Business context and reporting period
This is the unaudited Form 10-Q for the quarter and six months ended June 30, 2017. The filing identifies the registrant as America First Multifamily Investors, L.P.; this differs from the company name in the request metadata. The Partnership invests principally in mortgage revenue bonds (MRBs) financing affordable multifamily and student housing, alongside multifamily properties, public housing capital fund certificates, and development-related investments.
Financial performance and position
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Total revenue | $16.23M | $14.93M | $32.27M | $29.85M |
| Net income | $4.11M | $11.01M | $11.47M | $13.54M |
| Net income available to Partners | $3.68M | $10.88M | $10.64M | $13.41M |
| Net income per unit, basic and diluted | $0.06 | $0.15 | $0.16 | $0.19 |
| Cash provided by operating activities | Not separately stated | Not separately stated | $8.21M | $11.27M |
- Q2 revenue increased 8.7%, led by higher investment income, while property revenue declined. For the six months, revenue rose 8.1%.
- Net income fell year over year in both comparisons. Q2 2016 included a $12.44M gain on sale of the Arboretum; first-half 2017 included a $7.15M gain on the sale of Northern View. These transactions materially affect the comparisons.
- Interest expense rose 35.1% in Q2 to $5.84M and 24.1% for the first half to $11.28M, reflecting higher average borrowing rates and greater average debt outstanding.
- Cash available for distribution (CAD), a non-GAAP measure, was $5.89M, or $0.10 per unit, in Q2 2017, versus $12.16M, or $0.20 per unit, in Q2 2016. First-half CAD was $14.18M, or $0.24 per unit, versus $18.45M, or $0.31 per unit. Distributions declared were $0.125 per unit for Q2 and $0.25 for the first half in both years.
- At June 30, total assets were $1.025B, total liabilities $664.35M, and partners’ capital $303.58M. Cash and cash equivalents were $15.37M; restricted cash was a separate $6.64M balance.
- Debt financing, net, was $597.47M and mortgages and other secured financing, net, were $50.78M. The Partnership reported no outstanding balance on its $60M unsecured credit lines at quarter-end. Its stated overall leverage ratio was approximately 66%, against a Board-established 70% constraint.
- First-half cash flow was $8.21M provided by operations, $50.38M used in investing, and $36.79M provided by financing, resulting in a $5.38M net decrease in cash.
Material changes and management commentary
- The Partnership acquired $59.59M of MRBs in the first half, mainly associated with Texas properties. The MRB portfolio’s reported fair value increased to $768.13M from $680.21M at year-end, including unrealized valuation gains.
- Debt financing increased from $495.38M at year-end to $597.47M. The Partnership entered new and refinanced Term A/B trust financings and extended the variable-rate TOB trust maturity to May 2018.
- Management said it expected to refinance financing arrangements coming due in 2017 with similar arrangements having terms longer than one year, and believed cash and other funding sources would meet liquidity needs over the next 12 months.
- The Partnership sold its Northern View interest in March 2017 for gross proceeds of about $13.8M and recognized a gain of about $7.2M before tax. It sold a parcel of land in May at a loss of about $22,000.
- Management reported lower occupancy at the 50/50 MF Property and ongoing rehabilitation at Jade Park. The Partnership was pursuing marketing and pricing changes at the former and expected Jade Park occupancy to improve as renovations were completed. Listing agreements were executed for Suites on Paseo in June and for Eagle Village, Residences of DeCordova, and Residences of Weatherford in July.
Risks, contingencies, and unusual items
- Liquidity and refinancing risk are important: contractual debt maturities total about $64.65M in 2017. A $60.28M TEBS I financing was scheduled to mature in September 2017 unless the Partnership exercised an extension option through September 2020; management said it was evaluating the option.
- Most reported fair-value investments are Level 3 and rely on unobservable inputs and valuation judgments. The filing’s hypothetical 10% adverse yield change indicated additional unrealized losses of $23.4M on MRBs and $1.82M on public housing certificates.
- About 50% of MRB principal outstanding was concentrated in Texas at June 30, 2017; California accounted for about 18% and South Carolina about 11%.
- Three property loans totaling significant balances remained on nonaccrual status: Ashley Square, Cross Creek, and Lake Forest. The filing reports $7.10M of aggregate loan-loss allowances against $38.70M of gross property loan balances.
- The Partnership guaranteed a construction loan of up to $25.6M for Vantage at Panama City Beach; it reported no loan balance and no exposure under that guarantee at June 30. Separate contingent repurchase guarantees tied to LIHTC delivery, tax-credit recapture, or foreclosure had maximum exposures of approximately $2.8M and $4.4M; management considered the triggering likelihood remote.
- Guarantees associated with the financing trusts could expose the Partnership to a shortfall of up to approximately $602.6M before proceeds from collateral sales. Management stated it had never been required to fund a shortfall and did not expect to be required to do so.
- Management disclosed construction-completion, occupancy, property operating, interest-rate, credit-market, HUD/federal-program funding, and refinancing risks. It also identified risks that third-party developers may fail to complete projects or honor return guarantees on unconsolidated investments.
- The Partnership used a third-party pricing service for MRB and other Level 3 fair values beginning in Q2 2017. Disclosure controls were assessed as effective, with no material change in internal control over financial reporting reported for the quarter.
Important facts for investors to verify
- Confirm the registrant identity and its relationship, if any, to the company name in the request metadata.
- Track resolution of the September 2017 TEBS I maturity, the 2017 maturity schedule, and the Partnership’s refinancing plans and covenant compliance.
- Review cash available for distribution against declared distributions, especially the first-half CAD of $0.24 per unit versus $0.25 of distributions per unit.
- Assess the sustainability of MRB valuations and the sensitivity to Level 3 assumptions, as well as portfolio concentration and underlying property performance.
- Monitor nonaccrual property loans, construction and equity-investment exposures, contingent guarantees, and occupancy trends at directly owned properties.