<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark one)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ___________
Commission File Number 0-11176
NTS-PROPERTIES III
(Exact name of registrant as specified in its charter)
Georgia 61-1017240
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10172 Linn Station Road
Louisville, Kentucky 40223
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number,
including area code (502) 426-4800
Not Applicable
Former name, former address and former fiscal year,
if changed since last report
Indicate by check mark whether the registrant (l) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
Exhibit Index: See page 15
Total Pages: 16
<PAGE>
TABLE OF CONTENTS
Pages
PART I
Item 1. Financial Statements
Balance Sheets and Statement of Partners' Equity
as of June 30, 1997 and December 31, 1996 3
Statements of Operations
For the three months and six months ended
June 30, 1997 and 1996 4
Statements of Cash Flows
For the three months and six months ended
June 30, 1997 and 1996 5
Notes To Financial Statements 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-14
PART II
1. Legal Proceedings 15
2. Changes in Securities 15
3. Defaults upon Senior Securities 15
4. Submission of Matters to a Vote of Security Holders 15
5. Other Information 15
6. Exhibits and Reports on Form 8-K 15
Signatures 16
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<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
NTS-PROPERTIES III
BALANCE SHEETS AND STATEMENT OF PARTNERS' EQUITY
<CAPTION>
As of As of
June 30,1997 December 31, 1996*
----------- -----------
ASSETS
<S> <C> <C>
Cash and equivalents $ 633,668 $ 661,383
Cash and equivalents - restricted 320,013 311,390
Accounts receivable, net of allowance
for doubtful accounts of $96,532 (1997)
and $81,980 (1996) 220,995 198,970
Land, buildings and amenities, net 8,654,464 8,850,783
Construction in progress 1,054,774 577,233
Other assets 363,292 376,127
----------- -----------
Total assets $11,247,206 $10,975,886
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Mortgages payable $ 6,803,457 $ 6,859,637
Accounts payable - operations 79,344 97,702
Accounts payable - construction 170,335 54,070
Security deposits 91,094 92,934
Other liabilities 115,564 11,415
----------- -----------
7,259,794 7,115,758
Commitments and Contingencies
Partners' equity 3,987,412 3,860,128
----------- -----------
$11,247,206 $10,975,886
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Limited General
Partners Partner Total
------------ ------------ ------------
<S> <C> <C> <C>
PARTNERS' EQUITY
Initial equity $ 15,600,000 $ 8,039,710 $ 23,639,710
Adjustment to historical basis -- (5,455,030) (5,455,030)
------------ ------------ ------------
15,600,000 2,584,680 18,184,680
Net loss - prior years (164,405) (2,290,485) (2,454,890)
Net income (loss) - current year 179,706 (47,015) 132,691
Cash distributions declared to
date (11,349,844) (206,985) (11,556,829)
Repurchase of limited partnership
units (318,240) -- (318,240)
------------ ------------ ------------
Balances at June 30, 1997 $ 3,947,217 $ 40,195 $ 3,987,412
============ ============ ============
</TABLE>
*Reference is made to the audited financial statements in the Form 10-K as filed
with the Commission on March 27, 1997.
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<PAGE>
<TABLE>
NTS-PROPERTIES III
STATEMENTS OF OPERATIONS
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Rental income, net of provision
for doubtful accounts of $14,552
(1997) and $18,338 (1996) $ 766,511 $ 713,211 $1,515,552 $1,426,411
Rental income - affiliated 68,742 78,165 140,600 158,169
Interest and other income 7,096 12,449 19,068 23,315
---------- ---------- ---------- ----------
842,349 803,825 1,675,220 1,607,895
EXPENSES:
Operating expenses 174,640 169,408 354,580 356,285
Operating expenses - affiliated 108,128 82,679 212,264 168,248
Interest expense 134,431 140,906 266,451 282,808
Management fees 42,072 41,950 84,352 77,686
Real estate taxes 52,921 53,793 105,719 107,585
Professional and administrative
expenses 17,509 14,552 30,789 32,983
Professional and administrative
expenses - affiliated 34,805 35,228 69,417 74,165
Depreciation and amortization 210,396 228,820 418,957 485,816
---------- ---------- ---------- ----------
774,902 767,336 1,542,529 1,585,576
---------- ---------- ---------- ----------
Net income $ 67,447 $ 36,489 $ 132,691 $ 22,319
========== ========== ========== ==========
Net income allocated to the
limited partners $ 90,943 $ 60,089 $ 179,706 $ 70,470
========== ========== ========== ==========
Net income per limited
partnership unit $ 6.46 $ 4.13 $ 12.77 $ 4.82
========== ========== ========== ==========
Weighted average number of units 14,074 14,536 14,074 14,634
========== ========== ========== ==========
</TABLE>
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<PAGE>
<TABLE>
NTS-PROPERTIES III
STATEMENTS OF CASH FLOWS
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 67,447 $ 36,489 $ 132,691 $ 22,319
Adjustments to reconcile net income
to net cash provided by operating
activities:
Accrued interest on investment
securities -- (2,885) -- (1,483)
Provision for doubtful accounts 9,912 6,380 14,552 18,338
Depreciation and amortization 210,396 228,820 418,957 485,816
Changes in assets and liabilities:
Cash and equivalents - restricted (15,615) (15,615) (30,064) (31,230)
Accounts receivable (30,900) 29,097 (36,577) (53,050)
Other assets 16,933 9,870 2,593 (9,211)
Accounts payable - operations (29,024) (39,990) (18,358) 4,261
Security deposits 759 (95) (1,840) (661)
Other liabilities 48,573 37,090 104,149 105,679
--------- --------- --------- ---------
Net cash provided by operating
activities 278,481 289,161 586,103 540,778
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to land, buildings, amenities
and construction in progress (382,451) (37,995) (573,671) (47,569)
Increase in cash and equivalents -
restricted (2,914) (23,363) (5,727) (46,406)
Purchase of investment securities -- (639,742)
Maturity of investment securities -- -- -- 101,653
--------- --------- --------- ---------
Net cash used in investing
activities (385,365) (701,100) (579,398) (632,064)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgages
payable (28,409) (25,940) (56,180) (51,298)
Cash distributions -- (36,429) -- (73,554)
Repurchase of limited partnership
units -- (18,096) (5,408) (75,920)
Decrease in cash and equivalents -
restricted -- (125,604) 27,168 (167,780)
--------- --------- --------- ---------
Net cash used in financing activities (28,409) (206,069) (34,420) (368,552)
--------- --------- --------- ---------
Net decrease in cash and equivalents (135,293) (618,008) (27,715) (459,838)
CASH AND EQUIVALENTS, beginning of
period 768,961 785,054 661,383 626,884
--------- --------- --------- ---------
CASH AND EQUIVALENTS, end of period $ 633,668 $ 167,046 $ 633,668 $ 167,046
========= ========= ========= =========
Interest paid on a cash basis $ 134,431 $ 141,511 $ 267,588 $ 283,606
========= ========= ========= =========
</TABLE>
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<PAGE>
NTS-PROPERTIES III
NOTES TO FINANCIAL STATEMENTS
The financial statements included herein should be read in conjunction with the
Partnership's 1996 Annual Report. In the opinion of the general partner, all
adjustments (consisting only of normal recurring accruals) necessary for a fair
presentation have been made to the accompanying financial statements for the
three months and six months ended June 30, 1997 and 1996.
1. 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.
2. 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 at
Peachtree Corporate Center is replaced, 2) funds which have been escrowed
with a mortgage company for Plainview Plaza II's property taxes in accordance
with the loan agreement and 3) funds which the Partnership has reserved for
the repurchase of limited partnership Units (1996 only).
3. Interest Repurchase Reserve
---------------------------
Pursuant to Section 16.4 of the Partnership's Amended and Restated Agreement
of Limited Partnership, the Partnership established an Interest Repurchase
Reserve. Through June 30, 1997, the Partnership has repurchased a total of
1,530 Units for $318,240. Repurchased Units are retired by the Partnership,
thus increasing the share of ownership of each remaining investor. On
December 17, 1996 the Partnership indefinitely suspended the Interest
Repurchase Program.
4. 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 1996 and 1997, the Partnership sold no investment securities. As of
June 30, 1997 and December 31, 1996, the Partnership held no investment
securities.
(Notes to financial statements continued next page)
- 6 -
<PAGE>
5. Mortgages Payables
------------------
June 30, December 31,
1997 1996
----------- ----------
Mortgage payable to an insurance
company maturing June 1, 2001,
secured by land and buildings,
bearing a variable interest rate
based on the 10-year treasury bill
rate plus 60 basis points. The rate
is adjusted quarterly. The current
rate at June 30, 1997 is 7.39% $ 4,500,000 $ 4,500,000
Mortgage payable to an insurance
company bearing interest at 9.125%,
maturing November 1, 1998, secured
by land and building 2,303,457 2,359,637
----------- ----------
$ 6,803,457 $ 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 $7,037,000.
Effective July 1, 1997, the interest rate on the $4,500,000 mortgage payable
adjusted to 7.05%.
6. Related Party Transactions
--------------------------
Property management fees of $84,352 and $77,686 for the six months ended June
30, 1997 and 1996, respectively, were paid to NTS Development Company, an
affiliate of the general partner, pursuant to an agreement with the
Partnership. The fee is equal to 5% of gross revenues from the Partnership's
properties. Also permitted by an agreement, NTS Development Company will
receive a repair and maintenance fee equal to 5.9% of costs incurred which
relate to capital improvements. The Partnership incurred $38,338 and $3,580
as a repair and maintenance fee during the six months ended June 30, 1997 and
1996, 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 six
months ended June 30, 1997 and 1996. 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, land, buildings and amenities, or construction in progress.
These charges were as follows:
1997 1996
-------- --------
Leasing $127,538 $ 65,553
Administrative 86,355 89,792
Property manager 81,288 102,593
Other 16,167 4,846
-------- --------
$311,348 $262,784
======== ========
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<PAGE>
6. Related Party Transactions - Continued
--------------------------------------
During January 1997, NTS Development Company leased 23,160 square feet of
the available space in Plainview Plaza II at a based rent of $13.50 per
square foot. Effective February 1, 1997, 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. The Partnership received approximately $141,000 in
rental payments from NTS Development Company during the six months ended
June 30, 1997. As a result of the lease renewal, the Partnership has made a
commitment for approximately $170,000 of tenant finish improvements, of
which approximately $151,000 has been incurred as of June 30, 1997.
During the six months ended June 30, 1996, NTS Development Company leased
23,160 square feet in Plainview Plaza II at base rent of $13.50 per square
foot. The Partnership received approximately $158,000 in rental payments
from NTS Development Company during the six months ended June 30, 1996.
7. Reclassification of 1996 Financial Statements
---------------------------------------------
Certain reclassifications have been made to the June 30, 1996 financial
statements to confrom with the June 30, 1997 classification. These
reclasifications have no effect on previously reported operations.
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 $158,000.
One tenant at Plainview Triad North occupies nearly 65% of the building.
During the second quarter of 1997, the tenant's lease was extended from
August 1997 to August 1998. There were no tenant finish improvements as a
result of this renewal. 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.
- 8 -
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
- ---------------------
The occupancy levels at the Partnership's properties as of June 30 were as
follows:
1997 1996
---- ----
Plainview Plaza II 89% 82%
Plainview Triad North 91% 93%
Peachtree Corporate Center 87% 96%
The rental and other income generated by the Partnership's properties for the
three months and six months ended June 30 were as follows:
Three Months Ended Six Months Ended
June 30, June 30,
---------- --------
1997 1996 1997 1996
------ ------ ------- ------
Plainview Plaza II $ 314,798 $ 262,761 $ 607,412 $ 535,084
Plainview Triad North $ 247,457 $ 259,535 $ 512,372 $ 499,859
Peachtree Corporate Center $ 271,369 $ 269,689 $ 537,950 $ 552,170
The 7% increase in occupancy from June 30, 1996 to June 30, 1997 at Plainview
Plaza II can be attributed to four new leases totalling approximately 12,000
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. Also included in
the new leases is an approximately 3,200 square feet expansion by a current
tenant. The new leases are partially offset by a decrease in square footage
(approximately 2,800 square feet) by NTS Development Company, an affiliate of
the General Partner. NTS Development Company consolidated its leased space so
that the Partnership could accommodate an expansion by a current tenant. (See
below for a discussion of the lease renewal signed by NTS Development Company in
1997.) Average occupancy increased from 82% in 1996 to 89% in 1997 for the three
months ended June 30 and from 82% in 1996 to 88% in 1997 for the six month
period. The increase in rental and other income at Plainview Plaza II for the
three months and six months ended June 30, 1997 as compared to the same periods
in 1996 can be attributed to the increase in average occupancy during the
periods along with increased rental rates for lease renewals.
Plainview Triad North's occupancy decreased 2% from June 30, 1996 to June 30,
1997 as a result of a move-out by one tenant (occupied a total of approximately
3,300 square feet) at the end of the lease term. Partially offsetting the tenant
move-out are two new leases totalling approximately 1,700 square feet. Average
occupancy decreased from 93% in 1996 to 91% in 1997 for the three months ended
June 30, and from 93% in 1996 to 92% in 1997 for the six month period. Rental
and other income at Plainview Triad North increased for the six months ended
June 30, 1997 as compared to the same period in 1996 due to an increase in
rental rates for lease renewals partially offset by an increase in the provision
for doubtful
- 9 -
<PAGE>
Results of Opertions - Continued
- --------------------------------
accounts. Rental and other income at Plainview Triad North decreased for the
three month period due to the decrease in average occupancy and an increase in
the provision for doubtful accounts.
Peachtree Corporate Center's occupancy decreased 9% from June 30, 1996 to June
30, 1997 due to move-outs by 13 tenants who had occupied approximately 32,300
square feet. Approximately 14,200 square feet of this total represents five
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. The remaining 18,200 square feet of the total move-outs are the
result of seven tenants (occupied a total of approximately 15,000 square feet)
who vacated at the end of the lease term and one tenant (3,200 square feet) who
exercised a termination option. Partially offsetting the move-outs are six new
leases totalling approximately 14,700 square feet, of which approximately 5,900
square feet represents expansions by two current tenants. Average occupancy at
Peachtree Corporate Center decreased from 94% in 1996 to 86% in 1997 for the
three months ended June 30 and from 93% in 1996 to 85% in 1997 for the six month
period. Rental and other income at Peachtree Corporate Center decreased for the
six months ended June 30, 1997 as compared to the same period in 1996 as a
result of a decrease in average occupancy partially offset by a decrease in the
provision for doubtful accounts. Rental and other income increased at Peachtree
Corporate Center for the three months ended June 30, 1997 as compared to the
same period in 1996 despite a decrease in average occupancy. The increase in
income is due primarily to an increase in common area expense reimbursements.
Tenants at Peachtree Corporate Center reimburse the Partnership for common area
expenses as part of the lease agreements. Partially offsetting the increase in
rental and other income for the three month period is an increase in provision
for doubtful accounts and the decrease in average occupancy.
As of June 30, 1997, Peachtree Corporate Center has 3,000 square feet of
additioal space leased to an existing tenant. The tenant is expected to take
occupancy during the third quarter of 1997. With this new lease, the business
center's occupancy should improve to 89%. There are no material commitments for
tenant improvements associated with this lease.
In cases of tenants who cease making rental payments or abandon the premises in
breach of their lease, the Partnership pursues collection through the use of
collection agencies or other remedies available by law when practical. In the
case of tenants who vacated Peachtree Corporate Center as a result of
bankruptcy, the Partnership has taken legal action when it was thought there
could be a possible collection. There have been no significant funds recovered
as a result of these actions during the three months and six months ended June
30, 1997 or 1996. As of June 30, 1997, 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.
Interest and other income includes interest income earned from investments made
by the Partnership with cash reserves and from funds escrowed for the
replacement of the heating, ventilating and air conditioning ("HVAC") system at
Peachtree Corporate Center. The decrease in interest and other income for the
three months and six months ended June 30, 1997 as compared to the same period
in 1996 is the result of a decrease in cash reserves available for investment.
Operating expenses remained fairly constant for the three months and six months
ended June 30, 1997 as compared to the same periods in 1996.
The increase in operating expenses - affiliated for the three months and six
months ended June 30, 1997 as compared to the same periods in 1996 is a result
of increased leasing costs at Peachtree Corporate Center and Plainview Triad
- 10 -
<PAGE>
Results of Opertions - Continued
- --------------------------------
North. The increase in leasing costs at Plainview Traid North is primarily a
result of the Aetna Life Insurance Company lease situation as discussed below.
The increase in both periods is partially offset by a decrease in property
management costs and leasing costs at 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 decrease in interest expense for the three months and six months ended June
30, 1997 as compared to the same periods in 1996 is due to the fact that the
interest rate on the $4,500,000 mortgage payable was lower in 1997 compared to
1996. The interest rate was 6.94% January to March 1997 and 7.39% April to June
1997 compared to 7.65% January to June 1996. The interest rate on this note
adjusts quarterly to 60 basis points over the 10-year treasury bill rate. The
decrease in interest expense for the three month and six month periods is also
due to a decrease in interest expense on the $2,303,457 mortgage payable as a
result of continued principal payments. See the Liquidity and Capital Resources
section of this item for details regarding the Partnership's debt.
Management fees are calculated as a percentage of cash collections; however,
revenue for reporting purposes is on the accrual basis. As a result, the
fluctuations of revenues between periods will differ from the fluctuations of
management fee expense.
Real estate taxes and professional and administrative expenses remained farily
constant for the three months and six months ended June 30, 1997 as compared to
the same periods in 1996.
Professional and administrative expenses - affiliated have decreased for the six
months ended June 30, 1997 as compared to the same period in 1996 as a result of
a decrease in salary costs. The change in professional and administrative
expenses - affiliated for the three month period 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 expense for the three months and
six months ended June 30, 1997 as compared to the same periods in 1996 is the
result of a portion of the Partnership's assets (primarily tenant finish
improvements) becoming fully depreciated since June 30, 1996. 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.
Liquidity and Capital Resources
- -------------------------------
The Partnership had cash flow from operations of $586,103 (1997) and $540,778
(1996) for the six months ended June 30. The 1996 funds, in conjunction with
cash on hand, were used to make a 1% (annualized) distribution of $72,640 in
1996. The annualized distribution rate is calculated as a percent of the initial
equity. The limited partners received 100% of these distributions. The
Partnership 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
sheet as of June 30) were $633,668 and $809,673 at June 30, 1997 and 1996,
respectively.
- 11 -
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
As of June 30, 1997, 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.
The current rate at June 30, 1997 was 7.39%. Effective July 1, 1997, the
interest rate adjusted to 7.05%. The loan is secured by a first mortgage on
Plainview Triad North and Peachtree Corporate Center with a second position
behind the holder of the permanent mortgage on Plainview Plaza II. The unpaid
balance of the loan is due June 1, 2001.
As of June 30, 1997, the Partnership also had a mortgage payable to an insurance
company in the amount of $2,303,457. The mortgage bears a fixed interest rate of
9.125%, is due November 1, 1998 and is secured by Plainview Plaza II. The
outstanding balance at maturity based on the current rate of amortization will
be $2,140,539.
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
and cash reserves. 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 at Peachtree
Corporate Center. Cash flows used in investing activities in 1996 also include
the purchase of investment securities. As part of its cash management
activities, the Partnership has purchased Certificates of Deposit or securities
issued by the U. S. Government with initial maturities greater than three months
to improve the return on its cash reserves. The Partnership has held the
securities until maturity. Cash flows provided by investing activities in 1996
are from the maturity of investment securities. Cash flows used in financing
activities include principal payments on the $2.3 million mortgage payable and
repurchase of limited partnership Units. Cash flows used in financing activities
in 1996 also included cash distributions and increases in cash reserved for the
repurchase of limited partnership Units. Cash flows provided by investing
activities represents the utilization of cash which has been reserved by the
Partnership for the repurchase of limited partnership Units. The Partnership
does not expect any material changes in the mix and relative cost of capital
resources.
In the next 12 months, the General Partner expects a demand on future liquidity
as a result of 59,128 square feet in leases expiring from July 1, 1997 to June
30, 1998 (Plainview Plaza II - 11,652 square feet, Plainview Triad North - 9,736
square feet and Peachtree Corporate Center - 37,740 square feet). At this time,
the future leasing and tenant finish costs which will be required to renew the
current leases or obtain new tenants are unknown. It is anticipated that the
cash flow from operations and cash reserves will be sufficient to meet the needs
of the Partnership.
As of June 30, 1997, the Partnership has a commitment for 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 square feet. As of June 30, 1997,
approximately $151,000 of the costs have been incurred. The project is expected
to be completed during the third quarter of 1997. The source of funds for this
project is expected to be cash flow from operations and/or cash reserves.
- 12 -
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
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 June 30, 1997,
approximately $742,000 of the total project cost has been incurred. The General
Partner of the Partnership anticipates the project will be funded with a
combination of cash reserves and cash flow from operating activities.
Pursuant to Section 16.4 of the Partnership's Amended and Restated Agreement of
Limited Partnership, the Partnership established an Interest Repurchase Reserve.
Through June 30, 1997, the Partnership has repurchased a total of 1,530 Units
for $318,240. 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 indefinitely suspended. See below for further
discussion.
The lease for Aetna Life Insurance Company, the largest tenant of Plainview
Triad North, occupying nearly 65% of the building, was extended during the
second quarter of 1997 from August 1997 to August 1998. There were no tenant
finish improvements as a result of this renewal. Aetna accounts for nearly 21%
of the NTS-Properties III total revenue. 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 does vacate 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, the
repurchase of Limited Partnership Units has been indefinitely interrupted
effective December 17, 1996. In addition, distributions were suspended starting
December 31, 1996.
The Partnership had no other material commitments for renovations or capital
improvements at June 30, 1997.
The table below presents that portion of the distributions that represent a
return of capital on a Generally Accepted Accounting Principle basis for the six
months ended June 30, 1997 and 1996. The General Partner did not receive a
distribution during these periods. Distributions were funded by cash flow
derived from operating activities.
Cash
Net Income Distributions Return of
Allocated Declared Capital
--------- -------- -------
Limited Partners:
1997 $ 179,706 $ -- $ --
1996 $ 70,470 $ 72,640 $ 2,170
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
- 13 -
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
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 2, Management's Discussion and Analysis
of Financial Condition and Results of Operations, may be considered to be
"forward-looking statements" since such statements relate to matters which have
not yet occurred. For example, phrases such as the Partnership "anticipates",
"believes" or "expects" indicate that it is possible that the event anticipated,
believed or expected may not occur. Should such event not occur, then the result
which the Partnership expected also may not occur or occur in a different
manner, which may be more or less favorable to the Partnership. The Partnership
does not undertake any obligations to publicly release the result of any
revisions to these forward-looking statements that may be made to reflect any
future events or circumstances.
Any forward-looking statements included in 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 flows and cash requirements as well as its ability to pay
distributions to the limited partners.
- 14 -
<PAGE>
PART II. OTHER INFORMATION
1. Legal Proceedings
None
2. Changes in Securities
None
3. Defaults upon Senior Securities
None
4. Submission of Matters to a Vote of Security Holders
None
5. Other Information
None
6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27. Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K for the three months ended
June 30, 1997.
- 15 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
NTS-PROPERTIES III
(Registrant)
BY: NTS-Properties Associates,
General Partner,
BY: NTS Capital Corporation,
General Partner
/s/ John W. Hampton
John W. Hampton
Senior Vice President
Date: August 11, 1997
- 16 -
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF JUNE 30, 1997 AND FROM THE STATEMENT OF OPERATIONS FOR THE SIX
MONTHS ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 953,681
<SECURITIES> 0
<RECEIVABLES> 220,995
<ALLOWANCES> 96,532
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 8,654,464
<DEPRECIATION> 0<F2>
<TOTAL-ASSETS> 11,247,206
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 6,803,457
0
0
<COMMON> 0
<OTHER-SE> 3,987,412
<TOTAL-LIABILITY-AND-EQUITY> 11,247,206
<SALES> 1,656,152
<TOTAL-REVENUES> 1,675,220
<CGS> 0
<TOTAL-COSTS> 1,175,872
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 14,552
<INTEREST-EXPENSE> 266,451
<INCOME-PRETAX> 132,691
<INCOME-TAX> 0
<INCOME-CONTINUING> 132,691
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 132,691
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>THE PARTNERSHIP HAS AN UNCLASSIFIED BALANCE SHEET; THEREFORE, THE VALUE IS $0.
<F2>THIS INFORMATION IS NOT DISCLOSED IN THE PARTNERSHIP'S FORM 10-Q FILING.
</FN>
</TABLE>
