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 March 31, 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 March 31, 1997 and December 31, 1996 3
Statements of Operations
For the three months ended March 31, 1997 and 1996 4
Statements of Cash Flows
For the three months ended March 31, 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
- 2 -
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
NTS-PROPERTIES III
BALANCE SHEETS AND STATEMENT OF PARTNERS' EQUITY
<CAPTION>
As of As of
March 31, 1997 December 31, 1996*
--------------- ------------------
<S> <C> <C>
ASSETS
Cash and equivalents $ 768,961 $ 661,383
Cash and equivalents - restricted 301,484 311,390
Accounts receivable, net of allowance
for doubtful accounts of $86,619 (1997)
and $81,980 (1996) 200,007 198,970
Land, buildings and amenities, net 8,647,340 8,850,783
Construction in progress 933,781 577,233
Other assets 385,348 376,127
----------- -----------
Total assets $11,236,921 $10,975,886
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Mortgages payable $ 6,831,866 $ 6,859,637
Accounts payable - operations 108,368 97,702
Accounts payable - construction 219,400 54,070
Security deposits 90,335 92,934
Other liabilities 66,987 11,415
----------- -----------
7,316,956 7,115,758
Commitments and Contingencies
Partners' equity 3,919,965 3,860,128
----------- -----------
$11,236,921 $10,975,886
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Limited General
Partners Partner Total
-------- ------- -----
PARTNERS' EQUITY
<S> <C> <C> <C>
Initial equity $ 15,600,000 $ 8,039,710 $ 23,639,710
Adjustment to historical basis -- (5,455,030) (5,455,030)
------------ ------------ ------------
15,600,000 2,584,680 18,184,680
Net loss - prior years (164,405) (2,290,485) (2,454,890)
Net income (loss) - current year 88,767 (23,523) 65,244
Cash distributions declared to
date (11,349,844) (206,985) (11,556,829)
Repurchase of limited partnership
units (318,240) -- (318,240)
------------ ------------ ------------
Balances at March 31, 1997 $ 3,856,278 $ 63,687 $ 3,919,965
============ ============ ============
</TABLE>
*Reference is made to the audited financial statements in the Form 10-K as filed
with the Commission on March 27, 1997.
- 3 -
<PAGE>
<TABLE>
NTS-PROPERTIES III
STATEMENTS OF OPERATIONS
<CAPTION>
Three Months Ended
March 31,
------------------
1997 1996
---------- ----------
<S> <C> <C>
Revenues:
Rental income, net of provision for
doubtful accounts of $4,640 (1997)
and $11,958 (1996) $ 749,016 $ 713,201
Rental income - affiliated 71,883 80,004
Interest and other income 11,971 10,867
--------- ---------
832,870 804,072
Expenses:
Operating expenses 179,939 186,877
Operating expenses - affiliated 104,135 85,569
Interest expense 132,020 141,902
Management fees 42,279 35,736
Real estate taxes 52,798 53,793
Professional and administrative
expenses 13,280 18,431
Professional and administrative
expenses - affiliated 34,612 38,937
Depreciation and amortization 208,563 256,997
--------- ---------
767,626 818,242
--------- ---------
Net income (loss) $ 65,244 $ (14,170)
========= =========
Net income allocated to the
limited partners $ 88,767 $ 10,381
========= =========
Net income per limited
partnership unit $ 6.30 $ .70
========= =========
Weighted average number of limited
partnership units 14,079 14,733
========= =========
</TABLE>
- 4 -
<PAGE>
<TABLE>
NTS-PROPERTIES III
STATEMENTS OF CASH FLOWS
<CAPTION>
Three Months Ended
March 31,
-------------------
1997 1996
--------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 65,244 $ (14,170)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Accrued interest on investment securities -- 1,402
Provision for doubtful accounts 4,640 11,958
Depreciation and amortization 208,563 256,997
Change in assets and liabilities:
Cash and equivalents - restricted (14,449) (15,615)
Accounts receivable (5,675) (82,147)
Other assets (14,340) (19,082)
Accounts payable - operations 10,666 44,251
Security deposits (2,599) (566)
Other liabilities 55,572 68,589
--------- ---------
Net cash provided by operating activities 307,622 251,617
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to land, buildings, amenities and
construction in progress (191,220) (9,573)
Increase in cash and equivalents - restricted (2,813) (23,044)
Maturities of investment securities -- 101,653
--------- ---------
Net cash (used in) provided by investing
activities (194,033) 69,036
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgage payable (27,771) (25,358)
Cash distributions -- (37,125)
Repurchase of limited partnership units (5,408) (57,824)
Increase in cash and equivalents - restricted -- (17,176)
Decrease in cash and equivalents - restricted 27,168 --
--------- ---------
Net cash used in financing activities (6,011) (137,483)
--------- ---------
Net increase in cash and equivalents 107,578 183,170
CASH AND EQUIVALENTS, beginning of period 661,383 626,884
--------- ---------
CASH AND EQUIVALENTS, end of period $ 768,961 $ 810,054
========= =========
Interest paid on a cash basis $ 133,157 $ 142,095
========= =========
</TABLE>
- 5 -
<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 (only consisting of normal recurring accruals) necessary for a fair
presentation have been made to the accompanying financial statements for the
three months ended March 31, 1997 and 1996.
1. Cash and Equivalents - Restricted
--------------------------------
Cash and equivalents - restricted represent 1) escrow funds which are to be
released as the heating, ventilating and air conditioning ("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).
2. 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 March 31, 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.
3. 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 March 31, 1997 and December 31, 1996, the Partnership
held no investment securities.
4. Mortgages Payable
-----------------
Mortgages payable consist of the following:
March 31, 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 March 31, 1997 is 6.94% $ 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 2,331,866 2,359,637
---------- ----------
$ 6,831,866 $ 6,859,637
========== ==========
-6-
<PAGE>
4. Mortgages Payables - Continued
------------------------------
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 $7,110,000.
Effective April 1, 1997, the interest rate on the $4,500,000 mortgage
payable adjusted to 7.39%.
5. Related Party Transactions
--------------------------
Property management fees of $42,279 and $35,736 for the three months ended
March 31, 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
$19,833 and $1,416 as a repair and maintenance fee during the three months
ended March 31, 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 three months ended March 31, 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 $ 64,603 $ 33,375
Administrative 43,081 47,163
Property manager 38,160 51,764
Other 9,360 1,833
-------- --------
$ 155,204 $ 134,135
======== ========
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 $72,000 in
rental payments from NTS Development Company during the three months ended
March 31, 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 $36,000 has been incurred as of March 31, 1997.
During the three months ended March 31, 1996, NTS Development Company
leased 23,160 square feet in Plainview Plaza II at a base rent of $13.50
per square foot. The Partnership received approximately $80,000 in rental
payments from NTS Development Company during the three months ended March
31, 1996.
- 7 -
<PAGE>
6. 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 $273,000. The Partnership also has a
commitment of approximately $222,000 for the remaining renovation to the
common area lobbies at Plainview Plaza II. Approximately $198,000 of this
commitment has been incurred as of March 31, 1997.
The lease for a major tenant at Plainview Triad North (occupies nearly 65%
of the building) expires in August 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.
- 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 March 31 were as
follows:
1997 1996
------ ------
Plainview Plaza II 86% 82%
Plainview Triad North 91% 93%
Peachtree Corporate Center 83% 93%
The rental and other income generated by the Partnership's properties for the
three months ended March 31 were as follows:
1997 1996
------ ------
Plainview Plaza II $ 292,614 $ 272,322
Plainview Triad North $ 264,915 $ 240,325
Peachtree Corporate Center $ 266,581 $ 282,482
The 4% increase in occupancy from March 31, 1996 to March 31, 1997 at Plainview
Plaza II can be attributed to three new leases totalling approximately 8,800
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. 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
accomodate 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 81% in 1996 to 87% in 1997. The increase in rental and other
income at Plainview Plaza II for the three months ended March 31, 1997 as
compared to the same period in 1996 can be attributed to the increase in average
occupancy during the period.
As of March 31, 1997, Plainview Plaza II had approximately 3,200 square feet of
additional space leased to a current tenant. The tenant is expected to take
occupancy during the second quarter of 1997. With this new lease, Plainview
Plaza II's occupancy should improve to 89%.
Plainview Triad North's occupancy decreased 2% from March 31, 1996 to March 31,
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 increased from 93% in 1996 to 94% in 1997. Rental and other income
increased for the three months ended March 31, 1997 as compared to the same
period in 1996 due to the increase in average occupancy, an increase in rental
rates for lease renewals and an increase in pass through expense reimbursements.
Leases at Plainview Triad North provide for tenants to contribute toward the
payment of increases in common area maintenance expenses, insurance, utilities
and real estate taxes.
- 8 -
<PAGE>
Results of Operations - Continued
- ---------------------------------
Peachtree Corporate Center's occupancy decreased 10% from March 31, 1996 to
March 31, 1997 due to move-outs by 11 tenants who had occupied approximately
28,400 square feet. Approximately 12,400 square feet of this total represents
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. The remaining 16,000 square feet of the total
move-outs are the result of six tenants (occupied a total of approximately
12,800 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 four new leases totalling approximately 9,900 square feet, of
which approximately 5,600 square feet represents expansions by two current
tenants. Average occupancy at Peachtree Corporate Center decreased from 92% in
1996 to 84% in 1997. Rental and other income at Peachtree Corporate Center
decreased for the three months ended March 31, 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.
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 ended March 31, 1997 or
1996. As of March 31, 1997, there were no on-going cases.
As of March 31, 1997, Peachtree Corporate Center has 6,200 square feet of
additional space leased to two new tenants. The tenants are expected to take
occupancy during the second quarter of 1997. With these new leases, the business
center's occupancy should improve to 87%. There are no material commitments for
tenant improvements associated with either lease.
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 and
asphalt paving at Peachtree Corporate Center. The change in interest and other
income for the three months ended March 31, 1997 as compared to the same period
in 1996 was not significant.
Operating expenses decreased for the three months ended March 31, 1997 as
compared to the same period in 1996 as a result of decreased landscape
replacement costs and exterior building repairs at Peachtree Corporate Center
and decreased HVAC repair and replacement costs at Plainview Plaza II. Partially
offsetting the decrease in operating expenses during the three month period is
an increase in utility costs due to an increase in average occupancy at
Plainview Plaza II. Operating expenses remained fairly constant for the three
month period at Plainview Triad North.
The increase in operating expenses-affiliated for the three months ended March
31, 1997 as compared to the same period in 1996 is a result of an increase in
leasing costs at Peachtree Corporate Center and Plainview Triad North. The
increase is partially offset by a decrease in property management costs at all
of the Partnership properties and decreased 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.
-10-
<PAGE>
Results of Operations - Continued
- ---------------------------------
Interest expense has decreased for the three months ended March 31, 1997 as
compared to the same period in 1996 due to a decrease in the interest rate on
the Partnership's $4,500,000 mortgage payable - 6.94% (1997) compared to 7.65%
(1996). The interest rate on this note adjusts quarterly to 60 basis points over
the 10-year treasury bill rate. 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 for the three months ended March 31, 1997 as compared to the
same period in 1996 remained fairly constant.
Professional and administrative expenses have decreased for the three months
ended March 31, 1997 as compared to the same period in 1996 due to a decrease in
outside legal fees related to the Partnership's Interest Repurchase Program.
Professional and administrative expenses - affiliated have decreased for the
three months ended March 31, 1997 as compared to the same period in 1996 as a
result of a decrease in salary costs.
The decrease in depreciation and amortization expenses for the three months
ended March 31, 1997 as compared to the same period in 1996 is the result of a
portion of the Partnership's assets (primarily tenant finish improvements)
becoming fully depreciated since March 31, 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 $307,622 (1997) and $251,617
(1996) for the three months ended March 31. The 1996 funds, in conjunction with
cash on hand, were used to make a 1% (annualized) distribution of $36,430 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 further discussion. Cash reserves (which are unrestricted
cash and equivalents as shown on the Partnership's balance sheet as of March 31)
were $768,961 and $810,054 at March 31, 1997 and 1996, respectively.
As of March 31, 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 March 31, 1997 was 6.94%. Effective April 1, 1997, the
interest rate adjusted to 7.39%. 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 March 31, 1997, the Partnership also had a mortgage payable to an
insurance company in the amount of $2,331,866. 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.
- 11 -
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
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. Cash flows provided by investing activities in 1996
are from the maturity of investment securities. As part of its cash management
activities, the Partnership has purchased certificates of Deposit or securities
issued by the U. S. Government with initial maturities greater than three months
to improve the return on its excess cash. The Partnership has held the
securities until maturity. 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 represent
decreases in cash reserved 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 127,126 square feet in leases expiring from April 1, 1997 to
March 31, 1998 (Plainview Plaza II - 11,652 square feet, Plainview Triad North -
72,694 square feet and Peachtree Corporate Center - 42,780 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 that the cash flow from
operations and cash reserves will be sufficient to meet the needs of the
Partnership.
As of March 31,1997, 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 March 31, 1997,
approximately $36,000 of the costs have been incurred. 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.
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 March 31, 1997,
approximately $627,000 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.
- 12 -
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
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. As of March 31, 1997, the Partnership
had commitments of $222,000 for the remaining renovations of which approximately
$198,000 has been incurred. The remaining cost of this project is expected to be
funded from cash reserves and cash flow from operations.
Pursuant to Section 16.4 of the Partnership's Amended and Restated Agreement of
Limited Partnership, the Partnership established an Interest Repurchase Reserve.
Through March 31, 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 Triad North,
occupying nearly 65% of the building, expires in August 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 vacated 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.
The Partnership had no other material commitments for renovations or capital
improvements at March 31, 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
three months ended March 31, 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 $ 88,767 $ -- $ --
1996 $ 10,381 $ 36,430 $ 26,049
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
- 13 -
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
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, 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 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
March 31, 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: May 12, 1997
- 16 -
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET AS OF MARCH 31, 1997 AND FROM THE STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,070,445
<SECURITIES> 0
<RECEIVABLES> 200,007
<ALLOWANCES> 86,619
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 8,647,340
<DEPRECIATION> 0<F2>
<TOTAL-ASSETS> 11,236,921
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 6,831,866
0
0
<COMMON> 0
<OTHER-SE> 3,919,965
<TOTAL-LIABILITY-AND-EQUITY> 11,236,921
<SALES> 820,899
<TOTAL-REVENUES> 832,870
<CGS> 0
<TOTAL-COSTS> 587,714
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4,640
<INTEREST-EXPENSE> 132,020
<INCOME-PRETAX> 65,244
<INCOME-TAX> 0
<INCOME-CONTINUING> 65,244
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 65,244
<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>
