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AMREIT MONTHLY INCOME & GROWTH FUND IV LP - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

August 13, 2014

The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements and notes thereto.

Certain information presented in this Quarterly Report constitutes forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Although we believe that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, our actual results could differ materially from those set forth in the forward-looking statements. Certain factors that might cause such a difference include, but are not limited to the following: changes in general economic conditions, changes in real estate market conditions, continued availability of proceeds from our debt or equity capital, our ability to locate suitable tenants for our properties, the ability of tenants to make payments under their respective leases, timing of acquisitions, development starts and sales of properties, the ability to meet development and redevelopment schedules and other risks, uncertainties and assumptions. Any forward-looking statement speaks only as of the date on which it was made, and we undertake no duty or obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time.

OVERVIEW

We are a Delaware limited partnership formed to acquire, develop and operate, directly or indirectly through joint venture arrangements, a portfolio of commercial real estate consisting primarily of multi-tenant shopping centers and mixed-use properties. Our Units are not currently listed on a securities exchange, and there currently is no established public trading market for our Units. We do not intend to list our Units at this time and have no plans to list our Units on a securities exchange in the future.

Our general partner is a Delaware corporation and a wholly-owned subsidiary of AmREIT, an SEC reporting, Maryland corporation that is publicly traded on the NYSE and that has elected to be taxed as a REIT. Our General Partner has the exclusive right to manage our business and affairs on a day-to-day basis pursuant to our limited partnership agreement. The Limited Partners have the right to remove and replace our General Partner, with or without cause, by a vote of the Limited Partners owning a majority of the outstanding Units (excluding any Units held by our General Partner). Our General Partner is responsible for all of our investment decisions, including decisions relating to the properties to be developed, the method and timing of financing or refinancing the properties, the selection of tenants, the terms of the leases, the method and timing of the sale of our properties and the reinvestment of net sales proceeds. Our General Partner utilizes the services of AmREIT and its affiliates in performing its duties under our limited partnership agreement.

As of June 30, 2014 our consolidated investments include one wholly-owned property comprised of approximately 36,000 square feet of GLA and one majority owned property comprised of approximately 82,000 square feet of GLA and three properties in which we own a non-controlling interest through joint ventures comprised of approximately 938,000 square feet of GLA. Rental income accounted for 100% of our total revenue during the six months ended June 30, 2014 and 2013, primarily from net leasing arrangements where most of the operating expenses of the properties are absorbed by our tenants. As a result, our operating results and cash flows are primarily influenced by rental income from our properties and interest expense on our property indebtedness. As of June 30, 2014, our properties had an average occupancy of 92.0%.

Our operating period ended in November 2013, and we have entered into our liquidation period. Over the past several years our results of operations and valuations of our real estate assets have been negatively impacted by overall economic conditions. Most of our retail properties were purchased prior to 2008 when retail real estate market prices were much higher, and our property valuations have been negatively impacted by these market dynamics. We believe that the retail real estate market has experienced improvements. However, it is difficult to determine if the improvements will continue through 2014. To navigate these challenging market conditions, we and our General Partner have created a strategic plan to maximize the potential value of our real estate portfolio and execute an orderly, but opportunistic liquidation. We plan to:

Complete our development and redevelopment projects with a goal to stabilize these projects over the next 6-12 months. We believe that completing our development and redevelopment projects including their lease-up and stabilization will allow us to maximize the return on these properties upon sale. Our investment in Cambridge & Holcombe represents our only investment property that is planned for development. See Note 3 of the Notes to Consolidated Financial Statements for further discussion of the development plans at this property. 13



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Table of Contents Continue to operate our projects in a first-class manner with a goal to generate operating cash flow in order to re-commence distributions. We believe that the stabilization of our development and redevelopment properties, coupled with the continued and intense oversight of our operating properties, will generate liquidity that could allow us to re-commence distributions to our Limited Partners;however, this most likely will not occur until we begin to sell our real estate assets. Sell our properties opportunistically, likely beginning in the next twelve months. Once a property is marketed for sale, it may take several months to receive offers and complete due diligence by both parties. Our General Partner continues to review market opportunities to sell our operating properties. When deciding whether or when to sell properties, our General Partner will consider factors such as potential appreciation of value and timing of cash flows. As we have now entered the liquidation period, we will not be acquiring new real estate investments. We will be completing our development and redevelopment projects and distributing net proceeds generated from property sales to our Limited Partners unless the General Partner has identified attractive acquisition opportunities and obtained a majority vote of the Limited Partners to re-invest such proceeds.



Although we believe that our strategic plan maximizes the value of our properties and is in the best interests of our Limited Partners, no assurances can be given that this strategy will be successful. An orderly liquidation of all of our properties will take years for our General Partner to complete and wind up our operations. Because of challenging real estate market conditions, it is possible that investors may not recover all of their original investment.

The above steps may not be sufficient, and we could incur individual setbacks and possibly significant losses. Additional deterioration in the United States economy or the bankruptcy or insolvency of one or more of our significant tenants could cause our current plans to meet our projected cash shortfalls to be insufficient. Even with the above strategic plan and liquidity initiatives, we still may incur cash shortfalls if we are required to perform under certain guarantees (see Note 3 of the Notes to Consolidated Financial Statements) of our joint ventures or are unable to refinance certain debt as it comes due, which could result in lender repossession of one or more properties owned by us and/or our joint ventures or be forced to sell one or more properties at a time when it is disadvantageous to do so, potentially resulting in losses on the disposition of those properties.

RESULTS OF OPERATIONS

Below is a discussion of our results of operations for the three and six months ended June 30, 2014, as compared to the same periods in 2013.

Comparison of the Three Months Ended June 30, 2014, to the Three Months Ended June 30, 2013

Revenues. Revenues decreased $22,000 for the three months ended June 30, 2014 as compared to the same period in 2013 The decrease was due to the vacancy of one of our tenants at our Village on the Green property during the first quarter of 2014.

Asset management fees - related party. Asset management fees - related party increased approximately $25,000 for the three months ended June 30, 2014, as compared to the same period in 2013. Our asset management fees are calculated based upon the net fair value of our assets, which increased between the 2013 and 2014 periods.

Interest expense. Interest expense decreased approximately $26,000 for the three months ended June 30, 2014 as compared to the same period in 2013. The decrease is due to lower balances owed on our notes payable - related party as a result of repayments made during 2013.

Income (loss) from non-consolidated entities. Loss from non-consolidated entities decreased approximately $32,000 for the three months ended June 30, 2014 as compared to the same period in 2013. These amounts represent our ownership portion of our joint ventures' net income or loss for the period. The decrease in loss is primarily due to a gain recorded as a result of the final distribution made for the sale of the Woodlake Square property by our Woodlake Square joint venture.

Income (loss) from discontinued operations. Results from discontinued operations changed by approximately $181,000 during the three months ended June 30, 2014 (a loss of $17,000) as compared to the same period in 2013 (income of $164,000). The loss incurred during the three months ended June 30, 2014 represents a final adjustment to the sales price related to the allocation between us and the buyer for tenant property tax reimbursements related to the land and single tenant building at our Woodlake Pointe property that we sold during the third quarter of 2013.

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Comparison of the Six Months Ended June 30, 2014, to the Six Months Ended June 30, 2013

Revenues. Revenues decreased $30,000 for the six months ended June 30, 2014 as compared to the same period in 2013. The decrease was due to the vacancy of one of our tenants at our Village on the Green property during the first quarter of 2014.

Asset management fees - related party. Asset management fees - related party increased approximately $51,000 for the six months ended June 30, 2014, as compared to the same period in 2013. Our asset management fees are calculated based upon the net fair value of our assets, which increased between the 2013 and 2014 periods.

Property expense. Property expense increased $69,000 for the six months ended June 30, 2014, as compared to the same period in 2013. The increase is primarily related to bad debt recoveries of $36,000 during 2013 with no such recoveries in 2014.

Interest expense. Interest expense decreased approximately $49,000 for the six months ended June 30, 2014 as compared to the same period in 2013. The decrease is due to lower balances owed on our notes payable - related party as a result of repayments made during 2013.

Income (loss) from non-consolidated entities. Loss from non-consolidated entities decreased approximately $80,000 for the six months ended June 30, 2014 as compared to the same period in 2013. These amounts represent our ownership portion of our joint ventures' net income or loss for the period. The decrease in loss is primarily due to an increase in operating income from our investment in the Casa Linda property as well as a gain recorded as a result of the final distribution made for the sale of the Woodlake Square property by our Woodlake Square joint venture.

Income (loss) from discontinued operations. Results from discontinued operations changed by approximately $216,000 during the six months ended June 30, 2014 (a loss of $27,000) as compared to the same period in 2013 (income of $189,000). The loss incurred during the six months ended June 30, 2014 represents a final adjustment to the sales price related to the allocation between us and the buyer for tenant property tax reimbursements related to the land and single tenant building at our Woodlake Pointe property that we sold during the third quarter of 2013.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2014, we have $271,000 in cash on hand, and we continue to face liquidity challenges. Our results of operations and valuations of our real estate assets have been negatively impacted by overall economic conditions from the recession. Most of our retail properties were purchased prior to 2008 when retail real estate market prices were much higher, and our property valuations were negatively impacted by these market dynamics. The United States has experienced recent improvements in the general economy; however, it is difficult to determine if the improvements experienced in 2013 will continue through 2014 and into the future.

Our continuing short-term liquidity requirements consist primarily of operating expenses and other expenditures associated with our properties, regular debt service requirements and capital expenditures. We anticipate that our primary long-term liquidity requirements will include, but will not be limited to, operating expenses, making scheduled debt service payments, funding renovations, expansions, and other significant capital expenditures for our existing portfolio of properties including those of with our joint ventures.

We have been successful in meeting our historic cash shortfalls through (1) managing the timing of forecasted capital expenditures related to the lease-up of properties, (2) managing the timing of operating expense payments and, to the extent possible, accelerating cash collections, (3) deferring the payment of fees owed to our General Partner and its affiliates, (4) selling certain of our properties and investments in non-consolidated entities (see Note 3) and/or (5) obtaining funds through additional borrowings from AmREIT.

Our Cambridge and Holcombe property, in which we own a 50% interest, is secured by a $6.4 million mortgage loan that matures in March 2015. In addition we and our joint venture partner have jointly and severally guaranteed up to 60% of the loan balance. We have reached an agreement with a third party to contribute the land into a multi-family development joint venture that would fully repay the debt outstanding and is estimated to yield a return that would allow us to recoup our investment in the site plus a nominal return. The due diligence period has expired and we expect to close on this transaction during the third quarter of 2014. However, we can provide no assurances that this transaction will close on the terms and timeline described herein or at all.

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During 2013, our Woodlake Square joint venture sold its Woodlake Square property and our Woodlake Pointe joint venture also sold a single tenant building and land parcel at our Woodlake Pointe property. Together, these transactions allowed us to repay approximately $4.0 million of our notes payable -related party.

During 2012, we and MIG III initiated a lease-up strategy at our Casa Linda property (a 50% joint venture between us and MIG III). We expect to fund a total of approximately $1.5 million in capital expenditures representing our 50% share of a lease-up strategy at this property. The lease-up strategy includes certain tenant build-out and site improvements. As of June 30, 2014, the joint venture has incurred approximately $1.4 million of the planned capital expenditures. Additionally, the joint venture refinanced the $38.0 million mortgage on the property on December 27, 2013, with a four-year, non-recourse loan with the opportunity for an additional funding of approximately $4.5 million related to the potential acquisition of an adjacent property.

Although no assurance can be given, we believe that we will be able to generate liquidity sufficient to continue to execute our strategic plan; however, there is no guarantee that we and our joint ventures will be successful with the above liquidity initiatives, and we may continue to look to AmREIT to provide additional financial support to us to meet our operating cash needs. Historically, AmREIT has deferred payment of advisory fees and payment of notes payable - related party to the extent such deferral of payments were necessary for our continued operation. In the event our liquidity is not sufficient to execute our strategy, AmREIT has agreed to defer payments, subject to its continued ability to do so.

Even with the above strategy, we may still incur individual setbacks and significant losses. Additionally, we may be required to perform under certain guarantees of our joint ventures or be unable to refinance certain debt as it comes due that could result in lender repossession of one or more properties owned by us and/or our joint ventures or we may be forced to sell one or more properties at a time when it is disadvantageous to do so, potentially resulting in losses on the disposition of those properties.

Market Conditions

Our operations are sensitive to changes in overall economic conditions that impact our tenants, including, market and economic challenges experienced by the U.S. economy, the real estate industry or within our geographic markets where our properties are located. Most of our retail properties were purchased prior to 2008 when retail real estate market prices were much higher, and our property valuations were negatively impacted by these market dynamics. The U.S. economy has improved from the recent severe recession; however, should recessionary conditions return, such conditions could prevent us or from realizing growth or maintaining the value of our properties. Even if such conditions do not impact us directly, such conditions could adversely affect our tenants.

While it is difficult to determine the breadth and duration of financial market problems and the many ways in which they may affect our tenants and our business, a general reduction in the level of tenant leasing or shifts in tenant leasing practices could adversely affect our business, financial condition, liquidity, results of operations, our redevelopment projects and future property dispositions. Additionally, if credit markets and/or debt or equity capital markets contract, our ability to obtain financing on terms and conditions that we find acceptable, or at all, may be limited, which could reduce our ability to refinance existing debt and increase our future interest expense.

Cash Flow Activities for the Six months Ended June 30, 2014 and 2013

Cash flows provided by (used in) operating activities, investing activities and financing activities for the six months ended June 30, 2014 and 2013 are as follows (in thousands): Six months ended June 30, 2014 2013 Operating activities $ (269 ) $ (595 ) Investing activities 223 (525 ) Financing activities (86 ) 1,397



Net cash flows used in operating activities decreased approximately $326,000 during the six months ended June 30, 2014, as compared to the same period in 2013. This decrease is primarily due to additional receipts of tenant and accounts receivable and accounts receivable - related party of $580,000 and fewer payments of accounts payable - related party of $136,000 during the six months ended June 30, 2014, partially offset by an increase in net loss exclusive of bad debts, loss from non-consolidated entities and depreciation of $397,000, as compared to the same period in 2013.

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Net cash flows provided by investing activities increased approximately $748,000 during the six months ended June 30, 2014, as compared to the same period in 2013 (cash provided by investing activities of $223,000 for the six months ended June 30, 2014 as compared to cash used in investing activities of $525,000 for the six months ended June 30, 2013). This increase in cash inflows is primarily due to $474,000 of cash received from Casa Linda for the repayment of advances made by MIG IV for property taxes and a decrease of $446,000 in expenditures made for improvements to real estate during 2014 as compared to 2013. The increase was partially offset by additional contributions made to our Cambridge & Holcombe joint venture during the six months ended June 30, 2014, as compared to the same period in 2013.

Net cash flows used in financing activities increased approximately $1.5 million during the six months ended June 30, 2014, as compared to the same period in 2013 (cash used in financing activities of $86,000 for the six months ended June 30, 2014 as compared to cash provided by financing activities of $1.4 million for the six months ended June 30, 2013). The increase in cash used in financing activities was primarily due to proceeds received during 2013 from borrowing proceeds received from notes payable and notes payable - related party with no such borrowing proceeds received during 2014.

OFF BALANCE SHEET ARRANGEMENTS

As of June 30, 2014, we serve as the guarantor of debt in the amount of $23.9 million that is the primary obligation of our non-consolidated joint ventures. The debt for which we serve as guarantors matures in March 2015. We have not accrued any liability with respect to this debt as we believe it is unlikely we would be required to perform and, therefore, the fair value of any obligation would be insignificant.


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Source: Edgar Glimpses


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