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 tax-exempt mortgage revenue bonds and each bond is secured by a first mortgage on the property. In certain cases, the Partnership has also made taxable property loans to the property owners 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 are held by VIEs as of September 30, 2013 and December 31, 2012. These VIEs are Ashley Square, Bent Tree, Cross Creek, Fairmont Oaks, and Lake Forest. At December 31, 2012, the Partnership also determined that the Exchange Accommodation Titleholder ("EAT (Maples on 97th)") was also a VIE based on the Qualified Exchange Accommodation Agreement and Master Lease Agreement between the Partnership and EAT (Maples on 97th).

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

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. 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 of the following VIEs at September 30, 2013: Bent Tree, Fairmont Oaks, and Lake Forest. The capital structure of Bent Tree, Fairmont Oaks, and Lake Forest consists of senior debt, subordinated debt, and equity capital. The senior debt is in the form of a tax-exempt mortgage revenue bonds 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 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 Capital Group, LLC ("Burlington").

In August 2012, the EAT (Maples on 97th), a wholly-owned subsidiary of a Title Company which owned a multi-family property located in Omaha, Nebraska, executed a Master Lease Agreement and Construction Management Agreement with the Partnership. These two agreements gave the Partnership the rights and obligations to manage this property as well as the rehabilitation during the six month hold period which contractually ended in February 2013. The Partnership determined that it was the primary beneficiary of the EAT (Maples on 97th) and consolidated the EAT as a VIE as of December 31, 2012. Based on the terms of the Master Lease Agreement, the Partnership reported 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 had 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 (Maples on 97th) and the property is reported as an MF Property in the consolidated balance sheet as of September 30, 2013.

Non-Consolidated VIEs

The Company did not consolidate two VIE entities, Ashley Square and Cross Creek as of September 30, 2013 based on its determination of the primary beneficiary of these two 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.

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 September 30, 2013, 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	$	5,224,000	$	5,224,000
Taxable Property Loan	Other Asset	1,462,000		7,032,123
		$	6,686,000	$	12,256,123
Cross Creek Apartments
Tax Exempt Mortgage Revenue Bond	Bond Investment	$	7,616,316	$	6,033,317
Taxable Property Loans	Other Asset	3,383,615		3,383,615
		$	10,999,931	$	9,416,932

The tax-exempt mortgage revenue bonds are classified on the balance sheet as available for sale investments and are carried at fair value while taxable 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 tax-exempt mortgage revenue bonds and Note 8 for additional information regarding the taxable property loans. The maximum exposure to loss for the tax-exempt mortgage revenue bonds is equal to the unpaid principal balance as of September 30, 2013. The difference between the tax-exempt 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 taxable property loan's carrying value and the maximum exposure is the value of loan loss reserves that have been previously recorded against the outstanding taxable property 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 September 30, 2013 and December 31, 2012:



	Partnership as of September 30, 2013			Consolidated VIEs as of September 30, 2013			Consolidation -Elimination as of September 30, 2013			Total as of September 30, 2013
Assets
Cash and cash equivalents	$	11,872,782		$	33,825		$	—		$	11,906,607
Restricted cash	6,444,613			1,253,126			—			7,697,739
Interest receivable	14,677,455			—			(6,665,032		)	8,012,423
Tax-exempt mortgage revenue bonds held in trust, at fair value	178,071,670			—			(23,157,533		)	154,914,137
Tax-exempt mortgage revenue bonds, at fair value	48,161,743			—			—			48,161,743
Public housing capital fund trusts, at fair value	61,793,516			—			—			61,793,516
Mortgage-backed securities, at fair value	38,880,996			—			—			38,880,996
Real estate assets:
Land	9,241,515			3,250,044			—			12,491,559
Buildings and improvements	83,656,608			32,324,747			—			115,981,355
Real estate assets before accumulated depreciation	92,898,123			35,574,791			—			128,472,914
Accumulated depreciation	(8,382,864		)	(14,755,919		)	—			(23,138,783		)
Net real estate assets	84,515,259			20,818,872			—			105,334,131
Other assets	22,418,827			597,081			(9,662,473		)	13,353,435
Total Assets	$	466,836,861		$	22,702,904		$	(39,485,038	)	$	450,054,727

Liabilities
Accounts payable, accrued expenses and other liabilities	$	4,413,261		$	28,761,746		$	(28,014,528	)	$	5,160,479
Distribution payable	5,400,622			—			—			5,400,622
Debt financing	226,569,000			—			—			226,569,000
Mortgages payable	51,802,031			23,960,000			(23,960,000		)	51,802,031
Bond purchase commitment - fair market value adjustment	4,865,536			—			—			4,865,536
Total Liabilities	293,050,450			52,721,746			(51,974,528		)	293,797,668
Partners' Capital
General Partner	84,551			—			—			84,551
Beneficial Unit Certificate holders	173,711,521			—			8,368,259			182,079,780
Unallocated deficit of Consolidated VIEs	—			(30,018,842		)	4,121,231			(25,897,611		)
Total Partners' Capital	173,796,072			(30,018,842		)	12,489,490			156,266,720
Noncontrolling interest	(9,661		)	—			—			(9,661		)
Total Capital	173,786,411			(30,018,842		)	12,489,490			156,257,059
Total Liabilities and Partners' Capital	$	466,836,861		$	22,702,904		$	(39,485,038	)	$	450,054,727



	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, at fair value	124,149,600			—			(24,615,518		)	99,534,082
Tax-exempt mortgage revenue bonds, at fair value	45,703,294			—			—			45,703,294
Public housing capital fund trusts, at fair value	65,389,298			—			—			65,389,298
Mortgage-backed securities, at fair value	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
Mortgages 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

Condensed Consolidating Statements of Operations for the three months ended September 30, 2013 and 2012:



	Partnership For the Three Months Ended September 30, 2013			Consolidated VIEs For the Three Months Ended September 30, 2013			Consolidation -Elimination For the Three Months Ended September 30, 2013			Total For the Three Months Ended September 30, 2013
Revenues:
Property revenues	$	3,074,115		$	1,225,261		$	—		$	4,299,376
Investment income	5,623,450			—			(375,642		)	5,247,808
Other interest income	216,993			—			—			216,993
Total revenues	8,914,558			1,225,261			(375,642		)	9,764,177
Expenses:
Real estate operating (exclusive of items shown below)	1,794,008			815,947			—			2,609,955
Provision for loan loss	72,000			—			—			72,000
Depreciation and amortization	1,409,847			363,137			(10,760		)	1,762,224
Interest	2,325,372			832,719			(832,719		)	2,325,372
General and administrative	985,778			—			—			985,778
Total expenses	6,587,005			2,011,803			(843,479		)	7,755,329
Income (loss) from continuing operations	2,327,553			(786,542		)	467,837			2,008,848
Income from discontinued operations (including gain on sale of MF Properties of $1,041,656)	1,342,498			—			—			1,342,498
Net income (loss)	3,670,051			(786,542		)	467,837			3,351,346
Net loss attributable to noncontrolling interest	(59,913		)	—			—			(59,913		)
Net income (loss) - America First Tax Exempt Investors, L. P.	$	3,729,964		$	(786,542	)	$	467,837		$	3,411,259



	Partnership For the Three Months Ended September 30, 2012			Consolidated VIEs For the Three Months Ended September 30, 2012			Consolidation -Elimination For the Three Months Ended September 30, 2012			Total For the Three Months Ended September 30, 2012
Revenues:
Property revenues	$	1,983,077		$	1,203,887		$	—		$	3,186,964
Mortgage revenue bond investment income	3,490,431			—			(379,714		)	3,110,717
Other interest income	15,224			—			—			15,224
Total revenues	5,488,732			1,203,887			(379,714		)	6,312,905
Expenses:
Real estate operating (exclusive of items shown below)	1,175,585			959,870			—			2,135,455
Recovery of loss on receivables	(261,825		)	—			—			(261,825		)
Depreciation and amortization	854,252			388,353			(10,876		)	1,231,729
Interest	1,551,543			808,841			(808,841		)	1,551,543
General and administrative	834,301			—			—			834,301
Total expenses	4,153,856			2,157,064			(819,717		)	5,491,203
Income (loss) from continuing operations	1,334,876			(953,177		)	440,003			821,702
Income from discontinued operations (including gain on sale of MF Properties of $1,277,976)	1,526,964			—			—			1,526,964
Net income (loss)	2,861,840			(953,177		)	440,003			2,348,666
Net income attributable to noncontrolling interest	137,099			—			—			137,099
Net income (loss) - America First Tax Exempt Investors, L. P.	$	2,724,741		$	(953,177	)	$	440,003		$	2,211,567




	Partnership For the Nine Months Ended September 30, 2013		Consolidated VIEs For the Nine Months Ended September 30, 2013			Consolidation -Elimination For the Nine Months Ended September 30, 2013			Total For the Nine Months Ended September 30, 2013
Revenues:
Property revenues	$	8,325,593	$	3,658,636		$	—		$	11,984,229
Mortgage revenue bond investment income	18,689,649		—			(1,130,027		)	17,559,622
Contingent tax-exempt interest income	6,497,160		—			—			6,497,160
Other interest income	1,558,158		—			—			1,558,158
Other income	250,000		—			—			250,000
Total revenues	35,320,560		3,658,636			(1,130,027		)	37,849,169
Expenses:
Real estate operating (exclusive of items shown below)	4,632,958		2,349,358			—			6,982,316
Realized loss on taxable property loan	4,557,741		—			—			4,557,741
Provision for loan loss	168,000		—			—			168,000
Provision for loss on receivables	241,698		—			—			241,698
Depreciation and amortization	3,963,628		1,073,423			(32,369		)	5,004,682
Interest	5,287,994		2,477,348			(2,477,348		)	5,287,994
General and administrative	3,097,713		—			—			3,097,713
Total expenses	21,949,732		5,900,129			(2,509,717		)	25,340,144
Income (loss) from continuing operations	13,370,828		(2,241,493		)	1,379,690			12,509,025
Income from discontinued operations (including gain on sale of MF Properties of $3,177,183)	3,442,404		—			—			3,442,404
Net income (loss)	16,813,232		(2,241,493		)	1,379,690			15,951,429
Net income attributable to noncontrolling interest	263,584		—			—			263,584
Net income (loss) - America First Tax Exempt Investors, L. P.	$	16,549,648	$	(2,241,493	)	$	1,379,690		$	15,687,845




	Partnership For the Nine Months Ended September 30, 2012		Consolidated VIEs For the Nine Months Ended September 30, 2012			Consolidation -Elimination For the Nine Months Ended September 30, 2012			Total For the Nine Months Ended September 30, 2012
Revenues:
Property revenues	$	5,404,772	$	3,598,541		$	—		$	9,003,313
Investment income	8,912,856		—			(1,142,089		)	7,770,767
Other interest income	97,996		—			—			97,996
Gain on sale of tax-exempt mortgage revenue bonds	667,821		—			—			667,821
Total revenues	15,083,445		3,598,541			(1,142,089		)	17,539,897
Expenses:
Real estate operating (exclusive of items shown below)	3,096,677		2,399,206			—			5,495,883
Provision for loss on receivables	214,525		—			—			214,525
Depreciation and amortization	2,376,823		1,102,000			(32,712		)	3,446,111
Interest	4,317,329		2,411,676			(2,411,676		)	4,317,329
General and administrative	2,533,246		—			—			2,533,246
Total expenses	12,538,600		5,912,882			(2,444,388		)	16,007,094
Income (loss) from continuing operations	2,544,845		(2,314,341		)	1,302,299			1,532,803
Income from discontinued operations (including gain on sale of MF Properties of $1,277,976)	2,013,713		—			—			2,013,713
Net income (loss)	4,558,558		(2,314,341		)	1,302,299			3,546,516
Net income attributable to noncontrolling interest	398,469		—			—			398,469
Net income (loss) - America First Tax Exempt Investors, L. P.	$	4,160,089	$	(2,314,341	)	$	1,302,299		$	3,148,047