-----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, L8D/AApfqD+YLcbUZyGKtXEytPTmbotiXTlm/losyAtym/+Yz/mUd5q+c+sIk8YB Yl5qO9kH8qfSCNaOJcM9EA== 0000814222-98-000004.txt : 19980331 0000814222-98-000004.hdr.sgml : 19980331 ACCESSION NUMBER: 0000814222-98-000004 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980330 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NTS PROPERTIES 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: 98578451 BUSINESS ADDRESS: STREET 1: 10172 LINN STATION RD CITY: LOUISVILLE STATE: KY ZIP: 40223 BUSINESS PHONE: 5024264800 MAIL ADDRESS: STREET 1: 10172 LINN STATION RD CITY: LOUISVILLE STATE: KY ZIP: 40223 10-K 1 12/31/97 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K (Mark One) X ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to ________ Commission file number 0-17589 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 offices) (Zip Code) Registrant's telephone number, including area code (502) 426-4800 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Limited Partnership Interests (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Exhibit Index: See Page 37 Total Pages: 40 TABLE OF CONTENTS Pages PART I Items 1 and 2 Business and Properties 3-10 Item 3 Legal Proceedings 10 Item 4 Submission of Matters to a Vote of Security Holders 10 PART II Item 5 Market for the Registrant's Limited Partnership Interests and Related Partner Matters 11 Item 6 Selected Financial Data 12 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 13-19 Item 8 Financial Statements and Supplementary Data 20-32 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 33 PART III Item 10 Directors and Executive Officers of the Registrant 34 Item 11 Management Remuneration and Transactions 35 Item 12 Security Ownership of Certain Beneficial Owners and Management 35 Item 13 Certain Relationships and Related Transactions 35-36 PART IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 37-39 Signatures 40 - 2 - PART I Items 1. and 2. Business and Properties ----------------------- General - ------- Some of the statements included in Items 1. and 2., Business and Properties, may be considered to be "forward-looking statements" since such statements relate to matters which have not yet occurred. For example, phrases such as "the Partnership anticipates", "believes" or "expects" indicate that it is possible that the event anticipated, believed or expected may not occur. Should such event not occur, then the result which the Partnership expected also may not occur or occur in a different manner, which may be more or less favorable to the Partnership. The Partnership does not undertake any obligations to publicly release the result of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances. 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, 1997 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, 1997. 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. The Park at the Willows is not encumbered by any outstanding mortgages at December 31, 1997. Park Place Apartments Phase II is encumbered by a mortgage payable to an insurance company. The loan is secured by a first mortgage on the property. The outstanding balance of the mortgage at December 31, 1997 was $4,091,369. The mortgage currently bears a fixed interest rate of 7.37% and is due October 15, 2012. Current monthly principal payments on the mortgage are based upon a 19-year amortization schedule. The outstanding principal balance at maturity based on the current rate of amortization will be $1,414,978. Blankenbaker Business Center 1A, a joint venture between the Partnership, NTS-Properties IV and NTS-Properties Plus Ltd., publicly registered limited partnerships sponsored by an affiliate of the General Partner, is encumbered by a mortgage payable to an insurance company. The outstanding balance at December 31, 1997 was $3,869,108. The mortgage is recorded as a liability of the Joint Venture. The Partnership's proportionate interest in the - 3 - General - Continued - ------------------- mortgage at December 31, 1997 was $1,212,578. 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. For a further discussion regarding the terms of the financings, see Management's Discussion and Analysis of Financial Condition and Results of Operations (Item 7). As of December 31, 1997, the Partnership had no material commitments for renovations or capital improvements. The Partnership is presently engaged solely in the business of developing, constructing, owning and operating residential apartments and commercial real estate. A presentation of information concerning industry segments is not applicable. The current business of the Partnership is consistent with the original purpose of the Partnership which was to 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. The General Partner of the Partnership is currently exploring the marketability of certain of its properties, and has not yet determined if any of the properties might be sold in the next 12 months, and there are no contracts for sale under negotiation at the present time. 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 $509 for studio apartments, $629 for deluxe units and $699 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 96% (1997), 83% (1996), 96% (1995), 83% (1994) and 92% (1993). - 4 - 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 ice makers, 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 was developed and constructed by NTS- Properties VI, an affiliate of the General Partner. 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 $749 for one-bedroom apartments, $989 for two-bedroom apartments and $1,129 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 92% (1997), 90% (1996), 91% (1995), 92% (1994) and 86% (1993). Blankenbaker Business Center 1A - ------------------------------- Prudential Service Bureau, Inc. has leased 100% of Blankenbaker Business Center 1A. The annual base rent, which does not include the cost of utilities, is $7.89 per square foot for ground floor office space and $7.10 per square foot for second floor office space. The average base annual rental for all types of space leased as of December 31, 1997 was $7.48. The lease term is for 11 years and expires in July 2005. Prudential 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, 1997, 1996, 1995, 1994 and 1993 was 100%. The following table contains approximate data concerning the lease in effect on December 31, 1997: Major Tenant: Current Base Sq. Ft. and Annual Rental % of Net and % of Gross Year of Rentable Base Annual Renewal Name Expiration Area(1) Rental Options ---- ---------- ------- ------ ------- Prudential Service Bureau, Inc. 2005 48,463 (100%) $752,787 (100%) None (1) Rentable area includes only ground floor square feet. - 5 - General - Continued - ------------------- 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 $ 2,537,567 $ .009380 $ 17,368 Park Place Apartments Phase II 9,356,227 .009925 64,253 Property Owned in Joint Venture with NTS- Properties IV and NTS- Properties Plus Ltd. - -------------------- Blankenbaker Business Center 1A 7,356,545 .010980 56,914 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. See Management's Discussion and Analysis of Financial Condition and Results of Operations (Item 7.) for explanations regarding the fluctuations of income and occupancy at the Partnership's properties. Investment in Joint Venture - --------------------------- 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 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; - 6 - Investment in Joint Venture - Continued - --------------------------------------- (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 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 Prudential Securities Bureau, Inc ("Prudential") 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 Prudential. 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, Prudential occupied 100% of the business center. No future contributions are anticipated as of December 31, 1997. 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's percentage interest. - 7 - Investment in Joint Venture - 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, 1997. The Partnership has no liability for funding losses of the joint venture as of December 31, 1997. 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, 1997, there are no properties under construction in the respective vicinities in which the properties are located except for the following: In the vicinity near Park Place Apartments Phase II, there are 760 apartment units currently under construction which are scheduled to be completed during the second and third quarters of 1998. Also, at the Park Place development, plans are currently in progress to build Phase III of the development with ground breaking scheduled for Spring 1998. Park Place Apartments Phase III will be built on land owned by NTS-Properties VI, an affiliate of the General Partner of the Partnership, and consist of 152 units. All costs for the construction will be funded by NTS-Properties VI. At this time it is unknown the effect these new units will have on occupancy at Park Place Apartments Phase II. 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. - 8 - 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 $106,264 for the year ended December 31, 1997. $17,862 was received from the Partnership's commercial property and $88,402 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. In addition, the management agreement requires the Partnership to purchase all insurance relating to the managed properties, to pay the direct out-of-pocket expenses of the Property Manager in connection with the operation of the properties, including the cost of goods and materials used for and on behalf of the Partnership, and to reimburse the Property Manager for the salaries, commissions, fringe benefits, and related employment expenses of on-site personnel. The term of the Management Agreement between NTS Development Company and the Partnership was for an initial term of five years, and thereafter for succeeding one-year periods, unless canceled. The Agreement is subject to cancellation by either party upon sixty days written notice. As of December 31, 1997, the Management Agreement is still in effect. 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. - 9 - Employees - --------- The Partnership has no employees; however, employees of an affiliate of the General Partner are available to perform services for the Partnership. The Partnership reimburses this affiliate for the actual costs of providing such services. Item 3. Legal Proceedings ----------------- None. Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- None. - 10 - 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 1,302 limited partners as of March 6, 1998. Cash distributions and allocations of net income (loss) are made as described in Note 1C to the Partnership's 1997 financial statements. Annual distributions totaling $.40 were paid per limited partnership unit during the years ended December 31, 1997, 1996 and 1995. Quarterly distributions are determined based on current cash balances, cash flow being generated by operations and cash reserves needed for future leasing costs, tenant finish costs and capital improvements. Distributions were paid quarterly as follows: 1997 1996 1995 ---------- ---------- ---------- First quarter $ .10 $ .10 $ .10 Second quarter .10 .10 .10 Third quarter .10 .10 .10 Fourth quarter .10 .10 .10 ---- ---- ---- $ .40 $ .40 $ .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, 1997, 1996 and 1995. Net Income Cash (loss) Distributions Return of Allocated Declared Capital --------- -------- ------- Limited Partners: 1997 $ 63,842 $ 239,288 $ 175,446 1996 (125,619) 244,707 244,707 1995 (103,976) 255,306 255,306 General Partner: 1997 $ 645 $ 2,417 $ 1,772 1996 (1,269) 2,471 2,471 1995 (1,050) 2,579 2,579 - 11 - Item 6. Selected Financial Data For the years ended December 31, 1997, 1996, 1995, 1994 and 1993.
1997 1996 1995 1994 1993 ------------ ------------ ------------ ------------ ------------ Total revenues $ 2,093,752 $ 2,041,762 $ 1,972,169 $ 1,871,478 $ 1,830,587 Total expenses (2,001,481) (2,168,650) (2,077,195) (2,265,983) (2,143,609) ------------ ------------ ------------ ------------ ------------ Income (loss) before extraordinary item 92,271 (126,888) (105,026) (394,505) (313,022) Extraordinary item (27,784) -- -- -- -- ------------ ------------ ------------ ------------ ------------ Net income (loss) $ 64,487 $ (126,888) $ (105,026) $ (394,505) $ (313,022) ============ ============ ============ ============ ============ Net income (loss) allocated to: General Partner $ 645 $ (1,269) $ (1,050) $ (3,945) $ (3,130) Limited partners $ 63,842 $ (125,619) $ (103,976) $ (390,560) $ (309,892) Net income (loss) per limited partnership unit $ .11 $ (.20) $ (.16) $ (.61) $ (.49) Weighted average number of limited partnership units 598,526 615,384 638,265 638,265 638,265 Cumulative net loss allocated to: General Partner $ (26,418) $ (27,063) $ (25,794) $ (24,744) $ (20,799) Limited partners $ (2,615,475) $ (2,679,317) $ (2,553,698) $ (2,449,722) $ (2,059,162) Cumulative taxable income (loss) allocated to: General Partner $ 21,995 $ 17,371 $ 14,381 $ (33,877) $ (30,239) Limited partners $ (2,941,772) $ (3,059,753) $ (2,965,106) $ (2,840,798) $ (2,554,247) Distributions declared: General Partner $ 2,417 $ 2,471 $ 2,579 $ 2,579 $ 2,579 Limited partners $ 239,288 $ 244,707 $ 255,306 $ 255,306 $ 255,306 Cumulative distributions declared: General Partner $ 24,009 $ 21,592 $ 19,121 $ 16,542 $ 13,963 Limited partner $ 2,376,865 $ 2,137,577 $ 1,892,870 $ 1,637,564 $ 1,382,258 At year end: Cash and equivalents $ 164,714 $ 278,620 $ 249,559 $ 515,376 $ 798,256 Investment securities $ 338,129 $ -- $ 103,908 $ -- $ -- Land, buildings and amenities, net $ 10,361,786 $ 10,878,976 $ 11,405,597 $ 11,902,498 $ 12,332,771 Total assets $ 11,179,145 $ 11,474,499 $ 12,108,948 $ 12,677,879 $ 13,311,220 Mortgages and notes payable $ 5,303,947 $ 5,358,215 $ 5,509,479 $ 5,648,524 $ 5,674,674
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. - 12 - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations - --------------------- The occupancy levels at the Partnership's properties as of December 31 were as follows: Percentage Ownership at 12/31/97 1997 1996 1995 ------------ ---- ---- ---- Wholly-owned Properties - ----------------------- The Park at the Willows 100% 96% 83% 96% Park Place Apartments Phase II 100% 92% 90% 91% Property owned in Joint Venture with NTS-Properties IV and NTS-Properties Plus Ltd. - ------------------------------- Blankenbaker Business Center 1A 31% 100% 100% 100% Rental and other income generated by the Partnership's properties for the years ended December 31, 1997, 1996 and 1995 were as follows: Percentage Ownership at 12/31/97 1997 1996 1995 ----------- ---------- ---------- ---------- Wholly-owned Properties - ----------------------- The Park at the Willows 100% $ 345,490 $ 320,721 $ 316,949 Park Place Apartments Phase II 100% $1,437,348 $1,406,777 $1,352,427 Property owned in Joint Venture with NTS- Properties IV and NTS- Properties Plus Ltd. - ---------------------------- Blankenbaker Business Center 1A 31%(1) $ 293,939 $ 293,796 $ 291,468 (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 1997, 1996 and 1995. The Park at the Willows' year-ending occupancy increased from 83% in 1996 to 96% in 1997 and average occupancy was 91% during 1996 and 1997. The Park at the Willows' year-ending occupancy decreased from 96% in 1995 to 83% in 1996 and average occupancy decreased from 93% in 1995 to 91% in 1996. Occupancy at residential properties fluctuate on a continuous basis. Year- ending occupancy percentages represent occupancy only on a specific date; therefore, it is more meaningful to look at average occupancy percentages which are more representative of the entire year's results. - 13 - Results of Operations - Continued - --------------------------------- There were no significant changes in average occupancy from 1996 to 1997 and from 1995 to 1996. In the opinion of the General Partner of the Partnership, the decrease in 1996 year-ending occupancy was only a temporary fluctuation. Large changes in year-ending occupancy at The Park at the Willows are due to the fact that the complex has only 48 units. One vacant apartment in this complex equates to a 2% decrease in occupancy; therefore, occupancy percentage changes may appear distorted on a percentage basis when compared to other residential properties. In residential properties it is not uncommon for multiple residents to vacate at month-end with new residents taking occupancy within a few days. When this occurs at The Park at the Willows, the change in occupancy will be much greater than at other residential properties because of its small size. Rental and other income at The Park at the Willows increased from 1996 to 1997 as a result of increased rental rates. Rental and other income at The Park at the Willows increased from 1995 to 1996 as a result of increased income from the rental of fully furnished units and increased income collected for short term and month-to-month leases. 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 has increased. Park Place Apartments Phase II's year-ending occupancy increased from 90% in 1996 and to 92% in 1997. Average occupancy was 92% during 1996 and 1997. Rental and other income at Park Place Apartments Phase II increased from 1996 to 1997 as a result of increased rental rates. Park Place Apartments Phase II's year-ending occupancy decreased from 91% in 1995 to 90% in 1996; however, average occupancy increased from 91% in 1995 to 92% in 1996. Rental and other income at Park Place Apartments Phase II increased from 1995 to 1996 as a result of the increase in average occupancy and increased rental rates. A wholly-owned subsidiary of The Prudential Insurance Company of America (Prudential Service Bureau, Inc.) has leased 100% of Blankenbaker Business Center 1A. In addition to monthly rent payments, Prudential Service Bureau, Inc. is obligated to pay substantially all of the operating expenses attributable to its space. Blankenbaker Business Center 1A's rental and other income remained fairly constant from 1996 to 1997 and from 1995 to 1996. If present trends continue, the Partnership will be able to continue at its current level of operations without the need of any additional financing. Current occupancy levels are considered adequate to continue the operation of the Partnership's properties. (See the Liquidity and Capital Resources section for a discussion regarding the cash requirements of the Partnership's current debt financings). Interest and other income includes interest income from investments made by the Partnership with excess cash. The increase in other income from 1996 to 1997 is a result of an insurance claim reimbursement for roof damage exceeding the cost to replace the roof at The Park at the Willows. The increase in interest income from 1995 to 1996 is a result of increased cash reserves being available for investment and due to increased miscellaneous income collected by the Partnership. Operating expenses have decreased from 1996 to 1997 primarily as a result of decreased operating expenses at Park Place Apartments Phase II. The decrease at Park Place Apartments Phase II is due to decreased building repair and maintenance costs (exterior painting, patio repairs, parking lot resurfacing and pool repairs), decreased snow removal costs and decreased replacement costs (exterior building repairs, wallcovering and carpet). The decrease in operating expenses is partially offset by increased replacement and renovation expenses at The Park at the Willows and Blankenbaker Business Center 1A. - 14 - Results of Operations - Continued - --------------------------------- Operating expenses have increased from 1995 to 1996 primarily as a result of increased operating expenses at Park Place Apartments Phase II. Increased expenses at Park Place Apartments Phase II include increased building repair and maintenance costs (exterior painting, parking lot resurfacing, and pool repairs), increased snow removal costs, increased exterior building repair costs and increased replacement costs (wallcovering and carpet). Operating expenses at The Park at the Willows increased from 1995 to 1996 as a result of increased furniture rental costs associated with leasing fully furnished units. Operating expenses at Blankenbaker Business Center 1A remained fairly constant from 1995 to 1996. Operating expenses - affiliated increased from 1996 to 1997 as a result of increased property management costs at both the residential properties and at Blankenbaker Business Center 1A. Operating expenses-affiliated decreased from 1995 to 1996 as a result of decreased leasing costs at Blankenbaker Business Center 1A and decreased leasing and property management costs at Park Place Apartments Phase II. Operating expenses-affiliated remained fairly constant at The Park at the Willows from 1995 to 1996. Operating expenses-affiliated are expenses incurred for services performed by employees of NTS Development Company, an affiliate of the General Partner. Amortization of capitalized leasing costs represents the amortization of various costs which were capitalized during the initial leasing and start-up period of Park Place Apartments Phase II. The amortization of capitalized leasing costs has decreased from 1995 to 1996 and from 1996 to 1997 as a result of a portion of the costs capitalized during start-up having become fully amortized. The 1997 write-off of unamortized building costs can be attributed to The Park at the Willows. The write-off is the result of the roof replacement and represents the cost of the original roof that had not been fully depreciated. 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. (See the Liquidity and Capital Resources section of this Item for more details regarding the Partnership's debt). The decrease in interest expense from 1996 to 1997 is the result of a lower interest rate on the new debt obligation (obtained October 1997) and is a result of the Partnership's decreasing debt level as a result of principal payments made. The decrease in interest expense from 1995 to 1996 is the result of the Partnership's decreasing debt level as a result of principal payments made. See the Liquidity and Capital Resources section of this item for details regarding the Partnership's debt. Management fees are calculated as a percentage of cash collections; however, revenue for reporting purposes is on the accrual basis. As a result, the fluctuations of revenues between periods will differ from the fluctuations of management fee expense. Real estate taxes remained fairly constant from 1995 to 1996 and from 1996 to 1997. Professional and administrative expenses increased from 1996 to 1997 as a result of increased outside accounting fees. The change in professional and administrative expenses from 1995 to 1996 was not significant. - 15 - Results of Operations - Continued - --------------------------------- Professional and administrative expenses - affiliated decreased from 1996 to 1997 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. Professional and administrative expenses - affiliated increased from 1995 to 1996 as a result of increased salary costs. Depreciation and amortization decreased from 1996 to 1997 as a result of a portion of the assets with shorter lives at Park Place Apartments Phase II becoming 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 for Federal tax purposes is approximately $13,700,000. Depreciation and amortization decreased from 1995 to 1996 as a result of a portion of the original tenant improvements at Blankenbaker Business Center 1A becoming fully depreciated and as a result of assets with shorter lives at the Partnership's residential properties having become fully depreciated. Liquidity and Capital Resources - ------------------------------- Cash provided from operations was $599,924, $453,958 and $469,855 for the years ended December 31, 1997, 1996 and 1995, respectively. These funds in conjunction with cash on hand were used to make a 2% (annualized) distribution of $241,705 (1997), $247,178 (1996) and $257,885 (1995). The annualized distribution rate is calculated as a percent of the original capital contribution. The limited partners received 99% and the General Partner received 1% of these distributions. The primary source of future liquidity and distributions is expected to be derived from cash generated by the Partnership's properties after adequate cash reserves are established for future leasing, renovation and tenant finish costs. Cash reserves (which are unrestricted cash and equivalents and investment securities as shown on the Partnership's balance sheet as of December 31) were $502,843, $278,620 and $481,120 at December 31, 1997, 1996 and 1995, respectively. On October 8, 1997, the Partnership obtained permanent financing with an insurance company in the amount of $4,100,000. The loan proceeds were used by the Partnership to retire two mortgage payables each with an insurance company in the amounts of $3,056,476 and $940,454 (balances on October 8, 1997). The new mortgage bears interest at a fixed rate of 7.37% and matures October 15, 2012 and is secured by the land, buildings and amenities of Park Place Apartments Phase II. The outstanding balance at December 31, 1997 was $4,091,369. Current monthly principal payments are based upon a 19-year amortization. The outstanding principal balance at maturity based on the current rate of amortization will be $1,414,978. As of December 31, 1997, the Blankenbaker Business Center Joint Venture, in which the Partnership has a joint venture interest, had a mortgage payable with an insurance company in the amount of $3,869,108. The mortgage is recorded as a liability of the Joint Venture. The Partnership's proportionate interest in the mortgage was $1,212,578 at December 31, 1997. The mortgage bears interest at a fixed rate of 8.5% and is due November 15, 2005. 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. - 16 - Liquidity and Capital Resources - Continued - ------------------------------------------- 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 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. 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 1997. The Partnership has conducted a comprehensive review of its computer systems to identify the systems that could be affected by the Year 2000 Issue and is developing an implementation plan to resolve the issue. The Year 2000 Issue, a worldwide problem, is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Partnership's programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in major systems failures or miscalculations. The Partnership presently believes that, with modifications to existing software and conversions to new software, the Year 2000 problem will not pose significant operational problems for the Partnership's computer systems. The Partnership continues to evaluate appropriate courses of corrective action, including replacement of certain systems whose associated costs would be recorded as assets and amortized. The Partnership does not expect the costs associated with the resolution of the Year 2000 Issue to have a material effect on its financial position or results of operations. The associated costs will be funded by cash flow from operations or cash reserves. The amount expensed in 1997 was immaterial. As of December 31, 1995, the Partnership had established an Interest Repurchase Reserve in the amount of $127,653 pursuant to Section 16.4 of the Partnership's Amended and Restated Agreement of Limited Partnership. Under Section 16.4, limited partners may request the Partnership to repurchase their respective interests (Units) in the Partnership. On May 24, 1996, the Partnership elected to fund an additional amount of $121,270 to the Interest Repurchase Reserve. With these funds, the Partnership would be able to repurchase and retire up to 62,230 Units at a price of $4.00 per Unit. Repurchased Units will be retired by the Partnership, thus increasing the share of ownership of each remaining investor. Through December 16, 1997, the Partnership had repurchased a total of 40,047 Units for $160,188. As of December 17, 1997 the Partnership has elected to fund an additional amount of $38,918 to its Interest Repurchase Reserve. This additional funding brings the Interest Repurchase Reserve to $127,653. With this funding, the Partnership will be able to repurchase up to 21,275 Units at a currently contemplated price of $6.00 per Unit. The Partnership notified the limited partners of the additional funding to the Interest Repurchase Reserve and the opportunity to request that the Partnership repurchase Units at the established price by letter in December 1997. The above offering price per Unit was established by the General Partner in its sole discretion and does not purport to represent the fair market value or liquidation value of the Unit. The Interest Repurchase Reserve was funded from cash reserves. The amount remaining in the Interest Repurchase Reserve at December 31, 1997 was $127,653. - 17 - Liquidity and Capital Resources - Continued - ------------------------------------------- The primary source of future liquidity and distributions is expected to be derived from cash generated by the Partnership's operating 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. The Partnership had no material commitments for renovations or capital improvements at December 31, 1997. The table below presents that portion of the distributions that represent a return of capital on a Generally Accepted Accounting Principle basis for the years ended December 31, 1997, 1996 and 1995. Net Income Cash (Loss) Distributions Return of Allocated Declared Capital --------- -------- ------- Limited Partners: 1997 $ 63,842 $ 239,288 $ 175,446 1996 (125,619) 244,707 244,707 1995 (103,976) 255,306 255,306 General Partner: 1997 $ 645 $ 2,417 $ 1,772 1996 (1,269) 2,471 2,471 1995 (1,050) 2,579 2,579 In an effort to continue to improve occupancy at the Partnership's residential properties, the Partnership has an on-site leasing staff, employees of NTS Development Company, at each of the apartment communities. The staff handles all on-site visits from potential tenants, coordinates local advertising with NTS Development Company's marketing staff, makes visits to local companies to promote fully furnished units and works with current residents on lease renewals. The lease at Blankenbaker Business Center 1A provides for the tenant to contribute toward the payment of common area expenses, insurance and real estate taxes. This lease provision, along with the fact that residential leases are generally for a period of one year, should protect the Partnership's operations from the impact of inflation and changing prices. Some of the statements included in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, may be considered to be "forward-looking statements" since such statements relate to matters which have not yet occurred. For example, phrases such as "the Partnership anticipates", "believes" or "expects" indicate that it is possible that the event anticipated, believed or expected may not occur. Should such event not occur, then the result which the Partnership expected also may not occur or occur in a different manner, which may be more or less favorable to the Partnership. The Partnership does not undertake any obligations to publicly release the result of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances. Any forward-looking statements included in Management's Discussion and Analysis of Financial Condition and Results of Operations, or elsewhere in this report, which reflect management's best judgement based on factors known, involve risks and uncertainties. Actual results could differ materially from those anticipated in any forward-looking statements as a result of a number of factors, including but not limited to those discussed below. Any forward-looking information provided by the Partnership pursuant to the safe harbor established by recent securities legislation should be evaluated in the context of these factors. - 18 - Liquidity and Capital Resources - Continued - ------------------------------------------- The Partnership's principal activity is the leasing and management of a commercial business center and apartment complexes. If Prudential, 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. - 19 - 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, 1997 and 1996, and the related statements of operations, partners' equity and cash flows for each of the three years in the period ended December 31, 1997. These financial statements and schedules referred to below are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of NTS-Properties VII, Ltd. as of December 31, 1997 and 1996 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedules included on pages 38 and 39 are presented for purposes of complying with the Securities and Exchange Commission's rules and are not a required part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in 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 6, 1998 - 20 - NTS-PROPERTIES VII, LTD. BALANCE SHEETS AS OF DECEMBER 31, 1997 AND 1996
1997 1996 ----------- ----------- ASSETS Cash and equivalents $ 164,714 $ 278,620 Cash and equivalents - restricted 176,636 162,005 Investment securities 338,129 -- Accounts receivable 858 14,518 Land, buildings and amenities, net 10,361,786 10,878,976 Other assets 137,022 140,380 ----------- ----------- $11,179,145 $11,474,499 =========== =========== LIABILITIES AND PARTNERS' EQUITY Mortgages payable $ 5,303,947 $ 5,358,215 Accounts payable 38,815 90,301 Distributions payable 60,426 60,645 Security deposits 36,325 39,800 Other liabilities 6,787 6,787 ----------- ----------- 5,446,300 5,555,748 Partners' equity 5,732,845 5,918,751 ----------- ----------- $11,179,145 $11,474,499 =========== ===========
The accompanying notes to financial statements are an integral part of these statements. - 21 - NTS-PROPERTIES VII, LTD. STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995 ------------ ----------- ----------- Revenues: Rental income $ 2,064,236 $ 2,018,993 $ 1,957,327 Interest and other income 29,516 22,769 14,842 ----------- ----------- ----------- 2,093,752 2,041,762 1,972,169 Expenses: Operating expenses 460,177 587,955 460,727 Operating expenses - affiliated 230,130 214,532 226,010 Amortization of capitalized leasing costs -- 196 6,030 Write-off of unamortized building costs 17,797 -- -- Interest expense 434,680 456,642 469,039 Management fees 106,264 104,248 101,312 Real estate taxes 99,458 103,171 103,496 Professional and administrative expenses 58,895 53,887 55,388 Professional and administrative expenses - affiliated 79,075 109,512 93,657 Depreciation and amortization 515,005 538,507 561,536 ----------- ----------- ----------- 2,001,481 2,168,650 2,077,195 ----------- ----------- ----------- Income (loss) before extraordinary item 92,271 (126,888) (105,026) Extraordinary item - write-off unamortized loan costs (27,784) -- -- ----------- ----------- ----------- Net income (loss) $ 64,487 $ (126,888) $ (105,026) =========== =========== =========== Net income (loss) allocated to the limited partners: Income (loss) before extraordinary item $ 91,348 $ (125,619) $ (103,976) Extraordinary item (27,506) -- -- ----------- ----------- ----------- Net income (loss) $ 63,842 $ (125,619) $ (103,976) =========== =========== =========== Net income (loss) per limited partnership Unit: Income (loss) before extraordinary item $ .15 $ (.20) $ (.16) Extraordinary item (.04) -- -- ----------- ----------- ----------- Net income (loss) $ .11 $ (.20) $ (.16) =========== =========== =========== Weighted average number of limited partnership units 598,526 615,384 638,265 =========== =========== ===========
The accompanying notes to financial statements are an integral part of these statements. - 22 - NTS-PROPERTIES VII, LTD. STATEMENTS OF PARTNERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Limited General Partners Partners Total -------- -------- ----- Balances at December 31, 1994 $ 6,848,414 $ (41,186) $ 6,807,228 Net loss (103,976) (1,050) (105,026) Distributions declared (255,306) (2,579) (257,885) ----------- ----------- ----------- Balances at December 31, 1995 6,489,132 (44,815) 6,444,317 Net loss (125,619) (1,269) (126,888) Distributions declared (244,707) (2,471) (247,178) Repurchase of limited partnership Units (151,500) -- (151,500) ----------- ----------- ----------- 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 =========== =========== ===========
The accompanying notes to financial statements are an integral part of these statements. - 23 - NTS-PROPERTIES VII, LTD. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995 ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 64,487 $ (126,888) $ (105,026) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Accrued interest on investment securities (1,737) 1,408 (1,408) Amortization of capitalized leasing costs -- 196 6,030 Write-off unamortized building costs 17,797 -- -- Write-off unamortized loan costs 27,784 -- -- Depreciation and amortization 515,005 538,507 561,536 Changes in assets and liabilities: Cash and equivalents - restricted 15,599 (9,568) (1,795) Accounts receivable 13,660 (6,420) 14,477 Other assets 2,290 10,516 10,517 Accounts payable (51,486) 36,423 (13,937) Security deposits (3,475) 6,320 (3,862) Other liabilities -- 3,464 3,323 ----------- ----------- ----------- Net cash provided by operating activities 599,924 453,958 469,855 ----------- ----------- ----------- 453,958 CASH FLOWS FROM INVESTING ACTIVITIES Additions to land, buildings and amenities (8,398) (3,857) (108,589) Purchase of investment securities (411,392) (207,440) (202,363) Maturity of investment securities 75,000 309,939 99,863 ----------- ----------- ----------- Net cash provided by (used in) investing activities (344,790) 98,642 (211,089) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Increase in mortgage payable 4,100,000 -- -- Principal payments on mortgages payable (4,154,268) (151,264) (139,045) Cash distributions (241,924) (251,005) (257,885) Repurchase of limited partnership Units (8,688) (151,500) -- Cash and equivalents - restricted (30,230) 30,230 (127,653) Additions to loan costs (33,930) -- -- ----------- ----------- ----------- Net cash used in financing activities (369,040) (523,539) (524,583) ----------- ----------- ----------- Net increase (decrease) in cash and equivalents (113,906) 29,061 (265,817) CASH AND EQUIVALENTS, beginning of year 278,620 249,559 515,376 ----------- ----------- ----------- CASH AND EQUIVALENTS, end of year $ 164,714 $ 278,620 $ 249,559 =========== =========== =========== Interest paid on a cash basis $ 449,164 $ 457,410 $ 469,631 =========== =========== ===========
The accompanying notes to financial statements are an integral part of these statements. - 24 - NTS-PROPERTIES VII, LTD. NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 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. 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. - 25 - 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: 1997 1996 1995 ---------- --------- --------- Net income (loss) $ 64,487 $(126,888) $(105,026) Items handled differently for tax purposes: Depreciation and amortization 31,437 9,030 (5,777) Capitalized leasing costs 22,120 22,368 28,219 Rental income 3,833 3,833 6,534 Loss on disposal of assets 729 -- -- ---------- --------- --------- Taxable income (loss) $ 122,606 $ (91,657) $ (76,050) ========== ========= ========= E) Use of Estimates in the Preparation of Financial Statements ----------------------------------------------------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. F) Joint Venture Accounting ------------------------ The Partnership has adopted the proportionate consolidation method of accounting for joint venture properties. The Partnership's proportionate interest in the 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 for the years presented given the commonality of the Partnership's operations. - 26 - 1. Significant Accounting Policies - Continued ------------------------------------------- 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 and funds reserved by the Partnership for the repurchase of limited partnership Units. H) Investment Securities --------------------- Investment securities represent investments in Certificates of Deposit or securities issued by the U.S. Government with initial maturities of greater than three months. The Partnership intends to hold the securities until maturity. During 1997 and 1996, the Partnership sold no investment securities. The following provides details regarding the investments held at December 31, 1997: Amortized Maturity Value at Type Cost Date Maturity ------ ----------- -------- ---------- Certificate of Deposit $ 112,348 02/04/98 $ 112,90 Certificate of Deposit 100,543 03/05/98 101,492 Certificate of Deposit 125,238 03/30/98 127,336 ---------- --------- $ 338,129 $ 341,736 ========== ========= At December 31, 1996, 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 5-7 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, 1997 and 1996 did not result in an impairment loss. - 27 - 1. Significant Accounting Policies - Continued ------------------------------------------- J) Rental Income and Capitalized Leasing Costs ------------------------------------------- The lease agreement at the commercial property is structured to include scheduled and specified rent increases over the lease term. For financial reporting purposes, the income from this lease is being recognized on a straight-line basis over the lease term. Accrued income connected with this lease is included in accounts receivable and totaled $3,833 at December 31, 1996. There was no accrued income connected with this lease in 1997 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. In addition, certain other costs associated with the initial leasing of the properties are capitalized and amortized over a five-year period. K) Advertising ----------- The Partnership expenses advertising-type costs as incurred. Advertising expense was immaterial to the Partnership during the years ended December 31, 1997, 1996 and 1995. 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. 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. - 28 - 3. Investment in Blankenbaker Business Center Joint Venture - Continued -------------------------------------------------------------------- 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. ("Prudential"). The lease expanded Prudential's 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, Prudential 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, 1997. The Partnership's share of the joint venture's operating loss was $54,844 (1997), $49,151 (1996) and $63,590 (1995). 4. Interest Repurchase Reserve --------------------------- As of December 31, 1995, the Partnership had established an Interest Repurchase Reserve in the amount of $127,653 pursuant to Section 16.4 of the Partnership's Amended and Restated Agreement of Limited Partnership. Under Section 16.4, limited partners may request the Partnership to repurchase their respective interests (Units) in the Partnership. On May 24, 1996, the Partnership elected to fund an additional amount of $121,270 to the Interest Repurchase Reserve. With these funds, the Partnership would be able to repurchase and retire up to 62,230 Units at a price of $4.00 per Unit. Repurchased Units will be retired by the Partnership, thus increasing the share of ownership of each remaining investor. Through December 16, 1997, the Partnership had repurchased a total of 40,047 Units for $160,188. As of December 17, 1997 the Partnership has elected to fund an additional amount of $38,918 to its Interest Repurchase Reserve. This additional funding brings the Interest Repurchase Reserve to $127,653. With this funding, the Partnership will be able to repurchase up to 21,275 Units at a currently contemplated price of $6.00 per Unit. The Partnership notified the limited partners of the additional funding to the Interest - 29 - 4. Interest Repurchase Reserve - Continued --------------------------------------- Repurchase Reserve and the opportunity to request that the Partnership repurchase Units at the established price by letter in December 1997. The Interest Repurchase Reserve was funded from cash reserves. The above offering price per Unit was established by the General Partner in its sole discretion and does not purport to represent the fair market value or liquidation value of the Unit. The amount remaining in the Interest Repurchase Reserve at December 31, 1997 was $127,653. 5. Land, Buildings and Amenities ----------------------------- The following schedule provides an analysis of the Partnership's investment in property held for lease as of December 31: 1997 1996 ----------- ----------- Land and improvements $ 3,775,739 $ 3,775,739 Buildings and improvements 11,666,627 11,684,485 ---------- ---------- 15,442,366 15,460,224 Less accumulated depreciation 5,080,580 4,581,248 ---------- ---------- $10,361,786 $10,878,976 ========== ========== 6. Mortgages Payable ----------------- Mortgages payable as of December 31 consist of the following: 1997 1996 ----------- ----------- Mortgage payable to an insurance company, bearing interest at a fixed rate of 7.37%, due October 15, 2012, secured by land and buildings $ 4,091,369 $ -- Mortgage payable to an insurance company, bearing interest at a fixed are of 8.5%, due November 15, 2005, secured by land and buildings 1,212,578 1,315,663 Mortgage payable to an insurance company, bearing interest at a fixed rate of 8.375%, due October 5, 2002, secured by land and buildings -- 3,091,363 Mortgage payable to an insurance company, bearing interest at a fixed rate of 8.375%, due October 5, 2002, secured by land and buildings -- 951,189 ---------- ---------- $ 5,303,947 $ 5,358,215 ========== ========== (Continued next page) - 30 - 6. Mortgages Payable - Continued ----------------------------- The mortgages are payable in monthly aggregate installments of $52,827 which includes principal, interest and property taxes. Scheduled maturities of debt are as follows: For the Years Ended December 31, Amount -------------------------------- ---------- 1998 $ 215,735 1999 233,546 2000 252,012 2001 273,663 2002 296,285 Thereafter 4,032,706 ---------- $5,303,947 ========== 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 $4,800,000. 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. 7. Rental Income Under Operating Leases ------------------------------------ The following is a schedule of minimum future rental income on noncancellable operating leases as of December 31, 1997: For the Years Ended December 31, Amount -------------------------------- ---------- 1998 $ 235,924 1999 235,924 2000 235,924 2001 235,924 2002 235,924 Thereafter 609,469 ---------- $1,789,089 ========== 8. Related Party Transactions -------------------------- Property management fees of $106,264 (1997), $104,248 (1996) and $101,312 (1995) 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 $3,040 (1997) and $3,337 (1995) as repair and maintenance fees and has capitalized these costs as a part of land, buildings and amenities. There was no similar fee incurred during 1996. The Partnership also was charged the following amounts from affiliates of the General Partner for the years ended December 31, 1997, 1996 and 1995. 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. - 31 - 8. Related Party Transactions - Continued -------------------------------------- These charges were as follows: 1997 1996 1995 -------- -------- -------- Administrative $105,043 $133,746 $117,792 Property manager 163,078 148,857 154,872 Leasing 39,927 39,363 45,332 Other 2,175 2,078 1,671 -------- -------- -------- $310,223 $324,044 $319,667 ======== ======== ======== - 32 - Item 9. Changes in and Disagreements with Accountants on Accounting and --------------------------------------------------------------- Financial Disclosure -------------------- None. - 33 - 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 56) 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). Richard L. Good - --------------- Mr. Good (age 58), President and Chief Operating Officer of NTS Corporation, President of NTS Development Company and Chairman of the Board of NTS Securities, Inc., joined the Manager in January 1985. From 1981 through 1984, he was President of Jacques-Miller, Inc., a real estate syndication, property management and financial planning firm in Nashville, Tennessee. 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, Richard L. Good, Brian F. Lavin and John W. Hampton. Brian F. Lavin - -------------- Mr. Lavin (age 44) serves as Executive Vice President of NTS Development Company and President of the Company's Income Properties. As such, Mr. Lavin is responsible for all NTS commercial real estate development, land acquisitions and oversees the management of all commercial office buildings, business centers and multi-family residential communities. Prior to joining NTS, Mr. Lavin served as President of the Residential Division of Paragon Group, Inc., and as a Vice President of Paragon's Midwest Division. In this capacity, he directed the development, marketing, leasing and management operations for the firms expanding portfolios. Mr. Lavin attended the University of Missouri where he received his Bachelor's Degree in Business Administration. He has served as a Director of the Louisville Apartment Association. He is a licensed Kentucky Real Estate Broker and Certified Property Manager. Mr. Lavin is a member of the Institute of Real Estate Management, and council member of the Urban Land Institute. He currently serves on the University of Louisville Board of Overseers and is on the Board of Directors of the National Multi-Housing Council and the Louisville Science Center. John W. Hampton - --------------- Mr. Hampton (age 48) is Senior Vice President of NTS Development Company with responsibility for all accounting operations. Before joining the Manager in March 1991, Mr. Hampton was Vice President - Finance and Chief Financial Officer of the Sturgeon-Thornton-Marrett Development Company in Louisville, Kentucky for nine years. Prior to that he was with Alexander Grant & Company CPA's. Mr. Hampton is a Certified Public Accountant and a graduate of the University of Louisville with a Bachelor of Science degree in Commerce. He is a member of the American Institute of CPA's and the Kentucky Society of CPA's. - 34 - 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 8 to the financial statements which sets forth transactions with affiliates of the General Partner for the years ended December 31, 1997, 1996 and 1995. The General Partner is entitled to receive cash distributions and allocations of profits and losses from the Partnership. See Note 1C to the financial statements which describes the methods used to determine income allocations and cash distributions. Item 12. Security Ownership of Certain Beneficial Owners and Management -------------------------------------------------------------- The General Partner is NTS-Properties Associates VII, a Kentucky Limited Partnership, 10172 Linn Station Road, Louisville, Kentucky 40223. The partners of the General Partner and their total respective interests in NTS-Properties Associates VII are as follows: J. D. Nichols 31.05% 10172 Linn Station Road Louisville, Kentucky 40223 Richard L. Good 10.00% 10172 Linn Station Road Louisville, Kentucky 40223 NTS Capital Corporation 12.00% 10172 Linn Station Road Louisville, Kentucky 40223 The remaining 46.95% interests are owned by various limited partners of NTS- Properties Associates VII. Item 13. Certain Relationships and Related Transactions ---------------------------------------------- Property management fees of $106,264 (1997), $104,248 (1996) and $101,312 (1995) 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 $3,040 (1997) and $3,337 (1995) as a repair and maintenance fee and has capitalized this cost as a part of land, buildings and amenities. There was no similar fee incurred during 1996. The Partnership was also charged the following amounts from NTS Development Company for the years ended December 31, 1997, 1996 and 1995. These charges include items which have been expensed as operating expenses - affiliated or as professional and administrative expenses - affiliated and items which have been capitalized as other assets or as land, buildings and amenities. - 35 - Item 13. Certain Relationships and Related Transactions - Continued ---------------------------------------------------------- These charges were as follows: 1997 1996 1995 -------- -------- -------- Administrative $105,043 $133,746 $117,792 Property manager 163,078 148,857 154,872 Leasing 39,927 39,363 45,332 Other 2,175 2,078 1,671 -------- -------- -------- $310,223 $324,044 $319,667 ======== ======== ======== There are no other agreements or relationships between the Partnership, the General Partner and its affiliates than those previously discussed. - 36 - PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 1. Financial statements The financial statements for the period through December 31, 1997, together with the report of Arthur Andersen LLP dated March 6 1998, appear in Item 8. 2. Financial statement schedules Schedules: Page No. --------- -------- III-Real Estate and Accumulated Depreciation 38-39 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 Form 8-K dated December 18, 1997 was filed to report in Item 5 that the partnership has elected to fund an additional amount of $38,918 to its Interest Repurchase Reserve. - 37 - NTS-PROPERTIES VII, LTD. SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1997
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 (10,913) 4,570 309,098 302,755 Other (B) -- -- (4,225) (4,225) Gross amount at which carried December 31, 1997 (C): Land $ 457,048 $ 2,618,162 $ 700,529 $ 3,775,739 Buildings and improvements 2,081,055 7,695,220 1,890,352 11,666,627 ------------ ------------ ------------ ------------ Total $ 2,538,103 $ 10,313,382 $ 2,590,881 $ 15,442,366 ============ ============ ============ ============ Accumulated depreciation $ 865,797 $ 3,133,136 $ 1,081,647 $ 5,080,580 ============ ============ ============ ============ 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 $13,673,759. (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.
- 38 - NTS-PROPERTIES VII, LTD. SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Real Accumulated Estate Depreciation ------------ ------------ Balances at December 31, 1994 $ 15,426,780 $ 3,524,282 Additions during period: Improvements (a) 62,291 -- Depreciation (b) -- 552,991 Deductions during period: Retirements (32,704) (26,503) ------------ ------------ Balances at December 31, 1995 15,456,367 4,050,770 Additions during period: Improvements (a) 3,857 -- Depreciation (b) -- 530,478 ------------ ------------ 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 ============ ============ (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.
- 39 - SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, NTS-Properties VII, Ltd. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NTS-PROPERTIES VII, LTD. (Registrant) BY: NTS-Properties Associates VII, General Partner BY: NTS Capital Corporation, General Partner /s/ John W. Hampton John W. Hampton Senior Vice President Date: March 23, 1998 Pursuant to the requirements of the Securities and Exchange Act of 1934, this Form 10-K has been signed below by the following persons on behalf of the registrant in their capacities and on the date indicated above. Signature Title --------- ----- /s/ J. D. Nichols General Partner of NTS-Properties J. D. Nichols Associates VII and Chairman of the Board and Sole Director of NTS Capital Corporation /s/ Richard L. Good General Partner of NTS-Properties Richard L. Good Associates VII and President of NTS Capital Corporation /s/ John W. Hampton Senior Vice President of NTS Capital John W. Hampton Corporation The Partnership is a limited partnership and no proxy material has been sent to the limited partners. - 40 - EX-27 2 ARTICL 5 FINANCIAL DATA SCHEDULE
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AS OF DECEMBER 31, 1997 AND FROM THE STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR DEC-31-1997 DEC-31-1997 341,350 338,129 858 0 0 0 10,361,786 5,080,580 11,179,145 0 5,303,947 0 0 0 5,732,845 11,179,145 2,064,236 2,093,752 0 1,428,831 0 0 434,680 92,271 0 0 0 27,784 0 64,487 0 0 THE PARTNERSHIP HAS AN UNCLASSIFIED BALANCE SHEET; THEREFORE, THE VALUE IS $0.
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