UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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
incorporation or organization) Identification No.)
10172 Linn Station Road
Louisville, Kentucky 40223
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (502) 426-4800
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO _______
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
Exhibit Index: See page 55
Total Pages: 59
<PAGE>
TABLE OF CONTENTS
Pages
PART I
Items 1 and 2 Business and Properties 3-18
Item 3 Legal Proceedings 18
Item 4 Submission of Matters to a Vote
of Security Holders 18
PART II
Item 5 Market for the Registrant's Limited
Partnership Interests and Related
Partner Matters 19
Item 6 Selected Financial Data 20
Item 7 Management's Discussion and Analysis
of Financial Condition and Results
of Operations 21-35
Item 8 Financial Statements and Supplementary
Data 36-51
Item 9 Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 52
PART III
Item 10 Directors and Executive Officers of
the Registrant 52
Item 11 Management Remuneration and Transactions 53
Item 12 Security Ownership of Certain Beneficial
Owners and Management 53
Item 13 Certain Relationships and Related
Transactions 53-54
PART IV
Item 14 Exhibits, Financial Statement Schedules
and Reports on Form 8-K 55-58
Signatures 59
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<PAGE>
PART I
Items 1. and 2. Business and Properties
General
- -------
Some of the statements included in Items 1 and 2, Business and Properties, 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.
NTS-Properties V, a Maryland Limited Partnership, (the "Partnership") is a
limited partnership organized under the laws of the State of Maryland on April
30, 1984. The general partner is NTS-Properties Associates V (a Kentucky limited
partnership). As of December 31, 1996, the Partnership owned the following
properties:
- Commonwealth Business Center Phase II, a business center with
approximately 61,000 net rentable ground floor square feet and
approximately 9,000 net rentable mezzanine square feet located in
Louisville, Kentucky, constructed by the Partnership.
- University Business Center Phase I, a business center with
approximately 82,000 net rentable first floor (office and service)
and second floor (office) square feet and approximately 16,000 net
rentable mezzanine square feet located in Orlando, Florida,
constructed by the Partnership.
- A joint venture interest in The Willows of Plainview Phase II, a
144-unit luxury apartment complex located in Louisville, Kentucky,
constructed by the joint venture between the Partnership and NTS-
Properties IV, an affiliate of the General Partner of the
Partnership. The Partnership's percentage interest in the joint
venture was 90% at December 31, 1996.
- A joint venture interest in the Lakeshore/University II Joint Venture
(L/U II Joint Venture). The L/U II Joint Venture was formed on
January 23, 1995 among the Partnership and NTS-Properties IV,
NTS-Properties Plus Ltd. and NTS/Fort Lauderdale, Ltd., affiliates of
the General Partner of the Partnership. The Partnership's percentage
interest in the joint venture was 69% at December 31, 1996. A
description of the properties owned by the L/U II Joint Venture
appears below:
- Lakeshore Business Center Phase I - a business center with
approximately 103,000 net rentable square feet located in Fort
Lauderdale, Florida, acquired complete by the joint venture.
- Lakeshore Business Center Phase II - a business center with
approximately 97,000 net rentable square feet located in Fort
Lauderdale, Florida, acquired complete by the joint venture.
- University Business Center Phase II - a business center with
approximately 78,000 net rentable first floor (office and
service) and second floor (office) square feet and approximately
10,000 net rentable mezzanine square feet located in Orlando,
Florida, acquired complete by the joint venture.
- 3 -
<PAGE>
Items 1. and 2. Business and Properties
General - Continued
- -------------------
- Outparcel Building Sites - approximately 6.2 acres of undeveloped
land adjacent to the Lakeshore Business Center development which
is zoned for commercial development.
The Partnership also owns approximately 6.21 acres of land, adjacent to the
University Place development (University Business Center III), in Orlando,
Florida, which is zoned for commercial development.
The Partnership or the joint venture in which the Partnership is a partner has a
fee title interest in the above properties. In the opinion of the Partnership's
management, the properties are adequately covered by insurance.
Commonwealth Business Center Phase II is encumbered by a note payable to a bank.
The outstanding balance of the mortgage at December 31, 1996 was $1,345,687. The
note is due February 1, 2009 and bears interest at the Prime Rate. Monthly
principal payments are based upon a 13-year amortization schedule. At maturity,
the note will have been repaid based on the current rate of amortization.
University Business Center Phase I is encumbered by a mortgage payable to an
insurance company. The outstanding balance of the mortgage at December 31, 1996
was $4,876,477. The mortgage is due February 1, 2008 and bears interest at a
fixed rate of 7.65%. Monthly principal payments are based upon a 12-year
amortization schedule. At maturity, the mortgage will have been repaid based on
the current rate of amortization.
The Willows of Plainview Phase II, a joint venture between the Partnership and
NTS-Properties IV, is encumbered by permanent mortgages with two insurance
companies. The outstanding balance of the mortgages at December 31, 1996 was
$5,143,945 ($3,220,975 and $1,922,970). The mortgages are recorded as a
liability of the Joint Venture. The Partnership's proportionate interest in the
mortgages at December 31, 1996 is $4,620,805 ($2,893,401 and $1,727,404). Both
mortgages currently bear interest at a fixed rate of 7.5% and are due December
5, 2003. The outstanding balance at maturity based on the current rate of
amortization would be $4,449,434 ($2,786,095 and $1,663,339) of which the
Partnership's proportionate share would be $4,017,839 ($2,515,844 and
$1,501,995).
The properties owned by the Lakeshore/University II Joint Venture, a joint
venture between the Partnership, NTS-Properties IV, NTS-Properties Plus Ltd. and
NTS/Fort Lauderdale, Ltd., are encumbered by mortgages payable to an insurance
company as follows:
Loan Balance
at 12/31/96 Encumbered Property
----------- -------------------
$ 5,924,638 Lakeshore Business Center Phase II
$ 5,678,802 University Business Center Phase II
$ 5,506,717 Lakeshore Business Center Phase I
The loans are recorded as a liability of the Joint Venture. The Partnership's
proportionate interest in the loans at December 31, 1996 was $4,101,627,
$3,931,435 and $3,812,300, respectively, for a total of $11,845,362. The
mortgages bear interest at a fixed rate of 8.125%, are due
- 4 -
<PAGE>
Items 1. and 2. Business and Properties - Continued
General - Continued
- -------------------
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.
For a further discussion regarding the terms of the debt financings see
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Item 7).
Currently, the Partnership's plans for renovations and other major capital
expenditures include tenant finish improvements as required by lease
negotiations at the Partnership's commercial properties. 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. The tenant finish improvements will be funded by cash flow from
operations and, if needed, cash reserves.
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. During the years ended December 31, 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 81,000 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 92%). Of the total being sub-leased, approximately 69,000
square feet (or 85%) is being leased by Full Sail Recorders, Inc. ("Full Sail"),
a major tenant at University Business Center Phase I. During 1994, 1995 and
1996, Crosby continued to make rent payments pursuant to the original lease
terms. The Joint Venture has received notice that Crosby does not intend to pay
full rental due under the original lease agreement from and after January 1997.
The rental income from this property accounts for approximately 15% of the
partnership's total revenues. The Joint Venture has instituted legal action to
seek resolution 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 are being 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 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 the remaining 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
- 5 -
<PAGE>
Items 1. and 2. Business and Properties - Continued
General - Continued
- -------------------
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.
As of December 31, 1996, University Business Center Phase I has a commitment for
tenant finish improvements of approximately $18,000 as a result of a lease
renewal. The renewal extends the lease for two years. The project is expected to
be completed during the first quarter of 1997. The source of funds for this
project is expected to be cash flow from operations and/or cash reserves.
Subsequent to December 31, 1996, the L/U II Joint Venture made a commitment of
approximately $55,000 for tenant finish improvements at Lakeshore Business
Center Phase I as a result of a lease renewal and expansion. The expansion
increases the tenant's current leased space by approximately 2,000 square feet
and the renewal extends the lease for five years. The Partnership's
proportionate share of the commitment is approximately $38,000 or 69%. The
project is expected to be completed during the second quarter of 1997. The
source of funds for this project is expected to be cash flow from operations
and/or cash reserves.
The Partnership had no other material commitments for renovations or capital
improvements as of December 31, 1996.
On January 29, 1996, the Partnership obtained permanent financing from a bank
totalling $1,600,000 with $200,000 held for future fundings. The outstanding
balance at December 31, 1996 was $1,345,687. The mortgage payable is due
February 1, 2009, bears interest at the Prime Rate and is secured by
Commonwealth Business Center Phase II ("CBC II"). The remaining $200,000 will be
disbursed by February 1, 1999 in one additional 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.
On January 31, 1996, the Partnership obtained permanent financing from an
insurance company totalling $5,100,000. The outstanding balance at December 31,
1996 was $4,876,477. 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.
The proceeds of these permanent financing were used to retire the Partnership's
note payable, which had a balance of $6,352,000, to fund loan closing costs and
to increase the Partnership's cash reserves.
On July 23, 1996, the L/U Joint Venture obtained three mortgage loans from an
insurance company totalling $17,400,000 ($6,025,000, $5,775,000 and $5,600,000).
The outstanding balances of the loans at December 31, 1996 were $5,924,638,
$5,678,802 and $5,506,717, respectively, for a total of $17,110,157. The loans
are recorded as a liability of the Joint Venture.
- 6 -
<PAGE>
Items 1. and 2. Business and Properties - Continued
General - Continued
- -------------------
The Partnership's proportionate interest in the loans at December 31, 1996 was
$4,101,627, $3,931,435 and $3,812,300, respectively, for a total of $11,845,362.
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. The proceeds from the
loans were used to pay off the Joint Venture's notes payable of approximately
$16.8 million which bore interest at a fixed rate of 10.6% and to fund loan
closing costs of approximately $280,000. The Partnership's proportionate
interest in the notes which were paid off was approximately $11,600,000 or 69%.
The notes which were paid off had a maturity date of January 31, 1998. The
remaining proceeds will be used to fund Joint Venture tenant finish improvements
and leasing costs.
The Partnership is engaged solely in the business of developing, constructing,
owning and operating residential apartments and commercial real estate. A
presentation about industry segments is not applicable.
The current business of the Partnership is consistent with the original purpose
of the Partnership which was to invest in real property, which was either under
development or proposed for development, on which it would develop, construct,
own and operate apartment complexes, business parks, and retail, industrial and
office buildings. The Partnership's properties are in a condition suitable for
their intended use.
The Partnership intends to hold the properties until such time as sale or other
disposition appears to be advantageous with a view to achieving the
Partnership's investment objectives or it appears that such objectives will not
be met. In deciding whether to sell a property, the Partnership will consider
factors such as potential capital appreciation, cash flow and Federal income tax
considerations, including possible adverse Federal income tax consequences to
the Limited Partners. The General Partner of the Partnership is currently
exploring the marketability of certain of its properties, and has not yet
determined if any of the properties might be sold in the next 12 months.
Additionally, the outparcel building sites owned by the L/U II Joint Venture are
being marketed for sale.
Commonwealth Business Center Phase II
- -------------------------------------
Base annual rents, which exclude the cost of utilities, currently range from
$7.08 to $9.78 per square foot for ground floor office space, $3.42 to $4.80 per
square foot for ground floor warehouse space, $6.38 to $8.64 per square foot for
mezzanine office space and $2.84 to $3.56 per square foot for mezzanine storage
space. The average base annual rental for all space leased as of December 31,
1996 was $7.69. Space is ordinarily leased for between one and six years with
the majority of current square footage being leased for a term of five years.
Current leases terminate between 1997 and 2001. All leases provide for tenants
to contribute toward the payment of common area expenses, insurance and real
estate taxes. As of December 31, 1996, there were 9 tenants leasing office,
warehouse and storage space aggregating approximately 50,511 square feet of
rentable area (1). The tenants who occupy Commonwealth Business Center Phase II
are professional service oriented organizations. The principal
occupations/professions practiced include engineering, an encoding center for
the United States
1) Rentable area includes only ground floor square feet (office and warehouse
space).
- 7 -
<PAGE>
Items 1. and 2. Business and Properties - Continued
Commonwealth Business Center Phase II - Continued
- -------------------------------------------------
Postal Service and insurance. Three tenants lease more than 10% of Commonwealth
Business Center Phase II's rentable area: Ogden Environmental (10.5%), United
States Postal Service (22.9%) and Allstate Insurance Company (30.5%). The
occupancy levels at the business center as of December 31 were 84% (1996),67%
(1995), 100% (1994), 81% (1993) and 85% (1992).
The following table contains approximate data concerning the leases in effect on
December 31, 1996.
Major Tenants: Current Base
Sq. Ft. and Annual Rental
% of Net and % of Gross
Year of Rentable Base Annual Renewal
Name Expiration Area(1) Rental Options
---- ---------- ------- ------ -------
Ogden Environmental 1999 6,325 (10.5%) $ 72,768 (15.8%) None
United States Postal
Service 2001 13,846 (22.9%) $124,608 (27.1%) 1 Five-Year
Allstate Insurance
Company 1997(2) 18,400 (30.5%) $163,416 (35.5%)(3) 1 Five-Year
Other Tenants:
Current Base
Sq. Ft. and Annual Rental
% of Net and % of Gross
No. of Year of Rentable Base Annual Renewal
Tenants Expiration Area(1) Rental Options
------- ---------- ------- ------ -------
4 1997 5,675 ( 9.2%) $ 53,751 (11.7%) 1 Five-Year
None 1998 -- -- --
1 1999 3,494 ( 5.8%) $ 25,200 ( 5.5%) None
1 2000 2,771 ( 4.6%) $ 20,868 ( 4.5%) None
(1) Rentable area includes only ground floor square feet (office and warehouse
space).
(2) Prior to December 31, 1996, the Partnership received notice that Allstate
Insurance Company will vacate the business center at the end of the lease
term.
(3) Additionally, Allstate Insurance Company pays $2,760 annually as part of a
maintenance agreement to repair all mechanical systems.
University Business Center Phase I
- ----------------------------------
Base annual rents, which exclude the cost of utilities, currently range from
$10.00 to $13.63 per square foot for first floor office space, $6.48 per square
foot for first floor service space, $10.00 to $12.00 per square foot for second
floor office space and $10.48 to $11.75 per square foot for mezzanine office
space. The average base rental for all types of space leased as of December 31,
1996 was $11.27. Space is ordinarily leased for between two and eight years with
the majority of current square footage being leased for a term of eight years
(4). Current leases expire between 1997 and 2002 (4). All leases provide for
tenants to contribute toward the payment of common area expenses, insurance and
real estate taxes. As of December 31, 1996, there were 12 tenants leasing office
(first and second floor) and service space aggregating approximately 77,875
square feet (5) of rentable area. The tenants who occupy University Business
Center Phase I are professional service-oriented organizations. The principal
occupations/professions practiced include insurance, management offices for a
utility company and an audio/video school and studio. Three tenants lease more
than 10% of University Business Center Phase I's rentable area: Florida Power
Corporation (13.2%), Full Sail Recorders, Inc. (28.1%) and Combined Risk &
Insurance Management Services, Inc. (30.4%). The occupancy levels at the
business center as of December 31 were 98% (1996), 95% (1995), 90% (1994), 88%
(1993) and 94% (1992).
(4) Excluding the Full Sail Recorders, Inc. lease. This company leases five
suites with various terms. The majority of the space (approximately
17,556 square feet) is leased for a period of 14 years with the lease
expiring in 2003.
(5) Excludes approximately 2,294 square feet which is occupied by the
business center's property management and leasing staff.
- 8 -
<PAGE>
Items 1. and 2. Business and Properties - Continued
University Business Center Phase I - Continued
- ----------------------------------------------
The following table contains approximate data concerning the leases in effect on
December 31, 1996.
Major Tenants:
Current Base
Sq. Ft. and Annual Rental
% of Net and % of Gross
Year of Rentable Base Annual Renewal
Name Expiration Area(1)(2) Rental Options
---- ---------- ---------- ------ -------
Florida Power
Corporation 1999 10,830 (13.2%) $144,468 (13.6%) None
Full Sail Recorders,
Inc. (3) 22,977 (28.1%) $343,644 (32.5%) None
Combined Risk &
Insurance
Management
Services, Inc. 2002 24,866 (30.4%) $368,412 (34.8%) None
Other Tenants:
Current Base
Sq. Ft. and Annual Rental
% of Net and % of Gross
No. of Year of Rentable Base Annual Renewal
Tenants Expiration Area(1)(2) Rental Options
------- ---------- ---------- ------ -------
1 1997 2,400 ( 2.9%) $ 28,800 ( 2.7%) 1 Two-Year
2 1998 3,890 ( 4.7%) $ 39,540 ( 3.8%) None
4 1999 7,497 ( 9.1%) $ 78,792 ( 7.5%) None
None 2000 -- -- --
2 2001 5,415 ( 6.6%) $ 55,008 ( 5.2%) None
(1) Excludes approximately 2,294 square feet which is occupied by the business
center's property management and leasing staff.
(2) Rentable area includes only ground floor square feet (office and warehouse
space).
(3) Full Sail Recorders, Inc. leases five suites with various terms. The
majority of the space (approximately 17,556 square feet) is leased for a
period of 14 years with the lease expiring in 2003.
The Willows of Plainview Phase II
- ---------------------------------
Units at The Willows of Plainview Phase II include one and two-bedroom loft and
deluxe apartments and two-bedroom town homes. All units have wall-to-wall
carpeting, individually controlled heating and air conditioning, dishwashers,
ranges, refrigerators and garbage disposals. All units, except one-bedroom
lofts, have washer/dryer hook-ups. The one-bedroom lofts have stackable washers
and dryers. Tenants have access to and the use of coin-operated washer/dryer
facilities, clubhouse, management offices, swimming pool, whirlpool and tennis
courts.
Monthly rental rates at The Willows of Plainview Phase II start at $619 for
one-bedroom apartments, $879 for two-bedroom apartments and $999 for two-bedroom
town homes, with additional monthly rental amounts for special features and
locations. Tenants pay all costs of heating, air conditioning and electricity.
Most leases are for a period of one year. Units will be rented in some cases,
however, on a shorter term basis at an additional charge. The occupancy levels
at the apartment complex as of December 31 were 92% (1996), 94% (1995), 93%
(1994), 91% (1993) and 90% (1992).
- 9 -
<PAGE>
Items 1. and 2. Business and Properties - Continued
Lakeshore Business Center Phase I
- ---------------------------------
Base annual rents, which exclude the cost of utilities, currently range from
$9.11 to $12.47 per square foot for first floor office space, $5.69 to $7.80 per
square foot for first floor service space and $8.75 to $11.25 per square foot
for second floor office space. The average base rental for all space leased as
of December 31, 1996 was $9.96. Space is ordinarily leased for between one and
eight years with the majority of current square footage being leased for a term
of five years. Current leases expire between 1997 and 2002. All leases provide
for tenants to contribute toward the payment of common area expenses, insurance
and real estate taxes. As of December 31, 1996, there were 33 tenants leasing
office space (first and second floor) and service space aggregating
approximately 95,651 square feet of rentable area. The tenants who occupy
Lakeshore Business Center Phase I are professional service oriented
organizations. The principal occupations/professions practiced include health
care services, telemarketing services and management offices for both a cellular
communications chain and a soft drink company. One tenant leases more than 10%
of Lakeshore Business Center Phase I's rentable area: U. S. Home care Infusion
Therapy Products of Florida (11.7%). The occupancy levels at the business center
as of December 31 were 92% (1996 and 1995), 80% (1994), 58% (1993) and 55%
(1992).
The following table contains approximate data concerning the leases in effect on
December 31, 1996.
Major Tenant:
Current Base
Sq. Ft. and Annual Rental
% of Net and % of Gross
Year of Rentable Base Annual Renewal
Name Expiration Area Rental Options
---- ---------- ---- ------ -------
U.S. Home care
Infusion Therapy
Products of
Florida 1998 12,081 (11.7%) $135,912 (14.3%) (1)
(1) Tenant has option to renew its lease for an unspecified period of time.
Other Tenants:
Current Base
Sq. Ft. and Annual Rental
% of Net and % of Gross
No. of Year of Rentable Base Annual Renewal
Tenants Expiration Area Rental Options
------- ---------- ---- ------ -------
5 1997 10,326 (10.0%) $101,472 (10.7%) None
13 1998 21,554 (21.1%) $212,263 (22.3%) None
6 1999 29,999 (29.0%) $290,436 (30.5%) 4 Three-Year
6 2000 17,322 (16.7%) $169,356 (17.8%) 2 Three-Year
None 2001 -- -- --
3 2002 4,369 ( 4.2%) $ 43,224 ( 4.6%) 2 Three-Year
Lakeshore Business Center Phase II
- ----------------------------------
Base annual rents, which exclude the cost of utilities, currently range from
$9.97 to $12.02 per square foot for first floor office space, $6.52 per square
foot for first floor service space and $9.80 to $14.95 per square foot for
second floor office space. The average base rental for all space
- 10 -
<PAGE>
Items 1. and 2. Business and Properties - Continued
Lakeshore Business Center Phase II - Continued
- ----------------------------------------------
leased as of December 31, 1996 was $11.21. Space is ordinarily leased for
between one and seven years with the majority of current square footage being
leased for a term of three years. Current leases expire between 1997 and 2002.
Five leases provide for renewal options at rates which are based upon increases
in the consumer price index and/or are negotiated between lessor and lessee. All
leases provide for tenants to contribute toward the payment of common area
expenses, insurance and real estate taxes. As of December 31, 1996, there were
19 tenants leasing office space (first and second floor) and service space
aggregating approximately 84,835 square feet of rentable area (1). The tenants
who occupy Lakeshore Business Center Phase II are professional service oriented
organizations. The principal occupations/professions practiced include health
care services, insurance and management offices for the Florida state lottery.
Three tenants lease more than 10% of Lakeshore Business Center Phase II's
rentable area: Northwest Medical Center, Inc. (10.4%), Progressive American
Insurance (10.9%) and Lambda Physik (11.1%). The occupancy levels at the
business center as of December 31 were 89% (1996), 72% (1995), 78% (1994), 75%
(1993) and 84% (1992).
The following table contains approximate data concerning the leases in effect on
December 31, 1996:
Major Tenant:
Current Base
Sq. Ft. and Annual Rental
% of Net and % of Gross
Year of Rentable Base Annual Renewal
Name Expiration Area (1) Rental Options
---- ---------- --------------- ---------------- ---------
Northwest Medical
Center, Inc. 2000 10,132 (10.4%) $120,636 (12.7%) None
Progressive American
Insurance 1999 10,580 (10.9%) $127,176 (13.4%) 1 Three-Year
Lambda Physik 2002 10,829 (11.1%) $119,112 (12.5%) 1 Five-Year
Other Tenants:
Current Base
Sq. Ft. and Annual Rental
% of Net and % of Gross
No. of Year of Rentable Base Annual Renewal
Tenants Expiration Area(1) Rental Options
------- ---------- ------- ------ -------
4 1997 16,031 (16.4%) $174,654 (18.4%) None
3 1998 8,807 ( 9.0%) $100,816 (10.6%) (2)
4 1999 11,566 (11.9%) $128,970 (13.6%) 1 Three-Year
4 2000 9,819 (10.1%) $109,282 (11.5%) None
1 2001 7,071 ( 7.3%) $ 70,704 ( 7.4%) None
(1) Excludes approximately 1,218 square feet which is occupied by the business
center's property management and leasing staff.
(2) 1 Two-Year and 2 Three-Year.
University Business Center Phase II
- -----------------------------------
Philip Crosby Associates, Inc. has leased 100% of University Business Center
Phase II. (See above for a further discussion regarding Crosby and its lease
with the Joint Venture). The annual base rent, which does not include the cost
of utilities, is $13.00 per square foot for first floor office space, $8.50 per
square foot for first floor service space, $14.00 per square foot for second
floor office space and $13.00 per square foot for mezzanine office space. The
average base annual rental for all types of space leased
- 11 -
<PAGE>
Items 1. and 2. Business and Properties - Continued
University Business Center Phase II - Continued
- -----------------------------------------------
as of December 31, 1996 was $12.43. The lease term is for seven years and
expires in 1998. Philip Crosby Associates, Inc. is a professional service
oriented organization which specializes in quality control seminars. The lease
provides for the tenant to contribute toward the payment of common area
expenses, insurance and real estate taxes. The occupancy level at the business
center as of December 31 was 99% (1996), 95% (1995), and 100% (1994, 1993 and
1992).
The following table contains approximate data concerning the lease in effect as
of December 31, 1996.
Major Tenant:
Current Base
Sq. Ft. and Annual Rental
% of Net and % of Gross
Year of Rentable Base Annual Renewal
Name Expiration Area(1) Rental Options
---- ---------- ------- ------ -------
Philip Crosby
Associates, Inc. 1998 75,975 (100%) $1,072,920 (100%) 1 Five-Year
(1) Rentable area includes only first floor (office and service) square feet
and second floor office square feet. See discussion above on sublet space.
Additional operating data regarding the Partnership's properties is furnished in
the following table.
Federal Realty Annual
Tax Basis Tax Rate Realty Taxes
--------- -------- ------------
Wholly-Owned Properties
- -----------------------
Commonwealth Business
Center Phase II $ 4,395,114 $ .011000 $ 46,354
University Business
Center Phase I 7,495,607 .020111 119,366
Property Owned in Joint
Venture with NTS-
Properties IV
- ---------------------
The Willows of
Plainview Phase II 7,863,123 .011200 58,439
Properties Owned
Through Lakeshore/
University II Joint
Venture (L/U II Joint
Venture)
- ---------------------
Lakeshore Business
Center Phase I 10,087,575 .026559 145,704
Lakeshore Business
Center Phase II 12,105,721 .026559 131,503
University Business
Center Phase II 7,104,723 .020111 107,508
Percentage ownership has not been applied to the information in the above table
for properties owned through a joint venture.
- 12 -
<PAGE>
Items 1. and 2. Business and Properties - Continued
Depreciation for book purposes 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 estimated realty taxes on planned renovations,
primarily tenant improvements, is not material.
See Management's Discussion and Analysis of Financial Condition and Results
of Operations (Item 7) for explanations regarding the fluctuations of income
and occupancy at the Partnership's properties.
Investment in Joint Ventures
- ----------------------------
NTS Willows Phase II Joint Venture - On September 1, 1984, the Partnership
entered into a joint venture agreement with NTS-Properties IV to develop,
construct, own and operate a 144-unit luxury apartment complex on an 8.29 acre
site in Louisville, Kentucky known as The Willows of Plainview Phase II. The
term of the Joint Venture shall continue until dissolved. Dissolution shall
occur upon, but not before, the first to occur of the following:
(a) the withdrawal, bankruptcy or dissolution of a Partner or the
execution by a Partner of an assignment for the benefit of its
creditors;
(b) the sale, condemnation or taking by eminent domain of all or
substantially all of the assets of the Partnership, other than its
cash and cash-equivalent assets;
(c) the vote or consent of each of the Partners to dissolve the
Partnership; or
(d) September 30, 2028.
The Partnership contributed approximately $7,455,000, the construction and
carrying costs of the apartment complex, and NTS-Properties IV contributed land
valued at $800,000. No future contributions are anticipated as of December 31,
1996.
The apartment complex is encumbered by permanent mortgages with two insurance
companies. Both loans are secured by a first mortgage on the property. The
outstanding balance of the mortgages at December 31, 1996 is $5,143,945
($3,220,975 and $1,922,970). The mortgages are recorded as a liability of the
Joint Venture. The Partnership's proportionate interest in the mortgages at
December 31, 1996 is $4,620,805 ($2,893,401 and $1,727,404). Both mortgages
currently bear interest at a fixed rate of 7.5% and are due December 5, 2003.
The outstanding balance at maturity based on the current rate of amortization
would be $4,449,434 ($2,786,095 and $1,663,339) of which the Partnership's
proportionate share would be $4,017,839 ($2,515,844, and $1,501,995). See
Managements's Discussion and Analysis of Financial Condition and Results of
Operations (Item 7) for a further discussion regarding the terms of the debt
financings.
The Net Cash Flow for each calendar quarter is distributed to the Partners in
accordance with their respective Percentage Interest. The term Net Cash Flow
means the excess, if any, of (A) the gross receipts from the operations of the
Joint Venture Property (including investment income) for such period plus any
funds released from previously established reserves (referred to in clause (iv)
below), over (B) the sum of (i) all cash operating expenses paid by the Joint
Venture Property during such period in the course of business, (ii) capital
expenditures during such period not funded by capital contributions, loans or
paid out of previously established reserves, (iii)
- 13 -
<PAGE>
Items 1. and 2. Business and Properties - Continued
Investment in Joint Ventures - Continued
- ----------------------------------------
payments during such period on account of amortization of the principal of any
debts or liabilities of the Joint Venture Property and (iv) reserves for
contingent liabilities and future expenses of the Joint Venture Property.
Percentage Interest means that percentage which the capital contributions of a
Partner bears to the aggregate capital contributions of all the Partners.
Net income or net loss is allocated between the Partners in accordance with
their respective Percentage Interests. The Partnership's ownership share was 90%
at December 31, 1996.
The Partnership had no liability for funding losses of the joint venture as of
December 31, 1996.
NTS Ft. Lauderdale Office Joint Venture - On April 1, 1985, the Partnership
entered into a joint venture agreement with NTS-Properties IV to develop,
construct, own and operate an office warehouse building in Ft. Lauderdale,
Florida known as Lakeshore Business Center Phase I.
The Partnership contributed approximately $9,170,000, the cost of constructing
and leasing the building and NTS-Properties IV contributed land valued at
$1,752,982. On January 23, 1995, the partners of the NTS Ft. Lauderdale Office
Joint Venture contributed Lakeshore Business Center Phase I to the newly formed
Lakeshore/University II (L/U II) Joint Venture. See below for a further
discussion of the Lakeshore/University II Joint Venture.
NTS University Boulevard Joint Venture - On January 3, 1989, the Partnership
entered into a joint venture agreement with NTS-Properties Plus Ltd. to develop,
construct, own and operate Phase II of the University Business Center
development in Orlando, Florida.
The Partnership contributed land valued at $1,460,000 and NTS-Properties Plus
Ltd. contributed development and carrying costs of approximately $8 million. In
connection with the construction of University Business Center Phase I, the
Partnership incurred the cost of developing certain common areas which are used
by both University Business Center Phase I and Phase II. In 1989, NTS-Properties
Plus Ltd. paid approximately $747,000 to the Partnership for Phase II's share of
the common area costs. During the second quarter of 1994, the Partnership made
an approximately $79,000 capital contribution to the Joint Venture. The capital
contribution increased the Partnership's ownership percentage in the Joint
Venture from approximately 16% to approximately 17%. The contribution was made
to fund a portion of the Joint Venture's operating costs. On January 23, 1995,
the partners of the NTS University Boulevard Joint Venture contributed
University Business Center Phase II to the newly formed L/U II Joint Venture.
See below for a further discussion of the L/U II Joint Venture.
Lakeshore/University II Joint Venture - On January 23, 1995, a new joint venture
known as Lakeshore/University II Joint Venture (L/U II Joint Venture) was formed
among the Partnership and NTS-Properties IV, NTS- Properties Plus Ltd. and
NTS/Fort Lauderdale, Ltd., affiliates of the general partner of the Partnership,
for purposes of owning Lakeshore Business Center Phases I and II, University
Business Center Phase II and certain undeveloped tracts of land adjacent to the
Lakeshore Business Center development. The table below identifies which
properties were contributed to the L/U II Joint Venture and the respective
owners of such properties prior to the formation of the joint venture.
- 14 -
<PAGE>
Items 1. and 2. Business and Properties - Continued
Investment in Joint Ventures - Continued
- ----------------------------------------
Property Contributing Owner
-------- ------------------
Lakeshore Business Center Phase I NTS-Properties IV and NTS-
Properties V
Lakeshore Business Center Phase II NTS-Properties Plus Ltd.
Undeveloped land adjacent to the NTS-Properties Plus Ltd.
Lakeshore Business Center
development (3.8 acres)
Undeveloped land adjacent to the NTS/Fort Lauderdale, Ltd.
Lakeshore Business Center
development (2.4 acres)
University Business Center Phase II NTS-Properties V and NTS-
Properties Plus Ltd.
The term of the Joint Venture shall continued until dissolved. Dissolution shall
occur upon, but not before, the first to occur of the following:
(a) the withdrawal, bankruptcy or dissolution of a Partner or the
execution by a Partner of an assignment for the benefit of its
creditors;
(b) the sale, condemnation or taking by eminent domain of all or
substantially all of the Real Property and the sale and/or
collection of any evidences of indebtedness received in connection
therewith;
(c) the vote or consent of each of the Partners to dissolve the
Partnership; or
(d) December 31, 2030.
Each of the properties were contributed to the L/U II Joint Venture subject to
existing indebtedness, except for Lakeshore Business Center Phase I which was
contributed to the joint venture free and clear of any mortgage liens, and all
such indebtedness was assumed by the joint venture. Mortgages were recorded on
Lakeshore Business Center Phase I in the amount of $5,500,000, and on University
Business Center Phase II in the amount of $3,000,000, in favor of the banks
which held the indebtedness on University Business Center Phase II, Lakeshore
Business Center Phase II and the undeveloped tracts of land prior to the
formation of the joint venture. In addition to the above, NTS-Properties IV
contributed $750,000 to the L/U II Joint Venture. As a result of the valuation
of the properties contributed to the L/U II Joint Venture, the Partnership
obtained a 69% partnership interest in the joint venture.
The properties of the L/U II Joint Venture are encumbered by mortgages payable
to an insurance company as follows:
Loan Balance
at 12/31/96 Encumbered Property
----------- -------------------
$5,924,638 Lakeshore Business Center Phase II
$5,678,802 University Business Center Phase II
$5,506,717 Lakeshore Business Center Phase I
- 15 -
<PAGE>
Items 1. and 2 Business and Properties - Continued
Investment in Joint Ventures - Continued
- ----------------------------------------
The loans are recorded as a liability of the Joint Venture. The Partnership's
proportionate interest in the loans at December 31, 1996 is $11,845,362
($4,101,627, $3,931,435, and $3,812,300). The mortgages bear interest at a fixed
rate of 8.125% and are due August 1,2008. Monthly principal payments are based
upon a 12-year amortization schedule. At maturity, the loans will have been
repaid based on the current rate of amortization.
The Net Cash Flow for each calendar quarter is distributed to the Partners in
accordance with their respective Percentage Interest. The term Net Cash Flow
means the excess, if any, of (A) the sum of (i) the gross receipts of the Joint
Venture Properties for such period (including loan proceeds), other than capital
contributions, plus (ii) any funds released from previously established reserves
(referred to in clause (B)(iv) below), over (B) the sum of (i) all cash
operating expenses paid by the Joint Venture during such period in the course of
business, (ii) capital expenditures paid in cash during such period, (iii)
payments during such period on account of amortization of the principal of any
debts or liabilities of the Joint Venture and (iv) reserves for contingent
liabilities and future expenses of the Joint Venture, as established by the
Partners; provided, however, that the amounts referred to in (B)(i), (ii) and
(iii) above shall only be taken into account to the extent not funded by capital
contributions or paid out of previously established reserves. Percentage
Interest means that percentage which the capital contributions of a Partner
bears to the aggregate capital contributions of all the Partners.
Net income or net loss is allocated between the partners in accordance with
their respective Percentage Interests. The Partnership's ownership share was 69%
at December 31, 1996.
The Partnership had no liability for funding losses of the joint venture as of
December 31, 1996.
Competition
- -----------
The Partnership's properties are subject to competition from similar types of
properties (including, in certain areas, properties owned or managed by
affiliates of the General Partner) in the respective vicinities in which they
are located. Such competition is generally for the retention of existing tenants
or for new tenants when vacancies occur. The Partnership maintains the
suitability and competitiveness of its properties primarily on the basis of
effective rents, amenities and services provided to tenants. Competition is
expected to increase in the future as a result of the construction of additional
properties. As of December 31, 1996, there are no properties under construction
in the respective vicinities in which the properties are located. The
Partnership has not commissioned a formal market analysis of competitive
conditions in any market in which it owns properties, but relies upon the market
condition knowledge of the employees of NTS Development Company who manage and
supervise leasing for each property.
Management of Properties
- ------------------------
NTS Development Company, an affiliate NTS-Properties Associates V, the general
partner of the Partnership, directs the management of the Partnership's
properties pursuant to a written agreement. NTS Development Company is a
wholly-owned subsidiary of NTS Corporation. Mr. J. D. Nichols has a controlling
interest in NTS Corporation and is a general partner of NTS-Properties
Associates V. Under the agreement, the Property Manager establishes rental
policies and rates and directs the marketing activity of
- 16 -
<PAGE>
Items 1. and 2. Business and Properties - Continued
Management of Properties - Continued
- ------------------------------------
leasing personnel. It also coordinates the purchase of equipment and supplies,
maintenance activity and the selection of all vendors, suppliers and independent
contractors. As compensation for its services, the Property Manager received a
total of $342,292 for the year ended December 31, 1996. $285,699 was received
from commercial properties and $56,593 was received from residential property.
The fee is equal to 6% of gross revenues from commercial properties and 5% of
gross revenues from residential properties.
In addition, the management agreement requires the Partnership to purchase all
insurance relating to the managed properties, to pay the direct out-of-pocket
expenses of the Property Manager in connection with the operation of the
properties, including the cost of goods and materials used for and on behalf of
the Partnership, and to reimburse the Property Manager for the salaries,
commissions, fringe benefits, and related employment expenses of on-site
personnel.
The term of the Management Agreement between NTS Development Company and the
Partnership was for an initial period of five years, and thereafter for
succeeding one-year periods, unless cancelled. The Agreement is subject to
cancellation by either party upon sixty days written notice. As of December 31,
1996, the Management Agreement is still in effect.
Conflict of Interest
- --------------------
Because the principals of the general partner and/or its affiliates own and/or
operate real estate properties other than those owned by the Partnership that
are or could be in competition with the Partnership, potential conflicts of
interest exist. Because the Partnership was organized by and is operated by the
General Partner, these conflicts are not resolved through arm's length
negotiations but through the exercise of the General Partner's good judgement
consistent with its fiduciary responsibility to the Limited Partners and the
Partnership's investment objectives and policies. The General Partner is
accountable to the Limited Partners as a fiduciary and consequently must
exercise good faith and integrity in handling the Partnership's affairs. A
provision has been made in the Partnership Agreement that the General Partner
will not be liable to the Partnership except for acts or omissions performed or
omitted fraudulently, in bad faith or with negligence. In addition, the
Partnership Agreement provides for indemnification of the General Partner by the
Partnership for liability resulting from errors in judgement or certain acts or
omissions. The general partner and its affiliates retain a free right to compete
with the Partnership's properties including the right to develop competing
properties now and in the future in addition to those existing properties which
may compete directly or indirectly.
NTS Development Company, the Property Manager and an affiliate of the general
partner, acts in a similar capacity for other affiliated entities in the same
geographic region where the Partnership has property interests. The agreement
with the Property Manager is on terms no less favorable to the Partnership than
those which could be obtained from third parties for similar services in the
same geographical region in which the properties are located. The contract is
terminable by either party without penalty upon 60 days written notice.
There are no other agreements or relationships between the Partnership, the
General Partner and its affiliates than those previously described.
- 17 -
<PAGE>
Items 1. and 2. Business and Properties - Continued
Employees
- ---------
The Partnership has no employees; however, employees of an affiliate of the
general partner are available to perform services for the Partnership. The
Partnership reimburses this affiliate for the actual costs of providing such
services.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
- 18 -
<PAGE>
PART II
Item 5. Market for Registrant's Limited Partnership Interests and Related
-----------------------------------------------------------------
Partner Matters
---------------
There is no established trading market for the limited partnership interests,
nor is one likely to develop. The Partnership had 2,761 limited partners as of
February 27, 1997. Cash distributions and allocations of net income (loss) are
made as described in Note 1C to the Partnership's 1996 financial statements.
Annual distributions totalling $2.17 (1994) were paid per limited partnership
unit. The Partnership did not make a cash distribution during 1995 or 1996.
Quarterly distributions are determined based on current cash balances, cash flow
being generated by operations and cash reserves needed, as determined by the
general partner, for future leasing costs, tenant finish costs and capital
improvements. Distributions were paid quarterly as follows:
1996 1995 1994
---------- ---------- ---------
First quarter $ -- $ -- $ 2.17
Second quarter -- -- --
Third quarter -- -- --
Fourth quarter -- -- --
------ ------ ------
$ -- $ -- $ 2.17
====== ====== =====
The table below presents that portion of the distributions that represent a
return of capital on a Generally Accepted Accounting Principle basis for the
years ended December 31, 1996, 1995 and 1994. Distributions were funded by cash
flow derived from operating activities.
Cash
Net Loss Distributions Return of
Allocated Declared Capital
--------- -------- -------
Limited Partners:
1996 $ (827,610) $ -- $ --
1995 (1,283,648) -- --
1994 (449,890) 77,851 77,851
General Partner:
1996 $ ( 8,360) $ -- $ --
1995 (12,966) -- --
1994 (5,049) 786 786
- 19 -
<PAGE>
Item 6.Selected Financial Data
<TABLE>
For the years ended December 31, 1996, 1995, 1994, 1993 and 1992.
<CAPTION>
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Rental and other income $ 5,693,700 $ 5,388,726 $ 3,787,118 $ 3,826,917 $ 3,970,482
Loss on sale of property -- -- -- -- (158,957)
Total expenses (6,479,552) (6,685,340) (4,292,057) (4,317,372) (4,275,902)
------------ ------------ ------------ ------------ ------------
Loss before extraordinary
item (785,852) (1,296,614) (504,939) (490,455) (464,377)
Extraordinary item (50,118) -- -- -- --
------------ ------------ ------------ ------------ ------------
Net loss $ (835,970) $ (1,296,614) $ (504,939) $ (490,455) $ (464,377)
============ ============ ============ ============ ============
Net loss allocated to:
General partner $ (8,360) $ (12,966) $ (5,049) $ (4,905) $ (4,644)
Limited partners $ (827,610) $ (1,283,648) $ (499,890) $ (485,550) $ (459,733)
Net loss per limited
partnership unit $ (23.23) $ (35.78) $ (13.93) $ (13.53) $ (12.81)
Weighted average number
of limited partnership
units 35,632 35,876 35,876 35,876 35,876
Cumulative net income
(loss) allocated to:
General partner $ 33,468 $ 41,828 $ 54,794 $ 59,843 $ 64,748
Limited partners $ (7,952,573) $ (7,124,963) $ (5,841,315) $ (5,341,425) $ (4,855,875)
Cumulative taxable income
(loss) allocated to:
General partner $ 149,844 $ 145,990 $ 148,475 $ 145,430 $ 146,019
Limited partners $ (7,217,069) $ (6,835,826) $ (6,069,120) $ (5,601,973) $ (5,144,495)
Distributions declared:
General partner $ -- $ -- $ 786 $ 3,145 $ 1,573
Limited partners $ -- $ -- $ 77,851 $ 311,403 $ 155,711
Cumulative distributions
declared:
General partner $ 155,527 $ 155,527 $ 155,527 $ 154,741 $ 151,596
Limited partners $ 15,397,262 $ 15,397,262 $ 15,397,262 $ 15,319,411 $ 15,008,008
At year end:
Land, buildings and
amenities, net $ 24,972,650 $ 26,149,956 $ 17,505,634 $ 18,082,922 $ 18,663,964
Total assets $ 30,334,256 $ 31,537,473 $ 21,447,138 $ 23,031,297 $ 23,982,298
Mortgages and notes
payable $ 22,688,331 $ 22,839,940 $ 11,743,884 $ 12,419,675 $ 12,819,410
</TABLE>
The above selected financial data should be read in conjunction with the
financial statements and related notes appearing elsewhere in this Form 10-K
report.
- 20 -
<PAGE>
Item 7. 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 December 31 were as
follows:
Percentage
Ownership
at 12/31/96 1996 1995 1994
----------- ---- ---- ----
Wholly-owned Properties
- -----------------------
Commonwealth Business Center
Phase II 100% 84% 67% 100%
University Business Center
Phase I 100% 98% 95% 90%
Properties Owned in Joint Venture
with NTS-Properties IV
- ----------------------
The Willows of Plainview Phase II 90% 92% 94% 93%
Lakeshore Business Center Phase I N/A See See 80%
below below
(1) (1)
Property Owned in Joint Venture
with NTS-Properties Plus Ltd.
- -----------------------------
University Business Center
Phase II N/A See See 100%
below below
(1) (1)
Properties Owned Through
Lakeshore/University II Joint
Venture (L/U II Joint Venture)
- ------------------------------
Lakeshore Business Center
Phase I 69% 92% 92% See
above
(1)
Lakeshore Business Center
Phase II 69% 89% 72% 78%
(2)
University Business Center
Phase II 69% 99% 95% See
above
(1)
(1) During the first quarter of 1995, the Partnership's ownership interest in
the property changed. See below for a discussion regarding this change.
(2) As of December 31, 1994 the Partnership did not have an interest in this
property. See below for a discussion regarding this change.
- 21 -
<PAGE>
Results of Operations - Continued
- ---------------------------------
The rental and other income generated by the Partnership's properties for the
years ended December 31, 1996, 1995 and 1994 were as follows:
Percentage
Ownership
at 12/31/96 1996 1995 1994
----------- -------- -------- -------
Wholly-owned Properties
- -----------------------
Commonwealth Business
Center Phase II 100% $ 535,619 $ 587,304 $ 512,547
University Business
Center I 100% $1,431,094 $1,359,802 $1,114,924
Properties Owned in Joint
Venture with NTS-
Properties IV
- ----------------------
The Willows of Plainview
Phase II 90% $1,150,113 $1,074,104 $1,102,210
Lakeshore Business Center
Phase I N/A N/A $ 74,043 $ 845,406
(1)
Property Owned in Joint
Venture with NTS-
Properties Plus Ltd.
- --------------------
University Business
Center Phase II N/A N/A $ 17,263 $ 198,421
(1)
Properties Owned Through
Lakeshore/University II
Joint Venture (L/U II
Joint Venture)
- --------------------
Lakeshore Business Center
Phase I 69% $ 920,643 $ 743,824 N/A (2)
Lakeshore Business Center
Phase II 69% $ 804,221 $ 745,307 N/A (3)
University Business
Center Phase II 69% $ 837,438 $ 768,180 N/A (2)
Revenues shown in the table above for properties owned through a joint venture
represent only the Partnership's percentage interest in those revenues.
(1) During the first quarter of 1995, the Partnership's ownership in the
property changed. The Partnership's proportionate share of rental and
other income from January 23, 1995 to December 31, 1995 is reflected
below (see L/U II Joint Venture). See below for a discussion regarding
this change.
(2) During the first quarter of 1995, the Partnership's ownership interest in
the property changed. Rental and other income for 1994 is reflected
above. See below for a discussion regarding this change.
(3) During 1994, the Partnership did not have an interest in this property.
See below for a discussion regarding the change which occurred during the
first quarter of 1995.
- 22 -
<PAGE>
Results of Operations - Continued
- ---------------------------------
The 17% increase in year-ending occupancy at Commonwealth Business Center Phase
II from 1995 to 1996 is a result of two new leases totalling approximately
15,400 square feet. Included in this total is a five year lease for
approximately 14,000 square feet. Partially offsetting the new leases are three
tenant move-outs totalling approximately 5,200 square feet. Two of the tenants,
which occupied 3,600 square feet, vacated the premises at the end of the lease
terms. The third tenant, which had occupied approximately 1,600 square feet,
vacated prior to the end of its lease term due to bankruptcy. There was no
accrued income associated with this lease. Average occupancy decreased from 87%
(1995) to 77% (1996). The decrease in rental and other income at Commonwealth
Business Center Phase II for 1996 as compared to 1995 is primarily the result of
the decrease in average occupancy partially offset by 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.
Prior to December 31, 1996, the Partnership received notice that a tenant
occupying approximately 30% of Commonwealth Business Center Phase II's net
rentable square feet will vacate the business center at the end of the lease
term. The Partnership will actively seek new tenants to occupy the vacant space.
At this time, the extent and cost of the tenant improvements which will be
required to attract new tenants remains unknown.
The 33% decrease in year-ending occupancy at Commonwealth Business Center Phase
II from 1994 to 1995 is a result of four tenant move-outs totalling
approximately 22,000 square feet. Included in this total is one tenant of 1,600
square feet which vacated at the end of the lease term. The other three tenants,
who had occupied approximately 20,000 square feet, vacated the premises prior to
the end of the lease terms. Two of the three tenants, who occupied approximately
19,000 square feet, exercised termination options. The third tenant, who had
occupied approximately 1,000 square feet, is continuing to pay rent through the
end of its lease term. There was no accrued income associated with these leases.
Partially offsetting the move-outs is one new lease for 1,600 square feet.
Average occupancy increased from 78% (1994) to 87% (1995). The increase in
rental and other income at Commonwealth Business Center Phase II from 1994 to
1995 is a result of the increase in average occupancy and an increase in common
area expense reimbursements.
The 3% increase in year-ending occupancy at University Business Center Phase I
from 1995 to 1996 is a result of three new leases totalling approximately 6,200
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,
represents a tenant who 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 has
paid the Partnership a lease termination fee of approximately $5,800 (recorded
as rental income). There was no accrued income associated with this lease.
Average occupancy at University Business Center Phase I increased from 91%
(1995) to 96% (1996). The increase in rental and other income at University
Business Center Phase I from 1995 to 1996 is primarily due to the increase in
average occupancy.
The 5% increase in year-ending occupancy at University Business Center Phase I
from 1994 to 1995 is a result of six new leases totalling approximately 9,400
square feet. Partially offsetting the new leases is a tenant move-out of
approximately 2,500 square feet at the end of the lease term and one tenant, who
occupied approximately 2,800 square feet, vacating the premises prior to the end
of the lease term due to bankruptcy. Accrued income of
- 23 -
<PAGE>
Results of Operations - Continued
- ---------------------------------
approximately $3,800 associated with this lease was written-off as
uncollectible. Average occupancy at University Business Center Phase I increased
from 87% (1994) to 91% (1995). The increase in rental and other income at
University Business Center Phase I from 1995 as compared to 1994 is primarily
due to the fact that the 1994 income was reduced by lease concessions which
arose out of negotiations for an 8,000 square foot expansion and lease renewal
by an existing tenant. The lease renewal extended the tenant's lease through
June 2002. The lease concession period ended June 1994. The increase in rental
and other income from 1994 to 1995 is also due to the increase in average
occupancy, an increase in common area expense reimbursements and an increase in
rental rates.
The Willows of Plainview Phase II's year-ending occupancy decreased from 94%
(1995) to 92% (1996). Average occupancy at The Willows of Plainview Phase II
increased 3% from 92% (1995) to 95% (1996). In the opinion of the General
Partner of the Partnership, the decrease in year-ending occupancy from 1995 to
1996 is only a temporary fluctuation and does not represent a downward occupancy
trend. 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 from 1995 to 1996 is a result
of the 3% increase in average occupancy, an increase in rental rates and an
increase in income from fully-furnished units. Fully-furnished units are
apartments which rent at an additional premium above base rent.
The Willows of Plainview Phase II's year-ending occupancy increased from 93% in
1994 to 94% in 1995. However, average occupancy from 1994 to 1995 decreased from
94% to 92%, respectively. The decrease in average occupancy at The Willows of
Plainview Phase II resulted in a decrease in rental and other income.
Year-ending occupancy at Lakeshore Business Center Phase I remained constant
(92%) from 1995 to 1996. Six new leases totalling 10,600 square feet, including
approximately 3,400 square feet in expansions by two current tenants, are offset
by five tenant move-outs totalling approximately 10,000 square feet. The five
move-outs consist of two tenants (2,700 square feet) vacating at the end of the
lease term, one tenant (1,600 square feet) exercising a termination option, and
two tenants vacating prior to the end of the lease term - one due to a business
decision to consolidate its office space to another location (700 square feet -
tenant paid rent through end of lease) and one due to bankruptcy (5,000 square
feet - tenant ceased rental payments). The write-off of accrued income connected
to these leases was not significant. Average occupancy at Lakeshore Business
Center Phase I increased 13% from 84% in 1995 to 97% in 1996. Rental and other
income increased from 1995 to 1996 as a result of the increase in average
occupancy.
As of December 31, 1996, Lakeshore Business Center Phase I had 1,800 square feet
of additional space leased to a current tenant. The tenant took occupancy in
January 1997. Subsequent to December 31, 1996, one new lease for approximately
1,100 square feet and an expansion lease for approximately 2,000 square feet
were signed at Lakeshore Business Center Phase I. The new tenant took occupancy
during the first quarter of 1997 and the expansion lease is effective during the
second quarter of 1997. With the new leases and expansion, the business center's
occupancy should improve to 97% during the second quarter of 1997. There are no
material commitments relating to the new leases. See the Liquidity and Capital
resources section of this item for the tenant finish commitment relating to the
expansion lease.
- 24 -
<PAGE>
Results of Operations - Continued
- ----------------------------------
The 12% increase in year-ending occupancy at Lakeshore Business Center Phase I
from 1994 to 1995 can be attributed to 11 new leases, totalling approximately
19,000 square feet which includes approximately 6,400 square feet in expansions
by two current tenants. The new leases and expansions are partially offset by
four tenant move-outs, who vacated at the end of the lease terms, totalling
approximately 6,100 square feet. Average occupancy increased from 70% (1994) to
84% (1995). The Partnership's proportionate share of the rental and other income
at Lakeshore Business Center Phase I decreased in 1995 as compared to 1994 as a
result of the Partnership's decreased ownership in Lakeshore Business Center
Phase I. (See below for a discussion regarding the change.) Overall, Lakeshore
Business Center Phase I's rental and other income increased in 1995 as compared
to 1994 primarily as a result of the increases in average occupancy and an
increase in common area expense reimbursements. Partially offsetting the
increase in rental and other income is an increase in the provision for doubtful
accounts.
The 17% increase in year-ending occupancy at Lakeshore Business Center Phase II
from 72% (1995) to 89% (1996) can be attributed to five new leases totalling
approximately 19,200 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 and expansions is one
tenant move-out totalling 2,800 square feet, vacating prior to the end of the
lease term but continuing to pay rent through the end of the lease term (August
1997). Average occupancy at Lakeshore Business Center Phase II increased from
76% (1995) to 80% (1996). Overall, rental and other income at Lakeshore Business
Center Phase II remained fairly constant despite a 4% increase in average
occupancy. This is primarily a result of a decrease in rental rates on lease
renewals. As discussed in prior filings, prior to the Ft. Lauderdale area
experiencing an economic downturn, the property was able to negotiate higher net
effective rental rates than current market rental rates. As a result, the leases
that were renewed at the end of 1995 and the beginning of 1996 renewed at a
lower net effective rental rate. The Partnership's proportionate share of the
rental and other income at Lakeshore Business Center II, however, increased in
1996 as compared to 1995. This is due to the fact that the Partnership acquired
an interest in Lakeshore Business Center Phase II as a result of the formation
of the Lakeshore/University Joint Venture (L/U II Joint Venture) on January 23,
1995. (See below for a discussion regarding the Joint Venture.)
Subsequent to December 31, 1996, Lakeshore Business Center Phase II had
approximately 5,100 square feet of additional space leased to two new tenants.
The tenants took occupancy during the first quarter of 1997. With the new
leases, the business center's occupancy improved to 94%. There are no material
tenant finish commitments relating to the new leases.
Since the Partnership obtained an interest in Lakeshore Business Center Phase II
as a result of the formation of the L/U II Joint Venture in 1995, no discussion
of the fluctuation in rental and other income from 1994 to 1995 is being
presented. See below for a discussion of the changes in year- ending occupancy
for this period.
The 6% decrease in year-ending occupancy at Lakeshore Business Center Phase II
from 1994 to 1995 can be attributed to four tenant move-outs totalling
approximately 9,600 square feet and a downsizing by a current tenant of its
existing space of approximately 6,000 square feet. Two of the move-outs,
totalling approximately 5,800 square feet, represent tenants who vacated the
premises at the end of the lease term. The third tenant, who occupied
approximately 1,400 square feet, vacated the premises and ceased making
- 25 -
<PAGE>
Results of Operations - Continued
- ----------------------------------
rental payments in breach of the lease terms due to bankruptcy. The write-off of
accrued income connected with this lease was not significant. The fourth tenant,
who occupied approximately 2,400 square feet, vacated the premises prior to the
end of the lease term but is continuing to pay rent through the end of the lease
term (September 1996). Partially offsetting the tenant move-outs are six new
leases for a total of approximately 9,700 square feet. Average occupancy at
Lakeshore Business Center Phase II decreased from 78% (1994) to 76% (1995). 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 occupancy
trend.
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 April 1991. As a result of Crosby downsizing and sub-leasing a portion
of its leased space, occupancy has decreased to 99% at December 31, 1996 and 95%
at December 31, 1995. See below for a further discussion of Crosby and its
leased space.
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 1996, 1995 and
1994.
The Partnership's proportionate share of the rental and other income at
University Business Center II increased in 1996 compared to 1995 as a result of
the Partnership's increased ownership in the business center effective January
23, 1995. (See below for a discussion regarding the change.) Overall, rental and
other income at University Business Center Phase II remained fairly constant in
1996 as compared to 1995.
The Partnership's proportionate share of the rental and other income at
University Business Center Phase II increased in 1995 as compared to 1994 as a
result of the Partnership's increased ownership in the business center effective
January 23, 1995. (See below for a discussion regarding the change.) Overall,
rental and other income at University Business Center Phase II increased in 1995
as compared to 1994 as a result of an increase in common area expense
reimbursements and a rent escalation based upon an increase in the consumer
price index.
Current occupancy levels are considered adequate to continue the operation of
the Partnership's properties without the need of any additional financing. See
the Liquidity and Capital Resources section for a discussion regarding the cash
requirements of the Partnership's current debt financings. In the opinion of the
General Partner of the Partnership, the decreased occupancy level at
Commonwealth Business Center Phase II which occurred in the first quarter of
1997 (as discussed above) is not indicative of trends in the area in which the
property is located.
The decrease in interest and other income for 1996 as compared to 1995 is
primarily the result of approximately $21,600 of interest income being
recognized during the second quarter of 1995 on a receivable from a tenant at
University Business Center Phase I. Interest income was not recognized until the
receivable had been repaid in full due to the length of time it had taken the
tenant to reimburse the Partnership. Interest and other income also includes
interest earned from investments made by the Partnership with cash reserves. The
decrease in interest income for 1996 as compared to 1995 is also a result of a
decrease in cash reserves available for investment.
- 26 -
<PAGE>
Results of Operations - Continued
- ----------------------------------
The increase in interest and other income in 1995 as compared to 1994 is
primarily the result of approximately $21,600 of interest income being
recognized during the second quarter of 1995 as discussed above. The increase in
interest income earned from investments in 1995 as compared to 1994 is a result
of an increase in cash reserves available for investment. Partially offsetting
the increase in interest income in 1995 as compared to 1994 is a decrease in
interest income received on an account receivable from a tenant at University
Business Center Phase I due to its repayment in September 1994. The receivable
was the result of above standard tenant improvements made in accordance with the
lease agreement. The tenant reimbursed the Partnership for the cost of these
improvements along with interest.
Operating expenses increased in 1996 as compared to 1995 due to increased
expenses associated with fully furnished units at The Willows of Plainview Phase
II, increased legal fees at Lakeshore Business Center Phase I, an increase in
vacant suite utilities at Commonwealth Business Center Phase II, increased
exterior painting costs at University Business Center Phase I and increased
repairs and maintenance costs at Lakeshore Business Center Phase II. The
increase in operating expenses is also the result of the Partnership acquiring
an interest in the Lakeshore/University II Joint Venture in January 1995. (See
below for a discussion regarding the Joint Venture.) Partially offsetting the
increase in operating expenses are decreased exterior painting costs and
decreased carpet and wallcovering replacement costs at the Willows of Plainview
Phase II and decreased janitorial costs at University Business Center Phase II.
Operating expenses increased from 1994 to 1995 primarily as a result of the
Partnership's interest in the L/U II Joint Venture. (See below for a discussion
regarding the Joint Venture.) The increase in operating expenses from 1994 to
1995 is also a result of increased landscaping costs at all of the Partnership's
properties and increased wallcovering and other replacement costs at the
Partnership's residential property. Partially offsetting the increase in
operating expenses from 1994 to 1995 is an overall decrease in repair costs and
utility costs at the Partnership's commercial properties.
The increase in operating expenses - affiliated from 1995 to 1996 and from 1994
to 1995 is due primarily to the Partnership's interest in the L/U II Joint
Venture (discussed below). 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 1995 write-off of unamortized tenant improvements was not significant. The
1994 write-off of unamortized tenant improvements can be attributed mainly to
University Business Center Phase I. At University Business Center Phase I, a
tenant expanded and renewed its lease through April 2001. The tenant expanded by
approximately 400 square feet for a total of approximately 3,900 square feet. No
additional space was available adjacent to the tenant's current location;
therefore, it was necessary to relocate the tenant to another suite in the
business center. As a condition of the renewal and expansion, the Partnership
agreed to renovate the new suite. In order to complete the renovation, it was
necessary to replace improvements which had not been fully depreciated. This
resulted in a write-off of approximately $31,000. Changes to current tenant
improvements are a typical part of any lease negotiation. Improvements generally
include a revision to the current floor plan to accommodate a tenant's needs,
new carpeting and paint and/or wallcovering. In order to complete the
renovation, it is sometimes necessary to replace improvements which have not
been fully depreciated. This results in a write-off of unamortized tenant
improvements.
- 27 -
<PAGE>
Results of Operations - Continued
- ----------------------------------
The 1996 write-off of unamortized loan costs (recoreded 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). See the Liquidity and Capital Resources section of this item for further
discussion.
The decrease in the amortization of capitalized leasing costs for 1996 as
compared to 1995 is due to the fact that the costs capitalized during start-up
at University Business Center Phase II became fully amortized at the end of
1995.
The increase in the amortization of capitalized leasing costs from 1994 to 1995
is primarily a result the Partnership's interest in the L/U II Joint Venture
(discussed below).
Interest expense has decreased in 1996 as compared to 1995 primarily as the
result of lower interest rates on the permanent financing obtained by the
Partnership in January 1996 (secured by University Business Center Phase I and
Commonwealth Business Center Phase II) and obtained by the L/U II Joint Venture
in July 1996 (secured by the assets of the Joint Venture). See the Liquidity and
Capital Resources section of this item for a discussion of these permanent
financings. The decrease in interest expense is partially offset by the
Partnership acquiring an interest in the L/U II Joint Venture in January 1995
(discussed below).
The increase in interest expense from 1994 to 1995 is primarily a result of the
Partnership's interest in the L/U II Joint Venture (discussed below) and an
increase in the Prime Rate.
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 increase in management fees from 1995 to 1996 and
from 1994 to 1995 can also be attributed to the Partnership acquiring an
interest in the L/U II Joint Venture in January 1995 (discussed below).
The increase in real estate taxes from 1995 to 1996 is primarily a result of the
Partnership acquiring an interest in the L/U II Joint Venture in January 1995
(discussed below). The increase is also due to an increase in the 1996 property
tax assessment for University Business Center Phase I and Lakeshore Business
Center Phase I as compared to the 1995 assessment.
The increase in real estate taxes from 1994 to 1995 is primarily a result of the
Partnership's interest in the L/U II Joint Venture (discussed below). The
increase in real estate taxes from 1994 to 1995 is also due to an increase in
the 1995 property tax assessment for Commonwealth Business Center Phase II as
compared to the 1994 assessment.
The decrease in professional and administrative expenses from 1995 to 1996 is
due primarily to decreased outside legal fees and litigation settlement expense
(see discussion below).
The increase in professional and administrative expenses from 1994 to 1995 is
due primarily to an increase in outside legal fees and litigation settlement
expense. The litigation originally instituted by an investor in the Partnership
against her investment advisor and involving claims between the investment
advisor and the Partnership, its general partner and NTS- Properties IV, an
affiliate of the General Partner of the Partnership, and its general partner was
settled during 1995. At a settlement conference
- 28 -
<PAGE>
Results of Operations - Continued
- ---------------------------------
before the Court (U.S.D.C., S.D. NY), the parties agreed on a confidential basis
to settle the litigation, and any and all other claims of the Third- Party
Plaintiffs in exchange for the payment by the Partnership and NTS- Properties IV
of certain monies without the admission of fault or wrongdoing.
Professional and Administrative expenses - affiliated increased from 1995 to
1996 as a result of increased salary costs. Professional and administrative
expenses - affiliated increased from 1994 to 1995 as a result of increased
accounting salaries and increased legal fees. Professional and administrative
expenses - affiliated are expenses incurred for services performed by employees
of NTS Development, an affiliate of the General Partner.
Depreciation and amortization expenses has decreased from 1995 to 1996 as a
result of a portion of the Partnership's assets (primarily tenant finish
improvements) having become fully depreciated. The decrease in depreciation and
amortization is partially offset by the Partnership acquiring an interest in the
L/U II Joint Venture in January 1995 (discussed below). 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.
Depreciation and amortization expense has increased from 1994 to 1995 as a
result of the Partnership's interest in the L/U II Joint Venture (discussed
below). The increase in depreciation and amortization expense from 1994 to 1995
is partially offset by a portion of the Partnership's assets having become fully
depreciated.
Liquidity and Capital Resources
- -------------------------------
Cash provided by operating activities was $919,765 (1996), $562,363 (1995), and
$772,998 (1994). In 1994 the funds, in conjunction with cash on hand, were used
to make a .25% (annualized) cash distribution of $78,637. The annualized
distribution rate is calculated as a percent of the original capital
contribution less a return of capital in the amount of $131.87 per limited
partnership unit made from the proceeds of the sale of Sabal Club Apartments in
1988. The limited partners received 99% and the general partner received 1% of
these distributions. No distribution was declared during the last nine months of
1994 and all of 1995 as a result of a loan covenant (the $6,402,000 note
payable) which required the Partnership to have $500,000 remaining in cash or
cash equivalents (excluding residential security deposits and cash escrowed with
a lending institution for the payment of property taxes) following a
distribution. The note payable was repaid in January 1996 (see below for a
further discussion). No distribution was declared during 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 December 31) were $315,816, $218,331
and $207,600 at December 31, 1996, 1995 and 1994, 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.
- 29 -
<PAGE>
Liquidity and Capital Resources - Continued
- --------------------------------------------
As previously disclosed in the Partnership's Form 10-K for the year ended
December 31, 1995, on January 23, 1995, a new joint venture known as
Lakeshore/University II Joint Venture (L/U II Joint Venture) was formed among
the Partnership and NTS-Properties IV, NTS-Properties Plus Ltd. and NTS/Fort
Lauderdale, Ltd., affiliates of the General Partner of the Partnership, for
purposes of owning Lakeshore Business Center Phases I and II, University
Business Center Phase II and certain undeveloped tracts adjacent to the
Lakeshore Business Center development.
The table below identifies which properties were contributed to the L/U II Joint
Venture and the respective owners of such properties prior to the formation of
the joint venture.
Property Contributing Owner
-------- ------------------
Lakeshore Business Center Phase I NTS-Properties IV and NTS-
Properties V
Lakeshore Business Center Phase II NTS-Properties Plus Ltd.
Undeveloped land adjacent to the NTS-Properties Plus Ltd.
Lakeshore Business Center
development (3.8 acres)
Undeveloped land adjacent to the NTS/Fort Lauderdale, Ltd.
Lakeshore Business Center
development (2.4 acres)
University Business Center Phase II NTS-Properties V and NTS-
Properties Plus Ltd.
Each of the properties were contributed to the L/U II Joint Venture subject to
existing indebtedness, except for Lakeshore Business Center Phase I which was
contributed to the joint venture free and clear of any mortgage liens, and all
such indebtedness was assumed by the joint venture. Mortgages were recorded on
Lakeshore Business Center Phase I in the amount of $5,500,000 and on University
Business Center Phase II in the amount of $3,000,000, in favor of the banks
which held the indebtedness on University Business Center Phase II, Lakeshore
Business Center Phase II and the undeveloped tracts prior to the formation of
the joint venture. In addition to the above, NTS- Properties IV contributed
$750,000 to the L/U II Joint Venture. As a result of the valuation of the
properties contributed to the L/U II Joint Venture, the Partnership obtained a
69% partnership interest in the joint venture.
On January 29, 1996 the Partnership obtained permanent financing from a bank
totalling $1,600,000 with $200,000 held for future fundings. The outstanding
balance at December 31, 1996 was $1,345,687. 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"). The remaining $200,000 will be disbursed by February
1, 1999 in one additional 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.
On January 31, 1996, the Partnership obtained permanent financing from an
insurance company totalling $5,100,000. The outstanding balance at December 31,
1996 was $4,876,477. The mortgage payable is due February 1, 2008, bears
interest at a fixed rate of 7.65% and is secured by University
- 30 -
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
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.
The proceeds of these permanent financings were used to retire the Partnership's
note payable, which had a balance of $6,352,000, to fund loan closing costs and
to increase the Partnership's cash reserves.
On July 23, 1996, the L/U II Joint Venture obtained three mortgage loans from an
insurance company totalling $17,400,000 ($6,025,000, $5,775,000 and $5,600,000).
The outstanding balances of the loans at December 31, 1996 were $5,924,638,
$5,678,802, and $5,506,719 respectively. The loans are recorded as a liability
of the Joint Venture. The Partnership's proportionate share in the loans at
December 31, 1996 was $4,101,627, $3,931,435, and $3,812,300, respectively. 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. The proceeds from the
loans were used to pay off the Joint Venture's notes payable of approximately
$16.8 million which bore interest at a fixed rate of 10.6% and to fund loan
closing costs of approximately $280,000. The Partnership's proportionate
interest in the notes that were paid-off was approximately $11,600,000 or 69%.
The notes which were paid-off had a maturity date of January 31, 1998. The
remaining proceeds will be used to fund Joint Venture tenant finish improvements
and leasing costs.
As of December 31, 1996, The Willows of Plainview Phase II, a joint venture
between the Partnership and NTS-Properties IV, had two mortgage loans each with
an insurance company in the amount of $3,220,975 and $1,922,970. The mortgages
are recorded as a liability of the Joint Venture. The Partnership's
proportionate share of the mortgages as of December 31, 1996 was $4,620,805
($2,893,401 and $1,727,404). Both mortgages are due December 5, 2003, currently
bear interest at a fixed rate of 7.5% for the first 60 months and are secured by
the land, buildings and amenities of the Joint Venture. At the end of the 56th
month from the date of the notes, the insurance companies will notify the Joint
Venture of the interest rate which is their then prevailing interest rate for
loans with a term of five years on properties comparable to the apartments (the
"Modified Rate"). The Joint Venture will have 30 days to accept or reject the
Modified Rate. If the Modified Rate is rejected by the Joint Venture, the entire
unpaid principal balance is due with the 60th installment of interest. If the
Joint Venture accepts the Modified Rate, it becomes effective the 61st month
from the date of the notes. (Notes dated November 23, 1993). 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).
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 and cash reserves. Changes to current tenant finish improvements are
a typical part of any lease negotiation. Improvements generally include a
revision to the current floor plan to accommodate a tenant's needs, new
carpeting and paint and/or wallcovering. The extent and cost of these
improvements are determined by the size of the space and whether the
improvements are for a new tenant or incurred because of a lease renewal. Cash
flows used in investing activities in 1995 also include cash which was 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 investing activities were the result of a
release of these escrow funds. Cash flows provided by financing activities are
from debt refinancings (discussed above). Cash flows used in financing
activities are for loan costs, principal payments on mortgages and notes payable
and repurchases of limited partnership Units.
- 31 -
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
The capital contribution by a joint venture partner represents the Partnership's
interest in the L/U II Joint Venture's increase in cash which resulted from a
capital contribution. The Partnership utilizes the proportionate consolidation
method of accounting for joint venture properties. The Partnership's interest in
the joint venture's assets, liabilities, revenues, expenses and cash flows are
combined on a line-by- line basis with the Partnership's own assets,
liabilities, revenues, expenses and cash flows. The Partnership does not expect
any material changes in the mix and relative cost of capital resources except
for the change in the cost of capital resources as a result of the new
financings which are secured by Commonwealth Business Center Phase II,
University Business Center Phase I and the assets of the L/U II Joint Venture as
discussed above.
The table below presents that portion of the distributions that represent a
return of capital on a Generally Accepted Accounting Principle basis for the
years ended December 31, 1996, 1995, and 1994. Distribution were funded by cash
flow derived from operating activities
Cash
Net Loss Distributions Return of
Allocated Declared Capital
--------- -------- -------
Limited Partners:
1996 $ (827,610) $ -- $ --
1995 (1,283,648) -- --
1994 (449,890) 77,851 77,851
General Partners:
1996 $ (8,360) $ -- $ --
1995 (12,966) -- --
1994 (5,049) 786 786
As of December 31, 1996 and 1995, the Partnership has accrued approximately
$155,000 (included in the accounts payable - construction balance) for certain
improvements to the undeveloped land plus interest at the University Place
development. The purchaser of the approximately 1 acre tract of land at the
University Place development has paid for 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 December 31, 1996
represents payables that are a result of tenant finish improvements. Tenant
finish improvements are a typical part of any lease negotiation. None of the
Partnership's properties were in the construction stage as of December 31, 1996.
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. During the years ended December 31, 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 81,000 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 92%). Of the total being sub-
- 32 -
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
leased, approximately 69,000 square feet (or 85%) is being leased by Full Sail
Recorders, Inc. ("Full Sail"), a major tenant at University Business Center
Phase I. During 1994, 1995 and 1996, Crosby continued to make rent payments
pursuant to the original lease terms. The Joint Venture has received notice that
Crosby does not intend to pay full rental due under the original lease agreement
from and after January 1997. The rental income from this property accounts for
approximately 15% of the partnership's total revenues. The Joint Venture has
instituted legal action to seek resolution 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 are being 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 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 the remaining 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.
As of December 31, 1996, University Business Center Phase I has a commitment for
tenant finish improvements of approximately $18,000 as a result of a lease
renewal. The renewal extends the lease for two years. The project is expected to
be completed during the first quarter of 1997. The source of funds for this
project is expected to be cash flow from operations and/or cash reserves.
Subsequent to December 31, 1996 the L/U II Joint Venture made a commitment of
approximately $55,000 for tenant finish improvements at Lakeshore Business
Center Phase I as a result of a lease renewal and expansion. The expansion
increased the tenant's current leased space by approximately 2,000 square feet
and the renewal extends the lease for five years. The Partnership's
proportionate share of the commitment is approximately $38,000 or 69%. The
project is expected to be completed during the second quarter of 1997. The
source of funds for this project is expected to be cash flow from operations
and/or cash reserves.
The Partnership had no other material commitments for renovations or capital
improvements at December 31, 1996.
In the next 12 months, the demand on future liquidity is anticipated to increase
as a result of principal payments required by the new debt financings of the L/U
II Joint Venture and the commitments made for a special tenant finish allowance
and tenant finish improvements (see above). Additionally, the Partnership will
continue its efforts to lease current unoccupied space at its commercial
properties. The Partnership also expects a demand on future liquidity based on
50,897 square feet in leases expiring during 1997 (Commonwealth Business Center
Phase II - 28,108 square feet,
- 33 -
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
University Business Center Phase I - 2,400 square feet, Lakeshore Business
Center Phase I - 9,163 square feet and Lakeshore Business Center Phase II -
11,226 square feet). A demand on future liquidity is also expected as a result
of the Crosby situation at University Business Center Phase II (discussed
above). 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.
On June 28, 1996, the Partnership established an Interest Repurchase Reserve in
the amount of $50,000 pursuant to Section 16.4 of the Partnership's Amended and
Restated Agreement of Limited Partnership. Under Section 16.4, limited partners
may request the Partnership to repurchase their respective interests (Units) in
the Partnership. With this funding, the Partnership was able to repurchase 370
Units at a price of $135 per Unit. The Partnership notified the limited partners
by letter dated February 1, 1996 of the establishment of the Interest Repurchase
Reserve and the opportunity to request that the Partnership repurchase Units at
the established price. On August 30, 1996, the Partnership elected to fund an
additional $50,000 to its Interest Repurchase Reserve. With this funding, the
Partnership was able to repurchase an additional 370 Units at a price of $135
per Unit. Through December 31, 1996, 740 units have been repurchased for
$99,900. Repurchased Units are retired by the Partnership, thus increasing the
share of ownership of each remaining investor. The Partnership funded the
Interest Repurchase Reserve from cash reserves. The Partnership does not
anticipate making any additional fundings to the Interest Repurchase Reserve in
the near term.
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.
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 $2,279,098 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
- 34 -
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
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 December 31, 1996 in the asset held for
sale is $1,152,868. The contract for sale which was previously disclosed in the
Partnership's From 10-K for the year ended December 31, 1995 has been cancelled
by the purchaser due to the fact that bids for construction exceeded their
borrowing potential. 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 7, Management's Discussion and Analysis
of Financial Condition and Results of Operations, may be considered to be
"forward looking statements" since such statements relate to matters which have
not yet occurred. For example, phrases such as " the Partnership anticipates ",
"believes" or "expects" indicate that it is possible that the event anticipated,
believed or expected may not occur. Should such event not occur, then the result
which the Partnership expected also may 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 act of God.
A portion of the Partnership's debt service is based on variable interest rates,
any fluctuations in which 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 ability to pay distributions to the limited
partners.
- 35 -
<PAGE>
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To NTS-Properties V, a Maryland Limited Partnership:
We have audited the accompanying balance sheets of NTS-Properties V, a Maryland
Limited Partnership, as of December 31, 1996 and 1995, and the related
statements of operations, partners' equity and cash flows for each of the three
years in the period ended December 31, 1996. These financial statements and the
schedules referred to below are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of NTS-Properties V, a Maryland
Limited Partnership, as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules included on pages 56
through 58 are presented for purposes of complying with the Securities and
Exchange Commission's rules and are not a required part of the basic financial
statements. These schedules have been subjected to the auditing procedures
applied in our audits of the basic financial statements and, in our opinion,
fairly state in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Louisville, Kentucky
February 25, 1997
- 36 -
<PAGE>
<TABLE>
NTS-PROPERTIES V,
A Maryland Limited Partnership
BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1995
<CAPTION>
1996 1995
----------- -----------
ASSETS
<S> <C> <C>
Cash and equivalents $ 315,816 $ 218,331
Cash and equivalents - restricted 84,992 56,318
Accounts receivable, net of allowance
for doubtful accounts of $15,899 (1996)
and $53,582 (1995) 517,267 766,624
Land, buildings and amenities, net 24,972,650 26,149,956
Asset held for development, net 2,279,098 2,432,950
Asset held for sale 1,152,868 1,152,868
Other assets 1,011,565 760,426
----------- -----------
$30,334,256 $31,537,473
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Mortgages and notes payable $22,688,331 $22,839,940
Accounts payable - operations 256,451 365,431
Accounts payable - construction 215,059 231,566
Security deposits 152,931 147,330
Other Liabilities 39,865 35,717
----------- -----------
23,352,637 23,619,984
Commitments and Contingencies
Partners' equity 6,981,619 7,917,489
----------- -----------
$30,334,256 $31,537,473
=========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
- 37 -
<PAGE>
<TABLE>
NTS-PROPERTIES V,
A Maryland Limited Partnership
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Rental income, net of provision for
doubtful accounts of $9,566 (1996),
$34,423 (1995) and $12,593 (1994) $ 5,665,972 $ 5,328,772 $ 3,753,848
Interest and other income 27,728 59,954 33,270
----------- ----------- -----------
5,693,700 5,388,726 3,787,118
Expenses:
Operating expenses 1,077,906 960,770 693,633
Operating expenses - affiliated 515,018 504,206 446,642
Write-off of unamortized tenant
improvements -- 4,719 32,649
Amortization of capitalized leasing
costs 18,735 30,880 11,888
Interest expense 1,997,728 2,189,900 955,956
Management fees 342,292 322,257 226,081
Real estate taxes 548,428 526,099 365,306
Professional and administrative
expenses 117,174 203,413 150,503
Professional and administrative
expenses - affiliated 180,699 154,275 149,295
Depreciation and amortization 1,681,572 1,788,821 1,260,104
----------- ----------- -----------
6,479,552 6,685,340 4,292,057
----------- ----------- -----------
Loss before extraordinary item (785,852) (1,296,614) (504,939)
Extraordinary item - write-off of
unamortized loan costs (50,118) -- --
----------- ----------- -----------
Net loss $ (835,970) $(1,296,614) $ (504,939)
=========== =========== ===========
Net loss allocated to the limited
partners $ (827,610) $(1,283,648) $ (499,890)
=========== =========== ===========
Net loss per limited partnership Unit:
Loss before extraordinary item $ (21.84) $ (35.78) $ (13.93)
Extraordinary item (1.39) -- --
----------- ----------- -----------
Net loss $ (23.23) $ (35.78) $ (13.93)
=========== =========== ===========
Weighted average number of limited
partnership units 35,632 35,876 35,876
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
- 38 -
<PAGE>
<TABLE>
NTS-PROPERTIES V,
A Maryland Limited Partnership
STATEMENTS OF PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<CAPTION>
Limited General
Partners Partners Total
-------- -------- -----
<S> <C> <C> <C>
Balances at December 31, 1993 $ 9,892,477 $ (94,798) $ 9,797,679
Net loss (499,890) (5,049) (504,939)
Distributions declared (77,851) (786) (78,637)
----------- ----------- -----------
Balances at December 31, 1994 9,314,736 (100,633) 9,214,103
Net loss (1,283,648) (12,966) (1,296,614)
----------- ----------- -----------
Balances at December 31, 1995 8,031,088 (113,599) 7,917,489
Net loss (827,610) (8,360) (835,970)
Repurchase of Limited Partnership
Units (99,900) -- (99,900)
----------- ----------- -----------
Balances at December 31, 1996 $ 7,103,578 $ (121,959) $ 6,981,619
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
- 39 -
<PAGE>
<TABLE>
NTS-PROPERTIES V,
A Maryland Limited Partnership
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (835,970) $ (1,296,614) $ (504,939)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Provision for doubtful accounts 9,566 34,423 12,593
Write-off of unamortized tenant improvements -- 4,719 32,649
Write-off of unamortized loan costs 50,118 -- --
Amortization of capitalized leasing costs 18,735 30,880 11,888
Depreciation and amortization 1,681,572 1,788,821 1,260,104
Changes in assets and liabilities:
Cash and equivalents - restricted (42,395) (25,712) (5,855)
Accounts receivable 239,791 215,134 91,284
Other assets (102,413) 60,074 (55,093)
Accounts payable - operations (108,980) 89,104 (78,869)
Security deposits 5,601 11,477 (555)
Other liabilities 4,140 (349,943) 9,791
------------ ------------ ------------
Net cash provided by operating activities 919,765 562,363 772,998
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to land, buildings and amenities (310,458) (120,488) (687,565)
Decrease (increase) in cash and equivalents -
restricted 13,721 (9,499) --
------------ ------------ ------------
Net cash used in investing activities (296,737) (129,987) (687,565)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in mortgages payable 18,546,020 -- --
Principal payments on mortgages and notes
payable (18,697,629) (738,350) (675,791)
Capital contribution by a joint venture
partner -- 519,225 --
Cash distributions -- -- (157,274)
Additions to loan costs (274,034) (202,520) (495)
Repurchase of limited partnership Units (99,900) -- --
------------ ------------ ------------
Net cash used in financing activities (525,543) (421,645) (833,560)
------------ ------------ ------------
Net increase (decrease) in cash and
equivalents 97,485 10,731 (748,127)
CASH AND EQUIVALENTS, beginning of year 218,331 207,600 955,727
------------ ------------ ------------
CASH AND EQUIVALENTS, end of year $ 315,816 $ 218,331 $ 207,600
============ ============ ============
Interest paid on a cash basis $ 2,037,647 $ 2,188,847 $ 959,537
============ ============ ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
- 40 -
<PAGE>
NTS-PROPERTIES V,
A Maryland Limited Partnership
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. Significant Accounting Policies
-------------------------------
A) Organization
------------
NTS-Properties V, a Maryland limited partnership, (the
"Partnership") is a limited partnership organized on April 30,
1984. The general partner is NTS-Properties Associates V, a
Kentucky limited partnership. The Partnership is in the business of
developing, constructing, owning and operating residential
apartments and commercial real estate.
B) Properties
----------
The Partnership owns and operates the following properties:
- Commonwealth Business Center Phase II, a business center with
approximately 61,000 net rentable ground floor square feet and
approximately 9,000 net rentable mezzanine square feet located
in Louisville, Kentucky
- University Business Center Phase I, a business center with
approximately 82,000 net rentable first floor (office and
service) and second floor (office) square feet and approximately
16,000 net rentable mezzanine square feet located in Orlando,
Florida
- A 90% joint venture interest in The Willows of Plainview Phase
II, a 144-unit luxury apartment complex located in Louisville,
Kentucky
- A 69% joint venture interest in the Lakeshore/University II
Joint Venture. A description of the properties owned by the
Joint Venture appears below:
- Lakeshore Business Center Phase I - a business center with
approximately 103,000 net rentable square feet located in
Fort Lauderdale, Florida.
- Lakeshore Business Center Phase II - a business center with
approximately 97,000 net rentable square feet located in
Fort Lauderdale, Florida.
- University Business Center Phase II - a business center with
approximately 78,000 net rentable first floor (office and
service) and second floor (office) square feet and
approximately 10,000 net rentable mezzanine square feet
located in Orlando, Florida.
- Outparcel Building Sites - approximately 6.2 acres of
undeveloped land adjacent to the Lakeshore Business Center
development which is zoned for commercial development.
The Partnership also owns approximately 6.21 acres of land,
adjacent to the University Place development (University Place
Phase III) in Orlando, Florida which is zoned for commercial
development.
- 41 -
<PAGE>
1. Significant Accounting Policies - Continued
-------------------------------------------
C) Allocation of Net Income (Loss) and Cash Distributions
------------------------------------------------------
Operating Net Cash Receipts, as defined in the partnership
agreement and which are made available for distribution, will be
distributed 1) 99% to the limited partners and 1% to the general
partner until the limited partners have received their 8% Preferred
Return as defined in the partnership agreement; 2) to the general
partner in an amount equal to approximately 10% of the limited
partners 8% Preferred Return; 3) the remainder, 90% to the limited
partners and 10% to the general partner.
Net operating income (loss), exclusive of depreciation, is
allocated to the limited partners and the general partner in
proportion to their respective cash distributions. Net operating
income, exclusive of depreciation, in excess of cash distributions
shall be allocated as follows: (1) pro rata to all partners with a
negative capital account in an amount to restore their respective
negative capital account to zero; (2) 99% to the limited partners
and 1% to the general partner until the limited partners have
received cash distributions from all sources equal to their
original capital; (3) the balance, 75% to the limited partners and
25% to the general partner. Depreciation expense is allocated 99%
to the limited partners and 1% to the general partner.
D) Tax Status
----------
The Partnership has received a ruling from the Internal Revenue
Service stating that the Partnership is classified as a limited
partnership for federal income tax purposes. As such, the
Partnership makes no provision for income taxes. The taxable income
or loss is passed through to the holders of the partnership
interests for inclusion on their individual income tax returns.
A reconciliation of net loss for financial statement purposes
versus that for income tax reporting is as follows:
1996 1995 1994
--------- ----------- ---------
Net loss $(835,970) $(1,296,614) $(504,939)
Items handled differently
for tax purposes:
Depreciation and
amortization 254,781 422,071 145,662
Capitalized leasing
costs 14,484 514 7,775
Rental income 227,838 145,460 35,622
Allowance for doubtful
accounts (37,682) 5,249 12,364
Write-off of unamortized
tenant improvements (840) (45,871) (160,586)
--------- --------- ---------
Taxable loss $(377,389) $(769,191) $(464,102)
========= ========= =========
- 42 -
<PAGE>
1. Significant Accounting Policies - Continued
-------------------------------------------
E) Use of Estimates in the Preparation of Financial Statements
-----------------------------------------------------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
F) Joint Venture Accounting
------------------------
The Partnership has adopted the proportionate consolidation method
of accounting for joint venture properties. The Partnership's
proportionate interest in the venture's assets, liabilities,
revenues, expenses and cash flows are combined on a line-by-line
basis with the Partnership's own assets, liabilities, revenues,
expenses and cash flows. All intercompany accounts and transactions
have been eliminated in consolidation.
Proportionate consolidation is utilized by the Partnership due to
the fact that the ownership of the joint venture properties, in
substance, is not subject to joint control. The managing general
partners of the sole general partner of the NTS sponsored
partnerships which have formed joint ventures are substantially the
same. As such, decisions regarding financing, development, sale or
operations do not require the approval of different partners.
Additionally, the joint venture properties are in the same
business/industry as their respective joint venture partners and
their asset, liability, revenue and expense accounts correspond
with the accounts of such partner. It is the belief of the general
partner of the Partnership that the financial statement disclosures
resulting from proportionate consolidation provides the most
meaningful presentation of assets, liabilities, revenues, expenses
and cash flows for the years presented given the commonality of the
Partnership operations.
G) 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.
Cash and equivalents - restricted at December 31, 1995 also
included escrow funds which were to be released as capital
expenditures, leasing commissions and tenant improvements were
incurred at the properties owned by the Lakeshore/University II
Joint Venture. In 1996, these escrow funds were released.
H) Basis of Property and Depreciation
----------------------------------
Land, buildings and amenities are stated at cost to the
Partnership. Costs directly associated with the acquisition,
development and construction of a project are capitalized.
Depreciation is computed using the straight-line method over the
estimated useful lives of the assets which are 10 - 30 years for
land improvements, 5-30 years for building and improvements and 5 -
30 years for amenities.
- 43 -
<PAGE>
1. Significant Accounting Policies - Continued
-------------------------------------------
H) Basis of Property and Depreciation - Continued
----------------------------------------------
Statement of Financial Accounting Standards (SFAS) No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of, specifics circumstances in which
certain long-lived assets must be reviewed for impairment. If such
review indicates that the carrying amount of an asset exceeds the
sum of its expected future cash flows, the asset's carrying value
must be written down to fair value. Application of this standard
during the year ended December 31, 1996 did not result in an
impairment loss.
I) Rental Income and Capitalized Leasing Costs
-------------------------------------------
Certain of the Partnership's lease agreements for the commercial
properties are structured to include scheduled and specified rent
increases over the lease term. For financial reporting purposes,
the income from these leases is being recognized on a straight-line
basis over the lease term. Accrued income connected with these
leases is included in accounts receivable and totalled $458,504 and
$682,189 as of December 31, 1996 and 1995, respectively.
All commissions paid to commercial leasing agents and incentives
paid to tenants are deferred and amortized on a straight-line basis
over the applicable lease term. In addition, certain other costs
associated with initial leasing of the properties are capitalized
and amortized over a five year period.
J) Advertising
-----------
The Partnership expenses advertising-type costs as incurred.
Advertising expense was immaterial to the Partnership during the
years ended December 31, 1996, 1995 and 1994.
K) Statements of Cash Flows
------------------------
For purposes of reporting cash flows, cash and equivalents include
cash on hand and short-term, highly liquid investments with initial
maturities of three months or less.
L) Reclassifications of 1995 and 1994 Financial Statements
-------------------------------------------------------
Certain reclassifications have been made to the December 31, 1995
and 1994 financial statements to conform with December 31, 1996
classifications. These reclassifications have no effect on
previously reported operations.
2. Concentration of Credit Risk
----------------------------
NTS-Properties V owns and operates or has a joint venture investment in
commercial properties in Kentucky (Louisville) and Florida (Orlando and
Ft. Lauderdale). Substantially all of the tenants are local businesses or
are businesses which have operations in the location in which they lease
space. The Partnership also has a joint venture investment in a
residential property in Louisville, Kentucky. The apartment unit is
generally the principal residence of the tenant.
- 44 -
<PAGE>
3. Investment in Joint Ventures
----------------------------
A) NTS Willows Phase II Joint Venture
----------------------------------
In 1984, the Partnership entered into a joint venture agreement
with NTS-Properties IV, an affiliate of the General Partner of the
Partnership, to develop and construct a 144 unit luxury apartment
complex on an 8.29-acre site in Louisville, Kentucky known as The
Willows of Plainview Phase II. NTS-Properties IV contributed land
valued at $800,000 and the Partnership contributed approximately
$7,455,000, the construction and carrying costs of the apartment
complex. The project was completed in August 1985. Net income or
net loss is allocated each calendar quarter based on the respective
partnership's contribution. The Partnership's ownership share was
90% at December 31, 1996. The Partnership's share of the joint
venture's net operating income was $61,658 (1996), $39,402(1995)
and $77,452 (1994).
B) NTS Ft. Lauderdale Office Joint Venture
---------------------------------------
In 1985, the Partnership entered into a joint venture agreement
with NTS-Properties IV to develop an approximately 103,000
square-foot commercial business center known as Lakeshore Business
Center Phase I, located in Fort Lauderdale, Florida.
NTS-Properties IV contributed land valued at $1,752,982 and the
Partnership contributed approximately $9,170,000, the construction
and carrying costs of the business center. The net income or net
loss is allocated each calendar quarter based on the respective
partnership's contribution. The Partnership's share of the joint
venture's net operating income was $10,809 (1995) and $93,602
(1994).
On January 23, 1995, the partners of the NTS Ft. Lauderdale Office
Joint Venture contributed Lakeshore Business Center Phase I to the
newly formed Lakeshore/University II (L/U II) Joint Venture. Refer
to Note 3D for a further discussion of the new joint venture.
C) NTS University Boulevard Joint Venture
--------------------------------------
In 1989, the Partnership entered into a joint venture agreement
with NTS-Properties Plus Ltd., an affiliate of the general partner
of the Partnership, to develop an approximately 88,000 square foot
commercial business center (includes 10,000 square feet of
mezzanine space) known as University Business Center Phase II,
located in Orlando, Florida. The Partnership contributed land
valued at $1,460,000 and NTS-Properties Plus Ltd. contributed
development and carrying costs of approximately $8 million. In
connection with the construction of University Business Center
Phase I, the Partnership incurred the cost of developing certain
common areas which are used by both University Business Center
Phase I and Phase II. In 1989, NTS-Properties Plus Ltd. paid
approximately $747,000 to the Partnership for Phase II's share of
the common area costs. The net income or net loss is allocated each
calendar quarter based on the respective partnership's
contribution. The Partnership's share of the joint venture's net
operating income was $2,722 (1995) and $29,617 (1994).
On January 23, 1995, the partners of the NTS University Boulevard
Joint Venture contributed University Business Center Phase II to
the newly formed L/U II Joint Venture. For a further discussion of
the new joint venture. Refer to Note 3D for a further discussion of
the new joint venture.
- 45 -
<PAGE>
3. Investment in Joint Venture - Continued
---------------------------------------
D) Lakeshore/University II Joint Venture
-------------------------------------
On January 23, 1995, a new joint venture known as
Lakeshore/University II Joint Venture (L/U II Joint Venture) was
formed among the Partnership and NTS-Properties IV, NTS-Properties
Plus Ltd. and NTS/Fort Lauderdale, Ltd., affiliates of the General
Partner of the Partnership, for purposes of owning Lakeshore
Business Center Phases I and II, University Business Center Phase
II and certain undeveloped tracts adjacent to the Lakeshore
Business Center development. The table below identifies which
properties were contributed to the L/U II Joint Venture and the
respective owners of such properties prior to the formation of the
joint venture.
Property (Net Asset Contributed) Contributing Owner
-------------------------------- ------------------
Lakeshore Business Center NTS-Properties IV and NTS-
Phase I ($6,249,667) Properties V
Lakeshore Business Center NTS-Properties Plus Ltd.
Phase II (-$1,023,535)
Undeveloped land adjacent to the NTS - Properties Plus Ltd.
Lakeshore Business Center
development (3.8 acres)(-$670,709)
Undeveloped land adjacent to the NTS/Fort Lauderdale, Ltd.
Lakeshore Business Center
development (2.4 acres)($27,104)
University Business Center NTS-Properties V and NTS-
Phase II ($953,236) Properties Plus Ltd.
Each of the properties were contributed to the L/U II Joint Venture
subject to existing indebtedness, except for Lakeshore Business Center
Phase I which was contributed to the joint venture free and clear of any
mortgage liens, and all such indebtedness was assumed by the L/U II Joint
Venture. Mortgages have been recorded on Lakeshore Business Center Phase
I in the amount of $5,500,000, and on University Business Center Phase II
in the amount of $3,000,000, in favor of the banks which held the
indebtedness on University Business Center Phase II, Lakeshore Business
Center Phase II and the undeveloped tracts prior to the formation of the
joint venture. In addition to the above, NTS/Properties IV contributed
$750,000 to the L/U II Joint Venture. The Partnership's ownership share
was 69% at December 31, 1996. The Partnership's share of the joint
ventures net operating loss was $683,988 (1996) and $856,189 (1995).
4. Land, Buildings and Amenities
-----------------------------
The following schedule provides an analysis of the Partnership's
investment in property held for lease as of December 31:
1996 1995
----------- -----------
Land and improvements $ 9,768,140 $ 9,765,122
Buildings and improvements 32,496,783 32,297,041
Amenities 330,592 326,124
----------- -----------
42,595,515 42,388,287
Less accumulated depreciation 17,622,865 16,238,331
----------- -----------
$24,972,650 $26,149,956
=========== ===========
-46-
<PAGE>
5. Asset Held for Development
--------------------------
As of December 31, 1996, the Partnership owned 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
$2,272,098 million is land cost, capitalized interest and common area
costs. The Partnership plans to use the 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.
6. Asset Held for Sale
-------------------
As of December 31, 1996, the L/U II Joint Venture owned approximately 6.2
acres of land adjacent to the Lakeshore Business Center development in
Ft. Lauderdale, Florida. The Partnership's proportionate interest at
December 31, 1996 in the asset held for sale is $1,152,868. In
management's opinion, the net book value of the asset held for sale
approximates the fair market value less cost to sell.
7. Mortgages and Notes Payable
---------------------------
Mortgages and notes payable as of December 31 consist of the following:
1996 1995
------ ------
Mortgage payable with an insurance
company bearing interest at a fixed
rate of 7.65%, due February 1, 2008,
secured by land and building $ 4,876,477 $ --
Mortgage payable with an insurance
company bearing interest at fixed
rate of 8.125%, due August 1, 2008,
secured by land and building 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 3,931,435 --
Mortgage payable with an insurance
company bearing interest at a fixed
rate of 8.125%, due August 1, 2008
secured by land and building 3,812,300 --
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 2,893,401 2,929,404
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 1,727,404 1,748,897
(Continued next page)
- 47 -
<PAGE>
7. Mortgages and Notes Payable - Continued
---------------------------------------
1996 1995
------ ------
Note payable with a bank bearing
interest at the Prime Rate, due
February 1, 2009, secured by land
and building $ 1,345,687 $ --
Note payable to a bank bearing
interest at a fixed rate of 10.6%,
due January 31, 1998, secured by
land and building -- 6,371,930
Note payable to a bank bearing
interest at a fixed rate of 10.6%,
due January 31, 1998, secured by
land -- 3,973,802
Note payable to a bank bearing
interest at a fixed rate of
10.6%,due January 31, 1998, secured
by land -- 854,298
Note payable to a bank bearing
interest at a fixed rate of 10.6%,
due January 31, 1998, secured by
land -- 324,227
Note payable to a bank bearing
interest at a fixed rate of 10.6%,
due January 31, 1998, secured by
land -- 235,382
Note payable to a bank bearing
interest at the Prime Rate + 1% due
March 31, 1996, secured by land and
buildings -- 6,402,000
------------ ------------
$ 22,688,331 $ 22,839,940
============ ============
The Prime Rate was 8.25% at December 31, 1996 and was 8.5% at December 31, 1995.
The mortgages are payable in monthly installments of $274,954 which include
principal, interest and property tax escrow. Scheduled maturities of debt are as
follows:
For the Years Ended December 31, Amount
-------------------------------- -----------
1997 $ 1,060,858
1998 1,148,655
1999 1,243,728
2000 1,346,679
2001 1,458,162
Thereafter 16,430,249
-----------
$22,688,331
===========
Based on the borrowing rates currently available to the Partnership for
mortgages with similar terms and average maturities, the fair value of long-term
debt is approximately $24,200,000.
- 48 -
<PAGE>
8. Interest Repurchase Reserve
---------------------------
On June 28, 1996, the Partnership established an Interest Repurchase
Reserve in the amount of $50,000 pursuant to Section 16.4 of the
Partnership's Amended and Restated Agreement of Limited Partnership.
Under Section 16.4, limited partners may request the Partnership to
repurchase their respective interests (Units) in the Partnership. With
these funds, the Partnership repurchased 370 Units at a price of $135 per
Unit. The Partnership notified the limited partners by letter dated
February 1, 1996, of the establishment of the Interest Repurchase Reserve
and the opportunity to request that the Partnership repurchase Units at
the established price. On August 30, 1996, the Partnership elected to
fund an additional $50,000 to its Interest Repurchase Reserve. With this
funding, the Partnership repurchased an additional 370 Units at a price
of $135 per Unit. Through December 31, 1996, 740 Units have been
repurchased for $99,900. Repurchased Units are retired by the
Partnership, thus increasing the share of ownership remaining investor.
9. Rental Income Under Operating Leases
------------------------------------
The following is a schedule of minimum future rental income on
noncancellable operating leases as of December 31, 1996:
For the Years Ended December 31: Amount
-------------------------------- ------------
1997 $ 2,999,148
1998 2,500,356
1999 1,989,251
2000 1,477,650
2001 859,595
Thereafter 665,467
------------
$ 10,491,467
============
10. Related Party Transactions
--------------------------
Pursuant to an agreement with the Partnership, property management fees
of $342,292 (1996), $322,257 (1995), and $226,081 (1994) were paid to NTS
Development Company, an affiliate of the general partner. 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 $17,511 and $14,046 as a repair and maintenance
fee during the years ended December 31, 1996 and 1995, respectively, and
has capitalized this cost as part of land, building and amenities.
As permitted by an agreement, the Partnership was also charged the
following amounts from NTS Development Company for the years ended
December 31, 1996, 1995 and 1994. These charges included 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, building and amenities.
- 49 -
<PAGE>
10. Related Party Transactions - Continued
--------------------------------------
The charges were as follows:
1996 1995 1994
-------- -------- --------
Leasing $242,890 $206,008 $189,587
Administrative 236,800 175,982 201,485
Property manager 313,048 315,575 270,058
Other 28,846 9,108 13,954
-------- -------- --------
$821,584 $706,673 $675,084
======== ======== ========
11. Commitments and Contingencies
-----------------------------
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. During the years ended December
31, 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 81,000 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 92%). Of the
total being sub-leased, approximately 69,000 square feet (or 85%) is
being leased by Full Sail Recorders, Inc. ("Full Sail"), a major tenant
at University Business Center Phase I. During 1994, 1995 and 1996, Crosby
continued to make rent payments pursuant to the original lease terms. The
Joint Venture has received notice that Crosby does not intend to pay full
rental due under the original lease agreement from and after January
1997. The rental income from this property accounts for approximately 15%
of the partnership's total revenues. The Joint Venture has instituted
legal action to seek resolution 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 are being 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 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 the remaining
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.
- 50 -
<PAGE>
11. Commitments and Contingencies - Continued
-----------------------------------------
Prior to December 31, 1996, the Partnership received notice that a tenant
occupying approximately 30% of Commonwealth Business Center Phase II's
net rentable square feet will vacate the business center at the end of
the lease term. The Partnership will actively seek new tenants to occupy
the vacant space. At this time, the extent and cost of the tenant
improvements which will be required to attract new tenants remains
unknown.
- 51 -
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure
- --------------------
N/A
PART III
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
Because the Partnership is a limited partnership and not a corporation, it has
no directors or officers as such. Management of the Partnership is the
responsibility of the general partner, NTS-Properties Associates V. The
Partnership has entered into a management contract with NTS Development Company,
an affiliate of the general partner, to provide property management services.
The partners of NTS-Properties Associates V are as follows:
J. D. Nichols
- -------------
Mr. Nichols (age 55) is the managing general partner of NTS-Properties
Associates V and is Chairman of the Board of NTS Corporation (since 1985) and
NTS Development Company (since 1977).
NTS Capital Corporation
- -----------------------
NTS Capital Corporation (formerly NTS Corporation) is a Kentucky corporation
formed in October 1979. J. D. Nichols is Chairman of the Board and the sole
director of NTS Capital Corporation.
The Manager of the Partnership's properties is NTS Development Company, the
executive officers and/or directors of which are Messrs. J. D. Nichols,
Richard L. Good, and John W. Hampton.
Richard L. Good
- ---------------
Mr. Good (age 57), President and Chief Operating Officer of NTS Corporation,
President of NTS Development Company and Chairman of the Board of NTS
Securities, Inc., joined the Manager in January 1985. From 1981 through 1984, he
was President of Jacques-Miller, Inc., a real estate syndication, property
management and financial planning firm Nashville, Tennessee.
John W. Hampton
- ---------------
Mr. Hampton (age 47) is Senior Vice President of NTS Corporation with
responsibility for all accounting operations. Before joining NTS in March 1991,
Mr. Hampton was Vice President - Finance and Chief Financial Officer of the
Sturgeon-Thornton-Marrett Development Company in Louisville, Kentucky for nine
years. Prior to that he was with Alexander Grant & Company CPA's. Mr. Hampton is
a Certified Public Accountant and a graduate of the University of Louisville
with a Bachelor of Science degree in Commerce. He is a member of the American
Institute of CPA's and the Kentucky Society of CPA's.
- 52 -
<PAGE>
Item 11. Management Remuneration and Transactions
----------------------------------------
The officers and/or directors of the corporate general partner receive no direct
remuneration in such capacities. The Partnership is required to pay a property
management fee based on gross rentals to NTS Development Company, an affiliate
of the general partner. The Partnership is also required to pay to NTS
Development Company a repair and maintenance fee on costs related to specified
projects. NTS Development Company provides certain other services to the
Partnership. See Note 9 to the financial statements which sets forth
transactions with affiliates of the general partner for the years ended December
31, 1996, 1995 and 1994.
The general partner is entitled to receive cash distributions and allocations of
profits and losses from the Partnership. See Note 1C to the financial statements
which describes the methods used to determine income allocation and cash
distributions.
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
The following provides details regarding owners of more than 5% of the total
outstanding limited partnership Units as of February 28, 1996.
BKK Financial, Inc
2810 Willow Lake Drive
Indianapolis, Indiana 46268 1,879 Units (5.2%)
BKK Financial, Inc. Is owned 49% each by the majority age of daughters of
and 2% by the spouse of, Mr. J.D. Nichols, who is a general partner of NTS-
Properties Associates V, the general partner of the Partnership.
The general partner is NTS-Properties Associates V, a Kentucky limited
partnership, 10172 Linn Station Road, Louisville, Kentucky 40223. The partners
of the general partner and their total respective interests in
NTS-Properties Associates V are as follows:
J. D. Nichols 59.90%
10172 Linn Station Road
Louisville, Kentucky 40223
NTS Capital Corporation .10%
10172 Linn Station Road
Louisville, Kentucky 40223
The remaining 40% interests are owned by various limited partners of NTS-
Properties Associates V.
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
Pursuant to an agreement with the Partnership, property management fees of
$342,292 (1996), $322,257 (1995), and $226,081 (1994) were paid to NTS
Development Company, an affiliate of the general partner. 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 $17,511 and $14,046
as a repair and maintenance fee during the years ended December 31, 1996 and
1995, respectively, and has capitalized this cost as a part of land, buildings
and amenities.
- 53 -
<PAGE>
Item 13. Certain Relationships and Related Transactions - Continued
----------------------------------------------------------
As permitted by an agreement, the Partnership was also charged the following
amounts from NTS Development Company for the years ended December 31, 1996, 1995
and 1994. 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.
1996 1995 1994
-------- -------- --------
Leasing agents $242,890 $206,008 $189,587
Administrative 236,800 175,982 201,485
Property manager 313,048 315,575 270,058
Other 28,846 9,108 13,954
-------- -------- --------
$821,584 $706,673 $675,084
======== ======== ========
There were no other agreements or relationships between the Partnership, the
General Partner and its affiliates than those previously described.
- 54 -
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
----------------------------------------------------------------
1. Financial statements
The financial statements for the years ended December 31, 1996, 1995 and
1994 together with the report of Arthur Andersen LLP, dated February 25,
1997, appear in Item 8. The following financial statement schedules
should be read in conjunction with such financial statements.
2. Financial statement schedules
Schedules: Page No.
III-Real Estate and Accumulated Depreciation 56-58
All other schedules have been omitted because they are not applicable,
are not required, or because the required information is included in the
financial statements or notes thereto.
3. Exhibits
Exhibit No. Page No.
3. Amended and Restated Agreement and *
Certificate of Limited Partnership
of NTS-Properties V, a Maryland
limited partnership
3a. First Amendment to Amended and Restated **
Agreement of Limited Partnership of
NTS-Properties V, a Maryland limited
partnership
10. Management Agreement between NTS *
Development Company and NTS-Properties
V, a Maryland limited partnership
27. Financial Data Schedule Included
herewith
* Incorporated by reference to documents filed with the
Securities and Exchange Commission in connection with
the filing of the Registration Statements on Form
S-11 on May 1, 1984 (effective August 1, 1984) under
Commission File
No. 2-90818.
** Incorporated by reference to Form 10-K filed with the
Securities and Exchange Commission for the fiscal year
ended December 31, 1987 under Commission File No. 0-
13400.
4. Reports on Form 8-K
Form 8-K was filed December 23, 1996 to report in Item 5 that the
Partnership had received notice that Philip Crosby Associates, Inc.
(Crosby) does not intend to pay full rental due under its lease from and
after January 1997. Crosby leases the majority of the space in
University Business Center Phase II, which is owned by the Lakeshore/
University II Joint Venture. The Partnership owns a 69% interest in this
Joint Venture.
- 55 -
<PAGE>
<TABLE>
NTS-PROPERTIES V,
A Maryland Limited Partnership
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1996
<CAPTION>
Commonwealth University Lakeshore
Business Business The Willows Business
Center Center of Plainview Center
Phase II Phase I Phase II Phase I
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Encumbrances (A) (B) (B) (B)
Initial cost to partnership:
Land $ 946,039 $ 1,576,346 $ 1,604,739 $ 2,250,741
Buildings and improvements 1,574,747 2,650,105 5,654,188 3,592,918
Cost capitalized subsequent to
acquisition
Improvements 1,987,155 3,508,263 52,706 2,924,139
Other (C) -- -- -- (1,351,170)
Carrying costs -- -- -- --
Gross amount at which carried
December 31, 1996:
Land $ 994,796 $ 1,630,177 $ 1,594,976 $ 1,858,583
Buildings and improvements 3,513,145 6,104,537 5,716,657 5,558,045
----------- ----------- ----------- -----------
Total $ 4,507,941 $ 7,734,714 $ 7,311,633 $ 7,416,628
=========== =========== =========== ===========
Accumulated depreciation $ 2,501,890 $ 3,565,879 $ 3,243,876 $ 3,333,396
=========== =========== =========== ===========
Date of construction 09/85 02/87 08/85 05/86
Date Acquired N/A N/A N/A N/A
Life at which depreciation in
latest income statement is
computed (D) (D) (D) (D)
<FN>
(A) First mortgage held by a bank.
(B) First mortgage held by an insurance company.
(C) Represents NTS-Properties V's decreased interest in Lakeshore Business
Center Phase I as a result of the formation of the Lakeshore/University
II Joint Venture in 1995.
(D) Depreciation is computed using the straight-line method over the
estimated useful lives of the assets which are 10 - 30 years for land
improvements, 5 - 30 years for buildings and improvements and 5 - 30
years for amenities.
</FN>
</TABLE>
- 56 -
<PAGE>
<TABLE>
NTS-PROPERTIES V,
A Maryland Limited Partnership
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1996
<CAPTION>
University Lakeshore
Business Business
Center Center Total
Phase II Phase II Pages 56-57
-------- -------- -----------
<S> <C> <C> <C>
Encumbrances (A) (A)
Initial cost to partnership:
Land $ 356,625 $ 2,554,955 $ 9,289,445
Buildings and improvements 1,038,524 5,849,946 20,360,428
Cost capitalized subsequent to
acquisition
Improvements 33,807 89,084 8,595,154
Other (B) 5,701,658 -- 4,350,488
Carrying costs -- -- --
Gross amount at which carried
December 31, 1996 (C):
Land $ 1,134,653 $ 2,554,955 $ 9,768,140
Buildings and improvements 5,995,961 5,939,030 32,827,375
----------- ----------- -----------
Total $ 7,130,614 $ 8,493,985 $42,595,515
=========== =========== ===========
Accumulated depreciation $ 2,051,555 $ 2,926,269 $17,622,865
=========== =========== ===========
Date of construction 12/90 N/A
Date Acquired N/A 01/95
Life at which depreciation in
latest income statement is
computed (D) (D)
<FN>
(A) First mortgage held by an insurance company.
(B) Represents NTS-Properties V's increased interest in University Business
Center Phase II as a result of the formation of the Lakeshore/University
II Joint Venture in 1995.
(C) Aggregate cost of real estate for tax purposes is $39,773,997.
(D) Depreciation is computed using the straight-line method over the
estimated useful lives of the assets which are 10 - 30 years for land
improvements, 5 - 30 years for buildings and improvements and 5 - 30
years for amenities.
</FN>
</TABLE>
- 57-
<PAGE>
<TABLE>
NTS-PROPERTIES V,
A Maryland Limited Partnership
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<CAPTION>
Real Accumulated
Estate Depreciation
------ ------------
<S> <C> <C>
Balances at December 31, 1993 $ 29,309,717 $ 11,226,795
Additions during period:
Improvements 511,919 --
Depreciation (a) -- 1,056,551
Deductions during period:
Retirements (314,390) (281,734)
------------ ------------
Balances at December 31, 1994 29,507,246 12,001,612
Additions during period:
Improvements 190,456 --
Depreciation (a) -- 1,554,907
Other (b) 14,106,559 3,366,067
Deductions during period:
Retirements (64,804) (60,086)
Other (c) (1,351,170) (624,169)
------------ ------------
Balances at December 31, 1995 42,388,287 16,238,331
Additions during period:
Improvements 297,035 --
Depreciation (a) -- 1,474,241
Deductions during period:
Retirements (89,807) (89,707)
------------ ------------
Balances at December 31, 1996 $ 42,595,515 $ 17,622,865
============ ============
<FN>
(a) The additions charged to accumulated depreciation on this schedule will
differ from the depreciation and amortization on the Statements of Cash
Flows due to the amortization of loan costs.
(b) Represents the increase in the Partnership's proportionate share of
University Business Center Phase II's land and buildings plus the
Partnership's proportionate share of Lakeshore Business Center Phase
II's land and buildings under the proportionate consolidation method.
Both are the result of the formation of the Lakeshore/University II
Joint Venture.
(c) Represents the decrease in the Partnership's proportionate share of
Lakeshore Business Center Phase I's land and buildings under the
proportionate consolidation method as a result of the formation of the
Lakeshore/University II Joint Venture.
</FN>
</TABLE>
- 58 -
<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: March 27, 1997
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
Form 10-K has been signed below by the following persons on behalf of the
registrant in their capacities and on the date indicated above.
Signature Title
--------- -----
/s/ J. D. Nichols General Partner of NTS-Properties
J. D. Nichols Associates V and Chairman of the
Board and Sole Director of
NTS Capital Corporation
/s/ Richard L. Good President of NTS Capital Corporation
Richard L. Good
/s/ John W. Hampton Senior Vice President of NTS Capital
John W. Hampton Corporation
The Partnership is a limited partnership and no proxy material has been sent to
the limited partners.
- 59 -
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET AS OF DECEMBER 31, 1996 AND FROM THE STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 400,808
<SECURITIES> 0
<RECEIVABLES> 517,267
<ALLOWANCES> 15,899
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 24,972,650
<DEPRECIATION> 17,622,865
<TOTAL-ASSETS> 30,334,256
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 22,688,331
0
0
<COMMON> 0
<OTHER-SE> 6,981,619
<TOTAL-LIABILITY-AND-EQUITY> 30,334,256
<SALES> 5,665,972
<TOTAL-REVENUES> 5,693,700
<CGS> 0
<TOTAL-COSTS> 4,183,951
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 9,566
<INTEREST-EXPENSE> 1,997,728
<INCOME-PRETAX> (785,852)
<INCOME-TAX> 0
<INCOME-CONTINUING> (785,852)
<DISCONTINUED> 0
<EXTRAORDINARY> (50,118)
<CHANGES> 0
<NET-INCOME> (835,970)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>THE PARTNERSHIP HAS AN UNCLASSIFIED BALANCE SHEET; THEREFORE, THE VALUE
IS $0.
</FN>
</TABLE>
