Greystone Housing Impact Investors LP quarterly report, Q2 FY2012

Business context and reporting period

America First Tax Exempt Investors, L.P. (the registrant named in this 10-Q) reported unaudited results for the quarter and six months ended June 30, 2012. Its primary business is investing in tax-exempt mortgage revenue bonds financing multifamily housing; it also held apartment properties, including properties acquired or held pending restructuring and bond investments.

Financial results and liquidity

Q2 revenue included a $668,000 realized gain from bond sales. Six-month expenses rose to $12.73 million from $11.39 million, including higher interest, depreciation and amortization, and general and administrative expenses. Comprehensive income attributable to the Partnership was $4.38 million for Q2 and $7.86 million for the first half, including unrealized bond gains.

At June 30, cash and cash equivalents were $81.8 million, restricted cash $6.4 million, total assets $353.1 million, and total liabilities $162.9 million. Debt financing was $104.3 million and mortgages payable were $43.2 million. Six-month investing activities provided $11.0 million, while financing activities provided $46.7 million; the latter included approximately $60.0 million net proceeds from issuing 12.65 million units. Total partners’ capital was $189.5 million.

Cash available for distribution (CAD), a non-GAAP measure defined by the Partnership, was $2.53 million for Q2 ($0.08 per unit) and $5.16 million for the first half ($0.16 per unit). Distributions were $0.125 per unit for Q2 and $0.25 per unit for the first half; CAD therefore fell short of distributions. The Partnership supplemented distributions with unrestricted cash.

Material changes versus prior comparable periods

• Q2 attributable results improved from a $243,000 loss to $306,000 income, supported by the bond-sale gain and a smaller receivables loss provision.
• First-half attributable income was nearly flat year over year, despite higher revenue: the increase in expenses more than offset revenue growth. The filing attributes higher costs in part to increased debt and borrowing costs, acquired properties, and incentive compensation.
• Cash rose from $20.2 million at year-end 2011 to $81.8 million at June 30, 2012, principally reflecting the unit offering and other financing cash flows.
• Economic occupancy was approximately 85% for bond-financed properties in the first half, versus 84% a year earlier; MF Properties occupancy was approximately 83% versus 80%. Performance varied materially by property.

Outlook, commentary, risks and unusual items

• Management expected that planned investment and financing activity would enable the Partnership to support its current annual distribution of $0.50 per unit without using unrestricted cash. It cautioned that the distribution may need to be reduced if CAD is insufficient; this outcome was not assured.
• A $9.9 million TOB facility was due in December 2012. Management said it was seeking an extension or refinancing and expected to complete one before maturity.
• Woodland Park remained in bond-payment default, with foreclosure proceedings ongoing and timing uncertain. The Partnership recorded an additional $476,000 reserve against accrued interest in the first half. Occupancy was 86% at June 30, improving to 90% by July 31, according to the filing.
• Bond valuations rely on management’s Level 3 discounted-cash-flow assumptions; the filing’s hypothetical 10% adverse change in a key assumption would produce approximately $10.2 million of additional unrealized bond losses. The bonds have no active trading market.
• In July 2012, after quarter-end, the Partnership acquired residual interests in TOB trusts backed by approximately $65.3 million of public-housing certificates, paying about $16 million. The certificates depend on annual HUD Capital Fund Program appropriations; the company disclosed risks of delayed, reduced, or discontinued appropriations and rating downgrades. Accounting treatment was still under assessment.
• The Ohio property sales remained unrecognized because the new investors had not met specified debt-service coverage and capital-contribution conditions. Management expected those conditions to be met during 2012. Related repurchase guarantees were described as remote, with no accrual recorded.
• Other stated risks include property-level defaults, apartment-market and economic weakness, short-term interest-rate changes, access to leverage, and regulatory changes. Derivative fair-value changes are recorded in earnings rather than hedge accounting.

Important facts for investors to verify

• Whether the December 2012 TOB facility was extended or refinanced, and the resulting cost and terms of borrowing.
• Whether CAD subsequently covered distributions and whether the $0.50 annual per-unit distribution was maintained without drawing down cash.
• Woodland Park’s debt-service status, occupancy, foreclosure progress, and recoverability of accrued interest and other exposures.
• Actual outcomes for the Ohio properties’ capital contributions, sale recognition, and associated guarantees.
• Performance and valuation of the July 2012 public-housing certificate investment, including appropriation, rating, liquidity, and accounting risks.
• The assumptions supporting Level 3 bond values and any subsequent impairment or realized losses.