Greystone Housing Impact Investors LP (GHI) 2020 Q4 法說會逐字稿

Ladies and gentlemen, I would like to welcome everyone to the America First Multifamily Investors, L.P.'s NASDAQ ticker symbol ATAX Fourth 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 Fourth Quarter of 2020 Earnings Conference Call.

During the 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 of results to differ materially from these statements. Such forward-looking statements are made pursuant to the safe harbor provision 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 impacts of COVID-19 pandemic could cause ATAX's 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's business, please review the periodic reports and other documents filed from time to time by ATAX with Securities and Exchange Commission.

Internal projections and beliefs upon which ATAX bases its expectations may change, but 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 participation and interest in ATAX. I would now like to turn the call over to Mr. Ken Rogozinski, Chief Executive Officer of ATAX. Sir?

Thank you, and good afternoon everyone. Welcome to America First Multifamily Investors L.P.'s fourth quarter 2020 investor call. Thank you for joining. I will give an overview of our business and the markets and then Jesse Coury, our Chief Financial Officer, will present the Partnership's financial results. Following that, we look forward to taking your questions.

I'm pleased to be with you today as ATAX's new CEO. I'm humbled by the Board's decision to offer me that role and I look forward to working with the rest of the management team to keep the Partnership moving forward in these still challenging times.

For the fourth quarter of 2020, the partnership reported net income of $0.00 per Beneficial Unit Certificate or BUC, $0.06 of cash available for distribution per BUC, a book value of $5.93 per BUC on $1.2 billion of assets and a leverage ratio as defined by ATAX of 67%. The Partnership is current and in good standing with all of our lenders and leverage providers.

In terms of the Partnership's investment portfolio, we have received no request for forbearance on our multifamily mortgage revenue bonds and all multifamily MRBs are current on principal and interest payments. The collections rate at properties of service collateral for multifamily MRBs has averaged approximately 91% from October 2020 through January 2021. Physical occupancy averaged 94% for the portfolio as of December 31, 2020.

Our current Vantage portfolio consists of 12 projects, 7 where construction is 100% complete and 5 where construction or planning is still underway. For the 7 properties where construction is 100% complete, we continue to see good leasing activity with 3 of the 7 having achieved over 90% physical occupancy. We continue to see no material supply chain or labor disruptions on the Vantage projects still under construction. As we have seen in the past, Vantage, as the managing member of each project owning entity, will position a property for sale upon stabilization.

Our 2 student housing properties have continued to perform consistently with the second and third quarters of 2020. Both are covering all of their obligations from project cash flow, including operating expenses and debt service in the case of the 50/50 at University of Nebraska. Our 2 non-multifamily MRBs continue to have issues as a result of the COVID-19 pandemic.

We have entered into a forbearance of principal amortization agreement with the borrower on the Live 929 student housing MRB through the end of 2021. The borrower on the Provision proton therapy center MRB filed for bankruptcy in the fourth quarter of 2020 and we are working with the other bondholders and the bond trustee to protect our rights and maximize the value of our investment.

The fourth quarter of 2020 closed out an interesting year in the market for municipal bonds. From the turmoil of the last 2 weeks of March 2020, where investors withdrew almost $26 billion for municipal bond mutual funds, muni bond investors had the wind at their backs despite the challenges of the COVID-19 pandemic. Municipal bond mutual funds saw inflows in all but 2 weeks in the balance of 2020. That trend has continued into 2021 with January and early February seeing over $13 billion in total inflows according to Refinitiv Lipper data.

Municipal Market Data's high-grade muni bond scale reached an all-time low yield in mid-August 2020 with the 10-year index at 0.59% and the 30-year index at 1.28%. At the same time, the Bond Buyer's general obligation 20-bond index reached the lowest yield level it had seen since the end of the Truman administration.

After those midsummer yield lows, munis followed the move wider in rates that was seen in the broader fixed income markets, as uncertainty continued around the economic impact of COVID-19. Muni rates did tighten some at the end of the year with the 10-year MMD rate closing out at 0.72%, and the 30-year MMD rate at 1.44%. Those levels have widened some at the start of 2021 with 10-year MMD have broken 1% earlier this week on the heels of wider U.S. Treasury bond and LIBOR spot levels.

Since we are still in a relatively low interest rate environment, we continue to be mindful of the absolute level of rates where we could originate new fixed income investments. We have continued to focus on shorter-duration investments where matched funding is more readily available and hedging is less costly.

In terms of our debt investment activity during the fourth quarter, we saw a number of our anticipated year-end closings slip into January. In January 2021 we closed 2 additional shorter-term construction financing transactions with one of the largest and most active affordable housing developers in the country. The shorter maturity of these investments, which is usually 3 years, changes the interest rate risk profile versus our historic portfolio and by matching floating rate assets with a matched term floating rate funding source, we are able to earn an acceptable net spread position.

We also closed 2 additional shorter-term construction financing transactions in Los Angeles with a second sponsor. During the fourth quarter, we made 2 new Vantage equity investments: one for a project located in Hutto, Texas, a suburb of Austin and the other for a project located in San Marcos, Texas, between San Antonio and Austin on the I-35 corridor. We will continue to look to strategically work with our stronger sponsors on new investment opportunities where traditional sources of capital may not currently be available.

One final note on the recent weather issues in Texas given the concentration of our MRB and Vantage investments there. The large majority of the projects in Texas are garden-style with a number of buildings per project. We have received updates from sponsors and management companies that a limited number of units of experienced cracked or leaking pipes and subsequent water damage that has required immediate repairs. Those situations are being addressed on a case-by-case basis and we do not believe that the number of units needing repair will have an adverse impact on any individual properties' ability to pay debt service.

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

Thank you, Ken. For the fourth quarter of 2020, ATAX reported total revenues of approximately $13.5 million. Net income for Beneficial Unit Certificate or BUC basic and diluted of $0.00 and cash available for distribution or CAD of $0.06 per BUC. The net income of $0.00 per BUC for Q4 2020 is a result of net income from operations offset by a $2 million impairment of the proton center mortgage revenue bond, as a result of the borrowers declined operational results debt service shortfalls and the borrower's bankruptcy filing in December 2020.

Consistent with our CAD policy, such noncash impairment is added back in the calculation of CAD as management will work to recover such impairment through future management of the asset. For the year ended December 31, 2020, ATAX reported total revenues of approximately $55.5 million, net income per BUC basic and diluted of $0.07 and CAD per BUC of $0.26. In terms of our investment, we reported over $1.17 billion in total assets, primarily comprised of our 3 main investment classes, the first being our net spread portfolio, the second our investments in unconsolidated entities or Vantage investments, and the third being our own real estate or MF properties.

Our net spread portfolio is primarily comprised of our mortgage revenue bond, and governmental issuer loan investments. As of December 31, our mortgage revenue bonds or MRBs totaled approximately $794 million or 68% of total assets and these comprise 77 mortgage revenue bonds across 14 states. We hold significant amounts of mortgage revenue bonds related to properties located in Texas at 43% of our total MRBs; California at 17%; and South Carolina at 17%.

As Ken mentioned, to-date we have received no requests for forbearance of principal and interest payments for MRBs or governmental issuer loans associated with our multifamily properties. In the fourth quarter of 2020, we granted forbearance to the Live 929 MRB property in the form of a deferral of contractual principal payments through 2021 while the property recovers from the effects of the COVID-19 pandemic.

As I mentioned earlier, the borrower of our Provision center MRB property, a proton therapy cancer treatment center in Knoxville, Tennessee declared bankruptcy in December 2020. The outstanding principal balance of the Partnership's MRB was $10 million as of the end of the year or approximately 9% of the senior mortgage revenue bonds issued by the borrower and we are assessing forbearance and restructuring options with the other senior bondholders.

As of December 31, we had investments in 3 governmental issuer loans to finance the construction, lease up and stabilization of affordable multifamily properties in Midland Texas, Roseville, Minnesota and Centennial Colorado. The governmental issuer loans are functionally equivalent to our mortgage revenue bonds and that they are nonrecourse obligations issued by governmental authorities, secured by a mortgage on real and personal property of affordable multifamily properties and we expect and believe the interest earned on the loans to be exempt from federal income tax.

As of December 31, 2020, the 3 governmental issuer loans had a total carrying value of approximately $64.9 million and we had outstanding commitments to fund additional proceeds of approximately $42.2 million during construction. As Ken previously mentioned, much of our origination activity for the fourth quarter pushed into January of 2021 where we closed on 4 additional governmental issuer loan commitments and 3 property loan commitments. These investments relate to 2 affordable multifamily properties in St. Paul, Minnesota and 2 affordable properties in Los Angeles, California.

Gross commitments on the 4 governmental issuer loans totaled $94.6 million and gross commitments on associated property loans totaled $64 million. Upon closing, we advanced additional initial funds for governmental issuer loans totaling $24 million and initial funds for property loans totaling $3 million, with the remaining commitments to be funded during construction of the related properties. The initial funds were financed with proceeds from tender option bond trust financings totaling approximately $14.4 million and draws on our nonoperating line of credit totaling $11 million.

Our investments in unconsolidated entities or Vantage investments class consist of investments related to the construction of 12 market rate multifamily properties, that as of December 31, 2020, represent in the aggregate over 3,400 rental units. These investments include 2 new equity investment commitments that we closed in November 2020 for properties in Hutto, Texas and San Marcos, Texas.

Carrying value of our Vantage investments was approximately $106.9 million as of December 31. Of the 12 current projects, 7 are located in Texas, 2 in Nebraska, 2 in Tennessee and 1 in South Carolina. As of December 31, 7 projects were completed in a lease-up and 5 were under construction. Leasing activities at properties with available units have faced challenges due to social distancing measures in response to the COVID-19 pandemic. However, through February 2021, the properties have experienced an overall increase in occupancy, though at slightly slower rates than before the COVID-19 pandemic. There have been no material delays or disruptions for projects currently under construction due to COVID-19. Since our first Vantage investment in late 2015, 6 of ATAX's Vantage investments have been sold or redeemed, resulting in total gains on sale and contingent interest of approximately $27 million.

Our third investment class is our MF Properties assets which consist of 2 MF Properties with a total of 859 student housing units and a net carrying value of $59.7 million as of December 31, 2020. Sold MF Properties or student housing properties which have been more significantly impacted by COVID-19 than the general multifamily housing properties. The 50/50 MF Property primarily serves students at the University of Nebraska in Lincoln, Nebraska, which is currently holding on-campus, in-person classes. The property is 89% occupied as of December 31 and is meeting all mortgage and operating obligations with cash flows from operations.

The suites on Paseo MF Property primarily serves students of San Diego State University, which has suspended on-campus, in-person classes for the spring 2021 semester. The property was 68% occupied as of December 31, and is meeting all operating obligations with cash flows from operations.

On the liability side of our balance sheet, our debt financing associated with mortgage revenue bonds and governmental issuer loans totaled approximately $674 million as of December 31. In the fourth quarter of 2020 we entered into a new tender option bond trust financing to leverage our Montevista mortgage revenue bond and received gross proceeds of approximately $5.7 million, a portion of which was used to pay down the balance of our nonoperating line of credit.

As noted in our third quarter earnings call, in September 2020 ATAX issued $103.5 million of secured notes to Mizuho that are secured by the cash flows from residual interest in TEBS financings. These secured notes, along with 2 related total return swap transactions, allowed us to right-size the leverage on our TEBS financings and provide additional liquidity to ATAX. Under this structure, we have to-date received unrestricted proceeds of $26 million with the ability to access additional unrestricted proceeds of $41.3 million under the terms of the total return swaps.

Our debt financings have total outstanding principal balance of $676 million as of December 31. Of this amount, approximately 44% is fixed rate debt and 56% is variable rate debt. Of our $375 million of variable interest debt financing, $65 million is secured by investments with variable interest rates, such that they are at least partially hedged against rising interest rates without the need for separate hedging instruments such as interest rate caps and swaps.

During 2020, we migrated to more variable rate debt, due to short-term interest -- lower short-term interest rates and favorable financing terms available on a variable rate mode structure through Mizuho. 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 58 of our 2020 Form 10-K.

The interest rate sensitivity table shows the impacts to our 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 based on those assumptions 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 $5.1 million in our net interest income in CAD or approximately $8.3 per BUC over a 12-month period.

Lastly, we regularly provide our net book value per BUC, which as of December 31, was $5.93, which is down nominally from our net book value per BUC of $5.97 as of September 30, 2020. At December 31, 2020, the closing market price on the NASDAQ for ATAX BUCs was $4.25, which is a discount to our net book value of approximately 28%.

With that, Ken and I are now happy to answer questions from the audience.

Operator, I believe we have a few questions in the queue.

(Operator Instructions) We do have our first question from the line of Jason Stewart from JonesTrading.

Ken, congratulations on the promotion and getting settled into the new role. I wanted to start with maybe your view on a topic that's probably on everybody's minds, interest rates and the volatility there. If you could give us some thoughts on how that impacts the municipal bond sector maybe in terms of spreads, and maybe take it to the next step and where the progress is in terms of investing in higher margin loans, and the senior living space, et cetera, down those lines, it'd be helpful.

Sure. Thanks, Jason. Happy to address those points for you. The first thing with regard to rates and I guess today is a good day to talk about that, given what we've seen happening in the markets, is the focus that we've had recently on the new origination side, as both Jesse and I have mentioned today is on the shorter term construction financing.

One of the things that we like about that business is that it's shorter tenure so that we have less duration risk, less risks of volatility and price changes from a change in interest rates. And we also like the fact that we've got floating rate assets and floating rate liabilities. The loans that we're making to the underlying project sponsors are floating rate in nature, and the tender option bond funding vehicles that we've put into place in order to fund those positions are floating rate as well.

So between that nice match of asset and liability, and the fact that at least in terms of the short term or the shorter end of the interest rate curve, we've seen less volatility there in the first couple months of this year, very little movement. And so for -- or 1 month or 3-month LIBOR, I think bodes well for the portfolio and the new assets that we're putting on the books.

Where I think things may be a little more challenging going forward is with our traditional multifamily MRB business. We got a great boost at the end of 2020 with the COVID relief bill that included the rightsizing of the low income housing tax credit factor on tax-exempt bond deals. But with this movement in rates that we've seen over the past couple of months, it's certainly going to start potentially have an impact on the underwriting of those projects, the interest rates that they can support, and what demand is going to look like going forward. So certainly something from an origination perspective we're going to have to keep our eye on.

Finally, to your question about some of the higher yielding assets, we've talked on calls in the past about moving into the senior living and skilled nursing sectors where Greystone has a long history and track record of being a lender and being an owner and operator and kind of drafting off of that experience that previously didn't exist in the organization. We are evaluating those opportunities. I don't think we see the same pressure from higher rates there, since those are higher yielding assets, which typically come at a healthy spread already to overall rate levels. So I wouldn't expect to see a modestly rising interest rate environment have a significant impact on the opportunities there and what we could put to work.

Got it, okay. And then if we just pull back up and take a step back in terms of the credit performance, I know there were 1 or 2 assets that have had issues, but more broadly speaking, the portfolio has performed really well. 2 questions there. One, obviously, I think you feel like you're properly provisioned at this point for any issues you've identified, but then 2, are we far enough through the cycle where you feel like you have some line of sight to the other side where you could start talking about a dividend increase again at some point in the near future?

I think at this point in time Jason we've been very pleased by the performance of our multifamily and our MRB portfolio. For us to be sitting here today and in February of 2021, having lived through the past almost a year at this point in time with the pandemic, to say that over that time horizon we've had no requests for forbearance, and that we've averaged the occupancy and the collection rates that we have at the underlying assets I think is a great thing and I'm very thankful that that's the position that we're in.

In terms of moving forward at this point in time, the Board is the determinant of the distributions to the BUC holders. They base that on a disciplined evaluation of the Partnership's cash available for distribution and other factors that they deem relevant. As it always has done in the past, the general partner in consultation with management always continually evaluates the factors that go into the BUC holder distribution decisions, consistent with the long-term best interests of the BUC holders and the Partnership.

So I think that approach is going to continue. We, as I said, have been pleased by the performance of the portfolio. And I think as we continue to see some of these new measures come into place from the federal and the state governments as this latest round of COVID relief works its way through Congress, I think the Board will look at and evaluate all of those factors and come to a conclusion with regard to the distribution.

Okay. And congrats again on the new role.

Thank you, Jason.

We do have another question from the line as [Jeff Neal] of Merrill Lynch.

Just a couple of points of clarification on some things you mentioned, just reiterating. Book value at 12/31 is $5.93 a share approximately?

That's correct, Jeff.

And second question, you mentioned the Vantage product and that, over the years, 6 properties have been sold, the amount was $27 million. Was that $27 million in gains or $27 million in total proceeds?

That is $27 million in gains. It does not include any return of our original investment.

Okay. So that's been a very profitable area for you. Do you foresee over the next 12 to 18 months as some of these projects are completed the opportunity for sales of the Vantage-related investments to accelerate or is that something you're not prepared to comment on yet?

Jeff, we really can't give you much direct guidance on that. ATAX is the investor or the minority member in those individual project ownership entities. Those decisions are made by Vantage who's the managing member. I think we do have a track record at this point in time in terms of the strategy or the investment philosophy that's been followed here in terms of identification, completion of construction, lease-up and stabilization and then sale. And I don't expect anything fundamental to change in that process or that strategy at this point in time.

But in terms of the individual project level decisions about when do we list a project for sale, depending on its underlying performance, that's really driven by Vantage and I can't give you any more definitive color at this point in time in terms of which projects are potentially going to be in that situation or what the potential timing might be.

Understood. Could you restate the number of current Vantage projects, just the sheer number?

The sheer number is there are 12 individual investments…

Twelve.

7 of which where construction is 100% complete and then 5 of which where construction or planning is still underway.

And those were the ones that you listed in Texas, Nebraska, South Carolina, et cetera, correct?

That's correct. Yes, Jeff.

Okay. And last question, if I may. Several times you mentioned your nonoperating line of credit. What is the potential availability, probably subject to covenants, but what is the availability on that line?

Yes. We have a up to $50 million nonoperating line of credit, which we also occasionally refer to as our acquisition line of credit, which allows us to finance the initial purchase of mortgage revenue bond investments or other investments under the term of our credit agreement. So that is really intended to be a staging area where we can take down new investments and then give us time to arrange trust financings either through a TEBS execution with Freddie Mac or a tender option bond financing agreement through Mizuho or a similar lender.

Understood. So that's actually pretty sizable relative to most MRB opportunities?

That is correct. We believe the $50 million level provides us flexibility to take down either a large mortgage revenue bond if the opportunity presents itself or multiple smaller mortgage revenue bonds as needed.

Yes, as you described. Appreciate it.

(Operator Instructions) We have another question from the line of [Jon Baum] from [America First Debt].

Actually I'm a unit holder. Congratulations, the new CEO. I think this question has been alluded to, if not outright answered. The -- have the student loan or the student housing facilities, has that been fully reserved right now or where are you in terms of your reserve?

Are you referring to the student housing MRB on the Live 929…

Yes.

Project?

Yes. Yes.

Jesse, do you want to address that question, please?

Yes. We've reserved approximately 8% of the principal or carrying value of that investment. That is based on our evaluation of the underlying bond. And is -- we believe is supported by the market price of those bonds as well as the expected cash flows coming off of the asset. So we've reserved a portion based on what we've seen operation-wise so far and what we anticipate for the future and continually (technical difficulty).

And also regarding the other commercial loan, the one that filed Chapter 11, has -- is that fully reserved also? Is that your best guess as to what the recovery really will be once the bankruptcy procedure has been completed?

That is our current estimate of, yes, what we believe to be recoverable. Right now we have a carrying value or a net value on that of approximately $6 million or 60% of our par value.

Okay. Well, it's always the problem loans that can cause you an issue, but you guys did tremendous work on the balance of portfolio looking for better things in 2021. Keep up the good work.

(Operator Instructions) We have another question from the line of [Jim Mark] from -- it's an individual investor.

Ken, I have a question for you. I have a elderly friend that depends on the dividend. What would you say to reassure her about the dividend and the future of the company in a simplified answer?

Jim, as we've indicated before, and as we do in every quarter, the general partner and management continually assess the factors that go into distribution decisions and we expect that this disciplined evaluation process would continue for future periods as it has in the past. I'm not sure there's really any color beyond that that I can give you or any reassurances that I can give you, but I think addressing that consistent strategy in terms of the Board's decision-making process in determining the level of distribution, it is going to be handled the same way that it always has been.

(Operator Instructions) There are no further questions at this time. I would like to turn back the call to Mr. Rogozinski for closing remarks. Sir?

Thank you very much. We appreciate everyone showing their interest today by participating in the call and we look forward to our continued communication with you in the future. Thank you very much.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Thank you for participating. You have a good day. Thank you, presenters.