America First Multifamily Investors, L.P.
Q3 2016 Earnings Call Transcript

Published: 11 Nov 2016

[Operator:]

At this time, I would like to welcome everyone to American First Multifamily Investor LP’s, NASDAQ’s ticket symbol ATAX’s, Third Quarter 2016 Earnings Conference Call. During the presentation all participants will be in a listen-only mode. After the speakers’ remarks you will be invited to participate in a question-and-answer session. As a reminder, this conference call is being recorded. At this time, I would like to turn the conference call over to Craig Allen, Chief Financial Officer of the company.

[Craig Allen:]

Thank you. Welcome to the ATAX’s third quarter 2016 earnings conference call. During the course of this conference call, comments we make regarding ATAX which are not historical facts are forward-looking statements and are subject to risk and uncertainties that could cause the actual future events of results to differ materially from these statements. Such forward-looking statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by the use of words like, may, should, expect, plan, intent and other similar terms. You are cautioned that these forward-looking statements speak only as of today’s date. Changes in economic, business, competitive, regulatory and other factors could cause our actual results to differ materially from those expressed or implied by the projections or forward-looking statements made today. For more detailed information about these factors and other risks that may impact our business, please review the periodic reports and other documents filed from time-to-time by ATAX with the Securities and Exchange Commission. Our internal projections and beliefs upon which we base our expectations may change, but we will not necessarily inform you if they do. Today’s discussion will include non-GAAP measures, and will be explained during this call. We want to make you aware that ATAX is operating under the SEC Regulations FD and we encourage you to take full advantage of the question-and-answer session. Thank you for your participation today and your interest in ATAX. I will now like to pass the call over to Chad Daffer, ATAX'S CEO.

[Chad Daffer:]

Thank you, good afternoon. I'd like to thank you for your interest in ATAX. My topic this afternoon about management's efforts in the third quarter related to excess of capital, risk management and portfolio activity, and then I'll turn it back to Craig to discuss the results of the third quarter and then we'd like to open it up for questions. First let me comment about the ATAX preferred stock offering, I think we shared with you a year ago, we've offered $1 million of the preferred tock for ATAX and as of the close of the third quarter, we closed at $35 million of that 100 with institution investors under Limited Partnership Agreement with a balance of the $65 million to be closed in months to come, with regard to excellent low cost to capital, non-voting - non-voting, non-dilutive and risk capital source for reinvestment of ATAX revenues. As it relates to risk litigation, as you know we were – out leverage into the portfolio through the years of TEBS or TOB financing, to date we have completed three [indiscernible] financings using the package of bond securitization program at Freddie Mac. We utilized the mitigation of that risk to their purchase of caps [ph] and mitigating any pricing interest rate environment and also the future cost - high cost leverage. As you know over the last couple of three months we've seen a spike in the short term interest rate for Sigma. This is a concern of ours. We identified this concern as much as three years ago, really sitting too lows for us to work towards mitigating for ourselves and maybe others who are foreseeing for some [indiscernible] We've started that line to identify the caps that we've purchased on our three variable rates financings. We had done our first financing with a 3% cap, at that time we rolled down to a 1.5% cap and we are currently evaluating the options on both with two other outstanding 3% caps looking for the opportune time to purchase lower cash breakpoint, somewhere in the 1 to probably 1.5 ranges, we'll anticipate this executing in the months to come, The other investment that we have started couple of years ago is that we knew that we would like to try and execute our fixed rate financing. In the third quarter we financed $150 million approximately of our bonds, made up 12 bonds, we executed a 10 year fixed rate plan on finance with one of our plans the industry locking in very attractive leverage returns with no mark-to-market. This is a great financing source with a cutting edge execution and looks forward to mitigating interest rate risk going forward by the fixed rate financings and feel it’s prudent The last time I want to talk to you about this little important transaction. This transaction was a property that we foreclosed on back inn 2013 [indiscernible] because of one of four properties that we foreclosed on, post-credit crunch. We identified there was covenant fall on performance of [indiscernible] removing them. We deployed our folks to complete instruction and also stating the highest the property. In doing that we planned the Land Use Restriction Agreement, knowing that we would some point in the near future we would be looking to exit the asset for a number of different reasons. So we're looking to try and position it for sale. In September we closed on the sale of what once was perceived would be a distressed property at a gain of just over $1 million for our investors. I think this is another example of how we are able to execute the ownership and operations of multifamily housing for the benefits of our investors With that, I'd like to turn it back over to Craig Allen, to have him talk about the third quarter results. Craig?

[Craig Allen:]

Thank you, Chad. What I'd like to do is take you through a few of significant transactions for the quarter and then give you a little bit more idea of what's happened that we thought was – that were important during the quarter also to talk to you about little bit. So first what I'd like to do is cover briefly our equity and investment - investment in equity. Back in the Q1 of 2016 we talked to you about an investment – a product we referred to as the vantage products. At present through September 30, we have three vantage investments that we treat as equity investments and during the third quarter of 2016 we invested $9.5 million in three vantage investments and on a year-to-date basis we've invested approximately $12.8 million in those three vantage investments. We have two operating lines of credit that we talked about in the past, one is a $50 million unsecured line of credit that we use for the acquisition of mortgage revenue bonds and the second is a $7.5 million operating line of credit. At September 30 the balance in both of these was zero as we have paid those down during the quarter. And as you’ve heard us talk about in previous quarters, our $7.5 million operating line of credit requires us to be at a zero balance for 15 consecutive days during the quarter and we've already fulfilled that requirement now for Q4 of 2006. Revenues for the quarter was $13.2 million versus $12.9 million for the same three months September end 15 or an increase of about 2.3% and on a year-to-date basis we've increased revenue from $39.1 million up to $43.1 million. Just as an overview of the mortgage revenue bonds that we hold in our portfolio as of September 30. Currently, we have mortgage revenue bonds that we hold in 14 states with a value of approximately $628.4 million, that’s been remaining fairly constant over the quarters this year and I'll talk a little bit more about that as we get into further through the presentation. One of segments that we talked about in the past and Chad referred to when he spoke about Woodland Park is our MF properties or a multi-family properties segment and currently we hold properties in six states with a value of about $108.1 million as of September 30. And again, that’s fairly constant except for the sale of Woodland Park and except for the purchase of a new MF property on September 30 by the name of Jade Park. Just to give you some idea where we come from and where we are today, our total assets have increased from December 31st of 2015 from $867 million up to $913 million, so an increase of about 5% over that nine month period of time. Our mortgage revenue bonds that – we funded - invest in, we've increased from $584 million at the end of December last year to almost $629 million or an increase of about 8% during that nine-month period of time. And if we look backwards to see the growth that we've had in mortgage revenue bonds to total assets, back in 2012, on December of 2012 only 35% of our total assets were comprised of mortgage revenue bonds, where at September 30 that percentages increased to 69%. So almost a 100% increase in the percentage of mortgage revenue bonds that we hold compared to total assets. Cash available for distribution is a measure that we've used in ATAX for the past 30 years and it's a measure of reconciling if you will our net income to cash available for distribution. So our cash available for distribution for the third quarter 2016 and 2015 remained at flat at $0.09 per unit for each of the quarters. On a year-to-date basis though were up 17.6% in CAD, we reported $0.34 per unit in year-to-date 2015 versus $0.40 per unit in Q3 – as of Q3 2016 for the nine months ended. Some of the factors contributing to this positive impact on CAD are the MF property sales. Again, as we've discussed in previous quarters, MF property sales have become or actually looking at MF properties and what we'd like to do with them have become a standard matter course for us. So we always analyze the highest and best use, included in our analysis, though is it time to sell a property o r is not? And again, MF property sales have been a positive additive to CAD. Another additive or another positive Chad's touched on a little bit and that’s our low-cost, non-dilutive financing. Again, our Series A preferred stock or preferred units have contributed non-dilutive, non-cumulative, and non-voting cost of capital at a very attractive rate. We've been able to reinvest those proceeds in our core investment products. And finally, is increased revenue. Again, as we take a look at revenue and the increases again, that’s byproduct of everything that we talked about as to this point. So as far as execution of strategy, we have a strategy and that we talked about as we presented the Consent Solicitation Statement to our BUC holders in July through September of 2015. Along those lines, in August our board authorized a BUC or beneficial unit certificates or common unit repurchase program, at that time the board authorized the repurchase of 272,307 units in the open market. So these would be open market transactions. That program began in August of 2016 and as of September 30, 2016, we have repurchased 238,936 units at an average price of $5.90. Upon acquisition of these units, the board granted on 2016 - September 26, 2016, restricted unit awards. So as part of our 2015 equity incentive plan approved by our BUC holders in September 2015, these units were awarded, all 238,936 units. These units have a vesting schedule of anywhere from three months to three years and a time based awards. These restricted unit awards are non-dilutive to the common BUC holders because, again

[Chad Daffer:]

Thank you, Craig. As we look towards year end, I think a portion or two have developed very good relationships with the bond community, and some of our partners, pipeline building, various storms we go through balance of 2016 and into 2017. I think by evidence of our efforts with the CRA firm and also the timely B structure, our efforts to cash flow and our partners, our partners industry, that I think we're in better position now than we have been and were to raise [indiscernible] for the ATAX platform. I am optimistic about the fourth quarter of 2016 and I look forward to start focusing on our efforts for 2017. Probably this is been a helpful [indiscernible] and focus on how we approach our business and servicing you and our investment in APAX. At this time, I'd like to answer any questions you may have. Thank you.

[Operator:]

[Operator Instructions] And we have a question coming from the line of Ronald Lein with Value Form. Your line is now open.

[Ronald Lein:]

Hello, fellows. Good job. I am calling from home, I hope you can hear me, we have a lot of value [indiscernible] for the shareholders in the ATAX listing. I have a question regarding CAD, cash available for distribution. The plus 17.6% or $0.34 applies to the first record of this year compared to the first records of last year, am I right on that?

[Craig Allen:]

Yes. That’s correct.

[Ronald Lein:]

Okay. If I just took last year's fourth quarter, the lack of a better number used, I don't have that handy, you know what the fourth quarter CAD was?

[Craig Allen:]

It would have been about, let's say 36 – it’s been about $0.15 to $0.16. We ended slightly over $0.50 on a…

[Ronald Lein:]

Yes, And if you went over $0.50, so you went above $0.15 to $0.16?

[Craig Allen:]

Yes. Again, we did have – I am sorry, go ahead.

[Ronald Lein:]

Just a question, I think I know the answer, but a lot of folks don’t. If there is a shortfall of CAD is that the number that’s made up on your K-1, on the return of capital side?

[Craig Allen:]

Yes. If there happens to be a shortfall then it would be considered on the K-1 to be a return of capital.

[Ronald Lein:]

All right. That’s all I have. Thank you.

[Craig Allen:]

Thank you.

[Chad Daffer:]

Thank you.

[Ronald Lein:]

Good job.

[Craig Allen:]

Thank you.

[Operator:]

[Operator Instructions] And we have a question coming from the line of Michael Peterson with Peterson Wealth. Your line is now open,

[Michael Peterson:]

Yes, just had a quick question regarding, what are the terms of the new preferred as far a tolerability, is that five-year call on those?

[Chad Daffer:]

When you see our preferred stock Mike, is a – really we identified an opportunity here a few years back and just now started placing the preferred against to smaller amount. It’s a low cost capital over 3%, its non-dilutive, non-voting, it allows us to basically bring in six year money. There is right for [indiscernible] in year six and we anticipate and we are hopeful that we can move, not only some of the current investors, maybe some CRA investments through the first stock issuance. We also have a chance to remarket hat best position to one of our other clients. It’s a long answer to a 6 year report, look at is the short answer. Peterson? We look the 6 year money in 3% .

[Operator:]

And we have a question coming from the line of Private Investor, John Barn. Your line is now open.

[John Barn:]

Hi, gentlemen. Great quarter. I appreciate it. Substantial investor in ATAX and the appreciate the CAD, specifically on the CAD, I am just trying to get a little bit more color regarding the cash distribution versus CAD, is the goal to try to equalize the CAD and the cash distribution from operations and then sales of some of the assets like the augmentation there too or are the sales from some of the assets that actually is adding to CAD, is that a necessary component if you were able to equalize, I am just trying to gee a little bit of color on how you gentlemen think about CAD versus the cash available from distributions, especially America's business capital sales? Thank you.

[Chad Daffer:]

I think that’s a great question. We've been working towards having our reoccurrence CAD up over $0.50 distribution. I think back few years again we reduced the distribution to $0.50, it was with guidance of our board, we thought that $0.50 is going to be the retainable number long-term, once we completed the investment and leverage of current positions. I think if you look at our balance sheet the back of the envelope math that I think that everyone is probably doing at this time, as you go to our cash available for investment, you look at to our un-levered assets and you look at the un-funded, un-invested CRA preferred stock make some enormous functions on your top year leverage and what your [indiscernible] on the bonds that we're looking to invest, I think most folks would get to the same place if you are working towards covering a $0.50 this competition with the current cap. The real estate portfolio that we have this comes to us in two different ways, either we source it or we feel its for loan market and we can use it as a pipeline for future bond product and re-position, excuse me, re-position the capital structure and the ownership structure, we do that after an ongoing basis and we were also – and before we observe a [indiscernible] that proposed on those crunch current that we're currently repositioning. So we're going to look to try and cover our $0.50 distribution with reaffirming CAD based on our cash position our un-levered positions and then if the opportunity comes up in that portfolio to exit for the highest and best use, whether that’s business for sales or a restructuring of bond, bond transaction for future product, we'll make that decision when the point in time comes. Okay?

[John Barn:]

Okay. And then a quick follow up, are there any restrictions on the cash distribution with your underlying indebtedness with any of your lenders is there some of sort of covenant that you have baked in there?

[Chad Daffer:]

After long works. So that’s the first time we've ever had that question. After many of our vendors or for many of investors if I ever had that question or no, believe that to be the case.

[John Barn:]

Okay. Very good. Thank you and we appreciate the fine efforts and for the dividends it’s certainly a find investment right now. Thank you.

[Chad Daffer:]

Thank you.

[Operator:]

And at this time, I am showing no further questions or comments. So with that then, I'd like to thanks everyone for participating in American First Multifamily Investor LP’s, NASDAQ’s ticket symbol ATAX’s, third quarter 2016 earnings conference call. Everyone you may disconnect. Have a wonderful day.+