America First Multifamily Investors, L.P. (ATAX) CEO Chad Daffer on Q2 2019 Results - Earnings Call Transcript

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America First Multifamily Investors, L.P. (NASDAQ:ATAX) Q2 2019 Results Earnings Conference Call August 5, 2019 4:30 PM ET

Company Participants

Chad Daffer - CEO

Craig Allen - CFO


Hello and I would like to welcome everyone to America First Multifamily Investors, L.P. NASDAQ's ticker symbol ATAX Second Quarter of 2019 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. After management presents its overview of Q2 2019, you will be invited to participate in a question-and-answer session. As a reminder, this conference call is being recorded.

On behalf of ATAX and its management team, thank you and welcome to ATAX second quarter of 2019 earnings conference call. During this conference call, comments made regarding ATAX, which are not historical facts, are forward-looking statements and are subject to risks and uncertainties that could cause the actual future events or 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, intend, focus 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 ATAX 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 ATAX business, please review the periodic reports and other documents filed from time-to-time by ATAX with the Securities and Exchange Commission. Internal projections and beliefs upon which ATAX base its expectations may change, if they do, you will not necessarily be informed.

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 Regulation FD and encourage you to take full advantage of the question-and-answer session.

Thank you for your participation and interest in ATAX. I would now like to turn the conference call over to Chad Daffer, Chief Executive Officer of ATAX.

Chad Daffer

Thank you. Good afternoon, and welcome to the second quarter of 2019 ATAX earnings call. This afternoon, I'd like to share my thoughts on the economy, interest rates, and a few notable transactions. Then Craig Allen, ATAX CFO, will present the partnership second financial results. At the end, we look forward to taking your questions.

Economic data remained positive for the second quarter. Labor markets continued to perform well with the unemployment rate at historically low levels. Economic expansion continues to be driven by strong household spending with business spending starting to show some weakness given the growing concerns over U.S. trade policy and the threat of slower global growth.

Inflation continued to trend at the Federal Open Market Committee target of 2%. Given this data, the [FMOC] lowered the Fed funds rate for the first time since of December of 2008 by 25 basis points, citing uncertainty with global trade and weakness in the global economy. This new cycle rate cut was supportive of the committee's goals for maximum employment and price stability.

The U.S. Treasury markets experienced a significant downward move in rates since the start of the first quarter. The two-year treasury opened the quarter at a yield of 2.33%, moving down by 72 basis points to a yield of 1.61%. With the 10-year treasury opening this quarter at 2.49%, moving down 72 basis points as well to 1.77%, maintaining the two-tenths spread consistently of 16 basis points.

The flattening of the yield curve allowed the partnership to extend maturities and convert from variable rate mode to fixed rate mode leveraged on the mortgage -- on the revenue bond portfolio, from 38% variable rate and 62% fixed rate on January 1 of this year to the current level of 26% variable rate and 74% fixed rate as of this call. This continued follow through of the strategy defined set a motion in the fall of 2016, mitigating the exposure of the partnership’s portfolio, the volatility in variable interest rate cycles.

At this time, I'd like to turn over the call to Craig Allen, ATAX CFO for presentation of the second quarter 2019 partnership financial performance. Craig?

Craig Allen

Thank you, Chad. I'd like to walk you through the second quarter and point out a few highlights. It's been an exciting quarter for us. Chad has touched upon a few of the exciting events of the quarter. But I'll give a little bit more details into those and give you some idea how that benefits you as a unitholder.

Our total assets at June 30, 2019 were $1 billion. Looking back when we started our effort of fine tuning the balance sheet back on January 1st of 2015, our total assets were approximately $740 million. Since January 1st of 2015, we've increased total assets by about 35.3% to the present $1 billion. At June 30, 2019, our mortgage revenue bonds-to-total assets remains constant at about 75%. Back in December of 2012, just as a proxy to that number, we were at 35.1% of total mortgage revenue bonds-to-assets.

At June 30th, we had mortgage revenue bonds that we've invested-in in approximately 13 states comprised of 72 mortgage revenue bonds, and about 10,337 units, making up those mortgage revenue bonds. Mortgage revenue bond purchases during the quarter, we had two bonds that we purchased for a total of about $13.2 million and on a year-to-date basis thus far four mortgage revenue bonds purchased about $19.3 million in total.

Another aspect of the balance sheet that we look at each quarter are MF properties or properties or real estate that we own as a fund. At the end of June, we remain unchanged with two MF properties, one located in California The Suites on for sale, which is a student housing project, multifamily project and then we have another located in Lincoln, Nebraska, the 50/50. We have approximately $63 million to $64 million of total MF properties and that represents about 859 units.

Each quarter we talk about our investment in unconsolidated entities or also referred to in previous quarters as our advantage investments. At June 30, 2019 we've invested approximately $96.8 million in our Vantage assets representing about 2,886 units that is comprised of 10 projects, four of which are located in the State of Texas, two in the State of Nebraska, two in the State of Tennessee, one located in South Carolina and one located in Florida.

One of the significant transactions that we had occur in Q2 of this year was a new investment banking relationship with Morgan Stanley.

In May of this year, we engaged or executed a term Tender Option Bond or TOB debt financing with Morgan Stanley and they became the second investment bank in which ATAX has the ability to do debt financing, thus increasing our liquidity options as well. The total amount of the Tender Option Bond financing was approximately $13.2 million and finance or leveraged the Village at Avalon mortgage revenue bonds.

In June of 2019 as Chad mentioned our fixed rate debt financing was approximately 63.8% versus 36.2% variable rate financing. If we go back to 2015, the ratios were inversed where we had 31.8% of our debt financing that was fixed and 68.2% of our debt financing that was variable in nature.

We had a few subsequent events of note that I'd like to talk you a little bit about. The first is the extension of our lines of credit. We have two lines of credit right now with Bankers Trust out of Des Moines, Iowa. The first -- and we have this relationship since May of 2015 and they provide ATAX with two sources of liquidity. The first is an acquisition line of credit and that is an unsecured acquisition line in the amount of $50 million.

We've extended that maturity out through June of 2021. Again, we’ve been repricing and amending since 2015. We've issued an 8-K with relationship to the extension of the line of credit. And the use of this acquisition line of credit is, it provides us a short-term source of funding for our mortgage revenue bonds. In addition, we also extended the maturity to June of 2021 for our operating line of credit with Bankers Trust in the amount of $10 million.

The next subsequent event was a new debt financing option that we have with Mizuho Bank. So, Mizuho is an investment bank that we also entered into a Tender Option Bond debt financing within July. And it is the third investment bank that provides us now debt financing and provides us greater liquidity options than in the previous quarter. We financed two mortgage revenue bonds during the quarter in July with Mizuho in the amount of approximately $25.8 million and we financed the South Pointe and [Rose] with mortgage revenue bonds.

In addition, we refinanced two TEBS debt financings with Freddie Mac, M24 and M33 TEBS financing. We converted M24 and M33 from variable rate to fixed rate. And we extended the maturity date on M24 from -- to May of 2027 from August of 2019. So, we extended our maturities by about 7 -- 7.3 years. And on M33, we extended from July 2022 to September of 2030. And therefore, we extended the majority about 9.4 years. This represents about $72.3 million of debt financing and this occurred in July of 2019.

In addition, we also extended for five years our M31 variable rate debt financing with Freddie Mac. And again, this was a TEBS financing, we extended did this in June of 2019. We had a unilateral right to extend this from its origination date of July of 2014. So now we've extended approximately $80.2 million worth of debt financing on M31 to 2024.

So Chad touched upon this a little bit, but I thought it was important enough that I restate what he had mentioned. And that is, at June 30, 2019 approximately 64% of our debt was fixed rate and 36% to 36.2% was variable rate debt. And July 31st, 74% of our debt is now fixed rate and 26% is now variable rate. As opportunities present themselves into the future, we will continue to look at opportunities for diversification of our investment banking relationships, as well as opportunities to finance on a fixed versus a variable rate basis.

Each quarter we talk about our interest rate sensitivity as well, and on page 54 of our Q2 10-Q we show you our interest rate sensitivity table. We always take a look at what would happen if interest rates were to increase 200 basis points. This quarter is no exception. And if interest rates were to increase by 200 basis points, all simultaneously and we did nothing to react to that increase over a 12-month period, our net interest income decrease by about $1.7 million or about $0.028 of CAD. We still find this within the acceptable limits, because this reflects the maturity of some of our interest rate caps that will occur in August of 2019. And again, for purposes of this analysis and this sensitivity, it assumes that we do nothing in response to that.

Total revenue for the quarter was $14.3 million, and on a year-to-date basis, $32 million flat on a comparable basis in 2018. Our total income per unit for Q2 was $0.05 per BUC, compared to $0.04 per BUC for the quarter ended June of last year 2018. On a year-to-date basis, 2019 and 2018 were the same at $0.13 per BUC.

Our cash available for distribution, which we report every quarter to you, for Q2 of 2019, our CAD per unit or per BUC was $0.08 versus $0.09 for the quarter ended June of 2018. On a year-to-date basis, 2019 and 2018, our CAD per BUC was $0.19 in each of the first six months of '19 and in 2018.

And finally, each quarter we tell you what our book value was per unit. And at the end of June of 2019, our net book value was $5.30 per BUC, compared to $5.03 per unit at 12/31 of ‘18.

With that, we'd be happy to take any questions that you might have at this time.

Question-and-Answer Session


Chad Daffer

We'd like to thank you all for your support of ATAX. We look forward to speaking with you next call. Thank you.


Ladies and gentlemen, thank you for your participation in today's conference. That does conclude the program. You may all disconnect. Good day.

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