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Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

x                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2012

 

OR

 

o                   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                              to

 

Commission file number 001-32389

 

NTS REALTY HOLDINGS LIMITED PARTNERSHIP

(Exact name of registrant as specified in its charter)

 

Delaware

 

41-2111139

(State or other jurisdiction of incorporation or

 

(I.R.S. Employer Identification No.)

organization)

 

 

 

 

 

10172 Linn Station Road

Louisville, Kentucky

 

40223

(Address of principal executive offices)

 

(Zip Code)

 

 

 

(502) 426-4800

(Registrant’s telephone number, including area code)

 

 

 

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

 

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 o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer o

 

Accelerated filer o

 

 

 

Non-accelerated filer o

 

Smaller reporting company x

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

As of May 9, 2012, there were 11,095,274 of the registrant’s limited partnership units outstanding.

 

 

 



Table of Contents

 

NTS REALTY HOLDINGS LIMITED PARTNERSHIP

 

FORM 10-Q

 

TABLE OF CONTENTS

 

PART I – FINANCIAL INFORMATION

4

 

 

Item 1 – Financial Statements

4

Condensed Consolidated Balance Sheets as of March 31, 2012 (Unaudited) and December 31, 2011

4

Condensed Consolidated Statement of Equity as of March 31, 2012 (Unaudited)

4

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2012 and 2011 (Unaudited)

5

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2012 and 2011 (Unaudited)

6

Notes to Condensed Consolidated Financial Statements

7

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

18

Item 3 – Quantitative and Qualitative Disclosures About Market Risk

25

Item 4 – Controls and Procedures

25

 

 

PART II – OTHER INFORMATION

25

 

 

Item 1 – Legal Proceedings

25

Item 1A – Risk Factors

26

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

26

Item 3 – Defaults Upon Senior Securities

26

Item 4 – Mine Safety Disclosures

26

Item 5 – Other Information

26

Item 6 – Exhibits

27

Signatures

30

 

2



Table of Contents

 

INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

 

Some of the statements included in this Quarterly Report on Form 10-Q, particularly those included in Part I, Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), constitute “forward-looking statements.” These forward-looking statements include discussion and analysis of our financial condition, including our ability to rent space on favorable terms, our ability to address debt maturities and fund our liquidity requirements, the value of our assets, our anticipated capital expenditures, the amount and timing of anticipated future cash distributions to our unit holders and other matters.  Words such as “may,” “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “would,” “could,” “should,” and variations of these words and similar expressions are intended to identify forward-looking statements and indicate that it is possible that the event may not occur.  If these events do not occur, the result which we expected also may or may not occur in a different manner, which may be more or less favorable to us.  We do not undertake any obligation to update these forward-looking statements.

 

Any forward-looking statements included in MD&A, or elsewhere in this report, are not historical facts, but reflect the intent, belief or current expectations of our managing general partner based on its knowledge and understanding of the business and industry, the economy and other future conditions only as of the date of this report and may ultimately prove to be incorrect or false.  These statements are not guarantees of future performance, and we caution unit holders not to place undue reliance on forward-looking statements. Actual results could differ materially from those expressed or forecast in any forward-looking statements as a result of a number of factors, including, but not limited to, the factors listed and described under “Risk Factors” in our filings with the Securities and Exchange Commission (the “SEC”), particularly our most recent Annual Report on Form 10-K for the year ended December 31, 2011, as filed with the SEC on March 23, 2012, which are incorporated herein by reference.

 

3



Table of Contents

 

PART I — FINANCIAL INFORMATION

 

Item 1 — Financial Statements

 

NTS REALTY HOLDINGS LIMITED PARTNERSHIP

Condensed Consolidated Balance Sheets as of March 31, 2012 (Unaudited) and December 31, 2011

 

 

 

(Unaudited)

 

 

 

 

 

March 31, 2012

 

December 31, 2011

 

ASSETS:

 

 

 

 

 

Cash and equivalents

 

$

1,257,323

 

$

1,165,137

 

Cash and equivalents - restricted

 

2,591,513

 

2,421,608

 

Accounts receivable, net of allowance for doubtful accounts of $142,215 at March 31, 2012 and $214,585 at December 31, 2011, respectively

 

1,665,220

 

1,712,390

 

Land, buildings and amenities, net

 

296,773,102

 

300,235,083

 

Investment in and advances to joint venture

 

3,188,900

 

2,594,879

 

Investment in and advances to tenant in common

 

493,501

 

706,771

 

Other assets

 

4,394,905

 

5,544,842

 

 

 

 

 

 

 

Total assets

 

$

310,364,464

 

$

314,380,710

 

 

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

Mortgages and notes payable

 

$

264,066,083

 

$

263,584,959

 

Accounts payable and accrued expenses

 

3,449,543

 

4,575,502

 

Accounts payable and accrued expenses due to affiliate

 

453,179

 

372,934

 

Distributions payable

 

554,764

 

554,764

 

Security deposits

 

950,499

 

936,804

 

Other liabilities

 

4,210,431

 

4,273,457

 

Investment in and advances to tenant in common

 

870,318

 

669,803

 

 

 

 

 

 

 

Total liabilities

 

274,554,817

 

274,968,223

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES (NOTE 13)

 

 

 

 

 

 

 

 

 

 

 

EQUITY:

 

 

 

 

 

Partners’ equity

 

29,053,331

 

32,335,426

 

Noncontrolling interests

 

6,756,316

 

7,077,061

 

 

 

 

 

 

 

Total equity

 

35,809,647

 

39,412,487

 

 

 

 

 

 

 

Total liabilities and equity

 

$

310,364,464

 

$

314,380,710

 

 

NTS REALTY HOLDINGS LIMITED PARTNERSHIP

Condensed Consolidated Statement of Equity (1) as of March 31, 2012

(Unaudited)

 

 

 

(Unaudited)

 

 

 

General
Partner
Interests

 

Limited
Partners’
Interests

 

General
Partner

 

Limited
Partners

 

Noncontrolling
Interests

 

Total

 

EQUITY:

 

 

 

 

 

 

 

 

 

 

 

 

 

Initial equity

 

714,491

 

10,667,117

 

$

3,131,381

 

$

46,750,444

 

$

 

$

49,881,825

 

Contributions from noncontrolling interests

 

 

 

 

 

9,952,176

 

9,952,176

 

Net income (loss) prior years

 

 

 

619,835

 

9,437,406

 

(2,532,115

)

7,525,126

 

Consolidated net loss current year

 

 

 

(175,629

)

(2,551,702

)

(294,245

)

(3,021,576

)

Cash distributions declared to date

 

 

 

(1,686,199

)

(25,116,146

)

(369,500

)

(27,171,845

)

Retirement of limited partnership interests to date

 

 

(286,334

)

 

(1,356,059

)

 

(1,356,059

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances on March 31, 2012

 

714,491

 

10,380,783

 

$

1,889,388

 

$

27,163,943

 

$

6,756,316

 

$

35,809,647

 

 

The accompanying notes to condensed consolidated financial statements are an integral part of these statements.

 


(1) For the periods presented, there are no elements of other comprehensive income as defined by the Financial Accounting Standards Board, Accounting Standards Codification Topic 220 Comprehensive Income.

 

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Table of Contents

 

NTS REALTY HOLDINGS LIMITED PARTNERSHIP

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2012 and 2011

(Unaudited)

 

 

 

(Unaudited)

 

 

 

Three Months Ended
March 31,

 

 

 

2012

 

2011

 

REVENUE:

 

 

 

 

 

Rental income

 

$

13,582,404

 

$

12,808,580

 

Tenant reimbursements

 

459,124

 

440,027

 

 

 

 

 

 

 

Total revenue

 

14,041,528

 

13,248,607

 

 

 

 

 

 

 

EXPENSES:

 

 

 

 

 

Operating expenses

 

3,782,923

 

3,554,839

 

Operating expenses reimbursed to affiliate

 

1,544,296

 

1,430,264

 

Management fees

 

701,173

 

664,981

 

Property taxes and insurance

 

1,836,917

 

1,850,872

 

Professional and administrative expenses

 

251,741

 

252,567

 

Professional and administrative expenses reimbursed to affiliate

 

436,714

 

426,744

 

Depreciation and amortization

 

4,428,491

 

4,785,850

 

 

 

 

 

 

 

Total expenses

 

12,982,255

 

12,966,117

 

 

 

 

 

 

 

OPERATING INCOME

 

1,059,273

 

282,490

 

 

 

 

 

 

 

Interest and other income

 

19,796

 

195,100

 

Interest expense

 

(3,496,536

)

(3,534,280

)

Loss on disposal of assets

 

(98,345

)

(31,096

)

Loss from investment in joint venture

 

(91,979

)

(425

)

Loss from investments in tenants in common

 

(413,785

)

(412,467

)

 

 

 

 

 

 

CONSOLIDATED NET LOSS

 

(3,021,576

)

(3,500,678

)

Net loss attributable to noncontrolling interests

 

(294,245

)

(108,662

)

 

 

 

 

 

 

NET LOSS

 

$

(2,727,331

)

$

(3,392,016

)

 

 

 

 

 

 

Loss from continuing operations allocated to limited partners

 

$

(2,826,999

)

$

(3,280,903

)

Net loss attributable to noncontrolling interests allocated to limited partners

 

(275,297

)

(101,840

)

 

 

 

 

 

 

NET LOSS ALLOCATED TO LIMITED PARTNERS

 

$

(2,551,702

)

$

(3,179,063

)

 

 

 

 

 

 

Loss from continuing operations per limited partnership unit

 

$

(0.27

)

$

(0.31

)

Net loss attributable to noncontrolling interests per limited partnership unit

 

(0.03

)

(0.01

)

 

 

 

 

 

 

NET LOSS PER LIMITED PARTNERSHIP UNIT

 

$

(0.24

)

$

(0.30

)

 

 

 

 

 

 

Weighted average number of limited partnership interests

 

10,380,783

 

10,666,269

 

 

The accompanying notes to condensed consolidated financial statements are an integral part of these statements.

 

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NTS REALTY HOLDINGS LIMITED PARTNERSHIP

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2012 and 2011

(Unaudited)

 

 

 

(Unaudited)

 

 

 

2012

 

2011

 

 

 

 

 

 

 

OPERATING ACTIVITIES:

 

 

 

 

 

Consolidated net loss

 

$

(3,021,576

)

$

(3,500,678

)

Adjustments to reconcile consolidated net loss to net cash provided by operating activities:

 

 

 

 

 

Loss on disposal of assets

 

98,345

 

31,096

 

Depreciation and amortization

 

4,608,916

 

5,104,247

 

Loss from investment in joint venture

 

91,979

 

425

 

Loss from investments in tenants in common

 

413,785

 

412,467

 

Changes in assets and liabilities:

 

 

 

 

 

Cash and equivalents — restricted

 

(169,905

)

15,532

 

Accounts receivable

 

47,170

 

87,198

 

Other assets

 

961,124

 

(576,458

)

Accounts payable and accrued expenses

 

(1,125,959

)

(37,583

)

Accounts payable and accrued expenses due to affiliate

 

80,245

 

67,509

 

Security deposits

 

13,695

 

42,103

 

Other liabilities

 

(63,026

)

(2,544

)

 

 

 

 

 

 

 Net cash provided by operating activities

 

1,934,793

 

1,643,314

 

 

 

 

 

 

 

INVESTING ACTIVITIES:

 

 

 

 

 

Additions to land, buildings and amenities

 

(1,056,467

)

(1,268,134

)

Investment in joint venture

 

(686,000

)

(308,700

)

 

 

 

 

 

 

Net cash used in investing activities

 

(1,742,467

)

(1,576,834

)

 

 

 

 

 

 

FINANCING ACTIVITIES:

 

 

 

 

 

Distributions to noncontrolling interest holders

 

(26,500

)

 

Revolving notes payable, net

 

1,497,688

 

1,809,987

 

Principal payments on mortgages payable

 

(1,016,564

)

(770,508

)

Additions to loan costs

 

 

(25,000

)

Cash distributions

 

(554,764

)

(569,038

)

 

 

 

 

 

 

Net cash (used in) provided by financing activities

 

(100,140

)

445,441

 

 

 

 

 

 

 

NET INCREASE IN CASH AND EQUIVALENTS

 

92,186

 

511,921

 

 

 

 

 

 

 

CASH AND EQUIVALENTS, beginning of period

 

1,165,137

 

180,053

 

 

 

 

 

 

 

CASH AND EQUIVALENTS, end of period

 

$

1,257,323

 

$

691,974

 

 

The accompanying notes to condensed consolidated financial statements are an integral part of these statements.

 

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NTS REALTY HOLDINGS LIMITED PARTNERSHIP

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

The unaudited condensed consolidated financial statements included herein should be read in conjunction with NTS Realty Holdings Limited Partnership’s (“NTS Realty”) 2011 annual report on Form 10-K as filed with the Securities and Exchange Commission on March 23, 2012.  The Condensed Consolidated Balance Sheet as of December 31, 2011, has been derived from the audited consolidated financial statements of NTS Realty as of that date.  Certain information and note disclosures normally included in our annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted.  In the opinion of NTS Realty Capital, Inc., our managing general partner, all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation, have been made to the accompanying unaudited condensed consolidated financial statements for the three months ended March 31, 2012 and 2011.  The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year or any other interim period.  As used in this quarterly report on Form 10-Q, the terms “we,” “us,” or “our,” as the context requires, may refer to NTS Realty, its wholly-owned properties, properties held by wholly-owned subsidiaries, its interests in consolidated and unconsolidated joint venture investments or interests in properties held as a tenant in common with an unaffiliated third party.

 

Note 1 — Summary of Significant Accounting Policies

 

Organization and Distribution Policy

 

We are in the business of developing, constructing, owning and operating multifamily properties, commercial and retail real estate.  As of March 31, 2012, we owned 24 properties, comprised of 15 multifamily properties, 7 commercial properties and 2 retail properties.  The properties are located in and around Louisville (7) and Lexington (1), Kentucky; Fort Lauderdale (3) and Orlando (3), Florida; Indianapolis (4), Indiana; Memphis (1) and Nashville (2), Tennessee; Richmond (2), Virginia; and Atlanta (1), Georgia.  Our commercial properties aggregate approximately 733,000 square feet, which includes 125,000 square feet at our property held as a joint venture with an unaffiliated third party, and our retail properties contain approximately 47,000 square feet.  We own multifamily properties containing 4,393 rental units, which include 686 rental units at our properties held as a tenant in common with an unaffiliated third party.

 

We pay distributions if and when authorized by our managing general partner using proceeds from advances drawn on our revolving note payable to a bank.  We are required to pay distributions on a quarterly basis of an amount no less than sixty-five percent (65%) of our “net cash flow from operations” as this term is defined in regulations promulgated by the Treasury Department under the Internal Revenue Code of 1986, as amended; provided that if a law is enacted or existing law is modified or interpreted in a manner that subjects us to taxation as a corporation or otherwise subjects us to entity level taxation for federal, state or local income tax purposes, we will adjust the amount distributed to reflect our obligation to pay tax.  Any distribution other than a distribution with respect to the final quarter of a calendar year shall be made no later than forty-five (45) days after the last day of such quarter based on our estimate of “net cash flow from operations” for the year.  Any distribution with respect to the final quarter of a calendar year shall be made no later than ninety (90) days after the last day of such quarter based on actual “net cash flow from operations” for the year, adjusted for any excess or insufficient distributions made with respect to the first three quarters of the calendar year.

 

“Net cash flow from operations” may be reduced by the amount of reserves as determined by us each quarter.  NTS Realty Capital may establish these reserves for, among other things, working capital or capital improvement needs.  Therefore, there is no assurance that we will have “net cash flow from operations” from which to pay distributions in the future.  For example, our partnership agreement permits our managing general partner to reinvest sales or refinancing proceeds in new and existing properties or to create reserves to fund future capital expenditures.  Because “net cash flow from operations” is calculated after reinvesting sales or refinancing proceeds or establishing reserves, we may not have any “net cash flow from operations” from which to pay distributions.

 

We paid a quarterly distribution of $0.05 per unit to limited partners on April 13, 2012.

 

Basis of Presentation

 

The unaudited condensed consolidated financial statements include the accounts of all wholly-owned properties and properties that are less than wholly-owned, but which we control or for which we are the primary

 

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beneficiary.  We consolidate a variable interest entity, or VIE, when we are determined to be the primary beneficiary based on the qualitative factors affecting:

 

·                  Our power to direct the activities of a variable interest entity that most significantly affect the variable interest entity’s economic performance; and

 

·                  Our obligation to absorb losses of the variable interest entity that could potentially be significant to the variable interest entity or the right to receive benefits from the variable interest entity that could potentially be significant to the variable interest entity.

 

Our determination of the primary beneficiary of a VIE considers all relationships between us and the VIE, including management agreements and other contractual arrangements, when determining the party with the controlling financial interest, as defined, by accounting standards.  Effective January 1, 2010, we adopted the provisions of Accounting Standards Update No. 2009-17 Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities (“ASU 2009-17”), which amends the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810 Consolidation (“FASB ASC Topic 810”).  The amendment to FASB ASC Topic 810 revises the consolidation guidance for VIEs, focusing on a qualitative evaluation of the conditions subjecting the entity to consolidation.  There have been no changes during 2012 in conclusions about whether an entity qualifies as a VIE or whether we are the primary beneficiary of any previously identified VIE.  During the three months ended March 31, 2012, we did not provide financial or other support to a previously identified VIE that we were not previously contractually obligated to provide.  Our unconsolidated joint venture interest and our properties owned as a tenant in common with an unaffiliated third party are accounted for under the equity method.  Intercompany transactions and balances have been eliminated.

 

On October 28, 2010, we entered into a joint venture investment agreement with an unaffiliated third party to invest in a commercial office building located in Louisville, Kentucky, totaling approximately 125,000 square feet. The building, known as 600 North Hurstbourne, was developed by our affiliate, NTS Development Company.  This joint venture, Campus One, LLC, is a variable interest entity. We are not the primary beneficiary.  NTS Corporation through its subsidiaries, NTS Development Company and NTS Management Company, holds the right to receive significant benefits through its agreement as developer and manager, respectively.  NTS Development Company is responsible for the development of the building on time and within budget.  The development fee for these services is 2% of the projected costs, not exceeding $400,000.  NTS Management Company is responsible for leasing and managing the building and is entitled to earn leasing commissions, management fees, construction management fees, asset management fees and a disposition fee for its services.  Our interest in this variable interest entity is accounted for using the equity method.  Our ownership interest is reflected as investment in and advances to joint venture on our condensed consolidated balance sheets as of March 31, 2012 and December 31, 2011 at $3.2 million and $2.6 million, respectively.

 

Fair Value of Financial Instruments

 

FASB ASC Topic 820 Fair Value Measurements and Disclosures requires companies to determine fair value based on the price that would be received to sell the asset or paid to transfer the liability to a market participant.  FASB ASC Topic 820 emphasizes that fair value is a market-based measurement, not an entity specific measurement.

 

FASB ASC Topic 820 requires that assets and liabilities carried at fair value be classified and disclosed in one of the following categories:

 

·                  Level 1:  Quoted market prices in active markets for identical assets or liabilities.

 

·                  Level 2:  Observable market based inputs or unobservable inputs that are corroborated by market data.

 

·                  Level 3:  Unobservable inputs that are not corroborated by market data.

 

We did not have any material financial assets or liabilities that are required to be recorded at fair value as of March 31, 2012 or December 31, 2011.

 

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Financial Instruments

 

FASB ASC Topic 825 Financial Instruments requires disclosures about fair value of financial instruments in both interim and annual financial statements.

 

Certain of our assets and liabilities are considered financial instruments.  Fair value estimates, methods and assumptions are set forth below.

 

The book values of cash and equivalents, trade receivables and trade payables are considered representative of their respective fair values because of the immediate or short-term maturity of these financial instruments.

 

Cash and equivalents and cash and equivalents — restricted: The carrying amount of these assets and liabilities approximates fair value as of March 31, 2012 and December 31, 2011, due to the short-term nature of such accounts.

 

Deferred Compensation Plans: Our Officer and Director Plans as of March 31, 2012 and December 31, 2011 reflected liabilities of approximately $0.4 million and $0.4 million, respectively, the fair market value of 118,594 and 113,091 units, respectively, and are included in our other liabilities using level 1 measurement. Compensation expense for the Officer and Director Plans for the three months ended March 31, 2012 and 2011 totaled approximately $46,000 and ($7,000) respectively.  The income item resulted from a fluctuation in the fair market value of the respective units.

 

Mortgages and notes payable: As of March 31, 2012 and December 31, 2011, we determined the estimated fair values of our mortgages and notes payable were approximately $285.0 million and $283.0 million, respectively, by discounting expected future cash payments utilizing a discount rate equivalent to the rate at which similar instruments would be originated at the reporting date.

 

Noncontrolling interests: Pluris Property Fund I, L.P. (“PPFI”), our joint venture partner, owns a 49% noncontrolling interest in Golf Brook Apartments and Sabal Park Apartments. Pluris Property Fund II, L.P. (“PPFII”), our joint venture partner, owns a 26.5% noncontrolling interest in Lakes Edge Apartments.  PPFI and PPFII are related parties as the son-in-law of our President and CEO, Brian F. Lavin, is a member of the general partner of each of PPFI and PPFII.

 

Note 2 — Use of Estimates and Reclassifications in the Preparation of Financial Statements

 

The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires us 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.  We made certain reclassifications of prior period amounts in the consolidated financial statements to conform to the 2012 presentation.  These reclassifications had no impact on previously reported net loss attributable to unit holders or net loss per limited partnership unit.

 

Note 3 — Real Estate Transactions

 

Acquisitions

 

FASB ASC Topic 805 Business Combinations requires the acquiring entity in a business combination to measure the assets acquired, liabilities assumed (including contingencies) and any noncontrolling interests at their fair values on the acquisition date.  The statement also requires that acquisition-related transaction costs be expensed

 

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as incurred and acquired research and development value be capitalized.  In addition, acquisition-related restructuring costs are to be capitalized.

 

Upon acquisition of wholly-owned properties or joint venture investments that are less than wholly-owned, but which we control or for which we are the primary beneficiary, the assets and liabilities purchased are recorded at their fair market value at the date of the acquisition using the acquisition method in accordance with FASB ASC Topic 805 Business Combinations.  We recognize the net tangible and identified intangible assets for each of the properties acquired based on fair values (including land, buildings, tenant improvements, acquired above and below market leases and the origination cost of acquired in-place leases) and acquired liabilities.  The intangible assets recorded are amortized over the weighted average lease lives.  We identify any above or below market leases or customer relationship intangibles that exist at the acquisition date.  We recognize mortgages and other liabilities at fair market value at the date of the acquisition.  We utilize an independent appraiser to assess fair value based on estimated cash flow projections for the tangible assets acquired that utilize discount and capitalization rates deemed appropriate and available market information.  We expense acquisition costs as incurred.

 

FASB ASC Topic 360 Property, Plant, and Equipment specifies circumstances in which certain long-lived assets must be reviewed for impairment.  If the carrying amount of an asset exceeds the sum of its expected future cash flows, the asset’s carrying value must be written down to fair value.  In determining the value of an investment property and whether the investment property is impaired, management considers several factors such as projected rental and vacancy rates, property operating expenses, capital expenditures and interest rates.  The capitalization rate used to determine property valuation is based on the market in which the investment property is located, length of leases, tenant financial strength, the economy in general, demographics, environment, property location, visibility, age and physical condition among others.  All of these factors are considered by management in determining the value of any particular investment property.  The value of any particular investment property is sensitive to the actual results of any of these factors, either individually or taken as a whole.  If the actual results differ from management’s judgment, the valuation could be negatively or positively affected.  Application of this standard for the three months ended March 31, 2012 and 2011, did not result in an impairment loss.

 

During the three months ended March 31, 2012 and 2011, we did not acquire any properties.

 

Dispositions

 

During the three months ended March 31, 2012 and 2011, we did not dispose of any properties.

 

Note 4 — Concentration of Credit Risk

 

We own and operate wholly, as a tenant in common with an unaffiliated third party or through joint venture investments with both affiliated and unaffiliated third parties, multifamily, commercial and retail properties in Louisville and Lexington, Kentucky; Fort Lauderdale and Orlando, Florida; Indianapolis, Indiana; Memphis and Nashville, Tennessee; Richmond, Virginia; and Atlanta, Georgia.

 

Our financial instruments that are exposed to concentrations of credit risk consist of cash and equivalents and cash and equivalents - restricted.  We maintain our cash accounts primarily with banks located in Kentucky.

 

Note 5 — Cash and Equivalents

 

Cash and equivalents include cash on hand and short-term, highly liquid investments with initial maturities of three months or less.  We have a cash management program, which provides for the overnight investment of excess cash balances.  Under an agreement with a bank, excess cash is invested in a mutual fund for U.S. government and agency securities each night.

 

Note 6 — Cash and Equivalents - Restricted

 

Cash and equivalents - restricted represents cash on hand and short-term, highly liquid investments with initial maturities of three months or less which have been escrowed with certain mortgage companies and banks for property taxes, insurance and tenant improvements in accordance with certain loan and lease agreements and certain security deposits.

 

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Note 7 — Property and Depreciation

 

Land, buildings and amenities are stated at cost.  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 generally 5-30 years for land improvements, 7-30 years for buildings and improvements and 5-30 years for amenities.  Tenant improvements are generally depreciated over the life of the initial or renewal term of the respective tenant lease.  Depreciation expense from continuing operations for the three months ended March 31, 2012 and 2011 was approximately $4.4 million and $4.7 million, respectively.

 

Note 8 Investment in and Advances to Joint Venture

 

We own a joint venture interest in and operate the following property:

 

·                  600 North Hurstbourne: 125,000 square foot office building in Louisville, Kentucky.  We are obligated to contribute $4.9 million, for a 49% interest as a joint venture with an unaffiliated third party.  At March 31, 2012 we had funded $3.3 million of this commitment.

 

Presented below are the summarized balance sheets and statements of operations for this property:

 

 

 

(Unaudited)

 

 

 

March 31, 2012

 

December 31, 2011

 

Summarized Balance Sheet

 

 

 

 

 

Land, buildings and amenities, net

 

$

14,360,570

 

$

11,415,364

 

Other, net

 

1,540,616

 

1,346,651

 

Total assets

 

$

15,901,186

 

$

12,762,015

 

 

 

 

 

 

 

Mortgage payable and other liabilities

 

$

9,393,226

 

$

7,466,343

 

Equity

 

6,507,960

 

5,295,672

 

Total liabilities and equity

 

15,901,186

 

12,762,015

 

 

 

 

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2012

 

2011

 

Summarized Statements of Operations

 

 

 

 

 

Revenue

 

$

45,251

 

$

 

 

 

 

 

 

 

Operating loss

 

$

(165,757

)

$

(867

)

 

 

 

 

 

 

Net loss

 

$

(187,712

)

$

(867

)

 

 

 

 

 

 

Net loss attributable to noncontrolling interest

 

(91,979

)

(425

)

 

 

 

 

 

 

Net loss

 

$

(95,733

)

$

(442

)

 

Note 9 — Investment in and Advances to Tenants in Common

 

We own a tenant in common interest in and operate the following properties:

 

·                  The Overlook at St. Thomas Apartments: 484-unit luxury apartment complex in Louisville, Kentucky.  We own a 60% interest as a tenant in common with an unaffiliated third party.

 

·                  Creek’s Edge at Stony Point Apartments: 202-unit luxury apartment complex in Richmond, Virginia.  We own a 51% interest as a tenant in common with an unaffiliated third party.

 

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Presented below are the summarized balance sheets and statements of operations for these properties:

 

 

 

(Unaudited)

 

 

 

March 31, 2012

 

December 31, 2011

 

Summarized Balance Sheet

 

 

 

 

 

Land, buildings and amenities, net

 

$

55,942,747

 

$

57,105,260

 

Other, net

 

1,977,102

 

1,599,600

 

Total assets

 

$

57,919,849

 

$

58,704,860

 

 

 

 

 

 

 

Mortgage payable and other liabilities

 

$

56,554,002

 

$

56,586,644

 

Equity

 

1,365,847

 

2,118,216

 

Total liabilities and equity

 

57,919,849

 

58,704,860

 

 

 

 

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2012

 

2011

 

Summarized Statements of Operations

 

 

 

 

 

Revenue

 

$

2,335,053

 

$

2,201,833

 

 

 

 

 

 

 

Operating loss

 

$

75,457

 

$

77,552

 

 

 

 

 

 

 

Consolidated net loss

 

$

(752,368

)

$

(757,313

)

 

 

 

 

 

 

Net loss attributable to noncontrolling interest

 

(338,583

)

(344,846

)

 

 

 

 

 

 

Net loss

 

$

(413,785

)

$

(412,467

)

 

 

 

 

 

 

Distributions

 

 

 

 

 

 

 

 

 

 

 

The Overlook at St. Thomas Apartments

 

$

 

$

 

 

 

 

 

 

 

Creek’s Edge at Stony Point

 

$

 

$

 

 

The continuing net losses of The Overlook at St. Thomas Apartments have reduced our investment to zero.  We have recognized the losses in excess of our investment and recorded the resulting liability on our condensed consolidated balance sheets.

 

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Note 10 — Mortgages and Notes Payable

 

Mortgages and notes payable consist of the following:

 

 

 

(Unaudited)

 

 

 

 

 

March 31, 2012

 

December 31, 2011

 

Revolving note payable to a bank for $10.0 million, with interest payable in monthly installments at a variable rate based on LIBOR one-month rate plus 2.50%, currently 2.74%, due September 30, 2012

 

$

4,639,818

 

$

3,142,131

 

 

 

 

 

 

 

Note payable to an insurance company in monthly installments of principal and interest, bearing fixed interest at 2.79%, maturing October 28, 2012

 

74,439

 

105,960

 

 

 

 

 

 

 

Mortgage payable to a bank in monthly installments of principal and interest, bearing interest at a variable rate based on LIBOR one-month rate plus 3.50%, currently 3.74%, due September 1, 2014, secured by certain land, buildings and amenities with a carrying value of $17,070,649. The mortgage is guaranteed by Mr. Nichols and Mr. Lavin

 

20,520,602

 

20,628,602

 

 

 

 

 

 

 

Mortgage payable to an insurance company in monthly installments of principal and interest, bearing fixed interest at 8.45%, maturing November 1, 2015, secured by certain land, buildings and amenities with a carrying value of $1,691,827

 

1,370,370

 

1,449,288

 

 

 

 

 

 

 

Mortgage payable to Federal Home Loan Mortgage Corporation in monthly installments of principal and interest, bearing fixed interest at 5.11%, maturing December 1, 2014, secured by certain land, buildings and amenities with a carrying value of $10,322,588

 

10,906,227

 

10,962,165

 

 

 

 

 

 

 

Mortgage payable to a bank in monthly installments of principal and interest, bearing fixed interest at 6.03%, maturing September 1, 2018, secured by certain land, buildings and amenities with a carrying value of $31,809,426

 

26,178,967

 

26,254,275

 

 

 

 

 

 

 

Mortgage payable to Federal Home Loan Mortgage Corporation in monthly installments of principal and interest, bearing interest at a variable rate based on LIBOR one-month rate plus 3.33%, currently 3.57%, maturing July 1, 2016, secured by certain land, buildings and amenities with a carrying value of $17,174,883

 

14,446,904

 

14,514,457

 

 

 

 

 

 

 

Mortgage payable to Federal Home Loan Mortgage Corporation in monthly installments of principal and interest, bearing interest at a variable rate based on LIBOR one-month rate plus 3.50%, currently 3.74%, maturing July 1, 2016, secured by certain land, buildings and amenities with a carrying value of $11,224,351

 

9,486,773

 

9,529,772

 

 

 

 

 

 

 

Mortgage payable to Federal Home Loan Mortgage Corporation in monthly installments of principal and interest, bearing fixed interest at 5.40%, maturing January 1, 2020, secured by certain land, buildings and amenities with a carrying value of $18,798,717

 

13,490,226

 

13,539,685

 

 

 

 

 

 

 

Mortgage payable to Federal Home Loan Mortgage Corporation in monthly installments of principal and interest, bearing fixed interest at 5.40%, maturing January 1, 2020, secured by certain land, buildings and amenities with a carrying value of $33,319,907

 

26,213,465

 

26,309,571

 

 

 

 

 

 

 

Mortgage payable to Federal Home Loan Mortgage Corporation in monthly installments of principal and interest, bearing fixed interest at 5.40%, maturing January 1, 2020, secured by certain land, buildings and amenities with a carrying value of $18,154,263

 

16,354,290

 

16,414,249

 

 

 

 

 

 

 

Mortgage payable to Federal Home Loan Mortgage Corporation in monthly installments of principal and interest, bearing fixed interest at 5.40%, maturing January 1, 2020, secured by certain land, buildings and amenities with a carrying value of $32,403,142

 

26,868,802

 

26,967,310

 

 

 

 

 

 

 

Mortgage payable to Federal Home Loan Mortgage Corporation in monthly installments of principal and interest, bearing fixed interest at 5.40%, maturing January 1, 2020, secured by certain land, buildings and amenities with a carrying value of $16,085,681

 

11,058,199

 

11,098,741

 

 

 

 

 

 

 

Mortgage payable to Federal Home Loan Mortgage Corporation in monthly installments of principal and interest, bearing fixed interest at 5.40%, maturing January 1, 2020, secured by certain land, buildings and amenities with a carrying value of $21,253,822

 

29,732,865

 

29,841,874

 

 

 

 

 

 

 

Mortgage payable to Federal Home Loan Mortgage Corporation in monthly installments of principal and interest, bearing fixed interest at 5.40%, maturing January 1, 2020, secured by certain land, buildings and amenities with a carrying value of $9,115,525

 

10,626,162

 

10,665,120

 

 

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Unaudited

 

 

 

 

 

March 31, 2012

 

December 31, 2011

 

Mortgage payable to Federal Home Loan Mortgage Corporation in monthly installments of principal and interest, bearing fixed interest at 5.40%, maturing January 1, 2020, secured by certain land, buildings and amenities with a carrying value of $12,167,248

 

17,397,974

 

17,461,759

 

 

 

 

 

 

 

Mortgage payable to an insurance company, with interest payable in monthly installments until June 1, 2013, bearing fixed interest at 5.09%, maturing May 1, 2018, secured by certain land, buildings and amenities with a carrying value of $34,828,372

 

24,700,000

 

24,700,000

 

 

 

 

 

 

 

Total mortgages and notes payable

 

$

264,066,083

 

$

263,584,959

 

 

Our $10.0 million revolving note payable to a bank is due September 30, 2012.  As of March 31, 2012, our availability to draw on our revolving note payable was approximately $5.4 million.

 

Based on the borrowing rates currently available to us for loans with similar terms and average maturities, the fair value of our mortgages and notes payable on March 31, 2012 was approximately $285.0 million.

 

Interest paid for the three months ended March 31, 2012 and 2011 was approximately $3.4 million and $3.3 million, respectively.

 

Our mortgages may be prepaid but are generally subject to a yield-maintenance premium.  Certain mortgages and notes payable contain covenants and requirements that we maintain specified debt limits and ratios related to our debt balances and property values.  We complied with all covenants and requirements at March 31, 2012.  We anticipate renewing or refinancing our mortgages and notes payable coming due within the next twelve months.

 

Mortgages payable for our unconsolidated tenants in common properties consist of the following:

 

 

 

(Unaudited)

 

 

 

 

 

March 31, 2012

 

December 31, 2011

 

Mortgage payable to a bank in monthly installments of principal and interest, bearing fixed interest at 5.72%, maturing on April 11, 2017, secured by certain land, buildings and amenities with a carrying value of $32,458,307 (1)

 

$

33,599,104

 

$

33,740,074

 

 

 

 

 

 

 

Mortgage payable to an insurance company in monthly installments of principal and interest, bearing fixed interest at 5.99%, maturing November 15, 2017, secured by certain land, buildings and amenities with a carrying value of $23,484,441 (2)

 

$

22,069,923

 

$

22,147,406

 

 


(1) We are proportionately liable for this mortgage, limited to our 60% interest as a tenant in common.

 

(2) We are jointly and severally liable under this mortgage.

 

Based on the borrowing rates currently available to us for loans with similar terms and average maturities, the fair value of our mortgages payable for our unconsolidated tenants in common properties at March 31, 2012, was approximately $62.1 million.

 

Mortgage payable for our unconsolidated joint venture property consists of the following:

 

 

 

(Unaudited)

 

 

 

 

 

March 31, 2012

 

December 31, 2011

 

Construction mortgage payable to a bank for $10.5 million with interest payable in monthly installments of interest, bearing a variable rate based on LIBOR one-month rate plus 2.40%, currently 2.64%, maturing December 14, 2014, secured by certain buildings and amenities with a carrying value of $14,360,570 (3)

 

$

6,654,284

 

$

4,584,843

 

 


(3)  We are a guarantor of this construction loan made to Campus One, LLC.  We are proportionately liable for the $10.5 million obligation, limited to our 49% ownership interest.

 

Based on the borrowing rates currently available to us for loans with similar terms and average maturities, the fair value of our mortgage payable for our unconsolidated joint venture property at March 31, 2012, was approximately $6.7 million.

 

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Note 11 — Accounts Payable and Accrued Expenses Due to Affiliate

 

Accounts payable and accrued expenses due to affiliate includes amounts owed to NTS Development Company and/or its affiliate, NTS Management Company, collectively referred to as NTS Development, for reimbursement of salary and overhead expenses and fees for services rendered as provided for in our various management agreements.

 

Note 12 — Related Party Transactions

 

Pursuant to our various management agreements, NTS Development receives fees for a variety of services performed for our benefit.  NTS Development also receives fees under separate management agreements for each of our consolidated joint venture properties, our unconsolidated joint venture property, our properties owned as a tenant in common with an unaffiliated third party and our properties owned by our eight wholly-owned subsidiaries financed through Federal Home Loan Mortgage Corporation (“FHLMC”).  Property management fees are paid in an amount equal to 5% of the gross collected revenue from our properties.  This includes our wholly-owned properties, consolidated and unconsolidated joint venture properties and properties owned by our eight wholly-owned subsidiaries financed through FHLMC.  Fees are paid in an amount equal to 3.5% of the gross collected revenue from our unconsolidated properties owned as a tenant in common with an unaffiliated third party.  We were the beneficiary of a preferential ownership interest, disproportionately greater than our initial cash investment in each property owned as a tenant in common with an unaffiliated third party.  Construction supervision fees are generally paid in an amount equal to 5% of the costs incurred which relate to capital improvements and significant repairs.  NTS Development receives commercial leasing fees equal to 4% of the gross rental amount for new leases and 2% of the gross rental amount for new leases in which a broker is used and for renewals or extensions.  Disposition fees are paid to NTS Development in an amount of 1% to 4% of the aggregate sales price of a property pursuant to our management agreements and up to a 6% fee upon disposition on our properties owned as a tenant in common with an unaffiliated third party under separate management agreements.  NTS Development has agreed to accept a lower management fee for the properties we own as a tenant in common with an unaffiliated third party in exchange for a larger potential disposition fee.  NTS Development is reimbursed its actual costs for services rendered to NTS Realty.

 

Employee costs are allocated among NTS Realty, other affiliates of our managing general partner and for the benefit of third parties, so that a full time employee can be shared by multiple entities.  Each employee’s services, which are dedicated to a particular entity’s operations, are allocated as a percentage of each employee’s costs to that entity.  We only reimburse charges from NTS Development for actual costs of employee services incurred for our benefit.

 

We were charged the following amounts pursuant to our various agreements with NTS Development for the three months ended March 31, 2012 and 2011.  These charges include items which have been expensed as operating expenses reimbursed to affiliate or professional and administrative expenses reimbursed to affiliate and items that have been capitalized as other assets or as land, buildings and amenities.

 

 

 

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2012

 

2011

 

Property management fees

 

$

701,000

 

$

665,000

 

 

 

 

 

 

 

Operating expenses reimbursement - property

 

1,014,000

 

982,000

 

Operating expenses reimbursement - multifamily leasing

 

209,000

 

175,000

 

Operating expenses reimbursement - administrative

 

278,000

 

262,000

 

Operating expenses reimbursement - other

 

43,000

 

11,000

 

 

 

 

 

 

 

Total operating expenses reimbursed to affiliate

 

1,544,000

 

1,430,000

 

 

 

 

 

 

 

Professional and administrative expenses reimbursed to affiliate

 

437,000

 

427,000

 

 

 

 

 

 

 

Construction supervision and leasing fees

 

45,000

 

93,000

 

 

 

 

 

 

 

Total related party transactions

 

$

2,727,000

 

$

2,615,000

 

 

 

 

 

 

 

Total related party transactions with our investment in tenants in common

 

$

336,000

 

$

323,000

 

 

 

 

 

 

 

Total related party transactions with our investment in joint venture

 

$

191,000

 

$

34,000

 

 

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Property, multifamily leasing, administrative and other operating expenses reimbursed include employee costs charged to us by NTS Development and other actual costs incurred by NTS Development on our behalf, which were reimbursed by us.

 

During the three months ended March 31, 2012 and 2011, we were charged approximately $16,000 and $18,000, respectively, for property maintenance fees from affiliates of NTS Development.

 

NTS Development Company leased 20,368 square feet of office space in NTS Center at a rental rate of $14.50 per square foot and 1,902 square feet of storage space at a rental rate of $5.50 per square foot.  We recognized rents of approximately $76,000 from NTS Development Company for each of the three months ended March 31, 2012 and 2011.  The average per square foot rental rate for similar office space in NTS Center as of March 31, 2012 was $14.00 per square foot.

 

Note 13 — Commitments and Contingencies

 

We, as an owner of real estate, are subject to various environmental laws of federal, state and local governments.  Our compliance with existing laws has not had a material adverse effect on our financial condition, cash flows and results of operations.  However, we cannot predict the impact of new or changed laws or regulations on our current properties or on properties that we may acquire in the future.

 

Litigation

 

From time to time, we are involved in litigation and other legal proceedings arising out of the ordinary course of business.  There are no pending material legal proceedings to which we are subject that would have a material adverse affect on our financial condition, cash flows or results of operations.

 

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Note 14 — Segment Reporting

 

Our reportable operating segments include — multifamily, commercial and retail real estate operations.  The following unaudited financial information of the operating segments has been prepared using a management approach, which is consistent with the basis and manner in which our management internally disaggregates financial information for the purpose of assisting in making internal operating decisions.  We evaluate performance based on stand-alone operating segment net income (loss).  The non-segment information necessary to reconcile to our total operating results is included in the column labeled “Partnership” in the following information.

 

 

 

(Unaudited)

 

 

 

Three Months Ended March 31, 2012

 

 

 

Multifamily

 

Commercial

 

Retail

 

Partnership

 

Total

 

Rental income

 

$

12,003,185

 

$

1,452,903

 

$

132,090

 

$

(5,774

)

$

13,582,404

 

Tenant reimbursements

 

 

437,053

 

22,071

 

 

459,124

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenue

 

12,003,185

 

1,889,956

 

154,161

 

(5,774

)

14,041,528

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses and operating expenses reimbursed to affiliate

 

4,647,052

 

650,889

 

29,278

 

 

5,327,219

 

Management fees

 

594,254

 

98,357

 

8,562

 

 

701,173

 

Property taxes and insurance

 

1,572,745

 

220,058

 

14,941

 

29,173

 

1,836,917

 

Professional and administrative expenses and professional and administrative expenses reimbursed to affiliate

 

 

 

 

688,455

 

688,455

 

Depreciation and amortization

 

3,942,577

 

445,284

 

40,630

 

 

4,428,491

 

 

 

 

 

 

 

 

 

 

 

 

 

Total expenses

 

10,756,628

 

1,414,588

 

93,411

 

717,628

 

12,982,255

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

1,246,557

 

475,368

 

60,750

 

(723,402

)

1,059,273

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and other income

 

13,930

 

270

 

 

5,596

 

19,796

 

Interest expense

 

(3,245,980

)

(150,279

)

(11

)

(100,266

)

(3,496,536

)

Loss on disposal of assets

 

(98,345

)

 

 

 

(98,345

)

Loss from investment in joint venture

 

 

(91,979

)

 

 

(91,979

)

Loss from investments in tenants in common

 

(413,785

)

 

 

 

(413,785

)

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated net (loss) income

 

(2,497,623

)

233,380

 

60,739

 

(818,072

)

(3,021,576

)

 

 

 

 

 

 

 

 

 

 

 

 

Net loss attributable to noncontrolling interests

 

(294,245

)

 

 

 

(294,245

)

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(2,203,378

)

$

233,380

 

$

60,739

 

$

(818,072

)

$

(2,727,331

)

 

 

 

 

 

 

 

 

 

 

 

 

Land, buildings and amenities, net

 

$

266,657,927

 

$

26,611,118

 

$

3,504,057

 

$

 

$

296,773,102

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenditures for land, buildings and amenities

 

$

482,874

 

$

573,593

 

$

 

$

 

$

1,056,467

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment liabilities from continuing operations

 

$

245,146,170

 

$

2,744,902

 

$

35,107

 

$

26,628,638

 

$

274,554,817

 

 

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Table of Contents

 

 

 

(Unaudited)

 

 

 

Three Months Ended March 31, 2011

 

 

 

Multifamily

 

Commercial

 

Retail

 

Partnership

 

Total

 

Rental income

 

$

11,283,896

 

$

1,392,254

 

$

141,333

 

$

(8,903

)

$

12,808,580

 

Tenant reimbursements

 

 

412,963

 

27,064

 

 

440,027

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenue

 

11,283,896

 

1,805,217

 

168,397

 

(8,903

)

13,248,607

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses and operating expenses reimbursed to affiliate

 

4,248,679

 

694,379

 

42,045

 

 

4,985,103

 

Management fees

 

566,029

 

90,425

 

8,527

 

 

664,981

 

Property taxes and insurance

 

1,563,127

 

245,434

 

13,137

 

29,174

 

1,850,872

 

Professional and administrative expenses and professional and administrative expenses reimbursed to affiliate

 

 

 

 

679,311

 

679,311

 

Depreciation and amortization

 

4,300,546

 

443,499

 

41,805

 

 

4,785,850

 

 

 

 

 

 

 

 

 

 

 

 

 

Total expenses

 

10,678,381

 

1,473,737

 

105,514

 

708,485

 

12,966,117

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

605,515

 

331,480

 

62,883

 

(717,388

)

282,490

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and other income

 

8,717

 

369

 

695

 

185,319

 

195,100

 

Interest expense

 

(3,319,912

)

(145,483

)

(12,376

)

(56,509

)

(3,534,280

)

Loss on disposal of assets

 

(21,368

)

(7,631

)

(2,097

)

 

(31,096

)

Loss from investment in joint venture

 

 

(425

)

 

 

(425

)

Loss from investments in tenants in common

 

(412,467

)

 

 

 

(412,467

)

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated net (loss) income

 

(3,139,515

)

178,310

 

49,105

 

(588,578

)

(3,500,678

)

 

 

 

 

 

 

 

 

 

 

 

 

Net loss attributable to noncontrolling interests

 

(108,662

)

 

 

 

(108,662

)

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(3,030,853

)

$

178,310

 

$

49,105

 

$

(588,578

)

$

(3,392,016

)

 

 

 

 

 

 

 

 

 

 

 

 

Land, buildings and amenities, net

 

$

279,703,125

 

$

26,676,306

 

$

3,667,298

 

$

 

$

310,046,729

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenditures for land, buildings and amenities

 

$

692,449

 

$

564,098

 

$

11,587

 

$

 

$

1,268,134

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment liabilities from continuing operations

 

$

245,984,732

 

$

2,934,727

 

$

44,942

 

$

28,542,766

 

$

277,507,167

 

 

Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the financial statements in Item 1 and the cautionary statements below.

 

Critical Accounting Policies

 

A critical accounting policy is one that would materially affect our operations or financial condition, and requires management to make estimates or judgments in certain circumstances.  These judgments often result from the need to make estimates about the effect of matters that are inherently uncertain.  Critical accounting policies discussed in this section are not to be confused with accounting principles and methods disclosed in accordance with U.S. generally accepted accounting principles (“GAAP”).  GAAP requires information in financial statements about accounting principles, methods used and disclosures pertaining to significant estimates.  Our critical accounting policies, as previously disclosed in our most recent annual report on Form 10-K, which was filed with the Securities and Exchange Commission on March 23, 2012, discuss judgments known to management pertaining to trends, events or uncertainties which were taken into consideration upon the application of those policies and the likelihood that materially different amounts would be reported upon taking into consideration different conditions and assumptions and remain unchanged during the quarter ended March 31, 2012.

 

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Results of Operations

 

As of March 31, 2012, we owned wholly, as a tenant in common with an unaffiliated third party or through joint venture investments with both affiliated and unaffiliated third parties, 15 multifamily properties, 7 commercial properties and 2 retail properties.  We generate substantially all of our operating income from property operations.

 

Net losses for the three months ended March 31, 2012 and 2011 were approximately $2.7 million and $3.4 million, respectively.  The change in net loss for the three months ended March 31, 2012 as compared to March 31, 2011 was primarily due to a $0.8 million increase in operating income and a $0.2 million increase in net loss attributable to noncontrolling interests.  This was partially offset by a $0.2 million decrease in interest and other income and a $0.1 million increase in loss from investment in joint venture. There were no other material offsetting changes in net loss for the three months ended March 31, 2012 and 2011.

 

The following tables include certain selected summarized operating data for the three months ended March 31, 2012 and 2011.  This data should be read in conjunction with our financial statements, including the notes attached hereto.

 

 

 

(Unaudited)

 

 

 

Three Months Ended March 31, 2012

 

 

 

Multifamily

 

Commercial

 

Retail

 

Partnership

 

Total

 

Total revenues

 

$

12,003,185

 

$

1,889,956

 

$

154,161

 

$

(5,774

)

$

14,041,528

 

Operating expenses and operating expenses reimbursed to affiliate

 

4,647,052

 

650,889

 

29,278

 

 

5,327,219

 

Depreciation and amortization

 

3,942,577

 

445,284

 

40,630

 

 

4,428,491

 

Total interest expense

 

(3,245,980

)

(150,279

)

(11

)

(100,266

)

(3,496,536

)

Net (loss) income

 

(2,203,378

)

233,380

 

60,739

 

(818,072

)

(2,727,331

)

 

 

 

(Unaudited)

 

 

 

Three Months Ended March 31, 2011

 

 

 

Multifamily

 

Commercial

 

Retail

 

Partnership

 

Total

 

Total revenues

 

$

11,283,896

 

$

1,805,217

 

$

168,397

 

$

(8,903

)

$

13,248,607

 

Operating expenses and operating expenses reimbursed to affiliate

 

4,248,679

 

694,379

 

42,045

 

 

4,985,103

 

Depreciation and amortization

 

4,300,546

 

443,499

 

41,805

 

 

4,785,850

 

Total interest expense

 

(3,319,912

)

(145,483

)

(12,376

)

(56,509

)

(3,534,280

)

Net (loss) income

 

(3,030,853

)

178,310

 

49,105

 

(588,578

)

(3,392,016

)

 

Occupancy levels at our properties by segment as of March 31, 2012 and 2011 were as follows:

 

 

 

2012

 

2011

 

Multifamily

 

96

%

96

%

Multifamily Unconsolidated Investment in Tenants in Common

 

98

%

95

%

Commercial

 

81

%

80

%

Commercial Unconsolidated Investment in Joint Venture (1)

 

9

%

 

Retail

 

90

%

95

%

 


(1) Our commercial unconsolidated investment in joint venture property was 73% leased as of March 31, 2012.

 

The average occupancy levels at our properties by segment for the three months ended March 31, 2012 and 2011 were as follows:

 

 

 

Three Months Ended March 31,

 

 

 

2012

 

2011

 

Multifamily

 

96

%

96

%

Multifamily Unconsolidated Investment in Tenants in Common

 

97

%

94

%

Commercial

 

81

%

78

%

Commercial Unconsolidated Investment in Joint Venture (1)

 

9

%

 

Retail

 

90

%

95

%

 


(1) Our commercial unconsolidated investment in joint venture property was 73% leased as of March 31, 2012.

 

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We believe the changes in average and period end occupancy from period to period are temporary effects of each property’s specific mix of lease maturities and are not indicative of any known trend or uncertainty.

 

We have on-site leasing staff, who are employees of NTS Development Company, at each of the multifamily properties.  The staff handles all on-site visits from potential tenants, coordinates local advertising with NTS Development Company’s marketing staff, makes visits to local companies to promote fully furnished apartments and negotiates lease renewals with current residents.

 

The leasing and renewal negotiations for our commercial and retail properties are primarily handled by leasing agents that are employees of NTS Development Company.  All advertising for the commercial and retail properties is coordinated by NTS Development Company’s marketing staff located in Louisville, Kentucky.

 

The following discussion relating to changes in our results of operations includes only material line items within our unaudited condensed consolidated statements of operations or line items for which there was a material change between the three months ended March 31, 2012 and 2011.

 

Rental Income and Tenant Reimbursements

 

Rental income and tenant reimbursements from continuing operations for the three months ended March 31, 2012 and 2011 were approximately $14.0 million and $13.2 million, respectively. The increase of $0.8 million, or 6%, was primarily the result of a $0.7 million increase in rental income across the multifamily segment primarily related to an increase in the average monthly unit rental to $1,013 from $950 for the three months ended March 31, 2012 and 2011, respectively.  The increase is also the result of a $0.1 million increase in rental income and tenant reimbursements across the commercial segment primarily due to an increase in average occupancy to 81% from 78% for the three months ended March 31, 2012 and 2011, respectively.  There were no other material offsetting changes in rental income and tenant reimbursements for the three months ended March 31, 2012 and 2011.

 

Operating Expenses and Operating Expenses Reimbursed to Affiliate

 

Operating expenses from continuing operations for the three months ended March 31, 2012 and 2011 were approximately $3.8 million and $3.6 million, respectively.  The increase of $0.2 million, or 6%, was primarily the result of a $0.3 million increase in operating expense across the multifamily segment primarily related to additional landscaping. There were no other material offsetting changes in operating expenses for the three months ended March 31, 2012 and 2011.

 

Operating expenses reimbursed to affiliate from continuing operations for the three months ended March 31, 2012 and 2011 were approximately $1.5 million and $1.4 million, respectively.  The increase of $0.1 million, or 7%, was primarily the result of a $0.1 million increase in operating expenses reimbursed to affiliate across the multifamily segment.  There were no other material offsetting changes in operating expenses reimbursed to affiliate for the three months ended March 31, 2012 and 2011.

 

We do not have any employees.  Pursuant to our various management agreements, NTS Development employs the individuals who provide services necessary to operate our properties and conduct our business.  NTS Development provides employees that may also perform services for other properties and business enterprises.  In the situation where a particular employee benefits multiple operations, the employee’s cost is proportionately charged out to the entity receiving the services.  We only reimburse charges from NTS Development for actual costs of employee services incurred for our benefit.  The cost of services provided to us by NTS Development’s employees are classified in our condensed consolidated statements of operations as operating expenses reimbursed to affiliate.  The services provided by others are classified as operating expenses.

 

Operating expenses reimbursed to affiliate are for services performed by employees of NTS Development, an affiliate of our general partner.  These employee services include property management, leasing, maintenance, security and other services necessary to manage and operate our business.

 

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Operating expenses reimbursed to affiliate from continuing operations consisted approximately of the following:

 

 

 

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2012

 

2011

 

Property

 

$

1,014,000

 

$

982,000

 

Multifamily leasing

 

209,000

 

175,000

 

Administrative

 

278,000

 

262,000

 

Other

 

43,000

 

11,000

 

 

 

 

 

 

 

Total

 

$

1,544,000

 

$

1,430,000

 

 

Management Fees

 

Management fees from continuing operations for each of the three months ended March 31, 2012 and 2011 were approximately $0.7 million. There were no material offsetting changes in management fees for the three months ended March 31, 2012 and 2011.

 

Pursuant to our various management agreements, NTS Development Company and or its affiliate, NTS Management Company, (collectively referred to as “NTS Development”) receives property management fees equal to 5% of the gross collected revenue from our properties.  This includes our wholly-owned properties, our consolidated and unconsolidated joint venture properties and properties owned by our eight wholly-owned subsidiaries financed through FHLMC.  NTS Development receives property management fees from our unconsolidated properties owned as a tenant in common with an unaffiliated third party equal to 3.5% of their gross collected revenue under separate management agreements.  We were the beneficiary of a preferential ownership interest, disproportionately greater than our initial cash investment in each property owned as a tenant in common with an unaffiliated third party.  NTS Development has agreed to accept a lower management fee for the properties we own as a tenant in common with an unaffiliated third party in exchange for a larger potential disposition fee.  Disposition fees of up to 6% of the gross sales price may be paid to NTS Development for the sale of one of our properties owned as a tenant in common with an unaffiliated third party.  Management fees are calculated as a percentage of cash collections and are recorded on the accrual basis.  As a result, the fluctuations in revenue between years will differ from the fluctuations of management fee expense.

 

Property Taxes and Insurance

 

Property taxes and insurance from continuing operations for the three months ended March 31, 2012 and 2011 were approximately $1.8 million and $1.9 million, respectively.  The decrease of $0.1 million, or 5%, was primarily the result of approximately $0.1 million for Indiana property tax consulting services in 2011 without similar expense in 2012. There were no other material offsetting changes in property taxes and insurance for the three months ended March 31, 2012 and 2011.

 

Professional and Administrative Expenses and Professional and Administrative Expenses Reimbursed to Affiliate

 

Professional and administrative expenses from continuing operations for each of the three months ended March 31, 2012 and 2011 were approximately $0.3 million.  There were no material offsetting changes in professional and administrative expenses for the three months ended March 31, 2012 and 2011.

 

Professional and administrative expenses reimbursed to affiliate from continuing operations for each of the three months ended March 31, 2012 and 2011 were $0.4 million.  There were no material offsetting changes in professional and administrative expenses reimbursed to affiliate for the three months ended March 31, 2012 and 2011.

 

We do not have any employees.  Pursuant to our various management agreements, NTS Development employs the individuals who provide services necessary to operate our properties and conduct our business.  NTS Development provides employees that may also perform services for other properties and business enterprises.  In the situation where a particular employee benefits multiple operations, the employee’s cost is proportionately

 

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Table of Contents

 

charged out to the entity receiving the services.  We only reimburse charges from NTS Development for actual costs of employee services incurred for our benefit.  The cost of services provided to us by NTS Development’s employees are classified in our condensed consolidated statements of operations as professional and administrative expenses reimbursed to affiliate.  The services provided by others are classified as professional and administrative expenses.

 

Professional and administrative expenses reimbursed to affiliate are for the services performed by employees of NTS Development, an affiliate of our general partner.  These employee services include legal, financial and other services necessary to manage and operate our business.

 

Professional and administrative expenses reimbursed to affiliate from continuing operations consisted approximately of the following:

 

 

 

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2012

 

2011

 

Finance

 

$

109,000

 

$

108,000

 

Accounting

 

195,000

 

195,000

 

Investor relations

 

75,000

 

70,000

 

Human resources

 

5,000

 

5,000

 

Overhead

 

53,000

 

49,000

 

 

 

 

 

 

 

Total

 

$

437,000

 

$

427,000

 

 

Depreciation and Amortization

 

Depreciation and amortization from continuing operations for the three months ended March 31, 2012 and 2011 was approximately $4.4 million and $4.8 million, respectively.  The decrease of $0.4 million, or 8%, was primarily due to a decrease in depreciation and amortization of approximately $0.4 million spread across the multifamily segment.  There were no other material offsetting changes in depreciation and amortization for the three months ended March 31, 2012 and 2011.

 

Interest and Other Income

 

Interest and other income from continuing operations for the three months ended March 31, 2012 and 2011 was approximately $20,000 and $0.2 million, respectively.  The decrease was primarily due to a decrease in interest income earned on notes receivable.  There were no other material offsetting changes in interest and other income for the three months ended March 31, 2012 and 2011.

 

Interest Expense

 

Interest expense from continuing operations for each of the three months ended March 31, 2012 and 2011 was approximately $3.5 million.  There were no material offsetting changes in interest expense for the three months ended March 31, 2012 and 2011.

 

Loss on Disposal of Assets

 

The loss on disposal of assets from continuing operations for the three months ended March 31, 2012 and 2011 can be attributed to assets that were not fully depreciated at the time of replacement spread primarily amongst the multifamily and commercial properties.

 

Loss from Investment in Joint Venture

 

Loss from investment in joint venture for the three months ended March 31, 2012 and 2011 includes net operating loss attributable to our investment in a joint venture with an unaffiliated third party.  The property is 600 North Hurstbourne.  There are no other material offsetting changes in loss from investment in joint venture for the three months ended March 31, 2012 and 2011.

 

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Table of Contents

 

Loss from Investments in Tenants in Common

 

Loss from investments in tenants in common for the three months ended March 31, 2012 and 2011 includes net operating losses attributable to our investments in tenants in common with an unaffiliated third party.  The properties are The Overlook at St. Thomas Apartments and Creek’s Edge at Stony Point Apartments.  There were no other material offsetting changes in loss from investments in tenants in common for the three months ended March 31, 2012 and 2011.

 

The continuing net losses of The Overlook at St. Thomas Apartments reduced our investment to zero.  We have recognized the losses in excess of our investment and recorded the resulting liability on our condensed consolidated balance sheets.

 

Liquidity and Capital Resources

 

Our most liquid asset is our cash and equivalents, which consist of cash and short-term investments, but do not include any restricted cash.  Operating income generated by the properties is the primary source from which we generate cash.  Other sources of cash include the proceeds from our mortgage loans and revolving notes payable.  Our main uses of cash relate to capital expenditures, required payments of mortgages and notes payable, distributions and property taxes.

 

The components of the condensed consolidated statements of cash flows for the three months ended March 31, 2012 and 2011 consisted approximately of the following:

 

 

 

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2012

 

2011

 

Operating activities

 

$

1,935,000

 

$

1,643,000

 

Investing activities

 

(1,743,000

)

(1,576,000

)

Financing activities

 

(100,000

)

445,000

 

 

 

 

 

 

 

Net increase in cash and equivalents

 

$

92,000

 

$

512,000

 

 

Cash Flow from Operating Activities

 

Net cash provided by operating activities was approximately $1.9 million and $1.6 million for the three months ended March 31, 2012 and 2011, respectively.  The change of approximately $0.3 million was primarily related to increased cash provided by other assets of approximately $1.5 million consisting primarily of a $0.9 million payment received on a note receivable issued in 2008 and a decrease in cash used for a $0.5 million refundable deposit for permanent financing on Lakes Edge Apartments in 2011.  Our cash provided is partially offset by increased cash used to satisfy accounts payable and accounts payable due to affiliate of approximately $1.1 million.  The remaining increases and decreases in cash were individually immaterial.

 

Cash Flow from Investing Activities

 

Net cash used in investing activities was approximately $1.7 million and $1.6 million for the three months ended March 31, 2012 and 2011, respectively.  The change of approximately $0.1 million was primarily due to increased cash used to invest in our joint venture with an unaffiliated third party of approximately $0.4 million partially offset by decreased cash used to purchase land, buildings and amenities of approximately $0.2 million.  The remaining increases and decreases in cash were individually immaterial.

 

Cash Flow from Financing Activities

 

Net cash used in financing activities was approximately $0.1 million compared to net cash provided by financing activities of approximately $0.4 million for the three months ended March 31, 2012 and 2011, respectively.  The change of approximately $0.5 million was primarily due to a decrease in cash provided by our revolving notes payable, net of receipts, of approximately $0.3 million and an increase in principal payments on our mortgages payable of approximately $0.2 million.  The remaining increases and decreases in cash were individually immaterial.

 

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Table of Contents

 

Future Liquidity

 

Our future liquidity depends significantly on our properties’ occupancy remaining at a level which allows us to make debt payments and have 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, our ability to make payments due under our debt agreements and to continue paying daily operational costs would be materially impaired.  In the next twelve months, we intend to operate the properties in a similar manner to their operation in recent years.  Cash reserves, which consist of unrestricted cash as shown on our balance sheet, were approximately $1.3 million as of March 31, 2012.

 

On March 14, 2012, we announced that the board of directors of our managing general partner approved a quarterly distribution of $0.05 per unit on our limited partnership units.  The distribution was paid on April 13, 2012, to limited partners of record at the close of business on March 30, 2012.

 

Pursuant to leasing agreements signed by March 31, 2012, we are obligated to incur expenditures of approximately $0.5 million funded by borrowings on our debt during the next twelve months, primarily for renovations and tenant origination costs necessary to continue leasing our properties.  This discussion of future liquidity details our material commitments.  We anticipate repaying, seeking renewal or refinancing of our revolving note payable coming due in the next twelve months.

 

Our availability to draw on our $10.0 million revolving note payable was approximately $5.4 million as of March 31, 2012.

 

On October 28, 2010, we entered into a joint venture investment agreement with an unaffiliated third party to invest in a commercial office building located in Louisville, Kentucky. The building, known as 600 North Hurstbourne, was developed by our affiliate, NTS Development Company, with construction completed in early 2012. The building is managed by an affiliate of NTS Development Company.  We are obligated to contribute $4.9 million, for a 49% ownership interest.  We intend to fund our share of this investment with cash on hand, cash from operations or borrowing on new or existing debt.  At March 31, 2012 we had funded $3.3 million of this commitment.  We expect to fund the remaining $1.6 million in the second quarter of 2012. The joint venture has entered into a $10.5 million construction financing agreement with a bank. The joint venture expects to invest a total of $20.5 million in the construction of the building and completion of tenant space.

 

Property Transactions

 

Acquisitions

 

During the three months ended March 31, 2012 and 2011, we did not acquire any properties.

 

Dispositions

 

During the three months ended March 31, 2012 and 2011, we did not dispose of any properties.

 

We may engage in transactions structured as “like-kind exchanges” of property to obtain favorable tax treatment under Section 1031 of the Internal Revenue Code.  If we are able to structure an exchange of properties as a “like-kind exchange,” then any gain we realize from the exchange would not be recognized for federal income tax purposes.  The test for determining whether exchanged properties are of “like-kind” is whether the properties are of the same nature or character.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements that are reasonably likely to have a current or future material effect on our financial condition, changes in our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

 

Website Information

 

Information concerning NTS Realty Holdings Limited Partnership is available through the NTS Development Company website (www.ntsdevelopment.com).  Our annual reports on Form 10-K, quarterly reports

 

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Table of Contents

 

on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act are available and may be accessed free of charge through the “Investor Services” section of our website as soon as reasonably practicable after we electronically file this material with, or furnish it to, the SEC.  Our website and the information contained therein or connected thereto are not incorporated into this Quarterly Report on Form 10-Q.

 

Item 3 — Quantitative and Qualitative Disclosures About Market Risk

 

Our primary market risk exposure with regard to financial instruments is expected to be our exposure to changes in interest rates.  We have refinanced substantially all of our debt with instruments which bear interest at a fixed rate, with the exception of approximately $49.1 million at variable rates.  We anticipate that a hypothetical 100 basis point increase in interest rates would increase interest expense on our variable rate debt by approximately $0.5 million annually.  The average variable interest rate at March 31, 2012 was 3.5%.

 

Contractual Obligations and Commercial Commitments

 

The following table represents our obligations and commitments to make future payments as of March 31, 2012 under contracts, such as debt and lease agreements including principal and interest, and under contingent commitments, such as debt guarantees.

 

 

 

Payment Due by Period

 

 

 

Total

 

Within
One Year

 

One — Three
Years

 

Three — Five
Years

 

After Five
Years

 

Contractual Obligations

 

 

 

 

 

 

 

 

 

 

 

Mortgages and notes payable

 

$

349,797,043

 

$

22,225,448

 

$

64,376,660

 

$

51,987,360

 

$

211,207,575

 

Capital lease obligations

 

 

 

 

 

 

Operating leases (1)

 

 

 

 

 

 

Other long-term obligations (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total contractual cash obligations

 

$

349,797,043

 

$

22,225,448

 

$

64,376,660

 

$

51,987,360

 

$

211,207,575

 

 


(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, pool service and security systems, which represent an insignificant obligation.

 

Item 4 — Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

As required by Rule 13a-15(b) and Rule 15d-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our management, including our Chief Executive Officer and Chief Financial Officer, evaluated as of March 31, 2012, the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e) and Rule 15d-15(e).  Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures, as of March 31, 2012, were effective for the purpose of ensuring that information required to be disclosed by us in this report is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the Exchange Act and is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

 

Changes in Internal Control over Financial Reporting

 

There have been no changes in internal control over financial reporting that occurred during the quarter ended March 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II — OTHER INFORMATION

 

Item 1 — Legal Proceedings

 

None.

 

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Table of Contents

 

Item 1A — Risk Factors

 

Our principal unit holders may effectively exercise control over matters requiring unit holder approval.

 

As of March 31, 2012, Mr. J.D. Nichols beneficially owned approximately 61.7% of the outstanding NTS Realty Holdings Limited Partnership Units.  Mr. Nichols effectively has the power to elect all of the directors and control the management, operations and affairs of NTS Realty Holdings Limited Partnership.  His ownership may discourage someone from making a significant equity investment in NTS Realty Holdings Limited Partnership, even if we needed the investment to operate our business.  His holdings could be a significant factor in delaying or preventing a change of control transaction that other limited partners may deem to be in their best interests, such as a transaction in which the other limited partners would receive a premium for their units over their current trading prices.

 

Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds

 

During the three months ended March 31, 2012, no units were purchased by the entities created or controlled by Mr. Nichols pursuant to the previously announced trading plans.  The table below summarizes activity pursuant to these plans for the three months ended March 31, 2012.

 

Period

 

Total Number of
Units Purchased

 

Average Price Paid
Per Unit

 

Total Number of
Units Purchased as
Part of Publicly
Announced Plans or
Programs

 

Maximum Number
(or Approximate
Dollar Value) of Units
That May Yet Be
Purchased Under the
Plans or Programs

 

January 2012

 

 

$

N/A

 

493,969

(2)

(1)

 

 

 

 

 

 

 

 

 

 

 

February 2012

 

 

$

N/A

 

493,969

(2)

(1)

 

 

 

 

 

 

 

 

 

 

 

March 2012

 

 

$

N/A

 

493,969

(2)

(1)

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

$

N/A

 

493,969

(2)

(1)

 

 


(1)          A description of the maximum amount that may be used to purchase our units under the trading plans is included in the narrative preceding this table.

 

(2)          Represents the total number of our limited partnership units that have been purchased pursuant to the trading plans by entities created or controlled by Mr. Nichols, pursuant to the current or any previous publicly announced plan or program by trading plans.

 

Item 3 — Defaults Upon Senior Securities

 

None.

 

Item 4 — Mine Safety Disclosures

 

None.

 

Item 5 — Other Information

 

None.

 

26



Table of Contents

 

Item 6 — Exhibits

 

Exhibit No.

 

 

 

 

2.01

 

Agreement and Plan of Merger by and among NTS Realty Holdings Limited Partnership, NTS-Properties III, NTS-Properties IV, NTS-Properties V, a Maryland limited partnership, NTS-Properties VI, a Maryland limited partnership and NTS-Properties VII, Ltd., dated February 3, 2004

 

(3)

 

 

 

 

 

2.02

 

Contribution Agreement by and between NTS Realty Holdings Limited Partnership and ORIG, LLC, dated February 3, 2004

 

(3)

 

 

 

 

 

3.01

 

Certificate of Limited Partnership of NTS Realty Holdings Limited Partnership

 

(1)

 

 

 

 

 

3.02

 

Amended and Restated Agreement of Limited Partnership of NTS Realty Holdings Limited Partnership, dated as of December 29, 2005

 

(7)

 

 

 

 

 

3.03

 

Certificate of Incorporation of NTS Realty Capital, Inc.

 

(8)

 

 

 

 

 

3.04

 

By-Laws of NTS Realty Capital, Inc.

 

(2)

 

 

 

 

 

10.01

 

Amended and Restated Management Agreement between NTS Realty Holdings Limited Partnership and NTS Development Company, dated as of December 29, 2005

 

(6)

 

 

 

 

 

10.02

 

Form of Lease Agreement between NTS Realty Holdings Limited Partnership and SHPS, Inc.

 

(4)

 

 

 

 

 

10.03

 

Purchase and Sale Agreement between NTS Realty Holdings Limited Partnership and Investors Capital Mortgage Group, Inc., dated September 30, 2005 (Golf Brook Apartments)

 

(5)

 

 

 

 

 

10.04

 

Purchase and Sale Agreement between NTS Realty Holdings Limited Partnership and Investors Capital Mortgage Group, Inc., dated September 30, 2005 (Sabal Park Apartments)

 

(5)

 

 

 

 

 

10.05

 

Agreement for Purchase and Sale between Schaedle Worthington Hyde Properties, L.P. and NTS Realty Holdings Limited Partnership, dated November 1, 2005 (The Grove at Richland Apartments and The Grove at Whitworth Apartments)

 

(5)

 

 

 

 

 

10.06

 

Agreement for Purchase and Sale between Schaedle Worthington Hyde Properties, L.P. and NTS Realty Holdings Limited Partnership, dated November 1, 2005 (The Grove at Swift Creek Apartments)

 

(5)

 

 

 

 

 

10.07

 

Purchase and Sale Agreement between AMLI at Castle Creek, L.P. and AMLI Residential Properties, L.P. and NTS Realty Holdings Limited Partnership, dated February 7, 2006 (Castle Creek Apartments and Lake Clearwater Apartments)

 

(5)

 

 

 

 

 

10.08

 

Unconditional and Continuing Guaranty by NTS Realty Holdings Limited Partnership in favor of National City Bank, dated March 23, 2006

 

(5)

 

 

 

 

 

10.09

 

Amended and Restated Master Loan Agreements between NTS Realty Holding Limited Partnership and The Northwestern Mutual Life Insurance Company and between NTS Realty Holdings Limited Partnership and National City Bank, dated October 4, 2006

 

(9)

 

 

 

 

 

10.10

 

Purchase and Sale Agreement between NTS Realty Holdings Limited Partnership and Meridian Realty Investments, LLC, dated November 10, 2006 (Springs Medical Office Center)

 

(10)

 

 

 

 

 

10.11

 

Purchase and Sale Agreement between NTS Realty Holdings Limited Partnership and Meridian Realty Investments, LLC, dated November 10, 2006 (Springs Office Center)

 

(10)

 

 

 

 

 

10.12

 

Purchase and Sale Agreement between NTS Realty Holdings Limited Partnership together with Overlook Associates, LLC and The Northwestern Mutual Life Insurance Company, dated December 8, 2006 (The Overlook at St. Thomas Apartments)

 

(11)

 

 

 

 

 

10.13 

 

Purchase and Sale Agreement between NTS Realty Holdings Limited Partnership together with Creek’s Edge Investors, LLC and CG Stony Point, LLC, dated June 20, 2007 (Creek’s Edge at Stony Point Apartments)

 

(12)

 

 

 

 

 

10.14

 

Purchase and Sale Agreement between NTS Realty Holdings Limited Partnership and Ascent Properties, LLC, dated August 1, 2007 (The Office Portfolio)

 

(13)

 

 

 

 

 

10.15

 

Purchase and Sale Agreement between NTS Realty Holdings Limited Partnership and Colonial Realty Limited Partnership and Colonial Properties Services, Inc., dated June 11, 2008 (Shelby Farms Apartments)

 

(14)