Business context and reporting period
America First Multifamily Investors, L.P. (NASDAQ: ATAX; identified in the request as Greystone Housing Impact Investors LP) filed this unaudited Form 10-Q for the quarter ended March 31, 2020. Its principal business is investing in mortgage revenue bonds (MRBs) financing affordable multifamily and student housing, alongside direct multifamily properties and equity investments in property ventures.
At quarter-end, the Partnership held 75 MRBs financing 10,867 rental units, owned two multifamily properties totaling 859 units, and had $98.6 million invested in unconsolidated entities. Most MRBs are valued using Level 3 inputs and unobservable assumptions.
Key financial metrics
| Metric | Q1 2020 | Q1 2019 or prior period |
|---|---|---|
| Total revenues | $13.7 million | $17.7 million |
| Net income | $3.0 million | $6.5 million |
| Net income available to partners | $2.3 million; $0.04 per BUC | $5.7 million; $0.08 per BUC |
| Comprehensive income (loss) | $(5.1) million | $14.6 million |
| Operating cash flow | $2.3 million | $3.6 million |
| Cash, cash equivalents and restricted cash, quarter-end | $35.8 million | $39.0 million at March 31, 2019 |
| Total assets, quarter-end | $977.5 million | $1,029.2 million at December 31, 2019 |
| Debt financing, net, plus unsecured lines of credit | $512.9 million | $549.4 million at December 31, 2019 |
| Mortgages and other secured financing, net | $26.7 million | $26.8 million at December 31, 2019 |
Interest expense was $6.0 million, down from $6.4 million. The Partnership reported a $1.4 million provision for credit loss and a $1.4 million gain on sale of securities. Its non-GAAP cash available for distribution (CAD) was $2.8 million, or $0.05 per BUC, versus $6.6 million, or $0.11 per BUC. The quarterly BUC distribution remained $0.125 per unit. Series A preferred units had approximately $94.5 million redemption value and a 3% distribution rate.
Cash declined by $7.4 million during the quarter: $2.3 million provided by operations and $37.5 million by investing activities were more than offset by $47.2 million used in financing, primarily debt principal payments, distributions and BUC repurchases. The Partnership repurchased 290,000 BUCs for $2.1 million.
Material changes versus the prior comparable period
- Net income available to partners fell to $2.3 million from $5.7 million; BUC earnings per unit declined from $0.08 to $0.04. Revenue fell 22%, while total expenses rose 9%, mainly reflecting the new credit-loss provision.
- Contingent interest income declined to $12,000 from $3.0 million, which had been recognized on a property-loan redemption in Q1 2019.
- The Partnership sold its PHC Certificates in January 2020 for approximately $43.3 million, recording a $1.4 million gain and using proceeds to repay associated financing. It acquired no MRBs in the quarter; one MRB with $3.1 million principal outstanding was redeemed.
- Unrealized losses on securities were $7.1 million, versus unrealized gains of $8.1 million a year earlier, contributing to the comprehensive loss despite positive net income.
- Debt declined, with principal payments of $36.0 million on debt financing. The overall leverage ratio, as defined by the Partnership, was approximately 60% at March 31, 2020.
Outlook, risks, contingencies and unusual items
Management gave no earnings or distribution guidance. It expected to meet liquidity needs over the next 12 months from cash, operating cash flows and refinancing maturing obligations, while noting that COVID-19 effects were uncertain. Management and the General Partner continued to assess distributions in light of cash available, results and the pandemic.
- COVID-19: Management reported average April 2020 rent collections of 94% at residential properties securing MRBs, but cautioned that April was not predictive of later months. No MRB borrowers had requested pandemic-related forbearance as of the filing. Potential effects include reduced rent collections, bond-payment defaults, collateral calls, weaker investment returns and lower student-property occupancy if universities did not resume in-person classes.
- Credit and property risks: The $1.4 million credit-loss provision related to the Pro Nova 2014-1 commercial-property MRB and was primarily driven by debt-service shortfalls. Its associated financing was terminated and repaid in April 2020. The Partnership also disclosed a cumulative unrealized loss on the Live 929 MRB, which it considered temporary. A $7.4 million allowance remained against Cross Creek property loans; interest on Cross Creek, certain Ohio Properties loans and the Live 929 loan was on nonaccrual as applicable.
- Financing and liquidity: At March 31, contractual debt maturities included $79.8 million for the remainder of 2020. After quarter-end, the Partnership repaid the Pro Nova financing, terminated Deutsche Bank Term A/B financings and replaced certain financings with Mizuho variable-rate TOB trusts; it also extended several TOB maturities into 2021. These transactions addressed some near-term maturities but increased exposure to variable-rate financing. The Partnership reported compliance with applicable covenants at March 31.
- Interest-rate exposure: The filing’s sensitivity analysis estimated that an immediate 100-basis-point increase would reduce net interest income by approximately $1.7 million over the following 12 months, subject to the stated assumptions.
- Commitments and guarantees: Remaining equity commitments to unconsolidated entities totaled approximately $2.5 million. Maximum stated exposure under two construction-loan guarantees was approximately $32.3 million; the Partnership had not accrued for these guarantees because claims were considered remote. Additional repurchase-event guarantees also existed, with no accrual recorded.
- Other unusual items: The quarter included approximately $149,000 of one-time consulting fees within higher general and administrative expenses. Management stated that ordinary-course legal matters were not expected to have a material effect.
Most important facts for investors to verify
- Whether rent collections, occupancy and borrower debt-service performance weakened after April 2020, particularly at student and commercial properties.
- Progress and final terms of the post-quarter debt refinancings, including 2020 maturities, variable-rate costs, collateral requirements and covenant compliance.
- Subsequent credit performance and valuation assumptions for Pro Nova, Live 929 and other Level 3 MRBs, and the collectability of loans on nonaccrual.
- Whether CAD and operating cash flows support the $0.125 quarterly BUC distribution and preferred distributions; CAD is a non-GAAP measure and was below the quarterly BUC distribution per unit.
- Potential calls under the construction and repurchase-event guarantees, remaining equity commitments, and the effect of COVID-19 on investment values and liquidity.