Greystone Housing Impact Investors LP (GHI) 2020 Q1 法說會逐字稿

Hello, everyone. My name is Jeff, and I will be your conference operator today. At this time, I would like to welcome everyone to America First Multifamily Investors, L.P.'s, NASDAQ ticker symbol ATAX, First Quarter of 2020 Earnings Conference Call. (Operator Instructions)

As a reminder, this conference call is being recorded on behalf of ATAX and its management team.

Thank you, and welcome to ATAX First Quarter of 2020 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, including the impact of the COVID-19 pandemic, could cause ATAX' actual results to differ materially from those expressed or implied by a projection 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. External projections and beliefs upon which ATAX bases its expectation may change, but if true, 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 call over to Chad Daffer, Chief Executive Officer of ATAX.

Thank you, Jeff. Thank you all for joining the first quarter ATAX earnings call. Today on the call with me is Ken Rogozinski, ATAX' Chief Investment Officer. Ken will share his views on the market. And Jesse Coury, ATAX' Chief Financial Officer, will report on the first quarter financial results. Then we all look forward to taking your call -- questions at the end of the call.

In March of 2020, COVID-19 manifested into a financial crisis, with sheltering-in-place orders shutting down the U.S. economy overnight, putting over 30 million Americans out of work and filing for unemployment benefits, fracturing the debt markets while causing historical volatility in the equity markets.

With the depth and duration of the pandemic and its damage to our economy is still unknown, at this time of uncertainty, I'd like to share with you a few things that I do know. Our team is healthy, safe and thriving while working from home. Our partners are open for business. ATAX has access to capital markets for both debt and equity as needed. As of 3/31, all mortgage revenue bonds are current on debt service. The partnership has no request at this time for forbearance. All new construction sites are open with no supply chain disruptions for building materials. Our team is committed to navigating the uncertain times in the best interest of our unitholders.

At this time, I would like to turn it over to Ken Rogozinski, ATAX' Chief Investment Officer.

Thank you, Chad. I'm pleased to be participating today, albeit from my dining room here at home.

The first quarter of 2020 was a tale of 2 markets for municipal bonds. January and February continued the positive momentum from 2019, with fund inflows remaining positive and interest rates staying near historic lows. As the economic impact of the COVID-19 pandemic started to hit the U.S. in March, the broader financial markets began to turn. Municipal bonds were included in that turn.

For the 2 weeks ended March 26, 2020, investors withdrew almost $26 billion from municipal bond mutual funds, according to Refinitiv Lipper data, an unprecedented level of redemption activity. Those large-scale mutual fund redemption requests from shareholders triggered a short-term liquidity crunch in the municipal bond market. Mutual fund sponsors sold what they could, largely variable rate demand bonds supported by liquidity facilities, which caused a spike in short-term muni bond rates to levels not seen since the financial crisis in 2008. In addition, the lack of buyers for longer-term bonds in the face of this wave of mutual funds selling caused high-grade municipal bond yields to gap almost 200 basis points during a 9-trading day period.

While we saw significant daily price volatility in our longer-duration investments due to this unprecedented move and higher run rates, we were able to meet all obligations related to our leverage facilities. The new programs rolled out by the Federal Reserve Bank restored a level of liquidity to the muni bond marketplace. And by the beginning of April, a sense of equilibrium had returned to the marketplace, with both short-term and longer-term interest rates reverting to more normalized levels, with approximately 75% of that gap higher in long-term high-grade bond yields being retraced. That level of normalization was evidenced by our successful closing of the new bond financing facility with Mizuho Capital Markets at the end of April.

Going forward, we'll continue to monitor our existing investment portfolio for the potential impact of changes in the economy caused by the COVID-19 pandemic. While we have not received any forbearance request to date from our MRB borrowers, we are developing plans for ways to potentially assist sponsors who are experiencing hardship at their projects. We will also look to strategically work with our strongest sponsors on new investment opportunities where traditional sources of capital may not currently be available.

With that, I'll turn things over to Jesse Coury, our CFO, to discuss the financial data for the first quarter of 2020.

Thank you, Ken. I'll start by highlighting some key metrics from ATAX' balance sheet. As of March 31, 2020, ATAX reported approximately $978 million in total assets, which is down slightly from approximately $1.03 billion as of December 31, 2019, but consistent with total assets reported as of December 31, 2018.

As of March 31, 2020, ATAX' mortgage revenue bonds totaled approximately $774 million or 78% of total assets. This percentage is up from approximately 75% as of December 31, 2019. ATAX currently owns 75 mortgage revenue bonds across 13 states, ranging from California and Washington on the West Coast to North Carolina and South Carolina on the East Coast. We hold significant amounts of mortgage revenue bonds related to properties located in Texas, California and South Carolina. On a fair value basis, approximately 44% of our mortgage revenue bonds are related to properties in Texas, with California and South Carolina representing approximately 18% and 17%, respectively. ATAX works primarily with developers to acquire mortgage revenue bonds, and the current portfolio consists of transactions with 18 different developers. As Chad mentioned previously, as of March 31, 2020, all of ATAX' mortgage revenue bonds were current on contractual debt service payments.

At March 31, we owned 2 MF Properties, consisting of 859 rental units and a total net carrying value of approximately $61 million. Both MF Properties serve primarily college students, with suites on Paseo in San Diego, California being adjacent to San Diego State University and the 50/50 in Lincoln, Nebraska being adjacent to the University of Nebraska-Lincoln.

As of March 31, we had investments in unconsolidated entities, commonly referred to as our Vantage equity investments, related to 10 multifamily market rate projects. ATAX' carrying value of these investments was approximately $98.6 million at March 31. These projects represent, in the aggregate, approximately 2,900 rental units. Of the 10 projects, 5 are located in Texas, 2 in Nebraska, 2 in Tennessee and 1 in South Carolina. This list includes ATAX' newest investment that closed in January 2020 for the construction of Vantage at Westover Hills, a 288-unit project in San Antonio, Texas. This project represents ATAX' 15th Vantage investment since 2015.

During the first quarter of 2020, ATAX made direct equity investments in 3 Vantage projects totaling approximately $10.3 million. For each Vantage project, ATAX commits to fund a certain amount of equity during the construction phase. As of March 31, 2020, ATAX had remaining equity funding commitments totaling approximately $2.5 million. As a reminder, to date, 5 of ATAX' Vantage investments have been sold or redeemed, resulting in total gains on sale and contingent interest of approximately $27 million, providing the proof-of-concept of the Vantage investment strategy initiated in 2015.

In January 2020, ATAX sold its 3 Public Housing Capital Fund Trust certificates, commonly referred to as PHC certificates in our filings. The PHC certificates were rated tax-exempt investments acquired by ATAX in 2012. The PHC certificates were sold for -- at par value, which approximated $43.3 million. Upon sale, the debt financing facilities associated with the PHC certificates were collapsed and paid in full.

Switching to the liability side of ATAX' balance sheet. ATAX' debt financing associated with its mortgage revenue bonds totaled approximately $503 million as of March 31. Of this amount, approximately 71% have fixed interest rates and 29% have variable interest rates. For comparison, as of December 31, 2015, ATAX' debt financing was only 32% fixed versus 68% variable. So the ratio has almost flipped, insulating ATAX from potentially rising interest rates.

There were a few subsequent events I would like to point out related to debt financing facilities. In April 2020, ATAX terminated all its debt financing arrangements with Deutsche Bank totaling approximately $51.8 million. These debt financings had fixed interest rates ranging from 4% to 4.5%. In conjunction with these terminations, ATAX terminated its master trust agreement with Deutsche Bank and is no longer subject to the related financial and nonfinancial covenants, giving ATAX more flexibility in managing its liquidity and overall debt portfolio.

Concurrently with the Deutsche Bank terminations, and as Ken previously mentioned, ATAX entered into 5 new tender option bond or TOB Trust financing arrangements with Mizuho Capital Markets. These TOB Trusts have initial principal totaling $55.4 million and variable interest rates that at closing were approximately 2.1% or approximately 190 to 240 basis points lower than the previous Deutsche Bank debt financings. These replacement TOB Trust provided some additional liquidity to ATAX and offer a lower cost of leverage. The ability of ATAX to close these transactions in the face of current market uncertainty due to COVID-19 is a strong indicator of ATAX' ability to access capital markets.

During the first quarter of 2020, ATAX refinanced both of its mortgages associated with the 50/50 MF Property with principal totaling approximately $26.7 million. The mortgage loan, which is the majority of the balance, had its maturity date extended for 7 years to 2027, and the interest rate was lowered from a variable rate of 4.75% to a fixed rate of 4.35%. The TIF loan maturity was extended 5 years to 2025, and the fixed interest rate was reduced from 4.65% to 4.4%. Both refinancings are positive events for ATAX and that they provide long-term fixed rate financing at a lower cost of debt than in past periods.

We regularly monitor our exposure to potential increases in interest rates through our interest rate sensitivity analysis, which we report quarterly and is included on Page 53 of our Q1 2020 Form 10-Q. The interest rate sensitivity table shows the impact to ATAX' net interest income given various scenarios of changes in market interest rates. These scenarios assume that there is an immediate rise in interest rates and that ATAX does nothing in response for 12 months. The analysis shows that an immediate 200 basis point increase in rates that is sustained for a 12-month period will result in a decrease of approximately $3.1 million in ATAX' net interest income and cash available for distribution, commonly referred to as CAD. This decrease is approximately $0.051 per beneficial unit certificate or BUC.

For the first quarter of 2020, ATAX reported total revenues of approximately $13.7 million, net income per beneficial unit certificate, or BUC, basic and diluted of $0.04 per BUC and cash available for distribution of $0.05 per BUC. Lastly, we regularly provide our net book value per beneficial unit certificate, which as of March 31 was $5.38 per BUC. This is down approximately 4% from our net book value per BUC of $5.61 at December 31, 2019. Our $5.38 net book value per BUC as of March 31 was slightly above the closing market price of our BUCs on the NASDAQ on March 31, which was $5.24 per BUC.

With that, Chad, Ken and I are happy to take questions from the audience.

Operator, do we have any questions from the callers at this time?

As of the moment, we don't have any question. (Operator Instructions) We have one question from the line of Jason Stewart.

My question really, big picture, relates to the fact that there's not a lot of historical comparison for what we're going through today. But if you could provide us some color or benchmark for us to follow in the evolution of credit in the space, knowing that we're at the beginning of what could be a very short or long cycle and perhaps nobody knows.

Jason, thank you for joining us. I think you're accurate in your statement that there really is nothing that we've experienced in our -- this career of managing the portfolios and the partnership. I think we were pretty much in line with what other folks had seen in the commercial real estate market for the first quarter. I think our press release here the other day signaled evidence of 94% collections. I think if you would look at the other types of commercial mortgage real estate funds and/or REITs, the affordable sector is outperforming, I think, for the most part, other commercial real estate sectors. I think, as I mentioned early on, the depth and duration of the effects of COVID are still to be determined. And I think the uncertainty has created the volatility in the marketplace. And our job here is to monitor the effects of the portfolio, share that with the investors, so we're totally transparent. And we fully disclosed and then gave guidance on how we're going to manage the partnership going forward. I know of no other comp historically of this type of magnitude to try and figure out what, if any, our losses and collections over the next 2, 3, 4, 5 months are going to happen. I think we all know and can see what the unemployment numbers are, but the thing that you can't define yet is the collateral damages to the small businesses and job losses. I think that will really start to be evidenced here at the end of July when some of the PPP money runs out and people start making hard decisions about returning to work and opening up these businesses. So I wish I could give you better guidance if I had it, and I would do that. But at this time, I think it's to be determined.

I appreciate that. I think that's fair. And then on the mortgage revenue bond business, maybe it's been fairly well documented, there's been some pretty substantial asset yield compression. I'm wondering if as we went through the market disruption in March, if it's changed that? And if you could give us sort of an update on what pro forma ROEs look like there if asset yields have followed funding costs down or if there's been a little bit of net benefit there.

We've had a steepening of the curve, obviously, which gives us a little bit of advantage to capture some net spread. But the agency market and the CRA market has not really expanded. Credit spreads have not expanded to that amount where it's noticeable. We had a disruption in the second week of March, but things kind of came back with the infusion of capital from the Fed. The markets kind of stabilized and came back quicker than I think a lot of people would anticipate that were participating in the marketplace. So right now, I think the market on some form of nonrated private placement is plus or minus to a 4 to 4.25. I think on the agency financings, you would see execution somewhere in the high 3s, and CRA execution in the affordable housing space is on a project-by-project basis on how bad that bag needs to put the position on. So we kind of snapped out, but I think we're kind of back to pre-COVID type of early March type of levels, Jason, at least that's the read on the market for my chair.

Okay. That's helpful. I appreciate that. And then one more for me. On the Vantage business, has this turmoil changed your view of putting shovels into the ground, extended time lines, lease-ups, exit strategies, anything more than the -- any more color you could provide there on the Vantage projects?

It definitely has. We've been fortunate enough to have a great partner in the Vantage team. They understand that it's tough in these environments for us to really underwrite. We can underwrite everything but time. And the time that these folks will come back to the marketplace, we'll have recovery of the consumer, stabilization of these new assets and/or lease-up for the ones that we currently are in lease-up, is an unknown. And in order for us to add the risk to the portfolio of additional positions, we need to make sure that we have a clear understanding of what we have today and then look forward of adding to it at some point in the near future. So through the first and second quarter, we've put a pause button on new Vantage originations after we closed on Westover Hills here in January. The pipeline is strong. The business fundamentals have not changed. As I shared with you, we have had no supply chain disruptions or any type of closing down of sites. So we're ready to get back to work and pursue some of the opportunities here are on the table. But I think until anybody can really have a clear picture of velocity of lease-up and rental growth and being able to target and have reasonable assumptions on our yield expectations, the Vantage business is on a near-term hold. We stand ready to go here with a great pipeline as soon as we get some clarity in the marketplace.

And next question, from the line of Patrick Marsh.

One question I had is -- I joined a little bit late because I think a lot of people were trying to join. Did you touch on any of your -- the Freddie Mac and sort of the exposure levels? And in general, sort of how the partnership looks at its sort of risks and the roles of some of the Freddie paper you have?

No. That's a great question, Patrick. Ken, you did mention a little bit about forbearance. Do you want to answer Patrick's question, please?

Sure. Happy to do that. Patrick, nice to hear from you again. On the forbearance front with particular regard to Freddie Mac, and just to give everyone the context here, out of our MRB portfolio, roughly about 72% of them are financed through the Freddie Mac TEBS facilities. We got direction from Freddie Mac last week that, from their perspective, they believe that any MRBs that are securitized in TEBS transactions are subject to the forbearance guidelines that they've been given by their regulator, the FHFA. And what those guidelines are is that a project sponsor can contact Freddie Mac and their mortgage servicer and, through the demonstration of hardship, request forbearance on their underlying loan. And the way that, that forbearance program works is that project sponsors are open to receiving 3 months' worth of forbearance on the principal and interest due on their loan, which would then need to be repaid in full over a 12-month time horizon after the end of that forbearance period. So that's the framework that Freddie has accepted with the FHFA. Our MRBs that are in the Freddie TEBS structures are subject to that. And so we'll be working with our servicer on that portfolio in order to monitor and evaluate that process. As Chad had mentioned earlier, to date, both we or our servicer have not received any forbearance requests from any MRB sponsor. We can't project that into the future. But at least as of where we sit today, there have been no requests of that type.

Next question, from the line of [John Baum].

As a long-term unitholder, I appreciate you guys navigating through this difficult period. I guess my question is right now, we see about a $0.07 fall off from distributions declared compared to the CAD per BUC right now. It appears that we need a couple of, for lack of a better expression, easily used nomenclature, property sales to generate the still called excess CAD to generate the necessary CAD to cover the $0.50 distribution. As we're looking right now and as we forecast forward, is there any way to ascertain in 2020, as we stand right now, if the CAD per BUC is going to be adequate to cover the distribution of $0.125 per quarter?

John, thank you for your support over the years. I think if you look back at each one of our quarters over the past 5 to 10 years, there's been quarters by which we didn't -- paid out $0.125 and didn't earn it. In 2015, you and the rest of the investors approved ATAX to invest hard equity into new construction and new developments. Obviously, that asset class, we construct, stabilize and exit. Sometimes they take a little bit longer than other projects for a number of different reasons. But you're exactly right. In order for ATAX to pay its 50 -- to not to pay, I misspoke, I apologize. To earn its $0.50 distribution, and this is true for the last couple of years, we will need to have a few asset sales in order to work in cooperation with our mortgage revenue book earnings in order to do that.

If you take a look in our 2010 -- excuse me, 2020 10-K, you'll see that the Vantage positions are all called out there, the date that they originated. At a very high level, it takes about 3 years from the time we originate the position in the Vantage book to construct, stabilize and exit. Now that changes plus or minus months for whatever reason. But you can see that the -- some of the assets are being -- there's 10 assets that are currently in the portfolio with the addition of Westover Hills in January. Of those 10, there's a couple that are held for sale, a couple of ones -- fewer in stabilization and a couple that are under construction. And so as the time comes where it's -- the opportunity for us to exit those positions, capture some gain on sale and pad our earnings with those sales, we're going to -- we'll move in that direction. Obviously, with COVID and people's buyers having challenges with accessing debt and equity, to be determined on when those dates will happen, but that has been our plan in the past and will continue to be our plan going forward, sir.

One of the nice features you have in your supplemental financial disclosure is kind of a running total of the accumulated CAD compared to what is actually paid out. And I've always struggled to ascertain on an operational basis, strictly from your financing and your mortgage revenue bonds, how CAD per BUC compares to distributions. And it appears that it does have to be supplemented by, and I'm going to call it for lack of a better expression, property sales to supplement that. So I guess the question, it looks like if I go back to the prior exhibit on that, there's some carryover, so to speak. So as we go to 2020 in these especially difficult times, and I appreciate how hard you guys are working, to what extent do we look at a carryover, if you would, from that? Or is it all afresh right now? And I mean, the Board's got to come up rather in a difficult position, I guess, in June for the next declaration of the dividend, to which you guys are justifiably proud. I mean, how much of that goes into the mix in the declaration of the dividends going forward? And I understand this is kind of a hard question to answer. But in these times, I appreciate it. Go ahead.

No. I think that you have 2 questions there, I think, sir. And one of them is how can we have a better picture of when the Vantage deals will be made available for sale. And we've not given guidance in the past, and we're not going to do that today. But I think you can take -- you can make your own assumptions in reviewing the financial data that's in our 10-Q.

The greater question that I think everyone is waiting for, the answer to is, and we appreciate it, is as we discussed in the past, our distributions to our BUC holders were made -- have been determined by the ATAX general partner based on the cash available for the distribution. The general partner working with the manager will evaluate the factors that go into the BUC holder distributions. That is consistent with our long-term interest of the BUC holders, sir. So right now, we're evaluating the effects of COVID on your investment portfolios and how -- the negative impact to our liquidity and cash. And sometime in the next weeks, we're going to give guidance to the marketplace on our -- what we're going to do with the distributions for Q2 2020 and beyond.

Fair enough. I think you guys talked about that 94% effective occupancy in your -- on the apartments or other units that were occupied. Has there been any variance that you've had since that information was given to us regarding the 94%? Is that still holding relatively where it is right now or...

We made that information available to our investors on Monday. That 94% was collections for the month of April. We're currently monitoring the month of May, and that will be a big part of our decision going forward on the effects of how we manage the cash for the partnership. It's a little premature for us to give a guidance on where May is going to come in.

Fair enough. These are extraordinary times, to be sure. You guys are derivative. But obviously, if occupancy falls off, there's issues to be discussed. And we appreciate your hard work and keep at it. So we will get through this collectively, maybe some more pain to endure, but maybe as Churchill said, this is the end of the beginning. So good luck. And as a long-term unit holder, appreciate all your hard work. Thank you.

Thank you so much, sir. Please call any time with any additional questions you might have.

(Operator Instructions) The next question from the line of [Ron Lane].

Chad and everyone else, we're also long-term holders of 7 years. I appreciate all the hard work you're doing. And you've already addressed most of the questions we have. You're not scheduled to go [as to] dividend until, I believe, end of June, for the end of July payment.

That's correct. I think our declaration date's the second or third week in June, and we'll hopefully have some guidance to the marketplace prior to that, Ron.

Okay. Fair enough. I know in some past years, not recently, but I think 3 or 4 years ago, there's been some return of capital included -- embedded in the distribution. But going from $0.05 to $0.125 is a real stretch. But would you be inclined to add some return of capital into the distribution, July payment?

The July payment, as I shared with you, that decision has yet to be determined, and we'll give guidance here before we have to declare our second quarter distribution in June. Historically, our quarters have been lumpy. Since 2015, we have earned our distribution. And so I just want to make sure that we're clear about that, but there hasn't been no annual return of capital since 2015, Ron. But your question is the right one, and we're looking forward to giving you guidance here in the weeks to come.

Okay. Keep up the good work. One question, Chad. South Carolina's done real well. We used to live in Charlotte. Where is the property in -- I saw your old properties one time in Gainesville and Daytona Beach years ago, back in '14 or '15. Where is your property in South Carolina?

Right now, we have 2 projects in what I call the Atlantic Coast area, and that's in Murfreesboro, Tennessee and in Powdersville, South Carolina. They're currently just completing construction or in lease-up, and both are excellent sites. And we have pretty high expectations for both of those assets, given the strength of that market.

And your next question, from the line of Lawrence Dobrin.

Chad, Larry Dobrin from Oppenheimer. Just one question. I looked -- I was eagerly waiting your report on Monday, looked at the numbers. I'm looking at where the fall off came. I saw one line item that said contingent interest income. Can you -- which caught my eye because it was $3 million and went to $12,000. Can you tell me what that is? And if that's a one-off or is that a recurring item?

I'm going to let Jesse, our CFO, answer that question for you, Lawrence.

Lawrence, yes, on the income statement, the $3 million of contingent interest for the 3 months ended March 31, 2019, is related to a transactional event. It was the redemption of a property loan that we had with Vantage at Brooks, a Texas property that we had loaned money to. And we received some excess proceeds on the redemption of that loan. So that's very similar in nature to the gains on sale that would be recognized on the redemption of our equity investments in other Vantage projects.

So that was a one-off event or maybe it happened?

It was a transactional event.

Okay. That does lead me to one other question. There were -- there was a mention of a -- I guess it was a -- either -- oh, I know, reversal of a capital gain realized in 2019, and that was reversed for this year. Could you speak to that, please?

Sure. So our long-standing policy regarding our cash available for distributions is that in our CAD number, we do not recognize impairments of securities. In 2017 and 2018, we recorded, for GAAP purposes, impairments to our PHC certificates of approximately $1.9 million. But we did not recognize those in CAD, as we take the time for the investment to really run its course to potentially recover the value before ultimate sale. As I mentioned previously, we sold the PHC certificates in Q1 of 2020 and recognized for GAAP purposes a gain of $1.4 million. So we recovered $1.4 million of the previous $1.9 million in impairments. So on a net impact to CAD, it's approximately negative $500,000 adjustment.

Makes sense. If I'm asking -- if that was a question that was covered at the beginning, I was also caught online trying to get on. That's all I have. I also want to thank you for all your hard work and look forward to speaking with you many, many more times.

You as well, sir. Thank you.

(Operator Instructions) We have another question from Jim Merry.

I got a question. I'm here locally here in Omaha and a long-term shareholder. And how come we don't have annual meetings and send out annual reports?

The short answer is that under the partnership's structure, that we've historically not done that. That said, if you're local here, you have an opportunity to come meet with the management team and ask questions directly. We would embrace the opportunity to meet you and have a chance to come see us.

Okay. I appreciate that. I probably look forward to doing that once this virus passes.

Understood. Understood. Thank you.

We have another question from the line of John Baum.

I'm a long-term Berkshire Hathaway shareholders. So next time I'm in Omaha, I'll stop by. I know there was no shareholder meeting this year, but I understand the strictures. I hammered you on the downside. Let's talk about the upside. Let's assume that we have a vaccine here for COVID pretty soon, and things start to turn back pretty -- in our favor pretty rapidly. If interest rates start to rise, are you guys in a good shape to capture the rise in interest rates relative to your mortgage revenue bonds in as much as you pretty much fixed your long-term cost of capital? How about that?

No. I think the question -- I just want to make sure that I understand the question, sir. I think you were asking about a rising interest rate environment, what will do that to our leverage returns in our MRB book? And what would that do that to returns in our Vantage book? Is that the accurate question?

Yes. Fair enough. I'm trying to figure out -- you seemed to have fixed your cost of capital right now on the lower side. And I want to know if the economy start -- overall, if the economy starts to return back to normalcy and you see a gradual uptrend in interest rates, how will it affect your book of business and maybe CAD? And what's of interest to us as unitholders? Go ahead.

I'm going to take the first question on the mortgage book first. It's -- our mortgage book is nothing more than a net spread business. And so as interest rates rise or decrease, we achieve for a leverage return on a net spread basis. And so historically, the last couple 3 years with the flat yield curve, that's been a challenge. One positive thing, if anything, that's come out of the yield curve here in the last 30 days is some steepening of the yield curve while keeping the short end of the curve very low. So in the mortgage book and the opportunity to originate new positions at a greater net spread, I would embrace a little bit higher rates on the long end. I think our -- in this rate environment, our deals would still support slightly higher debt costs, and we would hopefully have an opportunity to achieve greater net spread.

On our Vantage book, the Vantage book, if rates are so low, I'm not sure that our cost of capital on our construction loans would be negatively impacted 100 basis points, plus or minus. The one thing that I would be concerned about is in the higher interest rate environment is the equity requirement and the all-in returns from the buy side when we look to exit the positions. Higher interest rate costs will erode our returns in the event that we can't achieve the highest and best price available at the time of exit. So it's kind of a little bit of a mixed bag, but I personally think we're going to be in a low interest rate environment for quite some time. If you look at the other sovereign debt around the world, most -- all of it's from 10 years and then has negative returns. And until those type of things correct themselves, I don't see the United States having any type of real inflationary interest rate environment for the many months, quarters, years to come. That's my own opinion, but I hope that I answered the question, sir. I think I'm not sure I clearly understood. I want to make sure that I answered your question, please.

It's kind of a hazy matter. If I were to editorialize a little bit, the fact that the U.S. can finance 20 years' worth of debt at 1% or less is extraordinary, and the fact that foreigners hold 50% of our debt is also extraordinary, I guess I would say that modern monetary theory works pretty well until it doesn't. And we never quite know when things turn around interest rate-wise. But we are in extraordinary times. I would agree with you in short term, rates are going to stay rather low. But we've got about $25 trillion to $30 trillion in debt refinance. And at some point, somebody somewhere is going to wake up. But in the meantime, my advice would be to secure your short-term rates, your cost of capital and then let's let interest -- long-term interest rates gravitate where they are.

You guys have done an extraordinary work. As a unitholder, we really can't know in your 85 various mortgage revenue bonds what's going on. So we rely upon you to monitor it day-to-day. But the fact that you're able to maintain the dividend distribution, if it's cut, so it's cut, but let's make it work on a long-term basis. And we stay long-term shareholders. So thank you very much.

Sir, I appreciate that guidance, and I will look forward to having a more detailed discussion with you on that topic off-line at some point in the future.

(Operator Instructions) We don't have any question from the phone. Please continue.

Well, thank you very much, folks, for joining the call. And as we've mentioned, our world has changed, and we will turn with it with a partnership that's been in existence for over 30 years, and we look forward to the next 30 with your support. If you have any questions, please feel free to call us direct. In these times, overcommunicating and being transparent so you folks understand the direction of the partnership is paramount to the management team. Thank you for your time and your support.

Thank you. And that concludes today's conference. Thank you, everyone, for participating. You may now all disconnect.