##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
  Form 10-K
  (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2006oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to   Commission File Number:
    000-49986
  AMERICA FIRST APARTMENT
    INVESTORS, INC.
 (Exact name of registrant as
    specified in its charter)
  Maryland

47-0858301(State or other jurisdiction
    of incorporation or organization)

(I.R.S. Employer
    Identification No.)   1004 Farnam Street,
    Suite 100
    Omaha, Nebraska

68102(Zip Code)(Address of principal executive
    offices)   (402)
    557-6360
 (Registrants telephone number, including area code)
  Securities registered pursuant to Section 12(b) of the
    Act:
 Common Stock, $.01 par Value
  Securities registered pursuant to Section 12(g) of the
    Act:
    None
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
 o þ o
  Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE




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##### 



AMERICA
    FIRST APARTMENT INVESTORS, INC.
  TABLE OF
    CONTENTS
  
  PART IItem 1.

Business


1Item 1A.

Risk
    Factors


5Item 1B.

Unresolved Staff
    Comments


9Item 2.

Properties


10Item 3.

Legal
    Proceedings


11Item 4.

Submission of
    Matters to a Vote of Security Holders


11PART IIItem 5.

Market for
    Registrants Common Equity, Related Shareholder Matters and
    Issuer Purchases of Equity Securities


11Item 6.

Selected Financial
    Data


13Item 7.

Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


15Item 7A.

Quantitative and
    Qualitative Disclosures About Market Risk


31Item 8.

Financial
    Statements and Supplementary Data


34Item 9.

Changes in and
    Disagreements with Accountants on Accounting and Financial
    Disclosure


64Item 9A.

Controls and
    Procedures


64Item 9B.

Other
    Information


66PART IIIItem 10.

Directors and
    Executive Officers of the Registrant and Corporate
    Governance


66Item 11.

Executive
    Compensation


66Item 12.

Security Ownership
    of Certain Beneficial Owners and Management and Related
    Shareholder Matters


66Item 13.

Certain
    Relationships and Related Transactions and Director
    Independence


67Item 14.

Principal
    Accounting Fees and Services


67PART IVItem 15.

Exhibits and
    Financial Statement Schedules


67SIGNATURES


69SubsidiariesConsent of Independent Registered Public Accounting FirmPowers of AttorneyCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906    Forward-Looking
    Statements
   ii




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##### Table of Contents



AMERICA
    FIRST APARTMENT INVESTORS, INC.
  PART I
  Item 1.
    Business.        Operating
    and Investment Strategy
       1




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##### Table of Contents



Financing
    Strategies
   2




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##### Table of Contents



Form S-3
             3




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##### Table of Contents



Internalization
    transactions
      AFREZ
    Merger
      Competition
      Environmental
    Matters
   4




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##### Table of Contents



Information
    Available on Website
  Form 10-K, Form 10-Q, Form 8-K
  Item 1A.
    Risk
    Factors.    The
    Company may not be able to successfully implement its business
    plan.
    The
    Companys financial results are substantially dependent
    upon the performance of the multifamily apartment
    complexes.
    The
    Company is not completely insured against damages to its
    properties.
    The
    Company is subject to the risk normally associated with debt
    financing.
   5




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##### Table of Contents



Real
    estate financed with tax-exempt debt is subject to certain
    restrictions.
    Fluctuating
    interest rates may affect earnings.
      The
    use of derivatives to mitigate interest rate risks may not be
    effective.
    Multifamily
    apartment properties are illiquid and their value may
    decrease.
   6




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##### Table of Contents



There
    are risks associated with making mezzanine investments that
    differ from those involved with owning multifamily apartment
    properties.
    Because
    of competition, the Company may not be able to acquire
    investment assets.
    Company
    policies may be changed without shareholder
    approval.
    The
    Company has not established a minimum dividend payment
    level.
    The
    concentration of real estate in a geographical area may make the
    Company vulnerable to adverse changes in local economic
    conditions.
   7




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##### Table of Contents



Owning
    real estate may subject the Company to liability for
    environmental contamination.
    Compliance
    with the requirements of Governmental Laws and Regulations could
    be costly.
    The
    issuance of additional shares of stock could cause the price of
    the Companys stock to decline.
    There
    are a number of risks associated with being taxed as a
    REIT.
    
    Failure to qualify as a REIT would have adverse tax
    consequences.   8




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##### Table of Contents




    If the Company fails to qualify as a REIT, the dividends
    will not be deductible, and the Companys income will be
    subject to taxation.    
    Failure to make required distributions would subject the
    Company to income taxation.    
    85% of ordinary income for that year;
    95% of capital gain net income for that year; and
    100% of undistributed taxable income from prior years.    Loss
    of Investment Company Act exemption would adversely affect the
    Company.
    Item 1B.
    Unresolved
    Staff Comments.   9




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##### Table of Contents



Item 2.
    Properties.    Average


Number


PercentageNumber


Square Feet


of Units


of UnitsProperty Name

Location

of Units


per Unit


Occupied


OccupiedArbor Hills

Antioch, TN


548



827



507



93
%Arbors of Dublin

Dublin, OH


288



990



266



92
%Bluff Ridge Apartments

Jacksonville, NC


108



873



106



98
%Brentwood Oaks Apartments

Nashville, TN


262



852



253



97
%Coral Point Apartments

Mesa, AZ


337



780



315



93
%Cornerstone Apartments

Independence, MO


420



887



371



88
%Covey at Fox Valley

Aurora, IL


216



948



205



95
%Cumberland Trace(1)

Fayetteville, NC


248



958



201



81
%Elliots Crossing Apartments

Tempe, AZ


247



717



230



93
%Fox Hollow Apartments

High Point, NC


184



877



158



86
%Greenbriar Apartments

Tulsa, OK


120



666



113



94
%Highland Park Apartments

Columbus, OH


252



891



234



93
%Huntsview Apartments

Greensboro, NC


240



875



220



92
%Jackson Park Place Apartments

Fresno, CA


296



822



281



95
%Jackson Park Place
    Apartments  
    Phase II

Fresno, CA


80



1,096



73



91
%Lakes of Northdale Apartments

Tampa, FL


216



873



214



99
%Littlestone of Village Green

Gallatin, TN


200



987



194



97
%Misty Springs Apartments

Daytona Beach, FL


128



786



128



100
%Monticello Apartments

Southfield, MI


106



1,027



94



89
%Morganton Place

Fayetteville, NC


280



962



257



92
%Oakhurst Apartments

Ocala, FL


214



790



211



99
%Oakwell Farms Apartments

Nashville, TN


414



800



398



96
%Shelby Heights

Bristol, TN


100



980



99



99
%The Greenhouse

Omaha, NE


126



881



124



98
%The Hunt Apartments

Oklahoma City, OK


216



693



210



97
%The Park at Countryside

Port Orange, FL


120



720



118



98
%The Ponds at Georgetown

Ann Arbor, MI


134



1,002



124



93
%The Reserve at Wescott Plantation

Summerville, SC


192



1,083



180



94
%Tregaron Oaks Apartments

Bellevue, NE


300



875



289



96
%Village at Cliffdale

Fayetteville, NC


356



798



321



90
%Watermans Crossing

Newport News, VA


260



944



254



98
%Waters Edge Apartments(1)

Lake Villa, IL


108



814



101



94
%Woodberry Apartments

Asheville, NC


168



837



163



97
%7,484



876



7,012



94
%The Exchange at Palm Bay

Palm Bay, FL


72,007
(2)


n/a



69,193



96
%     (1)
    
    Property is held for sale as of December 31, 2006.(2)
    
    This is an office/warehouse facility. The figure represents
    square feet available for lease to tenants and percentage of
    square feet occupied. 10




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##### Table of Contents



Item 3.
    Legal
    Proceedings.    Item 4.
    Submission
    of Matters to a Vote of Security Holders.   PART II  Item 5.
    Market
    for the Registrants Common Equity, Related Shareholder
    Matters and Issuer Purchases of Equity Securities.    2006

High


Low1st Quarter

$
15.01


$
13.652nd Quarter

$
16.01


$
12.583rd Quarter

$
17.08


$
14.504th Quarter

$
20.70


$
15.92   2005

High


Low1st Quarter

$
12.76


$
11.302nd Quarter

$
12.13


$
11.253rd Quarter

$
13.14


$
11.564th Quarter

$
14.67


$
12.16        11




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##### Table of Contents



(a)


(b)


(c)Number of SecuritiesNumber of Securities





Remaining Availableto be Issued


Weighted-Average


for Future IssuanceUpon Exercise of


Exercise Price of


Under Equity CompensationOutstanding Options,


Outstanding Options,


Plans (Excluding SecuritiesPlan Category

Warrants and Rights


Warrants and Rights


Reflected in Column (a))Equity compensation plans approved
    by security holders


152,467
(1)

$
14.88



582,533Equity compensation plans not
    approved by security holders










Total


152,467


$
14.88



582,533     (1)
    
    Weighted-average term to expiration
    for these options is 9.1 years.      
  Total Return Analysis


12/31/2001



12/31/2002



12/31/2003



12/31/2004



12/31/2005



12/31/2006America First Apartment Investors,
    Inc.


$
100/00



$
80.04



$
114.43



$
132.89



$
168.43



$
233.58NAREIT Equity Index


$
100.00



$
103.82



$
142.37



$
187.33



$
210.11



$
283.77S&P 500 Index


$
100.00



$
77.95



$
100.27



$
111.15



$
116.60



$
134.87   Source:  CTA
    Integrated Communications www.ctaintegrated.com (303) 665-4200.
    Data from ReutersBridge Data Networks & National Association
    of Real Estate Investments Trusts.
     12




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##### Table of Contents



Item 6.
    Selected
    Financial Data.    For the


For the


For the


For the


For theYear Ended


Year Ended


Year Ended


Year Ended


Year EndedDec. 31, 2006


Dec. 31, 2005


Dec. 31, 2004


Dec. 31, 2003


Dec. 31, 2002(In thousands, except per share amounts)Rental revenues

$
49,134


$
39,207


$
26,320


$
16,423


$
16,752Other revenues


223



382



39







Real estate operating expenses


(21,208
)


(18,808
)


(14,488
)


(7,998
)


(8,400
)Property management expenses(1)


(1,039
)


(799
)


(132
)






General and administrative expenses


(5,335
)


(5,656
)


(3,865
)


(1,910
)


(1,773
)Depreciation expense


(10,436
)


(7,748
)


(4,951
)


(3,287
)


(3,344
)In-place lease amortization


(1,728
)


(2,674
)


(2,130
)






Intangible asset impairment


(199
)














Contract termination costs(2)






(11,619
)


(5,911
)






Operating income (loss)


9,412



(7,715
)


(5,118
)


3,228



3,235Interest and dividend income


1,995



1,725



1,252



328



306Other non-operating gains
    (losses)(3)


(522
)






212



4,444



Interest expense


(11,231
)


(8,771
)


(5,140
)


(3,351
)


(3,292
)Income (loss) from continuing
    operations


(346
)


(14,761
)


(8,794
)


4,649



249Income (loss) from discontinued
    operations


706



1,107



56



(288
)


741Gain on sales of discontinued
    operations


19,197



24,606



5,973







Net income (loss)

$
19,557


$
10,952


$
(2,765
)

$
4,361


$
990Income (loss) from continuing
    operations per share or BUC (beneficial unit certificate), basic
    and diluted

$
(0.03
)

$
(1.40
)

$
(1.07
)

$
0.92


$
0.05Net income (loss), basic and
    diluted, per share or BUC

$
1.77


$
1.04


$
(0.34
)

$
0.86


$
0.19Dividends (distributions) declared
    per share or BUC

$
1.02


$
1.00


$
1.00


$
1.00


$
1.00Investments in real estate, net of
    accumulated depreciation(4)

$
357,272


$
239,733


$
240,501


$
114,898


$
119,491Total assets

$
385,764


$
333,959


$
297,397


$
166,892


$
136,854Bonds and mortgage notes payable

$
249,651


$
185,764


$
167,150


$
82,215


$
82,913Borrowings under repurchase
    agreements

$
12,825


$
36,202


$
27,875


$
33,012


$
Funds from Operations(5)

$
13,143


$
(1,422
)

$
970


$
9,362


$
5,954Weighted average number of shares
    or BUCs outstanding  basic


11,037



10,513



8,243



5,074



5,023  13




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##### Table of Contents



(1)
    
    Property management expenses consist of salaries and benefits of
    the Companys regional property managers, training
    personnel, national maintenance directors and senior
    vice-president of operations, their respective travel costs and
    other costs directly attributable to these personnel. Such
    amounts were not incurred until November 2004 when the Company
    internalized the property management function. Prior to that
    time, the Company paid property management fees to America First
    PM Group, Inc., a property management company that was an
    affiliate of the Advisor, and such fees were included in real
    estate operating expenses.(2)
    
    Contract termination charges result from the allocation of a
    portion of the consideration paid by the Company for the Advisor
    and America First PM Group, Inc, in 2005 and 2004, respectively
    to the termination of the pre-existing contractual relationships.(3)
    
    Other non-operating gains (losses) in 2006 include a $64,000
    loss on redemption of securities, a $367,000 impairment of
    securities, and a $91,000 loss on redemption of debt. In 2004,
    other non-operating gains include a gain recognized upon the
    redemption of a corporate equity security. The 2003 amount
    represents a gain on a previously written off subordinated note
    that was realized from the sale of Jefferson Place Apartments.(4)
    
    In 2006, the Company sold Park at 58th, the Belvedere Apartments
    and Delta Crossing. Additionally, the Company has designated
    Cumberland Trace and Waters Edge as held for sale. These assets
    of $15,540 and $20,570 at December 31, 2006 and 2005
    respectively are included in assets of discontinued operations
    in the consolidated balance sheets included within item 8,
    Financial Statements and Supplementary Data.(5)
    
    The Company generally calculates FFO in accordance with the
    definition of FFO that is recommended by the National
    Association of Real Estate Investment Trusts
    (NAREIT). To calculate FFO under the NAREIT
    definition, depreciation and amortization expenses related to
    the Companys real estate, gains or losses realized from
    the disposition of depreciable real estate assets, and certain
    extraordinary items are added back or deducted from the
    Companys net income (loss). In the 2006 computation, the
    Company has added back the impairment loss recognized on the
    Companys agency securities and preferred stock and
    believes that this treatment is appropriate since NAREIT allows
    for the exclusion of gains and losses recognized in connection
    with the sale of a security in the determination of FFO. NAREIT
    does not specifically discuss how an impairment of a security
    should be handled. FFO in 2005 and 2004 was negatively affected
    by $11.6 million and $5.9 million of costs associated
    with the conversion of the Company to a self-advised and
    self-managed REIT. Although these costs are required to be
    included within FFO, these types of expenses will not likely
    re-occur. For other items impacting comparability of FFO refer
    to the FFO discussion in Item 7, Management Discussion and
    Analysis of Financial Condition and Results of Operations.       14




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##### Table of Contents



Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations.  General
      Average


Number


PercentageNumber


Square Feet


of Units


of UnitsProperty Name

Location

of Units


per Unit


Occupied


OccupiedArbor Hills

Antioch, TN


548



827



507



93
%Arbors of Dublin

Dublin, OH


288



990



266



92
%Bluff Ridge Apartments

Jacksonville, NC


108



873



106



98
%Brentwood Oaks Apartments

Nashville, TN


262



852



253



97
%Coral Point Apartments

Mesa, AZ


337



780



315



93
%Cornerstone Apartments

Independence, MO


420



887



371



88
%Covey at Fox Valley

Aurora, IL


216



948



205



95
%Cumberland Trace(1)

Fayetteville, NC


248



958



201



81
%Elliots Crossing Apartments

Tempe, AZ


247



717



230



93
%Fox Hollow Apartments

High Point, NC


184



877



158



86
%Greenbriar Apartments

Tulsa, OK


120



666



113



94
%Highland Park Apartments

Columbus, OH


252



891



234



93
%Huntsview Apartments

Greensboro, NC


240



875



220



92
%Jackson Park Place Apartments

Fresno, CA


296



822



281



95
%Jackson Park Place 
    Apartments  Phase II

Fresno, CA


80



1,096



73



91
%Lakes of Northdale Apartments

Tampa, FL


216



873



214



99
%Littlestone of Village Green

Gallatin, TN


200



987



194



97
%Misty Springs Apartments

Daytona Beach, FL


128



786



128



100
%Monticello Apartments

Southfield, MI


106



1,027



94



89
%Morganton Place

Fayetteville, NC


280



962



257



92
%Oakhurst Apartments

Ocala, FL


214



790



211



99
%Oakwell Farms Apartments

Nashville, TN


414



800



398



96
%Shelby Heights

Bristol, TN


100



980



99



99
%The Greenhouse

Omaha, NE


126



881



124



98
%The Hunt Apartments

Oklahoma City, OK


216



693



210



97
%The Park at Countryside

Port Orange, FL


120



720



118



98
%The Ponds at Georgetown

Ann Arbor, MI


134



1,002



124



93
%The Reserve at Wescott Plantation

Summerville, SC


192



1,083



180



94
%Tregaron Oaks Apartments

Bellevue, NE


300



875



289



96
%Village at Cliffdale

Fayetteville, NC


356



798



321



90
%Watermans Crossing

Newport News, VA


260



944



254



98
%Waters Edge Apartments(1)

Lake Villa, IL


108



814



101



94
%Woodberry Apartments

Asheville, NC


168



837



163



97
%7,484



876



7,012



94
%The Exchange at Palm Bay

Palm Bay, FL


72,007(2
)


n/a



69,193



96
%  15




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##### Table of Contents



(1)
    
    Property is held for sale as of December 31, 2006.(2)
    
    This is an office/warehouse facility. The figure represents
    square feet available for lease to tenants and percentage of
    square feet occupied.  Executive
    Summary
      
    Eight properties were acquired, consisting of 1,966 units,
    for aggregate consideration of $145.7 million. The
    acquisitions were financed with approximately $72.1 million
    in cash, borrowings of an additional $72.0 million and the
    assumption of $1.6 million of liabilities. The cash for
    these transactions was primarily generated from the 2005 sale of
    St. Andrews at Westwood, the second quarter 2006 sale of the
    Belvedere Apartments and the release of cash collateralizing the
    bonds payable at Coral Point and Covey at Fox Valley.
    Two underperforming properties, Park at
    58th and
    Delta Crossing, were sold. In January 2007, a third
    underperforming property, Cumberland Trace, was sold for
    $10.9 million, with no gain or loss recognized on the sale.
    Cumberland Trace, acquired in September 2006, did not meet the
    Companys acquisition criteria if bought on a stand alone
    basis, but was required to be purchased as it, Morganton Place,
    Village at Cliffdale and Woodberry Apartments were being sold
    only as a single portfolio.
    Reduced general and administrative expenses through benefits
    realized from the internalization of management. The elimination
    of administrative fees previously paid to our former external
    advisor reduced general and administrative expenses by
    approximately $1.6 million from the prior year. These
    savings are partially offset by approximately $600,000 of
    incremental costs. Such costs primarily relate to incremental
    salary costs to replace services formerly provided by the
    external advisor and incremental rental expenses for office
    space for those employees providing such services. Additionally
    the absence of property acquisition fees on the current year
    acquisitions created cash savings of $1.8 million. For the
    year, the Company estimates that it has saved approximately
    $2.8 million in cash and increased Funds from Operations by
    $0.10 per share by completing the management
    internalization.
    Dividends were increased by 4% to a dividend rate of
    $0.26 per share per quarter.  Critical
    Accounting Policies
    Establishment of depreciation policy 1 2 1 2
 16




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##### Table of Contents



Establishment of capitalization policy
  Review of real estate assets for impairment
  Results
    of Operations
  Accounting for Impairment or Disposal of
    Long-Lived Assets,
  Year
    Ended December 31, 2006 Compared to the Year Ended
    December 31, 2005 (in thousands):
  For the Year Ended


For the Year Ended


Dollar


PercentageDecember 31, 2006


December 31, 2005


Change


ChangeRevenues:Rental revenues

$
49,134


$
39,207


$
9,927



25
%Other


223



382



(159
)


(42
)%Total revenues


49,357



39,589



9,768



25
%Expenses:Real estate operating


21,208



18,808



2,400



13
%Property management


1,039



799



240



30
%General and administrative


5,335



5,656



(321
)


(6
)%Depreciation


10,436



7,748



2,688



35
%In-place lease amortization


1,728



2,674



(946
)


(35
)%Intangible asset impairment


199







199



Contract termination costs






11,619



(11,619
)


(100
)%Total expenses


39,945



47,304



(7,359
)


(16
)%Operating income (loss)

$
9,412


$
(7,715
)

$
17,127



222
%  17




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##### Table of Contents



Rental revenues.
  Other revenues.
  Real estate operating expenses. on-site
  Property management expenses.
  General and administrative expenses.
  Depreciation expense.
  In-place lease amortization. lease-up
 18




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##### Table of Contents



Intangible asset impairment.
  Contract termination costs.
  Other
    income and expenses
    For the Year Ended


For the Year Ended


Dollar


PercentageDecember 31, 2006


December 31, 2005


Change


ChangeInterest and dividend income

$
1,995


$
1,725


$
270



16
%Loss on redemption of securities


(64
)






(64
)


Impairment of securities


(367
)






(367
)


Loss on extinguishment of debt


(91
)






(91
)


Interest expense


(11,231
)


(8,771
)


(2,460
)


28
%Other expense, net

$
(9,758
)

$
(7,046
)

$
(2,712
)


38
%     87-24, Allocation of Interest to Discontinued Operations
 19




---



##### Table of Contents



Discontinued operations. th
    Year
    Ended December 31, 2005 Compared to the Year Ended
    December 31, 2004 (in thousands):
  For the Year Ended


For the Year Ended


Dollar


PercentageDecember 31, 2005


December 31, 2004


Change


ChangeRevenues:Rental revenues

$
39,207


$
26,320


$
12,887



49
%Other


382



39



343



Total revenues


39,589



26,359



13,230



50
%Expenses:Real estate operating


18,808



14,488



4,320



30
%Property management


799



132



667



General and administrative


5,656



3,865



1,791



46
%Depreciation


7,748



4,951



2,797



56
%In-place lease amortization


2,674



2,130



544



26
%Contract termination costs


11,619



5,911



5,708



97
%Total expenses


47,304



31,477



15,827



50
%Operating loss

$
(7,715
)

$
(5,118
)

$
(2,597
)


51
%   Rental revenues.
  Other revenues.
  Real estate operating expenses. on-site
 20




---



##### Table of Contents



Property management expenses.
  General and administrative expenses.
  Depreciation expense.
  In-place lease amortization. lease-up
  Contract termination costs.
    Other
    income and expenses
    For the Year Ended


For the Year Ended


Dollar


PercentageDecember 31, 2005


December 31, 2004


Change


ChangeInterest and dividend income

$
1,725


$
1,252


$
473



38
%Gain on redemption of securities






212



(212
)


Interest expense


(8,771
)


(5,140
)


(3,631
)


71
%Other expense, net

$
(7,046
)

$
(3,676
)

$
(3,370
)


92
%   Interest and dividend income.
 21




---



##### Table of Contents



Interest expense.
  Discontinued operations.
      Funds
    from Operations (FFO)
    For the Year Ended December 31,2006


2005


2004Net income (loss)

$
19,557


$
10,952


$
(2,765
)Depreciation expense


10,248



7,748



4,951In-place lease amortization


1,728



2,674



2,130Depreciation and amortization of
    discontinued operations


376



1,810



2,839(Gain) loss on redemption of
    securities


64







(212
)Impairment of securities


367







Less: Gain on sales of
    discontinued operations


(19,197
)


(24,606
)


(5,973
)Funds from Operations

$
13,143


$
(1,422
)

$
970Basic weighted average shares
    outstanding


11,037



10,513



8,243Funds from Operations per share

$
1.19


$
(0.14
)

$
0.12  22




---



##### Table of Contents



Supplemental
    Operating Performance Statistics
     23




---



##### Table of Contents



December 31,


December 31,


December 31,2006


2005


2004Physical Occupancy


94
%


93
%


92
%Average annual same store rent per
    unit(1)

$
8,038


$
7,643



n/aNet operating income margin(2)


57
%


52
%


45
%     (1)
    
    Fiscal 2004 average same store rent per unit is not disclosed,
    as the same store information for the period from
    January 1, 2004 through December 31, 2006 is not as
    relevant due to the significant impact that the AFREZ merger had
    on the Company.(2)
    
    Net operating income margin has increased largely due to the
    elimination of property management fees in November 2004 as a
    result of the acquisition of certain assets from America First
    Property Management Companies, LLC, the acquisition of
    properties which allow the Company to realize improved margins,
    and strong same store revenue growth. 24




---



##### Table of Contents



For the Year Ended


For the Year EndedPhysical Occupancy

December 31,


December 31,Property Name

2006


2005Same store propertiesArbor Hills


93
%


90
%Bluff Ridge Apartments


98
%


98
%Brentwood Oaks Apartments


97
%


98
%Coral Point Apartments


93
%


94
%Covey at Fox Valley


95
%


89
%Elliots Crossing Apartments


93
%


95
%Fox Hollow Apartments


86
%


84
%Greenbriar Apartments


94
%


94
%Highland Park Apartments


93
%


95
%Huntsview Apartments


92
%


90
%Jackson Park Place Apartments


95
%


94
%Lakes of Northdale Apartments


99
%


96
%Littlestone of Village Green


97
%


95
%Misty Springs Apartments


100
%


100
%Monticello Apartments


89
%


93
%Oakhurst Apartments


99
%


98
%Oakwell Farms Apartments


96
%


95
%Shelby Heights


99
%


96
%The Hunt Apartments


97
%


93
%The Park at Countryside


98
%


98
%The Ponds at Georgetown


93
%


88
%The Reserve at Wescott Plantation


94
%


94
%Tregaron Oaks Apartments


96
%


96
%Watermans Crossing


98
%


95
%95
%


94
%Fiscal 2006
    acquisitionsArbors of Dublin


92
%


Cornerstone Apartments


88
%


Jackson Park Place
    Apartments  Phase II


91
%


Morganton Place


92
%


The Greenhouse


98
%


Village at Cliffdale


90
%


Woodberry Apartments


97
%


Properties held for sale or
    sold in 2006Belvedere Apartments






99
%Cumberland Trace


81
%


Delta Crossing






96
%Park at 58th






76
%Waters Edge Apartments


94
%


88
%94
%


93
%  25




---



##### Table of Contents



Annual
    Rental Revenue per unit
  For the Year


For the YearEnded


EndedDecember 31,


December 31,Property Name

2006


2005


Change


% ChangeSame store propertiesArbor Hills

$
6,836


$
6,750


$
86



1
%Bluff Ridge Apartments


8,217



7,842



375



5
%Brentwood Oaks Apartments


8,454



8,133



321



4
%Coral Point Apartments


7,143



6,537



606



9
%Covey at Fox Valley


10,158



9,391



767



8
%Elliots Crossing Apartments


7,673



6,816



857



13
%Fox Hollow Apartments


6,255



5,996



259



4
%Greenbriar Apartments


6,019



5,859



160



3
%Highland Park Apartments


6,406



6,436



(30
)


0
%Huntsview Apartments


6,748



6,513



235



4
%Jackson Park Place Apartments


8,897



8,329



568



7
%Lakes of Northdale Apartments


9,397



8,563



834



10
%Littlestone of Village Green


7,426



7,163



263



4
%Misty Springs Apartments


8,504



8,005



499



6
%Monticello Apartments


9,760



10,110



(350
)


(3
)%Oakhurst Apartments


8,249



7,991



258



3
%Oakwell Farms Apartments


7,094



6,736



358



5
%Shelby Heights


7,289



6,692



597



9
%The Hunt Apartments


6,182



5,810



372



6
%The Park at Countryside


8,549



8,050



499



6
%The Ponds at Georgetown


11,090



10,640



450



4
%Watermans Crossing


10,491



9,789



702



7
%Average

$
8,038


$
7,643


$
395



5
%Fiscal 2006
    acquisitions(1)Arbors of Dublin

$
5,950Cornerstone Apartments


250Jackson Park Place
    Apartments  Phase II


4,964Morganton Place


2,090The Greenhouse


12,022Village at Cliffdale


1,957Woodberry Apartments


2,131Average

$
4,195Properties held for sale or
    sold in 2006(1)Belvedere Apartments

$
4,128


$
9,770Cumberland Trace


1,658



Delta Crossing


5,959



6,817Park at 58th


1,665



4,994Waters Edge Apartments


9,807



9,362Average

$
4,643


$
7,736 26




---



##### Table of Contents



For the Year


For the YearEnded


EndedDecember 31,


December 31,Property Name

2006


2005


Change


% ChangeFiscal 2005 acquisitions and
    divestitures(1)The Reserve at Wescott Plantation

$
9,487


$
3,298Tregaron Oaks Apartments


8,457



3,273Park Trace Apartments






4,297St. Andrews Apartments






7,536The Retreat Apartments






5,565Average

$
8,972


$
4,794     (1)
    
    Rent per unit represents revenue earned by the Company during
    the period of ownership. Such amounts are not indicative of the
    full year revenues per unit.  Liquidity
    and Capital Resources
           27




---



##### Table of Contents



28




---



##### Table of Contents



29




---



##### Table of Contents



Off
    Balance Sheet Arrangements
    Contractual
    Obligations
    Payments Due by PeriodLess Than


2-3


4-5


More ThanTotal


1 Year


Years


Years


5 YearsNotes payable

$
2,413


$



$
2,413


$



$
Bonds and mortgage notes payable


249,651



15,354



13,611



11,998



208,688Borrowings under repurchase
    agreements


12,825



12,825











Total

$
264,889


$
28,179


$
16,024


$
11,998


$
208,688       Inflation
    Recent
    Accounting Pronouncements
  Accounting for Uncertainty in Income Taxes  an
    interpretation of FASB Statement No. 109
  Fair Value Measurements
 30




---



##### Table of Contents



Considering the
    Effects of Prior Year Misstatements when Quantifying
    Misstatements in Current Year Financial Statements,
  The Fair Value Option for Financial Assets and Financial
    Liabilities  Including an amendment of FASB Statement
    No. 115.
  Item 7A.
    Quantitative
    and Qualitative Disclosures about Market Risk.    Interest
    Rate Risk on Bonds and Mortgage Notes Payable
         31




---



##### Table of Contents



Fixed-Rate Borrowings


Variable-Rate BorrowingsWeighted








WeightedPrincipal


Average





Principal


AverageMaturity

Amount


Interest Rate


Maturity


Amount


Interest Rate(1)2007

$
1,085



6.01
%


2007


$
14,269



4.09
%2008


1,151



6.01
%


2008



129



4.09
%2009


12,192



6.84
%


2009



139



4.09
%2010


1,014



5.77
%


2010



4,564



4.09
%2011


6,420



6.72
%


2011







Thereafter


172,929



4.93
%


Thereafter



35,759



3.76
%$
194,791










$
54,860     (1)
    
    Weighted average rate for the year ended December 31, 2006.    Interest Rate Swaps and CapsCounterparty





CompanyNotional


Receive/


Notional


PayMaturity

Amount


Cap Rate


Amount


RateFixed to Variable

September 20, 2007

$
5,300
(4)


7.13
%

$
5,300
(4)


4.09
%(3)Fixed to Variable

December 6, 2007

$
4,950
(1)(4)


7.75
%

$
4,950
(1)(4)


4.09
%(3)Fixed to Variable

January 22, 2009

$
8,300
(4)


5.38
%

$
8,300
(4)


4.09
%(3)Fixed to Variable

July 13, 2009

$
6,930
(4)


7.25
%

$
6,930
(4)


4.09
%(3)Fixed to Variable

July 13, 2009

$
3,980
(4)


7.50
%

$
3,980
(4)


4.09
%(3)Variable to Fixed

February 3, 2009

$
8,100



3.44
%(2)

$
8,100



2.82
%Variable to Fixed

June 25, 2009

$
10,910



3.44
%(2)

$
10,910



3.30
%Interest Rate Cap

December 22, 2009

$
13,400



4.50
%


N/A



N/AInterest Rate Cap

December 22, 2009

$
12,750



4.50
%


N/A



N/AInterest Rate Cap

September 15, 2011

$
11,320



6.22
%


N/A



N/A     (1)
    
    Notional amount is tied to the Exchange at Palm Bay bond payable
    and adjusts downward as principal payments are made on the bond
    payable.(2)
    
    Weighted average Bond Market Association rate for the year ended
    December 31, 2006.(3)
    
    Weighted average Bond Market Association rate for the year ended
    December 31, 2006 plus 0.65%.(4)
    
    These are total return swaps.     32




---



##### Table of Contents



Notional


Receive


Notional


PayMaturity

Amount


Rate


Amount


RateVariable to Fixed

January 15, 2012

$
11,320



3.44
%(1)

$
11,320



3.44
%Variable to Fixed

December 15, 2016

$
12,410



3.80
%(2)

$
12,410



3.69
%     (1)
    
    Weighted average Bond Market Association rate for the year ended
    December 31, 2006.(2)
    
    Swap was entered into on December 15, 2006. Amount is the
    average Bond Market rate for the last two weeks of 2006.    Credit
    Risk of Cash Concentrations
    Credit
    Risk of Interest Rate Swap and Cap Agreements
   33




---



##### Table of Contents



Item 8.
    Financial
    Statements and Supplementary Data.  REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
          Internal Control 
    Integrated Framework
  DELOITTE &
    TOUCHE LLP
    34




---



##### Table of Contents



AMERICA
    FIRST APARTMENT INVESTORS, INC. AND SUBSIDIARIES
  CONSOLIDATED
    BALANCE SHEETS
  December 31,


December 31,2006


2005(In thousands, except share and per share amounts)ASSETSCash and cash equivalents

$
5,724


$
4,743Restricted cash


9,391



53,279Real estate assets:Land


42,953



32,549Building and improvements


345,296



222,814Total


388,249



255,363Less: accumulated depreciation


(46,517
)


(36,200
)Real estate assets, net


341,732



219,163Assets of discontinued operations


15,540



20,570Investments in agency securities,
    at fair value






18,189Investments in corporate equity
    securities, at fair value


3,526



4,073Investment in mezzanine loan






7,173In-place lease intangibles, net of
    accumulated amortization of $7,105 and $5,377, respectively


1,931



550Other assets


7,920



6,219Total assets

$
385,764


$
333,959LIABILITIESAccounts payable and accrued
    expenses

$
11,332


$
8,996Dividends payable


2,872



2,759Notes payable


2,413



2,413Bonds and mortgage notes payable


249,651



185,764Borrowings under repurchase
    agreements


12,825



36,202Total liabilities


279,093



236,134ContingenciesShareholders EquityCommon stock, $0.01 per share
    par value; 500,000,000 shares authorized, 11,045,558 and
    11,035,558 issued and outstanding


110



110Additional paid-in capital


110,421



110,157Accumulated deficit


(4,084
)


(12,318
)Accumulated other comprehensive
    income (loss)


224



(124
)Total shareholders equity


106,671



97,825Total liabilities and
    shareholders equity

$
385,764


$
333,959    35




---



##### Table of Contents



AMERICA
    FIRST APARTMENT INVESTORS, INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
    (LOSS)
  For the Year Ended


For the Year Ended


For the Year EndedDecember 31, 2006


December 31, 2005


December 31, 2004(In thousands, except per share amounts)Revenues:Rental revenues

$
49,134


$
39,207


$
26,320Other revenues


223



382



39Total revenues


49,357



39,589



26,359Operating expenses:Real estate operating


21,208



18,808



14,488Property management


1,039



799



132General and administrative


5,335



5,656



3,865Depreciation


10,436



7,748



4,951In-place lease amortization


1,728



2,674



2,130Intangible asset impairment


199







Contract termination costs






11,619



5,911Total operating expenses


39,945



47,304



31,477Operating income (loss)


9,412



(7,715
)


(5,118
)Interest and dividend income


1,995



1,725



1,252(Loss) gain on redemption of
    securities


(64
)






212Impairment of securities


(367
)






Loss on extinguishment of debt


(91
)






Interest expense


(11,231
)


(8,771
)


(5,140
)Loss from continuing operations


(346
)


(14,761
)


(8,794
)Income from discontinued operations


706



1,107



56Gain on sales of discontinued
    operations


19,197



24,606



5,973Net income (loss)


19,557



10,952



(2,765
)Other comprehensive income (loss):Unrealized holding losses on
    securities arising during the period


(13
)


(282
)


(344
)Reclassification adjustments for
    losses (gains) realized in net income


378







(212
)Unrealized gains (losses) on
    derivatives


(17
)


109



348



(173
)


(556
)Comprehensive income (loss)

$
19,905


$
10,779


$
(3,321
)Earnings per share 
    basic and diluted:Loss from continuing operations

$
(0.03
)

$
(1.40
)

$
(1.07
)Income from discontinued operations


1.80



2.44



0.73Net income (loss)

$
1.77


$
1.04


$
(0.34
)Dividends declared per share

$
1.02


$
1.00


$
1.00Weighted average number of
    shares  outstanding basic and diluted


11,037



10,513



8,243    36




---



##### Table of Contents



AMERICA
    FIRST APARTMENT INVESTORS, INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF SHAREHOLDERS EQUITY
 For the
    Years Ended December 31, 2006, 2005 and 2004
  AccumulatedCommon





Additional





OtherStock


Common


Paid-In


Accumulated


ComprehensiveShares


Stock


Capital


Deficit


Income (Loss)


Total(In thousands)Balance, January 1, 2004


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











21Unrealized holding losses on
    securities arising during the period


















(556
)


(556
)Dividends declared














(9,149
)






(9,149
)Balance, December 31, 2004


10,511



105



102,766



(12,628
)


49



90,292Net income














10,952







10,952Issuance of common stock


525



5



7,329











7,334Stock option compensation










62











62Unrealized holding losses on
    securities arising during the period


















(282
)


(282
)Unrealized gains (losses) on
    derivatives


















109



109Dividends declared














(10,642
)






(10,642
)Balance, December 31, 2005


11,036



110



110,157



(12,318
)


(124
)


97,825Net income














19,557







19,557Issuance of common stock


10







86











86Stock option compensation










178











178Reclassification adjustment for
    losses recognized in net income


















378



378Unrealized holding losses on
    securities arising during the period


















(13
)


(13
)Unrealized gains (losses) on
    derivatives


















(17
)


(17
)Dividends declared














(11,323
)






(11,323
)Balance, December 31, 2006


11,046


$
110


$
110,421


$
(4,084
)

$
224


$
106,671    37




---



##### Table of Contents



AMERICA
    FIRST APARTMENT INVESTORS, INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  For the


For the


For theYear Ended


Year Ended


Year EndedDecember 31,


December 31,


December 31,2006


2005


2004(In thousands)Operating activities:Net income (loss)

$
19,557


$
10,952


$
(2,765
)Adjustments to reconcile net income
    (loss) to net cash provided by operating activities:Depreciation


10,812



9,317



7,122Gain on sales of discontinued
    operations


(19,197
)


(24,606
)


(5,973
)Impairment of securities


367







Loss (gain) on redemption of
    securities


64







(212
)Loss on extinguishment of debt


91







Intangible asset impairment


199







Contract termination costs






11,619



5,911Change in fair value on interest
    rate swap agreements


179



(85
)


(273
)Amortization


1,919



3,269



3,321Non-cash stock option compensation


178



62



21Change in other assets


560



(272
)


385Change in accounts payable and
    accrued expenses


1,351



1,104



704Net cash provided by operating
    activities


16,080



11,360



8,241Investing activities:Capital improvements and real
    estate acquisitions


(147,444
)


(27,067
)


(5,398
)Proceeds from sales of discontinued
    operations


34,873



54,352



11,076Principal and sales proceeds
    received on agency securities


18,036



7,667



11,004Change in restricted cash


43,888



(45,240
)


263Proceeds from redemption of
    corporate equity securities


583



125



3,876Investment in mezzanine loan






(7,444
)


Proceeds from principal repayment
    of mezzanine loan


7,094



350



Acquisition of America First
    Advisory Corporation






(4,065
)


Acquisition of America First Real
    Estate Investment Partners, LP










(3,963
)Purchase of property management
    assets










(6,898
)Cash received in acquisition of
    America First Real Estate Investment Partners, LP










8,400Acquisition of agency securities










(1,565
)Net cash (used) provided by
    investing activities


(42,970
)


(21,322
)


16,795Financing activities:Proceeds from mortgage notes payable


71,988



12,370



Borrowings under repurchase
    agreements






11,300



Proceeds from issuance of common
    stock


86







44Debt financing costs paid


(1,534
)


(140
)


(419
)Dividends and dividend equivalents
    paid


(11,191
)


(10,511
)


(7,790
)Repayments of borrowings under
    repurchase agreements


(23,377
)


(2,973
)


(12,111
)Principal payments on bonds and
    mortgage notes payable


(8,101
)


(5,975
)


(1,044
)Net cash provided (used) by
    financing activities


27,871



4,071



(21,320
)Net change in cash and cash
    equivalents


981



(5,891
)


3,716Cash and cash equivalents at
    beginning of year


4,743



10,634



6,918Cash and cash equivalents at year
    end

$
5,724


$
4,743


$
10,634Supplemental disclosure of cash
    flow information:Cash paid for interest

$
11,467


$
8,500


$
5,153Noncash investing and financing
    activities:Dividends declared but not paid

$
2,872


$
2,759


$
2,628Issuance of shares for America
    First Advisory Corporation acquisition

$



$
7,334


$
Assumption of debt in connection
    with property acquisition

$



$
12,218


$
26,150Issuance of shares for America
    First Real Estate Investment Partners, L.P. merger

$



$



$
55,338Relinquishment of debt in
    connection with property disposition

$



$



$
8,775    38




---



##### Table of Contents



1.
    Organization        2.
    Summary
    of Significant Accounting Policies  A)  Financial
    Statement Presentation
      B)  Cash
    and Cash Equivalents
    C)  Restricted
    Cash
    D)  Real
    Estate Assets
  1 2 1 2
   39




---



##### Table of Contents



and/or
    lease-up
  E)  Investment
    in Agency Securities and Corporate Equity
    Securities
    Accounting for Certain Investments in Debt and
    Equity Securities available-for-sale.
          F)  Debt
    Financing Costs
    G)  Borrowings
    under Repurchase Agreements
   40




---



##### Table of Contents



H)  Revenue
    Recognition
    I)  Income
    Taxes
      Estimated2006


2005


2004Net income (loss) per financial
    statements

$
19,557


$
10,952


$
(2,765
)Reconciling items:Add differences in deductions for
    depreciation and amortization


402



2,277



2,848Add (less) basis difference for
    assets acquired or disposed


(16,857
)


(6,567
)


5,399Other book/tax differences (net)


13



15



92Taxable income subject to the
    dividend requirement

$
3,115


$
6,677


$
5,574Minimum dividend required (90% of
    taxable income)

$
2,804


$
6,009


$
5,017     2006


2005


2004Common dividends paid:Ordinary dividends

$
5,358


$
4,310


$
7,246Long-term capital gain


2,333



6,201



Return of capital


3,455







544Total dividends paid

$
11,146


$
10,511


$
7,790   J)  Discontinued
    Operations
  Accounting for Impairment or Disposal of Long-Lived Assets
 41




---



##### Table of Contents



K)  Net
    Income (Loss) per share
    L)  Derivative
    Instruments and Hedging Activities
  Accounting for Derivative Instruments and
    Hedging Activities,
  M)  Reclassifications
    N)  Recently
    Issued Accounting Pronouncements
  Share-Based Payment Accounting for Stock-Based
    Compensation.
  Accounting Changes and Error
    Corrections
 42




---



##### Table of Contents



Accounting for Uncertainty in Income Taxes  an
    interpretation of FASB Statement No. 109
  Fair Value Measurements
  Considering the
    Effects of Prior Year Misstatements when Quantifying
    Misstatements in Current Year Financial Statements ,
  The Fair Value Option for Financial Assets and Financial
    Liabilities  Including an amendment of FASB Statement
    No. 115.
  3.
    Acquisition
    of Real Estate Assets  126-unit 288-unit
  80-unit
     43




---



##### Table of Contents



420-unit
  192-unit 300-unit 10-year,
    2006


2005Land

$
11,580


$
3,415Buildings


128,187



33,000Total real estate assets


139,767



36,415Other assets


5,951



1,489Total assets acquired


145,718



37,904Mortgage notes payable


71,988



12,218Other liabilities


1,621



577Total liabilities


73,609



12,795Net assets acquired

$
72,109


$
25,109     4.
    Discontinued
    Operations  th
   44




---



##### Table of Contents



For the Year


For the Year


For the YearEnded


Ended


EndedDecember 31,


December 31,


December 31,2006


2005


2004Revenues

$
3,526


$
9,113


$
10,863Operating expenses


(2,427
)


(7,001
)


(9,410
)Other expenses, net


(393
)


(1,005
)


(1,397
)Income from discontinued operations

$
706


$
1,107


$
56   No. 87-24, Allocation of Interest to Discontinued Operations.
  5.
    Internalization
    Transactions      No. 04-01, Accounting for Preexisting Relationships between Parties to a
    Business Combination
  6.
    Merger
    with AFREZ   45




---



##### Table of Contents



7.
    Real
    Estate Assets    Carrying


CarryingBuilding


Value at


Value atNumber





and


December 31,


December 31,Property Name

Location

of Units


Land


Improvements


2006


2005Arbor Hills(1)

Antioch, TN


548


$
4,400


$
25,898


$
30,298


$
29,934Arbors of Dublin(1)

Dublin, OH


288



1,750



15,466



17,216



Bluff Ridge Apartments(1)

Jacksonville, NC


108



203



3,587



3,790



3,725Brentwood Oaks Apartments(1)

Nashville, TN


262



2,000



10,139



12,139



11,883Coral Point Apartments(1)

Mesa, AZ


337



2,240



9,551



11,791



11,627Cornerstone Apartments(1)

Independence, MO


420



2,150



34,513



36,663



Covey at Fox Valley(1)

Aurora, IL


216



1,320



10,459



11,779



11,831Elliots Crossing
    Apartments(1)

Tempe, AZ


247



1,301



9,933



11,234



11,021Fox Hollow Apartments(1)

High Point, NC


184



1,000



5,211



6,211



6,155Greenbriar Apartments(1)

Tulsa, OK


120



648



3,882



4,530



4,476Highland Park Apartments(1)

Columbus, OH


252



1,562



6,496



8,058



7,911Huntsview Apartments(1)

Greensboro, NC


240



1,845



6,756



8,601



8,483Jackson Park Place Apartments(1)

Fresno, CA


296



1,400



11,023



12,423



12,239Jackson Park Place
    Apartments  Phase II(1)

Fresno, CA


80



1,425



8,828



10,253



Lakes of Northdale Apartments(1)

Tampa, FL


216



1,553



8,985



10,538



10,429Littlestone of Village Green(1)

Gallatin, TN


200



621



10,170



10,791



10,652Misty Springs Apartments

Daytona Beach, FL


128



742



4,079



4,821



4,725Monticello Apartments

Southfield, MI


106



565



5,338



5,903



5,856Morganton Place(1)

Fayetteville, NC


280



1,400



17,062



18,462



Oakhurst Apartments(1)

Ocala, FL


214



847



8,608



9,455



9,385Oakwell Farms Apartments(1)

Nashville, TN


414



1,946



16,413



18,359



18,172Shelby Heights(1)

Bristol, TN


100



175



2,994



3,169



3,140The Greenhouse(1)

Omaha, NE


126



730



14,916



15,646



The Hunt Apartments(1)

Oklahoma City, OK


216



550



7,150



7,700



7,660The Park at Countryside(1)

Port Orange, FL


120



647



2,775



3,422



3,367The Ponds at Georgetown

Ann Arbor, MI


134



653



7,008



7,661



7,531 46




---



##### Table of Contents



Carrying


CarryingBuilding


Value at


Value atNumber





and


December 31,


December 31,Property Name

Location

of Units


Land


Improvements


2006


2005The Reserve at Wescott
    Plantation(1)

Summerville, SC


192



1,725



15,629



17,354



17,326Tregaron Oaks Apartments(1)

Bellevue, NE


300



1,690



17,549



19,239



19,089Village at Cliffdale(1)

Fayetteville, NC


356



1,775



19,975



21,750



Watermans Crossing(1)

Newport News, VA


260



1,620



12,966



14,586



14,445Woodberry Apartments(1)

Asheville, NC


168



1,174



8,863



10,037



The Exchange at Palm Bay(1)

Palm Bay, FL


72,007
(2)


1,296



3,074



4,370



4,301388,249



255,363Less accumulated depreciation
















(46,517
)


(36,200
)Balance at end of year















$
341,732


$
219,163     (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. 47




---



##### Table of Contents



8.
    Bonds and
    Mortgage Notes Payable    Effective








Carrying AmountInterest


Maturity

Payment and

Annual

December 31,Collateral

Rate


Date

Prepayment or Redemption Terms

Payments

2006


2005Bonds Payable:Coral Point Apartments and Jackson
    Park Place Apartments  Phase II


4.97
%

03/01/2028

Semiannual payment of interest due
    each March 1 and September 1. Prepayable at par in
    March 2007.

interest only

$
13,090


$
13,090Covey at Fox Valley(7)


3.69
%(8)

10/15/2027

Monthly payments of interest.
    Prepayable at any time, subject to a prepayment penalty.

interest only


12,410



12,410Brentwood Oaks Apartments(7)


3.44
%(1)

07/15/2031

Monthly payments of interest.
    Prepayable at any time, subject to a prepayment penalty.

interest only


11,320



11,320Lakes of Northdale and
    Bluff Ridge Apartments


3.73
%(2)

05/15/2012

Monthly payments of interest.
    Prepayable subject to prepayment penalty.

interest only


9,610



9,610Jackson Park Place Apartments


5.80
%

01/01/2028

Monthly payment of principal and
    interest. Prepayable at par 1% in January 2007.

$599


7,262



7,434The Hunt Apartments


3.30
%(3)

07/01/2029

Semiannual payment of interest due
    each January 15 and July 15. Prepayable at any time.

interest only


6,930



6,930Oakhurst Apartments


4.09
%(4)

12/01/2007

Semiannual payment of interest due
    each June 1 and December 1. Prepayable at any time.

interest only


5,300



5,300The Exchange at Palm Bay


4.09
%(4)

11/01/2010

Monthly payment of principal and
    interest. Prepayable at any time.

$449


4,950



5,060Belvedere Apartments


N/A


N/A(9)

Semiannual payment of interest due
    each June 1 and December 1. Prepayable at par.

interest only






4,800Greenbriar Apartments


3.30
%(3)

07/01/2029

Semiannual payment of interest due
    each January 15 and July 15. Prepayable at any time.

interest only


3,980



3,980Shelby Heights and The 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


2,660



2,760Elliots Crossing Apartments


2.82
%(5)

04/01/2030

Semiannual payment of interest due
    each April 1 and October 1. Prepayable at par +1.5% in
    April 2009.

$540


8,153



8,146Arbor Hills and Littlestone of
    Village Green


3.76
%(6)

12/01/2025

Monthly payments of interest.
    Prepayable at any time, subject to a prepayment penalty.

interest only


26,150



26,150The Park at
    58thApartments


N/A


N/A(9)

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






2,180$
111,815


$
119,170  48




---



##### Table of Contents



Effective








Carrying AmountInterest


Maturity

Payment and

Annual

December 31,Collateral

Rate


Date

Prepayment or Redemption Terms

Payments

2006


2005Mortgage Notes Payable:Oakwell Farms Apartments


6.94
%

05/01/2009

Monthly payment of principal and
    interest due the 1st of each month. Prepayable subject to a
    yield maintenance agreement.

$1,029

$
11,690


$
11,900Watermans Crossing


5.52
%

11/01/2012

Monthly payment of principal and
    interest due on the 1st of each month. Prepayable subject
    to a yield maintenance agreement.

$790


10,623



10,746Huntsview Apartments


5.83
%

01/01/2012

Monthly payment of principal and
    interest due on the 1st of each month. Prepayable subject
    to a yield maintenance agreement.

$509


6,853



6,986Highland Park Apartments


4.69
%

09/01/2013

Monthly payment of principal and
    interest due on the 1st of each month. Prepayable
    90 days prior to maturity.

$435


6,300



6,404Fox Hollow Apartments


6.91
%

03/01/2011

Monthly payment of principal and
    interest due on the 1st of each month. Prepayable subject
    to a yield maintenance agreement.

$493


5,871



5,960Tregaron Oaks Apartments


5.12
%

09/01/2015

Monthly payments of interest due on
    the 1st of each month. Prepayable subject to a yield maintenance
    agreement.

interest only


12,370



12,370The Reserve at Wescott Plantation


5.75
%

11/01/2044

Monthly payment of principal and
    interest due on the 1st of each month. Prepayable at par
    + 5% in July 2009.

$788


12,141



12,228Morganton Place, Village at
    Cliffdale and Woodberry Apartments (7)


5.56
%

10/01/2016

Monthly payments of interest until
    October 1, 2012. Monthly payments of principal and interest
    from November 1, 2012 until October 1, 2016.
    Prepayable subject to a yield maintenance agreement.

currently
    interest only


37,638



Cornerstone Apartments (7)


5.44
%

01/01/2017

Monthly payments of interest until
    January 1, 2012. Monthly payments of principal and interest
    from February 1, 2012 until January 1, 2017.
    Prepayable subject to a yield maintenance agreement.

currently
    interest only


25,500



$
128,986


$
66,594Cumberland Trace 
    Short-term note


7.88
%

03/28/2007

Monthly payments of interest.
    Prepayable anytime




8,850



$
249,651


$
185,764     (1)
    
    In January 2005, the Company entered into an interest rate swap
    transaction which fixed the rates on the bonds to 3.44% through
    January 2012. 49




---



##### Table of Contents



(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
    12/31/2006
    was 3.98%, averaged 3.73% for the year.(3)
    
    In June 2004, the Company entered into an interest rate swap
    transaction which fixed the rates on the bonds to 3.30%, plus
    the 0.65% variable rate spread, through June 2009.(4)
    
    The interest rate on these bonds is variable based upon the Bond
    Market Association 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%, plus the 0.65% variable rate
    spread, through June 2009.(6)
    
    Bond payable bears interest at a highly rated bond composite
    variable rate that is reset weekly and is capped at 4.5%, the
    rate at
    12/31/2006
    was 3.99%, the average for the period was 3.76%.(7)
    
    Property is included within the credit facility described in
    Note 9. The borrowings under the credit facility are
    secured by first mortgages on these properties as well as The
    Greenhouse and Arbors of Dublin.(8)
    
    In December 2006, the Company entered into an interest rate swap
    transaction that fixed the rate on the bonds to 3.69% through
    December 2016.(9)
    
    The property collateralizing this debt was sold during 2006 and
    the related bonds were repaid.      PrincipalMaturity

Amount2007

$
15,3542008


1,2802009


12,3312010


5,5782011


6,420Thereafter


208,688$
249,651   9.
    Credit
    Facility       50




---



##### Table of Contents



10.
    Interest
    Rate Swap and Cap Agreements      Notional


Receive


Notional


PayMaturity

Amount


Rate


Amount


RateVariable to Fixed

January 15, 2012

$
11,320



3.44
%(1)

$
11,320



3.44
%Variable to Fixed

December 15, 2016

$
12,410



3.80
%(2)

$
12,410



3.69
%     (1)
    
    Weighted average Bond Market Association rate for the year ended
    December 31, 2006.(2)
    
    Swap was entered into on December 15, 2006. Amount is the
    average Bond Market rate for the last two weeks of 2006.      Interest Rate Swaps and CapsCounterparty





CompanyNotional


Receive/


Notional


PayMaturity

Amount


Cap Rate


Amount


RateFixed to Variable

September 20, 2007

$
5,300
(4)


7.13
%

$
5,300
(4)


4.09
%(3)Fixed to Variable

December 6, 2007

$
4,950
(1)(4)


7.75
%

$
4,950
(1)(4)


4.09
%(3)Fixed to Variable

January 22, 2009

$
8,300
(4)


5.38
%

$
8,300
(4)


4.09
%(3)Fixed to Variable

July 13, 2009

$
6,930
(4)


7.25
%

$
6,930
(4)


4.09
%(3) 51




---



##### Table of Contents



Interest Rate Swaps and CapsCounterparty





CompanyNotional


Receive/


Notional


PayMaturity

Amount


Cap Rate


Amount


RateFixed to Variable

July 13, 2009

$
3,980
(4)


7.50
%

$
3,980
(4)


4.09
%(3)Variable to Fixed

February 3, 2009

$
8,100



3.44
%(2)

$
8,100



2.82
%Variable to Fixed

June 25, 2009

$
10,910



3.44
%(2)

$
10,910



3.30
%Interest Rate Cap

December 22, 2009

$
13,400



4.50
%


N/A



N/AInterest Rate Cap

December 22, 2009

$
12,750



4.50
%


N/A



N/AInterest Rate Cap

September 15, 2011

$
11,320



6.22
%


N/A



N/A     (1)
    
    Notional amount is tied to the Exchange at Palm Bay bond payable
    and adjusts downward as principal payments are made on the bond
    payable.(2)
    
    Weighted average Bond Market Association rate for the year ended
    December 31, 2006.(3)
    
    Weighted average Bond Market Association rate for the year ended
    December 31, 2006 plus 0.65%.(4)
    
    These are total return swaps.    11.
    Borrowings
    under Repurchase Agreements    Carrying AmountInterest


Maturity



December 31,


December 31,Collateral

Rate


Date

Payment Schedule

2006


2005Repurchase agreements
    collateralized by agency securities:FNMA Pool #759197





repaid

Interest payments and principal
    due at maturity

$



$
15,427FNMA Pool #670676





repaid

Interest payments and principal
    due at maturity






2,500



17,927Other repurchase agreements,
    collateralized by GNMA certificates of the following 100% owned
    properties:Misty Springs





repaid

Interest payments and principal
    due at maturity






2,919Waters Edge


5.32
%

01/27/2007

Interest payments and principal
    due at maturity


1,400



3,881 52




---



##### Table of Contents



Carrying AmountInterest


Maturity



December 31,


December 31,Collateral

Rate


Date

Payment Schedule

2006


2005Monticello


5.32
%

01/26/2007

Interest payments and principal
    due at maturity


4,500



4,500The Ponds at Georgetown


5.33
%

01/29/2007

Interest payments and principal
    due at maturity


6,925



6,975$
12,825


$
36,202       12.
    Notes Payable  roll-up
  13.
    Investments
    in Securities    Gross


GrossUnrealized


Unrealized


FairCost


Gains


Losses


Value2006:Corporate Equity Securities

$
3,394


$
141


$
(9
)

$
3,5262005:Agency Securities

$
18,485


$



$
(296
)

$
18,189Corporate Equity Securities


4,010



87



(24
)


4,073     14.
    Transactions
    with Related Parties  Advisory
    Agreement
   53




---



##### Table of Contents



day-to-day
    For the Year Ended


For the Year EndedDecember 31,


December 31,2005


2004Administrative fees- general(1)

$
1,586


$
1,200Administrative fees- agency
    securities(2)


60



154Property management fees(3)






1,300Property acquisition fees(4)


456



371Reimbursement of direct and
    allocated costs(5)


2,132



2,894     (1)
    
    Administrative fees  general This
    fee equaled 0.55% per annum of the sum of: (i) the
    original principal amount of the bonds originally issued to a
    predecessor to the Company; (ii) the purchase price paid by
    the Company for new assets that are held by the Company;
    (iii) the outstanding principal of mezzanine financing
    provided by the Company to unaffiliated owners of residential
    real estate, plus (iv) the value of properties acquired in
    a merger with America First Real Estate Investment Partners,
    L.P. with and into the Company. Such fees are included in
    General and administrative expenses in the Consolidated
    Statements of Operations and Comprehensive Income (loss).(2)
    
    Administrative fees  agency securities- This
    fee equaled 0.25% per annum of the outstanding principal
    balance of all agency securities held by the Company plus 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 exceeded the
    average dollar amount of shareholders 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.(3)
    
    Property management fees Until
    November 8, 2004, an affiliate of the Advisor, America
    First Properties, provided property management services for the
    multifamily properties owned by the Company. The fees for
    services provided represented the lower of: (i) costs
    incurred in managing the properties, or (ii) customary fees
    for such services determined by reference to national statistics.(4)
    
    Property acquisition fees  The Advisor
    received a fee of 1.25% of the gross purchase price of real
    estate assets for identifying, evaluating and acquiring real
    estate assets on behalf of the Company.(5)
    
    Reimbursement of direct and allocated costs 
    The Company reimbursed the Advisor and its affiliate for certain
    costs and expenses that it incurred in connection with the
    carrying out of the Companys business activities.  Office
    Lease
    Mezzanine
    Loan
   54




---



##### Table of Contents



15.
    Stock
    Option Plan      Number of


Weighted Average


AggregateShares


Exercise Price


Intrinsic ValueBalance at January 1, 2004


40,000


$
8.73


$
87,600Cancelled


(5,000
)


8.73



(10,950
)Exercised


(5,000
)


8.73



(10,950
)Balance at December 31, 2004


30,000



8.73



65,700Granted


31,000



12.87



99,820Balance at December 31, 2005


61,000



10.83



165,520Granted


101,467



16.70



479,939Exercised


(10,000
)


8.73



(21,900
)Balance at December 31, 2006


152,467


$
14.88


$
623,559Options exercisable at
    December 31, 2006


63,367


$
13.13


$
221,858         2006

2005Risk-free interest rate

4.72%

4.30%Expected life

6 years

6 yearsVolatility

15%

12%Estimated fair value

$4.73

$3.22    55




---



##### Table of Contents



16.
    Fair
    Value of Financial Instruments    and/or
    As of December 31, 2006


As of December 31, 2005Carrying


Estimated


Carrying


EstimatedAmount


Fair Value


Amount


Fair ValueBonds and mortgage notes payable

$
249,651


$
253,273


$
185,764


$
193,602Notes payable

$
2,413


$
2,413


$
2,413


$
2,413   17.
    Contingencies     56




---



##### Table of Contents



18.
    Net
    Income (Loss) Per Share    For the Year Ended


For the Year Ended


For the Year EndedDecember 31,


December 31,


December 31,2006


2005


2004Loss from continuing operations

$
(346
)

$
(14,761
)

$
(8,794
)Income from discontinued operations


19,903



25,713



6,029Net income (loss) available to
    common shareholders  basic and diluted

$
19,557


$
10,952


$
(2,765
)Weighted average common shares
    outstanding  basic and diluted


11,037



10,513



8,243Earnings per share 
    basic and diluted:Loss from continuing operations

$
(0.03
)

$
(1.40
)

$
(1.07
)Income from discontinued operations


1.80



2.44



0.73Net income (loss)

$
1.77


$
1.04


$
(0.34
)     19.
    Employee
    Benefit Plans    20.
    Impairment
    of Intangible Assets  Goodwill and Other
    Intangible Assets.
 57




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##### Table of Contents



21.
    Segment
    Reporting          For the Year Ended


For the Year Ended


For the Year EndedDecember 31,


December 31,


December 31,2006


2005


2004Total revenues:Multifamily

$
48,356


$
38,555


$
25,477Commercial


778



652



843Total segment revenues


49,134



39,207



26,320Other


223



382



39Total revenues

$
49,357


$
39,589


$
26,359Segment net operating income:Multifamily

$
27,379


$
19,948


$
11,178Commercial


547



451



654Segment net operating income


27,926



20,399



11,832Property management expense


(1,039
)


(799
)


(132
)General and administrative expenses


(5,335
)


(5,656
)


(3,865
)Depreciation expense


(10,436
)


(7,748
)


(4,951
)In-place lease amortization


(1,728
)


(2,674
)


(2,130
)Intangible asset impairment


(199
)






Contract termination costs






(11,619
)


(5,911
)Interest expense


(11,231
)


(8,771
)


(5,140
)Interest income, other income and
    expenses, net


1,696



2,107



1,503Income from discontinued operations


706



1,107



56Gain (loss) on sales of real estate


19,197



24,606



5,973Net income

$
19,557


$
10,952


$
(2,765
) 58




---



##### Table of Contents



For the Year Ended


For the Year Ended


For the Year EndedDecember 31,


December 31,


December 31,2006


2005


2004Assets (as of year end)Multifamily

$
370,351


$
248,162


$
232,709Commercial


2,126



2,541



2,881Other


13,287



83,256



61,807Total

$
385,764


$
333,959


$
297,397Interest expenseMultifamily

$
9,903


$
8,206


$
4,775Commercial


210



161



233Other


1,118



404



132Total

$
11,231


$
8,771


$
5,140Depreciation and AmortizationMultifamily

$
11,775


$
10,139


$
6,865Commercial


201



176



199Other


188



107



17Total

$
12,164


$
10,422


$
7,081     22.
    Subsequent
    Events     59




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##### Table of Contents



23.
    Summary
    of Quarterly Results of Operations (Unaudited)   First


Second


Third


FourthYear Ended December 31, 2006

Quarter


Quarter


Quarter


QuarterTotal revenues

$
11,046


$
11,845


$
12,462


$
14,004Operating expenses


(8,983
)


(9,719
)


(10,033
)


(11,210
)Other income, net


(2,075
)


(2,279
)


(2,362
)


(3,042
)Income (loss) from continuing
    operations


(12
)


(153
)


67



(248
)Income from discontinued operations


184



17,457



74



2,188Net income

$
172


$
17,304


$
141


$
1,940Income (loss) from continuing
    operations, basic and diluted, per share

$
(0.00
)

$
(0.01
)

$
0.00


$
(0.02
)Income from discontinued
    operations, basic and diluted, per share


0.02



1.58



0.01



0.20Net income, basic and diluted, per
    share

$
0.02


$
1.57


$
0.01


$
0.18   First


Second


Third


FourthYear Ended December 31, 2005

Quarter


Quarter


Quarter


QuarterTotal revenues

$
9,207


$
9,537


$
10,169


$
10,676Operating expenses


(8,702
)


(8,530
)


(8,646
)


(21,426
)Other income, net


(1,786
)


(1,859
)


(1,660
)


(1,741
)Loss from continuing operations


(1,281
)


(852
)


(137
)


(12,491
)Income from discontinued operations


300



345



3,762



21,306Net income (loss)

$
(981
)

$
(507
)

$
3,625


$
8,815Loss from continuing operations,
    basic and diluted, per share

$
(0.12
)

$
(0.08
)

$
(0.01
)

$
(1.19
)Income from discontinued
    operations, basic and diluted, per share


0.03



0.02



0.36



2.03Net income (loss), basic and
    diluted, per share

$
(0.09
)

$
(0.06
)

$
0.35


$
0.84      60




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##### Table of Contents



Schedule III
  AMERICA
    FIRST APARTMENT INVESTORS, INC.
  REAL
    ESTATE AND ACCUMULATED DEPRECIATION
 AS OF
    DECEMBER 31, 2006
  Costs CapitalizedSubsequentInitial Cost to Company


to AcquisitionDescription








Building


BuildingNumber








and


andProperty Name

Location

of Units


Encumbered


Land


Improvements


Improvements(In thousands)Arbor Hills

Antioch, TN


548



(a
)

$
4,400


$
25,336


$
562Arbors of Dublin

Dublin, OH


288



(b
)


1,750



15,085



381Bluff Ridge Apartments

Jacksonville, NC


108



(a
)


203



3,502



85Brentwood Oaks Apartments

Nashville, TN


262



(b
)


2,000



9,837



302Coral Point Apartments

Mesa, AZ


337



(a
)


2,240



8,960



591Cornerstone Apartments

Independence, MO


420



(b
)


2,150



34,513



Covey at Fox Valley

Aurora, IL


216



(b
)


1,320



10,028



431Cumberland Trace

Fayetteville, NC


248



(a
)


1,175



9,162



21Elliots Crossing Apartments

Tempe, AZ


247



(a
)


1,301



9,694



239Fox Hollow Apartments

High Point, NC


184



(a
)


1,000



5,046



165Greenbriar Apartments

Tulsa, OK


120



(a
)


648



3,673



209Highland Park Apartments

Columbus, OH


252



(a
)


1,562



6,207



289Huntsview Apartments

Greensboro, NC


240



(a
)


1,845



6,576



180Jackson Park Place Apartments

Fresno, CA


296



(a
)


1,400



10,710



313Jackson Park Place
    Apartments  Phase II

Fresno, CA


80



(a
)


1,425



8,807



21Lakes of Northdale Apartments

Tampa, FL


216



(a
)


1,553



8,390



595Littlestone of Village Green

Gallatin, TN


200



(a
)


621



9,942



228Misty Springs Apartments

Daytona Beach, FL


128







742



3,827



252Monticello Apartments

Southfield, MI


106







565



5,274



64Morganton Place

Fayetteville, NC


280



(b
)


1,400



17,031



31Oakhurst Apartments

Ocala, FL


214



(a
)


847



8,381



227Oakwell Farms Apartments

Nashville, TN


414



(a
)


1,946



15,759



654Shelby Heights

Bristol, TN


100



(a
)


175



2,953



41The Exchange at Palm Bay

Palm Bay, FL


72,007
(c)


(a
)


1,296



2,483



591The Greenhouse

Omaha, NE


126



(b
)


730



14,803



113The Hunt Apartments

Oklahoma City, OK


216



(a
)


550



7,069



81The Park at Countryside

Port Orange, FL


120



(a
)


647



2,617



158The Ponds at Georgetown

Ann Arbor, MI


134







653



6,822



186The Reserve at Wescott Plantation

Summerville, SC


192



(a
)


1,725



15,601



28Tregaron Oaks

Bellevue, NE


300



(a
)


1,690



17,399



150Village at Cliffdale

Fayetteville, NC


356



(b
)


1,775



19,951



24Watermans Crossing

Newport News, VA


260



(a
)


1,620



12,717



249Waters Edge Apartments

Lake Villa, IL


108







486



4,601



146Woodberry Apartments

Asheville, NC


168



(b
)


1,174



8,842



21$
44,614


$
351,598


$
7,628  61




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##### Table of Contents



(a)
    
    Property is encumbered as described in Note 8 to the
    Consolidated Financial Statements.(b)
    
    Property is encumbered and included within the credit facility
    described in Note 9 to the Consolidated Financial
    Statements.(c)
    
    Property is an office/warehouse facility. The figure represents
    square feet available for lease to tenants.  Buildingand





Accumulated


Date of


Date


DepreciableProperty Name

Land


Improvements


Total(b),(c)


Depreciation(d)


Construction


Acquired


LifeArbor Hills

$
4,400


$
25,898


$
30,298


$
(1,904
)


1988



2004



27.5 yearsArbors of Dublin


1,750



15,466



17,216



(453
)


1988



2006



27.5 yearsBluff Ridge Apartments


203



3,587



3,790



(335
)


1988



2004



27.5 yearsBrentwood Oaks Apartments


2,000



10,139



12,139



(947
)


1986



2004



27.5 yearsCoral Point Apartments


2,240



9,551



11,791



(5,196
)


1986



1991



27.5 yearsCornerstone Apartments


2,150



34,513



36,663



0



2004



2006



27.5 yearsCovey at Fox Valley


1,320



10,459



11,779



(6,911
)


1987



1989



27.5 yearsCumberland Trace


1,175



9,183



10,357



0



1973



2006



27.5 yearsElliots Crossing Apartments


1,301



9,933



11,234



(928
)


1987



2004



31.5 yearsFox Hollow Apartments


1,000



5,211



6,211



(534
)


1987



2004



27.5 yearsGreenbriar Apartments


648



3,882



4,530



(1,138
)


1985



1998



27.5 yearsHighland Park Apartments


1,562



6,496



8,058



(660
)


1987



2004



27.5 yearsHuntsview Apartments


1,845



6,756



8,601



(637
)


1987



2004



27.5 yearsJackson Park Place Apartments


1,400



11,023



12,423



(3,854
)


1985



1997



27.5 yearsJackson Park PlaceApartments 
    Phase II


1,425



8,828



10,253



(134
)


1990



2006



27.5 yearsLakes of Northdale Apartments


1,553



8,985



10,538



(850
)


1985



2004



27.5 yearsLittlestone of Village Green


621



10,170



10,791



(3,292
)


1987



1998



27.5 yearsMisty Springs Apartments


742



4,079



4,821



(381
)


1988



2004



27.5 yearsMonticello Apartments


565



5,338



5,903



(505
)


1988



2004



27.5 yearsMorganton Place


1,400



17,062



18,462



(157
)


1994



2006



27.5 yearsOakhurst Apartments


847



8,608



9,455



(1,919
)


1987



2000



27.5 yearsOakwell Farms Apartments


1,946



16,413



18,359



(4,559
)


1986



1999



27.5 yearsShelby Heights


175



2,994



3,169



(1,714
)


1987



1991



27.5 yearsThe Exchange at Palm Bay


1,296



3,074



4,370



(2,099
)


1988



1990



27.5 yearsThe Greenhouse


730



14,916



15,646



(502
)


1990



2006



27.5 yearsThe Hunt Apartments


550



7,150



7,700



(2,086
)


1984



1998



27.5 yearsThe Park at Countryside


647



2,775



3,422



(979
)


1983



1996



27.5 yearsThe Ponds at Georgetown


653



7,008



7,661



(662
)


1988



2004



27.5 yearsThe Reserve at WescottPlantation


1,725



15,629



17,354



(759
)


2004



2005



27.5 yearsTregaron Oaks


1,690



17,549



19,239



(909
)


1996



2005



27.5 yearsVillage at Cliffdale


1,775



19,975



21,750



(183
)


1990



2006



27.5 yearsWatermans Crossing


1,620



12,966



14,586



(1,249
)


1987



2004



27.5 yearsWaters Edge Apartments


486



4,747



5,233



(401
)


1988



2004



27.5 yearsWoodberry Apartments


1,174



8,863



10,037



(81
)


1987



2006



27.5 years$
44,614


$
359,226


$
403,840


$
(46,918
)  62




---



##### Table of Contents



(b)
    
    Reconciliation of Real Estate:  2006


2005


2004Balance  beginning of
    year

$
280,192


$
283,068


$
150,591Acquisition of real estate


139,767



36,415



145,592Sales of real estate


(19,826
)


(39,192
)


(14,287
)Write-off of fully depreciated
    assets






(2,185
)


Improvements


3,706



2,086



1,172Balance  end of year

$
403,839


$
280,192


$
283,068Less: Assets held for sale


(15,590
)


(24,829
)


(63,926
)$
388,249


$
255,363


$
219,142   (c)
    
    As of December 31, 2006, the aggregate cost of the
    Companys real estate assets for Federal income tax
    purposes is approximately $377.4 million.(d)
    
    Reconciliation of Accumulated Depreciation:  2006


2005


2004Balance  beginning of
    year

$
40,459


$
42,567


$
35,693Depreciation expense


10,248



7,640



4,934Write-off of fully depreciated
    assets






(2,185
)


Current year depreciation on
    discontinued operations


376



1,569



2,171Accumulated depreciation of
    discontinued operations


(4,165
)


(9,132
)


(231
)$
46,918


$
40,459


$
42,567Less: accumulated depreciation of
    assets held for sale


(401
)


(4,259
)


(11,814
)Accumulated depreciation of
    continuing operations

$
46,517


$
36,200


$
30,753  63




---



##### Table of Contents



Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure.    Item 9A.
    Controls
    and Procedures.  Evaluation of disclosure controls and
    procedures. Rules 13a-15(e) 15d-15(e))
  Changes in internal controls over financial
    reporting.
  Management
    Report On Internal Control Over Financial Reporting
  Rules 13a-15(f) 15d-15(f)
  
    pertain to the maintenance of records that in reasonable detail
    accurately and fairly reflect the transactions and dispositions
    of the assets of the Company;
    provide reasonable assurance that transactions are recorded as
    necessary to permit preparation of financial statements in
    accordance with GAAP, and that receipts and expenditures of the
    Company are being made only in accordance with authorizations of
    management and Directors of the Company; and
    provide reasonable assurance regarding prevention or timely
    detection of unauthorized acquisition, use or disposition of the
    Companys assets that could have a material effect on the
    financial statements.    Internal Control-Integrated Framework. Form 10-K.
 64




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
    Internal Control  Integrated Framework
        Internal
    Control  Integrated Framework Internal Control  Integrated
    Framework
    DELOITTE &
    TOUCHE LLP
    65




---



##### Table of Contents



Item 9B.
    Other
    Information.   PART III  Item 10.
    Directors
    and Executive Officers of the Registrant and Corporate
    Governance.    Name

Position Held

Position Held SinceJames J. Egan

Executive Vice President, Chief
    Investment Officer


2005Paul L. Beldin

Vice President, Chief Financial
    Officer, Treasurer and Secretary


2005   James J. Egan
  Paul L. Beldin
  Section 16(a)
    Beneficial Ownership Reporting Compliance
    Code of
    Ethical Conduct and Code of Conduct
    Item 11.
    Executive
    Compensation.    Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Shareholder Matters.   66




---



##### Table of Contents



Item 13.
    Certain
    Relationships and Related Transactions and Director
    Independence.    Item 14.
    Principal
    Accounting Fees and Services.   PART IV  Item 15.
    Exhibits,
    Financial Statement Schedules.    1.
    Financial Statements. The following financial statements of the
    Company are included in response to Item 8 of this report:              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, 2006 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 among
    the Company and America First Apartment Advisory Corporation and
    The Burlington Capital Group dated December 30, 2005
    (incorporated herein by reference to the Current report on
    Form 8-K
    filed January 5, 2006).2
.2

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).2
.3

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). 67




---



##### Table of Contents



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

Agreement of Sale and Purchase by
    and between the Company and TCG Acquisitions, Inc. (incorporated
    herein by reference to the Current report on
    Form 8-K
    filed September 9, 2005).10
.2

Loan and Security Agreement the
    Company and America First Communities Offutt Developer, LLC
    (incorporated herein by reference to the Current report on
    Form 8-K
    filed September 21, 2005).10
.3

Agreement of Purchase and Sale by
    and between the Company and Tregaron Oaks, LLC (incorporated
    herein by reference to the Current report on
    Form 8-K
    filed June 1, 2005).10
.4

Agreement of Purchase and Sale by
    and between the Company and Wescott Reserve, LLC (incorporated
    herein by reference to the Current report on
    Form 8-K
    filed June 8, 2005).10
.5

Agreement of Purchase and Sale by
    and between the Company and NALS Austin, LLC (incorporated
    herein by reference to the Current report on
    Form 8-K
    filed June 23, 2005).10
.6

Agreement of Purchase and Sale
    dated January 18, 2006, by and between America First
    Apartment Investors, Inc. and Retirement Centers Corporation
    (incorporated herein by reference to the Current report on
    Form 8-K
    filed January 24, 2006).10
.7

Agreement of Purchase and Sale
    dated April 27, 2006 by and between the Company and Brady
    Sullivan Properties, LLC, a New Hampshire limited liability
    company (incorporated by reference to Exhibit 10 to the
    Current Report on
    Form 8-K
    filed May 2, 2006).10
.8

Master Credit Facility and
    Reimbursement Agreement, dated September 28, 2006, by and
    between the Company and Wells Fargo Bank, N.A. and Fannie Mae
    (incorporated by reference to exhibit 10 to the Current Report
    on
    Form 8-K
    filed October, 4, 2006).10
.9

Agreement of Purchase and Sale
    dated September 12, 2006, by and between the Company and
    UDR of NC, Limited Partnership, a North Carolina limited
    partnership (incorporated by reference to Exhibit 10 to the
    Current Report on
    Form 8-K
    filed September 18, 2006).10
.10

Agreement of Purchase and Sale
    effective October 21, 2006, by and between the Company and
    The R&S Apartment Land, LLC, a Missouri limited liability
    company (incorporated by reference to Exhibit 10 to the
    Current Report on
    Form 8-K
    filed October 30, 2006).10
.11

The Companys 2006 Equity
    Incentive Plan (incorporated by reference to Exhibit B to
    the Companys definitive proxy statement of the Company
    (Commission file No. 000-49986) filed by the Company on
    April 4, 2006).10
.12

Employment Agreement between the
    Company and John H. Cassidy (incorporated by reference to
    Exhibit 10.1 to the Current Report on
    Form 8-K
    filed February 23, 2007).10
.13

Employment Agreement between the
    Company and James J. Egan (incorporated by reference to
    Exhibit 10.2 to the Current Report on
    Form 8-K
    filed February 23, 2007).10
.21

Employment Agreement between the
    Company and Paul L. Beldin (incorporated by reference to
    Exhibit 10.3 to the Current Report on
    Form 8-K
    filed February 23, 2007).21
.

Subsidiaries of the Company.23
.1

Consent of Independent Registered
    Public Accounting Firm24
.

Powers of Attorney31
.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.  68




---



##### Table of Contents



SIGNATURES    AMERICA FIRST APARTMENT INVESTORS, INC.Date: March 7, 2007

/s/  John
    H. CassidyJohn
    H. Cassidy
    President and Chief Executive Officer     By /s/  Michael
    B. Yanney*Michael
    B. Yanney

Chairman of the Board and Director

Date: March 7, 2007By /s/  John
    H. CassidyJohn
    H. Cassidy

President, Chief Executive Officer
    and Director
    (Principal Executive Officer)

Date: March 7, 2007By /s/  Paul
    L. BeldinPaul
    L. Beldin

Chief Financial Officer
    (Principal Financial Officer and Principal Accounting Officer)

Date: March 7, 2007By /s/  George
    J. Behringer*George
    J. Behringer

Director

Date: March 7, 2007By /s/  George
    V. Janzen*George
    V. Janzen

Director

Date: March 7, 2007By /s/  George
    H. Krauss*George
    H. Krauss

Director

Date: March 7, 2007By Gregor
    Medinger

Director

Date: March 7, 2007By /s/  Lisa
    Y. Roskens*Lisa
    Y. Roskens

Director

Date: March 7, 2007By /s/  John
    Schlegel*John
    Schlegel

Director

Date: March 7, 2007By /s/  Steven
    W. Seline*Steven
    W. Seline

Director

Date: March 7, 2007*By John H. Cassidy, Attorney in
    Fact/s/  John
    H.
    CassidyJohn
    H. Cassidy  69