UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
- ---- EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
----------------------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- ---- SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------- ---------------
Commission file number 0-17589
--------------------------------------
NTS-PROPERTIES VII, LTD
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 61-1119232
- ------------------------------- -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10172 Linn Station Road
Louisville, Kentucky 40223
- ------------------------------- ---------------
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (502) 426-4800
-------------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
- --------------------------------------------------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
Exhibit Index: See Page 38
Total Pages: 41
<PAGE>
TABLE OF CONTENTS
Pages
-----
PART I
Items 1 and 2. Business and Properties 3-9
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote
of Security Holders 9
PART II
Item 5. Market for the Registrant's Limited Partnership
Interests and Related Partner Matters 10
Item 6. Selected Financial Data 11
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 12-18
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk 18
Item 8. Financial Statements and Supplementary
Data 19-34
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 35
PART III
Item 10. Directors and Executive Officers of
the Registrant 36
Item 11. Management Remuneration and Transactions 36
Item 12. Security Ownership of Certain Beneficial
Owners and Management 37
Item 13. Certain Relationships and Related Transactions 37
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K 38-40
Signatures 41
-2-
<PAGE>
PART I
Items 1. and 2. Business and Properties
-----------------------
Development of Business
- -----------------------
NTS-Properties VII, Ltd., a Florida limited partnership (the "Partnership"), was
formed in 1987. The General Partner is NTS-Properties Associates VII, a Kentucky
limited partnership. As of December 31, 1999 the Partnership owned the following
properties:
- The Park at the Willows, a 48-unit luxury apartment complex
located on a 2.8 acre tract in Louisville, Kentucky, acquired
complete by the Partnership.
- Park Place Apartments Phase II, a 132-unit luxury apartment
complex located on an 11 acre tract in Lexington, Kentucky,
constructed by the Partnership.
- A joint venture interest in Blankenbaker Business Center 1A, a
business center with approximately 50,000 net rentable ground
floor square feet and approximately 50,000 net rentable
mezzanine square feet located in Louisville, Kentucky,acquired
complete by the joint venture between the Partnership and
NTS-Properties Plus Ltd., an affiliate of the General Partner
of the Partnership. The Joint Venture Agreement was amended to
admit NTS-Properties IV., Ltd., an affiliate of the General
Partner of the Partnership,("NTS-Properties IV") during 1994.
The Partnership's percentage interest in the joint venture was
31% at December 31, 1999.
The Partnership or the joint venture in which the Partnership is a partner has a
fee title interest in the above properties. In the opinion of the Partnership's
management, the properties are adequately covered by insurance.
As of December 31, 1999, the Partnership's properties were encumbered by the
mortgages as shown in the table below:
Interest Maturity Balance
Property Rate Date at 12/31/99
- -------- ---- ---- -----------
Park Place Apartments 7.37% 10/15/12 (1) $3,876,398
Blankenbaker Business 8.50% 11/15/05 (2) $ 977,957 (3)
(1) Monthly principal payments are based upon a 19-year amortization schedule.
The outstanding principal balance at maturity based on the current rate of
amortization will be $1,410,930.
(2) Current monthly principal payments are based upon an 11-year amortization
schedule.At maturity,the mortgage will have been repaid based on the current
rate of amortization.
(3) This amount represents the Partnership's proportionate interest in the
mortgage payable at December 31,1999.The outstanding balance of the mortgage
at December 31, 1999 was $3,121,473.
The Park at the Willows is not encumbered by any outstanding mortgages at
December 31, 1999.
Financial Information About Industry Segments
- ---------------------------------------------
The Partnership is presently engaged solely in the business of developing,
constructing, owning and operating residential apartments and commercial real
estate. See Note 11 in Item 8 for information regarding the Partnership's
operating segments.
-3-
<PAGE>
Narrative Description of Business
- ---------------------------------
General
- -------
The current business of the Partnership is consistent with the original purpose
of the Partnership which was to acquire, directly or by joint venture,
unimproved or partially improved land, to construct and otherwise develop
thereon apartment complexes or commercial properties, and to own and operate the
completed properties. The original purpose also includes the ability of the
Partnership to invest in fully improved properties, either directly or by joint
venture. The Partnership's properties are in a condition suitable for their
intended use.
The Partnership intends to hold the Properties until such time as sale or other
disposition appears to be advantageous with a view to achieving the
Partnership's investment objectives or it appears that such objectives will not
be met. In deciding whether to sell a Property, the Partnership will consider
factors such as potential capital appreciation, cash flow and federal income tax
considerations, including possible adverse federal income tax consequences to
the Limited Partners.
Description of Real Property
- ----------------------------
The Park at the Willows
- -----------------------
All units in The Park at the Willows are loft, studio or deluxe one-bedroom
apartments. All units have wall-to-wall carpeting, individually controlled
heating and air conditioning, dishwashers, ranges, refrigerators with ice
makers, garbage disposals and microwave ovens. Loft and deluxe units have
washer/dryer hook-ups. In addition, pursuant to an agreement with the Willows of
Plainview apartment community which was developed adjacent to The Park at the
Willows and is owned by NTS-Properties IV and NTS-Properties V, two publicly
registered limited partnerships sponsored by an affiliate of the General
Partner, tenants of The Park at the Willows have access to and use of the
coin-operated washer/dryer facilities, clubhouse, management offices, swimming
pool, whirlpool and tennis courts at The Willows of Plainview. The Partnership
shares proportionately in the cost of maintaining and operating these
facilities.
Monthly rental rates at The Park at the Willows start at $569 for studio
apartments, $679 for deluxe units and $739 for lofts, with additional monthly
rental amounts for special features and locations. Tenants pay all costs of
heating, air conditioning and electricity. Most leases are for a period of one
year. Units will be rented in some cases, however, on a shorter term basis at an
additional charge. The occupancy levels at the apartment complex as of December
31 were 81% (1999), 77% (1998), 96% (1997), 83% (1996) and 96% (1995). See item
7 for average occupancy information.
Park Place Apartments Phase II
- ------------------------------
Units at Park Place Apartments Phase II include one-bedroom and two-bedroom
apartments and two-bedroom town homes. All units have wall-to-wall carpeting,
individually controlled heating and air conditioning, dishwashers, ranges,
refrigerators with icemakers, garbage disposals and microwave ovens. Each unit
has either a washer/dryer hook-up or access to coin-operated washers and dryers.
Amenities include the clubhouse with a party room, swimming pool, tennis courts,
racquetball courts, exercise facility and management offices. The amenities are
shared with Phase I of the Park Place development which were developed and
constructed by NTS-Properties VI, an affiliate of the General Partner and with
Phase III which is currently being constructed by NTS-Properties VI. The cost to
construct and operate the common amenities is shared proportionately by each
phase.
Monthly rental rates at Park Place Apartments Phase II start at $769 for
one-bedroom apartments, $1,009 for two-bedroom apartments and $1,159 for
two-bedroom town homes, with additional monthly rental amounts for special
features and locations. Tenants pay all costs of heating, air conditioning and
electricity. Most leases are for a period of one year. Units will be rented in
some cases, however, on a shorter term basis at an additional charge. The
occupancy levels at the apartment complex as of December 31 were 86% (1999), 85%
(1998), 92% (1997), 90% (1996) and 91% (1995). See item 7 for average occupancy
information.
-4-
<PAGE>
Blankenbaker Business Center 1A
- -------------------------------
Sykes HealthPlan Service Bureau, Inc. ("SHPS, Inc.") has leased 100% of
Blankenbaker Business Center 1A. The annual base rent, which does not include
the cost of utilities, is $7.48 per square foot. The lease term is for 11 years
and expires in July 2005. Sykes HealthPlan Service Bureau, Inc. is a
professional service oriented organization which deals in insurance claim
processing. The lease provides for the tenant to contribute toward the payment
of common area expenses, insurance and real estate taxes. The occupancy level at
the business center as of December 31, 1999, 1998, 1997, 1996 and 1995 was 100%.
See item 7 for average occupancy information.
The following table contains approximate data concerning the lease in effect on
December 31, 1999:
Year of Sq. Ft. of % of Net Current Annual Rental
Name Expiration Rentable Area per Square Foot
---- ---------- ------------- ---------------
Sykes HealthPlan
Service Bureau, Inc. 2005 100,640 $7.48
(1) Rentable area includes ground floor and mezzanine square feet.
It has previously been reported that SHPS, Inc. intended to consolidate its
operations and build its corporate headquarters in Jefferson County, Kentucky.
SHPS, Inc. occupies 100% of Blankenbaker Business Center 1A. The Partnership
believes that SHPS, Inc. no longer intends to build a corporate headquarters. As
of December 31, 1999, it is the Partnership's understanding that SHPS, Inc.,
intends to occupy the space at Blankenbaker Business Center 1A through the
duration of its lease term, which expires in July 2005.
Additional operating data regarding the Partnership's properties is furnished in
the following table.
Federal Realty Annual
Tax Basis Tax Rate Realty Taxes
--------- -------- ------------
Wholly-Owned Properties
- -----------------------
The Park at the Willows $ 2,547,669 $ .010910 $ 16,893
Park Place Apartments
Phase II $ 9,442,391 $ .009845 $ 72,592
Property Owned in Joint
- -----------------------
Venture with NTS-Properties IV
- ------------------------------
and NTS-Properties Plus Ltd.
- ----------------------------
Blankenbaker Business
Center 1A $ 7,356,545 $ .010710 $ 55,850
Percentage ownership has not been applied to the Blankenbaker Business Center 1A
information in the above table.
Depreciation for book purposes is computed using the straight-line method over
the estimated useful lives of the assets which are 5-30 years for land
improvements, 30 years for buildings, 5-30 years for building improvements and
5-30 years for amenities. There are currently no planned renovations which would
have an impact on realty taxes.
Investment in Joint Ventures
- ----------------------------
Blankenbaker Business Center Joint Venture - On December 28, 1990, the
Partnership entered into a joint venture agreement with NTS-Properties Plus Ltd.
to own and operate Blankenbaker Business Center 1A and to acquire an
approximately 2.49 acre parking lot that was being leased by the business center
from an affiliate of the General Partner. The use of the parking lot is a
provision of the tenant's lease agreement with the business center. On August
16, 1994, the Blankenbaker Business Center Joint Venture agreement was amended
to admit NTS-Properties IV to the Joint Venture. The terms of the Joint Venture
-5-
<PAGE>
Investment in Joint Ventures - Continued
- ----------------------------------------
shall continue until dissolved. Dissolution shall occur upon, but not before,
the first to occur of the following:
(a) the withdrawal, bankruptcy or dissolution of a Partner or the execution by a
Partner of an assignment for the benefit of its creditors;
(b) the sale, condemnation or taking by eminent domain of all or substantially
all of the assets of the Real Property and Parking Lot and the sale and/or
collection of any evidences of indebtedness received in connection
therewith;
(c) the vote or consent of each of the Partners to dissolve the Partnership;
or
(d) December 31, 2030.
In 1990 when the Joint Venture was originally formed, the Partnership
contributed $450,000 which was used for additional tenant improvements to the
business center and made a capital contribution to the Joint Venture of $325,000
to purchase the 2.49 acre parking lot. The additional tenant improvements were
made to the business center and the parking lot was purchased in 1991.
NTS-Properties Plus Ltd. contributed Blankenbaker Business Center 1A together
with improvements and personal property subject to mortgage indebtedness of
$4,715,000. During November 1994, this note payable was replaced with permanent
financing in the amount of $4,800,000. The outstanding balance at December 31,
1999 was $3,121,473. The mortgage is recorded as a liability of the Joint
Venture. The Partnership's proportionate interest in the mortgage at December
31, 1999 was $977,957. The mortgage bears interest at a fixed rate of 8.5% and
is due November 15, 2005. Currently monthly principal payments are based upon an
11-year amortization schedule. At maturity, the mortgage will have been repaid
based on the current rate of amortization.
On April 28, 1994, the Joint Venture obtained $1,100,000 in debt financing to
fund a portion of the tenant finish and leasing costs which were associated with
the Sykes lease renewal and expansion. The $1,100,000 note bore interest at the
Prime Rate + 1 1/2%. In order for the Joint Venture to obtain the $4,800,000 of
permanent financing discussed above, it was necessary for the Joint Venture to
seek an additional Joint Venture partner to provide the funds necessary for the
tenant finish and leasing costs instead of debt financing. See the following
paragraph for information regarding the new joint venture partner. The
$1,100,000 note was retired in August 1994. This resulted in the Joint Venture's
debt being at a level where permanent financing could be obtained and serviced.
On August 16, 1994, NTS-Properties VII, Ltd. contributed $500,000 and
NTS-Properties IV contributed $1,100,000 in accordance with the agreement to
amend the Joint Venture. The need for additional capital by the Joint Venture
was a result of the lease renewal and expansion which was signed April 28, 1994
between the Joint Venture and Sykes. NTS-Properties VII, Ltd. was not in a
position to contribute all of the capital required for the project, nor was
NTS-Properties Plus Ltd. in a position to contribute additional capital.
NTS-Properties IV was willing to participate in the Joint Venture and to
contribute, together with NTS-Properties VII, Ltd., the capital necessary with
respect to the project. NTS-Properties Plus Ltd. agreed to the admission of
NTS-Properties IV to the Joint Venture and to the capital contributions by
NTS-Properties IV and NTS-Properties VII, Ltd. with the knowledge that its joint
venture interest would, as a result, decrease. See the following paragraph for a
discussion of how the revised interests in the Joint Venture were calculated
with the admission of NTS-Properties IV. With this expansion, Sykes occupied
100% of the business center. No future contributions are anticipated as of
December 31, 1999.
In order to calculate the revised joint venture percentage interests, the assets
of the Joint Venture were revalued in connection with the admission of
NTS-Properties IV as a joint venture partner and the additional capital
contributions. The value of the Joint Venture's assets immediately prior to the
additional capital contributions was $6,764,322 and its outstanding debt was
$4,650,042, with net equity being $2,114,280. The difference between the value
of the Joint Venture's assets and the value at which they were carried on the
books of the Joint Venture was allocated to the Partnership and NTS-Properties
Plus Ltd. in determining each Joint Venture partners' percentage interest.
-6-
<PAGE>
Investment in Joint Ventures - Continued
- ----------------------------------------
The Partnership's interest in the Joint Venture remained at 31%. NTS-Properties
Plus Ltd.'s interest in the Joint Venture decreased from 69% to 39% as a result
of the capital contributions by NTS-Properties IV and the Partnership.
NTS-Properties IV obtained a 30% interest in the Joint Venture as a result of
its capital contribution.
The Net Cash Flow for each calendar quarter is distributed to the Partners in
accordance with their respective Percentage Interests. The term Net Cash Flow
for any period shall mean the excess, if any, of (A) the sum of (i) the gross
receipts of the Joint Venture Property for such period, other than capital
contributions, plus (ii) any funds released by the Partners from previously
established reserves (referred to in clause (B) (iv) below), over (B) the sum of
(i) all cash operating expenses paid by the Joint Venture Property during such
period in the course of business, (ii) capital expenditures paid in cash during
such period, (iii) payments during such period on account of amortization of the
principal of any debts or liabilities of the Joint Venture property and (iv)
reserves for contingent liabilities and future expenses of the Joint Venture
Property as established by the Partners; provided, however, that the amounts
referred to in (B)(i), (ii) and (iii) above shall only be taken into account to
the extent not funded by capital contributions or paid out of previously
established reserves. Percentage Interest means that percentage which the
capital contributions of a Partner bears to the aggregate capital contributions
of all the Partners.
Net income or net loss is allocated between the Partners in accordance with
their respective Percentage Interests. The Partnership's ownership share was 31%
at December 31, 1999.
Competition
- -----------
The Partnership's residential properties are subject to competition from similar
types of properties (including, in certain areas, properties owned or managed by
affiliates of the General Partner) in the respective vicinities in which they
are located. Such competition is generally for the retention of existing tenants
or for new tenants when vacancies occur. The Partnership maintains the
suitability and competitiveness of its properties primarily on the basis of
effective rents, amenities and services provided to tenants. Competition is
expected to increase in the future as a result of the construction of additional
properties. As of December 31, 1999, properties under construction in the
respective vicinities in which the properties are located are as follows: In the
vicinity near Park Place Apartments Phase II, there are 320 apartment units
currently under construction which are scheduled to be completed during the
fourth quarter of 2000. In the vicinity near The Park at the Willows, there is
one new apartment complex under construction which is scheduled to be completed
by the fourth quarter of 2000. The number of units in this complex is unknown at
this time. The Partnership has not commissioned a formal market analysis of
competitive conditions in any market in which it owns properties, but relies
upon the market condition knowledge of the employees of NTS Development Company
who manage and supervise leasing for each property.
Management of Properties
- ------------------------
NTS Development Company, an affiliate of NTS-Properties Associates VII, the
General Partner of the Partnership, directs the management of the Partnership's
properties pursuant to a written agreement. NTS Development Company is a
wholly-owned subsidiary of NTS Corporation. Mr. J. D. Nichols has a controlling
interest in NTS Corporation and is a General Partner of NTS-Properties
Associates VII. Under the agreement, the Property Manager establishes rental
policies and rates and directs the marketing activity of leasing personnel. It
also coordinates the purchase of equipment and supplies, maintenance activity
and the selection of all vendors, suppliers and independent contractors. As
compensation for its services, the Property Manager received a total of $102,650
for the year ended December 31, 1999. $16,869 was received from the
Partnership's commercial property and $85,781 was received from residential
properties. The fee is equal to 6% of gross revenues from commercial properties
and 5% of gross revenues from residential properties.
-7-
<PAGE>
Management of Properties - Continued
- ------------------------------------
In addition, the management agreement requires the Partnership to purchase all
insurance relating to the managed properties, to pay the direct out-of-pocket
expenses of the Property Manager in connection with the operation of the
properties, including the cost of goods and materials used for and on behalf of
the Partnership, and to reimburse the Property Manager for the salaries,
commissions, fringe benefits, and related employment expenses of on-site
personnel.
The term of the Management Agreement between NTS Development Company and the
Partnership was for an initial term of five years, and thereafter for succeeding
one-year periods, unless canceled. The Agreement is subject to cancellation by
either party upon sixty days written notice. As of December 31, 1999, the
Management Agreement is still in effect.
Working Capital Practices
- -------------------------
Information about the Partnership's working capital practices is included in
Management's Discussion and Analysis of Financial Condition and Results of
Operations in Part II, Item 7.
Seasonal Operations
- -------------------
The Partnership does not consider its operations to be seasonal to any material
degree.
Conflict of Interest
- --------------------
Because the principals of the General Partner and/or its affiliates own and/or
operate real estate properties other than those owned by the Partnership that
are or could be in competition with the Partnership, potential conflicts of
interest exist. Because the Partnership was organized by and is operated by the
General Partner, these conflicts are not resolved through arms-length
negotiations but through the exercise of the General Partner's good judgment
consistent with its fiduciary responsibility to the Limited Partners and the
Partnership's investment objectives and policies. The General Partner is
accountable to the Limited Partners as a fiduciary and consequently must
exercise good faith and integrity in handling the Partnership's affairs. A
provision has been made in the Partnership Agreement that the General Partner
will not be liable to the Partnership except for acts or omissions performed or
omitted fraudulently, in bad faith or with negligence. In addition, the
Partnership Agreement provides for indemnification of the General Partner by the
Partnership for liability resulting from errors in judgement or certain acts or
omissions. With respect to these potential conflicts of interest, the General
Partner and its affiliates retain a free right to compete with the Partnership's
properties including the right to develop competing properties now and in the
future, in addition to those existing properties which may compete directly or
indirectly.
NTS Development Company, the Property Manager and an affiliate of the General
Partner, acts in a similar capacity for other affiliated entities in the same
geographic region where the Partnership has property interests. The agreement
with the Property Manager is on terms no less favorable to the Partnership than
those which could be obtained from a third party for similar services in the
same geographical region in which the properties are located. The contract is
terminable by either party without penalty upon 60 days written notice.
There are no other agreements or relationships between the Partnership, the
General Partner and its affiliates than those previously described.
Employees
- ---------
The Partnership has no employees; however, employees of an affiliate of the
General Partner are available to perform services for the Partnership. The
Partnership reimburses this affiliate for the actual costs of providing such
services. See Note 9 in Item 8 for information regarding the Partnership's
related party transactions.
-8-
<PAGE>
Governmental Contracts and Regulations
- --------------------------------------
No portion of the Partnership's business is subject to renegotiation of profits
or termination of contracts or sub-contracts at the election of the United
States Government.
Item 3. Legal Proceedings
-----------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
-9-
<PAGE>
PART II
Item 5. Market for the Registrant's Limited Partnership Interests and
--------------------------------------------------------------------
Partner Matters
---------------
There is no established trading market for the limited partnership interests.
The Partnership had 1,109 limited partners as of February 29, 2000. Cash
distributions and allocations of net income (loss) are made as described in Note
1C to the Partnership's 1999 financial statements.
Annual distributions totaling $.20, $.25 and $.40 per limited partnership Unit
were paid during the years ended December 31, 1999, 1998 and 1997, respectively.
Quarterly distributions are determined based on current cash balances, cash flow
being generated by operations and cash reserves needed for future leasing costs,
tenant finish costs and capital improvements. Distributions were paid quarterly
as follows:
1999 1998 1997
---- ---- ----
First quarter $ .05 $ .10 $ .10
Second quarter .05 .05 .10
Third quarter .05 .05 .10
Fourth quarter .05 .05 .10
---- ---- ----
$ .20 $ .25 $ .40
==== ==== ====
The table below presents that portion of the distributions that represent a
return of capital on a Generally Accepted Accounting Principle basis for the
years ended December 31, 1999, 1998 and 1997.
Net Income Cash
(Loss) Distributions Return of
Allocated Declared Capital
--------- -------- -------
Limited Partners:
1999 $ 76,127 $ 112,646 $ 36,519
1998 (30,191) 144,299 144,299
1997 63,842 239,288 175,446
General Partner:
1999 $ 769 $ 1,138 $ 369
1998 (305) 1,458 1,458
1997 645 2,417 1,772
-10-
<PAGE>
<TABLE>
Item 6. Selected Financial Data
-----------------------
For the years ended December 31, 1999, 1998, 1997, 1996 and 1995.
<CAPTION>
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Total revenues $ 1,960,824 $ 1,951,937 $ 2,093,752 $ 2,041,762 $ 1,972,169
Total expenses (1,883,928) (1,982,433) (2,001,481) (2,168,650) (2,077,195)
------------ ------------ ------------ ------------ ------------
Income (loss) before
extraordinary item 76,896 (30,496) 92,271 (126,888) (105,026)
Extraordinary item (1) -- -- (27,784) -- --
------------ ------------ ------------ ------------ ------------
Net income (loss) $ 76,896 $ (30,496) $ 64,487 $ (126,888) $ (105,026)
============ ============ ============ ============ ============
Net income(loss)
allocated to:
General Partner $ 769 $ (305) $ 645 $ (1,269) $ (1,050)
Limited partners $ 76,127 $ (30,191) $ 63,842 $ (125,619) $ (103,976)
Net income (loss) per
limited partnership Unit $ .13 $ (.05) $ .11 $ (.20) $ (.16)
Weighted average number
of limited partnership
Units 567,325 581,622 598,526 615,384 638,265
Cumulative net loss
allocated to:
General Partner $ (25,954) $ (26,723) $ (26,418) $ (27,063) $ (25,794)
Limited partners $ (2,569,539) $ (2,645,666) $ (2,615,475) $ (2,679,317) $ (2,553,698)
Cumulative taxable income
(loss) allocated to:
General Partner $ 26,100 $ 23,511 $ 21,995 $ 17,371 $ 14,381
Limited partners $ (2,809,106) $ (2,915,767) $ (2,941,772) $ (3,059,753) $ (2,965,106)
Distributions declared:
General Partner $ 1,138 $ 1,458 $ 2,417 $ 2,471 $ 2,579
Limited partners $ 112,646 $ 144,299 $ 239,288 $ 244,707 $ 255,306
Cumulative distributions
declared:
General Partner $ 26,605 $ 25,467 $ 24,009 $ 21,592 $ 19,121
Limited partners $ 2,633,810 $ 2,521,164 $ 2,376,865 $ 2,137,577 $ 1,892,870
At year end:
Cash and equivalents $ 400,262 $ 398,001 $ 164,714 $ 278,620 $ 249,559
Investment securities $ -- $ -- $ 338,129 $ -- $ 103,908
Land, buildings and
amenities, net $ 9,688,537 $ 10,036,720 $ 10,361,786 $ 10,878,976 $ 11,405,597
Total assets $ 10,267,643 $ 10,665,976 $ 11,179,145 $ 11,474,499 $ 12,108,948
Mortgages and notes
payable $ 4,854,355 $ 5,088,213 $ 5,303,947 $ 5,358,215 $ 5,509,479
</TABLE>
The above selected financial data should be read in conjunction with the
financial statements and related notes appearing elsewhere in this Form 10-K
report.
1) See Note 7 in Item 8 for information regarding the extraordinary item.
-11-
<PAGE>
Item 7. 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 8 and the cautionary statements below.
Occupancy Levels
- ----------------
The occupancy levels at the Partnership's properties as of December 31 were as
follows:
Percentage
Ownership at
12/31/99 1999(1) 1998 1997
-------- ---- ---- ----
Wholly-owned Properties
- -----------------------
The Park at the Willows 100% 81% 77% 96%
Park Place Apartments Phase II 100% 86% 85% 92%
Property owned in Joint Venture
- -------------------------------
with NTS-Properties IV and
- --------------------------
NTS-Properties Plus Ltd.
- ------------------------
Blankenbaker Business Center 1A 31% 100% 100% 100%
(1) Current occupancy levels are considered adequate to continue the operation
of the Partnership's properties.
The average occupancy levels at the Partnership properties as of December 31
were as follows:
Percentage
Ownership at
12/31/99 1999 1998 1997
-------- ---- ---- ----
Wholly-owned Properties
- -----------------------
The Park at the Willows 100% 90% 89% 91%
Park Place Apartments Phase II 100% 87% 85% 92%
Property owned in Joint Venture
- -------------------------------
with NTS-Properties IV and
- --------------------------
NTS-Properties Plus Ltd.
- ------------------------
Blankenbaker Business Center 1A 31% 100% 100% 100%
-12-
<PAGE>
Rental and Other Income
- -----------------------
Rental and other income generated by the Partnership's properties for the years
ended December 31, 1999, 1998 and 1997 were as follows:
Percentage
Ownership
at 12/31/99 1999 1998 1997
----------- ---- ---- ----
Wholly-owned Properties
- -----------------------
The Park at the Willows 100% $ 337,595 $ 361,529 $ 345,490
Park Place Apartments
Phase II 100% $1,320,563 $1,274,745 $1,437,348
Property owned in Joint
- -----------------------
Venture with NTS-
- -----------------
Properties IV and NTS-
- ----------------------
Properties Plus Ltd.
- --------------------
Blankenbaker Business
Center 1A (1) 31% $ 286,612 $ 292,734 $ 293,939
(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 1999, 1998 and 1997.
The following is an analysis of material changes in results of operations for
the periods ending December 31, 1999, 1998 and 1997. Items that did not have a
material impact on operations for the periods listed above have been eliminated
from this discussion.
Rental income increased approximately $13,500 or 1% from 1998 to 1999. The
increase was driven by increased average occupancy levels at The Park at the
Willows and Park Place Apartments Phase II and by increased income from the
rental of fully furnished units at Park Place Apartments Phase II. Fully
furnished units are apartments which rent at an additional premium above base
rent.
Rental income decreased approximately $140,000 or 7% from 1997 to 1998. The
decrease was driven by decreased average occupancy levels at The Park at the
Willows and Park Place Apartments Phase II partially offset by increased income
from the rental of fully furnished units at The Park at the Willows. Fully
furnished units are apartments which rent at an additional premium above base
rent. Therefore, it is possible for occupancy to decrease and revenues to
increase when the number of fully furnished units occupied has increased.
Year-ending occupancy percentages represent occupancy only on a specific date;
therefore, the above analysis considers average occupancy percentages which are
representative of the entire year's results.
Operating expenses decreased approximately $89,000 or 19% from 1998 to 1999
primarily as a result of decreased operating expenses at Park Place Apartments
Phase II and Blankenbaker Business Center 1A. The decrease in operating expenses
at Park Place Apartments Phase II is due to decreased building repair and
maintenance costs (hot water heaters), decreased cable expense and decreased
landscaping costs. The decrease in operating expenses at Blankenbaker Business
Center 1A is due to decreased parking lot repairs. The decrease is partially
offset by increased replacement costs (floor covering), exterior painting and
parking lot repairs at Park Place Apartments Phase II.
Operating expenses - affiliated increased approximately $12,200 or 5% from 1998
to 1999 and approximately $24,000 or 10% from 1997 to 1998. The increases were
due primarily to increased property management payroll costs (due to changes in
staff) and to increased overhead costs. Operating expenses - affiliated are
expenses incurred for services performed by employees of NTS Development
Company, an affiliate of the General Partner.
-13-
<PAGE>
Rental and Other Income - Continued
- -----------------------------------
The 1998 write-off of unamortized building and land improvement costs can be
attributed to Park Place Apartments Phase II. The write-off is the result of
property renovations. The write-off represents the cost of unamortized assets
which were replaced as a result of the renovations.
Interest expense decreased approximately $17,000 or 4% from 1998 to 1999 as a
result of the Partnership's decreasing debt level as a result of principal
payments made.
Interest expense decreased approximately $40,000 or 9% in 1998 due primarily to
a lower interest rate on the new debt obligation obtained October 1997 (7.37%
versus 8.375%) and a result of the Partnership's decreasing debt level as a
result of principal payments made.
Management fees are calculated as a percentage of cash collections; however,
revenue for reporting purposes is on the accrual basis. As a result, the
fluctuations of revenues between years will differ from the fluctuations of
management fee expense.
Real estate taxes increased approximately $9,000 or 9% in 1998 as a result of an
increased Park Place Apartments Phase II tax assessment.
Professional and administrative expenses increased approximately $16,500 or 21%
in 1999 and approximately $19,000 or 32% in 1998 as a result of costs incurred
in connection with the Tender Offers (See discussion below).
Professional and administrative expenses - affiliated decreased approximately
$9,400 or 11% in 1999 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.
Depreciation and amortization expense decreased approximately $32,900 or 6% in
1998 as a result of a portion of the assets with shorter lives at the
Partnership's residential properties having become fully depreciated.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets which are 10-30 years for land improvements, 30 years
for buildings, 5-30 years for building improvements and 5-30 years for
amenities. The aggregate cost of the Partnership's properties, based upon the
Partnership's ownership percentage, for Federal tax purposes as of December 31,
1999 is approximately $13,920,000.
Consolidated Cash Flows and Financial Condition
- -----------------------------------------------
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 periodically 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 and 1999). 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 1999.
-14-
<PAGE>
Consolidated Cash Flows and Financial Information - Continued
- -------------------------------------------------------------
Cash flows provided by (used in):
1999 1998 1997
---- ---- ----
Operating activities $ 618,744 $ 474,667 $ 599,924
Investing activities (119,767) 170,998 (344,790)
Financing activities (496,716) (412,378) (369,040)
--------- --------- ---------
Net increase (decrease)
in cash and equivalents $ 2,261 $ 233,287 $(113,906)
========= ========= =========
Net cash provided by operating activities increased approximately $144,000 or
30% in 1999. The increase in net cash provided by operating activities was
driven primarily by an increase in net income.
Net cash provided by operating activities decreased approximately $125,000 or
21% in 1998. The decrease in net cash provided by operating activities was
driven primarily by a decrease in net income.
The decrease in net cash provided by investing activities in 1999 was the result
of the maturity of investment securities in 1998 exceeding the purchase of
investment securities partially offset by decreased capital expenditures in
1999. The increase in net cash provided by investing activities in 1998 was
primarily the result of a decrease in investment purchases partially offset by
increased capital expenditures.
The increase in net cash used in financing activities in 1999 was primarily due
to the repurchase of the Partnership's limited partnership Units and increased
net payments on mortgages partially offset by the decreased cash distributions
in 1999 compared to 1998. The increase in net cash used in financing activities
in 1998 was primarily due to increased net payments on mortgages partially
offset by decreased cash distributions and loan costs paid in 1998 compared to
1997 and decreased net Interest Repurchase Reserve activity.
During the year ended December 31, 1999, the Partnership used cash flow from
operations and cash on hand to make a 1% (annualized) distribution of $113,784.
During the years ended December 31, 1998 and 1997, the Partnership used cash
flow from operations and cash on hand to make a 1.25% (1998) and 2% (1997)
(annualized) distribution of $145,757 and $241,705, respectively. 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 flow from
operations and cash reserves will be sufficient to meet the needs of the
Partnership. Cash reserves (which are unrestricted cash and equivalents and
investment securities as shown on the Partnership's balance sheet as of December
31) were $400,262, $398,001 and $502,843 at December 31, 1999, 1998 and 1997,
respectively.
The demand on future liquidity is anticipated to increase as a result of the
replacement of the roofs at Park Place Phase II apartments (17 buildings) all of
which were installed using shingles produced by a single manufacturer. The
shingles appear to contain defects which may cause roofs to fail before the end
of their expected useful lives. As the manufacturer has declared bankruptcy, the
Partnership does not expect to be able to recover any of the costs of the roof
replacements. The Partnership does not have sufficient working capital to make
all of the roof replacements at once and intends to make the replacements over
the next 36 months.
The Partnership had no other material commitments for renovation or capital
expenditures at December 31, 1999.
Pursuant to Section 16.4 of the Partnership's Amended and Restated Agreement of
Limited Partnership, the Partnership established an Interest Repurchase Reserve
in December 1995. During the years ended December 31, 1998, 1997 and 1996, the
Partnership funded $7,242, $38,918 and $121,270, respectively, to the reserve.
Through December 31, 1998, the Partnership had repurchased a total of 62,529
Units for $295,080 at a price ranging from $4.00 to $6.00 per Unit. The Offering
price per Unit was established by the General Partner in its sole discretion and
-15-
<PAGE>
Consolidated Cash Flows and Financial Condition - Continued
- -----------------------------------------------------------
does not purport to represent the fair market value or liquidation value of the
Units. Repurchased Units have been retired by the Partnership, thus increasing
the percentage of ownership of each remaining limited partner investor. The
Interest Repurchase Reserve was funded from cash reserves. The funds remaining
in the Interest Repurchase Reserve at the commencement of the first 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, (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 stated that the Partnership
would purchase the first 10,000 Units tendered and would fund its purchases and
its portion of the expenses from cash reserves. If more than 10,000 Units were
tendered, ORIG, LLC would purchase up to an additional 10,000 Units. If more
than 20,000 Units were tendered, the Partnership and ORIG, LLC 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 believed that this price was appropriate, the price of $6.00 per
Unit may not equate to the fair market value or the liquidation value of the
Units, and was less than the book value per Unit as of the date of the Second
Tender Offer. The Second 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 Second Tender Offer
from cash reserves. If more than 10,000 Units were tendered, ORIG, LLC would
purchase up to an additional 10,000 Units. If more that 20,000 Units were
tendered, the bidders could choose to acquire the additional Units on the same
terms. 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 Second Tender Offer.
The Second Tender Offer's initial expiration date was November 30, 1999, but was
extended to December 15, 1999.
Under the terms of the Second Tender Offer, the Second Tender Offer expired on
December 15, 1999. As of that date, a total of 41,652 Units were tendered
pursuant to the Second Tender Offer. The bidders exercised their right under the
terms of the Second Tender Offer to purchase more than 20,000 Units and all
41,652 Units tendered were accepted by the bidders, without proration. The
Partnership repurchased 10,000 Units and ORIG, LLC purchased 31,652 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
years ended December 31, 1999, 1998 and 1997.
Net Income Cash
(Loss) Distributions Return of
Allocated Declared Capital
Limited Partners:
1999 76,127 112,646 36,519
1998 (30,191) 144,299 144,299
1997 63,842 239,288 175,446
General Partner:
1999 769 1,138 369
1998 (305) 1,458 1,458
1997 645 2,417 1,772
-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, who are 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.
Year 2000
- ---------
During 1999, all divisions of NTS Corporation, including NTS-Properties
Associates VII, the General Partner of the Partnership, reviewed 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 were addressed separately for the Year 2000 since the
Partnership saw the need to move to more advance management and accounting
systems made available by new technology and software development during the
decade of the 1990's. NTS' property management staff surveyed vendors to
evaluate embedded technology in its alarm systems, HVAC controls, telephone
systems and other computer associated facilities. Some equipment was replaced,
while others had circuitry upgrades.
In 1999, the PILOT software system, purchased in the early 1990's, was 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 was selected to replace PILOT.
The Yardi system is fully implemented and operational as of December 31, 1999.
NTS' system for multi-family apartment locations was converted to GEAC's Power
Site System earlier in 1998. There have been no Year 2000 related problems with
either system.
The cost 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
of the costs involved were approximately $9,000 in 1998 and approximately
$36,000 in 1999. These costs include primarily the purchase, lease and
maintenance of hardware and software.
At the date of this filing the Partnership did not experience any significant
operating issues relative to the Year 2000 issue. Despite diligent preparation,
unanticipated third-party failures, inability of our tenants to pay rent when
due, more general public infrastructure failures or failure of our remediation
efforts as planned could have a material adverse impact on our results of
operations, financial conditions and/or cash flows in 2000 and beyond.
Cautionary Statements
- ---------------------
Some of the statements included in Items 1 and 2, Business and Properties, and
Item 7, Management's Discussion and Analysis of Financial Condition and Results
of Operations, may be considered to be "forward-looking statements" since such
statements relate to matters which have not yet occurred. For example, phrases
such as "the Partnership anticipates", "believes" or "expects" indicate that it
is possible that the event anticipated, believed or expected may not occur.
Should such event not occur, then the result which the Partnership expected also
may not occur or occur in a different manner, which may be more or less
favorable to the Partnership. The Partnership does not undertake any obligations
to publicly release the result of any revisions to these forward-looking
statements that may be made to reflect any future events or circumstances.
Any forward-looking statements included in Management's Discussion and Analysis
of Financial Condition and Results of Operations, or elsewhere in this report,
which reflect management's best judgement based on factors known, involve risks
and uncertainties. Actual results could differ materially from those anticipated
in any forward-looking statements as a result of a number of factors, including
but not limited to those discussed below. Any forward-looking information
provided by the Partnership pursuant to the safe harbor established by recent
securities legislation should be evaluated in the context of these factors.
-17-
<PAGE>
Cautionary Statements - Continued
- ---------------------------------
The Partnership's principal activity is the leasing and management of a
commercial business center and apartment complexes. If Sykes, the tenant that
occupies 100% of the business center, or a large number of apartment lessees
default on their lease, the Partnership's ability to make payments due under its
debt agreements, payment of operating costs and other partnership expenses would
be directly impacted. A lessee's ability to make payments are subject to risks
generally associated with real estate, many of which are beyond the control of
the Partnership, including general or local economic conditions, competition,
interest rates, real estate tax rates, other operating expenses and acts of God.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
Our primary market risk exposure with regards to financial instruments is to
changes in interest rates. All of the Partnership's debt bears interest at a
fixed rate. At December 31, 1999, a hypothetical 100 basis point increase in
interest rates would result in an approximately $252,300 decrease in the fair
value of debt.
-18-
<PAGE>
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To NTS-Properties VII, Ltd.:
We have audited the accompanying balance sheets of NTS-Properties VII, Ltd. (a
Florida limited partnership) as of December 31, 1999 and 1998, and the related
statements of operations, partners' equity and cash flows for each of the three
years in the period ended December 31, 1999. These financial statements and
schedules referred to below are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements and schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of NTS-Properties VII, Ltd. as of
December 31, 1999 and 1998 and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999 in conformity
with accounting principles generally accepted in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules included on pages 39 and 40
are presented for purposes of complying with the Securities and Exchange
Commission's rules and regulations and are not a required part of the basic
financial statements. These schedules have been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly state in all material respects the financial data required to be
set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Louisville, Kentucky
March 24, 2000
-19-
<PAGE>
<TABLE>
NTS-PROPERTIES VII, LTD.
------------------------
BALANCE SHEETS
--------------
AS OF DECEMBER 31, 1999 AND 1998
--------------------------------
<CAPTION>
1999 1998
---- ----
ASSETS
- ------
<S> <C> <C> <C> <C> <C> <C>
Cash and equivalents $ 400,262 $ 398,001
Cash and equivalents - restricted 40,080 100,427
Accounts receivable 21,771 --
Land, buildings and amenities, net 9,688,537 10,036,720
Other assets 116,993 130,828
----------- -----------
$10,267,643 $10,665,976
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
- --------------------------------
Mortgages payable $ 4,854,355 $ 5,088,213
Accounts payable 97,355 57,319
Distributions payable -- 29,078
Security deposits 26,475 28,401
Other liabilities 24,646 41,265
----------- -----------
5,002,831 5,244,276
Commitments and contingencies (Note 10)
Partners' equity 5,264,812 5,421,700
----------- -----------
$10,267,643 $10,665,976
=========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
-20-
<PAGE>
<TABLE>
NTS-PROPERTIES VII, LTD.
------------------------
STATEMENTS OF OPERATIONS
------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
----------------------------------------------------
<CAPTION>
1999 1998 1997
---- ---- ----
Revenues:
<S> <C> <C> <C>
Rental income $ 1,936,404 $ 1,922,874 $ 2,064,236
Interest and other income 24,420 29,063 29,516
----------- ----------- -----------
1,960,824 1,951,937 2,093,752
Expenses:
Operating expenses 378,337 467,432 460,177
Operating expenses - affiliated 266,124 253,900 230,130
Write-off of unamortized building and land
improvements costs -- 13,008 17,797
Interest expense 378,227 395,180 434,680
Management fees 102,650 101,354 106,264
Real estate taxes 106,989 108,709 99,458
Professional and administrative expenses 94,483 77,953 58,895
Professional and administrative
expenses - affiliated 73,291 82,748 79,075
Depreciation and amortization 483,827 482,149 515,005
----------- ----------- -----------
1,883,928 1,982,433 2,001,481
----------- ----------- -----------
Income (loss) before extraordinary item 76,896 (30,496) 92,271
Extraordinary item - write-off unamortized
loan costs -- -- (27,784)
----------- ----------- -----------
Net income (loss) $ 76,896 $ (30,496) $ 64,487
=========== =========== ===========
Net income (loss) allocated to the limited partners:
Income (loss) before extraordinary item $ 76,127 $ (30,191) $ 91,348
Extraordinary item -- -- (27,506)
----------- ----------- -----------
Net income (loss) $ 76,127 $ (30,191) $ 63,842
=========== =========== ===========
Net income (loss) per limited partnership Unit:
Income (loss) before extraordinary item $ .13 $ (.05) $ .15
Extraordinary item -- -- (.04)
----------- ----------- -----------
Net income (loss) $ .13 $ (.05) $ .11
=========== =========== ===========
Weighted average number of limited
partnership Units 567,325 581,622 598,526
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
-21-
<PAGE>
<TABLE>
NTS-PROPERTIES VII, LTD.
------------------------
STATEMENTS OF PARTNERS' EQUITY (1)
----------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
----------------------------------------------------
<CAPTION>
Limited General
Partners Partners Total
-------- -------- -----
<S> <C> <C> <C>
Balances at December 31, 1996 $ 5,967,306 $ (48,555) $ 5,918,751
Net income 63,842 645 64,487
Distributions declared (239,288) (2,417) (241,705)
Repurchase of limited partnership Units (8,688) -- (8,688)
---------- ----------- -----------
Balances at December 31, 1997 5,783,172 (50,327) 5,732,845
Net loss (30,191) (305) (30,496)
Distributions declared (144,299) (1,458) (145,757)
Repurchase of limited partnership Units (134,892) -- (134,892)
---------- ----------- -----------
Balances at December 31, 1998 5,473,790 (52,090) 5,421,700
Net income 76,127 769 76,896
Distributions declared (112,646) (1,138) (113,784)
Repurchase of limited partnership Units (120,000) -- (120,000)
---------- ----------- -----------
Balances at December 31, 1999 $ 5,317,271 $ (52,459) $ 5,264,812
========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
(1) For the periods presented, there are no elements of other comprehensive
income as defined by the Financial Accounting Standards Board,Statement
of Financial Accounting Standards, Statement No. 130, Reporting
---------
Comprehensive Income.
--------------------
-22-
<PAGE>
<TABLE>
NTS-PROPERTIES VII, LTD.
STATEMENTS OF CASH FLOW
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
----------------------------------------------------
<CAPTION>
1999 1998 1997
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
- ------------------------------------
<S> <C> <C> <C>
Net income (loss) $ 76,896 $ (30,496) $ 64,487
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Accrued interest on investment securities -- 1,737 (1,737)
Write-off unamortized building and land
improvement costs -- 13,008 17,797
Write-off unamortized loan costs -- -- 27,784
Depreciation and amortization 483,827 482,149 515,005
Change in assets and liabilities:
Cash and equivalents - restricted 60,347 (51,444) 15,599
Accounts receivable (27,242) -- 13,660
Other assets 3,425 14,655 2,290
Accounts payable 40,036 18,504 (51,486)
Security deposits (1,926) (7,924) (3,475)
Other liabilities (16,619) 34,478 --
----------- ----------- -----------
Net cash provided by operating activities 618,744 474,667 599,924
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
Additions to land, buildings and amenities (119,767) (165,394) (8,398)
Purchase of investment securities -- (200,000) (411,392)
Maturity of investment securities -- 536,392 75,000
----------- ----------- -----------
Net cash provided by (used in) investing
activities (119,767) 170,998 (344,790)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
Increase in mortgage payable -- -- 4,100,000
Principal payments on mortgages payable (233,853) (215,734) (4,154,268)
Cash distributions (142,863) (177,105) (241,924)
Repurchase of limited partnership Units (120,000) (134,892) (8,688)
Cash and equivalents - restricted -- 127,653 (30,230)
Additions to loan costs -- (12,300) (33,930)
----------- ----------- -----------
Net cash used in financing activities (496,716) (412,378) (369,040)
----------- ----------- -----------
Net increase (decrease) in cash and
equivalents 2,261 233,287 (113,906)
CASH AND EQUIVALENTS, beginning of year 398,001 164,714 278,620
----------- ----------- -----------
CASH AND EQUIVALENTS, end of year $ 400,262 $ 398,001 $ 164,714
=========== =========== ===========
Interest paid on a cash basis $ 379,020 $ 396,831 $ 449,164
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
-23-
<PAGE>
NTS-PROPERTIES VII, LTD.
------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
----------------------------------------------------
1. Significant Accounting Policies
-------------------------------
A) Organization
------------
NTS-Properties VII, LTD. (the "Partnership") is a limited
partnership organized under the laws of the State of Florida
in April 1987. The General Partner is NTS-Properties
Associates VII (a Kentucky limited partnership). The
Partnership is in the business of developing, constructing,
owning and operating apartment complexes and commercial real
estate.
B) Properties
----------
The Partnership owns and operates the following properties:
- The Park at the Willows, a 48-unit luxury apartment complex
in Louisville, Kentucky.
- Park Place Apartments Phase II, a 132-unit luxury apartment
complex in Lexington, Kentucky.
- A 31% joint venture interest in Blankenbaker Business Center
Phase 1A, a business center with approximately 50,000 net
rentable ground floor square feet and approximately
50,000 net rentable mezzanine square feet located in
Louisville, Kentucky.
C) Allocation of Net Income (Loss) and Cash Distributions
------------------------------------------------------
Pre-Termination Date Net Cash Receipts and Interim Net Cash
Receipts, as defined in the partnership agreement, and which
are made available for distribution, will be distributed 99%
to the limited partners and 1% to the General Partner.
Net Operating Income (excluding Net Gains from Sales and other
specially allocated items) shall be allocated to the limited
partners and the General Partner in proportion to their
respective cash distributions. Net Operating Income in excess
of cash distributions shall be allocated as follows: (1) pro
rata to all partners with a negative capital account in an
amount to restore the negative capital account to zero; (2)
99% to the limited partners and 1% to the General Partner
until the limited partners have received an amount equal to
their Original Capital less cash distributions except
distributions of Pre-Termination Date Net Cash Receipts; (3)
the balance, 80% to the limited partners and 20% to the
General Partner. Net Operating Losses shall be allocated 99%
to the limited partners and 1% to the General Partner for all
periods presented in the accompanying Financial Statements.
D) Tax Status
----------
The Partnership has received a ruling from the Internal
Revenue Service stating that the Partnership is classified as
a limited partnership for federal income tax purposes. As
such, the Partnership makes no provision for income taxes. The
taxable income or loss is passed through to the holders of the
partnership interests for inclusion on their individual income
tax returns.
-24-
<PAGE>
1. Significant Accounting Policies - Continued
-------------------------------------------
D) Tax Status - Continued
----------------------
A reconciliation of net income (loss) for financial statement
purposes versus that for income tax reporting is as follows:
1999 1998 1997
---- ---- ----
Net income (loss) $ 76,896 $ (30,496) $ 64,487
Items handled differently
for tax purposes:
Depreciation and
amortization 29,324 4,531 31,437
Capitalized leasing costs 3,030 56,640 22,120
Rental income -- -- 3,833
Gain/loss on disposal of
assets -- (3,154) 729
--------- --------- ---------
Taxable income $ 109,250 $ 27,521 $ 122,606
========= ========= =========
E) Use of Estimates in the Preparation of Financial Statements
-----------------------------------------------------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
F) Joint Venture Accounting
------------------------
Since inception, the Partnership has adopted the proportionate
consolidation method of accounting for joint venture
properties. The Partnership's proportionate interest in the
joint venture's assets, liabilities, revenues, expenses and
cash flows are combined on a line-by-line basis with the
Partnership's own assets, liabilities, revenues, expenses and
cash flows. All intercompany accounts and transactions have
been eliminated in consolidation.
Proportionate consolidation is utilized by the Partnership due
to the fact that the ownership of joint venture properties, in
substance, is not subject to joint control. The managing
General Partners of the sole General Partner of the NTS
sponsored partnerships which have formed joint ventures are
substantially the same. As such, decisions regarding
financing, development, sale or operations do not require the
approval of different partners. Additionally, the joint
venture properties are in the same business/industry as their
respective joint venture partners and their asset, liability,
revenue and expense accounts correspond with the accounts of
such partner. It is the belief of the General Partner of the
Partnership that the financial statement disclosures resulting
from proportionate consolidation provides the most meaningful
presentation of assets, liabilities, revenues, expenses and
cash flows given the commonality of the Partnership's
operations.
G) Cash and Equivalents - Restricted
---------------------------------
Cash and equivalents - restricted represents funds received
for residential security deposits, funds which have been
escrowed with mortgage companies for property taxes in
accordance with the loan agreements, funds reserved by the
Partnership for the repurchase of limited Partnership Units
(December 31, 1997) and funds reserved by the Partnership for
the purchase of limited partnership Units through the Tender
Offer (December 31, 1998 - See Note 5).
-25-
<PAGE>
1. Significant Accounting Policies - Continued
-------------------------------------------
H) Investment Securities
---------------------
Investment securities represent investments in Certificates of
Deposit or securities issued by the U.S. Government with
initial maturities of greater than three months. The
Partnership held the securities until maturity. During 1999,
1998 and 1997, the Partnership sold no investment securities.
At December 31, 1999 and 1998, the Partnership held no
investment securities with initial maturities greater than
three months.
I) Basis of Property and Depreciation
----------------------------------
Land, building and amenities are stated at cost to the
Partnership. Costs directly associated with the acquisition,
development and construction of a project are capitalized.
Depreciation is computed using the straight-line method over
the estimated useful lives of the assets which are 30 years
for land improvements, 5-30 years for buildings and
improvements and 5-30 years for amenities.
Statement of Financial Accounting Standards (SFAS) No. 121,
Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, specifies circumstances
in which certain long-lived assets must be reviewed for
impairment. If such review indicates that the carrying amount
of an asset exceeds the sum of its expected future cash flows,
the asset's carrying value must be written down to fair value.
Application of this standard during the years ended December
31, 1999, 1998 and 1997 did not result in an impairment loss.
J) Rental Income and Capitalized Leasing Costs
-------------------------------------------
For financial reporting purposes, the income from commercial
leases is recognized on a straight-line basis over the lease
term. There was no accrued income connected with commercial
leases as of December 31, 1999 and 1998 due to the renewal
lease having no scheduled and specified rent increases. All
commissions paid to commercial property leasing agents are
deferred and amortized on a straight-line basis over the
applicable lease term.
K) Advertising
-----------
The Partnership expenses advertising-type costs as incurred.
Advertising expense was immaterial to the Partnership during
the years ended December 31, 1999, 1998 and 1997.
L) Statements of Cash Flows
------------------------
For purposes of reporting cash flows, cash and equivalents
include cash on hand and short-term, highly liquid investments
with initial maturities of three months or less.
2. Concentration of Credit Risk
----------------------------
NTS-Properties VII, Ltd. owns and operates, through a joint venture, a
commercial property in Louisville, Kentucky. The sole tenant which
occupies 100% of the property is a business which has operations in the
Louisville area. The Partnership also owns and operates residential
properties in Louisville and Lexington, Kentucky. The apartment unit is
generally the principal residence of the tenant.
-26-
<PAGE>
3. Investment in Blankenbaker Business Center Joint Venture
--------------------------------------------------------
On December 28, 1990, the Partnership entered into a Joint Venture
Agreement with NTS-Properties Plus Ltd., an affiliate of the General
Partner of the Partnership, to complete the development of Blankenbaker
Business Center 1A, a business center located in Louisville, Kentucky.
NTS-Properties Plus Ltd. contributed Blankenbaker Business Center 1A
together with improvements and personal property (Real Property) to the
capital of the Joint Venture, subject to mortgage indebtedness in the
amount of $4,715,000. The agreed upon net fair market value of
NTS-Properties Plus Ltd.'s capital contribution was $1,700,000, being
the appraised value of the Real Property ($6,415,000) reduced by the
$4,715,000 mortgage. The Partnership contributed $450,000 which was
used for additional tenant improvements to the Real Property and made a
capital contribution to the Joint Venture of $325,000 to purchase a
2.49 acre parking lot that was leased from an affiliate of the general
partner as described in NTS-Properties Plus Ltd.'s Prospectus.
NTS-Properties Plus Ltd. transferred to the Joint Venture its option to
purchase the parking lot, and the Joint Venture exercised the option.
The use of the parking lot is a provision of the tenant's lease
agreement with the business center. By purchasing the parking lot, the
Joint Venture's annual operating expenses were reduced approximately
$35,000. The purchase price of the parking lot was determined by an
independent appraisal.
On August 16, 1994, the Blankenbaker Business Center Joint Venture
amended its joint venture agreement to admit NTS-Properties IV (an
affiliate of the General Partner of the Partnership) to the Joint
Venture. In accordance with the Joint Venture Agreement Amendment,
NTS-Properties IV contributed $1,100,000 and the Partnership
contributed $500,000. The need for additional capital by the Joint
Venture was a result of the lease renewal and expansion which was
signed April 28, 1994 between the Joint Venture and Prudential Service
Bureau, Inc. [currently known as Sykes HealthPlan Service Bureau, Inc.
("Sykes")]. The lease expanded Sykes' leased space by approximately
15,000 square feet and extended its lease term through July 2005.
Approximately 12,000 square feet of the expansion was into new space
which had to be constructed on the second level of the existing
business center. With this expansion, Sykes occupied 100% of the
business center (approximately 101,000 square feet - ground and second
floor). The tenant finish and leasing costs connected with the lease
renewal and expansion were approximately $1,400,000.
In order to calculate the revised joint venture percentage interests,
the assets of the Joint Venture were revalued in connection with the
admission of NTS-Properties IV as a joint venture partner and the
additional capital contributions. The value of the Joint Venture's
assets immediately prior to the additional capital contributions was
$6,764,322 and its outstanding debt was $4,650,042, with net equity
being $2,114,280. The difference between the value of the Joint
Venture's assets and the value at which they were carried on the books
of the Joint Venture has been allocated to the Partnership and
NTS-Properties Plus Ltd. in determining each Joint Venture partner's
percentage interest. The Partnership's interest in the Joint Venture
remained at 31%. NTS-Properties Plus Ltd.'s interest in the Joint
Venture decreased from 69% to 39% as a result of the capital
contributions by NTS-Properties IV and the Partnership. NTS-Properties
IV obtained a 30% interest in the Joint Venture as a result of its
capital contribution.
Net income or loss is to be allocated based on the respective
contribution of each partnership as of the end of each calendar
quarter. The Partnership's ownership share was 31% at December 31,
1999. The Partnership's share of the joint venture's revenue was
$286,612 (1999), $292,734 (1998) and $293,939 (1997). The Partnership's
share of the joint venture's expenses was $315,796 (1999), $328,675
(1998) and $348,783 (1997).
-27-
<PAGE>
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 in December 1995. During the years ended
December 31, 1998, 1997 and 1996, the Partnership funded $7,242,
$38,918 and $121,270, respectively, to the reserve. Through December
31, 1998, the Partnership had repurchased a total of 62,529 Units for
$295,080 at a price ranging from $4.00 to $6.00 per Unit. The Offering
price per Unit was established by the General Partner in its sole
discretion and does not purport to represent the fair market value or
liquidation value of the Units. Repurchased Units have been retired by
the Partnership, thus increasing the percentage of ownership of each
remaining limited partner investor. The Interest Repurchase Reserve was
funded from cash reserves. The funds remaining in the Interest
Repurchase Reserve at the commencement of the first Tender Offer
(discussed below) were returned to unrestricted cash for utilization in
the Partnership's operations.
5. Tender Offer
------------
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
stated that the Partnership would purchase the first 10,000 Units
tendered and would fund its purchases and its portion of the expenses
from cash reserves. If more than 20,000 Units were tendered, the
Partnership and ORIG, LLC 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 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 believed that this price was
appropriate, the price of $6.00 per Unit may not equate to the fair
market value or the liquidation value of the Units, and was less than
the book value per Unit as of the date of the Second Tender Offer. The
Second 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 Second
Tender Offer from cash reserves. If more than 10,000 Units were
tendered, ORIG, LLC would purchase up to an additional 10,000 Units. If
more that 20,000 Units were tendered, the bidders could chose to
acquire the additional Units on the same terms. 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 Second Tender Offer. The
Second Tender Offer's initial expiration date was November 30, 1999,
but was extended to December 15, 1999.
Under the terms of the Second Tender Offer, the Second Tender Offer
expired on December 15, 1999. As of that date, a total of 41,652 Units
were tendered pursuant to the Second Tender Offer. The bidders
exercised their right under the terms of the Second Tender Offer to
purchase more than 20,000 Units and all 41,652 Units tendered were
accepted by the bidders, without proration. The Partnership repurchased
10,000 Units and ORIG, LLC purchased 31,652 Units. See Note 12 for
further discussion on Tender Offers.
-28-
<PAGE>
6. Land, Buildings and Amenities
-----------------------------
The following schedule provides an analysis of the Partnership's
investment in property held for lease as of December 31:
1999 1998
---- ----
Land and improvements $ 3,785,126 $ 3,793,491
Building and improvements 11,889,676 11,767,531
----------- -----------
15,674,802 15,561,022
Less accumulated depreciation 5,986,265 5,524,302
----------- -----------
$ 9,688,537 $ 10,036,720
=========== ==========
7. Mortgages Payable
-----------------
Mortgages payable as of December 31 consist of the following:
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 $ 3,876,398 $ 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 977,957 1,100,383
---------- ----------
$ 4,854,355 $ 5,088,213
========== ==========
The mortgages are payable in monthly aggregate installments of $51,047
includes principal, interest and property taxes.
Scheduled maturities of debt are as follows:
For the Years Ended December 31, Amount
-------------------------------- ------
2000 $ 252,729
2001 273,713
2002 296,300
2003 320,803
2004 347,284
Thereafter 3,363,526
---------
$4,854,355
=========
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 $4,700,000.
The 1997 write-off of unamortized loan costs (recorded as an
extraordinary item) relates to loan costs associated with the Park
Place Apartments Phase II's notes payable. The unamortized loan costs
were expensed due to the fact that the notes were retired in 1997 prior
to their maturity (October 5, 2002) as a result of permanent financings
obtained by the Partnership in October 1997.
-29-
<PAGE>
8. Rental Income Under Operating Leases
------------------------------------
The following is a schedule of minimum future rental income on
noncancellable operating leases as of December 31, 1999:
For the Years Ended December 31, Amount
-------------------------------- ------
2000 $ 235,924
2001 235,924
2002 235,924
2003 235,924
2004 235,924
Thereafter 137,620
---------
$1,317,240
=========
9. Related Party Transactions
--------------------------
Property management fees of $102,650 (1999), $101,354 (1998), and
$106,264 (1997) were paid to NTS Development Company, an affiliate of
the General Partner. The fee is equal to 5% of gross revenues from the
residential properties and 6% of gross revenues from the commercial
property pursuant to an agreement with the Partnership. Also permitted
by the partnership agreement, NTS Development Company will receive a
repair and maintenance fee equal to 5.9% of costs incurred which relate
to capital improvements. The Partnership has incurred $6,029 (1999),
$1,410 (1998) and $3,040 (1997) as repair and maintenance fee and has
capitalized these costs as a part of land, buildings and amenities. The
Partnership also was charged the following amounts from affiliates of
the General Partner for the years ended December 31, 1999, 1998 and
1997. These charges include items which have been expensed as operating
expenses - affiliated or as professional and administrative expenses -
affiliated and items which have been capitalized as other assets or as
land, buildings and amenities.
These charges were as follows:
1999 1998 1997
---- ---- ----
Administrative $156,089 $106,476 $105,043
Property manager 142,843 189,491 163,078
Leasing 40,095 46,636 39,927
Other 388 1,570 2,175
------- ------- -------
$339,415 $344,173 $310,223
======= ======= =======
10. Commitments and Contingencies
-----------------------------
The Partnership plans to replace the roofs at Park Place Phase II
apartments (17 buildings) all of which were installed using shingles
produced by a single manufacturer. The shingles appear to contain
defects which may cause roofs to fail before the end of their expected
useful lives. As the manufacturer has declared bankruptcy, the
Partnership does not expect to be able to recover any of the costs of
the roof replacements. The Partnership does not have sufficient working
capital to make all of the roof replacements at once and intends to
make the replacements over the next 36 months.
11. Segment Reporting
-----------------
The Partnership's reportable operating segments include Residential and
Commercial real estate operations. The Residential operations represent
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 have been prepared
using a management approach, which is consistent with the basis and
manner in which the Partnership management internally desegregates
financial information for the purposes of assisting in making internal
operating decisions. The Partnership evaluates performance based on
stand-alone operating segment net income.
-30-
<PAGE>
11. Segment Reporting - Continued
-----------------------------
<TABLE>
<CAPTION>
1999
----
Residential Commercial Total
----------- ---------- -----
<S> <C> <C> <C>
Rental income $ 1,649,799 $ 286,605 $ 1,936,404
Other income 8,359 7 8,366
----------- ----------- -----------
Total net revenues $ 1,658,158 $ 286,612 $ 1,944,770
=========== =========== ===========
Operating expenses $ 618,920 $ 25,541 $ 644,461
Interest expense -- 88,415 88,415
Management fees 85,781 16,869 102,650
Real estate taxes 89,485 17,503 106,988
Professional and
administrative -- 65,814 65,814
Depreciation expense 368,690 101,654 470,344
----------- ----------- -----------
Net income (loss) $ 495,282 $ (29,184) $ 466,098
=========== =========== ===========
Land, buildings and
amenities, net $ 8,310,908 $ 1,361,482 $ 9,672,390
=========== =========== ===========
Expenditures for land,
buildings and amenities $ 110,623 $ -- $ 110,623
=========== =========== ===========
Segment liabilities $ 118,752 $ 1,051,272 $ 1,170,024
=========== =========== ===========
</TABLE>
1998
----
Residential Commercial Total
----------- ---------- -----
Rental income $ 1,630,218 $ 292,656 $ 1,922,874
Other income 6,056 78 6,134
----------- ----------- -----------
Total net revenues $ 1,636,274 $ 292,734 $ 1,929,008
=========== =========== ===========
Operating expenses $ 674,552 $ 46,780 $ 721,332
Write off of unamortized
building improvements 13,008 -- 13,008
Interest expense -- 98,275 98,275
Management fees 83,462 17,892 101,354
Real estate taxes 91,008 17,701 108,709
Professional and
administrative -- 56,417 56,417
Depreciation expense 380,035 91,609 471,644
----------- ----------- -----------
Net income (loss) $ 394,209 $ (35,940) $ 358,269
=========== =========== ===========
Land, buildings and
amenities, net $ 8,592,281 $ 1,435,642 $10,027,923
=========== =========== ===========
Expenditures for land,
buildings and amenities $ 156,597 $ -- $ 156,597
=========== =========== ===========
Segment liabilities $ 89,607 $ 1,167,479 $ 1,257,086
=========== =========== ===========
-31-
<PAGE>
11. Segment Reporting - Continued
- --------------------------------------
<TABLE>
<CAPTION>
1997
----
Residential Commercial Total
----------- ---------- -----
<S> <C> <C> <C>
Rental income $ 1,770,326 $ 293,910 $ 2,064,236
Other income 12,511 28 12,539
----------- ----------- -----------
Total net revenues $ 1,782,837 $ 293,938 $ 2,076,775
=========== =========== ===========
Operating expenses $ 638,862 $ 51,445 $ 690,307
Write off of unamortized
building improvements 17,797 -- 17,797
Interest expense -- 107,563 107,563
Management fees 88,402 17,862 106,264
Real estate taxes 81,621 17,837 99,458
Professional and
administrative -- 37,608 37,608
Depreciation expense 385,517 116,467 501,984
----------- ----------- -----------
Net income (loss) $ 570,638 $ (54,844) $ 515,794
=========== =========== ===========
Land, Buildings and
amenities, net $ 8,852,552 $ 1,509,234 $10,361,786
=========== =========== ===========
Expenditures for land,
buildings and amenities $ 8,398 $ -- $ 8,398
=========== =========== ===========
Segment liabilities $ 43,600 $ 1,268,826 $ 1,312,426
=========== =========== ===========
</TABLE>
A reconciliation of the totals reported for the operating segments to the
applicable line items in the consolidated financial statements is necessary
given amounts recorded at the Partnership level and not allocated to the
operating properties for internal reporting purposes.
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
NET REVENUES
- ------------
<S> <C> <C> <C>
Total revenues for reportable segments $1,944,770 $1,929,008 $2,076,775
Other income for partnership level 16,054 22,929 16,977
---------- ---------- ----------
Total consolidation net revenues $1,960,824 $1,951,937 $2,093,752
========== ========== ==========
INTEREST EXPENSE
- ----------------
Interest expense for reportable Segments $ 88,415 $ 98,275 $ 107,563
Interest expense for partnership level 289,812 296,905 327,117
---------- ---------- ----------
Total interest expense $ 378,227 $ 395,180 $ 434,680
========== ========== ==========
PROFESSIONAL AND ADMINISTRATIVE
- -------------------------------
Total Professional and administrative
for reportable segments $ 65,814 $ 56,417 $ 37,608
Professional and administrative for
partnership level 101,960 104,284 100,362
---------- ---------- ----------
Total professional and administrative $ 167,774 $ 160,701 $ 137,970
========== ========== ==========
</TABLE>
(Continued on next page)
-32-
<PAGE>
11. Segment Reporting - Continued
-----------------------------
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
DEPRECIATION AND AMORTIZATION
- -----------------------------
<S> <C> <C> <C>
Total depreciation and amortization
for reportable segments $ 470,344 $ 471,644 $ 501,984
Depreciation and amortization for
partnership level 29,171 26,193 28,709
Eliminations (15,688) (15,688) (15,688)
------------ ------------ ------------
Total depreciation and amortization $ 483,827 $ 482,149 $ 515,005
============ ============ ============
NET INCOME (LOSS)
- -----------------
Total reported net income (loss) for
segments $ 466,098 $ 358,269 $ 515,794
Net income (loss) for partnership
level (389,202) (388,765) (451,307)
------------ ------------ ------------
Total net income (loss) $ 76,896 $ (30,496) $ 64,487
============ ============ ============
LAND, BUILDINGS AND AMENITIES
- -----------------------------
Total land, building and amenities
for reportable segments $ 9,672,390 $ 10,027,923 $ 10,361,786
Partnership level 16,147 8,797 --
------------ ------------ ------------
Total land, building and amenities $ 9,688,537 $ 10,036,720 $ 10,361,786
============ ============ ============
TOTAL EXPENDITURES
- ------------------
Total expenditures for land,
buildings and amenities for
reportable segments 110,623 156,597 8,398
Expenditures for land, buildings and
amenities for partnership level 9,144 8,797 --
------------ ------------ ------------
Total Expenditures for land,
buildings and amenities $ 119,767 $ 165,394 $ 8,398
============ ============ ============
LIABILITIES
- -----------
Total liabilities for reportable
segments $ 1,170,024 $ 1,257,086 $ 1,312,426
Liabilities for Partnership (1) 3,832,807 3,987,190 4,133,874
------------ ------------ ------------
Total liabilities $ 5,002,831 $ 5,244,276 $ 5,446,300
============ ============ ============
</TABLE>
(1) These amounts primarily represent the mortgages held by the Partnership,
secured by the assets of the operating segments.
12. Subsequent Events
-----------------
On February 7, 2000, ORIG, LLC. (the "Affiliate") purchased Interests
in the Partnership and pursuant to an Agreement, Bill of Sale and
Assignment by and among the Affiliate and four investors in the
Partnership. The Affiliate purchased 2,251 Interests in the Partnership
from one of the investors for total consideration of $15,082 or an
average price of $6.70 per Interest. The Affiliate paid these investors
a premium above the purchase price previously offered for Interests
pursuant to prior tender offers because this purchase allowed the
Affiliate to purchase substantial numbers of Interests without
incurring the significant expenses involved with a tender offer and
multiple transfers.
-33-
<PAGE>
12. Subsequent Events - Continued
-----------------------------
On March 24, 2000, the Partnership and ORIG, LLC, an affiliate of the
Partnership (the "bidders"), filed a third tender offer (the "Third
Tender Offer") with the Securities and Exchange Commission, commencing
on March 27, 2000, to purchase up to 5,000 of the Partnership's
limited partnership Units at a price of $6.00 per Unit as of the date
of the Third Tender Offer. Approximately $48,000 ($30,000 to purchase
5,000 Units plus approximately $18,000 for expenses associated with
the Third Tender Offer) is required to purchase all 5,000 Units. The
Third Tender Offer stated that the Partnership will purchase the first
2,500 Units tendered and will fund its purchase and its portion of the
expenses from cash reserves. If more than 2,500 Units are tendered,
ORIG, LLC. will purchase up to an additional 2,500 Units. If more than
5,000 Units are tendered, the bidders may choose to acquire the
additional Units on a pro rata basis. 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 Third Tender Offer. The
Third Tender Offer will expire on June 27, 2000 unless extended.
-34-
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------------
Financial Disclosure
---------------------
None.
-35-
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
Because the Partnership is a limited partnership and not a corporation, it has
no directors or officers as such. Management of the Partnership is the
responsibility of the General Partner, NTS-Properties Associates VII. The
Partnership has entered into a management contract with NTS Development Company,
an affiliate of the General Partner, to provide property management services.
The General Partners of NTS-Properties Associates VII are as follows:
J. D. Nichols
- -------------
Mr. Nichols (age 58) is the managing General Partner of NTS-Properties
Associates VII and is Chairman of the Board of NTS Corporation (since 1985) and
NTS Development Company (since 1977).
NTS Capital Corporation
- -----------------------
NTS Capital Corporation is a Kentucky corporation formed in October 1979. J.D.
Nichols is Chairman of the Board and the sole director of NTS Capital
Corporation.
The Manager of the Partnership's properties is NTS Development Company, the
executive officers and/or directors of which are Messrs. J.D. Nichols, Brian F.
Lavin and Gregory A. Wells.
Brian F. Lavin
- --------------
Mr. Lavin (age 46), President of NTS Corporation and NTS Development Company
joined the Manager in June 1997. From November 1994 through June 1997,Mr.Lavin
served as President of the Residential Division of Paragon Group, Inc., and as a
Vice President of Paragon's Midwest Division prior to November 1994. In this
capacity, he directed the development, marketing, leasing and management
operations for the firms expanding portfolios. Mr. Lavin attended the University
of Missouri where he received his Bachelor's Degree in Business Administration.
He has served as a Director of the Louisville Apartment Association. He is a
licensed Kentucky Real Estate Broker and Certified Property Manager. Mr. Lavin
is a member of the Institute of Real Estate Management, and council member of
the Urban Land Institute. He currently serves on the University of Louisville
Board of Overseers and is on the Board of Directors of the National
Multi-Housing Council and the Louisville Science Center.
Gregory A. Wells
- ----------------
Mr. Wells (age 41), Senior Vice President and Chief Financial Officer of NTS
Corporation and NTS Development Company joined the Manager in July, 1999. From
May 1998 through July 1999, Mr. Wells served as Chief Financial Officer of
Hokanson Companies, Inc. and as Secretary and Treasurer of Hokanson Construction
Inc., Indianapolis, Indiana from January 1995 through May 1998. In these
capacities he directed financial and operational activities for commercial
rental real estate, managed property, building and suite renovations, out of
ground commercial and residential construction and third party property
management. Mr. Wells previously served as Vice President of Operations and
Treasurer of Executive Telecom Systems, Inc. a subsidiary of the Bureau of
National Affairs, Inc. (Washington, D.C.). Mr. Wells attended George Mason
University, where he received a Bachelor's Degree in Business Administration.
Mr. Wells is a Certified Public Accountant in both Virginia and Indiana and is
active in various charitable and philanthropic endeavors in the Louisville and
Indianapolis areas.
Mr. Richard L. Good who was Vice Chairman and former President of NTS Capital
Corporation ans NTS Development Company, retired effective September 3, 1999.
Item 11. Management Remuneration and Transactions
----------------------------------------
The officers and/or directors of the corporate General Partner receive no direct
remuneration in such capacities. The partnership is required to pay a property
management fee based on gross rentals to NTS Development Company. The
Partnership is also required to pay to NTS Development Company a repair and
maintenance fee on costs related to specific projects. In addition, NTS
Development Company provides certain other services to the Partnership. See Note
9 to the financial statements which sets forth transactions with affiliates of
the General Partner for the years ended December 31, 1999, 1998 and 1997.
The General Partner is entitled to receive cash distributions and allocations of
profits and losses from the Partnership. See Note 1C to the financial statements
which describes the methods used to determine income allocations and cash
distributions.
-36-
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
The following provides details regarding owners of more than 5% of the total
outstanding limited partnership Units as of February 25, 2000.
ORIG, LLC. 49,697 Units (8.94%)
10172 Linn Station Road
Louisville, Kentucky 40223
ORIG,LLC. is a Kentucky limited liability company, the members of which are J.D.
Nichols and Brian F. Lavin, chairman and President of NTS Capital Corporation,
a general partner of NTS-Properties Associates VII, the general partner of the
Partnership.
The General Partner is NTS-Properties Associates VII, a Kentucky Limited
Partnership, 10172 Linn Station Road, Louisville, Kentucky 40223. The General
partners of the General Partner and their total respective interests in
NTS-Properties Associates VII are as follows:
J. D. Nichols 36.05%
10172 Linn Station Road
Louisville, Kentucky 40223
NTS Capital Corporation 11.95%
10172 Linn Station Road
Louisville, Kentucky 40223
The remaining 52.00% interests are owned by various limited partners of
NTS-Properties Associates VII.
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
Property management fees of $102,650 (1999), $101,354 (1998) and $106,264 (1997)
were paid to NTS Development Company, an affiliate of the General Partner. The
fee is equal to 5% of gross revenues from residential properties and 6% of gross
revenues from the commercial property pursuant to an agreement with the
Partnership. Also permitted by the partnership agreement, NTS Development
Company will receive a repair and maintenance fee equal to 5.9% of costs
incurred which relate to capital improvements. The Partnership has incurred
$6,029(1999), $1,410 (1998) and $3,040 (1997) as a repair and maintenance fee
and has capitalized this cost as a part of land, buildings and amenities. The
Partnership was also charged the following amounts from NTS Development Company
for the years ended December 31, 1999, 1998 and 1997. These charges include
items which have been expensed as operating expenses - affiliated or as
professional and administrative expenses - affiliated and items which have been
capitalized as other assets or as land, buildings and amenities.
These charges were as follows:
1999 1998 1997
---- ---- ----
Administrative $ 156,089 $ 106,476 $ 105,043
Property manager 142,843 189,491 163,078
Leasing 40,095 46,636 39,927
Other 388 1,570 2,175
-------- -------- --------
$ 339,415 $ 344,173 $ 310,223
======== ======== ========
There are no other agreements or relationships between the Partnership, the
General Partner and its affiliates than those previously discussed.
-37-
<PAGE>
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
----------------------------------------------------------------
1. Financial statements
The financial statements for the years ended December 31, 1999,
1998, and 1997, together with the report of Arthur Andersen LLP
dated March 24, 2000, appear in Item 8. The following financial
statement schedules should be read in conjunction with such
financial statements.
2. Financial statement schedules
Schedules: Page No.
---------- --------
III-Real Estate and Accumulated Depreciation 39-40
All other schedules have been omitted because they are not
applicable, or not required, or because the required information
is included in the financial statements or notes thereto.
3. Exhibits
Exhibit No. Page No.
----------- --------
3. Amended and Restated Agreement and *
Certificate of Limited Partnership of
NTS-Properties VII, Ltd., a Florida
limited partnership
10. Property Management and Construction *
Agreement between NTS Development
Company and NTS-Properties VII, Ltd.
27. Financial Data Schedule Included
herewith
* Incorporated by reference to documents filed with the Securities
and Exchange Commission in connection with the filing of the
Registration Statements on Form S-11 on May 15, 1987 (effective
October 29, 1987) under Commission File No. 33-14308.
4. Reports on Form 8-K
None.
-38-
<PAGE>
<TABLE>
NTS-PROPERTIES VII, LTD.
------------------------
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
-------------------------------------------------------
AS OF DECEMBER 31, 1999
-----------------------
<CAPTION>
Park Place Blankenbaker
The Park at Apartments Business
the Willows Phase II Center 1A Total
----------- -------- --------- -----
<S> <C> <C> <C> <C>
Encumbrances None (A) (A)
Initial cost to partnership:
Land $ 457,048 $ 2,616,693 $ 606,927 $ 3,680,668
Buildings and improvements 2,091,968 7,692,119 1,679,081 11,463,168
Cost capitalized subsequent to acquisition:
Improvements (net of retirements) 50,947 158,180 308,121 517,248
Other (B) -- -- (4,225) (4,225)
Gross amount at which carried December 31, 1999 (C):
Land $ 458,517 $ 2,626,304 $ 700,305 $ 3,785,126
Buildings and improvements 2,141,446 7,840,690 1,889,599 11,871,735
------------ ------------ ------------ ------------
Total $ 2,599,963 $ 10,466,994 $ 2,589,904 $15,656,861 (E)
============ ============ ============ ============
Accumulated depreciation $ 1,001,069 $ 3,754,980 $ 1,228,422 $ 5,984,471
============ ============ ============ ============
Date of construction N/A 02/90 N/A
Date Acquired 05/88 N/A 12/90
Life at which depreciation in
latest income statement is
computed (D) (D) (D)
</TABLE>
(A) First mortgage held by an insurance company.
(B) Represents NTS-Properties VII, Ltd.'s decreased interest in Blankenbaker
Business Center 1A as a result of capital contributions made by the
Partnership and NTS-Properties IV to the Blankenbaker Business Center
Joint Venture in 1994.
(C) Aggregate cost of real estate for tax purposes is $13,921,856.
(D) Depreciation is computed using the straight-line method over the
estimated useful lives of the assets which are 10-30 years for land
improvements, 5-30 years for buildings and improvements and 5-30 years
for amenities.
(E) Reconciliation net of accumulated depreciation to consolidated financial
statements:
Total Gross Costs at December 31, 1999 $ 15,656,861
Additions to Partnership for computer
hardware and software in 1998 8,797
Additions to Partnership for computer
hardware and software in 1999 9,144
------------
Balance at December 31, 1999 15,674,802
Less accumulated depreciation (5,984,471)
-------------
Less accumulated depreciation for computer
hardware and software (1,794)
Land, Buildings and Amenities, net as of
December 31, 1999 $ 9,688,537
============
-39-
<PAGE>
NTS-PROPERTIES VII, LTD.
------------------------
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
-------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
----------------------------------------------------
Real Accumulated
Estate Depreciation
------ ------------
Balances at December 31, 1996 $ 15,460,224 $ 4,581,248
Additions during period:
Improvements (a) 8,398 --
Depreciation (b) -- 507,791
Deductions during period:
Retirements (26,256) (8,459)
------------ ------------
Balances at December 31, 1997 15,442,366 5,080,580
Additions during period:
Improvements (a) 165,394 --
Depreciation (b) -- 477,452
Deductions during period:
Retirements (46,738) (33,730)
------------ ------------
Balances at December 31, 1998 15,561,022 5,524,302
Additions during period:
Improvements (a) 119,349 --
Depreciation (b) -- 467,532
Deductions during period:
Retirements (5,569) (5,569)
------------ ------------
Balances at December 31, 1999 $ 15,674,802 $ 5,986,265
============ ============
(a) The additions to real estate on this schedule will differ from the
expenditures for land, buildings and amenities on the Statements of
Cash Flows as a result of minor changes in the Partnership's joint
venture investment ownership percentages. Changes that may occur in the
ownership percentages are less than one percent.
(b) The additions charged to accumulated depreciation on this schedule will
differ from the depreciation and amortization on the Statements of Cash
Flows due to the amortization of loan costs.
-40-
<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
------------------------------
Gregory A. Wells
Senior Vice President and
Chief Financial Officer of
NTS Capital Corporation
Date: March 29, 2000
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
Form 10-K has been signed below by the following persons on behalf of the
registrant in their capacities and on the date indicated above.
Signature Title
--------- -----
/s/ J. D. Nichols General Partner of NTS-Properties
- ------------------------------
J. D. Nichols Associates VII and Chairman of the
Board and Sole Director of NTS
Capital Corporation
/s/ Brian F. Lavin President and Chief Operating
- ------------------------------
Brian F. Lavin Officer of NTS Capital Corporation
/s/ Gregory A. Wells Senior Vice President and
- ------------------------------
Gregory A. Wells Chief Financial Officer of
NTS Capital Corporation
The Partnership is a limited partnership and no proxy material has been sent to
the limited partners.
- 41 -
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information from the balance sheet as of
December 31, 1999 and from the statement of operations for the year ended
December 31,1999 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 440,342
<SECURITIES> 0
<RECEIVABLES> 21,771
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 9,688,537
<DEPRECIATION> 5,986,265
<TOTAL-ASSETS> 10,267,643
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 4,854,355
0
0
<COMMON> 0
<OTHER-SE> 5,264,812
<TOTAL-LIABILITY-AND-EQUITY> 10,267,643
<SALES> 1,936,404
<TOTAL-REVENUES> 1,960,824
<CGS> 0
<TOTAL-COSTS> 1,505,701
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 378,227
<INCOME-PRETAX> 76,896
<INCOME-TAX> 0
<INCOME-CONTINUING> 76,896
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 76,896
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1> THE PARTNERSHIP HAS AN UNCLASSIFIED BALANCE SHEET, THEREFORE THE BALANCE IS
$0.
</FN>
</TABLE>
