FORM 10-QSB--QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
U.S. Securities And Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-15731
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
(Exact name of registrant as specified in its charter)
Maryland 52-1473440
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9200 Keystone Crossing, Suite 500
Indianapolis, Indiana 46240-7602
(Address of principal executive offices)
(317) 817-7500
(Registrant's telephone number)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
STATEMENT OF FINANCIAL POSITION
(Unaudited)
June 30, 1999
ASSETS
Cash and cash equivalents $ 99,454
Accounts receivable 60,082
Prepaid insurance and tenant security deposits 105,517
Mortgage escrow deposits 490,811
Investments in and advances to local limited
partnerships (Note 2) --
Land 3,650,000
Buildings and improvements - less accumulated
depreciation of $5,232,904 9,901,603
Deferred finance costs 1,261,493
$15,568,960
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Accounts payable and accrued expenses from rental
operations $ 481,980
Administrative and reporting fee payable to
General Partner (Note 3) 1,395,772
Due to General Partner (Note 3) 8,739,260
Accrued interest on partner loans (Note 3) 2,692,836
Other accrued expenses 20,870
Mortgage note payable 9,025,751
22,356,469
Partners' deficit:
General partner - The National Housing Partnership (NHP) (197,569)
Original limited partner - 1133 Fifteenth Street
Four Associates (202,469)
Other limited partners - 15,414 investment units (6,387,471)
(6,787,509)
$15,568,960
See Accompanying Notes to Financial Statements
b)
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
RENTAL REVENUES $ 943,394 $ 896,840 $1,867,358 $1,771,717
RENTAL EXPENSES:
Interest 149,638 156,131 304,037 312,789
Renting and
administrative 121,123 109,258 252,615 208,186
Operating and
maintenance 131,880 167,241 275,323 312,068
Depreciation and
amortization 128,850 112,565 250,086 219,416
Taxes and insurance 156,434 196,083 215,184 383,690
687,925 741,278 1,297,245 1,436,149
PROFIT FROM RENTAL OPERATIONS 255,469 155,562 570,113 335,568
COSTS AND EXPENSES:
Interest on due to General
Partner (Note 3) 269,128 254,000 500,132 529,285
Administrative and reporting fees
to General Partner (Note 3) 28,901 28,901 57,802 57,802
Other operating expenses 1,875 23,331 3,750 39,533
299,904 306,232 561,684 626,620
OTHER REVENUES:
Distributions received in excess
of investment in Local Limited
Partnerships 39,644 -- 39,644 --
Interest income 15,811 2,125 18,649 2,923
55,455 2,125 58,293 2,923
NET INCOME (LOSS) $ 11,020 $(148,545) $ 66,722 $ (288,129)
NET INCOME (LOSS) ASSIGNABLE TO
LIMITED PARTNERS $ 10,800 $(145,573) $ 65,388 $ (282,365)
NET INCOME (LOSS) PER LIMITED
PARTNERSHIP INTEREST $ .70 $ (9.44) $ 4.24 $ (18.32)
</TABLE>
See Accompanying Notes to Financial Statements
c)
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
<TABLE>
<CAPTION>
The National 1133
Housing Fifteenth Other
Partnership Street Limited
(NHP) Associates Partners Total
<S> <C> <C> <C> <C>
Deficit at December 31, 1998 $(198,236) $(203,136) $(6,452,859) $(6,854,231)
Net income - six months ended
June 30, 1999 667 667 65,388 66,722
Deficit at June 30, 1999 $(197,569) $(202,469) $(6,387,471) $(6,787,509)
Percentage interest at
June 30, 1999 1% 1% 98% 100%
(A) (B) (C)
</TABLE>
(A) General Partner
(B) Original Limited Partner
(C) Consists of 15,414 investment units
See Accompanying Notes to Financial Statements
d)
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Rent collections $ 1,733,283 $ 1,730,610
Distributions received in excess of investment
in Local Limited Partnerships 39,644 --
Interest received 18,649 2,923
Other income 76,992 38,625
Operating expenses paid, including rental
expenses (1,707,623) (1,234,359)
Mortgage interest paid (304,592) (312,789)
Net cash (used in) provided by operating
activities (143,647) 225,010
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (108,302) (210,542)
Net withdrawals from escrow funds 531,241 307,339
Net cash provided by investing activities 422,939 96,797
CASH FLOWS USED IN FINANCING ACTIVITIES:
Payments of principal on mortgage note (204,225) (191,824)
NET INCREASE IN CASH AND CASH EQUIVALENTS 75,067 129,983
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 24,387 45,275
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 99,454 $ 175,258
See Accompanying Notes to Financial Statements
d)
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1999 1998
<S> <C> <C>
RECONCILIATION OF NET INCOME(LOSS) TO NET CASH (USED
IN) PROVIDED BY OPERATING ACTIVITES
Net income (loss) $ 66,722 $ (288,129)
Adjustments to reconcile net income (loss) to net cash
used in operating activities
Depreciation 197,981 188,552
Amortization 52,105 30,864
(Increase) decrease in accounts receivable (57,083) 2,591
(Increase) decrease in prepaid insurance, utility, and
tenant security deposits (18,018) 24,528
Mortgagor entity expenses -- 9,731
Decrease in accounts payable and accrued expenses
from rental operations (832,414) (353,064)
Increase in administrative and reporting fees payable
to General Partner 57,802 57,802
Increase in due to General Partner 133,640 3,750
Increase in accrued interest on partner loans 290,749 529,285
(Decrease) increase in other accrued expenses (35,131) 19,100
Total adjustments (210,369) 513,139
Net cash (used in) provided by operating activities $(143,647) $ 225,010
</TABLE>
See Accompanying Notes to Financial Statements
e)
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(1) ACCOUNTING POLICIES
ORGANIZATION
National Housing Partnership Realty Fund IV (the "Partnership" or the
"Registrant") 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, the 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.
On June 3, 1997, Apartment Investment and Management Company, a Maryland
corporation ("AIMCO" and, together with its subsidiaries and other controlled
entities, the "AIMCO Group"), acquired all of the issued and outstanding capital
stock of NHP Partners, Inc., a Delaware corporation ("NHP Partners"), and the
AIMCO Group acquired all of the outstanding interests in NHP Partners Two
Limited Partnership, a Delaware limited partnership ("NHP Partners Two"). The
Acquisitions were made pursuant to a Real Estate Acquisition Agreement, dated as
of May 22, 1997 (the "Agreement"), by and among AIMCO, AIMCO Properties, L.P., a
Delaware limited partnership (the "Operating Partnership"), Demeter Holdings
Corporation, a Massachusetts corporation ("Demeter"), Phemus Corporation, a
Massachusetts corporation ("Phemus"), Capricorn Investors, L.P., a Delaware
limited partnership ("Capricorn"), J. Roderick Heller, III and NHP Partners Two
LLC, a Delaware limited liability company ("NHP Partners Two LLC"). NHP Partners
owns all of the outstanding capital stock of the National Corporation for
Housing Partnerships, a District of Columbia corporation ("NCHP"), which is the
general partner of The National Housing Partnership, a District of Columbia
limited partnership ("NHP" or the "General Partner"). Together, NCHP and NHP
Partners Two own all of the outstanding partnership interests in NHP. NHP is the
general partner of the Registrant. As a result of these transactions, the AIMCO
Group has acquired control of the general partner of the Registrant and,
therefore, may be deemed to have acquired control of the Registrant.
The Original Limited Partner of the Partnership is 1133 Fifteenth Street Four
Associates, whose limited partners were key employees of an affiliate of the
Partnership at the time the Partnership was formed and whose general partner is
the sole shareholder of the Partnership's General Partner.
The accompanying unaudited interim financial statements reflect all adjustments
which are, in the opinion of management, necessary to present a fair statement
of the financial condition and results of operations for the interim periods
presented. All such adjustments are of a normal recurring nature.
While the General Partner believes that the disclosures presented are adequate
to make the information not misleading, it is suggested that these financial
statements be read in conjunction with the financial statements and the notes
included in the Partnership's Annual Report filed on Form 10-K for the year
ended December 31, 1998.
(2) INVESTMENTS IN REAL PROPERTY AND INVESTMENTS IN ADVANCES TO LOCAL LIMITED
PARTNERSHIPS
The Partnership owns one residential apartment complex and a 99% limited
partnership interest in Loring Towers Apartments Limited Partnership, Kennedy
Homes Limited Partnership, Capital Park Limited Partnership, and Royal Towers
Limited Partnership. The investments in Local Limited Partnerships 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 of June 30, 1999, investments in all four Local Limited
Partnerships had been reduced to zero. As a result, the Partnership did not
recognize $455,817 and $875,919 of losses from Local Limited Partnerships during
the six months ended June 30, 1999 and 1998, respectively. As of June 30, 1999,
the Partnership had not recognized $16,299,270 of its allocated share of
cumulative losses from the Local Limited Partnerships in which its investment is
zero.
Advances made by the Partnership to the individual Local Limited Partnerships
are considered part of the Partnership's investment in Local Limited
Partnerships. When advances are made, they are charged to operations as a loss
on investment in the Local Limited Partnership using previously unrecognized
cumulative losses. As discussed above, due to the cumulative losses incurred by
the Local Limited Partnerships, the aggregate balance of investments in and
advances to the Local Limited Partnerships has been reduced to zero at June 30,
1999. To the extent these advances are repaid by the Local Limited Partnerships
in the future, the repayments will be credited as distributions and repayments
received in excess of investments in Local Limited Partnerships. These advances
are carried as a payable to the Partnership by the Local Limited Partnerships.
No working capital advances or repayments occurred between the Partnership and
the Local Limited Partnerships during the six months ended June 30, 1999 and
1998. The combined amount carried as payable to the Partnership by the Local
Limited Partnerships was $12,200 at June 30, 1999.
The following are combined statements of operations for the three and six months
ended June 30, 1999 and 1998, respectively, of the Local Limited Partnerships in
which the Partnership has invested. The statements are compiled from financial
statements of the Local Limited Partnerships, prepared on the accrual basis of
accounting, as supplied by the management agents of the projects, and are
unaudited.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Rental income $1,324,397 $1,199,057 $2,447,379 $2,320,542
Other income 34,673 41,030 77,079 72,081
Total income 1,359,070 1,240,087 2,524,458 2,392,623
Operating expenses 724,428 920,161 1,434,178 1,652,394
Interest, taxes and insurance 696,111 616,783 1,207,838 1,263,010
Depreciation 171,574 173,644 342,863 361,986
Total expense 1,592,113 1,710,588 2,984,879 3,277,390
Net loss $ (233,043) $ (470,501) $ (460,421) $ (884,767)
National Housing Partnership Realty
Fund IV share of loss $ (230,713) $ (465,796) $ (455,817) $ (875,919)
</TABLE>
(3) TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES OF THE GENERAL PARTNER
During the six month periods ended June 30, 1999 and 1998, the Partnership
accrued administrative and reporting fees payable to the General Partner in the
amount of $57,802 for services provided to the Partnership. The Partnership has
not made any payments to the General Partner for these fees during the six
months ended June 30, 1999 and 1998. The amount due the General Partner by the
Partnership was $1,395,772 at June 30, 1999.
During the six months ended June 30, 1999, the General Partner made working
capital advances of $348,500 to the Partnership. During the six months ended
June 30, 1999, the Partnership repaid advances of $218,610 to the General
Partner. No working capital advances or repayments were made during the six
months ended June 30, 1998. The amount owed to the General Partner at June 30,
1999 was $8,705,510. Interest is charged on borrowings at the Chase Manhattan
Bank rate of prime plus 2% (9.75% at June 30, 1999). Accrued interest on this
loan amounted to $2,692,836 at June 30, 1999.
Annual partnership administrative fees of $3,750 were accrued on behalf of
Trinity Apartments during the six months ended June 30, 1999 and 1998. These
fees are payable to the General Partner without interest from cash available for
distribution to partners. No payments were made during the six months ended June
30, 1999 and 1998. The balance owed to the General Partner for these fees was
$33,750 at June 30, 1999 and is included in "Due to General Partner".
The advances and accrued administrative and reporting fees payable to the
General Partner will be paid as cash flow permits or from proceeds generated
from the sale or refinancing of one or more of the underlying properties of the
Local Limited Partnerships.
(4) SEGMENT INFORMATION
As defined in SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information", the Partnership has only one reportable segment. Due to
the very nature of the Partnership's operations, the General Partner believes
that segment-based disclosures will not result in a more meaningful presentation
than the financial statements as currently presented.
(5) LEGAL PROCEEDINGS
In July 1999, NHP received a grand jury subpoena requesting documents relating
to NHP's management of HUD-assisted or HUD-insured multi-family projects and
NHP's operation of a group purchasing program created by NHP, known as Buyers
Access. The subpoena relates to the same subject matter as subpoenas NHP
received in October and December of 1997 from the HUD Inspector General. To
date, neither the HUD Inspector General nor the grand jury has initiated any
action against NHP or AIMCO or, to NHP's or AIMCO's knowledge, any owner of
a HUD property managed by NHP. AIMCO believes that NHP's operations and
programs are in compliance, in all material respects, with all laws, rules and
regulations relating to HUD-assisted or HUD-insured properties. AIMCO does not
believe that the investigations will result in a material adverse impact on its
or NHP's operations. However, as with any similar investigation, there can be
no assurance that these will not result in material fines, penalties or other
costs.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The matters discussed in this Form 10-QSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-QSB and the other filings with the
Securities and Exchange Commission made by the Registrant from time to time.
The discussion of the Registrant's business and results of operations, including
forward-looking statements pertaining to such matters, does not take into
account the effects of any changes to the Registrant's business and results of
operation. Accordingly, actual results could differ materially from those
projected in the forward-looking statements as a result of a number of factors,
including those identified herein.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership generates cash from net income from its wholly-owned property
and from distributions from the Local Limited Partnerships. The Partnership's
only other source of liquidity is from the General Partners Loans. The General
Partner, however, is under no legal obligation to make such loans and will
evaluate lending the Partnership additional funds as needed. The Local Limited
Partnership's properties receive one or more forms of assistance from Federal,
state or local governments or agencies. 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 these government-assistance programs. These restrictions, however,
are not expected to impact the Partnership's ability to meet its cash
obligations. The Partnership's Trinity Apartments property does not receive
government assistance.
For the past several years, various proposals have been advanced by the United
States Department of Housing and Urban Development ("HUD"), Congress and others
proposing the restructuring of HUD's rental assistance programs under Section 8
of the United States Housing Act of 1937 ("Section 8"), under which 908
apartment units, 98 percent of the total apartment units owned by the Local
Limited Partnerships in which the Partnership has invested, receive rental
subsidies. On October 27, 1997, the President signed into law the Multifamily
Assisted Housing Reform and Affordability Act of 1997 (the "1997 Housing Act").
Under the 1997 Housing Act, certain properties assisted under Section 8, with
rents above market levels and financed with HUD-insured mortgage loans, will be
restructured by adjusting subsidized rents to market levels, thereby potentially
reducing rent subsidies, and lowering required debt service costs as needed to
ensure financial viability at the reduced rents and rent subsidies. The 1997
Housing Act retains project-based subsidies for most properties (properties in
rental markets with limited supply, properties serving the elderly, and certain
other properties). The 1997 Housing Act phases out project-based subsidies on
selected properties servicing families not located in rental markets with
limited supply, converting such subsidies 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 properties of their choice, provided such tenants have
the financial ability to pay the difference between the selected properties'
monthly rent and the value of the vouchers, which would be established based on
HUD's regulated fair market rent for the relevant geographical areas. With
respect to Housing Assistance Payments Contracts ("HAP Contracts") expiring
before October 1, 1998, Congress has elected to renew them for one-year terms,
generally at existing rents, so long as the properties remain in compliance with
the HAP Contracts. While the Partnership does not expect the provisions of the
1997 Housing Act to result in a significant number of tenants relocating from
properties owned by the Local Limited Partnerships, there can be no assurance
that the provisions will not significantly affect the operations of the
properties of the Local Limited Partnerships. Furthermore, there can be no
assurance that other changes in Federal housing subsidy policy will not occur.
Any such changes could have an adverse effect on the operation of the
Partnership.
Cash and cash equivalents amounted to $99,454 at June 30, 1999 as compared to
$24,387 at December 31, 1998. The increase was due to $422,439 of cash provided
by investing activities, partially offset by $204,225 of cash used in financing
activities and $143,647 of cash used in operating activities. Cash provided by
investing activities consisted of net withdrawals from escrow funds slightly
offset by property improvements and replacements. Cash used in financing
activities consisted of principal payments on the mortgage encumbering the
Registrant's property. The ability of the Partnership to meet its on-going cash
requirements, in excess of cash on hand at June 30, 1999, is dependent on the
operations of Trinity Apartments, distributions received from the Local Limited
Partnerships, and proceeds from the sales or refinancing of the underlying
Properties. As of June 30, 1999, the Partnership owed the General Partner
$1,395,772 for administrative and reporting services performed. Working capital
advances of $348,500 and repayments of $218,610 occurred between the Partnership
and the General Partner during the six months ended June 30, 1999. As of June
30, 1999, the Partnership owed the General Partner $8,739,260 plus accrued
interest of $2,692,836. The payment of the unpaid administrative and reporting
fees and advances from the Partnership and the General Partner to the Local
Limited Partnerships will most likely result from the sale or refinancing of
Trinity Apartments and the underlying Properties of the Local Limited
Partnerships 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 and will evaluate lending the Partnership additional funds as
such funds are needed, but is in no way legally obligated to make such loans.
No working capital advances or repayments occurred between the Partnership and
the Local Limited Partnerships during the six months ended June 30, 1999. The
combined amount carried as due to the Partnership by the Local Limited
Partnerships was $12,200 as of June 30, 1999. Future advances made will be
charged to operations; likewise, future repayments will be credited to
operations.
Distributions received from 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 investments, as of June 30, 1999,
investments in all four Local Limited Partnerships had been reduced to zero. For
these investments, cash distributions received are recorded as distributions
received in excess of investment in Local Limited Partnerships. A cash
distribution of approximately $39,644 was received from one of the Local Limited
Partnerships during the six months ended June 30, 1999. There were no cash
distributions received from the Local Limited Partnerships during the six months
ended June 30, 1998. The receipt of distributions in future quarters is
dependent upon the operations of the underlying properties of the Local Limited
Partnerships to generate sufficient cash for distribution in accordance with
applicable HUD regulations.
The mortgage note payable of $9,025,751 encumbering Trinity Apartments at June
30, 1999, is held by Lehman Capital and is secured by a deed of trust on the
rental property and an assignment of all right of title and interest in, leases
with the tenants. The note bears interest at the rate of 6.557% per annum. The
principal and interest are payable by Trinity in equal monthly installments of
$84,102 to December 1, 2012.
Except for Trinity Apartments, all the properties in which the Partnership has
invested carry deferred acquisition notes due to the original owners of the
properties. These notes are secured by both the Partnership's and the General
Partner's interests in the Local Limited Partnerships. In the event of a default
on the notes, the note holders would be able to assume the General Partner's and
the Partnership's interests in the Local Limited Partnerships. Due to weak
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 a sale or refinancing of the Properties. The deferred acquisition
notes mature in 2001. There can be no assurance the General Partner will be
successful in extending or restructuring the deferred acquisition notes as they
mature.
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 and has
necessitated significant funding from the General Partner in prior years. The
General Partner's intentions are to continue to manage Trinity Apartments
prudently in an effort to improve operations.
Royal Towers Limited Partnership has experienced cash flow difficulties in
meeting its current obligations. Continuation of this Local Limited
Partnership's operations in the present form is dependent upon its ability to
achieve positive cash flow or obtaining other funds.
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 June 30, 1999, 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 recognized net income of $66,722 for the six months ended June
30, 1999 compared to net loss of $288,129 for the six months ended June 30,
1998. The increase in net income is due to an increase in profit from rental
operations, an increase in interest income and a decrease in non-rental costs
and expenses. Also contributing to the increase in net income is the receipt of
a cash distribution from one of the Local Limited Partnerships during the six
months ended June 30, 1999. No such income was received for the six months
ended June 30, 1998. Rental operations increased due to an increase in rental
revenues resulting from an increase in rental rates at the Partnership's wholly-
owned property and a decrease in total expenses relating to such property.
Property expenses decreased primarily due to a decrease in tax and insurance
expense of $168,506 which more than offset increases in renting and
administrative and depreciation and amortization expense. Property tax expense
decreased as a result of the timing of the receipt of property tax bills which
affected the estimated accruals recorded for property tax expense. In addition,
the Partnership received a refund of previously paid taxes as a result of a
reassessment of Trinity Apartments at a lower value. Depreciation and
amortization expense increased due to the payment of deferred financing costs in
1998 and increased capital expenditures at Trinity Apartments in the third and
fourth quarters of 1998 and the first and second quarters of 1999. Costs and
expenses relating to non-rental operations decreased from $626,620 for the six
months ended June 30, 1998 to $561,684 for the six months ended June 30, 1999.
Interest income increased due to increased balances maintained in interest
bearing accounts. The Partnership did not recognize $455,817 of its allocated
share of losses from the four Local Limited Partnerships for the six months
ended June 30, 1999, as the Partnership's net carrying basis in these Local
Limited Partnerships was reduced to zero in prior years. The Partnership's share
of losses from the Local Limited Partnerships, if not limited to its investment
account balance, would have decreased $420,102 between periods, primarily due to
a decrease in operating expenses and an increase in rental revenue.
Year 2000 Compliance
General Description of the Year 2000 Issue and the Nature and Effects of the
Year 2000 on Information Technology (IT) and Non-IT Systems
The Year 2000 issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. The Partnership
is dependent upon the General Partner and its affiliates for management and
administrative services ("Managing Agent"). Any of the computer programs or
hardware that have date-sensitive software or embedded chips may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
Over the past two years, the Managing Agent has determined that it will be
required to modify or replace significant portions of its software and certain
hardware so that those systems will properly utilize dates beyond December 31,
1999. The Managing Agent presently believes that with modifications or
replacements of existing software and certain hardware, the Year 2000 issue can
be mitigated. However, if such modifications and replacements are not made, or
not completed in time, the Year 2000 issue could have a material impact on the
operations of the Partnership.
The Managing Agent's plan to resolve Year 2000 issues involves four phases:
assessment, remediation, testing, and implementation. To date, the Managing
Agent has fully completed its assessment of all the information systems that
could be significantly affected by the Year 2000, and has begun the remediation,
testing and implementation phases on both hardware and software systems.
Assessments are continuing in regards to embedded systems. The status of each
is detailed below.
Status of Progress in Becoming Year 2000 Compliant, Including Timetable for
Completion of Each Remaining Phase
Computer Hardware:
During 1997 and 1998, the Managing Agent identified all of the computer systems
at risk and formulated a plan to repair or replace each of the affected systems.
In August 1998, the main computer system used by the Managing Agent became fully
functional. In addition to the main computer system, PC-based network servers,
routers and desktop PCs were analyzed for compliance. The Managing Agent has
begun to replace each of the non-compliant network connections and desktop PCs
and, as of June 30, 1999, had completed approximately 90% of this effort.
The total cost to the Managing Agent to replace the PC-based network servers,
routers and desktop PCs is expected to be approximately $1.5 million of which
$1.3 million has been incurred to date. The remaining network connections and
desktop PCs are expected to be upgraded to Year 2000 compliant systems by
September 30, 1999. The completion of this process is scheduled to coincide
with the release of a compliant version of the Managing Agent's operating
system.
Computer Software:
The Managing Agent utilizes a combination of off-the-shelf, commercially
available software programs as well as custom-written programs that are designed
to fit specific needs. Both of these types of programs were studied, and
implementation plans written and executed with the intent of repairing or
replacing any non-compliant software programs.
In April, 1999 the Managing Agent embarked on a data center consolidation
project that unifies its core financial systems under its Year 2000 compliant
system. The estimated completion date for this project is October, 1999.
During 1998, the Managing Agent began converting the existing property
management and rent collection systems to its management properties Year 2000
compliant systems. The estimated additional costs to convert such systems at all
properties, is $200,000, and the implementation and testing process was
completed in June, 1999.
The final software area is the office software and server operating systems.
The Managing Agent has upgraded all non-compliant office software systems on
each PC and has upgraded 90% of the server operating systems. The remaining
server operating systems are planned to be upgraded to be Year 2000 compliant by
September, 1999. The completion of this process is scheduled to coincide with
the release of a compliant version of the Managing Agent's operating system.
Operating Equipment:
The Managing Agent has operating equipment, primarily at the property sites,
which needed to be evaluated for Year 2000 compliance. In September 1997, the
Managing Agent began taking a census and inventory of embedded systems
(including those devices that use time to control systems and machines at
specific properties, for example elevators, heating, ventilating, and air
conditioning systems, security and alarm systems, etc.).
The Managing Agent has chosen to focus its attention mainly upon security
systems, elevators, heating, ventilating and air conditioning systems, telephone
systems and switches, and sprinkler systems. While this area is the most
difficult to fully research adequately, management has not yet found any major
non-compliance issues that put the Managing Agent at risk financially or
operationally.
A pre-assessment of the properties by the Managing Agent has indicated no Year
2000 issues. A complete, formal assessment of all the properties by the
Managing Agent is in process and will be completed in September, 1999. Any
operating equipment that is found non-compliant will be repaired or replaced.
The total cost incurred for all properties managed by the Managing Agent as of
June 30, 1999 to replace or repair the operating equipment was approximately
$75,000. The Managing Agent estimates the cost to replace or repair any
remaining operating equipment is approximately $125,000.
The Managing Agent continues to have "awareness campaigns" throughout the
organization designed to raise awareness and report any possible compliance
issues regarding operating equipment within its enterprise.
Nature and Level of Importance of Third Parties and Their Exposure to the Year
2000
The Managing Agent continues to conduct surveys of its banking and other vendor
relationships to assess risks regarding their Year 2000 readiness. The Managing
Agent has banking relationships with three major financial institutions, all of
which have indicated their compliance efforts will be complete before July,
1999. The Managing Agent has updated data transmission standards with all of the
financial institutions. The Managing Agent's contingency plan in this regard is
to move accounts from any institution that cannot be certified Year 2000
compliant by September 1, 1999.
The Partnership does not rely heavily on any single vendor for goods and
services, and does not have significant suppliers and subcontractors who share
information systems (external agent). To date the Partnership is not aware of
any external agent with a Year 2000 compliance issue that would materially
impact the Partnership's results of operations, liquidity, or capital resources.
However, the Partnership has no means of ensuring that external agents will be
Year 2000 compliant.
The Managing Agent does not believe that the inability of external agents to
complete their Year 2000 remediation process in a timely manner will have a
material impact on the financial position or results of operations of the
Partnership. However, the effect of non-compliance by external agents is not
readily determinable.
Costs to Address Year 2000
The total cost of the Year 2000 project to the Managing Agent is estimated at
$3.5 million and is being funded from operating cash flows. To date, the
Managing Agent has incurred approximately $2.9 million ($0.7 million expensed
and $2.2 million capitalized for new systems and equipment) related to all
phases of the Year 2000 project. Of the total remaining project costs,
approximately $0.5 million is attributable to the purchase of new software and
operating equipment, which will be capitalized. The remaining $0.2 million
relates to repair of hardware and software and will be expensed as incurred.
The Partnership's portion of these costs are not material.
Risks Associated with the Year 2000
The Managing Agent believes it has an effective program in place to resolve the
Year 2000 issue in a timely manner. As noted above, the Managing Agent has not
yet completed all necessary phases of the Year 2000 program. In the event that
the Managing Agent does not complete any additional phases, certain worst case
scenarios could occur. The worst case scenarios could include elevators,
security and heating, ventilating and air conditioning systems that read
incorrect dates and operate with incorrect schedules (e.g., elevators will
operate on Monday as if it were Sunday). Although such a change would be
annoying to residents, it is not business critical.
In addition, disruptions in the economy generally resulting from Year 2000
issues could also adversely affect the Partnership. The Partnership could be
subject to litigation for, among other things, computer system failures,
equipment shutdowns or failure to properly date business records. The amount of
potential liability and lost revenue cannot be reasonably estimated at this
time.
Contingency Plans Associated with the Year 2000
The Managing Agent has contingency plans for certain critical applications and
is working on such plans for others. These contingency plans involve, among
other actions, manual workarounds and selecting new relationships for such
activities as banking relationships and elevator operating systems.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In July 1999, NHP received a grand jury subpoena requesting documents relating
to NHP's management of HUD-assisted or HUD-insured multi-family projects and
NHP's operation of a group purchasing program created by NHP, known as Buyers
Access. The subpoena relates to the same subject matter as subpoenas NHP
received in October and December of 1997 from the HUD Inspector General. To
date, neither the HUD Inspector General nor the grand jury has initiated any
action against NHP or AIMCO or, to NHP's or AIMCO's knowledge, any owner of
a HUD property managed by NHP. AIMCO believes that NHP's operations and
programs are in compliance, in all material respects, with all laws, rules and
regulations relating to HUD-assisted or HUD-insured properties. AIMCO does not
believe that the investigations will result in a material adverse impact on its
or NHP's operations. However, as with any similar investigation, there can be
no assurance that these will not result in material fines, penalties or other
costs.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 27, Financial Data Schedule, is filed as an exhibit to this report.
(b) Reports on Form 8-K:
None filed during the quarter ended June 30, 1999.
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized.
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
By: National Housing Partnership
its sole General Partner
By: National Corporation for Housing
Partnerships, its sole General Partner
By: /s/ Troy D. Butts
Troy D. Butts
As Senior Vice President
and Chief Financial Officer
Date: August 17, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from National
Housing Partnership Realty Fund IV 1999 Second Quarter 10-QSB and is qualified
in its entirety by reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000780149
<NAME> NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 99,454
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 18,784,507
<DEPRECIATION> 5,232,904
<TOTAL-ASSETS> 15,568,960
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 9,025,751
0
0
<COMMON> 0
<OTHER-SE> (6,787,509)
<TOTAL-LIABILITY-AND-EQUITY> 15,568,960
<SALES> 0
<TOTAL-REVENUES> 1,925,651
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,858,929
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 500,132
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 66,722
<EPS-BASIC> 4.24<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
