Item 1. Business
Real Estate Associates Limited IV ("REAL IV" or the "Partnership") is a limited partnership which was formed under the laws of the State of California on August 24, 1981. On March 12, 1982, REAL IV offered 3,000 units consisting of 6,000 Limited Partnership Interests and Warrants to purchase a maximum of 6,000 Additional Limited Partnership Interests through a public offering managed by E.F. Hutton Inc. REAL IV received $16,500,000 in subscriptions for units of limited partnership interests (at $5,000 per unit) during the period March 12, 1982 to July 15, 1982, pursuant to a registration statement on Form S-11. As of March 31, 1983, REAL IV received an additional $16,500,000 in subscriptions pursuant to the exercise of warrants and the sale of Additional Limited Partnership Interests. Since its offering, the Partnership has not received, nor are limited partners required to make additional capital contributions.
The Partnership shall be dissolved only upon the expiration of 52 complete calendar years (December 31, 2033) from the date of the formation of the Partnership or the occurrence of various other events as specified in the terms of the Partnership agreement. The principal business of the Partnership is to invest, directly or indirectly, in other limited partnerships which own or lease and operate Federal, state and local government-assisted housing projects.
The general partners of REAL IV are National Partnership Investments, LLC, ("NAPICO" or the “General Partner”), a California limited liability company, and National Partnership Investments Associates, a California limited partnership. The business of the Partnership is conducted primarily by NAPICO. The General Partner is a subsidiary of Bethesda Holdings II, LLC, a privately held real estate asset management company (“Bethesda”). Bethesda acquired the General Partner on December 19, 2012, pursuant to an option agreement with Aimco/Bethesda Holdings, Inc., a subsidiary of Apartment Investment and Management Company (“Aimco”), a publicly traded real estate investment trust. The general partners have a one percent interest in profits and losses of the Partnership. The limited partners have the remaining 99 percent interest which is allocated in proportion to their respective individual investments.
REAL IV holds limited partnership interests in two local limited partnerships (the "Local Limited Partnerships") as of December 31, 2012, after having 2 properties foreclosed during 2000, selling its interests in 20 Local Limited Partnerships in 1998 and one Local Limited Partnership in 2005, losing its interest in one Local Limited partnership to foreclosure in 2006 and assigning its limited partnership interest in two Local Limited Partnerships in 2011 and one Local Limited Partnership in 2012. Each of the Local Limited Partnerships owns a low income hou3sing project which is subsidized and/or has a mortgage note payable to or insured by various governmental agencies.
The partnerships in which REAL IV has invested were, at least initially, organized by private developers who acquired the sites, or options thereon, and applied for applicable mortgage insurance and subsidies. REAL IV became the principal limited partner in these Local Limited Partnerships pursuant to arm's-length negotiations with these developers, or others, who act as general partners. As a limited partner, REAL IV's liability for obligations of the Local Limited Partnership is limited to its investment. The local general partner of the Local Limited Partnership retains responsibility for developing, constructing, maintaining, operating and managing the project. Under certain circumstances of default, REAL IV has the right to replace the local general partner of the Local Limited Partnerships, but otherwise does not have control of sale, refinancing, etc.
Although each of the Local Limited Partnerships in which REAL IV has invested owns a project that must compete in the market place for tenants, interest subsidies and rent supplements from governmental agencies make it possible to offer these dwelling units to eligible "low income" tenants at a cost significantly below the market rate for comparable conventionally financed dwelling units in the area.
The Partnership has no employees. Management and administrative services are provided by the General Partner and by agents retained by the General Partner.
A further description of the Partnership's business is included in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" included in this Form 10-K.
Item 1A.
Item 1A. Risk Factors
Not applicable.
Item 2.
Item 2. Properties
During 2012, the projects in which REAL IV had invested were substantially rented. The following is a schedule of the status as of December 31, 2012 of the projects owned by Local Limited Partnerships in which REAL IV has invested.
SCHEDULE OF PROJECTS OWNED BY LOCAL LIMITED PARTNERSHIPS
IN WHICH REAL IV HAS AN INVESTMENT
DECEMBER 31, 2012
(A) Section 8 of Title II of the Housing and Community Development Act of 1994.
(B) The mortgage is regulated by the Rural Housing Service under Section 515(b) of the National Housing Act of 1949.
Ownership Percentages
The following table details the Partnership’s ownership percentages of the Local Limited Partnerships and the cost of acquisition of such ownership. All interests are limited partnership interests. Also included is the total mortgage encumbrance on each property for each of the Local Limited Partnerships as of December 31, 2012.
Real IV
Original Cost
Percentage
Of Ownership
Mortgage
Partnership
Interest
Interest
Notes
(in thousands)
(in thousands)
Better Housing Associates LP
99%
$ 310
$ 859
Oakridge Park Apts. I
95%
$ 471
$ 1,740
Although each Local Limited Partnership in which the Partnership has invested owns an apartment complex that must compete with other apartment complexes for tenants, government mortgage interest and rent subsidies make it possible to rent units to eligible tenants at below market rates. In general, management believes that this insulates the projects from market competition.
Item 3.
Item 3. Legal Proceedings
The General Partner is involved in various lawsuits arising from transactions in the ordinary course of business. In the opinion of management and the General Partner, the claims will not result in any material liability to the Partnership.
Item 4.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5.
Item 5. Market for the Registrant’s Common Equity, Related Security Holder Matters and Issuer Purchases of Equity Securities
The limited partnership interests are not traded on a public exchange but were sold through a public offering managed by E.F. Hutton Inc. It is not anticipated that any public market will develop for the purchase and sale of any partnership interest, therefore, an investor may be unable to sell or otherwise dispose of his or her interest in the Partnership. Limited partnership interests may be transferred only if certain requirements are satisfied. At December 31, 2012, there were 2,012 registered holders of 13,018.20 limited partnership interests in the Partnership. The Partnership has invested in certain government assisted projects under programs which in many instances restrict the cash return available to project owners. The Partnership was not designed to provide cash distributions to investors in circumstances other than refinancing or disposition of its investments in Local Limited Partnerships. During 2006, the Partnership distributed approximately $4,748,000 to its limited partners from proceeds received from the sale of the Partnership's interest in Scituate Vista during 2005. During 2003, there was a distribution from operations paid to the limited partners of approximately $3,000,000. In 1999, the Partnership made distributions of approximately $7,782,000 to the limited partners and $79,000 to the general partners, which included using proceeds from the sale of partnership interests.
No other distributions have been made from the inception of the Partnership.
Bethesda and its affiliates owned 2,914.94 limited partnership interests in the Partnership representing 22.39% of the outstanding limited partnership interests in the Partnership at December 31, 2012. It is possible that Bethesda or its affiliates will acquire additional limited partnership interests, either through private purchases or tender offers. Pursuant to the Partnership Agreement, holders holding a majority of the limited partnership interests are entitled to take action with respect to a variety of matters that include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the General Partner. Although the General Partner owes fiduciary duties to the limited partners of the Partnership, the General Partner also owes fiduciary duties to Bethesda as its sole stockholder. As a result, the duties of the General Partner, as general partner, to the Partnership and its limited partners may come into conflict with the duties of the General Partner to Bethesda as its sole stockholder.
Item 6.
Item 6. Selected Financial Data
Not applicable.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
This item should be read in conjunction with the financial statements and other items contained elsewhere in this report.
The General Partner monitors developments in the area of legal and regulatory compliance.
Liquidity and Capital Resources
The properties in which the Partnership has invested, through its investments in the Local Limited Partnerships, receive one or more forms of assistance from the Federal Government. 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 primary source of funds consists of distributions from the Local Limited Partnerships in which the Partnership has invested. It is not expected that any of the Local Limited Partnerships in which the Partnership has invested will generate cash flow from operations sufficient to provide for distributions to limited partners in any material amount. An infrequent source of funds is from the sale of a property held by a Local Limited Partnership or from the sale of the Partnership’s interest in a Local Limited Partnership. As of December 31, 2012 and 2011, the Partnership had cash of approximately $2,525,000 and $1,083,000, respectively.
During the year ended December 31, 2011, the Partnership advanced approximately $1,000 to one Local Limited Partnership, Better Housing Associates, to fund a tax payment. While not obligated to make advances to any of the Local Limited Partnerships, the Partnership made this advance in order to protect its economic investment in the Local Limited Partnership. This amount is included in advance made to Local Limited Partnership recognized as expense for the year ended December 31, 2011, as the investment balance in the Local Limited Partnership had been reduced to zero and the Partnership believes that the collection of this advance is doubtful.
In May 2011, the Partnership assigned its limited partnership interest in Green Ko Enterprises LP to an affiliate of the Local Operating General Partner for approximately $63,000. The proceeds received, net of Wisconsin withholding taxes of approximately $3,000, were approximately $60,000. The proceeds were recorded as gain on sale of interest in Local Limited Partnership for the year ended December 31, 2011, as the Partnership’s investment balance in this Local Limited Partnership was zero at the date of assignment.
In August 2011, the Partnership assigned its limited partnership interest in One Madison Avenue Associates to a third party for approximately $75,000. The proceeds received were recorded as gain on sale of interest in Local Limited Partnership for the year ended December 31, 2011, as the Partnership’s investment balance in this Local Limited Partnership was zero at the date of assignment.
In December 2012, the Partnership assigned its limited partnership interest in The Branford Group Limited Partnership to a third party for a total price of $1,530,000. The proceeds received were recorded as gain on sale of interest in Local Limited Partnership for the year ended December 31, 2012, as the Partnership’s investment balance in this Local Limited Partnership was zero at both December 31, 2011 and the date of assignment.
In June 2012, Better Housing Associates entered into a purchase and sale contract to sell its investment property to a third party in exchange for (i) assumption of the outstanding mortgage loans encumbering the property, and (ii) the sum of one dollar. The closing is expected to occur during the second quarter of 2013. The Partnership does not expect to receive any proceeds from the sale of the property. The Partnership had no investment balance remaining in this Local Limited Partnership at December 31, 2012 and 2011.
Results of Operations
At December 31, 2012, the Partnership had investments in two Local Limited Partnerships, both of which own housing projects that were substantially rented. The Partnership, as a limited partner, does not have a contractual relationship with the Local Limited Partnerships or exercise control over the activities and operations, including refinancing and selling decisions, of the Local Limited Partnerships that would require or allow for consolidation. Accordingly, the Partnership accounts for its investments in the Local Limited Partnerships using the equity method. Thus, the individual investments are carried at cost plus the Partnership’s share of the Local Limited Partnership’s profits less the Partnership’s share of the Local Limited Partnership’s losses, distributions and any impairment charges. However, since the Partnership is not legally liable for the obligations of the Local Limited Partnerships, or is not otherwise committed to provide additional support to them, it does not recognize losses once its investment in each of the Local Limited Partnerships reaches zero. Distributions from the Local Limited Partnerships are accounted for as a reduction of the investment balance until the investment balance is reduced to zero. When the investment balance has been reduced to zero, subsequent distributions received are recognized as income in the statements of operations included in “Item 8. Financial Statements and Supplementary Data”. For those investments where the Partnership has determined that the carrying value of its investments approximates the estimated fair value of those investments, the Partnership’s policy is to recognize equity in income of the Local Limited Partnerships only to the extent of distributions received and amortization of acquisition costs from those Local Limited Partnerships. During each of the years ended December 31, 2012 and 2011, the Partnership received a distribution of approximately $4,000 from operations of one Local Limited Partnership. The investment balance in both of the Local Limited Partnerships had been reduced to zero as of December 31, 2012 and 2011.
There was no recognition of equity in income or losses from Local Limited Partnerships for the years ended December 31, 2012 and 2011, as the Partnership’s investment in the Local Limited Partnerships had been reduced to zero prior to January 1, 2011.
Total revenues from continuing operations for the Local Limited Partnerships were approximately $542,000 and $526,000 for the years ended December 31, 2012 and 2011, respectively.
Total expenses from continuing operations for the Local Limited Partnerships were approximately $616,000 and $632,000 for the years ended December 31, 2012 and 2011, respectively.
Total loss from continuing operations for the Local Limited Partnerships was approximately $74,000 and $106,000 for the years ended December 31, 2012 and 2011, respectively. The loss from continuing operations allocated to the Partnership was approximately $74,000 for 2012 and approximately $106,000 for 2011, however, these amounts are not recognized on the statements of operations included in “Item 8. Financial Statements and Supplementary Data” because the Partnership had no remaining investment balances in the Local Limited Partnerships.
A recurring partnership expense is the annual management fee. The fee is payable to the General Partner and is calculated at 0.4 percent of the original remaining invested assets as of the beginning of the year. The fee is paid to the General Partner for its continuing management of the Partnership's affairs. Management fees were approximately $19,000 and $28,000 for the years ended December 31, 2012 and 2011, respectively. The decrease in the management fees is due to the assignment of the Partnership’s interest in Green Ko Enterprises LP and One Madison Avenue Associates during 2011.
Operating expenses, other than management fees, consist of legal and accounting fees for services rendered to the Partnership and general and administrative expenses. Legal and accounting fees were approximately $62,000 and $55,000 for the years ended December 31, 2012 and 2011, respectively. The increase in legal and accounting fees is primarily due to an increase in costs associated with the Partnership’s annual tax return. General and administrative expenses were approximately $16,000 for each of the years ended December 31, 2012 and 2011.
The current policy of the United States Department of Housing and Urban Development (“HUD”) is to not renew the Housing Assistance Payment (“HAP”) Contracts on a long term basis on the existing terms. In connection with renewals of the HAP Contracts under current law and policy, the amount of rental assistance payments under renewed HAP Contracts will be based on market rentals instead of above market rentals, which may be the case under existing HAP Contracts. The payments under the renewed HAP Contracts may not be in an amount that would provide sufficient cash flow to permit owners of properties subject to HAP Contracts to meet the debt service requirements of existing loans insured by the Federal Housing Administration (“FHA”) of HUD unless such mortgage loans are restructured. In order to address the reduction in payments under HAP Contracts as a result of current policy, the Multi-family Assisted Housing Reform and Affordability Act of 1997 (“MAHRAA”) provides for the restructuring of mortgage loans insured by the FHA with respect to properties subject to the Section 8 program. Under MAHRAA, an FHA-insured mortgage loan can be restructured into a first mortgage loan which will be amortized on a current basis and a low interest rate second mortgage loan payable to FHA which will only be payable on maturity of the first mortgage loan. This restructuring results in a reduction in annual debt service payable by the owner of the FHA-insured mortgage loan and is expected to result in an insurance payment from FHA to the holder of the FHA-insured loan due to the reduction in the principal amount. MAHRAA also phases out project-based subsidies on selected properties serving families not located in rental markets with limited supply, converting such subsidies to a tenant-based subsidy.
When the HAP Contracts are subject to renewal, there can be no assurance that the Local Limited Partnerships in which the Partnership has an investment will be permitted to restructure its mortgage indebtedness under MAHRAA. In addition, the economic impact on the Partnership of the combination of the reduced payments under the HAP Contracts and the restructuring of the existing FHA-insured mortgage loans under MAHRAA is uncertain.
The Partnership, as a limited partner in the Local Limited Partnerships in which it has invested, is subject to the risks incident to the management and ownership of improved real estate. The Partnership investments are also subject to adverse general economic conditions, and, accordingly, the status of the national economy, including substantial unemployment, concurrent inflation and changing legislation, could increase vacancy levels, rental payment defaults, and operating expenses, which in turn, could substantially increase the risk of operating losses for the projects.
Off-Balance Sheet Arrangements
The Partnership owns limited partnership interests in unconsolidated Local Limited Partnerships, in which the Partnership’s ownership percentage ranges from 95% to 99%. However, based on the provisions of the relevant partnership agreements, the Partnership, as a limited partner, does not have control or a contractual relationship with the Local Limited Partnerships that would require or allow for consolidation under accounting principles generally accepted in the United States (see “Note 1 - Organization and Summary of Significant Accounting Policies” of the financial statements in “Item 8. Financial Statements and Supplementary Data”). There are no lines of credit, side agreements or any other derivative financial instruments between the Local Limited Partnerships and the Partnership. Accordingly the Partnership’s maximum risk of loss related to these unconsolidated Local Limited Partnerships is limited to the recorded investments in and receivables from the Local Limited Partnerships. See “Note 2 - Investments in and Advances to Local Limited Partnerships” of the financial statements in “Item 8. Financial Statements and Supplementary Data” for additional information about the Partnership’s investments in unconsolidated Local Limited Partnerships.
Variable Interest Entities
The Partnership consolidates any variable interest entities in which the Partnership holds a variable interest and is the primary beneficiary. Generally, a variable interest entity, or VIE, is an entity with one or more of the following characteristics: (a) the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support; (b) as a group the holders of the equity investment at risk lack (i) the ability to make decisions about an entity’s activities through voting or similar rights, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity; or (c) the equity investors have voting rights that are not proportional to their economic interests and substantially all of the entity’s activities either involve, or are conducted on behalf of, an investor that has disproportionately few voting rights. The primary beneficiary of a VIE is generally the entity that has (a) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, and (b) the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE.
In determining whether it is the primary beneficiary of a VIE, the Partnership considers qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIE’s economic performance and which party controls such activities; the amount and characteristics of the Partnership’s investment; the obligation or likelihood for the Partnership or other investors to provide financial support; and the similarity with and significance to the business activities of the Partnership and the other investors. Significant judgments related to these determinations include estimates about the current and future fair values and performance of real estate held by these VIEs and general market conditions.
At December 31, 2012 and 2011, the Partnership holds variable interests in two and three VIEs, respectively, for which the Partnership is not the primary beneficiary. The Partnership has concluded, based on its qualitative consideration of the partnership agreement, the partnership structure and the role of the general partner in each of the Local Limited Partnerships, that the general partner of each of the Local Limited Partnerships is the primary beneficiary of the respective Local Limited Partnership. In making this determination, the Partnership considered the following factors:
· the general partners conduct and manage the business of the Local Limited Partnerships;
· the general partners have the responsibility for and sole discretion over selecting a property management agent for the Local Limited Partnerships’ underlying real estate properties;
· the general partners are responsible for approving operating and capital budgets for the properties owned by the Local Limited Partnerships;
· the general partners are obligated to fund any recourse obligations of the Local Limited Partnerships;
· the general partners are authorized to borrow funds on behalf of the Local Limited Partnerships; and
· the Partnership, as a limited partner in each of the Local Limited Partnerships, does not have the ability to direct or otherwise significantly influence the activities of the Local Limited Partnerships that most significantly impact such entities’ economic performance.
The two VIEs at December 31, 2012 consist of Local Limited Partnerships that are directly engaged in the ownership and management of two apartment properties with a total of 71 units. The Partnership is involved with those VIEs as a non-controlling limited partner equity holder. The Partnership’s maximum exposure to loss as a result of its involvement with the unconsolidated VIEs is limited to the Partnership’s recorded investments in and receivables from these VIEs, which were zero at both December 31, 2012 and 2011. The Partnership may be subject to additional losses to the extent of any financial support that the Partnership voluntarily provides in the future.
Critical Accounting Policies and Estimates
A summary of the Partnership’s significant accounting policies is included in “Note 1 - Organization and Summary of Significant Accounting Policies” which is included in the financial statements in “Item 8. Financial Statements and Supplementary Data”. The General Partner believes that the consistent application of these policies enables the Partnership to provide readers of the financial statements with useful and reliable information about the Partnership’s operating results and financial condition. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the Partnership to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements as well as reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Judgments and assessments of uncertainties are required in applying the Partnership’s accounting policies in many areas. The Partnership believes that of its significant accounting policies, the following may involve a higher degree of judgment and complexity.
Method of Accounting for Investments in Local Limited Partnerships
The Partnership, as a limited partner, does not have a contractual relationship with the Local Limited Partnerships or exercise control over the activities and operations, including refinancing or selling decisions, of the Local Limited Partnerships that would require or allow for consolidation. Accordingly, the Partnership accounts for its investments in the Local Limited Partnerships using the equity method. The Partnership is allocated profits and losses of the Local Limited Partnerships based upon its respective ownership percentage (between 95% and 99%). Distributions of surplus cash from operations from both of the Local Limited Partnerships are restricted by the Local Limited Partnerships’ Regulatory Agreements with the United States Department of Housing and Urban Development (“HUD”) and /or are restricted by the terms of the mortgages encumbering the Projects. These restrictions limit the distribution to a portion, generally less than 10%, of the initial invested capital. The excess surplus cash is deposited into a residual receipts reserve, of which the ultimate realization by the Partnership is uncertain as HUD frequently retains it upon sale or dissolution of the Local Limited Partnership. The Partnership is allocated profits and losses and receives distributions from refinancings and sales in accordance with the Local Limited Partnerships’ partnership agreements. These agreements usually limit the Partnership’s distributions to an amount substantially less than its ownership percentage in the Local Limited Partnership.
The individual investments are carried at cost plus the Partnership’s share of the Local Limited Partnership’s profits less the Partnership’s share of the Local Limited Partnership’s losses, distributions and impairment charges. See “Item 8. Financial Statements and Supplementary Data. Note 1 - Organization and Summary of Significant Accounting Policies” for a description of the impairment policy. The Partnership is not legally liable for the obligations of the Local Limited Partnerships and is not otherwise committed to provide additional support to them. Therefore, it does not recognize losses once its investment in each of the Local Limited Partnerships reaches zero. Distributions from the Local Limited Partnerships are accounted for as a reduction of the investment balance until the investment balance is reduced to zero. When the investment balance has been reduced to zero, subsequent distributions received are recognized as income in the statements of operations included in “Item 8. Financial Statements and Supplementary Data”.
For those investments where the Partnership has determined that the carrying value of its investments approximates the estimated fair value of those investments, the Partnership’s policy is to recognize equity in income of the Local Limited Partnerships only to the extent of distributions received and amortization of acquisition costs from those Local Limited Partnerships. Therefore, the Partnership limits its recognition of equity earnings to the amount it expects to ultimately realize.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8.
Item 8. Financial Statements and Supplementary Data
LIST OF FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Balance Sheets - December 31, 2012 and 2011
Statements of Operations - Years ended December 31, 2012 and 2011
Statements of Changes in Partners’ Equity - Years ended December 31, 2012 and 2011
Statements of Cash Flows - Years ended December 31, 2012 and 2011
Notes to Financial Statements
Report of Independent Registered Public Accounting Firm
The Partners
Real Estate Associates Limited IV
We have audited the accompanying balance sheets of Real Estate Associates Limited IV as of December 31, 2012 and 2011, and the related statements of operations, changes in partners' equity and cash flows for each of the two years in the period ended December 31, 2012. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Partnership’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Real Estate Associates Limited IV at December 31, 2012 and 2011, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2012, in conformity with U.S. generally accepted accounting principles.
/s/Ernst & Young LLP
Greenville, South Carolina
April 1, 2013
REAL ESTATE ASSOCIATES LIMITED IV
BALANCE SHEETS
(in thousands)
See Accompanying Notes to Financial Statements
REAL ESTATE ASSOCIATES LIMITED IV
STATEMENTS OF OPERATIONS
(in thousands, except per interest data)
REAL ESTATE ASSOCIATES LIMITED IV
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
(in thousands)
General
Limited
Partners
Partners
Total
Partners’ equity, December 31, 2010
$ 36
$ 1,065
$ 1,101
Net income for the year ended December 31, 2011
--
Partners’ equity, December 31, 2011
1,104
1,140
Net income for the year ended December 31, 2012
1,423
1,437
Partners’ equity, December 31, 2012
$ 50
$ 2,527
$ 2,577
See Accompanying Notes to Financial Statements
REAL ESTATE ASSOCIATES LIMITED IV
STATEMENTS OF CASH FLOWS
(in thousands)
See Accompanying Notes to Financial Statements
REAL ESTATE ASSOCIATES LIMITED IV
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2012
Note 1 - Organization and Summary of Significant Accounting Policies
Organization
Real Estate Associates Limited IV (the “Partnership”) was formed under the California Limited Partnership Act on August 24, 1981. The Partnership was formed to invest either directly or indirectly in other limited partnerships which own and operate primarily Federal, state and local government-assisted housing projects. The general partners are National Partnership Investments, LLC, a California limited liability company ("NAPICO" or the “General Partner”), and National Partnership Investments Associates, a California limited partnership. The business of the Partnership is conducted primarily by NAPICO. The General Partner is a subsidiary of Bethesda Holdings II, LLC, a privately held real estate asset management company (“Bethesda”). Bethesda acquired the General Partner on December 19, 2012, pursuant to an option agreement with Aimco/Bethesda Holdings, Inc., a subsidiary of Apartment Investment and Management Company (“Aimco”), a publicly traded real estate investment trust.
The general partners collectively have a one percent interest in operating profits and losses of the Partnership. The limited partners have the remaining 99 percent interest in proportion to their respective individual investments.
The Partnership shall be dissolved only upon the expiration of 52 complete calendar years (December 31, 2033) from the date of formation of the Partnership or the occurrence of various other events as specified in the terms of the Partnership Agreement.
Upon total or partial liquidation of the Partnership or the disposition or partial disposition of a project or project interest and distribution of the proceeds, the general partners will be entitled to a liquidation fee as stipulated in the Partnership Agreement. The limited partners will have a priority return equal to their invested capital attributable to the project(s) or project interest(s) sold. The general partners' liquidation fee may accrue but shall not be paid until the limited partners have received distributions equal to 100 percent of their capital contributions. No such fees were accrued or paid during the years ended December 31, 2012 and 2011.
Basis of Presentation
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States.
The Partnership’s management evaluated subsequent events through the time this Annual Report on Form 10-K was filed.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Method of Accounting for Investments in Local Limited Partnerships
The investment in local limited partnerships (the “Local Limited Partnerships”) is accounted for using the equity method.
Abanondment of Limited Partnership Interests
During the years ended December 31, 2012 and 2011, the number of Limited Partnership Interests decreased by 26.00 and 50.80 interests, respectively, due to limited partners abandoning their interests. At December 31, 2012 and 2011, the Partnership had outstanding 13,018.20 and 13,044.20 limited partnership interests, respectively. In abandoning his or her Limited Partnership Interest(s), a limited partner relinquishes all right, title, and interest in the Partnership as of the date of abandonment.
Net Income Per Limited Partnership Interest
Net income per limited partnership interest is computed by dividing the limited partners’ share of net income by the number of limited partnership interests outstanding at the beginning of the year. The number of limited partnership interests used was 13,044.20 and 13,095.00 for the years ended December 31, 2012 and 2011, respectively.
Cash and Cash Equivalents
Cash and cash equivalents includes cash on hand and in banks. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. The entire cash balances at December 31, 2012 and 2011 are maintained by an affiliated management company on behalf of affiliated entities in a cash concentration account.
Impairment of Long-Lived Assets
The Partnership reviews its investments in long-lived assets to determine if there has been any impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If the sum of the expected future cash flows is less than the carrying amount of the assets, the Partnership recognizes an impairment loss. No impairment losses were recognized during the years ended December 31, 2012 and 2011.
Segment Reporting
Financial Accounting Standards Board Accounting Standards Codification (“ASC”) Topic 280-10, “Segment Reporting”, 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. ASC Topic 280-10 also established standards for related disclosures about products and services, geographic areas, and major customers. As defined in ASC Topic 280-10, the Partnership has only one reportable segment.
Fair Value of Financial Instruments
ASC Topic 825, “Financial Instruments”, requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate fair value. Fair value is defined as the amount at which the instruments could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The Partnership believes that the carrying amounts of its assets and liabilities at December 31, 2012 approximated their fair value due to the short term maturity of these instruments.
Variable Interest Entities
The Partnership consolidates any variable interest entities in which the Partnership holds a variable interest and is the primary beneficiary. Generally, a variable interest entity, or VIE, is an entity with one or more of the following characteristics: (a) the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support; (b) as a group the holders of the equity investment at risk lack (i) the ability to make decisions about an entity’s activities through voting or similar rights, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity; or (c) the equity investors have voting rights that are not proportional to their economic interests and substantially all of the entity’s activities either involve, or are conducted on behalf of, an investor that has disproportionately few voting rights. The primary beneficiary of a VIE is generally the entity that has (a) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, and (b) the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE.
In determining whether it is the primary beneficiary of a VIE, the Partnership considers qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIE’s economic performance and which party controls such activities; the amount and characteristics of the Partnership’s investment; the obligation or likelihood for the Partnership or other investors to provide financial support; and the similarity with and significance to the business activities of the Partnership and the other investors. Significant judgments related to these determinations include estimates about the current and future fair values and performance of real estate held by these VIEs and general market conditions.
At December 31, 2012 and 2011, the Partnership holds variable interests in 2 and 3 VIEs, respectively, for which the Partnership is not the primary beneficiary. The Partnership has concluded, based on its qualitative consideration of the partnership agreement, the partnership structure and the role of the general partner in each of the Local Limited Partnerships, that the general partner of each of the Local Limited Partnerships is the primary beneficiary of the respective Local Limited Partnership. In making this determination, the Partnership considered the following factors:
· the general partners conduct and manage the business of the Local Limited Partnerships;
· the general partners have the responsibility for and sole discretion over selecting a property management agent for the Local Limited Partnerships’ underlying real estate properties;
· the general partners are responsible for approving operating and capital budgets for the properties owned by the Local Limited Partnerships;
· the general partners are obligated to fund any recourse obligations of the Local Limited Partnerships;
· the general partners are authorized to borrow funds on behalf of the Local Limited Partnerships; and
· the Partnership, as a limited partner in each of the Local Limited Partnerships, does not have the ability to direct or otherwise significantly influence the activities of the Local Limited Partnerships that most significantly impact such entities’ economic performance.
The 2 VIEs at December 31, 2012 consist of Local Limited Partnerships that are directly engaged in the ownership and management of 2 apartment properties with a total of 71 units. The Partnership is involved with those VIEs as a non-controlling limited partner equity holder. The Partnership’s maximum exposure to loss as a result of its involvement with the unconsolidated VIEs is limited to the Partnership’s recorded investments in and receivables from these VIEs, which were zero at both December 31, 2012 and 2011. The Partnership may be subject to additional losses to the extent of any financial support that the Partnership voluntarily provides in the future.
Note 2 - Investments in and Advances to Local Limited Partnerships
As of December 31, 2012 and 2011, the Partnership holds limited partnership interests in 2 and 3 Local Limited Partnerships, respectively. The Local Limited Partnerships own residential low income rental projects consisting of 71 and 115 apartment units at December 31, 2012 and 2011, respectively. The mortgage loans of these projects are payable to or insured by various governmental agencies.
The Partnership, as a limited partner, does not have a contractual relationship with the Local Limited Partnerships or exercise control over the activities and operations, including refinancing or selling decisions, of the Local Limited Partnerships that would require or allow for consolidation. Accordingly, the Partnership accounts for its investments in the Local Limited Partnerships using the equity method. The Partnership is allocated profits and losses of the Local Limited Partnerships based upon its respective ownership percentage (between 95% and 99%). Distributions of surplus cash from operations from both of the Local Limited Partnerships are restricted by the Local Limited Partnerships’ Regulatory Agreements with the United States Department of Housing and Urban Development (“HUD”). These restrictions limit the distribution to a portion, generally less than 10%, of the initial invested capital. The excess surplus cash is deposited into a residual receipts reserve, of which the ultimate realization by the Partnership is uncertain as HUD frequently retains it upon sale or dissolution of the Local Limited Partnership. The Partnership is allocated profits and losses and receives distributions from refinancings and sales in accordance with the Local Limited Partnerships’ partnership agreements. These agreements usually limit the Partnership’s distributions to an amount substantially less than its ownership percentage in the Local Limited Partnership.
The individual investments are carried at cost plus the Partnership’s share of the Local Limited Partnership’s profits less the Partnership’s share of the Local Limited Partnership’s losses, distributions and impairment charges. The Partnership is not legally liable for the obligations of the Local Limited Partnerships and is not otherwise committed to provide additional support to them. Therefore, it does not recognize losses once its investment in each of the Local Limited Partnerships reaches zero. Distributions from the Local Limited Partnerships are accounted for as a reduction of the investment balance until the investment balance is reduced to zero. When the investment balance has been reduced to zero, subsequent distributions received are recognized as income in the accompanying statements of operations. During each of the years ended December 31, 2012 and 2011, the Partnership received a distribution of approximately $4,000 from operations of one Local Limited Partnership.
For those investments where the Partnership has determined that the carrying value of its investments approximates the estimated fair value of those investments, the Partnership’s policy is to recognize equity in income of the Local Limited Partnerships only to the extent of distributions received and amortization of acquisition costs from those Local Limited Partnerships. Therefore, the Partnership limits its recognition of equity earnings to the amount it expects to ultimately realize.
At December 31, 2012 and 2011, the investment balance in both of the Local Limited Partnerships had been reduced to zero.
During the year ended December 31, 2011, the Partnership advanced approximately $1,000 to one Local Limited Partnership, Better Housing Associates, to fund a tax payment. While not obligated to make advances to any of the Local Limited Partnerships, the Partnership made this advance in order to protect its economic investment in the Local Limited Partnership. This amount is included in advance made to Local Limited Partnership recognized as expense for the year ended December 31, 2011, as the investment balance in the Local Limited Partnership had been reduced to zero and the Partnership believes that the collection of this advance is doubtful.
The difference between the investment per the accompanying balance sheets at December 31, 2012 and 2011, and the equity per the Local Limited Partnerships' condensed combined financial statements is due primarily to cumulative unrecognized equity in losses of the Local Limited Partnerships, additional basis and costs capitalized to the investment account, cumulative distributions recognized as income and recognition of impairment losses.
Although the Partnership’s recorded value of its investments and its distributions from the Local Limited Partnerships are individually not material to the overall financial position of the Partnership, the following unaudited condensed combined balance sheets of the aforementioned Local Limited Partnerships as of December 31, 2012 and 2011 and the condensed combined results of operations for each of the two years in the period ended December 31, 2012 are as follows (2012 and 2011 amounts exclude the operations of The Branford Group Limited Partnership, Green Ko Enterprises LP and One Madison Avenue Associates due to the assignment of the Partnership’s interests in the Local Limited Partnerships in December 2012, May 2011 and August 2011, respectively):
Real Estate and Accumulated Depreciation of Local Limited Partnerships
The following unaudited data is a summary of real estate, accumulated depreciation and encumbrances of the Local Limited Partnerships:
Reconciliation of "Real Estate and Accumulated Depreciation" :
During 2012 and 2011, an affiliate of Aimco was the general partner and property management agent for Better Housing Associates.
In May 2011, the Partnership assigned its limited partnership interest in Green Ko Enterprises LP to an affiliate of the Local Operating General Partner for approximately $63,000. The proceeds received, net of Wisconsin withholding taxes of approximately $3,000, were approximately $60,000. The proceeds were recorded as gain on sale of interest in Local Limited Partnership for the year ended December 31, 2011, as the Partnership’s investment balance in this Local Limited Partnership was zero at the date of assignment.
In August 2011, the Partnership assigned its limited partnership interest in One Madison Avenue Associates to a third party for approximately $75,000. The proceeds received were recorded as gain on sale of interest in Local Limited Partnership for the year ended December 31, 2011, as the Partnership’s investment balance in this Local Limited Partnership was zero at the date of assignment.
In December 2012, the Partnership assigned its limited partnership interest in The Branford Group Limited Partnership to a third party for a total price of $1,530,000. The proceeds received were recorded as gain on sale of interest in Local Limited Partnership for the year ended December 31, 2012, as the Partnership’s investment balance in this Local Limited Partnership was zero at both December 31, 2011 and the date of assignment.
In June 2012, Better Housing Associates entered into a purchase and sale contract to sell its investment property to a third party in exchange for (i) assumption of the outstanding mortgage loans encumbering the property, and (ii) the sum of one dollar. The closing is expected to occur during the second quarter of 2013. The Partnership does not expect to receive any proceeds from the sale of the property. The Partnership had no investment balance remaining in this Local Limited Partnership at December 31, 2012 and 2011.
The current policy of the United States Department of Housing and Urban Development (“HUD”) is to not renew the Housing Assistance Payment (“HAP”) Contracts on a long term basis on the existing terms. In connection with renewals of the HAP Contracts under current law and policy, the amount of rental assistance payments under renewed HAP Contracts will be based on market rentals instead of above market rentals, which may be the case under existing HAP Contracts. The payments under the renewed HAP Contracts may not be in an amount that would provide sufficient cash flow to permit owners of properties subject to HAP Contracts to meet the debt service requirements of existing loans insured by the Federal Housing Administration of HUD (“FHA”) unless such mortgage loans are restructured. In order to address the reduction in payments under HAP Contracts as a result of current policy, the Multi-family Assisted Housing Reform and Affordability Act of 1997 (“MAHRAA”) provides for the restructuring of mortgage loans insured by the FHA with respect to properties subject to the Section 8 program. Under MAHRAA, an FHA-insured mortgage loan can be restructured into a first mortgage loan which will be amortized on a current basis and a low interest rate second mortgage loan payable to FHA which will only be payable on maturity of the first mortgage loan. This restructuring results in a reduction in annual debt service payable by the owner of the FHA-insured mortgage loan and is expected to result in an insurance payment from FHA to the holder of the FHA-insured loan due to the reduction in the principal amount. MAHRAA also phases out project-based subsidies on selected properties serving families not located in rental markets with limited supply, converting such subsidies to a tenant-based subsidy.
When the HAP Contracts are subject to renewal, there can be no assurance that the Local Limited Partnerships in which the Partnership has an investment will be permitted to restructure its mortgage indebtedness under MAHRAA. In addition, the economic impact on the Partnership of the combination of the reduced payments under the HAP Contracts and the restructuring of the existing FHA-insured mortgage loans under MAHRAA is uncertain.
Note 3 - Transactions with Affiliated Parties
Under the terms of the Restated Certificate and Agreement of Limited Partnership, the Partnership is obligated to NAPICO for an annual management fee equal to 0.4 percent of the Partnership’s original remaining invested assets of the Local Limited Partnerships at the beginning of the year. Invested assets is defined as the costs of acquiring project interests, including the proportionate amount of the mortgage loans related to the Partnership's interests in the capital accounts of the respective Local Limited Partnerships. The management fee was approximately $19,000 and $28,000 for the years ended December 31, 2012 and 2011, respectively.
During 2012 and 2011, an affiliate of Aimco was the general partner and property management agent for Better Housing Associates. This Local Limited Partnership paid the affiliate property management fees in the amount of 5 percent of its gross rental revenue and data processing fees. The amounts paid were approximately $25,000 and $23,000 for the years ended December 30, 2012 and 2011, respectively.
Bethesda and its affiliates owned 2,914.94 limited partnership interests in the Partnership representing 22.39% of the outstanding limited partnership interests in the Partnership at December 31, 2012. It is possible that Bethesda or its affiliates will acquire additional limited partnership interests, either through private purchases or tender offers. Pursuant to the Partnership Agreement, holders holding a majority of the limited partnership interests are entitled to take action with respect to a variety of matters that include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the General Partner. Although the General Partner owes fiduciary duties to the limited partners of the Partnership, the General Partner also owes fiduciary duties to Bethesda as its sole stockholder. As a result, the duties of the General Partner, as general partner, to the Partnership and its limited partners may come into conflict with the duties of the General Partner to Bethesda as its sole stockholder.
Note 4 - Income Taxes
The Partnership is not taxed on its income. The partners are taxed in their individual capacities based upon their distributive share of the Partnership’s taxable income or loss and are allowed the benefits to be derived from offsetting their distributive share of the tax losses against taxable income from other sources subject to passive loss limitations. The taxable income or loss differs from amounts included in the statements of operations because different methods are used in determining the losses of the Local Limited Partnerships as discussed below. The taxable income is allocated to the partner groups in accordance with Section 704(b) of the Internal Revenue Code and therefore is not necessarily proportionate to the interest percentage owned.
A reconciliation follows:
The following is a reconciliation between the Partnership's reported amounts and Federal tax basis of net assets at December 31, 2012 and 2011:
Note 5 - Contingencies
The General Partner is involved in various lawsuits arising from transactions in the ordinary course of business. In the opinion of management and the General Partner, the claims will not result in any material liability to the Partnership.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Item 9A. Controls and Procedures
(a) Disclosure Controls and Procedures
The Partnership’s management, with the participation of the Senior Managing Director and Director of Reporting of Bethesda, who are the equivalent of the Partnership’s principal executive officer and principal financial officer, respectively, has evaluated the effectiveness of the Partnership’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the Senior Managing Director and Director of Reporting of Bethesda, who are the equivalent of the Partnership’s principal executive officer and principal financial officer, respectively, have concluded that, as of the end of such period, the Partnership’s disclosure controls and procedures are effective.
Management’s Report on Internal Control Over Financial Reporting
The Partnership’s management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act as a process designed by, or under the supervision of, the Senior Managing Director and Director of Reporting, who are the equivalent of the Partnership’s principal executive officer and principal financial officer, respectively, and effected by the Partnership’s management and other personnel, including third-party public accountants engaged by Bethesda to provide such services, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
· pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of assets;
· provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of the Partnership’s management; and
· provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Partnership’s management assessed the effectiveness of the Partnership’s internal control over financial reporting as of December 31, 2012. In making this assessment, the Partnership’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.
Based on their assessment, the Partnership’s management concluded that, as of December 31, 2012, the Partnership’s internal control over financial reporting is effective.
This annual report does not include an attestation report of the Partnership’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Partnership’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Partnership to provide only management’s report in this annual report.
(b) Changes in Internal Control Over Financial Reporting
There has been no change in the Partnership’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter of 2012 that has materially affected, or is reasonably likely to materially affect, the Partnership’s internal control over financial reporting.
Item 9B.
Item 9B. Other Information
None.
PART III
Item 10.
Item 10. Directors, Executive Officers and Corporate Governance
Real Estate Associates Limited IV (the “Partnership” or the “Registrant”) has no officers or directors. The general partner responsible for conducting the business of the Partnership is National Partnership Investments, LLC, a California limited liability company (“NAPICO” or the “General Partner”).
The names and ages of, as well as the positions and offices held by, the present officers of NAPICO are set forth below: The General Partner manages and controls substantially all of the Partnership’s affairs and has general responsibility and ultimate authority in all matters affecting its business. There are no family relationships between or among any officers.
Name
Age
Position
Brian Flaherty
Senior Managing Director
Edward Schmidt
Director of Reporting
Brian Flaherty is the Senior Managing Director of the General Partner and Bethesda Holdings II, LLC and has served as the equivalent of the chief executive officer of the Partnership since December 19, 2012. In February 2012, Mr. Flaherty was appointed to Senior Managing Director with McGrath Investment Management, LLC with responsibilities for asset management and transactions. Previously, Mr. Flaherty served in various positions at Aimco, which he joined in 2002, most recently serving as Senior Vice President with responsibilities for asset management and transactions, from January 2009 to February 2012, and in various acquisition, asset management, and disposition functions within Aimco covering both conventional and affordable portfolios from 2002 through 2012. Prior to joining Aimco, Mr. Flaherty was Vice President of Acquisitions for NAPICO, responsible for originating, structuring, and underwriting equity investments in multi-family Low Income Housing Tax Credit Projects.
Edward Schmidt is the Director of Reporting of the General Partner and Bethesda Holdings II, LLC, and has served as the equivalent of the chief financial officer of the Partnership since February 28, 2013. Since February 2012, Mr. Schmidt has worked with McGrath Investment Management, LLC, most recently as a Director with responsibilities for fund management and investor reporting. From 2010 through 2012, Mr. Schmidt served as a senior analyst for Aimco, a public reporting real estate investment trust, working in various management capacities, including within the finance function, the transaction finance and analytics department and the fund management department, which handled the internal investor reporting for Aimco. Prior to that, Mr. Schmidt worked in public accounting with Clifton Gunderson, LLP, now known as Clifton Larson Allen, LLP, where he served as a financial accountant for Special District Services, local government consultant, and, from 2008 to 2010, as auditor for the California State Revolving Fund. Mr. Schmidt received a Bachelor of Science Degree with a double concentration in Finance and Accounting from Colorado State University.
The Registrant is not aware of the involvement in any legal proceedings with respect to the executive officers listed in this Item 10.
The General Partner does not have a separate audit committee. As such, the officers of the General Partner fulfill the functions of an audit committee. The General Partner has determined that Edward Schmidt meets the requirement of an "audit committee financial expert".
The Partnership has adopted a code of ethics that is attached hereto as Exhibit 14.
Item 11.
Item 11. Executive Compensation
None of the officers of the General Partner received any remuneration from the Partnership during the year ended December 31, 2012.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
(a) Security Ownership of Certain Beneficial Owners
The general partners own all of the outstanding general partnership interests of the Registrant. Except as noted below, no person or entity is known to own beneficially in excess of 5 percent of the outstanding limited partnership interests.
Entity
Number of Units
Percentage
Bethesda Holdings II, LLC
1,457.47
22.39%
(b) None of the officers of the General Partner own directly or beneficially any limited partnership interests in the Registrant.
Item 13.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Under the terms of the Restated Certificate and Agreement of Limited Partnership, the Partnership is obligated to NAPICO for an annual management fee equal to 0.4 percent of the Partnership’s original remaining invested assets of the Local Limited Partnerships at the beginning of the year. Invested assets is defined as the costs of acquiring project interests, including the proportionate amount of the mortgage loans related to the Partnership's interests in the capital accounts of the respective Local Limited Partnerships. The management fee was approximately $19,000 and $28,000 for the years ended December 31, 2012 and 2011, respectively.
During 2012 and 2011, an affiliate of Aimco was the general partner and property management agent for Better Housing Associates. This Local Limited Partnership paid the affiliate property management fees in the amount of 5 percent of its gross rental revenue and data processing fees. The amounts paid were approximately $25,000 and $23,000 for the years ended December 31, 2012 and 2011, respectively.
Bethesda and its affiliates owned 2,914.94 limited partnership interests in the Partnership representing 22.39% of the outstanding limited partnership interests in the Partnership at December 31, 2012. It is possible that Bethesda or its affiliates will acquire additional limited partnership interests, either through private purchases or tender offers. Pursuant to the Partnership Agreement, holders holding a majority of the limited partnership interests are entitled to take action with respect to a variety of matters that include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the General Partner. Although the General Partner owes fiduciary duties to the limited partners of the Partnership, the General Partner also owes fiduciary duties to Bethesda as its sole stockholder. As a result, the duties of the General Partner, as general partner, to the Partnership and its limited partners may come into conflict with the duties of the General Partner to Bethesda as its sole stockholder.
The General Partner has no directors.
Item 14.
Item 14. Principal Accounting Fees and Services
The General Partner has reappointed Ernst & Young LLP as independent auditors to audit the financial statements of the Partnership for 2013. The aggregate fees billed for services rendered by Ernst & Young LLP for 2012 and 2011 are described below.
Audit Fees. Fees for audit services totaled approximately $30,000 and $29,000 for 2012 and 2011, respectively. Fees for audit services also include fees for the reviews of the Partnership’s Quarterly Reports on Form 10-Q.
Tax Fees. Fees for tax services totaled approximately $17,000 and $14,000 for the years 2012 and 2011, respectively.
PART IV
Item 15.
Item 15. Exhibits, Financial Statement Schedules
(a) The following financial statements of the Partnership are included in Item 8:
Balance Sheets at December 31, 2012 and 2011.
Statements of Operations for the years ended December 31, 2012 and 2011.
Statements of Changes in Partners' Equity for the years ended December 31, 2012 and 2011.
Statements of Cash Flows for the years ended December 31, 2012 and 2011.
Notes to Financial Statements.
Schedules are omitted for the reason that they are inapplicable or equivalent information has been included elsewhere herein.
(b) Exhibits:
See Exhibit index.
The agreements included as exhibits to this Form 10-K contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:
should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;
have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;
may apply standards of materiality in a way that is different from what may be viewed as material to an investor; and
were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.
Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. The Partnership acknowledges that, notwithstanding the inclusion of the foregoing cautionary statements, it is responsible for considering whether additional specific disclosures of material information regarding material contractual provisions are required to make the statements in this Form 10-K not misleading. Additional information about the Partnership may be found elsewhere in this Form 10-K and the Partnership’s other public filings, which are available without charge through the SEC’s website at http://www.sec.gov.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
REAL ESTATE ASSOCIATES LIMITED IV
By: National Partnership Investments, LLC
General Partner
Date: April 1, 2013
By: /s/Brian Flaherty
Brian Flaherty
Title: Senior Managing Director
Date: April 1, 2013
By: /s/Edward Schmidt
Edward Schmidt
Title: Director of Reporting
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
/s/Brian Flaherty
Chief Executive Officer
Date: April 1, 2013
Brian Flaherty
/s/Edward Schmidt
Chief Accounting Officer
Date: April 1, 2013
Edward Schmidt
REAL ESTATE ASSOCIATES LIMITED IV
EXHIBIT INDEX
Exhibit Description of Exhibit
3 Articles of incorporation and by laws. The Registrant is not incorporated. The Partnership Agreement was filed with Form S-11, File No. 274063 which is hereby incorporated by reference.
3.1 Amendments to Restated Certificate and Agreement of Limited Partnership (filed with the Partnership’s Current Report on Form 8-K dated February 2, 2005 and incorporated herein by reference).
3.2 Restated Certificate and Agreement of Limited Partnership (complete text as amended) (filed with the Partnership’s Current Report on Form 8-K dated February 2, 2005 and incorporated herein by reference).
10.2 Assignment Agreement by and between Real Estate Associates Limited IV, a California limited partnership, Linda Kittleson and Duane Kittleson, dated May 19, 2011, incorporated by reference to the Partnership’s Current Report on Form 8-K dated May 19, 2011.
10.3 Amendment to Amended and Restated Agreement and Certificate of Limited Partnership of One Madison Avenue Associates by and between Real Estate Associates Limited IV, a California limited partnership, and Stephen W. Brown, Deborah A. Tisdale, One Madison Avenue Corporation, a Maine corporation, and Polar Bear, LLC, a Maine limited liability company, dated August 19, 2011, incorporated by reference to the Partnership’s Current Report on Form 8-K dated August 19, 2011.
10.4 Assignment and Assumption Agreement by and between Real Estate Associates Limited IV, a California limited partnership, Terrace House, LLC, a Connecticut limited liability company, W. Matthew Harp and John D. Prete, dated October 22, 2012, incorporated by reference to the Partnership’s Current Report on Form 8-K dated October 22, 2012.
14 Code of Ethics of Real Estate Associates Limited IV.
31.1 Certification of equivalent of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of equivalent of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of equivalent of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101 XBRL (Extensible Business Reporting Language). The following materials from Real Estate Associates Limited IV’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012, formatted in XBRL: (i) balance sheets, (ii) statements of operations, (iii) statements of changes in partners’ equity, (iv) statements of cash flows, and (v) notes to financial statements (1).
(1) As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.