<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 March 31, 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
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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)
(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 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
----- -----
<PAGE>
TABLE OF CONTENTS
-----------------
PART I
Pages
Item 1. Financial Statements
Balance Sheets and Statement of Partners' Equity
as of March 31, 2000 and December 31, 1999 3
Statements of Operations
for the three months ended March 31, 2000 and 1999 4
Statements of Cash Flows
for the three months ended March 31, 2000 and 1999 5
Notes to Financial Statements 6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-15
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 15
PART II
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
2
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PART I. FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
--------------------
<TABLE>
NTS-PROPERTIES III
------------------
BALANCE SHEETS AND STATEMENTS OF PARTNERS' EQUITY
-------------------------------------------------
<CAPTION>
As of As of
March 31, 2000 December 31,1999*
-------------- -----------------
(Unaudited)
ASSETS
- ------
<S> <C> <C>
Cash and equivalents $ 109,600 $ 104,532
Cash and equivalents - restricted 22,842 8,073
Accounts receivable, net of allowance
for doubtful accounts of $16,257 at
March 31, 2000 and $15,512 at
December 31, 1999 301,087 404,773
Land, buildings and amenities, net 11,106,725 11,316,969
Other assets 502,009 492,259
----------- -----------
TOTAL ASSETS $12,042,263 $12,326,606
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
- --------------------------------
Mortgages payable $ 8,367,996 $ 8,073,856
Accounts payable 285,117 890,032
Security deposits 141,731 142,573
Other liabilities 108,517 43,995
----------- -----------
TOTAL LIABILITIES 8,903,361 9,150,456
COMMITMENTS AND CONTINGENCIES (Note 9)
Partners' equity 3,138,902 3,176,150
----------- -----------
TOTAL LIABILITIES AND PARTNERS' EQUITY $12,042,263 $12,326,606
=========== ===========
</TABLE>
<TABLE>
Limited General
Partners Partner Total
-------- ------- -----
<CAPTION>
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 loss - prior years (242,145) (2,566,315) (2,808,460)
Net loss - current year (19,301) (17,948) (37,249)
Cash distributions declared
to date (11,349,844) (206,985) (11,556,829)
Repurchase of Limited
Partnership Units (643,240) -- (643,240)
------------ ------------ ------------
Balances at March 31, 2000 $ 3,345,470 $ (206,568) $ 3,138,902
============ ============ ============
</TABLE>
* Reference is made to the audited financial statements in the Form 10-K as
filed with the Commission on March 29, 2000.
The accompanying notes to financial statements are an integral part of these
statements.
3
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<TABLE>
NTS-PROPERTIES III
------------------
STATEMENTS OF OPERATIONS
------------------------
<CAPTION>
Three Months Ended
March 31,
---------
(Unaudited)
2000 1999
---- ----
REVENUES:
- ---------
<S> <C> <C>
Rental income, net of provision for
doubtful accounts of $745 (2000) and
$0 (1999) $ 785,246 $ 749,865
Rental income - affiliated 73,834 73,834
Interest and other income 2,215 --
--------- --------
861,295 823,699
--------- ---------
EXPENSES:
- ---------
Operating expenses 216,838 201,454
Operating expenses - affiliated 83,163 142,003
Loss on disposal of assets 105 --
Interest expense 148,640 116,240
Management fees 41,844 36,148
Real estate taxes 53,220 51,561
Professional and administrative expenses 20,079 29,053
Professional and administrative
expenses - affiliated 27,476 29,742
Depreciation and amortization 307,179 254,122
--------- ---------
898,544 860,323
--------- ---------
Net loss $ (37,249) $ (36,624)
========= =========
Net loss allocated to
the Limited Partners $ (19,301) $ (13,962)
========= =========
Net loss per Limited
Partnership Unit $ (1.51) $ (1.05)
========= =========
Weighted average number of
Limited Partnership Units 12,770 13,303
========= =========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
4
<PAGE>
<TABLE>
NTS-PROPERTIES III
------------------
STATEMENTS OF CASH FLOWS
------------------------
<CAPTION>
Three Months Ended
March 31,
---------
(Unaudited)
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
- ------------------------------------
<S> <C> <C>
Net loss $ (37,249) $ (36,624)
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provision for doubtful accounts 745 --
Loss on disposal of assets 105 --
Depreciation and amortization 307,179 254,122
Changes in assets and liabilities:
Cash and equivalents - restricted (14,769) (13,533)
Accounts receivable 102,941 (41,240)
Other assets (19,684) (46,970)
Accounts payable (604,915) 53,099
Security deposits (842) 2,601
Other liabilities 64,526 36,290
--------- ---------
Net cash (used in) provided by
operating activities (201,963) 207,745
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
Additions to land, buildings,
amenities and construction in progress (87,109) (241,148)
--------- ---------
Net cash used in investing activities (87,109) (241,148)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
Increase in mortgage payable 353,766 315,536
Principal payments on mortgages
payable (59,626) (55,668)
Increase in loan costs -- (17,868)
Repurchase of Limited Partnership
Units -- (125,000)
Increase in cash and equivalents -
restricted -- 125,000
--------- ---------
Net cash provided by
financing activities 294,140 242,000
--------- ---------
Net increase in cash and equivalents 5,068 208,597
--------- ---------
CASH AND EQUIVALENTS, beginning of
period 104,532 233,844
--------- ---------
CASH AND EQUIVALENTS, end of period $ 109,600 $ 442,441
========= =========
Interest paid on a cash basis $ 146,060 $ 114,334
========= =========
</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 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 ended March 31, 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 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. 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 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.
5. 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 10-30 years
for land improvements, 5-30 years for buildings and improvements, 5-30
years for amenities and the applicable lease term for tenant
improvements.
6
<PAGE>
5. Basis of Property and Depreciation - Continued
----------------------------------------------
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 market value.
Application of this standard during the periods ended March 31, 2000
and 1999 did not result in any impairment loss.
6. Mortgages Payable
-----------------
Mortgages payable consist of the following:
March 31, December 31,
2000 1999
---- ----
Mortgage payable to an insurance
company bearing interest at
6.89%, maturing April 10, 2015,
secured by land and buildings $ 6,367,996 $ 6,427,622
Mortgage payable to a bank
maturing March 1, 2001, secured
by land and buildings, bearing a
variable interest rate of prime
minus .25%. The current rate at
March 31, 2000 is 8.75% 2,000,000 1,646,234
------------- -------------
$ 8,367,996 $ 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 $7,756,000.
7. Reclassification of 1999 Financial Statements
---------------------------------------------
Certain reclassifications have been made to the March 31, 1999 and
December 31, 1999 financial statements to conform to the March 31,
2000 classifications. These reclassifications have no effect on
previously reported operations.
8. Related Party Transactions
--------------------------
Property management fees of $41,844 and $36,148 for the three months
ended March 31, 2000 and 1999, 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 which relate to capital
improvements. The Partnership has incurred $6,679 and $30,929 as
repair and maintenance fees during the three months ended
7
<PAGE>
8. Related Party Transactions - Continued
--------------------------------------
March 31, 2000 and 1999, respectively, and has capitalized these costs
as a part of land, buildings and amenities. As permitted by an
agreement, the Partnership was also charged the following amounts from
NTS Development Company for the three months ended March 31, 2000 and
1999. 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 or as land, buildings, amenities and construction in progress.
These charges were as follows:
Three Months Ended
March 31,
---------
2000 1999
---- ----
Leasing $ 47,527 $ 57,088
Administrative 34,901 37,194
Property Management 49,007 69,660
Other 751 13,869
--------- ---------
$ 132,186 $ 177,811
========= =========
During the three months ended March 31, 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 $73,800
in rental payments from NTS Development Company during the three
months ended March 31, 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 a 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.
8
<PAGE>
9. Commitments and Contingencies - Continued
-----------------------------------------
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.
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 discussion below for information regarding a commitment
obtained by the Partnership to increase the note payable secured by
Plainview Center.
10. Segment Reporting
-----------------
The Company's reportable operating segments include only one segment -
Commercial Real Estate Operations.
11. Subsequent Event
----------------
On May 9, 2000, the Partnership obtained a loan from a bank to
increase the $2,000,000 mortgage payable secured by Plainview Center
to $3,500,000 and to extend the maturity date from March 1, 2001 to
March 1, 2002. The funds will be used to fund leasing costs at
Plainview Center as discussed above, approximately $600,000 in roof
replacements at Peachtree Corporate Center and approximately $200,000
of tenant improvements at NTS Center.
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.
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.
10
<PAGE>
Results of Operations
- ---------------------
The occupancy levels at the Partnership's properties as of March 31 were as
follows:
2000 (1) 1999
-------- ----
NTS Center 100% 100%
Plainview Center (2) 48% 35%
Peachtree Corporate Center (3) 83% 87%
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 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.
3) In the opinion of the General Partner of the Partnership, the decrease in
period-ending occupancy is only a temporary fluctuation and does not
represent a permanent downward occupancy trend.
The average occupancy levels at the Partnership's properties during the three
months ended March 31 were as follows:
Three Months Ended
March 31,
---------
2000 1999
---- ----
NTS Center 100% 100%
Plainview Center 48% 35%
Peachtree Corporate Center (4) 81% 88%
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 March 31, 2000 and 1999. Items that did not have a material
impact on operations for the periods listed above have been excluded from this
discussion.
11
<PAGE>
Results of Operations - Continued
- ---------------------------------
The rental and other income generated by the Partnership's properties for the
three months ended March 31, 2000 and 1999 were as follows:
Three Months Ended
March 31,
---------
2000 1999
---- ----
NTS Center $ 379,051 $ 389,515
Plainview Center $ 171,873 $ 126,226
Peachtree Corporate Center $ 311,218 $ 306,847
Rental and other income increased approximately $38,000 or 5% for the three
months ended March 31, 2000, as compared to the same period 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 ended March 31, 2000 or 1999. As of March 31, 2000 no action is being
taken against any tenants to collect funds through the remedies discussed above.
Operating expenses increased approximately $15,000 or 8% for the three months
ended March 31, 2000, as compared to the same period in 1999. The increase is
due primarily to increased landscape maintenance expenses at Plainview Center
and NTS Center and increased heating and air conditioning system replacements at
Peachtree Corporate Center.
Operating expenses - affiliated decreased approximately $59,000 or 41% for the
three months ended March 31, 2000, as compared to the same period 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 $32,000 or 28% for the three months
ended March 31, 2000, as compared to the same period in 1999, as a result of the
$2,000,000 mortgage payable secured by Plainview Center in March 1999. The note
bears interest at prime -.25%. The increase in interest expense is partially
offset by principal payments made on the Partnership's mortgage secured by NTS
Center.
12
<PAGE>
Results of Operations - Continued
- ---------------------------------
Professional and administrative expenses decreased approximately $9,000 or 31%
for the three months ended March 31, 2000, as compared to the same period in
1999. The decrease is primarily a result of decreased costs incurred for legal
and accounting fees.
Depreciation and amortization increased approximately $53,000 or 21% for the
three months ended March 31, 2000, as compared to the same period 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. The increase in depreciation and amortization expense is partially
offset by a portion of the Partnership's assets (primarily tenant finish
improvements) becoming fully depreciated. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets which are
10-30 years for land improvements, 5-30 years for buildings and improvements,
5-30 years for amenities and the applicable lease term for tenant improvements.
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 provided by (used in):
2000 1999
---- ----
Operating activities $(201,963) $ 207,745
Investing activities (87,109) (241,148)
Financing activities 294,140 242,000
--------- ---------
Net increase in cash and
equivalents $ 5,068 $ 208,597
========= =========
Net cash provided by operating activities decreased approximately $409,700 for
the three months ended March 31, 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 $154,000 for the
three months ended March 31, 2000, as compared to the same period in 1999. The
decrease was primarily due to decreased funds used for renovations at the
Partnership's properties.
Net cash provided by financing activities increased approximately $52,000 for
the three months ended March 31, 2000, as compared to the same period in 1999.
The increase is the result of a new mortgage loan obtained March 2, 1999 to fund
renovations at Plainview Center.
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 March 31, 2000 were $109,600.
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 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 for new tenants. As of March 31, 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 (See Notes to Financial Statements "11. Subsequent Event").
Due to the fact that no distributions were made during the three months ended
March 31, 2000 or 1999, 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.
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
- ---------
During 1999, all divisions of NTS Corporation, including NTS-Properties III, the
General Partner of the Partnership, reviewed 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 were
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 development during the decade of the 1990's. NTS'
property management staff surveyed vendors to evaluate embedded technology in
our alarm systems, HVAC controls, telephone systems and other computer
associated facilities. Some equipment was replaced, while others had circuitry
upgrades.
14
<PAGE>
Year 2000 - Continued
- ---------------------
In 1999, the PILOT software system, purchased in the early 1990's, was 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 replaced PILOT. The Yardi system
was fully implemented and operational as of December 31, 1999. There have been
no Year 2000 related problems with the system.
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 were approximately $25,000 during 1999 and 1998. These costs
include primarily purchase, lease and maintenance of hardware and software.
At the date of this filing the Partnership did not experience any significant
operating issues relative to the Year 2000 issue. Despite diligent preparation,
unanticipated third-party failures, inability of our tenants to pay rent when
due, more general public infrastructure failures or failure of our remediation
efforts as planned could have a material adverse impact on our results of
operations, financial conditions and/or cash flows in 2000 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 mortgage payable, which the
Partnership obtained on March 2, 1999. At March 31, 2000, a hypothetical 100
basis point increase in interest rates would increase interest expense by
approximately $20,000, and would result in an approximately $330,000 decrease in
the fair value of the debt.
15
<PAGE>
PART II. OTHER INFORMATION
-----------------
Item 3. Defaults Upon Senior Securities
-------------------------------
None.
Item 5. Other Information
-----------------
None.
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.
16
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, NTS-Properties III has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
NTS-PROPERTIES III
------------------------------------------
(Registrant)
BY: NTS-Properties Associates,
General Partner,
BY: NTS Capital Corporation,
General Partner
/s/ Gregory A. Wells
------------------------------------------
Gregory A. Wells
Senior Vice President and
Chief Financial Officer of
NTS Capital Corporation
Date: May 12, 2000
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF MARCH 31, 2000 AND FROM THE STATEMENTS OF OPERATIONS FOR THE THREE
MONTHS ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 132,442
<SECURITIES> 0
<RECEIVABLES> 301,087
<ALLOWANCES> 16,257
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 11,106,725
<DEPRECIATION> 0<F2>
<TOTAL-ASSETS> 12,042,263
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 8,367,996
0
0
<COMMON> 0
<OTHER-SE> 3,138,902
<TOTAL-LIABILITY-AND-EQUITY> 12,042,263
<SALES> 785,246
<TOTAL-REVENUES> 861,295
<CGS> 0
<TOTAL-COSTS> 749,904
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 148,640
<INCOME-PRETAX> (37,249)
<INCOME-TAX> 0
<INCOME-CONTINUING> (37,249)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (37,249)
<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>
