<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996 ....Commission file number 0-15731
----------------- -------
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV (A MARYLAND LIMITED PARTNERSHIP)
----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MARYLAND 52-1473440
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(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8065 LEESBURG PIKE, VIENNA, VIRGINIA 22182
------------------------------------ -----
(Address of principal executive offices) (Zip Code)
<TABLE>
<S> <C>
Registrant's telephone number, including area code: (703) 394-2400
--------------
Securities registered pursuant to Section 12(b) of the Act: NONE
----
Securities registered pursuant to Section 12(g) of the Act: 15,414 LIMITED PARTNERSHIP INTERESTS
------------------------------------
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve 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 ninety days. Yes X No
------- ------
The registrant is a partnership. Accordingly, no voting stock is held by
non-affiliates of the registrant.
Documents incorporated by reference. NONE
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NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
(A MARYLAND LIMITED PARTNERSHIP)
1996 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I
Page
----
<S> <C> <C>
Item 1. Business 2
Item 2. Properties 6
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 7
PART II
Item 5. Market for the Registrant's Partnership
Interests and Related Partnership Matters 7
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 8. Financial Statements and Supplementary Data 11
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 31
PART III
Item 10. Directors and Executive Officers of the Registrant 32
Item 11. Executive Compensation 34
Item 12. Security Ownership of Certain Beneficial
Owners and Management 34
Item 13. Certain Relationships and Related Transactions 34
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 35
</TABLE>
1
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PART I
INTRODUCTION
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements in certain circumstances. Certain
information included in this Report and other Partnership filings (collectively
"SEC Filings") under the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended (as well as information communicated orally or
in writing between the dates of such SEC Filings) contains or may contain
information that is forward looking, including statements regarding the effect
of government regulations. Actual results may differ materially from those
described in the forward looking statements and will be affected by a variety
of factors including national and local economic conditions, the general level
of interest rates, terms of governmental regulations that affect the
Partnership and interpretations of those regulations, the competitive
environment in which the properties owned by the Local Limited Partnerships
operate, the availability of working capital and dispositions of properties
owned by the Partnership.
Item 1. Business
National Housing Partnership Realty Fund IV, a Maryland Limited
Partnership (the Partnership), was formed under the Maryland Revised Uniform
Limited Partnership Act as of January 8, 1986. On January 15, 1986, the
Partnership commenced offering 35,000 limited partnership interests, at a price
of $1,000 per interest, through a public offering registered with the
Securities and Exchange Commission (the Offering). The Offering was managed by
Dean Witter Reynolds, Inc. and was terminated on October 14, 1986, with
subscriptions for 15,414 limited partnership interests.
The General Partner with a 1% interest in the Partnership is The
National Housing Partnership (NHP), a District of Columbia limited partnership,
whose sole general partner (0.2%) is National Corporation for Housing
Partnerships (NCHP). Following a corporate reorganization in August 1995, which
involved an initial public offering of NHP Incorporated's management-related
service companies (the "Reorganization"), the remaining 99.8% of NHP's limited
partnership interest is owned by NHP Partners Two Limited Partnership (Partners
Two), a Delaware limited partnership. NCHP is wholly owned by NHP Partners,
Inc. (Partners), a Delaware corporation. Notwithstanding the Reorganization,
control of NCHP, Partners Two and Partners remains with Demeter Holdings
Corporation (a Massachusetts nonprofit corporation, which is
wholly-owned/controlled by the President and Fellows of Harvard College, a
Massachusetts educational corporation created by the constitution of
Massachusetts), Capricorn Investors, L.P. (a Delaware investment limited
partnership, whose general partner is Capricorn Holdings, G.P., a Delaware
general partnership), and J. Roderick Heller, III (Chairman, President and
Chief Executive Officer of NCHP and Partners).
The Original Limited Partner of the Partnership is 1133 Fifteenth
Street Four Associates, a Maryland limited partnership, whose general partner
is NHP and whose limited partners were key employees of NCHP at the time the
Partnership was formed. The Original Limited Partner holds a 1% Limited
Partnership interest in the Partnership.
The remaining 98% limited partnership interests in the Partnership are
held by the investors who subscribed to the Offering.
The Partnership's business is to own directly one multi-family housing
property, Trinity Apartments, and to hold limited partnership interests in four
limited partnerships (Local Limited Partnerships), which in turn, owns and
operates multi-family rental housing properties (Properties). With the
exception of Trinity Apartments, all of these Properties receive one or more
forms of assistance from the Federal Government.
The Partnership acquired the interests in the four Local Limited
Partnerships from sellers who originally developed the Properties. The
Partnership directly purchased Trinity Apartments. With respect to the Local
Limited Partnerships, NHP is the general partner of each Local Limited
Partnership and the Partnership is the principal limited partner. As a limited
partner, the Partnership's liability for obligations of the Local Limited
Partnerships is limited to its
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investment, and the Partnership does not exercise control over the activities
of the Local Limited Partnerships in accordance with the partnership
agreements.
The Partnership's investment objectives are:
(1) preserve and protect Partnership capital;
(2) provide current tax benefits to Limited Partners to the extent
permitted by law, including, but not limited to, deductions
that Limited Partners may use to offset otherwise taxable
income from other sources;
(3) provide capital appreciation through increase in value of the
Partnership's investments, subject to considerations of
capital preservation and tax planning; and
(4) provide potential cash distributions from sales or
refinancings of the Partnership's investments and, on a
limited basis, from operations.
The Partnership does not have any employees. Services are performed
for the Partnership by the General Partner and agents retained by it.
The following is a schedule of the Properties owned directly by the
Partnership or by the Local Limited Partnerships in which the Partnership is a
limited partner:
SCHEDULE OF PROPERTIES OWNED BY THE PARTNERSHIP OR BY LOCAL LIMITED
PARTNERSHIPS IN WHICH NATIONAL HOUSING PARTNERSHIP REALTY
FUND IV HAS AN INVESTMENT
<TABLE>
<CAPTION>
Units Occupied
Units Authorized as a Percentage
Financed, Insured for Rental of Total
Property Name, Location Number and Subsidized Assistance Under Units as of
and Partnership Name of Units Under Section 8 (D) December 31, 1996
- ----------------------- -------- --------------------------------------------- -----------------
<S> <C> <C> <C> <C>
Capital Park 316 (A) 304 98%
Columbus, Ohio
(Capital Park
Limited Partnership)
Kennedy Homes 172 (B) 172 98%
Gainesville, Florida
(Kennedy Homes
Limited Partnership)
Loring Towers Apartments 208 (A) 187 92%
Minneapolis, Minnesota
(Loring Towers Apartments
Limited Partnership)
Royal Towers 233 (A) 233 0% (E)
Kansas City, Missouri
(Royal Towers Limited
Partnership)
</TABLE>
3
<PAGE> 5
<TABLE>
<CAPTION>
Units Occupied
Units Authorized as a Percentage
Financed, Insured for Rental of Total
Property Name, Location Number and Subsidized Assistance Under Units as of
and Partnership Name of Units Under Section 8 (D) December 31, 1996
- ----------------------- -------- --------------------------------------------- -----------------
<S> <C> <C> <C> <C>
Trinity Apartments 496 (C) None 97%
Irving, Texas
(Wholly-owned)
</TABLE>
(A) The mortgage is insured by the Federal Housing Administration under the
provisions of Section 236 of the National Housing Act.
(B) The mortgage is insured by the Federal Housing Administration under the
provisions of Section 221(d)(3) of the National Housing Act.
(C) Property is conventionally financed.
(D) Section 8 of Title II of the Housing and Community Development Act of
1974.
(E) A fire in December 1996 required the property to be vacated.
Although each Local Limited Partnership in which the Partnership has
invested owns an apartment complex which must compete with other apartment
complexes for tenants, government mortgage interest and rent subsidies make it
possible to rent units to eligible tenants at below market rates. In general,
this insulates the Properties from market competition.
The Federal Housing Administration (FHA) has contracted with the four
subsidized rental projects under Section 8 of Title II of the Housing and
Community Development Act of 1974 to make housing assistance payments to the
Local Limited Partnerships on behalf of qualified tenants. The terms of the
agreements are five years with one or two four year renewal options. The
agreements expire at various dates ranging from 1997 to 2008 as follows:
The following table indicates the year within the Section 8 rent
subsidy contracts expire:
<TABLE>
<CAPTION>
Subsidized Units Subsidized Units
Expiring as a Expiring as a
Number Percentage of Total Percentage of
of Units Subsidized Units Total Units
-------- ---------------------- ----------------------
<S> <C> <C> <C>
1997 360 40% 39%
1998 259 29% 28%
2006 and thereafter 277 31% 30%
--- --- --
Total 896 100% 97%
=== === ==
</TABLE>
Of the contracts above expiring during 1997, contracts for 237 units
expire prior to September 30, 1997. Congress has passed legislation which will
provide a one-year renewal contract to replace those contracts.
The contract covering the remaining 123 units expires in October,
1997. It is uncertain whether the agreement will be renewed, as well as the
remaining contracts expiring after 1997, and if so, on what terms.
For the past several years, various proposals have been advanced by
HUD, the Congress and others proposing the restructuring of the Section 8.
These proposals generally seek to lower subsidized rents to market levels and
to lower required debt service costs as needed to ensure financial viability at
the reduced rents, but vary greatly as to how that result is to be achieved.
Some proposals include a phase-out of project-based subsidies on a
property-by-property basis upon expiration of a property's HAP Contract, with a
conversion to a tenant-based subsidy. Under a tenant-based system, rent
vouchers would be issued to qualified tenants who then could elect to reside at
a property of their choice,
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<PAGE> 6
provided the tenant has the financial ability to pay the difference between the
selected property's monthly rent and the value of the voucher, which would be
established based on HUD's regulated fair market rent for that geographic area.
Congress has not yet accepted any of these restructuring proposals and
instead has elected to renew expiring Section 8 HAP Contracts for one year
terms, generally at existing rents. While the Partnership does not believe that
the proposed changes would result in a significant number of tenants relocating
from properties owned by the Local Limited Partnerships, there can be no
assurance that the proposed changes would not significantly affect the
operations of the properties of the Local Limited Partnerships. Furthermore,
there can be no assurance that changes in federal subsidies will not be more
restrictive than those currently proposed or that other changes in policy will
not occur. Any such changes could have an adverse effect on the operation of
the Partnership.
Trinity Apartments (Trinity), which is wholly-owned by the
Partnership, is conventionally financed and is a market rate project which
receives no government assistance and must compete directly with other
apartment complexes in its rental market. The local economy and competitive
conditions in the Dallas area, historically, have adversely affected operations
at Trinity Apartments.
The mortgage note payable (the Note) on Trinity was due June 30, 1995.
On March 15, 1996, a modification agreement to the loan agreement was signed
which, among other provisions, extends the due date to March 15, 1999. As a
condition of the modification, a principal payment of $560,000 was made to
reduce the mortgage note payable to $13,140,000. In order to make the required
payment and to pay additional financing fees, the General Partner made a loan
of $667,202 to Trinity.
The General Partner has made substantial loans to for Trinity. During
1996, Trinity made payments to NHP for principal and interest of $5,764 and
$438, respectively. During 1994, Trinity generated surplus cash to pay NHP
$65,625 for administrative fees owed and $38,436 for accrued interest on
partner loans. No payments were made during 1995. Given the competitive nature
of the Dallas market, it is still uncertain as to whether the property will
continue to generate sufficient cash flow to repay the remaining loans and
interest to the General Partner.
On December 1, 1996, a fire occurred at the project site at Royal
Towers Limited Partnership. The fire damages and lost rents are estimated to be
approximately $3,000,000. Management believes that all damages will be
recovered through insurance proceeds less a $2,500 deductible. As of December
31, 1996, an insurance receivable was recorded for $1,880,289 which includes
$1,784,685 for fire loss damages net of the deductible, and $95,604 for loss of
rent for the month of December. Due to the fire, all tenants had to vacate the
property.
Royal Towers Limited Partnership, which is located in Kansas City,
Missouri, has a significant amount of trade payables at December 31, 1996 and
1995. Royal Towers' ability to continue as a going concern is dependent on its
maintaining high occupancy levels and reducing its trade payables. Neither the
General Partner nor the Partnership is
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<PAGE> 7
legally obligated to fund operations, nor does the Partnership have sufficient
reserves to fund operations at Royal Towers. During 1994, Royal Towers sold the
project's parking garage for $6,000 resulting in a net loss on the sale of
$181,213. The loss is included in expenses under loss on sale of parking garage
in the combined statement of operations (see Note 13 to the Local Limited
Partnerships' Combined Financial Statements). HUD approved this partial release
of collateral based on the estimated high cost to repair or demolish the
structure. The parking garage had been closed for public safety since 1992.
Additionally, Royal Towers has entered into a grant agreement with HUD under
the Drug Elimination Grant Program to assist in the elimination of illegal
drugs and the associated crime at the property (see Note 12 to the Local
Limited Partnerships' Combined Financial Statements). The grant agreement is
dated July 7, 1994. During 1995, the Partnership incurred $156,034 of costs
under the Program of which $120,867 have been capitalized in rental property.
Drug Elimination Grant revenue of $156,034 is included in other revenue in 1995
(Note 12 to the Local Limited Partnership Combined Financial Statements).
In 1993, Capital Park Limited Partnership was awarded a Drug
Elimination Grant from HUD in the amount of $175,000. The funds from the grant
are to be used to implement drug-free housing programs such as physical
improvements related to security and to reduce community vulnerability to drugs
and drug activity. The improvements include iron fencing and exterior lighting
along with the installation of surveillance cameras. During 1994, Capital Park
Limited Partnership incurred $174,993 of costs under the program of which $385
are included in operating expenses and $174,608 have been capitalized in rental
property. Drug Elimination Grant revenue of $174,993 is included in other
revenue in 1994 (Note 12 to the Local Limited Partnerships' Combined Financial
Statements).
Except for Trinity, all the properties in which the Partnership has
invested carry deferred acquisition notes due to the original owners of the
properties (as discussed in Note 6 to the Local Limited Partnerships' Combined
Financial Statements). In the event of a default on these notes, the note
holders would assume NHP's and the Partnership's interests in the Local Limited
Partnerships. Due to the rental market conditions where the properties are
located, the General Partner believes the amounts due on the acquisition notes
may exceed the value to be obtained by sale or refinancing opportunities. The
deferred acquisition notes mature in 2001.
The following details the Partnership's ownership percentages of the
Local Limited Partnerships, the cost of acquisition of such ownership and the
cost of Trinity Apartments. All interests in the Local Limited Partnerships are
limited partner interests. Also included is the total mortgage encumbrance and
deferred acquisition notes and accrued interest on each property for each of
the Local Limited Partnerships and Trinity Apartments as of December 31, 1996.
<TABLE>
<CAPTION>
Deferred
NHP Realty Acquisition
Fund IV Cost of Notes
Percentage Ownership Mortgage and Accrued
Partnership Ownership Interest Notes Interest
- ----------- --------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Capital Park L.P. 99% $1,985,450 $3,942,000 $4,932,108
Kennedy Homes L.P. 99% 1,113,509 1,053,682 3,639,122
Loring Towers L.P. 99% 1,476,049 2,610,223 5,191,548
Royal Towers L.P. 99% 1,163,958 2,562,463 4,826,622
Trinity Apartments Wholly-owned 5,971,034 13,140,000 -
</TABLE>
Item 2. Properties
See Item 1 for the real estate owned by the Partnership either
directly or through the ownership of limited partnership interests in Local
Limited Partnerships.
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<PAGE> 8
Item 3. Legal Proceedings
The Partnership is not involved in any material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted.
PART II
Item 5. Market for the Registrant's Partnership Interests and Related
Partnership Matters
(a) Interests in the Partnership were sold through a public
offering managed by Dean Witter Reynolds, Inc. There is no
established market for resale of interests in the Partnership.
Accordingly, an investor may be unable to sell or otherwise
dispose of his or her interest in the Partnership.
(b) As of December 31, 1996, there were 1,289 registered holders
of 15,414 limited partnership interests (in addition to 1133
Fifteenth Street Four Associates - See Item 1).
(c) No cash dividends or distributions have been declared from the
inception of the Partnership to December 31, 1996.
7
<PAGE> 9
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Rental revenues $ 3,338,241 $ 3,221,978 $ 3,162,772 $ 3,090,840 $ 2,878,627
Rental expenses (3,479,816) (3,712,415) (3,281,501) (3,374,984) (3,039,400)
------------ ------------ ---------- ---------- ----------
Loss from rental
operations (141,575) (490,437) (118,729) (284,144) (160,773)
Distributions in excess
of investment in Local
Limited Partnerships
and interest income 69,297 23,963 52,408 45,697 28,465
Loss on reduction in
carrying value of
rental property - - - (4,091,000) -
Loss on investment in
Local Limited
Partnerships - - - (12,400) -
Share of losses from
Local Limited
Partnerships (A) - - - (169,765) (312,348)
Partnership operating
expenses (447,992) (423,453) (368,904) (341,189) (294,832)
------------ ------------ ---------- ---------- ----------
Net loss $ (520,270) $ (889,927) $ (435,225) $(4,852,801) $ (739,488)
============ ============ ========== ========== ==========
Loss per unit of
limited partnership
interest based on
the units outstanding
during the period $ (33) $ (58) $ (28) $ (315) $ (48)
============ ============ ========== ========== ==========
Total long-term
debt - mortgage
notes payable $ 13,140,000 $ 13,700,000 $13,700,000 $13,700,000 $ 13,700,000
============ ============ ========== ========== ==========
Total assets $ 14,448,508 $ 14,496,556 $14,892,187 $15,274,435 $ 19,470,457
============ ============ ========== ========== ==========
Cash distributions
per unit of
limited partnership
interest $ - $ - $ - $ - $ -
============ ============ ========== ========== ==========
</TABLE>
(A) The Partnership holds limited partnership interests in the Local
Limited Partnerships, and since its liability for obligations is
limited to its original investment, its investment account is not
reduced below zero (creating a liability) for the investments in Local
Limited Partnerships. As a result, during 1996, 1995, 1994, 1993 and
1992, $6,379,470, $1,313,743, $1,447,892, $1,242,218 and $1,113,035,
respectively, of losses from four, four, four, three and three,
respectively, Local Limited Partnerships have not been recognized by
the Partnership (see Note 3 to the Partnership's financial
statements).
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<PAGE> 10
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements in certain circumstances. Certain
information included in this Report and other Partnership filings (collectively
"SEC Filings") under the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended (as well as information communicated orally or
in writing between the dates of such SEC Filings) contains or may contain
information that is forward looking, including statements regarding the effect
of government regulations. Actual results may differ materially from those
described in the forward looking statements and will be affected by a variety
of factors including national and local economic conditions, the general level
of interest rates, terms of governmental regulations that affect the
Partnership and interpretations of those regulations, the competitive
environment in which the properties owned by the Local Limited Partnerships
operate, the availability of working capital and dispositions of properties
owned by the Partnership.
Liquidity and Capital Resources
The properties in which the Partnership has invested, through its
investments in the Local Limited Partnerships, receive one or more forms of
assistance from the Federal Government. As a result, the Local Limited
Partnerships' ability to transfer funds either to the Partnership or among
themselves in the form of cash distributions, loans or advances is generally
restricted by terms of these government assistance programs. These restrictions
have had an impact on the Partnership's ability to meet its cash obligations.
Net cash provided by operations for the year ended December 31, 1996,
was $217,420, as compared to cash used in operations of $20,181 in 1995 and
cash provided by operations of $9,936 in 1994. The increase in cash provided by
operations from 1995 to 1996 resulted from an increase in rental collections
and from a real estate tax refund received in 1996, partially offset by an
increase in other operational expenses. The increase in net cash used in
operations from 1994 to 1995 was the net result of decreases in certain
expenses paid, including partnership administrative fees and interest on
partner loans, which were more than offset by increased mortgage interest paid
and a decrease in distributions in excess of investment in Local Limited
Partnerships.
Distributions in excess of investment in Local Limited Partnerships
represent the Partnership's proportionate share of the excess cash available
for distribution from the Local Limited Partnerships. As a result of the use of
the equity method of accounting for the Partnership's investment in Local
Limited Partnerships, investment carrying values for each of the Local Limited
Partnerships has decreased to zero. Cash distributions received are recorded in
revenues as distributions received in excess of investment in Local Limited
Partnerships. Cash distributions totaling $63,756, $20,296 and $45,307 were
received from three, two and two Local Limited Partnerships, respectively,
during the years ended December 31, 1996, 1995 and 1994. The receipt of these
distributions in future years is dependent on the operations of the underlying
properties of the Local Limited Partnerships.
Cash and cash equivalents amounted to $70,382 at December 31, 1996.
The ability of the Partnership to meet its on-going cash requirements, in
excess of cash on hand at December 31, 1996, is dependent on operations of
Trinity Apartments, distributions received from the Local Limited Partnerships,
and proceeds from the sales or refinancing of the underlying Properties. As of
December 31, 1996, the Partnership owes the General Partner $1,106,762 for
administrative and reporting services performed. In addition, at December 31,
1996, the Partnership owed NHP $609,828 for other advances. Additionally, NHP
has made advances totaling $1,302,690 to Trinity Apartments to cover costs
associated with the refinancing of the Partnership's mortgage note payable for
Trinity Apartments and to cover operating deficits for Trinity Apartments. The
payment of the unpaid administrative and reporting fees and advances from the
Partnership and NHP to the Local Limited Partnerships will most likely result
from the sale or refinancing of the underlying Properties of the Local Limited
Partnerships as defined by the Partnership agreement, rather than through
recurring operations. The General Partner will continue to manage the
Partnership's assets prudently in an effort to achieve positive cash flow. NHP
will evaluate lending the Partnership additional funds as such funds are
needed, but is in no way legally obligated to make such loans.
Trinity Apartments, a rental property wholly-owned by the Partnership,
has generated substantial losses from operations which have resulted in the
accumulation of significant accounts payable and accrued expenses at December
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<PAGE> 11
31, 1996 and has also necessitated significant funding from the General Partner
in prior years. The General Partner's intentions are to continue to manage
Trinity prudently so that the property can maintain positive cash flows and pay
its general obligations.
Trinity Apartments' mortgage note, which was originally due June 30,
1995, had interest due and payable at a variable rate equal to 3.10% above the
lender's commercial paper rate. The Note had no amortization of principal
which, coupled with the competitive pay rate in prior years, enabled Trinity to
generate cash flow from operations. During 1994, $65,625 of administrative fees
and $38,436 of accrued interest on advances was paid to NHP from this cash
flow. No similar payments were made in 1996 and 1995.
On March 15, 1996, a modification to the original loan agreement
became effective which extended the due date of Trinity's mortgage note to
March 15, 1999. Under the revised agreement, interest is payable monthly at a
variable rate equal to 3.25% above the lender's commercial paper rate.
Principal is payable quarterly in an amount equal to 100% of Trinity's net cash
flow, as defined in the agreement, with the remaining principal balance due and
payable March 15, 1999.
Except for Trinity, all the properties in which the Partnership has
invested carry deferred acquisition notes due to the original owners of the
properties. In the event of a default on these notes, the noteholders would
assume NHP's and the Partnership's interests in the Local Limited Partnerships.
Due to the rental market conditions where the properties are located, the
General Partner believes the amounts due on the acquisition notes may exceed
the value to be obtained by sale or refinancing opportunities. The deferred
acquisition notes mature in 2001.
Results of Operations
The Partnership has invested as a limited partner in four Local
Limited Partnerships which operate four rental housing properties. In addition,
the Partnership directly owns Trinity Apartments. The Partnership's results of
operations are significantly impacted by the rental operations of Trinity
Apartments. In prior years, results of operations were also affected by the
Partnership's share of losses from the Local Limited Partnerships in which it
has invested to the extent the Partnership still had a carrying basis in a
respective Local Limited Partnership. As of December 31, 1996 and 1995, the
Partnership had no carrying value in any of the Local Limited Partnerships and
therefore, reflected no share of losses from the four Local Limited
Partnerships.
The Partnership's net loss decreased to $520,270 in 1996 from a net
loss of $889,927 in 1995. The net loss per unit of limited partnership interest
decreased to $33 in 1996 from net loss per unit of $58 in 1995 for the 15,414
units outstanding throughout both years. The primary reasons for this decrease
in net loss include an increase in rental income of approximately $147,000, an
increase in distributions in excess of investment in Local Limited Partnerships
of approximately $43,000 and decreases in real estate taxes and mortgage
interest of approximately $214,000 and $76,000, respectively. The decrease in
real estate taxes was the result of a reassessment of Trinity apartments which
resulted in tax refund of approximately $124,000.
The Partnership did not recognize $6,379,470 of its allocated share of
losses from the four Local Limited Partnerships in 1996, as the Partnership's
net book investment in them was reduced to zero (see Note 3 to the
Partnership's financial statements). The Partnership's share of losses from
the Local Limited Partnerships, if not limited to its investment account
balance, would have increased $5,065,727 between years. The increase was
primarily due to impairment losses on rental property of $2,700,000 and
$1,960,000 for Loring Towers and Royal Towers, respectively, taken in 1996, and
from a decrease in rental income and an increase in operating expenses of the
rental properties.
The Partnership's net loss increased to $889,927 in 1995 from a net
loss of $435,225 in 1994. The net loss per unit of limited partnership interest
increased to $58 in 1995 from net loss per unit of $28 in 1994 for the 15,414
units outstanding throughout both years. The primary reasons for this increase
in net loss include a $356,000 increase in
10
<PAGE> 12
interest on mortgage notes payable and a $60,000 increase in interest on
partner loans. The increase in mortgage interest was the result of interest
rate increases which began during 1994 and continued throughout 1995.
The Partnership did not recognize $1,313,743 of its allocated share of
losses from the four Local Limited Partnerships in 1995, as the Partnership's
net book investment in them was reduced to zero (see Note 3 to the
Partnership's financial statements). The Partnership's share of losses from
the Local Limited Partnerships, if not limited to its investment account
balance, would have decreased $134,149 between years. The decrease was
primarily the result of one of the Local Limited Partnerships recording an
approximately $181,000 loss on the sale of a parking garage during 1994, and an
increase in rental income of $10,000 in 1995, partially offset by a $150,000
increase in interest on deferred acquisition notes in 1995.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary schedule of the Partnership
are included on pages 12 through 31 of this report.
11
<PAGE> 13
Independent Auditors' Report
To The Partners of
National Housing Partnership Realty Fund IV
Vienna, VA
We have audited the accompanying statements of financial position of National
Housing Partnership Realty Fund IV (the Partnership) as of December 31, 1996
and 1995, and the related statements of operations, partners' deficit, and cash
flows for each of the three years in the period ended December 31, 1996, and
the financial statement schedule listed in the Index at Item 14. These
financial statements and schedule are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of National Housing Partnership Realty Fund IV
as of December 31, 1996 and 1995, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles. Also, in our opinion,
such financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects,
the information set forth therein.
The accompanying financial statements have been prepared assuming that Trinity
Apartments will continue as a going concern. As discussed in Note 8,
conditions exist which raise substantial doubt about the ability of the project
to continue as a going concern unless it is able to generate sufficient cash
flows to meet its obligations and sustain its operations. Management's plans
in regard to these matters are described in Note 8. The financial statements
do not include any adjustments that might result from the outcome of these
uncertainties.
Deloitte & Touche LLP
Washington, D.C.
March 10, 1997
12
<PAGE> 14
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
A LIMITED PARTNERSHIP
STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
December 31,
----------------------------------
1996 1995
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents (Note 2) $ 70,382 $ 35,568
Accounts receivable 25,148 -
Prepaid insurance, taxes and tenant security deposits 87,420 83,404
Real estate tax escrow 583,265 546,236
Reserve for insurance premiums 70,043 42,583
Investments in and advances to Local Limited Partnerships (Note 3) - -
Land 3,650,000 3,650,000
Building and improvements - less
accumulated depreciation of $4,294,768 and $3,929,088 9,883,988 10,138,765
Deferred finance cost 78,262 -
----------- ----------
$14,448,508 $14,496,556
=========== ==========
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Accounts payable and accrued
expenses from rental operations (Note 4) $ 921,041 $ 950,835
Administrative and reporting fees payable
to General Partner (Note 6) 1,106,762 991,158
Due to General Partner (Note 6) 1,927,518 1,255,901
Accrued interest on partner loans (Note 6) 1,461,334 1,183,574
Other accrued expenses 38,745 41,710
Mortgage note payable (Note 5) 13,140,000 13,700,000
----------- ----------
18,595,400 18,123,178
----------- ----------
Partners' deficit:
General Partner - The National
Housing Partnership (NHP) (171,163) (165,960)
Original Limited Partner - 1133
Fifteenth Street Four Associates (176,063) (170,860)
Other Limited Partners - 15,414 investment units (3,799,666) (3,289,802)
----------- ----------
(4,146,892) (3,626,622)
----------- ----------
$14,448,508 $14,496,556
========== ==========
</TABLE>
See notes to financial statements.
13
<PAGE> 15
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
A LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
RENTAL REVENUES:
Rental of apartments $ 3,250,799 $ 3,104,124 $ 3,029,594
Other rental revenue 87,442 117,854 133,178
------------ ----------- -----------
3,338,241 3,221,978 3,162,772
------------ ----------- -----------
RENTAL EXPENSES:
Interest 1,215,317 1,291,537 935,644
Renting and administrative 137,080 190,602 231,618
Operating and maintenance 563,438 545,230 529,995
Management and other services
from related party (Note 6) 218,751 205,756 199,072
Salaries and related benefits
to related party (Note 6) 290,613 230,283 259,858
Depreciation and amortization 393,736 405,177 359,855
Taxes and insurance 660,881 843,830 765,459
------------ ----------- -----------
3,479,816 3,712,415 3,281,501
------------ ----------- -----------
LOSS FROM RENTAL OPERATIONS (141,575) (490,437) (118,729)
------------ ----------- -----------
COSTS AND EXPENSES:
Interest on partner loans (Note 6) 278,198 250,478 190,594
Administrative and reporting fees
to General Partner (Note 6) 115,604 115,604 115,604
Other operating expenses 54,190 57,371 62,706
------------ ----------- -----------
447,992 423,453 368,904
------------ ----------- -----------
OTHER INCOME:
Interest income 5,541 3,667 7,101
Distributions in excess of
investment in Local Limited Partnerships (Note 3) 63,756 20,296 45,307
------------ ----------- -----------
69,297 23,963 52,408
------------ ----------- -----------
NET LOSS $ (520,270) $ (889,927) $ (435,225)
============ =========== ===========
ALLOCATION OF NET LOSS:
General Partner - NHP $ (5,203) $ (8,899) $ (4,352)
Original Limited Partner - 1133
Fifteenth Street Four Associates (5,203) (8,899) (4,352)
Other Limited Partners - 15,414
investment units (509,864) (872,129) (426,521)
------------ ----------- -----------
$ (520,270) $ (889,927) $ (435,225)
============ =========== ===========
NET LOSS PER LIMITED
PARTNERSHIP INTEREST $ (33) $ (58) $ (28)
============ =========== ===========
</TABLE>
See notes to financial statements.
14
<PAGE> 16
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
A LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' DEFICIT
<TABLE>
<CAPTION>
The 1133
National Fifteenth
Housing Street Other
Partnership Four Limited
(NHP) Associates Partners Total
----- ---------- -------- ---------------
<S> <C> <C> <C> <C>
Deficit at
January 1, 1994 $(152,709) $(157,609) $(1,991,152) $(2,301,470)
Net loss (4,352) (4,352) (426,521) (435,225)
--------- --------- ----------- ----------
Deficit at
December 31, 1994 (157,061) (161,961) (2,417,673) (2,736,695)
Net loss (8,899) (8,899) (872,129) (889,927)
--------- --------- ----------- ----------
Deficit at
December 31, 1995 (165,960) (170,860) (3,289,802) (3,626,622)
Net loss (5,203) (5,203) (509,864) (520,270)
--------- --------- ----------- ----------
Deficit at
December 31, 1996 $(171,163) $(176,063) $(3,799,666) $(4,146,892)
========= ========= =========== ==========
Percentage interest at
December 31, 1994, 1995,
and 1996 1% 1% 98%
-------- -------- ----------
(A) (B) (C)
======== ======== ==========
</TABLE>
(A) General Partner
(B) Original Limited Partner
(C) Consists of 15,414 investment units held by 1,289 investors. Each unit
represents 0.0064% ownership interest.
See notes to financial statements.
15
<PAGE> 17
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
A LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Rent collections $ 3,260,049 $ 3,057,908 $ 2,975,413
Distributions in excess of
investment in Local Limited Partnerships 63,756 20,296 45,307
Interest received 5,541 3,667 7,101
Other income 63,848 110,348 133,178
Payments of taxes and insurance (849,134) (856,288) (775,615)
Payments of other expenses (1,228,882) (1,070,591) (1,383,432)
Payments of annual partnership administration fee - - (65,625)
Payment of interest on partner loans (438) - (38,436)
Mortgage interest paid (1,221,547) (1,285,521) (887,955)
Real estate tax refund received 124,227 - -
----------- ----------- ------------
Net cash provided by (used in)
operating activities 217,420 (20,181) 9,936
----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Equipment purchases (115,916) (116,436) (139,982)
Payment of deferred finance costs (106,318) - -
Deposits to real estate tax escrow (662,109) (587,270) (667,297)
Withdrawals from real estate tax escrow 625,080 670,171 631,503
Deposits to reserve for insurance
premiums (69,354) (33,164) (97,780)
Withdrawals from reserve for
insurance premiums 41,894 69,224 61,801
----------- ----------- ------------
Net cash (used in) provided by investing activities (286,723) 2,525 (211,755)
----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Loans from partner 669,881 38,907 541
Repayment of loans from partner (5,764) - -
Payments of principal on mortgage note (560,000) - -
----------- ----------- ------------
Net cash provided by financing activities 104,117 38,907 541
----------- ----------- ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 34,814 21,251 (201,278)
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR 35,568 14,317 215,595
----------- ----------- ------------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 70,382 $ 35,568 $ 14,317
=========== =========== ============
</TABLE>
See notes to financial statements.
16
<PAGE> 18
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
A LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(Continued)
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
RECONCILIATION OF NET LOSS
TO NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES:
Net loss $(520,270) $(889,927) $(435,225)
Adjustments to reconcile net loss to
net cash provided by (used in) operating activities:
Depreciation 365,680 361,092 313,851
Amortization of deferred finance costs 28,056 44,085 46,004
Increase (decrease) in accrued partnership
administrative fee payable to General Partner 7,500 7,500 (58,125)
Increase in administrative and reporting fee payable
to General Partner 115,604 115,604 115,604
(Increase) decrease in accounts receivable (25,148) - 9,420
(Increase) decrease in prepaid insurance, taxes
and security deposits (4,016) 12,390 (14,129)
(Decrease) increase in accounts payable and
accrued expenses from rental operations (18,551) 68,248 (151,610)
(Decrease) increase in other accrued expenses (2,965) 4,335 6,625
Increase in accrued interest on partner loans 277,760 250,476 152,157
(Decrease) increase in accrued interest on mortgage
note payable (6,230) 6,016 25,364
-------- -------- --------
Total adjustments 737,690 869,746 445,161
-------- -------- --------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $ 217,420 $ (20,181) $ 9,936
======== ======== ========
</TABLE>
See notes to financial statements.
17
<PAGE> 19
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF PARTNERSHIP ORGANIZATION AND SIGNIFICANT ACCOUNTING
POLICIES
Organization
National Housing Partnership Realty Fund IV (the Partnership) is a
limited partnership organized under the Maryland Revised Uniform Limited
Partnership Act on January 8, 1986. The Partnership was formed for the purpose
of raising capital by offering and selling limited partnership interests, and
then using that capital to acquire and operate (either directly or through
investment as a limited partner in Local Limited Partnerships) multi-family
rental apartments, some of which are financed and/or operated with one or more
forms of rental or financial assistance from the U.S. Department of Housing and
Urban Development (HUD). On February 21, 1986, inception of operations, the
Partnership began raising capital and acquiring interests in Local Limited
Partnerships.
The General Partner was authorized to raise capital for the
Partnership by offering and selling to additional limited partners not more
than 35,000 interests at a price of $1,000 per interest. During 1986, 15,414
interests were sold to additional limited partners. The offering was terminated
on October 14, 1986.
During 1986, the Partnership acquired 99% limited partnership
interests in four limited partnerships (Local Limited Partnerships) which were
organized in 1986 to operate existing rental housing projects. In addition,
during 1986, the Partnership directly purchased Trinity Apartments (Trinity), a
conventionally financed rental apartment project.
Significant Accounting Policies
The financial statements of the Partnership are prepared on the
accrual basis of accounting. Public offering costs were recorded as a direct
reduction to the capital accounts of the limited partners. Direct costs of
acquisition, including acquisition fees and reimbursable acquisition expenses
paid to the General Partner, have been capitalized as investments in Trinity or
the Local Limited Partnerships. Other fees and expenditures of the Partnership
are recognized as expenses in the period the related services are performed.
The organization fee was amortized over a period of 60 months on a
straight-line basis. Deferred finance costs are amortized over the appropriate
loan period on a straight-line basis.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Depreciation of the buildings and improvements is computed using the
straight-line method, assuming a 50 year life from the date of initial
occupancy and depreciation of equipment is calculated using accelerated methods
over estimated useful lives of 5 to 27 years.
The Partnership recognizes rental revenue in the month earned in
accordance with signed resident tenant lease agreements.
The financial statements include the accounts of the Partnership and
its wholly-owned subsidiary, Trinity. All significant intercompany transactions
have been eliminated.
18
<PAGE> 20
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
Investments in Local Limited Partnerships are accounted for using the
equity method and thus are carried at cost less the Partnership's share of the
Local Limited Partnerships' losses and distributions (see Note 3). An
investment account is maintained for each of the limited partnership
investments and losses are not taken once an investment account has decreased
to zero. Cash distributions are limited by the Regulatory Agreements between
the Local Limited Partnerships and HUD to the extent of surplus cash as defined
by HUD. Undistributed amounts are cumulative and may be distributed in
subsequent years if future operations provide surplus in excess of current
requirements. Distributions received from Local Limited Partnerships in which
the Partnership's investment account has decreased to zero are recorded as
revenue in the year received.
For purposes of the Statements of Cash Flows, the Partnership
considers all highly liquid debt instruments purchased with initial maturities
of three months or less to be cash equivalents.
2. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1996 1995
---- ----
<S> <C> <C>
Cash in demand accounts $ 1,580 $ 56
Money market account 68,802 35,512
------ ------
$70,382 $35,568
====== ======
</TABLE>
3. INVESTMENTS IN AND ADVANCES TO LOCAL LIMITED PARTNERSHIPS
The Partnership owns a 99% limited partnership interest in Loring
Towers Apartments Limited Partnership, Kennedy Homes Limited Partnership,
Capital Park Limited Partnership, and Royal Towers Limited Partnership. These
investments are accounted for using the equity method because, as a limited
partner, the liability of the Partnership is limited to its investment in the
Local Limited Partnerships. As a limited partner, the Partnership does not
exercise control over the activities of the Local Limited Partnerships in
accordance with the partnership agreements. Thus, the investments are carried
at cost less the Partnership's share of the Local Limited Partnerships' losses
and distributions. However, since the Partnership is neither legally liable for
the obligations of the Local Limited Partnerships, nor otherwise committed to
provide additional support to them, it does not recognize losses once its
investment in each of the individual Local Limited Partnerships, reduced for
its share of losses and cash distributions, reaches zero. As a result, during
1996, 1995 and 1994, the Partnership did not recognize $6,379,470, $1,313,743
and $1,447,892 of its allocated share of losses from four Local Limited
Partnerships, respectively. As of December 31, 1996, 1995 and 1994, the
Partnership had not recognized $12,630,384, $6,250,914 and $4,937,171 of its
cumulative allocated share of losses from four of the Local Limited
Partnerships, respectively.
During 1996, one Local Limited Partnership repaid $200 and $107
principal and accrued interest to the Partnership. No working capital advances
or recoveries occurred between the Partnership and the Local Limited
Partnerships during 1995 or 1994. As of December 31, 1996, $12,200 was owed by
two Local Limited Partnerships to the Partnership. During 1993, the Partnership
re-evaluated the timing of the collectibility of these advances and determined,
based on the Local Limited Partnerships' operations, that such advances were
not likely to be collected;
19
<PAGE> 21
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
therefore, the Partnership treated the advance balance as additional
investments. Due to the cumulative losses incurred but not recognized on the
investments, the balance was then reduced to zero, with the corresponding
charge to operations, shown as "Share of Losses in Local Limited Partnerships"
in the Statement of Operations. To the extent these advances are repaid by the
Local Limited Partnerships in the future, operations will be credited upon
repayment.
Summaries of the combined financial position of the aforementioned
Local Limited Partnerships as of December 31, 1996 and 1995 and the combined
results of operations for the years ended December 31, 1996, 1995, and 1994 are
as follows:
COMBINED FINANCIAL POSITION
OF THE LOCAL LIMITED PARTNERSHIPS
<TABLE>
<CAPTION>
December 31,
------------------------------------------
1996 1995
---- ----
<S> <C> <C>
Assets:
Land $ 756,247 $ 756,247
Building and improvements, net of accumulated depreciation
of $7,588,641 and $6,683,888 and impairment losses of
$4,660,000 in 1996 14,133,713 19,502,717
Other assets 3,702,785 1,864,271
----------- ----------
$ 18,592,745 $22,123,235
=========== ==========
Liabilities and Partners' Deficit:
Liabilities:
Mortgage notes payable $ 10,168,368 $10,513,680
Deferred acquisition notes payable 7,174,900 7,174,900
Other liabilities 14,281,638 10,958,506
----------- ----------
31,624,906 28,647,086
Partners' Deficit:
National Housing Partnership Realty Fund IV (12,840,717) (6,397,490)
The National Housing Partnership (191,444) (126,361)
----------- ----------
$ 18,592,745 $22,123,235
=========== ==========
</TABLE>
20
<PAGE> 22
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
COMBINED RESULTS OF OPERATIONS
OF THE LOCAL LIMITED PARTNERSHIPS
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenue $ 4,787,017 $ 4,978,626 $ 4,877,422
---------- ---------- ----------
Expenses:
Operating expenses 3,912,107 3,779,189 3,793,101
Financial expenses - primarily interest 167,128 188,182 211,497
Interest on acquisition notes 1,566,533 1,450,521 1,304,903
Depreciation 925,158 887,747 849,225
Impairment losses on rental
property 4,660,000 - -
Loss on sale of parking garage - - 181,213
---------- ---------- ----------
11,230,926 6,305,639 6,339,939
---------- ---------- ----------
Net loss $(6,443,909) $(1,327,013) $(1,462,517)
========== ========== ==========
</TABLE>
The combined financial statements of the Local Limited Partnerships
are prepared on the accrual basis of accounting. Each Local Limited Partnership
was formed during 1986 for the purpose of acquiring and operating a rental
housing project originally organized under Section 236 or Section 221(d)(3) of
The National Housing Act. All four projects receive rental assistance from HUD.
The following table indicates the year within the Section 8 rent
subsidy contracts expire:
<TABLE>
<CAPTION>
Subsidized Units Subsidized Units
Expiring as a Expiring as a
Number Percentage of Total Percentage of
of Units Subsidized Units Total Units
-------- ---------------------- ----------------------
<S> <C> <C> <C>
1997 360 40% 39%
1998 259 29% 28%
2006 and thereafter 277 31% 30%
--- ---- --
Total 896 100% 97%
=== === ==
</TABLE>
Of the contracts above expiring during 1997, contracts for 237 units
expire prior to September 30, 1997. Congress has passed legislation which will
provide a one-year renewal contract to replace those contracts.
The contract covering the remaining 123 units expires in October,
1997. It is uncertain whether this agreement will be renewed, as well as the
remaining contracts expiring after 1997, and if so, on what terms.
21
<PAGE> 23
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
For the past several years, various proposals have been advanced by
HUD, the Congress and others proposing the restructuring of the Section 8.
These proposals generally seek to lower subsidized rents to market levels and
to lower required debt service costs as needed to ensure financial viability at
the reduced rents, but vary greatly as to how that result is to be achieved.
Some proposals include a phase-out of project-based subsidies on a
property-by-property basis upon expiration of a property's HAP Contract, with a
conversion to a tenant-based subsidy. Under a tenant-based system, rent
vouchers would be issued to qualified tenants who then could elect to reside at
a property of their choice, provided the tenant has the financial ability to
pay the difference between the selected property's monthly rent and the value
of the voucher, which would be established based on HUD's regulated fair market
rent for that geographic area.
Congress has not yet accepted any of these restructuring proposals and
instead has elected to renew expiring Section 8 HAP Contracts for one year
terms, generally at existing rents. While the Partnership does not believe that
the proposed changes would result in a significant number of tenants relocating
from properties owned by the Local Limited Partnerships, there can be no
assurance that the proposed changes would not significantly affect the
operations of the properties of the Local Limited Partnerships. Furthermore,
there can be no assurance that changes in federal subsidies will not be more
restrictive than those currently proposed or that other changes in policy will
not occur. Any such changes could have an adverse effect on the operation of
the Partnership.
Depreciation of the buildings and improvements is computed using the
straight-line method, assuming a 50-year life from the date of initial
occupancy and depreciation of equipment is calculated using accelerated methods
over estimated useful lives ranging from 5 to 27 years.
The mortgage notes payable are insured by the Federal Housing
Administration (FHA) and secured by first deeds of trust on the rental
properties. The notes bear interest at rates ranging from 6% to 8.5% per annum.
For the three rental housing projects insured under Section 236, FHA makes
subsidy payments directly to the mortgage lenders reducing the monthly
principal and interest payments of the project owner to an effective interest
rate of 1% over the 40-year term of the notes. The liability of the Local
Limited Partnerships under the mortgage notes is limited to the underlying
value of the real estate collateral plus other amounts deposited with the
lenders.
Deferred acquisition notes of $7,174,900 bear interest at the rate of
9% per annum, compounded semi-annually. These notes are nonrecourse and are
secured by security interests in all partnership interests of the Local Limited
Partnerships. Neither principal nor interest is payable currently; all
principal and accrued interest are payable upon the earlier of the sale,
transfer, or refinancing of the projects or 2001. The notes may be prepaid in
whole or in part at any time without penalty.
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 "Accounting For The
Impairment Of Long-Lived Assets And For Long-Lived Assets To Be Disposed Of"
(the "Statement") effective for financial statements for fiscal years beginning
after December 15, 1995. Adoption of this Statement during the year ended
December 31, 1996 required an impairment loss to be recognized if the sum of
estimated future cash flows (undiscounted and without interest charges) is less
than the carrying amount of rental property. The impairment loss would be the
amount by which the carrying value exceeds the fair value of the rental
property. If the rental property is to be disposed of, fair value is calculated
net of costs to sell.
Two Local Limited Partnerships recognized impairment losses on their
rental properties in the amount of $2,700,000 and $1,960,000. Because the Local
Limited Partnerships' deferred acquisition notes are due March 27,
22
<PAGE> 24
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
2001, the Local Limited Partnerships' estimated net cash flow only for the
period January 1, 1997 to March 27, 2001. As a result of this limited holding
period, the estimated net cash flow is less than the carrying amount at
December 31, 1996. The Local Limited Partnership used the Direct Capitalization
Method to estimate the fair value of the rental property. Using this Method,
estimated annual cash flow generated by the property is divided by an overall
capitalization rate to estimate the rental property's fair value. The
impairment losses had no impact on the Partnership's operations, since the
Partnership's investments in the Local Limited Partnerships had been reduced to
zero in a prior year.
Additionally, regardless of whether the impairment loss of an
individual property has been recorded or not, the carrying value of each of the
rental properties may still exceed their fair market value as of December 31,
1996. Should a Local Limited Partnership be forced to dispose of any if its
properties, it could incur a loss.
On December 1, 1996, a fire occurred at the project site of one Local
Limited Partnership, Royal Towers. The damages and lost rents as a result of
the fire are estimated to be approximately $3,000,000. Management believes that
all damages will be recovered through insurance proceeds less a $2,500
deductible. As of December 31, 1996, an insurance receivable was recorded for
$1,880,289 which includes $1,784,685 for fire loss damages net of the
deductible, and $95,604 for loss of rent for the month of December. Due to the
fire, all tenants had to vacate the property. Therefore, there were no rental
receipts including subsidy payments for the month of December.
One of the Local Limited Partnerships, Royal Towers has a significant
amount of payables and only limited resources to pay such items which raises
substantial doubt about its ability to continue as a going concern.
4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES FROM RENTAL OPERATIONS
Accounts payable and accrued expenses from rental operations consist
of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------------
1996 1995
---- ----
<S> <C> <C>
Trade payables $111,892 $136,595
Accrued interest on mortgage notes 99,119 105,349
Accrued real estate taxes 608,302 622,953
Tenant security deposits 77,589 72,724
Due to management agent (Note 6) 14,274 13,214
Rent received in advance 9,865 -
------- -------
$921,041 $950,835
======= =======
</TABLE>
5. MORTGAGE NOTE PAYABLE
From July 2, 1990, Trinity has operated under a mortgage loan provided
by General Electric Capital Corporation ("GECC") in the amount of $13,700,000.
The mortgage note payable is secured by an assignment of leases, and by a deed
of trust on the rental property. The loan had a term of five years during which
no principal payments were required. The loan matured on June 30, 1995, at
which date the entire principal and accrued interest was due and payable. The
mortgage was in default from that time until March 15, 1996.
23
<PAGE> 25
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
A modification agreement was executed on March 15, 1996, curing the
default by extending the maturity date of the loan to March 15, 1999. As a
condition of the modification, the Partnership paid principal of $560,000. This
reduced the mortgage note payable to $13,140,000, which is the outstanding
balance at December 31, 1996.
Interest only, at the Contract Index Rate, on the mortgage is payable
monthly beginning April 1, 1996 through March 1, 1999. In addition, beginning
April 1, 1996 and continuing each July, October, December and April,
installments of principal in the amount equal to 100% of the net cash flow (as
defined) is due and payable. On March 15, 1999, the entire unpaid principal and
interest is due and payable. The Contract Index Rate is equal to 3.25% per
annum in excess of the GECC Composite Commercial Paper Rate. At December 31,
1996, the Contract Index Rate was 8.78%.
GECC is also entitled to 50% of net sale or refinancing proceeds or, to
the extent Trinity is not sold or refinanced by the maturity date, 50% of the
appraised net fair market value of Trinity. In addition, if Trinity is
refinanced, GECC is entitled to 50% of the fair market value of Trinity above
the amount of refinanced debt and can elect to have such amount calculated and
paid either at the time of refinancing or upon what would have been the
maturity date of the loan had Trinity not refinanced (March 15, 1996). GECC's
rights, should it elect to defer its participation to the maturity date, will
be secured by a second lien against Trinity.
Under the agreement with the mortgage lender, Trinity is required to
make monthly escrow deposits for taxes. Although not required, the project
maintains a segregated account to which it makes monthly deposits for hazard
and liability insurance.
As additional security for all obligations arising under the loan, a
$200,000 deposit in a non-interest bearing escrow has been made by NHP and is
being held by GECC.
The liability of the Owner under the mortgage note is limited to the
underlying value of the real estate collateral plus other amounts deposited
with the lender.
6. TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES OF THE GENERAL
PARTNER
The General Partner of the Partnership is The National Housing
Partnership (NHP). National Corporation for Housing Partnerships (NCHP) is the
sole general partner of NHP, while NHP Partners Two Limited Partnership is the
sole limited partner. The Original Limited Partner of the Partnership is 1133
Fifteenth Street Four Associates, whose limited partners are individuals who
were key employees of NCHP at the time the Partnership was formed and whose
general partner is NHP.
The Partnership accrued administrative and reporting fees payable to
the General Partner of $115,604 in 1996, 1995 and 1994. The balance owed to
NHP at December 31, 1996 and 1995 was $1,106,762 and $991,158, respectively. No
payments were made during 1996, 1995 or 1994.
During 1996, 1995 and 1994, NHP made working capital advances of
$669,881, $38,907 and $541, respectively, to the Partnership. During 1996, the
Partnership repaid advances of $5,764 to NHP. No repayments of working capital
advances were made in 1995 or 1994. The balance owed to NHP at December 31,
1996 and 1995 was $1,912,518 and $1,248,401, respectively. Interest is charged
at the Chase Manhattan Bank rate of prime plus 2%. During 1996, 1995 and 1994,
interest accrued was $278,198, $250,478 and $190,594, respectively. During 1996
and
24
<PAGE> 26
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
1994, interest of $438 and $38,436 was repaid to NHP. The interest balance owed
to NHP at December 31, 1996 and 1995 was $1,461,334 and $1,183,574,
respectively. Additionally, Annual Partnership Administrative Fees of $7,500
were accrued by Trinity Apartments during 1996, 1995 and 1994, respectively.
These fees are payable to NHP without interest from cash available for
distribution to partners. During 1994, $65,625 was paid to NHP for these fees.
As of December 31, 1996 and 1995, $15,000 and $7,500, respectively, was owed to
NHP for these fees.
An affiliate of the general partner, NHP Management Company (NHPMC), is
the project management agent for Trinity Apartments and each of the properties
operated by the Local Limited Partnerships in which the Partnership has
invested, except for Royal Towers, that changed management agents on November
1, 1996. NHPMC and other affiliates of NCHP earned $736,326, $707,401 and
$629,187 in 1996, 1995 and 1994, respectively, for management fees and other
services provided to Trinity Apartments and the Local Limited Partnerships. The
management agreements with NHPMC extend, subject to certain conditions, to the
year 2020. In 1996, NHP Incorporated, owner of 100% of NHPMC, paid an
affiliate of NHP, $400,321 to secure the rights to manage Trinity for the three
years ending March 31, 1999. At December 31, 1996 and 1995, trade payables
included $164,908 and $196,022 due to NHPMC and unpaid by Trinity Apartments
and the Local Limited Partnerships.
Prior to 1996, personnel working at Trinity Apartments and the other
property sites were NCHP employees and, therefore, Trinity and the properties
reimbursed NCHP for the actual salaries and related benefits. Beginning January
1, 1996, project employees became employees of NHP Incorporated. Total
reimbursement for salaries and benefits earned for the years ended December 31,
1996, 1995 and 1994 were approximately $1,004,000, $872,300 and $872,900,
respectively.
7. INCOME TAXES
The Partnership is not taxed on its income. The partners are taxed in
their individual capacities upon their distributive share of the Partnership's
taxable income and are allowed the benefits to be derived from off-setting
their distributive share of the tax losses against taxable income from other
sources subject to application of passive loss rules. The taxable income or
loss differs from amounts included in the statement of operations because of
different methods used in computing depreciation and determining the losses of
the Local Limited Partnerships. The tax loss is allocated to the partner groups
in accordance with Section 704(b) of the Internal Revenue Code and therefore is
not necessarily proportionate to the interest percentage owned.
For Federal income tax purposes, both the Partnership and the four
Local Limited Partnerships compute depreciation of the buildings and
improvements using the Accelerated Cost Recovery System (ACRS) and the Modified
Accelerated Cost Recovery System (MACRS), while for financial statement
purposes, depreciation is computed using the straight-line method, assuming a
50-year life from the date of initial occupancy. Rent received in advance is
included as income in determining the taxable income or loss for Federal income
tax purposes, while for financial statement purposes, it is shown as a
liability. Other differences result from the allocation of tax losses in
accordance with Section 704(b) of the Internal Revenue Code.
25
<PAGE> 27
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
A reconciliation follows:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net loss per financial statements $ (520,270) $ (889,927) $ (435,225)
Timing difference - depreciation (402,653) (402,215) (464,383)
Timing differences in determining
losses of Local Limited Partnerships:
Depreciation (327,580) (353,959) (377,724)
Interest on partner loans 16,793 2,580 152,157
Impairment losses on rental property 4,613,400 - -
Losses taken in excess of financial
statement investment account (6,358,746) (1,255,387) (1,514,374)
Other 217,384 104,556 (84,775)
---------- ---------- ----------
Loss per tax return $(2,761,672) $(2,794,352) $(2,724,324)
========== ========== ==========
</TABLE>
As discussed in Note 3, one of the Local Limited Partnerships in which
the Partnership has invested may not be able to continue as a going concern.
Should a Local Limited Partnership not continue as a going concern or the
Partnership itself not continue as a going concern (see Note 8), there could be
adverse tax consequences to the partners in the Partnership. The impact of the
tax consequences is dependent upon each partner's individual tax situation.
8. GOING CONCERN CONSIDERATIONS
Trinity Apartments, a rental property wholly-owned by the Partnership,
has generated substantial losses from operations which have resulted in the
accumulation of significant accounts payable and accrued expenses at December
31, 1996 and has also necessitated significant funding from the General Partner
in prior years. The General Partner's intentions are to continue to manage
Trinity prudently so that the property can maintain positive cash flows and pay
its general obligations.
9. ALLOCATION OF RESULTS OF OPERATIONS, CASH DISTRIBUTIONS AND GAINS AND
LOSSES FROM SALE OR REFINANCING
Cash received from sales or refinancing of any underlying property of
the Local Limited Partnerships, after payment of the applicable mortgage debt
and the payment of all expenses related to the transaction, is to be
distributed in the following manner:
First, to the General Partner for any unrepaid loans to the
Partnership or a Local Limited Partnership (other than operating
guarantee loans) and any unpaid fees (other than disposition and
refinancing fees);
26
<PAGE> 28
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
Second, to the General Partner to repay any unrepaid operating
guarantee loans made to the Property sold or refinanced;
Third, to the Limited Partners until the Limited Partners have
received a return of their capital contribution to the Partnership
allocable to the Property sold or refinanced after deduction for prior
cash distributions from sales or refinancing, but without deduction
for prior cash distribution from operations;
Fourth, to the General Partner to repay any unrepaid operating
guarantee loans made to Properties other than the Property sold or
refinanced;
Fifth, to the Limited Partners until the Limited Partners have
received a return of the unrecovered amount of their capital
contributions, after deduction for prior cash distributions from sales
or refinancings, but without deduction for prior cash distributions
from operations;
Sixth, to the Limited Partners, until each Limited Partner has
received an amount equal to a cumulative noncompounded 9% annual
return on its capital contribution, after deduction of (a) an amount
equal to 35% of the tax losses allocated to the Limited Partner and
(b) prior cash distributions from operations;
Seventh, to the General Partner until the General Partner has received
a return of its capital contributions, after deduction for prior cash
distributions from sales or refinancing, but without deduction for
prior cash distributions from operations;
Eighth, to the General Partner for disposition and refinancing fees,
including prior disposition and refinancing fees which have been
accrued but are unpaid;
Ninth, to the partners with positive capital accounts to bring such
accounts to zero; and
Finally, 85% of the remaining sales proceeds to the Limited Partners
and 15% to the General Partner.
Net income or loss from operations is allocated 98% to the Limited
Partners, 1% to the General Partner and 1% to the Original Limited Partner.
Cash distributions from operations, after payment of certain obligations
including reimbursement on a cumulative basis of direct expenses incurred by
the General Partner or its affiliate in managing the properties and payment of
annual cumulative administrative and reporting fees, is distributed 98% to the
Limited Partners, 1% to the General Partner and 1% to the Original Limited
Partner.
Gain for federal income tax purposes realized in the event of
dissolution of the Partnership or upon sale of interests in a Local Limited
Partnership or underlying property will be allocated in the following manner:
First, to the Limited Partners in an amount up to the negative
balances of the capital accounts of Limited Partners in the same
proportion as each Limited Partner's negative capital account bears to
such aggregate negative capital accounts;
Second, to the General Partner in an amount up to the General
Partner's negative capital account, if any;
27
<PAGE> 29
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
Third, to the Limited Partners up to the aggregate amount of capital
contributions of the Limited Partners, after deduction for prior cash
distributions from sales or refinancing, but without deduction for
prior cash distributions from operations, in the same proportion that
such Limited Partner's capital contribution bears to the aggregate of
all Limited Partners' capital contributions;
Fourth, to the Limited Partners, until each Limited Partner has been
allocated in such an amount equal to a cumulative noncompounded 9%
annual return on their capital contribution, after deduction of (a) an
amount equal to 35% of the tax losses allocated to the Limited Partner
and (b) prior cash distributions from operations;
Fifth, to the General Partner up to the aggregate amount of capital
contributions made by the General Partner, after deduction for prior
cash distributions from sales or refinancing, but without deduction
for prior cash distributions from operations and
Finally, 85% of the remaining gain to the Limited Partners and 15% to
the General Partner.
Losses for federal income tax purposes realized in the event of
dissolution of the Partnership or upon sale of interests in a Local Limited
Partnership or underlying property will be allocated 85% to the Limited
Partners and 15% to the General Partner.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
FASB Statement No. 107, "Disclosures About Fair Value of Financial
Instruments," requires disclosure of fair value information about significant
financial instruments, when it is practicable to estimate that value and
excessive costs would not be incurred. To estimate the fair value of the
balances due to the General Partner and accrued interest thereon, excessive
costs would be incurred and, therefore, no estimate has been made. The
Partnership believes that the carrying value of other assets and liabilities
reported on the statement of financial position that require such disclosure
approximates fair value.
11. NONCASH INVESTING ACTIVITY
During 1996 and 1995, the Partnership incurred costs of $4,284 and
$9,297, respectively, for additions to building and equipment which are
included in accounts payable as of December 31, 1996 and 1995, respectively.
28
<PAGE> 30
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
A LIMITED PARTNERSHIP
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION OF
LOCAL LIMITED PARTNERSHIPS IN WHICH NHP REALTY
FUND IV HAS INVESTED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Initial Cost Capitalized
Cost to Local Subsequent
Limited Partnership to Acquisition
--------------------------------------- --------------------------------------
Buildings Carrying
and Cost
Partnership Name Encumbrances Land Improvements Improvements Adjustments
- --------------------------- -------------- ------------------ -------------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C>
Capital Park
Limited Partnership (1) $ 110,000 $ 7,634,451 $ 1,824,521 $ -
Kennedy Homes
Limited Partnership (1) 150,000 3,130,682 1,050,356 -
Loring Towers
Limited Partnership (1) 290,000 5,875,841 535,397 (2,700,000)
Royal Towers
Limited Partnership (1) 360,000 5,453,177 877,929 (2,113,753)
Trinity Apartments
(wholly-owned) (1) 3,650,000 18,809,468 (539,712) (4,091,000)
--------------- ------------------ ---------------- -----------------
Total, December 31, 1996 $ 4,560,000 $ 40,903,619 $ 3,748,491 $ (8,904,753)
=============== ================== ================ =================
<CAPTION>
Gross Amount at which Carried
at Close of Period
--------------------------------------------------------------
Buildings Accumulated
and Total Depreciation
Partnership Name Land Improvements (2) (3) (3)
- --------------------------- ----------------- ------------------ ------------------- -------------------
<S> <C> <C> <C> <C>
Capital Park
Limited Partnership $ 110,000 $ 9,458,972 $ 9,568,972 $ 2,597,981
Kennedy Homes
Limited Partnership 150,000 4,181,038 4,331,038 1,340,941
Loring Towers
Limited Partnership 290,000 3,711,238 4,001,238 1,830,078
Royal Towers
Limited Partnership 206,247 4,371,106 4,577,353 1,819,641
Trinity Apartments
(wholly-owned) 3,650,000 14,178,756 17,828,756 4,294,768
-------------- ----------------- ------------------- ------------------
Total, December 31, 1996 $ 4,406,247 $ 35,901,110 $ 40,307,357 $ 11,883,409
============== ================= =================== ==================
<CAPTION>
Life upon which
depreciation in
latest statement of
Date of Date operations is
Partnership Name Construction Acquired computed (years)
- --------------------------- ------------------ -------------- ----------------------
<S> <C> <C> <C>
Capital Park
Limited Partnership 1969 3/86 5-50
Kennedy Homes
Limited Partnership 1968 3/86 5-50
Loring Towers
Limited Partnership 1970 3/86 5-50
Royal Towers
Limited Partnership 1973 4/86 5-50
Trinity Apartments
(wholly-owned) 1985 4/86 5-50
Total, December 31, 1996
</TABLE>
See notes to Schedule XI.
29
<PAGE> 31
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
A LIMITED PARTNERSHIP
NOTES TO SCHEDULE XI - REAL ESTATE AND
ACCUMULATED DEPRECIATION OF PARTNERSHIP AND LOCAL LIMITED
PARTNERSHIPS IN WHICH NHP REALTY FUND IV HAS INVESTED
DECEMBER 31, 1996
(1) Schedule of Encumbrances
<TABLE>
<CAPTION>
Deferred
Acquisition
Notes and
Mortgage Accrued
Partnership Name Notes Interest Total
---------------- --------------- ------------------ -----------------
<S> <C> <C> <C>
Capital Park
Limited Partnership $ 3,942,000 $ 4,932,108 $ 8,874,108
Kennedy Homes
Limited Partnership 1,053,682 3,639,122 4,692,804
Loring Towers Apartments
Limited Partnership 2,610,223 5,191,548 7,801,771
Royal Towers
Limited Partnership 2,562,463 4,826,622 7,389,085
Trinity Apartments
(wholly-owned) 13,140,000 - 13,140,000
---------- ---------- ----------
TOTAL $23,308,368 $18,589,400 $41,897,768
========== ========== ==========
</TABLE>
(2) The aggregate cost of land for Federal income tax purposes is
$4,560,000 and the aggregate costs of buildings and improvements for
Federal income tax purposes is $42,259,287. The total of the
above-mentioned items is $46,819,287.
See notes to combined financial statements.
30
<PAGE> 32
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
A LIMITED PARTNERSHIP
NOTES TO SCHEDULE XI - REAL ESTATE AND
ACCUMULATED DEPRECIATION OF PARTNERSHIP AND LOCAL LIMITED
PARTNERSHIPS IN WHICH NHP REALTY FUND IV HAS INVESTED
DECEMBER 31, 1996
(Continued)
(3) Reconciliation of real estate
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of period $44,660,705 $44,152,250 $43,798,940
Improvements during the period 306,652 508,455 507,063
Loss on reduction of carrying value (4,660,000) - -
Reduction of land and building from sale
of parking garage - - (153,753)
---------- ---------- ----------
Balance at end of period $40,307,357 $44,660,705 $44,152,250
========== ========== ==========
</TABLE>
Reconciliation of accumulated depreciation
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of period $10,612,976 $ 9,364,137 $ 8,207,750
Depreciation expense for the period 1,270,433 1,248,839 1,156,387
----------- ----------- -----------
Balance at end of period $11,883,409 $10,612,976 $ 9,364,137
========== ========== ===========
</TABLE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
31
<PAGE> 33
PART III
Item 10. Directors and Executive Officers of the Registrant
(a), (b) and (c). The Partnership has no directors, executive officers
or significant employees of its own.
(a), (b), (c), (e) and (f). The names, ages, business experience and
involvement in legal proceedings of the directors and executive
officers of National Corporation for Housing Partnerships (NCHP), the
sole general partner of The National Housing Partnership, the sole
general partner of the Partnership, and certain of its affiliates, are
as follows:
Directors of NCHP
Seven individuals comprise the Board of Directors of NCHP. Three
directors were appointed by the President of the United States, by and with the
advice and consent of the Senate.
J. Roderick Heller, III (age 59) was elected President, Chief Operating
Officer and a Director of NCHP in 1985, Chief Executive Officer of NCHP in
1986, and Chairman in 1988. He currently serves as Chairman, President and
Chief Executive Officer of NCHP and its affiliate NHP Incorporated. From 1982
until 1985, Mr. Heller served as President and Chief Executive Officer of
Bristol Compressors, Inc., a Bristol, Virginia-based company involved in the
manufacturing of air conditioning compressors. From 1971 until 1982, he was a
partner in the Washington, D.C. law firm of Wilmer, Cutler & Pickering. Mr.
Heller was elected Chairman of the Board of public television station WETA in
Washington, D.C., and is a director of Auto-Trol Technology Corporation. Mr.
Heller completed his term as a director of a number of nonprofit organizations,
including the National Trust for Historic Preservation in 1996 after nine years
of service and was Chairman of the Board of The Civil War Trust from 1991 to
March 1997.
Susan R. Baron (age 45) is an attorney specializing in conventional
and government-assisted real estate development and finance in the residential
and commercial markets. From 1978 to 1993 she was with the Washington, D.C. law
firm of Dunnells, Duvall & Porter. Ms. Baron serves on the of Seeds of Peace
Advisory Board and is a past president of the National Leased Housing
Association. She was appointed to the Board of Directors by the President of
the United States in September 1994 to complete a term expiring in October 1994
and continues to serve until the appointment of a successor.
Danny K. Davis (age 55) has been a Commissioner on the Cook County
Board of Commissioners since November 1990. Prior to his service on the Cook
County Board, he served as an Alderman on the Chicago City Council for 11
years. Mr. Davis is also a member of numerous civic and professional
organizations. He was appointed to the Board of Directors by the President of
the United States in September 1994 and continues to serve until the
appointment of a successor.
Alan A. Diamonstein (age 65) has been a member of the Virginia House
of Delegates since 1967, currently serving as Chairman of the General Laws
Committee and a member of the standing committees on Appropriations, Education
and Rules. He is chairman of the Virginia Housing Study Commission and is a
member of the Peninsula Board of Advisors for Signet Bank, the
Jamestown-Yorktown Board of Trustees, as well as a number of educational and
civic organizations. Mr. Diamonstein is the senior partner in the law firm of
Diamonstein, Becker and Staley. He was appointed to the Board of Directors by
the President of the United States in October 1994 and continues to serve until
the appointment of a successor.
Michael R. Eisenson (age 41) is the President and Chief Executive Officer
of Harvard Private Capital Group, Inc. ("Harvard Capital"), which manages the
direct investment and private equities portfolio of the Harvard University
endowment fund. Harvard Capital is the investment advisor for Demeter. Mr.
Eisenson joined Harvard
32
<PAGE> 34
Capital in 1986. Mr. Eisenson is a director of ImmunoGen, Inc., Harken Energy
Corporation, and Somatix Therapy Corporation. Under a Shareholders Agreement
between NHP Incorporated, Demeter Holdings Corporation and Capricorn Investors,
L.P. (see Item 1 above), Demeter is entitled to elect two members of the NCHP
Board of Directors. Pursuant to this agreement, Mr. Eisenson was re-elected to
the Board of Directors in 1992 and continues to serve.
Tim R. Palmer (age 39) joined Harvard Capital in 1990 and is currently
Managing Director. From 1987 to 1990, Mr. Palmer was Manager, Business
Development, at The Field Corporation, a private investment firm. Mr. Palmer is
a director of PriCellular Corporation. Under a Shareholders Agreement between
NHP Incorporated, Demeter Holdings Corporation and Capricorn Investors, L.P.
(see Item 1 above), Demeter is entitled to elect two members of the NCHP Board
of Directors. Pursuant to this agreement, Mr. Palmer was re-elected to the
Board of Directors in 1994 and continues to serve.
Herbert S. Winokur, Jr. (age 53) has served as the President of
Winokur & Associates, Inc., an investment and management services firm, and
Winokur Holdings, Inc., which is the managing general partner of Capricorn, a
private investment partnership, since 1987. Mr. Winokur is the past Chairman of
DynCorp and serves as a director of Enron Corporation and NacRe Corporation.
Under a Shareholders Agreement between NHP Incorporated, Demeter Holdings
Corporation and Capricorn Investors, L.P. (see Item 1 above), Capricorn is
entitled to elect one member of the NCHP Board of Directors. Pursuant to this
agreement, Mr. Winokur was re-elected to the Board of Directors in 1992 and
continues to serve.
EXECUTIVE OFFICERS
The current executive officers of NCHP and a description of their
principal occupations in recent years are listed below.
J. Roderick Heller, III (age 59). See "Directors of NCHP."
Ann Torre Grant (age 39) has served as Executive Vice President, Chief
Financial Officer and Treasurer of NCHP since February 1995. She was Vice
President and Treasurer of USAir, Inc. and USAir Group, Inc. from 1991 through
January 1995, and held other finance positions at the airline between 1988 and
1991. From 1983 to 1988, she held various finance positions with American
Airlines, Inc. Ms. Grant serves as a director of the Franklin Mutual Series
Funds.
Joel F. Bonder (age 48) has served as Senior Vice President and General
Counsel of NCHP since April 1994. Mr. Bonder also served as Vice President and
Deputy General Counsel from June 1991 to March 1994, as Associate General
Counsel from 1986 to 1991, and as Assistant General Counsel from 1985 to 1986.
From 1983 to 1985, he was with the Washington, D.C. law firm of Lane & Edson,
P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law firm of Ross
and Hardies.
Eric N. Ross (age 35) has served as Vice President, Asset Management of
NCHP since May 1996. He is responsible for delivery of asset management
services to NCHP's affiliated ownership organization and to other multifamily
owners. Previously, Mr. Ross served as Vice President, Finance, from March 1995
to May 1996 and Vice President, Asset Management, from September 1992 to March
1995. Prior to joining NHP in 1992, Mr. Ross was Assistant Vice President in
Asset Management for Winthrop Financial Associates.
Charles S. Wilkins, Jr. (age 46) has served as Senior Vice President
of NHP since September 1988 and is currently responsible for legislative and
regulatory affairs. He was formerly responsible for asset and property
management of the affordable multifamily portfolio. Prior to joining NCHP, Mr.
Wilkins was Senior Vice President of Westminster Company, a regional real
estate development firm where he was responsible for the property management of
a diverse portfolio of properties. Mr. Wilkins is immediate past-president of
the National Assisted
33
<PAGE> 35
Housing Management Association and is a director of the National Leased Housing
Association as well as various regulatory committees, including the Executive
Committee of the HUD Occupancy Task Force.
Jeffrey J. Ochs (age 39) has served as Vice President and Chief
Accounting Officer of NCHP since September 1995. From 1994 until September
1995, Mr. Ochs was Assistant Controller of USAir, Inc. From 1987 to 1994, he
held various accounting positions with USAir, Inc.
Eugene H. Goodsell (age 43) serves as Vice President and Controller of
NCHP. He has been with NCHP since 1983. Prior to joining NHP, Mr. Goodsell, a
CPA, was an audit manager with the public accounting firm of Arthur Andersen
LLP.
(d) There is no family relationship between any of the foregoing
directors and executive officers.
Item 11. Executive Compensation
National Housing Partnership Realty Fund IV has no officers or
directors. However, as outlined in the prospectus, various fees and
reimbursements are paid to the General Partner and its affiliates. Following is
a summary of such fees paid or accrued during the year ended December 31, 1996:
(i) Administrative and reporting fees of $115,604 accrued during the
year but not yet paid to the General Partner for managing the
affairs of the Partnership and for investor services. No
payments were made in 1996.
(ii) Annual partnership administration fee of $30,000 to the General
Partner for its services as General Partner of the four Local
Limited Partnerships. Payments of $88,750 were made in 1996.
Trinity Apartments also accrued $7,500 in such fees during
1996.
(iii) During 1996, the Local Limited Partnerships repaid to NHP $107
of accrued interest on Partner advances.
(iv) An affiliate of the General Partner, NHP Management Company
(NHPMC) is the project management agent for the projects
operated by the Local Limited Partnerships, as well as Trinity
Apartments.. During 1996, NHPMC and other affiliates of NCHP
earned $517,575 and $218,751 for management fees and other
services provided to the Local Limited Partnerships and Trinity
Apartments, respectively.
(v) In 1996, personnel working at the project sites which were
managed by NHPMC were NHP Incorporated employees, and therefore
the project reimbursed NHP Incorporated for the actual salaries
and related benefits. Total reimbursements for salaries and
benefits earned for the year ended December 31, 1996, were
approximately $714,000 for the Local Limited Partnerships and
$291,000 for Trinity Apartments.
Item 12. Security Ownership of Certain Beneficial Owners and Management
1133 Fifteenth Street Four Associates, a Maryland Limited Partnership,
whose general partner is NHP and whose limited partners were key employees of
NCHP at the time the Partnership was formed, owns a 1% interest in the
Partnership.
Item 13. Certain Relationships and Related Transactions
The Partnership has had no material transactions or business
relationships with NHP or its affiliates except as described in Items 8, 10,
and 11, above.
34
<PAGE> 36
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Documents filed as a part of this report:
1. Financial Statements
The financial statements, notes, and reports listed below are
included herein:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report 12
Statements of Financial Position,
December 31, 1996 and 1995 13
Statements of Operations for the Years
Ended December 31, 1996, 1995 and 1994 14
Statements of Partners' Equity
(Deficit) for the Years Ended
December 31, 1996, 1995 and 1994 15
Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994 16
Notes to Financial Statements 18
Schedule XI - Real Estate and
Accumulated Depreciation of Partnership and
Local Limited Partnerships in which NHP
Realty Fund IV has Invested, December 31, 1996 29
</TABLE>
2. Financial statement schedules
Financial statement schedules for the Registrant:
Schedule XI is included in the financial statements listed
under Item 14(a)(1) above. All other schedules have been
omitted as the required information is inapplicable or the
information is presented in the financial statements or notes
thereto.
Financial statements required by Regulation S-X which are
excluded from the annual report to shareholders by Rule
14a-3(b): See 3 below.
35
<PAGE> 37
3. Exhibits
The following combined financial statements of the Local
Limited Partnerships in which the Partnership has invested
funds are included as an exhibit to this report and are
incorporated herein by reference:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report 39
Combined Statements of Financial
Position, December 31, 1996 and 1995 40
Combined Statements of Operations for the Years
Ended December 31, 1996, 1995 and 1994 41
Combined Statements of Partners'
(Deficit) for the Years
Ended December 31, 1996, 1995 and 1994 42
Combined Statements of Cash
Flows for the Years Ended
December 31, 1996, 1995 and 1994 43
Notes to Combined Financial Statements 46
</TABLE>
(b) Reports on Form 8-K
None.
36
<PAGE> 38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
National Housing Partnership Realty Fund IV
By: The National Housing Partnership, its sole general partner
By: National Corporation for Housing Partnerships, its sole
general partner
March 26, 1997 /s/ J. Roderick Heller, III
- -------------- --------------------------------------------
Date J. Roderick Heller, III, Chairman, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
March 26, 1997 /s/ J. Roderick Heller, III
- -------------- -------------------------------------------
Date J. Roderick Heller, III
Chairman, President, Chief Executive
Officer and Director
March 26, 1997 /s/ Ann Torre Grant
- -------------- -------------------------------------------
Date Ann Torre Grant
Executive Vice President, Chief Financial
Officer and Treasurer
March 26, 1997 /s/ Jeffrey J. Ochs
- -------------- -------------------------------------------
Date Jeffrey J. Ochs
Vice President and Chief Accounting Officer
37
<PAGE> 39
March 26, 1997 *
- -------------- -------------------------------------------
Date Susan R. Baron, Director
March 26, 1997 *
- -------------- -------------------------------------------
Date Michael R. Eisenson, Director
March 26, 1997 *
- -------------- -------------------------------------------
Date Danny K. Davis, Director
March 26, 1997 *
- -------------- -------------------------------------------
Date Tim R. Palmer, Director
March 26, 1997 *
- -------------- -------------------------------------------
Date Alan A. Diamonstein, Director
March 26, 1997 *
- -------------- -------------------------------------------
Date Herbert S. Winokur, Jr., Director
This registrant is a limited partnership whose sole general partner, The
National Housing Partnership, is also a limited partnership. The sole general
partner of The National Housing Partnership is National Corporation for Housing
Partnerships. The persons indicated are Directors of National Corporation for
Housing Partnerships. Powers of Attorney are on file in Registration Statement
No. 33-1141 and as Exhibit 25 to the Partnership's Form 10-K for the fiscal
years ended December 31, 1987, December 31, 1988, December 31, 1990 and
December 31, 1991. Other than the Form 10-K report, no annual report or proxy
materials have been sent to security holders.
*By J. Roderick Heller, III pursuant to Power of Attorney.
/s/ J. Roderick Heller, III
---------------------------
38
<PAGE> 40
Independent Auditors' Report
To The Partners of
National Housing Partnership Realty Fund IV
Vienna, VA
We have audited the accompanying combined statements of financial position of
the Local Limited Partnerships in which National Housing Partnership Realty
Fund IV (the Partnership) holds a limited partnership interest as of December
31, 1996 and 1995, and the related combined statements of operations, partners'
deficit, and cash flows for each of the three years in the period ended
December 31, 1996. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the combined financial position of the Local Limited Partnerships in
which National Housing Partnership Realty Fund IV holds a limited partnership
interest as of December 31, 1996 and 1995 and the combined results of their
operations and cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Washington, D.C.
March 10, 1997
39
<PAGE> 41
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
LOCAL LIMITED PARTNERSHIPS
COMBINED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1996 1995
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 227,865 $ 383,269
Accounts receivable, net (Note 2 and 16) 1,951,957 147,081
Tenants' security deposits held in trust funds 109,542 90,459
Prepaid taxes and insurance 16,952 20,331
Reserve for painting and decorating 98,946 78,555
Deferred costs 24,486 20,405
Mortgage escrow deposits (Note 5) 1,273,037 1,124,171
Rental property, net (Note 4) 14,889,960 20,258,964
----------- -----------
$ 18,592,745 $ 22,123,235
=========== ===========
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Trade payables $ 2,204,193 $ 392,567
Accrued real estate taxes 257,200 247,775
Due to management agent - NHPMC (Note 9) 163,637 169,072
Accrued interest on mortgage notes 8,865 10,281
Due to partners (Note 7) 116,429 174,275
Accrued interest on partner loans 16,870 14,039
----------- -----------
2,767,194 1,008,009
Tenants' security deposits payable 99,111 91,487
Deferred income 833 11,043
Deferred acquisition notes payable (Note 6) 7,174,900 7,174,900
Accrued interest on deferred acquisition notes (Note 6) 11,414,500 9,847,967
Mortgage notes payable (Note 5) 10,168,368 10,513,680
Partners' deficit (13,032,161) (6,523,851)
----------- -----------
$ 18,592,745 $ 22,123,235
=========== ===========
</TABLE>
See notes to combined financial statements.
40
<PAGE> 42
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
LOCAL LIMITED PARTNERSHIPS
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
REVENUES:
Rental income (Note 3) $ 4,613,768 $ 4,665,078 $ 4,481,127
Interest income 51,018 55,367 30,750
Other income 122,231 258,181 365,545
----------- ----------- -----------
4,787,017 4,978,626 4,877,422
----------- ----------- -----------
EXPENSES:
Administrative expenses 227,599 229,382 318,734
Utilities and operating expenses 1,794,706 1,786,705 1,786,239
Management and other services
from related party (Note 9) 517,575 501,645 430,115
Salaries and related benefits
to related party (Note 9) 713,687 642,425 612,715
Depreciation and amortization 925,158 887,747 849,225
Taxes and insurance 628,540 589,032 615,298
Financial expenses - primarily interest (Note 5) 166,243 188,182 210,830
Interest on acquisition notes (Note 6) 1,566,533 1,450,521 1,304,903
Other entity expense 885 - 667
Annual partnership administrative fees
to General Partner (Note 7) 30,000 30,000 30,000
Impairment losses on rental property (Note 14) 4,660,000 - -
Loss on sale of parking garage - - 181,213
----------- ----------- -----------
11,230,926 6,305,639 6,339,939
----------- ----------- -----------
NET LOSS $(6,443,909) $(1,327,013) $(1,462,517)
=========== =========== ===========
</TABLE>
See notes to combined financial statements.
41
<PAGE> 43
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
LOCAL LIMITED PARTNERSHIPS
COMBINED STATEMENTS OF PARTNERS' DEFICIT
<TABLE>
<CAPTION>
National
Housing The
Partnership National
Realty Fund Housing
IV Partnership Total
------------------ ----------- -----------------
<S> <C> <C> <C>
Deficit at January 1, 1994 $ (3,570,252) $ (97,803) $ (3,668,055)
Distributions (45,307) (458) (45,765)
Net loss (1,447,892) (14,625) (1,462,517)
------------ --------- ------------
Deficit at December 31, 1994 (5,063,451) (112,886) (5,176,337)
Distributions (20,296) (205) (20,501)
Net loss (1,313,743) (13,270) (1,327,013)
------------ --------- ------------
Deficit at December 31, 1995 (6,397,490) (126,361) (6,523,851)
Distributions (63,757) (644) (64,401)
Net loss (6,379,470) (64,439) (6,443,909)
------------ --------- ------------
Deficit at December 31, 1996 $(12,840,717) $(191,444) $(13,032,161)
============ ========= ============
Percentage interest at
December 31, 1994, 1995 and 1996 (A) (B)
============ =========
</TABLE>
(A) Holds a 99% limited partnership interest in four Local Limited Partnerships.
(B) Holds a 1% general partnership interest in four Local Limited Partnerships.
See notes to combined financial statements.
42
<PAGE> 44
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
LOCAL LIMITED PARTNERSHIPS
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Rental receipts $4,567,289 $4,596,918 $4,448,945
Interest receipts 51,594 55,768 28,853
Other receipts 106,311 310,478 322,477
Administrative expenses paid (216,703) (243,969) (216,562)
Administrative salaries paid (345,001) (319,584) (283,622)
Management fees paid to related party (391,982) (382,452) (326,721)
Computer and accounting fees paid (50,963) (46,327) (46,327)
Utilities paid (863,393) (775,058) (786,751)
Operating and maintenance expenses paid (1,037,509) (915,996) (1,058,130)
Operating and maintenance payroll paid (368,686) (322,841) (329,093)
Real estate taxes paid (328,429) (321,803) (388,960)
Payroll taxes paid (63,564) (62,884) (56,392)
Miscellaneous taxes paid (29,984) (9,526) (7,934)
Property insurance paid (99,470) (109,621) (79,096)
Miscellaneous insurance paid (94,552) (101,782) (97,494)
Interest on mortgage notes paid (110,724) (133,050) (154,454)
Mortgage insurance premium paid (51,494) (53,176) (54,782)
Miscellaneous financial expenses paid (40) (106) (177)
Payment of annual partnership administrative fees
to General Partner in lieu of distributions (88,750) (15,000) (22,500)
Payment of interest on partner loans (107) (205) -
Interest earned on entity funds 219 - -
------------ ------------- ------------
Net cash provided by rental operating activities 584,062 1,149,784 891,280
(Increase) decrease in tenants' security deposits
held in trust fund (19,083) 1,967 (1,133)
Increase in tenants' security deposits payable 7,624 196 3,388
------------ ------------- ------------
Net cash provided by operating activities 572,603 1,151,947 893,535
------------ ------------- ------------
</TABLE>
See notes to combined financial statements.
43
<PAGE> 45
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
LOCAL LIMITED PARTNERSHIPS
COMBINED STATEMENTS OF CASH FLOWS
(Continued)
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Equipment purchases $ (220,821) $ (358,346) $ (458,522)
Payments to mortgage escrow deposits (750,741) (896,472) (764,505)
Disbursements from mortgage escrow deposits 637,588 717,820 801,453
Interest earned on mortgage escrow deposits (35,713) (35,795) (21,495)
Payments to reserve for painting and decorating (18,000) (18,000) (18,000)
Interest earned on reserve for painting and decorating (2,391) (1,454) (942)
Payment of deferred costs (24,486) (20,405) -
Decrease (increase) in due from mortgagee 96,470 (85,433) (4,413)
------------ ------------ ------------
Net cash used in investing activities (318,094) (698,085) (466,424)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners (64,401) (20,501) (45,765)
Payments of principal on mortgage notes (345,312) (320,952) (336,745)
Repayment of loans from partners (200) (667) -
------------ ------------ ------------
Net cash used in financing activities (409,913) (342,120) (382,510)
------------ ------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (155,404) 111,742 44,601
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 383,269 271,527 226,926
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 227,865 $ 383,269 $ 271,527
============ ============ ============
</TABLE>
See notes to combined financial statements.
44
<PAGE> 46
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
LOCAL LIMITED PARTNERSHIPS
COMBINED STATEMENTS OF CASH FLOWS
(Continued)
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
RECONCILIATION OF NET LOSS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net loss $ (6,443,909) $(1,327,013) $(1,462,517)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization 925,158 887,747 849,226
Mortgagor entity expenses 1,600,356 1,483,332 1,519,007
Impairment losses on rental property 4,660,000 - -
Decrease (increase) in receivable from tenants, net 1,202 4,642 (2,295)
(Increase) decrease in receivable for FHA subsidy (24,180) 6,143 75,356
Increase in insurance proceeds receivable (1,881,144) - -
Decrease (increase) in interest receivable 2,776 976 (1,100)
Decrease in prepaid property insurance 3,379 11,329 4,955
Decrease in prepaid mortgage insurance - - 27
Increase (decrease) in trade payables 41,043 87,859 (19,742)
Decrease in accrued wages and payroll taxes - - (19,378)
Increase in fire damage payable 1,787,185 - -
Decrease in accrued interest on mortgage note (1,416) (1,598) (1,723)
Increase (decrease) in accrued real estate taxes 9,425 (17,427) (40,598)
Increase (decrease) in management fee payable 3,035 (21,211) 54,562
Payment of annual partnership administrative fees
to General Partner in lieu of distributions (88,750) (15,000) (22,500)
Payment of interest on partner loans (107) (205) -
(Decrease) increase in deferred income (10,210) 8,210 -
(Increase) decrease in tenants' security deposits
held in trust funds (19,083) 1,967 (1,133)
Decrease (increase) in other receivable - 42,000 (42,000)
Increase in tenants' security deposits payable 7,624 196 3,388
Interest earned on entity funds 219 - -
---------- ---------- ----------
Total adjustments 7,016,512 2,478,960 2,356,052
---------- ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 572,603 $ 1,151,947 $ 893,535
=========== ========== ==========
</TABLE>
See notes to combined financial statements.
45
<PAGE> 47
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
LOCAL LIMITED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF PARTNERSHIP ORGANIZATION, BASIS OF COMBINATION AND
SIGNIFICANT ACCOUNTING POLICIES
Organization
National Housing Partnership Realty Fund IV (the Partnership) is a
limited partnership organized under the Maryland Revised Uniform Limited
Partnership Act on January 8, 1986. The Partnership was formed for the purpose
of raising capital by offering and selling limited partnership interests, and
then using that capital to acquire and operate (either directly or through
investment as a limited partner in Local Limited Partnerships) existing
multi-family rental apartments, some of which are financed and/or operated with
one or more forms of rental or financial assistance from the U.S. Department of
Housing and Urban Development (HUD). On February 21, 1986, inception of
operations, the Partnership began raising capital and acquiring interests in
Local Limited Partnerships.
During 1986, the Partnership acquired 99% Limited Partnership
interests in four limited partnerships (the Local Limited Partnerships) which
were organized in 1986 to acquire and operate existing rental housing projects.
The rental housing projects were originally organized under Sections 236 or
221(d)(3) of the National Housing Act. As a limited partner, the Partnership
does not exercise control over the activities of the Local Limited Partnerships
in accordance with the partnership agreements.
Basis of Combination
The combined financial statements include the accounts of the
following four Local Limited Partnerships in which the Partnership holds a
limited partnership interest:
Capital Park Limited Partnership
Kennedy Homes Limited Partnership
Loring Towers Apartments Limited Partnership
Royal Towers Limited Partnership
Significant Accounting Policies
The financial statements of the Local Limited Partnerships are
prepared on the accrual basis of accounting. Depreciation of the buildings and
improvements is computed using the straight-line method, assuming a 50-year
life from the date of initial occupancy. Cash distributions are limited by the
Regulatory Agreements between the Local Limited Partnerships and HUD to the
extent of surplus cash as defined by HUD. Undistributed amounts are cumulative
and may be distributed in subsequent years if future operations provide surplus
cash in excess of current requirements.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
For purposes of the statements of cash flows, the Partnership
considers all highly liquid debt instruments purchased with initial maturities
of three months or less to be cash equivalents.
46
<PAGE> 48
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
LOCAL LIMITED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
(Continued)
2. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------------
1996 1995
---- ----
<S> <C> <C>
Due from tenants $ 16,801 $ 31,406
Insurance loss claim receivable 1,881,144 -
FHA 36,686 12,506
Interest 748 3,524
Due from mortgagee 27,546 124,016
----------- -------
1,962,925 171,452
Less allowance for doubtful accounts (10,968) (24,371)
----------- --------
Net accounts receivable $1,951,957 $147,081
=========== ========
</TABLE>
3. HOUSING ASSISTANCE AGREEMENTS
The Federal Housing Administration (FHA) has contracted with the four
subsidized rental projects under Section 8 of Title II of the Housing and
Community Development Act of 1974 to make housing assistance payments to the
Local Limited Partnerships on behalf of qualified tenants. The terms of the
agreements are five years with one or two five-year renewal options. The
agreements expire at various dates ranging from 1997 to 2008 as follows:
The following table indicates the year within the Section 8 rent
subsidy contracts expire:
<TABLE>
<CAPTION>
Subsidized Units Subsidized Units
Expiring as a Expiring as a
Number Percentage of Total Percentage of
of Units Subsidized Units Total Units
-------- ---------------------- ----------------------
<S> <C> <C> <C>
1997 360 40% 39%
1998 259 29% 28%
2006 and thereafter 277 31% 30%
--- ---- --
Total 896 100% 97%
=== === ==
</TABLE>
Of the contracts above expiring during 1997, contracts for 237 units
expire prior to September 30, 1997. Congress has passed legislation which will
provide a one-year renewal contract to replace those contracts. The contract
covering the remaining 123 units expires in October, 1997. It is uncertain
whether this agreement will be renewed, as well as the remaining contracts
expiring after 1997, and if so, on what terms.
47
<PAGE> 49
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
LOCAL LIMITED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
(Continued)
For the past several years, various proposals have been advanced by
HUD, the Congress and others proposing the restructuring of the Section 8.
These proposals generally seek to lower subsidized rents to market levels and
to lower required debt service costs as needed to ensure financial viability at
the reduced rents, but vary greatly as to how that result is to be achieved.
Some proposals include a phase-out of project-based subsidies on a
property-by-property basis upon expiration of a property's HAP Contract, with a
conversion to a tenant-based subsidy. Under a tenant-based system, rent
vouchers would be issued to qualified tenants who then could elect to reside at
a property of their choice, provided the tenant has the financial ability to
pay the difference between the selected property's monthly rent and the value
of the voucher, which would be established based on HUD's regulated fair market
rent for that geographic area.
Congress has not yet accepted any of these restructuring proposals and
instead has elected to renew expiring Section 8 HAP Contracts for one year
terms, generally at existing rents. While the Partnership does not believe that
the proposed changes would result in a significant number of tenants relocating
from properties owned by the Local Limited Partnerships, there can be no
assurance that the proposed changes would not significantly affect the
operations of the properties of the Local Limited Partnerships. Furthermore,
there can be no assurance that changes in federal subsidies will not be more
restrictive than those currently proposed or that other changes in policy will
not occur. Any such changes could have an adverse effect on the operation of
the Partnership.
The Local Limited Partnerships received a total of $3,337,702,
$3,407,079 and $3,275,260 during 1996, 1995 and 1994, respectively, in the form
of housing assistance payments which is included in "Rental Income" in the
combined statements of operations.
4. RENTAL PROPERTY
Rental property consists of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1996 1995
---- ----
<S> <C> <C>
Land $ 756,247 $ 756,247
Buildings and improvements 18,970,653 23,630,653
Furniture and equipment 2,751,701 2,555,952
----------- -----------
22,478,601 26,942,852
Less accumulated depreciation (7,588,641) (6,683,888)
----------- -----------
Rental property, net $14,889,960 $20,258,964
=========== ===========
</TABLE>
5. MORTGAGE NOTES PAYABLE
The mortgage notes payable are insured by FHA and secured by first
deeds of trust on the rental properties. The notes bear interest at rates
ranging from 6% to 8.5% per annum. FHA, under an interest reduction contract
with the three Section 236 properties, makes subsidy payments directly to the
mortgage lender reducing the monthly principal
48
<PAGE> 50
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
LOCAL LIMITED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
(Continued)
and interest payments of the project owner to an effective interest rate of 1%
over the 40-year terms of the notes. The liability of the Local Limited
Partnerships under the mortgage notes is limited to the underlying value of the
real estate collateral, plus other amounts deposited with the lenders.
Under agreements with the mortgage lenders and FHA, the Local Limited
Partnerships are required to make monthly escrow deposits for taxes, insurance
and a reserve for the replacement of project assets, and are subject to
restrictions as to operating policies, rental charges, operating expenditures
and distributions to partners.
Approximate maturities of mortgage notes payable for the next five
years and thereafter are as follows:
<TABLE>
<S> <C>
1997 $ 372,000
1998 400,000
1999 431,000
2000 464,000
2001 500,000
Thereafter 8,001,000
----------
$10,168,000
==========
</TABLE>
6. DEFERRED ACQUISITION NOTES PAYABLE
The deferred acquisition notes bear interest at the rate of 9% per
annum, compounded semi-annually. These notes are nonrecourse and are
collateralized by partnership interests in all Local Limited Partnerships.
Neither principal nor interest are payable currently; all principal and accrued
interest are payable upon the earlier of the sale, transfer, or refinancing of
the project or 2001. The notes may be prepaid in whole or in part at any time
without penalty.
7. DUE TO PARTNERS
Annual partnership administration fees of $30,000 were accrued for
1996, 1995 and 1994. The Local Limited Partnerships paid $88,750, $15,000 and
$22,500 in such fees during 1996, 1995 and 1994, respectively. These fees are
payable to NHP without interest from surplus cash available for distribution to
partners. The accumulated fees owed to NHP were $103,125 and $161,875 at
December 31, 1996 and 1995, respectively.
During 1996, NHP advanced $1,104 to one Local Limited Partnership to
fund the Local Limited Partnership's entity expenses. Interest is charged at a
rate equal to the Chase Manhattan prime rate plus 2%. No payments were made
during 1996.
During 1996, one Local Limited Partnership repaid principal and
interest in the amounts of $200 and $107, respectively, to National Housing
Partnership Realty Fund IV. As of December 31, 1996, the Limited Partner,
National Housing Partnership Realty Fund IV, had advanced $12,000 to a Local
Limited Partnership to help defray operating deficits subsequent to NHP's
guarantee period and $200 to one Local Limited Partnerships to fund partnership
entity expenses. Interest is charged at the rate of Chase Manhattan prime plus
2%. The advance and interest will be paid in conformity with HUD and/or other
regulatory requirements and applicable partnership agreements.
49
<PAGE> 51
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
LOCAL LIMITED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
(Continued)
8. FEDERAL AND STATE INCOME TAXES
The Local Limited Partnerships are not taxed on their income. The
partners are taxed in their individual capacities upon their distributive share
of the Local Limited Partnerships' taxable income and are allowed the benefits
to be derived from offsetting their distributive share of the tax losses
against taxable income from other sources subject to passive loss rule
limitations. The taxable income or loss differs from amounts included in the
statement of operations primarily because of different methods used in
determining depreciation expense for tax purposes. The tax loss is allocated to
partner groups in accordance with Section 704(b) of the Internal Revenue Code
and therefore is not necessarily proportionate to the interest percentage
owned.
For Federal income tax purposes, the Local Limited Partnerships
compute depreciation of the buildings and improvements using the Accelerated
Cost Recovery System (ACRS) and the Modified Accelerated Cost Recovery System
(MACRS), while for financial statements purposes, depreciation is computed
using the straight-line method, assuming a 50-year life from the date of
initial occupancy. Rent received in advance is included as income in
determining the taxable income or loss for Federal income tax purposes, while
for financial statement purposes it is shown as a liability. Other differences
result from the allocation of tax losses in accordance with Section 704(b) of
the Internal Revenue Code.
A reconciliation follows:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net loss per combined financial
statements $(6,443,909) $(1,327,013) $(1,462,516)
Depreciation (330,888) (357,534) (381,541)
Impairment losses on rental property 4,660,000 - -
Other 56,367 (95,355) (96,308)
----------- ----------- -----------
Loss per tax returns $(2,058,430) $(1,779,902) $(1,940,365)
=========== =========== ===========
</TABLE>
9. RELATED PARTY TRANSACTIONS
The General Partner of the Partnership is The National Housing
Partnership (NHP). National Corporation for Housing Partnerships (NCHP) is the
sole general partner of NHP. NHP is the sole general partner of the Local
Limited Partnerships. An affiliate of the general partner, NHP Management
Company (NHPMC), is the project management agent for the projects operated by
the Local Limited Partnerships except for Royal Towers, that changed management
agent on November 1, 1996. During 1996, 1995 and 1994, NHPMC and other
affiliates of NCHP earned $517,575, $501,645 and $430,115, respectively, for
management fees and other services provided to the Local Limited Partnerships.
The management agreements with NHPMC, extend, subject to certain conditions, to
the year 2020. As of December 31, 1996 and 1995, amounts due NHPMC and
unpaid by the Local Limited Partnerships amounted to $163,637 and $169,072,
respectively.
Beginning January 1, 1996, personnel working at the project sites
which are managed by NHPMC are NHP Incorporated employees, and therefore the
projects reimburse NHP Incorporated for the actual salaries and related
benefits. Prior to 1996, personnel working at the project sites were NCHP
employees. At December 31, 1996, trade
50
<PAGE> 52
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
LOCAL LIMITED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
(Continued)
payables include $16,413 due to NCHP. Total reimbursements earned for salaries
and benefits for the years ended December 31, 1996, 1995 and 1994 were
approximately $714,000, $642,000 and $613,000, respectively.
As of November 1, 1996, Metro Management Company became the new
project management agent for one Local Limited Partnership, Royal Towers
Limited Partnership, under an agreement extending through October 1998. The new
management agent receives a fee for its services as management agent equal to
7% of the project's rental collections.
10. NON-CASH INVESTING ACTIVITIES
At December 31, 1996, two of the Local Limited Partnerships had
purchased $21,945 in additions to rental property and at December 31, 1995,
three Local Limited Partnership had purchased $47,017 of additions to rental
property which are included in trade payables.
11. FUTURE OPERATIONS AND CASH FLOWS
One Local Limited Partnership, Royal Towers, has a significant amount
of payables and only limited resources with which to pay such items. These
issues raise substantial doubt about the Royal Towers Limited Partnership's
ability to continue as a going concern. Royal Towers continued existence as a
going concern is dependent upon maintaining positive cash flows from operations
or obtaining additional fundings from partners if positive cash flows are not
maintained. NHP's intentions are to continue managing the property prudently so
that it can maintain positive cash flows and decrease its debts.
The total assets, deficit, revenues and net loss of Royal Towers
represent 27%, 36%, 22% and 38% of the applicable amounts included in the
accompanying combined financial statements as of December 31, 1996 and for the
year then ended.
12. DRUG ELIMINATION GRANT PROGRAM
Two Local Limited Partnerships have entered into grant agreements with
HUD under the Drug Elimination Grant Program (the "Program") to assist in the
elimination of illegal drugs and the associated crime at the properties. The
grant agreements are dated August 1993 and July 1994, and the amounts awarded
are $175,000 and $164,387, respectively. During 1995, one of the Local Limited
Partnerships received $156,034 for costs incurred under the program, of which
$35,167 is included in miscellaneous operating expenses and $120,867 has been
capitalized in rental property. During 1994, one of the Local Limited
Partnerships received $174,993 for costs incurred under the program, of which
$385 is included in miscellaneous operating expenses and $174,608 has been
capitalized in rental property.
13. SALE OF PARKING GARAGE
During 1994, one of the Local Limited Partnerships sold the project's
parking garage for $6,000 resulting in a net loss on sale of $181,213.
HUD approved this partial release of collateral based on the estimated
high costs to repair or demolish the structure. The parking garage had been
closed for public safety since 1992. As a condition of sale, certain easements
51
<PAGE> 53
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
LOCAL LIMITED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
(Continued)
have been granted to the Partnership to use or access equipment, storage areas
and entrances in the same manner as before the sale.
14. IMPAIRMENT LOSS ON RENTAL PROPERTY
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 "Accounting For The
Impairment of Long-Lived Assets And For Long-Lived Assets To Be Disposed Of"
(the "Statement") effective for financial statements for fiscal years beginning
after December 15, 1995. Adoption of this Statement during the year ended
December 31, 1996 required an impairment loss to be recognized if the sum of
estimated future cash flows (undiscounted and without interest charges) is less
than the carrying amount of rental property. The impairment loss would be the
amount by which the carrying value exceeds the fair value of the rental
property. If the rental property is to be disposed of, fair value is calculated
net of costs to sell.
During 1996, Royal Towers Limited Partnership and Loring Tower
Associates Limited Partnership, recognized impairment losses on their rental
properties in the amounts of $1,960,000 and $2,700,000, respectively. Because
the Local Limited Partnerships' deferred acquisition notes are due March 27,
2001(Note 6), the Local Limited Partnerships estimated net cash flow only for
the period January 1, 1997 to March 27, 2001. As a result of this limited
holding period, the estimated net cash flow was less than the carrying amount
at December 31, 1996. The Local Limited Partnerships used the Direct
Capitalization Method to estimate the fair value of the rental property. Using
this Method, estimated annual cash flow generated by the property is divided by
an overall capitalization rate to estimate the rental property's fair value.
Additionally, regardless of whether a impairment loss of an individual
property has been recorded or not, the carrying value of each of the rental
properties may still exceed their fair market value as of December 31, 1996.
Should a Local Limited Partnership be forced to dispose of any of its
properties, it could incur a loss.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
FASB Statement No. 107, "Disclosures About Fair Value of Financial
Instruments," requires disclosure of fair value information about financial
instruments, when it is practicable to estimate that value. The mortgage notes
payable are insured by the FHA and are secured by the rental property. The
operations generated by the rental property are subject to various government
rules, regulations and restrictions which make it impracticable to obtain the
information to estimate the fair value of the mortgage note and the partner
loans and related accrued interest. For the deferred acquisition notes and
related accrued interest, a reasonable estimate of fair value could not be made
without incurring excessive costs. The carrying amount of other assets and
liabilities reported on the statement of financial position that require such
disclosure approximates fair value.
16. FIRE LOSS CONTINGENCY
On December 1, 1996, a fire occurred at the Royal Towers Limited
Partnership project site. The fire damages and lost rents are estimated to be
approximately $3,000,000. Management believes that all damages will be
recovered through insurance proceeds less a $2,500 deductible. As of December
31, 1996, an insurance receivable was recorded for $1,880,289 which includes
$1,784,685 for fire loss damages net of the deductible, and $95,604 for loss of
rent for the month of December. Due to the fire, all tenants had to vacate the
building. Therefore, no rental receipts were recorded for the month of December
including subsidy payments. For Royal Towers Limited Partnership, total rent
52
<PAGE> 54
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
LOCAL LIMITED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
(Continued)
revenue on the accompanying combined Statement of Operations consists of 11
months. The insurance proceeds to cover the loss of rent for the month of
December are included in Other Income on the accompanying Combined Statement of
Operations.
53
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 723,690
<SECURITIES> 0
<RECEIVABLES> 25,148
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 836,258
<PP&E> 17,828,756
<DEPRECIATION> 4,294,768
<TOTAL-ASSETS> 14,448,508
<CURRENT-LIABILITIES> 5,455,400
<BONDS> 13,140,000
0
0
<COMMON> 0
<OTHER-SE> (4,146,892)
<TOTAL-LIABILITY-AND-EQUITY> 14,448,508
<SALES> 0
<TOTAL-REVENUES> 3,407,538
<CGS> 0
<TOTAL-COSTS> 2,264,499
<OTHER-EXPENSES> 169,794
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,493,515
<INCOME-PRETAX> (520,270)
<INCOME-TAX> 0
<INCOME-CONTINUING> (520,270)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (520,270)
<EPS-PRIMARY> (33)
<EPS-DILUTED> (33)
</TABLE>
