<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to ________
Commission file number 0-17589
NTS-PROPERTIES VII, LTD.
(Exact name of registrant as specified in its charter)
Florida 61-1119232
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10172 Linn Station Road
Louisville, Kentucky 40223
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (502) 426-4800
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. [X]
Exhibit Index: See Page 37
Total Pages: 40
<PAGE>
TABLE OF CONTENTS
Pages
PART I
Items 1 and 2 Business and Properties 3-10
Item 3 Legal Proceedings 10
Item 4 Submission of Matters to a Vote
of Security Holders 10
PART II
Item 5 Market for the Registrant's Limited Partnership
Interests and Related Partner Matters 11
Item 6 Selected Financial Data 12
Item 7 Management's Discussion and Analysis
of Financial Condition and Results
of Operations 13-19
Item 8 Financial Statements and Supplementary
Data 20-32
Item 9 Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 33
PART III
Item 10 Directors and Executive Officers of
the Registrant 34
Item 11 Management Remuneration and Transactions 35
Item 12 Security Ownership of Certain Beneficial
Owners and Management 35
Item 13 Certain Relationships and Related
Transactions 35-36
PART IV
Item 14 Exhibits, Financial Statement Schedules
and Reports on Form 8-K 37-39
Signatures 40
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<PAGE>
PART I
Items 1. and 2. Business and Properties
-----------------------
General
- -------
Some of the statements included in Items 1. and 2., Business and Properties, may
be considered to be "forward-looking statements" since such statements relate to
matters which have not yet occurred. For example, phrases such as "the
Partnership anticipates", "believes" or "expects" indicate that it is possible
that the event anticipated, believed or expected may not occur. Should such
event not occur, then the result which the Partnership expected also may not
occur or occur in a different manner, which may be more or less favorable to the
Partnership. The Partnership does not undertake any obligations to publicly
release the result of any revisions to these forward-looking statements that may
be made to reflect any future events or circumstances.
NTS-Properties VII, Ltd., a Florida limited partnership (the "Partnership"), was
formed in 1987. The General Partner is NTS-Properties Associates VII, a Kentucky
limited partnership. As of December 31, 1997 the Partnership owned the following
properties:
- The Park at the Willows, a 48-unit luxury apartment complex located
on a 2.8 acre tract in Louisville, Kentucky, acquired complete by the
Partnership.
- Park Place Apartments Phase II, a 132-unit luxury apartment complex
located on an 11 acre tract in Lexington, Kentucky, constructed by
the Partnership.
- A joint venture interest in Blankenbaker Business Center 1A, a
business center with approximately 50,000 net rentable ground floor
square feet and approximately 50,000 net rentable mezzanine square
feet located in Louisville, Kentucky, acquired complete by the joint
venture between the Partnership and NTS-Properties Plus Ltd., an
affiliate of the General Partner of the Partnership. The Joint
Venture Agreement was amended to admit NTS-Properties IV., Ltd., an
affiliate of the General Partner of the Partnership, ("NTS-
Properties IV") during 1994. The Partnership's percentage interest
in the joint venture was 31% at December 31, 1997.
The Partnership or the joint venture in which the Partnership is a partner has a
fee title interest in the above properties. In the opinion of the Partnership's
management, the properties are adequately covered by insurance.
The Park at the Willows is not encumbered by any outstanding mortgages at
December 31, 1997.
Park Place Apartments Phase II is encumbered by a mortgage payable to an
insurance company. The loan is secured by a first mortgage on the property. The
outstanding balance of the mortgage at December 31, 1997 was $4,091,369. The
mortgage currently bears a fixed interest rate of 7.37% and is due October 15,
2012. Current monthly principal payments on the mortgage are based upon a
19-year amortization schedule. The outstanding principal balance at maturity
based on the current rate of amortization will be $1,414,978.
Blankenbaker Business Center 1A, a joint venture between the Partnership,
NTS-Properties IV and NTS-Properties Plus Ltd., publicly registered limited
partnerships sponsored by an affiliate of the General Partner, is encumbered by
a mortgage payable to an insurance company. The outstanding balance at December
31, 1997 was $3,869,108. The mortgage is recorded as a liability of the Joint
Venture. The Partnership's proportionate interest in the
- 3 -
<PAGE>
General - Continued
- -------------------
mortgage at December 31, 1997 was $1,212,578. The mortgage bears interest at a
fixed rate of 8.5% and is due November 15, 2005. Currently, monthly principal
payments are based upon an 11-year amortization schedule. At maturity, the
mortgage will have been repaid based on the current rate of amortization.
For a further discussion regarding the terms of the financings, see Management's
Discussion and Analysis of Financial Condition and Results of Operations (Item
7).
As of December 31, 1997, the Partnership had no material commitments for
renovations or capital improvements.
The Partnership is presently engaged solely in the business of developing,
constructing, owning and operating residential apartments and commercial real
estate. A presentation of information concerning industry segments is not
applicable.
The current business of the Partnership is consistent with the original purpose
of the Partnership which was to acquire, directly or by joint venture,
unimproved or partially improved land, to construct and otherwise develop
thereon apartment complexes or commercial properties, and to own and operate the
completed properties. The original purpose also includes the ability of the
Partnership to invest in fully improved properties, either directly or by joint
venture. The Partnership's properties are in a condition suitable for their
intended use.
The Partnership intends to hold the Properties until such time as sale or other
disposition appears to be advantageous with a view to achieving the
Partnership's investment objectives or it appears that such objectives will not
be met. In deciding whether to sell a Property, the Partnership will consider
factors such as potential capital appreciation, cash flow and federal income tax
considerations, including possible adverse federal income tax consequences to
the Limited Partners. The General Partner of the Partnership is currently
exploring the marketability of certain of its properties, and has not yet
determined if any of the properties might be sold in the next 12 months, and
there are no contracts for sale under negotiation at the present time.
The Park at the Willows
- -----------------------
All units in The Park at the Willows are loft, studio or deluxe one-bedroom
apartments. All units have wall-to-wall carpeting, individually controlled
heating and air conditioning, dishwashers, ranges, refrigerators with ice
makers, garbage disposals and microwave ovens. Loft and deluxe units have
washer/dryer hook-ups. In addition, pursuant to an agreement with the Willows of
Plainview apartment community which was developed adjacent to The Park at the
Willows and is owned by NTS-Properties IV and NTS-Properties V, two publicly
registered limited partnerships sponsored by an affiliate of the General
Partner, tenants of The Park at the Willows have access to and use of the
coin-operated washer/dryer facilities, clubhouse, management offices, swimming
pool, whirlpool and tennis courts at The Willows of Plainview. The Partnership
shares proportionately in the cost of maintaining and operating these
facilities.
Monthly rental rates at The Park at the Willows start at $509 for studio
apartments, $629 for deluxe units and $699 for lofts, with additional monthly
rental amounts for special features and locations. Tenants pay all costs of
heating, air conditioning and electricity. Most leases are for a period of one
year. Units will be rented in some cases, however, on a shorter term basis at an
additional charge. The occupancy levels at the apartment complex as of December
31 were 96% (1997), 83% (1996), 96% (1995), 83% (1994) and 92% (1993).
- 4 -
<PAGE>
Park Place Apartments Phase II
- ------------------------------
Units at Park Place Apartments Phase II include one-bedroom and two-bedroom
apartments and two-bedroom town homes. All units have wall-to-wall carpeting,
individually controlled heating and air conditioning, dishwashers, ranges,
refrigerators with ice makers, garbage disposals and microwave ovens. Each unit
has either a washer/dryer hook-up or access to coin-operated washers and dryers.
Amenities include the clubhouse with a party room, swimming pool, tennis courts,
racquetball courts, exercise facility and management offices. The amenities are
shared with Phase I of the Park Place development which was developed and
constructed by NTS- Properties VI, an affiliate of the General Partner. The cost
to construct and operate the common amenities is shared proportionately by each
phase.
Monthly rental rates at Park Place Apartments Phase II start at $749 for
one-bedroom apartments, $989 for two-bedroom apartments and $1,129 for
two-bedroom town homes, with additional monthly rental amounts for special
features and locations. Tenants pay all costs of heating, air conditioning and
electricity. Most leases are for a period of one year. Units will be rented in
some cases, however, on a shorter term basis at an additional charge. The
occupancy levels at the apartment complex as of December 31 were 92% (1997), 90%
(1996), 91% (1995), 92% (1994) and 86% (1993).
Blankenbaker Business Center 1A
- -------------------------------
Prudential Service Bureau, Inc. has leased 100% of Blankenbaker Business Center
1A. The annual base rent, which does not include the cost of utilities, is $7.89
per square foot for ground floor office space and $7.10 per square foot for
second floor office space. The average base annual rental for all types of space
leased as of December 31, 1997 was $7.48. The lease term is for 11 years and
expires in July 2005. Prudential Service Bureau, Inc. is a professional service
oriented organization which deals in insurance claim processing. The lease
provides for the tenant to contribute toward the payment of common area
expenses, insurance and real estate taxes. The occupancy level at the business
center as of December 31, 1997, 1996, 1995, 1994 and 1993 was 100%.
The following table contains approximate data concerning the lease in effect on
December 31, 1997:
Major Tenant:
Current Base
Sq. Ft. and Annual Rental
% of Net and % of Gross
Year of Rentable Base Annual Renewal
Name Expiration Area(1) Rental Options
---- ---------- ------- ------ -------
Prudential Service
Bureau, Inc. 2005 48,463 (100%) $752,787 (100%) None
(1) Rentable area includes only ground floor square feet.
- 5 -
<PAGE>
General - Continued
- -------------------
Additional operating data regarding the Partnership's properties is furnished in
the following table.
Federal Realty Annual
Tax Basis Tax Rate Realty Taxes
--------- -------- ------------
Wholly-Owned Properties
- -----------------------
The Park at the Willows $ 2,537,567 $ .009380 $ 17,368
Park Place Apartments
Phase II 9,356,227 .009925 64,253
Property Owned in Joint
Venture with NTS-
Properties IV and NTS-
Properties Plus Ltd.
- --------------------
Blankenbaker Business
Center 1A 7,356,545 .010980 56,914
Percentage ownership has not been applied to the Blankenbaker Business Center 1A
information in the above table.
Depreciation for book purposes 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. There are currently no planned renovations which would
have an impact on realty taxes.
See Management's Discussion and Analysis of Financial Condition and Results
of Operations (Item 7.) for explanations regarding the fluctuations of
income and occupancy at the Partnership's properties.
Investment in Joint Venture
- ---------------------------
Blankenbaker Business Center Joint Venture - On December 28, 1990, the
Partnership entered into a joint venture agreement with NTS-Properties Plus Ltd.
to own and operate Blankenbaker Business Center 1A and to acquire an
approximately 2.49 acre parking lot that was being leased by the business center
from an affiliate of the General Partner. The use of the parking lot is a
provision of the tenant's lease agreement with the business center. On August
16, 1994, the Blankenbaker Business Center Joint Venture agreement was amended
to admit NTS-Properties IV to the Joint Venture. The terms of the Joint Venture
shall continue until dissolved. Dissolution shall occur upon, but not before,
the first to occur of the following:
(a) the withdrawal, bankruptcy or dissolution of a Partner or the
execution by a Partner of an assignment for the benefit of its
creditors;
(b) the sale, condemnation or taking by eminent domain of all or
substantially all of the assets of the Real Property and Parking
Lot and the sale and/or collection of any evidences of
indebtedness received in connection therewith;
- 6 -
<PAGE>
Investment in Joint Venture - Continued
- ---------------------------------------
(c) the vote or consent of each of the Partners to dissolve the
Partnership; or
(d) December 31, 2030.
In 1990 when the Joint Venture was originally formed, the Partnership
contributed $450,000 which was used for additional tenant improvements to the
business center and made a capital contribution to the Joint Venture of $325,000
to purchase the 2.49 acre parking lot. The additional tenant improvements were
made to the business center and the parking lot was purchased in 1991.
NTS-Properties Plus Ltd. contributed Blankenbaker Business Center 1A together
with improvements and personal property subject to mortgage indebtedness of
$4,715,000. During November 1994, this note payable was replaced with permanent
financing in the amount of $4,800,000. The mortgage bears interest at a fixed
rate of 8.5% and is due November 15, 2005. Currently monthly principal payments
are based upon an 11-year amortization schedule. At maturity, the mortgage will
have been repaid based on the current rate of amortization.
On April 28, 1994, the Joint Venture obtained $1,100,000 in debt financing to
fund a portion of the tenant finish and leasing costs which were associated with
the Prudential Securities Bureau, Inc ("Prudential") lease renewal and
expansion. The $1,100,000 note bore interest at the Prime Rate + 1 1/2%. In
order for the Joint Venture to obtain the $4,800,000 of permanent financing
discussed above, it was necessary for the Joint Venture to seek an additional
Joint Venture partner to provide the funds necessary for the tenant finish and
leasing costs instead of debt financing. See the following paragraph for
information regarding the new joint venture partner. The $1,100,000 note was
retired in August 1994. This resulted in the Joint Venture's debt being at a
level where permanent financing could be obtained and serviced.
On August 16, 1994, NTS-Properties VII, Ltd. contributed $500,000 and NTS-
Properties IV contributed $1,100,000 in accordance with the agreement to amend
the Joint Venture. The need for additional capital by the Joint Venture was a
result of the lease renewal and expansion which was signed April 28, 1994
between the Joint Venture and Prudential. NTS-Properties VII, Ltd. was not in a
position to contribute all of the capital required for the project, nor was
NTS-Properties Plus Ltd. in a position to contribute additional capital.
NTS-Properties IV was willing to participate in the Joint Venture and to
contribute, together with NTS-Properties VII, Ltd., the capital necessary with
respect to the project. NTS-Properties Plus Ltd. agreed to the admission of
NTS-Properties IV to the Joint Venture and to the capital contributions by
NTS-Properties IV and NTS-Properties VII, Ltd. with the knowledge that its joint
venture interest would, as a result, decrease. See the following paragraph for a
discussion of how the revised interests in the Joint Venture were calculated
with the admission of NTS-Properties IV. With this expansion, Prudential
occupied 100% of the business center. No future contributions are anticipated as
of December 31, 1997.
In order to calculate the revised joint venture percentage interests, the assets
of the Joint Venture were revalued in connection with the admission of
NTS-Properties IV as a joint venture partner and the additional capital
contributions. The value of the Joint Venture's assets immediately prior to the
additional capital contributions was $6,764,322 and its outstanding debt was
$4,650,042, with net equity being $2,114,280. The difference between the value
of the Joint Venture's assets and the value at which they were carried on the
books of the Joint Venture was allocated to the Partnership and NTS-Properties
Plus Ltd. in determining each Joint Venture partners's percentage interest.
- 7 -
<PAGE>
Investment in Joint Venture - Continued
- ---------------------------------------
The Partnership's interest in the Joint Venture remained at 31%. NTS- Properties
Plus Ltd.'s interest in the Joint Venture decreased from 69% to 39% as a result
of the capital contributions by NTS-Properties IV and the Partnership.
NTS-Properties IV obtained a 30% interest in the Joint Venture as a result of
its capital contribution.
The Net Cash Flow for each calendar quarter is distributed to the Partners in
accordance with their respective Percentage Interests. The term Net Cash Flow
for any period shall mean the excess, if any, of (A) the sum of (i) the gross
receipts of the Joint Venture Property for such period, other than capital
contributions, plus (ii) any funds released by the Partners from previously
established reserves (referred to in clause (B) (iv) below), over (B) the sum of
(i) all cash operating expenses paid by the Joint Venture Property during such
period in the course of business, (ii) capital expenditures paid in cash during
such period, (iii) payments during such period on account of amortization of the
principal of any debts or liabilities of the Joint Venture property and (iv)
reserves for contingent liabilities and future expenses of the Joint Venture
Property as established by the Partners; provided, however, that the amounts
referred to in (B)(i), (ii) and (iii) above shall only be taken into account to
the extent not funded by capital contributions or paid out of previously
established reserves. Percentage Interest means that percentage which the
capital contributions of a Partner bears to the aggregate capital contributions
of all the Partners.
Net income or net loss is allocated between the Partners in accordance with
their respective Percentage Interests. The Partnership's ownership share was 31%
at December 31, 1997.
The Partnership has no liability for funding losses of the joint venture as of
December 31, 1997.
Competition
- -----------
The Partnership's residential properties are subject to competition from similar
types of properties (including, in certain areas, properties owned or managed by
affiliates of the General Partner) in the respective vicinities in which they
are located. Such competition is generally for the retention of existing tenants
or for new tenants when vacancies occur. The Partnership maintains the
suitability and competitiveness of its properties primarily on the basis of
effective rents, amenities and services provided to tenants. Competition is
expected to increase in the future as a result of the construction of additional
properties. As of December 31, 1997, there are no properties under construction
in the respective vicinities in which the properties are located except for the
following: In the vicinity near Park Place Apartments Phase II, there are 760
apartment units currently under construction which are scheduled to be completed
during the second and third quarters of 1998. Also, at the Park Place
development, plans are currently in progress to build Phase III of the
development with ground breaking scheduled for Spring 1998. Park Place
Apartments Phase III will be built on land owned by NTS-Properties VI, an
affiliate of the General Partner of the Partnership, and consist of 152 units.
All costs for the construction will be funded by NTS-Properties VI. At this time
it is unknown the effect these new units will have on occupancy at Park Place
Apartments Phase II. The Partnership has not commissioned a formal market
analysis of competitive conditions in any market in which it owns properties,
but relies upon the market condition knowledge of the employees of NTS
Development Company who manage and supervise leasing for each property.
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<PAGE>
Management of Properties
- ------------------------
NTS Development Company, an affiliate of NTS-Properties Associates VII, the
General Partner of the Partnership, directs the management of the Partnership's
properties pursuant to a written agreement. NTS Development Company is a
wholly-owned subsidiary of NTS Corporation. Mr. J. D. Nichols has a controlling
interest in NTS Corporation and is a General Partner of NTS-Properties
Associates VII. Under the agreement, the Property Manager establishes rental
policies and rates and directs the marketing activity of leasing personnel. It
also coordinates the purchase of equipment and supplies, maintenance activity
and the selection of all vendors, suppliers and independent contractors. As
compensation for its services, the Property Manager received a total of $106,264
for the year ended December 31, 1997. $17,862 was received from the
Partnership's commercial property and $88,402 was received from residential
properties. The fee is equal to 6% of gross revenues from commercial properties
and 5% of gross revenues from residential properties.
In addition, the management agreement requires the Partnership to purchase all
insurance relating to the managed properties, to pay the direct out-of-pocket
expenses of the Property Manager in connection with the operation of the
properties, including the cost of goods and materials used for and on behalf of
the Partnership, and to reimburse the Property Manager for the salaries,
commissions, fringe benefits, and related employment expenses of on-site
personnel.
The term of the Management Agreement between NTS Development Company and the
Partnership was for an initial term of five years, and thereafter for succeeding
one-year periods, unless canceled. The Agreement is subject to cancellation by
either party upon sixty days written notice. As of December 31, 1997, the
Management Agreement is still in effect.
Conflict of Interest
- --------------------
Because the principals of the General Partner and/or its affiliates own and/or
operate real estate properties other than those owned by the Partnership that
are or could be in competition with the Partnership, potential conflicts of
interest exist. Because the Partnership was organized by and is operated by the
General Partner, these conflicts are not resolved through arms-length
negotiations but through the exercise of the General Partner's good judgment
consistent with its fiduciary responsibility to the Limited Partners and the
Partnership's investment objectives and policies. The General Partner is
accountable to the Limited Partners as a fiduciary and consequently must
exercise good faith and integrity in handling the Partnership's affairs. A
provision has been made in the Partnership Agreement that the General Partner
will not be liable to the Partnership except for acts or omissions performed or
omitted fraudulently, in bad faith or with negligence. In addition, the
Partnership Agreement provides for indemnification of the General Partner by the
Partnership for liability resulting from errors in judgement or certain acts or
omissions. With respect to these potential conflicts of interest, the General
Partner and its affiliates retain a free right to compete with the Partnership's
properties including the right to develop competing properties now and in the
future, in addition to those existing properties which may compete directly or
indirectly.
NTS Development Company, the Property Manager and an affiliate of the General
Partner, acts in a similar capacity for other affiliated entities in the same
geographic region where the Partnership has property interests. The agreement
with the Property Manager is on terms no less favorable to the Partnership than
those which could be obtained from a third party for similar services in the
same geographical region in which the properties are located. The contract is
terminable by either party without penalty upon 60 days written notice.
There are no other agreements or relationships between the Partnership, the
General Partner and its affiliates than those previously described.
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<PAGE>
Employees
- ---------
The Partnership has no employees; however, employees of an affiliate of the
General Partner are available to perform services for the Partnership. The
Partnership reimburses this affiliate for the actual costs of providing such
services.
Item 3. Legal Proceedings
-----------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
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<PAGE>
PART II
Item 5. Market for the Registrant's Limited Partnership Interests and
Partner Matters
There is no established trading market for the limited partnership interests.
The Partnership had 1,302 limited partners as of March 6, 1998. Cash
distributions and allocations of net income (loss) are made as described in Note
1C to the Partnership's 1997 financial statements.
Annual distributions totaling $.40 were paid per limited partnership unit during
the years ended December 31, 1997, 1996 and 1995. Quarterly distributions are
determined based on current cash balances, cash flow being generated by
operations and cash reserves needed for future leasing costs, tenant finish
costs and capital improvements. Distributions were paid quarterly as follows:
1997 1996 1995
---------- ---------- ----------
First quarter $ .10 $ .10 $ .10
Second quarter .10 .10 .10
Third quarter .10 .10 .10
Fourth quarter .10 .10 .10
---- ---- ----
$ .40 $ .40 $ .40
==== ==== ====
The table below presents that portion of the distributions that represent a
return of capital on a Generally Accepted Accounting Principle basis for the
years ended December 31, 1997, 1996 and 1995.
Net Income Cash
(loss) Distributions Return of
Allocated Declared Capital
--------- -------- -------
Limited Partners:
1997 $ 63,842 $ 239,288 $ 175,446
1996 (125,619) 244,707 244,707
1995 (103,976) 255,306 255,306
General Partner:
1997 $ 645 $ 2,417 $ 1,772
1996 (1,269) 2,471 2,471
1995 (1,050) 2,579 2,579
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<PAGE>
<TABLE>
Item 6. Selected Financial Data
For the years ended December 31, 1997, 1996, 1995, 1994 and 1993.
<CAPTION>
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Total revenues $ 2,093,752 $ 2,041,762 $ 1,972,169 $ 1,871,478 $ 1,830,587
Total expenses (2,001,481) (2,168,650) (2,077,195) (2,265,983) (2,143,609)
------------ ------------ ------------ ------------ ------------
Income (loss) before
extraordinary item 92,271 (126,888) (105,026) (394,505) (313,022)
Extraordinary item (27,784) -- -- -- --
------------ ------------ ------------ ------------ ------------
Net income (loss) $ 64,487 $ (126,888) $ (105,026) $ (394,505) $ (313,022)
============ ============ ============ ============ ============
Net income (loss) allocated to:
General Partner $ 645 $ (1,269) $ (1,050) $ (3,945) $ (3,130)
Limited partners $ 63,842 $ (125,619) $ (103,976) $ (390,560) $ (309,892)
Net income (loss) per
limited partnership
unit $ .11 $ (.20) $ (.16) $ (.61) $ (.49)
Weighted average number
of limited partnership
units 598,526 615,384 638,265 638,265 638,265
Cumulative net loss
allocated to:
General Partner $ (26,418) $ (27,063) $ (25,794) $ (24,744) $ (20,799)
Limited partners $ (2,615,475) $ (2,679,317) $ (2,553,698) $ (2,449,722) $ (2,059,162)
Cumulative taxable
income (loss) allocated
to:
General Partner $ 21,995 $ 17,371 $ 14,381 $ (33,877) $ (30,239)
Limited partners $ (2,941,772) $ (3,059,753) $ (2,965,106) $ (2,840,798) $ (2,554,247)
Distributions declared:
General Partner $ 2,417 $ 2,471 $ 2,579 $ 2,579 $ 2,579
Limited partners $ 239,288 $ 244,707 $ 255,306 $ 255,306 $ 255,306
Cumulative distributions
declared:
General Partner $ 24,009 $ 21,592 $ 19,121 $ 16,542 $ 13,963
Limited partner $ 2,376,865 $ 2,137,577 $ 1,892,870 $ 1,637,564 $ 1,382,258
At year end:
Cash and equivalents $ 164,714 $ 278,620 $ 249,559 $ 515,376 $ 798,256
Investment securities $ 338,129 $ -- $ 103,908 $ -- $ --
Land, buildings and
amenities, net $ 10,361,786 $ 10,878,976 $ 11,405,597 $ 11,902,498 $ 12,332,771
Total assets $ 11,179,145 $ 11,474,499 $ 12,108,948 $ 12,677,879 $ 13,311,220
Mortgages and notes
payable $ 5,303,947 $ 5,358,215 $ 5,509,479 $ 5,648,524 $ 5,674,674
</TABLE>
The above selected financial data should be read in conjunction with the
financial statements and related notes appearing elsewhere in this Form 10-K
report.
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<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
- ---------------------
The occupancy levels at the Partnership's properties as of December 31 were as
follows:
Percentage
Ownership at
12/31/97 1997 1996 1995
------------ ---- ---- ----
Wholly-owned Properties
- -----------------------
The Park at the Willows 100% 96% 83% 96%
Park Place Apartments
Phase II 100% 92% 90% 91%
Property owned in Joint
Venture with NTS-Properties
IV and NTS-Properties Plus Ltd.
- -------------------------------
Blankenbaker Business
Center 1A 31% 100% 100% 100%
Rental and other income generated by the Partnership's properties for the years
ended December 31, 1997, 1996 and 1995 were as follows:
Percentage
Ownership
at 12/31/97 1997 1996 1995
----------- ---------- ---------- ----------
Wholly-owned Properties
- -----------------------
The Park at the Willows 100% $ 345,490 $ 320,721 $ 316,949
Park Place Apartments
Phase II 100% $1,437,348 $1,406,777 $1,352,427
Property owned in Joint
Venture with NTS- Properties
IV and NTS- Properties Plus
Ltd.
- ----------------------------
Blankenbaker Business
Center 1A 31%(1) $ 293,939 $ 293,796 $ 291,468
(1) Revenues shown in this table represent the Partnership's share of
revenues generated by Blankenbaker Business Center 1A. The Partnership's
percentage interest in the joint venture was 31% during
1997, 1996 and 1995.
The Park at the Willows' year-ending occupancy increased from 83% in 1996 to 96%
in 1997 and average occupancy was 91% during 1996 and 1997. The Park at the
Willows' year-ending occupancy decreased from 96% in 1995 to 83% in 1996 and
average occupancy decreased from 93% in 1995 to 91% in 1996. Occupancy at
residential properties fluctuate on a continuous basis. Year- ending occupancy
percentages represent occupancy only on a specific date; therefore, it is more
meaningful to look at average occupancy percentages which are more
representative of the entire year's results.
- 13 -
<PAGE>
Results of Operations - Continued
- ---------------------------------
There were no significant changes in average occupancy from 1996 to 1997 and
from 1995 to 1996. In the opinion of the General Partner of the Partnership, the
decrease in 1996 year-ending occupancy was only a temporary fluctuation. Large
changes in year-ending occupancy at The Park at the Willows are due to the fact
that the complex has only 48 units. One vacant apartment in this complex equates
to a 2% decrease in occupancy; therefore, occupancy percentage changes may
appear distorted on a percentage basis when compared to other residential
properties. In residential properties it is not uncommon for multiple residents
to vacate at month-end with new residents taking occupancy within a few days.
When this occurs at The Park at the Willows, the change in occupancy will be
much greater than at other residential properties because of its small size.
Rental and other income at The Park at the Willows increased from 1996 to 1997
as a result of increased rental rates. Rental and other income at The Park at
the Willows increased from 1995 to 1996 as a result of increased income from the
rental of fully furnished units and increased income collected for short term
and month-to-month leases. 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.
Park Place Apartments Phase II's year-ending occupancy increased from 90% in
1996 and to 92% in 1997. Average occupancy was 92% during 1996 and 1997. Rental
and other income at Park Place Apartments Phase II increased from 1996 to 1997
as a result of increased rental rates.
Park Place Apartments Phase II's year-ending occupancy decreased from 91% in
1995 to 90% in 1996; however, average occupancy increased from 91% in 1995 to
92% in 1996. Rental and other income at Park Place Apartments Phase II increased
from 1995 to 1996 as a result of the increase in average occupancy and increased
rental rates.
A wholly-owned subsidiary of The Prudential Insurance Company of America
(Prudential Service Bureau, Inc.) has leased 100% of Blankenbaker Business
Center 1A. In addition to monthly rent payments, Prudential Service Bureau, Inc.
is obligated to pay substantially all of the operating expenses attributable to
its space. Blankenbaker Business Center 1A's rental and other income remained
fairly constant from 1996 to 1997 and from 1995 to 1996.
If present trends continue, the Partnership will be able to continue at its
current level of operations without the need of any additional financing.
Current occupancy levels are considered adequate to continue the operation of
the Partnership's properties. (See the Liquidity and Capital Resources section
for a discussion regarding the cash requirements of the Partnership's current
debt financings).
Interest and other income includes interest income from investments made by the
Partnership with excess cash. The increase in other income from 1996 to 1997 is
a result of an insurance claim reimbursement for roof damage exceeding the cost
to replace the roof at The Park at the Willows. The increase in interest income
from 1995 to 1996 is a result of increased cash reserves being available for
investment and due to increased miscellaneous income collected by the
Partnership.
Operating expenses have decreased from 1996 to 1997 primarily as a result of
decreased operating expenses at Park Place Apartments Phase II. The decrease at
Park Place Apartments Phase II is due to decreased building repair and
maintenance costs (exterior painting, patio repairs, parking lot resurfacing and
pool repairs), decreased snow removal costs and decreased replacement costs
(exterior building repairs, wallcovering and carpet). The decrease in operating
expenses is partially offset by increased replacement and renovation expenses at
The Park at the Willows and Blankenbaker Business Center 1A.
- 14 -
<PAGE>
Results of Operations - Continued
- ---------------------------------
Operating expenses have increased from 1995 to 1996 primarily as a result of
increased operating expenses at Park Place Apartments Phase II. Increased
expenses at Park Place Apartments Phase II include increased building repair and
maintenance costs (exterior painting, parking lot resurfacing, and pool
repairs), increased snow removal costs, increased exterior building repair costs
and increased replacement costs (wallcovering and carpet). Operating expenses at
The Park at the Willows increased from 1995 to 1996 as a result of increased
furniture rental costs associated with leasing fully furnished units. Operating
expenses at Blankenbaker Business Center 1A remained fairly constant from 1995
to 1996.
Operating expenses - affiliated increased from 1996 to 1997 as a result of
increased property management costs at both the residential properties and at
Blankenbaker Business Center 1A.
Operating expenses-affiliated decreased from 1995 to 1996 as a result of
decreased leasing costs at Blankenbaker Business Center 1A and decreased leasing
and property management costs at Park Place Apartments Phase II. Operating
expenses-affiliated remained fairly constant at The Park at the Willows from
1995 to 1996. Operating expenses-affiliated are expenses incurred for services
performed by employees of NTS Development Company, an affiliate of the General
Partner.
Amortization of capitalized leasing costs represents the amortization of various
costs which were capitalized during the initial leasing and start-up period of
Park Place Apartments Phase II. The amortization of capitalized leasing costs
has decreased from 1995 to 1996 and from 1996 to 1997 as a result of a portion
of the costs capitalized during start-up having become fully amortized.
The 1997 write-off of unamortized building costs can be attributed to The Park
at the Willows. The write-off is the result of the roof replacement and
represents the cost of the original roof that had not been fully depreciated.
The 1997 write-off of unamortized loan costs (recorded as an extraordinary item)
relates to loan costs associated with the Park Place Apartments Phase II's notes
payable. The unamortized loan costs were expensed due to the fact that the notes
were retired in 1997 prior to their maturity (October 5, 2002) as a result of
permanent financings obtained by the Partnership in October 1997. (See the
Liquidity and Capital Resources section of this Item for more details regarding
the Partnership's debt).
The decrease in interest expense from 1996 to 1997 is the result of a lower
interest rate on the new debt obligation (obtained October 1997) and is a result
of the Partnership's decreasing debt level as a result of principal payments
made.
The decrease in interest expense from 1995 to 1996 is the result of the
Partnership's decreasing debt level as a result of principal payments made. 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.
Real estate taxes remained fairly constant from 1995 to 1996 and from 1996 to
1997.
Professional and administrative expenses increased from 1996 to 1997 as a result
of increased outside accounting fees. The change in professional and
administrative expenses from 1995 to 1996 was not significant.
- 15 -
<PAGE>
Results of Operations - Continued
- ---------------------------------
Professional and administrative expenses - affiliated decreased from 1996 to
1997 as a result of decreased salary costs. Professional and administrative
expenses - affiliated are expenses incurred for services performed by employees
of NTS Development Company, an affiliate of the General Partner.
Professional and administrative expenses - affiliated increased from 1995 to
1996 as a result of increased salary costs.
Depreciation and amortization decreased from 1996 to 1997 as a result of a
portion of the assets with shorter lives at Park Place Apartments Phase II
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, 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 $13,700,000.
Depreciation and amortization decreased from 1995 to 1996 as a result of a
portion of the original tenant improvements at Blankenbaker Business Center 1A
becoming fully depreciated and as a result of assets with shorter lives at the
Partnership's residential properties having become fully depreciated.
Liquidity and Capital Resources
- -------------------------------
Cash provided from operations was $599,924, $453,958 and $469,855 for the years
ended December 31, 1997, 1996 and 1995, respectively. These funds in conjunction
with cash on hand were used to make a 2% (annualized) distribution of $241,705
(1997), $247,178 (1996) and $257,885 (1995). 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 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, renovation and tenant
finish costs. Cash reserves (which are unrestricted cash and equivalents and
investment securities as shown on the Partnership's balance sheet as of December
31) were $502,843, $278,620 and $481,120 at December 31, 1997, 1996 and 1995,
respectively.
On October 8, 1997, the Partnership obtained permanent financing with an
insurance company in the amount of $4,100,000. The loan proceeds were used by
the Partnership to retire two mortgage payables each with an insurance company
in the amounts of $3,056,476 and $940,454 (balances on October 8, 1997). The new
mortgage bears interest at a fixed rate of 7.37% and matures October 15, 2012
and is secured by the land, buildings and amenities of Park Place Apartments
Phase II. The outstanding balance at December 31, 1997 was $4,091,369. Current
monthly principal payments are based upon a 19-year amortization. The
outstanding principal balance at maturity based on the current rate of
amortization will be $1,414,978.
As of December 31, 1997, the Blankenbaker Business Center Joint Venture, in
which the Partnership has a joint venture interest, had a mortgage payable with
an insurance company in the amount of $3,869,108. The mortgage is recorded as a
liability of the Joint Venture. The Partnership's proportionate interest in the
mortgage was $1,212,578 at December 31, 1997. The mortgage bears interest at a
fixed rate of 8.5% and is due November 15, 2005. Current monthly principal
payments are based upon an 11-year amortization schedule. At maturity, the
mortgage will have been repaid based on the current rate of amortization.
- 16 -
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
The majority of the Partnership's cash flow is derived from operating
activities. Cash flows used in investing activities are for capital improvements
at the Partnership's properties. These improvements were funded by cash flow
from operations. Cash flows used in investing activities are also for the
purchase of investment securities. As part of its cash management activities,
the Partnership has purchased Certificates of Deposit or securities issued by
the U.S. Government with initial maturities of greater than three months to
improve the return on its excess cash reserves. The Partnership held the
securities until maturity. Cash flows provided by investing activities are a
result of the maturity of investment securities. Cash flows used in financing
activities are for cash distributions, principal payments on mortgages payable,
payment of loan costs and repurchases of limited partnership Units. Cash flows
used in financing activities also include cash which has been reserved by the
Partnership for the repurchase of limited partnership Units. Cash flows provided
by financing activities represent an increase in a mortgage payable. The
Partnership does not expect any material changes in the mix and relative cost of
capital resources from those in 1997.
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 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 or
cash reserves. The amount expensed in 1997 was immaterial.
As of December 31, 1995, the Partnership had established an Interest Repurchase
Reserve in the amount of $127,653 pursuant to Section 16.4 of the Partnership's
Amended and Restated Agreement of Limited Partnership. Under Section 16.4,
limited partners may request the Partnership to repurchase their respective
interests (Units) in the Partnership. On May 24, 1996, the Partnership elected
to fund an additional amount of $121,270 to the Interest Repurchase Reserve.
With these funds, the Partnership would be able to repurchase and retire up to
62,230 Units at a price of $4.00 per Unit. Repurchased Units will be retired by
the Partnership, thus increasing the share of ownership of each remaining
investor. Through December 16, 1997, the Partnership had repurchased a total of
40,047 Units for $160,188. As of December 17, 1997 the Partnership has elected
to fund an additional amount of $38,918 to its Interest Repurchase Reserve. This
additional funding brings the Interest Repurchase Reserve to $127,653. With this
funding, the Partnership will be able to repurchase up to 21,275 Units at a
currently contemplated price of $6.00 per Unit. The Partnership notified the
limited partners of the additional funding to the Interest Repurchase Reserve
and the opportunity to request that the Partnership repurchase Units at the
established price by letter in December 1997. 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. The
Interest Repurchase Reserve was funded from cash reserves. The amount remaining
in the Interest Repurchase Reserve at December 31, 1997 was $127,653.
- 17 -
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
The primary source of future liquidity and distributions is expected to be
derived from cash generated by the Partnership's operating properties after
adequate cash reserves are established for future leasing, renovations and
tenant finish costs. It is anticipated that the cash flow from operations and
cash reserves will be sufficient to meet the needs of the Partnership. The
Partnership had no material commitments for renovations or capital improvements
at December 31, 1997.
The table below presents that portion of the distributions that represent a
return of capital on a Generally Accepted Accounting Principle basis for the
years ended December 31, 1997, 1996 and 1995.
Net Income Cash
(Loss) Distributions Return of
Allocated Declared Capital
--------- -------- -------
Limited Partners:
1997 $ 63,842 $ 239,288 $ 175,446
1996 (125,619) 244,707 244,707
1995 (103,976) 255,306 255,306
General Partner:
1997 $ 645 $ 2,417 $ 1,772
1996 (1,269) 2,471 2,471
1995 (1,050) 2,579 2,579
In an effort to continue to improve occupancy at the Partnership's residential
properties, the Partnership has an on-site leasing staff, 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 units and works with current residents on lease
renewals.
The lease at Blankenbaker Business Center 1A provides for the tenant to
contribute toward the payment of common area expenses, insurance and real estate
taxes. This lease provision, 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.
Some of the statements included in Item 7, Management's Discussion and Analysis
of Financial Condition and Results of Operations, may be considered to be
"forward-looking statements" since such statements relate to matters which have
not yet occurred. For example, phrases such as "the Partnership anticipates",
"believes" or "expects" indicate that it is possible that the event anticipated,
believed or expected may not occur. Should such event not occur, then the result
which the Partnership expected also may 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.
- 18 -
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
The Partnership's principal activity is the leasing and management of a
commercial business center and apartment complexes. If Prudential, the tenant
that occupies 100% of the business center, or a large number of apartment
lessees default on their lease, 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.
- 19 -
<PAGE>
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To NTS-Properties VII, Ltd.:
We have audited the accompanying balance sheets of NTS-Properties VII, Ltd. (a
Florida limited partnership) as of December 31, 1997 and 1996, and the related
statements of operations, partners' equity and cash flows for each of the three
years in the period ended December 31, 1997. These financial statements and
schedules referred to below are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of NTS-Properties VII, Ltd. as of
December 31, 1997 and 1996 and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1997 in conformity
with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules included on pages 38 and 39
are presented for purposes of complying with the Securities and Exchange
Commission's rules and are not a required part of the basic financial
statements. These schedules have been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our opinion,
fairly state in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Louisville, Kentucky
March 6, 1998
- 20 -
<PAGE>
<TABLE>
NTS-PROPERTIES VII, LTD.
BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996
<CAPTION>
1997 1996
----------- -----------
ASSETS
<S> <C> <C>
Cash and equivalents $ 164,714 $ 278,620
Cash and equivalents - restricted 176,636 162,005
Investment securities 338,129 --
Accounts receivable 858 14,518
Land, buildings and amenities, net 10,361,786 10,878,976
Other assets 137,022 140,380
----------- -----------
$11,179,145 $11,474,499
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Mortgages payable $ 5,303,947 $ 5,358,215
Accounts payable 38,815 90,301
Distributions payable 60,426 60,645
Security deposits 36,325 39,800
Other liabilities 6,787 6,787
----------- -----------
5,446,300 5,555,748
Partners' equity 5,732,845 5,918,751
----------- -----------
$11,179,145 $11,474,499
=========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
- 21 -
<PAGE>
<TABLE>
NTS-PROPERTIES VII, LTD.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<CAPTION>
1997 1996 1995
------------ ----------- -----------
Revenues:
<S> <C> <C> <C>
Rental income $ 2,064,236 $ 2,018,993 $ 1,957,327
Interest and other income 29,516 22,769 14,842
----------- ----------- -----------
2,093,752 2,041,762 1,972,169
Expenses:
Operating expenses 460,177 587,955 460,727
Operating expenses - affiliated 230,130 214,532 226,010
Amortization of capitalized leasing
costs -- 196 6,030
Write-off of unamortized building costs 17,797 -- --
Interest expense 434,680 456,642 469,039
Management fees 106,264 104,248 101,312
Real estate taxes 99,458 103,171 103,496
Professional and administrative
expenses 58,895 53,887 55,388
Professional and administrative
expenses - affiliated 79,075 109,512 93,657
Depreciation and amortization 515,005 538,507 561,536
----------- ----------- -----------
2,001,481 2,168,650 2,077,195
----------- ----------- -----------
Income (loss) before extraordinary item 92,271 (126,888) (105,026)
Extraordinary item - write-off
unamortized loan costs (27,784) -- --
----------- ----------- -----------
Net income (loss) $ 64,487 $ (126,888) $ (105,026)
=========== =========== ===========
Net income (loss) allocated to the limited partners:
Income (loss) before extraordinary item $ 91,348 $ (125,619) $ (103,976)
Extraordinary item (27,506) -- --
----------- ----------- -----------
Net income (loss) $ 63,842 $ (125,619) $ (103,976)
=========== =========== ===========
Net income (loss) per limited partnership Unit:
Income (loss) before extraordinary item $ .15 $ (.20) $ (.16)
Extraordinary item (.04) -- --
----------- ----------- -----------
Net income (loss) $ .11 $ (.20) $ (.16)
=========== =========== ===========
Weighted average number of limited
partnership units 598,526 615,384 638,265
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
- 22 -
<PAGE>
<TABLE>
NTS-PROPERTIES VII, LTD.
STATEMENTS OF PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<CAPTION>
Limited General
Partners Partners Total
-------- -------- -----
<S> <C> <C> <C>
Balances at December 31, 1994 $ 6,848,414 $ (41,186) $ 6,807,228
Net loss (103,976) (1,050) (105,026)
Distributions declared (255,306) (2,579) (257,885)
----------- ----------- -----------
Balances at December 31, 1995 6,489,132 (44,815) 6,444,317
Net loss (125,619) (1,269) (126,888)
Distributions declared (244,707) (2,471) (247,178)
Repurchase of limited partnership
Units (151,500) -- (151,500)
----------- ----------- -----------
Balances at December 31, 1996 5,967,306 (48,555) 5,918,751
Net income 63,842 645 64,487
Distributions declared (239,288) (2,417) (241,705)
Repurchase of limited partnership
Units (8,688) -- (8,688)
----------- ----------- -----------
Balances at December 31, 1997 $ 5,783,172 $ (50,327) $ 5,732,845
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
- 23 -
<PAGE>
<TABLE>
NTS-PROPERTIES VII, LTD.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<CAPTION>
1997 1996 1995
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income (loss) $ 64,487 $ (126,888) $ (105,026)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Accrued interest on investment securities (1,737) 1,408 (1,408)
Amortization of capitalized leasing costs -- 196 6,030
Write-off unamortized building costs 17,797 -- --
Write-off unamortized loan costs 27,784 -- --
Depreciation and amortization 515,005 538,507 561,536
Changes in assets and liabilities:
Cash and equivalents - restricted 15,599 (9,568) (1,795)
Accounts receivable 13,660 (6,420) 14,477
Other assets 2,290 10,516 10,517
Accounts payable (51,486) 36,423 (13,937)
Security deposits (3,475) 6,320 (3,862)
Other liabilities -- 3,464 3,323
----------- ----------- -----------
Net cash provided by operating activities 599,924 453,958 469,855
----------- ----------- -----------
453,958
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to land, buildings and amenities (8,398) (3,857) (108,589)
Purchase of investment securities (411,392) (207,440) (202,363)
Maturity of investment securities 75,000 309,939 99,863
----------- ----------- -----------
Net cash provided by (used in) investing
activities (344,790) 98,642 (211,089)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in mortgage payable 4,100,000 -- --
Principal payments on mortgages payable (4,154,268) (151,264) (139,045)
Cash distributions (241,924) (251,005) (257,885)
Repurchase of limited partnership Units (8,688) (151,500) --
Cash and equivalents - restricted (30,230) 30,230 (127,653)
Additions to loan costs (33,930) -- --
----------- ----------- -----------
Net cash used in financing activities (369,040) (523,539) (524,583)
----------- ----------- -----------
Net increase (decrease) in cash and
equivalents (113,906) 29,061 (265,817)
CASH AND EQUIVALENTS, beginning of year 278,620 249,559 515,376
----------- ----------- -----------
CASH AND EQUIVALENTS, end of year $ 164,714 $ 278,620 $ 249,559
=========== =========== ===========
Interest paid on a cash basis $ 449,164 $ 457,410 $ 469,631
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
- 24 -
<PAGE>
NTS-PROPERTIES VII, LTD.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1. Significant Accounting Policies
-------------------------------
A) Organization
------------
NTS-Properties VII, Ltd. (the "Partnership") is a limited
partnership organized under the laws of the State of Florida in
April 1987. The General Partner is NTS-Properties Associates VII (a
Kentucky limited partnership). The Partnership is in the business
of developing, constructing, owning and operating apartment
complexes and commercial real estate.
B) Properties
----------
The Partnership owns and operates the following properties:
- The Park at the Willows, a 48-unit luxury apartment complex in
Louisville, Kentucky.
- Park Place Apartments Phase II, a 132-unit luxury apartment
complex in Lexington, Kentucky.
- A 31% joint venture interest in Blankenbaker Business Center
Phase 1A, a business center with approximately 50,000 net
rentable ground floor square feet and approximately 50,000 net
rentable mezzanine square feet located in Louisville, Kentucky.
C) Allocation of Net Income (Loss) and Cash Distributions
------------------------------------------------------
Pre-Termination Date Net Cash Receipts and Interim Net Cash
Receipts, as defined in the partnership agreement, and which are
made available for distribution, will be distributed 99% to the
limited partners and 1% to the General Partner.
Net Operating Income (excluding Net Gains from Sales and other
specially allocated items) shall be allocated to the limited
partners and the General Partner in proportion to their respective
cash distributions. Net Operating Income in excess of cash
distributions shall be allocated as follows: (1) pro rata to all
partners with a negative capital account in an amount to restore
the negative capital account to zero; (2) 99% to the limited
partners and 1% to the General Partner until the limited partners
have received an amount equal to their Original Capital less cash
distributions except distributions of Pre-Termination Date Net Cash
Receipts; (3) the balance, 80% to the limited partners and 20% to
the General Partner. Net Operating Losses shall be allocated 99% to
the limited partners and 1% to the General Partner.
D) Tax Status
----------
The Partnership has received a ruling from the Internal Revenue
Service stating that the Partnership is classified as a limited
partnership for federal income tax purposes. As such, the
Partnership makes no provision for income taxes. The taxable income
or loss is passed through to the holders of the partnership
interests for inclusion on their individual income tax returns.
- 25 -
<PAGE>
1. Significant Accounting Policies - Continued
-------------------------------------------
D) Tax Status - Continued
----------------------
A reconciliation of net income (loss) for financial statement
purposes versus that for income tax reporting is as follows:
1997 1996 1995
---------- --------- ---------
Net income (loss) $ 64,487 $(126,888) $(105,026)
Items handled differently
for tax purposes:
Depreciation and
amortization 31,437 9,030 (5,777)
Capitalized leasing costs 22,120 22,368 28,219
Rental income 3,833 3,833 6,534
Loss on disposal of
assets 729 -- --
---------- --------- ---------
Taxable income (loss) $ 122,606 $ (91,657) $ (76,050)
========== ========= =========
E) Use of Estimates in the Preparation of Financial Statements
-----------------------------------------------------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
F) Joint Venture Accounting
------------------------
The Partnership has adopted the proportionate consolidation method
of accounting for joint venture properties. The Partnership's
proportionate interest in the joint venture's assets, liabilities,
revenues, expenses and cash flows are combined on a line-by-line
basis with the Partnership's own assets, liabilities, revenues,
expenses and cash flows. All intercompany accounts and transactions
have been eliminated in consolidation.
Proportionate consolidation is utilized by the Partnership due to
the fact that the ownership of joint venture properties, in
substance, is not subject to joint control. The managing General
Partners of the sole General Partner of the NTS sponsored
partnerships which have formed joint ventures are substantially the
same. As such, decisions regarding financing, development, sale or
operations do not require the approval of different partners.
Additionally, the joint venture properties are in the same
business/industry as their respective joint venture partners and
their asset, liability, revenue and expense accounts correspond
with the accounts of such partner. It is the belief of the General
Partner of the Partnership that the financial statement disclosures
resulting from proportionate consolidation provides the most
meaningful presentation of assets, liabilities, revenues, expenses
and cash flows for the years presented given the commonality of the
Partnership's operations.
- 26 -
<PAGE>
1. Significant Accounting Policies - Continued
-------------------------------------------
G) 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 repurchase
of limited partnership Units.
H) Investment Securities
---------------------
Investment securities represent investments in Certificates of
Deposit or securities issued by the U.S. Government with initial
maturities of greater than three months. The Partnership intends to
hold the securities until maturity. During 1997 and 1996, the
Partnership sold no investment securities.
The following provides details regarding the investments held at
December 31, 1997:
Amortized Maturity Value at
Type Cost Date Maturity
------ ----------- -------- ----------
Certificate of Deposit $ 112,348 02/04/98 $ 112,90
Certificate of Deposit 100,543 03/05/98 101,492
Certificate of Deposit 125,238 03/30/98 127,336
---------- ---------
$ 338,129 $ 341,736
========== =========
At December 31, 1996, the Partnership held no investment securities
with initial maturities greater than three months.
I) Basis of Property and Depreciation
----------------------------------
Land, building and amenities are stated at cost to the Partnership.
Costs directly associated with the acquisition, development and
construction of a project are capitalized. Depreciation is computed
using the straight-line method over the estimated useful lives of
the assets which are 30 years for land improvements, 5-30 years for
buildings and improvements and 5-7 years for amenities.
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 such
review indicates that the carrying amount of an asset exceeds the
sum of its expected future cash flows, the asset's carrying value
must be written down to fair value. Application of this standard
during the years ended December 31, 1997 and 1996 did not result in
an impairment loss.
- 27 -
<PAGE>
1. Significant Accounting Policies - Continued
-------------------------------------------
J) Rental Income and Capitalized Leasing Costs
-------------------------------------------
The lease agreement at the commercial property is structured to
include scheduled and specified rent increases over the lease term.
For financial reporting purposes, the income from this lease is
being recognized on a straight-line basis over the lease term.
Accrued income connected with this lease is included in accounts
receivable and totaled $3,833 at December 31, 1996. There was no
accrued income connected with this lease in 1997 due to the renewal
lease having no scheduled and specified rent increases. All
commissions paid to commercial property leasing agents are deferred
and amortized on a straight-line basis over the applicable lease
term. In addition, certain other costs associated with the initial
leasing of the properties are capitalized and amortized over a
five-year period.
K) Advertising
-----------
The Partnership expenses advertising-type costs as incurred.
Advertising expense was immaterial to the Partnership during the
years ended December 31, 1997, 1996 and 1995.
L) Statements of Cash Flows
------------------------
For purposes of reporting cash flows, cash and equivalents include
cash on hand and short-term, highly liquid investments with initial
maturities of three months or less.
2. Concentration of Credit Risk
----------------------------
NTS-Properties VII, Ltd. owns and operates, through a joint venture, a
commercial property in Louisville, Kentucky. The sole tenant which
occupies 100% of the property is a business which has operations in the
Louisville area. The Partnership also owns and operates residential
properties in Louisville and Lexington, Kentucky. The apartment unit is
generally the principal residence of the tenant.
3. Investment in Blankenbaker Business Center Joint Venture
--------------------------------------------------------
On December 28, 1990, the Partnership entered into a Joint Venture
Agreement with NTS-Properties Plus Ltd., an affiliate of the General
Partner of the Partnership, to complete the development of Blankenbaker
Business Center 1A, a business center located in Louisville, Kentucky.
NTS-Properties Plus Ltd. contributed Blankenbaker Business Center 1A
together with improvements and personal property (Real Property) to the
capital of the Joint Venture, subject to mortgage indebtedness in the
amount of $4,715,000. The agreed upon net fair market value of NTS-
Properties Plus Ltd.'s capital contribution was $1,700,000, being the
appraised value of the Real Property ($6,415,000) reduced by the
$4,715,000 mortgage. The Partnership contributed $450,000 which was used
for additional tenant improvements to the Real Property and made a
capital contribution to the Joint Venture of $325,000 to purchase a 2.49
acre parking lot that was leased from an affiliate of the general partner
as described in NTS-Properties Plus Ltd.'s Prospectus. NTS- Properties
Plus Ltd. transferred to the Joint Venture its option to purchase the
parking lot, and the Joint Venture exercised the option.
The use of the parking lot is a provision of the tenant's lease agreement
with the business center. By purchasing the parking lot, the Joint
Venture's annual operating expenses were reduced approximately $35,000.
The purchase price of the parking lot was determined by an independent
appraisal.
- 28 -
<PAGE>
3. Investment in Blankenbaker Business Center Joint Venture - Continued
--------------------------------------------------------------------
On August 16, 1994, the Blankenbaker Business Center Joint Venture
amended its joint venture agreement to admit NTS-Properties IV (an
affiliate of the General Partner of the Partnership) to the Joint
Venture. In accordance with the Joint Venture Agreement Amendment,
NTS-Properties IV contributed $1,100,000 and the Partnership contributed
$500,000. The need for additional capital by the Joint Venture was a
result of the lease renewal and expansion which was signed April 28, 1994
between the Joint Venture and Prudential Service Bureau, Inc.
("Prudential"). The lease expanded Prudential's leased space by
approximately 15,000 square feet and extended its lease term through July
2005. Approximately 12,000 square feet of the expansion was into new
space which had to be constructed on the second level of the existing
business center. With this expansion, Prudential occupied 100% of the
business center (approximately 101,000 square feet - ground and second
floor). The tenant finish and leasing costs connected with the lease
renewal and expansion were approximately $1,400,000.
In order to calculate the revised joint venture percentage interests, the
assets of the Joint Venture were revalued in connection with the
admission of NTS-Properties IV as a joint venture partner and the
additional capital contributions. The value of the Joint Venture's assets
immediately prior to the additional capital contributions was $6,764,322
and its outstanding debt was $4,650,042, with net equity being
$2,114,280. The difference between the value of the Joint Venture's
assets and the value at which they were carried on the books of the Joint
Venture has been allocated to the Partnership and NTS- Properties Plus
Ltd. in determining each Joint Venture partner's percentage interest.
The Partnership's interest in the Joint Venture remained at 31%. NTS-
Properties Plus Ltd.'s interest in the Joint Venture decreased from 69%
to 39% as a result of the capital contributions by NTS-Properties IV and
the Partnership. NTS-Properties IV obtained a 30% interest in the Joint
Venture as a result of its capital contribution.
Net income or loss is to be allocated based on the respective
contribution of each partnership as of the end of each calendar quarter.
The Partnership's ownership share was 31% at December 31, 1997. The
Partnership's share of the joint venture's operating loss was $54,844
(1997), $49,151 (1996) and $63,590 (1995).
4. Interest Repurchase Reserve
---------------------------
As of December 31, 1995, the Partnership had established an Interest
Repurchase Reserve in the amount of $127,653 pursuant to Section 16.4 of
the Partnership's Amended and Restated Agreement of Limited Partnership.
Under Section 16.4, limited partners may request the Partnership to
repurchase their respective interests (Units) in the Partnership. On May
24, 1996, the Partnership elected to fund an additional amount of
$121,270 to the Interest Repurchase Reserve. With these funds, the
Partnership would be able to repurchase and retire up to 62,230 Units at
a price of $4.00 per Unit. Repurchased Units will be retired by the
Partnership, thus increasing the share of ownership of each remaining
investor. Through December 16, 1997, the Partnership had repurchased a
total of 40,047 Units for $160,188. As of December 17, 1997 the
Partnership has elected to fund an additional amount of $38,918 to its
Interest Repurchase Reserve. This additional funding brings the Interest
Repurchase Reserve to $127,653. With this funding, the Partnership will
be able to repurchase up to 21,275 Units at a currently contemplated
price of $6.00 per Unit. The Partnership notified the limited partners of
the additional funding to the Interest
- 29 -
<PAGE>
4. Interest Repurchase Reserve - Continued
---------------------------------------
Repurchase Reserve and the opportunity to request that the Partnership
repurchase Units at the established price by letter in December 1997. The
Interest Repurchase Reserve was funded from cash reserves. 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. The amount remaining in the Interest
Repurchase Reserve at December 31, 1997 was $127,653.
5. Land, Buildings and Amenities
-----------------------------
The following schedule provides an analysis of the Partnership's
investment in property held for lease as of December 31:
1997 1996
----------- -----------
Land and improvements $ 3,775,739 $ 3,775,739
Buildings and improvements 11,666,627 11,684,485
---------- ----------
15,442,366 15,460,224
Less accumulated depreciation 5,080,580 4,581,248
---------- ----------
$10,361,786 $10,878,976
========== ==========
6. Mortgages Payable
-----------------
Mortgages payable as of December 31 consist of the following:
1997 1996
----------- -----------
Mortgage payable to an insurance
company, bearing interest at a fixed
rate of 7.37%, due October 15, 2012,
secured by land and buildings $ 4,091,369 $ --
Mortgage payable to an insurance
company, bearing interest at a fixed
are of 8.5%, due November 15, 2005,
secured by land and buildings 1,212,578 1,315,663
Mortgage payable to an insurance
company, bearing interest at a fixed
rate of 8.375%, due October 5, 2002,
secured by land and buildings -- 3,091,363
Mortgage payable to an insurance
company, bearing interest at a fixed
rate of 8.375%, due October 5, 2002,
secured by land and buildings -- 951,189
---------- ----------
$ 5,303,947 $ 5,358,215
========== ==========
(Continued next page)
- 30 -
<PAGE>
6. Mortgages Payable - Continued
-----------------------------
The mortgages are payable in monthly aggregate installments of $52,827
which includes principal, interest and property taxes.
Scheduled maturities of debt are as follows:
For the Years Ended December 31, Amount
-------------------------------- ----------
1998 $ 215,735
1999 233,546
2000 252,012
2001 273,663
2002 296,285
Thereafter 4,032,706
----------
$5,303,947
==========
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 $4,800,000.
The 1997 write-off of unamortized loan costs (recorded as an
extraordinary item) relates to loan costs associated with the Park Place
Apartments Phase II's notes payable. The unamortized loan costs were
expensed due to the fact that the notes were retired in 1997 prior to
their maturity (October 5, 2002) as a result of permanent financings
obtained by the Partnership in October 1997.
7. Rental Income Under Operating Leases
------------------------------------
The following is a schedule of minimum future rental income on
noncancellable operating leases as of December 31, 1997:
For the Years Ended December 31, Amount
-------------------------------- ----------
1998 $ 235,924
1999 235,924
2000 235,924
2001 235,924
2002 235,924
Thereafter 609,469
----------
$1,789,089
==========
8. Related Party Transactions
--------------------------
Property management fees of $106,264 (1997), $104,248 (1996) and $101,312
(1995) were paid to NTS Development Company, an affiliate of the General
Partner. The fee is equal to 5% of gross revenues from the residential
properties and 6% of gross revenues from the commercial property pursuant
to an agreement with the Partnership. Also permitted by the partnership
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 $3,040 (1997) and $3,337 (1995) as repair
and maintenance fees and has capitalized these costs as a part of land,
buildings and amenities. There was no similar fee incurred during 1996.
The Partnership also was charged the following amounts from affiliates of
the General Partner for the years ended December 31, 1997, 1996 and 1995.
These charges include items which have been expensed as operating
expenses - affiliated or as professional and administrative expenses -
affiliated and items which have been capitalized as other assets or as
land, buildings and amenities.
- 31 -
<PAGE>
8. Related Party Transactions - Continued
--------------------------------------
These charges were as follows:
1997 1996 1995
-------- -------- --------
Administrative $105,043 $133,746 $117,792
Property manager 163,078 148,857 154,872
Leasing 39,927 39,363 45,332
Other 2,175 2,078 1,671
-------- -------- --------
$310,223 $324,044 $319,667
======== ======== ========
- 32 -
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure
--------------------
None.
- 33 -
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
Because the Partnership is a limited partnership and not a corporation, it has
no directors or officers as such. Management of the Partnership is the
responsibility of the General Partner, NTS-Properties Associates VII. The
Partnership has entered into a management contract with NTS Development Company,
an affiliate of the General Partner, to provide property management services.
The General Partners of NTS-Properties Associates VII are as follows:
J. D. Nichols
- -------------
Mr. Nichols (age 56) is the managing General Partner of NTS-Properties
Associates VII and is Chairman of the Board of NTS Corporation (since 1985) and
NTS Development Company (since 1977).
Richard L. Good
- ---------------
Mr. Good (age 58), President and Chief Operating Officer of NTS Corporation,
President of NTS Development Company and Chairman of the Board of NTS
Securities, Inc., joined the Manager in January 1985. From 1981 through 1984, he
was President of Jacques-Miller, Inc., a real estate syndication, property
management and financial planning firm in Nashville, Tennessee.
NTS Capital Corporation
- -----------------------
NTS Capital Corporation is a Kentucky corporation formed in October 1979. J.D.
Nichols is Chairman of the Board and the sole director of NTS Capital
Corporation.
The Manager of the Partnership's properties is NTS Development Company, the
executive officers and/or directors of which are Messrs. J.D. Nichols, Richard
L. Good, Brian F. Lavin and John W. Hampton.
Brian F. Lavin
- --------------
Mr. Lavin (age 44) serves as Executive Vice President of NTS Development Company
and President of the Company's Income Properties. As such, Mr. Lavin is
responsible for all NTS commercial real estate development, land acquisitions
and oversees the management of all commercial office buildings, business centers
and multi-family residential communities. Prior to joining NTS, Mr. Lavin served
as President of the Residential Division of Paragon Group, Inc., and as a Vice
President of Paragon's Midwest Division. In this capacity, he directed the
development, marketing, leasing and management operations for the firms
expanding portfolios. Mr. Lavin attended the University of Missouri where he
received his Bachelor's Degree in Business Administration. He has served as a
Director of the Louisville Apartment Association. He is a licensed Kentucky Real
Estate Broker and Certified Property Manager. Mr. Lavin is a member of the
Institute of Real Estate Management, and council member of the Urban Land
Institute. He currently serves on the University of Louisville Board of
Overseers and is on the Board of Directors of the National Multi-Housing Council
and the Louisville Science Center.
John W. Hampton
- ---------------
Mr. Hampton (age 48) is Senior Vice President of NTS Development Company with
responsibility for all accounting operations. Before joining the Manager in
March 1991, Mr. Hampton was Vice President - Finance and Chief Financial Officer
of the Sturgeon-Thornton-Marrett Development Company in Louisville, Kentucky for
nine years. Prior to that he was with Alexander Grant & Company CPA's. Mr.
Hampton is a Certified Public Accountant and a graduate of the University of
Louisville with a Bachelor of Science degree in Commerce. He is a member of the
American Institute of CPA's and the Kentucky Society of CPA's.
- 34 -
<PAGE>
Item 11. Management Remuneration and Transactions
----------------------------------------
The officers and/or directors of the corporate General Partner receive no direct
remuneration in such capacities. The partnership is required to pay a property
management fee based on gross rentals to NTS Development Company. The
Partnership is also required to pay to NTS Development Company a repair and
maintenance fee on costs related to specific projects. In addition, NTS
Development Company provides certain other services to the Partnership. See Note
8 to the financial statements which sets forth transactions with affiliates of
the General Partner for the years ended December 31, 1997, 1996 and 1995.
The General Partner is entitled to receive cash distributions and allocations of
profits and losses from the Partnership. See Note 1C to the financial statements
which describes the methods used to determine income allocations and cash
distributions.
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
The General Partner is NTS-Properties Associates VII, a Kentucky Limited
Partnership, 10172 Linn Station Road, Louisville, Kentucky 40223. The partners
of the General Partner and their total respective interests in NTS-Properties
Associates VII are as follows:
J. D. Nichols 31.05%
10172 Linn Station Road
Louisville, Kentucky 40223
Richard L. Good 10.00%
10172 Linn Station Road
Louisville, Kentucky 40223
NTS Capital Corporation 12.00%
10172 Linn Station Road
Louisville, Kentucky 40223
The remaining 46.95% interests are owned by various limited partners of NTS-
Properties Associates VII.
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
Property management fees of $106,264 (1997), $104,248 (1996) and $101,312 (1995)
were paid to NTS Development Company, an affiliate of the General Partner. The
fee is equal to 5% of gross revenues from residential properties and 6% of gross
revenues from the commercial property pursuant to an agreement with the
Partnership. Also permitted by the partnership 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
$3,040 (1997) and $3,337 (1995) as a repair and maintenance fee and has
capitalized this cost as a part of land, buildings and amenities. There was no
similar fee incurred during 1996. The Partnership was also charged the following
amounts from NTS Development Company for the years ended December 31, 1997, 1996
and 1995. These charges include items which have been expensed as operating
expenses - affiliated or as professional and administrative expenses -
affiliated and items which have been capitalized as other assets or as land,
buildings and amenities.
- 35 -
<PAGE>
Item 13. Certain Relationships and Related Transactions - Continued
----------------------------------------------------------
These charges were as follows:
1997 1996 1995
-------- -------- --------
Administrative $105,043 $133,746 $117,792
Property manager 163,078 148,857 154,872
Leasing 39,927 39,363 45,332
Other 2,175 2,078 1,671
-------- -------- --------
$310,223 $324,044 $319,667
======== ======== ========
There are no other agreements or relationships between the Partnership, the
General Partner and its affiliates than those previously discussed.
- 36 -
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
1. Financial statements
The financial statements for the period through December 31, 1997,
together with the report of Arthur Andersen LLP dated March 6 1998, appear in
Item 8.
2. Financial statement schedules
Schedules: Page No.
--------- --------
III-Real Estate and Accumulated Depreciation 38-39
All other schedules have been omitted because they are not applicable,
or not required, or because the required information is included in the
financial statements or notes thereto.
3. Exhibits
Exhibit No. Page No.
----------- --------
3. Amended and Restated Agreement and *
Certificate of Limited Partnership of
NTS-Properties VII, Ltd., a Florida
limited partnership
10. Property Management and Construction *
Agreement between NTS Development
Company and NTS-Properties VII, Ltd.
27. Financial Data Schedule Included
herewith
* Incorporated by reference to documents filed with the
Securities and Exchange Commission in connection with the
filing of the Registration Statements on Form S-11 on May 15,
1987 (effective October 29, 1987) under Commission File No.
33-14308.
4. Reports on Form 8-K
Form 8-K dated December 18, 1997 was filed to report in Item 5 that the
partnership has elected to fund an additional amount of $38,918 to its
Interest Repurchase Reserve.
- 37 -
<PAGE>
<TABLE>
NTS-PROPERTIES VII, LTD.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1997
<CAPTION>
Park Place Blankenbaker
The Park at Apartments Business
the Willows Phase II Center 1A Total
----------- -------- --------- -----
<S> <C> <C> <C> <C>
Encumbrances None (A) (A)
Initial cost to partnership:
Land $ 457,048 $ 2,616,693 $ 606,927 $ 3,680,668
Buildings and improvements 2,091,968 7,692,119 1,679,081 11,463,168
Cost capitalized subsequent to acquisition:
Improvements (10,913) 4,570 309,098 302,755
Other (B) -- -- (4,225) (4,225)
Gross amount at which carried December 31, 1997 (C):
Land $ 457,048 $ 2,618,162 $ 700,529 $ 3,775,739
Buildings and improvements 2,081,055 7,695,220 1,890,352 11,666,627
------------ ------------ ------------ ------------
Total $ 2,538,103 $ 10,313,382 $ 2,590,881 $ 15,442,366
============ ============ ============ ============
Accumulated depreciation $ 865,797 $ 3,133,136 $ 1,081,647 $ 5,080,580
============ ============ ============ ============
Date of construction N/A 02/90 N/A
Date Acquired 05/88 N/A 12/90
Life at which depreciation in
latest income statement is
computed (D) (D) (D)
<FN>
(A) First mortgage held by an insurance company.
(B) Represents NTS-Properties VII, Ltd.'s decreased interest in Blankenbaker
Business Center 1A as a result of capital contributions made by the
Partnership and NTS-Properties IV to the Blankenbaker Business Center
Joint Venture in 1994.
(C) Aggregate cost of real estate for tax purposes is $13,673,759.
(D) Depreciation is computed using the straight-line method over the
estimated useful lives of the assets which are 10-30 years for land
improvements, 5-30 years for buildings and improvements and 5-30 years
for amenities.
</FN>
</TABLE>
- 38 -
<PAGE>
<TABLE>
NTS-PROPERTIES VII, LTD.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<CAPTION>
Real Accumulated
Estate Depreciation
------------ ------------
<S> <C> <C>
Balances at December 31, 1994 $ 15,426,780 $ 3,524,282
Additions during period:
Improvements (a) 62,291 --
Depreciation (b) -- 552,991
Deductions during period:
Retirements (32,704) (26,503)
------------ ------------
Balances at December 31, 1995 15,456,367 4,050,770
Additions during period:
Improvements (a) 3,857 --
Depreciation (b) -- 530,478
------------ ------------
Balances at December 31, 1996 15,460,224 4,581,248
Additions during period:
Improvements (a) 8,398 --
Depreciation (b) -- 507,791
Deductions during period:
Retirements (26,256) (8,459)
------------ ------------
Balances at December 31, 1997 $ 15,442,366 $ 5,080,580
============ ============
<FN>
(a) The additions to real estate on this schedule will differ from the
expenditures for land, buildings and amenities on the Statements
of Cash Flows as a result of minor changes in the Partnership's
joint venture investment ownership percentages. Changes that may
occur in the ownership percentages are less than one percent.
(b) The additions charged to accumulated depreciation on this schedule
will differ from the depreciation and amortization on the
Statements of Cash Flows due to the amortization of loan costs.
</FN>
</TABLE>
- 39 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, NTS-Properties VII, Ltd. has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
NTS-PROPERTIES VII, LTD.
(Registrant)
BY: NTS-Properties Associates VII,
General Partner
BY: NTS Capital Corporation,
General Partner
/s/ John W. Hampton
John W. Hampton
Senior Vice President
Date: March 23, 1998
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
Form 10-K has been signed below by the following persons on behalf of the
registrant in their capacities and on the date indicated above.
Signature Title
--------- -----
/s/ J. D. Nichols General Partner of NTS-Properties
J. D. Nichols Associates VII and Chairman of the
Board and Sole Director of NTS
Capital Corporation
/s/ Richard L. Good General Partner of NTS-Properties
Richard L. Good Associates VII and President of
NTS Capital Corporation
/s/ John W. Hampton Senior Vice President of NTS Capital
John W. Hampton Corporation
The Partnership is a limited partnership and no proxy material has been sent to
the limited partners.
- 40 -
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF DECEMBER 31, 1997 AND FROM THE STATEMENT OF OPERATIONS FOR THE NINE
MONTHS ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 341,350
<SECURITIES> 338,129
<RECEIVABLES> 858
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 10,361,786
<DEPRECIATION> 5,080,580
<TOTAL-ASSETS> 11,179,145
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 5,303,947
0
0
<COMMON> 0
<OTHER-SE> 5,732,845
<TOTAL-LIABILITY-AND-EQUITY> 11,179,145
<SALES> 2,064,236
<TOTAL-REVENUES> 2,093,752
<CGS> 0
<TOTAL-COSTS> 1,428,831
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 434,680
<INCOME-PRETAX> 92,271
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 27,784
<CHANGES> 0
<NET-INCOME> 64,487
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>THE PARTNERSHIP HAS AN UNCLASSIFIED BALANCE SHEET; THEREFORE, THE VALUE IS $0.
</FN>
</TABLE>
