<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 September 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 16
Total Pages: 17
<PAGE>
TABLE OF CONTENTS
Pages
PART I
Item 1. Financial Statements
Balance Sheets and Statement of Partners' Equity
as of September 30, 1997 and December 31, 1996 3
Statements of Operations
For the three months and nine months ended
September 30, 1997 and 1996 4
Statements of Cash Flows
For the three months and nine months ended
September 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 9-15
PART II
1. Legal Proceedings 16
2. Changes in Securities 16
3. Defaults upon Senior Securities 16
4. Submission of Matters to a Vote of Security Holders 16
5. Other Information 16
6. Exhibits and Reports on Form 8-K 16
Signatures 17
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<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
NTS-PROPERTIES III
BALANCE SHEETS AND STATEMENT OF PARTNERS' EQUITY
<CAPTION>
As of As of
September 30,1997 December 31, 1996*
----------------- -----------------
ASSETS
<S> <C> <C>
Cash and equivalents $ 538,748 $ 661,383
Cash and equivalents - restricted 322,814 311,390
Investment securities 102,515 --
Accounts receivable, net of allowance
for doubtful accounts of $41,668 (1997)
and $81,980 (1996) 212,144 198,970
Land, buildings and amenities, net 9,672,838 8,850,783
Construction in progress -- 577,233
Other assets 352,314 376,127
----------- -----------
Total assets $11,201,373 $10,975,886
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Mortgages payable $ 6,774,395 $ 6,859,637
Accounts payable - operations 97,440 97,702
Accounts payable - construction 152,985 54,070
Security deposits 82,037 92,934
Other liabilities 123,137 11,415
----------- -----------
7,229,994 7,115,758
Commitments and Contingencies
Partners' equity 3,971,379 3,860,128
----------- -----------
$11,201,373 $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 196,710 (80,052) 116,658
Cash distributions declared to
date (11,349,844) (206,985) (11,556,829)
Repurchase of limited partnership
units (318,240) -- (318,240)
------------ ------------ ------------
Balances at September 30, 1997 $ 3,964,221 $ 7,158 $ 3,971,379
============ ============ ============
</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 Nine Months Ended
September 30, September 30,
------------- --------------
1997 1996 1997 1996
------ ------ ------ -----
<S> <C> <C> <C> <C>
REVENUES:
Rental income, net of provision
for doubtful accounts of $22,570
(1997) and $36,974 (1996) $ 790,256 $ 730,495 $2,305,780 $2,156,906
Rental income - affiliated 70,388 78,165 211,016 236,334
Interest and other income 9,277 15,521 28,344 38,835
---------- ---------- ---------- ----------
869,921 824,181 2,545,140 2,432,075
EXPENSES:
Operating expenses 216,559 179,982 571,139 536,265
Operating expenses - affiliated 118,008 70,934 330,272 239,183
Write-off unamortized building
improvements 69,912 -- 69,912 --
Interest expense 131,640 138,778 398,091 421,586
Management fees 42,221 39,278 126,572 116,964
Real estate taxes 49,651 51,485 155,369 159,070
Professional and administrative
expenses 15,031 14,708 45,819 47,691
Professional and administrative
expenses - affiliated 33,610 36,579 103,028 110,744
Depreciation and amortization 209,322 215,176 628,280 700,991
---------- ---------- ---------- ----------
885,954 746,920 2,428,482 2,332,494
---------- ---------- ---------- ----------
Net income (loss) $ (16,033) $ 77,261 $ 116,658 $ 99,581
========== ========== ========== ==========
Net income allocated to the
limited partners $ 17,005 $ 100,673 $ 196,710 $ 171,143
========== ========== ========== ==========
Net income per limited
partnership unit $ 1.21 $ 7.04 $ 13.98 $ 11.79
========== ========== ========== ==========
Weighted average number of units 14,070 14,296 14,073 14,521
========== ========== ========== ==========
</TABLE>
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<PAGE>
<TABLE>
NTS-PROPERTIES III
STATEMENTS OF CASH FLOWS
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (16,033) $ 77,261 $ 116,658 $ 99,581
Adjustments to reconcile net income
(loss)to net cash provided by
operating activities:
Accrued interest on investment
securities (54) (640) (54) (2,123)
Provision for doubtful accounts 8,017 18,636 22,570 36,974
Write-off unamortized building
improvements 69,912 -- 69,912 --
Depreciation and amortization 209,322 215,176 628,280 700,991
Changes in assets and liabilities:
Cash and equivalents - restricted (15,615) (15,615) (45,679) (46,845)
Accounts receivable 833 (25,485) (35,746) (78,535)
Other assets 5,856 (174,973) 10,051 (184,184)
Accounts payable - operations 18,096 181,934 (262) 186,195
Security deposits (9,057) (1,710) (10,897) (2,371)
Other liabilities 7,576 384 111,725 106,063
--------- --------- --------- ---------
Net cash provided by operating
activities 278,853 274,968 866,558 815,746
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to land, buildings, amenities
and construction in progress (255,064) (173,652) (830,338) (221,221)
Increase in cash and equivalents -
restricted (2,975) (17,063) (8,701) (63,389)
Decrease in cash and equivalents
restricted 15,789 -- 15,789 --
Purchase of investment securities (102,461) (216,257) (102,461) (855,999)
Maturity of investment securities -- 479,742 -- 581,395
--------- --------- --------- ---------
Net cash provided by (used in)
investing activities (344,711) 72,770 (925,711) (559,214)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgages
payable (29,062) (26,537) (85,242) (77,835)
Cash distributions -- (36,213) -- (109,767)
Repurchase of limited partnership
units -- (69,680) (5,408) (145,600)
Increase (decrease) in cash and
equivalents - restricted -- 69,680 27,168 (98,100)
--------- --------- --------- ---------
Net cash used in financing activities (29,062) (62,750) (63,482) (431,302)
--------- --------- --------- ---------
Net increase (decrease) in cash and
equivalents (94,920) 284,988 (122,635) (174,770)
CASH AND EQUIVALENTS, beginning of
period 633,668 167,126 661,383 626,884
--------- --------- --------- ---------
CASH AND EQUIVALENTS, end of period $ 538,748 $ 452,114 $ 538,748 $ 452,114
========= ========= ========= =========
Interest paid on a cash basis $ 132,915 $ 139,491 $ 400,503 $ 423,097
========= ========= ========= =========
</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 nine months ended September 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 September 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 December 31, 1996, the Partnership held no investment
securities. The following provides details regarding the investments held
at September 30, 1997.
Amortized Maturity Value at
Type Cost Date Maturity
---- ---- ---- --------
Certificate of Deposit $ 102,515 12/31/97 $ 103,844
======== ========
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<PAGE>
5. Mortgages Payables
------------------
September 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 September 30, 1997 is 7.05% $ 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 2,274,395 2,359,637
----------- ----------
$ 6,774,395 $ 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 $6,963,000.
Effective October 1, 1997, the interest rate on the $4,500,000 mortgage
payable adjusted to 6.68%.
6. Related Party Transactions
--------------------------
Property management fees of $126,572 and $116,964 for the nine months ended
September 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
$52,486 and $32,732 as a repair and maintenance fee during the nine months
ended September 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 nine months ended September 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 $ 209,389 $ 117,283
Administrative 127,012 132,724
Property manager 126,476 141,171
Other 23,701 12,827
-------- --------
$ 486,578 $ 404,005
======== ========
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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 has received approximately $211,000 in
rental payments from NTS Development Company during the nine months ended
September 30, 1997.
During the nine months ended September 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 has received approximately $236,000 in rental
payments from NTS Development Company during the nine months ended
September 30, 1996.
7. Reclassification of 1996 Financial Statements
---------------------------------------------
Certain reclassifications have been made to the September 30, 1996
financial statements to conform with the September 30, 1997
classifications. These reclassifications have no effect on previously
reported operations.
8. Commitments and Contingencies
-----------------------------
One tenant at Plainview Triad North occupies nearly 65% of the building.
During the third quarter of 1997, the Partnership received notice that the
tenant will vacate the property at the end of the lease term, August 1998.
As a result, 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 those needed to refinish space for new
tenants. At this time, the amount of such expenses are unknown.
As of September 30, 1997, the Partnership had commitments totalling
approximately $120,000 for sidewalk improvements and landscaping and
exterior building renovations at Plainview Plaza II. Subsequent to
September 30, 1997, the Partnership made commitments totalling
approximately $200,000 for parking lot resurfacing and site lighting
upgrades at Plainview Plaza II.
- 8 -
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
Results of Operations
- ---------------------
The occupancy levels at the Partnership's properties as of September 30 were as
follows:
1997 1996
---- ----
Plainview Plaza II 89% 84%
Plainview Triad North 86% 94%
Peachtree Corporate Center 89% 96%
The rental and other income generated by the Partnership's properties for the
three months and nine months ended September 30 were as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1997 1996 1997 1996
------ ------ ------ -----
Plainview Plaza II $ 316,746 $ 268,187 $ 924,158 $ 803,270
Plainview Triad North $ 268,945 $ 266,381 $ 781,317 $ 766,240
Peachtree Corporate Center $ 275,218 $ 276,708 $ 813,168 $ 828,878
The 5% increase in occupancy from September 30, 1996 to September 30, 1997 at
Plainview Plaza II can be attributed to three new leases totalling approximately
9,300 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. Average
occupancy increased from 83% in 1996 to 89% in 1997 for the three months ended
September 30 and from 82% in 1996 to 88% in 1997 for the nine month period. The
increase in rental and other income at Plainview Plaza II for the three months
and nine months ended September 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 8% from September 30, 1996 to
September 30, 1997 as a result of two tenant move-outs totalling approximately
8,300 square feet. Of this total, approximately 4,900 square feet represents a
tenant that vacated prior to the end of the lease term but is continuing to pay
rent through the end of the lease term (May 1998). The remaining approximately
3,400 square feet represents a tenant that vacated at the end of the lease term.
- 9 -
<PAGE>
Results of Operations - Continued
- ---------------------------------
Partially offsetting the tenant move-outs is one expansion lease by a current
tenant totalling approximately 700 square feet. Average occupancy decreased from
95% in 1996 to 89% in 1997 for the three months ended September 30, and from 94%
in 1996 to 91% in 1997 for the nine month period. Rental and other income at
Plainview Triad North increased for the three months and nine months ended
September 30, 1997 as compared to the same periods in 1996 due to an increase in
rental rates for lease renewals partially offset by an increase in the provision
for doubtful accounts and a decrease in average occupancy.
Peachtree Corporate Center's occupancy decreased 7% from September 30, 1996 to
September 30, 1997 due to move-outs by 12 tenants who had occupied approximately
31,200 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 17,000 square feet of the total
move-outs are the result of seven tenants (occupied a total of approximately
13,800 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 seven new leases totalling approximately 17,600 square feet, of
which approximately 9,000 square feet represents expansions by three current
tenants. Average occupancy at Peachtree Corporate Center decreased from 96% in
1996 to 89% in 1997 for the three months ended September 30 and from 94% in 1996
to 86% in 1997 for the nine month period. Rental and other income at Peachtree
Corporate Center decreased for the nine months ended September 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 remained fairly constant at Peachtree Corporate Center
for the three months ended September 30, 1997 as compared to the same period in
1996 despite a decrease in average occupancy as a result of 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.
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 nine months ended
September 30, 1997 or 1996. As of September 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 nine months ended September 30, 1997 as compared to the same
period in 1996 is the result of a decrease in cash reserves available for
investment.
The increase in operating expenses for the nine months ended September 30, 1997
as compared to the same period in 1996 is due primarily to increased
landscaping, snow removal and advertising costs at Plainview Triad North and
Plainview Plaza II. The increase is also due to an increase in vacant utilities
due to a decrease in average occupancy at Peachtree Corporate Center. The
increase in
- 10 -
<PAGE>
Results of Operations - Continued
- ---------------------------------
operating expenses for the three months ended September 30, 1997 as compared to
the same period in 1996 is due primarily to an increase in landscaping expenses
at all of the Partnership's properties and an increase in advertising and
building maintenance costs at Plainview Plaza II and Plainview Triad North.
The increase in operating expenses - affiliated for the three months and nine
months ended September 30, 1997 as compared to the same period in 1996 is a
result of increased leasing costs at Peachtree Corporate Center and Plainview
Triad North. The increase in leasing costs at Plainview Triad North is primarily
a result of the Aetna Life Insurance Company lease situation as discussed below.
The increase in operating expenses affiliated is partially offset by a decrease
in property management costs at Peachtree Corporate Center and leasing costs at
Plainview Plaza II. The increase in operating expenses - affiliated for the
three month period is also due to increased property management costs at
Plainview Plaza II and Plainview Triad North. Operating expenses-affiliated are
expenses incurred for services performed by employees of NTS Development
Company, an affiliate of the General Partner.
The 1997 write-off of unamortized building improvements is the result of the
renovations of common area lobbies, corridors and restrooms at Plainview Plaza
II. The write-off represents the cost of previous renovations which had not been
fully depreciated.
The decrease in interest expense for the three months and nine months ended
September 30, 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% from January to March 1997, 7.39%
from April to June 1997 and 7.05% from July to September 1997 compared to 7.65%
from January to June 1996 and 7.46% from July to September 1996. The interest
rate on this note adjusts quarterly to 60 basis points over the 10-year treasury
bill rate. The decrease in interest expense for the three month and nine month
periods is also due to a decrease in interest expense on the $2,274,395 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 fairly
constant for the three months and nine months ended September 30, 1997 as
compared to the same periods in 1996.
Professional and administrative expenses - affiliated have decreased for the
three and nine months ended September 30, 1997 as compared to the same periods
in 1996 as a result of a decrease in salary costs. Professional and
administrative expenses - affiliated are expenses incurred for services
performed by employees of NTS Development Company, an affiliate of the General
Partner.
The decrease in depreciation and amortization expense for the three months and
nine months ended September 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 September 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.
- 11 -
<PAGE>
Liquidity and Capital Resources
- -------------------------------
The Partnership had cash flow from operations of $866,558 (1997) and $815,746
(1996) for the nine months ended September 30. The 1996 funds, in conjunction
with cash on hand, were used to make a 1% (annualized) distribution of $108,018
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 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 sheet as of September 30) were $641,263 and $831,896 at September 30,
1997 and 1996, respectively.
As of September 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 September 30, 1997 was 7.05%. Effective October 1, 1997, the
interest rate adjusted to 6.68%. 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 September 30, 1997, the Partnership also had a mortgage payable to an
insurance company in the amount of $2,274,395. 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 and 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 intends
to hold the securities until maturity. Cash flows provided by investing
activities in 1996 are from the maturity of investment securities. Cash flows
provided by investing activities in 1997 are from the release of the escrow
funds mentioned above. Cash flows used in financing activities include principal
payments on the $2.3 million mortgage payable and the 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 financing 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 123,849 square feet in leases expiring from October 1, 1997 to
September 30, 1998 (Plainview Plaza II - 14,481 square feet, Plainview Triad
- 12 -
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
North - 70,078 square feet (includes Aetna Life Insurance - see discussion
below) and Peachtree Corporate Center - 39,290 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.
Pursuant to Section 16.4 of the Partnership's Amended and Restated Agreement of
Limited Partnership, the Partnership established an Interest Repurchase Reserve.
Through September 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. During the third quarter, the
Partnership received notice that Aetna will vacate the property at the end of
the extended lease term. As a result, 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 those needed to refinish space for new
tenants. As this time, the amount of such expenses are unknown. The Partnership
is actively seeking new tenants for this space.
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.
As of September 30, 1997, the Partnership had commitments totalling
approximately $120,000 for sidewalk improvements and landscaping and exterior
building renovations at Plainview Plaza II. Subsequent to September 30, 1997,
the Partnership made commitments totalling approximately $200,000 for parking
lot resurfacing and site lighting upgrades at Plainview Plaza II. During the
fourth quarter of 1997, the Partnership also anticipates additional demands on
cash reserves as the exterior renovation of the property is completed.
Currently, the remaining project costs are estimated at approximately $100,000.
The most significant item included in this amount is building signage which is
projected to cost approximately $65,000. All of these projects are part of the
Partnership's continued effort to make the Plainview Plaza II property more
competitive and enhance its value. These projects will be funded with a
combination of cash reserves and cash flow from operating activities.
In the fourth quarter of 1997, the Partnership also anticipates a demand on cash
reserves of approximately $90,000 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.
The Partnership had no other material commitments for renovations or capital
improvements at September 30, 1997.
- 13 -
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
The table below presents that portion of the distributions that represent a
return of capital on a Generally Accepted Accounting Principle basis for the
nine months ended September 30, 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 $ 196,710 $ -- $ --
1996 $ 171,143 $108,018 $ --
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 2, Management's Discussion and Analysis
of Financial Condition and Results of Operations, and elsewhere in this report,
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 payment of other partnership expenses
- 14 -
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
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.
- 15 -
<PAGE>
PART II. OTHER INFORMATION
1. Legal Proceedings
None
2. Changes in Securities
None
3. Defaults upon Senior Securities
None
4. Submission of Matters to a Vote of Security Holders
None
5. Other Information
None
6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27. Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K was filed September 3, 1997 to report that the
Partnership has received notice that Aetna Life Insurance, the
largest tenant at Plainview Triad North, will vacate at the end
of the lease term (August 1998).
- 16 -
<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: November 12, 1997
- 17 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF SEPTEMBER 30, 1997 AND FROM THE STATEMENT OF OPERATIONS FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 861,562
<SECURITIES> 102,515
<RECEIVABLES> 212,144
<ALLOWANCES> 41,668
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 9,672,838
<DEPRECIATION> 0<F2>
<TOTAL-ASSETS> 11,201,373
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 6,774,395
0
0
<COMMON> 0
<OTHER-SE> 3,971,379
<TOTAL-LIABILITY-AND-EQUITY> 11,201,373
<SALES> 2,516,796
<TOTAL-REVENUES> 2,545,140
<CGS> 0
<TOTAL-COSTS> 1,881,544
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 22,570
<INTEREST-EXPENSE> 398,091
<INCOME-PRETAX> 116,658
<INCOME-TAX> 0
<INCOME-CONTINUING> 116,658
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 116,658
<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>
