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, 2012 and 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. 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 has also determined that the Exchange Accommodation Titleholder ("EAT (Maples on 97th)") is a VIE based on its Qualified Exchange Accommodation Agreement and Master Lease Agreement with EAT (Maples on 97th).

The Partnership does not hold an equity interest in these five 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 the five VIEs financed by tax-exempt mortgage revenue bonds owned by the Partnership 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 EAT (Maples on 97th) VIE has no other capital than the funding provided by the Partnership so the risk to the Partnership is that it will not recover the funding already provided.

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, 2012, the Partnership determined it is the primary beneficiary of the Bent Tree, EAT (Maples on 97th), Fairmont Oaks, and Lake Forest VIEs. The capital structure of Bent Tree, Fairmont Oaks, and Lake Forest 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 the Burlington Capital Group, LLC ("Burlington").

In August 2012, the Partnership sold the Commons at Churchland property for approximately $8.1 million resulting in a gain of approximately $1.3 million. In a separate August 2012 transaction, the Partnership closed on the purchase of the Maples on 97th property (“replacement property”), located in Omaha, Nebraska, for a purchase price of approximately $5.5 million through the execution of a Qualified Exchange Accommodation Agreement that assigned the right to acquire and own the replacement property to a wholly-owned subsidiary of a Title Company (EAT (Maples on 97th)) for a period not to exceed six months. During this six month holding period, the Partnership will rehabilitate the replacement property. The Partnership lent the EAT (Maples on 97th) the necessary funds to purchase the replacement property; there is no other capital within that entity.

The EAT (Maples on 97th) then executed a Master Lease Agreement and Construction Management Agreement with the Partnership. These two agreements give the Partnership the rights and obligations to manage the replacement property as well as the rehabilitation during the six month hold period. In addition, the Qualified Exchange Accommodation Agreement stipulates that title to the Property is to revert back to a subsidiary of the Partnership no later than the end of the six month holding period. The Partnership has determined that it is the primary beneficiary of the EAT (Maples on 97th). Based on the terms of the Master Lease Agreement, the Partnership determined that it will report the rental income and related real estate operating expenses for the Maples on 97th property during the six month holding period as an MF Property since it has all the rights and obligations of landlord for the property. In February 2013, title to the Maples on 97th property transferred to the Partnership from the EAT.

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

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 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, 2012 and 2011, which constitute a variable interest in Ashley Square and Cross Creek.



December 31, 2012
	Balance Sheet	Carrying		Maximum Exposure
	Classification	Value		to Loss
Ashley Square Apartments
Tax-Exempt Mortgage Revenue Bond	Bond Investment	$	5,506,981	$	5,260,000
Property Loan	Other Asset	1,298,000		6,575,664
		$	6,804,981	$	11,835,664

Cross Creek Apartments
Tax-Exempt Mortgage Revenue Bond	Bond Investment	$	7,999,335	$	6,004,424
Property Loans	Other Asset	3,383,615		3,383,615
		$	11,382,950	$	9,388,039



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

The following tables provide information about the three VIEs at December 31, 2012 and 2011 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, 2012 and 2011, respectively. In addition to the tax-exempt mortgage revenue bonds detailed below, the Partnership has made taxable loans to these consolidated VIEs of $10.6 million and $10.3 million as of December 31, 2012 and 2011, respectively.



VIEs - December 31, 2012
			Base		Principal		Income
		Maturity	Interest		Outstanding at		Earned in
Property Name	Location	Date	Rate		December 31, 2012		2012
Bent Tree Apartments⁽¹⁾	Columbia, SC	12/15/2030	6.25	%	$	7,614,000	$	477,938
Fairmont Oaks Apartments⁽¹⁾	Gainseville, FL	4/1/2033	6.30	%	7,439,000		471,067
Lake Forest Apartments ⁽¹⁾	Daytona Beach, FL	12/1/2031	6.25	%	9,105,000		571,813
Total Tax-Exempt Mortgage Bonds					$	24,158,000	$	1,520,818
(1) Bonds held by ATAX TEBS I, LLC
VIEs - December 31, 2011
			Base		Principal		Income
		Maturity	Interest		Outstanding at		Earned in
Property Name	Location	Date	Rate		December 31, 2011		2011
Bent Tree Apartments ⁽¹⁾	Columbia, SC	12/15/2030	6.25	%	$	7,686,000	$	482,203
Fairmont Oaks Apartments ⁽¹⁾	Gainesville, 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

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, 2012 and 2011:



	Partnership as of December 31, 2012			Consolidated VIEs as of December 31, 2012			Consolidation -Elimination as of December 31, 2012			Total as of December 31, 2012
Assets
Cash and cash equivalents	$	30,123,447		$	49,326		$	—		$	30,172,773
Restricted cash	4,538,071			933,451			—			5,471,522
Interest receivable	14,131,063			—			(5,657,703		)	8,473,360
Tax-exempt mortgage revenue bonds held in trust	124,149,600			—			(24,615,518		)	99,534,082
Tax-exempt mortgage revenue bonds	45,703,294			—			—			45,703,294
Public housing capital fund trusts	65,389,298			—			—			65,389,298
Mortgage-backed securities	32,121,412			—			—			32,121,412
Real estate assets:
Land	6,798,407			4,404,469			—			11,202,876
Buildings and improvements	55,776,753			37,838,726			—			93,615,479
Real estate assets before accumulated depreciation	62,575,160			42,243,195			—			104,818,355
Accumulated depreciation	(5,458,961		)	(13,871,102		)	—			(19,330,063		)
Net real estate assets	57,116,199			28,372,093			—			85,488,292
Other assets	22,923,356			852,321			(15,559,382		)	8,216,295
Assets of discontinued operations	32,580,427			—			—			32,580,427
Total Assets	$	428,776,167		$	30,207,191		$	(45,832,603	)	$	413,150,755

Liabilities
Accounts payable, accrued expenses and other liabilities	$	2,330,852		$	28,529,405		$	(25,846,310	)	$	5,013,947
Distribution payable	5,566,908			—			—			5,566,908
Debt financing	177,948,000			—			—			177,948,000
Mortgage payable	39,119,507			24,158,000			(24,158,000		)	39,119,507
Liabilities of discontinued operations	1,531,462			—			—			1,531,462
Total Liabilities	226,496,729			52,687,405			(50,004,310		)	229,179,824
Partners' Capital
General Partner	(430,087		)	—			—			(430,087		)
Beneficial Unit Certificate holders	200,655,786			—			6,727,301			207,383,087
Unallocated deficit of Consolidated VIEs	—			(22,480,214		)	(2,555,594		)	(25,035,808		)
Total Partners' Capital	200,225,699			(22,480,214		)	4,171,707			181,917,192
Noncontrolling interest	2,053,739			—			—			2,053,739
Total Capital	202,279,438			(22,480,214		)	4,171,707			183,970,931
Total Liabilities and Partners' Capital	$	428,776,167		$	30,207,191		$	(45,832,603	)	$	413,150,755



	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	$	20,074,123		$	12,718		$	—		$	20,086,841
Restricted cash	11,967,308			937,053			—			12,904,361
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	5,063,116			3,250,044			—			8,313,160
Buildings and improvements	50,653,712			31,607,993			—			82,261,705
Real estate assets before accumulated depreciation	55,716,828			34,858,037			—			90,574,865
Accumulated depreciation	(2,973,597		)	(12,332,334		)	—			(15,305,931		)
Net real estate assets	52,743,231			22,525,703			—			75,268,934
Other assets	19,552,919			839,879			(10,851,419		)	9,541,379
Assets of discontinued operations	37,494,700			—			—			37,494,700
Total Assets	$	312,690,835		$	24,315,353		$	(39,029,643	)	$	297,976,545

Liabilities
Accounts payable, accrued expenses and other liabilities	$	1,490,994		$	24,780,781		$	(23,805,990	)	$	2,465,785
Distribution payable	3,911,340			—			—			3,911,340
Debt financing	112,673,000			—			—			112,673,000
Mortgages payable	35,464,455			24,407,000			(24,407,000		)	35,464,455
Liabilities of discontinued operations	11,872,920			—			—			11,872,920
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

Consolidating Statements of Operations for the years ended December 31, 2012, 2011, and 2010:



	Partnership For the Year Ended December 31, 2012		Consolidated VIEs For the Year Ended December 31, 2012			Consolidation -Elimination For the Year Ended December 31, 2012			Total For the Year Ended December 31, 2012
Revenues:
Property revenues	$	7,846,812	$	4,807,718		$	—		$	12,654,530
Investment income	12,599,284		—			(1,520,817		)	11,078,467
Gain on sale and retirement of bonds	680,444		—			—			680,444
Other interest income	150,882		—			—			150,882
Other income	557,300		(1,972		)	—			555,328
Total revenues	21,834,722		4,805,746			(1,520,817		)	25,119,651
Expenses:
Real estate operating (exclusive of items shown below)	4,604,870		3,273,061			—			7,877,931
Provision for loss on receivables	452,700		—			—			452,700
Depreciation and amortization	3,447,316		1,578,275			(43,561		)	4,982,030
Interest	5,530,995		3,240,306			(3,240,306		)	5,530,995
General and administrative	3,512,233		—			—			3,512,233
Total expenses	17,548,114		8,091,642			(3,283,867		)	22,355,889
Income (loss) from continuing operations	4,286,608		(3,285,896		)	1,763,050			2,763,762
Income from discontinued operations (including gain on sale of MF Property of $1,406,608 in 2012)	2,232,276		—			—			2,232,276
Net income (loss)	6,518,884		(3,285,896		)	1,763,050			4,996,038
Net income attributable to noncontrolling interest	549,194		—			—			549,194
Net income (loss) - America First Tax Exempt Investors, L. P.	$	5,969,690	$	(3,285,896	)	$	1,763,050		$	4,446,844



	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	$	5,066,443		$	5,909,807	$	—		$	10,976,250
Investment income	11,515,237			—		(2,017,956		)	9,497,281
Gain on bond retirement	445,257			—		—			445,257
Other interest income	485,679			—		—			485,679
Other income	189,340			4,133,477		(4,028,489		)	294,328
Total Revenues	17,701,956			10,043,284		(6,046,445		)	21,698,795
Expenses:
Real estate operating (exclusive of items shown below)	3,154,290			3,604,417		—			6,758,707
Provision for loss on receivables	952,700			—		—			952,700
Provision for loan loss	4,242,571			—		—			4,242,571
Depreciation and amortization	2,281,541			1,718,899		(36,938		)	3,963,502
Interest	5,441,700			4,037,725		(4,037,725		)	5,441,700
General and administrative	2,764,970			—		—			2,764,970
Total Expenses	18,837,772			9,361,041		(4,074,663		)	24,124,150
Loss (income) from continuing operations	(1,135,816		)	682,243		(1,971,782		)	(2,425,355		)
Income from discontinued operations	752,192								752,192
Net (loss) income	(383,624		)	682,243		(1,971,782		)	(1,673,163		)
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	$	1,619,229		$	7,487,438		$	—		$	9,106,667
Investment income	10,223,269			—			(3,341,955		)	6,881,314
Other interest income	488,427			—			(32,805		)	455,622
Gain on early extinguishment of debt	435,395			—			—			435,395
Total Revenues	12,766,320			7,487,438			(3,374,760		)	16,878,998
Expenses:
Real estate operating (exclusive of items shown below)	961,221			5,099,455			—			6,060,676
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	1,337,859			2,305,313			(53,021		)	3,590,151
Interest	1,887,823			5,546,229			(5,546,229		)	1,887,823
General and administrative	2,383,784			—			—			2,383,784
Total Expenses	10,434,733			15,718,067			(9,139,129		)	17,013,671
Net income (loss) from continuing operations	2,331,587			(8,230,629		)	5,764,369			(134,673		)
Net loss from discontinued operations	(469,518		)	—			—			(469,518		)
Net income (loss)	1,862,069			(8,230,629		)	5,764,369			(604,191		)
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	)