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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
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|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission file number 0-13523
CAPITAL REALTY INVESTOR-IV LIMITED PARTNERSHIP
Organized pursuant to the Laws of the State of Maryland
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Internal Revenue Service - Employer Identification No. 52-1328767
11200 Rockville Pike, Rockville, Maryland 20852
(301) 468-9200
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days.
Yes |X| No |_|
The total number of shares of the registrant's Common Stock, outstanding on
September 30, 2000, is not applicable.
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<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
INDEX TO FORM 10-QSB
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
- September 30, 2000 and December 31, 1999..................... 1
Consolidated Statements of Operations and Accumulated Losses
- for the three and nine months ended
September 30, 2000 and 1999................................. 2
Consolidated Statements of Cash Flows
- for the nine months ended September 30, 2000 and 1999........ 3
Notes to Consolidated Financial Statements
- September 30, 2000 and 1999.................................. 4
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations............... 19
PART II - OTHER INFORMATION
Item 3. Defaults upon Senior Securities.................................. 24
Item 5. Other Information................................................ 24
Item 6. Exhibits and Reports on Form 8-K................................. 24
Signature .......................................................... 25
Exhibit Index .......................................................... 26
<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,
2000 1999
------------- ------------
(Unaudited)
<S> <C> <C>
Investments in and advances to partnerships ....................................... $ 30,944,509 $ 29,175,280
Investment in partnerships held for sale .......................................... 1,142,974 2,476,204
Partnership interest held in escrow ............................................... -- 928,160
Cash and cash equivalents ......................................................... 8,385,348 7,607,687
Restricted cash equivalents ....................................................... 50,400 50,400
Acquisition fees, principally paid to related parties,
net of accumulated amortization of $390,265 and $371,870, respectively .......... 590,789 609,184
Property purchase costs, net of accumulated amortization
of $365,747 and $348,713, respectively .......................................... 542,931 559,966
Other assets ...................................................................... 2,749 --
------------- -------------
Total assets ................................................................ $ 41,659,700 $ 41,406,881
============= =============
LIABILITIES AND PARTNERS' DEFICIT
Due on investments in partnerships ................................................ $ 36,660,081 $ 39,367,113
Accrued interest payable .......................................................... 105,466,954 107,616,493
Accounts payable and accrued expenses ............................................. 136,268 175,592
------------- -------------
Total liabilities ........................................................... 142,263,303 147,159,198
------------- -------------
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 ............................................................ (158,155,669) (163,304,383)
------------- -------------
Total partners' deficit ..................................................... (100,603,603) (105,752,317)
------------- -------------
Total liabilities and partners' deficit ..................................... $ 41,659,700 $ 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 nine months ended
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- ------------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Share of income from partnerships .............. $ 923,885 $ 721,950 $ 2,941,199 $ 2,863,584
------------- ------------- ------------- -------------
Other revenue and expenses:
Revenue:
Interest and other income .................. 127,442 117,877 344,596 365,079
------------- ------------- ------------- -------------
Expenses:
Interest ................................... 2,912,502 4,081,283 9,188,132 13,524,310
Management fee ............................. 93,750 93,750 281,250 281,250
General and administrative ................. 73,512 58,156 229,736 193,299
Professional fees .......................... 42,108 27,373 128,378 80,504
Amortization of deferred costs ............. 11,811 12,881 35,433 38,431
------------- ------------- ------------- -------------
3,133,683 4,273,443 9,862,929 14,117,794
------------- ------------- ------------- -------------
Total other revenue and expenses ......... (3,006,241) (4,155,566) (9,518,333) (13,752,715)
------------- ------------- ------------- -------------
Loss before a gain on disposition
of investment in partnership ................. (2,082,356) (3,433,616) (6,577,134) (10,889,131)
Gain on disposition of investment in partnership 3,520,913 -- 3,520,913 --
------------- ------------- ------------- -------------
Income (loss) before extraordinary gain
from extinguishment of debt .................. 1,438,557 (3,433,616) (3,056,221) (10,889,131)
Extraordinary gain from extinguishment of debt . 8,204,935 -- 8,204,935 --
------------- ------------- ------------- -------------
Net income (loss) .............................. 9,643,492 (3,433,616) 5,148,714 (10,889,131)
Accumulated losses, beginning of period ........ (167,799,161) (155,616,891) (163,304,383) (148,161,376)
------------- ------------- ------------- -------------
Accumulated losses, end of period .............. $(158,155,669) $(159,050,507) $(158,155,669) $(159,050,507)
============= ============= ============= =============
Net income (loss) allocated to
General Partners (1.51%) ..................... $ 145,617 $ (51,848) $ 77,745 $ (164,426)
============= ============= ============= =============
Net income (loss) allocated to Initial
and Special Limited Partners (1.49%) ......... $ 143,688 $ (51,161) $ 76,716 $ (162,248)
============= ============= ============= =============
Net income (loss) allocated
to Additional Limited Partners (97%) ......... $ 9,354,187 $ (3,330,607) $ 4,994,253 $ (10,562,457)
============= ============= ============= =============
Net income (loss) per unit of Additional Limited
Partner Interest based on 73,500 units
outstanding .................................. $ 127.27 $ (45.31) $ 67.95 $ (143.71)
============= ============= ============= =============
</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,
-----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ............................................................ $ 5,148,714 $(10,889,131)
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
Share of income from partnerships .......................................... (2,941,199) (2,863,584)
Amortization of discount on purchase money notes ........................... 42,968 4,748,888
Amortization of deferred costs ............................................. 35,433 38,431
Gain on disposition of investment in partnership ........................... (3,520,913) --
Extraordinary gain from extinguishment of debt ............................. (8,204,935) --
Changes in assets and liabilities:
(Increase) decrease in other assets ...................................... (2,749) 58,378
Increase in accrued interest payable ..................................... 9,145,164 8,774,819
Payment of purchase money note interest .................................. (828,570) (533,400)
(Decrease) increase in accounts payable and accrued expenses ............. (39,324) 15,439
------------ ------------
Net cash used in operating activities .................................. (1,165,411) (650,160)
------------ ------------
Cash flows from investing activities:
Receipt of distributions from partnerships ................................... 1,161,926 1,088,307
Proceeds from disposition of investment in partnership ....................... 831,146 --
------------ ------------
Net cash provided by investing activities .............................. 1,993,072 1,088,307
------------ ------------
Cash flows from financing activities:
Payment of purchase money note principal ..................................... (50,000) (2,301,310)
------------ ------------
Net increase (decrease) in cash and cash equivalents ........................... 777,661 (1,863,163)
Cash and cash equivalents, beginning of period ................................. 7,607,687 10,765,753
------------ ------------
Cash and cash equivalents, end of period ....................................... $ 8,385,348 $ 8,902,590
============ ============
</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, 2000 and 1999
(Unaudited)
1. BASIS OF PRESENTATION
In the opinion of C.R.I., Inc. (CRI), the Managing General Partner, the
accompanying unaudited consolidated 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, 2000, and the results of its
operations for the three and nine months ended September 30, 2000 and 1999, and
its cash flows for the nine months ended September 30, 2000 and 1999. The
results of operations for the interim periods ended September 30, 2000, are not
necessarily indicative of the results to be expected for the full year.
The accompanying unaudited consolidated 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 consolidated financial statements should be read
in conjunction with the consolidated 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 AND ACCRUED INTEREST PAYABLE
---------------------------------------------------------------
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 $36,660,081 plus aggregate accrued interest of $105,466,954 as of
September 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, was extended to
January 3, 2000, and the related partnership interest was transferred to the
noteholders in September 2000. 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 $8,250,000 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 $1,320,000 matured on
August 30, 1999 and has been extended to August 30, 2004. 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
-4-
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
(Unaudited)
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
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.
The following chart presents information related to purchase money
notes which have matured, have been extended to mature, or are scheduled to
mature through September 30, 2001, and which remain unpaid or unextended as of
November 13, 2000. Excluded from the following chart are purchase money notes
which matured through September 30, 2000, and which have been paid off,
cancelled, or extended on or before November 13, 2000.
<TABLE>
<CAPTION>
Aggregate Carrying Amount
Aggregate Accrued of Partnership's
Principal Interest Investments in
Number of Balance Balance and Advances to
Purchase Underlying as of as of Underlying Local
Money Note Local Percentage September Percentage September Percentage Partnerships as of Percentage
(PMN) MATURITY PARTNERSHIPS OF TOTAL 30, 2000 OF TOTAL 30, 2000 OF TOTAL SEPTEMBER 30, 2000 OF TOTAL
-------------- ------------ ---------- ----------- --------- ---------- ---------- ------------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
3rd Quarter 1999 9 27% $10,719,000 29% $ 25,101,010 24% $11,333,658 35%
4th Quarter 1999 8 24% 10,795,000 29% 29,982,373 28% 6,367,403 20%
2nd Quarter 2000 1 3% 2,165,000 6% 13,273,794 12% 2,806,708 9%
1st Quarter 2001 4 12% 4,445,000 12% 12,563,560 12% 4,662,482 15%
2nd Quarter 2001 1 3% 1,350,000 4% 6,054,076 6% 458,858 1%
---- ----- ----------- ----- ------------ ----- ----------- -----
Total through
9/30/2001 23 69% $29,474,000 80% $ 86,974,813 82% $25,629,109 (1) 80%
==== ===== =========== ===== ============ ===== =========== =====
Total, Local
Partnerships 33 100% $36,660,081 100% $105,466,954 100% $32,043,457 (1) 100%
==== ===== =========== ===== ============ ===== =========== =====
</TABLE>
(1) Includes $1,098,948 for the partnership reported as investment in
partnership held for sale on the consolidated balance sheet at
September 30, 2000.
-5-
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
(Unaudited)
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
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, in the event that the purchase money notes
remain unpaid upon maturity, 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 33 Local Partnerships in which the Partnership is
invested as of September 30, 2000, the 23 Local Partnerships with associated
purchase money notes which mature through September 30, 2001 and which remain
unpaid or unextended as of November 13, 2000, represented the following
percentages of the Partnership's total distributions received from Local
Partnerships and share of income from Local Partnerships for the immediately
preceding two calendar years.
Percentage of Total Partnership's Share of
Distributions Received Income from
FOR THE YEAR ENDING FROM LOCAL PARTNERSHIPS LOCAL PARTNERSHIPS
------------------- ----------------------- ----------------------
December 31, 1999 48% $ 665,255
December 31, 1998 53% $1,043,309
The Managing General Partner continues to address the maturity and
impending maturity of its debt obligations and to seek 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 for the
three and nine months ended September 30, 2000 was $2,912,502 and $9,188,132,
respectively, and $4,081,283 and $13,524,310 for the three and nine months ended
September 30, 1999, respectively. Amortization of discount on purchase money
notes increased interest expense during the three and nine months ended
September 30, 2000 by $0 and $42,968, respectively, and by $1,148,243 and
$4,748,888 for the three and nine months ended September 30, 1999, respectively.
The accrued interest payable on the purchase money notes of $105,466,954 and
$107,616,493 as of September 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.
-6-
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
(Unaudited)
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
ASBURY TOWER
The Partnership defaulted on its purchase money note related to Asbury
Tower Associates Limited Partnership (Asbury Tower) on August 31, 1999 when the
note matured and was not paid. The default amount included principal and accrued
interest of $3,732,081 and $9,978,961, respectively. In November 1999, the
Partnership and the noteholder agreed, as of August 31, 1999, to extend the
maturity date of the purchase money note until August 31, 2004, in exchange for
a partial payment of principal.
CANONSBURG HOUSE, CHAR HOUSE, AND LIBERTY TOWER
The Partnership defaulted on its six purchase money notes related to
Canonsburg Housing Associates Limited Partnership (Canonsburg 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 November
13, 2000, aggregate principal and accrued interest of $4,510,000 and
$14,572,469, respectively, were due. The Partnership continues to try to
negotiate to extend the maturity date of the purchase money notes for up to five
years. However, on September 8, 2000, the Partnership received service of three
suits by the noteholder of one of the notes with respect to each of the three
partnerships for foreclosure on the Partnership's interests. The Partnership
filed its answers on October 24, 2000. Hearings will likely be scheduled in
early 2001. No action has been taken to date by the holders of the three smaller
purchase money notes. There is no assurance that an extension will be obtained,
or that the Partnership will be able to retain its interest in these three
properties.
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. In September 2000, the
Partnership and noteholder agreed to extend the maturity date of the purchase
money note to August 30, 2004, in exchange for a partial payment of purchase
money note interest.
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 further 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 forbearance period. There is no assurance that the Partnership will be able
to pay the agreed discounted amount in a timely manner and thus retain its
interest in Chippewa County
-7-
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
(Unaudited)
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
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 November 13, 2000,
principal and accrued interest of $975,000 and $2,997,644, respectively, were
due. In May 2000, the noteholders filed suit to foreclose on the Partnership's
interest in Cottonwood Park. However, the parties negotiated a forbearance
agreement, which allows for 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 sale or other purchase money note payoff will occur.
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 payments to the noteholder to be
applied against accrued but unpaid interest. The agreement extends the maturity
date for up to July 31, 2004, subject to semi-annual interest payments and
reduces the interest rate of the First Crescent Note. The Partnership has been
contacted by only one of the holders of the other note (Second Crescent Note)
and thus cannot predict the course of action with regard to the Second Crescent
Note. As of November 13, 2000, principal and accrued interest of $434,000 and
$971,365, respectively, were due on the Second Crescent Note.
DE ANGELIS MANOR
The Partnership defaulted on its purchase money notes related to Natick
Associates (De Angelis Manor) on July 1, 1999 when the notes matured and were
not paid. The default amount included aggregate principal and accrued interest
of $1,015,000 and $2,670,689, respectively. As of November 13, 2000, aggregate
principal and accrued interest of $1,015,000 and $3,138,213, 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. An
affiliate of the local limited partner (a not-for-profit entity) has offered to
purchase the property and has drafted a contract to be signed contingent upon,
among other things, a satisfactory agreement with the noteholders regarding the
purchase money notes and the approval of the Partnership. There is no assurance
that a discounted payoff of the purchase money notes will be obtained, or that a
sale of the property will occur.
-8-
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
(Unaudited)
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
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. 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.
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 aggregate principal and accrued interest of $3,000,000 and $5,342,321,
respectively. As of November 13, 2000, aggregate principal and accrued interest
of $3,000,000 and $5,870,195, respectively, were due. The Partnership is
currently negotiating a five year extension of the maturity date and has reached
an agreement in principle which is being documented. There is no assurance that
an extension will be obtained.
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 November 13,
2000, principal and accrued interest of $1,100,000 and $4,719,176, 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 likely not retain any consent 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
-9-
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
(Unaudited)
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
to pay off, at a discount, the purchase money note related to Holiday Village.
The sale of Holiday Village resulted in gain on disposition of investments in
partnerships of $3,520,913 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, was reclassified to investment in
partnerships held for sale in the accompanying consolidated balance sheet at
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
further 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 forbearance period. There is no assurance that the Partnership
will be able to pay the agreed discounted amount in a timely fashion 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.
-10-
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
(Unaudited)
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
LAKES OF NORTHDALE
The purchase money note related to Lakes of Northdale Limited
Partnership (Lakes of Northdale), in the principal amount of $1,500,000, was due
to mature on September 27, 1999. At the time of the refinancing of the
property's mortgage loan in 1996, the Partnership and the noteholder agreed to
extend the maturity date of the purchase money note to September 27, 2002, if
the Local Partnership extended the letter of credit serving as credit
enhancement with respect to its first mortgage debt, which extension occurred on
June 28, 1999. Accordingly, the purchase money note for Lakes of Northdale
presently matures on September 27, 2002.
MARY ALLEN WEST TOWER
On July 30, 1999, the Partnership paid, in full, the purchase money
note related to Galesburg Housing Partners (Mary Allen West Tower). The purchase
money note was in the principal amount of $2,301,310.
MATTHEW XXV
The Partnership defaulted on its purchase money notes related to
Diakonia Associates (Matthew XXV) on July 1, 1999 when the notes matured and
were not paid. The default amount included aggregate principal and accrued
interest of $1,020,000 and $2,695,752, respectively. As of November 13, 2000,
aggregate principal and accrued interest of $1,020,000 and $3,166,616,
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. An affiliate of the local limited partner (a not-for-profit entity),
has offered to purchase the property and has drafted a contract to be signed
contingent upon, among other things, a satisfactory agreement with the
noteholders regarding the purchase money notes and the approval of the
Partnership. There is no assurance that a discounted payoff of the purchase
money notes 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
November 13, 2000, principal and accrued interest of $1,650,000 and $2,925,239,
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.
-11-
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
(Unaudited)
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
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 November 13, 2000, principal and accrued interest of $2,165,000 and
$13,498,584, 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 January 3, 2000, at which time the
Partnership again defaulted on the purchase money note. In connection with the
extension, the Partnership had 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. On
September 12, 2000, the noteholders exercised their right to have the escrowed
documents released to them.
The transfer of Redden Gardens to the noteholders resulted in an
extraordinary gain from extinguishment of debt of $4,235,101 for financial
statement purposes in 2000, and a total gain of $6,222,475 for federal tax
purposes in 2000.
Due to the 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, was reclassified to
partnership interest held in escrow in the accompanying consolidated balance
sheets at 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
aggregate principal and accrued interest of $740,000 and $1,853,014,
respectively. As of November 13, 2000, aggregate principal and accrued interest
of $740,000 and $2,002,050, respectively, were due. The Partnership is currently
negotiating with the noteholders for a discounted payoff of the purchase money
notes. There is no assurance that a discounted payoff of the purchase money
notes will be obtained.
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
-12-
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
(Unaudited)
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
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 further 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 forbearance period. There is no assurance that
the Partnership will be able to pay the agreed discounted amount in a timely
fashion and thus retain its interest in Scoville Center.
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 aggregate principal and
accrued interest of $1,775,000 and $3,218,691, respectively. As of November 13,
2000, aggregate principal and accrued interest of $1,775,000 and $3,509,370,
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
November 13, 2000, principal and accrued interest of $925,000 and $1,307,147,
respectively, were due. The Partnership is negotiating to sell the property and
simultaneously pay off the purchase money note at a discount. There is no
assurance that a sale of the property or a discounted payoff of the purchase
money note will occur.
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 November 13, 2000, principal and
accrued interest of $920,000 and $1,942,385, 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 November 13, 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, or
that the Partnership will be able to retain its interest in Valley View.
-13-
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
(Unaudited)
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
WELLINGTON WOODS
The Partnership defaulted on its purchase money notes related to
Clarkson Associates of Wellington Woods Limited Partnership (Wellington Woods)
on December 1, 1999, when the notes matured and were not paid. The default
amount included aggregate principal and accrued interest of $485,000 and
$2,169,679, respectively. As of November 13, 2000, aggregate principal and
accrued interest of $485,000 and $2,475,376, respectively, were due. The
Partnership had been negotiating with the noteholders to extend the maturity
date of the purchase money note for five years, in exchange for a partial
payment. However, one of the noteholders has sued for foreclosure. The
Partnership has not answered the lawsuit, pending the plaintiff's response to
its proposal to assign its interest in Wellington Woods to the plaintiff in
January 2001. There is no assurance that an extension will be obtained, or that
the Partnership will be able to retain its interest in Wellington Woods.
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 November 13, 2000,
principal and accrued interest of $840,000 and $1,755,270, 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 November 13, 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, or that the Partnership will be able to retain its
interest in Westport Village.
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 November 13,
2000, principal and accrued interest of $2,125,000 and $4,367,050, respectively,
were due. Recently, the Partnership negotiated a discounted payoff of the
purchase money notes in conjunction with a possible sale of the property and the
documents are being circulated for execution. A contract for the sale of the
property was signed in January 2000, and closing is anticipated in December
2000. There is no assurance that a sale of the property and a discounted payoff
of the purchase money the notes 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
-14-
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
(Unaudited)
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
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 September 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 September
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 were received on March 2, 1999.
d. SUMMARIZED FINANCIAL INFORMATION
Combined statements of operations for the 33 and 35 Local Partnerships
in which the Partnership was invested as of September 30, 2000 and 1999,
respectively, follow. The combined statements have been compiled from
information supplied by the management agents of the projects and are unaudited.
-15-
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
(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,
------------------------- -------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Rental ...................... $ 8,403,416 $ 8,920,685 $25,759,298 $25,722,612
Other, principally interest . 621,833 614,005 1,712,542 1,797,063
----------- ----------- ----------- -----------
Total revenue ............. 9,025,249 9,534,690 27,471,840 27,519,675
----------- ----------- ----------- -----------
Expenses:
Operating and other ......... 4,981,606 5,849,348 15,301,141 15,562,097
Interest .................... 1,391,699 1,456,525 4,187,744 4,369,594
Depreciation and amortization 1,812,348 1,816,618 5,507,026 5,449,865
----------- ----------- ----------- -----------
Total expenses ............ 8,185,653 9,122,491 24,995,911 25,381,556
----------- ----------- ----------- -----------
Net income .................... $ 839,596 $ 412,199 $ 2,475,929 $ 2,138,119
=========== =========== =========== ===========
</TABLE>
As of September 30, 2000 and 1999, the Partnership's share of
cumulative losses to date for six and nine, respectively, of the 33 and 35 Local
Partnerships, respectively, exceeded the amount of the Partnership's investments
in and advances to those Local Partnerships by $12,736,850 and $12,811,509,
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
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.
-16-
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
(Unaudited)
3. AFFORDABLE HOUSING LEGISLATION - Continued
Two 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. One property renewed its Section 8
HAP contracts for one year. The other 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.
Both properties have related purchase money notes which have matured, as
discussed in Note 2.a. hereof.
The Section 8 HAP contracts for the following properties initially
expired during the government's fiscal year 1998 or 1999; one has been renewed
as indicated, while the other has not been renewed. This schedule does not
include Section 8 HAP contracts with extensions which expire beyond 2001.
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
-------- ------------ ----------------- ------------- -------------
Cottonwood Park 126 6 06/30/98 06/30/99 (1)
Glenridge Gardens 120 24 05/31/99 05/31/01 (2)
---- ----
Total 246 30
==== ====
(1) The Section 8 HAP contract was not renewed at the election of the
Managing General Partner.
(2) The Section 8 HAP contract was renewed for another one year term.
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 September 30, 2000, the carrying amount of the
Partnership's investments in and advances to Local Partnerships included in the
above table was $3,824.
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 interest rate
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.
-17-
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
(Unaudited)
3. AFFORDABLE HOUSING LEGISLATION - Continued
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 connection with managing the Partnership. The Partnership
paid $54,885 and $192,109 for the three and nine month periods ended September
30, 2000, respectively, and $36,389 and $127,764 for the three and nine month
periods ended September 30, 1999, respectively, to the Managing General Partner
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 (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 each of the three and nine month periods ended
September 30, 2000 and 1999, respectively.
The Managing General Partner and/or its affiliates may receive a fee of
not more than two percent 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 nine month periods ended September 30, 2000 or
1999.
-18-
<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.
Two 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. One property renewed its Section 8
HAP contracts for one year. The other 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.
Both properties have related purchase money notes which have matured, as
discussed in Note 2.a to the consolidated financial statements.
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
-19-
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations - Continued
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. 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 interest rate
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 Partnerships to develop strategies that make economic sense
for all parties involved.
FINANCIAL CONDITION/LIQUIDITY
The Partnership's liquidity, with unrestricted cash resources of
$8,385,348 as of September 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 November 13, 2000,
$50,400 of cash resources were restricted for future interest payments on one of
the purchase money notes. As of November 13, 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 $36,660,081 plus aggregate accrued interest of $105,466,954 as of
September 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, was extended to
January 3, 2000, and the related partnership interest was transferred to the
noteholders in September 2000. 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
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<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations - Continued
$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 $8,250,000 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 $1,320,000 matured on August 30, 1999 and has been
extended to August 30, 2004. 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.
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.
The following chart presents information related to purchase money
notes which have matured, have been extended to mature, or are scheduled to
mature through September 30, 2001, and which remain unpaid or unextended as of
November 13, 2000. Excluded from the following chart are purchase money notes
which matured through September 30, 2000, and which have been paid off,
cancelled, or extended on or before November 13, 2000.
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<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations - Continued
<TABLE>
<CAPTION>
Aggregate Carrying Amount
Aggregate Accrued of Partnership's
Principal Interest Investments in
Number of Balance Balance and Advances to
Purchase Underlying as of as of Underlying Local
Money Note Local Percentage September Percentage September Percentage Partnerships as of Percentage
(PMN) MATURITY PARTNERSHIPS OF TOTAL 30, 2000 OF TOTAL 30, 2000 OF TOTAL SEPTEMBER 30, 2000 OF TOTAL
-------------- ------------ ---------- ----------- --------- ---------- ---------- ------------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
3rd Quarter 1999 9 27% $10,719,000 29% $ 25,101,010 24% $11,333,658 35%
4th Quarter 1999 8 24% 10,795,000 29% 29,982,373 28% 6,367,403 20%
2nd Quarter 2000 1 3% 2,165,000 6% 13,273,794 12% 2,806,708 9%
1st Quarter 2001 4 12% 4,445,000 12% 12,563,560 12% 4,662,482 15%
2nd Quarter 2001 1 3% 1,350,000 4% 6,054,076 6% 458,858 1%
---- ----- ----------- ----- ------------ ----- ----------- -----
Total through
9/30/2001 23 69% $29,474,000 80% $ 86,974,813 82% $25,629,109 (1) 80%
==== ===== =========== ===== ============ ===== =========== =====
Total, Local
Partnerships 33 100% $36,660,081 100% $105,466,954 100% $32,043,457 (1) 100%
==== ===== =========== ===== ============ ===== =========== =====
</TABLE>
(1) Includes $1,098,948 for the partnership reported as investment in
partnership held for sale on the consolidated balance sheet at
September 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, in the event that the purchase money notes
remain unpaid upon maturity, 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 33 Local Partnerships in which the Partnership is
invested as of September 30, 2000, the 23 Local Partnerships with associated
purchase money notes which mature through September 30, 2001 and which remain
unpaid or unextended as of November 13, 2000, represented the following
percentages of the Partnership's total distributions received from Local
Partnerships and share of income from Local Partnerships for the immediately
preceding two calendar years.
Percentage of Total Partnership's Share of
Distributions Received Income from
FOR THE YEAR ENDING FROM LOCAL PARTNERSHIPS LOCAL PARTNERSHIPS
------------------- ----------------------- ----------------------
December 31, 1999 48% $ 665,255
December 31, 1998 53% $1,043,309
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<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations - Continued
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 month periods ended September 30, 2000 and 1999, the
receipt of distributions from Local Partnerships and existing cash resources
were adequate to support operating cash requirements. Cash and cash equivalents
increased during the nine month period ended September 30, 2000, as the receipt
of distributions from partnership and proceeds from disposition of investment in
partnerships were in excess of net cash used in operating and financing
activities.
RESULTS OF OPERATIONS
The Partnership recognized net income for the three month period ended
September 30, 2000, as compared to net loss during the corresponding period in
1999 primarily due to gain on disposition of investment in partnership and
extraordinary gain from extinguishment of debt related to the sale of Holiday
Village Apartments (Holiday Village) in July 2000, and the transfer of the
Partnership's interest in Redden Development Company (Redden Gardens) in
September 2000, as discussed in the notes to the consolidated financial
statements. Contributing to net income was an increase in share of income from
partnerships generally due to higher operating income at two properties and a
decrease in operating expenses at three properties, partially offset by a
decrease in rental income at one property and increased operating expenses at
another. Also contributing to net income were a decrease in interest expense due
to lower discount accretion on purchase money notes, and an increase in interest
income. Offsetting the increase in the Partnership's net income were an increase
in general and administrative expenses related to higher reimbursed payroll
costs and appraisal fees, and higher professional fees related to litigation at
three properties.
The Partnership recognized net income for the nine month period ended
September 30, 2000, as compared to net loss during the corresponding period in
1999, primarily due to gain on disposition of investment in partnership and
extraordinary gain from extinguishment of debt, as discussed above and in the
notes to the consolidated financial statements. Contributing to the increase in
net income were a decrease in interest expense, also as discussed above, and an
increase in share of income generally due to an increase in operating income at
two properties and a decrease in operating expenses at three properties,
partially offset by a decrease in rental income at two properties, an increase
of operating expense at two properties and an increase in interest and
depreciation expense at two properties. Offsetting the increase in the
Partnership's net income were a decrease in interest income due to lower cash
and cash equivalent balances in 2000, and higher general and administrative
expenses and an increase in professional fees, both as discussed above.
For financial reporting purposes, the Partnership, as a limited partner
in the Local Partnerships, does not record losses from the Local Partnerships in
excess of its investment to the extent 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
nine month periods ended September 30, 2000 did not include losses of $182,773
and $541,682, respectively, compared to excluded losses of $217,945 and $653,833
for the three and nine month periods ended September 30, 1999, respectively.
No other significant changes in the Partnership's operations have taken
place during this period.
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<PAGE>
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 certain 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. The offer expired in May 2000. 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 is no
established market for the purchase and sale of Units in the
Partnership, although various informal secondary market services exist.
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 September 30, 2000.
All other items are not applicable.
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<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, 2000 by: /S/ MICHAEL J. TUSZKA
----------------- ---------------------------------------
DATE Michael J. Tuszka
Vice President
and Chief Accounting Officer
(Principal Financial Officer
and Principal Accounting Officer)
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<PAGE>
EXHIBIT INDEX
EXHIBIT METHOD OF FILING
------- ------------------------------
27 Financial Data Schedule Filed herewith electronically
-26-
