Business context and reporting period
This is the audited Form 10-K for the fiscal year ended December 31, 2013, filed March 7, 2014. The filing identifies the registrant as America First Multifamily Investors, L.P. (NASDAQ: ATAX), rather than Greystone Housing Impact Investors LP; verify the entity and filing match the requested issuer.
The Partnership invests mainly in mortgage revenue bonds financing affordable multifamily housing, supplemented by public housing capital fund certificates, mortgage-backed securities and directly owned multifamily properties. At year-end it held 42 mortgage revenue bonds with approximately $314.7 million principal, financing 32 properties and 5,409 rental units. It also held eight multifamily properties with 1,582 units and had a student housing project under construction. Most bond interest was expected to be tax-exempt; the bonds are non-recourse and depend primarily on the underlying properties for repayment.
Financial results and position
| Metric | 2013 | 2012 |
|---|---|---|
| Total revenue | $47.3 million | $25.1 million |
| Income from continuing operations | $14.5 million | $2.8 million |
| Net income attributable to the Partnership | $17.7 million | $4.4 million |
| Net income per unit, basic and diluted | $0.40 | $0.14 |
| Cash available for distribution (CAD), a non-GAAP measure | $18.4 million; $0.42/unit | $12.3 million; $0.33/unit |
| Cash provided by operating activities | $14.2 million | $7.5 million |
| Cash used in investing activities | $158.4 million | $97.3 million |
| Cash provided by financing activities | $125.2 million | $99.9 million |
| Total assets | $534.2 million | $413.2 million |
| Total liabilities | $331.1 million | $229.2 million |
| Cash and cash equivalents | $11.3 million | $30.2 million |
Continuing-operations income was about 30.7% of total revenue in 2013 versus 11.0% in 2012; results included material one-time and timing-related items. No separate standardized operating-margin measure is clearly provided. Comprehensive income attributable to the Partnership was a loss of $13.9 million, primarily reflecting $27.1 million of unrealized losses on available-for-sale securities and a $4.9 million unrealized loss on bond purchase commitments.
Debt financing was $257.3 million and property mortgages were $57.1 million at year-end, totaling $314.4 million, or 58% of total assets. Mortgage-bond portfolio leverage was 55% of par; leverage on PHC certificates and MBS was 77% of par. The 2013 weighted-average borrowing cost was approximately 2.6%. Debt financing of $165.4 million and property mortgages of $34.4 million were scheduled to mature within one year, subject to renewal, refinancing or repayment.
Material changes versus the prior period
- Revenue rose approximately 88% and Partnership-attributable net income increased to $17.7 million from $4.4 million. Management attributed the improvement to expanded investments, full-year contributions from PHC certificates and MBS, recognition of previously deferred income from the Ohio and Greens property transactions, and the Iona Lakes redemption.
- CAD increased to $0.42 per unit from $0.33, but remained below the $0.50 annual distribution. The Partnership supplemented distributions with approximately $4.0 million of unrestricted cash in 2013.
- Debt financing increased from $177.9 million to $257.3 million; total assets increased from $413.2 million to $534.2 million. Cash and cash equivalents declined to $11.3 million from $30.2 million.
- 2013 included $6.5 million of contingent interest on the Iona Lakes bond redemption and a $4.6 million realized loss on the related taxable property loan. Ohio and Greens transaction recognition contributed approximately $3.2 million of sale gains in discontinued operations and released previously deferred interest income.
- The Partnership issued 8.28 million units in December 2013, raising approximately $48.2 million net. It issued another 9.2 million units for approximately $51.4 million net in January–February 2014.
Outlook, risks and unusual items
- Management described a pipeline of prospective 2014 bond acquisitions and expected to invest the equity proceeds on a leveraged basis to support the $0.50 annual distribution without drawing on unrestricted cash. This is an expectation, not a guarantee; management warned distributions could be reduced if CAD remains inadequate or investment plans are delayed.
- The Partnership anticipated refinancing or renewing maturing TOB facilities and mortgages, particularly the substantial 2014 maturities. TOB facilities rely on short-term variable rates and lender/remarketing access. The filing warned that the Volcker Rule could require restructuring or replacement of Deutsche Bank-sponsored TOB financing by the compliance deadline, potentially on less favorable terms.
- A 100-basis-point increase in applicable rates was estimated to raise annual interest expense by approximately $930,000 on TEBS debt, $1.7 million on TOB debt and $498,000 on property mortgages. Derivatives mitigate, but do not eliminate, rate exposure; fair-value changes also affect reported earnings.
- Bond fair values are largely management estimates using discounted cash-flow and yield analyses. A hypothetical 10% adverse change in the key yield assumption would produce an estimated $22.1 million additional unrealized loss on mortgage revenue bonds. The auditor noted that investments totaling about $351.5 million, or 66% of assets, lacked readily determinable fair values.
- Other principal risks include property occupancy and operating performance, construction and lease-up delays, balloon repayments and refinancing, illiquidity, HUD appropriation risk for PHC certificates, MBS prepayments, potential tax-exempt status challenges, and contingent obligations associated with securitizations and property transactions.
- The University of Nebraska student housing project was estimated to cost $34.0 million, with completion expected in 2014. The Partnership could owe $6,000 per day for late parking-garage completion after August 1, 2014, with a corresponding contractor liquidated-damages provision. Bond-purchase commitments and other contractual obligations were also material.
- The independent auditor issued an unqualified opinion on the financial statements and internal controls. Management reported effective disclosure controls and internal control over financial reporting.
Important facts for investors to verify
- Confirm the registrant identity and name change history: this source is filed under America First Multifamily Investors, L.P. (ATAX), while the request names Greystone Housing Impact Investors LP.
- Review the 2014 refinancing status and terms for the $165.4 million of debt financing and $34.4 million of property mortgages due within one year, including the TOB facilities and Volcker Rule response.
- Assess whether recurring CAD can cover the $0.50 per-unit distribution; 2013 CAD was $0.42 per unit and included nonrecurring contributions from Iona Lakes and transaction-related income.
- Validate management’s Level 3 bond and PHC valuations, underlying property assumptions, and the reported unrealized losses and purchase-commitment liabilities.
- Track occupancy, construction and stabilization at properties and projects, including Vantage at Harlingen, Renaissance Gateway and the UNL student housing development, as well as the related bond-purchase commitments.
- Review concentration and credit exposure, including San Antonio’s approximately 30% share of bond principal, the dependence of PHC certificates on annual HUD appropriations, and the substantial reserves against taxable property loans.