##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-K/A AMENDMENT NO. 1
 (Mark One)  þ
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2004 or  o
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from            to Commission File Number: 000-49986 AMERICA FIRST APARTMENT INVESTORS, INC.  Maryland
    
    47-0858301(State or other jurisdiction
    
    (I.R.S. Employerof incorporation or organization)
    
    Identification No.)
 1004 Farnam Street, Suite 100 Omaha, Nebraska
    
    68102(Address of principal executive offices)
    
    (Zip Code)
 (402) 444-1630
(Registrants telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par Value Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES þ
    
    NO o
 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405 of the chapter) is not contained herein, and will not be contained, to
the best of the registrants knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Act). YES þ
    
    NO o
 The aggregate market value of the registrants common stock held by non-affiliates
based on the final sales price of the shares on the last business day of the registrants most
recently completed second fiscal quarter was $110,677,286. As of March 10, 2005, there were 10,510,558 outstanding shares of the registrants common
stock. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Companys Proxy Statement pertaining to its 2005 Annual Shareholders Meeting are
incorporated herein by reference into Part III.




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TABLE OF CONTENTS  PART IVItem 15. Exhibits, Financial Statement SchedulesSIGNATURESConsent of Independent Registered Public Accounting FirmConsent of Independent Registered Public Accounting FirmCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906    Table of Contents  Explanatory Note This Amendment No. 1 on Form 10-K/A (the Amendment) amends the Annual Report on Form 10-K of
America First Apartment Investors, Inc. (the Company) for the year ended December 31, 2004 which
was filed on March 21, 2005 (the Original Report). This Amendment is being filed in order to
reflect the correct date of KPMG LLPs audit opinion included in Item 15 of the Original Report.
This Amendment does not amend the Companys audited financial statements or any other
information contained in the originally filed 10-K except for this item. 
 PART IV 
 Item 15. Exhibits, Financial Statement Schedules.  (a)
    The following documents are filed as part of this report:  1.
    Financial Statements. The following financial statements of the
Company are included in response to Item 8 of this report: Reports of Independent Registered Public Accounting Firms. Consolidated Balance Sheets of the Company and Subsidiaries as of December 31,
2004 and 2003. Consolidated Statements of Income and Comprehensive Income of the Company and
Subsidiaries for the years ended December 31, 2004 and 2003 and of the
Partnership and Subsidiaries for the year ended December 31, 2002. Consolidated Statements of Stockholders Equity of the Company and Subsidiaries
for the years ended December 31, 2004 and 2003, and Consolidated Statement of
Partners Capital of the Partnership and Subsidiaries for the year ended
December 31, 2002. Consolidated Statements of Cash Flows of the Company and Subsidiaries for the
years ended December 31, 2004 and 2003, and Consolidated Statement of Cash
Flows of the Partnership and Subsidiaries for the year ended December 31, 2002. Notes to Consolidated Financial Statements of the Company and Subsidiaries, and
Notes to Consolidated Financial Statements of the Partnership and Subsidiaries.  2.
    Financial Statement Schedules. The information required to be set
forth in the financial statement schedule is included in Schedule III  Real
Estate and Accumulated Depreciation as of December 31, 2004 filed in response to
Item 8 of this report.3.
    Exhibits. The following exhibits were filed as required by Item
15(a)(3) of this report. Exhibit numbers refer to the paragraph numbers under
Item 601 of Regulation S-K: 2.1 Agreement and Plan of Merger, dated November 25, 2003, between the Company
and America First Real Estate Investment Partners, L.P. and Amendment to Agreement and
Plan of Merger, dated February 10, 2004 (incorporated by reference to Exhibit 2.1 to
Amendment No. 2 to the Companys Registration Statement on Form S-4 (Commission File No.
333-111036) filed by the Company on February 25, 2004).




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2.2 Agreement and Plan of Merger, dated June 18, 2002, between the Company and
America First Apartment Investors, L.P. (incorporated by reference to Exhibit 2.1 to
the Companys Registration Statement on Form S-4 (Commission File No. 333-90690) filed
by the Company on June 18, 2002). 3.1 Articles of Incorporation of the Company (incorporated by reference to
Exhibit 3.1 to the Companys Registration Statement on Form S-4 (Commission File No.
333-90690) filed by the Company on June 18, 2002). 3.2 Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the
Companys Registration Statement on Form S-4 (Commission File No. 333-90690) filed by
the Company on August 1, 2002). 4.1 Specimen of Common Stock Certificate of the Company (incorporated by
reference to Exhibit 4.1 to the Companys Registration Statement on Form S-4
(Commission File No. 333-90690) filed by the Company on June 18, 2002). 10.1 Second Amended and Restated Advisory Agreement, dated June 3, 2004, between
the Company and America First Apartment Advisory Corporation (incorporated by
reference to Exhibit 10.1 to the Companys Form 10-Q (Commission File No. 000-49986)
filed by the Company on August 16, 2004). 10.2 The Companys 2002 Stock Option Plan (incorporated by reference to Exhibit
10.2 to the Companys Registration Statement on Form S-4 (Commission File No.
333-90690) filed by the Company on June 18, 2002). 10.3 $12,410,000 Promissory Note, dated December 11, 1997, from Park Trace
Apartments Limited Company to the City of Aurora, Illinois (The Covey at Fox Valley
Apartment Project) Series 1997 (incorporated herein by reference to Form 10-K dated
December 31, 1997 filed pursuant to Section 13 or 15(d) of Securities Exchange Act of
1934 by America First Apartment Investors, L.P. (Commission File No. 0-20737)). 10.4 Loan Agreement, dated December 1, 1997, between Park Trace Apartments
Limited Company and City of Aurora, Illinois (The Covey at Fox Valley Apartment Project)
Series 1997 (incorporated herein by reference to Form 10-K dated December 31, 1997
filed pursuant to Section 13 or 15(d) of Securities Exchange Act of 1934 by America
First Apartment Investors, L.P. (Commission File No. 0-20737)). 10.5 Indenture of Trust, dated December 1, 1997, between City Aurora, Illinois
and UMB Bank National Association (The Covey at Fox Valley Apartment Project) Series 1997
(incorporated herein by reference to Form 10-K dated December 31, 1997 filed pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934 by America First
Apartment Investors, L.P. (Commission File No. 0-20737)). 10.6 $1,385,000 Promissory Note, dated April 2, 1998, from Arizona Coral Point
Apartments Limited Company to The Industrial Development Authority of the County of
Maricopa (Coral Point Apartments Project) Series 1998A and 1998B (incorporated herein
by reference to Form 10-Q dated June 30, 1998 filed pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 by America First Apartment Investors, L.P.
(Commission File No. 0-20737)).




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10.7 $11,705,000 Promissory Note, dated April 2, 1998, from Arizona Coral Point
Apartments Limited Company to The Industrial Development Authority of the County of
Maricopa (Coral Point Apartments Project) Series 1998A and 1998B (incorporated herein
by reference to Form 10-Q dated June 30, 1998 filed pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 by America First Apartment Investors, L.P.
(Commission File No. 0-20737)). 10.8 Loan Agreement, dated March 1, 1998, between The Industrial Development
Authority of the County of Maricopa and Arizona Coral Point Apartments Limited Company
(Coral Point Apartments Project) Series 1998A and 1998B (incorporated herein by
reference to Form 10-Q dated June 30, 1998 filed pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 by America First Apartment Investors, L.P.
(Commission File No. 0-20737)). 10.9 Indenture of Trust, dated March 1, 1998, between The Industrial
Development Authority of the County of Maricopa and UMB Bank, N.A. (Coral Point Apartments
Project) Series 1998A and 1998B (incorporated herein by reference to Form 10-Q dated
June 30, 1998 filed pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 by America First Apartment Investors, L.P. (Commission File No. 0-20737)). 10.10 Agreement of Purchase and Sale by and between the Company and Gables Realty
Limited Partnership, a Delaware limited partnership, and Gables GP, Inc., a Texas
corporation (incorporated herein by reference to Form 10-Q dated September 30, 2004
filed pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 by
America First Apartment Investors, Inc. (Commission File No. 000-49986)). 10.11 Asset Purchase Agreement by and between America First PM Group, Inc.,
America First Properties Management Company, L.L.C. and America First Companies,
L.L.C., dated November 8, 2004 (incorporated by reference to Form 10-K dated December
31, 2004 filed pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
by America First Apartment Investors, Inc. (Commission File No. 000-49986)). 21. Subsidiaries of the Company (incorporated by reference to Form 10-K dated
December 31, 2004 filed pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 by America First Apartment Investors, Inc. (Commission File No. 000-49986)). 23.1 Consent of Independent Registered Public Accounting Firm 23.2 Consent of Independent Registered Public Accounting Firm 24. Powers of Attorney (incorporated by reference to Form 10-K dated December 31,
2004 filed pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 by
America First Apartment Investors, Inc. (Commission File No. 000-49986)) 31.1 Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. 31.2 Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. 32.1 Certification of CEO pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. 32.2 Certification of CFO pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of
America First Apartment Investors, Inc. We have audited the accompanying consolidated balance sheet of America First Apartment
Investors, Inc. and subsidiaries (the Company) as of December 31, 2004, and the related
consolidated statements of operations and comprehensive income (loss), stockholders equity, and
cash flows for the year then ended. Our audit also included the financial statement schedule
listed in the Index at Item 15 for the year ended December 31, 2004. These financial statements
and financial statement schedule are the responsibility of the Companys management. Our
responsibility is to express an opinion on the financial statements and financial statement
schedule based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a reasonable basis for our
opinion. In our opinion, such consolidated financial statements present fairly, in all material
respects, the financial position of America First Apartment Investors, Inc. and subsidiaries as of
December 31, 2004, and the results of their operations and their cash flows for the year then
ended, in conformity with accounting principles generally accepted in the United States of America.
Also, in our opinion, such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all material respects, the
information set forth therein. We have also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of the Companys internal control over financial
reporting as of December 31, 2004, based on the criteria established in Internal ControlIntegrated
Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated March 21, 2005 expressed an unqualified opinion on managements assessment of the
effectiveness of the Companys internal control over financial reporting and an unqualified opinion
on the effectiveness of the Companys internal control over financial reporting. /s/ DELOITTE & TOUCHE LLP Omaha, Nebraska
March 21, 2005




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Report of Independent Registered Public Accounting Firm To the Shareholders
America First Apartment Investors, Inc: We have audited the accompanying consolidated balance sheet of America First Apartment Investors,
Inc. and subsidiaries as of December 31, 2003, and the related consolidated statements of income
and comprehensive income, stockholders equity, and cash flows for the year ended December 31,
2003, and the consolidated statements of income and comprehensive income, partners capital, and
cash flows of America First Apartment Investors, L.P. and subsidiaries for the year ended December
31, 2002. These consolidated financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these consolidated financial statements
based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of America First Apartment Investors, Inc. and
subsidiaries as of December 31, 2003 and the results of their operations and their cash flows for
the year ended December 31, 2003 and the results of operations and cash flows of America First
Apartment Investors, L.P. and subsidiaries for the year ended December 31, 2002 in conformity with
U.S. generally accepted accounting principles. /s/ KPMG LLP Omaha, Nebraska
March 15, 2004




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AMERICA FIRST APARTMENT INVESTORS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts) December 31,
    
    
    December 31,2004
    
    
    2003AssetsCash and cash equivalents
    
    $
    10,634
    
    
    $
    6,918Restricted cash
    
    
    8,039
    
    
    
    3,717Real estate assets:Land
    
    
    37,270
    
    
    
    18,541Buildings
    
    
    245,798
    
    
    
    132,050Total
    
    
    283,068
    
    
    
    150,591Less: accumulated depreciation
    
    
    (42,567
    )
    
    
    (35,693
    )Real estate assets, net
    
    
    240,501
    
    
    
    114,898Investments in agency securities, at
fair value
    
    
    26,192
    
    
    
    36,027Investments in corporate equity
securities, at fair value
    
    
    4,321
    
    
    
    2,179In-place lease intangibles, net of
accumulated amortization of
$2,797
    
    
    2,572
    
    
    
    Other assets
    
    
    5,138
    
    
    
    3,153Total Assets
    
    $
    297,397
    
    
    $
    166,892LiabilitiesAccounts payable and accrued expenses
    
    $
    7,039
    
    
    $
    3,036Dividends payable
    
    
    2,628
    
    
    
    1,269Notes payable
    
    
    2,413
    
    
    
    Bonds and mortgage notes payable
    
    
    167,150
    
    
    
    82,215Borrowings under repurchase agreements
    
    
    27,875
    
    
    
    33,012Total liabilities
    
    
    207,105
    
    
    
    119,532Commitments and ContingenciesStockholders Equity
Common stock, $.01 par value;
500,000,000 shares
authorized, 10,510,558 and 5,074,897
issued and
outstanding
    
    
    105
    
    
    
    51Additional paid-in capital
    
    
    102,766
    
    
    
    47,418Accumulated deficit
    
    
    (12,628
    )
    
    
    (714
    )Accumulated other comprehensive income
    
    
    49
    
    
    
    605Total stockholders equity
    
    
    90,292
    
    
    
    47,360Total Liabilities and Stockholders Equity
    
    $
    297,397
    
    
    $
    166,892
 The accompanying notes are an integral part of the consolidated financial statements.




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AMERICA FIRST APARTMENT INVESTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share amounts) For the Year Ended December 31,2004
    
    
    2003
    
    
    2002Rental income
    
    $
    35,319
    
    
    $
    24,123
    
    
    $
    24,862Real estate operating expenses
    
    
    (19,879
    )
    
    
    (13,022
    )
    
    
    (12,867
    )Depreciation expense
    
    
    (6,891
    )
    
    
    (5,001
    )
    
    
    (4,964
    )Real estate operating margin
    
    
    8,549
    
    
    
    6,100
    
    
    
    7,031Other incomeInterest income on cash and cash equivalents and agency
securities and dividend income
    
    
    770
    
    
    
    331
    
    
    
    317Gain on Jefferson Place subordinate note
    
    
    
    
    
    
    4,444
    
    
    
    Gain on sales of corporate equity securities
    
    
    212
    
    
    
    
    
    
    
    Other income
    
    
    982
    
    
    
    4,775
    
    
    
    317Other expensesInterest expense
    
    
    5,699
    
    
    
    4,316
    
    
    
    4,324General and administrative expenses
    
    
    3,997
    
    
    
    1,910
    
    
    
    1,773Amortization expense  in-place lease intangibles
    
    
    2,466
    
    
    
    
    
    
    
    Amortization expense  debt financing costs
    
    
    253
    
    
    
    288
    
    
    
    261Property management internalization expense
    
    
    5,911
    
    
    
    
    
    
    
    Other expenses
    
    
    18,326
    
    
    
    6,514
    
    
    
    6,358Income (loss) from continuing operations
    
    
    (8,795
    )
    
    
    4,361
    
    
    
    990Income from discontinued operations (including
gain on sale of $5,973)
    
    
    6,030
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    (2,765
    )
    
    $
    4,361
    
    
    $
    990Other comprehensive income (loss):Unrealized holding gains (losses) arising during
the period on securities
    
    
    (556
    )
    
    
    615
    
    
    
    (15
    )Comprehensive income (loss)
    
    $
    (3,321
    )
    
    $
    4,976
    
    
    $
    975Income (loss) from continuing operations, basic and diluted,
per share (per BUC in 2002)
    
    $
    (1.07
    )
    
    $
    0.86
    
    
    $
    0.19Income from discontinued operations, basic and diluted,
per share (per BUC in 2002)
    
    $
    0.73
    
    
    $
    
    
    
    $
    Net income (loss), basic and diluted, per share
(per BUC in 2002)
    
    $
    (0.34
    )
    
    $
    0.86
    
    
    $
    0.19Dividends (distributions in 2002) declared per share
(per BUC in 2002)
    
    $
    1.00
    
    
    $
    1.00
    
    
    $
    1.00Weighted average number of shares outstanding -
basic (BUCs in 2002)
    
    
    8,243
    
    
    $
    5,074
    
    
    
    5,023Weighted average number of shares outstanding -
diluted (BUCs in 2002)
    
    
    8,243
    
    
    $
    5,076
    
    
    
    5,023
   (1)
    
    Net income from continuting operations and net income allocated to the general partner and the BUC holders was $60 and $930, respectively for the year ended December 31, 2002. The accompanying notes are an integral part of the consolidated financial
statements.




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AMERICA FIRST APARTMENT INVESTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND PARTNERS CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(in thousands) Distributions
    
    
    AccumulatedAdditional
    
    
    in Excess of
    
    
    OtherGeneral
    
    
    BUC
    
    
    Common
    
    
    Common
    
    
    Paid-In
    
    
    Accumulated
    
    
    ComprehensivePartner
    
    
    holders
    
    
    Shares
    
    
    Stock
    
    
    Capital
    
    
    Earnings
    
    
    Income (Loss)
    
    
    TotalBalance, January 1, 2002
    
    $
    89
    
    
    $
    51,420
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    51,509Net income
    
    
    59
    
    
    
    931
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    990Distributions paid or accrued
    
    
    (51
    )
    
    
    (5,024
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,075
    )Change in net unrealized
holding gains
    
    
    
    
    
    
    (15
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15
    )Balance, December 31, 2002
    
    
    97
    
    
    
    47,312
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    47,409Issuance of shares of the
Company in exchange for
BUCs and the General
Partner interest of the
Partnership
    
    
    (97
    )
    
    
    (47,312
    )
    
    
    5,074
    
    
    
    51
    
    
    
    47,368
    
    
    
    
    
    
    
    (10
    )
    
    
    Issuance of common stock
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    12Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,361
    
    
    
    
    
    
    
    4,361Stock option compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38
    
    
    
    
    
    
    
    
    
    
    
    38Change in net unrealized
holding gains
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    615
    
    
    
    615Dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,075
    )
    
    
    
    
    
    
    (5,075
    )Balance, December 31, 2003
    
    
    
    
    
    
    
    
    
    
    5,075
    
    
    
    51
    
    
    
    47,418
    
    
    
    (714
    )
    
    
    605
    
    
    
    47,360Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,765
    )
    
    
    
    
    
    
    (2,765
    )Issuance of common stock
    
    
    
    
    
    
    
    
    
    
    5,436
    
    
    
    54
    
    
    
    55,327
    
    
    
    
    
    
    
    
    
    
    
    55,381Stock option compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21
    
    
    
    
    
    
    
    
    
    
    
    21Change in net unrealized
holding losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (556
    )
    
    
    (556
    )Dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,149
    )
    
    
    
    
    
    
    (9,149
    )Balance, December 31, 2004
    
    $
    
    
    
    $
    
    
    
    
    10,511
    
    
    $
    105
    
    
    $
    102,766
    
    
    $
    (12,628
    )
    
    $
    49
    
    
    $
    90,292
 The accompanying notes are an integral part of the consolidated financial statements.




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AMERICA FIRST APARTMENT INVESTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) For the Year Ended December 31,2004
    
    
    2003
    
    
    2002Cash flows from operating activitiesNet income (loss)
    
    $
    (2,765
    )
    
    $
    4,361
    
    
    $
    990Adjustments to reconcile net income (loss) to net cash
provided by operating activitiesDepreciation
    
    
    7,122
    
    
    
    5,001
    
    
    
    4,964Gain on sales of corporate equity securities
    
    
    (212
    )
    
    
    Gain on sale of discontinued operations
    
    
    (5,973
    )
    
    
    Property management internalization expense
    
    
    5,911Gain on Jefferson Place subordinate note
    
    
    
    
    
    
    (4,444
    )Change in fair value of interest rate swap agreements
    
    
    (273
    )
    
    
    11
    
    
    
    (6
    )Amortization of debt financing costs and in-place lease intangibles
    
    
    3,069
    
    
    
    288
    
    
    
    261Amortization of premium on mortgage-backed securities
    
    
    252
    
    
    
    4
    
    
    
    Non-cash stock option compensation
    
    
    21
    
    
    
    38
    
    
    
    Changes in assets and liabilities, net of acquisitions:(Increase) decrease in restricted cash
    
    
    263
    
    
    
    529
    
    
    
    (172
    )(Increase) decrease in other assets
    
    
    387
    
    
    
    (422
    )
    
    
    (752
    )Increase (decrease) in accounts payable and accrued expenses
    
    
    704
    
    
    
    (139
    )
    
    
    (6
    )Net cash provided by operating activities
    
    
    8,506
    
    
    
    5,227
    
    
    
    5,279Cash flows from investing activitiesReal estate capital improvements
    
    
    (1,172
    )
    
    
    (409
    )
    
    
    (663
    )Purchase of agency securities
    
    
    (1,565
    )
    
    
    (36,114
    )
    
    
    Principal received on agency securities
    
    
    11,004
    
    
    
    187
    
    
    
    Acquisition of real estate
    
    
    (4,645
    )
    
    
    
    
    
    
    Proceeds from the sale of real estate
    
    
    11,076
    
    
    
    
    
    
    
    Purchase of corporate equity securities
    
    
    
    
    
    
    
    
    
    
    (1,478
    )Proceeds from the sale of corporate equity securities
    
    
    3,876
    
    
    
    
    
    
    
    Purchase of property management assets
    
    
    (6,898
    )Acquisition of America First Real Estate Investment Partners, L.P.
    
    
    (3,963
    )
    
    
    
    
    
    
    Cash received in acquisition of America First Real Estate Investment
Partners, L.P.
    
    
    8,400
    
    
    
    
    
    
    
    Net proceeds from repayment of Jefferson Place subordinate note
    
    
    
    
    
    
    2,356
    
    
    
    Net cash provided by (used in) investing activities
    
    
    16,113
    
    
    
    (33,980
    )
    
    
    (2,141
    )Cash flows from financing activitiesDividends (distributions in 2002) paid
    
    
    (7,790
    )
    
    
    (5,074
    )
    
    
    (5,010
    )Principal payments on bonds and mortgage notes payable
    
    
    (1,044
    )
    
    
    (698
    )
    
    
    (656
    )Proceeds from borrowings under repurchase agreements
    
    
    
    
    
    
    33,012
    
    
    
    Principal payments on borrowings under repurchase agreements
    
    
    (12,111
    )
    
    
    
    
    
    
    Issuance of common stock
    
    
    44
    
    
    
    11
    
    
    
    Net cash provided by (used in) financing activities
    
    
    (20,903
    )
    
    
    27,251
    
    
    
    (5,666
    )Net increase (decrease) in cash and cash equivalents
    
    
    3,716
    
    
    
    (1,502
    )
    
    
    (2,528
    )Cash and cash equivalents at beginning of year
    
    
    6,918
    
    
    
    8,420
    
    
    
    10,948Cash and cash equivalents at end of year
    
    $
    10,634
    
    
    $
    6,918
    
    
    $
    8,420Supplemental disclosure of cash flow information:Cash paid during the year for interest
    
    $
    4,882
    
    
    $
    4,669
    
    
    $
    4,356Dividends declared but not paid
    
    
    2,628
    
    
    
    1,269
    
    
    
    1,268Noncash investing and financing activities :Relinquishment of debt in connection with the property disposition
    
    
    8,775
    
    
    
    
    
    
    
    Issuance of shares for AFREZ merger
    
    
    55,338
    
    
    
    
    
    
    
    Assumption of debt in connection with property acquisition
    
    $
    26,150
    
    
    $
    
    
    
    $
    
 The accompanying notes are an integral part of the consolidated financial
statements.




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##### Table of Contents



AMERICA FIRST APARTMENT INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization America First Apartment Investors, Inc. (the Company) is a Maryland corporation which owns and
operates 29 multifamily apartment projects and an office warehouse facility. The Company also
invests in mortgage-backed securities and other real estate assets. The Company is treated as a Real Estate Investment Trust (REIT) for Federal income tax purposes.
As a REIT, the Company is generally not subject to Federal income taxes on distributed income. To
maintain qualification as a REIT, the Company must meet a number of organizational and operational
requirements, including a requirement to distribute at least 90% of the REITs ordinary taxable
income to shareholders. The Company is the successor in interest to America First Apartment Investors, L.P. (the
Partnership) which merged with and into the Company as of January 1, 2003. Prior to that time
the Company had no material assets or business operations. As a result of this merger, the Company
assumed the assets, liabilities and business operations of the Partnership. Accordingly, all
operations and financial results of the Company described in its consolidated financial statements
and the notes thereto for periods prior to January 1, 2003 are those of the Partnership. In
addition, on June 3, 2004, America First Real Estate Investment Partners, L.P. (AFREZ) merged
with and into the Company as more fully described in Note 3. As a result of this merger, the
Company acquired the assets, assumed the liabilities and business operations of AFREZ. 2. Summary of Significant Accounting Policies  A)
    Financial Statement PresentationThe consolidated financial statements include the accounts of the Company and its
subsidiaries. All significant intercompany transactions and accounts have been eliminated in
consolidation.The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ
from those estimates.B)
    Cash and Cash EquivalentsCash and cash equivalents include highly liquid investments with maturities of three months
or less when purchased.C)
    Restricted CashRestricted cash, which is legally restricted to use, is comprised of resident security
deposits, required maintenance reserves, escrowed funds and collateral for various interest
rate swap agreements.




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AMERICA FIRST APARTMENT INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  D)
    Investment in Agency Securities and Corporate Equity SecuritiesThe Company accounts for its investments in securities in accordance with Statement of
Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity
Securities(SFAS 115), and has classified its investments in securities as
available-for-sale.Securities are carried at fair market value, with unrealized gains and losses reported in
stockholders equity as a component of other comprehensive income. Fair value is determined
by reference to broker quotes.Premiums paid to acquire mortgage-based securities are amortized using the effective yield
method over the life of the related mortgage pool.Security transactions are recorded on the trade date and realized gains or losses on security
sales are based upon the specific identification method.Interest income is recorded as earned and dividend income is recorded on the ex-dividend
date.E)
    Investment in Real EstateThe Companys investment in real estate is carried at cost less accumulated depreciation.
Depreciation of real estate is based on the estimated useful life of the related asset,
generally 27-1/2  40 years on multifamily residential apartment buildings and 31-1/2 years
on commercial buildings and five to fifteen years on capital improvements and is calculated
using the straight-line method. Depreciation of capital improvements on the Companys
commercial property is based on the term of the related tenant lease using the straight-line
method. Maintenance and repairs are charged to expense as incurred, while significant
improvements, renovations and replacements are capitalized.Management reviews each property for impairment at least annually and whenever events or
changes in circumstances indicate that the carrying value of a property may not be
recoverable. The review of recoverability is based upon comparing the carrying value of each
real estate property to the sum of its estimated undiscounted future cash flows. If
impairment exists due to the inability to recover the carrying value of a property, an
impairment loss is recorded to the extent that the carrying value of the property exceeds its
estimated fair value. There were no impairment losses incurred and/or recorded in any of the
years ended December 31, 2004, 2003 and 2002.The Company allocates the purchase price of property acquisitions to the acquired tangible
assets, including land, buildings and identifiable assets based on the fair value of the
those assets and liabilities. Identifiable intangible assets include the value of in-place
leases.The fair value of the tangible assets is determined based on the assumptions that the
building is vacant. In-place lease intangibles arise as a result of the allocation of the
total acquisition costs whereby the Company allocates a portion of the total acquisition cost
of a property acquired to leases in existence as of the date of acquisition. The estimated
valuation of in-place leases is calculated by applying a risk-adjusted discount rate to the
projected cash flow realized at each property during the estimated lease-up period it would
take to lease these properties. This allocated cost is amortized over the average remaining
term of the leases (approximately twelve months).




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AMERICA FIRST APARTMENT INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  F)
    Debt Financing CostsDebt financing costs are capitalized and amortized on a straight-line basis over the stated
life of the term of the related debt which approximates the effective yield method. Debt
financing costs of approximately $769,000 and $998,000 are included in Other assets on the
Companys Consolidated Balance Sheets as of December 31, 2004 and 2003, respectively. These
costs are net of accumulated amortization of $1.5 million and $1.4 million as of December 31,
2004 and 2003, respectively.G)
    Borrowings under Repurchase AgreementsThe Company finances the acquisition of its Agency Securities through the use of repurchase
agreements. Under these repurchase agreements, the Company sells securities to a lender and
agrees to repurchase the same or similar securities in the future for a price that is higher
than the original sales price. The difference between the sales price that the Company
receives and the repurchase price that the Company pays represents interest paid to the
lender. Although structured as a sale and repurchase obligation, a repurchase agreement
operates as a financing under which the Company pledges its securities as collateral to
secure a loan which is equal in value to a specified percentage of the estimated fair value
of the pledged collateral. The Company retains beneficial ownership of the pledged
collateral. At the maturity of the repurchase agreement, the Company is required to repay the
loan and concurrently
receives back its pledged collateral from the lender or, with the consent of the lender, the
Company may renew such agreement at the then prevailing financing rate. These repurchase
agreements may require the Company to pledge additional assets to the lender in the event the
estimated fair value of the existing pledged collateral declines.H)
    Revenue Recognition on Investment in Real EstateThe Company leases multifamily rental units under operating leases with terms of one year or
less. Rental revenue is recognized, net of rental concessions, on a straight-line method over
the related lease term. Rental income on commercial property is recognized on a straight-line
basis over the term of each operating lease.I)
    Income TaxesThe Company operates as, and has elected to be taxed as, a REIT under the Internal Revenue
Code. To qualify as a REIT, the Company must meet a number of organizational and operational
requirements, including a requirement to distribute at least 90% of adjusted taxable income
to common shareholders. The Company intends to adhere to these requirements and maintain the
REIT status. As a REIT, the Company is generally not subject to corporate level federal or
state income tax on taxable income distributed currently to shareholders. If the Company
fails to qualify as a REIT in any taxable year, it will be subject to federal and state
income taxes at regular corporate rates (including any applicable alternative minimum tax)
and may not be able to qualify as a REIT for four subsequent taxable years. Even though the
Company qualifies for taxation as a REIT, it may be subject to certain state and local taxes
on income and property, and to federal income and excise taxes on undistributed taxable
income.Taxable income differs from income for financial statement purposes, primarily due to
differences for tax purposes in the estimated useful lives and methods used to compute
depreciation and the carrying value (basis) of the investment in properties. The following
table reconciles income (loss) as reflected in our financial statements to REIT taxable
income for 2004 and 2003 (in thousands):




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AMERICA FIRST APARTMENT INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2004
    
    
    2003Net income (loss) per financial statements
    
    $
    (2,765
    )
    
    $
    4,361Reconciling items:Add differences in deductions for depreciation
and amortization
    
    
    2,550
    
    
    
    131Add (less) basis difference for assets
acquired or disposed
    
    
    5,587
    
    
    
    (1,706
    )Less tax exempt interest income
    
    
    
    
    
    
    (2,740
    )Other book/tax differences (net)
    
    
    (166
    )
    
    
    12Taxable income subject to the dividend requirement
    
    
    5,206
    
    
    
    58Minimum dividend required (90% of taxable income)
    
    $
    4,685
    
    
    $
    52
 The actual tax deduction for dividends taken, and the taxability of dividends to
shareholders, is based on a measurement of earnings and profits as defined by the Internal
Revenue Code. Earnings and profits differ from regular taxable income, primarily due to
further differences in the estimated useful lives and methods used to compute depreciation.
The following table reconciles the dividends paid deduction taken by the Company (the portion
of dividends paid that are taxable as ordinary income to shareholders) on its tax returns to
cash dividends paid (in thousands): 2004
    
    
    2003Common dividends paid:Ordinary dividends
    
    $
    7,246
    
    
    $
    3,806Return of capital
    
    
    544
    
    
    
    Total dividends paid
    
    $
    7,790
    
    
    $
    3,806
  J)
    Discontinued OperationsUnder SFAS No. 144, Accounting for Impairment or Disposal of Long-Lived Assets,the results
of operations for properties sold during the period or classified as held for sale at the end
of the current period are required to be classified as discontinued operations in the current
and prior periods. The property-specific components of net earnings that are classified as
discontinued operations include rental revenue, rental expense, real estate tax, depreciation
expense and interest expense. The net gain or loss on the eventual disposal of the held for
sale properties is also required to be classified as discontinued operations.K)
    Net Income (Loss) per share (per BUC in 2002)Net income per share or BUC is based on the weighted average number of shares or BUCs
outstanding during each year presented. Diluted net income per share includes shares issuable
upon exercise of outstanding stock options where the conversion of such instruments would be
dilutive. The Partnership did not issue options to acquire BUCs.




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##### Table of Contents



AMERICA FIRST APARTMENT INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  L)
    Derivative Instruments and Hedging ActivitiesThe Company accounts for its derivative and hedging activities in accordance with SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 requires the
recognition of all derivative instruments as assets or liabilities in the Companys
Consolidated Balance Sheets and measurement of these instruments at fair value. The
accounting treatment is dependent upon whether or not a derivative instrument is designated
as a hedge and, if so, the type of hedge. The change in fair value of freestanding derivative
instruments is recognized in earnings in the absence of a specific hedge designation. The
Company is exposed to loss should a counterparty to its derivative instruments default,
however, the Company does not anticipate any defaults.The Company has entered into interest rate swap and cap agreements, as described in Note 16,
to manage its exposure to changes in interest rates. Such interest rate swap and cap
agreements do not have a specific hedge designation under SFAS No. 133, and therefore the
change in fair value is recognized in earnings. The fair value of the interest rate swap and
cap agreements are determined based upon current fair values as quoted by recognized dealers.M)
    ReclassificationsCertain amounts from the prior year have been reclassified to conform with the current year
presentation. 3. Merger On May 26, 2004, the shareholders of the Company approved a merger with America First Real Estate
Investment Partners, L.P. (AFREZ), pursuant to the Agreement and Plan of Merger entered into by
the Company and AFREZ on November 25, 2003 (the Merger Agreement). The merger became effective on
June 3, 2004. As a result of the merger, AFREZ was merged with and into the Company. The Company
was the surviving entity and assumed all of the assets, liabilities and business operations of
AFREZ, including 14 multifamily apartment properties containing 2,783 rental units located in
Arizona, Florida, Illinois, Michigan, North Carolina, Ohio, Tennessee and Virginia. The Company issued shares of its common stock and paid cash to the holders of the limited partner
and general partner interests in AFREZ upon consummation of the merger. Each Unit representing an
assigned limited partnership interest in AFREZ as of the date of the merger was converted into the
right to receive 0.7910 shares of the common stock of the Company and a cash payment of $0.39 per
Unit. Fractional shares were rounded up or down to the nearest whole number. A total of 5,376,353
shares of the common stock of the Company were issued to Unit holders in connection with the merger
plus a cash payment of $2.7 million. The general partners 1% interest in AFREZ was converted into
54,308 shares of the common stock of the Company plus a cash payment of $27,000. Pursuant to SFAS No. 141, Business Combinations, the Company allocates a portion of the total
acquisition cost of a property acquired to leases in existence as of the date of acquisition. The
estimated valuation of in-place leases is calculated by applying a risk-adjusted discount rate to
the projected cash flow deficit at each property during the lease-up of these properties. This
allocated cost is amortized over the average remaining term of the leases (approximately twelve
months). The following table summarizes the estimated fair value of AFREZ assets acquired and liabilities
assumed at the date of the merger and the total value of the merger consideration. The following
purchase price allocations have been preliminarily calculated as of June 1, 2004 and may change for
up to one year subsequent to the




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##### Table of Contents



AMERICA FIRST APARTMENT INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS acquisition date pending the Companys review and valuation procedures of the assets acquired
and the liabilities assumed (in thousands): Cash and cash equivalentsUnrestricted
    
    $
    8,400Restricted
    
    
    3,616Investments in mortgage-backed securities
    
    
    97Investments in corporate equity securities
    
    
    5,973Investments in real estate
    
    
    115,856In-place lease intangibles
    
    
    4,839Other assets
    
    
    1,317Total assets acquired
    
    
    140,098Accounts payable and accrued expenses
    
    
    2,823Notes payable
    
    
    2,413Bonds and mortgage notes payable
    
    
    68,586Borrowings under repurchase agreements
    
    
    6,975Total liabilities assumed
    
    
    80,797Net assets acquired
    
    $
    59,301Cash paid and direct expenses
    
    $
    3,963Common stock issued
    
    
    55,338Value of merger consideration
    
    $
    59,301
 The following unaudited, pro-forma financial information assumes the AFREZ acquisition
occurred at the beginning of 2003. The most significant adjustments to the periods presented is the
inclusion of AFREZs results for the entire periods presented in addition to the amortization
expense related to in-place lease intangibles being reflected in 2003 rather than in 2004. These
results have been prepared for comparative purposes only and do not purport to be indicative of
what would have occurred had the acquisition been made at the beginning of 2003, or the results
which may occur in the future (in thousands): For the
    
    
    For theYear Ended
    
    
    Year EndedDec. 31, 2004
    
    
    Dec. 31, 2003Total rental income
    
    $
    45,636
    
    
    $
    43,680Net income
    
    $
    144
    
    
    $
    7,677Net income per share, basic and diluted
    
    $
    0.01
    
    
    $
    0.73




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##### Table of Contents



AMERICA FIRST APARTMENT INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. Acquisition of Property On December 22, 2004, the Company acquired all of the outstanding membership interests in a newly
formed Tennessee limited liability company, Arbor Knoll-Crest, LLC from Gables Realty Limited
Partnership, a Delaware limited partnership and Gables GP, Inc., a Texas corporation. The sole
asset of Arbor Knoll-Crest, LLC is a 548-unit apartment complex in Antioch, Tennessee now known as
Arbor Hills (the Property). Immediately prior to the formation of Arbor Knoll-Crest LLC, the
Property had been owned by Gables-Tennessee Properties, L.L.C., a Tennessee limited liability
company (GTP). There are no material relationships between the Company and Gables Realty Limited
Partnership, Gables GP, Inc. or GTP. The purchase price for the membership interests in Arbor Knoll-Crest LLC was $29.7 million, $26.1
million of which was paid through the assumption of existing tax-exempt mortgage debt on the
Property, approximately $3.0 million of which was paid in cash, and approximately $550,000 of which
was paid through various expense prorations. 5. Investments in Securities The following table presents the components of the carrying value of the Companys investments in
securities as of December 31, 2004 and 2003 (in thousands): Gross
    
    
    GrossUnrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value2004:Agency Securities
    
    $
    26,328
    
    
    $
    4
    
    
    $
    (140
    )
    
    $
    26,192Corporate Equity Securities
    
    
    4,136
    
    
    
    185
    
    
    
    
    
    
    
    4,3212003:Agency Securities
    
    $
    35,923
    
    
    $
    104
    
    
    $
    
    
    
    $
    36,027Corporate Equity Securities
    
    
    1,678
    
    
    
    501
    
    
    
    
    
    
    
    2,179
 The Companys cost of Agency Securities reflects the amortized cost of the securities. The various
pools making up the Companys investments in Agency Securities have stated rates ranging from 3.77%
to 7.50% and various principal maturities. The Agency Securities serve as collateral for
approximately $20.9 million of borrowings under repurchase agreements. As of December 31, 2003, the Companys investment in corporate equity securities consisted of
238,428 units of AFREZ. The general partner of AFREZ was an affiliate of the Company. The AFREZ
units owned by the Company represented approximately 3.5% of the AFREZ units outstanding. These
units were sold in 2004 prior to the merger with AFREZ. None of the securities available for sale have been in a continuous loss position for 12 months or
longer. The unrealized losses associated with the Agency Securities result from increases in
interest rates and are not due to the credit quality of the investment securities.




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##### Table of Contents



AMERICA FIRST APARTMENT INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6. Investments in Real Estate The Companys investments in real estate as of December 31, 2004 are comprised of the following (in
thousands):




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##### Table of Contents



AMERICA FIRST APARTMENT INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Building
    
    
    Carrying
    
    
    CarryingNumber
    
    
    
    
    
    
    and
    
    
    Value at
    
    
    Value atProperty Name
    
    Location
    
    of Units
    
    
    Land
    
    
    Improvements
    
    
    Dec. 31, 2004
    
    
    Dec. 31, 2003Arbor Hills(1)
    
    Antioch, TN
    
    
    548
    
    
    $
    4,400
    
    
    $
    25,336
    
    
    $
    29,736
    
    
    $
    Belvedere Apartments(1)
    
    Naples, FL
    
    
    162
    
    
    
    956
    
    
    
    8,338
    
    
    
    9,294
    
    
    
    9,299Bluff Ridge Apartments
    
    Jacksonville, NC
    
    
    108
    
    
    
    203
    
    
    
    3,501
    
    
    
    3,704
    
    
    
    Brentwood Oaks Apartments (1)
    
    Nashville, TN
    
    
    262
    
    
    
    2,000
    
    
    
    9,837
    
    
    
    11,837
    
    
    
    Coral Point Apartments (1)
    
    Mesa, AZ
    
    
    337
    
    
    
    2,240
    
    
    
    9,204
    
    
    
    11,444
    
    
    
    11,335Covey at Fox Valley(1)
    
    Aurora, IL
    
    
    216
    
    
    
    1,320
    
    
    
    10,499
    
    
    
    11,819
    
    
    
    11,640Delta Crossing
    
    Charlotte, NC
    
    
    178
    
    
    
    800
    
    
    
    5,031
    
    
    
    5,831
    
    
    
    Elliots Crossing Apartments (1)
    
    Tempe, AZ
    
    
    247
    
    
    
    1,301
    
    
    
    9,703
    
    
    
    11,004
    
    
    
    Fox Hollow Apartments (1)
    
    High Point, NC
    
    
    184
    
    
    
    1,000
    
    
    
    5,148
    
    
    
    6,148
    
    
    
    Greenbriar Apartments (1)
    
    Tulsa, OK
    
    
    120
    
    
    
    648
    
    
    
    3,794
    
    
    
    4,442
    
    
    
    4,410Highland Park Apartments (1)
    
    Columbus, OH
    
    
    252
    
    
    
    1,562
    
    
    
    6,319
    
    
    
    7,881
    
    
    
    The Hunt Apartments (1)
    
    Oklahoma City, OK
    
    
    216
    
    
    
    550
    
    
    
    7,061
    
    
    
    7,611
    
    
    
    7,641Huntsview Apartments (1)
    
    Greensboro, NC
    
    
    240
    
    
    
    1,845
    
    
    
    6,590
    
    
    
    8,435
    
    
    
    Jackson Park Place Apartments (1)
    
    Fresno, CA
    
    
    296
    
    
    
    1,400
    
    
    
    10,901
    
    
    
    12,301
    
    
    
    12,291Lakes of Northdale Apartments (1)
    
    Tampa, FL
    
    
    216
    
    
    
    1,553
    
    
    
    8,454
    
    
    
    10,007
    
    
    
    Littlestone of Village Green (1)
    
    Gallatin, TN
    
    
    200
    
    
    
    621
    
    
    
    9,981
    
    
    
    10,602
    
    
    
    10,551Misty Springs Apartments (1)
    
    Daytona Beach, FL
    
    
    128
    
    
    
    742
    
    
    
    3,831
    
    
    
    4,573
    
    
    
    Monticello Apartments (1)
    
    Southfield, MI
    
    
    106
    
    
    
    565
    
    
    
    5,283
    
    
    
    5,848
    
    
    
    Oakhurst Apartments (1)
    
    Ocala, FL
    
    
    214
    
    
    
    847
    
    
    
    8,419
    
    
    
    9,266
    
    
    
    9,256Oakwell Farms Apartments (1)
    
    Nashville, TN
    
    
    414
    
    
    
    1,946
    
    
    
    16,183
    
    
    
    18,129
    
    
    
    18,125Park at Countryside(1)
    
    Port Orange, FL
    
    
    120
    
    
    
    647
    
    
    
    2,607
    
    
    
    3,254
    
    
    
    3,274The Park at 58 Apartments(1)
    
    Chattanooga, TN
    
    
    196
    
    
    
    231
    
    
    
    4,270
    
    
    
    4,501
    
    
    
    4,456Park Trace Apartments (1)
    
    Norcross, GA
    
    
    260
    
    
    
    2,246
    
    
    
    11,888
    
    
    
    14,134
    
    
    
    14,107The Ponds at Georgetown (1)
    
    Ann Arbor, MI
    
    
    134
    
    
    
    653
    
    
    
    6,846
    
    
    
    7,499
    
    
    
    The Retreat(1)
    
    Atlanta, GA
    
    
    226
    
    
    
    1,800
    
    
    
    7,401
    
    
    
    9,201
    
    
    
    9,153St. Andrews at Westwood(1)
    
    Orlando, FL
    
    
    259
    
    
    
    1,617
    
    
    
    14,239
    
    
    
    15,856
    
    
    
    15,900Shelby Heights(1)
    
    Bristol, TN
    
    
    100
    
    
    
    175
    
    
    
    2,953
    
    
    
    3,128
    
    
    
    3,128Watermans Crossing(1)
    
    Newport News, VA
    
    
    260
    
    
    
    1,620
    
    
    
    12,726
    
    
    
    14,346
    
    
    
    Waters Edge Apartments
    
    Lake Villa, IL
    
    
    108
    
    
    
    486
    
    
    
    4,621
    
    
    
    5,107
    
    
    
    The Exchange at Palm Bay (1)
    
    Palm Bay, FL
    
    
    72,002
    (2)
    
    
    1,296
    
    
    
    4,834
    
    
    
    6,130
    
    
    
    6,025283,068
    
    
    
    150,591Less accumulated depreciation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (42,567
    )
    
    
    (35,693
    )Balance at end of year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    240,501
    
    
    $
    114,898
   (1)
    
    Property is encumbered as described in Note 8.(2)
    
    This is an office/warehouse facility. The figure represents square feet available
for lease to tenants. Reconciliation of the carrying value of the investment in real estate is as follows (in
thousands):




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AMERICA FIRST APARTMENT INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the
    
    
    For the
    
    
    For theYear Ended
    
    
    Year Ended
    
    
    Year EndedDec. 31, 2004
    
    
    Dec. 31, 2003
    
    
    Dec. 31, 2002Balance at beginning of year
    
    $
    114,898
    
    
    $
    119,490
    
    
    $
    123,791Merger of properties
    
    
    115,856
    
    
    
    
    
    
    
    Disposition of Glades
    
    
    (14,056
    )
    
    
    
    
    
    
    Acquistion of Arbor Hills
    
    
    29,736
    
    
    
    
    
    
    
    Capital improvements
    
    
    1,172
    
    
    
    409
    
    
    
    663Depreciation
    
    
    (7,105
    )
    
    
    (5,001
    )
    
    
    (4,964
    )Balance at end of year
    
    $
    240,501
    
    
    $
    114,898
    
    
    $
    119,490
 7. Jefferson Place Subordinate Note During the second quarter of 2003, the Company recorded a gain of $4.4 million resulting from the
repayment of its subordinate note due from the owners of Jefferson Place Apartments. The note was
repaid out of the sale proceeds of Jefferson Place Apartments. The total gain is comprised of $2.7
million of cash proceeds from the sale less $300,000 of written off receivables for a net cash gain
of $2.4 million. The Company also recorded a $2.1 million non-cash gain representing the reversal
of a loss reserve. The subordinate note due from the owners of Jefferson Place Apartments had an
original principal value of $3.5 million, a net book value of $0, and was received by the
Partnerships predecessor in 1997 in connection with the re-issuance of the Jefferson Place
tax-exempt bonds which were originally owned by the Partnerships predecessor. The subordinate note
represented unpaid tax-exempt interest and principal on the original bonds. In connection with the
1997 re-issuance, the Partnerships predecessor also issued a guarantee of the re-issued bonds that
was collateralized by one of its other properties and recorded a loss reserve of $2.1 million for
the guarantee. The loss reserve represented managements best estimate of the potential collateral
guarantee loss based upon the estimated fair values of the respective properties at the inception
of the collateral guarantee and was reversed on June 26, 2003, when the Company was relieved of its
collateral guarantee via the sale of Jefferson Place. 8. Bonds and Mortgage Notes Payable The Company has financed its multifamily apartment properties and its commercial property with
long-term mortgage debt consisting of thirteen tax-exempt bond financings and seven taxable
mortgage notes. Each debt obligation is secured by a first mortgage or deed of trust on the
property. Bonds and mortgage notes payable as of December 31, 2004 and 2003 consist of the
following (dollars in thousands):




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##### Table of Contents



AMERICA FIRST APARTMENT INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Effective
    
    
    
    
    
    
    
    
    
    Carrying AmountInterest
    
    Maturity
    
    Payment and
    
    Annual
    
    December 31,Collateral
    
    Rate
    
    Date
    
    Prepayment or Redemption Terms
    
    Payments
    
    2004
    
    2003Bonds Payable:Coral Point and
St. Andrews at
Westwood
Apartments
    
    
    4.96
    %
    
    03/01/2008
    
    Semiannual payment of interest
due each March 1 and September 1.
Prepayable at par + 1% in March
2006.
    
    interest only
    
    $
    13,090
    
    
    $
    13,090Covey at Fox
Valley and
Park Trace
Apartments
    
    
    5.30
    %
    
    11/01/2007
    
    Semiannual payment of interest
due each May 1 and November 1.
Prepayable at par + 1% in March 2006.
Prepayable at par in March 2007.
    
    interest only
    
    
    12,410
    
    
    
    12,410Brentwood Oaks
Apartments
    
    2.18%(1)
    
    07/15/2031
    
    Monthly payment of interest
due on the 12th of each month.
Prepayable at anytime
    
    interest only
    
    
    11,320
    
    
    Lakes of
Northdale
Apartments
    
    2.57%(2)
    
    05/15/2012
    
    Monthly payment of interest
due on the 11th of each month.
Prepayable at anytime
    
    interest only
    
    
    9,610
    
    
    Jackson Park
Place
    
    
    5.80
    %
    
    12/01/2027
    
    Monthly payment of principal and
interest due the 1st of each month.
Prepayable at par in November 2007.
    
    $
    599
    
    
    
    7,596
    
    
    
    7,750The Hunt
Apartments
    
    3.30%(3)
    
    07/01/2029
    
    Semiannual payment of interest
due each Jan. 1 and July 1.
Prepayable at anytime.
    
    interest only
    
    
    6,930
    
    
    
    6,930Oakhurst
Apartments
    
    2.33%(4)
    
    12/01/2007
    
    Semiannual payment of interest
due each June 1 and Dec. 1.
Prepayable at par since December 2003.
    
    interest only
    
    
    5,300
    
    
    
    5,300The Exchange
at Palm Bay
    
    2.33%(4)
    
    11/01/2010
    
    Monthly payment of principal and
interest due the 25th of each month.
Prepayable at par in December 2005.
    
    $
    499
    
    
    
    5,153
    
    
    
    5,256Belvedere
Apartments
    
    2.33%(4)
    
    12/01/2007
    
    Semiannual payment of interest
due each June 1 and Dec. 1.
Prepayable at par since December 2003.
    
    interest only
    
    
    4,800
    
    
    
    4,800Greenbriar
Apartments
    
    3.30%(3)
    
    07/01/2029
    
    Semiannual payment of interest
due each Jan. 1 and July 1.
Prepayable at anytime.
    
    interest only
    
    
    3,980
    
    
    
    3,980Shelby Heights
and Park at
Countryside
    
    
    6.10
    %
    
    03/01/2022
    
    Semiannual payment of principal
and/or interest due each March 1
and September 1.
Prepayable at par + 1% in March 2007.
    
    range from
$266 to
$276
    
    
    2,855
    
    
    
    2,990Arbor Hills
    
    2.65%(6)
    
    12/01/2025
    
    Monthly payment of interest
due the 1st of each month.
Prepayable at anytime.
    
    interest only
    
    
    26,150
    
    
    The Park at
Fifty Eight
    
    
    6.65
    %
    
    03/01/2021
    
    Semiannual payment of principal
and/or interest due each March 1
and September 1.
Prepayable at par + 1% in March 2006.
    
    range from
$220 to
$225
    
    
    2,255
    
    
    
    2,325$
    111,449
    
    
    $
    64,831




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##### Table of Contents



AMERICA FIRST APARTMENT INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Effective
    
    
    
    
    
    
    
    
    
    Carrying AmountInterest
    
    Maturity
    
    Payment and
    
    Annual
    
    December 31,Collateral
    
    Rate
    
    Date
    
    Prepayment or Redemption Terms
    
    Payments
    
    2004
    
    2003Mortgage Notes Payable:Oakwell Farms
Apartments
    
    
    6.935
    %
    
    05/01/2009
    
    Monthly payment of principal and
interest due the 1st of each month.
Prepayment allowed with 30 days
notice and premium
    
    $
    1,029
    
    
    
    12,097
    
    
    
    12,280Watermans
Crossing
    
    
    5.52
    %
    
    11/01/2012
    
    Monthly payment of principal
and interest due on the 1st of
each month.
Prepayment allowed with 30 days
notice
    
    $
    790
    
    
    
    10,859
    
    
    Elliots Crossing
Apartments
    
    2.82% (5)
    
    02/01/2014
    
    Semiannual payment of interest
due each April 1 and October 1.
Prepayable at par +1.5% in April 2009
    
    $
    540
    
    
    
    8,140
    
    
    Huntsview
Apartments
    
    
    5.83
    %
    
    01/01/2012
    
    Monthly payment of principal
and interest due on the 1st of
each month.
Prepayment allowed with 30 days
notice
    
    $
    509
    
    
    
    7,112
    
    
    Highland Park
Apartments
    
    
    4.69
    %
    
    09/01/2013
    
    Monthly payment of principal
and interest due on the 1st of
each month.
Prepayment allowed with 30 days
notice
    
    $
    435
    
    
    
    6,502
    
    
    Fox Hollow
Apartments
    
    
    6.91
    %
    
    03/01/2011
    
    Monthly payment of principal
and interest due on the 1st of
each month.
Prepayment allowed with 30 days
notice
    
    $
    493
    
    
    
    6,043
    
    
    Littlestone at
Village Green
    
    
    7.68
    %
    
    09/15/2005
    
    Monthly payment of principal
and interest due the 15th of each
month. Prepayment allowed
with 30 days notice and premium.
    
    $
    543
    
    
    
    4,948
    
    
    
    5,104$
    55,701
    
    
    $
    17,384$
    167,150
    
    
    $
    82,215
   (1) Bond payable bears interest at a highly rated bond composite variable rate that
is reset weekly and capped at 9.27%, the rate at 12/31/2004 was 2.01%, averaged for the year of
2.18%.(2) Bond payable bears interest at a highly rated bond composite variable rate that is
reset weekly and capped at 7.50%, the rate at 12/31/2004 was 2.01%, averaged for the year of 2.57%.(3) In June 2004, the Company entered into an interest rate swap transaction which fixed
the rates on the bonds to 3.30% through June 2009.(4) The interest rate on these bonds is variable based upon the BMA average rate plus
0.65%.(5) The Company entered into an interest rate swap transactions that fix the rates on
the bond to 2.82%. The interest rate swap agreements will terminate in June 2009.(6) Bond payable bears interest at a highly rated bond composite variable rate
that is reset weekly and capped at 12.00%, the rate at 12/31/2004 was 2.01%, average for the period
held the bond was 2.65%. Accrued interest of $1.7 million and $700,000 as of December 31, 2004 and 2003, respectively
is included in Accounts payable and accrued expenses on the Companys Consolidated Balance Sheets.




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##### Table of Contents



AMERICA FIRST APARTMENT INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. Borrowings under Repurchase Agreements The Company has financed the acquisition of its Agency Securities through short-term repurchase
agreements. Borrowings under repurchase agreements as of December 31, 2004 and 2003 consisted of
the following (dollars in thousands): Interest
    
    Maturity
    
    
    
    Carrying AmountCollateral
    
    Rate
    
    Date
    
    Payment Schedule
    
    Dec. 31, 2004
    
    Dec. 31, 2003Repurchase agreements collateralized
by agency securities:FNMA Pool #759197
    
    
    2.36
    %
    
    09/13/2005
    
    Interest payments and principal
due at maturity
    
    $
    16,400
    
    $
    20,668FNMA Pool #670676
    
    
    1.99
    %
    
    04/25/2005
    
    Interest payments and principal
due at maturity
    
    
    4,500
    
    
    12,34420,900
    
    
    33,012Other repurchase agreements:The Ponds at Georgetown
GNMA Certificate
    
    
    2.42
    %
    
    06/28/2005
    
    Interest payments due quarterly,
principal due at maturity
    
    
    6,975
    
    $
    27,875
    
    $
    33,012
 Accrued interest of approximately $184,000 and approximately $23,000 as of December 31, 2004
and 2003 is included in Accounts payable and accrued expenses on the Companys Consolidated Balance
Sheets. The Company intends to renew its repurchase agreements which come due in 2005 with repurchase
agreements having similar terms. 10. Notes Payable Notes payable were acquired as a result of the AFREZ merger. The notes bear interest at the rate
equal to 120% of the annual applicable federal rate for debt instruments with a term of not over
three years as determined by the Internal Revenue Code and applicable regulations thereunder. As of
December 31, 2004, such rate was 2.94%. The annual interest rate on the Notes is calculated by
averaging such interest rates for each month. Such rate averaged 2.73% from the acquisition date to
December 31, 2004. The Notes provide for annual installments of accrued interest payable on the
15th of each January, beginning January 15, 2005. The unpaid principal balance and accrued but
unpaid interest is due January 15, 2008. The Company may, at its option, redeem all or any portion of the Notes at any time at a price equal
to 100% of the outstanding principal balance of the Notes together with accrued interest to the
date fixed for redemption. The Company is required to use 80% of the net proceeds, as defined in
the indenture of trust related to such Notes, from sales or refinancings of assets of the Company
that were owned by Cap Source I or Cap Source II prior to the AFREZ merger to prepay the Notes. The
Company is required to deposit such proceeds into a segregated trust account established under the
indenture, and when the funds in the account equal or exceed $5 million, the proceeds will be used
to redeem the Notes as provided in the indenture.




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##### Table of Contents



AMERICA FIRST APARTMENT INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11. Aggregate Borrowings As of December 31, 2004, the Companys aggregate borrowings are $197.4 million with maturities over
the next five years and thereafter as follows (in thousands): PrincipalMaturity
    
    Amount2005
    
    $
    33,8752006
    
    
    1,1202007
    
    
    23,7072008
    
    
    16,7752009
    
    
    12,323Thereafter
    
    
    109,638$
    197,438
 12. Commitments and Contingencies On December 3, 2003, a purported class action lawsuit was filed in the Delaware Court of Chancery
against AFREZ, along with its general partner and America First Companies L.L.C. (America First).
The plaintiffs seek to have the lawsuit certified as a class action on behalf of all Units holders.
The lawsuit alleges, among other things, that the defendants acted in violation of their fiduciary
duties to the Unit holders in connection with the merger of AFREZ with and into the Company. The
merger of AFREZ with and into the Company was completed on June 3, 2004 and, as a result, the
Company assumed all liabilities of AFREZ, including any liability that may be imposed as a result
of this lawsuit. To date, the plaintiffs have not amended their complaint to formally name the
Company as a defendant or to modify the relief they are seeking. The Company intends to defend this
lawsuit vigorously, but is unable to predict the outcome of this litigation. The Company is subject to various legal proceedings and claims that arise in the ordinary course of
business. These matters are frequently covered by insurance. If it has been determined that a loss
is probable to occur, the estimated amount of the loss is expensed in the financial statements.
While the resolution of these matters cannot be predicted with certainty, management believes the
final outcome of such matters will not have a material adverse effect on the financial position or
results of operations of the Company. 13. Transactions with Related Parties The Company engaged in the following transactions with affiliated parties during 2004. The Company amended its Advisory Agreement (the Agreement) with America First Apartment Advisory
Corporation (the Advisor) on June 3, 2004 which includes the following provisions: (i) the
Advisor will administer the day-to-day operations of the Company; (ii) the Advisor will act as the
authorized agent on behalf of the Company in connection with the identification, evaluation,
purchase, financing, operation and disposition of all real estate assets; (iii) the Advisor will
provide the executive and administrative personnel and services required for the operation of the
Company; (iv) the Advisor will maintain the financial records and perform the financial reporting
of the Company; and (v) the Advisor will monitor and provide information to the Board of Directors
on an on-going basis. In connection with these services, the Company pays the following
administrative fees to the Advisor:




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##### Table of Contents



AMERICA FIRST APARTMENT INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Administrative Fee  General This fee is equal to 0.55% per annum of the sum of: (i) the original principal amount of the
bonds originally issued to the predecessor to the Partnership; (ii) the purchase price paid
by the Company for new assets that are then held by the Company; (iii) the outstanding
principal of mezzanine financing provided by the Company to unaffiliated developers of
residential real estate, plus (iv) the fair value of the AFREZ properties on the date of the
merger. Prior to the amendment, this fee was equal to 0.60% per annum of the sum of: (i) the
original principal amount of the bonds originally issued to the predecessor to the
Partnership; (ii) the purchase price paid by the Company for new assets that are then held by
the Company; plus (iii) the outstanding principal of mezzanine financing provided by the
Company to unaffiliated developers of residential real estate. However, the fee was to be
reduced to 0.50% per annum of those amounts in excess of $250 million for any calendar year
in which the Company generated Funds from Operations (FFO) of less than $1.60 per average
common share outstanding. Such fees were $1.2 million, $883,000 and $883,000 for the years
ended December 31, 2004, 2003 and 2002, respectively and are included in General and
administrative expenses in the Consolidated Statements of Operations and Comprehensive Income
(Loss). Administrative Fee  Agency Securities This fee is equal to 0.25% per annum of the outstanding principal balance of all Agency
Securities held by the Company with an incentive equal to 20% of the amount by which the
total net interest income realized by the Company from its portfolio of Agency Securities
during each calendar month exceeds the average dollar amount of stockholders equity invested
in Agency Securities during the month times the composite dividend yield reported by the
National Association of Real Estate Investment Trusts for equity REITs which invest in
residential apartment properties. The Advisor has retained an unaffiliated sub-advisor to
advise it with respect to the Companys investments in Agency Securities. All fees paid to
the sub-advisor are the obligation of the Advisor. Property Acquisition Fee In connection with the identification, evaluation, and acquisition of real estate assets, the
Advisor receives a fee in the amount of 1.25% of the gross purchase price paid by the Company
for such real estate assets. The Partnership paid similar fees to the General Partner. During
the year ended December 31, 2004, this fee equaled approximately $371,000 and was included in
the fair value of the real estate asset acquired. As there were no acquisitions of real
estate during 2003 or 2002, no such fees were paid during those years. Mezzanine Investments Fee Effective with the amendment of the Agreement on June 3, 2004, in connection with the
underwriting and making of mezzanine investments, the Advisor receives a fee in the amount of
1.25% of the original principal amount of such mezzanine investments. As there was no
underwriting or making of mezzanine investments during the period ended December 31, 2004, no
such fees were paid. Reimbursement of Out-of-Pocket Expenses The Company reimburses the Advisor and its affiliate (prior to the merger, the General
Partner and its affiliate) for certain out-of-pocket costs and expenses that it incurs in
connection with the carrying out of the Companys business activities. The amount of such costs and expenses reimbursed to the Advisor and its affiliate or the
General Partner and its affiliate are shown below (in thousands):




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##### Table of Contents



AMERICA FIRST APARTMENT INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2004
    
    
    2003
    
    
    2002Reimbursable salaries and benefits
    
    $
    1,145
    
    
    $
    544
    
    
    $
    628Professional fees and expenses
    
    
    542
    
    
    
    111
    
    
    
    100Costs capitalized

    
    
    74
    
    
    
    76
    
    
    
    17Insurance
    
    
    83
    
    
    
    74
    
    
    
    57Investor services and custodial fees
    
    
    42
    
    
    
    30
    
    
    
    25Report preparation and distribution
    
    
    29
    
    
    
    20
    
    
    
    21Registration fees
    
    
    27
    
    
    
    20
    
    
    
    45Restructuring costs
    
    
    615
    
    
    
    14
    
    
    
    598Consulting and travel expense
    
    
    28
    
    
    
    8
    
    
    
    10Telephone
    
    
    9
    
    
    
    5
    
    
    
    6Other expenses
    
    
    300
    
    
    
    161
    
    
    
    111$
    2,894
    
    
    $
    1,063
    
    
    $
    1,618
 Included in Accounts payable and accrued expenses in the consolidated balance sheets are
amounts due to the Advisor and its affiliate or the General Partner for administrative fees
and reimbursed costs and expenses of approximately $162,000 and $273,000 as of December 31,
2004 and 2003, respectively. Acquisition of certain property management assets On November 8, 2004, America First PM Group, Inc., (PM Group) a wholly-owned subsidiary of the
Company, acquired certain property management assets, rights to use certain proprietary systems,
certain property management agreements, certain employment agreements and other intangible assets
from America First Properties Management Companies, L.L.C. (America First Properties) and its
parent, America First Companies, L.L.C. (America First Companies). Prior to this transaction,
America First Properties managed each of the multi-family apartment complexes owned and operated by
the Company. The fees for services provided were $1.3 million, $1.0 million and $1.0 million for
the years ended December 31, 2004, 2003 and 2002, respectively and are included in Real estate
operating expenses in the Consolidated Statements of Income and Comprehensive Income. As a result
of this transaction, the management of all of the Companys properties and certain other properties
owned by unaffiliated parties were internalized and therefore no further management fees will be
incurred. The purchase price for the acquired assets was $6.8 million, plus estimated transaction costs of
approximately $172,000. A Special Committee of the Board of Directors of the Company (Special
Committee), comprised solely of independent directors of the Company, negotiated the terms and
conditions of the transaction on behalf of the Company. The Special Committee retained an
independent investment banking firm to render an opinion to the Company as to the fairness to the
Company of the consideration paid for the acquired assets. Approximately $5.9 million of the
acquisition price was expensed as of the purchase date. The amount expensed was an allocation of
the acquisition price to the termination of a pre-existing relationship as outlined in EITF 04-01,
Accounting for Preexisting Relationships between the Parties to a Business Combination. 14. Stock Option Plan The Company adopted a Stock Option Plan (the Plan) on April 1, 2002 to permit awards of equity
based compensation to those providing services to the Company. The Plan is administered by the
Compensation Committee of the Board of Directors. The Plan allows for the granting of options to
purchase an aggregate of up




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AMERICA FIRST APARTMENT INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS to 750,000 shares of the Companys common stock. The Plan authorizes
the Board of Directors and its Compensation Committee to grant Incentive Stock Options (ISOs), as
defined under section 422 of the IRS Code, non-qualified stock options (NQSOs), and dividend
equivalent rights (DERs) to eligible persons. The exercise price for options granted under the
Plan shall not be less than the fair market value of the Companys common stock on the date of the
grant. Options granted under the Plan expire 10 years from the respective grant dates of the
options. On February 4, 2003, NQSOs to acquire a total of 40,000 shares of common stock were granted to the
Companys four non-employee directors, at an exercise price of $8.73. The options vest 25% on the
grant date and 25% on each of the next three anniversaries of the grant date. On the same date, a
total of 40,000 DERs were granted to the Companys four non-employee directors, which vest 25% on
the grant date and 25% on each of the next three anniversaries of the grant date. DERs allow the
holder to receive dividend payments on vested options that are not yet exercised. Stock option activity for the period ended December 31, 2004 is summarized as follows (in
thousands): Number of
    
    
    Weighted AverageShares
    
    
    Exercise PriceBalance at December 31, 2002
    
    
    
    
    
    $
    Granted
    
    
    40,000
    
    
    
    8.73Cancelled
    
    
    
    
    
    
    Balance at December 31, 2003
    
    
    40,000
    
    
    $
    8.73Granted
    
    
    
    
    
    
    8.73Cancelled
    
    
    (5,000
    )
    
    
    8.73Exercised
    
    
    (5,000
    )
    
    
    8.73Balance at December 31, 2004
    
    
    30,000
    
    
    $
    8.73Options exercisable at December 31, 2004
    
    
    15,000
    
    
    $
    8.73
 As of December 31, 2004, all outstanding options have an exercise price of $8.73 and a
remaining contractual life of 8.05 years. The Company accounts for its stock options using the fair
value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation. Under SFAS
No. 123, the Company records compensation expense based upon the estimated fair value of its
granted options, over their vesting period. The compensation expense is included in General and
administrative expenses on the Consolidated Statements of Operations and Comprehensive Income
(Loss) with the related offset to Additional paid-in capital on the Consolidated Balance Sheets.
The per share estimated fair value of the options granted on their grant date was $2.19. The
estimated fair value of the Companys options was determined using the Black-Scholes option-pricing
model with the following assumptions: a risk free interest rate of 3.24%, an expected remaining
contractual life of 5.0 years and an expected volatility rate of 20%. Compensation expense for
stock options was approximately $21,000, $38,000 and $0 for the years ended December 31, 2004, 2003
and 2002, respectively. Payments on the DERs for options not exercised are charged to earnings when
declared and were $20,000, $10,000 and $0 for the years ended December 31, 2004, 2003 and 2002,
respectively. 15. Fair Value of Financial Instruments The following methods and assumptions were used by the Company in estimating the fair value of its
financial instruments:




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AMERICA FIRST APARTMENT INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Cash and cash equivalents, restricted cash, investment in Agency Securities, investments in
corporate equity securities, accounts payable, dividend (distribution) payable and borrowings
under repurchase agreements: Fair value approximates the carrying value of such assets and
liabilities due to their accounting policy and/or short-term nature. Bonds and mortgage notes payable and notes payable: Fair value is generally based on
estimated future cash flows discounted using the quoted market rate, from an independent
source, of similar obligations. Refer to the table below for the carrying amount and
estimated fair value of such instruments (in thousands): As of December 31, 2004
    
    
    As of December 31, 2003Carrying
    
    
    Estimated
    
    
    Carrying
    
    
    EstimatedAmount
    
    
    Fair Value
    
    
    Amount
    
    
    Fair ValueBonds and mortgage notes payable
    
    $
    167,150
    
    
    $
    178,089
    
    
    $
    82,215
    
    
    $
    89,354Notes payable
    
    $
    2,413
    
    
    $
    2,413
    
    
    $
    
    
    
    $
    
 16. Interest Rate Swap and Cap Agreements The Company may enter into interest rate swap and cap agreements to manage or hedge its interest
rate risk on its bonds and mortgage notes payable. In the absence of a specific and effective
hedging relationship, interest rate swaps and caps are accounted for as free standing financial
instruments which are marked to market each period through the statement of operations. The
interest rate swap and cap contracts owned by the Company as of December 31, 2004 and 2003 do not
qualify for hedge accounting and thus are accounted for as free standing financial instruments
which are marked to market each period through the statement of operations. The Company recorded a
$273,000 gain for the year ended December 31, 2004, an $11,000 loss for the year ended December 31,
2003 and a $6,000 gain for the year ended December 31, 2002, representing the change in the
estimated fair value of the interest rate swap and cap agreements. The fair value of interest rate
swap and cap agreements is included in Other assets on the Companys Consolidated Balance Sheets in
the amount of $99,000 and $12,000 as of December 31, 2004 and 2003, respectively. The fair value of
the interest rate swap and cap agreements were determined based upon current fair values as quoted
by recognized dealers. As of December 31, 2004, the Company had entered into seven interest rate swap agreements and two
interest rate cap agreements, with notional amounts and terms as follows (dollars in thousands):




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AMERICA FIRST APARTMENT INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Interest Rate Swaps and CapsCounterparty
    
    
    
    
    
    
    CompanyNotional
    
    
    Receive/
    
    
    Notional
    
    
    PayMaturity
    
    Amount
    
    
    Cap Rate
    
    
    Amount
    
    
    RateFixed to Variable
    
    December 6, 2006
    
    $
    4,800
    (5)
    
    
    7.00
    %
    
    $
    4,800
    (5)
    
    
    2.33
    %(3)Fixed to Variable
    
    December 6, 2006
    
    $
    5,300
    (5)
    
    
    7.125
    %
    
    $
    5,300
    (5)
    
    
    2.33
    %(3)Fixed to Variable
    
    December 6, 2006
    
    $
    5,179
    (1)(5)
    
    
    7.75
    %
    
    $
    5,179
    (1) (5)
    
    
    2.33
    %(3)Variable to Fixed
    
    February 3, 2009
    
    $
    8,100
    
    
    
    1.68
    %(2)
    
    $
    8,100
    
    
    
    2.82
    %Variable to Fixed
    
    June 25, 2009
    
    $
    10,910
    
    
    
    1.68
    %(2)
    
    $
    10,910
    
    
    
    3.30
    %Fixed to Variable
    
    July 13, 2009
    
    $
    6,930
    (5)
    
    
    7.25
    %
    
    $
    6,930
    (5)
    
    
    2.33
    %(3)Fixed to Variable
    
    July 13, 2009
    
    $
    3,980
    (5)
    
    
    7.50
    %
    
    $
    3,980
    (5)
    
    
    2.33
    %(3)Interest Rate Cap
    
    December 22, 2009
    
    $
    13,400
    
    
    
    4.50
    %(4)
    
    
    N/A
    
    
    
    N/AInterest Rate Cap
    
    December 22, 2009
    
    $
    12,750
    
    
    
    4.50
    %(4)
    
    
    N/A
    
    
    
    N/A
   (1)
    
    Notional amount is tied to the The Exchange at Palm Bay bond payable and
adjusts downwards as principal payments are made on the bond payable.(2)
    
    Weighted average Bond Market Association rate for the three months ended December
31, 2004.(3)
    
    Weighted average Bond Market Association rate for the three months ended December
31, 2004 plus 0.65%.(4)
    
    Capped rate is tied to the weighted average Bond Market
Association rate for the month.(5)
    
    These are total return swaps. 17. Net Income (Loss) Per Share (per BUC) Basic earnings per share (EPS) excludes dilution and is computed by dividing net income by the
weighted average number of common shares outstanding for the period. Diluted EPS reflects the
potential reduction in EPS that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock. EPS under the basic and diluted computation are as
follows (in thousands, except per share amounts):




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AMERICA FIRST APARTMENT INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 31,2004
    
    
    2003
    
    
    2002Income (loss) from continuing operations
    
    $
    (8,795
    )
    
    $
    4,361
    
    
    $
    990Income (loss) from discontinued operations
    
    
    6,030
    
    
    
    
    
    
    
    Net income (loss) available to common shareholders (basic)
    
    
    (2,765
    )
    
    
    4,361
    
    
    
    990Dividend equivalent rights
    
    
    
    
    
    
    10
    
    
    
    Net income (loss) available to common shareholders (diluted)
    
    $
    (2,765
    )
    
    $
    4,371
    
    
    $
    990Weighted average common shares outstanding  basic
    
    
    8,243
    
    
    
    5,074
    
    
    
    5,023Weighted average common stock equivalents
    
    
    
    
    
    
    2
    
    
    
    Weighted average common shares outstanding  diluted
    
    
    8,243
    
    
    
    5,076
    
    
    
    5,023Earnings per share  basicIncome (loss) from continuing operations
    
    $
    (1.07
    )
    
    $
    0.86
    
    
    $
    0.19Income (loss) from discontinued operations
    
    
    0.73
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    (0.34
    )
    
    $
    0.86
    
    
    $
    0.19Earnings per share  dilutedIncome (loss) from continuing operations
    
    $
    (1.07
    )
    
    $
    0.86
    
    
    $
    0.19Income (loss) from discontinued operations
    
    
    0.73
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    (0.34
    )
    
    $
    0.86
    
    
    $
    0.19
 For the year ended December 31, 2002, there were no differences between basic and diluted net
income per BUC as the Partnership did not have any stock options or other types of convertible
securities. The computation of diluted EPS for the year ended December 31, 2004 excluded 30,000
outstanding stock options because the effect of these securities would have been anti-dilutive as
the Company incurred a net loss for the year. 18. Employee Benefit Plans With the acquisition of certain employment agreements from America First Properties, the Company
acquired the associated defined contribution plan on November 8, 2004. The America First PM Group,
Inc. 401(k) Plan (the plan) is a defined contribution plan that satisfies the requirements of
Section 401(a) of the Internal Revenue Code. Eligible employees may contribute 1% to 15% of their
annual compensation to the Plan, limited to maximum annual amount as set by the Internal Revenue
Service. The Company matches contributions to the Plan of $0.25 for each $1.00 contributed up to
15% of the participants compensation. All matching contributions vest immediately. In addition, each year the Company may make additional
discretionary, qualified non-elective employer contributions to the Plan. Such contributions to the
Plan are allocated among eligible participants in the proportion of their salaries to the total
salaries of all participants. The Companys matching contribution to this plan was $10,000, $0,
and $0 for the years ended December 31, 2004, 2003, and 2002 respectively. There were no
discretionary, qualified non-elective contributions for the years ended December 31, 2004, 2003,
and 2002. The plan is funded on a current basis. Effective January 1, 2005, the Plan was amended and restated essentially under the same terms.




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##### Table of Contents



AMERICA FIRST APARTMENT INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 19. Discontinued Operations On June 25, 2004, the Company entered into a purchase and sale agreement to sell the property
commonly referred to as The Glades Apartments. The Glades Apartments was sold for a total sales
price of $20.0 million which consisted of cash and debt assumed by the buyer. The net cash
proceeds to the Company were approximately $11.1 million, net of closing costs of approximately
$149,000. The total debt assumed by the buyer was approximately $8.8 million. A gain on the sale
of this property was realized upon the closing of the transaction on December 15, 2004 in the
amount of $6.0 million. This property was acquired as a result of the AFREZ merger therefore the results of operations are
reflected from the merger date of June 3, 2004 to December 31, 2004 (in thousands): Rental income
    
    $
    1,480Real estate operating expenses
    
    
    758Depreciation expense
    
    
    231Income from discontinued rental operations
    
    
    491Interest expense
    
    
    103Amortization expense  in-place lease intangibles
    
    
    331Other expenses
    
    
    434Earnings from discontinued operations before gain on sale
    
    
    57Gain on sale
    
    
    5,973Earnings from discontinued operations
    
    $
    6,030
 20. Recent Accounting Pronouncements In December 2004, the FASB issued SFAS No. 152, Accounting for Real Estate Time-Sharing
Transactions an amendment of FASB Statements No. 66 and 67. This Statement amends SFAS No. 66,
Accounting for Sales of Real Estate to reference the financial accounting and reporting guidance
for real estate time-sharing transactions that is provided in AICPA Statement of Position (SOP)
04-2, Accounting for Real Estate Time-Sharing Transactions. This Statement also amends SFAS No.
67, Accounting for Costs and Initial Rental Operations of Real Estate Projects to specify that
guidance relating to (a) incidental operations (b) costs incurred to sell real estate projects does
not apply to real estate time-sharing transactions. This Statement is effective for fiscal years
beginning after June 15, 2005. The Company does not believe SFAS No. 152 will have a material
impact on the consolidated financial statements. In December 2004, the FASB issued SFAS No. 153, Exchanges of Non-monetary Assets an amendment of
APB No. 29. This Statement amends APB Opinion No. 29, Accounting for Non-monetary Transactions
to eliminate the exception for non-monetary exchanges of similar productive assets and replaces it
with a general exception for exchanges of non-monetary assets that do not have commercial
substance. This Statement requires that an entity record a non-monetary exchange at fair value and
recognize any gain or loss if the transaction has commercial substance. This Statement is effective
for fiscal years beginning after June 15, 2005. The Company does not believe the adoption of SFAS No. 153 will have a material impact on the
consolidated financial statements. In December 2004, the FASB issued SFAS No. 123 (Revised 2004), Share-Based Payment.This
Statement is a revision of SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes
APB No. 25, Accounting for Stock Issued to Employees.The Statement requires companies to
recognize the expense




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AMERICA FIRST APARTMENT INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS associated with the grant-date fair value of stock options and other equity based compensation
issued to employees. The Company currently recognizes expense on equity based compensation in
accordance with SFAS No. 123, as revised. 21. Summary of Quarterly Results of Operations (Unaudited) Summary of Unaudited Quarterly Results of Operations First
    
    
    Second
    
    
    Third
    
    
    FourthQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    QuarterYear Ended December 31, 2004Total income
    
    $
    6,128
    
    
    $
    8,157
    
    
    $
    11,799
    
    
    $
    10,217Total expenses
    
    
    (6,109
    )
    
    
    (8,358
    )
    
    
    (13,147
    )
    
    
    (17,482
    )Income (loss) from continuing operations
    
    
    19
    
    
    
    (201
    )
    
    
    (1,348
    )
    
    
    (7,265
    )Income from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,030Net income (loss)
    
    $
    19
    
    
    $
    (201
    )
    
    $
    (1,348
    )
    
    $
    (1,235
    )Income (loss) from continuing operations,
basic and diluted, per share
    
    
    
    
    
    
    (0.03
    )
    
    
    (0.13
    )
    
    
    (0.69
    )Income from discontinued operations,
basic and diluted, per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.57Net income, basic and diluted, per share
    
    $
    
    
    
    $
    (0.03
    )
    
    $
    (0.13
    )
    
    $
    (0.12
    )
 First
    
    
    Second
    
    
    Third
    
    
    FourthQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    QuarterYear Ended December 31, 2003Total income
    
    $
    6,156
    
    
    $
    10,592
    
    
    $
    6,052
    
    
    $
    6,098Total expenses
    
    
    (5,986
    )
    
    
    (6,070
    )
    
    
    (6,265
    )
    
    
    (6,216
    )Net income (loss)
    
    $
    170
    
    
    $
    4,522
    
    
    $
    (213
    )
    
    $
    (118
    )Net income, basic and diluted, per share
    
    $
    0.03
    
    
    $
    0.89
    
    
    $
    (0.04
    )
    
    $
    (0.02
    )
 22. Segment Reporting The Companys reportable segments consist of: (i) its multifamily apartment properties; (ii) its
commercial property; and (iii) its investment in Agency Securities. The Company defines each of its multifamily apartment properties as an individual operating
segment. It has determined that all multifamily apartment properties have similar economic
characteristics and meet the other criteria which permit the multifamily apartment properties to be
aggregated into one reportable segment, that being the acquiring, holding, operating and selling of
multifamily apartment properties. The Companys chief




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AMERICA FIRST APARTMENT INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS operating decision-makers assess and measure
segment operating results based on a performance measure referred to as net operating income at the
property level. Net operating income for each multifamily apartment property represents its net
rental revenues less its real estate operating expenses. The Companys commercial property is defined as a separate individual operating segment. The
Companys chief operating decision-makers assess and measure segment operating results based on a
performance measure referred to as net operating income at the commercial property level. Net
operating income for the commercial property represents its net lease revenues less its real estate
operating expenses. The Company assesses the performance of its investment in Agency Securities by calculating its net
interest income earned on these securities. Net interest income is calculated as Agency Securities
interest income, less premium amortization, less interest expense incurred on the financing used to
acquire these securities. All of the Companys Agency Securities are combined into one reportable
segment for this purpose (the Company did not have this segment for year 2002). The accounting policies of each of the Companys segments are described in Note 2. The revenues, net operating income, net income and total assets for the Companys reportable
segments as of and for the years ended December 31, 2004, 2003 and 2002 are summarized as follows
(in thousands): 2004
    
    
    2003
    
    
    2002Multifamily real estate segment revenues
    
    $
    34,476
    
    
    $
    23,453
    
    
    $
    24,206Rental income from commercial property
    
    
    843
    
    
    
    670
    
    
    
    656Consolidated rental income
    
    $
    35,319
    
    
    $
    24,123
    
    
    $
    24,862Net operating income from multifamily
real estate segment
    
    $
    14,891
    
    
    $
    10,093
    
    
    $
    11,019Reconciling items:Depreciation expense
    
    
    (6,733
    )
    
    
    (4,767
    )
    
    
    (4,731
    )Other expenses
    
    
    (8,012
    )
    
    
    (4,282
    )
    
    
    (4,298
    )Net income from multifamily real estate segment
    
    $
    146
    
    
    $
    1,044
    
    
    $
    1,990Reconciling items:Net operating income from commercial
property
    
    
    644
    
    
    
    485
    
    
    
    450Agency backed securities net interest income
    
    
    770
    
    
    
    42
    
    
    
    Other income
    
    
    212
    
    
    
    4,700
    
    
    
    323Other expenses
    
    
    (10,421
    )
    
    
    (1,910
    )
    
    
    (1,773
    )Net income (loss)
    
    $
    (8,795
    )
    
    $
    4,361
    
    
    $
    990Multifamily real estate segment assets
    
    $
    232,709
    
    
    $
    119,229
    
    
    $
    124,687Reconciling items:Commercial property real estate assets
    
    
    2,881
    
    
    
    2,517
    
    
    
    2,850Investment in mortgage-backed securities
    
    
    26,192
    
    
    
    36,027
    
    
    
    Other assets
    
    
    35,615
    
    
    
    9,119
    
    
    
    9,318Consolidated assets
    
    $
    297,397
    
    
    $
    166,892
    
    
    $
    136,855
 The Company does not derive any of its consolidated revenues from foreign countries and does not
have any major customers that individually account for 10% or more of the Companys consolidated
revenues.




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##### Table of Contents



Schedule III AMERICA FIRST APARTMENT INVESTORS, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 2004 Costs CapitalizedInitial Cost
    
    
    SubsequentDescription
    
    
    
    
    to Company
    
    
    to AcquisitionBuilding
    
    
    BuildingNumber
    
    
    
    
    
    
    
    
    and
    
    
    andProperty Name
    
    Location
    
    of Units
    
    
    Encumbrances
    
    Land
    
    
    Improvements
    
    
    ImprovementsArbor Hills
    
    Antioch, TN
    
    
    548
    
    
    (a)
    
    $
    4,400,000
    
    
    $
    25,336,326
    
    
    $
    Belvedere Apartments
    
    Naples, FL
    
    
    162
    
    
    (a)
    
    
    956,326
    
    
    
    8,271,406
    
    
    
    66,722Bluff Ridge Apartments
    
    Jacksonville, NC
    
    
    108
    
    
    
    
    
    203,050
    
    
    
    3,501,391
    
    
    
    Brentwood Oaks Apartments
    
    Nashville, TN
    
    
    262
    
    
    (a)
    
    
    2,000,000
    
    
    
    9,836,737
    
    
    
    Coral Point Apartments
    
    Mesa, AZ
    
    
    336
    
    
    (a)
    
    
    2,240,000
    
    
    
    8,960,000
    
    
    
    243,829Covey at Fox Valley
    
    Aurora, IL
    
    
    216
    
    
    (a)
    
    
    1,320,000
    
    
    
    10,028,337
    
    
    
    470,767Delta Crossing
    
    Charlotte, NC
    
    
    178
    
    
    
    
    
    800,000
    
    
    
    5,031,386
    
    
    
    Elliots Crossing Apartments
    
    Tempe, AZ
    
    
    247
    
    
    (a)
    
    
    1,301,063
    
    
    
    9,694,087
    
    
    
    9,396The Exchange at Palm Bay
    
    Palm Bay, FL
    
    
    72,002
    
    
    (a)
    
    
    1,296,003
    
    
    
    2,483,231
    
    
    
    2,350,466Fox Hollow Apartments
    
    High Point, NC
    
    
    184
    
    
    (a)
    
    
    1,000,000
    
    
    
    5,045,492
    
    
    
    102,525Greenbriar Apartments
    
    Tulsa, OK
    
    
    120
    
    
    (a)
    
    
    648,000
    
    
    
    3,673,383
    
    
    
    120,522Highland Park Apartments
    
    Columbus, OH
    
    
    252
    
    
    (a)
    
    
    1,562,250
    
    
    
    6,206,883
    
    
    
    111,864The Hunt Apartments
    
    Oklahoma City, OK
    
    
    216
    
    
    (a)
    
    
    550,000
    
    
    
    7,069,306
    
    
    
    (8,610
    )Huntsview Apartments
    
    Greensboro, NC
    
    
    240
    
    
    (a)
    
    
    1,844,500
    
    
    
    6,575,966
    
    
    
    13,645Jackson Park Place Apartments
    
    Fresno, CA
    
    
    296
    
    
    (a)
    
    
    1,400,000
    
    
    
    10,709,534
    
    
    
    191,084Lakes of Northdale Apartments
    
    Tampa, FL
    
    
    216
    
    
    (a)
    
    
    1,552,517
    
    
    
    8,390,048
    
    
    
    63,744Littlestone of Village Green
    
    Gallatin, TN
    
    
    200
    
    
    (a)
    
    
    621,340
    
    
    
    9,942,189
    
    
    
    39,057Misty Springs Apartments
    
    Daytona Beach, FL
    
    
    128
    
    
    (a)
    
    
    741,587
    
    
    
    3,826,576
    
    
    
    3,987Monticello Apartments
    
    Southfield, MI
    
    
    106
    
    
    (a)
    
    
    565,384
    
    
    
    5,274,104
    
    
    
    8,450Oakhurst Apartments
    
    Ocala, FL
    
    
    214
    
    
    (a)
    
    
    846,621
    
    
    
    8,380,705
    
    
    
    38,665Oakwell Farms Apartments
    
    Nashville, TN
    
    
    414
    
    
    (a)
    
    
    1,946,000
    
    
    
    15,758,907
    
    
    
    423,766Park at Countryside
    
    Port Orange, FL
    
    
    120
    
    
    (a)
    
    
    647,000
    
    
    
    2,616,648
    
    
    
    (9,635
    )The Park at 58 Apartments
    
    Chattanooga, TN
    
    
    196
    
    
    (a)
    
    
    231,113
    
    
    
    4,122,226
    
    
    
    148,312Park Trace Apartments
    
    Norcross, GA
    
    
    260
    
    
    (a)
    
    
    2,246,000
    
    
    
    11,789,810
    
    
    
    98,614The Ponds at Georgetown
    
    Ann Arbor, MI
    
    
    134
    
    
    (a)
    
    
    652,700
    
    
    
    6,821,775
    
    
    
    24,201The Retreat
    
    Atlanta, GA
    
    
    226
    
    
    (a)
    
    
    1,800,000
    
    
    
    7,315,697
    
    
    
    85,244St. Andrews at Westwood
Apartments
    
    Orlando, FL
    
    
    259
    
    
    (a)
    
    
    1,617,200
    
    
    
    14,262,540
    
    
    
    (23,216
    )Shelby Heights
    
    Bristol, TN
    
    
    100
    
    
    (a)
    
    
    175,000
    
    
    
    2,952,846
    
    
    
    Watermans Crossing
    
    Newport News, VA
    
    
    260
    
    
    (a)
    
    
    1,620,482
    
    
    
    12,717,195
    
    
    
    8,684Waters Edge Apartments
    
    Lake Villa, IL
    
    
    108
    
    
    (a)
    
    
    486,000
    
    
    
    4,601,022
    
    
    
    19,630$
    37,270,136
    
    
    $
    241,195,753
    
    
    $
    4,601,713
   (a)
    
    Property is encumbered as described in Note 6 to the Consolidated Financial Statements.




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##### Table of Contents



Buildingand
    
    
    
    
    
    
    Accumulated
    
    
    Date of
    
    
    Date
    
    
    DepreciationProperty Name
    
    Land
    
    
    Improvements
    
    
    Total(d),(e)
    
    
    Depreciation (f)
    
    
    Construction
    
    
    Acquired
    
    
    LifeArbor Hills
    
    $
    4,400,000
    
    
    $
    25,336,326
    
    
    $
    29,736,326
    
    
    $
    
    
    
    
    1988
    
    
    
    2004
    
    
    27.5 yearsBelvedere Apartments
    
    
    956,326
    
    
    
    8,338,128
    
    
    
    9,294,454
    
    
    
    1,249,280
    
    
    
    1985
    
    
    
    2000
    
    
    27.5 yearsBluff Ridge Apartments
    
    
    203,050
    
    
    
    3,501,391
    
    
    
    3,704,441
    
    
    
    74,272
    
    
    
    1988
    
    
    
    2004
    
    
    40 yearsBrentwood Oaks Apartments
    
    
    2,000,000
    
    
    
    9,836,737
    
    
    
    11,836,737
    
    
    
    208,651
    
    
    
    1986
    
    
    
    2004
    
    
    27.5 yearsCoral Point Apartments
    
    
    2,240,000
    
    
    
    9,203,829
    
    
    
    11,443,829
    
    
    
    4,422,429
    
    
    
    1987
    
    
    
    1991
    
    
    27.5 yearsCovey at Fox Valley
    
    
    1,320,000
    
    
    
    10,499,104
    
    
    
    11,819,104
    
    
    
    6,178,674
    
    
    
    1989
    
    
    
    1989
    
    
    27.5 yearsDelta Crossing
    
    
    800,000
    
    
    
    5,031,386
    
    
    
    5,831,386
    
    
    
    106,726
    
    
    
    1989
    
    
    
    2004
    
    
    27.5 yearsElliots Crossing Apartments
    
    
    1,301,063
    
    
    
    9,703,483
    
    
    
    11,004,546
    
    
    
    205,492
    
    
    
    1987
    
    
    
    2004
    
    
    27.5 yearsThe Exchange at Palm Bay
    
    
    1,296,003
    
    
    
    4,833,697
    
    
    
    6,129,700
    
    
    
    3,666,017
    
    
    
    1988
    
    
    
    1990
    
    
    31.5 yearsFox Hollow Apartments
    
    
    1,000,000
    
    
    
    5,148,017
    
    
    
    6,148,017
    
    
    
    112,722
    
    
    
    1989
    
    
    
    2004
    
    
    40 yearsGreenbriar Apartments
    
    
    648,000
    
    
    
    3,793,905
    
    
    
    4,441,905
    
    
    
    832,289
    
    
    
    1985
    
    
    
    1998
    
    
    27.5 yearsHighland Park Apartments
    
    
    1,562,250
    
    
    
    6,318,747
    
    
    
    7,880,997
    
    
    
    137,639
    
    
    
    1987
    
    
    
    2004
    
    
    40 yearsThe Hunt Apartments
    
    
    550,000
    
    
    
    7,060,696
    
    
    
    7,610,696
    
    
    
    1,559,762
    
    
    
    1984
    
    
    
    1998
    
    
    27.5 yearsHuntsview Apartments
    
    
    1,844,500
    
    
    
    6,589,611
    
    
    
    8,434,111
    
    
    
    139,573
    
    
    
    1987
    
    
    
    2004
    
    
    27.5 yearsJackson Park Place Apartments
    
    
    1,400,000
    
    
    
    10,900,618
    
    
    
    12,300,618
    
    
    
    3,107,946
    
    
    
    1985
    
    
    
    1997
    
    
    27.5 yearsLakes of Northdale Apartments
    
    
    1,552,517
    
    
    
    8,453,792
    
    
    
    10,006,309
    
    
    
    177,971
    
    
    
    1985
    
    
    
    2004
    
    
    27.5 yearsLittlestone of Village Green
    
    
    621,340
    
    
    
    9,981,246
    
    
    
    10,602,586
    
    
    
    2,448,805
    
    
    
    1987
    
    
    
    1998
    
    
    27.5 yearsMisty Springs Apartments
    
    
    741,587
    
    
    
    3,830,563
    
    
    
    4,572,150
    
    
    
    82,063
    
    
    
    1989
    
    
    
    2004
    
    
    40 yearsMonticello Apartments
    
    
    565,384
    
    
    
    5,282,554
    
    
    
    5,847,938
    
    
    
    111,875
    
    
    
    1988
    
    
    
    2004
    
    
    40 yearsOakhurst Apartments
    
    
    846,621
    
    
    
    8,419,370
    
    
    
    9,265,991
    
    
    
    1,255,693
    
    
    
    1985
    
    
    
    2000
    
    
    27.5 yearsOakwell Farms Apartments
    
    
    1,946,000
    
    
    
    16,182,673
    
    
    
    18,128,673
    
    
    
    3,341,302
    
    
    
    1986
    
    
    
    1999
    
    
    27.5 yearsPark at Countryside
    
    
    647,000
    
    
    
    2,607,013
    
    
    
    3,254,013
    
    
    
    761,767
    
    
    
    1983
    
    
    
    1996
    
    
    27.5 yearsThe Park at 58 Apartments
    
    
    231,113
    
    
    
    4,270,538
    
    
    
    4,501,651
    
    
    
    1,921,326
    
    
    
    1987
    
    
    
    1991
    
    
    27.5 yearsPark Trace Apartments
    
    
    2,246,000
    
    
    
    11,888,424
    
    
    
    14,134,424
    
    
    
    3,092,594
    
    
    
    1988
    
    
    
    1997
    
    
    27.5 yearsThe Ponds at Georgetown
    
    
    652,700
    
    
    
    6,845,976
    
    
    
    7,498,676
    
    
    
    145,229
    
    
    
    1988
    
    
    
    2004
    
    
    40 yearsThe Retreat
    
    
    1,800,000
    
    
    
    7,400,941
    
    
    
    9,200,941
    
    
    
    2,074,996
    
    
    
    1985
    
    
    
    1997
    
    
    27.5 yearsSt. Andrews at Westwood Apartments
    
    
    1,617,200
    
    
    
    14,239,324
    
    
    
    15,856,524
    
    
    
    3,260,080
    
    
    
    1989
    
    
    
    1998
    
    
    27.5 yearsShelby Heights
    
    
    175,000
    
    
    
    2,952,846
    
    
    
    3,127,846
    
    
    
    1,493,313
    
    
    
    1987
    
    
    
    1991
    
    
    27.5 yearsWatermans Crossing
    
    
    1,620,482
    
    
    
    12,725,879
    
    
    
    14,346,361
    
    
    
    289,458
    
    
    
    1989
    
    
    
    2004
    
    
    40 yearsWaters Edge Apartments
    
    
    486,000
    
    
    
    4,620,652
    
    
    
    5,106,652
    
    
    
    108,768
    
    
    
    1988
    
    
    
    2004
    
    
    40 years$
    37,270,136
    
    
    $
    245,797,466
    
    
    $
    283,067,602
    
    
    $
    42,566,712
  (d)
    Reconciliation of Real Estate: 2004
    
    
    2003
    
    
    2002Balance  beginning of year
    
    $
    150,591,081
    
    
    $
    150,182,234
    
    
    $
    149,519,602Acquisition of real estate
    
    
    145,592,184
    
    
    
    
    
    
    
    Disposition of real estate
    
    
    (14,287,472
    )
    
    
    
    
    
    
    Improvements
    
    
    1,171,811
    
    
    
    408,847
    
    
    
    662,632Balance  end of year
    
    $
    283,067,604
    
    
    $
    150,591,081
    
    
    $
    150,182,234
  (e)
    As of December 31, 2004, the aggregate cost of the Companys investment in real estate for
Federal income tax purposes amounted to $278,650,492.




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##### Table of Contents



(f)
    Reconciliation of Accumulated Depreciation: 2004
    
    
    2003
    
    
    2002Balance  beginning of year
    
    $
    35,692,845
    
    
    $
    30,691,556
    
    
    $
    25,727,505Depreciation on disposed
properties
    
    
    (231,018
    )
    
    
    
    
    
    
    Depreciation
    
    
    7,104,885
    
    
    
    5,001,289
    
    
    
    4,964,051Balance  end of year
    
    $
    42,566,712
    
    
    $
    35,692,845
    
    
    $
    30,691,556




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##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized. AMERICA FIRST APARTMENT INVESTORS, INC.Date: May 3, 2005
    
    /s/ John H. CassidyJohn H. CassidyPresident and Chief Executive Officer




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##### Table of Contents



Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Company and in the capacities and on the
dates indicated. Date: May 3, 2005
    
    By /s/ Michael B. Yanney*Michael B. Yanney,Chairman of the Board and DirectorDate: May 3, 2005
    
    By /s/ John H. CassidyJohn H. Cassidy,President and Chief Executive OfficerDate: May 3, 2005
    
    By /s/ Michael J. DraperMichael J. Draper,Chief Financial OfficerDate: May 3, 2005
    
    By /s/ George J. Behringer*George J. Behringer,DirectorDate: May 3, 2005
    
    By /s/ George V. Janzen*George V. Janzen,DirectorDate: May 3, 2005
    
    By /s/ George H. Krauss*George H. Krauss,DirectorDate: May 3, 2005
    
    By /s/ Gregor Medinger*Gregor Medinger,DirectorDate: May 3, 2005
    
    By /s/ Lisa Y. Roskens*Lisa Y. Roskens,DirectorDate: May 3, 2005
    
    By /s/ Steven W. Seline*Steven W. Seline,Director
   *By Michael J. Draper, Attorney in Fact /s/ Michael J. Draper
     Michael J. Draper