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 September 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 September 30, 2009 and December 31, 2008
1
 
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2009 and 2008
2
 
Condensed Consolidated Statements of Partners’ Capital and Comprehensive Income (Loss) for the nine months ended September 30, 2009 and 2008
3
 
Condensed Statement of Cash Flows for the nine months ended September 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)


   
September 30,
    
December 31,
  
   
2009
    
2008
  
Assets
            
Cash and cash equivalents
   $ 6,436,632     $ 7,196,274  
Restricted cash
     6,164,079       12,848,614  
Interest receivable
     1,418,897       769,201  
Tax-exempt mortgage revenue bonds, at fair value
     63,070,112       44,492,526  
Real estate assets:
                
Land
     13,403,655       10,774,790  
Buildings and improvements
     99,739,426       86,903,743  
Real estate assets before accumulated depreciation
     113,143,081       97,678,533  
Accumulated depreciation
     (20,700,508 )     (17,499,670 )
Net real estate assets
     92,442,573       80,178,863  
Other assets
     4,040,698       4,263,937  
Assets of discontinued operations
     -       8,113,861  
Total Assets
   $ 173,572,991     $ 157,863,276  
                 
Liabilities
                
Accounts payable, accrued expenses and other liabilities
   $ 9,337,110     $ 3,380,666  
Distribution payable
     2,942,034       2,432,327  
Debt financing
     50,000,000       56,981,577  
Mortgages payable
     30,160,804       30,908,790  
Liabilities of discontinued operations
     -       23,264,589  
Total Liabilities
     92,439,948       116,967,949  
                 
Commitments and Contingencies (Note 12)
                
                 
Partners' Capital
                
General partner
     330,080       261,785  
Beneficial Unit Certificate holders
     112,090,081       93,277,480  
Unallocated deficit of variable interest entities
     (31,352,655 )     (52,711,654 )
Total Partners' Capital
     81,067,506       40,827,611  
Noncontrolling interest (Note 13)
     65,537       67,716  
Total Capital
     81,133,043       40,895,327  
Total Liabilities and Capital
   $ 173,572,991     $ 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 Nine Months Ended,
  
     
September 30, 2009
    
September 30, 2008
    
September 30, 2009
    
September 30, 2008
  
Revenues:
                        
 
Property revenues
   $ 3,872,079     $ 3,399,780     $ 11,526,594     $ 10,099,212  
 
Mortgage revenue bond investment income
     1,019,970       1,016,176       3,022,865       3,281,565  
 
Gain on sale of assets held for sale
     862,865       -       862,865       -  
 
Other income
     22,587       81,082       74,481       26,188  
Total Revenues
     5,777,501       4,497,038       15,486,805       13,406,965  
Expenses:
                                
 
Real estate operating (exclusive of items shown below)
     2,615,013       2,196,626       7,555,922       6,265,613  
 
Depreciation and amortization
     1,387,032       1,281,671       4,646,940       3,501,793  
 
Interest
     1,062,181       630,381       3,218,379       2,422,345  
 
General and administrative
     508,647       394,810       1,409,810       1,315,275  
Total Expenses
     5,572,873       4,503,488       16,831,051       13,505,026  
Income (loss) from continuing operations
     204,628       (6,450 )     (1,344,246 )     (98,061 )
Income from discontinued operations (including gain on bond redemption of $26,514,809 in 2009)
     -       167,468       26,734,754       541,172  
Net income
     204,628       161,018       25,390,508       443,111  
 
Less: net loss attributable to noncontrolling interest
     1,721       911       8,545       4,437  
Net income - America First Tax Exempt Investors, L. P.
   $ 206,349     $ 161,929     $ 25,399,053     $ 447,548  
                                   
Net income (loss) allocated to:
                                
 
General Partner
   $ 221,636     $ 11,676     $ 809,492     $ 42,921  
 
Limited Partners - BUC holders
     1,233,185       1,155,904       3,230,562       2,924,715  
 
Unallocated gain (loss) of variable interest entities
     (1,248,472 )     (1,005,651 )     21,358,999       (2,520,088 )
 
Noncontrolling interest
     (1,721 )     (911 )     (8,545 )     (4,437 )
      $ 204,628     $ 161,018     $ 25,390,508     $ 443,111  
                                   
Limited partners' interest in net income per unit (basic and diluted):
                          
Income from continuing operations
   $ 0.07     $ 0.09     $ 0.21     $ 0.22  
Income from discontinued operations
     -       -       -       -  
Net income, basic and diluted, per unit
   $ 0.07     $ 0.09     $ 0.21     $ 0.22  
                                   
Weighted average number of units outstanding,
                                
 
basic and diluted
     17,012,928       13,512,928       15,128,313       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 NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(UNAUDITED)
 
 
         
Beneficial Unit
    
Unallocated
                 Accumulated Other Comprehensive Income (Loss)  
         
Certificate holders
    
deficit of
                  
   
General
                
variable interest
    
Noncontrolling
            
   
Partner
    
# of Units
    
Amount
    
entities
    
Interest
    
Total
      
  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       16,134,400                       16,134,400          
Noncontrolling interest contribution
     -       -       -       -       6,366       6,366       -  
Comprehensive income (loss):
                                                        
Net income (loss)
     809,492       -       3,230,562       21,358,999       (8,545 )     25,390,508       -  
Unrealized gain on securities
     67,957       -       6,727,770       -               6,795,727       6,795,727  
Total comprehensive income (loss)
                                       32,186,235          
Distributions paid or accrued
     (1,416,355 )     -       (6,672,930 )     -               (8,089,285 )     -  
Reclassification of Tier II income
     607,201       -       (607,201 )     -               -       -  
  Balance at September 30, 2009   $ 330,080       17,012,928     $ 112,090,081     $ (31,352,655 )   $ 65,537     $ 81,133,043     $ (10,062,080 )
                                                         
                                                         
           
Beneficial Unit
    
Unallocated
                     Accumulated Other Comprehensive Income (Loss)  
           
Certificate holders
    
deficit of
                      
   
General
                    
variable interest
    
Noncontrolling
              
   
Partner
    
# of Units
    
Amount
    
entities
    
Interest
    
Total
      
  Balance at January 1, 2008   $ 348,913       13,512,928     $ 112,880,314     $ (48,954,760 )   $ 48,756     $ 64,323,223     $ (3,581,844 )
Sale of Beneficial Unit Certificates
                                                        
Noncontrolling interest contribution
                                     13,804       13,804          
Comprehensive income (loss):
                                                        
Net income (loss)
     42,921       -       2,924,715       (2,520,088 )     (4,437 )     443,111       -  
Unrealized loss on securities
     (48,916 )     -       (4,842,726 )     -               (4,891,642 )     (4,891,642 )
Total comprehensive income (loss)
                                       (4,448,531 )        
Distributions paid or accrued
     (1,234,591 )     -       (5,472,736 )     -               (6,707,327 )        
Reclassification of Tier II income
     1,216,164       -       (1,216,164 )     -               -       -  
  Balance at September 30, 2008   $ 324,491       13,512,928     $ 104,273,403     $ (51,474,848 )   $ 58,123     $ 53,181,169     $ (8,473,486 )


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 nine months ended
  
     
September 30, 2009
    
September 30, 2008
  
Cash flows from operating activities:
            
Net income
   $ 25,390,508     $ 443,111  
Adjustments to reconcile net income to net cash provided by operating activities:
                
Depreciation and amortization expense
     4,646,940       3,944,919  
Non-cash loss (gain) on derivatives
     721,811       (144,888 )
Loss on sale of securities
     -       18,524  
Gain on sale of assets held for sale
     (862,865 )     -  
Gain on sale of discontinued operations
     (26,514,809 )     -  
Changes in operating assets and liabilities, net of effect of acquisitions
                
         Increase in interest receivable     (649,696 )     (355,024 )
         Decrease (increase) in other assets     (1,697,032 )     (67,709 )
         Increase (decrease) in accounts payable, accrued expenses and other liabilities     4,443,786       (1,015,573 )
Net cash provided by operating activities
     5,478,643       2,823,360  
Cash flows from investing activities:
                
Proceeds from the sale of tax-exempt mortgage revenue bonds
     -       14,846,363  
Proceeds from sale of discontinued operations
     32,000,000       -  
Acquisition of tax-exempt mortgage revenue bonds
     (11,919,859 )     (12,435,000 )
Increase in restricted cash
     (1,522,066 )     (1,906,188 )
Restricted cash - debt collateral  released
     8,529,161       (5,000,000 )
Capital expenditures
     (1,472,674 )     (502,350 )
Acquisition of asset held for sale
     (2,649,991 )     -  
Proceeds from assets held for sale
     3,512,856       -  
Acquisition of partnerships, net of cash acquired
     (7,886,852 )     (7,466,097 )
Principal payments received on tax-exempt mortgage revenue bonds
     138,000       63,334  
Proceeds from termination of derivatives
     -       54,000  
Principal payments received on taxable loans
     -       100,000  
Net cash provided (used) by investing activities
     18,728,575       (12,245,938 )
Cash flows from financing activities:
                
Distributions paid
     (7,579,578 )     (6,707,327 )
Derivative settlements
     (238,980 )     (25,341 )
(Decrease) increase in liabilities related to restricted cash
     1,522,066       1,906,188  
Deferred financing costs
     (550,912 )     (1,487,161 )
Proceeds from debt financing and mortgages payable
     50,000,000       83,276,037  
Principal payments on debt financing and mortgage payable
     (83,813,222 )     (71,395,000 )
Acquisition of interest rate cap agreements
     (605,500 )     (985,000 )
Sale of Beneficial Unit Certificates
     16,134,400       -  
Net cash (used) provided by financing activities
     (25,131,726 )     4,582,396  
Net decrease in cash and cash equivalents
     (924,508 )     (4,840,182 )
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 $385,379 respectively
   $ 6,436,632     $ 9,981,764  
Supplemental disclosure of cash flow information:
                
Cash paid during the period for interest
   $ 3,453,076     $ 3,061,100  
Liabilites assumed in the acquisition of partnerships
   $ 6,506,329     $ 49,921  
Distributions declared but not paid
   $ 2,942,034     $ 2,432,327  
                   
The accompanying notes are an integral part of the condensed consolidated financial statements.
          

 
4
 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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 Accounting Standards Codification ("ASC") 810-10-65-1, Transition,, (“ASC 810-10-65-1”) (pre-codification reference SFAS 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 September 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.

5
Other comprehensive income (loss) for the nine months ended September 30, 2009 and 2008 were as follows:


   
September 30, 2009
    
September 30, 2008
  
Net income
   $ 25,390,508     $ 443,111  
Unrealized gain (loss) on securities
     6,795,727       (4,891,642 )
  Comprehensive income (loss) before noncontrolling interest     32,186,235       (4,448,531 )
  Comprehensive income (loss) attributable to noncontrolling interest     8,545       4,437  
  Comprehensive income (loss) attributable to the Partnership   $ 32,194,780     $ (4,444,094 )


In May 2009, the FASB issued pre-codification guidance of SFAS No. 165, Subsequent Events. Effective July 1, 2009, this guidance was codified into ASC 855-10, Subsequent Events, ("ASC 855-10") which provided guidance on management’s assessment of subsequent events, effective for all interim or annual reporting periods ending after June 15, 2009.  In accordance with ASC 855-10, the Company has evaluated transactions and events for disclosure as a subsequent event through November 6, 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.

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 its Investment in MF 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 unallocated deficit of the VIEs is primarily comprised of the accumulated historical net losses of the VIEs as of the implementation of ASC 810-10, Consolidations, ("ASC 810-10"). 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 consolidation guidance included in ASC 810-10, 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 applicable guidance.  ASC 810-10 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 September 30, 2009 are held by VIEs and that the Partnership is the primary beneficiary of these VIEs. All six of these VIEs were included in results of operation for the three month and nine month periods ended September 30, 2009. 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.  Five of these consolidated VIEs were included in the results from continuing operations while three of the consolidated VIEs are presented as discontinued operations for the year ended December 31, 2008.
6
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 has since made a $1.7 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. Marketing and leasing activities for the property began 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 ASC 810-10.
 
In February 2009, the tax-exempt mortgage revenue bonds secured by assets of the three VIEs presented as discontinued operations as of December 31, 2008, were redeemed.  In order to properly reflect the transaction under consolidation guidance, 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.  On a stand-alone basis, the Partnership received approximately $30.9 million of net proceeds from the bond redemption. The redemption of the bonds did not result in a taxable gain to the Partnership.  However, 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 September 30, 2009 and December 31, 2008:
   
Partnership as of September 30, 2009
    
VIEs as of September 30, 2009
    
Consolidation -Elimination as of September 30, 2009
    
Total as of September 30, 2009
  
Assets
                        
Cash and cash equivalents
   $ 6,354,511     $ 82,121     $ -     $ 6,436,632  
Restricted cash
     2,663,206       3,500,873       -       6,164,079  
Interest receivable
     6,554,173       -       (5,135,276 )     1,418,897  
Tax-exempt mortgage revenue bonds
     118,588,914       -       (55,518,802 )     63,070,112  
Real estate assets:
                                
Land
     6,736,351       6,667,304       -       13,403,655  
Buildings and improvements
     37,264,690       65,106,077       (2,631,341 )     99,739,426  
Real estate assets before accumulated depreciation
     44,001,041       71,773,381       (2,631,341 )     113,143,081  
Accumulated depreciation
     (2,851,623 )     (17,848,885 )     -       (20,700,508 )
Net real estate assets
     41,149,418       53,924,496       (2,631,341 )     92,442,573  
Other assets
     18,158,669       1,222,167       (15,340,138 )     4,040,698  
Total Assets
   $ 193,468,891     $ 58,729,657     $ (78,625,557 )   $ 173,572,991  
                                 
Liabilities
                                
Accounts payable, accrued expenses and other
   $ 6,937,378     $ 40,778,947     $ (38,379,215 )   $ 9,337,110  
Distribution payable
     2,942,034       -       -       2,942,034  
Debt financing
     50,000,000       -       -       50,000,000  
Mortgage payable
     30,160,805       57,864,629       (57,864,630 )     30,160,804  
Total Liabilities
     90,040,217       98,643,576       (96,243,845 )     92,439,948  
Partners' Capital
                                
General Partner
     330,080       -       -       330,080  
Beneficial Unit Certificate holders
     103,033,057       -       9,057,024       112,090,081  
Unallocated deficit of variable interest entities
     -       (39,913,919 )     8,561,264       (31,352,655 )
Total Partners' Capital
     103,363,137       (39,913,919 )     17,618,288       81,067,506  
Noncontrolling interest
     65,537       -       -       65,537  
Total Capital
     103,428,674       (39,913,919 )     17,618,288       81,133,043  
Total Liabilities and Partners' Capital
   $ 193,468,891     $ 58,729,657     $ (78,625,557 )   $ 173,572,991  
 
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 September 30, 2009 and 2008:


   
Partnership
    
VIEs
    
Consolidation-Elimination
    
Total
  
   
For the Three
    
For the Three
    
For the Three
    
For the Three
  
   
Months Ended
    
Months Ended
    
Months Ended
    
Months Ended
  
   
Sep. 30, 2009
    
Sep. 30, 2009
    
Sep. 30, 2009
    
Sep. 30, 2009
  
Revenues:
                        
Property revenues
   $ 1,812,213     $ 2,059,866     $ -     $ 3,872,079  
Mortgage revenue bond investment income
     2,051,262       -       (1,031,292 )     1,019,970  
Gain on sale of assets held for sale
     862,865       -       -       862,865  
Other income
     22,587       -       -       22,587  
     Total Revenues
     4,748,927       2,059,866       (1,031,292 )     5,777,501  
Expenses:
                                
Real estate operating (exclusive of items shown below)
     1,015,334       1,599,679       -       2,615,013  
Depreciation and amortization
     709,665       691,101       (13,734 )     1,387,032  
Interest
     1,062,181       1,759,337       (1,759,337 )     1,062,181  
General and administrative
     508,647       -       -       508,647  
    Total Expenses
     3,295,827       4,050,117       (1,773,071 )     5,572,873  
Net income (loss)
     1,453,100       (1,990,251 )     741,779       204,628  
Less: net loss attributable to noncontrolling interest
     1,721       -       -       1,721  
Net income (loss) - America First Tax Exempt Investors, L. P.
   $ 1,454,821     $ (1,990,251 )   $ 741,779     $ 206,349  
                                 
   
Partnership
    
VIEs
    
Consolidation-Elimination
    
Total
  
   
For the Three
    
For the Three
    
For the Three
    
For the Three
  
   
Months Ended
    
Months Ended
    
Months Ended
    
Months Ended
  
   
Sep. 30, 2008
    
Sep. 30, 2008
    
Sep. 30, 2008
    
Sep. 30, 2008
  
Revenues:
                                
Property revenues
   $ 1,170,217     $ 2,229,635     $ (72 )   $ 3,399,780  
Mortgage revenue bond investment income
     2,450,512       -       (1,434,336 )     1,016,176  
Other income
     81,082       -       -       81,082  
     Total Revenues
     3,701,811       2,229,635       (1,434,408 )     4,497,038  
Expenses:
                                
Real estate operating (exclusive of items shown below)
     589,481       1,607,145       -       2,196,626  
Depreciation and amortization
     715,469       581,015       (14,813 )     1,281,671  
Interest
     835,382       1,493,068       (1,698,069 )     630,381  
General and administrative
     394,810       -       -       394,810  
    Total Expenses
     2,535,142       3,681,228       (1,712,882 )     4,503,488  
Income (loss) from continuing operations
     1,166,669       (1,451,593 )     278,474       (6,450 )
Income (loss) from discontinued operations
     -       (422,437 )     589,905       167,468  
Net income (loss)
     1,166,669       (1,874,030 )     868,379       161,018  
Less: net loss attributable to noncontrolling interest
     911       -       -       911  
Net income (loss) - America First Tax Exempt Investors, L. P.
   $ 1,167,580     $ (1,874,030 )   $ 868,379     $ 161,929  


 
9
 

Condensed Consolidating Statements of Operations for the nine months ended September 30, 2009 and 2008:

   
Partnership
    
VIEs
    
Consolidation-Elimination
    
Total
  
   
For the Nine
    
For the Nine
    
For the Nine
    
For the Nine
  
   
Months Ended
    
Months Ended
    
Months Ended
    
Months Ended
  
   
Sep. 30, 2009
    
Sep. 30, 2009
    
Sep. 30, 2009
    
Sep. 30, 2009
  
Revenues:
                        
Property revenues
   $ 5,283,154     $ 6,243,440     $ -     $ 11,526,594  
Mortgage revenue bond investment income
     8,821,346       -       (5,798,481 )     3,022,865  
Gain on sale of assets held for sale
     862,865       -       -       862,865  
Other income (loss)
     (53,014 )     -       127,495       74,481  
     Total Revenues
     14,914,351       6,243,440       (5,670,986 )     15,486,805  
Expenses:
                                
Real estate operating (exclusive of items shown below)
     3,092,047       4,463,875       -       7,555,922  
Loan loss expense
     294,999       -       (294,999 )     -  
Depreciation and amortization
     2,786,053       1,902,810       (41,923 )     4,646,940  
Interest
     3,299,933       4,908,757       (4,990,311 )     3,218,379  
General and administrative
     1,409,810       -       -       1,409,810  
    Total Expenses
     10,882,842       11,275,442       (5,327,233 )     16,831,051  
Income (loss) from continuing operations
     4,031,509       (5,032,002 )     (343,753 )     (1,344,246 )
Income (loss) from discontinued operations
     -       34,786,445       (8,051,691 )     26,734,754  
Net income (loss)
     4,031,509       29,754,443       (8,395,444 )     25,390,508  
Less: net loss attributable to noncontrolling interest
     8,545       -       -       8,545  
Net income (loss) - America First Tax Exempt Investors, L. P.
   $ 4,040,054     $ 29,754,443     $ (8,395,444 )   $ 25,399,053  
                                 
                                 
   
Partnership
    
VIEs
    
Consolidation-Elimination
    
Total
  
   
For the Nine
    
For the Nine
    
For the Nine
    
For the Nine
  
   
Months Ended
    
Months Ended
    
Months Ended
    
Months Ended
  
   
Sep. 30, 2008
    
Sep. 30, 2008
    
Sep. 30, 2008
    
Sep. 30, 2008
  
Revenues:
                                
Property revenues
   $ 3,355,015     $ 6,701,918     $ 42,279     $ 10,099,212  
Mortgage revenue bond investment income
     7,624,404       -       (4,342,839 )     3,281,565  
Other income
     26,188       -       -       26,188  
     Total Revenues
     11,005,607       6,701,918       (4,300,560 )     13,406,965  
Expenses:
                                
Real estate operating (exclusive of items shown below)
     1,678,435       4,587,178       -       6,265,613  
Depreciation and amortization
     1,813,868       1,732,370       (44,445 )     3,501,793  
Interest
     3,234,830       4,438,653       (5,251,138 )     2,422,345  
General and administrative
     1,315,275       -       -       1,315,275  
    Total Expenses
     8,042,408       10,758,201       (5,295,583 )     13,505,026  
Income (loss) from continuing operations
     2,963,199       (4,056,283 )     995,023       (98,061 )
Income (loss) from discontinued operations
     -       (1,008,970 )     1,550,142       541,172  
Net income (loss)
     2,963,199       (5,065,253 )     2,545,165       443,111  
Less: net loss attributable to noncontrolling interest
     4,437       -       -       4,437  
Net income (loss) - America First Tax Exempt Investors, L. P.
   $ 2,967,636     $ (5,065,253 )   $ 2,545,165     $ 447,548  



 
10
 

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 the dates shown:


   
September 30, 2009
  
Description of Tax-Exempt Mortgage Revenue Bonds  
Cost adjusted
     Unrealized Gain     Unrealized Loss     Estimated Fair Value  
 
for pay-downs
              
                         
Bella Vista
   $ 6,740,000     $ -     $ (984,310 )   $ 5,755,690  
Bridle Ridge Apartments
     7,885,000       -       (1,275,793 )     6,609,207  
Clarkson College
     5,958,332       -       (863,393 )     5,094,939  
Gardens of DeCordova
     4,853,000       -       (960,166 )     3,892,834  
Gardens of Weatherford
     4,686,000       -       (1,217,189 )     3,468,811  
Runnymede Apartments
     10,825,000       -       (1,569,733 )     9,255,267  
Southpark Apartments
     11,919,860       342,223       -       12,262,083  
Woodland Park
     15,715,000       -       (2,702,980 )     13,012,020  
Woodlynn Village
     4,550,000       -       (830,739 )     3,719,261  
    $ 73,132,192     $ 342,223     $ (10,404,303 )   $ 63,070,112  
                                 
   
December 31, 2008
  
Description of Tax-Exempt Mortgage Revenue Bonds  
Cost adjusted
     Unrealized Gain     Unrealized Loss     Estimated Fair Value  
 
for pay-downs
              
                                 
Bella Vista
   $ 6,785,000     $ -     $ (1,821,433 )   $ 4,963,567  
Bridle Ridge Apartments
     7,885,000       -       (2,047,419 )     5,837,581  
Clarkson College
     6,018,333       -       (1,241,441 )     4,776,892  
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  
Woodland Park
     15,715,000       -       (4,507,533 )     11,207,467  
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 September 30, 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 September 30, 2009, the range of effective yields on the individual bonds was 7.2% to 8.3%.  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 7.9% to 9.1% and would result in additional unrealized losses on the bond portfolio of approximately $5.4 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 September 30, 2009, all of the current bond investments, except for the recently acquired Southpark bond, 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.  Ultimately, the Company views the bond collateral as the most likely source of bond principal repayment.  Therefore, as long as the value of the real property securing the bonds exceeds the outstanding bond principal, the Company believes that no other-than-temporary impairment is indicated.  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.
 
11
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 since December 31, 2008, 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.

In October 2009, the Company acquired the Series 2007 Brookstone Apartments Project tax-exempt mortgage revenue bond for approximately $7.3 million which represented 100% of the bond issuance. The bond par value is $9.6 million and earns interest at an annual rate of 5.45% with a monthly interest payment and stated maturity date of May 1, 2040. Based on the purchase price discount, the bond will yield approximately 7.5% per annum to the Company.  The bond was issued for the construction of the Brookstone Apartments, a 168 unit multifamily apartment complex located in Waukegan, Illinois.

In August 2009, the Company acquired the tax-exempt mortgage revenue bond for a 192 unit multi-family apartment complex in Austin, Texas known as Southpark Ranch Apartments ("Southpark") for $11.9 million which represented 100% of the bond issuance. The bond par value is $14.2 million and the bond earns interest at an annual rate of 6.125%. Based on the purchase price discount, the bond will yield approximately 7.5% per annum to the Company. Interest is payable on June 1 and December 1with a stated maturity date of December 1, 2049. The bond is subject to a mandatory sinking fund redemption schedule at a redemption price equal to 100% of the principal amount over the term of the bond beginning December 1, 2010.   The Company has determined that the entity that owns Southpark does not meet the definition of a VIE and, accordingly, its financial statements are not consolidated into the consolidated financial statements of the Company.

During the quarter ended September 30, 2009, the Company made taxable loans to the property owners of Woodland Park and The Gardens of Decordova to allow for the continued lease up and stabilization of the properties and the payment of bond debt service.  Such taxable loans were approximately $700,000 and $315,000, respectively.  The construction of Woodland Park was completed in November 2008 and lease up continues.  As of September 30, 2009, the property had 107 units leased out of a total available units of 236, or 45% physical occupancy.  The construction of The Gardens of Decordova was completed in April 2009 and lease up continues.  As of September 30, 2009, the property had 28 units leased out of a total available units of 76, or 37% physical occupancy.   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 fund construction activities and current bond debt service reserves through construction completion and property stabilization.

In September 2009, the Partnership was notified by the limited partner of the limited partnerships that own the Gardens of DeCordova and the Gardens of Weatherford of its intent to withdraw from these limited partnerships and assign its limited partnership interests to another party.  Such interests include the rights to receive the Low Income Housing Tax Credits ("LIHTCs") yet to be syndicated on the properties.  The change in ownership may have a negative impact on the tax-exempt bonds owned by the Partnership on these two properties unless a successor limited partner is located and agrees to fund any capital contributions necessary to complete and stabilize the projects.  The Partnership is working with the general partner of these limited partnerships to resolve this issue and will use its senior secured position as bondholder to help seek a positive outcome and protect Partnership interests.  Until such time as a new limited partner is admitted to these limited partnerships, the full impact of this change in ownership will not be known.  As discussed above, construction on the Gardens of DeCordova project has been completed and the project is in the “lease up and stabilization” phase of development.  Currently only utility and infrastructure work has been completed on the Gardens of Weatherford project.  While approximately $2.0 million remains on deposit with the bond trustee for the Gardens of Weatherford, such funds are insufficient to complete construction of the project or to pay the outstanding principal on the bonds should the project not be constructed.  At this time the Gardens of DeCordova owes the Partnership approximately $4.9 million under tax-exempt bonds and $315,000 under taxable loans while the Gardens of Weatherford owes approximately $4.7 million under tax-exempt bonds and $141,000 under taxable loans.
 
 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.  The property owner defaulted on these bonds and 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.  The bond trustee has received a summary judgment against the owner and developer for the unpaid principal balance. In August 2009, the Company received approximately $270,000 from the trustee. Currently the land which was owned by the project is being held for sale by the bond trustee.  The Company is currently pursuing its remedies against the project owner and developer on their guarantees.  Such remedies include placing liens on assets identified as owned by the guarantors and garnishing wages or other income.  The Company has recorded a receivable of $718,000 which is included in Other Assets on the Condensed Consolidated Balance Sheet and holds the related land as an asset held for sale valued at $375,000.

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5.  Real Estate Assets

To facilitate its investment strategy of acquiring additional tax-exempt mortgage bonds secured by 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 interests in these limited partnerships is reflected in the Company’s consolidated financial statements as non-controlling interests.  The Partnership expects each of these MF Properties to eventually be sold either to a not-for-profit entity or in connection with a syndication of LIHTCs under Section 42 of the Internal Revenue Code of 1986, as amended (the “Code”).  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 Partnership’s initial investment in a MF Property and will often coincide with the expiration of the compliance period relating to LIHTCs previously issued with respect to the MF Property.  The Partnership will not acquire LIHTCs in connection with these transactions.  While current credit markets and general economic conditions have resulted in very few LIHTC syndication and tax-exempt bond financing transactions being completed in the past twelve to eighteen months, the Partnership is evaluating the potential sale of three MF Properties in a transaction that it expects to partially finance through the acquisition of tax-exempt bonds secured by the properties.  These types of transactions represent a long-term market opportunity for the Partnership 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 will continue to be consolidated with the Partnership.
 
At September 30, 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 ASC 805-10, Business Combinations, (pre-codification reference 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 assumed mortgage loan 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.
 
In addition to the MF Properties, the Partnership consolidates the assets, liabilities and results of operation of the VIEs in accordance with ASC 810-10 (see Note 3).  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 the VIEs are recorded by the Company in consolidation but any net income or loss of the VIEs 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 April 2009, the Company acquired the Series A and B Oak Grove Commons Apartments tax-exempt mortgage revenue bonds for $2.6 million which represented 100% of the bond issuance.  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 purchased the bonds with the intent to evaluate the property and determine if the bonds could be restructured and maintained as an investment.  The Company determined that it would no longer maintain the bond as an investment and, therefore, foreclosed on the bonds.  In June 2009, the Company took ownership of the property with the intent to sell the apartment complex to a third party and classified the property as an asset held for sale.  In September 2009, the Company sold Oak Grove to an unaffiliated party for $3.75 million.  After the deduction of selling expenses, commissions and cash advances made to the property, the Company realized a taxable gain of approximately $863,000 from the sale.  The General Partner approved a special distribution of the net cash proceeds realized on this transaction.  In accordance with the Company’s Agreement of Limited Partnership, this special distribution was considered a distribution of Tier 2 Net Residual Proceeds and, as such, was distributed 75% to the BUCs and 25% to the General Partner.  The distribution to the BUCholders of $0.035 per BUC was made on October 30, 2009 to the BUCholders of record as of September 30, 2009.  The remainder of the special distribution, approximately $215,000, was paid to the General Partner.
 
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 ASC 810-10.  During the fourth quarter of 2008, these VIEs met the criteria for discontinued operations under ASC 360-10 and they were classified as such in the consolidated financial statements for all periods presented. In order to properly reflect the transaction under ASC 810-10, 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 Tender Option Bond (“TOB") facility (see Note 7).  As of the closing date of the redemption, the Company placed on deposit with Bank of America $23.6 million as replacement collateral.  The restricted cash amount was released on June 18, 2009 when the TOB facility was collapsed and the Company entered into its new term loan agreement with Bank of America (see Note 7).

As of December 31, 2008, $19.6 million of the Company's outstanding debt under the TOB facility was allocated to discontinued operations.  Interest expense on this debt 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 interest expense of $0 and $81,500 to discontinued operations for the three and nine months ended September 30, 2009, respectively, and $205,000 and $812,400 for the three and nine months ended September 30, 2008, respectively.
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The following presents the components of the assets and liabilities of discontinued operations as of September 30, 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 and nine months ended September 30, 2009 and 2008.
   
September 30, 2009
    
December 31, 2008
  
Cash and cash equivalents
   $ -     $ 164,861  
Restricted cash
     -       322,560  
Land
     -       1,497,355  
Buildings and improvements
     -       23,696,355