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 September 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 61-111923
- ----------------------------- --------------------------
(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 September 30, 1999 and December 31, 1998 3
Statements of Operations
For the three months and nine months ended
September 30, 1999 and 1998 4
Statements of Cash Flows
For the nine months ended September 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
-------
Item 1. Legal Proceedings 19
Item 2. Changes in Securities 19
Item 3. Defaults upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 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
September 30, 1999 December 31, 1998*
------------------ -----------------
ASSETS
- ------
<S> <C> <C>
Cash and equivalents $ 456,274 $ 398,001
Cash and equivalents - restricted 115,529 100,427
Investment securities -- --
Accounts receivable 6,798 --
Land, buildings and amenities, net 9,757,124 10,036,720
Other assets 123,154 130,828
----------- -----------
$10,458,879 $10,665,976
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
- --------------------------------
Mortgages payable $ 4,914,670 $ 5,088,213
Accounts payable 74,675 57,319
Distributions payable 28,573 29,078
Security deposits 30,799 28,401
Other liabilities 91,099 41,265
----------- -----------
5,139,816 5,244,276
Partners' equity 5,319,063 5,421,700
----------- -----------
$10,458,879 $10,665,976
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Limited General
Partners Partner Total
-------- ------- -----
PARTNERS' EQUITY
- ----------------
<S> <C> <C> <C>
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 42,648 431 43,079
Cash distributions declared to
date (2,606,024) (26,323) (2,632,347)
Repurchase of limited
partnership Units (355,080) -- (355,080)
------------ ------------ ------------
Balances at September 30, 1999 $ 5,371,578 $ (52,515) $ 5,319,063
============ ============ ============
</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 Nine Months Ended
September 30, September 30,
------------------ -----------------
1999 1998 1999 1998
---------- ---------- ---------- -----------
REVENUES:
- ---------
<S> <C> <C> <C> <C>
Rental income $ 514,892 $ 494,661 $1,460,339 $1,450,721
Interest and other income 4,505 7,342 17,602 20,543
---------- ---------- ---------- ----------
519,397 502,003 1,477,941 1,471,264
EXPENSES:
- ---------
Operating expenses 118,014 120,998 301,766 346,890
Operating expenses - affiliated 65,684 67,113 197,637 192,275
Write-off of unamortized land
improvements and amenities -- -- -- 10,743
Interest expense 94,775 99,540 286,203 297,781
Management fees 27,728 25,656 76,514 75,648
Real estate taxes 27,136 24,875 81,407 75,803
Professional and administrative
expenses 31,454 15,032 79,956 46,423
Professional and administrative
expenses - affiliated 17,614 20,610 53,549 63,990
Depreciation and amortization 115,989 119,656 357,830 361,349
---------- ---------- ---------- ----------
498,394 493,480 1,434,862 1,470,902
---------- ---------- ---------- ----------
Net income $ 21,003 $ 8,523 $ 43,079 $ 362
========== ========== ========== ==========
Net income allocated to the
limited partners $ 20,793 $ 8,438 $ 42,648 $ 358
========== ========== ========== ==========
Net income per limited
partnership Unit $ 0.04 $ 0.01 $ 0.08 $ 0.00
========== ========== ========== ==========
Weighted average number of units 565,736 575,736 568,300 583,606
========== ========== ========== ==========
</TABLE>
4
<PAGE>
<TABLE>
NTS-PROPERTIES VII, LTD.
------------------------
STATEMENTS OF CASH FLOWS
------------------------
<CAPTION>
Nine Months Ended
September 30,
-----------------------------------------
1999 1998
------------------- --------------------
CASH FLOWS FROM OPERATING ACTIVITIES
- ------------------------------------
<S> <C> <C>
Net income $ 43,079 $ 362
Adjustments to reconcile net income
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 357,830 361,349
Changes in assets and liabilities
Cash and equivalents - restricted 44,898 (10,972)
Accounts receivable (12,269) (735)
Other assets 8,651 8,887
Accounts payable - operating 17,356 16,512
Security deposits 2,398 (5,050)
Other liabilities 49,835 75,528
--------- ---------
Net cash provided by operating
activities 511,778 458,361
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
Additions to land, buildings and
amenities (73,745) (113,083)
Purchase of investment securities -- (200,000)
Maturity of investment securities -- 536,392
--------- ---------
Net cash provided by (used in)
investing (73,745) 223,309
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
Cash and equivalents - restricted (60,000) 127,650
Principal payments on mortages
payable (173,543) (159,990)
Cash distributions (86,222) (148,027)
Repurchase of limited partnership Units (60,000) (134,892)
Payment of loan costs 5 (12,300)
--------- ---------
Net cash used in financing activities (379,760) (327,559)
--------- ---------
Net increase in cash and equivalents 58,273 354,111
CASH AND EQUIVALENTS, beginning of
period 398,001 164,714
--------- ---------
CASH AND EQUIVALENTS, end of period $ 456,274 $ 518,825
========= =========
Interest paid on a cash basis $ 286,203 $ 299,432
========= =========
</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 Form 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 nine
months ended September 30, 1999 and 1998.
1. Concentration of Credit Risk
----------------------------
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 15% of the Partnership's total
revenues for the nine months ended September 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.
2. 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 with such
mortgage companies, and funds reserved by the Partnership for the
repurchase of limited partnership Units.
3. 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 nine months ended September 30, 1999 or during the twelve months
ended December 31, 1998. The Partnership held no securities at September
30, 1999 or at December 31, 1998.
4. 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 be written down to fair value. Application of
this standard during the periods ended September 30, 1999 and 1998 did not
result in an impairment loss.
6
<PAGE>
5. Mortgages Payable
-----------------
Mortgages payable consist of the following:
September 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. $ 3,905,218 $ 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. 1,009,452 1,100,383
---------- ----------
$ 4,914,670 $ 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 $4,862,000.
6. 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 December 7, 1998 (the commencement date of the
Partnership's First Tender Offer), the Partnership has repurchased a total
of 62,529 Units for $295,080, 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 Units. The funds remaining in the Interest
Repurchase Reserve at the commencement of the December 7, 1998 Tender Offer
(discussed below) were returned to unrestricted cash for utilization in the
Partnership's operations.
7. Tender Offers
-------------
On December 7, 1998, the Partnership and ORIG, LLC, an affiliate of the
Partnership, (the "bidders") commenced a tender offer (the "First Tender
Offer") to purchase up to 20,000 of the Partnership's limited partnership
Units at a price of $6.00 per Unit. The First Tender Offer provided that
the Partnership would purchase the first 10,000 Units tendered and would
fund its purchases and its portion of the expenses, associated with
administering the First Tender Offer, from cash reserves. If more than
10,000 Units were tendered, the bidders could choose to acquire the
additional Units on the same terms. Otherwise, tendered Units would be
purchased on a pro rata basis up to 20,000. Units that were acquired by the
Partnership would be retired. Units that were acquired by ORIG, LLC would
be held by it. The General Partner, NTS-Properties Associates VII, did not
participate in the First Tender Offer.
Under the terms of the First Tender Offer, the First Tender Offer expired
on March 6, 1999. As of that date, a total of 25,794 Units were tendered
pursuant to the First Tender Offer. The bidders exercised their right under
the terms of the First Tender Offer to purchase more than 20,000 Units and
all 25,794 Units tendered were accepted by the bidders without proration.
The Partnership repurchased 10,000 Units and ORIG, LLC purchased 15,794
Units.
7
<PAGE>
7. Tender Offers - Continued
-------------------------
On September 2, 1999, the Partnership and ORIG, LLC, (the "bidders")
commenced a second tender offer (the "Second 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 bidders 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 Units, and is less than the book
value per Unit as of the date of the Second Tender Offer. The Second Tender
Offer provides 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 Second Tender Offer from cash reserves.
If more than 10,000 Units are tendered, ORIG, LLC will purchase up to an
additional 10,000 Units. If more than 20,000 Units are tendered, the
bidders may choose to acquire the additional Units on the same terms. 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 Second
Tender Offer. The Second Tender Offer's initial expiration date was
November 30, 1999. The Second Tender Offer was subsequently extended to
December 15, 1999.
8. Related Party Transactions
--------------------------
Property management fees of $27,728 and $25,656 for the three months ended
September 30, 1999 and 1998, respectively, and $76,514 and $75,648 for the
nine months ended September 30, 1999 and 1998, respectively, were paid to
NTS Development Company, an affiliate of the General Partner. 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. Also pursuant to an
agreement, NTS Development Company will receive a repair and maintenance
fee equal to 5.9% of costs incurred which relate to capital improvements.
The Partnership has incurred $1,845 and $749 for the three months ended
September 30, 1999 and 1998, respectively, and $4,295 and $1,719 for the
nine months ended September 30, 1999 and 1998, respectively, as repair and
maintenance fees, and has capitalized these costs as part of land,
buildings and amenities. The Partnership was also charged the following
amounts from NTS Development Company for the three months and nine months
ended September 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.
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
1999 1998 1999 1998
-------- -------- -------- -------
Leasing $ 8,827 $ 11,575 $ 30,049 $ 36,098
Administrative 36,855 26,543 114,710 81,786
Property manager 38,666 49,089 106,202 144,766
Other (1,050) 517 226 1,137
-------- -------- -------- -------
$ 83,298 $ 87,724 $251,187 $263,787
======== ======== ======== =======
9. 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.
8
<PAGE>
9. Segment Reporting - Continued
-----------------------------
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.
<TABLE>
Nine Months Ended September 30, 1999
<CAPTION>
Residential Commercial TOTAL
----------- ---------- -----
<S> <C> <C> <C>
Rental income $1,239,560 $ 220,779 $1,460,339
Other income 7,068 7 7,075
---------- ---------- ----------
Total net revenues 1,246,628 220,786 1,467,414
========== ========== ==========
Operating expenses 467,653 31,750 499,403
Interest expense -- 67,612 67,612
Management fees 63,596 12,918 76,514
Real estate taxes 68,130 13,277 81,407
Depreciation expense 279,379 68,707 348,086
---------- ---------- ----------
Net income (loss) $ 367,870 $ 26,522 $ 394,392
========== ========== ==========
</TABLE>
<TABLE>
Nine Months Ended September 30, 1998
<CAPTION>
Residential Commercial TOTAL
----------- ---------- -----
<S> <C> <C> <C>
Rental income $1,232,628 $ 218,093 $1,450,721
Other income 6,049 -- 6,049
---------- ---------- ----------
Total net revenues 1,238,677 218,093 1,456,770
========== ========== ==========
Operating expenses 502,875 36,295 539,170
Write off of unamortized loan
improvements and amenities 10,743 -- 10,743
Interest expense -- 74,480 74,480
Management fees 62,237 13,411 75,648
Real estate taxes 61,586 14,217 75,803
Depreciation expense 284,944 68,707 353,651
---------- ---------- ----------
Net income (loss) $ 316,292 $ 10,983 $ 327,275
========== ========== ==========
</TABLE>
<TABLE>
Three Months Ended September 30, 1999
<CAPTION>
Residential Commercial TOTAL
----------- ---------- -----
<S> <C> <C> <C>
Rental income $443,241 $ 71,651 $514,892
Other income 1,069 -- 1,069
-------- -------- --------
Total net revenues 444,310 71,651 515,961
======== ======== ========
Operating expenses 173,157 10,541 183,698
Interest expense -- 21,896 21,896
Management fees 23,525 4,203 27,728
Real estate taxes 22,710 4,426 27,136
Depreciation expense 89,385 22,902 112,287
-------- -------- --------
Net income (loss) $135,533 $ 7,683 $143,216
======== ======== ========
</TABLE>
9
<PAGE>
9. Segment Reporting - Continued
-----------------------------
<TABLE>
Three Months Ended September 30, 1998
<CAPTION>
Residential Commercial TOTAL
---------------------- -----
<S> <C> <C> <C>
Rental income $420,097 $ 74,564 $494,661
Other income 3,459 -- 3,459
-------- -------- --------
Total net revenues 423,556 74,564 498,120
======== ======== ========
Operating expenses 175,246 12,865 188,111
Write-off of unamortized loan
improvements and amenities -- -- --
Interest expense -- 24,401 24,401
Management fees 21,177 4,479 25,656
Real estate taxes 20,437 4,438 24,875
Depreciation expense 94,504 22,902 117,406
-------- -------- --------
Net income (loss) $112,192 $ 5,479 $117,671
======== ======== ========
</TABLE>
A reconciliation of the totals reported for the operating segments to the
applicable line items in the consolidated financial statements for the
three months and nine months ended September 30, 1999 and 1998 is
necessary given amounts recorded at the Partnership level and not
allocated to the operating properties for internal reporting purposes.
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------
1999 1998
---------- ----------
NET REVENUES
- ------------
<S> <C> <C>
Total revenues for reportable segments $ 1,467,414 $ 1,456,770
Other income for partnership 10,527 14,494
Eliminations -- --
---------- ----------
Total consolidated net revenues $ 1,477,941 $ 1,471,264
========== ==========
INTEREST EXPENSE
- ----------------
Interest expense for reportable segments $ 67,612 $ 74,480
Interest expense for partnership 218,591 223,301
---------- ----------
Total interest expense $ 286,203 $ 297,781
========== ==========
DEPRECIATION AND AMORTIZATION
- -----------------------------
Total depreciation and amortization for
reportable segments $ 348,086 $ 353,651
Depreciation and amortization for
partnership 21,508 19,464
Eliminations (11,764) (11,766)
----------- -----------
Total depreciation and amortization $ 357,830 $ 361,349
=========== ===========
NET INCOME (LOSS)
- -----------------
Total net income (loss) for reportable segments $ 394,392 $ 327,275
Net income (loss) for partnership (336,554) (327,695)
Eliminations (14,759) 782
----------- -----------
Total net income (loss) $ 43,079 $ 362
=========== ===========
</TABLE>
10
<PAGE>
9. Segment Reporting - Continued
-----------------------------
<TABLE>
<CAPTION>
Three Months Ended
September 30,
----------------------
1999 1998
--------- ---------
NET REVENUES
- ------------
<S> <C> <C>
Total revenues for reportable segments $ 515,961 $ 498,120
Other income for partnership 3,436 3,883
Eliminations -- --
--------- ---------
Total consolidated net revenues $ 519,397 $ 502,003
========= =========
INTEREST EXPENSE
- ----------------
Interest expense for reportable segments $ 21,896 $ 24,401
Interest expense for partnership 72,879 75,139
--------- ---------
Total interest expense $ 94,775 $ 99,540
========= =========
DEPRECIATION AND AMORTIZATION
- -----------------------------
Total depreciation and amortization for
reportable segments $ 112,287 $ 117,406
Depreciation and amortization for
partnership 7,624 6,172
Eliminations (3,922) (3,922)
--------- ---------
Total depreciation and amortization $ 115,989 $ 119,656
========= =========
NET INCOME (LOSS)
- -----------------
Total net income (loss) for reportable
segments $ 143,216 $ 117,671
Net income (loss) for partnership (118,453) (107,590)
Eliminations (3,760) (1,558)
--------- ---------
Total net income (loss) $ 21,003 $ 8,523
========= =========
</TABLE>
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 ("MD&A") is structured in four major sections. The first section
provides information related to occupancy levels and rental and other income
generated by the Partnership's properties. The second analyzes results of
operations on a consolidated basis. The final sections address consolidated cash
flows and financial condition. Discussion of certain market risks also follow.
MD&A should be read in conjunction with the financial statements in Item 1 and
the cautionary statements below.
Cautionary Statements
- ---------------------
Some of the statements included in this Item 2 may be considered to be
"forward-looking statements" since such statements relate to matters which have
not yet occurred. For example, phrases such as "the Partnership anticipates,"
"believes" or "expects," indicate that it is possible that the event
anticipated, believed or expected may not occur. Should such event not occur,
then the result which the Partnership expected also may not occur or occur in a
different manner, which may be more or less favorable to the Partnership. The
Partnership does not undertake any obligations to publicly release the result of
any revisions to these forward-looking statements that may be made to reflect
any future events or circumstances.
Any forward-looking statements included in MD&A, or elsewhere in this report,
which reflect management's best judgment, 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 September 30 were
as follows:
1999 1998
------ ------
Wholly-owned Properties
- -----------------------
The Park at the Willows 90% 88%
Park Place Apartments Phase II 92% 86%
Property Owned in Joint Venture with NTS-
- -----------------------------------------
Properties IV and NTS-Properties Plus Ltd.
- ------------------------------------------
(Ownership % at September 30, 1999)
- -----------------------------------
Blankenbaker Business Center 1A (31%) 100% 100%
The average occupancy levels at the Partnership's properties during the three
months and nine months ended September 30 were as follows:
Three Months Nine Months
Ended Ended
September 30, September 30,
--------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------
Wholly-owned Properties
-----------------------
The Park at the Willows 89% 90% 91% 91%
Park Place Apartments Phase II 91% 85% 86% 84%
Property owned in Joint Venture
-------------------------------
with NTS-Properties IV and NTS-
-------------------------------
Properties Plus, LTD. (Ownership
--------------------------------
% at September 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 nine months ended September 30, 1999 and 1998 was as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
-------- -------- -------- --------
Wholly-owned Properties
-----------------------
The Park at the Willows $ 83,292 $ 93,809 $256,704 $276,832
Park Place Apartments Phase II $361,019 $329,747 $989,924 $961,845
Property owned in Joint Venture
--------------------------------
with NTS-Properties IV and
--------------------------
NTS-Properties Plus Ltd.
-------------------------
(Ownership % at September 30,
-----------------------------
1999)
-----
Blankenbaker Business Center 1A(31%)(1) $ 71,651 $74,564 $220,786 $218,093
(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 nine months
ended September 30, 1999 and 1998.
13
<PAGE>
Results of Operations - Continued
- ---------------------------------
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 September 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 $3,000 or 2.5% and $45,000 or 13%,
respectively, for the three months and nine months ended September 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 exterior repairs at the Park at the Willows, and decreased repair and
maintenance costs at Blankenbaker Business Center 1A.
The write-off of unamortized land improvements and amenities of $10,743 for the
nine months ended September 30, 1998 is the result of the retirement of assets
that were not fully depreciated. The retirements were the result of signage and
deck replacements at Park Place Apartments Phase II.
Interest expense decreased approximately $4,800 or 5% and $11,600 or 4%,
respectively, for the three months and nine months ended September 30, 1999 as
compared to the same periods in 1998. These decreases are the result of
decreased note payable balances due to monthly principal payments.
Professional and administrative expenses increased approximately $16,500 or 109%
and $33,500 or 72%, respectively, for the three months and nine months ended
September 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 Offers.
Professional and administrative expenses - affiliated decreased approximately
$3,000 or 14.5% and $10,500 or 16%, respectively, for the three months and nine
months ended September 30, 1999 as compared to the same period in 1998,
primarily as a result of decreased salary costs in the Finance and Accounting
Departments due to temporary vacancies in several positions. 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>
Consolidated Cash Flows and Financial Condition
- -----------------------------------------------
Cash flows provided by (used in):
1999 1998
---------- ----------
Operating activities $ 511,778 $ 458,361
Investing activities (73,745) 223,309
Financing activities (379,760) (327,559)
---------- ----------
Net increase in cash and equivalents $ 58,273 $ 354,111
========== ==========
Net cash provided by operating activities increased approximately $54,000 or 12%
for the nine months ended September 30, 1999 as compared to the same period in
1998. The increase in net cash provided by operating activities was driven
primarily by increased net income in 1999 as compared to 1998.
Net cash provided by (used in) investing activities totaled $(73,745) and
$223,309 for the nine months ended September 30, 1999 and 1998, respectively.
The decrease in net cash provided by investing activities for the nine months
ended September 30, 1999 as compared to the same period in 1998 is primarily a
result of having no investment security transactions during the nine months
ended September 30, 1999, offset slightly by reduced capital expenditures in the
nine months ended September 30, 1999 as compared to the same period in 1998.
Net cash used in financing activities totaled $379,760 and $327,559 for the nine
months ended September 30, 1999 and 1998, respectively. The increase in net cash
used in financing activities was primarily due to slightly higher principal
pay-downs on debt and an increase in cash and equivalents - restricted for the
nine months ended September 30, 1999 as compared to the same period in 1998,
offset by a lower distribution to partners and a lesser number of partnership
units repurchased in the nine months ended September 30, 1999 as compared to the
same period in 1998.
During the nine months ended September 30, 1999 the Partnership used cash flow
from operations and cash on hand to pay a 1% (annualized) cash distribution of
$85,720 (1999) and a 1.30% (annualized, 2% in the first quarter and 1% in the
second and third quarters) cash distribution of $116,680 (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.
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 December 7, 1998 (the commencement date of the Partnership's first tender
offer), the Partnership has repurchased a total of 62,529 Units for $295,080, 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 Units. The funds remaining in the
Interest Repurchase Reserve at the commencement of the December 7, 1998 tender
offer (discussed below) were returned to unrestricted cash for utilization in
the Partnership's operations.
15
<PAGE>
Consolidated Cash Flows and Financial Condition - Continued
- -----------------------------------------------------------
On December 7, 1998, the Partnership and ORIG, LLC, an affiliate of the
Partnership, (the "bidders") commenced a tender offer (the "First Tender Offer")
to purchase up to 20,000 of the Partnership's limited partnership Units at a
price of $6.00 per Unit. The First Tender Offer provided that the Partnership
would purchase the first 10,000 Units tendered and would fund its purchases and
its portion of the expenses, associated with administering the First Tender
Offer, from cash reserves. If more than 10,000 Units were tendered, the bidders
could choose to acquire the additional Units on the same terms. Otherwise,
tendered Units would be purchased on a pro rata basis up to 20,000. Units that
were acquired by the Partnership would be retired. Units that were acquired by
ORIG, LLC would be held by it. The General Partner, NTS-Properties Associates
VII, did not participate in the First Tender Offer.
Under the terms of the First Tender Offer, the First Tender Offer expired on
March 6, 1999. As of that date, a total of 25,794 Units were tendered pursuant
to the First Tender Offer. The bidders exercised their right under the terms of
the First Tender Offer to purchase more than 20,000 Units and all 25,794 Units
tendered were accepted by the bidders without proration.
The Partnership repurchased 10,000 Units and ORIG, LLC purchased 15,794 Units.
On September 2, 1999, the Partnership and ORIG, LLC, (the "bidders") commenced a
second tender offer (the "Second 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 bidders 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 Units,
and is less than the book value per Unit as of the date of the Second Tender
Offer. The Second Tender Offer provides 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 Second Tender Offer from cash
reserves. If more than 10,000 Units are tendered, ORIG, LLC will purchase up to
an additional 10,000 Units. If more than 20,000 Units are tendered, the bidders
may choose to acquire the additional Units on the same terms. 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 Second Tender Offer. The Second Tender Offer's
initial expiration date was November 30, 1999. The Second Tender Offer was
subsequently extended to December 15, 1999.
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, 1999 and 1998.
Cash
Net Income Distributions Return of
Allocated Declared Capital
--------- -------- -------
Limited Partners:
1999 $ 42,648 $ 84,861 $ 42,213
1998 358 115,513 115,155
General Partner:
1999 $ 431 $ 857 $ 426
1998 4 1,167 1,163
16
<PAGE>
Consolidated Cash Flows and Financial Condition - Continued
- -----------------------------------------------------------
In an effort to continue to improve occupancy at the Partnership's residential
properties, the Partnership has an on-site leasing staff, 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.
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 15% of
the Partnership's total revenues for the nine months ended September 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 Corporation, including NTS-Properties Associates, the
General Partner of the Partnership, are reviewing the effort necessary to
prepare NTS' 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, is being replaced by a
Windows based network system both for NTS' headquarters functions and other
locations. The real estate accounting system developed, sold, and supported by
the Yardi Company of Santa Barbara, California will replace 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
fully operational by the fourth 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 the 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 costs of these advances in NTS' systems technology are not all attributable
to the Year 2000 issue since NTS had already identified the need to move to a
network based system regardless of the Year 2000. The Partnership's share of the
costs involved will be approximately $36,000 during 1999. Costs incurred through
December 31, 1998 were approximately $9,000. These costs include primarily
purchase, lease and maintenance of 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 fourth 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. At
September 30, 1998, a hypothetical 100 basis point increase in interest rates
would result in approximately $182,000 increase in the fair value of debt.
18
<PAGE>
PART II. OTHER INFORMATION
Item 3. Defaults upon Senior Securities
-------------------------------
None
Item 5. Other Information
-----------------
Mr. Richard L. Good, who was the Vice Chairman and former
President of NTS Capital Corporation and NTS Development
Company, retired effective September 3, 1999.
Item 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
Senior Vice President of
NTS Capital Corporation
Date: November 12, 1999
20
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information from the balance sheet as of
September 30, 1999 and from the statement of operations for the nine months
ended September 30, 1999 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 571,803
<SECURITIES> 0
<RECEIVABLES> 6,789
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 9,757,124
<DEPRECIATION> 0<F2>
<TOTAL-ASSETS> 10,458,879
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 4,914,670
0
0
<COMMON> 0
<OTHER-SE> 5,319,063
<TOTAL-LIABILITY-AND-EQUITY> 10,458,879
<SALES> 1,460,339
<TOTAL-REVENUES> 1,477,941
<CGS> 0
<TOTAL-COSTS> 1,148,659
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 286,203
<INCOME-PRETAX> 43,079
<INCOME-TAX> 0
<INCOME-CONTINUING> 43,079
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43,079
<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>
