-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TJAyGpLBBnZunFIXugtjyFOKjgOi6qMjjqavPZ0U394p20JoX063ivx1OVlpcqIl l8Hqch9q4jl7zEQlojGDgw== 0000765232-98-000004.txt : 19980331 0000765232-98-000004.hdr.sgml : 19980331 ACCESSION NUMBER: 0000765232-98-000004 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980330 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NTS PROPERTIES VI/MD CENTRAL INDEX KEY: 0000765232 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 611066060 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-14695 FILM NUMBER: 98578466 BUSINESS ADDRESS: STREET 1: 10172 LINN STATION RD CITY: LOUISVILLE STATE: KY ZIP: 40223 BUSINESS PHONE: 5024264800 MAIL ADDRESS: STREET 1: 10172 LINN STATION RD CITY: LOUISVILLE STATE: KY ZIP: 40223 10-K 1 12/31/97 FORM 10-K 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, 1997 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 0-14695 NTS-PROPERTIES VI, a Maryland Limited Partnership (Exact name of registrant as specified in its charter) Maryland 61-1066060 (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 offices) (Zip Code) 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 39 Total Pages: 43 TABLE OF CONTENTS Pages PART I Items 1 and 2 Business and Properties 3-11 Item 3 Legal Proceedings 11 Item 4 Submission of Matters to a Vote of Security Holders 11 PART II Item 5 Market for the Registrant's Limited Partnership Interests and Related Partner Matters 12 Item 6 Selected Financial Data 13 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 14-21 Item 8 Financial Statements and Supplementary Data 22-35 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 36 PART III Item 10 Directors and Executive Officers of the Registrant 36-37 Item 11 Management Remuneration and Transactions 37 Item 12 Security Ownership of Certain Beneficial Owners and Management 37 Item 13 Certain Relationships and Related Transactions 37-38 PART IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 39-42 Signatures 43 - 2 - PART I Items 1. and 2. Business and Properties ----------------------- General - ------- Some of the statements included in Items 1. and 2., Business and Properties, 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. The registrant, NTS-Properties VI, a Maryland Limited Partnership (the "Partnership"), is a limited partnership formed in December 1984 under the laws of the State of Maryland. The General Partner is NTS-Properties Associates VI, a Kentucky limited partnership. As of December 31, 1997, the Partnership owned the following properties: - Sabal Park Apartments, a 162-unit luxury apartment complex located on a 13 acre tract in Orlando, Florida, constructed by the Partnership. - Park Place Apartments Phase I, a 180-unit luxury apartment complex located on an 18 acre tract in Lexington, Kentucky, constructed by the Partnership. - Willow Lake Apartments, a 207-unit luxury apartment complex located on an 18 acre tract in Indianapolis, Indiana, constructed by the Partnership. - A joint venture interest in Golf Brook Apartments, a 195-unit luxury apartment complex located on a 16 acre tract in Orlando, Florida, constructed by the joint venture between the Partnership and NTS- Properties IV., Ltd. ("NTS-Properties IV"), an affiliate of the General Partner of the Partnership. The Partnership's percentage interest in the joint venture was 96% at December 31, 1997. - A joint venture interest in Plainview Point III Office Center, an office center with approximately 62,000 net rentable square feet, located in Louisville, Kentucky, constructed by the joint venture between the Partnership and NTS-Properties IV. The Partnership's percentage interest in the joint venture was 95% at December 31, 1997. The Partnership also owns approximately 15 acres of land, adjacent to the Park Place Apartments development, in Lexington, Kentucky (Park Place Apartments Phase III). The Partnership intends to use the land to construct Park Place Apartments Phase III. It is anticipated that construction will begin in the Spring of 1998. The Partnership or Joint Venture in which the Partnership is a partner has a fee title interest in the above listed properties. In the opinion of the Partnership's management, the properties are adequately covered by insurance. Sabal Park Apartments is encumbered by permanent mortgages with two insurance companies. Both loans are secured by a first mortgage on the property. The outstanding balance of the mortgages at December 31, 1997 was $4,700,000 ($2,820,000 and $1,880,000). Both mortgages bear interest at a fixed rate of 7.38% and are due December 5, 2012. Monthly principal - 3 - General - Continued - ------------------- payments on both mortgages are based upon a 15-year amortization schedule. At maturity, the mortgages will have been repaid based upon the current rate of amortization. Park Place Apartments Phase I and Park Place Apartments Phase III (to be constructed) are encumbered by a $12,200,000 permanent mortgage with an insurance company. The outstanding balance of the mortgage at December 31, 1997 is $5,000,000. The remaining $7,200,000 loan proceeds will be advanced during the construction of Park Place Apartments Phase III as needed in accordance with the loan agreement. The mortgage bears interest at a fixed rate of 7.74%, is due October 15, 2012 and is secured by the assets of Park Place Apartments Phase I and Park Place Apartments Phase III. Until the construction of Park Place Apartments Phase III is complete, the mortgage will require only monthly interest payments. Upon the completion of Park Place Apartments Phase III, the monthly principal payments will be based upon a 19-year amortization schedule. At maturity, the principal balance of the loan will not be fully amortized. However, due to the fact that it is not known when principal payments will begin, the outstanding balance at maturity can not be determined at this time. Willow Lake Apartments is encumbered by a permanent mortgage with an insurance company. The outstanding balance at December 31, 1997 was $8,447,975. The mortgage bears interest at a fixed rate of 7.32%. Monthly principal payments are based upon a 15-year amortization schedule. The mortgage is due October 15, 2012. At maturity, the mortgage will have been repaid based upon the current rate of amortization. Golf Brook Apartments, a joint venture between the Partnership and NTS- Properties IV, is encumbered by a mortgage payable to an insurance company. The mortgage is recorded as a liability by the Partnership in accordance with the Joint Venture Agreement. The outstanding balance at December 31, 1997 was $8,724,588. The mortgage bears a fixed interest rate of 7.43% and is due May 14, 2009. Monthly principal payments are based upon a 12-year amortization schedule. At maturity, the mortgage will have been repaid based on the current rate of amortization. Plainview Point III Office Center is not encumbered by an outstanding mortgage at December 31, 1997. For a further discussion regarding the terms of the debt financings see Management's Discussion and Analysis of Financial Condition and Results of Operations (Item 7). Currently, the Partnership's plans for renovations and other major capital expenditures include tenant finish improvements at the Partnership's commercial property as required by lease negotiations. Changes to current tenant finish improvements are a typical part of any lease negotiation. Improvements generally include a revision to the current floor plan to accommodate a tenant's needs, new carpeting and paint and/or wallcovering. The extent and cost of the improvements are determined by the size of the space being leased and whether the improvements are for a new tenant or incurred because of a lease renewal. The tenant finish improvements will be funded by cash flow from operations and/or cash reserves. The Partnership also plans to begin, during Spring 1998, the construction of Park Place Apartments Phase III (152 units) on the 15 acres of land it owns which is adjacent to the existing Park Place Apartments in Lexington, Kentucky. It is currently estimated that the cost of the project will be $9,000,000. Construction costs will be funded by the $7,200,000 of loan proceeds, as discussed above, and cash reserves. Through December 31, 1997, approximately $100,000 of pre-development costs had been incurred. The Partnership had no material commitments for renovations or capital improvements at December 31, 1997. - 4 - General - Continued - ------------------- The Partnership is presently engaged solely in the business of developing, constructing, owning and operating residential apartments and commercial real estate. A presentation of information concerning industry segments is not applicable. The current business of the Partnership is consistent with the original purpose of the Partnership which was to purchase and develop parcels of unimproved or partially improved land, directly or by joint venture, in order to construct and otherwise develop thereon apartment complexes, business parks and/or retail, industrial and office buildings and to own and operate the completed properties. 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. The General Partner of the Partnership is currently exploring the marketability of certain of its properties, and has not yet determined if any of the properties might be sold in the next 12 months, and there are no contracts for sale under negotiation at the present time. Sabal Park Apartments - --------------------- Units at Sabal Park Apartments include two and three-bedroom units. All units have wall-to-wall carpeting, individually controlled heating and air conditioning, ovens, dishwashers, ranges, refrigerators, garbage disposals and washer/dryer hook-ups. Tenants have access to and use of clubhouse, management offices, swimming pool and tennis courts. Monthly rental rates at Sabal Park Apartments start at $879 for two-bedroom apartments and $1,219 for three-bedroom apartments, 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 97% (1997), 90% (1996), 98% (1995), 91% (1994)and 94% (1993). Park Place Apartments Phase I - ----------------------------- Units at Park Place Apartments Phase I include one 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 ice makers, garbage disposals and microwave ovens. All units have access to coin-operated washers and dryers and some units have a washer/dryer hook-up. 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 II of the Park Place development. Park Place Apartments Phase II is owned by NTS-Properties VII, Ltd., an affiliate of the General Partner of the Partnership. The cost to construct and operate the common amenities is shared proportionately by each phase. Monthly rental rates at Park Place Apartments Phase I start at $709 for one-bedroom apartments, $909 for two-bedroom apartments and $1,099 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 - 5 - Park Place Apartments Phase I - Continued - ----------------------------------------- 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 89% (1997), 90% (1996), 92% (1995), 93% (1994) and $93% (1993). Willow Lake Apartments - ---------------------- Units at Willow Lake Apartments include one 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 ice makers, garbage disposals and microwave ovens. All units have access to coin-operated washers and dryers and some units have a washer/dryer hook-up. Amenities include the clubhouse with a party room, swimming pool, tennis courts, racquetball courts, exercise facility and management offices. Monthly rental rates at Willow Lake Apartments start at $760 for one-bedroom apartments, $965 for two-bedroom apartments and $1,155 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 88% (1997), 91% (1996), 93% (1995), 92% (1994) and 84% (1993). Golf Brook Apartments - --------------------- Units at Golf Brook Apartments include two and three-bedroom units. All units have wall-to-wall carpeting, individually controlled heating and air conditioning, dishwashers, ranges, refrigerators, garbage disposals and washer/dryer hook-ups. Tenants have access to and use of clubhouse, management offices, pool and tennis courts. Monthly rental rates at Golf Brook Apartments start at $1,130 for two-bedroom apartments and $1,360 for three-bedroom apartments, 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 96% (1997),97% (1996), 91% (1995), 93% (1994) and 91% (1993). Plainview Point III Office Center - --------------------------------- Base annual rents, which include the cost of utilities, range from $13.90 to $17.00 per square foot for first and second floor office space and $13.00 per square foot for lower level office space. The average base annual rental for all types of space leased as of December 31, 1997 was $14.42 per square foot. Office space is ordinarily leased for between two and six years with the majority of current square footage being leased for a term of five years. Current leases terminate between 1998 and 2001. Some leases provide for renewal options of between two and five years at rates which are based upon increases in the consumer price index and/or are negotiated between lessor and lessee. All leases provide for tenants to contribute toward the payment of increases in common area maintenance expenses, insurance, utilities and real estate taxes. As of December 31, 1997, there were seven tenants leasing space aggregating approximately 60,121 square feet of rentable area. The tenants who occupy Plainview Point III Office Center are professional service oriented organizations. The principal occupations/professions practiced include real estate and insurance. Four tenants lease more than 10% of the office center's rentable area: The Prudential Company of America (10.3%), Underwriters Safety & Claims, Inc. (18.4%), Re/max Properties East, Inc. (24.4%) and Univa Health Network (26.7%). The occupancy levels at the office center as of December 31 were 96% (1997), 91% (1996), 91% (1995), 91% (1994) and 87% (1993). - 6 - Plainview Point III Office Center - Continued - --------------------------------------------- The following table contains approximate data concerning the leases in effect on December 31, 1997. Major Tenants: Current Base Sq. Ft. and Annual Rental % of Net and % of Gross Year of Rentable Base Annual Renewal Name Expiration Area Rental Options ---- ---------- ---- ------ ------- The Prudential Company of America 1998 6,474 (10.3%) $ 95,964 (11.1%) 1 Five-Year Underwriters Safety & Claims, Inc. 2001 11,535 (18.4%) $149,952 (17.3%) None Re/max Properties East, Inc. 1999 15,300 (24.4%) $225,600 (26.0%) 1 Two-Year Univa Health Network 2000 16,727 (26.7%) $232,500 (26.8%) 1 Five-Year Other Tenants: Current Base Sq. Ft. and Annual Rental % of Net and % of Gross No. of Year of Rentable Base Annual Renewal Tenants Expiration Area Rental Options ------- ---------- ---- ------ ------- None 1998-1999 -- -- -- 3 2000 10,085 (16.1%) $163,140 (18.8%) 1 Three-Year 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 - ----------------------- Sabal Park Apartments $11,213,451 $.018636 $157,380 Park Place Apartments Phase I 11,225,316 .009925 111,066 Willow Lake Apartments 15,532,184 .090642 228,280 Properties Owned in Joint Venture with NTS-Properties IV - ----------------- Golf Brook Apartments 16,094,267 .018636 259,677 Plainview Point III Office Center 4,193,863 .011180 34,849 Percentage ownership has not been applied to the information in the above table for properties owned through a joint venture. 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 3-30 years for amenities. The estimated realty taxes on the completed Park Place Apartments Phase III will be approximately $90,000. The estimated realty taxes on all other planned renovations, primarily tenant - 7 - General - Continued - ------------------- improvements, would not be material. See Management's Discussion and Analysis of Financial Condition and Results of Operations (Item 7) for explanations regarding the fluctuations of income and occupancy at the Partnership's properties. Investment in Joint Ventures - ---------------------------- NTS Sabal Golf Villas Joint Venture - On September 1, 1985, the Partnership entered into a joint venture agreement with NTS-Properties IV, an affiliate of the General Partner of the Partnership, to develop, construct, own and operate a 158-unit luxury apartment complex on a 13.15-acre site in Orlando, Florida known as Golf Brook Apartments Phase I. On January 1, 1987, the joint venture agreement was amended to include Golf Brook Apartments Phase II, a 37-unit luxury apartment complex located on a 3.069-acre site adjacent to Golf Brook Apartments Phase I. The term of the Joint Venture 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 Partnership, other than its cash and cash-equivalent assets; (c) the vote or consent of each of the Partners to dissolve the Partnership; or (d) September 30, 2025. The Partnership contributed approximately $15,800,000, the cost of constructing and leasing the apartments. NTS-Properties IV contributed land valued at $1,900,000 with a related note payable to a bank of $1,200,000. The Partnership also contributed funds to retire the $1,200,000 note payable to a bank. No future contributions are anticipated as of December 31, 1997. Golf Brook Apartments is encumbered by a mortgage payable to an insurance company. The Partnership had originally obtained financing, secured by Golf Brook Apartments, to fund a portion of its contribution to the Joint Venture. The contribution loan has subsequently been refinanced. The current mortgage payable of $8,714,588 is recorded as a liability by the Partnership in accordance with the Joint Venture Agreement. The mortgage payable bears interest at a fixed rate of 7.43%, is due May 14, 2009 and is secured by the assets of Golf Brook Apartments. Monthly principal payments are based upon a 12-year amortization schedule. At maturity, the mortgage will have been repaid based on the current rate of amortization. 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 means 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 from previously established reserves (referred to in clause (b) (iv) below), over (b) the sum of (i) all cash expenses paid by the Joint Venture Property during such period, (ii) all 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 (i), (ii) and (iii) above shall be taken in to account only 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. - 8 - Investment in Joint Ventures - Continued - ---------------------------------------- Net income or net loss is allocated between the Partners in accordance with their respective Percentage Interests. The Partnership's ownership share was 96% at December 31, 1997. The Partnership has no liability for funding losses of the joint venture as of December 31, 1997. Plainview Point III Joint Venture - On March 1, 1987, the Partnership entered into a joint venture agreement with NTS-Properties IV, an affiliate of the General Partner, to develop, construct, own and operate an office building in Louisville, Kentucky known as Plainview Point III Office Center. The terms of the Joint Venture 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, unless such disposition is, in whole or in part, represented by a promissory note of the purchaser; (c) the vote or consent of each of the Partners to dissolve the Partnership; or (d) December 30, 2026. The Partnership contributed approximately $4,100,000, the cost to construct and lease the building. NTS-Properties IV contributed land valued at $790,000 with an outstanding note of $550,000 which was secured by the land. The Partnership also contributed the funds to retire the $550,000 note payable to the bank. No future contributions are anticipated as of December 31, 1997. As of December 31, 1997, Plainview Point III Office Center is not encumbered by any mortgage indebtedness. 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 means 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 from previously established reserves (referred to in clause (b) (iv) below), over (b) the sum of (i) all cash expenses paid by the Joint Venture Property during such period, (ii) all 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 (i), (ii) and (iii) above shall be taken in to account only 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 95% at December 31, 1997. The Partnership has no liability for funding losses of the joint venture as of December 31, 1997. - 9 - Competition - ----------- The Partnership's 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 service provided to tenants. Competition is expected to increase in the future as a result of the construction of additional properties. As of December 31, 1997, there are no properties under construction in the respective vicinities in which the properties are located except for the following: In close proximity to Sabal Park Apartments and Golf Brook Apartments, there are 726 apartment units currently under construction which are scheduled to be completed during 1998. In the vicinity near Park Place Apartments, there are currently 760 apartment units currently under construction which are scheduled to be completed during the second and third quarters of 1998. Also, at the Park Place Apartments development, plans are currently in progress to build Phase III (152 units) of the development with ground breaking scheduled for Spring 1998. See the discussion above for further details regarding the planned construction. In the vicinity of Willow Lake Apartments, there are currently 1,160 apartment units under construction which are scheduled to be completed during 1998. At this time it is unknown the effect these new units will have on occupancy at the Partnership's properties. 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 VI, 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 VI. 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 $480,335 for the year ended December 31, 1997. $46,099 was received from the commercial property and $434,236 was received from residential properties. The fee is equal to 6% of gross revenues from the commercial property and 5% of gross revenues from residential properties. 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, 1997, the Management Agreement is still in effect. - 10 - 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 other 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. Item 3. Legal Proceedings ----------------- None. Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- None. - 11 - PART II Item 5. Market for Registrant's Limited Partnership Interests and Related - ------- ----------------------------------------------------------------- Partner Matters --------------- There is no established trading market for the limited partnership interests, nor is one likely to develop. The Partnership had 3,976 limited partners as of March 9, 1998. Cash distributions and allocations of net income (loss) are made as described in Note 1C to the Partnership's 1997 financial statements. Annual distributions totaling $20.00 per limited partnership unit were paid during the years ended December 31, 1997, 1996 and 1995, 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: 1997 1996 1995 --------- --------- -------- First quarter $ 5.00 $ 5.00 $ 5.00 Second quarter 5.00 5.00 5.00 Third quarter 5.00 5.00 5.00 Fourth quarter 5.00 5.00 5.00 ------ ------ ----- $20.00 $20.00 $20.00 ====== ====== ===== 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, 1997, 1996 and 1995. Net Income Cash (Loss) Distributions Return of Allocated Declared Capital --------- -------- ------- Limited Partners: 1997 $ 106,042 $ 853,625 $ 747,583 1996 224,783 886,000 661,217 1995 (324,417) 948,700 948,700 General Partners: 1997 $ 1,071 $ 8,622 $ 7,551 1996 2,271 8,950 6,679 1995 (3,277) 9,583 9,583 - 12 - Item 6. Selected Financial Data ----------------------- Years ended December 31, 1997, 1996, 1995, 1994 and 1993.
1997 1996 1995 1994 1993 ------------- ------------- ------------- ------------- ------------- Total revenues $ 9,608,273 $ 9,670,261 $ 8,939,055 $ 8,796,072 $ 8,515,951 Total expenses (9,402,616) (9,443,207) (9,266,749) (9,607,971) (9,549,251) ------------ ------------ ------------ ------------ ------------ Income(loss) before extraordinary item 205,657 227,054 (327,694) (811,899) (1,033,300) Extraordinary item (98,544) -- -- -- -- ------------ ------------ ------------ ------------ ------------ Net income (loss) $ 107,113 $ 227,054 $ (327,694) $ (811,899) $ (1,033,300) ============ ============ ============ ============ ============ Net income (loss) allocated to: General Partner $ 1,071 $ 2,271 $ (3,277) $ (8,119) $ (10,333) Limited partners $ 106,042 $ 224,783 $ (324,417) $ (803,780) $ (1,022,967) Net income (loss) per limited partnership unit $ 2.48 $ 4.97 $ (6.84) $ (16.94) $ (21.57) Weighted average number of limited partnership units 42,817 45,243 47,435 47,435 47,435 Cumulative net income (loss) allocated to: General Partner $ (74,865) $ (75,936) $ (78,207) $ (74,930) $ (66,811) Limited partners $(12,202,299) $(12,308,341) $(12,533,124) $(12,208,707) $(11,404,927) Cumulative net taxable income (loss) allocated to: General Partner $ 102,664 $ 1,192,830 $ 78,617 $ 64,858 $ 55,986 Limited partners $(15,174,826) $(16,357,888) $(15,401,294) $(14,859,402) $(13,885,668) Distributions declared: General Partner $ 8,622 $ 8,950 $ 9,583 $ 8,984 $ 7,187 Limited partners $ 853,625 $ 886,000 $ 948,700 $ 889,380 $ 711,525 Cumulative distributions declared: General Partner $ 112,066 $ 103,444 $ 94,494 $ 84,911 $ 75,927 Limited partners $ 11,094,531 $ 10,240,906 $ 9,354,906 $ 8,406,206 $ 7,516,826 At year end: Cash and equivalents $ 276,891 $ 640,541 $ 393,552 $ 1,617,604 $ 1,394,905 Investment securities $ 1,562,813 $ 1,085,267 $ 1,151,355 $ -- $ -- Land, buildings and amenities, net $ 38,660,912 $ 40,436,784 $ 42,196,272 $ 43,872,072 $ 45,799,467 Total assets $ 43,289,608 $ 44,771,802 $ 46,813,791 $ 48,267,884 $ 50,221,728 Mortgages payable $ 26,872,563 $ 27,403,056 $ 27,653,044 $ 27,883,025 $ 28,101,474
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. - 13 - Item 7. Management's Discussion and Analysis of Financial Condition and --------------------------------------------------------------- Results of Operations --------------------- Results of Operations The occupancy levels at the Partnership's properties as of December 31 were as follows: Percentage Ownership at 12/31/97 1997 1996 1995 ----------- -------- -------- ------- Wholly-Owned Properties - ----------------------- Sabal Park Apartments 100% 97% 90% 98% Park Place Apartments Phase I 100% 89% 90% 92% Willow Lake Apartments 100% 88% 91% 93% Properties Owned in Joint Venture with NTS- Properties IV - ------------------------- Golf Brook Apartments 96% 96% 97% 91% Plainview Point III Office Center 95% 96% 91% 91% Rental and other income generated by the Partnership's properties for the years ended December 31, 1997, 1996 and 1995 were as follows: Percentage Ownership at 12/31/97 1997 1996 1995 ----------- ---------- ---------- ---------- Wholly-Owned Properties Sabal Park Apartments 100% $1,725,980 $1,765,302 $1,675,795 Park Place Apartments Phase I 100% $1,896,871 $1,843,808 $1,739,626 Willow Lake Apartments 100% $2,412,609 $2,434,696 $2,287,408 Properties Owned in Joint Venture with NTS- Properties IV Golf Brook Apartments 96% $2,747,335 $2,801,744 $2,722,451 Plainview Point III Office Center 95% $ 737,948 $ 729,647 $ 428,269 Revenues shown in the table above for properties owned through a joint venture represent only the Partnership's percentage interest in those revenues. Sabal Park Apartments' year-ending occupancy increased from 90% in 1996 to 97% in 1997; however, average occupancy decreased from 94% in 1996 to 92% - 14 - Results of Operations - Continued - --------------------------------- in 1997. Occupancy at residential properties fluctuate on a continuous basis. Year-ending occupancy percentages represent occupancy only on a specific date; therefore, it is more meaningful to consider average occupancy percentages which are more representative of the entire year's results. Rental and other income at Sabal Park Apartments decreased from 1996 to 1997 as a result of a decrease in average occupancy and increased rent concessions. Sabal Park Apartments' year-ending occupancy decreased from 98% in 1995 to 90% in 1996 and average occupancy increased from 92% in 1995 to 94% in 1996. Rental and other income at Sabal Park Apartments increased from 1995 to 1996 as a result of the increase in average occupancy, increased rental rates, increased fees collected upon early lease terminations and increased fees collected for short term and month-to-month leases. Park Place Apartments Phase I's year-ending occupancy decreased from 90% in 1996 to 89% in 1997 and average occupancy decreased from 93% in 1996 to 91% in 1997. Rental and other income at Park Place Apartments Phase I increased from 1996 to 1997 as a result of increased rental rates and increased income collected from the rent of fully furnished units. Fully furnished units are apartments which rent at an additional premium above base rent. Therefore, it is possible for occupancy to decrease and revenue to increase when the number of fully furnished units has increased. Year-ending occupancy at Park Place Apartments Phase I decreased from 92% in 1995 to 90% in 1996 and average occupancy decreased from 94% in 1995 to 93% in 1996. Rental and other income at Park Place Apartments Phase I increased from 1995 to 1996 as a result of increased income collected from the rental of fully furnished units, increased income collected for short term and month-to-month leases and increased rental rates. Willow Lake Apartments' year-ending occupancy decreased from 91% in 1996 to 88% in 1997 and average occupancy decreased from 94% in 1996 to 90% in 1997. Rental and other income at Willow Lake Apartments decreased from 1996 to 1997 as a result of the decrease in average occupancy and decreased income collected from the rental of fully furnished units. Willow Lake Apartments' year-ending occupancy decreased from 93% in 1995 to 91% in 1996; however, average occupancy increased 2% from 1995 to 1996. Rental and other income at Willow Lake Apartments increased as a result of the increase in average occupancy, increased rental rates, increased income collected from fully furnished units and increased fees collected for short term and month-to-month leases. Golf Brook Apartments' year-ending occupancy decreased from 97% in 1996 to 96% in 1997 and average occupancy decreased from 94% in 1996 to 93% in 1997. Rental and other income at Golf Brook Apartments decreased from 1996 to 1997 as a result of decreased average occupancy and increased rent concessions. Year-ending occupancy at Golf Brook Apartments increased from 91% in 1995 to 97% in 1996 while average occupancy remained constant at 94% in 1995 and 1996. Rental and other income at Golf Brook Apartments increased from 1995 to 1996 as a result of increased rental rates, increased non-refundable pet fees and increased pet rent collected. Plainview Point III Office Center's year-ending occupancy increased from 91% in 1996 to 96% in 1997 as a result of one new lease for approximately 4,800 square feet. Partially offsetting the new lease is the downsizing of an existing tenant by approximately 1,600 square feet. Average occupancy decreased from 93% (1996) to 90% (1997). Rental and other income remained fairly constant at Plainview Point III Office Center from 1996 to 1997. - 15 - Results of Operations - Continued - --------------------------------- Year-ending occupancy at Plainview Point III Office Center was 91% for 1995 and 1996 as a result of expansions by two current tenants of existing space totaling approximately 2,500 square feet offset by one tenant move-out at the end of the lease term totaling approximately 2,500 square feet. Average occupancy increased from 55% in 1995 to 93% in 1996. Rental and other income increased at Plainview Point III Office Center from 1995 to 1996 as a result of the increase in average occupancy. If present trends continue, the Partnership will be able to continue at its current level of operations without the need of any additional financing. Current occupancy levels are considered adequate to continue the operation of the Partnership's properties. Interest and other income includes interest income from investments made by the Partnership with cash reserves. Interest income remained fairly constant during 1997 as compared to 1996. The increase in interest and other income from 1995 to 1996 can be attributed to increased miscellaneous income collected by the Partnership partially offset by decreased interest income resulting from decreased cash reserves being available for investment and decreased other income at the Partnership's residential properties. Operating expenses decreased from 1996 to 1997 as a result of decreased repairs and maintenance costs at Sabal Park, Park Place Phase I, Golf Brook and Willow Lake Apartments, decreased snow removal at Park Place Phase I and Willow Lake Apartments, decreased landscaping costs at Sabal Park, Park Place Phase I and Willow Lake Apartments, and decreased furniture rental costs associated with fully furnished units at Willow Lake Apartments. These decreases are partially offset by increased advertising at Sabal Park, Park Place Phase I, Willow Lake Apartments and Plainview Point III Office Center, increased interior painting at Sabal Park, Park Place Phase I and Golf Brook Apartments and Plainview Point III Office Center, increased pool maintenance costs at Golf Brook and Willow Lake Apartments, and increased replacement costs at Willow Lake, Park Place Phase I and Sabal Park Apartments. Operating expenses increased from 1995 to 1996 as a result of increased general building costs at all the Partnership's properties, increased furniture rental costs associated with fully furnished units at Willow Lake and Park Place Phase I Apartments, increased replacement costs at Golf Brook, Willow Lake and Park Place Phase I Apartments, increased utility costs at Park Place Phase I Apartments, Willow Lake Apartments and Plainview Point III Office Center, increased exterior maintenance costs at Golf Brook Apartments, increased advertising costs at Golf Brook, Park Place Phase I and Willow Lake Apartments and increased amortization of prepaid leasing commissions at Plainview Point III Officer Center . These increases are partially offset by decreased exterior painting costs at Willow Lake and Park Place Phase I Apartments and decreased interior painting and carpet replacement costs at Sabal Park Apartments. Operating expenses - affiliated increased from 1996 to 1997 as a result of increased salary costs at the Partnership's residential properties. Operating expenses - affiliated at Plainview Point III Office Center remained relatively constant from 1996 to 1997. Operating expenses affiliated are expenses incurred for services by employees of NTS Development Company, an affiliated of the General Partner of the Partnership. Operating expenses - affiliated decreased from 1995 to 1996 due to decreased property management and leasing costs. - 16 - Results of Operations - Continued - --------------------------------- The 1997 write-off of unamortized loan costs (treated as an extraordinary item) relates to loan costs associated with the Golf Brook, Park Place Phase I, Willow Lake and Sabal Park Apartments mortgages payable. The unamortized loan costs were expensed due to the fact that the mortgages were retired in 1997 prior to their scheduled maturities - August 1, 1997, October 5, 2002, November 1, 1997 and January 5, 2003, respectively - as a result of new financing being obtained during 1997. See the Liquidity and Capital Resources section of this item for further discussion. Amortization of capitalized leasing costs has increased from 1996 to 1997 as a result of amortization of a special tenant allowance, at Plainview Point III Office Center, which was paid during 1997. Amortization of capitalized leasing costs decreased from 1995 to 1996 as a result of a portion of the costs capitalized during start-up having become fully amortized. Capitalized leasing costs were fully amortized during the second quarter of 1995. Interest expenses decreased from 1996 to 1997 due to the Partnership's decreasing debt level as a result of principal payments made and a result of the new debt financings at lower interest rates which were obtained May 15, September 12, and October 8, 1997. The $9,200,000 mortgage, which was paid off May 15, 1997, had an interest rate of 8.625% compared to 7.43% on the new $9,000,000 loan. The approximately $8,500,000 which was paid off September 12, 1997, had an interest rate of 9.20% compared to 7.32% on the new $8,500,000 loan. The approximately $3,900,000 and $950,000 mortgages, which were paid off October 8, 1997, had an interest rate of 8.375% compared to 7.74% on the new $5,000,000 loan. Interest expense decreased from 1995 to 1996 due to the Partnership's decreasing debt level as a result of principal payments made. See the Capital Resources and Liquidity section of this item for details regarding the Partnership's debt. 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 periods will differ from the fluctuations of management fee expense. The change in real estate taxes from 1996 to 1997 was not significant. The increase in real estate taxes from 1995 to 1996 is a result of increased property assessments for Golf Brook and Sabal Park Apartments. The increase in real estate taxes is partially offset by a decreased property assessment and decreased tax rate for Willow Lake Apartments. The assessment for Park Place Apartments Phase I and Plainview Point III Office Center remained constant from 1995 to 1996. The increase in professional and administrative expenses from 1996 to 1997 is the result of increased legal costs. The increase in professional and administrative expenses from 1995 to 1996 is the result of increased costs associated with the Interest Repurchase Program. Professional and administrative expenses - affiliated increased from 1996 to 1997 and from 1995 to 1996 as a result of increased charges by NTS Development Company for accounting personnel. Over the past several years the charges for the annual partnership audit have stayed at a relatively consistent level despite the increase in disclosure and audit requirements. This has been accomplished by the increased utilization of NTS Development Company personnel's preparation of the necessary audit documentation, workpapers, Securities and Exchange Commission filings and EDGAR (Electronic Data Gathering, Analysis and Retrieval) filings. In addition, administrative overhead costs have increased as a result of the additional personnel costs related to investor relations and asset management. Professional and administrative expenses - affiliated are expenses incurred for services performed by employees of NTS Development Company, an affiliate of the General Partner of the Partnership. - 17 - Results of Operations - Continued - --------------------------------- Amortization expense decreased from 1996 to 1997 as a result of decreased loan cost amortization. The change in depreciation expense from 1996 to 1997 was not significant. Depreciation and amortization decreased from 1995 to 1996 due to a portion of the assets with shorter lives at the Partnership's residential properties having become fully depreciated. The decrease in depreciation and amortization from 1995 to 1996 is partially offset by depreciation of new tenant finish improvements at Plainview Point III Office Center. Depreciation is computed using the straight-line method over the useful lives of the assets which are 5-30 years for land improvements, 30 years for buildings, 5-30 years for building and improvements and 5-30 years for amenities. The aggregate cost of the Partnership's properties for Federal tax purposes is approximately $71,500,000. Liquidity and Capital Resources - ------------------------------- Cash provided from operations was $2,131,543, $2,257,823 and $1,648,106 during the years ended December 31, 1997, 1996 and 1995, respectively. These funds in conjunction with cash on hand were used to make, a 2% (annualized) cash distribution of approximately $862,000 in 1997, a 2% (annualized) cash distribution of approximately $895,000 in 1996, and a 2% (annualized) cash distribution of approximately $958,000 in 1995. 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 costs, tenant finish costs and capital improvements. Cash reserves (which are unrestricted cash and equivalents and investment securities as shown on the Partnership's balance sheet as of December 31) were $1,839,704, $1,725,808 and $1,544,907 at December 31, 1997, 1996 and 1995, respectively. On May 15, 1997, the Partnership obtained a mortgage loan from an insurance company in the amount of $9,000,000. The outstanding balance of the loan at December 31, 1997 was $8,714,588. The mortgage bears interest at a fixed rate of 7.43%, is due May 14, 2009 and is secured by the assets of Golf Brook Apartments. The monthly principal payments are based upon a 12-year amortization schedule. At maturity, the loan will have been repaid based on the current rate of amortization. The proceeds from the loan along with cash reserves were used to pay off the Partnership's $9,200,000 mortgage payable which was secured by Golf Brook Apartments. The mortgage bore interest at a fixed rate of 8.625% and had a maturity date of August 1, 1997. On September 12, 1997, the Partnership obtained a mortgage loan from an insurance company in the amount of $8,500,000. The outstanding balance of the loan at December 31, 1977 was $8,447,975. The mortgage bears interest at a fixed rate of 7.32%, is due October 15, 2012 and is secured by the assets of Willow Lake Apartments. The monthly principal payments are based upon a 15-year amortization schedule. At maturity, the loan will have been repaid based on the current rate of amortization. The proceeds from the loan were used to pay off the Partnership's $8,443,126 mortgage payable which was secured by Willow Lake Apartments and to fund loan closing costs. The mortgage bore interest at a fixed rate of 9.20% and had a maturity date of November 1, 1997. On October 8, 1997, the Partnership obtained a mortgage loan from an insurance company in the amount of $12,200,000. The outstanding balance of the loan at December 31, 1997 was $5,000,000. The mortgage bears interest at a fixed rate of 7.74%, is due October 15, 2012 and is secured by the assets of Park Place Apartments Phase I and Park Place Apartments Phase III (to be constructed). The remaining $7,200,000 loan proceeds will be advanced during the construction of Park Place Apartments Phase III as needed in accordance with the loan agreements. Until the construction of - 18 - Liquidity and Capital Resources - Continued - ------------------------------------------- Park Place Apartments Phase III is complete, the mortgage will require only monthly interest payments. Upon the completion of Park Place Apartments Phase III, the monthly principal payments will be based upon a 19-year amortization schedule. Due to the fact that it is not known when principal payments will begin, the outstanding balance at maturity can not be determined at this time. On October 8, 1997, $5,000,000 of the loan proceeds were advanced and used to pay off the Partnership's approximately $3,950,000 and $950,000 (total of $4,900,000) mortgages payable, which were secured by Park Place Apartments Phase I and to fund loan closing costs. The mortgages bore interest at a fixed rate of 8.375% and had maturity dates of October 5, 2002. The remaining $7,200,000 loan proceeds will be advanced during the construction of Park Place Apartments Phase III, as needed, in accordance with the loan agreement. On November 21, 1997 the Partnership obtained two mortgage loans with an insurance company in the amounts of $2,820,000 and $1,880,000. The outstanding balances of the loans at December 31, 1997 were $2,820,000 and $1,880,000 for a total of $4,700,000. Both mortgages bear interest at a fixed rate of 7.38%, are due December 5, 2012, and are secured by the assets of Sabal Park Apartments. The monthly principal payments are based upon a 15-year amortization schedule. At maturity, the mortgage will have been repaid based upon the current rate of amortization. The proceeds from the loans were used to pay off the Partnership's mortgages payable in the amounts of approximately $2,800,000 and $1,900,000, which were secured by Sabal Park Apartments and to fund loan closing costs. The mortgages bore interest at a fixed rate of 7.25% and had maturity dates of January 5, 2003. The majority of the Partnership's cash flow is derived from operating activities. The decrease in accounts receivable during 1995 represents a settlement received from the insurance company of the manufacturer of the pipe fittings which were used in the construction of Willow Lake Apartments. Cash flows used in investing activities are for tenant finish improvements and other capital improvements at the Partnership's properties. Changes to current tenant improvements at commercial properties are a typical part of any lease negotiation. Improvements generally include a revision to the current floor plan to accommodate a tenant's needs, new carpeting and paint and/or wallcovering. The extent and cost of these improvements are determined by the size of the space and whether the improvements are for a new tenant or incurred because of a lease renewal. The tenant finish improvements and other capital additions are funded by cash flow from operations. Cash flows used in investing activities are also for the purchase of investment securities. As part of its cash management activities, the Partnership has purchased Certificates of Deposit or securities issued by the U.S. Government with initial maturities of greater than three months to improve the return on its cash reserves. The Partnership intends to hold the securities until maturity. Cash flows provided by investing activities are derived from the maturity of investment securities. Cash flows used in financing activities are for cash distributions, principal payments on mortgages payable, repurchase of limited partnership Units and payment of loan costs. Cash flows used in financing activities also include cash which has been reserved by the Partnership for the repurchase of limited partnership Units. Cash flows provided by financing activities represent the utilization of cash which has been reserved by the Partnership for the repurchase of limited partnership Units and proceeds from mortgage loans. The Partnership does not expect any material changes in the mix and relative cost of capital resources from those in 1997 except for the following: 1) future leasing and tenant finish costs, as discussed below, 2) changes resulting from the new debt financings obtained by the Partnership during 1997, as discussed above, and 3) the construction of Park Place Apartments Phase III, as discussed below. In the next 12 months, the demand on future liquidity is anticipated to increase as a result of a 6,474 square feet lease having expired May 1997 at Plainview Point III Office Center. Currently, the tenant is leasing the space on a month-to-month basis. At this time, the future leasing and - 19 - Liquidity and Capital Resources - Continued - ------------------------------------------- tenant finish costs which will be required to renew the current lease or obtain new tenants are unknown. The Partnership also plans to begin, during Spring 1998, the construction of Park Place Apartments Phase III (152 units) on the 15 acres of land it owns which is adjacent to the existing Park Place Apartments in Lexington, Kentucky. It is currently estimated that the cost of the project will be $9,000,000. Construction costs will be funded by the $7,200,000 of loan proceeds, as discussed above, and cash reserves. Through December 31, 1997, approximately $100,000 of pre-development costs had been incurred. As of December 31, 1997, the Partnership had no material commitments for renovations or capital improvements. It is anticipated that the cash flow from operations, cash reserves and loan proceeds will be sufficient to meet the needs of the Partnership. The Partnership has conducted a comprehensive review of its computer systems to identify the systems that could be affected by the Year 2000 Issue and is developing an implementation plan to resolve the issue. The Year 2000 Issue, a worldwide problem, is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Partnership's programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in major systems failures or miscalculations. The Partnership presently believes that, with modifications to existing software and conversions to new software, the Year 2000 problem will not pose significant operational problems for the Partnership's computer systems. The Partnership continues to evaluate appropriate courses of corrective action, including replacement of certain systems whose associated costs would be recorded as assets and amortized. The Partnership does not expect the costs associated with the resolution of the Year 2000 Issue to have a material effect on its financial position or results of operations. The associated costs will be funded by cash flow from operations or cash reserves. The amount expensed in 1997 was immaterial. As of December 31, 1995, the Partnership established an Interest Repurchase Reserve in the amount of $474,350 pursuant to Section 16.4 of the Partnership's Amended and Restated Agreement of Limited Partnership. The Partnership elected to fund additional amounts of $455,380 on May 24, 1996 and $250,000 on October 17, 1996 to its Interest Repurchase Reserve. With these funds, the Partnership would be able to repurchase up to 4,718 Units at a price of $250 per Unit. On November 7, 1997, the Partnership elected to fund an additional $300,000 to the Interest Repurchase Reserve. With this funding, the Partnership will be able to repurchase up to 1,000 Units at a price of $300 per Unit. Repurchased Units are retired by the Partnership, thus increasing the share of ownership of each remaining investor. The Interest Repurchase Reserve was funded from cash reserves. The above offering price per Unit was established by the General Partner in its sole discretion and does not purport to represent the fair market value or liquidation value of the Unit. Through December 31, 1997, the Partnership has repurchased a total of 4,649 Units for $1,162,250. The amount remaining in the Interest Repurchase Reserve at December 31, 1997 was $317,480. 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, 1997, 1996 and 1995. Net Cash Income(Loss) Distributions Return of Allocated Declared Capital --------- -------- ------- Limited Partners: 1997 $ 106,042 $ 853,625 $ 747,583 1996 224,783 886,000 661,217 1995 (324,417) 948,700 948,700 General Partner: 1997 $ 1,071 $ 8,622 $ 7,551 1996 2,271 8,950 6,679 1995 (3,277) 9,583 9,583 - 20 - Liquidity and Capital Resources - Continued - ------------------------------------------- In an effort to continue to improve occupancy at the Partnership's residential properties, the Partnership has an on-site leasing staff, employees of NTS Development Company, at each of the apartment communities. The staff handles all on-site visits from potential tenants, coordinates local advertising with NTS Development Company's marketing staff, makes visits to local companies to promote fully furnished units and negotiates lease renewals with current residents. The leasing and renewal negotiations for the Partnership's commercial property are handled by leasing agents, employees of NTS Development Company, located in Louisville, Kentucky. The leasing agent's are located in the same city as the commercial property. All advertising for the commercial property is coordinated by NTS Development Company's marketing staff located in Louisville, Kentucky. Leases at Plainview Point III Office Center provide for tenants to contribute toward the payment of increases in common area maintenance expenses, insurance, utilities and real estate taxes. Leases at the office center also provide for rent increases which are based upon increases in the consumer price index. These lease provisions, 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. The Partnership owns approximately 15 acres of land, adjacent to the Park Place Apartments development, in Lexington, Kentucky (Park Place Apartments Phase III). Included in the cost of approximately $1,800,000 is land cost, capitalized interest, common area costs, amenity costs and pre-development costs associated with the construction of Phase III. The Partnership intends to use the land to construct Park Place Apartments Phase III. It is anticipated that construction will begin in the Spring of 1998. In management's opinion, the net book value approximates the fair market value. Some of the statements included in 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. The Partnership's principal activity is the leasing and management of a commercial office building and apartment complexes. If a major commercial tenant 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. - 21 - Item 8. Financial Statements and Supplementary Data REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To NTS-Properties VI, a Maryland Limited Partnership: We have audited the accompanying balance sheets of NTS-Properties VI, a Maryland Limited Partnership, as of December 31, 1997 and 1996, and the related statements of operations, partners' equity and cash flows for each of the three years in the period ended December 31, 1997. These financial statements and the 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 generally accepted auditing standards. 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 VI, a Maryland Limited Partnership, as of December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. 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 40 through 42 are presented for purposes of complying with the Securities and Exchange Commission's rules and are not a required part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in our 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 6, 1998 - 22 - NTS-PROPERTIES VI, A Maryland Limited Partnership BALANCE SHEETS AS OF DECEMBER 31, 1997 AND 1996
1997 1996 ----------- ----------- ASSETS Cash and equivalents $ 276,891 $ 640,541 Cash and equivalents - restricted 507,568 390,677 Investment securities 1,562,813 1,085,267 Accounts receivable 111,152 136,394 Land, buildings and amenities, net 38,660,912 40,436,784 Assets held for development, net 1,774,455 1,714,511 Other assets 395,817 367,628 ----------- ----------- $43,289,608 $44,771,802 =========== =========== LIABILITIES AND PARTNERS' EQUITY Mortgages payable $26,872,563 $27,403,056 Accounts payable 195,165 349,168 Distributions payable 213,687 216,692 Security deposits 237,501 250,814 Other liabilities 67,340 52,086 ----------- ----------- 27,586,256 28,271,816 Commitments and contingencies Partners' equity 15,703,352 16,499,986 ----------- ----------- $43,289,608 $44,771,802 =========== ===========
The accompanying notes to financial statements are an integral part of these statements. - 23 - NTS-PROPERTIES VI, A Maryland Limited Partnership STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995 ----------- ----------- ----------- Revenues: Rental income $ 9,493,634 $ 9,541,311 $ 8,817,265 Interest and other income 114,639 128,950 121,790 ----------- ----------- ----------- 9,608,273 9,670,261 8,939,055 Expenses: Operating expenses 2,493,211 2,529,274 2,382,093 Operating expenses - affiliated 1,091,454 1,044,781 1,055,190 Amortization of capitalized leasing costs 2,244 -- 1,091 Interest expense 2,194,368 2,344,531 2,365,542 Management fees 480,335 485,250 441,861 Real estate taxes 779,214 771,952 746,200 Professional and administrative expenses 150,846 145,734 141,948 Professional and administrative expenses - affiliated 300,159 203,818 191,677 Depreciation and amortization 1,910,785 1,917,867 1,941,147 ----------- ----------- ----------- 9,402,616 9,443,207 9,266,749 ----------- ----------- ----------- Income (loss) before extraordinary item 205,657 227,054 (327,694) Extraordinary item: Write-off unamortized loan costs (98,544) -- -- ----------- ----------- ----------- Net income (loss) $ 107,113 $ 227,054 $ (327,694) =========== =========== =========== Net income (loss) allocated to the limited partners: Income (loss) before extraordinary item $ 203,600 $ 224,783 $ (324,417) Extraordinary item (97,558) -- -- ----------- ----------- ----------- Net income (loss) $ 106,042 $ 224,783 $ (324,417) =========== =========== =========== Net income (loss) per limited partnership Unit: Income (loss) before extraordinary item $ 4.76 $ 4.97 $ (6.84) Extraordinary item (2.28) -- -- ----------- ----------- ----------- Net income (loss) $ 2.48 $ 4.97 $ (6.84) =========== =========== =========== Weighted average number of limited partnership units 42,817 45,243 47,435 =========== =========== ===========
The accompanying notes to financial statements are an integral part of these statements. - 24 - NTS-PROPERTIES VI, A Maryland Limited Partnership STATEMENTS OF PARTNERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Limited General Partners Partners Total -------- -------- ----- Balances at December 31, 1994 $ 19,734,350 $ (159,741) $ 19,574,609 Net loss (324,417) (3,277) (327,694) Distributions declared (948,700) (9,583) (958,283) ------------ ------------ ------------ Balances at December 31, 1995 18,461,233 (172,601) 18,288,632 Net income 224,783 2,271 227,054 Distributions declared (886,000) (8,950) (894,950) Repurchase of limited partnership Units (1,120,750) -- (1,120,750) ------------ ------------ ------------ Balances at December 31, 1996 16,679,266 (179,280) 16,499,986 Net income 106,042 1,071 107,113 Distributions declared (853,625) (8,622) (862,247) Repurchase of limited partnership Units (41,500) -- (41,500) ------------ ------------ ------------ Balances at December 31, 1997 $ 15,890,183 $ (186,831) $ 15,703,352 ============ ============ ============
The accompanying notes to financial statements are an integral part of these statements. - 25 - NTS-PROPERTIES VI, A Maryland Limited Partnership STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995 ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 107,113 $ 227,054 $ (327,694) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Accrued interest on investment securities (4,048) 7,498 (14,875) Amortization of capitalized leasing costs 2,244 -- 1,091 Write-off unamortized loan costs 98,544 -- -- Depreciation and amortization 1,910,785 1,917,867 1,941,147 Changes in assets and liabilities: Cash and equivalents - restricted 141,609 (30,047) (71,046) Accounts receivable 25,242 22,035 223,026 Other assets 2,121 23,436 (94,952) Accounts payable (154,003) 43,389 40,626 Security deposits (13,313) 15,627 (47,330) Other liabilities 15,249 30,964 (1,887) ------------ ------------ ------------ Net cash provided by operating activities 2,131,543 2,257,823 1,648,106 ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Additions to land, buildings and amenities (114,598) (103,508) (73,064) Purchase of investment securities (3,931,387) (3,344,984) (2,642,085) Maturity of investment securities 3,457,889 3,403,575 1,505,605 ------------ ------------ ------------ Net cash used in investing activities (588,096) (44,917) (1,209,544) ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on mortgages payable (27,730,493) (249,988) (229,981) Proceeds from mortgage loans 27,200,000 -- -- Cash distributions (865,252) (917,829) (958,283) Repurchase of limited partnership Units (41,500) (1,120,750) -- Additions to loan costs (211,352) (92,720) -- Cash and equivalents - restricted (258,500) 415,370 (474,350) ------------ ------------ ------------ Net cash used in financing activities (1,907,097) (1,965,917) (1,662,614) ------------ ------------ ------------ Net increase (decrease) in cash and equivalents (363,650) 246,989 (1,224,052) CASH AND EQUIVALENTS, beginning of year 640,541 393,552 1,617,604 ------------ ------------ ------------ CASH AND EQUIVALENTS, end of year $ 276,891 $ 640,541 $ 393,552 ============ ============ ============ Interest paid on a cash basis $ 2,284,228 $ 2,346,643 $ 2,367,146 ============ ============ ============
The accompanying notes to financial statements are an integral part of these statements. - 26 - NTS-PROPERTIES VI, A Maryland Limited Partnership NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 1. Significant Accounting Policies ------------------------------- A) Organization ------------ NTS-Properties VI, a Maryland Limited Partnership (the "Partnership") is a limited partnership organized under the laws of the State of Maryland on December 27, 1984. The General Partner is NTS-Properties Associates VI (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: - Sabal Park Apartments, a 162-unit luxury apartment complex in Orlando, Florida - Park Place Apartments Phase I, a 180-unit luxury apartment complex in Lexington, Kentucky - Willow Lake Apartments, a 207-unit luxury apartment complex in Indianapolis, Indiana - A 96% joint venture interest in Golf Brook Apartments, a 195- unit luxury apartment complex in Orlando, Florida - A 95% joint venture interest in Plainview Point III Office Center, an office center with approximately 62,000 net rentable square feet located in Louisville, Kentucky The Partnership also owns approximately 15 acres of land in Lexington, Kentucky which will be used for the construction of 152 apartments units (Park Place Apartments Phase III). See Note 10 Commitments and Contingencies for further information. 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 Cash Proceeds, as defined in the partnership agreement, will be distributed 1) 99% to the limited partners and 1% to the General Partner until the limited partners have received cash distributions from all sources (except Pre-Termination Date Net Cash Receipts) equal to their Original Capital; and 2) the remainder, 80% to the limited partners and 20% to the General Partner. Net operating income shall be allocated to the limited partners and the General Partner in proportion to their respective cash distributions. - 27 - 1. Significant Accounting Policies - Continued ------------------------------------------- C) Allocation of Net Income (Loss) and Cash Distributions - Continued ------------------------------------------------------------------ Net Operating Income in excess of cash distributions and Net Gains from Sales 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. 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. A reconciliation of net income (loss) for financial statement purposes versus that for income tax reporting is as follows: 1997 1996 1995 ---------- ---------- ---------- Net income (loss) $107,113 $ 227,054 $(327,694) Items handled differently for tax purposes: Depreciation and amortization (86,287) (139,371) (195,060) Capitalized leasing costs 34,898 34,134 35,750 Write-off of unamortized tenant improvements -- (11,476) (22,832) Rental income 37,172 47,278 (18,296) --------- --------- --------- Taxable income (loss) $ 92,896 $ 157,619 $ (528,132) ========= ========= ========= 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 ------------------------ The Partnership has adopted the proportionate consolidation method of accounting for joint venture properties. The Partnership's proportionate interest in the 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, - 28 - 1. Significant Accounting Policies - Continued ------------------------------------------- F) Joint Venture Accounting - Continued ------------------------------------ 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 disclosure resulting from proportionate consolidation provides the most meaningful presentation of assets, liabilities, revenues, expenses and cash flows for the years presented 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 and insurance in accordance with the loan agreements and funds reserved by the Partnership for the repurchase of limited partnership Units. 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 investments are carried at cost which approximates market value. The Partnership intends to hold the securities until maturity. During 1997 and 1996, the Partnership sold no investment securities. The following provides details regarding the investments held at December 31, 1997: Amortized Maturity Value At Type Costs Date Maturity ---- ------- ------ --------- Certificate of Deposit $ 222,741 02/03/98 $ 223,805 Certificate of Deposit 205,392 02/12/98 206,654 Certificate of Deposit 101,154 03/02/98 102,042 Certificate of Deposit 101,246 03/12/98 102,272 Certificate of Deposit 205,082 03/27/98 207,639 Certificate of Deposit 125,678 03/30/98 127,336 Certificate of Deposit 150,226 03/30/98 152,215 Certificate of Deposit 150,226 04/06/98 152,373 Certificate of Deposit 100,151 04/15/98 101,718 (Continued on next page) - 29 - 1. Significant Accounting Policies - Continued ------------------------------------------- H) Investment Securities --------------------- Amortized Maturity Value At Type Costs Date Maturity ---- ------- ------ --------- Certificate of Deposit $ 100,151 04/30/98 $ 101,944 Certificate of Deposit 100,766 05/08/98 102,569 ---------- --------- $1,562,813 $1,580,567 ========== ========= The following provides details regarding the investments held at December 31, 1996: Amortized Maturity Value At Type Costs Date Maturity ---- ------- ------ --------- FHLB Discount Note $ 204,154 01/30/97 $ 205,000 Federal Farm Credit Bank 127,338 03/03/97 128,394 FNMA Discount Note 227,601 03/18/97 230,000 Certificate of Deposit 401,174 04/01/97 406,204 Certificate of Deposit 125,000 05/01/97 127,072 --------- --------- $1,085,267 $1,096,670 ========= ========= I) Basis of Property and Depreciation ---------------------------------- Land, buildings and amenities are stated at cost to the Partnership. Costs directly associated with the acquisition, development and construction of a project are capitalized. Depreciation is computed using the straight-line method over the estimated useful lives of the assets which are 5-30 years for land improvements, 5-30 years for building and improvements, 5-30 years for amenities and the applicable lease term for tenant improvements. Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to be Disposed Of, specifies circumstances in which certain long-lived assets must be reviewed for impairment. If such review indicates that the carrying amount of an asset exceeds the sum of its expected future cash flows, the asset's carrying value must be written down to fair value. Application of this standard during the years ended December 31, 1997 and 1996 did not result in an impairment loss. J) Capitalized Leasing Costs ------------------------- The Partnership has capitalized certain costs associated with the initial leasing of the properties. These costs are being amortized over a five year period. - 30 - 1. Significant Accounting Policies - Continued ------------------------------------------- K) Rental Income and Deferred Leasing Commissions ---------------------------------------------- Certain of the Partnership's lease agreements at Plainview Point III Office Center are structured to include scheduled and specified rent increases over the lease term. For financial reporting purposes, the income from these leases is being recognized on a straight-line basis over the lease term. Accrued income connected with these leases is included in accounts receivable and totaled $75,984 and $98,024 at December 31, 1997 and 1996, respectively. All commissions paid to commercial leasing agents are deferred and amortized over the term of the lease to which they apply. L) Advertising ----------- The Partnership expenses advertising-type costs as incurred. Advertising expense was immaterial to the Partnership during the years ended December 31, 1997, 1996 and 1995. M) 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 ---------------------------- The Partnership owns and operates, either wholly or through a joint venture, residential properties in Kentucky (Louisville and Lexington), Indiana (Indianapolis) and Florida (Orlando). The apartment unit is generally the principal residence of the tenant. The Partnership also owns and operates, through a joint venture, a commercial property in Louisville, Kentucky. Substantially all of the tenants are local businesses or are businesses which have operations in the Louisville area. 3. Investment in Joint Ventures ---------------------------- A) NTS Sabal Golf Villas Joint Venture ----------------------------------- In 1985, the Partnership entered into a joint venture agreement with NTS-Properties IV to develop and construct a 158-unit luxury apartment complex on a 13.15-acre site located in Orlando, Florida, known as Golf Brook Apartments Phase I. NTS-Properties IV contributed land valued at $1,900,000 with an outstanding note payable to a bank of $1,200,000 which was secured by the land. The Partnership contributed the construction and carrying costs of the apartment complex. In 1987, the joint venture agreement was amended to include Golf Brook Apartments Phase II, a 37-unit luxury apartment complex located on a 3.069 acre site adjacent to Golf Brook Apartments Phase I. The Partnership contributed land, construction costs, and the cost of the initial leasing of this second phase. The Partnership made contributions of approximately $15,800,000 for construction and carrying costs and retired the $1,200,000 note payable in 1987, which increased the Partnership's percentage interest in the joint venture. The net income and net loss is allocated based on the respective partnership's contribution as of the end of each calendar quarter. The Partnership's ownership share was 96% at December 31, 1997. The Partnership's share of the joint venture's net operating income was $965,860 (1997) $1,023,900 (1996) and $1,058,691 (1995). - 31 - 3. Investment in Joint Ventures - Continued ---------------------------------------- B) Plainview Point III Joint Venture --------------------------------- In 1987, the Partnership entered into a joint venture agreement with NTS-Properties IV to develop and construct an approximately 62,000 square foot office building located in Louisville, Kentucky known as Plainview Point III Office Center. NTS-Properties IV contributed land valued at $790,000 with an outstanding note payable to a bank of $550,000 which was secured by the land. The Partnership contributed the construction and carrying costs of the complex. The Partnership made contributions of approximately $4,100,000 million for construction and carrying costs and retired the $550,000 note payable in 1987, which increased the Partnership's percentage interest in the joint venture. The net income and net loss is allocated based on the respective partnership's contribution as of the end of each calendar quarter. The Partnership's ownership share was 95% at December 31, 1997. The Partnership's share of the joint venture's net operating income (loss) was $(67,267) (1997), $(31,953) (1996) and $12,423 (1995). 4. Land, Buildings and Amenities ----------------------------- The following schedule provides an analysis of the Partnership's investment in property held for lease as of December 31: 1997 1996 ------ ------ Land and improvements $14,863,568 $14,863,110 Buildings, improvements and amenities 46,659,837 46,648,416 ----------- ----------- 61,523,405 61,511,526 Less accumulated depreciation 22,862,493 21,074,742 ----------- ----------- $38,660,912 $40,436,784 =========== =========== 5. Assets Held for Development --------------------------- The Partnership owns approximately 15 acres of land, adjacent to the Park Place Apartments development, in Lexington, Kentucky which will be used for the construction of 152 apartment units (Park Place Apartments Phase III). See Note 10 Commitments and Contingencies for further discussion. Included in the cost of approximately $1,780,000 is land cost, capitalized interest, common area costs, amenity costs and pre- development costs associated with the construction of Phase III. 6. Interest Repurchase Reserve --------------------------- As of December 31, 1995, the Partnership had established an Interest Repurchase Reserve in the amount of $474,350 pursuant to Section 16.4 of the Partnership's Amended and Restated Agreement of Limited Partnership. The Partnership elected to fund additional amounts of $455,380 on May 24, 1996 and $250,000 on October 17, 1996 to its Interest Repurchase Reserve. With these funds, the Partnership would be able to repurchase up to 4,718 Units at a price of $250 per Unit. On November 7, 1997, the Partnership elected to fund an additional $300,000 to the Interest Repurchase Reserve. With this funding, the Partnership will be able to repurchase an additional 1,000 Units at a price of $300 per Unit. Repurchased Units are retired by the Partnership, thus increasing the share of ownership of each remaining investor. The Interest Repurchase Reserve was funded from cash reserves. The above offering price per Unit was established by the General Partner in its sole discretion and does not purport to represent fair market value or liquidation value of the Unit. Through December 31, 1997, the Partnership has repurchased a total of 4,649 Units for $1,162,250. The amount remaining in the Interest Repurchase Reserve at December 31, 1997 was $317,480. - 32 - 7. Mortgages Payable ----------------- Mortgages payable as of December 31 consist of the following: 1997 1996 ------ ------ Mortgage payable with an insurance company bearing interest at 7.43%, due May 14, 2009 secured by certain land, buildings and amenities $ 8,724,588 $ -- Mortgage payable with an insurance company bearing interest at 7.32%, due October 15, 2012 secured by certain land, buildings and amenities 8,447,975 -- Mortgage payable with an insurance company bearing interest at 7.74%, due October 15, 2012 secured by certain land, buildings and amenities 5,000,000 -- Mortgage payable with an insurance company bearing interest at 7.38%, due December 5, 2012 secured by certain land, buildings and amenities 2,820,000 -- Mortgage payable with an insurance company bearing interest at 7.38%, due December 5, 2012 secured by certain land, buildings and amenities 1,880,000 -- Mortgage payable with an insurance company bearing interest at 8.625%, due August 1, 1997 secured by certain land, buildings and amenities -- 9,200,000 Mortgage payable with an insurance company bearing interest at 9.20%, due November 1, 1997 secured by certain land, buildings and amenities -- 8,527,771 Mortgage payable with an insurance company bearing interest at 8.375%, due October 5, 2002 secured by certain land, buildings and amenities -- 3,994,992 Mortgage payable with an insurance company bearing interest at 8.375%, due October 5, 2002 secured by certain land, buildings and amenities -- 951,189 (Continued on next page) - 33 - 7. Mortgages Payable - Continued ----------------------------- 1997 1996 ------ ------ Mortgage payable with an insurance company bearing interest at 7.25%, due January 5, 2003 secured by certain land, buildings and amenities $ -- $ 2,837,462 Mortgage payable to an insurance company, bearing interest at 7.25%, due January 5, 2003 secured by certain land, buildings and amenities -- 1,891,642 ---------- ---------- $26,872,563 $27,403,056 ========== ========== The mortgages are payable in aggregate monthly installments of $263,494 which includes principal, interest, property taxes and insurance. Scheduled maturities of debt are as follows: For the Years Ended December 31, Amount -------------------------------- ------ 1998 $ 1,010,042 1999 1,087,216 2000 1,245,523 2001 1,386,160 2002 1,492,555 Thereafter 20,651,067 ----------- $26,872,563 =========== 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 $27,000,000. The mortgage payable with an outstanding balance of $5,000,000 as of December 31, 1997 has an additional availability of $7,200,000. The proceeds will be used to fund the construction of Park Place Apartments Phase III. See Note 10 Commitments and Contingencies for further information. The 1997 write-off of unamortized loan costs (treated as an extraordinary item) relates to loan costs associated with the Golf Brook, Park Place Phase I, Willow Lake and Sabal Park Apartments mortgages payable. The unamortized loan costs were expensed due to the fact that the mortgages were retired in 1997 prior to their scheduled maturities - August 1, 1997, October 5, 2002, November 1, 1997 and January 5, 2003, respectively - as a result of new financing being obtained during 1997. - 34 - 8. Rental Income Under Operating Leases ------------------------------------ The following is a schedule of minimum future rental income on noncancellable operating leases as of December 31, 1997: For the Years Ended December 31, Amount -------------------------------- ------ 1998 $ 610,792 1999 471,242 2000 371,592 2001 126,912 2002 -- Thereafter -- ----------- $ 1,580,538 =========== 9. Related Party Transactions -------------------------- Pursuant to an agreement with the Partnership, property management fees of $480,335 (1997), $485,250 (1996) and $441,861 (1995) were paid to NTS Development Company, an affiliate of the General Partner. The fee is equal to 5% and 6% of gross revenues from the residential properties and commercial properties, respectively. 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 and major repair and renovation projects. The Partnership has incurred $252 (1997), $862 (1996) and $6,200 (1995) as a repair and maintenance fee 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 years ended December 31, 1997, 1996 and 1995. 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. 1997 1996 1995 ---------- ---------- ---------- Administrative $ 359,864 $ 258,101 $ 245,369 Property manager 838,536 792,366 786,667 Leasing 191,370 212,358 229,309 Other 66,876 4,471 9,285 --------- --------- --------- $1,456,646 $1,267,296 $1,270,630 ========= ========= ========= 10. Commitments and Contingencies ----------------------------- The Partnership plans to begin, during Spring 1998, the construction of Park Place Apartments Phase III (152 units) on the 15 acres of land it owns which is adjacent to the existing Park Place Apartments in Lexington, Kentucky. It is currently estimated that the cost of the project will be $9,000,000. Construction costs will be funded by the remaining loan proceeds ($7,200,000) of a mortgage loan obtained during 1997 and cash reserves. Through December 31, 1997, approximately $100,000 of pre-development costs had been incurred. - 35 - Item 9. Changes in and Disagreements with Accountants on Accounting and --------------------------------------------------------------- Financial Disclosure -------------------- None. 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 VI. 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 VI are as follows: J. D. Nichols - ------------- Mr. Nichols (age 56) is the managing General Partner of NTS-Properties Associates VI and Chairman of the Board of NTS Corporation (since 1985) and NTS Development Company (since 1977). Richard L. Good - --------------- Mr. Good, (age 58) President and Chief Operating Officer of NTS Corporation and President of NTS Development Company and Chairman of the Board of NTS Securities, Inc., joined the Manager in January 1985. From 1981 through 1984, he was Executive Vice President of Jacques-Miller, Inc., a real estate syndication, property management and financial planning firm in Nashville, Tennessee. NTS Capital Corporation - ----------------------- NTS Capital Corporation (formerly NTS 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, Richard L. Good, Brian F. Lavin and John W. Hampton. Brian F. Lavin - -------------- Mr. Lavin (age 44) serves as Executive Vice President of NTS Development Company and President of the Company's Income Properties. As such, Mr. Lavin is responsible for all NTS commercial real estate development, land acquisitions and oversees the management of all commercial office buildings, business centers and multi-family residential communities. Prior to joining NTS, Mr. Lavin served as President of the Residential Division of Paragon Group, Inc., and as a Vice President of Paragon's Midwest Division. 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. - 36 - Item 10. Directors and Executive Officers of the Registrant - Continued -------------------------------------------------------------- John W. Hampton - --------------- John W. Hampton (age 47) is Senior Vice President of NTS Corporation with responsibility for all accounting operations. Before joining NTS in March 1991, Mr. Hampton was Vice President - Finance and Chief Financial Officer of the Sturgeon-Thornton-Marrett Development Company in Louisville, Kentucky for nine years. Prior to that he was with Alexander Grant & Company CPA's. Mr. Hampton is a Certified Public Accountant and a graduate of the University of Louisville with a Bachelor of Science degree in Commerce. He is a member of the American Institute of CPA's and the Kentucky Society of CPA's. 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, an affiliate of the General Partner. The Partnership is also required to pay to NTS Development Company a repair and maintenance fee on costs related to specific projects. Also, NTS Development Company provides certain other services to the Partnership. See Note 9 to the financial statements which sets forth transactions with NTS Development Company for the years ended December 31, 1997, 1996 and 1995. 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 allocation and cash distributions. Item 12. Security Ownership of Certain Beneficial Owners and Management -------------------------------------------------------------- The General Partner is NTS-Properties Associates VI, a Kentucky limited partnership, 10172 Linn Station Road, Louisville, Kentucky 40223. The partners of the General Partner and their total respective interests in NTS-Properties Associates VI are as follows: J. D. Nichols 38.60% 10172 Linn Station Road Louisville, Kentucky 40223 NTS Capital Corporation 9.95% 10172 Linn Station Road Louisville, Kentucky 40223 Richard L. Good 10.00% 10172 Linn Station Road Louisville, Kentucky 40223 The remaining 41.45% interests are owned by various limited partners of NTS- Properties Associates VI. Item 13. Certain Relationships and Related Transactions ---------------------------------------------- Pursuant to an agreement with the Partnership, property management fees of $480,335 (1997), $485,250 (1996) and $441,861 (1995) were paid to NTS Development Company, an affiliate of the General Partner. The fee is equal to 5% and 6% of gross revenues from the residential properties and commercial properties, respectively. 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 and major repair and renovation projects. The Partnership has incurred $252 (1997), $862 (1996) - 37 - Item 13. Certain Relationships and Related Transactions - Continued ---------------------------------------------------------- and $6,200 (1995) as a repair and maintenance fee 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 years ended December 31, 1997, 1996 and 1995. 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. 1997 1996 1995 ---------- ---------- ---------- Administrative $ 359,864 $ 258,101 $ 245,369 Property manager 838,536 792,366 786,667 Leasing 191,370 212,358 229,309 Other 66,876 4,471 9,285 --------- --------- --------- $1,456,646 $1,267,296 $1,270,630 ========= ========= ========= There are no other agreements or relationships between the Partnership, the General Partner and its affiliates than those previously described. - 38 - 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, 1997, 1996 and 1995 together with the report of Arthur Andersen LLP, dated March 6, 1998, 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 40-42 All other schedules have been omitted because they are not applicable, are 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 * Certificate of Limited Partnership of NTS-Properties VI, a Maryland limited partnership 3a. First Amendment to Amended and ** Restated Agreement of Limited Partnership of NTS-Properties VI, a Maryland limited partnership 10. Property Management and * Construction Agreement between NTS Development Company and NTS-Properties VI, a Maryland limited partnership 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 March 22, 1985 (effective June 25, 1985) under Commission File No.2-96583. ** Incorporated by reference to Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended December 31, 1987 (Commission File No. 0-14695). 4. Reports on Form 8-K Form 8-K, dated November 7, 1997, was filed to report in Item 5 the fact that the Partnership has elected to fund an additional amount of $300,000 to its Interest Repurchase Reserve. - 39 - NTS-PROPERTIES VI A Maryland Limited Partnership SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1997
Park Place Sabal Park Apartments Willow Lake Apartments Phase I Apartments ---------- ---------- ----------- Encumbrances (A) (B) (B) Initial cost to partnership: Land $ 3,063,046 $ 2,320,938 $ 3,770,328 Buildings and improvements 8,417,719 9,630,935 12,616,655 Cost capitalized subsequent to acquisition Improvements 23,981 36,585 197,661 Gross amount at which carried December 31, 1997:(C) Land $ 3,063,046 $ 2,333,428 $ 3,770,328 Buildings and improvements 8,441,700 9,655,030 12,814,316 ----------- ----------- ----------- Total $11,504,746 $11,988,458 $16,584,644 =========== =========== =========== Accumulated depreciation $ 4,746,256 $ 4,473,789 $ 5,862,834 =========== =========== =========== Date of construction 06/84 04/84 03/85 Date Acquired N/A N/A N/A Life at which depreciation in latest income statement is computed (D) (D) (D) (A) First mortgages held by two insurance companies. (B) First mortgage held by an insurance company. (C) Aggregate cost of real estate for tax purposes is $71,468,175. (D) Depreciation is computed using the straight-line method over the estimated useful lives of the assets which are 5-30 years for land improvements, 5-30 years for buildings and improvements and 5-30 years for amenities.
- 40 - NTS-PROPERTIES VI A Maryland Limited Partnership SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1997
Plainview Golf Brook Point III Total Apartments Office Center Pages 40-41 ---------- ------------- ----------- Encumbrances (A) (B) Initial cost to partnership: Land $ 4,384,363 $ 1,268,339 $14,807,014 Buildings and improvements 12,302,319 2,270,729 45,238,357 Cost capitalized subsequent to acquisition Improvements 82,613 1,137,194 1,478,034 Gross amount at which carried December 31, 1997: Land $ 4,405,811 $ 1,290,955 $14,863,568 Buildings and improvements 12,363,484 3,385,307 46,659,837 ----------- ----------- ----------- Total $16,769,295 $ 4,676,262 $61,523,405 =========== =========== =========== Accumulated depreciation $ 5,954,694 $ 1,824,920 $22,862,493 =========== =========== =========== Date of construction 05/88 01/88 Date Acquired N/A N/A Life at which depreciation in latest income statement is computed (C) (C) (A) First mortgage held by an insurance company. (B) None. (C) Depreciation is computed using the straight-line method over the estimated useful lives of the assets which are 5-30 years for land improvements, 5-30 years for buildings and improvements and 5-30 years for amenities.
- 41 - NTS-PROPERTIES VI, A Maryland Limited Partnership SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Real Accumulated Estate Depreciation ------------ ------------ Balances at December 31, 1994 $ 61,451,099 $ 17,579,027 Additions during period: Improvements (a) 141,550 -- Depreciation (b) -- 1,815,820 Deductions during period: Retirements (47,384) (45,854) ------------ ------------ Balances at December 31, 1995 61,545,265 19,348,993 Additions during period: Improvements (a) 39,297 -- Depreciation (b) -- 1,797,649 Deductions during period: Retirements (73,036) (71,900) ------------ ------------ Balances at December 31, 1996 61,511,526 21,074,742 Additions during period: Improvements (a) 18,912 -- Depreciation (b) -- 1,794,784 Deductions during period: Retirements (7,033) (7,033) ------------ ------------ Balances at December 31, 1997 $ 61,523,405 $ 22,862,493 ============ ============ (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 and depreciation of a portion of assets held for development.
- 42 - SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, NTS-Properties VI, a Maryland Limited Partnership, has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NTS-PROPERTIES VI, a Maryland Limited Partnership (Registrant) BY: NTS-Properties Associates VI, General Partner BY: NTS Capital Corporation, General Partner /s/ John W. Hampton ------------------- John W. Hampton Senior Vice President Date: March 23, 1998 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 - ----------------- Associates VI and Chairman of the J. D. Nichols Board and Sole Director of NTS Capital Corporation /s/ Richard L. Good General Partner of NTS-Properties - ------------------- Associates VI and President of NTS Richard L. Good Capital Corporation /s/ John W. Hampton Senior Vice President of NTS Capital - ------------------- Corporation John W. Hampton The Partnership is a limited partnership and no proxy material has been sent to the limited partners. - 43 - EX-27 2 ARTICLE 5 FINANCIAL DATA SCHEDULE
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AS OF DECEMBER 31, 1997 AND FROM THE STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR DEC-31-1997 DEC-31-1997 784,459 1,562,813 111,152 0 0 0 38,660,912 22,862,493 43,289,608 0 26,872,563 0 0 0 15,703,352 43,289,608 9,493,634 9,608,273 0 6,757,243 0 0 2,194,368 205,657 0 205,657 0 (98,544) 0 107,113 0 0 THE PARTNERSHIP HAS AN UNCLASSIFIED BALANCE SHEET; THEREFORE, THE VALUE IS $0.
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