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 September 30, 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 22
Total Pages: 23
<PAGE>
TABLE OF CONTENTS
Pages
PART I
Item 1. Financial Statements
Balance Sheets and Statement of Partners' Equity
As of September 30, 1997 and December 31, 1996 3
Statements of Operations
For the three months and nine months ended
September 30, 1997 and 1996 4
Statements of Cash Flows
For the three months and nine months ended
September 30, 1997 and 1996 5
Notes To Financial Statements 6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-21
PART II
1. Legal Proceedings 22
2. Changes in Securities 22
3. Defaults upon Senior Securities 22
4. Submission of Matters to a Vote of Security Holders 22
5. Other Information 22
6. Exhibits and Reports on Form 8-K 22
Signatures 23
- 2 -
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
NTS-PROPERTIES IV
BALANCE SHEETS AND STATEMENT OF PARTNERS' EQUITY
<CAPTION>
As of As of
September 30, 1997 December 31, 1996*
------------------ ------------------
ASSETS
- -------
<S> <C> <C>
Cash and equivalents $ 289,792 $ 346,479
Cash and equivalents - restricted 218,010 68,193
Investment securities 485,546 --
Accounts receivable, net of allowance
for doubtful accounts of $357 (1997)
and $7,551 (1996) 285,426 347,133
Land, buildings and amenities, net 13,192,429 13,801,251
Asset held for sale 297,251 297,251
Other assets 500,496 545,979
----------- -----------
$15,268,950 $15,406,286
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
- --------------------------------
Mortgages payable $10,816,522 $11,236,625
Accounts payable - operations 165,879 136,332
Accounts payable - construction 16,925 5,831
Security deposits 88,488 83,911
Other liabilities 355,073 26,412
----------- -----------
11,442,887 11,489,111
Commitments and Contingencies
Partners' equity 3,826,063 3,917,175
----------- -----------
$15,268,950 $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 (56,642) (572) (57,214)
Cash distributions declared to
date (21,586,280) (218,253) (21,804,533)
Repurchase of limited
partnership Units (487,595) -- (487,595)
------------ ----------- ------------
Balances at September 30, 1997 $ 4,041,482 $ (215,419) $ 3,826,063
============ =========== ============
</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 Nine Months Ended
September 30, September 30,
------------------------------- -------------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Rental income $ 920,175 $ 905,199 $ 2,659,396 $ 2,657,231
Interest and other income 11,290 4,353 25,778 17,699
----------- ----------- ----------- -----------
931,465 909,552 2,685,174 2,674,930
EXPENSES:
Operating expenses 212,442 186,785 590,977 493,398
Operating expenses - affiliated 106,977 93,726 299,867 282,796
Write-off of unamortized
building costs -- -- -- 6,871
Write-off of unamortized loan
costs -- 12,896 -- 12,896
Amortization of capitalized
leasing costs 5,256 5,209 15,707 15,655
Interest expense 214,135 229,679 647,539 718,231
Management fees 54,273 51,082 152,754 151,265
Real estate taxes 54,313 55,944 163,064 166,113
Professional and administrative
expenses 24,726 23,105 76,310 69,496
Professional and administrative
expenses - affiliated 37,967 36,670 115,954 110,818
Depreciation and amortization 226,476 226,859 680,216 689,462
----------- ----------- ----------- -----------
936,565 921,955 2,742,388 2,717,001
----------- ----------- ----------- -----------
Net loss $ (5,100) $ (12,403) $ (57,214) $ (42,071)
=========== =========== =========== ===========
Net loss allocated to the
limited partners $ (5,049) $ (12,278) $ (56,642) $ (41,650)
=========== =========== =========== ===========
Net loss per limited partnership
unit $ (.19) $ (0.45) $ (2.12) $ (1.47)
=========== =========== =========== ===========
Weighted average number of
limited partnership units 26,689 27,395 26,714 28,348
=========== =========== =========== ===========
</TABLE>
- 4 -
<PAGE>
<TABLE>
NTS-PROPERTIES IV
STATEMENTS OF CASH FLOWS
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- --------------------------------
1997 1996 1997 1996
----------- ---------- ---------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C> <C>
Net loss $ (5,100) $ (12,403) $ (57,214) $ (42,071)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Accrued interest on investment
securities (2,697) -- (2,697) 3,642
Write-off of unamortized building
costs -- -- -- 6,871
Write-off of unamortized loan costs -- 12,896 -- 12,896
Amortization of capitalized leasing
costs 5,256 5,209 15,707 15,655
Depreciation and amortization 226,476 226,859 680,216 689,462
Changes in assets and liabilities:
Cash and equivalents - restricted (49,578) (52,288) (149,567) (155,251)
Accounts receivable 29,312 146,832 61,707 24,392
Other assets 5,770 23,255 10,032 611
Accounts payable 26,646 12,299 29,547 (33,577)
Security deposits 1,020 1,572 4,577 1,470
Other liabilities 206,363 59,123 328,662 164,115
----------- ----------- ----------- -----------
Net cash provided by operating
activities 443,468 423,354 920,970 688,215
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to land, buildings and
amenities (7,566) (13,599) (40,555) (72,703)
Decrease in cash and equivalents -
restricted -- -- -- 2,450
Purchase of investment securities (482,849) -- (599,777) --
Maturity of investment securities 116,928 -- 116,928 400,945
----------- ----------- ----------- -----------
Net cash provided by (used in)
investing activities (373,487) (13,599) (523,404) 330,692
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in mortgage payable -- 3,105,900 -- 3,105,900
Principal payments on mortgages and notes
payable (144,305) (3,101,132) (420,103) (3,324,655)
Cash distributions -- (83,984) -- (260,462)
Additions to loan costs -- (23,856) -- (65,341)
Repurchase of limited partnership Units -- (90,900) (33,900) (395,400)
Increase in cash and equivalents -
restricted -- (4,600) (250) (4,600)
----------- ----------- ----------- -----------
Net cash used in financing activities (144,305) (198,572) (454,253) (944,558)
----------- ----------- ----------- -----------
Net increase (decrease) in cash and
equivalents (74,324) 211,183 (56,687) 74,349
CASH AND EQUIVALENTS, beginning of period 364,116 139,776 346,479 276,610
----------- ----------- ----------- -----------
CASH AND EQUIVALENTS, end of period $ 289,792 $ 350,959 $ 289,792 $ 350,959
=========== =========== =========== ===========
Interest paid on a cash basis $ 214,144 $ 235,470 $ 651,103 $ 728,031
=========== =========== =========== ===========
</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 (consisting only 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, 1997 and 1996.
1. 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.
2. 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.
3. 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 September 30, 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 temporarily
suspended the Interest Repurchase Program. Subsequent to September 30,
1997, the Partnership reinstated the Interest Repurchase Program and funded
an additional $45,000 to the Reserve. With this funding, the Partnership
will be able to repurchase up to 300 Units at a price of $150 per Unit.
4. Investment Securities
----------------------
Investment Securities represent investments in Certificates of Deposit or
securities issued by the U.S. Government with initial maturities of greater
than 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 December 31, 1996, the Partnership held no investment
securities. The following provides details regarding the investments held
at September 30, 1997:
Amortized Maturity Value at
Type Cost Date Maturity
---- -------- -------- --------
Certificate of Deposit $ 75,843 10/30/97 $ 76,140
Certificate of Deposit 115,459 12/01/97 116,463
Certificate of Deposit 75,507 12/30/97 76,478
Certificate of Deposit 100,278 01/30/98 102,052
Certificate of Deposit 118,459 02/27/98 121,081
-------- -------
$ 485,546 $ 492,214
======== ========
- 6 -
<PAGE>
5. Mortgages Payable
------------------
Mortgages payable consist of the following:
September 30, 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 $ 2,297,741 $ 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 1,987,467 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 1,892,825 1,916,561
Mortgage payable with an insurance
company, bearing interest at a fixed
rate of 8.5%, due November 15, 2005,
secured by land and building 1,189,354 1,262,767
Mortgage payable with an insurance
company, bearing interest at a fixed
rate of 8.125%, due August 1, 2008
secured by land and building 1,015,427 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 973,293 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 943,800 982,949
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 323,488 327,573
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 193,127 195,566
---------- ----------
$10,816,522 $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 $12,300,000.
- 7 -
<PAGE>
6. Related Party Transactions
--------------------------
Property management fees of $152,754 and $151,265 were paid to NTS
Development Company, an affiliate of the general partner of the
Partnership, for the nine months ended September 30, 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 $3,518 and $6,945 as a repair and maintenance fee during the nine
months ended September 30, 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 nine months ended September 30, 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.
1997 1996
---------- ---------
Administrative $ 149,701 $ 142,794
Leasing 92,454 88,053
Property management 194,651 180,601
Other 4,615 6,590
--------- --------
$ 441,421 $ 418,038
========= ========
7. Commitments and Contingencies
-------------------------------
Philip Crosby Associates, Inc. ("Crosby") 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 was 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 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 received notice
that Crosby did 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 instituted legal action against Crosby to seek
resolution of this situation. See below for a further discussion regarding
the current status of the litigation. 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 have been 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.
- 8 -
<PAGE>
7. Commitments and Contingencies - Continued
-----------------------------------------
In December 1995, Full Sail signed a 33 month lease with the L/U II Joint
Venture for approximately 41,000 square feet of the space 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.
Crosby has abandoned its business and sold all or most of its operating
assets and has informed the Joint Venture that Crosby may be insolvent.
During the third quarter of 1997, a conditional settlement was reached at a
mediation conference with Crosby and its corporate parent, whereby, subject
to the Joint Venture's acceptance of the settlement terms, the corporate
parent has agreed to pay a portion of Crosby's liability to the Joint
Venture in full satisfaction of all claims against Crosby and any of its
affiliates. The amount of the proposed settlement is substantially less
than the aggregate liability of Crosby to the Joint Venture resulting from
Crosby's default under its lease. As a result, the Joint Venture may be
forced to seek out additional sources of capital to fund ongoing
operations, including, without limitation, from loans, the sale of assets,
additional capital contributions of its partners and/or the admission of a
new partner or partners, or from other sources. There is no present
assurance that any such needed capital will be available.
8. Subsequent Event
----------------
Subsequent to September 30, 1997, the L/U II Joint Venture informed Crosby
and its corporate parent that it accepted the terms of the conditional
settlement, whereby Crosby's parent paid to the L/U II Joint Venture the
sum of $300,000 in full satisfaction of all claims. These funds were
received by the L/U II Joint Venture on October 23, 1997.
- 9 -
<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 September 30 were as
follows:
1997 1996
---- ----
Wholly-Owned Properties
- -----------------------
Commonwealth Business Center Phase I 78% 96%
Plainview Point Office Center Phases I and II 84% 86%
The Willows of Plainview Phase I 98% 91%
Property Owned in Joint Venture with NTS-
Properties V (Ownership % at September 30,
1997)
- -------------------------------------------
The Willows of Plainview Phase II (10%) 90% 96%
Properties Owned in Joint Venture with NTS-
Properties VI (Ownership % at September 30,
1997)
- -------------------------------------------
Golf Brook Apartments (4%) 97% 97%
Plainview Point III Office Center (5%) 88% 91%
Property Owned in Joint Venture with NTS-
Properties VII, Ltd. and NTS-Properties Plus
Ltd. (Ownership % at September 30, 1997)
- --------------------------------------------
Blankenbaker Business Center 1A (30%) 100% 100%
Properties Owned through Lakeshore/University
II Joint Venture (L/U II Joint Venture)
(Ownership % at September 30, 1997)
- ---------------------------------------------
Lakeshore Business Center Phase I (18%) 99% 97%
Lakeshore Business Center Phase II (18%) 96% 83%
University Business Center Phase II (18%) 99% 99%
- 10 -
<PAGE>
Results of Operations - Continued
- ---------------------------------
The rental and other income generated by the Partnership's properties for the
three months and nine months ended September 30, 1997 and 1996 was as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -------------------
1997 1996 1997 1996
-------- ------- -------- ------
Wholly-Owned Properties
- -----------------------
Commonwealth Business Center Phase I $158,060 $174,794 $493,221 $509,737
Plainview Point Office Center Phases I
and II $161,007 $136,786 $434,403 $405,570
The Willows of Plainview Phase I $304,813 $287,016 $869,058 $835,786
Property Owned in Joint Venture with
NTS-Properties V (Ownership % at
September 30, 1997)
- ------------------------------------
The Willows of Plainview Phase II
(10%) $ 33,349 $ 32,641 $ 97,520 $ 93,822
Properties Owned in Joint Venture with
NTS-Properties VI (Ownership % at
September 30, 1997)
- --------------------------------------
Golf Brook Apartments (4%) $ 28,977 $ 29,967 $ 83,768 $ 85,717
Plainview Point III Office Center (5%) $ 9,497 $ 9,092 $ 29,042 $ 28,962
Property Owned in Joint Venture with
NTS-Properties VII, Ltd. And NTS-
Properties Plus Ltd. (Ownership % at
September 30, 1997)
- ------------------------------------
Blankenbaker Business Center 1A (30%) $ 69,422 $ 69,422 $208,292 $208,226
Properties Owned through Lakeshore/
University II Joint Venture (L/U II
Joint Venture) (Ownership % at
September 30, 1997)
- -----------------------------------
Lakeshore Business Center Phase I
(18%) $ 65,010 $ 61,331 $190,455 $185,651
Lakeshore Business Center Phase II
(18%) $ 62,371 $ 51,907 $185,426 $149,733
University Business Center Phase II
(18%) $ 30,914 $ 54,342 $ 76,422 $161,569
Revenues shown in the table above for properties owned through a joint venture
represent only the Partnership's percentage interest in those revenues.
- 11 -
<PAGE>
Results of Operations - Continued
- ----------------------------------
The 18% decrease in occupancy at Commonwealth Business Center Phase I from
September 30, 1996 to September 30, 1997 is a result of two tenant move-outs at
the end of the lease terms totalling approximately 9,500 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. Partially offsetting the tenant move-outs are
two new leases totalling 2,400 square feet. Average occupancy decreased from 96%
(1996) to 83% (1997) for the three months ended September 30 and from 91% (1996)
to 84%(1997) for the nine month period. 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 decrease in rental and other
income at Commonwealth Business Center Phase I for the three months and nine
months ended September 30, 1997 as compared to the same periods in 1996 is due
primarily to the decrease in average occupancy.
As of September 30, 1997, Commonwealth Business Center Phase I has approximately
3,200 square feet of additional space leased to a current tenant. In addition to
expanding the leased space, the lease was extended for five years(November
2002). The tenant is expected to take occupancy during the fourth quarter of
1997. Subsequent to September 30, 1997, a lease for approximately 5,400 square
feet was signed at Commonwealth Business Center Phase I with a tenant who
currently occupies approximately 3,600 square feet. The tenant is expected to
take occupancy of the expanded space during the fourth quarter of 1997. With the
new leases, the business center's occupancy should improve to 86%. See the
Liquidity and Capital Resources section of this item for the tenant finish
commitments related to these leases.
The 2% decrease in occupancy at Plainview Point Office Center Phases I and II
from September 30, 1996 to September 30, 1997 is a result of three tenant move-
outs at the end of the lease terms totalling approximately 3,000 square feet.
Partially offsetting the move-outs are two new leases totalling approximately
2,100 square feet which includes an expansion by a current tenant of its
existing space by approximately 1,000 square feet. Average occupancy decreased
from 86% (1996) to 83% (1997) for the three months ended September 30 and from
86% (1996) to 84% (1997) for the nine month period. The increase in rental and
other income at Plainview Point Office Center Phases I and II for the three
months and nine months ended September 30, 1997 as compared to the same periods
in 1996 is a result of an increase in pass through expense reimbursements.
Leases at Plainview Point Office Center Phase I and II provide for tenants to
contribute toward the payment of increases in common area maintenance expenses,
insurance, utilities and real estate taxes.
As of September 30, 1997, Plainview Point Office Center Phases I and II has
approximately 8,400 square feet of additional space leased to a current tenant
which currently occupies approximately 20,000 square feet (or 36%) of the
building's total rentable area. The expansion is scheduled to occur in two
phases. The tenant is expected to take occupancy of the first phase,
approximately 2,000 square feet, during the fourth quarter of 1997. With the
first phase of the expansion, the office center's occupancy should improve to
87%. The second phase of the expansion, approximately 6,400 square feet, is
scheduled to occur during the fourth quarter of 1999. See the Liquidity and
Capital Resources sections of this item for the tenant finish commitment related
to this lease.
The Willows of Plainview Phase I's occupancy increased 7% from September 30,
1996 to September 30, 1997. Average occupancy increased from 89% (1996) to 97%
(1997) for the three months ended September 30 and from 89% (1996) to 93% (1997)
for the nine month period. Occupancy at residential properties fluctuates on a
continuous basis. Period-ending occupancy percentages represent occupancy only
- 12 -
<PAGE>
Results of Operations - Continued
- ----------------------------------
on a specific date; therefore, it is more meaningful to consider average
occupancy percentages which are representative of the entire period's results.
The increase in rental and other income at The Willows of Plainview Phase I for
the three months and nine months ended September 30, 1997 as compared to the
same periods in 1996 is due primarily to the increase in average occupancy.
The Willows of Plainview Phase II's occupancy decreased from 96% as of September
30, 1996 to 90% as of September 30, 1997. Average occupancy decreased from 96%
(1996) to 91% (1997) for the three months ended September 30 and decreased from
95% (1996) to 91% (1997) for the nine month period. The change in rental and
other income at The Willows of Plainview Phase II for the three months and nine
months ended September 30, 1997 as compared to the same periods in 1996 was not
significant.
Golf Brook Apartments occupancy was 97% at September 30, 1996 and 1997. Average
occupancy remained constant at 97% for the three months ended September 30, 1996
and 1997 and decreased from 94% (1996) to 93% (1997) for the nine month period.
Rental and other income at Golf Brook Apartments remained fairly constant for
the three months and nine months ended September 30, 1997 as compared to the
same periods in 1996.
The 3% decrease in occupancy at Plainview Point III Office Center from September
30, 1996 to September 30, 1997 is the result of one tenant vacating
approximately 1,600 square feet due to a downsizing of current space. The
downsizing was done in conjunction with a lease renewal, so there was no
write-off of accrued income. Average occupancy decreased from 90% (1996) to 88%
(1997) for the three months ended September 30 and from 94% (1996) to 90% (1997)
for the nine month period. Rental and other income remained fairly constant at
Plainview Point III Office Center for the three months and nine months ended
September 30, 1997 as compared to the same periods in 1996.
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, Prudential
Service Bureau, Inc. is obligated to pay substantially all of the operating
expenses attributable to its space. Rental and other income at Blankenbaker
Business Center 1A remained fairly constant for the three months and nine months
ended September 30, 1997 as compared to the same periods in 1996.
The 2% increase in occupancy at Lakeshore Business Center Phase I from September
30, 1996 to September 30, 1997 can be attributed to five new leases totalling
approximately 7,500 square feet and an expansion by a current tenant of its
existing space totalling approximately 2,100 square feet. Partially offsetting
the new leases are three tenants vacating prior to the end of the lease term 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 $1,300 or 18%), one due to a decision by management to allow the tenant to
terminate early to accommodate a new long term tenant (1,900 square feet tenant
paid the L/U II Joint Venture a lease termination fee [recorded as rental
income] of approximately $5,000 of which the Partnership's proportionate share
is $900 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. Average occupancy at Lakeshore Business Center Phase I
increased from 97% (1996) to 98%(1997) for the three months ended September 30
and decreased from 98% (1996) to 96% (1997) for the nine month period. The
change in rental and other income at Lakeshore Business Center Phase I for the
three months and nine months ended September 30, 1997 as compared to the same
periods in 1996 was not significant.
- 13 -
<PAGE>
Results of Operations - Continued
- ----------------------------------
The 13% increase in occupancy at Lakeshore Business Center Phase II from
September 30, 1996 to September 30, 1997 can be attributed to five new leases
totalling approximately 17,000 square feet which includes approximately 5,700
square feet in expansions by Lambda Physik, a current tenant. Lambda Physik
leases nearly 12,700 square feet and has become the largest tenant in the
building occupying approximately 13% of the building's total rentable square
feet. Partially offsetting the new leases is one tenant move-out, at the end of
the lease term, of approximately 4,800 square feet. Average occupancy at
Lakeshore Business Center Phase II increased from 81% (1996) to 95% (1997) for
the three months ended September 30 and increased from 78% (1996) to 93% (1997)
for the nine month period. The increase in rental and other income at Lakeshore
Business Center Phase II for the three months and nine months ended September
30, 1997 as compared to the same periods in 1996 is due primarily to the
increase in average occupancy.
As of September 30, 1997, Lakeshore Business Center Phase II has approximately
4,200 square feet of additional space leased by a tenant who currently occupies
approximately 1,300 square feet in Lakeshore Business Center Phase I. The lease
is for six years and the tenant is expected to take occupancy during the fourth
quarter of 1997. With this new lease, the business center's occupancy should
improve to 100%.
Philip Crosby Associates, Inc. ("Crosby") has leased 100% of University Business
Center Phase II. The original lease term was 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 September 30,
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 and nine months ended September 30, 1997 as compared to the
same periods in 1996 is due to the following. Through the end of 1996, Crosby
continued to make rent payments pursuant to the original lease term. During
1996, the Joint Venture received notice that Crosby did 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
subtenants. The decrease in rental and other income for the nine month period 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 nine months
ended September 30, 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.
- 14 -
<PAGE>
Results of Operations - Continued
- ---------------------------------
Interest and other income includes income from investments made by the
Partnership with cash reserves. Interest income increased for the three months
and nine months ended September 30, 1997 as compared to the same periods in 1996
as a result of an increase in cash reserves available for investment.
The increase in operating expenses for the three months and nine months ended
September 30, 1997 as compared to the same periods in 1996 is due primarily to
increased landscaping costs and legal expenses at the Partnership's commercial
properties, increased exterior building renovations at Blankenbaker Business
Center 1A and increased advertising and exterior painting expenses 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 and nine months
ended September 30, 1997 as compared to the same periods in 1996.
The increase in operating expenses - affiliated for the three months and nine
months ended September 30, 1997 as compared to the same periods in 1996 is due
primarily to increased property management costs at the Partnership's commercial
properties and at the Willows of Plainview Phases I and II. There were no
significant fluctuations in operating expenses - affiliated at Golf Brook
Apartments for the three months and nine months ended September 30, 1997 as
compared to the same periods in 1996. Operating expenses - affiliated are
expenses for services performed by employees of NTS Development Company, an
affiliate of the General Partner of the Partnership.
The 1996 write-off of unamortized building costs can be attributed to Plainview
Point Office Center Phases I and II. The write-off is the result of an exterior
stair replacement and represents the cost of the stairs which were replaced that
had not been depreciated.
The 1996 write-off of unamortized loan costs relates to loan costs associated
with the Lakeshore/University II Joint Venture's note payable. The unamortized
loan costs were expensed due to the fact that the notes were retired in 1996
prior to their maturity (January 31, 1998) as a result of permanent financings
obtained by the Joint Venture in July 1996.
The change in amortization of capitalized leasing costs for the three months and
nine months ended September 30, 1997 as compared to the same periods in 1996 is
not significant.
Interest expense decreased for the three months and nine months ended September
30, 1997 as compared to the same periods 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 by
the Partnership and its Joint Venture properties. See the Liquidity and Capital
Resources section of this item for details regarding the Partnership's debt.
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 and nine months ended September 30, 1997 as compared to the
same periods in 1996 are not significant.
The change in professional and administrative expense - affiliated for the three
months and nine months ended September 30, 1997 as compared to the same periods
in 1996 is not significant. Professional and administrative expenses -
affiliated are expenses for services performed by employees of NTS Development
Company, an affiliate of the General Partner.
- 15 -
<PAGE>
Results of Operations - Continued
- ----------------------------------
The change in depreciation and amortization expense for the three months and
nine months ended September 30, 1997 as compared to the same periods 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 was $920,970 and $688,215 for the nine months ended
September 30, 1997 and 1996, respectively. These funds, in conjunction with cash
on hand, were used to make a 1.39% (annualized) distribution of $225,093 for the
nine months ended September 30, 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 and investment securities as shown on the Partnership's balance
sheet as of September 30) were $775,338 and $350,959 at September 30, 1997 and
1996, respectively.
As of September 30, 1997, the Partnership had a mortgage payable with an
insurance company in the amount of $2,297,741. 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 September 30, 1997, the Partnership had two mortgage loans each with an
insurance company in the amount of $1,987,467 and $1,892,825. 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 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).
Subsequent to September 30, 1997, the Partnership submitted an application with
an insurance company for $3,900,000 of debt financing. The proceeds from the
loan will be used to pay off the current mortgages (as discussed above) which
are secured by The Willows of Plainview Phase I. The Partnership anticipates
that the financing will be completed in the near term.
As of September 30, 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 $3,953,968. 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 September
30, 1997 is $1,189,354. 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.
- 16 -
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
As of September 30, 1997, the L/U II Joint Venture had three mortgage loans with
an insurance company. The outstanding balances of the loans at September 30,
1997 were $5,688,669, $5,452,624 and $5,287,393 for a total of $16,428,686. The
loans are recorded as a liability of the Joint Venture. The Partnership's
proportionate share in the loans at September 30, 1997 was $1,015,427, $973,293
and $943,800, respectively, for a total of $2,932,520. 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 September 30, 1997, The Willows of Plainview Phase II had two mortgage
loans each with an insurance company in the amount of $3,183,937 and $1,900,858.
The mortgages are recorded as a liability of the Joint Venture. The
Partnership's proportionate interest in the mortgages as of September 30, 1997
was $516,615 ($323,488 and $193,127). 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).
Subsequent to September 30, 1997, the Willows of Plainview Phase II Joint
Venture submitted an application with an insurance company for $5,100,000 of
debt financing. The proceeds from the loan will be used to pay off the current
mortgages (as discussed above) which are secured by The Willows of Plainview
Phase II. The Joint Venture anticipates that the financing will be completed in
the near term.
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 used in investing activities
during 1997 are also for the purchase 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 intends to hold the securities until maturity. Cash flows provided
by investing activities are from the maturity of investment securities. Cash
flows provided by investing activities during the nine months ended September
30, 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 an increase in funds
reserved by the Partnership for the repurchase of limited partnership Units.
Cash flows used in financing activities during the nine months ended September
30, 1996 were also for cash distributions and the payment of loan costs. Cash
flows provided by financing activities during the nine months ended September
30, 1996 are a result of the L/U II Joint Venture debt refinancings. 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.
- 17 -
<PAGE>
Liquidity and Capital Resources - Continued
- --------------------------------------------
The table below presents that portion of the distributions that represent a
return of capital on a Generally Accepted Accounting Principle basis for the
nine months ended September 30, 1997 and 1996.
Cash Return
Net Loss Distributions of
Allocated Declared Capital
---------- ----------- ------------
Limited Partners:
1997 $ (56,642) $ -- $ --
1996 (41,650) 222,842 222,842
General Partner:
1997 $ (572) $ -- $ --
1996 (421) 2,251 2,251
Philip Crosby Associates, Inc. ("Crosby") leased 100% of University Business
Center Phase II. The original lease term was 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. During
1996, the Joint Venture received notice that Crosby did 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 instituted legal
action against Crosby to seek resolution of this situation. See below for a
further discussion regarding the current status of the litigation. 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 have been 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.
Crosby has abandoned its business and sold all or most of its operating assets
and has informed the Joint Venture that Crosby may be insolvent. During the
third quarter of 1997, a conditional settlement was reached at a mediation
conference with Crosby and its corporate parent, whereby, subject to the Joint
Venture's acceptance of the settlement terms, the corporate parent has agreed to
pay a portion of Crosby's liability to the Joint Venture in full satisfaction of
all claims against Crosby and any of its affiliates. The amount of the proposed
settlement is substantially less than the aggregate liability of Crosby to the
Joint Venture resulting from Crosby's default under its lease. As a result, the
Joint Venture may be forced to seek out additional sources of capital to fund
ongoing operations, including, without limitation, from loans, the sale of
assets, additional capital contributions of its partners and/or the admission of
a new partner or partners, or from other sources. There is no present assurance
that any such needed capital will be available.
Subsequent to September 30, 1997, the L/U II Joint Venture informed Crosby and
its corporate parent that it accepted the terms of the conditional settlement,
whereby Crosby's parent paid to the L/U II Joint Venture the sum of $300,000 in
full satisfaction of all claims. These funds were received by the L/U II Joint
Venture on October 23, 1997.
- 18 -
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
In December 1995, Full Sail signed a 33 month lease with the L/U II Joint
Venture for approximately 41,000 square feet of the space 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
flow from operations and/or cash reserves.
As of September 30, 1997, the Partnership has a commitment for approximately
$23,000 of tenant finish improvements at Commonwealth Business Center Phase I.
The commitment is the result of a lease renewal and expansion. The expansion
increased the tenant's current leased space by 3,200 square feet and the renewal
extends the lease for five years through November 2002. The tenant is expected
to take occupancy during the fourth quarter of 1997. The source of funds for
this project is expected to be cash flow from operations and/or cash reserves.
As of September 30, 1997, the Partnership also has a commitment for
approximately $42,500 of tenant finish improvements at Plainview Point Office
Center Phase I and II. The commitment is the result of a two-phase expansion by
a current tenant which increases the tenant's current leased space be
approximately 2,000 square feet in the first phase and by approximately 6,400
square feet in the second phase. The portion of the commitment relating to the
first phase of the expansion is approximately $13,200 and is expected to occur
during the fourth quarter of 1997. The commitment for the second phase of the
expansion is approximately $29,300 and is expected to occur during the fourth
quarter of 1999. The source of funds for this project is expected to be cash
flow from operations and/or cash reserves.
The Partnership had no other material commitments for renovations or capital
improvements as of September 30, 1997.
Subsequent to September 30, 1997 the Partnership made a commitment of
approximately $26,000 for tenant finish improvements at Commonwealth Business
Center Phase I. The commitment is the result of a lease renewal and expansion.
The expansion increased the tenant's current leased space by approximately 1,900
square feet and extends the lease for 15 months. The project is expected to be
completed during the fourth quarter of 1997. The source of funds for this
project is expected to be cash flow from operations and/or cash reserves.
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.
- 19 -
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
Pursuant to Section 16.4 of the Partnership's Amended and Restated Agreement of
Limited Partnership, the Partnership established an Interest Repurchase Reserve.
Through September 30, 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 temporarily suspended the Interest Repurchase Program. See
below for further discussion. Subsequent to September 30, 1997, the Partnership
reinstated the Interest Repurchase Program and funded an additional $45,000 to
the Reserve. With this funding, the Partnership will be able to repurchase 300
Units at a price of $150 per Unit.
Due to uncertainties involving the Crosby lease as discussed above, the
Partnership suspended distributions 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 reinstate 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 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 Center 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 September 30, 1997 in the asset held for
sale is $297,251. The Joint Venture continues to actively market the asset for
sale.
- 20 -
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
Some of the statements included in Item 2, Management's Discussion and Analysis
of Financial Condition and Results of Operations, and elsewhere in this report,
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.
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 payment of 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.
- 21 -
<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
No reports on Form 8-K were filed during the three months ended
September 30, 1997.
- 22 -
<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: November 12 , 1997
- 23 -
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET AS OF SEPTEMBER 30, 1997 AND FROM THE STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 507,802
<SECURITIES> 485,546
<RECEIVABLES> 285,426
<ALLOWANCES> 357
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 13,192,429
<DEPRECIATION> 0<F2>
<TOTAL-ASSETS> 15,268,950
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 10,816,522
0
0
<COMMON> 0
<OTHER-SE> 3,826,063
<TOTAL-LIABILITY-AND-EQUITY> 15,268,950
<SALES> 2,659,396
<TOTAL-REVENUES> 2,685,174
<CGS> 0
<TOTAL-COSTS> 1,902,585
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 647,539
<INCOME-PRETAX> (57,214)
<INCOME-TAX> 0
<INCOME-CONTINUING> (57,214)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (57,214)
<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>
