<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 June 30, 2000
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Commission file number 0-13523
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CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
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(Exact name of small business issuer as specified in its charter)
Maryland 52-1328767
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11200 Rockville Pike, Rockville, Maryland 20852
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(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 June 30, 2000)
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
INDEX TO FORM 10-QSB
FOR THE QUARTER ENDED JUNE 30, 2000
Page
----
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 2000 and
December 31, 1999.......................................... 1
Consolidated Statements of Operations and Accumulated
Losses - for the three and six months ended
June 30, 2000 and 1999..................................... 2
Consolidated Statements of Cash Flows - for the
six months ended June 30, 2000 and 1999.................... 3
Notes to Consolidated Financial Statements -
June 30, 2000 and 1999..................................... 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................ 21
PART II. Other Information
Item 3. Defaults upon Senior Securities.............................. 26
Item 5. Other Information............................................ 26
Item 6. Exhibits and Reports on Form 8-K............................. 27
Signature ............................................................. 28
Exhibit Index............................................................. 29
<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,
2000 1999
------------- ------------
(Unaudited)
<S> <C> <C>
Investments in and advances to partnerships .............. $ 30,100,533 $ 29,175,280
Investment in partnerships held for sale ................. 2,476,204 2,476,204
Partnership interest held in escrow ...................... 928,160 928,160
Cash and cash equivalents ................................ 7,775,802 7,607,687
Restricted cash equivalents .............................. 50,400 50,400
Acquisition fees, principally paid to related parties, net
of accumulated amortization of $384,133 and $371,870,
respectively ........................................... 596,921 609,184
Property purchase costs, net of accumulated amortization
of $360,068 and $348,713, respectively ................. 548,610 559,966
Other assets ............................................. 1,369 --
------------- -------------
Total assets ....................................... $ 42,477,999 $ 41,406,881
============= =============
LIABILITIES AND PARTNERS' DEFICIT
Due on investments in partnerships ....................... $ 39,360,081 $ 39,367,113
Accrued interest payable ................................. 113,247,434 107,616,493
Accounts payable and accrued expenses .................... 117,579 175,592
------------- -------------
Total liabilities .................................. 152,725,094 147,159,198
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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 ................ (8,388,540) (8,388,540)
Offering costs ....................................... (7,562,894) (7,562,894)
Accumulated losses ................................... (167,799,161) (163,304,383)
------------- -------------
Total partners' deficit ............................ (110,247,095) (105,752,317)
------------- -------------
Total liabilities and partners' deficit ............ $ 42,477,999 $ 41,406,881
============= =============
</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 six months ended
June 30 June 30,
------------------------------- ------------------------------
2000 1999 2000 1999
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Share of income from partnerships ............ $ 1,580,011 $ 1,611,077 $ 2,017,314 $ 2,141,634
------------- ------------- ------------- -------------
Other revenue and expenses:
Revenue:
Interest and other income ................ 113,411 126,933 217,154 247,202
------------- ------------- ------------- -------------
Expenses:
Interest ................................. 3,116,849 4,746,745 6,275,630 9,443,027
Management fee ........................... 93,750 93,750 187,500 187,500
General and administrative ............... 89,122 71,694 156,223 135,143
Professional fees ........................ 56,609 26,534 86,270 53,131
Amortization of deferred costs ........... 11,811 12,330 23,623 25,550
------------- ------------- ------------- -------------
3,368,141 4,951,053 6,729,246 9,844,351
------------- ------------- ------------- -------------
Total other revenue and expenses ....... (3,254,730) (4,824,120) (6,512,092) (9,597,149)
------------- ------------- ------------- -------------
Net loss ..................................... (1,674,719) (3,213,043) (4,494,778) (7,455,515)
Accumulated losses, beginning of period ...... (166,124,442) (152,403,848) (163,304,383) (148,161,376)
------------- ------------- ------------- -------------
Accumulated losses, end of period ............ $(167,799,161) $(155,616,891) $(167,799,161) $(155,616,891)
============= ============= ============= =============
Net loss allocated to General Partners (1.51%) $ (25,288) $ (48,517) $ (67,871) $ (112,578)
============= ============= ============= =============
Net loss allocated to Initial and Special
Limited Partners (1.49%) ................... $ (24,953) $ (47,874) $ (66,972) $ (111,087)
============= ============= ============= =============
Net loss allocated to Additional Limited
Partners (97%) ............................. $ (1,624,478) $ (3,116,652) $ (4,359,935) $ (7,231,850)
============= ============= ============= =============
Net loss per unit of Additional Limited
Partner Interest based on 73,500 units
outstanding ................................ $ (22.10) $ (42.40) $ (59.32) $ (98.39)
============= ============= ============= =============
</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 six months ended
June 30,
-----------------------------
2000 1999
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss .................................................................. $ (4,494,778) $ (7,455,515)
Adjustments to reconcile net loss to net cash used in operating activities:
Share of income from partnerships ....................................... (2,017,314) (2,141,634)
Amortization of discount on purchase money notes ........................ 42,968 3,600,645
Amortization of deferred costs .......................................... 23,623 25,550
Changes in assets and liabilities:
(Increase) decrease in other assets ................................... (1,369) 58,378
Increase in accrued interest payable .................................. 6,232,662 5,842,382
Payment of purchase money note interest ............................... (601,721) (420,836)
Decrease in accounts payable and accrued expenses ..................... (58,013) (16,975)
------------ ------------
Net cash used in operating activities ............................... (873,942) (508,005)
------------ ------------
Cash flows from investing activities:
Receipt of distributions from partnerships ................................ 1,092,057 979,691
------------ ------------
Cash flows from financing activities:
Payment of purchase money note principal .................................. (50,000) --
------------ ------------
Net increase in cash and cash equivalents ................................... 168,115 471,686
Cash and cash equivalents, beginning of period .............................. 7,607,687 10,765,753
------------ ------------
Cash and cash equivalents, end of period .................................... $ 7,775,802 $ 11,237,439
============ ============
</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
June 30, 2000 and 1999
(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 June 30, 2000, and the results of its operations for the three and six months
ended June 30, 2000 and 1999, and its cash flows for the six months ended June
30, 2000 and 1999. The results of operations for the interim periods ended June
30, 2000, are not necessarily indicative of the results to be expected for the
full year.
The accompanying unaudited financial statements have been prepared in
conformity with accounting principles generally accepted in the United States
and with the instructions to Form 10-QSB. Certain information and accounting
policies and footnote disclosures normally included in financial statements
prepared in conformity with accounting principles generally accepted in the
United States 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-KSB at December 31, 1999.
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS
a. Due on investments in partnerships
----------------------------------
The Partnership's obligations with respect to its investments in Local
Partnerships, in the form of purchase money notes having an aggregate principal
balance of $39,360,081 plus aggregate accrued interest of $113,247,434 as of
June 30, 2000, 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. A purchase
money note in the principal amount of $1,370,000 matured on July 27, 1994 and
was paid off, at a discount, in July 2000. A purchase money note in the
principal amount of $1,330,000 matured on August 31, 1997 and was extended to
January 3, 2000, but has not been paid or further extended. Purchase money notes
in the aggregate principal amounts of $2,035,000 and $434,000 matured on July 1,
1999 and July 31, 1999, respectively, and have not been paid or extended. A
purchase money note in the principal amount of $434,000 matured on July 31,
1999, and has been extended to July 31, 2004. A purchase money note in the
principal amount of $2,301,310 matured on July 31, 1999, and was paid in full on
July 30, 1999. Purchase money notes in the aggregate principal amount of
$2,355,000 matured on August 1, 1999 and have been extended to January 4, 2001.
A purchase money note in the original principal amount of $3,732,081 matured on
August 31, 1999, was partially paid down, and was extended to August 31, 2004.
Purchase money notes in
-4-
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999
(Unaudited)
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
the aggregate principal amount of $9,570,000 matured during August and
September, 1999, and have not been paid or extended. A purchase money note in
the original principal amount of $740,000 matured on August 1, 1999, and has
been extended to January 2001. A purchase money note in the principal amount of
$1,400,000 matured on October 1, 1999 and has been extended to January 4, 2001.
Purchase money notes in the aggregate principal amount of $10,795,000 matured
during the fourth quarter of 1999, and have not been paid or extended. Purchase
money notes in the principal amounts of $1,500,000 and $1,350,000 were due to
mature on September 27, 1999 and October 31, 1999, respectively, and were
extended to September 27, 2002 and April 30, 2001, respectively. A purchase
money note in the principal amount of $2,165,000 matured on April 30, 2000, but
has not been paid or extended. The remaining purchase money note in the
principal amount of $500,000 matures October 1, 2025.
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 adversely 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 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 the Partnership's interest in one of these Local Partnerships would not
have a material adverse 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 have matured, have been extended to mature, or are scheduled to
mature through June 30, 2001, and which remain unpaid or unextended as of August
11, 2000. Excluded from the following chart are purchase money notes which
matured through June 30, 2000, and which have been paid off, cancelled, or
extended on or before August 11, 2000.
-5-
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999
(Unaudited)
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
<TABLE>
<CAPTION>
Carrying Amount
Aggregate of Partnership's
Aggregate Accrued Investments in
Number of Principal Interest and Advances to
Purchase Underlying Balance Balance Underlying Local
Money Note Local Percentage as of June Percentage as of June Percentage Partnerships as Percentage
(PMN) Maturity Partnerships of Total 30, 2000 of Total 30, 2000 of Total of June 30, 2000 of Total
---------------- ------------ ---------- ----------- ---------- ------------ ---------- ---------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
3rd Quarter 1994 1 3% $ 1,370,000 4% $ 6,859,328 6% $ 1,303,318 4%
3rd Quarter 1999 10 28% 12,039,000 31% 28,169,380 25% 12,673,534 38%
4th Quarter 1999 8 23% 10,795,000 27% 29,190,715 26% 5,911,464 18%
1st Quarter 2000 1 3% 1,330,000 3% 3,790,132 3% 916,440 3%
2nd Quarter 2000 1 3% 2,165,000 6% 12,795,792 11% 2,704,694 8%
1st Quarter 2001 4 11% 4,445,000 11% 12,470,292 11% 4,587,931 14%
2nd Quarter 2001 1 3% 1,350,000 3% 5,867,212 5% 513,697 1%
---- ----- ----------- ----- ------------ ----- ----------- -----
Total through
6/30/2001 26 74% $33,494,000 85% $ 99,142,851 87% $28,611,078 (1) 86%
==== ===== =========== ===== ============ ===== =========== =====
Total, Local
Partnerships 35 100% $39,360,081 100% $113,247,434 100% $33,361,982 (1) 100%
==== ===== =========== ===== ============ ===== =========== =====
</TABLE>
(1) Includes $2,381,700 for two partnerships reported as investment in
partnerships held for sale on the consolidated balance sheet at June
30, 2000, and $879,749 for one partnership reported as partnership
interest held in escrow on the consolidated balance sheet at June 30,
2000.
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, paying off certain purchase money notes at a
discounted price, extending the due dates of certain purchase money notes,
refinancing the respective properties' underlying debt, or selling the
underlying real estate 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 successful
in the future. If the Managing General Partner is unable to negotiate an
extension or discounted payoff, upon maturity of the purchase money notes, in
the event that the purchase money notes remain unpaid, the noteholders may 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 be deemed 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 any future cash
flow distributed by the Local Partnership from rental operations, mortgage debt
refinancings, or the sale of the real estate. Of the 35 Local Partnerships in
which the Partnership is invested as of June 30, 2000, the 26 Local Partnerships
with associated purchase money notes which mature
-6-
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999
(Unaudited)
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
through June 30, 2001 and which remain unpaid or unextended as of August 11,
2000, represent the following percentages of the Partnership's total
distributions received from Local Partnerships and share of income from Local
Partnerships for the immediately immediately preceding two calendar years.
<TABLE>
<CAPTION>
Percentage of Total Partnership's Share of
Distributions Received Income from
For the Year Ending from Local Partnerships Local Partnerships
------------------- ----------------------- ----------------------
<S> <C> <C>
December 31, 1999 55% $ 995,085
December 31, 1998 59% $1,130,370
</TABLE>
Interest expense on the Partnership's purchase money notes for the
three and six months ended June 30, 2000 was $3,116,849 and $6,275,630,
respectively, and $4,746,745 and $9,443,027 for the three and six months ended
June 30, 1999, respectively. Amortization of discount on purchase money notes
increased interest expense during the three and six months ended June 30, 2000
by $0 and $42,968, respectively, and by $1,800,322 and $3,600,645 for the three
and six months ended June 30, 1999, respectively. The accrued interest payable
on the purchase money notes of $113,247,434 and $107,616,493 as of June 30, 2000
and December 31, 1999, respectively, is due on the respective maturity dates of
the purchase money notes or earlier, in some instances, if (and to the extent of
a portion thereof) the related Local Partnership has distributable net cash
flow, as defined in the relevant Local Partnership agreement.
Cannonsburg House, Char House, and Liberty Tower
------------------------------------------------
The Partnership defaulted on its six purchase money notes related to
Cannonsburg Housing Associates Limited Partnership (Cannonsburg House), Char
House Highrise Association Limited Partnership (Char House), and Liberty Tower
Associates Limited Partnership (Liberty Tower) on December 1, 1999 when the
notes matured and were not paid. The default amount included aggregate principal
and accrued interest of $4,510,000 and $12,951,810, respectively. As of August
11, 2000, aggregate principal and accrued interest of $4,510,000 and
$14,150,827, respectively, were due. The Partnership continues to negotiate to
extend the maturity date of the purchase money notes for up to five years. There
is no assurance that an extension will be obtained.
-7-
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999
(Unaudited)
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
Cedar Point
-----------
The Partnership defaulted on its purchase money note related to
Southwest Development Company (Cedar Point) on August 30, 1999 when the note
matured and was not paid. The default amount included principal and accrued
interest of $1,320,000 and $2,460,115, respectively. As of August 11, 2000,
principal and accrued interest of $1,320,000 and $2,631,890, respectively, were
due. The Partnership is currently negotiating to extend the maturity date of the
purchase money note for five years. There is no assurance that an extension will
be obtained.
Chippewa County
---------------
The Partnership defaulted on its purchase money note related to
Chippewa County Housing Partners (Chippewa County) on August 1, 1999 when the
note matured and was not paid. The default amount included principal and accrued
interest of $860,000 and $2,297,462, respectively. In March 2000, in exchange
for a non-refundable deposit, the noteholders agreed to forbear from exercising
their remedies until July 1, 2000. In June 2000, in exchange for a
non-refundable deposit, the noteholders agreed to continue to forbear from
exercising their remedies until January 4, 2001. The noteholders have agreed to
accept a discounted payoff of the note provided that such payment is made during
the agreed period of forbearance. There is no assurance that the Partnership
will be able to timely pay the agreed upon discounted payoff on the note and
thus retain its interest in Chippewa County.
Cottonwood Park
---------------
The Partnership defaulted on its purchase money note related to Shawnee
Heights Limited Partnership (Cottonwood Park) on August 1, 1999 when the note
matured and was not paid. The default amount included principal and accrued
interest of $975,000 and $2,576,421, respectively. As of August 11, 2000,
principal and accrued interest of $975,000 and $2,912,477, respectively, were
due. In May 2000, the noteholders filed suit to foreclose on the Partnership's
interest in Cottonwood Park. However, the parties are negotiating the terms of a
forbearance agreement, which allows the Partnership to pursue a possible sale of
the property prior to January 31, 2001. If the property is not sold, or if the
purchase money note is not otherwise paid prior to that date, the noteholders
may file a confessed judgment and thereby take title to the Partnership's
interest in Cottonwood Park. There is no assurance that a forbearance, extension
or sale will occur.
-8-
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999
(Unaudited)
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
Crescent Gardens
----------------
The Partnership defaulted on its two purchase money notes related to
Crescent Gardens Associates Limited Partnership (Crescent Gardens) on July 31,
1999 when the notes matured and were not paid. The default amount included
aggregate principal and accrued interest of $868,000 and $2,033,388,
respectively. The Partnership successfully negotiated an agreement to extend the
maturity date of one of the purchase money notes (First Crescent Note) in the
original principal amount of $434,000, effective October 15, 1999. Pursuant to
the extension agreement, the Partnership made a payment to the noteholder to be
applied against accrued but unpaid interest. The agreement extends the maturity
date to July 31, 2004, requires semi-annual interest payments and reduces the
interest rate of the First Crescent Note. The Partnership has not been contacted
by the holders of the other note (the Second Crescent Note) and thus cannot
predict the course of action with regard to the Second Crescent Note. As of
August 11, 2000, principal and accrued interest of $434,000 and $1,948,396,
respectively, were due on the Second Crescent Note.
De Angelis Manor
----------------
The Partnership defaulted on its purchase money note related to Natick
Associates (De Angelis Manor) on July 1, 1999 when the note matured and was not
paid. The default amount included principal and accrued interest of $1,015,000
and $2,670,689, respectively. As of August 11, 2000, principal and accrued
interest of $1,015,000 and $3,049,175, respectively, were due. The Partnership
is currently negotiating to extend the maturity date of the purchase money note,
or to pay it off at a discount. Currently, a local limited partner (a
not-for-profit entity) is preparing an offer to purchase the property. There is
no assurance that an extension or a discounted payoff of the purchase money note
will be obtained, or that a sale of the property will occur.
Glenridge Gardens
-----------------
The Partnership defaulted on its purchase money note related to
Glenridge Development Company (Glenridge Gardens) on August 1, 1999 when the
note matured and was not paid. The default amount included principal and accrued
interest of $740,000 and $1,928,809, respectively. As of August 11, 2000,
principal and accrued interest of $740,000 and $2,183,255, respectively, were
due. On June 16, 2000, the Partnership and noteholder agreed to extend the
maturity date of the purchase money note to January, 2001 in exchange for a
payment which was applied to the purchase money note principal balance.
-9-
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999
(Unaudited)
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
Harborview Apartments
---------------------
The Partnership defaulted on its purchase money notes related to
Harborview Apartments Associates Limited Partnership (Harborview Apartments) on
August 1, 1999 when the notes matured and were not paid. The default amount
included principal and accrued interest of $3,000,000 and $5,342,321,
respectively. As of August 11, 2000, principal and accrued interest of
$3,000,000 and $5,764,714, respectively, were due. The Partnership is currently
negotiating an extension of the maturity date or a discounted payoff of the
purchase money notes. There is no assurance that an extension or a discounted
payoff will occur.
Highland Village
----------------
The Partnership defaulted on its purchase money notes related to
Highland Village Associates (Highland Village) on October 31, 1999 when the
notes matured and were not paid. The default amount included principal and
accrued interest of $1,100,000 and $4,123,565, respectively. As of August 11,
2000, principal and accrued interest of $1,100,000 and $4,569,118, respectively,
were due. The Partnership is currently negotiating to extend the maturity date
of the purchase money notes for five years, although the noteholders would
retain the right to accelerate the notes on six months' notice. In connection
with the proposed extension of the maturity date, the local managing general
partner and the noteholders are jointly exploring various options to refinance
with the Massachusetts Housing Finance Agency (MHFA) the HUD Section 236
interest rate subsidized mortgage loan related to this property. The Partnership
and its affiliated general partner will have no voting rights to approve any
sale, refinancing or other restructuring. There is no assurance that an
extension will be obtained, or that refinancing of the mortgage loan will occur.
Holiday Village
---------------
The Partnership defaulted on its purchase money note related 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. The Managing General Partner and the
noteholder reached an agreement on a discounted payoff of the note in connection
with, and contingent upon, the sale of the property agreed to by the Local
Partnership and an unrelated third party. On July 21, 2000, Holiday Village was
sold. Proceeds received by the Partnership from the sale of the property were
used to pay off, at a discount, the purchase money note related to Holiday
Village.
-10-
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999
(Unaudited)
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
The sale of Holiday Village resulted in gain on disposition of investments in
partnerships of $3,464,340 and in extraordinary gain from extinguishment of debt
of $3,969,834 for financial statement purposes in 2000, and a total gain of
$8,677,698 for federal tax purposes in 2000.
Due to the sale of the property related to the Partnership's investment
in Holiday Village, the Partnership's basis in the Local Partnership, along with
net unamortized acquisition fees and property purchase costs, which totaled
$1,562,844 as of December 31, 1999, has been reclassified to investment in
partnerships held for sale in the accompanying consolidated balance sheets at
June 30, 2000 and December 31, 1999.
Hometown Village
----------------
The Partnership defaulted on its purchase money note related to
Hometown Villages Limited Partnership (Hometown Village) on August 1, 1999 when
the note matured and was not paid. The default amount included principal and
accrued interest of $1,495,000 and $5,010,398, respectively. In March 2000, in
exchange for a non-refundable deposit, the noteholders agreed to forbear from
exercising their remedies until July 1, 2000. In June 2000, in exchange for a
non-refundable deposit, the noteholders agreed to continue to forbear from
exercising their remedies until January 4, 2001. The noteholders have agreed to
accept a discounted payoff of the note provided that such payment is made during
the agreed period of forbearance. There is no assurance that the Partnership
will be able to timely pay the agreed upon discounted payoff on the note and
thus retain its interest in Hometown Village.
Jewish Federation
-----------------
The purchase money note related to Jewish Federation Apartments
Associates (Jewish Federation), in the principal amount of $1,350,000, was due
to mature on October 31, 1999. In 1997, the Managing General Partner entered
into an agreement with the noteholder to extend the maturity 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 and the noteholder. 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 it had received verbal approval from HUD and intended to reapply
for financing with HUD. There is no assurance that such financing will be
obtained. On May 21, 1999, the noteholder extended the maturity date of the
purchase money note to April 30, 2000, to allow time for the donation and
transfer to occur. On April 24, 2000, the noteholder further extended the
maturity date to April 30, 2001. There is no assurance that any further
extensions will be obtained.
-11-
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999
(Unaudited)
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
Matthew XXV
-----------
The Partnership defaulted on its purchase money note related to
Diakonia Associates (Matthew XXV) on July 1, 1999 when the note matured and was
not paid. The default amount included principal and accrued interest of
$1,020,000 and $2,695,752, respectively. As of August 11, 2000, principal and
accrued interest of $1,020,000 and $3,076,862, respectively, were due. The
Partnership is currently negotiating to extend the maturity date or to pay off
the purchase money note at a discount. Currently, a local limited partner (a
not-for-profit entity) is preparing an offer to purchase the property. There is
no assurance that an extension or a discounted payoff of the purchase money note
will be obtained, or that a sale of the property will occur.
Pilgrim Tower East
------------------
The Partnership defaulted on its purchase money note related to Pilgrim
Tower East Associates Limited Partnership (Pilgrim Tower East) on December 1,
1999, when the note matured and was not paid. The default amount included
principal and accrued interest of $1,650,000 and $2,719,372, respectively. As of
August 11, 2000, principal and accrued interest of $1,650,000 and $2,871,616,
respectively, were due. The Partnership is currently negotiating with the
noteholder to extend the maturity date of the purchase money note for five years
in exchange for a partial payment. There is no assurance that an extension will
be obtained.
Pilgrim Tower North
-------------------
The Partnership defaulted on its purchase money note related to Pilgrim
Tower North Associates Limited Partnership (Pilgrim Tower North) on April 30,
2000 when the note matured and was not paid. The default amount included
principal and accrued interest of $2,165,000 and $12,480,569, respectively. As
of August 11, 2000, principal and accrued interest of $2,165,000 and
$13,012,831, respectively, were due. The Partnership is currently negotiating to
extend the maturity date of the purchase money note for five years, in exchange
for a partial payment. There is no assurance that an extension will be obtained.
Redden Gardens
--------------
The Partnership defaulted on its purchase money note related 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. The noteholders extended the maturity
date of the purchase money note to
-12-
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999
(Unaudited)
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
January 3, 2000, at which time the Partnership again defaulted on the purchase
money note. As of August 11, 2000, principal and accrued interest of $1,330,000
and $3,840,747, respectively, were due. In connection with the extension, the
Partnership placed in escrow documents transferring its interest in Redden
Gardens to the noteholders, to be released to the noteholders upon a future
default by the Partnership on the purchase money note. As of August 11, 2000,
the noteholders had not exercised their right to have the escrowed documents
released to them. The uncertainty about the continued ownership of the
Partnership's interest in the related Local Partnership does not adversely
impact the Partnership's financial condition, as discussed above.
Due to the possible transfer of the Partnership's interest in the Local
Partnership to the noteholders, the Partnership's basis in the Local
Partnership, along with net unamortized acquisition fees and property purchase
costs, which totaled $928,160 as of December 31, 1999, has been reclassified to
partnership interest held in escrow in the accompanying consolidated balance
sheets at June 30, 2000 and December 31, 1999.
Riverview Manor
---------------
The Partnership defaulted on its purchase money notes related to
Riverview Manor Company Limited Partnership (Riverview Manor) on September 30,
1999 when the notes matured and were not paid. The default amount included
principal and accrued interest of $740,000 and $1,853,014, respectively. As of
August 11, 2000, principal and accrued interest of $740,000 and $1,973,837,
respectively, were due. The Partnership is currently negotiating with the
noteholders to extend the maturity date of the purchase money notes for up to
five years, in conjunction with the possible sale or refinancing of the
underlying property. There is no assurance that an extension will be obtained,
or that a sale or refinancing will occur.
Scoville Center
---------------
The Partnership defaulted on its purchase money notes related to Beloit
Housing Partners (Scoville Center) on October 1, 1999 when the notes matured and
were not paid. The default amount included principal and accrued interest of
$1,400,000 and $2,123,397, respectively. In March 2000, in exchange for a
non-refundable deposit, the noteholders agreed to forbear from exercising their
remedies until July 1, 2000. In June 2000, in exchange for a non-refundable
deposit, the noteholders agreed to continue to forbear from exercising their
remedies until January 4, 2001. The noteholders have agreed to accept a
discounted payoff of the note provided that such payment is made during the
agreed period of forbearance. There is no assurance that the Partnership will be
able to timely pay the agreed upon discounted payoff on the note and thus retain
its interest in Scoville Center.
-13-
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999
(Unaudited)
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
Thornwood House
---------------
The Partnership defaulted on its purchase money notes related to
Thornwood House Associates (Thornwood House) on August 30, 1999 when the notes
matured and were not paid. The default amount included principal and accrued
interest of $1,775,000 and $3,218,691, respectively. As of August 11, 2000,
principal and accrued interest of $1,775,000 and $3,447,458, respectively, were
due. The Partnership is currently negotiating to extend the maturity date of the
purchase money notes for five years. There is no assurance that an extension
will be obtained.
Tradewinds Terrace
------------------
The Partnership defaulted on its purchase money note related to
Tradewinds West LDHA Limited Partnership (Tradewinds Terrace) on December 3,
1999, when the note matured and was not paid. The default amount included
principal and accrued interest of $925,000 and $1,228,429, respectively. As of
August 11, 2000, principal and accrued interest of $925,000 and $1,285,766,
respectively, were due. The Partnership is negotiating with the noteholder to
extend the maturity date of the purchase money note, and has received a proposed
workout arrangement from the noteholder. There is no assurance that an extension
will be obtained.
Valley View
-----------
The Partnership defaulted on its purchase money notes related to Valley
View Associates (Valley View) on September 1, 1999 when the notes matured and
were not paid. The default amount included principal and accrued interest of
$920,000 and $1,788,829, respectively. As of August 11, 2000, principal and
accrued interest of $920,000 and $1,909,904, respectively, were due. The
Partnership has been sued by the noteholders for payment and for confirmation of
the transfer of the collateral to the noteholders. On January 7, 2000, the
Partnership filed a motion to dismiss the suit. The noteholders subsequently
filed an amended complaint seeking confirmation of the transfer of the
collateral to the noteholders but not seeking payment. On February 9, 2000, the
Partnership filed a motion to dismiss the amended complaint, which was granted.
A further amended complaint and motion to dismiss have been filed, but no ruling
on the latest motion has been made as of August 11, 2000. The Partnership and
the noteholders have agreed in principle that the Partnership will deposit
assignments of its interests in Valley View in escrow, together with an option
agreement pursuant to which the noteholders may purchase the interests for the
outstanding debt if the property is not sold and/or the notes are not repaid by
January 2001. There is no assurance that any settlement will be finalized.
-14-
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999
(Unaudited)
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
Wellington Woods
----------------
The Partnership defaulted on its purchase money note related to
Clarkson Associates of Wellington Woods Limited Partnership (Wellington Woods)
on December 1, 1999, when the note matured and was not paid. The default amount
included principal and accrued interest of $485,000 and $2,169,679,
respectively. As of August 11, 2000, principal and accrued interest of $485,000
and $2,392,753, respectively, were due. The Partnership is negotiating with the
noteholder to extend the maturity date of the purchase money note for five
years, in exchange for a partial payment. There is no assurance that an
extension will be obtained.
Westport Village
----------------
The Partnership defaulted on its purchase money notes related to
Westport Associates (Westport Village) on September 1, 1999 when the notes
matured and were not paid. The default amount included principal and accrued
interest of $840,000 and $1,615,644, respectively. As of August 11, 2000,
principal and accrued interest of $840,000 and $1,725,395, respectively, were
due. The Partnership has been sued by the noteholders for payment and for
confirmation of the transfer of the collateral to the noteholders. On January 7,
2000, the Partnership filed a motion to dismiss the suit. The noteholders
subsequently filed an amended complaint seeking confirmation of the transfer of
the collateral to the noteholders but not seeking payment. On February 9, 2000,
the Partnership filed a motion to dismiss the amended complaint, which was
granted. A further amended complaint and motion to dismiss have been filed, but
no ruling on the latest motion has been made as of August 11, 2000. The
Partnership and the noteholders have agreed in principle that the Partnership
will deposit assignments of its interests in Westport Village in escrow,
together with an option agreement pursuant to which the noteholders may purchase
the interests for the outstanding debt if the property is not sold and/or the
notes are not repaid by early January 2001. There is no assurance that any
settlement will be finalized.
Wollaston Manor
---------------
The Partnership defaulted on its purchase money notes related to
Wollaston Manor Associates (Wollaston Manor) on October 1, 1999 when the notes
matured and were not paid. The default amount included aggregate principal and
accrued interest of $2,125,000 and $4,111,380, respectively. As of August 11,
2000, principal and accrued interest of $2,125,000 and $4,291,475, respectively,
were due. The Partnership is currently negotiating a discounted payoff of the
purchase money notes in conjunction with a possible sale of the property. A
contract for the sale of the property was signed in January 2000, contingent
upon, among other things, a satisfactory agreement with the noteholders
regarding the purchase money
-15-
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999
(Unaudited)
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
note and the approval of the Partnership. There is no assurance that a
sale of the property and a settlement with the noteholders will occur.
Due to the impending and likely sale of the property related to the
Partnership's investment in Wollaston Manor, the Partnership's basis in the
Local Partnership, along with net unamortized acquisition fees and property
purchase costs, which totaled $913,360 as of December 31, 1999, has been
reclassified to investment in partnerships held for sale in the accompanying
consolidated balance sheets at June 30, 2000 and December 31, 1999.
b. Advances to Local Partnerships
------------------------------
Lakes of Northdale
------------------
To cover operating deficits incurred in prior years by Lakes of
Northdale, the Partnership advanced funds totaling $54,500 as of both June 30,
2000 and December 31, 1999. No advances have been made to Lakes of Northdale
since September 1989. These non-interest bearing advances are payable from cash
flow of Lakes of Northdale after payment of first mortgage debt service and
after satisfaction by the Partnership of certain other interest obligations on
the purchase money notes relating to the Local Partnership. For financial
reporting purposes, these advances have been reduced to zero by the Partnership
as a result of losses at the Local Partnership level during prior years.
c. Property matters
----------------
Garden Court
------------
On December 31, 1998, the local managing general partner of Garden
Court Associates Limited Partnership (Garden Court) sold the property. The net
proceeds to the Partnership of $50,000 were received on March 2, 1999.
d. Summarized financial information
--------------------------------
Combined statements of operations for the 35 Local Partnerships in
which the Partnership was invested as of both June 30, 2000 and 1999, follow.
The combined statements have been compiled from information supplied by the
management agents of the projects and are unaudited.
-16-
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999
(Unaudited)
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
<TABLE>
<CAPTION>
COMBINED STATEMENTS OF OPERATIONS
(Unaudited)
For the three months ended For the six months ended
June 30, June 30,
-------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Revenue:
Rental revenue .............. $ 8,656,906 $ 8,327,245 $17,355,882 $16,801,927
Other, principally interest . 503,931 589,609 1,090,709 1,183,058
----------- ----------- ----------- -----------
Total revenue ............ 9,160,837 8,916,854 18,446,591 17,984,985
----------- ----------- ----------- -----------
Expenses:
Operating and other ......... 4,591,661 4,236,034 10,319,535 9,712,749
Interest .................... 1,398,022 1,456,534 2,796,045 2,913,069
Depreciation and amortization 1,847,340 1,816,622 3,694,678 3,633,247
----------- ----------- ----------- -----------
Total expenses ........... 7,837,023 7,509,190 16,810,258 16,259,065
----------- ----------- ----------- -----------
Net income .................... $ 1,323,814 $ 1,407,664 $ 1,636,333 $ 1,725,920
=========== =========== =========== ===========
</TABLE>
As of June 30, 2000 and 1999, the Partnership's share of cumulative
losses of six and nine of the 35 Local Partnerships exceeded the amount of the
Partnership's investments in and advances to those Local Partnerships by
$12,662,790 and $12,593,564, respectively. Since 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
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. Current legislation allows all
expired Section 8 HAP contracts with rents at less than 100% of fair market
rents to be renewed for one year. Expiring Section 8 HAP contracts with rents
that exceed 100% of fair market rents could be renewed for one year, but at
rents reduced to 100% of fair market rents (Mark-to-Market). All expiring
Section 8 HAP contracts with rents exceeding comparable market rents, and
properties with mortgage loans insured by the Federal Housing Administration
(FHA), became subject to the Mark-to-Market legislation.
-17-
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999
(Unaudited)
3. AFFORDABLE HOUSING LEGISLATION - Continued
Mark-to-Market implementation will reduce rental income at properties
that 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 may undergo debt restructuring according to
terms determined by an individual property and operations evaluation. This may
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 loan will
be converted to a non-performing but accruing (soft) second mortgage loan.
Seven properties in which the Partnership is invested may be affected
by the Mark-to-Market program, since they have Section 8 HAP contracts which
have already expired or which will expire in 2000. It is expected that five of
the properties will renew their Section 8 HAP contracts for one year. One
property renewed its Section 8 HAP contract in 2000 for a four-year term. One
property did not renew its Section 8 HAP contract for six units when it expired
in June 1999. Properties with expiring Section 8 HAP contract rents greater than
100% of fair market rents in the area where each property is located may be
affected immediately by the legislation. All seven properties have related
purchase money notes which have matured, as discussed in Note 2.a.
The Section 8 HAP contracts for the following properties initially
expired during the government's fiscal year 1998 or 1999 or will expire during
2000, and have been renewed as indicated.
<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 (1)
Glenridge Gardens 120 24 05/31/99 05/31/00 (2)
Harborview 300 299 06/01/00 (2)
Pilgrim Tower North 258 205 10/31/98 02/28/04 (3)
Redden Gardens 150 30 09/30/98 09/01/00 (2)
Tradewinds Terrace 122 44 09/30/98 09/30/00 (2)
Wellington Woods 109 73 10/19/99 10/19/00 (2)
---- ---
Total 1185 681
==== ===
</TABLE>
(1) The Section 8 HAP contract was not renewed at the election of the Managing
General Partner.
(2) The Managing General Partner expects that these Section 8 HAP Contracts will
be renewed for one year upon expiration.
(3) To be renewed annually beginning 2/28/00 through 2/28/04 subject to
appropriations. (Renewed through 2/28/01.)
-18-
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999
(Unaudited)
3. AFFORDABLE HOUSING LEGISLATION - Continued
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. As a result, it is not
possible to predict the impact on the Local Partnerships' operations and the
resulting impact on the Partnership's investments in and advances to Local
Partnerships at this time. As of June 30, 2000, the carrying amount of the
Partnership's investments in and advances to Local Partnerships with Section 8
HAP contracts expiring in 2000 was $6,427,731.
There is a new HUD-sponsored program generally referred to as "Mark-
up-to-Market." Under this program, properties with expiring Section 8 contracts
that are located in high-rent areas as defined by HUD are eligible for rent
increases which would be necessary to bring Section 8 rents in line with market
rate rents. For properties that enter the program and have subsidized FHA loans,
the rents are adjusted to take into account the benefits the property is already
receiving from the below- market interest rate by means of a HUD determined
Interest Subsidy Adjustment Factor. The purpose of this program is to
incentivize owners of properties with expiring Section 8 contracts not to
convert these properties to market rate housing.
In return for receiving market rate rents under Mark-up-to-Market, the
property owner must enter into a five year conditional Section 8 contract with
HUD, subject to the annual availability of funding by Congress. In addition,
property owners who enter into the Mark-up-to- Market program will receive
increased cash flow as the limited dividend will be increased in an amount equal
to the increase in gross revenues.
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 $66,682 and
$137,224 for the three and six month periods ended June 30, 2000, respectively,
and $53,006 and $91,375 for the three and six month periods ended June 30, 1999,
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.
In accordance with the terms of the Partnership Agreement, the
Partnership is obligated to pay the 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 $187,500 for each of the three and six month periods ended June 30,
2000 and 1999, respectively.
-19-
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999
(Unaudited)
4. RELATED PARTY TRANSACTIONS - Continued
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. No such fees were earned by the Managing General Partner or its
affiliates for the three and six month periods ended June 30, 2000 or 1999.
-20-
<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, governmental
regulations affecting 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 sold or
refinanced, and will continue to sell or refinance, certain properties pursuant
to programs developed by these agencies. These programs may include
opportunities to sell a property to a qualifying purchaser who would agree to
maintain the property as low to moderate income housing in perpetuity, or to
refinance a 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. Current legislation allows all
expired Section 8 HAP contracts with rents at less than 100% of fair market
rents to be renewed for one year. Expiring Section 8 HAP contracts with rents
that exceed 100% of fair market rents could be renewed for one year, but at
rents reduced to 100% of fair market rents (Mark-to-Market). All expiring
Section 8 HAP contracts with rents exceeding comparable market rents, and
properties with mortgage loans insured by the Federal Housing Administration
(FHA), became subject to the Mark-to-Market legislation.
Mark-to-Market implementation will reduce rental income at properties
that 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 may undergo debt restructuring according to
terms determined by an individual property and operations evaluation. This may
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 loan will
be converted to a non-performing but accruing (soft) second mortgage loan.
-21-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
Seven properties in which the Partnership is invested may be affected
by the Mark-to-Market program, since they have Section 8 HAP contracts which
have already expired or which will expire in 2000. It is expected that five of
the properties will renew their Section 8 HAP contracts for one year. One
property renewed its Section 8 HAP contract in 2000 for a four-year term. One
property did not renew its Section 8 HAP contract for six units when it expired
in June 1999. Properties with expiring Section 8 HAP contract rents greater than
100% of fair market rents in the area where each property is located may be
affected immediately by the legislation. All seven properties have related
purchase money notes which have matured, as discussed in Note 2.a.
In many instances, the Mark-to-Market rental rate restructuring may
require the write down of an FHA-insured mortgage loan, which would trigger
cancellation of indebtedness income to the partners, a taxable event, even
though no actual cash is received. Additionally, if the existing first mortgage
loan is bifurcated into a first and second mortgage loan, the newly created
second mortgage loan will accrue interest at a below-market rate; however, the
Internal Revenue Service issued a ruling in July 1998 that concluded that the
below-market rate of interest will not generate additional ordinary income. Each
property subject to 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.
There is a new HUD-sponsored program generally referred to as "Mark-
up-to-Market." Under this program, properties with expiring Section 8 contracts
that are located in high-rent areas as defined by HUD are eligible for rent
increases which would be necessary to bring Section 8 rents in line with market
rate rents. For properties that enter the program and have subsidized FHA loans,
the rents are adjusted to take into account the benefits the property is already
receiving from the below- market interest rate by means of a HUD determined
Interest Subsidy Adjustment Factor. The purpose of this program is to
incentivize owners of properties with expiring Section 8 contracts not to
convert these properties to market rate housing.
In return for receiving market rate rents under Mark-up-to-Market, the
property owner must enter into a five year conditional Section 8 contract with
HUD, subject to the annual availability of funding by Congress. In addition,
property owners who enter into the Mark-up-to- Market program will receive
increased cash flow as the limited dividend will be increased in an amount equal
to the increase in gross revenues.
The Managing General Partner is considering new strategies to deal with
the ever changing environment of affordable housing policy. The Section 236 and
Section 221(d)(3) mortgage loans may be eligible for pre- payment in their 18th
year or later. Properties with expiring Section 8 HAP contracts may become
convertible to market-rate apartment properties. Currently there are few lenders
that will provide financing either to prepay existing mortgage loans of these
types or provide additional funds to allow a property to convert to market-rate
units. Where opportunities exist, the Managing General Partner will continue to
work with the Local
-22-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
Partnerships to develop strategies that make economic sense for all parties
involved.
Financial Condition/Liquidity
-----------------------------
The Partnership's liquidity, with unrestricted cash resources of
$7,775,802 as of June 30, 2000, along with anticipated future cash distributions
from the Local Partnerships, is expected to be adequate to meet its current and
anticipated operating cash needs. As of August 11, 2000, $50,400 of cash
resources were restricted for future interest payments on one of the purchase
money notes. As of August 11, 2000, 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 an aggregate principal
balance of $39,360,081 plus aggregate accrued interest of $113,247,434 as of
June 30, 2000, 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. A purchase
money note in the principal amount of $1,370,000 matured on July 27, 1994 and
was paid off, at a discount, in July 2000. A purchase money note in the
principal amount of $1,330,000 matured on August 31, 1997 and was extended to
January 3, 2000, but has not been paid or further extended. Purchase money notes
in the aggregate principal amounts of $2,035,000 and $434,000 matured on July 1,
1999 and July 31, 1999, respectively, and have not been paid or extended. A
purchase money note in the principal amount of $434,000 matured on July 31,
1999, and has been extended to July 31, 2004. A purchase money note in the
principal amount of $2,301,310 matured on July 31, 1999, and was paid in full on
July 30, 1999. Purchase money notes in the aggregate principal amount of
$2,355,000 matured on August 1, 1999 and have been extended to January 4, 2001.
A purchase money note in the original principal amount of $3,732,081 matured on
August 31, 1999, was partially paid down, and was extended to August 31, 2004.
Purchase money notes in the aggregate principal amount of $9,570,000 matured
during August and September, 1999, and have not been paid or extended. A
purchase money note in the original principal amount of $740,000 matured on
August 1, 1999, and has been extended to January 2001. A purchase money note in
the principal amount of $1,400,000 matured on October 1, 1999 and has been
extended to January 4, 2001. Purchase money notes in the aggregate principal
amount of $10,795,000 matured during the fourth quarter of 1999, and have not
been paid or extended. Purchase money notes in the principal amounts of
$1,500,000 and $1,350,000 were due to mature on September 27, 1999 and October
31, 1999, respectively, and were extended to September 27, 2002 and April 30,
2001, respectively. A purchase money note in the principal amount of $2,165,000
matured on April 30, 2000, but has not been paid or extended. The remaining
purchase money note in the principal amount of $500,000 matures October 1, 2025.
See the notes to the consolidated financial statements for additional
information concerning these purchase money notes.
-23-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
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 adversely 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 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 the Partnership's interest in one of these Local Partnerships would not
have a material adverse impact on the financial condition of the Partnership.
See further discussion of certain purchase money notes, below. See further
discussion of certain purchase money notes in the notes to consolidated
financial statements.
The following chart presents information related to purchase money
notes which have matured, have been extended to mature, or are scheduled to
mature through June 30, 2001, and which remain unpaid or unextended as of August
11, 2000. Excluded from the following chart are purchase money notes which
matured through June 30, 2000, and which have been paid off, cancelled, or
extended on or before August 11, 2000.
<TABLE>
<CAPTION>
Carrying Amount
Aggregate of Partnership's
Aggregate Accrued Investments in
Number of Principal Interest and Advances to
Purchase Underlying Balance Balance Underlying Local
Money Note Local Percentage as of June Percentage as of June Percentage Partnerships as Percentage
(PMN) Maturity Partnerships of Total 30, 2000 of Total 30, 2000 of Total of June 30, 2000 of Total
---------------- ------------ ---------- ----------- ---------- ------------ ---------- ---------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
3rd Quarter 1994 1 3% $ 1,370,000 4% $ 6,859,328 6% $ 1,303,318 4%
3rd Quarter 1999 10 28% 12,039,000 31% 28,169,380 25% 12,673,534 38%
4th Quarter 1999 8 23% 10,795,000 27% 29,190,715 26% 5,911,464 18%
1st Quarter 2000 1 3% 1,330,000 3% 3,790,132 3% 916,440 3%
2nd Quarter 2000 1 3% 2,165,000 6% 12,795,792 11% 2,704,694 8%
1st Quarter 2001 4 11% 4,445,000 11% 12,470,292 11% 4,587,931 14%
2nd Quarter 2001 1 3% 1,350,000 3% 5,867,212 5% 513,697 1%
---- ----- ----------- ----- ------------ ----- ----------- -----
Total through
6/30/2001 26 74% $33,494,000 85% $ 99,142,851 87% $28,611,078 (1) 86%
==== ===== =========== ===== ============ ===== =========== =====
Total, Local
Partnerships 35 100% $39,360,081 100% $113,247,434 100% $33,361,982 (1) 100%
==== ===== =========== ===== ============ ===== =========== =====
-24-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
</TABLE>
(1) Includes $2,381,700 for two partnerships reported as investment in
partnerships held for sale on the consolidated balance sheet at June
30, 2000, and $879,749 for one partnership reported as partnership
interest held in escrow on the consolidated balance sheet at June 30,
2000.
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, paying off certain purchase money notes at a
discounted price, extending the due dates of certain purchase money notes,
refinancing the respective properties' underlying debt, or selling the
underlying real estate 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 successful
in the future. If the Managing General Partner is unable to negotiate an
extension or discounted payoff, upon maturity of the purchase money notes, in
the event that the purchase money notes remain unpaid, the noteholders may 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 be deemed 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 any future cash
flow distributed by the Local Partnership from rental operations, mortgage debt
refinancings, or the sale of the real estate. Of the 35 Local Partnerships in
which the Partnership is invested as of June 30, 2000, the 26 Local Partnerships
with associated purchase money notes which mature through June 30, 2001 and
which remain unpaid or unextended as of August 11, 2000, represent the following
percentages of the Partnership's total distributions received from Local
Partnerships and share of income from Local Partnerships for the immediately
immediately preceding two calendar years.
<TABLE>
<CAPTION>
Percentage of Total Partnership's Share of
Distributions Received Income from
For the Year Ending from Local Partnerships Local Partnerships
------------------- ----------------------- ----------------------
<S> <C> <C>
December 31, 1999 55% $ 995,085
December 31, 1998 59% $1.130,370
</TABLE>
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 month periods ended June 30, 2000 and 1999, the
receipt of distributions from Local Partnerships and existing cash resources
were adequate to support operating cash requirements. Cash and
-25-
<PAGE>
PART II. OTHER INFORMATION
-----------------
ITEM 5. OTHER INFORMATION - Continued
-----------------
cash equivalents increased during the six month period ended June 30, 2000, as
the receipt of distributions from partnerships was in excess of net cash used in
operating and financing activities.
Results of Operations
---------------------
The Partnership's net loss for the three and six month periods ended
June 30, 2000 decreased from the corresponding periods in 1999 primarily due to
decreases in interest expense related to decreases in amortization of discount
on purchase money notes. Offsetting the decreases in the Partnership's net loss
were decreases in share of income from partnerships generally due to increased
operating expenses at six properties partially offset by increases in operating
income at four properties, decreases in interest income due to lower cash and
cash equivalent balances in the 2000 periods, increases in general and
administrative expenses related to higher reimbursed payroll costs and appraisal
fees, and higher professional fees related to litigation at three properties.
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 that the Partnership has no further
obligation to advance funds or provide financing to the Local Partnerships. As a
result, the Partnership's share of income from partnerships for the three and
six month periods ended June 30, 2000 did not include losses of $181,168 and
$358,909, respectively, compared to excluded losses of $217,945 and $435,888 for
the three and six month periods ended June 30, 1999, respectively.
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
-------------------------------
See Note 2.a. of the notes to consolidated financial statements
contained in Part I, Item 1, hereof, for information concerning the
Partnership's defaults on purchase money notes.
ITEM 5. OTHER INFORMATION
-----------------
The Managing General Partner has reason to believe that in April 2000,
Peachtree Partners (Peachtree) initiated an unregistered tender offer to
purchase up to 4.9% of the outstanding units of additional limited partnership
interest (Units) in the Partnership at a price of $40 per Unit. Peachtree is
unaffiliated with the Managing General Partner. The price offered was determined
solely at the discretion of Peachtree and does not necessarily represent the
fair market value of each Unit. There
-26-
<PAGE>
PART II. OTHER INFORMATION
-----------------
ITEM 5. OTHER INFORMATION - Continued
-----------------
is no established market for the purchase and sale of Units in the Partnership,
although various informal secondary market services exist in addition to the
tender offer by Peachtree. Due to the limited markets, however, investors may be
unable to sell or otherwise dispose of their Units in the Partnership.
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 June 30, 2000.
All other items are not applicable.
-27-
<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
August 11, 2000 by: /s/ Michael J. Tuszka
--------------- ---------------------------------------
DATE Michael J. Tuszka
Vice President
and Chief Accounting Officer
(Principal Financial Officer
and Principal Accounting Officer)
-28-
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Method of Filing
------- -----------------------------
27 Financial Data Schedule Filed herewith electronically
-29-
