Item 4 Submission of Matters to a Vote of Security Holders 16
PART II
Item 5

Item 5 Market for the Registrant's Limited Partnership Interests and Related Partner Matters 17 Item 6

Item 6 Selected Financial Data 18 Item 7

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations - ---------------------
The occupancy levels at the Partnership properties as of December 31 were as follows:
Percentage Ownership at 12/31/96 1996 1995 1994 -------- ------ ------ ------
Wholly-owned Property - ---------------------
Lakeshore Business Center Phase II See (See L/U II Joint Venture below) N/A N/A below 78% (1) (1) Property owned in Joint Venture with NTS-Properties V - ---------------------
University Business Center Phase II See (See L/U II Joint Venture below) N/A N/A below 100% (1) (1) Property owned in Joint Venture with NTS-Properties IV and NTS- Properties VII, Ltd. - --------------------
Blankenbaker Business Center 1A 39% 100% 100% 100%
Properties owned through Lakeshore/University II Joint Venture (L/U II Joint Venture) - ------------------------------
Lakeshore Business Center Phase I 12% 92% 92% 80% (2)
Lakeshore Business Center Phase II 12% 89% 72% See above (1)
University Business Center Phase II 12% 99% 95% See above (1)
(1) During the first quarter of 1995, the Partnership's ownership interest in the property changed. See below for a discussion regarding this change. (2) As of December 31, 1994, the Partnership did not have an interest in this property. See below for a discussion regarding this change.
(Results of Operations - continued next page)
- 19 -
Results of Operations - Continued - ---------------------------------
The rental and other income generated by the Partnership's properties for the years ended December 31, 1996, 1995 and 1994 were as follows:
Percentage Ownership at 12/31/96 1996 1995 1994 ------------ -------- -------- -------
Wholly-owned Property - ---------------------
Lakeshore Business Center Phase II (See L/U II Joint Venture below) N/A N/A $ 98,182 $1,259,257 (1) Property owned in Joint Venture with NTS- Properties V - --------------------
University Business Center Phase II (See L/U II Joint Venture below) N/A N/A $ 82,183 $ 959,948 (1) Property owned in Joint Venture with NTS- Properties IV and NTS- Properties VII, Ltd. - --------------------
Blankenbaker Business Center 1A 39% $ 366,073 $ 363,172 $ 497,566
Properties owned through Lakeshore/University II Joint Venture (L/U II Joint Venture) - ---------------------
Lakeshore Business Center Phase I 12% $ 167,160 $ 135,055 N/A (2)
Lakeshore Business Center Phase II 12% $ 146,021 $ 135,324 N/A (3)
University Business Center Phase II 12% $ 152,052 $ 139,477 N/A (3)
Revenues shown in the table above for properties owned through a joint venture represent only the Partnership's percentage interest in those revenues.
(1) During the first quarter of 1995, the Partnership's ownership interest in the property changed. The Partnership's proportionate share of rental and other income from January 23, 1995 to December 31, 1995 is reflected below (see L/U II Joint Venture). See below for a discussion regarding this change. (2) During 1994, the Partnership did not have an interest in this property. See below for a discussion regarding the change which occurred during the first quarter of 1995. (3) During the first quarter of 1995, the Partnership's ownership interest in this property changed. Rental and other income for 1994 is reflected above. See below for a discussion regarding this change.
- 20 -
Results of Operations - Continued - ---------------------------------
On August 16, 1994, Blankenbaker Business Center Joint Venture amended its joint venture agreement to admit NTS-Properties IV to the Joint Venture. In accordance with the Joint Venture Agreement Amendment NTS-Properties IV contributed $1,100,000 and NTS-Properties VII, Ltd. contributed $500,000. Additional capital was needed by the Blankenbaker Business Center Joint Venture to fund the tenant finish and leasing costs connected with the project discussed in the following paragraph. However, the Partnership was not in a position to contribute additional capital, nor was NTS-Properties VII, Ltd. in a position to contribute all of the capital required for the project. 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. The general partner of the Partnership 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 the Partnership's joint venture interest would, as a result, decrease.
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 was a result of winning a competitive request for proposals issued by Prudential as it approached a decision regarding where it would locate its expanding Louisville operations following the expiration of its lease at Blankenbaker Business Center 1A. To meet the needs of the tenant, the lease expanded Prudential's leased space by approximately 15,000 square feet and extended its current 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 now occupies 100% of the business center (approximately 101,000 square feet). The tenant finish and leasing costs connected with the lease renewal and expansion were approximately $1.4 million.
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 VII, Ltd. in determining each Joint Venture partner's percentage interest.
The Partnership's interest in the Joint Venture decreased from 69% to 39% as a result of the capital contributions by NTS-Properties IV and NTS- Properties VII, Ltd. The respective percentage interests of NTS-Properties IV and NTS-Properties VII, Ltd. in the Joint Venture subsequent to these capital contributions were 30% and 31%.
On January 23, 1995, a new joint venture known as Lakeshore/University II Joint Venture (L/U II Joint Venture) was formed among the Partnership and NTS-Properties IV, NTS-Properties V and NTS/Fort Lauderdale, Ltd., affiliates of the general partner of the Partnership, for purposes of owning Lakeshore Business Center Phases I and II, University Business Center Phase II and certain undeveloped tracts adjacent to the Lakeshore Business Center Development.
- 21 -
Results of Operations - Continued - ---------------------------------
The table below identifies which properties were contributed to the L/U II Joint Venture and the respective owners of such properties prior to the formation of the joint venture.
Property Contributing Owner -------- ------------------
Lakeshore Business Center Phase I NTS-Properties IV and NTS- Properties V
Lakeshore Business Center Phase II NTS-Properties Plus Ltd.
Undeveloped land adjacent to the NTS-Properties Plus Ltd. Lakeshore Business Center development (3.8 acres)
Undeveloped land adjacent to the NTS/Fort Lauderdale, Ltd. Lakeshore Business Center development (2.4 acres)
University Business Center Phase II NTS-Properties V and NTS-Properties Plus Ltd.
Each of the properties were contributed to the L/U II Joint Venture subject to existing indebtedness, except for Lakeshore Business Center Phase I which was contributed to the joint venture free and clear of any mortgage liens, and all such indebtedness was assumed by the joint venture. Mortgages were recorded on Lakeshore Business Center Phase I in the amount of $5,500,000, and on University Business Center Phase II in the amount of $3,000,000, in favor of the banks which held the indebtedness on University Business Center Phase II, Lakeshore Business Center Phase II and the undeveloped tracts prior to the formation of the joint venture. In addition to the above, NTS- Properties IV contributed $750,000 to the L/U II Joint Venture. As a result of the valuation of the properties contributed to the L/U II Joint Venture, the Partnership obtained a 12% partnership interest in the joint venture.
The general partner of the Partnership believes that the results of operations for 1995 and 1994 are not comparable and therefore, a discussion comparing the results of operations for these periods is not included due to the fact that the Partnership's ownership interest in the Blankenbaker Business Center Joint Venture changed from 69% to 39% on August 16, 1994 as a result of capital contributions made by affiliates of the general partner of the Partnership (as discussed above). Comparisons of the results of operations between 1995 and 1994 are also difficult because of the Partnership's investment in the L/U II Joint Venture (as discussed above). These changes in the Partnership's investments are permanent changes and will effect future results of operations.
Discussions regarding the change in occupancy levels from 1995 to 1996 and from 1994 to 1995 along with a discussion comparing the results of operations from 1995 to 1996 follows.
A wholly-owned subsidiary of The Prudential Insurance Company of America (Prudential Service Bureau, Inc.) has leased 100% of Blankenbaker Business Center 1A. See above for a further discussion of Prudential's 1994 lease renewal and expansion. In addition to monthly rent payments, Prudential Service Bureau, Inc. is obligated to pay substantially all of the operating expenses attributable to its space. The change in rental and other income at Blankenbaker Business Center 1A from 1995 to 1996 was not significant.
- 22 -
Results of Operations - Continued - ---------------------------------
Year-ending occupancy at Lakeshore Business Center Phase I remained constant (92%) from 1995 to 1996. Six new leases totalling approximately 10,600 square feet, including approximately 3,400 square feet in expansion by two current tenants, are offset by five tenant move-outs totalling approximately 10,000 square feet. The five move-outs consist of two tenants (2,700 square feet) vacating at the end of the lease term, one tenant (1,600 square feet) exercising a termination option, and two tenants vacating prior to the end of the lease term - one due to a business decision to consolidate its office space at another location (700 square feet - tenant paid rent through end of lease) and one due to bankruptcy (5,000 square feet - tenant ceased rental payments). The write-off of accrued income connected with these leases was not significant. Average occupancy at Lakeshore Business Center Phase I increased 13% from 84% in 1995 to 97% in 1996. Rental and other income increased from 1995 to 1996 primarily as a result of the increase in average occupancy. The increase in rental and other income is also due to the fact that the Partnership acquired an interest in Lakeshore Business Center Phase I as a result of the formation of the L/U II Joint Venture in January 1995. (See above for a discussion regarding the Joint Venture).
As of December 31, 1996, Lakeshore Business Center Phase I had 1,800 square feet of additional space leased to a current tenant. The tenant took occupancy in January 1997. Subsequent to December 31, 1996, one new lease for approximately 1,100 square feet and an expansion lease for approximately 2,000 square feet were signed at Lakeshore Business Center Phase I. The new tenant took occupancy during the first quarter of 1997 and the expansion lease is effective during the second quarter of 1997. With the new leases and expansion, the business center's occupancy should improve to 97% during the second quarter of 1997. There are no material commitments relating to the new leases. See the Liquidity and Capital Resources section of this item for the tenant finish commitment relating to the expansion lease.
The 12% increase in year-ending occupancy at Lakeshore Business Center Phase I from 1994 to 1995 can be attributed to 11 new leases, totalling approximately 19,000 square feet which includes approximately 6,400 square feet in expansions by two current tenants. The new leases and expansion are partially offset by four tenant move-outs, who vacated at the end of the lease terms, totalling approximately 6,100 square feet. Average occupancy increased from 70% (1994) to 84% (1995).
The 17% increase in year-ending occupancy at Lakeshore Business Center Phase II from 72% (1995) to 89% (1996) can be attributed to five new leases totalling approximately 19,200 square feet which includes approximately 7,000 square feet in expansions by two current tenants. One tenant, Lambda Physik, accounts for nearly 11,000 square feet of the total new leases and has become the largest tenant in the building, occupying approximately 11% of the total building rentable square feet. Partially offsetting the new leases and expansion is one tenant move-out, totalling 2,800 square feet, vacating prior to the end of the lease term but continuing to pay rent through the end of the lease term (August 1997). Average occupancy at Lakeshore Business Center Phase II increased from 76% (1995) to 80% (1996). Overall, rental and other income at Lakeshore Business Center Phase II remained fairly constant from 1995 to 1996 despite a 4% increase in average occupancy. This is primarily a result of a decrease in rental rates on lease renewals. As discussed in prior filings, prior to the Ft. Lauderdale area experiencing an economic downturn, the property was able to negotiate higher net effective rental rates than current market rental rates. As a result, the leases that were renewed at the end of 1995 and the beginning of 1996 renewed at a lower net effective rental rate. The Partnership's proportionate share of the rental and other income at Lakeshore Business Center Phase II, however, decreased in 1996 as compared to 1995. This is due to the fact that the Partnership's ownership interest in Lakeshore Business Center Phase II, decreased as a result of the formation of the L/U II Joint Venture on January 23, 1995. (See above for a discussion regarding the Joint Venture).
- 23 -
Results of Operations - Continued - ---------------------------------
Subsequent to December 31, 1996, Lakeshore Business Center Phase II had approximately 5,100 square feet of additional space leased to two new tenants. The tenants took occupancy during the first quarter of 1997. With the new leases, the business center's occupancy has improved to 94%. There are no material tenant finish commitments relating to the new leases.
The 6% decrease in year-ending occupancy at Lakeshore Business Center Phase II from 1994 to 1995 can be attributed to four tenant move-outs totalling approximately 9,600 square feet and a downsizing by a current tenant of its existing space of approximately 6,000 square feet. Two of the move-outs, totalling approximately 5,800 square feet, represent tenants who vacated the premises at the end of the lease term. The third tenant, who occupied approximately 1,400 square feet, vacated the premises and ceased making rental payments in breach of the lease terms due to bankruptcy. The write-off of accrued income connected with this lease was not significant. The fourth tenant, who occupied approximately 2,400 square feet, vacated the premises prior to the end of the lease term but continued to pay rent through the end of the lease term (September 1996). Partially offsetting the tenant move-outs are six new leases for a total of approximately 9,700 square feet. Average occupancy at Lakeshore Business Center Phase II decreased from 78% (1994) to 76% (1995).
Philip Crosby Associates, Inc. ("Crosby") has leased 100% of University Business Center Phase II. The original lease term is for seven years, and the tenant took occupancy April 1991. As a result of Crosby downsizing and sub-leasing a portion of its leased space, occupancy has decreased to 99% at December 31, 1996 and 95% at December 31, 1995. See below for a further discussion of Crosby and its leased space.
The Partnership's proportionate share of the rental and other income at University Business Center Phase II decreased from 1995 to 1996. The decrease is due to the fact that the partnership's ownership interest in University Business Center Phase II decreased as a result of the formation of the L/U II Joint Venture in January 1995. (See above for a discussion of the Joint Venture). Overall, rental and other income at University Business Center Phase II remained fairly constant from 1995 to 1996.
In cases of tenants who cease making rental payments or abandon the premises in breach of their lease, the Partnership pursues collection through the use of collection agencies and other remedies available by law when practical. In cases where tenants have vacated as a result of bankruptcy, the Partnership has taken legal action when it has thought there could be a possible collection. There have been no funds recovered as a result of these actions during 1996, 1995 or 1994.
The decrease in interest and other income from 1995 to 1996 is primarily due to the fact that the 1995 balance includes proceeds from the sale of furniture from a defaulted tenant's suite at Lakeshore Business Center Phase II (recorded as other income). There was no similar income during 1996.
The decrease in operating expenses from 1995 to 1996 is primarily a result of the Partnership's decrease in ownership of certain properties which were contributed to the L/U II Joint Venture in January 1995. (See above for further discussion regarding the Joint Venture.) There were no significant fluctuations in operating expenses at Blankenbaker Business Center 1A.
Operating expenses - affiliated decreased from 1995 to 1996 due to the decrease in ownership of certain properties which were contributed to the L/U II Joint Venture in 1995. (See above for a discussion regarding the Joint Venture.) Operating expenses - affiliated are expenses for services performed by employees of NTS Development Company, an affiliate of the General Partner of the Partnership.
- 24 -
Results of Operations - Continued - ---------------------------------
The 1996 write-off of unamortized loan costs relate to loan costs associated with the Lakeshore/University II Joint Venture's notes payable. The unamortized loan costs were expensed due to the fact that the notes were retired in 1996 prior to their maturity (January 31, 1998). See the Liquidity and Capital Resources section of this item for further discussion.
Amortization of capitalized leasing costs decreased in 1996 as compared to 1995 as a result of costs capitalized during initial lease-up at University Business Center Phase II becoming fully amortized in 1995.
Interest expense decreased from 1995 to 1996 primarily as a result of the Partnership's decrease in ownership of certain properties which were contributed to the L/U II Joint Venture in January 1995. (See above for further discussion regarding the Joint Venture.) Debt totalling approximately $16.7 million was contributed by the Partnership to the Joint Venture. The decrease in interest expense can also be attributed to continued principal payments and a lower interest rate on the permanent financings the L/U II Joint Venture obtained July 23, 1996. See the Liquidity and Capital Resources section of this item for a discussion regarding the new mortgages.
Management fees are calculated as a percentage of cash collections; however, revenue for reporting purposes is recorded on the accrual basis. As a result, the fluctuations of revenues between periods will differ from the fluctuations of management fee expense. The decrease in management fee expense in 1996 as compared to 1995 can be attributed to the Partnership's decrease in ownership of certain properties which were contributed to the L/U II Joint Venture in January 1995. (See above for further discussion of the Joint Venture.)
The decrease in real estate taxes from 1995 to 1996 is primarily a result of the Partnership's decrease in ownership of certain properties which were contributed to the L/U II Joint Venture in January 1995. (See above for a discussion of the Joint Venture.)
The decrease in professional and administrative expenses from 1995 to 1996 is primarily due to a decrease in outside accounting fees.
The change in professional and administrative expenses - affiliated from 1995 to 1996 is not significant. Professional and administrative expenses affiliated are expenses for services performed by employees of NTS Development Company, an affiliate of the General Partner.
Depreciation expense decreased from 1995 to 1996 due to a portion of the assets at the Partnership's Joint Venture properties becoming fully depreciated. The decrease is also a result of the Partnership's decrease in ownership of certain properties which were contributed to the L/U II Joint Venture in January 1995. (See above for further discussion of the Joint Venture.) Depreciation 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. The aggregate cost of the Partnership's properties for Federal tax purposes is approximately $6,800,000.
Capital Resources and Liquidity - -------------------------------
Cash provided by (used in) operations was $184,907 (1996), ($4,724) (1995) and $402,028 (1994). The Partnership has not made any cash distributions since the quarter ended June 30, 1991. Distributions will be resumed once the Partnership has established adequate cash reserves and is generating cash from operations which, in management's opinion, is sufficient to warrant future distributions. The primary source of future liquidity and distributions is expected to be derived from cash generated by the Partnership's properties after adequate cash reserves are established for future leasing costs, tenant finish costs and capital improvements. Cash reserves (which are unrestricted cash and equivalents as shown on the
- 25 -
Capital Resources and Liquidity - Continued - -------------------------------------------
Partnership's balance sheet as of December 31) were $42,944, $36,269 and $244,288 at December 31, 1996, 1995 and 1994, respectively.
On July 23, 1996, the L/U II Joint Venture obtained three mortgage loans from an insurance company totalling $17,400,000 ($6,025,000, $5,775,000 and $5,600,000). The outstanding balances of the loans at December 31, 1996 were $5,924,638, $5,678,802 and $5,506,717, respectively, for a total of $17,110,157. The loans are recorded as a liability of the Joint Venture. The Partnership's proportionate share in the loans at December 31, 1996 was $744,727, $713,826 and $692,194, respectively, for a total of $2,150,747. The mortgages bear interest at a fixed rate of 8.125%, are due August 1, 2008, and are secured by the assets of the Joint Venture. Monthly principal payments are based upon a 12-year amortization schedule. At maturity, the loans will have been repaid based on the current rate of amortization. The proceeds from the loans were used to pay off the Joint Venture's notes payable of approximately $16.8 million, which bore interest at a fixed rate of 10.6%, and to fund loan closing costs of approximately $280,000. The Partnership's proportionate interest in the notes which were paid off was approximately $2,000,000 or 12%. The notes which were paid off had a maturity date of January 31, 1998. The remaining proceeds will be used to fund Joint Venture tenant finish improvements and leasing costs.
As of December 31, 1996, the Blankenbaker Business Center Joint Venture had a mortgage payable with an insurance company (obtained November 1994) in the amount of $4,198,030. The mortgage is recorded as a liability of the Joint Venture and is secured by the assets of the Joint Venture. The Partnership's proportionate interest in the mortgage at December 31, 1996 is $1,619,600. The mortgage bears interest at a fixed rate of 8.5% and is due November 15, 2005. 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.
The majority of the Partnership's 1996 and 1994 cash flows were derived from operating activities. The majority of the Partnership's 1995 cash flow was derived from the use of cash reserves. Cash flows used in investing activities include tenant finish improvements. Changes to current tenant finish improvements are a typical part of any lease negotiation. Improvements generally include a revision to the current floor plan to accommodate a tenant's needs, new carpeting and paint and/or wallcovering. The extent and cost of these improvements are determined by the size of the space and whether the improvements are for a new tenant or incurred because of a lease renewal. Cash flows used in investing activities in 1995 also include cash which is being escrowed for capital expenditures, leasing commissions and tenant improvements at the properties owned by the L/U II Joint Venture. Cash flows provided by investing activities in 1995 to 1996 were the result of a release of these escrow funds. Cash flows provided by investing activities in 1995 and 1994 were also the result of a release from the funds escrowed for tenant finish improvements at Lakeshore Business Center Phase II, as required by a 1993 loan extension agreement. Cash flows used in investing activities were funded by cash flow from operating activities and capital contributions (as discussed above). Cash flows provided by financing activities are from the debt refinancings of the L/U II Joint Venture (1996 - discussed above) and the Blankenbaker Business Center Joint Venture (1994). Cash flows used in financing activities are for loan costs, principal payments on mortgages and notes payable and repurchases of limited partnership Units. The capital contribution by a joint venture partner represents the Partnership's interest in the L/U II Joint Venture's (1995) and Blankenbaker Business Center Joint Venture's (1994) increase in cash which resulted from a capital contribution. The Partnership utilizes the proportionate consolidation method of accounting for joint venture properties. The Partnership's 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,
- 26 -
Capital Resources and Liquidity - Continued - -------------------------------------------
liabilities, revenues, expenses and cash flows. The Partnership does not expect any material change in the mix and relative cost of capital resources except that which is discussed in the following paragraph.
In the next 12 months, the demand on future liquidity will increase as a result of the three mortgage loans the L/U II Joint Venture obtained on July 23, 1996 (see discussion above). The Partnership also expects the demand on future liquidity to increase as a result of future leasing activity at Lakeshore Business Center Phases I and II and University Business Center Phase II. At this time, the future leasing and tenant finish costs which will be required to renew the current leases or obtain new tenants are unknown. It is anticipated that the cash flow from operations and cash reserves will be sufficient to meet the needs of the Partnership.
Due to the fact that no distributions were made during 1996, 1995 or 1994, the table which presents that portion of the distribution that represents a return of capital on a Generally Accepted Accounting Principle basis has been omitted.
At December 31, 1996, none of the Partnership's properties were in the construction stage.
Currently, the Partnership's plans for renovations and other major capital expenditures include tenant improvements at the Partnership's properties as required by lease negotiations. Changes to current tenant finish improvements are a typical part of any lease negotiation. Improvements generally include a revision to the current floor plan to accommodate a tenant's needs, new carpeting and paint and/or wallcovering. The extent and cost of the improvements are determined by the size of the space being leased and whether the improvements are for a new tenant or incurred because of a lease renewal. The tenant finish improvements will be funded by cash flow from operations and cash reserves.
Philip Crosby Associates, Inc. ("Crosby") has leased 100% of University Business Center Phase II. The original lease term if for seven years, and the tenant took occupancy in April 1991. During the years ended December 31, 1994, 1995 and 1996, Crosby sub-leased a portion of the business center. Currently, Crosby has sub-leased, through the end of their term, approximately 81,000 square feet (including approximately 10,000 square feet of mezzanine space) of University Business Center Phase II's approximately 88,000 square feet of net rentable area (or 92%). Of the total being sub-leased, approximately 69,000 square feet (or 85%) is being leased by Full Sail Recorders, Inc. ("Full Sail"), a major tenant at University Business Center Phase I, a neighboring property owned by an affiliate of the General Partner of the Partnership. During 1994, 1995 and 1996, Crosby continued to make rent payments pursuant to the original lease terms. The Joint Venture has received notice that Crosby does not intend to pay full rental due under the original lease agreement from and after January 1997. The rental income from this property accounts for approximately 18% of the partnership's total revenues. The Joint Venture has instituted legal action to seek resolution of this situation. Although the Joint Venture does not presently have lease agreements (except as noted below) with the sub-lessees noted above, beginning February 1997 rent payments from these sub-lessees are being made directly to the Joint Venture. The Joint Venture is currently negotiating directly with the sub-lessees to enter into lease agreements for the space presently sublet. At this time, the future leasing and tenant finish costs which will be required to release this space are unknown except as noted below for the negotiations with Full Sail.
In December 1995, Full Sail signed a 33 month lease with the L/U II Joint Venture for approximately 41,000 square feet it currently sub-leases from Crosby. In November 1996, Full Sail signed a lease amendment which
- 27 -
Capital Resources and Liquidity - Continued - -------------------------------------------
increased the square footage from 41,000 square feet to 48,000 square feet and extended the lease term from 33 months to 76 months. In November 1996, Full Sail also signed a 52 month lease for the remaining approximately 21,000 quare feet it presently sub-leases from Crosby. Both lease terms commence April 1998 when Crosby's lease ends. As part of the lease negotiations, Full Sail will receive a total of $450,000 in special tenant allowances ($200,000 resulting from the original lease signed December 1995 and $250,000 resulting from the lease amendment signed November 1996). Approximately $92,000 of the total allowance is to be reimbursed by Full Sail to the L/U II Joint Venture. The Partnership's proportionate share of the net commitment ($450,000 less $92,000) is approximately $43,000 or 12%. The tenant allowance will be due and payable to Full Sail pursuant to the previously mentioned lease agreements, as appropriate invoices for tenant finish costs incurred by Full Sail are submitted to the L/U II Joint Venture. The sources of funds for this commitment is expected to be cash flow from operations and/or cash reserves.
Subsequent to December 31, 1996, the L/U II Joint Venture made a commitment of approximately $55,000 for tenant finish improvements at Lakeshore Business Center Phase I as a result of a lease renewal and expansion. The expansion increases the tenant's current leased space by approximately 2,000 square feet and the renewal extends the lease for five years. The Partnership's proportionate share of the commitment is approximately $6,900 or 12%. The project is expected to be completed during the second quarter of 1997. The source of funds for this project is expected to be cash flow from operations and/or cash reserves.
The Partnership had no other material commitments for renovations or capital improvements at December 31, 1996.
On November 6, 1996, the Partnership established an Interest Repurchase Reserve in the amount of $25,000 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. With these funds, the Partnership will be able to repurchase 35,714 Units at a price of $0.70 per Unit. The Partnership notified the limited partners by letter dated November 6, 1996 of the establishment of the Interest Repurchase Reserve and the opportunity to request that the Partnership repurchase Units at the established price. As of December 31, 1996, 4,744 Units have been repurchased. Repurchased Units are being retired by the Partnership, thus increasing the share of ownership of each remaining investor.
Subsequent to December 31, 1996, the repurchase of Partnership Units was indefinitely interrupted in order to conserve cash. This step is being taken until it is clear that, in the General Partner's opinion, the Partnership has the necessary cash reserves to meet future leasing and tenant finish costs and has rebuilt cash reserves to meet the ongoing needs of the Partnership.
The L/U II Joint Venture owns approximately 6 acres of land adjacent to the Lakeshore Business Center development in Ft. Lauderdale, Florida. The Partnership's proportionate interest at December 31, 1996 in the asset held for sale is $96,949. The contract for sale which was previously disclosed in the Partnership's Form 10-K for the year ended December 31, 1995 has been cancelled by the purchaser due to the fact that bids for construction exceeded available funds. The Joint Venture continues to actively market the asset for sale. In management's opinion, the net book value of the asset held for sale approximates the fair market value less cost to sell.
- 28 -
Capital Resources and Liquidity - Continued - -------------------------------------------
The following describes the efforts being taken by the Partnership to increase the occupancy levels at the Partnership's properties. At Lakeshore Business Center Phases I and II, the Partnership has an on-site leasing agent, an employee of NTS Development Company (an affiliate of the General Partner), who makes calls to potential tenants, negotiates lease renewals with current tenants and manages local advertising with the assistance of NTS Development Company's marketing staff. The leasing and renewal negotiations of University Business Center Phase II are handled by a leasing agent, an employee of NTS Development Company, located at the University Business Center development.
Leases at the Partnership's properties provide for tenants to contribute toward the payment of common area expenses, insurance and real estate taxes. Leases at the Partnership's properties also provide for rent increases which are based upon increases in the consumer price index. These lease provisions 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 reflects management's best judgement based on factors known, involve risks and uncertainties. Actual results could differ materially from these anticipated in any forward-looking statements as a result of a number of factors, including but not limited to those discussed below. Any forward-looking information provided by the Partnership pursuant to the safe harbor established by recent securities legislation should be evaluated in the context of these factors.
The Partnership's principal activity is the leasing and management of commercial business centers. If a major commercial tenant defaults on its lease, the Partnership's ability to make payments due under its debt agreements, payments 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.
- 29 -
Item 8.

Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ----------------------------------------
To NTS-Properties Plus Ltd:
We have audited the accompanying balance sheets of NTS-Properties Plus Ltd. (a Florida limited partnership) as of December 31, 1996 and 1995, and the related statements of operations, partners' equity, and cash flows for each of the three years in the period ended December 31, 1996. These financial statements and the schedules referred to below are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of NTS-Properties Plus Ltd. as of December 31, 1996 and 1995 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996 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 50 through 52 are presented for purposes of complying with the Securities and Exchange Commission's rules and are not a required part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Louisville, Kentucky February 25, 1997
- 30 -
The accompanying notes to financial statements are an integral part of these statements.
- 31 -
The accompanying notes to financial statements are an integral part of these statements.
- 32 -
NTS-PROPERTIES PLUS LTD. ------------------------
STATEMENTS OF PARTNERS' EQUITY ------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 ----------------------------------------------------
Limited General Partners Partners Total -------- -------- -------
Balances at December 31, 1993 $ (42,219) $ (119,311) $ (161,530)
Net loss (1,785,134) (18,032) (1,803,166) ----------- ----------- ----------- Balances at December 31, 1994 (1,827,353) (137,343) (1,964,696)
Net loss (382,368) (3,862) (386,230) ----------- ----------- ----------- Balances at December 31, 1995 (2,209,721) (141,205) (2,350,926)
Net loss (143,606) (1,451) (145,057)
Repurchase of limited partnership Units (3,321) -- (3,321) ----------- ----------- -----------
Balances at December 31, 1996 $(2,356,648) $ (142,656) $(2,499,304) =========== =========== ===========
The accompanying notes to financial statements are an integral part of these statements.
- 33 -
The accompanying notes to financial statements are an integral part of these statements.
- 34 -
NTS-PROPERTIES PLUS LTD. ------------------------
NOTES TO FINANCIAL STATEMENTS -----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 ----------------------------------------------------
1. Significant Accounting Policies -------------------------------
A) Organization ------------
NTS-Properties Plus Ltd. (the "Partnership") is a limited partnership organized under the laws of the State of Florida on April 30, 1987. The general partner is NTS-Properties Plus Associates (a Kentucky limited partnership). The Partnership is in the business of developing, constructing, owning and operating commercial real estate.
B) Properties ------------
The Partnership owns and operates the following properties:
- A 39% 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.
- A 12% joint venture interest in the Lakeshore/University II Joint Venture. A description of the properties owned by the Joint Venture appears below:
- Lakeshore Business Center Phase I - a business center with approximately 103,000 net rentable square feet located in Fort Lauderdale, Florida.
- Lakeshore Business Center Phase II - a business center with approximately 97,000 net rentable square feet located in Fort Lauderdale, Florida.
- University Business Center Phase II - a business center with approximately 78,000 net rentable first floor (office and service) and second floor office square feet and approximately 10,000 net rentable mezzanine square feet located in Orlando, Florida.
- Outparcel Building Sites - approximately 6.2 acres of undeveloped land adjacent to the Lakeshore Business Center development which is zoned for commercial development.
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 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 cash
- 35 -
1. Significant Accounting Policies - Continued -------------------------------------------
C) Allocation of Net Income (Loss) and Cash Distributions - Continued ------------------------------------------------------------------
distributions from all sources equal to their original capital; (3) the balance, 90% to the limited partners and 10% to the general partner. Net operating losses shall be allocated 99% to the limited partners and 1% to the general partner.
D) Tax Status ----------
The Partnership has received a ruling from the Internal Revenue Service stating that the Partnership is classified as a limited partnership for federal income tax purposes. As such, the Partnership makes no provision for income taxes. The taxable income or loss is passed through to the holders of the partnership interests for inclusion on their individual income tax returns.
A reconciliation of net loss for financial statement purposes versus that for income tax reporting is as follows:
1996 1995 1994 --------- --------- -----------
Net loss $(145,057) $(386,230) $(1,803 166)
Items handled differently for tax purposes: Write-off of unamortized tenant finish improvements -- (8,328) (83,565) Allowance for doubtful accounts (5,847) 2,015 (11,739) Depreciation and amortization 110,789 174,563 963,035 Capitalized leasing costs 1,283 5,065 41,693 Rental income 50,697 54,108 290,001 --------- --------- ---------
Taxable income (loss) $ 11,865 $(158,807) $(603,741) ========= ========= =========
E) Use of Estimates in the Preparation of Financial Statements -----------------------------------------------------------
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
F) Joint Venture Accounting ------------------------
The Partnership has adopted the proportionate consolidation method of accounting for joint venture properties. The Partnership's proportionate interest in the venture's assets, liabilities, revenues, expenses and cash flows are combined on a line-by-line basis with the Partnership's own assets, liabilities, revenues, expenses and cash flows. All intercompany accounts and transactions have been eliminated in consolidation.
- 36 -
1. Significant Accounting Policies - Continued -------------------------------------------
F) Joint Venture Accounting - Continued ------------------------------------
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 partners. 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.
G) Cash and Equivalents - Restricted ---------------------------------
Cash and equivalents - restricted represents funds escrowed with mortgage companies for property taxes in accordance with the loan agreements.
Cash and equivalents - restricted at December 31, 1995 also includes escrow funds which were to be released as capital expenditures, leasing commissions and tenant improvements were incurred at the properties owned by the Lakeshore/University II Joint Venture. In 1996, the remaining balance of these escrow funds were released.
H) Basis of Property and Depreciation ----------------------------------
Land, buildings and amenities are stated at cost to the Partnership. Costs directly associated with the acquisition, development and construction of a project are capitalized. Depreciation is computed using the straight-line method over the estimated useful lives of the assets which are 5-30 years for land improvements, 5-30 years for building and improvements and 5 - 30 years for amenities.
Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to be Disposed Of, specifies circumstances in which certain long-lived assets must be reviewed for impairment. If such review indicates that the carrying amount of an asset exceeds the sum of its expected future cash flows, the asset's carrying value must be written down to fair value. Application of this standard during the year ended December 31, 1996, did not result in an impairment loss.
I) Capitalized Leasing Costs -------------------------
The Partnership has capitalized certain costs associated with the initial leasing of the properties. These costs were amortized over a five year period.
J) Organizational Costs --------------------
Organizational costs are expenses incidental to the creation of Joint Ventures such as legal and accounting fees. Organizational costs are amortized over a five-year period.
- 37 -
1. Significant Accounting Policies - Continued -------------------------------------------
K) Rental Income and Deferred Leasing Commissions ----------------------------------------------
Certain of the Partnership's lease agreements are structured to include scheduled and specified rent increases over the lease term. For financial reporting purposes, the income from these leases is being recognized on a straight-line basis over the lease term. Accrued income connected with these leases is included in accounts receivable and totalled $59,643 and $107,413 as of December 31, 1996 and 1995, respectively. All commissions paid to leasing agents are deferred and amortized on a straight-line basis over the term of the lease to which they apply.
L) Advertising -----------
The Partnership expenses advertising-type costs as incurred. Advertising expense was immaterial to the Partnership during the years ended December 31, 1996, 1995 and 1994.
M) Statements of Cash Flows ------------------------
For purposes of reporting cash flows, cash and equivalents include cash on hand and short-term, highly liquid investments with initial maturities of three months or less.
N) Reclassification of 1995 and 1994 Financial Statements ------------------------------------------------------
Certain reclassifications have been made to the December 31, 1995 and 1994 financial statements to conform with December 31, 1996 classifications. These classifications have no effect on previously reported operations.
2. Concentration of Credit Risk ----------------------------
NTS-Properties Plus Ltd. has joint venture investments in commercial properties in Kentucky (Louisville) and Florida (Orlando and Ft. Lauderdale). Substantially all of the tenants are local businesses or are businesses which have operations in the location in which they lease space. The Kentucky property is occupied by one tenant.
3. Interest Repurchase Reserve ---------------------------
On November 6, 1996, the Partnership established an Interest Repurchase Reserve in the amount of $25,000 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. With this Interest Repurchase Reserve, the Partnership will be able to repurchase 35,714 Units at a price of $0.70 per Unit. The Partnership notified the limited partners by letter dated November 6, 1996 of the establishment of the Interest Repurchase Reserve and the opportunity to request that the Partnership repurchase Units at the established price. Through December 31, 1996, 4,744 Units have been repurchased for $3,321. Repurchased Units are being retired by the Partnership, thus increasing the share of ownership of each remaining investor. Subsequent to December 31, 1996, the Partnership indefinitely interrupted the Interest Repurchase Program.
- 38 -
4. Investment in Joint Ventures ----------------------------
A) NTS University Boulevard Joint Venture --------------------------------------
In January 1989, the Partnership entered into a joint venture agreement with NTS-Properties V, a Maryland limited partnership, an affiliate of the general partner of the Partnership, to develop University Business Center Phase II, an approximately 88,000 square foot business center (including approximately 10,000 square feet of mezzanine space), in Orlando, Florida. NTS-Properties V contributed land valued at $1,460,000 and the Partnership contribute development and carrying costs of approximately $8 million. During the second quarter of 1994, NTS-Properties V made an approximately $79,000 capital contribution to the Joint Venture. The capital contribution increased NTS-Properties V's ownership interest percentage from 16% to 17% and reduced the Partnership's ownership percentage from 84% to 83%. The contribution was made to fund a portion of the Joint Venture's operating costs. The net income or net loss is allocated each calendar quarter based upon the respective partnership's contribution. The Partnership's ownership share of University Business Center Phase II was 83% on January 23, 1995 prior to its contribution to the Lakeshore/University II Joint Venture. The Partnership's share of the Joint Venture's net operating income was $12,946 (1995) and $143,953 (1994).
On January 23, 1995, the partners of the NTS University Boulevard Joint Venture contributed University Business Center Phase II to the newly formed Lakeshore/University II (L/U II) Joint Venture. For a further discussion of L/U II Joint Venture, see Note 4C to the Partnership's 1996 financial statements.
B) Blankenbaker Business Center Joint Venture ------------------------------------------
On December 28, 1990 the Partnership entered into a Joint Venture agreement with NTS-Properties VII, Ltd., an affiliate of the general partner of the Partnership, to complete the development of Blankenbaker Business Center 1A. The Partnership 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 the Partnership's capital contribution is $1,700,000, being the appraised value of the Real Property ($6,415,000) reduced by the $4,715,000 mortgage. NTS-Properties VII, Ltd. 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 being 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 its option. The use of the parking lot is a provision of the tenant's lease agreement with the business center. By purchasing the parking lot, the Joint Venture's annual operating expenses were reduced approximately $35,000. The purchase price of the parking lot was determined by an independent appraisal.
On August 16, 1994, the Blankenbaker Business Center Joint Venture amended its joint venture agreement to admit NTS-Properties IV (an affiliate of the general partner of the Partnership) to the Joint Venture. In accordance with the Joint Venture Agreement, NTS- Properties IV contributed $1,100,000 and NTS-Properties VII, Ltd. contributed $500,000. Additional capital was needed by the Blankenbaker Business Center Joint Venture to fund the tenant finish
- 39 -
4. Investment in Joint Ventures - Continued ----------------------------------------
B) Blankenbaker Business Center Joint Venture - Continued ------------------------------------------------------
and leasing costs connected with the project discussed in the following paragraph. However, the Partnership was not in a position to contribute additional capital, nor was NTS-Properties VII, Ltd. in a position to contribute all of the capital required for the project. 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. The general partner of the Partnership 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 the Partnership's joint venture interest would, as a result, decrease.
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 expands Prudential's leased space by approximately 15,000 square feet and extends its current 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 now occupies 100% of the business center (approximately 101,000 square feet). The tenant finish and leasing costs connected with the lease renewal and expansion were approximately $1.4 million.
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 VII, Ltd. in determining each Joint Venture partner's percentage interest.
The Partnership's interest in the Joint Venture decreased from 69% to 39% as a result of the capital contributions by NTS-Properties IV and NTS-Properties VII, Ltd. The respective percentage interests of NTS-Properties IV and NTS-Properties VII, Ltd. in the Joint Venture subsequent to these capital contributions are 30% and 31%.
Net income or loss is allocated each calendar quarter based on the respective partnership's contribution. The Partnership's ownership share was 39% at December 31, 1996. The Partnership's share of the Joint Venture's net operating loss was $61,243 (1996), $79,234 (1995) and $302,899 (1994).
C) Lakeshore/University II Joint Venture -------------------------------------
On January 23, 1995, a new joint venture known as Lakeshore/University II Joint Venture (L/U II Joint Venture) was formed among the Partnership and NTS-Properties IV, NTS-Properties V and NTS/Fort Lauderdale, Ltd., affiliates of the general partner of the Partnership, for purposes of owning Lakeshore Business Center Phases I and II, University Business Center Phase II and certain
- 40 -
4. Investment in Joint Ventures - Continued ----------------------------------------
C) Lakeshore/University II Joint Venture - Continued -------------------------------------------------
undeveloped tracts adjacent to the Lakeshore Business Center development. The table below identifies which properties were contributed to the L/U II Joint Venture and the respective owners of such properties prior to the formation of the joint venture.
Property (Net Asset Contributed) Contributing Owner -------------------------------- ------------------
Lakeshore Business Center NTS-Properties IV and NTS- Phase I ($6,249,667) Properties V
Lakeshore Business Center NTS-Properties Plus Ltd. Phase II (-$1,023,535)
Undeveloped land adjacent to the NTS-Properties Plus Ltd. Lakeshore Business Center development (3.8 acres)(-$670,709)
Undeveloped land adjacent to the NTS/Fort Lauderdale, Ltd. Lakeshore Business Center development (2.4 acres) ($27,104)
University Business Center NTS-Properties V and NTS- Phase II ($953,236) Properties Plus Ltd.
Each of the properties were contributed to the L/U II Joint Venture subject to existing indebtedness, except for Lakeshore Business Center Phase I which was contributed to the joint venture free and clear of any mortgage liens, and all such indebtedness was assumed by the L/U II Joint Venture. Mortgages were recorded on Lakeshore Business Center Phase I in the amount of $5,500,000, and on University Business Center Phase II in the amount of $3,000,000, in favor of the banks which held the indebtedness on University Business Center Phase II, Lakeshore Business Center Phase II and the undeveloped tracts prior to the formation of the joint venture. In addition to the above, NTS-Properties IV also contributed $750,000 to the L/U II Joint Venture. The Partnership's ownership share was 12% at December 31, 1996. The Partnership's share of the joint ventures net operating loss was $124,191 (1996)and $155,457 (1995).
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:
1996 1995 ---------- ---------- Land and improvements $1,847,061 $1,847,061 Buildings and improvements 1,695,234 1,690,674 Amenities 8,307 8,306 ---------- ----------
3,550,602 3,546,041
Less accumulated depreciation 2,429,505 2,291,213 ---------- ----------
$1,121,097 $1,254,828 ========== ========== - 41 -
6. Asset Held for Sale -------------------
Asset held for sale of $96,949 at December 31, 1996 represents the Partnership's proportionate share of approximately 6.2 acres of land owned by the L/U II Joint Venture which is adjacent to the Lakeshore Business Center development in Ft. Lauderdale, Florida. In management's opinion, the net book value of the asset held for sale approximates the fair market value less cost to sell.
7. Mortgages and Notes Payable ---------------------------
Mortgage and notes payable as of December 31 consist of the following:
1996 1995 ----------- ----------- Mortgage payable to an insurance company, bearing interest at a fixed rate of 8.5%, due November 15, 2005, secured by land and building $ 1,619,600 $ 1,736,192
Mortgage payable to an insurance company, bearing interest at a fixed rate of 8.125%, due August 1, 2008, secured by land and building 744,727 --
Mortgage payable to an insurance company, bearing interest at a fixed rate of 8.125%, due August 1, 2008, secured by land and building 713,826 --
Mortgage payable to an insurance company, bearing interest at a fixed rate of 8.125%, due August 1, 2008, secured by land and building 692,194 --
Note payable to a bank bearing interest at a fixed rate of 10.6%, due January 31, 1998, secured by land and building -- 1,156,943
Note payable to a bank bearing interest at a fixed rate of 10.6%,due January 31, 1998, secured by land and building -- 721,518
Note payable to a bank bearing interest at a fixed rate of 10.6%, due January 31, 1998, secured by land -- 155,114
Note payable to a bank bearing interest at a fixed rate of 10.6%, due January 31, 1998, secured by land -- 58,869
Note payable to a bank bearing interest at a fixed rate of 10.6%, due January 31, 1998, secured by land -- 42,738 ---------- ---------- $ 3,770,347 $ 3,871,374 ========== ==========
- 42 -
7. Mortgages and Notes Payable - Continued ---------------------------------------
Scheduled maturities of debt are as follows:
For the Years Ended December 31, Amount -------------------------------- ---------- 1997 $ 242,288 1998 263,238 1999 285,999 2000 310,730 2001 337,600 Thereafter 2,330,492 -----------
$ 3,770,347 ===========
Based on the borrowing rates currently available to the Partnership for loans with similar terms and average maturities, the fair value of long-term debt approximates carrying value.
8. Rental Income Under Operating Leases ------------------------------------
The following is a schedule of minimum future rental income on noncancellable operating leases as of December 31, 1996:
For the Years Ended December 31, Amount ------------------------------- ---------- 1997 $ 609,775 1998 545,679 1999 466,316 2000 399,332 2001 308,981 Thereafter 1,057,578 ----------
$3,387,661 ==========
9. Related Party Transactions --------------------------
Property management fees of $53,080 (1996), $59,849 (1995) and $180,332 (1994) were paid to NTS Development Company, an affiliate of the general partner. The fee is equal to 6% of all revenues from commercial properties pursuant to an agreement with the Partnership. Also pursuant to an agreement, NTS Development Company will receive a repair and maintenance fee equal to 5.9% of costs incurred which relate to capital improvements. The Partnership has incurred $1,335 and $6,446 as a repair and maintenance fee during the years ended December 31, 1996 and 1995, respectively, and has capitalized this cost as part of land, buildings and amenities.
As permitted by an agreement, the Partnership was also charged the following amounts from NTS Development Company for the years ended December 31, 1996, 1995 and 1994. These charges include items which have been expensed as operating expenses - affiliated or professional and administrative expenses - affiliated and items which have been capitalized as deferred leasing commissions, other assets or as land, buildings and amenities.
- 43 -
9. Related Party Transactions - Continued --------------------------------------
The charges were as follows:
1996 1995 1994 -------- -------- -------- Administrative $111,401 $110,191 $125,031 Leasing 19,087 17,194 60,213 Property manager 30,190 38,675 116,074 Other 5,347 2,482 14,624 -------- -------- --------
$166,025 $168,542 $315,942 ======== ======== ========
Accounts payable - operations includes approximately $233,000 and $113,000 due NTS Development Company at December 31, 1996 and 1995, respectively. NTS Development Company has indicated to the Partnership that they will not demand repayment of the amounts outstanding as of December 31, 1996 during 1997. Payments to this affiliate will be made during 1997 as cash flow permits.
10. Commitments and Contingencies -----------------------------
Philip Crosby Associates, Inc. ("Crosby") has leased 100% of University Business Center Phase II. The original lease term is for seven years, and the tenant took occupancy in April 1991. During the years ended December 31, 1994, 1995, and 1996, Crosby sub-leased a portion of the business center. Currently, Crosby has sub-leased, through the end of their lease term, approximately 81,000 square feet, (including approximately 10,000 square feet of mezzanine space) of University Business Center Phase II's approximately 88,000 square feet of net rentable area (or 92%). Of the total being sub-leased, approximately 69,000 square feet (or 85%) is being leased by Full Sail Recorder's Inc. ("Full Sail"), a major tenant at University Business Center Phase I, a neighboring property owned by an affiliate of the General Partner of the Partnership. During 1994, 1995 and 1996, Crosby continued to make rent payments pursuant to the original lease terms. The Joint Venture has received notice that Crosby does not intend to pay full rental due under the original lease agreement from and after January 1997. The rental income from this property accounts for approximately 18% of the partnership's total revenues. The Joint Venture has instituted legal action to seek resolution of this situation. Although the Joint Venture does not presently have lease agreements (except as noted below) with the sub-lessees noted above, beginning February 1997 rent payments from these sub-lessees are being made directly to the Joint Venture. The Joint Venture is currently negotiating directly with the sub-lessees to enter into lease agreements for the space presently sublet. At this time, the future leasing and tenant finish costs which will be required to release this space are unknown except as noted below for the negotiations with Full Sail.
In December 1995, Full Sail signed a 33 month lease with the L/U II Joint Venture for approximately 41,000 square feet it currently sub-leases from Crosby. In November 1996, Full Sail signed a lease amendment which increased the square footage from 41,000 square feet to 48,000 square feet and extended the lease term from 33 months to 76 months. In November 1996, Full Sail also signed a 52 month lease for the remaining approximately 21,000 square feet it presently sub-leases from Crosby. Both lease terms commence April 1998 when the Crosby lease ends. As part of the lease negotiations, Full Sail will receive a total of $450,000 in special tenant allowances ($200,000 resulting from the original lease signed December 1995 and $250,000 resulting
- 44 -
10. Commitments and Contingencies - Continued -----------------------------------------
from the lease amendment signed November 1996). Approximately $92,000 of the total allowance is to be reimbursed by Full Sail to the L/U II Joint Venture. The Partnership's proportionate share of the net commitment ($450,000 less $92,000) is approximately $43,000 or 12%. The tenant allowance will be due and payable to Full Sail pursuant to the previously mentioned lease agreements, as appropriate invoices for tenant finish costs incurred by Full Sail are submitted to the L/U II Joint Venture. The source of funds for this commitment is expected to be cash flows from operations and/or cash reserves.
- 45 -
Item 9.

Item 9. Changes in and Disagreements with Accountants on Accounting and --------------------------------------------------------------- Financial Disclosure --------------------
N/A
PART III
Item 10.

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 Plus Associates. 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 Plus Associates are as follows:
J. D. Nichols - -------------
Mr. Nichols (age 55) is the managing general partner of NTS-Properties Plus Associates and is Chairman of the Board of NTS Corporation (since 1985) and NTS Development Company (since 1977).
Richard L. Good - ---------------
Mr. Good (age 57) 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 Executive Vice President of Jacques-Miller, Inc., a real estate syndication, property management and financial planning firm in Nashville, Tennessee.
NTS Capital Corporation
NTS Capital Corporation (formerly NTS Corporation) is a Kentucky corporation formed in October 1979. J. D. Nichols is Chairman of the Board and the sole director of NTS Capital Corporation.
The Manager of the Partnership's properties is NTS Development Company, the executive officers and/or directors of which are Messrs. J. D. Nichols, Richard L. Good and John W. Hampton:
John W. Hampton - ---------------
Mr. Hampton (age 47) is Senior Vice President of NTS Corporation with responsibility for all accounting operations. Before joining NTS in March 1991, Mr. Hampton was Vice President - Finance and Chief Financial Officer of the Sturgeon-Thornton-Marrett Development Company in Louisville, Kentucky for nine years. Prior to that he was with Alexander Grant & Company CPA's. Mr. Hampton is a Certified Public Accountant and a graduate of the University of Louisville with a Bachelor of Science degree in Commerce. He is a member of the American Institute of CPA's and the Kentucky Society of CPA's.
- 46 -
Item 11.

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 or an affiliate. The Partnership is also required to pay to NTS Development Company a repair and maintenance fee on costs related to specified projects. NTS Development Company provides certain other services to the Partnerships. See Note 9 to the financial statements which sets forth transactions with NTS Development Company for the years ended December 31, 1996, 1995 and 1994.
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.

Item 12. Security Ownership of Certain Beneficial Owners and Management --------------------------------------------------------------
The general partner is NTS-Properties Plus Associates, 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 Plus Associates are as follows:
J. D. Nichols 10172 Linn Station Road 30.10% Louisville, Kentucky 40223
NTS Capital Corporation 10172 Linn Station Road 9.95% Louisville, Kentucky 40223
Richard L. Good 10.00% 10172 Linn Station Road Louisville, Kentucky 40223
The remaining 49.95% interests are owned by various limited partners of NTS-Properties Plus Associates.
Item 13.

Item 13. Certain Relationships and Related Transactions ----------------------------------------------
Property management fees of $53,080 (1996), $59,849 (1995) and $180,332 (1994) were paid to NTS Development Company, an affiliate of the general partner. The fee is equal to 6% of all revenues from commercial properties pursuant to an agreement with the Partnership. Also permitted by an 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 $1,335 and $6,446 as a repair and maintenance fee during the years ended December 31, 1996 and 1995, respectively, and has capitalized this cost as part of land, buildings and amenities.
As permitted by an agreement, the Partnership was also charged the following amounts from NTS Development Company for the years ended December 31, 1996, 1995 and 1994. These charges include items which have been expensed as operating expenses - affiliated or professional and administrative expenses - affiliated and items which have been capitalized as deferred leasing commissions, other assets or as land, buildings and amenities.
- 47 -
Item 13. Certain Relationships and Related Transactions - Continued ----------------------------------------------------------
The charges were as follows:
1996 1995 1994 -------- -------- -------- Administrative $111,401 $110,191 $125,031 Leasing 19,087 17,194 60,213 Property manager 30,190 38,675 116,074 Other 5,347 2,482 14,624 -------- -------- --------
$166,025 $168,542 $315,942 ======== ======== ========
Accounts payable - operations includes approximately $233,000 and $113,000 due NTS Development at December 31, 1996 and 1995, respectively. NTS Development Company has indicated to the Partnership that they will not demand repayment of the amounts outstanding as of December 31, 1996 during 1997.
There are no other agreements or relationships between the Partnership, the General Partner and its affiliates than those previously described.
- 48 -
PART IV
Item 14.

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ---------------------------------------------------------------
1. Financial statements
The financial statements for the years ended December 31, 1996, 1995 and 1994, together with the report of Arthur Andersen LLP dated February 25, 1997 appear in Item 8. The following financial statement schedules should be read in conjunction with such financial statements.
2. Financial statement schedules
Schedules Page No.
III - Real Estate and Accumulated Depreciation 50 - 52
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 Plus Ltd., a Florida limited partnership
10. Property Management and * Construction Agreement between NTS Development Company and NTS-Properties Plus 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 July 1, 1987 (effective June 24, 1988) under Commission File No. 33-15475.
4. Reports on Form 8-K
Form 8-K was filed November 6, 1996 to report in Item 5 the establishment of an Interest Repurchase Reserve pursuant to Section 16.4 of the Partnership's Amended and Restated Agreement of Limited Partnership.
Form 8-K was filed December 23, 1996 to report in Item 5 the Partnership had received notice that Philip Crosby Associates, Inc. (Crosby) does not intend to pay full rental due under its lease from and after January 1997. Crosby leases the majority of space in University Business Center Phase II, which is owned by the Lakeshore/University II Joint Venture. The Partnership owns a 12% interest in this Joint Venture.
- 49 -
- 50 -
- 51 -
- 52 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities exchange Act of 1934, NTS-Properties Plus Ltd. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
NTS-PROPERTIES PLUS LTD. ------------------------ (Registrant)
BY: NTS-Properties Plus Associates, BY: NTS Capital Corporation, General Partner
/s/ John W. Hampton ------------------- John W. Hampton Senior Vice President
Date: March 27, 1997
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 Plus J. D. Nichols Associates and Chairman of the Board and Sole Director of NTS Capital Corporation
/s/ Richard L. Good General Partner of NTS-Properties Plus Richard L. Good Associates 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.
- 53 -