10QSB 1 tc8q3qsb.txt TC8Q3QSB February 14 , 2005 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Re: Boston Financial Tax Credit Fund VIII, A Limited Partnership Report on Form 10-QSB for the Quarter Ended December 31, 2004 File Number 0-26522 Dear Sir/Madam: Pursuant to the requirements of Section 15(d) of the Securities Exchange Act of 1934, filed herewith is a copy of subject report. Very truly yours, /s/Stephen Guilmette Stephen Guilmette Assistant Controller UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 2004 --------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------------------ -------------- Commission file number 0-26522 Boston Financial Tax Credit Fund VIII, A Limited Partnership (Exact name of registrant as specified in its charter) Massachusetts 04-3205879 ------------------------------------ ------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 101 Arch Street, Boston, Massachusetts 02110-1106 --------------------------------------------- -------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (617) 439-3911 ------------------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . BOSTON FINANCIAL TAX CREDIT FUND VIII, A Limited Partnership TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page No. ------------------------------ -------- Item 1. Financial Statements Balance Sheet (Unaudited) - December 31, 2004 1 Statements of Operations (Unaudited) - For the Three and Nine Months Ended December 31, 2004 and 2003 2 Statement of Changes in Partners' Equity (Deficiency) (Unaudited) - For the Nine Months Ended December 31, 2004 3 Statements of Cash Flows (Unaudited) - For the Nine Months Ended December 31, 2004 and 2003 4 Notes to the Financial Statements (Unaudited) 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6 Item 3. Controls and Procedures 10 PART II - OTHER INFORMATION Items 1-6 11 SIGNATURE 12
The accompanying notes are an integral part of these financial statements. BOSTON FINANCIAL TAX CREDIT FUND VIII, A Limited Partnership BALANCE SHEET December 31, 2004 (Unaudited)
Assets Cash and cash equivalents $ 346,722 Marketable securities, at fair value 7,109 Investments in Local Limited Partnerships (Note 1) 9,578,057 Other assets 186 -------------- Total Assets $ 9,932,074 ============== Liabilities and Partners' Equity Due to affiliate $ 1,147,507 Accrued expenses 43,886 -------------- Total Liabilities 1,191,393 -------------- General, Initial and Investor Limited Partners' Equity 8,740,599 Net unrealized gains on marketable securities 82 -------------- Total Partners' Equity 8,740,681 -------------- Total Liabilities and Partners' Equity $ 9,932,074 ==============
The accompanying notes are an integral part of these financial statements. BOSTON FINANCIAL TAX CREDIT FUND VIII, A Limited Partnership STATEMENTS OF OPERATIONS For the Three and Nine Months Ended December 31, 2004 and 2003 (Unaudited)
Three Months Ended Nine Months Ended December 31, December 31, December 31, December 31, 2004 2003 2004 2003 --------------- ------------- -------------- --------------- Revenue: Investment $ 1,454 $ 1,484 $ 4,093 $ 5,124 ---------------- ------------- -------------- --------------- Total Revenue 1,454 1,484 4,093 5,124 ---------------- ------------- -------------- --------------- Expenses: Asset management fees, affiliates 57,721 56,645 174,239 169,935 General and administrative (includes reimbursements to an affiliate in the amounts of $84,079 and $48,746 in 2004 and 2003, respectively) 47,046 30,075 140,106 109,243 Provision for valuation of advances to Local Limited Partnerships (Note 1) 73,076 - 73,076 40,000 Provision for valuation of investments in Local Limited Partnerships (Note 1) - 1,060,283 - 1,060,283 Amortization 7,032 7,486 21,096 22,457 ---------------- ------------- -------------- --------------- Total Expenses 184,875 1,154,489 408,517 1,401,918 ---------------- ------------- -------------- --------------- Loss before equity in losses of Local Limited Partnerships (183,421) (1,153,005) (404,424) (1,396,794) Equity in losses of Local Limited Partnerships (Note 1) (121,986) (211,512) (507,056) (1,103,538) ---------------- ------------- -------------- --------------- Net Loss $ (305,407) $ (1,364,517) $ (911,480) $(2,500,332) ================ ============= ============== =========== Net Loss allocated General Partner $ (3,054) $ (13,645) $ (9,115) $(25,003) Limited Partners (302,353) (1,350,872) (902,365) (2,475,329) ---------------- ------------- -------------- --------------- $ (305,407) $ (1,364,517) $ (911,480) $ (2,500,332) ================ ============= ============== =============== Net Loss per Limited Partner Unit (36,497 Units) $ (8.28) $ (37.01) $ (24.72) $ (67.82) ================ ============= ============== ===============
The accompanying notes are an integral part of these financial statements. BOSTON FINANCIAL TAX CREDIT FUND VIII, A Limited Partnership STATEMENT OF CHANGES IN PARTNERS' EQUITY (DEFICIENCY) For the Nine Months Ended December 31, 2004 (Unaudited)
Initial Investor Net General Limited Limited Unrealized Partner Partner Partners Gains Total ------------ ------------- ----------- ---------- --------- Balance at March 31, 2004 $ (219,826) $ 100 $ 9,871,805 $ 520 $ 9,652,599 ------------ --------- -------------- ----------- ------------- Comprehensive Loss: Change in net unrealized gains on marketable securities available for sale - - - (438) (438) Net Loss (9,115) - (902,365) - (911,480) ----------- --------- -------------- ----------- ------------- Comprehensive Loss (9,115) - (902,365) (438) (911,918) ----------- --------- -------------- ----------- ------------- Balance at December 31, 2004 $ (228,941) $ 100 $ 8,969,440 $ 82 $ 8,740,681 =========== ========= ============== =========== =============
The accompanying notes are an integral part of these financial statements. BOSTON FINANCIAL TAX CREDIT FUND VIII, A Limited Partnership STATEMENTS OF CASH FLOWS For the Nine Months Ended December 31, 2004 and 2003 (Unaudited)
2004 2003 ------------- ------------- Net cash used for operating activities $ (38,278) $ (48,128) Net cash provided by investing activities 43,567 154,130 ------------- ------------- Net increase in cash and cash equivalents 5,289 106,002 Cash and cash equivalents, beginning 341,433 203,002 ------------- ------------- Cash and cash equivalents, ending $ 346,722 $ 309,004 ============= =============
The accompanying notes are an integral part of these financial statements. BOSTON FINANCIAL TAX CREDIT FUND VIII, A Limited Partnership Notes to Financial Statements (Unaudited) The unaudited financial statements presented herein have been prepared in accordance with the instructions to Form 10-QSB 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, 2004. 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 periods 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 September 30, 2004 and 2003. 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 the Local Limited Partnership is 99%, with the exception of Springwood which is 79.20%, Hemlock Ridge which is 77%, and Pike Place and West End Place which are 90%. The Fund may have negotiated or may negotiate options with the Local General Partners to purchase or sell the Fund's interests in the Properties at the end of the Tax Credit Compliance Period at nominal prices. In the event that Properties are sold to third parties, 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 December 31, 2004:
Capital contributions and advances paid to Local Limited Partnerships $ 30,513,168 Cumulative equity in losses of Local Limited Partnerships (excluding cumulative unrecognized losses of $2,046,597) (17,914,517) Cumulative cash distributions received from Local Limited Partnerships (1,111,725) ------------- Investments in Local Limited Partnerships before adjustments 11,486,926 Excess of investment costs over the underlying assets acquired: Acquisition fees and expenses 1,048,010 Cumulative amortization of acquisition fees and expenses (280,444) ------------- Investments in Local Limited Partnerships before impairment allowance 12,254,492 Reserve for valuation of investments in Local Limited Partnerships (2,676,435) ------------- Investments in Local Limited Partnerships $ 9,578,057 =============
For the nine months ended December 31, 2004, the Fund advanced $73,076 to one of the Local Limited Partnerships, all of which was impaired. 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 net losses of the Local Limited Partnerships for the nine months ended December 31, 2004 is $849,733. For the nine months ended December 31, 2004, the Fund has not recognized $342,677 of equity in losses relating to two Local Limited Partnerships where cumulative equity in losses and cumulative distributions exceeded its total investment in the Local Limited Partnerships. BOSTON FINANCIAL TAX CREDIT FUND VIII, 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 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. Accounting Policies The Fund's accounting policies 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 Fund accounts for its investments in Local Limited Partnerships using the equity method of accounting because the Fund does not have control of the major operating and financial policies of the Local Limited Partnerships in which it invests. 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. 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 Fund investments 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 potential impairment of its investments in Local Limited Partnerships. Real estate experts analyze the investments to determine if impairment indicators exist. If so, the investment is analyzed to consider the Fund's ability to recover its carrying value. If an other than temporary impairment in carrying value exists, a provision to write down the asset to fair value will be recorded in the Fund's financial statements. Liquidity and Capital Resources At December 31, 2004, the Fund had cash and cash equivalents of $346,722, as compared to $341,433 at March 31, 2004. This increase is primarily attributable to cash distributions received from Local Limited Partnerships. These increases were partially offset by cash used for operations. The 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 General Partner may increase or decrease such Reserves from time to time, as it deems appropriate. At December 31, 2004, $353,831 of cash, cash equivalents and marketable securities has been designated as Reserves. To date, professional fees relating to various Property issues totaling approximately $51,000 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 December 31, 2004, the Fund has advanced approximately $1,248,000 to Local Limited Partnerships to fund operating deficits. The 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 General Partner deems funding appropriate. BOSTON FINANCIAL TAX CREDIT FUND VIII, A Limited Partnership MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Liquidity and Capital Resources (continued) To date, the Fund has used approximately $172,000 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 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 December 31, 2004, the Fund had no contractual or other obligation to any Local Limited Partnership which had not been paid or provided for. Cash Distributions No cash distributions were made during the nine months ended December 31, 2004. Results of Operations Three Month Period For the three months ended December 31, 2004, the Fund's operations resulted in a net loss of $305,406, as compared to $1,364,517 for the three months ended December 31, 2003. The decrease in net loss is primarily attributable to a decrease in provision for valuation of investments in Local Limited Partnerships. The decrease in provision for valuation of investments in Local Limited Partnerships is a result of the Fund recognizing non-temporary declines in the carrying value of its investments in certain Local Limited Partnerships for the three months ended December 31, 2003. Nine Month Period For the nine months ended December 31, 2004, the Fund's operations resulted in a net loss of $911,480, as compared to $2,500,332 for the nine months ended December 31, 2003. The decrease in net loss is primarily attributable to a decrease in equity in losses of Local Limited Partnerships and a decrease in provision for valuation of investments in Local Limited Partnerships. Equity in losses of Local Limited Partnerships decreased due to an increase in unrecognized losses in the current year for two Local Limited Partnerships whose cumulative losses and distributions exceeded the Fund's total investment and an increase in rental income at some of the Local Limited Partnerships. The decrease in provision for valuation of investments in Local Limited Partneships is a result of the Fund recognizing larger non-temporary declines in the carrying value of its investment in certain Local Limited Partnerships for the nine months ended December 31, 2003. Portfolio Update The Fund's investment portfolio consists of limited partnership interests in ten Local Limited Partnerships, each of which owns and operates a multi-family apartment complex and each of which has generated Tax Credits. Since inception, the Fund has generated Tax Credits of approximately $1,243 per Limited Partner Unit, with approximately $135 and $53 of Tax Credits expected to be generated for 2004 and 2005, respectively. In the aggregate, actual and estimated Tax Credits will enable 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 restrictions and set aside requirements for at least 15 years from the date the property is completed (the "Compliance Period").Failure BOSTON FINANCIAL TAX CREDIT FUND VIII, A Limited Partnership MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Portfolio Update (continued) to do so would result in the recapture of a portion of the Property's Tax Credits. Between 2008 and continuing through 2009, the Compliance Period of the ten Properties in which the Fund has an interest will expire. It is unlikely that the 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. On August 24, 2004, the Partnership and seven affiliates of the General Partners (collectively, the "Partnerships"), and their general partners commenced litigation against Everest Housing Investors 2, LLC and three other Everest-related entities (collectively, the "Everest entries") in Massachusetts state court, seeking a declaratory judgment that certain materials the Everest entities sought to inspect are not "books and records" of the Partnerships and that the Everest entities are in any case not entitled to inspect said information under applicable partnership agreements, partnership law or otherwise. On October 7, 2004, the Everest entities filed an answer and counterclaimed against the Partnerships and their general partners, claiming that they breached applicable partnership agreements, partnership law and their fiduciary duties to the Everest entities by failing to make the purported "books and records" available. The Partnerships maintain that the Everest entities is not entitled to review the materials requested and/or use the materials in secondary market transactions because, among other things, (i) the materials requested are not "books and records" of the Partnerships, as that term is defined in the relevant partnership agreements, (ii) the Everest entities does not seek to review them for a proper purpose, and (iii) that selective disclosure of the information to the Everest entries would give it an unfair informational advantage in secondary market transactions and could potentially violate federal and/or state securities laws. Because of the preliminary nature of the Massachusetts litigation, including but not limited to the fact that no discovery has taken place, no estimate of a potential outcome can be made at this time. Property Discussions Most of the Properties in which the Fund has an interest have stabilized operations and operate above break-even. 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, a few 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 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 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, the Local General Partner of Live Oaks Plantation, located in West Palm Beach, Florida, indicated a desire to transfer its interest in the Local Limited Partnership to a replacement Local General Partner. Accordingly, the General Partner began working with the Local General Partner to identify an acceptable replacement. Negotiations to replace the Local General Partner were then delayed due to an audit by the Internal Revenue Service ("IRS"). The audit focused on the tax treatment of certain items, such as land improvements, impact fees, utility fees and developer fees. In April 2002, the Florida office of the IRS issued their report indicating an eligible basis reduction of approximately $1,000,000, which would reduce the amount of Tax Credits and losses generated by the Property. The Local General Partner filed an appeal of the report to the Washington D.C. office of the IRS. The appeal was successful, and during April 2003 a settlement was reached whereby the eligible basis was reduced by approximately $93,000. As a result, the Fund had recapture of previously taken Tax Credits of approximately $2 per Unit. Future Tax Credits will also be reduced by approximately $0.25 per Unit. Subsequent to reaching a settlement with the IRS, negotiations to replace the Local General Partner resumed. Effective June 28, BOSTON FINANCIAL TAX CREDIT FUND VIII, A Limited Partnership MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Property Discussions (continued) 2003, an affiliate of the General Partner replaced the Local General Partner. The General Partner has continued to seek a permanent replacement Local General Partner. A potential replacement Local General Partner has been identified and it is anticipated that that the Local General Partner interest will be transferred during the first quarter of 2005. In addition, while occupancy and working capital levels have consistently remained adequate, the Property generated significant operating deficits in 2001 and 2002. The Fund funded slightly more than $1,000,000 of deficits from Fund reserves. The General Partner anticipates that the recent increase in cash from operations will continue and will be sufficient to fund the monthly debt service. Occupancy at the Property averaged 92% during the first nine months of 2004 and debt service coverage was at an appropriate level. As previously reported, turnover at Green Wood Apartments, located in Gallatin, Tennessee, had caused a decline in Property operations. Although the economy in Gallatin is growing, the major employers of tenants qualifying for affordable housing had layoffs. Rents were reduced in an effort to stabilize occupancy and administrative and maintenance expenses have been higher than budgeted. The Local General Partner has funded the operating deficits, enabling the Property to remain current on its loan obligations. However, the Property's occupancy, working capital and debt service coverage are all below levels adequate to ensure breakeven operations. The General Partner will continue to closely monitor Property operations. As previously reported, Meadow Wood of Pella, located in Pella, Iowa, has experienced operating deficits for the past several quarters due to reduced revenues resulting from low occupancy and high expenses. Operating deficits have continued in 2004. The Local General Partner has funded the operating deficit, and the property has remained current on its debt service. Occupancy and working capital deteriorated during the third quarter of 2004. The General Partner will continue to closely monitor Property operations. BOSTON FINANCIAL TAX CREDIT FUND VIII, A Limited Partnership CONTROLS AND PROCEDURES Controls and Procedures Based on the Fund's evaluation as of the end of the period covered by this report, the Fund's executive vice president has concluded that the Fund's disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that the Fund files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. There have been no significant changes in the Fund's internal controls or in other factors that could significantly affect those controls subsequent to the date of their evaluation. BOSTON FINANCIAL TAX CREDIT FUND VIII, A Limited Partnership PART II OTHER INFORMATION Item 1 Legal proceedings as discussed in Part I are incorporated herein by reference. Items 2-5 Not applicable Item 6 Exhibits and reports on Form 8-K (a) Exhibits 31.1 Certification of Jenny Netzer pursuant to section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification of Jenny Netzer 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 December 31, 2004 BOSTON FINANCIAL TAX CREDIT FUND VIII, A Limited Partnership SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DATED: February 14, 2005 BOSTON FINANCIAL TAX CREDIT FUND VIII, A LIMITED PARTNERSHIP By: Arch Street VIII Limited Partnership, its General Partner /s/Jenny Netzer Jenny Netzer Executive Vice President MMA Financial, LLC