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

FORM 10-Q

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

For the quarterly period ended March 31, 2015

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 MULTIFAMILY 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  x 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 definitions of “large accelerated filer”, “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



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INDEX

PART I – FINANCIAL INFORMATION

Financial Statements (Unaudited)
 
 
 
Condensed Consolidated Balance Sheets
 
Condensed Consolidated Statements of Operations
 
Condensed Consolidated Statements of Comprehensive Income (Loss)
 
Condensed Consolidated Statements of Partners’ Capital
 
Condensed Consolidated Statements of Cash Flows
 
Notes to Condensed Consolidated Financial Statements
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Controls and Procedures

PART II – OTHER INFORMATION

Risk Factors
 
Exhibits
 


 
 



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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.  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 which are contained in this report and, accordingly, we cannot guarantee their accuracy or completeness.  

These forward-looking statements are subject to various risks and uncertainties, including those relating to:

current maturities of our financing arrangements and our ability to renew or refinance such financing arrangements;
defaults on the mortgage loans securing our mortgage revenue bonds and mortgage-backed securities;
risks associated with investing in multifamily, student, senior citizen residential and commercial properties, including changes in business conditions and the general economy;
changes in short-term interest rates;
our ability to use borrowings to finance our assets;
current uncertain economic and credit market conditions;
changes in the United States Department of Housing and Urban Development Capital Fund Program; and
changes in government regulations affecting our business.

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, 2014 and in Item 1A of Part II of this document.



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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

AMERICA FIRST MULTIFAMILY INVESTORS, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS

 
 
March 31,
2015
 
December 31,
2014
 
 
(UNAUDITED)
 
 
Assets
 
 
 
 
Cash and cash equivalents
 
$
24,205,247

 
$
49,193,343

Restricted cash
 
7,836,842

 
11,685,729

Interest receivable
 
5,806,290

 
4,121,486

Mortgage revenue bonds held in trust, at fair value (Notes 4 & 9)
 
426,022,847

 
378,423,092

Mortgage revenue bonds, at fair value (Note 4)
 
81,875,851

 
70,601,045

Public housing capital fund trusts, at fair value (Note 5)
 
60,272,941

 
61,263,123

Mortgage-backed securities, at fair value (Note 6)
 
14,884,339

 
14,841,558

Real estate assets: (Note 7)
 
 
 
 
Land and improvements
 
15,590,493

 
15,589,893

Buildings and improvements
 
132,000,442

 
131,910,221

Real estate assets before accumulated depreciation
 
147,590,935

 
147,500,114

Accumulated depreciation
 
(26,327,145
)
 
(24,691,800
)
Net real estate assets
 
121,263,790

 
122,808,314

Other assets (Note 8)
 
30,564,221

 
31,301,527

Total Assets
 
$
772,732,368

 
$
744,239,217

 
 
 
 
 
Liabilities
 
 
 
 
Accounts payable, accrued expenses and other liabilities
 
$
4,995,537

 
$
4,627,089

Distribution payable
 
7,607,693

 
7,617,390

Debt financing (Note 9)
 
379,307,493

 
345,359,000

Mortgages payable (Note 10)
 
76,445,451

 
76,707,834

Derivative swap, at fair value (Note 12)
 
1,165,855

 

Total Liabilities
 
469,522,029

 
434,311,313

 
 
 
 
 
Commitments and Contingencies (Note 14)
 


 


 
 
 
 
 
Partners' Capital
 
 
 
 
General Partner (Note 2)
 
512,533

 
578,238

Beneficial Unit Certificate holders
 
323,952,314

 
330,457,117

Unallocated deficit of Consolidated VIEs
 
(21,237,622
)
 
(21,091,456
)
Total Partners' Capital
 
303,227,225

 
309,943,899

Noncontrolling interest (Note 7)
 
(16,886
)
 
(15,995
)
Total Capital
 
303,210,339

 
309,927,904

Total Liabilities and Partners' Capital
 
$
772,732,368

 
$
744,239,217


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


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

 
 
For the Three Months Ended,
 
 
March 31, 2015
 
March 31, 2014
Revenues:
 
 
 
 
Property revenues
 
$
5,106,369

 
$
3,951,216

Investment income
 
7,979,784

 
6,205,558

Gain on mortgage revenue bond - redemption
 

 
2,835,243

Other interest income
 
224,540

 
208,823

Total revenues
 
13,310,693

 
13,200,840

Expenses:
 
 
 
 
Real estate operating (exclusive of items shown below)
 
2,958,605

 
2,100,293

Depreciation and amortization
 
2,031,898

 
1,613,346

Interest
 
3,989,121

 
2,169,549

General and administrative
 
1,807,481

 
1,270,926

Total expenses
 
10,787,105

 
7,154,114

Net income
 
2,523,588

 
6,046,726

Net loss attributable to noncontrolling interest
 
(891
)
 
(103
)
Net income - America First Multifamily Investors, L.P.
 
$
2,524,479

 
$
6,046,829

 
 
 
 
 
Net income (loss) allocated to:
 
 
 
 
General Partner
 
$
26,706

 
$
742,055

Limited Partners - Unitholders
 
2,643,939

 
5,417,545

Unallocated loss of Consolidated Property VIEs
 
(146,166
)
 
(112,771
)
Noncontrolling interest
 
(891
)
 
(103
)
 
 
$
2,523,588

 
$
6,046,726

Unitholders' interest in net income per unit (basic and diluted):
 
 
 
 
Net income, basic and diluted, per unit
 
$
0.04

 
$
0.10

Distributions declared, per unit
 
$
0.125

 
$
0.125

Weighted average number of units outstanding, basic and diluted
 
60,252,928

 
56,919,595


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

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AMERICA FIRST MULTIFAMILY INVESTORS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)


 
 
For the Three Months Ended,
 
 
March 31, 2015
 
March 31, 2014
Net income
 
$
2,523,588

 
$
6,046,726

Unrealized (loss) gain on securities
 
(1,057,235
)
 
18,041,725

Unrealized (loss) gain on bond purchase commitments
 
(576,225
)
 
3,489,237

Comprehensive income - America First Multifamily Investors, L.P.
 
$
890,128

 
$
27,577,688

 
 
 
 
 
Comprehensive income (loss) allocated to:
 
 
 
 
General Partner
 
$
10,372

 
$
957,364

Limited Partners - Unitholders
 
1,026,813

 
26,733,198

Unallocated gain (loss) of Consolidated Property VIEs
 
(146,166
)
 
(112,771
)
Noncontrolling interest
 
(891
)
 
(103
)
Comprehensive income - America First Multifamily Investors, L.P.
 
$
890,128

 
$
27,577,688


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



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AMERICA FIRST MULTIFAMILY INVESTORS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL
FOR THE THREE MONTHS ENDED MARCH 31, 2015 and 2014
(UNAUDITED)

 
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, 2015
$
578,238

 
60,252,928

 
$
330,457,117

 
$
(21,091,456
)
 
$
(15,995
)
 
$
309,927,904

 
$
51,698,418

Distributions paid or accrued
(76,077
)
 
 
 
(7,531,616
)
 

 

 
(7,607,693
)
 

Net income (loss)
26,706

 
 
 
2,643,939

 
(146,166
)
 
(891
)
 
2,523,588

 

Unrealized loss on securities
(10,572
)
 
 
 
(1,046,663
)
 

 

 
(1,057,235
)
 
(1,057,235
)
Unrealized loss on bond purchase commitments
(5,762
)
 
 
 
(570,463
)
 

 

 
(576,225
)
 
(576,225
)
Balance at March 31, 2015
$
512,533

 
60,252,928

 
$
323,952,314

 
$
(21,237,622
)
 
$
(16,886
)
 
$
303,210,339

 
$
50,064,958

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
General Partner
 
# of Units
 
Beneficial Unit Certificate Holders
 
Unallocated Deficit of Consolidated VIEs
 
Non- controlling Interest
 
Total
 
Accumulated Other Comprehensive Income
Balance at January 1, 2014
$
16,671

 
51,052,928

 
$
223,573,312

 
$
(20,455,896
)
 
$
(11,322
)
 
$
203,122,765

 
$
(20,128,314
)
Sale of beneficial unit certificates
 
 
9,200,000

 
51,367,692

 

 

 
51,367,692

 

Redemption of mortgage revenue bond
(17,431
)
 
 
 
(1,725,657
)
 

 

 
(1,743,088
)
 
(1,743,088
)
Distributions paid or accrued
(763,409
)
 
 
 
(7,531,616
)
 

 

 
(8,295,025
)
 

Net income (loss)
742,055

 
 
 
5,417,545

 
(112,771
)
 
(103
)
 
6,046,726

 

Unrealized gain on securities
180,417

 
 
 
17,861,308

 

 

 
18,041,725

 
18,041,725

Unrealized gain on bond purchase commitments
34,892

 
 
 
3,454,345

 

 

 
3,489,237

 
3,489,237

Balance at March 31, 2014
$
193,195

 
60,252,928

 
$
292,416,929

 
$
(20,568,667
)
 
$
(11,425
)
 
$
272,030,032

 
$
(340,441
)
 
The accompanying notes are an integral part of the condensed consolidated financial statements.


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AMERICA FIRST MULTIFAMILY INVESTORS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
 
For Three Months Ended,
 
 
March 31, 2015
 
March 31, 2014
Cash flows from operating activities:
 
 
 
 
Net income
 
$
2,523,588

 
$
6,046,726

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization expense
 
2,031,898

 
1,613,346

Non-cash loss on derivatives
 
899,873

 
182,597

Bond premium/discount amortization
 
(36,933
)
 
(62,008
)
Gain on mortgage revenue bond - redemption
 

 
(2,835,243
)
Changes in operating assets and liabilities, net of effect of acquisitions
 
 
 
 
Increase in interest receivable
 
(1,684,804
)
 
(1,783,906
)
Decrease in other assets
 
127,115

 
918,897

Increase (decrease) in accounts payable and accrued expenses
 
311,641

 
(2,192,953
)
Net cash provided by operating activities
 
4,172,378

 
1,887,456

Cash flows from investing activities:
 
 
 
 
 Capital expenditures
 
(91,968
)
 
(6,323,590
)
 Acquisition of mortgage revenue bonds
 
(58,945,000
)
 
(34,778,800
)
Restructure and acquisition of interest rate derivative
 
10,500

 
(391,500
)
 Proceeds from the mortgage revenue bond - redemption
 

 
18,744,294

 Restricted cash - debt collateral released (paid)
 
1,370,000

 
2,000,000

 Restricted cash - TEBS financing facility
 
2,474,249

 

 Principal payments received on mortgage revenue bonds
 
202,888

 
1,778,734

 Increase in restricted cash
 
(46,780
)
 
(73,820
)
 Net increase in notes receivable
 
(39,337
)
 

Net cash used in investing activities
 
(55,065,448
)
 
(19,044,682
)
Cash flows from financing activities:
 
 
 
 
Distributions paid
 
(7,617,390
)
 
(6,446,077
)
Proceeds from the sale of beneficial unit certificates
 

 
54,740,000

Payment of offering costs related to the sale of beneficial unit certificates
 

 
(3,372,308
)
Proceeds from debt financing
 
48,285,000

 
17,250,000

Principal borrowings on mortgages payable
 

 
7,976,690

Principal payments on debt financing
 
(25,761,768
)
 
(17,013,000
)
Principal payments on mortgages payable
 
(262,383
)
 
(113,919
)
Principal borrowing on lines of credit
 
11,425,261

 

Increase in liabilities related to restricted cash
 
46,780

 
73,820

Debt financing costs
 
(210,526
)
 
(557,094
)
Net cash provided by financing activities
 
25,904,974

 
52,538,112

Net (decrease) increase in cash and cash equivalents
 
(24,988,096
)
 
35,380,886

Cash and cash equivalents at beginning of period
 
49,193,343

 
11,318,015

Cash and cash equivalents at end of period
 
$
24,205,247

 
$
46,698,901

Supplemental disclosure of cash flow information:
 
 
 
 
Cash paid during the period for interest
 
$
2,833,471

 
$
1,798,217

Distributions declared but not paid
 
$
7,607,693

 
$
8,295,025

Supplemental disclosure of non cash activities:
 
 
 
 
Capital expenditures financed through accounts and notes payable
 
$
56,806

 
$
3,475,757


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


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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2015
(UNAUDITED)

1.  Basis of Presentation

General
 
America First Multifamily 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 mortgage revenue bonds which have been issued to provide construction and/or permanent financing for affordable multifamily, student housing, and senior citizen residential properties (collectively “Residential Properties”) and commercial properties. The Partnership expects and believes the interest earned on these mortgage revenue 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 securities that may or may not be secured by real estate and may make property loans secured by multifamily residential properties which are financed by 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 mortgage revenue bonds or property loans through foreclosure in the event of a default.  In addition, the Partnership may acquire interests in multifamily, student, and senior citizen residential properties (“MF Properties”) in order to position itself for future investments in mortgage revenue bonds issued to finance these properties. The Partnership expects to sell its interest in these MF Properties in connection with the future syndication of low income housing tax credits under Section 42 of the Internal Revenue Code (“LIHTCs”) or to a tax-exempt organization and to acquire mortgage revenue bonds on these properties to provide debt financing to the new owners.
 
Our general partner is America First Capital Associates Limited Partnership Two (“AFCA 2” or “General Partner”).  The general partner of AFCA2 is The Burlington Capital Group LLC (“Burlington”). The Partnership has issued Beneficial Unit Certificates (“BUCs”) representing assigned limited partner interests to investors (“unitholders”).  The Partnership will terminate on December 31, 2050, unless terminated earlier under provisions of its Agreement of Limited Partnership.
 
The “Company” refers to the Partnership and the Consolidated VIEs (defined below). The condensed consolidated financial statements reported in this Form 10-Q include the financial position and results of operations of the Partnership, the MF Properties owned by various limited partnerships in which one of the Partnership’s wholly-owned subsidiaries holds a 99% limited partner interest, and two entities in which the Partnership does not hold an ownership interest but which own multifamily residential properties financed with mortgage revenue bonds held by the Partnership and which are treated as variable interest entities (“VIEs”) of which the Partnership has been determined to be the primary beneficiary (the “Consolidated VIEs”). On March 31, 2015, the consolidated subsidiaries of the Partnership (the “Consolidated Subsidiaries”) consist of:

ATAX TEBS I, LLC, a special purpose entity owned and controlled by the Partnership, created in 2010 to hold mortgage revenue bonds in order to facilitate the Tax Exempt Bond Securitization (“TEBS”) Financing (“M24 TEBS Financing”) with Freddie Mac (Note 9).
ATAX TEBS II, LLC, a special purpose entity owned and controlled by the Partnership, created in 2014 to hold mortgage revenue bonds in order to facilitate the second TEBS Financing (“M31 TEBS Financing”) with Freddie Mac (Note 9).
Nine MF Properties which are either wholly or majority owned by subsidiaries of the Partnership.

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

The unallocated deficit of the Consolidated VIEs is primarily comprised of the accumulated historical net losses of the Consolidated VIEs since the applicable consolidation date. The unallocated deficit of the VIEs and the VIEs’ net losses subsequent to that date are not allocated to the General Partner and unitholders as such activity is not contemplated by, or addressed in, the Agreement of Limited Partnership.


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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 condensed consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. These condensed consolidated financial statements and notes have been prepared consistently with the 2014 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 March 31, 2015, and the results of operations for the interim periods presented have been made. The results of operations for the interim period are not necessarily indicative of the results to be expected for the full year.

2.  Partnership Income, Expenses and Cash Distributions
 
The Agreement of Limited Partnership of the Partnership contains provisions for the distribution of Net Interest Income, Net Residual Proceeds and Liquidation Proceeds, for the allocation of income or loss from operations and for the allocation of income and loss arising from a repayment, sale, or liquidation of investments.  Income and losses will be allocated to each unitholder on a periodic basis, as determined by the General Partner, based on the number of BUCs held by each unitholder 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 unitholder of record on the last day of each distribution period based on the number of BUCs held by each unitholder 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 (Note 7) 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’s 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 unitholders and 1% to AFCA 2 and Net Residual Proceeds are distributed 100% to unitholders 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 revenue bonds on a cumulative basis (defined as Net Interest Income (Tier 2) and Net Residual Proceeds (Tier 2), respectively) are distributed 75% to the unitholders and 25% to AFCA 2.

3.  Variable Interest Entities

The Partnership invests in mortgage revenue bonds which have been issued to provide construction and/or permanent financing for Residential Properties and commercial properties in their market areas.  The Partnership owns 100% of these mortgage revenue bonds and each bond is secured by a first mortgage on the property.  In certain cases, the Partnership has also made property loans to the property owners which are secured by second mortgages on these properties.  Although Residential Properties financed with mortgage revenue 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.  Under consolidation guidance, the Partnership must make an evaluation of these entities to determine if they meet the definition of a VIE.

At March 31, 2015 and December 31, 2014, the Partnership determined that eleven of the entities financed by mortgage revenue bonds owned by the Partnership were held by VIEs.  These VIEs were Ashley Square, Bent Tree, Bruton Apartments, Cross Creek, Fairmont Oaks, Glenview Apartments, Harden Ranch, Montclair Apartments, Santa Fe Apartments, Tyler Park Apartments, and Westside Village Market. The Partnership then determined that it is the primary beneficiary of two of these VIEs: Bent Tree and Fairmont Oaks and has continued to consolidate these entities. 

The Partnership does not hold an equity interest in these VIEs. Therefore, the assets of the VIEs cannot be used to settle the general commitments of the Partnership and the Partnership is not responsible for the commitments and liabilities of the VIEs.  The primary risks to the Partnership associated with these VIEs relate to the entities’ ability to meet debt service obligations to the Partnership and the valuation of the underlying Residential Properties which serves as bond collateral.

The following is a discussion of the significant judgments and assumptions made by the Partnership in determining the primary beneficiary of the VIE and, therefore, whether the Partnership must consolidate the VIE.


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Consolidated VIEs

In determining the primary beneficiary of these VIEs, the Partnership considers 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 considers the related party relationship of the entities involved in the VIEs.  At March 31, 2015 and December 31, 2014, the Partnership determined it is the primary beneficiary of the Bent Tree and Fairmont Oaks VIEs. The capital structure of Bent Tree and Fairmont Oaks VIEs consists of senior debt, subordinated debt, and equity capital. The senior debt is in the form of a 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 of the consolidated VIEs is ultimately held by corporations which are owned by four individuals, two 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.

Non-Consolidated VIEs

The Company did not consolidate nine VIE entities (Ashley Square, Bruton Apartments, Cross Creek, Glenview Apartments Harden Ranch, Montclair Apartments, Santa Fe Apartments, Tyler Park Apartments, and Westside Village Market) as of March 31, 2015 based on its determination of the primary beneficiary of these nine VIE entities. 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. 

The following table presents information regarding the classification of the assets at their carrying value and maximum exposure to loss held by the Partnership as of March 31, 2015, which constitute VIEs:

 
March 31, 2015
 
 Balance Sheet Classification
 
 Maximum Exposure to Loss
 
 Mortgage Revenue Bond
 
Property Loan
 
 Mortgage Revenue Bond
 
Property Loan
Ashley Square Apartments
$
5,642,269

 
$
1,482,000

 
$
5,144,000

 
$
7,635,520

Bruton Apartments
19,443,819

 

 
18,145,000

 

Cross Creek
8,547,448

 
3,586,115

 
6,082,064

 
3,586,115

Glenview Apartments
6,855,286

 

 
6,723,000

 

Harden Ranch
9,920,953

 

 
9,300,000

 

Montclair Apartments
3,606,478

 

 
3,458,000

 

Santa Fe Apartments
4,856,631

 

 
4,736,000

 

Tyler Park Apartments
8,474,338

 

 
8,100,000

 

Westside Village Market
5,644,156

 

 
5,400,000

 

 
$
72,991,378

 
$
5,068,115

 
$
67,088,064

 
$
11,221,635


The 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 less any loan loss reserves.  See Note 4 for additional information regarding the mortgage revenue bonds and Note 8 for additional information regarding the property loans.  The maximum exposure to loss for the mortgage revenue bonds is equal to the unpaid principal balance as of March 31, 2015.  The difference between the mortgage revenue bond’s carrying value and the maximum exposure to loss is a function of the fair value of the bond.  The difference between the property loan’s carrying value and the maximum exposure is the value of loan loss reserves that have been previously recorded against the outstanding property loan balances.


9

Table of Contents

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

Condensed Consolidating Balance Sheets as of March 31, 2015 and December 31, 2014:
 
 
 
Partnership as of March 31, 2015
 
 Consolidated VIEs as of March 31, 2015
 
 Consolidation -Elimination as of March 31, 2015
 
 Total as of March 31, 2015
Assets
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
24,180,224

 
$
25,023

 
$

 
$
24,205,247

Restricted cash
 
7,350,135

 
486,707

 

 
7,836,842

Interest receivable
 
6,476,392

 

 
(670,102
)
 
5,806,290

Mortgage revenue bonds held in trust, at fair value
 
442,029,721

 

 
(16,006,874
)
 
426,022,847

Mortgage revenue bonds, at fair value
 
81,875,851

 

 

 
81,875,851

Public housing capital fund trusts, at fair value
 
60,272,941

 

 

 
60,272,941

Mortgage-backed securities, at fair value
 
14,884,339

 

 

 
14,884,339

Real estate assets:
 
 
 
 
 
 
 
 
Land and improvements
 
13,754,093

 
1,836,400

 

 
15,590,493

Buildings and improvements
 
110,742,966

 
21,257,476

 

 
132,000,442

Real estate assets before accumulated depreciation
 
124,497,059

 
23,093,876

 

 
147,590,935

Accumulated depreciation
 
(15,513,016
)
 
(10,814,129
)
 

 
(26,327,145
)
Net real estate assets
 
108,984,043

 
12,279,747

 

 
121,263,790

Other assets
 
41,298,994

 
377,523

 
(11,112,296
)
 
30,564,221

Total Assets
 
$
787,352,640

 
$
13,169,000

 
$
(27,789,272
)
 
$
772,732,368

 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
Accounts payable, accrued expenses and other liabilities
 
$
4,623,103

 
$
22,479,786

 
$
(22,107,352
)
 
$
4,995,537

Distribution payable
 
7,607,693

 

 

 
7,607,693

Debt financing
 
379,307,493

 

 

 
379,307,493

Mortgage payable
 
76,445,451

 
14,686,000

 
(14,686,000
)
 
76,445,451

Derivative swap
 
1,165,855

 

 

 
1,165,855

Total Liabilities
 
469,149,595

 
37,165,786

 
(36,793,352
)
 
469,522,029

Partners' Capital
 
 
 
 
 
 
 
 
General Partner
 
512,533

 

 

 
512,533

Beneficial Unit Certificate holders
 
317,707,398

 

 
6,244,916

 
323,952,314

Unallocated loss of Consolidated VIEs
 

 
(23,996,786
)
 
2,759,164

 
(21,237,622
)
Total Partners' Capital
 
318,219,931

 
(23,996,786
)
 
9,004,080

 
303,227,225

Noncontrolling interest
 
(16,886
)
 

 

 
(16,886
)
Total Capital
 
318,203,045

 
(23,996,786
)
 
9,004,080

 
303,210,339

Total Liabilities and Partners' Capital
 
$
787,352,640

 
$
13,169,000

 
$
(27,789,272
)
 
$
772,732,368

 


10

Table of Contents

 
 
 Partnership as of December 31, 2014
 
 Consolidated VIEs as of December 31, 2014
 
 Consolidation -Elimination as of December 31, 2014
 
 Total as of December 31, 2014
Assets
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
49,157,571

 
$
35,772

 
$

 
$
49,193,343

Restricted cash
 
11,141,496

 
544,233

 

 
11,685,729

Interest receivable
 
4,791,828

 

 
(670,342
)
 
4,121,486

Mortgage revenue bonds held in trust, at fair value
 
394,568,208

 

 
(16,145,116
)
 
378,423,092

Mortgage revenue bonds, at fair value
 
70,601,045

 

 

 
70,601,045

Public housing capital fund trusts, at fair value
 
61,263,123

 

 

 
61,263,123

Mortgage-backed securities, at fair value
 
14,841,558

 

 

 
14,841,558

Real estate assets:
 
 
 
 
 
 
 
 
Land and improvements
 
13,753,493

 
1,836,400

 

 
15,589,893

Buildings and improvements
 
110,706,173

 
21,204,048

 

 
131,910,221

Real estate assets before accumulated depreciation
 
124,459,666

 
23,040,448

 

 
147,500,114

Accumulated depreciation
 
(14,108,154
)
 
(10,583,646
)
 

 
(24,691,800
)
Net real estate assets
 
110,351,512

 
12,456,802

 

 
122,808,314

Other assets
 
41,958,914

 
420,054

 
(11,077,441
)
 
31,301,527

Total Assets
 
$
758,675,255

 
$
13,456,861

 
$
(27,892,899
)
 
$
744,239,217

 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
Accounts payable, accrued expenses and other liabilities
 
$
4,123,346

 
$
22,225,477

 
$
(21,721,734
)
 
$
4,627,089

Distribution payable
 
7,617,390

 

 

 
7,617,390

Debt financing
 
345,359,000

 

 

 
345,359,000

Mortgages payable
 
76,707,834

 
14,731,000

 
(14,731,000
)
 
76,707,834

Total Liabilities
 
433,807,570

 
36,956,477

 
(36,452,734
)
 
434,311,313

Partners' Capital
 
 
 
 
 
 
 
 
General Partner
 
578,238

 

 

 
578,238

Beneficial Unit Certificate holders
 
324,305,442

 

 
6,151,675

 
330,457,117

Unallocated deficit of Consolidated VIEs
 

 
(23,499,616
)
 
2,408,160

 
(21,091,456
)
Total Partners' Capital
 
324,883,680

 
(23,499,616
)
 
8,559,835

 
309,943,899

Noncontrolling interest
 
(15,995
)
 

 

 
(15,995
)
Total Capital
 
324,867,685

 
(23,499,616
)
 
8,559,835

 
309,927,904

Total Liabilities and Partners' Capital
 
$
758,675,255

 
$
13,456,861

 
$
(27,892,899
)
 
$
744,239,217





11

Table of Contents

Condensed Consolidating Statements of Operations for the three months ended March 31, 2015 and 2014:

 
 Partnership For the Three Months Ended March 31, 2015
 
 Consolidated VIEs For the Three Months Ended March 31, 2015
 
 Consolidation -Elimination For the Three Months Ended March 31, 2015
 
 Total For the Three Months Ended March 31, 2015
Revenues:
 
 
 
 
 
 
 
Property revenues
$
4,302,301

 
$
804,068

 
$

 
$
5,106,369

Investment income
8,210,394

 

 
(230,610
)
 
7,979,784

Other interest income
224,540

 

 

 
224,540

Total revenues
12,737,235

 
804,068

 
(230,610
)
 
13,310,693

Expenses:
 
 
 
 
 
 
 
Real estate operating (exclusive of items shown below)
2,471,030

 
487,575

 

 
2,958,605

Depreciation and amortization
1,794,814

 
243,729

 
(6,645
)
 
2,031,898

Interest
3,994,156

 
569,934

 
(574,969
)
 
3,989,121

General and administrative
1,807,481

 

 

 
1,807,481

Total expenses
10,067,481

 
1,301,238

 
(581,614
)
 
10,787,105

Net income (loss)
2,669,754

 
(497,170
)
 
351,004

 
2,523,588

Net loss attributable to noncontrolling interest
(891
)
 

 

 
(891
)
Net income (loss) - America First Multifamily Investors, L. P.
$
2,670,645

 
$
(497,170
)
 
$
351,004

 
$
2,524,479

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Partnership For the Three Months Ended March 31, 2014
 
 Consolidated VIEs For the Three Months Ended March 31, 2014
 
 Consolidation -Elimination For the Three Months Ended March 31, 2014
 
 Total For the Three Months Ended March 31, 2014
Revenues:
 
 
 
 
 
 
 
Property revenues
$
3,150,344

 
$
800,872

 
$

 
$
3,951,216

Investment income
6,438,835

 

 
(233,277
)
 
6,205,558

Gain on mortgage revenue bond - redemption
2,835,243

 

 

 
2,835,243

Other interest income
208,823

 

 

 
208,823

Total revenues
12,633,245

 
800,872

 
(233,277
)
 
13,200,840

Expenses:
 
 
 
 
 
 
 
Real estate operating (exclusive of items shown below)
1,650,647

 
449,646

 

 
2,100,293

Depreciation and amortization
1,382,626

 
237,440

 
(6,720
)
 
1,613,346

Interest
2,169,549

 
557,884

 
(557,884
)
 
2,169,549

   General and administrative
1,270,926

 

 

 
1,270,926

Total expenses
6,473,748

 
1,244,970

 
(564,604
)
 
7,154,114

Net income (loss)
6,159,497

 
(444,098
)
 
331,327

 
6,046,726

  Net loss attributable to noncontrolling interest
(103
)
 

 

 
(103
)
Net income (loss) - America First Multifamily Investors, L. P.
$
6,159,600

 
$
(444,098
)
 
$
331,327

 
$
6,046,829

 
 
 
 
 
 
 
 


12

Table of Contents

4.  Investments in Mortgage Revenue Bonds

The mortgage revenue bonds owned by the Company have been issued to provide construction and/or permanent financing for Residential Properties and commercial properties and do not include the mortgage revenue bonds issued with respect to properties owned by Consolidated VIEs at March 31, 2015 and December 31, 2014. Mortgage revenue bonds are either held directly by the Company or are held in trusts created in connection with debt financing transactions (Note 9). The Company had the following investments in mortgage revenue bonds as of dates shown:
 
 
March 31, 2015
Description of Mortgage Revenue Bonds
 
Cost adjusted for pay-downs
 
Unrealized Gain
 
Unrealized Loss
 
Estimated Fair Value
Arbors at Hickory Ridge (3)
 
$
11,569,614

 
$
1,239,453

 
$

 
$
12,809,067

Ashley Square (1)
 
5,144,000

 
498,269

 

 
5,642,269

Avistar at Chase Hill A Bond (3)
 
10,000,000

 
1,226,837

 

 
11,226,837

Avistar at the Crest A Bond (3)
 
9,700,000

 
1,054,230

 

 
10,754,230

Avistar at the Oaks A Bond (3)
 
7,800,000

 
802,611

 

 
8,602,611

Avistar in 09 A Bond (3)
 
6,735,000

 
787,493

 

 
7,522,493

Avistar on the Boulevard A Bond (3)
 
16,525,000

 
1,795,997

 

 
18,320,997

Avistar on the Hills A Bond (3)
 
5,389,000

 
554,521

 

 
5,943,521

Bella Vista (1)
 
6,490,000

 
573,067

 

 
7,063,067

Bridle Ridge (1)
 
7,625,000

 
595,665

 

 
8,220,665

Brookstone (1)
 
7,469,357

 
1,652,619

 

 
9,121,976

Bruton Apartments (2)
 
18,145,000

 
1,298,819

 

 
19,443,819

Concord at Gulfgate A Bond (2)
 
17,060,000

 
1,417,004

 

 
18,477,004

Concord at Little York A Bond (2)
 
12,480,000

 
820,061

 

 
13,300,061

Concord at Williamcrest A Bond (2)
 
18,020,000

 
1,184,094

 

 
19,204,094

Copper Gate Apartments (3)
 
5,220,000

 
390,143

 

 
5,610,143

Cross Creek (1)
 
6,082,064

 
2,465,384

 

 
8,547,448

Decatur Angle (2)
 
23,000,000

 
727,260

 

 
23,727,260

Greens Property A Bond (3)
 
8,348,000

 
943,736

 

 
9,291,736

Harden Ranch A Bond (3)
 
6,960,000

 
623,129

 

 
7,583,129

Lake Forest (1)
 
8,856,000

 
1,037,354

 

 
9,893,354

Live 929 Apartments (2)
 
40,874,690

 
4,154,777

 

 
45,029,467

Pro Nova 2014-1 and 2014-2 (2)
 
20,092,423

 
889,777

 

 
20,982,200

Ohio Properties A Bonds (1)
 
14,383,000

 
2,328,438

 

 
16,711,438

Runnymede (1)
 
10,440,000

 
1,297,483

 

 
11,737,483

Southpark (1)
 
11,861,623

 
3,599,239

 

 
15,460,862

The Palms at Premier Park Apartments (3)
 
20,125,232

 
2,005,005

 

 
22,130,237

The Suites on Paseo A Bond (2)
 
35,450,000

 
2,901,583

 

 
38,351,583

Tyler Park Apartments A Bond (3)
 
6,075,000

 
383,329

 

 
6,458,329

Westside Village Market A Bond (3)
 
3,970,000

 
250,505

 

 
4,220,505

Woodlynn Village (1)
 
4,390,000

 
244,962

 

 
4,634,962

Mortgage revenue bonds held in trust
 
$
386,280,003

 
$
39,742,844

 
$

 
$
426,022,847


(1) Mortgage revenue bonds owned by ATAX TEBS I, LLC, Note 9
(2) Mortgage revenue bonds held by Deutsche Bank in a secured financing transaction, Note 9
(3) Mortgage revenue bonds owned by ATAX TEBS II, LLC, Note 9


13

Table of Contents

 
 
March 31, 2015
Description of Mortgage Revenue Bonds
 
Cost adjusted for pay-downs
 
Unrealized Gain
 
Unrealized Loss
 
Estimated Fair Value
Avistar at Chase Hill B Bond
 
$
965,000

 
$
88,486

 
$

 
$
1,053,486

Avistar at the Crest B Bond
 
759,000

 
69,600

 

 
828,600

Avistar at the Oaks B Bond
 
554,000

 
50,841

 

 
604,841

Avistar in 09 B Bond
 
457,000

 
41,939

 

 
498,939

Avistar on the Boulevard B Bond
 
451,000

 
41,357

 

 
492,357

Concord at Gulfgate B Bond
 
2,125,000

 
592,323

 

 
2,717,323

Concord at Little York B Bond
 
960,000

 
252,586

 

 
1,212,586

Concord at Williamcrest B Bond
 
2,800,000

 
736,708

 

 
3,536,708

Glenview Apartments
 
6,723,000

 
132,286

 

 
6,855,286

Greens Property B Bond
 
945,059

 
249,820

 

 
1,194,879

Harden Ranch B Bond
 
2,340,000

 

 
(2,176
)
 
2,337,824

Heritage Square
 
11,705,000

 
295,073

 

 
12,000,073

Montclair Apartments
 
3,458,000

 
148,478

 

 
3,606,478

Ohio Properties B Bonds
 
3,570,720

 
644,819

 

 
4,215,539

Renaissance
 
12,675,000

 
762,823

 

 
13,437,823

Santa Fe Apartments
 
4,736,000

 
120,631

 

 
4,856,631

The Suites on Paseo B Bond
 
5,500,000

 

 

 
5,500,000

Tyler Park B Bond
 
2,025,000

 

 
(8,991
)
 
2,016,009

Vantage at Harlingen
 
6,692,000

 
260,386

 

 
6,952,386

Vantage at Judson
 
6,049,000

 
485,432

 

 
6,534,432

Westside Village B Bond
 
1,430,000

 

 
(6,349
)
 
1,423,651

Mortgage revenue bonds
 
$
76,919,779

 
$
4,973,588

 
$
(17,516
)
 
$
81,875,851



14

Table of Contents

 
 
December 31, 2014
Description of Mortgage Revenue Bonds
 
Cost adjusted for pay-downs
 
Unrealized Gains
 
Unrealized Loss
 
Estimated Fair Value
Arbors at Hickory Ridge (3)
 
$
11,570,933

 
$
1,792,303

 
$

 
$
13,363,236

Ashley Square (1)
 
5,159,000

 
486,559

 

 
5,645,559

Avistar at Chase Hill A Bond (3)
 
10,000,000

 
1,196,800

 

 
11,196,800

Avistar at the Crest A Bond (3)
 
9,700,000

 
1,419,692

 

 
11,119,692

Avistar at the Oaks A Bond(3)
 
7,800,000

 
869,622

 

 
8,669,622

Avistar in 09 A Bond (3)
 
6,735,000

 
750,885

 

 
7,485,885

Avistar on the Boulevard A Bond (3)
 
16,525,000

 
2,418,599

 

 
18,943,599

Avistar on the Hills A Bond (3)
 
5,389,000

 
743,520

 

 
6,132,520

Bella Vista (1)
 
6,490,000

 
625,571

 

 
7,115,571

Bridle Ridge (1)
 
7,655,000

 
659,249

 

 
8,314,249

Brookstone (1)
 
7,468,888

 
1,360,589

 

 
8,829,477

Bruton Apartments (2)
 
18,145,000

 
1,455,955

 

 
19,600,955

Copper Gate Apartments (3)
 
5,220,000

 
563,656

 

 
5,783,656

Cross Creek (1)
 
6,074,817

 
2,542,262

 

 
8,617,079

Decatur Angle (2)
 
23,000,000

 
919,540

 

 
23,919,540

Greens Property A Bond (3)
 
8,366,000

 
1,005,119

 

 
9,371,119

Harden Ranch A Bond (3)
 
6,960,000

 
511,421

 

 
7,471,421

Lake Forest (1)
 
8,886,000

 
1,003,614

 

 
9,889,614

Live 929 Apartments (2)
 
40,895,739

 
3,797,745

 

 
44,693,484

Pro Nova 2014-1 and 2014-2 (2)
 
20,095,169

 
1,043,431

 

 
21,138,600

Ohio Properties A Bonds (1)
 
14,407,000

 
2,444,034

 

 
16,851,034

Runnymede (1)
 
10,440,000

 
1,385,910

 

 
11,825,910

Southpark (1)
 
11,842,206

 
3,743,692

 

 
15,585,898

The Palms at Premier Park Apartments (3)
 
20,152,000

 
2,680,619

 

 
22,832,619

The Suites on Paseo (2)
 
35,450,000

 
3,193,691

 

 
38,643,691

Tyler Park Apartments A Bond (3)
 
6,075,000

 
345,060

 

 
6,420,060

Westside Village Market A Bond (3)
 
3,970,000

 
225,496

 

 
4,195,496

Woodlynn Village (1)
 
4,390,000

 
376,706

 

 
4,766,706

Mortgage revenue bonds held in trust
 
$
338,861,752

 
$
39,561,340

 
$

 
$
378,423,092

(1) Mortgage revenue bonds owned by ATAX TEBS I, LLC, Note 9
(2) Mortgage revenue bonds held by Deutsche Bank in a secured financing transaction, Note 9
(3) Mortgage revenue bonds owned by ATAX TEBS II, LLC, Note 9



15

Table of Contents

 
 
December 31, 2014
Description of Mortgage Revenue Bonds
 
Cost adjusted for pay-downs
 
Unrealized Gain
 
Unrealized Loss
 
Estimated Fair Value
Avistar at Chase Hill B Bond
 
$
965,000

 
$
144,769

 
$

 
$
1,109,769

Avistar at the Crest B Bond
 
759,000

 
124,286

 

 
883,286

Avistar at the Oaks B Bond
 
554,000

 
54,325

 

 
608,325

Avistar in 09 B Bond
 
457,000

 
50,608

 

 
507,608

Avistar on the Boulevard B Bond
 
451,000

 
73,851

 

 
524,851

Greens Property B Bond
 
945,638

 
376,203

 

 
1,321,841

Glenview Apartments
 
6,723,000

 

 

 
6,723,000

Harden Ranch B Bond
 
2,340,000

 

 
(1,501
)
 
2,338,499

Heritage Square
 
11,705,000

 
1,109,125

 

 
12,814,125

Montclair Apartments
 
3,458,000

 

 

 
3,458,000

Ohio Properties B Bonds
 
3,573,430

 
668,542

 

 
4,241,972

Renaissance
 
12,675,000

 
1,055,807

 

 
13,730,807

Santa Fe Apartments
 
4,736,000

 

 

 
4,736,000

Tyler Park Apartments B Bond
 
2,025,000

 

 
(17,395
)
 
2,007,605

Vantage at Harlingen
 
6,692,000

 
707,813

 

 
7,399,813

Vantage at Judson
 
6,049,000

 
717,230

 

 
6,766,230

Westside Village Market B Bond
 
1,430,000

 

 
(686
)
 
1,429,314

Mortgage revenue bonds
 
$
65,538,068

 
$
5,082,559

 
$
(19,582
)
 
$
70,601,045


In March 2015, the Partnership acquired the approximate $35.6 million B bond related to The Suites on Paseo at a fair market value of $5.5 million.

In January 2015, the Partnership acquired six mortgage revenue bonds. They are as follows:
The Partnership purchased approximately $17.1 million par value Series 2015A and approximately $2.1 million par value of Series 2015B mortgage revenue bonds. These mortgage revenue bonds are secured by Concord at Gulfgate Apartments, a 288 unit multifamily residential property located in Houston, Texas.
The Partnership purchased approximately $12.5 million par value Series 2015A and approximately $1.0 million par value of Series 2015B mortgage revenue bonds. These mortgage revenue bonds are secured by Concord at Little York Apartments, a 276 unit multifamily residential property located in Houston, Texas.
The Partnership purchased approximately $18.0 million par value Series 2015A and approximately $2.8 million par value of Series 2015B mortgage revenue bonds. These mortgage revenue bonds are secured by Concord at Williamcrest Apartments, a 288 unit multifamily residential property located in Houston, Texas.

These three Series A mortgage revenue bonds each carry an annual interest rate of 6.0% and mature on February 1, 2032. The three Series B mortgage revenue bonds each carry an annual interest rate of 12.0% and mature on March 1, 2032. In February 2015, the Partnership borrowed approximately $33.3 million under three Tender Option Bond (“TOB”) Trusts under the existing TOB structure securitizing these mortgage revenue bonds (Note 9).

The properties securing the Company’s mortgage revenue bonds are geographically dispersed throughout the United States with significant concentrations in California and Texas. As of March 31, 2015 and December 31, 2014, the concentration in California, as a percentage of principal outstanding, was approximately 19% and 18%, respectively. As of March 31, 2015 and December 31, 2014, the concentration in Texas, as a percentage of principal outstanding, was approximately 45% and 38%, respectively.


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Table of Contents

Valuation - As all of the Company’s investments in mortgage revenue bonds are classified as available-for-sale securities, they are carried on the balance sheet at their estimated fair values.  As of March 31, 2015, the weighted average base rate of the mortgage revenue bonds reported in the condensed consolidated financial statements was approximately 6.0% per annum. Due to the limited market for the mortgage revenue bonds, these estimates of fair value do not necessarily represent what the Company would actually receive in a sale of the mortgage revenue bonds.  There is no active trading market for the mortgage revenue bonds and price quotes for the mortgage revenue bonds are not generally available.  As of March 31, 2015, all of the Company’s 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 mortgage revenue bonds.  The effective yield analysis for each mortgage revenue bond considers the current market yield on similar mortgage revenue bonds as well as the debt service coverage ratio of each underlying property serving as collateral for the mortgage revenue bond. At March 31, 2015, the range of effective yields on the individual mortgage revenue bonds was 4.8% to 9.6% per annum.  At December 31, 2014, the range of effective yields on the individual mortgage revenue bonds was 4.7% to 8.3% per annum. Additionally, the Company calculated the sensitivity of the key assumption used in calculating the fair values of these mortgage revenue bonds.  Assuming a 10% adverse change in the key assumption, the effective yields on the individual mortgage revenue bonds would increase to a range of 5.2% to 10.5% per annum and would result in additional unrealized losses on the mortgage revenue bond portfolio of approximately $32.6 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 mortgage revenue 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 mortgage revenue bonds are recorded in accumulated other comprehensive income (loss) to reflect changes in their estimated fair values resulting from market conditions and fluctuations in the present value of the expected cash flows from the underlying properties. As of March 31, 2015, Harden Ranch B, Tyler Park Apartments B, and Westside Village Market B mortgage revenue bond investments have been in unrealized loss positions for greater than twelve months. 
 
5. Public Housing Capital (“PHC”) Fund Trust Certificates

The Company owns 100% of the Residual Participation Receipts (“LIFERs”) in three tender option bond trusts (“PHC TOB Trusts”). At March 31, 2015, the PHC TOB Trusts own approximately $59.3 million of Public Housing Capital Fund Certificates (“PHC Certificates”) issued by three trusts (“PHC Trusts”) sponsored by Deutsche Bank (“DB”). The assets held by the PHC Trusts consist of custodial receipts evidencing loans made to a number of local public housing authorities. Principal and interest on these loans are payable by the respective public housing authorities out of annual appropriations to be made to the public housing authorities by the United States Department of Housing and Urban Development (“HUD”) under HUD’s Capital Fund Program established under the Quality Housing and Work Responsibility Act of 1998 (the “Capital Fund Program”). The PHC Trusts have a first lien on these annual Capital Fund Program payments to secure the public housing authorities’ respective obligations to pay principal and interest on their loans. The loans payable by the public housing authorities are not debts of, or guaranteed by, the United States of America or HUD. Interest payable on the public housing authority debt held by the PHC Trusts is exempt from federal income taxes. The PHC Certificates issued by each of the PHC Trusts have been rated investment grade by Standard & Poor’s.
The Company determined that the three PHC TOB trusts are VIEs and that the Company was the primary beneficiary of each of the three PHC TOB trusts. As a result, the Company reports the PHC TOB Trusts on a consolidated basis and the SPEARS as debt financing. In determining the primary beneficiary of these specific VIEs, the Company considered who has the power to control the activities of the VIEs which most significantly impact their financial performance, the risks that the entity was designed to create, and how each risk affects the VIE. The indenture for the PHC TOB trusts stipulates that the Company has the sole right to cause the PHC TOB trusts to sell the PHC Certificates. If they were sold, the extent to which the VIEs will be exposed to gains or losses would result from decisions made by the Company.


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Table of Contents

The Company had the following investments in the PHC Certificates on March 31, 2015 and December 31, 2014:
Description of Public Housing Capital Fund Trust Certificates
 
Cost adjusted for amortization of premium and discounts
 
Unrealized Gain
 
Unrealized Loss
 
Estimated Fair Value at March 31, 2015
Public Housing Capital Fund Trust I
 
$
27,379,187

 
$
484,160

 
$

 
$
27,863,347

Public Housing Capital Fund Trust II
 
12,011,169

 

 
(40,868
)
 
11,970,301

Public Housing Capital Fund Trust III
 
20,483,912

 

 
(44,619
)
 
20,439,293

 
 
$
59,874,268

 
$
484,160

 
$
(85,487
)
 
$
60,272,941


Description of Public Housing Capital Fund Trust Certificates
 
Cost adjusted for amortization of premium and discounts
 
Unrealized Gain
 
Unrealized Loss
 
Estimated Fair Value at December 31, 2014
Public Housing Capital Fund Trust Certificate I
 
$
27,414,100

 
$
933,789

 
$

 
$
28,347,889

Public Housing Capital Fund Trust Certificate II
 
11,999,721

 
152,293

 

 
12,152,014

Public Housing Capital Fund Trust Certificate III
 
20,474,100

 
289,120

 

 
20,763,220

 
 
$
59,887,921

 
$
1,375,202

 
$

 
$
61,263,123


Valuation - As all of the Company’s investments in PHC Certificates are classified as available-for-sale securities, they are carried on the balance sheet at their estimated fair values. As of March 31, 2015, the weighted average base rate of the PHC Trust Certificates was approximately 5.0% per annum.  Due to the limited market for the PHC Certificates, these estimates of fair value do not necessarily represent what the Company would actually receive in a sale of the PHC Certificates.  The estimates of the fair values of these PHC certificates is based on a yield to maturity analysis which begins with the current market yield rate for a “AAA” rated tax-free municipal bond for a term consistent with the weighted-average life of each of the Public Housing Capital Fund trusts adjusted largely for unobservable inputs the General Partner believes would be used by market participants. Management’s fair value estimates encompass judgment. Management’s estimates are compared to external pricing services when available.   

At March 31, 2015 and December 31, 2014 the range of effective yields on the PHC Certificates were 4.2% to 5.4% per annum.  Additionally, the Company calculated the sensitivity of the key assumption used in calculating the fair values of these PHC Certificates.  Assuming a 10% adverse change in the key assumption, the effective yields on the PHC Certificates would increase to a range of 4.9% to 6.3% per annum and would result in additional unrealized losses on the PHC Certificates of approximately $2.3 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 other information from external sources, such as pricing services.  Pricing services and management’s analysis provide indicative pricing only.

The following table sets forth certain information relating to the PHC Certificates held in the PHC TOB Trusts on March 31, 2015 and December 31, 2014:
 
 
Average Remaining Lives (Years)
 
Investment Rating
 
Weighted Average Interest Rate over Life
 
Principal Outstanding March 31,