Business context and reporting period
America First Tax Exempt Investors, L.P. (now identified in the request as Greystone Housing Impact Investors LP) filed this unaudited Form 10-Q for the quarter ended September 30, 2013. The partnership invests primarily in tax-exempt mortgage revenue bonds financing multifamily housing, as well as public-housing certificates, mortgage-backed securities and selected apartment properties. Consolidated results include certain variable-interest entities (VIEs); their results do not necessarily accrue to unitholders.
Financial performance and position
| Metric | Three months ended September 30, 2013 | Nine months ended September 30, 2013 |
|---|---|---|
| Total revenue | $9.76 million | $37.85 million |
| Continuing-operations income | $2.01 million | $12.51 million |
| Net income | $3.35 million | $15.95 million |
| Net income attributable to the partnership | $3.41 million | $15.69 million |
| Basic and diluted income per unit | $0.08 | $0.35 |
| Cash available for distribution (CAD), non-GAAP | $3.83 million; $0.09 per unit | $14.49 million; $0.34 per unit |
For the nine months, operating cash flow was $10.67 million, investing cash flow was negative $75.37 million, and financing cash flow was positive $46.28 million. Cash and cash equivalents ended at $11.91 million; restricted cash was $7.70 million. Distributions declared were $0.125 per unit for the quarter and $0.375 for the nine-month period.
At September 30, total assets were $450.05 million and total capital was $156.26 million. Debt financing was $226.57 million and mortgages payable were $51.80 million, or approximately $278.37 million combined. Debt financing plus mortgage loans equaled about 60% of total assets. A $10 million revolving line had approximately $7.5 million drawn.
Material changes versus the prior comparable period
- Third-quarter revenue rose from $6.31 million to $9.76 million; partnership-attributable net income increased from $2.21 million to $3.41 million. Nine-month revenue increased from $17.54 million to $37.85 million, and partnership-attributable net income from $3.15 million to $15.69 million.
- Growth reflected acquired bonds and securities, added or newly recognized property activity, and previously deferred interest recognized following the Ohio and Greens property sales. Nine-month results also included $6.50 million of contingent tax-exempt interest from the Iona Lakes bond redemption, offset in part by a $4.56 million taxable-property-loan loss. These items make reported growth less indicative of recurring performance.
- Fair-value movements sharply reduced comprehensive income: the partnership reported a comprehensive loss of $20.67 million for the quarter and $13.55 million for the nine months, primarily reflecting unrealized securities losses and a bond-purchase-commitment adjustment. The nine-month unrealized loss on securities was $24.64 million; the commitment adjustment was a further $4.87 million loss.
- Debt financing increased from $177.95 million at December 31, 2012 to $226.57 million; mortgages payable rose from $39.12 million to $51.80 million. Total assets increased from $413.15 million to $450.05 million.
- Economic occupancy for bond-financed properties was approximately 87% for the first nine months, versus 88% a year earlier; MF Properties improved to 82% from 76%.
Outlook, commentary, risks and unusual items
Management reported no formal earnings guidance. It expected that, after completing current investment and financing plans, the partnership could support the existing annual distribution rate of $0.50 per unit without using unrestricted cash, but cautioned that a distribution reduction may be necessary if CAD is insufficient. Nine-month CAD included nonrecurring items; management specifically identified approximately $2.8 million, or $0.065 per unit, from the Iona Lakes redemption and Ohio-related interest and other income.
Debt refinancing is a significant near-term consideration: contractual debt financing payments include $134.36 million due within one year, and several TOB facilities mature in 2013–2014. The partnership expected to renew eligible TOB facilities at its discretion, but renewal is not assured. Management reported covenant compliance at September 30, 2013. It also entered into a subsequent TOB financing of $13.2 million on October 21, 2013.
Investment valuations are sensitive to management assumptions and limited-market pricing. Most tax-exempt bonds, public-housing certificates and taxable bonds are Level 3 fair-value measurements; the filing says a hypothetical 10% adverse change in key bond-yield assumptions could produce approximately $16.1 million of additional unrealized losses. Other risks include property occupancy and operating costs, borrower defaults, interest-rate changes, access to leverage, HUD appropriations supporting public-housing obligations, and potential collateral shortfalls under financing guarantees.
Unusual commitments include forward bond purchases with aggregate contractual amount of approximately $52.59 million, alongside a recorded fair-value liability of approximately $4.87 million. The partnership also disclosed contingent repurchase guarantees with maximum exposures of approximately $1.3 million for Greens and $4.9 million for Ohio, and construction-related obligations for the University of Nebraska–Lincoln student housing project. Management said no amounts were accrued for these guarantees because the likelihood of payment was considered remote. It reported disclosure controls as effective and no material change in internal control during the quarter.
Important facts for investors to verify
- How much of the 2013 earnings and CAD increase is recurring, versus deferred interest, bond redemption gains and property-sale accounting effects?
- Whether the distribution is covered by recurring cash generation, given CAD of $0.34 per unit against distributions of $0.375 for the first nine months.
- Renewal, refinancing and collateral requirements for the substantial debt maturities within one year, including TOB facilities.
- Fair-value assumptions for Level 3 investments and the effect of additional market-yield increases on reported capital and comprehensive income.
- Progress, funding needs and completion risks for forward bond purchases and construction projects, and any change in the stated contingent-guarantee exposures.