UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark one)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-17589
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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 17
Total Pages: 18
<PAGE>
TABLE OF CONTENTS TABLE OF CONTENTS
Pages
-----
PART I
Item 1. Financial Statements
Balance Sheets and Statement of Partners' Equity
as of March 31, 1999 and December 31, 1998 3
Statements of Operations
For the three months ended March 31, 1999 and 1998 4
Statements of Cash Flows
For the three months ended March 31, 1999 and 1998 5
Notes To Financial Statements 6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-16
PART II
6. Exhibits and Reports on Form 8-K 17
Signatures 18
- 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
March 31, 1999 December 31, 1998*
-------------- ------------------
ASSETS
- ------
<S> <C> <C>
Cash and equivalents $ 402,755 $ 398,001
Cash and equivalents - restricted 45,681 100,427
Investment securities -- --
Accounts receivable 13,495 --
Land, buildings and amenities, net 9,942,861 10,036,720
Other assets 150,777 130,828
----------- -----------
$ 10,555,569 $ 10,665,976
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
- --------------------------------
Mortgages payable $ 5,030,224 $ 5,088,213
Accounts payable 67,982 57,319
Distributions payable 28,573 29,078
Security deposits 29,201 28,401
Other liabilities 68,396 41,265
----------- -----------
5,224,376 5,244,276
Partners' equity 5,331,193 5,421,700
----------- -----------
$ 10,555,569 $ 10,665,976
=========== ===========
</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 (2,645,666) (26,723) (2,672,389)
Net (loss) - current year (1,917) (19) (1,936)
Cash distributions declared to
date (2,549,450) (25,752) (2,575,202)
Repurchase of limited
partnership Units (355,080) -- (355,080)
------------ ----------- ------------
Balances at March 31, 1999 $ 5,383,587 $ (52,394) $ 5,331,193
============ =========== ============
</TABLE>
* Reference is made to the audited financial statements in the Form 10-K as
filed with the Commission on March 31, 1999.
- 3 -
<PAGE>
<TABLE>
NTS-PROPERTIES VII, LTD.
------------------------
STATEMENTS OF OPERATIONS
------------------------
<CAPTION>
Three Months Ended
March 31,
---------
1999 1998
------------ -----------
<S> <C> <C>
Revenues:
Rental income $ 465,661 $ 462,189
Interest and other income 2,905 6,784
---------- ----------
468,566 468,973
Expenses:
Operating expenses 95,417 84,127
Operating expenses - affiliated 66,935 61,274
Interest expense 95,495 98,878
Management fees 22,984 24,200
Real estate taxes 27,136 25,778
Professional and administrative expenses 21,378 11,536
Professional and administrative expenses
- affiliated 20,049 22,282
Depreciation and amortization 121,108 121,904
---------- ----------
470,502 449,979
---------- ----------
Net income (loss) $ (1,936) $ 18,994
========== ==========
Net income (loss) allocated to the limited
partners $ (1,917) $ 18,804
========== ==========
Net income (loss) per limited partnership
unit $ -- $ .03
========== ==========
Weighted average number of limited
partnership units 573,514 596,493
========== ==========
</TABLE>
- 4 -
<PAGE>
NTS-PROPERTIES VII, LTD.
------------------------
STATEMENTS OF CASH FLOWS
------------------------
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------
1999 1998
------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) $ (1,936) $ 18,994
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Accrued interest on investment securities -- 1,349
Depreciation and amortization 121,108 121,904
Changes in assets and liabilities:
Cash and equivalents - restricted 54,746 (1,566)
Accounts receivable (18,966) (441)
Other assets (16,259) (9,848)
Accounts payable 10,663 2,163
Security deposits 800 (3,775)
Other liabilities 27,132 25,777
----------- ----------
Net cash provided by operating activities 177,288 154,557
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to land, buildings and amenities (25,466) (27,472)
Purchase of investment securities -- (300,000)
Maturity of investment securities -- 536,392
----------- ----------
Net cash provided by (used in) investing
activities (25,466) 208,920
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash and equivalents - restricted -- 25,170
Principal payments on mortgages payable (57,989) (53,353)
Cash distributions (29,079) (60,426)
Repurchase of limited partnership Units (60,000) (25,170)
Addition to loan costs -- (5,172)
----------- ----------
Net cash used in financing activities (147,068) (118,951)
----------- ----------
Net increase in cash and equivalents 4,754 244,526
CASH AND EQUIVALENTS, beginning of period 398,001 164,714
----------- ----------
CASH AND EQUIVALENTS, end of period $ 402,755 $ 409,240
=========== ==========
Interest paid on a cash basis $ 129,057 $ 99,789
=========== ==========
</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 ended
March 31, 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 ended March 31, 1999 or during the twelve months ended December 31,
1998. The Partnership held no securities at March 31, 1999 or at December
31, 1998.
3. Mortgages Payable
-----------------
Mortgages payable consist of the following:
March 31, 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. $ 3,959,749 $ 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. 1,070,475 1,100,383
---------- ----------
$ 5,030,224 $ 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 $5,300,000.
4. 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 March 31, 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.
- 6 -
<PAGE>
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.
5. Related Party Transactions
--------------------------
Property management fees of $22,984 and $24,200 were paid to NTS
Development Company, an affiliate of the General Partner, during the three
months ended March 31, 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 three
months ended March 31, 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 $ 8,302 $ 7,989
Administrative 25,630 28,213
Property manager 52,073 47,325
Other 1,527 28
------- -------
$ 87,532 $ 83,555
======= =======
6. 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.
- 7 -
<PAGE>
The financial information of the operating segments have 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.
Three Months ended March 31, 1999
Residential Commercial TOTAL
Rental income $ 391,097 $ 74,564 $ 465,661
Other income 2,905 -- 2,905
----------- ----------- ----------
Total net revenues 394,002 74,564 468,566
=========== =========== ==========
Operating expenses 151,273 11,079 162,352
Interest Expense -- 23,175 23,175
Management Fees 18,743 4,241 22,984
Real Estate Taxes 22,710 4,426 27,136
Depreciation Expense 94,971 22,902 117,873
----------- ----------- ----------
Net Income (Loss) 106,305 8,741 115,046
=========== =========== ==========
Three Months ended March 31, 1998
Residential Commercial TOTAL
Rental income $ 387,753 $ 74,436 462,189
Other income 859 -- 859
----------- ----------- ----------
Total net revenues 388,612 74,436 463,048
=========== =========== ==========
Operating expenses 132,413 12,988 145,401
Interest Expense -- 25,576 25,576
Management Fees 19,734 4,466 24,200
Real Estate Taxes 20,437 5,341 25,778
Depreciation Expense 96,234 22,902 119,136
----------- ----------- ----------
Net Income (Loss) 119,794 3,163 122,957
=========== =========== ==========
- 8 -
<PAGE>
A reconciliation of the totals reported for the operating segments to the
applicable line items in the consolidated financial statements for the three
months ended March 31, 1999 and 1998 is necessary given amounts recorded at the
Partnership level and not allocated to the operating properties for internal
reporting purposes.
1999 1998
NET REVENUES
Total revenues for reportable segments $ 468,566 $ 463,048
Other income for partnership 8,742 9,088
Eliminations (8,742) (3,163)
----------- -----------
Total consolidated net revenues 468,566 468,973
=========== ===========
INTEREST EXPENSE
Interest expense for reportable segments 23,175 25,576
Interest expense for partnership 72,320 73,302
----------- -----------
Total interest expense 95,495 98,878
=========== ===========
DEPRECIATION AND AMORTIZATION
Total depreciation and amortization for
reportable segments 117,873 119,136
Depreciation and amortization for
partnership 7,157 6,690
Eliminations (3,922) (3,922)
----------- -----------
Total depreciation and amortization 121,108 121,904
=========== ===========
NET INCOME (LOSS)
Total net income (loss) for reportable
segments 115,049 122,957
Net income (loss) for partnership (112,162) (104,722)
Eliminations (4,823) 759
----------- -----------
Total net income (loss) (1,936) 18,994
=========== ===========
- 9 -
<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 and our cautionary
statements also follow. Management's analysis should be read in conjunction with
the financial statements in Item 1 and the cautionary statements below.
Results of Operations
- ---------------------
The occupancy levels at the Partnership's properties as of March 31 were as
follows:
1999 1998
---- ----
Wholly-owned Properties
- -----------------------
The Park at the Willows 96% 96%
Park Place Apartments Phase II 83% 80%
Property Owned in Joint Venture with
- ------------------------------------
NTS-Properties IV and NTS-Properties
- ------------------------------------
Plus Ltd. (Ownership % at March 31,
- -----------------------------------
1999)
- -----
Blankenbaker Business Center 1A (31%) 100% 100%
The average occupancy levels at the Partnership's properties during the three
months ended March 31 were as follows:
1999 1998
---- ----
Wholly-owned Properties
- -----------------------
The Park at the Willows (1) 90% 92%
Park Place Apartments Phase II (1) 82% 84%
Property owned in Joint Venture with
- ------------------------------------
NTS-Properties IV and NTS-Properties
- ------------------------------------
Plus Ltd. (Ownership % at March 31,
- -----------------------------------
1999)
- -----
Blankenbaker Business Center 1A (31%) 100% 100%
(1) In the opinion of the General Partner of the Partnership, the decrease in
average occupancy is only a temporary fluctuation and does not represent
a permanent downward occupancy trend.
- 10 -
<PAGE>
Rental and other income generated by the Partnership's properties for the three
months ended March 31, 1999 and 1998 was as follows:
1999 1998
--------- --------
Wholly-owned Properties
- -----------------------
The Park at the Willows $ 91,361 $ 85,033
Park Place Apartments Phase II $ 302,641 $ 303,579
Property owned in Joint Venture with
- ------------------------------------
NTS-Properties IV and NTS-Properties
- ------------------------------------
Plus Ltd. (Ownership % at March 31,
- -----------------------------------
1999)
- -----
Blankenbaker Business Center 1A (31%)(1) $ 74,564 $ 74,436
(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
ended March 31, 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 March 31, 1999 and 1998. Items that did not have a material
impact on operations for the periods listed above have been eliminated from this
discussion.
Interest and other income includes interest income from investments made by the
Partnership with cash reserves. Interest and other income decreased
approximately $3,900 or 57% for the three months ended March 31, 1999 as
compared to the same period in 1998 as a result of decreased cash reserves being
available for investment.
Operating expenses increased approximately $11,300 or 13% for the three months
ended March 31, 1999 as compared to the same period in 1998 as a result of
increased parking lot repairs, building repairs and landscaping expenses at Park
Place Apartments Phase II and increased furniture rental expense at the Park at
the Willows. Operating expenses at Blankenbaker Business Center 1A remained
fairly constant for the three month period.
Operating expenses - affiliated increased approximately $5,700 or 9% for the
three months ended March 31, 1999 as compared to the same period in 1998,
primarily as a result of increased administrative costs at Park Place Apartments
Phase II, the Park at the Willows and Blankenbaker Business Center 1A. Operating
expenses - affiliated are expenses incurred for services performed by employees
of NTS Development Company, an affiliate of the General Partner.
Professional and Administrative expenses increased approximately $9,800 or 85%
for the three months ended March 31, 1999 as compared to the same period in 1998
primarily as a result of increased legal costs, outside accounting costs and
printing costs incurred for the Tender Offer.
- 11 -
<PAGE>
Professional and administrative expenses - affiliated decreased approximately
$2,200 or 10% for the three months ended March 31, 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.
Liquidity and Capital Resources
- -------------------------------
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 through the Interest
Repurchase Program or the Tender Offer (1998 only). 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 1998.
Cash flows provided by (used in):
1999 1998
---- ----
Operating activities $ 177,288 $ 154,557
Investing activities (25,466) 208,920
Financing activities (147,068) (118,951)
--------- ---------
Net increase (decrease) in cash and
equivalents $ 4,754 $ 244,526
========= =========
Net cash provided by operating activities increased approximately $22,700 or 15%
as of March 31, 1999 as compared to the same period in 1998. The increase in net
cash provided by operating activities was driven primarily by an increase in
cash and equivalents - restricted.
Net cash provided by (used in) investing activities totaled ($25,466) and
$208,920 as of March 31, 1999 and 1998, respectively. The decrease in net cash
provided by investing activities as of March 31, 1999 as compared to the same
period in 1998 is primarily a result of not holding any investments in the three
months ended March 31, 1999.
Net cash used in financing activities totaled $147,068 and $118,951 for the
three months ended March 31, 1999 as compared to the same period in 1998. The
increase in net cash used in financing activities was primarily due to decreased
net Interest Repurchase Reserve activity.
- 12 -
<PAGE>
During the three months ended March 31, 1999 the Partnership used cash flow from
operations and cash on hand to pay a 1% (annualized) cash distribution of
$28,573 (1999) and a 2% (annualized) cash distribution of $58,524 (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 March
31) were $402,755 and $509,628 at March 31, 1999 and 1998, respectively.
Pursuant to Section 16.4 of the Partnership's Amended and Restated Agreement of
Limited Partnership, the Partnership has established an Interest Repurchase
Reserve. As of March 31, 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.
- 13 -
<PAGE>
The table below presents that portion of the distributions that represent a
return of capital on a Generally Accepted Accounting Principle basis for the
three months ended March 31, 1999 and 1998.
Net Income Cash
(Loss) Distributions Return of
Allocated Declared Capital
--------- -------- -------
Limited Partners:
1999 $ (1,917) $ 28,287 $ 28,287
1998 18,804 57,939 39,135
General Partner:
1999 $ (19) $ 286 $ 286
1998 190 585 395
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
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.
- 14 -
<PAGE>
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 as of March 31, 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.
All divisions of NTS, 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
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 our 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. 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 upgraded to meet Year 2000 requirements.
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 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 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 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.
- 15 -
<PAGE>
Despite diligent preparation, unanticipated third-party failures, inability of
our tenants to pay rent when due, 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.
- 16 -
<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.
- 17 -
<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
----------------------------
Brian F. Lavin
President and Chief Operating
Officer of NTS Capital
Corporation (acting Chief
Financial Officer)
Date: May 14, 1999
------------
- 18 -
<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/ Brian F. Lavin
------------------
Brian F. Lavin
President and Chief Operating
Officer of NTS Capital
Corporation (acting Chief
Financial Officer)
Date: May 14, 1999
------------
- 18 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF MARCH 31, 1999 AND FROM THE STATEMENT OF OPERATIONS FOR THE THREE
MONTHS ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 448,436
<SECURITIES> 0
<RECEIVABLES> 13,495
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 9,942,861
<DEPRECIATION> 0<F2>
<TOTAL-ASSETS> 10,555,569
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 5,030,224
0
0
<COMMON> 0
<OTHER-SE> 5,331,193
<TOTAL-LIABILITY-AND-EQUITY> 10,555,569
<SALES> 465,661
<TOTAL-REVENUES> 468,566
<CGS> 0
<TOTAL-COSTS> 375,007
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 95,495
<INCOME-PRETAX> (1,936)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,936)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,936)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>THE PARTNERSHIP HAS AN UNCLASSIFIED BALANCE SHEET, THEREFORE THE BALANCE IS
$0.
<F2>THIS INFORMATION IS NOT DISCLOSED IN THE PARTNERSHIP'S FORM 10-Q FILING.
</FN>
</TABLE>
