<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
--------------------------------------------------
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)
(502) 426-4800
--------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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, and (2) has been subject to such filing requirements
for the past 90 days.
[X] Yes [ ] No
<PAGE>
TABLE OF CONTENTS
-----------------
PART I
------
Pages
-----
Item 1. Financial Statements
Balance Sheets as of June 30, 2000 and December 31, 1999 3
Statement of Partners' Equity as of June 30, 2000 3
Statements of Operations for the three months and six months ended
June 30, 2000 and 1999 4
Statements of Cash Flows for the six months ended
June 30, 2000 and 1999 5
Notes to Financial Statements 6-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-15
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
--------------
<CAPTION>
As of As of
June 30, 2000 December 31, 1999*
------------- ------------------
(Unaudited)
ASSETS
------
<S> <C> <C>
Cash and equivalents $ 196,581 $ 104,532
Cash and equivalents - restricted 37,611 8,073
Accounts receivable, net of allowance for doubtful
accounts of $660 at June 30, 2000 and $15,512 at
December 31, 1999 298,751 404,773
Land, buildings and amenities, net 10,956,011 11,316,969
Other assets 470,917 492,259
----------- -----------
TOTAL ASSETS $11,959,871 $12,326,606
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
--------------------------------
Mortgages payable $ 8,491,591 $ 8,073,856
Accounts payable 142,305 890,032
Security deposits 130,517 142,573
Other liabilities 161,596 43,995
----------- -----------
TOTAL LIABILITIES 8,926,009 9,150,456
COMMITMENTS AND CONTINGENCIES (Note 9)
PARTNERS' EQUITY 3,033,862 3,176,150
----------- -----------
TOTAL LIABILITIES AND PARTNERS' EQUITY $11,959,871 $12,326,606
=========== ===========
</TABLE>
<TABLE>
STATEMENT OF PARTNERS' EQUITY
-----------------------------
<CAPTION>
Limited General
Partners Partner Total
-------- ------- -----
PARTNERS' EQUITY/(DEFICIT)
--------------------------
<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)
------------- ------------- -------------
EQUITY $ 15,600,000 $ 2,584,680 $ 18,184,680
Net loss - prior years (242,145) (2,566,315) (2,808,460)
Net loss - current year (105,720) (36,569) (142,289)
Cash distributions declared to date (11,349,844) (206,985) (11,556,829)
Repurchase of Limited Partnership Units (643,240) -- (643,240)
------------- ------------- -------------
BALANCES AT JUNE 30, 2000 $ 3,259,051 $ (225,189) $ 3,033,862
============= ============= =============
</TABLE>
* Reference is made to the audited financial statements in the Form 10-K as
filed with the Securities and Exchange Commission on March 29, 2000.
The accompanying notes to financial statements are an integral part of these
statements.
3
<PAGE>
<TABLE>
NTS-PROPERTIES III
------------------
STATEMENTS OF OPERATIONS
------------------------
(UNAUDITED)
-----------
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2000 1999 2000 1999
---- ---- ---- ----
REVENUES
--------
<S> <C> <C> <C> <C>
Rental income, net of provision for
doubtful accounts of $4,605 (2000)
and $12,194 (1999) $ 774,199 $ 685,886 $ 1,559,445 $ 1,434,641
Rental income - affiliated 73,834 73,834 147,668 147,668
Interest and other income 6,066 979 8,280 2,090
------------ ------------ ------------ ------------
TOTAL REVENUES 854,099 760,699 1,715,393 1,584,399
------------ ------------ ------------ ------------
EXPENSES
--------
Operating expenses 253,571 249,103 470,245 450,556
Operating expenses - affiliated 88,736 103,254 171,899 245,257
Loss on disposal of assets -- -- 268 --
Interest expense 156,348 120,563 304,988 236,803
Management fees 43,192 41,094 85,036 77,242
Real estate taxes 53,220 50,196 106,440 101,757
Professional and administrative expenses 19,631 30,686 39,711 59,739
Professional and administrative expenses
- affiliated 34,091 23,826 61,567 53,568
Depreciation and amortization 310,350 250,816 617,528 504,940
------------ ------------ ------------ ------------
TOTAL EXPENSES 959,139 869,538 1,857,682 1,729,862
------------ ------------ ------------ ------------
Net loss $ (105,040) $ (108,839) $ (142,289) $ (145,463)
============ ============ ============ ============
Net loss allocated to the Limited Partners $ (86,419) $ (86,205) $ (105,720) $ (100,167)
============ ============ ============ ============
Net loss per Limited Partnership Unit $ (6.77) $ (6.50) $ (8.28) $ (7.54)
============ ============ ============ ============
Weighted average number of Limited
Partnership Units 12,770 13,270 12,770 13,286
============ ============ ============ ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
4
<PAGE>
<TABLE>
NTS-PROPERTIES III
------------------
STATEMENTS OF CASH FLOWS
------------------------
(UNAUDITED)
-----------
<CAPTION>
Six Months Ended
June 30,
--------
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
------------------------------------
<S> <C> <C>
Net loss $ (142,289) $ (145,463)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Provision for doubtful accounts 4,605 12,194
Loss on disposal of assets 268 --
Depreciation and amortization 617,528 504,940
Changes in assets and liabilities:
Cash and equivalents - restricted (29,538) (27,066)
Accounts receivable 101,417 (66,266)
Other assets 13,483 (19,415)
Accounts payable (747,727) 89,753
Security deposits (12,056) 10,325
Other liabilities 117,601 94,747
------------ ------------
Net cash (used in) provided by operating activities (76,708) 453,749
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
------------------------------------
Additions to land, buildings, and amenities (238,343) (1,009,934)
------------ ------------
Net cash used in investing activities (238,343) (1,009,934)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
------------------------------------
Increase in mortgages payable 568,020 787,107
Principal payments on mortgages payable (150,285) (112,299)
Increase in loan costs (10,635) (27,509)
Repurchase of Limited Partnership Units -- (125,000)
Decrease in cash and equivalents - restricted -- 125,000
------------ ------------
Net cash provided by financing activities 407,100 647,299
------------ ------------
Net increase in cash and equivalents 92,049 91,114
CASH AND EQUIVALENTS, beginning of period 104,532 233,844
------------ ------------
CASH AND EQUIVALENTS, end of period $ 196,581 $ 324,958
============ ============
Interest paid on a cash basis $ 299,553 $ 236,803
============ ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
5
<PAGE>
NTS-PROPERTIES III
------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
The unaudited financial statements included herein should be read in conjunction
with the Partnership's 1999 Form 10-K as filed with the Securities and Exchange
Commission on March 29, 2000. 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, 2000 and 1999.
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 ("GAAP") 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 rental 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.
4. Reclassification of 1999 Financial Statements
---------------------------------------------
Certain reclassifications have been made to the June 30, 1999 and December
31, 1999 financial statements to conform to the June 30, 2000
classifications. These reclassifications have no effect on previously
reported operations.
5. Cash and Equivalents - Restricted
---------------------------------
Cash and equivalents - restricted represent 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.
6
<PAGE>
6. Basis of Property and Depreciation
----------------------------------
Land, buildings and amenities are stated at historical cost, less
accumulated depreciation, to the Partnership. Costs directly associated
with the acquisition, development and construction of a project are
capitalized. Depreciation is computed using the straight-line method over
the estimated useful lives of the assets which are 6-30 years for land
improvements, 5-30 years for buildings and improvements, 3-27 years for
amenities and the applicable lease term for tenant improvements.
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 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
periods ended June 30, 2000 and 1999 did not result in any impairment loss.
7. Mortgages Payable
-----------------
Mortgages payable consist of the following:
June 30, December 31,
2000 1999
---- ----
Mortgage payable to an insurance company
bearing interest at 6.89%, due April 10, 2015,
secured by land and buildings. $ 6,307,337 $ 6,427,622
Mortgage payable to a bank bearing a variable
interest rate of Prime minus .25%, due March 1,
2002, secured by land and buildings.The current
rate at June 30, 2000 is 9.25%. 2,184,254 1,646,234
------------ -------------
$ 8,491,591 $ 8,073,856
============ =============
Based on the borrowing rates currently available to the Partnership for
mortgages with similar terms and average maturities, the fair value of
long-term debt is approximately $7,847,000.
8. Related Party Transactions
--------------------------
Property management fees of $85,036 and $77,242 for the six months ended
June 30, 2000 and 1999, respectively, were paid to NTS Development Company,
an affiliate of the General Partner. The fee is paid monthly in an amount
equal to 5% of the gross revenues from the Partnership's properties
pursuant to an agreement with the Partnership. Also pursuant to an
agreement, NTS Development Company will receive a repair and maintenance
fee equal to 5.9% of costs incurred which relate to capital improvements.
7
<PAGE>
8. Related Party Transactions - Continued
--------------------------------------
The Partnership has incurred $14,547 and $70,922 for the six months ended
June 30, 2000 and 1999, respectively, as repair and maintenance fees, and
has capitalized these costs as part of land, buildings and amenities. The
Partnership was also charged the following amounts from NTS Development
Company for the six months ended June 30, 2000 and 1999. 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.
Six Months Ended
June 30,
--------
2000 1999
---- ----
Leasing $ 83,135 $ 98,727
Administrative 76,417 69,848
Property Management 100,190 123,456
Other 6,258 62,633
---------- ----------
$ 266,000 $ 354,664
========== ==========
During the six months ended June 30, 2000 and 1999, NTS Development Company
leased 20,368 square feet in NTS Center at a rental rate $14.50 per square
foot. The Partnership received approximately $147,668 in rental payments
from NTS Development Company during the six months ended June 30, 2000 and
1999. The lease term for NTS Development Company ends on March 31, 2004.
On February 7, 2000, ORIG, LLC. (the "Affiliate") purchased Interests in
the Partnership pursuant to an Agreement, Bill of Sale and Assignment by
and among the Affiliate and four investors in the Partnership (the
"Purchase Agreement"). The Affiliate purchased 135 Interests in the
Partnership for total consideration of $38,676, or an average price of
$286.49 per Interest. The Affiliate paid these investors a premium above
the purchase price previously offered for Interests pursuant to prior
tender offers because this purchase allowed the Affiliate to purchase a
substantial number of Interests without incurring the expenses involved
with a tender offer and multiple transfers.
9. Commitments and Contingencies
-----------------------------
The Partnership, as an owner of real estate, is subject to various
environmental laws of federal and local governments. Compliance by the
Partnership with existing laws has not had a material adverse effect on the
Partnership's financial condition and results of operations. However, the
Partnership cannot predict the impact of new or changed laws or regulations
on its current properties or on properties that it may acquire in the
future.
The Partnership does not believe there is any litigation threatened against
the Partnership other than routine litigation arising out of the ordinary
course of business, some of which is expected to be covered by insurance,
none of which is expected to have a material adverse effect on the
consolidated financial statements of the Partnership.
8
<PAGE>
9. Commitments and Contingencies - Continued
-----------------------------------------
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.
A 30-day renewal extension was negotiated (through September 30, 1998) with
the tenant for approximately 63,000 leased square feet. A renewal for
approximately 11,000 square feet of the original 63,000 square feet was
also negotiated 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 has been and will likely continue to
be a protracted period for the property to become fully leased again and
substantial funds, currently estimated to be $700,000 will likely be needed
for leasing expenses; especially those needed to refinish space for new
tenants. See Note 12 for details of a lease expansion and tenant
improvement commitment made by the Partnership subsequent to June 30, 2000.
On May 9, 2000, the Partnership increased the $2,000,000 mortgage payable,
secured by Plainview Center, to $3,500,000 and extended the maturity date
from March 1, 2001 to March 1, 2002. These additional funds will be used to
meet leasing expenses at Plainview Center and NTS Center and leasing and
roof replacement expenses at Peachtree Corporate Center.
10. Segment Reporting
-----------------
The Partnership's reportable operating segments include only one segment -
Commercial Real Estate Operations.
11. Recent Accounting Pronouncement
-------------------------------
The Emerging Issues Task Force ("EITF") of the Financial Accounting
Standards Board ("FASB") has reached a consensus on Issue No. 00-1,
"Applicability of the Pro Rata Method of Consolidation to Investments in
Certain Partnerships and Other Unincorporated Joint Ventures." The EITF
reached a consensus that a proportionate gross financial statement
presentation (referred to as "proportionate consolidation" in the
Partnership's 1999 Form 10-K Notes to Financial Statements) is not
appropriate for an investment in an unincorporated legal entity accounted
for by the equity method of accounting, unless the investee is in either
the construction industry or an extractive industry where there is a
longstanding practice of its use.
The consensus is applicable to financial statements for annual periods
ending after June 15, 2000. Upon application of the consensus, all
comparative financial statements shall be restated to conform with the
consensus. The application of this consensus will not result in a
restatement of previously reported partners' equity or results of
operations, but will result in a recharacterization or reclassification of
certain financial statements' captions and amounts. The Partnership plans
to restate its financial statements using the equity method to account for
its joint venture investments for the year ending December 31, 2000.
9
<PAGE>
12. Subsequent Event
----------------
On July 17, 2000, the Partnership made a commitment for approximately
$256,600 for tenant improvements at Plainview Center. The improvements will
expand the space of a current tenant by 19,000 square feet and will be
funded by the $1,500,000 increase in the mortgage payable secured by
Plainview Center. This expansion is effective on November 1, 2000 and will
increase the occupancy of Plainview Center from 47% to 67%.
10
<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 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 liquidity, capital resources and results of operations are
subject to a number of risks and uncertainties including, but not limited to the
following: the ability of the Partnership to achieve planned revenues; the
ability of the Partnership to make payments due under its debt agreements; the
ability of the Partnership to negotiate and maintain terms with vendors and
service providers for operating expenses; competitive pressures from other real
estate companies, including large commercial real estate companies, which may
affect the nature and viability of the Partnership's business strategy; trends
in the economy as a whole which may affect consumer confidence and demand for
the types of rental property held by the Partnership; the ability of the
Partnership to predict the demand for specific rental properties; the ability of
the Partnership to attract and retain tenants; availability and costs of
management and labor employed; real estate occupancy and development costs,
including substantial fixed investment costs associated with renovations
necessary to obtain new tenants and retain existing tenants; and the risk of a
major commercial tenant defaulting on its lease due 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.
11
<PAGE>
Cautionary Statements - Continued
---------------------------------
At Plainview Center, there has been and will likely continue to be a protracted
period for the property to become fully leased again. Failure to lease the
vacant space at Plainview Center may have an adverse effect on the Partnership's
operations. The extent of the impact on the Partnership is unknown at this time.
Results of Operations
---------------------
The occupancy levels at the Partnership's properties as of June 30 were as
follows:
Six Months Ended June 30,
-------------------------
2000 (1) 1999
-------- ----
NTS Center (2) 92% 100%
Plainview Center (3) 47% 21%
Peachtree Corporate Center 79% 79%
(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) 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. As of June 30, 2000, a
current tenant has signed a lease to expand their space by 2,882 square
feet effective July 15, 2000. This expansion will increase the occupancy at
NTS Center to 95%.
(3) The current occupancy level is the result of one tenant vacating 52,000
square feet on September 30, 1998 and 11,000 square feet on March 31, 1999.
In the opinion of the General Partner of the Partnership, the period-ending
occupancy level is only a temporary situation and does not represent a
permanent downward occupancy trend. Subsequent to June 30, 2000, a current
tenant signed a lease expanding their space by approximately 19,000 square
feet as of November 1, 2000. The expansion will increase the occupancy at
Plainview Center to 67%.
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,
-------- --------
2000 1999 2000 1999
---- ---- ---- ----
NTS Center (1) 96% 100% 98% 100%
Plainview Center 48% 21% 48% 28%
Peachtree Corporate Center (1) 79% 81% 80% 85%
(1) 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 rental and other income generated by the Partnership's properties for the
three months and six months ended June 30, 2000 and 1999 were as follows:
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2000 1999 2000 1999
---- ---- ---- ----
NTS Center $ 384,673 $ 383,816 $ 763,724 $ 773,331
Plainview Center $ 172,331 $ 75,275 $ 344,204 $ 201,501
Peachtree Corporate Center $ 296,023 $ 300,629 $ 607,240 $ 607,477
12
<PAGE>
Results of Operations - Continued
---------------------------------
The following is an analysis of material changes in results of operations for
the periods ending June 30, 2000 and 1999. Items that did not have a material
impact on operations for the periods listed above have been excluded from this
discussion.
Rental and other income increased approximately $88,000 or 13% and $124,800 or
9% for the three months and six months ended June 30, 2000, as compared to the
same periods in 1999, primarily as a result of increased average occupancy at
Plainview Center.
Period-ending occupancy percentages represent occupancy only on a specific date;
therefore, the above analysis considers average occupancy percentages which are
more representative of the entire period's results.
In cases of tenants who cease making rental payments or abandon the premises in
breach of the lease terms, the Partnership pursues collection through the use of
collection agencies or other remedies available by law when practical. There
have been no funds recovered as a result of these actions during the three
months and six months ended June 30, 2000 and 1999. As of June 30, 2000, no
action is being taken against any tenants to collect funds through the remedies
discussed above.
Operating expenses - affiliated decreased approximately $14,500 or 14% and
$73,400 or 30% for the three months and six months ended June 30, 2000, as
compared to the same periods in 1999. The decrease is due primarily to decreased
overhead costs allocated to the Partnership as a result of personnel status
changes. Operating expenses - affiliated are expenses incurred for services
performed by employees of NTS Development Company, an affiliate of the General
Partner.
Interest expense increased approximately $35,800 or 30% and $68,000 or 29% for
the three months and six months ended June 30, 2000, as compared to the same
periods in 1999, as a result of the mortgage payable for $2,000,000 secured by
Plainview Center in March 1999 which was increased to $3,500,000 in May 2000.
The note bears interest at Prime minus .25%. The increase in interest expense is
partially offset by principal payments made on the Partnership's mortgage
secured by NTS Center.
Professional and administrative expenses decreased approximately $11,000 or 36%
and $20,000 or 33% for the three months and six months ended June 30, 2000, as
compared to the same periods in 1999. The decrease is primarily a result of
decreased costs incurred for legal and accounting fees.
Professional and administrative expenses - affiliated increased approximately
$10,300 or 43% and $8,000 or 15% for the three months and six months ended June
30, 2000, as compared to the same periods in 1999, as a result of changes in
accounting personnel. Professional and administrative expenses - affiliated are
expenses incurred for services performed by employees of NTS Development
Company, an affiliate of the General Partner.
13
<PAGE>
Results of Operations - Continued
---------------------------------
Depreciation and amortization increased approximately $59,500 or 24% and
$112,600 or 22% for the three months and six months ended June 30, 2000, as
compared to the same periods in 1999, as a result of assets being placed in
service. Assets placed in service are tenant improvements and building and land
improvements at all the Partnership's properties. Items having the most
significant effect on the increase are the renovation of the common area at
Plainview Center for approximately $988,000 which was capitalized during the
fourth quarter of 1999 and approximately $500,000 for tenant finish improvements
for a new tenant at Plainview Center which was capitalized during the first
quarter of 2000. 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. The aggregate cost of the
Partnership's properties for federal tax purposes is approximately $26,214,477.
Consolidated Cash Flows and Financial Condition
-----------------------------------------------
Cash flows (used in) provided by:
Six Months Ended June 30,
-------------------------
2000 1999
---- ----
Operating activities $ (76,708) $ 453,749
Investing activities (238,343) (1,009,934)
Financing activities 407,100 647,299
------------ ------------
Net increase in cash and equivalents $ 92,049 $ 91,114
============ ============
Net cash from operating activities decreased approximately $530,500 for the six
months ended June 30, 2000, as compared to the same period in 1999. This
decrease was primarily driven by a decrease in accounts payable offset by
decreased accounts receivable and higher income before depreciation.
Net cash used in investing activities decreased approximately $771,600 for the
six months ended June 30, 2000, as compared to the same period in 1999. The
decrease was primarily due to a decrease in the amount of funds used for
renovations at the Partnership's properties.
Net cash provided by financing activities decreased approximately $240,200 for
the six months ended June 30, 2000, as compared to the same period in 1999. The
decrease is the result of a decrease in funds drawn on the mortgage loan
obtained March 2, 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 as shown on the
Partnership's balance sheet) as of June 30, 2000 were $196,581.
In the next 12 months, the General Partner expects the demand on future
liquidity to increase as a result of future leasing activity at Plainview
Center, roof replacements at Peachtree Corporate Center and tenant improvements
at NTS Center. There has been and will likely continue to be a protracted period
for Plainview Center to become fully leased again and substantial funds,
currently estimated to be $700,000, will likely be needed for leasing expenses;
especially those needed to refinish space
14
<PAGE>
Consolidated Cash Flows and Financial Condition - Continued
-----------------------------------------------------------
for new tenants. As of June 30, 2000, the Partnership had no material
commitments for tenant finish improvements. The demand on future liquidity will
be managed by the General Partner through funds from operations and additional
borrowings secured by the Partnership's properties.
On May 9, 2000, the Partnership increased the mortgage payable secured by
Plainview Center from $2,000,000 to $3,500,000 and extended the maturity date
from March 1, 2001 to March 1, 2002. These funds will be used to meet the
demands discussed above and to fund an approximate $256,600 tenant improvement
commitment made by the Partnership subsequent to June 30, 2000. (See Notes to
Financial Statements - Note 12). This commitment is for a portion of the
estimated $700,000 necessary.
Due to the fact that no distributions were made during the six months ended June
30, 2000 or 1999, the table which represents that portion of the distribution
that represents a return of capital on a GAAP basis has been omitted.
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.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
----------------------------------------------------------
Our primary market risk exposure with regard 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 $3,500,000 mortgage payable, which the Partnership
obtained on May 9, 2000. At June 30, 2000, a hypothetical 100 basis point
increase in interest rates would increase interest expense on the variable rate
mortgage by approximately $21,840. The same increase would result in an
approximate $326,700 decrease in the fair value of all debt held by the
Partnership.
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PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings
-----------------
Not applicable.
Item 2. Changes in Securities
---------------------
Not applicable.
Item 3. Defaults Upon Senior Securities
-------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not applicable.
Item 5. Other Information
-----------------
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a) Exhibits:
Exhibit 27. Financial Data Schedule
b) Reports on Form 8-K:
Not applicable.
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SIGNATURES
----------
Pursuant to the requirements 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 and
Chief Financial Officer of
NTS Capital Corporation
Date: August 11, 2000
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