UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark one)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
--------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----------- ------------
Commission File Number 0-11655
------------------------------------
NTS-PROPERTIES IV
-----------------
(Exact name of registrant as specified in its charter)
Kentucky 61-1026356
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10172 Linn Station Road
Louisville, Kentucky 40223
-------------------- -----
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number,
including area code (502) 426-4800
--------------------------------
Not Applicable
--------------
Former name, former address and former fiscal year,
if changed since last report
Indicate by check mark whether the registrant (l) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
----- -----
Exhibit Index: See page 20
Total Pages: 21
<PAGE>
TABLE OF CONTENTS
-----------------
Pages
-----
PART I
Item 1. Financial Statements
Balance Sheets and Statement of Partners' Equity
As of March 31, 1999 and December 31, 1998 3
Statements of Operations
For the three months ended March 31, 1999 and 1998 4
Statements of Cash Flows
For the three months ended March 31, 1999 and 1998 5
Notes To Financial Statements 6-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-19
PART II
1. Legal Proceedings 20
2. Changes in Securities 20
3. Defaults upon Senior Securities 20
4. Submission of Matters to a Vote of Security Holders 20
5. Other Information 20
6. Exhibits and Reports on Form 8-K 20
Signatures 21
- 2 -
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
NTS-PROPERTIES IV
-----------------
BALANCE SHEETS AND STATEMENT OF PARTNERS' EQUITY
------------------------------------------------
<CAPTION>
As of As of
March 31, 1999 December 31,1998*
-------------- -----------------
ASSETS
<S> <C> <C>
Cash and equivalents $ 708,839 $ 640,969
Cash and equivalents - restricted 114,699 183,050
Investment securities -- 142,569
Accounts receivable, net of allowance
for doubtful accounts of $2,043 (1999)
and $1,972 (1998) 200,009 183,170
Land, buildings and amenities, net 11,162,109 11,269,660
Asset held for sale and development 297,251 297,251
Other assets 408,444 339,040
----------- -----------
$12,891,351 $13,055,709
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Mortgages payable $ 8,955,522 $ 9,121,979
Accounts payable 154,765 115,103
Security deposits 79,362 75,108
Other liabilities 150,358 53,518
----------- -----------
9,340,007 9,365,708
Commitments and Contingencies
Partners' equity 3,551,344 3,690,001
----------- -----------
$12,891,351 $13,055,709
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Limited General
Partners Partner Total
-------- ------- -----
PARTNERS' EQUITY
<S> <C> <C> <C>
Capital contributions, net of
offering costs $ 25,834,899 $ -- $ 25,834,899
Net income - prior years 385,853 3,899 389,752
Net loss - current year (15,502) (157) (15,659)
Cash distributions declared to
date (21,586,280) (218,253) (21,804,533)
Repurchase of limited
partnership Units (853,115) -- (853,115)
------------ --------- ------------
Balances at March 31, 1999 $ 3,765,855 $(214,511) $ 3,551,344
============ ========= ============
</TABLE>
* Reference is made to the audited financial statements in the Form 10-K as
filed with the Commission on April 15, 1999.
- 3 -
<PAGE>
<TABLE>
NTS-PROPERTIES IV
-----------------
STATEMENTS OF OPERATIONS
------------------------
<CAPTION>
Three Months Ended
March 31,
---------
1999 1998
------------ ------------
Revenues:
<S> <C> <C>
Rental income $ 846,090 $ 916,249
Interest and other income 8,428 10,012
----------- -----------
854,518 926,261
Expenses:
Operating expenses 190,449 206,101
Operating expenses - affiliated 141,636 118,151
Write-off of unamortized building costs 10,720 --
Amortization of capitalized leasing costs 892 3,729
Interest expense 172,245 213,601
Management fees 46,877 51,268
Real estate taxes 50,856 57,027
Professional and administrative expenses 36,635 24,601
Professional and administrative expenses
- affiliated 41,648 42,054
Depreciation and amortization 178,219 220,192
----------- -----------
870,177 936,724
----------- -----------
Net loss $ (15,659) $ (10,463)
=========== ===========
Net loss allocated to the limited partners $ (15,502) $ (10,358)
=========== ===========
Net loss per limited partnership unit $ (0.62) $ (0.39)
=========== ===========
Weighted average number of limited
partnership units 25,082 26,618
=========== ===========
</TABLE>
- 4 -
<PAGE>
<TABLE>
NTS-PROPERTIES IV
-----------------
STATEMENTS OF CASH FLOWS
------------------------
<CAPTION>
Three Months Ended
March 31,
---------
1999 1998
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net loss $ (15,659) $ (10,463)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Accrued interest on investment securities -- (3,440)
Provision for doubtful accounts (2,043) --
Write-off of unamortized improvements 10,720 --
Amortization of capitalized leasing costs 892 3,729
Depreciation and amortization 178,219 220,192
Changes in assets and liabilities:
Cash and equivalents - restricted (54,649) (5,564)
Accounts receivable (18,882) (76,737)
Other assets (73,733) (1,308)
Accounts payable 39,663 43,657
Security deposits 4,254 (2,805)
Other liabilities 96,840 94,856
----------- -----------
Net cash provided by operating activities 165,622 262,117
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to land, buildings and amenities (77,954) 14,335
Purchase of investment securities -- (419,012)
Maturity of investment securities 140,000 318,459
Other 6,659 --
----------- -----------
Net cash provided by (used in) investing
activities 68,705 (86,218)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgages payable (166,457) (156,521)
Decrease in loan costs -- 14,414
Repurchase of limited partnership Units (123,000) (25,950)
Decrease (increase) in cash and equivalents -
restricted 123,000 (79,050)
----------- -----------
Net cash used in financing activities (166,457) (247,107)
----------- -----------
Net (decrease) increase in cash and equivalents 67,870 (71,208)
CASH AND EQUIVALENTS, beginning of period 640,969 276,145
----------- -----------
CASH AND EQUIVALENTS, end of period $ 708,839 $ 204,937
=========== ===========
Interest paid on a cash basis $ 172,866 $ 196,012
=========== ===========
</TABLE>
- 5 -
<PAGE>
NTS-PROPERTIES IV
-----------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
The financial statements included herein should be read in conjunction with the
Partnership's 1998 Form 10-K as filed with the Commission on April 15, 1999. In
the opinion of the General Partner, all adjustments (only consisting of normal
recurring accruals) necessary for a fair presentation have been made to the
accompanying financial statements for the three months ended March 31, 1999 and
1998.
1. Use of Estimates in the Preparation of Financial Statements
-----------------------------------------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
2. Concentration of Credit Risk
----------------------------
NTS-Properties IV owns and operates commercial properties in Louisville,
Kentucky and Ft. Lauderdale, Florida. Substantially all of the
Partnership's tenants are local businesses or are businesses which have
operations in the location in which they lease space. In Louisville,
Kentucky, one tenant occupies 100% of the Blankenbaker Business Center 1A
property. The Partnership also owns and operates, either wholly or through
a joint venture, residential properties in Louisville, Kentucky and
Orlando, Florida. The apartment unit is generally the principal residence
of the tenant.
3. Cash and Equivalents - Restricted
---------------------------------
Cash and equivalents - restricted represent 1) funds received for
residential security deposits, 2) funds which have been escrowed with
mortgage companies for property taxes and insurance in accordance with the
loan agreements and 3) funds which the Partnership has reserved for the
repurchase of limited partnership Units (December 31, 1998 balance only).
4. Interest Repurchase Reserve
---------------------------
Pursuant to Section 16.4 of the Partnership's Amended and Restated
Agreement of Limited Partnership, the Partnership established an Interest
Repurchase Reserve in June 1996. During the years ended December 31, 1998,
1997 and 1996, the Partnership funded $201,565, $45,000, and $575,070,
respectively, to the reserve. For the three months ending March 31, 1999,
the Partnership has funded $123,000 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 March 31, 1999, the
Partnership has repurchased 5,036 Units for $823,920 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 balance in the Reserve at the
March 31, 1999 was $0.
- 6 -
<PAGE>
5. 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
Offer stated that the Partnership would purchase the first 600 Units
tendered and would fund its purchases and its portion of the expenses from
cash reserves. Units that were acquired by the Partnership were retired.
Units that were acquired by ORIG, LLC are held by it. The General Partner,
NTS-Properties Associates IV, did not participate in the Tender Offer. The
Tender Offer expired February 19, 1999, at which time, 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.
6. Investment Securities
---------------------
Investment Securities represent investments in Certificates of Deposit or
securities issued by the U.S. Government with initial maturities of greater
that three months. The investments are carried at cost which approximates
market value. The Partnership intends to hold the securities until
maturity. During the three months ended March 31, 1999 and the twelve
months ended December 31, 1998, the Partnership sold no investment
securities. The Partnership held no investment securities at March 31,
1999.
The following provides details regarding the investments held at December
31, 1998:
Amortized Maturity Value at
Type Cost Date Maturity
---- ------ ------ --------
Certificate of deposit $ 40,797 01/04/99 $ 40,815
Certificate of deposit 50,886 01/04/99 50,907
Certificate of deposit 50,886 02/01/99 51,111
------- -------
$ 142,569 $142,833
======= =======
7. Mortgages Payable
-----------------
Mortgages payable consist of the following:
March 31, December 31,
1999 1998
---- ----
Mortgage payable with an insurance company,
bearing interest at a fixed rate of
8.8%, due October 1, 2004,
secured by land and building $ 1,922,588 $ 1,988,590
Mortgage payable with an insurance
company, bearing interest at a fixed
rate of 7.15%, due January 5, 2013,
secured by land, buildings and amenities 1,907,440 1,927,484
(Continued on next page)
- 7 -
<PAGE>
March 31, December 31,
1999 1998
---- ----
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 $ 1,815,791 $ 1,834,872
Mortgage payable with an insurance
company, bearing interest at a fixed
rate of 8.5%, due November 15, 2005,
secured by land and building 1,028,449 1,058,249
Mortgage payable with an insurance
company, bearing interest at a fixed
rate of 8.125%, due August 1, 2008
secured by land and building 923,626 939,811
Mortgage payable with an insurance
company, bearing interest at a fixed
rate of 8.125%, due August 1, 2008,
secured by land and building 858,474 873,517
Mortgage payable with an insurance
company, bearing interest at a fixed
rate of 7.2%, due January 5, 2013,
secured by land, buildings and amenities 312,510 312,698
Mortgage payable with an insurance
company, bearing interest at a fixed
rate of 7.2%, due January 5, 2013,
secured by land, buildings and amenities 186,644 186,758
---------- ----------
$ 8,955,522 $ 9,121,979
========== ==========
8. Basis of Property
-----------------
Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of, specifies circumstances in which certain long-lived assets
must be reviewed for impairment. If such review indicates that the
carrying amount of an asset exceeds the sum of its expected future cash
flows, the asset's carrying value must be written down to fair market
value. Application of this standard during the three months ended March
31, 1999 and 1998 did not result in an impairment loss.
9. Related Party Transactions
--------------------------
Property management fees of $46,877 and $51,268 were paid to NTS
Development Company, an affiliate of the General Partner of the
Partnership, for the three months ended March 31, 1999 and 1998,
respectively. The fee is equal to 5% of the gross revenues from
residential properties and 6% of the gross revenues from commercial
properties pursuant to an agreement with the Partnership. As permitted by
an agreement, NTS Development Company will receive a repair and
maintenance fee equal to 5.9% of costs incurred which relate to capital
improvements. The Partnership has incurred $2,569 and $4,755 as a repair
and maintenance fee during the three months ended March 31, 1999 and 1998,
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 three
months ended March 31, 1999 and 1998. These charges include items
- 8 -
<PAGE>
9. Related Party Transactions - continued
--------------------------------------
which have been expensed as operating expenses - affiliated or
professional and administrative expenses - affiliated and items which have
been capitalized as other assets or as land, buildings and amenities.
The charges were as follows:
1999 1998
--------- -------
Administrative $ 51,573 $ 52,527
Leasing 47,091 27,852
Property management 81,477 77,672
Other 12,662 3,369
-------- -------
$ 192,803 $ 161,420
======== =======
10. Segment Reporting
-----------------
The Partnership's reportable operating segments include Residential and
Commercial real estate operations. The Residential operations represent
the Partnership's ownership and operating results relative to apartment
complexes known as Golf Brook and the Willows of Plainview Phases I and
II. The Commercial operations represent the Partnership's ownership and
operating results relative to suburban commercial office space known as
Commonwealth Business Center Phase I, Plainview Point Office Center Phases
I, II and III, Blankenbaker Business Center 1A and Lakeshore Business
Center Phases I and II. Commercial operations for the period ending March
31, 1998 include University Business Center Phase II which was sold
October 6, 1998.
The financial information of the operating segments has been prepared
using a management approach, which is consistent with the basis and manner
in which the Partnership's management internally disaggregates financial
information for the purposes of assisting in making internal operating
decisions. The Partnership evaluates performance based on stand-alone
operating segment net income.
Three Months ended March 31, 1999
Residential Commercial Total
----------- ---------- -----
Rental Income $ 372,862 $ 473,228 $ 846,090
Other Income 1,687 6,449 8,136
---------- ---------- ----------
Total Net Revenues 374,549 479,677 854,226
Operating Expenses 126,863 205,222 332,085
Write-off of Unamortized
Building Improvements 10,720 -- 10,720
Amortization of Capitalized
Leasing Costs -- 892 892
Interest Expense 8,440 58,518 66,958
Management Fees 18,658 28,219 46,877
Real Estate Taxes 16,803 34,053 50,856
Depreciation Expense 57,770 116,883 174,653
---------- ---------- ----------
Net Income (Loss) $ 135,295 $ 35,890 $ 171,185
========== ========== ==========
- 9 -
<PAGE>
10. Segment Reporting - continued
-----------------------------
Three Months ended March 31, 1998
Residential Commercial Total
----------- ---------- -----
Rental Income $ 330,657 $ 585,592 $ 916,249
Other Income 1,336 2,175 3,511
---------- ---------- ----------
Total Net Revenues 331,993 587,767 919,760
Operating Expenses 122,605 201,647 324,252
Amortization of Capitalized
Leasing Costs -- 3,729 3,729
Interest Expense 9,372 82,583 91,955
Management Fees 18,258 33,010 51,268
Real Estate Taxes 16,656 40,371 57,027
Depreciation Expense 55,890 160,794 216,684
---------- ---------- ----------
Net Income (Loss) $ 109,212 $ 65,633 $ 174,845
========== ========== ==========
A reconciliation of the totals reported for the operating segments to the
applicable line items in the consolidated financial statements for the three
months ended March 31, 1999 and 1998 is necessary given amounts recorded at the
Partnership level and not allocated to the operating properties for internal
reporting purposes:
1999 1998
---- ----
NET REVENUES
- ------------
Total revenues for reportable segments $ 854,226 $ 919,760
Other income for partnership 18,204 26,723
Eliminations (17,912) (20,222)
---------- -----------
Total consolidated net revenues $ 854,518 $ 926,261
========== ===========
INTEREST EXPENSE
- ----------------
Total interest expense for reportable
segments $ 66,958 $ 91,955
Interest expense for partnership 105,287 121,646
Eliminations -- --
---------- -----------
Total interest expense $ 172,245 $ 213,601
========== ===========
DEPRECIATION AND AMORTIZATION
- -----------------------------
Total depreciation and amortization
for reportable segments $ 174,653 $ 216,684
Depreciation and amortization for
partnership 2,110 2,051
Eliminations 1,456 1,457
---------- -----------
Total depreciation and amortization $ 178,219 $ 220,192
========== ===========
NET INCOME (LOSS)
Total net income (loss) for reportable
segments $ 171,185 $ 174,845
Net income (loss) for partnership (167,477) (163,629)
Eliminations (19,367) (21,679)
---------- -----------
Total net income (loss) $ (15,659) $ (10,463)
========== ===========
- 10 -
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations is structured in four major sections. The first section provides
information related to occupancy levels and rental and other income generated by
the Partnership's properties. The second analyzes results of operations on a
consolidated basis. The final sections address consolidated cash flows and
financial condition. Discussion of certain market risks and our cautionary
statements also follow. Management's analysis should be read in conjunction with
the financial statements in Item 1 and the cautionary statements below.
Results of Operations
- ---------------------
The occupancy levels at the Partnership's properties as of March 31 were as
follows:
1999(1) 1998
------- ----
Wholly-Owned Properties
- -----------------------
Commonwealth Business Center Phase I 92% 87%
Plainview Point Office Center Phases I and II(2) 53% 77%
The Willows of Plainview Phase I 96% 92%
Property Owned in Joint Venture with NTS-
- -----------------------------------------
Properties V (Ownership % at March 31, 1999)
- --------------------------------------------
The Willows of Plainview Phase II (10%) 99% 85%
Properties Owned in Joint Venture with NTS-
- -------------------------------------------
Properties VI (Ownership % at March 31, 1999)
- ---------------------------------------------
Golf Brook Apartments (4%)(2) 96% 98%
Plainview Point III Office Center (5%)(2) 93% 96%
Property Owned in Joint Venture with NTS-
- -----------------------------------------
Properties VII, Ltd. and NTS-Properties Plus
- --------------------------------------------
Ltd. (Ownership % at March 31, 1999)
- ------------------------------------
Blankenbaker Business Center 1A (30%) 100% 100%
Properties Owned through Lakeshore/University II
- ------------------------------------------------
Joint Venture (L/U II Joint Venture) (Ownership
- -----------------------------------------------
% at March 31, 1999)
- --------------------
Lakeshore Business Center Phase I (18%)(2) 72% 94%
Lakeshore Business Center Phase II (18%)(2) 85% 100%
University Business Center Phase II (18%)(3) N/A(3) 99%
(1) Current occupancy levels are considered adequate to continue the
operation of the Partnership's properties.
(2) In the opinion of the General Partner of the Partnership, the decrease in
period ending occupancy is only a temporary fluctuation and does not
represent a permanent downward occupancy trend.
(3) Represents ownership percentage as of March 31, 1998. On October 6, 1998,
University Business Center Phase II was sold.
- 11 -
<PAGE>
Average occupancy levels at the Partnership's properties during the three months
ended March 31 were as follows:
1999 1998
---- ----
Wholly-Owned Properties
- -----------------------
Commonwealth Business Center Phase I 92% 87%
Plainview Point Office Center Phases I and II(1) 57% 74%
The Willows of Plainview Phase I 93% 92%
Property Owned in Joint Venture with NTS-
- -----------------------------------------
Properties V (Ownership % at March 31, 1999)
- --------------------------------------------
The Willows of Plainview Phase II (10%) 94% 86%
Properties Owned in Joint Venture with NTS-
- -------------------------------------------
Properties VI (Ownership % at March 31, 1999)
- ---------------------------------------------
Golf Brook Apartments (4%)(1) 95% 97%
Plainview Point III Office Center (5%)(1) 92% 93%
Property Owned in Joint Venture with NTS-
- -----------------------------------------
Properties VII, Ltd. and NTS-Properties Plus
- --------------------------------------------
Ltd. (Ownership % at March 31, 1999)
- ------------------------------------
Blankenbaker Business Center 1A (30%) 100% 100%
Properties Owned through Lakeshore/University II
- ------------------------------------------------
Joint Venture (L/U II Joint Venture) (Ownership
- -----------------------------------------------
% at March 31, 1999)
- --------------------
Lakeshore Business Center Phase I (18%)(1) 79% 94%
Lakeshore Business Center Phase II (18%)(1) 85% 100%
University Business Center Phase II (18%)(2) N/A(2) 99%
(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) Represents ownership percentage as of March 31, 1998. On October 6, 1998,
University Business Center Phase II was sold.
- 12 -
<PAGE>
The rental and other income generated by the Partnership's properties for the
three months ended March 31, 1999 and 1998 was as follows:
1999 1998
--------- ---------
Wholly-Owned Properties
- -----------------------
Commonwealth Business Center Phase I $ 186,270 $ 175,958
Plainview Point Office Center Phases I and II $ 87,212 $ 136,510
The Willows of Plainview Phase I $ 310,499 $ 270,548
Property Owned in Joint Venture with NTS-
- -----------------------------------------
Properties V (Ownership % at March 31, 1999)
- --------------------------------------------
The Willows of Plainview Phase II (10%) $ 34,337 $ 31,666
Properties Owned in Joint Venture with NTS-
- -------------------------------------------
Properties VI (Ownership % at March 31, 1999)
- ---------------------------------------------
Golf Brook Apartments (4%) $ 29,713 $ 29,780
Plainview Point III Office Center (5%) $ 9,398 $ 12,411
Property Owned in Joint Venture with NTS-
- -----------------------------------------
Properties VII, Ltd. And NTS-Properties Plus Ltd.
- -------------------------------------------------
(Ownership % at March 31, 1999)
- -------------------------------
Blankenbaker Business Center 1A (30%) $ 70,448 $ 70,327
Properties Owned through Lakeshore/ University II
- -------------------------------------------------
Joint Venture (L/U II Joint Venture) (Ownership %
- -------------------------------------------------
at March 31, 1999)
- ------------------
Lakeshore Business Center Phase I (18%) $ 62,193 $ 82,972
Lakeshore Business Center Phase II (18%) $ 59,584 $ 73,431
University Business Center Phase II (18%)(1) N/A (2) $ 36,206
(1) Ownership percentage at March 31, 1998.
(2) University Business Center Phase II was sold October 6, 1998, therefore
there were no revenues generated for this property for the three months
ended March 31, 1999.
Revenues shown in the table above for properties owned through a joint venture
represent only the Partnership's percentage interest in those revenues.
The following is an analysis of material changes in results of operations for
the periods ending March 31, 1999 and 1998. Items that did not have a material
impact on operations for the periods listed above have been omitted from this
discussion.
Operating expenses - affiliated increased approximately $23,000 or 19% in 1999.
The increase was primarily the result of increased architectural and leasing
payroll costs at Plainview Point Office Center Phase I and II.
- 13 -
<PAGE>
The 1999 write-off of unamortized building costs can be attributed to The
Willows of Plainview Phases I and II. The write-off was a result of a new alarm
system. Due to this replacement, it was necessary to retire assets which had not
been fully depreciated. This results in a write-off of unamortized building
costs.
Amortization of capitalized leasing costs decreased approximately $2,800 or 76%
in 1999 as a result of a special tenant allowance at Commonwealth Business
Center Phase I becoming fully amortized at the end of 1998.
Interest expense decreased approximately $41,000 or 19% in 1999 primarily due to
required principal payments on the mortgages payable of the Partnership and its
Joint Venture properties. Interest expense also decreased in 1999 as a result of
the reduction in debt from the sale of University Business Center Phase II,
which was sold in October 1998.
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 $6,000 or 11% in 1999 primarily as a
result of the sale of University Business Center Phase II in October 1998.
Professional and administrative expenses increased approximately $12,000 or 49%
in 1999 primarily as a result of costs incurred in connection with the Tender
Offer.
Depreciation and amortization decreased approximately $42,000 or 19% in 1999
primarily as a result of assets becoming fully depreciated and the result of the
sale of University Business Center Phase II in October 1998. Depreciation is
computed using the straight-line method over the estimated useful lives of the
assets which are 5-30 years for land improvements, 30 years for buildings, 5-30
years for building improvements and 5-30 years for amenities. The aggregate cost
of the Partnership's properties for Federal tax purposes is approximately
$23,592,217.
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 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 held 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 funds
reserved by the Partnership for the repurchase of limited partnership Units.
Cash flows provided by financing activities represent a decrease in loan costs.
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.
- 14 -
<PAGE>
The Partnership does not expect any material changes in the mix and relative
cost of capital resources except for renovations and other major capital
expenditures, including tenant finish, which may be required to be funded from
cash reserves if they exceed cash flows from operating activities.
Cash flows provided by (used in):
1999 1998
---- ----
Operating activities $ 165,622 $ 262,117
Investing activities 68,705 (86,218)
Financing activities (166,457) (247,107)
------------ -----------
Net increase (decrease) in
cash and equivalents $ 67,870 $ (71,208)
============ ===========
Net cash provided by operating activities decreased approximately $97,000 or 37%
in 1999. The decrease was primarily driven by a decrease in net working capital
assets and liabilities (excluding cash).
Net cash provided by investing activities in 1999 is the result of the maturity
of investment securities over the addition of capital assets. Net cash used in
investing activities in 1998 is primarily the result of net purchases of
investment securities over maturities.
Net cash used in financing activities totaled $166,457 and $247,107 in 1999 and
1998, respectively. The approximate $81,000 decrease in net cash used in
financing activities in 1999 as compared to 1998 is primarily a result of
decreased funds reserved for the repurchase of limited partnership Units through
the Interest Repurchase Reserve.
No distributions were made during the year ended December 31, 1998 or the
quarter ended March 31, 1999. 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
March 31) were $708,839 and $731,266 at March 31, 1999 and 1998, 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.
Due to the fact that no distributions were made during the three months ended
March 31, 1999 or 1998, the table which presents that portion of the
distribution that represents a return of capital on a Generally Accepted
Accounting Principle basis has been omitted.
Currently, the Partnership's plans for renovations and other major capital
expenditures include tenant improvements at the Partnership's properties as
required by lease negotiations. Changes to current tenant finish improvements
are a typical part of any lease negotiation. Improvements generally include a
revision to the current floor plan to accommodate a tenant's needs, new
carpeting and paint and/or wallcovering. The extent and cost of the improvements
are deteremined by the size of the space being leased and whether the
improvements are for a new tenant or incurred because of a lease renewal. The
tenant finish improvements will be funded by cash flow from operations and cash
reserves.
- 15 -
<PAGE>
As of March 31, 1999, the Partnership had a commitment for approximately $25,000
of interior renovations of the common area at Plainview Point Office Center
Phases I and II. The source of funds for this project is expected to be cash
flow from operations and/or cash reserves.
The Partnership had no other material commitments for renovations or capital
improvements as of March 31, 1999.
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
March 31, 1999, the Partnership has repurchased 5,036 Units for $823,920 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 balance in the Reserve at March 31,
1999 was $0.
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 Offer stated that the Partnership
would purchase the first 600 Units tendered and would fund its purchases and its
portion of the expenses from cash reserves. Units that were acquired by the
Partnership were retired. Units that were acquired by ORIG, LLC are held by it.
The General Partner, NTS-Properties Associates IV, did not participate in the
Tender Offer. The Tender Offer expired February 19, 1999 at which time, 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 March 31, 1999 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 March 31, 1999, 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 March 31, 1999, the
re-zoning has not yet been granted and per the contract, the purchaser has
elected to postpone the closing. As its option, the purchaser may postpone the
original Closing Date four times for a period of 30 days each by delivering
written notice and paying 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.
- 16 -
<PAGE>
As of March 31, 1999, the L/U II Joint Venture intends to use the remaining 3.8
acres of the land it owns at the Lakeshore Business Center Development to
construct Lakeshore Business Center Phase III. Construction is expected to begin
during 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 Louisville, Kentucky. The leasing agents are located in the same city
as commercial properties. All advertising for these properties is coordinated by
NTS Development Company's marketing staff located in Louisville, Kentucky. In an
effort to continue to improve occupancy at the Partnership's residential
properties, the Partnership has an on-site leasing staff, employees of NTS
Development Company, at each of the apartment communities. The staff handles all
on-site visits from potential tenants, coordinates local advertising with NTS
Development Company's marketing staff, makes visits to local companies to
promote fully furnished units and negotiates lease renewals with current
residents.
During the first quarter of 1999, SHPS, Inc., formerly known as Sykes Health
Plan Services, Inc., announced its intentions to consolidate its operations and
to build its corporate headquarters in Jefferson County, Kentucky. One of SHPS,
Inc's operations, Sykes is already based in Louisville, Kentucky. Sykes occupies
100% of Blankenbaker Business Center 1A. Due to the expansion of SHPS, Inc's
headquarters, it is the Partnerships understanding that SHPS, Inc. does not
intend to continue to occupy the space at Blankenbaker Business Center 1A
through the duration of its lease term, which expires in July 2005. The
Partnership's proportionate share of the rental income from this property
accounted for approximately 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.
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
- 17 -
<PAGE>
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 the Company's in-house staff of programmers. The Hewlett Packard 3000 system,
used for PILOT and custom applications, was purchased in 1997 and will be part
of the new network. It will be retained as long as necessary to assure smooth
operations and has been upgraded to meet Year 2000 requirements.
All risks identified with information technology are believed to be addressed by
these plans.
The 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 $57,000 during 1999. Costs incurred through
December 31, 1998 were approximately $13,000. These costs include primarily
hardware and software.
NTS property management staff has been surveying 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.
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.
Cautionary Statements
- ---------------------
Some of the statements included in Item 2, Management's Discussion and Analysis
of Financial Condition and Results of Operations, may be considered to be
"forward-looking statements" since such statements relate to matters which have
not yet occurred. For example, phrases such as " the Partnership anticipates ",
"believes" or "expects" indicate that it is possible that the event anticipated,
believed or expected may not occur. Should such event not occur, then the result
- 18 -
<PAGE>
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.
- 19 -
<PAGE>
PART II. OTHER INFORMATION
3. Defaults upon Senior Securities
-------------------------------
None
6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Exhibit 27. Financial Data Schedule
(b) Reports on Form 8-K
None.
Items 1,2,4, and 5 are not applicable and have been omitted.
- 20 -
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
NTS-PROPERTIES IV
-----------------
(Registrant)
By: NTS-Properties Associates IV,
General Partner
By: NTS Capital Corporation,
General Partner
____________________________
Brian F. Lavin
President and Chief Operating
Officer of NTS Capital
Corporation (acting Chief
Financial Officer)
Date: May 17, 1999
--------------
- 21 -
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
NTS-PROPERTIES IV
-----------------
(Registrant)
By: NTS-Properties Associates IV,
General Partner
By: NTS Capital Corporation,
General Partner
/s/ Brian F. Lavin
------------------
Brian F. Lavin
President and Chief Operating
Officer of NTS Capital
Corporation (acting Chief
Financial Officer)
Date: May 17, 1999
------------
- 21 -
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF MARCH 31, 1999 AND FROM THE STATEMENT OF OPERATIONS FOR THE THREE
MONTHS ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1999
<CASH> 823,538
<SECURITIES> 0
<RECEIVABLES> 200,009
<ALLOWANCES> 2,043
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 11,162,109
<DEPRECIATION> 0<F2>
<TOTAL-ASSETS> 12,891,351
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 8,955,522
0
0
<COMMON> 0
<OTHER-SE> 3,551,344
<TOTAL-LIABILITY-AND-EQUITY> 12,891,351
<SALES> 846,090
<TOTAL-REVENUES> 854,518
<CGS> 0
<TOTAL-COSTS> 697,932
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 172,245
<INCOME-PRETAX> (15,659)
<INCOME-TAX> 0
<INCOME-CONTINUING> (15,659)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,659)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>THE PARTNERSHIP HAS AN UNCLASSIFIED BALANCE SHEET, THEREFORE THE VALUE IS
$0.
<F2>THIS INFORMATION IS NOT DISCLOSED IN THE PARTNERSHIP'S FORM 10-Q FILING.
</FN>
</TABLE>
