<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended June 30, 1995
-------------
Commission file number 0-13523
-------------
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
- --------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
Maryland 52-1328767
- ----------------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11200 Rockville Pike, Rockville, Maryland 20852
- ----------------------------------------- --------------------
(Address of principal executive officer) (Zip Code)
(301) 468-9200
- -------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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 and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at June 30, 1995
- ---------------------------------- ----------------------------------
(Not applicable) (Not applicable)
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1995
Page
PART I. Financial Information (Unaudited)
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 1995 and
December 31, 1994 . . . . . . . . . . . . . . . . 1
Consolidated Statements of Operations - for the
three and six months ended June 30, 1995 and 1994 3
Consolidated Statements of Cash Flows - for the
six months ended June 30, 1995 and 1994 . . . . . 6
Notes to Consolidated Financial Statements . . . . 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . 14
PART II. Other Information
Item 3. Defaults upon Senior Securities . . . . . . . . . . 17
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . 18
Signature . . . . . . . . . . . . . . . . . . . . . . . . . 19
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
--------------------
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
------------ ------------
(Unaudited)
<S> <C> <C>
Investments in and advances to
partnerships $ 35,317,207 $ 35,666,562
Investment in partnership held for sale -- 1,872,088
Cash and cash equivalents 6,375,960 5,435,555
Restricted cash or cash equivalents 114,200 114,200
Acquisition fees, principally paid to
related parties, net of accumulated
amortization of $361,419 and $344,501,
respectively 992,054 1,008,972
Property purchase costs, net of accu-
mulated amortization of $348,178 and
$332,102, respectively 937,906 953,982
Other assets 30,025 10,005
------------- -------------
Total assets $ 43,767,352 $ 45,061,364
============= =============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
-1-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
--------------------
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS - Continued
LIABILITIES AND PARTNERS' DEFICIT
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
------------- -------------
(Unaudited)
<S> <C> <C>
Due on investments in partnerships,
net of unamortized discount on
purchase money notes of $24,901,242
and $31,401,005, respectively $ 25,766,909 $ 24,890,860
Accrued interest payable 78,822,896 76,148,263
Accounts payable and accrued expenses 110,724 92,383
------------- -------------
Total liabilities 104,700,529 101,131,506
------------- -------------
Commitments and contingencies
Partners' capital (deficit):
Capital paid-in:
General Partners 2,000 2,000
Limited Partners 73,501,500 73,501,500
------------- -------------
73,503,500 73,503,500
Less:
Accumulated distributions to
partners (3,452,583) (2,707,293)
Offering costs (7,562,894) (7,562,894)
Accumulated loss (123,421,200) (119,303,455)
------------- -------------
Total partners' deficit (60,933,177) (56,070,142)
------------- -------------
Total liabilities and partners'
deficit $ 43,767,352 $ 45,061,364
============= =============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
-2-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
--------------------
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30, June 30,
-------------------------- --------------------------
1995 1994 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Share of income
(loss) from
partnerships $ 46,773 $ (78,273) $ 272,508 $ (140,141)
------------ ------------ ------------ ------------
Other revenue and
expenses:
Revenue:
Interest and
other income 111,312 68,057 219,297 167,563
------------ ------------ ------------ ------------
Expenses:
Interest 3,634,938 2,899,610 7,297,856 5,799,221
Management
fee 93,750 93,750 187,500 187,500
General and
admini-
strative 52,078 49,969 94,397 92,972
Professional
fees 26,127 40,218 51,784 73,376
Amortization 16,497 17,085 33,189 35,387
------------ ------------ ------------ ------------
3,823,390 3,100,632 7,664,726 6,188,456
------------ ------------ ------------ ------------
Total other
revenue and
expenses (3,712,078) (3,032,575) (7,445,429) (6,020,893)
------------ ------------ ------------ ------------
Loss before gain on
disposition of
investment in
partnership (3,665,305) (3,110,848) (7,172,921) (6,161,034)
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
-3-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
--------------------
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS - Continued
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the six months ended
-------------------------- ---------------------------
June 30, June 30,
1995 1994 1995 1994
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Gain on dis-
position of
investment
in part-
nership $ -- $ -- $ 3,055,176 $ --
------------- ------------- ------------- -------------
Net loss (3,665,305) (3,110,848) (4,117,745) (6,161,034)
Accumulated
losses,
beginning of
period (119,755,895) (107,364,669) (119,303,455) (104,314,483)
------------- ------------ ------------- -------------
Accumulated
losses, end
of period $(123,421,200) $(110,475,517) $(123,421,200)$(110,475,517)
============= ============= ============= =============
Loss allocated to
General Partners
(1.51%) $ (55,346) $ (46,974) $ (62,178)$ (93,032)
============= ============= ============= =============
Loss allocated to
Initial and
Special Limited
Partners
(1.49%) $ (54,613) $ (46,352) $ (61,354)$ (91,799)
============= ============= ============= =============
Loss allocated to
Additional
Limited Partners
(97%) $ (3,555,346) $ (3,017,522) $ (3,994,213)$ (5,976,203)
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
-4-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
--------------------
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS - Continued
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30, June 30,
---------------------------- ---------------------------
1995 1994 1995 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Loss per unit of
Additional Limited
Partnership
Interest based on
73,500 units
outstanding $ (48.37) $ (41.05) $ (54.34)$ (81.31)
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
-5-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
--------------------
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the six months ended
June 30,
---------------------------
1995 1994
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (4,117,745) $ (6,161,034)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Share of (income) loss from
partnerships (272,508) 140,141
Decrease (increase) in accrued
interest receivable on advances
to partnerships 53,185 (24,282)
Amortization of deferred costs 33,189 35,387
Amortization of discount on
purchase money notes 1,826,498 918,247
Gain on disposition of investment
in partnership (3,055,176) --
Payment of purchase money note
interest (279,924) (288,966)
Changes in assets and liabilities:
Increase in other assets (20,020) (5,118)
Increase in accrued interest
payable 5,482,386 4,880,974
Increase (decrease) in accounts
payable and accrued expenses 18,341 (9,851)
------------ ------------
Net cash used in operating
activities (331,774) (514,502)
------------ ------------
Cash flows from investing activities:
Receipt of distributions from
partnerships 568,678 550,247
Repayments from partnerships -- 61,756
Net proceeds from disposition of
investment in partnership 1,495,721 --
------------ ------------
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
-6-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
--------------------
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
(Unaudited)
<TABLE>
<CAPTION>
For the six months ended
June 30,
---------------------------
1995 1994
------------ ------------
<S> <C> <C>
Net cash provided by investing
activities $ 2,064,399 $ 612,003
------------ ------------
Cash flows from financing activities:
Distribution paid to Additional Limited
Partners (745,290) --
Payment of purchase money note
principal (46,930) --
------------ ------------
Net cash used in financing activities (792,220) --
------------ ------------
Net increase in cash and cash equivalents 940,405 97,501
Cash and cash equivalents, beginning
of period 5,435,555 5,318,282
------------ ------------
Cash and cash equivalents, end of
period $ 6,375,960 $ 5,415,783
============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
-7-
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
In the opinion of C.R.I., Inc. (CRI), the Managing General Partner, the
accompanying unaudited consolidated financial statements of Capital Realty
Investors-IV Limited Partnership (the Partnership) contain all adjustments of a
normal recurring nature necessary to present fairly the Partnership's
consolidated financial position as of June 30, 1995 and December 31, 1994 and
the consolidated results of its operations for the three and six months ended
June 30, 1995 and 1994 and its consolidated cash flows for the six months ended
June 30, 1995 and 1994.
These unaudited financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in consolidated financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. While the Managing General Partner believes
that the disclosures presented are adequate to make the information not mis-
leading, it is suggested that these consolidated financial statements be read in
conjunction with the consolidated financial statements and the notes included in
the Partnership's Annual Report filed on Form 10-K for the year ended December
31, 1994.
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS
As of June 30, 1995, the Partnership's obligations with respect to its
investments in Local Partnerships, in the form of purchase money notes of
$50,668,151 (exclusive of unamortized discount on purchase money notes of
$24,901,242) plus accrued interest of $78,822,896, are payable upon the earliest
of: (1) sale or refinancing of the respective Local Partnership's rental
property; (2) payment in full of the respective Local Partnership's permanent
loan; or (3) maturity. Purchase money notes in an aggregate principal amount of
$3,491,850 matured in 1994 but have not been paid, as discussed below. The
remaining purchase money notes mature from 1997 to 2000. The purchase money
note relating to Southgate Apartments Company (Southgate) totalling $2,767,000
was retired on January 31, 1995 as a result of the sale of the related property,
as discussed below. The purchase money notes are generally secured by the
Partnership's interest in the respective Local Partnerships. There is no
assurance that the underlying properties will have sufficient appreciation and
equity to enable the Partnership to pay the purchase money notes' principal and
accrued interest when due. If a purchase money note is not paid in accordance
with its terms, the Partnership will either have to renegotiate the terms of
repayment or risk losing its partnership interest in the Local Partnership. The
Managing General Partner is continuing to investigate possible alternatives to
reduce the Partnership's long-term debt obligations. These alternatives
include, among others, retaining the cash available for distribution to meet the
purchase money note requirements, buying out certain purchase money notes at a
discounted price, extending the due dates of certain purchase money notes, or
refinancing the respective properties' underlying debt and using the proceeds to
pay off or buy down certain purchase money note obligations.
Interest expense on the Partnership's purchase money notes for the three
and six months ended June 30, 1995 was $3,634,938 and $7,297,856, respectively,
and for the three and six months ended June 30, 1994 was $2,899,610 and
$5,799,221, respectively. Amortization of the imputed interest on purchase
money notes increased interest expense by $902,445 and $1,826,498 during the
-8-
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
three and six months ended June 30, 1995, respectively, and by $459,123 and
$918,247 for the three and six months ended June 30, 1994, respectively.
On May 11, 1992, Southgate Apartments Company filed a plan of action under
Title II of the Emergency Low Income Housing Preservation Act of 1987 to sell
the real estate to a non-profit entity. The sale was completed on January 31,
1995. The sale price of the property of approximately $9.3 million generated
sufficient proceeds to the Partnership to retire, at a discount, the purchase
money note obligation of the Partnership with respect to such property. The
sale provided proceeds to the Partnership in excess of its investment in the
Local Partnership, and resulted in a net financial statement gain and a net tax
gain in 1995 of $3,055,176 and $6,982,026, respectively. Additionally, the
General Partner and/or its affiliates received net fees for services of $186,512
on February 2, 1995. The Partnership distributed $745,290 (or $10.14 per
Additional Limited Partner unit)on April 28, 1995 to the Additional Limited
Partners as return of capital on a Generally Accepted Accounting Principles
basis. The Managing General Partner intends to retain all of the Partnership's
remaining undistributed net sale proceeds for the repayment, prepayment or
purchase of purchase money notes of other Local Partnerships, as discussed
above.
The Partnership defaulted on its purchase money note relating to Holiday
Village Apartments on July 27, 1994 when the note matured and was not paid.
The default amount included principal and accrued interest of $1,370,000 and
$2,862,342, respectively. As of July 20, 1995, principal and accrued interest
totalling $1,370,000 and $3,346,810, respectively, were due. In addition, the
Partnership defaulted on its purchase money note relating to Village Apartments
North on September 27, 1994 when the note matured and was not paid. The default
amount included principal and accrued interest of $1,180,000 and $1,450,907,
respectively. As of July 20, 1995, principal and accrued interest of $1,180,000
and $1,583,418, respectively, were due. In June 1994, an offer was made to
extend the maturity dates of these notes to coincide with the future sale of the
properties under the Low Income Housing Preservation and Resident Homeownership
Act of 1990 (LIHPRHA) program or refinancing of the first mortgages. As of July
14, 1995, discussions with the noteholders were ongoing. There is no assurance,
however, that the offer to extend the maturity dates will be accepted. The
Partnership defaulted on its purchase money note relating to Clearfield Hills I
on October 30, 1994 when the note matured and was not paid. The default amount
included principal and accrued interest of $941,850 and $892,717, respectively.
As of July 20, 1995, principal and accrued interest totalling $941,850 and
$957,159, respectively, were due. In June 1994, an offer was made to pay
$100,000 in accrued interest and extend the maturity date to September 30, 1996
to coincide with the potential completion of LIHPRHA processing. As of July 14,
1995, discussions with the noteholders were ongoing. There is no assurance that
the offer to extend the maturity date will be accepted. Should the noteholders
begin foreclosure proceedings on the Partnership's interest in the related Local
Partnerships, the Partnership intends to vigorously defend any action by the
noteholders. However, there is no assurance that the Partnership will be able
to retain its interest in the Local Partnerships. The uncertainty about the
continued ownership of the Partnership's interest in the related Local
Partnerships does not impact the Partnership's financial condition because the
related purchase money notes are non-recourse and collateralized solely by the
Partnership's interest in the Local Partnerships. Therefore, should the
investment in Holiday Village Apartments, Village Apartments North and
Clearfield Hills I not produce sufficient value to satisfy the related purchase
-9-
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
money notes, the Partnership's exposure to loss is limited since the amount of
the non-recourse indebtedness exceeds the carrying amount of the investment in
and advances to the Local Partnerships. Thus, even a complete loss of these
investments would not have a material impact on the operations of the
Partnership.
In 1989, Second Lakewood (Walden Apartments) was experiencing rent losses
due to units being taken off the market because of roof leakage. The Partnership
advanced a total of $750,000 during 1990 to fund roof replacement in order to
maintain the marketability and income of the property. The loan bears interest
at 11% and is to be repaid over a five-year period from the property's cash
flow. As of June 30, 1995 and December 31, 1994, $564,355 and $486,888,
respectively, had been repaid, comprised of $308,500 and $308,500 principal,
respectively, and $255,855 and $178,388 interest, respectively. Accrued interest
on the loan was $14,626 and $67,811 as of June 30, 1995 and December 31, 1994,
respectively.
The letter of credit related to the tax-exempt bonds on Lakes of Northdale,
which originally matured in June 1995, has been extended to June 1996. The
letter of credit fee will increase from its previous level of 1% per annum to a
maximum of 4% per annum in October 1995. The Managing General Partner of Lakes
of Northdale is currently pursuing a refunding of the existing tax-exempt bonds
issued by the Florida Housing Finance Agency. There is no assurance that Lakes
of Northdale will obtain the necessary financing to refund the bonds. If new
financing is not obtained by June 1996, the letter of credit issuer could begin
foreclosure proceedings on the Local Partnership's property. The uncertainty
about the Local Partnership's continued ownership of the property does not
impact the Partnership's financial condition because the purchase money notes
related to Lakes of Northdale are non-recourse and collateralized solely by the
Partnership's interest in the Local Partnership. Therefore, should the
investment in Lakes of Northdale not produce sufficient value to satisfy the
related purchase money notes, the Partnership's exposure to loss is limited
since the amount of the non-recourse indebtedness exceeds the carrying amount of
the investment in and advances to the Local Partnership. Thus, even a complete
loss of this investment would not have a material impact on the operations of
the Partnership.
Garden Court Apartments, located in Springfield, Illinois, received a
$330,000 grant from HUD to make certain improvements to the property. The local
general partner of Garden Court Apartments intends to address security issues as
part of these improvements in an effort to improve occupancy. Improvements made
under this grant are expected to be completed by early 1996.
The first mortgage on Clearfield Hills II matures on October 2, 1995. The
Local Partnership has signed an application to refinance the mortgage with a new
lender and is scheduled to close on its new mortgage on September 30, 1995. On
June 26, 1995, the Partnership advanced $17,500 to Clearfield Hills II for
closing costs. The Partnership anticipates receiving a reimbursement of this
advance upon settlement of the new mortgage.
Many of the rental properties owned by the Local Partnerships have
mortgages which were federally insured under Section 236 or Section 221(d)(3) of
the National Housing Act, as amended. These properties may be eligible for sale
or refinancing, subject to numerous requirements, under the LIHPRHA program.
This program may provide incentives to owners of qualifying multifamily housing
-10-
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
who commit to permanently maintain their properties as low to moderate income
housing. Incentives available under LIHPRHA include selling the property to
qualified buyers or obtaining supplemental financing for the property. As of
July 14, 1995, members of Congress are recommending substantial changes to the
LIHPRHA program ranging from the elimination of the program to the redesigning
of the program. Substantial uncertainty exists as to whether any properties
which have already filed the notice of intent to participate under LIHPRHA will
qualify under a redesigned program, or as to whether the program will continue
at all.
Many of the rental properties owned by the Local Partnerships are dependent
on the receipt of housing assistance payments guaranteed by contract under the
Housing and Urban Development (HUD) Section 8 program. The level of funding for
the Section 8 program, and HUD-insured multifamily housing in general, is
dependent upon the continuation of appropriations approved by Congress for
subsidy payments. In the event that the rental subsidy programs are reduced or
phased out, there is no assurance that the rental properties will be able to
maintain the occupancy levels necessary to pay debt service and operating costs
or that the rents necessary to pay debt service and operating costs will be
competitive with rents for comparable units in the rental properties' market
areas. While the Managing General Partner has no reason to believe that HUD
will not honor its obligations under the contracts, some uncertainty exists in
light of the recent Congressional scrutiny of appropriations for HUD programs.
The following are combined statements of operations for the Local
Partnerships in which the Partnership has invested. The statements are compiled
from information supplied by the management agents of the projects and are
unaudited.
-11-
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
COMBINED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30, June 30,
--------------------------- ---------------------------
1995 1994 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Rental
revenue $ 9,888,124 $ 9,867,642 $ 19,751,697 $ 19,701,775
Other 426,319 447,586 927,839 898,017
------------ ------------ ------------ ------------
10,314,443 10,315,228 20,679,536 20,599,792
------------ ------------ ------------ ------------
Expenses:
Operating 6,438,745 6,415,439 12,728,418 12,782,735
Interest 2,166,830 2,324,297 4,339,863 4,648,612
Depreciation
and amort-
ization 2,033,949 2,057,863 4,082,472 4,115,723
------------ ------------ ------------ ------------
10,639,524 10,797,599 21,150,753 21,547,070
------------ ------------ ------------ ------------
Net loss $ (325,081) $ (482,371) $ (471,217)$ (947,278)
============ ============ ============ ============
</TABLE>
As of June 30, 1995 and December 31, 1994, the Partnership's share of
cumulative losses to date for twelve and eleven, respectively, of the forty-
three and forty-four Local Partnerships, respectively, exceeds the amount of the
Partnership's investments in and advances to those Local Partnerships by
$14,352,032 and $13,617,817, respectively. As the Partnership has no further
obligation to advance funds or provide financing to these Local Partnerships,
the excess losses have not been reflected in the accompanying consolidated
financial statements.
3. RELATED PARTY TRANSACTIONS
In accordance with the terms of the Partnership Agreement, the Partnership
is obligated to reimburse the Managing General Partner for its direct expenses
in managing the Partnership and to pay an annual incentive management fee
(Management Fee), after all other expenses of the Partnership are paid. The
Partnership paid $33,737 and $58,413 for the three and six months ended June 30,
1995, respectively, and $33,053 and $58,246 for the three and six months ended
June 30, 1994, respectively, as direct reimbursement of expenses incurred on
behalf of the Partnership. Additionally, the Partnership paid the Managing
General Partner a Management Fee of $93,750 and $187,500 for the three and six
months ended June 30, 1995 and 1994, respectively.
From April 1990 to January 1994, CRICO Management Corporation (CRICO), an
affiliate of the Managing General Partner, provided consulting, accounting and
other services to Walden Apartments. Fees paid or accrued to CRICO for these
-12-
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. RELATED PARTY TRANSACTIONS - Continued
services amounted to $8,217 for the month ended January 31, 1994. On February
1, 1994, CRICO contributed its consulting contracts and personnel to CAPREIT
Residential Corporation (CAPREIT). CAPREIT was formed by CRI but is not
currently owned or controlled by CRI and/or its affiliates. On April 12, 1995,
HUD approved CAPREIT as the new management agent.
The Managing General Partner and/or its affiliates may receive a fee of not
more than 2% of the sales price of an investment in a Local Partnership or the
property it owns, payable under certain conditions upon the sale of an
investment in a Local Partnership or the property its owns. The payment of the
fee is subject to certain restrictions, including the achievement of a certain
level of sales proceeds and making certain minimum distributions to limited
partners. The Managing General Partner and/or its affiliates received net fees
for services relating to the sale of the Partnership's interest in the Southgate
Local Partnership of $186,512 on February 2, 1995.
-13-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Financial Condition/Liquidity
----------------------------
The Partnership's liquidity, with unrestricted cash resources of $6,375,960
and $5,435,555 as of June 30, 1995 and December 31, 1994, respectively, along
with anticipated future cash distributions from the Local Partnerships, is
expected to meet its current and anticipated operating cash needs. As of June
30, 1995, $114,200 of cash equivalents are restricted for (1) the purpose of
collateralizing a letter of credit for a particular Local Partnership and (2)
future interest payments on one of the purchase money notes. As of July 14,
1995, there are no material commitments for capital expenditures.
As of June 30, 1995, the Partnership's obligations with respect to its
investments in Local Partnerships, in the form of purchase money notes of
$50,668,151 (exclusive of unamortized discount on purchase money notes of
$24,901,242) plus accrued interest of $78,822,896, are payable upon the earliest
of: (1) sale or refinancing of the respective Local Partnership's rental
property; (2) payment in full of the respective Local Partnership's permanent
loan; or (3) maturity. Purchase money notes in an aggregate principal amount of
$3,491,850 matured in 1994 but have not been paid, as discussed below. The
remaining purchase money notes mature from 1997 to 2000. The purchase money
note relating to Southgate Apartments Company (Southgate) totalling $2,767,000
was retired on January 31, 1995 as a result of the sale of the related property,
as discussed below. The purchase money notes are generally secured by the
Partnership's interest in the respective Local Partnerships. There is no
assurance that the underlying properties will have sufficient appreciation and
equity to enable the Partnership to pay the purchase money notes' principal and
accrued interest when due. If a purchase money note is not paid in accordance
with its terms, the Partnership will either have to renegotiate the terms of
repayment or risk losing its partnership interest in the Local Partnership. The
Managing General Partner is continuing to investigate possible alternatives to
reduce the Partnership's long-term debt obligations. These alternatives
include, among others, retaining the cash available for distribution to meet the
purchase money note requirements, buying out certain purchase money notes at a
discounted price, extending the due dates of certain purchase money notes, or
refinancing the respective properties' underlying debt and using the proceeds to
pay off or buy down certain purchase money note obligations.
On May 11, 1992, Southgate Apartments Company filed a plan of action under
Title II of the Emergency Low Income Housing Preservation Act of 1987 to sell
the real estate to a non-profit entity. The sale was completed on January 31,
1995. The sale price of the property of approximately $9.3 million generated
sufficient proceeds to the Partnership to retire, at a discount, the purchase
money note obligation of the Partnership with respect to such property. The
sale provided proceeds to the Partnership in excess of its investment in the
Local Partnership, and resulted in a net financial statement gain and a net tax
gain in 1995 of $3,055,176 and $6,982,026, respectively. Additionally, the
General Partner and/or its affiliates received net fees for services of $186,512
on February 2, 1995. The Partnership distributed $745,290 (or $10.14 per
Additional Limited Partner unit)on April 28, 1995 to the Additional Limited
Partners as return of capital on a Generally Accepted Accounting Principles
basis. The Managing General Partner intends to retain all of the Partnership's
remaining undistributed net sale proceeds for the repayment, prepayment or
purchase of purchase money notes of other Local Partnerships, as discussed
above.
-14-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
The Partnership defaulted on its purchase money note relating to Holiday
Village Apartments on July 27, 1994 when the note matured and was not paid.
The default amount included principal and accrued interest of $1,370,000 and
$2,862,342, respectively. As of July 20, 1995, principal and accrued interest
totalling $1,370,000 and $3,346,810, respectively, were due. In addition, the
Partnership defaulted on its purchase money note relating to Village Apartments
North on September 27, 1994 when the note matured and was not paid. The default
amount included principal and accrued interest of $1,180,000 and $1,450,907,
respectively. As of July 20, 1995, principal and accrued interest of $1,180,000
and $1,583,418, respectively, were due. In June 1994, an offer was made to
extend the maturity dates of these notes to coincide with the future sale of the
properties under the Low Income Housing Preservation and Resident Homeownership
Act of 1990 (LIHPRHA) program or refinancing of the first mortgages. As of July
14, 1995, discussions with the noteholders were ongoing. There is no assurance,
however, that the offer to extend the maturity dates will be accepted. The
Partnership defaulted on its purchase money note relating to Clearfield Hills I
on October 30, 1994 when the note matured and was not paid. The default amount
included principal and accrued interest of $941,850 and $892,717, respectively.
As of July 20, 1995, principal and accrued interest totalling $941,850 and
$957,159, respectively, were due. In June 1994, an offer was made to pay
$100,000 in accrued interest and extend the maturity date to September 30, 1996
to coincide with the potential completion of LIHPRHA processing. As of July 14,
1995, discussions with the noteholders were ongoing. There is no assurance that
the offer to extend the maturity date will be accepted. Should the noteholders
begin foreclosure proceedings on the Partnership's interest in the related Local
Partnerships, the Partnership intends to vigorously defend any action by the
noteholders. However, there is no assurance that the Partnership will be able
to retain its interest in the Local Partnerships. The uncertainty about the
continued ownership of the Partnership's interest in the related Local
Partnerships does not impact the Partnership's financial condition because the
related purchase money notes are non-recourse and collateralized solely by the
Partnership's interest in the Local Partnerships. Therefore, should the
investment in Holiday Village Apartments, Village Apartments North and
Clearfield Hills I not produce sufficient value to satisfy the related purchase
money notes, the Partnership's exposure to loss is limited since the amount of
the non-recourse indebtedness exceeds the carrying amount of the investment in
and advances to the Local Partnerships. Thus, even a complete loss of these
investments would not have a material impact on the operations of the
Partnership.
The Partnership closely monitors its cash flow and liquidity position in an
effort to ensure that sufficient cash is available for operating requirements.
For the six months ended June 30, 1995, the receipt of distributions from Local
Partnerships was adequate to support operating cash requirements. Cash and cash
equivalents increased for the six months ended June 30, 1995 primarily due to
the net proceeds from the sale of Southgate, as discussed above.
Results of Operations
---------------------
The Partnership's net loss for the three months ended June 30, 1995
increased from the corresponding period in 1994 primarily due to an increase in
interest expense as a result of the amortization of imputed interest. Partially
offsetting the increase in net loss was an increase in share of income from
Local Partnerships principally due to increased rental and other income at three
properties resulting from higher rental subsidies and increased occupancy. Also
-15-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
partially offsetting the increase in net loss was an increase in interest and
other income due to higher cash balances resulting from the receipt of Southgate
sales proceeds, as well as higher yields on investments as compared to the same
period in 1994. Also partially offsetting the increase in net loss was a
decrease in professional fees resulting from decreased legal expenses.
The Partnership's net loss for the six months ended June 30, 1995 decreased
from the corresponding period in 1994 primarily due to the gain on disposition
of the Southgate property, as discussed above. Contributing to the decrease in
net loss was an increase in share of income from Local Partnerships, as
discussed above. Also contributing to the decrease in net loss was an increase
in interest and other income and a decrease in professional fees, as discussed
above. Partially offsetting the decrease in the Partnership's net loss was an
increase in interest expense, as discussed above.
For financial reporting purposes, the Partnership, as a limited partner in
the Local Partnerships, does not record losses from the Local Partnerships in
excess of its investment to the extent the Partnership has no further obligation
to advance funds or provide financing to the Local Partnerships. As a result,
the Partnership's recognized losses for the three and six months ended June 30,
1995 did not include losses of $367,110 and $734,215, respectively, compared to
excluded losses of $396,382 and $792,769 for the three and six months ended June
30, 1994, respectively.
In 1989, Second Lakewood (Walden Apartments) was experiencing rent losses
due to units being taken off the market because of roof leakage. The Partnership
advanced a total of $750,000 during 1990 to fund roof replacement in order to
maintain the marketability and income of the property. The loan bears interest
at 11% and is to be repaid over a five-year period from the property's cash
flow. As of June 30, 1995 and December 31, 1994, $564,355 and $486,888,
respectively, had been repaid, comprised of $308,500 and $308,500 principal,
respectively, and $255,855 and $178,388 interest, respectively. Accrued interest
on the loan was $14,626 and $67,811 as of June 30, 1995 and December 31, 1994,
respectively.
The letter of credit related to the tax-exempt bonds on Lakes of Northdale,
which originally matured in June 1995, has been extended to June 1996. The
letter of credit fee will increase from its previous level of 1% per annum to a
maximum of 4% per annum in October 1995. The Managing General Partner of Lakes
of Northdale is currently pursuing a refunding of the existing tax-exempt bonds
issued by the Florida Housing Finance Agency. There is no assurance that Lakes
of Northdale will obtain the necessary financing to refund the bonds. If new
financing is not obtained by June 1996, the letter of credit issuer could begin
foreclosure proceedings on the Local Partnership's property. The uncertainty
about the Local Partnership's continued ownership of the property does not
impact the Partnership's financial condition because the purchase money notes
related to Lakes of Northdale are non-recourse and collateralized solely by the
Partnership's interest in the Local Partnership. Therefore, should the
investment in Lakes of Northdale not produce sufficient value to satisfy the
related purchase money notes, the Partnership's exposure to loss is limited
since the amount of the non-recourse indebtedness exceeds the carrying amount of
the investment in and advances to the Local Partnership. Thus, even a complete
loss of this investment would not have a material impact on the operations of
the Partnership.
-16-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
Garden Court Apartments, located in Springfield, Illinois, received a
$330,000 grant from HUD to make certain improvements to the property. The local
general partner of Garden Court Apartments intends to address security issues as
part of these improvements in an effort to improve occupancy. Improvements made
under this grant are expected to be completed by early 1996.
The first mortgage on Clearfield Hills II matures on October 2, 1995. The
Local Partnership has signed an application to refinance the mortgage with a new
lender and is scheduled to close on its new mortgage on September 30, 1995. On
June 26, 1995, the Partnership advanced $17,500 to Clearfield Hills II for
closing costs. The Partnership anticipates receiving a reimbursement of this
advance upon settlement of the new mortgage.
Many of the rental properties owned by the Local Partnerships have
mortgages which were federally insured under Section 236 or Section 221(d)(3) of
the National Housing Act, as amended. These properties may be eligible for sale
or refinancing, subject to numerous requirements, under the LIHPRHA program.
This program may provide incentives to owners of qualifying multifamily housing
who commit to permanently maintain their properties as low to moderate income
housing. Incentives available under LIHPRHA include selling the property to
qualified buyers or obtaining supplemental financing for the property. As of
July 14, 1995, members of Congress are recommending substantial changes to the
LIHPRHA program ranging from the elimination of the program to the redesigning
of the program. Substantial uncertainty exists as to whether any properties
which have already filed the notice of intent to participate under LIHPRHA will
qualify under a redesigned program, or as to whether the program will continue
at all.
Many of the rental properties owned by the Local Partnerships are dependent
on the receipt of housing assistance payments guaranteed by contract under the
Housing and Urban Development (HUD) Section 8 program. The level of funding for
the Section 8 program, and HUD-insured multifamily housing in general, is
dependent upon the continuation of appropriations approved by Congress for
subsidy payments. In the event that the rental subsidy programs are reduced or
phased out, there is no assurance that the rental properties will be able to
maintain the occupancy levels necessary to pay debt service and operating costs
or that the rents necessary to pay debt service and operating costs will be
competitive with rents for comparable units in the rental properties' market
areas. While the Managing General Partner has no reason to believe that HUD
will not honor its obligations under the contracts, some uncertainty exists in
light of the recent Congressional scrutiny of appropriations for HUD programs.
No other significant changes in the Partnership's operations have taken
place during this period.
PART II. OTHER INFORMATION
-----------------
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
-------------------------------
The Partnership defaulted on its purchase money note relating to Holiday
Village Apartments on July 27, 1994 when the note matured and was not paid.
The default amount included principal and accrued interest of $1,370,000 and
$2,862,342, respectively. As of July 20, 1995, principal and accrued interest
totalling $1,370,000 and $3,346,810, respectively, were due. In addition, the
-17-
<PAGE>
PART II. OTHER INFORMATION
-----------------
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - Continued
-------------------------------
Partnership defaulted on its purchase money note relating to Village Apartments
North on September 27, 1994 when the note matured and was not paid. The default
amount included principal and accrued interest of $1,180,000 and $1,450,907,
respectively. As of July 20, 1995, principal and accrued interest of $1,180,000
and $1,583,418, respectively, were due. In June 1994, an offer was made to
extend the maturity dates of these notes to coincide with the future sale of the
properties under the Low Income Housing Preservation and Resident Homeownership
Act of 1990 (LIHPRHA) program or refinancing of the first mortgages. As of July
14, 1995, discussions with the noteholders were ongoing. There is no assurance,
however, that the offer to extend the maturity dates will be accepted. The
Partnership defaulted on its purchase money note relating to Clearfield Hills I
on October 30, 1994 when the note matured and was not paid. The default amount
included principal and accrued interest of $941,850 and $892,717, respectively.
As of July 20, 1995, principal and accrued interest totalling $941,850 and
$957,159, respectively, were due. In June 1994, an offer was made to pay
$100,000 in accrued interest and extend the maturity date to September 30, 1996
to coincide with the potential completion of LIHPRHA processing. As of July 14,
1995, discussions with the noteholders were ongoing. There is no assurance that
the offer to extend the maturity date will be accepted. Should the noteholders
begin foreclosure proceedings on the Partnership's interest in the related Local
Partnerships, the Partnership intends to vigorously defend any action by the
noteholders. However, there is no assurance that the Partnership will be able
to retain its interest in the Local Partnerships. The uncertainty about the
continued ownership of the Partnership's interest in the related Local
Partnerships does not impact the Partnership's financial condition because the
related purchase money notes are non-recourse and collateralized solely by the
Partnership's interest in the Local Partnerships. Therefore, should the
investment in Holiday Village Apartments, Village Apartments North and
Clearfield Hills I not produce sufficient value to satisfy the related purchase
money notes, the Partnership's exposure to loss is limited since the amount of
the non-recourse indebtedness exceeds the carrying amount of the investment in
and advances to the Local Partnerships. Thus, even a complete loss of these
investments would not have a material impact on the operations of the
Partnership.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
No reports on Form 8-K were filed with the Commission during the quarter
ended June 30, 1995.
All other items are not applicable.
-18-
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CAPITAL REALTY INVESTORS-IV
LIMITED PARTNERSHIP
(Registrant)
By: C.R.I., Inc.
Managing General Partner
July 20, 1995 /s/ Richard J. Palmer
- -------------------- ------------------------------
Date Richard J. Palmer
Senior Vice President/Finance
Signing on behalf of the Registrant and as
Principal Accounting Officer
-19-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE SECOND QUARTER 10-Q AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 6,375,960
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 43,767,352
<CURRENT-LIABILITIES> 0
<BONDS> 104,589,805
<COMMON> 0
0
0
<OTHER-SE> (60,933,177)
<TOTAL-LIABILITY-AND-EQUITY> 43,767,352
<SALES> 0
<TOTAL-REVENUES> 491,805
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 366,870
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,297,856
<INCOME-PRETAX> (7,172,921)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,172,921)
<DISCONTINUED> 0
<EXTRAORDINARY> 3,055,176
<CHANGES> 0
<NET-INCOME> (4,117,745)
<EPS-PRIMARY> (54.34)
<EPS-DILUTED> (54.34)
</TABLE>
