<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 September 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 September 30, 2000 and December 31, 1999 3
Statement of Partners' Equity as of September 30, 2000 3
Statements of Operations for the three months and nine months
ended September 30, 2000 and 1999 4
Statements of Cash Flows for the nine months ended
September 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 11-16
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
PART II
-------
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
2
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
--------------------
<TABLE>
NTS-PROPERTIES III
------------------
BALANCE SHEETS
--------------
<CAPTION>
As of As of
September 30, December 31,
2000 1999*
----------- ------------
(UNAUDITED)
ASSETS
------
<S> <C> <C>
Cash and equivalents $ 140,589 $ 104,532
Cash and equivalents - restricted 77,380 8,073
Accounts receivable, net of allowance for doubtful
accounts of $463 at September 30, 2000 and
$15,512 at December 31, 1999 355,714 404,773
Land, buildings and amenities, net 11,104,905 11,316,969
Other assets 497,503 492,259
---------- ----------
TOTAL ASSETS $12,176,091 $12,326,606
========== ==========
LIABILITIES AND PARTNERS' EQUITY
--------------------------------
Mortgages payable $ 8,483,633 $ 8,073,856
Accounts payable 520,791 890,032
Security deposits 130,081 142,573
Other liabilities 152,278 43,995
---------- ----------
TOTAL LIABILITIES 9,286,783 9,150,456
COMMITMENTS AND CONTINGENCIES (Note 10)
PARTNERS' EQUITY 2,889,308 3,176,150
---------- ----------
TOTAL LIABILITIES AND PARTNERS' EQUITY $12,176,091 $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 (231,248) (55,595) (286,843)
Cash distributions declared to date (11,349,844) (206,985) (11,556,829)
Repurchase of Limited Partnership Units (643,240) - (643,240)
----------- ----------- -----------
BALANCES AT September 30, 2000 $ 3,133,523 $ (244,215) $ 2,889,308
=========== =========== ===========
</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 Nine Months Ended
September 30, September 30,
------------- -------------
2000 1999 2000 1999
---- ---- ---- ----
REVENUES
--------
<S> <C> <C> <C> <C>
Rental income $ 752,542 $ 656,889 $2,311,986 $2,093,487
Rental income - affiliated 73,834 73,834 221,503 221,503
Interest and other income 6,272 3,973 14,553 8,524
--------- --------- --------- ---------
TOTAL REVENUES 832,648 734,696 2,548,042 2,323,514
--------- --------- --------- ---------
EXPENSES
--------
Operating expenses 255,345 248,921 725,592 712,218
Operating expenses - affiliated 102,115 115,650 274,014 360,907
Loss on disposal of assets 515 286,123 783 290,542
Interest expense 161,287 131,832 466,275 368,635
Management fees 38,569 39,446 123,605 116,688
Real estate taxes 53,220 57,924 159,660 159,681
Professional and administrative expenses 21,758 41,069 61,468 100,808
Professional and administrative expenses
- affiliated 29,275 24,028 90,842 77,595
Depreciation and amortization 315,118 275,208 932,646 767,409
--------- --------- --------- ---------
TOTAL EXPENSES 977,202 1,220,201 2,834,885 2,954,483
--------- --------- --------- ---------
Net loss $ (144,554) $ (485,505) $ (286,843) $ (630,969)
========= ========= ========= =========
Net loss allocated to the Limited Partners $ (125,528) $ (463,167) $ (231,248) $ (563,335)
========= ========= ========= =========
Net loss per Limited Partnership Unit $ (9.83) $ (34.90) $ (18.11) $ (42.42)
========= ========= ========= =========
Weighted average number of Limited
Partnership Units 12,770 13,270 12,770 13,281
========= ========= ========= =========
</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>
Nine Months Ended
September 30,
-------------
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
------------------------------------
<S> <C> <C>
Net loss $ (286,843) $ (630,969)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Provision for doubtful accounts 5,762 16,954
Write-off of uncollectible accounts receivable (20,811) -
Loss on disposal of assets 783 290,542
Depreciation and amortization 932,646 767,409
Changes in assets and liabilities:
Cash and equivalents - restricted (44,307) (40,599)
Accounts receivable 64,108 (13,298)
Other assets (26,187) (105,053)
Accounts payable (369,241) 208,002
Security deposits (12,492) 41,550
Other liabilities 108,283 85,883
---------- ----------
Net cash provided by operating activities 351,701 620,421
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
------------------------------------
Additions to land, buildings, and amenities (689,786) (1,603,665)
---------- ----------
Net cash used in investing activities (689,786) (1,603,665)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
------------------------------------
Increase in mortgages payable 651,772 1,288,527
Principal payments on mortgages payable (241,995) (169,912)
Increase in loan costs (10,635) (18,107)
Repurchase of Limited Partnership Units - (125,000)
Increase in cash and equivalents - restricted (25,000) -
---------- ----------
Net cash provided by financing activities 374,142 975,508
---------- ----------
Net increase (decrease) in cash and equivalents 36,057 (7,736)
CASH AND EQUIVALENTS, beginning of period 104,532 233,844
---------- ----------
CASH AND EQUIVALENTS, end of period $ 140,589 $ 226,108
========== ==========
Interest paid on a cash basis $ 460,662 $ 360,850
========== ==========
</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 nine months ended September 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 September 30, 1999 and
December 31, 1999 financial statements to conform to the September 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 and funds reserved by the
Partnership for the purchase of Limited Partnership Units through the
tender offer. (See Notes to Financial Statements - Note 7).
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 by management
during the periods ended September 30, 2000 and 1999 did not result in any
impairment loss.
7. Tender Offer
------------
On September 21, 2000, the Partnership and ORIG, LLC, an affiliate of the
Partnership, filed a tender offer (the "Tender Offer") with the Securities
and Exchange Commission, commencing on September 20, 2000, to purchase up
to 200 of the Partnership's Limited Partnership Units at a price of $250
per Unit. Under the Tender Offer, the Partnership will purchase the first
100 Units tendered and will fund its purchase and its portion of the
expenses from cash reserves. If more than 100 Units are tendered, ORIG, LLC
will purchase up to an additional 100 Units. If more than 200 Units are
tendered, the bidders may choose to acquire the additional Units on a pro
rata basis. The total costs of the Tender Offer are expected to be $60,000,
consisting of $50,000 to purchase 200 Units and $10,000 of expenses. The
Partnership expects that its share of these costs will be approximately
$30,000. 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 Tender Offer will expire on December 20, 2000 unless extended.
8. Mortgages Payable
-----------------
Mortgages payable consist of the following:
<TABLE>
September 30, December 31,
2000 1999
---- ----
<S> <C> <C>
Mortgage payable to an insurance company
bearing interest at 6.89%, due April 10, 2015,
secured by land and buildings. $6,245,627 $6,427,622
Mortgage payable to a bank bearing a variable
interest rate of Prime minus 0.25%, due March 1,
2002, secured by land and a building.
The current rate at September 30, 2000 is 9.25%. 2,238,006 1,646,234
--------- ---------
$8,483,633 $8,073,856
========= =========
</TABLE>
7
<PAGE>
8. Mortgages Payable - Continued
-----------------------------
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 $7,886,000.
9. Related Party Transactions
--------------------------
Pursuant to an agreement with the Partnership, NTS Development Company, an
affiliate of the General Partner of the Partnership, receives property
management fees on a monthly basis. The fees are paid in an amount equal to
5% of the gross revenues from the Partnership's properties. Also pursuant
to an agreement, NTS Development Company receives a repair and maintenance
fee equal to 5.9% of costs incurred which relate to capital improvements.
These repair and maintenance fees are capitalized as part of land,
buildings and amenities.
The Partnership was charged the following amounts from NTS Development
Company for the nine months ended September 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.
<TABLE>
Nine Months Ended
September 30,
-------------
2000 1999
---- ----
<S> <C> <C>
Property management fees $123,605 $116,688
------- -------
Total property management fees 123,605 116,688
------- -------
Property management 154,182 186,076
Leasing 89,816 149,389
Administrative - operating 22,275 23,192
Other 7,741 2,250
------- -------
Total operating expenses - affiliated 274,014 360,907
------- -------
Administrative - professional 90,842 77,595
------- -------
Total professional and
administrative expenses - affiliated 90,842 77,595
------- -------
Repairs and maintenance fee 46,362 77,752
Leasing commissions 66,764 56,088
Construction management 62 5,350
------- -------
Total related party transactions capitalized 113,188 139,190
------- -------
Total related party transactions $601,649 $694,380
======= =======
</TABLE>
During the nine months ended September 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 $221,503 in rental payments from NTS
Development Company during the nine months ended September 30, 2000 and
1999. The lease term for NTS Development Company ends on March 31, 2004.
8
<PAGE>
9. Related Party Transactions - Continued
--------------------------------------
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.
10. 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.
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.
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. The Peachtree
Corporate Center roof replacement is expected to cost approximately
$500,000 and is to be complete in 2001.
9
<PAGE>
10. Commitments and Contingencies - Continued
-----------------------------------------
On July 17, 2000, the Partnership made a commitment for approximately
$257,000 for tenant improvements at Plainview Center. This commitment is
for a portion of the estimated $700,000 necessary for leasing expenses 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
expected to take place November 15, 2000 and will increase the occupancy of
Plainview Center from 49% to 67%.
11. Segment Reporting
-----------------
The Partnership's reportable operating segments include only one segment -
Commercial Real Estate Operations.
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 September 30 were as
follows:
<TABLE>
Nine Months Ended September 30,
-------------------------------
2000 (1) 1999
-------- ----
<S> <C> <C>
NTS Center (2) 95% 100%
Plainview Center (3) 49% 23%
Peachtree Corporate Center 79% 82%
</TABLE>
(1) With the exception of Plainview Center, current occupancy levels are
considered adequate to continue the operation of the Partnership's
properties without additional financing. 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.
(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. During the third quarter, a current
tenant signed a lease expanding their space by approximately 19,000 square
feet. The expansion is expected to take place on November 15, 2000 and will
increase the occupancy at Plainview Center to 67%.
The average occupancy levels at the Partnership's properties during the three
months and nine months ended September 30 were as follows:
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
NTS Center (1) 95% 100% 97% 100%
Plainview Center 48% 23% 48% 27%
Peachtree Corporate Center (1) 79% 81% 79% 84%
</TABLE>
(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 nine months ended September 30, 2000 and 1999 were as follows:
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
NTS Center $ 348,965 $ 354,242 $1,112,689 $1,127,573
Plainview Center $ 172,057 $ 81,955 $ 516,261 $ 285,769
Peachtree Corporate Center $ 309,646 $ 294,142 $ 916,887 $ 903,725
</TABLE>
12
<PAGE>
Results of Operations - Continued
---------------------------------
The following is an analysis of material changes in results of operations for
the periods ending September 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 $98,000 or 13% and $225,000 or
10% for the three months and nine months ended September 30, 2000, respectively,
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 nine months ended September 30, 2000 and 1999. As of September 30,
2000, no action is being taken against any tenants to collect funds through the
remedies discussed above.
Operating expenses - affiliated decreased approximately $14,000 or 12% and
$87,000 or 24% for the three months and nine months ended September 30, 2000,
respectively, 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.
The 1999 loss on disposal of assets can be attributed to common area and tenant
renovations at Plainview Center during the third quarter of 1999. The 2000 loss
is not material.
Interest expense increased approximately $29,000 or 22% and $98,000 or 27% for
the three months and nine months ended September 30, 2000, respectively, 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 0.25%. 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 $19,000 or 47%
and $39,000 or 39% for the three months and nine months ended September 30,
2000, respectively, as compared to the same periods in 1999. The decrease is
primarily a result of decreased costs incurred for legal and accounting fees
related to the September 30, 1998 tender offer, which expired March 31, 1999.
13
<PAGE>
Results of Operations - Continued
---------------------------------
Professional and administrative expenses - affiliated increased approximately
$5,000 or 22% and $13,000 or 17% for the three months and nine months ended
September 30, 2000, respectively, 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.
Depreciation and amortization increased approximately $40,000 or 15% and
$165,000 or 22% for the three months and nine months ended September 30, 2000,
respectively, 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:
<TABLE>
Nine Months Ended
September 30,
-------------
2000 1999
---- ----
<S> <C> <C>
Operating activities $ 351,701 $ 620,421
Investing activities (689,786) (1,603,665)
Financing activities 374,142 975,508
---------- ----------
Net increase (decrease) in cash and equivalents $ 36,057 $ (7,736)
========== ==========
</TABLE>
Net cash provided by operating activities decreased approximately $269,000 for
the nine months ended September 30, 2000, as compared to the same period in
1999. This decrease was primarily driven by a decrease in accounts payable
offset by increased depreciation and higher income before depreciation.
Net cash used in investing activities decreased approximately $914,000 for the
nine months ended September 30, 2000, as compared to the same period in 1999.
The decrease was due to a decrease in the amount of funds used for renovations
at all of the Partnership's properties.
Net cash provided by financing activities decreased approximately $601,000 for
the nine months ended September 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, due to a decrease in renovations and tenant finish
activity.
14
<PAGE>
Consolidated Cash Flows and Financial Condition - Continued
-----------------------------------------------------------
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 September 30, 2000 were $140,589.
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.
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 additional funds will be used to meet
the demands discussed above. The Peachtree Center roof replacement is expected
to cost approximately $500,000 and is to be complete in 2001.
On July 17, 2000, the Partnership made a commitment for approximately $257,000
for tenant improvements at Plainview Center. This commitment is for a portion of
the estimated $700,000 necessary for leasing expenses 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 expected to take place November 15, 2000 and
will increase the occupancy of Plainview Center from 49% to 67%. 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.
Due to the fact that no distributions were made during the nine months ended
September 30, 2000 or 1999, the table which presents that portion of the
distribution that represents a return of capital on a GAAP basis has been
omitted.
On September 21, 2000, the Partnership and ORIG, LLC, an affiliate of the
Partnership, filed a tender offer (the "Tender Offer") with the Securities and
Exchange Commission, commencing on September 20, 2000, to purchase up to 200 of
the Partnership's Limited Partnership Units at a price of $250 per Unit. Under
the Tender Offer, the Partnership will purchase the first 100 Units tendered and
will fund its purchase and its portion of the expenses from cash reserves. If
more than 100 Units are tendered, ORIG, LLC will purchase up to an additional
100 Units. If more than 200 Units are tendered, the bidders may choose to
acquire the additional Units on a pro rata basis. The total costs of the Tender
Offer are expected to be $60,000, consisting of $50,000 to purchase 200 Units
and $10,000 of expenses. The Partnership expects that its share of these costs
will be approximately $30,000. 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 Tender Offer will expire on December 20, 2000 unless extended.
15
<PAGE>
Consolidated Cash Flows and Financial Condition - Continued
-----------------------------------------------------------
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.
16
<PAGE>
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 September 30, 2000, a hypothetical 100 basis point
increase in interest rates would increase interest expense on the variable rate
mortgage by approximately $22,000 per year and decrease the fair value of the
debt approximately $320,000.
<PAGE>
17
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.
18
<PAGE>
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
------------------------------------------
Senior Vice President and
Chief Financial Officer of
NTS Capital Corporation
Date: November 13, 2000
19
<PAGE>
