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Greystone Housing Impact Investors LP - Quarter Report: 2017 September (Form 10-Q)

 

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2017

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to            

Commission File Number:  000-24843

 

AMERICA FIRST MULTIFAMILY INVESTORS, L.P.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

47-0810385

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

1004 Farnam Street, Suite 400

 

Omaha, Nebraska 68102

(Address of principal executive offices)

 

(Zip Code)

 

 

 

(402) 444-1630

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  YES  NO 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  YES  NO 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non- accelerated filer

(do not check if a smaller reporting company)

Smaller reporting company

 

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES  NO 

 


 

INDEX

PART I – FINANCIAL INFORMATION

 

Item 1

 

Financial Statements (Unaudited)

 

2

 

 

Condensed Consolidated Balance Sheets

 

2

 

 

Condensed Consolidated Statements of Operations

 

3

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss)

 

4

 

 

Condensed Consolidated Statements of Partners’ Capital

 

5

 

 

Condensed Consolidated Statements of Cash Flows

 

6

 

 

Notes to Condensed Consolidated Financial Statements

 

7

Item 2

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

39

Item 3

 

Quantitative and Qualitative Disclosures About Market Risk

 

56

Item 4

 

Controls and Procedures

 

58

 

 

 

 

 

PART II – OTHER INFORMATION

Item 1A

 

Risk Factors

 

59

Item 6

 

Exhibits

 

59

 

 

 

 

 

SIGNATURES

 

 

 

60

 

 

 


 

Forward-Looking Statements

This report (including, but not limited to, the information contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”) contains forward-looking statements.  All statements other than statements of historical facts contained in this report, including statements regarding our future results of operations and financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements.  When used, statements which are not historical in nature, including those containing words such as “anticipate,” “estimate,” “should,” “expect,” “believe,” “intend,” and similar expressions, are intended to identify forward-looking statements.  We have based forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations.  This report also contains estimates and other statistical data made by independent parties and by us relating to market size and growth and other industry data.  This data involves several assumptions and limitations, and you are cautioned not to give undue weight to such estimates.  We have not independently verified the statistical and other industry data generated by independent parties which are contained in this report and, accordingly, we cannot guarantee their accuracy or completeness.

These forward-looking statements are subject, but not limited, to various risks and uncertainties, including those relating to:

 

current maturities of our financing arrangements and our ability to renew or refinance such financing arrangements;

 

defaults on the mortgage loans securing our mortgage revenue bonds (“MRBs”);

 

the competitive environment in which we operate;

 

risks associated with investing in multifamily, student, senior citizen residential and commercial properties, including changes in business conditions and the general economy;

 

changes in interest rates;

 

our ability to use borrowings to finance our assets;

 

local, regional, national and international economic and credit market conditions;

 

recapture of previously issued Low Income Housing Tax Credits (“LIHTCs”) in accordance with Section 42 of the Internal Revenue Code;

 

changes in the United States Department of Housing and Urban Development’s Capital Fund Program (“HUD”);

 

geographic and developer concentration within the MRB portfolio held by the Partnership;

 

appropriations risk related to funding of Federal housing programs, including HUD Section 8; and

 

changes in the U.S. corporate tax code and other government regulations affecting our business.

Other risks, uncertainties and factors could cause our actual results to differ materially from those projected in any forward-looking statements we make. We are not obligated to publicly update or revise any forward-looking statements, whether because of new information, future events or otherwise. In addition, projections, assumptions and estimates of our future performance and the future performance of the industry in which we operate are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described under the headings “Risk Factors” in Item 1A of America First Multifamily Investors, L.P.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 and the Quarterly Report on Form 10-Q for the quarter ended June 30, 2017.

All references to “we,” “us,” and the “Partnership” in this document mean America First Multifamily Investors, L.P. (“ATAX”) and its wholly-owned subsidiaries. See Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of the Partnership’s report for additional details.

 

 

 

 


 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

AMERICA FIRST MULTIFAMILY INVESTORS, L.P.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

September 30, 2017

 

 

December 31, 2016

 

 

 

Unaudited

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

35,556,115

 

 

$

20,748,521

 

Restricted cash

 

 

2,449,346

 

 

 

6,757,699

 

Interest receivable, net

 

 

7,319,913

 

 

 

6,983,203

 

Mortgage revenue bonds held in trust, at fair value (Note 6)

 

 

739,967,192

 

 

 

590,194,179

 

Mortgage revenue bonds, at fair value (Note 6)

 

 

39,346,686

 

 

 

90,016,872

 

Public housing capital fund trusts, at fair value (Note 7)

 

 

54,913,748

 

 

 

57,158,068

 

Real estate assets: (Note 8)

 

 

 

 

 

 

 

 

Land and improvements

 

 

10,798,832

 

 

 

17,354,587

 

Buildings and improvements

 

 

105,323,268

 

 

 

113,089,041

 

Real estate assets before accumulated depreciation

 

 

116,122,100

 

 

 

130,443,628

 

Accumulated depreciation

 

 

(17,623,467

)

 

 

(16,217,028

)

Net real estate assets

 

 

98,498,633

 

 

 

114,226,600

 

Investment in unconsolidated entities (Note 9)

 

 

34,335,649

 

 

 

19,470,006

 

Property loans, net of loan loss allowance (Note 10)

 

 

31,194,704

 

 

 

29,763,334

 

Other assets (Note 12)

 

 

9,613,734

 

 

 

8,795,192

 

Total Assets

 

$

1,053,195,720

 

 

$

944,113,674

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Accounts payable, accrued expenses and other liabilities

 

$

8,297,418

 

 

$

7,255,327

 

Distribution payable

 

 

7,607,693

 

 

 

8,017,950

 

Unsecured lines of credit (Note 13)

 

 

12,471,000

 

 

 

40,000,000

 

Secured line of credit, net (Note 14)

 

 

-

 

 

 

19,816,667

 

Debt financing, net (Note 15)

 

 

594,635,819

 

 

 

495,383,033

 

Mortgages payable and other secured financing, net (Note 16)

 

 

50,579,400

 

 

 

51,379,512

 

Derivative swaps, at fair value (Note 17)

 

 

1,196,701

 

 

 

1,339,283

 

Total Liabilities

 

 

674,788,031

 

 

 

623,191,772

 

 

 

 

 

 

 

 

 

 

Commitments and Contingencies (Note 18)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable Series A preferred units, approximately $77.0 and $40.9 million redemption value,

   10.0 million authorized, 7.7 million and 4.1 million issued and outstanding, respectively (Note 19)

 

 

76,855,492

 

 

 

40,788,034

 

 

 

 

 

 

 

 

 

 

Partnersʼ Capital

 

 

 

 

 

 

 

 

General Partner (Note 1)

 

 

331,429

 

 

 

102,536

 

Beneficial Unit Certificate holders

 

 

301,220,768

 

 

 

280,026,669

 

Total Partnersʼ Capital

 

 

301,552,197

 

 

 

280,129,205

 

Noncontrolling interest

 

 

-

 

 

 

4,663

 

Total Capital

 

 

301,552,197

 

 

 

280,133,868

 

Total Liabilities and Partnersʼ Capital

 

$

1,053,195,720

 

 

$

944,113,674

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

 

2


 

AMERICA FIRST MULTIFAMILY INVESTORS, L.P.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

 

 

For the Three Months Ended September 30,

 

 

For the Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property revenues

 

$

3,244,440

 

 

$

3,414,788

 

 

$

10,280,940

 

 

$

13,483,760

 

Investment income

 

 

12,242,533

 

 

 

9,071,460

 

 

 

35,886,934

 

 

 

27,238,601

 

Contingent interest income

 

 

-

 

 

 

90,000

 

 

 

219,217

 

 

 

309,396

 

Other interest income

 

 

735,123

 

 

 

645,691

 

 

 

2,047,056

 

 

 

2,043,162

 

Other income

 

 

12,734

 

 

 

-

 

 

 

75,371

 

 

 

-

 

Total revenues

 

 

16,234,830

 

 

 

13,221,939

 

 

 

48,509,518

 

 

 

43,074,919

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate operating (exclusive of items shown below)

 

 

2,225,845

 

 

 

2,252,939

 

 

 

6,331,145

 

 

 

7,259,071

 

Impairment charge

 

 

-

 

 

 

-

 

 

 

-

 

 

 

61,506

 

Depreciation and amortization

 

 

1,259,055

 

 

 

1,361,259

 

 

 

4,122,260

 

 

 

5,292,889

 

Amortization of deferred financing costs

 

 

577,413

 

 

 

425,520

 

 

 

1,880,236

 

 

 

1,350,200

 

Interest expense

 

 

5,714,181

 

 

 

3,485,172

 

 

 

16,997,761

 

 

 

12,577,361

 

General and administrative

 

 

3,197,853

 

 

 

2,377,148

 

 

 

9,205,183

 

 

 

7,474,500

 

Total expenses

 

 

12,974,347

 

 

 

9,902,038

 

 

 

38,536,585

 

 

 

34,015,527

 

Other Income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain (loss) on sale of real estate assets

 

 

-

 

 

 

1,633,973

 

 

 

7,152,512

 

 

 

14,076,902

 

Gain on sale of securities

 

 

-

 

 

 

-

 

 

 

-

 

 

 

8,097

 

Income before income taxes

 

 

3,260,483

 

 

 

4,953,874

 

 

 

17,125,445

 

 

 

23,144,391

 

Income tax expense (benefit)

 

 

(285,000

)

 

 

331,000

 

 

 

2,110,047

 

 

 

4,984,000

 

Net income

 

 

3,545,483

 

 

 

4,622,874

 

 

 

15,015,398

 

 

 

18,160,391

 

Net income (loss) attributable to noncontrolling interest

 

 

-

 

 

 

(668

)

 

 

71,653

 

 

 

(781

)

Partnership net income

 

 

3,545,483

 

 

 

4,623,542

 

 

 

14,943,745

 

 

 

18,161,172

 

Redeemable Series A preferred unit distributions and accretion

 

 

(523,682

)

 

 

(181,969

)

 

 

(1,280,874

)

 

 

(308,635

)

Net income available to Partners

 

$

3,021,801

 

 

$

4,441,573

 

 

$

13,662,871

 

 

$

17,852,537

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) available to Partners and noncontrolling interest allocated to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General Partner

 

$

30,218

 

 

$

324,059

 

 

$

1,212,429

 

 

$

2,513,126

 

Limited Partners - Unitholders

 

 

2,936,408

 

 

 

4,115,889

 

 

 

12,325,639

 

 

 

15,337,786

 

Limited Partners - Restricted Unitholders

 

 

55,175

 

 

 

1,625

 

 

 

124,803

 

 

 

1,625

 

Noncontrolling interest

 

 

-

 

 

 

(668

)

 

 

71,653

 

 

 

(781

)

 

 

$

3,021,801

 

 

$

4,440,905

 

 

$

13,734,524

 

 

$

17,851,756

 

Unitholdersʼ interest in net income per unit (basic and diluted):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per unit, basic and diluted

 

$

0.05

 

 

$

0.07

 

 

$

0.21

 

 

$

0.25

 

Distributions declared, per unit

 

$

0.125

 

 

$

0.125

 

 

$

0.375

 

 

$

0.375

 

Weighted average number of units outstanding, basic

 

 

59,811,578

 

 

 

60,176,937

 

 

 

59,904,078

 

 

 

60,227,413

 

Weighted average number of units outstanding, diluted

 

 

59,811,578

 

 

 

60,176,937

 

 

 

59,904,078

 

 

 

60,227,413

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

 

3


 

AMERICA FIRST MULTIFAMILY INVESTORS, L.P.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)  

(UNAUDITED)

 

 

 

For the Three Months Ended September 30,

 

 

For the Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Net income

 

$

3,545,483

 

 

$

4,622,874

 

 

$

15,015,398

 

 

$

18,160,391

 

Reversal of net unrealized gain on sale of securities

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(236,439

)

Unrealized gain (loss) on securities

 

 

1,813,314

 

 

 

(29,432,805

)

 

 

31,020,368

 

 

 

42,738,951

 

Unrealized gain (loss) on bond purchase commitments

 

 

189,875

 

 

 

(4,596,110

)

 

 

955,598

 

 

 

6,988,349

 

Comprehensive income (loss)

 

 

5,548,672

 

 

 

(29,406,041

)

 

 

46,991,364

 

 

 

67,651,252

 

Comprehensive income (loss) allocated to noncontrolling interest

 

 

-

 

 

 

(668

)

 

 

71,653

 

 

 

(781

)

Partnership comprehensive income (loss)

 

$

5,548,672

 

 

$

(29,405,373

)

 

$

46,919,711

 

 

$

67,652,033

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

 

4


 

AMERICA FIRST MULTIFAMILY INVESTORS, L.P.

CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017 and 2016

(UNAUDITED)

 

 

 

General Partner

 

 

# of Units - Restricted and Unrestricted

 

 

Beneficial Unit

Certificate Holders - Restricted and Unrestricted

 

 

Non-controlling

Interest

 

 

Total

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

Balance at December 31, 2016

 

$

102,536

 

 

 

60,224,538

 

 

$

280,026,669

 

 

$

4,663

 

 

$

280,133,868

 

 

$

38,895,484

 

Distribution to noncontrolling

   interest

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(76,316

)

 

 

(76,316

)

 

 

 

 

Distributions paid or accrued

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Regular distribution

 

 

(194,272

)

 

 

-

 

 

 

(19,232,974

)

 

 

-

 

 

 

(19,427,246

)

 

 

-

 

Distribution of Tier 2

   earnings (Note 3)

 

 

(1,120,625

)

 

 

-

 

 

 

(3,361,875

)

 

 

-

 

 

 

(4,482,500

)

 

 

-

 

Net income (loss) allocable to

   Partners

 

 

1,212,429

 

 

 

-

 

 

 

12,450,442

 

 

 

71,653

 

 

 

13,734,524

 

 

 

-

 

Repurchase of Beneficial Unit

   Certificates

 

 

-

 

 

 

(254,656

)

 

 

(1,466,222

)

 

 

-

 

 

 

(1,466,222

)

 

 

-

 

Restricted units awarded

 

 

-

 

 

 

283,046

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Restricted units compensation

   expense

 

 

11,601

 

 

 

-

 

 

 

1,148,522

 

 

 

-

 

 

 

1,160,123

 

 

 

-

 

Unrealized gain on securities

 

 

310,204

 

 

 

-

 

 

 

30,710,164

 

 

 

-

 

 

 

31,020,368

 

 

 

31,020,368

 

Unrealized gain on bond

   purchase commitment

 

 

9,556

 

 

 

-

 

 

 

946,042

 

 

 

-

 

 

 

955,598

 

 

 

955,598

 

Balance at September 30, 2017

 

$

331,429

 

 

 

60,252,928

 

 

$

301,220,768

 

 

$

-

 

 

$

301,552,197

 

 

$

70,871,450

 

 

 

 

General Partner

 

 

# of Units

 

 

Beneficial Unit

Certificate Holders

 

 

Non-controlling

Interest

 

 

Total

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

Balance at December 31, 2015

 

$

399,077

 

 

 

60,252,928

 

 

$

312,720,264

 

 

$

5,486

 

 

$

313,124,827

 

 

$

60,963,687

 

Reversal of net unrealized

   gain sale of securities

 

 

(2,364

)

 

 

-

 

 

 

(234,075

)

 

 

-

 

 

 

(236,439

)

 

 

(236,439

)

Distributions paid or accrued

 

 

(2,586,413

)

 

 

-

 

 

 

(22,594,848

)

 

 

-

 

 

 

(25,181,261

)

 

 

-

 

Net income (loss) allocable to

   Partners

 

 

2,513,126

 

 

 

-

 

 

 

15,339,411

 

 

 

(781

)

 

 

17,851,756

 

 

 

-

 

Repurchase of Beneficial Unit

   Certificates

 

 

-

 

 

 

(238,936

)

 

 

(1,409,726

)

 

 

-

 

 

 

(1,409,726

)

 

 

-

 

Restricted units awarded

 

 

-

 

 

 

238,936

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Restricted units compensation

   expense

 

 

311

 

 

 

-

 

 

 

30,739

 

 

 

-

 

 

 

31,050

 

 

 

-

 

Unrealized gain on securities

 

 

427,390

 

 

 

-

 

 

 

42,311,561

 

 

 

-

 

 

 

42,738,951

 

 

 

42,738,951

 

Unrealized gain on bond

   purchase commitment

 

 

69,883

 

 

 

-

 

 

 

6,918,466

 

 

 

-

 

 

 

6,988,349

 

 

 

6,988,349

 

Balance at September 30, 2016

 

$

821,010

 

 

 

60,252,928

 

 

$

353,081,792

 

 

$

4,705

 

 

$

353,907,507

 

 

$

110,454,548

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

 

5


 

AMERICA FIRST MULTIFAMILY INVESTORS, L.P.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

 

For the Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

15,015,398

 

 

$

18,160,391

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization expense

 

 

4,122,260

 

 

 

5,292,889

 

Provision for loan loss

 

 

(55,000

)

 

 

-

 

Gain on sale of real estate assets

 

 

(7,152,512

)

 

 

(14,076,902

)

Gain on sale of securities

 

 

-

 

 

 

(8,097

)

Non-cash loss on derivatives

 

 

369,686

 

 

 

1,378,112

 

Restricted unit compensation expense

 

 

1,160,123

 

 

 

31,050

 

Bond premium/discount amortization

 

 

(113,861

)

 

 

(113,923

)

Amortization of deferred financing costs

 

 

1,880,236

 

 

 

1,350,200

 

Deferred income tax expense (benefit)

 

 

(374,000

)

 

 

417,000

 

Change in preferred return receivable from unconsolidated entities

 

 

(2,176,131

)

 

 

(307,165

)

Changes in operating assets and liabilities, net of effect of acquisitions

 

 

 

 

 

 

 

 

Increase in interest receivable

 

 

(336,710

)

 

 

(1,662,253

)

(Increase) decrease in other assets

 

 

(231,498

)

 

 

133,761

 

Increase (decrease) in accounts payable and accrued expenses

 

 

1,058,638

 

 

 

(827,131

)

Net cash provided by operating activities

 

 

13,166,629

 

 

 

9,767,932

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(290,042

)

 

 

(540,602

)

Proceeds from sale of MF Properties

 

 

13,750,000

 

 

 

45,850,001

 

Proceeds from sale of land held for development

 

 

3,000,000

 

 

 

-

 

Proceeds from sale of mortgage revenue bond

 

 

-

 

 

 

9,295,000

 

Proceeds from the sale of MBS Securities

 

 

-

 

 

 

14,997,069

 

Acquisition of mortgage revenue bonds

 

 

(72,056,000

)

 

 

(20,285,000

)

Contributions to unconsolidated entities

 

 

(9,569,227

)

 

 

(12,843,042

)

Acquisition of MF Property

 

 

-

 

 

 

(9,882,800

)

Restricted cash - debt collateral paid

 

 

(585,712

)

 

 

(1,589,456

)

Restricted cash - debt collateral released

 

 

4,576,407

 

 

 

2,704,840

 

Decrease in restricted cash

 

 

317,658

 

 

 

289,112

 

Principal payments received on mortgage revenue bonds

 

 

4,844,328

 

 

 

6,796,703

 

Principal payments received on taxable bonds

 

 

31,930

 

 

 

527,359

 

Principal payments received on PHCs

 

 

1,610,302

 

 

 

1,584,455

 

Cash paid for land held for development and deposits on potential purchases

 

 

(168,693

)

 

 

-

 

Advances on property loans

 

 

(2,376,370

)

 

 

(8,414,216

)

Principal payments received on property loans

 

 

1,000,000

 

 

 

8,516

 

Net cash provided by (used in) investing activities

 

 

(55,915,419

)

 

 

28,497,939

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Distributions paid

 

 

(25,339,844

)

 

 

(26,175,652

)

Proceeds from the sale of redeemable Series A Preferred Units

 

 

36,131,000

 

 

 

33,869,000

 

Payment of offering costs related to the sale of redeemable Series A Preferred Units

 

 

(668

)

 

 

(63,400

)

Acquisition of interest rate derivatives

 

 

(556,017

)

 

 

-

 

Repurchase of beneficial unit certificates

 

 

(1,466,222

)

 

 

(1,409,726

)

Payment of tax withholding related to restricted unit awards

 

 

(153,306

)

 

 

-

 

Distribution to noncontrolling interest

 

 

(76,316

)

 

 

-

 

Proceeds from debt financing

 

 

135,100,000

 

 

 

134,392,645

 

Principal payments on debt financing

 

 

(36,093,863

)

 

 

(128,348,340

)

Principal payments on other secured financing

 

 

-

 

 

 

(7,500,000

)

Principal borrowing on mortgages payable

 

 

-

 

 

 

7,500,000

 

Principal payments on mortgages payable

 

 

(884,826

)

 

 

(17,520,435

)

Principal borrowing on unsecured lines of credit

 

 

43,031,000

 

 

 

19,987,639

 

Principal payments on unsecured and secured lines of credit

 

 

(90,560,000

)

 

 

(37,484,639

)

Decrease in security deposit liability related to restricted cash

 

 

(105,320

)

 

 

(94,593

)

Debt financing and other deferred costs

 

 

(1,469,234

)

 

 

(1,539,150

)

Net cash provided by (used in) financing activities

 

 

57,556,384

 

 

 

(24,386,651

)

Net increase in cash and cash equivalents

 

 

14,807,594

 

 

 

13,879,220

 

Cash and cash equivalents at beginning of period

 

 

20,748,521

 

 

 

17,035,782

 

Cash and cash equivalents at end of period

 

$

35,556,115

 

 

$

30,915,002

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid during the period for interest

 

$

16,158,444

 

 

$

11,048,099

 

Cash paid during the period for income taxes

 

$

3,007,000

 

 

$

-

 

Supplemental disclosure of noncash investing and financing activities:

 

 

 

 

 

 

 

 

Distributions declared but not paid for beneficial unit certificates and general partner

 

$

7,607,693

 

 

$

7,890,161

 

Distributions declared but not paid for Series A Preferred Units

 

$

517,500

 

 

$

179,851

 

Land contributed as investment in an unconsolidated entity

 

$

3,091,023

 

 

$

-

 

Capital expenditures financed through accounts payable

 

$

76,064

 

 

$

12,112

 

Deferred financing costs financed through accounts payable

 

$

1,887

 

 

$

-

 

Liabilities assumed in the acquisition of MF Property

 

$

-

 

 

$

135,326

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

 

6


 

AMERICA FIRST MULTIFAMILY INVESTORS, L.P.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017

(UNAUDITED)

 

1. Basis of Presentation

General

America First Multifamily Investors, L.P. (the “Partnership”) was formed on April 2, 1998, under the Delaware Revised Uniform Limited Partnership Act for the purpose of acquiring, holding, selling and otherwise dealing with a portfolio of mortgage revenue bonds (“MRBs”) which have been issued to provide construction and/or permanent financing for affordable multifamily and student housing residential properties (collectively “Residential Properties”) and commercial properties. In addition, the Partnership may acquire interests in multifamily, student, and senior citizen residential properties (“MF Properties”) in order to position itself for future investments in MRBs issued to finance these properties or to operate the MF Property until its “highest and best use” can be determined by management.

The general partner of the Partnership is America First Capital Associates Limited Partnership Two (“AFCA 2” or “General Partner”).  The general partner of AFCA 2 is Burlington Capital LLC (“Burlington”). The Partnership has issued Beneficial Unit Certificates (“BUCs”) representing assigned limited partner interests to investors (“Unitholders”). The Partnership has also issued non-cumulative, non-voting and non-convertible Series A Preferred Units which represent limited partnership interests in the Partnership.      

 

 

2. Summary of Significant Accounting Policies

Consolidation

The “Partnership,” as used herein, includes America First Multifamily Investors, L.P. and its wholly-owned subsidiaries. All intercompany transactions are eliminated.  At September 30, 2017, the consolidated subsidiaries of the Partnership (the “Consolidated Subsidiaries”) consist of:

 

ATAX TEBS I, LLC, a special purpose entity owned and controlled by the Partnership, created to hold MRBs to facilitate the Tax Exempt Bond Securitization (“TEBS”) Financing (“M24 TEBS Financing”) with Freddie Mac.

 

ATAX TEBS II, LLC, a special purpose entity owned and controlled by the Partnership, created to hold MRBs to facilitate the second TEBS Financing, (“M31 TEBS Financing”) with Freddie Mac.

 

ATAX TEBS III, LLC, a special purpose entity owned and controlled by the Partnership, created to hold MRBs to facilitate the third TEBS Financing (“M33 TEBS Financing”), with Freddie Mac.

 

ATAX Vantage Holdings, LLC, a wholly owned subsidiary of the Partnership, committed to loan money or provide equity for the development of multifamily properties.

 

Four MF Properties are owned by a wholly-owned corporation (“the Greens Hold Co”). The Greens Hold Co held a 99% limited partnership interest in the northern View MF Property until its sale in March 2017.

 

One MF Property is owned by a wholly-owned subsidiary of the Partnership and one MF Property is owned directly by the Partnership. 

Acquisition Accounting

Pursuant to the guidance on acquisition accounting, the Partnership allocates the contractual purchase price of a property acquired to the land, building, improvements and leases in existence as of the date of acquisition based on their relative fair values.  The building is valued as if vacant. The estimated valuation of in-place leases is calculated by applying a risk-adjusted discount rate to the projected cash flow deficit at each property during an assumed lease-up period for these properties. This allocated cost is amortized over the average remaining term of the leases and is included in the statement of operations under depreciation and amortization expense. The acquisition related costs to acquire a property are expensed as incurred.

Investment in unconsolidated entities

The Partnership makes initial investments in and is committed to invest, through ATAX Vantage Holdings, LLC, in certain limited liability companies (“Vantage Properties”). ATAX Vantage Holdings, LLC holds a limited membership interest in the Vantage

7


 

Properties. The investments will be used to construct multifamily properties. The Partnership does not have a controlling interest in the Vantage Properties and accounts for its limited partnership interests using the equity method of accounting.  The Partnership earns a return on its investment that is guaranteed by an unrelated third party.  The term of third-party guarantee is from initial investment date through the second anniversary of construction completion. Due to the third-party guarantee provided, cash flows are expected to be sufficient to pay the Partnership its earned return. As a result, the Partnership records the return on the investment earned as investment income in the Partnership’s condensed consolidated statements of operations.

 

Income Taxes

No provision has been made for income taxes of the Partnership because the Unitholders are required to report their share of the Partnership’s taxable income for federal and state income tax purposes, except for certain entities described below.  The Partnership recognizes franchise margin tax expense on revenues in certain jurisdictions relating to MF Properties and Investments in unconsolidated entities.

The Greens Hold Co, a wholly-owned subsidiary of the Partnership, is a corporation subject to federal and state income taxes.  The Partnership will recognize income tax expense or benefit for the federal and state income taxes incurred by the Greens Hold Co on the Partnership’s condensed consolidated financial statements.  

The Partnership evaluates its tax positions taken in the Partnership’s condensed consolidated financial statements under the interpretation for accounting for uncertainty in income taxes. As such, the Partnership may recognize a tax benefit from an uncertain tax position only if the Partnership believes it is more likely than not that the tax position will be sustained on examination by taxing authorities. The Partnership accrues interest and penalties as incurred within income tax expense.

Deferred income tax expense, or benefit, is generally a function of the period’s temporary differences (items that are treated differently for tax purposes than for financial reporting purposes such as depreciation, amortization of financing costs, etc.) and the utilization of tax net operating losses (“NOL”) generated in prior years that had been previously recognized as deferred income tax assets. The Partnership fully utilized its NOL carryforwards during 2016. The Partnership records a valuation allowance for deferred income tax assets if it believes all, or some portion, of the deferred income tax asset may not be realized. Any increase or decrease in the valuation allowance that results from a change in circumstances that causes a change in the estimated ability to realize the related deferred income tax asset is included in deferred income tax expense.

Restricted Unit Awards (“RUAs”)

The Partnership’s 2015 Equity Incentive Plan (the “Plan”), as approved by the Unitholders in September 2015, permits the grant of Restricted Units and other awards to the employees of Burlington, the Partnership, or any affiliate of either, and members of Burlington’s Board of Managers for up to 3.0 million BUCs.  RUAs are generally granted with vesting conditions ranging from three months to three years. RUAs currently provide for the payment of quarterly distributions during the restriction period. The RUAs provide for accelerated vesting if there is a change in control or upon death or disability of the Participant. The Partnership accounts for forfeitures when they occur.  

The fair value of each RUA is estimated on the grant date based on the Partnership’s exchange-listed closing price of the BUCs. The Partnership recognizes compensation expense for the RUAs on a straight-line basis over the requisite vesting period. The Partnership will account for modifications to RUAs as they occur if the fair value of the RUAs change, there are changes to vesting conditions or the awards no longer qualify for equity classification.

Estimates and assumptions

The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.  The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted in accordance with such rules and regulations, although management believes that the disclosures are adequate to make the information presented not misleading.

 

The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2016. These condensed

8


 

consolidated financial statements and notes have been prepared consistently with the 2016 Form 10-K. In the opinion of management, all adjustments (consisting of normal and recurring accruals) necessary to present fairly the financial position at September 30, 2017, and the results of operations for the interim periods presented have been made. The results of operations for the interim period are not necessarily indicative of the results to be expected for the full year. The condensed consolidated balance sheet at December 31, 2016, was derived from audited annual financial statements, but does not contain all the footnote disclosures from the annual consolidated financial statements.

Recently Issued Accounting Pronouncements

In March 2017, the FASB issued ASU 2017-08. The ASU requires that premiums on purchased callable debt securities be amortized as a yield adjustment to the earliest call date. Previously, premiums were required to be amortized as a yield adjustment to maturity. The guidance is effective for annual periods beginning after December 15, 2018, including interim periods within that reporting period. Early adoption is permitted. The standard will be applied using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption. The Partnership is currently evaluating the impact this standard will have on its condensed consolidated financial statements.

In February 2017, the FASB issued ASU 2017-05. The ASU eliminates guidance specific to real estate sales in Accounting Standards Codification 360-20. As such, sales and partial sales of real estate assets will now be subject to the same derecognition model as all other nonfinancial assets. The guidance is effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period. The effective date of this guidance coincides with revenue recognition guidance. The Partnership is currently evaluating the impact this standard will have on its condensed consolidated financial statements.

In January 2017, the FASB issued ASU 2017-01, “Business Combinations; Clarifying the Definition of a Business.” The ASU modifies the requirements to meet the definition of a business under Topic 805, “Business Combinations.” The amendments provide a screen to determine when a set of identifiable assets and liabilities is not a business. The screen requires that when substantially all the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not a business. The impact is expected to result in fewer transactions being accounted for as business combinations. The ASU is effective for the Partnership for fiscal years beginning after December 15, 2017 and is applied prospectively. It is expected that the new standard would reduce the number of future real estate acquisitions that will be accounted for as business combinations and, therefore, reduce the amount of acquisition costs that will be expensed.

In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows; Restricted Cash.” The ASU requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The ASU is effective for the Partnership’s annual and interim periods beginning after December 15, 2017 and is applied retrospectively. The Partnership is currently assessing the impact this standard will have on its condensed consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230).” The ASU clarifies the presentation of cash receipts and cash payments related to certain transactions. The ASU is effective for the Partnership for fiscal years beginning after December 15, 2017 and is applied retrospectively. The Partnership is currently assessing the impact of the adoption of this pronouncement on the condensed consolidated financial statements. 

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326).” The ASU enhances the methodology of measuring expected credit losses to include the use of forward-looking information to better inform credit loss estimates. The ASU is effective for the Partnership’s annual and interim periods beginning after December 15, 2019 and is applied under a modified-retrospective approach. The Partnership is currently assessing the impact of the adoption of this pronouncement on the condensed consolidated financial statements.    

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” The ASU requires the recognition of right-of-use assets and lease liabilities on the balance sheet and disclosure of key information about leasing arrangements. The ASU offers specific accounting guidance for embedded lease arrangements, lease terms and incentives, sale-leaseback agreements, and related disclosures. The ASU is effective for the Partnership’s annual and interim periods beginning after December 15, 2018 and requires a modified retrospective adoption, with early adoption permitted. The Partnership has performed a preliminary assessment of its lessor and lessee leasing arrangements. Lessor arrangements with tenants at the MF Properties are not expected to be materially impacted by adoption of the standard as substantially all leases are for terms of 12 months or less. The Partnership has four lessee arrangements for which it is assessing the quantitative and qualitative impact of the standard. The Partnership has not elected early adoption of the standard as of September 30, 2017 and is currently evaluating the impact this standard will have on its condensed consolidated financial statements.

9


 

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments Overall (Subtopic 825-10).” The ASU simplifies and clarifies the recognition, measurement, presentation, and disclosure of financial instruments. The ASU is effective for the Partnership’s annual and interim periods beginning after December 15, 2017. The Partnership continues to assess the impact of the adoption of this standard but preliminarily does not believe adoption will have a material impact on the Partnership’s condensed consolidated financial statements. 

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” The updated standard is a new comprehensive revenue recognition model that requires revenue to be recognized in a manner that depicts the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. In August 2015, the FASB issued ASU 2015-14 which deferred the effective date of ASU 2014-09 by one year. During 2016, the FASB issued ASU Nos. 2016-10, 2016-12 and 2016-20 that provide additional guidance related to the identification of performance obligations within a contract, assessing collectability, contract costs, and other technical corrections and improvements. The Partnership expects to use the modified retrospective transition method and will adopt the standard effective January 1, 2018. The Partnership has completed an assessment of its revenue streams and performance obligations and is currently evaluating the quantitative and qualitative impacts of the new standard on the business. The Partnership has determined that revenues within investment income, contingent interest income, other interest income are not within the scope of this standard. Furthermore, the majority of property revenues are within the scope of the Lease ASU and outside the scope of the Revenue ASU. The Partnership believes the new standard will only impact property revenues related to non-lease revenue streams and certain provisions that apply to gains on sale of real estate assets. The impact to non-lease revenue streams within the scope of this standard is immaterial to the condensed consolidated financial statements.

 

 

3. Partnership Income, Expenses and Cash Distributions

The Partnership’s Amended and Restated Agreement of Limited Partnership (the “Amended and Restated LP Agreement”) contains provisions for the distribution of Net Interest Income, Net Residual Proceeds and Liquidation Proceeds, for the allocation of income or loss from operations and for the allocation of income and loss arising from a repayment, sale, or liquidation of investments.  Income and losses will be allocated to each Unitholder on a periodic basis, as determined by the General Partner, based on the number of BUCs held by each Unitholder as of the last day of the period for which such allocation is to be made. Distributions of Net Interest Income and Net Residual Proceeds will be made to each Unitholder of record on the last day of each distribution period based on the number of BUCs held by each Unitholder on that date. For purposes of the Amended and Restated LP Agreement, cash distributions, if any, received by the Partnership from its investment in MF Properties will be included in the Partnership’s Net Interest Income and cash distributions received by the Partnership from the sale of such properties will be included in the Partnership’s Net Residual Proceeds.

Series A Preferred Units were created pursuant to the First Amendment to the Amended and Restated LP Agreement (the “First Amendment”), which became effective on March 30, 2016. The holders of the Series A Preferred Units are entitled to distributions at a fixed rate prior to payment of distributions to other Unitholders.

 

Cash distributions are currently made on a quarterly basis. AFCA 2 can elect to make distributions on a monthly or semi-annual basis. On each distribution date, Net Interest Income is distributed 99% to the limited partners and Unitholders as a class and 1% to AFCA 2 and Net Residual Proceeds are distributed 100% to the limited partners and Unitholders as a class, except that Net Interest Income and Net Residual Proceeds representing contingent interest in an amount equal to 0.9% per annum of the principal amount of the MRBs on a cumulative basis (defined as Net Interest Income (Tier 2) and Net Residual Proceeds (Tier 2), respectively) are distributed 75% to the limited partners and Unitholders as a class and 25% to AFCA 2.

 

 

4. Net income per BUC

The Partnership has disclosed basic and diluted net income per BUC on the condensed consolidated statements of operations. The unvested RUAs issued under the Plan are considered participating securities. The Partnership uses the two-class method to allocate net income available to BUCs and the unvested Restricted Units. Unvested Restricted Units are included with BUCs for the calculation of diluted net income per BUC using the treasury stock method, if the treasury stock method is more dilutive than the two-class method.

 

 

5. Variable Interest Entities

Consolidated Variable Interest Entities (“VIEs”)

The Partnership determined the TOB Trusts, Term A/B Trusts and TEBS Financings are VIEs and the Partnership is the primary beneficiary.  As such, the Partnership reports the TOB Trusts, Term A/B Trusts and TEBS Financings on a consolidated basis. The

10


 

Partnership reports the senior floating-rate participation interests (“SPEARS”) related to the TOB Trusts and the Class A Certificates for both the Term A/B Trusts and TEBS Financings as secured debt financings on the condensed consolidated balance sheets. The MRBs secured by the TOB Trusts, Term A/B Trusts and TEBS Financings are reported as assets on the condensed consolidated balance sheets. In determining the primary beneficiary of these specific VIEs, the Partnership considered which party has the power to control the activities of the VIEs which most significantly impact their financial performance, the risks that the entity was designed to create, and how each risk affects the VIE.  The executed agreements related to the TOB Trusts, Term A/B Trusts and TEBS Financings stipulate the Partnership has the sole right to cause the Trusts to sell the underlying assets. If they were sold, the extent to which the VIEs will be exposed to gains or losses would result from decisions made by the Partnership.

Non-Consolidated VIEs

The Partnership has variable interests in certain entities that are the borrowers on the Partnership’s MRBs and/or property loans. The Partnership has no equity ownership interest in the entities, but the MRBs and property loans issued by the Partnership are considered variable interests. In addition, the Partnership’s investments in unconsolidated entities are considered variable interests. The Partnership does not have the power to direct the activities that most significantly impact the economic performance of such VIEs. As a result, the Partnership is not considered the primary beneficiary and does not consolidate the financial statements of these entities in the condensed consolidated financial statements.

The Partnership held variable interests in 21 and 20 non-consolidated VIEs at September 30, 2017 and December 31, 2016, respectively. The following table summarizes information regarding the Partnership’s variable interests in these entities at September 30, 2017 and December 31, 2016:

 

 

 

Maximum Exposure to Loss

 

 

 

September 30, 2017

 

 

December 31, 2016

 

Mortgage revenue bonds

 

$

144,529,000

 

 

$

137,921,000

 

Property loans

 

 

17,369,365

 

 

 

16,476,073

 

Investment in unconsolidated entities

 

 

34,335,649

 

 

 

19,470,006

 

 

 

$

196,234,014

 

 

$

173,867,079

 

 

The maximum exposure to loss for the MRBs is equal to the cost adjusted for paydowns at September 30, 2017 and December 31, 2016. The difference between a MRB’s carrying value on the condensed consolidated balance sheets and the maximum exposure to loss is a function of the unrealized gains or losses on the MRB. 

 

The maximum exposure to loss on the property loans at September 30, 2017 and December 31, 2016 is equal to the unpaid principal balance plus accrued interest. The difference between a property loans’ carrying value and the maximum exposure is the value of loan loss allowances that have been previously recorded against the property loans.

 

 

11


 

6. Investments in Mortgage Revenue Bonds (“MRBs”)

MRBs owned by the Partnership have been issued to provide construction and/or permanent financing for Residential Properties and commercial properties.  MRBs are either held directly by the Partnership or are held in trusts created in connection with debt financing transactions (Note 15). The Partnership had the following investments in MRBs at September 30, 2017 and December 31, 2016:

 

 

 

September 30, 2017

 

Description of Mortgage Revenue Bonds Held in Trust

 

State

 

Cost Adjusted for

Paydowns

 

 

Cumulative

Unrealized Gain

 

 

Cumulative

Unrealized Loss

 

 

Estimated Fair Value

 

Courtyard - Series A & B (2)

 

CA

 

$

16,458,000

 

 

$

1,138,145

 

 

$

-

 

 

$

17,596,145

 

Glenview Apartments - Series A (4)

 

CA

 

 

4,638,152

 

 

 

640,243

 

 

 

-

 

 

 

5,278,395

 

Harmony Court Bakersfield - Series A & B (2)

 

CA

 

 

3,730,000

 

 

 

398,115

 

 

 

-

 

 

 

4,128,115

 

Harmony Terrace - Series A & B (2)

 

CA

 

 

14,300,000

 

 

 

812,807

 

 

 

-

 

 

 

15,112,807

 

Harden Ranch - Series A (3)

 

CA

 

 

6,862,983

 

 

 

1,086,331

 

 

 

-

 

 

 

7,949,314

 

Las Palmas II - Series A & B (2)

 

CA

 

 

3,465,000

 

 

 

179,028

 

 

 

-

 

 

 

3,644,028

 

Montclair Apartments - Series A (4)

 

CA

 

 

2,512,746

 

 

 

401,052

 

 

 

-

 

 

 

2,913,798

 

San Vicente - Series A & B (2)

 

CA

 

 

5,320,000

 

 

 

279,275

 

 

 

-

 

 

 

5,599,275

 

Santa Fe Apartments - Series A (4)

 

CA

 

 

3,044,098

 

 

 

525,978

 

 

 

-

 

 

 

3,570,076

 

Seasons at Simi Valley - Series A (2)

 

CA

 

 

4,376,000

 

 

 

784,070

 

 

 

-

 

 

 

5,160,070

 

Seasons Lakewood - Series A & B (2)

 

CA

 

 

12,610,000

 

 

 

822,322

 

 

 

-

 

 

 

13,432,322

 

Seasons San Juan Capistrano - Series A & B (2)

 

CA

 

 

18,949,000

 

 

 

1,127,068

 

 

 

-

 

 

 

20,076,068

 

Summerhill - Series A & B (2)

 

CA

 

 

9,795,000

 

 

 

684,808

 

 

 

-

 

 

 

10,479,808

 

Sycamore Walk - Series A (2)

 

CA

 

 

3,632,000

 

 

 

466,553

 

 

 

-

 

 

 

4,098,553

 

The Village at Madera - Series A & B (2)

 

CA

 

 

4,804,000

 

 

 

311,708

 

 

 

-

 

 

 

5,115,708

 

Tyler Park Townhomes - Series A (3)

 

CA

 

 

5,980,454

 

 

 

877,348

 

 

 

-

 

 

 

6,857,802

 

Westside Village Market - Series A (3)

 

CA

 

 

3,908,215

 

 

 

604,569

 

 

 

-

 

 

 

4,512,784

 

Lake Forest (1)

 

FL

 

 

8,540,000

 

 

 

1,485,248

 

 

 

-

 

 

 

10,025,248

 

Ashley Square (1)

 

IA

 

 

4,994,000

 

 

 

13,538

 

 

 

-

 

 

 

5,007,538

 

Brookstone (1)

 

IL

 

 

7,454,205

 

 

 

2,113,460

 

 

 

-

 

 

 

9,567,665

 

Copper Gate Apartments (3)

 

IN

 

 

5,145,000

 

 

 

867,844

 

 

 

-

 

 

 

6,012,844

 

Renaissance - Series A (4)

 

LA

 

 

11,267,286

 

 

 

1,628,900

 

 

 

-

 

 

 

12,896,186

 

Live 929 Apartments (2)

 

MD

 

 

40,594,362

 

 

 

3,961,295

 

 

 

-

 

 

 

44,555,657

 

Woodlynn Village (1)

 

MN

 

 

4,289,000

 

 

 

10,736

 

 

 

-

 

 

 

4,299,736

 

Greens Property - Series A (3)

 

NC

 

 

8,147,000

 

 

 

1,230,615

 

 

 

-

 

 

 

9,377,615

 

Silver Moon - Series A (4)

 

NM

 

 

7,893,310

 

 

 

1,079,738

 

 

 

-

 

 

 

8,973,048

 

Ohio Properties - Series A (1)

 

OH

 

 

14,140,000

 

 

 

996,412

 

 

 

-

 

 

 

15,136,412

 

Bridle Ridge (1)

 

SC

 

 

7,465,000

 

 

 

57,667

 

 

 

-

 

 

 

7,522,667

 

Columbia Gardens (2)

 

SC

 

 

15,175,444

 

 

 

498,008

 

 

 

-

 

 

 

15,673,452

 

Companion at Thornhill Apartments (2)

 

SC

 

 

11,431,237

 

 

 

1,314,765

 

 

 

-

 

 

 

12,746,002

 

Cross Creek (1)

 

SC

 

 

6,133,621

 

 

 

3,014,744

 

 

 

-

 

 

 

9,148,365

 

The Palms at Premier Park Apartments (3)

 

SC

 

 

19,284,860

 

 

 

2,938,148

 

 

 

-

 

 

 

22,223,008

 

Willow Run (2)

 

SC

 

 

15,176,206

 

 

 

135,745

 

 

 

-

 

 

 

15,311,951

 

Arbors at Hickory Ridge (3)

 

TN

 

 

11,372,772

 

 

 

1,655,828

 

 

 

-

 

 

 

13,028,600

 

Pro Nova 2014-1 (2)

 

TN

 

 

10,039,648

 

 

 

193,874

 

 

 

-

 

 

 

10,233,522

 

Avistar at Chase Hill - Series A (3)

 

TX

 

 

9,773,429

 

 

 

-

 

 

 

(280,678

)

 

 

9,492,751

 

Avistar at Copperfield - Series A (2)

 

TX

 

 

10,000,000

 

 

 

423,447

 

 

 

-

 

 

 

10,423,447

 

Avistar at the Crest - Series A (3)

 

TX

 

 

9,480,225

 

 

 

1,021,050

 

 

 

-

 

 

 

10,501,275

 

Avistar at the Oaks - Series A (3)

 

TX

 

 

7,654,594

 

 

 

880,439

 

 

 

-

 

 

 

8,535,033

 

Avistar at the Parkway - Series A (4)

 

TX

 

 

13,262,378

 

 

 

908,602

 

 

 

-

 

 

 

14,170,980

 

Avistar at Wilcrest - Series A (2)

 

TX

 

 

3,775,000

 

 

 

207,425

 

 

 

-

 

 

 

3,982,425

 

Avistar at Wood Hollow - Series A (2)

 

TX

 

 

31,850,000

 

 

 

1,348,678

 

 

 

-

 

 

 

33,198,678

 

Avistar in 09 - Series A (3)

 

TX

 

 

6,609,446

 

 

 

666,232

 

 

 

-

 

 

 

7,275,678

 

Avistar on the Boulevard - Series A (3)

 

TX

 

 

16,150,587

 

 

 

1,664,812

 

 

 

-

 

 

 

17,815,399

 

Avistar on the Hills - Series A (3)

 

TX

 

 

5,288,542

 

 

 

608,293

 

 

 

-

 

 

 

5,896,835

 

Bella Vista (1)

 

TX

 

 

6,295,000

 

 

 

100,991

 

 

 

-

 

 

 

6,395,991

 

Bruton Apartments (2)

 

TX

 

 

18,080,240

 

 

 

2,607,782

 

 

 

-

 

 

 

20,688,022

 

Concord at Gulfgate - Series A (2)

 

TX

 

 

19,185,000

 

 

 

2,611,745

 

 

 

-

 

 

 

21,796,745

 

Concord at Little York - Series A (2)

 

TX

 

 

13,440,000

 

 

 

1,896,349

 

 

 

-

 

 

 

15,336,349

 

Concord at Williamcrest - Series A (2)

 

TX

 

 

20,820,000

 

 

 

2,834,325

 

 

 

-

 

 

 

23,654,325

 

Crossing at 1415 - Series A (2)

 

TX

 

 

7,590,000

 

 

 

295,343

 

 

 

-

 

 

 

7,885,343

 

Decatur Angle (2)

 

TX

 

 

22,834,591

 

 

 

2,518,998

 

 

 

-

 

 

 

25,353,589

 

Heights at 515 - Series A (2)

 

TX

 

 

6,435,000

 

 

 

329,490

 

 

 

-

 

 

 

6,764,490

 

Heritage Square - Series A (4)

 

TX

 

 

11,088,157

 

 

 

989,114

 

 

 

-

 

 

 

12,077,271

 

Oaks at Georgetown - Series A & B (2)

 

TX

 

 

17,842,000

 

 

 

808,259

 

 

 

-

 

 

 

18,650,259

 

Runnymede (1)

 

TX

 

 

10,200,000

 

 

 

168,797

 

 

 

-

 

 

 

10,368,797

 

Southpark (1)

 

TX

 

 

11,809,069

 

 

 

3,192,305

 

 

 

-

 

 

 

15,001,374

 

Vantage at Harlingen - Series B (4)

 

TX

 

 

24,379,208

 

 

 

1,921,472

 

 

 

-

 

 

 

26,300,680

 

Vantage at Judson -Series B (4)

 

TX

 

 

26,187,732

 

 

 

3,403,014

 

 

 

-

 

 

 

29,590,746

 

15 West Apartments (2)

 

WA

 

 

9,812,357

 

 

 

1,733,769

 

 

 

-

 

 

 

11,546,126

 

Mortgage revenue bonds held in trust

 

 

 

$

672,771,154

 

 

$

67,476,716

 

 

$

(280,678

)

 

$

739,967,192

 

 

(1)

MRBs owned by ATAX TEBS I, LLC (M24 TEBS), Note 15

12


 

(2)

MRBs held by Deutsche Bank in a secured financing transaction, Note 15

(3)

MRBs owned by ATAX TEBS II, LLC (M31 TEBS), Note 15

(4)

MRBs owned by ATAX TEBS III, LLC (M33 TEBS), Note 15

 

 

 

September 30, 2017

 

Description of Mortgage Revenue Bonds held by the Partnership

 

State

 

Cost Adjusted for

Paydowns

 

 

Cumulative

Unrealized Gain

 

 

Cumulative

Unrealized Loss

 

 

Estimated Fair Value

 

Montecito at Williams Ranch Apartments - Series A & B

 

CA

 

$

12,471,000

 

 

$

-

 

 

$

-

 

 

$

12,471,000

 

Seasons at Simi Valley - Series B

 

CA

 

 

1,944,000

 

 

 

84

 

 

 

-

 

 

 

1,944,084

 

Sycamore Walk - Series B

 

CA

 

 

1,815,000

 

 

 

-

 

 

 

(1,078

)

 

 

1,813,922

 

Greens Property - Series B

 

NC

 

 

938,204

 

 

 

211,542

 

 

 

-

 

 

 

1,149,746

 

Ohio Properties - Series B

 

OH

 

 

3,539,619

 

 

 

192,655

 

 

 

-

 

 

 

3,732,274

 

Avistar at Chase Hill - Series B

 

TX

 

 

954,095

 

 

 

-

 

 

 

(56,474

)

 

 

897,621

 

Avistar at Copperfield - Series B

 

TX

 

 

4,000,000

 

 

 

12,278

 

 

 

-

 

 

 

4,012,278

 

Avistar at the Crest - Series B

 

TX

 

 

750,423

 

 

 

47,206

 

 

 

-

 

 

 

797,629

 

Avistar at the Oaks - Series B

 

TX

 

 

548,883

 

 

 

33,008

 

 

 

-

 

 

 

581,891

 

Avistar at the Parkway - Series B

 

TX

 

 

124,922

 

 

 

30,779

 

 

 

-

 

 

 

155,701

 

Avistar at Wilcrest - Series B

 

TX

 

 

1,550,000

 

 

 

4,816

 

 

 

-

 

 

 

1,554,816

 

Avistar at Wood Hollow - Series B

 

TX

 

 

8,410,000

 

 

 

27,395

 

 

 

-

 

 

 

8,437,395

 

Avistar in 09 - Series B

 

TX

 

 

452,779

 

 

 

25,439

 

 

 

-

 

 

 

478,218

 

Avistar on the Boulevard - Series B

 

TX

 

 

445,904

 

 

 

26,313

 

 

 

-

 

 

 

472,217

 

Crossing at 1415 - Series B

 

TX

 

 

335,000

 

 

 

1,079

 

 

 

-

 

 

 

336,079

 

Heights at 515 - Series B

 

TX

 

 

510,000

 

 

 

1,815

 

 

 

-

 

 

 

511,815

 

Mortgage revenue bonds held by the Partnership

 

 

 

$

38,789,829

 

 

$

614,409

 

 

$

(57,552

)

 

$

39,346,686

 

 

13


 

 

 

December 31, 2016

 

Description of Mortgage Revenue Bonds Held in Trust

 

State

 

Cost Adjusted for

Paydowns

 

 

Cumulative

Unrealized Gain

 

 

Cumulative

Unrealized Loss

 

 

Estimated Fair Value

 

Glenview Apartments - Series A (4)

 

CA

 

$

4,670,000

 

 

$

132,402

 

 

$

-

 

 

$

4,802,402

 

Harmony Terrace - Series A & B (2)

 

CA

 

 

14,300,000

 

 

 

-

 

 

 

-

 

 

 

14,300,000

 

Harden Ranch - Series A (3)

 

CA

 

 

6,912,535

 

 

 

369,738

 

 

 

-

 

 

 

7,282,273

 

Montclair Apartments - Series A (4)

 

CA

 

 

2,530,000

 

 

 

108,608

 

 

 

-

 

 

 

2,638,608

 

Santa Fe Apartments - Series A (4)

 

CA

 

 

3,065,000

 

 

 

177,093

 

 

 

-

 

 

 

3,242,093

 

Seasons at Simi Valley - Series A (2)

 

CA

 

 

4,376,000

 

 

 

308,335

 

 

 

-

 

 

 

4,684,335

 

Sycamore Walk - Series A (2)

 

CA

 

 

3,632,000

 

 

 

130,431

 

 

 

-

 

 

 

3,762,431

 

Tyler Park Townhomes - Series A (3)

 

CA

 

 

6,024,120

 

 

 

237,582

 

 

 

-

 

 

 

6,261,702

 

Westside Village Market - Series A (3)

 

CA

 

 

3,936,750

 

 

 

102,641

 

 

 

-

 

 

 

4,039,391

 

Lake Forest (1)

 

FL

 

 

8,639,000

 

 

 

899,694

 

 

 

-

 

 

 

9,538,694

 

Ashley Square (1)

 

IA

 

 

5,039,000

 

 

 

338,556

 

 

 

-

 

 

 

5,377,556

 

Brookstone (1)

 

IL

 

 

7,462,678

 

 

 

1,457,340

 

 

 

-

 

 

 

8,920,018

 

Copper Gate Apartments (3)

 

IN

 

 

5,145,000

 

 

 

528,855

 

 

 

-

 

 

 

5,673,855

 

Renaissance - Series A (4)

 

LA

 

 

11,348,364

 

 

 

826,369

 

 

 

-

 

 

 

12,174,733

 

Live 929 Apartments (2)

 

MD

 

 

40,687,425

 

 

 

3,587,993

 

 

 

-

 

 

 

44,275,418

 

Woodlynn Village (1)

 

MN

 

 

4,310,000

 

 

 

294,976

 

 

 

-

 

 

 

4,604,976

 

Greens Property - Series A (3)

 

NC

 

 

8,210,000

 

 

 

844,585

 

 

 

-

 

 

 

9,054,585

 

Silver Moon - Series A (4)

 

NM

 

 

7,933,259

 

 

 

465,382

 

 

 

-

 

 

 

8,398,641

 

Ohio Properties - Series A (1)

 

OH

 

 

14,215,000

 

 

 

2,327,468

 

 

 

-

 

 

 

16,542,468

 

Bridle Ridge (1)

 

SC

 

 

7,535,000

 

 

 

517,881

 

 

 

-

 

 

 

8,052,881

 

Columbia Gardens (2)

 

SC

 

 

15,214,223

 

 

 

-

 

 

 

(927,030

)

 

 

14,287,193

 

Companion at Thornhill Apartments (2)

 

SC

 

 

11,500,000

 

 

 

645,552

 

 

 

-

 

 

 

12,145,552

 

Cross Creek (1)

 

SC

 

 

6,122,312

 

 

 

2,655,730

 

 

 

-

 

 

 

8,778,042

 

The Palms at Premier Park Apartments (3)

 

SC

 

 

19,826,716

 

 

 

1,784,386

 

 

 

-

 

 

 

21,611,102

 

Willow Run (2)

 

SC

 

 

15,214,085

 

 

 

-

 

 

 

(917,852

)

 

 

14,296,233

 

Arbors at Hickory Ridge (3)

 

TN

 

 

11,461,719

 

 

 

891,274

 

 

 

-

 

 

 

12,352,993

 

Pro Nova 2014-1 (2)

 

TN

 

 

10,041,924

 

 

 

685,576

 

 

 

-

 

 

 

10,727,500

 

Avistar at Chase Hill - Series A (3)

 

TX

 

 

9,844,994

 

 

 

589,023

 

 

 

-

 

 

 

10,434,017

 

Avistar at the Crest - Series A (3)

 

TX

 

 

9,549,644

 

 

 

753,267

 

 

 

-

 

 

 

10,302,911

 

Avistar at the Oaks - Series A (3)

 

TX

 

 

7,709,040

 

 

 

563,138

 

 

 

-

 

 

 

8,272,178

 

Avistar at the Parkway - Series A (4)

 

TX

 

 

13,300,000

 

 

 

-

 

 

 

(78,749

)

 

 

13,221,251

 

Avistar in 09 - Series A (3)

 

TX

 

 

6,656,458

 

 

 

359,562

 

 

 

-

 

 

 

7,016,020

 

Avistar on the Boulevard - Series A (3)

 

TX

 

 

16,268,850

 

 

 

1,283,272

 

 

 

-

 

 

 

17,552,122

 

Avistar on the Hills - Series A (3)

 

TX

 

 

5,326,157

 

 

 

423,496

 

 

 

-

 

 

 

5,749,653

 

Bella Vista (1)

 

TX

 

 

6,365,000

 

 

 

500,162

 

 

 

-

 

 

 

6,865,162

 

Bruton Apartments (2)

 

TX

 

 

18,145,000

 

 

 

349,886

 

 

 

-

 

 

 

18,494,886

 

Concord at Gulfgate - Series A (2)

 

TX

 

 

19,185,000

 

 

 

1,200,246

 

 

 

-

 

 

 

20,385,246

 

Concord at Little York - Series A (2)

 

TX

 

 

13,440,000

 

 

 

1,044,752

 

 

 

-

 

 

 

14,484,752

 

Concord at Williamcrest - Series A (2)

 

TX

 

 

20,820,000

 

 

 

1,302,534

 

 

 

-

 

 

 

22,122,534

 

Crossing at 1415 - Series A (2)

 

TX

 

 

7,590,000

 

 

 

-

 

 

 

(45,555

)

 

 

7,544,445

 

Decatur Angle (2)

 

TX

 

 

22,950,214

 

 

 

-

 

 

 

(290,985

)

 

 

22,659,229

 

Heights at 515 - Series A (2)

 

TX

 

 

6,435,000

 

 

 

-

 

 

 

(38,623

)

 

 

6,396,377

 

Heritage Square - Series A (4)

 

TX

 

 

11,161,330

 

 

 

905,455

 

 

 

-

 

 

 

12,066,785

 

Oaks at Georgetown - Series A & B (2)

 

TX

 

 

17,842,000

 

 

 

-

 

 

 

-

 

 

 

17,842,000

 

Runnymede (1)

 

TX

 

 

10,250,000

 

 

 

774,285

 

 

 

-

 

 

 

11,024,285

 

Southpark (1)

 

TX

 

 

11,751,861

 

 

 

3,286,203

 

 

 

-

 

 

 

15,038,064

 

Vantage at Harlingen - Series B (4)

 

TX

 

 

24,529,580

 

 

 

917,720

 

 

 

-

 

 

 

25,447,300

 

Vantage at Judson -Series B (4)

 

TX

 

 

26,356,498

 

 

 

1,658,508

 

 

 

-

 

 

 

28,015,006

 

15 West Apartments (2)

 

WA

 

 

9,850,000

 

 

 

1,584,281

 

 

 

-

 

 

 

11,434,281

 

Mortgage revenue bonds held in trust

 

 

 

$

554,678,736

 

 

$

37,814,237

 

 

$

(2,298,794

)

 

$

590,194,179

 

 

(1)

MRBs owned by ATAX TEBS I, LLC (M24 TEBS), Note 15

(2)

MRBs held by Deutsche Bank in a secured financing transaction, Note 15

(3)

MRBs owned by ATAX TEBS II, LLC (M31 TEBS), Note 15

(4)

MRBs owned by ATAX TEBS III, LLC (M33 TEBS), Note 15

14


 

 

 

 

December 31, 2016

 

Description of Mortgage Revenue Bonds held by the Partnership

 

State

 

Cost Adjusted for

Paydowns

 

 

Cumulative

Unrealized Gain

 

 

Cumulative

Unrealized Loss

 

 

Estimated Fair Value

 

Courtyard - Series A & B

 

CA

 

$

16,458,000

 

 

$

-

 

 

$

-

 

 

$

16,458,000

 

Harmony Court Bakersfield - Series A & B

 

CA

 

 

5,727,000

 

 

 

29,252

 

 

 

-

 

 

 

5,756,252

 

Las Palmas II - Series A & B

 

CA

 

 

3,465,000

 

 

 

15,139

 

 

 

-

 

 

 

3,480,139

 

San Vicente - Series A & B

 

CA

 

 

5,320,000

 

 

 

-

 

 

 

(30,019

)

 

 

5,289,981

 

Seasons at Simi Valley - Series B

 

CA

 

 

1,944,000

 

 

 

27,727

 

 

 

-

 

 

 

1,971,727

 

Seasons Lakewood - Series A & B

 

CA

 

 

12,610,000

 

 

 

-

 

 

 

-

 

 

 

12,610,000

 

Seasons San Juan Capistrano - Series A & B

 

CA

 

 

18,949,000

 

 

 

-

 

 

 

-

 

 

 

18,949,000

 

Summerhill - Series A & B

 

CA

 

 

9,795,000

 

 

 

-

 

 

 

(174,982

)

 

 

9,620,018

 

Sycamore Walk - Series B

 

CA

 

 

1,815,000

 

 

 

-

 

 

 

(64,432

)

 

 

1,750,568

 

The Village at Madera - Series A & B

 

CA

 

 

4,804,000

 

 

 

-

 

 

 

(84,437

)

 

 

4,719,563

 

Greens Property - Series B

 

NC

 

 

940,479

 

 

 

118,216

 

 

 

-

 

 

 

1,058,695

 

Ohio Properties - Series B

 

OH

 

 

3,549,780

 

 

 

449,068

 

 

 

-

 

 

 

3,998,848

 

Avistar at Chase Hill - Series B

 

TX

 

 

957,627

 

 

 

41,820

 

 

 

-

 

 

 

999,447

 

Avistar at the Crest - Series B

 

TX

 

 

753,201

 

 

 

64,228

 

 

 

-

 

 

 

817,429

 

Avistar at the Oaks - Series B

 

TX

 

 

550,836

 

 

 

47,231

 

 

 

-

 

 

 

598,067

 

Avistar at the Parkway - Series B

 

TX

 

 

125,000

 

 

 

-

 

 

 

(3,341

)

 

 

121,659

 

Avistar in 09 - Series B

 

TX

 

 

454,390

 

 

 

38,961

 

 

 

-

 

 

 

493,351

 

Avistar on the Boulevard - Series B

 

TX

 

 

447,554

 

 

 

38,165

 

 

 

-

 

 

 

485,719

 

Crossing at 1415 - Series B

 

TX

 

 

335,000

 

 

 

-

 

 

 

(2,614

)

 

 

332,386

 

Heights at 515 - Series B

 

TX

 

 

510,000

 

 

 

-

 

 

 

(3,977

)

 

 

506,023

 

Mortgage revenue bonds held by the Partnership

 

 

 

$

89,510,867

 

 

$

869,807

 

 

$

(363,802

)

 

$

90,016,872

 

 

See Note 22 for a description of the methodology and significant assumptions for determining the fair value of the MRBs. Unrealized gains or losses on the MRBs are recorded in the condensed consolidated statements of comprehensive income (loss) to reflect changes in their estimated fair values resulting from market conditions and fluctuations in the present value of the expected cash flows from the MRBs.

Bond Activity in the First Nine Months of 2017

 

The following table includes the details of the MRB acquisitions during the nine months ended September 30, 2017:

 

Property Name

 

Month

Acquired

 

Property Location

 

Units

 

 

Maturity Date

 

Base Interest Rate

 

 

Principal

Outstanding at Date

of Acquisition

 

Avistar at Copperfield - Series A

 

February

 

Houston, TX

 

 

192

 

 

5/1/2054

 

 

5.75

%

 

$

10,000,000

 

Avistar at Copperfield - Series B

 

February

 

Houston, TX

 

 

192

 

 

6/1/2054

 

 

12.00

%

 

 

4,000,000

 

Avistar at Wilcrest - Series A

 

February

 

Houston, TX

 

 

88

 

 

5/1/2054

 

 

5.75

%

 

 

3,775,000

 

Avistar at Wilcrest - Series B

 

February

 

Houston, TX

 

 

88

 

 

6/1/2054

 

 

12.00

%

 

 

1,550,000

 

Avistar at Wood Hollow - Series A

 

February

 

Austin, TX

 

 

409

 

 

5/1/2054

 

 

5.75

%

 

 

31,850,000

 

Avistar at Wood Hollow - Series B

 

February

 

Austin, TX

 

 

409

 

 

6/1/2054

 

 

12.00

%

 

 

8,410,000

 

Montecito at Williams Ranch Apartments - Series A

 

September

 

Salinas, CA

 

 

132

 

 

10/1/2034

 

 

5.50

%

 

 

7,690,000

 

Montecito at Williams Ranch Apartments - Series B

 

September

 

Salinas, CA

 

 

132

 

 

10/1/2019

 

 

5.50

%

 

 

4,781,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

72,056,000

 

 

In August 2017, the Partnership redeemed one MRB for approximately $2.0 million, which approximated the carrying value plus accrued interest. The following table includes details of the MRB redeemed:

 

Property Name

 

Month

Redeemed

 

Property Location

 

Units

 

 

Original

Maturity Date

 

Base Interest Rate

 

 

Principal

Outstanding at Date

of Redemption

 

Harmony Court Bakersfield - Series B

 

August

 

Bakersfield, CA

 

 

96

 

 

12/1/2018

 

 

5.50

%

 

$

1,997,000

 

 

15


 

Bond Activity in the First Nine Months of 2016

 

The following table includes the details of the MRB acquisitions during the nine months ended September 30, 2016:

 

Property Name

 

Month

Acquired

 

Property Location

 

Units

 

 

Maturity Date

 

Base Interest Rate

 

 

Principal

Outstanding at Date

of Acquisition

 

Companion at Thornhill Apartments

 

January

 

Lexington, SC

 

 

178

 

 

1/1/2052

 

 

5.80

%

 

$

11,500,000

 

Las Palmas II - Series A

 

September

 

Coachella, CA

 

81

 

 

11/1/2033

 

 

5.00

%

 

 

1,695,000

 

Las Palmas II - Series B

 

September

 

Coachella, CA

 

81

 

 

11/1/2018

 

 

5.50

%

 

 

1,770,000

 

San Vicente - Series A

 

September

 

Soledad, CA

 

50

 

 

11/1/2033

 

 

5.00

%

 

 

3,495,000

 

San Vicente - Series B

 

September

 

Soledad, CA

 

50

 

 

11/1/2018

 

 

5.50

%

 

 

1,825,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

20,285,000

 

 

In March 2016, the Partnership sold the Pro Nova 2014-2 bond for approximately $9.5 million, which approximated the MRB’s carrying value plus accrued interest. The Partnership used approximately $8.4 million of the proceeds from the sale to pay in full and collapse the TOB Trust securitizing this MRB (Note 15). The following table includes details of the MRB redeemed:

 

Property Name

 

Month

Exchanged

 

Property Location

 

Units

 

 

Maturity Date

 

Base Interest Rate

 

 

Principal

Outstanding at Date of Exchange

 

Pro Nova - 2014B 1

 

March

 

Knoxville, TN

 

 

-

 

 

5/1/2025

 

 

5.25

%

 

$

9,295,000

 

 

1

This is a commercial property. Accordingly, unit information is not applicable.

In May 2016, the Partnership redeemed the four Series B MRBs for approximately $5.2 million which approximated their carrying value plus accrued interest. The following table includes details of the MRBs redeemed:

 

Property Name

 

Month

Redeemed

 

Property Location

 

Units

 

 

Original

Maturity Date

 

Base Interest Rate

 

 

Principal

Outstanding at Date

of Redemption

 

Glenview Apartments - Series B

 

May

 

Cameron, CA

 

 

88

 

 

12/1/2016

 

 

8.00

%

 

$

2,053,000

 

Montclair Apartments - Series B

 

May

 

Lemoore, CA

 

 

80

 

 

12/1/2016

 

 

8.00

%

 

 

928,000

 

Santa Fe Apartments - Series B

 

May

 

Hesperia, CA

 

 

89

 

 

12/1/2016

 

 

8.00

%

 

 

1,671,000

 

Heritage Square - Series B

 

May

 

Edinburg, TX

 

 

204

 

 

10/1/2051

 

 

12.00

%

 

 

520,000

 

 

 

In August 2016, six of the Partnership’s MRBs relating to three properties were restructured. For each property, the Series B mortgage revenue bond was redeemed and the outstanding principal balance was added to the outstanding principal on the Series A bonds. The terms of the three Series B mortgage revenue bonds that were redeemed are as follows: 

 

Property Name

 

Month

Restructured

 

Property Location

 

Units

 

 

Maturity Date

 

Base Interest Rate

 

 

Principal

Outstanding at Date

of Restructuring

 

Concord at Gulfgate - Series B

 

August

 

Houston, TX

 

 

288

 

 

3/1/2032

 

 

12.00

%

 

$

2,125,000

 

Concord at Little York - Series B

 

August

 

Houston, TX

 

 

276

 

 

3/1/2032

 

 

12.00

%

 

 

960,000

 

Concord at Williamcrest - Series B

 

August

 

Houston, TX

 

 

288

 

 

3/1/2032

 

 

12.00

%

 

 

2,800,000

 

 

 

7. PHC Certificates

The Partnership owned 100% of the Residual Participation Receipts (“LIFERs”) in three tender option bond trusts (“PHC TOB Trusts”) that contain the PHC Certificates.  The assets held by the PHC Trusts consist of custodial receipts evidencing loans made to a number of local public housing authorities.  Principal and interest on these loans are payable by the respective public housing authorities out of annual appropriations to be made to the public housing authorities by HUD under HUD’s Capital Fund Program established under the Quality Housing and Work Responsibility Act of 1998 (the “Capital Fund Program”).  The PHC Trusts have a first lien on these annual Capital Fund Program payments to secure the public housing authorities’ respective obligations to pay principal and interest on their loans.  The loans payable by the public housing authorities are not debts of, or guaranteed by, the United States of America or HUD.  Interest payable on the public housing authority debt held by the PHC Trusts is exempt from federal income taxes.  The PHC Certificates issued by each of the PHC Trusts have been rated investment grade by Standard & Poor’s.

16


 

The Partnership had the following investments in the PHC Certificates at September 30, 2017 and December 31, 2016:

 

 

 

September 30, 2017

 

Description of PHC Certificates

 

Weighted

Average Lives (Years)

 

 

Investment

Rating

 

Weighted

Average Interest

Rate Over Life

 

 

Cost Adjusted for

Paydowns

 

 

Cumulative

Unrealized Gain

 

 

Cumulative

Unrealized Loss

 

 

Estimated Fair

Value

 

PHC Certificate Trust I

 

 

7.76

 

 

AA-

 

 

5.39%

 

 

$

25,962,421

 

 

$

-

 

 

$

(151,764

)

 

$

25,810,657

 

PHC Certificate Trust II

 

 

6.80

 

 

A+

 

 

4.32%

 

 

 

9,455,117

 

 

 

-

 

 

 

(50,820

)

 

 

9,404,297

 

PHC Certificate Trust III

 

 

8.19

 

 

BBB

 

 

5.45%

 

 

 

19,727,376

 

 

 

-

 

 

 

(28,582

)

 

 

19,698,794

 

 

 

 

 

 

 

 

 

 

 

 

 

$

55,144,914

 

 

$

-

 

 

$

(231,166

)

 

$

54,913,748

 

 

 

 

December 31, 2016

 

Description of PHC Certificates

 

Weighted

Average Lives (Years)

 

Investment

Rating

 

Weighted

Average Interest

Rate Over Life

 

 

Cost Adjusted for

Paydowns

 

 

Cumulative

Unrealized Gain

 

 

Cumulative

Unrealized Loss

 

 

Estimated Fair

Value

 

PHC Certificate Trust I

 

8.31

 

AA-

 

 

5.36%

 

 

$

26,077,158

 

 

$

672,097

 

 

$

-

 

 

$

26,749,255

 

PHC Certificate Trust II

 

7.65

 

A+

 

 

4.31%

 

 

 

10,600,967

 

 

 

84,756

 

 

 

-

 

 

 

10,685,723

 

PHC Certificate Trust III

 

8.79

 

BBB

 

 

5.42%

 

 

 

20,122,937

 

 

 

-

 

 

 

(399,847

)

 

 

19,723,090

 

 

 

 

 

 

 

 

 

 

 

$

56,801,062

 

 

$

756,853

 

 

$

(399,847

)

 

$

57,158,068

 

 

See Note 22 for a description of the methodology and significant assumptions for determining the fair value of the PHC Certificates. Unrealized gains or losses on the PHC Certificates are recorded in the condensed consolidated statements of comprehensive income (loss) to reflect changes in their estimated fair values resulting from market conditions and fluctuations in the present value of the expected cash flows from the PHC Certificates.

 

 

8. Real Estate Assets

The following tables summarizes information regarding the Partnership’s real estate assets at September 30, 2017 and December 31, 2016:

 

Real Estate Assets at September 30, 2017

 

Property Name

 

Location

 

Number of

Units

 

 

Land and Land

Improvements

 

 

Buildings and

Improvements

 

 

Carrying Value on

September 30, 2017

 

Eagle Village

 

Evansville, IN

 

 

511

 

 

$

567,880

 

 

$

12,675,216

 

 

$

13,243,096

 

Residences of DeCordova

 

Granbury, TX

 

 

110

 

 

 

1,170,337

 

 

 

8,055,928

 

 

 

9,226,265

 

Residences of Weatherford

 

Weatherford, TX

 

 

76

 

 

 

1,942,229

 

 

 

5,777,617

 

 

 

7,719,846

 

Suites on Paseo

 

San Diego, CA

 

 

394

 

 

 

3,166,463

 

 

 

38,413,559

 

 

 

41,580,022

 

The 50/50 MF Property

 

Lincoln, NE

 

 

475

 

 

 

-

 

 

 

32,932,981

 

 

 

32,932,981

 

Jade Park

 

Daytona, FL

 

 

144

 

 

 

2,292,035

 

 

 

7,467,967

 

 

 

9,760,002

 

Land held for development

 

(1)

 

(1)

 

 

 

1,659,888

 

 

 

-

 

 

 

1,659,888

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

116,122,100

 

Less accumulated depreciation

 

 

 

(17,623,467

)

Total real estate assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

98,498,633

 

 

1 Land held for development consists of parcels of land in Johnson County, KS and Richland County, SC and land development costs for a site in Douglas County, NE.

 

17


 

Real Estate Assets at December 31, 2016

 

Property Name

 

Location

 

Number of

Units

 

 

Land and Land

Improvements

 

 

Buildings and

Improvements

 

 

Carrying Value on

December 31, 2016

 

Eagle Village

 

Evansville, IN

 

 

511

 

 

$

567,880

 

 

$

12,655,244

 

 

$

13,223,124

 

Northern View

 

Highland Heights, KY

 

 

294

 

 

 

688,539

 

 

 

8,088,059

 

 

 

8,776,598

 

Residences of DeCordova

 

Granbury, TX

 

 

110

 

 

 

1,170,337

 

 

 

8,029,404

 

 

 

9,199,741

 

Residences of Weatherford

 

Weatherford, TX

 

 

76

 

 

 

1,942,229

 

 

 

5,751,260

 

 

 

7,693,489

 

Suites on Paseo

 

San Diego, CA

 

 

394

 

 

 

3,162,463

 

 

 

38,365,351

 

 

 

41,527,814

 

The 50/50 MF Property

 

Lincoln, NE

 

 

475

 

 

 

-

 

 

 

32,928,878

 

 

 

32,928,878

 

Jade Park

 

Daytona, FL

 

 

144

 

 

 

2,292,035

 

 

 

7,270,845

 

 

 

9,562,880

 

Land held for development

 

(2)

 

(2)

 

 

 

7,531,104

 

 

 

-

 

 

 

7,531,104

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

130,443,628

 

Less accumulated depreciation

 

 

 

(16,217,028

)

Total real estate assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

114,226,600

 

 

2 Land held for development consists of parcels of land in St. Petersburg, FL, Johnson County, KS, and Richland County, SC and land and development costs for a site in Panama City Beach, FL.

Activity in the First Nine Months of 2017

In March 2017, the Partnership sold its 99% limited partner interest in Northern View. Gross proceeds from the sale were approximately $13.8 million. The Partnership recognized a gain on sale of approximately $7.2 million before income taxes. The gain on sale, net of income taxes, is considered Tier 2 income (See Note 3). The Partnership determined the sale did not meet the criteria for discontinued operations.

In May 2017, the Partnership closed on the sale of a parcel of land in St. Petersburg, Florida. The Partnership recognized a loss on sale of approximately $22,000, attributable to direct selling expenses.

In June 2017, the Partnership executed a listing agreement with a broker to market the Suites on Paseo MF Property for sale. The listing agreement was terminated in September 2017 and the property is no longer listed for sale at September 30, 2017.

During 2016, the Partnership executed Purchase and Sales Agreements (“PSAs”) to acquire two contiguous tracts of land in Douglas County, Nebraska. If these tracts of land are successfully acquired, they will be classified as “Land held for development.”

At September 30, 2017, the Partnership has listed the Eagle Village, Residences of DeCordova, and Residences of Weatherford MF Properties for sale. See Note 24 for additional information.

Activity in the First Nine Months of 2016

In July and June 2016, the Partnership sold the Woodland Park and Arboretum MF Properties for $15.7 million and $30.2 million, respectively. The Partnership realized gains of approximately $1.6 million and $12.4 million before income taxes, respectively. The gains on sale, net of income taxes, are considered Tier 2 income (See Note 3). The Partnership determined the sale did not meet the criteria for discontinued operations.

In March 2016, the Partnership executed an agreement to sell a parcel of land in St. Petersburg, Florida, carried at a cost of approximately $3.1 million, which is part of the Land Held for Investment and Development. The asset was evaluated for impairment and the Partnership determined the carrying value of this asset is greater than its fair market value less cost to sell and recorded an impairment expense of approximately $62,000 in the second quarter of 2016. The sale of the land closed in May 2017, as noted previously.

18


 

On September 30, 2016, the Partnership purchased the Jade Park MF Property for approximately $10.0 million. Jade Park is contiguous to the Lake Forest property, for which the Partnership owns a mortgage revenue bond. The buildings and improvements will be depreciated straight-line over a weighted average useful life of 22.7 years. The in-place lease assets will be amortized over an average useful life of 6 months. The Partnership incurred approximately $135,000 of acquisition costs related to the purchase. The following tables contain the assets acquired and liabilities assumed:

 

 

 

Jade Park 9/30/2016 (Date of Acquisition)

 

Land

 

$

1,993,369

 

Buildings and improvements

 

 

7,543,200

 

In-place lease assets (included in other assets)

 

 

463,431

 

Other assets

 

 

18,126

 

Total assets

 

$

10,018,126

 

 

 

 

 

 

Accounts payable, accrued expenses and other

 

$

135,326

 

Net assets

 

 

9,882,800

 

Total liabilities and net assets

 

$

10,018,126

 

 

The following table contains pro forma revenue, net income and net income per unit for the acquisition of Jade Park as if it occurred on January 1, 2016:

 

 

 

For the Three Months Ended September 30, 2016

 

 

For the Nine Months Ended September 30, 2016

 

Pro forma revenues

 

$

13,573,945

 

 

$

44,104,855

 

Pro forma net income

 

$

4,724,056

 

 

$

18,194,751

 

Pro forma net income allocated to Unitholders

 

$

4,216,059

 

 

$

15,371,803

 

Pro forma Unitholder's interest in net income per unit (basic and diluted)

 

$

0.07

 

 

$

0.26

 

 

Net income (loss), exclusive of the gains on sale related to the Arboretum, Woodland Park and Northern View MF Properties, for the three and nine months ended September 30, 2017 and 2016 are as follows:

 

 

 

For the Three Months Ended September 30,

 

 

For the Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Net income (loss)

 

$

(907

)

 

$

(143,093

)

 

$

(19,642

)

 

$

144,060

 

 

 

9. Investment in Unconsolidated Entities

ATAX Vantage Holdings, LLC, a wholly-owned subsidiary of the Partnership, has equity commitments and reported equity contributions as investment in unconsolidated entities on the condensed consolidated balance sheets. The investments represent the Partnership’s maximum exposure to loss. ATAX Vantage Holdings, LLC is the only limited equity investor in the unconsolidated entities. An affiliate of the unconsolidated entities guarantees ATAX Vantage Holdings, LLC’s return on its investments through the second anniversary of construction completion. The return on these investments earned by the Partnership is reported as investment income on the condensed consolidated statements of operations.

In March 2017, the Partnership closed on an $11.7 million equity commitment to fund construction of the Vantage at Panama City Beach multifamily property. The Partnership also entered into a guarantee agreement related to the property’s construction loan (Note 18).

19


 

The following table provides the details of the investments in unconsolidated entities at September 30, 2017 and December 31, 2016:

 

Property Name

 

Location

 

Units

 

Construction Completion Date

 

Carrying Value at September 30, 2017

 

 

Carrying Value at December 31, 2016

 

 

Maximum

Remaining

Equity Commitment at September 30, 2017

 

Vantage at Corpus Christi

 

Corpus Christi, TX

 

288

 

August 2017

 

$

9,131,689

 

 

$

8,447,343

 

 

$

1,550,000

 

Vantage at Waco

 

Waco, TX

 

288

 

N/A

 

 

8,532,984

 

 

 

5,964,861

 

 

 

1,592,039

 

Vantage at Boerne

 

Boerne, TX

 

288

 

N/A

 

 

8,069,390

 

 

 

5,057,802

 

 

 

1,475,936

 

Vantage at Panama City Beach

 

Panama City Beach, FL

 

288

 

N/A

 

 

8,601,586

 

 

 

-

 

 

 

3,490,259

 

 

 

 

 

 

 

 

 

$

34,335,649

 

 

$

19,470,006

 

 

$

8,108,234

 

 

 

10. Property Loans, Net of Loan Loss Allowances

The following table summarizes the Partnership’s property loans, net of loan loss allowances, at September 30, 2017 and December 31, 2016:

 

 

 

September 30, 2017

 

 

 

Outstanding

Balance

 

 

Loan Loss

Allowances

 

 

Property Loan Principal, net of allowance

 

Arbors at Hickory Ridge

 

$

191,264

 

 

$

-

 

 

$

191,264

 

Ashley Square

 

 

5,078,342

 

 

 

(3,596,342

)

 

 

1,482,000

 

Avistar (February 2013 portfolio)

 

 

274,496

 

 

 

-

 

 

 

274,496

 

Avistar (June 2013 portfolio)

 

 

251,622

 

 

 

-

 

 

 

251,622

 

Cross Creek

 

 

7,155,545

 

 

 

(3,447,472

)

 

 

3,708,073

 

Greens Property

 

 

850,000

 

 

 

-

 

 

 

850,000

 

Lake Forest

 

 

4,659,438

 

 

 

-

 

 

 

4,659,438

 

Ohio Properties

 

 

2,390,446

 

 

 

-

 

 

 

2,390,446

 

Vantage at Brooks, LLC

 

 

8,417,635

 

 

 

-

 

 

 

8,417,635

 

Vantage at Braunfels, LLC

 

 

7,469,730

 

 

 

-

 

 

 

7,469,730

 

Winston Group, Inc

 

 

1,500,000

 

 

 

-

 

 

 

1,500,000

 

Total

 

$

38,238,518

 

 

$

(7,043,814

)

 

$

31,194,704

 

 

 

 

December 31, 2016

 

 

 

Outstanding

Balance

 

 

Loan Loss

Allowances

 

 

Net Taxable

Property Loans

 

Arbors at Hickory Ridge

 

$

191,264

 

 

$

-

 

 

$

191,264

 

Ashley Square

 

 

5,078,342

 

 

 

(3,596,342

)

 

 

1,482,000

 

Avistar (February 2013 portfolio)

 

 

274,496

 

 

 

-

 

 

 

274,496

 

Avistar (June 2013 portfolio)

 

 

251,622

 

 

 

-

 

 

 

251,622

 

Cross Creek

 

 

7,155,545

 

 

 

(3,447,472

)

 

 

3,708,073

 

Greens Property

 

 

850,000

 

 

 

-

 

 

 

850,000

 

Lake Forest

 

 

4,623,704

 

 

 

(55,000

)

 

 

4,568,704

 

Ohio Properties

 

 

2,390,446

 

 

 

-

 

 

 

2,390,446

 

Vantage at Brooks, LLC

 

 

7,199,424

 

 

 

-

 

 

 

7,199,424

 

Vantage at Braunfels, LLC

 

 

6,347,305

 

 

 

-

 

 

 

6,347,305

 

Winston Group, Inc

 

 

2,500,000

 

 

 

-

 

 

 

2,500,000

 

Total

 

$

36,862,148

 

 

$

(7,098,814

)

 

$

29,763,334

 

 

During the nine months ended September 30, 2017, the Partnership advanced funds of approximately $35,700 to Lake Forest, $1.2 million to Vantage at Brooks, LLC and $1.1 million to Vantage at Braunfels, LLC.  During the nine months ended September 30, 2016, the Partnership advanced net funds of approximately $83,500 to Cross Creek, $2,500 to the Ohio Properties, $2.5 million to the Winston Group, Inc., $3.7 million to Vantage at Brooks, LLC and $2.1 million to Vantage at Braunfels, LLC. During the nine months ended September 30, 2017, the Partnership received $1.0 million of principal from the Winston Group, Inc.

20


 

The Partnership’s property loans to Ashley Square, Cross Creek, and Lake Forest remain on nonaccrual status at September 30, 2017. The Partnership recognizes interest income on nonaccrual loans when cash is received, and the Partnership will reassess the property loan’s nonaccrual status. The Partnership did reverse the loan loss allowance of $55,000 on the Lake Forest property loan during the three months ended September 30, 2017.

 

 

11. Income Tax Provision

 

The Partnership recognizes current income tax expense for federal, state, and local income taxes incurred by our taxable subsidiary, the Greens Hold Co, which owns all the MF Properties except the Suites on Paseo and Jade Park. The Partnership’s income tax expense fluctuates from period to period based on the timing of the taxable income. Deferred income tax expense is generally a function of the period’s temporary differences (i.e. depreciation, amortization of finance costs, etc.), and the utilization of net operating losses generated in prior years that had been previously recognized as a deferred income tax asset.

 

The following represents income tax expense for the Greens Hold Co for the three and nine months ended September 30, 2017 and 2016:

 

 

 

For the Three Months Ended September 30,

 

 

For the Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Current income tax expense (benefit)

 

$

(276,000

)

 

$

467,000

 

 

$

2,484,047

 

 

$

4,567,000

 

Deferred income tax expense (benefit)

 

 

(9,000

)

 

 

(136,000

)

 

 

(374,000

)

 

 

417,000

 

Total income tax expense (benefit)

 

$

(285,000

)

 

$

331,000

 

 

$

2,110,047

 

 

$

4,984,000

 

 

The Partnership recognizes franchise margin tax expense on revenues in certain jurisdictions relating to MF Properties and investments in unconsolidated entities. The Partnership recognized franchise margin tax expense of approximately $47,000 and $52,000 for the three and nine months ended September 30, 2017, respectively. The Partnership did not recognized any franchise margin tax expense during the three and nine months ended September 30, 2016.

 

 

12. Other Assets

The following represents the Other Assets at September 30, 2017 and December 31, 2016:

 

 

 

September 30, 2017

 

 

December 31, 2016

 

Deferred financing costs - net

 

$

470,769

 

 

$

456,890

 

Fair value of derivative instruments (Note 17)

 

 

427,353

 

 

 

383,604

 

Taxable bonds at fair market value

 

 

3,929,761

 

 

 

4,084,599

 

Bond purchase commitments - fair value (Note 18)

 

 

3,355,047

 

 

 

2,399,449

 

Other assets

 

 

1,430,804

 

 

 

1,470,650

 

Total other assets

 

$

9,613,734

 

 

$

8,795,192

 

 

In August 2016, one of the Partnership’s taxable bonds was redeemed at a price that approximated carrying value plus accrued interest. The following table summarizes the terms of the taxable bond redeemed:

 

Property Name

 

Redemption Date

 

Location

 

Units

 

Original Maturity Date

 

Base Interest Rate

 

 

Principal Outstanding at Date of Redemption

 

Silver Moon - Series B

 

August

 

Albuquerque, NM

 

151

 

8/1/2055

 

 

12.00

%

 

$

499,461

 

 

 

21


 

13. Unsecured Lines of Credit

The following represents the unsecured lines of credit (“LOC”) at September 30, 2017 and December 31, 2016:

 

Unsecured Lines of Credit

 

Outstanding on September 30, 2017

 

 

Total Commitment

 

 

Maturity

 

Variable /

Fixed

 

Reset

Frequency

 

Period End

Rate

 

Bankers Trust

 

$

12,471,000

 

 

$

50,000,000

 

 

May 2019

 

Variable (1)

 

Monthly

 

 

4.23

%

Bankers Trust operating

 

 

-

 

 

 

10,000,000

 

 

May 2019

 

Variable (1)

 

Monthly

 

 

4.48

%

Total unsecured lines of credit

 

$

12,471,000

 

 

$

60,000,000

 

 

 

 

 

 

 

 

 

 

 

 

1

The variable rate is indexed to LIBOR plus an applicable margin.

 

Unsecured Lines of Credit

 

Outstanding on December 31, 2016

 

 

Total Commitment

 

 

Maturity

 

Variable /

Fixed

 

Reset

Frequency

 

Period End

Rate

 

Bankers Trust

 

$

40,000,000

 

 

$

40,000,000

 

 

May 2018

 

Variable (2)

 

Monthly

 

 

3.13

%

Bankers Trust operating

 

 

-

 

 

 

7,500,000

 

 

May 2018

 

Variable (2)

 

Monthly

 

 

3.88

%

Total unsecured lines of credit

 

$

40,000,000

 

 

$

47,500,000

 

 

 

 

 

 

 

 

 

 

 

 

2

The variable rate is indexed to LIBOR plus an applicable margin.

 

In April 2017, the commitment on the non-operating LOC was increased $10 million to a total commitment of $50 million.

In May 2017, the maturity date on both Bankers Trust LOCs was extended for an additional one-year term. Additionally, the commitment on the operating LOC was increased to $10 million, from $7.5 million previously.

The Partnership drew approximately $12.5 million on the Bankers Trust operating LOC in September 2017 to purchase the Montecito at Williams Ranch Apartments Series A and B MRBs. This draw has an initial maturity date in June 2018, but may be extended up to an additional 270 days, based on certain extension terms defined in the credit agreement.

The Partnership is required to make prepayments of the principal to reduce the Bankers Trust Operating LOC to zero for fifteen consecutive calendar days during each calendar quarter.  For all periods presented the Partnership has fulfilled its prepayment obligation.   In addition, the Partnership has fulfilled its fourth quarter of 2017 prepayment obligation as it maintained a zero balance in the Operating LOC for the first fifteen days of October 2017. The Partnership is in compliance with all covenants at September 30, 2017.

 

14. Secured Line of Credit

In December 2016, the Partnership entered into a secured Credit Agreement of up to $20.0 million with Bankers Trust. The secured LOC was paid in full in February 2017 and is no longer available to the Partnership at September 30, 2017.

 

 

22


 

15. Debt Financing

 

The following represents the Debt Financing, net of deferred financing costs, at September 30, 2017 and December 31, 2016:

 

 

 

Outstanding Debt

Financings on

September 30, 2017, net

 

 

Restricted

Cash

 

 

Year

Acquired

 

Stated Maturities

 

Reset

Frequency

 

SIFMA

Based Rates

 

 

Facility Fees

 

 

Period End

Rates

 

TOB & Term A/B

   Trusts Securitization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed - Term TOB

 

$

46,800,842

 

 

$

-

 

 

2014

 

July 2019 - October 2019

 

N/A

 

N/A

 

 

N/A

 

 

4.01% - 4.39%

 

Fixed - Term A/B

 

 

141,119,616

 

 

 

-

 

 

2016

 

September 2026 - December 2026

 

N/A

 

N/A

 

 

N/A

 

 

 

3.64%

 

Fixed - Term A/B

 

 

38,412,589

 

 

 

-

 

 

2017

 

February 2027

 

N/A

 

N/A

 

 

N/A

 

 

 

4.46%

 

Fixed - Term A/B

 

 

60,417,436

 

 

 

-

 

 

2017

 

February 2022 - March 2022

 

N/A

 

N/A

 

 

N/A

 

 

 

3.89%

 

Fixed - Term A/B

 

 

33,559,866

 

 

 

-

 

 

2017

 

June 2018 - August 2018

 

N/A

 

N/A

 

 

N/A

 

 

 

3.76%

 

Variable - TOB

 

 

41,295,000

 

 

 

1,217,256

 

 

2012

 

May 2018

 

Weekly

 

1.47 - 1.52%

 

 

1.67%

 

 

3.14 - 3.19%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TEBS Financings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Variable - TEBS I

 

 

60,249,000

 

 

 

9,687

 

 

2010

 

September 2020

 

Weekly

 

 

1.01%

 

 

 

1.85%

 

 

 

2.86%

 

Variable - TEBS II (1)

 

 

90,944,774

 

 

 

176,685

 

 

2014

 

July 2019

 

Weekly

 

 

0.98%

 

 

 

1.49%

 

 

 

2.47%

 

Variable - TEBS III (1)

 

 

81,836,696

 

 

 

57,364

 

 

2015

 

July 2020

 

Weekly

 

 

0.98%

 

 

 

1.26%

 

 

 

2.24%

 

Total Debt Financings

 

$

594,635,819

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Facility fees are variable

 

 

 

Outstanding Debt

Financings on

December 31, 2016, net

 

 

Restricted

Cash

 

 

Year

Acquired

 

Stated Maturities

 

Reset

Frequency

 

SIFMA

Based Rates

 

 

Facility Fees

 

 

Period End

Rates

 

TOB & Term A/B

   Trusts Securitization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed - Term TOB

 

$

46,860,699

 

 

$

-

 

 

2014

 

July 2017 - July 2019

 

N/A

 

N/A

 

 

N/A

 

 

4.01% - 4.39%

 

Fixed - Term A/B

 

 

141,266,034

 

 

 

1,373,695

 

 

2016

 

September 2026 - December 2026

 

N/A

 

N/A

 

 

N/A

 

 

 

3.64%

 

Fixed - Term A/B

 

 

30,512,916

 

 

 

-

 

 

2016

 

March 2017

 

N/A

 

N/A

 

 

N/A

 

 

 

4.56%

 

Variable - TOB

 

 

42,455,000

 

 

 

-

 

 

2012

 

Dec 2016

 

Weekly

 

1.29 - 1.39%

 

 

 

1.62%

 

 

2.91 - 3.01%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TEBS Financings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Variable - TEBS I

 

 

60,430,991

 

 

 

396,412

 

 

2010

 

September 2017

 

Weekly

 

 

0.77%

 

 

 

1.85%

 

 

 

2.62%

 

Variable - TEBS II (1)

 

 

91,768,081

 

 

 

170,988

 

 

2014

 

July 2019

 

Weekly

 

 

0.75%

 

 

 

1.62%

 

 

 

2.37%

 

Variable - TEBS III (1)

 

 

82,089,312

 

 

 

3,495,592

 

 

2015

 

July 2020

 

Weekly

 

 

0.75%

 

 

 

1.39%

 

 

 

2.14%

 

Total Debt Financings

 

$

495,383,033

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Facility fees are variable

 

At September 30, 2017 and December 31, 2016, the Partnership posted cash collateral (i.e. restricted cash) related to the interest rate swaps associated with specific Debt Financings. The Partnership has also posted cash collateral as contractually required under the terms of the three TEBS Financings. In addition, to mitigate its exposure to interest rate fluctuations on the variable rate TEBS Financings, the Partnership also entered into interest rate cap agreements (Note 17).

 

The TOB and Term A/B Trusts are subject to a Master Trust Agreement with DB that contains covenants with which the Partnership is required to comply. If the Partnership were to be out of compliance with any of these covenants, a termination event of the financing facilities would be triggered. The most restrictive covenant within the Master Trust Agreement states that cash available to distribute for the trailing twelve months must be at least two times trailing twelve-month interest expense. At September 30, 2017, the Partnership was in compliance with these covenants.

 

23


 

Debt Financing Activity in the First Nine Months of 2017

In February 2017, the Partnership entered into 19 new Term A/B Trust financings secured by various MRBs. The Partnership capitalized costs totaling approximately $1.2 million as deferred financing costs, of which approximately $921,000 were paid to a related party (Note 21). The following table summarizes the terms of the new Term A/B Trusts:

 

Term A/B Trusts Securitization

 

Outstanding Term A/B

Trust Financing at

September 30, 2017, net

 

 

Year

Acquired

 

Stated Maturity

 

Fixed Interest

Rate

 

San Vicente - Series A

 

$

3,110,905

 

 

2017

 

February 2022

 

 

3.89

%

San Vicente - Series B

 

 

1,541,427

 

 

2017

 

June 2018

 

 

3.76

%

Las Palmas - Series A

 

 

1,506,127

 

 

2017

 

February 2022

 

 

3.89

%

Las Palmas - Series B

 

 

1,489,594

 

 

2017

 

June 2018

 

 

3.76

%

The Village at Madera - Series A

 

 

2,744,485

 

 

2017

 

February 2022

 

 

3.89

%

The Village at Madera - Series B

 

 

1,451,410

 

 

2017

 

July 2018

 

 

3.76

%

Harmony Court Bakersfield - Series A

 

 

3,320,042

 

 

2017

 

February 2022

 

 

3.89

%

Harmony Court Bakersfield - Series B

 

(1)

 

 

2017

 

July 2018

 

 

3.76

%

Summerhill - Series A

 

 

5,727,118

 

 

2017

 

February 2022

 

 

3.89

%

Summerhill - Series B

 

 

2,849,542

 

 

2017

 

July 2018

 

 

3.76

%

Courtyard - Series A

 

 

9,127,523

 

 

2017

 

February 2022

 

 

3.89

%

Courtyard - Series B

 

 

5,261,967

 

 

2017

 

July 2018

 

 

3.76

%

Seasons Lakewood - Series A

 

 

6,552,326

 

 

2017

 

February 2022

 

 

3.89

%

Seasons Lakewood - Series B

 

 

4,444,519

 

 

2017

 

August 2018

 

 

3.76

%

Seasons San Juan Capistrano - Series A

 

 

11,042,713

 

 

2017

 

February 2022

 

 

3.89

%

Seasons San Juan Capistrano - Series B

 

 

5,554,598

 

 

2017

 

August 2018

 

 

3.76

%

Avistar at Wood Hollow - Series A

 

 

26,832,573

 

 

2017

 

February 2027

 

 

4.46

%

Avistar at Wilcrest - Series A

 

 

3,167,131

 

 

2017

 

February 2027

 

 

4.46

%

Avistar at Copperfield - Series A

 

 

8,412,885

 

 

2017

 

February 2027

 

 

4.46

%

Total Term A/B Trust Financing

 

$

104,136,885

 

 

 

 

 

 

 

 

 

 

(1)

In August 2017, the Term A/B Trust financing for the Harmony Court Bakersfield – Series B MRB was collapsed and paid off in full. The Partnership paid approximately $1.7 million at settlement, which approximated the outstanding principal plus accrued interest.

In March 2017, the Partnership refinanced four Term A/B Trusts into new Term A/B Trusts with longer stated terms. Based on the terms of the new and old Term A/B Trusts, the refinancing was accounted for as a modification, with approximately $47,000 capitalized as deferred financing costs. The following table summarizes the terms of the new Term A/B Trusts:

 

Term A/B Trusts Securitization

 

Outstanding Term A/B

Trust Financing at

September 30, 2017, net

 

 

Year

Acquired

 

Stated Maturity

 

Fixed Interest

Rate

 

Oaks at Georgetown - Series A

 

$

11,086,792

 

 

2017

 

March 2022

 

 

3.89

%

Oaks at Georgetown - Series B

 

 

4,684,648

 

 

2017

 

August 2018

 

 

3.76

%

Harmony Terrace - Series A

 

 

6,199,405

 

 

2017

 

March 2022

 

 

3.89

%

Harmony Terrace - Series B

 

 

6,282,161

 

 

2017

 

August 2018

 

 

3.76

%

Total Term A/B Trust Financing

 

$

28,253,006

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In June 2017, the maturity date of the Partnership’s variable TOB Trusts was extended until May 2018.

 

In September 2017, ATAX TEBS I, LLC, a wholly-owned subsidiary of the Partnership, exercised its option to extend the maturity date of the M24 TEBS Financing to September 15, 2020.

 

Debt Financing Activity in the First Nine Months of 2016

The three MBS TOB Trusts and the TOB Trust collateralized by the Pro Nova 2014-2 MRB were paid in full and collapsed in January 2016 and March 2016, respectively.

24


 

During the third quarter of 2016, the Partnership paid off and collapsed seven of its nine TOB Trusts, simultaneously executing twelve new Term A/B Trust agreements secured by mortgage revenue bonds.  Based on the terms of the Term A/B Trust, the restructuring of the debt was accounted for as a modification, with approximately $1.4 million capitalized as deferred financing costs.  Approximately $1.2 million of capitalized costs were paid to a related party (Note 21).

 

Future Maturities

 

The following represents the Debt Financing contractual maturities for the next five years and thereafter: 

 

2017

 

$

3,906,966

 

2018

 

 

79,029,695

 

2019

 

 

140,731,413

 

2020

 

 

141,337,095

 

2021

 

 

2,291,329

 

Thereafter

 

 

231,978,541

 

Total

 

$

599,275,039

 

 

 

16. Mortgages Payable and Other Secured Financing

 

The following represents the Mortgages payable and other secured financing, net of deferred financing costs, at September 30, 2017 and December 31, 2016:

 

MF Property Mortgage Payables

 

Outstanding Mortgage

Payable at

September 30, 2017, net

 

 

Year

Acquired

 

Stated Maturity

 

Variable / Fixed

 

Reset Frequency

 

Variable

Based Rate

 

 

Facility Fees

 

 

Period End

Rate

 

Eagle Village

 

$

7,702,257

 

 

2010

 

September 2018

 

Variable

 

Monthly

 

 

1.25

%

(1)

 

3.00

%

 

 

4.25

%

Residences of DeCordova

 

 

1,697,492

 

 

2012

 

June 2019

 

Fixed

 

N/A

 

N/A

 

 

N/A

 

 

 

4.75

%

Residences of Weatherford

 

 

5,426,767

 

 

2011

 

June 2019

 

Fixed

 

N/A

 

N/A

 

 

N/A

 

 

 

4.75

%

The 50/50 MF Property--TIF

   Loan

 

 

3,480,379

 

 

2014

 

December 2019

 

Fixed

 

N/A

 

N/A

 

 

N/A

 

 

 

4.65

%

The 50/50 MF

   Property--Mortgage

 

 

24,805,855

 

 

2013

 

March 2020

 

Variable

 

Monthly

 

 

4.25

%

(2)

N/A

 

 

 

4.25

%

Jade Park

 

 

7,466,650

 

 

2016

 

October 2021

 

Fixed

 

N/A

 

N/A

 

 

N/A

 

 

 

3.85

%

Total Mortgage

   Payable\Weighted

   Average Period End Rate

 

$

50,579,400

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4.29

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Variable rate is based on 30-day LIBOR

(2)

Variable rate is based on Wall Street Journal Prime Rate

 

MF Property Mortgage Payables

 

Outstanding Mortgage

Payable at

December 31, 2016, net

 

 

Year

Acquired

 

Stated Maturity

 

Variable / Fixed

 

Reset Frequency

 

Variable

Based Rate

 

 

Facility Fees

 

 

Period End

Rate

 

Residences of DeCordova

 

$

1,744,858

 

 

2012

 

June 2017

 

Fixed

 

N/A

 

N/A

 

 

N/A

 

 

 

4.75

%

Residences of Weatherford

 

 

5,589,086

 

 

2011

 

June 2017

 

Fixed

 

N/A

 

N/A

 

 

N/A

 

 

 

4.75

%

Eagle Village

 

 

7,845,711

 

 

2010

 

September 2018

 

Variable

 

Monthly

 

 

0.63

%

(1)

 

3.00

%

 

 

3.63

%

The 50/50 MF Property--TIF

   Loan

 

 

3,656,090

 

 

2014

 

December 2019

 

Fixed

 

N/A

 

N/A

 

 

N/A

 

 

 

4.65

%

The 50/50 MF

   Property--Mortgage

 

 

25,082,636

 

 

2013

 

March 2020

 

Variable

 

Monthly

 

 

3.50

%

(2)

N/A

 

 

 

3.50

%

Jade Park

 

 

7,461,131

 

 

2016

 

October 2021

 

Fixed

 

N/A

 

N/A

 

 

N/A

 

 

 

3.85

%

Total Mortgage

   Payable\Weighted

   Average Period End Rate

 

$

51,379,512

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3.83

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Variable rate is based on 30-day LIBOR

(2)

Variable rate is based on Wall Street Journal Prime Rate

 

25


 

Activity in the First Nine Months of 2017

 

In June 2017, the Partnership refinanced the mortgages payable for the Residences and DeCordova and Residences at Weatherford. The interest rates did not change, no commitments fees were paid, the maturity dates for the mortgages payable were extended for additional two-year terms and the mortgages payable can be prepaid prior to maturity with no penalty.  

 

Activity in the First Nine Months of 2016

 

In June 2016, the Arboretum mortgage payable was paid off in full in conjunction with the sale of the MF property. No prepayment penalties were paid upon settlement of the mortgage payable.

The Partnership entered into a mortgage payable to finance the acquisition of the Jade Park MF Property on September 30, 2016. The initial principal balance on the mortgage payable was $7.5 million, bears interest at a fixed annual rate of 3.85%, and matures in October 2021.

 

Future Maturities

 

The following represents the Mortgages payable and other secured financing contractual maturities for the next five years and thereafter:

 

2017

 

$

380,147

 

2018

 

 

8,809,354

 

2019

 

 

10,768,977

 

2020

 

 

24,017,631

 

2021

 

 

6,858,994

 

Thereafter

 

 

-

 

Total mortgages payable and other secured financings

 

$

50,835,103

 

 

 

17. Interest Rate Derivative Agreements

The following represents the interest rate derivatives, excluding interest rate swaps, at September 30, 2017:

 

Purchase Date

 

Notional Amount

 

 

Maturity Date

 

Effective

Capped

Rate (1)

 

 

Index

 

Variable Debt

Financing Facility

Hedged (1)

 

Counterparty

 

Fair Value as of September 30, 2017 (1)

 

July 2014

 

$

30,759,409

 

 

Aug 2019

 

 

3.0

%

 

SIFMA

 

M31 TEBS

 

Barclays Bank PLC

 

$

579

 

July 2014

 

 

30,759,409

 

 

Aug 2019

 

 

3.0

%

 

SIFMA

 

M31 TEBS

 

Royal Bank of Canada

 

 

579

 

July 2014

 

 

30,759,409

 

 

Aug 2019

 

 

3.0

%

 

SIFMA

 

M31 TEBS

 

SMBC Capital Markets, Inc

 

 

579

 

July 2015

 

 

27,740,685

 

 

Aug 2020

 

 

3.0

%

 

SIFMA

 

M33 TEBS

 

Wells Fargo Bank

 

 

7,674

 

July 2015

 

 

27,740,685

 

 

Aug 2020

 

 

3.0

%

 

SIFMA

 

M33 TEBS

 

Royal Bank of Canada

 

 

7,674

 

July 2015

 

 

27,740,685

 

 

Aug 2020

 

 

3.0

%

 

SIFMA

 

M33 TEBS

 

SMBC Capital Markets, Inc

 

 

7,674

 

June 2017

 

 

92,278,226

 

 

Aug 2019

 

 

1.5

%

 

SIFMA

 

M31 TEBS

 

Barclays Bank PLC

 

 

91,628

 

June 2017

 

 

83,222,056

 

 

Aug 2020

 

 

1.5

%

 

SIFMA

 

M33 TEBS

 

Barclays Bank PLC

 

 

305,086

 

Sept 2017

 

 

60,248,999

 

 

Sept 2020

 

 

4.0

%

 

SIFMA

 

M24 TEBS

 

Barclays Bank PLC

 

 

5,880

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

427,353

 

 

(1)

For additional details, see Note 22 to the Partnership's condensed consolidated financial statements.

 

In June 2017, the Partnership purchased two interest rate derivatives to roll down the effective capped rate on the M31 and M33 TEBS Financings to 1.5%. The Partnership paid approximately $139,000 and $358,000 for the interest rate derivatives, respectively.

 

In September 2017, the Partnership purchased an interest rate derivative on the M24 TEBS Financing to cap the variable interest rate at 4.0%. The Partnership paid approximately $52,000 for the interest rate derivative.

 

The Partnership has contracted for two interest rate swaps with DB. On a quarterly basis, the Partnership reassesses its interest rate swap positions. In the second quarter of 2017, the Partnership determined that due to the stabilization of the Decatur Angle and Bruton MRB properties and securitization of the related MRBs into fixed rate Term A/B Trust financings, the interest rate swaps were not needed to mitigate interest rate risk on financings related to the MRBs. The Partnership then determined that the interest rate swaps are

26


 

intended to mitigate interest rate risk for the variable rate PHC TOB Trusts. The following table summarizes the terms of the interest rate swaps at September 30, 2017 and December 31, 2016:

 

Purchase Date

 

Notional Amount

 

 

Effective Date

 

Termination Date

 

Fixed Rate Paid

 

 

Period End Variable Rate Received

 

 

Variable Rate & Index

 

Counterparty

 

September 30, 2017 - Fair Value of Liability

 

 

December 31, 2016 - Fair Value of Liability

 

Sept 2014

 

$

22,860,724

 

 

Oct 2016

 

Oct 2021

 

 

1.96

%

 

 

0.87

%

 

70% 30-day LIBOR

 

Deutsche Bank

 

$

(603,323

)

 

$

(738,574

)

Sept 2014

 

 

18,080,240

 

 

April 2017

 

April 2022

 

 

2.06

%

 

 

0.87

%

 

70% 30-day LIBOR

 

Deutsche Bank

 

 

(593,378

)

 

 

(600,709

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(1,196,701

)

 

$

(1,339,283

)

 

The Partnership’s interest rate derivatives and interest rate swaps are not designated as hedging instruments and, accordingly, they are recorded at fair value. Changes in fair value are included in current period earnings as interest expense. See Note 22 for a description of the methodology and significant assumptions for determining the fair value of the interest rate derivatives and interest rate swap arrangements. The interest rate derivatives are presented within Other assets and the interest rate swap arrangements are reported as a derivative swap liability on the condensed consolidated balance sheets.  

 

 

18. Commitments and Contingencies

The Partnership, from time to time, may be subject to various legal proceedings and claims that arise in the ordinary course of business.  These matters are frequently covered by insurance.  If it has been determined that a loss is probable, the estimated amount of the loss is accrued in the condensed consolidated financial statements. While the resolution of these matters cannot be predicted with certainty, management believes the final outcome of such matters will not have a material effect on the Partnership’s condensed consolidated financial statements.

Bond Purchase Commitments

As part of the Partnership’s strategy of acquiring MRBs, it will enter into bond purchase commitments related to MRBs to be issued and secured by properties under construction.  Upon satisfaction of the terms of the bond purchase commitment, the proceeds from the MRBs issued will be used to pay off the construction related debt of the underlying collateral of the MRB to be issued. The Partnership bears no construction or stabilization risk during the commitment period. The Partnership accounts for bond purchase commitments as available-for-sale securities and reports the asset or liability at fair value. Changes in the fair value of bond purchase commitments are recorded in Other comprehensive income.

The following table represents the bond purchase commitments at September 30, 2017 and December 31, 2016:

 

Bond Purchase Commitments

 

Commitment Date

 

Maximum

Committed

Amounts for

2017

 

 

Maximum

Committed

Amounts for

2018

 

 

Rate

 

 

Closing

Date (1)

 

Fair Value at

September 30, 2017

 

 

Fair Value at

December 31, 2016

 

Villas at Plano Gateway Apartments

 

December 2014

 

$

-

 

 

$

-

 

 

 

6.00

%

 

N/A

 

$

-

 

 

$

838,200

 

Village at Rivers Edge

 

May 2015

 

 

11,000,000

 

 

 

-

 

 

 

6.00

%

 

Q4 2017

 

 

881,335

 

 

 

467,720

 

Palo Alto

 

July 2015

 

 

-

 

 

 

19,540,000

 

 

 

5.80

%

 

Q1 2018

 

 

1,276,802

 

 

 

627,429

 

Village at Avalon

 

November 2015

 

 

-

 

 

 

16,400,000

 

 

 

5.80

%

 

Q2 2018

 

 

1,196,910

 

 

 

466,100

 

Total

 

 

 

$

11,000,000

 

 

$

35,940,000

 

 

 

 

 

 

 

 

$

3,355,047

 

 

$

2,399,449

 

 

(1)

The closing dates are estimated.

The bond purchase commitment for the Villas at Plano Gateway Apartments expired effective April 1, 2017. The bond purchase commitment was cancelled and the Partnership has no obligation under the agreement after expiration.

27


 

Property Loan Commitments

 

ATAX Vantage Holdings, LLC, a wholly owned subsidiary of the Partnership, committed to loan approximately $17.0 million to unrelated third parties to build two new multifamily residential properties, Vantage at Brooks, LLC and Vantage at Braunfels, LLC, both located in Texas. At September 30, 2017, the Partnership’s remaining maximum commitments totaled approximately $1.1 million. See Note 10 for disclosures related to these property loans.

Other Guarantees & Commitments

In March 2017, the Partnership entered into a guaranty agreement whereby the Partnership has guaranteed payment of the construction loan of Vantage at Panama City Beach, LLC. The Partnership will only have to perform on the guarantee upon a default by Vantage at Panama City Beach, LLC. The guarantee is initially for the entire amount of the construction loan and decreases to 50% and 25% as certain debt service coverage levels are obtained by the borrower. The construction loan has a maximum available balance of $25.6 million. At September 30, 2017, there was no outstanding balance on the construction loan and the Partnership had no exposure under the guarantee. The Partnership is also required to maintain minimum cash and net worth requirements, which were met as of September 30, 2017.

Pursuant to the sale of the Greens Property in 2012, the Partnership entered into guarantee agreements with an unaffiliated entity under which the Partnership has guaranteed certain obligations of the general partner of the Greens of Pine Glen limited partnership, including an obligation to repurchase the interests of BC Partners if certain “repurchase events” occur.  Remaining potential repurchase events relate primarily to the delivery of LIHTCs, or tax credit recapture and foreclosure.  No amount has been accrued for this contingent liability because the likelihood of a repurchase event is remote.  The maximum exposure to the Partnership at September 30, 2017, under the guarantee provision of the repurchase clause is approximately $2.8 million and represents 75% of the equity contributed by BC Partners. The term of the guarantee agreement ends in 2027.

Pursuant to the Ohio Properties transaction in 2011, the Partnership entered into guarantee agreements with an unaffiliated entity under which the Partnership has guaranteed certain obligations of the general partner of these limited partnerships, including an obligation to repurchase the interests of BC Partners if certain “repurchase events” occur.  Remaining potential repurchase events relate primarily to the delivery of LIHTCs, or tax credit recapture and foreclosure.  No amount has been accrued for this contingent liability because the likelihood of a repurchase event is remote.  The maximum exposure to the Partnership at September 30, 2017, under the guarantee provision of the repurchase clause is approximately $4.4 million and represents 75% of the equity contributed by BC Partners. The term of the guarantee agreement ends in 2026.

The 50/50 MF Property has a ground lease with the University of Nebraska-Lincoln with an initial lease term expiring in March 2038. There is also an option to extend the lease for an additional five-year period.  Annual lease payments are $100 per year. In conjunction with the ground lease, the 50/50 MF Property has entered into an agreement whereby it is required to make monthly payments, when cash is available at the property, to the University of Nebraska-Lincoln based on its revenues.  The minimum aggregate annual payment due under the agreement for the twelve-month period from August 1, 2017 through July 31, 2018 is approximately $127,000. The minimum aggregate annual expense increases 2% annually until July 31, 2034 and increases 3% annually thereafter.  The 50/50 MF Property may be required to make additional payments under the agreement if its gross revenues exceed certain thresholds. The agreement will terminate upon termination of the ground lease. The Partnership reported accounts payable related to this agreement of approximately $115,000 and $21,000 at September 30, 2017 and December 31, 2016. The Partnership reported expenses related to the agreement of approximately $42,000 and $126,000 for the three and nine months ended September 30, 2017 and 2016.  

As the holder of residual interests issued in its TOB Trust, Term A/B Trust and TEBS Financing arrangements, the Partnership is required to guarantee certain losses that can be incurred by the trusts created in connection with these financings.  These guarantees may result from a downgrade in the investment rating of PHCs held by the trust or of the senior securities issued by the trust, a ratings downgrade of the liquidity provider for the trust, increases in short term interest rates beyond pre-set maximums, an inability to re-market the senior securities or an inability to obtain liquidity for the trust. In the case of the TEBS, Freddie Mac will step in first on an immediate basis and the Partnership will have 10 to 14 days to remedy. If the Partnership does not remedy, the trust will be collapsed.  If such an event occurs, the trust collateral may be sold and if the proceeds are not sufficient to pay the principal amount of the senior securities plus accrued interest and other trust expenses, the Partnership will be required to fund any such shortfall pursuant to its guarantee. If the Partnership does not fund the shortfall, the default and liquidation provisions will be invoked against the Partnership. In the event of a shortfall the maximum exposure to loss would be approximately $599.3 million prior to the consideration of the proceeds from the sale of the trust collateral. The Partnership has never been, and does not expect in the future, to be required to reimburse the financing facilities for any shortfall.

 

 

28


 

19. Redeemable Series A Preferred Units

 

The Partnership has issued non-cumulative, non-voting, non-convertible Series A Preferred Units via private placements to four financial institutions. The Series A Preferred Units are redeemable in the future and represent limited partnership interests in the Partnership. The Partnership issued 2.0 million Series A Preferred Units to a financial institution during the three months ended September 30, 2017, in a private placement. The following table summarizes the outstanding Series A Preferred Units at September 30, 2017:  

 

September 30, 2017

Month Issued

 

Units

 

 

Purchase Price

 

 

Distribution Rate

 

 

Redemption Price per Unit

 

 

Earliest Redemption Date

March 2016

 

 

1,000,000

 

 

$

10,000,000

 

 

 

3.00

%

 

$

10.00

 

 

March 2022

May 2016

 

 

1,386,900

 

 

 

13,869,000

 

 

 

3.00

%

 

 

10.00

 

 

May 2022

September 2016

 

 

1,000,000

 

 

 

10,000,000

 

 

 

3.00

%

 

 

10.00

 

 

September 2022

December 2016

 

 

700,000

 

 

 

7,000,000

 

 

 

3.00

%

 

 

10.00

 

 

December 2022

March 2017

 

 

1,613,100

 

 

 

16,131,000

 

 

 

3.00

%

 

 

10.00

 

 

March 2023

August 2017

 

 

2,000,000

 

 

 

20,000,000

 

 

 

3.00

%

 

 

10.00

 

 

August 2023

 

 

 

7,700,000

 

 

$

77,000,000

 

 

 

 

 

 

 

 

 

 

 

 

 

20. Restricted Unit Awards (“RUAs”)

The Partnership’s 2015 Equity Incentive Plan (“Plan”), as approved by the Unitholders, permits the grant of Restricted Units and other awards to the employees of Burlington, the Partnership, or any affiliate of either, and members of Burlington’s Board of Managers for up to 3.0 million BUCs. RUAs are generally granted with vesting conditions ranging from three months to approximately three years. RUAs currently provide for the payment of quarterly distributions during the vesting period. The RUA’s provide for accelerated vesting if there is a change in control or death or disability of the Participant.

The fair value of each RUA is estimated on the grant date based on the Partnership’s exchange-listed closing price of the BUCs. The Partnership recognizes compensation expense for the RUAs on a straight-line basis over the requisite vesting period. The compensation expense for RUAs totaled approximately $550,000 and $1,160,000 for the three and nine months ended September 30, 2017. The compensation expense for RUAs totaled approximately $31,000 for the three and nine months ended September 30, 2016.

The following table represents nonvested Restricted Units at and for the nine months ended September 30, 2017.

 

 

 

Restricted Units Awarded

 

 

Weighted-average Grant-date Fair Value

 

Nonvested at January 1, 2017

 

 

158,304

 

 

$

6.03

 

Granted

 

 

283,046

 

 

 

5.74

 

Vested

 

 

-

 

 

 

-

 

Nonvested at September 30, 2017

 

 

441,350

 

 

$

5.84

 

 

At September 30, 2017, there was approximately $1.3 million of total unrecognized compensation expense related to nonvested RUAs granted under the Plan.  The remaining expense is expected to be recognized over a weighted-average period of 0.9 years. The total intrinsic value of nonvested RUAs was approximately $2.7 million at September 30, 2017.

 

 

21. Transactions with Related Parties

The General Partner of the Partnership, AFCA 2, is entitled to receive an administrative fee from the Partnership equal to 0.45% per annum of the outstanding principal balance of any of its MRBs, property loans collateralized by real property, and other investments for which the owner of the financed property or other third party is not obligated to pay such administrative fee directly to AFCA 2.  The Partnership paid or accrued administrative fees to AFCA 2 of approximately $909,000 and $2.7 million for the three and nine months ended September 30, 2017, respectively. The Partnership paid or accrued administrative fees to AFCA 2 of approximately $682,000 and $2.0 million for the three and nine months ended September 30, 2016, respectively. In addition to the administrative fees paid directly by the Partnership, AFCA 2 receives administrative fees directly from the owners of properties financed by certain of the MRBs held by the Partnership.  These administrative fees also equal 0.45% per annum of the outstanding principal balance of these MRBs and totaled approximately $22,000 and $74,000 for the three and nine months ended September 30, 2017, respectively. Such administrative fees totaled approximately $25,000 and $74,000 for the three and nine months ended September 30, 2016, respectively.

29


 

AFCA 2 earns placement fees in connection with the acquisition of certain MRBs, equity investments in unconsolidated entities and select property loans.  These placement fees were paid by the owners of the respective properties and, accordingly, have not been reflected in the accompanying condensed consolidated financial statements because these properties are not considered consolidated VIEs or related parties.  AFCA 2 earned placement fees of approximately $125,000 and $1.1 million for the three and nine months ended September 30, 2017. AFCA 2 earned placement fees of approximately $687,000 and $1.2 million for the three and nine months ended September 30, 2016, respectively. In addition, AFCA 2 received a one-time $125,000 negotiated mortgage placement fee related to work performed for a transaction that did not materialize during the second quarter of 2016.  

An affiliate of AFCA 2, Burlington Capital Properties, LLC (f/k/a America First Properties Management Company, LLC) (“Properties Management”) provided property management services for the MF Properties (excluding Suites on Paseo) and seven of the properties collateralizing MRBs during the three and nine months ended September 30, 2017. Properties Management earned management fees related to the MF Properties of approximately $94,000 and $299,000 for the three and nine months ended September 30, 2017, respectively.  Properties Management earned management fees related to the MF Properties of approximately $141,000 and $541,000 for the three and nine months ended September 30, 2016, respectively. For MF Properties, the property management fees are reflected as real estate operating expenses on the Partnership’s condensed consolidated statements of operations. For the seven properties collateralizing MRBs, the property management fees are not Partnership expenses, but are paid in each case by the owner of the Residential Properties. These property management fees are paid out of the revenues generated by the respective property prior to the payment of debt service on the Partnership's MRBs and property loans, if applicable.

An affiliate of AFCA 2, Farnam Capital Advisors, LLC (“Farnam Cap”), acts as an origination advisor and consultant to the borrowers when MRBs, Investments in unconsolidated entities, select notes receivable, and financing facilities are acquired by the Partnership. The borrowers paid origination fees of approximately $62,000 and $331,000 for the three and nine months ended September 30, 2017. The borrowers paid origination fees of approximately $343,000 and $537,000 for the three and nine months ended September 30, 2016, respectively. These origination fees were paid by the borrower and since they are not Partnership expenses, they have not been reflected in the accompanying condensed consolidated financial statements. The Partnership paid consulting fees to the affiliate of zero and approximately $921,000 for services related to the origination of Term A/B Trusts during the three and nine months ended September 30, 2017, respectively. The Partnership paid consulting fees to Farnam Cap of approximately $1.2 million for services related to origination of the Term A/B Trusts during the three and nine months ended September 30, 2016. In addition, Farnam Cap received a $125,000 origination fee for work performed related to a transaction that did not materialize during the second quarter of 2016.    

An affiliate of AFCA 2, Burlington Capital Construction Services, LLC, is the general contractor for certain exterior rehabilitation services for the Jade Park MF Property commencing in June 2017.  The contracted services are expected to be completed by the end of 2017. The Partnership paid approximately $6,000 for services under the contract during the three and nine months ended September 30, 2017.   

 

 

22. Fair Value of Financial Instruments

Current accounting guidance on fair value measurements establishes a framework for measuring fair value and provides for expanded disclosures about fair value measurements.  The guidance:

 

Defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date; and

 

Establishes a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability on the measurement date.

Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk.  To increase consistency and comparability in fair value measurements and related disclosures, the fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels.  The three levels of the hierarchy are defined as follows:

 

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.

 

Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

 

Level 3 inputs are unobservable inputs for asset or liabilities.

The categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

30


 

Following is a description of the valuation methodologies used for assets and liabilities measured at fair value.

Investments in MRBs and Bond Purchase Commitments.  The fair value of the Partnership’s investments in MRBs and mortgage bond purchase commitments at September 30, 2017 is based upon prices obtained from a third-party pricing service, which are indicative of market prices. There is no active trading market for the MRBs and price quotes for the MRBs are not available. The valuation methodology of the Partnership’s third-party pricing service incorporates commonly used market pricing methods. It considers the underlying characteristics of each MRB as well as other quantitative and qualitative characteristics including, but not limited to, market interest rates, legal structure of the borrower, seniority to other obligations, operating results of the underlying property, geographic location, and property quality. The MRB values are then estimated using a discounted cash flow and yield to maturity or call analysis. The Partnership evaluates pricing data received from the third-party pricing service, including consideration of current market interest rates, quantitative and qualitative characteristics of the underlying collateral, and other information from either the third-party pricing service or public sources. The fair value estimates of these MRBs are based largely on unobservable inputs the believed to be used by market participants and requires the use of judgment on the part of the third-party pricing service and management. Due to the judgments involved, the fair value measurement of the Partnership’s investments in MRBs and mortgage bond purchase commitments are categorized as a Level 3 input. At September 30, 2017, the range of effective yields on the individual MRBs was 2.6% to 9.9% per annum.

Prior to the second quarter of 2017, the fair value of the Partnership’s investments in MRBs and mortgage bond purchase commitments were based on a discounted cash flow and yield to maturity analysis performed by the Partnership. If available, the Partnership considered price quotes on similar MRBs or other information from external sources, such as pricing services.  The estimates of the fair values of these MRBs, whether estimated by the Partnership or based on external sources, were based largely on unobservable inputs the Partnership believed would be used by market participants.  Additionally, the calculation methodology used by the external sources and the Partnership encompassed the use of judgment in its application. To validate changes in the fair value of the Partnership’s investments in MRBs between reporting periods, the Partnership looked at the key inputs such as changes in the ‘A’ rated municipal bond rates on similar MRBs as well as changes in the operating performance of the underlying property serving as collateral for each MRB.  The Partnership validated that the changes in the estimated fair value of the MRBs move with the changes in these monitored factors.  Given these facts, the fair value measurement of the Partnership’s investment in MRBs was categorized as a Level 3 input. At December 31, 2016, the range of effective yields on the individual MRBs was 4.9% to 12.4% per annum.

Investments in Public Housing Capital Fund Trust Certificates.  The fair value of the Partnership’s investment in PHC Certificates at September 30, 2017 is based upon prices obtained from a third-party pricing service, which are indicative of market prices. There is no active trading market for the trusts’ certificates owned by the Partnership. The valuation methodology of the Partnership’s third-party pricing service incorporates commonly used market pricing methods. It considers the underlying characteristics of each PHC Trust as well as other quantitative and qualitative characteristics including, but not limited to, market interest rates, security ratings from rating agencies, the impact of potential political and regulatory change, and other inputs. During the second quarter of 2017, the Partnership analyzed pricing data received from the third-party pricing service by comparing it to the Partnership’s internal valuation methodology. The Partnership’s internal valuation methodology utilized the current market yield rate for a “AAA” rated tax-free municipal bond for a term consistent with the weighted-average life of each of the Public Housing Capital Fund trusts, adjusted largely for unobservable inputs the Partnership believes would be used by market participants. During the third quarter of 2017, the Partnership continued to utilize the third-party pricing service to obtain prices, which are indicative of market prices, for its PHC Certificates. The Partnership engaged a second third-party pricing service whose methodology was consistent with the Partnership’s internal valuation methodology and is utilized by the Partnership to confirm the values developed by its primary third-party pricing service. As such, the Partnership did not utilize its internal methodology to price the PHC Certificates. The Partnership reviews the inputs used by the primary third-party pricing service by reviewing source information and reviews the methodology for reasonableness. The valuation methodologies used by the third-party pricing services and the Partnership encompass the use of judgment in their application. Due to the judgments involved, the fair value measurement of the Partnership’s investment in PHC Certificates is categorized as a Level 3 input.

The fair value of the Partnership’s investment in PHC Certificates at December 31, 2016 was based on a yield to maturity analysis performed by the Partnership. The Partnership’s valuation methodology begins with the current market yield rate for a “AAA” rated tax-free municipal bond for a term consistent with the weighted-average life of each of the Public Housing Capital Fund trusts, adjusted largely for unobservable inputs the Partnership believes would be used by market participants. The Partnership validates that the changes in the estimated fair value of PHC Certificates move with the changes in the market yield rates of investment grade rated mortgage revenue municipal bonds with terms of similar length. Given these facts, the fair value measurement of the Partnership’s investment in PHC Certificates is categorized as a Level 3 input.  At December 31, 2016, the range of effective yields on the PHC Certificates was 4.3% to 6.0% per annum.

31


 

Taxable Bonds. The fair value of the Partnership’s taxable bonds at September 30, 2017 is based upon prices obtained from a third-party pricing service, which are indicative of market prices. There is no active trading market for the taxable bonds and price quotes are not available. The valuation methodology of the Partnership’s third-party pricing service incorporates commonly used market pricing methods. It considers the underlying characteristics of each taxable bond as well as other quantitative and qualitative characteristics including, but not limited to, market interest rates, legal structure of the borrower, subordinate to other obligations, operating results of the underlying property, geographic location, and property quality. The taxable bonds values are then estimated using a discounted cash flow and yield to maturity or call analysis. The Partnership evaluates pricing data received from the third-party pricing service, including consideration of current market interest rates, quantitative and qualitative characteristics of the underlying collateral, and other information from either the third-party pricing service or public sources. The fair value estimates of these taxable bonds are based largely on unobservable inputs believed to be used by market participants and requires the use of judgment on the part of the third-party pricing service and management. Due to the judgments involved, the fair value measurement of the Partnership’s investments in taxable bonds is categorized as a Level 3 input.

Prior to the second quarter of 2017, the fair values of the Partnership’s investments in taxable bonds were based on a discounted cash flow and yield to maturity analysis performed by the Partnership. There is no active trading market for the taxable bonds and price quotes are not available. The estimates of the fair values of these taxable bonds, whether estimated by the Partnership or based on external sources, were based largely on unobservable inputs the Partnership believed would be used by market participants.  Additionally, the calculation methodology used by the external sources and the Partnership encompassed the use of judgment in its application. To validate changes in the fair value of the Partnership’s investments in taxable bonds between reporting periods, management looked at the key inputs such as changes in the current market yields on similar bonds as well as changes in the operating performance of the underlying property serving as collateral for each bond.  The Partnership validated that the changes in the estimated fair value of the taxable bonds moved with the changes in these monitored factors.  Given these facts the fair value measurement of the Partnership’s investment in taxable bonds was categorized as a Level 3 input.

Interest Rate Derivatives.  The effect of the Partnership’s interest rate derivatives is to set a cap, or upper limit, on the base rate of interest paid on the Partnership’s variable rate debt equal to the notional amount of the derivative agreement.   The effect of the Partnership’s interest rate swaps is to change a variable rate debt obligation to a fixed rate for that portion of the debt equal to the notional amount of the derivative agreement.  The fair value of the interest rate derivatives is based on a model whose inputs are not observable and therefore is categorized as a Level 3 input.  The inputs in the valuation model include three-month LIBOR rates, unobservable adjustments to account for the SIFMA index, as well as any recent interest rate cap trades with similar terms.

Assets and liabilities measured at fair value on a recurring basis at September 30, 2017 are summarized as follows:

 

 

 

Fair Value Measurements at September 30, 2017

 

Description

 

Assets and

Liabilities at Fair

Value

 

 

Quoted Prices in

Active Markets for

Identical Assets

(Level 1)

 

 

Significant Other

Observable Inputs

(Level 2)

 

 

Significant

Unobservable Inputs (Level 3)

 

Assets and Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage revenue bonds, held in trust

 

$

739,967,192

 

 

$

-

 

 

$

-

 

 

$

739,967,192

 

Mortgage revenue bonds

 

 

39,346,686

 

 

 

-

 

 

 

-

 

 

 

39,346,686

 

Bond purchase commitments (reported within

   other assets)

 

 

3,355,047

 

 

 

-

 

 

 

-

 

 

 

3,355,047

 

PHC Certificates

 

 

54,913,748

 

 

 

-

 

 

 

-

 

 

 

54,913,748

 

Taxable bonds (reported within other

   assets)

 

 

3,929,761

 

 

 

-

 

 

 

-

 

 

 

3,929,761

 

Derivative contracts (reported within other

   assets)

 

 

427,353

 

 

 

-

 

 

 

-

 

 

 

427,353

 

Derivative swap liability

 

 

(1,196,701

)

 

 

-

 

 

 

-

 

 

 

(1,196,701

)

Total Assets and Liabilities at Fair Value, net

 

$

840,743,086

 

 

$

-

 

 

$

-

 

 

$

840,743,086

 

 

32


 

The following tables summarizes the activity related to Level 3 assets and liabilities for the three and nine months ended September 30, 2017:

 

 

 

For the Three Months Ended September 30, 2017

 

 

 

Fair Value Measurements Using Significant

 

 

 

Unobservable Inputs (Level 3)

 

 

 

Mortgage

Revenue Bonds (1)

 

 

Bond Purchase

Commitments

 

 

PHC Certificates

 

 

Taxable Bonds

 

 

Interest Rate Derivatives (2)

 

 

Total

 

Beginning Balance July 1, 2017

 

$

768,129,658

 

 

$

3,165,172

 

 

$

55,791,371

 

 

$

3,931,471

 

 

$

(761,648

)

 

$

830,256,024

 

Total gains (losses)

   (realized/unrealized)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Included in earnings (interest

   income and interest expense)

 

 

53,117

 

 

 

-

 

 

 

(14,129

)

 

 

-

 

 

 

(66,917

)

 

 

(27,929

)

Included in other

   comprehensive (loss) income

 

 

1,501,150

 

 

 

189,875

 

 

 

309,808

 

 

 

2,356

 

 

 

-

 

 

 

2,003,189

 

Purchases

 

 

12,471,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

59,217

 

 

 

12,530,217

 

Settlements

 

 

(2,841,047

)

 

 

-

 

 

 

(1,173,302

)

 

 

(4,066

)

 

 

-

 

 

 

(4,018,415

)

Ending Balance September 30, 2017

 

$

779,313,878

 

 

$

3,355,047

 

 

$

54,913,748

 

 

$

3,929,761

 

 

$

(769,348

)

 

$

840,743,086

 

Total amount of losses for the period

   included in earnings attributable to

   the change in unrealized gains

   (losses) relating to assets or liabilities

   held on September 30, 2017

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

(66,917

)

 

$

(66,917

)

 

(1) Mortgage revenue bonds includes both bonds held in trust as well as those held by the Partnership.

(2) Interest rate derivatives include derivative contracts reported in other assets as well as derivative swap liabilities.

 

 

 

For the Nine Months Ended September 30, 2017

 

 

 

Fair Value Measurements Using Significant

 

 

 

Unobservable Inputs (Level 3)

 

 

 

Mortgage

Revenue Bonds (1)

 

 

Bond Purchase Commitments

 

 

PHC Certificates

 

 

Taxable Bonds

 

 

Interest Rate Derivatives (2)

 

 

Total

 

Beginning Balance January 1, 2017

 

$

680,211,051

 

 

$

2,399,449

 

 

$

57,158,068

 

 

$

4,084,599

 

 

$

(955,679

)

 

$

742,897,488

 

Total gains (losses)

   (realized/unrealized)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Included in earnings (interest

   income and interest expense)

 

 

159,707

 

 

 

-

 

 

 

(45,846

)

 

 

-

 

 

 

(369,686

)

 

 

(255,825

)

Included in other

   comprehensive (loss) income

 

 

31,731,448

 

 

 

955,598

 

 

 

(588,172

)

 

 

(122,908

)

 

 

-

 

 

 

31,975,966

 

Purchases

 

 

72,056,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

556,017

 

 

 

72,612,017

 

Settlements

 

 

(4,844,328

)

 

 

-

 

 

 

(1,610,302

)

 

 

(31,930

)

 

 

-

 

 

 

(6,486,560

)

Ending Balance September 30, 2017

 

$

779,313,878

 

 

$

3,355,047

 

 

$

54,913,748

 

 

$

3,929,761

 

 

$

(769,348

)

 

$

840,743,086

 

Total amount of losses for the period

   included in earnings attributable to

   the change in unrealized gains

   (losses) relating to assets or liabilities

   held on September 30, 2017

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

(369,686

)

 

$

(369,686

)

 

(1) Mortgage revenue bonds includes both bonds held in trust as well as those held by the Partnership.

(2) Interest rate derivatives include derivative contracts reported in other assets as well as derivative swap liabilities.

 

33


 

Assets and liabilities measured at fair value on a recurring basis at December 31, 2016 are summarized as follows:

 

 

 

Fair Value Measurements at December 31, 2016

 

Description

 

Assets and

Liabilities at Fair

Value

 

 

Quoted Prices in

Active Markets for

Identical Assets

(Level 1)

 

 

Significant Other

Observable Inputs

(Level 2)

 

 

Significant

Unobservable Inputs (Level 3)

 

Assets and Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage revenue bonds held in trust

 

$

590,194,179

 

 

$

-

 

 

$

-

 

 

$

590,194,179

 

Mortgage revenue bonds

 

 

90,016,872

 

 

 

-

 

 

 

-

 

 

 

90,016,872

 

Bond purchase commitments (reported within

   other assets)

 

 

2,399,449

 

 

 

-

 

 

 

-

 

 

 

2,399,449

 

PHC Certificates

 

 

57,158,068

 

 

 

-

 

 

 

-

 

 

 

57,158,068

 

Taxable bonds (reported within other assets)

 

 

4,084,599

 

 

 

-

 

 

 

-

 

 

 

4,084,599

 

Derivative contracts (reported within other

   assets)

 

 

383,604

 

 

 

-

 

 

 

-

 

 

 

383,604

 

Interest swap liability

 

 

(1,339,283

)

 

 

-

 

 

 

-

 

 

 

(1,339,283

)

Total Assets and Liabilities at Fair Value

 

$

742,897,488

 

 

$

-

 

 

$

-

 

 

$

742,897,488

 

 

The following tables summarizes the activity related to Level 3 assets and liabilities for the three and nine months ended September 30, 2016:

 

 

 

For the Three Months Ended September 30, 2016

 

 

 

Fair Value Measurements Using Significant

 

 

 

Unobservable Inputs (Level 3)

 

 

 

Mortgage

Revenue Bonds (1)

 

 

Bond Purchase Commitments

 

 

PHC Certificates

 

 

Taxable Bonds

 

 

Interest Rate Derivatives (2)

 

 

Total

 

Beginning Balance July 1, 2016

 

$

648,397,372

 

 

$

17,218,819

 

 

$

62,180,059

 

 

$

5,294,229

 

 

$

(2,615,093

)

 

$

730,475,386

 

Total gains (losses) (realized/unrealized)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Included in earnings (interest expense)

 

-

 

 

-

 

 

-

 

 

-

 

 

 

263,684

 

 

 

263,684

 

Included in other comprehensive

   (loss) income

 

 

(28,336,831

)

 

 

(4,596,110

)

 

 

(780,342

)

 

 

(315,633

)

 

-

 

 

 

(34,028,916

)

Purchases

 

 

8,785,000

 

 

-

 

 

-

 

 

-

 

 

-

 

 

 

8,785,000

 

Settlements

 

 

(479,253

)

 

-

 

 

 

(540,463

)

 

 

(502,211

)

 

-

 

 

 

(1,521,927

)

Ending Balance September 30, 2016

 

$

628,366,288

 

 

$

12,622,709

 

 

$

60,859,254

 

 

$

4,476,385

 

 

$

(2,351,409

)

 

$

703,973,227

 

Total amount of losses for the period

   included in earnings attributable to

   the change in unrealized gains

   (losses) relating to assets or liabilities

   held on September 30, 2016

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

263,684

 

 

$

263,684

 

 

(1) Mortgage revenue bonds includes both bonds held in trust as well as those held by the Partnership.

(2) Interest rate derivatives include derivative contracts reported in other assets as well as derivative swap liabilities.

 

34


 

 

 

For Nine Months Ended September 30, 2016

 

 

 

Fair Value Measurements Using Significant

 

 

 

Unobservable Inputs (Level 3)

 

 

 

Mortgage

Revenue Bonds (1)

 

 

Bond Purchase Commitments

 

 

PHC Certificates

 

 

Taxable Bonds

 

 

Interest Rate Derivatives (2)

 

 

Total

 

Beginning Balance January 1, 2016

 

$

583,683,137

 

 

$

5,634,360

 

 

$

60,707,290

 

 

$

4,824,060

 

 

$

(972,898

)

 

$

653,875,949

 

Total gains (losses)

   (realized/unrealized)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Included in earnings (interest expense)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,378,112

)

 

 

(1,378,112

)

Included in other comprehensive

   (loss) income

 

 

40,781,894

 

 

 

6,988,349

 

 

 

1,777,372

 

 

 

179,684

 

 

-

 

 

 

49,727,299

 

Purchases

 

 

20,285,000

 

 

-

 

 

-

 

 

-

 

 

-

 

 

 

20,285,000

 

Sale of securities

 

 

(9,747,124

)

 

-

 

 

-

 

 

-

 

 

 

(399

)

 

 

(9,747,523

)

Settlements

 

 

(6,636,619

)

 

-

 

 

 

(1,625,408

)

 

 

(527,359

)

 

-

 

 

 

(8,789,386

)

Ending Balance September 30, 2016

 

$

628,366,288

 

 

$

12,622,709

 

 

$

60,859,254

 

 

$

4,476,385

 

 

$

(2,351,409

)

 

$

703,973,227

 

Total amount of losses for the period

   included in earnings attributable to

   the change in unrealized gains

   (losses) relating to assets or liabilities

   held on September 30, 2016

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

(1,378,112

)

 

$

(1,378,112

)

 

(1) Mortgage revenue bonds includes both bonds held in trust as well as those held by the Partnership.

(2) Interest rate derivatives include derivative contracts reported in other assets as well as derivative swap liabilities.

 

Total gains and losses included in earnings for the periods shown above are included in the Partnership’s condensed consolidated statements of operations as interest expense.

The Partnership estimates the fair value of each financial liability using a discounted cash flow model based on the debt amortization schedules and the effective rate of interest for each period presented.  This estimate of fair value is based on Level 3 inputs.  The TEBS and variable-rate TOB debt financings are credit enhanced by Freddie Mac and DB, respectively. The table below represents the fair value of the financial liabilities held on the condensed consolidated balance sheets at September 30, 2017 and December 31, 2016.

 

 

 

September 30, 2017

 

 

December 31, 2016

 

 

 

Carrying Amount

 

 

Fair Value

 

 

Carrying Amount

 

 

Fair Value

 

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt financing and LOCs

 

$

607,106,819

 

 

$

606,173,812

 

 

$

555,199,700

 

 

$

553,083,924

 

Mortgages payable and other secured financing

 

 

50,579,400

 

 

 

50,650,974

 

 

 

51,379,512

 

 

 

51,595,281

 

 

 

23. Segments

 

The Partnership has four reportable segments, Mortgage Revenue Bond Investments, MF Properties, Public Housing Capital Fund Trusts, and Other Investments.  In addition to the four reportable segments, the Partnership also separately reports its consolidation and elimination information because it does not allocate certain items to the segments.  In January 2016, the Partnership sold its three remaining MBS Securities and eliminated this operating segment.

The Amended and Restated LP Agreement authorizes the Partnership to make investments in tax-exempt securities other than in MRBs provided that the tax-exempt investments are rated in one of the four highest rating categories by a national securities rating agency. The Amended and Restated LP Agreement also allows the Partnership to invest in other securities whose interest may be taxable for federal income tax purposes. Total tax-exempt and other investments cannot exceed 25% of the Partnership’s total assets at the time of acquisition as required under the Amended and Restated LP Agreement.  In addition, the amount of other investments is limited based on the conditions to the exemption from registration under the Investment Company Act of 1940.  The Partnership’s tax-exempt and other investments include PHC Certificates, MBS Securities, and Other Investments, which are reported as three separate segments.

 

35


 

Mortgage Revenue Bond Investments Segment

The Mortgage Revenue Bond Investments segment consists of the Partnership’s portfolio of MRBs and related property loans which have been issued to provide construction and/or permanent financing for Residential Properties and commercial properties in their market areas.  Such MRBs are held as investments and the related property loans, net of loan loss, are reported as such on the Partnership’s condensed consolidated balance sheets.  At September 30, 2017, the Partnership held 91 MRBs. The Residential Properties financed by MRBs contain a total of 10,788 rental units. In addition, one bond (Pro Nova 2014-1) is collateralized by commercial real estate. All general and administrative expenses on the condensed consolidated statements of operations are reported within this operating segment.

 

Public Housing Capital Fund Trust Segment

The Public Housing Capital Fund Trust segment consists of the assets, liabilities, and related income and expenses of the Partnership’s PHC Certificates (see Note 7).

 

MF Properties Segment

The MF Properties segment consists of multifamily, student housing, and senior citizen residential properties held by the Partnership. During the time the Partnership holds an interest in an MF Property, any net rental income generated by the MF Properties in excess of debt service will be available for distribution to the Partnership in accordance with its interest in the MF Property.  At September 30, 2017, the segment includes the six MF Properties comprised of a total of 1,710 rental units. Income tax expense for the Greens Hold Co is reported within this segment.

 

Other Investments Segment

The Other investments segment consists of the operations of ATAX Vantage Holdings, LLC, which is invested in unconsolidated entities (Note 9) and has issued property loans due from Vantage at Brooks LLC and Vantage at Braunfels LLC (Note 10).

 

36


 

The following table details certain key financial information for the Partnership’s reportable segments for the three and nine months ended September 30, 2017 and 2016:

 

 

 

For the Three Months Ended September 30,

 

 

For the Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Total revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage Revenue Bond Investments

 

$

11,035,530

 

 

$

8,504,675

 

 

$

32,683,968

 

 

$

26,074,552

 

MF Properties

 

 

3,257,174

 

 

 

3,414,788

 

 

 

10,356,311

 

 

 

13,483,760

 

Public Housing Capital Fund Trust

 

 

711,823

 

 

 

724,735

 

 

 

2,139,791

 

 

 

2,178,627

 

MBS Securities Investments

 

 

-

 

 

 

-

 

 

 

-

 

 

 

48,755

 

Other Investments

 

 

1,230,303

 

 

 

577,741

 

 

 

3,329,448

 

 

 

1,289,225

 

Total revenues

 

$

16,234,830

 

 

$

13,221,939

 

 

$

48,509,518

 

 

$

43,074,919

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage Revenue Bond Investments

 

$

4,786,151

 

 

$

2,691,439

 

 

$

14,295,635

 

 

$

9,866,978

 

MF Properties

 

 

556,200

 

 

 

441,858

 

 

 

1,616,032

 

 

 

1,708,551

 

Public Housing Capital Fund Trust

 

 

371,830

 

 

 

351,875

 

 

 

1,086,094

 

 

 

987,140

 

MBS Securities Investments

 

 

-

 

 

 

-

 

 

 

-

 

 

 

14,692

 

Other Investments

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total interest expense

 

$

5,714,181

 

 

$

3,485,172

 

 

$

16,997,761

 

 

$

12,577,361

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage Revenue Bond Investments

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

MF Properties

 

 

1,256,202

 

 

 

1,353,602

 

 

 

3,876,768

 

 

 

4,649,724

 

Public Housing Capital Fund Trust

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

MBS Securities Investments

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Other Investments

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total depreciation expense

 

$

1,256,202

 

 

$

1,353,602

 

 

$

3,876,768

 

 

$

4,649,724

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Partnership net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage Revenue Bond Investments

 

$

2,604,989

 

 

$

2,918,500

 

 

$

7,426,810

 

 

$

7,169,516

 

MF Properties

 

 

(626,827

)

 

 

754,441

 

 

 

3,136,765

 

 

 

8,458,960

 

Public Housing Capital Fund Trust

 

 

339,993

 

 

 

372,860

 

 

 

1,053,697

 

 

 

1,191,487

 

MBS Securities Investments

 

 

-

 

 

 

-

 

 

 

-

 

 

 

51,984

 

Other Investments

 

 

1,227,328

 

 

 

577,741

 

 

 

3,326,473

 

 

 

1,289,225

 

Partnership net income

 

$

3,545,483

 

 

$

4,623,542

 

 

$

14,943,745

 

 

$

18,161,172

 

 

The following table details certain key financial information for the Partnership’s reportable segments at September 30, 2017 and December 31, 2016:

 

 

 

September 30, 2017

 

 

December 31, 2016

 

Total assets

 

 

 

 

 

 

 

 

Mortgage Revenue Bond Investments

 

$

893,205,519

 

 

$

764,995,675

 

MF Properties

 

 

106,823,052

 

 

 

129,895,112

 

Public Housing Capital Fund Trust Certificates

 

 

55,313,588

 

 

 

57,461,268

 

Other Investments

 

 

50,487,804

 

 

 

34,540,280

 

Consolidation/eliminations

 

 

(52,634,243

)

 

 

(42,778,661

)

Total assets

 

$

1,053,195,720

 

 

$

944,113,674

 

 

 

24. Subsequent Events

In October 2017, the owner of the Vantage at Harlingen property that collateralizes the Partnership’s MRBs closed on the sale of the property to an unrelated third party. At closing, the Partnership received the outstanding principal on the outstanding Series B and Series D MRBs, accrued interest and other fees from the borrower. The Partnership also settled approximately $19.5 million of the M33 TEBS Financing concurrent with the settlement of the MRBs.

37


 

In October 2017, the Partnership executed Commercial Purchase Agreements to sell the Eagle Village, Residences at DeCordova and Residences at Weatherford MF Properties to unrelated third parties.

On October 2, 2017, the Partnership issued 1.0 million of Series A Preferred Units to a financial institution in a private placement for gross proceeds of $10.0 million.

On October 25, 2017, the Partnership issued 750,000 of Series A Preferred Units to a financial institution in a private placement for gross proceeds of $7.5 million. Effective subsequent to the transaction, the Partnership has terminated the private offering of the Series A Preferred Units.

In October 2017, the Partnership executed PSAs to purchase one property in Hanahan, SC and one property in Goose Creek, SC.

 

 

 

38


 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

In Management’s Discussion and Analysis, the “Partnership” refers to America First Multifamily Investors, L.P. and its Consolidated Subsidiaries at September 30, 2017. See Note 2 and Note 5 to the Partnership’s condensed consolidated financial statements for further disclosure.

Critical Accounting Policies

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

The Partnership’s critical accounting policies are the same as those described in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2016, except for certain policies regarding the fair value of financial instruments. The Partnership’s updated fair value of financial instruments policy is as follows:

Current accounting guidance on fair value measurements establishes a framework for measuring fair value and provides for expanded disclosures about fair value measurements.  The guidance:

 

Defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date; and

 

Establishes a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability on the measurement date.

Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk.  To increase consistency and comparability in fair value measurements and related disclosures, the fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels.  The three levels of the hierarchy are defined as follows:

 

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.

 

Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

 

Level 3 inputs are unobservable inputs for asset or liabilities.

The categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Following is a description of the valuation methodologies used for assets and liabilities measured at fair value.

Investments in MRBs and Bond Purchase Commitments.  The fair value of the Partnership’s investments in MRBs and mortgage bond purchase commitments is based upon prices obtained from a third-party pricing service, which are indicative of market prices. There is no active trading market for the MRBs and price quotes for the MRBs are not available. The valuation methodology of the Partnership’s third-party pricing service incorporates commonly used market pricing methods. It considers the underlying characteristics of each MRB as well as other quantitative and qualitative characteristics including, but not limited to, market interest rates, legal structure of the borrower, seniority to other obligations, operating results of the underlying property, geographic location, and property quality. The MRB values are then estimated using a discounted cash flow and yield to maturity or call analysis. The Partnership evaluates pricing data received from the third-party pricing service, including consideration of current market interest rates, quantitative and qualitative characteristics of the underlying collateral, and other information from either the third-party pricing service or public sources. The fair value estimates of these MRBs are based largely on unobservable inputs the believed to be used by market participants and requires the use of judgment on the part of the third-party pricing service and management. Due to the judgments involved, the fair value measurement of the Partnership’s investments in MRBs and mortgage bond purchase commitments are categorized as a Level 3 input.

Investments in Public Housing Capital Fund Trust Certificates.  The fair value of the Partnership’s investment in PHC Certificates is based upon prices obtained from a third-party pricing service, which are indicative of market prices. There is no active trading market for the trusts’ certificates owned by the Partnership. The valuation methodology of the Partnership’s third-party pricing service incorporates commonly used market pricing methods. It considers the underlying characteristics of each PHC Trust as well as other

39


 

quantitative and qualitative characteristics including, but not limited to, market interest rates, security ratings from rating agencies, the impact of potential political and regulatory change, and other inputs.  During the third quarter of 2017, the Partnership continued to utilize the third-party pricing service to obtain prices, which are indicative of market prices, for its PHC Certificates. The Partnership engaged a second third-party pricing service whose methodology was consistent with the Partnership’s internal valuation methodology and is utilized by the Partnership to confirm the values developed by its primary third-party pricing service. As such, the Partnership did not utilize its internal methodology to price the PHC Certificates. The Partnership reviews the inputs used by the primary third-party pricing service by reviewing source information and reviews the methodology for reasonableness. The valuation methodologies used by the third-party pricing services and the Partnership encompass the use of judgment in their application. Due to the judgments involved, the fair value measurement of the Partnership’s investment in PHC Certificates is categorized as a Level 3 input.

Taxable Bonds. The fair value of the Partnership’s taxable bonds is based upon prices obtained from a third-party pricing service, which are indicative of market prices. There is no active trading market for the taxable bonds and price quotes are not available. The valuation methodology of the Partnership’s third-party pricing service incorporates commonly used market pricing methods. It considers the underlying characteristics of each taxable bond as well as other quantitative and qualitative characteristics including, but not limited to, market interest rates, legal structure of the borrower, subordinate to other obligations, operating results of the underlying property, geographic location, and property quality. The taxable bonds values are then estimated using a discounted cash flow and yield to maturity or call analysis. The Partnership evaluates pricing data received from the third-party pricing service, including consideration of current market interest rates, quantitative and qualitative characteristics of the underlying collateral, and other information from either the third-party pricing service or public sources. The fair value estimates of these taxable bonds are based largely on unobservable inputs believed to be used by market participants and requires the use of judgment on the part of the third-party pricing service and management. Due to the judgments involved, the fair value measurement of the Partnership’s investments in taxable bonds is categorized as a Level 3 input.

Interest Rate Derivatives.  The effect of the Partnership’s interest rate derivatives is to set a cap, or upper limit, on the base rate of interest paid on the Partnership’s variable rate debt equal to the notional amount of the derivative agreement.   The effect of the Partnership’s interest rate swaps is to change a variable rate debt obligation to a fixed rate for that portion of the debt equal to the notional amount of the derivative agreement.  The fair value of the interest rate derivatives is based on a model whose inputs are not observable and therefore is categorized as a Level 3 input.  The inputs in the valuation model include three-month LIBOR rates, unobservable adjustments to account for the SIFMA index, as well as any recent interest rate cap trades with similar terms.

Financial Liabilities. The Partnership estimates the fair value of each financial liability using a discounted cash flow model based on the debt amortization schedules and the effective rate of interest for each period presented.  This estimate of fair value is based on Level 3 inputs.

 

 

Executive Summary

The Partnership was formed for the primary purpose of acquiring a portfolio of MRBs that are issued by state and local housing authorities to provide construction and/or permanent financing for affordable multifamily and student housing (collectively “Residential Properties”) and commercial properties in their market areas. We expect and believe the interest received on these bonds is excludable from gross income for federal income tax purposes. We may also invest in other types of securities that may or may not be secured by real estate to the extent allowed by the Amended and Restated LP Agreement of the Partnership. We may acquire interests in MF Properties in order to position ourselves for future investments in bonds issued to finance these properties and which we expect and believe will generate tax-exempt interest.

At September 30, 2017, the Partnership has four reportable segments: (1) Mortgage Revenue Bond Investments, (2) MF Properties, (3) Public Housing Capital Fund Trust, and (4) Other Investments. In the first quarter of 2016, the Partnership sold its remaining three mortgage-backed securities (“MBS Securities”). The sale of the Partnership’s MBS Securities eliminated the MBS Securities Investment reportable segment. In addition to the reportable segments, the Partnership also separately reports its consolidation and elimination information because it does not allocate certain items to the segments.  See Notes 2 and 23 to the Partnership’s condensed consolidated financial statements for additional details.

40


 

Recent Investment Activity

The following table presents information regarding the investment activity of the Partnership for the first, second and third quarters of 2017 and 2016:

 

Recent Investment Activity

 

#

 

Amount

(in 000's)

 

 

Retired Debt

or Note

(in 000's)

 

 

Tier 2 income

distributable to the

General Partner

(in 000's) (1)

 

 

Notes to the

Partnership's condensed

consolidated financial

statements

For the Three Months Ended September 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage revenue bond acquisitions

 

2

 

$

12,471

 

 

N/A

 

 

N/A

 

 

6

Mortgage revenue bond redemption

 

1

 

 

1,997

 

 

$

1,700

 

 

N/A

 

 

6

Property loan issued

 

1

 

 

36

 

 

N/A

 

 

N/A

 

 

10

Property loan redemptions

 

1

 

 

500

 

 

N/A

 

 

N/A

 

 

10

Investment in unconsolidated entities

 

1

 

 

1,552

 

 

N/A

 

 

N/A

 

 

9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Land held for development sold

 

1

 

$

3,000

 

 

N/A

 

 

$

(5

)

 

8

Investment in unconsolidated entities

 

2

 

 

1,605

 

 

N/A

 

 

N/A

 

 

9

Property loan advances

 

2

 

 

639

 

 

N/A

 

 

N/A

 

 

10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended March 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage revenue bond acquisitions

 

6

 

$

59,585

 

 

N/A

 

 

N/A

 

 

6

MF Property sold

 

1

 

 

13,750

 

 

N/A

 

 

$

1,071

 

 

8

Investments in unconsolidated entities

 

3

 

 

9,503

 

 

N/A

 

 

N/A

 

 

9

Property loan redemptions

 

1

 

 

500

 

 

N/A

 

 

N/A

 

 

10

Property loan advances

 

3

 

 

1,705

 

 

N/A

 

 

N/A

 

 

10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended September 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable bond redemption

 

1

 

$

499

 

 

$

-

 

 

$

-

 

 

12

Mortgage revenue bond acquisitions

 

4

 

 

8,785

 

 

N/A

 

 

N/A

 

 

6

Mortgage revenue bond restructured

 

3

 

 

5,885

 

 

N/A

 

 

N/A

 

 

6

Property loan issued

 

1

 

 

2,500

 

 

N/A

 

 

N/A

 

 

10

MF Property sold

 

1

 

 

15,650

 

 

 

7,501

 

 

 

276

 

 

8

MF Property acquisition

 

1

 

 

9,883

 

 

N/A

 

 

N/A

 

 

8

Investment in unconsolidated entities

 

3

 

 

9,471

 

 

N/A

 

 

N/A

 

 

9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended June 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage revenue bond redemptions

 

4

 

$

5,172

 

 

$

-

 

 

$

-

 

 

6

MF Property sold

 

1

 

 

30,200

 

 

 

16,519

 

 

 

2,078

 

 

9

Investment in an unconsolidated entity

 

1

 

 

3,372

 

 

N/A

 

 

N/A

 

 

10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended March 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MBS Securities sold

 

3

 

$

15,081

 

 

$

11,945

 

 

$

-

 

 

15

Mortgage revenue bond sold

 

1

 

 

9,479

 

 

 

8,375

 

 

 

-

 

 

6, 15

Mortgage revenue bond acquisitions

 

1

 

 

11,500

 

 

N/A

 

 

N/A

 

 

6

Investment in an unconsolidated entity

 

1

 

 

2,443

 

 

N/A

 

 

N/A

 

 

9

Property loan advances, net

 

2

 

 

5,828

 

 

N/A

 

 

N/A

 

 

10

 

(1)

See “Cash Available for Distribution” in this Item 2 below.

41


 

Recent Financing and Derivative Activities

The following table presents information regarding the debt financing, derivative and Preferred Unit activity of the Partnership for the first, second and third quarters of 2017 and 2016:

 

Recent Financing and Derivative Activity

 

#

 

Amount of Change

in Debt, Derivative, or

Preferred Units

(in 000's)

 

 

Secured

 

Maximum

SIFMA Cap

Rate (1)

 

 

Notes to the

Partnership's condensed

consolidated financial

statements

For the Three Months Ended September 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net borrowing on unsecured LOCs

 

1

 

$

12,471

 

 

No

 

N/A

 

 

13

Interest rate derivative purchased

 

1

 

 

52

 

 

N/A

 

 

4.0%

 

 

17

Redeemable Series A preferred unit issuance

 

1

 

 

20,000

 

 

N/A

 

N/A

 

 

19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate derivative purchased

 

2

 

$

497

 

 

N/A

 

 

1.5%

 

 

17

Refinance of Mortgages Payable

 

2

 

 

-

 

 

Yes

 

N/A

 

 

16

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended March 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net borrowing on unsecured LOCs

 

2

 

$

(40,000

)

 

No

 

N/A

 

 

13

Net borrowing on secured LOC

 

1

 

 

(20,000

)

 

Yes

 

N/A

 

 

14

New Term A/B Financings with DB

 

19

 

 

106,810

 

 

Yes

 

N/A

 

 

15

Refinance of Term A/B Financings with DB

 

4

 

 

(2,245

)

 

Yes

 

N/A

 

 

15

Redeemable Series A preferred unit issuance

 

2

 

 

16,131

 

 

N/A

 

N/A

 

 

19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended September 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (repayments) on unsecured LOCs

 

2

 

$

(23,997

)

 

No

 

N/A

 

 

13

Mortgage payable related to MF Property acquisition

 

1

 

 

7,459

 

 

Yes

 

N/A

 

 

16

Term A/B Financings with DB

 

12

 

 

134,393

 

 

Yes

 

N/A

 

 

15

TOB Financing with DB paid in full and collapsed

 

7

 

 

(105,273

)

 

Yes

 

N/A

 

 

15

Redeemable Series A preferred unit issuance

 

1

 

 

10,000

 

 

N/A

 

N/A

 

 

19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended June 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (repayments) on unsecured LOCs

 

2

 

$

(3,988

)

 

No

 

N/A

 

 

13

Net borrowing (repayments) on mortgages payable and

   other secured financing

 

7

 

 

(16,986

)

 

Yes

 

N/A

 

 

16

Redeemable Series A preferred unit issuance

 

1

 

 

13,869

 

 

N/A

 

N/A

 

 

19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended March 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net borrowing on unsecured LOCs

 

3

 

$

10,488

 

 

No

 

N/A

 

 

13

TOB Financing with DB paid in full and collapsed

 

4

 

 

(20,320

)

 

Yes

 

N/A

 

 

15

Redeemable Series A preferred unit issuance

 

1

 

 

10,000

 

 

N/A

 

N/A

 

 

19

Interest rate derivative sold

 

1

 

 

(11,000

)

 

N/A

 

 

1.0%

 

 

17

(1) See "Quantitative and Qualitative Disclosures About Market Risk" in Item 7A below.

Mortgage Revenue Bond Investments Segment

 

The Partnership’s primary purpose is to acquire and hold as investments a portfolio of MRBs which have been issued to provide construction and/or permanent financing for Residential Properties and commercial properties in their market areas.

 

42


 

The table below compares total revenues, other income, total interest expense and net income for the Mortgage Revenue Bond Investments segment, reported in 000’s, for the periods indicated:

 

 

 

For the Three Months Ended September 30,

 

 

For the Nine Months Ended September 30,

 

 

 

 

2017

 

 

2016

 

 

$ Change

 

 

% Change

 

 

2017

 

 

2016

 

 

$ Change

 

 

% Change

 

 

Mortgage Revenue Bond

   Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

$

11,036

 

 

$

8,505

 

 

$

2,531

 

 

 

29.8

%

 

$

32,684

 

 

$

26,075

 

 

$

6,609

 

 

 

25.3

%

 

Total interest expense

 

$

4,786

 

 

$

2,691

 

 

$

2,095

 

 

 

77.9

%

 

$

14,296

 

 

$

9,867

 

 

$

4,429

 

 

 

44.9

%

 

Net income

 

$

2,605

 

 

$

2,919

 

 

$

(314

)

 

 

-10.8

%

 

$

7,427

 

 

$

7,170

 

 

$

257

 

 

 

3.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The increase in total revenues for the three months ended September 30, 2017 as compared to the same period in 2016 is due to an increase of approximately $2.6 million in recurring investment income from MRBs purchased during the fourth quarter of 2016 and during 2017, offset by a decrease of approximately $89,000 in recurring investment income due to MRB principal payments received, sales and redemptions during the fourth quarter of 2016 and during 2017. The increase in total revenues for the nine months ended September 30, 2017 as compared to the same period in 2016 is due to an increase of approximately $7.4 million in recurring investment income from MRBs purchased during the fourth quarter 2016 and during 2017, offset by a decrease of approximately $652,000 in recurring investment income due to MRB principal payments received, sales and redemptions during the fourth quarter 2016 and during 2017.

 

The increase in interest expense for the three months ended September 30, 2017 as compared to the same period in 2016 is attributable to changes in the average interest rate and increased borrowings. Interest expense increased by approximately $1.4 million due to an increase of approximately 102 basis points in the average interest rate. Interest expense increased by approximately $868,000 due to an increase of approximately $147.9 million in average principal outstanding, specifically with Term A/B Trusts. These increases are offset by a decrease of approximately $201,000 related to fair value adjustments for interest rate derivatives. The increase in interest expense for the nine months ended September 30, 2017 as compared to the same period in 2016 is attributable to changes in the average interest rate and increased borrowings. Interest expense increased by approximately $2.9 million due to an increase of approximately 71 basis points in the average interest rate. Interest expense increased by approximately $2.6 million due to an increase of approximately $125.5 million in average principal outstanding, specifically with Term A/B Trusts. These increases are offset by a decrease of approximately $1.0 million related to fair value adjustments for interest rate derivatives.

 

The decrease in net income for the three months ended September 30, 2017 as compared to the same period in 2016 is due to the changes in total revenues and interest expense above, an increase of approximately $424,000 in salaries and RUA expense, and an increase in investment administration fees of $227,000 due to additional investments made in 2016 and 2017. The increase in net income for the nine months ended September 30, 2017 as compared to the same period in 2016 is due to the changes in total revenues and interest expense above, offset by an increase of approximately $989,000 in salaries and RUA expense, and an increase in investment administration fees of $649,000 due to additional investments made in 2016 and 2017.

 

Public Housing Capital Fund Trust Segment

 

The PHC Certificates consist of custodial receipts evidencing loans made to several public housing authorities.

 

The table below compares total revenues and net income for the Public Housing Capital Fund Trust segment, reported in 000’s, for the periods indicated:

 

 

 

For the Three Months Ended September 30,

 

 

For the Nine Months Ended September 30,

 

 

 

 

2017

 

 

2016

 

 

$ Change

 

 

% Change

 

 

2017

 

 

2016

 

 

$ Change

 

 

% Change

 

 

PHC Trusts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

$

712

 

 

$

725

 

 

$

(13

)

 

 

-1.8

%

 

$

2,140

 

 

$

2,179

 

 

$

(39

)

 

 

-1.8

%

 

Total interest expense

 

$

372

 

 

$

352

 

 

$

20

 

 

 

5.7

%

 

$

1,086

 

 

$

987

 

 

$

99

 

 

 

10.0

%

 

Net income

 

$

340

 

 

$

373

 

 

$

(33

)

 

 

-8.8

%

 

$

1,054

 

 

$

1,191

 

 

$

(137

)

 

 

-11.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

43


 

The slight decrease in total revenues for the three and nine months ended September 30, 2017 compared to the same periods in 2016 is the result of principal reductions of the PHC Certificates during 2016 and 2017. The increase in total interest expense for the three and nine months ended September 30, 2017 compared to the same periods in 2016 is the result of rising interest rates during 2016 and the first quarter of 2017, offset by reductions in principal outstanding.

 

MF Properties Segment

 

The Partnership’s strategy has been to acquire ownership positions in MF Properties while assessing the viability of restructuring the property ownership through a sale of the MF Properties.

 

The table below compares total revenues, other income, total interest expense, and net income for the MF Properties segment, reported in 000’s, for the periods indicated:

 

 

 

For the Three Months Ended September 30,

 

 

For the Nine Months Ended September 30,

 

 

 

 

2017

 

 

2016

 

 

$ Change

 

 

% Change

 

 

2017

 

 

2016

 

 

$ Change

 

 

% Change

 

 

MF Properties

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

$

3,257

 

 

$

3,415

 

 

$

(158

)

 

 

-4.6

%

 

$

10,356

 

 

$

13,484

 

 

$

(3,128

)

 

 

-23.2

%

 

Other income (loss) - Gain (loss)

   on sale of real estate assets

 

$

-

 

 

$

1,634

 

 

$

(1,634

)

 

N/A

 

 

$

7,153

 

 

$

14,077

 

 

$

(6,924

)

 

 

-49.2

%

 

Total interest expense

 

$

556

 

 

$

442

 

 

$

114

 

 

 

25.8

%

 

$

1,616

 

 

$

1,709

 

 

$

(93

)

 

 

-5.4

%

 

Net income

 

$

(627

)

 

$

754

 

 

$

(1,381

)

 

 

-183.2

%

 

$

3,137

 

 

$

8,459

 

 

$

(5,322

)

 

 

-62.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At September 30, 2017 and 2016, the Partnership and its Consolidated Subsidiaries owned six and eight MF Properties, respectively, which contain a total of 1,710 and 2,217 rental units, respectively.

 

The decrease in total revenues for the three months ended September 30, 2017 as compared to the same period in 2016 is due to a decrease of approximately $497,000 from the sales of the Arboretum and Woodland Park in 2016 and the sale of Northern View in March 2017, offset by an increase of approximately $355,000 from the acquisition of Jade Park in September 2016. The decrease in total revenues for the nine months ended September 30, 2017 as compared to the same period in 2016 is due to a decrease of approximately $3.6 million from the sales of the Arboretum, Woodland Park and Northern View, a decrease of approximately $570,000 from declining occupancy at the 50/50 MF Property, and an increase of approximately $1.0 million from the acquisition of Jade Park in September 2016.

 

Other income for the nine months ended September 30, 2017 consists primarily of a $ 7.2 million gain on sale of Northern View in March 2017. Other income for the three months ended September 30, 2016 consists of the gain on sale of Woodland Park in July 2016. Other income for the nine months ended September 30, 2016 consists of the gain on sale of the Arboretum in June 2016 and Woodland Park in July 2016.

 

The increase in interest expense for the three months ended September 30, 2017 as compared to the same periods in 2016 is due primarily to an increase in the average interest rate on mortgages payable. The decrease in interest expense for the nine months ended September 30, 2017 as compared to the same periods in 2016 is due primarily to lower principal balances because of contractual principal payments and settlement of mortgages payable at the Arboretum, Woodland Park and Northern View upon sale.

 

The decrease in net income for the three and nine months ended September 30, 2017 as compared to the same periods in 2016 is due primarily to the change in gain on sale of real estate assets, net of related income tax expenses.

 

At September 30, 2017, Properties Management, an affiliate of AFCA 2, provided property management services for five of the MF Properties and seven of the properties collateralized by the MRBs.  Management believes this relationship provides greater insight and understanding of the underlying property operations and their ability to meet the Partnership’s debt service requirements.

Other Investments Segment

 

The Other Investments segment consists of the operations of ATAX Vantage Holdings, LLC, which holds noncontrolling equity investments in certain multifamily projects and has issued property loans due from multifamily projects.

 

44


 

The table below compares total revenues and net income for the Other Investments segment, reported in 000’s, for the periods indicated:

 

 

 

For the Three Months Ended September 30,

 

 

For the Nine Months Ended September 30,

 

 

 

 

2017

 

 

2016

 

 

$ Change

 

 

% Change

 

 

2017

 

 

2016

 

 

$ Change

 

 

% Change

 

 

Other Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

$

1,230

 

 

$

578

 

 

$

652

 

 

 

112.8

%

 

$

3,329

 

 

$

1,289

 

 

$

2,040

 

 

 

158.3

%

 

Net income

 

$

1,227

 

 

$

578

 

 

$

649

 

 

 

112.3

%

 

$

3,326

 

 

$

1,289

 

 

$

2,037

 

 

 

158.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The increase in total revenues and net income for the three months ended September 30, 2017 as compared to same period in 2016 is due to an increase of approximately $616,000 from income on investments in unconsolidated entities due to additional equity contributions made during the fourth quarter of 2016 and during 2017, and an increase of approximately $36,000 in interest income from property loans due to additional principal advances during the fourth quarter of 2016 and during 2017. The increase in total revenues and net income for the nine months ended September 30, 2017 as compared to same period in 2016 are due to an increase of approximately $1.9 million from income on investments in unconsolidated entities due to additional equity contributions made during the fourth quarter of 2016 and during 2017, and an increase of approximately $171,000 in interest income from property loans due to additional principal advances during the fourth quarter of 2016 and during 2017.

Former MBS Securities Investments Segment

 

In January 2016, the Partnership sold its three remaining MBS Securities and collapsed the related MBS TOB Trusts and paid all obligations in full using proceeds from the sale. The sale of the Partnership’s remaining MBS Securities eliminated the MBS Securities Investments segment in the first quarter of 2016.

 

The table below compares total revenues and net income for the MBS Securities Investments segment, reported in 000’s, for the periods indicated:

 

 

 

For the Three Months Ended September 30,

 

For the Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

 

$ Change

 

 

% Change

 

2017

 

 

2016

 

 

$ Change

 

 

% Change

 

MBS Securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

$

-

 

 

$

-

 

 

$

-

 

 

N/A

 

$

-

 

 

$

49

 

 

$

(49

)

 

N/A

 

Total interest expense

 

$

-

 

 

$

-

 

 

$

-

 

 

N/A

 

$

-

 

 

$

15

 

 

$

(15

)

 

N/A

 

Net income

 

$

-

 

 

$

-

 

 

$

-

 

 

N/A

 

$

-

 

 

$

52

 

 

$

(52

)

 

N/A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

There were no operations in the MBS Securities Investments segment during the three and nine months ended September 30, 2017.

 

 

45


 

Discussion of the Residential Properties Securing our Mortgage Revenue Bond Holdings and MF Properties

 

The following tables outline certain information regarding the Residential Properties on which the Partnership holds MRBs as investments and the MF Properties.   

Non-Consolidated Properties - Stabilized

The owners of the following properties either do not meet the definition of a VIE and/or the Partnership has evaluated and determined it is not the primary beneficiary of the VIE.  As a result, the Partnership does not report the assets, liabilities and results of operations of these properties on a consolidated basis.  At September 30, 2017, these Residential Properties have met the stabilization criteria (see footnote 3 below the table). Debt service on the Partnership’s bonds for the non-consolidated stabilized properties was current at September 30, 2017. 

 

 

 

 

 

 

 

 

 

 

 

 

Economic Occupancy (2)

 

 

 

 

 

Number

 

 

Physical Occupancy (1) at September 30,

 

 

For the Nine Months Ended September 30,

 

Property Name

 

State

 

of Units

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Non-Consolidated Properties-Stabilized (3)

 

Glenview Apartments

 

CA

 

 

88

 

 

 

97

%

 

 

100

%

 

 

97

%

 

 

100

%

Harden Ranch

 

CA

 

 

100

 

 

 

100

%

 

 

99

%

 

 

98

%

 

 

98

%

Montclair Apartments

 

CA

 

 

80

 

 

 

100

%

 

 

96

%

 

 

99

%

 

 

100

%

Santa Fe Apartments

 

CA

 

 

89

 

 

 

100

%

 

 

100

%

 

 

103

%

 

 

98

%

Seasons at Simi Valley

 

CA

 

 

69

 

 

 

100

%

 

 

100

%

 

 

126

%

 

 

137

%

Sycamore Walk

 

CA

 

 

112

 

 

 

98

%

 

 

98

%

 

 

98

%

 

 

101

%

Tyler Park Townhomes

 

CA

 

 

88

 

 

 

97

%

 

 

99

%

 

 

97

%

 

 

99

%

Westside Village Market

 

CA

 

 

81

 

 

 

100

%

 

 

100

%

 

 

100

%

 

 

101

%

Lake Forest Apartments

 

FL

 

 

240

 

 

 

83

%

 

 

95

%

 

 

86

%

 

 

87

%

Ashley Square Apartments

 

IA

 

 

144

 

 

 

97

%

 

 

96

%

 

 

85

%

 

 

93

%

Brookstone Apartments

 

IL

 

 

168

 

 

 

100

%

 

 

99

%

 

 

96

%

 

 

94

%

Copper Gate

 

IN

 

 

128

 

 

 

96

%

 

 

95

%

 

 

95

%

 

 

98

%

Renaissance Gateway (6)

 

LA

 

 

208

 

 

 

98

%

 

 

99

%

 

 

106

%

 

 

96

%

Live 929 Apartments

 

MD

 

 

575

 

 

 

87

%

 

 

85

%

 

 

84

%

 

 

86

%

Woodlynn Village

 

MN

 

 

59

 

 

 

98

%

 

 

100

%

 

 

97

%

 

 

99

%

Greens of Pine Glen Apartments

 

NC

 

 

168

 

 

 

98

%

 

 

95

%

 

 

89

%

 

 

89

%

Silver Moon

 

NM

 

 

151

 

 

 

86

%

 

 

89

%

 

 

87

%

 

 

84

%

Ohio Properties (4)

 

OH

 

 

362

 

 

 

98

%

 

 

93

%

 

 

94

%

 

 

94

%

Bridle Ridge Apartments

 

SC

 

 

152

 

 

 

99

%

 

 

100

%

 

 

96

%

 

 

97

%

Companion at Thornhill Apartments

 

SC

 

 

178

 

 

 

99

%

 

 

98

%

 

 

87

%

 

 

84

%

Cross Creek Apartments

 

SC

 

 

144

 

 

 

94

%

 

 

98

%

 

 

94

%

 

 

94

%

Palms at Premier Park

 

SC

 

 

240

 

 

 

95

%

 

 

95

%

 

 

88

%

 

 

83

%

Arbors of Hickory Ridge

 

TN

 

 

348

 

 

 

92

%

 

 

87

%

 

 

82

%

 

 

84

%

Avistar at Chase Hill

 

TX

 

 

232

 

 

 

88

%

 

 

81

%

 

 

70

%

 

 

76

%

Avistar at the Crest

 

TX

 

 

200

 

 

 

94

%

 

 

99

%

 

 

80

%

 

 

83

%

Avistar at the Oaks

 

TX

 

 

156

 

 

 

94

%

 

 

93

%

 

 

86

%

 

 

86

%

Avistar in 09

 

TX

 

 

133

 

 

 

96

%

 

 

92

%

 

 

85

%

 

 

86

%

Avistar on the Boulevard

 

TX

 

 

344

 

 

 

91

%

 

 

94

%

 

 

79

%

 

 

82

%

Avistar on the Hills

 

TX

 

 

129

 

 

 

99

%

 

 

98

%

 

 

87

%

 

 

90

%

Bella Vista Apartments

 

TX

 

 

144

 

 

 

92

%

 

 

95

%

 

 

92

%

 

 

95

%

Bruton Apartments

 

TX

 

 

264

 

 

 

84

%

 

 

99

%

 

 

87

%

 

 

26

%

Concord at Gulfgate

 

TX

 

 

288

 

 

 

95

%

 

 

97

%

 

 

88

%

 

 

83

%

Concord at Little York

 

TX

 

 

276

 

 

 

98

%

 

 

97

%

 

 

88

%

 

 

77

%

Concord at Williamcrest

 

TX

 

 

288

 

 

 

95

%

 

 

94

%

 

 

87

%

 

 

83

%

Decatur Angle

 

TX

 

 

302

 

 

 

91

%

 

 

95

%

 

 

86

%

 

 

63

%

Heritage Square Apartments

 

TX

 

 

204

 

 

 

87

%

 

 

97

%

 

 

80

%

 

 

82

%

Runnymede Apartments

 

TX

 

 

252

 

 

 

100

%

 

 

98

%

 

 

96

%

 

 

97

%

South Park Ranch Apartments

 

TX

 

 

192

 

 

 

98

%

 

 

98

%

 

 

97

%

 

 

97

%

Vantage at Harlingen

 

TX

 

 

288

 

 

 

92

%

 

 

94

%

 

 

74

%

 

 

67

%

Vantage at Judson

 

TX

 

 

288

 

 

 

96

%

 

 

95

%

 

 

86

%

 

 

82

%

15 West Apartments (5)

 

WA

 

 

120

 

 

 

98

%

 

n/a

 

 

 

96

%

 

n/a

 

 

 

 

 

 

8,072

 

 

 

94

%

 

 

94

%

 

 

88

%

 

 

84

%

 

(1)

Physical occupancy is defined as the total number of units occupied divided by total units at the date of measurement.

46


 

(2)

Economic occupancy is defined as the net rental income received divided by the maximum amount of rental income expected based on market conditions to be derived from each property. This statistic is reflective of rental concessions, delinquent rents and non-revenue units such as model units and employee units. Physical occupancy is a point in time measure while economic occupancy is a measurement over the period presented. Therefore, economic occupancy for a period may exceed the actual occupancy at any point in time.

(3)

A property is considered stabilized once it reaches 90% occupancy for 90 days and an achievement of 1.15 times debt service coverage ratio on amortizing debt service for a period after construction completion or completion of the rehabilitation.

(4)

The Partnership holds approximately $17.7 million of MRBs secured by Crescent Village, Willow Bend and Postwoods (Ohio Properties).  Crescent Village is located in Cincinnati, Ohio, Willow Bend is located in Columbus (Hilliard), Ohio and Postwoods is located in Reynoldsburg, Ohio.

(5)

Newly stabilized properties.  Previous period results are not available.

(6)

The physical and economic occupancy amounts for the property are based on the latest available financial information, which is as of June 30, 2017.

Overall physical occupancy for the stabilized Residential Properties is consistent at September 30, 2017 as compared to September 30, 2016.

Overall economic occupancy increased for the nine months ended September 30, 2017 as compared to the same period in 2016. The increase is due primarily to the stabilization of Bruton Apartments and Decatur Angle during the latter half of 2016 when significant progress was made on renovations at each property. Economic occupancy also increased due to the addition of 15 West in the fourth quarter of 2016, which has higher economic occupancy than the average of the portfolio.

 

Non-Consolidated Properties - Not Stabilized

The owners of the following properties do not meet the definition of a VIE and/or the Partnership has evaluated and determined it is not the primary beneficiary of the VIE.  As a result, the Partnership does not report the assets, liabilities and results of operations of these properties on a consolidated basis.  At September 30, 2017, these Residential Properties have not met the stabilization criteria (see footnote 3 below the table). Debt service on the Partnership’s bonds for the non-consolidated non-stabilized properties was current at September 30, 2017. 

 

 

 

 

 

 

 

 

 

 

 

 

Economic Occupancy (2)

 

 

 

 

 

Number

 

 

Physical Occupancy (1) at September 30,

 

 

For the Nine Months Ended September 30,

 

Property Name

 

State

 

of Units

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Non-Consolidated Properties-Non Stabilized (3)

 

Courtyard Apartments (4)

 

CA

 

 

108

 

 

 

100

%

 

n/a

 

 

 

100

%

 

n/a

 

Harmony Court Bakersfield (4)

 

CA

 

 

96

 

 

 

97

%

 

n/a

 

 

 

93

%

 

n/a

 

Harmony Terrace (4)

 

CA

 

 

136

 

 

 

100

%

 

n/a

 

 

 

133

%

 

n/a

 

Las Palmas (4)

 

CA

 

 

81

 

 

 

99

%

 

 

100

%

 

 

95

%

 

 

99

%

Montecito at Williams Ranch (5)

 

CA

 

 

132

 

 

 

98

%

 

n/a

 

 

 

96

%

 

n/a

 

San Vicente (4)

 

CA

 

 

50

 

 

 

98

%

 

 

98

%

 

 

97

%

 

n/a

 

Seasons Lakewood (4)

 

CA

 

 

85

 

 

 

100

%

 

n/a

 

 

 

107

%

 

n/a

 

Seasons San Juan Capistrano (4)

 

CA

 

 

112

 

 

 

96

%

 

n/a

 

 

 

98

%

 

n/a

 

Summerhill (4)

 

CA

 

 

128

 

 

 

97

%

 

n/a

 

 

 

97

%

 

n/a

 

The Village at Madera (4)

 

CA

 

 

75

 

 

 

99

%

 

n/a

 

 

 

96

%

 

n/a

 

Columbia Gardens

 

SC

 

 

188

 

 

 

98

%

 

 

74

%

 

 

80

%

 

 

76

%

Willow Run

 

SC

 

 

200

 

 

 

99

%

 

 

81

%

 

 

81

%

 

 

76

%

Avistar at Copperfield (4)

 

TX

 

 

192

 

 

 

70

%

 

n/a

 

 

 

64

%

 

n/a

 

Avistar at the Parkway

 

TX

 

 

236

 

 

 

86

%

 

 

90

%

 

 

74

%

 

 

53

%

Avistar at Wilcrest (4)

 

TX

 

 

88

 

 

 

53

%

 

n/a

 

 

 

69

%

 

n/a

 

Avistar at Wood Hollow (4)

 

TX

 

 

409

 

 

 

70

%

 

n/a

 

 

 

71

%

 

n/a

 

Crossing at 1415

 

TX

 

 

112

 

 

 

91

%

 

 

49

%

 

 

64

%

 

 

35

%

Heights at 515

 

TX

 

 

96

 

 

 

98

%

 

 

73

%

 

 

76

%

 

 

55

%

Oaks at Georgetown (4)

 

TX

 

 

192

 

 

 

96

%

 

n/a

 

 

 

85

%

 

n/a

 

 

 

 

 

 

2,716

 

 

 

89

%

 

 

79

%

 

 

85

%

 

 

62

%

 

(1)

Physical occupancy is defined as the total number of units occupied divided by total units at the date of measurement.

(2)

Economic occupancy is defined as the net rental income received divided by the maximum amount of rental income expected based on market conditions to be derived from each property. This statistic is reflective of rental concessions, delinquent rents and non-revenue units such as model units and employee units. Physical occupancy is a point in time measure while economic occupancy is a measurement over the period presented. Therefore, economic occupancy for a period may exceed the actual occupancy at any point in time.

(3)

During the third quarter of 2017, these properties were under construction or renovation.  As such, these properties are not considered stabilized as they have not met the criteria for stabilization. Stabilization is generally defined as 90% occupancy for 90 days and an achievement of 1.15 times debt service coverage ratio on amortizing debt service for a period after construction completion or completion of the rehabilitation.

(4)

Previous period occupancy numbers are not available as these are new investments subsequent to the third quarter of 2016.

 

47


 

Physical and economic occupancy increased in the first nine months of 2017 as compared to the same period in 2016. The increase is primarily due to the addition of non-stabilized Residential Properties with high occupancy in the fourth quarter of 2016 and the first quarter of 2017. These new Residential Properties are scheduled for major rehabilitations and may show a decline in physical and economic occupancy until the rehabilitations are completed. There is no comparable data for such new non-stabilized Residential Properties in the first nine month of 2016 since they were either under significant renovations or were new investments.

 

MF Properties

The MF Properties are owned by the Partnership and the Greens Hold Co. We own two MF Properties directly and the remaining MF Properties are wholly-owned by the Greens Hold Co.  The properties are encumbered by mortgage loans and other secured financing with an aggregate net principal balance of $50.6 million at September 30, 2017.  We report the assets, liabilities, and results of operations of these properties on a consolidated basis.  At September 30, 2017, all the MF Properties have met the stabilization criteria (see footnote 3 below the table). Debt service on our mortgages payable and other secured financing was current at September 30, 2017.

 

 

 

 

 

 

 

 

 

 

 

 

Economic Occupancy (2)

 

 

 

 

 

Number

 

 

Physical Occupancy (1) at September 30,

 

 

For the Nine Months Ended September 30,

 

Property Name

 

State

 

of Units

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

MF Properties-Stabilized (3)

 

Suites on Paseo

 

CA

 

 

394

 

 

 

89

%

 

 

95

%

 

 

94

%

 

 

78

%

Jade Park (4)

 

FL

 

 

144

 

 

 

94

%

 

n/a

 

 

 

78

%

 

n/a

 

Eagle Village

 

IN

 

 

511

 

 

 

93

%

 

 

81

%

 

 

82

%

 

 

86

%

The 50/50 MF Property

 

NE

 

 

475

 

 

 

97

%

 

 

76

%

 

 

71

%

 

 

90

%

Residences at DeCordova

 

TX

 

 

110

 

 

 

100

%

 

 

97

%

 

 

93

%

 

 

94

%

Residences at Weatherford

 

TX

 

 

76

 

 

 

100

%

 

 

100

%

 

 

97

%

 

 

101

%

 

 

 

 

 

1,710

 

 

 

94

%

 

 

85

%

 

 

84

%

 

 

86

%

 

((1)

Physical occupancy is defined as the total number of units occupied divided by total units at the date of measurement.

(2)

Economic occupancy is defined as the net rental income received divided by the maximum amount of rental income expected based on market conditions to be derived from each property. This statistic is reflective of rental concessions, delinquent rents and non-revenue units such as model units and employee units. Physical occupancy is a point in time measure while economic occupancy is a measurement over the period presented. Therefore, economic occupancy for a period may exceed the actual occupancy at any point in time.

(3)

A property is considered stabilized once it reaches 90% occupancy for 90 days and an achievement of 1.15 times debt service coverage ratio on amortizing debt service for all MF Properties that are not student housing residential properties. Suites on Paseo, Eagle Village and the 50/50 MF Property are student housing residential properties.

(4)

Previous period occupancy numbers are not available as the property was acquired on September 30, 2016.

Physical occupancy increased at September 30, 2017 as compared to the same period in 2016 due to increases at Eagle Village and The 50/50 MF Property. Such increases are the result of marketing and pricing plans implemented by Property Management to increase occupancy for the fall 2017 semester.

Economic occupancy decreased in the first nine months of 2017 as compared to the same period in 2016 due lower occupancy at The 50/50 MF Property. Economic occupancy was lower at The 50/50 MF Property during the first nine months due to occupancy declines noted in prior quarters. As physical occupancy at The 50/50 MF Property has improved at September 30, 2017, we expect economic occupancy to improve as the property operates at higher occupancy in the coming quarters.

Results of Operations

 

The tables and following discussions of the Partnership’s change in total revenues and total expenses, and net income for the three and nine months ended September 30, 2017 and 2016 and should be read in conjunction with the Partnership’s condensed consolidated financial statements and Notes thereto included in Item 1 of this report as well as the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2016.

 

48


 

The table below compares revenue and other income for the Partnership for the periods presented:

Change in Total Revenues and Other Income (in 000’s)

 

 

 

For the Three Months Ended September 30,

 

 

For the Nine Months Ended September 30,

 

 

 

 

2017

 

 

2016

 

 

$ Change

 

 

% Change

 

 

2017

 

 

2016

 

 

$ Change

 

 

% Change

 

 

Revenues and Other Income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property revenues

 

$

3,244

 

 

$

3,415

 

 

$

(171

)

 

 

-5.0

%

 

$

10,281

 

 

$

13,484

 

 

$

(3,203

)

 

 

-23.8

%

 

Investment income

 

 

12,243

 

 

 

9,071

 

 

 

3,172

 

 

 

35.0

%

 

 

35,887

 

 

 

27,239

 

 

 

8,648

 

 

 

31.7

%

 

Contingent interest income

 

 

-

 

 

 

90

 

 

 

(90

)

 

N/A

 

 

 

219

 

 

 

309

 

 

 

(90

)

 

 

-29.1

%

 

Other interest income

 

 

735

 

 

 

646

 

 

 

89

 

 

 

13.8

%

 

 

2,047

 

 

 

2,043

 

 

 

4

 

 

 

0.2

%

 

Other income

 

 

13

 

 

 

-

 

 

 

13

 

 

 

100.0

%

 

 

75

 

 

 

-

 

 

 

75

 

 

 

100.0

%

 

Gain (loss) on sale of real

   estate assets

 

 

-

 

 

 

1,634

 

 

 

(1,634

)

 

N/A

 

 

 

7,153

 

 

 

14,077

 

 

 

(6,924

)

 

 

-49.2

%

 

Gain on sale of securities

 

 

-

 

 

 

-

 

 

 

-

 

 

N/A

 

 

 

-

 

 

 

8

 

 

 

(8

)

 

N/A

 

 

Total Revenues and Other

   Income

 

$

16,235

 

 

$

14,856

 

 

$

1,379

 

 

 

9.3

%

 

$

55,662

 

 

$

57,160

 

 

$

(1,498

)

 

 

-2.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Discussion of the Total Revenues and Other Income for the Three Months Ended September 30, 2017 and 2016

 

Property revenues.  The decrease in property revenues for the three months ended September 30, 2017 as compared to the same period in 2016 is due to the following factors:

 

A decrease of approximately $497,000 from the sales of the Arboretum and Woodland Park in June and July 2016, respectively, and the sale of Northern View in March 2017; and

 

An increase of approximately $355,000 from the acquisition of Jade Park in September 2016.

 

Investment income.   Investment income includes interest earned on MRBs, PHC Certificates, MBS Securities (for 2016 only) and other equity investments.  The increase in investment income for the three months ended September 30, 2017 as compared to the same period in 2016 is due to the following factors:

 

An increase of approximately $2.6 million in recurring investment income from MRBs purchased during the fourth quarter of 2016 and during 2017;

 

An increase of approximately $617,000 from income on investments in unconsolidated entities due to additional equity contributions made during the fourth quarter of 2016 and during 2017; and

 

A decrease of approximately $83,000 in recurring investment income due to MRB principal payments received, sales and redemptions during the fourth quarter of 2016 and during 2017.

 

Contingent interest income. There was no contingent interest income received for the three months ended September 30, 2017. For the three months ended September 30, 2016, contingent interest income was received from available excess cash at Ashley Square.

 

Other interest income. Other interest income is comprised primarily of interest income on property loans. The increase in other interest income for the three months ended September 30, 2017 as compared to the same period in 2016 was primarily due to an increase of approximately $46,000 in interest income from loans to Vantage at Brooks, Vantage at New Braunfels, and the Winston Group for additional advances during the fourth quarter of 2016 and during 2017.

 

Gain (loss) on sale of real estate assets.  The was no gain (loss) on sale reported for the three months ended September 30, 2017. The gain reported for the three months ended September 30, 2016, is from the sale of Woodland Park in July 2016.

Discussion of the Total Revenues and Other Income for the Nine Months Ended September 30, 2017 and 2016

 

Property revenues.  The decrease in property revenues for the nine months ended September 30, 2017 as compared to the same period in 2016 is due to the following factors:

 

A decrease of approximately $3.6 million from the sales of the Arboretum and Woodland Park in June and July 2016, respectively, and the sale of Northern View in March 2017;

49


 

 

A decrease of approximately $570,000 related to low occupancy at the 50/50 MF Property; and

 

An increase of approximately $1.0 million from the acquisition of Jade Park in September 2016.

 

Investment income.   Investment income includes interest earned on MRBs, PHC Certificates, MBS Securities (for 2016 only) and other equity investments.  The increase in investment income for the nine months ended September 30, 2017 as compared to the same period in 2016 is due to the following factors:

 

An increase of approximately $7.4 million in recurring investment income from MRBs purchased during the fourth quarter of 2016 and during 2017;

 

An increase of approximately $1.9 million from income on investments in unconsolidated entities due to additional equity contributions made during 2016 and 2017;

 

A decrease of approximately $428,000 in recurring investment income due to MRB principal payments received, sales and redemptions during the fourth quarter of 2016 and during 2017; and

 

A decrease of approximately $52,000 in recurring investment income due to sale of the MBS Securities in January 2016 and principal paydowns on the PHC investments during the fourth quarter of 2016 and during 2017.

 

Contingent interest income. For the nine months ended September 30, 2017, contingent interest income was received from available excess cash at Lake Forest. For the nine months ended September 30, 2016, contingent interest income was received from available excess cash at Ashley Square.

 

Other interest income. Other interest income is comprised primarily of interest income on property loans. Other interest income for the nine months ended September 30, 2017 was comparable to the same period in 2016.

Gain (loss) on sale of real estate assets.  The gain reported for the nine months ended September 30, 2017, is primarily from the sale of Northern View in March 2017. The gain reported for the nine months ended September 30, 2016, is from the sales of the Arboretum and Woodland Park in June and July 2016, respectively.

 

The table below compares expenses for the Partnership for the periods presented:

Change in Total Expenses (in 000’s)

 

 

 

For the Three Months Ended September 30,

 

 

For the Nine Months Ended September 30,

 

 

 

 

2017

 

 

2016

 

 

$ Change

 

 

% Change

 

 

2017

 

 

2016

 

 

$ Change

 

 

% Change

 

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate operating

   (exclusive of items shown

   below)

 

$

2,226

 

 

$

2,253

 

 

$

(27

)

 

 

-1.2

%

 

$

6,331

 

 

$

7,259

 

 

$

(928

)

 

 

-12.8

%

 

Impairment charge

 

 

-

 

 

 

-

 

 

 

-

 

 

N/A

 

 

 

-

 

 

 

62

 

 

 

(62

)

 

N/A

 

 

Depreciation and amortization

 

 

1,259

 

 

 

1,361

 

 

 

(102

)

 

 

-7.5

%

 

 

4,122

 

 

 

5,293

 

 

 

(1,171

)

 

 

-22.1

%

 

Amortization of deferred

   financing costs

 

 

577

 

 

 

426

 

 

 

151

 

 

 

35.4

%

 

 

1,880

 

 

 

1,350

 

 

 

530

 

 

 

39.3

%

 

Interest

 

 

5,714

 

 

 

3,485

 

 

 

2,229

 

 

 

64.0

%

 

 

16,998

 

 

 

12,577

 

 

 

4,421

 

 

 

35.2

%

 

General and administrative

 

 

3,198

 

 

 

2,377

 

 

 

821

 

 

 

34.5

%

 

 

9,206

 

 

 

7,475

 

 

 

1,731

 

 

 

23.2

%

 

Total Expenses

 

$

12,974

 

 

$

9,902

 

 

$

3,072

 

 

 

31.0

%

 

$

38,537

 

 

$

34,016

 

 

$

4,521

 

 

 

13.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Discussion of the Total Expenses for the Three Months Ended September 30, 2017 and 2016

Real estate operating expenses.  Real estate operating expenses are associated with the MF Properties and are comprised principally of real estate taxes, property insurance, utilities, property management fees, repairs and maintenance, and salaries and related employee expenses of on-site employees. The decrease in real estate operating expenses for the three months ended September 30, 2017 as compared to the same period in 2016 is due to the following factors:

 

A decrease of approximately $348,000 related to the sales of the Arboretum and Woodland Park during 2016 and Northern View in March 2017;

50


 

 

An increase of approximately $126,000 related to the acquisition of Jade Park in September 2016; and

 

An increase of approximately $129,000 related to timing of certain repairs and maintenance expense at the MF Properties.

 

Depreciation and amortization expense.  Depreciation relates entirely to the MF Properties.  Amortization consists of in-place lease intangible assets recorded as part of the acquisition-method of accounting for the acquisition of MF Properties.  The decrease in depreciation and amortization for the three months ended September 30, 2017 as compared to the same period in 2016 is due to the following factors:

 

A decrease of approximately $175,000 in depreciation related to the sales of the Arboretum and Woodland Park during 2016 and Northern View in 2017; and

 

An increase of approximately $110,000 in depreciation and amortization related to the acquisition of Jade Park in September 2016.

 

Amortization of deferred financing costs.  Deferred financing costs are amortized using the effective interest method over the life of the related debt financing, mortgage payable or other secured financing. The increase in amortization of deferred financing costs for the three months ended September 30, 2017 as compared to the same period in 2016 is primarily due to $154,000 additional expense related to Term A/B Trusts executed in September 2016, the fourth quarter of 2016 and the first quarter of 2017.

 

Interest expense. The increase in interest expense for the three months ended September 30, 2017 as compared to the same period in 2016 is attributable to the following factors:

 

An increase of approximately $1.5 million due to an increase of approximately 92 basis points in the average interest rate;

 

An increase of approximately $921,000 due to an increase of approximately $145.0 million in average principal outstanding, specifically Term A/B Trust financings; and

 

A decrease of approximately $201,000 related to fair value adjustments for interest rate derivatives.

 

General and administrative expenses.  The increase in general and administrative expenses for the three months ended September 30, 2017 as compared to the same period in 2016 is attributable to the following factors:

 

An increase of approximately $519,000 due to the issuance of restricted unit awards, which were first issued in September 2016; and

 

An increase of approximately $227,000 for administrative fees due an increase in assets owned by the Partnership.

Discussion of the Total Expenses for the Nine Months Ended September 30, 2017 and 2016

Real estate operating expenses.  Real estate operating expenses are associated with the MF Properties and are comprised principally of real estate taxes, property insurance, utilities, property management fees, repairs and maintenance, and salaries and related employee expenses of on-site employees. The decrease in real estate operating expenses for the nine months ended September 30, 2017 as compared to the same period in 2016 is due to the following factors:

 

A decrease of approximately $1.7 million related to the sales of the Arboretum and Woodland Park during 2016 and Northern View in March 2017; and

 

An increase of approximately $618,000 related to the acquisition of Jade Park in September 2016.

 

Depreciation and amortization expense.  Depreciation relates entirely to the MF Properties.  Amortization consists of in-place lease intangible assets recorded as part of the acquisition-method of accounting for the acquisition of MF Properties.  The decrease in depreciation and amortization for the nine months ended September 30, 2017 as compared to the same period in 2016 is due to the following factors:

 

A decrease of approximately $1.0 million in depreciation related to the sales of the Arboretum and Woodland Park during 2016 and Northern View in 2017;

 

A decrease of approximately $614,000 in amortization at the Suites on Paseo due to the full amortization of acquired in-place leases during 2016; and

 

An increase of approximately $549,000 in depreciation and amortization related to the acquisition of Jade Park in September 2016.

51


 

 

Amortization of deferred financing costs.  Deferred financing costs are amortized using the effective interest method over the life of the related debt financing, mortgage payable or other secured financing. The increase in amortization of deferred financing costs for the nine months ended September 30, 2017 as compared to the same period in 2016 is due primarily to $203,000 additional expense related to the $20 million secured line of credit arrangement initiated in December 2016, and an increase of approximately $366,000 related to new Term A/B Trust financings in September 2016 and during 2017.

 

Interest expense. The increase in interest expense for the nine months ended September 30, 2017 as compared to the same period in 2016 is attributable to the following factors:

 

An increase of approximately $3.1 million due to an increase of approximately 66 basis points in the average interest rate;

 

An increase of approximately $2.3 million due to an increase of approximately $108.5 million in average principal outstanding, specifically Term A/B Trust financings; and

 

A decrease of approximately $1.0 million related to fair value adjustments for interest rate derivatives.

 

General and administrative expenses.  The increase in general and administrative expenses for the nine months ended September 30, 2017 as compared to the same period in 2016 is attributable to the following factors:

 

An increase of approximately $1.1 million due to restricted unit awards, which were first issued in September 2016; and

 

An increase of approximately $631,000 for administrative fees due an increase in assets owned by the Partnership.

Discussion of the Income Tax Expense for the Three and Nine Months Ended September 30, 2017 and 2016

 

A wholly-owned subsidiary of the Partnership, the Greens Hold Co, is a corporation subject to federal and state income tax. The Greens Hold Co owns controlling equity interests in the MF Properties, except for Suites on Paseo and Jade Park. The gain on sale of Northern View in March 2017 and normal operating income of the owned MF Properties are subject to federal and state income taxes and the Partnership recorded income tax expense (benefit) of approximately ($285,000) and $2.1 million for the three and nine months ended September 30, 2017. The gains on sale, net of NOLs carryforwards, of the Arboretum in June 2016 and Woodland Park in July 2017 and normal operating income of the owned MF Properties are subject to federal and state income taxes and the Partnership recorded income tax expense of approximately $331,000 and $5.0 million for the three and nine months ended September 30, 2016.

 

Cash Available for Distribution (“CAD”)

 

The Partnership believes that CAD provides relevant information about the Partnership’s operations and is necessary, along with net income, for understanding its operating results.  To calculate CAD, the Partnership begins with net income and adds back non-cash expenses consisting of amortization expense related to debt financing costs and bond issuance costs, interest rate derivative expense or income, provision for loan losses, impairments on bonds and property loans, and Restricted Units compensation expense, to the Partnership’s net income (loss) as computed in accordance with GAAP, and deducts Tier 2 income (see Note 3 to the Partnership’s condensed consolidated financial statements) attributable to the Partnership as defined in the Amended and Restated LP Agreement.  Net income is the GAAP measure most comparable to CAD. There is no generally accepted methodology for computing CAD, and the Partnership’s computation of CAD may not be comparable to CAD reported by other companies.  Although the Partnership considers CAD to be a useful measure of the Partnership’s operating performance, CAD is a non-GAAP measure that should not be considered as an alternative to net income that is calculated in accordance with GAAP, or any other measures of financial performance presented in accordance with GAAP.

 

52


 

The table below shows the calculation of CAD (and a reconciliation of the Partnership’s GAAP net income to CAD) for the three and nine months ended September 30, 2017 and 2016:

 

 

 

For the Three Months Ended September 30,

 

 

For the Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Partnership net income

 

$

3,545,483

 

 

$

4,623,542

 

 

$

14,943,745

 

 

$

18,161,172

 

Change in fair value of derivatives and interest rate

   derivative amortization

 

 

66,917

 

 

 

(263,684

)

 

 

369,686

 

 

 

1,378,112

 

Depreciation and amortization expense

 

 

1,259,055

 

 

 

1,361,259

 

 

 

4,122,260

 

 

 

5,292,889

 

Impairment charge

 

 

-

 

 

 

-

 

 

 

-

 

 

 

61,506

 

Amortization of deferred financing costs

 

 

577,413

 

 

 

425,520

 

 

 

1,880,236

 

 

 

1,350,200

 

Restricted units compensation

   expense

 

 

550,390

 

 

 

31,050

 

 

 

1,160,123

 

 

 

31,050

 

Deferred income taxes

 

 

(9,000

)

 

 

(136,000

)

 

 

(374,000

)

 

 

417,000

 

Redeemable Series A preferred unit distribution and

   accretion

 

 

(523,682

)

 

 

(181,969

)

 

 

(1,280,874

)

 

 

(308,635

)

Tier 2 Income distributable to the General Partner (1)

 

 

-

 

 

 

(291,295

)

 

 

(1,120,625

)

 

 

(2,431,876

)

Bond purchase premium (discount) amortization

   (accretion), net of cash received

 

 

(26,270

)

 

 

(147,033

)

 

 

(76,518

)

 

 

(78,669

)

Total CAD

 

$

5,440,306

 

 

$

5,421,390

 

 

$

19,624,033

 

 

$

23,872,749

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of units outstanding, basic

 

 

59,811,578

 

 

 

60,176,937

 

 

 

59,904,078

 

 

 

60,227,413

 

Net income per unit, basic

 

$

0.05

 

 

$

0.07

 

 

$

0.21

 

 

$

0.25

 

Total CAD per unit, basic

 

$

0.09

 

 

$

0.09

 

 

$

0.33

 

 

$

0.40

 

Distributions per unit

 

$

0.125

 

 

$

0.125

 

 

$

0.375

 

 

$

0.375

 

 

 

(1)

As described in Note 3 to the Partnership’s condensed consolidated financial statements, Net Interest Income representing contingent interest and Net Residual Proceeds representing contingent interest (Tier 2 income) will be distributed 75% to the limited partners and Unitholders as a class and 25% to the General Partner. This adjustment represents the 25% of Tier 2 income due to the General Partner.  For the three months ended September 30, 2017, the Partnership did not report any Tier 2 income distributable to the General Partner. For the three months ended September 30, 2016, the Partnership reported Tier 2 income distributable to the General Partner of approximately $268,000 from the gain on the sale of Woodland Park and approximately $23,000 from contingent interest received from Ashley Square.

For the nine months ended September 30, 2017, the Partnership reported Tier 2 income distributable to the General Partner of approximately $1.1 million from the net gain on the sale of Northern View, approximately $55,000 from contingent interest received from Lake Forest, offset by a $5,000 loss on the sale of land in St. Petersburg, FL.  For the nine months ended September 30, 2016, the Partnership reported Tier 2 income distributable to the General Partner of approximately $2.1 million from the gain on the sale of the Arboretum, $268,000 from the gain on sale of Woodland Park, and approximately $77,000 from contingent interest received from Ashley Square.

 

There was no non-recurring CAD per unit earned by the Partnership for the three and nine months ended September 30, 2017 and 2016.

 

Liquidity and Capital Resources

The Partnership’s principal source of cash flow includes:

 

Interest income earned on MRBs;

 

Interest income earned on the PHC Certificates;

 

Excess cash flow generated by the MF Properties;

 

Excess proceeds from the sale of assets; and

 

Cash flow, net of expenses, from general Partnership operations.

Additional sources of cash flow may include:

 

Interest payments received from property loans; and

 

Contingent interest received from investments in MRBs or property loans.

53


 

Interest income is primarily comprised of fixed rate base interest payments received on our MRBs and PHC Certificates which provides consistent cash receipts throughout the year.  Certain of the MRBs may also generate payments of contingent interest to us from time to time when the underlying Residential Properties generate excess net cash flow.   For additional details, see the Partnership’s condensed consolidated statement of cash flows.

Similarly, the economic performance of MF Properties will affect the amount of cash distributions, if any, received by the Partnership from ownership of these properties.  The economic performance of the MF Properties depends on the rental and occupancy rates of the property and on the level of operating expenses. Occupancy rates and rents are directly affected by the supply of, and demand for, apartments in the market area in which a property is located.  This, in turn, is affected by several factors such as local or national economic conditions, the amount of new apartment construction and the affordability of single-family homes.  In addition, factors such as government regulation (such as zoning laws), inflation, real estate and other taxes, labor problems, and natural disasters can affect the economic operations of an apartment property.  For discussion related to economic risk see Item 1A, “Risk Factors” in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2016.

Other sources of cash available to the Partnership include:

 

Operating line of credit;

 

Secured and unsecured lines of credit;

 

Debt financing;

 

Mortgages payable and other secured financings;

 

Sale of Series A Preferred Units; and

 

Sale of additional BUCs.

At September 30, 2017, the Partnership had borrowed the following amounts:

 

Debt financing, net - $594.6 million; and

 

Mortgages payable and other secured financing, net - $50.6 million.

In addition, as of September 30, 2017, the Partnership had issued 7.7 million Series A Preferred Units at a subscription price of $10.00 per unit.  We issued approximately 3.6 million Series A Preferred Units during the nine months ended September 30, 2017 for gross proceeds of approximately $36.1 million. We did not issue any BUCs during 2017 or 2016.  

Our principal uses of cash are (i) general, administrative and operating expenses, (ii) interest and principal payable on the unsecured and secured lines of credit, (iii) interest and principal payable on the debt financing and mortgages payable and other secured financing, and (iv) payment of distributions to Series A Preferred Unitholders and BUC holders.  We also use cash to acquire additional investments.

 

(i)

Payment of general, administrative, and operating expenses  

The MF Properties’ primary uses of cash were for operating expenses.  We also used cash for general and administrative expenses. For additional details, see the Partnership’s condensed consolidated statement of cash flows in this Form 10-Q.

 

(ii)

Payment of interest and principal on unsecured and secured lines of credit  

We maintain two unsecured lines of credit: an operating and a revolving line of credit. Our operating line of credit allows for the advance of up to $10.0 million to be used for general operations. We are required to make prepayments of the principal to reduce outstanding principal balance on the operating line to zero for fifteen consecutive days during each calendar quarter. We fulfilled this requirement during the nine months ended September 30, 2017. In addition, we have fulfilled this requirement for the fourth quarter of 2017. Our $50 million revolving line of credit may be utilized for the purchase of multifamily real estate and taxable or tax-exempt MRBs. Advances on the line of credit are due on the 270th day following the advance date, but may be extended by making certain payments for up to an additional 270 days. Our $20 million secured term line of credit was used to finance the purchase of MRBs and matured in March 2017. The secured line of credit was closed and is not available for use by the Partnership at September 30, 2017.

 

(iii)

Payment of interest and principal on debt and mortgages payable and other secured financing

Our debt financing arrangements consist of various secured financing transactions to leverage our portfolio of MRBs and other investments. The financing arrangements generally involve the securitization of MRBs and other investments into trusts whereby we retain beneficial interests in the trusts that provide certain rights to the underlying investment assets. The remaining

54


 

beneficial interests are sold to unaffiliated parties with the proceeds being received by the Partnership. The beneficial interests held by unaffiliated parties require periodic interest payments, which may be fixed or variable depending on the terms of the arrangement, and scheduled principal payments.

Our mortgages payable and other secured financing arrangements are used to leverage our MF Properties. The mortgages and other secured financing are entered into with financial institutions and are secured by security interests in the MF Properties. The mortgages and other secured financing bear interest, which may be fixed or variable depending on the terms of the arrangement, and scheduled principal payments.

We anticipate refinancing all debt financing arrangements that will mature in the fourth quarter of 2017 with similar arrangements of terms greater than one year.  

 

(iv)

Payment of distributions to the Unitholders – Series A Preferred Unit and BUC holders

Distributions to the Series A Preferred unitholders, if declared by the General Partner, will be paid at a fixed rate of 3.0% annually.  The Series A Preferred Units are non-cumulative, non-voting, non-convertible and are senior to BUC holders.  

Distributions to the BUC holders may increase or decrease at the determination of the General Partner.  The per unit distributions primarily depend on the amount of interest and other cash received by us from our portfolio of MRBs and other investments, the amount of our outstanding debt and the effective interest rates paid by us on this debt, the level of operating and other cash expenses incurred by us, and the number of units outstanding.

Leverage Ratio

We utilize leverage to enhance rates of return to our Unitholders. We use target ratios for each type of financing obligation utilized by us to manage an overall leverage constraint, as established by the Board of Managers (the “Board”) of Burlington, which is the general partner of the Partnership’s general partner. During the third quarter of 2017, the Board approved an increase in the overall leverage constraint to 75%. The amount of leverage utilized is dependent upon several factors, including the assets being leveraged, the leverage program utilized, constraints of market collateral calls and the liquidity and marketability of the underlying collateral of the asset being leveraged. We define our leverage ratio as total outstanding debt divided by total assets using the carrying value of the MRBs, PHC Certificates, initial finance costs and the MF Properties at cost. At September 30, 2017, our overall leverage ratio was approximately 66%.  

Cash Flows

 

During the nine months ended September 30, 2017, we generated $14.8 million of cash, which was the net result of approximately $13.2 million provided by operating activities, approximately $55.9 million used in investing activities, and approximately $57.6 million provided by financing activities.

 

Cash provided by operating activities totaled $13.2 million for the nine months ended September 30, 2017, as compared to cash provided by operating activities of $9.8 million for the nine months ended September 30, 2016. The increase is primarily due to two factors. First, there is a $1.3 million lower increase in interest receivable when comparing 2017 to 2016. Second, there is a $1.9 million increase in cash due to changes in accounts payable and accrued expenses when comparing 2017 to 2016.

 

Cash used in investing activities totaled $55.9 million for the nine months ended September 30, 2017, as compared to cash provided by investing activities of $28.5 million for the nine months ended September 30, 2016. The decrease is due primarily to various factors. First, there was an increase of $51.8 million of cash used for MRB acquisitions in 2017 as compared to 2016. Second, the sale of MRBs and MBS Securities in 2016 resulted in cash of $24.3 million and such sale did not reoccur in the first nine months of 2017. Third, there was a decrease in cash proceeds from the sale of MF Properties of $32.1 million as compared to 2016 due to the Arboretum and Woodland Park sales in 2016 having a higher price than the Northern View sale in 2017. These were offset by $9.9 million less cash used to acquire MF Properties, $9.3 million less investment in property loans and investments in unconsolidated entities, and $2.9 million more cash provided by changes in restricted cash balances in 2017 as compared to 2016.  

 

Cash provided by financing activities totaled $57.6 million for the nine months ended September 30, 2017, as compared to cash used in financing activities of $24.4 million for the nine months ended September 30, 2016. The change is due primarily to a decrease in principal payments on Debt Financing of $92.3 million, a decrease in principal payments on Mortgages Payable of $16.6 million and additional proceeds from issuance of Series A Preferred units of $2.3 million in 2017 as compared to 2016. This activity was offset by a decrease of net proceeds from unsecured and secured lines of credit of $30.0 million.    

 

55


 

We believe our cash balance and cash provided by the sources discussed herein will be sufficient to pay, or refinance, our debt obligations and to meet our liquidity needs over the next 12 months.

 

Contractual Obligations

 

As discussed herein and in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2016, the debt and mortgage obligations of the Partnership consist of scheduled principal payments on the TOB Trust and Term A/B Trust financing facilities with DB, the TEBS credit facilities with Freddie Mac, and payments on the MF Property mortgages payable and other secured financing.

 

The Partnership’s contractual obligations presented in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2016, which is incorporated by reference herein, have only changed pursuant to the executed contracts during the nine months ended September 30, 2017 as disclosed herein.

 

Recently Issued Accounting Pronouncements

 

For a discussion on recently issued accounting pronouncements, please see Note 2 to the Partnership’s condensed consolidated financial statements.

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

There have been no material changes in market risk, except as discussed below, from the information provided under “Quantitative and Qualitative Disclosures about Market Risk” in Item 7A of the Partnership’s 2016 Annual Report on Form 10-K.

Mortgage Revenue Bonds and PHC Certificate Sensitivity Analysis

A third-party pricing service is used to value our MRBs starting in the second quarter of 2017. The pricing service uses a discounted cash flow and yield to maturity or call analyses which encompasses judgment in its application.  The key assumption in the yield to maturity or call analysis is the range of effective yields of the individual MRBs.  The effective yield analysis for each MRB considers the current market yield on similar MRBs, specific terms of the MRB, and various characteristics of underlying property serving as collateral for the MRB such as debt service coverage ratio, loan to value, and other characteristics.  

We value the PHC Certificates based upon prices obtained from a third-party pricing service, which are indicative of market prices. There is no active trading market for the trusts’ certificates. The valuation methodology of our third-party pricing service incorporates commonly used market pricing methods. It considers the underlying characteristics of each PHC Trust as well as other quantitative and qualitative characteristics including, but not limited to, market interest rates, security ratings from rating agencies, the impact of potential political and regulatory change, and other inputs. The fair value estimate by the third-party pricing service encompasses the use of judgment in its application.

We completed a sensitivity analysis which is hypothetical and is as of a specific point in time.  The results of the sensitivity analysis may not be indicative of actual changes in fair value and should be used with caution. 

The table below summarizes the sensitivity analysis metrics related to the investments in the MRBs and PHC Certificates at September 30, 2017:

 

Description

 

Estimated Fair Value in 000's

 

 

Range of Effective Yields used in Valuation

 

Range of Effective Yields if 10% Adverse Applied

 

Additional Unrealized Losses with 10% Adverse Change in 000's

 

Mortgage Revenue Bonds

 

$

779,314

 

 

 

2.6

%

-  9.9%

 

 

2.8

%

-  10.8%

 

$

22,505

 

PHC Certificates

 

 

54,914

 

 

 

4.8

%

-  5.7%

 

 

5.3

%

-    6.3%

 

 

1,756

 

 

 

Geographic Risk

The properties securing the MRBs are geographically dispersed throughout the United States with significant concentrations (geographic risk) in Texas, California, and South Carolina.  At September 30, 2017 and December 31, 2016, the geographic concentration in Texas as a percentage of the total MRB principal outstanding was approximately 49% and 45%, respectively.  At September 30, 2017 and December 31, 2016, the geographic concentration in California as a percentage of the total MRB principal

56


 

outstanding was approximately 20% for each period.   At September 30, 2017 and December 31, 2016, the geographic concentration in South Carolina as a percentage of the total MRB principal outstanding was approximately 11% and 12%, respectively.  After review of the properties’ economic performance in Texas, California and South Carolina as compared to general market conditions in these markets, we do not believe we are exposed to adverse risk in these markets.

Summary of Interest Rates on Borrowings and Interest Rate Cap Agreements

At September 30, 2017, the total costs of borrowing by investment type were as follows:

 

range between approximately 4.2% and 4.5% for the unsecured LOCs;

 

range between approximately 2.2% and 2.9% for the M24, M31, and M33 TEBS facilities;

 

range between approximately 4.0% and 4.4% for the TOB Trusts securitized by MRBs;

 

range between approximately 3.6% and 4.5% for the Term A/B Trusts securitized by MRBs;

 

range between approximately 3.1% and 3.2% for the PHC Trust Certificates TOB Trusts; and

 

range between approximately 3.9% and 4.8% for the MF Property mortgages and other secured financing.

 

 

The following table sets forth certain information regarding the Partnership’s interest rate cap agreements at September 30, 2017:

 

Purchase Date

 

Notional Amount

 

 

Maturity Date

 

Effective

Capped

Rate (1)

 

 

Index

 

Variable Debt

Financing Facility

Hedged (1)

 

Counterparty

 

Fair Value as of September 30, 2017 (1)

 

July 2014

 

$

30,759,409

 

 

Aug 2019

 

 

3.0

%

 

SIFMA

 

M31 TEBS

 

Barclays Bank PLC

 

$

579

 

July 2014

 

 

30,759,409

 

 

Aug 2019

 

 

3.0

%

 

SIFMA

 

M31 TEBS

 

Royal Bank of Canada

 

 

579

 

July 2014

 

 

30,759,409

 

 

Aug 2019

 

 

3.0

%

 

SIFMA

 

M31 TEBS

 

SMBC Capital Markets, Inc

 

 

579

 

July 2015

 

 

27,740,685

 

 

Aug 2020

 

 

3.0

%

 

SIFMA

 

M33 TEBS

 

Wells Fargo Bank

 

 

7,674

 

July 2015

 

 

27,740,685

 

 

Aug 2020

 

 

3.0

%

 

SIFMA

 

M33 TEBS

 

Royal Bank of Canada

 

 

7,674

 

July 2015

 

 

27,740,685

 

 

Aug 2020

 

 

3.0

%

 

SIFMA

 

M33 TEBS

 

SMBC Capital Markets, Inc

 

 

7,674

 

June 2017

 

 

92,278,226

 

 

Aug 2019

 

 

1.5

%

 

SIFMA

 

M31 TEBS

 

Barclays Bank PLC

 

 

91,628

 

June 2017

 

 

83,222,056

 

 

Aug 2020

 

 

1.5

%

 

SIFMA

 

M33 TEBS

 

Barclays Bank PLC

 

 

305,086

 

Sept 2017

 

 

60,248,999

 

 

Sept 2020

 

 

4.0

%

 

SIFMA

 

M24 TEBS

 

Barclays Bank PLC

 

 

5,880

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

427,353

 

 

(1)

For additional details, see Note 22 to the Partnership's condensed consolidated financial statements.

The Partnership has contracted for two interest rate swaps with DB. On a quarterly basis, the Partnership reassesses its interest rate swap positions. In the second quarter of 2017, the Partnership determined that due to the stabilization of the Decatur Angle and Bruton MRB properties and securitization of the related MRBs into fixed rate Term A/B Trust financings, the interest rate swaps were not needed to mitigate interest rate risk on financings related to the MRBs. The Partnership then determined that the interest rate swaps are intended to mitigate interest rate risk for the variable rate PHC TOB Trusts.  The following table summarizes the terms of the interest rate swaps at September 30, 2017 and December 31, 2016:

 

Purchase Date

 

Notional Amount

 

 

Effective Date

 

Termination Date

 

Fixed Rate Paid

 

 

Period End Variable Rate Received

 

 

Variable Rate & Index

 

Counterparty

 

September 30, 2017 - Fair Value of Liability

 

 

December 31, 2016 - Fair Value of Liability

 

Sept 2014

 

$

22,860,724

 

 

Oct 2016

 

Oct 2021

 

 

1.96

%

 

 

0.87

%

 

70% 30-day LIBOR

 

Deutsche Bank

 

$

(603,323

)

 

$

(738,574

)

Sept 2014

 

 

18,080,240

 

 

April 2017

 

April 2022

 

 

2.06

%

 

 

0.87

%

 

70% 30-day LIBOR

 

Deutsche Bank

 

 

(593,378

)

 

 

(600,709

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(1,196,701

)

 

$

(1,339,283

)

 

57


 

Interest Rates Risk – Change in Net Interest Income

The following table sets forth information regarding the impact on the Partnership’s income assuming a change in interest rates:

 

Description

 

- 25 basis points

 

 

+ 50 basis points

 

 

+ 100 basis points

 

 

+ 150 basis points

 

 

+ 200 basis points

 

TOB & Term A/B Debt Financings

 

$

1,404

 

 

$

(4,917

)

 

$

(21,719

)

 

$

(29,997

)

 

$

(35,951

)

TEBS Debt Financings

 

 

314,811

 

 

 

(619,681

)

 

 

(1,061,488

)

 

 

(1,352,797

)

 

 

(1,565,646

)

Other Investment Financings

 

 

(1,566

)

 

 

3,129

 

 

 

6,254

 

 

 

9,375

 

 

 

12,492

 

Total

 

$

314,649

 

 

$

(621,469

)

 

$

(1,076,953

)

 

$

(1,373,419

)

 

$

(1,589,105

)

 

The interest rate sensitivity table (“Table”) represents the change in interest income from investments net of interest on debt and interest rate derivative expenses over the next twelve months, assuming an immediate parallel shift in the LIBOR yield curve and the resulting implied forward rates are realized as a component of this shift in the curve. Assumptions include anticipated interest rates, relationships between interest rate indices and outstanding investments, liabilities and interest rate derivative positions.  

No assurance can be made that the assumptions included in the Table presented herein will occur or that other events would not occur that would affect the outcomes of the analysis.  Furthermore, the results included in the Table assume the Partnership does not act to change its sensitivity to the movement in interest rates.  

As the above information incorporates only those material positions or exposures that existed as of September 30, 2017, it does not consider those exposures or positions that could arise after that date. The ultimate economic impact of these market risks will depend on the exposures that arise during the period, our risk mitigating strategies at that time and the overall business and economic environment.

 

Item 4. Controls and Procedures.

Evaluation of disclosure controls and procedures.  The Chief Executive Officer and Chief Financial Officer have reviewed and evaluated the effectiveness of the Partnership’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the  Chief Financial Officer have concluded that, as of the end of such period, the Partnership’s current disclosure controls and procedures were effective in ensuring that (i) information required to be disclosed by the Partnership in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and (ii) information required to be disclosed by the Partnership in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Partnership’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in internal control over financial reporting.  The Chief Executive Officer and Chief Financial Officer have determined that there were no changes in the Partnership’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the Partnership’s most recent fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Partnership’s internal control over financial reporting.

 

 

58


 

PART II - OTHER INFORMATION

Item 1A. Risk Factors.

The risk factors affecting the Partnership are described in Item 1A “Risk Factors” in the Partnership’s 2016 Annual Report on Form 10‑K and Quarterly Report on Form 10-Q for the six months ended June 30, 2017, which are incorporated by reference herein. There have been no material changes from these previously disclosed risk factors for the nine months ended September 30, 2017.

Item 6. Exhibits.

The following exhibits are filed as required by Item 15(a)(3) of this report.  Exhibit numbers refer to the paragraph numbers under Item 601 of Regulation S-K:

 

3.1

 

Third Amendment to First Amended and Restated Agreement of Limited Partnership of America First Multifamily Investors, L.P. dated August 7, 2017 (incorporated by reference to Exhibit 3.1 to the registrant’s Current Report on Form 8-K filed on August 7, 2017).

 

 

 

10.1

 

Series A Preferred Units Subscription Agreement dated August 7, 2017.

 

 

 

10.2

 

Amended and Restated Rate Cap Agreement dated August 10, 2017 between ATAX TEBS II, LLC and Barclays Bank PLC.

 

 

 

10.3

 

Amended and Restated Rate Cap Agreement dated August 10, 2017 between ATAX TEBS III, LLC and Barclays Bank PLC.

 

 

 

31.1

 

Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

31.2

 

Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.1

 

Certification of CEO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.2

 

Certification of CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

101

 

The following materials from the Partnership’s Quarterly Report on Form 10-Q for the three months ended September 30, 2017 are filed herewith, formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets on September 30, 2017 and December 31, 2016, (ii) the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2017 and 2016, (iii) the Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2017 and 2016, (iv) the Condensed Consolidated Statements of Partners’ Capital for the nine months ended September 30, 2017 and 2016, (v) the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016, and (vi) Notes to Condensed Consolidated Financial Statements. Such materials are presented with detailed tagging of notes and financial statement schedules.

 

 

59


 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

AMERICA FIRST MULTIFAMILY INVESTORS, L.P.

 

Date: November 6, 2017

 

By:

 

/s/ Chad L. Daffer

 

 

 

 

Chad L. Daffer

 

 

 

 

Chief Executive Officer

 

Date: November 6, 2017

 

By:

 

/s/ Craig S. Allen

 

 

 

 

Craig S. Allen

 

 

 

 

Chief Financial Officer

 

 

60