Attached files
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, 2009
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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
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(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
------------------------
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.
------------------------------ --------
Item 1. Financial Statements
Balance Sheets - September 30, 2009 (Unaudited) and
March 31, 2009 (Audited) 1
Statements of Operations (Unaudited) -
For the Three and Six Months Ended September 30, 2009 and 2008 2
Statement of Changes in Partners' Equity
(Unaudited) - For the Six Months Ended September 30, 2009 3
Statements of Cash Flows (Unaudited) -
For the Six Months Ended September 30, 2009 and 2008 4
Notes to the Financial Statements (Unaudited) 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
Item 4. Controls and Procedures 16
PART II - OTHER INFORMATION
Items 1-6 17
SIGNATURE 18
CERTIFICATIONS 19
BOSTON FINANCIAL TAX CREDIT FUND VII,
A LIMITED PARTNERSHIP
BALANCE SHEETS
September 30, 2009 (Unaudited) and March 31, 2009 (Audited)
Assets September 30 March 31
-------- ----------------- ----------------
Cash and cash equivalents $ 3,896,815 $ 1,564,981
Restricted cash 244,192 284,447
Investments in Local Limited Partnerships (Note 1) 449,244 1,224,904
Other assets 19 141
---------------- ---------------
Total Assets $ 4,590,270 $ 3,074,473
================ ===============
Liabilities and Partners' Equity
Due to affiliates $ 321,696 $ 297,110
Accrued expenses 35,772 59,100
---------------- ---------------
Total Liabilities 357,468 356,210
General, Initial and Investor Limited Partners' Equity 4,232,802 2,718,263
---------------- ---------------
Total Liabilities and Partners' Equity $ 4,590,270 $ 3,074,473
================ ===============
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, 2009 and 2008
(Unaudited)
Three Months Ended Six Months Ended
September 30, September 30, September 30, September 30,
2009 2008 2009 2008
---------------- ---------------- ---------------- ----------------
Revenue
Investment $ 6,342 $ 9,100 $ 12,018 $ 14,564
Cash distribution income 208,336 82,765 208,336 82,765
--------------- --------------- ---------------- ----------------
Total Revenue 214,678 91,865 220,354 97,329
--------------- --------------- ---------------- ----------------
Expenses:
Asset Management Fees, affiliate 94,378 94,284 188,756 188,568
Provision for valuation of advances to
Local Limited Partnerships - - - 48,404
Impairment on investments
in Local Limited Partnerships 4,000 - 9,000 -
General and administrative (includes reimbursement
to affiliate in the amounts of $65,236 and
$68,182 for the six months ended September 30, 2009
and 2008, respectively) 58,431 69,060 128,254 133,202
Amortization 1,728 2,053 3,905 5,764
--------------- --------------- ---------------- ----------------
Total Expenses 158,537 165,397 329,915 375,938
--------------- --------------- ---------------- ----------------
Income (Loss) before equity in losses of
Local Limited Partnerships 56,141 (73,532) (109,561) (278,609)
Equity in losses of Local Limited
Partnerships (Note 1) (7,588) (16,378) (82,347) (120,097)
Gain on sale of investments in Local
Limited Partnerships 1,706,447 122,608 1,706,447 1,433,433
--------------- --------------- ---------------- ----------------
Net Income $ 1,755,000 $ 32,698 $ 1,514,539 $ 1,034,727
=============== =============== ================ ================
Net Income allocated:
General Partners $ 17,550 $ 327 $ 15,145 $ 10,347
Limited Partners 1,737,450 32,371 1,499,394 1,024,380
--------------- --------------- ---------------- ----------------
$ 1,755,000 $ 32,698 $ 1,514,539 $ 1,034,727
=============== =============== ================ ================
Net Income Per Limited Partner
Unit (50,930 Units) $ 34.11 $ 0.64 $ 29.44 $ 20.11
=============== ================ ================ =================
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, 2009
(Unaudited)
Initial Investor
General Limited Limited
Partners Partner Partners Total
Balance at March 31, 2009 $ 27,182 $ 5,000 $ 2,686,081 $ 2,718,263
Net Income 15,145 - 1,499,394 1,514,539
----------- ----------- -------------- ------------
Balance at September 30, 2009 $ 42,327 $ 5,000 $ 4,185,475 $ 4,232,802
=========== =========== ============== ============
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, 2009 and 2008
(Unaudited)
2009 2008
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Net cash used for operating activities $ (304,098) $ (343,725)
Net cash provided by investing activities 2,635,932 1,789,701
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Net increase in cash and cash equivalents 2,331,834 1,445,976
Cash and cash equivalents, beginning 1,564,981 613,617
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Cash and cash equivalents, ending $ 3,896,815 $ 2,059,593
============= =============
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-K for the year ended March 31, 2009. 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, 2009 and 2008.
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 ten 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%, 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.
BOSTON FINANCIAL TAX CREDIT FUND VII,
A LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
(Unaudited)
1. Investments in Local Limited Partnerships (continued)
The following is a summary of investments in Local Limited Partnerships at
September 30, 2009 and March 31, 2009:
September 30 March 31
_______________ _______________
Capital contributions and advances paid to Local Limited Partnerships
and purchase price paid to withdrawing partners of Local Limited Partnerships $ 20,511,587 $ 27,305,481
Cumulative equity in losses of Local Limited Partnerships (excluding cumulative
unrecognized losses of $3,952,314 and $3,570,296 at September 30 and
March 31, 2009, respectively) (15,482,159) (20,745,430)
Cumulative cash distributions received from Local Limited Partnerships (2,719,410) (2,382,471)
----------------- ---------------
Investments in Local Limited Partnerships before adjustments 2,310,018 4,177,580
Excess investment costs over the underlying assets acquired:
Acquisition fees and expenses 707,171 846,688
Cumulative amortization of acquisition fees and expenses (247,158) (298,577)
----------------- ---------------
Investments in Local Limited Partnerships before valuation allowance 2,770,031 4,725,691
Valuation allowance on investments in Local Limited Partnerships (2,320,787) (3,500,787)
----------------- ----------------
Investments in Local Limited Partnerships $ 449,244 $ 1,224,904
================= =================
The Fund has also recorded an impairment allowance for its investments in
certain Local Limited Partnerships in order to appropriately reflect the
estimated net realizable value of these investments.
The Fund's share of the net losses of the Local Limited Partnerships for the six
months ended September 30, 2009 and 2008 is $507,556 and $624,973, respectively.
For the six months ended September 30, 2009 and 2008, the Fund has not
recognized $425,209 and $504,876, respectively, 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.
During the six months ended September 30, 2009, the fund sold its interests in
three Local Limited Partnerships, resulting in a net gain of 1,706,447.
2. Fair Value Measurements
In September 2006, the Financial Accounting Standards Board ("FASB") issued
authoritative guidance which provided enhanced guidance for using fair value to
measure assets and liabilities. The authoritative guidance, which is effective
for financial statements issued in fiscal years beginning after November 15,
2007 and interim periods within those fiscal years, established a common
definition of fair value, providing a framework for measuring fair value under
U.S. generally accepted accounting principles and expanding disclosure
requirements about fair value measurements. In February 2008, additional
authoritative guidance was issued which delays the above effective date for fair
value measurement of all nonfinancial assets and liabilities except those that
are recognized or disclosed at
BOSTON FINANCIAL TAX CREDIT FUND VII,
A LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
(Unaudited)
2. Fair Value Measurements (continued)
fair value in the financial statements on at least an annual basis until
November 15, 2008. The Fund adopted certain provisions of the authoritative
guidance for financial assets and liabilities recognized at fair value on a
recurring basis effective April 1, 2008. This partial adoption of did not have a
material impact on the Fund's Financial Statements. The Fund does not expect the
adoption of the remaining provisions to have a material effect on the Fund's
financial position, operations or cash flow. This authoritative guidance
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 and March 31, 2009 include cash equivalents of $3,896,815 and $1,564,981, and
restricted cash of $244,192 and $281,073, respectively.
In February 2007, the FASB issued authoritative guidance which permits entities
to choose to measure many financial assets and financial liabilities at fair
value. Unrealized gains and losses on items for which the fair value option has
been elected are reported in earnings. This guidance is effective for fiscal
years beginning after November 15, 2007, and interim periods within those fiscal
years. The Fund has not elected to measure any financial assets and financial
liabilities at fair value.
3. New Accounting Principles
Accounting for Uncertainty in Income Taxes
In June 2006, the FASB issued authoritative guidance which provides guidance for
how uncertain tax positions should be recognized, measured, presented and
disclosed in the financial statements. As required, the Fund adopted this
authoritative guidance effective April 1, 2007 and concluded that the effect was
not material to its financial statements. In December 2008, the FASB issued
additional authoritative guidance which deferred the effective date for certain
nonpublic organizations. The deferred effective date is intended to give the
FASB additional time to develop guidance on the application of this
authoritative guidance by pass through and not-for-profit entities. If required,
the General Partner may modify the Fund's disclosures in accordance with the
FASB's guidance.
Codification and Hierarchy of Generally Accepted Accounting Principles
In June 2009, the FASB issued authoritative guidance which establishes the FASB
Standards Accounting Codification ("Codification") as the source of
authoritative GAAP recognized by the FASB to be applied to nongovernmental
entities. It is effective for interim and annual reporting periods ending after
September 15, 2009. The Fund has adopted this authoritative guidance with its
September 30, 2009 reporting. The only other source of authoritative GAAP is the
rules and interpretive releases of the SEC which only apply to SEC registrants.
The Codification supersedes all the existing non-SEC accounting and reporting
standards upon its effective date. Since the issuance of the Codification is not
intended to change or alter existing GAAP, adoption of this statement did not
have an impact on the Fund's financial position or results of operations, but
did change the way in which GAAP is referenced in the Fund's financial
statements.
BOSTON FINANCIAL TAX CREDIT FUND VII,
A LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
(Unaudited)
3. New Accounting Principles (continued)
Subsequent Events
In May 2009, the FASB issued authoritative guidance which establishes general
standards of accounting for and disclosure of events that occur after the
balance sheet date but before the financial statements are issued or are
available to be issued. The Fund adopted this authoritative guidance for the
quarter ended June 30, 2009 and has evaluated subsequent events after the
balance sheet date of September 30, 2009 through November 16, 2009, the date the
financial statements were issued.
Interim Disclosures about Fair Value Measurement
In April 2009, the FASB issued authoritative guidance which amends previous
professional standards, to require disclosures about the fair value of financial
instruments for interim reporting periods. The authoritative guidance, effective
for interim and annual reporting periods ending after June 15, 2009, also
requires companies to disclose the methods and significant assumptions used to
estimate the fair value of financial instruments in financial statements on an
interim basis and to describe any changes during the period. The Fund adopted
this authoritative guidance for the quarter ended June 30, 2009 and the adoption
did not have a material impact on the Fund's financial position or results of
operations.
4. Significant Subsidiaries
The following Local Limited Partnership invested in by the Fund represents more
than 20% of the Fund's total assets or equity as of September 30, 2009 or 2008
or net losses for the three months then ended. The following financial
information represents the performance of this Local Limited Partnership for the
three months ended June 30, 2009 and 2008:
Andrew's Pointe 2009 2008
--------------- -------------- -------------
Revenue 157,410 165,683
Net Income (Loss) 16,026 (16,044)
Woods Lane
Revenue N/A 168,677
Net Loss N/A (43,115)
Sunrise Terrace
Revenue 88,088 96,764
Net Income 4,000 7,501
Citrus Glen
Revenue 347,403 358,961
Net Income (Loss) (19,157) 18,890
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. The investments in the Local Limited Partnerships
are made primarily to obtain tax credits on behalf of the Fund's investors. The
general partners of the Local Limited Partnerships, who are considered to be the
primary beneficiaries, control the day-to-day operations of the Local Limited
Partnerships. The general partners are also responsible for maintaining
compliance with the tax credit program and for providing subordinated financial
support in the event operations cannot support debt and property tax payments.
The Fund, through its ownership percentages, may participate in property
disposition proceeds. The timing and amounts of these proceeds are unknown but
can impact the Fund's financial position, results of operations or cash flows.
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 ($449,244 and $1,224,904 at September 30, 2009 and March 31, 2009,
respectively). 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.
The Fund has implemented policies and practices for assessing
other-than-temporary declines in the values of its investments in Local Limited
Partnerships. Periodically, the carrying values of the investments are tested
for other-than-temporary impairment. If an other-than-temporary decline in
carrying value exists, a provision to reduce the investment to the sum of the
estimated remaining benefits will be recorded in the Fund's financial
statements. The estimated remaining benefits for each Local Limited Partnership
consist of estimated future tax losses and tax credits over the estimated life
of the investment and estimated residual proceeds at disposition. Included in
the estimated residual proceeds calculation is current net operating income
capitalized at a regional rate specific to each Local Limited Partnership less
the debt of the 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
credits 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, 2009, the Fund had cash and cash equivalents of $3,896,815 as
compared with $1,564,981 at March 31, 2009. This increase is primarily
attributable to proceeds from the sales of the Fund's interests in three Local
Limited Partnerships and cash distributions received from Local Limited
Partnerships in excess of cash used for operating activities.
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, 2009 and March 31, 2009, respectively, $3,972,314
and $1,587,737 has been designated as Reserves.
To date, professional fees relating to various Property issues totaling
approximately $128,000 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, 2009,
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. To date, the Fund has used
approximately $3,079,000 of Reserves to fund operations. 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, 2009, 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, 2009.
Results of Operations
Three Month Period
The Fund's results of operations for the three months ended September 30, 2009
resulted in net income of $1,755,000 as compared to a net income of $32,698 for
the same period in 2008. The increase in net income is primarily attributable to
an increase in gain on sale of investments in Local Limited Partnerships, an
increase in other income, partially offset by an increase in impairment on
investments in Local Limited Partnerships. The increase in gain on sale of
investments in Local Limited Partnerships is due to the sale of three Local
Limited Partnerships during the current year. The increase in other income is
due to an increase in distributions from Local Limited Partnerships with
carrying values of zero. The increase on impairment on investments in Local
Limited Partnerships is due to the Fund recording an impairment allowance for
its investments in certain 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)
Results of Operations (continued)
Six Month Period
The Fund's results of operations for the six months ended September 30, 2009
resulted in net income of $1,514,539 as compared to a net income of $1,034,727
for the same period in 2008. The increase in net income is primarily
attributable to an increase in gain on sale of investments in Local Limited
Partnerships, an increase in other income, and a decrease in provision for
valuation allowance on advances to Local Limited Partnerships, partially offset
by an increase in impairment on investments in Local Limited Partnerships. The
increase in gain on sale of investments in Local Limited Partnerships is due to
the sale of three Local Limited Partnerships during the current year. The
increase in other income is due to an increase in distributions from Local
Limited Partnerships with carrying values of zero. The decrease in provision for
valuation allowance on advances to Local Limited Partnerships is a result of
advances made to one Local Limited Partnership in the prior year. The increase
on impairment on investments in Local Limited Partnerships is due to the Fund
recording an impairment allowance for its investments in certain Local Limited
Partnerships.
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. The fiscal year of the Fund ends on March 31.
Municipal Mortgage & Equity, LLC ("MuniMae") has now sold substantially all of
the assets of its Low Income Housing Tax Credit ("LIHTC") business to a venture
consisting of JEN Partners, LLC or its affiliates ("JEN") and Real Estate
Capital Partners, LP or its affiliates ("RECP"). The first stage of this sale
closed on July 30, 2009 and the second stage closed on October 13, 2009. The
business is owned by Boston Financial Investment Management, LP, a Delaware
limited partnership, which is directly and indirectly owned by JEN and RECP
("Boston Financial"). The general partner of Boston Financial is BFIM
Management, LLC, a JEN affiliate. From July 30, 2009 through October 13, 2009,
MuniMae had engaged BFIM Asset Management, LLC ("BFIM"), an affiliate of Boston
Financial, to provide asset management to the Fund. Most of the employees of
MuniMae's LIHTC business have joined Boston Financial, the operations of the
business are to remain intact in the Boston office and the Fund will continue to
be managed and administered in the ordinary course.
Arch Street VIII, Inc. is the Managing General Partner of the Fund ("Arch
Street") and Arch Street VII Limited Partnership is the co-General Partner of
the Fund ("Arch Street LP"). The general partner of Arch Street LP is Arch
Street. In connection with the above-described transaction, on October 13, 2009,
ownership and control of the Managing General Partner and control of the
co-General Partner were directly and/or indirectly transferred from an affiliate
of MuniMae to Boston Financial. The transfer will not change the organizational
structure of the Fund. The principal office and place of business of the Fund
will continue to be 101 Arch Street, 13th Floor, Boston, Massachusetts 02110.
As of September 30, 2009, the Partnership's investment portfolio consisted of a
limited partnership interest in ten 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. In the aggregate, actual and estimated Tax Credits enabled
the Fund to meet the objective specified in the Fund's prospectus.
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 five of the ten
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)
Properties, which the Fund has an interest, expired on or before December 31,
2008. The Compliance Period for four of the remaining Properties will expire
December 31, 2009, while one remaining Property will expire December 31, 2010.
The Managing General Partner has negotiated agreements that will ultimately
dispose of the Fund's interest in two additional Local Limited Partnerships in
2009. In addition, the Fund is in negotiations with potential buyers to dispose
of its interest in two Local Limited Partnerships. Three of the Local Limited
Partnerships in which the Fund had an interest were disposed of during the three
months ended September 30, 2009.
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.
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
A majority of the Properties in which the Fund has an interest have stabilized
operations and operated above breakeven at June 30, 2009. 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.
As previously reported, although operations at Palo Verde II, located in
Henderson, Nevada, remained 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 $1,630,776,
or $32.02 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 sale resulted in 2008 taxable income of $1,030,956, or
$20.24, per Unit. The Fund no longer has an interest in this Local Limited
Partnership.
As previously reported, Los Claveles II, located in Trujillio Alto, Puerto Rico,
continued to operate below breakeven throughout the twelve-month period ending
December 31, 2008 due to a reduction in rental revenues associated with low
occupancy levels and an increase in utility expenses, while working capital
levels remained below acceptable levels. A site visit conducted by a
representative of the Managing General Partner in November 2007 indicated the
Property was in acceptable physical shape. The Managing General Partner 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.
Further, the Local General Partner had the right, subsequent to the expiration
of the Compliance Period on December 31, 2008, to call the Fund's interest for a
price
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)
of $10,000. As part of the agreement, the Local General Partner provided 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. The Transfer Agreement stated above was amended on December 31, 2008 to
allow for a 100% put of the Fund's interest on January 1, 2009 for $0. The put
was exercised for $0 on January 28, 2009, to be effective January 1, 2009. The
Managing General Partner estimates that this transaction will result in 2009
taxable income projected to be approximately $4,500,000, or about $88.36, per
Unit. The Fund no longer has an interest in this Local Limited Partnership.
As previously reported, occupancy rose from 75% at December 31, 2007 to 97% at
September 30, 2008 for Des Moines Street Village, located in Des Moines, Iowa.
Property operations improved significantly during the twelve month period ending
December 31, 2008. Due to increased occupancy, 97% for the six month period
ending December 31, 2008, the Property operated above breakeven. 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
the mortgage loan. The Managing General Partner was actively pursuing a
replacement of the Local General Partner. While the Local General Partner had
previously funded deficits and the Property remained 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. On January 29,
2009, the Managing General Partner removed the Local General Partner and as a
result, the previous put agreement was no longer valid. The Managing General
Partner, concurrently with the removal of the Local General Partner, entered
into a new put agreement with the Local General Partner successor and sold its
interest for $1, to be effective January 30, 2009. The Managing General Partner
estimates that this transaction will result in 2009 taxable income projected to
be approximately $53,000, or about $1.04, per Unit. The Fund no longer has an
interest in this Local Limited Partnership.
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, based on the appraised value of the
Property, or to market the Property for sale. The Local General Partner opted to
market the Property for sale and a Purchase and Sales Agreement was signed on
June 9, 2009 and amended on June 23, 2009. The sale of the Property occurred
August 18, 2009 and net proceeds to the Fund totaled $557,041, or $10.94 per
Unit. While all profit and loss benefits have stopped flowing to the Fund as of
August 18, 2009, the investment in the Local Limited Partnership will generally
not be written off the Fund's books until the end of 90 days as there are
outstanding working capital items at the Local Limited Partnership level yet to
be resolved. The Managing General Partner currently estimates 2009 tax loss to
be $450,000, or $8.84 per Unit
As previously reported, the Managing General Partner entered into an agreement
to sell the Fund's interest in Woods Lane, L.P., located in Rogers, Arkansas, to
the Local General Partner. This transaction occurred on September 30, 2009,
which resulted in net sales proceeds to the Fund of $124,691, or $2.45 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 that this transaction will result in 2009
taxable income projected to be approximately $547,000, or about $10.74, per
Unit. The Fund no longer has an interest in this Local Limited Partnership.
As previously reported, the Managing General Partner entered into an agreement
to sell the Fund's interest in Fountain Lakes, L.P., located in Benton,
Arkansas, to the Local General Partner. This transaction occurred on September
30, 2009, which resulted in net sales proceeds to the Fund of $1,504,949, or
$29.55 per Unit. The Managing General Partner, in accordance with and as
permitted by the Partnership Agreement, retained the entire
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)
amount of sales proceeds in Reserves. The Managing General Partner estimates
that this transaction will result in 2009 tax loss projected to be approximately
$1,080,000, or about $21.21, per Unit. The Fund no longer has an interest in
this Local Limited Partnership.
As previously reported, the Managing General Partner anticipated transferring
the Fund's interest in the Local Limited Partnership that owns Crafton Place
Apartments, located in Fayetteville, Arkansas, in the third quarter fiscal year
2010. This transaction occurred on September 30, 2009, which resulted in net
sales proceeds to the Fund of $300,220, or $5.89 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 that this transaction will result in 2009 tax loss projected
to be approximately $210,000, or about $4.12, per Unit. The Fund no longer has
an interest in this Local Limited Partnership.
As previously reported, the Managing General Partner anticipated the Fund's
interest in the Local Limited Partnership that owns SpringWood 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 $200,000, or $3.93 per Unit. In
July 2008, the potential buyer withdrew their interest to purchase this
Property. The Managing General Partner is currently exploring alternative exit
strategies for this Local Limited Partnership interest. The Managing General
Partner anticipates the Fund's interest in the Local Limited Partnership will
generally terminate no earlier than 90 days upon the sale of the Property in
September 2010. Net sales proceeds to the Fund are not known at this time.
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. The Managing General
Partner anticipates the Fund's interest in the Local Limited Partnership will
terminate in December 2010. Based on an early 2009 valuation, the Managing
General Partner expected a sale to result in approximately $1,500,000, or $29.45
per Unit, in sales proceeds. However, due to current market conditions, net
sales proceeds to the Fund, if any, are unknown at this time. A new valuation
will be completed in November or December 2009.
As previously reported, Guardian Place, located in Richmond, Virginia,
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. The Managing General Partner is
anticipating a June 2010 sale of the Fund's interest in the Local Limited
Partnership.
As previously reported, occupancy at Grand Boulevard Renaissance, located in
Chicago, Illinois averaged 93% for the year ending March 31, 2009. Occupancy for
the three months ending June 30, 2009 averaged 94%. Debt service coverage is at
an acceptable level and the property is operating above breakeven. However,
working capital still remains below acceptable levels. A representative of the
Managing General Partner conducted a physical inspection as part of an October
2008 site visit. Despite improvements since a December 2007 visit, the Property
was still assigned an unfavorable rating due to significant deferred maintenance
and unaddressed issues. A representative of the Managing General Partner will
conduct a fall 2009 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
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)
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. Currently, there are no plans to
dissolve this property prior to the end of the tax credit compliance period,
which ends on December 31, 2009. The Managing General Partner is currently
working on a strategy to dispose of the Fund's interest in the property for a
nominal sum in mid-2010.
As previously reported, in an effort to reduce the Fund's risk to chronic
operating difficulties at Wynmor, also known as Eden Park, 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. The Managing General Partner expects the
put to be exercised in December 2009. Although occupancy averaged 93% for the
six months ending June 30, 2009, the Property operated slightly below breakeven
for the same time period. The Compliance Period for the Property expired 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 March
31, 2009. Although occupancy rose from 70% for the three months ending June 30,
2008 to 97% for the three months ending March 31, 2009, the crime rate in the
immediate area continues to impact Twin Oaks' ability to rent units and retain
tenants. 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. Further, a new management company was brought in July
2008, which the Managing General Partner believes has helped occupancy at the
property. Currently, there are no plans to dissolve this property prior to the
end of the tax credit compliance period, which ends on December 31, 2009.
The Local General Partner of Fairhaven Manor, located in Burlington, Washington,
is currently working on a permanent loan extension. The loan matured on June 1,
2009, at which time a balloon payment was due; however, the loan has not yet
been declared in default. The compliance period ended December 31, 2008;
therefore, there is no recapture risk at the Property. The Managing General
Partner is currently negotiating an exit strategy with the Local General
Partner. The likely end result is that the Local General Partner and Managing
General Partner will agree on a price for the Local General Partner to purchase
the Fund's interest in the property, which is currently estimated for September
2010.
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
The Fund maintains disclosure controls and procedures designed to ensure that
information required to be disclosed in reports filed under the Securities
Exchange Act of 1934 ("Exchange Act") is recorded, processed, summarized and
reported within the specified time periods. The Fund's Chief Executive Officer
and its Chief Financial Officer (collectively, the "Certifying Officers") are
responsible for maintaining disclosure controls for the Fund. The controls and
procedures established by the Fund are designed to provide reasonable assurance
that information required to be disclosed by the issuer in the reports that it
files or submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the Commission's rules and forms.
As of the end of the period covered by this report, the Certifying Officers
evaluated the effectiveness of the Fund's disclosure controls and procedures.
Based on the evaluation, the Certifying Officers concluded that as of September
30, 2009, the Fund's disclosure controls and procedures were effective to
provide reasonable assurance that information required to be disclosed by us in
the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
applicable rules and forms, and that it is accumulated and communicated to our
management, including the Certifying Officers, as appropriate to allow timely
decisions regarding required disclosure.
Internal Control over Financial Reporting
The Certifying Officers have also concluded that there was no change in the
Fund's internal controls over financial reporting identified in connection with
the evaluation that occurred during the Fund's second fiscal quarter that has
materially affected, or is reasonably likely to materially affect, the Fund's
internal control over financial reporting.
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, 2009.
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 16, 2009 BOSTON FINANCIAL TAX CREDIT FUND VII,
A LIMITED PARTNERSHIP
By: Arch Street VIII, Inc.,
its Managing General Partner
/s/Kenneth J. Cutillo
---------------------
Kenneth J. Cutillo
President
Arch Street VIII , Inc.
