UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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
incorporation or organization) Identification No.)
10172 Linn Station Road
Louisville, Kentucky 40223
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (502) 426-4800
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO_____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. [X]
Exhibit Index: See page 63
Total Pages: 68
<PAGE>
TABLE OF CONTENTS
Pages
PART I
Items 1 and 2 Business and Properties 3-24
Item 3 Legal Proceedings 24
Item 4 Submission of Matters to a Vote of
Security Holders 24
PART II
Item 5 Market for the Registrant's Limited Partnership
Interests and Related Partner Matters 25
Item 6 Selected Financial Data 26
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations 27-41
Item 8 Financial Statements and Supplementary Data 42-59
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 60
PART III
Item 10 Directors and Executive Officers of the
Registrant 60-61
Item 11 Management Remuneration and Transactions 61
Item 12 Security Ownership of Certain Beneficial
Owners and Management 61
Item 13 Certain Relationships and Related Transactions 61-62
PART IV
Item 14 Exhibits, Financial Statement Schedules
and Reports on Form 8-K 63-67
Signatures 68
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<PAGE>
PART I
Items 1. and 2. Business and Properties
General
- -------
Some of the statements included in Items 1 and 2, Business and Properties, may
be considered to be "forward looking statements" since such statements relate to
matters which have not yet occured. For example, phrases such as "the
Partnership anticipates", "believes" or "expects" indicate that it is possible
that the event anticipated, believed or expected may not occur. Should such
event not occur, then the result which the Partnership expected also may not
occur or occur in a different manner, which may be more or less favorable to the
Partnership. The Partnership does not undertake any obligation to publicly
release the result of any revisions to these forward looking statements that may
be made to reflect any future events or circumstances.
NTS-Properties IV., Ltd., a Kentucky Limited Partnership, (the "Partnership" or
"NTS-Properties IV") is a limited partnership organized under the laws of the
Commonwealth of Kentucky on May 13, 1983. The general partner is NTS-Properties
Associates IV, a Kentucky limited partnership. As of December 31, 1996, the
Partnership owned the following properties:
- Commonwealth Business Center Phase I, a business center with
approximately 57,000 net rentable ground floor square feet and
approximately 24,000 net rentable mezzanine square feet in
Louisville, Kentucky, constructed by the Partnership.
- Plainview Point Office Center Phases I and II, an office center with
approximately 56,000 net rentable square feet in Louisville,
Kentucky, acquired complete by the Partnership.
- The Willows of Plainview Phase I, a 118-unit luxury apartment complex
in Louisville, Kentucky, constructed by the Partnership.
- A joint venture interest in The Willows of Plainview Phase II, a
144-unit luxury apartment complex in Louisville, Kentucky,
constructed by the joint venture between the Partnership and NTS-
Properties V, a Maryland Limited Partnership, an affiliate of the
general partner of the Partnership, ("NTS-Properties V"). The
Partnership's percentage interest in the joint venture was 10% at
December 31, 1996.
- A joint venture interest in Golf Brook Apartments, a 195-unit luxury
apartment complex in Orlando, Florida, constructed by the joint
venture between the Partnership and NTS-Properties VI, a Maryland
Limited Partnership, an affiliate of the general partner of the
Partnership, ("NTS-Properties VI"). The Partnership's percentage
interest in the joint venture was 4% at December 31, 1996.
- A joint venture interest in Plainview Point III Office Center, an
office center with approximately 62,000 net rentable square feet in
Louisville, Kentucky, constructed by the joint venture between the
Partnership and NTS-Properties VI. The Partnership's percentage
interest in the joint venture was 5% at December 31, 1996.
- A joint venture interest in Blankenbaker Business Center 1A, a
business center with approximately 50,000 net rentable ground floor
square feet and approximately 50,000 net rentable mezzanine square
feet located in Louisville, Kentucky, acquired complete by a joint
venture between NTS-Properties Plus Ltd. and NTS-Properties VII,
Ltd., affiliates of the general partner of the Partnership. The Joint
Venture Agreement was amended to admit the Partnership during
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<PAGE>
Items 1. and 2. Business and Properties - Continued
General - Continued
- -------------------
1994. The Partnership's percentage interest in the joint
venture was 30% at December 31, 1996.
- A joint venture interest in the Lakeshore/University II Joint
Venture ("L/U II Joint Venture"). The L/U II Joint Venture was
formed on January 23, 1995 among the Partnership and NTS-
Properties V, NTS-Properties Plus Ltd. and NTS/Fort
Lauderdale, Ltd., affiliates of the general partner of the
Partnership. The Partnership's percentage interest in the
joint venture was 18% at December 31, 1996.
A description of the properties owned by the L/U II Joint Venture
appears below:
- Lakeshore Business Center Phase I - a business center with
approximately 103,000 net rentable square feet located in Fort
Lauderdale, Florida, acquired complete by the joint venture.
- Lakeshore Business Center Phase II - a business center with
approximately 97,000 net rentable square feet located in Fort
Lauderdale, Florida, acquired complete by the joint venture.
- University Business Center Phase II - a business center with
approximately 78,000 net rentable first floor (office and
service) and second floor office square feet and approximately
10,000 net rentable mezzanine square feet located in Orlando,
Florida, acquired complete by the joint venture.
- Outparcel Building Sites - approximately 6.2 acres of undeveloped
land adjacent to the Lakeshore Business Center development, which
is zoned for commercial development.
The Partnership or the joint venture in which the Partnership is a partner has a
fee title interest in the above properties. In the opinion of the Partnership's
management, the properties are adequately covered by insurance.
Commonwealth Business Center Phase I is encumbered by a mortgage payable to an
insurance company. The outstanding balance at December 31, 1996 was $2,467,606.
The mortgage bears interest at a fixed rate of 8.8% and is due October 1, 2004.
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.
Plainview Point Office Center Phases I and II is not encumbered by any
outstanding mortgages at December 31, 1996.
The Willows of Plainview Phase I is encumbered by permanent mortgages with two
insurance companies. Both loans are secured by a first mortgage on the property.
The outstanding balance of the mortgages at December 31, 1996 was $3,928,950
($2,012,389 and $1,916,561). Both mortgages currently bear a fixed interest rate
of 7% and are due December 5, 2003. 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).
The Willows of Plainview Phase II, an apartment joint venture between the
Partnership and NTS-Properties V, is encumbered by permanent mortgages with two
insurance companies. The outstanding balances of the mortgages at December 31,
1996 was $5,143,945 ($3,220,975 and $1,922,970). The mortgages
- 4 -
<PAGE>
Items 1. and 2. Business and Properties - Continued
General - Continued
- -------------------
are recorded as a liability of the Joint Venture. The Partnership's
proportionate interest in the mortgages at December 31, 1996 is $523,139
($327,573 and $195,566). Both mortgages currently bear a fixed interest rate of
7.5% and are due December 5, 2003. Current monthly principal payments on both
mortgages 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) of which the Partnership's proportionate
share would be $458,292 ($286,968 and $171,324).
Golf Brook Apartments, a joint venture between the Partnership and NTS-
Properties VI, is encumbered by a mortgage payable to an insurance company. The
$9,200,000 mortgage payable is recorded as a liability by NTS-Properties VI in
accordance with the Joint Venture Agreement. The mortgage bears a fixed interest
rate of 8.625%. The unpaid balance of the loan ($9,200,000) is due August 1,
1997.
As of December 31, 1996, NTS-Properties VI has obtained a commitment from an
insurance company for $9,000,000 of debt financing. The proceeds from the new
financing along with cash reserves will be used to pay off NTS- Properties VI's
current $9,200,000 mortgage payable discussed above. The mortgage will bear
interest at a fixed rate of 7.43% and will be fully amortized over a 12 year
period. Based upon the terms of the commitment, NTS-Properties VI anticipates
that the financing will be completed in April 1997.
Plainview Point III Office Center is not encumbered by any outstanding mortgages
as of December 31, 1996.
Blankenbaker Business Center 1A, a joint venture between the Partnership,
NTS-Properties VII, Ltd. and NTS-Properties Plus Ltd., is encumbered by a
mortgage payable to an insurance company. The outstanding balance at December
31, 1996 was $4,198,030. The mortgage is recorded as a liability of the Joint
Venture. The Partnership's proportionate interest in the mortgage at December
31, 1996 is $1,262,767. The mortgage bears interest at a fixed rate of 8.5% and
is due November 15, 2005. Currently 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.
The properties owned by the Lakeshore/University II Joint Venture, a joint
venture between the Partnership, NTS-Properties V, NTS-Properties Plus Ltd. and
NTS/Fort Lauderdale, Ltd. are encumbered by mortgages payable to an insurance
company as follows:
Loan Balance
at 12/31/96 Encumbered Property
----------- -------------------
$5,924,638 Lakeshore Business Center Phase II
$5,678,802 University Business Center Phase II
$5,506,717 Lakeshore Business Center Phase I
The loans are recorded as a liability of the Joint Venture. The Partnership's
proportionate interest in the loans at December 31, 1996 was $1,057,548,
$1,013,666 and $982,949, respectively. 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.
For a further discussion regarding the terms of the debt financings see
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Item 7).
- 5 -
<PAGE>
Items 1. and 2. Business and Properties - Continued
General - Continued
- -------------------
Currently, the Partnership's plans for renovations and other major capital
expenditures include tenant finish improvements as required by lease
negotiations at the Partnership's properties. Changes to current tenant
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 the
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.
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 ended December 31, 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 81,000 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 92%). Of the total being sub-leased, approximately 69,000
square feet (or 85%) 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. During 1994,
1995 and 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 accounts for approximately 6% of the
partnership's total revenues. 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 sublessees 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 the remaining 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 the funds for this commitment is expected to be
cash flow from operations and/or cash reserves.
Subsequent to December 31, 1996, the L/U II Joint Venture made 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
- 6 -
<PAGE>
Items 1. and 2. Business and Properties - Continued
General - Continued
- -------------------
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 flow from operations
and/or cash reserves.
The Partnership had no other material commitments for renovations or capital
improvements as of December 31, 1996.
On July 23, 1996, the L/U II Joint Venture obtained three mortgage loans from an
insurance company totalling $17,400,000 ($6,025,000, $5,775,000 and $5,600,000).
The outstanding balances of the loans at December 31, 1996 were $5,924,638,
$5,678,802 and $5,506,717, respectively, for a total of $17,110,157. The loans
are recorded as a liability of the Joint Venture. The Partnership's
proportionate interest in the loans at December 31, 1996 was $1,057,548,
$1,013,666 and $982,949, respectively, for a total of $3,054,163. 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. The proceeds from the loans were used
to pay off the Joint Venture's notes payable of approximately $16.8 million
which bore interest at a fixed rate of 10.6% and to fund loan closing costs of
approximately $280,000. The Partnership's proportionate interest in the notes
which were paid off was approximately $3,000,000 or 18%. The notes which were
paid off had a maturity date of January 31, 1998. The remaining proceeds will be
used to fund Joint Venture tenant finish improvements and leasing costs.
The Partnership is engaged solely in the business of developing, constructing,
owning and operating residential apartments and commercial real estate. A
presentation about industry segments is not applicable.
The current business of the Partnership is consistent with the original purpose
of the Partnership which was to invest in real property, which was either under
development or proposed for development, on which it would develop, construct,
own and operate apartment complexes, business parks, and retail, industrial and
office buildings. The Partnership properties are in a condition suitable for
their intended use.
The Partnership intends to hold the Properties until such time as sale or other
disposition appears to be advantageous with a view to achieving the
Partnership's investment objectives or it appears that such objectives will not
be met. In deciding whether to sell a Property, the Partnership will consider
factors such as potential capital appreciation, cash flow and Federal income tax
considerations, including possible adverse Federal income tax consequences to
the Limited Partners. The General Partner of the Partnership is currently
exploring the marketability of certain of its properties, and has not yet
determined if any of the properties might be sold in the next 12 months.
Additionally, the outparcel building sites owned by the L/U II Joint Venture are
being marketed for sale.
Commonwealth Business Center Phase I
- ------------------------------------
Base annual rents, which exclude the cost of utilities, currently range from
$8.09 to $11.83 per square foot for ground floor office space, $3.97 to $5.59
per square foot for ground floor warehouse space and $7.32 to $10.72 per square
foot for mezzanine office space. The average base annual rental for all space
leased as of December 31, 1996 was $8.00. Space is ordinarily leased for between
three and five years with the majority of current square
- 7 -
<PAGE>
Items 1. and 2. Business and Properties - Continued
Commonwealth Business Center Phase I - Continued
- ------------------------------------------------
footage being leased for a term of five years (1). Current leases terminate
between 1997 and 2004. Several of the leases provide for renewal options ranging
from two to five years at rates which are based upon increases in the consumer
price index and/or are negotiated between lessor and lessee. All leases provide
for tenants to contribute toward the payment of common area expenses, insurance
and real estate taxes. As of December 31, 1996, there were 11 tenants leasing
office and warehouse space aggregating approximately 48,724 square feet of
rentable area (2). The tenants who occupy Commonwealth Business Center Phase I
are professional service oriented organizations. The principal
occupations/professions practiced include a stockbrokerage house, insurance and
environmental engineering. One tenant leases more than 10% of Commonwealth
Business Center Phase I's rentable area: Mid-America Data Processing, Inc.
(33.8%). The occupancy levels at the business center as of December 31 were 86%
(1996 and 1995), 82% (1994), 75% (1993) and 77% (1992).
The following table contains approximate data concerning the leases in effect on
December 31, 1996.
Major Tenant:
Current Base
Sq. Ft. and Annual Rental
% of Net and % of Gross
Year of Rentable Base Annual Renewal
Name Expiration Area(2) Rental Options
---- ---------- ------- ------ -------
Mid-America Data
Processing, Inc. 2004 19,101 (33.8%) $304,116 (52.5%) None
Other Tenants:
Current Base
Sq. Ft. and Annual Rental
% of Net and % of Gross
No. of Year of Rentable Base Annual Renewal
Tenants Expiration Area(2) Rental Options
------- ---------- ------- ------ -------
4 1997 12,009 (21.3%) $ 99,590(17.1%) 2 Two-Year
1 1998 1,604 (2.8%) $ 10,875 (1.9%) None
2 1999 8,793 (15.5%) $ 105,924(18.3%) 3 Three-Year
2 2000 4,027 (7.1%) $ 35,964 (6.2%) (3)
1 2001 3,190 (5.6%) $ 22,870 (3.9%) None
(1) Excluding the Mid-America Data Processing, Inc. current lease which is for
10 years.
(2) Rentable area includes only ground square feet (office and warehouse space).
(3) 2 Three-Year and 1 Five-Year.
Plainview Point Office Center Phases I and II
- ---------------------------------------------
Except as indicated in the table below, base annual rents, which include the
cost of utilities, currently range from $11.69 to $13.50 per square foot. The
average base annual rental as of December 31, 1996 was approximately $12.42 per
square foot. Office space is ordinarily leased for between two to five years
with the majority of current square footage being leased for a term of three
years (4). Current leases terminate between 1997 and 2006.
(4) Excluding the ITT Educational Services, Inc. lease which is for 10 years
and the Independent Life and Accident Insurance lease which is for 10 1/2
years.
- 8 -
<PAGE>
Items 1. and 2. Business and Properties - Continued
Plainview Point Office Center Phases I and II - Continued
- ---------------------------------------------------------
One lease provides for a renewal option of five years at a rate which will be
negotiated between lessor and lessee. All leases provide for tenants to
contribute toward the payment of increases in common area maintenanceexpenses,
insurance, utilities and real estate taxes. As of December 31, 1996, there were
11 tenants leasing office space aggregating approximately 49,274 square feet of
rentable area. The tenants who occupy Plainview Point Office Center Phases I and
II are professional service oriented organizations. The principal
occupations/professions practiced include a business school, state lottery
management offices, telemarketing services and respiratory therapy services.
Three tenants lease more than 10% of Plainview Point Office Center's rentable
area: ICT Group, Inc. (10.8%), Kentucky Lottery Corporation (11.4%) and ITT
Educational Services, Inc. (36.2%). The occupancy levels at the office center as
of December 31 were 88% (1996), 85% (1995), 74% (1994), 43% (1993) and 40%
(1992).
The following table contains approximate data concerning the leases in effect on
December 31, 1996.
Major Tenants:
Current Base
Sq. Ft. and Annual Rental
% of Net and % of Gross
Year of Rentable Base Annual Renewal
Name Expiration Area Rental Options
---- ---------- ---- ------ -------
ICT Group, Inc. 1998 6,031 (10.8%) $ 70,524 (12.6%) None
Kentucky Lottery
Corporation 1997 6,374 (11.4%) $ 73,296 (13.1%)(1) None
ITT Educational
Services, Inc. 2004 20,232 (36.2%) $204,948 (36.6%)(2) 1 Five-Year
(1) The lease provides that the tenant will pay its own electricity and thus
the base rent is below $12.42.
(2) The lease provides that the tenant will pay its own electricity and
janitorial and thus the base rent is below $12.42.
Other Tenants:
Current Base
Sq. Ft. and Annual Rental
% of Net and % of Gross
No. of Year of Rentable Base Annual Renewal
Tenants Expiration Area Rental Options
------- ---------- ---- ------ -------
4 1997 8,497 (15.2%) $111,549 (19.9%) None
2 1998 1,643 ( 3.0%) $ 20,436 ( 3.7%) None
1 1999 2,338 ( 4.2%) $ 29,225 ( 5.2%) None
None 2000-2005 -- -- None
1 2006 4,159 ( 7.4%) $ 49,908 (8.9%) None
The Willows of Plainview Phase I
- --------------------------------
Units at The Willows of Plainview Phase I include one and two-bedroom loft and
deluxe apartments and two-bedroom townhomes. All units have wall-to-wall
carpeting, individually controlled heating and air conditioning, dishwashers,
ranges, refrigerators and garbage disposals. All units, except one-bedroom
lofts, have washer/dryer hook-ups. The one-bedroom lofts have stackable washers
and dryers. Tenants have access to and the use of coin-operated washer/dryer
facilities, clubhouse, management offices, pool, whirlpool and tennis courts.
- 9 -
<PAGE>
Items 1. and 2. Business and Properties - Continued
The Willows of Plainview Phase I - Continued
- --------------------------------------------
Monthly rental rates at start at $619 for one-bedroom apartments, $879 for
two-bedroom apartments and $979 for two-bedroom townhomes, with additional
monthly rental amounts for special features and locations. Tenants pay all costs
of heating, air conditioning and electricity. Most leases are for a period of
one year. Units will be rented in some cases, however, on a shorter term basis
at an additional charge. The occupancy levels at the apartment complex as of
December 31 were 89% (1996), 91% (1995), 87% (1994), 87% (1993) and 85% (1992).
The Willows of Plainview Phase II
- ---------------------------------
See the discussion under The Willows of Plainview Phase I. Monthly rental rates
at The Willows of Plainview Phase II start at $619 for one-bedroom apartments,
$879 for two-bedroom apartments and $999 for two-bedroom townhomes, with
additional monthly rental amounts for special features and locations. The
occupancy levels at the apartment complex as of December 31 were 92% (1996), 94%
(1995), 93% (1994), 91% (1993) and 90% (1992).
Golf Brook Apartments
- ---------------------
Units at Golf Brook Apartments include two and three-bedroom units. All units
have wall-to-wall carpeting, individually controlled heating and air
conditioning, dishwashers, ranges, refrigerators, garbage disposals and
washer/dryer hook-ups. Tenants have access to and use of clubhouse, management
offices, pool and tennis courts.
Monthly rental rates at Golf Brook Apartments start at $1,120 for two-bedroom
apartments and $1,350 for three-bedroom apartments, with additional monthly
rental amounts for special features and locations. Tenants pay all costs of
heating, air conditioning and electricity. Most leases are for a period of one
year. Units will be rented in some cases, however, on a shorter term basis at an
additional charge. The occupancy levels at the apartment complex as of December
31 were 97% (1996), 91% (1995), 93% (1994), 91% (1993) and 94% (1992).
Plainview Point III Office Center
- ---------------------------------
Base annual rents, which include the cost of utilities, range from $13.90 to
$15.00 per square foot for first and second floor office space and $13.00 per
square foot for lower level office space. The average base annual rental for all
types of space leased as of December 31, 1996 was $14.16 per square foot. Office
space is ordinarily leased for between two and six years with the majority of
current square footage being leased for a term of five years. Current leases
terminate between 1997 and 2001. Some leases provide for renewal options of
between two and five years at rates which are based upon increases in the
consumer price index and/or are negotiated between lessor and lessee. All leases
provide for tenants to contribute toward the payment of increases in common area
maintenance expenses, insurance, utilities and real estate taxes. As of December
31, 1996, there were six tenants leasing space aggregating approximately 56,882
square feet of rentable area. The tenants who occupy Plainview Point III Office
Center are professional service oriented organizations. The principal
occupations/professions practiced include real estate and insurance. Four
tenants lease more than 10% of the office center's rentable area: The Prudential
Company of America (10.4%), Underwriters Safety & Claims, Inc. (18.4%), RE/MAX
Properties East, Inc. (24.5%) and Univa Health Network (26.8%). The occupancy
levels at the office center as of December 31 were 91% (1996 ,1995 and 1994),
87% (1993) and 95% (1992).
- 10 -
<PAGE>
Items 1. and 2. Business and Properties - Continued
Plainview Point III Office Center - Continued
- ---------------------------------------------
The following table contains approximate data concerning the leases in effect on
December 31, 1996.
Major Tenants:
Current Base
Sq. Ft. and Annual Rental
% of Net and % of Gross
Year of Rentable Base Annual Renewal
Name Expiration Area Rental Options
---- ---------- ---- ------ -------
The Prudential Company
of America 1997 6,474 (10.4%) $ 95,964 (11.9%) 1 Five-Year
Underwriters Safety &
Claims, Inc. 2001 11,535 (18.4%) $149,952 (18.6%) None
RE/MAX Properties East,
Inc. 1999 15,300 (24.5%) $225,600 (28.0%) 1 Two-Year
Univa Health Network 2000 16,727 (26.8%) $232,500 (28.9%) 1 Five-Year
Other Tenants:
Current Base
Sq. Ft. and Annual Rental
% of Net and % of Gross
No. of Year of Rentable Base Annual Renewal
Tenants Expiration Area Rental Options
------- ---------- ---- ------ -------
None 1997-1999 -- -- --
2 2000 6,846 (10.9%) $101,604 (12.6%) 1 Three-Year
Blankenbaker Business Center 1A
- -------------------------------
Prudential Service Bureau, Inc. has leased 100% of Blankenbaker Business Center
1A. The annual base rent, which does not include the cost of utilities, is $7.89
per square foot for ground floor office space and $7.10 per square foot for
second floor office space. The average base annual rental for all types of space
leased as of December 31, 1996 was $7.48. The lease term is for 11 years and
expires in July 2005. Prudential Service Bureau, Inc. is a professional service
oriented organization which deals in insurance claim processing. The lease
provides for the tenant to contribute toward the payment of common area
expenses, insurance and real estate taxes.
The occupancy level at the business center as of December 31, 1996, 1995, 1994,
1993 and 1992 was 100%.
The following table contains approximate data concerning the lease in effect as
of December 31, 1996:
Major Tenant:
Current Base
Sq. Ft. and Annual Rental
% of Net and % of Gross
Year of Rentable Base Annual Renewal
Name Expiration Area(1) Rental Options
---- ---------- ------- ------ -------
Prudential Service
Bureau, Inc. 2005 48,463 (100%) $752,787 (100%) None
(1) Rentable area includes only ground floor square feet.
- 11 -
<PAGE>
Items 1. and 2. Business and Properties - Continued
Lakeshore Business Center Phase I
- ---------------------------------
Base annual rents, which exclude the cost of utilities, currently range from
$9.11 to $12.47 per square foot for first floor office space, $5.69 to $7.80 per
square foot for first floor service space and $8.75 to $11.25 per square foot
for second floor office space. The average base rental for all space leased as
of December 31, 1996 was $9.96. Space is ordinarily leased for between one and
eight years with the majority of current square footage being leased for a term
of five years. Current leases expire between 1997 and 2002. All leases provide
for tenants to contribute toward the payment of common area expenses, insurance
and real estate taxes. As of December 31, 1996, there were 33 tenants leasing
office space (first and second floor) and service space aggregating
approximately 95,651 square feet of rentable area. The tenants who occupy
Lakeshore Business Center Phase I are professional service oriented
organizations. The principal occupations/professions practiced include
healthcare services, telemarketing services, engineering and management offices
for both a cellular communication chain and a soft drink company. One tenant
leases more than 10% of Lakeshore Business Center Phase I's rentable area: U.S.
Homecare Infusion Therapy Products of Florida (11.7%). The occupancy levels at
the business center as of December 31 were 92% (1996 and 1995), 80% (1994), 58%
(1993) and 55% (1992).
The following table contains approximate data concerning the leases in effect on
December 31, 1996.
Major Tenant:
Current Base
Sq. Ft. and Annual Rental
% of Net and % of Gross
Year of Rentable Base Annual Renewal
Name Expiration Area Rental Options
---- ---------- ---- ------ -------
U.S. Homecare
Infusion Therapy
Products of
Florida 1998 12,081 (11.7%) $135,912 (14.3%) (1)
(1) Tenant has option to renew its lease for an unspecified period of time.
Other Tenants:
Current Base
Sq. Ft. and Annual Rental
% of Net and % of Gross
No. of Year of Rentable Base Annual Renewal
Tenants Expiration Area Rental Options
------- ---------- ---- ------ -------
5 1997 10,326 (10.0%) $101,472 (10.7%) None
12 1998 21,554 (21.1%) $212,263 (22.3%) None
6 1999 29,999 (29.0%) $290,436 (30.5%) 4 Three-Year
6 2000 17,322 (16.7%) $169,356 (17.8%) 2 Three-Year
None 2001 -- -- --
3 2002 4,369 (4.2%) $ 43,224 (4.6%) 2 Three-Year
Lakeshore Business Center Phase II
- ----------------------------------
Base annual rents, which exclude the cost of utilities, currently range from
$9.97 to $12.02 per square foot for first floor office space, $6.52 per square
foot for first floor service space and $9.80 to $14.95 per square foot for
second floor office space. The average base rental for all space leased as of
December 31, 1996 was $11.21. Space is ordinarily leased for
- 12 -
<PAGE>
Items 1. and 2. Business and Properties - Continued
Lakeshore Business Center Phase II - Continued
- ----------------------------------------------
between one and seven years with the majority of current square footage being
leased for a term of three years. Current leases expire between 1997 and 2002.
Five leases provide for renewal options at rates which are based upon increases
in the consumer price index and/or are negotiated between lessor and lessee. All
leases provide for tenants to contribute toward the payment of common area
expenses, insurance and real estate taxes. As of December 31, 1996, there were
19 tenants leasing office space (first and second floor) and service space
aggregating approximately 84,835 square feet of rentable area (1). The tenants
who occupy Lakeshore Business Center Phase II are professional service oriented
organizations. The principal occupations/professions practiced include
healthcare services, insurance and management offices for the Florida state
lottery. Three tenants leases more than 10% of Lakeshore Business Center Phase
II's rentable area: Northwest Medical Center, Inc (10.4%), Progressive American
Insurance(10.9%) and Lambda Physik (11.1%). The occupancy levels at the business
center as of December 31 were 89% (1996),72% (1995), 78% (1994), 75% (1993) and
84% (1992).
The following table contains approximate data concerning the leases in effect on
December 31, 1996:
Major Tenant:
Current Base
Sq. Ft. and Annual Rental
% of Net and % of Gross
Year of Rentable Base Annual Renewal
Name Expiration Area (1) Rental Options
---- ---------- -------- ------ -------
Northwest Medical
Center, Inc 2000 10,132 (10.4%) $120,636 (12.7%) None
Progressive American
Insurance 1999 10,580 (10.9%) $127,176 (13.4%) 1 Three-Year
Lambda Physik 2002 10,829 (11.1%) $119,112 (12.5%) 1 Five-year
Other Tenants:
Current Base
Sq. Ft. and Annual Rental
% of Net and % of Gross
No. of Year of Rentable Base Annual Renewal
Tenants Expiration Area(1) Rental Options
------- ---------- ------- ------ -------
4 1997 16,031 (16.4%) $174,654 (18.4%) None
3 1998 8,807 (9.0%) $100,816 (10.6%) (2)
4 1999 11,566 (11.9%) $128,970 (13.6%) 1 Three-Year
4 2000 9,819 (10.1%) $109,282 (11.5%) None
1 2001 7,071 (7.3%) $ 70,704 (7.4%) None
(1) Excludes approximately 1,218 square feet which is occupied by the business
center's property management and leasing staff.
(2) 1 Two-Year and 1 Three-Year.
University Business Center Phase II
- -----------------------------------
Philip Crosby Associates, Inc. has leased 100% of University Business Center
Phase II. (See above for a further discussion regarding Crosby and its lease
with the Joint Venture). The annual base rent, which does not include the cost
of utilities, is $13.00 per square foot for first floor office space, $8.50 per
square foot for first floor service space, $14.00 per square foot for second
floor office space and $13.00 per square foot for mezzanine office space. The
average base annual rental for all types of space leased as of December 31, 1996
was $12.43. The lease term is for seven years and
- 13 -
<PAGE>
Items 1. and 2. Business and Properties - Continued
University Business Center Phase II - Continued
- -----------------------------------------------
expires in 1998. Philip Crosby Associates, Inc. is a professional service
oriented organization which specializes in quality control seminars. The lease
provides for the tenant to contribute toward the payment of common area
expenses, insurance and real estate taxes. The occupancy level at the business
center as of December 31 was 99% (1996), 95% (1995) and 100% (1994, 1993 and
1992).
The following table contains approximate data concerning the lease in effect as
of December 31, 1996.
Major Tenant:
Current Base
Sq. Ft. and Annual Rental
% of Net and % of Gross
Year of Rentable Base Annual Renewal
Name Expiration Area(1) Rental Options
---- ---------- ------- ------ -------
Philip Crosby
Associates, Inc. 1998 75,975 (100%) $1,072,920 (100%) 1 Five-Year
(1) Rentable area includes only first floor (office and service) square feet
and second floor office square feet. (See above for further discussion on
sublet space.)
Additional operating data regarding the Partnership's properties is furnished in
the following table.
Federal Realty Annual
Tax Basis Tax Rate Realty Taxes
--------- -------- ------------
Wholly-Owned Properties
- -----------------------
Commonwealth Business
Center Phase I $3,995,722 $.011000 $ 35,857
Plainview Point Office
Center Phases I and II 3,441,504 .011200 18,083
The Willows of
Plainview Phase I 7,355,682 .011200 51,127
Property Owned in Joint
Venture with NTS-
Properties V
- ------------
The Willows of
Plainview Phase II 7,863,123 .011200 58,439
(Table continued next page)
- 14 -
<PAGE>
Items 1. and 2. Business and Properties - Continued
Federal Realty Annual
Tax Basis Tax Rate Realty Taxes
--------- -------- ------------
Properties Owned in
Joint Venture with NTS-
Properties VI
- -------------
Golf Brook Apartments $16,100,810 $ .018935 $ 259,816
Plainview Point III
Office Center 4,189,222 .011200 34,911
Property Owned in Joint
Venture with NTS-
Properties VII and NTS-
Properties Plus Ltd.
- --------------------
Blankenbaker Business
Center 1A 7,356,545 .011000 68,090
Properties Owned
Through Lakeshore/
University II Joint
Venture (L/U II Joint
Venture
- -------
Lakeshore Business
Center Phase I 10,087,575 .026559 145,704
Lakeshore Business
Center Phase II 12,105,721 .026559 131,503
University Business
Center Phase II 7,104,723 .020111 107,508
Percentage ownership has not been applied to the information in the above table
for properties owned through a joint venture.
Depreciation for book purposes is computed using the straight-line method 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 estimated realty taxes on planned renovations,
primarily tenant improvements, is not material.
See Management's Discussion and Analysis of Financial Condition and Results
of Operations (Item 7) for explanations regarding the fluctuations of income
and occupancy at the Partnership's properties.
Investment in Joint Ventures
- ----------------------------
NTS Willows Phase II Joint Venture - On September 1, 1984, the Partnership
entered into a joint venture agreement with NTS-Properties V to develop,
construct, own and operate a 144 - unit luxury apartment complex on an 8.29 acre
site in Louisville, Kentucky known as The Willows of Plainview Phase II. The
term of the Joint Venture shall continue until dissolved.
- 15 -
<PAGE>
Items 1. and 2. Business and Properties - Continued
Investment in Joint Ventures - Continued
- ----------------------------------------
Dissolution shall occur upon, but not before, the first to occur of the
following:
(a) the withdrawal, bankruptcy or dissolution of a Partner or the
execution by a Partner of an assignment for the benefit of its
creditors;
(b) the sale, condemnation or taking by eminent domain of all or
substantially all of the assets of the Partnership, other than its
cash and cash equivalent assets;
(c) the vote or consent of each of the Partners to dissolve the
Partnership; or
(d) September 30, 2028.
The Partnership contributed land valued at $800,000 and NTS-Properties V
contributed approximately $7,455,000, the construction and carrying costs of the
apartment complex. No future contributions are anticipated as of December 31,
1996.
The apartment complex is encumbered by permanent mortgages with two insurance
companies. Both loans are secured by a first mortgage on the property. The
outstanding balance of the mortgages at December 31, 1996 is $5,143,945
($3,220,975 and $1,922,970). The mortgages are recorded as a liability of the
Joint Venture. The Partnership's proportionate interest in the mortgages at
December 31, 1996 is $523,139 ($327,573 and $195,566). Both mortgages currently
bear a fixed interest rate of 7.5% and are due December 5, 2003. The outstanding
balance at maturity based on the current rate of amortization would be
$4,449,434 ($2,786,095 and $1,663,339) of which the Partnership's proportionate
share would be $458,292 ($286,968 and $171,324). See Management's Discussion and
Analysis of Financial Condition and Results of Operations (Item 7) for a further
discussion regarding the terms of the debt financing.
The Net Cash Flow for each calendar quarter is distributed to the Partners in
accordance with their respective Percentage Interests. The term Net Cash Flow
means the excess, if any, of (A) the gross receipts from the operations of the
Joint Venture Property (including investment income) for such period plus any
funds released from previously established reserves (referred to in clause (iv)
below), over (B) the sum of (i) all cash operating expenses paid by the Joint
Venture Property during such period in the course of business, (ii) capital
expenditures during such period not funded by capital contributions, loans or
paid out of previously established reserves, (iii) payments during such period
on account of amortization of the principal of any debts or liabilities of the
Joint Venture property and (iv) reserves for contingent liabilities and future
expenses of the Joint Venture Property. Percentage Interest means that
percentage which the capital contributions of a Partner bears to the aggregate
capital contributions of all the Partners.
Net income or net loss is allocated between the Partners in accordance with
their respective Percentage Interests. The Partnership's ownership share was 10%
at December 31, 1996.
The Partnership has no liability for funding losses of the joint venture as of
December 31, 1996.
- 16 -
<PAGE>
Items 1. and 2. Business and Properties - Continued
Investment in Joint Ventures - Continued
- ----------------------------------------
NTS Ft. Lauderdale Office Joint Venture - On April 1, 1985, the Partnership
entered into a joint venture agreement with NTS-Properties V to develop,
construct, own and operate an office warehouse building in Ft. Lauderdale,
Florida known as Lakeshore Business Center Phase I.
The Partnership contributed land valued at $1,752,982 and NTS-Properties V
contributed approximately $9,170,000, the cost of constructing and leasing the
building. On January 23, 1995, the partners of the NTS Ft. Lauderdale Office
Joint Venture contributed Lakeshore Business Center Phase I to the newly formed
Lakeshore/University II (L/U II) Joint Venture. For a further discussion of the
Lakeshore/University II Joint Venture, see below.
NTS Sabal Golf Villas Joint Venture - On September 1, 1985, the Partnership
entered into a joint venture agreement with NTS-Properties VI to develop,
construct, own and operate a 158-unit luxury apartment complex on a 13.15 acre
site in Orlando, Florida known as Golf Brook Apartments Phase I. On January 1,
1987, the joint venture agreement was amended to include Golf Brook Apartments
Phase II, a 37-unit luxury apartment complex located on a 3.069 acre site
adjacent to Golf Brook Apartments Phase I. The term of the Joint Venture shall
continue until dissolved. Dissolution shall occur upon, but not before, the
first to occur of the following:
(a) the withdrawal, bankruptcy or dissolution of a Partner or the
execution by a Partner of an assignment for the benefit of its
creditors;
(b) the sale, condemnation or taking by eminent domain of all or
substantially all of the assets of the Partnership, other than its
cash and cash-equivalent assets;
(c) the vote or consent of each of the Partners to dissolve the
Partnership; or
(d) September 30, 2025.
The Partnership contributed land valued at $1,900,000 with a related note
payable to a bank of $1,200,000. NTS-Properties VI contributed approximately
$15.8 million, the cost of constructing and leasing the apartments.
NTS-Properties VI also contributed funds to retire the $1,200,000 note payable
to a bank. No future contributions are anticipated as of December 31, 1996.
Golf Brooks Apartments is encumbered by a mortgage payable to an insurance
company. This mortgage payable replaced the Contribution Loan which NTS-
Properties VI had obtained to fund a portion of its capital contribution to the
Joint Venture. The $9,200,000 mortgage payable is recorded as a liability by
NTS-Properties VI in accordance with the Joint Venture Agreement. The mortgage
bears a fixed interest rate of 8.625%. The unpaid balance of the loan
($9,200,000) is due August 1, 1997. See above for information regarding the
refinancing of this mortgage.
The Net Cash Flow for each calendar quarter is distributed to the Partners in
accordance with their respective Percentage Interests. The Term Net Cash Flow
means the excess, if any, of (a) the sum of (i) the gross receipts of the Joint
Venture Property, for such period, other than capital contributions, plus (ii)
any funds from previously established reserves (referred to in clause (b) (iv)
below), over (b) the sum of (i) all cash expenses paid by the Joint Venture
Property during such period, (ii) all capital expenditures paid in cash during
such period, (iii) payments during such period on account of amortization of the
principal of any debts or
- 17 -
<PAGE>
Items 1. and 2. Business and Properties - Continued
Investment in Joint Ventures - Continued
- ----------------------------------------
liabilities of the Joint Venture Property, and (iv) reserves for contingent
liabilities and future expenses of the Joint Venture Property, as established by
the Partners; provided, however, that the amounts referred to in (i), (ii) and
(iii) above shall be taken in to account only to the extent not funded by
capital contributions or paid out of previously established reserves. Percentage
Interest means that percentage which the capital contributions of a Partner
bears to the aggregate capital contributions of all the Partners.
Net income or net loss is allocated between the Partners in accordance with
their respective Percentage Interests. The Partnership's ownership share was 4%
at December 31, 1996.
The Partnership has no liability for funding losses of the joint venture as of
December 31, 1996.
Plainview Point III Joint Venture - On March 1, 1987, the Partnership entered
into a joint venture agreement with NTS-Properties VI to develop, construct, own
and operate an office building in Louisville, Kentucky known as Plainview Point
III Office Center. The terms of the Joint Venture shall continue until
dissolved. Dissolution shall occur upon, but not before, the first to occur of
the following:
(a) the withdrawal, bankruptcy or dissolution of a Partner or the
execution by a Partner of an assignment for the benefit of its
creditors;
(b) the sale, condemnation or taking by eminent domain of all or
substantially all of the assets of the Real Property, unless such
disposition is, in whole or in part, represented by a promissory
note of the purchaser;
(c) the vote or consent of each of the Partners to dissolve the
Partnership; or
(d) December 30, 2026.
The Partnership contributed land valued at $790,000 with an outstanding note
payable to a bank of $550,000 which was secured by the land. NTS-Properties VI
contributed approximately $4.1 million, the cost to construct and lease the
building. NTS-Properties VI also contributed funds to retire the $550,000 note
payable to the bank. No future contributions are anticipated as of December 31,
1996.
The office center is not encumbered by any outstanding mortgages as of December
31, 1996.
The Net Cash Flow for each calendar quarter is distributed to the Partners in
accordance with their respective Percentage Interests. The term Net Cash Flow
means the excess, if any, of (a) the sum of (i) the gross receipts of the Joint
Venture Property, for such period, other than capital contributions, plus (ii)
any funds from previously established reserves (referred to in clause (b) (iv)
below), over (b) the sum of (i) all cash expenses paid by the Joint Venture
Property during such period, (ii) all capital expenditures paid in cash during
such period, (iii) payments during such period on account of amortization of the
principal of any debts or liabilities of the Joint Venture Property, and (iv)
reserves for contingent liabilities and future expenses of the Joint Venture
Property, as established by the Partners; provided, however, that the amounts
referred to in (i), (ii) and (iii) above shall be taken in to account only to
the
- 18 -
<PAGE>
Items 1. and 2. Business and Properties - Continued
Investment in Joint Ventures - Continued
- ----------------------------------------
extent not funded by capital contributions or paid out of previously established
reserves. Percentage Interest means that percentage which the capital
contributions of a Partner bears to the aggregate capital contributions of all
the Partners.
Net income or net loss is allocated between the Partners in accordance with
their respective Percentage Interests. The Partnership's ownership share was 5%
at December 31, 1996.
The Partnership has no liability for funding losses of the joint venture as of
December 31, 1996.
Blankenbaker Business Center Joint Venture - On August 16, 1994, the
Blankenbaker Business Center Joint Venture agreement was amended to admit the
Partnership to the Joint Venture. The Joint Venture was originally formed on
December 28, 1990 between NTS-Properties Plus Ltd. and NTS- Properties VII,
Ltd., affiliates of the general partner of the Partnership, to own and operate
Blankenbaker Business Center 1A and to acquire an approximately 2.49 acre
parking lot that was being leased by the business center from an affiliate of
the general partner. The use of the parking lot is a provision of the tenant's
lease agreement with the business center. The terms of the Joint Venture shall
continue until dissolved. Dissolution shall occur upon, but not before, the
first to occur of the following:
(a) the withdrawal, bankruptcy or dissolution of a Partner or the
execution by a Partner of an assignment for the benefit of its
creditors;
(b) the sale, condemnation or taking by eminent domain of all or
substantially all of the assets of the Real Property and Parking
Lot and the sale and/or collection of any evidences of
indebtedness received in connection therewith;
(c) the vote or consent of each of the Partners to dissolve the
Partnership; or
(d) December 31, 2030.
In 1990 when the Joint Venture was originally formed, NTS-Properties VII, Ltd.
contributed $450,000 which was used for additional tenant improvements to the
business center, and contributed $325,000 to purchase the 2.49 acre parking lot.
The additional tenant improvements were made to the business center and the
parking lot was purchased in 1991. NTS-Properties Plus Ltd. contributed
Blankenbaker Business Center 1A together with improvements and personal property
subject to mortgage indebtedness of $4,715,000. During November 1994, this note
payable was replaced with permanent financing in the amount of $4,800,000. The
mortgage bears interest at a fixed rate of 8.5% and is due November 15,2005.
Current monthly principal payments are based upon an 11-year amortization. At
maturity, the mortgage will have been repaid based on the current rate of
amortization.
On April 28, 1994, the Joint Venture obtained $1,100,000 in debt financing to
fund a portion of the tenant finish and leasing costs which are associated with
the Prudential Service Bureau, Inc. lease renewal and expansion. For a further
discussion of the lease renewal and expansion, see Management's Discussion and
Analysis of Financial Condition and Results of Operations (Item 7). The
$1,100,000 note bore interest at the Prime Rate + 1 1/2%. In order for the Joint
Venture to obtain the $4,800,000 of permanent financing discussed above, it was
necessary for the Joint Venture
- 19 -
<PAGE>
Items 1. and 2. Business and Properties - Continued
Investment in Joint Ventures - Continued
- ----------------------------------------
to seek an additional Joint Venture partner to provide the funds necessary for
the tenant finish and leasing costs instead of debt financing. The $1,100,000
note was retired in August 1994. This resulted in the Joint Venture's debt being
at a level where permanent financing could be obtained and serviced.
On August 16, 1994, NTS-Properties IV contributed $1,100,000 and NTS- Properties
VII, Ltd. contributed $500,000 in accordance with the agreement to amend the
Joint Venture. The need for additional capital by the Joint Venture was a result
of the lease renewal and expansion which was signed April 28, 1994 between the
Joint Venture and Prudential. NTS-Properties Plus Ltd. was not in a position to
contribute additional capital, nor was NTS-Properties VII, Ltd. in a position to
contribute all of the capital required for this project. NTS-Properties IV was
willing to participate in the Joint Venture and to contribute, together with
NTS-Properties VII, Ltd., the capital necessary with respect to the project.
NTS-Properties Plus Ltd. agreed to the admission of NTS-Properties IV to the
Joint Venture, and to the capital contributions by NTS-Properties IV and
NTS-Properties VII, Ltd. with the knowledge that its joint venture interest
would, as a result, decrease. With this expansion, Prudential now occupies 100%
of the business center. No future contributions are anticipated as of December
31, 1996.
The Net Cash Flow for each calendar quarter is distributed to the Partners in
accordance with the respective Percentage Interests. The term Net Cash Flow for
any period shall mean the excess, if any, of (A) the sum of (i) the gross
receipts of the Joint Venture Property for such period, other than capital
contributions, plus (ii) any funds released by the Partners from previously
established reserves (referred to in clause (B) (iv) below), over (B) the sum of
(i) all cash operating expenses paid by the Joint Venture Property during such
period in the course of the business, (ii) capital expenditures paid in cash
during such period, (iii) payments during such period on account of amortization
of the principal of any debts or liabilities of the Joint Venture Property and
(iv) reserves for contingent liabilities and future expenses of the Joint
Venture Property as established by the Partners; provided, however, that the
amounts referred to in (B)(i), (ii) and (iii) above shall only be taken into
account to the extent not funded by capital contributions or paid out of
previously established reserves. Percentage Interest means that percentage which
the capital contributions of a Partner bears to the aggregate capital
contributions of all the Partners.
Net income or net loss is allocated between the Partners in accordance with
their respective Percentage Interests. The Partnership's ownership share was 30%
at December 31, 1996.
The Partnership has no liability for funding losses of the joint venture as of
December 31, 1996.
Lakeshore/University II Joint Venture - On January 23, 1995, a new joint venture
known as Lakeshore/University II Joint Venture (L/U II Joint Venture) was formed
among the Partnership and NTS-Properties V, NTS- Properties Plus Ltd. and
NTS/Fort Lauderdale, Ltd., affiliates of the general partner of the Partnership,
for purposes of owning Lakeshore Business Center Phases I and II, University
Business Center Phase II and certain undeveloped tracts of land adjacent to the
Lakeshore Business Center development. The table below identifies which
properties were contributed to the L/U II Joint Venture and the respective
owners of such properties prior to the formation of the joint venture.
- 20 -
<PAGE>
Items 1. and 2. Business and Properties - Continued
Investment in Joint Ventures - Continued
- ----------------------------------------
Property Contributing Owner
-------- ------------------
Lakeshore Business Center Phase I NTS-Properties IV and NTS-
Properties V
Lakeshore Business Center Phase II NTS-Properties Plus Ltd.
Undeveloped land adjacent to the NTS-Properties Plus Ltd.
Lakeshore Business Center
development (3.8 acres)
Undeveloped land adjacent to the NTS/Fort Lauderdale, Ltd.
Lakeshore Business Center
development (2.4 acres)
University Business Center Phase II NTS-Properties V and NTS-
Properties Plus Ltd.
The term of the Joint Venture shall continued until dissolved. Dissolution shall
occur upon, but not before, the first to occur of the following:
(a) the withdrawal, bankruptcy or dissolution of a Partner or the
execution by a Partner of an assignment for the benefit of its
creditors;
(b) the sale, condemnation or taking by eminent domain of all or
substantially all of the Real Property and the sale and/or
collection of any evidences of indebtedness received in connection
therewith;
(c) the vote or consent of each of the Partners to dissolve the
Partnership; or
(d) December 31, 2030.
Each of the properties were contributed to the L/U II Joint Venture subject to
existing indebtedness, except for Lakeshore Business Center Phase I which was
contributed to the joint venture free and clear of any mortgage liens, and all
such indebtedness was assumed by the joint venture. Mortgages were recorded on
Lakeshore Business Center Phase I in the amount of $5,500,000, and on University
Business Center Phase II in the amount of $3,000,000, in favor of the banks
which held the indebtedness on University Business Center Phase II, Lakeshore
Business Center Phase II and the undeveloped tracts of land prior to the
formation of the joint venture. In addition to the above, the Partnership also
contributed $750,000 to the L/U II Joint Venture. As a result of the valuation
of the properties contributed to the L/U II Joint Venture, the Partnership
obtained an 18% partnership interest in the joint venture.
The properties of the L/U II Joint Venture are encumbered by mortgages payable
to an insurance company as follows:
Loan Balance
at 12/31/96 Encumbered Property
----------- -------------------
$5,924,638 Lakeshore Business Center Phase II
$5,678,802 University Business Center Phase II
$5,506,717 Lakeshore Business Center Phase I
- 21 -
<PAGE>
Items 1. and 2. Business and Properties - Continued
Investment in Joint Ventures - Continued
- ----------------------------------------
The loans recorded as liabilities of the Joint Venture. The Partnership's
proportionate interest in the loans at December 31, 1996 was $3,054,163
($1,057,548, $1,013,666 and $982,949). The mortgages bear a fixed interest rate
of 8.125% and are due August 1, 2008. 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.
The Net Cash Flow for each calendar quarter is distributed to the Partners in
accordance with their respective Percentage Interest. The term Net Cash Flow
means the excess, if any, of (A) the sum of (i) the gross receipts of the Joint
Venture Properties for such period (including loan proceeds), other than capital
contributions, plus (ii) any funds released from previously established reserves
(referred to in clause (B)(iv) below), over (B) the sum of (i) all cash
operating expenses paid by the Joint Venture during such period in the course of
business, (ii) capital expenditures paid in cash during such period, (iii)
payments during such period on account of amortization of the principal of any
debts or liabilities of the Joint Venture and (iv) reserves for contingent
liabilities and future expenses of the Joint Venture, as established by the
Partners; provided, however, that the amounts referred to in (B)(i), (ii) and
(iii) above shall only be taken into account to the extent not funded by capital
contributions or paid out of previously established reserves. Percentage
Interest means that percentage which the capital contributions of a Partner
bears to the aggregate capital contributions of all the Partners.
Net income or net loss is allocated between the partners in accordance with
their respective Percentage Interests. The Partnership's ownership share was 18%
at December 31, 1996.
The Partnership had no liability for funding losses of the joint venture as of
December 31, 1996.
Competition
- -----------
The Partnership's properties are subject to competition from similar types of
properties (including, in certain areas, properties owned or managed by
affiliates of the General Partner) in the respective vicinities in which they
are located. Such competition is generally for the retention of existing tenants
or for new tenants when vacancies occur. The Partnership maintains the
suitability and competitiveness of its properties primarily on the basis of
effective rents, amenities and service provided to tenants. Competition is
expected to increase in the future as a result of the construction of additional
properties. As of December 31, 1996, there are no properties under construction
in the respective vicinities in which the properties are located, however, in
the vicinity of Golf Brook Apartments, there are 150 apartments units currently
under construction which are scheduled to be completed during the first quarter
of 1997. At this time it is unknown the effect these new units will have on
occupancy at Golf Brook Apartments. The Partnership has not commissioned a
formal market analysis of competitive conditions in any market in which it owns
properties, but relies upon the market condition knowledge of the employees of
NTS Development Company who manage and supervise leasing for each property.
Management of Properties
- ------------------------
NTS Development Company, an affiliate of NTS-Properties Associates IV, the
general partner of the Partnership, directs the management of the
Partnership's properties pursuant to a written agreement. NTS Development
Company is a wholly-owned subsidiary of NTS Corporation. Mr. J. D. Nichols
- 22 -
<PAGE>
Items 1. and 2. Business and Properties - Continued
Management of Properties - Continued
- ------------------------------------
has a controlling interest in NTS Corporation and is a general partner of
NTS-Properties Associates IV. Under the agreement, the Property Manager
establishes rental policies and rates and directs the marketing activity of
leasing personnel. It also coordinates the purchase of equipment and supplies,
maintenance activity and the selection of all vendors, suppliers and independent
contractors. As compensation for its services, the Property Manager received a
total of $204,165 for the year ended December 31, 1996. $136,926 was received
from commercial properties and $67,239 was received from residential properties.
The fee is equal to 6% of gross revenues from commercial properties and 5% of
gross revenues from residential properties.
In addition, the management agreement requires the Partnership to purchase all
insurance relating to the managed properties, to pay the direct out-of-pocket
expenses of the Property Manager in connection with the operation of the
properties, including the cost of goods and materials used for and on behalf of
the Partnership, and to reimburse the Property Manager for the salaries,
commissions, fringe benefits, and related employment expenses of on-site
personnel.
The term of the Management Agreement between NTS Development Company and the
Partnership was initially for five years, and thereafter for succeeding one-year
periods, unless cancelled. The Agreement is subject to cancellation by either
party upon sixty days written notice. As of December 31, 1996, the Management
Agreement is still in effect.
Conflict of Interest
- --------------------
Because the principals of the general partner and/or its affiliates own and/or
operate real estate properties other than those owned by the Partnership that
are or could be in competition with the Partnership, potential conflicts of
interest exist. Because the Partnership was organized by and is operated by the
General Partner, these conflicts are not resolved through arms-length
negotiations but through the exercise of the General Partner's good judgment
consistent with its fiduciary responsibility to the Limited Partners and the
Partnership's investment objectives and policies. The General Partner is
accountable to the Limited Partners as a fiduciary and consequently must
exercise good faith and integrity in handling the Partnership's affairs. A
provision has been made in the Partnership Agreement that the General Partner
will not be liable to the Partnership except for acts or omissions performed or
omitted fraudulently, in bad faith or with negligence. In addition, the
Partnership Agreement provides for indemnification by the Partnership of the
General Partner for liability resulting from errors in judgement or certain acts
or omissions. The General Partner and its affiliates retain a free right to
compete with the Partnership's properties including the right to develop
competing properties now and in the future in addition to those existing
properties which may compete directly or indirectly. NTS Development Company,
the Property Manager and an affiliate of the General Partner, acts in a similar
capacity for other affiliated entities in the same geographic region where the
Partnership has property interests. The agreement with the Property Manager is
on terms no less favorable to the Partnership than those which could be obtained
from a third party for similar services in the same geographical region in which
the properties are located. The contract is terminable by either party without
penalty upon 60 days written notice.
There are no other agreements or relationships between the Partnership, the
General Partner and its affiliates than that previously described.
- 23 -
<PAGE>
Items 1. and 2. Business and Properties - Continued
Employees
- ---------
The Partnership has no employees; however, employees of an affiliate of the
general partner are available to perform services for the Partnership. The
Partnership reimburses this affiliate for the actual costs of providing such
services.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
- 24 -
<PAGE>
PART II
Item 5. Market for Registrant's Limited Partnership Interests and Related
Partner Matters
There is no established trading market for the limited partnership interests.
The Partnership had 2,481 limited partners as of February 27, 1997. Cash
distributions and allocations of income and loss are made as described in Note
1C to the Partnership's 1995 financial statements.
Annual distributions totalling $8.00 (1996), $37.00 (1995) and $11.58 (1994)
were paid per limited partnership unit. 1995 distributions include a $25 per
unit special distribution from the Partnership's cash reserves. Quarterly
distributions are determined based on current cash balances, cash flow being
generated by operations and cash reserves needed, as determined by the general
partner, for future leasing costs, tenant finish costs and capital improvements.
Distributions were paid quarterly as follows:
1996 1995 1994
---------- ---------- --------
First quarter $ 3.00 $28.00 $ 2.86
Second quarter 3.00 3.00 2.86
Third quarter 2.00 3.00 2.86
Fourth quarter -- 3.00 3.00
------ ------ ------
$ 8.00 $37.00 $11.58
====== ====== ======
The table below presents that portion of the distributions that represent a
return of capital on a Generally Accepted Accounting Principle basis for the
years ended December 31, 1996, 1995 and 1994.
Cash
Net Loss Distributions Return of
Allocated Declared Capital
--------- -------- -------
Limited Partners:
1996 $ (45,719) $ 222,842 $ 222,842
1995 (422,220) 1,100,565 1,100,565
1994 (303,153) 344,447 344,447
General Partner:
1996 $ (462) $ 2,251 $ 2,251
1995 (4,265) 11,117 11,117
1994 (3,062) 3,479 3,479
- 25 -
<PAGE>
<TABLE>
Item 6. Selected Financial Data
Years ended December 31, 1996, 1995, 1994, 1993 and 1992.
<CAPTION>
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Rental and other income $ 3,577,554 $ 3,285,430 $ 2,595,299 $ 2,184,317 $ 2,302,901
Total expenses (3,623,735) (3,711,915) (2,901,514) (2,448,865) (2,274,943)
------------ ------------ ------------ ------------ ------------
Net income (loss) $ (46,181) $ (426,485) $ (306,215) $ (264,548) $ 27,958
============ ============ ============ ============ ============
Net income (loss) allocated to:
General partner $ (462) $ (4,265) $ (3,062) $ (2,645) $ 280
Limited partners $ (45,719) $ (422,220) $ (303,153) $ (261,903) $ 27,678
Net income (loss) per
limited partnership unit $ (1.63) $ (14.19) $ (10.19) $ (8.80) $ .93
Weighted average number
of limited partnership
units 28,012 29,745 29,745 29,745 29,745
Cumulative net income
(loss) allocated to:
General partner $ 3,406 $ 3,868 $ 8,133 $ 11,195 $ 13,840
Limited partners $ 337,100 $ 382,819 $ 805,039 $ 1,108,192 $ 1,370,095
Cumulative taxable income
(loss) allocated to:
General partner $ (24,618) $ (24,486) $ (20,830) $ (14,278) $ (9,650)
Limited partners $ (2,437,521) $ (2,424,353) $ (2,062,388) $ (1,413,707) $ (955,538)
Distributions declared:
General partner $ 2,251 $ 11,117 $ 3,479 $ 3,438 $ 5,163
Limited partners $ 222,842 $ 1,100,565 $ 344,447 $ 340,282 $ 511,175
Cumulative distributions
declared to:
General partner $ 218,253 $ 216,002 $ 204,885 $ 201,406 $ 197,968
Limited partners $ 21,607,636 $ 21,384,794 $ 20,284,229 $ 19,939,782 $ 19,599,500
At year end:
Land, buildings and
amenities, net $ 13,801,251 $ 14,617,818 $ 11,974,200 $ 9,808,367 $ 10,251,046
Total assets $ 15,406,286 $ 16,645,788 $ 15,483,541 $ 15,242,567 $ 11,537,027
Mortgages and notes
payable $ 11,236,625 $ 11,592,641 $ 8,895,313 $ 8,132,325 $ 3,883,000
</TABLE>
The above selected financial data should be read in conjunction with the
financial statements and related notes appearing elsewhere in this Form 10-K
report.
- 26 -
<PAGE>
Item 7. 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 December 31 were as
follows:
Percentage
Ownership at
12/31/96 1996 1995 1994
-------- ---- ---- ----
Wholly-Owned Properties
- -----------------------
Commonwealth Business Center 100% 86% 86% 82%
Phase I
Plainview Point Office Center 100% 88% 85% 74%
Phases I and II
The Willows of Plainview Phase I 100% 89% 91% 87%
Properties Owned in Joint Venture
with NTS-Properties V
- ---------------------
The Willows of Plainview Phase II 10% 92% 94% 93%
Lakeshore Business Center Phase I See
(See L/U II Joint Venture below) N/A N/A below 80%
(2)
Properties Owned in Joint Venture
with NTS-Properties VI
- ----------------------
Golf Brook Apartments 4% 97% 91% 93%
Plainview Point III Office Center 5% 91% 91% 91%
Property Owned in Joint Venture
with NTS-Properties VII, Ltd. and
NTS-Properties Plus Ltd.
- ------------------------
Blankenbaker Business Center 1A 30% 100% 100% 100%
(1)
Properties Owned Through
Lakeshore/University II Joint
Venture (L/U II Joint Venture)
- ------------------------------
Lakeshore Business Center Phase I 18% 92% 92% See
above
(2)
Lakeshore Business Center Phase II 18% 89% 72% 78%
(3)
University Business Center 18% 99% 95% 100%
Phase II (3)
(1) The Partnership acquired an interest in this property during the third
quarter of 1994. See below for a discussion regarding this capital
contribution.
(2) During the first quarter of 1995, the Partnership's ownership interest in
Lakeshore Business Center Phase I changed. See below for a discussion
regarding this change.
(3) As of December 31, 1994, the Partnership did not have an interest in this
property. See below for a discussion regarding the change which occurred
during the first quarter of 1995.
- 27 -
<PAGE>
Results of Operations - Continued
- ---------------------------------
The rental and other income generated by the Partnership's properties for the
years ended December 31, 1996, 1995 and 1994 were as follows:
Percentage
Ownership
at 12/31/96 1996 1995 1994
----------- ---- ---- ----
Wholly-Owned Properties
- -----------------------
Commonwealth Business
Center Phase I 100% $ 684,996 $ 618,041 $ 565,572
Plainview Point Office
Center Phases I and II 100% $ 544,023 $ 462,855 $ 324,433
The Willows of Plainview
Phase I 100% $1,108,767 $1,043,360 $1,060,995
Properties Owned in Joint
Venture with NTS-
Properties V
- ------------
The Willows of Plainview
Phase II 10% $ 123,547 $ 115,380 $ 118,399
Lakeshore Business Center
Phase I N/A N/A $ 14,282 $ 163,127
(1)
Properties Owned in Joint
Venture with NTS-
Properties VI
- -------------
Golf Brook Apartments 4% $ 115,828 $ 112,549 $ 108,795
Plainview Point III
Office Center 5% $ 38,079 $ 22,351 $ 35,080
Property Owned in Joint
Venture with NTS-
Properties VII, Ltd. And
NTS-Properties Plus Ltd.
- ------------------------
Blankenbaker Business
Center 1A 30% $ 277,578 $ 275,378 $ 87,253
(2)
(Continued next page)
Revenues shown in the table above and on page 28 for properties owned through a
joint venture represent only the Partnership's percentage interest in those
revenues.
(1) During the first quarter of 1995, the Partnership's ownership interest in
Lakeshore Business Center Phase I changed. The Partnership's
proportionate share of rental and other income from January 23, 1995 to
December 31, 1995 is reflected below. See below for a discussion
regarding this change.
(2) The Partnership acquired an interest in this property during the third
quarter of 1994. See below for a discussion regarding this capital
contribution.
- 28 -
<PAGE>
Results of Operations - Continued
- ---------------------------------
Percentage
Ownership
at 12/31/96 1996 1995 1994
----------- -------- -------- ------
Properties Owned through
Lakeshore/University II
Joint Venture (L/U II
Joint Venture)
- --------------
Lakeshore Business Center
Phase I 18% $ 237,375 $ 191,785 N/A (1)
Lakeshore Business Center
Phase II 18% $ 207,357 $ 192,167 N/A (2)
University Business
Center Phase II 18% $ 215,922 $ 198,064 N/A (2)
(1) During the first quarter of 1995, the Partnership's ownership interest in
Lakeshore Business Center Phase I changed. Rental and other income from
January 1, 1995 to January 22, 1995 and for 1994 is reflected on page 27.
See below for a discussion regarding this change.
(2) During 1994, the Partnership did not have an interest in this property.
See below for a discussion regarding the change which occurred during the
first quarter of 1995.
Year-ending occupancy at Commonwealth Business Center Phase I remained constant
(86%) from 1995 to 1996. During 1996, there was one new lease for a total of
3,600 square feet and an expansion of approximately 1,600 square feet by an
existing tenant. Offsetting the new lease and expansion is one tenant move-out
at the end of the lease term of approximately 5,500 square feet. Average
occupancy increased from 81% in 1995 to 91% in 1996. Rental and other income at
Commonwealth Business Center Phase I increased from 1995 to 1996 as a result of
the increase in average occupancy and an increase 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 4% increase in year-ending occupancy at Commonwealth Business Center Phase I
from 1994 to 1995 is attributed to three new leases totalling approximately
6,000 square feet. Partially offsetting the new leases are two tenant move-outs
at the end of the lease terms totalling approximately 2,300 square feet and one
tenant, who had occupied 1,600 square feet, vacating the premises prior to the
end of the lease term due to bankruptcy. There was no accrued income connected
with this lease. Average occupancy increased from 75% in 1994 to 81% in 1995.
Rental and other income at Commonwealth Business Center Phase I increased from
1994 to 1995 as a result of the increase in average occupancy and an increase in
common area expense reimbursements. Partially offsetting the increase in rental
and other income is an increase in the provision for doubtful accounts.
The 3% increase in year-ending occupancy at Plainview Point Office Center Phases
I and II from 1995 to 1996 can be attributed to two new leases totalling
approximately 1,700 square feet. Included in this total is an expansion of
approximately 1,000 square feet by an existing tenant. There were no tenant
move-outs during 1996. Average occupancy at Plainview Point Office Center Phases
I and II has increased from 77% in 1995 to 86% in 1996. Rental and other income
at Plainview Point Office Center Phases I and II increased in 1996 as compared
to 1995 as a result of the increase in average occupancy and an increase in
rental rates.
- 29 -
<PAGE>
Results of Operations - Continued
- ---------------------------------
The 11% increase in year-ending occupancy at Plainview Point Office Center
Phases I and II from 1994 to 1995 is attributed to three new leases totalling
approximately 6,100 square feet. Included in this total is an expansion of
approximately 1,000 square feet by an existing tenant. There were no tenant
move-outs during 1995. Average occupancy increased from 57% in 1994 to 77% in
1995. Rental and other income at Plainview Point Office Center Phases I and II
increased in 1995 as compared to 1994 as a result of the increase in average
occupancy and as a result of increased rental rates on lease renewals.
Year-ending occupancy at The Willows of Plainview Phase I decreased from 91%
(1995) to 89% (1996). However, average occupancy from 1995 to 1996 increased
from 87% to 89%, respectively. Occupancy at residential properties fluctuate on
a continuous basis. Year-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 year's results. In
the opinion of the General Partner of the Partnership, the decrease in
year-ending occupancy from 1995 to 1996 is only a temporary fluctuation and does
not represent a downward occupancy trend. The increase in rental and other
income at The Willows of Plainview Phase I from 1995 to 1996 is a result of the
increase in average occupancy, increased fees collected upon early lease
terminations and an increase in rental rates.
Year-ending occupancy at The Willows of Plainview Phase I increased 4% from 1994
to 1995. However, average occupancy from 1994 to 1995 decreased from 92% to 87%,
respectively. Rental and other income at The Willows of Plainview Phase I
decreased from 1994 to 1995 as a result of the decrease in average occupancy.
The Willows of Plainview Phase II's year-ending occupancy decreased from 94%
(1995) to 92% (1996). Average occupancy at The Willows of Plainview Phase II
increased 3% from 92% (1995) to 95% (1996). In the opinion of the General
Partner of the Partnership, the decrease in year-ending occupancy from 1995 to
1996 is only a temporary fluctuation and does not represent a downward occupancy
trend. The increase in rental and other income from 1995 to 1996 is a result of
the 3% increase in average occupancy, an increase in rental rates and an
increase in income from fully-furnished units. Fully- furnished units are
apartments which rent at an additional premium above base rent.
The Willows of Plainview Phase II's year-ending occupancy increased from 93%
(1994) to 94% (1995); however, average occupancy from 1994 to 1995 decreased
from 94% to 92%, respectively. This decrease in average occupancy at The Willows
of Plainview Phase II resulted in a decrease in rental and other income.
Golf Brook Apartments' year-ending occupancy increased 6% from 1995 to 1996
while average occupancy remained constant at 94% in 1995 and 1996. The change in
rental and other income at Golf Brook Apartments from 1995 to 1996 was not
significant.
Golf Brook Apartments' year-ending occupancy decreased 2% from 1994 to 1995
while average occupancy remained constant at 94% in 1994 and 1995. Rental and
other income at Golf Brook Apartments increased from 1994 to 1995 as a result of
increased rental rates, decreased rental concessions and increased charges to
applicants for credit checks.
Year-ending occupancy percentages at Plainview Point III Office Center remained
constant (91%) from 1995 to 1996. Two tenants expanded existing space for a
total of approximately 2,500 square feet and one tenant occupying 2,500 square
feet vacated at the end of the lease term. Average
- 30 -
<PAGE>
Results of Operations - Continued
- ---------------------------------
occupancy increased from 55% (1995) to 93% (1996). Rental and other income
increased at Plainview Point III Office Center from 1995 to 1996 as a result of
the increase in average occupancy.
Year-ending occupancy at Plainview Point III Office Center was 91% for 1995 and
1994 as a result of the following new leases and tenant move-outs. New leases
during 1995 consist of a 10,343 square foot 63-month lease (took occupancy
September 1, 1995) and a 16,727 square foot five-year lease (took occupancy
December 27, 1995). The leases are offset by two tenant move-outs totalling
approximately 26,000 square feet. Of this total, 16,400 square feet represents a
tenant who vacated the office center at the end of the lease term due to the
company's decision to consolidate its Louisville processing center with one
located in another city. The tenant occupied 27% of the office center's rentable
area. Approximately 9,600 square feet of the total move-outs represents a tenant
who vacated the premises January 31, 1995. The tenant's lease was on a
month-to-month basis at the time of move- out. The tenant's original lease term
was for a period of four years. The tenant occupied approximately 16% of the
office center's rentable area. Average occupancy decreased from 92% (1994) to
55% (1995). Rental and other income decreased at Plainview Point III Office
Center from 1995 to 1994 as a result of the decrease in average occupancy during
1995.
A wholly-owned subsidiary of The Prudential Insurance Company of America
(Prudential Service Bureau, Inc.) has leased 100% of Blankenbaker Business
Center 1A. During 1994, Prudential Service Bureau, Inc. signed a lease renewal
and expansion. The renewal extended the current lease through July 2005. With
the expansion, the tenant occupied 100% of the business center during the third
quarter of 1994. In addition to monthly rent payments, 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 from 1995 to 1996 was not significant.
Year-ending occupancy at Lakeshore Business Center Phase I remained constant
(92%) from 1995 to 1996. Six new leases totalling approximately 10,600 square
feet, including approximately 3,400 square feet in expansions by two current
tenants, are offset by five tenant move-outs totalling approximately 10,000
square feet. The five move-outs consist of two tenants (2,700 square feet)
vacating at the end of the lease term, one tenant (1,600 square feet) exercising
a termination option, and two 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) 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 13% from 84% in 1995 to
97% in 1996. Rental and other income increased from 1995 to 1996 as a result of
the increase in average occupancy.
As of December 31, 1996, Lakeshore Business Center Phase I had 1,800 square feet
of additional space leased to a current tenant. The tenant took occupancy in
January 1997. Subsequent to December 31, 1996, one new lease for approximately
1,100 square feet and an expansion lease for approximately 2,000 square feet
were signed at Lakeshore Business Center Phase I. The new tenant took occupancy
during the first quarter of 1997 and the expansion lease is effective during the
second quarter of 1997. With the new leases and expansion, the business center's
occupancy should improve to 97% during the second quarter of 1997. There are no
material commitments relating to the new leases. See the Liquidity and Capital
Resources section of this item for the tenant finish commitment relating to the
expansion lease.
- 31 -
<PAGE>
Results of Operations - Continued
- ---------------------------------
The 12% increase in year-ending occupancy at Lakeshore Business Center Phase I
from 1994 to 1995 can be attributed to 11 new leases totalling approximately
19,000 square feet, which includes approximately 6,400 square feet in expansions
by two current tenants. The new leases and expansions are partially offset by
four tenant move-outs, who vacated at the end of the lease terms, totalling
approximately 6,100 square feet. Average occupancy increased from 70% (1994) to
84% (1995). Rental and other income at Lakeshore Business Center Phase I
increased from 1994 to 1995 primarily as a result of the increase in average
occupancy and an increase in common area expense reimbursements. The increase in
rental and other income can also be attributed to the Partnership's increased
ownership in Lakeshore Business Center Phase I. (See below for a discussion
regarding the change). Partially offsetting the increase in rental and other
income at Lakeshore Business Center I is an increase in the provision for
doubtful accounts.
The 17% increase in year-ending occupancy at Lakeshore Business Center Phase II
from 72% (1995) to 89% (1996) can be attributed to five new leases totalling
approximately 19,200 square feet which includes approximately 10,900 square feet
in expansions by three 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 and expansions is one
tenant move-out, totalling 2,800 square feet vacating prior to the end of the
lease term but continuing to pay rent through the end of the lease term (August
1997). Average occupancy at Lakeshore Business Center Phase II increased from
76% (1995) to 80% (1996). Overall, rental and other income at Lakeshore Business
Center Phase II remained fairly constant from 1995 to 1996 despite a 4% increase
in average occupancy. This is primarily a result of a decrease in rental rates
on lease renewals. As discussed in prior filings, prior to the Ft. Lauderdale
area experiencing an economic downturn, the property was able to negotiate
higher net effective rental rates than current market rental rates. As a result,
the leases that were renewed at the end of 1995 and the beginning of 1996
renewed at a lower net effective rental rate. The Partnership's proportionate
share of the rental and other income at Lakeshore Business Center II, however,
increased in 1996 as compared to 1995. This is due to the fact that the
Partnership acquired an interest in Lakeshore Business Center Phase II as a
result of the formation of the Lakeshore/University Joint Venture (L/U II Joint
Venture) on January 23, 1995. (See below for a discussion regarding the Joint
Venture.)
Subsequent to December 31, 1996 Lakeshore Business Center Phase II had
approximately 5,100 square feet of additional space leased to two new tenants.
The tenants took occupancy during the first quarter of 1997. With the new
leases, the business center's occupancy has improved to 94%. There are no
material tenant finish commitments relating to the new leases.
The 6% decrease in year-ending occupancy at Lakeshore Business Center Phase II
from 1994 to 1995 can be attributed to four tenant move-outs totalling
approximately 9,600 square feet and a downsizing by a current tenant of its
existing space of approximately 6,000 square feet. Two of the move-outs,
totalling approximately 5,800 square feet, represent tenants who vacated the
premises at the end of the lease term. The third tenant, who occupied
approximately 1,400 square feet, vacated the premises and ceased making rental
payments in breach of the lease terms due to bankruptcy. The write-off of
accrued income connected with this lease was not significant. The fourth tenant,
who occupied approximately 2,400 square feet, vacated the premises prior to the
end of the lease term but is continuing to pay rent through the end of the lease
term (September 1996). Partially offsetting the tenant move-outs are six new
leases for a total of approximately 9,700 square feet. Average occupancy at
Lakeshore Business Center Phase II decreased from 78% (1994) to 76% (1995).
- 32 -
<PAGE>
Results of Operations - Continued
- ---------------------------------
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 April 1991. As a result of Crosby downsizing and sub-leasing a portion
of its leased space, occupancy has decreased to 99% at December 31, 1996 and 95%
at December 31, 1995. See below for a further discussion of Crosby and its
leased space.
The Partnership's proportionate share of the rental and other income at
University Business Center Phase II increased from 1995 to 1996. This is due to
the fact that the Partnership acquired an interest in University Business Center
Phase II as a result of the formation of the L/U II Joint Venture on January 23,
1995. (See below for a discussion of the Joint Venture). Overall, rental and
other income at University Business Center Phase II remained fairly constant in
1996 as compared to 1995.
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 or 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 1996, 1995 or
1994.
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 from 1995 to
1996 as a result of a decrease in cash reserves available for investment.
The increase in operating expenses from 1995 to 1996 is due partially to the
Partnership acquiring an interest in the L/U II Joint Venture in January 1995
(see discussion below). The increase in operating expenses is also due to
increased utility costs, increased general building maintenance costs and
increased legal expenses at the Partnership's commercial properties. There were
no significant fluctuations in operating expenses at the Partnership's
residential properties.
Operating expenses-affiliated decreased in 1996 as compared to 1995 primarily as
a result of decreased leasing and property management costs at Plainview Point
Office Center Phases I and II, Commonwealth Business Center Phase I and
Blankenbaker Business Center 1A. Partially offsetting the decrease in operating
expenses -affiliated is the Partnership's acquisition of an interest in the L/U
II Joint Venture in January 1995 (see discussion below). There were no
significant fluctuations in operating expenses- affiliated at the Partnership's
residential properties in 1996 as compared to 1995. Operating
expenses-affiliated are expenses for services performed by employees of NTS
Development Company, an affiliate of the General Partner of the Partnership.
Both the 1996 and 1995 write-off of unamortized building improvements can be
attributed to Plainview Point Office Center Phases I and II. The 1996 write-off
is the result of an exterior stair replacement and represents the cost of the
stairs which were replaced that had not been fully depreciated. The 1995
write-off is the result of lobby renovations and represents the cost of previous
renovations that had not been fully depreciated.
The 1996 write-off of unamortized loan costs relate to loan costs associated
with the Lakeshore/University II Joint Venture's notes payable. The
- 33 -
<PAGE>
Results of Operations - Continued
- ---------------------------------
unamortized loan costs were expensed due to the fact that the notes were retired
in 1996 prior to their maturity (January 31, 1998). See the Liquidity and
Capital Resources section of this item for further discussion.
The decrease in amortization of capitalized leasing costs from 1995 to 1996 is
due primarily to costs capitalized during the initial lease-up at University
Business Center Phase II becoming fully amortized in 1995.
The decrease in interest expense in 1996 as compared to 1995 is due primarily to
continued principal payments on the mortgages and notes payable of the
Partnership and its joint venture properties. The decrease in interest expense
can also be attributed to a lower interest rate on the permanent financing
obtained by the L/U II Joint Venture on July 23, 1996. 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 years will differ from the fluctuations of
management fee expense. The increase in management fee expense in 1996 as
compared to 1995 is also attributed to the Partnership acquiring an interest in
the L/U II Joint Venture in January 1995 (discussed below).
The increase in real estate taxes from 1995 to 1996 is primarily due to the
Partnership acquiring an interest in the L/U II Joint Venture in January 1995
(discussed below). There were no significant fluctuations at the Partnership's
other properties.
The decrease in professional and administrative expenses from 1995 to 1996 is
due mainly to a decrease in outside legal fees and litigation settlement
expenses. The litigation originally instituted by an investor in the Partnership
against her investment advisor and involving claims between the investment
advisor and the Partnership, its general partner and NTS- Properties V, an
affiliate of the general partner of the Partnership, and its general partner was
settled during 1995. At a settlement conference before the Court (U.S.D.C., S.D.
NY), the parties agreed on a confidential basis to settle the litigation, and
any and all other claims of the Third- Party Plaintiffs in exchange for the
payment by the Partnership and NTS- Properties V of certain monies, without the
admission of fault or wrong doing.
The increase in professional and administrative expenses-affiliated from 1995 to
1996 is due mainly to increased 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 from 1995 to 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.
As previously disclosed in the Partnership's Form 10-K for the year ended
December 31, 1995, on August 16, 1994, Blankenbaker Business Center Joint
Venture, a joint venture between NTS-Properties VII, Ltd. and NTS-Properties
Plus Ltd., affiliates of the general partner of the Partnership, amended its
joint venture agreement to admit the Partnership to the Joint Venture. In
accordance with the Joint Venture Agreement Amendment, the Partnership
contributed $1,100,000 and NTS-Properties VII, Ltd. contributed $500,000.
- 34 -
<PAGE>
Results of Operations - Continued
- ---------------------------------
As a result of its capital contribution, the Partnership obtained a 30% interest
in the Joint Venture. NTS-Properties Plus Ltd.'s interest in the Joint Venture
decreased from 69% to 39% as a result of the capital contributions made by
NTS-Properties VII, Ltd. and the Partnership. NTS- Properties VII, Ltd.'s
interest in the Joint Venture remained at 31%.
As previously discussed in the Partnership's Form 10-K for the year ended
December 31, 1995, on January 23, 1995, a new joint venture known as
Lakeshore/University II Joint Venture (L/U II Joint Venture) was formed among
the Partnership and NTS-Properties V, NTS-Properties Plus Ltd. and NTS/Fort
Lauderdale, Ltd., affiliates of the general partner of the Partnership, for
purposes of owning Lakeshore Business Center Phases I and II, University
Business Center Phase II and certain undeveloped tracts of land adjacent to the
Lakeshore Business Center development.
The table below identifies which properties were contributed to the L/U II Joint
Venture and the respective owners of such properties prior to the formation of
the joint venture.
Property Contributing Owner
-------- ------------------
Lakeshore Business Center Phase I NTS-Properties IV and NTS-
Properties V
Lakeshore Business Center Phase II NTS-Properties Plus Ltd.
Undeveloped land adjacent to the NTS-Properties Plus Ltd.
Lakeshore Business Center
development (3.8 acres)
Undeveloped land adjacent to the NTS/Fort Lauderdale, Ltd.
Lakeshore Business Center
development (2.4 acres)
University Business Center NTS-Properties V and NTS-Properties
Phase II Plus Ltd.
Each of the properties were contributed to the L/U II Joint Venture subject to
existing indebtedness, except for Lakeshore Business Center Phase I which was
contributed to the joint venture free and clear of any mortgage liens, and all
such indebtedness was assumed by the joint venture. Mortgages were recorded on
Lakeshore Business Center Phase I in the amount of $5,500,000, and on University
Business Center Phase II in the amount of $3,000,000, in favor of the banks
which held the indebtedness on University Business Center Phase II, Lakeshore
Business Center Phase II and the undeveloped tracts of land prior to the
formation of the joint venture. In addition to the above, the Partnership also
contributed $750,000 to the L/U II Joint Venture. As a result of the valuation
of the properties contributed to the L/U II Joint Venture, the Partnership
obtained an 18% partnership interest in the joint venture.
The General Partner of the Partnership believes that the results of operations
for 1995 and 1994 are not comparable and, therefore, a discussion comparing the
results of operations is not included due to the fact that the Partnership
acquired an interest in the Blankenbaker Business Center Joint Venture on August
16, 1994 as discussed above. Comparisons of the results of operations between
1995 and 1994 are also difficult as a result of the Partnership's investment in
the L/U II Joint Venture as discussed above. These changes in the Partnership's
investments are permanent changes and will effect future results of operations.
- 35 -
<PAGE>
Liquidity and Capital Resources
- -------------------------------
Cash provided by (used in) operations was $936,169 (1996), $815,327 (1995) and
$(27,511) (1994). These funds, in conjunction with cash on hand, were used to
make a 1.05% (annualized) distribution of $225,093 (1996), a 4.8% (annualized)
distribution of $1,111,682 (1995), and 1.5% (annualized) distribution of
$347,926 (1994). The distribution made during the three months ended March 31,
1995 included a special $751,136 distribution made from the Partnership's cash
reserves. The Partnership does not anticipate making another special
distribution in the near term. 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
partners received 1% of these distributions. No distribution was made during the
quarter ended December 31, 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 December
31) were $346,479, $681,197 and $2,405,974 at December 31, 1996, 1995 and 1994,
respectively.
On July 23, 1996, the L/U II Joint Venture obtained three mortgage loans from an
insurance company totalling $17,400,000 ($6,025,000, $5,775,000 and $5,600,000).
The outstanding balances of the loans at December 31, 1996 were $5,924,638,
$5,678,802 and $5,506,717, respectively. The loans are recorded as a liability
of the Joint Venture. The Partnership's proportionate interest in the loans at
December 31, 1996 was $1,057,548, $1,013,666 and $982,949, respectively. 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. The proceeds from the
loans were used to pay off the Joint Venture's notes payable of approximately
$16.8 million which bore interest at a fixed rate of 10.6% and to fund loan
closing costs of approximately $280,000. The Partnership's proportionate
interest in the notes which were paid off was approximately $3,000,000 or 18%.
The notes which were paid off had a maturity date of January 31, 1998. The
remaining proceeds will be used to fund Joint Venture tenant finish improvements
and leasing costs.
As of December 31, 1996, the Partnership has a mortgage payable with an
insurance company in the amount of $2,467,606. 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 December 31, 1996, the Partnership had two mortgage loans each with an
insurance company in the amount of $2,012,389 and $1,916,561. Both mortgages
payable are due December 5, 2003, bear interest at a fixed rate of 7% for the
first 60 months and are secured by the land, buildings and amenities of The
Willows of Plainview Phase I. At the end of the 56th month from the date of the
notes (notes dated November 23, 1993), the insurance companies will notify the
Partnership of the interest rate which is their then prevailing interest rate
for loans with a term of five years on properties comparable to the apartments
(the "Modified Rate"). The
- 36 -
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
Partnership will have 30 days to accept or reject the Modified Rate. If the
Modified Rate is rejected by the Partnership, the entire unpaid principal
balance is due with the 60th installment of interest. If the Partnership accepts
the Modified Rate, it becomes effective the 61st month from the date of the
note. Current monthly principal payments on both notes are based upon a 27-year
amortization schedule. If the Partnership accepts the Modified Rate, the
remaining principal balance of both mortgages will be amortized using a 22-year
amortization schedule beginning the 61st month. 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 December 31, 1996, 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 $3,220,975 and $1,922,970. The
mortgages are recorded as a liability of the Joint Venture. The Partnership's
proportionate interest in the mortgages as of December 31, 1996 is $523,139
($327,573 and $195,566). Both mortgages are due December 5, 2003, bear interest
at a fixed rate of 7.5% for the first 60 months and are secured by the land,
buildings and amenities of the Joint Venture. At the end of the 56th month from
the date of the notes (notes dated November 23, 1993), the insurance companies
will notify the Joint Venture of the interest rate which is their then
prevailing interest rate for loans with a term of five years on properties
comparable to the apartments (the "Modified Rate"). The Joint Venture will have
30 days to accept or reject the Modified Rate. If the Modified Rate is rejected
by the Joint Venture, the entire unpaid principal balance is due with the 60th
installment of interest. If the Joint Venture accepts the Modified Rate, it
becomes effective the 61st month from the date of the note. Current monthly
principal payments on both notes are based upon a 27-year amortization schedule.
If the Partnership accepts the Modified Rate, the remaining principal balance of
both mortgages will be amortized using a 22-year amortization schedule beginning
the 61st month. The outstanding balance at maturity based on the current rate of
amortization would be $4,449,434 ($2,786,095 and $1,663,339).
As of December 31, 1996, the Blankenbaker Business Center Joint Venture had a
mortgage payable with an insurance company (obtained November 1994) in the
amount of $4,198,030. 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 December 31, 1996 is $1,262,767. The
mortgage bears interest at a fixed rate of 8.5% and is due November 15, 2005.
Currently 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.
The majority of the Partnership's cash flow is derived from operating activities
in 1996 and 1995 and from cash reserves in 1994. 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 in 1995 also included cash which was escrowed
for capital expenditures, leasing commissions and tenant improvements at the
properties owned by the L/U II Joint Venture. Cash flows used in investing
activities 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
- 37 -
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
Partnership held the securities until maturity. Cash flows provided by investing
activities were the result of a release of the escrow funds discussed above and
from the maturity of investment securities. Cash flows used in financing
activities are for cash distributions, payment of loan costs, 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 provided by financing activities represent an
increase in mortgages payable. The 1995 capital contribution to a joint venture
represents the Partnership's capital contribution to the L/U II Joint Venture
net the Partnership's proportionate interest in the joint venture's capital
contributions. The 1994 capital contribution to a joint venture represents the
Partnership's capital contribution to the Blankenbaker Business Center Joint
Venture net the Partnership's proportionate interest in the joint venture's 1994
third quarter capital contributions. The Partnership utilizes the proportionate
consolidation method of accounting for joint venture properties. The
Partnership's interest in the joint venture's assets, liabilities, revenues,
expenses and cash flows are combined on a line-by-line basis with the
Partnership's own assets, liabilities, revenues, expenses and cash flows. The
Partnership does not expect any material changes in the mix and relative cost of
capital resources except for interest and principal payments required by the
debt financings obtained by the L/U II Joint Venture on July 23, 1996 (see
discussion above) and 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
years ended December 31, 1996, 1995 and 1994.
Cash Return
Net Loss Distributions of
Allocated Declared Capital
--------- -------- -------
Limited Partners:
1996 $ (45,719) $ 222,842 $ 222,842
1995 (422,220) 1,100,565 1,100,565
1994 (303,153) 344,447 344,447
General Partner:
1996 $ (462) $ 2,251 $ 2,251
1995 (4,265) 11,117 11,117
1994 (3,062) 3,479 3,479
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 ended December 31, 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 81,000 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 92%). Of the total being sub-leased, approximately 69,000
square feet (or 85%) 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. During 1994,
1995 and 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
- 38 -
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
rental income from this property accounts for approximately 6% of the
partnerships total revenues. 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 sublessees 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 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-lease 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 the remaining 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.
Subsequent to December 31, 1996, the L/U II Joint Venture made 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 flow from operations
and/or cash reserves.
The Partnership had no other material commitments for renovations or capital
improvements as of December 31, 1996.
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 1997 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.
On February 1, 1996, the Partnership established an Interest Repurchase Reserve
in the amount of $297,450 pursuant to Section 16.4 of the Partnership's Amended
and Restated Agreement of Limited Partnership. Under Section 16.4, limited
partners may request the Partnership to repurchase their respective interests
(Units) in the Partnership. With this Interest Repurchase Reserve, the
Partnership was able to repurchase 1,983 Units at
- 39 -
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
a price of $150 per Unit. The Partnership notified the limited partners by
letter dated February 1, 1996 of the establishment of the Interest Repurchase
Reserve and the opportunity to request that the Partnership repurchase Units at
the established price.
On May 24, 1996, the Partnership elected to fund an additional amount of
$277,620 to its Interest Repurchase Reserve. With these funds, the Partnership
will be able to repurchase an additional 1,850 Units at a price of $150 per
Unit. Through December 31, 1996, 2,830 Units have been repurchased for $424,500.
Repurchased Units are being retired by the Partnership, thus increasing the
share of ownership of each remaining investor. The Interest Repurchase Reserve
was funded from cash reserves.
Due to uncertainties involving the Crosby lease as discussed above, the
Partnership has taken the following actions. Subsequent to December 31, 1996,
the repurchase of limited partnership Units has been indefinitely interrupted.
Second, effective December 30, 1996, distributions were indefinitely suspended.
Once it is clear that, in the general partner's opinion, the Partnership has the
necessary cash reserves 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 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.
- 40 -
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
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 December 31, 1996 in the asset held for
sale is $297,251. The contract for sale which was previously disclosed in the
Partnership's Form 10-K for the year ended December 31, 1995 has been cancelled
by the purchaser due to the fact that bids for construction exceeded funds
available. The Joint Venture continues to actively market the land 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 7, 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.
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
- 41 -
<PAGE>
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To NTS-Properties IV,
We have audited the accompanying balance sheets of NTS-Properties IV, (a
Kentucky limited partnership), as of December 31, 1996 and 1995, and the related
statements of operations, partners' equity and cash flows for each of the three
years in the period ended December 31, 1996. These financial statements and the
schedules referred to below are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of NTS-Properties IV as of
December 31, 1996 and 1995, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996 in conformity
with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules included on pages 64
through 67 are presented for purposes of complying with the Securities and
Exchange Commission's rules and are not a required part of the basic financial
statements. These schedules have been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our opinion,
fairly state in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Louisville, Kentucky
February 25, 1997
- 42 -
<PAGE>
<TABLE>
NTS-PROPERTIES IV
BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1995
<CAPTION>
1996 1995
------------ -----------
ASSETS
<S> <C> <C>
Cash and equivalents $ 346,479 $ 276,610
Cash and equivalents - restricted 68,193 61,308
Investment securities -- 404,587
Accounts receivable, net of allowance
for doubtful accounts of $7,551 (1996)
and $15,854 (1995) 347,133 431,772
Land, buildings and amenities, net 13,801,251 14,617,818
Asset held for sale 297,251 297,251
Other assets 545,979 556,442
----------- -----------
$15,406,286 $16,645,788
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Mortgages and notes payable $11,236,625 $11,592,641
Accounts payable - operations 136,332 212,597
Accounts payable - construction 5,831 36,167
Distributions payable -- 90,136
Security deposits 83,911 83,995
Other Liabilities 26,412 17,303
----------- -----------
11,489,111 12,032,839
Commitments and Contingencies
Partners' equity 3,917,175 4,612,949
----------- -----------
$15,406,286 $16,645,788
=========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
- 43 -
<PAGE>
<TABLE>
NTS-PROPERTIES IV
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Rental income, net of provision for
doubtful accounts of $0(1996),
$12,018 (1995) and $2,546 (1994) $ 3,544,153 $ 3,231,420 $ 2,451,192
Interest and other income 33,401 54,010 144,107
----------- ----------- -----------
3,577,554 3,285,430 2,595,299
Expenses:
Operating expenses 662,463 604,846 513,760
Operating expenses - affiliated 371,856 395,570 400,350
Write-off of unamortized tenant
and building improvements 6,871 31,636 47,633
Write-off of unamortized loan costs 12,896 -- --
Amortization of capitalized leasing
costs 20,908 26,645 20,150
Interest expense 940,941 979,241 674,348
Management fees 204,165 186,176 136,786
Real estate taxes 220,956 215,165 154,462
Professional and administrative
expenses 94,799 203,990 161,804
Professional and administrative
expenses - affiliated 171,778 138,737 133,988
Depreciation and amortization 916,102 929,909 658,233
----------- ----------- -----------
3,623,735 3,711,915 2,901,514
----------- ----------- -----------
Net loss $ (46,181) $ (426,485) $ (306,215)
=========== =========== ===========
Net loss allocated to the limited
partners $ (45,719) $ (422,220) $ (303,153)
=========== =========== ===========
Net loss per limited partnership
unit $ (1.63) $ (14.19) $ (10.19)
=========== =========== ===========
Weighted average number of limited
partnership units 28,012 29,745 29,745
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
- 44 -
<PAGE>
<TABLE>
NTS-PROPERTIES IV
STATEMENTS OF PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<CAPTION>
Limited General
Partners Partners Total
-------- -------- -----
<S> <C> <C> <C>
Balances at December 31, 1993 $ 6,995,469 $ (190,212) $ 6,805,257
Net loss (303,153) (3,062) (306,215)
Distributions declared (344,447) (3,479) (347,926)
----------- ----------- -----------
Balances at December 31, 1994 6,347,869 (196,753) 6,151,116
Net loss (422,220) (4,265) (426,485)
Distributions declared (1,100,565) (11,117) (1,111,682)
----------- ----------- -----------
Balances at December 31, 1995 4,825,084 (212,135) 4,612,949
Net loss (45,719) (462) (46,181)
Distributions declared (222,842) (2,251) (225,093)
Repurchase of limited partnership
Units (424,500) -- (424,500)
----------- ----------- -----------
Balances at December 31, 1996 $ 4,132,023 $ (214,848) $ 3,917,175
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
- 45 -
<PAGE>
<TABLE>
NTS-PROPERTIES IV
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<CAPTION>
1996 1995 1994
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net loss $ (46,181) $ (426,485) $ (306,215)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Accrued interest on investment securities 3,642 (3,642) --
Provision for doubtful accounts -- 12,018 2,546
Write-off of unamortized tenant and building
improvements 6,871 31,636 47,633
Write-off of unamortized loan costs 12,896 -- --
Amortization of capitalized leasing costs 20,908 26,645 20,150
Depreciation and amortization 916,102 929,909 658,233
Changes in assets and liabilities:
Cash and equivalents - restricted (8,834) (22,993) (17,601)
Accounts receivable 84,639 260,173 (154,962)
Other assets 13,366 5,821 (123,496)
Accounts payable - operations (76,265) 80,942 (138,902)
Security deposits (84) 2,644 2,615
Other liabilities 9,109 (81,341) (17,512)
----------- ----------- -----------
Net cash provided by (used in) operating
activities 936,169 815,327 (27,511)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to land, buildings and amenities (108,563) (433,655) (621,785)
Decrease (increase) in cash and equivalents -
restricted 2,450 (2,450) --
Purchase of investment securities -- (698,227) --
Maturity of investment securities 400,945 297,282 --
----------- ----------- -----------
Net cash provided by (used in)investing
activities 294,832 (837,050) (621,785)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in mortgages payable 3,105,900 -- 4,373,993
Principal payments on mortgages and notes
payable (3,461,916) (354,010) (5,065,734)
Capital contribution to a joint venture -- (616,125) (597,357)
Cash distributions (315,228) (1,111,683) (343,720)
Additions to loan costs (64,888) (25,823) (94,490)
Repurchase of limited partnership Units (424,500) -- --
Increase in cash and equivalents - restricted (500) -- --
----------- ----------- -----------
Net cash used in financing activities (1,161,132) (2,107,641) (1,727,308)
----------- ----------- -----------
Net increase (decrease) in cash and
equivalents 69,869 (2,129,364) (2,376,604)
CASH AND EQUIVALENTS, beginning of year 276,610 2,405,974 4,782,578
----------- ----------- -----------
CASH AND EQUIVALENTS, end of year $ 346,479 $ 276,610 $ 2,405,974
=========== =========== ===========
Interest paid on a cash basis $ 950,760 $ 978,622 $ 697,905
=========== =========== ===========
The accompanying notes to financial statements are an integral part of these statements
</TABLE>
- 46 -
<PAGE>
NTS-PROPERTIES IV
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. Significant Accounting Policies
-------------------------------
A) Organization
------------
NTS-Properties IV (the "Partnership") is a limited partnership
organized under the laws of the Commonwealth of Kentucky on May 13,
1983. The general partner is NTS-Properties Associates IV, a
Kentucky limited partnership. The Partnership is in the business of
developing, constructing, owning and operating residential
apartments and commercial real estate.
B) Properties
----------
The Partnership owns and operates the following properties:
- Commonwealth Business Center Phase I, a business center with
approximately 57,000 net rentable ground floor square feet and
approximately 24,000 net rentable mezzanine square feet in
Louisville, Kentucky
- Plainview Point Office Center Phases I and II, an office center
with approximately 56,000 net rentable square feet in
Louisville, Kentucky
- The Willows of Plainview Phase I, a 118-unit luxury apartment
complex in Louisville, Kentucky
- A 10% joint venture interest in The Willows of Plainview Phase
II, a 144-unit luxury apartment complex in Louisville, Kentucky
- A 4% joint venture interest in Golf Brook Apartments, a 195-unit
luxury apartment complex in Orlando, Florida
- A 5% joint venture interest in Plainview Point III Office
Center, an office center with approximately 62,000 net rentable
square feet in Louisville, Kentucky
- A 30% joint venture interest in Blankenbaker Business Center 1A,
a business center with approximately 50,000 net rentable ground
floor square feet and approximately 50,000 net rentable
mezzanine square feet in Louisville, Kentucky.
- An 18% joint venture interest in the Lakeshore/University II
Joint Venture. A description of the properties owned by the
Joint Venture appears below:
- Lakeshore Business Center Phase I - a business center with
approximately 103,000 rentable square feet located in Fort
Lauderdale, Florida.
- Lakeshore Business Center Phase II - a business center with
approximately 97,000 net rentable square feet located in
Fort Lauderdale, Florida.
- 47 -
<PAGE>
1. Significant Accounting Policies - Continued
-------------------------------------------
B) Properties - Continued
----------------------
- University Business Center Phase II - a business center with
approximately 78,000 net rentable first floor (office and
service) and second floor office square feet and
approximately 10,000 net rentable mezzanine square feet
located in Orlando, Florida.
- Outparcel Building Sites - approximately 6.2 acres of
undeveloped land adjacent to the Lakeshore Business Center
development which is zoned for commercial development.
C) Allocation of Net Income (Loss) and Cash Distributions
------------------------------------------------------
Net Cash Receipts made available for distribution, as defined in
the partnership agreement, will be distributed 1) 99% to the
limited partners and 1% to the general partner until the limited
partners have received their 8% Preference Distribution as defined
in the partnership agreement; 2) to the general partner in an
amount equal to approximately 10% of the limited partners' 8%
Preference Distribution; and 3) the remainder, 90% to the limited
partners and 10% to the general partner. Starting December 31,
1996, the Partnership has indefinitely interrupted distributions.
Net Cash Proceeds, as defined in the partnership agreement, which
are available for distribution will be distributed 1) 99% to the
limited partners and 1% to the general partner until the limited
partners have received distributions from all sources equal to
their Original Capital plus the amount of any deficiency in their
8% Cumulative Distribution as defined in the partnership agreement;
and 2) the remainder, 75% to the limited partners and 25% to the
general partner.
Net income (loss) is to be allocated to the limited partners and to
the general partner based on cash distributions made.
D) Tax Status
----------
The Partnership has received a ruling from the Internal Revenue
Service stating that the Partnership is classified as a limited
partnership for federal income tax purposes. As such, the
Partnership makes no provision for income taxes. The taxable income
or loss is passed through to the holders of interests for inclusion
on their individual income tax returns.
(Notes continued next page)
- 48 -
<PAGE>
1. Significant Accounting Policies - Continued
-------------------------------------------
D) Tax Status - Continued
----------------------
A reconciliation of net loss for financial statement purposes versus
that for income tax reporting is as follows:
1996 1995 1994
---------- ---------- ----------
Net loss $ (46,181) $(426,485) $(306,215)
Items handled differently
for tax purposes:
Depreciation and
amortization (18,531) (18,448) (304,209)
Capitalized leasing
costs 111 6,635 637
Rental income 75,494 73,129 17,451
Write-off of unamortized
tenant improvements (15,890) (12,556) (56,757)
Allowance for doubtful
accounts (8,303) 12,104 (6,140)
--------- --------- ---------
Taxable loss $ (13,300) $(365,621) $(655,233)
========= ========= =========
E) 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.
F) Joint Venture Accounting
------------------------
The Partnership has adopted the proportionate consolidation method
of accounting for joint venture properties. The Partnership's
proportionate interest in the venture's assets, liabilities,
revenues, expenses and cash flows are combined on a line-by-line
basis with the Partnership's own assets, liabilities, revenues and
expenses and cash flows. All intercompany accounts and transactions
have been eliminated in consolidation.
Proportionate consolidation is utilized by the Partnership due to
the fact that the ownership of joint venture properties, in
substance, is not subject to joint control. The managing general
partners of the sole partner of the NTS sponsored partnerships
which have formed joint ventures are substantially the same. As
such, decisions regarding financing, development, sale or
operations do not require the approval of different partners.
Additionally, the joint venture properties are in the same
business/industry as their respective joint venture partners and
their asset, liability, revenue and expense accounts correspond
with the accounts of such partners. It is the belief of the general
partner of the Partnership that the financial statement disclosures
resulting from proportionate consolidation provides the most
meaningful presentation of assets, liabilities, revenues, expenses
and cash flows for the years presented given the commonality of the
Partnership's operations.
- 49 -
<PAGE>
1. Significant Accounting Policies - Continued
-------------------------------------------
G) Cash and Equivalents - Restricted
---------------------------------
Cash and equivalents - restricted represent funds received for
residential security deposits and funds which have been escrowed
with mortgage companies for property taxes and insurance in
accordance with the loan agreements.
Cash and equivalents - restricted at December 31, 1995 also
included escrow funds which were to be released as capital
expenditures, leasing commissions and tenant improvements were
incurred at the properties owned by the Lakeshore/University II
Joint Venture. In 1996, these escrow funds were released.
H) 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 1995 and
1996, 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
December 31, 1995:
Amortized Maturity Value At
Type Cost Date Maturity
---- ---- ---- --------
Certificate of Deposit $153,537 01/05/96 $153,646
Certificate of Deposit 102,336 02/02/96 102,809
FNMA Discount Note 148,714 02/28/96 150,000
------- -------
$404,587 $406,455
======= =======
The Partnership held no investment securities with initial
maturities greater than three months during 1994.
I) Basis of Property and Depreciation
----------------------------------
Land, buildings and amenities are stated at cost to the
Partnership. Costs directly associated with the acquisition,
development and construction of a project are capitalized.
Depreciation is computed using the straight-line method over the
estimated useful lives of the assets which are 5 - 30 years for
land improvements, 5 - 30 years for building and improvements and 5
- 30 years for amenities.
Statement of Financial Accounting Standards (SFAS) No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of, specifies circumstances in which
certain long-lived assets must be reviewed for impairment. If such
review indicates that the carrying amount of an asset exceeds the
sum of its expected future cash flows, the asset's carrying value
must be written down to fair market value. Application of this
standard during the year ended December 31, 1996 did not result in
an impairment loss.
- 50 -
<PAGE>
1. Significant Accounting Policies - Continued
-------------------------------------------
J) Rental Income and Capitalized Leasing Costs
-------------------------------------------
Certain of the Partnership's lease agreements for the commercial
properties are structured to include scheduled and specified rent
increases over the lease term. For financial reporting purposes,
the income from these leases is being recognized on a straight-line
basis over the lease term. Accrued income connected with these
leases is included in accounts receivable and totalled $264,019 and
$333,744 at December 31, 1996 and 1995, respectively.
All commissions paid to commercial leasing agents and incentives
paid to tenants are deferred and amortized on a straight-line basis
over the applicable lease term. In addition, certain other costs
associated with the initial leasing of the properties are
capitalized and amortized over a five year period.
K) Advertising
-----------
The Partnership expenses advertising-type costs as incurred.
Advertising expense was immaterial to the Partnership during the
years ended December 31, 1996, 1995 and 1994.
L) Statements of Cash Flows
------------------------
For purposes of reporting cash flows, cash and equivalents include
cash on hand and short-term, highly liquid investments with initial
maturities of three months or less.
M) Reclassification of 1995 and 1994 Financial Statements
------------------------------------------------------
Certain reclassifications have been made to the December 31, 1995
and 1994 financial statements to conform with December 31, 1996
classifications. These reclassifications have no effect on
previously reported operations.
2. Concentration of Credit Risk
----------------------------
NTS-Properties IV owns and operates commercial properties in Louisville,
Kentucky, Orlando, Florida and Ft. Lauderdale, Florida. Substantially all
of the Partnership's tenants are local businesses or are businesses which
have operations in the location in which they lease space. In Louisville,
Kentucky, one tenant occupies 100% of the Blankenbaker Business Center 1A
property. The Partnership also owns and operates, either wholly or
through a joint venture, residential properties in Louisville, Kentucky
and Orlando, Florida. The apartment unit is generally the principal
residence of the tenant.
3. Interest Repurchase Reserve
---------------------------
On February 1, 1996, the Partnership established an Interest Repurchase
Reserve in the amount of $297,450 pursuant to Section 16.4 of the
Partnership's Amended and Restated Agreement of Limited Partnership.
Under Section 16.4, limited partners may request the Partnership to
repurchase their respective interests (Units) in the Partnership. With
these funds, the Partnership was able to repurchase 1,983 Units at a
price of $150 per Unit. The Partnership notified the limited partners by
letter dated February 1, 1996 of the establishment of the Interest
Repurchase Reserve and the opportunity to request that the Partnership
repurchase Units at the established price.
- 51 -
<PAGE>
3. Interest Repurchase Reserve - Continued
---------------------------------------
On May 24, 1996, the Partnership elected to fund an additional amount of
$277,620 to its Interest Repurchase Reserve. With this funding, the
Partnership will be able to repurchase an additional 1,850 Units at a
price of $150 per Unit. Through December 31, 1996, 2,830 Units have been
repurchased for $424,500. Repurchased Units are being retired by the
Partnership, thus increasing the share of ownership of each remaining
investor. Subsequent to December 31, 1996, the Partnership indefinitely
interrupted the repurchase of Partnership Units.
4. Investment in Joint Ventures
----------------------------
A) NTS/Willows Phase II Joint Venture
----------------------------------
In 1984, the Partnership entered into a joint venture agreement
with NTS-Properties V, an affiliate of the general partner of the
Partnership, to develop and construct a 144-unit luxury apartment
complex on an 8.29-acre site in Louisville, Kentucky known as The
Willows of Plainview Phase II. The Partnership contributed land
valued at $800,000 and NTS-Properties V contributed approximately
$7,455,000, the construction and carrying costs of the apartment
complex. The project was completed in August 1985. Net income or
net loss is allocated each calendar quarter based on the respective
partnership's contribution. The Partnership's ownership share was
10% at December 31, 1996. The Partnership's share of the joint
venture's net operating income was $6,623 (1996), $4,233 (1995) and
$8,320 (1994).
B) NTS Ft. Lauderdale Office Joint Venture
---------------------------------------
In 1985, the Partnership entered into a joint venture agreement
with NTS-Properties V to develop an approximately 103,000
square-foot commercial business center known as Lakeshore Business
Center Phase I, located in Fort Lauderdale, Florida. The
Partnership contributed land valued at $1,752,982 and NTS-
Properties V contributed approximately $9,170,000, the cost of
constructing and leasing the building. The net income or net loss
was allocated each calendar quarter based on the respective
partnership's contribution. The Partnership's share of the joint
venture's net operating income was $2,085 (1995) and $18,060
(1994).
On January 23, 1995, the partners of the NTS Ft. Lauderdale Office
Joint Venture contributed Lakeshore Business Center Phase I to the
newly formed Lakeshore/University II (L/U II) Joint Venture. Refer
to Note 4F for a further discussion of the new joint venture.
C) NTS Sabal Golf Villas Joint Venture
-----------------------------------
In 1985, the Partnership entered into a joint venture agreement
with NTS-Properties VI, an affiliate of the general partner of the
Partnership, to develop and construct a 158-unit luxury apartment
complex on a 13.15-acre site in Orlando, Florida to be known as the
Golf Brook Apartments Phase I. The Partnership contributed land
valued at $1,900,000 with an outstanding note payable to a bank of
$1,200,000 which was secured by the land. On January 1, 1987, the
joint venture agreement was amended to include Golf Brook
Apartments Phase II, a 37-unit luxury apartment complex located on
a 3.069-acre site adjacent to Golf Brook Apartments Phase I. NTS-
Properties VI contributed approximately $15.8 million, the cost of
constructing and leasing the complexes. NTS-Properties VI also
contributed funds to retire the $1,200,000 note payable to the
bank.
- 52 -
<PAGE>
4. Investment in Joint Ventures - Continued
----------------------------------------
C) NTS Sabal Golf Villas Joint Venture - Continued
-----------------------------------------------
Net income or net loss is allocated based on the respective
contribution of each partnership as of the end of each calendar
quarter. The Partnership's ownership share was 4% at December 31,
1996. The Partnership's share of the joint venture's net operating
income was $42,329 (1996), $43,768 (1995) and $33,744 (1994).
D) Plainview Point III Joint Venture
---------------------------------
In 1987, the Partnership entered into a joint venture agreement
with NTS-Properties VI to develop and construct an approximately
62,000 square foot office building located in Louisville, Kentucky
to be known as Plainview Point Phase III Office Center. The
Partnership contributed land valued at $790,000 with an outstanding
note payable to a bank of $550,000 which was secured by the land.
NTS-Properties VI contributed approximately $4.1 million, the cost
to construct and lease the building. NTS-Properties VI also
contributed funds to retire the $550,000 note payable to the bank.
Net income or net loss is allocated based on the respective
partnership's contribution as of the end of each calendar quarter.
The Partnership's ownership share was 5% at December 31, 1996. The
Partnership's share of the joint venture's net operating income
(loss) was $(1,668) (1996), $648 (1995) and $(3,075) (1994).
E) Blankenbaker Business Center Joint Venture
------------------------------------------
On August 16, 1994, the Blankenbaker Business Center Joint Venture
agreement was amended to admit the Partnership to the Joint
Venture. The Joint Venture was originally formed on December 28,
1990 between NTS-Properties Plus Ltd. and NTS-Properties VII, Ltd.,
affiliates of the general partner of the Partnership, to own and
operate Blankenbaker Business Center 1A and to acquire an
approximately 2.49 acre parking lot that was being leased by the
business center from an affiliate of the general partner. The use
of the parking lot is a provision of the tenants's lease agreement
with the business center.
In accordance with the Joint Venture Agreement Amendment, the
Partnership contributed $1,100,000 and NTS-Properties VII, Ltd.
contributed $500,000. The general partner of the Partnership
determined the utilization of a portion of the Partnership's cash
reserves to participate in the Joint Venture would be consistent
with the investment objectives set forth in the Partnership's
partnership agreement, and should enhance the future returns of the
Partnership.
The need for additional capital by the Joint Venture was a result
of the lease renewal and expansion which was signed April 28, 1994
between the Joint Venture and Prudential Service Bureau, Inc.
("Prudential"). The lease expands Prudential's leased space by
approximately 15,000 square feet and extends its current lease term
through July 2005. Approximately 12,000 square feet of the
expansion was into new space which had to be constructed on the
second level of the existing business center. With this expansion,
Prudential now occupies 100% of the business center (approximately
101,000 square feet). The tenant finish and leasing costs connected
with the lease renewal and expansion were approximately $1.4
million.
- 53 -
<PAGE>
4. Investment in Joint Ventures - Continued
----------------------------------------
E) Blankenbaker Business Center Joint Venture - Continued
------------------------------------------------------
In order to calculate the revised joint venture percentage
interests, the assets of the Joint Venture were revalued in
connection with the admission of the Partnership as a joint venture
partner and the additional capital contributions. The value of the
Joint Venture's assets immediately prior to the additional capital
contributions was $6,764,322 and its outstanding debt was
$4,650,042, with net equity being $2,114,280. The difference
between the value of the Joint Venture's assets and the value at
which they were carried on the books of the Joint Venture has been
allocated to NTS-Properties VII, Ltd. and NTS-Properties Plus Ltd.
in determining each Joint Venture partner's percentage interest.
As a result of its capital contribution, the Partnership obtained a
30% interest in the Joint Venture. NTS-Properties Plus Ltd.'s
interest in the Joint Venture decreased from 69% to 39% as a result
of the capital contributions made by NTS-Properties VII, Ltd. and
the Partnership. NTS-Properties VII, Ltd.'s interest in the Joint
Venture remained at 31%.
Net income or net loss is allocated based on the respective
contribution of each partnership as of the end of each calendar
quarter. The Partnership's ownership share was 30% at December 31,
1996. The Partnership's share of the joint venture's net operating
loss was $46,438 (1996), $60,080 (1995) and $119,449 (1994).
F) Lakeshore/University II Joint Venture
-------------------------------------
On January 23, 1995, a new joint venture known as
Lakeshore/University II Joint Venture (L/U II Joint Venture) was
formed among the Partnership and NTS-Properties V, NTS-Properties
Plus Ltd. and NTS/Fort Lauderdale, Ltd., affiliates of the general
partner of the Partnership, for purposes of owning Lakeshore
Business Center Phases I and II, University Business Center Phase
II and certain undeveloped tracts adjacent to the Lakeshore
Business Center development. The table below identifies which
properties were contributed to the L/U II Joint Venture and the
respective owners of such properties prior to the formation of the
joint venture.
Property (Net Asset Contributed) Contributing Owner
-------------------------------- ------------------
Lakeshore Business Center NTS-Properties IV and NTS-
Phase I ($6,249,667) Properties V
Lakeshore Business Center NTS-Properties Plus Ltd.
Phase II (-$1,023,535)
Undeveloped land adjacent to the NTS-Properties Plus Ltd.
Lakeshore Business Center
development (3.8 acres)(-$670,709)
Undeveloped land adjacent to the NTS/Fort Lauderdale, Ltd.
Lakeshore Business Center
development (2.4 acres)($27,104)
University Business Center NTS-Properties V and NTS-
Phase II ($953,236) Properties Plus Ltd.
- 54 -
<PAGE>
4. Investment in Joint Ventures - Continued
----------------------------------------
F) Lakeshore/Univeristy II Joint Venture - Continued
-------------------------------------------------
Each of the properties were contributed to the L/U II Joint Venture
subject to existing indebtedness, except for Lakeshore Business
Center Phase I which was contributed to the joint venture free and
clear of any mortgage liens, and all such indebtedness was assumed
by the L/U II joint venture. Mortgages were recorded on Lakeshore
Business Center Phase I in the amount of $5,500,000, and on
University Business Center Phase II in the amount of $3,000,000, in
favor of the banks which held the indebtedness on University
Business Center Phase II, Lakeshore Business Center Phase II and
the undeveloped tracts prior to the formation of the joint venture.
In addition to the above, the Partnership also contributed $750,000
to the L/U II Joint Venture. The Partnership's ownership share was
18% at December 31, 1996. The Partnership's share of the joint
venture's net operating loss was $176,357 (1996) and $220,756
(1995).
5. Land, Buildings and Amenities
-----------------------------
The following schedule provides an analysis of the Partnership's
investment in property held for lease as of December 31:
1996 1995
----------- -----------
Land and improvements $ 5,551,101 $ 5,521,041
Buildings and improvements 18,529,087 18,567,171
Amenities 228,450 223,800
----------- -----------
24,308,638 24,312,012
Less accumulated depreciation 10,507,387 9,694,194
----------- -----------
$13,801,251 $14,617,818
=========== ===========
6. Asset Held for Sale
-------------------
The L/U II Joint Venture owns approximately 6.2 acres of land adjacent to
the Lakeshore Business Center development in Ft. Lauderdale, Florida. In
management's opinion, the net book value approximates the fair market
value less cost to sell.
7. Mortgages and Notes Payable
---------------------------
Mortgages and notes payable as of December 31 consist of the following:
1996 1995
----------- -----------
Mortgage payable with an insurance
company, bearing interest at a fixed
rate of 8.8%, due October 1, 2004,
secured by land and building $ 2,467,606 $ 2,677,397
Mortgage payable with an insurance
company, bearing interest at a fixed
rate of 7%, due December 5, 2003,
secured by land, buildings and
amenities 2,012,389 2,043,653
(Continued next page)
- 55 -
<PAGE>
7. Mortgages and Notes Payable - Continued
- ------------------------------------------
1996 1995
----------- -----------
Mortgage payable with an insurance
company, bearing interest at a fixed
rate of 7%, due December 5, 2003
secured by land, building and
amenities $ 1,916,561 $ 1,946,336
Mortgage payable with an insurance
company, bearing interest at a fixed
rate of 8.5%, due November 15, 2005,
secured by land and building 1,262,767 1,353,672
Mortgage payable with an insurance
company, bearing interest at a fixed
rate of 8.125% due August 1, 2008,
secured by land and building 1,057,548 --
Mortgage payable with an insurance
company bearing interest at a fixed
rate of 8.125%, due August 1, 2008,
secured by land and building 1,013,666 --
Mortgage payable with an insurance
company bearing interest at a fixed
rate of 8.125%, due August 1, 2008,
secured by land and building 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 327,573 337,832
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 195,566 201,691
Note payable to a bank bearing
interest at a fixed rate of 10.6%,
due January 31, 1998, secured by land
and building -- 1,642,914
Note payable to a bank bearing
interest at a fixed rate of 10.6%,
due January 31, 1998, secured by land
and building -- 1,024,590
Note payable to a bank bearing
interest at a fixed rate of 10.6%,
due January 31, 1998, secured by land -- 220,269
Note payable to a bank bearing
interest at a fixed rate of 10.6%,
due January 31, 1998, secured by land -- 83,597
Note payable to a bank bearing
interest at a fixed rate of 10.6%,
due January 31, 1998, secured by land -- 60,690
---------- ----------
$11,236,625 $11,592,641
========== ==========
- 56 -
<PAGE>
7. Mortgages and Notes Payable - Continued
---------------------------------------
The mortgages are payable in monthly installments of $135,640 which
includes principal, interest, insurance escrow and property tax escrow.
Scheduled maturities of debt are as follows:
For the Years Ended December 31, Amount
-------------------------------- ------
1997 $ 565,363
1998 614,276
1999 667,441
2000 725,231
2001 788,048
Thereafter 7,876,266
-----------
$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 $12,800,000.
8. Rental Income Under Operating Leases
------------------------------------
The following is a schedule of minimum future rental income on
noncancellable operating leases as of December 31, 1996:
For the Years Ended December 31, Amount
-------------------------------- ------
1997 $ 1,706,315
1998 1,388,423
1999 1,191,229
2000 1,006,334
2001 837,042
Thereafter 2,422,240
----------
$ 8,551,583
===========
9. Related Party Transactions
--------------------------
Property management fees of $204,165 (1996), $186,176 (1995) and $136,786
(1994) were paid to NTS Development Company, an affiliate of the general
partner of the Partnership. The fee is equal to 5% of gross revenues from
residential properties and 6% of 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 repair and maintenance fees of
$7,770 (1996) and $17,895 (1995) and has capitalized this cost as a part
of land, buildings and amenities. An agreement also provides for NTS
Development Company to receive a fee equal to 1% of Net Cash Proceeds
from the refinancing of any Partnership property. During 1994, a $41,000
refinancing fee was paid to NTS Development Company and capitalized as a
loan cost (other assets). The fee will be amortized over the life of the
mortgages (permanent financings on The Willows of Plainview Phase I) to
which the fee relates.
- 57 -
<PAGE>
9. Related Party Transactions - Continued
--------------------------------------
As permitted by an agreement, the Partnership was also charged the
following amounts from NTS Development Company for the years ended
December 31, 1996, 1995 and 1994. 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.
1996 1995 1994
-------- -------- --------
Leasing $108,913 $115,557 $155,619
Administrative 214,530 178,910 167,814
Property manager 241,289 253,574 234,636
Other 8,674 9,291 17,427
-------- -------- --------
$573,406 $557,332 $575,496
======== ======== ========
On January 23, 1995, the Partnership contributed $750,000 to the L/U II
Joint Venture. For details regarding this transaction, refer to Note 4F.
On August 16, 1994, the Partnership contributed $1,100,000 to the
Blankenbaker Business Center Joint Venture. The Joint Venture was
originally formed on December 28, 1990 between NTS-Properties Plus Ltd.
and NTS-Properties VII, Ltd., affiliates of the general partner. For
details regarding this transaction, refer to Note 4E.
10. Commitments and Contingencies
-----------------------------
Philip Crosby Associates, Inc. ("Crosby") has leased 100% of University
Business Center Phase I. The original lease term is for seven years and
the tenant took occupancy in April 1991. During the years ended December
31, 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 81,000 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 92%). Of the
total being sub-leased, approximately 69,000 square feet (or 85%) 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. During 1994, 1995
and 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 accounts for
approximately 18% of the partnerships total revenues. 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 sublessees 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 the negotiations with Full Sail.
- 58 -
<PAGE>
10. 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 it currently sublease 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 the remaining
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.
- 59 -
<PAGE>
Item 9.Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure
- --------------------
N/A
PART III
Item 10.Directors and Executive Officers of the Registrant
--------------------------------------------------
Because the Partnership is a limited partnership and not a corporation, it has
no directors or officers as such. Management of the Partnership is the
responsibility of the general partner, NTS-Properties Associates IV. The
Partnership has entered into a management contract with NTS Development Company,
an affiliate of the general partner, to provide property management services.
The general partners of NTS-Properties Associates IV are as follows:
J. D. Nichols
- -------------
Mr. Nichols (age 55) is the managing general partner of NTS-Properties
Associates IV and is Chairman of the Board of NTS Corporation (since 1985) and
NTS Development Company (since 1977).
NTS Capital Corporation
- -----------------------
NTS Capital Corporation (formerly NTS Corporation) is a Kentucky corporation
formed in October 1979. At the present time its capital is $1,000 and it
is not anticipated that such capital will be significantly increased. J.
D. Nichols is Chairman of the Board and the sole director of NTS Capital
Corporation.
NTS Subpartnership IV
- ---------------------
NTS Subpartnership IV is a Kentucky limited partnership whose primary business
purpose is to acquire, own and hold an interest in NTS-Properties Associates IV.
The partners of NTS Subpartnership IV include various management personnel of
NTS Corporation and its affiliates.
Alliance Realty Corporation
- ---------------------------
Alliance Realty Corporation was formed in September 1982, and is a wholly-
owned subsidiary of SN Alliance, Inc. SN Alliance, Inc. is also the parent
corporation of Stifel, Nicolaus & Company, Inc. which acted as the Dealer
Manager in connection with the offering for the interests.
The Manager of the Partnership's properties is NTS Development Company, the
executive officers and/or directors of which are Messrs. J. D. Nichols,
Richard L. Good and John W. Hampton.
Richard L. Good
- ---------------
Mr. Good, (age 57) President and Chief Operating Officer of NTS Corporation and
President of NTS Development Company and Chairman of the Board of NTS
Securities, Inc., joined the Manager in January 1985. From 1981 through 1984, he
was Executive Vice President of Jacques-Miller, Inc., a real estate syndication,
property management and financial planning firm in Nashville, Tennessee.
- 60 -
<PAGE>
Item 10. Directors and Executive Officers of the Registrant- Continued
-------------------------------------------------------------
John W. Hampton
- ---------------
Mr. Hampton, (age 47) is Senior Vice President of NTS Corporation with
responsibility for all accounting operations. Before joining NTS in March 1991,
Mr. Hampton was Vice President - Finance and Chief Financial Officer of the
Sturgeon-Thornton-Marrett Development Company in Louisville, Kentucky for nine
years. Prior to that he was with Alexander Grant & Company CPA's. Mr. Hampton is
a Certified Public Accountant and a graduate of the University of Louisville
with a Bachelor of Science degree in Commerce. He is a member of the American
Institute of CPA's and the Kentucky Society of CPA's.
Item 11.Management Remuneration and Transactions
----------------------------------------
The officers and/or directors of the corporate general partner receive no direct
remuneration in such capacities. The Partnership is required to pay a property
management fee based on gross rentals to NTS Development Company, an affiliate
of the general partner. The Partnership is also required to pay to NTS
Development Company a repair and maintenance fee on costs related to specific
projects and a refinancing fee on Net Cash Proceeds from the refinancing of any
Partnership property. Also, NTS Development Company provides certain other
services to the Partnership. See Note 9 to the financial statements which sets
forth transactions with affiliates of the general partner for the years ended
December 31, 1996, 1995 and 1994.
The general partner is entitled to receive cash distributions and allocations of
profits and losses from the Partnership. See Note 1C to the financial statements
which describes the methods used to determine income allocations and cash
distributions.
Item 12.Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
The general partner is NTS-Properties Associates IV, a Kentucky limited
partnership, 10172 Linn Station Road, Louisville, Kentucky 40223. The partners
of the general partner and their total respective interests in
NTS-Properties Associates IV are as follows:
J. D. Nichols 69.69%
10172 Linn Station Road
Louisville, Kentucky 40223
NTS Subpartnership IV 30.00%
10172 Linn Station Road
Louisville, Kentucky 40223
NTS Capital Corporation .30%
10172 Linn Station Road
Louisville, Kentucky 40223
Alliance Realty Corporation .01%
500 North Broadway
St. Louis, Missouri 63102
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
Property management fees of $204,165 (1996), $186,176 (1995) and $136,786 (1994)
were paid to NTS Development Company, an affiliate of the general partner of the
Partnership. The fee is equal to 5% of gross revenues from residential
properties and 6% of 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
- 61 -
<PAGE>
Item 13. Certain Relationships and Related Transactions - Continued
----------------------------------------------------------
equal to 5.9% of costs incurred which relate to capital improvements. The
Partnership has incurred repair and maintenance fees of $7,770 (1996) and
$17,895 (1995)and has capitalized this cost as a part of land, buildings and
amenities. An agreement also provides for NTS Development Company to receive a
fee equal to 1% of Net Cash Proceeds from the refinancing of any Partnership
property. During 1994, a $41,000 refinancing fee was paid to NTS Development and
capitalized as a loan cost (other assets). The fee will be amortized over the
life of the mortgages (permanent financings on The Willows of Plainview Phase I)
to which the fee relates.
As permitted by an agreement, the Partnership was also charged the following
amounts from NTS Development Company for the years ended December 31, 1996, 1995
and 1994. 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.
1996 1995 1994
-------- -------- --------
Leasing $108,913 $115,557 $155,619
Administrative 214,530 178,910 167,814
Property manager 241,289 253,574 234,636
Other 8,674 9,291 17,427
-------- -------- --------
$573,406 $557,332 $575,496
======== ======== ========
On January 23, 1995, the Partnership contributed $750,000 to the L/U II Joint
Venture. For details regarding this transaction, refer to Note 4F of the
Partnership's 1996 financial statements and Items 1. and 2. Business and
Properties.
On August 16, 1994, the Partnership contributed $1,100,000 to the Blankenbaker
Business Center Joint Venture. The Joint Venture was originally formed on
December 28, 1990 between NTS-Properties Plus Ltd. and NTS-Properties VII, Ltd.,
affiliates of the general partner of the Partnership. For details regarding this
transaction refer to Note 4E of the 1996 financial statements and Items 1. and
2. Business and Properties.
There are no other agreements or relationships between the Partnership, the
General Partner and its affiliates than those previously described.
- 62 -
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
----------------------------------------------------------------
1. Financial statements
The financial statements for the years ended December 31, 1996, 1995 and
1994 together with the report of Arthur Andersen LLP dated February 25,
1997, appear in Item 8. The following financial statement schedules
should be read in conjunction with such financial statements.
2. Financial statement schedules
Schedules: Page No.
III-Real Estate and Accumulated Depreciation 64-67
All other schedules have been omitted because they are not applicable,
are not required, or because the required information is included in the
financial statements or notes thereto.
3. Exhibits
Exhibit No. Page No.
3. Amended and Restated Agreement and Certificate *
of Limited Partnership of NTS-Properties IV
10. Property Management Agreement and Construction *
Management Agreement between NTS Development
Company and NTS-Properties IV
27. Financial Data Schedule Included
herewith
* Incorporated by reference to documents filed with the
Securities and Exchange Commission in connection with the
filing of the Registration Statements on Form S-11 on May 16,
1983 (effective August 1, 1983) under Commission File No.
2-83771.
4. Reports on Form 8-K
Form 8-K was filed December 23, 1996 to report in Item 5 that the
Partnership has received notice that Philip Crosby Associates, Inc.
(Crosby) does not intend to pay full rental due under its lease from and
after January 1997. Crosby leases the majority of the space in
University Business Center Phase II, which is owned by the
Lakeshore/University II Joint Venture. The Partnership has an 18%
interest in this Joint Venture.
- 63 -
<PAGE>
<TABLE>
NTS-PROPERTIES IV
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1996
<CAPTION>
Commonwealth Plainview
Business Point Office The Willows The Willows
Center Center Phases of Plainview of Plainview
Phase I I and II Phase I Phase II
------- -------- ------- --------
<S> <C> <C> <C> <C>
Encumbrances (A) None (B) (B)
Initial cost to partnership:
Land $ 928,867 $ 356,048 $1,798,292 $ 170,808
Buildings and improvements 1,419,653 2,214,001 5,447,513 585,917
Cost capitalized subsequent to
acquisition:
Improvements 1,690,747 871,455 165,454 54,129
Other -- -- -- --
Carrying costs -- -- -- --
Gross amount at which carried
December 31, 1996:
Land $ 939,987 $ 454,262 $1,832,605 $ 180,573
Buildings and improvements 3,099,280 2,987,242 5,578,654 630,281
---------- ---------- ---------- ----------
Total $4,039,267 $3,441,504 $7,411,259 $ 810,854
========== ========== ========== ==========
Accumulated depreciation $2,095,688 $1,334,022 $3,336,201 $ 361,892
========== ========== ========== ==========
Date of construction 06/84 N/A 03/85 08/85
Date Acquired N/A 04/84 N/A N/A
Life at which depreciation in
latest income statement is
computed (C) (C) (C) (C)
<FN>
(A) First mortgage held by an insurance company.
(B) First mortgage held by two insurance companies.
(C) Depreciation is computed using the straight-line method over the
estimated useful lives of the assets which are 10 - 30 years for land
improvements, 5 - 30 years for buildings and improvements and 5 - 30
years for amenities.
</FN>
</TABLE>
- 64 -
<PAGE>
<TABLE>
NTS-PROPERTIES IV
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1996
<CAPTION>
Lakeshore
Plainview Blankenbaker Business
Golf Brook Point III Business Center
Apartments Office Center Center 1A Phase I
---------- ------------- --------- -------
<S> <C> <C> <C> <C>
Encumbrances (A) None (A) (A)
Initial cost to partnership:
Land $ 175,557 $ 65,211 $ 582,561 $ 422,983
Buildings and improvements 474,566 116,284 2,263,506 662,259
Cost capitalized subsequent to
acquisition:
Improvements (289) 50,192 92,355 529,494
Other (B) -- -- -- 184,250
Carrying costs -- -- -- --
Gross amount at which carried
December 31, 1996:
Land $ 175,445 $ 66,373 $ 672,364 $ 479,210
Buildings and improvements 474,389 165,314 2,266,058 1,319,776
---------- ---------- ---------- ----------
Total $ 649,834 $ 231,687 $2,938,422 $1,798,986
========== ========== ========== ==========
Accumulated depreciation $ 213,184 $ 83,238 $ 978,801 $ 839,565
========== ========== ========== ==========
Date of construction 05/88 01/88 N/A 05/86
Date Acquired N/A N/A 08/94 N/A
Life at which depreciation in
latest income statement is
computed (C) (C) (C) (C)
<FN>
(A) First mortgage held by an insurance company.
(B) Represents NTS-Properties IV's increased interest in Lakeshore Business
Center Phase I as a result of the formation of the Lakeshore/University
II Joint Venture in 1995.
(C) Depreciation is computed using the straight-line method over the
estimated useful lives of the assets which are 10 - 30 years for land
improvements, 5 - 30 years for buildings and improvements and 5 - 30
years for amenities.
</FN>
</TABLE>
- 65 -
<PAGE>
<TABLE>
NTS-PROPERTIES IV
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1996
<CAPTION>
Lakeshore University
Business Business
Center Center Total
Phase II Phase II Pages 64-66
-------- -------- -----------
<S> <C> <C> <C>
Encumbrances (A) (A)
Initial cost to partnership:
Land $ 658,760 $ 388,156 $ 5,547,243
Buildings and improvements 1,508,328 1,567,339 16,259,366
Cost capitalized subsequent to
acquisition:
Improvements 22,973 -- 3,476,510
Other -- -- 184,250
Carrying costs -- -- --
Gross amount at which carried
December 31, 1996 (B):
Land $ 658,760 $ 388,156 $ 5,847,735
Buildings and improvements 1,531,301 1,567,339 19,619,634
----------- ----------- -----------
Total $ 2,190,061 $ 1,955,495 $25,467,369
=========== =========== ===========
Accumulated depreciation $ 754,498 $ 510,298 $10,507,387
=========== =========== ===========
Date of construction N/A N/A
Date Acquired 01/95 01/95
Life at which depreciation in
latest income statement is
computed (C) (C)
<FN>
(A) First mortgage held by an insurance company.
(B) Aggregate cost of real estate for tax purposes is $24,653,822.
(C) Depreciation is computed using the straight-line method over the
estimated useful lives of the assets which are 10 - 30 years for land
improvements, 5 - 30 years for buildings and improvements and 5 - 30
years for amenities.
(D) Total gross cost at December 31, 1996 $25,467,369
Adjust land contribution from fair
market value to cost:
Golfbrook Apartments (662,731)
Plainview Point III Office Center (496,000)
-----------
$24,308,638
===========
</FN>
</TABLE>
- 66 -
<PAGE>
<TABLE>
NTS-PROPERTIES IV
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<CAPTION>
Real Accumulated
Estate Depreciation
------ ------------
<S> <C> <C>
Balances at December 31, 1993 $ 16,701,992 $ 6,893,625
Additions during period:
Improvements 743,561 643,256
Depreciations (a) -- --
Other (b) 2,846,067 732,346
Deductions during period:
Retirements (488,168) (439,975)
------------ ------------
Balances at December 31, 1994 19,803,452 7,829,252
Additions during period:
Improvements 298,146 --
Depreciation (a) -- 896,863
Other (c) 4,306,835 1,032,864
Deductions during period:
Retirements (96,421) (64,785)
------------ ------------
Balances at December 31, 1995 24,312,012 9,694,194
Additions during period:
Improvements 73,741 --
Depreciation (a) -- 883,436
Deductions during period:
Retirements (77,115) (70,243)
------------ ------------
Balances at December 31, 1996 $ 24,308,638 $ 10,507,387
============ ============
<FN>
(a) The additions charged to accumulated depreciation on this schedule will
differ from the depreciation and amortization on the Statements of Cash
Flows due to the amortization of loan costs.
(b) Represents the Partnership's share of Blankenbaker Business Center 1A
Joint Venture land and buildings recorded under the proportionate
consolidation method.
(c) Represents the increase in the Partnership's interest in Lakeshore
Business Center Phase I land and buildings and the Partnership's share of
Lakeshore Business Center Phase II's and University Business Center Phase
II's land and buildings recorded under the proportionate consolidation
method. All are the result of the formation of the
Lakeshore/University II Joint Venture in 1995.
</FN>
</TABLE>
- 67 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, NTS-Properties IV 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: March 27 , 1997
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
Form 10-K has been signed below by the following persons on behalf of the
registrant in their capacities and on the date indicated above.
Signature Title
--------- -----
/s/ J. D. Nichols General Partner of NTS-Properties
J. D. Nichols Associates IV and Chairman of the
Board and Sole Director of
NTS Capital Corporation
/s/ Richard L. Good President of NTS Capital Corporation
Richard L. Good
/s/ John W. Hampton Senior Vice President of NTS Capital
John W. Hampton Corporation
The Partnership is a limited partnership and no proxy material has been sent to
the limited partners.
- 68 -
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET AS OF DECEMBER 31, 1996 AND FROM THE STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 414,672
<SECURITIES> 0
<RECEIVABLES> 347,133
<ALLOWANCES> 7,551
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 13,801,251
<DEPRECIATION> 10,507,387
<TOTAL-ASSETS> 15,406,286
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 11,236,625
0
0
<COMMON> 0
<OTHER-SE> 3,917,175
<TOTAL-LIABILITY-AND-EQUITY> 15,406,286
<SALES> 3,544,153
<TOTAL-REVENUES> 3,577,554
<CGS> 0
<TOTAL-COSTS> 2,416,217
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 940,941
<INCOME-PRETAX> (46,181)
<INCOME-TAX> 0
<INCOME-CONTINUING> (46,181)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (46,181)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>THE PARTNERSHIP HAS AN UNCLASSIFIED BALANCE SHEET; THEREFORE, THE VALUE
IS $0.
</FN>
</TABLE>
