August 14, 2002
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Boston Financial Qualified Housing Tax Credits L.P. IV
Report on Form 10-QSB for the Quarter Ended June 30, 2002
File Number 0-19765
Dear Sir/Madam:
Pursuant to the requirements of section 15(d) of the Securities Exchange Act of
1934, filed herewith a copy of subject report.
Very truly yours,
/s/Stephen Guilmette
Stephen Guilmette
Assistant Controller
QH4-10Q1.DOC
UNITED STATES
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, 2002
-------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-19765
Boston Financial Qualified Housing Tax Credits L.P. IV
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-3044617
- --------------------------------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
101 Arch Street, Boston, Massachusetts 02110-1106
- ----------------------------------------------------- ------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 439-3911
----------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 .
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page No.
- ------------------------------ --------
Item 1. Financial Statements
Balance Sheet (Unaudited) - June 30, 2002 1
Statements of Operations (Unaudited) - For the Three
Months Ended June 30, 2002 and 2001 2
Statement of Changes in Partners' Equity (Deficiency)
(Unaudited) - For the Three Months Ended June 30, 2002 3
Statements of Cash Flows (Unaudited) - For the
Three Months Ended June 30, 2002 and 2001 4
Notes to the Financial Statements (Unaudited) 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II - OTHER INFORMATION
Items 1-6 11
SIGNATURE 12
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
BALANCE SHEET
June 30, 2002
(Unaudited)
Assets
Cash and cash equivalents $ 128,460
Marketable securities, at fair value 415,163
Investments in Local Limited Partnerships, net (Note 1) 14,355,474
Other assets 6,258
--------------
Total Assets $ 14,905,355
==============
Liabilities and Partners' Equity
Accounts payable to affiliates $ 133,014
Accrued expenses 95,066
--------------
Total Liabilities 228,080
--------------
General, Initial and Investor Limited Partners' Equity 14,669,724
Net unrealized gains on marketable securities 7,551
--------------
Total Partners' Equity 14,677,275
--------------
Total Liabilities and Partners' Equity $ 14,905,355
==============
The accompanying notes are an integral part of
these financial statements.
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
STATEMENTS OF OPERATIONS
For the Three Months Ended June 30, 2002 and 2001
(Unaudited)
2002 2001
------------- -------------
Revenue:
Investment $ 7,610 $ 16,755
Recovery of provision for valuation of
advances to Local Limited Partnerships - 495,200
Other 4,475 2,420
------------- -------------
Total Revenue 12,085 514,375
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Expenses:
Asset management fees, affiliate 44,063 39,427
General and administrative (includes reimbursements
to affiliate in the amounts of $86,054 and
$54,328, respectively) 128,690 79,620
Provision for valuation of advances to
Local Limited Partnerships 167,278 -
Amortization 16,401 16,401
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Total Expenses 356,432 135,448
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Income (loss) before equity in income (losses) of
Local Limited Partnerships (344,347) 378,927
Equity in income (losses) of Local Limited Partnerships (Note 1) 106,019 (49,023)
------------- -------------
Net Income (Loss) $ (238,328) $ 329,904
============= =============
Net Income (Loss) allocated:
General Partners $ (2,383) $ 3,299
Limited Partners (235,945) 326,605
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$ (238,328) $ 329,904
============= =============
Net Income (Loss) per Limited Partner
Unit (68,043 Units) $ (3.47) $ 4.80
============ =============
The accompanying notes are an integral part of
these financial statements.
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
STATEMENT OF CHANGES IN PARTNERS' EQUITY (Deficiency)
For the Three Months Ended June 30, 2002
(Unaudited)
Initial Investor Net
General Limited Limited Unrealized
Partners Partners Partners Gains Total
------------ ----------- -------------- ----------- -------------
Balance at March 31, 2002 $ (442,006) $ 5,000 $ 15,345,058 $ 7,398 $ 14,915,450
------------ ----------- -------------- ----------- -------------
Comprehensive Income (Loss):
Change in net unrealized gains
on marketable securities
available for sale - - - 153 153
Net Loss (2,383) - (235,945) - (238,328)
----------- ----------- -------------- ----------- -------------
Comprehensive Income (Loss) (2,383) - (235,945) 153 (238,175)
----------- ----------- -------------- ----------- -------------
Balance at June 30, 2002 $ (444,389) $ 5,000 $ 15,109,113 $ 7,551 $ 14,677,275
=========== =========== ============== =========== =============
The accompanying notes are an integral part of
these financial statements.
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
For the Three Months Ended June 30, 2002 and 2001
(Unaudited)
2002 2001
------------- -------------
Net cash used for operating activities $ (600,269) $ (311,564)
Net cash provided by (used for) investing activities (19,185) 629,926
------------- -------------
Net increase (decrease) in cash and cash equivalents (619,454) 318,362
Cash and cash equivalents, beginning 747,914 418,233
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Cash and cash equivalents, ending $ 128,460 $ 736,595
============= =============
The accompanying notes are an integral part of
these financial statements.
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
Notes to the Financial Statements
(Unaudited)
The unaudited financial statements presented herein have been prepared in
accordance with the instructions to Form 10-QSB and do not include all of the
information and note disclosures required by accounting principles generally
accepted in the United States of America. These statements should be read in
conjunction with the financial statements and notes thereto included with the
Partnership's Form 10-KSB for the year ended March 31, 2002. In the opinion of
management, these financial statements include all adjustments, consisting only
of normal recurring adjustments, necessary to present fairly the Partnership's
financial position and results of operations. The results of operations for the
periods may not be indicative of the results to be expected for the year.
The Managing General Partner of the Partnerships has elected to report results
of the Local Limited Partnerships in which the Partnership has a limited
partnership interest, on a 90 day lag basis because the Local Limited
Partnerships report their results on a calendar year basis. Accordingly, the
financial information of the Local Limited Partnerships that is included in the
accompanying financial statements is as of March 31, 2002 and 2001.
1. Investments in Local Limited Partnerships
The Partnership has limited partnership interests in twenty-two Local Limited
Partnerships which were organized for the purpose of owning and operating
multi-family housing complexes, all of which are government-assisted. Upon
dissolution of the Local Limited Partnerships, proceeds will be distributed
according to the respective Local Limited Partnership agreements.
The following is a summary of investments in Local Limited Partnerships at June
30, 2002:
Capital contributions and advances paid to Local Limited Partnerships
and purchase price paid to withdrawing partners of Local Limited Partnerships $ 43,917,615
Cumulative equity in losses of Local Limited Partnerships (excluding cumulative
unrecognized losses of $9,397,970) (25,317,688)
Cumulative cash distributions received from Local Limited Partnerships (3,507,606)
-------------
Investments in Local Limited Partnerships before adjustment 15,092,321
Excess of investment cost over the underlying assets acquired:
Acquisition fees and expenses 3,613,837
Cumulative amortization of acquisition fees and expenses (1,055,711)
-------------
Investments in Local Limited Partnerships before reserve for valuation 17,650,447
Reserve for valuation of investments in Local Limited Partnerships (3,294,973)
-------------
Investments in Local Limited Partnerships $ 14,355,474
=============
For the three months ended June 30, 2002, the Partnership advanced $167,278 to
one Local Limited Partnership, all of which was reserved. The Partnership has
recorded a reserve for valuation for its investments in Local Limited
Partnerships because there is evidence of non-temporary declines in the
recoverable amounts of three of the Local Limited Partnerships.
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
Notes to the Financial Statements (continued)
(Unaudited)
1. Investments in Local Limited Partnerships (continued)
----------------------------------------------------
The Partnership's share of the net losses of the Local Limited Partnerships for
the three months ended June 30, 2002 is $209,865. For the three months ended
June 30, 2002, the Partnership has not recognized $315,884 of equity in losses
relating to certain Local Limited Partnerships where cumulative equity in losses
and cumulative distributions exceeded its total investments in these Local
Limited Partnerships.
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain matters discussed herein constitute forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. The
Partnership intends such forward-looking statements to be covered by the safe
harbor provisions for forward-looking statements and is including this statement
for purposes of complying with these safe harbor provisions. Although the
Partnership believes the forward-looking statements are based on reasonable
assumptions, the Partnership can give no assurance that its expectations will be
attained. Actual results and timing of certain events could differ materially
from those projected in or contemplated by the forward-looking statements due to
a number of factors, including, without limitation, general economic and real
estate conditions and interest rates.
Accounting Policies
The Partnership's accounting polices include those that relate to its
recognition of investments in Local Limited Partnerships using the equity method
of accounting. The Partnership's policy is as follows:
The Partnership accounts for its investments in Local Limited Partnerships using
the equity method of accounting because the Partnership does not have control
over the major operating and financial policies of the Local Limited
Partnerships in which it invests. Under the equity method, the investment is
carried at cost, adjusted for the Partnership's share of net income or loss and
for cash distributions from the Local Limited Partnerships; equity in income or
loss of the Local Limited Partnerships is included currently in the
Partnership's operations. Under the equity method, a Local Limited Partnership
investment will not be carried below zero. To the extent that equity in losses
are incurred when the Partnership's carrying value of the respective Local
Limited Partnership has been reduced to a zero balance, the losses will be
suspended and offset against future income. Income from Partnership investments
where cumulative equity in losses plus cumulative distributions have exceeded
the total investment in Local Limited Partnerships will not be recorded until
all of the related unrecorded losses have been offset. To the extent that a
Local Limited Partnership with a carrying value of zero distributes cash to the
Partnership, that distribution is recorded as income on the books of the
Partnership and is included in "Other Revenue" in the accompanying financial
statements.
Liquidity and Capital Resources
The Partnership had a decrease in cash and cash equivalents of $619,454 from
$747,914 at March 31, 2002 to $128,460 at June 30, 2002. The decrease is
primarily attributable to cash used for operations and advances to a Local
Limited Partnership.
The Managing General Partner originally designated 4% of the Gross Proceeds as
Reserves, as defined in the Partnership Agreement. The Reserves were established
to be used for working capital of the Partnership and contingencies related to
the ownership of Local Limited Partnership interests. The Managing General
Partner may increase or decrease such Reserves from time to time, as it deems
appropriate. At June 30, 2002, approximately $544,000 of cash, cash equivalents
and marketable securities has been designated as Reserves.
To date, professional fees relating to various Property issues totaling
approximately $1,408,000 have been paid from Reserves. To date, Reserve funds in
the amount of approximately $304,000 also have been used to make additional
capital contributions to one Local Limited Partnership. In the event a Local
Limited Partnership encounters operating difficulties requiring additional
funds, the Managing General Partner might deem it in its best interest to
voluntarily provide such funds in order to protect its investment. As of June
30, 2002, the Partnership has advanced approximately $1,268,000 to Local Limited
Partnerships to fund operating deficits.
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Liquidity and Capital Resources (continued)
- ------------------------------------------
The Managing General Partner believes that the investment income earned on the
Reserves, along with cash distributions received from Local Limited
Partnerships, to the extent available, will be sufficient to fund the
Partnership's ongoing operations. Reserves may be used to fund Partnership
operating deficits, if the Managing General Partner deems funding appropriate.
If Reserves are not adequate to cover the Partnership's operations, the
Partnership will seek other financing sources including, but not limited to, the
deferral of Asset Management Fees paid to an affiliate of the Managing General
Partner or working with Local Limited Partnerships to increase cash
distributions. To date, the Partnership has used approximately $803,000 of
operating funds to replenish Reserves.
Since the Partnership invests as a limited partner, the Partnership has no
contractual obligation to provide additional funds to Local Limited Partnerships
beyond its specified investment. Thus, at June 30, 2002, the Partnership had no
contractual or other obligation to any Local Limited Partnership which had not
been paid or provided for.
Cash Distributions
No cash distributions were made during the three months ended June 30, 2002.
Results of Operations
The Partnership's results of operations for the three months ended June 30, 2002
resulted in a net loss of $238,328 as compared to a net income of $329,904 for
the same period in 2001. The change between years is primarily attributable to a
recovery of provision for valuation of advances to Local Limited Partnerships of
$495,200 for the reimbursement during 2001 of advances made to one Local Limited
Partnership in previous years. Also, during the 2002 period, the Partnership
recorded a provision for valuation of advances to Local Limited Partnerships of
$167,278. Equity in losses of Local Limited Partnerships decreased between years
due to an increase in losses not recognized by the Partnership for Local Limited
Partnerships whose cumulative equity in losses and cumulative distributions
exceeded its total investment in those Local Limited Partnerships.
Property Discussions
The Partnership's investment portfolio consists of limited partnership interests
in twenty-two Local Limited Partnerships, each of which owns and operates a
multi-family apartment complex. A majority of the Properties have stabilized
operations and operate above break-even. A few Properties generate cash flow
deficits that the Local General Partners of those Properties fund through
project expenses loans, subordinated loans or operating escrows. However, some
Properties have persistent operating difficulties that could either: i) have an
adverse impact on the Partnership's liquidity; ii) result in their foreclosure
or iii) result in the Managing General Partner deeming it appropriate for the
Partnership to dispose of its interest in the Property. Also, the Managing
General Partner, in the normal course of the Partnership's business, may desire
to dispose of the Partnership's interest in certain Properties. The following
Property discussion focuses only on such Properties.
The Local General Partner of Buena Vista, located in Buena Vista, Georgia, and
Greentree Village, located in Greenville, Georgia, expressed to the Managing
General Partner some concerns over the long-term financial health of the
Properties. In response to these concerns and to reduce possible future risk,
the Managing General Partner reached agreement with the Local General Partner on
a plan that will ultimately transfer ownership of the Properties to the Local
General Partner. The plan includes provisions to minimize the risk of recapture.
The Properties have generated the majority of their total Tax Credits. The
Managing General Partner has not yet transferred any of the Partnership's
interest in these Properties.
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Property Discussions (continued)
- -------------------------------
In June of 1998, the Managing General Partner was informed that the Local
General Partner of Bentley Court, located in Columbia, South Carolina was
indicted on various criminal charges and pled guilty on certain counts. The
Managing General Partner has replaced the Local General Partner and replaced the
site management company. Further, an IRS audit of the 1993 tax return for the
Property questioned the treatment of certain items and had findings of
non-compliance in 1993. The IRS then expanded the scope of the audit to include
the 1994 and 1995 tax returns. As a result, the IRS disallowed the Property's
Tax Credits for each of these years. On behalf of the Partnership, the Managing
General Partner retained counsel to appeal the IRS's findings in order to
minimize the loss of Credits. In the opinion of the Managing General Partner,
there is a substantial risk that Bentley Court and, consequently, the
Partnership will suffer significant Tax Credit recapture and/or Credit
disallowance. However, it is not possible to quantify the risk at this time. As
a result of the continuing tax issues at this Property, The Managing General
Partner has decided to fully reserve the Partnership's investment in Bentley
Court.
On April 28, 2000, the Managing General Partner, on behalf of the Partnership,
filed suit against the former Local General Partner of Bentley Court and certain
affiliates of the former Local General Partner alleging mismanagement of the
Local Limited Partnership. During May 2001, the former Local General Partner
authorized the release of funds held in escrow in the amount of approximately
$640,000 to the Partnership which amount was used to reimburse the Partnership
for advances made in previous years.
Two of the buildings at Bentley Court, which comprise 32 of the 273 units at the
Property, caught on fire and were determined to be a total loss. Insurance
proceeds covered the cost to rebuild both buildings and the reconstructed units
were ready for occupancy during late 2001. Re-leasing the units has been
difficult due to weak market conditions. The property operates at a deficit and
the Managing General Partner has advanced Partnership Reserves to enable the
Property to stay current on its financial obligations.
BK Apartments, located in Jamestown, North Dakota, continues to operate at a
deficit. As previously reported, in November 1997, due to concerns about the
Property's long term viability, the Managing General Partner consummated a
transfer of 50% of the Partnership's interest in capital and profits of BK
Apartments Limited Partnership to the Local General Partner. The Managing
General Partner also has the right to put the Partnership's remaining interest
to the new Local General Partner any time after September 1, 2001. The Property
generated its final year of Tax Credits in 2001 and the Partnership retained its
full share of the Property's Tax Credits through such time period. The Local
General Partner subsequently transferred its general partner interest to a new,
nonprofit general partner. In addition, the new Local General Partner has the
right to call the remaining interest after the Tax Credit period has expired.
The Property currently operates below break-even and the new Local General
Partner has funded the deficits.
Although the neighborhood in which 46 & Vincennes (Chicago, Illinois) is located
improved in the last few years, potential tenants are reluctant to occupy the
Property due to its location. As a result, maintaining occupancy, and therefore,
revenues, continues to be an issue. Advances from the Local General Partner's
Developer Escrow have enabled the Property to stay current on its loan
obligations.
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Property Discussions (continued)
- -------------------------------
During 1994, the Local General Partner at the Dorsett (Philadelphia,
Pennsylvania) transferred its interest in the Property. The IRS subsequently
conducted a compliance audit at the Property and has taken the position that the
Property is subject to recapture due to non-compliance issues. The Managing
General Partner disagrees with the IRS and is working to resolve the matter.
However, in the opinion of the Managing General Partner, there is a substantial
risk that the Dorsett and the Partnership could suffer significant Tax Credit
recapture or Tax Credit disallowance. However, it is not possible to quantify
the potential amount at this time. Further, the Property suffers from poor
location and security issues. Vandalism has caused an increase in maintenance
and repair expenses and has negatively affected the Property's occupancy levels
and tenant profile.
The Managing General Partner is negotiating a transfer of the Local General
Partner interest in West Pine (Imperial, Pennsylvania) to the Allegheny County
Housing Authority ("ACHA"). The ACHA has informed the Managing General Partner
of its interest in acquiring the Partnership's interest in the Property, pending
their assumption of the Local General Partner interest. Should ACHA assume the
Local General Partner interest, it is likely that the Managing General Partner
would negotiate an agreement that would ultimately transfer the Partnership's
interest in the Property to ACHA. West Pine generated its final year of Tax
Credits during 2001.
The Partnership has implemented policies and practices for assessing potential
impairment of its investments in Local Limited Partnerships. Real estate experts
analyze the investments to determine if impairment indicators exist. If so, the
carrying value is compared to the undiscounted future cash flows expected to be
derived from the asset. If there is a significant impairment in carrying value,
a provision to write down the asset to fair value will be recorded in the
Partnership's financial statements.
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
PART II OTHER INFORMATION
Items 1-5 Not applicable
Item 6 Exhibits and reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K - No reports on Form 8-K were filed
during the quarter ended June 30, 2002.
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DATED: August 14, 2002 BOSTON FINANCIAL QUALIFIED HOUSING
TAX CREDITS L.P. IV
By: Arch Street IV, Inc.,
its Managing General Partner
/s/Jenny Netzer
-------------------------------
Jenny Netzer
Principal, Head of Housing and
Community Investment