Business context and reporting period
America First Multifamily Investors, L.P. filed this unaudited Form 10-Q for the quarter and nine months ended September 30, 2016. The filing describes a portfolio focused primarily on mortgage revenue bonds financing affordable multifamily and student housing, alongside property loans, public housing certificates, and owned multifamily properties. The supplied filing identifies the registrant as America First Multifamily Investors, L.P.; it does not use the Greystone Housing Impact Investors LP name in its cover page.
Financial performance and position
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Total revenue | $13.2 million | $12.9 million | $43.1 million | $39.1 million |
| Net income | $4.6 million | $2.5 million | $18.2 million | $13.3 million |
| Net income per unit | $0.07 | $0.04 | $0.25 | $0.20 |
| Cash available for distribution (CAD; non-GAAP) | $5.4 million; $0.09 per unit | $5.6 million; $0.09 per unit | $23.9 million; $0.40 per unit | $20.7 million; $0.34 per unit |
| Operating cash flow | Not separately presented for the quarter | $9.8 million | $14.3 million |
For the nine months, gains on multifamily-property sales totaled $14.1 million; income tax expense was $5.0 million, including approximately $4.7 million related to those sales. These items materially affect reported net income. Q3 comprehensive loss was $29.4 million despite positive net income, primarily reflecting $29.4 million of unrealized losses on securities and bond-purchase commitments.
At September 30, total assets were $913.3 million and total liabilities were $525.6 million. Cash and cash equivalents were $30.9 million, with a further $7.5 million of restricted cash. Mortgage revenue bonds had a reported fair value of $628.4 million, and public housing certificates were valued at $60.9 million. Management classifies these valuations as Level 3, relying significantly on unobservable inputs.
Debt financing, net, was $457.3 million; mortgages and other secured financing were $51.8 million; unsecured credit lines had no outstanding balance. Management reported overall leverage of approximately 62%, against a stated 65% ceiling. Contractual maturities for borrowings were $117.9 million in the twelve months ending September 2017, with substantial further maturities in 2019 and 2020. The filing reports $9.8 million of operating cash flow for the nine months, compared with $26.2 million of distributions paid.
Material changes versus prior comparable periods
- Q3 net income increased 82% year over year; nine-month net income increased 36.7%. Total revenue rose 2.5% in Q3 and 10.2% for the nine months.
- Nine-month gains on property sales rose to $14.1 million from $4.6 million a year earlier. Arboretum and Woodland Park were sold in 2016, generating reported gains of approximately $12.4 million and $1.6 million, respectively.
- Q3 interest expense fell $1.3 million year over year, largely due to derivative fair-value changes. For the nine months, interest expense increased $0.9 million as average debt and borrowing costs rose.
- Operating cash flow declined to $9.8 million from $14.3 million. Investing cash flow was positive $28.5 million, including property-sale proceeds; financing cash flow was negative $24.4 million.
- The Partnership issued $33.9 million of Series A preferred units in private placements. These units carry a 3% non-cumulative distribution rate, rank senior to common units for distributions and liquidation, and have redemption rights beginning on the sixth anniversary of issuance.
- The Partnership added equity investments in three Vantage developments, reporting $13.2 million invested and approximately $15.0 million of remaining equity commitments. It also acquired Jade Park for approximately $10.0 million and sold its remaining mortgage-backed securities.
Outlook, commentary, risks and unusual items
Management stated that cash, operating cash flows, existing credit facilities, and capital-market access should provide adequate liquidity for at least the next twelve months. It reported compliance with financing covenants at September 30. Management intends to continue investing in mortgage revenue bonds and other assets and said it expects to work with lenders to finance acquisitions.
There is no specific earnings or distribution guidance. Management said the current distribution level may be maintained if planned leverage and investments proceed and CAD is sufficient, but warned that delays or inadequate CAD could prompt a distribution adjustment. Q3 CAD of $0.09 per unit was below the declared distribution of $0.125 per unit; nine-month CAD of $0.40 per unit exceeded the $0.375 distribution.
Key risks include refinancing and renewal of financing facilities, variable interest rates, mortgage-loan defaults, property operating and occupancy conditions, and dependence on housing-related government programs and appropriations. The Partnership guarantees certain potential shortfalls in its securitization financings, with stated maximum exposure of approximately $430.1 million before collateral proceeds; management said it did not expect to be required to fund a shortfall. Other contingent guarantees tied to tax-credit transactions had maximum exposures of approximately $3.0 million and $4.8 million, with no accrual recorded because management considered triggering events remote. Management stated that ordinary-course legal matters were not expected to have a material effect.
Fair-value estimates for mortgage revenue bonds and other assets depend on management assumptions and are not necessarily realizable sale prices. A hypothetical 10% adverse change in effective yields would result in estimated additional unrealized losses of $34.3 million on mortgage revenue bonds and $1.7 million on public housing certificates. Texas accounted for approximately 51% of mortgage revenue bond principal. Management reported no material changes to previously disclosed risk factors and concluded disclosure controls were effective, with no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether CAD can sustainably cover the $0.125 quarterly common-unit distribution, given Q3 CAD of $0.09 per unit and nine-month operating cash flow below distributions paid.
- Debt maturities, refinancing plans, covenant compliance, and the continued availability and renewal of securitization facilities.
- The assumptions and sensitivity underlying Level 3 fair values, particularly for mortgage revenue bonds and purchase commitments.
- Performance, occupancy, remaining funding commitments, and third-party construction-period guarantees for Vantage investments and property loans.
- The realized tax and cash effects of property sales, and the terms, priority, distribution rights, and future redemption rights of the Series A preferred units.