<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 September 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 20
Total Pages: 21
<PAGE>
TABLE OF CONTENTS
Pages
PART I
Item 1. Financial Statements
Balance Sheets and Statement of Partners' Equity
As of September 30, 1997 and December 31, 1996 3
Statements of Operations
For the three months and nine months ended
September 30, 1997 and 1996 4
Statements of Cash Flows
For the three months and nine months ended
September 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 10-19
PART II
1. Legal Proceedings 20
2. Changes in Securities 20
3. Defaults upon Senior Securities 20
4. Submission of Matters to a Vote of Security Holders 20
5. Other Information 20
6. Exhibits and Reports on Form 8-K 20
Signatures 21
- 2 -
<PAGE>
<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
September 30,1997 December 31, 1996*
----------------- ------------------
ASSETS
<S> <C> <C>
Cash and equivalents $ 483,745 $ 315,816
Cash and equivalents - restricted 446,571 84,992
Accounts receivable, net of allowance
for doubtful accounts of $10,951 (1997)
and $15,899 (1996) 417,681 517,267
Land, buildings and amenities, net 24,091,894 24,972,650
Asset held for development, net 2,163,709 2,279,098
Asset held for sale 1,152,868 1,152,868
Other assets 915,228 1,011,565
----------- -----------
$29,671,696 $30,334,256
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Mortgages and note payable $21,899,811 $22,688,331
Accounts payable - operations 345,834 256,451
Accounts payable - construction 252,143 215,059
Security deposits 177,793 152,931
Other liabilities 608,289 39,865
----------- -----------
23,283,870 23,352,637
Commitments and Contingencies
Partners' equity 6,387,826 6,981,619
----------- -----------
$29,671,696 $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 (587,856) (5,938) (593,794)
Cash distributions declared to
date (15,389,204) (155,528) (15,544,732)
Repurchase of limited
partnership Units (136,680) -- (136,680)
------------ ------------ ------------
Balances at September 30, 1997 $ 6,515,724 $ (127,898) $ 6,387,826
============ ============ ============
</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 Nine Months Ended
September 30, September 30
------------- ------------
1997 1996 1997 1996
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Rental income, net of provision
for doubtful accounts of $ -0-
(1997) and $3,110 (1996) $ 1,446,249 $ 1,466,449 $ 4,210,201 $ 4,253,047
Interest and other income 6,543 6,869 17,999 19,406
----------- ----------- ----------- -----------
1,452,792 1,473,318 4,228,200 4,272,453
EXPENSES:
Operating expenses 303,927 297,674 871,281 795,761
Operating expenses - affiliated 146,198 126,624 435,347 388,122
Amortization of capitalized
leasing costs 5,203 5,225 15,607 13,532
Interest expense 440,130 476,080 1,330,524 1,543,009
Management fees 86,144 85,068 252,239 254,162
Real estate taxes 136,780 139,884 410,342 408,824
Professional and administrative
expenses 29,674 25,307 87,837 79,884
Professional and administrative
expenses - affiliated 55,771 43,549 170,144 122,348
Depreciation and amortization 418,783 414,843 1,248,673 1,265,470
----------- ----------- ----------- -----------
1,622,610 1,614,254 4,821,994 4,871,112
----------- ----------- ----------- -----------
Loss before extraordinary item (169,818) (140,936) (593,794) (598,659)
Extraordinary item - write-off
of unamortized loan costs -- (50,118) -- (50,118)
----------- ----------- ----------- -----------
Net loss $ (169,818) $ (191,054) $ (593,794) $ (648,777)
=========== =========== =========== ===========
Net loss allocated to the
limited partners $ (168,120) $ (189,143) $ (587,856) $ (642,289)
=========== =========== =========== ===========
Net loss per limited partnership Unit:
Loss before extraordinary item $ (4.78) $ (3.91) $ (16.73) $ (16.58)
Extraordinary item -- (1.40) -- (1.39)
----------- ----------- ----------- -----------
Net loss per limited partnership
Unit $ (4.78) $ (5.31) $ (16.73) $ (17.97)
=========== =========== =========== ===========
Weighted average number of
limited partnership Units 35,136 35,647 35,136 35,748
=========== =========== =========== ===========
</TABLE>
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<PAGE>
<TABLE>
NTS-PROPERTIES V,
A Maryland Limited Partnership
STATEMENTS OF CASH FLOWS
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (169,818) $ (191,054) $ (593,794) $ (648,777)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Provision for doubtful accounts -- 3,110 -- 3,110
Write-off of unamortized loan costs -- 50,118 -- 50,118
Amortization of capitalized leasing
costs 5,203 5,225 15,607 13,532
Depreciation and amortization 418,783 414,843 1,248,673 1,265,470
Changes in assets and liabilities:
Cash and equivalents - restricted (119,714) (125,733) (361,579) (396,032)
Accounts receivable 14,411 (17,326) 99,586 97,184
Other assets 39,321 17,308 51,082 (100,880)
Accounts payable - operations 66,103 18,394 89,383 49,140
Security deposits 3,251 9,902 24,862 8,955
Other liabilities 276,093 154,561 568,425 417,154
------------ ------------ ------------ ------------
Net cash provided by operating
activities 533,633 339,348 1,142,245 758,974
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to land, buildings and
amenities (8,721) (134,656) (185,796) (264,509)
Decrease in cash and equivalents -
restricted -- -- -- 13,721
------------ ------------ ------------ ------------
Net cash used in investing activities (8,721) (134,656) (185,796) (250,788)
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increases in mortgages payable -- 12,046,020 -- 18,546,020
Principal payments on mortgages and
notes payable (266,364) (11,758,447) (788,520) (18,447,526)
Additions to loan costs -- (206,417) -- (268,903)
Repurchase of limited partnership Units -- (7,020) -- (56,970)
------------ ------------ ------------ ------------
Net cash provided by (used in)
financing activities (266,364) 74,136 (788,520) (227,379)
------------ ------------ ------------ ------------
Net increase in cash and equivalents 258,548 278,828 167,929 280,807
CASH AND EQUIVALENTS, beginning of period 225,197 220,310 315,816 218,331
------------ ------------ ------------ ------------
CASH AND EQUIVALENTS, end of period $ 483,745 $ 499,138 $ 483,745 $ 499,138
============ ============ ============ ============
Interest paid on a cash basis $ 440,121 $ 502,490 $ 1,337,530 $ 1,582,947
============ ============ ============ ============
</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 nine months ended September 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. Interest Repurchase Reserve
---------------------------
Pursuant to Section 16.4 of the Partnership's Amended and Restated
Agreement of Limited Partnership, the Partnership established an Interest
Repurchase Reserve. Through September 30, 1997, the Partnership has
repurchased a total of 270 Units for $99,900. Repurchased Units are retired
by the Partnership, thus increasing the share of ownership of each
remaining investor.
4. Mortgages and Note Payable
--------------------------
Mortgages and note payable consist of the following:
September 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 $ 4,662,794 $ 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 3,938,265 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 3,774,852 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 3,660,462 3,812,300
(Continued next page)
- 6 -
<PAGE>
4. Mortgages and Note Payable - Continued
--------------------------------------
September 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 $ 2,860,449 $ 2,893,401
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 1,707,731 1,727,404
Note payable to a bank, bearing
interest at the Prime Rate, due
February 1, 2009, secured by land
and building 1,295,258 1,345,687
------------ ------------
$ 21,899,811 $ 22,688,331
============ ============
The Prime Rate was 8.5% at September 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 $23,300,000.
5. Related Party Transactions
--------------------------
Pursuant to an agreement with the Partnership, property management fees of
$252,239 and $254,162 for the nine months ended September 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
$17,283 and $14,747 as a repair and maintenance fee during the nine months
ended September 30, 1997 and 1996, respectively, and has capitalized this
cost as part of land, buildings and amenities.
(Continued next page)
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<PAGE>
5. Related Party Transactions - Continued
--------------------------------------
As permitted by an agreement, the Partnership also was charged the
following amounts from NTS Development Company for the nine months ended
September 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 $ 213,853 $ 163,425
Leasing 175,730 167,680
Property manager 267,286 234,029
Other 4,832 23,604
-------- --------
$ 661,701 $ 588,738
======== ========
6. Commitments and Contingencies
-----------------------------
Philip Crosby Associates, Inc. ("Crosby") 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 the situation. See below
for a further discussion regarding the current status of the litigation.
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
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<PAGE>
6. Commitments and Contingencies - Continued
-----------------------------------------
$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.
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.
During the third quarter of 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 the proposed settlement is 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.
7. Subsequent Event
----------------
Subsequent to September 30, 1997, the L/U II Joint Venture informed Crosby
and its corporate parent that it accepted the terms of the conditional
settlement, whereby Crosby's parent paid to the L/U II Joint Venture the
sum of $300,000 in full satisfaction of all claims. These funds were
received by the L/U II Joint Venture on October 23, 1997.
- 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 September 30 were as
follows:
1997 1996
---- ----
Wholly-owned Properties
- -----------------------
Commonwealth Business Center Phase II 75% 90%
University Business Center Phase I 100% 98%
Property Owned in Joint Venture
with NTS-Properties IV (Ownership %
at September 30, 1997)
- ------------------------------------
The Willows of Plainview Phase II (90%) 90% 96%
Properties Owned Through Lakeshore/
University II Joint Venture (L/U II
Joint Venture) (Ownership % at
September 30, 1997)
- -----------------------------------
Lakeshore Business Center Phase I (69%) 99% 97%
Lakeshore Business Center Phase II (69%) 96% 83%
University Business Center Phase II (69%) 99% 99%
The rental and other income generated by the Partnership's properties for the
three months and nine months ended September 30, 1997 and 1996 was as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1997 1996 1997 1996
------ ------ ------ ------
Wholly-owned Properties
- -----------------------
Commonwealth Business Center
Phase II $ 143,043 $ 160,983 $ 406,621 $ 392,953
University Business Center Phase I $ 381,508 $ 355,076 $1,150,743 $1,069,250
Property Owned in Joint Venture
with NTS-Properties IV (Ownership
% at September 30, 1997)
- ----------------------------------
The Willows of Plainview
Phase II (90%) $ 310,459 $ 303,860 $ 907,840 $ 873,419
Properties Owned Through
Lakeshore/University II Joint
Venture (L/U II Joint Venture)
(Ownership % at September 30,
1997)
- ------------------------------
Lakeshore Business Center
Phase I (69%) $ 252,139 $ 237,867 $ 738,665 $ 720,035
Lakeshore Business Center
Phase II (69%) $ 241,900 $ 201,317 $ 719,161 $ 580,731
University Business Center
Phase II (69%) $ 119,897 $ 210,762 $ 296,396 $ 626,636
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 15% decrease in occupancy at Commonwealth Business Center Phase II from
September 30, 1996 to September 30, 1997 is a result of five tenant move- outs
totalling approximately 25,200 square feet. The five move-outs consist of four
tenants vacating at the end of the lease term (23,600 square feet) and one
tenant (approximately 1,600 square feet) vacating the premises prior to the end
of the lease term due to bankruptcy. There was no accrued income connected with
this lease. The move-outs are partially offset by four new leases totalling
approximately 16,500 square feet. Included in this total is a one-year lease for
approximately 11,000 square feet. Average occupancy decreased from 90% (1996) to
74% (1997) for the three months ended September 30 and from 75% (1996) to 73%
(1997) for the nine months ended September 30. The increase in rental and other
income at Commonwealth Business Center II for the nine months ended September
30, 1997 compared to the same period in 1996 is a result of 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 decrease in rental and other income at Commonwealth Business
Center Phase II for the three months ended September 30, 1997 as compared to the
same period in 1996 is due primarily to the decrease in average occupancy.
The 2% increase in occupancy at University Business Center Phase I from
September 30, 1996 to September 30, 1997 is a result of one new lease totalling
approximately 1,400 square feet. Average occupancy at University Business Center
Phase I increased from 97% (1996) to 100% (1997) for the three months ended
September 30 and from 95% (1996) to 100% (1997) for the nine months ended
September 30. The increase in rental and other income at University Business
Center Phase I for the three months and nine months ended September 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 decreased from 96% as of September
30, 1996 to 90% as of September 30, 1997. Average occupancy decreased from 96%
(1996) to 91% (1997) for the three months ended September 30 and decreased from
95% (1996) to 91% (1997) for the nine 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. In the opinion of the General Partner of the Partnership, the
decrease in occupancy is only a temporary fluctuation and does not represent a
downward trend. The increase in rental and other income at The Willows of
Plainview Phase II for the three months and nine months ended September 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 partially
offset by the decrease in average occupancy. Fully furnished units are
apartments which rent at an additional premium above base rent.
The 2% increase in occupancy at Lakeshore Business Center Phase I from September
30, 1996 to September 30, 1997 can be attributed to five new leases totalling
approximately 7,500 square feet and an expansion by a current tenant of its
existing space totalling approximately 2,100 square feet. Partially offsetting
the new leases are three tenants vacating prior to the end of the lease term -
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' proportionate
share is $4,800 or 69%), one due to a decision by management to allow a tenant
to terminate its lease early to accommodate a new long-term tenant (1,900 square
feet - tenant paid the L/U II Joint Venture a lease termination fee [recorded as
rental income] of approximately $5,000 of which the Partnership's proportionate
share
- 11 -
<PAGE>
Results of Operations - Continued
- ---------------------------------
is approximately $3,500 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. Average occupancy at Lakeshore Business Center
Phase I increased from 97% (1996) to 98% (1997) for the three months ended
September 30 and decreased from 98% (1996) to 96% (1997) for the nine month
period. The increase in rental and other income at Lakeshore Business Center
Phase I for the three months and nine months ended September 30, 1997 as
compared to the same periods in 1996 is due to an increase in common area
expense reimbursements and an increase in fees collected on lease terminations
(discussed above). Tenants at Lakeshore Business Center Phase I reimburse the
L/U II Joint Venture for common area expenses as part of the lease agreement.
The 13% increase in occupancy at Lakeshore Business Center Phase II from
September 30, 1996 to September 30, 1997 can be attributed to five new leases
totaling approximately 17,000 square feet which includes approximately 5,700
square feet in expansions by Lambda Physik, a current tenant. Lambda Physik
leases nearly 12,700 square feet and has become the largest tenant in the
building occupying approximately 13% of the building's total rentable square
feet. Partially offsetting the new leases is one tenant move-out, at the end of
the lease term, of approximately 4,800 square feet. Average occupancy at
Lakeshore Business Center Phase II increased from 81% (1996) to 95% (1997) for
the three months ended September 30 and increased from 78% (1996) to 93% (1997)
for the nine month period. The increase in rental and other income at Lakeshore
Business Center Phase II for the three months and nine months ended September
30, 1997 as compared to the same periods in 1996 is due primarily to the
increase in average occupancy.
As of September 30, 1997, Lakeshore Business Center Phase II has approximately
4,200 square feet of additional space leased by 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 during the fourth
quarter of 1997. With the new lease, the business center's occupancy should
improve to 100%.
Philip Crosby Associates, Inc. ("Crosby") leased 100% of University Business
Center Phase II. The original lease term was 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 September 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 nine months ended September 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. During
1996, the Joint Venture received notice that Crosby did not intend to pay full
rental due under the lease agreement from and after January 1997. 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 nine 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%.
- 12 -
<PAGE>
Results of Operations - Continued
- ----------------------------------
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 nine months
ended September 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 three months and nine months
ended September 30, 1997 as compared to the same periods in 1996 was not
significant.
Operating expenses increased for the nine months ended September 30, 1997 as
compared to the same period in 1996 due primarily to increased janitorial costs
at Commonwealth Business Center Phase II, increased utility expenses and heating
and air conditioning repairs and maintenance costs at Lakeshore Business Center
Phase I and increased legal fees at University Business Center Phase II (which
primarily relate to the Crosby default - see discussion below). The increase in
operating expenses can also be attributed to increased replacement costs
(carpet, vinyl and landscaping) along with increased expenses associated with
fully furnished units at The Willows of Plainview Phase II. Partially offsetting
the increase in operating expenses are decreased exterior painting costs at
University Business Center Phase I and decreased janitorial costs at University
Business Center Phase II. The change in operating expenses for the three month
period was not significant.
The increase in operating expenses - affiliated for the three months and nine
months ended September 30, 1997 as compared to the same periods in 1996 is due
primarily to increased leasing costs at Commonwealth Business Center Phase II
and increased property management costs at all of the Partnership's properties.
Operating expenses - affiliated are expenses incurred for services performed by
employees of NTS Development Company, an affiliate of the General Partner of the
Partnership.
The change in the amortization of capitalized leasing costs for the three months
and nine months ended September 30, 1997 as compared to the same periods in 1996
was not significant.
The decrease in interest expense for the three months and nine months ended
September 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.
- 13 -
<PAGE>
Results of Operations - Continued
- ---------------------------------
The changes in real estate taxes for the three months and nine months ended
September 30, 1997 as compared to the same periods in 1996 were not significant.
The increase in professional and administrative expenses for the three months
and nine months ended September 30, 1997 as compared to the same periods in 1996
is the result of increased outside accounting expenses.
The increase in professional and administrative expenses - affiliated for the
three months and nine months ended September 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.
The changes in depreciation and amortization expense for the three months and
nine months ended September 30, 1997 as compared to the same periods in 1996
were not significant. 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.
The 1996 write-off of unamortized loan costs (recorded as an extraordinary item)
relates to loan costs associated with the Lakeshore/University II Joint
Venture's notes payable. The unamortized loan costs were expensed due to the
fact that the notes were retired in 1996 prior to their maturity (January 31,
1998) as a result of permanent financings obtained by the Joint Venture in July
1996.
Liquidity and Capital Resources
- -------------------------------
Cash provided by operating activities was $1,142,245 and $758,974 for the nine
months ended September 30, 1997 and 1996, respectively. No distributions were
declared during the nine months ended September 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 September 30) were
$483,745 and $499,138 at September 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 September 30, 1997, the Partnership had a mortgage loan with an insurance
company in the amount of $4,662,794. 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.
As of September 30, 1997, the L/U II Joint Venture had three mortgage loans with
an insurance company. The outstanding balances of the loans at September 30,
1997 were $5,688,669, $5,452,624 and $5,287,393 for a total of $16,428,686. The
loans are recorded as a liability of the Joint Venture.
- 14 -
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
The Partnership's proportionate share in the loans at September 30, 1997 was
$3,938,265, $3,774,852 and $3,660,462, respectively, for a total of $11,373,579.
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 September 30, 1997, The Willows of Plainview Phase II had two mortgage
loans each with an insurance company in the amount of $3,183,937 and $1,900,858.
The mortgages are recorded as a liability of the Joint Venture. The
Partnership's proportionate share of the mortgages as of September 30, 1997 was
$4,568,180 ($2,860,449 and $1,707,731). 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).
Subsequent to September 30, 1997, The Willows of Plainview Phase II Joint
Venture submitted an application with an insurance company for $5,100,000 of
debt financing. The proceeds from the loan will be used to pay off the current
mortgages (as discussed above) which are secured by The Willows of Plainview
Phase II of approximately the same amount. The Joint Venture anticipates that
the financing will be completed in the near term.
As of September 30, 1997, the Partnership had a note payable with a bank in the
amount of $1,295,258. 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,
University Business Center Phase I and the L/U II Joint Venture). 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.
- 15 -
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
Due to the fact that no distributions were made during the nine months ended
September 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.
As of September 30, 1997, the Partnership has accrued approximately $166,000
(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 September 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") 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. During 1996, 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 the litigation. 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. During the
third quarter of 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 the proposed
settlement is 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.
- 16 -
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
Subsequent to September 30, 1997, the L/U II Joint Venture informed Crosby and
its corporate parent that it accepted the terms of the conditional settlement,
whereby Crosby's parent paid to the L/U II Joint Venture the sum of $300,000 in
full satisfaction of all claims. These funds were received by the L/U II Joint
Venture on October 23, 1997.
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. 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 September 30, 1997.
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 (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 $2,163,709 is land cost, capitalized interest and common
area costs. The Partnership currently 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. If market conditions are favorable, the
Partnership will also consider the sale of such land to another developer.
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 September 30, 1997 in the asset held for
sale is $1,152,868. The Joint Venture continues to actively market the asset for
sale.
Some of the statements included in Item 2, Management's Discussion and Analysis
of Financial Condition and Results of Operations, and elsewhere in this report,
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 payment of 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.
- 18 -
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
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.
- 19 -
<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
September 30, 1997.
- 20 -
<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: November 12, 1997
- 21 -
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF SEPTEMBER 30, 1997 AND FROM THE STATEMENT OF OPERATONS FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 930,316
<SECURITIES> 0
<RECEIVABLES> 417,681
<ALLOWANCES> 10,951
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 24,091,894
<DEPRECIATION> 0<F2>
<TOTAL-ASSETS> 29,671,696
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 21,899,811
0
0
<COMMON> 0
<OTHER-SE> 6,387,826
<TOTAL-LIABILITY-AND-EQUITY> 29,671,696
<SALES> 4,210,201
<TOTAL-REVENUES> 4,228,200
<CGS> 0
<TOTAL-COSTS> 3,233,489
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,330,524
<INCOME-PRETAX> (593,794)
<INCOME-TAX> 0
<INCOME-CONTINUING> (593,794)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (593,794)
<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>
