UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark one)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-11176
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NTS-PROPERTIES III
------------------
(Exact name of registrant as specified in its charter)
Georgia 61-1017240
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10172 Linn Station Road
Louisville, Kentucky 40223
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(Address of principal executive (Zip Code)
offices)
Registrant's telephone number,
including area code (502) 426-4800
--------------
Not Applicable
--------------
Former name, former address and former fiscal year,
if changed since last report
Indicate by check mark whether the registrant (l) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
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Exhibit Index: See page 16
Total Pages: 17
<PAGE>
TABLE OF CONTENTS
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Pages
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PART I
Item 1. Financial Statements
Balance Sheets and Statement of Partners' Equity
as of March 31, 1999 and December 31, 1998 3
Statements of Operations
For the three months ended March 31, 1999 and 1998 4
Statements of Cash Flows
For the three months ended March 31, 1999 and 1998 5
Notes To Financial Statements 6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-15
PART II
6. Exhibits and Reports on Form 8-K 16
Signatures 17
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<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
NTS-PROPERTIES III
------------------
BALANCE SHEETS AND STATEMENT OF PARTNERS' EQUITY
------------------------------------------------
<CAPTION>
As of As of
March 31, 1999 December 31, 1998*
-------------- ------------------
ASSETS
<S> <C> <C>
Cash and equivalents $ 442,441 $ 233,844
Cash and equivalents - restricted 27,883 139,350
Accounts receivable, net of allowance
for doubtful accounts of $3,034 (1999
and 1998) 225,567 184,327
Land, buildings and amenities, net 9,594,071 9,834,002
Construction in progress 686,039 385,332
Other assets 449,642 393,301
----------- -----------
Total assets $ 11,425,643 $ 11,170,156
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Mortgages payable $ 6,916,013 $ 6,656,145
Accounts payable - operations 93,731 40,632
Accounts payable - construction 245,528 180,272
Security deposits 101,212 98,611
Other liabilities 109,840 73,550
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7,466,324 7,049,210
Commitments and Contingencies
Partners' equity 3,959,319 4,120,946
----------- -----------
$ 11,425,643 $ 11,170,156
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Limited General
Partners Partner Total
-------- ------- -----
PARTNERS' EQUITY
<S> <C> <C> <C>
Initial equity $ 15,600,000 $ 8,039,710 $ 23,639,710
Adjustment to historical basis -- (5,455,030) (5,455,030)
------------ ------------ ------------
15,600,000 2,584,680 18,184,680
Net income (loss) - prior years 374,637 (2,488,305) (2,113,668)
Net (loss) - current year (13,962) (22,662) (36,624)
Cash distributions declared to
date (11,349,844) (206,985) (11,556,829)
Repurchase of limited partnership
units (518,240) -- (518,240)
------------ ------------ ------------
Balances at March 31, 1999 $ 4,092,591 $ (133,272) $ 3,959,319
============ ============ ============
</TABLE>
*Reference is made to the audited financial statements in the Form 10-K as filed
with the Commission on March 31, 1999.
- 3 -
<PAGE>
<TABLE>
NTS-PROPERTIES III
------------------
STATEMENTS OF OPERATIONS
------------------------
<CAPTION>
Three Months Ended
March 31,
---------
1999 1998
------------ ------------
Revenues:
<S> <C> <C>
Rental income, net of provision for
doubtful accounts of $ 0 (1999)
and $5,700 (1998) $ 749,865 $ 846,996
Rental income - affiliated 73,834 75,752
Interest and other income -- 4,055
----------- ----------
823,699 926,803
Expenses:
Operating expenses 201,454 218,329
Operating expenses - affiliated 142,003 122,713
Amortization of capitalized leasing
costs 6,370 6,370
Interest expense 116,240 122,863
Management fees 36,148 48,442
Real estate taxes 51,561 51,727
Professional and administrative
expenses 29,053 15,006
Professional and administrative
expenses - affiliated 29,742 36,688
Depreciation and amortization 247,752 228,830
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860,323 850,968
----------- ----------
Net income (loss) $ (36,624) $ 75,835
=========== ==========
Net income (loss) allocated to the
limited partners $ (13,962) $ 98,872
=========== ==========
Net income (loss) per limited
partnership unit $ (1.05) $ 7.03
=========== ==========
Weighted average number of limited
partnership units 13,303 14,070
=========== ==========
</TABLE>
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<PAGE>
<TABLE>
NTS-PROPERTIES III
------------------
STATEMENTS OF CASH FLOWS
------------------------
<CAPTION>
Three Months Ended
March 31,
---------
1999 1998
--------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) $ (36,624) $ 75,835
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for doubtful accounts 3,034 5,700
Accrued interest on investment securities -- 923
Amortization of capitalized leasing costs 6,370 6,370
Depreciation and amortization 247,752 228,830
Change in assets and liabilities:
Cash and equivalents - restricted (13,533) (10,410)
Accounts receivable (44,274) 13,046
Other assets (46,970) (71,438)
Accounts payable - operations 53,099 142,428
Security deposits 2,601 155
Other liabilities 36,290 (416)
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Net cash provided by operating activities 207,745 391,023
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to land, buildings, amenities and
construction in progress (241,148) (394,701)
Increase in cash and equivalents - restricted -- (2,777)
Maturity of investment securities -- 100,668
--------- ----------
Net cash used in investing activities (241,148) (296,810)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in mortgage payable 315,536 --
Principal payments on mortgage payable (55,668) (20,352)
Additions to loan costs (17,868) (119,847)
Repurchase of limited partnership units (125,000) --
(Increase) decrease in cash and equivalents -
restricted 125,000 (50,000)
--------- ----------
Net cash provided by (used) in financing
activities 242,000 (190,199)
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Net increase (decrease) in cash and equivalents 208,597 (95,986)
CASH AND EQUIVALENTS, beginning of period 233,844 266,940
--------- ----------
CASH AND EQUIVALENTS, end of period $ 442,441 $ 170,954
========= ==========
Interest paid on a cash basis $ 114,334 $ 81,458
========= ==========
</TABLE>
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<PAGE>
NTS-PROPERTIES III
------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
The financial statements included herein should be read in conjunction with the
Partnership's 1998 Form 10-K as filed with the Commission on March 31, 1999. In
the opinion of the General Partner, all adjustments (only consisting of normal
recurring accruals) necessary for a fair presentation have been made to the
accompanying financial statements for the three months ended March 31, 1999 and
1998.
1. Use of Estimates in the Preparation of Financial Statements
-----------------------------------------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
2. 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
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. Cash and Equivalents - Restricted
---------------------------------
Cash and equivalents - restricted represent 1)funds which have been
escrowed with a mortgage company for NTS Plainview Plaza II's property
taxes in accordance with the loan agreement, and 2)funds which the
Partnership has reserved for the repurchase of limited partnership Units
(December 31, 1998 balance only).
4. Interest Repurchase Reserve
---------------------------
Pursuant to Section 16.4 of the Partnership's Amended and Restated
Agreement of Limited Partnership, the Partnership established an Interest
Repurchase Reserve in 1995. During the years ended December 31, 1998, 1997
and 1996, the Partnership has funded $75,000, $0, and $243,700,
respectively, to the reserve. For the three months ending March 31, 1999
the Partnership has funded $125,000 to the reserve. Through March 31, 1999,
the Partnership has repurchased a total of 2,330 Units for $518,240 at a
price ranging from $208 to $250 per Unit. The 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. Repurchased Units are retired by the Partnership, thus increasing
the percentage of ownership of each remaining limited partner investor. The
Interest Repurchase Reserve was funded from cash reserves. The balance in
the reserve at March 31, 1999 was $0.
- 6 -
<PAGE>
5. Tender Offer
------------
On September 30, 1998, the Partnership and ORIG, LLC, an affiliate of the
Partnership, ("the Offerors") commenced a Tender Offer to purchase up to
1,000 of the Partnership's limited partnership Units at a price of $250 per
Unit. Although the Partnership and ORIG, LLC believe that this price is
appropriate, the price of $250 per Unit may not equate to the fair market
value or the liquidation value of the Unit, and is less than the book value
per Unit as of the offering date. The offer stated that the Partnership
would purchase the first 500 Units tendered and would fund its purchases
and its portion of the expenses from cash reserves. If more than 500 Units
were tendered, ORIG, LLC agreed to purchase up to an additional 500 Units.
The expiration date of the original Offer was December 29, 1998 at which
time 729 Units were tendered. The Partnership repurchased 500 Units at a
cost of $125,000 and ORIG, LLC purchased 229 Units at a cost of $57,250.
The expiration date of the Offer was extended to March 31, 1999. During the
extension period ORIG, LLC purchased an additional 431 Units at an
aggregate cost of $107,750.
6. Mortgages Payable
-----------------
Mortgages payable consist of the following:
March 31, December 31,
1999 1998
---- ----
Mortgage payable to an insurance
company bearing interest at 6.89%,
maturing April 10, 2015, secured
by land and buildings $ 6,600,477 $ 6,656,145
$2,000,000 Mortgage payable to a
bank maturing March 1, 2001, secured
by land and buildings, bearing a
variable interest of prime rate minus
.25%. The current rate at March 31,
1999 is 7.5%. As of March 31, 1999
the Partnership had approximately
$1,684,000 available for additional
funding under this facility. 315,536 --
---------- ----------
$ 6,916,013 $ 6,656,145
========== ==========
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 approximates carrying value.
7. Basis of Property
-----------------
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 market value.
Application of this standard during the three months ended March 31, 1999
and 1998 did not result in an impairment loss.
8. Reclassification of 1998 Financial Statements
---------------------------------------------
Certain reclassifications have been made to the December 31, 1998 financial
statements to conform with the March 31, 1999 classifications. These
reclassifications have no effect on previously reported operations.
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<PAGE>
9. Related Party Transactions
--------------------------
Property management fees of $36,148 and $48,442 for the three months ended
March 31, 1999 and 1998, respectively, were paid to NTS Development
Company, an affiliate of the General Partner, pursuant to an agreement with
the Partnership. The fee is equal to 5% of gross revenues from the
Partnership's properties. Also permitted by an agreement, NTS Development
Company will receive a repair and maintenance fee equal to 5.9% of costs
incurred which relate to capital improvements. The Partnership incurred
$30,929 and $39,531 as a repair and maintenance fee during the three months
ended March 31, 1999 and 1998, respectively, and has capitalized this cost
as a part of land, buildings and amenities. As permitted by an agreement,
the Partnership also was charged the following amounts from NTS Development
Company for the three months ended March 31, 1999 and 1998. These charges
include items which have been expensed as operating expenses - affiliated
or professional and administrative expenses - affiliated and items which
have been capitalized as other assets, land, buildings and amenities, or
construction in progress.
These charges were as follows:
1999 1998
--------- --------
Leasing $ 57,088 $ 53,957
Administrative 37,194 44,140
Property manager 69,660 59,398
Other 13,869 15,077
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$177,811 $172,572
======= =======
During the three months ended March 31, 1999 and 1998, NTS Development
Company leased 20,368 square feet in Plainview Plaza II at a rental rate of
$14.50 per square foot. The Partnership received approximately $74,000 in
rental payments from NTS Development Company during the three months ended
March 31, 1999. The lease term for NTS Development Company ends on March
31, 2002.
10. Commitments and Contingencies
-----------------------------
One tenant at Plainview Triad North occupied approximately 65% of the
building. During the third quarter of 1997, the Partnership received notice
that the tenant would vacate the property at the end of the lease term,
August 1998. The Partnership was able to negotiate a 30 day renewal
(through September 30, 1998) with the tenant for approximately 63,000
square feet they leased. The Partnership was also able to negotiate a
renewal for approximately 11,000 square feet of the original 63,000 square
feet through March 31, 1999. Costs associated with this renewal were not
significant. As a result of this tenant vacating the remainder of their
space on March 31, 1999, 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 Plainview Triad North, the Partnership is renovating the common area and
exterior building. These renovations will be designed to make the property
more competitive and enhance its value. The estimated cost of the
renovations which began during 1998 is approximately $1,000,000 and the
renovation is expected to be completed by the end of the second quarter of
1999.
The renovation and leasing costs discussed above will be funded from loan
proceeds ($2,000,000 note payable obtained March 2, 1999) and cash
reserves. If necessary, it may be possible for the Partnership to increase
the note payable secured by Plainview Triad North. However, there is no
assurance that additional financing will be able to be obtained when
needed, or that any financing will be on favorable terms.
- 8 -
<PAGE>
11. Segment Reporting
-----------------
The Partnership adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, during the fourth quarter of 1998. SFAS
No. 131 established standards for reporting information about operating
segments in annual financial statements and requires selected information
about operating segments in interim financial reports issued to limited
partners. Operating segments are defined as components of an enterprise
about which separate financial information is available that is evaluated
regularly by the chief operating decision maker, or decision making group,
in deciding how to allocate resources and in assessing performance. The
standard also allows entities to aggregate operating segments into a single
segment if the segments are similar in each of the six criteria set forth
in SFAS No. 131. The Partnership's chief operating decision-maker is the
General Partner.
The Company's reportable operating segments include only one segment
Commercial real estate operations.
- 9 -
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations is structured in four major sections. The first section provides
information related to occupancy levels and rental and other income generated by
the Partnership's properties. The second analyzes results of operations on a
consolidated basis. The final sections address consolidated cash flows and
financial condition. Discussion of certain market risks and our cautionary
statements also follow. Management's analysis should be read in conjunction with
the financial statements in Item 1.
The occupancy levels at the Partnership's properties as of March 31 were as
follows:
1999(1) 1998
------- ----
Plainview Plaza II 100% 100%
Plainview Triad North(2) 35% 88%
Peachtree Corporate Center 87% 88%
(1) With the exception of Triad North, current occupancy levels are considered
adequate to continue the operation of the Partnership's properties. See
below for details.
(2) The decrease in occupancy is the result of a tenant vacating 52,000 square
feet on September 30, 1998. The tenant previously occupied approximately
63,000 square feet and has only extended through March 31, 1999 for
approximately 11,000 square feet. In the opinion of the General Partner of
the Partnership, the decrease in period-ending occupancy is only a
temporary fluctuation and does not represent a permanent downward occupancy
trend.
The Average Occupancy levels at the Partnership's properties during the three
months ended March 31 were as follows:
1999 1998
---- ----
Plainview Plaza II 100% 92%
Plainview Triad North(1) 35% 87%
Peachtree Corporate Center 88% 87%
(1) In the opinion of the General Partner of the Partnership, the decease in
average occupancy is only a temporary fluctuation and does not represent
a permanent downward occupancy trend.
- 10 -
<PAGE>
The following is an analysis of material changes in results of operations for
the periods ending March 31, 1999 and 1998. Items that did not have a material
impact on operations for the periods listed above have been eliminated from this
discussion.
The rental and other income generated by the Partnership's properties for the
three months ended March 31 were as follows:
1999 1998
---- ----
Plainview Plaza II $ 389,515 $ 343,364
Plainview Triad North $ 126,226 $ 295,735
Peachtree Corporate Center $ 306,847 $ 283,950
Rental and other income decreased approximately $97,000 or 11% in 1999. The
decrease is primarily a result of a decrease in average occupancy at Plainview
Triad North following the move-out of one tenant of approximately 52,000 square
feet at the end of the lease term (August 1998). The tenant previously occupied
63,000 square feet or 65% of the building and accounted for approximately 22% of
the Partnership's total revenues for the period ending March 31, 1998. Through
March 31, 1999 the tenant occupied approximately 11,000 square feet accounting
for 5% of the Partnership's total revenues for the period ending March 31, 1999.
The decrease is partially offset by increased rental rates on lease renewals and
increased cost recovery income at Peachtree Corporate Center and an increase in
average occupancy at Plainview Plaza II.
The Partnership expects there will be a protracted period for Plainview Triad
North to become fully leased again. During this period, which is unknown at this
time, Partnership revenues in 1999 will most likely be decreased as compared to
revenues during 1998.
Period-ending percentages represent occupancy only on a specific date, therefore
the above analysis considers average occupancy percentages which are
representative of the entire period's results.
In cases of tenants who cease making rental payments or abandon the premises in
breach of the lease terms, the Partnership pursues collection through the use of
collection agencies or other remedies available by law when practical. In the
case of tenants who vacated Peachtree Corporate Center as a result of
bankruptcy, the Partnership has taken legal action when it was thought there
could be a possible collection. There have been no significant funds recovered
as a result of these actions during the three months ended March 31, 1999 or
1998. As of March 31, 1999 there were no on-going cases.
Interest and other income for the three months ending March 31, 1998 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 approximate $4,000 decrease in interest and other income
for the three months ended March 31, 1999 as compared to the same period in 1998
is due primarily to the decrease in cash reserves available for investment, and
the release of the escrow of the funds described above during 1998.
Operating expenses - affiliated increased approximately $19,000 or 15% in 1999
primarily as a result of increased architectural and leasing salaries at
Plainview Triad North and increased administrative salaries at Peachtree
Corporate Center. The increase is partially offset by deceased architectural
salaries at Plainview Plaza II. Operating expenses - affiliated are expenses
incurred for services performed by employees of NTS Development Company, an
affiliate of the General Partner.
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<PAGE>
Management fees are calculated as a percentage of cash collections; however,
revenue for reporting purposes is on the accrual basis. As a result, the
fluctuations of revenues between periods will differ from the fluctuations of
management fee expense.
Professional and administrative expenses increased approximately $14,000 or 93%
in 1999. The increase is primarily a result of costs incurred in connection with
the Tender Offer (see discussion below).
Professional and administrative expenses - affiliated decreased approximately
$7,000 or 19% in 1999 primarily as a result of a decrease in salary costs.
Professional and administrative expenses - affiliated are expenses incurred for
services performed by employees of NTS Development Company, an affiliate of the
General Partner.
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 5-30 years for
amenities. The aggregate cost of the Partnership's properties for Federal tax
purposes is approximately $26,341,200.
Consolidated Cash Flows and Financial Condition
- -----------------------------------------------
The majority of the Partnership's cash flow is derived from operating
activities. Cash flows used in investing activities are for tenant finish
improvements and other capital additions and are funded by operating activities
and cash reserves. Changes to current tenant improvements are a typical part of
any lease negotiation. Improvements generally include a revision to the current
floor plan to accommodate a tenant's needs, new carpeting and paint and/or
wallcovering. The extent and cost of these improvements are determined by the
size of the space and whether the improvements are for a new tenant or incurred
because of a lease renewal. Cash flows provided by investing activities in 1998
include the maturity of investment securities. As part of its cash management
activities, the Partnership 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 used in financing activities include
principal payments on the mortgages payable, the repurchase of limited
partnership Units, cash reserved by the Partnership to fund the Tender Offer and
the addition of loan costs. Cash flows provided by financing activities in 1999
represent the utilization of cash which has been reserved by the Partnership for
the repurchase of limited partnership Units and proceeds received from a new
mortgage loan obtained March 2, 1999. The Partnership does not expect any
material changes in the mix and relative cost of capital resources from those in
1998 except for changes resulting from the new debt financing obtained by the
Partnership during 1999.
Cash flows provided by (used in):
1999 1998
----- ----
Operating activities $ 207,745 $ 391,023
Investing activities (241,148) (296,810)
Financing activities 242,000 (190,199)
----------- -----------
Net increase (decrease) in
cash and equivalents $ 208,597 $ (95,986)
=========== ===========
Net cash provided by operating activities decreased approximately $183,000 or
46% in 1999. This decrease was primarily driven by a decrease in accounts
payable and a decrease in net income as a result of decreased revenues from
Plainview Triad North (as discussed above).
- 12 -
<PAGE>
Net cash used in investing activities was $241,148 and $296,810 in 1999 and
1998, respectively. Net cash used in investing activities decreased in 1999 as
compared to 1998 as a result of decreased capital expenditures offset by
maturities of investment securities in 1998.
Net cash provided by (used in) financing activities was $242,000 and $(190,199)
in 1999 and 1998, respectively. The increase in net cash provided by financing
activities in 1999 is the result of a new mortgage loan obtained March 2, 1999
to fund renovations at Triad North and a reduction in loan costs in 1999.
The Partnership indefinitely suspended distributions starting December 31, 1996
as a result of the anticipated decrease in occupancy at Plainview Triad North.
Cash reserves (which are unrestricted cash and equivalents and investment
securities as shown on the Partnership's balance sheet as of March 31) were
$442,441 and $170,954 at March 31, 1999 and 1998, respectively.
In the next 12 months, the General Partner expects the demand on future
liquidity to increase as a result of future leasing activity driven primarily by
the decreased occupancy at Plainview Triad North.
Demand on future liquidity is also expected to increase as a result of the
common area and exterior building renovation which is currently ongoing at
Plainview Triad North. The renovations have been designed to make the property
more competitive and enhance its value. The estimated cost of the renovation is
approximately $1,000,000. It is anticipated that the cash flow from operations,
cash reserves and funds available on the $2,000,000 loan obtained March 2, 1999
will be sufficient to meet the needs of the Partnership. Through March 31, 1999,
the Partnership has incurred approximately $470,000 of the $1,000,000 estimated
Triad North renovation. As of March 31, 1999, the Partnership had no material
commitments for tenant finish improvements.
Due to the fact that no distributions were made during the three months ended
March 31, 1999 or 1998, the table which represents that portion of the
distribution that represents a return of capital on a Generally Accepted
Accounting Principle basis has been omitted.
Pursuant to Section 16.4 of the Partnership's Amended and Restated Agreement of
Limited Partnership, the Partnership established an Interest Repurchase Reserve
in 1995. During the years ended December 31, 1998, 1997 and 1996, the
Partnership has funded $75,000, $0, and $243,700, respectively, to the reserve.
For the three months ending March 31, 1999 the Partnership has funded $125,000
to the reserve. Through March 31, 1999, the Partnership has repurchased a total
of 2,330 Units for $518,240 at a price ranging from $208 to $250 per Unit. The
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. Repurchased Units are retired by the
Partnership, thus increasing the percentage of ownership of each remaining
limited partner investor. The Interest Repurchase Reserve was funded from cash
reserves. The balance in the reserve at March 31, 1999 was $0.
On September 30, 1998, the Partnership and ORIG, LLC, an affiliate of the
Partnership, ("the Offerors") commenced a Tender Offer to purchase up to 1,000
of the Partnership's limited partnership Units at a price of $250 per Unit.
Although the Partnership and ORIG, LLC believe that this price is appropriate,
the price of $250 per Unit may not equate to the fair market value or the
liquidation value of the Unit, and is less than the book value per Unit as of
the offering date. The offer stated that the Partnership would purchase the
first 500 Units tendered and would fund its purchases and its portion of the
expenses from cash reserves. If more than 500 Units were tendered, ORIG, LLC
agreed to purchase up to an additional 500 Units. The expiration date of the
original offer was December 29, 1998 at which time 729 Units were tendered. The
Partnership repurchased 500 Units at a cost of $125,000 and ORIG, LLC purchased
229 Units at a cost of $57,250. The expiration date of the offer was extended to
March 31,
- 13 -
<PAGE>
1999. During the extension period ORIG, LLC purchased an additional 431 Units at
an aggregate cost of $107,750.
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.
Year 2000
- ---------
All divisions of NTS, the General Partner of the Partnership, are reviewing the
effort necessary to prepare our information systems (IT) and non-information
technology with embedded technology (ET) for the Year 2000. The information
technology solutions have been addressed separate for the Year 2000 since the
Partnership saw the need to move to more advanced management and accounting
systems made available by new technology and software developments during the
decade of the 1990's.
The PILOT software system, purchased in the early 1990's, needed to be replaced
by a windows based network system both for our headquarters functions and other
locations. The real estate accounting system developed, sold, and supported by
the Yardi Company of Santa Barbara, California has been selected to supercede
PILOT. The Yardi system has been tested and is compatible with Year 2000 and
beyond. This system is being implemented with the help of third party
consultants and should be fully operational by the third quarter of 1999. Our
system for multi-family apartment locations was converted to GEAC's Power Site
System earlier in 1998 and is Year 2000 compliant.
The few remaining systems not addressed by these conversions are being modified
by our in-house staff of programmers. The Hewlett Packard 3000 system, used for
PILOT and custom applications, was purchased in 1997 and will be part of our new
network. It will be retained as long as necessary to assure smooth operations
and has been upgraded to meet Year 2000 requirements.
All risks identified with information technology are believed to be addressed by
these plans.
The cost of these advances in our systems technology is not all attributable to
the Year 2000 issue since we had already identified the need to move to a
network based system regardless of the Year 2000. The costs involved will be
approximately $45,000 over 1999. Costs incurred through December 31, 1998 were
approximately $10,000. These costs primarily include hardware and software.
NTS property management staff has been surveying our vendors to evaluate
embedded technology in our alarm systems, HVAC controls, telephone systems and
other computer associated facilities. In a few cases, equipment is being
replaced. In some cases circuitry is being upgraded. The cost involved is still
being evaluated. There are no known significant risks that are currently without
solutions. Management anticipates that applications involving ET will be Year
2000 compliant by the third quarter of 1999.
- 14 -
<PAGE>
We are also currently addressing the Year 2000 readiness of third parties whose
business interruption could have a material negative impact on our business. All
significant vendors and tenants have indicated that they will be compliant by
the end of 1999. Such assurances are being evaluated and documented.
Management has determined that at our current state of readiness, the need does
not presently exist for a contingency plan. We will continue to evaluate the
need for such a plan.
Despite diligent preparation, unanticipated third-party failures, inability of
our tenants to pay rent when due, more general public infrastructure failures or
failure to successfully conclude our remediation efforts as planned could have a
material adverse impact on our results of operations, financial conditions
and/or cash flows in 1999 and beyond.
Quantitative and Qualitative Disclosures About Market Risk
- ----------------------------------------------------------
Our primary market risk exposure with regards to financial instruments is
changes in interest rates. All of the Partnership's debt bears interest at a
fixed rate with the exception of the $2,000,000 note payable which the
Partnership obtained on March 3, 1999.
Cautionary Statements
- ---------------------
Some of the statements included in Item 2, Management's Discussion and Analysis
of Financial Condition and Results of Operations, may be considered to be
"forward-looking statements" since such statements relate to matters which have
not yet occurred. For example, phrases such as "the Partnership anticipates",
"believes" or "expects" indicate that it is possible that the event anticipated,
believed or expected may not occur. Should such event not occur, then the result
which the Partnership expected also may not occur or occur in a different
manner, which may be more or less favorable to the Partnership. The Partnership
does not undertake any obligations to publicly release the result of any
revisions to these forward-looking statements that may be made to reflect any
future events or circumstances.
Any forward-looking statements included in Managements's Discussion and Analysis
of Financial Condition and Results of Operations, or elsewhere in this report,
which reflect management's best judgement based on factors known, involve risks
and uncertainties. Actual results could differ materially from those anticipated
in any forward-looking statements as a result of a number of factors, including
but not limited to those discussed below. Any forward-looking information
provided by the Partnership pursuant to the safe harbor established by recent
securities legislation should be evaluated in the context of these factors.
The Partnership's principal activity is the leasing and management of commercial
office buildings and a business center. If a major commercial tenant defaults on
its lease, the Partnership's ability to make payments due under its debt
agreements, payment of operating costs and other partnership expenses would be
directly impacted. A lessee's ability to make payments are subject to risks
generally associated with real estate, many of which are beyond the control of
the Partnership, including general or local economic conditions, competition,
interest rates, real estate tax rates, other operating expenses and acts of God.
- 15 -
<PAGE>
PART II. OTHER INFORMATION
3. Defaults upon Senior Securities
-------------------------------
None.
6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Exhibit 27. Financial Data Schedule
(b) Reports on Form 8-K
None.
Items 1,2,4 and 5 are not applicable and have been omitted.
- 16 -
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
NTS-PROPERTIES III
------------------
(Registrant)
BY: NTS-Properties Associates,
General Partner,
BY: NTS Capital Corporation,
General Partner
/s/ Brian F. Lavin
------------------
Brian F. Lavin
President and Chief
Operating Officer of
NTS Capital Corporation
(acting Chief Financial
Officer)
Date: May 14, 1999
---------------
- 17 -
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
NTS-PROPERTIES III
------------------
(Registrant)
BY: NTS-Properties Associates,
General Partner
BY: NTS Capital Corporation,
General Partner
---------------------
Brian F. Lavin
President and Chief
Operating Officer of
NTS Capital Corporation
(acting Chief Financial
Officer)
Date: May 14, 1999
---------------
- 17 -
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF MARCH 31, 1999 AND FROM THE STATEMENTS OF OPERATIONS FOR THE THREE
MONTHS ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 470,324
<SECURITIES> 0
<RECEIVABLES> 225,567
<ALLOWANCES> 3,034
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 10,280,110
<DEPRECIATION> 0<F2>
<TOTAL-ASSETS> 11,425,643
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 6,916,013
0
0
<COMMON> 0
<OTHER-SE> 3,959,319
<TOTAL-LIABILITY-AND-EQUITY> 11,425,643
<SALES> 749,865
<TOTAL-REVENUES> 823,699
<CGS> 0
<TOTAL-COSTS> 744,083
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 116,240
<INCOME-PRETAX> (36,624)
<INCOME-TAX> 0
<INCOME-CONTINUING> (36,624)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (36,624)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>THE PARTNERSHIP HAS AN UNCLASSIFIED BALANCE SHEET;THEREFORE THE VALUE IS $0.
<F2>THIS INFORMATION IS NOT DISCLOSED IN THE PARTNERSHIP'S FORM 10-Q.
</FN>
</TABLE>
