Greystone Housing Impact Investors LP (GHI) 2016 Q1 法說會逐字稿

Good morning. My name is Craig Allen. I'm the Chief Financial Officer of ATAX. I would like to welcome you to ATAX's First Quarter 2016 Earnings Presentation.

We'd like you to know, our presentation is being made pursuant to the Safe Harbor provisions contained in the Private Securities Litigation Reform Act of 1995. This presentation included certain non-GAAP financial information and a reconciliation of GAAP net income to cash available for distribution can be found as an appendix to this presentation.

All the financial information in our 10-K and 10-Qs is based on generally accepted accounting principles in the United States. Management also utilizes a calculation of cash available for distribution as a means to determine the Partnership's ability to make distributions to its unitholders.

Our agenda today will consist first of, a Company overview and execution of our strategy in the first quarter 2016, that will be presented by Chad Daffer, our Chief Executive Officer. Next, I'll come back up and discuss some of the highlights of our first quarter 2016 financial results and Chad will then come back up and present some closing remarks and then we'll head to a question-and-answer session.

At this time, I'd like to introduce ATAX's, Chief Executive Officer, Chad Daffer.

Thank you. Good morning, everybody. I appreciate everybody coming for our event this morning, and for those of you who are on the webcast, we're going to spend a few minutes here going through the first quarter of 2016, talk a little bit about our strategy and then we'll close with some statements, what we see going forward.

As you can see our history here, on our 30th birthday. We started off in May 6, 1986 under the America First Tax Exempt Mortgage Fund. Back in 1999, with the help of Mr. Cassidy, who is here in the room and joining us today, consolidated a couple of different funds to come to the nexus of the America First Tax Exempt Investors. And then we had a name change based on the difference of a little bit of our assets at the request of the SEC back in 2013. At that time we're about -- just over $0.5 billion in assets. We closed the first quarter just approaching $900 million.

As many of you know, the overview here of our Company. Our goal here is to -- this is one of 22 different funds that we've done of the eight of the America First platform, either public or private. This funds' goal is to have a tax-exempt distribution and participating in this multifamily housing asset class. Our business objectives are to preserve capital and provide a regular return and dividend on a tax-exempt basis.

As you can see there, we have a $0.50 distribution. Price at the end of the first quarter was $5.25. I think, it's trading today somewhere around $5.48, $5.50 with a yield of 9.50%. Of that, it's about 90-10 tax-exempts to non-taxable income. Outstanding shares, just over 60 million and our market cap is probably somewhere around $330 million today. This is our team. And the folks here in the audience, I'd like to recognize our team here. Andy Grier has been with the Company for I think probably 10 years or 11 years. He acts as our Treasurer, does a lot of the risk mitigation and we've been friends for 30 years, 35 years. Andy, if you can stand please?

Craig Allen you know, CFO. He's been with us for about a year. He has done a great job, setting up this event. We've enjoyed working with him for over the last 12 months. Neil Bo has been with us for almost 9 months. Neil, please stand. We've enjoyed working with Neil. He heads up our Preferred Stock Issuance and has been a real pleasure to work with. And then, Rob Schultz. Rob is going to head up our origination on the multifamily housing side. Been with us for a number of years, he does a great job at our Denver office.

Our strategy is always kind of evolving. I think, at the core we're opportunistic, always looking for ways to participate in the tax-exempt assets where we're going to have first mortgage debt. As our business model as you folks know, is pretty straightforward. We raise equity in the street, we buy bonds or real estate with the goal of converting it into a tax-exempt structure or buying a tax-exempt structure at origination, putting short-term leverage on it while we aggregate the bonds and then take it into a TEBS securitization and locking-in our spread on a long-term basis.

How we do that is it's always evolving. Markets change, regulations change, the risk that we look to mitigate from the time we raised the equity to the time we lock the spread on a long-term basis into our TEBS. We're working currently with our good friends at Freddie Mac, in helping us to try and see if we can shorten that timeframe, while we -- and really moving away from some of the aggregating facilities as possible and lowering the risk profile of our portfolios.

I think the one thing that's changed in the last year through the first quarter, we had an opportunity to close on our first preferred stock issuance. As many of you know, after TARP, the market for CRA credits and how the banks' need for delivery or receipt and indemnify their investments on CRA has changed dramatically. We always knew that we had an opportunity, that the CRA credit is inherent and underlying bond. It's considered the gold plate standard in providing that CRA credit to the banks. I struggled for a couple years trying to figure out a way that we could do this, place the credit. As I've shared with people before, the only good thing about getting old is knowing what you don't know.

Neil Bo joined us in September. And I think Neil, we had 60 days before we had a PPM on the street and we closed on our first tranche, in the first quarter of this year. It's an incredible liquidity event for the Platform. It's an opportunity for us to bring new investors, new capital to platform on a low-cost non-diluted basis. Non-diluting to our common shareholders, we priced the first tranche to a regional bank at 3%. That's lower than some of our debt products that we're currently using to provide leverage into our platform. So it's a great opportunity on a number of fronts to provide liquidity to our platform from their pipeline, which I'll talk about a little bit later.

Our goal is always to raise equity, provide liquidity to platform, get invested in the asset classes, the core asset classes. 2016 was about kind of scrubbing our balance sheet. As we moved through Volcker and Dodd-Frank a few years back as the regulatory environment for providing leverage was changing, it provided us some real challenges with how we can provide leverage on a short-term basis. At that time, as you folks may know, the alternative asset class that we used to put some money to work, we'd great leverage, so we moved into a mortgage-backed security position. We bought some commercial mortgages on a tax-exempt basis. The market has been very strong. We have an opportunity to redeploy that capital in a strong pipeline. And so, we've moved out of both those positions in the first quarter. We sold three positions in our mortgage-backed portfolio, and sold one of our commercial mortgages. So we continue to move forward on our goals of 2016 of scrubbing the balance sheet, returning to our core discipline as multifamily housing.

I talked a little bit about the CRA liquidity event. $10 million of non-cumulative, non-voting, non-convertible preferred. The benefits as I mentioned before, it's non-dilutive to our common shareholders. As many of you are shareholders and know that in the past, it's always a challenge to try and come to the market, provide equity to platforms through the issuance of common stock and not dilutive to shareholders in the process. This is an opportunity to bring this capital in non-dilutive to our common shareholders.

The quick math on that, we currently have a PPM offering to do up to $100 million of this. We have a number of banks that we're working with currently. Like we anticipate and hope to close another significant piece in the second quarter and the balance in the third quarter, giving us $100 million in proceeds with moderate leverage, that's $200 million capital amount that we can reinvest in our core discipline. Just kind of restating what I talked about as far as moving back into providing the capital to fund our pipeline.

In the first quarter, we've been working on -- as many of you know, we execute this off a full service real estate platform. We are active in the development, property management, asset management. We utilize -- when we do our underwriting, all the folks of that platform, we walk every unit, we walk into our own physical needs assessment, we do our own market analysis and it's been a great asset for us, and we're underwriting these going forward. We also try and manufacture yield in the marketplace, when the opportunities are presented to us, where we couldn't otherwise by the spread. We closed on one of our advantage products in Corpus Christi. We provided $9.6 million worth of equity into the new entity that's going to develop it. This will be 288-units of new construction. One of our fine partners down in Texas, this is the 24th or 25th project that they've done identical to this. Same developer, same general contractor, same property manager, same asset manager. We look to do more of this and manufacture yield where it is otherwise challenging to buy in the marketplace.

As we talked about scrubbing the balance sheet for 2016 as you know, one of our buckets investment is our real estate owned portfolio. Where the opportunity presents it, we'll go along, a simple piece of real estate, utilizing it and take it over for our property management company and then look to figure out what the highest and best use is and get our hands around the market, the operating numbers. Right now, we're currently working on -- the markets have been very strong as you all know. We think that there is a greater possibility that markets will stay flat or go down from where we're at right now, and we are evaluating options to either have a fee simple sale, where we think that the market is strong enough or perhaps is in the best execution for affordability and qualifying -- qualified residents. We'll look to go just to a fee simple sale. All these assets, we think have performed very well. Hopefully the market supports that and we'll have -- we'll build -- share with you some sales that will happen in the second and the third quarter.

At this time, I'd like to invite Craig back to talk about the financial performance of the Partnership during the first quarter. Thank you.

Thank you, Chad. Just to recap some significant transactions during the first quarter of 2016. As Chad mentioned, we did purchase one mortgage revenue bond, it's a 180-unit multifamily project in Lexington, South Carolina. We also sold a $9.5 million commercial mortgage revenue bond as well.

One of the major events happened in the first quarter of 2016, when we sold our remaining three positions in the mortgage-backed securities segment. We sold that for $15.1 million. And again, in an effort to continue to scrub the balance sheet and to fine-tune our strategy, we've eliminated the mortgage-backed securities segment from our balance sheet. In addition to that in the fourth quarter of 2015, we also eliminated the consolidated VIE segment as well too. As a result of these sales, we were able to pay debt down, we were able to terminate our MBS TOB or Tender Option Bond derivative hedging, that was about $11 million event. And we also paid in full and collapsed a TOB financing with Deutsche Bank for $20.3 million.

Another big event that we worked on in 2015 and again fit in with that fine tuning of the strategy and provided liquidity for us throughout the year and in the 2016 was our unsecured line of credit. We were able to increase access to this line, we increased that by $2.5 million during the quarter, provided liquidity for the core assets and the core investments that Chad spoke about. Also it enhanced our operating liquidity at the same time as well too. In addition to that, we consolidated some of our debt and we're able to pay off a $5 million operating line of credit. And at the end of the first quarter, we have a $7.5 million operating line that's still outstanding.

On this graph, I present this merely to show you where our revenue has come from on June 30, 2014 compared to where we ended on March 31, 2016. Quarter-over-quarter, March versus March, we increased about 19.2% in revenue. So a very positive effect from that fine tuning of our strategy, that scrubbing of our balance sheet and when we're realizing some of the effects and some of the positive impacts of the actions we've taken in 2015.

On this map, we show you the areas in yellow where we hold mortgage revenue bonds as of March 31. We were at about $508 million in mortgage revenue bonds in 2015. On March 31, 2016 we're in 14 states and almost $600 million in mortgage revenue bonds right now.

On this slide, mortgage revenue bonds to total assets. Going back to 2012 -- December 31, 2012, 35% of our mortgage revenue -- of our total assets were made up of mortgage revenue bonds, and obviously that's our core discipline, that's our core asset and that's how we earn our money. We've increased the 35.1% to 68.2%, so that demonstrates how we've been able to not only attract liquidity, but how we've been able to put liquidity to use this well too.

All of that leading up to, how did we do this quarter. We earned $0.10 of recurring CAD per unit for Q1 2016 versus $0.09 per unit in the same comparable quarter of 2015, that's an 11.1% increase. Again, very positive results, the efforts were -- it's the result of efforts that have been started 12 months to 18 months ago, that we're realizing now in 2016. Again, we've done that through the enhanced availability of low cost financing.

So we have various tiers of financing and liquidity that we have access to. At its very basic level we have unsecured debt and that's an unsecured line of credit. We have Tender Option Bond financing. We have our Series A redeemable preferred. We have our TEBS, our Freddie Mac TEBS. And then finally, we have our common equity that we've raised over the past as well too.

TEBS III facility, today we are fully invested and we're fully levered. At December 31 of 2014, our leverage ratio was about 59%. One year ago, March 31, we were at approximately 61% levered and today we're at about 64% levered. Our target is 65% leverage ratio, so we'd like to be right at about that level to maximize earnings and maximize the CAD.

And again, Mortgage Revenue Bond portfolio, you can see the increase in that and not only is there an increase in principal and an increase in investment, but we've been able to do that profitably. Again, we've been able to do that raising our CAD to $0.10 for the first quarter.

At this time, I'd like to turn it back over to Chad, who will offer some closing remarks before we head to question-and-answer. Thank you.

Thank you, Craig. Our pipeline remains strong and we've continued to grow our relationships with our developer borrower clients. There is no secret that we're under pressure from some of the [interesting] lending programs that are out there. I think from what we hear from our borrowers and our ability to continue to grow the relationships is that, our willingness to be flexible and provide optionality and structure that the other box lenders won't look to provide them. And I think we approach it as a partner and as being developers ourselves, I think we fully understand what our developer borrowers are looking for and I think that's the biggest reason that we continue to grow those relationships.

Right now, I think there's about $250 million in our pipeline that we're currently either underwriting, doing due diligence on, site visits, market studies, whatever the case might be, but we continue to see good growth in our pipeline and our ability to execute our strategy.

As I mentioned earlier, we're looking to close on the balance of the preferred stock of $90 million that is still outstanding. The quick math on that for you folks that are, kind of walking through it in your head, $100 million leverage one-time up to $200 million, 3% net spread, that's the kind of non-dilutive reoccurring revenue that this transaction will provide to us. So it's a very positive event for us and we're looking forward to closing the balance of the $90 million.

We talked about cleaning the balance sheet for 2016. Like I had mentioned, we have three assets that are performing very well. We think that there is nice gains on all three of those. Hopefully, we don't get surprised by the market when we take them to market, but we are looking forward to freeing up. I think going forward, we're going to be a little bit more aggressive on identifying where we have the positive gains and looking to try and add to our returns to our investors by selling with the premiums in the marketplace.

All these events [giving us ability] to work with our partners, the DB and Freddie, to provide leverage into our portfolio. Our reoccurring CAD as we showed today, continues to improve and we'll support that with selling of some of our fee simple assets as we go forward. Thank you.

So at this time, what we'd like to do is we'd like to take any questions that there might be. What we'd like to do first is take any questions from the audience. Once those questions are finished, we'll move to any questions that have been submitted by our webcast listeners. And then once those are finished, we'd like to take any questions from those listening on the telephone. So at this time, we'd be happy to open the floor up to questions.

Thank you. You mentioned the importance of the Series A preferred offerings. Should we expect, that the balance of the $90 million that you intend to issue will be executed over the balance of the year on a quarterly basis or lump sum type of a strategy.

Our goal is to deploy it, as we can deploy it. I mean that's the key. We don't want the money to be raised and then have it set. As we bring assets into the portfolio, we're going to try and do $30 million in a quarter, $30 million a quarter, officially deploy it, so then have leveraged immediately, so the money doesn't come in and set. So that's hopefully we can do, all of it in the balance of 2016 and have it deployed and levered before the new year.

Okay. So an asset that was near and dear to my heart, your San Diego student housing project. What are your plans for that in the next 6 months to 12 months?

For everybody that's not familiar with it, it's Lindo Paseo. It's a student housing project adjacent to the campus of San Diego state. It's 393 beds, it's what we would call a luxury dorm execution. We foreclosed on the original developer in August of 2014. We had invested in AA bonds at that time, $35 million. We purchased all the outstanding bonds in April of 2014 for $4 million and we currently are the owner-operator, we went from being a passive investor to an owner-operator on April 1 of 2014. Incredible asset. I mean, it's -- if you folks that have seen the pictures, it's an incredible asset. The challenges that we kind of identified when we underwrote the project back in December 2013, is the proof-of-concept on the units without the kitchens concern me. I've never done an asset like that. The operation of the Bistro, that provides these services was a new underwriting, that we'd never completed before. And then the property tax was still kind of being negotiated with county.

For that reason, we were very conservative in our investment. The loan-to-value appraisals at that time were somewhere north of $70 million. The current tax [of it eval] was $68 million and change. And so we own the asset for about $42 million. Our goal is to -- three things I just mentioned, proof-of-concept on Bistro, evidence that there is a market in this sub-market for units without kitchens and then address the property tax issue. I was out there last week, we're currently 90% occupied, we hired a full time operator to run the Bistro and we've got early indications from Counsel that our property tax will be reduced to $42 million. And so once we prove all the financial history and evidence to the buy side, we'll look to take it back to the market.

It's not a long-term asset for us. To give you a quick economics on that trade, as we have $42 million of unlevered assets on the balance sheet. We redeploy that. We've had offers at $52 million. They haven't closed for different reasons. We think the replacement value is $53 million, $54 million. I won't sell it below replacement cost. And so, there should be some nice gains once we can prove the three things we're working on in the next six months to 12 months. It's a great asset. We just need to get it redeployed into -- with an asset that we can leverage, and get the earnings up on it. Next question please?

Seeing no other questions from the live audience, do we have any questions from our webcast viewers?

Yes. We have one question from the webcast that is, the dividend is currently $0.50 per share, the CAD is less than that, how safe is the dividend?

We've had no discussions with our Board or any guidance given to us of any reduction in the dividend. We are confident that we can grow the reoccurring earnings to where we can support the $0.50 dividend. Hence we're going from [9 to 10] as we've been gradually bringing our leverage back up over the last three years. And when we get fully deployed, we are optimistic in our ability to cover the $0.50 distribution on an ongoing basis. But there's been no discussions, with our Board or anybody else about reducing the dividend.

Another question by the web. What is the interest rate on the preferred 3% question?

The 3% is the coupon on the preferred that is paid to the investor that purchased the preferred stock. Very low cost of capital. That for the two reasons I mentioned, that's non-dilutive and low cost of capital. It's a great trade for the platform that's providing us new investors and new capital for reinvestment. Next question, Andy?

There being no further questions from our webcast viewers. Are there any questions from our telephone viewers at this time?

(Operator Instructions) And I am showing no further questions.

I'd like to thank everybody for joining us today. This has been a real treat and a lot of fun. Thank you for your questions and your support of our Company. Thank you.

Have a great day.