<PAGE>
FORM 10-QSB
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
------------------
Commission file number 0-13523
-------------
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
- --------------------------------------------------------------------------
(Exact name of small business issuer as specified in its 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 offices) (Zip Code)
(301) 468-9200
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(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months, and (2) has
been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
Not applicable Not applicable
- -------------------------- ---------------------------------------
(Class) (Outstanding at September 30, 1998)
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
INDEX TO FORM 10-QSB
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
Page
----
PART I. Financial Information (Unaudited)
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 1998 and
December 31, 1997 . . . . . . . . . . . . . . . . 1
Consolidated Statements of Operations and Accumulated
Losses - for the three and nine months ended
September 30, 1998 and 1997 . . . . . . . . . . . 2
Consolidated Statements of Cash Flows - for the
nine months ended September 30, 1998 and 1997 . . 3
Notes to Consolidated Financial Statements -
September 30, 1998 and 1997 . . . . . . . . . . . 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . 13
PART II. Other Information
Item 3. Defaults upon Senior Securities . . . . . . . . . . 19
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . 20
Signature . . . . . . . . . . . . . . . . . . . . . . . . . 21
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . 22
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
--------------------
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
(Unaudited)
<S> <C> <C>
Investments in and advances to partnerships $ 32,171,066 $ 30,902,384
Cash and cash equivalents 11,441,052 10,197,871
Restricted cash 50,400 50,400
Acquisition fees, principally paid to related parties, net of
accumulated amortization of $389,800 and $368,785, respectively 730,398 751,413
Property purchase costs, net of accumulated amortization of
$358,896 and $339,819, respectively 658,566 677,643
Other assets 54,326 937,386
------------- -------------
Total assets $ 45,105,808 $ 43,517,097
============= =============
LIABILITIES AND PARTNERS' DEFICIT
Due on investments in partnerships $ 35,382,284 $ 30,843,912
Accrued interest payable 94,265,918 86,434,915
Accounts payable and accrued expenses 135,456 216,960
Consulting fees payable to related parties -- 8,869
------------- -------------
Total liabilities 129,783,658 117,504,656
------------- -------------
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 (6,921,002) (6,921,002)
Offering costs (7,562,894) (7,562,894)
Accumulated losses (143,697,454) (133,007,163)
------------- -------------
Total partners' deficit (84,677,850) (73,987,559)
------------- -------------
Total liabilities and partners' deficit $ 45,105,808 $ 43,517,097
============= =============
</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 STATEMENTS OF OPERATIONS AND ACCUMULATED LOSSES
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
----------------------------- -----------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Share of income from partnerships $ 1,166,060 $ 2,909,266 $ 2,136,012 $ 4,048,884
------------- ------------- ------------- -------------
Other revenue and expenses:
Revenue:
Interest and other income 167,994 152,330 456,150 411,383
------------- ------------- ------------- -------------
Expenses:
Interest 4,241,792 3,831,982 12,725,374 11,494,143
Management fee 93,750 93,750 281,250 281,250
General and administrative 42,116 35,990 144,387 119,751
Professional fees 25,175 25,957 91,350 76,243
Amortization 13,364 14,065 40,092 42,851
------------- ------------- ------------- -------------
4,416,197 4,001,744 13,282,453 12,014,238
------------- ------------- ------------- -------------
Total other revenue and expenses (4,248,203) (3,849,414) (12,826,303) (11,602,855)
------------- ------------- ------------- -------------
Loss before gain on disposition of investment
in partnership (3,082,143) (940,148) (10,690,291) (7,553,971)
Gain on disposition of investment in partnership -- 1,921,993 -- 1,921,993
------------- ------------- ------------- -------------
(Loss) income before extraordinary gain from
extinguishment of debt (3,082,143) 981,845 (10,690,291) (5,631,978)
Extraordinary gain from extinguishment of debt -- 420,019 -- 420,019
------------- ------------- ------------- -------------
Net (loss) income (3,082,143) 1,401,864 (10,690,291) (5,211,959)
Accumulated losses, beginning of period (140,615,311) (131,007,393) (133,007,163) (124,393,570)
------------- ------------- ------------- -------------
Accumulated losses, end of period $(143,697,454) $(129,605,529) $(143,697,454) $(129,605,529)
============= ============= ============= =============
Net (loss) income allocated to General Partners (1.51%) $ (46,540) $ 21,168 $ (161,423) $ (78,701)
============= ============= ============= =============
Net (loss) income allocated to Initial and Special
Limited Partners (1.49%) $ (45,924) $ 20,888 $ (159,285) $ (77,658)
============= ============= ============= =============
Net (loss) income allocated to Additional Limited
Partners (97%) $ (2,989,679) $ 1,359,808 $ (10,369,583) $ (5,055,600)
============= ============= ============= =============
Net (loss) income per unit of Additional Limited
Partnership Interest based on 73,500 units outstanding $ (40.68) $ 18.50 $ (141.08) $ (68.78)
============= ============= ============= =============
</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 CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the nine months ended
September 30,
-----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(10,690,291) $ (5,211,959)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Share of income from partnerships (2,136,012) (4,048,884)
Amortization of deferred costs 40,092 42,851
Amortization of discount on purchase money notes 4,574,486 3,762,057
Payment of purchase money note interest (319,885) (350,747)
Gain on disposition of investment in partnership -- (1,921,993)
Extraordinary gain from extinguishment of debt -- (420,019)
Changes in assets and liabilities:
Decrease in accrued interest receivable on advances to partnership -- 2,738
Decrease (increase) in other assets 883,060 (8,590)
Increase in accrued interest payable 8,150,888 7,731,185
(Decrease) increase in accounts payable and accrued expenses (81,504) 20,723
Decrease in consulting fees payable to related parties (8,869) --
------------ ------------
Net cash provided by (used in) operating activities 411,965 (402,638)
------------ ------------
Cash flows from investing activities:
Receipt of distributions from partnerships 867,329 2,986,747
Repayment of advances to partnerships -- 80,740
Investment released from escrow -- 535,410
Net proceeds from disposition of investment in partnership -- 1,957,343
------------ ------------
Net cash provided by investing activities 867,329 5,560,240
------------ ------------
Cash flows from financing activities:
Payment of purchase money note principal (36,113) (42,739)
Pay-off of purchase money notes and related interest -- (2,598,844)
------------ ------------
Net cash used in financing activities (36,113) (2,641,583)
------------ ------------
Net increase in cash and cash equivalents 1,243,181 2,516,019
Cash and cash equivalents, beginning of period 10,197,871 8,871,297
------------ ------------
Cash and cash equivalents, end of period $ 11,441,052 $ 11,387,316
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 319,885 $ 1,243,393
============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
-3-
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
(Unaudited)
1. BASIS OF PRESENTATION
In the opinion of C.R.I., Inc. (CRI), the Managing General Partner, the
accompanying unaudited financial statements reflect all adjustments, consisting
of normal recurring accruals, necessary for a fair presentation of the financial
position of Capital Realty Investors-IV Limited Partnership (the Partnership) as
of September 30, 1998, and the results of its operations for the three and nine
months ended September 30, 1998 and 1997, and its cash flows for the nine months
ended September 30, 1998 and 1997. The results of operations for the interim
period ended September 30, 1998, are not necessarily indicative of the results
to be expected for the full year.
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles and with the
instructions to Form 10-QSB. Certain information and accounting policies and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such instructions. These condensed financial statements
should be read in conjunction with the financial statements and notes thereto
included in the Partnership's annual report on Form 10-K at December 31, 1997.
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS
The Partnership's obligations with respect to its investments in Local
Partnerships, in the form of purchase money notes having a principal balance of
$42,011,391 (exclusive of unamortized discount on purchase money notes of
$6,629,107) plus accrued interest of $94,265,918 as of September 30, 1998, are
payable in full 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 $1,370,000 and $1,330,000 matured on July 27, 1994
and August 31, 1997, respectively, and have not been paid or extended, as
discussed below. Purchase money notes in aggregate principal amounts of
$2,035,000, $3,169,912, $7,070,000, $3,095,000, $3,732,081, $1,760,000,
$1,500,000 and $740,000 mature July 1, 1999, July 31, 1999, August 1, 1999,
August 30, 1999, August 31, 1999, September 1, 1999, September 27, 1999 and
September 30, 1999, respectively. The remaining purchase money notes mature
later during 1999 through 2026.
The purchase money notes, which are nonrecourse to the Partnership, 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 respective Local Partnership. The Partnership's inability to pay certain of
the purchase money note principal and accrued interest balances when due, and
the resulting uncertainty regarding the Partnership's continued ownership
interest in the related Local Partnerships, does not impact the Partnership's
financial condition because the purchase money notes are nonrecourse and secured
solely by the Partnership's interest in the related Local Partnerships.
Therefore, should the investment in any of the Local Partnerships with maturing
purchase money notes not produce sufficient value to satisfy the related
-4-
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
purchase money notes, the Partnership's exposure to loss is limited because the
amount of the nonrecourse indebtedness of each of the maturing purchase money
notes exceeds the carrying amount of the investment in and advances to each of
the related Local Partnerships. Thus, even a complete loss of one of these
Local Partnerships would not have a material impact on the financial condition
of the Partnership. See further discussion of certain purchase money notes
below.
The following chart presents information related to purchase money notes,
which mature through September 30, 1999, or which have matured and remain unpaid
or unextended as of September 30, 1998.
-5-
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
<TABLE>
<CAPTION>
Carrying Amount of
Partnership's Investment
in and Advances to Aggregate
Number of Underlying Local Accrued Interest
Purchase Money Underlying Partnerships as of Aggregate Balance as of
Note Maturity Local Partnerships September 30, 1998 Principal Balance September 30, 1998
---------------- ------------------ ------------------------ ----------------- ------------------
<S> <C> <C> <C> <C>
3rd Quarter 1994 1 $ 1,295,612 $ 1,370,000 $ 5,345,052
3rd Quarter 1997 1 849,928 1,330,000 3,185,897
3rd Quarter 1999 16 17,045,377 23,101,993 44,148,291
---- --------------- ------------ -------------
18 $ 19,190,917 $ 25,801,993 $ 52,679,240
==== =============== ============ =============
</TABLE>
The Managing General Partner is continuing to investigate possible
alternatives to reduce the Partnership's 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
Partnership's share of the proceeds to pay or buy down certain purchase money
note obligations. Although the Managing General Partner has had some success
applying these strategies in the past, the Managing General Partner cannot
assure that these strategies will be acceptable to all of the noteholders.
Based on preliminary discussions with the holders of purchase money notes
maturing through September 30, 1999, the Managing General Partner anticipates
that, at least in some instances, the noteholders may not be willing to accept
anything less than payment in full on the maturity date. In such instances,
upon maturity of the purchase money notes, if the purchase money notes remain
unpaid, the noteholders have the right to foreclose on the Partnership's
interest in the related Local Partnerships. In the event of a foreclosure, the
excess of the nonrecourse indebtedness over the carrying amount of the
Partnership's investment in the related Local Partnership would result in
cancellation of indebtedness income which would be taxable to Limited Partners
at a federal tax rate of up to 39.6%. Additionally, in the event of a
foreclosure, the Partnership would lose its investment in the Local Partnership
and, likewise, its share of the cash flow distributed by the Local Partnership
from rental operations, future sales or refinancings. Of the 36 Local
Partnerships in which the Partnership is invested as of September 30, 1998 and
December 31, 1997, the 18 Local Partnerships with associated purchase money
notes maturing through September 30, 1999, represent the following percentages
of the Partnership's total investments in and advances to Local Partnerships,
total distributions received from Local Partnerships, and share of income from
Local Partnerships.
-6-
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
<TABLE>
<CAPTION>
Percentage of Total
Investments in and
Advances to
As of Local Partnerships
------------------ ------------------
<S> <C>
September 30, 1998 60%
December 31, 1997 60%
Percentage of Total Partnership's Share of
Distributions Received Income from
For Periods Ending from Local Partnerships Local Partnerships
------------------ ----------------------- ----------------------
<S> <C> <C>
September 30, 1998 53% $ 1,114,079
September 30, 1997 32% 779,285
</TABLE>
The Managing General Partner continues to address the impending maturity of
its debt obligations and seeks strategies which will provide the most favorable
outcome to the Limited Partners. However, there can be no assurance that these
strategies will be successful.
Interest expense on the Partnership's purchase money notes was $4,241,792
and $12,725,374 for the three and nine months ended September 30, 1998,
respectively, and $3,831,982 and $11,494,143 for the three and nine months ended
September 30, 1997, respectively. Amortization of imputed interest on purchase
money notes increased interest expense by $1,524,829 and $4,574,486 for the
three and nine months ended September 30, 1998, respectively, and by $1,254,019
and $3,762,057 for the three and nine months ended September 30, 1997,
respectively. The accrued interest payable on the purchase money notes of
$94,265,918 and $86,434,915 as of September 30, 1998 and December 31, 1997,
respectively, is due on the respective maturity dates of the purchase money
notes or earlier, in some instances, if the pertinent Local Partnership has
distributable net cash flow, as defined in the relevant Local Partnership
agreements.
As of both September 30, 1998 and December 31, 1997, the Partnership had
advanced funds totaling $54,500 to a Local Partnership.
Garden Court
------------
The report of the auditors on the financial statements of Garden Court
Associates Limited Partnership (Garden Court) for the year ended December 31,
1997 indicated that substantial doubt existed about the ability of the Local
Partnership to continue as a going concern due the negative cash flow resulting
from decreasing occupancy levels. As of September 30, 1998, Garden Court
reported a net operating loss of approximately $231,000 and a 49% occupancy
-7-
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
level. The former local managing general partner of Garden Court has been
removed and replaced by a new local managing general partner. The Partnership
is currently negotiating with the new local managing general partner to sell its
partnership interest in Garden Court for $50,000. There is no assurance that a
sale will take place. In the interim, the uncertainty about the Local
Partnership's ability to continue as a going concern and the resulting
uncertainty about the Partnership's continuing investment in Garden Court does
not impact the Partnership's financial condition because the Partnership's
investment in Garden Court was previously reduced to zero as a result of losses
from the Local Partnership during prior years. In addition, the Partnership did
not issue any purchase money notes or debt instruments in connection with its
investment in Garden Court. Therefore, the complete loss of this investment
would not have a material impact on the financial condition of the Partnership.
Highland Village
----------------
The Managing General Partner is currently negotiating an extension on the
purchase money notes related to Highland Village Associates (Highland Village).
The purchase money notes, the aggregate principal amount of which is $1.1
million, mature on October 31, 1999. In connection with the proposed extension
of the purchase money notes, the Managing General Partner, the local managing
general partner and the noteholders are jointly exploring various options to
refinance the Massachusetts Housing Finance Agency (MHFA) and HUD Section 236
interest rate subsidized mortgage loan related to this property. There is no
assurance that the noteholders will agree to an extension of the purchase money
notes, or that a refinancing of the mortgage loan will be obtained.
Holiday Village
---------------
The Partnership defaulted on its purchase money note relating to Holiday
Village Apartments (Holiday Village) 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 November 12, 1998, principal and
accrued interest of $1,370,000 and $5,417,098, respectively, were due. The
Managing General Partner and the noteholders continue to negotiate settlement
options, and as of November 12, 1998, negotiations between the Managing General
Partner and the noteholders were ongoing. There is no assurance that any
agreement will be reached. Should the noteholders begin foreclosure proceedings
on the Partnership's interest in the related Local Partnership, the Partnership
intends to vigorously defend against any action by the noteholders. However,
there is no assurance that the Partnership will be able to retain its interest
in the Local Partnership. The uncertainty about the continued ownership of the
Partnership's interest in the related Local Partnership does not impact the
Partnership's financial condition, as discussed above.
Jewish Federation
-----------------
The purchase money notes relating to Jewish Federation Apartments
Associates (Jewish Federation), the aggregate principal amount of which is $1.3
million, are due to mature October 31, 1999. In 1997, the Managing General
Partner entered into an agreement with the noteholders to extend the maturity
-8-
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
date for five years, subject to the donation and transfer by the Local
Partnership of an unimproved portion of the property to an entity affiliated
with the local managing general partner. The Local Partnership had entered into
an agreement to make such donation and transfer, but the transaction was denied
by HUD in January, 1998. In April 1998, the local managing general partner
indicated that they had received verbal approval from HUD and intended to
reapply for financing with HUD. There is no assurance that such financing will
be obtained. The Managing General Partner will continue to work with the local
managing general partner to attempt to work out an agreement relating the
purchase money notes. There is no assurance that such an agreement can be
reached.
Redden Gardens
--------------
The Partnership defaulted on its purchase money note relating to Redden
Development Company (Redden Gardens) on August 31, 1997 when the note matured
and was not paid. The default amount included principal and accrued interest of
$1,330,000 and $2,783,593, respectively. As of November 12, 1998, principal and
accrued interest of $1,330,000 and $3,222,666, respectively, were due. In
accordance with the security agreement related to the purchase money note, the
Partnership submitted a plan of action to cure the default. The Managing
General Partner proposed to extend the maturity of the purchase money note for
five years. This offer was rejected by the noteholders. On February 12, 1998,
at the request of the noteholders, a subsequent proposal to extend the maturity
of the purchase money note for five years was forwarded to the noteholders. As
of November 12, 1998, the noteholders had not responded to this proposal. The
Managing General Partner commissioned a rental market study and is evaluating
the feasibility of converting the property to market-rate; no conclusion has
been reached as of November 12, 1998. There is no assurance that the property
will be converted nor is there any assurance that any agreement will be reached
with the noteholders. Accordingly, there can be no assurance that the
Partnership will be able to retain its interest in the Local Partnership. The
uncertainty about the continued ownership of the Partnership's interest in the
related Local Partnership does not impact the Partnership's financial condition,
as discussed above.
Second Lakewood
---------------
On July 2, 1997, Second Lakewood, a 219 unit apartment complex located in
Schaumberg, Illinois was sold. The sale of the property generated cash proceeds
to the Partnership of approximately $1.7 million at closing. Subsequent to
closing, the Partnership received additional funds totaling $253,385 related to
the Partnership's share of the release of funds held in security deposits,
insurance accounts, real estate tax escrows and other accounts. Additionally
subsequent to closing, the Partnership paid $42,008 as of November 12, 1998
related to outstanding expense invoices of the Local Partnership. The sale
resulted in a net financial statement gain of approximately $1.9 million. The
federal tax gain was approximately $10.7 million.
-9-
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
Valley Vista
------------
On August 22, 1997, Valley Vista closed on the refinancing of its mortgage
loan. Proceeds of approximately $2.1 million generated from the refinancing
were used to retire, at a discount, the remaining purchase money note obligation
of the Partnership with respect to such property, resulting in an extraordinary
gain from extinguishment of debt of approximately $400,000. The proceeds from
the refinancing used to retire the Partnership's purchase money note obligation
were in excess of the Partnership's basis in Valley Vista and are included in
share of income from partnerships. Additionally, effective December 1, 1997,
the Partnership assigned its partnership interest in Valley Vista to the local
managing general partner and withdrew from the Local Partnership. On January
13, 1998, the Partnership received $910,000 related to the assignment of its
interest in Valley Vista. These proceeds were in excess of the Partnership's
basis in Valley Vista, resulting in financial statement gain of $834,000 during
1997. The federal tax gain was approximately $5.3 million.
Combined Local Partnerships
---------------------------
The following are combined statements of operations for the 36 and 37 Local
Partnerships in which the Partnership is invested as of September 30, 1998 and
1997, respectively. The statements have been compiled from information supplied
by the management agents of the projects and are unaudited.
-10-
<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 nine months ended
September 30, September 30,
----------------------------- -----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Rental revenue $ 10,165,890 $ 8,689,237 $ 27,152,306 $ 27,049,404
Other 582,609 537,091 1,696,993 1,675,871
------------ ------------ ------------ ------------
10,748,499 9,226,328 28,849,299 28,725,275
------------ ------------ ------------ ------------
Expenses:
Operating 5,963,068 5,077,369 16,766,374 16,805,148
Interest 2,073,982 1,703,384 5,445,477 5,475,592
Depreciation and amortization 2,072,115 1,840,243 5,723,249 5,654,253
------------ ------------ ------------ ------------
10,109,165 8,620,996 27,935,100 27,934,993
------------ ------------ ------------ ------------
Net income $ 639,334 $ 605,332 $ 914,199 $ 790,282
============ ============ ============ ============
</TABLE>
As of September 30, 1998 and December 31, 1997, the Partnership's share of
cumulative losses to date of 8 and 10, respectively, of the Local Partnerships
exceeded the amount of the Partnership's investments in and advances to those
Local Partnerships by $14,264,438 and $13,044,976, 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. AFFORDABLE HOUSING LEGISLATION
President Clinton signed the Fiscal Year 1998 HUD appropriations bill into
law, effective October 1, 1997. The legislation allowed all Section 8 contracts
with rents at less than 120% of fair market rents which expire between October
1997 and September 1998 to be renewed for one year. In the event that these
rents exceed 120% of fair market rents, these rents will be reduced to 120% of
fair market rents. At the beginning of Fiscal Year 1999 (October 1, 1998), all
expiring contracts with rents exceeding comparable market rents and whose
mortgages are insured by the Federal Housing Administration (FHA) are subject to
the Mark-to-Market legislation.
Mark-to-Market implementation will reduce rental income at properties which
are currently subsidized at higher-than-market rental rates, and will therefore
lower cash flow available to meet mortgage payments and operating expenses.
Each affected property will undergo debt restructuring according to terms
-11-
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. AFFORDABLE HOUSING LEGISLATION - Continued
determined by an individual property and operations evaluation. This will
involve reducing the first mortgage loan balance to an amount supportable by the
property, taking into account the property's operating expenses and reduced
income. The balance of the amount written down from the first mortgage will be
converted to a non-performing but accruing (soft) second mortgage.
The Section 8 HAP contracts for the following properties expired during the
government's fiscal year 1998 and have been renewed as indicated.
-12-
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. AFFORDABLE HOUSING LEGISLATION - Continued
<TABLE>
<CAPTION>
Units Original Renewed
Authorized for Expiration of Expiration of
Number of Rental Assistance Section 8 Section 8
Property Rental Units Under Section 8 HAP Contract HAP Contract
-------- ------------ ----------------- ------------- -------------
<S> <C> <C> <C>
Cottonwood Park 126 6 06/30/98 06/30/99
Holiday Village 80 6 06/01/98 06/04/03
Redden Gardens 150 29 09/30/98 09/30/99
Tradewinds Terrace 122 44 09/30/98 09/30/99
Westport Village 121 12 01/01/98 05/01/16
</TABLE>
The Section 8 HAP contracts for the following properties have expired or
will expire during the government's fiscal year 1999.
<TABLE>
<CAPTION>
Original Estimated
Units Authorized for Expiration of Expiration of
Number of Rental Assistance Section 8 Section 8
Property Rental Units under Section 8 HAP Contract HAP Contract
- -------- ------------ -------------------- ------------- -------------
<S> <C> <C> <C> <C>
Glenride Gardens 120 24 05/31/99 (1)
Wellington Woods 109 73 10/19/99 (1)
Pilgrim Tower North 258 205 10/31/98 10/31/99
</TABLE>
(1) The Managing General Partner expects that these Section 8 HAP Contracts
will be renewed for one year upon expiration.
With the uncertainty of continued project-based Section 8 subsidies for
properties with expiring HAP contracts, there is no assurance that these rental
properties will be able to maintain the rental income and occupancy levels
necessary to pay operating costs and debt service. It is difficult to predict
the impact on the Local Partnerships and the resulting impact on the Partnership
at this time.
4. 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. The Partnership paid $22,488 and $84,814 for the
three and nine months ended September 30, 1998, respectively, and $18,468 and
$61,848 for the three and nine months ended September 30, 1997, respectively, as
direct reimbursement of expenses incurred on behalf of the Partnership. Such
expenses are included in the accompanying consolidated statements of operations
as general and administrative expenses. Additionally, in accordance with the
terms of the Partnership Agreement, the Partnership is obligated to pay the
-13-
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. RELATED-PARTY TRANSACTIONS - Continued
Managing General Partner an annual incentive management fee (the Management
Fee), after all other expenses of the Partnership are paid. The Partnership
paid the Managing General Partner a Management Fee of $93,750 and $281,250 for
the three and nine months ended September 30, 1998, respectively, and like
amounts for the three and nine months ended September 30, 1997.
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 it 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 earned net fees
for services relating to the sale of River Run of $26,606 on August 27, 1996.
Of this amount, $17,737 was paid by the Partnership on December 20, 1996. On
March 24, 1998, the remaining balance of $8,869 was paid by the Partnership.
-14-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Capital Realty Investors-IV Limited Partnership's (the Partnership)
Management's Discussion and Analysis of Financial Condition and Results of
Operations section contains information that may be considered forward looking,
including statements regarding the effect of governmental regulations. Actual
results may differ materially from those described in the forward looking
statements and will be affected by a variety of factors including national and
local economic conditions, the general level of interest rates, terms of
governmental regulations that affect the Partnership and interpretations of
those regulations, the competitive environment in which the Partnership
operates, and the availability of working capital.
General
-------
Some of the rental properties owned by the Local Partnerships are financed
by state housing agencies. The Managing General Partner has been working to
develop strategies to sell or refinance certain properties pursuant to programs
developed by these agencies or other potential buyers. These programs may
include opportunities to sell the property to a qualifying purchaser who would
agree to maintain the property as low to moderate income housing in perpetuity,
or to refinance the property, or to obtain supplemental financing. The Managing
General Partner continues to monitor certain state housing agency programs
and/or programs provided by certain lenders, to ascertain whether the properties
would qualify within the parameters of a given program and whether these
programs would provide an appropriate economic benefit to the limited partners
of the Partnership.
Some of the rental properties owned by the Local Partnerships are dependent
on the receipt of project-based Section 8 Rental Housing Assistance Payments
(HAP) provided by the U.S. Department of Housing and Urban Development (HUD)
pursuant to Section 8 HAP contracts. President Clinton signed the Fiscal Year
1998 HUD appropriations bill into law, effective October 1, 1997. The
legislation allowed all Section 8 contracts with rents at less than 120% of fair
market rents which expire between October 1997 and September 1998 to be renewed
for one year. In the event that these rents exceed 120% of fair market rents,
these rents will be reduced to 120% of fair market rents. At the beginning of
Fiscal Year 1999 (October 1, 1998), all expiring contracts with rents exceeding
comparable market rents and whose mortgages are insured by the Federal Housing
Administration (FHA) are subject to the Mark-to-Market legislation.
Mark-to-Market implementation will reduce rental income at properties which
are currently subsidized at higher-than-market rental rates, and will therefore
lower cash flow available to meet mortgage payments and operating expenses.
Each affected property will undergo debt restructuring according to terms
determined by an individual property and operations evaluation. This will
involve reducing the first mortgage loan balance to an amount supportable by the
property, taking into account the property's operating expenses and reduced
income. The balance of the amount written down from the first mortgage will be
converted to a non-performing but accruing (soft) second mortgage.
Under current law, the write down of an FHA-insured mortgage under Mark-to-
Market would trigger cancellation of debt income to the partners, a taxable
event, even though no actual cash is received. The newly created second
mortgage will accrue interest at a rate below market; however, the Internal
Revenue Service issued a ruling in July 1998 that the below market rate of
interest will not generate additional ordinary income. Each property subject to
-15-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
Mark-to-Market will be affected in a different manner, and it is very difficult
to predict the exact form of restructuring or potential tax liabilities to the
limited partners at this time.
The Managing General Partner is considering new strategies to deal with the
ever changing environment of affordable housing policy. The mortgage loans on
Section 236 and Section 221(d)(3) properties that are in the 18th year of their
mortgage may be eligible for prepayment. Properties with expiring Section 8 HAP
contracts may become convertible to market-rate apartment properties.
Currently, there are a few lenders that will provide financing either to prepay
the existing mortgage or provide additional funds to allow the property to
convert to market-rate units. Where opportunities exist, the Managing General
Partner will continue to work with the Local Partnerships to develop strategies
that make economic sense for all parties involved.
Financial Condition/Liquidity
-----------------------------
The Partnership's liquidity, with unrestricted cash resources of
$11,441,042 (or approximately $150.99 per Additional Limited Partner unit) and
$10,197,871 (or approximately $134.58 per Additional Limited Partner unit) as of
September 30, 1998 and December 31, 1997, respectively, along with anticipated
future cash distributions from the Local Partnerships, are expected to meet its
current and anticipated operating cash needs. As of September 30, 1998, $50,400
of cash resources were restricted for future interest payments on one of the
purchase money notes. As of November 13, 1998, there were no material
commitments for capital expenditures.
The Partnership's obligations with respect to its investments in Local
Partnerships, in the form of purchase money notes having a principal balance of
$42,011,391 (exclusive of unamortized discount on purchase money notes of
$6,629,107) plus accrued interest of $94,265,918 as of September 30, 1998, are
payable in full 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 $1,370,000 and $1,330,000 matured on July 27, 1994
and August 31, 1997, respectively, and have not been paid or extended, as
discussed below. Purchase money notes in aggregate principal amounts of
$2,035,000, $3,169,912, $7,070,000, $3,095,000, $3,732,081, $1,760,000,
$1,500,000 and $740,000 mature July 1, 1999, July 31, 1999, August 1, 1999,
August 30, 1999, August 31, 1999, September 1, 1999, September 27, 1999 and
September 30, 1999, respectively. The remaining purchase money notes mature
later during 1999 through 2026. See the notes to the consolidated financial
statements for additional information pertaining to these purchase money notes.
The purchase money notes, which are nonrecourse to the Partnership, 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 Partnership's inability to pay certain of the
purchase money note principal and accrued interest balances when due, and the
resulting uncertainty regarding the Partnership's continued ownership interest
in the related Local Partnerships, does not impact the Partnership's financial
-16-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
condition because the purchase money notes are nonrecourse and secured solely by
the Partnership's interest in the related Local Partnerships. Therefore, should
the investment in any of the Local Partnerships with maturing purchase money
notes not produce sufficient value to satisfy the related purchase money notes,
the Partnership's exposure to loss is limited because the amount of the
nonrecourse indebtedness of each of the maturing purchase money notes exceeds
the carrying amount of the investment in and advances to each of the related
Local Partnerships. Thus, even a complete loss of one of these Local
Partnerships would not have a material impact on the financial condition of the
Partnership. See further discussion of certain purchase money notes in the
footnotes to the consolidated financial statements.
The following chart presents information related to purchase money notes
which mature through September 30, 1999, or which have matured and remain unpaid
or unextended as of September 30, 1998.
-17-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
<TABLE>
<CAPTION>
Carrying Amount of
Partnership's Investment
in and Advances to Aggregate
Number of Underlying Local Accrued Interest
Purchase Money Underlying Partnerships as of Aggregate Balance as of
Note Maturity Local Partnerships September 30, 1998 Principal Balance September 30, 1998
---------------- ------------------ ------------------------ ----------------- ------------------
<S> <C> <C> <C> <C>
3rd Quarter 1994 1 $ 1,295,612 $ 1,370,000 $ 5,345,052
3rd Quarter 1997 1 849,928 1,330,000 3,185,897
3rd Quarter 1999 16 17,045,377 23,101,993 44,148,291
---- --------------- ------------ -------------
18 $ 19,190,917 $ 25,801,993 $ 52,679,240
==== =============== ============ =============
</TABLE>
The Managing General Partner is continuing to investigate possible
alternatives to reduce the Partnership's 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
Partnership's share of the proceeds to pay or buy down certain purchase money
note obligations. Although the Managing General Partner has had some success
applying these strategies in the past, the Managing General Partner cannot
assure that these strategies will be acceptable to all of the noteholders.
Based on preliminary discussions with the holders of purchase money notes
maturing through September 30, 1999, the Managing General Partner anticipates
that, at least in some instances, the noteholders may not be willing to accept
anything less than payment in full on the maturity date. In such instances,
upon maturity of the purchase money notes, if the purchase money notes remain
unpaid, the noteholders have the right to foreclose on the Partnership's
interest in the related Local Partnerships. In the event of a foreclosure, the
excess of the nonrecourse indebtedness over the carrying amount of the
Partnership's investment in the related Local Partnership would result in
cancellation of indebtedness income which would be taxable to Limited Partners
at a federal tax rate of up to 39.6%. Additionally, in the event of a
foreclosure, the Partnership would lose its investment in the Local Partnership
and, likewise, its share of the cash flow distributed by the Local Partnership
from rental operations, future sales or refinancings. Of the 36 Local
Partnerships in which the Partnership is invested as of September 30, 1998 and
December 31, 1997, the 18 Local Partnerships with associated purchase money
notes maturing through September 30, 1999, represent the following percentages
of the Partnership's total investments in and advances to Local Partnerships,
total distributions received from Local Partnerships, and share of income from
Local Partnerships.
-18-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
<TABLE>
<CAPTION>
Percentage of Total
Investments in and
Advances to
As of Local Partnerships
------------------ ------------------
<S> <C>
September 30, 1998 60%
December 31, 1997 60%
Percentage of Total Partnership's Share of
Distributions Received Income from
For Periods Ending from Local Partnerships Local Partnerships
------------------ ----------------------- ----------------------
<S> <C> <C>
September 30, 1998 53% $ 1,114,079
September 30, 1997 32% 779,285
</TABLE>
The Managing General Partner continues to address the impending maturity of
its debt obligations and seeks strategies which will provide the most favorable
outcome to the Limited Partners. However, there can be no assurance that these
strategies will be successful.
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 nine months ended September 30, 1998 and 1997, the receipt of
distributions from Local Partnerships was adequate to support operating and
financing cash requirements.
The Managing General Partner plans to distribute $735,000 (or $10 per
Additional Limited Partner Unit) to the Additional Limited Partners from cash
resources accumulated from operations and distributions from partnerships by
November 30, 1998, to holders of record as of September 30, 1998. The Managing
General Partner intends to retain all of the Partnership's remaining
undistributed proceeds for the possible repayment, prepayment or retirement of
the Partnership's outstanding purchase money notes related to other Local
Partnerships.
Results of Operations
---------------------
The Partnership recognized a net loss for the three months ended September
30, 1998 as opposed to net income for the corresponding period in 1997. The
Partnership's net loss for the nine months ended September 30, 1998 increased
from the corresponding period in 1997. Both of these variances were primarily
due to the gain on disposition of investment in the Second Lakewood property in
1997 and a decrease in share of income from partnerships primarily due to the
receipt, in 1997, of proceeds from the Valley Vista refinancing which were in
excess of the Partnership's investment in that Local Partnership. Contributing
to the increase in the Partnership's net loss in 1998 was the extraordinary gain
-19-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
from extinguishment of the Valley Vista purchase money notes during 1997, and an
increase in interest expense due to the amortization of imputed interest.
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 nine months ended
September 30, 1998 did not include losses of $538,581 and $1,219,462,
respectively, compared to excluded losses of $243,476 and $953,084, for the
three and nine months ended September 30, 1997, respectively.
No other significant changes in the Partnership's operations have taken
place during this period.
Year 2000 Computer Issue
------------------------
The Year 2000 ("Y2K") computer issue refers to the inability of many
computer systems in use today to recognize "00" in the date field as the year
2000 and to recognize the year 2000 as a leap year. The Y2K problem arose
because, for many years, computer software programs, including programs embedded
in hardware, utilized only the last two digits to specify the year with the
assumption that the first two digits were "19." As a result, such programs may
not be able to recognize and process dates beyond 1999; rather they may
recognize and process "00," "01," "02,", etc., incorrectly as 1900, 1901, 1902,
instead of as 2000, 2001, 2002. In the opinion of computer experts, this could
cause such programs to create erroneous results, malfunction, or fail completely
unless corrective measures are taken.
The Partnership utilizes software and related computer technologies
essential to its operations that will be affected by the Y2K issue. To address
the issue, the Managing General Partner has developed and is currently
implementing a plan (the "Y2K Project") designed to ensure that the Y2K date
change will not have an adverse impact on the Partnership's operations. The Y2K
Project is on schedule and the Managing General Partner expects completion by
the end of 1999.
The Y2K Project consists of four phases -- Planning, Assessment,
Implementation and Testing. The Planning Phase began early in 1998 and is
substantially complete. Under the Planning Phase, the Managing General Partner
conducted an inventory of all internal hardware and software systems, data
interfaces, business operations and non-information technology functions which
may be susceptible to the Y2K issue. The Managing General Partner expects final
completion of this phase by November 30, 1998. The Assessment Phase is
currently underway. Under the Assessment Phase, all applications and functions
identified in the Planning Phase are being analyzed to determine Y2K compliance
and the materiality of each identified risk is being determined. In the event
of noncompliance, for a material risk, timetables for corrective action, as well
as estimated costs to achieve compliance, are being determined. Completion of
this phase is expected by December 31, 1998. The Implementation Phase is also
underway. Renovation and replacement of existing internal hardware and software
systems has begun and completion is expected by June 1999. Additionally, the
Managing General Partner is currently working with third party vendors and
service providers to verify their Y2K compliance. Final completion of this
phase is expected by June 1999. The Testing Phase, which will include testing
-20-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
of internal applications as well as third party systems, is expected to begin
during January 1999 and continue throughout 1999. Contingency planning is
scheduled to commence during the fourth quarter 1998 and be completed by year-
end 1999. Although the expense associated with the Y2K Project cannot presently
be determined, the Managing General Partner does not expect it to be material.
-21-
<PAGE>
PART II. OTHER INFORMATION
-----------------
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
-------------------------------
Holiday Village
---------------
The Partnership defaulted on its purchase money note relating to Holiday
Village Apartments (Holiday Village) 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 November 13, 1998, principal and
accrued interest of $1,370,000 and $5,417,098, respectively, were due. The
Managing General Partner and the noteholders continue to negotiate settlement
options, and as of November 13, 1998, negotiations between the Managing General
Partner and the noteholders were ongoing. There is no assurance that any
agreement will be reached. Should the noteholders begin foreclosure proceedings
on the Partnership's interest in the related Local Partnership, the Partnership
intends to vigorously defend against any action by the noteholders. However,
there is no assurance that the Partnership will be able to retain its interest
in the Local Partnership. The uncertainty about the continued ownership of the
Partnership's interest in the related Local Partnership does not impact the
Partnership's financial condition, as discussed in the notes to the consolidated
financial statements.
Redden Gardens
--------------
The Partnership defaulted on its purchase money note relating to Redden
Development Company (Redden Gardens) on August 31, 1997 when the note matured
and was not paid. The default amount included principal and accrued interest of
$1,330,000 and $2,783,593, respectively. As of November 13, 1998, principal and
accrued interest of $1,330,000 and $3,222,666, respectively, were due. In
accordance with the security agreement related to the purchase money note, the
Partnership submitted a plan of action to cure the default. The Managing
General Partner proposed to extend the maturity of the purchase money note for
five years. This offer was rejected by the noteholders. On February 12, 1998,
at the request of the noteholders, a subsequent proposal to extend the maturity
of the purchase money note for five years was forwarded to the noteholders. As
of November 13, 1998, the noteholders had not responded to this proposal. The
Managing General Partner commissioned a rental market study and is evaluating
the feasibility of converting the property to market-rate; no conclusion has
been reached as of November 13, 1998. There is no assurance that the property
will be converted nor is there any assurance that any agreement will be reached
with the noteholders. Accordingly, there can be no assurance that the
Partnership will be able to retain its interest in the Local Partnership. The
uncertainty about the continued ownership of the Partnership's interest in the
related Local Partnership does not impact the Partnership's financial condition,
as discussed in the notes to the consolidated financial statements.
-22-
<PAGE>
PART II. OTHER INFORMATION
-----------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
a. None
b. No Reports on Form 8-K were filed with the Commission during the
quarter ended September 30, 1998.
All other items are not applicable.
-23-
<PAGE>
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant
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
November 13, 1998 by: /s/ Michael J. Tuszka
- ----------------- ---------------------------------------
DATE Michael J. Tuszka
Vice President
and Chief Accounting Officer
(Principal Financial Officer
and Principal Accounting Officer)
-24-
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Method of Filing
- ------- -----------------------------
27 Financial Data Schedule Filed herewith electronically
-25-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
THIRD QUARTER 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH 10-QSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 11,491,452
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 45,105,808
<CURRENT-LIABILITIES> 0
<BONDS> 129,648,202
0
0
<COMMON> 0
<OTHER-SE> (84,677,850)
<TOTAL-LIABILITY-AND-EQUITY> 45,105,808
<SALES> 0
<TOTAL-REVENUES> 2,592,162
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 557,079
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,725,374
<INCOME-PRETAX> (10,690,291)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,690,291)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,690,291)
<EPS-PRIMARY> 141.08
<EPS-DILUTED> 141.08
</TABLE>
