UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark one)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission File Number 0-11655
NTS-PROPERTIES IV
(Exact name of registrant as specified in its charter)
Kentucky 61-1026356
(State or other jurisdiction of (I.R.S. Employer Identification
No.)
incorporation or organization)
10172 Linn Station Road
Louisville, Kentucky 40223
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number,
including area code (502) 426-4800
Not Applicable
Former name, former address and former fiscal year,
if changed since last report
Indicate by check mark whether the registrant (l) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
Exhibit Index: See page 23
Total Pages: 24
<PAGE>
TABLE OF CONTENTS
Pages
PART I
Item 1. Financial Statements
Balance Sheets and Statement of Partners' Equity
As of September 30, 1998 and December 31, 1997 3
Statements of Operations
For the three months and nine months ended
September 30, 1998 and 1997 4
Statements of Cash Flows
For the three months and nine months ended
September 30, 1998 and 1997 5
Notes To Financial Statements 6-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-22
PART II
Item 3. Defaults Upon Senior Securities 23
Item 6. Exhibits and Reports on Form 8-K 23
Signatures 24
- 2 -
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
<TABLE>
NTS-PROPERTIES IV
BALANCE SHEETS AND STATEMENT OF PARTNERS' EQUITY
<CAPTION>
As of As of
September 30, 1998 December 31, 1997*
------------------ ------------------
ASSETS
<S> <C> <C>
Cash and equivalents $ 268,841 $ 276,145
Cash and equivalents - restricted 219,084 108,724
Investment securities 357,382 422,336
Accounts receivable 183,956 243,134
Land, buildings and amenities, net
(Note 9) 12,623,280 13,023,781
Asset held for sale 297,251 297,251
Other assets 372,054 440,937
----------- -----------
$14,321,848 $14,812,308
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Mortgages payable $10,201,039 $10,706,802
Accounts payable - operations 105,745 113,724
Accounts payable - construction 82,819 8,694
Security deposits 81,080 83,390
Other liabilities 246,349 65,473
----------- -----------
10,717,032 10,978,083
Commitments and Contingencies
Partners' equity 3,604,816 3,834,225
----------- -----------
$14,321,848 $14,812,308
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Limited General
Partners Partner Total
-------- ------- -----
<S> <C> <C> <C>
PARTNERS' EQUITY
Capital contributions, net of
offering costs $ 25,834,899 $ -- $ 25,834,899
Net income - prior years 288,540 2,916 291,456
Net income - current year 12,977 131 13,108
Cash distributions declared to
date (21,586,280) (218,253) (21,804,533)
Repurchase of limited
partnership Units (730,114) -- (730,114)
------------ ------------ ------------
Balances at September 30, 1998 $ 3,820,022 $ (215,206) $ 3,604,816
============ ============ ============
<FN>
* Reference is made to the audited financial statements in the Form 10-K as
filed with the Commission on March 30, 1998.
</FN>
</TABLE>
- 3 -
<PAGE>
<TABLE>
NTS-PROPERTIES IV
STATEMENTS OF OPERATIONS
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1998 1997 1998 1997
----- ------ ------ ------
<S> <C> <C> <C> <C>
REVENUES:
Rental income $ 879,978 $ 920,175 $ 2,719,620 $ 2,659,396
Interest and other income 9,204 11,290 35,206 25,778
----------- ----------- ----------- -----------
2,754,826
889,182 931,465 2,685,174
EXPENSES:
Operating expenses 199,897 212,442 605,873 590,977
Operating expenses - affiliated 116,543 106,977 347,189 299,867
Write-off of unamortized land
improvements and amenities 9,458 -- 11,333 --
Amortization of capitalized
leasing costs 3,729 5,256 11,187 15,707
Interest expense 202,889 214,135 621,815 647,539
Management fees 52,600 54,273 157,823 152,754
Real estate taxes 53,435 54,313 161,237 163,064
Professional and administrative
expenses 26,590 24,726 79,131 76,310
Professional and administrative
expenses - affiliated 37,941 37,967 119,816 115,954
Depreciation and amortization 198,291 226,476 626,314 680,216
----------- ----------- ----------- -----------
901,373 936,565 2,741,718 2,742,388
----------- ----------- ----------- -----------
Net income (loss) $ (12,191) $ (5,100) $ 13,108 $ (57,214)
=========== =========== =========== ===========
Net income (loss) allocated to
the limited partners $ (12,069) $ (5,049) $ 12,977 $ (56,642)
=========== =========== =========== ===========
Net income (loss) per limited
partnership unit $ (0.47) $ (.19) $ .50 $ (2.12)
=========== =========== =========== ===========
Weighted average number of
limited partnership units 25,770 26,689 26,123 26,714
=========== =========== =========== ===========
</TABLE>
- 4 -
<PAGE>
<TABLE>
NTS-PROPERTIES IV
STATEMENTS OF CASH FLOWS
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (12,191) $ (5,100) $ 13,108 $ (57,214)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Accrued interest on investment
securities 1,571 (2,697) (2,382) (2,697)
Write-off of unamortized land
improvements and amenities 9,458 -- 11,333 --
Amortization of capitalized leasing
costs 3,729 5,256 11,187 15,707
Depreciation and amortization 198,291 226,476 626,314 680,216
Changes in assets and liabilities:
Cash and equivalents - restricted (50,505) (49,578) (107,065) (149,567)
Accounts receivable 41,817 29,312 59,178 61,707
Other assets 15,704 5,770 34,067 10,032
Accounts payable (28,651) 26,646 (7,979) 29,547
Security deposits (6,330) 1,020 (2,310) 4,577
Other liabilities 68,973 206,363 180,876 328,662
----------- ----------- ----------- -----------
Net cash provided by operating
activities 241,866 443,468 816,327 920,970
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
(151,586) to land, buildings and
amenities (56,123) (7,566) (40,555)
Purchase of investment securities (505,000) (482,849) (1,125,550) (599,777)
Maturity of investment securities 451,808 116,928 1,192,885 116,928
----------- ----------- ----------- -----------
Net cash used in investing activities (109,315) (373,487) (84,251) (523,404)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgages payable (177,252) (144,305) (505,763) (420,103)
Decrease (increase) in loan costs (2,212) -- 12,198 --
Repurchase of limited partnership Units (133,790) -- (242,520) (33,900)
Decrease (increase) in cash and
equivalents - restricted 73,040 -- (3,295) (250)
----------- ----------- ----------- -----------
Net cash used in financing activities (240,214) (144,305) (739,380) (454,253)
----------- ----------- ----------- -----------
Net decrease in cash and equivalents (107,663) (74,324) (7,304) (56,687)
CASH AND EQUIVALENTS, beginning of period 376,504 364,116 276,145 346,479
----------- ----------- ----------- -----------
CASH AND EQUIVALENTS, end of period $ 268,841 $ 289,792 $ 268,841 $ 289,792
=========== =========== =========== ===========
Interest paid on a cash basis $ 204,165 $ 214,144 $ 605,272 $ 651,103
=========== =========== =========== ===========
</TABLE>
- 5 -
<PAGE>
NTS-PROPERTIES IV
NOTES TO FINANCIAL STATEMENTS
The financial statements included herein should be read in conjunction with the
Partnership's 1997 Annual Report. In the opinion of the general partner, all
adjustments (consisting only of normal recurring accruals) necessary for a fair
presentation have been made to the accompanying financial statements for the
three months and nine months ended September 30, 1998 and 1997.
1. Use of Estimates in the Preparation of Financial Statements
-----------------------------------------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period.
Actual results could differ from those estimates.
2. Cash and Equivalents - Restricted
---------------------------------
Cash and equivalents - restricted represent 1) funds received for
residential security deposits, 2) funds which have been escrowed with
mortgage companies for property taxes and insurance in accordance with the
loan agreements and 3) funds which the Partnership has reserved for the
repurchase of limited partnership Units.
3. Interest Repurchase Reserve
---------------------------
Pursuant to Section 16.4 of the Partnership's Amended and Restated
Agreement of Limited Partnership, the Partnership established an Interest
Repurchase Reserve. On January 13, 1998, the Partnership elected to fund
$60,000 to the Interest Repurchase Reserve. With these funds the
Partnership repurchased 400 Units at a price of $150 per Unit. On May 15,
1998, the Partnership elected to fund $64,000 to the Interest Repurchase
Reserve. With the May 15, 1998 funding, the Partnership repurchased 43
Units at a price of $160 per Unit. On June 30, 1998, the Partnership
elected to fund $16,065 to its Interest Repurchase Reserve enabling the
Partnership, along with funds remaining in the reserve from previous
fundings, to repurchase 357 Units at a price of $205 per Unit. On September
10, 1998 the Partnership elected to fund an additional $61,500 to its
Interest Repurchase Reserve. With this funding, the Partnership will be
able to repurchase up to 300 Units at a price of $205 per Unit. If the
number of Units submitted for repurchase exceeds that which can be
repurchased by the Partnership with the current fundings, those additional
Units may be repurchased in subsequent quarters. The offering price per
Unit was established by the General Partner and does not purport to
represent the fair market value or liquidation value of the Unit. From
February 1996 to September 30, 1998, the Partnership has repurchased a
total of 4,436 Units for $700,920. Repurchased Units are retired by the
Partnership, thus increasing the percentage of ownership of each remaining
limited partner investor. The balance in the Interest Repurchase Reserve as
of September 30, 1998 is $4,045.
4. Investment Securities
---------------------
Investment securities represent investments in Certificates of Deposit 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 the nine months ended September
30, 1998 and 1997, the Partnership sold no investment securities.
- 6 -
<PAGE>
4. Investment Securities - Continued
---------------------------------
The following provides details regarding the investments held at September
30, 1998:
Amortized Maturity Value at
Type Cost Date Maturity
---- ---- ---- --------
Certificate of Deposit $ 126,136 11/02/98 $ 126,722
Certificate of Deposit 40,334 12/02/98 40,698
Certificate of Deposit 40,258 01/04/99 40,815
Certificate of Deposit 50,218 12/02/98 50,668
Certificate of Deposit 50,218 01/04/99 50,908
Certificate of Deposit 50,218 02/01/99 51,110
--------- --------
$ 357,382 $ 360,921
========= ========
The following provides details regarding the investments held at December
31, 1997:
Amortized Maturity Value at
Type Cost Date Maturity
---- ------ ------ --------
Certificate of Deposit $ 101,627 01/30/98 $ 102,052
Certificate of Deposit 120,091 02/27/98 121,081
Certificate of Deposit 100,467 03/31/98 101,808
Certificate of Deposit 100,151 04/03/98 101,537
--------- --------
$ 422,336 $ 426,478
========= ========
5. Basis of Property
-----------------
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 nine months ended September 30,
1998 and 1997 did not result in an impairment loss.
6. Mortgages Payable
-----------------
Mortgages payable consist of the following:
September 30, December 31,
1998 1997
---- ----
Mortgage payable with an insurance company,
bearing interest at a fixed rate of
8.8%, due October 1, 2004,
secured by land and building $ 2,053,160 $ 2,238,591
Mortgage payable with an insurance
company, bearing interest at a fixed
rate of 7.15%, due January 5, 2013,
secured by land, buildings and amenities 1,947,175 1,998,000
Mortgage payable with an insurance
company, bearing interest at a fixed
rate of 7.15%, due January 5, 2013,
secured by land, building and amenities 1,853,617 1,902,000
Mortgage payable with an insurance
company, bearing interest at a fixed
rate of 8.5%, due November 15, 2005,
secured by land and building 1,084,646 1,163,828
(Continued next page)
- 7 -
<PAGE>
6. Mortgages Payable - Continued
September 30, December 31,
1998 1997
---- ----
Mortgage payable with an insurance company,
bearing interest at a fixed rate of
8.125%, due August 1, 2008
secured by land and building $ 955,136 $ 1,000,809
Mortgage payable with an insurance
company, bearing interest at a fixed
rate of 8.125%, due August 1, 2008,
secured by land and building
(University Business Center Phase II -
see Note 9) 915,504 959,282
Mortgage payable with an insurance
company, bearing interest at a fixed
rate of 8.125%, due August 1, 2008,
secured by land and building 887,761 930,213
Mortgage payable with an insurance
company, bearing interest at a fixed
rate of 7.2%, due January 5, 2013,
secured by land, buildings and amenities 315,569 321,854
Mortgage payable with an insurance
company, bearing interest at a fixed
rate of 7.2%, due January 5, 2013,
secured by land, buildings and amenities 188,471 192,225
---------- ----------
$10,201,039 $10,706,802
========== ==========
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 approximates carrying value.
7. Related Party Transactions
--------------------------
Property management fees of $157,823 and $152,754 were paid to NTS
Development Company, an affiliate of the General Partner of the
Partnership, for the nine months ended September 30, 1998 and 1997,
respectively. The fee is equal to 5% of the gross revenues from residential
properties and 6% of the gross revenues from commercial properties pursuant
to an agreement with the Partnership. As permitted by an agreement, NTS
Development Company will receive a repair and maintenance fee equal to 5.9%
of costs incurred which relate to capital improvements. The Partnership has
incurred $9,231 and $3,518 as a repair and maintenance fee during the nine
months ended September 30, 1998 and 1997, respectively, and has capitalized
this cost as a part of land, buildings and amenities. As permitted by an
agreement, the Partnership was also charged the following amounts from NTS
Development Company for the nine months ended September 30, 1998 and 1997.
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. The charges were as follows:
1998 1997
--------- ---------
Administrative $ 151,228 $ 149,701
Leasing 93,011 92,454
Property management 220,747 194,651
Other 22,391 4,615
--------- --------
$ 487,377 $ 441,421
========= ========
- 8 -
<PAGE>
8. Commitments and Contingencies
-----------------------------
On September 8, 1998, NTS-Properties V and the Lakeshore/University II("L/U
II")Joint Venture, affiliates of the General Partner of the Partnership,
entered into a contract with Silver City Properties, Ltd. ("the
Purchaser"), an affiliate of Full Sail Recorders, Inc. ("Full Sail"), for
the sale of University Business Center Phases I and II office buildings and
Phase III vacant land for an aggregate purchase price of $18,751,000
(specifically the prices for each property were $9,776,000 for Phase I and
Phase III; $8,975,000 for Phase II). University Business Center Phase I and
Phase III are owned by NTS-Properties V. University Business Center Phase
II is owned by the L/U II Joint Venture. The Partnership owns an 18%
interest in this joint venture. Full Sail currently occupies 28% and 83% of
the net rentable area of University Business Center Phases I and II,
respectively. Concurrent with the signing of the contracts, the Purchaser
deposited $50,000 into an escrow account. This deposit will be applied to
the purchase price at closing. The Purchaser is to close on the properties
on or before November 7, 1998. (See Note 9 Subsequent Events). The contract
permits the Purchaser to defer the closing of the purchase of the Phase III
vacant land until the 18-month anniversary of the closing on Phase I and
Phase II.
The Partnership also anticipates a demand on future liquidity as a result
of a planned renovation of the community's clubhouse at The Willows of
Plainview. At this time, the cost and extent of the renovation has not been
determined. The cost of the common clubhouse renovation will be shared
proportionately by Phase I and II of The Willows of Plainview. The source
of funds for this project is expected to be cash flow from operations
and/or cash reserves.
As of September 30, 1998, the L/U II Joint Venture had a contract for the
sale of approximately 2.4 acres of land adjacent to the Lakeshore Business
Center development for a purchase price of $528,405. Concurrent with the
signing of the contract, the purchaser deposited into an escrow account
$10,000. This deposit will be applied to the purchase price at closing. The
purchaser has until November 17, 1998 to determine if the land is
satisfactory for their use. If the purchaser determines that it is
satisfactory, the contract requires that they proceed, at their cost, to
have the property re-zoned to allow for a self-storage facility. If the
purchaser is unable to obtain the re-zoning, they may cancel the contract.
The General Partner of the Partnership has met with city officials who seem
interested in the project and have voiced a willingness to consider the
re-zoning request. If the re-zoning is granted, the purchaser is to close
on the property by February 1, 1999 or deposit an additional $10,000 with
the escrow agent for a 30-day delay. The contract also allows for an
additional deposit of $10,000 for one more delay in closing to April 3,
1999. The Partnership has an 18% interest in the Joint Venture. The
Partnership has not yet determined what the use of net proceeds would be
from the sale of the land.
9. Subsequent Events
-----------------
On October 6, 1998 pursuant to the contracts executed on September 8, 1998
as discussed above, the Lakeshore/University II Joint Venture ("L/U II")
Joint Venture and NTS Properties V, affiliates of the General Partner of
the Partnership, sold University Business Center Phases I and II office
buildings to Silver City Properties, Ltd. ("the Purchaser"), an affiliate
of Full Sail Recorders, Inc., for an aggregate purchase price of
$17,950,000 ($8,975,000 for Phase I and $8,975,000 for Phase II).
University Business Center Phase II was owned by the L/U II Joint Venture
of which the Partnership owns an 18% interest. As of September 30, 1998,
the carrying value of University Business Center Phase II land and building
was approximately $7,300,000 and was encumbered by a mortgage payable of
$5,128,872 ($1,300,000 and $915,504, respectively, as recorded on the
accompanying balance sheet). Other net assets and liabilities associated
with this property included on the accompanying balance sheet at September
30, 1998 were not significant. The gain associated with this sale will be
reflected in the fourth quarter of 1998. Portions of the proceeds from this
sale were immediately used to pay the remainder of the outstanding debt
(including interest and prepayment penalties) of $10,468,000 ($4,633,000
for Phase I and $5,835,000 for Phase II)on these properties. The
Partnership will use the remainder of the proceeds from this sale for
development costs associated with Lakeshore
- 9 -
<PAGE>
9. Subsequent Events - Continued
-----------------------------
Business Center Phase III which is to be constructed on land owned by the
L/U II Joint Venture. As permitted by the contract, the Purchaser has
deferred the closing of the Phase III vacant land for a period of up to
18-months after the closing date of Phases I and II.
- 10 -
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- -----------------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
The management's discussion and analysis of financial condition and results of
operations should be read in conjunction with the Partnership's 1997 Annual
Report.
Results of Operations
- ---------------------
The occupancy levels at the Partnership's properties as of September 30 were as
follows:
1998 1997
---- ----
Wholly-Owned Properties
- -----------------------
Commonwealth Business Center Phase I 89% 78%
Plainview Point Office Center Phases I and II 67% 84%
The Willows of Plainview Phase I 93% 98%
Property Owned in Joint Venture with NTS-
Properties V (Ownership % at September 30,
1998)
- ------------------------------------------
The Willows of Plainview Phase II (10%) 89% 90%
Properties Owned in Joint Venture with NTS-
Properties VI (Ownership % at September 30,
1998)
- -------------------------------------------
Golf Brook Apartments (4%) 96% 97%
Plainview Point III Office Center (5%) 100% 88%
Property Owned in Joint Venture with NTS-
Properties VII, Ltd. and NTS-Properties Plus
Ltd. (Ownership % at September 30, 1998)
- --------------------------------------------
Blankenbaker Business Center 1A (30%) 100% 100%
Properties Owned through Lakeshore/University
II Joint Venture (L/U II Joint Venture)
(Ownership % at September 30, 1998)
- ----------------------------------------------
Lakeshore Business Center Phase I (18%) 82% 99%
Lakeshore Business Center Phase II (18%) 86% 96%
University Business Center Phase II (18%) 88% 99%
- 11 -
<PAGE>
Results of Operations - Continued
- ---------------------------------
The rental and other income generated by the Partnership's properties for the
three months and nine months ended September 30, 1998 and 1997 was as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1998 1997 1998 1997
-------- -------- -------- --------
Wholly-Owned Properties
- -----------------------
Commonwealth Business Center Phase I $176,684 $158,060 $520,574 $493,221
Plainview Point Office Center Phases I
and II $ 86,763 $161,007 $355,840 $434,403
The Willows of Plainview Phase I $305,315 $304,813 $853,671 $869,058
Property Owned in Joint Venture with
NTS-Properties V (Ownership % at
September 30, 1998)
- ------------------------------------
The Willows of Plainview Phase II
(10%) $ 33,661 $ 33,349 $ 96,403 $ 97,520
Properties Owned in Joint Venture with
NTS-Properties VI (Ownership % at
September 30, 1998)
- --------------------------------------
Golf Brook Apartments (4%) $ 31,156 $ 28,977 $ 91,260 $ 83,768
Plainview Point III Office Center (5%) $ 11,048 $ 9,497 $ 32,965 $ 29,042
Property Owned in Joint Venture with
NTS-Properties VII, Ltd. And NTS-
Properties Plus Ltd. (Ownership % at
September 30, 1998)
- ------------------------------------
Blankenbaker Business Center 1A (30%) $ 70,448 $ 69,422 $206,054 $208,292
Properties Owned through L/U II Joint
Venture (Ownership % at September 30,
1998)
- --------------------------------------
Lakeshore Business Center Phase I
(18%) $ 56,120 $ 65,010 $204,937 $190,455
Lakeshore Business Center Phase II
(18%) $ 62,904 $ 62,371 $233,767 $185,426
University Business Center Phase II
(18%) $ 49,734 $ 30,914 $136,669 $ 76,422
Revenues shown in the table above for properties owned through a joint
venture represent only the Partnership's percentage interest in those
revenues.
- 12 -
<PAGE>
Results of Operations - Continued
- ---------------------------------
The 11% increase in occupancy at Commonwealth Business Center Phase I from
September 30, 1997 to September 30, 1998 is attributed to two expansions
totaling approximately 5,000 square feet by existing tenants. Partially
offsetting the expansions is one tenant move-out at the end of the lease term of
800 square feet. Average occupancy increased from 83% (1997) to 89% (1998) for
the three months ended September 30 and from 84% (1997) to 88% (1998) for the
nine month period. The increase in rental and other income at Commonwealth
Business Center Phase I for the three months and nine months ended September 30,
1998 as compared to the same periods in 1997 is primarily due to 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 17% decrease in occupancy at Plainview Point Office Center Phases I and II
from September 30, 1997 to September 30, 1998 is attributed to three tenant
move- outs at the end of the lease term totaling approximately 12,700 square
feet. Partially offsetting the move-outs is an expansion by an existing tenant
of approximately 2,000 square feet. Average occupancy decreased from 83% (1997)
to 67% (1998) for the three months ended September 30 and from 84% (1997) to 71%
(1998) for the nine month period. In the opinion of the General Partner of the
Partnership, the decrease in occupancy is only a temporary fluctuation and does
not represent a downward occupancy trend. The decrease in rental and other
income at Plainview Point Office Center Phases I and II for the three months and
nine months ended September 30, 1998 as compared to the same periods in 1997 is
primarily a result of the decrease in average occupancy.
The Willows of Plainview Phase I's occupancy decreased from 98% at September 30,
1997 to 93% at September 30, 1998. Average occupancy decreased from 97% (1997)
to 94% (1998) for the three months ended September 30 and from 93% (1997) to 91%
(1998) for the nine month period. Occupancy at residential properties fluctuates
on a continuous basis. Period-ending occupancy percentages represent occupancy
only on a specific date; therefore, it is more meaningful to consider average
occupancy percentages which are representative of the entire period's results.
The decrease in rental and other income at The Willows of Plainview Phase I for
the nine months ended September 30, 1998 as compared to the same period in 1997
is due primarily to the decrease in average occupancy and is partially offset by
an increase in income from fully-furnished units. Rental and other income
remained fairly constant for the three months ended September 30, 1998 as
compared to the same period in 1997 as a result of increased income from fully-
furnished units offsetting decreased income resulting from the decrease in
average occupancy. Fully-furnished units are apartments which rent at an
additional premium above base rent. Therefore, it is possible for occupancy to
decrease and revenues to increase or remain fairly constant when the number of
fully-furnished units occupied has increased.
The Willows of Plainview Phase II's occupancy decreased from 90% at September
30, 1997 to 89% at September 30, 1998. Average occupancy decreased from 91%
(1997) to 88% (1998) for the three months ended September 30 and from 91% (1997)
to 85% (1998) for the nine month period. Rental and other income at The Willows
of Plainview Phase II for the three months and nine months ended September 30,
1998 as compared to the same periods in 1997 remained fairly constant.
Golf Brook Apartments occupancy decreased from 97% at September 30, 1997 to 96%
at September 30, 1998. Average occupancy decreased from 97% (1997) to 96% (1998)
for the three months ended September 30 and increased from 93% (1997) to 96%
(1998) for the nine month period. Rental and other income at Golf Brook
Apartments increased for the three months and nine months ended September 30,
1998 as compared to the same periods in 1997 primarily as a result of an
increase in rental rates.
- 13 -
<PAGE>
Results of Operations - Continued
- ---------------------------------
The 12% increase in occupancy at Plainview Point III Office Center from
September 30, 1997 to September 30, 1998 is the result of two new leases
totaling approximately 7,400 square feet. Average occupancy increased from 88%
(1997) to 100% (1998) for the three months ended September 30 and from 90%
(1997) to 97% (1998) for the nine month period. Rental and other income at
Plainview Point III Office Center remained fairly constant for the three months
and nine months ended September 30, 1998 as compared to the same periods in
1997.
Sykes HealthPlan Service Bureau, Inc. (formerly known as Prudential Service
Bureau, Inc.) has leased 100% of Blankenbaker Business Center 1A through July
2005. In addition to monthly rent payments, Sykes Service Bureau, Inc. is
obligated to pay substantially all of the operating expenses attributable to its
space. Rental and other income at Blankenbaker Business Center 1A remained
fairly constant for the three months and nine months ended September 30, 1998 as
compared to the same periods in 1997.
The 17% decrease in occupancy at Lakeshore Business Center Phase I from
September 30, 1997 to September 30, 1998 can be attributed to nine tenant
move-outs totaling approximately 25,000 square feet. Two of the nine tenants
vacated prior to the end of the lease term. The write-off of accrued income
connected with these leases was not significant. The remaining seven tenants
vacated at the end of the lease term. The move-outs are partially offset by four
new leases totaling approximately 7,300 square feet. Average occupancy at
Lakeshore Business Center Phase I decreased from 98% (1997) to 81% (1998) for
the three months ended September 30 and from 96% (1997) to 90% (1998) for the
nine month period. The increase in rental and other income at Lakeshore Business
Center Phase I for the nine months ended September 30, 1998 as compared to the
same period in 1997 is due primarily to a $61,000 lease buy-out received in
February 1998 (the Partnership's proportionate share is approximately $11,000 or
18%). The lease buy-out income was received from a tenant whose lease expires
during July 1999; however, the tenant has notified the Partnership that it will
vacate the space at the end of 1998 due to the fact that it will be
consolidating several of its regional offices. The increase in rental and other
income for the nine month period is also due to an increase in common area
expense reimbursements. Tenants at the business center reimburse the Partnership
for common area expenses as part of the lease agreements. The increases in
rental and other income for the nine month period are partially offset by the
decrease in average occupancy. The decrease in rental and other income for the
three months ended September 30, 1998 as compared to the same period in 1997 is
primarily a result of the decrease in average occupancy.
As of September 30, 1998 Lakeshore Business Center Phase I has 3,049 square feet
of additional space leased to a current tenant. The tenant is expected to take
occupancy of the additional space during the fourth quarter of 1998. With this
expansion, the business center's occupancy should improve to 85%. See the
Liquidity and Capital Resources Section of this item for the tenant finish
commitment related to this lease.
The 10% decrease in occupancy at Lakeshore Business Center Phase II from
September 30, 1997 to September 30, 1998 can be attributed to five tenant move-
outs totaling approximately 19,000 square feet. The move-outs consist of three
tenants (4,500 square feet) vacating prior to the end of the lease term. One of
the three tenants (2,300 square feet) is continuing to pay rent through the end
of the lease term (February 2000). There was no write-off of accrued income
associated with the other two leases. One tenant (4,500 square feet) vacated at
the end of the lease term and one tenant negotiated a lease termination (10,000
square feet - the tenant paid the L/U II Joint Venture a lease termination fee
{recorded as rental income} of $185,000 of which the Partnership's proportionate
share is approximately $33,000 or 18%). Partially offsetting the move-outs are
three new leases totaling approximately 10,000 square feet which includes an
expansion of approximately 2,000 square feet by the largest tenant in the
building which occupies approximately 15% of the building's total rentable
square feet. Average occupancy at Lakeshore Business Center Phase II decreased
from 95% (1997) to 90% (1998) for the three months ended September 30 and
increased from 93% (1997) to 95% (1998) for the nine month period. The increase
in rental and
- 14 -
<PAGE>
Results of Operations - Continued
- ---------------------------------
other income at Lakeshore Business Center Phase II for the nine months ended
September 30, 1998 as compared to the same period in 1997 is due primarily to
the termination fee paid to the L/U II Joint Venture, as discussed above. Also
contributing to the increase in rental and other income is an increase in
average occupancy and an increase in common area expense reimbursements. Rental
and other income at Lakeshore Business Center Phase II remained fairly constant
for the three months ended September 30, 1998 as compared to the same period in
1997.
In the opinion of the General Partner of the Partnership, the decrease in
occupancy at Lakeshore Business Center Phases I and II is only a temporary
fluctuation and does not represent a downward occupancy trend.
The 11% decrease in occupancy at University Business Center Phase II from
September 30, 1997 to September 30, 1998 is the result of one of Philip Crosby
Associates, Inc's ("Crosby") sub-tenants (approximately 9,000 square feet)
vacating at the end of Crosby's lease term (March 31, 1998) and one tenant move
out of approximately 3,700 square feet. The move-outs are partially offset by an
expansion of approximately 3,700 square feet by one of Crosby's former
subtenants, Full Sail Recorders, Inc.("Full Sail"). In 1995 and 1996, Full Sail
had signed leases with the Joint Venture for the approximately 73,000 square
feet it was leasing from Crosby. These leases commenced April 1, 1998. (See
below for a discussion regarding Crosby and Full Sail). Average occupancy at
University Business Center Phase II decreased from 99% (1997) to 86% (1998) for
the three months ended September 30 and decreased from 99% (1997) to 91% (1998)
for the nine month period. The increase in rental and other income at University
Business Center Phase II for the nine months ended September 30, 1998 as
compared to the same period in 1997 is primarily due to the fact that
approximately $70,000 of accrued income connected with the Crosby lease was
written-off during the first quarter of 1997, of which the Partnership's
proportionate share was approximately $13,000 or 18%. The increase in rental and
other income at University Business Center Phase II for the nine month period
can also be attributed to two new leases that became effective during 1998 at a
higher rental rate than the sub-tenant rate and an increase in common area
expense reimbursements. The increase in rental and other income at University
Business Center Phase II for the three months ended September 30, 1998 as
compared to the same period in 1997 is a result of an increase in common area
expense reimbursements. Sub-tenants at the business center were not required to
reimburse the Partnership for common area expenses. However, as part of Full
Sail's lease agreement, which commenced April 1, 1998, Full Sail is required to
reimburse the Partnership for such expenses, attributing to the increase in
rental and other income beginning the second quarter of 1998.
Crosby previously leased 100% of University Business Center Phase II, which is
owned by the L/U II Joint Venture. The original lease term was for seven years,
and the tenant took occupancy in April 1991. During 1994, 1995 and 1996, Crosby
sub-leased, through the end of their lease term, approximately 85,000 square
feet (including approximately 10,000 square feet of mezzanine space) of
University Business Center Phase II's approximately 88,000 square feet of net
rentable area (or 96%). Of the total being sub-leased, approximately 73,000
square feet (or 86%) was leased by 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 this period and through December
1996, Crosby continued to make rent payments pursuant to the original lease
terms. During 1996, the Joint Venture received notice that Crosby did not intend
to pay full rental due under the original lease agreement, including and
subsequent to January 1997. Although the Joint Venture did not have formal lease
agreements with the sub-lessees noted above during this period, beginning
February 1997 and through March 31, 1998 rent payments from these sub-lessees
were made directly to the Joint Venture.
In cases of tenants who cease making rental payments or abandon the premises in
breach of their lease, the Partnership pursues collection through the use of
collection agencies and other remedies available by law when practical. In cases
where tenants have vacated as a result of bankruptcy, the Partnership has taken
legal action when it has thought there could be possible collection. There have
been no funds recovered as a result of these actions during the nine months
ended September 30, 1998 or 1997.
- 15 -
<PAGE>
Results of Operations - Continued
- ---------------------------------
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 income increased for the nine months
ended September 30, 1998 as compared to the same period in 1997 as a result of
an increase in cash reserves available for investment. Interest and other income
remained fairly constant for the three months ended September 30, 1998 as
compared to the same period in 1997.
Operating expenses remained fairly constant for the three months and nine months
ended September 30, 1998 as compared to the same periods in 1997
The increase in operating expenses - affiliated for the three months and nine
months ended September 30, 1998 as compared to the same periods in 1997 is due
primarily to increased property management costs at Commonwealth Business Center
Phase I, Plainview Point Office Center Phases I and II, Plainview Point III
Office Center and Blankenbaker Business Center 1A. There were no significant
fluctuations in operating expenses - affiliated at the Partnership's residential
properties for the three months and nine months ended September 30, 1998 as
compared to the same periods in 1997. Operating expenses - affiliated are
expenses for services performed by employees of NTS Development Company, an
affiliate of the General Partner of the Partnership.
The 1998 write-off of unamortized land improvements and amenities can be
attributed primarily to The Willows of Plainview Phases I and II. The write-off
was a result of new property signage, updating the model apartments and pool
renovations. In order to complete these projects, it was necessary to replace
assets which had not been fully depreciated. This results in a write-off of
unamortized land improvements and amenities.
The change in amortization of capitalized leasing costs for the three months and
nine months ended September 30, 1998 as compared to the same periods in 1997 is
not significant.
Interest expense decreased for the three months and nine months ended September
30, 1998 as compared to the same periods in 1997 due primarily to continued
principal payments on the mortgages payable of the Partnership and its Joint
Venture properties. The decrease in interest expense is partially offset by a
higher interest rate on the financing obtained by the Partnership in December
1997 (7.15% as compared to a rate of 7% on the previous debt). See the Liquidity
and Capital Resources section of this item for details regarding the
Partnership's debt.
Management fees are calculated as a percentage of cash collections; however,
revenue for reporting purposes is recorded on the accrual basis. As a result,
the fluctuations of revenues between periods will differ from the fluctuations
of management fee expense.
Real estate taxes, professional and administrative expenses and professional and
administrative expenses - affiliated for the three months and nine months ended
September 30, 1998 as compared to the same periods in 1997 remained fairly
constant. Professional and administrative expenses - affiliated are expenses for
services performed by employees of NTS Development Company, an affiliate of the
General Partner of the Partnership.
- 16 -
<PAGE>
Results of Operations - Continued
- ---------------------------------
The decrease in depreciation and amortization expense for the three months and
nine months ended September 30, 1998 as compared to the same periods in 1997 is
due to a portion of the assets at the Partnership's joint venture properties
(primarily tenant finish improvements) becoming fully depreciated. 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 $24,600,000.
Liquidity and Capital Resources
- -------------------------------
As of September 30, 1998, the Partnership had a mortgage payable with an
insurance company in the amount of $2,053,160. The mortgage payable is due
October 1, 2004, bears interest at a fixed rate of 8.8% and is secured by
Commonwealth Business Center Phase I. Monthly principal payments are based upon
a 10-year amortization schedule. At maturity, the mortgage will have been repaid
based on the current rate of amortization.
As of September 30, 1998, the Partnership had two mortgage loans with an
insurance company. The outstanding balances of the loans as of September 30,
1998 were $1,947,175 and $1,853,617, respectively, for a total of $3,800,792.
The mortgages bear interest at a fixed rate of 7.15%, are due January 5, 2013,
and are secured by The Willows of Plainview Phase I. Monthly principal payments
are based upon a 15-year amortization schedule. At maturity, the loans will have
been repaid based on the current rate of amortization.
As of September 30, 1998, the Blankenbaker Business Center Joint Venture, in
which the Partnership has a joint venture interest, had a mortgage payable with
an insurance company in the amount of $3,603,474. The mortgage is recorded as a
liability of the Joint Venture and is secured by the assets of the Joint
Venture. The Partnership's proportionate interest in the mortgage at September
30, 1998 is $1,084,646. The mortgage bears interest at a fixed rate of 8.5% and
is due November 15, 2005. Monthly principal payments are based upon an 11-year
amortization schedule. At maturity, the mortgage will have been repaid based on
the current rate of amortization.
As of September 30, 1998, the L/U II Joint Venture had three mortgage loans with
an insurance company. The outstanding balances of the loans at September 30,
1998 were $5,350,902, $5,128,872 and $4,973,452 for a total of $15,453,226. The
loans are recorded as a liability of the Joint Venture. The Partnership's
proportionate share in the loans at September 30, 1998 was $955,136, $915,504
and $887,761, respectively, for a total of $2,758,401. 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. Subsequent to September 30, 1998, the
L/U II Joint Venture used proceeds received from the sale of University Business
Center Phase II to repay in full the $5,128,872 mortgage payable. See below for
the details of this sale.
As of September 30, 1998, The Willows of Plainview Phase II, an apartment joint
venture between the Partnership and NTS-Properties V, had two mortgage loans
with an insurance company. The outstanding balances of the loans at September
30, 1998 were $3,112,118 and $1,858,694, respectively, for a total of
$4,970,812. The Partnership's proportionate interest in the loans at September
30, 1998 was $315,569 and $188,471, respectively, for a total of $504,040. The
mortgages bear interest at a fixed rate of 7.2%, are due January 5, 2013 and are
secured by the assets of the Joint Venture. Monthly principal payment are based
upon a 15-year amortization schedule. At maturity, the loans will have been
repaid based on the current rate of amortization.
- 17 -
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
Cash provided by operations for the nine months ended September 30 was $816,327
(1998) and $920,970 (1997). No distribution has been made since the quarter
ended September 30, 1996 due to uncertainties involving the Crosby lease as
discussed below. Distributions will be resumed once the Partnership has
established adequate cash reserves and is generating cash from operations which,
in management's opinion, is sufficient to warrant future distributions. The
primary source of future liquidity and distributions is expected to be derived
from cash generated by the Partnership's properties after adequate cash reserves
are established for future leasing costs, tenant finish costs and capital
improvements. Cash reserves (which are unrestricted cash and equivalents and
investment securities as shown on the Partnership's balance sheet as of
September 30) were $626,223 and $775,338 at September 30, 1998 and 1997,
respectively.
The majority of the Partnership's cash flow is derived from operating
activities. Cash flows used in investing activities are for tenant finish
improvements and other capital additions and were funded by operating activities
or cash reserves. Changes to current tenant finish improvements are a typical
part of any lease negotiation. Improvements generally include a revision to the
current floor plan to accommodate a tenant's needs, new carpeting and paint
and/or wallcovering. The extent and cost of these improvements are determined by
the size of the space and whether the improvements are for a new tenant or
incurred because of a lease renewal. Cash flows used in investing activities are
also for the purchase of investment securities. As part of its cash management
activities, the Partnership has purchased Certificates of Deposit with initial
maturities of greater than three months to improve the return of its cash
reserves. The partnership intends to hold the securities until maturity. Cash
flows provided by investing activities are from the maturity of investment
securities. Cash flows used in financing activities are for principal payments
on mortgages payable, loan costs, repurchases of limited partnership Units and
cash which has been reserved by the Partnership for the repurchase of limited
partnership Units. Cash flows provided by the financing activities are from a
decrease in loan costs (refund of loan application fee). The Partnership does
not expect any material changes in the mix and relative cost of capital
resources except for renovations and other major capital expenditures, including
tenant finish, which may be required to be funded from cash reserves if they
exceed cash flow from operating activities, and the repayment of the mortgage
payable which was secured by University Business Center Phase II, as discussed
above.
Due to the fact that no distributions were made during the nine months ended
September 30, 1998 or 1997, the table which presents that portion of the
distribution that represents a return of capital on a Generally Accepted
Accounting Principle basis has been omitted.
As of September 30, 1998, a current tenant at Plainview Point Office Center
Phases I and II has committed to an expansion of approximately 6,400 square
feet. The tenant is expected to take occupancy of the additional space no later
than the fourth quarter of 1999. The Partnership has a commitment for
approximately $30,000 of tenant finish improvements which are to be completed
before the tenant takes occupancy.
As of September 30, 1998, Lakeshore Business Center Phase I had a commitment for
approximately $98,000 of tenant finish improvements resulting from a 3,049
square foot expansion by a current tenant. The Partnership's proportionate share
of the commitment is approximately $18,000 or 18%. The project is expected to be
completed during the fourth quarter of 1998.
The Partnership also anticipates a demand on future liquidity as a result of a
planned renovation of the community's clubhouse at The Willows of Plainview. At
this time, the cost and extent of the renovation has not been determined. The
cost of the common clubhouse renovation will be shared proportionately by Phase
I and II of The Willows of Plainview.
The source of funds for the commitments and project referred to above is
expected to be cash flow from operations and/or cash reserves.
- 18 -
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
The Partnership had no other material commitments for renovations or capital
improvements as of September 30, 1998.
In the next 12 months, the demand on future liquidity is anticipated to increase
as the Partnership continues its efforts in the leasing of the Partnership's
commercial properties. At this time, the future leasing and tenant finish costs
which will be required to renew current leases that expire during the next 12
months or obtain new tenants are unknown.
All divisions of NTS, the General Partner of the Partnership, are reviewing the
effort necessary to prepare our information systems (IT) and non-information
technology with embedded technology (ET) for the Year 2000. The information
technology solutions have been addressed separate for the Year 2000 since the
company saw the need to move to more advanced management and accounting systems
made available by new technology and software developments during the decade of
the 1990's.
The PILOT software system, purchased in the early 1990's, needed to be replaced
by a windows based network system both for our headquarters functions and other
locations. The real estate accounting system developed, sold, and supported by
the Yardi Company of Santa Barbara, California has been selected to supercede
PILOT. The Yardi system is compatible with Year 2000 and beyond. This system is
being implemented with the help of third party consultants and should be fully
operational by the third quarter of 1999. Our system for multi-family apartment
locations was converted to GEAC's Power Site System earlier in 1998 and is Year
2000 compliant.
The few remaining systems not addressed by these conversions are being modified
by our in-house staff of programmers. The Hewlett Packard 3000 system, used for
PILOT and custom applications, was purchased in 1997 and will be part of our new
network. It will be retained as long as necessary to assure smooth operations
and has been upgrades to meet Year 2000 requirements.
All risks identified with information technology are believed to be addressed by
these plans.
The cost of these advances in our systems technology is not all attributable to
the Year 2000 issue since we had already identified the need to move to a
network based system regardless of the Year 2000. The costs involved will be
approximately $70,000 over 1998 and 1999. These costs include hardware,
software, internal staff and outside consultants.
NTS property management staff has been surveying our vendors to evaluate
embedded technology in our alarm systems, HVAC controls, telephone systems and
other computer associated facilities. In a few cases, equipment is being
replaced. In some cases circuitry is being upgraded. The cost involved is still
being evaluated. There are no known significant risks that are currently without
solutions. Management anticipates that applications involving ET will be Year
2000 compliant by the third quarter of fiscal year 1999.
We are also currently addressing the Year 2000 readiness of third parties whose
business interruption could have a material negative impact on our business. All
significant vendors and tenants have indicated that they will be compliant by
the end of 1999. Such assurances are being evaluated and documented.
Management has determined that at our current state of readiness, the need does
not presently exist for a contingency plan. We will continue to evaluate the
need for such a plan.
Despite diligent preparation, unanticipated third-party failures, more general
public infrastructure failures or failure to successfully conclude our
remediation efforts as planned could have a material adverse impact on our
results of operations, financial conditions and/or cash flows in 1999 and
beyond.
- 19 -
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
The primary source of future liquidity and distributions is expected to be
derived from cash generated by the Partnership's operating properties after
adequate cash reserves are established for future leasing and tenant finish
costs. It is anticipated that the cash flow from operations and cash reserves
will be sufficient to meet the needs of the Partnership.
Pursuant to Section 16.4 of the Partnership's Amended and Restated Agreement of
Limited Partnership, the Partnership established an Interest Repurchase Reserve.
On January 13, 1998, the Partnership elected to fund $60,000 to the Interest
Repurchase Reserve. With these funds the Partnership repurchased 400 Units at a
price of $150 per Unit. On May 15, 1998, the Partnership elected to fund an
additional $64,000 to the Interest Repurchase Reserve. With the May 15, 1998
funding, the Partnership repurchased 43 Units at a price of $160 per Unit. On
June 30, 1998, the Partnership elected to fund $16,065 to its Interest
Repurchase Reserve enabling the Partnership, along with funds remaining in the
reserve from previous fundings, to repurchase 357 Units at a price of $205 per
Unit. On September 10, 1998 the Partnership elected to fund an additional
$61,500 to its Interest Repurchase Reserve. With this funding, the Partnership
will be able to repurchase up to 300 Units at a price of $205 per Unit. If the
number of Units submitted for repurchase exceeds that which can be repurchased
by the Partnership with the current fundings, those additional Units may be
repurchased in subsequent quarters. The offering price per Unit was established
by the General Partner and does not purport to represent the fair market value
or liquidation value of the Unit. From February 1996 to September 30, 1998, the
Partnership has repurchased a total of 4,436 Units for $700,920. Repurchased
Units are retired by the Partnership, thus increasing the percentage of
ownership of each remaining limited partner investor. The balance in the
Interest Repurchase Reserve as of September 30, 1998 is $4,045.
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 the 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.
- 20 -
<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 September 30, 1998 in the asset held for
sale is $297,251. The Joint Venture continues to actively market the asset for
sale. In management's opinion, the net book value approximates the fair market
value less cost to sell. See below for information regarding a contract for the
sale of a portion of this land.
As of September 30, 1998, the L/U II Joint Venture had a contract for the sale
of approximately 2.4 acres of land adjacent to the Lakeshore Business Center
development for a purchase price of $528,405. Concurrent with the signing of the
contract, the purchaser deposited into an escrow account $10,000. This deposit
will be applied to the purchase price at closing. The purchaser has until
November 17, 1998 to determine if the land is satisfactory for their use. If the
purchaser determines that it is satisfactory, the contract requires that they
proceed, at their cost, to have the property re-zoned to allow for a
self-storage facility. If the purchaser is unable to obtain the re-zoning, they
may cancel the contract. The General Partner of the Partnership has met with
city officials who seem interested in the project and have voiced a willingness
to consider the re-zoning request. If the re-zoning is granted, the purchaser is
to close on the property by February 1, 1999 or deposit an additional $10,000
with the escrow agent for a 30-day delay. The contract also allows for an
additional deposit of $10,000 for one more delay in closing to April 3, 1999.
The Partnership has an 18% interest in the Joint Venture. The Partnership has
not yet determined what the use of net proceeds would be from the sale of the
land.
On September 8, 1998, NTS-Properties V and the L/U II Joint Venture, affiliates
of the General Partner of the Partnership, entered into a contract with Silver
City Properties, Ltd. ("the Purchaser"), an affiliate of Full Sail, for the sale
of University Business Center Phases I and II office buildings and Phase III
vacant land for an aggregate purchase price of $18,751,000 (specifically the
prices for each property were $9,776,000 for Phase I and Phase II; $8,975,000
for Phase II). University Business Center Phase I and Phase III are owned by
NTS- Properties V. University Business Center Phase II is owned by the L/U II
Joint Venture. The Partnership owns an 18% interest in this joint venture. Full
Sail currently occupies 28% and 83% of the net rentable area of University
Business Center Phases I and II, respectively. Concurrent with the signing of
the contracts, the Purchaser deposited $50,000 into an escrow account. This
deposit will be applied to the purchase price at closing. The Purchaser is to
close on the properties on or before November 7, 1998. See below for additional
information regarding this transaction. The contract permits the Purchaser to
defer the closing of the purchase of the Phase III vacant land until the
18-month anniversary of the closing on Phase I and II.
On October 6, 1998 pursuant to the contract executed on September 8, 1998, the
L/U II Joint Venture and NTS Properties V, affiliates of the General Partner of
the Partnership, sold University Business Center Phases I and II office
buildings to Silver City Properties, Ltd. for an aggregate purchase price of
$17,950,000 ($8,975,000 for Phase I and $8,975,000 for Phase II). University
Business Center Phase II was owned by the L/U II Joint Venture of which the
Partnership owns an 18% interest. As of September 30, 1998, the carrying value
of University Business Center Phase II land and building was approximately
$7,300,000 and was encumbered by a mortgage payable of $5,128,872 ($1,300,000
and $915,504, respectively, as recorded on the accompanying balance sheet).
Other net assets and liabilities associated with this property included on the
accompanying balance sheet at September 30, 1998 were not significant. The gain
associated with this sale will be reflected in the fourth quarter of 1998.
Portions of the proceeds from this sale were immediately used to pay the
remainder of the outstanding debt (including interest and prepayment penalties)
of $10,468,000 relating to these properties ($4,633,000 for Phase I and
$5,835,000 for Phase II). The Partnership will use the remainder of the proceeds
from this sale for development costs associated with Lakeshore Business Center
Phase III which will be constructed on land owned by the L/U II Joint Venture.
As permitted by the contract, the Purchaser has deferred the closing of Phase
III vacant land for a period of up to 18-months after the closing date of Phase
I and II.
- 21 -
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
Some of the statements included in Item 2, Management's Discussion and Analysis
of Financial Condition and Results of Operations, 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.
- 22 -
<PAGE>
PART II. OTHER INFORMATION
Item 3. Defaults Upon Senior Securities
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27. Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K was filed on September 11, 1998 to report in Item 5
that the Partnership has elected to fund an additional amount
of $61,500 to its Interest Repurchase Reserve.
Form 8-K was filed September 14, 1998 to report in Item 5 that
NTS Properties V and the Lakeshore/University Joint Venture,
affiliates of the General Partner of the Partnership, entered
into two contracts with Silver City Properties, Ltd. for the
sale of University Business Center Phases I and II office
buildings and Phase III vacant land.
Items 1,2,4, and 5 are not applicable and have been omitted.
- 23 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
NTS-PROPERTIES IV
(Registrant)
By: NTS-Properties Associates IV,
General Partner
By: NTS Capital Corporation,
General Partner
/s/ Richard L. Good
-------------------
Richard L. Good
President
/s/ Lynda J. Wilbourn
---------------------
Lynda J. Wilbourn
Vice President
Principal Accounting Officer
Date: November 13, 1998
- 24 -
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF SEPTEMBER 30, 1998 AND FROM THE STATEMENT OF OPERATIONS FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 487,925
<SECURITIES> 357,382
<RECEIVABLES> 183,956
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 12,623,280
<DEPRECIATION> 0<F2>
<TOTAL-ASSETS> 14,321,848
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 10,201,039
0
0
<COMMON> 0
<OTHER-SE> 3,604,816
<TOTAL-LIABILITY-AND-EQUITY> 14,321,848
<SALES> 2,719,620
<TOTAL-REVENUES> 2,754,826
<CGS> 0
<TOTAL-COSTS> 2,119,903
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 621,815
<INCOME-PRETAX> 13,108
<INCOME-TAX> 0
<INCOME-CONTINUING> 13,108
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,108
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>THE PARTNERSHIP HAS AN UNCLASSIFIED BALANCE SHEET, THEREFORE THE VALUE IS $0.
<F2>THIS INFORMATION IS NOT DISCLOSED IN THE PARTNERSHIP'S FORM 10-Q FILING.
</FN>
</TABLE>
