Greystone Housing Impact Investors LP (America First Multifamily Investors, L.P.) — Q3 2017 Form 10-Q
Reporting period: Three and nine months ended September 30, 2017. The filing identifies the registrant as America First Multifamily Investors, L.P. The Partnership primarily invests in mortgage revenue bonds (MRBs) financing affordable multifamily, student and commercial properties, and also owns multifamily properties and other housing investments. Financial statements are unaudited.
Financial results and liquidity
- Third quarter: Revenue was $16.2 million, up 22.8% from $13.2 million. Net income was $3.5 million versus $4.6 million; income available to partners after preferred-unit distributions was $3.0 million versus $4.4 million. Basic and diluted net income per unit was $0.05 versus $0.07.
- First nine months: Revenue was $48.5 million, up 12.6% from $43.1 million. Net income was $15.0 million versus $18.2 million; income available to partners after preferred distributions was $13.7 million versus $17.9 million. Net income per unit was $0.21 versus $0.25.
- Drivers and expenses: Investment income rose 35.0% in Q3 and 31.7% year to date, chiefly from MRBs acquired late 2016 and in 2017 and increased unconsolidated-equity investment income. Interest expense rose 64.0% in Q3 and 35.2% year to date, reflecting higher average borrowing rates and debt balances. Year-to-date real-estate sale gains were $7.2 million, down from $14.1 million in the comparable period.
- Cash flow: For the first nine months, operating activities provided $13.2 million, investing activities used $55.9 million, and financing activities provided $57.6 million. Cash and cash equivalents ended the period at $35.6 million, compared with $20.7 million at December 31, 2016; restricted cash was an additional $2.4 million.
- Debt and liquidity: Debt financing was $594.6 million, unsecured lines of credit were $12.5 million, and mortgages and other secured financing were $50.6 million. The Partnership reported a 66% overall leverage ratio against a Board-approved 75% constraint. Unsecured LOC commitments totaled $60 million, with $12.5 million drawn. Management said cash and identified funding sources should meet liquidity needs for the next 12 months.
- Distributions and preferred units: BUC distributions were $0.125 per unit quarterly ($0.375 for the nine-month period), unchanged from 2016. The Partnership issued 3.6 million Series A preferred units during the first nine months for gross proceeds of $36.1 million; 7.7 million units were outstanding at period-end, carrying a 3% distribution rate.
Material changes versus the prior comparable period
- MRB fair value increased to $779.3 million from $680.2 million at year-end 2016, with $72.1 million of MRB acquisitions during the first nine months. The Partnership also recorded $31.0 million of year-to-date unrealized gains on securities.
- Total assets increased to $1.053 billion from $944.1 million; total liabilities increased to $674.8 million from $623.2 million.
- Year-to-date property revenue declined 23.8%, primarily reflecting prior-year property sales and the sale of Northern View in March 2017, as well as weaker occupancy at the 50/50 property. The Northern View sale generated a $7.2 million gain.
- Unconsolidated-entity investments increased to $34.3 million from $19.5 million, including the Partnership’s investment in Vantage at Panama City Beach. Other Investments segment revenue rose substantially as these investments grew.
- Cash available for distribution (CAD), a non-GAAP measure, was $5.4 million, or $0.09 per unit, in Q3 versus $5.4 million, or $0.09, in 2016. Nine-month CAD was $19.6 million, or $0.33 per unit, versus $23.9 million, or $0.40.
Outlook, risks and unusual items
- No earnings or revenue guidance is provided. Management anticipated refinancing debt financing maturities falling in the fourth quarter of 2017 with similar arrangements having terms longer than one year.
- Key risks include refinancing or renewal of financing, interest-rate changes, MRB borrower defaults, property-market and occupancy conditions, concentrated exposure by geography and developer, housing-program funding and regulatory changes, and potential LIHTC recapture.
- Most investments carried at fair value—including MRBs, PHC certificates and bond purchase commitments—are Level 3 measurements based on significant unobservable inputs. The filing reports that a hypothetical 10% adverse yield change would imply additional unrealized losses of $22.5 million on MRBs and $1.8 million on PHC certificates.
- Guarantees include a potential maximum exposure of approximately $599.3 million for certain trust-financing shortfalls before considering collateral proceeds. The Partnership said it had never been required to fund a shortfall and did not expect to be required to do so. Its Panama City Beach construction-loan guarantee had no exposure at September 30, 2017 because the loan had no outstanding balance.
- Three property loans remained on nonaccrual status. Ashley Square and Cross Creek carried substantial existing loan-loss allowances; the filing also disclosed a $7.0 million total allowance across property loans.
- Subsequent events include October 2017 sales agreements for three multifamily properties, receipt of proceeds from the Vantage at Harlingen property sale and related repayment of about $19.5 million of M33 TEBS financing, additional preferred-unit issuances, and purchase agreements for two South Carolina properties.
Most important facts for investors to verify
- Whether the planned refinancing of near-term debt maturities was completed on acceptable terms, and how much debt remains subject to short-term renewal or refinancing.
- Whether MRB fair values and the reported unrealized gains are supported by the underlying property performance and valuation-service assumptions.
- Whether occupancy and cash generation improve at the 50/50 property and other weaker or non-stabilized investments, and whether nonaccrual loans recover.
- How preferred-unit issuance, its fixed distributions, and the Partnership’s leverage affect cash available for BUC distributions.
- Progress, closing terms and realized proceeds for the announced property sales and acquisitions, and any resulting debt repayment or new financing needs.