UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark one)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________to _________
Commission File Number 0-17589
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 Identification No.)
incorporation or organization)
10172 Linn Station Road
Louisville, Kentucky 40223
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code (502) 426-4800
Not Applicable
Former name, former address and former fiscal year,
if changed since last report
Indicate by check mark whether the registrant (l) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
Exhibit Index: See page 14
Total Pages: 15
<PAGE>
TABLE OF CONTENTS
Pages
PART I
Item 1. Financial Statements
Balance Sheets and Statement of Partners' Equity
as of September 30, 1998 and December 31, 1997 3
Statements of Operations
For the three months and nine months ended
September 30, 1998 and 1997 4
Statements of Cash Flows
For the three months and nine months ended
September 30, 1998 and 1997
Notes To Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-13
PART II
Item 3. Defaults Upon Senior Securities 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
- 2 -
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
NTS-PROPERTIES VII, LTD.
BALANCE SHEETS AND STATEMENT OF PARTNERS' EQUITY
<CAPTION>
As of As of
September 30, 1998 December 31, 1997*
------------------ -----------------
ASSETS
<S> <C> <C>
Cash and equivalents $ 518,825 $ 164,714
Cash and equivalents - restricted 59,958 176,636
Investment securities -- 338,129
Accounts receivable 1,593 858
Land, buildings and amenities, net 10,106,119 10,361,786
Other assets 137,093 137,022
----------- -----------
$10,823,588 $11,179,145
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Mortgages payable $ 5,143,957 $ 5,303,947
Accounts payable 55,327 38,815
Distributions payable 29,078 60,426
Security deposits 31,275 36,325
Other liabilities 82,315 6,787
----------- -----------
5,341,952 5,446,300
Partners' equity 5,481,636 5,732,845
----------- -----------
$10,823,588 $11,179,145
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Limited General
Partners Partner Total
-------- ------- -----
<S> <C> <C> <C>
PARTNERS' EQUITY
Capital contributions, net of
offering costs $ 10,935,700 $ 100 $ 10,935,800
Net income (loss) - prior years (2,615,475) (26,418) (2,641,893)
Net income - current year 358 4 362
Cash distributions declared to
date (2,492,377) (25,176) (2,517,553)
Repurchase of limited
partnership Units (295,080) -- (295,080)
------------ ------------ ------------
Balances at September 30, 1998 $ 5,533,126 $ (51,490) $ 5,481,636
============ ============ ============
<FN>
* Reference is made to the audited financial statements in the Form 10-K as
filed with the Commission on March 30, 1998.
</FN>
</TABLE>
- 3 -
<PAGE>
<TABLE>
NTS-PROPERTIES VII, LTD.
STATEMENTS OF OPERATIONS
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1998 1997 1998 1997
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Rental income $ 494,661 $ 531,525 $1,450,721 $1,518,297
Interest and other income 7,342 4,887 20,543 14,314
---------- ---------- ---------- ----------
502,003 536,412 1,471,264 1,532,611
EXPENSES:
Operating expenses 120,998 122,066 346,890 352,238
Operating expenses - affiliated 67,113 58,780 192,275 173,161
Write-off of unamortized
land improvements and amenities -- -- 10,743 --
Interest expense 99,540 110,605 297,781 333,978
Management fees 25,656 27,398 75,648 78,445
Real estate taxes 24,875 24,894 75,803 74,682
Professional and administrative
expenses 15,032 16,913 46,423 45,829
Professional and administrative
expenses - affiliated 20,610 19,931 63,990 60,795
Depreciation and amortization 119,656 128,889 361,349 386,866
---------- ---------- ---------- ----------
493,480 509,476 1,470,902 1,505,994
---------- ---------- ---------- ----------
Net income (loss) $ 8,523 $ 26,936 $ 362 $ 26,617
========== ========== ========== ==========
Net income (loss) allocated to
the limited partners $ 8,438 $ 26,667 $ 358 $ 26,351
========== ========== ========== ==========
Net income (loss) per limited
partnership unit $ 0.01 $ 0.04 $ 0.00 $ 0.04
========== ========== ========== ==========
Weighted average number of units 575,736 598,218 583,606 598,630
========== ========== ========== ==========
</TABLE>
- 4 -
<PAGE>
<TABLE>
NTS-PROPERTIES VII, LTD.
STATEMENTS OF CASH FLOWS
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 8,523 $ 26,936 $ 362 $ 26,617
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Accrued interest on investment
securities -- -- 1,737 --
Write-off of unamortized land
improvements and amenities -- -- 10,743 --
Depreciation and amortization 119,656 128,889 361,349 386,866
Changes in assets and liabilities
Cash and equivalents - restricted (4,465) (19,700) (10,972) (64,141)
Accounts receivable 1,867 895 (735) 12,706
Other assets 9,367 9,301 8,887 1,226
Accounts payable (19,700) 9,088 16,512 (6,965)
Security deposits (875) (1,700) (5,050) (60)
Other liabilities 24,875 51,130 75,528 100,914
--------- --------- --------- ---------
Net cash provided by operating
activities 139,248 204,839 458,361 457,163
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to land, buildings and
amenities (22,586) (1,578) (113,083) (7,166)
Purchase of investment securities -- (75,000) (200,000) (75,000)
Maturity of investment securities -- -- 536,392 --
--------- --------- --------- ---------
Net cash provided by (used in)
investing activities (22,586) (76,578) 223,309 (82,166)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash and equivalents - restricted -- -- 127,650 8,688
Principal payments on mortgages
payable (53,853) (41,564) (159,990) (122,111)
Cash distributions (29,077) (60,426) (148,027) (181,498)
Repurchase of limited partnership
Units -- -- (134,892) (8,688)
Payment of loan costs (7,128) (62,442) (12,300) (62,442)
--------- --------- --------- ---------
Net cash used in financing
activities (90,058) (164,432) (327,559) (366,051)
--------- --------- --------- ---------
Net increase in cash and equivalents 26,604 (36,171) 354,111 8,946
CASH AND EQUIVALENTS, beginning of
period 492,221 323,737 164,714 278,620
--------- --------- --------- ---------
CASH AND EQUIVALENTS, end of period $ 518,825 $ 287,566 $ 518,825 $ 287,566
========= ========= ========= =========
Interest paid on a cash basis $ 99,288 $ 110,605 $ 299,432 $ 334,396
========= ========= ========= =========
</TABLE>
- 5 -
<PAGE>
NTS-PROPERTIES VII, LTD.
NOTES TO FINANCIAL STATEMENTS
The financial statements included herein should be read in conjunction with the
Partnership's 1997 Annual Report. In the opinion of the General Partner, all
adjustments (only consisting of normal recurring accruals) necessary for a fair
presentation have been made to the accompanying financial statements for the
three months and nine months ended September 30, 1998 and 1997.
1. Use of Estimates in the Preparation of Financial Statements
-----------------------------------------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period.
Actual results could differ from those estimates.
2. 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. 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.
4. Investment Securities
---------------------
Investment securities represent investments in Certificates of Deposit with
initial maturities of greater than three months. The Partnership intends to
hold the securities until maturity. During 1997 and 1998, the Partnership
sold no investment securities. At September 30, 1998 the Partnership held
no investment securities with initial maturities greater than three months.
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 $ 112,908
Certificate of Deposit 100,543 03/05/98 101,492
Certificate of Deposit 125,238 03/30/98 127,336
---------- ---------
$ 338,129 $ 341,736
========== =========
- 6 -
<PAGE>
5. Mortgages Payable
-----------------
Mortgages payable consist of the following:
September 30, December 31,
1998 1997
---- ----
Mortgage payable to an insurance
company, bearing interest at a fixed
rate of 7.37%, due October 15, 2012,
secured by land and buildings $ 4,014,628 $ 4,091,369
Mortgage payable to an insurance
company, bearing interest at a fixed
rate of 8.5%, due November 15, 2005,
secured by land and building 1,129,329 1,212,578
---------- ----------
$ 5,143,957 $ 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 $6,200,000.
6. Interest Repurchase Reserve
---------------------------
Pursuant to Section 16.4 of the Partnership's Amended and Restated
Agreement of Limited Partnership, the Partnership has established an
Interest Repurchase Reserve. On May 26, 1998, the Partnership elected to
fund $6,000 to its Interest Repurchase Reserve and on June 2, 1998, the
Partnership funded an additional $1,242 to the reserve. With these
fundings, the Partnership repurchased 1,207 Units at a price of $6 per
Unit. From December 1995 to September 30, 1998, the Partnership has
repurchased a total of 62,529 Units for $295,080. 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 Units. Repurchased Units will be retired by the Partnership, thus
increasing the percentage of ownership of each remaining limited partner
investor. The Interest Repurchase Reserve was funded from cash reserves.
The balance in the reserve at September 30, 1998 was $3.
7. Related Party Transactions
--------------------------
Property management fees of $75,648 and $78,445 were paid to NTS
Development Company, an affiliate of the General Partner, during the nine
months ended September 30, 1998 and 1997, respectively. The fee is paid
monthly in an amount equal to 5% of the gross revenues from the residential
properties and 6% of the gross revenues from the commercial property
pursuant to an agreement with the Partnership. The Partnership also was
charged the following amounts from NTS Development Company for the nine
months ended September 30, 1998 and 1997. These charges include items which
have been expensed as operating expenses - affiliated or professional and
administrative expenses - affiliated and items which have been capitalized
as other assets or as land, buildings and amenities.
1998 1997
-------- --------
Leasing $ 36,098 $ 30,044
Administrative 81,786 80,049
Property manager 144,766 122,775
Other 1,137 1,088
-------- --------
$263,787 $233,956
======== ========
- 7 -
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- ------- -----------------------------------------------------------------------
OF OPERATIONS
-------------
The management's discussion and analysis of financial condition and results of
operations included herein should be read in conjunction with the Partnership's
1997 Annual Report.
Results of Operations
- ---------------------
The occupancy levels at the Partnership's properties as of September 30 were as
follows:
1998 1997
---- ----
Wholly-owned Properties
- -----------------------
The Park at the Willows 88% 94%
Park Place Apartments Phase II 86% 95%
Property Owned in Joint Venture with
NTS-Properties IV and NTS-Properties
Plus Ltd. (Ownership % at September
30, 1998)
- -----------------------------------
Blankenbaker Business Center 1A (31%) 100% 100%
Rental and other income generated by the Partnership's properties for the three
months and nine months ended September 30, 1998 and 1997 was as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1998 1997 1998 1997
------ ------ ------ ------
Wholly-owned Properties
The Park at the Willows $ 93,809 $ 88,877 $ 276,832 $ 243,812
Park Place Apartments Phase II $ 329,747 $ 369,994 $ 961,845 $1,057,099
Property owned in Joint Venture
with NTS-Properties IV and NTS-
Properties Plus Ltd. (Ownership %
at September 30, 1998)
Blankenbaker Business Center 1A $ 74,564 $ 73,478 $ 218,093 $ 220,461
(31%)(1)
(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 the nine months
ended September 30, 1998 and 1997.
The Park at the Willows' occupancy decreased from 94% at September 30, 1997 to
88% at September 30, 1998. Average occupancy for the nine month period ended
September 30 increased from 90% in 1997 to 91% in 1998. Average occupancy for
the three month period ended September 30 decreased from 94% in 1997 to 90% in
1998. Occupancy at residential properties fluctuates on a continuous basis.
Period ending occupancy percentages represent occupancy only on a specific date;
therefore, it is more meaningful to look at average occupancy percentages which
are more representative of the entire period's results. Large changes in
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
- 8 -
<PAGE>
Results of Operations - Continued
- ---------------------------------
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. The increase in rental and
other income at The Park at the Willows for the three months and the nine months
ended September 30, 1998 as compared to the same periods in 1997 is due to an
increase in income from fully furnished units. 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 occupied has increased. The increase in rental and other
income for the nine month period is also a result of the increase in average
occupancy.
Park Place Apartments Phase II's occupancy decreased from 95% at September 30,
1997 to 86% at September 30, 1998. Average occupancy for the nine month period
ended September 30 at Park Place Apartments Phase II decreased from 92% in 1997
to 84% in 1998. Average occupancy for the three month period ended September 30
decreased from 96% in 1997 to 85% in 1998. In the opinion of the General Partner
of the Partnership, the decrease in occupancy at Park Place Apartments Phase II
is only a temporary fluctuation and does not represent a downward occupancy
trend. Rental and other income at Park Place Apartments Phase II decreased for
the three months and the nine months ended September 30, 1998 as compared to the
same periods in 1997 as a result of the decrease in average occupancy.
Sykes HealthPlan Service Bureau, Inc. (formerly known as Prudential Service
Bureau, Inc.) has leased 100% of Blankenbaker Business Center 1A through July
2005. In addition to monthly rent payments, Sykes 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 for the three months and nine months ended September 30, 1998 as
compared to the same periods in 1997.
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 of
Item 2 for a discussion regarding the cash requirements of the Partnership's
current debt financings.
Interest and other income includes interest income from short-term investments
made by the Partnership with cash reserves. The increase in interest income for
the three months and nine months ended September 30, 1998 as compared to the
same periods in 1997 is a result of increased cash reserves being available for
investment.
Operating expenses for the three months and nine months ended September 30, 1998
as compared to the same periods in 1997 remained fairly constant.
Operating expenses - affiliated increased for the three months and the nine
months ended September 30, 1998 as compared to the same periods in 1997 as a
result of increased property management costs. Operating expenses - affiliated
are expenses incurred for services performed by employees of NTS Development
Company, an affiliate of the General Partner.
The write-off of unamortized land improvements and amenities can be attributed
to Park Place Apartments Phase II. The write-off is the result of property
renovations. The write-off represents the cost of unamortized assets which were
replaced as a result of the renovations.
The decrease in interest expense for the three months and the nine months ended
September 30, 1998 as compared to the same periods in 1997 is the result of a
lower interest rate on the new debt obligation obtained October 1997 (7.37%
versus 8.375%) and a 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.
- 9 -
<PAGE>
Results of Operations - Continued
- ---------------------------------
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, professional and administrative expenses and professional and
administrative expenses - affiliated remained fairly constant for the three
month and nine month periods ended September 30, 1998 as compared to the same
periods in 1997. Professional and administrative expenses - affiliated are
expenses incurred for services performed by employees of NTS Development
Company, an affiliate of the General Partner.
Depreciation and amortization decreased for the three months and nine months
ended September 30, 1998 as compared to the same periods in 1997 as a result of
a portion of the assets with shorter lives at Park Place Apartments Phase II and
Blankenbaker Business Center 1A 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.
Liquidity and Capital Resources
- -------------------------------
Cash provided by operations was $458,361 and $457,163 for the nine months ended
September 30, 1998 and 1997, respectively. These funds in conjunction with cash
on hand were used to make a 1.3% (annualized) cash distribution of $116,680
(1998) and a 2% (annualized) cash distribution of $181,279 (1997). 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 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. Cash
reserves (which are unrestricted cash and equivalents and investment securities
as shown on the Partnership's balance sheet as of September 30) were $518,825
and $362,566 at September 30, 1998 and 1997, respectively.
As of September 30, 1998, the Partnership had a mortgage payable with an
insurance company in the amount of $4,014,286. The mortgage bears interest at a
fixed rate of 7.37%, matures October 15, 2012 and is secured by the land,
buildings and amenities of Park Place Apartments Phase II. Current monthly
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 September 30, 1998, 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 $3,603,474. The mortgage is recorded as a
liability of the Joint Venture and is secured by the assets of the Joint
Venture. The Partnership's proportionate interest in the mortgage at September
30, 1998 is $1,129,329. 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.
- 10 -
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
Pursuant to Section 16.4 of the Partnership's Amended and Restated Agreement of
Limited Partnership, the Partnership has established an Interest Repurchase
Reserve. On May 26, 1998, the Partnership elected to fund $6,000 to its Interest
Repurchase Reserve and on June 2, 1998, the Partnership funded an additional
$1,242 to the reserve. With these fundings, the Partnership repurchased 1,207
Units at a price of $6 per Unit. From December 1995 to September 30, 1998, the
Partnership has repurchased a total of 62,529 Units for $295,080. 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 Units. Repurchased Units will be retired by the
Partnership, thus increasing the percentage of ownership of each remaining
limited partner investor. The Interest Repurchase Reserve was funded from cash
reserves. The balance in the reserve at September 30, 1998 was $3.
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 are 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 with initial maturities of
greater than three months to improve the return on its cash reserves. The
Partnership held the securities until maturity. Cash flows provided by investing
activities are a result of the maturity of these investment securities. Cash
flows used in financing activities are for cash distributions, principal
payments on mortgages payable, loan costs, and repurchases of limited
partnership Units. Cash flows provided by financing activities represents the
utilization of cash which has been reserved by the Partnership for the
repurchase of limited partnership Units. The Partnership does not expect any
material changes in the mix and relative cost of capital resources from those in
1997.
During the next twelve months, the Partnership anticipates a demand on future
liquidity as a result of a planned renovation to the apartment community's
clubhouse. At this time, the cost and extent of the renovation has not been
determined. The clubhouse is 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 clubhouse is
shared proportionately by each phase.
All divisions of NTS, the General Partner of the Partnership, are reviewing the
effort necessary to prepare our information systems (IT) and non-information
technology with embedded technology (ET) for the Year 2000. The information
technology solutions have been addressed separate for the Year 2000 since the
company saw the need to move to more advanced management and accounting systems
made available by new technology and software developments during the decade of
the 1990's.
The PILOT software system, purchased in the early 1990's, needed to be replaced
by a windows based network system both for our headquarters functions and other
locations. The real estate accounting system developed, sold, and supported by
the Yardi Company of Santa Barbara, California has been selected to supercede
PILOT. The Yardi system is compatible with Year 2000 and beyond. This system is
being implemented with the help of third party consultants and should be fully
operational by the third quarter of 1999. Our system for multi-family apartment
locations was converted to GEAC's Power Site System earlier in 1998 and is Year
2000 compliant.
The few remaining systems not addressed by these conversions are being modified
by our in-house staff of programmers. The Hewlett Packard 3000 system, used for
PILOT and custom applications, was purchased in 1997 and will be part of our new
network. It will be retained as long as necessary to assure smooth operations
and has been upgrades to meet Year 2000 requirements.
- 11 -
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
All risks identified with information technology are believed to be addressed by
these plans.
The cost of these advances in our systems technology is not all attributable to
the Year 2000 issue since we had already identified the need to move to a
network based system regardless of the Year 2000. The costs involved will be
approximately $45,000 over 1998 and 1999. These costs include hardware,
software, internal staff and outside consultants.
NTS property management staff has been surveying our vendors to evaluate
embedded technology in our alarm systems, HVAC controls, telephone systems and
other computer associated facilities. In a few cases, equipment is being
replaced. In some cases circuitry is being upgraded. The cost involved is still
being evaluated. There are no known significant risks that are currently without
solutions. Management anticipates that applications involving ET will be Year
2000 compliant by the third quarter of fiscal year 1999.
We are also currently addressing the Year 2000 readiness of third parties whose
business interruption could have a material negative impact on our business. All
significant vendors and tenants have indicated that they will be compliant by
the end of 1999. Such assurances are being evaluated and documented.
Management has determined that at our current state of readiness, the need does
not presently exist for a contingency plan. We will continue to evaluate the
need for such a plan.
Despite diligent preparation, unanticipated third-party failures, more general
public infrastructure failures or failure to successfully conclude our
remediation efforts as planned could have a material adverse impact on our
results of operations, financial conditions and/or cash flows in 1999 and
beyond.
The table below presents that portion of the distributions that represent a
return of capital on a Generally Accepted Accounting Principle basis for the
nine months ended September 30, 1998 and 1997.
Net Income Cash
(Loss) Distributions Return of
Allocated Declared Capital
--------- -------- -------
Limited Partners:
1998 $ 358 $ 115,513 $ 115,155
1997 26,351 179,466 153,115
General Partner:
1998 $ 4 $ 1,167 $ 1,163
1997 266 1,813 1,547
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 2, Management's Discussion and Analysis
of Financial Condition and Results of Operations, may be considered to be
"forward-looking statements" since such statements relate to matters which have
not yet occurred. For example, phrases such as "the Partnership anticipates",
"believes" or "expects" indicate that it is possible that the event anticipated,
believed or expected may not occur. Should such event not occur, then the result
- 12 -
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
which the Partnership expected also may not occur or occur in a different
manner, which may be more or less favorable to the Partnership. The Partnership
does not undertake any obligations to publicly release the result of any
revisions to these forward-looking statements that may be made to reflect any
future events or circumstances.
Any forward-looking statements included in Management's Discussion and Analysis
of Financial Condition and Results of Operations, or elsewhere in this report,
which reflect management's best judgement based on factors known, involve risks
and uncertainties. Actual results could differ materially from those anticipated
in any forward-looking statements as a result of a number of factors, including
but not limited to those discussed below. Any forward-looking information
provided by the Partnership pursuant to the safe harbor established by recent
securities legislation should be evaluated in the context of these factors.
The Partnership's principal activity is the leasing and management of a
commercial business center and apartment complexes. If Sykes, 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.
- 13 -
<PAGE>
PART II. OTHER INFORMATION
3. Defaults Upon Senior Securities
None.
6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 27. Financial Data Schedule
(b) Reports on Form 8-K:
None.
Items 1,2,4, and 5 are not applicable and have been omitted.
- 14 -
<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/ Richard L. Good
-------------------
Richard L. Good
President
/s/ Lynda J. Wilbourn
---------------------
Lynda J. Wilbourn
Vice President
Principal Accounting Officer
Date: November 13, 1998
- 15 -
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF SEPTEMBER 30, 1998 AND FROM THE STATEMENT OF OPERATIONS FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 578,783
<SECURITIES> 0
<RECEIVABLES> 1,593
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 10,106,119
<DEPRECIATION> 0<F2>
<TOTAL-ASSETS> 10,823,588
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 5,143,957
0
0
<COMMON> 0
<OTHER-SE> 5,481,636
<TOTAL-LIABILITY-AND-EQUITY> 10,823,588
<SALES> 1,450,721
<TOTAL-REVENUES> 1,471,264
<CGS> 0
<TOTAL-COSTS> 1,173,121
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 297,781
<INCOME-PRETAX> 362
<INCOME-TAX> 0
<INCOME-CONTINUING> 362
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 362
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>THE PARTNERSHIP HAS AN UNCLASSIFIED BALANCE SHEET, THEREFORE THE VALUE IS $0.
<F2>THIS INFORMATION IS NOT DISCLOSED IN THE PARTNERSHIP'S FORM 10-Q FILING.
</FN>
</TABLE>
