-----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, FHKN4yq9VwDIiJolQasGhfGBrP2kK52uTZGPiEmkwD62ZqINEzy22MI+nZMqjtCU YtJAw0wA7c+HZEHmIe7bEA== 0000814222-00-000004.txt : 20000411 0000814222-00-000004.hdr.sgml : 20000411 ACCESSION NUMBER: 0000814222-00-000004 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NTS PROPERTIES VII LTD/FL CENTRAL INDEX KEY: 0000814222 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 611119232 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-17589 FILM NUMBER: 581916 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 NTS-PROPERTIES VII 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, 1999 ---------------------------------- OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE - ---- SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------- --------------- Commission file number 0-17589 -------------------------------------- NTS-PROPERTIES VII, LTD - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Florida 61-1119232 - ------------------------------- ----------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 10172 Linn Station Road Louisville, Kentucky 40223 - ------------------------------- --------------- (Address of principal executive (Zip Code) offices) Registrant's telephone number, including area code: (502) 426-4800 ------------------- Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Limited Partnership Interests - -------------------------------------------------------------------------------- (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ---- ---- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Exhibit Index: See Page 38 Total Pages: 41 TABLE OF CONTENTS Pages ----- PART I Items 1 and 2. Business and Properties 3-9 Item 3. Legal Proceedings 9 Item 4. Submission of Matters to a Vote of Security Holders 9 PART II Item 5. Market for the Registrant's Limited Partnership Interests and Related Partner Matters 10 Item 6. Selected Financial Data 11 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 12-18 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 18 Item 8. Financial Statements and Supplementary Data 19-34 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 35 PART III Item 10. Directors and Executive Officers of the Registrant 36 Item 11. Management Remuneration and Transactions 36 Item 12. Security Ownership of Certain Beneficial Owners and Management 37 Item 13. Certain Relationships and Related Transactions 37 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 38-40 Signatures 41 -2- PART I Items 1. and 2. Business and Properties ----------------------- Development of Business - ----------------------- NTS-Properties VII, Ltd., a Florida limited partnership (the "Partnership"), was formed in 1987. The General Partner is NTS-Properties Associates VII, a Kentucky limited partnership. As of December 31, 1999 the Partnership owned the following properties: - The Park at the Willows, a 48-unit luxury apartment complex located on a 2.8 acre tract in Louisville, Kentucky, acquired complete by the Partnership. - Park Place Apartments Phase II, a 132-unit luxury apartment complex located on an 11 acre tract in Lexington, Kentucky, constructed by the Partnership. - A joint venture interest in Blankenbaker Business Center 1A, a business center with approximately 50,000 net rentable ground floor square feet and approximately 50,000 net rentable mezzanine square feet located in Louisville, Kentucky,acquired complete by the joint venture between the Partnership and NTS-Properties Plus Ltd., an affiliate of the General Partner of the Partnership. The Joint Venture Agreement was amended to admit NTS-Properties IV., Ltd., an affiliate of the General Partner of the Partnership,("NTS-Properties IV") during 1994. The Partnership's percentage interest in the joint venture was 31% at December 31, 1999. The Partnership or the joint venture in which the Partnership is a partner has a fee title interest in the above properties. In the opinion of the Partnership's management, the properties are adequately covered by insurance. As of December 31, 1999, the Partnership's properties were encumbered by the mortgages as shown in the table below: Interest Maturity Balance Property Rate Date at 12/31/99 - -------- ---- ---- ----------- Park Place Apartments 7.37% 10/15/12 (1) $3,876,398 Blankenbaker Business 8.50% 11/15/05 (2) $ 977,957 (3) (1) Monthly principal payments are based upon a 19-year amortization schedule. The outstanding principal balance at maturity based on the current rate of amortization will be $1,410,930. (2) Current monthly principal payments are based upon an 11-year amortization schedule.At maturity,the mortgage will have been repaid based on the current rate of amortization. (3) This amount represents the Partnership's proportionate interest in the mortgage payable at December 31,1999.The outstanding balance of the mortgage at December 31, 1999 was $3,121,473. The Park at the Willows is not encumbered by any outstanding mortgages at December 31, 1999. Financial Information About Industry Segments - --------------------------------------------- The Partnership is presently engaged solely in the business of developing, constructing, owning and operating residential apartments and commercial real estate. See Note 11 in Item 8 for information regarding the Partnership's operating segments. -3- Narrative Description of Business - --------------------------------- General - ------- The current business of the Partnership is consistent with the original purpose of the Partnership which was to acquire, directly or by joint venture, unimproved or partially improved land, to construct and otherwise develop thereon apartment complexes or commercial properties, and to own and operate the completed properties. The original purpose also includes the ability of the Partnership to invest in fully improved properties, either directly or by joint venture. The Partnership's properties are in a condition suitable for their intended use. The Partnership intends to hold the Properties until such time as sale or other disposition appears to be advantageous with a view to achieving the Partnership's investment objectives or it appears that such objectives will not be met. In deciding whether to sell a Property, the Partnership will consider factors such as potential capital appreciation, cash flow and federal income tax considerations, including possible adverse federal income tax consequences to the Limited Partners. Description of Real Property - ---------------------------- The Park at the Willows - ----------------------- All units in The Park at the Willows are loft, studio or deluxe one-bedroom apartments. All units have wall-to-wall carpeting, individually controlled heating and air conditioning, dishwashers, ranges, refrigerators with ice makers, garbage disposals and microwave ovens. Loft and deluxe units have washer/dryer hook-ups. In addition, pursuant to an agreement with the Willows of Plainview apartment community which was developed adjacent to The Park at the Willows and is owned by NTS-Properties IV and NTS-Properties V, two publicly registered limited partnerships sponsored by an affiliate of the General Partner, tenants of The Park at the Willows have access to and use of the coin-operated washer/dryer facilities, clubhouse, management offices, swimming pool, whirlpool and tennis courts at The Willows of Plainview. The Partnership shares proportionately in the cost of maintaining and operating these facilities. Monthly rental rates at The Park at the Willows start at $569 for studio apartments, $679 for deluxe units and $739 for lofts, with additional monthly rental amounts for special features and locations. Tenants pay all costs of heating, air conditioning and electricity. Most leases are for a period of one year. Units will be rented in some cases, however, on a shorter term basis at an additional charge. The occupancy levels at the apartment complex as of December 31 were 81% (1999), 77% (1998), 96% (1997), 83% (1996) and 96% (1995). See item 7 for average occupancy information. Park Place Apartments Phase II - ------------------------------ Units at Park Place Apartments Phase II include one-bedroom and two-bedroom apartments and two-bedroom town homes. All units have wall-to-wall carpeting, individually controlled heating and air conditioning, dishwashers, ranges, refrigerators with icemakers, garbage disposals and microwave ovens. Each unit has either a washer/dryer hook-up or access to coin-operated washers and dryers. Amenities include the clubhouse with a party room, swimming pool, tennis courts, racquetball courts, exercise facility and management offices. The amenities are shared with Phase I of the Park Place development which were developed and constructed by NTS-Properties VI, an affiliate of the General Partner and with Phase III which is currently being constructed by NTS-Properties VI. The cost to construct and operate the common amenities is shared proportionately by each phase. Monthly rental rates at Park Place Apartments Phase II start at $769 for one-bedroom apartments, $1,009 for two-bedroom apartments and $1,159 for two-bedroom town homes, with additional monthly rental amounts for special features and locations. Tenants pay all costs of heating, air conditioning and electricity. Most leases are for a period of one year. Units will be rented in some cases, however, on a shorter term basis at an additional charge. The occupancy levels at the apartment complex as of December 31 were 86% (1999), 85% (1998), 92% (1997), 90% (1996) and 91% (1995). See item 7 for average occupancy information. -4- Blankenbaker Business Center 1A - ------------------------------- Sykes HealthPlan Service Bureau, Inc. ("SHPS, Inc.") has leased 100% of Blankenbaker Business Center 1A. The annual base rent, which does not include the cost of utilities, is $7.48 per square foot. The lease term is for 11 years and expires in July 2005. Sykes HealthPlan Service Bureau, Inc. is a professional service oriented organization which deals in insurance claim processing. The lease provides for the tenant to contribute toward the payment of common area expenses, insurance and real estate taxes. The occupancy level at the business center as of December 31, 1999, 1998, 1997, 1996 and 1995 was 100%. See item 7 for average occupancy information. The following table contains approximate data concerning the lease in effect on December 31, 1999: Year of Sq. Ft. of % of Net Current Annual Rental Name Expiration Rentable Area per Square Foot ---- ---------- ------------- --------------- Sykes HealthPlan Service Bureau, Inc. 2005 100,640 $7.48 (1) Rentable area includes ground floor and mezzanine square feet. It has previously been reported that SHPS, Inc. intended to consolidate its operations and build its corporate headquarters in Jefferson County, Kentucky. SHPS, Inc. occupies 100% of Blankenbaker Business Center 1A. The Partnership believes that SHPS, Inc. no longer intends to build a corporate headquarters. As of December 31, 1999, it is the Partnership's understanding that SHPS, Inc., intends to occupy the space at Blankenbaker Business Center 1A through the duration of its lease term, which expires in July 2005. Additional operating data regarding the Partnership's properties is furnished in the following table. Federal Realty Annual Tax Basis Tax Rate Realty Taxes --------- -------- ------------ Wholly-Owned Properties - ----------------------- The Park at the Willows $ 2,547,669 $ .010910 $ 16,893 Park Place Apartments Phase II $ 9,442,391 $ .009845 $ 72,592 Property Owned in Joint - ----------------------- Venture with NTS-Properties IV - ------------------------------ and NTS-Properties Plus Ltd. - ---------------------------- Blankenbaker Business Center 1A $ 7,356,545 $ .010710 $ 55,850 Percentage ownership has not been applied to the Blankenbaker Business Center 1A information in the above table. Depreciation for book purposes is computed using the straight-line method over the estimated useful lives of the assets which are 5-30 years for land improvements, 30 years for buildings, 5-30 years for building improvements and 5-30 years for amenities. There are currently no planned renovations which would have an impact on realty taxes. Investment in Joint Ventures - ---------------------------- Blankenbaker Business Center Joint Venture - On December 28, 1990, the Partnership entered into a joint venture agreement with NTS-Properties Plus Ltd. to own and operate Blankenbaker Business Center 1A and to acquire an approximately 2.49 acre parking lot that was being leased by the business center from an affiliate of the General Partner. The use of the parking lot is a provision of the tenant's lease agreement with the business center. On August 16, 1994, the Blankenbaker Business Center Joint Venture agreement was amended to admit NTS-Properties IV to the Joint Venture. The terms of the Joint Venture -5- Investment in Joint Ventures - Continued - ---------------------------------------- shall continue until dissolved. Dissolution shall occur upon, but not before, the first to occur of the following: (a) the withdrawal, bankruptcy or dissolution of a Partner or the execution by a Partner of an assignment for the benefit of its creditors; (b) the sale, condemnation or taking by eminent domain of all or substantially all of the assets of the Real Property and Parking Lot and the sale and/or collection of any evidences of indebtedness received in connection therewith; (c) the vote or consent of each of the Partners to dissolve the Partnership; or (d) December 31, 2030. In 1990 when the Joint Venture was originally formed, the Partnership contributed $450,000 which was used for additional tenant improvements to the business center and made a capital contribution to the Joint Venture of $325,000 to purchase the 2.49 acre parking lot. The additional tenant improvements were made to the business center and the parking lot was purchased in 1991. NTS-Properties Plus Ltd. contributed Blankenbaker Business Center 1A together with improvements and personal property subject to mortgage indebtedness of $4,715,000. During November 1994, this note payable was replaced with permanent financing in the amount of $4,800,000. The outstanding balance at December 31, 1999 was $3,121,473. The mortgage is recorded as a liability of the Joint Venture. The Partnership's proportionate interest in the mortgage at December 31, 1999 was $977,957. The mortgage bears interest at a fixed rate of 8.5% and is due November 15, 2005. Currently monthly principal payments are based upon an 11-year amortization schedule. At maturity, the mortgage will have been repaid based on the current rate of amortization. On April 28, 1994, the Joint Venture obtained $1,100,000 in debt financing to fund a portion of the tenant finish and leasing costs which were associated with the Sykes lease renewal and expansion. The $1,100,000 note bore interest at the Prime Rate + 1 1/2%. In order for the Joint Venture to obtain the $4,800,000 of permanent financing discussed above, it was necessary for the Joint Venture to seek an additional Joint Venture partner to provide the funds necessary for the tenant finish and leasing costs instead of debt financing. See the following paragraph for information regarding the new joint venture partner. The $1,100,000 note was retired in August 1994. This resulted in the Joint Venture's debt being at a level where permanent financing could be obtained and serviced. On August 16, 1994, NTS-Properties VII, Ltd. contributed $500,000 and NTS-Properties IV contributed $1,100,000 in accordance with the agreement to amend the Joint Venture. The need for additional capital by the Joint Venture was a result of the lease renewal and expansion which was signed April 28, 1994 between the Joint Venture and Sykes. NTS-Properties VII, Ltd. was not in a position to contribute all of the capital required for the project, nor was NTS-Properties Plus Ltd. in a position to contribute additional capital. NTS-Properties IV was willing to participate in the Joint Venture and to contribute, together with NTS-Properties VII, Ltd., the capital necessary with respect to the project. NTS-Properties Plus Ltd. agreed to the admission of NTS-Properties IV to the Joint Venture and to the capital contributions by NTS-Properties IV and NTS-Properties VII, Ltd. with the knowledge that its joint venture interest would, as a result, decrease. See the following paragraph for a discussion of how the revised interests in the Joint Venture were calculated with the admission of NTS-Properties IV. With this expansion, Sykes occupied 100% of the business center. No future contributions are anticipated as of December 31, 1999. In order to calculate the revised joint venture percentage interests, the assets of the Joint Venture were revalued in connection with the admission of NTS-Properties IV as a joint venture partner and the additional capital contributions. The value of the Joint Venture's assets immediately prior to the additional capital contributions was $6,764,322 and its outstanding debt was $4,650,042, with net equity being $2,114,280. The difference between the value of the Joint Venture's assets and the value at which they were carried on the books of the Joint Venture was allocated to the Partnership and NTS-Properties Plus Ltd. in determining each Joint Venture partners' percentage interest. -6- Investment in Joint Ventures - Continued - ---------------------------------------- The Partnership's interest in the Joint Venture remained at 31%. NTS-Properties Plus Ltd.'s interest in the Joint Venture decreased from 69% to 39% as a result of the capital contributions by NTS-Properties IV and the Partnership. NTS-Properties IV obtained a 30% interest in the Joint Venture as a result of its capital contribution. The Net Cash Flow for each calendar quarter is distributed to the Partners in accordance with their respective Percentage Interests. The term Net Cash Flow for any period shall mean the excess, if any, of (A) the sum of (i) the gross receipts of the Joint Venture Property for such period, other than capital contributions, plus (ii) any funds released by the Partners from previously established reserves (referred to in clause (B) (iv) below), over (B) the sum of (i) all cash operating expenses paid by the Joint Venture Property during such period in the course of business, (ii) capital expenditures paid in cash during such period, (iii) payments during such period on account of amortization of the principal of any debts or liabilities of the Joint Venture property and (iv) reserves for contingent liabilities and future expenses of the Joint Venture Property as established by the Partners; provided, however, that the amounts referred to in (B)(i), (ii) and (iii) above shall only be taken into account to the extent not funded by capital contributions or paid out of previously established reserves. Percentage Interest means that percentage which the capital contributions of a Partner bears to the aggregate capital contributions of all the Partners. Net income or net loss is allocated between the Partners in accordance with their respective Percentage Interests. The Partnership's ownership share was 31% at December 31, 1999. Competition - ----------- The Partnership's residential properties are subject to competition from similar types of properties (including, in certain areas, properties owned or managed by affiliates of the General Partner) in the respective vicinities in which they are located. Such competition is generally for the retention of existing tenants or for new tenants when vacancies occur. The Partnership maintains the suitability and competitiveness of its properties primarily on the basis of effective rents, amenities and services provided to tenants. Competition is expected to increase in the future as a result of the construction of additional properties. As of December 31, 1999, properties under construction in the respective vicinities in which the properties are located are as follows: In the vicinity near Park Place Apartments Phase II, there are 320 apartment units currently under construction which are scheduled to be completed during the fourth quarter of 2000. In the vicinity near The Park at the Willows, there is one new apartment complex under construction which is scheduled to be completed by the fourth quarter of 2000. The number of units in this complex is unknown at this time. The Partnership has not commissioned a formal market analysis of competitive conditions in any market in which it owns properties, but relies upon the market condition knowledge of the employees of NTS Development Company who manage and supervise leasing for each property. Management of Properties - ------------------------ NTS Development Company, an affiliate of NTS-Properties Associates VII, the General Partner of the Partnership, directs the management of the Partnership's properties pursuant to a written agreement. NTS Development Company is a wholly-owned subsidiary of NTS Corporation. Mr. J. D. Nichols has a controlling interest in NTS Corporation and is a General Partner of NTS-Properties Associates VII. Under the agreement, the Property Manager establishes rental policies and rates and directs the marketing activity of leasing personnel. It also coordinates the purchase of equipment and supplies, maintenance activity and the selection of all vendors, suppliers and independent contractors. As compensation for its services, the Property Manager received a total of $102,650 for the year ended December 31, 1999. $16,869 was received from the Partnership's commercial property and $85,781 was received from residential properties. The fee is equal to 6% of gross revenues from commercial properties and 5% of gross revenues from residential properties. -7- Management of Properties - Continued - ------------------------------------ In addition, the management agreement requires the Partnership to purchase all insurance relating to the managed properties, to pay the direct out-of-pocket expenses of the Property Manager in connection with the operation of the properties, including the cost of goods and materials used for and on behalf of the Partnership, and to reimburse the Property Manager for the salaries, commissions, fringe benefits, and related employment expenses of on-site personnel. The term of the Management Agreement between NTS Development Company and the Partnership was for an initial term of five years, and thereafter for succeeding one-year periods, unless canceled. The Agreement is subject to cancellation by either party upon sixty days written notice. As of December 31, 1999, the Management Agreement is still in effect. Working Capital Practices - ------------------------- Information about the Partnership's working capital practices is included in Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7. Seasonal Operations - ------------------- The Partnership does not consider its operations to be seasonal to any material degree. Conflict of Interest - -------------------- Because the principals of the General Partner and/or its affiliates own and/or operate real estate properties other than those owned by the Partnership that are or could be in competition with the Partnership, potential conflicts of interest exist. Because the Partnership was organized by and is operated by the General Partner, these conflicts are not resolved through arms-length negotiations but through the exercise of the General Partner's good judgment consistent with its fiduciary responsibility to the Limited Partners and the Partnership's investment objectives and policies. The General Partner is accountable to the Limited Partners as a fiduciary and consequently must exercise good faith and integrity in handling the Partnership's affairs. A provision has been made in the Partnership Agreement that the General Partner will not be liable to the Partnership except for acts or omissions performed or omitted fraudulently, in bad faith or with negligence. In addition, the Partnership Agreement provides for indemnification of the General Partner by the Partnership for liability resulting from errors in judgement or certain acts or omissions. With respect to these potential conflicts of interest, the General Partner and its affiliates retain a free right to compete with the Partnership's properties including the right to develop competing properties now and in the future, in addition to those existing properties which may compete directly or indirectly. NTS Development Company, the Property Manager and an affiliate of the General Partner, acts in a similar capacity for other affiliated entities in the same geographic region where the Partnership has property interests. The agreement with the Property Manager is on terms no less favorable to the Partnership than those which could be obtained from a third party for similar services in the same geographical region in which the properties are located. The contract is terminable by either party without penalty upon 60 days written notice. There are no other agreements or relationships between the Partnership, the General Partner and its affiliates than those previously described. Employees - --------- The Partnership has no employees; however, employees of an affiliate of the General Partner are available to perform services for the Partnership. The Partnership reimburses this affiliate for the actual costs of providing such services. See Note 9 in Item 8 for information regarding the Partnership's related party transactions. -8- Governmental Contracts and Regulations - -------------------------------------- No portion of the Partnership's business is subject to renegotiation of profits or termination of contracts or sub-contracts at the election of the United States Government. Item 3. Legal Proceedings ----------------- None. Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- None. -9- PART II Item 5. Market for the Registrant's Limited Partnership Interests and -------------------------------------------------------------------- Partner Matters --------------- There is no established trading market for the limited partnership interests. The Partnership had 1,109 limited partners as of February 29, 2000. Cash distributions and allocations of net income (loss) are made as described in Note 1C to the Partnership's 1999 financial statements. Annual distributions totaling $.20, $.25 and $.40 per limited partnership Unit were paid during the years ended December 31, 1999, 1998 and 1997, respectively. Quarterly distributions are determined based on current cash balances, cash flow being generated by operations and cash reserves needed for future leasing costs, tenant finish costs and capital improvements. Distributions were paid quarterly as follows: 1999 1998 1997 ---- ---- ---- First quarter $ .05 $ .10 $ .10 Second quarter .05 .05 .10 Third quarter .05 .05 .10 Fourth quarter .05 .05 .10 ---- ---- ---- $ .20 $ .25 $ .40 ==== ==== ==== The table below presents that portion of the distributions that represent a return of capital on a Generally Accepted Accounting Principle basis for the years ended December 31, 1999, 1998 and 1997. Net Income Cash (Loss) Distributions Return of Allocated Declared Capital --------- -------- ------- Limited Partners: 1999 $ 76,127 $ 112,646 $ 36,519 1998 (30,191) 144,299 144,299 1997 63,842 239,288 175,446 General Partner: 1999 $ 769 $ 1,138 $ 369 1998 (305) 1,458 1,458 1997 645 2,417 1,772 -10- Item 6. Selected Financial Data ----------------------- For the years ended December 31, 1999, 1998, 1997, 1996 and 1995.
1999 1998 1997 1996 1995 ------------ ------------ ------------ ------------ ------------ Total revenues $ 1,960,824 $ 1,951,937 $ 2,093,752 $ 2,041,762 $ 1,972,169 Total expenses (1,883,928) (1,982,433) (2,001,481) (2,168,650) (2,077,195) ------------ ------------ ------------ ------------ ------------ Income (loss) before extraordinary item 76,896 (30,496) 92,271 (126,888) (105,026) Extraordinary item (1) -- -- (27,784) -- -- ------------ ------------ ------------ ------------ ------------ Net income (loss) $ 76,896 $ (30,496) $ 64,487 $ (126,888) $ (105,026) ============ ============ ============ ============ ============ Net income(loss) allocated to: General Partner $ 769 $ (305) $ 645 $ (1,269) $ (1,050) Limited partners $ 76,127 $ (30,191) $ 63,842 $ (125,619) $ (103,976) Net income (loss) per limited partnership Unit $ .13 $ (.05) $ .11 $ (.20) $ (.16) Weighted average number of limited partnership Units 567,325 581,622 598,526 615,384 638,265 Cumulative net loss allocated to: General Partner $ (25,954) $ (26,723) $ (26,418) $ (27,063) $ (25,794) Limited partners $ (2,569,539) $ (2,645,666) $ (2,615,475) $ (2,679,317) $ (2,553,698) Cumulative taxable income (loss) allocated to: General Partner $ 26,100 $ 23,511 $ 21,995 $ 17,371 $ 14,381 Limited partners $ (2,809,106) $ (2,915,767) $ (2,941,772) $ (3,059,753) $ (2,965,106) Distributions declared: General Partner $ 1,138 $ 1,458 $ 2,417 $ 2,471 $ 2,579 Limited partners $ 112,646 $ 144,299 $ 239,288 $ 244,707 $ 255,306 Cumulative distributions declared: General Partner $ 26,605 $ 25,467 $ 24,009 $ 21,592 $ 19,121 Limited partners $ 2,633,810 $ 2,521,164 $ 2,376,865 $ 2,137,577 $ 1,892,870 At year end: Cash and equivalents $ 400,262 $ 398,001 $ 164,714 $ 278,620 $ 249,559 Investment securities $ -- $ -- $ 338,129 $ -- $ 103,908 Land, buildings and amenities, net $ 9,688,537 $ 10,036,720 $ 10,361,786 $ 10,878,976 $ 11,405,597 Total assets $ 10,267,643 $ 10,665,976 $ 11,179,145 $ 11,474,499 $ 12,108,948 Mortgages and notes payable $ 4,854,355 $ 5,088,213 $ 5,303,947 $ 5,358,215 $ 5,509,479
The above selected financial data should be read in conjunction with the financial statements and related notes appearing elsewhere in this Form 10-K report. 1) See Note 7 in Item 8 for information regarding the extraordinary item. -11- Item 7. Management's Discussion and Analysis of Financial Condition and --------------------------------------------------------------- Results of Operations --------------------- Management's Discussion and Analysis of Financial Condition and Results of Operations is structured in four major sections. The first section provides information related to occupancy levels and rental and other income generated by the Partnership's properties. The second analyzes results of operations on a consolidated basis. The final sections address consolidated cash flows and financial condition. Discussion of certain market risks and our cautionary statements also follow. Management's analysis should be read in conjunction with the financial statements in Item 8 and the cautionary statements below. Occupancy Levels - ---------------- The occupancy levels at the Partnership's properties as of December 31 were as follows: Percentage Ownership at 12/31/99 1999(1) 1998 1997 -------- ---- ---- ---- Wholly-owned Properties - ----------------------- The Park at the Willows 100% 81% 77% 96% Park Place Apartments Phase II 100% 86% 85% 92% Property owned in Joint Venture - ------------------------------- with NTS-Properties IV and - -------------------------- NTS-Properties Plus Ltd. - ------------------------ Blankenbaker Business Center 1A 31% 100% 100% 100% (1) Current occupancy levels are considered adequate to continue the operation of the Partnership's properties. The average occupancy levels at the Partnership properties as of December 31 were as follows: Percentage Ownership at 12/31/99 1999 1998 1997 -------- ---- ---- ---- Wholly-owned Properties - ----------------------- The Park at the Willows 100% 90% 89% 91% Park Place Apartments Phase II 100% 87% 85% 92% Property owned in Joint Venture - ------------------------------- with NTS-Properties IV and - -------------------------- NTS-Properties Plus Ltd. - ------------------------ Blankenbaker Business Center 1A 31% 100% 100% 100% -12- Rental and Other Income - ----------------------- Rental and other income generated by the Partnership's properties for the years ended December 31, 1999, 1998 and 1997 were as follows: Percentage Ownership at 12/31/99 1999 1998 1997 ----------- ---- ---- ---- Wholly-owned Properties - ----------------------- The Park at the Willows 100% $ 337,595 $ 361,529 $ 345,490 Park Place Apartments Phase II 100% $1,320,563 $1,274,745 $1,437,348 Property owned in Joint - ----------------------- Venture with NTS- - ----------------- Properties IV and NTS- - ---------------------- Properties Plus Ltd. - -------------------- Blankenbaker Business Center 1A (1) 31% $ 286,612 $ 292,734 $ 293,939 (1) Revenues shown in this table represent the Partnership's share of revenues generated by Blankenbaker Business Center 1A. The Partnership's percentage interest in the joint venture was 31% during 1999, 1998 and 1997. The following is an analysis of material changes in results of operations for the periods ending December 31, 1999, 1998 and 1997. Items that did not have a material impact on operations for the periods listed above have been eliminated from this discussion. Rental income increased approximately $13,500 or 1% from 1998 to 1999. The increase was driven by increased average occupancy levels at The Park at the Willows and Park Place Apartments Phase II and by increased income from the rental of fully furnished units at Park Place Apartments Phase II. Fully furnished units are apartments which rent at an additional premium above base rent. Rental income decreased approximately $140,000 or 7% from 1997 to 1998. The decrease was driven by decreased average occupancy levels at The Park at the Willows and Park Place Apartments Phase II partially offset by increased income from the rental of fully furnished units at The Park at the Willows. Fully furnished units are apartments which rent at an additional premium above base rent. Therefore, it is possible for occupancy to decrease and revenues to increase when the number of fully furnished units occupied has increased. Year-ending occupancy percentages represent occupancy only on a specific date; therefore, the above analysis considers average occupancy percentages which are representative of the entire year's results. Operating expenses decreased approximately $89,000 or 19% from 1998 to 1999 primarily as a result of decreased operating expenses at Park Place Apartments Phase II and Blankenbaker Business Center 1A. The decrease in operating expenses at Park Place Apartments Phase II is due to decreased building repair and maintenance costs (hot water heaters), decreased cable expense and decreased landscaping costs. The decrease in operating expenses at Blankenbaker Business Center 1A is due to decreased parking lot repairs. The decrease is partially offset by increased replacement costs (floor covering), exterior painting and parking lot repairs at Park Place Apartments Phase II. Operating expenses - affiliated increased approximately $12,200 or 5% from 1998 to 1999 and approximately $24,000 or 10% from 1997 to 1998. The increases were due primarily to increased property management payroll costs (due to changes in staff) and to increased overhead costs. Operating expenses - affiliated are expenses incurred for services performed by employees of NTS Development Company, an affiliate of the General Partner. -13- Rental and Other Income - Continued - ----------------------------------- The 1998 write-off of unamortized building and land improvement costs can be attributed to Park Place Apartments Phase II. The write-off is the result of property renovations. The write-off represents the cost of unamortized assets which were replaced as a result of the renovations. Interest expense decreased approximately $17,000 or 4% from 1998 to 1999 as a result of the Partnership's decreasing debt level as a result of principal payments made. Interest expense decreased approximately $40,000 or 9% in 1998 due primarily to a lower interest rate on the new debt obligation obtained October 1997 (7.37% versus 8.375%) and a result of the Partnership's decreasing debt level as a result of principal payments made. Management fees are calculated as a percentage of cash collections; however, revenue for reporting purposes is on the accrual basis. As a result, the fluctuations of revenues between years will differ from the fluctuations of management fee expense. Real estate taxes increased approximately $9,000 or 9% in 1998 as a result of an increased Park Place Apartments Phase II tax assessment. Professional and administrative expenses increased approximately $16,500 or 21% in 1999 and approximately $19,000 or 32% in 1998 as a result of costs incurred in connection with the Tender Offers (See discussion below). Professional and administrative expenses - affiliated decreased approximately $9,400 or 11% in 1999 primarily as a result of decreased salary costs. Professional and administrative expenses - affiliated are expenses incurred for services performed by employees of NTS Development Company, an affiliate of the General Partner. Depreciation and amortization expense decreased approximately $32,900 or 6% in 1998 as a result of a portion of the assets with shorter lives at the Partnership's residential properties having become fully depreciated. Depreciation is computed using the straight-line method over the estimated useful lives of the assets which are 10-30 years for land improvements, 30 years for buildings, 5-30 years for building improvements and 5-30 years for amenities. The aggregate cost of the Partnership's properties, based upon the Partnership's ownership percentage, for Federal tax purposes as of December 31, 1999 is approximately $13,920,000. Consolidated Cash Flows and Financial Condition - ----------------------------------------------- The majority of the Partnership's cash flow is derived from operating activities. Cash flows used in investing activities are for capital improvements at the Partnership's properties. These improvements were funded by cash flow from operations. Cash flows used in investing activities are also for the purchase of investment securities. As part of its cash management activities, the Partnership has periodically purchased Certificates of Deposit or securities issued by the U.S. Government with initial maturities of greater than three months to improve the return on its excess cash reserves. The Partnership held the securities until maturity. Cash flows provided by investing activities are a result of the maturity of investment securities. Cash flows used in financing activities are for cash distributions, principal payments on mortgages payable, payment of loan costs and repurchases of limited partnership Units. Cash flows used in financing activities also include cash which has been reserved by the Partnership for the repurchase of limited partnership Units through the Interest Repurchase Program or the Tender Offer (1998 and 1999). Cash flows provided by financing activities represent an increase in a mortgage payable. The Partnership does not expect any material changes in the mix and relative cost of capital resources from those in 1999. -14- Consolidated Cash Flows and Financial Information - Continued - ------------------------------------------------------------- Cash flows provided by (used in): 1999 1998 1997 ---- ---- ---- Operating activities $ 618,744 $ 474,667 $ 599,924 Investing activities (119,767) 170,998 (344,790) Financing activities (496,716) (412,378) (369,040) --------- --------- --------- Net increase (decrease) in cash and equivalents $ 2,261 $ 233,287 $(113,906) ========= ========= ========= Net cash provided by operating activities increased approximately $144,000 or 30% in 1999. The increase in net cash provided by operating activities was driven primarily by an increase in net income. Net cash provided by operating activities decreased approximately $125,000 or 21% in 1998. The decrease in net cash provided by operating activities was driven primarily by a decrease in net income. The decrease in net cash provided by investing activities in 1999 was the result of the maturity of investment securities in 1998 exceeding the purchase of investment securities partially offset by decreased capital expenditures in 1999. The increase in net cash provided by investing activities in 1998 was primarily the result of a decrease in investment purchases partially offset by increased capital expenditures. The increase in net cash used in financing activities in 1999 was primarily due to the repurchase of the Partnership's limited partnership Units and increased net payments on mortgages partially offset by the decreased cash distributions in 1999 compared to 1998. The increase in net cash used in financing activities in 1998 was primarily due to increased net payments on mortgages partially offset by decreased cash distributions and loan costs paid in 1998 compared to 1997 and decreased net Interest Repurchase Reserve activity. During the year ended December 31, 1999, the Partnership used cash flow from operations and cash on hand to make a 1% (annualized) distribution of $113,784. During the years ended December 31, 1998 and 1997, the Partnership used cash flow from operations and cash on hand to make a 1.25% (1998) and 2% (1997) (annualized) distribution of $145,757 and $241,705, respectively. The annualized distribution rate is calculated as a percent of the original capital contribution. The limited partners received 99% and the General Partner received 1% of these distributions. The primary source of future liquidity and distributions is expected to be derived from cash generated by the Partnership's properties after adequate cash reserves are established for future leasing, renovations and tenant finish costs. It is anticipated that the cash flow from operations and cash reserves will be sufficient to meet the needs of the Partnership. Cash reserves (which are unrestricted cash and equivalents and investment securities as shown on the Partnership's balance sheet as of December 31) were $400,262, $398,001 and $502,843 at December 31, 1999, 1998 and 1997, respectively. The demand on future liquidity is anticipated to increase as a result of the replacement of the roofs at Park Place Phase II apartments (17 buildings) all of which were installed using shingles produced by a single manufacturer. The shingles appear to contain defects which may cause roofs to fail before the end of their expected useful lives. As the manufacturer has declared bankruptcy, the Partnership does not expect to be able to recover any of the costs of the roof replacements. The Partnership does not have sufficient working capital to make all of the roof replacements at once and intends to make the replacements over the next 36 months. The Partnership had no other material commitments for renovation or capital expenditures at December 31, 1999. Pursuant to Section 16.4 of the Partnership's Amended and Restated Agreement of Limited Partnership, the Partnership established an Interest Repurchase Reserve in December 1995. During the years ended December 31, 1998, 1997 and 1996, the Partnership funded $7,242, $38,918 and $121,270, respectively, to the reserve. Through December 31, 1998, the Partnership had repurchased a total of 62,529 Units for $295,080 at a price ranging from $4.00 to $6.00 per Unit. The Offering price per Unit was established by the General Partner in its sole discretion and -15- Consolidated Cash Flows and Financial Condition - Continued - ----------------------------------------------------------- does not purport to represent the fair market value or liquidation value of the Units. Repurchased Units have been retired by the Partnership, thus increasing the percentage of ownership of each remaining limited partner investor. The Interest Repurchase Reserve was funded from cash reserves. The funds remaining in the Interest Repurchase Reserve at the commencement of the first Tender Offer (discussed below) were returned to unrestricted cash for utilization in the Partnership's operations. On December 7, 1998, the Partnership and ORIG, LLC, an affiliate of the Partnership, (the "bidders") commenced a tender offer (the "First Tender Offer") to purchase up to 20,000 of the Partnership's limited partnership Units at a price of $6.00 per Unit. The First Tender Offer stated that the Partnership would purchase the first 10,000 Units tendered and would fund its purchases and its portion of the expenses from cash reserves. If more than 10,000 Units were tendered, ORIG, LLC would purchase up to an additional 10,000 Units. If more than 20,000 Units were tendered, the Partnership and ORIG, LLC could choose to acquire the additional Units on the same terms. Otherwise, tendered Units would be purchased on a pro rata basis up to 20,000. Units that were acquired by the Partnership would be retired. Units that were acquired by ORIG, LLC would be held by it. The General Partner, NTS-Properties Associates VII, did not participate in the First Tender Offer. Under the terms of the First Tender Offer, the First Tender Offer expired on March 6, 1999. As of that date, a total of 25,794 Units were tendered pursuant to the First Tender Offer. The bidders exercised their right under the terms of the First Tender Offer to purchase more than 20,000 Units and all 25,794 Units tendered were accepted by the bidders, without proration. The Partnership repurchased 10,000 Units and ORIG, LLC purchased 15,794 Units. On September 2, 1999, the Partnership and ORIG, LLC, (the "bidders") commenced a second tender offer (the "Second Tender Offer") to purchase up to 20,000 of the Partnership's limited partnership Units at a price of $6.00 per Unit. Although the bidders believed that this price was appropriate, the price of $6.00 per Unit may not equate to the fair market value or the liquidation value of the Units, and was less than the book value per Unit as of the date of the Second Tender Offer. The Second Tender Offer provided that the Partnership would purchase the first 10,000 Units tendered and would fund its purchases and its portion of the expenses, associated with administering the Second Tender Offer from cash reserves. If more than 10,000 Units were tendered, ORIG, LLC would purchase up to an additional 10,000 Units. If more that 20,000 Units were tendered, the bidders could choose to acquire the additional Units on the same terms. Units that were acquired by the Partnership would be retired. Units that were acquired by ORIG, LLC would be held by it. The General Partner, NTS-Properties Associates VII did not participate in the Second Tender Offer. The Second Tender Offer's initial expiration date was November 30, 1999, but was extended to December 15, 1999. Under the terms of the Second Tender Offer, the Second Tender Offer expired on December 15, 1999. As of that date, a total of 41,652 Units were tendered pursuant to the Second Tender Offer. The bidders exercised their right under the terms of the Second Tender Offer to purchase more than 20,000 Units and all 41,652 Units tendered were accepted by the bidders, without proration. The Partnership repurchased 10,000 Units and ORIG, LLC purchased 31,652 Units. The table below presents that portion of the distributions that represent a return of capital on a Generally Accepted Accounting Principle basis for the years ended December 31, 1999, 1998 and 1997. Net Income Cash (Loss) Distributions Return of Allocated Declared Capital Limited Partners: 1999 76,127 112,646 36,519 1998 (30,191) 144,299 144,299 1997 63,842 239,288 175,446 General Partner: 1999 769 1,138 369 1998 (305) 1,458 1,458 1997 645 2,417 1,772 -16- Consolidated Cash Flows and Financial Condition - Continued - ----------------------------------------------------------- In an effort to continue to improve occupancy at the Partnership's residential properties, the Partnership has an on-site leasing staff, who are employees of NTS Development Company, at each of the apartment communities. The staff handles all on-site visits from potential tenants, coordinates local advertising with NTS Development Company's marketing staff, makes visits to local companies to promote fully furnished units and works with current residents on lease renewals. The lease at Blankenbaker Business Center 1A provides for the tenant to contribute toward the payment of common area expenses, insurance and real estate taxes. This lease provision, along with the fact that residential leases are generally for a period of one year, should protect the Partnership's operations from the impact of inflation and changing prices. Year 2000 - --------- During 1999, all divisions of NTS Corporation, including NTS-Properties Associates VII, the General Partner of the Partnership, reviewed the effort necessary to prepare NTS' information systems (IT) and non-information technology with embedded technology (ET) for the Year 2000. The information technology solutions were addressed separately for the Year 2000 since the Partnership saw the need to move to more advance management and accounting systems made available by new technology and software development during the decade of the 1990's. NTS' property management staff surveyed vendors to evaluate embedded technology in its alarm systems, HVAC controls, telephone systems and other computer associated facilities. Some equipment was replaced, while others had circuitry upgrades. In 1999, the PILOT software system, purchased in the early 1990's, was replaced by a windows based network system both for NTS' headquarter functions and other locations. The real estate accounting system developed, sold, and supported by the Yardi Company of Santa Barbara, California was selected to replace PILOT. The Yardi system is fully implemented and operational as of December 31, 1999. NTS' system for multi-family apartment locations was converted to GEAC's Power Site System earlier in 1998. There have been no Year 2000 related problems with either system. The cost of these advances in NTS' systems technology are not all attributable to the Year 2000 issue since NTS had already identified the need to move to a network based system regardless of the Year 2000. The Partnership's share of the of the costs involved were approximately $9,000 in 1998 and approximately $36,000 in 1999. These costs include primarily the purchase, lease and maintenance of hardware and software. At the date of this filing the Partnership did not experience any significant operating issues relative to the Year 2000 issue. Despite diligent preparation, unanticipated third-party failures, inability of our tenants to pay rent when due, more general public infrastructure failures or failure of our remediation efforts as planned could have a material adverse impact on our results of operations, financial conditions and/or cash flows in 2000 and beyond. Cautionary Statements - --------------------- Some of the statements included in Items 1 and 2, Business and Properties, and Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, may be considered to be "forward-looking statements" since such statements relate to matters which have not yet occurred. For example, phrases such as "the Partnership anticipates", "believes" or "expects" indicate that it is possible that the event anticipated, believed or expected may not occur. Should such event not occur, then the result which the Partnership expected also may not occur or occur in a different manner, which may be more or less favorable to the Partnership. The Partnership does not undertake any obligations to publicly release the result of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances. Any forward-looking statements included in Management's Discussion and Analysis of Financial Condition and Results of Operations, or elsewhere in this report, which reflect management's best judgement based on factors known, involve risks and uncertainties. Actual results could differ materially from those anticipated in any forward-looking statements as a result of a number of factors, including but not limited to those discussed below. Any forward-looking information provided by the Partnership pursuant to the safe harbor established by recent securities legislation should be evaluated in the context of these factors. -17- Cautionary Statements - Continued - --------------------------------- The Partnership's principal activity is the leasing and management of a commercial business center and apartment complexes. If Sykes, the tenant that occupies 100% of the business center, or a large number of apartment lessees default on their lease, the Partnership's ability to make payments due under its debt agreements, payment of operating costs and other partnership expenses would be directly impacted. A lessee's ability to make payments are subject to risks generally associated with real estate, many of which are beyond the control of the Partnership, including general or local economic conditions, competition, interest rates, real estate tax rates, other operating expenses and acts of God. Item 7A. Quantitative and Qualitative Disclosures About Market Risk ---------------------------------------------------------- Our primary market risk exposure with regards to financial instruments is to changes in interest rates. All of the Partnership's debt bears interest at a fixed rate. At December 31, 1999, a hypothetical 100 basis point increase in interest rates would result in an approximately $252,300 decrease in the fair value of debt. -18- Item 8. Financial Statements and Supplementary Data ------------------------------------------- REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ---------------------------------------- To NTS-Properties VII, Ltd.: We have audited the accompanying balance sheets of NTS-Properties VII, Ltd. (a Florida limited partnership) as of December 31, 1999 and 1998, and the related statements of operations, partners' equity and cash flows for each of the three years in the period ended December 31, 1999. These financial statements and schedules referred to below are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of NTS-Properties VII, Ltd. as of December 31, 1999 and 1998 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999 in conformity with accounting principles generally accepted in the United States. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedules included on pages 39 and 40 are presented for purposes of complying with the Securities and Exchange Commission's rules and regulations and are not a required part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Louisville, Kentucky March 24, 2000 -19- NTS-PROPERTIES VII, LTD. ------------------------ BALANCE SHEETS -------------- AS OF DECEMBER 31, 1999 AND 1998 --------------------------------
1999 1998 ---- ---- ASSETS - ------ Cash and equivalents $ 400,262 $ 398,001 Cash and equivalents - restricted 40,080 100,427 Accounts receivable 21,771 -- Land, buildings and amenities, net 9,688,537 10,036,720 Other assets 116,993 130,828 ----------- ----------- $10,267,643 $10,665,976 =========== =========== LIABILITIES AND PARTNERS' EQUITY - -------------------------------- Mortgages payable $ 4,854,355 $ 5,088,213 Accounts payable 97,355 57,319 Distributions payable -- 29,078 Security deposits 26,475 28,401 Other liabilities 24,646 41,265 ----------- ----------- 5,002,831 5,244,276 Commitments and contingencies (Note 10) Partners' equity 5,264,812 5,421,700 ----------- ----------- $10,267,643 $10,665,976 =========== ===========
The accompanying notes to financial statements are an integral part of these statements. -20- NTS-PROPERTIES VII, LTD. ------------------------ STATEMENTS OF OPERATIONS ------------------------ FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 ----------------------------------------------------
1999 1998 1997 ---- ---- ---- Revenues: Rental income $ 1,936,404 $ 1,922,874 $ 2,064,236 Interest and other income 24,420 29,063 29,516 ----------- ----------- ----------- 1,960,824 1,951,937 2,093,752 Expenses: Operating expenses 378,337 467,432 460,177 Operating expenses - affiliated 266,124 253,900 230,130 Write-off of unamortized building and land improvements costs -- 13,008 17,797 Interest expense 378,227 395,180 434,680 Management fees 102,650 101,354 106,264 Real estate taxes 106,989 108,709 99,458 Professional and administrative expenses 94,483 77,953 58,895 Professional and administrative expenses - affiliated 73,291 82,748 79,075 Depreciation and amortization 483,827 482,149 515,005 ----------- ----------- ----------- 1,883,928 1,982,433 2,001,481 ----------- ----------- ----------- Income (loss) before extraordinary item 76,896 (30,496) 92,271 Extraordinary item - write-off unamortized loan costs -- -- (27,784) ----------- ----------- ----------- Net income (loss) $ 76,896 $ (30,496) $ 64,487 =========== =========== =========== Net income (loss) allocated to the limited partners: Income (loss) before extraordinary item $ 76,127 $ (30,191) $ 91,348 Extraordinary item -- -- (27,506) ----------- ----------- ----------- Net income (loss) $ 76,127 $ (30,191) $ 63,842 =========== =========== =========== Net income (loss) per limited partnership Unit: Income (loss) before extraordinary item $ .13 $ (.05) $ .15 Extraordinary item -- -- (.04) ----------- ----------- ----------- Net income (loss) $ .13 $ (.05) $ .11 =========== =========== =========== Weighted average number of limited partnership Units 567,325 581,622 598,526 =========== =========== ===========
The accompanying notes to financial statements are an integral part of these statements. -21- NTS-PROPERTIES VII, LTD. ------------------------ STATEMENTS OF PARTNERS' EQUITY (1) ---------------------------------- FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 ----------------------------------------------------
Limited General Partners Partners Total -------- -------- ----- Balances at December 31, 1996 $ 5,967,306 $ (48,555) $ 5,918,751 Net income 63,842 645 64,487 Distributions declared (239,288) (2,417) (241,705) Repurchase of limited partnership Units (8,688) -- (8,688) ---------- ----------- ----------- Balances at December 31, 1997 5,783,172 (50,327) 5,732,845 Net loss (30,191) (305) (30,496) Distributions declared (144,299) (1,458) (145,757) Repurchase of limited partnership Units (134,892) -- (134,892) ---------- ----------- ----------- Balances at December 31, 1998 5,473,790 (52,090) 5,421,700 Net income 76,127 769 76,896 Distributions declared (112,646) (1,138) (113,784) Repurchase of limited partnership Units (120,000) -- (120,000) ---------- ----------- ----------- Balances at December 31, 1999 $ 5,317,271 $ (52,459) $ 5,264,812 ========== =========== ===========
The accompanying notes to financial statements are an integral part of these statements. (1) For the periods presented, there are no elements of other comprehensive income as defined by the Financial Accounting Standards Board,Statement of Financial Accounting Standards, Statement No. 130, Reporting --------- Comprehensive Income. -------------------- -22- NTS-PROPERTIES VII, LTD. STATEMENTS OF CASH FLOW FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 ----------------------------------------------------
1999 1998 1997 ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES - ------------------------------------ Net income (loss) $ 76,896 $ (30,496) $ 64,487 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Accrued interest on investment securities -- 1,737 (1,737) Write-off unamortized building and land improvement costs -- 13,008 17,797 Write-off unamortized loan costs -- -- 27,784 Depreciation and amortization 483,827 482,149 515,005 Change in assets and liabilities: Cash and equivalents - restricted 60,347 (51,444) 15,599 Accounts receivable (27,242) -- 13,660 Other assets 3,425 14,655 2,290 Accounts payable 40,036 18,504 (51,486) Security deposits (1,926) (7,924) (3,475) Other liabilities (16,619) 34,478 -- ----------- ----------- ----------- Net cash provided by operating activities 618,744 474,667 599,924 ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES - ------------------------------------ Additions to land, buildings and amenities (119,767) (165,394) (8,398) Purchase of investment securities -- (200,000) (411,392) Maturity of investment securities -- 536,392 75,000 ----------- ----------- ----------- Net cash provided by (used in) investing activities (119,767) 170,998 (344,790) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES - ------------------------------------ Increase in mortgage payable -- -- 4,100,000 Principal payments on mortgages payable (233,853) (215,734) (4,154,268) Cash distributions (142,863) (177,105) (241,924) Repurchase of limited partnership Units (120,000) (134,892) (8,688) Cash and equivalents - restricted -- 127,653 (30,230) Additions to loan costs -- (12,300) (33,930) ----------- ----------- ----------- Net cash used in financing activities (496,716) (412,378) (369,040) ----------- ----------- ----------- Net increase (decrease) in cash and equivalents 2,261 233,287 (113,906) CASH AND EQUIVALENTS, beginning of year 398,001 164,714 278,620 ----------- ----------- ----------- CASH AND EQUIVALENTS, end of year $ 400,262 $ 398,001 $ 164,714 =========== =========== =========== Interest paid on a cash basis $ 379,020 $ 396,831 $ 449,164 =========== =========== ===========
The accompanying notes to financial statements are an integral part of these statements. -23- NTS-PROPERTIES VII, LTD. ------------------------ NOTES TO FINANCIAL STATEMENTS ----------------------------- FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 ---------------------------------------------------- 1. Significant Accounting Policies ------------------------------- A) Organization ------------ NTS-Properties VII, LTD. (the "Partnership") is a limited partnership organized under the laws of the State of Florida in April 1987. The General Partner is NTS-Properties Associates VII (a Kentucky limited partnership). The Partnership is in the business of developing, constructing, owning and operating apartment complexes and commercial real estate. B) Properties ---------- The Partnership owns and operates the following properties: - The Park at the Willows, a 48-unit luxury apartment complex in Louisville, Kentucky. - Park Place Apartments Phase II, a 132-unit luxury apartment complex in Lexington, Kentucky. - A 31% joint venture interest in Blankenbaker Business Center Phase 1A, a business center with approximately 50,000 net rentable ground floor square feet and approximately 50,000 net rentable mezzanine square feet located in Louisville, Kentucky. C) Allocation of Net Income (Loss) and Cash Distributions ------------------------------------------------------ Pre-Termination Date Net Cash Receipts and Interim Net Cash Receipts, as defined in the partnership agreement, and which are made available for distribution, will be distributed 99% to the limited partners and 1% to the General Partner. Net Operating Income (excluding Net Gains from Sales and other specially allocated items) shall be allocated to the limited partners and the General Partner in proportion to their respective cash distributions. Net Operating Income in excess of cash distributions shall be allocated as follows: (1) pro rata to all partners with a negative capital account in an amount to restore the negative capital account to zero; (2) 99% to the limited partners and 1% to the General Partner until the limited partners have received an amount equal to their Original Capital less cash distributions except distributions of Pre-Termination Date Net Cash Receipts; (3) the balance, 80% to the limited partners and 20% to the General Partner. Net Operating Losses shall be allocated 99% to the limited partners and 1% to the General Partner for all periods presented in the accompanying Financial Statements. D) Tax Status ---------- The Partnership has received a ruling from the Internal Revenue Service stating that the Partnership is classified as a limited partnership for federal income tax purposes. As such, the Partnership makes no provision for income taxes. The taxable income or loss is passed through to the holders of the partnership interests for inclusion on their individual income tax returns. -24- 1. Significant Accounting Policies - Continued ------------------------------------------- D) Tax Status - Continued ---------------------- A reconciliation of net income (loss) for financial statement purposes versus that for income tax reporting is as follows: 1999 1998 1997 ---- ---- ---- Net income (loss) $ 76,896 $ (30,496) $ 64,487 Items handled differently for tax purposes: Depreciation and amortization 29,324 4,531 31,437 Capitalized leasing costs 3,030 56,640 22,120 Rental income -- -- 3,833 Gain/loss on disposal of assets -- (3,154) 729 --------- --------- --------- Taxable income $ 109,250 $ 27,521 $ 122,606 ========= ========= ========= E) Use of Estimates in the Preparation of Financial Statements ----------------------------------------------------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. F) Joint Venture Accounting ------------------------ Since inception, the Partnership has adopted the proportionate consolidation method of accounting for joint venture properties. The Partnership's proportionate interest in the joint venture's assets, liabilities, revenues, expenses and cash flows are combined on a line-by-line basis with the Partnership's own assets, liabilities, revenues, expenses and cash flows. All intercompany accounts and transactions have been eliminated in consolidation. Proportionate consolidation is utilized by the Partnership due to the fact that the ownership of joint venture properties, in substance, is not subject to joint control. The managing General Partners of the sole General Partner of the NTS sponsored partnerships which have formed joint ventures are substantially the same. As such, decisions regarding financing, development, sale or operations do not require the approval of different partners. Additionally, the joint venture properties are in the same business/industry as their respective joint venture partners and their asset, liability, revenue and expense accounts correspond with the accounts of such partner. It is the belief of the General Partner of the Partnership that the financial statement disclosures resulting from proportionate consolidation provides the most meaningful presentation of assets, liabilities, revenues, expenses and cash flows given the commonality of the Partnership's operations. G) Cash and Equivalents - Restricted --------------------------------- Cash and equivalents - restricted represents funds received for residential security deposits, funds which have been escrowed with mortgage companies for property taxes in accordance with the loan agreements, funds reserved by the Partnership for the repurchase of limited Partnership Units (December 31, 1997) and funds reserved by the Partnership for the purchase of limited partnership Units through the Tender Offer (December 31, 1998 - See Note 5). -25- 1. Significant Accounting Policies - Continued ------------------------------------------- H) Investment Securities --------------------- Investment securities represent investments in Certificates of Deposit or securities issued by the U.S. Government with initial maturities of greater than three months. The Partnership held the securities until maturity. During 1999, 1998 and 1997, the Partnership sold no investment securities. At December 31, 1999 and 1998, the Partnership held no investment securities with initial maturities greater than three months. I) Basis of Property and Depreciation ---------------------------------- Land, building and amenities are stated at cost to the Partnership. Costs directly associated with the acquisition, development and construction of a project are capitalized. Depreciation is computed using the straight-line method over the estimated useful lives of the assets which are 30 years for land improvements, 5-30 years for buildings and improvements and 5-30 years for amenities. Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, specifies circumstances in which certain long-lived assets must be reviewed for impairment. If such review indicates that the carrying amount of an asset exceeds the sum of its expected future cash flows, the asset's carrying value must be written down to fair value. Application of this standard during the years ended December 31, 1999, 1998 and 1997 did not result in an impairment loss. J) Rental Income and Capitalized Leasing Costs ------------------------------------------- For financial reporting purposes, the income from commercial leases is recognized on a straight-line basis over the lease term. There was no accrued income connected with commercial leases as of December 31, 1999 and 1998 due to the renewal lease having no scheduled and specified rent increases. All commissions paid to commercial property leasing agents are deferred and amortized on a straight-line basis over the applicable lease term. K) Advertising ----------- The Partnership expenses advertising-type costs as incurred. Advertising expense was immaterial to the Partnership during the years ended December 31, 1999, 1998 and 1997. L) Statements of Cash Flows ------------------------ For purposes of reporting cash flows, cash and equivalents include cash on hand and short-term, highly liquid investments with initial maturities of three months or less. 2. Concentration of Credit Risk ---------------------------- NTS-Properties VII, Ltd. owns and operates, through a joint venture, a commercial property in Louisville, Kentucky. The sole tenant which occupies 100% of the property is a business which has operations in the Louisville area. The Partnership also owns and operates residential properties in Louisville and Lexington, Kentucky. The apartment unit is generally the principal residence of the tenant. -26- 3. Investment in Blankenbaker Business Center Joint Venture -------------------------------------------------------- On December 28, 1990, the Partnership entered into a Joint Venture Agreement with NTS-Properties Plus Ltd., an affiliate of the General Partner of the Partnership, to complete the development of Blankenbaker Business Center 1A, a business center located in Louisville, Kentucky. NTS-Properties Plus Ltd. contributed Blankenbaker Business Center 1A together with improvements and personal property (Real Property) to the capital of the Joint Venture, subject to mortgage indebtedness in the amount of $4,715,000. The agreed upon net fair market value of NTS-Properties Plus Ltd.'s capital contribution was $1,700,000, being the appraised value of the Real Property ($6,415,000) reduced by the $4,715,000 mortgage. The Partnership contributed $450,000 which was used for additional tenant improvements to the Real Property and made a capital contribution to the Joint Venture of $325,000 to purchase a 2.49 acre parking lot that was leased from an affiliate of the general partner as described in NTS-Properties Plus Ltd.'s Prospectus. NTS-Properties Plus Ltd. transferred to the Joint Venture its option to purchase the parking lot, and the Joint Venture exercised the option. The use of the parking lot is a provision of the tenant's lease agreement with the business center. By purchasing the parking lot, the Joint Venture's annual operating expenses were reduced approximately $35,000. The purchase price of the parking lot was determined by an independent appraisal. On August 16, 1994, the Blankenbaker Business Center Joint Venture amended its joint venture agreement to admit NTS-Properties IV (an affiliate of the General Partner of the Partnership) to the Joint Venture. In accordance with the Joint Venture Agreement Amendment, NTS-Properties IV contributed $1,100,000 and the Partnership contributed $500,000. The need for additional capital by the Joint Venture was a result of the lease renewal and expansion which was signed April 28, 1994 between the Joint Venture and Prudential Service Bureau, Inc. [currently known as Sykes HealthPlan Service Bureau, Inc. ("Sykes")]. The lease expanded Sykes' leased space by approximately 15,000 square feet and extended its lease term through July 2005. Approximately 12,000 square feet of the expansion was into new space which had to be constructed on the second level of the existing business center. With this expansion, Sykes occupied 100% of the business center (approximately 101,000 square feet - ground and second floor). The tenant finish and leasing costs connected with the lease renewal and expansion were approximately $1,400,000. In order to calculate the revised joint venture percentage interests, the assets of the Joint Venture were revalued in connection with the admission of NTS-Properties IV as a joint venture partner and the additional capital contributions. The value of the Joint Venture's assets immediately prior to the additional capital contributions was $6,764,322 and its outstanding debt was $4,650,042, with net equity being $2,114,280. The difference between the value of the Joint Venture's assets and the value at which they were carried on the books of the Joint Venture has been allocated to the Partnership and NTS-Properties Plus Ltd. in determining each Joint Venture partner's percentage interest. The Partnership's interest in the Joint Venture remained at 31%. NTS-Properties Plus Ltd.'s interest in the Joint Venture decreased from 69% to 39% as a result of the capital contributions by NTS-Properties IV and the Partnership. NTS-Properties IV obtained a 30% interest in the Joint Venture as a result of its capital contribution. Net income or loss is to be allocated based on the respective contribution of each partnership as of the end of each calendar quarter. The Partnership's ownership share was 31% at December 31, 1999. The Partnership's share of the joint venture's revenue was $286,612 (1999), $292,734 (1998) and $293,939 (1997). The Partnership's share of the joint venture's expenses was $315,796 (1999), $328,675 (1998) and $348,783 (1997). -27- 4. Interest Repurchase Reserve --------------------------- Pursuant to Section 16.4 of the Partnership's Amended and Restated Agreement of Limited Partnership, the Partnership established an Interest Repurchase Reserve in December 1995. During the years ended December 31, 1998, 1997 and 1996, the Partnership funded $7,242, $38,918 and $121,270, respectively, to the reserve. Through December 31, 1998, the Partnership had repurchased a total of 62,529 Units for $295,080 at a price ranging from $4.00 to $6.00 per Unit. The Offering price per Unit was established by the General Partner in its sole discretion and does not purport to represent the fair market value or liquidation value of the Units. Repurchased Units have been retired by the Partnership, thus increasing the percentage of ownership of each remaining limited partner investor. The Interest Repurchase Reserve was funded from cash reserves. The funds remaining in the Interest Repurchase Reserve at the commencement of the first Tender Offer (discussed below) were returned to unrestricted cash for utilization in the Partnership's operations. 5. Tender Offer ------------ On December 7, 1998, the Partnership and ORIG, LLC, an affiliate of the Partnership, (the "bidders") commenced a tender offer (the "First Tender Offer") to purchase up to 20,000 of the Partnership's limited partnership Units at a price of $6.00 per Unit. The First Tender Offer stated that the Partnership would purchase the first 10,000 Units tendered and would fund its purchases and its portion of the expenses from cash reserves. If more than 20,000 Units were tendered, the Partnership and ORIG, LLC could choose to acquire the additional Units on the same terms. Otherwise, tendered Units would be purchased on a pro rata basis up to 20,000. Units that were acquired by the Partnership would be retired. Units that were acquired by ORIG, LLC would be held by it. The General Partner, NTS-Properties Associates VII, did not participate in the First Tender Offer. Under the terms of the First Tender Offer, the First Tender Offer expired on March 6, 1999. As of that date, a total of 25,794 Units were tendered pursuant to the First Tender Offer. The bidders exercised their right under the terms of the First Tender Offer to purchase more than 20,000 Units and all 25,794 Units tendered were accepted by the bidders, without proration. The Partnership repurchased 10,000 Units and ORIG, LLC purchased 15,794 Units. On September 2, 1999, the Partnership and ORIG, LLC, (the "bidders") commenced a tender offer (the "Second Tender Offer") to purchase up to 20,000 of the Partnership's limited partnership Units at a price of $6.00 per Unit. Although the bidders believed that this price was appropriate, the price of $6.00 per Unit may not equate to the fair market value or the liquidation value of the Units, and was less than the book value per Unit as of the date of the Second Tender Offer. The Second Tender Offer provided that the Partnership would purchase the first 10,000 Units tendered and would fund its purchases and its portion of the expenses, associated with administering the Second Tender Offer from cash reserves. If more than 10,000 Units were tendered, ORIG, LLC would purchase up to an additional 10,000 Units. If more that 20,000 Units were tendered, the bidders could chose to acquire the additional Units on the same terms. Units that were acquired by the Partnership would be retired. Units that were acquired by ORIG, LLC would be held by it. The General Partner, NTS- Properties Associates VII did not participate in the Second Tender Offer. The Second Tender Offer's initial expiration date was November 30, 1999, but was extended to December 15, 1999. Under the terms of the Second Tender Offer, the Second Tender Offer expired on December 15, 1999. As of that date, a total of 41,652 Units were tendered pursuant to the Second Tender Offer. The bidders exercised their right under the terms of the Second Tender Offer to purchase more than 20,000 Units and all 41,652 Units tendered were accepted by the bidders, without proration. The Partnership repurchased 10,000 Units and ORIG, LLC purchased 31,652 Units. See Note 12 for further discussion on Tender Offers. -28- 6. Land, Buildings and Amenities ----------------------------- The following schedule provides an analysis of the Partnership's investment in property held for lease as of December 31: 1999 1998 ---- ---- Land and improvements $ 3,785,126 $ 3,793,491 Building and improvements 11,889,676 11,767,531 ----------- ----------- 15,674,802 15,561,022 Less accumulated depreciation 5,986,265 5,524,302 ----------- ----------- $ 9,688,537 $ 10,036,720 =========== ========== 7. Mortgages Payable ----------------- Mortgages payable as of December 31 consist of the following: 1999 1998 ---- ---- Mortgage payable to an insurance company, bearing interest at a fixed rate of 7.37%, due October 15, 2012, secured by land and buildings $ 3,876,398 $ 3,987,830 Mortgage payable to an insurance company, bearing interest at a fixed rate of 8.5%, due November 15, 2005, secured by land and buildings 977,957 1,100,383 ---------- ---------- $ 4,854,355 $ 5,088,213 ========== ========== The mortgages are payable in monthly aggregate installments of $51,047 includes principal, interest and property taxes. Scheduled maturities of debt are as follows: For the Years Ended December 31, Amount -------------------------------- ------ 2000 $ 252,729 2001 273,713 2002 296,300 2003 320,803 2004 347,284 Thereafter 3,363,526 --------- $4,854,355 ========= Based on the borrowing rates currently available to the Partnership for mortgages with similar terms and average maturities, the fair value of long-term debt is approximately $4,700,000. The 1997 write-off of unamortized loan costs (recorded as an extraordinary item) relates to loan costs associated with the Park Place Apartments Phase II's notes payable. The unamortized loan costs were expensed due to the fact that the notes were retired in 1997 prior to their maturity (October 5, 2002) as a result of permanent financings obtained by the Partnership in October 1997. -29- 8. Rental Income Under Operating Leases ------------------------------------ The following is a schedule of minimum future rental income on noncancellable operating leases as of December 31, 1999: For the Years Ended December 31, Amount -------------------------------- ------ 2000 $ 235,924 2001 235,924 2002 235,924 2003 235,924 2004 235,924 Thereafter 137,620 --------- $1,317,240 ========= 9. Related Party Transactions -------------------------- Property management fees of $102,650 (1999), $101,354 (1998), and $106,264 (1997) were paid to NTS Development Company, an affiliate of the General Partner. The fee is equal to 5% of gross revenues from the residential properties and 6% of gross revenues from the commercial property pursuant to an agreement with the Partnership. Also permitted by the partnership agreement, NTS Development Company will receive a repair and maintenance fee equal to 5.9% of costs incurred which relate to capital improvements. The Partnership has incurred $6,029 (1999), $1,410 (1998) and $3,040 (1997) as repair and maintenance fee and has capitalized these costs as a part of land, buildings and amenities. The Partnership also was charged the following amounts from affiliates of the General Partner for the years ended December 31, 1999, 1998 and 1997. These charges include items which have been expensed as operating expenses - affiliated or as professional and administrative expenses - affiliated and items which have been capitalized as other assets or as land, buildings and amenities. These charges were as follows: 1999 1998 1997 ---- ---- ---- Administrative $156,089 $106,476 $105,043 Property manager 142,843 189,491 163,078 Leasing 40,095 46,636 39,927 Other 388 1,570 2,175 ------- ------- ------- $339,415 $344,173 $310,223 ======= ======= ======= 10. Commitments and Contingencies ----------------------------- The Partnership plans to replace the roofs at Park Place Phase II apartments (17 buildings) all of which were installed using shingles produced by a single manufacturer. The shingles appear to contain defects which may cause roofs to fail before the end of their expected useful lives. As the manufacturer has declared bankruptcy, the Partnership does not expect to be able to recover any of the costs of the roof replacements. The Partnership does not have sufficient working capital to make all of the roof replacements at once and intends to make the replacements over the next 36 months. 11. Segment Reporting ----------------- The Partnership's reportable operating segments include Residential and Commercial real estate operations. The Residential operations represent Partnership's ownership and operating results relative to apartment complexes known as the Park at the Willows and Park Place Apartments Phase II. The Commercial operations represent the Partnership's ownership and operating results relative to suburban commercial office space known as Blankenbaker Business Center 1A. The financial information of the operating segments have been prepared using a management approach, which is consistent with the basis and manner in which the Partnership management internally desegregates financial information for the purposes of assisting in making internal operating decisions. The Partnership evaluates performance based on stand-alone operating segment net income. -30- 11. Segment Reporting - Continued -----------------------------
1999 ---- Residential Commercial Total ----------- ---------- ----- Rental income $ 1,649,799 $ 286,605 $ 1,936,404 Other income 8,359 7 8,366 ----------- ----------- ----------- Total net revenues $ 1,658,158 $ 286,612 $ 1,944,770 =========== =========== =========== Operating expenses $ 618,920 $ 25,541 $ 644,461 Interest expense -- 88,415 88,415 Management fees 85,781 16,869 102,650 Real estate taxes 89,485 17,503 106,988 Professional and administrative -- 65,814 65,814 Depreciation expense 368,690 101,654 470,344 ----------- ----------- ----------- Net income (loss) $ 495,282 $ (29,184) $ 466,098 =========== =========== =========== Land, buildings and amenities, net $ 8,310,908 $ 1,361,482 $ 9,672,390 =========== =========== =========== Expenditures for land, buildings and amenities $ 110,623 $ -- $ 110,623 =========== =========== =========== Segment liabilities $ 118,752 $ 1,051,272 $ 1,170,024 =========== =========== ===========
1998 ---- Residential Commercial Total ----------- ---------- ----- Rental income $ 1,630,218 $ 292,656 $ 1,922,874 Other income 6,056 78 6,134 ----------- ----------- ----------- Total net revenues $ 1,636,274 $ 292,734 $ 1,929,008 =========== =========== =========== Operating expenses $ 674,552 $ 46,780 $ 721,332 Write off of unamortized building improvements 13,008 -- 13,008 Interest expense -- 98,275 98,275 Management fees 83,462 17,892 101,354 Real estate taxes 91,008 17,701 108,709 Professional and administrative -- 56,417 56,417 Depreciation expense 380,035 91,609 471,644 ----------- ----------- ----------- Net income (loss) $ 394,209 $ (35,940) $ 358,269 =========== =========== =========== Land, buildings and amenities, net $ 8,592,281 $ 1,435,642 $10,027,923 =========== =========== =========== Expenditures for land, buildings and amenities $ 156,597 $ -- $ 156,597 =========== =========== =========== Segment liabilities $ 89,607 $ 1,167,479 $ 1,257,086 =========== =========== =========== -31- 11. Segment Reporting - Continued - --------------------------------------
1997 ---- Residential Commercial Total ----------- ---------- ----- Rental income $ 1,770,326 $ 293,910 $ 2,064,236 Other income 12,511 28 12,539 ----------- ----------- ----------- Total net revenues $ 1,782,837 $ 293,938 $ 2,076,775 =========== =========== =========== Operating expenses $ 638,862 $ 51,445 $ 690,307 Write off of unamortized building improvements 17,797 -- 17,797 Interest expense -- 107,563 107,563 Management fees 88,402 17,862 106,264 Real estate taxes 81,621 17,837 99,458 Professional and administrative -- 37,608 37,608 Depreciation expense 385,517 116,467 501,984 ----------- ----------- ----------- Net income (loss) $ 570,638 $ (54,844) $ 515,794 =========== =========== =========== Land, Buildings and amenities, net $ 8,852,552 $ 1,509,234 $10,361,786 =========== =========== =========== Expenditures for land, buildings and amenities $ 8,398 $ -- $ 8,398 =========== =========== =========== Segment liabilities $ 43,600 $ 1,268,826 $ 1,312,426 =========== =========== ===========
A reconciliation of the totals reported for the operating segments to the applicable line items in the consolidated financial statements is necessary given amounts recorded at the Partnership level and not allocated to the operating properties for internal reporting purposes.
1999 1998 1997 ---- ---- ---- NET REVENUES - ------------ Total revenues for reportable segments $1,944,770 $1,929,008 $2,076,775 Other income for partnership level 16,054 22,929 16,977 ---------- ---------- ---------- Total consolidation net revenues $1,960,824 $1,951,937 $2,093,752 ========== ========== ========== INTEREST EXPENSE - ---------------- Interest expense for reportable Segments $ 88,415 $ 98,275 $ 107,563 Interest expense for partnership level 289,812 296,905 327,117 ---------- ---------- ---------- Total interest expense $ 378,227 $ 395,180 $ 434,680 ========== ========== ========== PROFESSIONAL AND ADMINISTRATIVE - ------------------------------- Total Professional and administrative for reportable segments $ 65,814 $ 56,417 $ 37,608 Professional and administrative for partnership level 101,960 104,284 100,362 ---------- ---------- ---------- Total professional and administrative $ 167,774 $ 160,701 $ 137,970 ========== ========== ==========
(Continued on next page) -32- 11. Segment Reporting - Continued -----------------------------
1999 1998 1997 ---- ---- ---- DEPRECIATION AND AMORTIZATION - ----------------------------- Total depreciation and amortization for reportable segments $ 470,344 $ 471,644 $ 501,984 Depreciation and amortization for partnership level 29,171 26,193 28,709 Eliminations (15,688) (15,688) (15,688) ------------ ------------ ------------ Total depreciation and amortization $ 483,827 $ 482,149 $ 515,005 ============ ============ ============ NET INCOME (LOSS) - ----------------- Total reported net income (loss) for segments $ 466,098 $ 358,269 $ 515,794 Net income (loss) for partnership level (389,202) (388,765) (451,307) ------------ ------------ ------------ Total net income (loss) $ 76,896 $ (30,496) $ 64,487 ============ ============ ============ LAND, BUILDINGS AND AMENITIES - ----------------------------- Total land, building and amenities for reportable segments $ 9,672,390 $ 10,027,923 $ 10,361,786 Partnership level 16,147 8,797 -- ------------ ------------ ------------ Total land, building and amenities $ 9,688,537 $ 10,036,720 $ 10,361,786 ============ ============ ============ TOTAL EXPENDITURES - ------------------ Total expenditures for land, buildings and amenities for reportable segments 110,623 156,597 8,398 Expenditures for land, buildings and amenities for partnership level 9,144 8,797 -- ------------ ------------ ------------ Total Expenditures for land, buildings and amenities $ 119,767 $ 165,394 $ 8,398 ============ ============ ============ LIABILITIES - ----------- Total liabilities for reportable segments $ 1,170,024 $ 1,257,086 $ 1,312,426 Liabilities for Partnership (1) 3,832,807 3,987,190 4,133,874 ------------ ------------ ------------ Total liabilities $ 5,002,831 $ 5,244,276 $ 5,446,300 ============ ============ ============
(1) These amounts primarily represent the mortgages held by the Partnership, secured by the assets of the operating segments. 12. Subsequent Events ----------------- On February 7, 2000, ORIG, LLC. (the "Affiliate") purchased Interests in the Partnership and pursuant to an Agreement, Bill of Sale and Assignment by and among the Affiliate and four investors in the Partnership. The Affiliate purchased 2,251 Interests in the Partnership from one of the investors for total consideration of $15,082 or an average price of $6.70 per Interest. The Affiliate paid these investors a premium above the purchase price previously offered for Interests pursuant to prior tender offers because this purchase allowed the Affiliate to purchase substantial numbers of Interests without incurring the significant expenses involved with a tender offer and multiple transfers. -33- 12. Subsequent Events - Continued ----------------------------- On March 24, 2000, the Partnership and ORIG, LLC, an affiliate of the Partnership (the "bidders"), filed a third tender offer (the "Third Tender Offer") with the Securities and Exchange Commission, commencing on March 27, 2000, to purchase up to 5,000 of the Partnership's limited partnership Units at a price of $6.00 per Unit as of the date of the Third Tender Offer. Approximately $48,000 ($30,000 to purchase 5,000 Units plus approximately $18,000 for expenses associated with the Third Tender Offer) is required to purchase all 5,000 Units. The Third Tender Offer stated that the Partnership will purchase the first 2,500 Units tendered and will fund its purchase and its portion of the expenses from cash reserves. If more than 2,500 Units are tendered, ORIG, LLC. will purchase up to an additional 2,500 Units. If more than 5,000 Units are tendered, the bidders may choose to acquire the additional Units on a pro rata basis. Units that are acquired by the Partnership will be retired. Units that are acquired by ORIG, LLC. will be held by it. The General Partner, NTS- Properties Associates VII, does not intend to participate in the Third Tender Offer. The Third Tender Offer will expire on June 27, 2000 unless extended. -34- Item 9. Changes in and Disagreements with Accountants on Accounting and --------------------------------------------------------------------- Financial Disclosure --------------------- None. -35- PART III Item 10. Directors and Executive Officers of the Registrant -------------------------------------------------- Because the Partnership is a limited partnership and not a corporation, it has no directors or officers as such. Management of the Partnership is the responsibility of the General Partner, NTS-Properties Associates VII. The Partnership has entered into a management contract with NTS Development Company, an affiliate of the General Partner, to provide property management services. The General Partners of NTS-Properties Associates VII are as follows: J. D. Nichols - ------------- Mr. Nichols (age 58) is the managing General Partner of NTS-Properties Associates VII and is Chairman of the Board of NTS Corporation (since 1985) and NTS Development Company (since 1977). NTS Capital Corporation - ----------------------- NTS Capital Corporation is a Kentucky corporation formed in October 1979. J.D. Nichols is Chairman of the Board and the sole director of NTS Capital Corporation. The Manager of the Partnership's properties is NTS Development Company, the executive officers and/or directors of which are Messrs. J.D. Nichols, Brian F. Lavin and Gregory A. Wells. Brian F. Lavin - -------------- Mr. Lavin (age 46), President of NTS Corporation and NTS Development Company joined the Manager in June 1997. From November 1994 through June 1997,Mr.Lavin served as President of the Residential Division of Paragon Group, Inc., and as a Vice President of Paragon's Midwest Division prior to November 1994. In this capacity, he directed the development, marketing, leasing and management operations for the firms expanding portfolios. Mr. Lavin attended the University of Missouri where he received his Bachelor's Degree in Business Administration. He has served as a Director of the Louisville Apartment Association. He is a licensed Kentucky Real Estate Broker and Certified Property Manager. Mr. Lavin is a member of the Institute of Real Estate Management, and council member of the Urban Land Institute. He currently serves on the University of Louisville Board of Overseers and is on the Board of Directors of the National Multi-Housing Council and the Louisville Science Center. Gregory A. Wells - ---------------- Mr. Wells (age 41), Senior Vice President and Chief Financial Officer of NTS Corporation and NTS Development Company joined the Manager in July, 1999. From May 1998 through July 1999, Mr. Wells served as Chief Financial Officer of Hokanson Companies, Inc. and as Secretary and Treasurer of Hokanson Construction Inc., Indianapolis, Indiana from January 1995 through May 1998. In these capacities he directed financial and operational activities for commercial rental real estate, managed property, building and suite renovations, out of ground commercial and residential construction and third party property management. Mr. Wells previously served as Vice President of Operations and Treasurer of Executive Telecom Systems, Inc. a subsidiary of the Bureau of National Affairs, Inc. (Washington, D.C.). Mr. Wells attended George Mason University, where he received a Bachelor's Degree in Business Administration. Mr. Wells is a Certified Public Accountant in both Virginia and Indiana and is active in various charitable and philanthropic endeavors in the Louisville and Indianapolis areas. Mr. Richard L. Good who was Vice Chairman and former President of NTS Capital Corporation ans NTS Development Company, retired effective September 3, 1999. Item 11. Management Remuneration and Transactions ---------------------------------------- The officers and/or directors of the corporate General Partner receive no direct remuneration in such capacities. The partnership is required to pay a property management fee based on gross rentals to NTS Development Company. The Partnership is also required to pay to NTS Development Company a repair and maintenance fee on costs related to specific projects. In addition, NTS Development Company provides certain other services to the Partnership. See Note 9 to the financial statements which sets forth transactions with affiliates of the General Partner for the years ended December 31, 1999, 1998 and 1997. The General Partner is entitled to receive cash distributions and allocations of profits and losses from the Partnership. See Note 1C to the financial statements which describes the methods used to determine income allocations and cash distributions. -36- Item 12. Security Ownership of Certain Beneficial Owners and Management -------------------------------------------------------------- The following provides details regarding owners of more than 5% of the total outstanding limited partnership Units as of February 25, 2000. ORIG, LLC. 49,697 Units (8.94%) 10172 Linn Station Road Louisville, Kentucky 40223 ORIG,LLC. is a Kentucky limited liability company, the members of which are J.D. Nichols and Brian F. Lavin, chairman and President of NTS Capital Corporation, a general partner of NTS-Properties Associates VII, the general partner of the Partnership. The General Partner is NTS-Properties Associates VII, a Kentucky Limited Partnership, 10172 Linn Station Road, Louisville, Kentucky 40223. The General partners of the General Partner and their total respective interests in NTS-Properties Associates VII are as follows: J. D. Nichols 36.05% 10172 Linn Station Road Louisville, Kentucky 40223 NTS Capital Corporation 11.95% 10172 Linn Station Road Louisville, Kentucky 40223 The remaining 52.00% interests are owned by various limited partners of NTS-Properties Associates VII. Item 13. Certain Relationships and Related Transactions ---------------------------------------------- Property management fees of $102,650 (1999), $101,354 (1998) and $106,264 (1997) were paid to NTS Development Company, an affiliate of the General Partner. The fee is equal to 5% of gross revenues from residential properties and 6% of gross revenues from the commercial property pursuant to an agreement with the Partnership. Also permitted by the partnership agreement, NTS Development Company will receive a repair and maintenance fee equal to 5.9% of costs incurred which relate to capital improvements. The Partnership has incurred $6,029(1999), $1,410 (1998) and $3,040 (1997) as a repair and maintenance fee and has capitalized this cost as a part of land, buildings and amenities. The Partnership was also charged the following amounts from NTS Development Company for the years ended December 31, 1999, 1998 and 1997. These charges include items which have been expensed as operating expenses - affiliated or as professional and administrative expenses - affiliated and items which have been capitalized as other assets or as land, buildings and amenities. These charges were as follows: 1999 1998 1997 ---- ---- ---- Administrative $ 156,089 $ 106,476 $ 105,043 Property manager 142,843 189,491 163,078 Leasing 40,095 46,636 39,927 Other 388 1,570 2,175 -------- -------- -------- $ 339,415 $ 344,173 $ 310,223 ======== ======== ======== There are no other agreements or relationships between the Partnership, the General Partner and its affiliates than those previously discussed. -37- PART IV ------- Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ---------------------------------------------------------------- 1. Financial statements The financial statements for the years ended December 31, 1999, 1998, and 1997, together with the report of Arthur Andersen LLP dated March 24, 2000, appear in Item 8. The following financial statement schedules should be read in conjunction with such financial statements. 2. Financial statement schedules Schedules: Page No. ---------- -------- III-Real Estate and Accumulated Depreciation 39-40 All other schedules have been omitted because they are not applicable, or not required, or because the required information is included in the financial statements or notes thereto. 3. Exhibits Exhibit No. Page No. ----------- -------- 3. Amended and Restated Agreement and * Certificate of Limited Partnership of NTS-Properties VII, Ltd., a Florida limited partnership 10. Property Management and Construction * Agreement between NTS Development Company and NTS-Properties VII, Ltd. 27. Financial Data Schedule Included herewith * Incorporated by reference to documents filed with the Securities and Exchange Commission in connection with the filing of the Registration Statements on Form S-11 on May 15, 1987 (effective October 29, 1987) under Commission File No. 33-14308. 4. Reports on Form 8-K None. -38- NTS-PROPERTIES VII, LTD. ------------------------ SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION ------------------------------------------------------- AS OF DECEMBER 31, 1999 -----------------------
Park Place Blankenbaker The Park at Apartments Business the Willows Phase II Center 1A Total ----------- -------- --------- ----- Encumbrances None (A) (A) Initial cost to partnership: Land $ 457,048 $ 2,616,693 $ 606,927 $ 3,680,668 Buildings and improvements 2,091,968 7,692,119 1,679,081 11,463,168 Cost capitalized subsequent to acquisition: Improvements (net of retirements) 50,947 158,180 308,121 517,248 Other (B) -- -- (4,225) (4,225) Gross amount at which carried December 31, 1999 (C): Land $ 458,517 $ 2,626,304 $ 700,305 $ 3,785,126 Buildings and improvements 2,141,446 7,840,690 1,889,599 11,871,735 ------------ ------------ ------------ ------------ Total $ 2,599,963 $ 10,466,994 $ 2,589,904 $15,656,861 (E) ============ ============ ============ ============ Accumulated depreciation $ 1,001,069 $ 3,754,980 $ 1,228,422 $ 5,984,471 ============ ============ ============ ============ Date of construction N/A 02/90 N/A Date Acquired 05/88 N/A 12/90 Life at which depreciation in latest income statement is computed (D) (D) (D)
(A) First mortgage held by an insurance company. (B) Represents NTS-Properties VII, Ltd.'s decreased interest in Blankenbaker Business Center 1A as a result of capital contributions made by the Partnership and NTS-Properties IV to the Blankenbaker Business Center Joint Venture in 1994. (C) Aggregate cost of real estate for tax purposes is $13,921,856. (D) Depreciation is computed using the straight-line method over the estimated useful lives of the assets which are 10-30 years for land improvements, 5-30 years for buildings and improvements and 5-30 years for amenities. (E) Reconciliation net of accumulated depreciation to consolidated financial statements: Total Gross Costs at December 31, 1999 $ 15,656,861 Additions to Partnership for computer hardware and software in 1998 8,797 Additions to Partnership for computer hardware and software in 1999 9,144 ------------ Balance at December 31, 1999 15,674,802 Less accumulated depreciation (5,984,471) ------------- Less accumulated depreciation for computer hardware and software (1,794) Land, Buildings and Amenities, net as of December 31, 1999 $ 9,688,537 ============ -39- NTS-PROPERTIES VII, LTD. ------------------------ SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION ------------------------------------------------------- FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 ---------------------------------------------------- Real Accumulated Estate Depreciation ------ ------------ Balances at December 31, 1996 $ 15,460,224 $ 4,581,248 Additions during period: Improvements (a) 8,398 -- Depreciation (b) -- 507,791 Deductions during period: Retirements (26,256) (8,459) ------------ ------------ Balances at December 31, 1997 15,442,366 5,080,580 Additions during period: Improvements (a) 165,394 -- Depreciation (b) -- 477,452 Deductions during period: Retirements (46,738) (33,730) ------------ ------------ Balances at December 31, 1998 15,561,022 5,524,302 Additions during period: Improvements (a) 119,349 -- Depreciation (b) -- 467,532 Deductions during period: Retirements (5,569) (5,569) ------------ ------------ Balances at December 31, 1999 $ 15,674,802 $ 5,986,265 ============ ============ (a) The additions to real estate on this schedule will differ from the expenditures for land, buildings and amenities on the Statements of Cash Flows as a result of minor changes in the Partnership's joint venture investment ownership percentages. Changes that may occur in the ownership percentages are less than one percent. (b) The additions charged to accumulated depreciation on this schedule will differ from the depreciation and amortization on the Statements of Cash Flows due to the amortization of loan costs. -40- SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, NTS-Properties VII, Ltd. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NTS-PROPERTIES VII, LTD. ------------------------ (Registrant) BY: NTS-Properties Associates VII, General Partner BY: NTS Capital Corporation, General Partner ------------------------------ Gregory A. Wells Senior Vice President and Chief Financial Officer of NTS Capital Corporation Date: March 29, 2000 Pursuant to the requirements of the Securities and Exchange Act of 1934, this Form 10-K has been signed below by the following persons on behalf of the registrant in their capacities and on the date indicated above. Signature Title --------- ----- /s/ J. D. Nichols General Partner of NTS-Properties - ------------------------------ J. D. Nichols Associates VII and Chairman of the Board and Sole Director of NTS Capital Corporation /s/ Brian F. Lavin President and Chief Operating - ------------------------------ Brian F. Lavin Officer of NTS Capital Corporation /s/ Gregory A. Wells Senior Vice President and - ------------------------------ Gregory A. Wells Chief Financial Officer of NTS Capital Corporation The Partnership is a limited partnership and no proxy material has been sent to the limited partners. - 41 - EX-27 2 NTS-VII FINANCIAL DATA SCHEDULE
5 The schedule contains summary financial information from the balance sheet as of December 31, 1999 and from the statement of operations for the year ended December 31,1999 and is qualified in its entirety by reference to such financial statements. YEAR DEC-31-1999 DEC-31-1999 440,342 0 21,771 0 0 0 9,688,537 5,986,265 10,267,643 0 4,854,355 0 0 0 5,264,812 10,267,643 1,936,404 1,960,824 0 1,505,701 0 0 378,227 76,896 0 76,896 0 0 0 76,896 0 0 THE PARTNERSHIP HAS AN UNCLASSIFIED BALANCE SHEET, THEREFORE THE BALANCE IS $0.
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