Business context and reporting period
The filing is for the quarter and six months ended June 30, 2016. The registrant identifies itself as America First Multifamily Investors, L.P. (the name differs from the company name in the request metadata). Its principal activities are investing in mortgage revenue bonds financing affordable multifamily and student housing, and owning or financing multifamily properties.
Financial performance and position
- Revenue: Second-quarter revenue was $14.93 million, up 9% year over year; six-month revenue was $29.85 million, up 14%. Revenue excludes gains on property sales.
- Profit: Second-quarter net income was $11.01 million versus $8.22 million; six-month net income was $13.54 million versus $10.75 million. Net income available to partners was $10.88 million for the quarter and $13.41 million for six months; basic and diluted earnings per unit were $0.15 and $0.19, respectively. The filing does not present a conventional operating-margin measure.
- Cash generation and distributions: Six-month operating cash flow was $11.27 million versus $11.06 million. Management’s non-GAAP Cash Available for Distribution (CAD) was $18.45 million, or $0.31 per unit, versus $15.08 million, or $0.25 per unit. Distributions declared were $0.125 per unit for the quarter and $0.25 for six months.
- Liquidity: Cash and cash equivalents were $43.01 million at June 30, compared with $17.04 million at year-end; restricted cash was $9.56 million. Investing activities provided $40.16 million, mainly reflecting property-sale proceeds and securities sales, while financing activities used $25.45 million.
- Debt and leverage: Reported debt financing was $430.06 million, unsecured lines of credit were $24.00 million, and mortgages and other secured financing were $52.07 million. Management reported overall leverage of approximately 62%, against its stated 65% constraint. Debt financing maturities include $68.75 million in 2016 and $153.86 million in 2017; the Partnership expected to renew 2016 TOB maturities and planned to renew the M24 TEBS facility when due in 2017.
- Portfolio and fair value: Mortgage revenue bonds totaled $648.40 million at fair value, and public housing capital fund certificates totaled $62.18 million. These holdings are valued using significant unobservable inputs (Level 3). Six-month unrealized gains on securities and bond purchase commitments were $72.17 million and $11.58 million, respectively; comprehensive income was $97.06 million.
Material changes versus the prior comparable period
- Net income rose 34% for the quarter and 26% for six months, but results included a $12.44 million gain from selling the Arboretum, versus a $3.42 million gain on The Colonial in the comparable 2015 periods.
- The Arboretum sale generated $30.2 million of proceeds and contributed to $4.65 million of income tax expense, including $4.1 million related to the disposition.
- Interest expense increased 44% in the quarter and 31% for six months, partly due to higher average borrowing, financing costs, and derivative fair-value changes. Six-month general and administrative expense increased 33%.
- The Partnership sold its remaining mortgage-backed securities in January and sold the Pro Nova 2014-2 bond in March, using proceeds to repay related financing. It acquired an $11.5 million mortgage revenue bond and began a new investment in a Corpus Christi multifamily project.
- In private placements, the Partnership issued approximately 2.4 million Series A preferred units for $23.87 million. These units carry non-cumulative distributions of 3% annually when declared and rank senior to BUCs for distributions and liquidation preference.
Outlook, risks, contingencies and unusual items
- Management said it expects to generate sufficient CAD to maintain the current annual distribution rate after planned investments and financing, but cautioned there is no assurance CAD will meet or exceed distributions; delays in leverage plans or weaker cash generation could prompt a distribution adjustment.
- Management cited potential opportunities to acquire mortgage revenue bonds and multifamily properties, while noting that economic weakness could constrain financing and property rents and occupancy depend on local supply, demand and operating conditions.
- Texas represented approximately 52% of mortgage revenue bond principal. A hypothetical 10% adverse change in effective yields was estimated to produce an additional $33.9 million unrealized loss on mortgage revenue bonds and $1.8 million on PHC certificates.
- Management reported that interest on certain Ashley Square, Cross Creek and Lake Forest property loans was placed on nonaccrual; total loan-loss allowances were $7.10 million. Bond fair values are estimated with discounted cash flow and yield analyses and may not equal sale proceeds.
- Guarantees associated with secured financing could expose the Partnership to losses of up to approximately $430.1 million before collateral proceeds, although management said it had never been required to cover a shortfall and did not expect to be required to do so. Other contingent repurchase guarantees were not accrued because management considered triggering events remote.
- After quarter-end, Woodland Park was sold for approximately $15.7 million; proceeds were expected to repay its $7.5 million mortgage. The Partnership also entered an agreement to purchase Jade Park, subject to due diligence, with a possible third-quarter closing.
- Disclosure controls were assessed as effective, with no material change in internal control reported. The filing stated there had been no material changes to previously disclosed risk factors.
Important facts for investors to verify
- How much of reported earnings and CAD is recurring after separating the Arboretum gain, tax expense, and non-cash derivative and fair-value effects.
- Whether planned refinancing and renewal of near-term debt maturities are completed on acceptable terms, and how interest-rate changes affect net interest income.
- Whether CAD supports the current distribution rate after preferred-unit distributions and planned investments.
- Performance and collectability of property loans on nonaccrual, including the adequacy of existing loan-loss allowances.
- Underlying assumptions and sensitivity of Level 3 asset valuations, including property performance and effective yields.
- Completion and financial effects of the Woodland Park sale and any Jade Park acquisition.