UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2008
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OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-24584
Boston Financial Tax Credit Fund VII, A Limited Partnership
(Exact name of registrant as specified in its charter)
Massachusetts 04-3166203
- -------------------------------------- ---------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
101 Arch Street, Boston, Massachusetts 02110-1106
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 439-3911
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Indicate by check mark whether the registrant (1)has filed all reports required
to be filed by Section 13 or 15(d)of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No .
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ___ Accelerated Filer ___
Non-accelerated filer ___ (Do not check if a
smaller reporting company) Smaller reporting company X
-----
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act.)
Yes No X .
_____
BOSTON FINANCIAL TAX CREDIT FUND VII, A LIMITED PARTNERSHIP
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page No.
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Item 1. Financial Statements
Balance Sheet (Unaudited) - September 30, 2008 1
Statements of Operations (Unaudited) -
For the Three and Six Months Ended September 30, 2008 and 2007 2
Statement of Changes in Partners' Equity
(Unaudited) - For the Six Months Ended September 30, 2008 3
Statements of Cash Flows (Unaudited) -
For the Six Months Ended September 30, 2008 and 2007 4
Notes to the Financial Statements (Unaudited) 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
Item 4. Controls and Procedures 14
PART II - OTHER INFORMATION
Items 1-6 15
SIGNATURE 16
CERTIFICATIONS 17
BOSTON FINANCIAL TAX CREDIT FUND VII, A LIMITED PARTNERSHIP
BALANCE SHEET
September 30, 2008
(Unaudited)
Assets
Cash and cash equivalents $ 2,059,593
Restricted cash 281,898
Investments in Local Limited Partnerships (Note 1) 1,594,271
Accounts receivable 116,097
Other Assets 565
---------------
Total Assets $ 4,052,424
===============
Liabilities and Partners' Equity
Due to affiliates $ 620,541
Accrued expenses 36,706
---------------
Total Liabilities 657,247
---------------
General, Initial and Investor Limited Partners' Equity 3,395,177
---------------
Total Liabilities and Partners' Equity $ 4,052,424
===============
The accompanying notes are an integral part of these financial statements.
BOSTON FINANCIAL TAX CREDIT FUND VII, A LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
For the Three and Six Months Ended September 30, 2008 and 2007
(Unaudited)
Three Months Ended Six Months Ended
September 30, September 30, September 30, September 30,
2008 2007 2008 2007
---------------- ---------------- ---------------- -----------
Revenue
Investment $ 9,100 $ 25,733 $ 14,564 $ 26,616
Other 82,765 22,000 82,765 22,000
--------------- --------------- ---------------- ----------------
Total Revenue 91,865 47,733 97,329 48,616
--------------- --------------- ---------------- ----------------
Expenses:
Asset Management Fees, affiliate 94,284 90,570 188,568 181,140
Provision for valuation of advances to
Local Limited Partnerships - - 48,404 -
General and administrative
(includes reimbursement to affiliate
in the amounts of $68,182 and
$70,485 for the six months ended
September 30, 2008 and 2007,
respectively) 69,060 84,010 133,202 156,614
Amortization 2,053 3,938 5,764 8,046
--------------- --------------- ---------------- ----------------
Total Expenses 165,397 178,518 375,938 345,800
--------------- --------------- ---------------- ----------------
Loss before equity in losses of
Local Limited Partnerships (73,532) (130,785) (278,609) (297,184)
Equity in losses of Local Limited
Partnerships (Note 1) (16,378) (60,411) (120,097) (223,597)
Gain on sale of investment in Local
Limited Partnership 122,608 - 1,433,433 -
--------------- --------------- ---------------- ----------------
Net Income (Loss) $ 32,698 $ (191,196) $ 1,034,727 $ (520,781)
=============== =============== ================ ================
Net Income (Loss) allocated:
General Partners $ 327 $ (1,912) $ 10,347 $ (5,208)
Limited Partners 32,371 (189,284) 1,024,380 (515,573)
--------------- --------------- ---------------- ----------------
$ 32,698 $ (191,196) $ 1,034,727 $ (520,781)
=============== =============== ================ ================
Net Income (Loss) Per Limited Partner
Unit (50,930) Units $ 0.64 $ (3.71) $ 20.11 $ (10.12)
=============== =============== ================ ================
The accompanying notes are an integral part of these financial statements.
BOSTON FINANCIAL TAX CREDIT FUND VII, A LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' EQUITY
For the Six Months Ended September 30, 2008
(Unaudited)
Initial Investor
General Limited Limited
Partners Partners Partners Total
Balance at March 31, 2008 $ 23,604 $ 5,000 $ 2,331,846 $ 2,360,450
Net Income 10,347 - 1,024,380 1,034,727
----------- ------------- -------------- ------------
Balance at September 30, 2008 $ 33,951 $ 5,000 $ 3,356,226 $ 3,395,177
=========== ============= ============== ============
The accompanying notes are an integral part of these financial statements.
BOSTON FINANCIAL TAX CREDIT FUND VII, A LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
For the Six Months Ended September 30, 2008 and 2007
(Unaudited)
2008 2007
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Net cash provided by (used for) operating activities $ (343,725) $ 115,804
Net cash provided by investing activities 1,789,701 187,724
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Net increase in cash and cash equivalents 1,445,976 303,528
Cash and cash equivalents, beginning 613,617 557,329
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Cash and cash equivalents, ending $ 2,059,593 $ 860,857
============= =============
The accompanying notes are an integral part of these financial statements.
BOSTON FINANCIAL TAX CREDIT FUND VII, A LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
The unaudited financial statements presented herein have been prepared in
accordance with the instructions to Form 10-Q and do not include all of the
information and note disclosures required by accounting principles generally
accepted in the United States of America. These statements should be read in
conjunction with the financial statements and notes thereto included with the
Fund's Form 10-KSB for the year ended March 31, 2008. In the opinion of the
Managing General Partner, these financial statements include all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly the
Fund's financial position and results of operations. The results of operations
for the period may not be indicative of the results to be expected for the year.
The Managing General Partner of the Fund has elected to report results of the
Local Limited Partnerships in which the Fund has a limited partnership interest
on a 90 day lag basis because the Local Limited Partnerships report their
results on a calendar year basis. Accordingly, the financial information about
the Local Limited Partnerships that is included in the accompanying financial
statements is as of June 30, 2008 and 2007.
Generally, profits, losses, tax credits and cash flow from operations are
allocated 99% to the Limited Partners and 1% to the General Partners. Net
proceeds from a sale or refinancing will be allocated 95% to the Limited
Partners and 5% to the General Partners, after certain priority payments. The
General Partners may have an obligation to fund deficits in their capital
accounts, subject to limits set forth in the Partnership Agreement. However, to
the extent that the General Partners' capital accounts are in deficit positions,
certain items of net income may be allocated to the General Partners in
accordance with the Partnership Agreement.
1. Investments in Local Limited Partnerships
The Fund has limited partnership interests in fifteen Local Limited Partnerships
which were organized for the purpose of owning and operating multi-family
housing complexes, all of which are government-assisted. The Fund's ownership
interest in each Local Limited Partnership is 99%, with the exception of
Springwood Apartments which is 19.8%, Eden Park which is 67%, Fountain Lakes
which is 90%, and Twin Oaks Meadow which is 95.89%. The Fund may have negotiated
or may negotiate options with the Local General Partners to purchase or sell the
Fund's interests in the Local Limited Partnerships at the end of the Compliance
Period at nominal prices. In the event that Local Limited Partnerships are sold
to third parties, or upon dissolution of the Local Limited Partnerships,
proceeds will be distributed according to the terms of each Local Limited
Partnership agreement.
The following is a summary of investments in Local Limited Partnerships at
September 30, 2008:
Capital contributions and advances paid to Local Limited Partnerships and purchase
price paid to withdrawing partners of Local Limited Partnerships $ 29,711,255
Cumulative equity in losses of Local Limited Partnerships (excluding cumulative
unrecognized losses of $8,367,806) (22,508,322)
Cumulative cash distributions received from Local Limited Partnerships (2,377,939)
----------------
Investments in Local Limited Partnerships before adjustments 4,824,994
Excess investment costs over the underlying assets acquired:
Acquisition fees and expenses 998,968
Cumulative amortization of acquisition fees and expenses (312,500)
----------------
Investments in Local Limited Partnerships before valuation allowance 5,511,462
Valuation allowance on investments in Local Limited Partnerships (3,917,191)
----------------
Investments in Local Limited Partnerships $ 1,594,271
================
BOSTON FINANCIAL TAX CREDIT FUND VII, A LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
(Unaudited)
1. Investments in Local Limited Partnerships (continued)
The Fund's share of the net losses of the Local Limited Partnerships for the six
months ended September 30, 2008 is $624,973. For the six months ended September
30, 2008, the Fund has not recognized $504,876 of equity in losses relating to
certain Local Limited Partnerships in which cumulative equity in losses and
distributions exceeded its total investments in these Local Limited
Partnerships.
The Fund's interest in one of its investments in Local Limited Partnerships was
sold during the six months ended September 30, 2008, resulting in sale proceeds
of $1,630,776.
For the six months ended September 30, 2008, the Fund advanced $48,404 to one
Local Limited Partnership, all of which is reserved.
The Fund has also recorded a valuation allowance for its investments in certain
Local Limited Partnerships in order to appropriately reflect the estimated net
realizable value of these investments.
2. New Accounting Principle
In September 2006, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 157, "Fair Value Measurements" ("SFAS No. 157"), which provides enhanced
guidance for using fair value to measure assets and liabilities. SFAS No. 157
establishes a common definition of fair value, provides a framework for
measuring fair value under U.S. generally accepted accounting principles and
expands disclosure requirements about fair value measurements. SFAS No. 157 is
effective for financial statements issued in fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. In February
2008, the FASB issued FASB Staff Position 157-2, "Effective Date of FASB
Statement No. 157", which delays the effective date of SFAS No. 157 for all
nonfinancial assets and liabilities except those that are recognized or
disclosed at fair value in the financial statements on at least an annual basis
until November 15, 2008. The Fund adopted the provisions of SFAS No. 157 for
financial assets and liabilities recognized at fair value on a recurring basis
effective April 1, 2008. The partial adoption of SFAS No. 157 did not have a
material impact on the Fund's Financial Statements. The Fund does not expect the
adoption of the remaining provisions of SFAS No. 157 to have a material effect
on the Fund's financial position, operations or cash flow. This standard
requires that a Fund measure its financial assets and liabilities using inputs
from the three levels of the fair value hierarchy. A financial asset or
liability classification within the hierarchy is determined based on the lowest
level input that is significant to the fair value measurement. The three levels
are as follows:
Level 1 - Inputs are unadjusted quoted prices in active markets for
identical assets or liabilities that the Fund has the ability to
access at the measurement date.
Level 2 - Inputs include quoted prices for similar assets and
liabilities in active markets, quoted prices for identical or
similar assets or liabilities in markets that are not active,
inputs other than quoted prices that are observable for the
asset or liability and inputs that are derived principally from
or corroborated by observable market data by correlation or
other means (market corroborated inputs).
Level 3 - Unobservable inputs reflect the Fund's judgments about the
assumptions market participants would use in pricing the asset
or liability since limited market data exists. The Fund develops
these inputs based on the best information available, including
the Fund's own data.
Financial assets accounted for at fair value on a recurring basis at September
30,2008 include cash equivalents of $2,059,593 and restricted cash of $278,524.
BOSTON FINANCIAL TAX CREDIT FUND VII, A LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
(Unaudited)
3. Significant Subsidiaries
The following Local Limited Partnerships invested in by the Fund represent more
than 20% of the Fund's total assets or equity as of September 30, 2008 or 2007
or net losses for the three months ended either September 30, 2008 or 2007. The
following financial information represents the performance of these Local
Limited Partnerships for the three months ended June 30, 2008 and 2007:
Fairhaven Manor 2008 2007
- --------------- --------------- -------------
Revenue $ 90,188 $ 83,745
Net Income (Loss) $ 3,972 $ (61)
Citrus Glen
Revenue $ 358,961 $ 374,635
Net Income (Loss) $ 18,890 $ (42,023)
Woods Lane
Revenue $ 168,677 $ 170,174
Net Loss $ (43,115) $ (24,249)
Andrew's Pointe
Revenue $ 165,683 $ 154,238
Net Loss $ (16,044) $ (7,897)
Sunrise Terrace
Revenue $ 96,764 $ 93,877
Net Income (Loss) $ 7,501 $ (10,511)
BOSTON FINANCIAL TAX CREDIT FUND VII, A LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain matters discussed herein constitute forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. The use of
words like "anticipate," "estimate," "intend," "project," "plan," "expect,"
"believe," "could" and similar expressions are intended to identify such
forward-looking statements. The Fund intends such forward-looking statements to
be covered by the safe harbor provisions for forward-looking statements and is
including this statement for purposes of complying with these safe harbor
provisions. Although the Fund believes the forward-looking statements are based
on reasonable assumptions, the Fund can give no assurance that its expectations
will be attained. Actual results and timing of certain events could differ
materially from those projected in or contemplated by the forward-looking
statements due to a number of factors, including, without limitation, general
economic and real estate conditions and interest rates.
Critical Accounting Policies
The Fund's accounting polices include those that relate to its recognition of
investments in Local Limited Partnerships using the equity method of accounting.
The Fund's policy is as follows:
The Local Limited Partnerships in which the Fund invests are Variable Interest
Entities ("VIE"s). The Fund is involved with the VIEs as a non-controlling
limited partner equity holder. Because the Fund is not the primary beneficiary
of these VIEs, it accounts for its investments in the Local Limited Partnerships
using the equity method of accounting. As a result of its involvement with the
VIEs, the Fund's exposure to economic and financial statement losses is limited
to its investments in the VIEs ($1,594,271 at September 30, 2008). The Fund may
be subject to additional losses to the extent of any financial support that the
Fund voluntarily provides in the future. Under the equity method, the investment
is carried at cost, adjusted for the Fund's share of net income or loss and for
cash distributions from the Local Limited Partnerships; equity in income or loss
of the Local Limited Partnerships is included currently in the Fund's
operations. A liability is recorded for delayed equity capital contributions to
Local Limited Partnerships. Under the equity method, a Local Limited Partnership
investment will not be carried below zero. To the extent that equity in losses
are incurred when the Fund's carrying value of the respective Local Limited
Partnership has been reduced to a zero balance, the losses will be suspended and
offset against future income. Income from Local Limited Partnerships, where
cumulative equity in losses plus cumulative distributions have exceeded the
total investment in Local Limited Partnerships, will not be recorded until all
of the related unrecorded losses have been offset. To the extent that a Local
Limited Partnership with a carrying value of zero distributes cash to the Fund,
that distribution is recorded as income on the books of the Fund and is included
in "other revenue" in the accompanying financial statements.
The Fund has implemented policies and practices for assessing
other-than-temporary declines in values of its investments in Local Limited
Partnerships. Periodically, the carrying values of the investments are compared
to their respective fair values. If an other-than-temporary decline value
exists, a provision to reduce the asset to fair value, as calculated based
primarily on remaining tax benefits, will be recorded in the Fund's financial
statements. The tax benefits for each Local Limited Partnership consist of
future tax losses, tax credits and residual receipts at disposition. Included in
the residual receipts calculation is current net operating income capitalized at
the regional rate specific to each Local Limited Partnership. Generally, the
carrying values of most Local Limited partnerships will decline through losses
and distributions in amounts sufficient to prevent other-than-temporary
impairments. However, the Fund may record similar impairment losses in the
future if the expiration of tax credit outpaces losses and distributions from
any of the Local Limited Partnerships.
BOSTON FINANCIAL TAX CREDIT FUND VII, A LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Liquidity and Capital Resources
At September 30, 2008, the Fund had cash and cash equivalents of $2,059,593 as
compared with $613,617 at March 31, 2008. This increase is primarily
attributable to cash distributions received from Local Limited Partnerships in
excess of cash used for operating activities and proceeds received from the sale
of the Fund's interest in one Local Limited Partnership.
The Managing General Partner initially designated 5% of the Gross Proceeds as
Reserves, as defined in the Partnership Agreement. The Reserves were established
to be used for working capital of the Fund and contingencies related to the
ownership of Local Limited Partnership interests. The Managing General Partner
may increase or decrease such Reserves from time to time, as it deems
appropriate. At September 30, 2008, approximately $896,000 has been designated
as Reserves.
To date, professional fees relating to various Property issues totaling
approximately $125,000 have been paid from Reserves. In the event a Local
Limited Partnership encounters operating difficulties requiring additional
funds, the Fund's management might deem it in its best interest to voluntarily
provide such funds in order to protect its investment. As of September 30, 2008,
the Fund has advanced approximately $1,525,000 to Local Limited Partnerships to
fund operating deficits.
The Managing General Partner believes that the investment income earned on the
Reserves, along with cash distributions received from Local Limited
Partnerships, to the extent available, will be sufficient to fund the Fund's
ongoing operations. Reserves may be used to fund operating deficits, if the
Managing General Partner deems funding appropriate. If Reserves are not adequate
to cover the Fund's operations, the Fund will seek other financing sources
including, but not limited to, the deferral of Asset Management Fees paid to an
affiliate of the Managing General Partner or working with Local Limited
Partnerships to increase cash distributions.
Since the Fund invests as a limited partner, the Fund has no contractual duty to
provide additional funds to Local Limited Partnerships beyond its specified
investment. Thus, as of September 30, 2008, the Fund had no contractual or other
obligation to any Local Limited Partnership which had not been paid or provided
for except as disclosed above.
Cash Distributions
No cash distributions were made to Limited Partners during the six months ended
September 30, 2008.
Results of Operations
Three Month Period
The Fund's results of operations for the three months ended September 30, 2008
resulted in a net income of $32,698 as compared to a net loss of $191,196 for
the same period in 2007. The decrease in net loss is primarily attributable to
an increase in gain on sale of investments, a decrease in equity in losses of
Local Limited Partnerships, a decrease in general and administrative expenses,
and an increase in other income, offset by a decrease in investment income. The
increase in gain on sale of investments in Local Limited partnerships is due to
the sale of one Local Limited Partnership made during the current year. Equity
in losses decreased primarily due to an increase in unrecognized losses by the
Fund of Local Limited Partnerships with carrying values of zero. General and
administrative expenses decreased due to decreased legal expenses associated
with litigation from prior quarters. Other income increased due to an increase
in distributions from Local Limited Partnerships with carrying values of zero.
Investment income decreased due to a decrease in the average balance of funds
held for investment.
BOSTON FINANCIAL TAX CREDIT FUND VII, A LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Results of Operations (continued)
Six Month Period
The Fund's results of operations for the six months ended September 30, 2008
resulted in a net income of $1,034,727 compared to a net loss of $520,781 for
the same period in 2007. The decrease in net loss is primarily attributable to
an increase in gain on sale of investments, a decrease in equity in losses of
Local Limited Partnerships, a decrease in general and administrative expenses,
and an increase in other income, offset by an increase in provision for
valuation allowance on advances to Local Limited Partnerships, and a decrease in
investment income. The increase in gain on sale of investments in Local Limited
partnerships is due to the sale of one Local Limited Partnership made during the
current year. Equity in losses decreased primarily due to an increase in
unrecognized losses by the Fund of Local Limited Partnerships with carrying
values of zero. General and administrative expenses decreased due to decreased
legal expenses associated with litigation from prior quarters. Other income
increased due to an increase in distributions from Local Limited Partnerships
with carrying values of zero. The increase in provision for valuation allowance
on advances to Local Limited Partnerships is the result of reserves for advances
made to one Local Limited Partnership in the current year. Investment income
decreased due to a decrease in the average balance of funds held for investment.
Portfolio Update
The Fund is a Massachusetts limited partnership organized to invest in Local
Limited Partnerships which own and operate apartment complexes that are eligible
for low income housing tax credits which may be applied against the federal
income tax liability of an investor. The Fund's objectives are to: (i) provide
investors with annual tax credits which they may use to reduce their federal
income tax liability; (ii) provide limited cash distributions from the
operations of apartment complexes and; (iii) preserve and protect the Fund's
capital. Arch Street VIII, Inc., a Massachusetts corporation, is the Managing
General Partner of the Fund. Arch Street VII Limited Partnership, a
Massachusetts limited partnership, whose general partner consists of Arch
Street, Inc., is also a General Partner. The Managing General Partner and Arch
Street VII, L.P. are affiliates of MMA. The fiscal year of the Fund ends on
March 31.
As of September 30, 2008, the Fund's investment portfolio consisted of a limited
partnership interest in fifteen Local Limited Partnerships which own and operate
a multi-family apartment complex that has generated Tax Credits. Since
inception, the Partnership generated Tax Credits of approximately $1,485 per
Limited Partner Unit.
Properties that receive low income housing Tax Credits must remain in compliance
with rent restriction and set-aside requirements for at least 15 calendar years
from the date the property is placed in service. Failure to do so would result
in the recapture of a portion of the property's Tax Credits. The Compliance
period for six of the fifteen Properties which the Fund has an interest, expired
on December 31, 2007, while the remaining nine will expire between December 31,
2008 and December 31, 2009. The Managing General Partner has negotiated
agreements that will ultimately dispose of the Fund's interest in five Local
Limited Partnerships. One of the Local Limited Partnerships in which the Fund
had an interest was disposed of during the six months ended September 30, 2008.
The Managing General Partner will continue to closely monitor the operations of
the Properties during the Compliance Periods and will formulate disposition
strategies with respect to the Fund's remaining Local Limited Partnership
interests. It is unlikely that the Managing General Partner will be able to
dispose of the Fund's Local Limited Partnership interests concurrently with the
expiration of each Property's Compliance Period. The Fund shall dissolve and its
affairs shall be wound up upon the disposition of the final Local Limited
Partnership interest and other assets of the Fund. Investors will continue to be
Limited Partners, receiving K-1s and quarterly and annual reports, until the
Fund is dissolved.
BOSTON FINANCIAL TAX CREDIT FUND VII, A LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Portfolio Update (continued)
A majority of the Properties in which the Fund has an interest have stabilized
operations and operate above breakeven at June 30, 2008. Some Properties
generate cash flow deficits that the Local General Partners of those Properties
fund through project expense loans, subordinated loans or operating escrows.
However, some Properties have had persistent operating difficulties that could
either: (i) have an adverse impact on the Fund's liquidity; (ii) result in their
foreclosure; or (iii) result in the Managing General Partner deeming it
appropriate for the Fund to dispose of its interest in the Local Limited
Partnership prior to the expiration of the Compliance Period. Also, the Managing
General Partner, in the normal course of the Fund's business, may arrange for
the future disposition of its interest in certain Local Limited Partnerships.
The following Property discussions focus only on such Properties.
The Fund is not a party to any pending legal or administrative proceeding, and
to the best of its knowledge, no legal or administrative proceeding is
threatened or contemplated against it.
Property Discussions
As previously reported, the Managing General Partner and Local General Partner
of St. Andrews Pointe, located in Columbia, South Carolina, were exploring an
exit strategy that would allow for the 2007 disposition of the Fund's interest
in the Local Limited Partnership that owns the Property. On May 31, 2007, the
Property was sold, effectively terminating the Fund's interest in the Local
Limited Partnership. The Fund did not receive any sales proceeds as the
outstanding debt on the property exceeded the sales price of the Property. The
Fund did receive $147,901 as a repayment of prior advances. This sale resulted
in a 2007 taxable loss of $41,056, or $0.81 per Unit. This sale occurred prior
to the expiration of the Property's compliance period, requiring the Fund to
post a surety bond to mitigate the potential risk of recapture. The buyer will
also be required to maintain the Property's tax credit compliance through
December 31, 2007, the expiration of the Property's compliance period. The Fund
no longer has an interest in this Local Limited Partnership.
As previously reported, the Managing General Partner estimated a late 2007
disposition of Oak Ridge, located in Macon, Georgia. On October 31, 2007, the
Fund disposed of its interest in the Local Limited Partnership that owned and
operated Oak Ridge. As previously indicated, the Fund did not receive any
proceeds from this transaction, as the outstanding debt on the property exceeded
the Property's sales price. This disposition resulted in a 2007 taxable loss of
$1,228,857, or $24.13 per Unit. The Fund no longer has an interest in this Local
Limited Partnership.
As previously reported, although operations at Palo Verde II, located in
Henderson, Nevada, remain strong, the former Local General Partner filed for
bankruptcy protection and refused to remit to the Fund its priority cash
distributions, representing a default under the terms of the Local Limited
Partnership Agreement. An affiliate of the Managing General Partner assumed the
Local General Partner interest in September 2001. Since the statute of
limitations on potential litigation involving one of the former Local General
Partners expired in 2005, the Managing General Partner expected a mid-2008
disposal of the Fund's interest, upon the sale of the underlying Property, in
this Local Limited Partnership. On May 29, 2008, the Fund's interest was
transferred, resulting in net sales proceeds to the Partnership of $1,514,777,
or $29.74 per Unit. The Managing General Partner, in accordance with and as
permitted by the Partnership Agreement, retained the entire amount of sales
proceeds in Reserves. The Managing General Partner estimates this sale will
result in 2008 taxable income projected to be approximately $950,000, or $18.65,
per Unit. A final accounting of security deposits and operating cash accounts is
expected to result in additional proceeds of approximately $116,000, or $2.28
per Unit and additional taxable income of a corresponding amount.
As previously reported, the Managing General Partner anticipated the Fund's
interest in the Local Limited Partnership that owns Spring Wood Apartments,
located in Tallahassee, Florida, would be terminated upon the sale of the
Property in the third quarter of 2008, a transaction that could have resulted in
net sales proceeds to the Fund of approximately $400,000, or $7.85 per Unit. In
July 2008, the potential buyer withdrew their interest to purchase this
Property. The Managing General Partner will continue to explore an exit strategy
for the Partnership's interest in the Local Limited Partnership that owns Spring
Wood.
BOSTON FINANCIAL TAX CREDIT FUND VII, A LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Property Discussions (continued)
As previously reported, the Managing General Partner entered into an agreement
that would require the Local General Partner to either purchase the Fund's
interest in Sunrise Terrace, located in Madera, California, after the end of the
compliance period on December 31, 2008 (previously incorrectly reported as
December 31, 2007), based on the appraised value of the Property, or to market
the Property for sale.
As previously reported, with respect to the Fund, a Settlement Agreement
providing an option, subject to various conditions, to purchase the Fund's
interests in Affordable/Citrus Glen, Ltd., located in Orlando, FL, was not
exercised. The Managing General Partner is currently exploring alternative exit
strategies for this Local Limited Partnership interest. As previously reported,
with respect to the Fund, a Settlement Agreement providing an option, subject to
various conditions, to purchase the Fund's interests in Woods Lane, L.P.,
located in Rogers, AR, was not exercised. The Managing General Partner is
currently exploring alternative exit strategies for this Local Limited
Partnership interest. As previously reported, with respect to the Fund, a
Settlement Agreement provided an option, subject to various conditions, to
purchase the Fund's interest in Fountain Lakes, L.P., located in Benton, was not
exercised. The Managing General Partner will explore alternative exit strategies
for these Local Limited Partnership interests.
As previously reported, Los Claveles II, located in Trujillio Alto, Puerto Rico,
continued to operate at below breakeven through out the twelve month period
ending December 31, 2007 due to a reduction in rental revenues associated with
occupancy levels and an increase in utility expenses. As of March 31, 2008, the
Property continued to operate at a below breakeven level, due mainly to
increases in utility expenses, while working capital levels remained below
acceptable levels. The Property continues to be current on its loan obligations.
In addition, a site visit conducted by a representative of the Managing General
Partner in November 2007 indicated the Property is in acceptable physical shape.
The Managing General Partner, concerned about the Property's long-term
viability, signed an agreement in December 2002 with the Local General Partner
whereby the Fund would pay its remaining capital commitment of $350,000 and
release Fund Reserves of approximately $50,000 in exchange for an exit option
that would allow the Fund to put its interest to the Local General Partner at
any time for $10,000. In addition, the Local General Partner has the right,
subsequent to the expiration of the Compliance Period on December 31, 2008, to
call the Fund's interest for a price of $10,000. As part of the agreement, the
Local General Partner is providing an operating guarantee in the form of a Local
General Partner indemnification of any loss or any recapture of Tax Credits
through the end of the Compliance Period.
As previously reported, although occupancy rose to 93% at March 31, 2008 for Des
Moines Street Village, located in Des Moines, Iowa, the Property operated at
below breakeven throughout the same period. Although property operations
improved significantly during the three month period ending June 30, 2008, and
occupancy was 93% at June 30, 2008, the Property operated at below breakeven
even during the three month period ending June 30, 2008 due to increases in
water and sewer expense. In June 2008, the Fund advanced $48,404 to the Property
in order to pay real estate taxes originally due in September 2007. These past
due real estate taxes resulted in the Local General Partner defaulting on the
Partnership agreement, as well as in default of the mortgage loan. The Managing
General Partner is actively pursuing a replacement of the current Local General
Partner. The Property may require additional advances from the Fund in order to
alleviate additional real estate tax and first mortgage loan debt service
covenant requirements. While the Local General Partner had previously funded
deficits and the Property remains current on its debt obligations, the Managing
General Partner approved the Local General Partner request to a reduced rate
refinancing of the Property's first mortgage in April 2004. As part of this
transaction, the Managing General Partner, and the Local General Partner,
entered into a put agreement whereby the Fund can transfer its interest in the
Local Limited Partnership for a nominal amount, any time after the expiration of
the Compliance Period on December 31, 2009.
BOSTON FINANCIAL TAX CREDIT FUND VII, A LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Property Discussions (continued)
As previously reported, Guardian Place, located in Richmond, Virginia, and
refinanced its existing debt, on July 29, 2005. In addition to an annual debt
service reduction of approximately $49,000, additional loan proceeds were
utilized to retire a second mortgage and provide for a distribution of
refinancing proceeds of $212,461 to the Fund on August 1, 2005. The Managing
General Partner, in accordance with and as permitted by the Partnership
Agreement, retained the entire amount of refinancing proceeds in Reserves. As
part of this transaction, the Managing General Partner and the Local General
Partner entered into an agreement that would allow for a sale at the end of the
Compliance Period on December 31, 2009.
As previously reported, occupancy at Grand Boulevard Renaissance, located in
Chicago, Illinois rose to 90%, while working capital and debt service coverage
remained below acceptable levels at March 31, 2008. As of June 30, 2008
occupancy remained at 90% as the Property continued to operate at below
breakeven due to increased maintenance and natural gas heating expenses, while
working capital remained below an acceptable level at June 30, 2008. A
representative of the Managing General Partner conducted a physical inspection
as part of a December 2007 site visit. Despite improvements since an October
2006 visit, the Property was still assigned an unfavorable rating due to
significant deferred maintenance issues. A representative of the Managing
General Partner will conduct a fall 2008 site visit. The Managing General
Partner's representative also considers property management to be weak and
limited in capacity to address the physical needs of the Property. Advances from
the Local General Partner and working capital have enabled the Property to
remain current on its loan obligations. In response to prior deficits, during
2001 the Local General Partner negotiated with the first mortgage lender to
reduce the interest rate on the current first mortgage. In addition, in an
effort to further reduce the Property's debt service burden, in July 2003 the
Local Limited Partnership and the Illinois Housing Development Authority closed
on a mortgage restructuring of the second mortgage that reduced monthly debt
service payments until June 1, 2005. As part of the transaction, the management
agent agreed to subordinate a percentage of its management fee to payment of the
second mortgage debt service.
As previously reported, in an effort to reduce the Fund's risk to chronic
operating difficulties at Wynmor, located in Brooklyn Park, Minnesota, the
Managing General Partner and Local General Partner, on October 1, 2003, entered
into an agreement to transfer a portion of the Fund's interest in the Property's
future Tax Credits (approximately $11 per Unit) and tax losses to the Local
General Partner. In return, the Local General Partner agreed to deposit $500,000
into an escrow to be used to fund current and future operating deficits and to
fund as much as an additional $500,000 to cover future operating deficits. The
Managing General Partner and Local General Partner also have an agreement that
allows for the Managing General Partner to put the Fund's interest to the Local
General Partner for $1 any time after October 1, 2003 and that the Local General
Partner could call the Fund's interest for fair market value any time after
January 2, 2009. Although occupancy improved to 88% at March 31, 2008, the
Property continued to operate at below breakeven for the three month period
ending March 31, 2008. The Compliance Period for the Property expires on
December 31, 2008.
As previously reported, the Local General Partner of Twin Oaks Meadows, located
in Lansing, Michigan, with the Fund's consent, obtained soft loan financing in
May 2004 to undertake much needed security improvements to the Property, reduce
payables and fund operating deficits. In return for its consent, the Fund
received a put option that allows the Fund to transfer its interest in the Local
Limited Partnership for a nominal price to the Local General Partner at any time
subsequent to the end of the Property's Compliance Period on December 31, 2009.
Working capital and debt service levels remain below acceptable levels at June
30, 2008. Although occupancy rose to 75% at June 30, 2008, from 67%, at March
31, 2008, the crime rate in the immediate area continues to impact Twin Oaks'
ability to rent units. In response, a neighborhood watch program was implemented
and many of the residents' concerns regarding safety have been addressed. A new
site manager was brought in May 2007, implementing programs to involve
residents, as well as the community at large.
BOSTON FINANCIAL TAX CREDIT FUND VII, A LIMITED PARTNERSHIP
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Non Applicable
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We conducted an evaluation of the effectiveness of the design and operation of
our disclosure controls and procedures, as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange
Act, to ensure that information required to be disclosed by us in the reports
filed or submitted by us under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Securities
Exchange Commission's rules and forms, including to ensure that information
required to be disclosed by us in the reports filed or submitted by us under the
Exchange Act is accumulated and communicated to management to allow timely
decisions regarding required disclosure. Based on that evaluation, management
has concluded that as of September 30, 2008, our disclosure controls and
procedures were effective.
Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rules
13a-15(f) and 15d-15(f). Our management conducted an assessment of the
effectiveness of our internal control over financial reporting. This assessment
was based upon the criteria for effective internal control over financial
reporting established in Internal Control - Integrated Framework, issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
The Fund's internal control over financial reporting involves a process designed
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. Internal control over financial
reporting includes the controls themselves, as well as monitoring of the
controls and internal auditing practices and actions to correct deficiencies
identified. Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements.
Management assessed the effectiveness of the Fund's internal control over
financial reporting as of March 31, 2008. Based on this assessment, management
concluded that, as of September 30, 2008, the Fund's internal control over
financial reporting was effective.
BOSTON FINANCIAL TAX CREDIT FUND VII, A LIMITED PARTNERSHIP
PART II OTHER INFORMATION
Items 1-5 Not applicable
Item 6 Exhibits and reports on Form 8-K
(a) Exhibits
31.1 Certification of Principal Executive Officer and Principal Financial
Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Principal Executive Officer and Principal Financial
Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Principal Executive Officer and Principal Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Principal Executive Officer and Principal Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b)Reports on Form 8-K - No reports on Form 8-K were filed during
the quarter ended September 30, 2008.
BOSTON FINANCIAL TAX CREDIT FUND VII, A LIMITED PARTNERSHIP
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: November 14, 2008 BOSTON FINANCIAL TAX CREDIT FUND VII,
A LIMITED PARTNERSHIP
By: Arch Street VII, Inc.,
its Managing General Partner
/sGreg Judge
______________
Greg Judge
President
Arch Street VIII, Inc.