payments are subject to risks
generally associated with real estate, many of which are beyond the control of
the Partnership, including general or local economic conditions, competition,
interest rates, real estate tax rates, other operating expenses and acts of God.
A portion of the Partnership's debt service is based on a variable interest
rate. Any fluctuations in the interest rate are beyond the control of the
Partnership. These variances could, for example, impact the Partnership's
projected cash and cash requirements as well as its ability to pay distributions
to the limited partners.
- 20 -
<PAGE>
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To NTS-Properties III:
We have audited the accompanying balance sheets of NTS-Properties III, (a
Georgia limited partnership) as of December 31, 1996 and 1995, and the related
statements of operations, partners' equity and cash flows for each of the three
years in the period ended December 31, 1996. These financial statements and the
schedules referred to below are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of NTS-Properties III as of
December 31, 1996 and 1995, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996 in conformity
with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules included on pages 37 and 38
are presented for purposes of complying with the Securities and Exchange
Commission's rules and are not a required part of the basic financial
statements. These schedules have been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our opinion,
fairly state in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Louisville, Kentucky
<TABLE>
February 25, 1997
- 21 -
<PAGE>
NTS-PROPERTIES III
BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1995
<CAPTION>
1996 1995
------------ -----------
ASSETS
<S> <C> <C>
Cash and equivalents $ 661,383 $ 626,884
Cash and equivalents - restricted 311,390 387,796
Investment securities -- 103,055
Accounts receivable, net of allowance
for doubtful accounts of $81,980 (1996)
and $90,332 (1995) 198,970 176,811
Land, buildings and amenities, net 8,850,783 9,585,286
Construction in progress 577,233 --
Other assets 376,127 241,022
----------- -----------
Total assets $10,975,886 $11,120,854
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Mortgages payable $ 6,859,637 $ 6,964,619
Accounts payable - operations 97,702 72,807
Accounts payable - construction 54,070 1,907
Distributions payable -- 37,125
Security deposits 92,934 95,494
Other liabilities 11,415 13,171
----------- -----------
7,115,758 7,185,123
Commitments and Contingencies
Partners' equity 3,860,128 3,935,731
----------- -----------
$10,975,886 $11,120,854
=========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
- 22 -
<PAGE>
<TABLE>
NTS-PROPERTIES III
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Rental income, net of provision for
doubtful accounts of $53,043 (1996),
$68,680 (1995), $-0- (1994) $ 2,898,415 $ 2,717,965 $ 2,617,879
Rental income - affiliated 314,499 312,660 314,750
Interest and other income 52,717 42,478 27,646
----------- ----------- -----------
3,265,631 3,073,103 2,960,275
Expenses:
Operating expenses 709,309 673,969 684,043
Operating expenses - affiliated 313,956 337,133 308,897
Write-off of unamortized building and
tenant improvements -- 56,693 11,572
Interest Expenses 558,878 583,034 589,200
Management fees 158,463 161,638 148,186
Real estate taxes 210,797 216,225 217,257
Professional and administrative
expenses 64,251 56,384 51,709
Professional and administrative
expenses - affiliated 145,814 141,552 138,500
Depreciation and amortization 914,916 1,035,865 1,008,502
----------- ----------- -----------
3,076,384 3,262,493 3,157,866
----------- ----------- -----------
Net income (loss) $ 189,247 $ (189,390) $ (197,591)
=========== =========== ===========
Net income (loss) allocated to the
limited partners $ 284,097 $ (86,496) $ (97,062)
=========== =========== ===========
Net income (loss) per limited partnership
unit $ 19.70 $ (5.58) $ (6.22)
=========== =========== ===========
Weighted average number of limited
partnership units 14,418 15,495 15,600
=========== =========== ===========
The accompanying notes to financial statements are an integral part of these
statements.
</TABLE>
- 23 -
<PAGE>
<TABLE>
NTS-PROPERTIES III
STATEMENTS OF PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<CAPTION>
Limited General
Partners Partners Total
-------- -------- -----
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1993 $ 4,286,354 $ 385,483 $ 4,671,837
Net loss (97,062) (100,529) (197,591)
Distributions declared (39,000) -- (39,000)
----------- ----------- -----------
Balances at December 31, 1994 4,150,292 284,954 4,435,246
Net loss (86,496) (102,894) (189,390)
Distributions declared (154,125) -- (154,125)
Repurchase of limited partnership
units (156,000) -- (156,000)
----------- ----------- -----------
Balance at December 31, 1995 3,753,671 182,060 3,935,731
Net income(loss) 284,097 (94,850) 189,247
Distributions declared (108,018) -- (108,018)
Repurchase of limited partnership
units (156,832) -- (156,832)
----------- ----------- -----------
Balances at December 31, 1996 $ 3,772,918 $ 87,210 $ 3,860,128
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
- 24 -
<PAGE>
<TABLE>
NTS PROPERTIES III
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<CAPTION>
1996 1995 1994
------------ ------------ -----------
<S> <C> <C> <C>
CASH FLOWS FROM (USED FOR) OPERATING
ACTIVITIES
Net income (loss) $ 189,247 $ (189,390) $ (197,591)
Adjustments to reconcile net income(loss) to
net cash provided by operating activities:
Provision for doubtful accounts 53,043 68,680 --
Accrued interest on investment securities 1,402 (1,402) --
Write-off of unamortized building and tenant
improvements -- 56,693 11,572
Depreciation and amortization 914,916 1,035,865 1,008,502
Change in assets and liabilities:
Cash and equivalents - restricted (446) (5,925) --
Accounts receivable (75,202) 93,986 (27,490)
Other assets (155,587) (9,460) (7,141)
Accounts payable - operations 24,895 (2,427) 5,604
Security deposits (2,560) 11,450 (7,053)
Other liabilities (1,755) (3,016) 2,976
----------- ----------- -----------
Net cash provided by operating activities 947,953 1,055,054 789,379
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to land, buildings, amenities and
construction in progress (685,003) (564,612) (320,018)
Decrease (increase) in cash equivalents-
restricted 104,020 (88,248) (92,123)
Purchase of investment securities (855,999) (401,461) --
Maturity of investment securities 957,652 299,808 --
----------- ----------- -----------
Net cash used in investing activities (479,330) (754,513) (412,141)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash distributions (145,142) (156,000) --
Principal payments on mortgage payable (104,982) (95,860) (87,530)
Repurchase of limited partnership units (156,832) (156,000) --
Increase in cash and equivalent-restricted (27,168) -- --
----------- ----------- -----------
Net cash used in financing activities (434,124) (407,860) (87,530)
----------- ----------- -----------
Net increase (decrease) in cash and
equivalents 34,499 (107,319) 289,708
CASH AND EQUIVALENTS, beginning of period 626,884 734,203 444,495
----------- ----------- -----------
CASH AND EQUIVALENTS, end of period $ 661,383 $ 626,884 $ 734,203
=========== =========== ===========
Interest paid on a cash basis $ 560,389 $ 585,825 $ 587,803
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
- 25 -
<PAGE>
NTS-PROPERTIES III
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. Significant Accounting Policies
-------------------------------
A) Organization
------------
NTS-Properties III (the "Partnership") is a limited partnership
organized under the laws of the State of Georgia on June 24, 1982.
The general partner is NTS-Properties Associates, a Georgia limited
partnership. The Partnership is in the business of owning and
operating commercial real estate.
B) Properties
----------
The Partnership owns and operates the following properties:
- Peachtree Corporate Center, a business park with approximately
192,000 net rentable square feet located in Norcross, Georgia, a
suburb of Atlanta.
- Plainview Plaza II, an office complex with approximately 113,000
net rentable square feet located in Jeffersontown, Kentucky, a
suburb of Louisville.
- Plainview Triad North, an office complex with approximately
89,000 net rentable square feet located in Jeffersontown,
Kentucky.
C) Allocation of Net Income (Loss) and Cash Distributions
------------------------------------------------------
Net Cash Receipts, as defined in the partnership agreement, will be
distributed, to the extent made available, to the limited partners
in an amount equal to the greater of 10% per year, noncumulative,
of their invested capital or their pro rata share of such Net Cash
Receipts, as defined in the partnership agreement. The balance of
the Net Cash Receipts, as defined in the partnership agreement,
would be available for distribution to the general partner until
the general partner has received its pro rata share of such Net
Cash Receipts. At such time as the limited partners have received
cash distributions equal to their original capital contributions,
cash flow would be distributed 52% to the limited partners and 48%
to the general partner. In general, operating income and losses
(exclusive of depreciation) are allocated to the limited partners
and the general partner in proportion to their respective
distributions of cash. In no event, however, will the portion of
any item of Partnership income, gain, loss, deduction or credit
allocated to the general partner be less than 1%. Starting December
31, 1996, the Partnership has indefinitely interrupted
distributions.
Depreciation of the assets acquired on the date operations
commenced is allocated directly to the limited partners and the
general partner based upon their respective tax basis in the
property. Depreciation of assets subsequently acquired is allocated
based on the limited partners' interests of 65% and the general
partner's interest of 35%. In the accompanying Statements of
Operations, net income (loss) was allocated 99% to the limited
partners and 1% to the general partner net of the effects of
depreciation on contributed assets in accordance with the
Partnership Agreement.
- 26 -
<PAGE>
1. Significant Accounting Policies - Continued
-------------------------------------------
D) Tax Status
The Partnership has received a ruling from the Internal Revenue
Service stating that the Partnership is classified as a limited
partnership for federal income tax purposes. As such, the
Partnership makes no provision for income taxes. The taxable income
or loss is passed through to the holders of interests for inclusion
on their individual income tax returns.
The reconciliation of net income (loss) for financial statement
purposes and for income tax reporting is as follows:
1996 1995 1994
--------- --------- ---------
Net income (loss) $ 189,247 $(189,390) $(197,591)
Items handled differently
for tax purposes:
Depreciation (111,830) (10,224) (34,225)
Write-off of unamortized
building and tenant
improvements (22,864) (90,300) (158,028)
Rental income 47,180 99,696 50,565
Allowance for doubtful
accounts (8,352) 36,505 (23,376)
Other 3,915 219 198
--------- --------- ---------
Taxable income(loss) $ 97,296 $(153,494) $(362,457)
========= ========= =========
E) Use of Estimates in the Preparation of Financial Statements
-----------------------------------------------------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
F) Cash and Equivalents - Restricted
---------------------------------
Cash and equivalents - restricted represent 1)escrow funds which
are to be released as the heating, ventilating and air conditioning
("HVAC") system and asphalt paving at Peachtree Corporate Center
are replaced, 2) funds which have been escrowed with a mortgage
company for NTS Plainview Plaza II's property taxes in accordance
with the loan agreements and 3) funds which the Partnership has
reserved for the repurchase of limited partnership Units as
discussed in Note 3.
G) Investment Securities
---------------------
Investment securities represent investments in Certificates of
Deposit or securities issued by the U. S. Government with initial
maturities of greater than three months. The investments are
carried at cost which approximates market value. The Partnership
intends to hold the securities until maturity. During 1995 and
1996, the Partnership sold no investment securities. As of December
31, 1996, the Partnership held no investment securities.
- 27 -
<PAGE>
1. Significant Accounting Policies - Continued
-------------------------------------------
G) Investment Securities - Continued
---------------------------------
The following provides details regarding the investments held at
December 31, 1995:
Amortized Maturity Value At
Type Cost Date Maturity
---- ---- ---- --------
Certificate of Deposit $103,055 01/05/96 $103,140
======= =======
The Partnership held no investment securities with initial
maturities greater than three months during 1994.
H) Basis of Property and Depreciation
----------------------------------
Land, buildings and amenities are stated at cost to the Partnership
as determined by the historical cost of the property to the general
partner for its interest and by the purchase price of the property
to the Partnership for the limited partners' interests.
Depreciation is computed using the straight-line method over the
estimated useful lives of the assets which are 5-30 years for land
improvements, 5-30 years for buildings and improvements and 3 - 30
years for amenities.
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 year ended December 31, 1996 did not result in an
impairment loss.
I) Rental Income and Deferred Leasing Commissions
----------------------------------------------
Certain of the Partnership's lease agreements are structured to
include scheduled and specified rent increases over the lease term.
For financial reporting purposes, the income from these leases is
being recognized on a straight-line basis over the lease term.
Accrued income connected with these leases is included in accounts
receivable and totalled $61,465 and $110,401 at December 31, 1996
and 1995, respectively. All commissions paid to leasing agents are
deferred and amortized on a straight-line basis over the term of
the lease to which they apply.
J) Advertising
-----------
The Partnership expenses advertising-type costs as incurred.
Advertising expense was immaterial to the Partnership during the
years ended December 31, 1996, 1995 and 1994.
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.
- 28 -
<PAGE>
1. Significant Accounting Policies - Continued
-------------------------------------------
L) Reclassifications of 1995 and 1994 Financial Statements
-------------------------------------------------------
Certain reclassifications have been made to the December 31, 1995
and 1994 financial statements to conform with December 31, 1996
classifications. These reclassifications have no effect on
previously reported operations.
2. Concentration of Credit Risk
----------------------------
NTS-Properties III is a limited partnership which owns and operates
commercial properties in Norcross, Georgia, a suburb of Atlanta, and
Jeffersontown, Kentucky, a suburb of Louisville. Substantially all of the
Partnership's tenants are local businesses or are businesses which have
operations in the location in which they lease space.
3. Interest Repurchase Reserve
---------------------------
On October 3, 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.
Under Section 16.4, limited partners may request the Partnership to
repurchase their respective interests (Units) in the Partnership. With
this funding, the Partnership was able to repurchase 750 Units at a price
of $208 per Unit. The Partnership notified the limited partners of the
establishment of the Interest Repurchase Reserve and the opportunity to
request that the Partnership repurchase Units at the established price
pursuant to a letter dated October 3, 1995.
During 1996, the Partnership elected to fund an additional $243,700 to
its Interest Repurchase Reserve ($100,00 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. Through December
31, 1996, the Partnership had repurchased a total of 1,504 units for
$312,832.
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. On December 17, 1996 the
Partnership has indefinitely suspended the Interest Repurchase Program.
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:
1996 1995
----------- -----------
Land and improvements $ 4,446,084 $ 4,411,387
Buildings and improvements 19,347,515 19,296,603
Amenities 126,788 124,041
----------- -----------
23,920,387 23,832,031
Less accumulated depreciation 15,069,604 14,246,745
----------- -----------
$ 8,850,783 $ 9,585,286
=========== ===========
- 29 -
<PAGE>
5. Mortgages Payable
-----------------
Mortgages payable as of December 31 consist of the following:
1996 1995
----------- -----------
Mortgage payable to an insurance
company bearing interest at 9.125%,
maturing November 1, 1998, secured
by land and building $ 2,359,637 $ 2,464,619
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 December 31, 1996
is 7.33% 4,500,000 4,500,000
---------- ----------
$ 6,859,637 $ 6,964,619
========== ==========
The $2,359,637 mortgage is payable in monthly installments of $32,335,
which includes principal, interest and property tax escrow. The
$4,500,000 mortgage is payable in monthly installments of $26,025
(interest only). Scheduled maturities of debt are as follows:
For the Years Ended December 31, Amount
-------------------------------- ------------
1997 $ 114,973
1998 2,244,664
1999 --
2000 --
2001 4,500,000
-----------
$ 6,859,637
===========
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 $7,249,000.
Effective January 1, 1997, the interest rate on the $4,500,000 mortgage
payable adjusted to 6.94%.
6. Rental Income Under Operating Leases
------------------------------------
The following is a schedule of minimum future rental income on
noncancellable operating leases as of December 31, 1996:
For the Years Ended December 31, Amount
-------------------------------- -----------
1997 $ 2,293,568
1998 1,457,302
1999 1,017,026
2000 693,416
2001 559,207
Thereafter 1,697,975
-----------
$ 7,718,494
===========
- 30 -
<PAGE>
7. Related Party Transactions
--------------------------
Property management fees of $158,463 (1996), $161,638 (1995) and $148,186
(1994) 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 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
$41,001 and $25,498 as a repair and maintenance fee during the years
ended December 31, 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 years ended December 31, 1996, 1995 and
1994. 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 1994
-------- -------- --------
Leasing $144,372 $124,826 $134,561
Administrative 175,414 172,070 168,003
Property manager 182,750 214,574 178,648
Other 21,515 7,838 14,767
-------- -------- --------
$524,051 $519,308 $495,979
======== ======== ========
During the years ended December 31, 1996, 1995 and 1994, 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 $315,000 in
rental payments from NTS Development Company during 1996, 1995 and 1994.
Subsequent to December 31, 1996, the NTS Development Company lease was
extended for five years to March 2002 at a rental rate of $13.75 for
20,368 square feet. As a result of the lease renewal, the Partnership has
made a commitment for approximately $170,000 of tenant finish
improvements.
8. Commitments and Contingencies
-----------------------------
At Plainview Plaza II, the Partnership expects to complete the renovation
of the exterior of the property during 1997. The remaining commitment for
this project is approximately $345,000.
In addition to the commitment discussed in Note 7, subsequent to December
31, 1996 the Partnership made a commitment of approximately $222,000 for
the remaining renovation to the common area lobbies at Plainview Plaza
II.
The lease for a major tenant at Plainview Triad North (occupies nearly
65% of the building) expires in 1997. The Partnership is currently
negotiating a one year renewal with the tenant at their request. Any
costs associated with this renewal would not be significant. In the
opinion of the general partner of the Partnership, the one year extension
will be all that can be anticipated. If correct and the tenant does
vacate, there will likely be a protracted period for the property to
become fully leased again and substantial funds will likely be needed for
future leasing and tenant finish costs.
- 31 -
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
N/A
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. 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 are as follows:
J. D. Nichols
- -------------
Mr. Nichols (age 55) is the managing general partner of NTS-Properties
Associates and is Chairman of the Board of NTS Corporation (since 1985) and NTS
Development Company (since 1977).
L. C. Aroh
- ----------
Mr. Aroh (age 65) has been an independent real estate developer for the past
nine years. He is a partner in a number of real estate developments with the
principals of NTS Development Company.
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.
Alliance Realty Corporation
- ---------------------------
Alliance Realty Corporation was formed in September 1982, and is a wholly-
owned subsidiary of SN Alliance, Inc. SN Alliance, Inc. is also the parent
corporation of Stifel, Nicolas & Company, Inc. which acted as the Dealer
Manager in connection with the offering for the interests.
Gary D. Adams
- -------------
Mr. Adams (age 50) is Senior Vice President of NTS Development Company.
Since joining the NTS organization in May 1977, Mr. Adams has been involved
in the development, construction and management of properties in the
southeast region.
A. Toni Rizzo
- -------------
Mr. Rizzo (age 49) joined Abel Construction during 1995 as the Director of
Business Development. From 1985 to 1995, Mr. Rizzo was an officer of the
Huntington Group and prior to 1985 was an employee of NTS Development Company.
The Manager of the Partnership's properties is NTS Development Company, the
executive officers and/or directors of which are Messrs. J. D. Nichols,
Richard L. Good and John W. Hampton.
- 32 -
<PAGE>
Item 10. Directors and Executive Officers of the Registrant - Continued
Richard L. Good
- ---------------
Mr. Good (age 57), President and Chief Operating Officer of NTS Corporation,
President of NTS Development Company and Chairman of the Board of NTS
Securities, Inc., joined the Manager in January 1985. From 1981 through 1984, he
was Executive Vice President of Jacques-Miller, Inc., a real estate syndication,
property management and financial planning firm in Nashville, Tennessee.
John W. Hampton
- ---------------
Mr. Hampton (age 47) is Senior Vice President of NTS Development Company with
responsibility for all accounting operations. Before joining the Manager in
March 1991, Mr. Hampton was Vice President - Finance and Chief Financial Officer
of the Sturgeon-Thornton-Marrett Development Company in Louisville for nine
years. Prior to that he was with Alexander Grant & Company CPA's. Mr. Hampton is
a Certified Public Accountant and a graduate of the University of Louisville
with a Bachelor of Science degree in Commerce. He is a member of the American
Institute of CPA's and the Kentucky Society of CPA's.
Item 11.Management Remuneration and Transactions
The officers and/or directors of the corporate general partner receive no direct
remuneration in such capacities. The Partnership is required to pay a property
management fee based on gross rentals to NTS Development. The Partnership is
also required to pay to NTS Development company a repair and maintenance fee on
costs related to specific projects. Also, NTS Development Company provides
certain other services to the Partnership. See Note 7 to the financial
statements which sets forth transactions with NTS Development Company for the
years ended December 31, 1996, 1995 and 1994.
The general partner is entitled to receive cash distributions and allocations of
profits and losses from the Partnership. Generally, the general partner is
entitled to a 10% noncumulative annual return on its capital contributions from
the cash income of the Partnership (after payment of a like amount to the
limited partners). At such time as the limited partners have received cash
distributions from all sources equal to their original capital contributions,
cash flow will be distributed 52% to limited partners and 48% to the general
partner. In no event, however, will the portion of any item of Partnership
income, gain, loss, deduction or credit allocated to the general partner be less
than 1%.
- 33 -
<PAGE>
Item 12.Security Ownership of Certain Beneficial Owners and Management
The general partner is NTS-Properties Associates, a Georgia limited partnership,
10172 Linn Station Road, Louisville, Kentucky 40223. The partners of the general
partner and their total respective interests in
NTS-Properties Associates are as follows:
J. D. Nichols
10172 Linn Station Road 86.07%
Louisville, Kentucky 40223
L. C. Aroh
10904 Old Bridge Place 8.64%
Louisville, Kentucky 40223
Gary D. Adams
3300 University Boulevard, Suite 150 1.26%
Winter Park, Florida 32792
A. Toni Rizzo
515 Willowhurst Place 1.26%
Louisville, Kentucky 40223
NTS Capital Corporation
10172 Linn Station Road 2.67%
Louisville, Kentucky 40223
Alliance Realty Corporation
500 North Broadway 0.10%
St. Louis, Missouri 63102
Item 13. Certain Relationships and Related Transactions
Property management fees of $158,463 (1996),$161,638 (1995) and $148,186 (1994)
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 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 $41,001 and $25,498 as a repair and maintenance fee
during the years ended December 31, 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 years ended December 31, 1996, 1995 and 1994. 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 1994
-------- -------- ------
Leasing $144,372 $124,826 $134,561
Administrative 175,414 172,070 168,003
Property manager 182,750 214,574 178,648
Other 21,515 7,838 14,767
------- ------- -------
$524,051 $519,308 $495,979
======= ======= =======
- 34 -
<PAGE>
Item 13. Certain Relationships and Related Transactions - Continued
During the years ended December 31, 1996, 1995 and 1994, 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 $315,000 in rental payments from NTS
Development Company during 1996, 1995 and 1994. Subsequent to December 31, 1996,
the NTS Development Company lease was extended five years to March 2002 at a
rental rate of $13.75 for 20,368 square feet. As a result of the lease renewal,
the Partnership has made a commitment for approximately $170,000 of tenant
finish improvements.
There are no other reportable business relationships between the Partnership's
creditors, customers, and suppliers and officers of the Manager or the general
partner as of December 31, 1996.
- 35 -
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
1. Financial statements
The financial statements for the years ended December 31, 1996, 1995,
1994 together with the report of Arthur Andersen LLP dated February 25,
1997, appear in Item 8. The following financial statement schedules
should be read in conjunction with such financial statements.
2. Financial statement schedules
Schedules: Page No.
III - Real Estate and Accumulated Depreciation 37-38
All other schedules have been omitted because they are not applicable,
or 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 III
10. Management Agreement between *
NTS Development Company and
NTS-Properties III
27. Financial Data Schedule Included
herewith
* Incorporated by reference to documents filed with the Securities
and Exchange Commission in connection with the filing of
Registration Statements on Form S-11 on June 25, 1982 (effective
October 13, 1982) under Commission File No. 2-78152.
4. Reports on Form 8-K
Form 8-K, dated December 17, 1996, was filed to report in Item 5 the
suspension of the Interest Repurchase Program effective December 17,
1996 and the suspension of distributions starting December 31, 1996.
- 36 -
<PAGE>
<TABLE>
NTS PROPERTIES III
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1996
<CAPTION>
Peachtree
Plainview Plainview Corporate
Plaza II Triad North Center Total
-------- ----------- ------ -----
<S> <C> <C> <C> <C>
Encumbrances (A) (B) (B)
Initial cost to partnership:
Land $ 1,379,172 $ 1,217,886 $ 1,408,375 $ 4,005,433
Buildings and improvements 4,963,604 4,512,172 6,231,114 15,706,890
Cost capitalized subsequent to
acquisition:
Improvements 1,061,331 1,246,370 1,900,363 4,208,064
Carrying costs -- -- -- --
Gross amount at which carried
December 31, 1996 (C):
Land $ 1,478,820 $ 1,295,856 $ 1,671,407 $ 4,446,083
Buildings and improvements 5,925,287 5,680,572 7,868,445 19,474,304
----------- ----------- ----------- -----------
Total $ 7,404,107 $ 6,976,428 $ 9,539,852 $23,920,387
=========== =========== =========== ===========
Accumulated depreciation $ 4,793,369 $ 3,972,554 $ 6,303,681 $15,069,604
=========== =========== =========== ===========
Date of construction N/A N/A N/A
Date Acquired 01/83 02/83 01/83
Life at which depreciation in
latest income statement is
computed (D) (D) (D)
<FN>
(A) First and second mortgage held by two insurance companies.
(B) First mortgage held by an insurance company.
(C) Aggregate cost of real estate for tax purposes is $24,497,619.
(D) Depreciation is computed using the straight-line method over the estimated
useful lives of the assets which are 5 - 30 years for land improvements, 5
- 30 years for buildings and improvements and 3 - 30 years for amenities.
</FN>
</TABLE>
- 37 -
<PAGE>
<TABLE>
NTS-PROPERTIES III
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<CAPTION>
Real Accumulated
Estate Depreciation
------ ------------
<S> <C> <C>
Balances at December 31, 1993 $ 23,548,627 $ 12,765,524
Additions during period:
Improvements (a) 454,958 --
Depreciation (b) -- 983,352
Deductions during period:
Retirements (309,262) (297,489)
------------ ------------
Balances at December 31, 1994 23,694,323 13,451,387
Additions during period:
Improvements (a) 414,424 --
Depreciation (b) -- 1,015,382
Deductions during period:
Retirements (276,716) (220,024)
------------ ------------
Balances at December 31, 1995 23,832,031 14,246,745
Additions during period:
Improvements (a) 160,532 --
Depreciation (b) -- 894,435
Deductions during period:
Retirements (72,176) (71,576)
------------ ------------
Balances at December 31, 1996 $ 23,920,387 $ 15,069,604
============ ============
<FN>
(a) The additions to improvements on this schedule will differ from the
additions to land, buildings, amenities and construction in progress on the
Statements of Cash Flows primarily due to the fact that construction in
progress is not included in the real estate balance above.
(b) The additions charged to accumulated depreciation on this schedule will
differ from the depreciation and amortization on the Statements of Cash
Flows due to the amortization of loan costs.
</FN>
</TABLE>
- 38 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, NTS-Properties III 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,
General Partner
BY: NTS Capital Corporation,
General Partner
/s/ John W. Hampton
John W. Hampton
Senior Vice President
Date: March 24 , 1997
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
Form 10-K has been signed below by the following persons on behalf of the
registrant in their capacities and on the date indicated above.
Signature Title
--------- -----
/s/ J. D. Nichols General Partner of NTS-Properties
J. D. Nichols Associates and Chairman of the Board and
Sole Director of NTS Capital Corporation
/s/ Richard L. Good President of NTS Capital Corporation
Richard L. Good
/s/ John W. Hampton Senior Vice President of NTS Capital
John W. Hampton Corporation
The Partnership is a limited partnership and no proxy material has been sent to
the limited partners.
- 39 -
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET AS OF DECEMBER 31, 1996 AND FROM THE STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 972,773
<SECURITIES> 0
<RECEIVABLES> 198,970
<ALLOWANCES> 81,980
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 8,850,783
<DEPRECIATION> 15,069,604
<TOTAL-ASSETS> 10,975,886
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 6,859,637
0
0
<COMMON> 0
<OTHER-SE> 3,860,128
<TOTAL-LIABILITY-AND-EQUITY> 10,975,886
<SALES> 3,212,914
<TOTAL-REVENUES> 3,265,631
<CGS> 0
<TOTAL-COSTS> 2,307,441
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 53,043
<INTEREST-EXPENSE> 558,878
<INCOME-PRETAX> 189,247
<INCOME-TAX> 0
<INCOME-CONTINUING> 189,247
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 189,247
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>THE PARTNERSHIP HAS AN UNCLASSIFIED BALANCE SHEET; THEREFORE, THE VALUE
IS $0.
</FN>
</TABLE>
