UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PERSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
- --------------------------------------------------------------------------------
OR
[ ] TRANSITION REPORT PERSUANT 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 registrants 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 (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 (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES x NO_______
Exhibit Index: See page 19
Total Pages: 20
<PAGE>
TABLE OF CONTENTS
Pages
PART I
Item 1. Financial Statements
Balance Sheets and Statement of Partners' Equity
as of June 30, 1999 and December 31, 1998 3
Statements of Operations
For the three months and six months ended
June 30, 1999 and 1998 4
Statements of Cash Flows
For the six months ended June 30, 1999 and 1998 5
Notes To Financial Statements 6-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-18
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
PART II
3. Defaults upon Senior Securities 19
5. Other Information 19
6. Exhibits and Reports on Form 8-K 19
Signatures 20
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
NTS-PROPERTIES VII, LTD.
------------------------
BALANCE SHEETS AND STATEMENT OF PARTNERS' EQUITY
------------------------------------------------
<CAPTION>
As of As of
June 30, 1999 December 31, 1998*
ASSETS
<S> <C> <C>
Cash and equivalents $ 430,413 $ 398,001
Cash and equivalents - restricted 50,505 100,427
Investment securities -- --
Accounts receivable 15,380 --
Land, buildings and amenities, net 9,781,186 10,036,720
Other assets 193,451 130,828
----------- -----------
$ 10,470,935 $ 10,665,976
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Mortgages payable $ 4,973,026 $ 5,088,213
Accounts payable 48,072 57,319
Distributions payable 28,572 29,078
Security deposits 29,724 28,401
Other liabilities 64,908 41,265
----------- -----------
5,144,302 5,244,276
Partners' equity 5,326,633 5,421,700
----------- -----------
$ 10,470,935 $ 10,665,976
=========== ===========
Limited General
Partners Partner Total
PARTNERS' EQUITY
Capital contributions, net of
offering costs $ 10,935,700 $ 100 $ 10,935,800
Net income (loss) - prior years (2,645,666) (26,723) (2,672,389)
Net income - current year 21,856 221 22,077
Cash distributions declared to
date (2,577,737) (26,038) (2,603,775)
Repurchase of limited
partnership Units (355,080) -- (355,080)
------------ ------------ -----------
Balances at June 30, 1999 $ 5,379,073 $ (52,440) $ 5,326,633
============ ============ ===========
* Reference is made to the audited financial statements in the Form 10-K as
filed with the Commission on March 31, 1999
</TABLE>
3
<PAGE>
<TABLE>
NTS-PROPERTIES VII, LTD.
------------------------
STATEMENTS OF OPERATIONS
------------------------
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------------------------------
1999 1998 1999 1998
--------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES:
Rental income $ 491,470 $ 493,870 $ 946,001 $ 956,060
Interest and other income 10,242 6,418 12,543 13,201
--------- --------- --------- ---------
501,712 500,288 958,544 969,261
EXPENSES:
Operating expenses 100,069 141,709 183,751 225,897
Operating expenses - affiliated 65,018 63,949 131,953 125,162
Write-off of unamortized land
improvements and amenities -- 10,743 -- 10,743
Interest expense 95,933 99,364 191,427 198,242
Management fees 25,803 25,792 48,786 49,992
Real estate taxes 27,136 25,150 54,272 50,928
Professional and administrative
expenses 27,124 19,851 48,502 31,386
Professional and administrative
expenses - affiliated 15,886 21,098 35,935 43,380
Depreciation and amortization 120,732 119,788 241,841 241,693
--------- --------- --------- ---------
477,701 527,444 936,467 977,423
--------- --------- --------- ---------
Net income (loss) $ 24,011 $ (27,156) $ 22,077 $ (8,162)
========= ======== ========= ========
Net income (loss) allocated to the limited
partners $ 23,771 $ (26,884) $ 21,856 $ (8,080)
========= ======== ========= ========
Net income (loss) per limited
partnership unit $ 0.04 $ (0.05) $ 0.04 $ (0.01)
========= ======== ========= ========
Weighted average number of units 565,736 576,483 569,603 586,433
========= ======== ======== ========
</TABLE>
4
<PAGE>
<TABLE>
NTS-PROPERTIES VII, LTD.
------------------------
STATEMENTS OF CASH FLOWS
------------------------
<CAPTION>
Six Months Ended
June 30,
--------------------------------------
1999 1998
--------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 22,077 $ (8,162)
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 241,841 241,693
Changes in assets and liabilities
Cash and equivalents - restricted 49,922 (6,507)
Accounts receivable (20,852) (2,602)
Other assets (6,415) (480)
Accounts payable (9,247) 36,212
Security deposits 1,323 (4,175)
Other liabilities 23,643 50,653
------ ---------
Net cash provided by operating activities 302,292 319,112
------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to land, buildings and
amenities (37,048) (90,496)
Purchase of investment securities -- (200,000)
Maturity of investment securities -- 536,392
-------- ---------
Net cash provided by (used in)investing
activities (37,048) 245,896
------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash and equivalents - restricted -- 127,650
Principal payments on mortgages
payable (115,182) (106,137)
Cash distributions (57,650) (118,950)
Repurchase of limited partnership Units (60,000) (134,892)
Payment of loan costs -- (5,172)
-------- ----------
Net cash used in financing activities (232,832) (237,501)
-------- ---------
Net increase in cash and equivalents 32,412 327,507
CASH AND EQUIVALENTS, beginning of period 398,001 164,714
-------- --------
CASH AND EQUIVALENTS, end of period $ 430,413 $ 492,221
======== ========
Interest paid on a cash basis $ 191,428 $ 200,145
======== ========
</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 1998 10-K as filed with the Securities Exchange Commission on
March 31, 1999. 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 six
months ended June 30, 1999 and 1998.
1. 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.
2. 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 sold no securities during the three
months and six months ended June 30, 1999 or during the twelve months ended
December 31, 1998. The Partnership held no securities at June 30, 1999 or
at December 31, 1998.
3. Basis of Property and Depreciation
----------------------------------
Land, buildings and amenities are stated at cost to the Partnership. Costs
directly associated with the acquisition, development and construction of a
project are capitalized. Depreciation is computed using the straight-line
method over the estimated useful lives of the assets which are 5-30 years
for land improvements, 5-30 years for buildings and improvements, 5-30
years for amenities and the applicable lease term for tenant improvements.
Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of, specifies circumstances in which certain long-lived assets
must be reviewed for impairment. If 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 by written down to fair value. Application of
this standard during the three months ended June 30, 1999 and 1998 did not
result in an impairment loss.
6
<PAGE>
4. Mortgages Payable
-----------------
Mortgages payable consist of the following:
June 30, December 31,
1999 1998
-------------------------
Mortgage payable to an insurance company,
bearing interest at a fixed rate
of 7.37%, due October 15, 2012,
secured by land and buildings. $ 3,932,739 $ 3,987,830
Mortgage payable to an insurance company,
bearing interest at a fixed rate
of 8.5%, due November 15, 2005,
secured by land and buildings. 1,040,287 1,100,383
---------- ----------
$ 4,973,026 $ 5,088,213
========== ==========
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 $5,200,000.
5. Interest Repurchase Reserve
---------------------------
Pursuant to Section 16.4 of the Partnership's Amended and Restated
Agreement of Limited Partnership, the Partnership established an Interest
Repurchase Reserve. As of June 30, 1999 the Partnership has repurchased a
total of 72,529 Units for $355,080, at a price ranging from $4.00 to $6.00
per Unit. 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 or
liquidation value of the Unit. The funds remaining in the Interest
Repurchase Reserve at the commencement of the Tender Offer (discussed
below) were returned to unrestricted cash for utilization in the
Partnership's operations.
On December 7, 1998, the Partnership and ORIG, LLC, an affiliate of the
Partnership, commenced a Tender Offer to purchase up to 20,000 of the
Partnership's limited partnership Units at a price of $6.00 per Unit.
Although the Partnership and ORIG, LLC believe that this price is
appropriate, the price of $6.00 per Unit may not equate to the fair market
value or the liquidation value of the Unit, and is less than the book value
per Unit as of the date of the Offering. The Offer stated that the
Partnership will purchase the first 10,000 Units tendered and will fund its
purchases and its portion of the expenses, associated with administering
the Offer, from cash reserves. If more than 10,000 Units are tendered, the
Partnership and ORIG, LLC may choose to acquire the additional Units on the
same terms. Otherwise, tendered Units will be purchased on a pro rata basis
up to 20,000. Units that are acquired by the Partnership will be retired.
Units that are acquired by ORIG, LLC will be held by it. The General
Partner, NTS-Properties Associates VII, does not intend to participate in
the Tender Offer.
Under the terms of the Offer, the Offer expired on March 6, 1999. As of
that date, a total of 25,794 Units were tendered pursuant to the Offer. The
Offerors exercised their right under the terms of the Offer to
7
<PAGE>
5. Interest Repurchase Reserve - continued
---------------------------------------
purchase more than 20,000 Units and all 25,794 Units tendered were accepted
by the Offerors, without proration. The Partnership repurchased 10,000
Units and ORIG, LLC purchased 15,794 Units.
6. Related Party Transactions
--------------------------
Property management fees of $48,786 and $49,992 were paid to NTS
Development Company, an affiliate of the General Partner, during the six
months ended June 30, 1999 and 1998, 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 six
months ended June 30, 1999 and 1998. 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.
1999 1998
---------------------------------------
Leasing $ 21,221 $ 17,023
Administrative 77,505 55,243
Property manager 67,536 95,677
Other 4,076 1,568
-------- --------
$ 170,338 $ 169,511
======== ========
7. Segment Reporting
-----------------
The Partnership's reportable operating segments include Residential and
Commercial real estate operations. The Residential operations represent the
Partnership's ownership and operating results relative to apartment
complexes known as the Park at the Willows and Park Place Apartments Phase
II. The Commercial operations represent the Partnership's ownership and
operating results relative to suburban commercial office space known as
Blankenbaker Business Center 1A.
The financial information of the operating segments has been prepared using
a management approach, which is consistent with the basis and manner in
which the Partnership's management internally disaggregates financial
information for the purposes of assisting in making internal operating
decisions. The Partnership evaluates performance based on stand-alone
operating segment net income.
Six Months Ended June 30, 1999
Residential Commercial TOTAL
Rental income $796,874 $149,128 $946,002
Other income 5,444 7 5,451
------- ------- -------
Total net revenues 802,318 149,135 951,453
======= ======= =======
Operating expenses 294,495 21,209 315,704
Interest expense -- 45,717 45,717
Management fees 40,072 8,715 48,787
Real estate taxes 45,420 8,852 54,272
Depreciation expense 189,996 45,804 235,800
------- ------- -------
Net income (loss) 232,335 18,838 251,173
======= ====== =======
8
<PAGE>
7. Segment Reporting - continued
-----------------------------
Six Months Ended June 30, 1998
Residential Commercial TOTAL
Rental income $812,531 $143,529 $956,060
Other income 2,590 -- 2,590
------- ------- -------
Total net revenues 815,121 143,529 958,650
======= ======= =======
Operating expenses 327,629 23,430 351,059
Write off of unamortized loan
improvements and amenities 10,739 -- 10,739
Interest expense -- 50,080 50,080
Management fees 41,060 8,932 49,992
Real estate taxes 41,149 9,779 50,928
Depreciation expense 190,440 45,805 236,245
------- ------- -------
Net income (loss) 204,104 5,503 209,607
======= ======= =======
Three Months ended June 30, 1999
Residential Commercial TOTAL
Rental income $ 416,906 $ 74,564 $ 491,470
Other income 3,143 7 3,150
------- ------- -------
Total net revenues 420,049 74,571 494,620
======= ======= =======
Operating expenses 154,956 10,131 165,087
Interest expense -- 22,542 22,542
Management fees 21,330 4,474 25,804
Real estate taxes 22,710 4,426 27,136
Depreciation expense 95,025 22,902 117,927
------- ------ -------
Net Income (Loss) 126,028 10,096 136,124
======= ====== =======
Three Months Ended June 30, 1998
Residential Commercial TOTAL
Rental income $424,777 $69,093 $493,870
Other income 1,731 -- 1,731
------- ------- -------
Total net revenues 426,508 69,093 495,601
======= ====== =======
Operating expenses 195,216 10,442 205,658
Write off of unamortized loan
improvements and amenities 10,739 -- 10,739
Interest expense -- 24,504 24,504
Management fees 21,326 4,466 25,792
Real estate taxes 20,712 4,438 25,150
Depreciation expense 94,206 22,902 117,108
------ ------ -------
Net income (loss) 84,309 2,341 86,650
====== ====== =======
9
<PAGE>
7. Segment Reporting - continued
-----------------------------
A reconciliation of the totals reported for the operating segments to the
applicable line items in the consolidated financial statements for the three
months and six months ended June 30, 1999 and 1998 is necessary given amounts
recorded at the Partnership level and not allocated to the operating properties
for internal reporting purposes.
<TABLE>
Six Months ended June 30,
---------------------------------
1999 1998
---------------------------------
<CAPTION>
<S> <C> <C>
NET REVENUES
Total revenues for reportable segments $ 951,453 $ 958,650
Other income for partnership 25,930 16,115
Eliminations (18,839) (5,504)
---------- --------
Total consolidated net revenues 958,544 969,261
========== ========
INTEREST EXPENSE
Interest expense for reportable segments 45,717 50,080
Interest expense for partnership 145,710 148,162
---------- --------
Total interest expense 191,427 198,242
========== ========
DEPRECIATION AND AMORTIZATION
Total depreciation and amortization for
reportable segments 235,800 236,245
Depreciation and amortization for
partnership 13,884 13,292
Eliminations (7,843) (7,844)
---------- --------
Total depreciation and amortization 241,841 241,693
========== ========
NET INCOME (LOSS)
Total net income (loss) for reportable
segments 251,173 209,607
Net income (loss) for partnership (218,101) (220,105)
Eliminations (10,995) 2,336
---------- --------
Total net income (loss) 22,077 (8,162)
========== ========
</TABLE>
10
<PAGE>
7. Segment Reporting - continued
<TABLE>
Three Months ended June 30,
----------------------------
1999 1998
----------------------------
<CAPTION>
<S> <C> <C>
NET REVENUES
Total revenues for reportable segments $ 494,620 $ 495,601
Other income for partnership 17,188 7,027
Eliminations (10,096) (2,340)
---------- ---------
Total consolidated net revenues 501,712 500,288
========== =========
INTEREST EXPENSE
Interest expense for reportable segments 22,542 24,504
Interest expense for partnership 73,391 74,860
--------- ---------
Total interest expense 95,933 99,364
========= =========
DEPRECIATION AND AMORTIZATION
Total depreciation and amortization for
reportable segments 117,927 117,108
Depreciation and amortization for
partnership 6,727 6,602
Eliminations (3,922) (3,922)
--------- ---------
Total depreciation and amortization 120,732 119,788
========= =========
NET INCOME (LOSS)
Total net income (loss) for reportable
segments 136,124 86,650
Net income (loss) for partnership (105,939) (115,383)
Eliminations (6,174) 1,577
--------- ---------
Total net income (loss) 24,011 (27,156)
========= =========
</TABLE>
8. Subsequent Event
----------------
On July 1, 1999, Gregory A. Wells was hired as Executive Vice President by NTS
Capital Corporation, General Partner of NTS-Properties Associates VII, the
General Partner of NTS-Properties VII. Mr. Wells will serve as the senior
Accounting and Financial Officer of NTS Capital Corporation.
11
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
--------------------------------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations is structured in four major sections. The first section provides
information related to occupancy levels and rental and other income generated by
the Partnership's properties. The second analyzes results of operations on a
consolidated basis. The final sections address consolidated cash flows and
financial condition. Discussion of certain market risks also follow.
Management's analysis should be read in conjunction with the financial
statements in Item 1 and the cautionary statements below.
Some of the statements included in Item 2, Management's Discussion and Analysis
of Financial Condition and Results of Operations, may be considered to be
"forward-looking statements" since such statements relate to matters which have
not yet occurred. For example, phrases such as "the Partnership anticipates",
"believes" or "expects" indicate that it is possible that the event anticipated,
believed or expected may not occur. Should such event not occur, then the result
which the Partnership expected also may not occur or occur in a different
manner, which may be more or less favorable to the Partnership. The Partnership
does not undertake any obligations to publicly release the result of any
revisions to these forward-looking statements that may be made to reflect any
future events or circumstances.
Any forward-looking statements included in Management's Discussion and Analysis
of Financial Condition and Results of Operations, or elsewhere in this report,
which reflect Management's best judgement based on factors known, involve risks
and uncertainties. Actual results could differ materially from those anticipated
in any forward-looking statements as a result of a number of factors, including
but not limited to those discussed below. Any forward-looking information
provided by the Partnership pursuant to the safe harbor established by recent
securities legislation should be evaluated in the context of these factors.
The Partnership's principal activity is the leasing and management of a
commercial business center and apartment complexes. If Sykes Health Plan Service
Bureau, Inc. ("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.
12
<PAGE>
Results of Operations
- ---------------------
The occupancy levels at the Partnership's properties as of June 30 were as
follows:
1999 1998
----------------------------------
Wholly-owned Properties
The Park at the Willows 94% 90%
Park Place Apartments Phase II 88% 84%
Property Owned in Joint Venture with
NTS-Properties IV and NTS-Properties
Plus Ltd. (Ownership % at June 30, 1999)
Blankenbaker Business Center 1A (31%) 100% 100%
The average occupancy levels at the Partnership's properties during the three
months and six months ended June 30 were as follows:
Three Months Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
-------------------------------------------------
Wholly-owned Properties
The Park at the Willows 95% 91% 92% 92%
Park Place Apartments Phase II 86% 85% 84% 84%
Property owned in Joint Venture with
NTS-Properties IV and NTS-Properties
Plus Ltd. (Ownership %at June 30, 1999)
Blankenbaker Business Center 1A (31%)100% 100% 100% 100%
Rental and other income generated by the Partnership's properties for the three
months and six months ended June 30, 1999 and 1998 was as follows:
Three Months Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
--------------------------------------------
Wholly-owned Properties
The Park at the Willows $89,274 $97,990 $173,413 $183,023
Park Place Apartments Phase II $330,775 $328,518 $628,905 $632,098
Property owned in Joint Venture with
NTS-Properties IV and NTS-Properties Plus
Ltd. (Ownership % at June 30, 1999)
Blankenbaker Business Center 1A
(31%)(1) $74,571 $69,093 $149,135 $143,529
13
<PAGE>
Results of Operations - continued
- ---------------------------------
(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 three months
and six months ended June 30, 1999 and 1998.
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.
The following is an analysis of material changes in results of operations for
the periods ending June 30, 1999 and 1998. Items that did not have a material
impact on operations for the periods listed above have been eliminated from this
discussion.
Operating expenses decreased approximately $41,600 or 29% and $42,100 or 19%,
respectively, for the three months and six months ended June 30, 1999 as
compared to the same periods in 1998. This decrease is due primarily to
decreased building repairs and landscaping at Park Place Apartments Phase II,
decreased landscaping expense at the Park at the Willows, and decreased repair
and maintenance costs at Blankenbaker Business Center 1A.
Professional and Administrative expenses increased approximately $7,300 or 37%
and $17,100 or 55%, respectively, for the three months and six months ended June
30, 1999 as compared to the same periods in 1998. These increases are due
primarily to increased legal costs, outside accounting costs and printing costs
incurred for the Tender Offer.
Professional and administrative expenses - affiliated decreased approximately
$5,200 or 25% and $7,400 or 17%, respectively, for the three months and six
months ended June 30, 1999 as compared to the same period in 1998, primarily 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, on behalf of the
Partnership.
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 $13,800,000.
14
<PAGE>
Liquidity and Capital Resources
- -------------------------------
Cash flows provided by (used in):
1999 1998
----------------------------------
Operating activities $ 302,292 $ 319,112
Investing activities (37,048) 245,896
Financing activities (232,832) (237,501)
-------- --------
Net increase (decrease) in cash and
equivalents $ 32,412 $ 327,507
======== ========
Net cash provided by operating activities decreased approximately $16,800 or 5%
for the six months ended June 30, 1999 as compared to the same period in 1998.
The decrease in net cash provided by operating activities was driven primarily
by negative changes in working capital accounts, offset by increase net income
and a decrease in cash and equivalents - restricted.
Net cash provided by (used in) investing activities totaled ($37,048) and
$245,896 for the six months ended June 30, 1999 and 1998, respectively. The
decrease in net cash provided by investing activities for the six months ended
June 30 as compared to the same period in 1998 is primarily a result of not
holding any investments during the six months ended June 30, 1999 and to reduced
capital expenditures in the six months ended June 30, 1999 as compared to the
same period in 1998.
Net cash used in financing activities totaled $232,832 and $237,501 for the six
months ended June 30, 1999 and 1998, respectively. The decrease in net cash used
in financing activities was primarily due to a lower distribution to partners
and a lesser number of partnership units repurchased in the six months ended
June 30, 1999 as compared to the same period in 1998, offset by a smaller change
in cash and equivalents-restricted for the six months ended June 30, 1999 as
compared to the same period 1998.
During the six months ended June 30, 1999 the Partnership used cash flow from
operations and cash on hand to pay a 1% (annualized) cash distribution of
$57,650 (1999) and a 1.50% (annualized, 2% in the first quarter and 1% in the
second quarter) cash distribution of $87,602 (1998). 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, renovations and
tenant finish costs. It is anticipated that the cash flows 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 June 30) were $430,413 and
$492,221 at June 30, 1999 and 1998, respectively.
Pursuant to Section 16.4 of the Partnership's Amended and Restated Agreement
15
<PAGE>
Liquidity and Capital Resources - continued
- -------------------------------------------
Repurchase Reserve. As of June 30, 1999 the Partnership has repurchased a total
of 72,529 Units for $355,080, at a price ranging from $4.00 to $6.00 per Unit.
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 or liquidation
value of the Unit. The funds remaining in the Interest Repurchase Reserve at the
commencement of the Tender Offer (discussed below) were returned to unrestricted
cash for utilization in the Partnership's operations.
On December 7, 1998, the Partnership and ORIG, LLC, an affiliate of the
Partnership, commenced a Tender Offer to purchase up to 20,000 of the
Partnership's limited partnership Units at a price of $6.00 per Unit. Although
the Partnership and ORIG, LLC believe that this price is appropriate, the price
of $6.00 per Unit may not equate to the fair market value or the liquidation
value of the Unit, and is less than the book value per Unit as of the date of
the Offering. The Offer stated that the Partnership will purchase the first
10,000 Units tendered and will fund its purchases and its portion of the
expenses, associated with administering the Offer, from cash reserves. If more
than 10,000 Units are tendered, the Partnership and ORIG, LLC may choose to
acquire the additional Units on the same terms. Otherwise, tendered Units will
be purchased on a pro rata basis up to 20,000. Units that are acquired by the
Partnership will be retired. Units that are acquired by ORIG, LLC will be held
by it. The General Partner, NTS-Properties Associates VII, does not intend to
participate in the Tender Offer.
Under the terms of the Offer, the Offer expired on March 6, 1999. As of that
date, a total of 25,794 Units were tendered pursuant to the Offer. The Offerors
exercised their right under the terms of the Offer to purchase more than 20,000
Units and all 25,794 Units tendered were accepted by the Offerors, without
proration. The Partnership repurchased 10,000 Units and ORIG, LLC purchased
15,794 Units.
The table below presents that portion of the distributions that represent a
return of capital on a Generally Accepted Accounting Principle basis for the six
months ended June 30, 1999 and 1998.
Net Income Cash
(Loss) Distributions Return of
Allocated Declared Capital
----------------------------------------------------
Limited Partners:
1999 $ 21,856 $ 56,008 $ 34,152
1998 (8,080) 86,726 86,726
General Partner:
1999 $ 221 $ 566 $ 345
1998 (82) 876 876
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
16
<PAGE>
Liquidity and Capital Resources - continued
- -------------------------------------------
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.
During the three months ended March 31, 1999, SHPS, Inc., formerly known as
Sykes Health Plan Services, Inc., announced its intentions to consolidate its
operations and to build its corporate headquarters in Jefferson County,
Kentucky. One of SHPS, Inc's operations, Sykes, is already based in Louisville,
Kentucky in Blankenbaker Business Center 1A. Due to the expansion of SHPS, Inc's
headquarters, it is the Partnership's understanding that SHPS, Inc. does not
intend to continue to occupy the space at Blankenbaker Business Center 1A
through the duration of its lease, July 2005. The Partnership's proportionate
share of the rental income from this property accounted for approximately 16% of
the Partnership's total revenues for the six months ended June 30, 1999. The
Partnership has not yet determined the effect, if any, on the Partnership's
operations, given the fact Sykes is under lease until July 2005 and no official
notice of termination has been received.
Year 2000
- ---------
All divisions of NTS, General Partner of the Partnership, are reviewing the
effort necessary to prepare its information systems (IT) and non-information
technology with embedded technology (ET) for the Year 2000. The information
technology solutions have been addressed separately for the Year 2000 since the
Partnership 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 NTS' headquarter 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 has been tested and is compatible with Year 2000 and
beyond. This system is being implemented with the help of third party
consultants and should be operational by the third quarter of 1999. NTS' 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 NTS' 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 NTS'
new network. It will be retained as long as necessary to assure smooth
operations and has been upgraded to meet Year 2000 requirements.
All risks identified with information technology are believed to be addressed by
these plans.
17
<PAGE>
Year 2000 - continued
- ---------------------
The cost of these advances in NTS' systems technology is not all attributable to
the Year 2000 issues since we had already identified the need to move to a
network based system regardless of the Year 2000. The costs incurred through
December 31, 1998 were approximately $9,000. The costs involved for 1999 will be
approximately $36,000. These costs include hardware and software.
NTS property management staff has been surveying its vendors to evaluate
embedded technology in its 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 1999.
NTS is also currently addressing the Year 2000 readiness of third parties whose
business interruption could have a material negative impact on its 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 its current state of readiness, the need does
not presently exist for a contingency plan. NTS will continue to evaluate the
need for such a plan.
Despite diligent preparation, unanticipated third-party failures, inability of
NTS' tenants to pay rent when due, more general public infrastructure failures
or failure to successfully conclude NTS' remediation efforts as planned could
have a material adverse impact on NTS' results of operations, financial
conditions and/or cash flows in 1999 and beyond.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
Our primary risk exposure with regards to financial instruments is changes in
interest rates. All of the Partnership's debt bears interest at a fixed rate.
18
<PAGE>
PART II. OTHER INFORMATION
3. Defaults upon Senior Securities
None
5. Other Information
-----------------
In anticipation of retirement, Mr. Richard Good, the Vice Chairman and
former President of NTS Capital Corporation and NTS Development Company,
has begun to decrease his responsibilities with the Partnership and its
affiliates. In conjunction with Mr. Good's decreased responsibilities,
Mr. Brian Lavin was appointed President and Chief Operating Officer of
NTS Development Company and NTS Capital Corporation in February, 1999.
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 and 4 are not applicable and have been omitted.
19
<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/ Gregory A. Wells
--------------------
Gregory A. Wells
Executive Vice President
of NTS Capital
Corporation
Date: August 13, 1999
20
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF JUNE 30, 1999 AND FROM THE STATEMENT OF OPERATIONS FOR THE SIX
MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 480,918
<SECURITIES> 0
<RECEIVABLES> 15,380
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 9,781,186
<DEPRECIATION> 0<F2>
<TOTAL-ASSETS> 10,470,935
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 4,973,026
0
0
<COMMON> 0
<OTHER-SE> 5,326,633
<TOTAL-LIABILITY-AND-EQUITY> 10,470,935
<SALES> 946,001
<TOTAL-REVENUES> 958,544
<CGS> 0
<TOTAL-COSTS> 745,040
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 191,427
<INCOME-PRETAX> 22,077
<INCOME-TAX> 0
<INCOME-CONTINUING> 22,077
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,077
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1> THE PARTNERSHIP HAS AN UNCLASSIFIED BALANCE SHEET, THEREFORE THE BALANCE IS
$0.
<F2> THIS INFORMATION IS NOT DISCLOSED IN THE PARTNERSHIP'S FORM 10-Q FILING.
</FN>
</TABLE>
