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 June 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 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
- --------------------------------------------------------------------------------
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number,
including area code (502) 426-4800
- --------------------------------------------------------------------------------
Not Applicable
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report
Indicate by check mark whether the registrant (l) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO ____
Exhibit Index: See page 17
Total Pages: 18
<PAGE>
TABLE OF CONTENTS
-----------------
Pages
-----
PART I
Item 1. Financial Statements
Balance Sheets and Statement of Partners' Equity
as of June 30, 1999 and December 31, 1998 3
Statements of Operations
For the three months and six months ended June 30,
1999 and 1998 4
Statements of Cash Flows
For the six months ended June 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
3. Defaults upon Senior Securities 17
5. Other Information 17
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 STATEMENT OF PARTNERS' EQUITY
------------------------------------------------
As of As of
June 30, 1999 December 31, 1998*
ASSETS
<CAPTION>
<S> <C> <C>
Cash and equivalents $ 324,958 $ 233,844
Cash and equivalents - restricted 41,416 139,350
Accounts receivable, net of allowance
for doubtful accounts of $8,625 at
June 30, 1999 and $3,034 at
December 31, 1998 238,398 184,327
Land, buildings and amenities, net 9,401,871 9,834,002
Construction in progress 1,341,445 385,332
Other assets 421,234 393,301
----------- -----------
Total assets $11,769,322 $11,170,156
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Mortgages payable $ 7,330,953 $ 6,656,145
Accounts payable - operations 80,048 40,632
Accounts payable - construction 230,608 180,272
Security deposits 108,936 98,611
Other liabilities 168,297 73,550
----------- -----------
7,918,842 7,049,210
Partners' equity 3,850,480 4,120,946
----------- -----------
$11,769,322 $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 (100,167) (45,296) (145,463)
Cash distributions declared to
date (11,349,844) (206,985) (11,556,829)
Repurchase of limited partnership
units (518,240) -- (518,240)
------------ ------------ -----------
Balances at June 30, 1999 $ 4,006,386 $ (155,906) $ 3,850,480
============ ============ ===========
</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 Six Months Ended
June 30, June 30,
------------------ -----------------
1999 1998 1999 1998
-------------------- -------------------
REVENUES:
<S> <C> <C> <C> <C>
Rental income, net of provision
for doubtful accounts of $12,194
(1999) and $0 (1998) $ 685,886 $ 953,550 $ 1,434,641 $ 1,800,542
Rental income - affiliated 73,834 73,834 147,668 149,590
Interest and other income 979 2,986 2,090 7,042
---------- ---------- ---------- ----------
760,699 1,030,370 1,584,399 1,957,174
EXPENSES:
Operating expenses 249,103 224,731 450,556 443,059
Operating expenses - affiliated 103,254 89,106 245,257 211,820
Write-off of unamortized tenant
improvements -- 8,438 -- 8,438
Amortization of capitalized
leasing costs 6,370 6,370 12,740 12,740
Interest expense 120,563 114,392 236,803 237,254
Management fees 41,094 50,922 77,242 99,364
Real estate taxes 50,196 52,042 101,757 103,770
Professional and administrative
expenses 30,686 16,767 59,739 31,715
Professional and administrative expenses -
affiliated 23,826 33,779 53,568 70,525
Depreciation and amortization 244,446 243,635 492,200 472,466
---------- ---------- ---------- ----------
869,538 840,182 1,729,862 1,691,151
---------- ---------- ---------- ----------
Net income (loss) before
Extraordinary item (108,839) 190,188 (145,463) 266,023
Extraordinary item - write-off of
Unamortized loan costs -- 65,258 -- 65,258
---------- ---------- ---------- ----------
Net income (loss) $ (108,839) $ 124,930 $ (145,463) $ 200,765
========== ========== ========== ==========
Net income (loss) allocated to the
limited partners:
Income (loss) before extraordinary
item (86,205) 212,081 (100,167) 310,953
Extraordinary item -- (64,605) -- (64,605)
---------- ---------- ---------- ----------
Net income (loss) $ (86,205) $ 147,476 $ (100,167) $ 246,348
========== ========== ========== ==========
Net income (loss) per limited
Partnership unit:
Income (loss) before extraordinary
item $ (6.50) $ 15.36 $ (7.54) $ 22.30
Extraordinary item -- (4.68) -- (4.63)
---------- ---------- ---------- ----------
Net income (loss) per limited
Partnership unit $ (6.50) $ 10.68 $ (7.54) $ 17.67
========== ========== ========== ==========
Weighted average number of units 13,270 13,813 13,286 13,941
========== ========== ========== ==========
----------
</TABLE>
<TABLE>
NTS-PROPERTIES III
------------------
STATEMENTS OF CASH FLOWS
------------------------
<CAPTION>
Six Months Ended
June 30,
------------------------------------
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (145,463) $ 200,765
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provision for doubtful accounts 8,625 --
Accrued interest on investment Securities -- 923
Amortization of capitalized leasing costs 12,740 12,740
Write-off of unamortized tenant
improvements -- 8,438
Write-off of unamortized loan costs -- 65,258
Depreciation and amortization 492,200 472,466
Changes in assets and liabilities:
Cash and equivalents - restricted (27,066) (13,139)
Accounts receivable (62,697) 52,285
Other assets (19,415) (41,319)
Accounts payable - operations 39,417 53,856
Security deposits 10,325 (2,353)
Other liabilities 94,747 (8,232)
----------- --------
Net cash provided by operating
activities 403,413 801,688
----------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to land, buildings, and amenities (1,009,934) (953,453)
Accounts payable - construction 50,336 --
Decrease in cash and equivalents
- restricted -- 172,755
Purchase of investment securities -- --
Maturity of investment securities -- 100,668
----------- --------
Net cash used in investing activities (959,598) (680,030)
----------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in mortgage payable 787,107 6,800,000
Principal payments on mortgages payable (112,299) (6,769,951)
Increase in loan costs (27,509) (77,295)
Repurchase of limited partnership units (125,000) (75,000)
Decrease (increase)in cash and equivalents
- restricted 125,000 --
----------- --------
Net cash provided by (used in)
financing activities 647,299 (122,246)
----------- --------
Net increase (decrease) in cash
and equivalents 91,114 (588)
CASH AND EQUIVALENTS, beginning
of Period 233,844 266,940
----------- --------
CASH AND EQUIVALENTS, end of period $ 324,958 $ 266,352
=========== ========
Interest paid on a cash basis $ 236,803 $ 212,650
=========== ========
</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 six months ended June
30, 1999 and 1998.
1. Changes to the Names of Properties Held 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 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.
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 which
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, and 2)funds which the Partnership has
reserved for the repurchase of limited partnership Units (December 31, 1998
balance only).
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 six months ending June 30, 1999 the
Partnership has funded $125,000 to the reserve. Through June 30, 1999, the
Partnership has repurchased a total of 2,330 Units for $518,240 at a price
ranging from $208 to $250 per Unit. The offering price per Unit was
established by the General Partner in its sole discretion and does not
purport to represent the fair market value or liquidation value of the
Units. Repurchased Units are retired by the Partnership, thus increasing
the percentage of ownership of each remaining limited partner investor. The
Interest Repurchase Reserve was funded from cash reserves. The balance in
the reserve at June 30, 1999 was $0.
6. Tender Offers
-------------
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 Units of the Partnership's limited Partnership Units at a price of
$250 per Unit as of the date of the Offering. The initial expiration date
of the Offer was December 29, 1998, and this expiration date was
subsequently extended through
6
<PAGE>
6. Tender Offers - continued
-------------------------
March 31, 1999. A total of 1,160 Units were tendered and all Units tendered
were accepted by the Offerors. The Partnership repurchased 500 Units and
ORIG, LLC purchased 660 Units at a total cost of $290,000 plus Offering
expenses.
See Note 12, Subsequent Events, for information regarding a Tender Offer
which commenced July 27, 1999.
7. Mortgages Payable
-----------------
Mortgages payable consist of the following:
June 30, December 31,
1999 1998
------------ --------------
Mortgage payable to an insurance company
bearing interest at 6.89%, maturing April 10,
2015, secured by land and buildings $ 6,543,846 $ 6,656,145
$2,000,000 Mortgage payable to a bank
maturing March 1, 2001, secured by land and
buildings, bearing a variable interest of
prime rate minus .25%. The current rate at
June 30, 1999 as 7.5%. 787,107 --
---------- ----------
$ 7,330,953 $ 6,656,145
========== ==========
Based on the borrowing rates currently available to the Partnership for
mortgages with similar terms and average maturities, the fair value of long
term debt approximates carrying value.
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 three months and six months ended
June 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 with the June 30, 1999 classifications. These
reclassifications have no effect on previously reported operations.
7
<PAGE>
10. Related Party Transactions
--------------------------
Property management fees of $77,242 and $99,364 for the six months ended
June 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 $70,922 and $51,082 as a
repair and maintenance fee during the six months ended June 30, 1999 and
1998, respectively, and has capitalized this cost as a part of land,
buildings and amenities. As permitted by an agreement, the Partnership also
was charged the following amounts from NTS Development Company for the six
months ended June 30, 1999 and 1998. These charges include items which have
been expensed as operating expenses affiliated or professional and
administrative expenses - affiliated and items which have been capitalized
as other assets, land, buildings and amenities, or construction in
progress. These charges were as follows:
1999 1998
--------------- ----------------
Leasing $ 98,727 $ 80,372
Administrative 69,848 85,429
Property manager 123,456 114,288
Other 62,633 36,861
-------- -------
$ 354,664 $316,950
======== =======
During the six months ended June 30, 1999 and 1998, NTS Development Company
leased 20,368 square feet in NTS Center at a rental rate of $14.50 per
square foot. The Partnership received approximately $148,000 and $150,000
in rental payments from NTS Development Company during the six months ended
June 30, 1999 and 1998, respectively. The lease term for NTS Development
Company ends on March 31, 2002.
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
8
<PAGE>
11. Commitments and Contingencies - continued
-----------------------------------------
the renovations which began during 1998 is approximately $1,250,000 and the
renovation is expected to be completed by the end of the 3rd 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.
12. Subsequent Events
-----------------
On July 1, 1999 Gregory A. Wells was hired as Executive Vice President by
NTS Capital Corporation, General Partner of NTS-Properties Associates, the
General Partner of NTS-Properties III. Mr. Wells will serve as the senior
Accounting and Financial Officer of NTS Capital Corporation.
On July 27, 1999, 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 $270,000 ($250,000 to
purchase 1,000 Units plus approximately $20,000 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 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 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 Tender
Offer. The expiration date of the original Offer will be October 29, 1999
unless extended.
13. Segment Reporting
-----------------
The Partnership adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, during the fourth quarter of 1998. SFAS
No. 131 established standards for reporting information about operating
segments in annual financial statements and requires selected information
about operating segments in interim financial reports issued to limited
partners. Operating segments are defined as components of an enterprise
about which separate financial information is available that is evaluated
regularly by the chief operating decision maker, or decision making group,
in deciding how to allocate resources and in assessing performance. The
standard also allows entities to aggregate operating segments into a single
segment if the segments are similar in each of the six criteria set forth
in SFAS No. 131. The Partnership's chief operating decision-maker is the
General Partner. The Company's reportable operating segments include only
one segment - Commercial real estate operations.
9
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations is structured in four major sections. The first section provides
information related to occupancy levels and rental and other income generated by
the Partnership's properties. The second analyzes results of operations on a
consolidated basis. The final sections address consolidated cash flows and
financial condition. Discussion of certain market risks also follow.
Management's analysis 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 Item 2, Management's Discussion and Analysis
of Financial Condition and Results of Operations, may be considered to be
"forward-looking statements" since such statements relate to matters which have
not yet occurred. For example, phrases such as "the Partnership anticipates",
"believes" or "expects" indicate that it is possible that the event anticipated,
believed or expected may not occur. Should such event not occur, then the result
which the Partnership expected also may not occur or occur in a different
manner, which may be more or less favorable to the Partnership. The Partnership
does not undertake any obligations to publicly release the result of any
revisions to these forward-looking statements that may be made to reflect any
future events or circumstances.
Any forward-looking statements included in Management'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.
In the second quarter of 1999, Plainview Plaza II was renamed NTS Center and
Plainview Triad North was renamed Plainview Center.
10
<PAGE>
The occupancy levels at the Partnership's properties as of June 30 were as
follows:
1999(1) 1998
--------------- -----------
NTS Center 100% 100%
Plainview Center(2) 21% 91%
Peachtree Corporate Center 79% 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 during 1998.
The Average Occupancy levels at the Partnership's properties during the three
months and six months ended June 30 were as follows:
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- -------------------
1999 1998 1999 1998
----- ---- ---- -----
NTS Center 100% 100% 100% 96%
Plainview Center (3) 21% 89% 28% 88%
Peachtree Corporate Center 81% 86% 85% 87%
(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 following is an analysis of material changes in results of operations for
the periods ending June 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.
11
<PAGE>
The rental and other income generated by the Partnership's properties for the
three months and six months ended June 30, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
------------------- ------------------ ------------------ -------------------
<S> <C> <C> <C> <C>
NTS Center $ 383,816 $ 391,380 $ 773,331 $ 734,744
Plainview Center $ 75,275 $ 342,714 $ 201,501 $ 638,450
Peachtree Corporate Center
$ 300,629 $ 293,625 $ 607,477 $ 577,575
--------- --------- --------- ---------
$ 759,720 $1,027,719 $1,582,309 $1,950,769
========= ========= ========= =========
</TABLE>
Rental and other income decreased approximately $268,000 or 26% and $368,000 or
19% for the three months and six months ended June 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.
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 or six months ended June 30, 1999 or 1998. As of June 30, 1999
there were no on-going cases.
Operating expenses - affiliated increased approximately $14,000 or 16% and
$33,000 or 16% for the three months and six months ended June 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. Operating expenses -
affiliated are expenses incurred for services performed by employees of NTS
Development Company, an affiliate of the General Partner.
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 expense. The decreases of $10,000 or 19% and $22,000 or 22% for
the three months and six months ended June 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 $14,000 or 83%
and $28,000 or 88% for the three months and six months ended June 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>
Professional and administrative expenses - affiliated decreased approximately
$10,000 or 30% and $17,000 or 24% for the three months and six months ended June
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.
Consolidated Cash Flows and Financial Condition
- -----------------------------------------------
Cash flows provided by (used in):
1999 1998
--------------------- ----------------------
Operating activities $ 403,413 $ 801,688
Investing activities (959,598) (680,030)
Financing activities 647,299 (122,246)
-------- --------
Net increase (decrease) in cash and
equivalents $ 91,114 $ (588)
======== ========
Net cash provided by operating activities decreased approximately $398,000 or
50% for the six months ended June 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
negative changes in various working capital accounts.
Net cash used in investing activities increased by approximately $280,000 for
the six months ended June 30, 1999 as compared to the same period in 1998. The
increase was primarily due to inflows from investments maturing and restricted
cash activity that was present in 1998 but not in 1999.
Net cash provided by (used in) financing activities was $647,299 and $(122,246)
for the six months ended June 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 June 30) were $324,958 and
$266,352 at June 30, 1999 and 1998, respectively.
In the next 12 months, the General Partner expects the demand on future
liquidity to increase as a result of future leasing activity driven primarily by
the decreased occupancy at Plainview Center.
13
<PAGE>
Consolidated Cash Flows and Financial Condition - continued
- -----------------------------------------------------------
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 Center. The renovations have been designed to make the property more
competitive and enhance its value. The estimated cost of the renovation is
approximately $1,250,000. 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 June 30, 1999,
the Partnership has incurred approximately $1,040,000 of the $1,250,000
estimated Plainview Center renovation. As of June 30, 1999, the Partnership had
no material commitments for tenant finish improvements.
Due to the fact that no distributions were made during the six months ended June
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 has funded $75,000, $0, and $243,700, respectively, to the reserve.
For the six months ending June 30, 1999 the Partnership has funded $125,000 to
the reserve. Through June 30, 1999, the Partnership has repurchased a total of
2,330 Units for $518,240 at a price ranging from $208 to $250 per Unit. The
offering price per Unit was established by the General Partner in its sole
discretion and does not purport to represent the fair market value or
liquidation value of the Units. Repurchased Units are retired by the
Partnership, thus increasing the percentage of ownership of each remaining
limited partner investor. The Interest Repurchase Reserve was funded from cash
reserves. The balance in the reserve at June 30, 1999 was $0.
On July 27, 1999, 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 $270,000 ($250,000 to purchase 1,000 Units plus
approximately $20,000 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 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 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 Tender Offer.
The expiration date of the original Offer will be October 29, 1999 unless
extended.
14
<PAGE>
Consolidated Cash Flows and Financial Condition - continued
- -----------------------------------------------------------
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
Units of the Partnership's limited Partnership Units at a price of $250 per Unit
as of the date of the Offering. The initial expiration date of the 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 all Units tendered were
accepted by the Offerors. The Partnership repurchased 500 Units and ORIG, LLC
purchased 660 Units at a total cost of $290,000 plus Offering expenses.
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. 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 its 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 third quarter of 1999. NTS' 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 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 NTS'
new network. It will be retained as long as necessary to
15
<PAGE>
Year 2000 - continued
- ---------------------
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 NTS had already identified the need to move to a
network based system regardless of the Year 2000. The costs involved will be
approximately $45,000 over 1999. Costs incurred through December 31, 1998 were
approximately $10,000. These costs primarily include hardware and software.
NTS property management staff has been surveying 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 third 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 the 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
our 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 3, 1999. At June 30, 1999, a hypothetical 100
basis point increase in interest rates would not result in significant market
risk exposure with regards to the Partnership's financial instruments.
16
<PAGE>
PART II. OTHER INFORMATION
3. Defaults upon Senior Securities
-------------------------------
None.
5. Other Information
-----------------
In anticipation of retirement, Mr. Richard Good, the Vice Chairman and
former President of NTS Capital Corporation and NTS Development
Company, has begun to decrease his responsibilities with the
Partnership and its affiliates. In conjunction with Mr. Good's
decreased responsibilities, Mr.Brian Lavin was appointed President and
Chief Operating Officer of NTS Development Company and NTS Capital
Corporation in February, 1999.
6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Exhibit 27. Financial Data Schedule
(b) Reports on Form 8-K
None.
Items 1,2 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
Executive Vice President
of NTS Capital Corporation
Date: August 13, 1999
18
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET AS OF JUNE 30,1999 AND FROM THE STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 470,324
<SECURITIES> 0
<RECEIVABLES> 225,567
<ALLOWANCES> 3,034
<INVENTORY> 0
<CURRENT-ASSETS> 0 <F1>
<PP&E> 10,280,110
<DEPRECIATION> 0 <F2>
<TOTAL-ASSETS> 11,425,643
<CURRENT-LIABILITIES> 0 <F1>
<BONDS> 6,916,013
0
0
<COMMON> 0
<OTHER-SE> 3,959,319
<TOTAL-LIABILITY-AND-EQUITY> 11,425,643
<SALES> 749,865
<TOTAL-REVENUES> 823,699
<CGS> 0
<TOTAL-COSTS> 744,083
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 116,240
<INCOME-PRETAX> (36,624)
<INCOME-TAX> 0
<INCOME-CONTINUING> (36,624)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (36,624)
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1>THE PARTNERSHIP HAS AN UNCLASSIFIED BALANCE SHEET;THEREFORE THE VALUE IS $0.
<F2>THIS INFORMATION IS NOT DISCLOSED IN THE PARTNERSHIP'S FORM 10-Q.
</FN>
</TABLE>
