UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark one)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from_____________to_____-_______
Commission File Number 0-13400
NTS-PROPERTIES V, a Maryland Limited Partnership
(Exact name of registrant as specified in its charter)
Maryland 61-1051452
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10172 Linn Station Road
Louisville, Kentucky 40223
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number,
including area code (502) 426-4800
Not Applicable
Former name, former address and former fiscal year,
if changed since last report
Indicate by check mark whether the registrant (l) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
Exhibit Index: See page 19
Total Pages: 20
<PAGE>
TABLE OF CONTENTS
Pages
PART I
Item 1. Financial Statements
Balance Sheets and Statement of Partners' Equity
As of March 31, 1998 and December 31, 1997 3
Statements of Operations
For the three months ended March 31, 1998 and 1997 4
Statements of Cash Flows
For the three months ended March 31, 1998 and 1997 5
Notes To Financial Statements 6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-18
PART II
1. Legal Proceedings 19
2. Changes in Securities 19
3. Defaults upon Senior Securities 19
4. Submission of Matters to a Vote of Security Holders 19
5. Other Information 19
6. Exhibits and Reports on Form 8-K 19
Signatures 20
- 2 -
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
NTS-PROPERTIES V,
A Maryland Limited Partnership
BALANCE SHEETS AND STATEMENT OF PARTNERS' EQUITY
<CAPTION>
As of As of
March 31, 1998 December 31, 1997*
-------------- ------------------
ASSETS
<S> <C> <C>
Cash and equivalents $ 701,867 $ 473,362
Cash and equivalents - restricted 231,798 69,858
Accounts receivable, net of allowance
for doubtful accounts of $13,304 (1998)
and (1997) 391,081 291,504
Land, buildings and amenities, net 23,579,995 23,750,773
Asset held for development, net 2,086,783 2,125,246
Asset held for sale 1,152,868 1,152,868
Other assets 833,425 849,287
----------- -----------
$28,977,817 $28,712,898
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Mortgages and note payable $21,575,297 $21,662,821
Accounts payable - operations 358,584 284,829
Accounts payable - construction 147,633 34,486
Security deposits 162,327 167,597
Other liabilities 372,493 189,570
----------- -----------
22,616,334 22,339,303
Commitments and Contingencies
Partners' equity 6,361,483 6,373,595
----------- -----------
$28,977,817 $28,712,898
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Limited General
Partners Partner Total
-------- ------- -----
PARTNERS' EQUITY
<S> <C> <C> <C>
Capital contributions, net of
offering costs $ 30,582,037 $ 100 $ 30,582,137
Net income loss - prior years (8,554,517) 27,388 (8,527,129)
Net loss - current year (11,992) (121) (12,113)
Cash distributions declared to
date (15,389,204) (155,528) (15,544,732)
Repurchase of limited
partnership Units (136,680) -- (136,680)
------------ ------------ ------------
Balances at March 31, 1998 $ 6,489,644 $ (128,161) $ 6,361,483
============ ============ ============
</TABLE>
*Reference is made to the audited financial statements in the Form 10-K as filed
with the Commission on March 30, 1998.
- 3 -
<PAGE>
<TABLE>
NTS-PROPERTIES V,
A Maryland Limited Partnership
STATEMENTS OF OPERATIONS
<CAPTION>
Three Months Ended
March 31,
------------------
1998 1997
----------- -----------
Revenues:
<S> <C> <C>
Rental income $ 1,587,372 $ 1,355,746
Interest and other income 11,003 6,577
----------- -----------
1,598,375 1,362,323
Expenses:
Operating expenses 298,304 277,992
Operating expenses - affiliated 134,987 160,830
Amortization of capitalized leasing
costs 3,703 5,203
Interest expense 429,816 442,606
Management fees 93,623 82,857
Real estate taxes 145,457 139,998
Professional and administrative
expenses 29,170 27,767
Professional and administrative
expenses - affiliated 57,093 56,350
Depreciation and amortization 418,335 418,316
----------- -----------
1,610,488 1,611,919
----------- -----------
Net loss $ (12,113) $ (249,596)
=========== ===========
Net loss allocated to the limited
partners $ (11,992) $ (247,100)
=========== ===========
Net loss per limited partnership unit $ (.34) $ (7.03)
=========== ===========
Weighted average number of limited
partnership units 35,136 35,136
=========== ===========
</TABLE>
- 4 -
<PAGE>
<TABLE>
NTS-PROPERTIES V,
A Maryland Limited Partnership
STATEMENTS OF CASH FLOWS
<CAPTION>
Three Months Ended
March 31,
1998 1997
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net loss $ (12,113) $(249,596)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Amortization of capitalized leasing costs 3,703 5,203
Depreciation and amortization 418,335 418,316
Changes in assets and liabilities:
Cash and equivalents - restricted (131,940) (120,488)
Accounts receivable (99,578) 32,596
Other assets (7,497) (29,939)
Accounts payable - operations 73,755 84,855
Security deposits (5,270) 10,869
Other liabilities 182,926 145,079
--------- ---------
Net cash provided by operating activities 422,321 296,895
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to land, buildings and amenities (87,766) (109,217)
--------- ---------
Net cash used in investing activities (87,766) (109,217)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in mortgages and note payable 200,000 --
Principal payments on mortgages and note payable (287,524) (259,811)
Decrease in loan costs 11,474 --
Cash and equivalents - restricted (30,000) --
--------- ---------
Net cash used in financing activities (106,050) (259,811)
--------- ---------
Net increase (decrease) in cash and equivalents 228,505 (72,133)
CASH AND EQUIVALENTS, beginning of period 473,362 315,816
--------- ---------
CASH AND EQUIVALENTS, end of period $ 701,867 $ 243,683
========= =========
Interest paid on a cash basis $ 429,509 $ 449,466
========= =========
</TABLE>
- 5 -
<PAGE>
NTS-PROPERTIES V,
A Maryland Limited Partnership
NOTES TO FINANCIAL STATEMENTS
The financial statements included herein should be read in conjunction with the
Partnership's 1997 Annual Report. In the opinion of the General Partner, all
adjustments (only consisting of normal recurring accruals) necessary for a fair
presentation have been made to the accompanying financial statements for the
three months ended March 31, 1998 and 1997.
1. Use of Estimates in the Preparation of Financial Statements
-----------------------------------------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
2. Cash and Equivalents - Restricted
---------------------------------
Cash and equivalents - restricted represents 1) funds received for
residential security deposits, 2) funds which have been escrowed with
mortgage companies for property taxes in accordance with the loan
agreements and 3) funds reserved by the Partnership for the repurchase of
limited partnership Units.
3. Interest Repurchase Reserve
---------------------------
Pursuant to Section 16.4 of the Partnership's Amended and Restated
Agreement of the Limited Partnership, the Partnership established an
Interest Repurchase Reserve. On January 16, 1998, NTS Properties V elected
to resume the Repurchase Program and fund an additional $30,000 to the
Interest Repurchase Reserve. With this funding, the Partnership will be
able to repurchase up to 200 additional Units at a price of $150 per Unit.
The above offering price per Unit was established by the General Partner
in its sole discretion and does not purport to represent the fair market
value or liquidation value of the Unit. As of March 31, 1998, the
Partnership had repurchased a total of 740 Units for $99,900. Repurchased
units are retired by the Partnership, thus increasing the share of
ownership of each remaining investor. The Interest Repurchase Reserve was
funded from cash reserves. See Note 7 Subsequent Events for further
information regarding the Interest Repurchase Program. The balance in the
repurchase reserve at March 31, 1998 was $30,100.
4. Mortgages and Note Payable
--------------------------
Mortgages and note payable consist of the following:
March 31, December 31,
1998 1997
--------- -----------
Mortgage payable with an insurance
company, bearing interest at a fixed
rate of 7.65%, due February 1, 2008,
secured by land and building $ 4,513,396 $ 4,588,807
Mortgage payable with an insurance
company, bearing interest at a fixed
rate of 8.125%, due August 1, 2008,
secured by land and building 3,823,714 3,881,569
Mortgage payable with an insurance
company, bearing interest at a fixed
rate of 8.125%, due August 1, 2008,
secured by land and building 3,665,053 3,720,508
(Continued next page)
- 6 -
<PAGE>
4. Mortgages and Note Payable - Continued
--------------------------------------
March 31, December 31,
1998 1997
---- ----
Mortgage payable with an insurance
company, bearing interest at a fixed
rate of 8.125%, due August 1, 2008,
secured by land and building $ 3,553,991 $ 3,607,766
Mortgage payable with an insurance
company, bearing interest at a fixed
rate of 7.2% due January 5, 2013,
secured by land, buildings and
amenities 2,852,971 2,871,146
Mortgage payable with an insurance
company, bearing interest at a fixed
rate of 7.2% due January 5, 2013,
secured by land, buildings and
amenities 1,703,920 1,714,774
Note payable to a bank, bearing
interest at the Prime Rate, due
February 1, 2009, secured by land
and building 1,462,252 1,278,251
----------- -----------
$ 21,575,297 $ 21,662,821
=========== ===========
The Prime Rate was 8.5% at March 31, 1998 and at December 31, 1997.
Based on the borrowing rates currently available to the Partnership for
mortgages with similar terms, the fair value of long-term debt is
approximately $21,619,000.
5. Related Party Transactions
--------------------------
Pursuant to an agreement with the Partnership, property management fees of
$93,623 and $82,857 for the three months ended March 31, 1998 and 1997,
respectively, were paid to NTS Development Company, an affiliate of the
General Partner of the Partnership. The fee is equal to 5% of gross
revenues from residential properties and 6% of gross revenues from
commercial properties. Also pursuant to an agreement, NTS Development
Company will receive a repair and maintenance fee equal to 5.9% of costs
incurred which relate to capital improvements. The Partnership has
incurred $16,390 and $5,981 as a repair and maintenance fee during the
three months ended March 31, 1998 and 1997, respectively, and has
capitalized this cost as part of land, buildings and amenities.
As permitted by an agreement, the Partnership also was charged the
following amounts from NTS Development Company for the three months ended
March 31, 1998 and 1997. 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.
1998 1997
--------- ---------
Administrative $ 70,471 $ 71,553
Leasing 35,262 73,647
Property manager 88,590 93,389
Other 3,217 623
-------- --------
$ 197,540 $ 239,212
======== ========
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<PAGE>
6. Commitment and Contingencies
----------------------------
Philip Crosby Associates, Inc. ("Crosby") previously leased 100% of
University Business Center Phase II, which is owned by the
Lakeshore/University II ("L/U II") Joint Venture. The original lease term
was for seven years, and the tenant took occupancy in April 1991. During
1994, 1995 and 1996, Crosby sub-leased, through the end of their lease
term, approximately 85,000 square feet (including approximately 10,000
square feet of mezzanine space) of University Business Center Phase II's
approximately 88,000 square feet of net rentable area (or 96%). Of the
total being sub-leased, approximately 73,000 square feet (or 86%) was
leased by Full Sail Recorders, Inc. ("Full Sail"), a major tenant at
University Business Center Phase I, a neighboring property owned by an
affiliate of the General Partner of the Partnership. During this period
and through December 1996, Crosby continued to make rent payments pursuant
to the original lease terms. During 1996, the Joint Venture received
notice that Crosby did not intend to pay full rental due under the
original lease agreement, including and subsequent to January 1997. The
Partnership's proportionate share of the rental income from this property
accounted for approximately 15% of the Partnership's total revenues during
1996. Although the Joint Venture did not have formal lease agreements with
the sub-lessees noted above during this period, beginning February 1997
and through March 31, 1997 rent payments from these sub-lessees have been
made directly to the Joint Venture.
During 1997, Crosby abandoned its business, sold all or most of its
operating assets and informed the Joint Venture that Crosby may be
insolvent. During the third quarter of 1997, a conditional settlement was
reached at a mediation conference with Crosby and its corporate parent,
whereby, subject to the Joint Venture's acceptance of the settlement
terms, the corporate parent agreed to pay a portion of Crosby's liability
to the Joint Venture in full satisfaction of all claims against Crosby and
any of its affiliates. During the fourth quarter of 1997, the L/U II Joint
Venture informed Crosby and its corporate parent that it accepted the
terms of the conditional settlement, whereby Crosby's parent paid to the
L/U II Joint Venture the sum of $300,000 in full satisfaction of all
claims. These funds were received by the L/U II Joint Venture on October
23, 1997. The Partnership's proportionate share of the settlement was
$207,000 or 69%. The amount of the settlement was substantially less than
the aggregate liability of Crosby to the Joint Venture resulting from
Crosby's default under its lease. This deficit is partially offset by the
rent payments received from the sub-lessees, as discussed above.
In December 1995, Full Sail signed a 33 month lease with the L/U II Joint
Venture for approximately 41,000 square feet it sub-leased 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 addition, in November 1996,
Full Sail also signed a 52 month lease for an additional approximately
21,000 square feet of space it sub-leased from Crosby. Both leases
aggregate 69,000 square feet or 78% of the business center's net rentable
area and commence April 1998 when the Crosby original lease term 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 pursuant to the
lease terms. 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 .
- 8 -
<PAGE>
6. Commitment and Contingencies - Continued
----------------------------------------
As of March 31, 1998, the Joint Venture was currently negotiating directly
with the other sub-lessees discussed above to enter into leases for the
remaining space available. The future leasing and tenant finish costs
which will be required to release this space is unknown at this time but
is not expected to be substantial.
On December 30, 1997, Full Sail delivered written notice to the
Partnership that Full Sail had (i) exercised its right of first refusal
under its lease with NTS-Properties V to purchase University Business
Center Phase I ("University I")office building and the Phase III vacant
land adjacent to the University Business Center development, and (ii)
exercised its right of first refusal under its lease with NTS University
Boulevard Joint Venture to purchase University Business Center Phase II
("University II")office building, for an aggregate purchase price for all
three of $18,700,000. At March 31, 1998, the carrying value of University
Business Center Phase I and Phase III vacant land is approximately
$6,000,000 and is encumbered by a mortgage of $4,513,396 and the carrying
value of University Business Center Phase II is approximately $7,500,000
and is encumbered by a mortgage of $5,294,025. Full Sail exercised its
right of first refusal under the leases in response to a letter of intent
to purchase University I, University II and the Phase III vacant land
which was previously received by the Partnership from an unaffiliated
buyer. Under its right of first refusal, Full Sail must purchase the
properties on the same terms and conditions as contemplated by the letter
of intent. Full Sail agreed in its notice to the Partnership to proceed to
negotiate in good faith a definitive purchase agreement for these
properties. Because no binding agreement exists for the purchase of the
properties at this time, there can be no assurance that a mutual agreement
of purchase and sale will be reached among the parties, nor that the sale
of the properties will be consummated. As such, the Partnership has not
determined the use of net proceeds after repayment of outstanding debt
from any such sale nor has it determined the impact on its future results
of operations or financial position. The University II office building is
owned by the L/U II Joint Venture, the successor to the NTS University
Boulevard Joint Venture, in which the Partnership owns a 69% joint venture
interest. Under the terms of the right of first refusal, the closings of
the sale of University I, University II and the Phase III vacant land are
to occur simultaneously.
7. Subsequent Events
-----------------
Subsequent to March 31, 1998, Lakeshore Business Center Phase II had a
commitment for approximately $37,000 for roof repairs. The Partnership's
proportionate share of the commitment is approximately $25,600 or 69%. The
source of funds for this project is expected to be cash flow from
operations and/or cash reserves.
Subsequent to March 31, 1998, NTS-Properties V has elected to fund an
additional amount of $30,000 to its Interest Repurchase Reserve. With this
funding, the Partnership will be able to repurchase up to 200 additional
Units at a price of $150 per Unit. If the number of Units submitted for
repurchase exceeds that which can be repurchased by the Partnership with
the current funding, those additional Units may be repurchased in
subsequent quarters. The above offering price per Unit was established by
the General Partner in its sole discretion and does not purport to
represent the fair market value or liquidation value of the Unit.
- 9 -
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Results of Operations
- ---------------------
The occupancy levels at the Partnership's properties as of March 31 were as
follows:
1998 1997
---- ----
Wholly-owned Properties
- -----------------------
Commonwealth Business Center Phase II 96% 56%
University Business Center Phase I 100% 100%
Property Owned in Joint Venture
with NTS-Properties IV (Ownership
% at March 31, 1998)
- ----------------------------------
The Willows of Plainview Phase II (90%) 85% 86%
Properties Owned Through Lakeshore/
University II Joint Venture (L/U II
Joint Venture) (Ownership % at March
31, 1998)
- -------------------------------------
Lakeshore Business Center Phase I (69%) 94% 95%
Lakeshore Business Center Phase II (69%) 100% 94%
University Business Center Phase II (69%) 99% 99%
The rental and other income generated by the Partnership's properties for the
three months ended March 31, 1998 and 1997 was as follows:
1998 1997
--------- ---------
Wholly-owned Properties
- -----------------------
Commonwealth Business Center Phase II $ 160,570 $ 140,828
University Business Center I $ 392,276 $ 389,419
Property Owned in Joint Venture with
NTS-Properties IV (Ownership % at March
31, 1998)
- ---------------------------------------
The Willows of Plainview Phase II (90%) $ 294,784 $ 288,546
Property Owned Through Lakeshore/
University II Joint Venture (L/U II
Joint Venture) (Ownership % at March
31, 1998)
- ------------------------------------
Lakeshore Business Center Phase I (69%) $ 321,803 $ 244,909
Lakeshore Business Center Phase II (69%) $ 284,799 $ 229,859
University Business Center Phase II (69%) $ 140,422 $ 65,196
Revenues shown in the table above for properties owned through a joint venture
represent only the Partnership's percentage interest in those revenues.
- 10 -
<PAGE>
Results of Operations - Continued
- ----------------------------------
The 40% increase in occupancy at Commonwealth Business Center Phase II from
March 31, 1997 to March 31, 1998 is a result of eight new leases totaling
approximately 26,900 square feet. Partially offsetting the new leases are two
move-outs totaling 3,200 square feet. This total represents two tenants who
vacated at the end of the lease term. Average occupancy for the three months
ended March 31 increased from 77% (1997) to 86% (1998). The increase in rental
and other income at Commonwealth Business Center Phase II for the three months
ended March 31, 1998 as compared to the same period in 1997 is a result of the
increase in average occupancy and an increase in common area expense
reimbursements. Tenants at Commonwealth Business Center Phase II reimburse the
Partnership for common area expenses as part of the lease agreements.
Occupancy at University Business Center I was 100% at March 31, 1997 and March
31, 1998. Average occupancy at University Business Center Phase I for the three
months ended March 31 increased from 99% (1997) to 100% (1998). The increase in
rental and other income at University Business Center Phase I for the three
months ended March 31, 1998 as compared to the same period in 1997 is primarily
due to the increase in average occupancy.
The Willows of Plainview Phase II's occupancy decreased from 86% at March 31,
1997 to 85% at March 31, 1998. Average occupancy decreased from 89% for the
three months ended March 31, 1997 to 86% for the same period in 1998. In the
opinion of the General Partner of the Partnership, the decrease in occupancy at
The Willows of Plainview Phase II is only a temporary fluctuation and does not
represent a downward occupancy trend. Occupancy at residential properties
fluctuates on a continuous basis. Period-ending occupancy percentages represent
occupancy only on a specific date; therefore, it is more meaningful to consider
average occupancy percentages which are representative of the entire period's
results. The increase in rental and other income at The Willows of Plainview
Phase II for the three months ended March 31, 1998 as compared to the same
period in 1997 is primarily due to an increase in income from fully furnished
units and an increase in rental rates partially offset by the decrease in
average occupancy. Fully furnished units are apartments which rent at an
additional premium above base rent. Therefore, it is possible for occupancy to
decrease and revenues to increase when the number of fully furnished units has
increased.
The 1% decrease in occupancy at Lakeshore Business Center Phase I from March 31,
1997 to March 31, 1998 can be attributed to six tenant move-outs, vacating a
total of 7,000 square feet. One of the six tenants vacated its space prior to
the end of the lease term. The write-off of accrued income connected with the
lease was not significant. The move-outs are partially offset by three new
leases totaling approximately 5,600 square feet including an expansion by a
current tenant of 2,100 square feet. Average occupancy at Lakeshore Business
Center Phase I remained constant at 94% for the three months ended March 31,
1997 and 1998. The increase in rental and other income at Lakeshore Business
Center Phase I for the three months ended March 31, 1998 as compared to the
three months ended March 31, 1997 is due primarily to a $61,000 lease buy-out
received in February 1998 (the Partnership's proportionate share is
approximately $42,230 or 69%). The lease buy-out income was received from a
tenant whose lease expires during July 1999; however, the tenant has notified
the Partnership that it will vacate the space during the summer of 1998 due to
the fact that it will be consolidating several of its regional offices. The
increase in rental and other income is also due to an increase in common area
expense reimbursements. Tenants at the business center reimburse the Partnership
for common area expenses as part of the lease agreements.
- 11 -
<PAGE>
Results of Operations - Continued
- ---------------------------------
The 6% increase in occupancy at Lakeshore Business Center Phase II from March
31, 1997 to March 31, 1998, can be attributed to three new leases totaling
approximately 7,200 square feet which includes approximately 3,000 square feet
in expansions by two current tenants. Partially offsetting the new leases is one
tenant move-out at the end of the lease term of approximately 1,200 square feet.
Average occupancy at Lakeshore Business Center Phase II increased for the three
months ended March 31 from 91% (1997) to 100% (1998). The increase in rental and
other income at Lakeshore Business Center Phase II for the three months ended
March 31, 1998 as compared to the three months ended March 31, 1997 is primarily
a result of the increase in average occupancy and an increase in common area
expense reimbursements. Tenants at the business center reimburse the Partnership
for common area expenses as part of the lease agreements.
Occupancy at University Business Center Phase II has remained constant at 99% at
March 31, 1998 and 1997. The increase in rental and other income at University
Business Center Phase II for the three months ended March 31, 1998 as compared
to the same period in 1997 is primarily due to the fact that approximately
$70,000 of accrued income connected with the Philip Crosby Associates, Inc.
("Crosby") lease was written-off during the first quarter of 1997, of which the
Partnership's proportionate share was approximately $48,461 or 69%. See below
for a discussion of the Crosby lease.
In cases of tenants who cease making rental payments or abandon the premises in
breach of their lease, the Partnership pursues collection through the use of
collection agencies or other remedies available by law when practical. In cases
where tenants have vacated as a result of bankruptcy, the Partnership has taken
legal action when it was thought there could be a possible collection. There
have been no funds recovered as a result of these actions during the three
months ended March 31, 1998 and 1997.
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 of this item for a discussion
regarding the cash requirements of the Partnership's current debt financings.
Interest and other income includes income from short-term investments made by
the Partnership with cash reserves. Interest and other income increased for the
three months ended March 31, 1998 as compared to the same period in 1997 as a
result of an increase in cash reserves available for investment.
The increase in operating expenses for the three months ended March 31, 1998 as
compared to the same period in 1997 is primarily the result of increased snow
removal and landscaping costs at Commonwealth Business Center Phase II and the
increase of expenses associated with fully-furnished units at The Willows of
Plainview Phase II. The increase is partially offset by decreased legal costs at
Lakeshore Business Center Phase I and a decrease in the amortization expense for
prepaid leasing commissions at University Business Center Phase II.
The decrease in operating expenses - affiliated for the three months ended March
31, 1998 as compared to the same period in 1997 is due primarily to decreased
leasing costs at Commonwealth Business Center Phase II and University Business
Center Phase I and decreased property management costs at all of the
Partnership's properties except for Commonwealth Business Center Phase II. The
decrease in operating expenses - affiliated is partially offset by increased
leasing costs at Lakeshore Business Center Phases I and II and University
Business Center Phase II. Operating expenses - affiliated are expenses incurred
for services performed by employees of NTS Development Company, an affiliate of
the General Partner of the Partnership.
- 12 -
<PAGE>
Results of Operations - Continued
- ---------------------------------
Amortization of capitalized leasing costs for the three months ended March 31,
1998 as compared to the same period in 1997 remained fairly constant.
The decrease in interest expense for the three months ended March 31, 1998 as
compared to the same period in 1997 is primarily the result of continued
principal payments on the mortgages and note payable of the Partnership and its
Joint Venture properties. The decrease is partially offset by an additional draw
of $200,000 from a note payable in accordance with the terms of the note. See
the Liquidity and Capital Resources section of this item for details regarding
the Partnership's debt.
Management fees are calculated as a percentage of cash collections, however,
revenue for reporting purposes is on the accrual basis. As a result, the
fluctuations of revenues between periods will differ from the fluctuations of
management fee expense.
The increase in real estate taxes for the three months ended March 31, 1998 as
compared to the same period in 1997 is primarily a result of increased property
assessments for Lakeshore Business Center Phases I and II.
The change in professional and administrative expenses and professional and
administrative expenses - affiliated for the three months ended March 31, 1998
as compared to the same period in 1997 was not significant. Professional and
administrative expenses - affiliated are expenses incurred for services
performed by employees of NTS Development Company, an affiliate of the General
Partner.
Depreciation and amortization expense for the three months ended March 31, 1998
as compared to the same period in 1997 remained constant. Depreciation is
computed using the straight-line method over the estimated useful lives of the
assets which are 5 - 30 years for land improvements, 30 years for buildings, 5 -
30 years for building improvements and 5 - 30 years for amenities. The aggregate
cost of the Partnership's properties for Federal tax purposes is approximately
$40,000,000.
Liquidity and Capital Resources
- -------------------------------
Cash provided by operating activities was $422,321 and $296,895 for the three
months ended March 31, 1998 and 1997, respectively. No distributions were
declared during the three months ended March 31, 1998 and 1997. 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 March 31) were $701,867 and $243,683
at March 31, 1998 and 1997, respectively.
The primary source of future liquidity and distributions is expected to be
derived from cash generated by the Partnership's properties after adequate cash
reserves are established for future leasing costs, tenant finish costs and
capital improvements.
As of March 31, 1998, the Partnership had a mortgage loan with an insurance
company in the amount of $4,513,396. The mortgage payable is due February 1,
2008, bears interest at a fixed rate of 7.65% and is secured by University
Business Center Phase I. Monthly principal payments are based on a 12-year
amortization schedule. At maturity, the mortgage will have been repaid based on
the current rate of amortization.
As of March 31, 1998, the L/U II Joint Venture had three mortgage loans with an
insurance company. The outstanding balances of the loans at March 31, 1998 were
$5,523,204, $5,294,025 and $5,133,600 for a total of $15,950,829. The loans are
recorded as a liability of the Joint Venture. The Partnership's proportionate
share in the loans at March 31, 1998 was
- 13 -
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
$3,823,714, $3,665,053 and $3,553,991 respectively, for a total of $11,042,758.
The mortgages bear interest at a fixed rate of 8.125%, are due August 1, 2008,
and are secured by the assets of the Joint Venture. Monthly principal payments
are based upon a 12-year amortization schedule. At maturity, the loans will have
been repaid based on the current rate of amortization.
As of March 31, 1998, The Willows of Plainview Phase II, had two mortgage loans
each with an insurance company in the amount of $3,173,141 and $1,895,139. The
mortgages are recorded as a liability of the Joint Venture. The Partnership's
proportionate share of the mortgages as of March 31, 1998 was $4,556,891
($2,852,971 and $1,703,920). Both mortgages are due January 5, 2013, currently
bear interest at a fixed rate of 7.2% and are secured by the land, buildings and
amenities of the Joint Venture. Current monthly principal payments on both
mortgages are based upon a 15-year amortization schedule. At maturity, the note
will have been repaid based on the current rate of amortization.
As of March 31, 1998, the Partnership had a note payable with a bank in the
amount of $1,462,252. On February 1, 1998, the Partnership received an
additional $200,000 funding from this note payable in accordance with the terms
of the loan agreement. The note payable is due February 1, 2009, bears interest
at the Prime Rate and is secured by Commonwealth Business Center Phase II.
Monthly principal payments are based on a 13-year amortization schedule. At
maturity, the note will have been repaid based on the current rate of
amortization.
The majority of the Partnership's cash flow is derived from operating
activities. Cash flows used in investing activities are for tenant finish
improvements and for other capital additions and are funded by operating
activities. Changes to current tenant finish improvements are a typical part of
any lease negotiation. Improvements generally include a revision to the current
floor plan to accommodate a tenant's needs, new carpeting and paint and/or
wallcovering. The extent and cost of these improvements are determined by the
size of the space and whether the improvements are for a new tenant or incurred
because of a lease renewal. Cash flows provided by financing activities are from
a decrease in loan costs and from debt funding obtained in 1998 (loan secured by
the assets of Commonwealth Business Center Phase II). Cash flows used in
financing activities are for principal payments on mortgages and note payable
and cash which has been reserved by the Partnership for the repurchase of
limited partnership Units. The Partnership does not expect any material changes
in the mix and relative cost of capital resources.
Due to the fact that no distributions were made during the three months ended
March 31, 1998 and 1997, the table which presents that portion of the
distribution that represents a return of capital on a Generally Accepted
Accounting Principle basis has been omitted.
Philip Crosby Associates, Inc. ("Crosby") previously leased 100% of University
Business Center Phase II, which is owned by the Lakeshore/University II ("L/U
II") Joint Venture. The original lease term was for seven years, and the tenant
took occupancy in April 1991. During 1994, 1995 and 1996, Crosby sub-leased,
through the end of their lease term, approximately 85,000 square feet (including
approximately 10,000 square feet of mezzanine space) of University Business
Center Phase II's approximately 88,000 square feet of net rentable area (or
96%). Of the total being sub-leased, approximately 73,000 square feet (or 86%)
was leased by Full Sail Recorders, Inc. ("Full Sail"), a major tenant at
University Business Center Phase I, a neighboring property owned by an affiliate
of the General Partner of the Partnership. During this period and through
December 1996, Crosby continued to make rent payments pursuant to the original
lease terms. During 1996, the Joint Venture received notice that Crosby did not
intend to pay full rental due under the original lease agreement, including and
subsequent to January 1997. The Partnership's proportionate share of the
- 14 -
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
rental income from this property accounted for approximately 15% of the
partnership's total revenues during 1996. Although the Joint Venture did not
have formal lease agreements with the sub-lessees noted above during this
period, beginning February 1997 and through March 31, 1998 rent payments from
these sub-lessees have been made directly to the Joint Venture.
During 1997, Crosby abandoned its business, sold all or most of its operating
assets and informed the Joint Venture that Crosby may be insolvent. During the
third quarter of 1997, a conditional settlement was reached at a mediation
conference with Crosby and its corporate parent, whereby, subject to the Joint
Venture's acceptance of the settlement terms, the corporate parent agreed to pay
a portion of Crosby's liability to the Joint Venture in full satisfaction of all
claims against Crosby and any of its affiliates. During the fourth quarter of
1997, the L/U II Joint Venture informed Crosby and its corporate parent that it
accepted the terms of the conditional settlement, whereby Crosby's parent paid
to the L/U II Joint Venture the sum of $300,000 in full satisfaction of all
claims. These funds were received by the L/U II Joint Venture on October 23,
1997. The Partnership's proportionate share of the settlement was $207,000 or
69%. The amount of the settlement was substantially less than the aggregate
liability of Crosby to the Joint Venture resulting from Crosby's default under
its lease. This deficit is partially offset by the rent payments received from
the sub-lessees, as discussed above.
In December 1995, Full Sail signed a 33 month lease with the L/U II Joint
Venture for approximately 41,000 square feet it sub-leased 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 addition, in November 1996, Full Sail also
signed a 52 month lease for an additional approximately 21,000 square feet of
space it sub-leased from Crosby. Both leases aggregate 69,000 square feet or 78%
of the business center's net rentable area and commence April 1998 when the
Crosby original lease term 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
pursuant to the lease terms. 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 March 31, 1998, the Joint Venture was currently negotiating directly with
the other sub-lessees discussed above to enter into leases for the remaining
space available. The future leasing and tenant finish costs which will be
required to release this space is unknown at this time but is not expected to be
substantial.
The Partnership has conducted a comprehensive review of its computer systems to
identify the systems that could be affected by the Year 2000 Issue and is
developing an implementation plan to resolve the issue. The Year 2000 Issue, a
worldwide problem, is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Partnership's
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in major systems
failures or miscalculations. The Partnership presently believes that, with
modifications to existing software and conversions to new software, the Year
2000 problem will not pose significant
- 15 -
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
operational problems for the Partnership's computer systems. The Partnership
continues to evaluate appropriate courses of corrective action, including
replacement of certain systems whose associated costs would be recorded as
assets and amortized. The Partnership does not expect the costs associated with
the resolution of the Year 2000 Issue to have a material effect on its financial
position or results of operations. The associated costs will be funded by cash
flow from operations and cash reserves. The amount expensed in 1998 was
immaterial.
The Partnership had no other material commitments for renovations or capital
improvements at March 31, 1998.
Subsequent to March 31, 1998, Lakeshore Business Center II had a commitment for
approximately $37,000 for roof repairs. The Partnership's proportionate share of
the commitment is approximately $25,600 or 69%. The source of funds for this
project is expected to be cash flow from operations and/or cash reserves.
Subsequent to March 31, 1998, the Partnership elected to fund an additional
amount of $30,000 to its Interest Repurchase Reserve. With this funding, the
Partnership will be able to repurchase up to 200 additional Units at a price of
$150 per Unit. If the number of Units submitted for repurchase exceeds that
which can be repurchased by the Partnership with the current funding, those
additional Units may be repurchased in subsequent quarters. The above offering
price per Unit was established by the General Partner in its sole discretion and
does not purport to represent the fair market value or liquidation value of the
Unit.
In the next twelve months, the demand on future liquidity is anticipated to
increase as a result of the commitments made for a special tenant finish
allowance(see discussions above). The Partnership also expects the demand on
future liquidity to increase as a result of future leasing activity at
University Business Center Phase I and Lakeshore Business Center Phases I and
II. At this time, the future leasing and tenant finish costs which will be
required to renew the current leases or obtain new tenants are unknown. It is
anticipated that the cash flow from operations and cash reserves will be
sufficient to meet the needs of the Partnership.
The following describes the efforts being taken by the Partnership to increase
the occupancy levels at the Partnership's properties. At Commonwealth Business
Center Phase II, the leasing and renewal negotiations are handled by leasing
agents, employees of NTS Development Company, located in Louisville, Kentucky.
The leasing agents are located in the same city as the property. All advertising
is coordinated by NTS Development Company's marketing staff located in
Louisville, Kentucky. At University Business Center Phases I and II in Orlando,
Florida, the Partnership has an on-site leasing agent, an employee of NTS
Development Company, who makes calls to potential tenants, negotiates lease
renewals with current tenants and manages local advertising with the assistance
of the NTS Development Company's marketing staff. The leasing and renewal
negotiations at Lakeshore Business Center Phases I and II are handled by a
leasing agent, an employee of NTS Development Company, located at the Lakeshore
Business Center development. At The Willows of Plainview Phase II, the
Partnership has an on-site leasing staff, employees of NTS Development Company,
who handle all on-site visits from potential tenants, make visits to local
companies to promote fully furnished units, negotiate lease renewals with
current residents and coordinate all local advertising with NTS Development
Company's marketing staff.
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
- 16 -
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
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 $2,086,783 is land cost, capitalized
interest and common area costs.
At the current time, the Partnership is negotiating the sale of Phase III vacant
land along with University Business Center Phases I and II to Full Sail
Recorders, Inc. See below for a further discussion of the possible sale. If this
transaction does not occur, the Partnership will continue to evaluate the
possibility of building University Business Center Phase III on the vacant land.
The decision to build 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.
On December 30, 1997, Full Sail delivered written notice to the Partnership that
Full Sail had (i) exercised its right of first refusal under its lease with
NTS-Properties V to purchase University Business Center Phase I ("University I")
office building and the Phase III vacant land, and (ii) exercised its right of
first refusal under its lease with NTS University Boulevard Joint Venture to
purchase University Business Center II ("University II")office building, for an
aggregate purchase price for all three of $18,700,000. At March 31, 1998, the
carrying value of University Business Center Phase I and Phase III vacant land
is approximately $6,000,000 and is encumbered by a mortgage of $4,513,396 and
the carrying value of University Business Center Phase II is approximately
$7,500,000 and is encumbered by a mortgage of $5,294,025. Full Sail exercised
its right of first refusal under the leases in response to a letter of intent to
purchase University I, University II and the Phase III vacant land which was
previously received by the Partnership from an unaffiliated buyer. Under its
right of first refusal, Full Sail must purchase the properties on the same terms
and conditions as contemplated by the letter of intent. Full Sail agreed in its
notice to the Partnership to proceed to negotiate in good faith a definitive
purchase agreement for the properties. Because no binding agreement exists for
the purchase of the properties at this time, there can be no assurance that a
mutual agreement of purchase and sale will be reached among the parties, nor
that the sale of the properties will be consummated. As such, the Partnership
has not determined the use of net proceeds after repayment of outstanding debt
from any such sale nor has it determined the impact on its future results of
operations or financial position. The University II office building is owned by
the L/U II Joint Venture, the successor to the NTS University Boulevard Joint
Venture, in which the Partnership owns a 12% joint venture interest. Under the
terms of the right of first refusal, the closings of the sale of University I,
University II and the Phase III vacant land are to occur simultaneously.
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 March 31, 1998 in the asset held for
sale is $1,152,868. The Joint Venture continues to actively market the asset for
sale. In management's opinion, the net book value of the asset held for sale
approximates the fair market value less cost to sell.
- 17 -
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
Some of the statements included in Item 2, Management's Discussion and Analysis
of Financial Condition and Results of Operations, may be considered to be
"forward-looking statements" since such statements relate to matters which have
not yet occurred. For example, phrases such as the Partnership "anticipates ",
"believes" or "expects" indicate that it is possible that the event anticipated,
believed or expected may not occur. Should such event not occur, then the result
which the Partnership expected also may not occur or occur in a different
manner, which may be more or less favorable to the Partnership. The Partnership
does not undertake any obligations to publicly release the result of any
revisions to these forward looking statements that may be made to reflect any
future events or circumstances.
Any forward-looking statements included in Management's Discussion and Analysis
of Financial Condition and Results of Operations, or elsewhere in this report,
which reflect management's best judgement based on factors known, involve risks
and uncertainties. Actual results could differ materially from those anticipated
in any forward-looking statements as a result of a number of factors, including
but not limited to those discussed below. Any forward-looking information
provided by the Partnership pursuant to the safe harbor established by recent
securities legislation should be evaluated in the context of these factors.
The Partnership's principal activity is the leasing and management of commercial
office buildings, business centers and an apartment complex. If a major
commercial tenant or a large number of apartment lessees default on their
leases, the Partnership's ability to make payments due under its debt
agreements, payment of operating costs and other partnership expenses would be
directly impacted. A lessee's ability to make payments are subject to risks
generally associated with real estate, many of which are beyond the control of
the Partnership, including general or local economic conditions, competition,
interest rates, real estate tax rates, other operating expenses and acts of God.
A portion of the Partnership's debt service is based on variable interest rates,
any fluctuations in the rate are beyond the control of the Partnership. These
variances could, for example, impact the Partnership's projected cash flow and
cash requirements as well as its ability to pay distributions to the limited
partners.
- 18 -
<PAGE>
PART II. OTHER INFORMATION
1. Legal Proceedings
-----------------
None
2. Changes in Securities
---------------------
None
3. Defaults upon Senior Securities
-------------------------------
None
4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
5. Other Information
-----------------
None
6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Exhibit 27. Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K was filed on January 21, 1998 to report in Item 5 that
the Partnership has elected to fund an additional amount of
$30,000 to its Interest Repurchase Reserve.
Form 8-K was filed on January 21, 1998, to report in Item 5
that Full Sail Recorders, Inc., a tenant at University
Boulevard Office development in Orlando, Florida, had exercised
its right of first refusal under its lease with NTS-Properties
V to purchase University Business Center Phase I office
building and the Phase III vacant land, and exercised its right
of first refusal under its lease with NTS University Boulevard
Joint Venture to purchase University Business Center II office
building, for an aggregate purchase price for all three of
$18,700,000.
- 19 -
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, NTS-Properties V 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: May 14, 1998
------------
- 20 -
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF MARCH 31, 1998 AND FROM THE STATEMENT OF OPERATIONS FOR THE QUARTER
ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 933,665
<SECURITIES> 0
<RECEIVABLES> 391,081
<ALLOWANCES> 13,304
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 23,579,995
<DEPRECIATION> 0<F2>
<TOTAL-ASSETS> 28,977,817
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 6,361,483
<TOTAL-LIABILITY-AND-EQUITY> 28,977,817
<SALES> 1,587,372
<TOTAL-REVENUES> 1,598,375
<CGS> 0
<TOTAL-COSTS> 1,180,672
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 429,816
<INCOME-PRETAX> (12,113)
<INCOME-TAX> 0
<INCOME-CONTINUING> (12,113)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,113)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>THE PARTNERSHIP HAS AN UNCLASSIFIED BALANCE SHEET; THEREFORE, THE BALANCE IS
$0.
<F2>THIS INFORMATION IS NOT DISCLOSED IN THE PARTNERSHIP'S FORM 10-Q FILING.
</FN>
</TABLE>
