Variable Interest Entities

Although each multifamily property financed with tax-exempt 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 December 31, 2010, the Partnership determined that eight of the entities financed by tax-exempt mortgage revenue bonds owned by the Partnership were held by VIEs. These VIEs were Ashley Square, Bent Tree, Cross Creek, Fairmont Oaks, Iona Lakes, Lake Forest, Residences at DeCordova ("DeCordova") and Residences at Weatherford ("Weatherford"). The Partnership then determined that it was the primary beneficiary of six of these VIEs; Bent Tree, Fairmont Oaks, Iona Lakes, Lake Forest, DeCordova and Weatherford and reported these six properties as Consolidated VIEs during 2010. In February 2011, the Partnership foreclosed on the bonds secured by the DeCordova and Weatherford properties and took direct ownership. As such, these entities are no longer reported as Consolidated VIEs but are reported as MF Properties. In June 2011, the ownership of Iona Lakes became a not-for-profit entity and Iona Lakes ceased to be reported as a Consolidated VIE. At December 31, 2011, the Partnership determined that five of the entities financed by tax-exempt mortgage revenue bonds owned by the Partnership were held by VIEs. These VIEs were Ashley Square, Bent Tree, Cross Creek, Fairmont Oaks, and Lake Forest. The Partnership then determined that it is the primary beneficiary of three of these VIEs; Bent Tree, Fairmont Oaks, and Lake Forest and has continued to consolidate these entities.

The Partnership does not hold an equity interest in these VIEs and, 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 multifamily apartment property 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.

Consolidated VIEs

At December 31, 2011, the Partnership determined it is the primary beneficiary of the Bent Tree, Fairmont Oaks, and Lake Forest 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 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 these entities 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 relationships 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.

Non-Consolidated VIEs

As a result of consolidation guidance effective January 1, 2010, the Company 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 consolidation guidance 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 the consolidation guidance 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 following table presents information regarding the carrying value and classification of the assets held by the Partnership as of December 31, 2011 and 2010, which constitute a variable interest in Ashley Square and Cross Creek.



December 31, 2011
	Balance Sheet	Carrying		Maximum Exposure
	Classification	Value		to Loss
Ashley Square Apartments
Tax Exempt Mortgage Revenue Bond	Bond Investment	$	5,308,000	$	5,308,000
Property Loan	Other Asset	1,190,000		6,117,528
		$	6,498,000	$	11,425,528

Cross Creek Apartments
Tax Exempt Mortgage Revenue Bond	Bond Investment	$	7,785,645	$	5,961,478
Property Loans	Other Asset	3,564,755		3,564,755
		$	11,350,400	$	9,526,233



December 31, 2010
	Balance Sheet	Carrying		Maximum Exposure
	Classification	Value		to Loss
Ashley Square Apartments
Tax Exempt Mortgage Revenue Bond	Bond Investment	4,712,187		5,356,000
Property Loan	Other Asset	1,190,000		5,804,975
		$	5,902,187	$	11,160,975

Cross Creek Apartments
Tax Exempt Mortgage Revenue Bond	Bond Investment	7,251,128		5,913,776
Property Loans	Other Asset	3,183,754		3,183,754
		$	10,434,882	$	9,097,530

The following tables provide information about the three VIEs and the six VIEs consolidated at December 31, 2011 and 2010 in the Partnership's financial statements under the provisions of the guidance on consolidations. These schedules also include information on the tax-exempt mortgage revenue bonds owned by the Partnership which are eliminated in consolidation, as of December 31, 2011 and 2010, respectively. In addition to the tax-exempt mortgage revenue bonds detailed below, the Partnership has made taxable loans to these consolidated VIEs of $10.3 million and $18.4 million as of December 31, 2011 and 2010, respectively.



VIEs - December 31, 2011
			Base		Principal		Income
		Maturity	Interest		Outstanding at		Earned in
Property Name	Location	Date	Rate		Dec. 31, 2011		2011
Bent Tree Apartments⁽¹⁾	Columbia, SC	12/15/2030	6.25	%	$	7,686,000	$	482,203
Fairmont Oaks Apartments⁽¹⁾	Gainsville, FL	4/1/2033	6.30	%	7,520,000		475,839
Lake Forest Apartments ⁽¹⁾	Daytona Beach, FL	12/1/2031	6.25	%	9,201,000		577,813
Total Tax-Exempt Mortgage Bonds					$	24,407,000	$	1,535,855
(1) Bonds held by ATAX TEBS I, LLC
VIEs - December 31, 2010
			Base		Principal		Income
		Maturity	Interest		Outstanding at		Earned in
Property Name	Location	Date	Rate		Dec. 31, 2010		2010
Bent Tree Apartments (1)	Columbia, SC	12/15/2030	6.25	%	$	7,748,000	$	698,163
Fairmont Oaks Apartments (1)	Gainsville, FL	4/1/2033	6.30	%	$	7,592,000	$	479,792
Iona Lakes Apartments	Ft. Myers, FL	4/1/2030	6.90	%	$	15,895,000	$	1,102,534
Lake Forest Apartments (1)	Daytona Beach, FL	12/1/2031	6.25	%	$	9,297,000	$	654,806
Residences at DeCordova	Granbury, TX	5/1/2047	6.00	%	$	4,853,000	$	242,650
Residences at Weatherford	Weatherford, TX	5/1/2047	6.00	%	$	4,686,000	$	164,010
Total Tax-Exempt Mortgage Bonds					$	50,071,000	$	3,341,955
(1) Bonds held by ATAX TEBS I, LLC

The following tables present the effects of the consolidation of the VIEs on the Company's Consolidated Balance Sheets and Statements of Operations. As discussed above, 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 cash flows from the VIEs do not represent cash flows available to the Partnership.

Consolidating Balance Sheets as of December 31, 2011 and 2010:



	Partnership as of December 31, 2011			Consolidated VIEs as of December 31, 2011			Consolidation -Elimination as of December 31, 2011			Total as of December 31, 2011
Assets
Cash and cash equivalents	$	20,200,695		$	12,718		$	—		$	20,213,413
Restricted cash	12,968,314			937,053			—			13,905,367
Interest receivable	11,395,266			—			(4,410,288		)	6,984,978
Tax-exempt mortgage revenue bonds held in trust	132,920,723			—			(23,767,936		)	109,152,787
Tax-exempt mortgage revenue bonds	26,542,565			—			—			26,542,565
Real estate assets:
Land	10,351,535			3,250,044			—			13,601,579
Buildings and improvements	86,434,411			31,607,993			—			118,042,404
Real estate assets before accumulated depreciation	96,785,946			34,858,037			—			131,643,983
Accumulated depreciation	(8,507,860		)	(12,332,334		)	—			(20,840,194		)
Net real estate assets	88,278,086			22,525,703			—			110,803,789
Other assets	20,385,186			839,879			(10,851,419		)	10,373,646
Total Assets	$	312,690,835		$	24,315,353		$	(39,029,643	)	$	297,976,545

Liabilities
Accounts payable, accrued expenses and other liabilities	$	2,584,486		$	24,780,781		$	(23,805,990	)	$	3,559,277
Distribution payable	3,911,340			—			—			3,911,340
Debt financing	112,673,000			—			—			112,673,000
Mortgages payable	46,243,883			24,407,000			(24,407,000		)	46,243,883
Total Liabilities	165,412,709			49,187,781			(48,212,990		)	166,387,500
Partners' Capital
General Partner	(354,006		)	—			—			(354,006		)
Beneficial Unit Certificate holders	147,087,347			—			7,823,881			154,911,228
Unallocated deficit of Consolidated VIEs	—			(24,872,428		)	1,359,466			(23,512,962		)
Total Partners' Capital	146,733,341			(24,872,428		)	9,183,347			131,044,260
Noncontrolling interest	544,785			—			—			544,785
Total Capital	147,278,126			(24,872,428		)	9,183,347			131,589,045
Total Liabilities and Partners' Capital	$	312,690,835		$	24,315,353		$	(39,029,643	)	$	297,976,545



	Partnership as of December 31, 2010			Consolidated VIEs as of December 31, 2010			Consolidation -Elimination as of December 31, 2010			Total as of December 31, 2010
Assets
Cash and cash equivalents	$	13,095,306		$	181,742		$	—		$	13,277,048
Restricted cash	21,259,931			3,992,825			—			25,252,756
Interest receivable	10,154,676			—			(5,484,494		)	4,670,182
Tax-exempt mortgage revenue bonds held in trust	95,400,690			—			(21,949,211		)	73,451,479
Tax-exempt mortgage revenue bonds	47,956,608			—			(20,841,444		)	27,115,164
Real estate assets:
Land	6,736,351			6,210,480			—			12,946,831
Buildings and improvements	37,780,446			54,022,248			—			91,802,694
Real estate assets before accumulated depreciation	44,516,797			60,232,728			—			104,749,525
Accumulated depreciation	(5,229,598		)	(18,237,507		)	—			(23,467,105		)
Net real estate assets	39,287,199			41,995,221			—			81,282,420
Other assets	33,078,415			1,334,439			(17,854,654		)	16,558,200
Total Assets	$	260,232,825		$	47,504,227		$	(66,129,803	)	$	241,607,249

Liabilities
Accounts payable, accrued expenses and other liabilities	$	1,580,642		$	39,069,063		$	(37,121,402	)	$	3,528,303
Distribution payable	3,803,399			—			—			3,803,399
Debt financing	95,608,000			—			—			95,608,000
Mortgages payable	10,645,982			50,071,000			(50,071,000		)	10,645,982
Total Liabilities	111,638,023			89,140,063			(87,192,402		)	113,585,684
Partners' Capital
General Partner	(280,629		)	—			—			(280,629		)
Beneficial Unit Certificate holders	149,016,757			—			12,372,432			161,389,189
Unallocated deficit of Consolidated VIEs	—			(41,635,836		)	8,690,167			(32,945,669		)
Total Partners' Capital	148,736,128			(41,635,836		)	21,062,599			128,162,891
Noncontrolling interest	(141,326		)	—			—			(141,326		)
Total Capital	148,594,802			(41,635,836		)	21,062,599			128,021,565
Total Liabilities and Partners' Capital	$	260,232,825		$	47,504,227		$	(66,129,803	)	$	241,607,249

Consolidating Statements of Operations for the years ended December 31, 2011, 2010 and 2009:



	Partnership For the Year Ended December 31, 2011			Consolidated VIEs For the Year Ended December 31, 2011		Consolidation -Elimination For the Year Ended December 31, 2011			Total For the Year Ended December 31, 2011
Revenues:
Property revenues	$	10,974,897		$	5,909,807	$	—		$	16,884,704
Mortgage revenue bond investment income	11,515,237			—		(2,017,956		)	9,497,281
Other interest income	485,679			—		—			485,679
Other income	634,597			4,133,477		(4,028,489		)	739,585
Total Revenues	23,610,410			10,043,284		(6,046,445		)	27,607,249
Expenses:
Real estate operating (exclusive of items shown below)	6,255,007			3,604,417		—			9,859,424
Provision for loss on receivables	4,242,571			—		—			4,242,571
Provision for loan loss	952,700			—		—			952,700
Depreciation and amortization	4,009,678			1,718,899		(36,938		)	5,691,639
Interest	5,769,108			4,037,725		(4,037,725		)	5,769,108
General and administrative	2,764,970			—		—			2,764,970
Total Expenses	23,994,034			9,361,041		(4,074,663		)	29,280,412
Net (loss) income	(383,624		)	682,243		(1,971,782		)	(1,673,163		)
Less: net income attributable to noncontrolling interest	570,759			—		—			570,759
Net (loss) income - America First Tax Exempt Investors, L. P.	(954,383		)	682,243		(1,971,782		)	(2,243,922		)



	Partnership For the Year Ended December 31, 2010			Consolidated VIEs For the Year Ended December 31, 2010			Consolidation -Elimination For the Year Ended December 31, 2010			Total For the Year Ended December 31, 2010
Revenues:
Property revenues	$	7,205,099		$	7,487,438		$	—		$	14,692,537
Mortgage revenue bond investment income	10,223,269			—			(3,341,955		)	6,881,314
Gain on early extinguishment of debt	435,395			—			—			435,395
Other interest income	488,427			—			(32,805		)	455,622
Total Revenues	18,352,190			7,487,438			(3,374,760		)	22,464,868
Expenses:
Real estate operating (exclusive of items shown below)	4,917,287			5,099,455			—			10,016,742
Provision for loan loss	1,147,716			—			(585,331		)	562,385
Asset impairment charge - Weatherford	2,716,330			2,767,070			(2,954,548		)	2,528,852
Depreciation and amortization	2,810,525			2,305,313			(53,021		)	5,062,817
Interest	2,514,479			5,546,229			(5,546,229		)	2,514,479
General and administrative	2,383,784			—			—			2,383,784
Total Expenses	16,490,121			15,718,067			(9,139,129		)	23,069,059
Net income (loss)	1,862,069			(8,230,629		)	5,764,369			(604,191		)
Less: net loss attributable to noncontrolling interest	(203,831		)	—			—			(203,831		)
Net income (loss) - America First Tax Exempt Investors, L. P.	$	2,065,900		$	(8,230,629	)	$	5,764,369		$	(400,360	)



	Partnership For the Year Ended December 31, 2009			Consolidated VIEs For the Year Ended December 31, 2009			Consolidation -Elimination For the Year Ended December 31, 2009			Total For the Year Ended December 31, 2009
Revenues:
Property revenues	$	7,045,578		$	8,621,475		$	—		$	15,667,053
Mortgage revenue bond investment income	11,087,923			—			(6,834,759		)	4,253,164
Gain on sale of assets held for sale	862,865			—			—			862,865
Other interest income	106,082			—			—			106,082
Loss on sale of security	(127,495		)				127,495			—
Total Revenues	18,974,953			8,621,475			(6,707,264		)	20,889,164
Expenses:
Real estate operating (exclusive of items shown below)	4,151,353			5,976,304			—			10,127,657
Provision for loan loss	1,696,730			—			(294,999		)	1,401,731
Depreciation and amortization	3,514,073			2,608,915			(55,658		)	6,067,330
Interest	4,283,680			6,847,884			(6,929,438		)	4,202,126
General and administrative	1,997,661			—			—			1,997,661
Total Expenses	15,643,497			15,433,103			(7,280,095		)	23,796,505
Income (loss) from continuing operations	3,331,456			(6,811,628		)	572,831			(2,907,341		)
Income (loss) from discontinuing operations	—			34,786,445			(8,051,691		)	26,734,754
Net income (loss)	3,331,456			27,974,817			(7,478,860		)	23,827,413
Less: net loss attributable to noncontrolling interest	(11,540		)	—			—			(11,540		)
Net income (loss) - America First Tax Exempt Investors, L. P.	$	3,342,996		$	27,974,817		$	(7,478,860	)	$	23,838,953

In February 2009, the tax-exempt mortgage revenue bonds secured by assets of the VIEs presented as discontinued operations as of December 31, 2008 were redeemed. In order to properly reflect the transaction under the guidance on consolidations, the Company recorded the redemption of the bonds as the sale of the properties as though they were owned by the Company. The transaction was completed in the first quarter of 2009 for a total purchase price of $32.0 million resulting in a gain on sale for GAAP reporting of approximately $26.5 million. The redemption of the bonds did not result in a taxable gain to the Partnership.

On a stand-alone basis, the Partnership received approximately $30.9 million of net proceeds from the bond redemption. These proceeds represent the repayment of the bond par values plus accrued base interest and approximately $2.3 million of contingent interest. The contingent interest, recognized in the first quarter of 2009, represents additional earnings to the Partnership beyond the recurring base interest earned on the bond portfolio. The contingent interest also represents additional Cash Available for Distribution to the unitholders of approximately $1.7 million, or $0.13 per unit.