FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY OR TRANSITIONAL REPORT
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 September 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
(A MARYLAND LIMITED PARTNERSHIP)
(Exact name of small business issuer 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
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 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)
September 30, 1999
ASSETS
Cash and cash equivalents $ 24,713
Accounts receivable 59,273
Prepaid insurance and tenant security deposits 109,851
Mortgage escrow deposits 645,161
Investments in and advances to Local Limited
Partnerships (Note 2) --
Land 3,650,000
Buildings and improvements - less accumulated
depreciation of $5,301,688 9,970,237
Deferred finance costs 1,231,633
$15,690,868
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Accounts payable and accrued expenses from rental
operations $ 687,539
Administrative and reporting fee payable to
General Partner (Note 3) 1,424,673
Due to General Partner (Note 3) 8,741,134
Accrued interest on partner loans (Note 3) 2,789,949
Other accrued expenses 29,845
Mortgage note payable 8,920,258
22,593,398
Partners' deficit:
General partner -- The National Housing
Partnership (NHP) (198,719)
Original limited partner -- 1133 Fifteenth
Street Four Associates (203,619)
Other limited partners -- 15,414 investment
units (6,500,192)
(6,902,530)
$15,690,868
See Accompanying Notes to Financial Statements
b)
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
RENTAL REVENUES $ 958,379 $ 906,472 $2,825,737 $2,678,189
RENTAL EXPENSES:
Interest 145,867 154,016 449,904 466,805
Renting and administrative 125,642 107,740 378,257 315,926
Operating and maintenance 187,691 184,522 463,015 496,590
Depreciation and amortization 98,644 123,851 348,730 343,267
Taxes and insurance 218,282 201,298 433,466 584,988
776,126 771,427 2,073,372 2,207,576
PROFIT FROM RENTAL OPERATIONS 182,253 135,045 752,365 470,613
COSTS AND EXPENSES:
Interest on due to General
Partner (Note 3) 279,914 280,387 780,046 809,672
Administrative and reporting fees
to General Partner (Note 3) 28,902 28,901 86,703 86,703
Other operating expenses 1,875 36,679 5,625 76,212
310,691 345,967 872,374 972,587
OTHER REVENEUS:
Distributions received in excess
of investment in Local Limited
Partnerships 12,574 23,068 52,218 23,068
Interest income 843 10,840 19,492 13,763
13,417 33,908 71,710 36,831
NET LOSS $ (115,021) $ (177,014) $ (48,299) $ (465,143)
NET LOSS ASSIGNABLE TO
LIMITED PARTNERS $ (112,721) $ (173,476) $ (47,333) $ (455,841)
NET LOSS PER LIMITED
PARTNERSHIP INTEREST $ (7.31) $ (11.25) $ (3.07) $ (29.57)
See Accompanying Notes to Financial Statements
c)
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
STATEMENTS OF PARTNER'S DEFICIT
(Unaudited)
The National 1133
Housing Fifteenth Other
Partnership Street Limited
(NHP) Associates Partners Total
Deficit at
December 31, 1998 $ (198,236) $ (203,136) $(6,452,859) $(6,854,231)
Net loss - nine months ended
September 30, 1999 (483) (483) (47,333) (48,299)
Deficit at
September 30, 1999 $ (198,719) $ (203,619) $(6,500,192) $(6,902,530)
Percentage interest at
September 30, 1999 1% 1% 98% 100%
(A) (B) (C)
(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 FLOW
(Unaudited)
Nine Months Ended
September 30,
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Rent collections $2,706,643 $2,611,268
Distributions received in excess of investment in
Local Limited Partnerships 52,218 23,068
Interest received 19,492 13,763
Other income 62,820 62,784
Interest paid on loan from General Partner (392,184) (67,419)
Operating expenses paid, including rental expenses (1,948,601) (1,603,938)
Mortgage interest paid (451,404) (466,805)
Net cash provided by operating activities 48,984 572,721
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (245,720) (293,717)
Net withdrawals from escrow funds 376,891 131,565
Net cash provided by (used in) investing activities 131,171 (162,152)
CASH FLOWS FROM FINANCING ACTIVITIES:
Loans from General Partner 129,889 2,793
Payments of principal on mortgage note (309,718) (290,114)
Net cash used in financing activities (179,829) (287,321)
NET INCREASE IN CASH AND CASH EQUIVALENTS 326 123,248
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 24,387 45,275
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 24,713 $ 168,523
See Accompanying Notes to Financial Statements
d)
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
STATEMENTS OF CASH FLOW (Continued)
(Unaudited)
Nine Months Ended
September 30,
1999 1998
RECONCILIATION OF NET LOSS TO NET CASH PROVIDED BY
OPERATING ACTIVITIES
Net loss $ (48,299) $ (465,143)
Adjustments to reconcile net loss to net
cash provided by operating activities
Depreciation and amortization 348,730 343,267
Increase in accounts receivable (56,274) (408)
(Increase) decrease in prepaid insurance, utility,
and tenant security deposits (22,352) 39,687
Mortgagor entity expenses -- 9,731
Decrease in accounts payable and accrued expenses
from rental operations (626,855) (181,917)
Increase in administrative and reporting fees payable
to General Partner 86,703 86,703
Increase in due to General Partner 5,625 5,625
Increase in accrued interest on Partner loans 387,862 742,253
Decrease in other accrued expenses (26,156) (7,077)
Total adjustments 97,283 1,037,864
Net cash provided by operating activities $ 48,984 $ 572,721
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.
National Housing Partnership ("NHP" or 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.
The accompanying unaudited interim financial statements reflect all adjustments
which are, in the opinion of management, necessary to a fair statement of the
financial condition and results of operations for the interim periods presented.
All such adjustments are of a normal and 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 notes
included in the Partnership's Annual Report filed on Form 10-K for the year
ended December 31, 1998.
Reclassifications
Certain reclassifications have been made to the 1998 balances to conform to the
1999 presentation.
(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 September 30, 1999, investments in all four
Local Limited Partnerships had been reduced to zero. As a result, the
Partnership did not recognize $920,073 and $1,299,504 of losses from Local
Limited Partnerships during the nine months ended September 30, 1999 and 1998,
respectively. As of September 30, 1999, the Partnership had not recognized
$16,760,526 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 September
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 nine months ended September 30, 1999
and 1998. The combined amount carried as payable to the Partnership by the
Local Limited Partnerships was $12,200 at September 30, 1999.
The following are combined statements of operations for the three and nine
months ended September 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 managing agents of the projects,
and are unaudited.
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
Rental income $1,151,432 $1,169,371 $3,598,811 $3,489,913
Other income 58,098 104,494 135,177 176,575
Total income 1,209,530 1,273,865 3,733,988 3,666,488
Operating expenses 918,476 882,204 2,352,654 2,534,598
Interest, taxes, and
insurance 610,042 648,314 1,817,880 1,911,324
Depreciation 149,958 171,210 492,821 533,196
Total expense 1,678,476 1,701,728 4,663,355 4,979,118
Net loss $ (468,946) $ (427,863) $ (929,367) $(1,312,630)
National Housing Partnership
Realty Fund IV share of
loss $ (464,257) $ (423,585) $ (920,073) $(1,299,504)
(3) TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES OF THE GENERAL PARTNER
During the nine month periods ended September 30, 1999 and 1998, the Partnership
accrued administrative and reporting fees payable to the General Partner in the
amount of $86,704 and $86,703 respectively for services provided to the
Partnership. The Partnership did not make any payments to the General Partner
for these fees during each of the respective periods. The amount due the
General Partner by the Partnership for administrative and reporting fees was
$1,424,673 at September 30, 1999.
During the nine months ended September 30, 1999 and 1998, the General Partner
made working capital advances of $348,499 and $2,793, respectively to the
Partnership. The Partnership repaid advances of $218,610 to the General Partner
during the nine months ended September 30, 1999. No working capital repayments
were made during the nine months ended September 30, 1998. The amount owed to
the General Partner at September 30, 1999 was $8,705,509. Interest is charged
on borrowings at the Chase Manhattan Bank rate of prime plus 2% (10.00% at
September 30, 1999). During the nine months ended September 30, 1999 and 1998,
the Partnership repaid accrued interest in the amount of $392,184 and $67,419,
respectively, to the General Partner. Accrued interest on this loan amounted to
$2,789,949 at September 30, 1999.
During the nine months ended September 30, 1999, affiliates of the General
Partner advanced approximately $297,000 to Royal Towers Limited Partnership to
fund operating deficits. No working capital advances were made by the
Partnership or affiliates of the General Partner during the nine months ended
September 30, 1998.
Annual partnership administrative fees of $5,625 were accrued on behalf of
Trinity Apartments during the nine months ended September 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 nine
months ended September 30, 1999 and 1998. The balance owed to the General
Partner for these fees is $35,625 at September 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
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 1997 from the HUD Inspector General. To date,
neither the HUD Inspector General nor the grand jury has initiated any action
against NHP or Apartment Investment and Management Company ("AIMCO"), the
ultimate controlling entity of NHP 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. NHP does not
believe that the investigations will result in a material adverse impact on its
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
operations. 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 owned property and from
distributions from the Local Limited Partnerships. The Partnership's only other
source of liquidity is from the General Partner's 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 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 $24,713 at September 30, 1999 as compared
to $24,387 at December 31, 1998. The increase was due to $48,984 of cash
provided by operating activities and $131,171 of cash provided by investing
activities, being only partially offset by $179,829 of cash used in financing
activities. Cash provided by investing activities consisted of net withdrawals
from escrow funds maintained by the mortgage lender slightly offset by property
improvements and replacements. Cash used in financing activities consisted of
principal payments on the mortgage encumbering the Partnership's property. The
ability of the Partnership to meet its on-going cash requirements, in excess of
cash on hand at September 30, 1999, is dependant 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
September 30, 1999, the Partnership owed the General Partner $1,424,673 for
administrative and reporting services performed. Working capital advances of
$348,499 and repayments of $218,610 occurred between the Partnership and the
General Partner during the nine months ended September 30, 1999. As of
September 30, 1999, the Partnership owed the General Partner $8,741,134 plus
accrued interest of $2,789,949. 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 Local Limited Partnerships' properties 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.
During the nine months ended September 30, 1999, affiliates of the General
Partner advanced approximately $297,000 to Royal Towers Limited Partnership.
However, there were no working capital advances or repayments made between the
Partnership and the Local Limited Partnerships during the nine months ended
September 30, 1999. The combined amount carried as due to the Partnership by
the Local Limited Partnerships was $12,200 as of September 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 September 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.
Cash distributions of approximately $52,218 and $23,068 were received from the
Local Limited Partnerships during the nine months ended September 30, 1999 and
1998, respectively. 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 $8,920,258 encumbering Trinity Apartments at
September 30, 1999 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 that 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 September 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 a net loss of $48,299 for the nine months ended
September 30, 1999 compared to a net loss of $465,143 for the nine months ended
September 30, 1998. The decrease in net loss 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 cash distributions from two of the Local Limited Partnerships
during the nine months ended September 30, 1999. Rental operations increased
due to an increase in rental revenues resulting from an increase in rental rates
at Trinity Apartments and a decrease in total expenses relating to such
property. Property expenses decreased primarily due to a decrease in tax and
insurance expense of $151,522 which more than offset an increase in renting and
administrative expense. Property tax expense decreased as a result of a refund
of previously paid taxes due to a reassessment of Trinity Apartments at a lower
value. Costs and expenses relating to non-rental operations decreased from
$972,587 for the nine months ended September 30, 1998 to $872,374 for the nine
months ended September 30, 1999. Interest income increased due to increased
balances maintained in interest bearing accounts. The Partnership did not
recognize $920,073 of its allocated share of losses from the four Local Limited
Partnerships for the nine months ended September 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 $379,431 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 September 30, 1999, had virtually completed 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.
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 virtually all of the server operating systems.
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 virtually
no Year 2000 issues. A complete, formal assessment of all the properties by the
Managing Agent was virtually completed by September 30, 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
September 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 has banking relationships with three major financial
institutions, all of which have designated their compliance. The Managing Agent
has updated data transmission standards with all of the financial institutions.
All financial institutions have communicated that they are Year 2000 compliant
and accordingly no accounts were required to be moved from the existing
financial institutions.
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 expenses
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 1997 from the HUD Inspector General. To date,
neither the HUD Inspector General nor the grand jury has initiated any action
against NHP or Apartment Investment and Management Company ("AIMCO"), the
ultimate controlling entity of NHP 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. NHP does not
believe that the investigations will result in a material adverse impact on its
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
b) Reports on Form 8-K:
None filed during the quarter ended September 30, 1999.
SIGNATURES
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
(Registrant)
By: The National Housing Partnership,
Its sole General Partner
By: National Corporation for Housing
Partnerships, its sole General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Martha L. Long
Martha L. Long
Senior Vice President and
Controller
Date: November 15, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from National
Housing Partnership Realty Fund IV 1999 Third Quarter 10-QSB and is qualified in
its entirety by referene to such 10-QSB filing.
</LEGEND>
<CIK> 0000780149
<NAME> NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 24,713
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 18,921,925
<DEPRECIATION> 5,301,688
<TOTAL-ASSETS> 15,690,868
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 8,920,258
0
0
<COMMON> 0
<OTHER-SE> (6,902,530)
<TOTAL-LIABILITY-AND-EQUITY> 15,690,868
<SALES> 0
<TOTAL-REVENUES> 2,897,447
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,945,746
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,229,950
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (48,299)
<EPS-BASIC> (3.07)<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
