Business context and reporting period
The supplied filing is America First Tax Exempt Investors, L.P.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2011; it is not filed under the name Greystone Housing Impact Investors LP. The Partnership invests primarily in tax-exempt mortgage revenue bonds financing multifamily housing and also owns multifamily properties, including properties acquired through foreclosure. Results include consolidated subsidiaries and certain variable-interest entities (VIEs).
Key financial metrics
| Metric | Three months ended June 30, 2011 | Six months ended June 30, 2011 | Comparable 2010 period |
|---|---|---|---|
| Total revenue | $6.86 million | $13.16 million | $5.82 million and $10.92 million |
| Consolidated net income (loss) | ($121,000) | $1.25 million | $45,000 and $391,000 |
| Net income (loss) attributable to Partnership | ($243,000) | $946,000 | $567,000 and $914,000 |
| Net income per unit, basic and diluted | $0.00 | $0.05 | $0.05 and $0.10 |
| Cash provided by operating activities | Not stated for the quarter | $3.09 million | Six months: cash used of $98,000 |
| Cash available for distribution (CAD) | $2.50 million | $4.97 million | $3.57 million and $5.39 million |
At June 30, 2011, total assets were $293.9 million, versus $241.6 million at year-end 2010. Cash and cash equivalents were $1.90 million and restricted cash was $20.90 million. Debt financing was $106.3 million; mortgages payable were $41.6 million, bringing these stated borrowings to approximately $147.9 million. Total liabilities were $154.9 million and total capital was $139.0 million. Tax-exempt mortgage bonds had a reported fair value of $137.3 million. The filing does not provide a single consolidated operating-margin measure.
Material changes versus prior periods
- Second-quarter revenue increased about $1.04 million year over year, but the Partnership reported a loss attributable to it, compared with prior-year income. Six-month Partnership income rose modestly to $946,000 from $914,000.
- Higher bond investment income and property revenue supported growth; the six-month comparison also included a $439,000 debt-extinguishment gain in 2010 that did not recur.
- Interest expense rose to $2.51 million for the first half from $1.85 million. Lower borrowing costs were offset by higher average debt and $889,000 of derivative fair-value losses.
- Investing activity expanded: the Partnership acquired Arboretum, Eagle Village, and additional bonds, while foreclosing on DeCordova and Weatherford. Iona Lakes was deconsolidated in May 2011 after merging into an unrelated not-for-profit entity.
- Bond fair value increased from $100.6 million at December 31, 2010 to $137.3 million at June 30, 2011, including purchases and favorable unrealized valuation changes.
Outlook, risks, contingencies, and unusual items
- Distributions continued at an annualized $0.50 per unit ($0.25 per unit for the six months). Six-month CAD was $0.17 per unit, so CAD did not cover distributions; management said reserves were supplementing the shortfall and that the current distribution was believed sustainable, while warning it could be reduced if CAD remained inadequate.
- Woodland Park was in payment default on its bonds, and foreclosure proceedings were underway. Occupancy reached 88% at June 30. The Partnership recorded a $710,690 provision for impaired accrued interest and planned to reserve further Woodland Park interest income beginning July 1.
- Bond valuations rely on management discounted-cash-flow and yield analyses, are Level 3, and lack an active trading market. Management’s hypothetical 10% adverse change in a key valuation assumption would produce approximately $11.0 million of additional unrealized losses. Several bonds had been in unrealized-loss positions for more than 12 months; management considered the losses temporary at the reporting date.
- Most debt financing bears variable rates. Interest-rate caps limit specified TEBS exposure, but derivatives are not designated for hedge accounting and their fair-value changes affect reported earnings. Management identified defaults, apartment-market conditions, short-term rates, borrowing availability, credit-market weakness, and regulation as risks.
- After quarter-end, the Partnership closed a $10.0 million Deutsche Bank tender-option-bond financing on July 7, initially costing 1.84% annually including trust fees, and obtained a $6.5 million construction loan at 5.9% for Weatherford and planned DeCordova work. The filing also reports a $4.0 million Omaha State Bank facility, of which $1.0 million was drawn at quarter-end and which matures in June 2012.
- Management stated disclosure controls were effective and that no material change in internal control over financial reporting occurred during the quarter. Management believed ordinary-course legal matters would not have a material adverse effect; no reserve was recorded for specified tax-credit recapture contingencies, which it considered remote.
Important facts for investors to verify
- Confirm the issuer identity: the supplied filing names America First Tax Exempt Investors, L.P., not Greystone Housing Impact Investors LP.
- Assess distribution coverage using CAD, cash reserves, and the stated $0.50 annualized distribution rate; CAD is a non-GAAP measure defined by management.
- Review the Woodland Park default, foreclosure progress, interest reserve, and any subsequent impairment or recovery.
- Check bond valuation assumptions and the exposure of reported capital to Level 3 fair-value changes.
- Reconcile debt maturities, variable-rate exposure, post-quarter financing, and available unrestricted liquidity against acquisition and construction commitments.