UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 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
incorporation or organization) Identification No.)
10172 Linn Station Road
Louisville, Kentucky 40223 40223
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (502) 426-4800
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. [X]
Exhibit Index: See Page 40
Total Pages: 43
<PAGE>
TABLE OF CONTENTS
-----------------
Pages
-----
PART I
Items 1 and 2 Business and Properties 3-10
Item 3 Legal Proceedings 10
Item 4 Submission of Matters to a Vote
of Security Holders 10
PART II
Item 5 Market for the Registrant's Limited Partnership
Interests and Related Partner Matters 11
Item 6 Selected Financial Data 12
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of
Operations 13-22
Item 8 Financial Statements and Supplementary
Data 23-34
Item 9 Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 35
PART III
Item 10 Directors and Executive Officers of
the Registrant 36-37
Item 11 Management Remuneration and Transactions 37
Item 12 Security Ownership of Certain Beneficial
Owners and Management 38
Item 13 Certain Relationships and Related
Transactions 38-39
PART IV
Item 14 Exhibits, Financial Statement Schedules
and Reports on Form 8-K 40-42
Signatures 43
- 2 -
<PAGE>
PART I
Items 1. and 2. Business and Properties
-----------------------
General
- -------
Some of the statements included in Items 1. and 2., Business and Properties, may
be considered to be "forward-looking statements" since such statements relate to
matters which have not yet occurred. For example, phrases such as "the
Partnership anticipates", "believes" or "expects" indicate that it is possible
that the event anticipated, believed or expected may not occur. Should such
event not occur, then the result which the Partnership expected also may not
occur or occur in a different manner, which may be more or less favorable to the
Partnership. The Partnership does not undertake any obligations to publicly
release the result of any revisions to these forward -looking statements that
may be made to reflect any future events or circumstances.
NTS-Properties III (the "Partnership") is a limited partnership organized under
the laws of the state of Georgia on June 24, 1982. The General Partner is
NTS-Properties Associates, a Georgia limited partnership. As of December 31,
1997, the Partnership owned the following properties:
- Peachtree Corporate Center, a business park with approximately
192,000 net rentable square feet located in Norcross, Georgia, a
suburb of Atlanta. Acquired complete on January 26, 1983.
- Plainview Plaza II, an office complex with approximately 113,000 net
rentable square feet located in Jeffersontown, Kentucky, a suburb of
Louisville. Acquired complete on January 26, 1983.
- Plainview Triad North, an office complex with approximately 89,000
net rentable square feet located in Jeffersontown, Kentucky.
Acquired complete on February 15, 1983.
The Partnership has a fee title interest in the above properties. The General
Partner believes that the Partnership's properties are adequately covered by
insurance.
Plainview Plaza II is encumbered by a permanent mortgage payable to an insurance
company. The outstanding balance at December 31, 1997 was $2,234,603. The
mortgage is payable in monthly installments of $32,335 which includes principal,
interest and property taxes. The mortgage bears a fixed interest rate of 9.125%
and is due November 1, 1998. The outstanding principal balance at maturity based
on the current rate of amortization will be $2,140,539. See below for a
discussion regarding the Partnership's plans for this mortgage which matures
during the next twelve months.
The Partnership's properties are encumbered by a mortgage payable to an
insurance company. The loan is secured by a first mortgage on Plainview Triad
North and Peachtree Corporate Center with a second mortgage behind the holder of
the permanent mortgage on Plainview Plaza II. The outstanding balance at
December 31, 1997 was $4,500,000. The mortgage is payable in monthly
installments of $25,050 (interest only). As part of the loan agreement, the
Partnership was required to place in escrow $6,500 each month during the first
five loan years (loan obtained May 1991). The Funds will be released as the
heating, ventilating and air conditioning ("HVAC") system and asphalt paving at
Peachtree Corporate Center are replaced. The mortgage bears a variable interest
rate which adjusts quarterly to 60 basis points over the 10-year treasury bill
rate. At no time during the first five loan years did the rate exceed 11.65% or
fall below 7.65% per annum in accordance
- 3 -
<PAGE>
General - Continued
- -------------------
with the terms of the loan. After the fifth loan year, no interest rate floor
and/or ceiling applies. The current rate at December 31, 1997 was 6.68%.
Effective January 1, 1998, the interest rate adjusted to 6.34%. The unpaid
balance of the loan is due June 1, 2001.
Subsequent to December 31, 1997, the Partnership obtained a commitment from an
insurance company for permanent financing in the amount of $6,800,000. The
mortgage payable will bear interest at a fixed rate of 6.89% and will be secured
by a first mortgage on Plainview Plaza II. The repayment of principal will be
amortized over 17 years, with monthly payments of principal and interest
totaling approximately $56,600. The proceeds of the mortgage will be used to pay
off the current $2,234,603 and $4,500,000 mortgages payable and pay loan closing
costs. The loan commitment expires April 1, 1998, and the loan is expected to
close on or prior to that date.
Currently, the Partnership's plans for renovations and other major capital
expenditures include tenant finish improvements as required by lease
negotiations at the Partnership's properties. Changes to current tenant finish
improvements are a typical part of any lease negotiation. Improvements generally
include a revision to the current floor plan to accommodate a tenant's needs,
new carpeting and paint and/or wallcovering. The extent and cost of these
improvements are determined by the size of the space and whether the
improvements are for a new tenant or incurred because of a lease renewal. Tenant
finish improvements will be funded by cash flow from operations and/or cash
reserves. As of December 31, 1997, the Partnership had the following commitments
for tenant finish improvements.
As of December 31, 1997, the Partnership had a commitment of approximately
$250,000 for tenant finish improvements at Plainview Plaza II as the result of a
new five-year lease for approximately 16,900 square feet. The project is
expected to be completed during the first quarter of 1998.
As of December 31, 1997, the Partnership also had a commitment of approximately
$58,500 for tenant finish improvements at Peachtree Corporate Center as a result
of a lease renewal and expansion by a current tenant. The expansion increases
the tenant's current leased space by approximately 2,300 square feet and the
renewal extends the lease five years. The project is expected to be completed
during the first quarter of 1998.
As of December 31, 1997, the Partnership also had a commitment of approximately
$350,000 for tenant finish improvements at Plainview Plaza II as a result of a
lease renewal with NTS Development Company, an affiliate of the General Partner.
The renewal extends the lease for five years, through March 2002, and is at a
rate of $14.50 per square foot for 20,368 square feet. Approximately $192,000 of
the $350,000 project was completed during 1997. The project is expected to be
completed during the first half of 1998.
On December 21, 1997, a fire occurred at Plainview Plaza II. The fire damage was
contained to a small area in one building in the offices of NTS Development
Company, an affiliate of the General Partner. The damages are covered 100% by
insurance. Therefore, the Partnership will not incur costs related to this
incident.
Subsequent to December 31, 1997, the Partnership made a commitment of
approximately $18,000 for tenant finish improvements at Plainview Plaza II as a
result of a lease renewal and expansion of a current tenant. The expansion
increases the tenant's current leased space by approximately 900 square feet and
the renewal extends the lease for fourteen months. The project is expected to be
completed during the first quarter of 1998.
- 4 -
<PAGE>
General - Continued
- -------------------
Subsequent to December 31, 1997, the Partnership also made a commitment of
approximately $12,000 for tenant finish improvements at Plainview Triad North as
a result of a lease renewal and expansion of a current tenant. The expansion
increases the tenant's current leased space by approximately 800 square feet and
the renewal extends the lease for five years through January 2003. The project
is expected to be completed during the first quarter of 1998.
Subsequent to December 31, 1997, the Partnership also made a commitment of
approximately $20,000 for tenant finish improvements at Plainview Triad North.
Two vacant suites will be renovated in anticipation of future leases. The
project is expected to be completed during the first quarter of 1998.
Subsequent to December 31, 1997, the Partnership also made a commitment of
approximately $10,000 for tenant finish improvements at Peachtree Corporate
Center. These improvements were made to the suite which is occupied by the
on-site property manager/leasing agent. The project is expected to be completed
during the first quarter of 1998.
The source of funds for the commitments listed above is expected to be cash flow
from operations and/or cash reserves.
The Partnership's plans for renovations and other major capital expenditures
also include the replacement of the HVAC system at Peachtree Corporate Center.
The HVAC system at Peachtree Corporate Center is designed in such a manner that
each suite's system is separate in structure; therefore, individual units are
replaced only as needed. Effective July 1995, new leases and lease renewals at
Peachtree Corporate Center require the tenant to maintain and replace the HVAC
system in the leased space beginning one year from the date of occupancy. As of
December 31, 1997, approximately 40% of the center's tenants were subject to
this lease provision. Through May 1996 the Partnership escrowed cash monthly to
fund the HVAC system replacements at Peachtree Corporate Center. During 1997,
$15,759 was released from the escrow account. (See the discussion above
regarding the repair escrow). The balance in the escrow account at December 31,
1997 was $273,632.
At Plainview Plaza II, the Partnership's renovation of the property is nearing
completion. Remaining items to be completed during the first half of 1998
include landscaping, exterior staircase renovation, sidewalk replacements, a
handicap restroom, site lighting upgrades and new signage. Currently, the
remaining project costs are estimated at approximately $200,000. 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 operations.
The Partnership had no other material commitments for renovations and capital
improvements at December 31, 1997 than those previously discussed.
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 22%
of the NTS-Properties III total revenue. During the third quarter of 1997, the
Partnership received notice that Aetna will vacate the property at the end of
the extended lease term. The Partnership is currently negotiating a 120 day
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 120 day extension will be all that can be anticipated. As a
result of the expected move-out, 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.
- 5 -
<PAGE>
General - Continued
- -------------------
The Partnership is engaged solely in the business of owning and operating
commercial real estate. A presentation of information concerning industry
segments is not applicable.
The current business of the Partnership is consistent with the original purpose
of the Partnership which was to acquire, own and operate Plainview Plaza II,
Peachtree Corporate Center and Plainview Triad North. The Partnership's
properties are in a condition suitable for their intended use.
The Partnership intends to hold the Properties until such time as sale or other
disposition appears to be advantageous with a view to achieving the
Partnership's investment objectives or it appears that such objectives will not
be met. In deciding whether to sell a Property, the Partnership will consider
factors such as potential capital appreciation, cash flow and Federal income tax
considerations, including possible adverse Federal income tax consequences to
the Limited Partners. The General Partner of the Partnership is currently
exploring the marketability of certain of its properties and has not yet
determined if any of the properties might be sold in the next 12 months and
there are no contracts for sale under negotiation at the present time.
Plainview Plaza II
- ------------------
Except as indicated in the table below, base annual rents, which include the
cost of utilities, currently range from $11.88 to $15.85 per square foot. The
average base annual rental as of December 31, 1997 was approximately $14.22 per
square foot. Office space is ordinarily leased for between one to five years
with the majority of current leases providing for five year terms (1). Current
leases terminate between 1998 and 2005. One lease provides for three, one-year
renewal options at a rate which is negotiated between lessor and lessee. All
leases provide for tenants to contribute toward the payment of increases in
common area maintenance expenses, insurance, utilities and real estate taxes. As
of December 31, 1997, there were 9 tenants leasing office space aggregating
approximately 97,000 square feet of rentable area. The tenants who occupy
Plainview Plaza II are professional service-oriented organizations. The
principal occupations/professions practiced include real estate, architecture, a
payroll processing center, a data processing center and management offices for a
regional grocery chain. Two tenants lease more than 10% of Plainview Plaza II's
rentable area: The Kroger Company (46.5%) and NTS Development Company, an
affiliate of the General Partner (17.7%). The lease terms between the
Partnership and NTS Development Company are on terms no less favorable than
those which could be obtained from an unaffiliated third party. The occupancy
levels as of December 31 were 84% (1997),89% (1996), 82% (1995), 88% (1994) and
83% (1993).
(1) Excluding The Kroger Company lease. The current lease term is for a
period of eight years and four months. The Kroger Company has been a
tenant of Plainview Plaza II since 1979.
(Continued next page)
- 6 -
<PAGE>
Plainview Plaza II - Continued
- ------------------------------
The following table contains approximate data concerning the leases in effect on
December 31, 1997.
Major Tenants:
Current Base
Sq. Ft. and Annual Rental
% of Net and % of Gross
Year of Rentable Base Annual Renewal
Name Expiration Area Rental Options
---- ---------- ---- ------ -------
NTS Development
Company 2002 20,368 (17.7%) $295,932 (24.9%) None
The Kroger Company 2005 53,435 (46.5%) $566,928 (47.7%)(1) None
(1) The Kroger Company lease provides that they pay their own electricity and
cleaning costs and thus the base rent is below $11.88 per square foot.
Other Tenants:
Current Base
Sq. Ft. and Annual Rental
% of Net and % of Gross
No. of Year of Rentable Base Annual Renewal
Tenants Expiration Area Rental Options
------- ---------- ---- ------ -------
3 1998 6,792 (5.9%) $ 83,328 (7.0%) None
1 1999 1,154 (1.0%) $ 17,808 (1.5%) Right of
1st Refusal
2 2000 9,462 (8.3%) $139,848 (11.8%) 3-1 Year
None 2001 - - - - - -
1 2002 5,880 (5.1%) $ 83,784 (7.1%) None
Plainview Triad North
- ---------------------
Base annual rentals, which include the cost of utilities, currently range from
$12.65 to $14.48 per square foot. The average base rental as of December 31,
1997 was approximately $13.38 per square foot. Office space is ordinarily leased
for one to five years with the majority of current leases providing for one year
terms. Current leases terminate between 1998 and 2002. All leases provide for
tenants to contribute toward the payment of increases in common area maintenance
expenses, insurance, utilities and real estate taxes. As of December 31, 1997,
there were 8 tenants leasing office space aggregating approximately 76,900
square feet of rentable area. The tenants who occupy Plainview Triad North are
professional serviceoriented organizations. The principal
occupations/professions practiced include insurance, healthcare, mortgage broker
and sales. One tenant leases more than 10% of Plainview Triad North's rentable
area: Aetna Life Insurance Company (64.5%). The occupancy levels at the office
building as of December 31 were 86% (1997), 91% (1996), 93% (1995), 95% (1994)
and 91% (1993).
The following table contains approximate data concerning the leases in effect on
December 31, 1997:
Major Tenant:
Current Base
Sq. Ft. and Annual Rental
% of Net and % of Gross
Year of Rentable Base Annual Renewal
Name Expiration Area Rental Options
---- ---------- ---- ------ -------
Aetna Life
Insurance Company 1998 57,848 (64.5%) $775,164 (75.3%) None
- 7 -
<PAGE>
Plainview Triad North - Continued
- ---------------------------------
Other Tenants:
Current Base
Sq. Ft. and Annual Rental
% of Net and % of Gross
No. of Year of Rentable Base Annual Renewal
Tenants Expiration Area Rental Options
------- ---------- ---- ------ -------
5 1998 15,668 (17.5%) $206,513 (20.1%) None
1 1999 1,088 (1.2%) $ 13,800 (1.3%) None
None 2000 - - - - - -
None 2001 - - - - - -
1 2002 2,328 (2.6%) $ 33,720 (3.3%) None
Peachtree Corporate Center
- --------------------------
Base annual rentals, which exclude the cost of utilities, currently range from
$7.17 to $12.48 per square foot for office space, $3.71 to $6.72 per square foot
for warehouse space and $3.41 per square foot for mezzanine storage space. The
average base annual rental for all space leased as of December 31, 1997 was
$6.41 per square foot. Office, warehouse and/or mezzanine storage space is
ordinarily leased for between two and six years with the majority of current
leases providing for three year terms. Current leases terminate between 1998 and
2003. All leases provide for tenants to contribute toward the payment of
increases in common area maintenance expenses, insurance and real estate taxes.
As of December 31, 1997, there were 48 tenants leasing office, warehouse and
storage space aggregating approximately 161,200(1) square feet of rentable area,
none of which leased more than 10% of the business park's rentable area. The
tenants who occupy Peachtree Corporate Center are professional service-oriented
organizations. The principal occupation/profession practiced is sales-related
services. The occupancy levels at the business park as of December 31 were 86%
(1997), 85% (1996), 89% (1995), 80% (1994) and 82% (1993).
(1) Excludes approximately 3,300 square feet which is occupied by the business
park's property management and leasing staff.
The following table contains approximate data concerning the leases in effect on
December 31, 1997:
Current Base
Sq. Ft. and Annual Rental
% of Net and % of Gross
No. of Year of Rentable Base Annual Renewal
Tenants Expiration Area (2) Rental Options
------- ----------- -------------- ---------------- ---------
15 1998 37,274 (19.3%) $233,892 (22.7%) None
12 1999 53,402 (29.8%) $342,790 (33.3%) None
18 2000 63,001 (32.9%) $407,400 (39.3%) None
2 2001 3,900 (2.0%) $ 21,840 (2.1%) None
None 2002 - - - - - -
1 2003 3,160 (1.7%) $ 26,532 (2.6%) None
(2) Rentable area includes only ground floor square feet (office and warehouse
space).
General
- -------
Additional operating data regarding the Partnership's properties is furnished in
the following table.
Peachtree
Plainview Plainview Corporate
Plaza II Triad North Center
-------- ----------- ------
Federal tax basis $ 8,783,270 $ 6,988,441 $ 9,583,875
Realty tax rate $ .01118 $ .01118 $ .03445
Annual realty taxes $ 61,904 $ 48,093 $ 96,355
- 8 -
<PAGE>
General - Continued
- -------------------
Depreciation for book purposes is computed using the straight-line method over
the estimated useful lives of the assets which are 5 - 30 years for land
improvements, 30 years for buildings, 5 - 30 years for building improvements and
3 - 30 years for amenities. The estimated realty taxes on all planned
renovations would not be material.
See Management's Discussion and Analysis of Financial Condition and Results
of Operations (Item 7.) for explanations regarding the fluctuations of
income and occupancy at the Partnership's properties.
Competition
- -----------
The Partnership's properties are subject to competition from similar types of
properties (including, in certain areas, properties owned or managed by
affiliates of the General Partner) in the respective vicinities in which they
are located. Such competition is generally for the retention of existing tenants
or for new tenants when vacancies occur. The Partnership maintains the
suitability and competitiveness of its properties primarily on the basis of
effective rents and service provided to tenants. Competition is expected to
increase in the future as a result of the construction of additional properties.
As of December 31, 1997, there are no properties under construction in the
respective vicinities in which the properties are located. The Partnership has
not commissioned a formal market analysis of competitive conditions in any
market in which it owns properties, but relies upon the market condition
knowledge of the employees of NTS Development Company who manage and supervise
leasing for each property.
Management of Properties
- ------------------------
NTS Development Company, an affiliate of NTS Properties Associates, the General
Partner of the Partnership, directs the management of the Partnership's
properties pursuant to a written agreement. NTS Development Company is a
wholly-owned subsidiary of NTS Corporation. Mr. J. D. Nichols has a controlling
interest in NTS Corporation and is a General Partner of NTS Properties
Associates. Under the agreement, the Property Manager establishes rental
policies and rates and directs the marketing activity of leasing personnel. It
also coordinates the purchase of equipment and supplies, maintenance activity
and the selection of all vendors, suppliers and independent contractors. As
compensation for its services, the Property Manager received $168,006 for the
year ended December 31, 1997. The fee is equal to 5% of gross revenues from the
Partnership's properties.
In addition, the management agreement requires the Partnership to purchase all
insurance relating to the managed properties, to pay the direct out-of-pocket
expenses of the Property Manager in connection with the operation of the
properties, including the cost of goods and materials used for and on behalf of
the Partnership, and to reimburse the Property Manager for the salaries,
commissions, fringe benefits, and related employment expenses of on-site
personnel.
The term of the Management Agreement between NTS Development Company and the
Partnership was for an initial term of five years, and thereafter for succeeding
one-year periods, unless canceled. The Agreement is subject to cancellation by
either party upon sixty days written notice. As of December 31, 1997, the
Management Agreement is still in effect.
- 9 -
<PAGE>
Conflict of Interest
- --------------------
Because the principals of the General Partner and/or its affiliates own and/or
operate real estate properties other than those owned by the Partnership that
are or could be in competition with the Partnership, potential conflicts of
interest exist. Because the Partnership was organized and is operated by the
General Partner, these conflicts are not resolved through arm's length
negotiations but through the exercise of the General Partner's good judgment
consistent with its fiduciary responsibility to the Limited Partners and the
Partnership's investment objectives and policies. The General Partner is
accountable to the Limited Partners as a fiduciary and consequently must
exercise good faith and integrity in handling the Partnership's affairs. A
provision has been made in the Partnership Agreement that the General Partner
will not be liable to the Partnership except for acts or omissions performed or
omitted fraudulently in bad faith or with negligence. In addition, the
Partnership Agreement provides for indemnification of the General Partner by the
Partnership for liability resulting from errors in judgment or certain acts or
omissions. With respect to these potential conflicts of interest, the General
Partner and its affiliates retain a free right to compete with the Partnership's
properties including the right to develop competing properties now and in the
future, in addition to those existing properties which may compete directly or
indirectly.
NTS Development Company, the Property Manager and an affiliate of the General
Partner, acts in a similar capacity for other affiliated entities in the same
geographic region where the Partnership has property interests. The agreement
with the Property Manager is on terms no less favorable to the Partnership than
those which could be obtained from a third party for similar services in the
same geographical region in which the properties are located. The contract is
terminable by either party without penalty upon 60 days written notice.
There are no other agreements or relationships between the Partnership, the
General Partner and its affiliates other than those previously described.
Employees
- ---------
The Partnership has no employees; however, employees of an affiliate of the
General Partner are available to perform services for the Partnership. The
Partnership reimburses this affiliate for the actual costs of providing such
services.
Item 3. Legal Proceedings
-----------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
- 10 -
<PAGE>
PART II
Item 5. Market for Registrant's Limited Partnership Interests and Related
-----------------------------------------------------------------
Partner Matters
---------------
The Partnership had 1,051 limited partners as of March 6, 1998. There is no
established trading market for the limited partnership interests, nor is one
likely to develop.
Cash distributions and allocations of net income (loss) are made as described in
Note 1C to the Partnership's 1997 financial statements. Annual distributions
totaling $7.50 (1996) and $10.00 (1995) were paid per limited partnership unit.
No distribution was made during 1997. Quarterly distributions are determined
based on current cash balances, cash flow being generated by operations and
required cash reserves, as determined by the General Partner, for future leasing
costs, tenant finish costs and capital improvements. Distributions were paid
quarterly as follows:
1997 1996 1995
------ ------ -----
First quarter $ -- $ 2.50 $ 2.50
Second quarter -- 2.50 2.50
Third quarter -- 2.50 2.50
Fourth quarter -- -- 2.50
------ ------ ------
$ -- $ 7.50 $ 10.00
====== ======= ======
The table below presents that portion of the distributions that represent a
return of capital on a Generally Accepted Accounting Principle basis for the
years ended December 31, 1997, 1996 and 1995. The General Partner did not
receive a distribution during these years. Distributions were funded by cash
flow derived from operating activities.
Net Incom Cash
(Loss) Distributions Return of
Allocated Declared Capital
--------- -------- -------
Limited Partners:
1997 $ 239,206 $ -- $ --
1996 284,097 108,018 --
1995 (86,496) 154,125 154,125
- 11 -
<PAGE>
<TABLE>
Item 6. Selected Financial Data
-----------------------
For the years ended December 31, 1997, 1996, 1995, 1994 and 1993.
<CAPTION>
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Total revenues $ 3,426,290 $ 3,265,631 $ 3,073,103 $ 2,960,275 $ 2,830,574
Total expenses (3,291,720) (3,076,384) (3,262,493) (3,157,866) (3,149,056)
------------ ------------ ------------ ------------ ------------
Net income (loss) $ 134,570 $ 189,247 $ (189,390) $ (197,591) $ (318,482)
============ ============ ============ ============ ============
Net income(loss)
allocated to:
General Partner $ (104,636) $ (94,850) $ (102,894) $ (100,529) $ (103,802)
Limited partners $ 239,206 $ 284,097 $ (86,496) $ (97,062) $ (214,680)
Net income (loss) per
limited partnership $ 17.00 $ 19.70 $ (5.58) $ (6.22) $ (13.76)
unit
Weighted average number
of limited partnership
units 14,072 14,418 15,495 15,600 15,600
Cumulative net income (loss) allocated to:
General Partner $ (2,395,121) $ (2,290,485) $ (2,195,635) $ (2,092,741) $ (1,992,212)
Limited partners $ 74,801 $ (164,405) $ (448,502) $ (362,006) $ (264,944)
Cumulative taxable income (loss) allocated to:
General Partner $ (2,737,694) $ (2,845,410) $ (2,696,785) $ (2,545,416) $ (2,390,433)
Limited partners $ (851,088) $ (682,815) $ (928,736) $ (926,612) $ (719,138)
Distributions declared:
General Partner $ -- $ -- $ -- $ -- $ --
Limited partners $ -- $ 108,018 $ 154,125 $ 39,000 $ --
Cumulative distributions
declared:
General Partners $ 206,985 $ 206,985 $ 206,985 $ 206,985 $ 206,985
Limited partner $ 11,349,845 $ 11,349,845 $ 11,241,827 $ 11,087,702 $ 11,048,702
At year end:
Land, buildings and
amenities, net $ 9,789,485 $ 8,850,783 $ 9,585,286 $ 10,242,936 $ 10,783,103
Total assets $ 11,122,316 $ 10,975,886 $ 11,120,854 $ 11,862,286 $ 12,011,140
Mortgages Payable $ 6,734,603 $ 6,859,637 $ 6,964,619 $ 7,060,749 $ 7,148,009
</TABLE>
The above selected financial data should be read in conjunction with the
financial statements and related notes appearing elsewhere in this Form 10-K
report.
- 12 -
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
Results of Operations
- ---------------------
The occupancy levels at the Partnership's properties as of December 31 were as
follows:
1997 1996 1995
---- ---- ----
Plainview Plaza II 84% 89% 82%
Plainview Triad North 86% 91% 93%
Peachtree Corporate Center 86% 85% 89%
The rental and other income generated by the Partnership's properties for the
years ended December 31 were as follows:
1997 1996 1995
---- ---- ----
Plainview Plaza II $1,244,744 $1,091,826 $1,098,934
Plainview Triad North $1,057,964 $1,017,816 $ 953,799
Peachtree Corporate Center $1,088,708 $1,108,933 $ 986,828
Plainview Plaza II's year-ending occupancy decreased 5% from 1996 to 1997 as a
result of three tenants, who had occupied approximately 4,300 square feet,
vacating at the end of their lease term, and 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
the Partnership could accommodate an expansion by a current tenant. These
decreases are partially offset by an approximate 3,200 square foot expansion of
a current tenant. Average occupancy at Plainview Plaza II increased from 84% in
1996 to 88% in 1997. The increase in rental and other income at Plainview Plaza
II from 1996 to 1997 is due primarily to the increase in average occupancy and
increased rental rates for lease renewals during the year.
As of December 31, 1997, Plainview Plaza II had approximately 16,900 square feet
of additional space leased to a new tenant. The tenant took occupancy in the
first quarter of 1998. Subsequent to December 31, 1997, one expansion lease for
approximately 900 square feet was signed at Plainview Plaza II. The tenant took
occupancy during the first quarter of 1998. With the new lease and expansion,
Plainview Plaza II's occupancy should improve to 100% during the first quarter
of 1998. See the Liquidity and Capital Resources section of this item for the
tenant finish commitments relating to these leases.
Plainview Plaza II's year-ending occupancy increased 7% from 1995 to 1996 as a
result of four new leases totaling approximately 9,200 square feet. Of this
total, approximately 5,400 square feet represents an expansion and lease renewal
by the Kroger Company, a major tenant at Plainview Plaza II. The renewal extends
the lease to January 31, 2005. Average occupancy at Plainview Plaza II decreased
from 85% in 1995 to 84% in 1996. The decrease in rental and other income at
Plainview Plaza II from 1995 to 1996 is due to the decrease in average occupancy
during the year.
- 13 -
<PAGE>
Results of Operations - Continued
- ---------------------------------
Plainview Triad North's year-ending occupancy decreased 5% from 1996 to 1997 as
the result of a tenant, who occupied approximately 4,900 square feet, vacating
prior to the end of the lease term, but is continuing to pay rent through the
end of the lease term (May 1998). The decrease in occupancy is partially offset
by the expansion (approximately 700 square feet) of a current tenant. Average
occupancy decreased from 93% in 1996 to 90% in 1997. The increase in rental and
other income at Plainview Triad North from 1996 to 1997 is due to the increase
of rental rates for lease renewals and a decrease in the provision for doubtful
accounts during the year.
Plainview Triad North's year-ending occupancy decreased 2% from 1995 to 1996 as
a result of the move-out of one tenant (occupied approximately 3,400 square
feet) at the end of the lease term. Partially offsetting the move-out is a new
lease totaling approximately 1,100 square feet. Average occupancy decreased from
94% in 1995 to 93% in 1996. Rental and other income increased from 1995 to 1996
due to an increase in rental rates for lease renewals and a decrease in the
provision for doubtful accounts.
Peachtree Corporate Center's year-ending occupancy increased 1% from 1996 to
1997 as the result of seven new leases totaling approximately 17,600 square
feet. Of this total, approximately 9,000 square feet represent expansions by
three current tenants. Partially offsetting the new leases are six tenant
move-outs totaling approximately 16,600 square feet. Approximately 11,600 square
feet of this total represents four tenants who vacated at the end of the lease
term. The remaining 5,000 square feet of the total move-outs is the result of
one tenant (3,200 square feet) who exercised a termination option and one tenant
(1,800 square feet) who vacated and ceased making rental payments in breach of
the lease terms due principally to bankruptcy. Average occupancy decreased from
93% in 1996 to 86% in 1997. The decrease in rental and other income is due
primarily to the decrease in average occupancy during the year.
As of December 31, 1997, Peachtree Corporate Center has 2,300 square feet of
additional space leased to a current tenant. The tenant took occupancy during
February 1998. Peachtree Corporate Center also had 1,200 square feet leased to a
new tenant at December 31, 1997. The tenant took occupancy during March 1998.
With the new leases, Peachtree Corporate Center's occupancy should improve to
88% during the first quarter of 1998. There are no material commitments relating
to the new lease. See the Liquidity and Capital Resources section of this item
for the tenant finish commitment relating to the expansion lease.
Peachtree Corporate Center's year-ending occupancy decreased 4% from 1995 to
1996 as a result of move-outs by ten tenants who had occupied approximately
27,100 square feet and the downsizing of one tenant by 1,200 square feet.
Approximately 12,400 square feet of the total move-outs represent four tenants
who vacated and ceased making rental payments in breach of the lease terms due
principally to bankruptcy. There was no accrued income associated with these
leases. Approximately 14,700 square feet of the total move-outs are the result
of six tenants who vacated at the end of the lease term. Partially offsetting
the move-outs and downsizing are seven new leases totaling approximately 21,000
square feet, of which approximately 6,000 square feet represents expansions by
two current tenants. Average occupancy at Peachtree Corporate Center increased
from 89% in 1995 to 93% in 1996. Rental and other income at Peachtree Corporate
Center increased from 1995 to 1996 as a result of an increase in average
occupancy and a decrease in the provision for doubtful accounts.
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
- 14 -
<PAGE>
Result of Operations - Continued
- --------------------------------
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 1997 or 1996. Approximately $5,500 was
recovered during 1995. As of December 31, 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 short-term
investments made by the Partnership with cash reserves and from funds escrowed
for the replacement of the heating, ventilating and air conditioning ("HVAC")
system and asphalt paving at Peachtree Corporate Center. The decrease in
interest income from 1996 to 1997 is a result of a decrease in cash reserves
available for investment and a decrease in interest earned on the Escrow Funds.
The increase in interest income from 1995 to 1996 is a result of an increase in
interest earned on the Escrow Funds and an increase in cash reserves available
for investment.
Operating expenses increased from 1996 to 1997 as the result of increased
landscaping and advertising costs at Plainview Plaza II and Plainview Triad
North, an increase in HVAC repair and replacement costs at Plainview Plaza II
and Peachtree Corporate Center, and increased utility costs at Plainview Plaza
II.
Operating expenses increased from 1995 to 1996 as a result of increased
janitorial costs and increased HVAC repair and replacement costs at Plainview
Plaza II and Plainview Triad North and increased utility costs at Plainview
Plaza II. The increase in operating expenses during 1996 at Plainview Plaza II
and Plainview Triad North can also be attributed to an upgrade of each
building's security system. Operating expenses at Peachtree Corporate Center
remained fairly constant during the year.
The increase in operating expenses - affiliated from 1996 to 1997 is a result of
increased leasing costs at Plainview Triad North and Peachtree Corporate Center
and an increase in property management costs at 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. Operating expenses - affiliated
are expenses incurred for services performed by employees of NTS Development
Company, an affiliate of the General Partner.
The decrease in operating expenses - affiliated from 1995 to 1996 is a result of
decreased property management costs at all of the Partnership's properties and a
decrease in leasing costs at Peachtree Corporate Center. The decrease is
partially offset by an increase in leasing costs at Plainview Triad North and
Plainview Plaza II.
The 1997 write-off of unamortized building, land and tenant improvements can be
attributed to Plainview Plaza II. Changes to current tenant improvements are a
typical part of any lease negotiation. Improvements generally include a revision
to the current floor plan to accommodate a tenant's needs, new carpeting and
paint and/or wallcovering. In order to complete the renovation, it is sometimes
necessary to replace improvements which have not been fully depreciated. This
results in a write-off of unamortized tenant improvements. The write-off of
unamortized building improvements at Plainview Plaza II is the result of the
renovations of the common area lobbies, corridors and restrooms. The write-off
of unamortized land
- 15 -
<PAGE>
Results of Operations - Continued
- ---------------------------------
improvements at Plainview Plaza II is the result of renovations of the sidewalks
and landscaping during the year. The write-off of unamortized building and land
represents the cost of previous assets which had not been fully depreciated.
The 1995 write-off of unamortized building and tenant improvements can be
attributed to Peachtree Corporate Center (tenant and building improvements) and
Plainview Plaza II (building improvements). The write-off of unamortized
building improvements at Peachtree Corporate Center is the result of exterior
building renovations. The write-off of unamortized building improvements at
Plainview Plaza II is the result of a common area lobby renovation. The
renovation included an upgrade of current restroom facilities, new carpet and
wallcoverings. The write-off represents the cost of previous renovations which
had not been fully depreciated.
The increase in the amortization of capitalized leasing costs from 1996 to 1997
is a result of a special tenant allowance paid to The Kroger Company in October
1996. The change in the amortization of capitalized leasing costs from 1995 to
1996 was not significant.
The decrease in interest expense from 1996 to 1997 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 7.65% from January to June 1996, 7.46% from July to
September 1996, and 7.33% from October to December 1996 versus 6.94% from
January to March 1997, 7.39% from April to June 1997, 7.05% from July to
September 1997, and 6.68% from October to December 1997. The interest rate on
this note adjusts quarterly to 60 basis points over the 10-year treasury bill
rate. The decrease in interest expenses is also due to a decrease in interest
expense on the $2,234,603 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.
The decrease in interest expense from 1995 to 1996 is due to the fact that the
interest rate on the $4,500,000 mortgage payable was lower in 1996 compared to
1995. The interest rate was 8.41% from January to March 1995, 7.76% from April
to September 1995, and 7.65% from October to December 1995 versus 7.65% from
January to June 1996, 7.46% from July to September 1996, and 7.33% from October
to December 1996. The decrease in interest expense is also due to a decrease in
interest expense on the $2,359,637 (balance as of December 31, 1996) mortgage
payable as a result of continued principal payments.
Management fees are calculated as a percentage of cash collections; however,
revenue for reporting purposes is on the accrual basis. As a result, the
fluctuations of revenues between years will differ from the fluctuations of
management fee expense.
The decrease in real estate taxes from 1996 to 1997 and from 1995 to 1996 is a
result of a decrease in the tax rates at all of the Partnership's properties.
Professional and administrative expenses remained fairly constant from 1996 to
1997.
The increase in professional and administrative expenses from 1995 to 1996 is
due primarily to an increase in outside legal fees which relate to the
Partnership's Interest Repurchase Program and an increase in outside accounting
fees.
- 16 -
<PAGE>
Results of Operations - Continued
- ---------------------------------
The decrease in professional and administrative expenses - affiliated from 1996
to 1997 is due primarily to 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 change in professional and administrative expenses - affiliated from 1995 to
1996 was not significant.
The decrease in depreciation and amortization from 1996 to 1997 is due to the
fact that a portion of the Partnership's assets (primarily tenant finish
improvements) have become fully depreciated since December 31, 1996. The
decrease in depreciation and amortization is partially offset by assets being
placed in service since December 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 $25,400,000.
The decrease in depreciation and amortization from 1995 to 1996 is due to the
fact that a portion of the Partnership's assets (primarily tenant finish
improvements) have become fully depreciated since December 31, 1995.
Liquidity and Capital Resources
- -------------------------------
The Partnership had cash flow from operations of $1,075,282 (1997), $947,953
(1996) and $1,055,054 (1995). These funds, in conjunction with cash on hand,
were used to make a .75% (annualized) distribution of $108,018 in 1996 and a 1%
(annualized) distribution of $154,125 in 1995. 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 December 31) were
$368,531, $571,683 and $729,939 at December 31, 1997, 1996 and 1995,
respectively.
As of December 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.
At no time during the first five loan years (loan obtained May 1991) did the
rate exceed 11.65 % or fall below 7.65% per annum in accordance with the terms
of the loan. After the fifth loan year, no interest rate floor and/or ceiling
applies. The current rate at December 31, 1997 was 6.68%. Effective January 1,
1998, the interest rate adjusted to 6.34%. The loan is secured by a first
mortgage on Plainview Triad North and Peachtree Corporate Center with a second
position behind the holder of the permanent mortgage on Plainview Plaza II. The
unpaid balance of the loan is due June 1, 2001.
As of December 31, 1997, the Partnership also had a mortgage payable to an
insurance company in the amount of $2,234,603. 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.
Subsequent to December 31, 1997, the Partnership obtained a commitment from an
insurance company for permanent financing in the amount of $6,800,000. The
mortgage payable will bear interest at a fixed rate of 6.89% and will be secured
by a first mortgage on Plainview Plaza II. The repayment of principal will be
amortized over 17 years, with monthly payments of principal and interest
totaling approximately $56,650. The proceeds of the
- 17 -
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
mortgage will be used to pay off the current $2,234,603 and $4,500,000 mortgages
payable and pay loan closing costs. The loan commitment expires April 1, 1998
and the loan is expected to close on or prior to that date.
The primary source of future liquidity and distributions is expected to be
derived from cash generated by the Partnership's properties after adequate cash
reserves are established for future leasing and tenant finish costs.
The majority of the Partnership's cash flow is derived from operating
activities. Cash flows used in investing activities are for tenant finish
improvements and other capital additions and are funded by operating activities.
Changes to current tenant improvements are a typical part of any lease
negotiation. Improvements generally include a revision to the current floor plan
to accommodate a tenant's needs, new carpeting and paint and/or wallcovering.
The extent and cost of these improvements are determined by the size of the
space and whether the improvements are for a new tenant or incurred because of a
lease renewal. Cash flows used in investing activities also include cash which
is being escrowed for the replacement of the HVAC system and asphalt paving at
Peachtree Corporate Center and purchases of investment securities. As part of
its cash management activities, the Partnership has purchased Certificates of
Deposit or securities issued by the U.S. Government with initial maturities of
greater than three months to improve the return on its excess cash. The
Partnership held the securities until maturity. Cash flows provided by investing
activities are from the release of the escrow funds mentioned above and the
maturity of investment securities. Cash flows used in financing activities
include cash distributions, principal payments on the $2.2 million mortgage
payable and repurchases of limited partnership Units. The Partnership does not
expect any material changes in the mix and relative cost of capital resources.
In the next 12 months, the General Partner expects a demand on future liquidity
as a result of 117,583 square feet in leases expiring during 1998 (Plainview
Plaza II - 6,792 square feet, Plainview Triad North - 73,517 square feet and
Peachtree Corporate Center - 37,274 square feet). The majority of the square
feet in leases which expire in 1998 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. As of December 31, 1997, the Partnership had the following
material commitments for tenant finish improvements.
As of December 31, 1997, the Partnership had a commitment of approximately
$250,000 for tenant finish improvements at Plainview Plaza II as the result of a
new five-year lease for approximately 16,900 square feet. The project is
expected to be complete during the first quarter of 1998.
As of December 31, 1997, the Partnership also had a commitment of approximately
$58,500 for tenant finish improvements at Peachtree Corporate Center as a result
of a lease renewal and expansion by a current tenant. The expansion increases
the tenant's current leased space by approximately 2,300 square feet and the
renewal extends the lease five years. The project is expected to be completed
during the first quarter of 1998.
As of December 31, 1997, the Partnership also had a commitment of approximately
$350,000 for tenant finish improvements at Plainview Plaza II as a result of a
lease renewal with NTS Development Company, an affiliate of the General Partner.
The renewal extends the lease five years, through March 2002, and is at a rate
of $14.50 per square foot for 20,368 square feet. Approximately $192,000 of the
$350,000 project was completed during 1997. The project is expected to be
completed during the first half of 1998.
- 18 -
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
The source of funds for the commitments listed above is expected to be cash flow
from operations and/or cash reserves.
On December 21, 1997, a fire occurred at Plainview Plaza II. The fire damage was
contained to a small area in one building in the offices of NTS Development
Company, an affiliate of the General Partner. The damages are covered 100% by
insurance. Therefore, the Partnership will not incur costs related to this
incident.
At Plainview Plaza II, the Partnership's renovation of the property is nearing
completion. Remaining items to be completed during the first half of 1998
include landscaping, exterior staircase renovation, sidewalk replacements, a
handicap restroom, site lighting upgrades and new signage. Currently, the
remaining project costs are estimated at approximately $200,000. 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 operations.
During 1995, the Partnership established an Interest Repurchase Reserve in the
amount of $156,000 pursuant to Section 16.4 of the Partnership's Amended and
Restated Agreement of Limited Partnership. With these funds, the Partnership was
able to repurchase 750 Units at a price of $208 per Unit. During 1996, the
Partnership elected to fund an additional $243,700 to its Interest Repurchase
Reserve ($100,000 on January 3 and $143,700 on May 24). With these 1996
fundings, the Partnership will be able to repurchase an additional 1,170 Units
at a price of $208 per Unit. As of December 31, 1997, the Partnership had
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 suspended.
Upon the suspension of repurchases, previously designated funds were returned to
unrestricted cash reserves. 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 22%
of the NTS-Properties III total revenue. During the third quarter of 1997, the
Partnership received notice that Aetna will vacate the property at the end of
the extended lease term. The Partnership is currently negotiating a 120 day
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 120 day extension will be all that can be anticipated. As a
result of the expected move-out, 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,
distributions were suspended starting December 31, 1996.
Subsequent to December 31, 1997, the Partnership elected to resume the Interest
Repurchase Program and fund $50,000 to its Interest Repurchase Reserve. With
this funding, the Partnership will be able to repurchase up to 200 additional
Units at a price of $250 per Unit. If the number of Units submitted for
repurchase exceeds that which can be repurchased by the Partnership with the
current funding, those additional Units may be repurchased in subsequent
quarters as cash flow availability permits. The above offering price per Unit
was established by the General Partner in its sole discretion and does not
purport to represent the fair market value or liquidation value of the Unit. The
Partnership notified the limited partners of this action and opportunity by mail
during January 1998.
- 19 -
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
Subsequent to December 31, 1997, the Partnership made a commitment of
approximately $18,200 for tenant finish improvements at Plainview Plaza II as a
result of a lease renewal and expansion of a current tenant. The expansion
increases the tenant's current leased space by approximately 900 square feet and
the renewal extends the lease for fourteen months. The project is expected to be
completed during the first quarter of 1998.
Subsequent to December 31, 1997, the Partnership also made a commitment of
approximately $12,000 for tenant finish improvements at Plainview Triad North as
a result of a lease renewal and expansion of a current tenant. The expansion
increases the tenant's current leased space by approximately 800 square feet and
the renewal extends the lease for five years through January 2003. The project
is expected to be completed during the first quarter of 1998.
Subsequent to December 31, 1997, the Partnership made a commitment of
approximately $20,000 for tenant finish improvements at Plainview Triad North.
Two vacant suites will be renovated in anticipation of future leases. The
project is expected to be completed during the first quarter of 1998.
Subsequent to December 31, 1997, the Partnership made a commitment of
approximately $10,000 for tenant finish improvements at Peachtree Corporate
Center. These improvements were made to the suite which is occupied by the
on-site property manager/leasing agent. The project is expected to be completed
during the first quarter of 1998.
During 1998, the Partnership plans to replace the roof on one of the three
buildings at Plainview Plaza II. This project is expected to be completed by the
end of 1998.
During 1998, the Partnership also plans to explore the possibilities of a common
area and exterior building renovation at Plainview Triad North. These
renovations would be designed to make the property more competitive and enhance
its value.
The source of funds for the commitments listed above is expected to be cash flow
from operations and/or cash reserves. It is anticipated that the cash flow from
operations and cash reserves will be sufficient to meet the needs of the
Partnership.
The Partnership has conducted a comprehensive review of its computer systems to
identify the systems that could be affected by the Year 2000 Issue and is
developing an implementation plan to resolve the issue. The Year 2000 Issue, a
worldwide issue, is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Partnership's
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in major systems
failures or miscalculations. The Partnership presently believes that, with
modifications to existing software and conversions to new software, the Year
2000 problem will not pose significant operational problems for the
Partnership's computer systems. The Partnership continues to evaluate
appropriate courses of corrective action, including replacement of certain
systems whose associated costs would be recorded as assets and amortized. The
Partnership does not expect the costs associated with the resolution of the Year
2000 Issue to have a material effect on its financial position or results of
operations. The associated costs will be funded by cash flow from operations or
cash reserves. The amount expensed in 1997 was immaterial.
- 20 -
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
The Partnership had no other material commitments for renovations or capital
improvements as of December 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
years ended December 31, 1997, 1996 and 1995. The General Partner did not
receive a distribution during these years. Distributions were funded by cash
flow derived from operating activities.
Net Income Cash
(Loss) Distributions Return of
Allocated Declared Capital
--------- -------- -------
Limited Partners:
1997 $ 239,206 $ -- $ --
1996 284,097 108,018 --
1995 (86,496) 154,125 154,125
The following describes the efforts being taken by the Partnership to increase
the occupancy levels at the Partnership's properties. At Peachtree Corporate
Center in Norcross, Georgia, the Partnership has an on-site leasing agent, an
employee of NTS Development Company (an affiliate of the General Partner), who
makes calls to potential tenants, negotiates lease renewals with current tenants
and manages local advertising with the assistance of NTS Development Company's
marketing staff. The leasing and renewal negotiations for Plainview Plaza II and
Plainview Triad North are handled by leasing agents, employees of NTS
Development Company, located in Louisville, Kentucky. The leasing agents are
located in the same city as both commercial properties. All advertising for the
Louisville properties is also coordinated by NTS Development Company's marketing
staff located in Louisville, Kentucky.
Leases at all the Partnership's properties provide for tenants to contribute
toward the payment of increases in common area maintenance expenses, insurance,
utilities and real estate taxes. This lease provision should protect the
Partnership's operations from the impact of inflation and changing prices.
Some of the statements included in Item 7, Management's Discussion and Analysis
of Financial Condition and Results of Operations, may be considered to be
"forward-looking statements" since such statements relate to matters which have
not yet occurred. For example, phrases such as "the Partnership anticipates",
"believes" or "expects" indicate that it is possible that the event anticipated,
believed or expected may not occur. Should such event not occur, then the result
which the Partnership expected also may not occur or occur in a different
manner, which may be more or less favorable to the Partnership. The Partnership
does not undertake any obligations to publicly release the result of any
revisions to these forward-looking statements that may be made to reflect any
future events or circumstances.
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.
- 21 -
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
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.
- 22 -
<PAGE>
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To NTS-Properties III:
We have audited the accompanying balance sheets of NTS-Properties III, (a
Georgia limited partnership) as of December 31, 1997 and 1996, and the related
statements of operations, partners' equity and cash flows for each of the three
years in the period ended December 31, 1997. These financial statements and the
schedules referred to below are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of NTS-Properties III as of
December 31, 1997 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1997 in conformity
with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules included on pages 41 and 42
are presented for purposes of complying with the Securities and Exchange
Commission's rules and are not a required part of the basic financial
statements. These schedules have been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our opinion,
fairly state in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Louisville, Kentucky
March 6, 1998
- 23 -
<PAGE>
<TABLE>
NTS-PROPERTIES III
BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996
<CAPTION>
1997 1996
----------- -----------
ASSETS
<S> <C> <C>
Cash and equivalents $ 266,940 $ 571,683
Cash and equivalents - restricted 284,599 401,090
Investment securities 101,591 --
Accounts receivable, net of allowance
for doubtful accounts of $42,035 (1997)
and $81,980 (1996) 269,922 198,970
Land, buildings and amenities, net 9,789,485 8,850,783
Construction in progress 39,477 577,233
Other assets 370,302 376,127
----------- -----------
Total assets $11,122,316 $10,975,886
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Mortgages payable $ 6,734,603 $ 6,859,637
Accounts payable - operations 36,773 97,702
Accounts payable - construction 102,655 54,070
Security deposits 103,816 92,934
Other liabilities 155,179 11,415
----------- -----------
7,133,026 7,115,758
Commitments and Contingencies
Partners' equity 3,989,290 3,860,128
----------- -----------
$11,122,316 $10,975,886
=========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
- 24 -
<PAGE>
<TABLE>
NTS-PROPERTIES III
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Rental income, net of provision for
doubtful accounts of $28,661 (1997),
$53,043 (1996) and $68,680 (1995) $ 3,090,978 $ 2,898,415 $ 2,717,965
Rental income - affiliated 295,031 314,499 312,660
Interest and other income 40,281 52,717 42,478
----------- ----------- -----------
3,426,290 3,265,631 3,073,103
Expenses:
Operating expenses 794,637 699,602 669,302
Operating expenses - affiliated 440,458 313,956 337,133
Write-off of unamortized building, land
and tenant improvements 86,406 -- 56,693
Amortization of capitalized leasing
costs 24,423 9,707 4,667
Interest Expense 524,901 558,878 583,034
Management fees 168,006 158,463 161,638
Real estate taxes 206,603 210,797 216,225
Professional and administrative
expenses 60,604 64,251 56,384
Professional and administrative
expenses - affiliated 133,969 145,814 141,552
Depreciation and amortization 851,713 914,916 1,035,865
----------- ----------- -----------
3,291,720 3,076,384 3,262,493
----------- ----------- -----------
Net income (loss) $ 134,570 $ 189,247 $ (189,390)
=========== =========== ===========
Net income (loss) allocated to the
limited partners $ 239,206 $ 284,097 $ (86,496)
=========== =========== ===========
Net income (loss) per limited partnership
unit $ 17.00 $ 19.70 $ (5.58)
=========== =========== ===========
Weighted average number of limited
partnership units 14,072 14,418 15,495
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
- 25 -
<PAGE>
<TABLE>
NTS-PROPERTIES III
STATEMENTS OF PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<CAPTION>
Limited General
Partners Partners Total
----------- ----------- -----------
<S> <C> <C> <C>
Balances at December 31, 1994 $ 4,150,292 $ 284,954 $ 4,435,246
Net loss (86,496) (102,894) (189,390)
Distributions declared (154,125) -- (154,125)
Repurchase of limited partnership
units (156,000) -- (156,000)
----------- ----------- -----------
Balance at December 31, 1995 3,753,671 182,060 3,935,731
Net income(loss) 284,097 (94,850) 189,24
Distributions declared (108,018) -- (108,018)
Repurchase of limited partnership
units (156,832) -- (156,832)
----------- ----------- -----------
Balances at December 31, 1996 3,772,918 87,210 3,860,128
Net income (loss) 239,206 (104,636) 134,570
Repurchase of limited partnership
units (5,408) -- (5,408)
----------- ----------- -----------
Balances at December 31, 1997 $ 4,006,716 $ (17,426) $ 3,989,290
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
- 26 -
<PAGE>
<TABLE>
NTS-PROPERTIES III
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 134,570 $ 189,247 $ (189,390)
Adjustments to reconcile net income(loss) to
net cash provided by operating activities:
Provision for doubtful accounts 28,661 53,043 68,680
Accrued interest on investment securities (923) 1,402 (1,402)
Write-off of unamortized building, land and
tenant improvements 86,406 -- 56,693
Amortization of capitalized leasing costs 24,423 9,707 4,667
Depreciation and amortization 851,713 914,916 1,035,865
Change in assets and liabilities:
Cash and equivalents - restricted (4,595) (446) (5,925)
Accounts receivable (99,613) (75,202) 93,986
Other assets (39,079) (165,294) (14,127)
Accounts payable - operations (60,929) 24,895 (2,427)
Security deposits 10,882 (2,560) 11,450
Other liabilities 143,766 (1,755) (3,016)
----------- ----------- -----------
Net cash provided by operating activities 1,075,282 947,953 1,055,054
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to land, buildings, amenities and
construction in progress (1,270,002) (685,003) (564,612)
Decrease (increase) in cash equivalents-
restricted 4,219 104,020 (88,248)
Purchase of investment securities (304,521) (855,999) (401,461)
Maturity of investment securities 203,853 957,652 299,808
----------- ----------- -----------
Net cash used in investing activities (1,366,451) (479,330) (754,513)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash distributions -- (145,142) (156,000)
Principal payments on mortgage payable (125,034) (104,982) (95,860)
Repurchase of limited partnership units (5,408) (156,832) (156,000)
Decrease (increase)in cash and equivalent-
restricted 116,868 (116,868) --
----------- ----------- -----------
Net cash used in financing activities (13,574) (523,824) (407,860)
----------- ----------- -----------
Net increase (decrease) in cash and
equivalents (304,743) (55,201) (107,319)
CASH AND EQUIVALENTS, beginning of period 571,683 626,884 734,203
----------- ----------- -----------
CASH AND EQUIVALENTS, end of period $ 266,940 $ 571,683 $ 626,884
=========== =========== ===========
Interest paid on a cash basis $ 570,819 $ 560,389 $ 585,825
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
- 27 -
<PAGE>
NTS-PROPERTIES III
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1. Significant Accounting Policies
-------------------------------
A) Organization
------------
NTS-Properties III (the "Partnership") is a limited partnership
organized under the laws of the State of Georgia on June 24, 1982.
The General Partner is NTS-Properties Associates, a Georgia limited
partnership. The Partnership is in the business of owning and
operating commercial real estate.
B) Properties
----------
The Partnership owns and operates the following properties:
- Peachtree Corporate Center, a business park with approximately
192,000 net rentable square feet located in Norcross, Georgia, a
suburb of Atlanta.
- Plainview Plaza II, an office complex with approximately 113,000
net rentable square feet located in Jeffersontown, Kentucky, a
suburb of Louisville.
- Plainview Triad North, an office complex with approximately
89,000 net rentable square feet located in Jeffersontown,
Kentucky.
C) Allocation of Net Income (Loss) and Cash Distributions
------------------------------------------------------
Net Cash Receipts, as defined in the partnership agreement, will be
distributed, to the extent made available, to the limited partners
in an amount equal to the greater of 10% per year, non-cumulative,
of their invested capital or their pro rata share of such Net Cash
Receipts, as defined in the partnership agreement. The balance of
the Net Cash Receipts, as defined in the partnership agreement,
would be available for distribution to the General Partner until
the General Partner has received its pro rata share of such Net
Cash Receipts. At such time as the limited partners have received
cash distributions equal to their original capital contributions,
cash flow would be distributed 52% to the limited partners and 48%
to the General Partner. In general, operating income and losses
(exclusive of depreciation) are allocated to the limited partners
and the General Partner in proportion to their respective
distributions of cash. In no event, however, will the portion of
any item of Partnership income, gain, loss, deduction or credit
allocated to the General Partner be less than 1%. Starting December
31, 1996, the Partnership has indefinitely interrupted
distributions.
Depreciation of the assets acquired on the date operations
commenced is allocated directly to the limited partners and the
General Partner based upon their respective tax basis in the
property. Depreciation of assets subsequently acquired is allocated
based on the limited partners' interests of 65% and the General
Partner's interest of 35%. In the accompanying Statements of
Operations, net income (loss) was allocated 99% to the limited
partners and 1% to the General Partner net of the effects of
depreciation on contributed assets in accordance with the
Partnership Agreement.
- 28 -
<PAGE>
1. Significant Accounting Policies - Continued
-------------------------------------------
D) Tax Status
----------
The Partnership has received a ruling from the Internal Revenue
Service stating that the Partnership is classified as a limited
partnership for federal income tax purposes. As such, the
Partnership makes no provision for income taxes. The taxable income
or loss is passed through to the holders of interests for inclusion
on their individual income tax returns.
The reconciliation of net income (loss) for financial statement
purposes and for income tax reporting is as follows:
1997 1996 1995
---------- ---------- ---------
Net income (loss) $ 134,570 $ 189,247 $(189,390)
Items handled differently
for tax purposes:
Depreciation (204,471) (111,830) (10,224)
Write-off of unamortized
building and tenant
improvements (86,819) (22,864) (90,300)
Rental income 139,596 47,180 99,696
Allowance for doubtful
accounts (39,945) (8,352) 36,505
Other (3,490) 3,915 219
--------- --------- --------
Taxable income(loss) $ (60,559) $ 97,296 $(153,494)
========= ========= =========
E) Use of Estimates in the Preparation of Financial Statements
-----------------------------------------------------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
F) Cash and Equivalents - Restricted
---------------------------------
Cash and equivalents - restricted represent 1)escrow funds which
are to be released as the heating, ventilating and air conditioning
("HVAC") system and asphalt paving at Peachtree Corporate Center
are replaced and 2) funds which have been escrowed with a mortgage
company for NTS Plainview Plaza II's property taxes in accordance
with the loan agreements.
G) Investment Securities
---------------------
Investment securities represent investments in Certificates of
Deposit or securities issued by the U. S. Government with initial
maturities of greater than three months. The investments are
carried at cost which approximates market value. The Partnership
intends to hold the securities until maturity. During 1995, 1996,
and 1997 the Partnership sold no investment securities. As of
December 31, 1996, the Partnership held no investment securities.
- 29 -
<PAGE>
1. Significant Accounting Policies - Continued
-------------------------------------------
G) Investment Securities - Continued
---------------------------------
The following provides details regarding the investments held at
December 31, 1997:
Amortized Maturity Value at
Type Cost Date Maturity
---- ---- ---- --------
Certificate of deposit $101,591 02/13/98 $102,232
======== ========
H) Basis of Property and Depreciation
----------------------------------
Land, buildings and amenities are stated at cost to the Partnership
as determined by the historical cost of the property to the General
Partner for its interest and by the purchase price of the property
to the Partnership for the limited partners' interests.
Depreciation is computed using the straight-line method over the
estimated useful lives of the assets which are 5-30 years for land
improvements, 5-30 years for buildings and improvements and 3 - 30
years for amenities.
Statement of Financial Accounting Standards (SFAS) No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of, specifies circumstances in which
certain long-lived assets must be reviewed for impairment. If such
review indicates that the carrying amount of an asset exceeds the
sum of its expected future cash flows, the asset's carrying value
must be written down to fair value. Application of this standard
during the years ended December 31, 1997 and 1996 did not result in
an impairment loss.
I) Rental Income and Deferred Leasing Commissions
----------------------------------------------
Certain of the Partnership's lease agreements are structured to
include scheduled and specified rent increases over the lease term.
For financial reporting purposes, the income from these leases is
being recognized on a straight-line basis over the lease term.
Accrued income connected with these leases is included in accounts
receivable and totaled $52,072 and $61,465 at December 31, 1997 and
1996, respectively. All commissions paid to leasing agents are
deferred and amortized on a straight-line basis over the term of
the lease to which they apply.
J) Advertising
-----------
The Partnership expenses advertising-type costs as incurred.
Advertising expense was immaterial to the Partnership during the
years ended December 31, 1997, 1996 and 1995.
K) Statements of Cash Flows
------------------------
For purposes of reporting cash flows, cash and equivalents include
cash on hand and short-term, highly liquid investments with initial
maturities of three months or less.
L) Reclassifications of 1996 and 1995 Financial Statements
-------------------------------------------------------
Certain reclassifications have been made to the December 31, 1996
and 1995 financial statements to conform with December 31, 1997
classifications. These reclassifications have no effect on
previously reported operations.
- 30 -
<PAGE>
2. Concentration of Credit Risk
----------------------------
NTS-Properties III is a limited partnership which owns and operates
commercial properties in Norcross, Georgia, a suburb of Atlanta, and
Jeffersontown, Kentucky, a suburb of Louisville. One tenant in Plainview
Triad North occupies 65% of the office building's net rentable area and
one tenant in Plainview Plaza II occupies 46% of the office building's
net rentable area. Substantially all of the Partnership's tenants are
local businesses or are businesses which have operations in the location
in which they lease space.
3. Interest Repurchase Reserve
---------------------------
On October 3, 1995, the Partnership established an Interest Repurchase
Reserve in the amount of $156,000 pursuant to Section 16.4 of the
Partnership's Amended and Restated Agreement of Limited Partnership.
Under Section 16.4, limited partners may request the Partnership to
repurchase their respective interests (Units) in the Partnership. With
this funding, the Partnership was able to repurchase 750 Units at a price
of $208 per Unit. During 1996, the Partnership elected to fund an
additional $243,700 to its Interest Repurchase Reserve ($100,000 on
January 3 and $143,700 on May 24). With these 1996 fundings, the
Partnership will be able to repurchase an additional 1,170 Units at a
price of $208 per Unit. Through December 31, 1997, the Partnership had
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. On December 17, 1996 the Partnership suspended the
Interest Repurchase Program. See Note 9 Subsequent Events for further
information regarding the Interest Repurchase Program.
4. Land, Buildings and Amenities
-----------------------------
The following schedule provides an analysis of the Partnership's
investment in property held for lease as of December 31:
1997 1996
----------- -----------
Land and improvements $ 4,583,398 $ 4,446,084
Buildings and improvements 20,605,923 19,347,515
Amenities 126,788 126,788
---------- ----------
25,316,109 23,920,387
Less accumulated depreciation 15,526,624 15,069,604
---------- ----------
$ 9,789,485 $ 8,850,783
========== ==========
- 31 -
<PAGE>
5. Mortgages Payable
-----------------
Mortgages payable as of December 31 consist of the following:
1997 1996
----------- -----------
Mortgage payable to an insurance
company bearing interest at 9.125%,
maturing November 1, 1998, secured
by land and building $ 2,234,603 $ 2,359,637
Mortgage payable to an insurance
company maturing June 1, 2001,
secured by land and buildings,
bearing a variable interest rate
based on the 10-year treasury bill
rate plus 60 basis points. The rate
is adjusted quarterly. The current
rate at December 31, 1997
is 6.68% 4,500,000 4,500,000
---------- ----------
$ 6,734,603 $ 6,859,637
========== ==========
The $2,234,603 mortgage is payable in monthly installments of $32,335,
which includes principal, interest and property tax escrow. The
$4,500,000 mortgage is payable in monthly installments of $25,050
(interest only). Scheduled maturities of debt are as follows:
For the Years Ended December 31, Amount
-------------------------------- -----------
1998 $ 2,234,603
1999 --
2000 --
2001 4,500,000
----------
$ 6,734,603
===========
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 $6,889,500.
Effective January 1, 1998, the interest rate on the $4,500,000 mortgage
payable adjusted to 6.34%.
The $2,234,603 mortgage matures within the next twelve months. See Note 9
Subsequent Events for a further discussion regarding this mortgage.
6. Rental Income Under Operating Leases
------------------------------------
The following is a schedule of minimum future rental income on
noncancellable operating leases as of December 31, 1997:
For the Years Ended December 31, Amount
-------------------------------- -----------
1998 $ 2,561,199
1999 1,567,041
2000 1,191,734
2001 965,758
2002 650,639
Thereafter 1,165,244
-----------
$ 8,101,615
===========
- 32 -
<PAGE>
7. Related Party Transactions
--------------------------
Property management fees of $168,006 (1997), $158,463 (1996) and $161,638
(1995) were paid to NTS Development Company, an affiliate of the General
Partner, pursuant to an agreement with the Partnership. The fee is equal
to 5% of gross revenues from the Partnership's properties. Also permitted
by an agreement with the Partnership, NTS Development Company will
receive a repair and maintenance fee equal to 5.9% of costs incurred
which relate to capital improvements. The Partnership has incurred
$74,367 and $41,001 as a repair and maintenance fee during the years
ended December 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 years ended December 31, 1997, 1996 and
1995. These charges include items which have been expensed as operating
expenses affiliated or professional and administrative expenses -
affiliated and items which have been capitalized as other assets or as
land, buildings and amenities.
1997 1996 1995
-------- -------- --------
Leasing $279,851 $144,372 $124,826
Administrative 166,422 175,414 172,070
Property manager 171,324 182,750 214,574
Other 28,460 21,515 7,838
-------- -------- --------
$646,057 $524,051 $519,308
======== ======== ========
During January 1997, NTS Development Company leased 23,160 square feet of
the available space in Plainview Plaza II at a base rent of $13.50 per
square foot. During February and March of 1997, NTS Development Company
leased 20,368 square feet. Effective April 1, 1997, the NTS Development
Company lease was extended for five years to March 2002 at a rental rate
of $14.50 per square foot for 20,368 square feet. The Partnership has
received approximately $295,000 in rental payments from NTS Development
Company during 1997. As a result of the lease renewal, the Partnership
has made a commitment for approximately $350,000 of tenant finish
improvements. Approximately $192,000 of the project was completed during
1997.
During the years ended December 31, 1996 and 1995, NTS Development
Company leased approximately 23,000 square feet of the available space in
the Plainview Plaza II property at a base rent of approximately $13.50
per square foot. The Partnership received approximately $314,000 in
rental payments from NTS Development Company during both 1996 and 1995.
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. The Partnership is currently negotiating a 120 day 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 120 day extension will be all that can be anticipated. 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.
- 33 -
<PAGE>
8. Commitments and Contingencies - Continued
-----------------------------------------
As of December 31, 1997, the Partnership had a commitment of
approximately $250,000 for tenant finish improvements at Plainview Plaza
II as the result of a new five-year lease for approximately 16,900 square
feet. The project is expected to be completed during the first quarter of
1998.
As of December 31, 1997, the Partnership also had a commitment of
approximately $58,500 for tenant finish improvements at Peachtree
Corporate Center as a result of a lease renewal and expansion by a
current tenant. The expansion increases the tenant's current leased space
by approximately 2,300 square feet and the renewal extends the lease five
years. The project is expected to be completed during the first quarter
of 1998.
At Plainview Plaza II, the Partnership expects to complete the
landscaping and exterior building renovations, and the addition of a
handicap restroom facility during 1998. The remaining commitment for this
project is approximately $200,000.
It is anticipated that the cash flow from operations and cash reserves
will be sufficient to meet the needs of the Partnership.
For additional commitments see Note 7 Related Party Transactions and Note
9 Subsequent Events.
9. Subsequent Events
-----------------
Subsequent to December 31, 1997, the Partnership elected to resume the
Interest Repurchase Program and to fund $50,000 to its Interest
Repurchase Reserve. With this funding, the Partnership will be able to
repurchase up to 200 additional Units at a price of $250 per Unit. If the
number of Units submitted for repurchase exceeds that which can be
repurchased by the Partnership with the current funding, those additional
Units may be repurchased in subsequent quarters. The above offering price
per Unit was established by the General Partner in its sole discretion
and does not purport to represent the fair market value or liquidation
value of the Units. The Partnership notified the limited partners of this
action and opportunity by mail during January 1998.
Subsequent to December 31, 1997, the Partnership obtained a commitment
from an insurance company for permanent financing in the amount of
$6,800,000. The mortgage payable will bear interest at a fixed rate of
6.89% and will be secured by a first mortgage on Plainview Plaza II. The
repayment of the principal will be amortized over 17 years with monthly
payments of principal and interest totaling approximately $56,600. The
proceeds of the mortgage will be used to pay off the current $2,234,603
and $4,500,000 mortgages payable and pay loan closing costs. The loan
commitment expires April 1, 1998, and the loan is expected to close on or
prior to that date.
- 34 -
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure
--------------------
None.
- 35 -
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
Because the Partnership is a limited partnership and not a corporation, it has
no directors or officers as such. Management of the Partnership is the
responsibility of the General Partner, NTS-Properties Associates. The
Partnership has entered into a management contract with NTS Development Company,
an affiliate of the General Partner, to provide property management services.
The General Partners of NTS-Properties Associates are as follows:
J. D. Nichols
- -------------
Mr. Nichols (age 56) is the managing General Partner of NTS-Properties
Associates and is Chairman of the Board of NTS Corporation (since 1985) and NTS
Development Company (since 1977).
L. C. Aroh
- ----------
Mr. Aroh (age 66) has been an independent real estate developer for the past ten
years. He is a partner in a number of real estate developments with the
principals of NTS Development Company.
NTS Capital Corporation
- -----------------------
NTS Capital Corporation (formerly NTS Corporation) is a Kentucky corporation
formed in October 1979. J. D. Nichols is Chairman of the Board and the sole
director of NTS Capital Corporation.
Alliance Realty Corporation
- ---------------------------
Alliance Realty Corporation was formed in September 1982, and is a wholly-
owned subsidiary of SN Alliance, Inc. SN Alliance, Inc. is also the parent
corporation of Stifel, Nicolas & Company, Inc. which acted as the Dealer
Manager in connection with the offering for the interests.
Gary D. Adams
- -------------
Mr. Adams (age 51) is Senior Vice President of NTS Development Company.
Since joining the NTS organization in May 1977, Mr. Adams has been involved
in the development, construction and management of properties in the
southeast region.
A. Toni Rizzo
- -------------
Mr. Rizzo (age 50) joined Abel Construction during 1995 as the Director of
Business Development. From 1985 to 1995, Mr. Rizzo was an officer of the
Huntington Group and prior to 1985 was an employee of NTS Development Company.
The Manager of the Partnership's properties is NTS Development Company, the
executive officers and/or directors of which are Messrs. J. D. Nichols,
Richard L. Good, Brian F. Lavin and John W. Hampton.
Richard L. Good
- ---------------
Mr. Good (age 58), President and Chief Operating Officer of NTS Corporation,
President of NTS Development Company and Chairman of the Board of NTS
Securities, Inc., joined the Manager in January 1985. From 1981 through 1984, he
was Executive Vice President of Jacques-Miller, Inc., a real estate syndication,
property management and financial planning firm in Nashville, Tennessee.
- 36 -
<PAGE>
Item 10. Directors and Executive Officers of the Registrant - Continued
--------------------------------------------------------------
Brian F. Lavin
- --------------
Mr. Lavin (age 44) serves as Executive Vice President of NTS Development Company
and President of the Company's Income Properties. As such, Mr. Lavin is
responsible for all NTS commercial real estate development, land acquisitions
and oversees the management of all commercial office buildings, business centers
and multi-family residential communities. Prior to joining NTS, Mr. Lavin served
as President of the Residential Division of Paragon Group, Inc., and as a Vice
President of Paragon's Midwest Division. In this capacity, he directed the
development, marketing, leasing and management operations for the firms
expanding portfolios. Mr. Lavin attended the University of Missouri where he
received his Bachelor's Degree in Business Administration. He has served as a
Director of the Louisville Apartment Association. He is a licensed Kentucky Real
Estate Broker and Certified Property Manager. Mr. Lavin is a member of the
Institute of Real Estate Management, and council member of the Urban Land
Institute. He currently serves on the University of Louisville Board of
Overseers and is on the Board of Directors of the National Multi-Housing Council
and the Louisville Science Center.
John W. Hampton
- ---------------
Mr. Hampton (age 48) is Senior Vice President of NTS Development Company with
responsibility for all accounting operations. Before joining the Manager in
March 1991, Mr. Hampton was Vice President - Finance and Chief Financial Officer
of the Sturgeon-Thornton-Marrett Development Company in Louisville for nine
years. Prior to that he was with Alexander Grant & Company CPA's. Mr. Hampton is
a Certified Public Accountant and a graduate of the University of Louisville
with a Bachelor of Science degree in Commerce. He is a member of the American
Institute of CPA's and the Kentucky Society of CPA's.
Item 11. Management Remuneration and Transactions
----------------------------------------
The officers and/or directors of the corporate General Partner receive no direct
remuneration in such capacities. The Partnership is required to pay a property
management fee based on gross rentals to NTS Development. The Partnership is
also required to pay to NTS Development company a repair and maintenance fee on
costs related to specific projects. Also, NTS Development Company provides
certain other services to the Partnership. See Note 7 to the financial
statements which sets forth transactions with NTS Development Company for the
years ended December 31, 1997, 1996 and 1995.
The General Partner is entitled to receive cash distributions and allocations of
profits and losses from the Partnership. Generally, the General Partner is
entitled to a 10% non-cumulative annual return on its capital contributions from
the cash income of the Partnership (after payment of a like amount to the
limited partners). At such time as the limited partners have received cash
distributions from all sources equal to their original capital contributions,
cash flow will be distributed 52% to limited partners and 48% to the General
Partner. In no event, however, will the portion of any item of Partnership
income, gain, loss, deduction or credit allocated to the General Partner be less
than 1%.
- 37 -
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
The General Partner is NTS-Properties Associates, a Georgia limited partnership,
10172 Linn Station Road, Louisville, Kentucky 40223. The partners of the General
Partner and their total respective interests in NTS-Properties Associates are as
follows:
J. D. Nichols
10172 Linn Station Road 86.07%
Louisville, Kentucky 40223
L. C. Aroh
10904 Old Bridge Place 8.64%
Louisville, Kentucky 40223
Gary D. Adams
3300 University Boulevard, Suite 150 1.26%
Winter Park, Florida 32792
A. Toni Rizzo
515 Willowhurst Place 1.26%
Louisville, Kentucky 40223
NTS Capital Corporation
10172 Linn Station Road 2.67%
Louisville, Kentucky 40223
Alliance Realty Corporation
500 North Broadway 0.10%
St. Louis, Missouri 63102
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
Property management fees of $168,006 (1997), $158,463 (1996) and $161,638 (1995)
were paid to NTS Development Company, an affiliate of the General Partner,
pursuant to an agreement with the Partnership. The fee is equal to 5% of gross
revenues from the Partnership's properties. Also permitted by an agreement with
the Partnership, NTS Development Company will receive a repair and maintenance
fee equal to 5.9% of costs incurred which relate to capital improvements. The
Partnership has incurred $74,367 and $41,001 and as a repair and maintenance fee
during the years ended December 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 years ended December 31, 1997, 1996 and 1995. These
charges include items which have been expensed as operating expenses -
affiliated or professional and administrative expenses - affiliated and items
which have been capitalized as other assets or as land, buildings and amenities.
1997 1996 1995
-------- -------- --------
Leasing $279,851 $144,372 $124,826
Administrative 166,422 175,414 172,070
Property manager 171,324 182,750 214,574
Other 28,460 21,515 7,838
------- ------- -------
$646,057 $524,051 $519,308
======= ======= =======
During January 1997, NTS Development Company leased 23,160 square feet of the
available space in Plainview Plaza II at a base rent of $13.50 per square foot.
During February and March of 1997, NTS Development Company
- 38 -
<PAGE>
Item 13. Certain Relationships and Related Transactions - Continued
----------------------------------------------------------
leased 20,368 square feet. Effective April 1, 1997, the NTS Development Company
lease was extended for five years to March 2002 at a rental rate of $14.50 per
square foot for 20,368 square feet. The Partnership has received approximately
$295,000 in rental payments from NTS Development Company during 1997. As a
result of the lease renewal, the Partnership has made a commitment for
approximately $350,000 of tenant finish improvements. Approximately $192,000 of
the project was completed during 1997.
During the years ended December 31, 1996 and 1995, NTS Development Company
leased approximately 23,000 square feet of the available space in the Plainview
Plaza II property at a base rent of approximately $13.50 per square foot. The
Partnership received approximately $314,000 in rental payments from NTS
Development Company during 1996 and 1995.
There are no other reportable business relationships between the Partnership's
creditors, customers, and suppliers and officers of the Manager or the General
Partner as of December 31, 1997.
- 39 -
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
----------------------------------------------------------------
1. Financial statements
The financial statements for the years ended December 31, 1997, 1996,
1995 together with the report of Arthur Andersen LLP dated March 6,
1998, appear in Item 8. The following financial statement schedules
should be read in conjunction with such financial statements.
2. Financial statement schedules
Schedules: Page No.
-------
III - Real Estate and Accumulated Depreciation 41-42
All other schedules have been omitted because they are not applicable,
or not required, or because the required information is included in the
financial statements or notes thereto.
3. Exhibits
Exhibit No. Page No.
---------- -------
3. Amended and Restated *
Agreement and Certificate
of Limited Partnership of
NTS-Properties III
10. Management Agreement between *
NTS Development Company and
NTS-Properties III
27. Financial Data Schedule Included
herewith
* Incorporated by reference to documents filed with the Securities
and Exchange Commission in connection with the filing of
Registration Statements on Form S-11 on June 25, 1982 (effective
October 13, 1982) under Commission File No. 2-78152.
4. Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended December
31, 1997.
- 40 -
<PAGE>
<TABLE>
NTS-PROPERTIES III
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1997
<CAPTION>
Peachtree
Plainview Plainview Corporate
Plaza II Triad North Center Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Encumbrances (A) (B) (B)
Initial cost to partnership:
Land $ 1,379,172 $ 1,217,886 $ 1,408,375 $ 4,005,433
Buildings and improvements 4,963,604 4,512,172 6,231,114 15,706,890
Cost capitalized subsequent to acquisition:
Improvements 2,415,430 1,258,383 1,929,973 5,603,786
Carrying costs -- -- -- --
Gross amount at which carried December 31, 1997 (C):
Land $ 1,616,135 $ 1,295,856 $ 1,671,407 $ 4,583,398
Buildings and improvements 7,142,071 5,692,585 7,898,055 20,732,711
----------- ----------- ----------- -----------
Total $ 8,758,206 $ 6,988,441 $ 9,569,462 $25,316,109
=========== =========== =========== ===========
Accumulated depreciation $ 4,753,975 $ 4,162,798 $ 6,609,851 $15,526,624
=========== =========== =========== ===========
Date of construction N/A N/A N/A
Date Acquired 01/83 02/83 01/83
Life at which depreciation in
latest income statement is
computed (D) (D) (D)
<FN>
(A) First and second mortgage held by two insurance companies.
(B) First mortgage held by an insurance company.
(C) Aggregate cost of real estate for tax purposes is $25,355,586.
(D) Depreciation is computed using the straight-line method over the estimated
useful lives of the assets which are 5 - 30 years for land improvements, 5
- 30 years for buildings and improvements and 3 - 30 years for amenities.
</FN>
</TABLE>
- 41 -
<PAGE>
<TABLE>
NTS-PROPERTIES III
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<CAPTION>
Real Accumulated
Estate Depreciation
------------ ------------
<S> <C> <C>
Balances at December 31, 1994 $ 23,694,323 $ 13,451,387
Additions during period:
Improvements (a) 414,424 --
Depreciation (b) -- 1,015,382
Deductions during period:
Retirements (276,716) (220,024)
------------ ------------
Balances at December 31, 1995 23,832,031 14,246,745
Additions during period:
Improvements (a) 160,532 --
Depreciation (b) -- 894,435
Deductions during period:
Retirements (72,176) (71,576)
------------ ------------
Balances at December 31, 1996 23,920,387 15,069,604
Additions during period:
Improvements (a) 1,856,340 --
Depreciation (b) -- 831,231
Deductions during period:
Retirements (460,618) (374,211)
------------ ------------
Balances at December 31, 1997 $ 25,316,109 $ 15,526,624
============ ============
<FN>
(a) The additions to improvements on this schedule will differ from the
additions to land, buildings, amenities and construction in progress on the
Statements of Cash Flows primarily due to the fact that construction in
progress is not included in the real estate balance above.
(b) The additions charged to accumulated depreciation on this schedule will
differ from the depreciation and amortization on the Statements of Cash
Flows due to the amortization of loan costs.
</FN>
</TABLE>
- 42 -
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, NTS-Properties III has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
NTS-PROPERTIES III
------------------
(Registrant)
BY: NTS-Properties Associates,
General Partner
BY: NTS Capital Corporation,
General PartneR
/s/ John W. Hampton
-------------------------
John W. Hampton
Senior Vice President
Date: March 23, 1998
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
Form 10-K has been signed below by the following persons on behalf of the
registrant in their capacities and on the date indicated above.
Signature Title
--------- -----
/s/ J. D. Nichols General Partner of NTS-Properties
J. D. Nichols Associates and Chairman of the Board and
Sole Director of NTS Capital Corporation
/s/ Richard L. Good President of NTS Capital Corporation
Richard L. Good
/s/ John W. Hampton Senior Vice President of NTS Capital
John W. Hampton Corporation
The Partnership is a limited partnership and no proxy material has been sent to
the limited partners.
- 43 -
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF DECEMBER 31, 1997 AND FROM THE STATEMENT OF OPERATIONS FOR THE YEAR
ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 551,539
<SECURITIES> 101,591
<RECEIVABLES> 269,922
<ALLOWANCES> 42,035
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 9,789,485
<DEPRECIATION> 15,526,624
<TOTAL-ASSETS> 11,122,316
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 6,734,603
0
0
<COMMON> 0
<OTHER-SE> 3,989,290
<TOTAL-LIABILITY-AND-EQUITY> 11,122,316
<SALES> 3,386,009
<TOTAL-REVENUES> 3,426,290
<CGS> 0
<TOTAL-COSTS> 2,572,246
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 28,661
<INTEREST-EXPENSE> 524,901
<INCOME-PRETAX> 134,570
<INCOME-TAX> 0
<INCOME-CONTINUING> 134,570
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 134,570
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>THE PARTNERSHIP HAS AN UNCLASSIFIED BALANCE SHEET; THEREFORE,
THE VALUE IS $0.
</FN>
</TABLE>
