<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
-------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------------------- ------------------------
Commission File Number 0-14695
--------------------------------------------------------
NTS-PROPERTIES VI, A Maryland Limited Partnership
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 61-1066060
--------------------------------------------- -------------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
10172 Linn Station Road
Louisville, Kentucky 40223
--------------------------------------------- -------------------------
(Address of principal executive offices) (Zip Code)
(502) 426-4800
--------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
[X] Yes [ ] No
<PAGE>
TABLE OF CONTENTS
-----------------
PART I
------
Pages
-----
Item 1. Financial Statements
Balance Sheets as of September 30, 2000 and December 31, 1999 3
Statement of Partners' Equity as of September 30, 2000 3
Statements of Operations for the three months and nine months ended
September 30, 2000 and 1999 4
Statements of Cash Flows for the nine months ended
September 30, 2000 and 1999 5
Notes to Financial Statements 6-16
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 17-25
Item 3. Quantitative and Qualitative Disclosures About Market Risk 26
PART II
-------
Item 1. Legal Proceedings 27
Item 2. Changes in Securities 27
Item 3. Defaults Upon Senior Securities 27
Item 4. Submission of Matters to a Vote of Security Holders 27
Item 5. Other Information 27
Item 6. Exhibits and Reports on Form 8-K 27
Signatures 28
2
<PAGE>
PART I. FINANCIAL INFORMATION
-----------------------------
Item 1. Financial Statements
----------------------------
<TABLE>
NTS-PROPERTIES VI,
------------------
A Maryland Limited Partnership
------------------------------
BALANCE SHEETS
--------------
<CAPTION>
As of As of
September 30, 2000 December 31, 1999 *
-------------------------- --------------------------
(UNAUDITED)
ASSETS
------
<S> <C> <C>
Cash and equivalents $ 592,201 $ -
Cash and equivalents - restricted 353,380 206,697
Accounts receivable 78,779 195,399
Land, buildings and amenities, net 48,709,418 48,357,129
Other assets 686,363 451,425
------------------------ -------------------------
TOTAL ASSETS $ 50,420,141 $ 49,210,650
======================== =========================
LIABILITIES AND PARTNERS' EQUITY
--------------------------------
Mortgages and note payable $ 35,125,459 $ 33,312,443
Accounts payable 1,248,065 1,650,675
Security deposits 225,925 214,523
Other liabilities 711,834 221,597
------------------------ -------------------------
TOTAL LIABILITIES 37,311,283 35,399,238
COMMITMENTS AND CONTINGENCIES (Note 9)
PARTNERS' EQUITY 13,108,858 13,811,412
------------------------ -------------------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 50,420,141 $ 49,210,650
======================== =========================
</TABLE>
<TABLE>
STATEMENT OF PARTNERS' EQUITY
-----------------------------
<CAPTION>
Limited General
Partners Partner Total
--------------------- --------------------- -------------------
PARTNERS' EQUITY/(DEFICIT)
-------------------------
<S> <C> <C> <C>
Capital contributions, net of offering costs $ 40,518,631 $ 100 $ 40,518,731
Net loss - prior years (11,934,430) (72,160) (12,006,590)
Net loss - current year (657,907) (6,646) (664,553)
Cash distributions declared to date (12,006,384) (121,277) (12,127,661)
Repurchase of Limited Partnership Units (2,611,069) - (2,611,069)
------------------- ------------------ -----------------
BALANCES AT September 30, 2000 $ 13,308,841 $ (199,983) $ 13,108,858
=================== ================== =================
</TABLE>
* Reference is made to the audited financial statements in the Form 10-K
as filed with the Commission on March 29, 2000.
The accompanying notes to financial statements are an integral part of these
statements.
3
<PAGE>
<TABLE>
NTS-PROPERTIES VI,
------------------
A Maryland Limited Partnership
------------------------------
STATEMENTS OF OPERATIONS
------------------------
(UNAUDITED)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------------- ---------------------------------------
2000 1999 2000 1999
------------------ ----------------- ------------------ -----------------
REVENUES
--------
<S> <C> <C> <C> <C>
Rental income $ 2,630,302 $ 2,345,417 $ 7,649,561 $ 7,074,011
Interest and other income 261,427 9,792 287,733 29,710
Gain on sale of assets - - 5,188 -
------------ ------------ ------------ ------------
TOTAL REVENUES $ 2,891,729 $ 2,355,209 $ 7,942,482 $ 7,103,721
------------ ------------ ------------ ------------
EXPENSES
--------
Operating expenses $ 854,007 $ 671,463 $ 2,112,117 $ 1,838,025
Operating expenses - affiliated 353,217 315,907 1,027,330 969,809
Loss on disposal of assets 60,381 17,594 198,212 252,133
Interest expense 681,598 502,839 1,985,301 1,461,208
Management fees 149,894 123,268 409,334 367,782
Real estate taxes 224,488 203,311 721,021 609,932
Professional and administrative
expenses 36,435 58,958 149,280 195,416
Professional and administrative
expenses - affiliated 77,810 61,952 231,902 176,485
Depreciation and amortization 649,819 476,780 1,772,538 1,385,536
------------ ------------ ------------ ------------
TOTAL EXPENSES 3,087,649 2,432,072 8,607,035 7,256,326
------------ ------------ ------------ ------------
Net (loss) $ (195,920) $ (76,863) $ (664,553) $ (152,605)
============ ============ ============ ============
Net (loss) allocated to the
Limited Partners $ (193,961) $ (76,094) $ (657,907) $ (151,079)
============ ============ ============ ============
Net (loss) per Limited
Partnership Unit $ (4.97) $ (1.91) $ (16.84) $ (3.79)
============ ============ ============ ============
Weighted average number of
Limited Partnership Units 39,044 39,839 39,074 39,905
============ ============ ============ ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
4
<PAGE>
<TABLE>
NTS-PROPERTIES VI,
------------------
A Maryland Limited Partnership
------------------------------
STATEMENTS OF CASH FLOWS
------------------------
(UNAUDITED)
<CAPTION>
Nine Months Ended
September 30,
---------------------------------------------------------
2000 1999
--------------------------- --------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
------------------------------------
<S> <C> <C>
Net loss $ (664,553) $ (152,605)
Adjustment to reconcile net loss to net cash provided by
operating activities:
Loss on disposal of assets 198,212 252,133
Gain on sale of assets (5,188) -
Depreciation and amortization 1,772,538 1,385,535
Changes in assets and liabilities:
Cash and equivalents - restricted (146,683) (155,078)
Accounts receivable 116,620 (14,876)
Other assets (112,862) 2,488
Accounts payable (402,610) 331,007
Security deposits 11,402 (7,388)
Other liabilities 490,237 695,770
---------------------- --------------------
Net cash provided by operating activities 1,257,113 2,336,986
---------------------- --------------------
CASH FLOWS FROM INVESTING ACTIVITIES
------------------------------------
Additions to land, buildings, and amenities (2,292,115) (6,192,983)
Proceeds from sale of assets 8,736 -
---------------------- --------------------
Net cash used in investing activities (2,283,379) (6,192,983)
---------------------- --------------------
CASH FLOWS FROM FINANCING ACTIVITIES
------------------------------------
Principal payments on mortgages and note payable (1,040,266) (1,346,480)
Proceeds from mortgage loan 2,853,282 5,868,040
Cash distributions - (303,703)
Repurchase of Limited Partnership Units (38,000) (447,500)
Cash and equivalents - restricted - 77,500
Additions to loan costs (156,549) (17,837)
---------------------- --------------------
Net cash provided by financing activities 1,618,467 3,830,020
---------------------- --------------------
Net increase (decrease) in cash and equivalents 592,201 (25,977)
CASH AND EQUIVALENTS, beginning of period - 362,822
---------------------- --------------------
CASH AND EQUIVALENTS, end of period $ 592,201 $ 336,845
====================== ====================
Interest paid on a cash basis $ 1,990,690 $ 1,481,798
====================== ====================
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
5
<PAGE>
NTS-PROPERTIES VI,
------------------
A Maryland Limited Partnership
------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
The unaudited financial statements included herein should be read in conjunction
with the Partnership's 1999 Form 10-K as filed with the Securities and Exchange
Commission on March 29, 2000. In the opinion of the General Partner, all
adjustments (only consisting of normal recurring accruals) necessary for a fair
presentation have been made to the accompanying financial statements for the
nine months ended September 30, 2000 and 1999.
1. Use of Estimates in the Preparation of Financial Statements
-----------------------------------------------------------
The preparation of financial statements in conformity with Generally
Accepted Accounting Principles ("GAAP") requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
2. Concentration of Credit Risk
----------------------------
The Partnership owns and operates, either wholly or through a joint
venture, residential rental properties, all of which are apartment
communities, in Kentucky (Lexington), Indiana (Indianapolis) and Florida
(Orlando). The Partnership also owns and operates, through a joint venture,
a commercial rental property in Louisville, Kentucky. Substantially all of
the tenants are local businesses or are businesses which have operations in
the Louisville area.
3. Reclassifications of 1999 Financial Statements
----------------------------------------------
Certain reclassifications have been made to the September 30, 1999
financial statements to conform with September 30, 2000 classifications.
These reclassifications have no effect on previously reported operations.
4. Cash and Equivalents - Restricted
---------------------------------
Cash and equivalents - restricted represents funds received for residential
security deposits, funds which have been escrowed with mortgage companies
for property taxes in accordance with the loan agreements, and funds
reserved by the Partnership for the purchase of Limited Partnership Units
through tender offers (See Notes to Financial Statements - Note 7).
5. Basis of Property and Depreciation
----------------------------------
Land, buildings and amenities are stated at historical cost, less
accumulated depreciation, to the Partnership. Costs directly associated
with the acquisition, development and construction of a project are
capitalized. Depreciation is computed using the straight-line method over
the
6
<PAGE>
5. Basis of Property and Depreciation - Continued
----------------------------------------------
estimated useful lives of the assets which are 10-30 years for land
improvements, 7-30 years for buildings and improvements, 5-30 years for
amenities and the applicable lease term for tenant improvements.
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of," specifies circumstances in which certain long-lived assets
must be reviewed for impairment. If the carrying amount of an asset exceeds
the sum of its expected future cash flows, the asset's carrying value must
be written down to fair value. Application of this standard by management
during the periods ended September 30, 2000 and 1999 did not result in any
impairment loss.
6. Mortgages and Note Payable
--------------------------
Mortgages and note payable consist of the following:
<TABLE>
September 30, 2000 December 31,1999
------------------------------ ----------------------------
<S> <C> <C>
Mortgage payable with an insurance company,
bearing interest at 7.74%, due October 15, 2012,
secured by certain land, buildings and amenities. $ 11,852,711 $ 11,186,637
Mortgage payable with an insurance company,
bearing interest at 7.43%, until February 2, 2000
when the loan was refinanced. The interest rate
after February 2, 2000 is 7.57%, due May 15, 2009,
secured by certain land, buildings and amenities. 8,602,797 7,677,179
Mortgage payable with an insurance company,
bearing interest at 7.32%, due October 15, 2012,
secured by certain land, buildings and amenities. 7,487,001 7,767,882
Mortgage payable to a bank, currently bearing interest
at the Euro-Rate plus 225 basis points, due June 23, 2002,
secured by certain land, buildings and amenities.
At September 30, 2000, the interest rate was
approximately 8.82%. 2,992,882 2,298,001
Mortgage payable with an insurance company,
bearing interest at 7.38%, due December 5, 2012,
secured by certain land, buildings and amenities. 2,506,166 2,598,146
Mortgage payable with an insurance company,
bearing interest at 7.38%, due December 5, 2012,
secured by certain land, buildings and amenities. 1,670,777 1,732,098
(Continued on next page)
7
<PAGE>
6. Mortgages and Note Payable - Continued
--------------------------------------
September 30, 2000 December 31, 1999
------------------------------ ----------------------------
Note payable to a bank, bearing interest at the
Prime Rate + 1% , due June 14, 2001, secured by
certain land, buildings and amenities. At
September 30, 2000, the interest rate was 10.50%. $ 13,125 $ 52,500
---------------------- ------------------
$ 35,125,459 $ 33,312,443
====================== ==================
</TABLE>
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 $34,534,000.
The mortgage payable with an outstanding balance of $11,852,711 as of
September 30, 2000, has an additional availability of $231,144. The
proceeds were used to fund the construction of Park Place Apartments Phase
III.
On February 2, 2000, the Partnership obtained additional financing in the
amount of $1,369,064 by refinancing an existing loan secured by the land,
buildings and amenities of Golf Brook Apartments. The refinancing resulted
in an increase in the interest rate from 7.43% to 7.57%. The maturity date
remained the same (May 15, 2009).
On May 17, 2000, the Partnership obtained additional financing in the
amount of $500,000 by amending the mortgage note for Plainview Point III
Office Center. The amendment increased the monthly payment from $31,000 to
$37,000. The interest rate and the maturity date remained the same.
On June 22, 2000, the Partnership submitted an application with a mortgage
company for a first mortgage loan commitment in the amount of $3,200,000 to
be secured by land and buildings known as Plainview Point III Office
Center. The mortgage would be for a term of 10 years with an interest rate
of 8.375%, amortized over 20 years. If the application is approved, the
Partnership will use the proceeds to pay off the mortgage payable with an
outstanding balance of $2,992,882 on Plainview Point III Office Center. As
of September 30, 2000, the application was still awaiting approval.
7. Tender Offer
------------
On March 24, 2000, the Partnership and ORIG, LLC, an affiliate of the
Partnership (the "Offerors"), filed a tender offer (the "Fourth Tender
Offer") with the Securities and Exchange Commission, commencing on March
27, 2000, to purchase up to 200 of the Partnership's Limited Partnership
Units at a price of $380 per Unit. The Fourth Tender Offer stated that the
Partnership would purchase the first 100 Units tendered and would fund its
purchase and its portion of the expenses from cash flow from operations. If
more than 100 Units were tendered, ORIG, LLC would purchase up to an
additional 100 Units. If more than 200 Units were tendered, the Offerors
had the option to acquire the additional Units on a pro rata basis. The
Fourth Tender Offer was scheduled to expire on June 27, 2000.
8
<PAGE>
7. Tender Offer - Continued
------------------------
On June 23, 2000, the Partnership filed an amendment to the Fourth Tender
Offer which extended the expiration date to August 15, 2000.
On August 15, 2000, the Fourth Tender Offer expired. A total of 3,685 Units
were tendered and the Offerors accepted all Units tendered. The Partnership
repurchased 100 Units at a cost of $38,000 and ORIG, LLC purchased 3,585
Units at a cost of $1,362,300. The expenses associated with the Fourth
Tender Offer were approximately $36,686 of which the Partnership incurred
$575 and ORIG incurred $36,111. Units acquired by the Partnership will be
retired. Units acquired by ORIG, LLC will be held by it. The General
Partner, NTS-Properties Associates VI, did not participate in the Fourth
Tender Offer.
8. Related Party Transactions
--------------------------
Pursuant to an agreement with the Partnership, NTS Development Company, an
affiliate of the General Partner of the Partnership, receives property
management fees on a monthly basis. The fee is equal to 5% of the gross
revenues of the residential properties and 6% of the gross revenues of the
commercial property. Also pursuant to an agreement, NTS Development Company
receives a repair and maintenance fee equal to 5.9% of costs incurred which
relate to capital improvements. These repair and maintenance fees are
capitalized as part of land, buildings and amenities.
The Partnership was charged the following amounts from NTS Development
Company for the nine months ended September 30, 2000 and 1999,
respectively. 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.
<TABLE>
Nine Months Ended
September 30,
-------------------------------------------
2000 1999
------------------ ------------------
<S> <C> <C>
Property management fees $ 409,334 $ 367,782
--------------- ---------------
Total property management fees 409,334 367,782
--------------- ---------------
Property management 662,076 580,123
Leasing 130,159 175,171
Administrative - operating 227,299 203,879
Other 7,796 10,636
--------------- ---------------
Total operating expenses -affiliated 1,027,330 969,809
--------------- ---------------
Administrative - professional 231,902 176,485
--------------- ---------------
Total professional and administrative expenses - affiliated 231,902 176,485
--------------- ---------------
(Continued on next page)
9
<PAGE>
8. Related Party Transactions - Continued
--------------------------------------
Nine Months Ended
September 30,
-------------------------------------------
2000 1999
------------------ ------------------
Repairs and maintenance fee 34,670 19,028
Fixed assets 299 391
Leasing commissions 4,784 12,549
Construction management 97,274 342,142
--------------- ---------------
Total related party transactions capitalized 137,027 374,110
--------------- ---------------
Total related party transactions $ 1,805,593 $ 1,888,186
=============== ===============
</TABLE>
On February 7, 2000, ORIG, LLC (the "Affiliate") purchased Interests in the
Partnership pursuant to an Agreement, Bill of Sale and Assignment by and
among the Affiliate and four investors in the Partnership. The Affiliate
purchased 675 Interests in the Partnership for a total consideration of
$281,128 or an average price of $416 per Interest. The Affiliate paid these
investors a premium above the purchase price previously offered for
Interests pursuant to prior tender offers because this purchase allowed the
Affiliate to purchase substantial numbers of Interests without incurring
the significant expenses involved with a tender offer and multiple
transfers.
9. Commitments and Contingencies
-----------------------------
The Partnership, as an owner of real estate, is subject to various
environmental laws of federal and local governments. Compliance by the
Partnership with existing laws has not had a material adverse effect on the
Partnership's financial condition and results of operations. However, the
Partnership cannot predict the impact of new or changed laws or regulations
on its current properties or on properties that it may acquire in the
future.
The Partnership does not believe there is any litigation threatened against
the Partnership other than routine litigation arising out of the ordinary
course of business some of which is expected to be covered by insurance,
none of which is expected to have a material effect on the consolidated
financial statements of the Partnership except as discussed herein.
On July, 19, 2000, there was a fire at Golf Brook Apartments. Eight
apartment units sustained fire and/or smoke damage. The Partnership filed a
claim with its insurance company, and after meeting the $5,000 deductible,
collected $100,000 subsequent to September 30, 2000. It is unknown at this
time, if the costs of the repairs to the eight apartments will be
completely covered by the insurance claim.
The Partnership plans to replace the roofs at both Willow Lake Apartments
(26 buildings) and Park Place Apartments Phase I (24 buildings) all of
which were installed using shingles produced by a single manufacturer. The
shingles appear to contain defects which may cause the roofs to fail before
the end of their expected useful lives. As the manufacturer has declared
bankruptcy, the Partnership does not expect to be able to recover any of
the costs of the roof replacements.
10
<PAGE>
9. Commitments and Contingencies - Continued
-----------------------------------------
The Partnership does not have sufficient working capital to make all of the
roof replacements at once and intends to make the replacements over the
next 36 months. As of September 30, 2000, four buildings at Willow Lake
Apartments have had roofs replaced. The total cost of replacing all the
remaining roofs is estimated to be $920,000 ($20,000 per building).
The roof replacements discussed above will be made using funds from
operations or additional borrowings secured by the Partnership's
properties. There can be no guarantee that such funds will be available at
which time the General Partner will manage the demand on liquidity
according to the best interest of the Partnership.
The Partnership has been sued by Elder Construction and Associates, Inc. in
Jefferson Circuit Court, Louisville, Kentucky, in a lawsuit styled Elder
Construction & Associates, Inc. V. NTS Development Company, Frontier
Insurance Company, NTS-Properties VI, a Maryland limited partnership, NTS
Properties Associates VI, and NTS Capital Corporation. All of the named NTS
entities are represented by Middleton and Reutlinger, a Louisville,
Kentucky law firm.
Elder Construction was hired to be the framing subcontractor with respect
to certain improvements at Phase III of Park Place Apartments in Lexington,
Kentucky. After being removed from the job for its failure to provide its
services in a professional, diligent and workmanlike manner, a complaint
was filed on behalf of Elder Construction in November 1999, alleging, inter
alia, breach of contract. The complaint requested judgement against the
defendants in the amount of $233,122 plus interest and other relief against
the defendants.
The Partnership and the other defendants have answered the complaint, and
have asserted counterclaims against the plaintiff for, inter alia, breach
of contract. Discovery is proceeding, but because the case is in the early
discovery phase an outcome cannot be predicted at present. The principals
of the NTS defendants have indicated that the suit brought by Elder
Construction is without merit and will be vigorously defended, including
the prosecution by the defendants of counterclaims against Elder
Construction. No amounts have been provided for in the accompanying
statements regarding this matter.
10. Segment Reporting
-----------------
The Partnership's reportable operating segments include residential and
commercial real estate operations. The residential operations represent the
Partnership's ownership and operating results relative to apartment
communities known as Willow Lake, Park Place Phase I, Park Place Phase III,
Sabal Park and Golf Brook. The commercial operations represent the
Partnership's ownership and operating results relative to suburban
commercial office space known as Plainview Point III Office Center.
The financial information of the operating segments has been prepared using
a management approach, which is consistent with the basis and manner in
which the Partnership's management internally reports financial information
for the purposes of assisting in making operating decisions. The
Partnership evaluates performance based on stand-alone operating segment
net income.
11
<PAGE>
10. Segment Reporting - Continued
-----------------------------
<TABLE>
Three Months Ended September 30, 2000
-----------------------------------------------------------------
Residential Commercial Total
-------------------- ------------------ ------------------
<S> <C> <C> <C>
Rental income $ 2,427,381 $ 202,921 $ 2,630,302
Interest and other income 255,718 438 256,156
-------------- --------------- --------------
Total net revenues $ 2,683,099 $ 203,359 $ 2,886,458
-------------- --------------- --------------
Operating expense and operating expenses -
affiliated $ 1,113,157 $ 94,067 $ 1,207,224
Loss on disposal of assets 60,381 - 60,381
Management fees 137,537 12,357 149,894
Real estate taxes 216,245 8,243 224,488
Interest expense 216,769 - 216,769
Depreciation and amortization 567,157 49,389 616,546
-------------- --------------- --------------
Total expenses $ 2,311,246 $ 164,056 $ 2,475,302
-------------- --------------- --------------
Net income $ 371,853 $ 39,303 $ 411,156
============== =============== ==============
</TABLE>
<TABLE>
Three Months Ended September 30, 1999
-----------------------------------------------------------------
Residential Commercial Total
-------------------- ------------------ -------------------
<S> <C> <C> <C>
Rental income $ 2,153,354 $ 192,063 $ 2,345,417
Interest and other income 4,253 (21) 4,232
-------------- ------------ --------------
Total net revenues $ 2,157,607 $ 192,042 $ 2,349,649
-------------- ------------ --------------
Operating expenses and operating expenses -
affiliated $ 898,167 $ 89,203 $ 987,370
Loss on disposal of assets 842 16,752 17,594
Management fees 110,064 13,204 123,268
Real estate taxes 195,037 8,274 203,311
Depreciation and amortization 417,518 43,340 460,858
-------------- ------------ --------------
Total expenses $ 1,621,628 $ 170,773 $ 1,792,401
-------------- ------------ --------------
Net Income $ 535,979 $ 21,269 $ 557,248
============== ============ ==============
</TABLE>
12
<PAGE>
10. Segment Reporting - Continued
-----------------------------
<TABLE>
Nine Months Ended September 30, 2000
-----------------------------------------------------------------
Residential Commercial Total
-------------------- ------------------- -------------------
<S> <C> <C> <C>
Rental income $ 7,061,080 $ 588,481 $ 7,649,561
Interest and other income 273,377 1,472 274,849
Gain on sale of assets 5,188 - 5,188
-------------- ------------- --------------
Total net revenues $ 7,339,645 $ 589,953 $ 7,929,598
-------------- ------------- --------------
Operating expenses and operating expenses -
affiliated $ 2,882,267 $ 257,180 $ 3,139,447
Loss on disposal of assets 194,992 3,220 198,212
Interest expense 653,021 - 653,021
Management fees 373,514 35,820 409,334
Real estate taxes 696,293 24,728 721,021
Depreciation and amortization 1,528,658 144,684 1,673,342
-------------- ------------- --------------
Total expenses $ 6,328,745 $ 465,632 $ 6,794,377
-------------- ------------- --------------
Net income $ 1,010,900 $ 124,321 $ 1,135,221
============== ============= ==============
</TABLE>
<TABLE>
Nine Months Ended September 30, 1999
-----------------------------------------------------------------
Residential Commercial Total
-------------------- ------------------ -------------------
<S> <C> <C> <C>
Rental income $ 6,516,312 $ 557,699 $ 7,074,011
Interest and other income 18,043 980 19,023
-------------- --------------- --------------
Total net revenue $ 6,534,355 $ 558,679 $ 7,093,034
-------------- --------------- --------------
Operating expenses and operating expenses -
affiliated $ 2,554,115 $ 253,719 $ 2,807,834
Loss on disposal of assets 235,381 16,752 252,133
Management fees 331,850 35,932 367,782
Real estate taxes 585,109 24,823 609,932
Depreciation and amortization 1,186,301 119,723 1,306,024
-------------- --------------- --------------
Total expenses $ 4,892,756 $ 450,949 $ 5,343,705
-------------- --------------- --------------
Net income $ 1,641,599 $ 107,730 $ 1,749,329
============== =============== ==============
</TABLE>
13
<PAGE>
10. Segment Reporting - Continued
-----------------------------
A reconciliation of the totals reported for the operating segments to the
applicable line items in the consolidated financial statements for the
three months and nine months ended September 30, 2000 and 1999 is necessary
given amounts recorded at the Partnership level and not allocated to the
operating properties for internal reporting purposes.
<TABLE>
Three Months Ended September 30,
-----------------------------------------------
2000 1999
-------------------- ----------------------
NET REVENUES
------------
<S> <C> <C>
Total revenues for reportable segments $ 2,886,458 $ 2,349,649
Other income for Partnership 5,271 5,560
--------------- ---------------
Total net revenues $ 2,891,729 $ 2,355,209
=============== ===============
INTEREST EXPENSE
----------------
Interest expense for reportable segments $ 216,769 $ -
Interest expense for Partnership 464,829 502,839
--------------- ---------------
Total interest expense $ 681,598 $ 502,839
=============== ===============
DEPRECIATION AND AMORTIZATION
-----------------------------
Total depreciation and amortization for reportable segments $ 616,546 $ 460,858
Depreciation and amortization for Partnership 33,273 15,922
--------------- ---------------
Total depreciation and amortization $ 649,819 $ 476,780
=============== ===============
NET INCOME (LOSS)
----------------
Total net income for reportable segments $ 411,156 $ 557,248
Net loss for Partnership (173,922) (391,524)
Eliminations (433,154) (242,587)
--------------- ---------------
Total net loss $ (195,920) $ (76,863)
=============== ===============
</TABLE>
14
<PAGE>
10. Segment Reporting - Continued
-----------------------------
<TABLE>
Nine Months Ended September 30,
-------------------------------------------------
2000 1999
---------------------- ----------------------
NET REVENUES
------------
<S> <C> <C>
Total revenues for reportable segments $ 7,929,598 $ 7,093,034
Other income for Partnership 12,884 10,687
--------------- ---------------
Total consolidated net revenues $ 7,942,482 $ 7,103,721
=============== ===============
INTEREST EXPENSE
----------------
Interest expense for reportable segments $ 653,021 $ -
Interest expense for Partnership 1,332,280 1,461,208
--------------- ---------------
Total interest expense $ 1,985,301 $ 1,461,208
=============== ===============
DEPRECIATION AND AMORTIZATION
-----------------------------
Total depreciation and amortization for reportable segments $ 1,673,342 $ 1,306,024
Depreciation and amortization for Partnership 99,196 79,512
--------------- ---------------
Total depreciation and amortization $ 1,772,538 $ 1,385,536
=============== ===============
NET INCOME (LOSS)
-----------------
Total net income for reportable segments $ 1,135,221 $ 1,749,329
Net loss for Partnership (838,166) (1,162,912)
Eliminations (961,608) (739,022)
--------------- ---------------
Total net loss $ (664,553) $ (152,605)
=============== ===============
</TABLE>
11. Recent Accounting Pronouncement
-------------------------------
The Emerging Issues Task Force ("EITF") of the Financial Accounting
Standards Board ("FASB") has reached a consensus on Issue No. 00-1,
"Applicability of the Pro Rata Method of Consolidation to Investments in
Certain Partnerships and Other Unincorporated Joint Ventures." The EITF
reached a consensus that a proportionate gross financial statement
presentation (referred to as "proportionate consolidation" in the
Partnership's 1999 Form 10-K Notes to Financial Statements) is not
appropriate for an investment in an unincorporated legal entity accounted
for by the equity method of accounting, unless the investee is in either
the construction industry or an extractive industry where there is a
longstanding practice of its use.
The consensus is applicable to financial statements for annual periods
ending after June 15, 2000. Upon application of the consensus, all
comparative financial statements shall be restated to conform with the
consensus. The application of this consensus will not result in a
restatement of previously reported partners' equity or results of
operations, but will result in a recharacterization or reclassification of
certain financial statements' captions and amounts. The Partnership plans
to restate its financial statements using the equity method to account for
its joint venture investments for the year ending December 31, 2000.
15
<PAGE>
12. Subsequent Events
-----------------
On October 3, 2000, the Partnership obtained additional financing in the
amount of $200,000 from a bank. It is an unsecured short term note with an
interest rate of Prime and a maturity date of January 3, 2001. It is the
Partnership's intention to pay off this note upon the approval and funding
of a first mortgage loan commitment which was applied for on June 22, 2000
(See Notes to Financial Statements - Note 6).
On October 18, 2000, the remaining availability of $231,144, on the
mortgage payable with an outstanding balance of $11,852,711 as of September
30, 2000, was funded by the mortgage company. Upon receipt of the funds,
the Partnership released all remaining retainage held in relation to the
Park Place Apartments Phase III and paid the final construction invoices
received for Park Place Apartments Phase III.
16
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
------------------------------------------------------------------------
of Operations
-------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") is structured in four major sections. The first section
provides information related to occupancy levels and rental and other income
generated by the Partnership's properties. The second analyzes results of
operations on a consolidated basis. The final sections address consolidated cash
flows and financial condition. A discussion of certain market risks also
follows. MD&A should be read in conjunction with the Financial Statements in
Item 1 and the Cautionary Statements below.
Cautionary Statements
---------------------
Some of the statements included in this Item 2 may be considered to be
"forward-looking statements" since such statements relate to matters which have
not yet occurred. For example, phrases such as "the Partnership anticipates,"
"believes" or "expects," indicate that it is possible that the event
anticipated, believed or expected may not occur. Should such event not occur,
then the result which the Partnership expected also may not occur or occur in a
different manner, which may be more or less favorable to the Partnership. The
Partnership does not undertake any obligations to publicly release the result of
any revisions to these forward-looking statements that may be made to reflect
any future events or circumstances.
Any forward-looking statements included in MD&A, or elsewhere in this report,
which reflect management's best judgement, based on factors known, involve risks
and uncertainties. Actual results could differ materially from those anticipated
in any forward-looking statements as a result of a number of factors including
but not limited to those discussed below. Any forward-looking information
provided by the Partnership pursuant to the safe harbor established by recent
securities legislation should be evaluated in the context of these factors.
The Partnership's liquidity, capital resources and results of operations are
subject to a number of risks and uncertainties including, but not limited to the
following: the ability of the Partnership to achieve planned revenues; the
ability of the Partnership to make payments due under its debt agreements; the
ability of the Partnership to negotiate and maintain terms with vendors and
service providers for operating expenses; competitive pressures from the other
real estate companies, including large commercial and residential real estate
companies, which may affect the nature and viability of the Partnership's
business strategy; trends in the economy as a whole which may affect consumer
confidence and demand for the types of rental property held by the Partnership;
the ability of the Partnership to predict the demand for specific rental
properties; the ability of the Partnership to attract and retain tenants;
availability and costs of management and labor employed; real estate occupancy
and development costs, including the substantial fixed investment costs
associated with renovations necessary to obtain new tenants and retain existing
tenants; and the risk of a major commercial tenant defaulting on its lease due
to risks generally associated with real estate, many of which are beyond the
control of the Partnership, including general or local economic conditions,
competition, interest rates, real estate tax rates, other operating expenses and
acts of God.
17
<PAGE>
Results of Operations
---------------------
The occupancy levels at Partnership's properties as of September 30 were as
follows:
<TABLE>
Nine Months Ended September 30,
---------------------------------------------------
2000 (1) 1999
----------------------- ------------------------
Wholly-owned Properties
-----------------------
<S> <C> <C>
Sabal Park Apartments 96% 93%
Park Place Apartments Phase I (2) 76% 93%
Willow Lake Apartments 97% 78%
Park Place Apartments Phase III (3) 47% N/A
Property Owned in Joint Venture with NTS-Properties IV
------------------------------------------------------
(Ownership % at September 30, 2000)
-----------------------------------
Golf Brook Apartments (96.03%) 95% 93%
Plainview Point III Office Center (95.04%) 91% 91%
</TABLE>
(1) Current occupancy levels are considered adequate to continue operation of
all the underlying properties, without additional financing, except Park
Place Apartments Phase III. Park Place Apartments Phase III is currently
undergoing an effort to lease the recently completed apartments.
(2) In the opinion of the General Partner of the Partnership, the decrease in
occupancy is only a temporary fluctuation and does not represent a
permanent downward occupancy trend.
(3) On May 19, 2000, the last building at Park Place Apartments Phase III was
certified for occupancy. As of September 30, 2000, there are 152 apartment
units available for lease of which 71 are occupied. There were 14 apartment
units certified for occupancy as of September 30, 1999.
The average occupancy levels at the Partnership's properties during the three
months and nine months ended September 30 were as follows:
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ----------------------------
2000 1999 2000 1999
----------- ----------- ------------ ------------
Wholly-owned Properties
-----------------------
<S> <C> <C> <C> <C>
Sabal Park Apartments 97% 94% 97% 96%
Park Place Apartments Phase I (1) 78% 92% 84% 88%
Willow Lake Apartments 96% 78% 92% 78%
Park Place Apartments Phase III (2) 42% N/A N/A N/A
Property Owned in Joint Venture with NTS-Properties IV
------------------------------------------------------
(Ownership % at September 30, 2000)
-----------------------------------
Golf Brook Apartments (96.03%) 95% 92% 93% 93%
Plainview Point III Office Center (95.04%) (1) 91% 91% 89% 91%
</TABLE>
(1) In the opinion of the General Partner of the Partnership, the decrease in
average occupancy is only a temporary fluctuation and does not represent a
permanent downward occupancy trend.
(2) Average occupancy is not applicable for Park Place Apartments Phase III for
the nine months ended September 30, 2000 and 1999, and for the three months
ended September 30, 1999, due to the fact that units were certified for
occupancy at different times starting September 8, 1999 and ending May 19,
2000.
18
<PAGE>
Results and Operations - Continued
----------------------------------
Rental and other income generated by the Partnership's properties for the three
months and nine months ended September 30, 2000 and 1999 were as follows:
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------- -----------------------------------
2000 1999 2000 1999
-------------- -------------- ---------------- ---------------
Wholly-owned Properties
-----------------------
<S> <C> <C> <C> <C>
Sabal Park Apartments $ 489,427 $ 488,668 $ 1,462,232 $ 1,420,452
Park Place Apartments Phase I $ 414,807 $ 489,414 $ 1,324,928 $ 1,389,456
Willow Lake Apartments $ 628,685 $ 477,091 $ 1,793,617 $ 1,568,551
Park Place Apartments Phase III $ 194,363 N/A $ 368,192 N/A
Property Owned in Joint Venture with NTS-
-----------------------------------------
Properties IV (Ownership % at September 30,
-------------------------------------------
2000)
-----
Golf Brook Apartments (96.03%) $ 955,817 $ 700,763 $ 2,390,676 $ 2,154,227
Plainview Point III Office Center (95.04%) $ 203,359 $ 192,042 $ 589,953 $ 558,679
</TABLE>
Revenues shown in the table above for properties owned through a joint venture
represent only the Partnership's percentage interest in those revenues.
The following is an analysis of material changes in results of operations for
the periods ending September 30, 2000 and 1999. Items that did not have a
material impact on operations for the periods listed above have been excluded
from this discussion.
Rental income increased approximately $285,000 or 12 % and $576,000 or 8% for
the three months and nine months ended September 30, 2000, respectively, as
compared to the same periods in 1999. The increase in rental income was
primarily a result of rental income collected at Park Place Apartments Phase III
(Park Place Apartments Phase III was not in full operation during the three
months or nine months ended September 30, 1999), increased average occupancy at
Willow Lake Apartments and increased rental rates at Plainview Point III Office
Center. The increase is partially offset by decreased average occupancy at Park
Place Apartments Phase I.
Period-ending occupancy percentages represent occupancy only on a specific date;
therefore, the above analysis considers average occupancy percentages that are
representative of the entire year's results.
Other income increased approximately $252,000 and $258,000 for the three months
and nine months ended September 30, 2000, respectively, as compared to the same
periods in 1999, primarily as a result of a settlement claim received for
defective siding at Golf Brook Apartments.
19
<PAGE>
Results of Operations - Continued
---------------------------------
Operating expenses increased approximately $183,000 or 27% for the three months
ended September 30, 2000, as compared to the same period in 1999, primarily due
to the following: 1) expenses incurred by Park Place Apartments Phase III (Park
Place Apartments Phase III was not in full operation during the three months
ended September 30, 1999) mainly for advertising, insurance, landscaping and
utility expenses, 2) increased repairs and maintenance costs at Golf Brook
Apartments (floor covering, plumbing, appliances and security alarms net of
decreased parking lot expenses) and Willow Lake Apartments (interior paint and
repairs net of decreased shower stall expenses), 3) increased administrative
costs at Golf Brook Apartments (temporary services for vacant assistant
position) and Willow Lake Apartments (professional fees for protesting tax
assessment), and 4) increased landscaping costs at Park Place Apartments Phase I
and Sabal Park Apartments. The increase is partially offset by decreased
advertising at Willow Lake Apartments and decreased utilities at Park Place
Apartments Phase I.
Operating expenses increased approximately $274,000 or 15% for the nine months
ended September 30, 2000, as compared to the same period in 1999, primarily due
to the following: 1) expenses incurred by Park Place Apartments Phase III (Park
Place Apartments Phase III was not in full operation during the nine months
ended September 30, 1999) mainly for advertising, landscaping, utilities and
insurance, 2) increased advertising at Willow Lake Apartments and Golf Brook
Apartments, 3) increased repairs and maintenance costs at Park Place Apartments
Phase I (wood replacement), Sabal Park Apartments (appliances and heating and
air conditioning expenses), Golf Brook Apartments (floor covering, heating and
air conditioning expenses, and plumbing net of decreased interior painting and
repairs and parking lot expenses), and at Willow Lake Apartments (interior
painting and repairs), 4) increased administrative costs at Golf Brook
Apartments (temporary services for vacant assistant position) and Willow Lake
Apartments (professional fees from protesting tax assessment), and 5) increased
amortization of prepaid leasing commissions at Plainview Point III Office
Center. The increase is partially offset by: 1) decreased landscaping at Sabal
Park Apartments, 2) decreased signage at Plainview Point III Office Center, 3)
decreased employee training at Golf Brook Apartments, and 4) decreased utilities
at Park Place Apartments Phase I.
Operating expenses - affiliated increased approximately $37,000 or 12% and
$58,000 or 6% for the three months and nine months ended September 30, 2000,
respectively, as compared to the same periods in 1999. The increases were
primarily a result of expenses incurred by Park Place Apartments Phase III (Park
Place Apartments Phase III was not in full operation during the three or nine
months ended September 30, 1999) and increased overhead costs and personnel
costs at Plainview Point III Office Center due to changes in allocation of the
costs. The increase is partially offset by decreased overhead costs allocated at
Willow Lake Apartments and Golf Brook Apartments. Operating expenses -
affiliated are expenses incurred for services performed by employees of NTS
Development Company, an affiliate of the General Partner.
The loss on disposal of assets for the three months ended September 30, 2000,
was a result of partially retiring clubhouse assets at Park Place Apartments
Phase I as a result of clubhouse renovations completed in 2000.
20
<PAGE>
Results of Operations - Continued
---------------------------------
The loss on disposal of assets for the nine months ended September 30, 2000, was
a result of partially retiring clubhouse assets at Golf Brook Apartments, Sabal
Park Apartments and Park Place Apartments Phase I as a result of the clubhouse
renovations completed in 2000.
The loss on disposal of assets for the three months ended September 30, 1999,
was a result of retiring common area assets at Plainview Point III Office Center
that were not fully depreciated.
The loss on disposal of assets for the nine months ended September 30, 1999, was
a result of retirements made in relation to a signage project at Sabal Park
Apartments, an exterior wood replacement project at Sabal Park Apartments and
Golf Brook Apartments and common area assets and tenant improvements at
Plainview Point III Office Center.
Interest expense increased approximately $179,000 or 36% and $524,000 or 36% for
the three months and nine months ended September 30, 2000, respectively, as
compared to the same periods in 1999, as a result of the Partnership's increased
mortgage debt. The increase in debt level is partially offset by continued
principal payments. The increase in interest expense is also due to interest
capitalized on the Park Place Apartments Phase III construction decreasing from
approximately $172,000 for the nine months ended September 30, 1999, to
approximately $26,000 for the same period in 2000. This reduction in capitalized
interest has effectively increased interest expense for the three months and
nine months ended September 30, 2000, as compared to the same periods in 1999.
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. Management fees increased approximately $27,000 or 22%
and $42,000 or 11% for the three months and nine months ended September 30,
2000, respectively, as compared to the same periods in 1999, primarily as a
result of increased rental income collected (resulting from increased occupancy)
and a settlement claim received for defective siding at Golf Brook Apartments.
Real estate taxes increased approximately $21,000 or 10% and $111,000 or 18% for
the three months and nine months ended September 30, 2000, respectively, as
compared to the same periods in 1999, primarily as a result of the following: 1)
real estate taxes for Park Place Apartment Phase III (Park Place Apartments
Phase III was not in full operation during the three months or nine months ended
September 30, 1999), 2) increased estimated property taxes for Willow Lake
Apartments and 3) increased assessments at Golf Brook Apartments and Sabal Park
Apartments.
Professional and administrative expenses decreased approximately $23,000 or 38%
and $46,000 or 24% for the three months and nine months ended September 30,
2000, respectively, as compared to the same periods in 1999. This decrease is
due primarily to decreased legal fees in relation to tender offers and general
services and to decreased recruiting fees and temporary services.
21
<PAGE>
Results of Operations - Continued
---------------------------------
Professional and administrative expenses - affiliated increased approximately
$16,000 or 26% and $55,000 or 31% for the three months and nine months ended
September 30, 2000, respectively, as compared to the same periods in 1999,
primarily as a result of increased finance and accounting salary costs due to
changes in staff. Professional and administrative expenses - affiliated are
expenses incurred for services performed by employees of NTS Development
Company, an affiliate of the General Partner.
Depreciation expense increased approximately $173,000 or 36% and $387,000 or 28%
for the three months and nine months ended September 30, 2000, respectively, as
compared to the same periods in 1999, primarily as a result of the following: 1)
capitalization of Park Place Apartments Phase III's construction costs
(approximately $11,219,000), 2) tenant finish and common area replacements at
Plainview Point III Office Center, net of retirements, and 3) building
improvements and fitness center renovation costs, net of retirements, at Golf
Brook Apartments and Sabal Park Apartments. The increase is partially offset by
a portion of the original land improvements, building improvements and amenities
at the Partnership's underlying properties becoming fully depreciated.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets which are 10-30 years for land improvements, 7-30
years for building improvements, 5-30 years for amenities and the applicable
lease term for tenant improvements. The aggregate cost of the Partnership's
properties for Federal tax purposes is approximately $62,358,000.
Consolidated Cash Flows and Financial Condition
-----------------------------------------------
Cash flows provided by (used in):
<TABLE>
Nine Months Ended September 30,
-------------------------------------------------------
2000 1999
-------------------------- -------------------------
<S> <C> <C>
Operating activities $ 1,257,113 $ 2,336,986
Investing activities (2,283,379) (6,192,983)
Financing activities 1,618,467 3,830,020
--------------------- --------------------
Net increase (decrease) in cash and equivalents $ 592,201 $ (25,977)
===================== ====================
</TABLE>
Net cash provided by operating activities decreased approximately $1,080,000 or
46% for the nine months ended September 30, 2000, as compared to the same period
in 1999. The decrease in net cash provided by operating activities was driven
primarily by 1) increased net loss, 2) decreased accounts payable, 3) increased
prepaid expenses, and 4) decreased loss on disposal of assets. The decrease is
partially offset by an increased collection of accounts receivable.
The decrease in net cash used in investing activities during the nine months
ended September 30, 2000, as compared to the same period in 1999, was primarily
due to decreased capital expenditures (construction of Park Place Apartments
Phase III is in its final stage).
22
<PAGE>
Consolidated Cash Flows and Financial Condition - Continued
-----------------------------------------------------------
The decrease in net cash provided by financing activities, during the nine
months ended September 30, 2000, as compared to the same period in 1999, was
primarily due to a decrease in proceeds from mortgage loans (there was only one
draw made on the Park Place Apartments Phase I and III loan during the nine
months ended September 30, 2000). The decrease is partially offset by decreased
cash distributions and a decrease in the repurchase of Limited Partnership
Units.
On March 21, 2000, the Partnership notified its Limited Partners that it would
be suspending distributions starting January 1, 2000. The suspension is
necessary due to significant capital improvements essential to maintaining the
buildings and facilities owned by the Partnership at Willow Lake Apartments,
Park Place Apartments Phase I, Sabal Park Apartments and Golf Brook Apartments.
The Partnership's cash position will be evaluated on an ongoing basis to
determine when resumption of distributions is appropriate.
The Partnership used cash flow from operations and cash on hand to pay a 1%
(annualized) distribution of $301,810 for the nine months ended September 30,
1999. The annualized distribution rate is calculated as a percent of the
original capital contribution. The Limited Partners received 99% and the General
Partner received 1% of these distributions.
The table below presents that portion of the distributions that represent a
return of capital on a GAAP basis for the nine months ended September 30, 2000
and 1999. These distributions were funded by cash flow derived from operating
activities.
<TABLE>
Net Cash
Loss Distributions Return of
Allocated Declared Capital
------------------------ ----------------------- ----------------------
Limited Partners:
<S> <C> <C> <C>
2000 $ (657,907) $ - $ -
1999 $ (151,079) $ 298,792 $ 298,792
General Partner:
2000 $ (6,646) $ - $ -
1999 $ (1,526) $ 3,018 $ 3,018
</TABLE>
The demand on future liquidity is anticipated to increase as a result of the
replacement of roofs at both Willow Lake Apartments (26 buildings) and Park
Place Apartments Phase I (24 buildings) all of which were installed using
shingles produced by a single manufacturer. The shingles appear to contain
defects which may cause the roofs to fail before the end of their expected
useful lives. As the manufacturer has declared bankruptcy, the Partnership does
not expect to be able to recover any of the costs of the roof replacements. The
Partnership does not have sufficient working capital to make all of the roof
replacements at once and intends to make the replacements over the next 36
months. As of September 30, 2000, four buildings at Willow Lake Apartments have
had roofs replaced. The total cost of replacing the remaining roofs is estimated
to be $920,000 ($20,000 per building).
23
<PAGE>
Consolidated Cash Flows and Financial Condition - Continued
-----------------------------------------------------------
In the next 12 months, the demand on future liquidity is also anticipated to
increase as the Partnership continues its efforts in the leasing of Plainview
Point III Office Center. At this time, the future leasing and tenant finish
costs, which will be required to renew the current leases that expire during
2000 or obtain new tenants, are unknown.
On March 24, 2000, the Partnership and ORIG, LLC, an affiliate of the
Partnership (the "Offerors"), filed a tender offer (the "Fourth Tender Offer")
with the Securities and Exchange Commission, commencing on March 27, 2000, to
purchase up to 200 of the Partnership's limited partnership Units at a price of
$380 per Unit. The Fourth Tender Offer stated that the Partnership would
purchase the first 100 Units tendered and would fund its purchase and its
portion of the expenses from cash flow from operations. If more than 100 Units
were tendered, ORIG, LLC would purchase up to an additional 100 Units. If more
than 200 Units were tendered, the Offerors had the option to acquire the
additional Units on a pro-rata basis. The Fourth Tender Offer was scheduled to
expire on June 27, 2000.
On June 23, 2000, the Partnership filed an amendment to the Fourth Tender Offer
which extended the expiration date of the Fourth Tender Offer to August 15,
2000.
On August 15, 2000, the Fourth Tender Offer expired. A total of 3,685 Units were
tendered and the Offerors accepted all Units tendered. The Partnership
repurchased 100 Units at a cost of $38,000 and ORIG, LLC purchased 3,585 Units
at a cost of $1,362,300. The expenses associated with the Fourth Tender Offer
were $36,686 of which the Partnership incurred $575 and ORIG incurred $36,111.
Units acquired by the Partnership will be retired. Units acquired by ORIG, LLC
will be held by it. The General Partner, NTS-Properties Associates VI, did not
participate in the Fourth Tender Offer.
On July 14, 2000, a settlement agreement relative to a class action suit was
executed in a claim the Partnership had against Masonite Corporation for
defective hardboard siding installed at Golf Brook Apartments. Masonite
Corporation settled on 15 of 19 buildings at Golf Brook Apartments and paid a
total of approximately $254,000. An agreement has not been reached, at this time
for the remaining four buildings.
On July 19, 2000, there was a fire at Golf Brook Apartments. Eight apartment
units sustained fire and/or smoke damage. The Partnership filed a claim with its
insurance company, and after meeting the $5,000 deductible, received an advance
of $100,000 subsequent to September 30, 2000. It is unknown at this time, if the
costs of the repairs to the eight apartments will be completely covered by the
insurance claim.
24
<PAGE>
Consolidated Cash Flows and Financial Condition - Continued
-----------------------------------------------------------
In an effort to continue to improve occupancy at the Partnership's residential
properties, the Partnership has an on-site leasing staff, who are employees of
NTS Development Company, at each of the apartment communities. The staff handles
all on-site visits from potential tenants, coordinates local advertising with
NTS Development Company's marketing staff, makes visits to local companies to
promote fully furnished apartments, and negotiates lease renewals with current
residents.
The leasing and renewal negotiations for the Partnership's commercial property
are handled by leasing agents, who are employees of NTS Development Company,
located in Louisville, Kentucky. The leasing agents are located in the same city
as the commercial property. All advertising for the commercial property is
coordinated by NTS Development Company's marketing staff located in Louisville,
Kentucky.
Leases at Plainview Point III Office Center provide for tenants to contribute
toward the payment of increases in common area maintenance expenses, insurance,
utilities and real estate taxes. These lease provisions, along with the fact
that residential leases are generally for a period of one year, should protect
the Partnership's operations from the impact of inflation and changing prices.
25
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
The Partnership's primary risk exposure with regard to financial instruments is
changes in interest rates. All of the Partnership's debt bears interest at a
fixed rate with the exception of the $2,992,882 note payable that bears interest
at the Euro-Rate plus 225 basis points and the $13,125 note payable that bears
interest at the Prime Rate + 1%. At September 30, 2000, a hypothetical 100 basis
point increase in interest rates would result in approximately $30,000
additional annual interest expense on the variable rate mortgages. The same
increase in interest rates would also result in an approximate $873,000 decrease
in the fair value of debt held by the Partnership.
26
<PAGE>
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings
-----------------
On July 14, 2000, a settlement agreement relative to a class
action suit was executed in a claim the Partnership had
against Masonite Corporation for defective hardboard siding
installed at Golf Brook Apartments. Masonite Corporation
settled on 15 of 19 buildings at Golf Brook Apartments and
paid a total of approximately $254,000. An agreement has not
been reached, at this time for the remaining four buildings.
Item 2. Changes in Securities
---------------------
Not applicable.
Item 3. Defaults Upon Senior Securities
-------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not applicable.
Item 5. Other Information
-----------------
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a) Exhibits:
Exhibit 27. Financial Data Schedule
b) Reports on Form 8-K:
Not applicable.
27
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NTS-PROPERTIES VI,
A Maryland Limited Partnership
-----------------------------------------
(Registrant)
By: NTS-Properties Associates VI,
General Partner
By: NTS Capital Corporation
General Partner
/s/ Gregory A. Wells
-----------------------------------------
Gregory A. Wells
Senior Vice President and
Chief Financial Officer of
NTS Capital Corporation
Date: November 13, 2000
28
<PAGE>
