<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
--------------------------------------------------
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 registrants specified in its charter)
Florida 61-1119232
- ------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10172 Linn Station Road
Louisville, Kentucky 40223
- ------------------------------- ------------------------------
(Address of principal executive (Zip Code)
offices)
(502) 426-4800
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
----- -----
<PAGE>
TABLE OF CONTENTS
-----------------
Pages
-----
PART I
Item 1. Financial Statements
Balance Sheets and Statement of Partners' Equity
as of March 31, 2000 and December 31, 1999 3
Statements of Operations
for the three months ended March 31, 2000 and 1999 4
Statements of Cash Flows
for the three months ended March 31, 2000 and 1999 5
Notes To Financial Statements 6-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-17
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
PART II
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
2
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
--------------------
<TABLE>
NTS-PROPERTIES VII, LTD.
------------------------
BALANCE SHEETS AND STATEMENT OF PARTNERS' EQUITY
------------------------------------------------
<CAPTION>
As of As of
March 31, 2000 December 31, 1999*
-------------- ------------------
(Unaudited)
ASSETS
- ------
<S> <C> <C>
Cash and equivalents $ 379,289 $ 400,262
Cash and equivalents - restricted 56,827 40,080
Accounts receivable 7,433 21,771
Land, buildings and amenities, net 9,620,809 9,688,537
Other assets 137,561 116,993
----------- -----------
TOTAL ASSETS $10,201,919 $10,267,643
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
- --------------------------------
Mortgages payable $ 4,792,688 $ 4,854,355
Accounts payable 102,236 97,355
Security deposits 26,350 26,475
Other liabilities 46,756 24,646
----------- -----------
TOTAL LIABILITIES 4,968,030 5,002,831
COMMITMENTS AND CONTINGENCIES (Note 8)
Partners' equity 5,233,889 5,264,812
----------- -----------
TOTAL LIABILITIES AND PARTNERS' EQUITY $10,201,919 $10,267,643
=========== ===========
</TABLE>
<TABLE>
Limited General
Partners Partner Total
-------- ------- -----
<CAPTION>
PARTNERS' EQUITY
- ----------------
<S> <C> <C> <C>
Capital contributions, net of
offering costs $ 10,935,700 $ 100 $ 10,935,800
Net loss - prior years (2,569,539) (25,954) (2,595,493)
Net loss - current year (2,827) (29) (2,856)
Cash distributions declared to
date (2,661,597) (26,885) (2,688,482)
Repurchase of Limited
Partnership Units (415,080) -- (415,080)
------------ ------------ -----------
Balances at March 31, 2000 $ 5,286,657 $ (52,768) $ 5,233,889
============ ============ ===========
</TABLE>
* Reference is made to the audited financial statements in the Form 10-K as
filed with the Commission on March 29, 2000.
The accompanying notes to financial statements are an integral part of these
statements.
3
<PAGE>
<TABLE>
NTS-PROPERTIES VII, LTD.
------------------------
STATEMENTS OF OPERATIONS
------------------------
<CAPTION>
Three Months Ended
March 31,
---------
(Unaudited)
2000 1999
---- ----
REVENUES:
- ---------
<S> <C> <C>
Rental income $ 449,620 $ 465,661
Interest and other income 7,557 2,905
Gain on sale of assets 4,118 --
--------- ----------
461,295 468,566
--------- ----------
EXPENSES:
- ---------
Operating expenses 81,911 95,417
Operating expenses - affiliated 55,880 66,935
Loss on disposal of assets 19,843 --
Interest expense 90,963 95,495
Management fees 24,024 22,984
Real estate taxes 27,293 27,136
Professional and administrative
expenses 30,763 21,378
Professional and administrative
expenses - affiliated 19,592 20,049
Depreciation and amortization 113,882 121,108
--------- ----------
464,151 470,502
--------- ----------
Net loss $ (2,856) $ (1,936)
========= =========
Net loss allocated to the
Limited Partners $ (2,827) $ (1,917)
========= =========
Net loss per Limited
Partnership Unit $ (0.01) $ --
========= =========
Weighted average number of
Limited Partnership Units 555,736 573,514
========= =========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
4
<PAGE>
<TABLE>
NTS-PROPERTIES VII, LTD.
------------------------
STATEMENTS OF CASH FLOWS
------------------------
<CAPTION>
Three Months Ended
March 31,
---------
(Unaudited)
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
- ------------------------------------
<S> <C> <C>
Net loss $ (2,856) $ (1,936)
Adjustments to reconcile net loss
to net cash provided by
operating activities:
Loss on disposal of assets 19,843 --
Depreciation and amortization 113,882 121,108
Changes in assets and liabilities:
Cash and equivalents - restricted (1,747) (5,254)
Accounts receivable 14,338 (18,966)
Other assets (21,920) (16,259)
Accounts payable 4,881 10,663
Security deposits (125) 800
Other liabilities 22,110 27,132
--------- ---------
Net cash provided by operating activities 148,406 117,288
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
Additions to land, buildings and amenities (64,645) (25,466)
--------- ---------
Net cash used in investing activities (64,645) (25,466)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
Cash and equivalents - restricted (15,000) 60,000
Principal payments on mortgages payable (61,667) (57,989)
Cash distributions (28,067) (29,079)
Repurchase of Limited Partnership Units -- (60,000)
--------- ---------
Net cash used in financing activities (104,734) (87,068)
--------- ---------
Net (decrease) increase in cash and equivalents (20,973) 4,754
CASH AND EQUIVALENTS, beginning of period 400,262 398,001
--------- ---------
CASH AND EQUIVALENTS, end of period $ 379,289 $ 402,755
========= =========
Interest paid on a cash basis $ 91,464 $ 129,057
========= =========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
5
<PAGE>
NTS-PROPERTIES VII, LTD.
------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
The unaudited financial statements included herein should be read in conjunction
with the Partnership's 1999 Form 10-K as filed with the Securities Exchange
Commission on March 29, 2000. In the opinion of the General Partner, all
adjustments (only consisting of normal recurring accruals) necessary for a fair
presentation have been made to the accompanying financial statements for the
three months ended March 31, 2000 and 1999.
1. Concentration of Credit Risk
----------------------------
NTS-Properties VII, Ltd. owns and operates, through a joint venture, a
commercial rental 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 rental properties in Louisville and Lexington, Kentucky.
2. Reclassifications of 1999 Financial Statements
----------------------------------------------
Certain reclassifications have been made to the March 31, 1999
financial statements to conform with March 31, 2000 classifications.
These reclassifications have no effect on previously reported
operations.
3. Cash and Equivalents - Restricted
---------------------------------
Cash and equivalents - restricted represents funds received for
residential security deposits, funds which have been escrowed with
mortgage companies for property taxes in accordance with the loan
agreements, and funds reserved by the Partnership for the purchase of
Limited Partnership Units through tender offers (See Notes to
Financial Statements "6. Tender Offer").
4. Basis of Property and Depreciation
----------------------------------
Land, buildings and amenities are stated at historical cost, less
accumulated depreciation, 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 10-30 years for land improvements, 5-30 years for buildings
and improvements, 5-30 years for amenities and the applicable lease
term for tenant improvements.
Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," specifies circumstances in which certain
long-lived assets must be reviewed for impairment. If the carrying
amount of an asset exceeds the sum of its expected future cash flows,
the asset's carrying value must be written down to fair value.
Application of this standard during the periods ended March 31, 2000
and 1999 did not result in any impairment loss.
6
<PAGE>
5. Mortgages Payable
-----------------
Mortgages payable consist of the following:
March 31, December 31,
2000 1999
---- ----
Mortgage payable to an insurance
company, bearing interest at a
fixed rate of 7.37%, due October
15, 2012, secured by land and
buildings. $ 3,846,899 $ 3,876,398
Mortgage payable to an insurance
company, bearing interest at a
fixed rate of 8.5%, due November
15, 2005, secured by land and
buildings. 945,789 977,957
------------ ------------
$ 4,792,688 $ 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 $4,643,000.
6. Tender Offer
------------
On March 24, 2000, the Partnership and ORIG, LLC., an affiliate of the
Partnership (the "bidders"), filed a tender offer (the "Third Tender
Offer") with the Securities and Exchange Commission, commencing on
March 27, 2000, to purchase 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.
7. Related Party Transactions
--------------------------
Property management fees of $24,024 and $22,984 for the three months
ended March 31, 2000 and 1999, respectively, were paid to NTS
Development Company, an affiliate of the General Partner. The fee is
paid monthly in an amount equal to 5% of the gross revenues from the
residential properties and 6% of the gross revenues from the
commercial property pursuant to an agreement with the Partnership.
Also pursuant to an agreement, NTS Development Company will receive a
repair and maintenance fee equal to 5.9% of costs incurred which
relate to capital improvements.
7
<PAGE>
7. Related Party Transactions - Continued
--------------------------------------
The Partnership has incurred $2,422 and $548 for the three months
ended March 31, 2000 and 1999, respectively, as repair and maintenance
fees, and has capitalized these costs as part of land, buildings and
amenities. The Partnership was also charged the following amounts from
NTS Development Company for the three months ended March 31, 2000 and
1999. These charges include items which have been expensed as
operating expenses - affiliated or professional and administrative
expenses - affiliated and items which have been capitalized as other
assets or as land, buildings and amenities.
Three Months Ended
March 31,
---------
2000 1999
---- ----
Leasing $ 5,554 $ 8,302
Administrative 38,046 25,630
Property Management 31,605 52,073
Other 271 1,527
------- -------
$ 75,476 $ 87,532
======== ========
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 for a 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.
8. Commitments and Contingencies
-----------------------------
The Partnership, as an owner of real estate, is subject to various
environmental laws of the federal and local governments. Compliance by
the Partnership with existing laws has not had a material adverse
effect on the Partnership's financial condition and results of
operations. However, the Partnership cannot predict the impact of new
or changed laws or regulations on its current properties or on
properties that it may acquire in the future.
The Partnership does not believe there is any litigation threatened
against the Partnership other than routine litigation arising out of
the ordinary course of business some of which is expected to be
covered by insurance, none of which is expected to have a material
adverse effect on the consolidated financial statements of the
Partnership.
9. Segment Reporting
-----------------
The Partnership's reportable operating segments include residential
and commercial real estate operations. The residential operations
represent the Partnership's ownership and operating results relative
to apartment complexes known as the Park at the Willows and Park Place
Apartments Phase
8
<PAGE>
9. Segment Reporting - Continued
-----------------------------
II. The commercial operations represent the Partnership's ownership
and operating results relative to suburban commercial office space
known as Blankenbaker Business Center 1A.
The financial information of the operating segments has been prepared
using a management approach, which is consistent with the basis and
manner in which the Partnership's management internally reports
financial information for the purposes of assisting in making
operating decisions. The Partnership evaluates performance based on
stand-alone operating segment net income.
<TABLE>
Three Months Ended March 31, 2000
---------------------------------
<CAPTION>
Residential Commercial Total
----------- ---------- -----
<S> <C> <C> <C>
Rental income $386,913 $ 62,707 $449,620
Interest and other income 1,622 29 1,651
Gain on sale of assets 4,118 -- 4,118
-------- -------- --------
Total net revenues $392,653 $ 62,736 $455,389
======== ======== ========
Operating expenses and
operating expenses - affiliated 129,884 7,907 137,791
Loss on disposal of assets 19,843 -- 19,843
Interest expense 70,515 20,448 90,963
Management fees 20,073 3,951 24,024
Real estate taxes 22,828 4,465 27,293
Depreciation and amortization 87,271 22,902 110,173
-------- -------- --------
Net income $ 42,239 $ 3,063 $ 45,302
======== ======== ========
</TABLE>
<TABLE>
Three Months Ended March 31, 1999
---------------------------------
<CAPTION>
Residential Commercial Total
----------- ---------- -----
<S> <C> <C> <C>
Rental income $391,097 $ 74,564 $465,661
Interest and other income 2,905 -- 2,905
-------- -------- --------
Total net revenues $394,002 $ 74,564 $468,566
======== ======== ========
Operating expenses and
operating expenses - affiliated 151,273 11,079 162,352
Interest expense -- 23,175 23,175
Management fees 18,743 4,241 22,984
Real estate taxes 22,710 4,426 27,136
Depreciation and amortization 94,971 22,902 117,873
-------- -------- --------
Net income $106,305 $ 8,741 $115,046
======== ======== ========
</TABLE>
9
<PAGE>
9. Segment Reporting - Continued
-----------------------------
A reconciliation of the totals reported for the operating segments to
the applicable line items in the consolidated financial statements for
the three months ended March 31, 2000 and 1999 is necessary given
amounts recorded at the Partnership level and not allocated to the
operating properties for internal reporting purposes.
<TABLE>
Three Months Ended
March 31,
---------
<CAPTION>
2000 1999
---- ----
NET REVENUES
- ------------
<S> <C> <C>
Total revenues for reportable segments $ 455,389 $ 468,566
Other income for Partnership 8,969 8,742
Eliminations (3,063) (8,742)
--------- ---------
Total consolidated net revenues $ 461,295 $ 468,566
========= =========
INTEREST EXPENSE
- ----------------
Interest expense for reportable segments $ 90,963 $ 23,175
Interest expense for Partnership -- 72,320
--------- ---------
Total interest expense $ 90,963 $ 95,495
========= =========
DEPRECIATION AND AMORTIZATION
- -----------------------------
Total depreciation and amortization for
reportable segments $ 110,173 $ 117,873
Depreciation and amortization for
Partnership 7,623 7,157
Eliminations (3,914) (3,922)
--------- ---------
Total depreciation and amortization $ 113,882 $ 121,108
========= =========
NET INCOME (LOSS)
- -----------------
Total net income for reportable segments $ 45,302 $ 115,046
Net loss for Partnership (49,009) (112,162)
Eliminations 851 (4,820)
--------- ---------
Total net loss $ (2,856) $ (1,936)
========= =========
</TABLE>
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
------------------------------------------------------------------------
of Operations
-------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") is structured in four major sections. The first section
provides information related to occupancy levels and rental and other income
generated by the Partnership's properties. The second analyzes results of
operations on a consolidated basis. The final sections address consolidated cash
flows and financial condition. A discussion of certain market risks also
follows. MD&A should be read in conjunction with the Financial Statements in
Item 1 and the Cautionary Statements below.
Cautionary Statements
- ---------------------
Some of the statements included in this Item 2 may be considered to be
"forward-looking statements" since such statements relate to matters which have
not yet occurred. For example, phrases such as "the Partnership anticipates,"
"believes" or "expects," indicate that it is possible that the event
anticipated, believed or expected may not occur. Should such event not occur,
then the result which the Partnership expected also may not occur or occur in a
different manner, which may be more or less favorable to the Partnership. The
Partnership does not undertake any obligations to publicly release the result of
any revisions to these forward-looking statements that may be made to reflect
any future events or circumstances.
Any forward-looking statements included in MD&A, or elsewhere in this report,
which reflect management's best judgment, based on factors known, involve risks
and uncertainties. Actual results could differ materially from those anticipated
in any forward-looking statements as a result of a number of factors including
but not limited to those discussed below. Any forward-looking information
provided by the Partnership pursuant to the safe harbor established by recent
securities legislation should be evaluated in the context of these factors.
The Partnership's principal activity is the leasing and management of a
commercial business center and apartment complexes. If Sykes HealthPlan Service
Bureau, Inc. ("Sykes"), the tenant that occupies 100% of the business center, or
a large number of apartment lessees default on their lease, the Partnership's
ability to make payments due under its debt agreements, payment of operating
costs and other partnership expenses would be directly impacted. A lessee's
ability to make payments are subject to risks generally associated with real
estate, many of which are beyond the control of the Partnership, including
general or local economic conditions, competition, interest rates, real estate
tax rates, other operating expenses and acts of God.
11
<PAGE>
Results of Operations
- ---------------------
The occupancy levels at the Partnership's properties as of March 31 were as
follows:
2000 1999
---- ----
Wholly-owned Properties
-----------------------
The Park at the Willows (1) 73% 96%
Park Place Apartments Phase II 83% 83%
Property Owned in Joint Venture with
------------------------------------
NTS-Properties IV and NTS-Properties Plus Ltd.
----------------------------------------------
(Ownership % at March 31, 2000)
-------------------------------
Blankenbaker Business Center 1A (31.34%) 100% 100%
1) In the opinion of the General Partner of the Partnership, the decrease
in occupancy is only a temporary fluctuation and does not represent a
permanent downward occupancy trend.
The average occupancy levels at the Partnership's properties during the three
months ended March 31 were as follows:
Three Months Ended
March 31,
---------
2000 1999
---- ----
Wholly-owned Properties
-----------------------
The Park at the Willows (1) 72% 90%
Park Place Apartments Phase II 82% 82%
Property Owned in Joint Venture with
------------------------------------
NTS-Properties IV and NTS-Properties Plus Ltd.
----------------------------------------------
(Ownership % at March 31, 2000)
-------------------------------
Blankenbaker Business Center 1A (31.34%) 100% 100%
1) In the opinion of the General Partner of the Partnership, the decrease
in average occupancy is only a temporary fluctuation and does not
represent a permanent downward occupancy trend.
12
<PAGE>
Results of Operations - Continued
- ---------------------------------
Rental and other income generated by the Partnership's properties for the three
months ended March 31, 2000 and 1999 was as follows:
Three Months Ended
March 31,
---------
2000 1999
---- ----
Wholly-owned Properties
-----------------------
The Park at the Willows $ 70,170 $ 91,361
Park Place Apartments Phase II $ 322,483 $ 302,641
Property Owned in Joint Venture with
------------------------------------
NTS-Properties IV and NTS-Properties Plus Ltd.
----------------------------------------------
(Ownership % at March 31, 2000)
-------------------------------
Blankenbaker Business Center 1A (31.34%) (1) $ 62,736 $ 74,564
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 31.34%
during the three months ended March 31, 2000 and 1999.
Current occupancy levels are considered adequate to continue the operation of
the Partnership's properties without the need of any additional financing. See
the "Consolidated Cash Flows and Financial Condition" section of Item 2 for a
discussion regarding the cash requirements of the Partnership's current debt
financings.
The following is an analysis of material changes in results of operations for
the periods ending March 31, 2000 and 1999. Items that did not have a material
impact on operations for the periods listed above have been excluded from this
discussion.
Rental income decreased approximately $16,000 or 3% for the three months ended
March 31, 2000, as compared to the same period in 1999, as a result of decreased
average occupancy levels at The Park at the Willows and decreased common area
expense reimbursements at Blankenbaker Business Center 1A. The lease at
Blankenbaker Business Center 1A provides for the tenant to contribute toward the
payment of increases in common area maintenance expenses, insurance, utilities
and real estate taxes. These decreases are partially offset by increased rental
rates at Park Place Apartments Phase II.
Operating expenses decreased approximately $13,500 or 14% for the three months
ended March 31, 2000, as compared to the same period in 1999, mainly as a result
of decreased cable expense at Park Place Apartments Phase II (starting in the
year 2000 residents are now responsible for their own cable). The decrease is
partially offset by increased repairs and maintenance costs at The Park at the
Willows due to turnover of units and increased landscaping costs at Park Place
Apartments Phase II and Blankenbaker Business Center 1A.
13
<PAGE>
Results of Operations - Continued
- ---------------------------------
Operating expenses - affiliated decreased approximately $11,000 or 16% for the
three months ended March 31, 2000, as compared to the same period in 1999, as a
result of decreased personnel costs at Park Place Apartments Phase II due to
changes in staff and decreased overhead costs allocated at Blankenbaker Business
Center 1A due to personnel status changes. Operating expenses - affiliated are
expenses incurred for services performed by employees of NTS Development
Company, an affiliate of the General Partner of the Partnership, on behalf of
the Partnership.
The loss on disposal of assets of approximately $19,800 for the three months
ended March 31, 2000 is the result of the retirement of assets that were not
fully depreciated. The retirements were the result of exterior renovations at
The Park at the Willows.
Professional and administrative expenses increased approximately $9,400 or 44%
for the three months ended March 31, 2000, as compared to the same period in
1999. This increase is due primarily to increased legal costs and outside
accounting costs.
Depreciation and amortization expense decreased approximately $7,200 or 6% for
the three months ended March 31, 2000, as compared to the same period in 1999,
as a result of a portion of the assets with shorter lives at the Partnership's
residential properties having become fully depreciated. The decrease is also a
result of the retirement of clubhouse furniture, of which some was not fully
depreciated, at Park Place Apartments Phase II. The decrease is partially offset
by the addition of fitness equipment, net of retirements, at Park Place
Apartments Phase II.
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, 5-30 years for amenities and the
applicable lease term for tenant improvements. The aggregate cost of the
Partnership's properties for Federal tax purposes is approximately $13,920,000.
Consolidated Cash Flows and Financial Condition
- -----------------------------------------------
Cash flows provided by (used in):
2000 1999
---- ----
Operating activities $ 148,406 $ 117,288
Investing activities (64,645) (25,466)
Financing activities (104,734) (87,068)
--------- ---------
Net (decrease) increase in cash and
equivalents $ (20,973) $ 4,754
========= =========
Net cash provided by operating activities increased approximately $31,100 or 26%
for the three months ended March 31, 2000, as compared to the same period in
1999. The increase in net cash provided by operating activities was driven
primarily by increased collection of accounts receivable in the first quarter
2000 as compared to the first quarter in 1999.
14
<PAGE>
Consolidated Cash Flows and Financial Condition - Continued
- -----------------------------------------------------------
The increase in net cash used in investing activities in the first quarter 2000,
as compared to the first quarter 1999, was mainly the result of increased
capital expenditures for the clubhouse and fitness center renovation project at
Park Place Apartments Phase II.
The increase in net cash used in financing activities in the first quarter 2000,
as compared to the first quarter 1999, was mainly a result of reserving $15,000
for the Third Tender Offer (See Notes to Financial Statements "6. Tender
Offer")that expires June 27, 2000.
During the three months ended March 31, 2000 and 1999, the Partnership used cash
flow from operations and cash on hand to pay a 1% (annualized) cash distribution
of $28,067 (2000) and $28,573 (1999), 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 flows from operations and
cash reserves will be sufficient to meet the needs of the Partnership. Cash
reserves (which are unrestricted cash and equivalents as shown on the
Partnership's balance sheet) were $379,289 at March 31, 2000.
The table below presents that portion of the distributions that represent a
return of capital on a Generally Accepted Accounting Principle basis for the
three months ended March 31, 2000 and 1999.
Cash
Net Income Distributions Return of
Allocated Declared Capital
--------- -------- -------
Limited Partners:
2000 $ (2,827) $ 27,787 $ 27,787
1999 (1,917) 28,287 28,287
General Partner:
2000 $ (29) $ 280 $ 280
1999 (19) 286 286
The demand on future liquidity is anticipated to increase as a result of the
replacement of the roofs at Park Place Apartments Phase II(17 buildings) all of
which were installed using shingles produced by a single manufacturer. The
shingles appear to contain defects which may cause them to fail before the end
of their expected useful life. 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 total costs of replacing all of the roofs is estimated
to be $340,000 ($20,000 per building).
15
<PAGE>
Consolidated Cash Flows and Financial Condition - Continued
- -----------------------------------------------------------
On March 24, 2000, the Partnership and ORIG, LLC., an affiliate of the
Partnership (the "bidders"), filed a tender offer (the "Third Tender Offer")
with the Securities and Exchange Commission, commencing on March 27, 2000, to
purchase 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.
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 advanced 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' headquarters 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.
16
<PAGE>
Year 2000 - Continued
- ---------------------
The Yardi system was fully implemented and operational as of December 31, 1999.
NTS' system for residential 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
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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
Our primary risk exposure with regards to financial instruments is changes in
interest rates. All of the Partnership's debt bears interest at a fixed rate. At
March 31, 2000, a hypothetical 100 basis point increase in interest rates would
result in approximately $246,000 decrease in the fair value of debt.
17
<PAGE>
PART II. OTHER INFORMATION
-----------------
Item 3. Defaults upon Senior Securities
-------------------------------
None.
Item 5. Other Information
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
Exhibit 27. Financial Data Schedule
(b) Reports on Form 8-K:
None.
Items 1,2 and 4 are not applicable and have been omitted.
18
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, NTS-
Properties VII, Ltd. has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
NTS-PROPERTIES VII, LTD.
-------------------------------------------
(Registrant)
By: NTS-Properties Associates VII,
General Partner
By: NTS Capital Corporation,
General Partner
/s/ Gregory A. Wells
-------------------------------------------
Gregory A. Wells
Senior Vice President and
Chief Financial Officer of
NTS Capital Corporation
Date: May 12, 2000
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF MARCH 31, 2000 AND FROM THE STATEMENT OF OPERATIONS FOR THE THREE
MONTHS ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 436,116
<SECURITIES> 0
<RECEIVABLES> 7,433
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 9,620,809
<DEPRECIATION> 0<F2>
<TOTAL-ASSETS> 10,201,919
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 4,792,688
0
0
<COMMON> 0
<OTHER-SE> 5,233,889
<TOTAL-LIABILITY-AND-EQUITY> 10,201,919
<SALES> 449,620
<TOTAL-REVENUES> 461,295
<CGS> 0
<TOTAL-COSTS> 373,188
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 90,963
<INCOME-PRETAX> (2,856)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,856)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,856)
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1>THE PARTNERSHIP HAS AN UNCLASSIFIED BALANCE SHEET, THEREFORE THE BALANCE IS
$0.
<F2>THIS INFORMATION IS NOT DISCLOSED IN THE PARTNERSHIP'S FORM 10-Q FILING.
</FN>
</TABLE>
