Variable Interest Entities

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 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.

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 are Ashley Square, Bent Tree, Cross Creek, Fairmont Oaks, and Lake Forest. See below for further discussion on which VIEs are consolidated as of the reporting date.

At March 31, 2012, the Partnership reported three properties as Consolidated VIEs; Bent Tree, Fairmont Oaks, and Lake Forest and has continued to consolidate these entities. At March 31, 2011, the Partnership reported four properties as Consolidated VIEs: Bent Tree, Fairmont Oaks, Iona Lakes, and Lake Forest. 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.

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

The Partnership determined it is the primary beneficiary of the following properties at March 31, 2012: Bent Tree, Fairmont Oaks, and Lake Forest. 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 each 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 equity ownership of the consolidated VIEs; Bent Tree, Fairmont Oaks, and Lake Forest, 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.

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.

Non-Consolidated VIEs

The Company does not consolidate two VIE entities, Ashley Square and Cross Creek. 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 constituted a reconsideration event as outlined in the consolidation guidance which triggered 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 not-for-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 constituted a reconsideration event as outlined in the consolidation guidance which triggered 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 March 31, 2012, which constitute a variable interest in Ashley Square and Cross Creek.



	Balance Sheet Classification	Carrying Value		Maximum Exposure to Loss
Ashley Square Apartments
Tax Exempt Mortgage Revenue Bond	Bond Investment	$	5,364,748	$	5,296,000
Property Loan	Other Asset	1,190,000		4,786,342
		$	6,554,748	$	10,082,342
Cross Creek Apartments
Tax Exempt Mortgage Revenue Bond	Bond Investment	$	7,905,035	$	5,972,672
Property Loans	Other Asset	3,664,755		3,664,755
		$	11,569,790	$	9,637,427

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 Note 4 for additional information regarding the bonds and Note 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 March 31, 2012. 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 loan loss reserves that have been previously recorded against the outstanding loan balances.

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, 2012 and December 31, 2011:



	Partnership as of March 31, 2012			Consolidated VIEs as of March 31, 2012			Consolidation -Elimination as of March 31, 2012			Total as of March 31, 2012
Assets
Cash and cash equivalents	$	17,390,835		$	38,767		$	—		$	17,429,602
Restricted cash	11,913,459			833,407			—			12,746,866
Interest receivable	12,985,895			—			(4,712,958		)	8,272,937
Tax-exempt mortgage revenue bonds held in trust, at fair value	135,825,458			—			(23,979,480		)	111,845,978
Tax-exempt mortgage revenue bonds, at fair value	26,730,200			—			—			26,730,200
Real estate assets:
Land	10,093,513			3,250,044			—			13,343,557
Buildings and improvements	81,180,224			31,663,664			—			112,843,888
Real estate assets before accumulated depreciation	91,273,737			34,913,708			—			126,187,445
Accumulated depreciation	(8,383,599		)	(12,679,806		)	—			(21,063,405		)
Net real estate assets	82,890,138			22,233,902			—			105,124,040
Other assets	19,045,160			846,826			(10,604,505		)	9,287,481
Assets of discontinued operations	7,287,162			—			—			7,287,162
Total Assets	$	314,068,307		$	23,952,902		$	(39,296,943	)	$	298,724,266

Liabilities
Accounts payable, accrued expenses and other liabilities	$	2,202,088		$	25,146,588		$	(24,290,146	)	$	3,058,530
Distribution payable	3,803,400			—			—			3,803,400
Debt financing	112,537,000			—			—			112,537,000
Mortgages payable	41,752,135			24,347,000			(24,347,000		)	41,752,135
Liabilities of discontinued operations	6,166,328			—			—			6,166,328
Total Liabilities	166,460,951			49,493,588			(48,637,146		)	167,317,393
Partners' Capital
General Partner	(354,861		)	—			—			(354,861		)
Beneficial Unit Certificate holders	147,274,243			—			7,552,338			154,826,581
Unallocated loss of Consolidated VIEs	—			(25,540,686		)	1,787,865			(23,752,821		)
Total Partners' Capital	146,919,382			(25,540,686		)	9,340,203			130,718,899
Noncontrolling interest	687,974			—			—			687,974
Total Capital	147,607,356			(25,540,686		)	9,340,203			131,406,873
Total Liabilities and Partners' Capital	$	314,068,307		$	23,952,902		$	(39,296,943	)	$	298,724,266



	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	$	20,188,855		$	12,718		$	—		$	20,201,573
Restricted cash	12,915,700			937,053			—			13,852,753
Interest receivable	11,395,266			—			(4,410,288		)	6,984,978
Tax-exempt mortgage revenue bonds held in trust, at fair value	132,920,723			—			(23,767,936		)	109,152,787
Tax-exempt mortgage revenue bonds, at fair value	26,542,565			—			—			26,542,565
Real estate assets:
Land	9,180,390			3,250,044			—			12,430,434
Buildings and improvements	80,045,210			31,607,993			—			111,653,203
Real estate assets before accumulated depreciation	89,225,600			34,858,037			—			124,083,637
Accumulated depreciation	(7,485,664		)	(12,332,334		)	—			(19,817,998		)
Net real estate assets	81,739,936			22,525,703			—			104,265,639
Other assets	19,693,928			839,879			(10,851,419		)	9,682,388
Assets of discontinued operations	7,293,862			—			—			7,293,862
Total Assets	$	312,690,835		$	24,315,353		$	(39,029,643	)	$	297,976,545

Liabilities
Accounts payable, accrued expenses and other liabilities	$	2,516,851		$	24,780,781		$	(23,805,990	)	$	3,491,642
Distribution payable	3,911,340			—			—			3,911,340
Debt financing	112,673,000			—			—			112,673,000
Mortgages payable	40,092,455			24,407,000			(24,407,000		)	40,092,455
Liabilities of discontinued operations	6,219,063			—			—			6,219,063
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 loss 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