UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-11655
NTS-PROPERTIES IV
(Exact name of registrant as specified in its charter)
| 10172 Linn Station Road | |
| 61-1026356 | Louisville, Kentucky 40223 |
| (I.R.S. Employer Identification No.) | (Address of principal executive offices) |
Registrant's telephone number, including area code:(502) 426-4800
Kentucky
(State or other jurisdiction of incorporation or organization)
Securities registered pursuant to Section 12(b) of the Act: None
Title of each Class: None
Name of each exchange on which registered: None
Securities registered pursuant to Section 12(g) of the Act:
| Limited partnership interests | None | |
| | | |
| (Title of Class) | (Name of each exchange on which registered) |
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
the 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]
Indicate by check mark whether Registrant is an accelerated filer (as defined by Rule 12b-2
of the Securities Exchange Act of 1934).
Yes [ ]
No [X]
State the aggregate market value of the voting and non-voting common equity held by non-
affiliates computed by reference to the price at which the common equity was sold, or the
average bid and asked price of such common equity, as of a specified date within the past 60
days: No aggregate market value can be determined because no established market exists for the
limited partnership interests.
TABLE OF CONTENTS
PART I
| Pages | ||||
| Items 1. and 2. | Business and Properties | 3-19 | ||
| Item 3. | Legal Proceedings | 19-20 | ||
| Item 4. | Submission of Matters to a Vote of Security Holders | 20 |
PART II
| Item 5. | Market for Registrant's Limited Partnership Interests | |||
| and Related Partner Matters | 21 | |||
| Item 6. | Selected Financial Data | 22-23 | ||
| Item 7. | Management's Discussion and Analysis of Financial Condition | |||
| and Results of Operations | 23-31 | |||
| Item 7A. | Quantitative and Qualitative Disclosures About | |||
| Market Risk | 32 | |||
| Item 8. | Financial Statements and Supplementary Data | 33-68 | ||
| Item 9. | Change in and Disagreements with Accountants on | |||
| Accounting and Financial Disclosure | 69 |
PART III
| Item 10. | Directors and Executive Officers of the Registrant | 70-71 | ||
| Item 11. | Management Remuneration and Transactions | 71-72 | ||
| Item 12. | Security Ownership of Certain Beneficial | |||
| Owners and Management | 72 | |||
| Item 13. | Certain Relationships and Related Transactions | 73 | ||
| Item 14. | Controls and Procedures | 73 |
PART IV
| Item 15. | Exhibits, Financial Statement Schedules and | |||
| Reports on Form 8-K | 74-76 | |||
| Signatures | 77 | |||
| Certifications | 78-79 |
2
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements included in this Form 10-K, particularly those included in Part I, Items 1 and 2 - Business and Properties, and Part II, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A"), may be considered "forward-looking statements" because such statements relate to matters which have not yet occurred. For example, phrases such as "we anticipate," "believe" or "expect" indicate that it is possible that the event anticipated, believed or expected may not occur. Should such event not occur, then the result which we expected also may not occur or occur in a different manner, which may be more or less favorable to us. We do not undertake any obligations to publicly release the result of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances.
Any forward-looking statements included in MD&A, or elsewhere in this report, reflect management's best judgment based on known factors and 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 us pursuant to the "safe harbor" provisions established by recent securities legislation should be evaluated in the context of these factors. See Part II - Item 7 for Cautionary Statements.
PART I
Items 1 and 2 - Business and Properties
Development of Business
NTS-Properties IV (the "Partnership") is a limited partnership organized under the laws of the Commonwealth of Kentucky on May 13, 1983. The General Partner is NTS-Properties Associates IV, a Kentucky limited partnership (the "General Partner"). The general partners of the General Partner are NTS Capital Corporation and J.D. Nichols. As used in this Form 10-K the terms "we," "us" or "our," as the context requires, may refer to the Partnership or its interests in these properties and joint ventures. As of December 31, 2002, the Partnership owned the following properties and joint venture interests listed below:
3
A description of the properties owned by the L/U II Joint Venture as of December 31, 2002 appears
below: 4
We or the joint ventures in which we are a partner have a fee title interest in the above properties.
While we believe that our properties are adequately covered by property insurance, there is a risk
that unknown mold and other microbial damage may not be covered by our insurance. Please see
Part II, Item 7 for a discussion of this potential liability. As of December 31, 2002, our properties and joint venture investments were encumbered by
mortgages as shown in the table below: We are engaged solely in the business of developing, constructing, owning and operating residential
apartments and commercial real estate. See Part II, Item 8 - Note 9 for information regarding our
operating segments. 5
Narrative Description of Business Our current investment objectives are consistent with our original objectives, which are to provide
cash distributions from the operation or financing of our properties, obtain long-term capital gain
treatment on the sale or refinancing of properties, provide limited partners with deferrals of federal
income taxes, and preserve limited partners' capital. Proceeds of any sale or refinancing of our
properties may be distributed to limited partners, or may be used to repay debt or to make capital
improvements to properties. The properties we currently own, which are described in the following section, are the same as those
we originally acquired. Our properties are in a condition suitable for their intended use. We
periodically evaluate whether to retain, refinance, or sell or otherwise dispose of these properties,
with a view toward meeting the above investment objectives, including the making of distributions.
In deciding whether to sell a property, we will consider factors such as potential capital appreciation,
mortgage pre-payment penalties, market conditions, cash flow and federal income tax
considerations, including possible adverse federal income tax consequences to the limited partners.
Distributions have been suspended to fund current and future capital improvements and debt
repayment. For information on distributions, see Part II, Item 5 of this Form 10-K. In addition, see
"Potential Consolidation" later in this section for a discussion of our potential consolidation with
other affiliated entities. Description of Real Property As of December 31, 2002, there were 9 tenants leasing space aggregating approximately 76,000
square feet of rentable area at Commonwealth Business Center Phase I. All leases provide for tenants
to contribute toward the payment of common area maintenance expenses, insurance and real estate
taxes. The tenants who occupy Commonwealth Business Center Phase I are professional service
entities. The principal occupations/professions practiced include insurance and machinery
sales/services. Two tenants individually lease more than 10% of Commonwealth Business Center
Phase I's rentable area. The occupancy levels at the business center as of December 31 were 91%
(2002), 90% (2001), 86% (2000), 93% (1999) and 89% (1998). See Part II, Item 7 for average
occupancy information. The following table contains approximate data concerning the major tenant leases in effect on
December 31, 2002: 6
As of December 31, 2002, there were 8 tenants leasing space aggregating approximately 49,000
square feet of rentable area at Plainview Point Office Center Phases I and II. All leases provide for
tenants to contribute toward the payment of common area maintenance expenses, insurance and real
estate taxes. The tenants who occupy Plainview Point Office Center Phases I and II are professional
service entities. The principal occupations/professions practiced include a business school, mortgage
company and insurance. Two tenants individually lease more than 10% of Plainview Point Office
Center's rentable area. The occupancy levels at the office center as of December 31 were 86%
(2002), 84% (2001), 77% (2000), 79% (1999) and 65% (1998). See Part II, Item 7 for average
occupancy information. The following table contains approximate data concerning the major tenant leases in effect on
December 31, 2002: Apartments at The Willows of Plainview Phase I include one and two-bedroom lofts and deluxe
apartments and two-bedroom town homes. All apartments have wall-to-wall carpeting, individually
controlled heating and air conditioning, dishwashers, ranges, refrigerators and garbage disposals.
All apartments, except one-bedroom lofts have washer/dryer hook-ups. The one-bedroom lofts have
stackable washers and dryers. Tenants have access to and the use of coin-operated washer/dryer
facilities, clubhouse, management offices, pool, whirlpool and tennis courts. Monthly rental rates at The Willows of Plainview Phase I start at $699 for one-bedroom apartments,
$959 for two-bedroom apartments and $1,059 for two-bedroom town homes, with additional
monthly rental amounts for special features and locations. Tenants pay all costs of heating, air
conditioning, water, sewer and electricity. Most leases are for a period of one year, however some
apartments will be rented on a shorter term basis at an additional charge. The occupancy levels at
the apartment complex as of December 31 were 92% (2002), 78% (2001), 87% (2000), 96% (1999)
and 86% (1998). See Part II, Item 7 for average occupancy information. The following is information regarding the joint venture properties in which we have a 10% or
greater interest as of and for the year ending December 31, 2002. We had a 9.7%, 4.96% and 3.97%
joint venture interest in The Willows of Plainview Phase II, Plainview Point III Office Center and
Golf Brook Apartments, respectively, as of and for the year ending December 31, 2002. 7
A single tenant leases 100% of Blankenbaker Business Center 1A. The annual base rent, which
excludes the cost of utilities, is $7.48 per square foot. The lease term is for 11 years and expires in
July 2005. The lease provides for the tenant to contribute toward the payment of common area
maintenance expenses, insurance and real estate taxes. The tenant is a professional service entity
in the insurance industry. The occupancy level at the business center as of December 31, 2002,
2001, 2000, 1999 and 1998 was 100%. See Part II, Item 7 for average occupancy information. The following table contains approximate data concerning the major tenant lease in effect on
December 31, 2002: As of December 31, 2002, there were 30 tenants leasing space aggregating approximately 73,000
square feet of rentable area at Lakeshore Business Center Phase I. All leases provide for tenants to
contribute toward the payment of common area maintenance expenses, insurance, utilities and real
estate taxes. The tenants who occupy Lakeshore Business Center Phase I are professional service
entities. The principal occupations/professions practiced include telemarketing services, financial
services and computer integration services. There are no tenants that individually lease 10% or more
of Lakeshore Business Center Phase I's rentable area. The occupancy levels at the business center
as of December 31 were 71% (2002), 89% (2001), 85% (2000), 73% (1999) and 85% (1998). See
Part II, Item 7 for average occupancy information. As of December 31, 2002, there were 20 tenants leasing space aggregating approximately 79,000
square feet of the rentable area at Lakeshore Business Center Phase II. All leases provide for tenants
to contribute toward the payment of common area maintenance expenses, insurance, utilities and real
estate taxes. The tenants who occupy Lakeshore Business Center Phase II are professional service
entities. The principal occupations/professions practiced include medical equipment leasing,
insurance services and management offices for the Florida state lottery. One tenant individually
leases more than 10% of Lakeshore Business Center Phase II's rentable area. The occupancy levels
at the business center as of December 31 were 81% (2002), 82% (2001), 86% (2000), 72% (1999)
and 79% (1998). See Part II, Item 7 for average occupancy information. 8
The following table contains approximate data concerning a major tenant lease in effect on
December 31, 2002: As of December 31, 2002, there were 3 tenants leasing approximately 15,000 square feet of the
rentable area at Lakeshore Business Center Phase III. All leases provide for tenants to contribute
toward the payment of common area maintenance expenses, insurance, utilities and real estate taxes.
Tenants who occupy space at Lakeshore Business Center Phase III are professional service entities.
The principal occupations/professions practiced include insurance services and telecommunications.
The occupancy levels at the business center as of December 31 were 37% (2002), 28% (2001) and
12% (2000). See Part II, Item 7 for average occupancy information. The following table contains approximate data concerning the major tenant leases in effect on
December 31, 2002: Additional Operating Data Additional operating data regarding our properties is furnished in the following table: 9
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, 3-30 years for buildings and
improvements, 3-30 years for amenities and the applicable lease term for tenant improvements. The
aggregate cost of our properties for federal tax purposes is approximately $15,446,000. Joint Venture Investments On September 1, 1984, we entered into a joint venture agreement with NTS-Properties V to develop,
construct, own and operate a 144 - unit luxury apartment complex on an 8.29 acre site in Louisville,
Kentucky known as The Willows of Plainview Phase II. The term of the joint venture shall continue
until dissolved. Dissolution shall occur upon, but not before, the first to occur of the following: The apartment complex is encumbered by permanent mortgages with two insurance companies.
Both loans are secured by a first mortgage on the property. The outstanding balances of the
mortgages on December 31, 2002 total $3,984,571 ($2,494,654 and $1,489,917). The mortgages
are recorded as a liability of the joint venture. Both mortgages bear interest at a fixed rate of 7.2%
and are due January 5, 2013. At maturity, we believe the loans will have been repaid based on the
current rate of amortization. The net cash flow for each calendar quarter is distributed in accordance with the respective
percentage interests. The term "Net Cash Flow" means the excess, if any, of (A) the gross receipts
from the operations of the joint venture property (including investment income) for such period plus
any funds released from previously established reserves (referred to in clause (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 during such period not funded by capital
contributions, loans or paid out of previously established reserves, (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.
"Percentage Interest" means that percentage which the capital contributions of a Partner bears to the
aggregate capital contributions of all Partners. Net income or loss is allocated between the
Partners in accordance with their joint venture agreement. Our ownership share was 9.70% on
December 31, 2002, 2001 and 2000. 10
On September 1, 1985, we entered into a joint venture agreement with NTS-Properties VI to
develop, construct, own and operate a 158-unit luxury apartment complex on a 13.15 acre site in
Orlando, Florida known as Golf Brook Apartments Phase I. On January 1, 1987, the joint venture
agreement was amended to include Golf Brook Apartments Phase II, a 37-unit luxury apartment
complex located on a 3.069 acre site adjacent to Golf Brook Apartments Phase I. The term of the
joint venture shall continue until dissolved. Dissolution shall occur upon, but not before, the first
to occur of the following: Golf Brook Apartments is encumbered by a mortgage payable to an insurance company. The current
mortgage payable of $6,899,113 is recorded as a liability by NTS-Properties VI in accordance with
the joint venture agreement. The mortgage payable bears interest at a fixed rate of 7.57%, is due
May 15, 2009 and is secured by the assets of Golf Brook Apartments. Monthly principal payments
are based upon a 12-year amortization schedule. At maturity, we believe the loan will have been
repaid based on the current rate of amortization. The net cash flow for each calendar quarter is distributed in accordance with the respective
percentage interests. The term "Net Cash Flow" means the excess, if any, of (a) the sum of (i) the
gross receipts of the joint venture property, for such period, other than capital contributions, plus (ii)
any funds from previously established reserves (referred to in clause (b) (iv) below), over (b) the sum
of (i) all cash expenses paid by the joint venture property during such period, (ii) all capital
expenditures paid in cash during such period, (iii) payments during such period on account of
amortization of the principal of any debts or liabilities of the joint venture property and (iv) reserves
for contingent liabilities and future expenses of the joint venture property, as established by the
Partners; provided, however, that the amounts referred to in (i), (ii) and (iii) above shall be taken into
account only to the extent not funded by capital contributions or paid out of previously established
reserves. "Percentage Interest" means that percentage which the capital contributions of a Partner
bears to the aggregate capital contributions of all the Partners. Net income or loss is allocated
between the Partners in accordance with their joint venture agreement. Our ownership share was
3.97% on December 31, 2002, 2001 and 2000. 11
On March 1, 1987, we entered into a joint venture agreement with NTS-Properties VI to develop,
construct, own and operate an office building in Louisville, Kentucky known as Plainview Point III
Office Center. The terms of the joint venture shall continue until dissolved. Dissolution shall occur
upon, but not before, the first to occur of the following: Plainview Point III Office Center is encumbered by a mortgage payable to a bank. The current
mortgage payable of $3,065,058 is recorded as a liability by NTS-Properties VI in accordance with
the joint venture agreement. The mortgage payable bears interest at 8.38%, matures December 1,
2010 and is secured by the assets of Plainview Point III Office Center. At maturity, we believe the
loan will have been repaid based on the current rate of amortization. The net cash flow for each calendar quarter is distributed in accordance with the respective
percentage interests. The term "Net Cash Flow" means the excess, if any, of (a) the sum of (i) the
gross receipts of the joint venture property, for such period, other than capital contributions, plus (ii)
any funds from previously established reserves (referred to in clause (b) (iv) below), over (b) the sum
of (i) all cash expenses paid by the joint venture property during such period, (ii) all capital
expenditures paid in cash during such period, (iii) payments during such period on account of
amortization of the principal of any debts or liabilities of the joint venture property and (iv) reserves
for contingent liabilities and future expenses of the joint venture property, as established by the
Partners; provided, however, that the amounts referred to in (i), (ii) and (iii) above shall be taken into
account only to the extent not funded by capital contributions or paid out of previously established
reserves. "Percentage Interest" means that percentage which the capital contributions of a Partner
bears to the aggregate capital contributions of all the Partners. Net income or loss is allocated
between the Partners in accordance with their joint venture agreement. Our ownership share was
4.96% on December 31, 2002, 2001 and 2000. 12
On August 16, 1994, the Blankenbaker Business Center joint venture agreement was amended to
admit us to the joint venture. The joint venture was originally formed on December 28, 1990
between NTS-Properties Plus Ltd. and NTS-Properties VII, Ltd., affiliates of our General Partner,
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 our General Partner. The
use of the parking lot is a provision of the tenant's lease agreement with the business center. The
terms of the joint venture shall continue until dissolved. Dissolution shall occur upon, but not
before, the first to occur of the following: The joint venture obtained permanent financing of $4,800,000 in November 1994. The outstanding
balance on December 31, 2002 was $1,733,466. The mortgage is recorded as a liability of the joint
venture. 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, we
believe the mortgage will have been repaid based on the current rate of amortization. The net cash flow for each calendar quarter is distributed in accordance with the 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 the 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 loss is allocated between the
partners in accordance with their joint venture agreement. Our ownership share was 29.61% on
December 31, 2002, 2001 and 2000. 13
In June 2002, NTS-Properties Plus, one of the original members of the Blankenbaker Business
Center joint venture, merged into ORIG, LLC, an affiliate of ours. As a result of the merger, ORIG
has succeeded to the interests of NTS-Properties Plus in the joint venture. See the information under
the caption "Ownership of Joint Venture" in Part II, Item 7 of this Form 10-K. Lakeshore/University II Joint Venture On January 23, 1995, a joint venture known as the Lakeshore/University II Joint Venture (the "L/U
II Joint Venture") was formed among us and NTS-Properties V, NTS-Properties Plus Ltd. and
NTS/Fort Lauderdale, Ltd., affiliates of our General Partner, for purposes of owning Lakeshore
Business Center Phases I and II, University Business Center Phase II (property sold during 1998)
and certain undeveloped tracts of land 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. The term of the joint venture shall continue until dissolved. Dissolution shall occur upon, but not
before, the first to occur of the following: 14
The properties of the L/U II Joint Venture are encumbered by mortgages payable to an insurance
company as follows: The loans are recorded as liabilities of the L/U II Joint Venture. The mortgages of Lakeshore
Business Center Phases I and II bear interest at a fixed rate of 8.125% and are due August 1, 2008.
Monthly principal payments are based upon a 12-year amortization schedule. At maturity, we
believe the loans will have been repaid based on the current rate of amortization. The mortgage of
Lakeshore Business Center Phase III bears interest at a variable rate based on LIBOR daily rate plus
2.3% and is due September 8, 2003. As of December 31, 2002, the interest rate was 4.17%. We
anticipate replacing the construction loan with permanent financing at or before its maturity. On July 1, 2000 and July 1, 1999, NTS-Properties V contributed $500,000 and $1,737,000,
respectively, to the L/U II Joint Venture. The other partners in the joint venture, including us, did
not make capital contributions at that time. Accordingly, the ownership percentages of the other
partners in the joint venture decreased. Effective July 1, 2000, our percentage of ownership in the
joint venture was 10.92%, as compared to 11.93% prior to July 1, 2000, and 17.86% prior to July
1, 1999. On July 23, 1999, the L/U II Joint Venture sold 2.4 acres of land adjacent to the Lakeshore Business
Center for a price of $528,405. We had an 11.93% interest in the joint venture at that date. The net cash flow for each calendar quarter is distributed in accordance with the respective
percentage interest. The term "Net Cash Flow" means the excess, if any, of (A) the sum of (i) the
gross receipts of the joint venture properties for such period (including loan proceeds), other than
capital contributions, plus (ii) any funds released 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
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 and (iv) reserves for contingent liabilities and future expenses of the
joint venture, 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 loss is allocated between the partners in accordance with their
joint venture agreement. Our ownership share was 10.92% on December 31, 2002, 2001 and 2000. 15
In June 2002, NTS-Properties Plus, one of the original members of the L/U II Joint Venture, merged
into ORIG, LLC, an affiliate of ours. As a result of the merger, ORIG has succeeded to the interests
of NTS-Properties Plus in the joint venture. See the information under the caption "Ownership of
Joint Venture" in Part II, Item 7 of this Form 10-K. Our properties are subject to competition from similar types of properties (including, in certain areas,
properties owned or managed by affiliates of our General Partner) in the respective vicinities in
which they are located. Such competition is generally for the retention of existing tenants at lease
expiration or for new tenants when vacancies occur. We maintain the suitability and competitiveness
of our properties primarily on the basis of effective rents, amenities and service provided to tenants.
Competition is expected to increase in the future as a result of the construction of additional
properties. In the vicinity of Golf Brook Apartments, there are three apartment communities
currently under construction, one apartment community slated to start construction in 2003 and one
apartment community that could potentially start construction in 2003. Construction on the first
community started in 2002, with completion scheduled for late summer 2003. This community will
have 294 apartments. The construction of the second community began in 2002 with a completion
date scheduled for fall 2003. This community will have 200 apartments. The construction of the
third community also started in 2002 but the completion date is unknown at this time. The
community will have 350 apartments. The fourth community was graded in 2002 and construction
is scheduled to begin in 2003. The completion date is unknown at this time. This community will
have 754 apartments. The fifth community is a proposed addition to an existing community of 286
apartments. No construction start date or completion date has been determined. In the vicinity of
The Willows of Plainview (Phase I, Phase II and The Park at the Willows), there are three apartment
communities scheduled to start construction in 2003. The first community will have approximately
300 units and is scheduled to break ground in Spring 2003. The second community will have
approximately 500 units and is scheduled to begin construction in August 2003. The third
community will have approximately 200 units and is expected to start construction some time in the
late summer of 2003. The expected completion date for all three communities is unknown at this
time. Currently, the effect these new properties will have on occupancy at Golf Brook Apartments
and The Willows of Plainview is unknown. We have not commissioned a formal market analysis
of competitive conditions in any market in which we own properties, but rely upon the market
condition knowledge of the employees of NTS Development Company who manage and supervise
leasing for each property. See "Conflict of Interest." NTS Development Company, an affiliate of our General Partner, directs the management of our
properties pursuant to a written agreement (the "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 IV. Under the Agreement, NTS
Development Company establishes rental policies and rates and directs the marketing activity of 16
leasing personnel. NTS Development Company 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, NTS Development Company received a total of $135,082 in
property management fees for the year ended December 31, 2002. $81,718 was paid by commercial
properties and $53,364 was paid by 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 Agreement requires us to purchase all insurance relating to the managed properties,
to pay the direct out-of-pocket expenses of NTS Development Company in connection with our
operations, including the cost of goods and materials used for and on our behalf, and to reimburse
NTS Development Company for the salaries, commissions, fringe benefits and related employment
expenses of personnel. The term of the Agreement between NTS Development Company and us was initially for five years,
and renewed thereafter for succeeding one-year periods, until cancelled. The Agreement is subject
to cancellation by either party upon 60-days written notice. As of December 31, 2002, the
Agreement is still in effect. Information about our working capital practices is included in Management's Discussion and
Analysis of Financial Condition and Results of Operations in Part II, Item 7. We do not consider our operations to be seasonal to any material degree. Principals of the General Partner or its affiliates own or operate real estate properties that compete,
directly or indirectly, with properties owned by us. Because we were organized by, and are operated
by the General Partner, conflicts arising from our competition with properties owned by affiliated
partnerships are not resolved through arms-length negotiations, but through the exercise of the
General Partner's judgment consistent with its fiduciary responsibility to the limited partners and
our 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 our affairs. A
provision has been made in our Partnership Agreement that the General Partner will not be liable
to us except for acts or omissions performed or omitted fraudulently, in bad faith or with negligence.
The Partnership Agreement provides for indemnification of the General Partner by us for liability
resulting from errors in judgment or certain acts or omissions. The General Partner and its affiliates
have the right to compete with our properties including the right to develop competing properties
now and in the future, in addition to the existing properties which may compete directly or
indirectly. 17
NTS Development Company, an affiliate of the General Partner, acts in a similar capacity for other
affiliated entities in the same geographic region where we have property interests. As a result of the
affiliation between NTS Development Company and our General Partner, there is a conflict of
interest between our General Partner's duty to the limited partners and its incentive to cause us to
retain our properties because of the payment of fees to NTS Development Company. We believe
the agreement with NTS Development Company is on terms no less favorable to us 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. We have no employees. Under the terms of the property management agreement with NTS
Development Company, NTS Development Company makes its employees available to perform
services for us. In addition to the property management fees that we pay to NTS Development
Company, we reimburse this affiliate for the actual costs of providing such services. See Part II,
Item 8 - Note 7 and Part III, Item 13 for further discussions of related party transactions. Our General Partner, along with the general partners of four other public limited partnerships
affiliated with us, is investigating a consolidation with other affiliated entities. In addition to these
affiliated entities, the consolidation would likely involve several private partnerships and our General
Partner. The new combined entity would own all of the properties currently owned by the various
participants in the consolidation, and the limited partners or other owners of these entities would
receive an ownership interest in the combined entity. The number of ownership interests to be
received by limited partners and the other owners of the entities participating in the consolidation
would likely be determined based on the relative value of the assets contributed to the combined
entity by each participant in the consolidation, reduced by any indebtedness assumed by the entity.
The majority of the contributed assets would consist of real estate properties, whose relative values
would be based on appraisals. The potential benefits of consolidating the entities include: reducing
the administrative costs as a percentage of assets and revenues by creating a single public entity;
diversifying limited partners' investments in real estate to include additional markets and types of
properties; and creating an asset base and capital structure that may enable greater access to the
capital markets. There are, however, also a number of potential adverse consequences to a
consolidation such as, the expenses associated with a consolidation and the fact that the duration of
the new entity would likely exceed our anticipated duration, and that the interests of our limited
partners in the combined entity would be smaller on a percentage basis than their interests in us.
Further, the new entity may adopt investment and management policies that are different from those
presently used by our General Partner. A consolidation requires approval of our limited partners and
the limited partners and other equity holders of the other proposed participants to the consolidation.
Accordingly, there is no assurance that the consolidation will occur. 18
Website Information Our Internet website address is www.ntsdevelopment.com. Our annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed
or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act are available and may
be accessed free of charge through the "About NTS" section of our Internet website as soon as
reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Our
Internet website and the information contained therein or connected thereto are not intended to be
incorporated into this Annual Report on Form 10-K. On December 12, 2001, three individuals filed an action in the Superior Court of the State of
California for the County of Contra Costa against our General Partner, the general partners of four
public partnerships affiliated with us and several individuals and entities affiliated with us. The
action purports to bring claims on behalf of a class of limited partners based on, among other things,
tender offers made by the public partnerships and an affiliate of our General Partner. The plaintiffs
allege, among other things, that the prices at which limited partnership interests were purchased in
these tender offers were too low. The plaintiffs are seeking monetary damages and equitable relief,
including an order directing the disposition of the properties owned by the public partnerships and
the distribution of the proceeds. No amounts have been accrued as a liability for this action in our
financial statements at December 31, 2002. Under an indemnification agreement with our General
Partner, we are responsible for the costs of defending this action. For the year ended December 31,
2002, our share of these legal costs was approximately $28,000, which was expensed. On September 24, 2002, in connection with the above-described lawsuit, the plaintiffs voluntarily
dismissed two of the individuals and one of the entities that had objected to the lawsuit on personal
jurisdiction grounds. This dismissal was the result of an agreement under which some defendants
agreed not to contest jurisdiction and plaintiffs agreed to dismiss other defendants. Additionally,
on October 22, 2002, the court issued an order sustaining the demurrer of our General Partner and
the general partners of two limited partnerships affiliated with us. The effect of this ruling is that
our General Partner and the other two general partners are no longer parties to the lawsuit. On the
same date the court overruled the demurrer of the general partners of two of the partnerships
affiliated with us and one individual and two entities affiliated with us. The entities and individuals
whose demurrers were overruled remain defendants in the lawsuit. These parties believe the lawsuit
is without merit, and are vigorously defending it. On February 27, 2003, two individuals filed a class and derivative action in the Circuit Court of
Jefferson County, Kentucky against our General Partner, the general partners of three public
partnerships affiliated with us and several individuals and entities affiliated with us. On March 21,
2003, the complaint was amended to include the general partners of another public partnership
affiliated with us and a partnership that was affiliated with us but is no longer in existence. In the
amended complaint, the plaintiffs purport to bring claims on behalf of a class of limited partners and
derivatively on behalf of us and affiliated public partnerships based on alleged overpayments of fees,
prohibited investments, improper failures to make distributions, purchases of limited partnership 19
interests at insufficient prices and other violations of the limited partnership agreements. The
plaintiffs are seeking, among other things, compensatory and punitive damages in an unspecified
amount, an accounting, the appointment of a receiver or liquidating trustee, the entry of an order of
dissolution against the public partnerships, a declaratory judgment, and injunctive relief. Our
General Partner believes that this action is without merit, and intends to vigorously defend it. We do not believe there is any other litigation threatened against us other than routine litigation
arising out of the ordinary course of business, some of which is expected to be covered by insurance,
none of which is expected to have a material effect on our financial position or results of operations
except as discussed herein. None. 20
PART II There is no established trading market for the limited partnership interests. We had 1,219 limited
partners as of January 31, 2003. Cash distributions and allocations of income and loss are made as
described in Item 8 - Note 1D. No distributions were paid during 2002 or 2001. 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 have been suspended to
fund current and future capital improvements and debt repayment. Our ability to pay distributions
is dependent upon, among other things, our ability to refinance properties on favorable terms. 21
Item 6 - Selected Financial Data Years ended December 31: 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. 22
The Emerging Issues Tasks Force ("EITF") of the Financial Accounting Standards Board ("FASB")
reached a consensus on Issue No. 00-1, "Applicability of the Pro Rata Method of Consolidation to
Investments in Certain Partnerships and Other Unincorporated Joint Ventures." The EITF reached
a consensus that a proportionate gross financial statement presentation (referred to as "proportionate
consolidation" in the Notes to Financial Statements) is not appropriate for an investment in an
unincorporated legal entity accounted for by the equity method of accounting, unless the investee
is in either the construction industry or an extractive industry where there is a longstanding practice
of its use. The consensus is applicable to financial statements for annual periods ending after June 15, 2000.
We have applied the consensus to all comparative financial statements, restating them to conform
with the consensus for all periods presented. The application of this consensus did not result in a
restatement of previously reported partners' equity or results of operations, but did result in a
recharacterization or reclassification of certain financial statements' captions and amounts. The data
in the table above has been restated for all periods presented. Item 7 - Management's Discussion and Analysis of Financial Condition and Results of
Operations This Management's Discussion and Analysis of Financial Condition and Results of Operations
("MD&A") should be read in conjunction with the Financial Statements in Item 8 and the
Cautionary Statements below. Critical Accounting Policies Our most critical business assumption is that our properties' occupancy will remain at a level which
provides for debt payments and adequate working capital, currently and in the future. If occupancy
were to fall below that level and remain at or below that level for a significant period of time, then
our ability to make payments due under our debt agreements and to continue paying daily
operational costs would be greatly affected. We review properties for impairment on a property-by-property basis whenever events or changes
in circumstances indicate that the carrying value may not be recoverable. These circumstances
include, but are not limited to, declines in cash flows, occupancy and comparable sales per square
foot at the property. We recognize an impairment of property when the estimated undiscounted
operating income before depreciation and amortization is less than the carrying value of the property.
To the extent an impairment has occurred, we charge to income the excess of the carrying value of
the property over its estimated fair value. We may decide to sell properties that are held for use. The
sales prices of these properties may differ from their carrying values. 23
During the year ended December 31, 2002, we adopted Statement of Financial Accounting Standards
("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No.
144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of," and the accounting and reporting provisions of Accounting
Principles Board Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events
and Transactions." SFAS No. 144 requires one accounting model to be used for long-lived assets
to be disposed of by sale, whether previously held or used or newly acquired, and it broadens the
presentation of discontinued operations to include more disposal transactions. Our adoption of
SFAS No. 144 did not impact the financial statements in 2002. The occupancy levels at our properties and joint ventures as of December 31 were as follows: 24
The average occupancy levels at our properties and joint ventures for the years ended December 31
were as follows: Rental and Other Income The rental and other income generated by our properties and joint ventures for the years ended
December 31 were as follows: 25
On June 25, 2002, NTS-Properties Plus Ltd. merged with ORIG, LLC, ("ORIG") an affiliate of our
General Partner. ORIG is the surviving entity as a result of this merger. NTS-Properties IV
continues to hold a 29.61% interest in the Blankenbaker Business Center Joint Venture and a 10.92%
interest in the Lakeshore/University II Joint Venture after the completion of the NTS-Properties Plus,
Ltd./ORIG Merger. ORIG now holds a 39.05% interest in the Blankenbaker Business Center Joint
Venture and a 7.69% interest in the Lakeshore/University II Joint Venture. Results of Operations for 2000, 2001 and 2002 The following table of segment data is provided: Several general trends have affected our recent operating results. Net revenues for residential have
decreased slightly due to lower average occupancy at The Willows of Plainview Phase I, while
commercial net revenues have increased slightly due to increased average occupancy at Plainview
Point Office Center Phase I and II. Operating expenses have remained relatively stable. Interest
expense continues to decrease as a result of normal recurring principal reductions. Depreciation and
amortization has increased slightly as a result of continued capital improvements. There has not been a material change in a particular line item on the Statements of Operations
from one year to the next; therefore we have omitted any discussion concerning individual line
items. 26
The majority of our cash flow is derived from operating activities. Cash flows used in investing
activities consist of amounts spent for capital improvements at our properties. Cash flows used in
financing activities consist of principal payments on mortgages payable, payment of loan costs and
amounts paid to repurchase limited partnership interests. We do not expect any material changes
in the mix and relative cost of capital resources from those in 2002. The following table illustrates our cash flows provided by or used in operating activities, investing
activities and financing activities: Net cash provided by operating activities decreased approximately $97,000, or 13%, in 2002,
primarily due to the changes in accounts receivable and accounts payable, which was partially offset
by the loss on disposal of assets. Net cash provided by operating activities increased approximately $195,000, or 36%, in 2001,
primarily as a result of increased accounts payable, which was partially offset by the decreased net
income. Net cash used in investing activities increased approximately $152,000, or 83%, in 2002, primarily
as the result of increased capital expenditures and an increased investment in and advances to joint
ventures. Net cash used in investing activities increased approximately $139,000 in 2001. The increase is
primarily the result of an increase in investment in or advances to joint ventures. Net cash used in financing activities increased approximately $80,000, or 16%, in 2002, primarily
as the result of continued principal payments made on the Commonwealth Business Center Phase
I and The Willows of Plainview Phase I mortgages. Due to the fact that no distributions were made during 2002, 2001 or 2000, the table which presents
that portion of the distribution that represents a return of capital based on Accounting Principles
Generally Accepted in the United States has been omitted. On March 14, 2003 we reached an agreement with the mortgage lender on the Lakeshore Business
Center Phases I and II mortgages to suspend principal payments for twelve months beginning with
the payments due May 1, 2003. The principal payments due the lender will continue to be paid and
deposited by the lender into an escrow account. We will then be allowed to draw upon the escrowed 27
funds for specific capital improvements listed in the agreement. They include tenant finish costs,
heating and air conditioning equipment and roof replacements. The agreement does not change any
terms of the existing mortgage loans. However, the suspension of principal payments will result in
significant balances remaining due on the loans at maturity in 2008, currently estimated to be
approximately $757,000 and $814,000, respectively. On March 14, 2003 we signed a tenant to a lease for approximately 20,000 square feet of the
Lakeshore Business Center Phase III. The lease agreement calls for us to provide tenant finish
costing approximately $705,000. We expect to use existing and new financing sources to make these
expenditures. There can be no assurances that we will be successful in seeking new sources of
financing for Lakeshore Business Center Phase III. The demand on future liquidity is anticipated to increase as we continue our efforts in the leasing
of Plainview Point III Office Center. One tenant which occupied 16,895 square feet, or 27%, of the
building, vacated its space on November 30, 2001 at the end of their lease. This left Plainview Point
III Office Center with only 54% occupancy. As a result of this vacancy, there will likely be a
protracted period for the property to become fully leased again and substantial funds, currently
estimated to be approximately $717,000 will likely be needed for tenant finish costs. Our share of
these costs would be approximately $36,000. Plainview Point Office Center Phases I and II are expected to require new roofs in 2003. The roof
replacements at Plainview Point Office Center Phases I and II are expected to cost approximately
$87,000. The roof replacements will be funded from existing working capital or additional financing
where necessary. We had no other material commitments for renovations or capital improvements as of December 31,
2002. We are making efforts to increase the occupancy levels at our commercial properties. The leasing
and renewal negotiations at the Lakeshore Business Center development are conducted by an
employee of NTS Development Company, who makes calls to potential tenants and negotiates lease
renewals with current tenants. The leasing and renewal negotiations for our remaining commercial
properties are managed by leasing agents that are employees of NTS Development Company in
Louisville, Kentucky. The leasing agents are located in the same city as commercial properties. All
advertising for these properties is coordinated by NTS Development Company's marketing staff
located in Louisville, Kentucky. In an effort to continue to improve occupancy at our residential
properties, we have an on-site leasing staff that are employees of NTS Development Company, at
each of the apartment communities. The staff facilitates all on-site visits from potential tenants,
coordinates local advertising with NTS Development Company's marketing staff, makes visits to
local companies to promote fully furnished units and negotiates lease renewals with current
residents. 28
Leases at Commonwealth Business Center Phase I, Blankenbaker Business Center 1A and Lakeshore
Business Center Phases I, II and III provide for tenants to contribute toward the payment of common
area maintenance expenses, insurance and real estate taxes. Leases at Plainview Point Office Center
Phases I, II and III provide for tenants to contribute toward the payment of common area
maintenance expenses, insurance, utilities and real estate taxes. These lease provisions, along with
the fact that residential leases are generally for a period of one year, provide limited protection to
our operations from the impact of inflation and changing prices. Across the United States there have been recent reports of lawsuits against owners and managers of
multi-family and commercial properties asserting claims of personal injury and property damage
caused by the asserted presence of mold and other microbial organisms in residential units and
commercial space. Some of these lawsuits have resulted in substantial monetary judgments or
settlements. We have not, at present, been named as a defendant in any lawsuit that has alleged the
presence of mold or other microbial organisms. Prior to September 13, 2002, we were insured
against claims arising from the presence of mold due to water intrusion. However, since September
13, 2002, certain of our insurance carriers have excluded from insurance coverage property damage
loss claims arising from the presence of mold, although certain of our insurance carriers do provide
some coverage for personal injury claims. We are in the process of implementing protocols and
procedures to prevent the build-up of mold and other microbial organisms in our properties, and are
in the process of implementing more stringent maintenance, housekeeping and notification
requirements for tenants in our properties. We believe that these measures will eliminate, or at least,
minimize any effect that mold or other microbial organisms could have on our tenants. To date, we
have not incurred any material costs or liabilities relating to claims of mold exposure or to abate
mold conditions. Because the law regarding mold is unsettled and subject to change, however, we
can make no assurance that liabilities resulting from the presence of, or exposure to, mold or other
microbial organisms will not have a material adverse effect on our consolidated financial condition
or results of operations and our subsidiaries taken as a whole. 29
Contractual Obligations and Commercial Commitments The following disclosure represents our obligations and commitments to make future payments
under contracts, such as debt and lease agreements, and under contingent commitments, such as debt
guarantees. 30
Cautionary Statements Our liquidity, capital resources and results of operations are subject to a number of risks and
uncertainties including, but not limited to the following: 31
Item 7A - Quantitative and Qualitative Disclosures About Market Risk Our primary market risk exposure with regard to financial instruments is changes in interest rates.
Our debt bears interest at a fixed rate with the exception of the $3,543 note payable on The
Willows of Plainview Phase I. On December 31, 2002, a hypothetical 100 basis point increase in
interest rates would result in an approximate $149,000 decrease in the fair value of debt and would
not have a significant effect on interest expense due to the variable rate note. 32
Item 8 - Financial Statements and Supplementary Data REPORT OF INDEPENDENT AUDITORS To NTS-Properties IV: We have audited the accompanying balance sheet of NTS-Properties IV (the Partnership) as of
December 31, 2002, and the related statements of operations, partners' equity and cash flows for the
year then ended. Our audit also included the financial statement schedule listed in the index at Item
15(a). These financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on our audit. The
financial statements of the Partnership and the financial statement schedule as of December 31,
2001, and for each of the two years in the period ended December 31, 2001, were audited by other
auditors who have ceased operations and whose report dated March 21, 2002, expressed an
unqualified opinion on those statements. We conducted our audit in accordance with auditing standards generally accepted in the United
States. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion. In our opinion, the 2002 financial statements referred to above present fairly, in all material respects,
the financial position of NTS-Properties IV as of December 31, 2002, and the results of its
operations and its cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as a whole, presents
fairly in all material respects the information set forth therein. Louisville, Kentucky 33
This report is a copy of the previously issued Arthur Andersen LLP ("Andersen") Auditors' REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To NTS-Properties IV, Ltd.: We have audited the accompanying balance sheets of NTS-Properties IV, Ltd. (a Kentucky limited
partnership) as of December 31, 2001 and 2000, and the related statements of operations, partners'
equity and cash flows for each of the three years in the period ended December 31, 2001. 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 auditing standards generally accepted in the United
States. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the
financial position of NTS-Properties IV, Ltd. as of December 31, 2001 and 2000, and the results of
its operations and its cash flows for each of the three years in the period ended December 31, 2001
in conformity with accounting principles generally accepted in the United States. Our audits were made for the purpose of forming an opinion on the basic financial statements taken
as a whole. The schedule of Real Estate and Accumulated Depreciation included in this filing is
presented for purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our opinion, fairly states 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 34
NTS-PROPERTIES IV The accompanying notes to financial statements are an integral part of these statements. 35
NTS-PROPERTIES IV The accompanying notes to financial statements are an integral part of these statements. 36
NTS-PROPERTIES IV The accompanying notes to financial statements are an integral part of these statements. 37
NTS-PROPERTIES IV The accompanying notes to financial statements are an integral part of these statements. 38
NTS-PROPERTIES IV Note 1 - Significant Accounting Policies A) Organization NTS-Properties IV (the "Partnership") is a limited partnership organized under the laws of the
Commonwealth of Kentucky on May 13, 1983. The General Partner is NTS-Properties Associates
IV, a Kentucky limited partnership. The terms "we," "us" or "our," as the context requires, may
refer to the Partnership or its interests in the properties and joint ventures listed below. We are in the
business of developing, constructing, owning and operating residential apartments and commercial
real estate. The financial statements include the accounts of all wholly-owned properties. Intercompany
transactions and balances have been eliminated. Less than 50% owned joint ventures are accounted
for under the equity method. Please see our accompanying Combined Joint Ventures' financial statements and notes, which
include the combined financial statements of the joint ventures listed in Note 1C. We own and operate the following properties and joint ventures: 39
Lakeshore Business Center Phase I - a business center with approximately Lakeshore Business Center Phase II - a business center with approximately Lakeshore Business Center Phase III - a business center with approximately Net cash receipts made available for distribution, as defined in the Partnership Agreement, will be
distributed 1) 99% to the limited partners and 1% to the General Partner until the limited partners
have received their 8% preference distribution as defined in the Partnership Agreement; 2) to the
General Partner in an amount equal to approximately 10% of the limited partners' 8% preference
distribution; and 3) the remainder, 90% to the limited partners and 10% to the General Partner.
Starting December 31, 1996, we have indefinitely interrupted distributions. Net cash proceeds, as defined in the Partnership Agreement, which are available for distribution will
be distributed 1) 99% to the limited partners and 1% to the General Partner until the limited partners
have received distributions from all sources equal to their original capital plus the amount of any
deficiency in their 8% cumulative distribution as defined in the Partnership Agreement; and 2) the
remainder, 75% to the limited partners and 25% to the General Partner. Net income (loss) is to be
allocated 99% to the limited partners and 1% to the General Partner for all periods presented in the
accompanying financial statements. We have received a ruling from the Internal Revenue Service stating that we are classified as a
limited partnership for federal income tax purposes. As such, we make no provision for income
taxes. The taxable income or loss is passed through to the holders of partnership interests for
inclusion on their individual income tax returns. 40
A reconciliation of net income for financial statement purposes versus that for income tax reporting
is as follows: The preparation of financial statements in accordance with Accounting Principles Generally
Accepted in the United States 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. Cash and equivalents include cash on hand and short-term, highly liquid investments with maturities
of three months or less. We have a cash management program which provides for the overnight
investment of excess cash balances. Per an agreement with a bank, excess cash is invested in a
repurchase agreement for U.S. Government or agency securities on a nightly basis. As of December
31, 2002, approximately $118,000 was transferred into the investment. Cash and equivalents - restricted represents funds received for residential security deposits and funds
escrowed with mortgage companies for property taxes and insurance in accordance with the loan
agreements with said mortgage companies. Land, buildings and amenities are stated at historical cost less accumulated depreciation. 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, 3-30 years for buildings and improvements, 3-30 years
for amenities and the applicable lease term for tenant improvements. 41
Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets," 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
market value. Application of this standard during the year ended December 31, 2002 did not result
in an impairment loss. We recognize revenue in accordance with each tenant's respective lease agreement. Certain of our
lease agreements for the commercial properties 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 under these leases is
included in accounts receivable and totaled $101,242 and $112,668 on December 31, 2002 and 2001,
respectively. All commissions paid to commercial leasing agents and incentives paid to tenants are
deferred and amortized on a straight-line basis over the applicable lease term. We expense advertising costs as incurred. Advertising expense was immaterial to us during the
years ended December 31, 2002, 2001 and 2000. 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. During the year ended December 31, 2002, we adopted SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30,
"Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS No. 144
requires one accounting model to be used for long-lived assets to be disposed of by sale, whether
previously held or used or newly acquired, and it broadens the presentation of discontinued
operations to include more disposal transactions. Our adoption of SFAS No. 144 did not impact the
financial statements in 2002. 42
We own and operate, either wholly or through a joint venture, commercial properties in Louisville,
Kentucky and Fort Lauderdale, Florida. In Louisville, Kentucky, one tenant occupies 100% of the
Blankenbaker Business Center 1A property. We also own and operate, either wholly or through a
joint venture, residential properties in Louisville, Kentucky and Orlando, Florida. The following
table contains approximate data for tenants of our wholly owned properties whose rents represent
10% or more of our total revenues: Our financial instruments that are exposed to concentrations of credit risk consist of cash and
equivalents. We maintain our cash accounts primarily with banks located in Kentucky. The total cash
balances are insured by the FDIC up to $100,000 per bank account. We may at times, in certain
accounts, have deposits in excess of $100,000. Between November 20, 1998 and December 31, 2001, we and ORIG, LLC, ("ORIG") an affiliate
of ours, (the "Offerors"), filed four tender offers with the Securities and Exchange Commission.
Through the four tender offers, we repurchased 1,200 Interests for $248,500 at a price ranging from
$205 to $230 per Interest. ORIG purchased 7,559 Interests for $1,678,470 at a price ranging from
$205 to $230 per Interest. We did not participate in the four
Interest Maturity Balance
Property Rate Date on 12/31/02
- ------------------------------------------------- --------------- --------------- ------------------
Commonwealth Business Center Phase I 8.80% 10/01/04 (1) $ 737,515
Plainview Point Office Center Phases I and II - - $ --
The Willows of Plainview Phase I 7.15% 01/05/13 (2) $ 1,559,662
The Willows of Plainview Phase I 7.15% 01/05/13 (2) $ 1,484,724
The Willows of Plainview Phase II 7.20% 01/05/13 (2) $ 2,494,654
The Willows of Plainview Phase II 7.20% 01/05/13 (2) $ 1,489,917
Golf Brook Apartments - - $ --(3)
Plainview Point Office Center Phase III - - $ --(4)
Blankenbaker Business Center 1A 8.500% 11/15/05 (5) $ 1,733,466
Lakeshore Business Center Phase I 8.125% 08/01/08 (6) $ 3,315,490
Lakeshore Business Center Phase II 8.125% 08/01/08 (6) $ 3,567,113
Lakeshore Business Center Phase III LIBOR + 2.3% 09/08/03 (7) $ 1,844,049
(1) Current monthly principal payments are based upon a 10-year amortization schedule. At maturity, we believe the
mortgage will have been repaid based on the current rate of amortization.
(2) Current monthly principal payments are based upon a 15-year amortization schedule. At maturity, we believe the
loan will have been repaid based on the current rate of amortization.
(3) Golf Brook Apartments, a joint venture between us and NTS- Properties VI, is encumbered by a mortgage loan
from an insurance company. The $6,899,113 mortgage payable is recorded as a liability by NTS-Properties VI in
accordance with the joint venture agreement. The mortgage bears interest at a fixed rate of 7.57% and matures May
15, 2009. At maturity, we believe the loan will have been repaid based on the current rate of amortization.
(4) Plainview Point Office Center Phase III, a joint venture between us and NTS-Properties VI, is encumbered by a
mortgage loan to a bank. The $3,065,058 mortgage payable is recorded as a liability by NTS-Properties VI in
accordance with the joint venture agreement. The mortgage bears interest at 8.38% and matures December 1, 2010.
At maturity, we believe the loan will have been repaid based on the current rate of amortization.
(5) Current monthly principal payments are based upon an 11-year amortization schedule. At maturity, we believe the
mortgage loan will have been repaid based on the current rate of amortization.
(6) Current monthly principal payments are based upon a 12-year amortization schedule. At maturity, we believe the
mortgage will have been repaid based on the current rate of amortization.
(7) The construction loan for Lakeshore Business Center Phase III required interest payments only through September
2001. Principal payments were required starting October 2001. We anticipate replacing the construction loan with
permanent financing at or before its maturity.
Financial Information About Industry Segments
Year of Square Feet and % of Current Annual Rental
Major Tenant (1): Expiration Net Rentable Area per Square Foot
- ------------------------------- ------------------ -------------------------- ---------------------------
1 2004 40,079 (47.9%) $7.59
2 2008 9,600 (11.5%) $8.30
(1) Major tenants are those that individually occupy 10% or more of the rentable square footage.
Year of Square Feet and % of Current Annual Rental
Major Tenant (1): Expiration Net Rentable Area per Square Foot
- ------------------------------- ------------------ -------------------------- ---------------------------
1 2009 28,675 (50.5%) $11.40
2 2004 7,428 (13.1%) $13.60
(1) Major tenants are those that individually occupy 10% or more of the rentable square footage.
The Willows of Plainview Phase I
Year of Square Feet and % of Current Annual Rental
Major Tenant (1): Expiration Net Rentable Area (2) per Square Foot
- ------------------------------- ------------------ -------------------------- ---------------------------
1 2005 100,640 (100%) $7.48
(1) Major tenants are those that individually occupy 10% or more of the rentable square footage.
(2) Rentable area includes ground floor and mezzanine square feet.
Lakeshore Business Center Phase I
Year of Square Feet and % of Current Annual Rental
Major Tenant (1): Expiration Net Rentable Area per Square Foot
- ------------------------------- ------------------ -------------------------- ---------------------------
1 2008 27,868 (28.8%) $9.75
(1) Major tenants are those that individually occupy 10% or more of the rentable square footage.
Lakeshore Business Center Phase III
Year of Square Feet and % of Current Annual Rental
Major Tenant (1): Expiration Net Rentable Area per Square Foot
- ------------------------------- ------------------ -------------------------- ---------------------------
1 2006 4,689 (12.0%) $14.15
2 2006 6,190 (15.8%) $14.04
(1) Major tenants are those that individually occupy 10% or more of the rentable square footage.
Federal Property Annual
Tax Basis Tax Rate Property Taxes
------------------ ----------------- ------------------
Wholly-Owned Properties
Commonwealth Business Center Phase I $ 4,142,703 .010850 $ 44,937
Plainview Point Office Center Phases I and II $ 3,689,030 .010950 $ 17,147
The Willows of Plainview Phase I $ 7,565,566 .010950 $ 60,481
Joint Venture Properties
The Willows of Plainview Phase II $ 8,145,197 .010950 $ 65,768
Golf Brook Apartments $ 16,645,019 .017426 $ 276,499
Plainview Point III Office Center $ 4,850,188 .010950 $ 25,517
Blankenbaker Business Center 1A $ 7,386,626 .010850 $ 51,281
Lakeshore Business Center Phase I $ 10,549,904 .025064 $ 168,225
Lakeshore Business Center Phase II $ 12,585,246 .025064 $ 187,967
Lakeshore Business Center Phase III $ 4,729,434 .025064 $ 59,787
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 Lakeshore NTS-Properties Plus Ltd.
Business Center development (3.8 acres)
Undeveloped land adjacent to the Lakeshore NTS/Fort Lauderdale, Ltd.
Business Center development (2.4 acres)
University Business Center Phase II NTS-Properties V and NTS Properties Plus Ltd.
Loan Balance
on 12/31/02 Encumbered Property
- ------------------------- --------------------------------------------
$ 3,315,490 Lakeshore Business Center Phase I
$ 3,567,113 Lakeshore Business Center Phase II
$ 1,844,049 Lakeshore Business Center Phase III
2002 2001 2000 1999 1998
--------------- --------------- --------------- --------------- ---------------
Rental and other income $ 2,391,468 $ 2,409,585 $ 2,474,093 $ 2,333,381 $ 2,273,371
Income (loss) from
investment in joint
ventures 81,502 63,818 89,039 82,475 154,446
Gain on sale of assets 498 90 -- -- --
Total expenses (2,391,550) (2,364,503) (2,326,737) (2,418,547) (2,329,521)
--------------- --------------- --------------- --------------- ---------------
Net income (loss) $ 81,918 $ 108,990 $ 236,395 $ (2,691)$ 98,296
=============== =============== =============== =============== ===============
Net income (loss)
allocated to:
General Partner $ 819 $ 1,090 $ 2,364 $ (27)$ 983
Limited partners $ 81,099 $ 107,900 $ 234,031 $ (2,664)$ 97,313
Net income (loss) per
limited partnership
interest $ 3.36 $ 4.48 $ 9.67 $ (0.11)$ 3.75
Weighted average number
of limited partnership
interests 24,109 24,109 24,208 24,778 25,918
Cumulative net income
(loss) allocated to:
General Partner $ 8,145 $ 7,326 $ 6,236 $ 3,872 $ 3,899
Limited partners $ 806,219 $ 725,120 $ 617,220 $ 383,189 $ 385,853
Cumulative taxable
income (loss) allocated to:
General Partner $ (22,598) $ (24,899)$ (25,603)$ (27,678)$ (26,810)
Limited partners $ (2,236,659) $ (2,464,497)$ (2,535,209)$ (2,740,689)$ (2,654,795)
Cumulative distributions
declared:
General Partner $ 218,253 $ 218,253 $ 218,253 $ 218,253 $ 218,253
Limited partners $ 21,607,636 $ 21,607,636 $ 21,607,636 $ 21,607,636 $ 21,607,636
At year end:
Land, buildings and
amenities, net $ 6,258,639 $ 6,561,375 $ 6,907,615 $ 7,301,116 $ 7,457,476
Total assets $ 7,874,283 $ 8,320,129 $ 8,615,520 $ 9,024,075 $ 9,578,845
Mortgages and note
payable $ 3,785,444 $ 4,356,152 $ 4,846,678 $ 5,317,257 $ 5,750,946
2002 (1) 2001 2000
------------- ------------- --------------
Wholly-Owned Properties
Commonwealth Business Center Phase I 91% 90% 86%
Plainview Point Office Center Phases I and II 86% 84% 77%
The Willows of Plainview Phase I 92% 78% 87%
Joint Venture Properties
(Ownership % on December 31, 2002)
The Willows of Plainview Phase II (9.70%) 89% 74% 89%
Golf Brook Apartments (3.97%) (2) 88% 89% 87%
Plainview Point III Office Center (4.96%) (3) 51% 54% 73%
Blankenbaker Business Center 1A (29.61%) 100% 100% 100%
Lakeshore Business Center Phase I (10.92%) (2) 71% 89% 85%
Lakeshore Business Center Phase II (10.92%) (2) 81% 82% 86%
Lakeshore Business Center Phase III (10.92%) (4) 37% 28% 12%
(1) Current occupancy levels are considered adequate to continue operation of our properties, with the exception
of Plainview Point III Office Center and Lakeshore Business Center Phases I and III.
(2) In our opinion, the decrease in year ending occupancy is only a temporary fluctuation and does not represent
a permanent downward occupancy trend.
(3) A tenant occupying 16,895 square feet, or 27%, of the building vacated its space on November 30, 2001.
There will likely be a protracted period for the property to become fully leased again and substantial funds,
currently estimated to be approximately $717,000, will likely be needed for tenant finish expenditures. Our
share of these costs would be approximately $36,000.
(4) We expect occupancy levels to stabilize near those of Phase II over the next two years, as Phase III completes
its lease up phase of operations.
2002 2001 2000
------------- ------------- --------------
Wholly-Owned Properties
Commonwealth Business Center Phase I (1) 87% 89% 91%
Plainview Point Office Center Phases I and II 86% 79% 75%
The Willows of Plainview Phase I (1) 85% 87% 94%
Joint Venture Properties
(Ownership % on December 31, 2002)
The Willows of Plainview Phase II (9.70%) 85% 83% 92%
Golf Brook Apartments (3.97%) 91% 90% 92%
Plainview Point III Office Center (4.96%) (2) 55% 90% 88%
Blankenbaker Business Center 1A (29.61%) 100% 100% 100%
Lakeshore Business Center Phase I (10.92%) (1) 80% 85% 78%
Lakeshore Business Center Phase II (10.92%) 84% 82% 83%
Lakeshore Business Center Phase III (10.92%) (3) 36% 26% 12%
(1) In our opinion, the decrease in average occupancy is only a temporary fluctuation and does not represent a
permanent downward occupancy trend.
(2) A tenant occupying 16,895 square feet, or 27%, of the building vacated its space on November 30, 2001.
There will likely be a protracted period for the property to become fully leased again and substantial funds,
currently estimated to be approximately $717,000, will likely be needed for tenant finish expenditures. Our
share of these costs would be approximately $36,000.
(3) We expect occupancy levels to stabilize near those of Phases I and II over the next two years, as Phase III
completes its lease up phase of operations.
2002 2001 2000
------------- ------------- --------------
Wholly-Owned Properties
Commonwealth Business Center Phase I $ 744,055 $ 724,243 $ 756,599
Plainview Point Office Center Phases I and II $ 595,898 $ 548,217 $ 512,900
The Willows of Plainview Phase I $ 1,050,881 $ 1,124,254 $ 1,187,368
Joint Venture Properties
(Ownership % on December 31, 2002)
The Willows of Plainview Phase II (9.70%) $ 1,227,435 $ 1,243,469 $ 1,318,620
Golf Brook Apartments (3.97%) $ 2,963,776 $ 2,940,558 $ 3,271,227
Plainview Point III Office Center (4.96%) $ 613,914 $ 858,673 $ 848,522
Blankenbaker Business Center 1A (29.61%) $ 952,219 $ 935,165 $ 908,100
Lakeshore Business Center Phase I (10.92%) $ 1,568,755 $ 1,608,506 $ 1,404,217
Lakeshore Business Center Phase II (10.92%) $ 1,399,961 $ 1,460,407 $ 1,414,306
Lakeshore Business Center Phase III (10.92%) $ 290,618 $ 214,052 $ 5,122
2002
-----------------------------------------------------------------------
Residential Commercial Partnership Total
-----------------------------------------------------------------------
Net revenues $ 1,050,881 $ 1,339,953 $ 82,634 $ 2,473,468
Operating expense 504,361 469,757 (2,000) 972,118
Interest expense 227,071 85,134 -- 312,205
Depreciation and amortization 207,699 286,733 6,116 500,548
Net (loss) income (53,363) 354,527 (219,246) 81,918
2001
-----------------------------------------------------------------------
Residential Commercial Partnership Total
-----------------------------------------------------------------------
Net revenues $ 1,124,254 $ 1,272,460 $ 76,779 $ 2,473,493
Operating expense 493,709 485,554 2,000 981,263
Interest expense 241,524 115,155 -- 356,679
Depreciation and amortization 203,670 278,950 6,116 488,736
Net income (loss) 67,764 254,136 (212,910) 108,990
2000
-----------------------------------------------------------------------
Residential Commercial Partnership Total
-----------------------------------------------------------------------
Net revenues $ 1,187,368 $ 1,269,499 $ 106,265 $ 2,563,132
Operating expense 425,461 490,671 -- 916,132
Interest expense 255,780 142,655 -- 398,435
Depreciation and amortization 198,720 281,433 6,116 486,269
Net income (loss) 151,626 217,342 (132,573) 236,395
2002 2001 2000
-------------- ------------- -------------
Operating activities $ 649,224 $ 745,729 $ 550,526
Investing activities (334,894) (183,059) (43,768)
Financing activities (570,708) (490,526) (493,579)
-------------- ------------- -------------
Net (decrease) increase in cash and equivalents $ (256,378)$ 72,144 $ 13,179
============== ============= =============
Payments Due by Period
--------------------------------------------------------------------------
Within One Two - Three Four - Five After 5
Contractual Obligations Total Year Years Years Years
- -------------------------------- ------------- ------------- ------------- ------------- -------------
Long-term debt $ 3,785,444 $ 604,929 $ 826,185 $ 549,203 $ 1,805,127
Capital lease obligations $ -- $ -- $ -- $ -- $ --
Operating leases (1) $ -- $ -- $ -- $ -- $ --
Other long-term obligations (2) $ -- $ -- $ -- $ -- $ --
------------- ------------- ------------- ------------- -------------
Total contractual cash
obligations $ 3,785,444 $ 604,929 $ 826,185 $ 549,203 $ 1,805,127
============= ============= ============= ============= =============
(1) We are party to numerous small operating leases for office equipment such as copiers, postage machines and fax
machines, which represent an insignificant obligation.
(2) We are party to several annual maintenance agreements with vendors for such items as outdoor maintenance and
security systems, which we may or may not renew each year.
Amount of Commitment Expiration Per Period
-----------------------------------------------------------
Total
Other Commercial Amounts Within One Two - Three Four - Five Over 5
Commitments Committed Year Years Years Years
- ------------------------------- -------------- ------------- ------------- ------------- -------------
Line of credit $ -- $ -- $ -- $ -- $ --
Standby letters of credit and
guarantees (1) $ 14,450,836 $ 3,673,087 $ 4,062,180 $ 3,367,678 $ 3,347,891
Other commercial
commitments (2) $ -- $ -- $ -- $ -- $ --
-------------- ------------- ------------- ------------- -------------
Total commercial
commitments $ 14,450,836 $ 3,673,087 $ 4,062,180 $ 3,367,678 $ 3,347,891
============== ============= ============= ============= =============
(1) As an investor in numerous joint ventures, we are jointly and severally liable for certain of their debts that are
not reflected on our financial statements. See Note 4 of our Combined Joint Ventures.
(2) We do not, as a practice, enter into long term purchase commitments for commodities or services. We may from
time to time agree to "fee for service arrangements" which are for a term of greater than one year.
Ernst & Young LLP
March 26, 2003
Report. This report has not been reissued by Andersen.
March 21, 2002
BALANCE SHEETS
DECEMBER 31, 2002 AND 2001
2002 2001
----------------- -----------------
ASSETS
Cash and equivalents $ 205,729 $ 462,107
Cash and equivalents - restricted 26,750 27,757
Accounts receivable 123,412 143,553
Land, buildings and amenities, net 6,258,639 6,561,375
Investment in and advances to joint ventures 1,120,227 952,413
Other assets 139,526 172,924
----------------- -----------------
TOTAL ASSETS $ 7,874,283 $ 8,320,129
================= =================
LIABILITIES AND PARTNERS' EQUITY
Mortgages and note payable $ 3,785,444 $ 4,356,152
Accounts payable 104,646 111,790
Security deposits 31,631 29,931
Other liabilities 86,449 38,061
----------------- -----------------
TOTAL LIABILITIES 4,008,170 4,535,934
COMMITMENTS AND CONTINGENCIES (Note 8)
PARTNERS' EQUITY 3,866,113 3,784,195
----------------- -----------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 7,874,283 $ 8,320,129
================= =================
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
2002 2001 2000
------------- ------------- -------------
REVENUES
Rental income $ 2,383,505 $ 2,390,579 $ 2,449,691
Income from investment in joint ventures 81,502 63,818 89,039
Gain on sale of assets 498 90 --
Interest and other income 7,963 19,006 24,402
------------- ------------- -------------
TOTAL REVENUES 2,473,468 2,473,493 2,563,132
------------- ------------- -------------
EXPENSES
Operating expenses 557,689 572,703 529,115
Operating expenses - affiliated 414,429 408,560 387,017
Loss on disposal of assets 51,268 2,147 43,220
Interest expense 312,205 356,679 398,435
Management fees 135,082 133,416 137,432
Real estate taxes 122,565 120,689 112,527
Professional and administrative expenses 154,049 124,299 109,626
Professional and administrative expenses -
affiliated 143,715 157,274 123,096
Depreciation and amortization 500,548 488,736 486,269
------------- ------------- -------------
TOTAL EXPENSES 2,391,550 2,364,503 2,326,737
------------- ------------- -------------
Net income $ 81,918 $ 108,990 $ 236,395
============= ============= =============
Net income allocated to the limited partners $ 81,099 $ 107,900 $ 234,031
============= ============= =============
Net income per limited partnership interest $ 3.36 $ 4.48 $ 9.67
============= ============= =============
Weighted average number of limited
partnership interests 24,109 24,109 24,208
============= ============= =============
STATEMENTS OF PARTNERS' EQUITY (1)
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
Limited
Partners' Limited General
Interests Partners Partner Total
------------- ------------- -------------- -------------
PARTNERS' EQUITY/(DEFICIT)
Balances on January 1, 2000 24,209 $ 3,676,192 $ (214,382)$ 3,461,810
Net income 234,031 2,364 236,395
Repurchase of limited partnership
interests (100) (23,000) -- (23,000)
------------- ------------- -------------- -------------
Balances on December 31, 2000 24,109 3,887,223 (212,018) 3,675,205
Net income 107,900 1,090 108,990
------------- ------------- -------------- -------------
Balances on December 31, 2001 24,109 3,995,123 (210,928) 3,784,195
Net income 81,099 819 81,918
------------- ------------- -------------- -------------
Balances on December 31, 2002 24,109 $ 4,076,222 $ (210,109)$ 3,866,113
============= ============= ============== =============
(1) For the periods presented, there are no elements of other comprehensive income as defined by the Financial
Accounting Standards Board, Statement of Financial Accounting Standards Statement No. 130, "Reporting
Comprehensive Income."
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
2002 2001 2000
------------- ------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 81,918 $ 108,990 $ 236,395
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss on disposal of assets 51,268 2,147 43,220
Gain on sale of assets (498) (90) --
Depreciation and amortization 541,934 530,199 528,405
Income from investment in joint ventures (81,502) (63,818) (89,039)
Changes in assets and liabilities:
Cash and equivalents - restricted 1,007 11,787 (1,536)
Accounts receivable 20,141 86,472 28,926
Other assets (7,988) (16,103) (44,474)
Accounts payable (7,144) 72,614 (134,608)
Security deposits 1,700 (1,104) (13,518)
Other liabilities 48,388 14,635 (3,245)
------------- ------------- --------------
Net cash provided by operating activities 649,224 745,729 550,526
------------- ------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to land, buildings and amenities (249,080) (144,761) (135,988)
Proceeds from sale of assets 498 208 --
Investment in and advances (to) from joint ventures (86,312) (38,506) 92,220
------------- ------------- --------------
Net cash used in investing activities (334,894) (183,059) (43,768)
------------- ------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from note payable -- 31,742 --
Principal payments on mortgages and note payable (570,708) (522,268) (470,579)
Repurchase of limited partnership interests -- -- (23,000)
------------- ------------- --------------
Net cash used in financing activities (570,708) (490,526) (493,579)
------------- ------------- --------------
Net (decrease) increase in cash and equivalents (256,378) 72,144 13,179
CASH AND EQUIVALENTS, beginning of period 462,107 389,963 376,784
------------- ------------- --------------
CASH AND EQUIVALENTS, end of period $ 205,729 $ 462,107 $ 389,963
============= ============= ==============
Interest paid on a cash basis $ 308,287 $ 352,461 $ 391,080
============= ============= ==============
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
104,000 net rentable square feet located in Fort Lauderdale, Florida.
97,000 net rentable square feet located in Fort Lauderdale, Florida.
39,000 net rentable square feet located in Fort Lauderdale, Florida.
2002 2001 2000
------------- ------------- --------------
Net income $ 81,918 $ 108,990 $ 236,395
Items handled differently for tax purposes:
Depreciation and amortization 122,776 10,875 4,669
Prepaid rent 56,682 20,494 --
Other (31,237) (68,933) (33,509)
------------- ------------- --------------
Taxable income $ 230,139 $ 71,426 $ 207,555
============= ============= ==============
F) Use of Estimates in the Preparation of Financial Statements
2002 2001 2000
-------------------------------- ------------------------------- --------------------------------
% of % of % of
Major Tenant: Rents Revenue Rents Revenue Rents Revenue
- ---------------- ------------- -------------- ------------- ------------- -------------- -------------
1 $ 310,723 12.57% $ 320,623 12.97% $ 304,123 11.87%
2 $ 322,036 13.03% $ 312,721 12.65% $ 286,027 11.16%