Business context and reporting period
Filing identity discrepancy: The request names Greystone Housing Impact Investors LP, but the supplied 10-K is for America First Multifamily Investors, L.P. (ATAX), for the fiscal year ended December 31, 2018. Confirm the issuer before relying on this summary.
ATAX invests primarily in mortgage revenue bonds (MRBs) financing affordable multifamily and student housing, alongside public housing capital fund certificates, property loans, equity investments in multifamily developments, and owned properties. At year-end, it held 77 MRBs with approximately $677.7 million principal, financing 63 residential properties with 10,650 units across 13 states; it also owned two multifamily properties with 859 units.
Financial and operating highlights
| Metric | 2018 | 2017 |
|---|---|---|
| Total revenue | $81.4 million | $70.4 million |
| Total revenues and other income, including property-sale gains | $88.3 million | $88.1 million |
| Total expenses | $48.1 million | $51.5 million |
| Net income | $41.1 million | $30.7 million |
| Net income per BUC | $0.60 | $0.44 |
| Cash distributions per BUC | $0.50 | $0.50 |
| Operating cash flow | $25.7 million | $17.1 million |
| Cash and cash equivalents at year-end | $32.0 million | $69.6 million |
| Total assets | $982.7 million | $1,069.8 million |
| Total debt, net | $568.8 million | $643.9 million |
- MRB segment net interest income was $28.7 million, up from $26.4 million; the segment’s average yield on interest-earning assets increased to 6.9% from 6.3%, while its average borrowing cost rose to 3.8% from 3.4%.
- Cash available for distribution (CAD), a non-GAAP measure, was $0.73 per BUC, versus $0.60 in 2017. Management said it expected to support the then-current $0.50 annual distribution without relying on other available cash, but gave no assurance that CAD would remain above distributions.
- Net cash decreased by $38.3 million: operating activities provided $25.7 million, investing activities provided $49.1 million, and financing activities used $113.1 million.
- Year-end leverage was approximately 60%, against an operating policy ceiling of 75%. Unsecured line commitments totaled $60 million, of which approximately $24.3 million was available at year-end.
- Debt obligations due in 2019 included $178.7 million of debt financing, $35.7 million of lines of credit, and $3.6 million of property mortgages. Management expected to refinance or extend 2019 maturities; it cautioned that refinancing was not assured.
- The Partnership reported compliance with financing covenants at year-end. Its most restrictive trust covenant required cash available for distribution plus trailing-twelve-month interest expense to be at least twice trailing-twelve-month interest expense.
Changes versus the prior year
- Revenue increased 15.6%, and net income increased 34.2%. Revenue growth included higher MRB income and income from unconsolidated investments, plus contingent interest and property-loan interest received upon asset sales or redemptions.
- Reported results included material transaction-related income: approximately $4.2 million of contingent interest and $1.5 million of early-redemption income on the Lake Forest MRB; approximately $5.1 million of contingent interest on the Vantage at New Braunfels property loan; approximately $2.2 million of early-redemption income on the Vantage at Judson MRB; and a $2.9 million gain on sale of the Vantage at Corpus Christi investment. Jade Park’s sale generated a $4.1 million gain.
- Real estate gains fell to $4.1 million from $17.8 million, principally because several owned properties were sold in 2017. Consequently, MF Properties segment net income decreased 62% to $3.7 million.
- Interest expense rose 4.7% to $23.2 million, primarily reflecting higher rates on variable-rate borrowings; lower average debt and derivative fair-value effects partially offset the increase. Total expenses nevertheless declined 6.5%, largely due to property disposals.
- PHC Certificate impairment charges increased to $1.1 million from $0.8 million. A separate $150,000 impairment was recorded on land held for development in Gardner, Kansas.
- Cash and total assets declined, while debt declined by approximately $75.1 million. The portfolio had 10 fewer MRBs and approximately $42.1 million less MRB principal than at year-end 2017. The new $221.5 million M45 Freddie Mac financing converted a portion of the portfolio to long-term fixed-rate debt.
Outlook, risks, contingencies, and unusual items
- Management’s strategy is to acquire MRBs and other permitted investments using operating cash, asset proceeds, debt, and potentially additional BUC or preferred-unit issuance. The BUC at-the-market offering was terminated effective February 8, 2019; the shelf registration was scheduled to expire in November 2019, and management expected to file a replacement.
- Interest-rate exposure is significant because many assets earn fixed rates while some borrowing costs reset. The filing’s sensitivity analysis estimated that an immediate 100-basis-point increase would reduce next-twelve-month net interest income by approximately $485,000, assuming the stated conditions and no management response. Rate caps mitigate but do not eliminate exposure.
- MRB collections depend on property cash flows and refinancing or sale proceeds; the bonds are generally non-recourse and are not obligations of the issuing public authorities. Texas, California, and South Carolina represented 43%, 18%, and 17% of MRB principal, respectively.
- PHC Certificate repayments depend on annual federal HUD Capital Fund Program appropriations. A delay or reduction could impair receipts. The certificates also had $1.1 million of 2018 impairment charges, and one certificate was rated BBB at year-end.
- Most MRBs and PHC Certificates were Level 3 fair-value measurements based on significant unobservable inputs. The filing estimated additional unrealized losses of $22.5 million on MRBs and $1.4 million on PHC Certificates under its specified 10% adverse effective-yield scenario; such valuation changes do not themselves represent cash losses.
- Guarantees relating to securitizations could require substantial funding if collateral proceeds were insufficient following specified termination events. Maximum exposure was approximately $508.9 million before collateral proceeds; the Partnership said it had never been required to reimburse a shortfall and did not expect to be required to do so.
- The Partnership reported approximately $19.6 million of maximum exposure under construction-loan guarantees and approximately $6.1 million under other guarantees. No amounts were accrued because management considered claims remote. It also disclosed related-party arrangements and fees, including $3.7 million of administrative fees paid or accrued to its General Partner in 2018.
- Subsequent events included repayment of the Vantage at Brooks property loan after a January 2019 property sale, with approximately $3.0 million of additional contingent interest expected to be recorded in first-quarter 2019; two MRB acquisitions totaling $6.1 million in February 2019; and approximately $5.3 million of related Term A/B financing proceeds.
- PwC issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective. The filing reported no material pending legal proceedings.
Most important facts for investors to verify
- Confirm the issuer: the supplied document is ATAX’s 2018 Form 10-K, not a filing under the requested Greystone company name.
- Review the 2019 maturity and refinancing schedule, particularly the approximately $218 million of combined debt and line-of-credit obligations due within one year, and confirm subsequent refinancing outcomes.
- Separate recurring cash earnings from transaction-driven income, impairment charges, property-sale gains, and non-GAAP CAD when assessing distribution coverage.
- Assess the sensitivity of borrowing costs and asset values to interest rates, the effectiveness and expiry dates of rate caps, and the portfolio’s concentration in Texas, California, and South Carolina.
- Review the underlying property performance, PHC Certificate ratings and federal appropriation dependency, Level 3 valuation assumptions, and the terms and potential calls on guarantees.
- Evaluate related-party fees, the preferred units’ seniority and 3% non-cumulative distribution, and the implications of the issuer-name discrepancy for the requested analysis.