<PAGE>
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, 1998
-----------------
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
------------------------------- ----------------
(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 34
Total Pages: 37
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGES
------
PART I
<S> <C> <C>
Items 1 and 2 Business and Properties 3-8
Item 3 Legal Proceedings 8
Item 4 Submission of Matters to a Vote
of Security Holders 8
</TABLE>
<TABLE>
<CAPTION>
PART II
<S> <C> <C>
Item 5 Market for the Registrant's Limited Partnership
Interests and Related Partner Matters 9
Item 6 Selected Financial Data 10
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11-17
Item 8 Financial Statements and Supplementary
Data 18-29
Item 9 Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 30
</TABLE>
<TABLE>
<CAPTION>
PART III
<S> <C> <C>
Item 10 Directors and Executive Officers of
the Registrant 31-32
Item 11 Management Remuneration and Transactions 32
Item 12 Security Ownership of Certain Beneficial
Owners and Management 32-33
Item 13 Certain Relationships and Related
Transactions 33
</TABLE>
<TABLE>
<CAPTION>
PART IV
<S> <C> <C>
Item 14 Exhibits, Financial Statement Schedules
and Reports on Form 8-K 34-36
Signatures 37
</TABLE>
2
<PAGE>
PART I
Items 1. and 2. BUSINESS AND PROPERTIES
DEVELOPMENT OF BUSINESS
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,
1998, 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.
As of December 31, 1998, the Partnership's properties were encumbered by
mortgages as shown in the table below:
<TABLE>
<CAPTION>
Interest Maturity Balance
Property Rate Date AT 12/31/98
-------- -------- -------- -----------
<S> <C> <C> <C>
Plainview Plaza II 6.89% 04/10/15 (1) $ 6,656,145
Peachtree Corporate Center -- -- None
Plainview Triad North -- -- None (2)
</TABLE>
(1) Current monthly principal payments are based upon a 17-year
amortization schedule. At maturity, the mortgage will have been repaid
based on the current rate of amortization.
(2) On March 3, 1999, the Partnership made a $2,000,000 note payable with a
bank. The note is secured by Plainview Triad North, bears interest at
Prime - 1/4% and is due March 1, 2001.
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, 1998, the Partnership had no material commitments
for tenant finish improvements.
During the third quarter of 1997, the Partnership received notice that the
tenant that occupied approximately 65% of Plainview Triad North 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 the
3
<PAGE>
approximately 63,000 square feet that 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. In the opinion of the General Partner of the Partnership,
the six-month extension for the 11,000 square feet of space 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, currently estimated
to be from $700,000 to $1,000,000, 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 have been 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.
The renovation and leasing costs discussed above will be funded from loan
proceeds ($2,000,000 note payable discussed above) 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.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
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. See Note 10 in Item 8 for information regarding the
Partnership's operating segments.
NARRATIVE DESCRIPTION OF BUSINESS
GENERAL
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.
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, 1998 was approximately $14.69 per
square foot. Office space is ordinarily leased for between three to five years
with the majority of current leases providing for five year terms (1). Current
leases terminate between 1999 and 2004. Some of the leases have 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, 1998,
there were 9 tenants leasing office space aggregating approximately 115,000
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, architectural services, a
payroll processing center, a data processing center and management offices for a
regional grocery chain. Three tenants individually lease more than 10% of
Plainview Plaza II's rentable area. The occupancy levels as of December 31 were
100% (1998), 84% (1997),89% (1996), 82% (1995) and 88% (1994). See Item 7 for
average occupancy levels for the period ending December 31, 1998, 1997 and 1996.
(1) Excluding The Kroger Company lease. The current lease term is for a
period of eight
4
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years and four months. The Kroger Company has been a tenant of
Plainview Plaza II since 1979.
The following table contains approximate data concerning the leases in effect on
December 31, 1998.
<TABLE>
<CAPTION>
Current Base
Sq. Ft. and Annual Rental
% of Net and % of Gross
Year of Rentable Base Annual Renewal
No. of Tenants Expiration Area Rental Options
- --------------- --------- ------------ ---------------- ----------
<S> <C> <C> <C> <C>
Major tenants (1):
1 2002 20,368 (17.7%) $295,332 (20.1%) None
1 2003 16,937 (14.7%) $254,052 (17.3%) 1 Five-Year
1 2004 53,435 (46.5%) $567,660 (38.6%)(2) None
Other Tenants:
1 1999 2,121 (1.8%) $ 25,188 (1.7%) None
2 2000 9,462 (8.3%) $139,848 (9.5%) 3 One-Year
2 2001 5,852 (5.0%) $ 85,764 (5.8%) None
1 2002 6,839 (5.9%) $104,292 (7.1%) None
</TABLE>
(1) Major tenants are those that individually occupy 10 percent or more of
the rentable square footage.
(2) In accordance with the lease agreement, the tenant pays their own
electricity and cleaning costs thus the base rent is below $11.88 per
square foot.
PLAINVIEW TRIAD NORTH
Base annual rentals, which include the cost of utilities, currently range from
$12.65 to $15.20 per square foot. The average base rental as of December 31,
1998 was approximately $13.80 per square foot. Office space is ordinarily leased
for three to five years with the majority of current leases providing for three
year terms (1). Current leases terminate between 1999 and 2003. 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, 1998, there were 10 tenants leasing office space aggregating approximately
32,000 square feet of rentable area. The tenants who occupy Plainview Triad
North are professional service-oriented organizations. The principal
occupations/professions practiced include insurance, healthcare, mortgage broker
and sales. One tenant individually leases more than 10% of Plainview Triad
North's rentable area. The occupancy levels at the office building as of
December 31 were 35% (1998), 86% (1997), 91% (1996), 93% (1995) and 95% (1994).
See Item 7 for average occupancy levels for the period ending December 31, 1998,
1997 and 1996.
(1) Excluding an approximately 11,000 square foot lease renewal which
expires March 31, 1999. See discussion above.
The following table contains approximate data concerning the leases in effect on
December 31, 1998:
<TABLE>
<CAPTION>
Current Base
Sq. Ft. and Annual Rental
% of Net and % of Gross
Year of Rentable Base Annual Renewal
No. of Tenants Expiration Area Rental Options
- --------------- ----------- ------------ --------------- ----------
<S> <C> <C> <C> <C>
Major tenants (1):
1 1999 10,788 (11.6%) $148,584 (33.6%) None
Other Tenants:
4 1999 9,030 (9.7%) $118,625 (26.8%) None
None 2000 - - - - - -
2 2001 5,468 (5.9%) $ 78,156 (17.6%) None
1 2002 2,328 (2.5%) $ 33,720 (7.6%) None
2 2003 4,462 (4.8%) $ 63,660 (14.4%) None
</TABLE>
5
<PAGE>
(1) Major tenants are those that individually occupy 10 percent or more of
the rentable square footage.
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, $3.72 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, 1998 was
$6.41 per square foot. Office, warehouse and/or mezzanine storage space is
ordinarily leased for between three and five years with the majority of current
leases providing for three year terms. Current leases terminate between 1999 and
2004. 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, 1998, there were 49 tenants leasing office, warehouse and
storage space aggregating approximately 167,000 (1) square feet of rentable
area, none of which individually 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 89% (1998), 86% (1997), 85% (1996), 89% (1995) and 80%
(1994). See Item 7 for average occupancy levels for the period ending December
31, 1998, 1997 and 1996.
(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, 1998:
<TABLE>
<CAPTION>
Current Base
Sq. Ft. and Annual Rental
% of Net and % of Gross
Year o Rentable Base Annual Renewal
No. of Tenants Expiration Area (3) Rental Options
-------------- ---------- ------------- --------------- -----------
<S> <C> <C> <C> <C>
Major tenants (2):
None
Other tenants:
14 1999 56,752 (29.6%) $359,108 (32.8%) None
20 2000 71,625 (37.2%) $475,284 (43.8%) None
13 2001 30,350 (15.6%) $194,608 (17.8%) None
None 2002 - - - - - -
1 2003 5,960 (3.1%) $ 47,208 (4.3%) None
1 2004 2,100 (1.1%) $ 13,968 (1.3%) None
</TABLE>
(2) Major tenants are those that individually occupy 10 percent or more of
the rentable square footage.
(3) 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.
<TABLE>
<CAPTION>
Peachtree
Plainview Plainview Corporate
Plaza II Triad North Center
--------- ----------- ---------
<S> <C> <C> <C>
Federal tax basis $ 9,341,034 $ 7,305,303 $ 9,684,600
Realty tax rate $ .01111 $ .01111 $ .03445
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Peachtree
Plainview Plainview Corporate
Plaza II Triad North Center
--------- ----------- ---------
<S> <C> <C> <C>
Annual realty taxes $ 61,842 $ 47,841 $ 96,355
</TABLE>
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.
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, 1998, 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 $186,416 for the
year ended December 31, 1998. 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, 1998, the
Management Agreement is still in effect.
WORKING CAPITAL PRACTICES
Information about the Partnership's working capital practices is included in
Management Discussion and Analysis of Financial Condition and Results of
Operations in Part II, Item 7.
SEASONAL OPERATIONS
7
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The Partnership does not consider its operations to be seasonal to any material
degree.
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. (See Item 8 Note 8 for further discussion of related party
transactions).
GOVERNMENTAL CONTRACTS AND REGULATIONS
No portion of the Partnership's business is subject to renegotiation of profits
or termination of contracts or sub-contracts at the election of the United
States Government.
Item 3. LEGAL PROCEEDINGS
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
8
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PART II
Item 5. MARKET FOR REGISTRANT'S LIMITED PARTNERSHIP INTERESTS AND RELATED
PARTNER MATTERS
The Partnership had 921 limited partners as of March 1, 1999. 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 1998 financial statements.
Annual distributions totaling $7.50 were paid per limited partnership unit
during 1996. No distribution was made during 1998 and 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:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
First quarter $ -- $ -- $ 2.50
Second quarter -- -- 2.50
Third quarter -- -- 2.50
Fourth quarter -- -- --
---- ---- ----
$ -- $ -- $ 7.50
---- ---- ----
</TABLE>
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, 1998, 1997 and 1996. The General Partner did not
receive a distribution during these years. Distributions were funded by cash
flow derived from operating activities.
<TABLE>
<CAPTION>
Cash
Net Income Distributions Return of
Allocated Declared Capital
---------- ------------- ---------
<S> <C> <C> <C>
Limited Partners:
1998 $ 299,838 $ -- $ --
1997 239,206 -- --
1996 284,097 108,018 --
</TABLE>
9
<PAGE>
Item 6. SELECTED FINANCIAL DATA
For the years ended December 31, 1998, 1997, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total revenues $ 3,698,431 $ 3,426,290 $ 3,265,631 $ 3,073,103 $ 2,960,275
Total expenses (3,426,517) (3,291,720) (3,076,384) (3,262,493) (3,157,866)
------------ ------------ ------------ ----------- -----------
Net income (loss) before 271,914 134,570 189,247 (189,390) (197,591)
extraordinary item
Extraordinary item (65,258) -- -- -- --
------------ ------------ ------------ ----------- -----------
Net income (loss) $ 206,656 $ 134,570 $ 189,247 $ (189,390) $ (197,591)
------------ ------------ ------------ ----------- -----------
------------ ------------ ------------ ----------- -----------
Net income(loss) allocated
to:
General Partner $ (93,182) $ (104,636) $ (94,850) $ (102,894) $(100,529)
Limited partners $ 299,838 $ 239,206 $ 284,097 $ (86,496) $ (97,062)
Net income (loss) per limited
partnership unit $ 21.64 $ 17.00 $ 19.70 $ (5.58) $ (6.22)
Weighted average number
of limited partnership
units 13,855 14,072 14,418 15,495 15,600
Cumulative net income (loss) allocated to:
General Partner $(2,488,303) $(2,395,121) $(2,290,485) $(2,195,635) $(2,092,741)
Limited partners $ (374,639) $ 74,801 $ (164,405) $ (448,502) $ (362,006)
Cumulative taxable income (loss)
allocated to:
General Partner $(2,578,046) $(2,737,694) $(2,845,410) $(2,696,785) $(2,545,416)
Limited partners $ (694,314) $ (851,088) $ (682,815) $(928,736) $(926,612)
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 $11,349,845 $11,241,827 $11,087,702
At year end:
Land, buildings and
amenities, net $10,219,334 $ 9,828,962 $ 8,850,783 $ 9,585,286 $10,242,936
Total assets $11,170,156 $11,122,316 $ 10,975,886 $11,120,854 $11,862,286
Mortgages Payable $ 6,656,145 $ 6,734,603 $ 6,859,637 $ 6,964,619 $ 7,060,749
</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.
10
<PAGE>
Item 7. 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 8 and the cautionary statements below.
The occupancy levels at the Partnership's properties as of December 31 were as
follows:
<TABLE>
<CAPTION>
1998(1) 1997 1996
------- ---- ----
<S> <C> <C> <C>
Plainview Plaza II 100% 84% 89%
Plainview Triad North (2) 35% 86% 91%
Peachtree Corporate Center 89% 86% 85%
</TABLE>
(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 year-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 as of December 31
were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Plainview Plaza II 98% 88% 84%
Plainview Triad North 75% 90% 93%
Peachtree Corporate Center 87% 86% 93%
</TABLE>
The following is an analysis of material changes in results of operations for
the periods ending December 31, 1998, 1997 and 1996. Items that did not have a
material impact on operations for the periods listed above have been eliminated
from this discussion.
RENTAL AND OTHER INCOME
The rental and other income generated by the Partnership's properties for the
years ended December 31 1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ----
<S> <C> <C> <C>
Plainview Plaza II $1,484,593 $1,244,744 $1,091,826
Plainview Triad North $1,045,951 $1,057,964 $1,017,816
Peachtree Corporate Center $1,153,808 $1,088,708 $1,108,933
</TABLE>
11
<PAGE>
RENTAL AND OTHER INCOME increased approximately $300,000 or 10% in 1998. The
increase in rental and other income is primarily a result of increased rental
rates on lease renewals and increased average occupancy at Peachtree Corporate
Center and Plainview Plaza II and increased cost recovery income at all of the
Partnership's properties. These increases are partially offset by decreased
average occupancy at Plainview Triad North.
Year-ending occupancy percentages represent occupancy only on a specific date;
therefore, the above analysis considers average occupancy percentages which are
representative of the entire year's results.
RENTAL AND OTHER INCOME increased approximately $193,000 or 7% in 1997. The
increase in rental and other income was a result of increased rental rates on
lease renewals at Plainview Plaza II and Plainview Triad North, increased cost
recovery income at all the Partnership's properties and increased average
occupancy at Plainview Plaza II. These increases are partially offset by
decreased average occupancy at Plainview Triad North and Peachtree Corporate
Center.
RENTAL INCOME - AFFILIATED decreased approximately $20,000 or 6% in 1997 as a
result of NTS Development Company, an affiliate of the General Partners,
decreasing its leased space.
INTEREST AND OTHER INCOME includes interest income earned from short-term
investments made by the Partnership with cash reserves. Interest income
decreased approximately $24,000 or 59% in 1998 and decreased approximately
$13,000 or 24% in 1997 primarily as a result of a decrease in cash reserves
available for investment.
OPERATING EXPENSES increased approximately $88,000 or 11% in 1998. The increase
in operating expenses was primarily driven by the increased occupancy at
Plainview Plaza II which resulted in increased janitorial, utility and restroom
supply costs. The increase in operating expenses was also a result of the cost
to seal and stripe the parking lot at Plainview Triad North.
OPERATING EXPENSES increased approximately $96,000 or 14% in 1997 primarily 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 - AFFILIATED decreased approximately $28,000 or 6% in 1998
primarily as a result of decreased leasing costs partially offset by increased
property management costs. Operating expenses - affiliated are expenses incurred
for services performed by employees of NTS Development Company, an affiliate of
the General Partner.
OPERATING EXPENSES - AFFILIATED increased approximately $126,000 or 40% in 1997
as 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 operating expenses - affiliated is partially offset by a
decrease in property management costs at Peachtree Corporate Center.
The 1998 and 1997 WRITE-OFF OF UNAMORTIZED BUILDING, LAND AND TENANT
IMPROVEMENTS can primarily 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
improvements at Plainview Plaza II is the result of renovations of the sidewalks
and landscaping during 1997. The write-off of unamortized building and land
improvements represents the cost of assets which had not been fully depreciated.
12
<PAGE>
AMORTIZATION OF CAPITALIZED LEASING COSTS increased approximately $15,000 in
1997 as a result of a special tenant allowance paid to a major tenant at
Plainview Plaza II in October 1996.
INTEREST EXPENSE decreased approximately $56,000 or 11% in 1998 as the result of
a lower interest rate (6.89%) on the $6,800,000 debt financing obtained by the
Partnership on April 1, 1998. Prior to the new financing, the Partnership's debt
bore interest at a fixed rate of 9.125% (on an approximately $2,200,000 mortgage
payable) and a variable rate based on the 10-year treasury bill rate plus 60
basis points (on a $4,500,000 mortgage payable). The variable interest rate
which adjusts quarterly was 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 1997 to
March 1998. The decrease in interest expense in 1998 is also a result of
principal payments made.
INTEREST EXPENSE decreased approximately $34,000 or 6% in 1997 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 decrease in
interest expenses is also due to continued principal payments on the
approximately $2,200,000 mortgage payable.
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.
PROFESSIONAL AND ADMINISTRATIVE EXPENSES increased approximately $14,000 or 23%
in 1998 primarily as a result of costs incurred in connection with the Tender
Offer (see discussion below).
PROFESSIONAL AND ADMINISTRATIVE EXPENSES - AFFILIATED decreased approximately
$12,000 or 8% in 1997 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 AND AMORTIZATION increased approximately $137,000 or 16% in 1998 is
the result of assets being placed in service. Assets placed in service are
primarily tenant improvements at all the Partnership's properties and exterior
building and land improvement costs at Plainview Plaza II. The increase in
depreciation and amortization expense is partially offset by a portion of the
Partnership's assets (primarily tenant finish improvements) becoming fully
depreciated. Depreciation is computed using 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 costs of the
Partnership's properties for Federal tax purposes is approximately $26,341,200.
DEPRECIATION AND AMORTIZATION decreased approximately $63,000 or 7% in 1997 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 primarily tenant, building and land
improvements.
The 1998 WRITE-OFF OF UNAMORTIZED LOAN COSTS (recorded as an extraordinary item)
relates to the loan costs associated with two mortgages of the Partnership. The
unamortized loan costs were expensed due to the fact that the mortgages were
repaid April 1, 1998 prior to their maturity (November 1998 and June 2001) as a
result of a new mortgage loan obtained April 1, 1998 as discussed above.
CONSOLIDATED CASH FLOWS AND FINANCIAL CONDITION
The majority of the Partnership's cash flow is derived from operating
activities.
13
<PAGE>
Cash flows used in investing activities are for tenant finish improvements and
other capital additions and are funded by operating activities and cash
reserves. Changes to current tenant improvements are a typical part of any lease
negotiation. Improvements generally include a revision to the current floor plan
to accommodate a tenant's needs, new carpeting and paint and/or wallcovering.
The extent and cost of these improvements are determined by the size of the
space and whether the improvements are for a new tenant or incurred because of a
lease renewal. Cash flows used in investing activities also include 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 maturity of
investment securities. Cash flows provided by investing activities also include
the release of funds escrowed as required by a loan agreement. The funds were
required to be escrowed for the replacement of the HVAC system and asphalt
paving at Peachtree Corporate Center. The balance in the escrow was returned to
the Partnership when the loan was repaid in 1998. 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 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 April 1, 1998. 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 1998 and new debt financing
obtained subsequent to year end.
Cash flows provided by (used in):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Operating activities $1,295,737 $ 1,075,282 $947,953
Investing activities (967,030) (1,366,451) (479,330)
Financing activities (361,803) (13,574) (523,824)
---------- ----------- ---------
Net decrease in cash and
equivalents $ (33,096) $ (304,743) $(55,201)
---------- ----------- ---------
---------- ----------- ---------
</TABLE>
Net cash provided by operating activities increased approximately $220,000 or
21% in 1998. This increase was primarily driven by depreciation and
amortization, other non-cash changes and an increase in net income before
extraordinary item, depreciation and amortization and other non-cash charges.
Net cash provided by operating activities increased approximately $127,000 or
13% in 1997. The increase was driven by an overall decrease in net working
capital assets and liabilities (excluding cash) primarily due to increased other
liabilities.
Net cash used in investing activities was $967,030, $1,366,451 and $479,330 in
1998, 1997 and 1996, respectively. Net cash used in investing activities
decreased in 1998 as compared to 1997 as a result of increased funds received
from the escrow which was required by a loan agreement and the fact that no
investment securities were purchased during 1998. Net cash used in investing
activities increased in 1997 as compared to 1996 primarily as a result of
increased capital expenditures and decreased funds received from the escrow, and
net purchases of investment securities over maturities.
Net cash used in financing activities was $361,803, $13,574 and $523,824 in
1998, 1997 and 1996, respectively. Net cash used in financing activities
increased in 1998 as compared to 1997 as a result of funds being reserved for
the purchase of limited partnership Units through the Tender Offer, higher
repurchases of limited partnership Units through the Interest Repurchase Reserve
and the payment of loan costs. Net cash used in financing activities decreased
in 1997 as compared to 1996 as a result of decreased cash distributions and
fewer repurchases of limited partnership Units through the Interest Repurchase
Reserve.
14
<PAGE>
The Partnership indefinitely suspended distributions starting December 31, 1996
as a result of the anticipated decrease in occupancy at Plainview Triad North.
During 1996, a .75% (annualized) cash distribution in the amount of $108,018 was
made. The annualized distribution rate is calculated as a percent of the initial
equity. The limited partners received 100% of these distributions. Cash reserves
(which are unrestricted cash and equivalents and investment securities as shown
on the Partnership's balance sheet as of December 31) were $233,844, $368,531
and $571,683 at December 31, 1998, 1997 and 1996, 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 subsequent to
December 31, 1998 will be sufficient to meet the needs of the Partnership. As of
December 31, 1998, the Partnership had no material commitments for tenant finish
improvements.
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, 1998, 1997 and 1996. The General Partner did not
receive a distribution during these years. Distributions were funded by cash
flow derived from operating activities.
<TABLE>
<CAPTION>
Cash
Net Income Distributions Return of
Allocated Declared Capital
---------- ------------- ---------
<S> <C> <C> <C>
Limited Partners:
1998 $299,838 $ -- $ --
1997 239,206 -- --
1996 284,097 108,018 --
</TABLE>
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.
Through December 31, 1998, the Partnership has repurchased a total of 1,830
Units for $393,240 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 funds remaining in the
Interest Repurchase Reserve at the commencement of the Tender Offer (discussed
below) were returned to unrestricted cash for utilization in the Partnership's
operations.
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. Approximately $285,000 ($250,000 to purchase 1,000 Units plus
approximately $35,000 for expenses associated with the Offer) is required to
purchase all 1,000 Units. The offer stated that the Partnership will purchase
the first 500 Units tendered and will fund its purchases and its portion of the
expenses from cash reserves. If more than 500 Units are tendered, ORIG, LLC will
purchase up to an additional 500 Units. If more than 1,000 Units are tendered,
15
<PAGE>
the Partnership and ORIG, LLC may choose to acquire the additional Units on the
same terms. Otherwise, tendered Units will be purchased on a pro rata basis up
to 1,000. Units that are acquired by the Partnership will be retired. The
General Partner, NTS-Properties Associates, does not intend to participate in
the Tender Offer.
Under the terms of the Offer, the Offer was to expire December 29, 1998 unless
extended. As of December 29, 1998, 729 Units were tendered pursuant to the
Offer. 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 of the Offer has been
extended to March 31, 1999 and any or all properly tendered units will be
accepted.
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 $55,000 over 1998 and 1999. Costs incurred through December 31,
1998 are 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
16
<PAGE>
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.
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 subsequent to December 31, 1998. At December 31, 1998, a
hypothetical 100 basis point increase in interest rates would result in an
approximately $420,000 decrease in the fair value of debt.
CAUTIONARY STATEMENTS
Some of the statements included in Items 1 and 2, Business and Properties and
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.
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.
17
<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, 1998 and 1997, and the related
statements of operations, partners' equity and cash flows for each of the three
years in the period ended December 31, 1998. 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, 1998 and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1998 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 35 and 36
are presented for purposes of complying with the Securities and Exchange
Commission's rules and regulations 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 12, 1999
18
<PAGE>
NTS-PROPERTIES III
BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
ASSETS
Cash and equivalents $ 233,844 $ 266,940
Cash and equivalents - restricted 139,350 284,599
Investment securities -- 101,591
Accounts receivable, net of allowance
for doubtful accounts of $3,034 (1998) and $42,035 (1997)
184,327 269,922
Land, buildings and amenities, net 10,219,334 9,828,962
Other assets 393,301 370,302
------------ -----------
$11,170,156 $11,122,316
------------ -----------
------------ -----------
LIABILITIES AND PARTNERS' EQUITY
Mortgages payable $6,656,145 $ 6,734,603
Accounts payable--operations 40,632 36,773
Accounts payable - construction 180,272 102,655
Security deposits 98,611 103,816
Other liabilities 73,550 155,179
------------ -----------
7,049,210 7,133,026
Commitments and contingencies (Note 9)
Partners' equity 4,120,946 3,989,290
------------ -----------
$ 11,170,156 $11,122,316
------------ -----------
------------ -----------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
19
<PAGE>
NTS-PROPERTIES III
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenues:
Rental income, net of provision for
doubtful accounts of $1,943 (1998), $28,661 (1997) and $53,043 (1996) $ 3,386,729 $ 3,090,978 $ 2,898,415
Rental income--affiliated 295,336 295,031 314,499
Interest and other income 16,366 40,281 52,717
----------- ----------- -----------
3,698,431 3,426,290 3,265,631
Expenses:
Operating expenses 882,594 794,637 699,602
Operating expenses--affiliated 412,338 440,458 313,956
Write-off of unamortized building, land and tenant
improvements 48,108 86,406 --
Amortization of capitalized leasing costs
25,481 24,423 9,707
Interest Expense 468,749 524,901 558,878
Management fees 186,416 168,006 158,463
Real estate taxes 206,038 206,603 210,797
Professional and administrative
expenses 74,514 60,604 64,251
Professional and administrative
expenses - affiliated 133,297 133,969 145,814
Depreciation and amortization 988,982 851,713 914,916
----------- ----------- -----------
3,426,517 3,291,720 3,076,384
----------- ----------- -----------
Net income before extraordinary item 271,914 134,570 189,247
Extraordinary item-write-off of unamortized loan
costs (65,258) -- --
----------- ----------- -----------
Net income $ 206,656 $ 134,570 $ 189,247
----------- ----------- -----------
----------- ----------- -----------
Net income allocated to the limited partners:
Income before extraordinary item $ 364,443 $ 239,206 $ 284,097
Extraordinary item (64,605) -- --
----------- ----------- -----------
Net income $ 299,838 $ 239,206 $ 284,097
----------- ----------- -----------
----------- ----------- -----------
Net income per limited partnership Unit:
Income before extraordinary item $ 26.30 $ 17.00 $ 19.70
Extraordinary item (4.66) -- --
----------- ----------- -----------
Net income $ 21.64 $ 17.00 $ 19.70
----------- ----------- -----------
----------- ----------- -----------
Weighted average number of Units 13,855 14,072 14,418
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
20
<PAGE>
NTS-PROPERTIES III
STATEMENTS OF PARTNERS' EQUITY (1)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
Limited General
Partners Partners Total
-------- -------- -----
<S> <C> <C> <C>
Balances at December 31, 1995 $ 3,753,671 $ 182,060 $ 3,935,731
Net income (loss) 284,097 (94,850) 189,247
Distributions declared (108,018) -- (108,018)
Repurchase of limited partnership units (156,832) -- (156,832)
----------- ----------- -----------
Balance 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
Net income (loss) 299,838 (93,182) 206,656
Repurchase of limited partnership units (75,000) -- (75,000)
----------- ----------- -----------
Balances at December 31, 1998 $ 4,231,554 $ (110,608) $ 4,120,946
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
(1) For the periods presented, there are no elements of other comprehensive
income as defined by the Financial Accounting Standards Board, Statement of
Financial Accounting Standards Statement No. 130, REPORTING COMPREHENSIVE
INCOME.
21
<PAGE>
NTS-PROPERTIES III
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 206,656 $ 134,570 $ 189,247
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for doubtful accounts 1,943 28,661 53,043
Accrued interest on investment securities 923 (923) 1,402
Write-off of unamortized building, land and
tenant improvements 48,108 86,406 --
Write-off of unamortized loan costs 65,258 -- --
Amortization of capitalized leasing costs 25,481 24,423 9,707
Depreciation and amortization 988,983 851,713 914,916
Change in assets and liabilities:
Cash and equivalents--restricted (3,384) (4,595) (446)
Accounts receivable 83,652 (99,613) (75,202)
Other assets (38,907) (39,079) (165,294)
Accounts payable--operations 3,859 (60,929) 24,895
Security deposits (5,205) 10,882 (2,560)
Other liabilities (81,630) 143,766 (1,755)
----------- ----------- -----------
Net cash provided by operating activities 1,295,737 1,075,282 947,953
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to land, buildings, amenities and
construction in progress (1,341,331) (1,270,002) (685,003)
Decrease in cash equivalents - restricted 273,633 4,219 104,020
Purchase of investment securities -- (304,521) (855,999)
Maturity of investment securities 100,668 203,853 957,652
----------- ----------- -----------
Net cash used in investing activities (967,030) (1,366,451) (479,330)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in mortgage payable 6,800,000 -- --
Cash distributions -- -- (145,142)
Principal payments on mortgages payable (6,878,458) (125,034) (104,982)
Increase in loan costs (83,345) -- --
Repurchase of limited partnership Units (75,000) (5,408) (156,832)
Decrease (increase)in cash and equivalent
--restricted (125,000) 116,868 (116,868)
----------- ----------- -----------
Net cash used in financing activities (361,803) (13,574) (523,824)
----------- ----------- -----------
Net decrease in cash and equivalents (33,096) (304,743) (55,201)
----------- ----------- -----------
CASH AND EQUIVALENTS, beginning of period 266,940 571,683 626,884
----------- ----------- -----------
CASH AND EQUIVALENTS, end of period $ 233,844 $ 266,940 $ 571,683
----------- ----------- -----------
----------- ----------- -----------
Interest paid on a cash basis $ 444,145 $ 570,819 $ 560,389
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
22
<PAGE>
NTS-PROPERTIES III
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
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.
23
<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 for financial statement
purposes and for income tax reporting is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net income $ 206,656 $ 134,570 $ 189,247
Items handled differently for tax purposes:
Depreciation 409,636 (204,471) (111,830)
Write-off of unamortized
building and tenant
improvements (116,602) (86,819) (22,864)
Rental income (145,195) 139,596 47,180
Allowance for doubtful
accounts (39,001) (39,945) (8,352)
Other 928 (3,490) 3,915
--------- --------- ---------
Taxable income(loss) $ 316,422 $ (60,559) $ 97,296
--------- --------- ---------
--------- --------- ---------
</TABLE>
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 at Peachtree Corporate Center is
replaced (December 1997 balance only), 2) funds which have
been escrowed with a mortgage company for NTS Plainview Plaza
II's property taxes in accordance with the loan agreement, 3)
funds which the partnership has reserved for the repurchase of
limited Partnership Units, (December 1997 balance only) and 4)
funds which the Partnership has reserved for the repurchase of
limited partnership Units under the Tender Offer (December
1998 balance only) (see Note 4). The funds escrowed for HVAC
system replacements were released April 1, 1998 when the
$4,500,000 mortgage payable to an insurance company was
repaid.
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 1998, 1997, and 1996, the Partnership sold no
investment securities. As of December 31, 1998, the
Partnership held no investment securities.
24
<PAGE>
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
G) INVESTMENT SECURITIES - CONTINUED
The following provides details regarding the investments held
at December 31, 1997:
<TABLE>
<CAPTION>
Amortized Maturity Value at
Type Cost Date Maturity
---- --------- -------- --------
<S> <C> <C> <C>
Certificate of deposit $101,591 02/13/98 $102,232
--------- -------- --------
--------- -------- --------
</TABLE>
8) 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, 1998, 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 $129,197 and
$52,072 at December 31, 1998 and 1997, 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, 1998, 1997 and 1996.
K) STATEMENTS OF CASH FLOWS
For purposes of reporting cash flows, cash and equivalents
include cash on hand and short-term, highly liquid
25
<PAGE>
investments with initial maturities of three months or less.
L) RECLASSIFICATIONS OF 1997 FINANCIAL STATEMENTS
Certain reclassifications have been made to the December 31,
1997financial statements to conform with December 31, 1998
classifications. These reclassifications have no material
effect on previously reported operations.
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. 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 through December 31, 1998, the
Partnership has repurchased a total of 1,830 Units for $393,240 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 funds remaining in the Interest Repurchase Reserve at the
commencement of the Tender Offer (see Note 4) were returned to
unrestricted cash for utilization in the Partnership's operations.
4. 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. Approximately $285,000 ($250,000 to
purchase 1,000 Units plus approximately $35,000 for expenses associated
with the Offer) is required to purchase all 1,000 Units. The offer
stated that the Partnership will purchase the first 500 Units tendered
and will fund its purchases and its portion of the expenses from cash
reserves. If more than 500 Units are tendered, ORIG, LLC will purchase
up to an additional 500 Units. If more than 1,000 Units are tendered,
the Partnership and ORIG, LLC may choose to acquire
26
<PAGE>
the additional Units on the same terms. Otherwise, tendered Units will
be purchase on a pro rata basis up to 1,000. Units that are acquired by
the Partnership will be retired. The General Partner, NTS-Properties
Associates, does not intend to participate in the Tender Offer. Under
the terms of the Offer, the Offer was to expire December 29, 1998
unless extended.
As of December 29, 1998, 729 Units were tendered pursuant to the Offer.
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 has been extended to March 31, 1999 and any or all properly
tendered units will be accepted.
5. LAND, BUILDINGS AND AMENITIES
The following schedule provides an analysis of the Partnership's
investment in property held for lease as of December 31:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Land and improvements $ 4,737,375 $ 4,583,398
Buildings and improvements 21,481,396 20,645,400
Amenities 122,429 126,788
----------- -----------
26,341,200 25,355,586
Less accumulated depreciation 16,121,866 15,526,624
----------- -----------
$10,219,334 $ 9,828,962
----------- -----------
----------- -----------
</TABLE>
6. MORTGAGES PAYABLE
Mortgages payable as of December 31 consist of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Mortgage payable to an insurance company, bearing interest at
6.89%, maturing April 10, 2015, secured by land and building $ 6,656,145 $ --
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Mortgage payable to an insurance company, bearing interest at
9.125%, maturing November 1, 1998 secured by land and building
-- 2,234,603
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
----------- -----------
$ 6,656,145 $ 6,734,603
----------- -----------
----------- -----------
</TABLE>
The mortgage is payable in monthly installments of $56,650, which
includes principal, interest and property tax escrow.
Scheduled maturities of debt are as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31, Amount
-------------------------------- ---------
<S> <C>
1999 $ 228,522
2000 244,774
2001 262,182
2002 280,828
2003 300,800
Thereafter 5,339,039
-----------
$ 6,656,145
-----------
-----------
</TABLE>
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.
6. MORTGAGES PAYABLE - CONTINUED
Subsequent to December 31, 1998, the Partnership made a $2,000,000 note
payable with a bank. The note is secured by Plainview Triad North,
bears interest at the Prime Rate - 1/4% and is due March 1, 2001.
7. RENTAL INCOME UNDER OPERATING LEASES
The following is a schedule of minimum future rental income on
noncancellable operating leases as of December 31, 1998:
<TABLE>
<CAPTION>
For the Years Ended December 31, Amount
-------------------------------- ---------
<S> <C>
1999 $ 2,446,061
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
2000 2,000,339
2001 1,541,894
2002 996,858
2003 708,574
Thereafter 615,924
-----------
$ 8,309,650
-----------
-----------
</TABLE>
8. RELATED PARTY TRANSACTIONS
Property management fees of $186,416 (1998), $168,006 (1997) and
$158,463 (1996) 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 $80,897 and $74,367 as a repair and maintenance fee during
the years ended December 31, 1998 and 1997, 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, 1998, 1997 and 1996. These charges include items which
have been expensed as operating expenses - affiliated or professional
and administrative expenses - affiliated and items which have been
capitalized as other assets or as land, buildings and amenities.
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Leasing $169,294 $279,851 $144,372
Administrative 132,949 166,422 175,414
Property manager 230,315 171,324 182,750
Other 59,411 28,460 21,515
-------- -------- --------
$591,969 $646,057 $524,051
-------- -------- --------
-------- -------- --------
</TABLE>
During 1998, NTS Development Company leased 20,368 square feet in
Plainview Plaza II at a rental rent of $14.50 per square foot. The
Partnership received approximately $295,000 in rental payments from NTS
Development Company during 1998.
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 received approximately $295,000 in rental payments from NTS
Development Company during 1997.
During the year ended December 31, 1996, 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.
9. COMMITMENTS AND CONTINGENCIES
29
<PAGE>
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 will 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 that 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. In the opinion of the General
Partner of the Partnership, the six-month extension for the 11,000
square feet of space 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, currently estimated to be
from $700,000 to $1,000,000, 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 have been 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.
The renovation and leasing costs discussed above will be funded from
loan proceeds ($2,000,000 note payable obtained March 3, 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.
10. 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
that is Commercial real estate operations.
11. SUBSEQUENT EVENT
On March 3, 1999 the Partnership made a $2,000,000 note payable with a
bank. The note is secured by Plainview Triad North, bears interest at
Prime - 1/4% and is due March 1, 2001. A portion of the proceeds of the
note will be used for renovation costs of the common area and exterior
building at Plainview Triad North. The proceeds will also be needed for
leasing expenses, especially those needed to refinish space for new
tenants.
30
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
31
<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 57) 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 69) 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 S.N. Alliance, Inc. S.N. Alliance, Inc. is also the parent
corporation of Stifle, Nicolas & Company, Inc. which acted as the Dealer Manager
in connection with the offering for the interests.
GARY D. ADAMS
Mr. Adams (age 53) 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 51) 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 and Brian F. Lavin.
RICHARD L. GOOD
Mr. Good (age 59), Vice Chairman of NTS Corporation and 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.
32
<PAGE>
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - CONTINUED
BRIAN F. LAVIN
Mr. Lavin (age 45), President of NTS Corporation and NTS Development Company
joined the Manager in June 1998. 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.
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 8 to the financial
statements which sets forth transactions with NTS Development Company for the
years ended December 31, 1998, 1997 and 1996.
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%.
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:
<TABLE>
<CAPTION>
<S> <C>
J. D. Nichols
10172 Linn Station Road 86.07%
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
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
</TABLE>
34
<PAGE>
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT -
CONTINUED
<TABLE>
<CAPTION>
<S> <C>
NTS Capital Corporation
10172 Linn Station Road 2.67%
Louisville, Kentucky 40223
Alliance Realty Corporation
500 North Broadway 0.10%
St. Louis, Missouri 63102
</TABLE>
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Property management fees of $186,416 (1998), $168,006 (1997) and $158,463 (1996)
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 $80,897 and $74,367 and as a repair and maintenance fee
during the years ended December 31, 1998 and 1997, 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, 1998, 1997 and 1996. These
charges include items which have been expensed as operating expenses -
affiliated or professional and administrative expenses - affiliated and items
which have been capitalized as other assets or as land, buildings and amenities.
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Leasing $169,294 $279,851 $144,372
Administrative 132,949 166,422 175,414
Property manager 230,315 171,324 182,750
Other 59,411 28,460 21,515
-------- -------- --------
$591,969 $646,057 $524,051
-------- -------- --------
-------- -------- --------
</TABLE>
During 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 $295,000 in rental payments from NTS Development Company during
1998.
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 received approximately $295,000 in rental
payments from NTS Development Company during 1997.
During the year ended December 31, 1996, 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.
35
<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, 1998, 1997,
1996 together with the report of Arthur Andersen LLP dated March 12,
1999, appear in Item 8. The following financial statement schedules
should be read in conjunction with such financial statements.
2. Financial statement schedules
<TABLE>
<CAPTION>
Schedules: PAGE NO.
----------
<S> <C>
III - Real Estate and Accumulated Depreciation 37-38
</TABLE>
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
<TABLE>
<CAPTION>
Exhibit No. Page No.
---------- ----------
<S> <C>
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.
</TABLE>
4. Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended
December 31, 1998.
36
<PAGE>
NTS-PROPERTIES III
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
Peachtree
Plainview Plainview Corporate
Plaza II Triad North Center Total
--------- ----------- ---------- -----
<S> <C> <C> <C> <C>
Encumbrances (A)
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 2,998,258 1,575,245 2,045,111 6,618,614
Carrying costs -- -- -- --
Gross amount at which carried December 31, 1998 (C):
Land $ 1,765,889 $ 1,300,079 $ 1,671,407 $ 4,737,375
Buildings and improvements 7,575,145 6,005,224 8,013,193 21,593,562
----------- ----------- ----------- ---------------
Total $ 9,341,034 $ 7,305,303 $ 9,684,600 $26,330,937 (D)
----------- ----------- ----------- ---------------
Accumulated depreciation $ 4,963,561 $ 4,250,845 $ 6,907,460 $16,121,866
----------- ----------- ----------- ---------------
----------- ----------- ----------- ---------------
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 (C) (C) (C)
</TABLE>
(A) First mortgage held by an insurance company.
(B) Aggregate cost of real estate for tax purposes is $26,341,200.
(C) 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.
(D) Reconciliation, net of accumulated depreciation to consolidated
financial statements:
<TABLE>
<S> <C>
Total Gross Cost at December 31, 1998 $ 26,330,937
Additions to Partnership for computer hardware and software in 1998 10,263
------------
</TABLE>
37
<PAGE>
<TABLE>
<S> <C>
Balance at December 31, 1998 26,341,200
Less Accumulated Depreciation (16,121,866)
------------
Land, Buildings and amenities, net at December 31, 1998 $ 10,219,334
------------
------------
</TABLE>
NTS-PROPERTIES III
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Real Accumulated
Estate Depreciation
<S> <C> <C>
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
Additions during period:
Improvements (a) 1,458,427 --
Depreciation (b) -- 980,469
Deductions during period:
Retirements (433,336) (385,227)
------------ ------------
Balances at December 31, 1998 $ 26,341,200 $ 16,121,866
------------ ------------
------------ ------------
</TABLE>
(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.
38
<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/ BRIAN F. LAVIN
----------------------------------
Brian F. Lavin
President
Date: March 31, 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
- ------------------------------------ Associates and Chairman of the Board and
J. D. Nichols Sole Director of NTS Capital Corporation
/S/ RICHARD L. GOOD
- ------------------------------------
Richard L. Good Vice Chairman of NTS Capital Corporation
/S/ BRIAN F. LAVIN President and Chief Operating Officer of
- ------------------------------------ NTS Capital Corporation (acting as Chief
Brian F. Lavin Financial Officer)
The Partnership is a limited partnership and no proxy material has been sent to
the limited partners.
39
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from the balance
sheet as of December 31, 1998 and from the statement of operations for
the year ended December 31, 1998 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 373,194
<SECURITIES> 0
<RECEIVABLES> 184,327
<ALLOWANCES> 3,034
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 10,219,334
<DEPRECIATION> 16,121,866
<TOTAL-ASSETS> 11,170,156
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 6,656,145
0
0
<COMMON> 0
<OTHER-SE> 4,120,946
<TOTAL-LIABILITY-AND-EQUITY> 11,170,156
<SALES> 3,386,729
<TOTAL-REVENUES> 3,698,431
<CGS> 0
<TOTAL-COSTS> 2,957,768
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,943
<INTEREST-EXPENSE> 468,749
<INCOME-PRETAX> 271,914
<INCOME-TAX> 0
<INCOME-CONTINUING> 271,914
<DISCONTINUED> 0
<EXTRAORDINARY> 65,258
<CHANGES> 0
<NET-INCOME> 206,656
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>The partnership has an unclassified balance sheet; therefore, the value is $0.
</FN>
</TABLE>
