<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
--------------------------------------------------
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, LTD.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Kentucky 61-1026356
----------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10172 Linn Station Road
Louisville, Kentucky 40223
----------------------------------- -----------------------------------
(Address of principal executive offices) (Zip Code)
(502) 426-4800
--------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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, and (2) has been subject to such filing requirements
for the past 90 days.
[X] Yes [ ] No
<PAGE>
TABLE OF CONTENTS
-----------------
PART I
------
Pages
-----
Item 1. Financial Statements
Balance Sheets as of June 30, 2000 and December 31, 1999 3
Statement of Partners' Equity as of June 30, 2000 3
Statements of Operations for the three months and six months ended
June 30, 2000 and 1999 4
Statements of Cash Flows for the six months ended
June 30, 2000 and 1999 5
Notes to Financial Statements 6-14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15-22
Item 3. Quantitative and Qualitative Disclosures About Market Risk 23
PART II
-------
Item 1. Legal Proceedings 24
Item 2. Changes in Securities 24
Item 3. Defaults Upon Senior Securities 24
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 24
Signatures 25
2
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
--------------------
<TABLE>
NTS-PROPERTIES IV, LTD.
-----------------------
BALANCE SHEETS
--------------
<CAPTION>
As of As of
June 30, December 31,
2000 1999*
---- -----
(Unaudited)
ASSETS
------
<S> <C> <C>
Cash and equivalents $ 423,745 $ 607,512
Cash and equivalents - restricted 130,623 60,809
Accounts receivable 167,765 192,079
Land, buildings and amenities, net 10,384,071 10,480,193
Other assets 323,468 325,084
----------- -----------
TOTAL ASSETS $11,429,672 $11,665,677
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
--------------------------------
Mortgages payable $ 7,513,460 $ 7,861,645
Accounts payable 166,049 224,227
Security deposits 65,918 69,991
Other liabilities 157,621 48,004
----------- -----------
TOTAL LIABILITIES 7,903,048 8,203,867
COMMITMENTS AND CONTINGENCIES (Note 9)
PARTNERS' EQUITY 3,526,624 3,461,810
----------- -----------
TOTAL LIABILITIES AND PARTNERS' EQUITY $11,429,672 $11,665,677
=========== ===========
</TABLE>
<TABLE>
STATEMENT OF PARTNERS' EQUITY
-----------------------------
Limited General
Partners Partner Total
-------- ------- -----
<CAPTION>
PARTNERS' EQUITY/(DEFICIT)
--------------------------
<S> <C> <C> <C>
Capital contributions, net of offering costs $ 25,834,899 $ -- $ 25,834,899
Net income - prior years 383,189 3,872 387,061
Net income - current year 64,164 648 64,812
Cash distributions declared to date (21,586,280) (218,253) (21,804,533)
Repurchase of Limited Partnership Units (955,615) -- (955,615)
------------- ------------- -------------
BALANCES AT JUNE 30, 2000 $ 3,740,357 $ (213,733) $ 3,526,624
============= ============= =============
</TABLE>
* Reference is made to the audited financial statements in the Form 10-K as
filed with the Securities and Exchange Commission on March 30, 2000.
The accompanying notes to financial statements are an integral part of these
statements.
3
<PAGE>
<TABLE>
NTS PROPERTIES IV, LTD.
-----------------------
STATEMENTS OF OPERATIONS
------------------------
(UNAUDITED)
-----------
<CAPTION>
Three Months Six Months
Ended Ended
June 30, June 30,
-------- --------
2000 1999 2000 1999
---- ---- ---- ----
REVENUES
--------
<S> <C> <C> <C> <C>
Rental income $ 823,180 $ 849,310 $ 1,656,778 $ 1,675,249
Interest and other income 8,197 10,969 16,525 18,819
------------ ------------ ------------ ------------
TOTAL REVENUES 831,377 860,279 1,673,303 1,694,068
------------ ------------ ------------ ------------
EXPENSES
--------
Operating expenses 174,658 200,283 374,686 370,002
Operating expense - affiliated 106,390 113,568 219,453 255,203
Loss on disposal of assets 3,140 12,826 59,392 23,546
Interest expense 145,317 173,890 294,507 346,136
Management fees 48,304 48,726 93,564 95,603
Real estate taxes 48,343 50,866 96,685 101,723
Professional and administrative expenses 31,117 41,875 61,933 78,511
Professional and administrative expenses
- affiliated 30,360 37,281 58,380 78,929
Depreciation and amortization 177,694 178,944 349,891 358,053
------------ ------------ ------------ ------------
TOTAL EXPENSES 765,323 858,259 1,608,491 1,707,706
------------ ------------ ------------ ------------
Net income (loss) $ 66,054 $ 2,020 $ 64,812 $ (13,638)
============ ============ ============ ============
Net income (loss) allocated to the Limited
Partners $ 65,393 $ 2,000 $ 64,164 $ (13,502)
============ ============ ============ ============
Net income (loss ) per Limited Partnership
Unit $ 2.70 $ 0.08 $ 2.65 $ (0.54)
============ ============ ============ ============
Weighted average number of Limited
Partnership Units 24,209 24,709 24,209 24,895
============ ============ ============ ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
4
<PAGE>
<TABLE>
NTS-PROPERTIES IV, LTD.
-----------------------
STATEMENTS OF CASH FLOWS
------------------------
(UNAUDITED)
-----------
<CAPTION>
Six Months Ended
June 30,
--------
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
------------------------------------
<S> <C> <C>
Net income (loss) $ 64,812 $ (13,638)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Loss on disposal of assets 59,392 23,546
Depreciation and amortization 349,891 358,053
Changes in assets and liabilities:
Cash and equivalents - restricted (69,814) (20,879)
Accounts receivable 24,314 (22,230)
Other assets (5,944) (67,699)
Accounts payable (58,178) 19,611
Security deposits (4,073) 9,654
Other liabilities 109,619 119,040
---------- ----------
Net cash provided by operating activities 470,019 405,458
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
------------------------------------
Additions to land, buildings, and amenities (305,601) (185,034)
Maturity of investment securities -- 142,568
---------- ----------
Net cash used in investing activities (305,601) (42,466)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
------------------------------------
Principal payments on mortgages payable (348,185) (341,867)
Capital contributions -- 17,860
Repurchase of Limited Partnership Units -- (123,000)
Decrease in cash and equivalents - restricted -- 123,000
---------- ----------
Net cash used in financing activities (348,185) (324,007)
---------- ----------
Net (decrease) increase in cash and equivalents (183,767) 38,985
CASH AND EQUIVALENTS, beginning of period 607,512 640,969
---------- ----------
CASH AND EQUIVALENTS, end of period $ 423,745 $ 679,954
========== ==========
Interest paid on a cash basis $ 317,654 $ 351,053
========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
5
<PAGE>
NTS-PROPERTIES IV, LTD.
-----------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
The unaudited financial statements and schedules included herein should be read
in conjunction with the Partnership's 1999 Form 10-K as filed with the
Securities and Exchange Commission on March 30, 2000. In the opinion of the
General Partner, all adjustments (only consisting of normal recurring accruals)
necessary for a fair presentation have been made to the accompanying financial
statements for the three months and six months ended June 30, 2000 and 1999.
1. Use of Estimates in the Preparation of Financial Statements
-----------------------------------------------------------
The preparation of financial statements in conformity with Generally
Accepted Accounting Principles ("GAAP") 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, Ltd. owns and operates, either wholly or through a joint
venture, commercial rental properties in Kentucky (Louisville) and Florida
(Ft. Lauderdale). In Kentucky, a single tenant occupies one of the
commercial rental properties. The Partnership also owns and operates,
either wholly or through a joint venture, residential rental properties in
Kentucky (Louisville) and Florida (Orlando).
3. Reclassification of 1999 Financial Statements
---------------------------------------------
Certain reclassifications have been made to the June 30, 1999 financial
statements to conform to the June 30, 2000 classifications. These
reclassifications have no effect on previously reported operations.
4. Cash and Equivalents - Restricted
---------------------------------
Cash and equivalents - restricted represents funds received for residential
security deposits and funds escrowed with mortgage companies for property
taxes in accordance with the loan agreements.
5. Basis of Property and Depreciation
----------------------------------
Land, buildings and amenities are stated at historical cost less
accumulated depreciation 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, 3-30
years for buildings and improvements, 3-30 years for amenities and the
applicable lease term for tenant improvements. The aggregate cost of the
Partnership's properties for federal tax purposes is approximately
$21,447,190.
6
<PAGE>
5. Basis of Property and Depreciation - Continued
----------------------------------------------
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 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 value. Application of this standard during the
periods ended June 30, 2000 and 1999 did not result in any impairment loss.
6. Mortgages Payable
-----------------
Mortgages payable consist of the following:
June 30, December 31,
2000 1999
---- ----
Mortgage payable to an insurance
company, bearing interest at a
fixed rate of 8.8%, due October 1, 2004,
secured by land and building. $1,569,983 $1,715,679
Mortgage payable to an insurance
company, bearing interest at a
fixed rate of 7.15%, due January 5, 2013,
secured by land, building and amenities. 1,801,677 1,845,116
Mortgage payable to an insurance
company, bearing interest at a
fixed rate of 7.15%, due January 5, 2013,
secured by land, buildings and amenities. 1,715,110 1,756,462
Mortgage payable to an insurance
company, bearing interest at a
fixed rate of 8.5%, due November 15, 2005,
secured by land and building. 876,508 940,500
Mortgage payable to an insurance
company, bearing interest at a
fixed rate of 8.125%, due August 1, 2008,
secured by land and building. 559,495 583,180
Mortgage payable to an insurance
company, bearing interest at a
fixed rate of 8.125%, due August 1, 2008,
secured by land and buildings. 520,029 542,043
Mortgage payable to an insurance
company, bearing interest at a
fixed rate of 7.2%, due January 5, 2013,
secured by land, buildings, and amenities. 294,669 299,682
Mortgage payable to an insurance
company, bearing interest at a
fixed rate of 7.2%, due January 5, 2013,
secured by land, buildings and amenities. 175,989 178,983
---------- ----------
$7,513,460 $7,861,645
========== ==========
Based on the borrowing rates currently available to the Partnership for
loans with similar terms and average maturities, the fair value of
long-term debt is approximately $7,334,000.
7
<PAGE>
7. Related Party Transactions
--------------------------
Property management fees of $93,564 and $95,603 for the six months ended
June 30, 2000 and 1999, respectively, were paid to NTS Development Company,
an affiliate of the General Partner. The fee is paid monthly in an amount
equal to 5% of the gross revenues from the residential properties and 6% of
the gross revenues from the commercial properties pursuant to an agreement
with the Partnership. Also pursuant to 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 $22,819 and $6,230 for the six months ended
June 30, 2000 and 1999, respectively, as repair and maintenance fees, and
has capitalized these costs as part of land, buildings and amenities. The
Partnership was also charged the following amounts from NTS Development
Company for the six months ended June 30, 2000 and 1999. 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.
Six Months Ended
June 30,
--------
2000 1999
---- ----
Leasing $ 48,824 $ 77,484
Administrative 96,129 104,216
Property Management 142,064 142,170
Other 4,000 22,916
-------- --------
$291,017 $346,786
======== ========
On February 7, 2000, ORIG, LLC. (the "Affiliate") purchased Interests in
the Partnership pursuant to an Agreement, Bill of Sale and Assignment, by
and among the Affiliate and four investors in the Partnership (the
"Purchase Agreement"). The Affiliate purchased 565 Interests in the
Partnership for total consideration of $136,629, or an average price of
$241.82 per Interest. The Affiliate paid these investors a premium above
the purchase price previously offered for Interests pursuant to prior
tender offers because this purchase allowed the Affiliate to purchase a
substantial number of Interests without incurring the significant expenses
involved with a tender offer and multiple transfers.
8. Transactions Affecting the Investment in Lakeshore/University II Joint
---------------------------------------------------------------------------
Venture
-------
On July 1, 1999, NTS-Properties V contributed $1,737,000 to the
Lakeshore/University II Joint Venture ("L/U II Joint Venture"). The other
Partners in the Joint Venture, including NTS- Properties IV, did not make
capital contributions at that time. Accordingly, the ownership percentages
of the other Partners in the Joint Venture decreased. Effective July 1,
1999, NTS- Properties IV's percentage of ownership in the Joint Venture is
11.93%, as compared to 17.86% prior to July 1, 1999. See Note 12 for
details of a contribution made to the L/U II Joint Venture subsequent to
June 30, 2000.
8
<PAGE>
9. Commitments and Contingencies
-----------------------------
The Partnership, as an owner of real estate, is subject to various
environmental laws of federal and local governments. Compliance by the
Partnership with existing laws has not had a material adverse effect on the
Partnership's financial condition and results of operations. However, the
Partnership cannot predict the impact of new or changed laws or regulations
on its current properties or on properties that it may acquire in the
future.
The Partnership does not believe there is any litigation threatened against
the Partnership other than routine litigation arising out of the ordinary
course of business, some of which is expected to be covered by insurance,
none of which is expected to have a material adverse effect on the
consolidated financial statements of the Partnership.
Pursuant to a contract signed on December 6, 1999, the L/U II Joint Venture
has a commitment to construct a building to be known as Lakeshore Business
Center Phase III on 3.8 acres of land it owns at the Lakeshore Business
Center Development. The construction cost is currently estimated to be
$4,000,000 and will be funded by working capital and approximately
$2,680,000 in debt financing. As of June 30, 2000, the L/U II Joint Venture
has incurred approximately $1,761,000 in expenses for the construction of
Lakeshore Business Center Phase III.
On April 24, 2000, the L/U II Joint Venture obtained a commitment from a
bank for an amount not exceeding $2,680,000 to fund the construction of
Lakeshore Business Center Phase III. The loan bears a variable interest
rate equal to a daily floating LIBOR rate as quoted for 30-day investments,
plus 230 basis points and is secured by 3.8 acres of land located at the
Lakeshore Business Center Development and the improvements now and
hereafter located on the land.
As of June 30, 2000, the L/U II Joint Venture has a commitment for
approximately $66,000 for tenant improvements on 31,338 square feet at
Lakeshore Business Center Phases I and II. The Partnership's share of this
commitment is approximately $7,900 and will be funded from cash flows from
operations. The L/U II Joint Venture also has a commitment for
approximately $45,700 for tenant improvements on 4,689 square feet at
Lakeshore Business Center Phase III. The Partnership's share of this
commitment is approximately $5,500 and will be funded from debt financing.
The construction for these projects has commenced and is expected to be
completed during the third quarter of 2000.
The L/U II Joint Venture anticipates replacing the roofs at Lakeshore
Business Center Phase I for a cost of approximately $200,000. The
Partnership's share of this project will be $23,680 and will be funded from
cash flows from operations.
9
<PAGE>
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
communities 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, II and III.
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 reports financial information
for the purposes of assisting in making internal operating decisions. The
Partnership's management evaluated performance based on stand-alone
operating segment net income.
<TABLE>
Three Months Ended June 30, 2000
--------------------------------
Residential Commercial Total
----------- ---------- -----
<CAPTION>
<S> <C> <C> <C>
Rental income $361,595 $461,585 $823,180
Interest and other income 1,827 1,489 3,316
--------- --------- ---------
Total net revenues $363,422 $463,074 $826,496
--------- --------- ---------
Operating expenses and operating expenses -
affiliated $147,451 $133,478 $280,929
Loss on disposal of assets 2,900 240 3,140
Interest expense 71,938 73,379 145,317
Management fees 18,877 29,427 48,304
Real estate taxes 20,838 27,505 48,343
Depreciation and amortization 59,931 112,245 172,176
Total expenses $321,935 $376,274 $698,209
--------- --------- ---------
Net income $ 41,487 $ 86,800 $128,287
========= ========= =========
</TABLE>
<TABLE>
Three Months Ended June 30, 1999
--------------------------------
Residential Commercial Total
----------- ---------- -----
<CAPTION>
<S> <C> <C> <C>
Rental income $369,749 $479,561 $849,310
Interest and other income -- (3,700) (3,700)
--------- --------- ---------
Total net revenues $369,749 $475,861 $845,610
--------- --------- ---------
Operating expenses and operating expenses -
affiliated $126,807 $187,044 313,851
Loss on disposal of assets 12,826 -- 12,826
Interest expense 8,487 57,282 65,769
Management fees 19,568 29,158 48,726
Real estate taxes 16,803 34,063 50,866
Depreciation and amortization 58,103 117,276 175,379
--------- --------- ---------
Total expenses $242,594 $424,823 $667,417
--------- --------- ---------
Net income $127,155 $ 51,038 $178,193
========= ========= =========
</TABLE>
10
<PAGE>
10. Segment Reporting - Continued
-----------------------------
<TABLE>
Six Months Ended June 30, 2000
------------------------------
Residential Commercial Total
----------- ---------- -----
<CAPTION>
<S> <C> <C> <C>
Rental income $ 713,651 $ 943,127 $1,656,778
Interest and other income 2,935 3,961 6,896
---------- ---------- ----------
Total net revenues $ 716,586 $ 947,088 $1,663,674
---------- ---------- ----------
Operating expenses and operating expenses -
affiliated $ 267,587 $ 326,426 $ 594,013
Loss on disposal of assets 43,463 15,929 59,392
Interest expense 143,291 151,216 294,507
Management fees 36,802 56,762 93,564
Real estate taxes 40,184 56,501 96,685
Depreciation and amortization 119,164 219,665 338,829
---------- ---------- ----------
Total expenses $ 650,491 $ 826,499 $1,476,990
---------- ---------- ----------
Net income $ 66,095 $ 120,589 $ 186,684
========== ========== ==========
</TABLE>
<TABLE>
Six Months Ended June 30, 1999
------------------------------
Residential Commercial Total
----------- ---------- -----
<CAPTION>
<S> <C> <C> <C>
Rental income $ 721,378 $ 953,871 $1,675,249
Interest and other income -- 1,666 1,666
---------- ---------- ----------
Total net revenues $ 721,378 $ 955,537 $1,676,915
---------- ---------- ----------
Operating expenses and operating expenses -
affiliated $ 232,941 $ 392,264 $ 625,205
Loss on disposal of assets 23,546 -- 23,546
Interest expense 16,927 115,800 132,727
Management fees 38,225 57,378 95,603
Real estate taxes 33,607 68,116 101,723
Depreciation expense 115,873 235,050 350,923
---------- ---------- ----------
Total expenses $ 461,119 $ 868,608 $1,329,727
---------- ---------- ----------
Net income $ 260,259 $ 86,929 $ 347,188
========== ========== ==========
</TABLE>
11
<PAGE>
10. Segment Reporting - Continued
-----------------------------
A reconciliation of the totals reported for the operating segments to the
applicable line items in the consolidated financial statements for the
three months and six months ended June 30, 2000 and 1999 is necessary given
amounts recorded at the Partnership level and not allocated to the
operating properties for internal reporting purposes.
<TABLE>
Three Months Ended
June 30,
--------
2000 1999
---- ----
<CAPTION>
NET REVENUES
------------
<S> <C> <C>
Total revenues for reportable segments $ 826,496 $ 845,610
Other income for Partnership 38,393 42,882
Eliminations (33,512) (28,213)
---------- ----------
Total consolidated net revenues $ 831,377 $ 860,279
========== ==========
OPERATING EXPENSES AND OPERATING EXPENSES
-----------------------------------------
- AFFILIATED
------------
Total operating expenses and operating expenses - affiliated
for reportable segments $ 280,929 $ 313,851
Operating expenses and operating expenses - affiliated
for Partnership 119 --
---------- ----------
Total operating expenses and operating expenses - affiliated $ 281,048 $ 313,851
========== ==========
INTEREST EXPENSE
----------------
Total interest expense for reportable segments $ 145,317 $ 65,769
Interest expense for Partnership -- 108,121
---------- ----------
Total interest expense $ 145,317 $ 173,890
========== ==========
DEPRECIATION AND AMORTIZATION
-----------------------------
Total depreciation and amortization for reportable segments $ 172,176 $ 175,379
Depreciation and amortization for Partnership 4,063 2,110
Eliminations 1,455 1,455
---------- ----------
Total depreciation and amortization $ 177,694 $ 178,944
========== ==========
NET INCOME (LOSS)
-----------------
Total net income for reportable segments $ 128,287 $ 178,193
Net loss for Partnership (27,266) (146,505)
Eliminations (34,967) (29,668)
---------- ----------
Total net income $ 66,054 $ 2,020
========== ==========
</TABLE>
12
<PAGE>
10. Segment Reporting - Continued
-----------------------------
<TABLE>
Six Months Ended
June 30,
--------
2000 1999
---- ----
<CAPTION>
NET REVENUES
------------
<S> <C> <C>
Total revenues for reportable segments $ 1,663,674 $ 1,676,915
Other income for Partnership 43,016 63,275
Eliminations (33,387) (46,122)
------------ ------------
Total consolidated net revenues $ 1,673,303 $ 1,694,068
============ ============
OPERATING EXPENSES AND OPERATING EXPENSES
-----------------------------------------
- AFFILIATED
------------
Total operating expenses and operating expenses - affiliated
for reportable segments $ 594,013 $ 625,205
Operating expenses and operating expenses - affiliated
for Partnership 126 --
------------ ------------
Total operating expenses and operating expenses - affiliated $ 594,139 $ 625,205
============ ============
INTEREST EXPENSE
----------------
Total interest expense for reportable segments $ 294,507 $ 132,727
Interest expense for Partnership -- 213,409
------------ ------------
Total interest expense $ 294,507 $ 346,136
============ ============
DEPRECIATION AND AMORTIZATION
-----------------------------
Total depreciation and amortization for reportable segments $ 338,829 $ 350,923
Depreciation and amortization for Partnership 8,153 4,220
Eliminations 2,909 2,910
------------ ------------
Total depreciation and amortization $ 349,891 $ 358,053
============ ============
NET INCOME (LOSS)
-----------------
Total net income for reportable segments $ 186,684 $ 347,188
Net loss for Partnership (85,576) (311,792)
Eliminations (36,296) (49,034)
------------ ------------
Total net income (loss) $ 64,812 $ (13,638)
============ ============
</TABLE>
11. Recent Accounting Pronouncement
-------------------------------
The Emerging Issues Task Force ("EITF") of the Financial Accounting
Standards Board ("FASB") has reached a consensus on Issue No. 00-1,
"Applicability of the Pro Rata Method of Consolidation to Investments in
Certain Partnerships and Other Unincorporated Joint Ventures." The EITF
reached a consensus that a proportionate gross financial statement
presentation (referred to as "proportionate consolidation" in the
Partnership's 1999 Form 10-K Notes to Financial Statements) is not
appropriate for an investment in an unincorporated legal entity accounted
for by the equity method of accounting, unless the investee is in either
the construction industry or an extractive industry where there is a
longstanding practice of its use.
13
<PAGE>
11. Recent Accounting Pronouncement - Continued
-------------------------------------------
The consensus is applicable to financial statements for annual periods
ending after June 15, 2000. Upon application of the consensus, all
comparative financial statements shall be restated to conform with the
consensus. The application of this consensus will not result in a
restatement of previously reported partners' equity or results of
operations, but will result in a recharacterization or reclassification of
certain financial statements' captions and amounts. The Partnership plans
to restate its financial statements using the equity method to account for
its joint venture investments for the year ending December 31, 2000.
12. Subsequent Events
-----------------
On July 1, 2000, NTS-Properties V contributed $500,000 to the L/U II Joint
Venture. The other partners in the L/U II Joint Venture, including
NTS-Properties IV, did not make capital contributions at that time.
Accordingly, the ownership percentages of the other partners in the Joint
Venture decreased. Effective July 1, 2000, NTS-Properties IV's percentage
of ownership in the Joint Venture is 10.92%, as compared to 11.93% prior to
July 1, 2000.
On July 14, 2000, a settlement agreement relative to a class action suit
was executed in a claim NTS-Properties VI had against Masonite Corporation
for defective hardboard siding installed at Golf Brook Apartments. Masonite
Corporation settled on 15 of 19 buildings at Golf Brook Apartments for a
total of approximately $253,700. An agreement has not been reached, at this
time for the remaining four buildings. NTS-Properties IV's share of the
settlement is approximately $10,000.
On July 19, 2000, there was a fire at Golf Brook Apartments. Eight
apartment units sustained fire and/or smoke damage. The Partnership has an
insurance deductible of $5,000 and has filed a claim with its insurance
company. At this time, it is unknown how much it will cost to repair the
eight apartment units.
14
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") is structured in four major sections. The first section
provides information related to occupancy levels and rental and other income
generated by the Partnership's properties. The second analyzes results of
operations on a consolidated basis. The final sections address consolidated cash
flows and financial condition. A discussion of certain market risks also
follows. MD&A should be read in conjunction with the Financial Statements in
Item 1 and the Cautionary Statements below.
Cautionary Statements
---------------------
Some of the statements included in this Item 2 may be considered to be
"forward-looking statements" since such statements relate to matters which have
not yet occurred. For example, phrases such as "the Partnership anticipates,"
"believes" or "expects," indicate that it is possible that the event
anticipated, believed, or expected may not occur. Should such event not occur,
then the result which the Partnership expected also may not occur or occur in a
different manner, which may be more or less favorable to the Partnership. The
Partnership does not undertake any obligations to publicly release the result of
any revisions to these forward-looking statements that may be made to reflect
any future events or circumstances.
Any forward-looking statements included in MD&A, or elsewhere in this report,
which reflect management's best judgement, based on factors known, involve risks
and uncertainties. Actual results could differ materially from those anticipated
in any forward-looking statements as a result of a number of factors, including
but not limited to those discussed below. Any forward-looking information
provided by the Partnership pursuant to the safe harbor established by recent
securities legislation should be evaluated in the context of these factors.
The Partnership's liquidity, capital resources and results of operations are
subject to a number of risks and uncertainties including, but not limited to the
following: the ability of the Partnership to achieve planned revenues; the
ability of the Partnership to make payments due under its debt agreements; the
ability of the Partnership to negotiate and maintain terms with vendors and
service providers for operating expenses; competitive pressures from other real
estate companies, including large commercial and residential real estate
companies, which may affect the nature and viability of the Partnership's
business strategy; trends in the economy as a whole which may affect consumer
confidence and demand for the types of rental property held by the Partnership;
the ability of the Partnership to predict the demand for specific rental
properties; the ability of the Partnership to attract and retain tenants;
availability and costs of management and labor employed; real estate occupancy
and development costs, including substantial fixed investment costs associated
with renovations necessary to obtain new tenants and retain existing tenants;
and the risk of a major commercial tenant defaulting on its lease due 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.
15
<PAGE>
Results of Operations
---------------------
The occupancy levels at the Partnership's properties as of June 30 were as
follows:
Six Months Ended June 30,
-------------------------
2000 (1) 1999
-------- ----
Wholly-owned Properties
-----------------------
Commonwealth Business Center Phase I (2) 93% 100%
Plainview Point Office Center Phases I & II 75% 53%
The Willows of Plainview Phase I 98% 95%
Property Owned in Joint Venture
-------------------------------
with NTS-Properties V
---------------------
(Ownership % at June 30, 2000)
------------------------------
The Willows of Plainview Phase II (9.7%) (2) 94% 95%
Properties Owned in Joint Venture
---------------------------------
with NTS-Properties VI
----------------------
(Ownership % at June 30, 2000)
------------------------------
Golf Brook Apartments (3.97%) 94% 89%
Plainview Point III Office Center (4.96%) 91% 91%
Property Owned in Joint Venture
-------------------------------
with NTS-Properties VII, Ltd. and
---------------------------------
NTS-Properties Plus Ltd.
------------------------
(Ownership % at June 30, 2000)
------------------------------
Blankenbaker Business Center 1A (29.61%) 100% 100%
Properties Owned through
------------------------
Lakeshore/University II Joint Venture
-------------------------------------
(L/U II Joint Venture)
----------------------
Lakeshore Business Center Phase I (3) 75% 71%
Lakeshore Business Center Phase II (2) (3) 82% 86%
Lakeshore Business Center Phase III (4) 0% N/A
(1) Current occupancy levels are considered adequate to continue the operation
of the Partnership's properties.
(2) In the opinion of the General Partner of the Partnership, the decrease in
period ending occupancy is only a temporary fluctuation and does not
represent a permanent downward occupancy trend.
(3) Ownership percentage was 11.93% as of June 30, 2000 and 17.86% as of June
30, 1999. (See Notes to Financial Statements - Note 8).
(4) Ownership percentage was 11.93% as of June 30, 2000. Property was not under
construction until December 1999. As of June 30, 2000, one lease for 4,689
square feet has been signed and the tenant is expected to take occupancy
during the third quarter of 2000.
16
<PAGE>
Results of Operations - Continued
---------------------------------
The average occupancy levels at the Partnership's properties during the three
months and six months ended June 30 were as follows:
Three Months Six Months
Ended Ended
June 30, June 30,
-------- --------
2000 1999 2000 1999
---- ---- ---- ----
Wholly-owned Properties
-----------------------
Commonwealth Business Center Phase I (1) 93% 95% 93% 94%
Plainview Point Office Center Phases I & II 76% 53% 73% 55%
The Willows of Plainview Phase I (1) 94% 95% 95% 95%
Property Owned in Joint Venture
-------------------------------
with NTS-Properties V
---------------------
(Ownership % at June 30, 2000)
------------------------------
The Willows of Plainview Phase II (9.7%) (1) 94% 96% 92% 95%
Properties Owned in Joint Venture
---------------------------------
with NTS-Properties VI
----------------------
(Ownership % at June 30, 2000)
------------------------------
Golf Brook Apartments (3.97%) (1) 91% 93% 92% 94%
Plainview Point III Office Center (4.96%) (1) 90% 89% 88% 90%
Properties Owned in Joint Venture
---------------------------------
with NTS-Properties VII,
------------------------
Ltd. and NTS-Properties Plus Ltd.
---------------------------------
(Ownership % at June 30, 2000)
------------------------------
Blankenbaker Business Center 1A (29.61%) 100% 100% 100% 100%
Properties Owned Through Lakeshore/ University II
-------------------------------------------------
University (L/U II Joint Venture)
---------------------------------
Lakeshore Business Center Phase I (2) 76% 72% 76% 76%
Lakeshore Business Center Phase II (1) (2) 78% 86% 81% 85%
Lakeshore Business Center Phase III (3) 0% N/A 0% N/A
(1) In the opinion of the General Partner of the Partnership, the decrease in
average occupancy is only a temporary fluctuation and does not represent a
permanent downward occupancy trend.
(2) Ownership percentage was 11.93% for the three months and six months ended
June 30, 2000 and 17.86% for the three months and six months ended June 30,
1999. (See Notes to Financial Statements - Note 8).
(3) Ownership percentage was 11.93% for the three months and six months ended
June 30, 2000. The property was not under construction until December 1999.
17
<PAGE>
Results of Operations - Continued
---------------------------------
Rental and other income generated by the Partnership's properties for the three
months and six months ended June 30, 2000 and 1999 were as follows:
Three Months Six Months
Ended Ended
June 30, June 30,
-------- --------
2000 1999 2000 1999
---- ---- ---- ----
Wholly-owned Properties
-----------------------
Commonwealth Business Center Phase I $190,966 $193,194 $379,758 $379,464
Plainview Point Office Center Phases I & II $104,054 $ 79,763 $249,015 $166,975
The Willows of Plainview Phase I $300,887 $309,529 $593,580 $601,443
Property Owned in Joint Venture
-------------------------------
with NTS- Properties V
----------------------
(Ownership % at June 30, 2000)
------------------------------
The Willows of Plainview II (9.7%) $ 33,395 $ 32,783 $ 63,688 $ 66,595
Properties Owned in Joint Venture with NTS-
-------------------------------------------
Properties VI (Ownership % at June 30, 2000)
--------------------------------------------
Golf Brook Apartments (3.97%) $ 29,140 $ 30,375 $ 59,318 $ 60,088
Plainview Point III Office Center (4.96%) $ 10,393 $ 9,736 $ 20,176 $ 19,134
Property Owned in Joint Venture
-------------------------------
with NTS- Properties VII, Ltd. and
----------------------------------
NTS-Properties Plus Ltd.
------------------------
(Ownership % at June 30, 2000)
------------------------------
Blankenbaker Business Center 1A (29.61%) $ 73,674 $ 70,454 $132,946 $140,902
Property Owned Through Lakeshore/University
-------------------------------------------
II Joint Venture (L/U II Joint Venture)
---------------------------------------
Lakeshore Business Center Phase I (1) $ 41,474 $ 57,535 $ 82,424 $119,729
Lakeshore Business Center Phase II (1) $ 42,513 $ 69,699 $ 82,769 $129,284
Lakeshore Business Center Phase III (2) $ 0 N/A $ 0 N/A
(1) Represents ownership percentage of 11.93% for the three months and six
months ended June 30, 2000 and 17.86% for the three months and six months
ended June 30, 1999. (See Notes to Financial Statements - Note 8).
(2) Building is currently under construction. As of June 30, 2000, one lease
for 4,689 square feet has been signed and the tenant is scheduled to take
occupancy during the third quarter of 2000.
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 June 30, 2000 and 1999. Items that did not have a material
impact on operations for the periods listed above have been excluded from this
discussion.
18
<PAGE>
Results of Operations - Continued
---------------------------------
Operating expenses decreased approximately $25,600 or 13% for the three months
ended June 30, 2000, as compared to the same period in 1999. The decrease is
primarily due to a decrease in bad debt expense at Plainview Point Phases I and
II, and decreased repairs to tenant suites at Plainview Point Phases I and II
and Commonwealth Business Center I. The decrease is partially offset by an
increase in exterior repairs at Golf Brook Apartments and increases in interior
repairs, advertising and utilities at The Willows of Plainview Phases I and II.
Operating expenses - affiliated decreased approximately $7,200 or 6% and $35,800
or 14% for the three months and six months ended June 30, 2000, as compared to
the same periods in 1999. The decrease is primarily due to decreased salary and
overhead costs allocated to the Partnership as a result of personnel status
changes. Operating expenses - affiliated are expenses incurred for services
performed by NTS Development Company, an affiliate of the General Partner.
Loss on disposal of assets for the three and six months ended June 30, 2000, can
be attributed to the retirement of building costs at The Willows of Plainview
Phases I and II and Lakeshore Business Center Phases I and II. The losses are
the result of exterior wood and paint replacements at The Willows of Plainview I
and II and common area renovations at Lakeshore Business Centers Phases I and
II. Loss on disposal of assets for the three months and six months ended June
30, 1999, can be attributed to the retirement of building costs at The Willows
of Plainview Phases I and II and Golf Brook Apartments. The losses are the
result of the replacement of the alarm system at The Willows of Plainview Phases
I and II and exterior wood and paint replacements at Golf Brook Apartments.
Interest expense decreased approximately $28,600 or 16% and $51,600 or 15% for
the three months and six months ended June 30, 2000, as compared to the same
period in 1999. The decreases are primarily due to required principal payments
on the mortgages payable of the Partnership's properties.
Professional and administrative expenses decreased approximately $10,800 or 26%
and $16,600 or 21% for the three months and six months ended June 30, 2000, as
compared to the same periods in 1999. The decrease is due primarily to decreased
legal and accounting fees.
Professional and administrative expenses - affiliated decreased approximately
$6,900 or 19% and $20,500 or 26% for the three months and six months ended June
30, 2000, as compared to the same periods in 1999, primarily as a result of
decreased overhead costs allocated to the Partnership as a result of personnel
status changes. Professional and administrative expenses - affiliated are
expenses incurred for services performed by employees of NTS Development
Company, an affiliate of the General Partner.
19
<PAGE>
Results of Operations - Continued
---------------------------------
Also contributing to all of the decreases discussed above is a decrease in
ownership of L/U II Joint Venture from 17.86% to 11.93% effective July 1, 1999.
(See Notes to Financial Statements - Note 8).
Consolidated Cash Flows and Financial Condition
-----------------------------------------------
In the next 12 months, the demand on future liquidity is anticipated to increase
as the Partnership continues its efforts in the leasing of its commercial
properties. At this time, the future leasing and tenant finish costs which will
be required to renew the current leases or obtain new tenants are unknown. It is
anticipated that the cash flow from operations and cash reserves will be
sufficient to meet the needs of the Partnership.
Cash flows provided by (used in):
Six Months Ended
June 30,
--------
2000 1999
---- ----
Operating activities $ 470,019 $ 405,458
Investing activities (305,601) (42,466)
Financing activities (348,185) (324,007)
---------- ----------
Net (decrease) increase in cash and equivalents $(183,767) $ 38,985
========== ==========
Net cash provided by operating activities increased approximately $64,600 for
the six months ended June 30, 2000, as compared to the same period in 1999. The
increase was primarily driven by an increase in net income from operations and
restricted cash and decreased other assets and accounts receivable. The increase
is partially offset by increased payments on accounts payable.
Net cash used in investing activities increased approximately $263,000 for the
six months ended June 30, 2000, as compared to the same period in 1999. The
primary reason for the increase in funds used in investing activities was
increased capital expenditures, offset by the decrease in the maturity of
investment securities.
Net cash used in financing activities increased approximately $24,000 for the
six months ended June 30, 2000, as compared to the same period in 1999. The
increase is primarily due to a capital contribution received by the L/U II Joint
Venture in 1999 and an increase in principal payments on mortgages.
No distributions were paid for the six months ended June 30, 2000, or the year
ended December 31, 1999. Distributions will be resumed once the Partnership has
established adequate cash reserves and is generating cash from operations which,
in management's opinion, is sufficient to warrant future distributions. The
primary source of future liquidity and distributions is expected to be derived
from cash generated by the Partnership's properties after adequate cash reserves
are established for future leasing costs, tenant finish costs and other capital
improvements. Cash reserves (which are unrestricted cash and equivalents) as
shown on the Partnership's balance sheet as of June 30, 2000 were $423,745.
20
<PAGE>
Consolidated Cash Flows and Financial Condition - Continued
-----------------------------------------------------------
Due to the fact that no distributions were paid during the six months ended June
30, 2000 or 1999, the table which presents that portion of the distribution that
represents a return of capital on a GAAP basis has been omitted.
Currently, the Partnership's plans for renovations and other major capital
expenditures include tenant improvements at the Partnership's properties as
required by lease negotiations and the construction of Lakeshore Business Center
Phase III as discussed below. Changes to current tenant finish improvements are
a typical part of any lease negotiation. Improvements generally include a
revision to the current floor plan to accommodate a tenant's needs, new
carpeting and paint and/or wallcovering. The extent and cost of the improvements
are determined by the size of the space being leased and whether the
improvements are for a new tenant or incurred because of a lease renewal. The
tenant finish improvements will be funded by cash flow from operations and cash
reserves.
Pursuant to a contract signed on December 6, 1999, the L/U II Joint Venture has
a commitment to construct a building to be known as Lakeshore Business Center
Phase III on 3.8 acres of land it owns at the Lakeshore Business Center
Development. The construction commenced in December 1999 and the construction
cost is currently estimated to be $4,000,000 and will be funded by working
capital and approximately $2,680,000 in debt financing. As of June 30, 2000, the
L/U II Joint Venture has incurred approximately $1,761,000 in expenses for the
construction of Lakeshore Business Center Phase III.
As of June 30, 2000, the L/U II Joint Venture has a commitment for approximately
$66,000 for tenant improvements on 31,338 square feet at Lakeshore Business
Center Phases I and II. The Partnership's share of this commitment is
approximately $7,900 and will be funded from cash flows from operations. The L/U
II Joint Venture also has a commitment for approximately $45,700 for tenant
improvements on 4,689 square feet at Lakeshore Business Center Phase III. The
Partnership's share of this commitment is approximately $5,500 and will be
funded from the debt financing discussed above. The construction for these
projects has commenced and is expected to be completed during the third quarter
of 2000.
The L/U II Joint Venture anticipates replacing the roofs at Lakeshore Business
Center Phase I for a cost of approximately $200,000. The Partnership's share of
this project will be $23,680 and will be funded from cash flows from operations.
The Partnership has no other material commitments for renovations or capital
improvements as of June 30, 2000.
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
21
<PAGE>
Consolidated Cash Flows and Financial Condition - Continued
-----------------------------------------------------------
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, who are employees of NTS Development
Company, located in Louisville, Kentucky. The leasing agents are located in the
same city as the commercial properties. All advertising for these properties is
coordinated by NTS Development Company's marketing staff located in Louisville,
Kentucky.
In an effort to continue to improve occupancy at the Partnership's residential
properties, the Partnership has an on-site leasing staff, who are 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 apartments and negotiates lease renewals with current
residents.
Leases at Commonwealth Business Center Phase I, Blankenbaker Business Center 1A,
and Lakeshore Business Center Phases I, II and III provide for tenants to
contribute toward the payment of common area expenses, insurance and real estate
taxes. Leases at Plainview Point Office Center Phases I, II and III provide for
tenants to contribute toward the payment of increases in common area maintenance
expenses, insurance, utilities and real estate taxes. These lease provisions,
along with the fact that residential leases are generally for a period of one
year, should protect the Partnership's operations from the impact of inflation
and changing prices.
22
<PAGE>
Item 3. Quantitative and Qualitative Disclosures about Market Risk
----------------------------------------------------------
Our primary market risk exposure with regard to financial instruments is changes
in interest rates. All of the Partnership's debt bears interest at a fixed rate.
At June 30, 2000, a hypothetical 100 basis point increase in interest rates
would result in an approximately $284,700 decrease in the fair value of the
debt.
23
<PAGE>
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings
-----------------
Not applicable.
Item 2. Changes in Securities
---------------------
Not applicable.
Item 3. Defaults Upon Senior Securities
-------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not applicable.
Item 5. Other Information
-----------------
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a) Exhibits:
Exhibit 27. Financial Data Schedule
b) Reports on Form 8-K:
Not applicable.
24
<PAGE>
SIGNATURES
----------
Pursuant to the requirements 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, LTD.
-------------------------------------------
(Registrant)
BY: NTS-Properties Associates IV, LTD.
General Partner,
BY: NTS Capital Corporation,
General Partner
/s/ Gregory A. Wells
--------------------------------------------
Gregory A. Wells
Senior Vice President and
Chief Financial Officer of
NTS Capital Corporation
Date: August 11, 2000
25
<PAGE>
