Greystone Housing Impact Investors LP quarterly report, Q2 FY2014

Business context and reporting period

Unaudited Form 10-Q for the quarter and six months ended June 30, 2014. The filing registrant is America First Multifamily Investors, L.P.; the request metadata identifies Greystone Housing Impact Investors LP. The Partnership primarily invests in mortgage revenue bonds financing multifamily properties, alongside public-housing certificates, mortgage-backed securities and multifamily properties it expects to restructure or sell.

Financial performance and position

• Six-month operating cash flow was $6.5 million, compared with $5.9 million; investing cash use was $10.2 million versus $55.7 million, and financing provided $35.7 million versus $43.4 million. Cash and cash equivalents were $43.3 million at June 30, up from $11.3 million at year-end 2013.
• Total assets were $653.3 million and partners’ capital was $284.8 million. Debt financing was $244.5 million and mortgages payable were $69.5 million; the balance sheet also included a $35.0 million Live 929 settlement obligation. The filing reports leverage of 52% of total assets including debt, settlement obligation and property mortgages.
• Distributions declared were $0.125 per unit for the quarter and $0.25 for the half year. Management’s non-GAAP cash available for distribution (CAD) was $5.35 million ($0.09/unit) for Q2 and $12.42 million ($0.21/unit) for the half year, below distributions of $0.125 and $0.25 per unit, respectively.
• Economic occupancy was 84% across properties financed by the Partnership, down from 88% a year earlier; MF Property occupancy improved to 85% from 81%.

Material changes versus prior comparable period

• Revenue and earnings declined year over year, principally because 2013 included $6.5 million of contingent interest from the Iona Lakes bond redemption and, for the six-month comparison, the Ohio Properties sale gain and related deferred income. In 2014, bond sale and redemption gains were $3.7 million, including about $2.8 million from Lost Creek and $873,000 from Autumn Pines.
• New bond and other investment acquisitions added recurring investment income, but interest expense rose by $1.6 million for the half year. Management attributed this to higher average borrowings and derivative fair-value changes; borrowing costs averaged about 2.5% in both half-year periods.
• Cash available for distribution improved from $10.7 million to $12.4 million for the half year, but included the Lost Creek and Autumn Pines gains, which management cautioned may not recur. Outstanding units increased to 60.3 million from 42.8 million a year earlier, following 9.2 million units issued in January and February 2014 for net proceeds of about $51.3 million.
• Mortgage revenue bond and public-housing certificate fair values drove $33.8 million of six-month unrealized securities gains, compared with a $5.5 million unrealized loss in 2013. Comprehensive income was $48.6 million versus $7.1 million.

Outlook, risks, contingencies and unusual items

• Management expected current investment and financing plans to support the $0.50 annual distribution without using unrestricted cash, but stated there is no assurance CAD will cover that level and distributions may be reduced. Prior-year distributions were partly supplemented with unrestricted cash.
• Near-term refinancing is important: contractual debt financing maturities included $150.8 million in the remainder of 2014, and property mortgage maturities included $15.1 million. Two unused $5 million revolving credit lines were available. Subsequent to quarter-end, the Partnership closed a $94.7 million Class A 2014 TEBS financing, applied proceeds partly to retire short-term securitizations, and refinanced certain TOB facilities. It also placed the Live 929 bond into a $35 million TOB financing.
• Mortgage revenue bond valuations rely on management’s Level 3 discounted-cash-flow assumptions and there is no active market. A hypothetical 10% adverse change in the key yield assumption would add about $22.5 million of unrealized losses on mortgage revenue bonds. Similar sensitivities were $2.5 million for public-housing certificates and $1.9 million for MBS.
• Variable-rate financing, refinancing access, collateral property performance, occupancy, and short-term interest rates are key risks. The Partnership reported compliance with its debt covenants at June 30. Bond-financing structures may require collateral or repayment if specified events occur; the Partnership also guarantees certain obligations connected with securitizations and property transactions.
• Management said ordinary-course legal matters were not expected to have a material effect. No amounts were accrued for certain guarantees and tax-credit recapture obligations because management considered payment unlikely. A $6,000-per-day potential delay charge applied to the University of Nebraska parking garage if not completed by August 1, 2014; management expected timely completion.
• The filing notes a correction to the prior-year balance-sheet presentation of taxable-loan interest receivable: approximately $6.2 million was reclassified between interest receivable and other assets, with no effect on total assets or earnings. Management reported disclosure controls effective and no material quarterly change in internal control.

Important facts for investors to verify

• Confirm the issuer’s identity and continuity between the filing’s America First Multifamily Investors, L.P. name and the current company name in the request.
• Review the subsequent 2014 TEBS and TOB refinancing terms, maturities, covenants, collateral and actual borrowing costs, particularly against the large 2014 contractual maturity schedule.
• Assess whether recurring CAD, excluding the Lost Creek and Autumn Pines gains, supports the $0.50 annual distribution; CAD is non-GAAP and does not equal operating cash flow.
• Examine the assumptions and independent support for Level 3 fair values, property debt-service performance, taxable-loan recoverability and the material yield sensitivities.
• Track property occupancy and construction/stabilization, including student-housing projects and properties with low or unavailable comparable-period occupancy data.