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 March 31, 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)
March 31, 1999
ASSETS
Cash and cash equivalents $ 17,366
Accounts receivable 63,092
Prepaid insurance and tenant security deposits 87,399
Mortgage escrow deposits 559,205
Investments in and advances to local limited
partnerships (Note 2) --
Land 3,650,000
Buildings and improvements - less accumulated
depreciation of $5,133,914 9,916,924
Deferred finance costs 1,291,353
$15,585,339
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Accounts payable and accrued expenses from rental
operations $ 458,335
Administrative and reporting fee payable to
General Partner (Note 3) 1,366,871
Due to General Partner (Note 3) 8,879,647
Accrued interest on partner loans (Note 3) 2,498,250
Other accrued expenses 52,345
Mortgage note payable 9,128,420
22,383,868
Partners' deficit:
General partner - The National Housing Partnership (NHP) (197,679)
Original limited partner - 1133 Fifteenth Street
Four Associates (202,579)
Other limited partners - 15,414 investment units (6,398,271)
(6,798,529)
$15,585,339
See Accompanying Notes to Financial Statements
b)
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
1999 1998
RENTAL REVENUES $ 923,964 $ 874,877
RENTAL EXPENSES:
Interest 154,399 156,658
Renting and administrative 131,492 98,928
Operating and maintenance 143,443 144,827
Depreciation and amortization 121,236 106,851
Taxes and insurance 58,750 187,607
609,320 694,871
PROFIT FROM RENTAL OPERATIONS 314,644 180,006
COSTS AND EXPENSES:
Interest on due to General partner (Note 3) 231,004 275,285
Administrative and reporting fees to
General Partner (Note 3) 28,901 28,901
Other operating expenses 1,875 16,202
261,780 320,388
OTHER REVENUES:
Interest income 2,838 798
NET INCOME (LOSS) $ 55,702 $ (139,584)
NET INCOME (LOSS) ASSIGNABLE TO LIMITED PARTNERS $ 54,588 $ (136,792)
NET INCOME (LOSS) PER LIMITED PARTNERSHIP INTEREST $ 3.54 $ (8.87)
See Accompanying Notes to Financial Statements
c)
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
STATEMENT OF CHANGES IN PARTNERS' 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 income - three months
ended March 31, 1999 557 557 54,588 55,702
Deficit at March 31, 1999 $(197,679) $(202,579) $(6,398,271) $(6,798,529)
Percentage interest at
March 31, 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 FLOWS
(Unaudited)
Three Months Ended
March 31,
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Rent collections $ 845,660 $ 840,768
Interest received 2,838 798
Other income 18,211 19,963
Operating expenses paid, including rental expenses (1,055,434) (939,790)
Mortgage interest paid (154,954) (157,178)
Net cash used in operating activities (343,679) (235,439)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (24,633) (60,510)
Net deposits to escrow funds 462,847 483,834
Net cash provided by investing activities 438,214 423,324
CASH FLOWS USED IN FINANCING ACTIVITIES:
Payments of principal on mortgage note (101,556) (95,128)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (7,021) 92,757
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 24,387 45,275
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 17,366 $ 138,032
See Accompanying Notes to Financial Statements
d)
NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
1999 1998
RECONCILIATION OF NET INCOME(LOSS) TO NET CASH USED
IN OPERATING ACTIVITES
Net income (loss) $ 55,702 $ (139,584)
Adjustments to reconcile net income (loss) to net cash
used in operating activities
Depreciation 98,991 91,419
Amortization 22,245 15,432
(Increase) decrease in accounts receivable (60,093) 2,591
Decrease (increase) in prepaid insurance, utility, and
tenant security deposits 100 10,418
Decrease in accounts payable and accrued expenses
from rental operations (856,059) (535,526)
Increase in administrative and reporting fees payable
to General Partner 28,901 28,901
Increase in due to General Partner 274,027 1,875
Increase in accrued interest on partner loans 96,163 275,285
(Decrease) increase in other accrued expenses (3,656) 13,750
Total adjustments (399,381) (95,855)
Net cash used in operating activities $(343,679) $ (235,439)
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, 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
Acquisition was made pursuant to a Real Estate Acquisition Agreement, dated as
of May 22, 1998 (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"). 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.
(2) INVESTMENTS IN REAL PROPERTY AND INVESTMENTS IN ADVANCES TO LOCAL LIMITED
PARTNERSHIPS
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.
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 March 31, 1999, investments in all four Local Limited
Partnerships had been reduced to zero. As a result, the Partnership did not
recognize $225,104 and $410,123 of losses from Local Limited Partnerships during
the three months ended March 31, 1999 and 1998, respectively. As of March 31,
1999, the Partnership had not recognized $16,065,557 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 March 31,
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 three months ended March 31, 1999 and
1998. The combined amount carried as payable to the Partnership by the Local
Limited Partnerships was $12,200 as of March 31, 1999.
The following are combined statements of operations for the three months ended
March 31, 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.
Three Months Ended
March 31,
1999 1998
Rental income $1,122,982 $1,121,485
Other income 42,406 31,051
Total income 1,165,388 1,152,536
Operating expenses 709,750 732,233
Interest, taxes and insurance 511,727 646,227
Depreciation 171,289 188,342
Total expense 1,392,766 1,566,802
Net loss $ (227,378) $ (414,266)
National Housing Partnership Realty Fund IV
share of losses $ (225,104) $ (410,123)
(3) TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES OF THE GENERAL PARTNER
During the three month periods ended March 31, 1999 and 1998, the Partnership
accrued administrative and reporting fees payable to the General Partner in the
amount of $28,901 for services provided to the Partnership. The Partnership has
not made any payments to the General Partner for these fees during the three
months ended March 31, 1999 and 1998. The amount due the General Partner by the
Partnership was $1,366,871 at March 31, 1999.
During the three months ended March 31, 1999, the General Partner made working
capital advances of $348,500 to the Partnership. During the three months ended
March 31, 1999, the Partnership repaid advances of $76,348 to the General
Partner. No working capital advances or repayments were made during the three
months ended March 31, 1998. The amount owed to the General Partner at
March 31, 1999 was $8,847,772. Interest is charged on borrowings at the Chase
Manhattan Bank rate of prime plus 2% (9.75% at March 31, 1999). Accrued
interest on this loan amounted to $2,498,250 at March 31, 1999.
Annual partnership administrative fees of $1,875 were accrued on behalf of
Trinity Apartments during the three months ended March 31, 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 three months ended
March 31, 1999 and 1998. The balance owed to the General Partner for these fees
was $31,875 at March 31, 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
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related Information", which is
effective for years beginning after December 15, 1997. SFAS 131 established
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. As defined in
SFAS No. 131, the Partnership has only one reportable segment. Moreover, 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
The Partnership is unaware of any 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 units,
98 percent of the total units owned by the properties 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 $17,366 at March 31, 1999 as compared to
$24,387 at December 31, 1998. The decrease was due to $343,679 of cash used in
operating activities and $101,556 of mortgage principal payments more than
offsetting $438,214 of cash provided by investing activities. The ability of
the Partnership to meet its on-going cash requirements, in excess of cash on
hand at March 31, 1999, 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 March 31, 1999, the
Partnership owes the General Partner $1,366,871 for administrative and reporting
services performed. In addition, as of March 31, 1999, the Partnership owes the
General Partner $8,879,647 plus accrued interest of $2,498,250. 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.
Working capital advances of $348,500 and repayments of $76,348 occurred between
the Partnership and the Local Limited Partnerships during the three months ended
March 31, 1999. There were no such advances or repayments during the three
months ended March 31, 1998. The combined amount carried as due to the
Partnership by the Local Limited Partnerships was $12,200 as of March 31, 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 March 31, 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. There were no
cash distributions received from the Local Limited Partnerships during the three
months ended March 31, 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.
On December 29, 1997, the loan encumbering Trinity Apartments was refinanced.
The new mortgage note payable of $9,128,420 at March 31, 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 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 so that the property can maintain positive cash flows and pay its
general obligations.
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 March 31, 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 $55,702 for the three months ended
March 31, 1999 compared to a net loss of $139,584 for the three months ended
March 31, 1998. The Partnership realized a net income per unit of limited
partnership interest of $3.54 at March 31, 1999 as compared to a net loss per
unit of $8.87 at March 31, 1998 for the 15,414 units outstanding throughout both
periods. The increase in net income is due to an increase in profit from Rental
Operations and interest income and a decrease in non-rental costs and expenses.
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 due to a decrease in tax and insurance expense of $128,507 which more
than offset increases in renting and administrative and depreciation and
amortization expense. Property tax expense decreased as a result of an
overaccrual of 1998 taxes as well as a refund of paid taxes as a result of a
reappraisal of the property at a lower value. Costs and expenses relating to
non-rental operations decreased from $320,388 for the three months ended March
31, 1998 to $261,780 for the three months ended March 31, 1999. Interest income
increased due to the balances maintained in interest bearing accounts. The
Partnership did not recognize $225,104 of its allocated share of losses from the
four Local Limited Partnerships for the three months ended March 31, 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 $185,019 between periods, primarily due to a decrease in interest
expense on acquisition notes and depreciation.
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 mainframe system used by the Managing Agent became fully
functional. In addition to the mainframe, 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
March 31, 1999, had completed approximately 75% 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 July
31, 1999.
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.
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 the testing process is
expected to be completed by July 31, 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 80% of the server operating systems. The remaining
server operating systems are planned to be upgraded to be Year 2000 compliant by
July 31, 1999.
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. The Managing Agent intends to have a third-party conduct an
audit of these systems and report their findings by July 31, 1999.
Any of the above operating equipment that has been found to be non-compliant to
date has been replaced or repaired. To date, these have consisted only of
security systems and phone systems. As of March 31, 1999 the Managing Agent has
evaluated approximately 86% of the operating equipment for the Year 2000
compliance.
The total cost incurred for all properties managed by the Managing Agent as of
March 31, 1999 to replace or repair the operating equipment was approximately
$400,000. The Managing Agent estimates the cost to replace or repair any
remaining operating equipment is approximately $325,000, which is expected to be
completed by August 30, 1999.
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 May 1999.
The Managing Agent has updated data transmission standards with two of the three
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 June 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 $2.8 million ($0.6 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 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 March 31, 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
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: May 17, 1999
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from National
Housing Realty Fund IV 1999 First Quarter 1999 10-QSB and is qualified in its
entirety by reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000780930
<NAME> NATIONAL HOUSING PARTNERSHIP REALTY FUND IV
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 17,366
<SECURITIES> 0
<RECEIVABLES> 63,092
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 18,700,838
<DEPRECIATION> (5,133,914)
<TOTAL-ASSETS> 15,585,339
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 9,128,240
0
0
<COMMON> 0
<OTHER-SE> (6,798,529)
<TOTAL-LIABILITY-AND-EQUITY> 15,585,339
<SALES> 923,964
<TOTAL-REVENUES> 926,802
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 871,100
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 231,004
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 55,702
<EPS-PRIMARY> 3.54<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
