UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark one)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
----------------------------
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 0-11655
NTS-PROPERTIES IV
(Exact name of registrant as specified in its charter)
Kentucky 61-1026356
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10172 Linn Station Road
Louisville, Kentucky 40223
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number,
including area code (502) 426-4800
Not Applicable
Former name, former address and former fiscal year,
if changed since last report
Indicate by check mark whether the registrant (l) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
Exhibit Index: See page 20
Total Pages: 21
<PAGE>
TABLE OF CONTENTS
Pages
PART I
Item 1. Financial Statements
Balance Sheets and Statement of Partners' Equity
As of March 31, 1997 and December 31, 1996 3
Statements of Operations
For the three months ended March 31, 1997 and 1996 4
Statements of Cash Flows
For the three months ended March 31, 1997 and 1996 5
Notes To Financial Statements 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-19
PART II
1. Legal Proceedings 20
2. Changes in Securities 20
3. Defaults upon Senior Securities 20
4. Submission of Matters to a Vote of Security Holders 20
5. Other Information 20
6. Exhibits and Reports on Form 8-K 20
Signatures 21
- 2 -
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
NTS-PROPERTIES IV
BALANCE SHEETS AND STATEMENT OF PARTNERS' EQUITY
<CAPTION>
As of As of
March 31, 1997 December 31, 1996*
--------------- ------------------
<S> <C> <C>
ASSETS
Cash and equivalents $ 372,160 $ 346,479
Cash and equivalents - restricted 116,546 68,193
Accounts receivable, net of allowance
for doubtful accounts of $7,551 (1997)
and (1996) 345,974 347,133
Land, buildings and amenities, net 13,592,253 13,801,251
Asset held for sale 297,251 297,251
Other assets 554,516 545,979
----------- -----------
$15,278,700 $15,406,286
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Mortgages payable $11,101,189 $11,236,625
Accounts payable 166,940 142,163
Security deposits 85,138 83,911
Other liabilities 85,124 26,412
----------- -----------
11,438,391 11,489,111
Commitments and Contingencies
Partners' equity 3,840,309 3,917,175
----------- -----------
$15,278,700 $15,406,286
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Limited General
Partners Partner Total
-------- ------- -------
PARTNERS' EQUITY
<S> <C> <C> <C>
Capital contributions, net of
offering costs $ 25,834,899 $ -- $ 25,834,899
Net income - prior years 337,100 3,406 340,506
Net loss - current year (42,538) (430) (42,968)
Cash distributions declared to
date (21,586,280) (218,253) (21,804,533)
Repurchase of limited
partnership Units (487,595) -- (487,595)
------------ ----------- ------------
Balances at March 31, 1997 $ 4,055,586 $ (215,277) $ 3,840,309
============ =========== ===========
</TABLE>
* Reference is made to the audited financial statements in the Form 10-K as
filed with the Commission on March 31, 1997.
- 3 -
<PAGE>
<TABLE>
NTS-PROPERTIES IV
STATEMENTS OF OPERATIONS
<CAPTION>
Three Months Ended
March 31,
---------------------
1997 1996
----------- -----------
<S> <C> <C>
Revenues:
Rental income $ 848,554 $ 864,216
Interest and other income 6,110 9,726
----------- ----------
854,664 873,942
Expenses:
Operating expenses 181,327 156,054
Operating expenses - affiliated 99,942 97,130
Amortization of capitalized leasing costs 5,227 5,071
Interest expense 216,355 244,326
Management fees 48,236 49,173
Real estate taxes 55,013 54,943
Professional and administrative expenses 25,020 22,434
Professional and administrative expenses
- affiliated 38,781 42,983
Depreciation and amortization 227,731 230,722
----------- ----------
897,632 902,836
----------- -----------
Net loss $ (42,968) $ (28,894)
=========== ===========
Net loss allocated to the limited partners $ (42,538) $ (28,605)
=========== ===========
Net loss per limited partnership unit $ (1.59) $ (.97)
============ ===========
Weighted average number of limited
partnership units 26,764 29,558
=========== ===========
</TABLE>
- 4 -
<PAGE>
<TABLE>
NTS-PROPERTIES IV
STATEMENTS OF CASH FLOWS
<CAPTION>
Three Months Ended
March 31,
----------------------
1997 1996
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (42,968) $ (28,894)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Accrued interest on investment securities -- 3,642
Amortization of capitalized leasing costs 5,227 5,071
Depreciation and amortization 227,731 230,722
Changes in assets and liabilities:
Cash and equivalents - restricted (48,103) (50,343)
Accounts receivable 1,159 6,964
Other assets (20,345) (32,048)
Accounts payable 24,777 (21,352)
Security deposits 1,227 (315)
Other liabilities 58,712 54,114
--------- ---------
Net cash provided by operating activities 207,417 167,561
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to land, buildings and amenities (12,150) (46,664)
Decrease in cash and equivalents - restricted -- 2,450
Maturity of investment securities -- 400,945
--------- ---------
Net cash (used in) provided by investing
activities (12,150) 356,731
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgages and notes payable (135,436) (111,343)
Cash distributions -- (90,136)
Additions to loan costs -- (7,873)
Repurchase of limited partnership Units (33,900) (187,800)
Increase in cash and equivalents - restricted (250) (37,200)
--------- ---------
Net cash used in financing activities (169,586) (434,352)
--------- ---------
Net increase in cash and equivalents 25,681 89,940
CASH AND EQUIVALENTS, beginning of period 346,479 276,610
--------- ---------
CASH AND EQUIVALENTS, end of period $ 372,160 $ 366,550
========= =========
Interest paid on a cash basis $ 219,906 $ 247,075
========= =========
</TABLE>
- 5 -
<PAGE>
NTS-PROPERTIES IV
NOTES TO FINANCIAL STATEMENTS
The financial statements included herein should be read in conjunction with the
Partnership's 1996 Annual Report. 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, 1997 and 1996.
1. Cash and Equivalents - Restricted
---------------------------------
Cash and equivalents - restricted represent 1) funds received for
residential security deposits, 2) funds which have been escrowed with
mortgage companies for property taxes and insurance in accordance with the
loan agreements and 3) funds which the Partnership has reserved for the
repurchase of limited partnership Units.
2. Interest Repurchase Reserve
---------------------------
Pursuant to Section 16.4 of the Partnership's Amended and Restated
Agreement of Limited partnership, the Partnership established an Interest
Repurchase Reserve. Through March 31, 1997, the Partnership has repurchased
a total of 3,056 Units for $458,400. Repurchased Units are retired by the
Partnership, thus increasing the share of ownership of each remaining
investor. On January 10, 1997, the Partnership indefinitely suspended the
Interest Repurchase Program.
3. Investment Securities
----------------------
Investment Securities represent investments in Certificates of Deposit or
securities issued by the U.S. Government with initial maturities of greater
that three months. The investments are carried at cost which approximates
market value. The Partnership intends to hold the securities until
maturity. During 1996 and 1997, the Partnership sold no investment
securities. As of March 31, 1997 and December 31, 1996, the Partnership
held no investment securities.
4. Mortgages Payable
-----------------
Mortgages payable consist of the following:
March 31, December 31,
1997 1996
--------- ---------
Mortgage payable with an insurance company,
bearing interest at a fixed rate of
8.8%, due October 1, 2004,
secured by land and building $ 2,412,221 $ 2,467,606
Mortgage payable with an insurance
company, bearing interest at a fixed
rate of 7%, due December 5, 2003,
secured by land, buildings and amenities 2,004,226 2,012,389
Mortgage payable with an insurance
company, bearing interest at a fixed
rate of 7%, due December 5, 2003
secured by land, building and amenities 1,908,787 1,916,561
(Continued next page)
- 6 -
<PAGE>
4. Mortgages Payable - Continued
-----------------------------
March 31, December 31,
1997 1996
--------- ---------
Mortgage payable with an insurance company,
bearing interest at a fixed rate of
8.5%, due November 15, 2005,
secured by land and building $ 1,238,812 $ 1,262,76
Mortgage payable with an insurance
company, bearing interest at a fixed
rate of 8.125%, due August 1, 2008
secured by land and building 1,043,791 1,057,548
Mortgage payable with an insurance
company, bearing interest at a fixed
rate of 8.125%, due August 1, 2008,
secured by land and building 1,000,480 1,013,666
Mortgage payable with an insurance
company, bearing interest at a fixed
rate of 8.125%, due August 1, 2008,
secured by land and building 970,163 982,949
Mortgage payable with an insurance
company, bearing interest at a fixed
rate of 7.5%, due December 5, 2003,
secured by land, buildings and amenities 327,304 327,573
Mortgage payable with an insurance
company, bearing interest at a fixed
rate of 7.5%, due December 5, 2003,
secured by land, buildings and amenities 195,405 195,566
----------- -----------
$11,101,189 $11,236,625
=========== ===========
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 $12,600,000.
5. Related Party Transactions
--------------------------
Property management fees of $48,236 and $49,173 were paid to NTS
Development Company, an affiliate of the general partner of the
Partnership, for the three months ended March 31, 1997 and 1996,
respectively. The fee is equal to 5% of the gross revenues from
residential properties and 6% of the gross revenues from commercial
properties pursuant to an agreement with the Partnership. As permitted by
an agreement, NTS Development Company will receive a repair and
maintenance fee equal to 5.9% of costs incurred which relate to capital
improvements. The Partnership has incurred $1,355 and $701 as a repair and
maintenance fee during the three months ended March 31, 1997 and 1996,
respectively, and has capitalized this cost 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, 1997 and 1996. 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.
- 7 -
<PAGE>
5. Related Party Transactions - Continued
--------------------------------------
The charges were as follows:
1997 1996
--------- --------
Administrative $ 50,505 $ 58,922
Leasing 30,631 33,479
Property management 63,276 56,574
Other 1,168 548
-------- --------
$145,580 $149,523
======== ========
6. Commitments and Contingencies
-----------------------------
Philip Crosby Associates, Inc. ("Crosby") has leased 100% of University
Business Center Phase II. The business center is owned by the
Lakeshore/University II (L/U II) Joint Venture in which the Partnership has
an 18% interest. The original lease term is for seven years, and the tenant
took occupancy in April 1991. During 1994, 1995 and 1996, Crosby sub-leased
a portion of the business center. Currently, Crosby has sub-leased, through
the end of their lease term, approximately 85,000 square feet (including
approximately 10,000 square feet of mezzanine space) of University Business
Center Phase II's approximately 88,000 square feet of net rentable area (or
96%). Of the total being sub-leased, approximately 73,000 square feet (or
86%) is being leased by Full Sail Recorder's Inc. ("Full Sail"), a major
tenant at University Business Center Phase I, a neighboring property owned
by an affiliate of the General Partner of the Partnership. Through December
1996, Crosby continued to make rent payments pursuant to the original lease
terms. The Joint Venture has received notice that Crosby does not intend to
pay full rental due under the original lease agreement from and after
January 1997. The rental income from this property accounted for
approximately 6% of the partnership's total revenues during 1996. The Joint
Venture has instituted legal action to seek resolution of this situation.
Although the Joint Venture does not presently have lease agreements (except
as noted below) with the sub-lessees noted above, beginning February 1997
rent payments from these sub-lessees are being made directly to the Joint
Venture. The Joint Venture is currently negotiating directly with the
sub-lessees to enter into lease agreements for the space presently sublet.
At this time, the future leasing and tenant finish costs which will be
required to release this space are unknown except as noted below for the
negotiations with Full Sail.
In December 1995, Full Sail signed a 33 month lease with the L/U II Joint
Venture for approximately 41,000 square feet it currently sub-leases from
Crosby. In November 1996, Full Sail signed a lease amendment which
increased the square footage from 41,000 square feet to 48,000 square feet
and extended the lease term from 33 months to 76 months. In November 1996,
Full Sail also signed a 52 month lease for an additional approximately
21,000 square feet it presently sub-leases from Crosby. Both lease terms
commence April 1998 when the Crosby lease ends. As part of the lease
negotiations, Full Sail will receive a total of $450,000 in special tenant
allowances ($200,000 resulting from the original lease signed December 1995
and $250,000 resulting from the lease amendment signed November 1996).
Approximately $92,000 of the total allowance is to be reimbursed by Full
Sail to the L/U II Joint Venture. The Partnership's proportionate share of
the net commitment ($450,000 less $92,000) is approximately $64,000 or 18%.
The tenant allowance will be due and payable to Full Sail pursuant to the
previously mentioned lease agreements, as appropriate invoices for tenant
finish costs incurred by Full Sail are submitted to the L/U II Joint
Venture. The source of funds for this commitment is expected to be cash
flows from operations and/or cash reserves.
- 8 -
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
- ---------------------
The occupancy levels at the Partnership's properties as of March 31 were as
follows:
1997 1996
---- ----
Wholly-Owned Properties
- -----------------------
Commonwealth Business Center Phase I 80% 89%
Plainview Point Office Center Phases I and II 84% 86%
The Willows of Plainview Phase I 92% 86%
Property Owned in Joint Venture with NTS-
Properties V (Ownership % at March 31,
1997)
- -----------------------------------------
The Willows of Plainview Phase II (10%) 86% 97%
Properties Owned in Joint Venture with NTS-
Properties VI (Ownership % at March
31, 1997)
- --------------------------------------------
Golf Brook Apartments (4%) 90% 92%
Plainview Point III Office Center (5%) 91% 98%
Property Owned in Joint Venture with NTS-
Properties VII, Ltd. and NTS-Properties Plus
Ltd. (Ownership % at March 31, 1997)
- ---------------------------------------------
Blankenbaker Business Center 1A (30%) 100% 100%
Properties Owned through Lakeshore/University
II Joint Venture (L/U II Joint Venture)
(Ownership % at March 31, 1997)
- ---------------------------------------------
Lakeshore Business Center Phase I (18%) 95% 97%
Lakeshore Business Center Phase II (18%) 94% 72%
University Business Center Phase II (18%) 99% 99%
- 9 -
<PAGE>
Results of Operations - Continued
- ---------------------------------
The rental and other income generated by the Partnership's properties for the
three months ended March 31, 1997 and 1996 was as follows:
1997 1996
--------- -------
Wholly-Owned Properties
- -----------------------
Commonwealth Business Center Phase I $ 160,713 $ 169,234
Plainview Point Office Center Phases I
and II $ 139,196 $ 126,801
The Willows of Plainview Phase I $ 273,715 $ 272,206
Property Owned in Joint Venture with NTS-
Properties V (Ownership % at March
31, 1997)
- -----------------------------------------
The Willows of Plainview Phase II (10%) $ 30,996 $ 30,255
Properties Owned in Joint Venture with NTS
- -Properties VI (Ownership % at March
31, 1997)
- ------------------------------------------
Golf Brook Apartments (4%) $ 27,840 $ 27,790
Plainview Point III Office Center (5%) $ 9,397 $ 10,276
Property Owned in Joint Venture with NTS-
Properties VII, Ltd. And NTS-Properties
Plus Ltd. (Ownership % at March 31, 1997)
- -----------------------------------------
Blankenbaker Business Center 1A (30%) $ 69,422 $ 69,383
Properties Owned through Lakeshore/
University II Joint Venture (L/U II Joint
Venture) (Ownership % at March 31, 1997)
- ----------------------------------------
Lakeshore Business Center Phase I (18%) $ 63,146 $ 61,142
Lakeshore Business Center Phase II (18%) $ 59,266 $ 46,847
University Business Center Phase II (18%) $ 16,810 $ 52,870
Revenues shown in the table above for properties owned through a joint venture
represent only the Partnership's percentage interest in those revenues.
The 9% decrease in occupancy at Commonwealth Business Center Phase I from March
31, 1996 to March 31, 1997 is attributed to one tenant move-out at the end of
the lease term of approximately 5,500 square feet and one tenant, who had
occupied 3,200 square feet, vacating the premises prior to the end of the lease
term due to a downsizing decision by the tenant's parent company. The tenant
paid the Partnership a lease termination fee of $6,300 in the fourth quarter of
1996 (recorded as rental income). There was no accrued income connected with
this lease. Offsetting the tenant move-outs is one new lease for a total of
3,600 square feet. Average occupancy decreased for the three months ended March
31 from 88% in 1996 to 82% in 1997. In the opinion of the General Partner of the
Partnership, the decrease in occupancy
- 10 -
<PAGE>
Results of Operations - Continued
- ----------------------------------
is only a temporary fluctuation and does not represent a downward occupancy
trend. Rental and other income at Commonwealth Business Center Phase I decreased
for the three months ended March 31, 1997 as compared to the same period in 1996
as a result of the decrease in average occupancy and a decrease in common area
expense reimbursements. Tenants at Commonwealth Business Center Phase I
reimburse the Partnership for common area expenses as part of the lease
agreements.
The 2% decrease in occupancy at Plainview Point Office Center Phases I and II
from March 31, 1996 to March 31, 1997 is attributed to two tenant move- outs at
the end of the lease terms totalling approximately 2,000 square feet. Partially
offsetting the move-outs is an expansion by a current tenant of its existing
space by approximately 1,000 square feet. Average occupancy remained constant
(86%) for the three months ended March 31, 1997 and 1996. Rental and other
income at Plainview Point Office Center Phases I and II increased for the three
months ended March 31, 1997 as compared to the same period in 1996 as a result
of an increase in rental rates on lease renewals.
The Willows of Plainview Phase I's occupancy increased 6% from March 31, 1996 to
March 31, 1997. Average occupancy increased from 88% (1996) to 90% (1997) for
the three month period. Occupancy at residential properties fluctuate on a
continuous basis. Period-ending occupancy percentages represent occupancy only
on a specific date; therefore, it is more meaningful to consider average
occupancy percentages which are representative of the entire period's results.
The change in rental and other income at The Willows of Plainview Phase I for
the three months ended March 31, 1997 as compared to the same period in 1996 was
not significant.
The Willows of Plainview Phase II's occupancy decreased from 97% as of March 31,
1996 to 86% as of March 31, 1997. Average occupancy decreased from 96% for the
three months ended March 31, 1996 to 89% for the same period in 1997. In the
opinion of the General Partner of the Partnership, the decrease in occupancy is
only a temporary fluctuation and does not represent a downward occupancy trend.
The change in rental and other income at The Willows of Plainview Phase II for
the three months ended March 31, 1997 as compared to the same period in 1996 was
not significant.
Golf Brook Apartments' occupancy decreased 2% from March 31, 1996 to March 31,
1997 while average occupancy decreased from 94% (1996) to 93% (1997) for the
three month period. Rental and other income at Golf Brook Apartments remained
fairly constant for the three months ended March 31, 1997 as compared to the
same period in 1996.
The 7% decrease in occupancy at Plainview Point III Office Center from March 31,
1996 to March 31, 1997 is the result of one tenant move-out at the end of the
lease term totalling approximately 6,900 square feet. Partially offsetting the
move-out is the expansion by two tenants of their existing space for a total of
approximately 2,500 square feet. Average occupancy decreased for the three
months ended March 31 from 96% in 1996 to 91% in 1997. In the opinion of the
General Partner of the Partnership, the decrease in occupancy is only a
temporary fluctuation and does not represent a downward occupancy trend. Rental
and other income decreased at Plainview Point III Office Center for the three
months ended March 31, 1997 as compared to the same period in 1996 as a result
of the decrease in average occupancy.
A wholly-owned subsidiary of The Prudential Insurance Company of America
(Prudential Service Bureau, Inc.) has leased 100% of Blankenbaker Business
Center 1A through July 2005. In addition to monthly rent payments,
- 11 -
<PAGE>
Results of Operations - Continued
- ---------------------------------
Prudential Service Bureau, Inc. is obligated to pay substantially all of the
operating expenses attributable to its space. The change in rental and other
income at Blankenbaker Business Center 1A for the three months ended March 31,
1997 as compared to the same period in 1996 was not significant.
The 2% decrease in occupancy at Lakeshore Business Center Phase I from March 31,
1996 to March 31, 1997 can be attributed to five tenant move-outs totalling
approximately 10,300 square feet. The five move-outs consist of one tenant
vacating at the end of the lease term (1,800 square feet), one tenant exercising
a termination option (1,600 square feet - no termination fee was required) and
three tenants vacating prior to the end of the lease term - one due to a
business decision to consolidate its office space at another location (700
square feet - tenant paid rent through end of lease), one due to a downsizing
decision by the tenant's parent company (1,200 square feet - tenant paid the L/U
II Joint Venture a lease termination fee (recorded as rental income) of
approximately $7,000 of which the Partnership's proportionate share is
approximately $1,300 or 18%) and one due to bankruptcy (5,000 square feet tenant
ceased rental payments). The write-off of accrued income connected with these
leases was not significant. The move-outs are partially offset by six new leases
totalling approximately 7,300 square feet and an expansion by a current tenant
of its existing space totalling 1,000 square feet. Average occupancy for the
three months ended March 31 decreased from 98% in 1996 to 94% in 1997. The
change in rental and other income at Lakeshore Business Center Phase I for the
three months ended March 31, 1997 as compared to the same period in 1996 was not
significant.
As of March 31, 1997, Lakeshore Business Center Phase I has approximately 2,000
square feet of additional space leased to a current tenant. The tenant is
expected to take occupancy during the second quarter of 1997. With the new
lease, the business center's occupancy should improve to 97%. See the Liquidity
and Capital Resources section of this item for the tenant finish commitment
relating to this lease.
The 22% increase in occupancy at Lakeshore Business Center Phase II from March
31, 1996 to March 31, 1997 can be attributed to seven new leases totalling
approximately 24,400 square feet which includes approximately 7,000 square feet
in expansions by two current tenants. One tenant, Lambda Physik, accounts for
nearly 11,000 square feet of the total new leases and has become the largest
tenant in the building, occupying approximately 11% of the total building
rentable square feet. Partially offsetting the new leases is a downsizing by a
current tenant of its existing space of approximately 3,600 square feet. The
downsizing was the result of a decision by the tenant's management to centralize
its warehouse operation with another location. The downsizing was done in
conjunction with a lease renewal; therefore, there was no write-off of accrued
income. Average occupancy at Lakeshore Business Center Phase II increased for
the three months ended March 31 from 72% (1996) to 91% (1997). The increase in
rental and other income at Lakeshore Business Center Phase II for the three
months ended March 31, 1997 as compared to the three months ended March 31, 1996
is due primarily to the increase in average occupancy.
Philip Crosby Associates, Inc. ("Crosby") has leased 100% of University Business
Center Phase II. The original lease term is for seven years and the tenant took
occupancy in April 1991. As a result of Crosby downsizing and sub-leasing a
portion of its leased space, occupancy has decreased to 99% at March 31, 1997
and 1996. During January 1997, Crosby vacated the remaining space it occupied at
the business center. See below for a further discussion of Crosby and its leased
space.
The decrease in rental and other income at University Business Center Phase II
for the three months ended March 31, 1997 as compared to the same period
- 12 -
<PAGE>
Results of Operations - Continued
- ---------------------------------
in 1996 is due to the following. Through the end of 1996, Crosby continued to
make rent payments pursuant to the original lease term. The Joint Venture has
received notice that Crosby does not intend to pay full rental due under the
lease agreement from and after January 1997. Although the Joint Venture does not
presently have lease agreements (except as noted below) with Crosby's
sub-tenants, beginning February 1997, rent payments from Crosby's sub-tenants
(see discussion below) are being made directly to the Joint Venture, which are
substantially less than what Crosby owed. Currently, the Joint Venture is
recognizing income to the extent of what is being collected from the
sub-tenants. The decrease in rental and other income is also due to the fact
that approximately $70,000 of accrued income connected with the Crosby lease was
written-off during the first quarter of 1997, of which the Partnership's
proportionate share is approximately $13,000 or 18%.
In cases of tenants who cease making rental payments or abandon the premises in
breach of their lease, the Partnership pursues collection through the use of
collection agencies and other remedies available by law when practical. In cases
where tenants have vacated as a result of bankruptcy, the Partnership has taken
legal action when it has thought there could be a possible collection. There
have been no funds recovered as a result of these actions during the three
months ended March 31, 1997 or 1996.
Current occupancy levels are considered adequate to continue the operation of
the Partnership's properties. See the Liquidity and Capital Resources section of
this item for a discussion regarding the Partnership's debt financing.
Interest and other income includes income from investments made by the
Partnership with cash reserves. Interest and other income decreased for the
three months ended March 31, 1997 as compared to the same period in 1996 as a
result of a decrease in cash reserves available for investment.
The increase in operating expenses for the three months ended March 31, 1997 as
compared to the same period in 1996 is due mainly to increased utility costs,
landscaping costs, general building maintenance costs and legal expenses at the
Partnership's commercial properties and increased costs for advertising at The
Willows of Plainview Phases I and II. There were no significant fluctuations in
operating expenses at Golf Brook Apartments for the three months ended March 31,
1997 as compared to the same period in 1996.
The change in operating expenses - affiliated for the three months ended March
31, 1997 as compared to the same period in 1996 is not significant. Operating
expenses - affiliated are expenses for services performed by employees of NTS
Development Company, an affiliate of the General Partner of the Partnership.
The change in amortization of capitalized leasing costs for the three months
ended March 31, 1997 as compared to the same period in 1996 is not significant.
Interest expense decreased for the three months ended March 31, 1997 as compared
to the same period in 1996 due primarily to a lower interest rate on the
permanent financing obtained by the L/U II Joint Venture in July 1996 (8.125%
compared to a rate of 10.6% on the previous debt). The decrease is also due to
continued principal payments on the mortgages payable of the Partnership and its
Joint Venture properties. See the Liquidity and Capital Resources section of
this item for details regarding the Partnership's debt.
- 13 -
<PAGE>
Results of Operations - Continued
- ---------------------------------
Management fees are calculated as a percentage of cash collections; however,
revenue for reporting purposes is recorded on the accrual basis. As a result,
the fluctuations of revenues between periods will differ from the fluctuations
of management fee expense.
The changes in real estate taxes and professional and administrative expenses
for the three months ended March 31, 1997 as compared to the same period in 1996
are not significant.
The decrease in professional and administrative expense - affiliated for the
three months ended March 31, 1997 as compared to the same period in 1996 is due
to decreased salary costs. Professional and administrative expenses affiliated
are expenses for services performed by employees of NTS Development Company, an
affiliate of the General Partner.
The change in depreciation and amortization expense for the three months ended
March 31, 1997 as compared to the same period in 1996 was not significant.
Depreciation is computed using the straight-line method of depreciation over the
estimated useful lives of the assets which are 5 - 30 years for land
improvements, 30 years for buildings, 5 - 30 years for building improvements and
5 - 30 years for amenities. The aggregate cost of the Partnership's properties
for Federal tax purposes is approximately $24,700,000.
Liquidity and Capital Resources
- -------------------------------
Cash provided by operations for the three months ended March 31 was $207,417
(1997) and $167,561 (1996). These funds, in conjunction with cash on hand, were
used to make a 1.57% (annualized) distribution of $86,342 for the three months
ended March 31, 1996. The annualized distribution rate is calculated as a
percent of the original capital contribution less a return of capital of $235.64
per limited partnership unit made from the proceeds of the sale of Sabal Club
Apartments in 1988. The limited partners received 99% and the general partner
received 1% of these distributions. No distribution has been made since the
quarter ended September 30, 1996 due to uncertainties involving the Crosby lease
as discussed below. Distributions will be resumed once the Partnership has
established adequate cash reserves and is generating cash from operations which,
in management's opinion, is sufficient to warrant future distributions. The
primary source of future liquidity and distributions is expected to be derived
from cash generated by the Partnership's properties after adequate cash reserves
are established for future leasing costs, tenant finish costs and capital
improvements. Cash reserves (which are unrestricted cash and equivalents as
shown on the Partnership's balance sheet as of March 31) were $372,160 and
$366,550 at March 31, 1997 and 1996, respectively.
As of March 31, 1997, the Partnership has a mortgage payable with an insurance
company in the amount of $2,412,221. The mortgage payable is due October 1,
2004, bears interest at a fixed rate of 8.8% and is secured by Commonwealth
Business Center Phase I. Monthly principal payments are based upon a 10-year
amortization schedule. At maturity, the mortgage will have been repaid based on
the current rate of amortization.
As of March 31, 1997, the Partnership had two mortgage loans each with an
insurance company in the amount of $2,004,226 and $1,908,787. Both mortgages
payable are due December 5, 2003, currently bear interest at a fixed rate of 7%
and are secured by the land, buildings and amenities of The
- 14 -
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
Willows of Plainview Phase I. Current monthly principal payments on both notes
are based upon a 27-year amortization schedule. The outstanding balance at
maturity based on the current rate of amortization would be $3,367,108
($1,724,617 and $1,642,491).
As of March 31, 1997, the Blankenbaker Business Center Joint Venture, in which
the Partnership has a joint venture interest, had a mortgage payable with an
insurance company in the amount of $4,118,392. The mortgage is recorded as a
liability of the Joint Venture and is secured by the assets of the Joint
Venture. The Partnership's proportionate interest in the mortgage at March 31,
1997 is $1,238,812. The mortgage bears interest at a fixed rate of 8.5% and is
due November 15, 2005. Monthly principal payments are based upon an 11-year
amortization schedule. At maturity, the mortgage will have been repaid based on
the current rate of amortization.
As of March 31, 1997, the L/U II Joint Venture had three mortgage loans with an
insurance company. The outstanding balances of the loans at March 31, 1997 were
$5,847,568, $5,604,931 and $5,435,084 for a total of $16,887,583. The loans are
recorded as a liability of the Joint Venture. The Partnership's proportionate
share in the loans at March 31, 1997 was $1,043,791, $1,000,480 and $970,163,
respectively, for a total of $3,014,434. The mortgages bear interest at a fixed
rate of 8.125%, are due August 1, 2008, and are secured by the assets of the
Joint Venture. Monthly principal payments are based upon a 12-year amortization
schedule. At maturity, the loans will have been repaid based on the current rate
of amortization.
As of March 31, 1997, The Willows of Plainview Phase II, an apartment joint
venture between the Partnership and NTS-Properties V, had two mortgage loans
each with an insurance company in the amount of $3,208,859 and $1,915,736. The
mortgages are recorded as a liability of the Joint Venture. The Partnership's
proportionate interest in the mortgages as of March 31, 1997 is $522,709
($327,304 and $195,405). Both mortgages are due December 5, 2003, currently bear
interest at a fixed rate of 7.5% and are secured by the land, buildings and
amenities of the Joint Venture. Current monthly principal payments on both notes
are based upon a 27-year amortization schedule. The outstanding balance at
maturity based on the current rate of amortization would be $4,449,434
($2,786,095 and $1,663,339).
The majority of the Partnership's cash flow is derived from operating
activities. Cash flows used in investing activities are for tenant finish
improvements and other capital additions and were funded by operating activities
or cash reserves. Changes to current tenant finish improvements are a typical
part of any lease negotiation. Improvements generally include a revision to the
current floor plan to accommodate a tenant's needs, new carpeting and paint
and/or wallcovering. The extent and cost of these improvements are determined by
the size of the space and whether the improvements are for a new tenant or
incurred because of a lease renewal. Cash flows provided by investing activities
during the three months ended March 31, 1996 are from the maturity of investment
securities. As part of its cash management activities, the Partnership has
purchased Certificates of Deposit or securities issued by the U.S. Government
with initial maturities of greater than three months to improve the return on
its cash reserves. The Partnership held the securities until maturity. Cash
flows provided by investing activities during the three months ended March 31,
1996 are also the result of a release of escrowed funds for capital
expenditures, leasing commissions and tenant improvements at the properties
owned by the L/U II Joint Venture as required by a 1995 loan agreement. Cash
flows used in financing activities are for principal payments on mortgages and
notes payable, repurchases of limited partnership Units and funds reserved by
the Partnership for the repurchase of limited partnership Units. Cash flows used
in financing activities during the three months
- 15 -
<PAGE>
Liquidity and Capital Resources - Continued
- --------------------------------------------
ended March 31, 1996 were also for cash distributions and payment of loan costs.
The Partnership does not expect any material changes in the mix and relative
cost of capital resources except for renovations and other major capital
expenditures, including tenant finish, which may be required to be funded from
cash reserves if they exceed cash flow from operating activities.
The table below presents that portion of the distributions that represent a
return of capital on a Generally Accepted Accounting Principle basis for the
three months ended March 31, 1997 and 1996.
Cash Return
Net Loss Distributions of
Allocated Declared Capital
--------- -------- -------
Limited Partners:
1997 $ (42,538) $ -- $ --
1996 (28,605) 85,479 85,479
General Partner:
1997 $ (430) $ -- $ --
1996 (289) 863 863
Philip Crosby Associates, Inc. ("Crosby") has leased 100% of University Business
Center Phase II. The original lease term is for seven years and the tenant took
occupancy in April 1991. During the years 1994 through 1996, Crosby sub-leased a
portion of the business center. Currently, Crosby has sub-leased, through the
end of their lease term, approximately 85,000 square feet (including
approximately 10,000 square feet of mezzanine space) of University Business
Center Phase II's approximately 88,000 square feet of net rentable area (or
96%). Of the total being sub-leased, approximately 73,000 square feet (or 86%)
is being leased by Full Sail Recorders, Inc. ("Full Sail"), a major tenant at
University Business Center Phase I, a neighboring property owned by an affiliate
of the General Partner of the Partnership. Through December 1996, Crosby
continued to make rent payments pursuant to the original lease terms. The Joint
Venture has received notice that Crosby does not intend to pay full rental due
under the original lease agreement from and after January 1997. The rental
income from this property accounted for approximately 6% of the partnerships
total revenues during 1996. The Joint Venture has instituted legal action to
seek resolution of this situation. Although the Joint Venture does not presently
have lease agreements (except as noted below) with the sub-lessees noted above,
beginning February 1997 rent payments from these sub-lessee are being made
directly to the Joint Venture. The Joint Venture is currently negotiating
directly with the sub-lessees to enter into lease agreements for the space
presently sublet. At this time, all future leasing and tenant finish costs which
will be required to release this space are unknown except as noted below for
negotiations with Full Sail.
In December 1995, Full Sail signed a 33 month lease with the L/U II Joint
Venture for approximately 41,000 square feet it currently sub-leases from
Crosby. In November 1996, Full Sail signed a lease amendment which increased the
square footage from 41,000 square feet to 48,000 square feet and extended the
lease term from 33 months to 76 months. In November 1996, Full Sail also signed
a 52 month lease for an additional approximately 21,000 square feet it presently
sub-leases from Crosby. Both lease terms commence April 1998 when the Crosby
lease ends. As part of the lease negotiations, Full Sail will receive a total of
$450,000 in special tenant allowances ($200,000 resulting from the original
lease signed December 1995 and $250,000 resulting from the lease amendment
signed November 1996).
- 16 -
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
Approximately $92,000 of the total allowance is to be reimbursed by Full Sail to
the L/U II Joint Venture. The Partnership's proportionate share of the net
commitment ($450,000 less $92,000) is approximately $64,000 or 18%. The tenant
allowance will be due and payable to Full Sail pursuant to the previously
mentioned lease agreements, as appropriate invoices for tenant finish costs
incurred by Full Sail are submitted to the L/U II Joint Venture. The source of
funds for this commitment is expected to be cash flow from operations and/or
cash reserves.
As of March 31, 1997 the L/U II Joint Venture had a commitment of approximately
$55,000 for tenant finish improvements at Lakeshore Business Center Phase I as a
result of a lease renewal and expansion. The expansion increases the tenant's
current leased space by approximately 2,000 square feet and the renewal extends
the lease for five years. The Partnership's proportionate share of the
commitment is approximately $10,000 or 18%. The project is expected to be
completed during the second quarter of 1997. The source of funds for this
project is expected to be cash flows from operations and/or cash reserves.
The Partnership had no other material commitments for renovations or capital
improvements as of March 31, 1997.
In the next 12 months, the demand on future liquidity is anticipated to increase
as the Partnership continues its efforts in the leasing of the Partnership's
commercial properties. At this time, the future leasing and tenant finish costs
which will be required to renew current leases that expire during the next 12
months or obtain new tenants are unknown.
The primary source of future liquidity and distributions is expected to be
derived from cash generated by the Partnership's operating properties after
adequate cash reserves are established for future leasing and tenant finish
costs. It is anticipated that the cash flow from operations and cash reserves
will be sufficient to meet the needs of the Partnership.
Pursuant to Section 16.4 of the Partnership's Amended and Restated Agreement of
Limited Partnership, the Partnership established an Interest Repurchase Reserve.
Through March 31, 1997, the Partnership has repurchased a total of 3,056 Units
for $458,400. Repurchased Units are retired by the Partnership, thus increasing
the share of ownership of each remaining investor. On January 10, 1997, the
Partnership indefinitely suspended the Interest Repurchase Program. See below
for further discussion.
Due to uncertainties involving the Crosby lease as discussed above, the
Partnership has taken the following actions. Effective January 10, 1997, the
repurchase of limited partnership Units has been indefinitely suspended. Second,
distributions were indefinitely suspended effective December 30, 1996. Once it
is clear that, in the general partner's opinion, the Partnership has the
necessary cash reserve to meet future leasing and tenant finish costs and has
rebuilt cash reserves to meet the ongoing needs of the Partnership, the general
partner will determine whether to reinstitute repurchases and distributions.
The following describes the efforts being taken by the Partnership to increase
the occupancy levels at the Partnership's commercial properties. The leasing and
renewal negotiations at the Lakeshore Business Center development are handled by
an on-site leasing agent, an employee of NTS Development Company (an affiliate
of the general partner of the Partnership), 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 at University Business Center Phase II are
handled by
- 17 -
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
a leasing agent, an employee of NTS Development Company, located at the
University Business Center development. The leasing and renewal negotiations for
the Partnership's remaining commercial properties are handled by leasing agents,
employees of NTS Development Company, located in Louisville, Kentucky. The
leasing agents are located in the same city as commercial properties. All
advertising for these properties is coordinated by NTS Development Company's
marketing staff located in Louisville, Kentucky.
In an effort to continue to improve occupancy at the Partnership's residential
properties, the Partnership has an on-site leasing staff, employees of NTS
Development Company, at each of the apartment communities. The staff handles all
on-site visits from potential tenants, coordinates local advertising with NTS
Development Company's marketing staff, makes visits to local companies to
promote fully furnished units and negotiates lease renewals with current
residents.
Leases at Commonwealth Business Centers Phase I, Blankenbaker Business Center
1A, University Business Center Phase II and Lakeshore Business Center Phases I
and II provide for tenants to contribute toward the payment of common area
expenses, insurance and real estate taxes. Leases at Lakeshore Business Center
Phases I and II and University Business Center Phase II also provide for rent
increases which are based upon increases in the consumer price index. Leases at
Plainview Point Office Center Phases I and II and Plainview Point III Office
Center provide for tenants to contribute toward the payment of increases in
common area maintenance expenses, insurance, utilities and real estate taxes.
These lease provisions, along with the fact that residential leases are
generally for a period of one year, should protect the Partnership's operations
from the impact of inflation and changing prices.
The L/U II Joint Venture owns approximately 6 acres of land adjacent to the
Lakeshore Business Center development in Ft. Lauderdale, Florida. The
Partnership's proportionate interest at March 31, 1997 in the asset held for
sale is $297,251. The Joint Venture continues to actively market the asset for
sale. In management's opinion, the net book value approximates the fair market
value less cost to sell.
Some of the statements included in Item 2, Management's Discussion and Analysis
of Financial Condition and Results of Operations, may be considered to be
"forward-looking statements" since such statements relate to matters which have
not yet occurred. For example, phrases such as the Partnership "anticipates",
"believes" or "expects" indicate that it is possible that the event anticipated,
believed or expected may not occur. Should such events not occur, then the
result which the Partnership expected also may not occur or occur in a different
manner, which may be more or less favorable to the Partnership. The Partnership
does not undertake any obligations to publicly release the result of any
revisions to these forward-looking statements that may be made to reflect any
future events or circumstances.
Any forward-looking statements included in Management's Discussion and Analysis
of Financial Condition and Results of Operations, or elsewhere in this report,
which reflect management's best judgement based on factors known, involve risks
and uncertainties. Actual results could differ materially from those anticipated
in any forward-looking statements as a result of a number of factors, including
but not limited to those discussed below. Any forward-looking information
provided by the Partnership pursuant to the safe harbor established by recent
securities legislation should be evaluated in the context of these factors.
- 18 -
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
The Partnership's principal activity is the leasing and management of commercial
office buildings, business centers and apartment complexes. If a major
commercial tenant or a large number of apartment lessees default on their
leases, 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 lessees 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.
- 19 -
<PAGE>
PART II. OTHER INFORMATION
1. Legal Proceedings
None
2. Changes in Securities
None
3. Defaults upon Senior Securities
None
4. Submission of Matters to a Vote of Security Holders
None
5. Other Information
None
6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27. Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K, dated January 10, 1997, was filed to report in Item 5
that the Partnership has indefinitely suspended the repurchase
of limited partnership Units and, effective December 30, 1996,
suspended the quarterly distribution.
- 20 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
NTS-PROPERTIES IV
(Registrant)
By: NTS-Properties Associates IV,
General Partner
By:NTS Capital Corporation,
General Partner
/s/ John W. Hampton
-------------------
John W. Hampton
Senior Vice President
Date: May 12 , 1997
- 21 -
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONATINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET AS OF MARCH 31, 1997 AND FROM THE STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 488,706
<SECURITIES> 0
<RECEIVABLES> 345,974
<ALLOWANCES> 7,551
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 13,592,253
<DEPRECIATION> 0<F2>
<TOTAL-ASSETS> 15,278,700
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 11,101,189
0
0
<COMMON> 0
<OTHER-SE> 3,840,309
<TOTAL-LIABILITY-AND-EQUITY> 15,278,700
<SALES> 848,554
<TOTAL-REVENUES> 854,664
<CGS> 0
<TOTAL-COSTS> 617,476
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 216,355
<INCOME-PRETAX> (42,968)
<INCOME-TAX> 0
<INCOME-CONTINUING> (42,968)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (42,968)
<EPS-PRIMARY> 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 FILING.
</FN>
</TABLE>
