Greystone Housing Impact Investors LP (GHI) 2016 Q3 法說會逐字稿

At this time, I would like to welcome everyone to America First Multifamily Investor L.P.'s NASDAQ ticker symbol ATAX, 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 the 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.

Thank you. Welcome to the ATAX 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 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, and other similar terms.

You are cautioned that these forward-looking statements speak only as of today's date. Changes in economics, 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 Regulation 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 would now like to pass the call over to Chad Daffer, ATAX's CEO.

Thank you, good afternoon. I would like to thank you for your interest in ATAX. I'd like to talk to you this afternoon about management's efforts in third quarter related to access the capital, risk management and portfolio activity. And I'll turn back to Craig to discuss the results for the third quarter and we would like to listen it up to questions.

First I would like to talk to you about the ATAX preferred stock offering, I think we shared with you a year ago. We've offered $100 million of the preferred from ATAX. As of the close of the third quarter, we placed $35 million of that $100 million with institutional investors under the (inaudible) with the balance of the $65 million to be closed in the months to come. This provides some excellent low-cost of capital non-voting, non-dilutive and raised capital source for reinvesting in the ATAX platform. As it relates to risk litigation, as you know we leverage into the portfolio through the use of TEBS or TOB financing.

Today, we have completed three variable rate financings using Tax-Exempt Bond Securitization program at Freddie Mac. We utilized the mitigation of that risk through the purchase of caps and mitigating rising interest rate environment and also the future cost, high cost of leverage.

As you know, over the last couple of three months, we have seen a spike in the short-term interest rates or SIFMA. This is a concern of ours. We identified this concern as much as three years ago really setting two goals for us to work towards mitigating or (inaudible) in the short-term end of the curve. We have sorted the best time to identify the caps that we had purchased on our three variable rate financings. We have done our first financing at a 3% cap. At that time, we have rolled down to a 1.5% cap. And we are currently evaluating the options on both the two other outstanding 3% caps looking for the opportune time to purchase lower caps break point somewhere in the 1% to probably 1.5% range relating to executing (inaudible).

The other effort that we have started couple of years ago was that we knew that we would like to try and execute a fixed rate financing. In the third quarter, we financed $150 million approximately of our bonds and made up 12 bonds. We executed a 10-year fixed rate plan to finance with one of our friends in the street, locking in very attractive leverage returns with no mark-to-market. This is a great financing force that was a cutting edging execution. We'll look forward to mitigating interest rate risk going forward having fixed rate financings and we feel it's appropriate. The last item I want to talk to you about is very important transaction. This transaction was a property that we foreclosed on back in 2013. I share this transaction with you because it was one of four properties that we foreclosed on post credit crunch. We identified that there was covenant default on the performance of (technical difficulty). We enforced our rights (inaudible) bond documents removing them, we deployed our folks to complete construction and also stabilize the property. In doing that, we planned land use restriction agreement knowing that we were at some point in the near future, will be looking to exit the asset for a number of the different reasons. So we are looking to try a position it for sale. In September, we closed on the sale once it was presumed to 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 multi-family analysis to the benefits of our investors. With that, I would like to turn it back over to Craig Allen to have him talk about the third quarter results. Craig?

Thank you, Chad. What I'd like to do is take you through a few of the 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 you about a little bit.

So first, what I'd like to do is, cover briefly our equity and investment or investment in equity. Back in the Q1 of 2016, we talked to you about an investment of a product we referred to as the vantage product. 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've talked to you about in the past. One is a $50 million unsecured line of credit that we used 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 2016.

Revenue for the quarter was $13.2 million versus $12.9 million for the same three months, September in 2015 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 a 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 further into the presentation.

One of our segments that we talked about in the past and Chad referred to, when you spoke about Woodland Park is our MF Properties or a multifamily 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 of where we've come from and where we are today, our total assets have increased from December 31 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 the fund invests 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 2012, only 35% of our total assets were comprised of mortgage revenue bonds. Where, at September 30 that percentages increased to 16%, 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 a tax 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 of 2016 and 2015 remained flat at $0.09 per unit for each of the quarters. On a year-to-date basis though, we are up 17.6% in CAD. We reported $0.34 per unit in the year-to-date 2015 versus $0.40 per unit as of Q3 2016 for the nine months ended.

Some of the factors are 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 of course for us. We always analyze the highest and best use. Included in that analysis though is, is it time to sell a property or is it not? And again, MF Property sales have been a positive additive to CAD.

Another additive or another positive, Chad has touch on a little bit and that's our low cost non-dilutive financing. Again, our Series A preferred stock, our 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 a byproduct of everything that we have talked up 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 Certificate or a common unit, repurchase program. At that time, the Board authorized the repurchase of 272,307 units in the open markets. 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 September 26 of 2016, restricted unit awards. So as part of our 2015 equity incentive plan approved by our BUC holders in September of 2015, these units were awarded, all 238,936 units. These units have a vesting schedule of anywhere from three months to three years and our time based awards.

These restricted unit awards are non-dilutive to the common BUC holders because again they were open market purchases and therefore no additional units were issued above those that we've had outstanding up to this point.

They align management's interests and the interest of the board with the performance of the ATAX and ultimately for the benefit of the BUC holders. They allow management and the Board to attract key personnel, retain those who impact ATAX's ultimate value and they reward for performance. Also they provide for greater insider ownership of ATAX and encourage through the vesting schedule longevity of management in the Board as well too.

With that I'd like to turn this back now to Chad for some closing remarks.

Thank you, Craig. As we look towards the year again I think we're fortunate to have developed very good relationships with the foreign community and (inaudible) partners, pipeline remains very strong as we go through the balance of 2016 and into 2017. I think by evidence of our efforts with the CRA, also we terminated this structure. Our access to capital and our partners, our partners in the street. I think we are in a better position now in order to raise good low-cost capital through ATAX platform. I'm optimistic about the fourth quarter of 2016 and we look forward to start focusing on our efforts for 2017. We'd like to hope this has been a helpful journey from folks on how we approach our business and servicing you and the investment in ATAX.

At this time, I'd like to answer your questions we may have not touched on. Thank you.

(Operator Instructions) Ronald Lane, Value Forum.

Hello, fellows. Good job. Calling from home, I hope you can hear me. We have a lot of Value Forum people who are shareholders in the ATAX listening in. I have a question regarding CAD, Cash Available for Distribution, plus 17.6% to the $0.34 applies to the first three quarters of this year compared to the first three quarters of last year. Am I right on that?

Yes. That's correct.

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

Yes, it would have been about -- let's say [06/30/16], it would have been about $0.15 to $0.16. We ended slightly over $0.50 on a year-to-date basis.

Yes, I remember you went over $0.50, so you went about $0.15 or $0.16?

Yes. We get -- I'm sorry ahead.

Just other question, I think I know the answer, but a lot of folks don't. If there is a shortfall of CAD, is that the numbers made up on your K1, on the return of capital side?

Yes. If there happens to be a shortfall, then it would be considered on the K1 to be a return of capital.

That's all I have. Thank you.

Thank you.

Good job.

Thank you.

(Operator Instructions) Michael Peterson, Peterson Wealth.

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

First off, Mike, the only -- we identified an opportunity here a few years back, just now started placing (technical difficulty). It's a low-cost capital at 3%, it's non-dilutive, non-voting, it allows us to basically bring in sixth year money, there is a right for flip in year six and we anticipate and hopeful that we can not only serve the current investor, maybe some more CRA investments through the preferred stock issuance, but also have a chance to [remodel] that position to one of our other clients. It's a long answer to a six-year [put] versus a short answer, Peterson. We look at the six-year money and the 3% like.

Private Investor, [John Won].

Hi, gentlemen, great quarter, appreciate it. Substantial investor in ATAX and appreciate the CAD. And specifically on the CAD, I'm 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 distributions from operations, and then sales of some of the assets might be augmentation there too, or are the sales from some of the assets that actually is adding to CAD, is that a necessary component to be able to equalize? I'm just trying to get a little bit color on how you gentlemen think about CAD versus the cash available for distributions, especially operations versus capital sales? Thank you.

I think that's a great question. We've been working towards having our reoccurring CADs out of the $0.50 distribution, I think five years ago, we've reduced the distribution to $0.50. With the guidance of our Board we thought that $0.50 is going to be an attainable number long term once we completed the investment and leverage of the current positions.

I think if you look at our balance sheet, the back of the envelope math that I think everyone is probably doing at this time is to see what's our cash available for investment, you look at our unlevered assets and you look at the unfunded, uninvested CRA preferred stock, make some of your own assumptions on your last year leverage and what your coupon looks like on the bonds if we are looking to invest. I think most folks will get to the same place that we are working towards covering our $0.50 distribution with current cap.

The real estate portfolio that we have comes to us in two different ways, either we source it or we feel it's below market and we can use it as a pipeline for future bond product and reposition the capital structure and the ownership structure. We do that effort on an ongoing basis. And we also have - before I talked about that we proposed on those credit crunch that we are currently repositioning. So, we're going to look to try and cover our $0.50 distribution with reoccurring cash based on our cash position, our unlevered positions. And then as the opportunity comes out for unmet portfolio to exit in the highest best use whether it's a [piece on] for sale or restructuring on bond transaction for future product, we will make a decision the point in time when time comes.

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

Not the number (technical difficulty) Nor from any of our lenders or from any of our investors I have ever had that question. I don't believe that to be the case.

Okay, very good. Thank you and we appreciate the fine efforts, and the dividends, it certainly a fine investment right now. Thank you.

Thank you.

And at this time, I'm showing no further questions or comments. So with that said, I'd like to thank everyone for participating in America First Multifamily Investors L.P., NASDAQ ticker symbol ATAX, third quarter 2016 earnings conference call. Everyone, you may now disconnect. Have a wonderful day.