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 June 30, 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 June 30, 2009 and December 31, 2008
1
 
Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2009 and 2008
2
 
Condensed Consolidated Statements of Partners’ Capital and Comprehensive Income (Loss) for the six months ended June 30, 2009 and 2008
3
 
Condensed Statement of Cash Flows for the six months ended June 30, 2009 and 2008
4
 
Notes to Condensed Consolidated Financial Statements
5
Management’s Discussion and Analysis of Financial Condition and Results of Operations
21
Quantitative and Qualitative Disclosures About Market Risk
35
Controls and Procedures
35

PART II – OTHER INFORMATION

Risk Factors
36
Exhibits
36


 
37


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)


   
June 30,
   
December 31,
 
   
2009
   
2008
 
Assets
           
Cash and cash equivalents
  $ 20,303,622     $ 7,196,274  
Restricted cash
    5,821,370       12,848,614  
Interest receivable
    878,542       769,201  
Tax-exempt mortgage revenue bonds, at fair value
    48,490,189       44,492,526  
Real estate assets:
               
Land
    13,403,655       10,774,790  
Buildings and improvements
    98,732,938       86,903,743  
Real estate assets before accumulated depreciation
    112,136,593       97,678,533  
Accumulated depreciation
    (19,553,037 )     (17,499,670 )
Net real estate assets
    92,583,556       80,178,863  
Other assets
    3,564,516       4,263,937  
Assets held for sale
    3,024,991       -  
Assets of discontinued operations
    -       8,113,861  
Total Assets
  $ 174,666,786     $ 157,863,276  
                 
Liabilities
               
Accounts payable, accrued expenses and other liabilities
  $ 3,412,056     $ 3,380,666  
Distribution payable
    2,714,924       2,432,327  
Debt financing
    50,000,000       56,981,577  
Mortgages payable
    37,330,255       30,908,790  
Liabilities of discontinued operations
    -       23,264,589  
Total Liabilities
    93,457,235       116,967,949  
                 
Commitments and Contingencies (Note 12)
               
                 
Partners' Capital
               
General partner
    301,610       261,785  
Beneficial Unit Certificate holders
    110,944,866       93,277,480  
Unallocated deficit of variable interest entities
    (30,104,183 )     (52,711,654 )
Total Partners' Capital
    81,142,293       40,827,611  
Noncontrolling interest (Note 13)
    67,258       67,716  
Total Capital
    81,209,551       40,895,327  
Total Liabilities and Capital
  $ 174,666,786     $ 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,
   
For the Six Months Ended,
 
     
June 30, 2009
   
June 30, 2008
   
June 30, 2009
   
June 30, 2008
 
Revenues:
                       
 
Property revenues
  $ 3,903,272     $ 3,386,038     $ 7,654,515     $ 6,699,433  
 
Mortgage revenue bond investment income
    1,054,551       1,056,825       2,002,895       2,265,389  
 
Other income (loss)
    17,879       (83,028 )     51,894       (54,894 )
Total Revenues
    4,975,702       4,359,835       9,709,304       8,909,928  
Expenses:
                               
 
Real estate operating (exclusive of items shown below)
    2,580,266       2,109,825       4,940,909       4,068,987  
 
Depreciation and amortization
    1,679,036       1,035,598       3,259,908       2,220,122  
 
Interest
    965,329       633,523       2,156,198       1,791,964  
 
General and administrative
    324,401       489,399       901,163       920,465  
Total Expenses
    5,549,032       4,268,345       11,258,178       9,001,538  
Income (loss) from continuing operations
    (573,330 )     91,490       (1,548,874 )     (91,610 )
Income from discontinued operations (including gain on bond redemption of $26,514,809 in 2009)
    -       179,946       26,734,754       373,703  
Net income (loss)
    (573,330 )     271,436       25,185,880       282,093  
 
Less: net loss attributable to noncontrolling interest
    2,964       781       6,824       3,526  
Net income (loss) - America First Tax Exempt Investors, L. P.
  $ (570,366 )   $ 272,217     $ 25,192,704     $ 285,619  
                                   
Net income (loss) allocated to:
                               
 
General Partner
  $ 13,766     $ 24,583     $ 587,856     $ 31,245  
 
Limited Partners - BUC holders
    351,927       1,109,288       1,997,377       1,768,811  
 
Unallocated gain (loss) of variable interest entities
    (936,059 )     (861,654 )     22,607,471       (1,514,437 )
 
Noncontrolling interest
    (2,964 )     (781 )     (6,824 )     (3,526 )
      $ (573,330 )   $ 271,436     $ 25,185,880     $ 282,093  
                                   
Limited partners' interest in net income per unit (basic and diluted):
                         
Income from continuing operations
  $ 0.02     $ 0.08     $ 0.14     $ 0.13  
Income from discontinued operations
    -       -       -       -  
Net income, basic and diluted, per unit
  $ 0.02     $ 0.08     $ 0.14     $ 0.13  
                                   
Weighted average number of units outstanding,
                               
 
basic and diluted
    14,820,620       13,512,928       14,170,387       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 SIX MONTHS ENDED JUNE 30, 2009 AND 2008
(UNAUDITED)

         
Beneficial Unit
Certificate holders
   
Unallocated
deficit
               
Accumulated
Other
 
   
General
Partner
   
# of Units
   
Amount
   
  of variable
interest entities
   
Noncontrolling
Interest
   
Total
   
 Comprehensive
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 )
Sale of Beneficial Unit Certificates
            3,500,000       16,153,565                       16,153,565          
Noncontrolling interest contribution
    -       -       -       -       6,366       6,366       -  
Comprehensive income (loss):
                                                       
Net income (loss)
    587,856       -       1,997,377       22,607,471       (6,824 )     25,185,880       -  
Unrealized gain on securities
    41,157       -       4,074,506       -       -       4,115,663       4,115,663  
Total comprehensive income (loss)
                                            29,301,543          
Distributions paid or accrued
    (1,196,389 )     -       (3,950,861 )     -       -       (5,147,250 )     -  
Reclassification of Tier II income
    607,201       -       (607,201 )     -       -       -       -  
Balance at June 30, 2009
  $ 301,610       17,012,928     $ 110,944,866     $ (30,104,183 )   $ 67,258     $ 81,209,551     $ (12,742,144 )


         
Beneficial Unit
Certificate holders
   
Unallocated
deficit
               
Accumulated
Other
 
   
General
Partner
   
# of Units
   
Amount
   
of variable
interest entities
   
Noncontrolling
Interest
   
Total
   
Comprehensive
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)
    31,245       -       1,768,811       (1,514,437 )     (3,526 )     282,093       -  
Unrealized loss on securities
    (28,164 )     -       (2,788,207 )     -       -       (2,816,371 )     (2,816,371 )
Total comprehensive income (loss)
                                          (2,534,278 )        
Distributions paid or accrued
    (626,509 )     -       (3,648,491 )     -       -       (4,275,000 )     -  
Reclassification of Tier II income
    608,082       -       (608,082 )     -       -       -       -  
Balance at June 30, 2008
  $ 333,567       13,512,928     $ 107,604,345     $ (50,469,197 )   $ 45,230     $ 57,513,945     $ (6,398,215 )
 
 

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 six months ended
 
     
June 30, 2009
   
June 30, 2008
 
Cash flows from operating activities:
           
Net income
  $ 25,185,880     $ 282,093  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization expense
    3,259,908       2,515,747  
Non-cash loss on derivatives
    490,522       38,328  
Loss on sale of securities
    -       (68,748 )
Gain on sale of discontinued operations
    (26,514,809 )     -  
Changes in operating assets and liabilities, net of effect of acquisitions
               
   (Increase) decrease in interest receivable     (109,341 )     41,885  
   Increase in other assets     (833,864 )     (398,615 )
   Decrease in accounts payable, accrued expenses and other liabilities     (1,481,267 )     (1,123,589 )
Net cash (used) provided by operating activities
    (2,971 )     1,287,101  
Cash flows from investing activities:
               
Proceeds from the sale of tax-exempt mortgage revenue bonds
    -       14,933,635  
Proceeds from sale of discontinued operations
    32,000,000       -  
Acquisition of tax-exempt mortgage revenue bonds
    -       (12,435,000 )
Increase in restricted cash
    (1,501,917 )     (724,027 )
Restricted cash - debt collateral  released
    8,529,235       -  
Capital expenditures
    (466,187 )     (293,495 )
Acquisition of asset held for sale
    (2,649,991 )     -  
Acquisition of partnerships, net of cash acquired
    (7,886,852 )     -  
Principal payments received on tax-exempt mortgage revenue bonds
    118,000       45,833  
Principal payments received on taxable loans
    -       100,000  
Net cash provided by investing activities
    28,142,288       1,626,946  
Cash flows from financing activities:
               
Distributions paid
    (4,864,653 )     (4,275,000 )
Derivative settlements
    (238,980 )     (40,049 )
Increase in liabilities related to restricted cash
    1,501,917       724,027  
Deferred financing costs
    (550,912 )     -  
Proceeds from debt financing
    50,000,000       65,091,372  
Principal payments on debt financing and mortgage payable
    (76,643,772 )     (71,395,000 )
Acquisition of interest rate cap agreements
    (554,000 )     -  
Sale of Beneficial Unit Certificates
      16,153,565       -  
Net cash used by financing activities
    (15,196,835 )     (9,894,650 )
Net increase (decrease) in cash and cash equivalents
    12,942,482       (6,980,603 )
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 $350,156 respectively
  $ 20,303,622     $ 7,841,343  
Supplemental disclosure of cash flow information:
               
Cash paid during the period for interest
  $ 2,453,284     $ 2,755,228  
Liabilites assumed in the acquisition of partnerships
  $ 6,506,329     $ -  
Distributions declared but not paid
  $ 2,714,924     $ 2,432,327  
                   
The accompanying notes are an integral part of the condensed consolidated financial statements.
         

 
4

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 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.  As a result of these conditions, the cost and availability of credit has been, and is expected to 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 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 six 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 adjustments (consisting of normal and recurring accruals) necessary to present fairly the financial position as of June 30, 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.

In May 2009, the FASB issued SFAS No. 165, Subsequent Events, which provides guidance on management’s assessment of subsequent events, effective for all interim or annual reporting periods ending after June 15, 2009.  In accordance with SFAS No. 165, the Company has evaluated transactions and events for disclosure as a subsequent event through August 7, 2009, the date on which these financial statements were issued.  Any transactions or events which the Company has determined require disclosure as a subsequent event have been disclosed in the footnotes.
 
5

 
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 5) 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.

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 June 30, 2009, the General Partner determined that approximately $2.3 million of the Net Residual Proceeds, representing the entirety of the remaining funds being held in reserve, were no longer to be held in reserve and would be distributed as Net Residual Proceeds (Tier 2) in July 2009.  After the July 2009 distribution, no further Tier 2 income will remain in 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 six of the entities financed by tax-exempt bonds owned by the Partnership at June 30, 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 April 2009, the Company acquired the Cross Creek Apartments tax-exempt mortgage revenue bond for $5.9 million which represented 100% of the bond issuance.  The bond par value is $8.85 million and the bond earns interest at an annual rate of 6.15%. The interest payments are monthly with 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 also purchased a $4.125 million construction loan for approximately $920,000 from the property developer. The Company then made a $1.5 million 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 began marketing and leasing activities for the property in the second quarter of 2009.  The Company has determined that the underlying entity that owns the Cross Creek Apartments meets the definition of a VIE and that the Company is the primary beneficiary.  Accordingly, its financial statements are consolidated into the Company’s consolidated financial statements under FIN 46R.

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.
 
6

 
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 Consolidated Statements of Operations.

Condensed Consolidating Balance Sheets as of June 30, 2009 and December 31, 2008:

 

 
   
Partnership as of June 30, 2009
   
VIEs as of June 30, 2009
   
Consolidation -Elimination as of June 30, 2009
   
Total as of June 30, 2009
 
Assets
                       
Cash and cash equivalents
  $ 20,200,019     $ 103,603     $ -     $ 20,303,622  
Restricted cash
    2,497,118       3,324,252       -       5,821,370  
Interest receivable
    4,968,905       -       (4,090,363 )     878,542  
Tax-exempt mortgage revenue bonds
    101,013,346       -       (52,523,157 )     48,490,189  
Real estate assets:
                               
Land
    6,736,351       6,667,304       -       13,403,655  
Buildings and improvements
    37,168,702       64,059,572       (2,495,336 )     98,732,938  
Real estate assets before accumulated depreciation
    43,905,053       70,726,876       (2,495,336 )     112,136,593  
Accumulated depreciation
    (2,384,003 )     (17,169,034 )     -       (19,553,037 )
Net real estate assets
    41,521,050       53,557,842       (2,495,336 )     92,583,556  
Other assets
    17,324,434       1,313,783       (15,073,701 )     3,564,516  
Assets held for sale
    3,024,991       -       -       3,024,991  
Assets of discontinued operations
    -       -       -       -  
Total Assets
  $ 190,549,863     $ 58,299,480     $ (74,182,557 )   $ 174,666,786  
                                 
Liabilities
                               
Accounts payable, accrued expenses and other
  $ 1,243,622     $ 38,414,082     $ (36,245,648 )   $ 3,412,056  
Distribution payable
    2,714,924       -       -       2,714,924  
Debt financing
    50,000,000       -       -       50,000,000  
Mortgage payable
    37,330,255       57,809,068       (57,809,068 )     37,330,255  
Liabilities of discontinued operations
    -       -       -       -  
Total Liabilities
    91,288,801       96,223,150       (94,054,716 )     93,457,235  
Partners' Capital
                               
General Partner
    301,610       -       -       301,610  
Beneficial Unit Certificate holders
    98,892,194       -       12,052,672       110,944,866  
Unallocated deficit of variable interest entities
    -       (37,923,670 )     7,819,487       (30,104,183 )
Total Partners' Capital
    99,193,804       (37,923,670 )     19,872,159       81,142,293  
Noncontrolling interest
    67,258       -       -       67,258  
Total Capital
    99,261,062       (37,923,670 )     19,872,159       81,209,551  
Total Liabilities and Partners' Capital
  $ 190,549,863     $ 58,299,480     $ (74,182,557 )   $ 174,666,786  

 

 
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 June 30, 2009 and 2008:


    Partnership For the Three Months Ended June 30, 2009     VIEs For the Three Months Ended June 30, 2009     Consolidation-Elimination For the Three Months Ended June 30, 2009     Total For the Three Months Ended June 30, 2009  
                 
                 
                 
Revenues:
                       
Property revenues
  $ 1,839,243     $ 2,064,029     $ -     $ 3,903,272  
Mortgage revenue bond investment income
    2,127,071       -       (1,072,520 )     1,054,551  
Other income
    17,879       -       -       17,879  
     Total Revenues
    3,984,193       2,064,029       (1,072,520 )     4,975,702  
Expenses:
                               
Real estate operating (exclusive of items shown below)
    1,041,056       1,539,210       -       2,580,266  
Loan loss expense
    220,000       -       (220,000 )     -  
Depreciation and amortization
    1,070,677       622,094       (13,735 )     1,679,036  
Interest
    965,330       1,638,576       (1,638,577 )     965,329  
General and administrative
    324,401       -       -       324,401  
    Total Expenses
    3,621,464       3,799,880       (1,872,312 )     5,549,032  
Income (loss) from continuing operations
    362,729       (1,735,851 )     799,792       (573,330 )
Income (loss) from discontinued operations
    -       -       -       -  
Net income (loss)
    362,729       (1,735,851 )     799,792       (573,330 )
Less: net loss attributable to noncontrolling interest
    2,964       -       -       2,964  
Net income (loss) - America First Tax Exempt Investors, L. P.
  $ 365,693     $ (1,735,851 )   $ 799,792     $ (570,366 )
                                 
    Partnership For the Three Months Ended Jun. 30, 2008     VIEs For the Three Months Ended Jun. 30, 2008     Consolidation-Elimination For the Three Months Ended Jun. 30, 2008     Total For the Three Months Ended Jun. 30, 2008  
                 
                 
                 
Revenues:
                               
Property revenues
  $ 1,091,763     $ 2,251,925     $ 42,350     $ 3,386,038  
Mortgage revenue bond investment income
    2,537,754       -       (1,480,929 )     1,056,825  
Other loss
    (83,028 )     -       -       (83,028 )
     Total Revenues
    3,546,489       2,251,925       (1,438,579 )     4,359,835  
Expenses:
                               
Real estate operating (exclusive of items shown below)
    579,906       1,529,919       -       2,109,825  
Depreciation and amortization
    468,202       580,266       (12,870 )     1,035,598  
Interest
    875,893       1,477,724       (1,720,094 )     633,523  
General and administrative
    489,399       -       -       489,399  
    Total Expenses
    2,413,400       3,587,909       (1,732,964 )     4,268,345  
Income (loss) from continuing operations
    1,133,089       (1,335,984 )     294,385       91,490  
Income (loss) from discontinued operations
    -       (359,929 )     539,875       179,946  
Net income (loss)
    1,133,089       (1,695,913 )     834,260       271,436  
Less: net loss attributable to noncontrolling interest
    781       -       -       781  
Net income (loss) - America First Tax Exempt Investors, L. P.
  $ 1,133,870     $ (1,695,913 )   $ 834,260     $ 272,217  


 

 
9

 

Condensed Consolidating Statements of Operations for the six months ended June 30, 2009 and 2008:


    Partnership For the Six Months Ended June 30, 2009     VIEs For the Six Months Ended June 30, 2009     Consolidation-Elimination For the Six Months Ended June 30, 2009     Total For the Six Months Ended June 30, 2009  
                 
                 
                 
Revenues: