5. Variable Interest Entities

Consolidated VIEs

The capital structure of Bent Tree and Fairmont Oaks (the “Consolidated VIEs”) consisted of senior debt, subordinated debt, and equity capital. The senior debt was in the form of a mortgage revenue bond and accounts for the majority of the total capital of each VIE. As the bondholder, the Partnership was 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 three individuals, one of which is a related party to the Partnership. Additionally, each of these properties is managed by an affiliate of the Partnership, Properties Management, which is an affiliate of Burlington.

The Partnership determined it was the primary beneficiary of the Consolidated VIEs. The Consolidated VIEs were sold in the fourth quarter of 2015 with the gains and results of operations of the Consolidated VIEs reported as part of the discontinued operations in net income for all periods presented. No net income or loss from these properties’ operations or sale accrued to the Unitholders or the General Partner during 2016, 2015 and 2014.

The Partnership determined the TOB Trusts are VIEs and the Partnership is the primary beneficiary. In determining the primary beneficiary of these specific VIEs, the Partnership 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 TOB Trust agreements stipulate the Partnership has the sole right to cause the TOB Trusts to sell the underlying assets through its ownership of the LIFERs. If they were sold, the extent to which the VIEs will be exposed to gains or losses would result from decisions made by the Partnership, which results in the Partnership being identified as the primary beneficiary. As such, the Partnership reports the TOB Trusts as consolidated VIEs. The Partnership reports the senior floating-rate participation interests (“SPEARS”) related to the TOB Trusts as secured debt financings on the consolidated balance sheets (Note 17). The PHC Certificates secured by the TOB Trusts are reported as assets on the consolidated balance sheets (Note 7).

The Partnership determined the Term TOB Trusts are VIEs and the Partnership is the primary beneficiary. In determining the primary beneficiary of these specific VIEs, the Partnership 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 Term TOB Trust agreements stipulate the Partnership has the sole right to cause the TOB Trusts to sell the underlying assets through its ownership of the Class B 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 Partnership, which results in the Partnership being identified as the primary beneficiary. As such, the Partnership reports the Term TOB Trusts as consolidated VIEs. The Partnership reports the Class A Certificates related to the Term TOB Trusts as secured debt financings on the consolidated balance sheets (Note 17). The mortgage revenue bonds secured by the Term TOB Trusts are reported as assets on the consolidated balance sheets (Note 6).

The Partnership determined the Term A/B Trust are VIEs and the Partnership is the primary beneficiary. In determining the primary beneficiary of these specific VIEs, the Partnership 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 Term A/B Trust agreements stipulate the Partnership has the sole right to cause the Term A/B Trusts to sell the underlying assets. If they were sold, the extent to which the VIEs will be exposed to gains or losses would result from decisions made by the Partnership, which results in the Partnership being identified as the primary beneficiary. As such, the Partnership reports the Term A/B Trusts as consolidated VIEs. The Partnership reports the Class A certificates related to the Term A/B Trusts as secured debt financings on the consolidated balance sheets (Note 17). The mortgage revenue bonds secured by the Term A/B Trusts are reported as assets on the consolidated balance sheets (Notes 6).

The Partnership determined the TEBS Financings are VIEs and the Partnership is the primary beneficiary. In determining the primary beneficiary of these specific VIEs, the Partnership 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 TEBS Financing agreements stipulate the Partnership has the sole right to cause the TEBS Financings to sell the underlying assets. If they were sold, the extent to which the VIEs will be exposed to gains or losses would result from decisions made by the Partnership, which results in the Partnership being identified as the primary beneficiary. As such, the Partnership reports the TEBS Financings as consolidated VIEs. The Partnership reports the Class A certificates related to the TEBS Financings as secured debt financings on the consolidated balance sheets (Note 17). The mortgage revenue bonds secured by the TEBS Financings are reported as assets on the consolidated balance sheets (Notes 6).

Non-Consolidated VIEs

The Partnership has variable interests in certain other entities that have been determined to be VIEs, but for which the Partnership is not the primary beneficiary. The Partnership does not consolidate the financial statements of these entities.

The Partnership has variable interests in certain entities that are the borrowers on the Partnership’s mortgage revenue bonds. The Partnership has no equity ownership interest in the entities, but the mortgage revenue bonds owned by the Partnership are considered variable interests. The entities are not consolidated as VIEs because the Partnership does not have the power to direct the activities that most significantly impact the economic performance of the entities.

The Partnership has variable interests in certain entities through the property loans issued to the property owners. The Partnership has no equity ownership interest in the entities, but the property loans issued by the Partnership are considered variable interests. The entities are not consolidated as VIEs because the Partnership does not have the power to direct the activities that most significantly impact the economic performance of the entities.

The Partnership’s investments in unconsolidated entities are considered variable interests in the unconsolidated entities. The entities are not consolidated as VIEs because the Partnership does not have the power to direct the activities that most significantly impact the economic performance of the entities.

The Partnership held variable interest in 20 and 15 non-consolidated VIEs at December 31, 2016 and 2015, respectively. The following table summarizes the Partnerships variable interests in these entities at December 31, 2016 and 2015:

	Maximum Exposure to Loss
	December 31, 2016		December 31, 2015
Mortgage revenue bonds	$	137,921,000	$	103,483,793
Property loans		16,476,073		19,464,977
Investment in unconsolidated entities		19,470,006		-
	$	173,867,079	$	122,948,770

The maximum exposure to loss for the mortgage revenue bonds is equal to the cost adjusted for paydowns at December 31, 2016 and 2015. The difference between the mortgage revenue bond’s carrying value and the maximum exposure to loss is a function of the unrealized gains or losses on the mortgage revenue bonds.

The maximum exposure to loss on the property loans at December 31, 2016 and 2015 is equal to the unpaid principal balance plus accrued interest. The difference between the property loans’ carrying value and the maximum exposure is the value of loan loss allowances that have been previously recorded against the property loans.