<PAGE>
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 June 30, 1997
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 0-13400
NTS-PROPERTIES V, a Maryland Limited Partnership
(Exact name of registrant as specified in its charter)
Maryland 61-1051452
(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 19
Total Pages: 20
<PAGE>
TABLE OF CONTENTS
Pages
PART I
Item 1. Financial Statements
Balance Sheets and Statement of Partners' Equity
As of June 30, 1997 and December 31, 1996 3
Statements of Operations
For the three months and six months ended
June 30, 1997 and 1996 4
Statements of Cash Flows
For the three months and six months ended
June 30, 1997 and 1996 5
Notes To Financial Statements 6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-18
PART II
1. Legal Proceedings 19
2. Changes in Securities 19
3. Defaults upon Senior Securities 19
4. Submission of Matters to a Vote of Security Holders 19
5. Other Information 19
6. Exhibits and Reports on Form 8-K 19
Signatures 20
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<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
NTS-PROPERTIES V,
A Maryland Limited Partnership
BALANCE SHEETS AND STATEMENT OF PARTNERS' EQUITY
<CAPTION>
As of As of
June 30, 1997 December 31, 1996*
-------------- -----------------
<S> <C> <C>
ASSETS
Cash and equivalents $ 225,197 $ 315,816
Cash and equivalents - restricted 326,857 84,992
Accounts receivable, net of allowance
for doubtful accounts of $15,207 (1997)
and $15,899 (1996) 432,092 517,267
Land, buildings and amenities, net 24,371,912 24,972,650
Asset held for development, net 2,202,172 2,279,098
Asset held for sale 1,152,868 1,152,868
Other assets 969,562 1,011,565
----------- -----------
$29,680,660 $30,334,256
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Mortgages and note payable $22,166,175 $22,688,331
Accounts payable - operations 279,731 256,451
Accounts payable - construction 170,371 215,059
Security deposits 174,542 152,931
Other liabilities 332,199 39,865
----------- -----------
23,123,018 23,352,637
Commitments and Contingencies
Partners' equity 6,557,642 6,981,619
----------- -----------
$29,680,660 $30,334,256
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Limited General
Partners Partner Total
------------ ----------- --------------
<S> <C> <C> <C>
PARTNERS' EQUITY
Capital contributions, net of
offering costs $ 30,582,037 $ 100 $ 30,582,137
Net income (loss) - prior years (7,952,573) 33,468 (7,919,105)
Net loss - current year (419,738) (4,240) (423,978)
Cash distributions declared to
date (15,389,204) (155,528) (15,544,732)
Repurchase of limited
partnership Units (136,680) -- (136,680)
------------ ------------ ------------
Balances at June 30, 1997 $ 6,683,842 $ (126,200) $ 6,557,642
============ ============ ============
</TABLE>
*Reference is made to the audited financial statements in the Form 10-K as filed
with the Commission on March 31, 1997.
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<PAGE>
<TABLE>
NTS-PROPERTIES V,
A Maryland Limited Partnership
STATEMENTS OF OPERATIONS
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
1997 1996 1997 1996
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Rental income $ 1,408,207 $ 1,395,285 $ 2,763,953 $ 2,786,598
Interest and other income 4,878 8,376 11,456 12,537
----------- ----------- ----------- -----------
1,413,085 1,403,661 2,775,409 2,799,135
EXPENSES:
Operating expenses 289,360 246,924 567,355 498,087
Operating expenses - affiliated 128,319 125,532 289,149 261,498
Amortization of capitalized
leasing costs 5,203 7,331 10,404 8,307
Interest expense 447,789 526,405 890,395 1,066,929
Management fees 83,238 83,395 166,095 169,094
Real estate taxes 133,564 134,494 273,562 268,941
Professional and administrative
expenses 30,398 28,491 58,164 54,578
Professional and administrative
expenses - affiliated 58,022 36,293 114,372 78,799
Depreciation and amortization 411,574 422,609 829,891 850,626
----------- ----------- ----------- -----------
1,587,467 1,611,474 3,199,387 3,256,859
----------- ----------- ----------- -----------
Net loss $ (174,382) $ (207,813) $ (423,978) $ (457,724)
=========== =========== =========== ===========
Net loss allocated to the
limited partners $ (172,638) $ (205,735) $ (419,738) $ (453,147)
=========== =========== =========== ===========
Net loss per limited partnership
unit $ (4.91) $ (5.74) $ (11.95) $ (12.63)
=========== =========== =========== ===========
Weighted average number of
limited partnership units 35,136 35,869 35,136 35,873
=========== =========== =========== ===========
</TABLE>
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<PAGE>
<TABLE>
NTS-PROPERTIES V,
A Maryland Limited Partnership
STATEMENTS OF CASH FLOWS
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- -------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (174,382) $ (207,813) $ (423,978) $ (457,724)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Amortization of capitalized leasing
costs 5,203 7,331 10,404 8,307
Depreciation and amortization 411,574 422,609 829,891 850,626
Changes in assets and liabilities:
Cash and equivalents - restricted (121,377) (127,947) (241,865) (270,299)
Accounts receivable 52,579 53,189 85,175 114,510
Other assets 41,795 6,303 11,855 (118,188)
Accounts payable - operations (39,345) (11,786) 23,280 30,746
Security deposits 10,742 (3,857) 21,611 (947)
Other liabilities 147,251 130,729 292,332 262,593
----------- ----------- ----------- -----------
Net cash provided by operating
activities 334,040 268,758 608,705 419,624
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to land, buildings and
amenities (90,181) (6,724) (177,168) (129,851)
Decrease in cash and equivalents -
restricted -- -- -- 13,721
----------- ----------- ----------- -----------
Net cash used in investing activities (90,181) (6,724) (177,168) (116,130)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Increases in mortgages payable -- -- -- 6,500,000
Principal payments on mortgages and notes
payable (262,345) (171,861) (522,156) (6,689,079)
Additions to loan costs -- (20,663) -- (62,486)
Repurchase of limited partnership Units -- (49,950) -- (49,950)
----------- ----------- ----------- -----------
Net cash used in financing activities (262,345) (242,474) (522,156) (301,515)
----------- ----------- ----------- -----------
Net increase (decrease) in cash and
equivalents (18,486) 19,560 (90,619) 1,979
CASH AND EQUIVALENTS, beginning of period 243,683 200,750 315,816 218,331
----------- ----------- ----------- -----------
CASH AND EQUIVALENTS, end of period $ 225,197 $ 220,310 $ 225,197 $ 220,310
=========== =========== =========== ===========
Interest paid on a cash basis $ 447,944 $ 527,422 $ 897,410 $ 1,080,457
=========== =========== =========== ===========
</TABLE>
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<PAGE>
NTS-PROPERTIES V,
A Maryland Limited Partnership
NOTES TO FINANCIAL STATEMENTS
The financial statements included herein should be read in conjunction with the
Partnership's 1996 Annual Report. 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, 1997 and 1996.
1. Use of Estimates in the Preparation of Financial Statements
-----------------------------------------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. Cash and Equivalents - Restricted
----------------------------------
Cash and equivalents - restricted represents funds received for residential
security deposits and funds which have been escrowed with mortgage companies
for property taxes in accordance with the loan agreements.
3. Mortgages and Note Payable
--------------------------
Mortgages and note payable consist of the following:
June 30, December 31,
1997 1996
------------- ----------------
Mortgage payable with an insurance
company, bearing interest at a fixed
rate of 7.65%, due February 1, 2008,
secured by land and building $ 4,735,383 $ 4,876,477
Mortgage payable with an insurance
company, bearing interest at a fixed
rate of 8.125%, due August 1, 2008,
secured by land and building 3,993,825 4,101,627
Mortgage payable with an insurance
company, bearing interest at a fixed
rate of 8.125%, due August 1, 2008,
secured by land and building 3,828,106 3,931,435
Mortgage payable with an insurance
company, bearing interest at a fixed
rate of 8.125%, due August 1, 2008,
secured by land and building 3,712,103 3,812,300
Mortgage payable with an insurance
company, bearing interest at a fixed
rate of 7.5% due December 5, 2003,
secured by land, buildings and
amenities 2,870,790 2,893,401
(Continued next page)
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<PAGE>
3. Mortgages and Note Payable - Continued
--------------------------------------
June 30, December 31,
1997 1996
----------- ------------
Mortgage payable with an insurance
company, bearing interest at a fixed
rate of 7.5% due December 5, 2003,
secured by land, buildings and
amenities $ 1,713,904 $ 1,727,404
Note payable to a bank, bearing
interest at the Prime Rate, due
February 1, 2009, secured by land
and building 1,312,064 1,345,687
------------ ------------
$ 22,166,175 $ 22,688,331
============ ============
The Prime Rate was 8.5% at June 30, 1997 and was 8.25% at December 31, 1996
Based on the borrowing rates currently available to the Partnership for
mortgages with similar terms, the fair value of long-term debt is
approximately $23,600,000.
4. Related Party Transactions
--------------------------
Pursuant to an agreement with the Partnership, property management fees of
$166,095 and $169,094 for the six months ended June 30, 1997 and 1996,
respectively, were paid to NTS Development Company, an affiliate of the
general partner of the Partnership. The fee is equal to 5% of gross
revenues from residential properties and 6% of gross revenues from
commercial properties. 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
$11,447 and $3,218 as a repair and maintenance fee during the six months
ended June 30, 1997 and 1996, respectively, and has capitalized this cost
as part of land, buildings and amenities.
As permitted by an agreement, the Partnership also was charged the
following amounts from NTS Development Company for the six months ended
June 30, 1997 and 1996. These charges include items which have been
expensed as operating expenses - affiliated or professional and
administrative expenses affiliated and items which have been capitalized as
other assets or as land, buildings and amenities.
1997 1996
--------- ---------
Administrative $ 144,777 $ 107,924
Leasing 116,684 113,311
Property manager 174,326 155,519
Other 1,750 12,173
-------- --------
$ 437,537 $ 388,927
======== ========
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<PAGE>
5. Commitments and Contingencies
-----------------------------
Philip Crosby Associates, Inc. ("Crosby") has leased 100% of University
Business Center Phase II. The business center is owned by the
Lakeshore/University II (L/U II) Joint Venture in which the Partnership has
a 69% interest. The original lease term was for seven years, and the tenant
took occupancy in April 1991. During 1994, 1995 and 1996, Crosby sub-leased
a portion of the business center. Currently, Crosby has sub-leased, through
the end of their lease term, approximately 85,000 square feet (including
approximately 10,000 square feet of mezzanine space) of University Business
Center Phase II's approximately 88,000 square feet of net rentable area (or
96%). Of the total being sub-leased, approximately 73,000 square feet (or
86%) is being leased by Full Sail Recorders, Inc. ("Full Sail"), a major
tenant at University Business Center Phase I. Through December 1996, Crosby
continued to make rent payments pursuant to the original lease terms. The
Joint Venture received notice that Crosby did not intend to pay full rental
due under the original lease agreement from and after January 1997. The
rental income from this property accounted for approximately 15% of the
partnership's total revenues during 1996. The Joint Venture instituted
legal action against Crosby to seek resolution of this situation. See Note
6 for a further discussion regarding the current status of this situation.
Although the Joint Venture does not presently have lease agreements (except
as noted below) with the sub-lessees noted above, beginning February 1997
rent payments from these sub-lessees have been made directly to the Joint
Venture. The Joint Venture is currently negotiating directly with the sub-
lessees to enter into lease agreements for the space presently sublet. At
this time, the future leasing and tenant finish costs which will be
required to release this space are unknown except as noted below for the
negotiations with Full Sail.
In December 1995, Full Sail signed a 33 month lease with the L/U II Joint
Venture for the approximately 41,000 square feet it currently sub-leases
from Crosby. In November 1996, Full Sail signed a lease amendment which
increased the square footage from 41,000 square feet to 48,000 square feet
and extended the lease term from 33 months to 76 months. In November 1996,
Full Sail also signed a 52 month lease for an additional approximately
21,000 square feet it presently sub-leases from Crosby. Both lease terms
commence April 1998 when the Crosby lease ends. As part of the lease
negotiations, Full Sail will receive a total of $450,000 in special tenant
allowances ($200,000 resulting from the original lease signed December 1995
and $250,000 resulting from the lease amendment signed November 1996).
Approximately $92,000 of the total allowance is to be reimbursed by Full
Sail to the L/U II Joint Venture. The Partnership's proportionate share of
the net commitment ($450,000 less $92,000) is approximately $247,000 or
69%. The tenant allowance will be due and payable to Full Sail pursuant to
the previously mentioned lease agreements, as appropriate invoices for
tenant finish costs incurred by Full Sail are submitted to the L/U II Joint
Venture. The source of funds for this commitment is expected to be cash
flow from operations and/or cash reserves.
6. Subsequent Events
-----------------
Crosby has abandoned its business and sold all or most of its operating
assets and has informed the Joint Venture that Crosby may be insolvent.
Subsequent to June 30, 1997, a conditional settlement was reached at a
mediation conference with Crosby and its corporate parent, whereby, subject
to the Joint Venture's acceptance of the settlement terms, the corporate
parent has agreed to pay a portion of Crosby's liability to the Joint
Venture in full satisfaction of all claims against Crosby and any of its
affiliates. The amount of any settlement will be substantially less than
the aggregate liability of Crosby to the Joint Venture resulting from
Crosby's default
- 8 -
<PAGE>
6. Subsequent Events - Continued
-----------------------------
under its lease. As a result, the Joint Venture may be forced to seek out
additional sources of capital to fund ongoing operations, including, without
limitation, from loans, the sale of assets, additional capital contributions
of its partners and/or the admission of a new partner or partners, or from
other sources. There is no present assurance that any such needed capital
will be available.
Also subsequent to June 30, 1997, the L/U II Joint Venture made a commitment
of approximately $100,000 for tenant finish improvements and leasing costs at
Lakeshore Business Center Phase II. The commitment is the result of a new
six-year lease for approximately 4,200 square feet. The tenant is expected to
take occupancy near the end of the third quarter of 1997. The Partnership's
proportionate share of this commitment is approximately $69,000 or 69%.
- 9 -
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
- ----------------------
The occupancy levels at the Partnership's properties as of June 30 were as
follows:
1997 1996
---- ----
Wholly-owned Properties
- -----------------------
Commonwealth Business Center Phase II 73% 69%
University Business Center Phase I 100% 95%
Property Owned in Joint Venture
with NTS-Properties IV (Ownership %
at June 30, 1997)
- -----------------------------------
The Willows of Plainview Phase II (90%) 94% 94%
Properties Owned Through Lakeshore/
University II Joint Venture (L/U II
Joint Venture) (Ownership % at
June 30, 1997)
- ------------------------------------
Lakeshore Business Center Phase I (69%) 97% 99%
Lakeshore Business Center Phase II (69%) 94% 80%
University Business Center Phase II (69%) 99% 99%
The rental and other income generated by the Partnership's properties for the
three months and six months ended June 30, 1997 and 1996 was as follows:
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1997 1996 1997 1996
-------- -------- -------- -------
Wholly-owned Properties
- -----------------------
Commonwealth Business Center
Phase II $ 122,750 $ 106,235 $ 263,578 $ 231,969
University Business Center Phase I $ 379,815 $ 351,367 $ 769,235 $ 714,173
Property Owned in Joint Venture
with NTS-Properties IV (Ownership
% at June 30, 1997)
- ---------------------------------
The Willows of Plainview
Phase II (90%) $ 308,835 $ 287,906 $ 597,381 $ 569,558
Properties Owned Through
Lakeshore/University II Joint
Venture (L/U II Joint Venture)
(Ownership % at June 30, 1997)
- ------------------------------
Lakeshore Business Center
Phase I (69%) $ 241,617 $ 245,034 $ 486,526 $ 482,169
Lakeshore Business Center
Phase II (69%) $ 247,402 $ 197,722 $ 477,261 $ 379,413
University Business Center
Phase II (69%) $ 111,303 $ 210,821 $ 176,499 $ 415,874
Revenues shown in the table above for properties owned through a joint
venture represent only the Partnership's percentage interest in those
revenues.
- 10 -
<PAGE>
Results of Operations - Continued
- ---------------------------------
The 4% increase in occupancy at Commonwealth Business Center Phase II from June
30, 1996 to June 30, 1997 is a result of three new leases for approximately
27,100 square feet. Included in this total is a five-year lease for
approximately 14,000 square feet and a one-year lease for approximately 11,000
square feet. Partially offsetting the new leases are five tenant move-outs,
totalling 25,200 square feet. Included in the total move-outs are four tenants,
totalling 23,600 square feet, which vacated at the end of the lease term. The
other tenant, who had occupied 1,600 square feet, vacated the premises prior to
the end of the lease term due to bankruptcy. There was no accrued income
connected with this lease. Average occupancy increased from 67% (1996) to 68%
(1997) for the three months ended June 30 and from 67% (1996) to 72% (1997) for
the six months ended June 30. The increase in rental and other income at
Commonwealth Business Center Phase II for the three monts and six months ended
June 30, 1997 as compared to the same periods in 1996 is a result of the
increase in average occupancy and an increase in common area expense
reimbursements. Tenants at Commonwealth Business Center Phase II reimburse the
Partnership for common area expenses as part of the lease agreements.
The 5% increase in occupancy at University Business Center Phase I from June 30,
1996 to June 30, 1997 is a result of four new leases totalling approximately
7,700 square feet. Partially offsetting the new leases are three tenant
move-outs of approximately 3,500 square feet. Approximately 1,800 square feet of
the move-outs represents two tenants who vacated the premises at the end of the
lease term. The third tenant, who occupied approximately 1,700 square feet,
vacated prior to the end of the lease term. The move-out was the result of a
downsizing by the tenant's parent company. The tenant paid a lease termination
fee of approximately $5,800 (recorded as rental income) in the third quarter of
1996. There was no accrued income associated with this lease. Average occupancy
at University Business Center Phase I for the three months and six months ended
June 30 increased from 95% (1996) to 100% (1997). The increase in rental and
other income at University Business Center Phase I for the three months and six
months ended June 30, 1997 as compared to the same periods in 1996 is primarily
due to the increase in average occupancy.
The Willows of Plainview Phase II's occupancy was 94% at June 30, 1996 and June
30, 1997. Average occupancy increased from 93% (1996) to 94% (1997) for the
three months ended June 30 and decreased from 95% (1996) to 91% (1997) for the
six month period. Occupancy at residential properties fluctuate on a continuous
basis. Period-ending occupancy percentages represent occupancy only on a
specific date; therefore, it is more meaningful to consider average occupancy
percentages which are representative of the entire period's results. The
increase in rental and other income at The Willows of Plainview Phase II for the
three months and six months ended June 30, 1997 as compared to the same periods
in 1996 is primarily due to an increase in income from fully furnished units and
an increase in rental rates. Fully furnished units are apartments which rent at
an additional premium above base rent.
The 2% decrease in occupancy at Lakeshore Business Center Phase I from June 30,
1996 to June 30, 1997 can be attributed to five tenant move-outs totalling
approximately 10,300 square feet. The five move-outs consist of one tenant
vacating at the end of the lease term (1,800 square feet), one tenant exercising
a termination option (1,600 square feet - no termination fee was required) and
three tenants vacating prior to the end of the lease term - one due to a
business decision to consolidate its office space at
- 11 -
<PAGE>
Results of Operations - Continued
- ---------------------------------
another location (700 square feet - tenant paid rent through end of lease), one
due to a downsizing decision by the tenant's parent company (1,200 square feet -
tenant paid the L/U II Joint Venture a lease termination fee (recorded as rental
income) of approximately $7,000 of which the Partnership's proportionate share
is approximately $4,800 or 69% and one due to bankruptcy (5,000 square feet -
tenant ceased rental payments). The write-off of accrued income connected with
these leases was not significant. The move-outs are partially offset by five new
leases totalling approximately 6,400 square feet and an expansion by a current
tenant of its existing space totalling approximately 2,100 square feet. Average
occupancy at Lakeshore Business Center Phase I decreased from 98% (1996) to 96%
(1997) for the three months ended June 30 and from 98% (1996) to 95% (1997) for
the six month period. The change in rental and other income at Lakeshore
Business Center Phase I for the three months and six months ended June 30, 1997
as compared to the same periods in 1996 was not significant.
The 14% increase in occupancy at Lakeshore Business Center Phase II from June
30, 1996 to June 30, 1997 can be attributed to six new leases totaling
approximately 17,400 square feet which includes approximately 7,000 square feet
in expansions by two current tenants. One tenant, Lambda Physik, accounts for
nearly 11,000 square feet of the total new leases and has become the largest
tenant in the building; occupying approximately 11% of the total building
rentable square feet. Partially offsetting the new leases is a downsizing by a
current tenant of its existing space of approximately 3,600 square feet. The
downsizing was the result of a decision by the tenant's management to centralize
its warehouse operation with another location. The downsizing was done in
conjunction with a lease renewal; therefore, there was no write-off of accrued
income. Average occupancy at Lakeshore Business Center Phase II increased from
80% (1996) to 94% (1997) for the three months ended June 30 and from 76% (1996)
to 92% (1997) for the six month period. The increase in rental and other income
at Lakeshore Business Center Phase II for the three months and six months ended
June 30, 1997 as compared to the same periods in 1996 is due primarily to the
increase in average occupancy.
As of June 30, 1997, Lakeshore Business Center Phase II has approximately 1,800
square feet of additional space leased to a current tenant. The tenant is
expected to take occupancy during the fourth quarter of 1997.
Subsequent to June 30, 1997, a lease for approximately 4,200 square feet was
signed at Lakeshore Business Center Phase II with a tenant who currently
occupies approximately 1,300 square feet in Lakeshore Business Center Phase I.
The lease is for six years and the tenant is expected to take occupancy near the
end of the third quarter of 1997. With the new leases, the business center's
occupancy should improve to 100%. See the Liquidity and Capital Resources
section of this item for the tenant finish commitment related to this lease.
Philip Crosby Associates, Inc. ("Crosby") has leased 100% of University Business
Center Phase II. The original lease term is for seven years, and the tenant took
occupancy in April 1991. As a result of Crosby downsizing and sub-leasing a
portion of its leased space, occupancy has decreased to 99% at June 30, 1997 and
1996. During January 1997, Crosby vacated the remaining space it occupied at the
business center. See below for a further discussion of Crosby and its leased
space.
The decrease in rental and other income at University Business Center Phase II
for the three months and six months ended June 30, 1997 as compared to the same
periods in 1996 is due to the following. Through the end of 1996, Crosby
continued to make rent payments pursuant to the original lease term. The Joint
Venture has received notice that Crosby does not intend to pay full rental due
under the lease agreement from and after January 1997.
- 12 -
<PAGE>
Results of Operations - Continued
- ---------------------------------
Although the Joint Venture does not presently have lease agreements (except as
noted below) with Crosby's sub-tenants, beginning February 1997, rent payments
from Crosby's sub-tenants (see discussion below) are being made directly to the
Joint Venture, which are substantially less than what Crosby owed. Currently,
the Joint Venture is recognizing income to the extent of what is being collected
from the sub-tenants. The decrease in rental and other income for the six month
period is also due to the fact that approximately $70,000 of accrued income
connected with the Crosby lease was written-off during the first quarter of
1997, of which the Partnership's proportionate share is approximately $48,000 or
69%.
In cases of tenants who cease making rental payments or abandon the premises in
breach of their lease, the Partnership pursues collection through the use of
collection agencies or other remedies available by law when practical. In cases
where tenants have vacated as a result of bankruptcy, the Partnership has taken
legal action when it was thought there could be a possible collection. There
have been no funds recovered as a result of these actions during the six months
ended June 30, 1997 and 1996.
Current occupancy levels are considered adequate to continue the operation of
the Partnership's properties without the need of any additional financing. In
the opinion of the General Partner of the Partnership, the occupancy level at
Commonwealth Business Center Phase II is not indicative of trends in the area in
which the property is located. See the Liquidity and Capital Resources section
of this item for a discussion regarding the cash requirements of the
Partnership's current debt financings.
The change in interest and other income for the six months ended June 30, 1997
as compared to the same period in 1996 was not significant. The decrease in
interest and other income for the three months ended June 30, 1997 as compared
to the same period in 1996 is due primarily to the fact that the 1996 period
includes interest income earned on funds escrowed with a mortgage company for
the payment of property taxes by the L/U II Joint Venture as required by its
previous lender. As a result of the permanent financing obtained by the L/U II
Joint Venture in July 1996, funds escrowed for property taxes no longer earn
interest.
Operating expenses increased for the three months and six months ended June 30,
1997 as compared to the same periods in 1996 due primarily to increased legal
fees at Lakeshore Business Center Phase I (which primarily relate to the
collection of a judgement made against a former tenant who defaulted), increased
replacement costs (carpet, vinyl and landscaping) and increased expenses
associated with fully-furnished units at The Willows of Plainview Phase II, and
increased janitorial costs at Lakeshore Business Center Phase II and
Commonwealth Business Center Phase II. Partially offsetting the increase in
operating expenses in both periods are decreased exterior painting costs at
University Business Center Phase I and decreased janitorial costs at University
Business Center Phase II.
The increase in operating expenses - affiliated for the six months ended June
30, 1997 as compared to the same period in 1996 is due primarily to increased
leasing costs at Commonwealth Business Center Phase II and The Willows of
Plainview II and increased property management costs at all of the Partnership's
properties except for Commonwealth Business Center Phase II. Operating expenses
- - affiliated remained fairly constant for the three months ended June 30, 1997
as compared to the same period in 1996. Operating expenses - affiliated are
expenses incurred for services performed by employees of NTS Development
Company, an affiliate of the General Partner of the Partnership.
- 13 -
<PAGE>
Results of Operations - Continued
- ---------------------------------
The change in the amortization of capitalized leasing costs for the three months
and six months ended June 30, 1997 as compared to the same periods in 1996 was
not significant.
The decrease in interest expense for the three months and six months ended June
30, 1997 as compared to the same periods in 1996 is primarily the result of the
lower interest rate on the permanent financings obtained in July 1996 by the L/U
II Joint Venture (8.125% compared to 10.6% on the previous debt). The decrease
in interest expense can also be attributed to continued principal payments on
the mortgages and note payable of the Partnership and its Joint Venture
properties. See the Liquidity and Capital Resources section of this item for
details regarding the Partnership's debt.
Management fees are calculated as a percentage of cash collections; however,
revenue for reporting purposes is on the accrual basis. As a result, the
fluctuations of revenues between periods will differ from the fluctuations of
management fee expense.
The changes in real estate taxes and professional and administrative expenses
for the three months and six months ended June 30, 1997 as compared to the same
periods in 1996 were not significant.
The increase in professional and administrative expenses - affiliated for the
three months and six months ended June 30, 1997 as compared to the same periods
in 1996 is primarily the result of increased salary costs. Professional and
administrative expenses - affiliated are expenses incurred for services
performed by employees of NTS Development Company, an affiliate of the General
Partner.
Depreciation and amortization expense has decreased for the three months and six
months ended June 30, 1997 as compared to the same periods in 1996 primarily due
to a portion of the Partnership's assets having become fully depreciated.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets which are 10 - 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 $39,800,000.
Liquidity and Capital Resources
- -------------------------------
Cash provided by operating activities was $608,705 and $419,624 for the six
months ended June 30, 1997 and 1996, respectively. No distributions were
declared during the six months ended June 30, 1997 or 1996. The Partnership
plans to resume distributions once the Partnership has established adequate cash
reserves, which would include funds for future tenant finish improvements, and
the cash flow from operations is sufficient, in management's opinion, to pay
distributions. Cash reserves (which are unrestricted cash and equivalents as
shown on the Partnership's balance sheet at June 30) were $225,197 and $220,310
at June 30, 1997 and 1996, respectively.
The primary source of future liquidity and distributions is expected to be
derived from cash generated by the Partnership's properties after adequate cash
reserves are established for future leasing costs, tenant finish costs and
capital improvements.
As of June 30, 1997, the Partnership had a mortgage loan with an insurance
company in the amount of $4,735,383. The mortgage payable is due February 1,
2008, bears interest at a fixed rate of 7.65% and is secured by University
Business Center Phase I. Monthly principal payments are based on a 12-year
amortization schedule. At maturity, the mortgage will have been repaid based on
the current rate of amortization.
- 14 -
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
As of June 30, 1997, the L/U II Joint Venture had three mortgage loans with an
insurance company. The outstanding balances of the loans at June 30, 1997 were
$5,768,923, $5,529,548 and $5,361,986 for a total of $16,660,457. The loans are
recorded as a liability of the Joint Venture. The Partnership's proportionate
share in the loans at June 30, 1997 was $3,993,825, $3,828,106 and $3,712,103,
respectively, for a total of $11,534,034. The mortgages bear interest at a fixed
rate of 8.125%, are due August 1, 2008, and are secured by the assets of the
Joint Venture. Monthly principal payments are based upon a 12-year amortization
schedule. At maturity, the loans will have been repaid based on the current rate
of amortization.
As of June 30, 1997, The Willows of Plainview Phase II had two mortgage loans
each with an insurance company in the amount of $3,196,514 and $1,908,366. The
mortgages are recorded as a liability of the Joint Venture. The Partnership's
proportionate share of the mortgages as of June 30, 1997 was $4,584,694
($2,870,790 and $1,713,904). Both mortgages are due December 5, 2003, currently
bear interest at a fixed rate of 7.5% and are secured by the land, buildings and
amenities of the Joint Venture. Current monthly principal payments on both
mortgages are based upon a 27-year amortization schedule. The outstanding
balance at maturity based on the current rate of amortization would be
$4,449,434 ($2,786,095 and $1,663,339).
As of June 30, 1997, the Partnership had a note payable with a bank in the
amount of $1,312,064. The note payable is due February 1, 2009, bears interest
at the Prime Rate and is secured by Commonwealth Business Center Phase II ("CBC
II"). Under the loan agreement, an additional $200,000 is available for future
funding and will be disbursed by February 1, 1999 in one advance when the
following conditions are met: 1) CBC II reaches a minimum occupancy of 75% based
on leases acceptable to the bank with a minimum term of not less than three
years. 2) CBC II achieves a minimum gross monthly base rental income of $37,500
for at least three months, 3) the Partnership is not in default on the loan and
4) the bank receives tenant estoppel certificates from the tenants of CBC II.
Monthly principal payments are based on a 13-year amortization schedule. At
maturity, the note will have been repaid based on the current rate of
amortization.
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 for other capital additions and are funded by operating
activities. 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 provided by investing activities in 1996
were the result of the release of funds which were being escrowed for capital
expenditures, leasing commissions and tenant improvements at the properties
owned by the L/U II Joint Venture as required by a 1995 loan agreement. Cash
flows provided by financing activities are from debt refinancings obtained in
1996 (loans secured by the assets of Commonwealth Business Center Phase II and
University Business Center Phase I). Cash flows used in financing activities are
for loan costs, principal payments on mortgages and notes payable and the
repurchase of limited partnership Units. The Partnership does not expect any
material changes in the mix and relative cost of capital resources.
Due to the fact that no distributions were made during the six months ended June
30, 1997 and 1996, 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.
- 15 -
<PAGE>
Liquidity and Capital Resources - Continued
- --------------------------------------------
As of June 30, 1997, the Partnership has accrued approximately $163,000
(included in the accounts payable - construction balance) for certain
improvements to the undeveloped land at the University Place development. The
purchaser of the approximately 1 acre tract of land at the University Place
development paid the cost of these improvements. The Partnership will reimburse
the purchaser for these costs, along with interest at the Prime Rate, at the
earlier of (1) the start of construction of University Business Center Phase
III, (2) the sale by the Partnership of any portion of the remaining undeveloped
land, or (3) five years from the date of the Agreement (agreement dated November
1992).
The remaining balance in accounts payable - construction at June 30, 1997
represents payables that are a result of tenant finish improvements. Tenant
finish improvements are a typical part of any lease negotiation.
Philip Crosby Associates, Inc. ("Crosby") has leased 100% of University Business
Center Phase II. The original lease term was for seven years, and the tenant
took occupancy in April 1991. During 1994, 1995 and 1996, Crosby sub-leased a
portion of the business center. Currently, Crosby has sub-leased through the end
of their lease term, approximately 85,000 square feet (including approximately
10,000 square feet of mezzanine space) of University Business Center Phase II's
approximately 88,000 square feet of net rentable area (or 96%). Of the total
being sub-leased, approximately 73,000 square feet (or 86%) is being leased by
Full Sail Recorders, Inc. ("Full Sail"), a major tenant at University Business
Center Phase I. Through December 1996, Crosby continued to make rent payments
pursuant to the original lease terms. The Joint Venture received notice that
Crosby did not intend to pay full rental due under the original lease agreement
from and after January 1997. The rental income from this property accounted for
approximately 15% of the partnership's total revenues during 1996. The Joint
Venture instituted legal action against Crosby to seek resolution of this
situation. See below for a further discussion regarding the current status of
this situation. Although the Joint Venture does not presently have lease
agreements (except as noted below) with the sub-lessees noted above, beginning
February 1997 rent payments from these sub-lessees have been made directly to
the Joint Venture. The Joint Venture is currently negotiating directly with the
sub-lessees to enter into lease agreements for the space presently sublet. At
this time, the future leasing and tenant finish costs which will be required to
release this space are unknown except as noted below for the negotiations with
Full Sail.
Crosby has abandoned its business and sold all or most of its operating assets
and has informed the Joint Venture that Crosby may be insolvent. Subsequent to
June 30, 1997, a conditional settlement was reached at a mediation conference
with Crosby and its corporate parent, whereby, subject to the Joint Venture's
acceptance of the settlement terms, the corporate parent has agreed to pay a
portion of Crosby's liability to the Joint Venture in full satisfaction of all
claims against Crosby and any of its affiliates. The amount of any settlement
will be substantially less than the aggregate liability of Crosby to the Joint
Venture resulting from Crosby's default under its lease. As a result, the Joint
Venture may be forced to seek out additional sources of capital to fund ongoing
operations, including, without limitation, from loans, the sale of assets,
additional capital contributions of its partners and/or the admission of a new
partner or partners, or from other sources. There is no present assurance that
any such needed capital will be available
In December 1995, Full Sail signed a 33 month lease with the L/U II Joint
Venture for approximately 41,000 square feet of the space it currently
sub-leases from Crosby. In November 1996, Full Sail signed a lease amendment
which increased the square footage from 41,000 square feet to 48,000 square feet
and extended the lease term from 33 months to 76 months.
- 16 -
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
In November 1996, Full Sail also signed a 52 month lease for an additional
approximately 21,000 square feet it presently sub-leases from Crosby. Both lease
terms commence April 1998 when Crosby's lease ends. As part of the lease
negotiations, Full Sail will receive a total of $450,000 in special tenant
allowances ($200,000 resulting from the original lease signed December 1995 and
$250,000 resulting from the lease amendment signed November 1996). Approximately
$92,000 of the total allowance is to be reimbursed by Full Sail to the L/U II
Joint Venture. The Partnership's proportionate share of the net commitment
($450,000 less $92,000) is approximately $247,000 or 69%. The tenant allowance
will be due and payable to Full Sail pursuant to the previously mentioned lease
agreements, as appropriate invoices for tenant finish costs incurred by Full
Sail are submitted to the L/U II Joint Venture. The sources of funds for this
commitment is expected to be cash flows from operations and/or cash reserves.
The Partnership had no other material commitments for renovations or capital
improvements at June 30, 1997.
Subsequent to June 30, 1997, the L/U II Joint Venture made a commitment of
approximately $100,000 for tenant finish improvements and leasing costs at
Lakeshore Business Center Phase II. The commitment is the result of a new
six-year lease for approximately 4,200 square feet. The tenant is expected to
take occupancy near the end of the third quarter of 1997. The Partnership's
proportionate share of this commitment is approximately $69,000 or 69%.
In the next twelve months, the demand on future liquidity is anticipated to
increase as a result of the commitments made for a special tenant finish
allowance and tenant finish improvements (see above). A demand on future
liquidity is also expected as a result of the Crosby situation at University
Business Center Phase II (discussed above). Additionally, the Partnership will
continue its efforts to lease current unoccupied space at 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.
The following describes the efforts being taken by the Partnership to increase
the occupancy levels at the Partnership's properties. At Commonwealth Business
Center Phase II, the leasing and renewal negotiations are handled by leasing
agents, employees of NTS Development Company, located in Louisville, Kentucky.
The leasing agents are located in the same city as the property. All advertising
is coordinated by NTS Development Company's marketing staff located in
Louisville, Kentucky. At University Business Center Phases I and II in Orlando,
Florida, the Partnership has an on-site leasing agent, an employee of NTS
Development Company, who makes calls to potential tenants, negotiates lease
renewals with current tenants and manages local advertising with the assistance
of the NTS Development Company's marketing staff. The leasing and renewal
negotiations at Lakeshore Business Center Phases I and II are handled by a
leasing agent, an employee of NTS Development Company, located at the Lakeshore
Business Center development. At the Willows of Plainview Phase II, the
Partnership has an on-site leasing staff, employees of NTS Development Company,
who handle all on-site visits from potential tenants, make visits to local
companies to promote fully furnished units, negotiate lease renewals with
current residents and coordinate all local advertising with NTS Development
Company's marketing staff.
- 17 -
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
Leases at the Partnership's commercial properties provide for tenants to
contribute toward the payment of common area expenses, insurance and real estate
taxes. Leases at the Partnership's Florida commercial properties also provide
for rent increases which are based upon increases in the consumer price index.
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.
The Partnership owns approximately 6.21 acres of land adjacent to the University
Place development in Orlando, Florida which is zoned for commercial development.
Included in the cost of $2,202,172 is land cost, capitalized interest and common
area costs. The Partnership plans to use the remaining land to build University
Business Center Phase III but this decision will be based on market conditions,
availability of financing and availability of the necessary resources from the
Partnership. In management's opinion, the net book value of the asset
approximates its fair market value.
The L/U II Joint Venture owns approximately 6.2 acres of land adjacent to the
Lakeshore Business Center development in Ft. Lauderdale, Florida. The
Partnership's proportionate interest at June 30, 1997 in the asset held for sale
is $1,152,868. The Joint Venture continues to actively market the asset for
sale. In management's opinion, the net book value of the asset held for sale
approximates the fair market value less cost to sell.
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
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.
A portion of the Partnership's debt service is based on variable interest rates;
any fluctuations in the rate are beyond the control of the Partnership. These
variances could, for example, impact the Partnership's projected cash flow and
cash requirements as well as its ability to pay distributions to the limited
partners.
- 18 -
<PAGE>
PART II. OTHER INFORMATION
1. Legal Proceedings
------------------
None
2. Changes in Securities
-----------------------
None
3. Defaults upon Senior Securities
-------------------------------
None
4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
5. Other Information
------------------
None
6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Exhibit 27. Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended
June 30, 1997.
- 19 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, NTS-Properties V, a Maryland Limited Partnership, has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NTS-PROPERTIES V, a Maryland Limited Partnership
(Registrant)
By: NTS-Properties Associates V,
General Partner
By: NTS Capital Corporation,
General Partner
/s/ John W. Hampton
----------------------
John W. Hampton
Senior Vice President
Date: August 11, 1997
- 20 -
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF JUNE 30, 1997 AND FROM THE STATEMENT OF OPERATIONS FOR THE SIX
MONTHS ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 552,054
<SECURITIES> 0
<RECEIVABLES> 432,092
<ALLOWANCES> 15,207
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 24,371,912
<DEPRECIATION> 0<F2>
<TOTAL-ASSETS> 29,680,660
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 22,166,175
0
0
<COMMON> 0
<OTHER-SE> 6,557,642
<TOTAL-LIABILITY-AND-EQUITY> 29,680,660
<SALES> 2,763,953
<TOTAL-REVENUES> 2,775,409
<CGS> 0
<TOTAL-COSTS> 2,136,456
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 890,395
<INCOME-PRETAX> (423,978)
<INCOME-TAX> 0
<INCOME-CONTINUING> (423,978)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (423,978)
<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>
