UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
--------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------------- ---------------------------
Commission File Number 0-11176
----------------------------------------------------------
NTS-PROPERTIES III
- --------------------------------------------------------------------------------
(Exact name of the 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, KY 40223
- ------------------------------- -----------------------------------
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number,
including area code: (502) 426-4800
-----------------------------------
Not Applicable
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed with
since last report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by the Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
YES __X___ NO _____
Exhibit Index: See page 17
Total Pages: 18
<PAGE>
TABLE OF CONTENTS
-----------------
Pages
-----
PART I
------
Item 1. Financial Statements
Balance Sheets and Statement of Partners' Equity
as of September 30, 1999 and December 31, 1998 3
Statements of Operations
For the three months and nine months ended
September 30, 1999 and 1998 4
Statements of Cash Flows
For the nine months ended September 30, 1999
and 1998 5
Notes to Financial Statements
6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-16
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 16
PART II
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
<TABLE>
NTS-PROPERTIES III
------------------
BALANCE SHEETS AND STATEMENTS OF PARTNERS' EQUITY
-------------------------------------------------
<CAPTION>
As of As of
September 30, 1999 December 31, 1998
------------------ -----------------
ASSETS
- ------
<S> <C> <C>
Cash and equivalents $ 226,108 $ 233,844
Cash and equivalents - restricted 179,948 139,350
Accounts receivable, net of
allowance for doubtful accounts of
$16,954 at September 30, 1999 and
$3,034 at December 31, 1998 180,671 184,327
Land, buildings and amenities, net 9,090,265 9,834,002
Construction in progress 1,685,222 385,332
Other assets 506,021 393,301
------------ ------------
Total assets $ 11,868,235 $ 11,170,156
============ ============
LIABILITIES AND PARTNERS' EQUITY
- --------------------------------
Mortgages payable $ 7,774,760 $ 6,656,145
Accounts payable - operations 145,320 40,632
Accounts payable - construction 283,587 180,272
Security deposits 140,161 98,611
Other liabilities 159,433 73,550
------------ ------------
8,503,261 7,049,210
Commitments and contingencies
Partners' equity 3,364,974 4,120,946
------------ ------------
Total liabilities and partners'
equity $ 11,868,235 $ 11,170,156
============ ============
</TABLE>
<TABLE>
<CAPTION>
Limited General
Partners Partner Total
-------- ------- -----
PARTNERS' EQUITY
- ----------------
<S> <C> <C> <C>
Initial equity $ 15,600,000 $ 8,039,710 $ 23,639,710
Adjustment to historical basis -- (5,455,030) (5,455,030)
------------ ------------ ------------
$ 15,600,000 $ 2,584,680 $ 18,184,680
Net income (loss) - prior years 374,637 (2,488,305) (2,113,668)
Net (loss) - current year (563,335) (67,634) (630,969)
Cash distributions declared
to date (11,349,844) (206,985) (11,556,829)
Repurchase of limited
partnership Units -- (518,240) (518,240)
------------ ------------ ------------
Balances at September 30, 1999 $ 3,543,218 $ (178,244) $ 3,364,974
============ ============ ============
</TABLE>
* Reference is made to the audited financial statements in the Form 10- K as
filed with the Commission on March 31, 1999.
3
<PAGE>
<TABLE>
NTS-PROPERTIES III
------------------
STATEMENTS OF OPERATIONS
------------------------
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
REVENUES:
- ---------
<S> <C> <C> <C> <C>
Rental income, net of
provision for doubtful
accounts of $16,954 (1999)
and $1,943 (1998) $ 656,889 $ 864,393 $2,093,487 $2,664,929
Rental income - affiliated 73,834 73,834 221,503 223,430
Interest and other income 3,973 4,026 8,524 11,068
---------- ---------- ---------- ----------
734,696 942,253 2,323,514 2,899,427
EXPENSES:
- ---------
Operating expenses 248,921 233,602 712,218 689,402
Operating expenses -
affiliated 115,650 91,363 360,907 303,182
Loss of disposal of assets 286,123 39,670 290,542 48,108
Interest expense 131,832 116,213 368,635 353,468
Managements fees 39,446 50,140 116,688 149,504
Real estate taxes 57,924 51,727 159,681 155,496
Professional and administrative
expenses 41,069 14,252 100,808 45,965
Professional and administrative
expenses - affiliated 24,028 32,601 77,595 103,127
Depreciation and amortization 275,208 257,023 767,409 729,489
---------- ---------- ---------- ----------
1,220,201 886,591 2,954,483 2,577,741
---------- ---------- ---------- ----------
Net income (loss) before
extraordinary item (485,505) 55,662 (630,969) 321,686
Extraordinary item - write-
off of unamortized loan costs -- -- -- (65,258)
---------- ---------- ---------- ----------
Net income (loss) $ (485,505) $ 55,662 $ (630,969) $ 256,428
========== ========== ========== ==========
Net income (loss) allocated
to the limited partners:
Income (loss) before
extraordinary item (463,167) 78,970 (563,335) 389,923
Extraordinary item -- -- -- (64,605)
---------- ---------- ---------- ----------
Net income (loss) $ (463,167) $ 78,970 $ (563,335) $ 325,318
========== ========== ========== ==========
Net income (loss) per
limited partnership Unit:
Income (loss) before
extraordinary item $ (34.90) $ 5.73 $ (42.41) $ 28.08
Extraordinary item -- -- -- (4.65)
---------- ---------- --------- ----------
Net income (loss) per
limited partnership Unit $ (34.90) $ 5.73 $ (42.41) $ 23.43
========== ========== ========= ==========
Weighted average number of
units 13,270 13,770 13,281 13,883
========== ========== ========= ==========
</TABLE>
4
<PAGE>
<TABLE>
NTS-PROPERTIES III
------------------
STATEMENTS OF CASH FLOWS
------------------------
<CAPTION>
Nine Months Ended September 30,
1999 1998
CASH FLOWS FROM OPERATING
ACTIVITIES
<S> <C> <C>
Net income (loss) $ (630,969) $ 256,428
Adjustments to reconcile net
income to net cash provided by
operating activities:
Provision for doubtful accounts 16,954 1,943
Accrued interest on investment
securities -- 923
Loss on disposal of assets 290,542 48,108
Write-off of unamortized loan
costs -- 65,258
Depreciation and amortization 767,409 729,489
Changes in assets and
liabilities:
Cash and equivalents - restricted (40,599) (41,489)
Accounts receivable (13,298) 111,520
Other assets (105,053) (13,790)
Accounts payable - operations 104,687 41,465
Security deposits 41,550 (10,024)
Other liabilities 85,883 (9,375)
----------- -----------
Net cash provided by operating
activities 517,106 1,180,456
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
Additions to land, buildings and
amenities (1,603,665) (1,163,170)
Accounts payable - construction 103,315 --
Decrease in cash and equivalents -
restricted -- 171,538
Maturity of investment
securities -- 100,668
----------- -----------
Net cash used in investing
activities (1,500,350) (890,964)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
Increase in mortgage payable 1,288,527 6,800,000
Principal payments on mortgages
payable (169,912) (6,823,739)
Increase in loan costs (18,107) (77,295)
Repurchase of limited partnership
Units (125,000) (75,000)
Increase in cash and equivalents -
restricted -- (125,000)
----------- -----------
Net cash provided by (used in)
financing activities 975,508 (301,034)
----------- -----------
Net decrease in cash and equivalents (7,736) (11,542)
----------- -----------
CASH AND EQUIVALENTS, beginning
of period 233,844 266,940
----------- -----------
CASH AND EQUIVALENTS, end of
period $ 226,108 $ 255,398
=========== ===========
Interest paid on a cash basis $ 360,850 $ 328,864
=========== ===========
</TABLE>
5
<PAGE>
NTS-PROPERTIES III
------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
The financial statements included herein should be read in conjunction with the
Partnership's 1998 Form 10-K as filed with the Commission on March 31, 1999. In
the opinion of the General Partner, all adjustments (only consisting of normal
recurring accruals) necessary for a fair presentation have been made to the
accompanying financial statements for the three months and nine months ended
September 30, 1999 and 1998.
1. Changes to the Names of Properties Help by the Partnership
----------------------------------------------------------
In the second quarter of 1999,Plainview Plaza II was renamed NTS Center and
Plainview Triad North was renamed Plainview Center.
2. Use of Estimates in the Preparation of Financial Statements
-----------------------------------------------------------
The preparation of financial statements in conformity with generally
accepted accounting principals 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.
3. 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 NTS Center
occupies 46% of the office building's net rentable area. Substantially all
of the Partnership's tenants are local businesses or are businesses that
have operations in the location in which they lease space.
4. Cash and Equivalents - Restricted
---------------------------------
Cash and equivalents - restricted represents 1) funds which have been
escrowed with a mortgage company for NTS Center's property taxes in
accordance with the loan agreement with such mortgage company, and 2) funds
which the Partnership has reserved for the repurchase of limited
partnership Units.
5. Interest Repurchase Reserve
---------------------------
Pursuant to Section 16.4 of the Partnership's Amended and Restated
Agreement of Limited Partnership, the Partnership established an Interest
Repurchase Reserve in 1995. During the years ended December 31, 1998, 1997
and 1996, the Partnership has funded $75,000, $0, and $243,700,
respectively, to the reserve. For the nine months ending September 30, 1999
the Partnership has funded $0 to the reserve. Through September 30, 1998
(the commencement date of the Partnership's First Tender Offer), the
Partnership had 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 of liquidation value of the
Units. Repurchased Units are retired by the Partnership, thus increasing
the percentage of ownership of each remaining limited partnership investor.
The Interest Repurchase Reserve was funded from cash reserves. The balance
in the reserve at September 30, 1999 was $0.
6
<PAGE>
6. Tender Offers
-------------
On September 30, 1998, the Partnership and ORIG, LLC, an affiliate of the
Partnership, (the "bidders") commenced a tender offer (the "First Tender
Offer") to purchase up to 1,000 Units of the Partnership's limited
partnership Units at a price of $250 per Unit as of the date of the First
Tender Offer. The initial expiration date of the First Tender Offer was
December 29, 1998, and this expiration date was subsequently extended
through March 31, 1999. A total of 1,160 Units were tendered and the
bidders accepted all Units tendered. The Partnership repurchased 500 Units
and ORIG, LLC purchased 660 Units at a total cost of $290,000 plus offering
expenses.
On July 27, 1999, the Partnership and ORIG, LLC, an affiliate of the
Partnership, (the "bidders") commenced a tender offer (the "Second 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 date of the Second Tender
Offer. Approximately $270,000 ($250,000 to purchase 1,000 Units plus
approximately $20,000 for expenses associated with the Second Tender Offer)
is required to purchase all 1,000 Units. The Second Tender Offer provided
that the Partnership would purchase the first 500 Units tendered and 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 bidders 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. Units that are acquired by ORIG, LLC
will be held by it. The General Partner, NTS- Properties Associates, does
not intend to participate in the Second Tender Offer. The initial
expiration date of the Second Tender Offer was October 29, 1999, and this
expiration date has been extended to December 8, 1999. As of September 30,
1999, approximately 520 Units had been tendered pursuant to the Second
Tender Offer.
7. Mortgages Payable
-----------------
Mortgages payable consist of the following:
September 30, December 31,
1999 1998
---- ----
Mortgage payable to an
insurance company bearing
interest at a fixed rate of
6.89%, maturing April 10, $ 6,486,233 $ 6,656,145
2015, secured by land and
buildings
$2,000,000 mortgage payable
to a bank maturing March 1,
2001, secured by land and
buildings, bearing a variable
interest of prime rate minus
.25%. The current rate at
September 30, 1999 is 8.0% 1,288,527 --
----------- -----------
$ 7,774,760 $ 6,656,145
=========== ===========
Based on the borrowing rates currently available to the Partnership for
mortgages with similar terms and average maturities, the fair value of
long-term debt is $7,430,000.
7
<PAGE>
8. Basis of Property
-----------------
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long- Lived Assets to be Disposed
Of," specifies circumstances in which certain long-lived assets must be
reviewed for impairment. If such review indicates that the carrying amount of
an asset exceeds the sum of its expected future cash flows, the asset's
carrying value must be written down to fair market value. Application of this
standard during the periods ended September 30, 1999 and 1998 did not result
in an impairment loss.
9. Reclassification of 1998 Financial Statements
---------------------------------------------
Certain reclassifications have been made to the December 31, 1998 financial
statements to conform to the September 30, 1999 classifications. These
reclassifications have no effect on previously reported operations.
10.Related Party Transactions
--------------------------
Property management fees of $116,688 and $149,504 for the nine months ended
September 30, 1999 and 1998, respectively, and $39,446 and $50,140 for the
three months ended September 30, 1999 and 1998, respectively, were paid to NTS
Development Company, an affiliate of the General Partner, pursuant to an
agreement with the Partnership.
The fee is equal to 5% of gross revenues from the Partnership's properties.
Also permitted by an agreement, NTS Development Company will receive a
repair and maintenance fee equal to 5.9% of costs incurred which relate to
capital improvements. The Partnership incurred $77,752 and $61,009 as
repair and maintenance fees during the nine months ended September 30, 1999
and 1998, respectively, and $6,829 and $9,927 for the three months ended
September 30, 1999 and 1998, respectively, and has capitalized these costs
as a part of land, building and amenities. As permitted by an agreement,
the Partnership was also charged the following amounts from NTS Development
Company for the three months and nine months ended September 30, 1999 and
1998. These charges include items, which have been expensed as operating
expenses - affiliated or professional and administrative expenses -
affiliated, and items that have been capitalized as other assets, land,
buildings and amenities, or construction in progress. These charges were as
follows:
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
Leasing $106,750 $ 45,025 $205,478 $125,397
Administrative 30,940 40,068 100,787 125,497
Property Manager 62,620 51,809 186,076 166,097
Other (55,033) 12,853 7,600 49,715
-------- ------- ------- -------
$145,277 $149,755 $499,941 $466,706
======== ======= ======= =======
During the nine months ended September 30, 1999 and 1998, NTS Development
Company leased 20,368 square feet in NTS Center at a rental rate $14.50 per
square foot. The Partnership received approximately $222,000 and $223,000 in
rental payments from NTS Development Company during the nine months ended
September 30, 1999 and 1998, respectively. The lease term for NTS
Development Company ends on March 31, 2002.
8
<PAGE>
11. Commitments and Contingencies
-----------------------------
One tenant at Plainview Center occupied approximately 65% of the building.
During the third quarter of 1997, the Partnership received notice that the
tenant would vacate the property at the end of the lease term, August 1998.
The Partnership was able to negotiate a 30-day renewal extension (through
September 30, 1998) with the tenant for approximately 63,000 leased square
feet. The Partnership was also able to negotiate a renewal for approximately
11,000 square feet of the original 63,000 square feet through March 31,
1999. Costs associated with this renewal were not significant. As a result
of this tenant vacating the remainder of their space on March 31, 1999,
there will likely be a protracted period for the property to become fully
leased again and substantial funds will likely be needed for leasing
expenses; especially those needed to refinish space for new tenants.
At Plainview Center, the Partnership is renovating the common area and
exterior building. These renovations will be designed to make the property
more marketplace competitive and enhance its value. The estimated cost of
the renovations, which began during 1998, is approximately $1,450,000 and
the renovation is expected to be completed by the end of the fourth quarter
of 1999. The renovation and leasing costs discussed above will be funded
from the loan proceeds of a $2,000,000 note payable obtained on March 2,
1999 and cash reserves. If necessary, it may be possible for the Partnership
to increase the note payable secured by Plainview Center. However, there is
no assurance that additional financing will be available when needed, or
that any financing will be on favorable terms.
In August 1999, a portion of the vacant space at Plainview Center, discussed
above, was leased to a new tenant. The lease is for approximately 28,000
square feet and has a term of five and one-half years. The tenant is
expected to take occupancy of the space during the fourth quarter of 1999.
With this lease, Plainview Center's occupancy should improve to 51%. The
Partnership has a commitment for approximately $500,000 of tenant finish
improvements resulting from this lease. The source of funds for this
commitment will be the $2,000,000 note payable discussed above.
12. Segment Reporting
-----------------
The Partnership adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," during the fourth quarter of 1998. SFAS
No. 131 established standards for reporting information about operating
segments in annual financial statements and requires selected information
about operating segments in interim financial reports issued to limited
partners. Operating segments are defined as components of an enterprise
about which separate financial information is available that is evaluated
regularly by the chief operating decision maker, or decision making group,
in deciding how to allocate resources and in assessing performance. The
standard also allows entities to aggregate operating segments into a single
segment if the segments are similar in each of the six criteria set forth in
SFAS No. 131. The Partnership's chief operating decision maker is the
General Partner. The Company's reportable operating segments include only
one segment - Commercial Real Estate Operations.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") 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. A discussion of certain market risks also
follows. MD&A should be read in conjunction with the financial statements in
Item 1, and the cautionary statements below.
Cautionary Statements
- ---------------------
Some of the statements included in this Item 2 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 MD&A, or elsewhere in this report,
which reflect management's best judgment, 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.
In the second quarter of 1999, Plainview Plaza II was renamed NTS Center and
Plainview Triad North was renamed Plainview Center.
10
<PAGE>
Results of Operations
- ---------------------
The occupancy levels at the Partnership's properties as of September 30 were as
follows:
1999 (1) 1998
-------- ----
NTS Center 100% 100%
Plainview Center (2) 23% 91%
Peachtree Corporate Center (3) 82% 86%
(1)With the exception of Plainview Center, 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 63,000 square
feet, 52,000 on September 30, 1998 and 11,000 on March 31, 1999. In the
opinion of the General Partner of the Partnership, the decrease in
period-ending occupancy is only a temporary fluctuation and does not
represent a permanent downward occupancy trend. The Partnership expects
there will be a protracted period for Plainview Center to become fully
leased again. During this period, which is unknown at this time,
Partnership revenues in 1999 will most likely be decreased as compared to
revenues in 1998. During August 1999, a 28,000 square foot lease was signed
which will increase Plainview Center's occupancy to 51%.
(3)In the opinion of the General Partner of the Partnership, the decrease in
average occupancy is only a temporary fluctuation and does not represent a
permanent downward occupancy trend.
The average occupancy levels at the Partnership's properties during the three
months and nine months ended September 30 were as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
NTS Center 100% 100% 100% 97%
Plainview Center (4) 23% 91% 27% 89%
Peachtree Corporate
Center (4) 81% 84% 84% 85%
(4)In the opinion of the General Partner of the Partnership, the decrease in
average occupancy is only a temporary fluctuation and does not represent a
permanent downward occupancy trend.
The following is an analysis of material changes in results of operations for
the periods ending September 30, 1999 and 1998. Items that did not have a
material impact on operations for the periods listed above have been eliminated
from this discussion.
The rental and other income generated by the Partnership's properties for the
three months and nine months ended September 30, 1999 and 1998 were a follows:
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
NTS Center $ 354,242 $373,761 $1,127,573 $1,108,505
Plainview Center $ 81,955 $293,604 $ 285,769 $ 932,054
Peachtree Corporate
Center $ 294,142 $272,231 $ 903,725 $ 849,806
-------- ------- --------- ---------
$ 730,339 $939,596 $2,317,067 $2,890,365
11
<PAGE>
Results of Operations - Continued
- ---------------------------------
Rental and other income decreased approximately $210,000 or 22% and $573,000 or
20% for the three months and nine months ended September 30, 1999 and 1998,
respectively. The decreases are primarily a result of a decrease in average
occupancy at Plainview Center following the move-out of one tenant who
previously occupied 63,000 square feet or 65% of the building. (See Note 11).
The Partnership expects there will be a protracted period for Plainview Center
to become fully leased again. During this period, which is unknown at this time,
Partnership revenues in 1999 will most likely be decreased as compared to
revenues during 1998.
In cases of tenants who cease making rental payments or abandon the premises in
breach of the lease terms, the Partnership pursues collection through the use of
collection agencies or other remedies available by law when practical. There
have been no significant funds recovered as a result of these actions during the
three months and nine months ended September 30, 1999 or 1998. As of September
30, 1999 there were no on-going cases.
Operating expenses increased approximately $15,000 or 6% and $23,000 or 3% for
the three months and nine months ended September 30, 1999 as compared to the
same periods in 1998. The increase is due primarily to increased repairs and
maintenance expenses at Peachtree Corporate Center and increased irrigation
expenses at NTS Center.
Operating expenses - affiliated increased approximately $24,000 or 26% and
$58,000 or 19% for the three months and nine months ended September 30, 1999, as
compared to the same periods in 1998. The increases are primarily due to
increased architectural and leasing salaries at Plainview Center and increased
administrative salaries at Peachtree Corporate Center. These increases are
partially offset by decreased architectural salaries at NTS Center. Operating
expenses affiliated are expenses incurred for services performed by employees of
NTS Development Company, an affiliate of the General Partner.
The 1999 loss on disposal of assets can be attributed to the write-off of
building costs at Plainview Center and the write-off of tenant improvements at
Peachtree Corporate Center. The 1998 loss on disposal of assets can be
attributed to the write-offs of tenant improvements at NTS Center and Peachtree
Corporate Center. The write-offs are the result of various property renovations
including exterior and common area improvements and tenant improvements to
accommodate new leases and to improve the marketability of vacant suites. The
write-offs represent the costs of unamortized assets which were replaced as a
result of the renovations.
Management Fees are calculated as a percentage of cash collections; however,
revenue for reporting purposes is on the accrual basis. As a result, the
fluctuations of revenues between periods may differ from the fluctuations of
management fee expenses. The decreases of $10,694 or 21% and $32,816 or 22% for
the three months and nine months ended September 30, 1999 as compared to the
same periods in 1998 are primarily a result of the decreased occupancy rates and
related revenues at Plainview Center as described above.
Professional and administrative expenses increased approximately $27,000 or 188%
and $55,000 or 119% for the three months and nine months ended September 30,
1999 as compared to the same periods in 1998. The increase is primarily a result
of costs incurred in connection with the Tender Offer (see discussion below).
12
<PAGE>
Results of Operations - Continued
- ---------------------------------
Professional and administrative expenses - affiliated decreased approximately
$8,500 or 26% and $25,500 or 25% for the three months and nine months ended
September 30, 1999 as compared to the same periods in 1998, primarily as a
result of a decrease in salary costs. Professional and administrative expenses -
affiliated are expenses incurred for services performed by employees of NTS
Development Company, an affiliate of the General Partner.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets which are 5-30 years for land improvements, 30 years
for buildings, 5-30 years for building improvements and 5-30 years for
amenities. The aggregate cost of the Partnership's properties for Federal tax
purposes is approximately $26,341,200.
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.
Consolidated Cash Flows and Financial Condition
- -----------------------------------------------
Cash flows provided by (used in):
1999 1998
---- ----
Operating activities $ 517,106 $ 1,180,456
Investing activities (1,500,350) (890,964)
Financing activities 975,508 (301,034)
----------- -----------
Net decrease in cash and
equivalents $ (7,736) $ (11,542)
=========== ===========
Net cash provided by operating activities decreased approximately $663,000 or
56% for the nine months ended September 30, 1999, as compared to the same period
in 1998. This decrease was primarily driven by a decrease in net income as a
result of decreased revenues from Plainview Center (as discussed above), as well
as net negative changes in various working capital accounts.
Net cash used in investing activities increased by approximately $609,000 for
the nine months ended September 30, 1999, as compared to the same period in
1998. The increase was primarily due to funds used in the interior renovation of
Plainview Center and also to cash provided by the maturity of investment
securities and restricted cash activity that was present in 1998, but not 1999.
Net cash provided by (used in) financing activities was $975,508 and $(301,034)
for the nine months ended September 30, 1999 and 1998, respectively. The
increase in net cash provided by financing activities in 1999 is the result of a
new mortgage loan obtained March 2, 1999 to fund renovations at Plainview Center
and a reduction in loan costs in 1999.
The Partnership indefinitely suspended distributions starting December 31, 1996
as a result of the anticipated decrease in occupancy at Plainview Center. Cash
reserves (which are unrestricted cash and equivalents and investment securities
as shown on the Partnership's balance sheet) as of September 30, 1999 were
$226,108.
13
<PAGE>
Consolidated Cash Flows and Financial Condition - Continued
- -----------------------------------------------------------
In the next 12 months, the General Partner expects the demand on future
liquidity to increase as a result of leasing activity driven primarily by the
decreased occupancy at Plainview Center.
Demand on future liquidity is also expected to increase as a result of the
interior and exterior building renovation, which is currently ongoing at
Plainview Center. The renovations have been designed to make the property more
competitive and enhance its value. The estimated cost of the renovation is
approximately $1,450,000. It is anticipated that the cash flow from operations,
cash reserves and funds available on the $2,000,000 loan obtained March 2, 1999
will be sufficient to meet the needs of the Partnership. Through September 30,
1999, the Partnership had incurred approximately $1,259,000 of the $1,450,000
estimated Plainview Center renovation costs. As of September 30, 1999, the
Partnership had a commitment for approximately $500,000 of tenant finish
improvements relating to a new 28,000 square foot lease. The improvements are
expected to be complete during the fourth quarter of 1999 and the source of
funds for this commitment will be the $2,000,000 loan and cash reserves.
Due to the fact that no distributions were made during the nine months ended
September 30, 1999 or 1998, the table, which represents that portion of the
distribution, that represents a return of capital on a Generally Accepted
Accounting Principle basis has been omitted.
Pursuant to Section 16.4 of the Partnership's Amended and Restated Agreement of
Limited Partnership, the Partnership established an Interest Repurchase Reserve
in 1995. During the years ended December 31, 1998, 1997 and 1996, the
Partnership funded $75,000, $0, and $243,700, respectively, to the reserve. For
the nine months ending September 30, 1999, the Partnership has funded $0 to the
reserve. Through September 30, 1998 (the commencement date of the Partnership's
First Tender Offer), 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 balance in the reserve at September
30, 1999 was $0.
On September 30, 1998, the Partnership and ORIG, LLC, an affiliate of the
Partnership, (the "bidders") commenced a tender offer (the "First Tender Offer")
to purchase up to 1,000 Units of the Partnership's limited partnership Units at
a price of $250 per Unit as of the date of the date of the First Tender Offer.
The initial expiration date of the First Tender Offer was December 29, 1998, and
this expiration date was subsequently extended through March 31, 1999. A total
of 1,160 Units were tendered and the bidders accepted all Units. The Partnership
repurchased 500 Units and ORIG, LLC purchased 660 Units at a total cost of
$290,000 plus offering expenses.
On July 27, 1999, the Partnership and ORIG, LLC, an affiliate of the
Partnership, (the "bidders") commenced a Second Tender Offer to purchase up to
1,000 of the Partnership's limited partnership Units at a price of $250 per
Unit. Although the bidders 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 date of the
Second Tender Offer. Approximately $270,000 ($250,000 to purchase 1,000 Units
plus approximately $20,000 for expenses associated with the Second Tender Offer)
is required to purchase all 1,000 Units. The Second Tender Offer provided that
the Partnership would purchase the first 500 Units tendered and fund its
purchases and its portion of the expenses
14
<PAGE>
Consolidated Cash Flows and Financial Condition - Continued
- -----------------------------------------------------------
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
bidders 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. Units that are acquired by
ORIG, LLC will be held by it. The General Partner, NTS-Properties Associates,
does not intend to participate in the Second Tender Offer. The initial
expiration date of the Second Tender Offer was October 29, 1999, and this
expiration date has been extended to December 8, 1999. As of September 30, 1999,
approximately 520 Units had been tendered pursuant to the Second Tender Offer.
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 NTS Center and
Plainview Center 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. NTS Development Company's marketing
staff located in Louisville, Kentucky also coordinates all advertising for the
Louisville properties.
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 Corporation, including NTS-Properties Associates, the
General Partner of the Partnership, are reviewing the effort necessary to
prepare NTS' information systems (IT) and non-information technology with
embedded technology (ET) for the Year 2000. The information technology solutions
have been addressed separately 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, is being replaced by a
Windows based network system both for NTS' headquarters functions and other
locations. The real estate accounting system developed, sold, and supported by
the Yardi Company of Santa Barbara, California will replace 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 fourth quarter of 1999.
The few remaining systems not addressed by these conversions are being modified
by NTS' 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 the 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.
15
<PAGE>
Year 2000 - Continued
- ---------------------
The costs of these advances in NTS' systems technology are not all attributable
to the Year 2000 issue since NTS had already identified the need to move to a
network based system regardless of the Year 2000. The Partnership's share of the
costs involved will be approximately $45,000 during 1999. Costs incurred through
December 31, 1998 were approximately $10,000. These costs include primarily
purchase, lease and maintenance of hardware and software.
NTS' property management staff has been surveying its vendors to evaluate
embedded technology in its alarm systems, HVAC controls, telephone systems and
other computer associated facilities. In a few cases, equipment is being
replaced. In some cases circuitry is being upgraded. The cost involved is still
being evaluated. There are no known significant risks that are currently without
solutions. Management anticipates that applications involving ET will be Year
2000 compliant by the fourth quarter of 1999.
NTS is also currently addressing the Year 2000 readiness of third parties whose
business interruption could have a material negative impact on its 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 its current state of readiness, the need does
not presently exist for a contingency plan. NTS will continue to evaluate the
need for such a plan.
Despite diligent preparation, unanticipated third-party failures, inability of
NTS tenants to pay rent when due, more general public infrastructure failures or
failure to successfully conclude NTS' remediation efforts as planned could have
a material adverse impact on NTS results of operations, financial conditions
and/or cash flows in 1999 and beyond.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
Our primary market risk exposure with regards to financial instruments is
changes in interest rates. All of the Partnership's debt bears interest at a
fixed rate with the exception of the $2,000,000 note payable, which the
Partnership obtained on March 2, 1999. At September 30, 1999, a hypothetical 100
basis point increase in interest rates would increase interest expense by
approximately $13,000, and would result in an approximately $800,000 decrease in
the fair value of the debt.
16
<PAGE>
PART II. OTHER INFORMATION
Item 3. Defaults Upon Senior Securities
-------------------------------
None.
Item 5. Other Information
-----------------
Mr. Richard L. Good, who was the Vice Chairman and former President of
NTS Capital Corporation and NTS Development Company, retired effective
September 3, 1999.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Exhibit 27. Financial Data Schedule
(b) Reports of Form 8-K
None.
Items 1,2 and 4 are not applicable and have been omitted.
17
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
NTS-PROPERTIES III
------------------
(Registrant)
BY: NTS-Properties Associates,
General Partner,
BY: NTS Capital Corporation,
General Partner
/s/ Gregory A. Wells
--------------------
Gregory A. Wells
Senior Vice President of
NTS Capital Corporation
Date: November 12, 1999
18
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF SEPTEMBER 30, 1999 AND FROM THE STATEMENTS OF OPERATIONS FOR THE
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 406,056
<SECURITIES> 0
<RECEIVABLES> 180,671
<ALLOWANCES> 16,954
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 10,775,487
<DEPRECIATION> 0<F2>
<TOTAL-ASSETS> 11,868,235
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 7,774,760
0
0
<COMMON> 0
<OTHER-SE> 3,364,974
<TOTAL-LIABILITY-AND-EQUITY> 11,868,235
<SALES> 2,093,487
<TOTAL-REVENUES> 2,323,514
<CGS> 0
<TOTAL-COSTS> 2,585,848
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 368,635
<INCOME-PRETAX> (630,969)
<INCOME-TAX> 0
<INCOME-CONTINUING> (630,969)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (630,969)
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1>THE PARTNERHSIP HAS AN UNCLASSIFIED BALANCE SHEET;THEREFORE THE VALUE IS $0.
<F2>THIS INFORMATION IS NOT DISCLOSED IN THE PARTNERSHIP'S FORM 10-Q.
</FN>
</TABLE>
