<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
-------------------
OR
--- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-11655
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NTS-PROPERTIES IV
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(Exact name of registrant as specified in its charter)
Kentucky 61-1026356
- ----------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10172 Linn Station Road
Louisville, Kentucky 40223
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (502) 426-4800
----------------
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
Exhibit Index: See page 54
Total Pages: 59
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Pages
<S> <C> <C>
PART I
Items 1 and 2 Business and Properties 3-17
Item 3 Legal Proceedings 17
Item 4 Submission of Matters to a Vote of
Security Holders 17
PART II
Item 5 Market for the Registrant's Limited Partnership
Interests and Related Partner Matters 18
Item 6 Selected Financial Data 19
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations 20-29
Item 8 Financial Statements and Supplementary Data 30-50
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 51
PART III
Item 10 Directors and Executive Officers of the
Registrant 52
Item 11 Management Remuneration and Transactions 53
Item 12 Security Ownership of Certain Beneficial
Owners and Management 53
Item 13 Certain Relationships and Related Transactions 53
PART IV
Item 14 Exhibits, Financial Statement Schedules
and Reports on Form 8-K 54-58
Signatures 59
</TABLE>
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<PAGE>
PART I
Items 1. and 2. BUSINESS AND PROPERTIES
DEVELOPMENT OF BUSINESS
NTS-Properties IV., Ltd., a Kentucky Limited Partnership, (the "Partnership" or
"NTS-Properties IV") is a limited partnership organized under the laws of the
Commonwealth of Kentucky on May 13, 1983. The General Partner is NTS-Properties
Associates IV, a Kentucky limited partnership. As of December 31, 1998, the
Partnership owned the following properties:
- Commonwealth Business Center Phase I, a business center with
approximately 57,000 net rentable ground floor square feet and
approximately 24,000 net rentable mezzanine square feet in Louisville,
Kentucky, constructed by the Partnership.
- Plainview Point Office Center Phases I and II, an office center with
approximately 56,000 net rentable square feet in Louisville, Kentucky,
acquired complete by the Partnership.
- The Willows of Plainview Phase I, a 118-unit luxury apartment complex
in Louisville, Kentucky, constructed by the Partnership.
- A joint venture interest in The Willows of Plainview Phase II, a
144-unit luxury apartment complex in Louisville, Kentucky, constructed
by the joint venture between the Partnership and NTS-Properties V, a
Maryland Limited Partnership, an affiliate of the General Partner of
the Partnership, ("NTS-Properties V"). The Partnership's percentage
interest in the joint venture was 10% at December 31, 1998.
- A joint venture interest in Golf Brook Apartments, a 195-unit luxury
apartment complex in Orlando, Florida, constructed by the joint
venture between the Partnership and NTS-Properties VI, a Maryland
Limited Partnership, an affiliate of the General Partner of the
Partnership, ("NTS-Properties VI"). The Partnership's percentage
interest in the joint venture was 4% at December 31, 1998.
- A joint venture interest in Plainview Point III Office Center, an
office center with approximately 62,000 net rentable square feet in
Louisville, Kentucky, constructed by the joint venture between the
Partnership and NTS-Properties VI. The Partnership's percentage
interest in the joint venture was 5% at December 31, 1998.
- A joint venture interest in Blankenbaker Business Center 1A, a
business center with approximately 50,000 net rentable ground floor
square feet and approximately 50,000 net rentable mezzanine square
feet located in Louisville, Kentucky, acquired complete by a joint
venture between NTS-Properties Plus Ltd. and NTS-Properties VII, Ltd.,
affiliates of the General Partner of the Partnership. The
Partnership's percentage interest in the joint venture was 30% at
December 31, 1998.
- A joint venture interest in the Lakeshore/University II Joint Venture
("L/U II Joint Venture"). The L/U II Joint Venture was formed on
January 23, 1995 among the Partnership and NTS-Properties V,
NTS-Properties Plus Ltd. and NTS/Fort Lauderdale, Ltd., affiliates of
the General Partner of the Partnership. The Partnership's percentage
interest in the joint venture was 18% at December 31, 1998.
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<PAGE>
A description of the properties owned by the L/U II Joint Venture as of December
31, 1998 appears below:
- LAKESHORE BUSINESS CENTER PHASE I - a business center with
approximately 103,000 net rentable square feet located in Fort
Lauderdale, Florida, acquired complete by the joint venture.
- LAKESHORE BUSINESS CENTER PHASE II - a business center with
approximately 97,000 net rentable square feet located in Fort
Lauderdale, Florida, acquired complete by the joint venture.
- OUTPARCEL BUILDING SITES - approximately 6.2 acres of undeveloped land
adjacent to the Lakeshore Business Center development, which is zoned
for commercial development.
The Partnership or the joint venture in which the Partnership is a partner has a
fee title interest in the above properties. In the opinion of the Partnership's
management, the properties are adequately covered by insurance.
As of December 31, 1998, the Partnership's properties were encumbered by
mortgages as shown in the table below:
<TABLE>
<CAPTION>
Interest Maturity Balance
Property Rate Date at 12/31/98
- -------- -------- -------- -----------
<S> <C> <C> <C>
Commonwealth Business Center
Phase I 8.8% 10/01/04 (1) $1,988,590
Plainview Point Office Center Phases
I and II -- -- None
Willows of Plainview Phase I 7.15% 01/05/13 (2) $1,927,484
Willows of Plainview Phase I 7.15% 01/05/13 (2) $1,834,872
Willows of Plainview Phase II 7.2% 01/05/13 (2) $ 312,698 (3)
Willows of Plainview Phase II 7.2% 01/05/13 (2) $ 186,758 (3)
Golf Brook Apartments -- -- See Below
Plainview Point Office Center Phase
III -- -- None
Blankenbaker Business Center
1A 8.5% 11/15/05 (4) $1,058,249 (5)
Lakeshore Business Center
Phase I 8.125% 08/01/08 (6) $ 873,517 (7)
Lakeshore Business Center
Phase II 8.125% 08/01/08 (6) $ 939,811 (7)
</TABLE>
(1) Current monthly principal payments are based upon 10-year amortization
schedule. At maturity, the mortgage will have been repaid based on the
current rate of amortization.
(2) Current monthly principal payments are based upon a 15-year amortization
schedule. At maturity, the loan will have been repaid based on the current
rate of amortization.
(3) This amount represents the Partnership's proportionate interest in the
mortgages payable at December 31, 1998. The outstanding balances of the
mortgages at December 31, 1998 were $3,080,776 and $1,839,975,
respectively.
(4) Current 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.
- 4 -
<PAGE>
(5) This amount represents the Partnership's proportionate interest in the
mortgage payable at December 31, 1998. The outstanding balance of the
mortgage at December 31, 1998 was $3,511,112.
(6) Current monthly principal payments are based upon a 12-year amortization
schedule. At maturity, the mortgage will have been repaid based on the
current rate of amortization.
(7) This amount represents the Partnerships's proportionate interest in the
mortgage payable at December 31, 1998. The outstanding balance of the
mortgage at December 31, 1998 was $4,890,913 for Phase I and $5,262,099 for
Phase II.
(8) Golf Brook Apartments, a joint venture between the Partnership and
NTS-Properties VI, is encumbered by a mortgage payable to an insurance
company. The $8,220,270 mortgage payable is recorded as a liability by
NTS-Properties VI in accordance with the Joint Venture Agreement. The
mortgage bears interest at a fixed rate of 7.43% and matures May 15, 2009.
Currently, the Partnership's plans for renovations and other major capital
expenditures include tenant finish improvements as required by lease
negotiations at the Partnership's properties. Changes to current tenant
improvements are a typical part of any lease negotiation. Improvements generally
include a revision to the current floor plan to accommodate a tenant's needs,
new carpeting and paint and/or wallcovering. The extent and cost of the
improvements are determined by the size of the space and whether the
improvements are for a new tenant or incurred because of a lease renewal.
The Partnership had no other material commitments for renovations or capital
improvements as of December 31, 1998.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Partnership is engaged solely in the business of developing, constructing,
owning and operating residential apartments and commercial real estate. See Item
8, Note 12 for information regarding the Partnership's operating segments.
NARRATIVE DESCRIPTION OF BUSINESS
GENERAL
The current business of the Partnership is consistent with the original purpose
of the Partnership which was to invest in real property, which was either under
development or proposed for development, on which it would develop, construct,
own and operate apartment complexes, business parks, and retail, industrial and
office buildings. The Partnership properties are in a condition suitable for
their intended use.
The Partnership intends to hold the properties until such time as sale or other
disposition appears to be advantageous with a view to achieving the
Partnership's investment objectives or it appears that such objectives will not
be met. In deciding whether to sell a property, the Partnership will consider
factors such as potential capital appreciation, cash flow and Federal income tax
considerations, including possible adverse Federal income tax consequences to
the Limited Partners. Additionally, the outparcel building sites owned by the
L/U II Joint Venture are being marketed for sale. As of December 31, 1998, the
L/U II Joint Venture has a contract for the sale of approximately 2.4 acres of
land it owns at the Lakeshore Business Center development. See below for the
details of this contract. As of December 31, 1998, the L/U II Joint Venture
intends to use 3.8 acres of land it owns at the Lakeshore Business Center
Development to construct Lakeshore Business Center Phase III. See below for
details. Also discussed below is the October 1998 sale of University Business
Center Phase II.
The following is information regarding properties that represent either 10% or
more of total consolidated assets or revenues as of and for the year ending
December 31, 1998.
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<PAGE>
COMMONWEALTH BUSINESS CENTER PHASE I
Base annual rents, which exclude the cost of utilities, currently range from
$7.17 to $15.92 per square foot for ground floor office space, ground floor
warehouse space and mezzanine office space. The average base annual rental
for all space leased as of December 31, 1998 was $8.08. Space is ordinarily
leased for between three and five years with the majority of current square
footage being leased for a term of five years (1). Current leases terminate
between 1999 and 2004. Several of the leases provide for renewal options
ranging from three to five years at rates which are based upon increases in
the consumer price index and/or are negotiated between lessor and lessee. All
leases provide for tenants to contribute toward the payment of common area
expenses, insurance and real estate taxes. As of December 31, 1998, there
were 10 tenants leasing office and warehouse space aggregating approximately
50,602 square feet of rentable area (2). The tenants who occupy Commonwealth
Business Center Phase I are professional service oriented organizations. The
principal occupations/professions practiced include a stockbrokerage house,
insurance and machinery sales/service. One tenant individually leases more
than 10% of Commonwealth Business Center Phase I's rentable area. The
occupancy levels at the business center as of December 31 were 89% (1998),
87% (1997), 86% (1996 and 1995) and 82% (1994). See Item 7 for average
occupancy levels for the periods ending December 31, 1998, 1997 and 1996.
(1) Excluding a 19,101 square foot lease which is for 10-years.
The following table contains approximate data concerning the leases in effect on
December 31, 1998:
<TABLE>
<CAPTION>
Current Base
Sq. Ft. and Annual Rental
% of Net and % of Gross
Year of Rentable Base Annual Renewal
No. of Tenants Expiration Area(2) Rental Options
- -------------- ---------- ----------- -------------- -------
<S> <C> <C> <C> <C>
Major Tenants (3):
1 2004 19,101 (33.8%) $304,116 (50.6%) None
Other Tenants:
2 1999 7,634 (13.5%) $102,127 (17.0%) 2 Three-Year
3 2000 9,475 (16.7%) $ 82,272 (13.7%) (4)
3 2001 8,792 (15.5%) $ 67,689 (11.3%) None
1 2002 5,600 (9.9%) $ 44,520 (7.4%) None
</TABLE>
(2) Rentable area includes only ground square feet (office and warehouse
space).
(3) Major tenants are those that individually occupy 10 percent or more of the
rentable area.
(4) 3 Three-Year and 1 Five-Year.
PLAINVIEW POINT OFFICE CENTER PHASES I AND II
Except as indicated in the table below, base annual rents, which include the
cost of utilities, currently range from $11.69 to $12.50 per square foot. The
average base annual rental as of December 31, 1998 was approximately $12.00
per square foot. Office space is ordinarily leased for between three to five
years with the majority of current square footage being leased for a term of
three years (5). Current leases terminate between 1999 and 2006. One lease
provides for a renewal option of five years at a rate which will be
negotiated between lessor and lessee. All leases provide for tenants to
contribute toward the payment of increases in common area maintenance
expenses, insurance, utilities and real estate taxes. As of December 31,
1998, there were 6 tenants leasing office space aggregating approximately
36,667 square feet of rentable area. The tenants who occupy Plainview Point
Office Center Phases I and II are professional service oriented
organizations. The principal occupations/professions practiced include a
business school, telemarketing services and insurance. Two tenants
individually lease more than 10% of Plainview Point Office Center's rentable
area. The occupancy levels at the office center as of December 31 were 65%
(1998), 73% (1997), 88% (1996), 85% (1995) and 74% (1994). See Item 7 for
average occupancy levels for the periods ending December 31, 1998, 1997 and
1996.
(5) Excluding a 22,291 square foot lease which is for 10 years.
- 6 -
<PAGE>
The following table contains approximate data concerning the leases in effect on
December 31, 1998:
<TABLE>
<CAPTION>
Current Base
Sq. Ft. and Annual Rental
Year of % of Net and % of Gross Renewal
No. Of Tenants Expiration Rentable Area Base Annual Rental Options
- -------------- ---------- ------------ ------------------ ------------
<S> <C> <C> <C> <C>
Major tenants:
1 1999 6,031 (10.7%) $ 70,524 (17.1%) None
1 2004 22,291 (39.7%) $239,148 (58.2%)(1) 1 Five-Year
Other Tenants:
2 1999 3,045 (5.5%) $ 37,956 (9.2%) None
None 2000 -- -- --
1 2001 1,141 (2.0%) $ 13,806 (3.4%) None
None 2002-2005 -- -- --
1 2006 4,159 (7.4%) $ 49,908 (12.1%) None
</TABLE>
(1) The lease provides that the tenant will pay its own electricity costs and
thus the base rent is below $11.22.
THE WILLOWS OF PLAINVIEW PHASE I
Units at The Willows of Plainview Phase I include one and two-bedroom loft
and deluxe apartments and two-bedroom town homes. All units have wall-to-wall
carpeting, individually controlled heating and air conditioning, dishwashers,
ranges, refrigerators and garbage disposals. All units, except one-bedroom
lofts, have washer/dryer hook-ups. The one-bedroom lofts have stackable
washers and dryers. Tenants have access to and the use of coin-operated
washer/dryer facilities, clubhouse, management offices, pool, whirlpool and
tennis courts.
Monthly rental rates at The Willows of Plainview Phase I start at $659 for
one-bedroom apartments, $919 for two-bedroom apartments and $1,019 for
two-bedroom town homes, with additional monthly rental amounts for special
features and locations. Tenants pay all costs of heating, air conditioning
and electricity. Most leases are for a period of one year. Units will be
rented in some cases, however, on a shorter term basis at an additional
charge. The occupancy levels at the apartment complex as of December 31
were 86% (1998), 92% (1997), 89% (1996), 91% (1995) and 87% (1994). See Item
7 for average occupancy levels for the periods ending December 31, 1998, 1997
and 1996.
BLANKENBAKER BUSINESS CENTER 1A
Sykes Health Plan Service Bureau, Inc. (formerly known as Prudential Service
Bureau, Inc.) has leased 100% of Blankenbaker Business Center 1A. The annual
base rent, which does not include the cost of utilities, is $7.89 per square
foot for ground floor office space and $7.10 per square foot for second floor
office space. The average base annual rental for all types of space leased as
of December 31, 1998 was $7.48. The lease term is for 11 years and expires in
July 2005. Sykes Health Plan Service Bureau, Inc. is a professional service
oriented organization which deals in insurance claim processing. The lease
provides for the tenant to contribute toward the payment of common area
expenses, insurance and real estate taxes. The occupancy level at the
business center as of December 31, 1998, 1997, 1996, 1995 and 1994 was 100%.
See Item 7 for average occupancy levels for the periods ending December 31,
1998, 1997 and 1996.
The following table contains approximate data concerning the lease in effect
as of December 31, 1998:
<TABLE>
<CAPTION>
Current Base
Sq. Ft. and Annual Rental
Year of % of Net and % of Gross Renewal
No. Of Tenants Expiration Rentable Area Base Annual Rental Options
- -------------- ---------- ------------ ------------------ ------------
<S> <C> <C> <C> <C>
Sykes Health Plan
Service Bureau, Inc. 2005 48,463 (100%) $752,787 (100%) None
</TABLE>
(1) Rentable area includes only ground floor square feet.
- 7 -
<PAGE>
Subsequent to December 31, 1998, 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 is lease, July 2005. The Partnership's
proportionate share of the rental income from this property accounted for
approximately 7% of the Partnership's rent revenues during 1998. 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.
LAKESHORE BUSINESS CENTER PHASE I
Base annual rents, which exclude the cost of utilities, currently range from
$9.78 to $12.25 per square foot for first floor office space, $6.18 to $10.65
per square foot for first floor service space and $9.00 to $12.25 per square
foot for second floor office space. The average base annual rental for all
space leased as of December 31, 1998 was $10.85. Space is ordinarily leased
for between three and five years with the majority of current square footage
being leased for a term of five years. Current leases expire between 1999 and
2004. Five leases provide for renewal options at rates which are based upon
increases in the consumer price index and/or are negotiated between lessor
and lessee. All leases provide for tenants to contribute toward the payment
of common area expenses, insurance and real estate taxes. As of December 31,
1998, there were 32 tenants leasing office space (first and second floor) and
service space aggregating approximately 88,155 square feet of rentable area.
The tenants who occupy Lakeshore Business Center Phase I are professional
service oriented organizations. The principal occupations/professions
practiced include telemarketing services and management offices for two
cellular communications chain and a soft drink company. There are no tenants
that individually lease more than 10% of Lakeshore Business Center Phase I's
rentable area. The occupancy levels at the business center as of December 31
were 85% (1998), 96% (1997), 92% (1996 and 1995), 80% (1994). See Item 7 for
average occupancy levels for the periods ending December 31, 1998, 1997 and
1996.
The following table contains approximate data concerning the leases in effect
on December 31, 1998:
<TABLE>
<CAPTION>
Current Base
Sq. Ft. and Annual Rental
% of Net and % of Gross
Year of Rentable Base Annual Renewal
No. Of Tenants Expiration Area Rental Options
- -------------- ---------- ------------- ----------------- ------------
<S> <C> <C> <C> <C>
Major tenants (1):
None
Other Tenants:
10 1999 36,305 (35.1%) $369,636 (38.6%) 2 Three-Year
11 2000 26,453 (25.6%) $280,764 (29.5%) 2 Three-Year
5 2001 9,037 (8.8%) $105,209 (11.0%) 2 Three-Year
4 2002 8,305 (8.0%) $ 92,592 (9.8%) 2 Three-Year
1 2003 1,728 (1.7%) $ 21,168 (2.2%) None
1 2004 6,327 (6.1%) $ 87,234 (9.1%) None
</TABLE>
(1) Major tenants are those that individually occupy 10 percent or more of the
rentable square footage.
LAKESHORE BUSINESS CENTER PHASE II
Base annual rents, which exclude the cost of utilities, currently range from
$10.00 to $12.39 per square foot for first floor office space and $9.80 to
$14.95 per square foot for second floor office space. The average base rental
for all space leased as of December 31, 1998 was $11.21. Space is ordinarily
leased for between three and five years with the majority of current square
footage being leased for a term of three years. Current leases expire between
1999 and 2003.
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<PAGE>
Five leases provide for renewal options at rates which are based upon
increases in the consumer price index and/or are negotiated between lessor
and lessee. All leases provide for tenants to contribute toward the payment
of common area expenses, insurance and real estate taxes. As of December 31,
1998, there were 17 tenants leasing office space (first and second floor) and
service space aggregating approximately 75,458 square feet of rentable area
(1). The tenants who occupy Lakeshore Business Center Phase II are
professional service oriented organizations. The principal
occupations/professions practiced include medical equipment leasing,
insurance services and management offices for the Florida state lottery. Two
tenants individually lease more than 10% of Lakeshore Business Center Phase
II's rentable area. The occupancy levels at the business center as of
December 31 were 79% (1998), 100% (1997), 89% (1996), 72% (1995) and 78%
(1994). See Item 7 for average occupancy levels for the periods ending
December 31, 1998, 1997 and 1996.
(1) Excludes approximately 1,218 square feet which is occupied by the
business center's property management and leasing staff.
The following table contains approximate data concerning the leases in effect
on December 31, 1998:
<TABLE>
<CAPTION>
Current Base
Sq. Ft. and Annual Rental
% of Net and % of Gross
Year of Rentable Base Annual Renewal
No. of Tenants Expiration Area(1) Rental Options
- ------------------ ---------- -------------- ---------------- ------------
<S> <C> <C> <C> <C>
Major tenants (2):
1 1999 10,580 (10.9%) $127,176 (14.8%) 1 Three-Year
1 2002 14,665 (15.1%) $166,212 (19.3%) 1 Five-Year
Other tenants:
5 1999 16,241 (16.7%) $184,098 (21.4%) 1 Three-Year
4 2000 11,124 (11.5%) $125,642 (14.6%) None
3 2001 9,985 (10.3%) $106,788 (12.4%) 1 Five-Year
2 2002 8,675 (8.9%) $101,384 (11.8%) (3)
1 2003 4,188 (4.3%) $ 48,156 (5.6%) None
</TABLE>
(1) Excludes approximately 1,218 square feet which is occupied by the business
center's property management and leasing staff.
(2) Major tenants are those that occupy 10 percent or more of the rentable
square footage.
(3) 1 Three year and 1 Five-Year.
Additional operating data regarding the Partnership's properties is furnished
in the following table:
<TABLE>
<CAPTION>
Federal Realty Annual
Tax Basis Tax Rate Realty Taxes
---------- --------- ------------
<S> <C> <C> <C>
WHOLLY-OWNED PROPERTIES
Commonwealth Business Center
Phase I $4,048,195 $.010910 $ 35,297
Plainview Point Office Center
Phases I and II 3,464,131 .011110 18,358
The Willows of Plainview
Phase I 7,452,416 .011110 50,494
</TABLE>
Percentage ownership has not been applied to the information in the table
above and below for properties owned through a joint venture.
(Continued next page)
- 9 -
<PAGE>
<TABLE>
<CAPTION>
Federal Realty Annual
Tax Basis Tax Rate Realty Taxes
---------- --------- ------------
<S> <C> <C> <C>
PROPERTY OWNED IN JOINT
VENTURE WITH NTS-PROPERTIES V
The Willows of Plainview
Phase II 7,993,098 .011110 58,361
PROPERTIES OWNED IN JOINT
VENTURE WITH NTS-PROPERTIES VI
Golf Brook Apartments 16,179,398 .018437 280,100
Plainview Point III Office
Center 4,318,750 .011110 34,818
PROPERTY OWNED IN JOINT
VENTURE WITH NTS-PROPERTIES
VII AND NTS-PROPERTIES PLUS
LTD.
Blankenbaker Business
Center 1A 7,356,545 .010910 56,480
PROPERTIES OWNED THROUGH
LAKESHORE/ UNIVERSITY II JOINT
VENTURE (L/U II JOINT VENTURE
Lakeshore Business Center
Phase I 10,260,812 .026214 126,826
Lakeshore Business Center
Phase II 12,227,459 .026214 144,702
</TABLE>
Depreciation for book purposes is computed using the straight-line method
over the estimated useful lives of the assets which are 5-30 years for land
improvements, 30 years for buildings, 5-30 years for building improvements
and 5-30 years for amenities. The estimated realty taxes on planned
renovations, primarily tenant improvements, is not material.
INVESTMENT IN JOINT VENTURES
NTS WILLOWS PHASE II JOINT VENTURE - On September 1, 1984, the Partnership
entered into a joint venture agreement with NTS-Properties V to develop,
construct, own and operate a 144 - unit luxury apartment complex on an 8.29
acre site in Louisville, Kentucky known as The Willows of Plainview Phase II.
The term of the Joint Venture shall continue until dissolved.
Dissolution shall occur upon, but not before, the first to occur of the
following:
(a) the withdrawal, bankruptcy or dissolution of a Partner or the
execution by a Partner of an assignment for the benefit of its
creditors;
(b) the sale, condemnation or taking by eminent domain of all or
substantially all of the assets of the Partnership, other than its
cash and cash equivalent assets;
(c) the vote or consent of each of the Partners to dissolve the
Partnership; or
(d) September 30, 2028.
- 10 -
<PAGE>
The Partnership contributed land valued at $800,000 and NTS-Properties V
contributed approximately $7,455,000, the construction and carrying costs of
the apartment complex. No future contributions are anticipated as of December
31, 1998.
The apartment complex is encumbered by permanent mortgages with two insurance
companies. Both loans are secured by a first mortgage on the property. The
outstanding balance of the mortgages at December 31, 1998 is $4,920,751
($3,080,776 and $1,839,975). The mortgages are recorded as a liability of the
Joint Venture. The Partnership's proportionate interest in the mortgages at
December 31, 1998 is $499,456 ($312,698 and $186,758). Both mortgages bear
interest at a fixed rate of 7.2% and are due January 5, 2013. At maturity,
the loans will have been repaid based on the current rate of amortization.
The Net Cash Flow for each calendar quarter is distributed to the Partners in
accordance with their respective Percentage Interests. The term Net Cash Flow
means the excess, if any, of (A) the gross receipts from the operations of
the Joint Venture Property (including investment income) for such period plus
any funds released from previously established reserves (referred to in
clause (iv) below), over (B) the sum of (i) all cash operating expenses paid
by the Joint Venture Property during such period in the course of business,
(ii) capital expenditures during such period not funded by capital
contributions, loans or paid out of previously established reserves, (iii)
payments during such period on account of amortization of the principal of
any debts or liabilities of the Joint Venture property and (iv) reserves for
contingent liabilities and future expenses of the Joint Venture Property.
Percentage Interest means that percentage which the capital contributions of
a Partner bears to the aggregate capital contributions of all the Partners.
Net income or net loss is allocated between the Partners in accordance with
their respective Percentage Interests. The Partnership's ownership share was
10% at December 31, 1998.
NTS SABAL GOLF VILLAS JOINT VENTURE - On September 1, 1985, the Partnership
entered into a joint venture agreement with NTS-Properties VI to develop,
construct, own and operate a 158-unit luxury apartment complex on a 13.15
acre site in Orlando, Florida known as Golf Brook Apartments Phase I. On
January 1, 1987, the joint venture agreement was amended to include Golf
Brook Apartments Phase II, a 37-unit luxury apartment complex located on a
3.069 acre site adjacent to Golf Brook Apartments Phase I. The term of the
Joint Venture shall continue until dissolved. Dissolution shall occur upon,
but not before, the first to occur of the following:
(a) the withdrawal, bankruptcy or dissolution of a Partner or the
execution by a Partner of an assignment for the benefit of its
creditors;
(b) the sale, condemnation or taking by eminent domain of all or
substantially all of the assets of the Partnership, other than its
cash and cash-equivalent assets;
(c) the vote or consent of each of the Partners to dissolve the
Partnership; or
(d) September 30, 2025.
The Partnership contributed land valued at $1,900,000 with a related note
payable to a bank of $1,200,000. NTS-Properties VI contributed approximately
$15,800,000, the cost of constructing and leasing the apartments.
NTS-Properties VI also contributed funds to retire the $1,200,000 note
payable to a bank. No future contributions are anticipated as of December 31,
1998.
Golf Brook Apartments is encumbered by a mortgage payable to an insurance
company. The original borrowings obtained by NTS-Properties VI for Golf Brook
Apartments were used to fund a portion of NTS-Properties VI's contribution to
the Joint Venture. The current mortgage payable of $8,220,270 is recorded as
a liability by NTS-Properties VI in accordance with the Joint Venture
Agreement. The mortgage payable bears interest at a fixed rate of 7.43%, is
due May 15, 2009 and is secured by the assets of Golf Brook Apartments. At
maturity, the loan will have been repaid based on the current rate of
amortization.
- 11 -
<PAGE>
The Net Cash Flow for each calendar quarter is distributed to the Partners in
accordance with their respective Percentage Interests. The Term Net Cash Flow
means the excess, if any, of (a) the sum of (i) the gross receipts of the
Joint Venture Property, for such period, other than capital contributions,
plus (ii) any funds from previously established reserves (referred to in
clause (b) (iv) below), over (b) the sum of (i) all cash expenses paid by the
Joint Venture Property during such period, (ii) all capital expenditures paid
in cash during such period, (iii) payments during such period on account of
amortization of the principal of any debts or liabilities of the Joint
Venture Property, and (iv) reserves for contingent liabilities and future
expenses of the Joint Venture Property, as established by the Partners;
provided, however, that the amounts referred to in (i), (ii) and (iii) above
shall be taken in to account only to the extent not funded by capital
contributions or paid out of previously established reserves. Percentage
Interest means that percentage which the capital contributions of a Partner
bears to the aggregate capital contributions of all the Partners.
Net income or net loss is allocated between the Partners in accordance with
their respective Percentage Interests. The Partnership's ownership share was
4% at December 31, 1998.
PLAINVIEW POINT III JOINT VENTURE - On March 1, 1987, the Partnership entered
into a joint venture agreement with NTS-Properties VI to develop, construct,
own and operate an office building in Louisville, Kentucky known as Plainview
Point III Office Center. The terms of the Joint Venture shall continue until
dissolved. Dissolution shall occur upon, but not before, the first to occur
of the following:
(a) the withdrawal, bankruptcy or dissolution of a Partner or the
execution by a Partner of an assignment for the benefit of its
creditors;
(b) the sale, condemnation or taking by eminent domain of all or
substantially all of the assets of the Real Property, unless such
disposition is, in whole or in part, represented by a promissory note
of the purchaser;
(c) the vote or consent of each of the Partners to dissolve the
Partnership; or
(d) December 30, 2026.
The Partnership contributed land valued at $790,000 with an outstanding note
payable to a bank of $550,000 which was secured by the land. NTS-Properties
VI contributed approximately $4,100,000, the cost to construct and lease the
building. NTS-Properties VI also contributed funds to retire the $550,000
note payable to the bank. No future contributions are anticipated as of
December 31, 1998.
The office center is not encumbered by any outstanding mortgages as of
December 31, 1998.
The Net Cash Flow for each calendar quarter is distributed to the Partners in
accordance with their respective Percentage Interests. The term Net Cash Flow
means the excess, if any, of (a) the sum of (i) the gross receipts of the
Joint Venture Property, for such period, other than capital contributions,
plus (ii) any funds from previously established reserves (referred to in
clause (b) (iv) below), over (b) the sum of (i) all cash expenses paid by the
Joint Venture Property during such period, (ii) all capital expenditures paid
in cash during such period, (iii) payments during such period on account of
amortization of the principal of any debts or liabilities of the Joint
Venture Property, and (iv) reserves for contingent liabilities and future
expenses of the Joint Venture Property, as established by the Partners;
provided, however, that the amounts referred to in (i), (ii) and (iii) above
shall be taken in to account only to the extent not funded by capital
contributions or paid out of previously established reserves. Percentage
Interest means that percentage which the capital contributions of a Partner
bears to the aggregate capital contributions of all the Partners.
- 12 -
<PAGE>
Net income or net loss is allocated between the Partners in accordance with
their respective Percentage Interests. The Partnership's ownership share was
5% at December 31, 1998.
BLANKENBAKER BUSINESS CENTER JOINT VENTURE - On August 16, 1994, the
Blankenbaker Business Center Joint Venture agreement was amended to admit the
Partnership to the Joint Venture. The Joint Venture was originally formed on
December 28, 1990 between NTS-Properties Plus Ltd. and NTS-Properties VII,
Ltd., affiliates of the General Partner of the Partnership, to own and
operate Blankenbaker Business Center 1A and to acquire an approximately 2.49
acre parking lot that was being leased by the business center from an
affiliate of the General Partner. The use of the parking lot is a provision
of the tenant's lease agreement with the business center. The terms of the
Joint Venture shall continue until dissolved. Dissolution shall occur upon,
but not before, the first to occur of the following:
(a) the withdrawal, bankruptcy or dissolution of a Partner or the
execution by a Partner of an assignment for the benefit of its
creditors;
(b) the sale, condemnation or taking by eminent domain of all or
substantially all of the assets of the Real Property and Parking Lot
and the sale and/or collection of any evidences of indebtedness
received in connection therewith;
(c) the vote or consent of each of the Partners to dissolve the
Partnership; or
(d) December 31, 2030.
In 1990 when the Joint Venture was originally formed, NTS-Properties VII,
Ltd. contributed $450,000 which was used for additional tenant improvements
to the business center, and contributed $325,000 to purchase the 2.49 acre
parking lot. The additional tenant improvements were made to the business
center and the parking lot was purchased in 1991. NTS-Properties Plus Ltd.
contributed Blankenbaker Business Center 1A together with improvements and
personal property subject to mortgage indebtedness of $4,715,000. During
November 1994, this note payable was replaced with permanent financing in the
amount of $4,800,000. The outstanding balance at December 31, 1998 was
$3,511,112. The mortgage is recorded as a liability of the Joint Venture. The
Partnership's proportionate interest in the mortgage at December 31, 1998 was
$1,058,249. 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. At maturity, the mortgage will have been repaid based on the
current rate of amortization.
On April 28, 1994, the Joint Venture obtained $1,100,000 in debt financing to
fund a portion of the tenant finish and leasing costs which were associated
with the Prudential Service Bureau, Inc. [currently known as Sykes Health Plan
Service Bureau, Inc. ("Sykes")] lease renewal and expansion. The $1,100,000
note bore interest at the Prime Rate + 1 1/2%. In order for the Joint Venture
to obtain the $4,800,000 of permanent financing discussed above, it was
necessary for the Joint Venture to seek an additional Joint Venture partner
to provide the funds necessary for the tenant finish and leasing costs
instead of debt financing. The $1,100,000 note was retired in August 1994.
This resulted in the Joint Venture's debt being at a level where permanent
financing could be obtained and serviced.
On August 16, 1994, NTS-Properties IV contributed $1,100,000 and
NTS-Properties VII, Ltd. contributed $500,000 in accordance with the
agreement to amend the Joint Venture agreement. The need for additional
capital by the Joint Venture was a result of the lease renewal and expansion
which was signed April 28, 1994 between the Joint Venture and Sykes.
NTS-Properties Plus Ltd. was not in a position to contribute additional
capital, nor was NTS-Properties VII, Ltd. in a position to contribute all of
the capital required for this project. NTS-Properties IV was willing to
participate in the Joint Venture and to contribute, together with
NTS-Properties VII, Ltd., the capital necessary with respect to the project.
NTS-Properties Plus Ltd. agreed to the admission of NTS-Properties IV to the
Joint Venture, and to the capital contributions by NTS-Properties IV and
NTS-Properties VII, Ltd. with the knowledge that its joint venture interest
- 13 -
<PAGE>
would, as a result, decrease. With this expansion, Sykes occupied 100% of the
business center. No future contributions are anticipated as of December 31,
1998.
The Net Cash Flow for each calendar quarter is distributed to the Partners in
accordance with the respective Percentage Interests. The term Net Cash Flow
for any period shall mean the excess, if any, of (A) the sum of (i) the gross
receipts of the Joint Venture Property for such period, other than capital
contributions, plus (ii) any funds released by the Partners from previously
established reserves (referred to in clause (B) (iv) below), over (B) the sum
of (i) all cash operating expenses paid by the Joint Venture Property during
such period in the course of the business, (ii) capital expenditures paid in
cash during such period, (iii) payments during such period on account of
amortization of the principal of any debts or liabilities of the Joint
Venture Property and (iv) reserves for contingent liabilities and future
expenses of the Joint Venture Property as established by the Partners;
provided, however, that the amounts referred to in (B)(i), (ii) and (iii)
above shall only be taken into account to the extent not funded by capital
contributions or paid out of previously established reserves. Percentage
Interest means that percentage which the capital contributions of a Partner
bears to the aggregate capital contributions of all the Partners.
Net income or net loss is allocated between the Partners in accordance with
their respective Percentage Interests. The Partnership's ownership share was
30% at December 31, 1998.
LAKESHORE/UNIVERSITY II JOINT VENTURE - On January 23, 1995, a joint venture
known as the Lakeshore/University II Joint Venture (L/U II Joint Venture) was
formed among the Partnership and NTS-Properties V, NTS-Properties Plus Ltd.
and NTS/Fort Lauderdale, Ltd., affiliates of the General Partner of the
Partnership, for purposes of owning Lakeshore Business Center Phases I and
II, University Business Center Phase II (property sold during 1998 - see
below for details regarding this transaction) and certain undeveloped tracts
of land adjacent to the Lakeshore Business Center development.
The table below identifies which properties were contributed to the L/U II
Joint Venture and the respective owners of such properties prior to the
formation of the joint venture.
<TABLE>
<CAPTION>
Property Contributing Owner
-------- ------------------
<S> <C>
Lakeshore Business Center Phase I NTS-Properties IV and NTS-
Properties V
Lakeshore Business Center Phase II NTS-Properties Plus Ltd.
Undeveloped land adjacent to the NTS-Properties Plus Ltd.
Lakeshore Business Center
development (3.8 acres)
Undeveloped land adjacent to the NTS/Fort Lauderdale, Ltd.
Lakeshore Business Center
development (2.4 acres)
University Business Center Phase II NTS-Properties V and NTS-
Properties Plus Ltd.
</TABLE>
- 14 -
<PAGE>
The term of the Joint Venture shall continue until dissolved. Dissolution shall
occur upon, but not before, the first to occur of the following:
(a) the withdrawal, bankruptcy or dissolution of a Partner or the
execution by a Partner of an assignment for the benefit of its
creditors;
(b) the sale, condemnation or taking by eminent domain of all or
substantially all of the Real Property and the sale and/or collection
of any evidences of indebtedness received in connection therewith;
(c) the vote or consent of each of the Partners to dissolve the
Partnership; or
(d) December 31, 2030.
Each of the properties was contributed to the L/U II Joint Venture subject to
existing indebtedness, except for Lakeshore Business Center Phase I which was
contributed to the joint venture free and clear of any mortgage liens, and all
such indebtedness was assumed by the joint venture. Mortgages were recorded on
Lakeshore Business Center Phase I in the amount of $5,500,000, and on University
Business Center Phase II in the amount of $3,000,000, in favor of the banks
which held the indebtedness on University Business Center Phase II, Lakeshore
Business Center Phase II and the undeveloped tracts of land prior to the
formation of the joint venture and on Lakeshore Business Center Phase I in the
amount of $5,500,000 subsequent to the formation of the L/U II Joint Venture. In
addition to the above, the Partnership also contributed $750,000 to the L/U II
Joint Venture. As a result of the valuation of the properties contributed to the
L/U II Joint Venture, the Partnership obtained an 18% partnership interest in
the joint venture.
The properties of the L/U II Joint Venture are encumbered by mortgages payable
to an insurance company as follows:
<TABLE>
<CAPTION>
Loan Balance
at 12/31/98 Encumbered Property
------------- -------------------
<S> <C>
$5,262,099 Lakeshore Business Center Phase II
$4,890,913 Lakeshore Business Center Phase I
</TABLE>
The loans are recorded as liabilities of the Joint Venture. The Partnership's
proportionate interest in the loans at December 31, 1998 was $1,813,328
($873,517, and $939,811). The mortgages bear interest at a fixed rate of 8.125%
and are due August 1, 2008. Monthly principal payments are based upon a 12-year
amortization schedule. At maturity, the loans will have been repaid based on the
current rate of amortization.
On October 6, 1998 pursuant to a contract executed on September 8, 1998, the
Lakeshore/University II Joint Venture ("L/U II") sold University Business Center
Phase II office building to Silver City Properties, Ltd. ("the Purchaser") for
$8,975,000. University Business Center Phase II was owned by the L/U II Joint
Venture of which the Partnership owns an 18% interest. Portions of the proceeds
from this sale were immediately used to pay the remainder of the outstanding
debt of approximately $5,933,382 on University Business Center Phase II
(including interest and prepayment penalty). NTS-Properties IV reflects a gain
of approximately $208,000 associated with this sale in the fourth quarter of
1998. Net cash proceeds received by the Partnership from the L/U II Joint
Venture as a result of a cash distribution of the proceeds from the sale were
approximately $442,000.
The Net Cash Flow for each calendar quarter is distributed to the Partners in
accordance with their respective Percentage Interest. The term Net Cash Flow
means the excess, if any, of (A) the sum of (i) the gross receipts of the Joint
Venture Properties for such period (including loan proceeds), other than capital
contributions, plus (ii) any funds released from previously established reserves
(referred to in clause (B)(iv) below), over (B) the sum of (i) all cash
operating expenses paid by the Joint Venture during such period in the course of
business, (ii) capital expenditures paid in cash during such period, (iii)
payments during such period on account of amortization of the principal of any
debts or liabilities of the Joint Venture and (iv) reserves for contingent
liabilities and
- 15 -
<PAGE>
future expenses of the Joint Venture, as established by the Partners;
provided, however, that the amounts referred to in (B)(i), (ii) and (iii)
above shall only be taken into account to the extent not funded by capital
contributions or paid out of previously established reserves. Percentage
Interest means that percentage which the capital contributions of a Partner
bears to the aggregate capital contributions of all the Partners.
Net income or net loss is allocated between the partners in accordance with
their respective Percentage Interests. The Partnership's ownership share was 18%
at December 31, 1998.
COMPETITION
The Partnership's properties are subject to competition from similar types of
properties (including, in certain areas, properties owned or managed by
affiliates of the General Partner) in the respective vicinities in which they
are located. Such competition is generally for the retention of existing
tenants or for new tenants when vacancies occur. The Partnership maintains
the suitability and competitiveness of its properties primarily on the basis
of effective rents, amenities and service provided to tenants. Competition is
expected to increase in the future as a result of the construction of
additional properties. As of December 31, 1998, there are no properties under
construction in the respective vicinities in which the properties are
located, except for, in the vicinity of Golf Brook Apartments, there are 750
apartment units currently under construction which are scheduled to be
completed during the fourth quarter 1999. In the vicinity of The Willows of
Plainview, there are 664 apartment units currently under construction which
are scheduled to be completed during the second and third quarter of 1999. At
this time it is unknown the effect these new units will have on occupancy at
Golf Brook Apartments and the Willows of Plainview. The Partnership has not
commissioned a formal market analysis of competitive conditions in any market
in which it owns properties, but relies upon the market condition knowledge
of the employees of NTS Development Company who manage and supervise leasing
for each property.
MANAGEMENT OF PROPERTIES
NTS Development Company, an affiliate of NTS-Properties Associates IV, the
General Partner of the Partnership, directs the management of the
Partnership's properties pursuant to a written agreement. NTS Development
Company is a wholly-owned subsidiary of NTS Corporation. Mr. J. D. Nichols
has a controlling interest in NTS Corporation and is a General Partner of
NTS-Properties Associates IV. Under the agreement, the Property Manager
establishes rental policies and rates and directs the marketing activity of
leasing personnel. It also coordinates the purchase of equipment and
supplies, maintenance activity and the selection of all vendors, suppliers
and independent contractors. As compensation for its services, the Property
Manager received a total of $204,498 for the year ended December 31, 1998.
$134,252 was received from commercial properties and $70,246 was received
from residential properties. The fee is equal to 6% of gross revenues from
commercial properties and 5% of gross revenues from residential properties.
In addition, the management agreement requires the Partnership to purchase
all insurance relating to the managed properties, to pay the direct
out-of-pocket expenses of the Property Manager in connection with the
operation of the properties, including the cost of goods and materials used
for and on behalf of the Partnership, and to reimburse the Property Manager
for the salaries, commissions, fringe benefits, and related employment
expenses of on-site personnel.
The term of the Management Agreement between NTS Development Company and the
Partnership was initially for five years, and thereafter for succeeding
one-year periods, unless canceled. The Agreement is subject to cancellation
by either party upon sixty days written notice. As of December 31, 1998, the
Management Agreement is still in effect.
- 16 -
<PAGE>
WORKING CAPITAL PRACTICES
Information about the Partnership's working capital practices is included in
Management Discussion and Analysis of Financial Condition and Results of
Operations in Part II, Item 7.
SEASONAL OPERATIONS
The Partnership does not consider its operations to be seasonal to any material
degree.
CONFLICT OF INTEREST
Because the principals of the General Partner and/or its affiliates own
and/or operate real estate properties other than those owned by the
Partnership that are or could be in competition with the Partnership,
potential conflicts of interest exist. Because the Partnership was organized
by and is operated by the General Partner, these conflicts are not resolved
through arms-length negotiations but through the exercise of the General
Partner's good judgment consistent with its fiduciary responsibility to the
Limited Partners and the Partnership's investment objectives and policies.
The General Partner is accountable to the Limited Partners as a fiduciary and
consequently must exercise good faith and integrity in handling the
Partnership's affairs. A provision has been made in the Partnership Agreement
that the General Partner will not be liable to the Partnership except for
acts or omissions performed or omitted fraudulently, in bad faith or with
negligence. In addition, the Partnership Agreement provides for
indemnification by the General Partner of the Partnership for liability
resulting from errors in judgement or certain acts or omissions. The General
Partner and its affiliates retain a free right to compete with the
Partnership's properties including the right to develop competing properties
now and in the future in addition to those existing properties which may
compete directly or indirectly. NTS Development Company, the Property Manager
and an affiliate of the General Partner, acts in a similar capacity for other
affiliated entities in the same geographic region where the Partnership has
property interests. In management's opinion, the agreement with the Property
Manager is on terms no less favorable to the Partnership than those which
could be obtained from a third party for similar services in the same
geographical region in which the properties are located. The contract is
terminable by either party without penalty upon 60 days written notice.
There are no other agreements or relationships between the Partnership, the
General Partner and its affiliates other than that previously described.
EMPLOYEES
The Partnership has no employees; however, employees of an affiliate of the
General Partner are available to perform services for the Partnership. The
Partnership reimburses this affiliate for the allocated costs of providing
such services. (See Item 8 Note 10 for further discussions of related party
transactions).
GOVERNMENTAL CONTRACTS AND REGULATIONS
No portions of the Partnership's business is subject to renegotiation of profits
or termination of contracts or sub-contracts at the election of the United
States Government.
Item 3. LEGAL PROCEEDINGS
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
- 17 -
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S LIMITED PARTNERSHIP INTERESTS AND RELATED
PARTNER MATTERS
There is no established trading market for the limited partnership interests.
The Partnership had 2,313 limited partners as of March 1, 1999. Cash
distributions and allocations of income and loss are made as described in
Note 1C to the Partnership's 1998 financial statements.
Annual distributions totaling $8.00 were paid per limited partnership unit
during 1996. No distribution was made during 1997 and 1998. Quarterly
distributions are determined based on current cash balances, cash flow being
generated by operations and cash reserves needed, as determined by the
General Partner, for future leasing costs, tenant finish costs and capital
improvements. Distributions were paid quarterly as follows:
<TABLE>
<CAPTION>
1996
---------
<S> <C>
First quarter $ 3.00
Second quarter 3.00
Third quarter 2.00
Fourth quarter --
---------
$ 8.00
---------
---------
</TABLE>
The table below presents that portion of the distributions that represent a
return of capital on a Generally Accepted Accounting Principle basis for the
years ended December 31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
Net Income Cash
(Loss) Distributions Return of
Allocated Declared Capital
----------- -------------- ---------
<S> <C> <C> <C>
Limited Partners:
1998 $ 97,313 $ -- $ --
1997 (48,560) -- --
1996 (45,719) 222,842 222,842
General Partner:
1998 $ 983 $ -- $ --
1997 (490) -- --
1996 (462) 2,251 2,251
</TABLE>
- 18 -
<PAGE>
Item 6. SELECTED FINANCIAL DATA
Years ended December 31, 1998, 1997, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Rental and other income $ 3,619,094 $ 3,708,597 $ 3,577,554 $ 3,285,430 $ 2,595,299
Gain on sale of assets 208,607(1) -- -- -- --
Total expenses (3,575,343) (3,680,643) (3,610,839) (3,711,915) (2,901,514)
------------ ------------ ------------ ------------ ------------
Income (loss) before
extraordinary item 252,358 27,954 (33,285) (426,485) (306,215)
Extraordinary item (154,062) (77,004) (12,896) -- --
------------ ------------ ------------ ------------ ------------
Net income (loss) $ 98,296 $ (49,050) $ (46,181) $ (426,485) $ (306,215)
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Net income (loss)
allocated to:
General Partner $ 983 $ (490) $ (462) $ (4,265) $ (3,062)
Limited partners $ 97,313 $ (48,560) $ (45,719) $ (422,220) $ (303,153)
Net income (loss) per
limited partnership
units $ 3.75 $ (1.82) $ (1.63) $ (14.19) $ (10.19)
Weighted average number of limited
partnership units
25,918 26,708 28,012 29,745 29,745
Cumulative net income
(loss)allocated to:
General Partner $ 3,899 $ 2,916 $ 3,406 $ 3,868 $ 8,133
Limited partners $ 385,853 $ 288,540 $ 337,100 $ 382,819 $ 805,039
Cumulative taxable
income (loss)
allocated to:
General Partner $ (26,810) $ (24,092) $ (24,618) $ (24,486) $ (20,830)
Limited partners $ (2,654,795) $ (2,385,433) $ (2,437,521) $ (2,424,353) $ (2,062,388)
Distributions declared:
General Partner $ -- $ -- $ 2,251 $ 11,117 $ 3,479
Limited partners $ -- $ -- $ 222,842 $ 1,100,565 $ 344,447
Cumulative distributions
declared to:
General Partner $ 218,253 $ 218,253 $ 218,253 $ 216,002 $ 204,885
Limited partners $ 21,607,636 $ 21,607,636 $ 21,607,636 $ 21,384,794 $ 20,284,229
At year end:
Land, buildings and
amenities, net $ 11,269,660 $ 13,023,781 $ 13,801,251 $ 14,617,818 $ 11,974,200
Total assets $ 13,055,709 $ 14,812,308 $ 15,406,286 $ 16,645,788 $ 15,483,541
Mortgages and notes
payable $ 9,121,979 $ 10,706,802 $ 11,236,625 $ 11,592,641 $ 8,895,313
</TABLE>
The above selected financial data should be read in conjunction with the
financial statements and related notes appearing elsewhere in this Form 10-K
report.
(1) See Item 8 Note 11 for the details on the sale of University Business Center
Phase II to Silver City Properties, Ltd. on October 6, 1998.
- 19 -
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations is structured in four major sections. The first section provides
information related to occupancy levels and information regarding 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 and our cautionary statements also follow. Management's analysis should be
read in conjunction with the financial statements in Item 8 and the cautionary
statements below.
The occupancy levels at the Partnership's properties as of December 31 were as
follows:
<TABLE>
<CAPTION>
Percentage
Ownership at
12/31/98 1998(1) 1997 1996
------------ ------- ---- ----
<S> <C> <C> <C> <C>
WHOLLY-OWNED PROPERTIES
Commonwealth Business Center Phase I 100% 89% 87% 86%
Plainview Point Office Center Phases I and II (2)
100% 65% 73% 88%
The Willows of Plainview Phase I (2) 100% 86% 92% 89%
PROPERTIES OWNED IN JOINT VENTURE WITH
NTS-PROPERTIES V
The Willows of Plainview Phase II 10% 92% 90% 92%
PROPERTIES OWNED IN JOINT VENTURE WITH
NTS-PROPERTIES VI
Golf Brook Apartments 4% 96% 96% 97%
Plainview Point III Office Center (2)(3) 5% 81% 96% 91%
PROPERTY OWNED IN JOINT VENTURE WITH NTS-PROPERTIES
VII, LTD. AND NTS-PROPERTIES PLUS LTD.
Blankenbaker Business Center 1A 30% 100% 100% 100%
PROPERTIES OWNED THROUGH LAKESHORE/UNIVERSITY II
JOINT VENTURE (L/U II JOINT VENTURE)
Lakeshore Business Center Phase I (2)(4) 18% 85% 96% 92%
Lakeshore Business Center Phase II (2)(5) 18% 79% 100% 89%
University Business Center Phase II N/A (6) N/A(6) 99% 99%
</TABLE>
(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
year ending occupancy is only temporary fluctuation and does not represent
a permanent downward occupancy trend.
(3) At Plainview Point III Office Center, a current tenant has leased an
additional 5,439 square feet. Occupancy of this additional space is planned
for the first half of 1999. The office center's occupancy level should
increase to 93% at that time.
(4) Subsequent to December 31, 1998, two new five-year leases totaling 6,880
square feet were signed at Lakeshore Business Center Phase I. Both tenants
are expected to take occupancy during the first quarter of 1999. With these
new leases the business center's occupancy should improve to 89%.
(5) As of December 31, 1998, Lakeshore Business Center Phase II has an
additional 5,668 square feet leased to two new tenants. Both tenants took
occupancy during the first quarter of 1999 and the business center's
occupancy has increased to 85%.
(6) On October 6, 1998, University Center Phase II was sold. See below for the
details of this transaction.
-20-
<PAGE>
The average occupancy levels at the Partnership's properties as of December 31
were as follows:
<TABLE>
<CAPTION>
Percentage
Ownership
at 12/31/98 1998 1997 1996
----------- ---- ---- ----
<S> <C> <C> <C> <C>
WHOLLY-OWNED PROPERTIES
Commonwealth Business Center Phase I 100% 88% 85% 91%
Plainview Point Office Center Phases I and
II (1) 100% 70% 83% 86%
The Willows of Plainview Phase I (1) 100% 90% 93% 89%
PROPERTIES OWNED IN JOINT VENTURE WITH
NTS-PROPERTIES V
The Willows of Plainview Phase II(1) 10% 87% 91% 95%
PROPERTIES OWNED IN JOINT VENTURE WITH
NTS-PROPERTIES VI
Golf Brook Apartments 4% 96% 93% 94%
Plainview Point III Office Center 5% 92% 90% 93%
PROPERTY OWNED IN JOINT VENTURE WITH
NTS-PROPERTIES VII, LTD. AND NTS-PROPERTIES
PLUS LTD.
Blankenbaker Business Center 1A 30% 100% 100% 100%
PROPERTIES OWNED THROUGH
LAKESHORE/UNIVERSITY II JOINT VENTURE (L/U
II JOINT VENTURE)
Lakeshore Business Center Phase I(1) 18% 88% 96% 97%
Lakeshore Business Center Phase II(1) 18% 91% 94% 80%
University Business Center Phase II N/A (2) 91%(3) 99% 99%
</TABLE>
(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) On October 6, 1998, University Center Phase II was sold. See below for the
details of this transaction.
(3) Represents average occupancy through October 6, 1998.
- 21 -
<PAGE>
RENTAL AND OTHER INCOME
The rental and other income generated by the Partnership's properties for the
years ended December 31, 1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
Percentage
Ownership
at 12/31/98 1998 1997 1996
----------- ---- ---- ----
<S> <C> <C> <C> <C>
WHOLLY-OWNED PROPERTIES
Commonwealth Business Center
Phase I 100% $ 705,009 $ 657,888 $ 684,996
Plainview Point Office Center
Phases I and II 100% $ 457,904 $ 571,950 $ 544,023
The Willows of Plainview Phase I
100% $1,148,200 $1,231,150 $1,108,767
PROPERTIES OWNED IN JOINT
VENTURE WITH NTS-PROPERTIES V
The Willows of Plainview Phase
II 10% $ 130,126 $ 137,881 $ 123,547
PROPERTIES OWNED IN JOINT
VENTURE WITH NTS-PROPERTIES VI
Golf Brook Apartments 4% $ 120,971 $ 113,578 $ 115,828
Plainview Point Office Center
III 5% $ 40,779 $ 38,512 $ 38,079
PROPERTY OWNED IN JOINT VENTURE
WITH NTS-PROPERTIES VII, LTD.,
AND NTS-PROPERTIES PLUS LTD
Blankenbaker Business Center 1A 30% $ 276,575 $ 277,713 $ 277,578
PROPERTIES OWNED THROUGH
LAKESHORE/UNIVERSITY II JOINT
VENTURE (L/U II JOINT VENTURE)
Lakeshore Business Center Phase
I 18% $ 266,873 $ 253,826 $ 237,375
Lakeshore Business Center Phase
II 18% $ 292,671 $ 251,910 $ 207,357
University Business Center
Phase II 18% $ 139,220(1) $ 148,536 $ 215,922
</TABLE>
(1) On October 6, 1998, University Business Centers Phase II was sold. See
below for the details of this transaction. Revenues shown here represent
1998 income through the date of disposition.
Revenues shown in the table above for properties owned through a joint venture
represent only the Partnership's percentage interest in those revenues.
- 22 -
<PAGE>
The following is an analysis of material changes in results of operations for
the periods ending December 31, 1998, 1997 and 1996. Items that did not have
a material impact on operations for the periods listed above have been
omitted from this discussion.
The GAIN ON SALE OF ASSET is the result of selling University Business Center
Phase II. On October 6, 1998 pursuant to a contract executed on September 8,
1998, the Lakeshore/University II Joint Venture ("L/U II") sold University
Business Center Phase II office building to Silver City Properties, Ltd.
("the Purchaser"), for $8,975,000. University Business Center Phase II was
owned by the L/U II Joint Venture of which the Partnership owns an 18%
interest. Portions of the proceeds from this sale were immediately used to
pay outstanding debt on the University II property (including interest and
prepayment penalty) of approximately $5,933,382.
INTEREST AND OTHER INCOME includes income from investments made by the
Partnership with cash reserves. Interest income decreased approximately
$34,000 or 37% in 1998 as a result of decreased cash reserves available for
investment. Interest income increased approximately $58,000 in 1997 as a
result of an increase in cash reserves available for investment. The increase
in other income in 1997 is also a result of an insurance claim reimbursement
for roof damage exceeding the cost to repair the roof at The Willows of
Plainview Phases I and II.
OPERATING EXPENSES increased approximately $150,000 or 23% in 1997 primarily
due to increased landscaping costs and legal expenses at the Partnership's
commercial properties, increased exterior building renovations at
Blankenbaker Business Center 1A and increased advertising expenses at The
Willows of Plainview Phase I and II.
OPERATING EXPENSES - AFFILIATED increased approximately $67,000 or 17% in
1998. The increase was primarily the result of increased allocated property
management payroll costs at Commonwealth Business Center Phase I and
Plainview Point Office Center Phase I and II.
OPERATING EXPENSES - AFFILIATED increased approximately $27,000 or 7% in 1997
primarily due to increased property management payroll costs at the
Partnership's commercial properties and at The Willows of Plainview Phases I
and II. 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 1996 WRITE-OFF OF UNAMORTIZED BUILDING IMPROVEMENTS can be attributed to
Plainview Point Office Center Phases I and II. The write-of is the result of
an exterior stair replacement and represents the cost of the stairs which
were replaced that had not been fully depreciated.
AMORTIZATION OF CAPITALIZED LEASING costs decreased approximately $6,000 or
28% in 1998 as a result of a special tenant allowance at Commonwealth
Business Center Phase I becoming fully amortized.
INTEREST EXPENSE decreased approximately $52,000 or 6% in 1998 primarily due
to required principal payments on the mortgages payable of the Partnership
and its Joint Venture properties. Interest expense also decreased in 1998 as
a result of the reduction in debt from the sale of University Business Center
Phase II (see discussion above). The decrease in interest expense is
partially offset by a higher interest rate on The Willows of Plainview Phase
I financing the Partnership obtained December 1997 (7.15% as compared to a
rate of 7% on the previous mortgage).
- 23 -
<PAGE>
INTEREST EXPENSE decreased approximately $85,000 or 9% in 1997 primarily due
to a lower interest rates on the permanent financing the Partnership obtained
by the L/U II Joint Venture in July 1996 (8.125% compared to a rate of 10.6%
on the previous mortgage). The decrease is also due to continued principal
payments on the mortgages payable by the Partnership and its Joint Venture
properties.
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 decreased approximately $12,000 or 5% in 1998 as a result
of decreased property tax assessments for Lakeshore Business Center Phases I
and II and the sale of University Business Center Phase II in October 1998
(see discussions above).
PROFESSIONAL AND ADMINISTRATIVE EXPENSES increased approximately $13,000 or
12% in 1998 as a result of costs incurred in connection with the Tender
Offer. Professional and administrative expenses increased approximately
$7,500 or 8% in 1997 primarily as a result of outside legal fees.
PROFESSIONAL AND ADMINISTRATIVE EXPENSES - AFFILIATED decreased approximately
$21,000 or 12% in 1997 mainly due to decreased salary costs. Professional and
administrative expenses - affiliated are expenses for services performed by
employees of NTS Development Company, an affiliate of the General Partner.
DEPRECIATION AND AMORTIZATION decreased approximately $100,000 or 11% in 1998
primarily as a result of a portion of the original assets at Blankenbaker
Business Center 1A becoming fully depreciated and the result of the sale of
University Business Center Phase II in October 1998 (see discussion below).
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.
The 1998 EXTRAORDINARY ITEM - EARLY EXTINGUISHMENT OF DEBT relates to the
sale of University Business Center Phase II (see discussion above). A portion
of the proceeds from the sale was used to retire a $5,128,872 mortgage
payable prior to its maturity (August 2008). As a result of the prepayment, a
$763,995 penalty, of which the Partnerships proportionate share was $136,449,
was required by the insurance company who held the mortgage. Unamortized loan
costs connected with this loan were also expensed due to the fact that the
mortgage was repaid prior to its maturity.
The 1997 EXTRAORDINARY ITEM - EARLY EXTINGUISHMENT OF DEBT relates to loan
costs associated with The Willows of Plainview Phase I and II mortgages
payable. The unamortized loan costs were expensed due to the fact that the
mortgages were retired in 1997 prior to their maturity (December 5, 2003).
The 1996 EXTRAORDINARY ITEM - EARLY EXTINGUISHMENT OF DEBT relates to loan
costs associated with L/U II Joint Venture's note payable. The unamortized
loan costs were expensed due to the fact that the notes were retired in 1996
prior to their maturity (January 31, 1998).
CONSOLIDATED CASH FLOWS AND FINANCIAL CONDITION
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
- 24 -
<PAGE>
has purchased Certificates of Deposit or securities issued by the
U.S. Government with initial maturities of greater than three months to
improve the return on its cash reserves. The Partnership intends to hold the
securities until maturity. Cash flows provided by investing activities were
from the maturity of investment securities. Cash flows used in financing
activities are for cash distributions, payment of loan costs, principal
payments on mortgages and notes payable, repurchases of limited partnership
Units and an increase in funds reserved by the Partnership for the repurchase
of limited partnership Units through the Tender Offer or the Interest
Repurchase Reserve. Cash flows provided by financing activities represent an
increase in mortgages payable. The Partnership utilizes the proportionate
consolidation method of accounting for joint venture properties. The
Partnership's interest in the joint venture's assets, liabilities, revenues,
expenses and cash flows are combined on a line-by-line basis with the
Partnership's own assets, liabilities, revenues, expenses and cash flows.
The Partnership does not expect any material changes in the mix and relative
cost of capital resources except for 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):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Operating activities $ 985,883 $ 1,176,545 $ 936,169
Investing activities 1,454,698 (517,720) 294,832
Financing activities (2,075,757) (729,159) (1,161,132)
----------- ----------- -----------
Net increase (decrease) in cash
and equivalents $ 364,824 $ (70,334) $ 69,869
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Net cash provided by operating activities decreased approximately $191,000 or
16% in 1998. The decrease was primarily driven by a decrease in net working
capital assets and liabilities (excluding cash).
Net cash provided by operating activities increased approximately $240,000 or
26% in 1997. The increase was primarily driven by an increase in net working
capital assets and a decrease in accounts payable.
Net cash provided by investing activities increased approximately $1,970,000 in
1998. The increase in cash provided by investing activities was primarily driven
by the proceeds from the sale of assets and net maturities of investment
securities over purchases partially offset by increased capital expenditures.
Net cash provided by investing activities deceased approximately $810,000 in
1997. The decrease was primarily a result of net purchases of investment
securities over maturities.
Net cash used in financing activities totaled $2,075,757, $729,159 and
$1,161,132 in 1998, 1997 and 1996, respectively. The approximate $1,347,000
increase in net cash used in financing activities in 1998 as compared to 1997 is
primarily a result of increased principal payments on mortgages payable and
increased funds used for the repurchase of limited partnership Units through the
Interest Repurchase Reserve and increased funds reserved for the repurchase of
limited partnership Units through the Tender Offer. Net cash used in financing
activities decreased approximately $430,000 in 1997 as compared to 1996. The
decrease was primarily driven by decreased cash distributions and decreased
funds used for the repurchase of limited partnership Units through the Interest
Repurchase Reserve.
During 1996, a 1.05% (annualized) cash distribution of $225,093 was made. The
annualized distribution rate is calculated as a percent of the original capital
contribution less a return of capital of $235.64 per limited partnership unit
made from the proceeds of the sale of Sabal Club Apartments in 1988. The limited
- 25 -
<PAGE>
partners received 99% and the General Partners received 1% of these
distributions. No distributions were made during the years ended December 31,
1998 and 1997 or the quarter ended December 31, 1996. Distributions will be
resumed once the Partnership has established adequate cash reserves and is
generating cash from distributions 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 December 31) were $783,538, $698,481 and
$346,479 at December 31, 1998, 1997 and 1996, respectively.
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.
The Partnership had no material commitments for renovations or capital
improvements as of December 31, 1998.
The table below presents that portion of the distributions that represent a
return of capital on a Generally Accepted Accounting Principle basis for the
years ended December 31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
Net Income Cash Return
(loss) Distributions of
Allocated Declared Capital
---------- ------------- -------
<S> <C> <C> <C>
Limited Partners:
1998 $ 97,313 $ -- $ --
1997 (48,560) -- --
1996 (45,719) 222,842 222,842
General Partner:
1998 $ 983 $ -- $ --
1997 (490) $ -- $ --
1996 (462) 2,251 2,251
</TABLE>
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. On January 10, 1997, the repurchase of partnership Units was
temporarily suspended in order to conserve cash. This step was taken until it
was clear that, in the General Partner's opinion, the Partnership had the
necessary cash reserves to meet future leasing and tenant finish costs and had
rebuilt cash reserves to meet the ongoing needs of the Partnership. Through
December 31, 1998, 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.
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 funds remaining in the Interest
Repurchase Reserve at the commencement of the Tender Offer (discussed below)
were returned to unrestricted cash for utilization in the Partnership's
operations.
On November 20, 1998, the Partnership and ORIG, LLC, an affiliate of the
Partnership, commenced a Tender Offer to purchase up to 1,200 of the
Partnership's limited partnership Units at a price of $205 per Unit. Although
the Partnership and ORIG, LLC believes 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 Unit as of the offering date. The amount of funds required by the
- 26 -
<PAGE>
Partnership to fund the Offer is estimated to be approximately $20,000 for its
proportionate share of the expenses associated with administering the Offer).
The Offer stated that the Partnership will purchase the first 600 Units tendered
and will fund its purchases and its portion of the expenses from cash reserves.
If more than 1,200 Units are tendered, the Partnership and ORIG, LLC may choose
to acquire the additional Units on the same terms. Otherwise, tendered Units
will be purchased on a pro rata basis up to 1,200. 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, does not intend
to participate in the Tender Offer. Under the terms of the Offer, the Offer was
to expire on February 19, 1999 unless extended.
As of February 19, 1999, 1,259 Units were tendered pursuant to the Offer. The
Partnership repurchased 600 Units at a cost of $123,000 and ORIG, LLC purchased
659 Units at a cost of $135,095.
The L/U II Joint Venture owns approximately 6 acres of land adjacent to the
Lakeshore Business Center development in Ft. Lauderdale, Florida. The
Partnership's proportionate interest at December 31, 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 and plans for the construction of Lakeshore
Business Center Phase III.
As of December 31, 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
original contract, the purchaser deposited into an escrow account $10,000. This
deposit will be applied to the purchase price at closing. The contract requires
that the purchaser 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. Subsequent to December 31, 1998,
the re-zoning has not yet been granted and per the contract, the purchaser has
elected to postpone the closing for a period of 30 days. At its option, the
purchaser may postpone the Closing Date four times for a period of 30 days each
by delivering written notice and paying to the L/U II Joint Venture $10,000 for
each 30-day postponement period. $5,000 of each payment will be applied toward
the purchase price. 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.
As of December 31, 1998 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 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
Partner, financing on favorable terms has been obtained. The Partnership and
NTS-Properties Plus, which currently have an 18% and 12% interest respectively,
in the L/U II Joint Venture are not in a position to contribute additional
capital required for the construction of Lakeshore Business Center Phase III.
The Partnership and NTS-Properties Plus have agreed that NTS-Properties V will
make a capital contribution to the L/U II Joint Venture with the knowledge that
their Joint Venture interest will, 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
- 27 -
<PAGE>
Louisville, Kentucky. The leasing agents are located in the same city
as commercial properties. All advertising for these properties is
coordinated by NTS Development Company's marketing staff located in
Louisville, Kentucky. In an effort to continue to improve occupancy at the
Partnership's residential properties, the Partnership has an on-site leasing
staff, employees of NTS Development Company, at each of the apartment
communities. The staff handles all on-site visits from potential tenants,
coordinates local advertising with NTS Development Company's marketing staff,
makes visits to local companies to promote fully furnished units and
negotiates lease renewals with current residents.
Leases at Commonwealth Business Center Phase I, Blankenbaker Business Center 1A,
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 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, 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
Partnership 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 has been tested and 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 upgraded 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 Partnership's share of the
costs involved will be approximately $70,000 over 1998 and 1999. Costs incurred
through December 31, 1998 are approximately $13,000. These costs include
primarily hardware and software.
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 1999.
- 28 -
<PAGE>
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, inability
of our tenants to pay rent when due, 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.
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 December 31, 1998, a hypothetical 100 basis point increase in
interest rates would result in an approximately $376,000 decrease in the fair
value of debt.
CAUTIONARY STATEMENTS
Some of the statements included in Item 7, Management's Discussion and
Analysis of Financial Condition and Results of Operations, may be considered
to be "forward-looking statements" since such statements relate to matters
which have not yet occurred. For example, phrases such as " the Partnership
anticipates ", "believes" or "expects" indicate that it is possible that the
event anticipated, believed or expected may not occur. Should such 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 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 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.
Subsequent to December 31, 1998, 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, July 2005. The Partnership's
proportionate share of the rental income from this property accounted for
approximately 7% of the Partnership's rent revenues during 1998. 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.
- 29 -
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To NTS-Properties IV,
We have audited the accompanying balance sheets of NTS-Properties IV, (a
Kentucky limited partnership), as of December 31, 1998 and 1997, and the
related statements of operations, partners' equity and cash flows for each of
the three years in the period ended December 31, 1998. These financial
statements and the schedules referred to below are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on
these financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of NTS-Properties IV as of
December 31, 1998 and 1997, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules included on pages 55
through 58 are presented for purposes of complying with the Securities and
Exchange Commission's rules and regulations and are not a required part of
the basic financial statements. These schedules have been subjected to the
auditing procedures applied in the audits of the basic financial statements
and, in our opinion, fairly state in all material respects the financial data
required to be set forth therein in relation to the basic financial
statements taken as a whole.
ARTHUR ANDERSEN LLP
Louisville, Kentucky
March 12, 1999
- 30 -
<PAGE>
NTS-PROPERTIES IV
BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Cash and equivalents $ 640,969 $ 276,145
Cash and equivalents - restricted 183,050 108,724
Investment securities 142,569 422,336
Accounts receivable, net of allowance
for doubtful accounts of $1,972
(1998) and $0 (1997) 183,170 243,134
Land, buildings and amenities, net 11,269,660 13,023,781
Asset held for sale and development 297,251 297,251
Other assets 339,040 440,937
----------- -----------
$13,055,709 $14,812,308
----------- -----------
----------- -----------
LIABILITIES AND PARTNERS' EQUITY
Mortgages payable $ 9,121,979 $10,706,802
Accounts payable 115,103 122,418
Security deposits 75,108 83,390
Other Liabilities 53,518 65,473
----------- -----------
9,365,708 10,978,083
Commitments and Contingencies
Partners' equity 3,690,001 3,834,225
----------- -----------
$13,055,709 $14,812,308
----------- -----------
----------- -----------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
- 31 -
<PAGE>
NTS-PROPERTIES IV
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ------------ ------------
<S> <C> <C> <C>
Revenues:
Rental income, net of provision for
doubtful accounts of $2,043 (1998) and
$0(1997 and 1996) $ 3,561,342 $ 3,616,883 $ 3,544,153
Gain on sale of asset 208,607 -- --
Interest and other income 57,752 91,714 33,401
----------- ------------ ------------
3,827,701 3,708,597 3,577,554
Expenses:
Operating expenses 785,718 813,091 662,463
Operating expenses - affiliated 466,497 398,950 371,856
Write-off of unamortized improvements 13,081 -- 6,871
Amortization of capitalized leasing
costs 14,998 20,951 20,908
Interest expense 803,140 855,488 940,941
Management fees 204,498 208,837 204,165
Real estate taxes 212,763 224,345 220,956
Professional and administrative
expenses 114,956 102,345 94,799
Professional and administrative
expenses - affiliated 154,605 150,715 171,778
Depreciation and amortization 805,087 905,921 916,102
----------- ------------ ------------
3,575,343 3,680,643 3,610,839
----------- ------------ ------------
Income (loss) before extraordinary item 252,358 27,954 (33,285)
Extraordinary item - early extinguishment of debt (154,062) (77,004) (12,896)
----------- ------------ ------------
Net income (loss) $ 98,296 $ (49,050) $ (46,181)
----------- ------------ ------------
----------- ------------ ------------
Net income (loss) allocated to the limited
partners:
Income (loss) before extraordinary item $ 249,834 $ 27,674 $ (32,952)
Extraordinary item (152,521) (76,234) (12,767)
----------- ------------ ------------
Net income (loss) $ 97,313 $ (48,560) $ (45,719)
----------- ------------ ------------
----------- ------------ ------------
Net income (loss) per limited partnership Unit:
Income (loss) before extraordinary item $ 9.64 $ 1.03 $ (1.18)
Extraordinary item (5.89) (2.85) (.45)
----------- ------------ ------------
Net income (loss) per limited partnership Unit $ 3.75 $ (1.82) $ (1.63)
----------- ------------ ------------
----------- ------------ ------------
Weighted average number of limited
partnership units 25,918 26,708 28,012
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
- 32 -
<PAGE>
NTS-PROPERTIES IV
STATEMENTS OF PARTNERS' EQUITY (1)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
Limited General
Partners Partners Total
------------ ------------ ------------
<S> <C> <C> <C>
Balances at December 31, 1995 $ 4,825,084 $ (212,135) $ 4,612,949
Net loss (45,719) (462) (46,181)
Distributions declared (222,842) (2,251) (225,093)
Repurchase of limited partnership
Units (424,500) -- (424,500)
------------ ------------ ------------
Balances at December 31, 1996 4,132,023 (214,848) 3,917,175
Net loss (48,560) (490) (49,050)
Repurchase of limited partnership
Units (33,900) -- (33,900)
------------ ------------ ------------
Balances at December 31, 1997 4,049,563 (215,338) 3,834,225
Net loss 97,313 983 98,296
Repurchase of limited partnership
Units (242,520) -- (242,520)
------------ ------------ ------------
Balances at December 31, 1998 $ 3,904,356 $ (214,355) $ 3,690,001
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
(1) For the periods presented, there are no elements of other
comprehensive income as defined by the Financial Accounting Standards
Board, Statement of Financial Accounting Standards Statement No. 130,
REPORTING COMPREHENSIVE INCOME.
- 33 -
<PAGE>
<TABLE>
<CAPTION>
NTS-PROPERTIES IV
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996
----------- ------------ -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 98,296 $ (49,050) $ (46,181)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Gain on sale of assets (208,607) -- --
Extraordinary item - early extinguishment of
debt 154,062 77,004 12,896
Accrued interest on investment securities (2,569) (3,877) 3,642
Provision for doubtful accounts 2,043 -- --
Write-off of unamortized improvements 13,081 -- 6,871
Amortization of capitalized leasing costs 14,998 20,951 20,908
Depreciation and amortization 805,087 905,921 916,102
Changes in assets and liabilities:
Cash and equivalents - restricted 47,924 4,719 (8,834)
Accounts receivable 57,921 103,999 84,639
Other assets 44,359 100,947 13,366
Accounts payable - operations (20,479) (22,608) (76,265)
Security deposits (8,282) (521) (84)
Other liabilities (11,951) 39,060 9,109
----------- ------------ -------------
Net cash provided by operating activities 985,883 1,176,545 936,169
----------- ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of assets before payment
of debt 1,498,242 -- --
Additions to land, buildings and amenities (334,563) (99,261) (108,563)
Decrease (increase) in cash and equivalents -
restricted -- -- 2,450
Purchase of investment securities (1,125,550) (799,777) --
Maturity of investment securities 1,407,885 381,318 400,945
Other 8,684 -- --
----------- ------------ -------------
Net cash provided by (used in) investing
activities 1,454,698 (517,720) 294,832
----------- ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in mortgages payable -- 4,414,080 3,105,900
Principal payments on mortgages and notes
payable (1,584,823) (4,943,902) (3,461,916)
Early principal payment penalty (136,449) -- --
Cash distributions -- -- (315,228)
Decrease in loan costs 10,285 -- --
Additions to loan costs -- (120,187) (64,888)
Repurchase of limited partnership Units (242,520) (33,900) (424,500)
Increase in cash and equivalents - restricted (122,250) (45,250) (500)
----------- ------------ -------------
Net cash used in financing activities (2,075,757) (729,159) (1,161,132)
----------- ------------ -------------
Net increase (decrease) in cash and
equivalents 364,824 (70,334) 69,869
CASH AND EQUIVALENTS, beginning of year 276,145 346,479 276,610
----------- ------------ -------------
CASH AND EQUIVALENTS, end of year $ 640,969 $ 276,145 $ 346,479
----------- ------------ -------------
----------- ------------ -------------
Interest paid on a cash basis $ 793,577 $ 876,871 $ 950,760
----------- ------------ -------------
----------- ------------ -------------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
- 34 -
<PAGE>
NTS-PROPERTIES IV
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1. SIGNIFICANT ACCOUNTING POLICIES
A) ORGANIZATION
NTS-Properties IV (the "Partnership") is a limited partnership
organized under the laws of the Commonwealth of Kentucky on May 13,
1983. The General Partner is NTS-Properties Associates IV, a Kentucky
limited partnership. The Partnership is in the business of developing,
constructing, owning and operating residential apartments and
commercial real estate.
B) PROPERTIES
The Partnership owns and operates the following properties:
- Commonwealth Business Center Phase I, a business center with
approximately 57,000 net rentable ground floor square feet and
approximately 24,000 net rentable mezzanine square feet in
Louisville, Kentucky.
- Plainview Point Office Center Phases I and II, an office center
with approximately 56,000 net rentable square feet in Louisville,
Kentucky.
- The Willows of Plainview Phase I, a 118-unit luxury apartment
complex in Louisville, Kentucky.
- A 10% joint venture interest in The Willows of Plainview Phase
II, a 144-unit luxury apartment complex in Louisville, Kentucky.
- A 4% joint venture interest in Golf Brook Apartments, a 195-unit
luxury apartment complex in Orlando, Florida.
- A 5% joint venture interest in Plainview Point III Office Center,
an office center with approximately 62,000 net rentable square
feet in Louisville, Kentucky.
- A 30% joint venture interest in Blankenbaker Business Center 1A,
a business center with approximately 50,000 net rentable ground
floor square feet and approximately 50,000 net rentable mezzanine
square feet in Louisville, Kentucky.
- An 18% joint venture interest in the Lakeshore/University II
Joint Venture. A description of the properties owned by the Joint
Venture appears below:
- LAKESHORE BUSINESS CENTER PHASE I - a business center with
approximately 103,000 rentable square feet located in Fort
Lauderdale, Florida.
- LAKESHORE BUSINESS CENTER PHASE II - a business center with
approximately 97,000 net rentable square feet located in
Fort Lauderdale, Florida.
- OUTPARCEL BUILDING SITES - approximately 6.2 acres of
undeveloped land adjacent to the Lakeshore Business Center
development which is zoned for commercial development.
- 35 -
<PAGE>
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
C) ALLOCATION OF NET INCOME (LOSS) AND CASH DISTRIBUTIONS
Net Cash Receipts made available for distribution, as defined in the
partnership agreement, will be distributed 1) 99% to the limited
partners and 1% to the General Partner until the limited partners have
received their 8% Preference Distribution as defined in the
partnership agreement; 2) to the General Partner in an amount equal to
approximately 10% of the limited partners' 8% Preference Distribution;
and 3) the remainder, 90% to the limited partners and 10% to the
General Partner. Starting December 31, 1996, the Partnership has
indefinitely interrupted distributions.
Net Cash Proceeds, as defined in the partnership agreement, which are
available for distribution will be distributed 1) 99% to the limited
partners and 1% to the General Partner until the limited partners have
received distributions from all sources equal to their Original
Capital plus the amount of any deficiency in their 8% Cumulative
Distribution as defined in the partnership agreement; and 2) the
remainder, 75% to the limited partners and 25% to the General Partner.
Net income (loss) is to be allocated 99% to the limited partners and
1% to the General Partner.
D) TAX STATUS
The Partnership has received a ruling from the Internal Revenue
Service stating that the Partnership is classified as a limited
partnership for federal income tax purposes. As such, the Partnership
makes no provision for income taxes. The taxable income or loss is
passed through to the holders of interests for inclusion on their
individual income tax returns.
A reconciliation of net loss for financial statement purposes versus
that for income tax reporting is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net income (loss) $ 98,296 $ (49,050) $ (46,181)
Items handled differently
for tax purposes:
Gain on sale of assets (329,513) -- --
Depreciation and
amortization (46,238) (1,014) (18,531)
Capitalized leasing
costs 324 237 111
Rental income 28,217 138,433 75,494
Write-off of unamortized
tenant improvements (25,037) (28,620) (15,890)
Allowance for doubtful
accounts 1,865 (7,372) (8,303)
---------- ---------- ----------
Taxable income (loss) $(272,086) $ 52,614 $ (13,300)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
E) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
- 36 -
<PAGE>
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
F) JOINT VENTURE ACCOUNTING
The Partnership has adopted the proportionate consolidation method of
accounting for joint venture properties. The Partnership's
proportionate interest in the joint venture's assets, liabilities,
revenues, expenses and cash flows are combined on a line-by-line basis
with the Partnership's own assets, liabilities, revenues and expenses
and cash flows. All intercompany accounts and transactions have been
eliminated in consolidation.
Proportionate consolidation is utilized by the Partnership due to the
fact that the ownership of joint venture properties, in substance, is
not subject to joint control. The managing General Partners of the
sole partner of the NTS sponsored partnerships which have formed joint
ventures are substantially the same. As such, decisions regarding
financing, development, sale or operations do not require the approval
of different partners. Additionally, the joint venture properties are
in the same business/industry as their respective joint venture
partners and their asset, liability, revenue and expense accounts
correspond with the accounts of such partners. It is the belief of the
General Partner of the Partnership that the financial statement
disclosures resulting from proportionate consolidation provides the
most meaningful presentation of assets, liabilities, revenues,
expenses and cash flows for the years presented given the commonality
of the Partnership's operations.
G) 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 through the Interest
Repurchase Reserve (1997 only) and 4) funds which the Partnership has
reserved for the repurchase of limited partnership Units under the
Tender Offer.
H) INVESTMENT SECURITIES
Investment securities represent investments in Certificates of Deposit
or securities issued by the U.S. Government with initial maturities of
greater than three months. The investments are carried at cost which
approximates market value. The Partnership intends to hold the
securities until maturity. During 1998, 1997 and 1996 the Partnership
sold no investment securities.
The following provides details regarding the investments held at
December 31, 1998:
<TABLE>
<CAPTION>
Amortized Maturity Value at
Type Cost Date Maturity
---- --------- -------- ----------
<S> <C> <C> <C>
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
--------- ----------
--------- ----------
</TABLE>
- 37 -
<PAGE>
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
H) INVESTMENT SECURITIES - CONTINUED
The following provides details regarding the investments held at
December 31, 1997:
<TABLE>
<CAPTION>
Amortized Maturity Value at
Type Cost Date Maturity
---- ----------- -------- ---------
<S> <C> <C> <C>
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
-------- --------
-------- --------
</TABLE>
I) BASIS OF PROPERTY AND DEPRECIATION
Land, buildings and amenities are stated at cost to the Partnership.
Costs directly associated with the acquisition, development and
construction of a project are capitalized. Depreciation is computed
using the straight-line method over the estimated useful lives of the
assets which are 5-30 years for land improvements, 5-30 years for
building and improvements and 5-30 years for amenities.
Statement of Financial Accounting Standards (SFAS) No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of, specifies circumstances in which certain long-lived
assets must be reviewed for impairment. If such review indicates that
the carrying amount of an asset exceeds the sum of its expected future
cash flows, the asset's carrying value must be written down to fair
market value. Application of this standard during the years ended
December 31, 1998, 1997 and 1996 did not result in an impairment loss.
J) RENTAL INCOME AND CAPITALIZED LEASING COSTS
Certain of the Partnership's lease agreements for the commercial
properties are structured to include scheduled and specified rent
increases over the lease term. For financial reporting purposes, the
income from these leases is being recognized on a straight-line basis
over the lease term. Accrued income connected with these leases is
included in accounts receivable and totaled $124,909 and $164,608 at
December 31, 1998 and 1997, respectively.
All commissions paid to commercial leasing agents and incentives paid
to tenants are deferred and amortized on a straight-line basis over
the applicable lease term. In addition, certain other costs associated
with the initial leasing of the properties are capitalized and
amortized over a five year period.
K) ADVERTISING
The Partnership expenses advertising-type costs as incurred.
Advertising expense was immaterial to the Partnership during the years
ended December 31, 1998, 1997 and 1996.
L) STATEMENTS OF CASH FLOWS
For purposes of reporting cash flows, cash and equivalents include
cash on hand and short-term, highly liquid investments with initial
maturities of three months or less.
2. CONCENTRATION OF CREDIT RISK
NTS-Properties IV owns and operates commercial properties in Louisville,
Kentucky, Orlando, Florida and Ft. Lauderdale, Florida. Substantially all
of the Partnership's tenants are local businesses or are businesses which
have operations in the location in which they lease space. In Louisville,
- 38 -
<PAGE>
2. CONCENTRATION OF CREDIT RISK - CONTINUED
Kentucky, one tenant occupies 100% of the Blankenbaker Business Center 1A
property. The Partnership also owns and operates, either wholly or through
a joint venture, residential properties in Louisville, Kentucky and
Orlando, Florida. The apartment unit is generally the principal residence
of the tenant.
3. INTEREST REPURCHASE RESERVE
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. On January 10, 1997, the repurchase of
partnership Units was temporarily suspended in order to conserve cash. This
step was taken until it was clear that, in the General Partner's opinion,
the Partnership had the necessary cash reserves to meet future leasing and
tenant finish costs and had rebuilt cash reserves to meet the ongoing needs
of the Partnership. Through December 31, 1998, 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. 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 funds remaining in the Interest Repurchase Reserve at
the commencement of the Tender Offer were returned to unrestricted cash for
utilization in the Partnership's operations.
4. TENDER OFFER
On November 20, 1998, the Partnership and ORIG, LLC, an affiliate of the
Partnership, commenced a Tender Offer to purchase up to 1,200 of the
Partnership's limited partnership Units at a price of $205 per Unit.
Although the Partnership and ORIG, LLC believes 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 Unit as of the offering date. The
amount of funds required by the Partnership to fund the Offer is estimated
to be approximately $143,000 ($123,000 to purchase 600 Interests plus
approximately $20,000 for its proportionate share of the expenses
associated with administering the Offer). The Offer stated that the
Partnership will purchase the first 600 Units tendered and will fund its
purchases and its portion of the expenses from cash reserves. If more than
1,200 Units are tendered, the Partnership and ORIG, LLC may choose to
acquire the additional Units on the same terms. Otherwise, tendered Units
will be purchased on a pro rata basis up to 1,200. 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, does
not intend to participate in the Tender Offer. The Tender Offer expired
February 19, 1999.
As of February 19, 1999, 1,259 Units were tendered pursuant to the Offer.
The Partnership repurchased 600 Units at a cost of $123,000 and ORIG, LLC
purchased 659 Units at a cost of $135,095.
5. INVESTMENT IN JOINT VENTURES
A) NTS/WILLOWS PHASE II JOINT VENTURE
In 1984, the Partnership entered into a joint venture agreement with
NTS-Properties V, an affiliate of the General Partner of the
Partnership, to develop and construct a 144-unit luxury apartment
complex on an 8.29-acre site in Louisville, Kentucky known as The
Willows of Plainview Phase II. The Partnership contributed land valued
at $800,000 and NTS-Properties V contributed approximately $7,455,000,
the construction and carrying costs of the apartment complex. The
- 39 -
<PAGE>
5. INVESTMENT IN JOINT VENTURES - CONTINUED
A) NTS/WILLOWS PHASE II JOINT VENTURE - CONTINUED
project was completed in August 1985. Net income or net loss is
allocated each calendar quarter based on the respective partnership's
contribution. The Partnership's ownership share was 10% at December
31, 1998. The Partnership's share of the joint venture's revenues was
$130,126 (1998), $137,881 (1997) and $123,547 (1996). The
Partnership's share of the joint venture's expenses was $129,696
(1998), $135,431 (1997) and $116,924 (1996).
B) NTS FT. LAUDERDALE OFFICE JOINT VENTURE
In 1985, the Partnership entered into a joint venture agreement with
NTS-Properties V to develop an approximately 103,000 square-foot
commercial business center known as Lakeshore Business Center Phase I,
located in Fort Lauderdale, Florida. The Partnership contributed land
valued at $1,752,982 and NTS-Properties V contributed approximately
$9,170,000, the cost of constructing and leasing the building. The net
income or net loss was allocated each calendar quarter based on the
respective partnership's contribution.
On January 23, 1995, the partners of the NTS Ft. Lauderdale Office
Joint Venture contributed Lakeshore Business Center Phase I to the
newly formed Lakeshore/University II (L/U II) Joint Venture. Refer to
Note 5F for a further discussion of the new joint venture.
C) NTS SABAL GOLF VILLAS JOINT VENTURE
In 1985, the Partnership entered into a joint venture agreement with
NTS-Properties VI, an affiliate of the General Partner of the
Partnership, to develop and construct a 158-unit luxury apartment
complex on a 13.15-acre site in Orlando, Florida to be known as the
Golf Brook Apartments Phase I. The Partnership contributed land valued
at $1,900,000 with an outstanding note payable to a bank of $1,200,000
which was secured by the land. On January 1, 1987,the joint venture
agreement was amended to include Golf Brook Apartments Phase II, a
37-unit luxury apartment complex located on a 3.069-acre site adjacent
to Golf Brook Apartments Phase I. NTS-Properties VI contributed
approximately $15,800,000, the cost of constructing and leasing the
complexes. NTS-Properties VI also contributed funds to retire the
$1,200,000 note payable to the bank.
Net income or net loss is allocated based on the respective
contribution of each partnership as of the end of each calendar
quarter. The Partnership's ownership share was 4% at December 31,
1998. The Partnership's share of the joint venture's revenues
was $120,971 (1998), $113,579 (1997) and $115,827 (1996). The
Partnership's share of the joint ventures expenses was $78,511 (1998),
$73,649 (1997) and $73,498 (1996).
D) PLAINVIEW POINT III JOINT VENTURE
In 1987, the Partnership entered into a joint venture agreement with
NTS-Properties VI to develop and construct an approximately 62,000
square foot office building located in Louisville, Kentucky to be
known as Plainview Point Phase III Office Center. The Partnership
contributed land valued at $790,000 with an outstanding note payable
to a bank of $550,000 which was secured by the land. NTS-Properties VI
contributed approximately $4,100,000, the cost to construct and lease
the building. NTS-Properties VI also contributed funds to retire the
$550,000 note payable to the bank.
- 40 -
<PAGE>
5. INVESTMENT IN JOINT VENTURES - CONTINUED
D) PLAINVIEW POINT III JOINT VENTURE - CONTINUED
Net income or net loss is allocated based on the respective
partnership's contribution as of the end of each calendar quarter. The
Partnership's ownership share was 5% at December 31, 1998. The
Partnership's share of the joint venture's revenues was $40,779
(1998), $38,512 (1997) and $38,079 (1996). The Partnership's share of
the joint venture's expenses was $44,273 (1998), $42,023 (1997) and
$39,747 (1996).
E) BLANKENBAKER BUSINESS CENTER JOINT VENTURE
On August 16, 1994, the Blankenbaker Business Center Joint Venture
agreement was amended to admit the Partnership to the Joint Venture.
The Joint Venture was originally formed on December 28, 1990 between
NTS-Properties Plus Ltd. and NTS-Properties VII, Ltd., affiliates of
the General Partner of the Partnership, to own and operate
Blankenbaker Business Center 1A and to acquire an approximately 2.49
acre parking lot that was being leased by the business center from an
affiliate of the General Partner. The use of the parking lot is a
provision of the tenants's lease agreement with the business center.
In accordance with the Joint Venture Agreement Amendment, the
Partnership contributed $1,100,000 and NTS-Properties VII, Ltd.
contributed $500,000. The General Partner of the Partnership
determined the utilization of a portion of the Partnership's cash
reserves to participate in the Joint Venture would be consistent with
the investment objectives set forth in the Partnership's partnership
agreement, and should enhance the future returns of the Partnership.
The need for additional capital by the Joint Venture was a result of
the lease renewal and expansion which was signed April 28, 1994
between the Joint Venture and Prudential Service Bureau, Inc.
("Prudential"). The lease expanded Prudential's leased space by
approximately 15,000 square feet and extended its current lease term
through July 2005. Approximately 12,000 square feet of the expansion
was into new space which had to be constructed on the second level of
the existing business center. With this expansion, Prudential occupied
100% of the business center (approximately 101,000 square feet). The
tenant finish and leasing costs connected with the lease renewal and
expansion were approximately $1,400,000.
In order to calculate the revised joint venture percentage interests,
the assets of the Joint Venture were revalued in connection with the
admission of the Partnership as a joint venture partner and the
additional capital contributions. The value of the Joint Venture's
assets immediately prior to the additional capital contributions was
$6,764,322 and its outstanding debt was $4,650,042, with net equity
being $2,114,280. The difference between the value of the Joint
Venture's assets and the value at which they were carried on the books
of the Joint Venture has been allocated to NTS-Properties VII, Ltd.
and NTS-Properties Plus Ltd. in determining each Joint Venture
partner's percentage interest.
As a result of its capital contribution, the Partnership obtained a
30% interest in the Joint Venture. NTS-Properties Plus Ltd.'s
interest in the Joint Venture decreased from 69% to 39% as a result
of the capital contributions made by NTS-Properties VII, Ltd. and
the Partnership. NTS-Properties VII, Ltd.'s interest in the Joint
Venture remained at 31%.
Net income or net loss is allocated based on the respective
contribution of each partner as of the end of each calendar quarter.
The Partnership's ownership share was 30% at December 31, 1998. The
Partnership's share of the joint venture's revenues was $276,575
(1998), $277,712 (1997) and $277,577 (1996). The Partnership's share
of the joint venture's expenses was $310,531 (1998), $329,529 (1997)
and $324,015 (1996).
- 41 -
<PAGE>
5. INVESTMENT IN JOINT VENTURES - CONTINUED
F) LAKESHORE/UNIVERSITY II JOINT VENTURE
On January 23, 1995, a joint venture known as the Lakeshore/University
II Joint Venture (L/U II Joint Venture) was formed among the
Partnership and NTS-Properties V, NTS-Properties Plus Ltd. and
NTS/Fort Lauderdale, Ltd., affiliates of the General Partner of the
Partnership, for purposes of owning Lakeshore Business Center Phases I
and II, University Business Center Phase II (sold October 1998 - see
Note 11) and certain undeveloped tracts of land adjacent to the
Lakeshore Business Center development. The table below identifies
which properties were contributed to the L/U II Joint Venture and the
respective owners of such properties prior to the formation of the
joint venture.
<TABLE>
<CAPTION>
Property (Net Asset Contributed) Contributing Owner
------------------------------- -------------------
<S> <C>
Lakeshore Business Center NTS-Properties IV and NTS-
Phase I ($6,249,667) Properties V
Lakeshore Business Center NTS-Properties Plus Ltd.
Phase II (-$1,023,535)
Undeveloped land adjacent to the NTS-Properties Plus Ltd.
Lakeshore Business Center
development (3.8 acres)(-$670,709)
Undeveloped land adjacent to the NTS/Fort Lauderdale, Ltd.
Lakeshore Business Center
development (2.4 acres)($27,104)
University Business Center NTS-Properties V and NTS-
Phase II ($953,236) Properties Plus Ltd.
</TABLE>
Each of the properties were contributed to the L/U II Joint Venture
subject to existing indebtedness, except for Lakeshore BusinessCenter
Phase I which was contributed to the joint venture free and clear of
any mortgage liens, and all such indebtedness was assumed by the L/U
II joint venture. Mortgages were recorded on University Business
Center Phase II in the amount of $3,000,000, in favor of the banks
which held the indebtedness on University Business Center Phase II,
Lakeshore Business Center Phase II and the undeveloped tracts of land
prior to the formation of the joint venture and on Lakeshore Business
Center Phase I in the amount of $5,500,000 subsequent to the formation
of the L/U II Joint Venture. In addition to the above, the Partnership
also contributed $750,000 to the L/U II Joint Venture. The
Partnership's ownership share was 18% at December 31, 1998. Net income
or net loss is allocated based on the respective contribution of each
partner as of the end of each calendar quarter. The Partnership's
share of the joint venture's revenues was $908,593 (1998), $654,897
(1997) and $662,025 (1996). The Partnership's share of the joint
venture's expenses was $830,675 (1998), $790,607 (1997) and $838,382
(1996).
6. LAND, BUILDINGS AND AMENITIES
The following schedule provides an analysis of the Partnership's investment
in property held for lease as of December 31:
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Land and improvements $ 5,189,463 $ 5,551,534
Buildings, improvements and
amenities 17,426,923 18,806,479
----------- -----------
22,616,386 24,358,013
Less accumulated depreciation 11,346,726 11,334,232
----------- -----------
$11,269,660 $13,023,781
----------- -----------
----------- -----------
</TABLE>
- 42 -
<PAGE>
7. ASSET HELD FOR SALE
Asset held for sale of $297,251 at December 31, 1998 represents the
Partnership's proportionate share of approximately 6.2 acres of land owned
by the L/U II Joint Venture which is adjacent to the Lakeshore Business
Center development in Ft. Lauderdale, Florida. In management's opinion, the
net book value approximates the fair market value less cost to sell. See
below for information regarding a contract for the sale of a portion of
this land.
As of December 31, 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 original contract, the purchaser deposited into an escrow
account $10,000. This deposit will be applied to the purchase price at
closing. The contract requires that the purchaser 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. Subsequent to December 31, 1998, the re-zoning had not
yet been granted and per the contract, the purchaser has elected to
postpone the closing for a period of 30 days. At its option, the purchaser
may postpone the Closing Date four times for a period of 30 days each by
delivering written notice and paying to the L/U II Joint Venture $10,000
for each 30-day postponement period. $5,000 of each payment will be applied
toward the purchase price. The Partnership has an 18% interest in the Joint
Venture. The Partnership has not yet determined what the use of net
proceeds, if any, would be from the sale of the land.
As of December 31, 1998 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 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 Partner, financing on favorable terms
has been obtained. The Partnership and NTS-Properties Plus, which currently
have an 18% and 12% interest respectively, in the L/U II Joint Venture are
not in a position to contribute additional capital required for the
construction of Lakeshore Business Center Phase III. The Partnership and
NTS-Properties Plus have agreed that NTS-Properties V will make a capital
contribution to the L/U II Joint Venture with the knowledge that their
Joint Venture interest will, as a result, decrease.
8. MORTGAGES PAYABLE
Mortgages payable as of December 31 consist of the following:
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Mortgage payable with an insurance company,
bearing interest at a fixed rate
of 8.8%, due October 1, 2004,
secured by land and building $1,988,590 $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 1,927,484 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, buildings and amenities 1,834,872 1,902,000
</TABLE>
(Continued on page 44)
- 43 -
<PAGE>
<TABLE>
<CAPTION>
8. MORTGAGES PAYABLE - CONTINUED
1998 1997
---------- -----------
<S> <C> <C>
Mortgage payable with an insurance company,
bearing interest at a fixed rate
of 8.5%, due November 15, 2005,
secured by land and building $1,058,249 $ 1,163,828
Mortgage payable with an insurance company,
bearing interest at a fixed rate of 8.125%
due August 1, 2008, secured by land and
building 939,811 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 873,517 930,213
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 312,698 321,854
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 186,758 192,225
Mortgage payable with an insurance company
bearing interest at a fixed rate of 8.125%,
due August 1, 2008, secured by land and
building -- 959,282
---------- -----------
$9,121,979 $10,706,802
---------- -----------
---------- -----------
</TABLE>
The mortgages are payable in aggregate monthly installments of $125,190
which includes principal, interest, insurance escrow and property tax
escrow.
Scheduled maturities of debt are as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31, Amount
-------------------------------- ------------
<S> <C>
1999 $ 701,182
2000 760,897
2001 825,733
2002 896,132
2003 972,575
Thereafter 4,965,460
-----------
$ 9,121,979
-----------
-----------
</TABLE>
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.
The 1998 EXTRAORDINARY ITEM - EARLY EXTINGUISHMENT OF DEBT relates to the
sale of University Business Phase II (see discussion below). A portion of
the proceeds from the sale was used to retire the $5,128,872 mortgage
payable prior to its maturity (August 2008). As a result of the prepayment,
a $763,995 penalty, of which the Partnership's proportionate share was
$136,449, was required by the insurance company who held the mortgage.
Unamortized loan costs connected with this loan were also expnesed due to
the fact that the mortgage was paid prior to its maturity.
- 44 -
<PAGE>
8. MORTGAGES PAYABLE - CONTINUED
The 1997 EXTRAORDINARY ITEM - EARLY EXTINGUISHMENT OF DEBT relates to
unamortized loan costs associated with The Willows of Plainview Phase I and
II note payable. The unamortized loan costs were expensed due to the fact
that the mortgages were retired in 1997 prior to their maturity (December
5, 2003).
The 1996 EXTRAORDINARY ITEM - EARLY EXTINGUISHMENT OF DEBT relates to
unamortized loan costs associated with L/U II Joint Venture's mortgages
payable. The unamortized loan costs were expensed due to the fact that the
notes were retired in 1996 prior to their maturity (January 31, 1998).
9. RENTAL INCOME UNDER OPERATING LEASES
The following is a schedule of minimum future rental income on
noncancellable operating leases as of December 31, 1998:
<TABLE>
<CAPTION>
For the Years Ended December 31, Amount
-------------------------------- -----------
<S> <C>
1999 $ 1,354,234
2000 1,148,260
2001 1,005,631
2002 892,920
2003 813,087
Thereafter 862,699
-----------
$ 6,076,831
-----------
-----------
</TABLE>
10. RELATED PARTY TRANSACTIONS
Property management fees of $204,498 (1998), $208,837 (1997) and $204,165
(1996) were paid to NTS Development Company, an affiliate of the General
Partner of the Partnership. The fee is equal to 5% of gross revenues from
residential properties and 6% of gross revenues from commercial properties
pursuant to an agreement with the Partnership. As permitted by an
agreement, NTS Development Company will receive a repair and maintenance
fee equal to 5.9% of costs incurred which relate to capital improvements.
The Partnership has incurred $17,697 and $14,351 as a repair and maintenance
fee during the years ended December 31, 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 years ended
December 31, 1998, 1997 and 1996. These charges include items which have
been expensed as operating expenses affiliated or professional and
administrative expenses - affiliated and items which have been capitalized
as other assets or as land, buildings and amenities.
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Leasing $127,001 $121,834 $108,913
Administrative 195,908 196,182 214,530
Property manager 292,427 261,511 241,289
Other 30,301 5,015 8,674
--------- --------- ---------
$645,637 $584,542 $573,406
--------- --------- ---------
--------- --------- ---------
</TABLE>
- 45 -
<PAGE>
11. SALE OF ASSET
On October 6, 1998 pursuant to a contract executed on September 8, 1998,
the Lakeshore /University II Joint Venture ("L/U II") sold University
Business Center Phase II Office building to Silver City Properties, Ltd.
("the Purchaser") for $8,975,000. University Business Center Phase II was
owned by the L/U II Joint Venture of which the Partnership owns an 18%
interest. Portions of the proceeds from the sale were immediately used to
pay the remainder of the outstanding debt recorded on the joint venture's
books of approximately $5,933,382 on University Business Center Phase II
(including interest and prepayment penalty). NTS-Properties IV reflects a
gain of approximately $208,000 associated with this sale in the fourth
quarter of 1998. Net cash proceeds received by the Partnership from the L/U
II Joint Venture as a result of a cash distribution of the proceeds from
the sale were approximately $442,000.
12. SEGMENT REPORTING
The Partnership adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, during the fourth quarter of 1998. SFAS
No. 131 established standards for reporting information about operating
segments in annual financial statements and requires selected information
about operating segments in interim financial reports issued to limited
partners. Operating segments are defined as components of an enterprise
about which separate financial information is available that is evaluated
regularly by the chief operating decision maker, or decision making group,
in deciding how to allocate resources and in assessing performance. The
standard also allows entities to aggregate operating segments into a single
segment if the segments are similar in each of the six criteria set forth
in SFAS No. 131. The Partnership's chief operating decision-maker is the
General Partner.
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 an apartment
complex 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, and University Business Center Phase II through
October 6, 1998.
- 46 -
<PAGE>
12. SEGMENT REPORTING - CONTINUED
The financial information of the operating segments have 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.
<TABLE>
<CAPTION>
1998
----
Residential Commercial Total
----------- ---------- -----
<S> <C> <C> <C>
Rental income $ 1,391,996 $ 2,169,346 $ 3,561,342
Other income 7,301 10,907 18,208
Gain of sale of assets -- 208,608 208,608
----------- ----------- -----------
Total net revenues $ 1,399,297 $ 2,388,861 $ 3,788,158
----------- ----------- -----------
----------- ----------- -----------
Operating expenses $ 540,065 $ 712,150 $ 1,252,215
Write-off of unamortized
improvements 11,213 1,868 13,081
Amortization of capitalized
leasing costs 0 14,998 14,998
Interest expense 35,493 302,724 338,217
Management fees 70,246 134,252 204,498
Real estate taxes 67,275 145,221 212,496
Professional and
administrative 8,730 68,179 76,909
Depreciation expense 227,003 564,009 791,012
----------- ----------- -----------
Net income (loss)before
extraordinary item $ 439,272 $ 445,460 $ 884,732
Extraordinary item -early
extinguishment of debt -- (154,062) (154,062)
----------- ----------- -----------
Net income (loss) $ 439,272 $ 291,398 $ 730,670
----------- ----------- -----------
----------- ----------- -----------
Land, buildings and
amenities, net $ 4,014,293 $ 7,242,171 $11,256,464
----------- ----------- -----------
----------- ----------- -----------
Expenditures for land,
buildings and amenities $ 61,872 $ 259,495 $ 321,367
----------- ----------- -----------
----------- ----------- -----------
Segment liabilities $ 555,247 $ 3,084,149 $ 3,639,396
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
- 47 -
<PAGE>
<TABLE>
<CAPTION>
12. SEGMENT REPORTING - CONTINUED
1997
----
Residential Commercial Total
----------- ---------- -----
<S> <C> <C> <C>
Rental income $ 1,423,067 $ 2,193,816 $ 3,616,883
Other income 59,542 7,142 66,684
----------- ----------- -----------
Total net revenues $ 1,482,609 $ 2,200,958 $ 3,683,567
----------- ----------- -----------
----------- ----------- -----------
Operating expenses $ 525,978 $ 686,063 $ 1,212,041
Amortization of capitalized
leasing costs -- 20,951 20,951
Interest expense 36,672 342,662 379,334
Management fees 70,486 138,351 208,837
Real estate taxes 66,752 157,593 224,345
Professional and
administrative 12,610 51,156 63,766
Depreciation expense 224,440 657,124 881,564
----------- ----------- -----------
Net income (loss) before
extraordinary item $ 545,671 $ 147,058 $ 692,729
Extraordinary item - early
extinguishment of debt (5,291) -- (5,291)
----------- ----------- -----------
Net income (loss) $ 540,380 $ 147,058 $ 687,438
----------- ----------- -----------
----------- ----------- -----------
Land, buildings and
amenities, net $ 4,084,220 $ 8,939,561 $13,023,781
----------- ----------- -----------
----------- ----------- -----------
Expenditures for land,
buildings and amenities $ 8,750 $ 90,511 $ 99,261
----------- ----------- -----------
----------- ----------- -----------
Segment liabilities $ 579,395 $ 4,286,836 $ 4,866,231
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
- 48 -
<PAGE>
<TABLE>
<CAPTION>
12. SEGMENT REPORTING - CONTINUED
1996
----
Residential Commercial Total
----------- ---------- -----
<S> <C> <C> <C>
Rental income $ 1,344,990 $ 2,199,163 $ 3,544,153
Other income 3,151 7,538 10,689
----------- ----------- -----------
Total net revenues $ 1,348,141 $ 2,206,701 $ 3,554,842
----------- ----------- -----------
----------- ----------- -----------
Operating expenses $ 466,061 $ 568,258 $ 1,034,319
Write-off of unamortized
improvements -- 6,871 6,871
Amortization of capitalized
leasing costs -- 20,908 20,908
Interest expense 37,672 400,979 438,651
Management fees 67,239 136,926 204,165
Real estate taxes 67,110 153,846 220,956
Professional and administrative 5,335 51,645 56,980
Depreciation expense 221,029 670,710 891,739
----------- ----------- -----------
Net income (loss)before
extraordinary item $ 483,695 $ 196,558 $ 680,253
Extraordinary item - early
extinguishment of debt -- (12,896) (12,896)
----------- ----------- -----------
Net income (loss) $ 483,695 $ 183,662 $ 667,357
----------- ----------- -----------
----------- ----------- -----------
Land, buildings and
amenities, net $ 4,297,939 $ 9,503,312 $13,801,251
----------- ----------- -----------
----------- ----------- -----------
Expenditures for land,
buildings and amenities $ 42,408 $ 66,155 $ 108,563
----------- ----------- -----------
----------- ----------- -----------
Segment liabilities $ 589,011 $ 4,507,499 $ 5,096,510
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
- 49 -
<PAGE>
A reconciliation of the totals reported for the operating segments to the
applicable line items in the consolidated financial statements is necessary
given amounts recorded at the Partnership level and not allocated to the
operating properties for internal reporting purposes:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
NET REVENUES
Total revenues for reportable segments $ 3,788,158 $ 3,683,567 $ 3,554,842
Other income for partnership 39,543 25,030 22,712
----------- ----------- -----------
Total consolidated net revenues $ 3,827,701 $ 3,708,597 $ 3,577,554
----------- ----------- -----------
----------- ----------- -----------
INTEREST EXPENSE
Interest expense for reportable segments $ 338,217 $ 379,334 $ 438,651
Interest expense for partnership 464,923 476,154 502,290
----------- ----------- -----------
Total interest expense $ 803,140 $ 855,488 $ 940,941
----------- ----------- -----------
----------- ----------- -----------
REAL ESTATE TAXES
Total real estate taxes for reportable segments $ 212,496 $ 224,345 $ 220,956
Real estate taxes for partnership 267 -- --
----------- ----------- -----------
Total real estate expense $ 212,763 $ 224,345 $ 220,956
----------- ----------- -----------
----------- ----------- -----------
PROFESSIONAL AND ADMINISTRATIVE
Total professional and administrative for
reportable segments $ 76,909 $ 63,766 $ 56,980
Professional and administrative for partnership 192,652 189,294 209,597
----------- ----------- -----------
Total professional and administrative $ 269,561 $ 253,060 $ 266,577
----------- ----------- -----------
----------- ----------- -----------
DEPRECIATION AND AMORTIZATION
Total depreciation and amortization for
reportable segments $ 791,012 $ 881,564 $ 891,739
Depreciation and amortization for partnership 8,257 18,540 18,540
Eliminations 5,818 5,817 5,823
----------- ----------- -----------
Total depreciation and amortization $ 805,087 $ 905,921 $ 916,102
----------- ----------- -----------
----------- ----------- -----------
NET INCOME (LOSS)BEFORE EXTRAORDINARY ITEM
Net income (loss) before extraordinary item for
reportable segments $ 884,732 $ 692,729 $ 680,253
Net income (loss) before extraordinary item for
partnership (543,243) (807,615) (883,227)
Eliminations (89,131) 142,840 169,689
----------- ----------- -----------
Total net income (loss) before extraordinary item $ 252,358 $ 27,954 $ (33,285)
----------- ----------- -----------
----------- ----------- -----------
EXTRAORDINARY ITEM - EARLY EXTINGUISHMENT OF DEBT
Total extraordinary item for reportable segments $ (154,062) $ (5,291) $ (12,896)
Extraordinary item for partnership -- (71,713) --
----------- ----------- -----------
Total extraordinary item - early extinguishment of
debt $ (154,062) $ (77,004) $ (12,896)
----------- ----------- -----------
----------- ----------- -----------
TOTAL NET INCOME (LOSS) $ 98,296 $ (49,050) $ (46,181)
----------- ----------- -----------
----------- ----------- -----------
LAND, BUILDINGS AND AMENITIES
Total land, buildings and amenities for
reportable segments $11,256,464 $13,023,781 $13,801,251
Partnership 13,196 -- --
----------- ----------- -----------
Total land, buildings and amenities $11,269,660 $13,023,781 $13,801,251
----------- ----------- -----------
----------- ----------- -----------
TOTAL EXPENDITURES
Total expenditures for land, buildings and
amenities for reportable segments $ 321,367 $ 99,261 $ 108,563
Expenditures for land, buildings and amenities
for partnership 13,196 -- --
----------- ----------- -----------
Total expenditures for land, buildings and
amenities $ 334,563 $ 99,261 $ 108,563
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES
Total liabilities for reportable segments $ 3,639,396 $ 4,866,231 $ 5,096,510
Liabilities for partnership 5,726,312 6,111,852 6,392,598
----------- ----------- -----------
Total liabilities $ 9,365,708 $10,978,083 $11,489,108
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
- 50 -
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
- 51 -
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Because the Partnership is a limited partnership and not a corporation, it
has no directors or officers as such. Management of the Partnership is the
responsibility of the General Partner, NTS-Properties Associates IV. The
Partnership has entered into a management contract with NTS Development
Company, an affiliate of the General Partner, to provide property management
services.
The General Partners of NTS-Properties Associates IV are as follows:
J. D. NICHOLS
Mr. Nichols (age 57) is the managing General Partner of NTS-Properties
Associates IV and is Chairman of the Board of NTS Corporation (since 1985)
and NTS Development Company (since 1977).
NTS CAPITAL CORPORATION
NTS Capital Corporation (formerly NTS Corporation) is a Kentucky corporation
formed in October 1979. At the present time its capital is $1,000 and it is
not anticipated that such capital will be significantly increased. J. D.
Nichols is Chairman of the Board and the sole director of NTS Capital
Corporation.
NTS SUB-PARTNERSHIP IV
NTS Sub-partnership IV is a Kentucky limited partnership whose primary
business purpose is to acquire, own and hold an interest in NTS-Properties
Associates IV. The partners of NTS Sub-partnership IV include various
management personnel of NTS Corporation and its affiliates.
ALLIANCE REALTY CORPORATION
Alliance Realty Corporation was formed in September 1982, and is a
wholly-owned subsidiary of SN Alliance, Inc. SN Alliance, Inc. is also the
parent corporation of Stifel, Nicolaus & Company, Inc. which acted as the
Dealer Manager in connection with the offering for the interests.
The Manager of the Partnership's properties is NTS Development Company, the
executive officers and/or directors of which are Messrs. J. D. Nichols,
Richard L. Good and Brian F. Lavin.
RICHARD L. GOOD
Mr. Good, (age 59) Vice Chairman of NTS Corporation and of NTS Development
Company and Chairman of the Board of NTS Securities, Inc., joined the Manager
in January 1985. From 1981 through 1984, he was Executive Vice President of
Jacques-Miller, Inc., a real estate syndication, property management and
financial planning firm in Nashville, Tennessee.
BRIAN F. LAVIN
Mr. Lavin (age 45) President of NTS Corporation and NTS Development Company
joined the Manager in June 1997. Prior to joining NTS, Mr. Lavin served as
President of the Residential Division of Paragon Group, Inc., and as a Vice
President of Paragon's Midwest Division. In this capacity, he directed the
development, marketing, leasing and management operations for the firms
expanding portfolios. Mr. Lavin attended the University of Missouri where he
received his Bachelor's Degree in Business Administration. He has served as a
Director of the Louisville Apartment Association. He is a licensed Kentucky
Real Estate Broker and Certified Property Manager. Mr. Lavin is a member of
the Institute of Real Estate Management, and council member of the Urban Land
Institute. He currently serves on the University of Louisville Board of
Overseers and is on the Board of Directors of the National Multi-Housing
Council and the Louisville Science Center.
- 52 -
<PAGE>
Item 11. MANAGEMENT REMUNERATION AND TRANSACTIONS
The officers and/or directors of the corporate General Partner receive no
direct remuneration in such capacities. The Partnership is required to pay a
property management fee based on gross rentals to NTS Development Company, an
affiliate of the General Partner. The Partnership is also required to pay to
NTS Development Company a repair and maintenance fee on costs related to
specific projects and a refinancing fee on Net Cash Proceeds from the
refinancing of any Partnership property. Also, NTS Development Company
provides certain other services to the Partnership. See Note 9 to the
financial statements which sets forth transactions with affiliates of the
General Partner for the years ended December 31, 1998, 1997 and 1996.
The General Partner is entitled to receive cash distributions and allocations
of profits and losses from the Partnership. See Note 1C to the financial
statements which describes the methods used to determine income allocations
and cash distributions.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The General Partner is NTS-Properties Associates IV, a Kentucky limited
partnership, 10172 Linn Station Road, Louisville, Kentucky 40223. The
partners of the General Partner and their total respective interests in
NTS-Properties Associates IV are as follows:
<TABLE>
<S> <C>
J. D. Nichols 69.69%
10172 Linn Station Road
Louisville, Kentucky 40223
NTS Sub-partnership IV 30.00%
10172 Linn Station Road
Louisville, Kentucky 40223
NTS Capital Corporation .30%
10172 Linn Station Road
Louisville, Kentucky 40223
Alliance Realty Corporation .01%
500 North Broadway
St. Louis, Missouri 63102
</TABLE>
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Property management fees of $204,498 (1998), $208,837 (1997) and $204,165
(1996) were paid to NTS Development Company, an affiliate of the General
Partner of the Partnership. The fee is equal to 5% of gross revenues from
residential properties and 6% of gross revenues from commercial properties
pursuant to an agreement with the Partnership. As permitted by an agreement,
NTS Development Company will receive a repair and maintenance fee equal to
5.9% of costs incurred which relate to capital improvements. The Partnership
has incurred $17,697 and $14,351 as a repair and maintenance fee during the
years ended December 31, 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 years ended December 31, 1998,
1997 and 1996. These charges include items which have been expensed as
operating expenses - affiliated or professional and administrative expenses -
affiliated and items which have been capitalized as other assets or as land,
buildings and amenities.
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Leasing $127,001 $121,834 $108,913
Administrative 195,908 196,182 214,530
Property manager 292,427 261,511 241,289
Other 30,301 5,015 8,674
-------- -------- --------
$645,637 $584,542 $573,406
-------- -------- --------
-------- -------- --------
</TABLE>
There are no other agreements or relationships between the Partnership, the
General Partner and its affiliates other than those previously described.
- 53 -
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
1. Financial statements
The financial statements for the years ended December 31, 1998, 1997 and
1996 together with the report of Arthur Andersen LLP dated March 12, 1999,
appear in Item 8. The following financial statement schedules should be
read in conjunction with such financial statements.
2. Financial statement schedules
<TABLE>
<S> <C>
Schedules: Page No.
--------
III-Real Estate and Accumulated Depreciation 55-58
</TABLE>
All other schedules have been omitted because they are not applicable,
are not required, or because the required information is included in the
financial statements or notes thereto.
3. Exhibits
<TABLE>
<S> <C>
Exhibit No. Page No.
3. Amended and Restated Agreement and Certificate *
of Limited Partnership of NTS-Properties IV
10. Property Management Agreement and Construction *
Management Agreement between NTS Development
Company and NTS-Properties IV
27. Financial Data Schedule Included
herewith
* Incorporated by reference to documents filed with the Securities
and Exchange Commission in connection with the filing of the
Registration Statements on Form S-11 on May 16, 1983 (effective
August 1, 1983) under Commission File No. 2-83771.
</TABLE>
4. Reports on Form 8-K
Form 8-K was filed October 5, 1998 to report in Item 5 that the recently
announced contract for the sale of the University Business Center may be
in jeopardy.
Form 8-K was filed October 9, 1998 to report in Item 2 that the
Lakeshore/University II Joint Venture had sold University Business Center
Phase II.
Form 8-K/A was filed December 8, 1998 to amend under Item 7 the Form 8-K
that was filed October 9, 1998. The filing included the September 30,
1998 Proforma Balance Sheet and Statements of Operation for the nine
months ended September 30, 1998 and for the year ended December 31, 1997.
Form 8-K/A was filed December 17, 1998 to amend the financial statements
that were filed December 8, 1998.
- 54 -
<PAGE>
NTS-PROPERTIES IV
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
Commonwealth Plainview
Business Point Office The Willows The Willows
Center Center Phases of Plainview of Plainview
Phase I I and II Phase I Phase II
----------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Encumbrances (A) None (B) (B)
Initial cost to partnership:
Land $ 928,867 $ 356,048 $ 1,798,292 $ 170,808
Buildings and improvements 1,419,653 2,214,001 5,447,513 585,917
Cost capitalized subsequent to acquisition:
Improvements 1,743,221 894,082 262,188 65,727
Other -- -- -- --
Gross amount at which carried December 31, 1998:
Land $ 949,932 $ 455,681 $ 1,843,471 $ 183,647
Buildings and improvements 3,141,809 3,008,450 5,664,522 638,805
----------- ------------- ------------ ------------
Total $ 4,091,741 $ 3,464,131 $ 7,507,993 $ 822,452
----------- ------------- ------------ ------------
----------- ------------- ------------ ------------
Accumulated depreciation $ 2,429,195 $ 1,529,456 $ 3,660,932 $ 396,093
----------- ------------- ------------ ------------
----------- ------------- ------------ ------------
Date of construction 06/84 N/A 03/85 08/85
Date Acquired N/A 04/84 N/A N/A
Life at which depreciation in
latest income statement is
computed (C) (C) (C) (C)
</TABLE>
(A) First mortgage held by an insurance company.
(B) First mortgage held by two insurance companies.
(C) Depreciation is computed using the straight-line method over the
estimated useful lives of the assets which are 5-30 years for land
improvements, 5-30 years for buildings and improvements and 5-30 years
for amenities.
- 55 -
<PAGE>
NTS-PROPERTIES IV
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
Lakeshore
Plainview Blankenbaker Business
Golf Brook Point III Business Center
Apartments Office Center Center 1A Phase I
---------- ------------- ------------ ----------
<S> <C> <C> <C> <C>
Encumbrances (A) None (A) (A)
Initial cost to partnership:
Land $ 175,557 $ 65,211 $ 582,561 $ 422,983
Buildings and improvements 474,566 116,284 2,263,506 662,259
Cost capitalized subsequent to acquisition:
Improvements (689) 56,526 98,216 561,344
Other (B) -- -- -- 184,250
Gross amount at which carried December 31, 1998:
Land $ 174,989 $ 66,065 $ 673,705 $ 479,478
Buildings and improvements 474,445 171,956 2,270,578 1,351,358
----------- ------------- ------------ ----------
Total $ 649,434 $ 238,021 $2,944,283 $1,830,836
----------- ------------- ------------ ----------
----------- ------------- ------------ ----------
Accumulated depreciation $ 245,829 $ 98,066 $1,176,382 $ 944,723
----------- ------------- ------------ ----------
----------- ------------- ------------ ----------
Date of construction 05/88 01/88 N/A 05/86
Date Acquired N/A N/A 08/94 N/A
Life at which depreciation in
latest income statement is
computed (C) (C) (C) (C)
</TABLE>
(A) First mortgage held by an insurance company.
(B) Represents NTS-Properties IV's increased interest in Lakeshore Business
Center Phase I as a result of the formation of the Lakeshore/
University II Joint Venture in 1995.
(C) Depreciation is computed using the straight-line method over the
estimated useful lives of the assets which are 5-30 years for land
improvements, 5-30 years for buildings and improvements and 5-30 years
for amenities.
- 56 -
<PAGE>
NTS-PROPERTIES IV
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
Lakeshore
Business
Center Total
Phase II Pages 55-57
----------- -----------
<S> <C> <C>
Encumbrances (A)
Initial cost to partnership:
Land $ 658,760 $ 5,159,087
Buildings and improvements 1,508,328 14,692,027
Cost capitalized subsequent to acquisition:
Improvements 45,943 3,726,558
Other -- 184,250
Gross amount at which carried December 31, 1998 (B):
Land $ 659,134 $ 5,486,102
Buildings and improvements 1,553,897 18,275,820
------------ -----------
Total $ 2,213,031 $23,761,922
------------ -----------
------------ -----------
Accumulated depreciation $ 866,050 $11,346,726
------------ -----------
------------ -----------
Date of construction N/A
Date Acquired 01/95
Life at which depreciation in
latest income statement is
computed (C)
</TABLE>
(A) First mortgage held by an insurance company.
(B) Aggregate cost of real estate for tax purposes is $23,592,217.
(C) Depreciation is computed using the straight-line method over the estimated
useful lives of the assets which are 5-30 years for land improvements, 5-30
years for buildings and improvements and 5-30 years for amenities.
<TABLE>
<S> <C> <C>
(D) Total gross cost at December 31, 1998 $ 23,761,922
Additions to Partnership
for computer hardware and software in 1998 13,195
Adjust land contribution
from fair market value to cost:
Golf Brook Apartments (662,731)
Plainview Point III Office Center (496,000)
------------
Balance at December 31, 1998 22,616,386
Less accumulated depreciation (11,346,726)
------------
Land, Buildings and Amenities, net at
December 31, 1998 $ 11,269,660
------------
------------
</TABLE>
- 57 -
<PAGE>
NTS-PROPERTIES IV
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
Real Accumulated
Estate Depreciation
----------- ------------
<S> <C> <C>
Balances at December 31, 1995 $24,312,012 $ 9,694,194
Additions during period:
Improvements (a) 73,741 --
Depreciation (b) -- 883,436
Deductions during period:
Retirements (77,115) (70,243)
----------- ------------
Balances at December 31, 1996 24,308,638 10,507,387
Additions during period:
Improvements (a) 99,673 --
Depreciation (b) -- 877,005
Deductions during period:
Retirements (50,298) (50,160)
----------- ------------
Balances at December 31, 1997 24,358,013 11,334,232
Additions during period:
Improvements (a) 350,567 --
Depreciation (b) -- 747,221
Deductions during period:
Retirements (c) (2,092,194) (734,727)
----------- ------------
Balances at December 31, 1998 $22,616,386 $11,346,726
----------- ------------
----------- ------------
</TABLE>
(a) The additions to improvements on this schedule will differ from the
additions to land, buildings, amenities and construction in progress on the
Statements of Cash Flows primarily due to the fact that changes in accounts
payable - construction are not included in the real estate balance sheet
above.
(b) The additions charged to accumulated depreciation on this schedule will
differ from the depreciation and amortization on the Statements of Cash
Flows due to the amortization of loan costs.
(c) Result of the sale of University Business Center Phase II on October 6,
1998.
- 58 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, NTS-Properties IV has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
NTS-PROPERTIES IV
(Registrant)
BY: NTS-Properties Associates IV,
General Partner
BY: NTS Capital Corporation,
General Partner
/s/ Brian F. Lavin
------------------
Brian F. Lavin
President
Date: April 15, 1999
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
Form 10-K has been signed below by the following persons on behalf of the
registrant in their capacities and on the date indicated above.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ J. D. Nichols General Partner of NTS-Properties
- ------------------------ Associates IV and Chairman of the
J. D. Nichols Board and Sole Director of
NTS Capital Corporation
/s/ Richard L. Good President of NTS Capital Corporation
- ------------------------
Richard L. Good
/s/ Brian F. Lavin President and Chief Operation Officer
- ------------------------ (acting Chief Financial Officer) of NTS
Brian F. Lavin Capital Corporation
</TABLE>
The Partnership is a limited partnership and no proxy material has been sent to
the limited partners.
- 59 -
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF DECEMBER 31, 1998 AND FROM THE STATEMENT OF OPERATING FOR THE YEAR
ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 824,019
<SECURITIES> 142,569
<RECEIVABLES> 183,170
<ALLOWANCES> 1,972
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 11,269,660
<DEPRECIATION> 11,346,726
<TOTAL-ASSETS> 13,055,709
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 9,121,979
0
0
<COMMON> 0
<OTHER-SE> 3,690,001
<TOTAL-LIABILITY-AND-EQUITY> 13,055,709
<SALES> 3,561,342
<TOTAL-REVENUES> 3,827,701
<CGS> 0
<TOTAL-COSTS> 2,502,642
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,043
<INTEREST-EXPENSE> 803,140
<INCOME-PRETAX> 252,358
<INCOME-TAX> 0
<INCOME-CONTINUING> 252,358
<DISCONTINUED> 0
<EXTRAORDINARY> (154,062)
<CHANGES> 0
<NET-INCOME> 98,296
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>The partnership has an unclassified balance sheet; therefore the value is $0.
</FN>
</TABLE>
