Business context and reporting period
America First Multifamily Investors, L.P. (the filing registrant; now associated with Greystone Housing Impact Investors LP) filed this unaudited Form 10-Q for the quarter ended March 31, 2016. Its core business is investing in mortgage revenue bonds financing affordable multifamily, student, and commercial properties, alongside public-housing trust certificates and owned multifamily properties.
Financial performance and position
- Revenue: $14.93 million, up 19.4% from $12.51 million in Q1 2015. Investment income was $9.16 million; property revenue was $5.07 million.
- Profit: Net income attributable to the Partnership was $2.53 million, nearly unchanged from $2.52 million. Basic and diluted earnings per unit were $0.04. Net margin was approximately 17.0%, compared with 20.2% in the prior-year quarter.
- Comprehensive income: $16.22 million, including substantial unrealized gains on securities and bond purchase commitments; these gains are not equivalent to realized operating profit.
- Cash flow: Operating cash flow was $4.87 million versus $4.17 million. Cash and cash equivalents increased $0.79 million to $17.82 million; restricted cash was $8.75 million. Investing cash flow was positive $6.08 million, reflecting securities sales and other investing movements.
- Distributions and CAD: Quarterly distribution declared was $0.125 per unit ($0.50 annualized). Management’s non-GAAP cash available for distribution (CAD) was $6.29 million, or $0.10 per unit, versus $5.38 million, or $0.09, a year earlier. CAD per unit was below the declared distribution.
- Debt and leverage: Debt financing was $430.3 million, unsecured lines of credit $28.0 million, and mortgages/other secured financing $69.1 million—approximately $527.3 million total. Management calculated overall leverage at approximately 64%, against its stated 65% constraint. Total assets were $874.5 million and total liabilities $542.7 million.
- Portfolio and liquidity: Mortgage revenue bonds had a reported fair value of $596.4 million, and public housing certificates $60.5 million. The Partnership’s bonds are valued using Level 3 inputs and management models rather than active-market quotations.
Material changes versus prior comparable period
- Revenue increased $2.42 million, largely from mortgage bonds added or restructured over the preceding year and the addition of Suites on Paseo to owned properties. Expenses increased $2.39 million, including higher interest, depreciation and amortization, financing-cost amortization, and general and administrative costs.
- Mortgage bond segment revenue rose to $9.07 million from $7.32 million, but segment net income edged down to $2.32 million from $2.35 million, reflecting higher financing and other costs.
- Property revenue increased, while the MF Properties segment remained loss-making: a $0.27 million loss versus a $0.39 million loss. Economic occupancy for consolidated MF Properties was 90% in both periods.
- In January 2016, the Partnership sold its remaining mortgage-backed securities for approximately $15.0 million and repaid related financing. In March, it sold the Pro Nova 2014-2 bond for approximately $9.5 million and paid off the associated trust financing.
- The Partnership issued 1.0 million Series A Preferred Units in a private placement for $10.0 million. These units carry a non-cumulative 3.00% distribution rate if declared and rank senior to BUCs for distributions and liquidation preference.
Outlook, commentary, risks and unusual items
- Management said it expects, after completing its investment and financing plans, to generate sufficient CAD to maintain the current $0.50 annualized distribution without using other available cash. It cautioned that delayed leverage plans or CAD below distributions could require a distribution reduction; there is no assurance CAD will exceed the distribution.
- Management identified opportunities to acquire mortgage bonds and multifamily properties, but noted that weak credit or real-estate conditions could limit access to financing and harm occupancy, rents, and property operations. It cited stabilized bond-property economic occupancy of approximately 82% versus 90% a year earlier; consolidated MF property occupancy was approximately 90% in both periods.
- Debt refinancing is a key exposure. Contractual borrowings include approximately $68.5 million maturing in 2016; management expected to renew 2016 TOB facilities and planned to renew the M24 TEBS facility at its 2017 maturity. It reported compliance with financing covenants at quarter-end.
- Variable-rate debt creates interest-rate exposure despite caps and swaps. Derivative fair-value changes increased interest expense by approximately $1.1 million in Q1 2016. A 10% adverse change in the key valuation assumption for mortgage bonds was estimated to produce approximately $35.3 million of additional unrealized losses; this is a hypothetical sensitivity.
- Property-loan risk remains relevant: the loan-loss allowance was $7.10 million, and interest on loans associated with Ashley Square, Cross Creek, and Lake Forest was placed on nonaccrual. The filing reported a further approximately $21,000 provision for Lake Forest interest during the quarter.
- Guarantees tied to TEBS and TOB financing could expose the Partnership to losses if collateral proceeds are insufficient; stated maximum exposure was approximately $430.3 million before collateral proceeds. Other contingent guarantees include approximately $3.0 million for Greens and $4.8 million for the Ohio Properties; management said loss-triggering events were remote.
- Three MF Properties were under brokerage agreements for sale, and the Partnership had agreed to sell a Florida land parcel. Subsequent to quarter-end, it signed an agreement to sell Arboretum; closing was expected in Q2 2016 subject to the buyer’s inspection period.
- The Series A Preferred Units are privately placed, have limited voting rights and no expected public market, and may remain outstanding indefinitely. CRA credit for investors is not guaranteed.
Most important facts for investors to verify
- Whether CAD remains sufficient to support the $0.125 quarterly BUC distribution, and how management’s non-GAAP CAD calculation compares with cash flow from operations.
- Upcoming debt maturities, renewal/refinancing progress, covenant headroom, and the basis for the reported 64% leverage measure.
- Underlying property operating trends, especially the 82% economic occupancy for stabilized bond properties and lease-up performance at non-stabilized properties.
- Assumptions behind Level 3 bond valuations and the sensitivity of reported fair values to yields and collateral performance.
- Collection prospects for nonaccrual property-loan interest, adequacy of loan-loss allowances, and exposure under financing and property guarantees.
- Terms, redemption rights, distribution priority, and investor-specific CRA treatment of the Series A Preferred Units; also confirm whether announced property sales closed.