Business context and reporting period
Greystone Housing Impact Investors LP, identified in this 2015 filing as America First Multifamily Investors, L.P., filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2015. Its principal business was investing in mortgage revenue bonds financing affordable multifamily, student and senior housing, alongside public housing trust certificates, mortgage-backed securities and selected multifamily properties.
Financial results and position
| Metric | Three months ended June 30, 2015 | Six months ended June 30, 2015 | Comparable 2014 period |
|---|---|---|---|
| Total revenue | $17.12 million | $29.63 million | $10.47 million quarter; $22.87 million six months |
| Net income attributable to the Partnership | $8.22 million | $10.75 million | $3.66 million quarter; $9.71 million six months |
| Basic and diluted net income per unit | $0.12 | $0.16 | $0.05 quarter; $0.15 six months |
| Cash available for distribution (CAD), non-GAAP | $9.69 million; $0.16 per unit | $15.08 million; $0.25 per unit | $5.35 million; $0.09 per unit quarter; $12.42 million; $0.21 per unit six months |
| Distributions declared per unit | $0.125 | $0.25 | Same in 2014 |
Quarterly revenue growth reflected higher investment income and a $3.42 million gain on sale of The Colonial property. For the first half, investment income rose to $17.37 million from $12.45 million; the Colonial gain partly offset the absence of $3.68 million in prior-year mortgage-bond sale/redemption gains. First-half interest expense increased to $6.93 million from $4.45 million, mainly as borrowings and average borrowing costs rose.
For the six months, operating cash flow was $11.06 million, investing cash outflow was $103.55 million, and financing cash inflow was $45.95 million. Cash and cash equivalents ended at $2.64 million, versus $49.16 million at December 31, 2014; restricted cash was $5.19 million. The large investing outflow primarily reflected $131.49 million of mortgage revenue bond acquisitions.
At June 30, total assets were $779.77 million and total capital was $281.48 million. Mortgage revenue bonds had a reported fair value of $548.94 million. Debt financing was $366.15 million, lines of credit were $48.83 million, and mortgages payable were $68.69 million. The Partnership reported approximately 62% overall leverage under its stated measure, against a 65% constraint. It also reported a $742,000 derivative liability; fair-value changes contributed $701,000 of first-half interest expense.
Material changes versus the prior comparable period
- Net income increased 125% year over year in the second quarter and about 11% for the first half. First-half revenue rose about 30%, while total expenses rose about 44%.
- The investment portfolio expanded: management cited approximately $183 million of net additional par value in underlying securities year over year. First-half bond purchases were $131.49 million, funded in part with debt.
- Cash fell substantially from year-end as the Partnership invested in new assets. Borrowings increased, including $48.8 million outstanding on lines of credit; the new Bankers Trust facility had a stated maximum of $50 million.
- Comprehensive results differed sharply from net income: the Partnership reported a $13.31 million comprehensive loss for the quarter and a $12.42 million loss for the first half, primarily reflecting unrealized losses on securities and bond purchase commitments. The comparable 2014 periods reported comprehensive income.
- The Colonial sale generated a $3.42 million gain. The Partnership also decided to exit the consolidated VIE property segment and classified Bent Tree and Fairmont Oaks as discontinued operations, with brokerage contracts to sell them.
Outlook, management commentary, risks and unusual items
- Management said it expected to maintain the $0.50 annual distribution per unit after completing planned investment and financing activity, but cautioned that delayed leverage plans or CAD below distributions could require a reduction. First-half CAD per unit matched distributions at $0.25; CAD included approximately $0.068 per unit of non-recurring items, including the Colonial sale.
- Suites on Paseo could not pay all interest due June 1. The Partnership received $500,000, deferred the remaining payment to September 1, and recorded an approximately $98,000 allowance for uncollectible Series B interest. Occupancy at the property was 62% and economic occupancy 71%; management reported the bond and loan were not impaired at June 30.
- Most mortgage revenue bond fair values relied on management’s discounted cash-flow estimates and Level 3 inputs, with no active trading market. A hypothetical 10% adverse change in the key yield assumption would imply approximately $35 million of additional unrealized losses on mortgage revenue bonds. This sensitivity is not a forecast.
- Short-term refinancing and rate exposure are material. Several TOB facilities were due to mature in 2015; management expected to renew them. The Partnership was below the minimum cash covenant on the Deutsche Bank trust facilities at June 30 but had obtained a waiver. Management also planned to extend or refinance the Eagle Village mortgage due in 2015.
- After quarter-end, the Partnership completed an M33 TEBS financing with approximately $82.2 million net proceeds, including repayment of the $37.5 million Bankers Trust advance. It also restructured eight TOB trusts, increasing borrowing from approximately $124.7 million to $137.9 million and extending maturities. These were post-quarter events, not June 30 balances.
- Other disclosed risks include property operating and occupancy performance, regional concentration (about 50% of mortgage-bond principal was in Texas), variable short-term interest rates, debt refinancing and potential guarantees under financing arrangements. Management said it had never been required to reimburse a financing facility for a shortfall. No material change to previously disclosed risk factors was reported.
Important facts for investors to verify
- Whether recurring CAD, excluding sale and other non-recurring items, supports the $0.50 annual distribution and whether management’s distribution outlook remains achievable.
- Current status and performance of Suites on Paseo, including collection of deferred interest, occupancy and any subsequent impairment or restructuring.
- Post-quarter completion terms and ongoing costs, covenants and refinancing exposure associated with the M33 TEBS and restructured TOB facilities.
- Updated liquidity, restricted cash, leverage and covenant compliance after repayment of the Bankers Trust advance and further investments.
- Valuation assumptions for Level 3 mortgage revenue bonds and the sensitivity of reported capital to yield changes; the filing notes estimated fair values may not equal realizable sale proceeds.
- Progress and realized proceeds from planned sales of Bent Tree, Fairmont Oaks and Glynn Place, and whether their results or accounting classification change.