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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2005
 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)
 
 
   o þ
  o þ
  þ o
 o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non- accelerated filer o
  o þ




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##### 



PART IItem 1. Business
    
    
    1Item 1A. Risk Factors
    
    
    4Item 1B. Unresolved Staff Comments
    
    
    8Item 2. Properties
    
    
    9Item 3. Legal Proceedings
    
    
    9Item 4. Submission of Matters to a Vote of Security Holders
    
    
    10PART IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    10Item 6. Selected Financial Data
    
    
    11Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    24Item 8. Financial Statements and Supplementary Data
    
    
    26Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    57Item 9A. Controls and Procedures
    
    
    57Item 9B. Other Information
    
    
    59PART IIIItem 10. Directors and Executive Officers of the Registrant
    
    
    60Item 11. Executive Compensation
    
    
    60Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    61Item 13. Certain Relationships and Related Transactions
    
    
    61Item 14. Principal Accounting Fees and Services
    
    
    61PART IVItem 15. Exhibits, Financial Statement Schedules
    
    
    61SIGNATURES
    
    
    65Employment Agreement - John H. CassidyEmployment Agreement - James EganEmployment Agreement - Paul BeldinSubsidiariesConsent of Independent Registered Public Accounting FirmConsent of Independent Registered Public Accounting FirmPower 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




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PART I
 
 Item 1. Business.
  th th
 Operating and Investment Strategy
      1




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Financing Strategies
    2




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Internalization transactions
   AFREZ Merger
   Competition
  3




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Environmental Matters
  Information Available on Website
  
 Item 1A. Risk Factors.
  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.
  Real estate financed with tax-exempt debt is subject to certain restrictions.
  4




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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.
  The Company is subject to risks associated with investments in agency securities that differ from
those involved with owning multifamily apartment properties.
   There are risks associated with making mezzanine investments that differ from those involved with
owning multifamily apartment properties.
  5




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The Company may not be able to successfully implement its business plan.
  Because of competition, the Company may not be able to acquire investment assets.
  Company policies may be changed without stockholder 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.
  Owning real estate may subject the Company to liability for environmental contamination.
  6




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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.
  
    
    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.
  7




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
    
    Failure to make required distributions would subject the Company to income taxation.In order to qualify as a REIT, each year the Company must distribute to stockholders at least
90% of REIT taxable income (determined without regard to the dividend paid deduction and by
excluding net capital gains). To the extent that the Company satisfies the distribution
requirement, but distributes less than 100% of taxable income, it will be subject to federal
corporate income tax on the undistributed income. In addition, the Company will incur a 4%
nondeductible excise tax on the amount, if any, by which the distributions in any year are
less than the sum of:
 o
    
    85% of ordinary income for that year;o
    
    95% of capital gain net income for that year; ando
    
    100% of undistributed taxable income from prior years.
  Loss of Investment Company Act exemption would adversely affect the Company.
  
 Item 1B. Unresolved Staff Comments.
 8




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Item 2. Properties.
  Average
    
    Number
    
    PercentageNumber
    
    Square Feet
    
    of Units
    
    of Units
    
    EconomicProperty Name
    
    Location
    
    of Units
    
    Per Unit
    
    Occupied
    
    Occupied
    
    Occupancy(2)Arbor Hills
    
    Antioch, TN
    
    
    548
    
    
    
    827
    
    
    
    496
    
    
    
    90
    %
    
    
    80
    %Belvedere Apartments
    
    Naples, FL
    
    
    162
    
    
    
    829
    
    
    
    161
    
    
    
    99
    %
    
    
    95
    %Bluff Ridge Apartments
    
    Jacksonville, NC
    
    
    108
    
    
    
    873
    
    
    
    106
    
    
    
    98
    %
    
    
    94
    %Brentwood Oaks Apartments
    
    Nashville, TN
    
    
    262
    
    
    
    852
    
    
    
    256
    
    
    
    98
    %
    
    
    90
    %Coral Point Apartments
    
    Mesa, AZ
    
    
    337
    
    
    
    780
    
    
    
    317
    
    
    
    94
    %
    
    
    81
    %Covey at Fox Valley
    
    Aurora, IL
    
    
    216
    
    
    
    948
    
    
    
    193
    
    
    
    89
    %
    
    
    76
    %Delta Crossing
    
    Charlotte, NC
    
    
    178
    
    
    
    880
    
    
    
    171
    
    
    
    96
    %
    
    
    69
    %Elliots Crossing Apartments
    
    Tempe, AZ
    
    
    247
    
    
    
    717
    
    
    
    235
    
    
    
    95
    %
    
    
    78
    %Fox Hollow Apartments
    
    High Point, NC
    
    
    184
    
    
    
    877
    
    
    
    155
    
    
    
    84
    %
    
    
    74
    %Greenbriar Apartments
    
    Tulsa, OK
    
    
    120
    
    
    
    666
    
    
    
    112
    
    
    
    94
    %
    
    
    85
    %Highland Park Apartments
    
    Columbus, OH
    
    
    252
    
    
    
    891
    
    
    
    239
    
    
    
    95
    %
    
    
    84
    %The Hunt Apartments
    
    Oklahoma City, OK
    
    
    216
    
    
    
    693
    
    
    
    201
    
    
    
    93
    %
    
    
    91
    %Huntsview Apartments
    
    Greensboro, NC
    
    
    240
    
    
    
    875
    
    
    
    215
    
    
    
    90
    %
    
    
    79
    %Jackson Park Place Apartments
    
    Fresno, CA
    
    
    296
    
    
    
    822
    
    
    
    278
    
    
    
    94
    %
    
    
    90
    %Lakes of Northdale Apartments
    
    Tampa, FL
    
    
    216
    
    
    
    873
    
    
    
    207
    
    
    
    96
    %
    
    
    90
    %Littlestone of Village Green
    
    Gallatin, TN
    
    
    200
    
    
    
    987
    
    
    
    190
    
    
    
    95
    %
    
    
    81
    %Misty Springs Apartments
    
    Daytona Beach, FL
    
    
    128
    
    
    
    786
    
    
    
    128
    
    
    
    100
    %
    
    
    95
    %Monticello Apartments
    
    Southfield, MI
    
    
    106
    
    
    
    1,027
    
    
    
    98
    
    
    
    93
    %
    
    
    86
    %Oakhurst Apartments
    
    Ocala, FL
    
    
    214
    
    
    
    790
    
    
    
    210
    
    
    
    98
    %
    
    
    95
    %Oakwell Farms Apartments
    
    Nashville, TN
    
    
    414
    
    
    
    800
    
    
    
    393
    
    
    
    95
    %
    
    
    80
    %Park at Countryside
    
    Port Orange, FL
    
    
    120
    
    
    
    720
    
    
    
    118
    
    
    
    98
    %
    
    
    92
    %The Park at 58 Apartments
    
    Chattanooga, TN
    
    
    196
    
    
    
    876
    
    
    
    149
    
    
    
    76
    %
    
    
    73
    %The Ponds at Georgetown
    
    Ann Arbor, MI
    
    
    134
    
    
    
    1,002
    
    
    
    117
    
    
    
    88
    %
    
    
    76
    %The Reserve at Wescott Plantation
    
    Summerville, SC
    
    
    192
    
    
    
    1,083
    
    
    
    181
    
    
    
    94
    %
    
    
    93
    %Tregaron Oaks Apartments
    
    Bellevue, NE
    
    
    300
    
    
    
    875
    
    
    
    287
    
    
    
    96
    %
    
    
    91
    %Shelby Heights
    
    Bristol, TN
    
    
    100
    
    
    
    980
    
    
    
    96
    
    
    
    96
    %
    
    
    95
    %Watermans Crossing
    
    Newport News, VA
    
    
    260
    
    
    
    944
    
    
    
    248
    
    
    
    95
    %
    
    
    91
    %Waters Edge Apartments
    
    Lake Villa, IL
    
    
    108
    
    
    
    814
    
    
    
    95
    
    
    
    88
    %
    
    
    77
    %6,054
    
    
    
    860
    
    
    
    5,652
    
    
    
    93
    %
    
    
    84
    %The Exchange at Palm Bay
    
    Palm Bay, FL
    
    
    72,007
    (1)
    
    
    n/a
    
    
    
    63,393
    
    
    
    88
    %
    
    
    n/a
 
 (1)
    
    This is an office/warehouse facility. The figure represents square feet available for lease to
tenants and percentage of square feet occupied.(2)
    
    Economic occupancy is presented for the year ended December 31, 2005. Economic occupancy is
defined as the net rental income divided by the maximum amount of rental income which could be
derived from each property. The statistic is reflective of vacancy, rental concessions, delinquent
rents, bad debt and non-revenue units such as model units and employee units.  
 Item 3. Legal Proceedings.
  9




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Item 4. Submission of Matters to a Vote of Security Holders.
  
 PART II
 
 Item 5. Market for the Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
  2005
    
    High
    
    Low1st Quarter
    
    $
    12.76
    
    
    $
    11.302nd Quarter
    
    $
    12.13
    
    
    $
    11.253rd Quarter
    
    $
    13.14
    
    
    $
    11.564th Quarter
    
    $
    14.67
    
    
    $
    12.16
 2004
    
    High
    
    Low1st Quarter
    
    $
    12.48
    
    
    $
    10.582nd Quarter
    
    $
    11.47
    
    
    $
    10.003rd Quarter
    
    $
    11.96
    
    
    $
    10.004th Quarter
    
    $
    12.65
    
    
    $
    11.20
 (b)
    
    Shareholders. As of December 31, 2005 there were approximately 1,308 shareholders of
record, and approximately 9,000 street-name beneficial holders whose shares are held in
names other than their own.(c)
    
    Dividends. Dividends to shareholders were made on a quarterly basis during 2005 and 2004.
Total dividends declared to shareholders during the fiscal years ended December 31, 2005 and
2004 equaled $10.6 million and $9.2 million, respectively.
  10




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Item 6. Selected Financial Data.
  For the
    
    
    For the
    
    
    For the
    
    
    For the
    
    
    For theYear Ended
    
    
    Year Ended
    
    
    Year Ended
    
    
    Year Ended
    
    
    Year Ended(in thousands, except per share amounts)
    
    Dec. 31, 2005
    
    
    Dec. 31, 2004
    
    
    Dec. 31, 2003
    
    
    Dec. 31, 2002
    
    
    Dec. 31, 2001Rental revenues
    
    $
    43,747
    
    
    $
    29,848
    
    
    $
    18,516
    
    
    $
    18,987
    
    
    $
    19,217Other income (2)
    
    
    1,553
    
    
    
    979
    
    
    
    4,772
    
    
    
    308
    
    
    
    591Real estate operating expenses
    
    
    (21,239
    )
    
    
    (16,490
    )
    
    
    (9,348
    )
    
    
    (9,871
    )
    
    
    (9,199
    )Depreciation expense
    
    
    (8,613
    )
    
    
    (5,661
    )
    
    
    (3,777
    )
    
    
    (3,820
    )
    
    
    (3,724
    )Interest expense
    
    
    (8,345
    )
    
    
    (4,800
    )
    
    
    (3,472
    )
    
    
    (3,425
    )
    
    
    (3,564
    )General and administrative expenses
    
    
    (6,455
    )
    
    
    (3,997
    )
    
    
    (1,910
    )
    
    
    (1,773
    )
    
    
    (1,726
    )Amortization expense
    
    
    (3,101
    )
    
    
    (2,719
    )
    
    
    (288
    )
    
    
    (261
    )
    
    
    (271
    )Contract termination costs (3)
    
    
    (11,619
    )
    
    
    (5,911
    )
    
    
    
    
    
    
    
    
    
    
    Income (loss) from continuing operations
    
    
    (14,072
    )
    
    
    (8,751
    )
    
    
    4,493
    
    
    
    145
    
    
    
    1,324Income (loss) from discontinued operations
    
    
    418
    
    
    
    13
    
    
    
    (132
    )
    
    
    845
    
    
    
    1,164Gain on sales of property
    
    
    24,606
    
    
    
    5,973
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    10,952
    
    
    $
    (2,765
    )
    
    $
    4,361
    
    
    $
    990
    
    
    $
    2,488Income (loss) from continuing operations per share
or BUC (beneficial unit certificate), basic and diluted
    
    $
    (1.34
    )
    
    $
    (1.06
    )
    
    $
    0.89
    
    
    $
    0.03
    
    
    $
    0.27Net income (loss), basic and diluted, per share or BUC
    
    $
    1.04
    
    
    $
    (0.34
    )
    
    $
    0.86
    
    
    $
    0.19
    
    
    $
    0.48Dividends (distributions) declared and paid
per share or BUC
    
    $
    1.00
    
    
    $
    1.00
    
    
    $
    1.00
    
    
    $
    1.00
    
    
    $
    0.95Investments in real estate, net of accumulated
depreciation (1)
    
    $
    239,733
    
    
    $
    240,501
    
    
    $
    114,898
    
    
    $
    119,491
    
    
    $
    123,792Total assets
    
    $
    333,959
    
    
    $
    297,397
    
    
    $
    166,892
    
    
    $
    136,854
    
    
    $
    141,552Bonds and mortgage notes payable
    
    $
    185,764
    
    
    $
    167,150
    
    
    $
    82,215
    
    
    $
    82,913
    
    
    $
    83,570Borrowings under repurchase agreements
    
    $
    36,202
    
    
    $
    27,875
    
    
    $
    33,012
    
    
    $
    
    
    
    $
    Funds from Operations (4)
    
    $
    (1,422
    )
    
    $
    1,182
    
    
    $
    9,362
    
    
    $
    5,954
    
    
    $
    7,426Weighted average number of shares or BUCs
outstanding  basic
    
    
    10,513
    
    
    
    8,243
    
    
    
    5,074
    
    
    
    5,023
    
    
    
    5,023
 
 (1)
    
    In 2005, the Company sold St. Andrews at Westwood, The Retreat, and Park Trace. These
assets are included in Assets of discontinued operations in the 2004 consolidated balance sheet.(2)
    
    Other income in 2003 includes a $4.4 million gain on a previously written off subordinated
note that was realized from the sale of Jefferson Place Apartments.(3)
    
    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 pre-existing contractual relationships with the
acquired companies.(4)
    
    FFO is calculated in accordance with the definition of FFO that is recommended by the National
Association of Real 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 to the Companys net income. 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 and the transactions which created these costs are expected to be
accretive to FFO in future periods. 11




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Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 Forward-Looking Statements
  General
   12




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Average
    
    Number
    
    PercentageNumber
    
    Square Feet
    
    of Units
    
    of Units
    
    EconomicProperty Name
    
    Location
    
    of Units
    
    Per Unit
    
    Occupied
    
    Occupied
    
    Occupancy (2)Arbor Hills
    
    Antioch, TN
    
    
    548
    
    
    
    827
    
    
    
    496
    
    
    
    90
    %
    
    
    80
    %Belvedere Apartments
    
    Naples, FL
    
    
    162
    
    
    
    829
    
    
    
    161
    
    
    
    99
    %
    
    
    95
    %Bluff Ridge Apartments
    
    Jacksonville, NC
    
    
    108
    
    
    
    873
    
    
    
    106
    
    
    
    98
    %
    
    
    94
    %Brentwood Oaks Apartments
    
    Nashville, TN
    
    
    262
    
    
    
    852
    
    
    
    256
    
    
    
    98
    %
    
    
    90
    %Coral Point Apartments
    
    Mesa, AZ
    
    
    337
    
    
    
    780
    
    
    
    317
    
    
    
    94
    %
    
    
    81
    %Covey at Fox Valley
    
    Aurora, IL
    
    
    216
    
    
    
    948
    
    
    
    193
    
    
    
    89
    %
    
    
    76
    %Delta Crossing
    
    Charlotte, NC
    
    
    178
    
    
    
    880
    
    
    
    171
    
    
    
    96
    %
    
    
    69
    %Elliots Crossing Apartments
    
    Tempe, AZ
    
    
    247
    
    
    
    717
    
    
    
    235
    
    
    
    95
    %
    
    
    78
    %Fox Hollow Apartments
    
    High Point, NC
    
    
    184
    
    
    
    877
    
    
    
    155
    
    
    
    84
    %
    
    
    74
    %Greenbriar Apartments
    
    Tulsa, OK
    
    
    120
    
    
    
    666
    
    
    
    112
    
    
    
    94
    %
    
    
    85
    %Highland Park Apartments
    
    Columbus, OH
    
    
    252
    
    
    
    891
    
    
    
    239
    
    
    
    95
    %
    
    
    84
    %The Hunt Apartments
    
    Oklahoma City, OK
    
    
    216
    
    
    
    693
    
    
    
    201
    
    
    
    93
    %
    
    
    91
    %Huntsview Apartments
    
    Greensboro, NC
    
    
    240
    
    
    
    875
    
    
    
    215
    
    
    
    90
    %
    
    
    79
    %Jackson Park Place Apartments
    
    Fresno, CA
    
    
    296
    
    
    
    822
    
    
    
    278
    
    
    
    94
    %
    
    
    90
    %Lakes of Northdale Apartments
    
    Tampa, FL
    
    
    216
    
    
    
    873
    
    
    
    207
    
    
    
    96
    %
    
    
    90
    %Littlestone of Village Green
    
    Gallatin, TN
    
    
    200
    
    
    
    987
    
    
    
    190
    
    
    
    95
    %
    
    
    81
    %Misty Springs Apartments
    
    Daytona Beach, FL
    
    
    128
    
    
    
    786
    
    
    
    128
    
    
    
    100
    %
    
    
    95
    %Monticello Apartments
    
    Southfield, MI
    
    
    106
    
    
    
    1,027
    
    
    
    98
    
    
    
    93
    %
    
    
    86
    %Oakhurst Apartments
    
    Ocala, FL
    
    
    214
    
    
    
    790
    
    
    
    210
    
    
    
    98
    %
    
    
    95
    %Oakwell Farms Apartments
    
    Nashville, TN
    
    
    414
    
    
    
    800
    
    
    
    393
    
    
    
    95
    %
    
    
    80
    %Park at Countryside
    
    Port Orange, FL
    
    
    120
    
    
    
    720
    
    
    
    118
    
    
    
    98
    %
    
    
    92
    %The Park at 58 Apartments
    
    Chattanooga, TN
    
    
    196
    
    
    
    876
    
    
    
    149
    
    
    
    76
    %
    
    
    73
    %The Ponds at Georgetown
    
    Ann Arbor, MI
    
    
    134
    
    
    
    1,002
    
    
    
    117
    
    
    
    88
    %
    
    
    76
    %The Reserve at Wescott Plantation
    
    Summerville, SC
    
    
    192
    
    
    
    1,083
    
    
    
    181
    
    
    
    94
    %
    
    
    93
    %Tregaron Oaks Apartments
    
    Bellevue, NE
    
    
    300
    
    
    
    875
    
    
    
    287
    
    
    
    96
    %
    
    
    91
    %Shelby Heights
    
    Bristol, TN
    
    
    100
    
    
    
    980
    
    
    
    96
    
    
    
    96
    %
    
    
    95
    %Watermans Crossing
    
    Newport News, VA
    
    
    260
    
    
    
    944
    
    
    
    248
    
    
    
    95
    %
    
    
    91
    %Waters Edge Apartments
    
    Lake Villa, IL
    
    
    108
    
    
    
    814
    
    
    
    95
    
    
    
    88
    %
    
    
    77
    %6,054
    
    
    
    860
    
    
    
    5,652
    
    
    
    93
    %
    
    
    84
    %The Exchange at Palm Bay
    
    Palm Bay, FL
    
    
    72,007
    (1)
    
    
    n/a
    
    
    
    63,393
    
    
    
    88
    %
    
    
    n/a
 
 (1)
    
    This is an office/warehouse facility. The figure represents square feet available for lease to
tenants and percentage of square feet occupied.(2)
    
    Economic occupancy is presented for the year ended December 31, 2005. Economic occupancy is
defined as the net rental income divided by the maximum amount of rental income which could be
derived from each property. The statistic is reflective of vacancy, rental concessions, delinquent
rents, bad debt and non-revenue units such as model units and employee units. Executive Summary
   13




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##### Table of Contents



Critical Accounting Policies
  Investment in Real Estate
 Establishment of depreciation policy
 Establishment of capitalization policy
 Review of properties for impairment
 Investment in Agency and Corporate Equity Securities
 Valuation
 14




---



##### Table of Contents



Results of Operations
 Accounting for Impairment
or Disposal of Long-Lived Assets
 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
    
    
    ChangeRevenuesRental revenues
    
    $
    43,747
    
    
    $
    29,848
    
    
    $
    13,899
    
    
    
    47
    %Other
    
    
    1,553
    
    
    
    979
    
    
    
    574
    
    
    
    59
    %Total Revenues
    
    
    45,300
    
    
    
    30,827
    
    
    
    14,473
    
    
    
    47
    %ExpensesReal estate operating
    
    
    21,239
    
    
    
    16,490
    
    
    
    4,749
    
    
    
    29
    %Depreciation
    
    
    8,613
    
    
    
    5,661
    
    
    
    2,952
    
    
    
    52
    %Interest
    
    
    8,345
    
    
    
    4,800
    
    
    
    3,545
    
    
    
    74
    %General and administrative
    
    
    6,455
    
    
    
    3,997
    
    
    
    2,458
    
    
    
    62
    %Amortization
    
    
    3,101
    
    
    
    2,719
    
    
    
    382
    
    
    
    14
    %Contract termination costs
    
    
    11,619
    
    
    
    5,911
    
    
    
    5,708
    
    
    
    97
    %Total Expenses
    
    
    59,373
    
    
    
    39,578
    
    
    
    19,794
    
    
    
    50
    %Loss from continuing operations
    
    $
    (14,072
    )
    
    $
    (8,751
    )
    
    $
    (5,321
    )
    
    
    61
    %
 Rental revenues.
 Other revenues.
 Real estate operating expenses.
 15




---



##### Table of Contents



Depreciation expense.
 Interest expense.
 General and administrative expenses.
 Amortization expense.
 Contract termination costs.
  Discontinued operations.
  16




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##### Table of Contents



Year Ended December 31, 2004 Compared to the Year Ended December 31, 2003(in thousands):
 For the year ended
    
    
    For the year ended
    
    
    Dollar
    
    
    PercentageDecember 31, 2004
    
    
    December 31, 2003
    
    
    Change
    
    
    ChangeRevenuesRental revenues
    
    $
    29,848
    
    
    $
    18,516
    
    
    $
    11,332
    
    
    
    61
    %Other
    
    
    979
    
    
    
    4,772
    
    
    
    (3,793
    )
    
    
    -79
    %Total Revenues
    
    
    30,827
    
    
    
    23,288
    
    
    
    7,539
    
    
    
    32
    %ExpensesReal estate operating
    
    
    16,490
    
    
    
    9,348
    
    
    
    7,142
    
    
    
    76
    %Depreciation
    
    
    5,661
    
    
    
    3,777
    
    
    
    1,884
    
    
    
    50
    %Interest
    
    
    4,800
    
    
    
    3,472
    
    
    
    1,328
    
    
    
    38
    %General and administrative
    
    
    3,997
    
    
    
    1,910
    
    
    
    2,087
    
    
    
    109
    %Amortization
    
    
    2,719
    
    
    
    288
    
    
    
    2,431
    
    
    
    844
    %Contract termination costs
    
    
    5,911
    
    
    
    
    
    
    
    5,911
    
    
    
    Total Expenses
    
    
    39,578
    
    
    
    18,795
    
    
    
    20,783
    
    
    
    111
    %Income (loss) from continuing operations
    
    $
    (8,751
    )
    
    $
    4,493
    
    
    $
    (13,244
    )
    
    
    -295
    %
 Rental revenues.
 Other revenues.
 Real estate operating expenses.
 Depreciation expense.
 Interest expense.
 General and administrative expenses.
 Amortization expense.
 Contract termination costs.
 17




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##### Table of Contents



Funds From Operations (FFO)
  For the year ended December 31,2005
    
    
    2004
    
    
    2003Net income (loss)
    
    $
    10,952
    
    
    $
    (2,765
    )
    
    $
    4,361Depreciation expense
    
    
    8,613
    
    
    
    5,661
    
    
    
    3,777In-place lease amortization
    
    
    2,915
    
    
    
    2,466
    
    
    
    Depreciation and amortization
of discontinued operations
    
    
    704
    
    
    
    1,793
    
    
    
    1,224Less: Gain on sales of property
    
    
    (24,606
    )
    
    
    (5,973
    )
    
    
    Funds from Operations
    
    $
    (1,422
    )
    
    $
    1,182
    
    
    $
    9,362Basic shares outstanding
    
    
    10,513
    
    
    
    8,243
    
    
    
    5,074Funds from Operations per share
    
    $
    (0.14
    )
    
    $
    0.14
    
    
    $
    1.85
     18




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##### Table of Contents



Supplemental Operating Performance Statistics
    December 31,
    
    December 31,
    
    December 31,2005
    
    2004
    
    2003Physical Occupancy
    
    
    93
    %
    
    
    92
    %
    
    
    90
    %Economic Occupancy
    
    
    84
    %
    
    
    81
    %
    
    
    81
    %Average Annual Rent per Unit
    
    $
    7,840
    
    
    $
    7,262
    
    
    $
    6,571Real Estate Operating Contribution
    
    
    51
    %
    
    
    45
    %
    
    
    50
    %
  19




---



##### Table of Contents



Annualized Revenue per unitYear ended December 31,Property Name
    
    2005
    
    
    2004
    
    
    ChangeProperties historically owned by the CompanyBelvedere Apartments
    
    $
    9,747
    
    
    $
    9,151
    
    
    $
    597Coral Point
    
    
    6,410
    
    
    
    5,365
    
    
    
    1,045Covey at Fox Valley
    
    
    9,423
    
    
    
    9,120
    
    
    
    303Greenbriar Apartments
    
    
    5,858
    
    
    
    5,701
    
    
    
    157The Hunt Apartments
    
    
    5,802
    
    
    
    5,765
    
    
    
    37Jackson Park Place
    
    
    8,283
    
    
    
    8,231
    
    
    
    52Littlestone of Village Green
    
    
    7,145
    
    
    
    7,434
    
    
    
    (289
    )Oakhurst Apartments
    
    
    7,987
    
    
    
    7,643
    
    
    
    344Oakwell Farms Apartments
    
    
    6,715
    
    
    
    6,485
    
    
    
    229Park at Countryside
    
    
    8,050
    
    
    
    7,420
    
    
    
    630The Park at Fifty Eight
    
    
    4,915
    
    
    
    5,156
    
    
    
    (241
    )Shelby Heights
    
    
    6,688
    
    
    
    6,799
    
    
    
    (111
    )Average
    
    $
    7,252
    
    
    $
    7,022
    
    
    $
    230Properties acquired in the merger with AFREZ(1)Bluff Ridge Apartments
    
    
    7,771
    
    
    
    7,784
    
    
    
    (13
    )Brentwood Oaks Apartments
    
    
    8,142
    
    
    
    7,909
    
    
    
    232Delta Crossing
    
    
    6,670
    
    
    
    6,375
    
    
    
    296Elliots Crossing Apartments
    
    
    6,752
    
    
    
    5,632
    
    
    
    1,120Fox Hollow Apartments
    
    
    6,011
    
    
    
    6,351
    
    
    
    (341
    )Highland Park Apartments
    
    
    6,375
    
    
    
    6,388
    
    
    
    (13
    )Huntsview Apartments
    
    
    6,490
    
    
    
    6,175
    
    
    
    315Lakes of Northdale Apartments
    
    
    8,545
    
    
    
    7,844
    
    
    
    702Misty Springs Apartments
    
    
    8,003
    
    
    
    7,599
    
    
    
    404Monticello Apartments
    
    
    9,968
    
    
    
    10,062
    
    
    
    (94
    )The Ponds at Georgetown
    
    
    10,432
    
    
    
    10,942
    
    
    
    (510
    )Watermans Crossing
    
    
    9,764
    
    
    
    9,660
    
    
    
    103Waters Edge Apartments
    
    
    9,202
    
    
    
    9,153
    
    
    
    50Average
    
    $
    8,010
    
    
    $
    7,836
    
    
    $
    173Recently acquired properties(2)Arbor Hills
    
    
    6,709
    
    
    
    6,722
    
    
    
    (13
    )The Reserve at Wescott Plantation
    
    
    10,082
    
    
    
    n/a
    
    
    
    n/aTregaron Oaks
    
    
    8,201
    
    
    
    n/a
    
    
    
    n/a
 
 (1)
    
    Properties were acquired by the Company on June 3, 2004. The above amounts include
operating revenues for the five months prior to the Companys ownership.(2)
    
    Arbor Hills, the Reserve at Wescott Plantation, and Tregaron Oaks were acquired by the
Company in December 2004, September 2005 and August 2005, respectively. The 2004 amount
computed for Arbor Hills is an annualized amount based upon the revenue earned during the
Companys ownership in 2004. The 2005 amounts for the Reserve at Wescott Plantation, and
Tregaron Oaks is an annualization of the revenues earned during the Companys ownership in
2005. Liquidity and Capital Resources
   20




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##### Table of Contents



21




---



##### Table of Contents




    
    The Company utilized approximately $25.0 million to acquire Tregaron Oaks and the
Reserve at Wescott Plantation.
    
    $7.4 million was used to invest in the Offutt Mezzanine Loan. The funds from the
investment were used by the Developer to partially finance the military housing
privatization project at Offutt Air Force Base in Bellevue, Nebraska. The loan agreement
requires quarterly payment of principal and interest. Interest is paid at a variable rate
based upon the 30 day LIBOR rate plus 9%. This loan was repaid by the Developer on
February 27, 2006. The Company used $6.0 million of the proceeds to pay down a portion of
the currently outstanding repurchase agreement debt.
    
    The Company placed an additional $45.2 million in restricted accounts. This increase is
primarily due to the placement of $29.3 million of the proceeds from the sale of St.
Andrews in a Section 1031 exchange account. The use of this account, allows the Company,
upon meeting certain conditions, to defer the majority of the taxable gain from the sale.
Restricted cash also increased as a result of the sale of Park Trace and St. Andrews at
Westwood. Prior to their sales, Park Trace and St. Andrews collateralized bonds payable.
When Park Trace and the Retreat were sold, the Company utilized $16.6 million of cash from
the sales as replacement collateral for those bonds. The Company may, at its option,
replace the cash collateral with replacement properties, and is contemplating doing so in
2006.
   Off Balance Sheet Arrangements
  22




---



##### Table of Contents



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
    
    $
    185,764
    
    
    $
    1,207
    
    
    $
    38,258
    
    
    $
    18,123
    
    
    $
    128,176Borrowings under
repurchase agreements
    
    $
    36,202
    
    
    $
    36,202
    
    
    $
    
    
    
    $
    
    
    
    $
    
   Inflation
  Recent Accounting Pronouncements
 Accounting
Changes and Error Corrections
 Accounting for Conditional Asset
Retirement Obligations, an Interpretation of FASB Statement No. 143 Accounting for
Asset Retirement Obligations
 Share-Based Payment
 Exchanges of
Non-monetary Assets an amendment of APB No. 29 Accounting for Non-monetary Transactions
 23




---



##### Table of Contents



Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
 Interest Rate Risk on Bonds and Mortgage Notes Payable
      Fixed-Rate Borrowings
    
    
    Variable-Rate BorrowingsWeighted
    
    
    
    
    
    
    
    
    
    
    WeightedPrincipal
    
    
    Average
    
    
    
    
    
    
    Principal
    
    
    AverageMaturity
    
    Amount
    
    
    Interest Rate
    
    
    Maturity
    
    
    Amount
    
    
    Interest Rate (1)2006
    
    $
    1,096
    
    
    
    6.06
    %
    
    
    2006
    
    
    $
    111
    
    
    
    3.09
    %2007
    
    
    13,579
    
    
    
    5.37
    %
    
    
    2007
    
    
    
    4,920
    
    
    
    3.09
    %2008
    
    
    14,330
    
    
    
    5.06
    %
    
    
    2008
    
    
    
    5,429
    
    
    
    3.09
    %2009
    
    
    12,286
    
    
    
    6.84
    %
    
    
    2009
    
    
    
    140
    
    
    
    3.09
    %2010
    
    
    1,137
    
    
    
    5.85
    %
    
    
    2010
    
    
    
    4,560
    
    
    
    3.09
    %Thereafter
    
    
    92,416
    
    
    
    4.85
    %
    
    


    Thereafter

    
    
    
    35,760
    
    
    
    2.79
    %$
    134,844
    
    
    
    
    
    
    
    
    
    
    $
    50,920
 
 (1)
    
    Weighted average rate for the year ended December 31, 2005. 24




---



##### Table of Contents



Interest Rate Swaps and CapsCounterparty
    
    
    
    
    
    CompanyNotional
    
    Receive/
    
    Notional
    
    PayMaturity
    
    Amount
    
    Cap Rate
    
    Amount
    
    RateFixed to Variable
    
    December 6, 2006
    
    $
    4,800
    (4)
    
    
    7.00
    %
    
    $
    4,800
    (4)
    
    
    3.53
    %(3)Fixed to Variable
    
    December 6, 2006
    
    $
    5,300
    (4)
    
    
    7.13
    %
    
    $
    5,300
    (4)
    
    
    3.53
    %(3)Fixed to Variable
    
    December 6, 2006
    
    $
    5,060
    (1) (4)
    
    
    7.75
    %
    
    $
    5,060
    (1) (4)
    
    
    3.53
    %(3)Fixed to Variable
    
    January 22, 2009
    
    $
    8,300
    (4)
    
    
    5.38
    %
    
    $
    8,300
    (4)
    
    
    3.53
    %(3)Variable to Fixed
    
    February 3, 2009
    
    $
    8,100
    
    
    
    2.88
    %(2)
    
    $
    8,100
    
    
    
    2.82
    %Variable to Fixed
    
    June 25, 2009
    
    $
    10,910
    
    
    
    2.88
    %(2)
    
    $
    10,910
    
    
    
    3.30
    %Fixed to Variable
    
    July 13, 2009
    
    $
    6,930
    (4)
    
    
    7.25
    %
    
    $
    6,930
    (4)
    
    
    3.53
    %(3)Fixed to Variable
    
    July 13, 2009
    
    $
    3,980
    (4)
    
    
    7.50
    %
    
    $
    3,980
    (4)
    
    
    3.53
    %(3)Variable to Fixed
    
    January 15, 2012
    
    $
    11,320
    
    
    
    2.88
    %(2)
    
    $
    11,320
    
    
    
    3.44
    %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/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 three months ended December 31, 2005.(3)
    
    Weighted average Bond Market Association rate for the three months ended December 31, 2005 plus 0.65%.(4)
    
    These are total return swaps.    Prepayment Risk on Agency Securities
  Credit Risk of Cash Concentrations
  25




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##### Table of Contents



Item 8. Financial Statements and Supplementary Data.
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
     Internal ControlIntegrated Framework
 
 26




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
    
 27




---



##### Table of Contents



December 31,
    
    
    December 31,2005
    
    
    2004AssetsCash and cash equivalents
    
    $
    4,743
    
    
    $
    10,634Restricted cash
    
    
    53,279
    
    
    
    8,039Real estate assets:Land
    
    
    35,022
    
    
    
    31,607Buildings
    
    
    245,170
    
    
    
    212,269Total
    
    
    280,192
    
    
    
    243,876Less: accumulated depreciation
    
    
    (40,459
    )
    
    
    (34,139
    )Real estate assets, net
    
    
    239,733
    
    
    
    209,737Investments in agency securities, at fair value
    
    
    18,189
    
    
    
    26,192Investments in corporate equity securities, at fair value
    
    
    4,073
    
    
    
    4,321Investment in mezzanine loan
    
    
    7,173
    
    
    
    In-place lease intangibles, net of accumulated
amortization of $5,377 and $2,465, respectively
    
    
    550
    
    
    
    2,572Assets of discontinued operations
    
    
    
    
    
    
    30,764Other assets
    
    
    6,219
    
    
    
    5,138Total assets
    
    $
    333,959
    
    
    $
    297,397LiabilitiesAccounts payable and accrued expenses
    
    $
    8,996
    
    
    $
    7,039Dividends payable
    
    
    2,759
    
    
    
    2,628Notes payable
    
    
    2,413
    
    
    
    2,413Bonds and mortgage notes payable
    
    
    185,764
    
    
    
    167,150Borrowings under repurchase agreements
    
    
    36,202
    
    
    
    27,875Total liabilities
    
    
    236,134
    
    
    
    207,105ContingenciesStockholders EquityCommon stock, $0.01 par value; 500,000,000 shares
authorized, 11,035,558 and 10,510,558 issued and outstanding
    
    
    110
    
    
    
    105Additional paid-in capital
    
    
    110,157
    
    
    
    102,766Accumulated deficit
    
    
    (12,318
    )
    
    
    (12,628
    )Accumulated other comprehensive income (loss)
    
    
    (124
    )
    
    
    49Total stockholders equity
    
    
    97,825
    
    
    
    90,292Total liabilities and stockholders equity
    
    $
    333,959
    
    
    $
    297,397
  28




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##### Table of Contents



For the Year ended
    
    
    For the Year ended
    
    
    For the Year endedDecember 31, 2005
    
    
    December 31, 2004
    
    
    December 31, 2003Revenues:Rental revenues
    
    $
    43,747
    
    
    $
    29,848
    
    
    $
    18,516Interest and dividend income
    
    
    1,171
    
    
    
    767
    
    
    
    328Gain on sales of corporate equity securities
    
    
    
    
    
    
    212
    
    
    
    Gain on Jefferson Place subordinated note
    
    
    
    
    
    
    
    
    
    
    4,444Other income
    
    
    382
    
    
    
    
    
    
    
    Total revenues
    
    
    45,300
    
    
    
    30,827
    
    
    
    23,288Expenses:Real estate operating
    
    
    21,239
    
    
    
    16,490
    
    
    
    9,348Depreciation
    
    
    8,613
    
    
    
    5,661
    
    
    
    3,777Interest
    
    
    8,345
    
    
    
    4,800
    
    
    
    3,472General and administrative
    
    
    6,455
    
    
    
    3,997
    
    
    
    1,910Amortization
    
    
    3,101
    
    
    
    2,719
    
    
    
    288Contract termination costs
    
    
    11,619
    
    
    
    5,911
    
    
    
    Total expenses
    
    
    59,372
    
    
    
    39,578
    
    
    
    18,795Income (loss) from continuing operations
    
    
    (14,072
    )
    
    
    (8,751
    )
    
    
    4,493Income (loss) from discontinued operations
    
    
    418
    
    
    
    13
    
    
    
    (132
    )Gain on
sales of discontinued property
    
    
    24,606
    
    
    
    5,973
    
    
    
    Net income (loss)
    
    $
    10,952
    
    
    $
    (2,765
    )
    
    $
    4,361Other comprehensive income (loss):Unrealized holding gains (losses) on
securities arising during the period
    
    
    (282
    )
    
    
    (344
    )
    
    
    615Less: Reclassification adjustments for gains
realized in net loss
    
    
    
    
    
    
    (212
    )
    
    
    Unrealized gains on derivatives
    
    
    109
    
    
    
    
    
    
    
    (173
    )
    
    
    (556
    )
    
    
    615Comprehensive income (loss)
    
    $
    10,779
    
    
    $
    (3,321
    )
    
    $
    4,976Earnings per share- basic and dilutedIncome (loss) from continuing operations
    
    $
    (1.34
    )
    
    $
    (1.06
    )
    
    $
    0.89Income (loss) from discontinued operations
and gain on sales of discontinued property
    
    
    2.38
    
    
    
    0.72
    
    
    
    (0.03
    )Net income (loss)
    
    $
    1.04
    
    
    $
    (0.34
    )
    
    $
    0.86Dividends declared per share
    
    $
    1.00
    
    
    $
    1.00
    
    
    $
    1.00Weighted average number of shares outstandingbasic
    
    
    10,513
    
    
    
    8,243
    
    
    
    5,074diluted
    
    
    10,513
    
    
    
    8,243
    
    
    
    5,076
  29




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##### Table of Contents



AccumulatedCommon
    
    
    
    
    
    
    Additional
    
    
    
    
    
    
    OtherGeneral
    
    
    BUC
    
    
    Stock
    
    
    Common
    
    
    Paid-In
    
    
    Accumulated
    
    
    ComprehensivePartner
    
    
    holders
    
    
    Shares
    
    
    Stock
    
    
    Capital
    
    
    Deficit
    
    
    Income (Loss)
    
    
    TotalBalance, 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 (losses)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    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 gains (losses)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (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
    
    
    
    
    
    
    
    
    
    
    
    62Change in unrealized holding
holding gains (losses)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (282
    )
    
    
    (282
    )Change in unrealized holding
gains on interest rate swaps
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    109
    
    
    
    109Dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,642
    )
    
    
    
    
    
    
    (10,642
    )Balance, December 31, 2005
    
    $
    
    
    
    $
    
    
    
    
    11,036
    
    
    $
    110
    
    
    $
    110,157
    
    
    $
    (12,318
    )
    
    $
    (124
    )
    
    $
    97,825
  30




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##### Table of Contents



For the Years ended,2005
    
    
    2004
    
    
    2003Operating activitiesNet income (loss)
    
    $
    10,952
    
    
    $
    (2,765
    )
    
    $
    4,361Adjustments to reconcile net income (loss) to net cash
provided by operating activitiesDepreciation
    
    
    9,317
    
    
    
    7,122
    
    
    
    5,001Gain on
sales of discontinued property
    
    
    (24,606
    )
    
    
    (5,973
    )
    
    
    Gain on sale of corporate equity securities
    
    
    
    
    
    
    (212
    )
    
    
    Contract termination costs
    
    
    11,619
    
    
    
    5,911
    
    
    
    Gain on Jefferson Place subordinated note
    
    
    
    
    
    
    
    
    
    
    (4,444
    )Change in fair value on interest rate swap agreements
    
    
    (85
    )
    
    
    (273
    )
    
    
    11Amortization
    
    
    3,269
    
    
    
    3,321
    
    
    
    292Non cash stock option compensation
    
    
    62
    
    
    
    21
    
    
    
    38Change in
other operating assets
    
    
    (272
    )
    
    
    385
    
    
    
    (422
    )Change in accounts payable and accrued expenses
    
    
    1,104
    
    
    
    704
    
    
    
    (139
    )Net cash provided by operating activities
    
    
    11,360
    
    
    
    8,241
    
    
    
    4,698Investing activitiesReal estate capital improvements and acquisitions
    
    
    (27,067
    )
    
    
    (5,398
    )
    
    
    (409
    )Principal received on agency securities
    
    
    7,667
    
    
    
    11,004
    
    
    
    187Change in restricted cash
    
    
    (45,240
    )
    
    
    263
    
    
    
    529Mezzanine loan
    
    
    (7,444
    )
    
    
    
    
    
    
    Net proceeds from repayment of Jefferson Place subordinated note
    
    
    
    
    
    
    
    
    
    
    2,356Proceeds from principal repayment of mezzanine loan
    
    
    350
    
    
    
    
    
    
    
    Proceeds from sales of real estate
    
    
    54,352
    
    
    
    11,076
    
    
    
    Proceeds from sales of corporate equity securities
    
    
    125
    
    
    
    3,876
    
    
    
    Acquisition of America First Real Estate Investment Partners, LP
    
    
    
    
    
    
    (3,963
    )
    
    
    Acquisition of America First Advisory Corporation
    
    
    (4,065
    )
    
    
    
    
    
    
    Purchase of property management assets
    
    
    
    
    
    
    (6,898
    )
    
    
    Cash received in acquisition of America First Real
Estate Investment Partners, LP
    
    
    
    
    
    
    8,400
    
    
    
    Acquisition of agency securities
    
    
    
    
    
    
    (1,565
    )
    
    
    (36,114
    )Net cash (used) provided by investing activities
    
    
    (21,322
    )
    
    
    16,795
    
    
    
    (33,451
    )Financing activitiesBorrowings under repurchase agreements
    
    
    11,300
    
    
    
    
    
    
    
    33,012Proceeds from mortgage notes
    
    
    12,370
    
    
    
    
    
    
    
    Issuance of common stock
    
    
    
    
    
    
    44
    
    
    
    11Debt financing costs paid
    
    
    (140
    )
    
    
    (419
    )
    
    
    Dividends paid
    
    
    (10,511
    )
    
    
    (7,790
    )
    
    
    (5,074
    )Repayments of borrowings under repurchase agreements
    
    
    (2,973
    )
    
    
    (12,111
    )
    
    
    Principal payments on bonds and mortgage notes payable
    
    
    (5,975
    )
    
    
    (1,044
    )
    
    
    (698
    )Net cash provided (used) in financing activities
    
    
    4,071
    
    
    
    (21,320
    )
    
    
    27,251Change in cash and cash equivalents
    
    
    (5,891
    )
    
    
    3,716
    
    
    
    (1,502
    )Cash and cash equivalents at beginning of period
    
    
    10,634
    
    
    
    6,918
    
    
    
    8,420Cash and cash equivalents at end of period
    
    $
    4,743
    
    
    $
    10,634
    
    
    $
    6,918
  31




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##### Table of Contents



For the Years ended,2005
    
    
    2004
    
    
    2003Supplemental disclosure of cash flow information:Cash paid for interest
    
    $
    8,500
    
    
    $
    5,153
    
    
    $
    4,669Noncash investing and financing activities:Dividends declared but not paid
    
    $
    2,759
    
    
    $
    2,628
    
    
    $
    1,269Issuance of shares for Advisory Corporation acquisition
    
    $
    7,334
    
    
    $
    
    
    
    $
    Assumption of debt in connection with property acquisition
    
    $
    12,218
    
    
    $
    26,150
    
    
    $
    Issuance of shares for AFREZ merger
    
    $
    
    
    
    $
    55,338
    
    
    $
    Relinquishment of debt in connection with property disposition
    
    $
    
    
    
    $
    8,775
    
    
    $
    
  32




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##### Table of Contents



1. Organization
    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 its use, at December 31, 2005 is primarily
comprised of $29.5 million of funds held in a tax-deferred Section 1031 exchange account and
$16.7 million of cash providing additional collateral on the bonds payable at Coral Point and
Covey at Fox Valley. The remaining amount results from resident security deposits, required
maintenance reserves, escrowed funds and collateral for various interest rate swap
agreements.D)
    
    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 years on multifamily residential apartment buildings, 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 improvements on the Companys commercial
property is based on the term of the related tenant lease using the straight-line method.
Effective January 1, 2005, the Company began capitalizing appliances purchased for tenant
use. During the year ended December 31, 2005, $419,000 of such
costs were capitalized. Had
the Company continued to follow its previous capitalization policy, net income would have
been reduced by approximately $0.04 per share. Maintenance and repairs are charged to
expense as incurred, while significant improvements, renovations and replacements are
capitalized.Management reviews each property for impairment 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, 2005,
2004 and 2003.
 33




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##### Table of Contents



The Company allocates the purchase price of property acquisitions to the acquired tangible
assets, including land, buildings and identifiable intangible assets based on the fair value
of 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 assumption that the building
is vacant. In-place lease intangibles arise as a result of the allocation of a portion of
the total acquisition costs of a property 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.E)
    
    Investment in Agency Securities and Corporate Equity SecuritiesAgency securities consist of mortgage-backed securities issued or guaranteed as to payment of
principal or interest by an agency of the United States government or a federally-chartered
corporation such as the Federal National Mortgage Association, Government National Mortgage
Association, or the Federal Home Loan Mortgage Corporation. Corporate equity securities
consist of shares of other REITs and similar real estate companies.The 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, 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.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 $730,000 and $769,000 are included in other assets on the
Companys Consolidated Balance Sheets as of December 31, 2005 and 2004, respectively. These
costs are net of accumulated amortization of $1.7 million and $1.5 million as of December 31,
2005 and 2004, respectively.G)
    
    Borrowings under Repurchase AgreementsWith a repurchase agreement, the Company sells a security 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.
 34




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##### Table of Contents



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 real properties. The
following table reconciles income (loss) as reflected in the Companys financial statements
to REIT taxable income for 2005 (estimated) 2004, and 2003 (in thousands):
 Estimated2005
    
    
    2004
    
    
    2003Net income (loss) per financial statements
    
    $
    10,952
    
    
    $
    (2,765
    )
    
    $
    4,361Reconciling items:Add differences in deductions for depreciation
and amortization
    
    
    1,884
    
    
    
    2,848
    
    
    
    131Add (less) basis difference for assets
acquired or disposed
    
    
    (6,055
    )
    
    
    5,399
    
    
    
    (1,706
    )Less tax exempt interest income
    
    
    
    
    
    
    
    
    
    
    (2,740
    )Other book/tax differences (net)
    
    
    105
    
    
    
    92
    
    
    
    12Taxable income subject to the dividend requirement
    
    
    6,886
    
    
    
    5,574
    
    
    
    58Minimum dividend required (90% of taxable income)
    
    $
    6,197
    
    
    $
    5,017
    
    
    $
    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. Although similar to taxable income, 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 of assets 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):
 2005
    
    
    2004
    
    
    2003Common dividends paid:Ordinary dividends
    
    $
    4,310
    
    
    $
    7,246
    
    
    $
    5,074Long-term capital gain
    
    
    6,201
    
    
    
    
    
    
    
    Return of capital
    
    
    
    
    
    
    544
    
    
    
    Total dividends paid
    
    $
    10,511
    
    
    $
    7,790
    
    
    $
    5,074
 J)
    
    Discontinued OperationsStatement of Financial Accounting Standards No. 144, Accounting for Impairment or Disposal of
Long-Lived Assets,requires that the results of operations for properties sold during the
period or classified as held for sale at the end of the current period be classified as
discontinued operations for all periods presented. The property-specific components of net
earnings that are classified as discontinued operations include rental revenue, real estate
operating expenses, depreciation expense and interest expense on debt collateralized by the
property. The net gain or loss on the eventual disposal of the held for sale properties is
also required to be classified as discontinued operations. During 2005, the Company divested
the Park Trace Apartments,
The Retreat Apartments and the St. Andrews at Westwood Apartments.
During 2004, the Glades was divested. There were no divestitures during 2003.
 35




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##### Table of Contents



K)
    
    Net Income (Loss) per shareNet income (loss) per share is based on the weighted average number of shares outstanding
during each year presented. Diluted net income (loss) per share includes shares issuable upon
exercise of outstanding stock options where the conversion of such instruments would be
dilutive.L)
    
    Derivative Instruments and Hedging ActivitiesThe Company accounts for its derivative and hedging activities in accordance with Statement
of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities. This statement 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 fair value of the interest rate swap and cap agreements
are determined based upon current fair values as quoted by recognized dealers.M)
    
    Recently Issued Accounting PronouncementsIn June 2005, the FASB issued Statement of Financial Accounting Standards No. 154, Accounting
Changes and Error Corrections(SFAS 154), which changes the requirements for the accounting
for and reporting of a change in accounting principle. Previously, most voluntary changes in
accounting principles required recognition via a cumulative effect adjustment within net
income of the period of the change. SFAS 154 requires retrospective application to prior
periods financial statements, unless it is impracticable to determine either the
period-specific effects or the cumulative effect of the change. SFAS 154 is effective for
accounting changes made in fiscal years beginning after December 15, 2005; however, SFAS 154
does not change the transition provisions of any existing accounting pronouncements.In March 2005, the FASB issued FASB Interpretation No. 47, Accounting for Conditional Asset
Retirement Obligations, an Interpretation of FASB Statement No. 143(FIN 47). FIN 47
clarifies that the term conditional asset retirement obligation, as used in SFAS No. 143,
Accounting for Asset Retirement Obligations, refers to a legal obligation to perform an asset
retirement activity in which the timing and (or) method of settlement are conditional on a
future event that may or may not be within the control of the entity. The obligation to
perform the asset retirement activity is unconditional even though uncertainty exists about
the timing and (or) method of settlement. Thus, the timing and (or) method of settlement may
be conditional on a future event. Accordingly, an entity is required to recognize a
liability for the fair value of a conditional asset retirement obligation if the fair value
of the liability can be reasonably estimated. The statement must be applied by December 31,
2005. The adoption of this interpretation did not have a material impact on the Companys
consolidated financial position or results of operations.In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123
(revised 2004) (SFAS No. 123R), Share-Based Payment. SFAS No. 123R will require the company
to measure the cost of all employee stock-based compensation awards based on the grant date
fair value of those awards and to record that cost as compensation expense over the period
during which the employee is required to perform service in exchange for the award (generally
over the vesting period of the award). As the Company currently recognizes compensation
expense based on the fair value of equity based compensation, the Company does not anticipate
the adoption of this standard will have a material impact on the consolidated financial
statements.In December 2004, the FASB issued Statement of Financial Accounting Standards No. 153,
Exchanges of Non-monetary Assets an amendment of APB No. 29. This Statement amends APB
Opinion No. 29, Accounting for Non-monetary Transactionsto 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.
 36




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##### Table of Contents



3. Internalization Transactions
   Accounting for Preexisting Relationships between Parties to a
Business Combination
 4. Discontinued Operations
    For the year ended
    
    
    For the year ended
    
    
    For the year endedDecember 31, 2005
    
    
    December 31, 2004
    
    
    December 31, 2003Revenues
    
    $
    4,286
    
    
    $
    6,954
    
    
    $
    5,611Expenses
    
    
    3,868
    
    
    
    6,941
    
    
    
    5,743Income (loss) from discontinued operations
    
    $
    418
    
    
    $
    13
    
    
    $
    (132
    )
 Allocation of
Interest to Discontinued Operations.
 5. Merger
  37




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##### Table of Contents



Business Combinations
  Cash and cash equivalentsUnrestricted
    
    $
    8,400Restricted
    
    
    3,616Investment in agency securities
    
    
    97Investments in corporate equity securities
    
    
    5,973Investment in real estate assets
    
    
    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
  38




---



##### Table of Contents



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
 6. Acquisition of Properties
  2005
    
    
    2004Land
    
    $
    3,415
    
    
    $
    4,400Buildings
    
    
    33,000
    
    
    
    25,336Total real estate assets
    
    
    36,415
    
    
    
    29,736Other assets
    
    
    1,489
    
    
    
    1,535Total assets acquired
    
    
    37,904
    
    
    
    31,271Mortgage note payable
    
    
    12,218
    
    
    
    26,150Other liabilities
    
    
    577
    
    
    
    47612,795
    
    
    
    26,626Net assets acquired
    
    $
    25,109
    
    
    $
    4,645
   39




---



##### Table of Contents



7. Investments in Real Estate
  Building
    
    
    Carrying
    
    
    CarryingNumber
    
    
    
    
    
    
    and
    
    
    Value at
    
    
    Value atProperty Name
    
    Location
    
    of Units
    
    
    Land
    
    
    Improvements
    
    
    Dec. 31, 2005
    
    
    Dec. 31, 2004Arbor Hills(1)
    
    Antioch, TN
    
    
    548
    
    
    $
    4,400
    
    
    $
    25,534
    
    
    $
    29,934
    
    
    $
    29,736Belvedere Apartments(1)
    
    Naples, FL
    
    
    162
    
    
    
    956
    
    
    
    8,355
    
    
    
    9,311
    
    
    
    9,294Bluff Ridge Apartments(1)
    
    Jacksonville, NC
    
    
    108
    
    
    
    203
    
    
    
    3,522
    
    
    
    3,725
    
    
    
    3,704Brentwood Oaks Apartments (1)
    
    Nashville, TN
    
    
    262
    
    
    
    2,000
    
    
    
    9,883
    
    
    
    11,883
    
    
    
    11,837Coral Point Apartments (1)
    
    Mesa, AZ
    
    
    337
    
    
    
    2,240
    
    
    
    9,387
    
    
    
    11,627
    
    
    
    11,444Covey at Fox Valley(1)
    
    Aurora, IL
    
    
    216
    
    
    
    1,320
    
    
    
    10,511
    
    
    
    11,831
    
    
    
    11,819Delta Crossing
    
    Charlotte, NC
    
    
    178
    
    
    
    800
    
    
    
    5,060
    
    
    
    5,860
    
    
    
    5,831Elliots Crossing Apartments (1)
    
    Tempe, AZ
    
    
    247
    
    
    
    1,301
    
    
    
    9,720
    
    
    
    11,021
    
    
    
    11,004Fox Hollow Apartments (1)
    
    High Point, NC
    
    
    184
    
    
    
    1,000
    
    
    
    5,155
    
    
    
    6,155
    
    
    
    6,148Greenbriar Apartments (1)
    
    Tulsa, OK
    
    
    120
    
    
    
    648
    
    
    
    3,828
    
    
    
    4,476
    
    
    
    4,442Highland Park Apartments (1)
    
    Columbus, OH
    
    
    252
    
    
    
    1,562
    
    
    
    6,349
    
    
    
    7,911
    
    
    
    7,881The Hunt Apartments (1)
    
    Oklahoma City, OK
    
    
    216
    
    
    
    550
    
    
    
    7,110
    
    
    
    7,660
    
    
    
    7,611Huntsview Apartments (1)
    
    Greensboro, NC
    
    
    240
    
    
    
    1,845
    
    
    
    6,638
    
    
    
    8,483
    
    
    
    8,435Jackson Park Place Apartments (1)
    
    Fresno, CA
    
    
    296
    
    
    
    1,400
    
    
    
    10,839
    
    
    
    12,239
    
    
    
    12,301Lakes of Northdale Apartments (1)
    
    Tampa, FL
    
    
    216
    
    
    
    1,553
    
    
    
    8,876
    
    
    
    10,429
    
    
    
    10,007Littlestone of Village Green (1)
    
    Gallatin, TN
    
    
    200
    
    
    
    621
    
    
    
    10,031
    
    
    
    10,652
    
    
    
    10,602Misty Springs Apartments
    
    Daytona Beach, FL
    
    
    128
    
    
    
    742
    
    
    
    3,983
    
    
    
    4,725
    
    
    
    4,573Monticello Apartments
    
    Southfield, MI
    
    
    106
    
    
    
    565
    
    
    
    5,291
    
    
    
    5,856
    
    
    
    5,848Oakhurst Apartments (1)
    
    Ocala, FL
    
    
    214
    
    
    
    847
    
    
    
    8,538
    
    
    
    9,385
    
    
    
    9,266Oakwell Farms Apartments (1)
    
    Nashville, TN
    
    
    414
    
    
    
    1,946
    
    
    
    16,226
    
    
    
    18,172
    
    
    
    18,129Park at Countryside(1)
    
    Port Orange, FL
    
    
    120
    
    
    
    647
    
    
    
    2,720
    
    
    
    3,367
    
    
    
    3,254The Park at 58 Apartments(1)
    
    Chattanooga, TN
    
    
    196
    
    
    
    231
    
    
    
    4,283
    
    
    
    4,514
    
    
    
    4,501The Ponds at Georgetown
    
    Ann Arbor, MI
    
    
    134
    
    
    
    653
    
    
    
    6,878
    
    
    
    7,531
    
    
    
    7,499The Reserve at Wescott Plantation(1)
    
    Summerville, SC
    
    
    192
    
    
    
    1,725
    
    
    
    15,601
    
    
    
    17,326
    
    
    
    Tregaron Oaks Apartments(1)
    
    Bellevue, NE
    
    
    300
    
    
    
    1,690
    
    
    
    17,399
    
    
    
    19,089
    
    
    
    Shelby Heights(1)
    
    Bristol, TN
    
    
    100
    
    
    
    175
    
    
    
    2,965
    
    
    
    3,140
    
    
    
    3,128Watermans Crossing(1)
    
    Newport News, VA
    
    
    260
    
    
    
    1,620
    
    
    
    12,825
    
    
    
    14,445
    
    
    
    14,346Waters Edge Apartments
    
    Lake Villa, IL
    
    
    108
    
    
    
    486
    
    
    
    4,658
    
    
    
    5,144
    
    
    
    5,107The Exchange at Palm Bay (1)
    
    Palm Bay, FL
    
    
    72,002
    (2)
    
    
    1,296
    
    
    
    3,005
    
    
    
    4,301
    
    
    
    6,129280,192
    
    
    
    243,876Less accumulated depreciation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (40,459
    )
    
    
    (34,139
    )Balance at end of year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    239,733
    
    
    $
    209,737
 
 (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. 8. Bonds and Mortgage Notes Payable
  40




---



##### Table of Contents



Effective
    
    
    
    
    
    
    
    
    Carrying AmountInterest
    
    
    Maturity
    
    Payment and
    
    Annual
    
    December 31,Collateral
    
    Rate
    
    
    Date
    
    Prepayment or Redemption Terms
    
    Payments
    
    2005
    
    
    2004Bonds Payable:Coral Point 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
    
    
    5.30
    %
    
    11/01/2007

    
    Semiannual payment of interest
due each May 1 and November 1.
Prepayable at par + 1% in March 2006.
    
    interest only
    
    
    12,410
    
    
    
    12,410Brentwood
Oaks Apartments
    
    
    3.44
    %(1)
    
    07/15/2031
    
    Monthly payment of interest due on the 12th of each month.
Prepayable at any time.
    
    interest only
    
    
    11,320
    
    
    
    11,320Lakes of
Northdale and Bluff Ridge Apartments
    
    
    2.86
    %(2)
    
    05/15/2012
    
    Monthly payment of interest due on the 11th of each month. Prepayable at any time.
    
    interest only
    
    
    9,610
    
    
    
    9,610Jackson Park Place Apartments
    
    
    5.80
    %
    
    12/01/2027
    
    Monthly payment of principal and interest due the 1st of each month. Prepayable at par in January 2007.
    
    $599
    
    
    7,434
    
    
    
    7,596The Hunt Apartments
    
    
    3.30
    %(3)
    
    07/01/2029
    
    Semiannual payment of interest due each Jan. 1 and July 1. Prepayable at any time.
    
    interest only
    
    
    6,930
    
    
    
    6,930Oakhurst Apartments
    
    
    3.53
    %(4)
    
    12/01/2007
    
    Semiannual payment of interest due each June 1 and Dec. 1. Prepayable at any time.
    
    interest only
    
    
    5,300
    
    
    
    5,300The Exchange at Palm Bay
    
    
    3.53
    %(4)
    
    11/01/2010
    
    Monthly payment of principal and interest due the 25th of each
month. Prepayable at any time.
    
    $499
    
    
    5,060
    
    
    
    5,153Belvedere Apartments
    
    
    3.53
    %(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 any time.
    
    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
    
    
    2,760
    
    
    
    2,855Elliot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
    
    
    8,146
    
    
    
    8,140Arbor Hills
and Littlestone at Village Green
    
    
    2.76
    %(6)
    
    12/01/2025
    
    Monthly payment of interest due the 1st of each month. Prepayable at any time.
    
    interest only
    
    
    26,150
    
    
    
    26,150The Park at 58 Apartments
    
    
    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
    
    
    2,180
    
    
    
    2,255$
    119,170
    
    
    $
    119,589
 41




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##### Table of Contents



Effective
    
    
    
    
    
    
    
    
    Carrying AmountInterest
    
    
    Maturity
    
    Payment and
    
    Annual
    
    December 31,Collateral
    
    Rate
    
    
    Date
    
    Prepayment or Redemption Terms
    
    Payments
    
    2005
    
    
    2004Mortgage 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
    
    
    11,900
    
    
    
    12,097Waterman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
    
    
    10,746
    
    
    
    10,859Huntsview Apartments
    
    
    5.83
    %
    
    01/01/2012
    
    Monthly payment of principal and
interest due on the 1st of each month. Prepayable at par +1% until June 2011.
    
    $509
    
    
    6,986
    
    
    
    7,112Highland 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
    
    
    6,404
    
    
    
    6,502Fox Hollow Apartments
    
    
    6.91
    %
    
    03/01/2011
    
    Monthly payment of principal and
interest due on the 1st of each month. Prepayable at par +1% until September 2010.
    
    $493
    
    
    5,960
    
    
    
    6,043Littlestone at
Village Green
    
    
    7.68
    %
    
    09/15/2005
    
    Monthly payment of principal and interest due the 15th of each month.
    
    $543
    
    
    
    
    
    
    4,948Tregaron Oaks Apartments
    
    
    5.12
    %
    
    09/01/2015
    
    Monthly payments of interest due on
the first of each month Prepayable at par +1% until March 2015.
    
    interest only
    
    
    12,370
    
    
    
    The 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 subsequent to June 2013.
    
    $788
    
    
    12,228
    
    
    
    $
    66,594
    
    
    $
    47,561$
    185,764
    
    
    $
    167,150
 42




---



##### Table of Contents



(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.(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 12/31/2005 was 3.43%, averaged for the year 2.86%.(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 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%. These agreements terminate in 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 12/31/2005 was 3.45%, the average for the period was 2.76%   PrincipalMaturity
    
    Amount2006
    
    $
    1,2072007
    
    
    18,4992008
    
    
    19,7592009
    
    
    12,4262010
    
    
    5,697Thereafter
    
    
    128,176$
    185,764
 9. Investments in Securities
  Gross
    
    GrossUnrealized
    
    Unrealized
    
    FairCost
    
    Gains
    
    Losses
    
    Value2005:Agency Securities
    
    $
    18,485
    
    
    $
    
    
    
    $
    (296
    )
    
    $
    18,189Corporate Equity Securities
    
    
    4,010
    
    
    
    87
    
    
    
    (24
    )
    
    
    4,0732004:Agency Securities
    
    $
    26,328
    
    
    $
    4
    
    
    $
    (140
    )
    
    $
    26,192Corporate Equity Securities
    
    
    4,136
    
    
    
    185
    
    
    
    
    
    
    
    4,321
  43




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##### Table of Contents



10.
Jefferson Place Subordinated Note
  11. Borrowings under Repurchase Agreements
  Interest
    
    
    Maturity
    
    
    
    
    
    
    Carrying AmountCollateral
    
    Rate
    
    
    Date
    
    
    Payment Schedule
    
    
    December 31, 2005
    
    
    Dec. 31, 2004Repurchase agreements collateralized by agency securities:FNMA Pool #759197
    
    
    4.63
    %
    
    
    06/13/2006
    
    
    Interest payments and principal due at maturity
    
    $
    15,427
    
    
    $
    16,400FNMA Pool #670676
    
    
    4.18
    %
    
    
    01/24/2006
    
    
    Interest payments and principal due at maturity
    
    
    2,500
    
    
    
    4,50017,927
    
    
    
    20,900Other repurchase agreements, collateralized by GNMA Certificates:Misty Springs
    
    
    4.40
    %
    
    
    03/09/2006
    
    
    Interest payments and principal due at maturity
    
    
    2,919
    
    
    
    Waters Edge
    
    
    4.40
    %
    
    
    03/09/2006
    
    
    Interest payments and principal due at maturity
    
    
    3,881
    
    
    
    Monticello
    
    
    4.65
    %
    
    
    06/28/2006
    
    
    Interest payments and principal due at maturity
    
    
    4,500
    
    
    
    The Ponds at Georgetown
    
    
    4.53
    %
    
    
    03/28/2006
    
    
    Interest payments due quarterly, principal due at maturity
    
    
    6,975
    
    
    
    6,975$
    36,202
    
    
    $
    27,875
   44




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##### Table of Contents



12. Notes Payable
   13. Transactions with Related Parties
    For the year ended
    
    For the year ended
    
    For the year endedDecember 31, 2005
    
    December 31, 2004
    
    December 31, 2003Administrative fees
    
    
    (1
    )
    
    $
    1,586
    
    
    $
    1,200
    
    
    $
    883Administrative
fees
agency securities
    
    
    (2
    )
    
    
    60
    
    
    
    154
    
    
    
    8Property management fees
    
    
    (3
    )
    
    
    
    
    
    
    1,300
    
    
    
    1,000Property acquisition fees
    
    
    (4
    )
    
    
    456
    
    
    
    371
    
    
    
    Reimbursement of direct
and allocated costs
    
    
    (5
    )
    
    
    2,132
    
    
    
    2,894
    
    
    
    1,063
 
 (1)
    
    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 a predecessor to the
Company; (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 owners of residential real estate, plus (iv) the value of the AFREZ properties on the
date of the merger of AFREZ 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 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 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 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. 45




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##### Table of Contents



(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 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.(5)
    
    Reimbursement of Direct and Allocated Costs- The Company reimburses the Advisor and
its affiliate for certain costs and expenses that it incurs in connection with the carrying out of
the Companys business activities.     14. Stock Option Plan
  46




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Number of
    
    
    Weighted AverageShares
    
    
    Exercise PriceBalance at December 31, 2002
    
    
    
    
    
    $
    Granted
    
    
    40,000
    
    
    
    8.73Cancelled
    
    
    
    
    
    
    Balance at December 31, 2003
    
    
    40,000
    
    
    
    8.73Granted
    
    
    
    
    
    
    Cancelled
    
    
    (5,000
    )
    
    
    8.73Exercised
    
    
    (5,000
    )
    
    
    8.73Balance at December 31, 2004
    
    
    30,000
    
    
    
    8.73Granted
    
    
    31,000
    
    
    
    12.87Cancelled
    
    
    
    
    
    
    Balance at December 31, 2005
    
    
    61,000
    
    
    $
    10.83Options exercisable at December 31, 2005
    
    
    34,000
    
    
    $
    10.22
  Accounting for Stock-Based Compensation
  2005
    
    
    2004Risk-free interest rate
    
    
    4.30
    %
    
    
    3.24
    %Expected-life
    
    6 years
    
    5 yearsVolatility
    
    
    12
    %
    
    
    20
    %Estimated fair value
    
    $
    3.22
    
    
    $
    2.19
 15. Fair Value of Financial Instruments
    47




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##### Table of Contents



As of December 31, 2005
    
    
    As of December 31, 2004Carrying
    
    
    Estimated
    
    
    Carrying
    
    
    EstimatedAmount
    
    
    Fair Value
    
    
    Amount
    
    
    Fair ValueBonds and mortgage notes payable
    
    $
    185,764
    
    
    $
    193,602
    
    
    $
    167,150
    
    
    $
    178,089Notes payable
    
    $
    2,413
    
    
    $
    2,413
    
    
    $
    2,413
    
    
    $
    2,413
 16. Interest Rate Swap and Cap Agreements
   Interest Rate Swaps and CapsCounterparty
    
    
    
    
    
    CompanyNotional
    
    Receive/
    
    Notional
    
    PayMaturity
    
    Amount
    
    Cap Rate
    
    Amount
    
    RateFixed to Variable
    
    December 6, 2006
    
    $
    4,800
    (4)
    
    
    7.00
    %
    
    $
    4,800
    (4)
    
    
    3.53
    %(3)Fixed to Variable
    
    December 6, 2006
    
    $
    5,300
    (4)
    
    
    7.13
    %
    
    $
    5,300
    (4)
    
    
    3.53
    %(3)Fixed to Variable
    
    December 6, 2006
    
    $
    5,060
    (1)(4)
    
    
    7.75
    %
    
    $
    5,060
    (1)(4)
    
    
    3.53
    %(3)Fixed to Variable
    
    January 22, 2009
    
    $
    8,300
    (4)
    
    
    5.38
    %
    
    $
    8,300
    (4)
    
    
    3.53
    %(3)Variable to Fixed
    
    February 3, 2009
    
    $
    8,100
    
    
    
    2.88
    %(2)
    
    $
    8,100
    
    
    
    2.82
    %Variable to Fixed
    
    June 25, 2009
    
    $
    10,910
    
    
    
    2.88
    %(2)
    
    $
    10,910
    
    
    
    3.30
    %Fixed to Variable
    
    July 13, 2009
    
    $
    6,930
    (4)
    
    
    7.25
    %
    
    $
    6,930
    (4)
    
    
    3.53
    %(3)Fixed to Variable
    
    July 13, 2009
    
    $
    3,980
    (4)
    
    
    7.50
    %
    
    $
    3,980
    (4)
    
    
    3.53
    %(3)Variable to Fixed
    
    January 15, 2012
    
    $
    11,320
    
    
    
    2.88

%(2)
    
    $
    11,320
    
    
    
    3.44
    %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/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 three months ended December 31, 2005.(3) Weighted average Bond Market Association rate for the three months ended December 31, 2005 plus 0.65%.(4) These are total return swaps.
 48




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17. Contingencies
    18. Net Income (Loss) Per Share
  49




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##### Table of Contents



For the Year ended
    
    
    For the Year ended
    
    
    For the Year endedDecember 31, 2005
    
    
    December 31, 2004
    
    
    December 31, 2003Income (loss) from continuing operations
    
    $
    (14,072
    )
    
    $
    (8,751
    )
    
    $
    4,493Income (loss) from discontinued operations
    
    
    25,024
    
    
    
    5,986
    
    
    
    (132
    )Net income (loss) available to common shareholders (basic)
    
    
    10,952
    
    
    
    (2,765
    )
    
    
    4,361Dividend equivalent rights
    
    
    
    
    
    
    
    
    
    
    10Net income (loss) available to common shareholders (diluted)
    
    $
    10,952
    
    
    $
    (2,765
    )
    
    $
    4,371Weighted average common shares outstanding- basic
    
    
    10,513
    
    
    
    8,243
    
    
    
    5,074Weighted average common shares equivalents
    
    
    
    
    
    
    
    
    
    
    2Weighted average common shares outstanding- diluted
    
    
    10,513
    
    
    
    8,243
    
    
    
    5,076Earnings per share- basicIncome (loss) from continuing operations
    
    $
    (1.34
    )
    
    $
    (1.06
    )
    
    $
    0.89Income (loss) from discontinued operations
    
    
    2.38
    
    
    
    0.72
    
    
    
    (0.03
    )Net income (loss)
    
    $
    1.04
    
    
    $
    (0.34
    )
    
    $
    0.86Earnings per share- dilutedIncome (loss) from continuing operations
    
    $
    (1.34
    )
    
    $
    (1.06
    )
    
    $
    0.89Income (loss) from discontinued operations
    
    
    2.38
    
    
    
    0.72
    
    
    
    (0.03
    )Net income (loss)
    
    $
    1.04
    
    
    $
    (0.34
    )
    
    $
    0.86
  19. Employee Benefit Plans
  20. Segment Reporting
    50




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For the Year ended
    
    For the Year ended
    
    For the Year ended(in thousands)
    
    December 31, 2005
    
    December 31, 2004
    
    December 31, 2003Total revenueMultifamily
    
    $
    43,095
    
    
    $
    29,005
    
    
    $
    17,846Commercial
    
    
    652
    
    
    
    843
    
    
    
    670Agency securities (net interest income)
    
    
    79
    
    
    
    770
    
    
    
    42Total segment revenues
    
    
    43,826
    
    
    
    30,618
    
    
    
    18,558Other
    
    
    1,474
    
    
    
    209
    
    
    
    4,730Total revenues
    
    $
    45,300
    
    
    $
    30,827
    
    
    $
    23,288Segment net incomeMultifamily
    
    $
    2,847
    
    
    $
    105
    
    
    $
    1,648Commercial
    
    
    120
    
    
    
    212
    
    
    
    5Agency securities
    
    
    79
    
    
    
    770
    
    
    
    42Segment net income
    
    
    3,046
    
    
    
    1,087
    
    
    
    1,695General and administrative expenses
    
    
    (6,455
    )
    
    
    (3,997
    )
    
    
    (1,910
    )Other corporate income and expenses, net
    
    
    956
    
    
    
    70
    
    
    
    4,708Contract termination costs
    
    
    (11,619
    )
    
    
    (5,911
    )Discontinued operations
    
    
    25,024
    
    
    
    5,986
    
    
    
    (132
    )Total net income (loss)
    
    $
    10,952
    
    
    $
    (2,765
    )
    
    $
    4,361AssetsMultifamily
    
    $
    248,162
    
    
    $
    232,709
    
    
    $
    119,229Commercial
    
    
    2,541
    
    
    
    2,881
    
    
    
    2,517Agency securities
    
    
    18,189
    
    
    
    26,192
    
    
    
    36,027Other
    
    
    65,067
    
    
    
    35,615
    
    
    
    9,119Total
    
    $
    333,959
    
    
    $
    297,397
    
    
    $
    166,892Interest ExpenseMultifamily
    
    $
    7,780
    
    
    $
    4,435
    
    
    $
    3,205Commercial
    
    
    161
    
    
    
    233
    
    
    
    244Agency securities
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    404
    
    
    
    132
    
    
    
    23Total
    
    $
    8,345
    
    
    $
    4,800
    
    
    $
    3,472Depreciation & AmortizationMultifamily
    
    $
    11,431
    
    
    $
    8,164
    
    
    $
    3,786Commercial
    
    
    176
    
    
    
    199
    
    
    
    279Agency securities
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    107
    
    
    
    17
    
    
    
    Total
    
    $
    11,714
    
    
    $
    8,380
    
    
    $
    4,065
  51




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21. Subsequent Events
    52




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22. Summary of Quarterly Results of Operations (Unaudited)
 First
    
    Second
    
    Third
    
    FourthYear ended December 31, 2005
    
    Quarter
    
    Quarter
    
    Quarter
    
    QuarterTotal revenues
    
    $
    10,565
    
    
    $
    10,817
    
    
    $
    11,538
    
    
    $
    12,380Total expenses
    
    
    (11,712
    )
    
    
    (11,497
    )
    
    
    (11,571
    )
    
    
    (24,592
    )Loss from continuing operations
    
    
    (1,147
    )
    
    
    (680
    )
    
    
    (33
    )
    
    
    (12,212
    )Income from discontinued operations
    
    
    166
    
    
    
    173
    
    
    
    3,658
    
    
    
    21,027Net income (loss)
    
    $
    (981
    )
    
    $
    (507
    )
    
    $
    3,625
    
    
    $
    8,815Loss from continuing operations,
basic and diluted, per share
    
    $
    (0.11
    )
    
    $
    (0.07
    )
    
    $
    (0.00
    )
    
    $
    (1.16
    )Income from discontinued operations,
basic and diluted, per share
    
    
    0.02
    
    
    
    0.01
    
    
    
    0.35
    
    
    
    2.00Net Income (loss), basic and diluted, per share
    
    $
    (0.09
    )
    
    $
    (0.06
    )
    
    $
    0.35
    
    
    $
    0.84
 First
    
    Second
    
    Third
    
    FourthYear ended December 31, 2004
    
    Quarter
    
    Quarter
    
    Quarter
    
    QuarterTotal revenues
    
    $
    4,773
    
    
    $
    6,560
    
    
    $
    9,738
    
    
    $
    9,756Total expenses
    
    
    (4,767
    )
    
    
    (6,872
    )
    
    
    (11,094
    )
    
    
    (16,845
    )Income (loss) from continuing operations
    
    
    6
    
    
    
    (312
    )
    
    
    (1,356
    )
    
    
    (7,089
    )Income from discontinued operations
    
    
    13
    
    
    
    111
    
    
    
    8
    
    
    
    5,854Net income (loss)
    
    $
    19
    
    
    $
    (201
    )
    
    $
    (1,348
    )
    
    $
    (1,235
    )Loss from continuing operations,
basic and diluted, per share
    
    $
    
    
    
    $
    (0.05
    )
    
    $
    (0.13
    )
    
    $
    (0.67
    )Income from discontinued operations,
basic and diluted, per share
    
    
    
    
    
    
    0.02
    
    
    
    
    
    
    
    0.55Net Loss, basic and diluted, per share
    
    $
    
    
    
    $
    (0.03
    )
    
    $
    (0.13
    )
    
    $
    (0.12
    )
 
 53




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Schedule III
 AMERICA FIRST APARTMENT INVESTORS, INC.
 REAL ESTATE AND ACCUMULATED DEPRECIATION (IN THOUSANDS)
AS OF DECEMBER 31, 2005
 Costs CapitalizedSubsequentDescription
    
    
    
    
    Initial Cost to Company
    
    
    to AcquisitionBuilding
    
    
    BuildingNumber
    
    
    
    
    
    
    
    
    and
    
    
    andProperty Name
    
    Location
    
    of Units
    
    
    Encumbrances
    
    Land
    
    
    Improvements
    
    
    ImprovementsArbor Hills
    
    Antioch, TN
    
    
    548
    
    
    (a)
    
    $
    4,400
    
    
    $
    25,336
    
    
    $
    198Belvedere Apartments
    
    Naples, FL
    
    
    162
    
    
    (a)
    
    
    956
    
    
    
    8,271
    
    
    
    84Bluff Ridge Apartments
    
    Jacksonville, NC
    
    
    108
    
    
    (a)
    
    
    203
    
    
    
    3,502
    
    
    
    20Brentwood Oaks Apartments
    
    Nashville, TN
    
    
    262
    
    
    (a)
    
    
    2,000
    
    
    
    9,837
    
    
    
    46Coral Point Apartments
    
    Mesa, AZ
    
    
    337
    
    
    (a)
    
    
    2,240
    
    
    
    8,960
    
    
    
    427Covey at Fox Valley
    
    Aurora, IL
    
    
    216
    
    
    (a)
    
    
    1,320
    
    
    
    10,028
    
    
    
    483Delta Crossing
    
    Charlotte, NC
    
    
    178
    
    
    
    
    
    800
    
    
    
    5,031
    
    
    
    29Elliots Crossing Apartments
    
    Tempe, AZ
    
    
    247
    
    
    (a)
    
    
    1,301
    
    
    
    9,694
    
    
    
    26The Exchange at Palm Bay
    
    Palm Bay, FL
    
    
    72,002
    (b)
    
    (a)
    
    
    1,296
    
    
    
    2,483
    
    
    
    521Fox Hollow Apartments
    
    High Point, NC
    
    
    184
    
    
    (a)
    
    
    1,000
    
    
    
    5,046
    
    
    
    109Greenbriar Apartments
    
    Tulsa, OK
    
    
    120
    
    
    (a)
    
    
    648
    
    
    
    3,673
    
    
    
    155Highland Park Apartments
    
    Columbus, OH
    
    
    252
    
    
    (a)
    
    
    1,562
    
    
    
    6,207
    
    
    
    142The Hunt Apartments
    
    Oklahoma City, OK
    
    
    216
    
    
    (a)
    
    
    550
    
    
    
    7,069
    
    
    
    41Huntsview Apartments
    
    Greensboro, NC
    
    
    240
    
    
    (a)
    
    
    1,845
    
    
    
    6,576
    
    
    
    62Jackson Park Place Apartments
    
    Fresno, CA
    
    
    296
    
    
    (a)
    
    
    1,400
    
    
    
    10,710
    
    
    
    129Lakes of Northdale Apartments
    
    Tampa, FL
    
    
    216
    
    
    (a)
    
    
    1,553
    
    
    
    8,390
    
    
    
    486Littlestone of Village Green
    
    Gallatin, TN
    
    
    200
    
    
    (a)
    
    
    621
    
    
    
    9,942
    
    
    
    89Misty Springs Apartments
    
    Daytona Beach, FL
    
    
    128
    
    
    
    
    
    742
    
    
    
    3,827
    
    
    
    156Monticello Apartments
    
    Southfield, MI
    
    
    106
    
    
    
    
    
    565
    
    
    
    5,274
    
    
    
    17Oakhurst Apartments
    
    Ocala, FL
    
    
    214
    
    
    (a)
    
    
    847
    
    
    
    8,381
    
    
    
    157Oakwell Farms Apartments
    
    Nashville, TN
    
    
    414
    
    
    (a)
    
    
    1,946
    
    
    
    15,759
    
    
    
    467Park at Countryside
    
    Port Orange, FL
    
    
    120
    
    
    (a)
    
    
    647
    
    
    
    2,617
    
    
    
    103The Park at 58th Apartments
    
    Chattanooga, TN
    
    
    196
    
    
    (a)
    
    
    231
    
    
    
    4,122
    
    
    
    161The Ponds at Georgetown
    
    Ann Arbor, MI
    
    
    134
    
    
    
    
    
    653
    
    
    
    6,822
    
    
    
    56The Reserve at Wescott
Plantation
    
    Summerville, SC
    
    
    192
    
    
    (a)
    
    
    1,725
    
    
    
    15,601
    
    
    
    Tregaron Oaks
    
    Bellevue, NE
    
    
    300
    
    
    (a)
    
    
    1,690
    
    
    
    17,399
    
    
    
    Shelby Heights
    
    Bristol, TN
    
    
    100
    
    
    (a)
    
    
    175
    
    
    
    2,953
    
    
    
    12Watermans Crossing
    
    Newport News, VA
    
    
    260
    
    
    (a)
    
    
    1,620
    
    
    
    12,717
    
    
    
    108Waters Edge Apartments
    
    Lake Villa, IL
    
    
    108
    
    
    
    
    
    486
    
    
    
    4,601
    
    
    
    58$
    35,022
    
    
    $
    240,828
    
    
    $
    4,342
 (a)
    
    Property is encumbered as described in Note 8 to the Consolidated Financial
Statements.(b)
    
    Property is an office/warehouse facility. The figure represents square feet available for
lease to tenants.
 54




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##### Table of Contents



Buildingand
    
    
    
    
    
    
    Accumulated
    
    
    Date of
    
    
    Date
    
    
    DepreciationProperty Name
    
    Land
    
    
    Improvements
    
    
    Total (b),(c)
    
    
    Depreciation (d)
    
    
    Construction
    
    
    Acquired
    
    

LifeArbor Hills
    
    $
    4,400
    
    
    $
    25,534
    
    
    $
    29,934
    
    
    $
    932
    
    
    
    1988
    
    
    
    2004
    
    
    27.5 yearsBelvedere Apartments
    
    
    956
    
    
    
    8,355
    
    
    
    9,311
    
    
    
    1,563
    
    
    
    1985
    
    
    
    2000
    
    
    27.5 yearsBluff Ridge Apartments
    
    
    203
    
    
    
    3,522
    
    
    
    3,725
    
    
    
    202
    
    
    
    1988
    
    
    
    2004
    
    
    27.5 yearsBrentwood Oaks Apartments
    
    
    2,000
    
    
    
    9,883
    
    
    
    11,883
    
    
    
    570
    
    
    
    1986
    
    
    
    2004
    
    
    27.5 yearsCoral Point Apartments
    
    
    2,240
    
    
    
    9,387
    
    
    
    11,627
    
    
    
    4,791
    
    
    
    1987
    
    
    
    1991
    
    
    27.5 yearsCovey at Fox Valley
    
    
    1,320
    
    
    
    10,511
    
    
    
    11,831
    
    
    
    6,497
    
    
    
    1989
    
    
    
    1989
    
    
    27.5 yearsDelta Crossing
    
    
    800
    
    
    
    5,060
    
    
    
    5,860
    
    
    
    308
    
    
    
    1989
    
    
    
    2004
    
    
    27.5 yearsElliots Crossing Apartments
    
    
    1,301
    
    
    
    9,720
    
    
    
    11,021
    
    
    
    560
    
    
    
    1987
    
    
    
    2004
    
    
    27.5 yearsThe Exchange at Palm Bay
    
    
    1,296
    
    
    
    3,005
    
    
    
    4,301
    
    
    
    1,898
    
    
    
    1988
    
    
    
    1990
    
    
    31.5 yearsFox Hollow Apartments
    
    
    1,000
    
    
    
    5,155
    
    
    
    6,155
    
    
    
    321
    
    
    
    1989
    
    
    
    2004
    
    
    27.5 yearsGreenbriar Apartments
    
    
    648
    
    
    
    3,828
    
    
    
    4,476
    
    
    
    981
    
    
    
    1985
    
    
    
    1998
    
    
    27.5 yearsHighland Park Apartments
    
    
    1,562
    
    
    
    6,349
    
    
    
    7,911
    
    
    
    391
    
    
    
    1987
    
    
    
    2004
    
    
    27.5 yearsThe Hunt Apartments
    
    
    550
    
    
    
    7,110
    
    
    
    7,660
    
    
    
    1,820
    
    
    
    1984
    
    
    
    1998
    
    
    27.5 yearsHuntsview Apartments
    
    
    1,845
    
    
    
    6,638
    
    
    
    8,483
    
    
    
    382
    
    
    
    1987
    
    
    
    2004
    
    
    27.5 yearsJackson Park Place Apartments
    
    
    1,400
    
    
    
    10,839
    
    
    
    12,239
    
    
    
    3,441
    
    
    
    1985
    
    
    
    1997
    
    
    27.5 yearsLakes of Northdale Apartments
    
    
    1,553
    
    
    
    8,876
    
    
    
    10,429
    
    
    
    496
    
    
    
    1985
    
    
    
    2004
    
    
    27.5 yearsLittlestone of Village Green
    
    
    621
    
    
    
    10,031
    
    
    
    10,652
    
    
    
    2,816
    
    
    
    1987
    
    
    
    1998
    
    
    27.5 yearsMisty Springs Apartments
    
    
    742
    
    
    
    3,983
    
    
    
    4,725
    
    
    
    222
    
    
    
    1989
    
    
    
    2004
    
    
    27.5 yearsMonticello Apartments
    
    
    565
    
    
    
    5,291
    
    
    
    5,856
    
    
    
    308
    
    
    
    1988
    
    
    
    2004
    
    
    27.5 yearsOakhurst Apartments
    
    
    847
    
    
    
    8,538
    
    
    
    9,385
    
    
    
    1,583
    
    
    
    1985
    
    
    
    2000
    
    
    27.5 yearsOakwell Farms Apartments
    
    
    1,946
    
    
    
    16,226
    
    
    
    18,172
    
    
    
    3,912
    
    
    
    1986
    
    
    
    1999
    
    
    27.5 yearsPark at Countryside
    
    
    647
    
    
    
    2,720
    
    
    
    3,367
    
    
    
    859
    
    
    
    1983
    
    
    
    1996
    
    
    27.5 yearsThe Park at 58th Apartments
    
    
    231
    
    
    
    4,283
    
    
    
    4,514
    
    
    
    2,107
    
    
    
    1987
    
    
    
    1991
    
    
    27.5 yearsThe Ponds at Georgetown
    
    
    653
    
    
    
    6,878
    
    
    
    7,531
    
    
    
    397
    
    
    
    1988
    
    
    
    1997
    
    
    27.5 yearsThe Reserve at Wescott
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    .Plantation
    
    
    1,725
    
    
    
    15,601
    
    
    
    17,326
    
    
    
    190
    
    
    
    2004
    
    
    
    2005
    
    
    27.5 yearsTregaron Oaks
    
    
    1,690
    
    
    
    17,399
    
    
    
    19,089
    
    
    
    264
    
    
    
    1996
    
    
    
    2005
    
    
    27.5 yearsShelby Heights
    
    
    175
    
    
    
    2,965
    
    
    
    3,140
    
    
    
    1,602
    
    
    
    1987
    
    
    
    1991
    
    
    27.5 yearsWatermans Crossing
    
    
    1,620
    
    
    
    12,825
    
    
    
    14,445
    
    
    
    765
    
    
    
    1989
    
    
    
    2004
    
    
    27.5 yearsWaters Edge Apartments
    
    
    486
    
    
    
    4,658
    
    
    
    5,144
    
    
    
    281
    
    
    
    1988
    
    
    
    2004
    
    
    27.5 years$
    35,022
    
    
    $
    245,170
    
    
    $
    280,192
    
    
    $
    40,459
 (b)
    
    Reconciliation of Real Estate:
 2005
    
    
    2004
    
    
    2003Balance  beginning of year
    
    $
    283,068
    
    
    $
    150,591
    
    
    $
    150,182Acquisition of real estate
    
    
    36,415
    
    
    
    145,592
    
    
    
    Sales of real estate
    
    
    (39,192
    )
    
    
    (14,287
    )
    
    
    Write-off of fully depreciated assets
    
    
    (2,185
    )
    
    
    
    
    
    
    Improvements
    
    
    2,086
    
    
    
    1,172
    
    
    
    409Balance  end of year
    
    $
    280,192
    
    
    $
    283,068
    
    
    $
    150,591Less: Assets
held for sale
    
    
    
    
    
    
    (39,192
    )

    
    
    (39,172
    )Real estate
assets of continuing operations
    
    $
    280,192
    
    
    $
    243,876
    
    
    $
    111,419
 (c)
    
    As of December 31, 2005, the aggregate cost of the Companys investment in real estate for
federal income tax purposes is approximately $280,192,000.
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(d)
    
    Reconciliation of Accumulated Depreciation:
 2005
    
    
    2004
    
    
    2003Balance  beginning of year
    
    $
    42,567
    
    
    $
    35,693
    
    
    $
    30,692Depreciation expense
    
    
    8,505
    
    
    
    5,413
    
    
    
    3,777Write-off of fully depreciated assets
    
    
    (2,185
    )
    
    
    
    
    
    
    Current year depreciation on discontinued operations
    
    
    704
    
    
    
    1,461
    
    
    
    1,224Accumulated depreciation of
discontinued operations
    
    
    (9,132
    )
    
    
    
    
    
    
    $
    40,459
    
    
    $
    42,567
    
    
    $
    35,693Less: accumulated depreciation of
assets held for sale
    
    
    
    
    
    
    (8,428
    )
    
    
    (7,197
    )Accumulated
depreciation of continuing operations
    
    $
    40,459
    
    
    $
    34,139
    
    
    $
    28,496
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
  
 Item 9A. Controls and Procedures.
 Evaluation of disclosure controls and procedures.
 Changes in internal controls over financial reporting.
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Management Report On Internal Control over Financial Reporting
  
    
    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
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  Internal Control -Integrated Framework
    Internal Control  Integrated Framework Internal Control  Integrated Framework
  
 
 Item 9B. Other Information.
  59




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PART III
 
 Item 10. Directors and Executive Officers of the Registrant.
  Name
    
    Position Held
    
    Position Held SinceJohn H. Cassidy
    
    President and Chief Executive Officer
    
    
    2003James J. Egan
    
    Executive Vice President, Chief Investment Officer
    
    
    2005Paul L. Beldin
    
    Vice President, Chief Financial Officer,
Treasurer and Secretary
    
    
    2005
 John H. Cassidy
 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.
  60




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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
  
 Item 13. Certain Relationships and Related Transactions.
  
 Item 14. Principal Accounting Fees and Services.
  
 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:
       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, 2005 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:
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64




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SIGNATURES
  AMERICA FIRST APARTMENT INVESTORS, INC.Date: March 13, 2006
    
    
    
    /s/ John H. CassidyJohn H. CassidyPresident and Chief Executive Officer
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##### Table of Contents



Date: March 13, 2006
    
    By /s/ Michael B. Yanney*Michael B. Yanney,Chairman of the Board and DirectorDate: March 13, 2006
    
    By /s/ John H. CassidyJohn H. Cassidy,President and Chief Executive OfficerDate: March 13, 2006
    
    By /s/ Paul L. BeldinPaul L. Beldin,Chief Financial OfficerDate: March 13, 2006
    
    By /s/ George J. Behringer*George J. Behringer,DirectorDate: March 13, 2006
    
    By /s/ George V. Janzen*George V. Janzen,DirectorDate: March 13, 2006
    
    By /s/ George H. Krauss*George H. Krauss,DirectorDate: March 13, 2006
    
    By /s/ Gregor Medinger*Gregor Medinger,DirectorDate: March 13, 2006
    
    By /s/ Lisa Y. Roskens*Lisa Y. Roskens,DirectorDate: March 13, 2006
    
    By /s/ Steven W. Seline*Steven W. Seline,Director
  
  66