America First Tax Exempt Investors, L.P. (now Greystone Housing Impact Investors LP) — Q3 2012 Form 10-Q
Reporting period: Three and nine months ended September 30, 2012. The filing is unaudited and was filed under the registrant’s former name, America First Tax Exempt Investors, L.P. Its portfolio centers on tax-exempt bonds financing multifamily housing, alongside multifamily properties and public-housing capital-fund investments.
Financial performance and position
| Metric | Q3 2012 / Sep. 30, 2012 | Comparable period / prior year-end |
|---|---|---|
| Total revenue | $7.13 million | $6.42 million in Q3 2011 |
| Income from continuing operations | $0.96 million | $0.25 million in Q3 2011 |
| Net income attributable to the partnership | $2.21 million; $0.06 per unit | $0.13 million; $0.01 per unit in Q3 2011 |
| Nine-month revenue | $19.98 million | $18.14 million in 2011 |
| Nine-month net income attributable to the partnership | $3.15 million; $0.10 per unit | $1.08 million; $0.06 per unit in 2011 |
| Cash from operating activities, nine months | $3.38 million | $7.07 million in 2011 |
| Cash and cash equivalents | $55.51 million | $20.18 million at Dec. 31, 2011 |
| Total assets / total capital | $395.66 million / $189.06 million | $297.98 million / $131.59 million at Dec. 31, 2011 |
| Debt financing / mortgages payable | $153.18 million / $39.18 million | $112.67 million / $35.46 million at Dec. 31, 2011 |
- For the first nine months, property revenue rose $1.15 million and investment income rose $0.68 million year over year. Results also included a $0.67 million gain on bond sales and a $1.28 million gain on sale of the Commons at Churchland property.
- Management-reported Cash Available for Distribution (CAD) was $8.82 million, or $0.25 per unit, for nine months, versus distributions of $0.375 per unit. Q3 CAD was $3.66 million, or $0.09 per unit, versus a $0.125 distribution per unit. The partnership used unrestricted cash to supplement distributions.
- Cash flow from operations declined despite higher reported earnings. Investing activities used $52.52 million; financing activities provided $84.47 million, including approximately $59.95 million net proceeds from a May unit offering and new borrowing.
- Reported debt-financing and mortgage balances together were approximately $192.36 million. Management reported total debt financing equal to approximately 62% of the specified leveraged asset base, and total debt including mortgages at approximately 49% of total assets.
Material changes and management commentary
- In July, the partnership acquired residual interests in three public-housing tender-option-bond trusts backed by approximately $65.3 million of certificates. It invested about $16 million and the trusts issued approximately $49 million of senior floating-rate interests, recorded as debt. The certificates depend on HUD Capital Fund Program appropriations.
- The partnership issued 12.65 million units in May at $5.06 each, raising approximately $60 million net. This increased weighted-average units outstanding and supported investment and financing activity.
- Tax-exempt bonds at fair value totaled $138.80 million; public housing certificates totaled $66.16 million. These investments are Level 3 valuations based substantially on management assumptions, not active-market quotes. Management’s sensitivity analysis estimated that a 10% adverse change in a key bond-valuation assumption could produce about $10.1 million of additional unrealized losses on mortgage bonds and about $2.9 million on public-housing certificates.
- Economic occupancy for bond-financed properties was approximately 85% for the first nine months, versus 84% in 2011; MF Property occupancy was approximately 80%, versus 78%. Woodland Park occupancy was 86% at quarter-end, down from 91% at year-end 2011.
- The Commons at Churchland sale generated the approximately $1.28 million gain. Eagle Ridge was under a sale agreement, and Greens of Pine Glen was classified as discontinued operations following a sale plan and tax-credit syndication; completion and proceeds remained conditional on milestones and financing.
- No specific earnings forecast was provided. The general partner said it expected current investment and financing plans to support the $0.50 annual distribution per unit without using unrestricted cash, but acknowledged the distribution could be reduced if CAD remains insufficient. The partnership expected to extend or refinance a TOB facility coming due in December 2012.
Risks, contingencies, and unusual items
- Woodland Park: The bond was in payment default following an unpaid debt-service amount due in 2010. Foreclosure proceedings continued, completion timing was uncertain, and the partnership reserved approximately $0.215 million of accrued interest in the first nine months of 2012. Management considered the bond’s fair-value loss temporary, but recovery depends on the collateral and property performance.
- HUD appropriations: Principal and interest on the public-housing certificates depend on annual congressional appropriations. Delays or reductions could impair payments on the partnership’s subordinated residual interests; the filing states there is no assurance appropriations will continue at current levels.
- Funding and interest-rate exposure: Debt includes variable-rate tender-option and securitization facilities, with borrowing costs subject to short-term rates. The filing reports $59.92 million of debt financing contractually due within one year and $30.68 million of mortgage payments due in 2013; a TOB facility of about $10 million matured in December 2012. Management expected to refinance or extend the TOB facility.
- Valuation and credit exposure: Bond and certificate values use significant unobservable inputs and may not represent realizable sale prices. A deterioration in property operations, credit markets, or ability to hold investments could lead to impairment or losses. Property-loan loss reserves were $18.40 million against gross property loans of $20.58 million.
- Guarantees and related parties: The partnership provided contingent repurchase guarantees in connection with LIHTC transactions, including Ohio Properties and Greens of Pine Glen; no liability was accrued because management considered triggering events remote. Affiliates received administrative, placement, and property-management fees, including a $653,000 placement fee related to the public-housing certificates.
- The filing reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the December 2012 TOB financing was extended or refinanced, and whether the larger 2013 debt maturities were met on expected terms.
- Whether CAD subsequently covered distributions without drawing on unrestricted cash, and whether the $0.50 annual distribution was maintained.
- Actual payment and valuation performance of the HUD-dependent certificates, including appropriation levels, ratings, and senior financing costs.
- Progress on Woodland Park foreclosure, occupancy stabilization, bond debt service, and recovery of reserved interest and property loans.
- Realized outcomes for Eagle Ridge, Greens of Pine Glen, and the Ohio Properties, including required capital contributions, sale recognition, and any guarantee obligations.
- Changes in Level 3 valuation assumptions and any impairment charges; reported fair values are estimates rather than observable market prices.