atax3rdq10q.htm

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, 2010

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

Item 1	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets as of September 30, 2010 and December 31, 2009	1
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2010 and 2009	2
	Condensed Consolidated Statements of Partners’ Capital and Comprehensive Income (Loss) for the nine months ended September 30, 2010 and 2009	3
	Condensed Statement of Cash Flows for the nine months ended September 30, 2010 and 2009	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3	Quantitative and Qualitative Disclosures About Market Risk	49
Item 4	Controls and Procedures	50

PART II – OTHER INFORMATION

Item 1A	Risk Factors	51
Item 6	Exhibits	51

SIGNATURES

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. All statements other than statements of historical facts contained in this report, including statements regarding our future results of operations and financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. When used, statements which are not historical in nature, including those containing words such as “anticipate,” “estimate,” “should,” “expect,” “believe,” “intend,” and similar expressions, are intended to identify forward-looking statements. We have based forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. This report also contains estimates and other statistical data made by independent parties and by us relating to market size and growth and other industry data. This data involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. We have not independently verified the statistical and other industry data generated by independent parties and contained in this report and, accordingly, we cannot guarantee their accuracy or completeness.

Other risks, uncertainties and factors could cause our actual results to differ materially from those projected in any forward-looking statements we make. We are not obligated to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In addition, projections, assumptions and estimates of our future performance and the future performance of the industries in which we operate are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described under the headings “Risk Factors” in Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009 and in Item 1A of Part II of this report.

	September 30,			December 31,
	2010			2009
Assets
Cash and cash equivalents	$	27,477,600		$	17,280,535
Restricted cash		27,034,650			5,277,217
Interest receivable		4,575,955			993,181
Tax-exempt mortgage revenue bonds held in trust, at fair value (Notes 4 & 8)		77,075,807			-
Tax-exempt mortgage revenue bonds, at fair value (Note 4)		17,169,036			69,399,763
Real estate assets: (Note 5)
Land		12,945,201			13,403,655
Buildings and improvements		90,855,991			100,255,779
Real estate assets before accumulated depreciation		103,801,192			113,659,434
Accumulated depreciation		(22,438,117	)		(21,868,541	)
Net real estate assets		81,363,075			91,790,893
Other assets (Note 6)		15,361,382			6,029,131
Total Assets	$	250,057,505		$	190,770,720

Liabilities
Accounts payable, accrued expenses and other liabilities	$	3,441,506		$	3,931,848
Distribution payable		3,803,399			2,757,945
Debt financing (Note 8)		95,810,000			55,363,333
Mortgages payable (Note 9)		10,690,800			30,116,854
Total Liabilities		113,745,705			92,169,980

Commitments and Contingencies (Note 14)

Partners' Capital
General Partner (Note 2)		(198,102	)		271,051
Beneficial Unit Certificate holders		170,106,011			130,482,881
Unallocated deficit of Consolidated VIEs		(32,913,528	)		(32,215,697	)
Total Partners' Capital		136,994,381			98,538,235
Noncontrolling interest (Note 5)		(682,581	)		62,505
Total Capital		136,311,800			98,600,740
Total Liabilities and Partners' Capital	$	250,057,505		$	190,770,720

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


	For the Three Months Ended						For the Nine Months Ended
	September 30, 2010			September 30, 2009			September 30, 2010			September 30, 2009
Revenues:
Property revenues	$	3,698,181		$	3,872,079		$	10,948,483		$	11,526,594
Mortgage revenue bond investment income		2,011,059			1,019,970			5,029,943			3,022,865
Gain on sale of assets held for sale		-			862,865			-			862,865
Gain on early extinquishment of debt		-			-			438,816			-
Other income		112,400			22,587			325,226			74,481
Total Revenues		5,821,640			5,777,501			16,742,468			15,486,805
Expenses:
Real estate operating (exclusive of items shown below)		2,282,147			2,615,013			7,430,764			7,555,922
Asset impairment charge - Weatherford		2,716,330			-			2,716,330			-
Depreciation and amortization		1,430,847			1,387,032			3,868,105			4,646,940
Interest		1,184,293			1,062,181			3,029,572			3,218,379
General and administrative		637,624			508,647			1,736,400			1,409,810
Total Expenses		8,251,241			5,572,873			18,781,171			16,831,051
Income (loss) from continuing operations		(2,429,601	)		204,628			(2,038,703	)		(1,344,246	)
Income from discontinued operations (including gain on bond redemption of $26,514,809 in 2009)		-			-			-			26,734,754
Net income (loss)		(2,429,601	)		204,628			(2,038,703	)		25,390,508
Less: net loss attributable to noncontrolling interest		221,878			1,721			745,086			8,545
Net (loss) income - America First Tax Exempt Investors, L.P.	$	(2,207,723	)	$	206,349		$	(1,293,617	)	$	25,399,053

Net income (loss) allocated to:
General Partner	$	(13,454	)	$	221,636		$	13,813		$	809,492
Limited Partners - BUC holders		(1,331,945	)		1,233,185			1,126,689			3,230,562
Unallocated gain (loss) of Consolidated Property VIEs		(862,324	)		(1,248,472	)		(2,434,119	)		21,358,999
Noncontrolling interest		(221,878	)		(1,721	)		(745,086	)		(8,545	)
	$	(2,429,601	)	$	204,628		$	(2,038,703	)	$	25,390,508

BUC holders' interest in net income per unit (basic and diluted):
Net income, basic and diluted, per unit	$	(0.04	)	$	0.07		$	0.04		$	0.21

Weighted average number of units outstanding, basic and diluted		30,122,928			17,012,928			26,607,324			15,128,313

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

	General Partner			# of Units		Beneficial Unit Certificate Holders			Unallocated Deficit of Consolidated VIEs			Non- controlling Interest			Total			Accumulated Other Comprehensive Income (Loss)
Balance at January 1, 2010	$	271,051			21,842,928	$	130,482,881		$	(32,215,697	)	$	62,505		$	98,600,740		$	(11,009,231	)
Sale of Beneficial Unit Certificates		-			8,280,000		41,591,763			-			-			41,591,763			-
Deconsolidation of VIEs - (Note 3)		15,881			-		1,572,185			1,736,288			-			3,324,354			1,588,066
Consolidation of VIEs - (Note 3)		27,523			-		2,724,760			-			-			2,752,283			2,752,283
Distributions paid or accrued
Regular distribution		(89,532	)		-		(8,863,649	)		-			-			(8,953,181	)		-
Distribution of Tier II earnings (Note 2)		(465,816	)		-		(1,397,449	)		-			-			(1,863,265	)		-
Comprehensive income:
Net Income (loss)		13,813			-		1,126,689			(2,434,119	)		(745,086	)		(2,038,703	)		-
Unrealized gain on securities		28,978			-		2,868,831			-			-			2,897,809			2,897,809
Comprehensive income																859,106
Comprehensive loss attributable to noncontolling interest		-			-		-			-			-			(745,086	)		-
Comprehensive income attributable to Partnership		-			-		-			-			-			1,604,192			-
Balance at September 30, 2010	$	(198,102	)		30,122,928	$	170,106,011		$	(32,913,528	)	$	(682,581	)	$	136,311,800		$	(3,771,073	)

	General Partner			# of Units		Beneficial Unit Certificate Holders			Unallocated Deficit of Consolidated VIEs			Non- controlling Interest			Total			Accumulated Other 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		16,134,400			-			-			16,134,400			-
Noncontrolling interest contribution		-			-		-			-			6,366			6,366			-
Distributions paid or accrued		(1,416,355	)		-		(6,672,930	)		-			-			(8,089,285	)		-
Reclssification of Tier II income		607,201			-		(607,201	)		-			-			-			-
Comprehensive income:
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
Comprehensive income																32,186,235
Comprehensive loss attributable to noncontolling interest		-			-		-			-			-			(8,545	)		-
Comprehensive income attributable to Partnership		-			-		-			-			-			32,194,780			-
Balance at September 30, 2009	$	330,080			17,012,928	$	112,090,081		$	(31,352,655	)	$	65,537		$	81,133,043		$	(10,062,080	)

	For the nine months ended,
	September 30, 2010			September 30, 2009
Cash flows from operating activities:
Net (loss) income	$	(2,038,703	)	$	25,390,508
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization expense		3,868,105			4,646,940
Asset impairment charge - Weatherford		2,716,330			-
Non-cash loss on derivatives		564,773			721,811
Bond discount amortization		(362,243	)		-
Gain on assets held for sale		-			(862,865	)
Gain on early extinquishment of debt		(438,816	)		-
Gain on sale of discontinued operations		-			(26,514,809	)
Changes in operating assets and liabilities, net of effect of acquisitions
Increase in interest receivable		(2,646,580	)		(649,696	)
(Decrease) increase in other assets		(2,077,042	)		(1,697,032	)
Increase (decrease) in accounts payable, accrued expenses and other liabilities		(9,961	)		4,443,786
Net cash provided by operating activities		(424,137	)		5,478,643
Cash flows from investing activities:
Proceeds from sale of discontinued operations		-			32,000,000
Investment in other assets		(1,115,000	)		-
Increase in restricted cash		(1,437,735	)		(1,522,066	)
Restricted cash - debt collateral (paid) released		(15,706,900	)		8,529,161
Increase in restricted cash - Ohio sale		(2,684,876	)		-
Capital expenditures		(880,626	)		(1,472,674	)
Acquisition of partnerships, net of cash acquired		-			(7,886,852	)
Acquisition of asset held for sale		-			(2,649,991	)
Proceeeds from assets held for sale		-			3,512,856
Transfer of cash to unconsolidated VIE upon deconsolidation		(88,949	)		-
Transfer of cash from consolidated VIE upon consolidation		1,979			-
Acquisition of tax-exempt mortgage revenue bonds		(15,867,588	)		(11,919,859	)
Principal payments received on tax-exempt mortgage revenue bonds		349,149			138,000
Net cash (used) provided by investing activities		(37,430,546	)		18,728,575
Cash flows from financing activities:
Distributions paid		(9,770,991	)		(7,579,578	)
Increase in liabilities related to restricted cash		1,437,735			1,522,066
Deferred financing costs		(3,725,103	)		(550,912	)
Proceeds from debt financing		95,810,000			50,000,000
Principal payments on debt financing and mortgage payable		(74,350,571	)		(83,813,222	)
Loan extension payment		(246,485	)		-
Derivative settlements		-			(238,980	)
Acquisition of interest rate cap agreements		(2,694,600	)		(605,500	)
Sale of Beneficial Unit Certificates		41,591,763			16,134,400
Net cash provided (used) by financing activities		48,051,748			(25,131,726	)
Net increase (decrease) in cash and cash equivalents		10,197,065			(924,508	)
Cash and cash equivalents at beginning of period, including cash and cash equivalents of discontinued operations of $0 and $164,866 respectively		17,280,535			7,361,140
Cash and cash equivalents at end of period	$	27,477,600		$	6,436,632

Cash paid during the period for interest	$	2,981,247		$	3,453,076
Liabilites assumed in the acquisition of partnerships	$	-		$	6,506,329
Distributions declared but not paid	$	3,803,400		$	2,942,034
Cash received for sale of MF Properties eliminated in consolidation (Note 5)	$	16,192,000		$	-
Cash paid for purchase of tax exempt bond eliminated in consolidation (Note 4)	$	(18,313,000	)	$	-
Cash paid for taxable loan eliminated in consolidation (Note 5)	$	(1,236,236	)	$	-

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 primary 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. The Partnership may also invest in other types of tax-exempt securities that may or may not be secured by real estate and may make taxable mortgage loans secured by multifamily properties which are financed by tax-exempt mortgage revenue bonds held by the Partnership. The Partnership generally does not seek to acquire direct interests in real property as long term or permanent investments. The Partnership may, however, acquire real estate securing its tax-exempt mortgage revenue bonds or taxable mortgage loans through foreclosure in the event of a default. In addition, the Partnership may acquire interests in multifamily apartment properties (“MF Properties”) in order to position itself for future investments in tax-exempt bonds issued to finance these properties.

Stand alone financial information of the Partnership reported in this Form 10-Q includes only the assets and results of operations of the Partnership and its Consolidated Subsidiaries (hereafter the “Partnership”) without the Consolidated VIEs. In the Company’s consolidated financial statements, all transactions and accounts between the Partnership, the Consolidated Subsidiaries and the Consolidated VIEs have been eliminated in consolidation. The Partnership does not believe that the consolidation of VIEs for reporting under accounting principles generally accepted in the United States of America (“GAAP”) affects the Partnership’s status as a partnership for federal income tax purposes or the status of BUC holders as partners of the Partnership, the treatment of the tax-exempt bonds on the properties owned by Consolidated VIEs as debt, the tax exempt nature of the interest payments received on bonds secured by the properties owned by Consolidated VIEs or the manner in which the Partnership’s income is reported to BUC holders on IRS Form K-1.

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, 2009. These condensed consolidated financial statements and notes have been prepared consistently with the 2009 Form 10-K. In the opinion of management, all adjustments (consisting of normal and recurring accruals) necessary to present fairly the financial position as of September 30, 2010, 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.

Effective January 1, 2010, the Company adopted new provisions of the consolidation guidance included in Accounting Standards Codification (“ASC”) 810 Consolidations (“ASC 810”) that amended the consolidation guidance applicable to VIEs and the definition of a VIE, and requires enhanced disclosures to provide more information about an enterprise’s involvement in a VIE. Under the consolidation guidance included in the ASC, the Partnership must make an evaluation of these entities to determine if they meet the definition of a VIE. Generally, a VIE is an entity with one or more of the following characteristics: (a) the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support; (b) as a group, the holders of the equity investment at risk lack (i) the ability to make decisions about an entity's activities through voting or similar rights, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity; or (c) the equity investors have voting rights that are not proportional to their economic interests and substantially all of the entity's activities either involve, or are conducted on behalf of, an investor that has disproportionately few voting rights.

The revised accounting standard introduces a more qualitative approach to evaluating VIEs for consolidation and requires the Partnership to perform an analysis to determine whether its variable interests give it a controlling financial interest in a VIE. This analysis identifies the primary beneficiary, the entity that must consolidate the VIE, as the entity that has (1) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (2) the obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE. In adopting this revised accounting standard, the Partnership has re-evaluated all of its investments to determine if the property owners are VIEs and, if so, whether the Partnership is the primary beneficiary of the VIE. ASC 810 also requires ongoing assessments of whether an enterprise is the primary beneficiary of a VIE. As a result, changes to the Consolidated VIEs may occur in the future based on changes in circumstances. The accounting guidance on consolidations is complex and requires significant analysis and judgment. The adoption of these provisions on January 1, 2010 resulted in the deconsolidation of certain entities previously included in the Company’s consolidated financial statements. Through the continual reconsideration criteria, effective March 1, two additional entities determined to be VIEs are consolidated (see Note 3).

The Company has evaluated the accounting guidance in regard to the TEBS Financing (see Note 8) and has determined that the securitization transaction does not meet the accounting criteria for a sale or transfer of financial assets and will, therefore, be accounted for as a secured financing transaction. More specifically, ASC Subtopic 860-10, Transfers and Servicing: Overall (ASC 860-10), sets forth the conditions that must be met to de-recognize a transferred financial asset. ASC 860-10 provides, in part, that the transferor has surrendered control over transferred assets if and only if the transferor does not maintain effective control over the transferred assets through either of the following:

The TEBS Financing agreements contain certain provisions that allow the Company to (1) cause the return of certain individual bonds under defined circumstances, (2) cause the return of all of the bonds by electing an Optional Series Pool Release or (3) cause the return of any defaulted bonds. The Optional Series Pool Release is defined in the agreements as two specific dates, September 15, 2017 or September 15, 2020, on which the Company has the option to repurchase all of the securitized bonds. Given these terms, the Company has concluded that the condition in item 2 above is present in the agreements and, therefore, effective control over the transferred assets has not occurred. As effective control has not been transferred the transaction does not meet the conditions to de-recognize the assets resulting in the TEBS Financing being presented on the Company consolidated financial statements as a secured financing.

In determining the primary beneficiary of the TEBS Trust, the Partnership considered the activities of the VIE which most significantly impact the VIEs economic performance, who has the power to control such activities, the risks which the entity was designed to create, the variability associated with those risks and the interests which absorb such variability. The Partnership has retained the right, pursuant to the TEBS Financing agreements, to either substitute or reacquire some or all of the securitized bonds at various future dates and under various circumstances. As a result, the Partnership determined it had retained a controlling financial interest in the TEBS Trust because such actions effectively provide the Partnership with the ability to control decisions pertaining to the VIEs management of interest rate and credit risk. While in the TEBS Trust, the bond assets may only be used to settle obligations of the trust and the liabilities of the trust do not provide the Class A certificate holders with recourse to the general credit of the Partnership. The Partnership also considered the related party relationship of the entities involved in the VIE. It was determined that the Partnership met both of the primary beneficiary criteria and was the most closely associated with the VIE and, therefore, was determined to be the primary beneficiary.

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 indirect interest in MF Properties (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.

During June 2010, the Company completed a sales transaction whereby four of the MF Properties, the Ohio Properties, were sold to three new ownership entities controlled by an unaffiliated not-for-profit entity (See Note 5). The new owners did not contribute any capital to the transaction and the Company has effectively provided 100% of the capital structure to the new owners as part of the sale transaction. Pursuant to ASC 360-20, Property, Plant, and Equipment - Real Estate Sales, ("ASC 360-20"), the sale and restructure does not meet the criteria for treatment as a sale. As such, the Company will continue to consolidate the Ohio Properties as if the sale was not completed. The properties will continue to be presented as MF Properties and no gain will be recognized until such time as the transaction can be accounted for as a sale. Although the operating results of the Ohio Properties continue to be presented as MF Properties, the net income or loss attributable to these properties is presented as income or loss attributable to non-controlling interests. Under the sales agreement, the Ohio properties were sold for a total purchase price of $16.2 million. Cash received by the selling limited partnerships as part of the sale transaction represents a deferred gain on the sale transaction of approximately $1.8 million. As the deferred gain on the transaction represents cash paid to the Company and no on-going legal obligations related to the Ohio Properties or potential obligation to repay any amounts exists, the deferred gain represents income from a tax perspective and Cash Available for Distribution. This gain met the definition of Net Residual Proceeds representing contingent interest (Tier 2 income) and was therefore distributed 75% to the BUC holders and 25% to the General Partner. The accounting treatment under GAAP combined with the distribution of Tier 2 income under the Agreement of Limited Partnership results in a negative balance in the capital account of the General Partner as of September 30, 2010. The negative balance will reverse when the deferred gain is able to be recognized under GAAP which would result in a consistent treatment of the transaction between tax accounting, the allocations of income and distributions as outline in the Agreement of Limited Partnership and GAAP.

The Partnership invests in federally tax-exempt mortgage revenue bonds which have been issued to provide construction and/or permanent financing of multifamily residential apartments. The Partnership owns 100% of these bonds and each bond is secured by a first mortgage on the property. The Partnership has also made taxable loans to the property owners in certain cases which are secured by second mortgages on these properties. Although each multifamily property financed with tax-exempt mortgage bonds held by the Partnership is owned by a separate entity in which the Partnership has no equity ownership interest, the debt financing provided by the Partnership creates a variable interest in these ownership entities that may require the Partnership to report the assets, liabilities and results of operations of these entities on a consolidated basis under GAAP.

The Partnership has determined that, as of January 1, 2010, six of the entities financed by tax-exempt bonds owned by the Partnership were held by VIEs. These VIEs are Ashley Square, Bent Tree, Cross Creek, Fairmont Oaks, Iona Lakes and Lake Forest. Additionally, in January 2010, the Partnership issued a Notice of Default on two bond holdings, Residences at DeCordova ("DeCordova") (formerly known as ("f/k/a") The Gardens of DeCordova) and Residences at Weatherford ("Weatherford") (f/k/a The Gardens of Weatherford), and began foreclosure procedures. The foreclosure on these bonds was completed in March 2010. Simultaneous with the foreclosure, the properties were acquired through the assumption of liabilities by new ownership and the tax-exempt mortgage revenue bonds owned by the Partnership became the obligations of the new owners. Prior to the foreclosure and ownership transfer the owners of these properties were not considered VIEs. Based on the foreclosures and the lack of sufficient equity investment at risk by the new owners, these entities were determined to be Consolidated VIEs in March 2010.

The Partnership has determined it is the primary beneficiary of the Bent Tree, Fairmont Oaks, Iona Lakes, Lake Forest, DeCordova and Weatherford VIEs. The capital structure of each of these VIEs consists of senior debt, subordinated debt and equity capital. The senior debt is in the form of a tax-exempt multifamily housing mortgage revenue bond and accounts for the majority of the VIEs' total capital. As the bondholder, the Partnership is entitled to principal and interest payments and has certain protective rights as established by the bond documents. The equity ownership in four of these entities, Bent Tree, Fairmont Oaks, Iona Lake and Lake Forest, is ultimately held by corporations which are owned by four individuals, three of which are related parties. Additionally, each of these properties is managed by an affiliate of the Partnership, America First Properties Management Company, LLC (“Properties Management”) which is an affiliate of Burlington.

In determining the primary beneficiary of these VIEs, the Partnership considered the activities of the VIE which most significantly impact the VIEs economic performance, who has the power to control such activities, the risks which the entities were designed to create, the variability associated with those risks and the interests which absorb such variability. The Partnership also considered the related party relationship of the entities involved in the VIEs. It was determined that the Partnership, as part of the related party group, met both of the primary beneficiary criteria and was the most closely associated with the VIEs and, therefore, was determined to be the primary beneficiary.

Residences at DeCordova. This property is a senior (55+) affordable housing project located in Granbury, Texas in the Dallas-Fort Worth area. Construction was completed in April 2009 and lease-up continues, however, the property has not yet reached stabilization which is defined in the bond documents as the generation of a 1.15:1 debt service coverage ratio for six straight months. In January 2010, the Partnership issued a Notice of Default through the bond trustee to begin foreclosure procedures in order to remove the limited partner. Such notice was issued in February 2010 and the foreclosure was completed in March 2010. Through this process the Partnership has removed the limited partner which will allow the property owner to “re-syndicate” the low income housing tax credits (“LIHTCs”) to a new limited partner thereby providing additional capital to the project. The Partnership believes that, if this can be accomplished, such new equity would be sufficient to allow for the current bonds to remain in place and operations be funded through an extended lease-up period. Until such time as additional capital, through the re-syndication of the LIHTCs, is contributed, the full impact of these developments will not be known. At the request of the Partnership, in April 2010, the property owner reduced the number of units set aside for affordable tenants to 60% and began leasing 30 units to market rate tenants. As of September 30, 2010, the property had 50 units leased out of total available units of 76, or approximately 66% physical occupancy and an additional eight leases are pending. As of December 31, 2009, the property had 31 units leased out of total available units of 76, or 41% physical occupancy. Based on the level of leasing activity resulting from the change in the mix of affordable and market rate tenants, the Partnership continues to believe that DeCordova is capable of reaching stabilization

Residences at Weatherford. Residences at Weatherford are currently under construction and will contain 76 units upon completion. This property is a senior (55+) affordable housing project located in Weatherford, Texas in the Dallas-Fort Worth area. At this time infrastructure construction activities have been substantially completed but no construction has begun on the actual apartment buildings. In January 2010, the Partnership issued a Notice of Default through the bond trustee and began foreclosure procedures to remove the limited partner. Such notice was issued in February 2010 and the foreclosure was completed in March 2010. Through this process the Partnership has removed the limited partner which will allow the property owner to recapitalize the property by pursuing an alternative plan of financing. Specifically, the Partnership has worked with the general partner of the owner to identify available Tax Credit Assistance Program (“TCAP”) funding through application to the Texas Department of Housing and Community Affairs (“TDHCA”). In March 2010, a TCAP Written Agreement with TDHCA was approved and entered into which committed TCAP funds to the project pending the completion of formal agreements. Formal agreements and funding were originally expected to be completed in the second quarter of 2010, however, the process has been delayed due to the large number of transactions involving TDHCA to be closed. During the delay, TDHCA identified certain issues in funding and compliance with other projects in which the General Partner of Residences at Weatherford is involved. As a result of these issues, in October 2010, TDHCA issued a Notice of Termination of TCAP Funding to the General Partner. Together with the General Partner, the Company has appealed the termination and will meet with the TDHCA Board in November 2010. Based on the termination notice, the Company has determined that the property fixed assets of Residences at Weatherford and the associated tax-exempt mortgage revenue bond which is eliminated in consolidation are impaired. As of September 30, 2010 the property fixed assets, consisting of land and land improvements, and the associated tax-exempt mortgage revenue bond owned by the Partnership have been written down. The resulting impairment charge of approximately $2.7 million is attributable to the BUC holders. Should the appeal related to the TCAP Funding not be successful, the Company expects to foreclose on the current ownership and would seek to liquidate all assets of Weatherford.

As a result of adopting the new accounting guidance, we deconsolidated two entities, the Ashley Square and Cross Creek VIEs. In determining the primary beneficiary of these VIEs, the Partnership considered the activities of each VIE which most significantly impact the VIEs' economic performance, who has the power to control such activities, the risks which the entities were designed to create, the variability associated with those risks and the interests which absorb such variability. The significant activities of the VIE that impact the economic performance of the entity include leasing and maintaining apartments, determining if the property is to be sold, decisions relating to debt refinancing, the selection of or replacement of the property manager and the approval of the operating and capital budgets. As discussed below, while the capital structures of these VIEs resulted in the Partnership holding a majority of the variable interests in these VIEs, the Partnership determined it does not have the power to direct the activities of these VIEs that most significantly impact the VIEs’ economic performance and, as a result, is not the primary beneficiary of these VIEs.

Ashley Square – Ashley Square Housing Cooperative acquired the ownership of the Ashley Square apartments in December 2008 from Ashley Square LLC through a warranty deed of transfer and an assumption of debt. This transfer of ownership constitutes a reconsideration event as outlined in ASC 810 which triggers a re-evaluation of the holders of variable interests to determine the primary beneficiary of the VIE. The capital structure of the VIE consists of senior debt, subordinated loans and equity capital. The senior debt is in the form of tax-exempt mortgage revenue bonds that are 100% owned by the Partnership and account for the majority of the VIE’s total capital. As the bondholder, the Partnership is entitled to principal and interest payments and has certain protective rights as established by the bond documents. The VIE is organized as a housing cooperative and the 99% equity owner of this VIE is The Foundation for Affordable Housing (“FAH”), an unaffiliated Nebraska non-profit organization. Additionally, this property is managed by Properties Management.

Cross Creek – Cross Creek Apartments Holdings LLC is the owner of the Cross Creek Apartments. On January 1, 2010, Cross Creek Apartment Holdings LLC entered into a new operating agreement and admitted three new members. These new members committed approximately $2.2 million of capital payable in three installments including $563,000 on January 1, 2010. The new operating agreement and admission of new owner members constitutes a reconsideration event as outlined in ASC 810 which triggers a re-evaluation of the holders of variable interests to determine the primary beneficiary of the VIE. The capital structure of the VIE consists of senior debt, subordinated loans and equity capital at risk. The senior debt is in the form of tax-exempt mortgage revenue bonds that are 100% owned by the Partnership and account for the majority of the VIE’s total capital. As the bondholder, the Partnership is entitled to principal and interest payments and has certain protective rights as established by the bond documents. The three newly admitted members of this VIE are each unaffiliated with the Partnership and have contributed significant equity capital to the VIE. These members collectively control a 99% interest in the VIE. The other 1% member of this VIE is FAH, which is also unaffiliated with the Partnership. Additionally, this property is managed by Properties Management.

The tax exempt mortgage revenue bonds are classified on the balance sheet as available for sale investments and are carried at fair value while property loans are presented on the balance sheet as other assets and are carried at the unpaid principal and interest less any loan loss reserves. See Footnote 4 for additional information regarding the bonds and Footnote 6 for additional information regarding the property loans. The maximum exposure to loss for the bonds is equal to the unpaid principal balance as of September 30, 2010. The difference between the carrying value and the maximum exposure to loss is a function of the fair value of the bond. The maximum exposure to loss for the property loans is equal to the unpaid principal and interest. The difference between the carrying value and the maximum exposure is the value of loss reserves that have been previously recorded against the outstanding loan balances.

	Partnership as of September 30, 2010 (1)			Consolidated VIEs as of September 30, 2010			Consolidation -Elimination as of September 30, 2010			Total as of September 30, 2010
Assets
Cash and cash equivalents	$	27,373,787		$	103,813		$	-		$	27,477,600
Restricted cash		21,701,994			5,332,656			-			27,034,650
Interest receivable		10,250,365			-			(5,674,410	)		4,575,955
Tax-exempt mortgage revenue bonds held in trust		99,869,808			-			(22,794,001	)		77,075,807
Tax-exempt mortgage revenue bonds		38,880,759			-			(21,711,723	)		17,169,036
Real estate assets:
Land		6,736,351			6,208,850			-			12,945,201
Buildings and improvements		37,642,928			53,213,063			-			90,855,991
Real estate assets before accumulated depreciation		44,379,279			59,421,913			-			103,801,192
Accumulated depreciation		(4,766,750	)		(17,671,367	)		-			(22,438,117	)
Net real estate assets		39,612,529			41,750,546			-			81,363,075
Other assets		32,443,219			1,106,788			(18,188,625	)		15,361,382
Total Assets	$	270,132,461		$	48,293,803		$	(68,368,759	)	$	250,057,505

Liabilities
Accounts payable, accrued expenses and other	$	1,399,251		$	38,283,997		$	(36,241,742	)	$	3,441,506
Distribution payable		3,803,399			-			-			3,803,399
Debt financing		95,810,000			-			-			95,810,000
Mortgage payable		10,690,800			50,210,000			(50,210,000	)		10,690,800
Total Liabilities		111,703,450			88,493,997			(86,451,742	)		113,745,705
Partners' Capital
General Partner		(198,102	)		-			-			(198,102	)
Beneficial Unit Certificate holders		159,309,694			-			10,796,317			170,106,011
Unallocated deficit of Consolidated VIEs		-			(40,200,194	)		7,286,666			(32,913,528	)
Total Partners' Capital		159,111,592			(40,200,194	)		18,082,983			136,994,381
Noncontrolling interest		(682,581	)		-			-			(682,581	)
Total Capital		158,429,011			(40,200,194	)		18,082,983			136,311,800
Total Liabilities and Partners' Capital	$	270,132,461		$	48,293,803		$	(68,368,759	)	$	250,057,505

	Partnership as of December 31, 2009			Consolidated VIEs as of December 31, 2009			Consolidation -Elimination as of December 31, 2009			Total as of December 31, 2009
Assets
Cash and cash equivalents	$	17,009,418		$	271,117		$	-		$	17,280,535
Restricted cash		3,137,244			2,139,973			-			5,277,217
Interest receivable		6,075,991			-			(5,082,810	)		993,181
Tax-exempt mortgage revenue bonds		125,703,198			-			(56,303,435	)		69,399,763
Real estate assets:
Land		6,736,351			6,667,304			-			13,403,655
Buildings and improvements		37,375,063			65,512,057			(2,631,341	)		100,255,779
Real estate assets before accumulated depreciation		44,111,414			72,179,361			(2,631,341	)		113,659,434
Accumulated depreciation		(3,324,801	)		(18,543,740	)		-			(21,868,541	)
Net real estate assets		40,786,613			53,635,621			(2,631,341	)		91,790,893
Other assets		19,843,456			1,714,940			(15,529,265	)		6,029,131
Total Assets	$	212,555,920		$	57,761,651		$	(79,546,851	)	$	190,770,720

Liabilities and Owners' Equity
Accounts payable, accrued expenses and other	$	1,618,741		$	41,691,171		$	(39,378,064	)	$	3,931,848
Distribution Payable		2,757,945			-			-			2,757,945
Debt financing		55,363,333			-			-			55,363,333
Mortgage payable		30,116,854			57,764,026			(57,764,026	)		30,116,854
Total Liabilities		89,856,873			99,455,197			(97,142,090	)		92,169,980
Partners' Capital
General Partner		271,051			-			-			271,051
Beneficial Unit Certificate holders		122,365,491			-			8,117,390			130,482,881
Unallocated deficit of Consolidated VIEs		-			(41,693,546	)		9,477,849			(32,215,697	)
Total Partners' Capital		122,636,542			(41,693,546	)		17,595,239			98,538,235
Noncontrolling interest		62,505			-			-			62,505
Total Capital		122,699,047			(41,693,546	)		17,595,239			98,600,740
Total Liabilities and Partners' Capital	$	212,555,920		$	57,761,651		$	(79,546,851	)	$	190,770,720

	Partnership For the Three Months Ended September 30, 2010 (1)			Consolidated VIEs For the Three Months Ended September 30, 2010			Consolidation-Elimination For the Three Months Ended September 30, 2010			Total For the Three Months Ended September 30, 2010



Revenues:
Property revenues	$	1,818,580		$	1,879,601		$	-		$	3,698,181
Mortgage revenue bond investment income		2,895,218			-			(884,159	)		2,011,059
Other income		112,400			-			-			112,400
Total Revenues		4,826,198			1,879,601			(884,159	)		5,821,640
Expenses:
Real estate operating (exclusive of items shown below)		1,002,705			1,279,442			-			2,282,147
Asset impairment charge - Weatherford		2,716,330			2,767,070			(2,767,070	)		2,716,330
Depreciation and amortization		852,523			591,579			(13,255	)		1,430,847
Interest		1,184,293			1,414,558			(1,414,558	)		1,184,293
General and administrative		637,624			-			-			637,624
Total Expenses		6,393,475			6,052,649			(4,194,883	)		8,251,241
Net income (loss)		(1,567,277	)		(4,173,048	)		3,310,724			(2,429,601	)
Less: net loss attributable to noncontrolling interest		221,878			-			-			221,878
Net income (loss) - America First Tax Exempt Investors, L. P.	$	(1,345,399	)	$	(4,173,048	)	$	3,310,724		$	(2,207,723	)

	Partnership For the Three Months Ended September 30, 2009		Consolidated VIEs For the Three Months Ended September 30, 2009			Consolidation-Elimination For the Three Months Ended September 30, 2009			Total For the Three Months Ended September 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 For the Nine Months Ended September 30, 2010 (1)		Consolidated VIEs For the Nine Months Ended September 30, 2010			Consolidation-Elimination For the Nine Months Ended September 30, 2010			Total For the Nine Months Ended September 30, 2010



Revenues:
Property revenues	$	5,401,098	$	5,547,385		$	-		$	10,948,483
Mortgage revenue bond investment income		7,638,730		-			(2,608,787	)		5,029,943
Gain on early extinguishment of debt		438,816		-			-			438,816
Other income		335,260		-			(10,034	)		325,226
Total Revenues		13,813,904		5,547,385			(2,618,821	)		16,742,468
Expenses:
Real estate operating (exclusive of items shown below)		3,750,640		3,680,124			-			7,430,764
Asset impairment charge - Weatherford		2,716,330		2,767,070			(2,767,070	)		2,716,330
Depreciation and amortization		2,185,546		1,723,675			(41,116	)		3,868,105
Interest		3,029,572		4,171,503			(4,171,503	)		3,029,572
General and administrative		1,736,400		-			-			1,736,400
Total Expenses		13,418,488		12,342,372			(6,979,689	)		18,781,171
Net income (loss)		395,416		(6,794,987	)		4,360,868			(2,038,703	)
Less: net loss attributable to noncontrolling interest		745,086		-			-			745,086
Net income (loss) - America First Tax Exempt Investors, L. P.	$	1,140,502	$	(6,794,987	)	$	4,360,868		$	(1,293,617	)

	Partnership For the Nine Months Ended September 30, 2009			Consolidated VIEs For the Nine Months Ended September 30, 2009			Consolidation-Elimination For the Nine Months Ended September 30, 2009			Total For the Nine Months Ended September 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
Property loan loss		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 - America First Tax Exempt Investors, L. P.	$	4,040,054		$	29,754,443		$	(8,395,444	)	$	25,399,053

	September 30, 2010
Description of Tax-Exempt Mortgage Revenue Bonds Held in Trust	Cost adjusted for pay-downs		Unrealized Gain		Unrealized Loss			Estimated Fair Value
	Cost adjusted for pay-downs		Unrealized Gain		Unrealized Loss			Estimated Fair Value

Ashley Square (1)	$	5,368,000	$	-	$	(504,101	)	$	4,863,899
Bella Vista (1)		6,695,000		-		(781,641	)		5,913,359
Bridle Ridge (1)		7,865,000		-		(819,218	)		7,045,782
Brookstone (1)		7,412,342		614,282		-			8,026,624
Cross Creek (1)		5,901,143		1,639,730		-			7,540,873
Lost Creek (1)		15,898,164		1,295,736		-			17,193,900
Runnymede (1)		10,790,000		-		(924,703	)		9,865,297
Southpark (1)		12,000,339		692,523		-			12,692,862
Woodlynn Village (1)		4,536,000		-		(602,789	)		3,933,211
Tax-exempt mortgage revenue bonds held in trust	$	76,465,988	$	4,242,271	$	(3,632,452	)	$	77,075,807

	September 30, 2010
Description of Tax-Exempt Mortgage Revenue Bonds	Cost adjusted for pay-downs		Unrealized Gain		Unrealized Loss			Estimated Fair Value
Description of Tax-Exempt Mortgage Revenue Bonds	Cost adjusted for pay-downs		Unrealized Gain		Unrealized Loss			Estimated Fair Value

Clarkson College	$	5,861,665	$	-	$	(506,476	)	$	5,355,189
Woodland Park		15,662,000		-		(3,848,153	)		11,813,847
Tax-exempt mortgage revenue bonds	$	21,523,665	$	-	$	(4,354,629	)	$	17,169,036

	December 31, 2009
Description of Tax-Exempt Mortgage Revenue Bonds	Cost adjusted for pay-downs		Unrealized Gain		Unrealized Loss			Estimated Fair Value
Description of Tax-Exempt Mortgage Revenue Bonds	Cost adjusted for pay-downs		Unrealized Gain		Unrealized Loss			Estimated Fair Value

Bella Vista	$	6,740,000	$	-	$	(946,161	)	$	5,793,839
Bridle Ridge		7,885,000		-		(1,143,404	)		6,741,596
Brookstone		7,351,469		379,508		-			7,730,977
Clarkson College		5,936,665		-		(620,670	)		5,315,995
Gardens of DeCordova		4,853,000		-		(1,302,060	)		3,550,940
Gardens of Weatherford		4,686,000		-		(1,450,223	)		3,235,777
Runnymede		10,825,000		-		(1,385,383	)		9,439,617
Southpark		11,919,860		427,699		-			12,347,559
Woodland Park		15,662,000		-		(4,210,416	)		11,451,584
Woodlynn Village		4,550,000		-		(758,121	)		3,791,879
Tax-exempt mortgage revenue bonds	$	80,408,994	$	807,207	$	(11,816,438	)	$	69,399,763

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, 2010, 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, 2010, the range of effective yields on the individual bonds was 6.7% to 8.6%. 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 7.3% to 9.5% and would result in additional unrealized losses on the bond portfolio of approximately $7.6 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, 2010, all of the current bond investments except the Ashley Square, Brookstone, Cross Creek, Lost Creek, and South Park investments have been in an unrealized loss position for greater than twelve months. The Company has reviewed each of its mortgage revenue bonds for impairment. Based upon this evaluation, the current unrealized losses on the bonds are considered to be temporary. Although valuations have generally improved during 2010, if the credit and capital markets would deteriorate, the Company experiences deterioration in the values of its investment portfolio or if the Company’s intent and ability to hold certain bonds changes, the Company may incur impairments to its investment portfolio which could negatively impact the Company’s financial condition, cash flows, and reported earnings.

In May 2010, the Company acquired the tax-exempt mortgage revenue bond for a 261 unit multi-family apartment complex in San Antonio, Texas known as The Villages at Lost Creek for approximately $15.9 million which represented 100% of the bond issuance. The bond par value is $18.5 million with an annual interest rate of 6.25%. The bond purchase price results in a yield to maturity of approximately 7.55% per annum. The bond matures in June 2041. The Company has determined that the entity which owns Lost Creek does not meet the definition of a VIE and, accordingly, its financial statements are not consolidated into the consolidated financial statements of the Company.

In June 2010, the Company completed a sales transaction whereby four of the MF Properties, Crescent Village, Post Woods (I and II) and Willow Bend apartments in Ohio (the “Ohio Properties”), were sold to three new ownership entities controlled by an unaffiliated not-for-profit entity. The Company acquired 100% of the $18.3 million tax-exempt mortgage revenue bonds issued by the Ohio Housing Finance Agency as part of a plan of financing for the acquisition and rehabilitation of the Ohio Properties. The tax-exempt mortgage bonds secured by the Ohio Properties were acquired by the Company at par and consisted of two series. The Series A bond has a par value of $14.7 million and bears interest at an annual rate of 7.0%. The Series B bond has a par value of $3.6 million and bears interest at an annual interest rate of 10.0%. Both series of bonds mature in June 2050. The Company had previously acquired a 99% interest in the Ohio Properties as part of its strategy of acquiring existing multifamily apartment properties that it expects will be partially financed with new tax-exempt mortgage bonds at the time the properties become eligible for the issuance of additional low-income housing tax credits. In addition to the new tax-exempt bonds acquired by the Company, the plan of financing for the acquisition included other subordinated debt issued by the Company. The new owners ultimately plan to sell limited partnership interests in the properties and syndicate LIHTCs as part of the overall plan of finance. The new owners have not contributed any capital to the transaction and the Company has effectively provided 100% of the capital structure to the new owners as part of the sale transaction. Pursuant to ASC 360-20, Property, Plant, and Equipment - Real Estate Sales, ("ASC 360-20"), the sale and restructure does not meet the criteria for treatment as a sale. ASC 360-20 requires sufficient equity capital as part of a sales transaction to indicate a commitment from the buyer (typically a minimum of 3 to 5% investment by the new owners). As the buyer has no equity capital in this transaction and the property operations are the current support for the debt service, the Company, in substance, remains the owner for accounting purposes. As such, the Company will continue to consolidate the Ohio Properties as if the sale was not completed. Under the sales agreement, the Ohio properties were sold for a total purchase price of $16.2 million. Cash received by the selling limited partnerships as part of the sale transaction represents a gain on the sale transaction of approximately $1.8 million. The properties will continue to be presented as MF Properties and no gain will be recognized until such time as the transaction can be accounted for as a sale (See Note 5).

Woodland Park. Woodland Park was completed in November 2008, but remains in its initial lease-up phase and has not yet reached stabilization which is defined in the bond documents as the generation of a 1.15:1 debt service coverage ratio for six straight months. Additionally, there were insufficient funds on deposit with the bond trustee to make the debt service payment of approximately $452,000 on the bonds which was due on May 3, 2010 and the property owner did not provide additional capital to fund the shortfall. As a result, a payment default on the bonds has occurred. In order to protect its investment the Partnership has issued a formal notice of default through the bond trustee and has started the foreclosure process. The foreclosure process is expected to take several months to complete. The Partnership would expect to remove and replace the general and limited partners of the property owner through foreclosure. This action would allow a new property owner to re-syndicate the LIHTCs associated with this property. If these LIHTCs can be successfully re-syndicated, it will provide additional capital to the project which can be used to support debt service payments on the tax-exempt mortgage revenue bonds until property operations improve to the point that sufficient cash is generated to pay any past due amounts on the bonds as well as ongoing debt service. If the re-syndication of LIHTCs is not successful, the Partnership may pursue other options including making additional taxable loans to the property or completing the foreclosure process and taking direct ownership of the property. The Partnership believes that the most significant issue in the slow lease-up of the property and its failure to achieve stabilization has been the 100% set aside of the rental units for tenants that make less than 60% of the area median income. At the request of the Partnership, in April 2010, the property owner reduced the number of units set aside for affordable tenants to 75% and began leasing 59 units to market rate tenants. Additionally, the property owner has agreed that, if needed to stabilize the property, it would further reduce the units set aside for affordable tenants to 60% thereby making an additional 35 units available to market rate tenants. As of December 31, 2009, the property had 116 units leased out of total available units of 236, or 49% physical occupancy. As of September 30, 2010, occupancy has increased to 187 units, or 79% physical occupancy, and an additional eleven leases are pending. Based on the level of leasing activity resulting from the change in the mix of affordable and market rate tenants, the Partnership continues to believe that Woodland is capable of reaching stabilization.

To facilitate its investment strategy of acquiring additional tax-exempt mortgage bonds secured by MF Properties, the Company has acquired through its various subsidiaries 99% limited partner positions in limited partnerships that own the MF Properties. The financial statements of these properties are consolidated with those of the Company. The general partners of these partnerships are unaffiliated parties and their 1% ownership interest in these limited partnerships is reflected in the Company’s consolidated financial statements as non-controlling interests. The Company 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. The Company expects to purchase tax-exempt mortgage revenue bonds issued by the new property owners as part of the restructuring.

In June 2010, the Company completed a sales transaction whereby four of the MF Properties, the Ohio Properties, were sold to three new ownership entities controlled by an unaffiliated not-for-profit entity. The Company acquired 100% of the $18.3 million tax-exempt mortgage revenue bonds issued by the Ohio Housing Finance Agency as part of a plan of financing for the acquisition and rehabilitation of the Ohio Properties. The tax-exempt mortgage bonds secured by the Ohio Properties were acquired at par and consisted of two series. The Series A bond has a par value of $14.7 million and bears interest at an annual rate of 7.0%. The Series B bond has a par value of $3.6 million and bears interest at an annual interest rate of 10.0%. In addition to the new tax-exempt bonds acquired by the Company, the plan of financing for the acquisition included other subordinated debt issued by the Company. The new owners ultimately plan to sell limited partnership interests in the properties and syndicate LIHTCs as part of the overall plan of finance. The new owners have not contributed any capital to the transaction and the Company has effectively provided 100% of the capital structure to the new owners as part of the sale transaction. Pursuant to ASC 360-20, Property, Plant, and Equipment - Real Estate Sales, ("ASC 360-20"), the sale and restructure does not meet the criteria for treatment as a sale. ASC 360-20 requires sufficient equity capital as part of a sales transaction to indicate a commitment from the buyer (typically a minimum of 3 to 5%). As the buyer has no equity capital in this transaction and the property operations are the current support for the debt service, the Company, in substance, remains the owner. As such, the Company will continue to consolidate the Ohio Properties as if the sale was not completed. Under the sales agreement, the Ohio properties were sold for a total purchase price of $16.2 million. Cash received by the selling limited partnerships as part of the sale transaction represents a deferred gain on the sale transaction of approximately $1.8 million. The properties will continue to be presented as MF Properties and no gain will be recognized until such time as the transaction can be accounted for as a sale.

MF Properties
Property Name	Location	Number of Units		Land		Buildings and Improvements		Carrying Value at September 30, 2010
Eagle Ridge	Erlanger, KY		64	$	290,763	$	2,444,055	$	2,734,818
Meadowview	Highland Heights, KY		118		703,936		4,994,492		5,698,428
Churchland	Chesapeake, VA		124		1,171,146		6,340,315		7,511,461
Glynn Place	Brunswick, GA		128		743,996		4,618,453		5,362,449
Greens of Pine Glen	Durham, NC		168		1,744,760		5,186,368		6,931,128
									28,238,284
Less accumulated depreciation (depreciation expense of approximately $965,000 for the first three quarters of 2010)									(2,771,543	)
Balance at September 30, 2010								$	25,466,741
MF Properties Subject to Sales Agreement
Property Name	Location	Number of Units		Land		Buildings and Improvements		Carrying Value at September 30, 2010
Crescent Village	Cincinnati, OH		90	$	353,117	$	4,376,207	$	4,729,324
Willow Bend	Hilliard, OH		92		580,130		3,063,599		3,643,729
Postwoods	Reynoldsburg, OH		180		1,148,504		6,619,438		7,767,942
									16,140,995
Less accumulated depreciation (depreciation expense of approximately $477,000 for the first three quarters of 2010)									(1,995,207	)
Balance at September 30, 2010								$	14,145,788

MF Properties
Property Name	Location	Number of Units		Land		Buildings and Improvements

	Balance Sheet	Carrying		Maximum Exposure
	Classification	Value		to Loss
Ashley Square Apartments
Tax Exempt Mortgage Revenue Bond	Bond Investment	$	4,863,899	$	5,368,000
Property Loan	Other Asset		1,510,000		5,682,313
		$	6,373,899	$	11,050,313

Cross Creek Apartments
Tax Exempt Mortgage Revenue Bond	Bond Investment	$	7,540,873	$	5,733,061
Property Loans	Other Asset		3,112,754		3,112,754
		$	10,653,627	$	8,845,815