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, 1999
-------------------------------------------------
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, 1999 and December 31, 1998 3
Statements of Operations
For the three months and nine months ended
September 30, 1999 and 1998 4
Statements of Cash Flows
For the nine months ended September 30, 1999 and 1998 5
Notes To Financial Statements 6-12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13-22
Item 3. Quantitative and Qualitative Disclosures About Market Risk 22
PART II
Item 1. Legal Proceedings 23
Item 2. Changes in Securities 23
Item 3. Defaults upon Senior Securities 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 5. Other Information 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, 1999 December 31,1998*
------------------ -----------------
ASSETS
<S> <C> <C>
Cash and equivalents $ 698,084 $ 640,969
Cash and equivalents - restricted 282,214 183,050
Investment securities -- 142,569
Accounts receivable, net of allowance
for doubtful accounts of $3,625
(1999) and $1,972 (1998) 166,490 183,170
Land, buildings and amenities, net 10,498,479 11,566,911
Other assets 336,036 339,040
---------- ----------
Total assets $11,981,303 $13,055,709
========== ==========
LIABILITIES AND PARTNERS' EQUITY
Mortgages payable $ 8,034,648 $ 9,121,979
Accounts payable 118,937 115,103
Security deposits 68,816 75,108
Other liabilities 215,336 53,518
---------- ----------
8,437,737 9,365,708
Partners' equity 3,543,566 3,690,001
---------- ----------
Total liabilities and partners' equity $11,981,303 $13,055,709
========== ==========
</TABLE>
<TABLE>
<CAPTION>
Limited General
Partners Partner Total
----------- ---------- -----------
PARTNERS' EQUITY
<S> <C> <C> <C>
Capital contributions, net of
offering costs $ 25,834,899 $ -- $ 25,834,899
Net income - prior years 385,853 3,899 389,752
Net loss - current year (23,203) (234) (23,437)
Cash distributions declared to
date (21,586,280) (218,253) (21,804,533)
Repurchase of limited
Partnership Units (853,115) -- (853,115)
---------- ---------- -----------
Balances at September 30, 1999 $ 3,758,154 $ (214,588) $ 3,543,566
========== ========== ===========
</TABLE>
* Reference is made to the audited financial statements in the Form 10-K as
filed with the Commission on April 15, 1999.
3
<PAGE>
<TABLE>
NTS-PROPERTIES IV
-----------------
STATEMENTS OF OPERATIONS
------------------------
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
1999 1998 1999 1998
--------- ---------- ---------- ---------
REVENUES:
<S> <C> <C> <C> <C>
Rental income $ 789,528 $ 879,978 $ 2,464,778 $2,719,620
Gain on sale of assets 11,256 -- 11,256 --
Interest and other income 13,512 9,204 32,331 35,206
--------- ---------- ---------- ---------
814,296 889,182 2,508,365 2,754,826
EXPENSES:
Operating expenses 164,604 203,626 534,625 617,060
Operating expenses - affiliated 129,499 116,543 384,702 347,189
Loss on disposal of assets 31,715 9,458 55,262 11,333
Interest expense 156,710 202,889 502,830 621,815
Management fees 45,684 52,600 141,287 157,823
Real estate taxes 45,311 53,435 147,034 161,237
Professional and administrative
expenses 45,893 26,590 124,404 79,131
Professional and administrative
expenses - affiliated 38,470 37,941 117,399 119,816
Depreciation and amortization 166,207 198,291 524,259 626,314
--------- ---------- ---------- ---------
824,093 901,373 2,531,802 2,741,718
--------- ---------- ---------- ---------
Net income (loss) $ (9,797) $ (12,191) $ (23,437) $ 13,108
========= =========- ========== =========
Net income (loss) allocated to
the limited partners $ (9,699) $ (12,069) $ (23,203) $ 12,977
========= ========== ========== =========
Net income (loss) per limited
partnership Unit $ (0.39) $ (0.47) $ (0.93) $ 0.50
========= ========== ========== =========
Weighted average number of
limited partnership units 24,709 25,770 24,832 26,123
========= ========== ========= =========
</TABLE>
4
<PAGE>
<TABLE>
NTS-PROPERTIES IV
-----------------
STATEMENTS OF CASH FLOWS
------------------------
<CAPTION>
Nine Months Ended
September 30,
-------------------------
1999 1998
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES*
<S> <C> <C>
Net income (loss) $ (23,437) $ 13,108
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Gain on sale of assets (11,256) --
Accrued interest on investment securities -- (2,382)
Loss on disposal of assets 55,262 11,333
Amortization of capitalized leasing costs -- 11,187
Depreciation and amortization 524,259 626,314
Changes in assets and liabilities:
Cash and equivalents - restricted (119,664) (107,065)
Accounts receivable 16,680 59,178
Other assets (16,043) 34,067
Accounts payable - operating 3,835 (7,979)
Security deposits (6,292) (2,310)
Other liabilities 161,818 180,876
--------- -----------
Net cash provided by operating activities 585,162 816,327
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to land, buildings and amenities (342,888) (151,586)
Sale of land, buildings and amenities 57,065 --
Purchase of investment securities -- (1,125,550)
Maturity of investment securities 140,000 1,192,885
Change in ownership of Joint Venture (Note 11) 218,415 --
--------- -----------
Net cash provided by (used in) investing
activities 72,592 (84,251)
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgages payable (509,722) (505,763)
Decrease in loan costs 11,583 12,198
Repurchase of limited partnership Units (123,000) (242,520)
Decrease (increase) in cash and equivalents -
restricted 20,500 (3,295)
--------- -----------
Net cash used in financing activities (600,639) (739,380)
--------- -----------
Net increase (decrease) in cash and
equivalents 57,115 (7,304)
CASH AND EQUIVALENTS, beginning of period 640,969 276,145
--------- -----------
CASH AND EQUIVALENTS, end of period $ 698,084 $ 268,841
========= ===========
Interest paid on a cash basis $ 509,822 $ 605,272
========= ===========
</TABLE>
* Cash flows from operating activities excludes the effects of the change in
the Partnership's percentage ownership in the Lakeshore/University II Joint
Venture (Note 11).
5
<PAGE>
NTS-PROPERTIES IV
-----------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
The financial statements included herein should be read in conjunction with the
Partnership's 1998 Form 10-K as filed with the Commission on April 15, 1999. In
the opinion of the General Partner, all adjustments (only consisting of normal
recurring accruals) necessary for a fair presentation have been made to the
accompanying financial statements for the three months and nine months ended
September 30, 1999 and 1998.
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. Concentration of Credit Risk
----------------------------
NTS-Properties IV owns and operates commercial properties in Louisville,
Kentucky 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.
During the first quarter of 1999, SHPS, Inc., formerly known as Sykes Health
Plan Services, Inc., announced its intentions to consolidate its operations and
to build its corporate headquarters in Jefferson County, Kentucky. One of SHPS,
Inc's operations, Sykes, is already based in Louisville, Kentucky. Sykes
occupies 100% of Blankenbaker Business Center 1A. Due to the expansion of SHPS,
Inc's headquarters, it is the Partnership's understanding that SHPS, Inc. does
not intend to continue to occupy the space at Blankenbaker Business Center 1A
through the duration of its lease term, which expires in July 2005. The
Partnership's proportionate share of the rental income from this property
accounted for approximately 8% of the Partnership's rent revenues during the
nine months ended September 30, 1999. The Partnership has not yet determined the
effect, if any, on the Partnership's operations, given the fact Sykes is under
lease until July 2005 and no official notice of termination has been received.
3. 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 with said
mortgage companies and 3) funds which the Partnership has reserved for the
repurchase of limited partnership Units.
4. 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
in June 1996. During the years ended December 31, 1998, 1997 and 1996, the
Partnership funded $201,565, $45,000, and $575,070, respectively, to the
reserve. Through November 20, 1998 (the commencement date of the First Tender
Offer), the Partnership has repurchased 4,436 Units for $700,920 at a price
ranging from $150 to $205 per Unit. The offering price per Unit was
6
<PAGE>
4. Interest Repurchase Reserve - Continued
---------------------------------------
established by the General Partner in its sole discretion and does not purport
to represent the fair market value or liquidation value of the Units at that
time. Repurchased Units are retired by the Partnership, thus increasing the
percentage of ownership of each remaining investor. The Interest Repurchase
Reserve was funded from cash reserves. The balance in the Reserve at September
30, 1999 was $0.
5. Tender Offers
-------------
On November 20, 1998, the Partnership and ORIG, LLC, an affiliate of the
Partnership (the "bidders"), commenced a tender offer (the "First Tender Offer")
to purchase up to 1,200 of the Partnership's limited partnership Units at a
price of $205 per Unit. The First Tender Offer expired February 19, 1999, at
which time 1,259 Units were tendered pursuant to the First Tender Offer. The
Partnership repurchased 600 Units and ORIG, LLC purchased 659 Units at a total
cost of $258,095 plus offering expenses.
On July 28, 1999, the Partnership and ORIG, LLC, an affiliate of the
Partnership, ("the bidders") commenced a second tender offer (the "Second Tender
Offer") to purchase up to 1,000 of the Partnership's limited partnership Units
at a price of $205 per Unit. Although the bidders believe that this price is
appropriate, the price of $205 per Unit may not equate to the fair market value
or the liquidation value of the Units, and is less than the book value per Unit
as of the date of the Second Tender Offer. Approximately $225,000 ($205,000 to
purchase 1,000 Units plus approximately $20,000 for expenses associated with the
Second Tender Offer) is required to purchase all 1,000 Units. The Second Tender
Offer provides that the Partnership will purchase the first 500 Units tendered
and fund its purchases and its portion of the expenses from cash reserves. If
more than 500 Units are tendered, ORIG, LLC will purchase up to an additional
500 Units. If more than 1,000 Units are tendered, the bidders may choose to
acquire the additional Units on the same terms. Otherwise, tendered Units will
be purchased on a pro rata basis up to 1,000. Units that are acquired by the
Partnership will be retired. Units that are acquired by ORIG, LLC will be held
by it. The General Partner, NTS-Properties Associates IV, Ltd., does not intend
to participate in the Second Tender Offer. The initial expiration date of the
Second Tender Offer was October 29, 1999, and this expiration date has been
extended to December 8, 1999. As of September 30, 1999, approximately 1,080
Units had been tendered pursuant to the Second Tender Offer.
6. 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 the
nine months ended September 30, 1999 and the twelve months ended December 31,
1998, the Partnership sold no investment securities. The Partnership held no
investment securities at September 30, 1999.
The following provides details regarding the investments held at December 31,
1998:
Amortized Maturity Value at
Type Cost Date Maturity
- ----------------------------------------------------------------
Certificate of deposit $ 40,797 01/04/99 $ 40,815
Certificate of deposit 50,886 01/04/99 50,907
Certificate of deposit 50,886 02/01/99 51,111
------- -------
$ 142,569 $142,833
======= =======
7
<PAGE>
7. Mortgages Payable
-----------------
Mortgages payable consist of the following:
September 30, December 31,
1999 1998
---------- ----------
Mortgage payable with an insurance company,
bearing interest at a fixed rate of
8.8%, due October 1, 2004, secured by
land and building $1,786,166 $1,988,590
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 1,866,262 1,927,484
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 1,776,592 1,834,872
Mortgage payable with an insurance company,
bearing interest at a fixed rate of
8.5%, due November 15, 2005, secured
by land and building 969,821 1,058,249
Mortgage payable with an insurance company,
bearing interest at a fixed rate of
8.125%, due August 1, 2008 secured by
land and building 594,668 939,811
Mortgage payable with an insurance company,
bearing interest at a fixed rate of
8.125%, due August 1, 2008, secured by
land and building 552,721 873,517
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 305,788 312,698
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 182,630 186,758
---------- ----------
$8,034,648 $9,121,979
========== ==========
Based on the borrowing rates currently available to the Partnership for loans
with similar terms and average maturities, the fair value of long-term debt is
approximately $7,825,000.
8. 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 periods ended September 30, 1999 and 1998 did not result in an impairment
loss.
9. Reclassification of 1998 Financial Statements
---------------------------------------------
Certain reclassifications have been made to the September 30, 1998 and December
31, 1998 financial statements to conform to the September 30, 1999
classifications. These reclassifications have no effect on previously reported
operations.
8
<PAGE>
10. Related Party Transactions
--------------------------
Property management fees of $45,684 and $141,287 were paid to NTS Development
Company, an affiliate of the General Partner of the Partnership, for the three
months and nine months ended September 30, 1999, and $52,600 and $157,823 were
paid for the same periods in 1998, 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 $7,011 and $1,900 and $13,242 and
$9,230 as a repair and maintenance fee during the three months and nine months
ended September 30, 1999 and 1998, respectively, and has capitalized these costs
as a part of land, buildings and amenities. As permitted by an agreement, the
Partnership was also charged the following amounts from NTS Development Company
for the three months and nine months ended September 30, 1999 and 1998. 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:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -----------------
1999 1998 1999 1998
------- ------ ------ ------
Administrative $ 51,541 $ 48,376 $155,757 $151,228
Leasing 30,718 29,308 108,202 93,011
Property management 109,325 74,444 251,496 220,747
Other (12,714) 11,263 10,202 22,391
------- ------ ------ ------
$ 178,870 $163,391 $525,657 $487,377
======= ======= ======= =======
11. Transactions Affecting the Investment in Lakeshore/University II
----------------------------------------------------------------
Joint Venture
-------------
On July 1, 1999, NTS-Properties V contributed $1,737,000 to the
Lakeshore/University II Joint Venture (L/U II Joint Venture). The other partners
in the Joint Venture, including NTS-Properties IV, did not make capital
contributions at that time. Accordingly, the ownership percentages of the other
partners in the Joint Venture decreased. Effective July 1, 1999, NTS-Properties
IV's percentage of ownership in the Joint Venture is 11.93%, as compared to
17.86% prior to July 1, 1999.
On July 23, 1999, the L/U II Joint Venture closed on the sale of 2.4 acres of
land adjacent to the Lakeshore Business Center for a purchase price of $528,405.
The Partnership expects to use the net proceeds from the sale of the land to
help fund the construction of Lakeshore Business Center III.
12. Segment Reporting
-----------------
The Partnership's reportable operating segments include residential and
commercial real estate operations. The residential operations represent the
Partnership's ownership and operating results relative to apartment complexes
known as Golf Brook and the Willows of Plainview Phases I and II. The commercial
operations represent the Partnership's ownership and operating results relative
to suburban commercial office space known as Commonwealth Business Center Phase
I, Plainview Point Office Center Phases I, II and III, Blankenbaker Business
Center 1A and Lakeshore Business Center Phases I and II. Commercial operations
for the periods ending September 30, 1998 also include University Business
Center Phase II which was sold October 6, 1998.
The financial information of the operating segments has been prepared using a
management approach, which is consistent with the basis and manner in which the
Partnership's management internally disaggregates financial information for the
purposes of assisting in making internal operating decisions. The Partnership
evaluates performance based on stand-alone operating segment net income.
9
<PAGE>
12. Segment Reporting - Continued
-----------------------------
Nine Months Ended September 30, 1999
-------------------------------------
Residential Commercial Total
----------- ---------- ----------
Rental Income $1,084,497 $1,380,281 $2,464,778
Other Income 2,073 6,380 8,453
----------- ---------- ----------
Total Net Revenues 1,086,570 1,386,661 2,473,231
========== ========== ==========
Operating Expenses 348,960 569,098 918,058
Loss on Disposal of Assets 27,260 28,002 55,262
Interest Expense 25,294 63,880 89,174
Management Fees 57,869 83,418 141,287
Real Estate Taxes 50,410 90,149 140,559
Depreciation Expense 174,329 335,149 509,478
---------- --------- ----------
Net Income (Loss) $ 402,448 $ 216,965 $ 619,413
========== ========== ==========
Nine Months Ended September 30, 1998
-------------------------------------
Residential Commercial Total
----------- ---------- ----------
Rental Income $1,036,849 $1,682,771 $2,719,620
Other Income 4,485 8,033 12,518
---------- ---------- ----------
Total Net Revenues 1,041,334 1,690,804 2,732,138
========== ========== ==========
Operating Expenses 412,045 550,700 962,745
Loss on Disposal of Assets 9,488 1,845 11,333
Interest Expense 26,872 70,369 97,241
Management Fees 52,041 105,782 157,823
Real Estate Taxes 50,000 103,679 153,679
Depreciation Expense 169,559 441,822 611,381
---------- ---------- ----------
Net Income (Loss) $ 321,329 $ 416,607 $ 737,936
========== ========== ==========
Three Months Ended September 30, 1999
-------------------------------------
Residential Commercial Total
----------- ---------- ----------
Rental Income $ 357,248 $ 432,280 $ 789,528
Other Income 1,196 (1,108) 88
---------- ---------- ----------
Total Net Revenue 358,444 431,172 789,616
========== ========== ==========
Operating Expenses 116,003 178,164 294,167
Loss on Disposal of Assets 3,713 28,002 31,715
Interest Expense 8,382 20,687 29,069
Management Fees 19,644 26,039 45,683
Real Estate Taxes 16,803 27,055 43,858
Depreciation Expense 58,457 102,154 160,611
---------- ---------- ----------
Net Income (Loss) $ 135,442 $ 49,071 $ 184,513
========== ========== ==========
Three Months Ended September 30, 1998
-------------------------------------
Residential Commercial Total
----------- ---------- ----------
Rental Income $ 368,279 $ 511,699 $ 879,978
Other Income 1,854 2,000 3,854
---------- ---------- ----------
Total Net Revenues 370,133 513,699 883,832
========== ========== ==========
Operating Expenses 148,402 171,242 319,644
Loss on Disposal of Assets 9,458 -- 9,458
Interest Expense 8,708 23,054 31,762
Management Fees 18,591 34,009 52,600
Real Estate Taxes 16,656 34,349 51,005
Depreciation Expense 57,464 135,849 193,313
---------- ---------- ----------
Net Income (Loss) $ 110,854 $ 115,196 $ 226,050
========== ========== ==========
10
<PAGE>
12. Segment Reporting - Continued
-----------------------------
A reconciliation of the totals reported for the operating segments to the
applicable line items in the consolidated financial statements for the three
months and nine months ended September 30, 1999 and 1998 is necessary given
amounts recorded at the Partnership level and not allocated to the operating
properties for internal reporting purposes:
Nine Months Ended
September 30,
---------------------------
1999 1998
----------- ----------
NET REVENUES
Total revenues for reportable segments $ 2,473,231 $ 2,732,138
Other income for partnership 96,042 115,005
Eliminations (72,164) (92,317)
Gain on sale of assets 11,256 --
----------- ----------
Total consolidated net revenues $ 2,508,365 $ 2,754,826
=========== ==========
OPERATING EXPENSES
Total operating expenses for
reportable segments $ 918,058 $ 962,745
Operating expenses for partnership 1,269 1,504
Eliminations -- --
----------- ----------
Total operating expenses $ 919,327 $ 964,249
=========== ==========
INTEREST EXPENSE
Total interest expense for reportable
segments $ 89,174 $ 97,241
Interest expense for partnership 413,656 524,574
Eliminations -- --
----------- ----------
Total interest expense $ 502,830 $ 621,815
=========== ==========
REAL ESTATE TAXES
Total real estate taxes for reportable
segments $ 140,559 $ 153,679
Real estate taxes for partnership 6,475 7,558
Eliminations -- --
----------- ----------
Total real estate taxes $ 147,034 $ 161,237
=========== ==========
DEPRECIATION AND AMORTIZATION
Total depreciation and amortization
for reportable segments $ 509,478 $ 611,381
Depreciation and amortization for
partnership 10,417 10,569
Eliminations 4,364 4,364
----------- ----------
Total depreciation and amortization $ 524,259 $ 626,314
=========== ==========
NET INCOME (LOSS)
Total net income (loss) for reportable segments $ 619,413 $ 737,936
Net income (loss) for partnership (566,322) (628,147)
Eliminations (76,528) (96,681)
----------- ----------
Total net income (loss) $ (23,437) $ 13,108
=========== ==========
11
<PAGE>
12. Segment Reporting - Continued
-----------------------------
Three Months Ended
September 30,
------------------------------
1999 1998
---------- ---------
NET REVENUES
Total revenues for reportable segments $ 789,616 $ 883,832
Other income for partnership 39,464 19,804
Eliminations (26,040) (14,454)
Gain on sale of assets 11,256 --
---------- ---------
Total consolidated net revenues $ 814,296 $ 889,182
========== =========
OPERATING EXPENSES
Total operating expenses for
reportable segments $ 294,167 $ 319,644
Operating expenses for partnership (64) 525
Eliminations -- --
---------- ---------
Total operating expenses $ 294,103 $ 320,169
========== =========
INTEREST EXPENSE
Total interest expense for reportable
segments $ 29,069 $ 31,762
Interest expense for partnership 127,641 171,127
Eliminations -- --
---------- ---------
Total interest expense $ 156,710 $ 202,889
========== =========
REAL ESTATE TAXES
Total real estate taxes for reportable
segments $ 43,858 $ 51,005
Real estate taxes for partnership 1,453 2,430
Eliminations -- --
---------- ---------
Total real estate taxes $ 45,311 $ 53,435
========== =========
DEPRECIATION AND AMORTIZATION
Total depreciation and amortization
for reportable segments $ 160,611 $ 193,313
Depreciation and amortization for
partnership 4,141 3,523
Eliminations 1,455 1,455
---------- ---------
Total depreciation and amortization $ 166,207 $ 198,291
========== =========
NET INCOME (LOSS)
Total net income (loss) for reportable
segments $ 184,513 $ 226,050
Net income (loss) for partnership (166,815) (222,333)
Eliminations (27,495) (15,908)
---------- ---------
Total net income (loss) $ (9,797) $ (12,191)
========== ==========
12
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
----------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") is structured in four major sections. The first section
provides information related to occupancy levels and rental and other income
generated by the Partnership's properties. The second analyzes results of
operations on a consolidated basis. The final sections address consolidated cash
flows and financial condition. Discussion of certain market risks also follows.
MD&A should be read in conjunction with the financial statements in Item 1 and
the cautionary statements below.
Cautionary Statements
- ---------------------
Some of the statements included in this Item 2 may be considered to be
"forward-looking statements" since such statements relate to matters which have
not yet occurred. For example, phrases such as "the Partnership anticipates,"
"believes" or "expects," indicate that it is possible that the event
anticipated, believed or expected may not occur. Should such event not occur,
then the result which the Partnership expected also may not occur or occur in a
different manner, which may be more or less favorable to the Partnership. The
Partnership does not undertake any obligations to publicly release the result of
any revisions to these forward-looking statements that may be made to reflect
any future events or circumstances.
Any forward-looking statements included in MD&A or elsewhere in this report,
which reflect management's best judgement based on factors known, involve risks
and uncertainties. Actual results could differ materially from those anticipated
in any forward-looking statements as a result of a number of factors, including
but not limited to those discussed below. Any forward-looking information
provided by the Partnership pursuant to the safe harbor established by recent
securities legislation should be evaluated in the context of these factors.
The Partnership's principal activity is the leasing and management of commercial
office buildings, business centers and an apartment complex. 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 lessee's 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.
13
<PAGE>
Results of Operations
- ---------------------
The occupancy levels at the Partnership's properties as of September 30 were as
follows:
1999(1) 1998
-------- --------
Wholly-Owned Properties
- -----------------------
Commonwealth Business Center Phase I 100% 89%
Plainview Point Office Center Phases I and II(2) 54% 67%
The Willows of Plainview Phase I 92% 93%
Property Owned in Joint Venture with
- ------------------------------------
NTS-Properties V (Ownership % at
- ---------------------------------
September 30, 1999)
- -------------------
The Willows of Plainview Phase II (10%) 93% 89%
Properties Owned in Joint Venture with
- --------------------------------------
NTS-Properties VI (Ownership % at
- ---------------------------------
September 30, 1999)
- -------------------
Golf Brook Apartments (4%)(2) 93% 96%
Plainview Point III Office Center (5%)(2) 91% 100%
Property Owned in Joint Venture with
- -------------------------------------
NTS-Properties VII, Ltd. and NTS-Properties
- ------------------------------------------
Plus Ltd. (Ownership % at September 30, 1999)
- ---------------------------------------------
Blankenbaker Business Center 1A (30%) 100% 100%
Properties Owned through Lakeshore/University
- ---------------------------------------------
II Joint Venture (L/U II Joint Venture)
- ---------------------------------------
Lakeshore Business Center Phase I (3)(2) 74% 82%
Lakeshore Business Center Phase II (3) 86% 86%
University Business Center Phase II (4) N/A 88%
(1) Current occupancy levels are considered adequate to continue the operation
of the Partnership's properties.
(2) In the opinion of the General Partner of the Partnership, the decrease in
period ending occupancy is only a temporary fluctuation and does not
represent a permanent downward occupancy trend.
(3) Ownership percentage was 18% as of September 30, 1998 and 12% as of
September 30, 1999. See Note 11.
(4) Ownership percentage as of September 30, 1998 was 18%. On October 6, 1998,
University Business Center Phase II was sold.
14
<PAGE>
Results of Operations - Continued
- ---------------------------------
Average occupancy levels at the Partnership's properties during the three months
and nine months ended September 30, 1999 and 1998, were as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1999 1998 1999 1998
------- -------- ------ -------
Wholly-Owned Properties
-----------------------
Commonwealth Business Center Phase I 100% 89% 96% 88%
Plainview Point Office Center Phases
I and II (1) 54% 67% 54% 71%
The Willows of Plainview Phase I 94% 94% 95% 91%
Property owned in Joint Venture with
------------------------------------
NTS-Properties V (Ownership % at
--------------------------------
September 30, 1999)
-------------------
The Willows of Plainview Phase II (10%) 93% 88% 95% 85%
Properties Owned in Joint Venture with
--------------------------------------
NTS-Properties VI (Ownership % at
---------------------------------
September 30, 1999)
-------------------
Golf Brook Apartments (4%) (1) 92% 96% 93% 96%
Plainview Point III Office Center (5%)(1) 91% 100% 91% 97%
Property Owned in Joint Venture with
------------------------------------
NTS-Properties VII, Ltd. and NTS-Properties
-------------------------------------------
Plus Ltd. (Ownership % at September 30, 1999)
---------------------------------------------
Blankenbaker Business Center 1A (30%) 100% 100% 100% 100%
Properties Owned through Lakeshore/University
---------------------------------------------
II Joint Venture (L/U II Joint Venture)
---------------------------------------
Lakeshore Business Center Phase I (1)(2) 73% 81% 75% 90%
Lakeshore Business Center Phase II (1)(2) 86% 90% 86% 95%
University Business Center Phase II (3) N/A 86% N/A 91%
(1) In the opinion of the General Partner of the Partnership, the decrease in
average occupancy is only a temporary fluctuation and does not represent a
permanent downward occupancy trend.
(2) Ownership percentage was 18% as of September 30, 1998 and 12% as of
September 30, 1999. See Note 11.
(3) Ownership percentage as of September 30, 1998 was 18%. On October 6, 1998,
University Business Center Phase II was sold.
15
<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, 1999 and 1998 was as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1999 1998 1999 1998
--------- ------- ------- -------
Wholly-Owned Properties
-----------------------
Commonwealth Business Center Phase I $204,324 $176,684 $583,788 $520,574
Plainview Point Office Center Phases
I and II $ 73,891 $ 86,763 $240,865 $355,840
The Willows of Plainview Phase I $296,375 $305,315 $897,818 $853,671
Property Owned in Joint Venture with
------------------------------------
NTS-Properties V (Ownership % at
---------------------------------
September 30, 1999)
-------------------
The Willows of Plainview Phase II (10%) $ 33,099 $ 33,661 $ 99,694 $ 96,403
Properties Owned in Joint Venture with
--------------------------------------
NTS-Properties VI (Ownership % at
---------------------------------
September 30, 1999)
-------------------
Golf Brook Apartments (4%) $ 28,970 $ 31,156 $ 89,058 $ 91,260
Plainview Point III Office Center (5%) $ 10,022 $ 11,048 $ 29,157 $ 32,965
Property Owned in Joint Venture with
------------------------------------
NTS-Properties VII, Ltd. and NTS-Properties
-------------------------------------------
Plus Ltd. (Ownership % at September 30, 1999)
---------------------------------------------
Blankenbaker Business Center 1A (30%) $ 67,696 $ 70,448 $208,598 $206,054
Properties Owned through Lakeshore/University
---------------------------------------------
II Joint Venture (L/U II Joint Venture)
---------------------------------------
Lakeshore Business Center Phase I (1) $ 35,525 $ 56,120 $155,253 $204,937
Lakeshore Business Center Phase II (1) $ 39,715 $ 62,904 $168,999 $233,767
University Business Center Phase II (2) N/A $ 49,734 N/A $136,669
(1) Represents ownership percentage of 18% for the three months and nine months
ended September 30, 1998. Ownership percentage is 18% for the six months
ended June 30, 1999 and 12% for the three months ended September 30, 1999.
(2) Represents ownership percentage of 18% for the three months and nine months
ended September 30, 1998. On October 6, 1998, University Business Center
Phase II was sold.
Revenues shown in the table above for properties owned through a joint venture
represent only the Partnership's percentage interest in those revenues.
The following is an analysis of material changes in results of operations for
the periods ending September 30, 1999 and 1998. Items that did not have a
material impact on operations for the periods listed above have been omitted
from this discussion.
Rental and other income decreased $74,900 or 8% and $246,500 or 9% for the three
months and nine months ended September 30, 1999 as compared to the same periods
in 1998. The decreases are primarily a result of a decrease in lease buy-out
income at Lakeshore Business Center Phase II and decreases in occupancy at
Plainview Point Office Center Phases I and II and Lakeshore Business Center
Phase I. Also contributing to the decrease is the sale of University Business
Center Phase II in October of 1998. Partially offsetting the decreases in income
is a gain on the sale of the Tract 12 land owned by the Lakeshore/University II
Joint Venture of approximately $94,000. NTS-Properties IV's share of the gain is
16
<PAGE>
Results of Operations - Continued
- ---------------------------------
approximately $11,300. The decreases are also offset by increases in income as a
result of increases in average occupancy at Commonwealth Business Center Phase I
and The Willows of Plainview Phase I. Period ending occupancy percentages
represent occupancy only on a specific date; therefore, the above analysis
considers average occupancy percentages, which are representative of the entire
period's results.
Operating expenses decreased $39,000 or 19% and $82,400 or 13% for the three
months and nine months ended September 30, 1999 as compared to the same periods
in 1998. The decreases are primarily a result of decreased landscape
replacements and parking lot repairs at Commonwealth Business Center Phase I and
decreased exterior repairs and maintenance at Blankenbaker Business Center 1A.
Also contributing to the decrease is the sale of University Business Center
Phase II in October 1998. The decrease is partially offset by an increase in
HVAC costs at Plainview Point Office Center Phases I and II as a result of
zoneline replacements and the purchase of a new building security system.
Operating expenses - affiliated increased $13,000 or 11% and $37,500 or 11% for
the three months and nine months ended September 30, 1999, as compared to the
same periods in 1998. The increases are primarily due to increases in
administrative salaries at Plainview Point Office Center Phases I and II and
Commonwealth Business Center Phase I. The increase is partially offset by a
decrease due to the sale of University Business Center Phase II. Operating
expenses - affiliated are expenses incurred for services performed by NTS
Development Company, an affiliate of the General Partner.
The 1999 loss on disposal of assets can be attributed to the write-off of tenant
improvements at the Partnership's commercial properties and the write-off of
clubhouse improvements and exterior renovations at the Partnership's residential
properties. The 1998 loss on disposal of assets can be attributed to the
write-off of land improvements at the Willows of Plainview Phases I and II. The
write-offs are the result of various property improvements including tenant
improvements to accommodate new leases a the Partnership's commercial properties
and clubhouse and pool renovations at the Partnership's residential properties.
The write-offs represent the costs of unamortized assets which were replaced as
a result of the renovations.
Interest expense decreased approximately $46,000 or 23% and $119,000 or 19% for
the three months and nine months ended September 30, 1999 as compared to the
same periods in 1998. The decreases are primarily due to required principal
payments on the mortgages payable of the Partnership and its Joint Venture
properties and to the pay-off of University Business Center Phase II's debt in
October 1998.
Management fees are calculated as a percentage of cash collections, however,
revenue for reporting purposes is on the accrual basis. As a result, the
fluctuations of revenues between periods will differ from the fluctuations of
management fee expense. Management fees decreased approximately $7,000 or 13%
and $16,500 or 10% for the three months and nine months ended September 30, 1999
as compared to the same periods in 1998. The decreases are primarily due to the
sale of University Business Center Phase II in October 1998.
Real estate taxes decreased approximately $8,000 or 15% and $14,000 or 9% for
the three months and nine months ended September 30, 1999 as compared to the
same periods in 1998. The decreases are primarily due to the sale of University
Business Center Phase II in October 1998.
Professional and administrative expenses increased approximately $19,300 or 73%
and $45,300 or 57% for the three months and nine months ended September 30,
1999, respectively, as compared to the same periods in 1998 primarily as a
result of costs incurred in connection with the tender offers.
17
<PAGE>
Results of Operations - Continued
- ---------------------------------
Depreciation and amortization decreased approximately $32,000 or 16% and
$102,000 or 16% for the three months and nine months ended September 30, 1999 as
compared to the same periods in 1998 primarily as a result of assets becoming
fully depreciated and as the result of the sale of University Business Center
Phase II in October 1998. Depreciation 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 aggregate cost of the Partnership's properties
for Federal tax purposes is approximately $23,592,217.
Also contributing to all of the decreases discussed above is a decrease in
ownership of the Lakeshore/University II Joint Venture from 17.86% to 11.93%
effective July 1, 1999. See Note 11 for details of a capital contribution made
to the Joint Venture by NTS-Properties V affecting the change in ownership.
Consolidated Cash Flows and Financial Condition
- -----------------------------------------------
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 flows from operating activities.
Cash flows provided by (used in):
1999 1998
------------- ---------------
Operating activities $ 585,162 $ 816,327
Investing activities 72,592 (84,251)
Financing activities (600,639) (739,380)
----------- -----------
Net increase (decrease) in
cash and equivalents $ 57,115 $ (7,304)
=========== ===========
Net cash provided by operating activities decreased approximately $231,000 or
28% for the nine months ended September 30, 1999 as compared to the same period
in 1998. The decrease was primarily driven by a decrease in net income from
operations as a result of the sale of University Business Center II in October
1998 and net negative changes in working capital accounts.
Net cash (used in) provided by investing activities for the nine months ended
September 30, 1999 and 1998 was $72,592 and $(84,251), respectively. The primary
reason for the increase in funds provided in 1999 as compared to 1998 is the
inclusion in this section of the positive net effect on cash flow of the change
in the Partnership's ownership percentage of the Lakeshore/University II Joint
Venture as described in Note 11, partially offset by increased capital
expenditures.
Net cash used in financing activities totaled $600,639 and $739,380 in 1999 and
1998, respectively. The approximate $139,000 decrease in net cash used in
financing activities in 1999 as compared to 1998 is primarily a result of
decreased funds reserved for the repurchase of limited partnership Units through
the Interest Repurchase Reserve.
No distributions were made during the year ended December 31, 1998 or the nine
months ended September 30, 1999. 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 other 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, 1999 were $698,084.
18
<PAGE>
Consolidated Cash Flows and Financial Condition - Continued
- -----------------------------------------------------------
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 1999 or obtain
new tenants are unknown.
Due to the fact that no distributions were made during the nine months ended
September 30, 1999 or 1998, 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.
Currently, the Partnership's plans for renovations and other major capital
expenditures include tenant improvements at the Partnership's properties as
required by lease negotiations and beginning construction on Lakeshore Business
Center Phase III as described later in this section. 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 the
improvements are determined by the size of the space being leased and whether
the improvements are for a new tenant or incurred because of a lease renewal.
The tenant finish improvements will be funded by cash flow from operations and
cash reserves.
As of September 30, 1999, the Partnership plans to renovate the community
clubhouse at Golf Brook Apartments. The estimated cost of this renovation is
$200,000. The Partnership plans to fund the renovations out of the $2,000,000
loan obtained September 23, 1999 secured by the Plainview Point III Office
Center.
Pursuant to Section 16.4 of the Partnership's Amended and Restated Agreement of
Limited Partnership, the Partnership established an Interest Repurchase Reserve
in June 1996. During the years ended December 31, 1998, 1997 and 1996, the
Partnership funded $201,565, $45,000, and $575,070, respectively, to the
reserve. Through November 20, 1998 (the commencement date of the First Tender
Offer), the Partnership has repurchased 4,436 Units for $700,920 at a price
ranging from $150 to $205 per Unit. The offering price per Unit was established
by the General Partner in its sole discretion and does not purport to represent
the fair market value or liquidation value of the Units at that date.
Repurchased Units are retired by the Partnership, thus increasing the percentage
of ownership of each remaining limited partner investor. The Interest Repurchase
Reserve was funded from cash reserves. The balance in the Reserve at September
30, 1999 was $0.
On November 20, 1998, the Partnership and ORIG, LLC, an affiliate of the
Partnership (the "bidders"), commenced a tender offer (the "First Tender Offer")
to purchase up to 1,200 of the Partnership's limited partnership Units at a
price of $205 per Unit. The First Tender Offer expired February 19, 1999, at
which time 1,259 Units were tendered pursuant to the First Tender Offer. The
Partnership repurchased 600 Units and ORIG, LLC purchased 659 Units at a total
cost of $258,095 plus offering expenses.
On July 28, 1999, the Partnership and ORIG, LLC, an affiliate of the
Partnership, ("the bidders") commenced a second tender offer (the "Second Tender
Offer") to purchase up to 1,000 of the Partnership's limited partnership Units
at a price of $205 per Unit. Although the bidders believe that this price is
appropriate, the price of $205 per Unit may not equate to the fair market value
or the liquidation value of the Units, and is less than the book value per Unit
as of the date of the Second Tender Offer. Approximately $225,000 ($205,000 to
purchase 1,000 Units plus approximately $20,000 for expenses associated with the
Offer) is required to purchase all 1,000 Units. The Second Tender Offer stated
that the Partnership will purchase the first 500 Units tendered and fund its
purchases and its portion of the expenses from cash reserves. If more than 500
Units are tendered, ORIG, LLC will purchase up to an additional 500 Units. If
more than 1,000 Units are tendered, the bidders may choose to acquire the
additional Units on the same terms. Otherwise, tendered Units will be purchased
on a pro rata basis up to
19
<PAGE>
Consolidated Cash Flows and Financial Condition - Continued
- -----------------------------------------------------------
1,000. Units that are acquired by the Partnership will be retired. Units that
are acquired by ORIG, LLC will be held by it. The General Partner,
NTS-Properties Associates IV, Ltd., does not intend to participate in the Second
Tender Offer. The initial expiration date of the Second Tender Offer was October
29, 1999, and this expiration date has been extended to December 8, 1999. As of
September 30, 1999 approximately 1,080 Units had been tendered pursuant to the
Second Tender Offer.
On July 23, 1999, the L/U II Joint Venture closed on the sale of 2.4 acres of
land adjacent to the Lakeshore Business Center for a purchase price of $528,405,
which was received in cash. The Partnership has an 11.93% interest in the Joint
Venture. The Partnership expects to use the net proceeds from the sale of the
land to help fund the construction of Lakeshore Business Center III as described
below.
As of September 30, 1999 the L/U II Joint Venture intends to use the remaining
3.8 acres of the land it owns at the Lakeshore Business Center development to
construct Lakeshore Business Center Phase III. Construction is expected to begin
during the fourth quarter of 1999. The construction cost is currently estimated
to be $4,000,000 and will be funded by a capital contribution from
NTS-Properties V and debt financing. Construction will not begin until, in the
opinion of the General partners, financing o favorable terms has been obtained.
On July 1, 1999, NTS-Properties V contributed capital of $1,737,000 to the L/U
II Joint Venture for the construction of Lakeshore Business Center Phase III. At
that time, the Partnership and NTS-Properties Plus were not in a position to
contribute additional capital required for the construction of Lakeshore
Business Center Phase III. The Partnership, together with NTS-Properties Plus,
agreed that NTS-Properties V would make a capital contribution to the L/U II
Joint Venture with the knowledge that their Joint Venture interests would, as a
result, decrease.
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 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.
During the first quarter of 1999, SHPS, Inc., formerly known as Sykes Health
Plan Services, Inc., announced its intentions to consolidate its operations and
to build its corporate headquarters in Jefferson County, Kentucky. One of SHPS,
Inc's operations, Sykes is already based in Louisville, Kentucky. Sykes occupies
100% of Blankenbaker Business Center 1A. Due to the expansion of SHPS, Inc's
headquarters, it is the Partnerships understanding that SHPS, Inc. does not
intend to continue to occupy the space at Blankenbaker Business Center 1A
through the duration of its lease term, which expires in July 2005. The
Partnership's proportionate share of the rental income from this property
accounted for approximately 8.1% of the Partnership's rent revenues during the
nine months ended September 30, 1999. The Partnership has not yet determined the
effect, if any, on the Partnership's operations, given the fact Sykes is under
lease until July 2005 and no official notice of termination has been received.
20
<PAGE>
Consolidated Cash Flows and Financial Condition - Continued
- -----------------------------------------------------------
Leases at Commonwealth Business Center Phase I, Blankenbaker Business Center 1A,
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 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.
Year 2000
- ---------
All divisions of NTS Corporation, an affiliate of NTS-Properties Associates IV,
the General Partner of the Partnership, are reviewing the effort necessary to
prepare its information systems (IT) and non-information technology with
embedded technology (ET) for the Year 2000. The information technology solutions
have been addressed separately for the Year 2000 since the Partnership saw the
need to move to more advanced management and accounting to 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, is being replaced by a
windows based network system both for NTS' headquarters functions and other
locations. The real estate accounting system developed, sold, and supported by
the Yardi Company of Santa Barbara, California is replacing PILOT. The Yardi
system has been tested and is compatible with Year 2000 and beyond. This system
is being implemented with the help of third party consultants and is fully
operational as of September 30, 1999. NTS' 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 the NTS' 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 the
new network. It will be retained as long as necessary to assure smooth
operations and has been upgraded to meet Year 2000 requirements.
All risks identified with information technology are believed to be addressed by
these plans.
The costs of these advances in NTS' systems technology are not all attributable
the Year 2000 issue since NTS had already identified the need to move to a
network based system regardless of the Year 2000. The Partnership's share of the
costs involved will be approximately $57,000 during 1999. Costs incurred through
December 31, 1998 were approximately $13,000. These costs include primarily
hardware and software.
NTS property management staff has been surveying its vendors to evaluate
embedded technology in its 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 believes that applications involving ET are Year 2000
compliant as of September 30, 1999.
NTS is also currently addressing the Year 2000 readiness of third parties whose
business interruption could have a material negative impact on NTS' 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 its current state of readiness, the need does
not presently exist for a contingency plan. NTS will continue to evaluate the
need for such a plan.
21
<PAGE>
Year 2000 - Continued
- ---------------------
Despite diligent preparation, unanticipated third-party failures, inability of
our tenants to pay rent when due, more general public infrastructure failures or
failure to successfully conclude NTS' remediation efforts as planned could have
a material adverse impact on NTS' results of operations, financial conditions
and/or cash flows in 1999 and beyond.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
Our primary market risk exposure with regards to financial instruments is
changes in interest rates. All of the Partnership's debt bears interest at a
fixed rate. At September 30, a hypothetical 100 basis point increase in interest
rates would result in an approximately $330,000 decrease in the fair value of
the debt.
22
<PAGE>
PART II. OTHER INFORMATION
Item 3. Defaults upon Senior Securities
-------------------------------
None
Item 5. Other Information
-----------------
Mr. Richard L. Good, who was the Vice Chairman and former
President of NTS Capital Corporation and NTS Development
Company, retired effective September 3, 1999.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
Exhibit 27. Financial Data Schedule
(b) Reports on Form 8-K:
None.
Items 1,2 and 4 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/ Gregory A. Wells
-------------------------------
Gregory A. Wells
Senior Vice President
of NTS Capital Corporation
Date: November 15, 1999
24
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF SEPTEMBER 30, 1999 AND FROM THE STATEMENT OF OPERATIONS FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 980,298
<SECURITIES> 0
<RECEIVABLES> 166,490
<ALLOWANCES> 3,625
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 10,498,479
<DEPRECIATION> 0<F2>
<TOTAL-ASSETS> 11,981,303
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 8,034,648
0
0
<COMMON> 0
<OTHER-SE> 3,543,566
<TOTAL-LIABILITY-AND-EQUITY> 11,981,303
<SALES> 2,476,034
<TOTAL-REVENUES> 2,508,365
<CGS> 0
<TOTAL-COSTS> 2,028,972
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 502,830
<INCOME-PRETAX> (23,437)
<INCOME-TAX> 0
<INCOME-CONTINUING> (23,437)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (23,437)
<EPS-BASIC> 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>
