August 13, 1998
Securities and Exchange Commission
Filer Support, Edgar
Operation Center, Stop 0-7
6432 General Green Way
Alexandria, VA 22312
Re: Boston Financial Qualified Housing Tax Credits L.P. IV
Report on Form 10-Q for Quarter Ended June 30, 1998
File No. 0-19765
Gentlemen:
Pursuant to the requirements of section 15(d) of the Securities Exchange Act of
1934, there is filed herewith a copy of subject report.
Very truly yours,
/s/Dianne Groark
Dianne Groark
Assistant Controller
QH4-10Q1.DOC
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934
(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, 1998
--------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------------------ ----------------------
For Quarter Ended June 30, 1998 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. Combined Financial Statements
Combined Balance Sheets - June 30, 1998 (Unaudited)
and March 31, 1998 1
Combined Statements of Operations (Unaudited) - For the Three
Months Ended June 30, 1998 and 1997 2
Combined Statement of Changes in Partners' Equity (Deficiency)
(Unaudited) - For the Three Months Ended June 30, 1998 3
Combined Statements of Cash Flows (Unaudited) - For the
Three Months Ended June 30, 1998 and 1997 4
Notes to Combined Financial Statements (Unaudited) 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II - OTHER INFORMATION
Items 1-6 13
SIGNATURE 14
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
COMBINED BALANCE SHEETS - June 30, 1998 and March 31, 1998
June 30, March 31,
1998 1998
(Unaudited)
Assets
Cash and cash equivalents $ 394,803 $ 386,059
Marketable securities, at fair value 1,088,068 985,849
Accounts receivable, net of allowance for bad debt of
$315,015 and $314,316, respectively 38,997 12,759
Tenant security deposits 93,557 85,340
Investments in Local Limited Partnerships,
net of reserve for valuation of $2,724,482 (Note 1) 15,815,653 15,959,055
Rental property at cost, net of accumulated depreciation 13,692,531 13,846,553
Mortgagee escrow deposits 155,381 114,300
Deferred charges, net of accumulated amortization of
$181,795 and $176,768, respectively 184,049 189,076
Other assets 19,313 29,133
------------- -------------
Total Assets $ 31,482,352 $ 31,608,124
============= =============
Liabilities and Partners' Equity
Mortgage notes payable $ 9,696,482 $ 9,720,859
Accounts payable to affiliates 648,890 602,600
Accounts payable and accrued expenses 379,100 340,574
Interest payable 691,673 627,412
Tenant security deposits payable 81,351 84,131
Payable to affiliated Developer 2,482,000 2,482,000
------------- -------------
Total Liabilities 13,979,496 13,857,576
------------- -------------
Minority interest in Local Limited Partnerships 416,657 432,469
------------- -------------
General, Initial and Investor Limited Partners' Equity 17,082,940 17,316,902
Net unrealized gains on marketable securities 3,259 1,177
------------- -------------
Total Partners' Equity 17,086,199 17,318,079
------------- -------------
Total Liabilities and Partners' Equity $ 31,482,352 $ 31,608,124
============= =============
The accompanying notes are an integral part of these combined
financial statements.
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
COMBINED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended June 30, 1998 and 1997
1998 1997
------------- ----------
Revenue:
Rental $ 435,763 $ 452,882
Investment 25,368 24,709
Other 81,886 74,488
------------- -------------
Total Revenue 543,017 552,079
------------- -------------
Expenses:
Asset management fee, related party 49,626 57,480
General and administrative (includes reimbursement
to affiliate in the amounts of $25,218 and
$48,279, respectively) 64,744 90,575
Bad debt expense 699 17,556
Rental operations, exclusive of depreciation 219,332 256,956
Property management fee, related party 28,346 32,552
Interest 245,143 257,839
Depreciation 157,338 186,690
Amortization 21,620 27,869
------------- -------------
Total Expenses 786,848 927,517
------------- -------------
Loss before equity in losses of Local Limited Partnerships
and minority interest in losses of Local Limited Partnerships (243,831) (375,438)
Equity in losses of Local
Limited Partnerships (Note 1) (5,943) (369,352)
Minority interest in losses of
Local Limited Partnerships 15,812 19,840
------------- -------------
Net Loss $ (233,962) $ (724,950)
============= =============
Net Loss allocated:
To General Partners $ (2,340) $ (7,250)
To Limited Partners (231,622) (717,700)
------------- -------------
$ (233,962) $ (724,950)
============= =============
Net Loss per Limited Partnership Unit
(68,043 Units) $ (3.40) $ (10.55)
============= ============
The accompanying notes are an integral part of these combined
financial statements.
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
COMBINED STATEMENT OF CHANGES IN PARTNERS' EQUITY (DEFICIENCY)
(Unaudited)
For the Three Months Ended June 30, 1998
Initial Investor Net
General Limited Limited Unrealized
Partners Partners Partners Gains Total
Balance at March 31, 1998 $ (417,917) $ 5,000 $ 17,729,819 $ 1,177 $ 17,318,079
Net change in net unrealized
gains on marketable securities
available for sale - - - 2,082 2,082
Net Loss (2,340) - (231,622) - (233,962)
------------- ------------- ------------- ------------- -------------
Balance at June 30, 1998 $ (420,257) $ 5,000 $ 17,498,197 $ 3,259 $ 17,086,199
============= ============== ============= ============= =============
The accompanying notes are an integral part of these combined
financial statements.
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
COMBINED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended June 30, 1998 and 1997
1998 1997
------------- ---------
Net cash used for operating activities $ (24,925) $ (2,305)
------------- -------------
Cash flows from investing activities:
Purchases of marketable securities (274,831) (49,094)
Proceeds from sales and maturities of
marketable securities 174,177 87,240
Cash distributions received from Local
Limited Partnerships 182,783 64,034
Advances to Local Limited Partnerships (32,613) (60,980)
Purchase of rental property (3,316) (29,537)
------------- -------------
Net cash provided by investing activities 46,200 11,663
------------- -------------
Cash flows from financing activities:
Advances from affiliates 11,846 -
Payment of mortgage principal (24,377) (40,811)
------------- -------------
Net cash used for financing activities (12,531) (40,811)
------------- -------------
Net increase (decrease) in cash and cash equivalents 8,744 (31,453)
Cash and cash equivalents, beginning 386,059 288,153
------------- -------------
Cash and cash equivalents, ending $ 394,803 $ 256,700
============= =============
Supplemental disclosure:
Cash paid for interest $ 180,882 $ 171,208
============= =============
The accompanying notes are an integral part of these combined
financial statements.
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Unaudited)
The unaudited financial statements presented herein have been prepared in
accordance with the instructions to Form 10-Q and do not include all of the
information and note disclosures required by generally accepted accounting
principles. These statements should be read in conjunction with the financial
statements and notes thereto included with the Partnership's 10-K for the year
ended March 31, 1998. 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 has elected to report results of the Local Limited
Partnerships on a 90 day lag basis, because the Local Limited Partnerships
report their results on a calendar year basis. Accordingly, the financial
information about the Local Limited Partnerships that is included in the
accompanying combined financial statements is as of March 31, 1998 and 1997.
1. Investments in Local Limited Partnerships
The Partnership uses the equity method to account for its limited partnership
interests in twenty-six Local Limited Partnerships (excluding the Combined
Entities) which own and operate multi-family housing complexes, most of which
are government-assisted. The Partnership, as Investor Limited Partner pursuant
to the various Local Limited Partnership Agreements which contain certain
operating and distribution restrictions, has generally acquired a 99% interest
in the profits, losses, tax credits and cash flows from operations of each of
the Local Limited Partnerships. Upon dissolution, proceeds will be distributed
according to each respective partnership agreement.
The following is a summary of investments in Local Limited Partnerships,
excluding the Combined Entities, at June 30, 1998:
Capital contributions paid to Local Limited
Partnerships and purchase price paid to
withdrawing partners of Local Limited Partnerships $ 43,001,951
Cumulative equity in losses of Local Limited
Partnerships (includes cumulative unrecognized
losses of $3,034,536) (25,517,582)
Cash distributions received from Local
Limited Partnerships (1,991,242)
------------
Investments in Local Limited Partnerships
before adjustment 15,493,127
Excess of investment cost over the underlying net assets acquired:
Acquisition fees and expenses 3,899,388
Accumulated amortization of acquisition
fees and expenses (852,380)
------------
Investments in Local Limited Partnerships 18,540,135
Reserve for valuation of investments
in Local Limited Partnerships (2,724,482)
------------
$ 15,815,653
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
(Unaudited)
1. Investments in Local Limited Partnerships (continued)
The Partnership's share of the net losses of the Local Limited Partnerships,
excluding the Combined Entities, for the three months ended June 30, 1998 is
$533,168. For the three months ended June 30, 1998, the Partnership has not
recognized $589,142 of equity in losses relating to thirteen Local Limited
Partnerships where cumulative equity in losses and cumulative distributions
exceeded its total investments in these Local Limited Partnerships.
2. Effect of Recently Issued Accounting Standard
The Financial Accounting Standards Board recently issued Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income. The Partnership
has adopted the new standard effective April 1, 1998. The adoption of this
standard had no effect on the Partnership's net income or partner's equity.
Comprehensive loss was $231,880 and $722,511 for the quarters ended June 30,
1998 and 1997, respectively. Comprehensive loss includes the change in net
unrealized gains and losses on marketable securities available for sale of
$2,082 and $2,439 for the quarters ended June 30, 1998 and 1997, respectively.
3. Liquidation of Interests in Local Limited Partnerships
The Managing General Partner has transferred all of the assets of eleven of the
Texas Partnerships, subject to their liabilities, to unaffiliated entities. The
transfers of Grandview Terrace Apartments, Pecan Hills Apartments, Seagraves
Garden Apartments, Hilltop Apartments and Bent Tree Housing were effective
February 21, 1996, February 29, 1996, March 8, 1996, June 6, 1996 and November
20, 1996, respectively. Justin Place Apartments and Valley View Apartments were
transferred July 9, 1997, Nacona Terrace Apartments and Royal Creste Apartments
were transferred August 6, 1997, Pine Manor Apartments was transferred on
October 28, 1997 and Pinewood Terrace Apartments was transferred on July 9,
1998. The transfer of the remaining Texas Partnership, Gateway Village, is
expected to take place in January 1999.
For tax purposes, these events result in both Section 1231 Gain and cancellation
of indebtedness income. In addition, the transfer of ownership will result in a
nominal amount of recapture of tax credits, since the Texas Partnerships
represent only 3% of the Partnership's tax credits.
4. Litigation
Bentley Court is involved in an audit by the IRS in which the IRS is questioning
the treatment of certain items and included findings for non-compliance in 1993.
On behalf of the Partnership, the Managing General Partner hired attorneys to
respond to the IRS. The Managing General Partner was recently advised that the
local general partner for this property has been indicted on various criminal
charges. The Managing General Partner has not yet obtained a copy of this
indictment. In the opinion of management, there is a risk that Bentley Court
will suffer some tax credit recapture or credit disallowance. However,
management cannot quantify the risk at this time. The Managing General Partner
is in the process of removing the Local General Partner of Bentley Court and
replacing him with an affiliate of the Managing General Partner.
The Partnership is not a party to any other pending legal or administrative
proceeding, and to the best of its knowledge, no legal or administrative
proceeding is threatened or contemplated against it.
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
(Unaudited)
5. Supplemental Combining Schedules
Balance Sheets
Boston Financial
Qualified Housing Combined
Tax Credits Entities Combined
L.P. II (A) (B) Eliminations (A)
Assets
Cash and cash equivalents $ 272,150 $ 122,653 $ - $ 394,803
Marketable securities, at fair value 1,088,068 - - 1,088,068
Accounts receivable, net 390,589 18,930 (370,522) 38,997
Tenant security deposits - 93,557 - 93,557
Investments in Local
Limited Partnerships, net 16,010,604 - (194,951) 15,815,653
Rental property at cost, net - 13,692,531 - 13,692,531
Mortgagee escrow deposits - 155,381 - 155,381
Deferred charges, net - 184,049 - 184,049
Other assets 18,936 377 - 19,313
------------- ------------- ------------- -------------
Total Assets $ 17,780,347 $ 14,267,478 $ (565,473) $ 31,482,352
============= ============= ============= =============
Liabilities and Partners' Equity
Mortgage notes payable $ - $ 9,696,482 $ - $ 9,696,482
Accounts payable to affiliates 594,885 424,527 (370,522) 648,890
Accounts payable and accrued expenses 99,263 279,837 - 379,100
Interest payable - 691,673 - 691,673
Tenant security deposits payable - 81,351 - 81,351
Payable to affiliated Developer - 2,482,000 - 2,482,000
------------- ------------- ------------- -------------
Total Liabilities 694,148 13,655,870 (370,522) 13,979,496
------------- ------------- ------------- -------------
Minority interest in Local Limited
Partnerships - - 416,657 416,657
------------- ------------- ------------- -------------
General, Initial and Investor
Limited Partners' Equity 17,082,940 611,608 (611,608) 17,082,940
Net unrealized gains on
marketable securities 3,259 - - 3,259
------------- ------------- ------------- -------------
Total Partners' Equity 17,086,199 611,608 (611,608) 17,086,199
------------- ------------- ------------- -------------
Total Liabilities and Partners' Equity $ 17,780,347 $ 14,267,478 $ (565,473) $ 31,482,352
============= ============= ============= =============
(A) As of June 30, 1998.
(B) As of March 31, 1998.
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
(Unaudited)
5. Supplemental Combining Schedules (continued)
Statements of Operations
Boston Financial
Qualified Housing Combined
Tax Credits Entities Combined
L.P. II (A) (B) Eliminations (A)
Revenue:
Rental $ - $ 435,763 $ - $ 435,763
Investment 16,894 8,474 - 25,368
Other 70,902 10,984 - 81,886
------------ ------------- ------------- -------------
Total Revenue 87,796 455,221 - 543,017
------------ ------------- ------------- -------------
Expenses:
Asset management fees, related party 49,626 - - 49,626
General and administrative 64,744 - - 64,744
Bad debt expense 699 - - 699
Rental operations, exclusive of depreciation - 219,332 - 219,332
Property management fee, related party - 28,346 - 28,346
Interest - 245,143 - 245,143
Depreciation - 157,338 - 157,338
Amortization 16,593 5,027 - 21,620
------------ ------------- ------------- -------------
Total Expenses 131,662 655,186 - 786,848
------------ ------------- ------------- -------------
Loss before equity in losses of Local Limited
Partnerships and minority interest
in losses of Local Limited
Partnerships (43,866) (199,965) - (243,831)
Equity in losses of Local Limited
Partnerships (190,096) - 184,153 (5,943)
Minority interest in losses of
Local Limited Partnerships - - 15,812 15,812
------------ ------------- ------------- -------------
Net Loss $ (233,962) $ (199,965) $ 199,965 $ (233,962)
============ ============= ============= =============
(A) For the three months ended June 30, 1998.
(B) For the three months ended March 31, 1998.
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
(Unaudited)
5. Supplemental Combining Schedules (continued)
Statements of Cash Flows
Boston Financial
Qualified Housing Combined
Tax Credits Entities Combined
L.P. II (A) (B) Eliminations (A)
Net cash provided by (used for)
operating activities $ (50,174) $ 25,249 $ - $ (24,925)
------------- ------------- ------------- -------------
Cash flows from investing activities:
Purchases of marketable securities (274,831) - - (274,831)
Proceeds from sales and maturities
of marketable securities 174,177 - - 174,177
Cash distributions received from
Local Limited Partnerships 182,783 - - 182,783
Advances to Local Limited Partnerships (32,613) - - (32,613)
Purchase of rental property - (3,316) - (3,316)
------------- ------------- ------------- -------------
Net cash provided by (used for)
investing activities 49,516 (3,316) - 46,200
------------- ------------- ------------- -------------
Cash flows from financing activities:
Advances from affiliates - 11,846 - 11,846
Payment of mortgage principal - (24,377) - (24,377)
------------- ------------- ------------- -------------
Net cash used for financing activities - (12,531) - (12,531)
------------- ------------- ------------- -------------
Net increase (decrease) in cash
and cash equivalents (658) 9,402 - 8,744
Cash and cash equivalents, beginning 272,808 113,251 - 386,059
------------- ------------- ------------- -------------
Cash and cash equivalents, ending $ 272,150 $ 122,653 $ - $ 394,803
============= ============= ============= =============
(A) For the three months ended June 30, 1998.
(B) For the three months ended March 31, 1998.
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. IV
(A Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Partnership (including the Combined Entities) had an increase in cash and
cash equivalents of $8,744 from $386,059 at March 31, 1998 to $394,803 at June
30, 1998. The increase is mainly attributable to cash distributions received
from Local Limited Partnerships. The increase is offset by cash used for
operations, purchases of marketable securities in excess of proceeds from sales
and maturities of marketable securities, repayment of mortgage principal and
purchases of rental property by the Combined Entities.
The Managing General Partner initially designated 4% of the Gross Proceeds as
Reserves. The Reserves were established to be used for working capital of the
Partnership and contingencies related to the ownership of Local Limited
Partnership interests. Funds totaling approximately $1,162,000 have been
withdrawn from the Reserve account to pay legal fees relating to various
property issues. This amount includes approximately $1,097,000 for the Texas
Partnerships. To date, Reserve funds in the amount of $304,000 have been used to
make additional capital contributions to a Local Limited Partnership. To date,
the Partnership has used approximately $1,209,000 of operating funds to
replenish Reserves. At March 31, 1998, approximately $1,321,000 of cash, cash
equivalents and marketable securities has been designated as Reserves.
Management 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 to an
affiliate of the Managing General Partner or working with Local Limited
Partnerships to increase cash distributions. In the event a Local Limited
Partnership encounters operating difficulties requiring additional funds, the
Partnership's management might deem it in its best interests to voluntarily
provide such funds in order to protect its investment. To date, in addition to
the $1,162,000 noted above, the Partnership has also advanced approximately
$754,000 to the Texas Partnerships to fund operating deficits. Approximately
$389,000 has also been advanced to four other Local Limited Partnerships.
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, 1998, 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, 1998.
Results of Operations
The Partnership's results of operations for the three months ended June 30, 1998
resulted in a net loss of $233,962 as compared to a net loss of $724,950 for the
same period in 1997. The decrease in net loss is primarily attributable to a
decrease in equity in losses of Local Limited Partnerships and decreases in
rental operations, interest, depreciation and general and administrative
expenses. The decrease in equity in losses of Local Limited Partnerships is 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 partnerships. The decrease in equity in
losses of Local Limited Partnerships is expected to continue. The decrease in
rental operations, interest and depreciation expenses is attributable to the
transfer of three of the Combined Entities in the third and fourth quarters of
calendar 1997. The decrease in general and administrative expenses in due to a
decrease in salary reimbursement expense due to the timing of payments.
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
Prior to the transfer of eleven of the Texas Partnerships, Limited Partnership
interests had been acquired in thirty-seven Local Limited Partnerships which are
located in thirteen states, Washington, D.C. and Puerto Rico. Fifteen of the
properties with 1,440 apartments were newly constructed, and twenty-two of the
properties with 2,061 apartments were rehabilitated. Most of the Local Limited
Partnerships have stable operations, operating at break-even or generating
operating cash flow.
A few properties are experiencing operating difficulties and cash flow deficits
due to a variety of reasons. The Local General Partners of those properties have
funded operating deficits through project expense loans, subordinated loans or
payments from operating escrows. In instances where the Local General Partners
have stopped funding deficits because their obligation to do so has expired or
otherwise, the Managing General Partner is working with the Local General
Partners to increase operating income, reduce expenses or refinance the debt at
lower interest rates in order to improve cash flow.
Audobon Apartments, located in Massachusetts, is operating below break-even
primarily due to decreased rental subsidy assistance, increased operating
expenses and adverse market conditions. The SHARP mortgage subsidy has been an
important part of the property's annual income. However, effective October 1,
1997, the Massachusetts Housing Finance Agency (MHFA) which provided the SHARP
subsidies, withdrew future SHARP mortgage subsidies from its portfolio of 77
SHARP subsidized properties. The Managing General Partner joined a group of
interested parties and is working with MHFA to find a solution to the problems
that will arise as a result of withdrawn subsidies. Given the dependence on the
mortgage subsidy, it is possible that the property will default on its mortgage
obligation in the near future. It is possible that Partnership Reserves will be
used to support the property until these issues can be resolved. The Local
General Partner has also obtained preliminary approval for releases from lender
escrows to fund certain cash deficits. In addition to the SHARP issues, the
Managing General Partner continues to work with the lender to develop a
satisfactory workout. It is likely that a workout would require an advance from
Partnership Reserves. For financial reporting purposes, the carrying value of
this investment is zero.
Another property affected by the withdrawal of the SHARP subsidies is Brown
Kaplan, located in Boston, Massachusetts. Brown Kaplan is experiencing operating
difficulties and cash flow deficits. The Local General Partner and Managing
General Partner are working together to develop a Partnership strategy to deal
with the property's deficits and MHFA's new SHARP policies. In addition, the
Managing General Partner and Local General Partner are working with MHFA to find
a solution to the problems that have and will arise as a result of withdrawn
subsidies.
Bentley Court, located in Columbia, South Carolina, continues to generate
significant deficits despite the July 1996 debt refinancing. As previously
reported, an agreement was set up with the lender which enabled an affiliate of
the Managing General Partner to become an additional General Partner and
substitute management agent, subject to lender approval, with the right to take
control of the property if it becomes necessary. In addition, the agreement
stipulates that if the Local Limited Partnership defaults on the agreement, the
lender has the right to remove the management company. The Managing General
Partner is now in the process of removing the Local General Partner of Bentley
Court and replacing him with an affiliate of the Managing General Partner. In
addition, the IRS finalized its report from an audit of the 1993 tax return for
the project. The IRS report includes the questioning of the treatment of certain
items and findings for non-compliance in 1993. Management understands that the
audit now also focuses on 1994 and 1995 tax credits. On behalf of the
Partnership, the Managing General Partner hired attorneys to appeal the findings
in the IRS report in order to minimize the loss of credits. Recently, the
Managing General Partner was informed that the Local General Partner for this
property has been indicted on various criminal charges. The Managing General
Partner has not yet obtained a copy of this indictment. In the opinion of
management, there is a risk that Bentley Court will suffer some tax credit
recapture or credit disallowance. However, management
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)
cannot quantify the risk at this time. The Managing General Partner will
continue to monitor property operations and the Local General Partner closely.
Operating deficits are currently being funded by the Local General Partner. As a
result of the continuing tax issues at this property, management has decided to
fully reserve the Partnership's investment in Bentley Court.
As previously reported, BK Apartments, located in Jamestown, North Dakota, has
been generating operating deficits despite improved occupancy. The lender issued
a default notice and threatened to foreclose. A workout agreement was negotiated
and completed on November 10, 1997. The Managing General Partner is closely
monitoring the workout plan with the Local General Partner. Furthermore, in
November 1997, the Managing General Partner consummated a transfer of 50% of its
interest in capital and profits of BK Apartments Limited Partnership to the
Local General Partner. Included in this transfer is a put option. The put option
grants the Managing General Partner the right to put the Partnership's remaining
interest to the Local General Partner any time after one year has elapsed. The
Partnership will retain its full share of tax credits until such time as the
remaining interest is put to the Local General Partner. In addition, the Local
General Partner has the right to call the remaining interest after the tax
credit period has expired.
As previously reported, at Findlay Market (Cincinnati, Ohio), reconstruction of
the property units damaged by fire was competed in December 1996, and lease up
continues. In order to reconstruct the units damaged by the fire, the
Partnership agreed to advance up to $345,000 to help cover the funding shortfall
between the insurance proceeds, lender funding and a City grant. To date, the
Partnership has advanced approximately $299,000 of this amount. However, the
property continues to generate operating deficits which caused the default of
the first mortgage. At this juncture, the lender is not amenable to a cure of
the mortgage and is expected to exercise its right to foreclose on the mortgage.
Despite these indications, the Managing and Local General Partners continue to
negotiate with the lender in hopes of averting a foreclosure. A foreclosure on
this property will result in recapture of tax credits, plus interest and the
allocation of taxable income to the Partnership. For financial reporting
purposes, the carrying value of this investment has been written down to zero.
As previously reported, negotiations between the Managing General Partner, the
Lender and prospective buyer for the remaining two Texas Partnerships, Pinewood
Terrace and Gateway Village, have continued and have resulted in the transfer of
Pinewood Terrace Apartments on July 9, 1998. The transfer of Gateway Village
Apartments is expected to take place in the first quarter of 1999. For tax
purposes, the transfer events of Pinewood Terrace and Gateway Village will
result in both Section 1231Gain and cancellation of indebtedness income. In
addition, the transfer of ownership will result in a nominal amount of recapture
of tax credits, since these two Texas Partnerships represent only 3% of the
Partnership's tax credits.
At 46 & Vincennes, located in Chicago, Illinois, operations are running below
break-even due to occupancy problems. On April 1, 1998 the management agent was
replaced with a new management agent. Occupancy as of June 30, 1998 was 82%. The
Managing General Partner will continue to monitor the new management agent,
property operations and marketing efforts.
In accordance with Financial Accounting Standard No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of",
which is effective for fiscal years beginning after December 15, 1995, the
Partnership has implemented policies and practices for assessing impairment of
its real estate assets and investments in Local Limited Partnerships. Each asset
is analyzed by real estate experts to determine if an impairment indicator
exists. If so, the carrying value is compared to the future cash flows expected
to be derived from the asset. If the total undiscounted cash flows are less than
the carrying value, a provision to write down the asset to fair value will be
charged against income.
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, 1998.
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 13, 1998 BOSTON FINANCIAL QUALIFIED HOUSING
TAX CREDITS L.P. IV
By: Arch Street IV, Inc.,
its Managing General Partner
/s/Randolph G. Hawthorne
Randolph G. Hawthorne
Managing Director, Vice President and
Chief Operating Officer