UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-Q

x           QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2009

OR

o           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:  000-24843

AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
(Exact name of registrant as specified in its charter)

Delaware
47-0810385
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
   
1004 Farnam Street, Suite 400
Omaha, Nebraska 68102
(Address of principal executive offices)
(Zip Code)
   
(402) 444-1630
(Registrant's telephone number, including area code)

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  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES  o  NO  o

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 definition of “large accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o
Accelerated filer  x
Non- accelerated filer  o
Smaller reporting company  o
   
(do not check if a smaller reporting company)
  

    Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 YES  o  NO  x

INDEX


PART I – FINANCIAL INFORMATION

Financial Statements (Unaudited)
    
 
Condensed Consolidated Balance Sheets as of March 31, 2009 and December 31, 2008
1
 
Condensed Consolidated Statements of Operations for the three months ended March 31, 2009 and 2008
2
 
Condensed Consolidated Statements of Partners’ Capital and Comprehensive Income (Loss) for the three months ended March 31, 2009 and 2008
3
 
Condensed Statement of Cash Flows for the three months ended March 31, 2009 and 2008
4
 
Notes to Condensed Consolidated Financial Statements
5
Management’s Discussion and Analysis of Financial Condition and Results of Operations
20
Quantitative and Qualitative Disclosures About Market Risk
29
Controls and Procedures
29

PART II – OTHER INFORMATION

Risk Factors
30
Exhibits
30


 
31



Forward-Looking Statements

This report (including, but not limited to, the information contained in “Management's Discussion and Analysis of Financial Condition and Results of Operations") contains forward-looking statements that reflect management's current beliefs and estimates of future economic circumstances, industry conditions, the Company's performance and financial results. All statements, trend analysis and other information concerning possible or assumed future results of operations of the Company and the investments it has made constitute forward-looking statements. Beneficial Unit Certificate (“BUC”) holders and others should understand that these forward-looking statements are subject to numerous risks and uncertainties and a number of factors could affect the future results of the Company and could cause those results to differ materially from those expressed in the forward-looking statements contained herein. These factors include general economic and business conditions such as the availability and credit worthiness of prospective tenants, lease rents, operating expenses, the terms and availability of financing for properties financed by the tax-exempt mortgage revenue bonds owned by the Partnership, adverse changes in the real estate markets from governmental or legislative forces, lack of availability and credit worthiness of counterparties to finance future acquisitions and interest rate fluctuations and other items discussed under “Risk Factors” in Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008 and in Item 1A of Part II of this report.



 
 
 

PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements.

AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)


   
March 31,
    
December 31,
  
   
2009
    
2008
  
Assets
            
Cash and cash equivalents
   $ 11,457,659     $ 7,196,274  
Restricted cash
     36,533,465       12,848,614  
Interest receivable
     1,141,623       769,201  
Tax-exempt mortgage revenue bonds, at fair value
     48,308,320       44,492,526  
Real estate assets:
                
Land
     12,519,551       10,774,790  
Buildings and improvements
     92,172,466       86,903,743  
Real estate assets before accumulated depreciation
     104,692,017       97,678,533  
Accumulated depreciation
     (18,478,464 )     (17,499,670 )
Net real estate assets
     86,213,553       80,178,863  
Other assets
     4,195,104       4,263,937  
Assets of discontinued operations
     -       8,113,861  
Total Assets
   $ 187,849,724     $ 157,863,276  
                 
Liabilities
                
Accounts payable, accrued expenses and other liabilities
   $ 3,415,697     $ 3,380,666  
Distribution payable
     2,432,327       2,432,327  
Debt financing
     76,565,237       56,981,577  
Mortgages payable
     37,372,130       30,908,790  
Liabilities of discontinued operations
     -       23,264,589  
Total Liabilities
     119,785,391       116,967,949  
                 
Commitments and Contingencies (Note 12)
                
                 
Partners' Capital
                
General partner
     873,352       261,785  
Beneficial Unit Certificate holders
     96,288,920       93,277,480  
Unallocated deficit of variable interest entities
     (29,168,124 )     (52,711,654 )
Total Partners' Capital
     67,994,148       40,827,611  
Noncontrolling interest (Note 13)
     70,185       67,716  
Total Capital
     68,064,333       40,895,327  
Total Liabilities and Capital
   $ 187,849,724     $ 157,863,276  
                 
The accompanying notes are an integral part of the condensed consolidated financial statements.
  

 
1
 

AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

     
For the Three Months Ended,
  
     
March 31, 2009
    
March 31, 2008
  
Revenues:
            
 
Property revenues
   $ 3,751,243     $ 3,313,395  
 
Mortgage revenue bond investment income
     948,344       1,208,564  
 
Other interest income
     34,015       24,430  
 
Gain on sale of securities
     -       3,704  
Total Revenues
     4,733,602       4,550,093  
Expenses:
                
 
Real estate operating (exclusive of items shown below)
     2,360,643       1,959,162  
 
Depreciation and amortization
     1,580,872       1,184,524  
 
Interest
     1,190,869       1,158,441  
 
General and administrative
     576,762       431,066  
Total Expenses
     5,709,146       4,733,193  
Loss from continuing operations
     (975,544 )     (183,100 )
Income from discontinued operations (including gain on bond redemption of $26,514,809 in 2009)
     26,734,754       193,757  
Net income
     25,759,210       10,657  
 
Less: net loss attributable to noncontrolling interest
     3,860       2,745  
Net income - America First Tax Exempt Investors, L. P.
   $ 25,763,070     $ 13,402  
                   
Net income allocated to:
                
 
General Partner
     574,090       6,662  
 
BUC holders
     1,645,450       659,523  
 
Unallocated gain (loss) of variable interest entities
     23,543,530       (652,783 )
 
Noncontrolling interest
     (3,860 )     (2,745 )
      $ 25,759,210     $ 10,657  
                   
Limited partners' interest in net income per unit (basic and diluted):
          
Income from continuing operations
   $ 0.12     $ 0.05  
Income from discontinued operations
     -       -  
Net income, basic and diluted, per unit
   $ 0.12     $ 0.05  
                   
Weighted average number of units outstanding,
                
 
basic and diluted
     13,512,928       13,512,928  
                   
The accompanying notes are an integral part of the consolidated financial statements.
  


 
2
 

AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL AND COMPREHENSIVE INCOME (LOSS)
FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008
(UNAUDITED)


           
Beneficial Unit Certificate holders
    
Unallocated
                 Accumulated Other Comprehensive  
               
deficit of
                  
     
General
        
variable interest
    
Noncontrolling
            
     
Partner
    
# of Units
    
Amount
    
entities
    
Interest
    
Total
    
Income (Loss)
  
  Balance at January 1, 2009   $ 261,785       13,512,928     $ 93,277,480     $ (52,711,654 )   $ 67,716     $ 40,895,327     $ (16,857,807 )
Comprehensive income (loss):
                                                        
Noncontrolling interest contribution
                                     6,329       6,329          
Net income (loss)
     574,090       -       1,645,450       23,543,530       (3,860 )     25,759,210       -  
Unrealized gain on securities
     38,358       -       3,797,436       -        -       3,835,794       3,835,794  
   Total comprehensive income (loss)
                                             29,601,333          
Distributions paid or accrued
     (608,082 )     -       (1,824,245 )     -        -       (2,432,327 )     -  
Reclassification of Tier II income
     607,201        -       (607,201 )      -       -       -        -  
  Balance at March 31, 2009   $ 873,352       13,512,928     $ 96,288,920     $ (29,168,124 )   $ 70,185     $ 68,064,333     $ (13,022,013 )
                                                           
                                                           
             
Beneficial Unit Certificate holders
    
Unallocated
                     Accumulated Other Comprehensive  
                 
deficit of
                      
     
General
        
variable interest
    
Noncontrolling
              
     
Partner
    
# of Units
    
Amount
    
entities
    
Interest
    
Total
    
Income (Loss)
  
  Balance at January 1, 2008   $ 348,913       13,512,928     $ 112,880,314     $ (48,954,760 )   $ 48,756     $ 64,323,223     $ (3,581,844 )
Comprehensive income (loss):
                                                        
Net income (loss)
     6,662       -       659,523       (652,783 )     (2,745 )     10,657       -  
Unrealized loss on securities
     (52,131 )     -       (5,160,934 )     -       -       (5,213,065 )     (5,213,065 )
   Total comprehensive income (loss)
                                             (5,202,408 )        
Distributions paid or accrued
     (18,427 )     -       (1,824,245 )     -       -       (1,842,672 )     -  
  Balance at March 31, 2008   $ 285,017       13,512,928     $ 106,554,658     $ (49,607,543 )   $ 46,011     $ 57,278,143     $ (8,794,909 )



The accompanying notes are an integral part of the condensed consolidated financial statements.


 
3
 


AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)


   
For the three months ended
  
   
March 31, 2009
    
March 31, 2008
  
Cash flows from operating activities:
            
Net income
   $ 25,759,210     $ 10,657  
Adjustments to reconcile net income to net cash provided by operating activities:
                
Depreciation and amortization expense
     1,580,872       1,351,431  
Non-cash loss on derivatives
     453,366       183,191  
Gain on sale of securities
     -       (3,704 )
Gain on sale of discontinued operations
     (26,514,809 )     -  
Changes in operating assets and liabilities, net of effect of acquisitions
                
Increase in interest receivable
     (372,422 )     (242,145 )
Increase in other assets
     (527,907 )     (474,407 )
Decrease in accounts payable, accrued expenses and other liabilities
     (1,287,916 )     (481,818 )
Net cash (used) provided by operating activities
     (909,606 )     343,205  
Cash flows from investing activities:
                
Proceeds from the sale of tax-exempt mortgage revenue bonds
     -       3,433,635  
Proceeds from sale of discontinued operations
     32,000,000       -  
Acquisition of tax-exempt mortgage revenue bonds
     -       (12,435,000 )
Increase in restricted cash
     (189,709 )     (908,867 )
Restricted cash - debt collateral
     (23,552,000 )     -  
Capital expenditures
     (178,536 )     (150,782 )
Acquisition of partnerships, net of cash acquired
     (729,964 )     -  
Principal payments received on tax-exempt mortgage revenue bonds
     20,000       15,000  
Principal payments received on taxable loans
     -       100,000  
Net cash provided (used) by investing activities
     7,369,791       (9,946,014 )
Cash flows from financing activities:
                
Distributions paid
     (2,432,327 )     (2,432,327 )
Derivative settlements
     (84,388 )     (12,194 )
Increase in liabilities related to restricted cash
     189,709       908,867  
Principal payments on debt financing and mortgage payable
     (36,660 )     -  
Net cash used by financing activities
     (2,363,666 )     (1,535,654 )
Net increase (decrease) in cash and cash equivalents
     4,096,519       (11,138,463 )
Cash and cash equivalents at beginning of period, including cash and cash equivalents of discontinued operations of $164,866 and $145,278, respectively
     7,361,140       14,821,946  
                 
Cash and cash equivalents at end of period, including cash and cash equivalents of discontinued operations of $0 and $244,434, respectively
   $ 11,457,659     $ 3,683,483  
Supplemental disclosure of cash flow information:
                
Cash paid during the period for interest
   $ 1,048,282     $ 457,281  
Capital expenditures financed through accounts payable
   $ -     $ 64,066  
Liabilites assumed in the acquisition of partnerships
   $ 6,506,329     $ -  
Distributions declared but not paid
   $ 2,432,327     $ 1,842,672  
                 
The accompanying notes are an integral part of the condensed consolidated financial statements.
          

 
4
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2009
(UNAUDITED)

1.  Basis of Presentation

America First Tax Exempt Investors, L.P. (the “Partnership”) was formed on April 2, 1998 under the Delaware Revised Uniform Limited Partnership Act for the purpose of acquiring, holding, selling and otherwise dealing with a portfolio of federally tax-exempt mortgage revenue bonds which have been issued to provide construction and/or permanent financing of multifamily residential properties.  Interest on these bonds is excludable from gross income for federal income tax purposes.  As a result, most of the income earned by the Partnership is exempt from federal income taxes.  Our general partner is America First Capital Associates Limited Partnership Two (“AFCA 2” or “General Partner”).  The Partnership will terminate on December 31, 2050 unless terminated earlier under provisions of its Agreement of Limited Partnership.
 
Recent economic conditions have been unprecedented and challenging, with significantly tighter credit conditions and slower growth expected for 2009.  As a result of these conditions, the cost and availability of credit has been, and may continue to be, adversely affected in all markets in which we operate. Concern about the stability of the markets generally, and the strength of counterparties specifically, has led many lenders and institutional investors to reduce, and in some cases, cease to provide, funding to borrowers. If these market and economic conditions continue, they may limit the Partnership’s ability to replace or renew maturing liabilities on a timely basis, access the capital markets to meet liquidity and capital expenditure requirements and may result in adverse effects on the Partnership’s financial condition and results of operations.

Although the consequences of these conditions and their impact on the Partnership’s ability to pursue its plan to grow through investments in additional tax-exempt bonds secured by first mortgages on affordable multifamily housing projects are not fully known, the Partnership does not anticipate that its existing assets will be adversely affected in the long-term.  The Partnership believes the current tightening of credit may create opportunities for additional investments consistent with its investment strategy because it may result in fewer parties competing to acquire tax-exempt bonds issued to finance affordable housing.  There can be no assurance that the Partnership will be able to finance additional acquisitions of tax-exempt bonds through either additional equity or debt financing.  If uncertainties in these markets continue, the markets deteriorate further or the Partnership experiences further deterioration in the values of its investment portfolio, the Partnership may incur impairments to its investment portfolio which could negatively impact the its financial statements.

The consolidated financial statements of the “Company” reported in this Form 10-Q include the assets and results of operations of the Partnership, the multifamily apartment properties (the “MF Properties”) owned by various limited partnerships in which one of the Partnership’s wholly-owned subsidiaries (each a “Holding Company”) holds a 99% limited partner interest and five other entities in which the Partnership does not hold an ownership interest but which own multifamily apartment properties financed with tax-exempt bonds held by the Partnership and which are treated as variable interest entities of which the Partnership has been determined to be the primary beneficiary (the “VIEs”). Stand alone financial information of the Partnership reported in this Form 10-Q includes only the assets and results of operation of the Partnership and the MF Properties without the consolidation of the VIEs.  In the Company’s consolidated financial statements, all transactions and accounts between the Partnership, the MF Properties and the VIEs have been eliminated in consolidation.  The Partnership does not presently believe that the consolidation of VIEs for reporting under accounting principles generally accepted in the United States of America (“GAAP”) will impact the Partnership’s tax status, amounts reported to Beneficial Unit Certificate (“BUC”) holders on IRS Form K-1, the Partnership’s ability to distribute tax-exempt income to BUC holders, the current level of quarterly distributions or the tax-exempt status of the underlying mortgage revenue bonds.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.  The accompanying interim unaudited condensed consolidated financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted according to such rules and regulations, although management believes that the disclosures are adequate to make the information presented not misleading. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008. These condensed consolidated financial statements and notes have been prepared consistently with the 2008 Form 10-K with the exception of the reclassification of certain prior-year amounts on the Company’s Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Partners’ Capital and Comprehensive Income (Loss) and Condensed Consolidated Statements of Cash Flows in accordance with the Company’s adoption of SFAS No. 160 (see Note 13) on January 1, 2009, which required retrospective application.  In the opinion of management, all normal and recurring adjustments (consisting of normal and recurring accruals) necessary to present fairly the financial position as of March 31, 2009, and the results of operations for all periods presented have been made. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year.

2.  Partnership Income, Expenses and Cash Distributions

The Agreement of Limited Partnership of the Partnership contains provisions for the distribution of Net Interest Income, Net Residual Proceeds and Liquidation Proceeds, for the allocation of income or loss from operations and for the allocation of income and loss arising from a repayment, sale or liquidation of investments.  Income and losses will be allocated to each BUC holder on a periodic basis, as determined by the General Partner, based on the number of BUCs held by each BUC holder as of the last day of the period for which such allocation is to be made. Distributions of Net Interest Income and Net Residual Proceeds will be made to each BUC holder of record on the last day of each distribution period based on the number of BUCs held by each BUC holder as of such date. For purposes of the Agreement of Limited Partnership, cash distributions, if any, received by the Partnership from the Investment in Multifamily Apartment Properties (See Note 4) will be included in the Partnership’s Interest Income and cash distributions received by the Partnership from the sale of such properties will be included in the Partnership Residual Proceeds.
5
Cash distributions are currently made on a quarterly basis but may be made on a monthly or semiannual basis at the election of AFCA 2.  On each distribution date, Net Interest Income is distributed 99% to the BUC holders and 1% to AFCA 2 and Net Residual Proceeds are distributed 100% to BUC holders except that Net Interest Income and Net Residual Proceeds representing contingent interest in an amount equal to 0.9% per annum of the principal amount of the mortgage bonds on a cumulative basis (defined as Net Interest Income (Tier 2) and Net Residual Proceeds (Tier 2), respectively) are distributed 75% to the BUC holders and 25% to AFCA 2.

The Agreement of Limited Partnership also allows the General Partner to withhold, from time to time, Interest Income and Residual Proceeds and to place these amounts into a reserve to provide funding for working capital or additional investments.  In 2005, the General Partner placed Net Residual Proceeds representing contingent interest of approximately $10.9 million into the reserve.  If and when the General Partner determines that this contingent interest is no longer to be held in reserve and is to be distributed, it is anticipated that it will be distributed as Net Residual Proceeds (Tier 2) as defined in the Agreement of Limited Partnership.  As such, these funds will be distributed 75% to the BUC holders and 25% to the General Partner.  On March 31, 2009, the General Partner determined that approximately $2.4 million of the Net Residual Proceeds previously placed in reserve were no longer to be held in reserve and would be distributed as Net Residual Proceeds (Tier 2).  Accordingly, an entry has been recorded in the Company’s consolidated financial statements to allocate such Net Residual Proceeds 75% to the BUC holders and 25% to the General Partner in preparation for such distribution.  As of March 31, 2009, approximately $2.3 million representing Tier 2 income has not been distributed and remains in the reserve.

The unallocated deficit of the VIEs is primarily comprised of the accumulated historical net losses of the VIEs as of the implementation of Consolidation of Variable Interest Entities, (“FIN 46R”).  The unallocated deficit of the VIEs and the VIE’s net losses subsequent to that date are not allocated to the General Partner and BUC holders as such activity is not contemplated by, or addressed in, the Agreement of Limited Partnership.

3.  Variable Interest Entities

The Partnership operates for the purpose of acquiring, holding, selling and otherwise dealing with a portfolio of federally tax-exempt mortgage revenue bonds which have been issued to provide construction and/or permanent financing of multifamily residential apartments. Each multifamily property financed with tax-exempt mortgage bonds held by the Partnership is owned by a separate entity.  The Partnership does not hold an equity ownership interest in any of these entities; however, the bonds held by the Partnership create a variable interest in the entities.  Under FIN 46R, the Partnership must make an evaluation of these entities to determine if they meet the definition of a VIE.  If the underlying entity is determined to be a VIE, the Partnership must then determine if it is the primary beneficiary of the VIE pursuant to the terms of each tax-exempt mortgage revenue bond and the criteria within FIN 46R.  FIN 46R is a complex standard that requires significant analysis and judgment.

The Partnership has determined that five of the entities financed by tax-exempt bonds owned by the Partnership at March 31, 2009 are held by VIEs and that the Partnership is the primary beneficiary of these VIEs.  The Partnership determined that eight of the entities financed by tax-exempt bonds owned by the Partnership at December 31, 2008 were held by VIEs and that the Partnership was the primary beneficiary of these VIEs.  As of December 31, 2008, five of these consolidated VIEs are included in the results from continuing operations while three are presented as discontinued operations.

In February 2009, the three tax-exempt mortgage revenue bonds secured by assets of the VIEs presented as discontinued operations as of December 31, 2008, were redeemed.  In order to properly reflect the transaction under FIN 46R, the Company recorded the redemption of the bonds as a sale of the properties as though they were owned by the Company.  The transaction was completed for a total purchase price of $32.0 million resulting in a gain on sale for GAAP reporting of approximately $26.5 million.  The redemption of the bonds did not result in a taxable gain to the Partnership.  The redeemed bonds were collateral on the Company’s tender option bond credit facility (“TOB facility”) agreement with Bank of America.  As of March 31, 2009, the Company has placed on deposit with Bank of America $23.6 million in restricted cash as replacement collateral.  Such funds on deposit may be used to reduce the amount of debt outstanding on the TOB facility.

On a stand-alone basis, the Partnership received approximately $30.9 million of net proceeds from the bond redemption.  These proceeds represent the repayment of the bond par values plus accrued base interest and approximately $2.3 million of contingent interest.  The contingent interest represents additional earnings to the Partnership beyond the recurring base interest earned on these bonds.  The contingent interest also represents additional Cash Available for Distribution to the BUC holders of approximately $1.7 million, or $0.13 per unit.

The consolidated financial statements of the Company include the assets, liabilities and results of operation of the Partnership and the VIEs.  Financial information of the Partnership, on a stand-alone basis, includes only the assets, liabilities and results of operations of the Partnership and the MF Properties without the impact of the consolidation of the VIEs.  In the Company’s consolidated financial statements, all transactions and accounts between the Partnership, the MF Properties and the VIEs have been eliminated.

The following tables present the effects of the consolidation of the VIEs on the Company’s Condensed Consolidated Balance Sheets and Condensed Statements of Operations.

 
6
 


Condensed Consolidating Balance Sheets as of March 31, 2009 and December 31, 2008:


 
   
Partnership as of March 31, 2009
    
VIEs as of March 31, 2009
    
Consolidation-Elimination as of March 31, 2009
    
Total as of March 31, 2009
  
Assets
                        
Cash and cash equivalents
   $ 11,359,277     $ 98,382     $ -     $ 11,457,659  
Restricted cash
     33,839,650       2,693,815       -       36,533,465  
Interest receivable
     5,275,484       -       (4,133,861 )     1,141,623  
Tax-exempt mortgage revenue bonds
     94,561,074       -       (46,252,754 )     48,308,320  
Real estate assets:
                                
Land
     6,736,351       5,783,200       -       12,519,551  
Buildings and improvements
     37,059,526       55,112,940       -       92,172,466  
Real estate assets before accumulated depreciation
     43,795,877       60,896,140       -       104,692,017  
Accumulated depreciation
     (1,920,273 )     (16,558,191 )     -       (18,478,464 )
Net real estate assets
     41,875,604       44,337,949       -       86,213,553  
Other assets
     15,842,182       1,307,025       (12,954,103 )     4,195,104  
Assets of discontinued operations
     -       -       -       -  
Total Assets
   $ 202,753,271     $ 48,437,171     $ (63,340,718 )   $ 187,849,724  
                                 
Liabilities
                                
Accounts payable, accrued expenses and other
   $ 1,753,190     $ 32,954,990     $ (31,292,483 )   $ 3,415,697  
Distribution payable
     2,432,327       -       -       2,432,327  
Debt financing
     76,565,237       -       -       76,565,237  
Mortgage payable
     37,372,130       51,670,000       (51,670,000 )     37,372,130  
Liabilities of discontinued operations
     -       -       -       -  
Total Liabilities
     118,122,884       84,624,990       (82,962,483 )     119,785,391  
Partners' Capital
                                
General Partner
     873,352       -       -       873,352  
Beneficial Unit Certificate holders
     83,686,850       -       12,602,070       96,288,920  
Unallocated deficit of variable interest entities
     -       (36,187,819 )     7,019,695       (29,168,124 )
Total Partners' Capital
     84,560,202       (36,187,819 )     19,621,765       67,994,148  
Noncontrolling interest
     70,185       -       -       70,185  
Total Capital
     84,630,387       (36,187,819 )     19,621,765       68,064,333  
Total Liabilities and Partners' Capital
   $ 202,753,271     $ 48,437,171     $ (63,340,718 )   $ 187,849,724  

 
7

 
   
Partnership as of December 31, 2008
    
VIEs as of December 31, 2008
    
Consolidation-Elimination as of December 31, 2008
    
Total as of December 31, 2008
  
Assets
                        
Cash and cash equivalents
   $ 7,068,297     $ 127,977     $ -     $ 7,196,274  
Restricted cash
     10,836,084       2,012,530       -       12,848,614  
Interest receivable
     4,249,760       -       (3,480,559 )     769,201  
Tax-exempt mortgage revenue bonds
     112,991,268       -       (68,498,742 )     44,492,526  
Real estate assets:
                                
Land
     4,991,590       5,783,200       -       10,774,790  
Buildings and improvements
     31,877,661       55,026,082       -       86,903,743  
Real estate assets before accumulated depreciation
     36,869,251       60,809,282       -       97,678,533  
Accumulated depreciation
     (1,519,845 )     (15,979,825 )     -       (17,499,670 )
Net real estate assets
     35,349,406       44,829,457       -       80,178,863  
Other assets
     16,332,459       1,383,674       (13,452,196 )     4,263,937  
Assets of discontinued operations
     -       8,113,861       -       8,113,861  
Total Assets
   $ 186,827,274     $ 56,467,499     $ (85,431,497 )   $ 157,863,276  
                                 
Liabilities and Owners' Equity
                                
Accounts payable, accrued expenses and other
   $ 1,571,177     $ 31,565,556     $ (29,756,067 )   $ 3,380,666  
Distribution Payable
     2,432,327       -       -       2,432,327  
Debt financing
     76,565,237       -       (19,583,660 )     56,981,577  
Mortgage payable
     30,908,790       51,670,000       (51,670,000 )     30,908,790  
Liabilities of discontinued operations
     -       42,900,305       (19,635,716 )     23,264,589  
Total Liabilities
     111,477,531       126,135,861       (120,645,443 )     116,967,949  
Partners' Capital
                                
General Partner
     261,785       -       -       261,785  
Beneficial Unit Certificate holders
     75,020,242       -       18,257,238       93,277,480  
Unallocated deficit of variable interest entities
     -       (69,668,362 )     16,956,708       (52,711,654 )
Total Partners' Capital
     75,282,027       (69,668,362 )     35,213,946       40,827,611  
Noncontrolling interest
     67,716       -       -       67,716  
Total Capital
     75,349,743       (69,668,362 )     35,213,946       40,895,327  
Total Liabilities and Partners' Capital
   $ 186,827,274     $ 56,467,499     $ (85,431,497 )   $ 157,863,276  

 

 

 

 

 

 

 
8
 

Condensed Consolidating Statements of Operations for the three months ended March 31, 2009 and 2008:

   
Partnership
    
VIEs
     Consolidation-Elimination For the Three Months Ended    
Total
  
   
For the Three
    
For the Three
        
For the Three
  
   
Months Ended
    
Months Ended
        
Months Ended
  
   
Mar. 31, 2009
    
Mar. 31, 2009
    
Mar. 31, 2009
    
Mar. 31, 2009
  
Revenues:
                        
Property revenues
   $ 1,631,698     $ 2,119,545     $ -     $ 3,751,243  
Mortgage revenue bond investment income
     4,643,013       -       (3,694,669 )     948,344  
Other interest income
     34,015       -       -       34,015  
Gain on sale of securities
     (127,495 )     -       127,495       -  
     Total Revenues
   $ 6,181,231     $ 2,119,545     $ (3,567,174 )   $ 4,733,602  
Expenses:
                                
Real estate operating (exclusive of items shown below)
     1,035,657       1,324,986       -       2,360,643  
Loan loss expense
     74,999       -       (74,999 )     -  
Depreciation and amortization
     1,005,711       589,615       (14,454 )     1,580,872  
Interest
     1,272,422       1,510,844       (1,592,397 )     1,190,869  
General and administrative
     576,762       -       -       576,762  
    Total Expenses
   $ 3,965,551     $ 3,425,445     $ (1,681,850 )   $ 5,709,146  
Income (loss) from continuing operations
     2,215,680       (1,305,900 )     (1,885,324 )     (975,544 )
Income (loss) from discontinued operations
     -       34,786,444       (8,051,690 )     26,734,754  
Net income (loss)
   $ 2,215,680     $ 33,480,544     $ (9,937,014 )   $ 25,759,210  
Less: net loss attributable to noncontrolling interest
     3,860       -        -        3,860  
Net income (loss) - America First Tax Exempt Investors, L. P.
   $ 2,219,540     $ 33,480,544     $ (9,937,014 )   $ 25,763,070  
   
Partnership
    
VIEs
     Consolidation-Elimination For the Three Months Ended    
Total
  
   
For the Three
    
For the Three
        
For the Three
  
   
Months Ended
    
Months Ended
        
Months Ended
  
   
Mar. 31, 2008
    
Mar. 31, 2008
    
Mar. 31, 2008
    
Mar. 31, 2008
  
Revenues:
                                
Property revenues
   $ 1,093,036     $ 2,220,359     $ -     $ 3,313,395  
Mortgage revenue bond investment income
     2,636,138       -       (1,427,574 )     1,208,564  
Other interest income
     24,430       -       -       24,430  
Gain on the sale of securities
     3,704       -       -       3,704  
     Total Revenues
   $ 3,757,308     $ 2,220,359     $ (1,427,574 )   $ 4,550,093  
Expenses:
                                
Real estate operating (exclusive of items shown below)
     509,049       1,450,113       -       1,959,162  
Depreciation and amortization
     630,198       571,086       (16,760 )     1,184,524  
Interest
     1,523,555       1,467,861       (1,832,975 )     1,158,441  
General and administrative
     431,066       -       -       431,066  
    Total Expenses
   $ 3,093,868     $ 3,489,060     $ (1,849,735 )   $ 4,733,193  
Income (loss) from continuing operations
     663,440       (1,268,701 )     422,161       (183,100 )
Income (loss) from discontinued operations
     -       (226,609 )     420,366       193,757  
Net income (loss)
   $ 663,440     $ (1,495,310 )   $ 842,527     $ 10,657  
Less: net loss attributable to noncontrolling interest
     2,745       -       -       2,745  
Net income (loss) - America First Tax Exempt Investors, L. P.
  
$
 666,185     $ (1,495,310 )   $ 842,527     $ 13,402  


 

 
9
 


4.  Investments in Tax-Exempt Bonds

The tax-exempt mortgage revenue bonds owned by the Company have been issued to provide construction and/or permanent financing of multifamily residential properties. The Company had the following investments in tax-exempt mortgage revenue bonds as of dates shown:


   
March 31, 2009
  
Description of Tax-Exempt
        
Unrealized
    
Unrealized
    
Estimated
  
Mortgage Revenue Bonds
  
Cost
    
Gain
    
Loss
    
Fair Value
  
                         
Clarkson College
   $ 5,998,333     $ -     $ (925,674 )   $ 5,072,659  
Bella Vista
     6,785,000       -       (1,384,276 )     5,400,724  
Woodland Park
     15,715,000       -       (3,438,442 )     12,276,558  
Gardens of DeCordova
     4,870,000       -       (1,179,173 )     3,690,827  
Gardens of Weatherford
     4,702,000       -       (1,138,495 )     3,563,505  
Runnymede Apartments
     10,825,000       -       (2,199,748 )     8,625,252  
Bridle Ridge Apartments
     7,885,000       -       (1,721,217 )     6,163,783  
Woodlynn Village
     4,550,000       -       (1,034,988 )     3,515,012  
    $ 61,330,333     $ -     $ (13,022,013 )   $ 48,308,320  
                                 
   
December 31, 2008
  
Description of Tax-Exempt
          
Unrealized
    
Unrealized
    
Estimated
  
Mortgage Revenue Bonds
  
Cost
    
Gain
    
Loss
    
Fair Value
  
                                 
Clarkson College
   $ 6,018,333     $ -     $ (1,241,441 )   $ 4,776,892  
Bella Vista
     6,785,000       -       (1,821,433 )     4,963,567  
Woodland Park
     15,715,000       -       (4,507,533 )     11,207,467  
Gardens of DeCordova
     4,870,000       -       (1,493,142 )     3,376,858  
Gardens of Weatherford
     4,702,000       -       (1,566,989 )     3,135,011  
Runnymede Apartments
     10,825,000       -       (2,902,074 )     7,922,926  
Bridle Ridge Apartments
     7,885,000       -       (2,047,419 )     5,837,581  
Woodlynn Village
     4,550,000       -       (1,277,776 )     3,272,224  
    $ 61,350,333     $ -     $ (16,857,807 )   $ 44,492,526  

Valuation - - As all of the Company’s investments in tax-exempt mortgage revenue bonds are classified as available-for-sale securities, they are carried on the balance sheet at their estimated fair values.  Due to the limited market for the tax-exempt bonds, these estimates of fair value do not necessarily represent what the Company would actually receive in a sale of the bonds.  There is no active trading market for the bonds and price quotes for the bonds are not generally available.  As of March 31, 2009 and December 31, 2008, all of the Company’s tax-exempt mortgage revenue bonds were valued using discounted cash flow and yield to maturity analyses performed by management.  Management’s valuation encompasses judgment in its application.  The key assumption in management’s yield to maturity analysis is the range of effective yields on the individual bonds.  At March 31, 2009, the range of effective yields on the individual bonds was 7.7% to 8.05%.  Additionally, the Company calculated the sensitivity of the key assumption used in calculating the fair values of these bonds.  Assuming an immediate 10 percent adverse change in the key assumption, the effective yields on the individual bonds would increase to a range of 8.5% to 8.85% and would result in additional unrealized losses on the bond portfolio of approximately $1.2 million.  This sensitivity analysis is hypothetical and is as of a specific point in time.  The results of the sensitivity analysis may not be indicative of actual changes in fair value and should be used with caution.  If available, the general partner may also consider price quotes on similar bonds or other information from external sources, such as pricing services.  Pricing services, broker quotes and management’s analyses provide indicative pricing only.

Unrealized gains or losses on these tax-exempt bonds are recorded in accumulated other comprehensive income (loss) to reflect changes in their estimated fair values resulting from market conditions and fluctuations in the present value of the expected cash flows from the underlying properties. As of March 31, 2009, all of the current bond investments have been in an unrealized loss position for greater than twelve months.  The current unrealized losses on the bonds are not considered to be other-than-temporary because the Company has the intent and ability to hold these securities until their value recovers or until maturity, if necessary. The unrealized gain or loss will continue to fluctuate each reporting period based on the market conditions and present value of the expected cash flow. 
 
In general, credit and capital markets have deteriorated over the past 12 to 18 months.  The deterioration has negatively impacted the fair value of the bonds over that same time period.  Although valuations have improved in the first quarter, if uncertainties in these markets continue, the markets deteriorate further or the Company experiences further deterioration in the values of its investment portfolio, or if the Company’s intent and ability to hold certain bonds changes, the Company may recognize impairments to its investment portfolio through earnings which would negatively impact the Company’s results of operations.

10
In April 2009, the Company acquired the Cross Creek Apartments tax-exempt mortgage revenue bond and a construction loan for $6.6 million which represented 100% of the bond issuance and outstanding construction loans.  The bond par value is $8.85 million and the bond earns interest at an annual rate of 6.15% with semi-annual interest payments and a stated maturity date of March 1, 2049.  The bond was issued for the construction of the Cross Creek Apartments, a 144 unit multifamily apartment complex located in Beaufort, South Carolina.  At the time of acquisition the bonds were in technical default as the property construction was not completed, the property had not reached stabilization and the property was not current on debt service.  The Company expects to make a taxable loan to the property owner to allow for the completion of construction, lease up and stabilization of the property and the payment of bond debt service.  America First Property Management Company, LLC (“Properties Management”), an affiliate of AFCA 2, has been retained to manage the property and will begin marketing and leasing activities for the property in the second quarter of 2009.  The Company is currently evaluating whether the underlying entity that owns the Cross Creek Apartments meets the definition of a VIE and accordingly, whether its financial statements are to be consolidated into the Company’s consolidated financial statements under FIN 46R.

In April 2009, the Company acquired the Series A and B Oak Grove Commons Apartments tax-exempt mortgage revenue bonds for $2.5 million which represented 100% of the bond issuance.  Both the Series A and B bonds earn interest at an annual rate of 7.0% with semi-annual interest payments and stated maturity dates of December 1, 2041.  The Series A bond par value is $5.6 million and the Series B bond par value is $1.4 million.  The bonds were issued for the construction of the Oak Grove Commons Apartments, a 168 unit multifamily apartment complex located in Conway, Arkansas.  At the time of acquisition the bonds were in technical default as the property had not reached stabilization and was not current on debt service.  The Company expects to make a taxable loan to the property owner to allow for the continued lease up and stabilization of the property and the payment of bond debt service.  Properties Management has been retained to manage the property and will begin marketing and leasing activities for the property in the second quarter of 2009.  The Company is currently evaluating whether the underlying entity that owns the Oak Grove Commons Apartments meets the definition of a VIE and accordingly, whether its financial statements are to be consolidated into the Company’s consolidated financial statements under FIN 46R.

During the first quarter of 2009 the Company made a taxable loan to the owners of The Gardens of Weatherford Apartments of approximately $141,000 to help fund final construction activities and current bond debt service reserves through construction completion and property stabilization.  The Gardens of Weatherford Apartments is currently under construction in Weatherford, Texas and will contain 76 units upon completion.  The estimated final completion date is December 2009 with some units available for rent in July 2009.  The developer and principals have guaranteed completion and stabilization of the project.  The general contractor has a guaranteed maximum price contract and payment and performance bonds are in place.

In June 2007, the Company acquired bonds with a combined face value of $5.9 million, the proceeds of which were to be used to finance the construction of a 72 unit multifamily apartment complex in Gardner, Kansas known as Prairiebrook Village.  These bonds are in default due to the inability of the developer to complete construction of the project.  As a result, the bond trustee filed a petition of foreclosure on the mortgage securing the bonds in May 2008.  In October 2008, the Company received approximately $4.5 million from the trustee representing unused bond proceeds.  Currently the land owned by the project is being held for sale by the bond trustee.  Upon the sale of the land the Company intends to pursue its remedies against the project developer on its guarantees.  The Company has recorded a receivable of $1.3 million which is included in Other Assets on the Condensed Consolidated Balance Sheet.

5.  Real Estate Assets

To facilitate its investment strategy of acquiring additional tax-exempt mortgage bonds secured by multifamily apartment properties (“MF Properties”), the Partnership has caused its various Holding Companies to acquire 99% limited partner positions in the nine limited partnerships that own the MF Properties.  The general partners of these partnerships are unaffiliated parties and their 1% ownership interest in these limited partnerships is reflected in the Company’s consolidated financial statements as non-controlling interests.  The Partnership expects to ultimately restructure the property ownership through a sale of the MF Properties and a syndication of the associated low income housing tax credits (“LIHTCs”).  The Partnership expects to provide the tax-exempt mortgage revenue bonds to the new property owners as part of the restructuring.  Such restructurings will generally be expected to be initiated within 36 months of the initial investment in an MF Property and will often coincide with the expiration of the compliance period relating to LIHTCs previously issued with respect to the MF Property.  Current credit markets and general economic issues have had a significant negative impact on these types of transactions.  At this time very few LIHTC syndication and tax-exempt bond financing transactions are being completed.  Management believes that these types of transactions represent a long-term market opportunity for the Company and provide a significant future bond investment pipeline when the market for LIHTC syndications strengthens.  Until such a restructuring occurs the operations of the properties owned by the limited partnerships are consolidated with the Partnership.  The Partnership will not acquire LIHTCs in connection with these transactions.

At March 31, 2009, the Partnership held an interest in nine MF Properties containing 964 rental units, of which four are located in Ohio, two are located in Kentucky, one is located in Virginia, one is located in Georgia, and one in North Carolina.

The ninth MF Property, Greens of Pine Glen Limited Partnership (“Greens”), which is located in North Carolina, was acquired in February 2009, for a $7.0 million purchase price.  The Company incurred transaction expenses of approximately $165,000 which were expensed based on the Company’s adoption of SFAS No. 141R on January 1, 2009. As a result, the financial statements of this property have been consolidated with those of the Partnership since that time.  The Company has preliminarily allocated $6.8 million of the purchase price to real estate assets.  The purchase price was funded through an assumed mortgage loan of $6.5 million and cash on hand. The unpaid balance of the note bears a 7% annual interest rate payable monthly.  The initial maturity date of the loan is September 2010 at which time the borrower has an option to extend the note for 18 months.
 
11
In addition to the MF Properties, the Partnership consolidates the assets, liabilities and results of operation of the VIEs in accordance with FIN 46R.  Although the assets of the VIEs are consolidated, the Partnership has no ownership interest in the VIEs other than to the extent they serve as collateral for the tax-exempt mortgage revenue bonds owned by the Partnership.  The results of operations of those properties are recorded by the Company in consolidation but any net income or loss from these properties does not accrue to the BUC holders or the general partner, but is instead included in "Unallocated deficit of variable interest entities.”

6.  Discontinued Operations and Assets Held for Sale

In February 2009, the tax-exempt mortgage revenue bonds secured by Ashley Pointe at Eagle Crest in Evansville, Indiana, Woodbridge Apartment of Bloomington III in Bloomington, Indiana, and Woodbridge Apartments of Louisville II in Louisville, Kentucky were redeemed.  The properties financed by these redeemed mortgage revenue bonds were required to be consolidated into the Company’s financial statements as VIEs under FIN 46R.  During the fourth quarter of 2008, these VIEs met the criteria for discontinued operations under SFAS No. 144, Accounting for the Impairment or Disposal of Long-lived Assets (“SFAS No. 144”), and they were classified as such in the consolidated financial statements for all periods presented. In order to properly reflect the transaction under FIN 46R, the Company recorded the redemption of the bonds as a sale of the properties as though they were owned by the Company.  The transaction was completed for a total purchase price of $32.0 million resulting in a gain on sale for GAAP reporting to the Company of approximately $26.5 million.  The redemption of the bonds did not result in a taxable gain to the Partnership.  The redeemed bonds were collateral on the Company’s TOB facility.  As of the closing date of the redemption, the Company placed on deposit with Bank of America $23.6 million as replacement collateral.  Such funds on deposit may be used to reduce the amount of debt outstanding on the TOB facility.

As of December 31, 2008, $19.6 million of the total outstanding debt related to the Company’s bond portfolio was allocated to discontinued operations.   Interest expense was allocated to discontinued operations based on the historical effective rate of the Company’s debt financing applied to the debt financing allocated to discontinued operations.  The Company allocated to discontinued operations interest expense of $81,500 and $365,000 for the three months ended March 31, 2009 and 2008, respectively.

The following presents the components of the assets and liabilities of discontinued operations as of March 31, 2009 and December 31, 2008 and the revenues, expenses and income from discontinued operations, excluding the gain on sale of $26.5 million, for the three months ended March 31, 2009 and 2008.
             
   
Mar. 31, 2009
    
Dec. 31, 2008
  
Cash and cash equivalents
   $ -     $ 164,861  
Restricted cash
     -       322,560  
Land
     -       1,497,355  
Buildings and improvements
     -       23,696,355  
Real estate assets before accumulated depreciation
     -       25,193,710  
Accumulated depreciation
     -       (17,927,345 )
Net real estate assets
     -       7,266,365  
Other assets
     -       360,075  
Total assets from discontinued operations
     -       8,113,861  
Total liabilities of discontinued operations
     -       23,264,589  
Net deficits of discontinued operations
   $ -     $ (15,150,728 )
                 
                 
   
Quarter Ended March 31,
  
   
2009
    
2008
  
Rental Revenues
   $ 849,366     $ 1,321,945  
Expenses
     501,926       1,128,188  
Income from discontinued operations
   $ 347,440     $ 193,757  


7.  Debt Financing and Mortgage Payable

As of March 31, 2009, the Company had debt financing of $76.6 million secured by 14 tax-exempt mortgage revenue bonds with a total par value of $113.0 million plus approximately $27.8 million in restricted cash.  At March 31, 2009, all of the Company’s debt financing was attributable to continuing operations.  As of December 31, 2008, the Company had debt financing of $76.6 million secured by 17 tax-exempt mortgage revenue bonds with a total par value of $141.3 million plus approximately $5.0 million in restricted cash.  At December 31, 2008, three of the tax-exempt mortgage revenue bonds securing the debt financing were those of the consolidated VIEs presented as discontinued operations.  Accordingly, $19.6 million of the debt financing was classified in liabilities of discontinued operations.  The remaining $57.0 million of debt financing at December 31, 2008, was classified as continuing operations.

Historically, the Company’s long-term debt has been provided by securitization of existing tax-exempt mortgage revenue bonds through the Merrill Lynch P-Float program which was accounted for as secured borrowings.  On June 26, 2008, the Company effectively replaced the Merrill Lynch P-Float program by entering into an agreement for a new tender option bond credit facility (“TOB facility”) agreement with Bank of America.  In order to secure these obligations, the Company is required to pledge cash or certain highly-rated securities as collateral.  The Company may be required to provide additional collateral during the term of the TOB Trusts due to variations in interest rates and in the value of the collateral provided by it and of the tax-exempt mortgage revenue bonds held by the TOB Trusts.
12
Prior to June 26, 2008, credit rating downgrades at Merrill Lynch resulted in an increase in the Company’s cost of borrowing under the P-Float program.  For the three months ended March 31, 2009 and 2008, the Company’s average effective interest rate on the TOB facility and P-Float program was approximately 2.8% and 6.0%, respectively.

As of March 31, 2009, Mortgages Payables related to the MF Properties totaled approximately $37.4 million.  The acquisition of the Greens in February 2009 was financed with an assumed mortgage loan of $6.5 million. The unpaid balance of the note bears a 7% annual interest rate payable monthly.  The initial maturity date of the loan is September 2010 at which time the borrower has an option to extend the note for 18 months.

The Company’s aggregate borrowings as of March 31, 2009 contractually mature over the next five years and thereafter as follows:


 
     
2009
   $ 96,555,371  
2010
     150,944