Business context and reporting period
Unaudited Form 10-Q for the quarter and nine months ended September 30, 2015. The filing registrant is America First Multifamily Investors, L.P.; this differs from the company name in the request metadata. Its core business is investing in mortgage revenue bonds financing affordable multifamily, student, senior housing and certain commercial properties, alongside public-housing certificates, mortgage-backed securities and selected multifamily properties.
Effective in the second quarter, the Partnership classified its consolidated VIEs, Bent Tree and Fairmont Oaks, as discontinued operations and shifted away from that investment structure. Comparative results were presented on a consistent basis.
Financial performance and position
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Total revenue | $14.1 million | $11.0 million | $43.7 million | $33.9 million |
| Net income attributable to Partnership | $2.5 million | $3.3 million | $13.3 million | $13.0 million |
| Net income per unit | $0.04 | $0.06 | $0.20 | $0.21 |
| Cash provided by operating activities | Not separately reported | Not separately reported | $14.3 million | $10.9 million |
| CAD per unit (non-GAAP) | $0.09 | $0.10 | $0.34 | $0.31 |
| Declared distributions per unit | $0.125 | $0.125 | $0.375 | $0.375 |
Q3 revenue increased about 28%, while Partnership-attributable net income declined about 23%. For the nine-month period, revenue rose about 29% and net income about 2%. Approximate net income as a share of revenue was 18% in Q3 2015 versus 30% in Q3 2014, and 30% for the first nine months of 2015 versus 38% in 2014.
At September 30, total assets were $838.4 million and total capital was $299.5 million. Balance-sheet cash was $33.1 million, with restricted cash of $9.8 million. Debt financing was $447.6 million, mortgages payable $68.5 million, and lines of credit $6.4 million. Management reported overall leverage of approximately 64% under its stated measure and a 65% constraint. Mortgage revenue bonds carried a fair value of $527.4 million; the majority were valued using Level 3, management-based inputs.
Nine-month investing cash use was $104.6 million and financing cash provided was $74.3 million. Cash and cash equivalents declined by $16.0 million to $33.1 million on the balance sheet. Q3 comprehensive income was $25.9 million, materially above net income, primarily reflecting unrealized security gains.
Material changes versus prior comparable periods
- Investment income increased with portfolio expansion; management cited about $109.8 million of net additional par value in mortgage revenue bonds. Higher investment income was partly offset by substantially higher interest, administrative and professional expenses.
- Nine-month interest expense rose $4.7 million to $11.7 million, reflecting higher average debt, slightly higher borrowing costs and derivative fair-value changes. Total debt financing increased from $345.4 million at year-end 2014 to $447.6 million.
- MF property sales generated $4.6 million of gains in the first nine months, compared with no MF property sale gains in 2014. This was partly offset by the absence of approximately $3.7 million in 2014 mortgage-bond sale and redemption gains.
- Suites on Paseo missed interest due June 1, 2015; after a forbearance and advances, the Partnership exchanged the bonds and accrued amounts for the property in September, recording it as an MF Property at an estimated $43.4 million value.
- Property revenues and operating costs reflect additions, lease-up, disposals and the first full-year tax accrual for The 50/50 property. Glynn Place and The Colonial were sold in 2015.
Outlook, risks and unusual items
- Management expected current investment and financing plans to support the existing annual distribution of $0.50 per unit. However, nine-month CAD was $0.34 per unit versus $0.375 distributed; management warned distributions could be reduced if CAD remains insufficient or leverage plans are delayed. In 2014, cash was used to supplement a distribution shortfall.
- The Partnership expected to renew TOB facilities maturing in 2015, subject to its contractual options. Contractual debt financing maturities include $55.0 million in 2015 and $210.7 million in 2019. The Eagle Village mortgage had come due in September; the Partnership had a short-term extension and intended to execute a new mortgage.
- Interest-rate exposure remains important: much of the financing is variable-rate, partly mitigated by caps and swaps. Derivative fair-value changes increased interest expense by about $2.0 million in the first nine months. A hypothetical adverse 10% change in the key mortgage-bond valuation assumption would imply approximately $32.3 million of additional unrealized losses; this is a sensitivity estimate, not a forecast.
- Mortgage-bond fair values rely substantially on management assumptions, and the filing cautions that limited-market estimates may not equal realizable sale prices. Property performance, occupancy, debt-service capacity, short-term rates and refinancing access are key risks. Management reported stabilized-property economic occupancy of about 90% for bond-financed properties and 89% for MF properties.
- Financing guarantees could expose the Partnership to shortfalls of up to approximately $447.6 million before collateral proceeds, although it had never been required to reimburse a facility shortfall. Additional contingent repurchase guarantees were disclosed at up to $1.3 million for Greens and $4.8 million for the Ohio Properties; no amounts were accrued because triggering events were considered remote.
- The Partnership expected Bent Tree and Fairmont Oaks sales to close before year-end 2015 and proceeds to exceed carrying value, but the filing did not give a clear expected sale price. An October 2015 commitment to lend approximately $17.0 million for two planned multifamily properties was disclosed as a subsequent event.
- No material changes to previously disclosed risk factors were reported. Management said disclosure controls were effective and there were no material changes to internal control over financial reporting.
Most important facts for investors to verify
- Confirm the registrant-name mismatch between the request metadata and the filing, and identify the relevant current issuer and security.
- Track CAD against the $0.50 annual distribution: nine-month CAD of $0.34 per unit was below the $0.375 distributed.
- Review refinancing and renewal outcomes for near-term TOB maturities, the Eagle Village mortgage extension and the large 2019 debt maturity.
- Assess the performance and payment status of properties securing bonds, particularly investments still under renovation or not stabilized, and the Suites on Paseo transition to owned-property operations.
- Evaluate the assumptions underlying Level 3 bond valuations, the sensitivity disclosures and the effect of interest-rate changes and derivative marks on reported earnings.
- Verify completion and proceeds of the Bent Tree and Fairmont Oaks sales, and the funding and repayment terms for the announced $17.0 million subsequent-event loan.