Business context and reporting period
America First Tax Exempt Investors, L.P. (the registrant named in this filing; now associated with Greystone Housing Impact Investors LP) filed this unaudited Form 10-Q for the quarter ended March 31, 2012. The Partnership invests primarily in tax-exempt mortgage revenue bonds financing multifamily housing and also holds multifamily properties, including properties acquired through foreclosure or for anticipated restructuring.
Financial performance and position
- Revenue: $6.65 million, up 10.1% from $6.04 million in Q1 2011. Property revenue rose to $4.24 million from $3.57 million; bond investment income was $2.37 million versus $2.22 million.
- Profit: Net income was $769,584 versus $1.37 million. Net income attributable to the Partnership was $630,432, down from $1.19 million; basic and diluted earnings per unit were $0.03 versus $0.05.
- Expenses and margins: Total expenses increased to $5.93 million from $4.68 million. Interest expense rose by $545,000 to $1.32 million, and depreciation and amortization increased by $306,000 to $1.44 million. The filing does not present a consolidated operating-margin measure.
- Cash flow and distributions: Operating cash flow was $781,245, compared with cash used of $223,524 in Q1 2011. Investing activities used $875,707; financing activities used $2.68 million. Cash distributions paid were $3.91 million. Management-reported cash available for distribution (CAD) was $2.63 million, or $0.09 per unit, below quarterly distributions of $0.125 per unit.
- Assets, liquidity and capital: Total assets were $298.7 million at March 31, versus $298.0 million at year-end. Cash and cash equivalents were $17.43 million and restricted cash was $12.75 million. Total capital was $131.4 million, compared with $131.6 million at year-end.
- Debt: Debt financing was $112.54 million and mortgages payable were $41.75 million, for approximately $154.3 million in combined debt. Management reported combined debt at about 52% of total assets. The $17.7 million in TOB facilities matures in December 2012; the Partnership said it was pursuing an extension or refinancing.
- Other comprehensive income: Unrealized bond gains were $2.85 million, contributing to comprehensive income attributable to the Partnership of $3.48 million.
Material changes versus Q1 2011
- Revenue increased $612,000, but expenses rose $1.25 million and Partnership-attributable net income declined $559,000.
- Management attributed the earnings decline mainly to a $238,000 reserve against Woodland Park accrued interest, higher borrowing costs and debt balances, derivative fair-value losses, and increased depreciation from Arboretum and Eagle Village. Increases in property revenue also reflected those acquisitions; Iona Lakes’ deconsolidation affected comparisons.
- Economic occupancy improved: approximately 86% for properties financed by the Partnership’s bonds versus 83% a year earlier, and 84% for MF Properties versus 83%.
- Cash used for investing fell substantially from $23.39 million to $876,000, principally because Q1 2011 included property and bond acquisitions. Financing shifted from $23.66 million provided in Q1 2011 to $2.68 million used in Q1 2012.
Outlook, risks and unusual items
- The General Partner intended to maintain annual distributions of $0.50 per unit, but CAD was below the distribution rate and unrestricted cash supplemented the shortfall. Management expected current investment and financing plans to support the distribution without that supplement, while cautioning that distributions could be reduced if CAD remained insufficient.
- Management expected the three Ohio properties to meet specified debt-service coverage tests and receive additional investor equity during 2012, potentially allowing sale recognition and recognition of deferred gain. These conditions had not been met at March 31.
- Woodland Park remained in payment default on its bonds, and foreclosure proceedings were ongoing. Occupancy was 87%; the Partnership reserved a further $238,000 of accrued interest in Q1. Management viewed the occupancy decline as temporary and expected it to reach at least 90% by year-end, but that expectation was not assured.
- Bond values are based on management’s discounted cash-flow and yield analyses using Level 3, unobservable inputs. A hypothetical 10% adverse change in the key valuation assumption would produce approximately $9.2 million of additional unrealized losses. Existing unrealized losses were considered temporary by management.
- Variable-rate financing exposes the Partnership to interest-rate and refinancing risk. TOB facilities mature in December 2012; a mortgage due in May 2012 was subject to an extension request. Derivatives reduced some rate exposure but generated a $329,000 Q1 fair-value loss recorded in interest expense.
- Other contingencies include guarantees associated with securitization financings and Ohio investor interests. Management stated that no amounts were accrued for certain guarantees because the likelihood of payment was considered remote. It also expected the Churchland property sale to be completed before year-end 2012 for more than its carrying value.
- Management described continuing economic, credit-market, property-occupancy, bond-default, short-term-rate, financing-access and regulatory risks. The filing states disclosure controls were effective and there were no material quarterly changes in internal control over financial reporting.
Investor facts to verify
- Whether the TOB facilities were extended or refinanced before their December 2012 maturity, and the status of the May 2012 mortgage extension.
- Whether CAD ultimately covered the $0.50 annual distribution per unit without continued use of unrestricted cash.
- Woodland Park’s foreclosure, occupancy, debt-service and accrued-interest recovery status.
- Whether Ohio property coverage tests and investor capital contributions were achieved, and whether deferred gains were recognized.
- The assumptions supporting Level 3 bond valuations, particularly for bonds with long-standing unrealized losses and the Woodland Park exposure.