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Greystone Housing Impact Investors LP - Quarter Report: 2018 June (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 June 30, 2018

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

 

36

Item 3

 

Quantitative and Qualitative Disclosures About Market Risk

 

49

Item 4

 

Controls and Procedures

 

51

 

 

 

 

 

PART II – OTHER INFORMATION

Item 1A

 

Risk Factors

 

52

Item 6

 

Exhibits

 

52

 

 

 

 

 

SIGNATURES

 

 

 

53

 

 

 


 

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 or obtain capital to finance our assets;

 

continued performance by counterparties to our interest rate derivative agreements;

 

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 concentration with the MRB portfolio held by the Partnership;

 

appropriations risk related to the 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 heading “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, 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

(UNAUDITED)

 

 

 

June 30, 2018

 

 

December 31, 2017

 

Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

26,328,497

 

 

$

69,597,699

 

Restricted cash

 

 

1,493,295

 

 

 

1,985,630

 

Interest receivable, net

 

 

7,682,580

 

 

 

6,541,132

 

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

 

 

673,152,217

 

 

 

710,867,447

 

Mortgage revenue bonds, at fair value (Note 6)

 

 

94,477,120

 

 

 

77,971,208

 

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

 

 

49,070,710

 

 

 

49,641,588

 

Real estate assets: (Note 8)

 

 

 

 

 

 

 

 

Land and improvements

 

 

7,518,727

 

 

 

7,319,235

 

Buildings and improvements

 

 

79,378,136

 

 

 

78,953,488

 

Real estate assets before accumulated depreciation

 

 

86,896,863

 

 

 

86,272,723

 

Accumulated depreciation

 

 

(11,403,940

)

 

 

(9,580,531

)

Net real estate assets

 

 

75,492,923

 

 

 

76,692,192

 

Investment in unconsolidated entities (Note 9)

 

 

60,494,767

 

 

 

39,608,927

 

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

 

 

28,930,525

 

 

 

29,513,874

 

Other assets (Note 12)

 

 

6,408,246

 

 

 

7,348,302

 

Total Assets

 

$

1,023,530,880

 

 

$

1,069,767,999

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Accounts payable, accrued expenses and other liabilities

 

$

7,837,981

 

 

$

8,494,227

 

Distribution payable

 

 

7,632,945

 

 

 

8,423,803

 

Unsecured lines of credit (Note 13)

 

 

49,540,000

 

 

 

50,000,000

 

Debt financing, net (Note 14)

 

 

542,172,329

 

 

 

558,328,347

 

Mortgages payable and other secured financing, net (Note 15)

 

 

35,212,789

 

 

 

35,540,174

 

Derivative swaps, at fair value (Note 16)

 

 

129,018

 

 

 

826,852

 

Total Liabilities

 

 

642,525,062

 

 

 

661,613,403

 

 

 

 

 

 

 

 

 

 

Commitments and Contingencies (Note 17)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable Series A preferred units, approximately $94.5 redemption value,

   10.0 million authorized, 9.5 million issued and outstanding (Note 18)

 

 

94,332,351

 

 

 

94,314,326

 

 

 

 

 

 

 

 

 

 

Partnersʼ Capital

 

 

 

 

 

 

 

 

General Partner (Note 1)

 

 

180,641

 

 

 

437,256

 

Beneficial Unit Certificate holders

 

 

286,492,826

 

 

 

313,403,014

 

Total Partnersʼ Capital

 

 

286,673,467

 

 

 

313,840,270

 

Total Liabilities and Partnersʼ Capital

 

$

1,023,530,880

 

 

$

1,069,767,999

 

 

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 June 30,

 

 

For the Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property revenues

 

$

2,403,142

 

 

$

3,306,722

 

 

$

4,739,654

 

 

$

7,036,500

 

Investment income

 

 

12,249,035

 

 

 

12,174,215

 

 

 

25,627,521

 

 

 

23,644,401

 

Contingent interest income

 

 

-

 

 

 

86,567

 

 

 

-

 

 

 

219,217

 

Other interest income

 

 

1,058,688

 

 

 

666,796

 

 

 

1,801,724

 

 

 

1,311,933

 

Other income

 

 

74,300

 

 

 

-

 

 

 

74,300

 

 

 

62,637

 

Total revenues

 

 

15,785,165

 

 

 

16,234,300

 

 

 

32,243,199

 

 

 

32,274,688

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate operating (exclusive of items shown below)

 

 

1,290,487

 

 

 

1,621,084

 

 

 

2,685,980

 

 

 

4,105,300

 

Impairment of securities

 

 

831,062

 

 

 

-

 

 

 

831,062

 

 

 

-

 

Depreciation and amortization

 

 

921,816

 

 

 

1,270,379

 

 

 

1,828,131

 

 

 

2,863,205

 

Amortization of deferred financing costs

 

 

430,687

 

 

 

562,585

 

 

 

895,459

 

 

 

1,302,823

 

Interest expense

 

 

5,918,867

 

 

 

5,841,327

 

 

 

10,801,172

 

 

 

11,283,580

 

General and administrative

 

 

3,041,125

 

 

 

2,876,450

 

 

 

5,852,970

 

 

 

6,007,330

 

Total expenses

 

 

12,434,044

 

 

 

12,171,825

 

 

 

22,894,774

 

 

 

25,562,238

 

Other Income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain (loss) on sale of real estate assets, net

 

 

-

 

 

 

(16,075

)

 

 

-

 

 

 

7,152,512

 

Income before income taxes

 

 

3,351,121

 

 

 

4,046,400

 

 

 

9,348,425

 

 

 

13,864,962

 

Income tax expense (benefit)

 

 

13,000

 

 

 

(63,000

)

 

 

6,000

 

 

 

2,395,047

 

Net income

 

 

3,338,121

 

 

 

4,109,400

 

 

 

9,342,425

 

 

 

11,469,915

 

Net income attributable to noncontrolling interest

 

 

-

 

 

 

-

 

 

 

-

 

 

 

71,653

 

Partnership net income

 

 

3,338,121

 

 

 

4,109,400

 

 

 

9,342,425

 

 

 

11,398,262

 

Redeemable Series A preferred unit distributions and accretion

 

 

(717,762

)

 

 

(432,550

)

 

 

(1,435,525

)

 

 

(757,192

)

Net income available to Partners

 

$

2,620,359

 

 

$

3,676,850

 

 

$

7,906,900

 

 

$

10,641,070

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income available to Partners and noncontrolling interest allocated to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General Partner

 

$

26,204

 

 

$

35,139

 

 

$

79,069

 

 

$

1,182,211

 

Limited Partners - Unitholders

 

 

2,530,332

 

 

 

3,594,529

 

 

 

7,729,733

 

 

 

9,389,231

 

Limited Partners - Restricted Unitholders

 

 

63,823

 

 

 

47,182

 

 

 

98,098

 

 

 

69,628

 

Noncontrolling interest

 

 

-

 

 

 

-

 

 

 

-

 

 

 

71,653

 

 

 

$

2,620,359

 

 

$

3,676,850

 

 

$

7,906,900

 

 

$

10,712,723

 

Unitholders' interest in net income per Unit, basic and diluted

 

$

0.04

 

 

$

0.06

 

 

$

0.13

 

 

$

0.16

 

Distributions declared, per Unit

 

$

0.125

 

 

$

0.125

 

 

$

0.25

 

 

$

0.25

 

Weighted average number of Units outstanding, basic

 

 

59,937,300

 

 

 

59,862,969

 

 

 

60,030,817

 

 

 

59,950,328

 

Weighted average number of Units outstanding, diluted

 

 

59,937,300

 

 

 

59,862,969

 

 

 

60,030,817

 

 

 

59,950,328

 

 

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 June 30,

 

 

For the Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Net income

 

$

3,338,121

 

 

$

4,109,400

 

 

$

9,342,425

 

 

$

11,469,915

 

Reversal of net unrealized losses on securities with

   other-than-temporary impairment

 

 

981,792

 

 

 

-

 

 

 

525,446

 

 

 

-

 

Unrealized gain (loss) on securities

 

 

4,065,221

 

 

 

10,226,688

 

 

 

(17,353,309

)

 

 

29,207,054

 

Unrealized gain (loss) on bond purchase commitments

 

 

(1,032,788

)

 

 

544,779

 

 

 

(2,007,855

)

 

 

765,723

 

Comprehensive income (loss)

 

 

7,352,346

 

 

 

14,880,867

 

 

 

(9,493,293

)

 

 

41,442,692

 

Comprehensive income allocated to noncontrolling interest

 

 

-

 

 

 

-

 

 

 

-

 

 

 

71,653

 

Partnership comprehensive income (loss)

 

$

7,352,346

 

 

$

14,880,867

 

 

$

(9,493,293

)

 

$

41,371,039

 

 

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 SIX MONTHS ENDED JUNE 30, 2018 and 2017

(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, 2017

 

$

437,256

 

 

 

60,373,674

 

 

$

313,403,014

 

 

$

-

 

 

$

313,840,270

 

 

$

75,623,830

 

Cumulative effect of accounting change

   (Note 2)

 

 

(2,169

)

 

 

 

 

 

 

(214,779

)

 

 

-

 

 

 

(216,948

)

 

 

-

 

Distributions paid or accrued

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Regular distribution

 

 

(152,659

)

 

 

 

 

 

 

(15,113,232

)

 

 

-

 

 

 

(15,265,891

)

 

 

-

 

Net income allocable to Partners

 

 

79,069

 

 

 

 

 

 

 

7,827,831

 

 

 

-

 

 

 

7,906,900

 

 

 

-

 

Sale of Beneficial Unit Certificates, net

   of issuance costs

 

 

-

 

 

 

38,617

 

 

 

192,310

 

 

 

-

 

 

 

192,310

 

 

 

-

 

Repurchase of Beneficial Unit

   Certificates

 

 

-

 

 

 

(268,575

)

 

 

(1,697,613

)

 

 

-

 

 

 

(1,697,613

)

 

 

-

 

Restricted units awarded

 

 

-

 

 

 

309,212

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Restricted units compensation

   expense

 

 

7,502

 

 

 

 

 

 

 

742,655

 

 

 

-

 

 

 

750,157

 

 

 

-

 

Unrealized loss on securities

 

 

(173,533

)

 

 

 

 

 

 

(17,179,776

)

 

 

-

 

 

 

(17,353,309

)

 

 

(17,353,309

)

Unrealized loss on bond

   purchase commitment

 

 

(20,079

)

 

 

 

 

 

 

(1,987,776

)

 

 

-

 

 

 

(2,007,855

)

 

 

(2,007,855

)

Reversal of net unrealized loss on

   securities with other-than-temporary

   impairment

 

 

5,254

 

 

 

 

 

 

 

520,192

 

 

 

 

 

 

 

525,446

 

 

 

525,446

 

Balance at June 30, 2018

 

$

180,641

 

 

 

60,452,928

 

 

$

286,492,826

 

 

$

-

 

 

$

286,673,467

 

 

$

56,788,112

 

 

 

 

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

 

 

(118,196

)

 

 

 

 

 

 

(11,701,357

)

 

 

-

 

 

 

(11,819,553

)

 

 

-

 

Distribution of Tier 2

   earnings (Note 3)

 

 

(1,120,625

)

 

 

 

 

 

 

(3,361,875

)

 

 

-

 

 

 

(4,482,500

)

 

 

-

 

Net income allocable to

   Partners

 

 

1,182,211

 

 

 

 

 

 

 

9,458,859

 

 

 

71,653

 

 

 

10,712,723

 

 

 

-

 

Repurchase of Beneficial Unit

   Certificates

 

 

-

 

 

 

(254,656

)

 

 

(1,466,222

)

 

 

-

 

 

 

(1,466,222

)

 

 

-

 

Restricted units awarded

 

 

-

 

 

 

283,046

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Restricted units compensation

   expense

 

 

6,097

 

 

 

 

 

 

 

603,636

 

 

 

-

 

 

 

609,733

 

 

 

-

 

Unrealized gain on securities

 

 

292,071

 

 

 

 

 

 

 

28,914,983

 

 

 

-

 

 

 

29,207,054

 

 

 

29,207,054

 

Unrealized gain on bond

   purchase commitment

 

 

7,657

 

 

 

 

 

 

 

758,066

 

 

 

-

 

 

 

765,723

 

 

 

765,723

 

Balance at June 30, 2017

 

$

351,751

 

 

 

60,252,928

 

 

$

303,232,759

 

 

$

-

 

 

$

303,584,510

 

 

$

68,868,261

 

 

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 Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

9,342,425

 

 

$

11,469,915

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization expense

 

 

1,828,131

 

 

 

2,863,205

 

Gain on sale of real estate assets, net

 

 

-

 

 

 

(7,152,512

)

Impairment of securities

 

 

831,062

 

 

 

-

 

Loss (gain) on derivatives, net of cash paid

 

 

(1,127,589

)

 

 

302,769

 

Restricted unit compensation expense

 

 

750,157

 

 

 

609,733

 

Bond premium/discount amortization

 

 

(33,987

)

 

 

(74,873

)

Amortization of deferred financing costs

 

 

895,459

 

 

 

1,302,823

 

Deferred income tax expense (benefit) & income tax payable

 

 

(183,303

)

 

 

(365,000

)

Change in preferred return receivable from unconsolidated entities

 

 

(1,799,127

)

 

 

(1,343,013

)

Changes in operating assets and liabilities

 

 

 

 

 

 

 

 

(Increase) decrease in interest receivable

 

 

(1,141,448

)

 

 

585,695

 

Increase in other assets

 

 

(928,527

)

 

 

(40,101

)

Increase (decrease) in accounts payable and accrued expenses

 

 

(516,061

)

 

 

50,585

 

Net cash provided by operating activities

 

 

7,917,192

 

 

 

8,209,226

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(431,784

)

 

 

(175,193

)

Proceeds from sale of MF Properties

 

 

-

 

 

 

13,750,000

 

Proceeds from sale of land held for development

 

 

-

 

 

 

3,000,000

 

Acquisition of mortgage revenue bonds

 

 

(19,540,000

)

 

 

(59,585,000

)

Contributions to unconsolidated entities

 

 

(16,488,929

)

 

 

(8,017,189

)

Principal payments received on mortgage revenue bonds

 

 

23,285,577

 

 

 

2,003,281

 

Principal payments received on taxable mortgage revenue bonds

 

 

30,526

 

 

 

27,864

 

Principal payments received on PHC Certificates

 

 

226,714

 

 

 

437,000

 

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

 

 

(2,660,649

)

 

 

(95,932

)

Advances on property loans

 

 

(66,651

)

 

 

(2,340,636

)

Principal payments received on property loans

 

 

650,000

 

 

 

500,000

 

Net cash used in investing activities

 

 

(14,995,196

)

 

 

(50,495,805

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Distributions paid

 

 

(17,458,416

)

 

 

(17,288,919

)

Proceeds from the sale of redeemable Series A Preferred Units

 

 

-

 

 

 

16,131,000

 

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

 

 

-

 

 

 

(668

)

Acquisition of interest rate derivatives

 

 

-

 

 

 

(496,800

)

Repurchase of Beneficial Unit Certificates

 

 

(1,697,613

)

 

 

(1,466,222

)

Proceeds from the sale of Beneficial Unit Certificates

 

 

233,633

 

 

 

-

 

Payment of offering costs related to the sale of Beneficial Unit Certificates

 

 

(4,678

)

 

 

-

 

Payment of tax withholding related to restricted unit awards

 

 

-

 

 

 

(153,306

)

Distribution to noncontrolling interest

 

 

-

 

 

 

(76,316

)

Proceeds from debt financing

 

 

-

 

 

 

135,100,000

 

Principal payments on debt financing

 

 

(16,924,182

)

 

 

(32,751,484

)

Principal payments on mortgages payable

 

 

(380,775

)

 

 

(658,271

)

Principal borrowing on unsecured lines of credit

 

 

19,540,000

 

 

 

24,460,000

 

Principal payments on unsecured and secured lines of credit

 

 

(20,000,000

)

 

 

(84,460,000

)

Increase (decrease) in security deposit liability related to restricted cash

 

 

17,168

 

 

 

(92,951

)

Debt financing and other deferred costs

 

 

(8,670

)

 

 

(1,452,517

)

Net cash provided by (used in) financing activities

 

 

(36,683,533

)

 

 

36,793,546

 

Net decrease in cash, cash equivalents and restricted cash

 

 

(43,761,537

)

 

 

(5,493,033

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

71,583,329

 

 

 

27,506,220

 

Cash, cash equivalents and restricted cash at end of period

 

$

27,821,792

 

 

$

22,013,187

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid during the period for interest

 

$

11,702,009

 

 

$

10,670,383

 

Cash paid during the period for income taxes

 

$

162,963

 

 

$

3,007,000

 

Supplemental disclosure of noncash investing and financing activities:

 

 

 

 

 

 

 

 

Distributions declared but not paid for Beneficial Unit Certificates and general partner

 

$

7,632,945

 

 

$

7,623,425

 

Distributions declared but not paid for Series A Preferred Units

 

$

708,750

 

 

$

427,500

 

Land contributed as investment in an unconsolidated entity

 

$

2,597,784

 

 

$

3,091,023

 

Capital expenditures financed through accounts payable

 

$

24,491

 

 

$

54,320

 

Deferred financing costs financed through accounts payable

 

$

19,626

 

 

$

-

 

 

 

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the

   consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated

   statements of cash flows:

 

June 30, 2018

 

 

June 30, 2017

 

Cash and cash equivalents

 

$

26,328,497

 

 

$

15,371,898

 

Restricted cash

 

 

1,493,295

 

 

 

6,641,289

 

Total cash, cash equivalents and restricted cash

 

$

27,821,792

 

 

$

22,013,187

 

 

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

JUNE 30, 2018

(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 June 30, 2018, 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.

 

One MF Property, The 50/50, is owned by a wholly-owned corporation (“the Greens Hold Co”).

 

One MF Property, Jade Park, is owned by a wholly-owned subsidiary of the Partnership and one MF Property, Suites on Paseo, is owned directly by America First Multifamily Investors, L.P. 

Restricted Cash

Restricted cash is legally restricted to use and is comprised of resident security deposits and escrowed funds.  In addition, the Partnership is required to maintain restricted cash balances related to the TEBS Financing facilities and the Partnership’s interest rate derivatives. Restricted cash is presented with cash and cash equivalents on the condensed consolidated statement of cash flows in accordance with the adoption of Accounting Standards Update (“ASU”) 2016-18 effective for the Partnership as of January 1, 2018.

Investments in Mortgage Revenue Bond, Taxable Mortgage Revenue Bonds

The Partnership owns certain MRBs that were purchased at a discount or premium. The Partnership chose to adopt the provisions of ASU 2017-08 relating to premiums on purchased callable debt securities early, effective January 1, 2018. Upon adoption of this ASU, premiums on callable MRB investments are amortized as a yield adjustment to the earliest call date. Accordingly, on January 1, 2018, the Partnership recorded a cumulative adjustment to partners’ capital of approximately $217,000. Results for prior periods were not adjusted. The impact of the adoption of ASU 2017-08 to net income for the three and six months ended June 30, 2018 was a decrease

7


 

in investment income of approximately $17,000 and $34,000, respectively, as compared to the previous accounting policy. Discounts on MRB investments continue to be amortized as a yield adjustment to their stated maturity. Amortization of premiums and discounts are recognized as investment income on the condensed consolidated statements of operations.

PHC Certificate Impairment

The Partnership periodically reviews the Public Housing Capital Fund Trust (“PHC”) Certificates for impairment. The Partnership evaluates whether a decline in the fair value of the investments that is below its amortized cost is other-than-temporary. Factors considered are:

 

The duration and severity of the decline in fair value,

 

The Partnership’s intent to hold and the likelihood of it being required to sell the security before its value recovers,

 

Downgrade in the security’s rating by S&P, and

 

Volatility of the fair value of the security.

 

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 recognizes 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 its 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 deferred financing costs, etc.) and the utilization of tax net operating losses (“NOLs”) generated in prior years that had been previously recognized as deferred income tax assets. 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.

Revenue Recognition on Investments in Real Estate

The Partnership’s MF Properties are lessors of multifamily, student housing, and senior citizen rental units under leases with terms of one year or less. Rental revenue is recognized, net of rental concessions, on a straight-line method over the related lease term. The Partnership also recognizes other non-lease revenues related to other operations at the MF Properties such as parking and food service revenues at student housing properties. Such revenues are recognized over time as services are provided. Such non-lease revenue streams are within the scope of Accounting Standards Codification (“ASC”) 606, which was effective for the Partnership as of January 1, 2018. The adoption of ASC 606 did not have a material impact on the Partnerships’ condensed consolidated financial statements.

Restricted Unit Awards (“RUAs”)

The Partnership’s 2015 Equity Incentive Plan (the “Plan”) 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 vesting 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 as they occur.

8


 

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, 2017. These condensed consolidated financial statements and notes have been prepared consistently with the 2017 Form 10-K, with the exception of new accounting standards that were adopted and are discussed herein. In the opinion of management, all adjustments (consisting of normal and recurring accruals) necessary to present fairly the financial position at June 30, 2018, 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, 2017, was derived from the audited annual financial statements, but does not contain all the footnote disclosures from the annual consolidated financial statements.

Recently Issued Accounting Pronouncements

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, with early adoption permitted. The FASB issued ASU 2018-11 in July 2018, which allows the Partnership to initially apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment to opening retained earnings. The Partnership is currently evaluating whether to elect this adoption method rather than using the modified retrospective approach. 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. The Partnership has six 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 and is currently evaluating the impact this standard will have on its 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.    

 

 

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.

9


 

Series A Preferred Units were created pursuant to the First Amendment to the Amended and Restated LP Agreement (the “First Amendment”). 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 (Tier 1) is distributed 99% to the limited partners and Unitholders as a class and 1% to AFCA 2. Net Interest Income (Tier 2) and Net Residual Proceeds (Tier 2) representing contingent interest up to 0.9% per annum of the principal amount of the MRBs on a cumulative basis are distributed 75% to the limited partners and Unitholders as a class and 25% to AFCA 2. Net Interest Income (Tier 3) and Net Residual Proceeds (Tier 3) received by the Partnership in excess of any contingent interest included in Net Interest Income (Tier 2) and Net Residual Proceeds (Tier 2) are distributed 100% to the limited partners and Unitholders as a class.

 

 

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. There were no dilutive Units for the three and six months ended June 30, 2018 and 2017.

 

 

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 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 various entities in the form of MRBs, property loans and investments in unconsolidated entities. These variable interests do not allow the Partnership 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 assets, liabilities or results of operations of these VIEs in the condensed consolidated financial statements.

The Partnership held variable interests in 19 and 23 non-consolidated VIEs at June 30, 2018 and December 31, 2017, respectively. The following table summarizes the Partnerships variable interests in these entities at June 30, 2018 and December 31, 2017:

 

 

 

Maximum Exposure to Loss

 

 

 

June 30, 2018

 

 

December 31, 2017

 

Mortgage revenue bonds

 

$

84,158,000

 

 

$

146,344,195

 

Property loans

 

 

15,574,613

 

 

 

15,824,613

 

Investment in unconsolidated entities

 

 

60,494,767

 

 

 

39,608,927

 

 

 

$

160,227,380

 

 

$

201,777,735

 

 

The maximum exposure to loss for the MRBs is equal to the cost adjusted for paydowns at June 30, 2018 and December 31, 2017. 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 June 30, 2018 and December 31, 2017 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.

 

 

10


 

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 14). The Partnership had the following investments in MRBs at June 30, 2018 and December 31, 2017:

 

 

 

June 30, 2018

 

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

 

 

$

842,894

 

 

$

-

 

 

$

17,300,894

 

Glenview Apartments - Series A (4)

 

CA

 

 

4,604,904

 

 

 

386,744

 

 

 

-

 

 

 

4,991,648

 

Harmony Court Bakersfield - Series A (2)

 

CA

 

 

3,730,000

 

 

 

273,992

 

 

 

-

 

 

 

4,003,992

 

Harmony Terrace - Series A & B (2)

 

CA

 

 

14,300,000

 

 

 

571,942

 

 

 

-

 

 

 

14,871,942

 

Harden Ranch - Series A (3)

 

CA

 

 

6,811,252

 

 

 

868,874

 

 

 

-

 

 

 

7,680,126

 

Las Palmas II - Series A & B (2)

 

CA

 

 

3,465,000

 

 

 

121,498

 

 

 

-

 

 

 

3,586,498

 

Montclair Apartments - Series A (4)

 

CA

 

 

2,494,734

 

 

 

316,289

 

 

 

-

 

 

 

2,811,023

 

San Vicente - Series A (2)

 

CA

 

 

3,495,000

 

 

 

238,471

 

 

 

-

 

 

 

3,733,471

 

Santa Fe Apartments - Series A (4)

 

CA

 

 

3,022,276

 

 

 

407,346

 

 

 

-

 

 

 

3,429,622

 

Seasons at Simi Valley - Series A (2)

 

CA

 

 

4,346,157

 

 

 

639,914

 

 

 

-

 

 

 

4,986,071

 

Seasons Lakewood - Series A (2)

 

CA

 

 

7,350,000

 

 

 

578,452

 

 

 

-

 

 

 

7,928,452

 

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

 

CA

 

 

18,949,000

 

 

 

906,168

 

 

 

-

 

 

 

19,855,168

 

Summerhill - Series A (2)

 

CA

 

 

6,423,000

 

 

 

410,548

 

 

 

-

 

 

 

6,833,548

 

Sycamore Walk - Series A (2)

 

CA

 

 

3,616,750

 

 

 

316,436

 

 

 

-

 

 

 

3,933,186

 

The Village at Madera - Series A (2)

 

CA

 

 

3,085,000

 

 

 

226,613

 

 

 

-

 

 

 

3,311,613

 

Tyler Park Townhomes - Series A (3)

 

CA

 

 

5,934,866

 

 

 

627,227

 

 

 

-

 

 

 

6,562,093

 

Westside Village Market - Series A (3)

 

CA

 

 

3,878,423

 

 

 

444,103

 

 

 

-

 

 

 

4,322,526

 

Lake Forest (1)

 

FL

 

 

8,433,000

 

 

 

1,184,869

 

 

 

-

 

 

 

9,617,869

 

Brookstone (1)

 

IL

 

 

7,442,163

 

 

 

1,557,750

 

 

 

-

 

 

 

8,999,913

 

Copper Gate Apartments (3)

 

IN

 

 

5,100,000

 

 

 

606,607

 

 

 

-

 

 

 

5,706,607

 

Renaissance - Series A (4)

 

LA

 

 

11,182,486

 

 

 

1,498,700

 

 

 

-

 

 

 

12,681,186

 

Live 929 Apartments (2)

 

MD

 

 

40,333,693

 

 

 

3,093,989

 

 

 

-

 

 

 

43,427,682

 

Woodlynn Village (1)

 

MN

 

 

4,244,000

 

 

 

39,254

 

 

 

-

 

 

 

4,283,254

 

Greens Property - Series A (3)

 

NC

 

 

8,080,000

 

 

 

925,182

 

 

 

-

 

 

 

9,005,182

 

Silver Moon - Series A (4)

 

NM

 

 

7,851,526

 

 

 

693,322

 

 

 

-

 

 

 

8,544,848

 

Ohio Properties - Series A (1)

 

OH

 

 

14,052,997

 

 

 

516,691

 

 

 

-

 

 

 

14,569,688

 

Bridle Ridge (1)

 

SC

 

 

7,430,000

 

 

 

97,044

 

 

 

-

 

 

 

7,527,044

 

Columbia Gardens (2)

 

SC

 

 

13,299,000

 

 

 

1,300,938

 

 

 

-

 

 

 

14,599,938

 

Companion at Thornhill Apartments (2)

 

SC

 

 

11,350,638

 

 

 

944,340

 

 

 

-

 

 

 

12,294,978

 

Cross Creek (1)

 

SC

 

 

6,141,122

 

 

 

2,641,911

 

 

 

-

 

 

 

8,783,033

 

The Palms at Premier Park Apartments (3)

 

SC

 

 

19,142,966

 

 

 

1,903,361

 

 

 

-

 

 

 

21,046,327

 

Village at River's Edge (2)

 

SC

 

 

9,969,493

 

 

 

1,327,542

 

 

 

-

 

 

 

11,297,035

 

Willow Run (2)

 

SC

 

 

13,115,524

 

 

 

1,280,882

 

 

 

-

 

 

 

14,396,406

 

Arbors at Hickory Ridge (3)

 

TN

 

 

11,260,696

 

 

 

990,706

 

 

 

-

 

 

 

12,251,402

 

Pro Nova 2014-1 (2)

 

TN

 

 

10,029,943

 

 

 

-

 

 

 

(60,059

)

 

 

9,969,884

 

Avistar at Copperfield - Series A (2)

 

TX

 

 

10,000,000

 

 

 

281,641

 

 

 

-

 

 

 

10,281,641

 

Avistar at the Crest - Series A (3)

 

TX

 

 

9,407,620

 

 

 

878,039

 

 

 

-

 

 

 

10,285,659

 

Avistar at the Oaks - Series A (3)

 

TX

 

 

7,597,649

 

 

 

693,141

 

 

 

-

 

 

 

8,290,790

 

Avistar at the Parkway - Series A (4)

 

TX

 

 

13,174,934

 

 

 

1,076,277

 

 

 

-

 

 

 

14,251,211

 

Avistar at Wilcrest - Series A (2)

 

TX

 

 

3,775,000

 

 

 

76,010

 

 

 

-

 

 

 

3,851,010

 

Avistar at Wood Hollow - Series A (2)

 

TX

 

 

31,850,000

 

 

 

519,528

 

 

 

-

 

 

 

32,369,528

 

Avistar in 09 - Series A (3)

 

TX

 

 

6,560,275

 

 

 

569,287

 

 

 

-

 

 

 

7,129,562

 

Avistar on the Boulevard - Series A (3)

 

TX

 

 

16,026,896

 

 

 

1,287,345

 

 

 

-

 

 

 

17,314,241

 

Avistar on the Hills - Series A (3)

 

TX

 

 

5,249,199

 

 

 

478,889

 

 

 

-

 

 

 

5,728,088

 

Bella Vista (1)

 

TX

 

 

6,225,000

 

 

 

36,768

 

 

 

-

 

 

 

6,261,768

 

Bruton Apartments (2)

 

TX

 

 

17,993,528

 

 

 

1,983,682

 

 

 

-

 

 

 

19,977,210

 

Concord at Gulfgate - Series A (2)

 

TX

 

 

19,185,000

 

 

 

2,112,142

 

 

 

-

 

 

 

21,297,142

 

Concord at Little York - Series A (2)

 

TX

 

 

13,440,000

 

 

 

1,603,710

 

 

 

-

 

 

 

15,043,710

 

Concord at Williamcrest - Series A (2)

 

TX

 

 

20,820,000

 

 

 

2,387,983

 

 

 

-

 

 

 

23,207,983

 

Crossing at 1415 - Series A (2)

 

TX

 

 

7,507,847

 

 

 

535,422

 

 

 

-

 

 

 

8,043,269

 

Decatur Angle (2)

 

TX

 

 

22,713,795

 

 

 

2,035,876

 

 

 

-

 

 

 

24,749,671

 

Heights at 515 - Series A (2)

 

TX

 

 

6,873,563

 

 

 

607,666

 

 

 

-

 

 

 

7,481,229

 

Heritage Square - Series A (4)

 

TX

 

 

11,011,625

 

 

 

868,241

 

 

 

-

 

 

 

11,879,866

 

Oaks at Georgetown - Series A (2)

 

TX

 

 

12,330,000

 

 

 

388,294

 

 

 

-

 

 

 

12,718,294

 

Runnymede (1)

 

TX

 

 

10,095,000

 

 

 

71,494

 

 

 

-

 

 

 

10,166,494

 

Southpark (1)

 

TX

 

 

11,730,894

 

 

 

2,681,471

 

 

 

-

 

 

 

14,412,365

 

Vantage at Judson -Series B (4)

 

TX

 

 

26,022,746

 

 

 

2,070,687

 

 

 

-

 

 

 

28,093,433

 

15 West Apartments (2)

 

WA

 

 

9,768,096

 

 

 

1,405,808

 

 

 

-

 

 

 

11,173,904

 

Mortgage revenue bonds held in trust

 

 

 

$

619,782,276

 

 

$

53,430,000

 

 

$

(60,059

)

 

$

673,152,217

 

 

(1)

MRBs owned by ATAX TEBS I, LLC (M24 TEBS), Note 14

11


 

(2)

MRBs held by Deutsche Bank in a secured financing transaction, Note 14

(3)

MRBs owned by ATAX TEBS II, LLC (M31 TEBS), Note 14

(4)

MRBs owned by ATAX TEBS III, LLC (M33 TEBS), Note 14

 

 

 

June 30, 2018

 

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

 

 

$

843,862

 

 

$

-

 

 

$

13,314,862

 

Vineyard Gardens - Series A & B

 

CA

 

 

6,841,000

 

 

 

498,091

 

 

 

-

 

 

 

7,339,091

 

Greens Property - Series B

 

NC

 

 

935,715

 

 

 

167,568

 

 

 

-

 

 

 

1,103,283

 

Ohio Properties - Series B

 

OH

 

 

3,528,660

 

 

 

107,104

 

 

 

-

 

 

 

3,635,764

 

Rosewood Townhomes - Series A & B

 

SC

 

 

9,750,000

 

 

 

-

 

 

 

(475,623

)

 

 

9,274,377

 

South Pointe Apartments - Series A & B

 

SC

 

 

22,700,000

 

 

 

-

 

 

 

(1,012,610

)

 

 

21,687,390

 

Avistar at Copperfield - Series B

 

TX

 

 

4,000,000

 

 

 

12,310

 

 

 

-

 

 

 

4,012,310

 

Avistar at the Crest - Series B

 

TX

 

 

747,452

 

 

 

33,663

 

 

 

-

 

 

 

781,115

 

Avistar at the Oaks - Series B

 

TX

 

 

546,794

 

 

 

23,084

 

 

 

-

 

 

 

569,878

 

Avistar at the Parkway - Series B

 

TX

 

 

124,734

 

 

 

31,430

 

 

 

-

 

 

 

156,164

 

Avistar at Wilcrest - Series B

 

TX

 

 

1,550,000

 

 

 

4,839

 

 

 

-

 

 

 

1,554,839

 

Avistar at Wood Hollow - Series B

 

TX

 

 

8,410,000

 

 

 

27,743

 

 

 

-

 

 

 

8,437,743

 

Avistar in 09 - Series B

 

TX

 

 

451,056

 

 

 

17,357

 

 

 

-

 

 

 

468,413

 

Avistar on the Boulevard - Series B

 

TX

 

 

444,138

 

 

 

18,371

 

 

 

-

 

 

 

462,509

 

Esperanza at Palo Alto

 

TX

 

 

19,540,000

 

 

 

2,139,382

 

 

 

-

 

 

 

21,679,382

 

Mortgage revenue bonds held by the Partnership

 

 

 

$

92,040,549

 

 

$

3,924,804

 

 

$

(1,488,233

)

 

$

94,477,120

 

 

12


 

 

 

December 31, 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

 

 

$

1,226,192

 

 

$

-

 

 

$

17,684,192

 

Glenview Apartments - Series A (4)

 

CA

 

 

4,627,228

 

 

 

523,464

 

 

 

-

 

 

 

5,150,692

 

Harmony Court Bakersfield - Series A (2)

 

CA

 

 

3,730,000

 

 

 

430,637

 

 

 

-

 

 

 

4,160,637

 

Harmony Terrace - Series A & B (2)

 

CA

 

 

14,300,000

 

 

 

871,221

 

 

 

-

 

 

 

15,171,221

 

Harden Ranch - Series A (3)

 

CA

 

 

6,845,985

 

 

 

1,182,914

 

 

 

-

 

 

 

8,028,899

 

Las Palmas II - Series A & B (2)

 

CA

 

 

3,465,000

 

 

 

193,418

 

 

 

-

 

 

 

3,658,418

 

Montclair Apartments - Series A (4)

 

CA

 

 

2,506,828

 

 

 

398,840

 

 

 

-

 

 

 

2,905,668

 

San Vicente - Series A & B (2)

 

CA

 

 

5,320,000

 

 

 

309,038

 

 

 

-

 

 

 

5,629,038

 

Santa Fe Apartments - Series A (4)

 

CA

 

 

3,036,928

 

 

 

535,673

 

 

 

-

 

 

 

3,572,601

 

Seasons at Simi Valley - Series A (2)

 

CA

 

 

4,366,195

 

 

 

807,864

 

 

 

-

 

 

 

5,174,059

 

Seasons Lakewood - Series A & B (2)

 

CA

 

 

12,610,000

 

 

 

884,537

 

 

 

-

 

 

 

13,494,537

 

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

 

CA

 

 

18,949,000

 

 

 

1,233,570

 

 

 

-

 

 

 

20,182,570

 

Summerhill - Series A & B (2)

 

CA

 

 

9,795,000

 

 

 

738,806

 

 

 

-

 

 

 

10,533,806

 

Sycamore Walk - Series A (2)

 

CA

 

 

3,632,000

 

 

 

490,314

 

 

 

-

 

 

 

4,122,314

 

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

 

CA

 

 

4,804,000

 

 

 

355,303

 

 

 

-

 

 

 

5,159,303

 

Tyler Park Townhomes - Series A (3)

 

CA

 

 

5,965,475

 

 

 

807,688

 

 

 

-

 

 

 

6,773,163

 

Westside Village Market - Series A (3)

 

CA

 

 

3,898,427

 

 

 

568,423

 

 

 

-

 

 

 

4,466,850

 

Lake Forest (1)

 

FL

 

 

8,505,000

 

 

 

1,579,885

 

 

 

-

 

 

 

10,084,885

 

Brookstone (1)

 

IL

 

 

7,450,595

 

 

 

2,017,019

 

 

 

-

 

 

 

9,467,614

 

Copper Gate Apartments (3)

 

IN

 

 

5,100,000

 

 

 

778,339

 

 

 

-

 

 

 

5,878,339

 

Renaissance - Series A (4)

 

LA

 

 

11,239,441

 

 

 

2,096,328

 

 

 

-

 

 

 

13,335,769

 

Live 929 Apartments (2)

 

MD

 

 

40,573,347

 

 

 

3,710,942

 

 

 

-

 

 

 

44,284,289

 

Woodlynn Village (1)

 

MN

 

 

4,267,000

 

 

 

44,428

 

 

 

-

 

 

 

4,311,428

 

Greens Property - Series A (3)

 

NC

 

 

8,126,000

 

 

 

1,113,852

 

 

 

-

 

 

 

9,239,852

 

Silver Moon - Series A (4)

 

NM

 

 

7,879,590

 

 

 

1,140,448

 

 

 

-

 

 

 

9,020,038

 

Ohio Properties - Series A (1)

 

OH

 

 

14,113,000

 

 

 

788,199

 

 

 

-

 

 

 

14,901,199

 

Bridle Ridge (1)

 

SC

 

 

7,465,000

 

 

 

1,199

 

 

 

-

 

 

 

7,466,199

 

Columbia Gardens (2)

 

SC

 

 

13,396,856

 

 

 

1,413,831

 

 

 

-

 

 

 

14,810,687

 

Companion at Thornhill Apartments (2)

 

SC

 

 

11,404,758

 

 

 

1,284,441

 

 

 

-

 

 

 

12,689,199

 

Cross Creek (1)

 

SC

 

 

6,136,553

 

 

 

2,850,344

 

 

 

-

 

 

 

8,986,897

 

The Palms at Premier Park Apartments (3)

 

SC

 

 

19,238,297

 

 

 

2,712,429

 

 

 

-

 

 

 

21,950,726

 

Village at River's Edge (2)

 

SC

 

 

10,000,000

 

 

 

1,182,706

 

 

 

-

 

 

 

11,182,706

 

Willow Run (2)

 

SC

 

 

13,212,587

 

 

 

1,391,536

 

 

 

-

 

 

 

14,604,123

 

Arbors at Hickory Ridge (3)

 

TN

 

 

11,342,234

 

 

 

1,693,626

 

 

 

-

 

 

 

13,035,860

 

Pro Nova 2014-1 (2)

 

TN

 

 

10,038,889

 

 

 

133,878

 

 

 

-

 

 

 

10,172,767

 

Avistar at Copperfield - Series A (2)

 

TX

 

 

10,000,000

 

 

 

628,644

 

 

 

-

 

 

 

10,628,644

 

Avistar at the Crest - Series A (3)

 

TX

 

 

9,456,384

 

 

 

1,187,142

 

 

 

-

 

 

 

10,643,526

 

Avistar at the Oaks - Series A (3)

 

TX

 

 

7,635,895

 

 

 

938,465

 

 

 

-

 

 

 

8,574,360

 

Avistar at the Parkway - Series A (4)

 

TX

 

 

13,233,665

 

 

 

932,753

 

 

 

-

 

 

 

14,166,418

 

Avistar at Wilcrest - Series A (2)

 

TX

 

 

3,775,000

 

 

 

125,170

 

 

 

-

 

 

 

3,900,170

 

Avistar at Wood Hollow - Series A (2)

 

TX

 

 

31,850,000

 

 

 

1,865,826

 

 

 

-

 

 

 

33,715,826

 

Avistar in 09 - Series A (3)

 

TX

 

 

6,593,300

 

 

 

716,944

 

 

 

-

 

 

 

7,310,244

 

Avistar on the Boulevard - Series A (3)

 

TX

 

 

16,109,972

 

 

 

1,947,465

 

 

 

-

 

 

 

18,057,437

 

Avistar on the Hills - Series A (3)

 

TX

 

 

5,275,623

 

 

 

648,383

 

 

 

-

 

 

 

5,924,006

 

Bella Vista (1)

 

TX

 

 

6,295,000

 

 

 

42,718

 

 

 

-

 

 

 

6,337,718

 

Bruton Apartments (2)

 

TX

 

 

18,051,775

 

 

 

3,042,939

 

 

 

-

 

 

 

21,094,714

 

Concord at Gulfgate - Series A (2)

 

TX

 

 

19,185,000

 

 

 

2,759,654

 

 

 

-

 

 

 

21,944,654

 

Concord at Little York - Series A (2)

 

TX

 

 

13,440,000

 

 

 

1,999,572

 

 

 

-

 

 

 

15,439,572

 

Concord at Williamcrest - Series A (2)

 

TX

 

 

20,820,000

 

 

 

2,994,839

 

 

 

-

 

 

 

23,814,839

 

Crossing at 1415 - Series A (2)

 

TX

 

 

7,540,000

 

 

 

634,091

 

 

 

-

 

 

 

8,174,091

 

Decatur Angle (2)

 

TX

 

 

22,794,912

 

 

 

2,985,955

 

 

 

-

 

 

 

25,780,867

 

Heights at 515 - Series A (2)

 

TX

 

 

6,903,000

 

 

 

580,522

 

 

 

-

 

 

 

7,483,522

 

Heritage Square - Series A (4)

 

TX

 

 

11,063,027

 

 

 

993,609

 

 

 

-

 

 

 

12,056,636

 

Oaks at Georgetown - Series A & B (2)

 

TX

 

 

17,842,000

 

 

 

915,705

 

 

 

-

 

 

 

18,757,705

 

Runnymede (1)

 

TX

 

 

10,150,000

 

 

 

79,514

 

 

 

-

 

 

 

10,229,514

 

Southpark (1)

 

TX

 

 

11,693,138

 

 

 

2,960,294

 

 

 

-

 

 

 

14,653,432

 

Vantage at Judson -Series B (4)

 

TX

 

 

26,133,557

 

 

 

3,117,969

 

 

 

-

 

 

 

29,251,526

 

15 West Apartments (2)

 

WA

 

 

9,797,833

 

 

 

1,839,648

 

 

 

-

 

 

 

11,637,481

 

Mortgage revenue bonds held in trust

 

 

 

$

639,438,294

 

 

$

71,429,153

 

 

$

-

 

 

$

710,867,447

 

 

(1)

MRBs owned by ATAX TEBS I, LLC (M24 TEBS), Note 14

13


 

(2)

MRBs held by Deutsche Bank in a secured financing transaction, Note 14

(3)

MRBs owned by ATAX TEBS II, LLC (M31 TEBS), Note 14

(4)

MRBs owned by ATAX TEBS III, LLC (M33 TEBS), Note 14

 

 

 

December 31, 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

 

 

$

1,111,807

 

 

$

-

 

 

$

13,582,807

 

Seasons at Simi Valley - Series B

 

CA

 

 

1,944,000

 

 

 

-

 

 

 

(466

)

 

 

1,943,534

 

Sycamore Walk - Series B

 

CA

 

 

1,815,000

 

 

 

-

 

 

 

(151

)

 

 

1,814,849

 

Vineyard Gardens - Series A & B

 

CA

 

 

6,841,000

 

 

 

-

 

 

 

-

 

 

 

6,841,000

 

Greens Property - Series B

 

NC

 

 

937,399

 

 

 

193,991

 

 

 

-

 

 

 

1,131,390

 

Ohio Properties - Series B

 

OH

 

 

3,536,060

 

 

 

149,630

 

 

 

-

 

 

 

3,685,690

 

Rosewood Townhomes - Series A & B

 

SC

 

 

9,750,000

 

 

 

-

 

 

 

-

 

 

 

9,750,000

 

South Pointe Apartments - Series A & B

 

SC

 

 

22,700,000

 

 

 

-

 

 

 

-

 

 

 

22,700,000

 

Avistar at Copperfield - Series B

 

TX

 

 

4,000,000

 

 

 

13,514

 

 

 

-

 

 

 

4,013,514

 

Avistar at the Crest - Series B

 

TX

 

 

749,455

 

 

 

58,871

 

 

 

-

 

 

 

808,326

 

Avistar at the Oaks - Series B

 

TX

 

 

548,202

 

 

 

41,286

 

 

 

-

 

 

 

589,488

 

Avistar at the Parkway - Series B

 

TX

 

 

124,861

 

 

 

30,715

 

 

 

-

 

 

 

155,576

 

Avistar at Wilcrest - Series B

 

TX

 

 

1,550,000

 

 

 

5,306

 

 

 

-

 

 

 

1,555,306

 

Avistar at Wood Hollow - Series B

 

TX

 

 

8,410,000

 

 

 

30,276

 

 

 

-

 

 

 

8,440,276

 

Avistar in 09 - Series B

 

TX

 

 

452,217

 

 

 

28,675

 

 

 

-

 

 

 

480,892

 

Avistar on the Boulevard - Series B

 

TX

 

 

445,328

 

 

 

33,232

 

 

 

-

 

 

 

478,560

 

Mortgage revenue bonds held by the Partnership

 

 

 

$

76,274,522

 

 

$

1,697,303

 

 

$

(617

)

 

$

77,971,208

 

 

See Note 21 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 Six Months of 2018

The following MRB was acquired during the six months ended June 30, 2018:

 

Property Name

 

Month

Acquired

 

Property Location

 

Units

 

Maturity Date

 

Base Interest Rate

 

 

Principal

Outstanding at Date

of Acquisition

 

Esperanza at Palo Alto (1)

 

May

 

San Antonio, TX

 

322

 

7/1/2058

 

 

5.80

%

 

 

19,540,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

19,540,000

 

 

(1) Previously reported bond purchase commitment that converted to a MRB in May 2018.

 

The following MRBs were redeemed at prices that approximated the Partnership’s carrying value plus accrued interest during the six months ended June 30, 2018:

 

Property Name

 

Month

Redeemed

 

Property Location

 

Units

 

 

Original

Maturity Date

 

Base Interest Rate

 

 

Principal

Outstanding at Date

of Redemption

 

Sycamore Walk - Series B

 

January

 

Bakersfield, CA

 

 

112

 

 

1/1/2018

 

 

8.00

%

 

$

1,815,000

 

Seasons Lakewood - Series B

 

March

 

Lakewood, CA

 

 

85

 

 

1/1/2019

 

 

8.00

%

 

 

5,260,000

 

Summerhill - Series B

 

March

 

Bakersfield, CA

 

 

128

 

 

12/1/2018

 

 

8.00

%

 

 

3,372,000

 

Oaks at Georgetown - Series B

 

April

 

Georgetown, TX

 

 

192

 

 

1/1/2019

 

 

8.00

%

 

 

5,512,000

 

Seasons at Simi Valley - Series B

 

April

 

Simi Valley, CA

 

 

69

 

 

9/1/2018

 

 

8.00

%

 

 

1,944,000

 

San Vicente - Series B

 

May

 

Soledad, CA

 

 

50

 

 

11/1/2018

 

 

8.00

%

 

 

1,825,000

 

The Village at Madera - Series B

 

May

 

Madera, CA

 

 

75

 

 

12/1/2018

 

 

8.00

%

 

 

1,719,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

21,447,000

 

 

14


 

Bond Activity in the First Six Months of 2017

 

The following table includes the details of the MRB acquisitions during the six months ended June 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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

59,585,000

 

 

 

7. PHC Certificates

The Partnership owned 100% of the Residual Participation Receipts (“LIFERs”) in three tender option bond trusts (“PHC Trusts”) that contain the PHC Certificates. The assets held by the PHC Trusts consist of custodial receipts evidencing loans made to numerous 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.

The Partnership had the following investments in the PHC Certificates at June 30, 2018 and December 31, 2017:

 

 

 

June 30, 2018

 

Description of PHC Certificates

 

Weighted

Average Lives (Years)

 

 

Investment

Rating

 

Weighted

Average Interest

Rate Over Life

 

 

Cost Adjusted for

Paydowns and Impairment

 

 

Cumulative

Unrealized Gain

 

 

Cumulative

Unrealized Loss

 

 

Estimated Fair

Value

 

PHC Certificate Trust I

 

 

7.00

 

 

AA-

 

5.33%

 

 

$

24,815,777

 

 

$

-

 

 

$

-

 

 

$

24,815,777

 

PHC Certificate Trust II

 

 

6.07

 

 

A+

 

4.34%

 

 

 

9,123,954

 

 

 

-

 

 

 

-

 

 

 

9,123,954

 

PHC Certificate Trust III

 

 

7.31

 

 

BBB

 

5.29%

 

 

 

15,130,979

 

 

 

-

 

 

 

-

 

 

 

15,130,979

 

 

 

 

 

 

 

 

 

 

 

 

 

$

49,070,710

 

 

$

-

 

 

$

-

 

 

$

49,070,710

 

 

 

 

December 31, 2017

 

Description of PHC Certificates

 

Weighted

Average Lives (Years)

 

Investment

Rating

 

Weighted

Average Interest

Rate Over Life

 

 

Cost Adjusted for

Paydowns and Impairment

 

 

Cumulative

Unrealized Gain

 

 

Cumulative

Unrealized Loss

 

 

Estimated Fair

Value

 

PHC Certificate Trust I

 

7.31

 

AA-

 

5.39%

 

 

$

25,109,305

 

 

$

-

 

 

$

-

 

 

$

25,109,305

 

PHC Certificate Trust II

 

6.37

 

A+

 

4.32%

 

 

 

9,606,480

 

 

 

-

 

 

 

(248,189

)

 

 

9,358,291

 

PHC Certificate Trust III

 

7.61

 

BBB

 

5.23%

 

 

 

15,451,249

 

 

 

-

 

 

 

(277,257

)

 

 

15,173,992

 

 

 

 

 

 

 

 

 

 

 

$

50,167,034

 

 

$

-

 

 

$

(525,446

)

 

$

49,641,588

 

 

See Note 21 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.

 

The Partnership recognized an impairment charge on the three PHC Certificates of approximately $831,000 during the three and six months ended June 30, 2018. See Note 2 for information considered in the Partnership’s evaluation of impairment of the PHC Certificates.

 

15


 

8. Real Estate Assets

The following tables summarizes information regarding the Partnership’s real estate assets at June 30, 2018 and December 31, 2017:

 

Real Estate Assets at June 30, 2018

 

Property Name

 

Location

 

Number of

Units

 

 

Land and Land

Improvements

 

 

Buildings and

Improvements

 

 

Carrying Value on

June 30, 2018

 

Suites on Paseo

 

San Diego, CA

 

 

393

 

 

$

3,195,468

 

 

$

38,850,963

 

 

$

42,046,431

 

The 50/50 MF Property

 

Lincoln, NE

 

 

475

 

 

 

-

 

 

 

32,932,981

 

 

 

32,932,981

 

Jade Park

 

Daytona, FL

 

 

144

 

 

 

2,292,035

 

 

 

7,594,192

 

 

 

9,886,227

 

Land held for development

 

(1)

 

(1)

 

 

 

2,031,224

 

 

 

-

 

 

 

2,031,224

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

86,896,863

 

Less accumulated depreciation

 

 

 

(11,403,940

)

Total real estate assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

75,492,923

 

 

(1) Land held for development consists of parcels of land in Johnson County, KS and Richland County, SC and land development costs for two sites in Douglas County, NE.

 

Real Estate Assets at December 31, 2017

 

Property Name

 

Location

 

Number of

Units

 

 

Land and Land

Improvements

 

 

Buildings and

Improvements

 

 

Carrying Value on

December 31, 2017

 

Suites on Paseo

 

San Diego, CA

 

 

394

 

 

$

3,166,463

 

 

$

38,454,894

 

 

$

41,621,357

 

The 50/50 MF Property

 

Lincoln, NE

 

 

475

 

 

 

-

 

 

 

32,932,981

 

 

 

32,932,981

 

Jade Park

 

Daytona, FL

 

 

144

 

 

 

2,292,035

 

 

 

7,565,613

 

 

 

9,857,648

 

Land held for development

 

(2)

 

(2)

 

 

 

1,860,737

 

 

 

-

 

 

 

1,860,737

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

86,272,723

 

Less accumulated depreciation

 

 

 

(9,580,531

)

Total real estate assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

76,692,192

 

 

(2) 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

Activity in the First Six Months of 2018

In February 2018, the Partnership acquired two contiguous tracts of land in Omaha, NE. The total purchase price was approximately $2.7 million. In March 2018, a portion of the land acquired was contributed to Vantage at Stone Creek, LLC in exchange for an ownership interest in the entity (See Note 9). The remaining land is classified as “Land held for development” at June 30, 2018. In May 2018, the Partnership listed the remaining land for sale.

In February 2018, the Partnership executed a Purchase Agreement to acquire a tract of land in Douglas County, NE. If the land is successfully acquired, it will be classified as “Land held for development.”

In March 2018, the Partnership executed a Commercial Purchase Agreement to sell the Jade Park MF Property to an unrelated third party. The Partnership and the third party mutually agreed to terminate the Commercial Purchase Agreement in May 2018. In June 2018, the Partnership executed a new Commercial Purchase Agreement to sell the Jade Park MF Property to a different unrelated third party.

Activity in the First Six Months of 2017

In March 2017, the Partnership sold its 99% limited partner interest in Northern View. The table below summarizes information related to the sale. 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.

 

Property Name

 

Month Sold

 

Property Location

 

Units

 

Gross Proceeds

 

 

Gain on Sale

before Income

Taxes

 

Northern View

 

March

 

Highland Heights, KY

 

294

 

$

13,750,000

 

 

$

7,152,512

 

 

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.

 

16


 

Net income (loss), exclusive of the gains on sale, related to the Northern View MF Property (sold in March 2017) and the Eagle Village, Residences of DeCordova and Residences of Weatherford MF Properties (sold in November 2017) for the three and six months ended June 30, 2018 and 2017 are as follows:

 

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Net income (loss)

 

$

2,854

 

 

$

(90,191

)

 

$

(10,503

)

 

$

(153,043

)

 

 

9. Investment in Unconsolidated Entities

ATAX Vantage Holdings, LLC, a wholly-owned subsidiary of the Partnership, has equity commitments and reported equity contributions within 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, up to a maximum amount, 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.

The following table provides the details of the investments in unconsolidated entities at June 30, 2018 and December 31, 2017:

 

Property Name

 

Location

 

Units

 

Month

Commitment

Executed

 

Construction

Completion

Date

 

Carrying Value at June 30, 2018

 

 

Carrying Value at December 31, 2017

 

 

Maximum

Remaining

Equity Commitment at June 30, 2018

 

Vantage at Corpus Christi

 

Corpus Christi, TX

 

288

 

March 2016

 

August 2017

 

$

9,035,674

 

 

$

9,178,139

 

 

$

1,550,000

 

Vantage at Boerne

 

Boerne, TX

 

288

 

August 2016

 

December 2017

 

 

8,695,165

 

 

 

8,272,810

 

 

 

1,475,936

 

Vantage at Waco

 

Waco, TX

 

288

 

August 2016

 

January 2018

 

 

9,194,710

 

 

 

8,748,091

 

 

 

1,592,039

 

Vantage at Panama City Beach

 

Panama City Beach, FL

 

288

 

March 2017

 

June 2018

 

 

10,877,788

 

 

 

10,349,416

 

 

 

1,996,500

 

Vantage at Powdersville

 

Powdersville, SC

 

288

 

November 2017

 

N/A

 

 

7,488,224

 

 

 

3,060,471

 

 

 

3,534,815

 

Vantage at Stone Creek

 

Omaha, NE

 

294

 

March 2018

 

N/A

 

 

5,226,898

 

 

 

-

 

 

 

1,984,179

 

Vantage at Bulverde

 

Bulverde, TX

 

288

 

March 2018

 

N/A

 

 

6,790,825

 

 

 

-

 

 

 

1,959,428

 

Vantage at Germantown

 

Germantown, TN

 

288

 

June 2018

 

N/A

 

 

3,185,483

 

 

 

-

 

 

 

7,242,170

 

 

 

 

 

 

 

 

 

 

 

$

60,494,767

 

 

$

39,608,927

 

 

$

21,335,067

 

 

Activity in the First Six Months of 2018

In March 2018, the Partnership executed equity commitments to fund construction of the Vantage at Stone Creek and Vantage at Bulverde multifamily properties of approximately $7.1 million and $8.6 million, respectively. The Partnership also entered into a guarantee agreement related to the construction loan for Vantage at Stone Creek (Note 17).

In June 2018, the Partnership executed a $10.4 million equity commitment to fund construction of the Vantage at Germantown multifamily property.

 

Activity in the First Six Months of 2017

In March 2017, the Partnership executed 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 17).

 

 

17


 

10. Property Loans, Net of Loan Loss Allowances

The following table summarizes the Partnership’s property loans, net of loan loss allowances, at June 30, 2018 and December 31, 2017:

 

 

 

June 30, 2018

 

 

 

Outstanding

Balance

 

 

Loan Loss

Allowances

 

 

Property Loan Principal, net of allowance

 

Arbors at Hickory Ridge

 

$

191,264

 

 

$

-

 

 

$

191,264

 

Avistar (February 2013 portfolio)

 

 

201,972

 

 

 

-

 

 

 

201,972

 

Avistar (June 2013 portfolio)

 

 

251,622

 

 

 

-

 

 

 

251,622

 

Cross Creek

 

 

11,101,887

 

 

 

(7,393,814

)

 

 

3,708,073

 

Greens Property

 

 

850,000

 

 

 

-

 

 

 

850,000

 

Lake Forest

 

 

5,062,535

 

 

 

-

 

 

 

5,062,535

 

Ohio Properties

 

 

2,390,446

 

 

 

-

 

 

 

2,390,446

 

Vantage at Brooks, LLC

 

 

8,367,635

 

 

 

-

 

 

 

8,367,635

 

Vantage at New Braunfels, LLC

 

 

7,206,978

 

 

 

-

 

 

 

7,206,978

 

Winston Group, Inc

 

 

700,000

 

 

 

-

 

 

 

700,000

 

Total

 

$

36,324,339

 

 

$

(7,393,814

)

 

$

28,930,525

 

 

 

 

December 31, 2017

 

 

 

Outstanding

Balance

 

 

Loan Loss

Allowances

 

 

Net Taxable

Property Loans

 

Arbors at Hickory Ridge

 

$

191,264

 

 

$

-

 

 

$

191,264

 

Avistar (February 2013 portfolio)

 

 

201,972

 

 

 

-

 

 

 

201,972

 

Avistar (June 2013 portfolio)

 

 

251,622

 

 

 

-

 

 

 

251,622

 

Cross Creek

 

 

11,101,887

 

 

 

(7,393,814

)

 

 

3,708,073

 

Greens Property

 

 

850,000

 

 

 

-

 

 

 

850,000

 

Lake Forest

 

 

4,995,884

 

 

 

-

 

 

 

4,995,884

 

Ohio Properties

 

 

2,390,446

 

 

 

-

 

 

 

2,390,446

 

Vantage at Brooks, LLC

 

 

8,417,635

 

 

 

-

 

 

 

8,417,635

 

Vantage at New Braunfels, LLC

 

 

7,406,978

 

 

 

-

 

 

 

7,406,978

 

Winston Group, Inc

 

 

1,100,000

 

 

 

-

 

 

 

1,100,000

 

Total

 

$

36,907,688

 

 

$

(7,393,814

)

 

$

29,513,874

 

 

 

During the three and six months ended June 30, 2018, the interest to be earned on the Cross Creek, and the Lake Forest property loans was in nonaccrual status. During the three and six months ended June 30, 2017, the interest to be earned on the Ashley Square, Cross Creek, and the Lake Forest property loans was in nonaccrual status. The discounted cash flow method used by management to establish the net realizable value of these property loans determined the collection of the interest earned since inception was not probable.  In addition, for the three and six months ended June 30, 2018 and 2017, interest to be earned on approximately $983,000 of property loans for the Ohio Properties was in nonaccrual status as, in management’s opinion, the interest was not considered collectible.

 

 

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 deferred finance costs, etc.), and the utilization of net operating losses generated in prior years. The Partnership’s deferred tax assets and liabilities are valued based on enacted tax rates as of the reporting date, including consideration of the Jobs and Tax Cuts Act of 2017.

 

The following represents income tax expense for the Greens Hold Co for the three and six months ended June 30, 2018 and 2017:

 

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Current income tax expense (benefit)

 

$

13,000

 

 

$

138,000

 

 

$

(28,000

)

 

$

2,760,047

 

Deferred income tax expense (benefit)

 

 

-

 

 

 

(201,000

)

 

 

34,000

 

 

 

(365,000

)

Total income tax expense (benefit)

 

$

13,000

 

 

$

(63,000

)

 

$

6,000

 

 

$

2,395,047

 

18


 

 

The Partnership evaluated whether it is more likely than not that its deferred income tax assets are realizable and recorded a valuation allowance of approximately $110,000 against its deferred income tax assets as of June 30, 2018. There was no valuation allowance recorded as of December 31, 2017.

 

 

12. Other Assets

The following represents the Other Assets at June 30, 2018 and December 31, 2017:

 

 

 

June 30, 2018

 

 

December 31, 2017

 

Deferred financing costs - net

 

$

296,157

 

 

$

383,133

 

Fair value of derivative instruments (Note 16)

 

 

1,026,976

 

 

 

597,221

 

Taxable mortgage revenue bonds at fair market value

 

 

2,357,952

 

 

 

2,422,459

 

Bond purchase commitments - fair value (Note 17)

 

 

994,685

 

 

 

3,002,540

 

Other assets

 

 

1,732,476

 

 

 

942,949

 

Total other assets

 

$

6,408,246

 

 

$

7,348,302

 

 

See Note 21 for a description of the methodology and significant assumptions for determining the fair value of the derivative instruments, taxable MRBs and bond purchase commitments. Unrealized gains or losses on these assets are recorded in the condensed consolidated statements of comprehensive income 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 assets.

 

 

13. Unsecured Lines of Credit

The following represents the unsecured lines of credit (“LOC”) at June 30, 2018 and December 31, 2017:

 

Unsecured Lines of Credit

 

Outstanding on June 30, 2018

 

 

Total

Commitment

 

 

Maturity

 

Variable /

Fixed

 

Reset

Frequency

 

Period End

Rate

 

Bankers Trust

 

$

49,540,000

 

 

$

50,000,000

 

 

May 2019

 

Variable (1)

 

Monthly

 

 

5.00

%

Bankers Trust operating

 

 

-

 

 

 

10,000,000

 

 

May 2019

 

Variable (1)

 

Monthly

 

 

5.34

%

Total unsecured lines of credit

 

$

49,540,000

 

 

$

60,000,000

 

 

 

 

 

 

 

 

 

 

 

 

(1)

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

 

Unsecured Lines of Credit

 

Outstanding on December 31, 2017

 

 

Total

Commitment

 

 

Maturity

 

Variable /

Fixed

 

Reset

Frequency

 

Period End

Rate

 

Bankers Trust

 

$

50,000,000

 

 

$

50,000,000

 

 

May 2019

 

Variable (2)

 

Monthly

 

 

4.38

%

Bankers Trust operating

 

 

-

 

 

 

10,000,000

 

 

May 2019

 

Variable (2)

 

Monthly

 

 

4.62

%

Total unsecured lines of credit

 

$

50,000,000

 

 

$

60,000,000

 

 

 

 

 

 

 

 

 

 

 

 

(2)

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

 

The outstanding balance on the non-operating LOC is due between September 2018 and February 2019, before consideration of the Partnership’s extension payment options. If all extension options are utilized, the balance is due in May 2019.

 

The Partnership is required to make principal payments to reduce the Bankers Trust Operating LOC to zero for fifteen consecutive calendar days during each calendar quarter.  The Partnership has fulfilled its prepayment obligation for all periods presented.   In addition, the Partnership has fulfilled its third quarter of 2018 repayment obligation as it maintained a zero balance in the Operating LOC for the first fifteen days of July 2018. The Partnership is in compliance with all covenants at June 30, 2018.

 

 

19


 

14. Debt Financing

 

The following represents the Partnership’s Debt Financings, net of deferred financing costs, at June 30, 2018 and December 31, 2017:

 

 

 

Outstanding Debt

Financings on

June 30, 2018, 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

 

$

46,731,225

 

 

$

-

 

 

2014

 

October 2019

 

N/A

 

N/A

 

 

N/A

 

 

4.01% - 4.39%

 

Fixed - Term A/B

 

 

18,671,135

 

 

 

-

 

 

2017

 

August 2018 - November 2018

 

N/A

 

N/A

 

 

N/A

 

 

3.76%

 

Fixed - Term A/B

 

 

60,491,635

 

 

 

-

 

 

2017

 

February 2022 - March 2022

 

N/A

 

N/A

 

 

N/A

 

 

3.89%

 

Fixed - Term A/B

 

 

137,779,522

 

 

 

-

 

 

2016

 

September 2026 - December 2026

 

N/A

 

N/A

 

 

N/A

 

 

3.64%

 

Fixed - Term A/B

 

 

47,403,860

 

 

 

-

 

 

2017

 

February 2027 - November 2027

 

N/A

 

N/A

 

 

N/A

 

 

4.46% - 4.52%

 

Variable - TOB

 

 

37,965,000

 

 

 

161,976

 

 

2012

 

May 2019

 

Weekly

 

2.04 - 2.09%

 

 

1.67%

 

 

3.71 - 3.76%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TEBS Financings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Variable - TEBS I

 

 

55,093,000

 

 

 

399,815

 

 

2010

 

September 2020

 

Weekly

 

1.55%

 

 

1.85%

 

 

3.40%

 

Variable - TEBS II (1)

 

 

80,742,583

 

 

 

136,626

 

 

2014

 

July 2019 (2)

 

Weekly

 

1.53%

 

 

1.62%

 

 

3.15%

 

Variable - TEBS III (1)

 

 

57,294,369

 

 

 

56,111

 

 

2015

 

July 2020 (3)

 

Weekly

 

1.53%

 

 

1.39%

 

 

2.92%

 

Total Debt Financings

 

$

542,172,329

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Facility fees are variable

(2)

The Partnership may unilaterally elect to extend the financing for an additional five-year period through July 2024. If the Partnership exercises its extension option, Freddie Mac has the option to adjust components of the Facility Fees.

(3)

The Partnership may unilaterally elect to extend the financing for an additional five-year period through July 2025If the Partnership exercises its extension option, Freddie Mac has the option to adjust components of the Facility Fees.

 

 

 

Outstanding Debt

Financings on

December 31, 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

 

$

46,787,036

 

 

$

-

 

 

2014

 

October 2019

 

N/A

 

N/A

 

 

N/A

 

 

4.01% - 4.39%

 

Fixed - Term A/B

 

 

33,612,154

 

 

 

-

 

 

2017

 

June 2018 - August 2018

 

N/A

 

N/A

 

 

N/A

 

 

3.76%

 

Fixed - Term A/B

 

 

60,441,915

 

 

 

-

 

 

2017

 

February 2022 - March 2022

 

N/A

 

N/A

 

 

N/A

 

 

3.89%

 

Fixed - Term A/B

 

 

138,065,482

 

 

 

-

 

 

2016

 

September 2026 - December 2026

 

N/A

 

N/A

 

 

N/A

 

 

3.64%

 

Fixed - Term A/B

 

 

47,414,014

 

 

 

-

 

 

2017

 

February 2027 - November 2027

 

N/A

 

N/A

 

 

N/A

 

 

4.46% - 4.52%

 

Variable - TOB

 

 

38,130,000

 

 

 

850,327

 

 

2012

 

May 2018

 

Weekly

 

2.24 - 2.29%

 

 

1.67%

 

 

3.91 - 3.96%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TEBS Financings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Variable - TEBS I

 

 

55,468,000

 

 

 

372,222

 

 

2010

 

September 2020

 

Weekly

 

1.79%

 

 

1.85%

 

 

3.64%

 

Variable - TEBS II (1)

 

 

81,003,688

 

 

 

176,685

 

 

2014

 

July 2019 (2)

 

Weekly

 

1.77%

 

 

1.39%

 

 

3.16%

 

Variable - TEBS III (1)

 

 

57,406,058

 

 

 

57,364

 

 

2015

 

July 2020 (3)

 

Weekly

 

1.77%

 

 

1.16%

 

 

2.93%

 

Total Debt Financings

 

$

558,328,347

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Facility fees are variable

(2)

The Partnership may unilaterally elect to extend the financing for an additional five-year period through July 2024. If the Partnership exercises its extension option, Freddie Mac has the option to adjust components of the Facility Fees.

(3)

The Partnership may unilaterally elect to extend the financing for an additional five-year period through July 2025. If the Partnership exercises its extension option, Freddie Mac has the option to adjust components of the Facility Fees.

 

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 plus interest expense for the trailing twelve months must be at least twice the trailing twelve-month interest expense. The Partnership is in compliance with these covenants as of June 30, 2018.

 

20


 

At June 30, 2018 and December 31, 2017, 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 16).

 

Debt Financing Activity in the First Six Months of 2018

The following Term A/B Trusts were collapsed and paid off in full at prices that approximated the Partnership’s carrying value plus accrued interest:

 

Mortgage Revenue Bond

 

Debt Facility

 

Month

 

Paydown Applied

 

Seasons Lakewood - Series B

 

Term A/B Trust

 

March 2018

 

$

4,475,000

 

Summerhill - Series B

 

Term A/B Trust

 

March 2018

 

 

2,870,000

 

Oaks at Georgetown - Series B

 

Term A/B Trust

 

April 2018

 

 

4,690,000

 

San Vicente - Series B

 

Term A/B Trust

 

May 2018

 

 

1,555,000

 

The Village at Madera - Series B

 

Term A/B Trust

 

May 2018

 

 

1,465,000

 

 

In April 2018, the maturity date of the Partnership’s variable TOB Trusts was extended to May 2019.

 

Debt Financing Activity in the First Six 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 20). The following table summarizes the gross principal and terms of the new Term A/B Trusts:

 

Term A/B Trusts Securitization

 

Outstanding Term A/B

Trust Financing

 

 

Year

Acquired

 

Stated Maturity

 

Fixed Interest

Rate

 

San Vicente - Series A

 

$

3,150,000

 

 

2017

 

February 2022

 

 

3.89

%

San Vicente - Series B

 

 

1,555,000

 

 

2017

 

June 2018

 

 

3.76

%

Las Palmas - Series A

 

 

1,530,000

 

 

2017

 

February 2022

 

 

3.89

%

Las Palmas - Series B

 

 

1,505,000

 

 

2017

 

June 2018

 

 

3.76

%

The Village at Madera - Series A

 

 

2,780,000

 

 

2017

 

February 2022

 

 

3.89

%

The Village at Madera - Series B

 

 

1,465,000

 

 

2017

 

July 2018

 

 

3.76

%

Harmony Court Bakersfield - Series A

 

 

3,360,000

 

 

2017

 

February 2022

 

 

3.89

%

Harmony Court Bakersfield - Series B

 

 

1,700,000

 

 

2017

 

July 2018

 

 

3.76

%

Summerhill - Series A

 

 

5,785,000

 

 

2017

 

February 2022

 

 

3.89

%

Summerhill - Series B

 

 

2,870,000

 

 

2017

 

July 2018

 

 

3.76

%

Courtyard - Series A

 

 

9,210,000

 

 

2017

 

February 2022

 

 

3.89

%

Courtyard - Series B

 

 

5,295,000

 

 

2017

 

July 2018

 

 

3.76

%

Seasons Lakewood - Series A

 

 

6,615,000

 

 

2017

 

February 2022

 

 

3.89

%

Seasons Lakewood - Series B

 

 

4,475,000

 

 

2017

 

August 2018

 

 

3.76

%

Seasons San Juan Capistrano - Series A

 

 

11,140,000

 

 

2017

 

February 2022

 

 

3.89

%

Seasons San Juan Capistrano - Series B

 

 

5,590,000

 

 

2017

 

August 2018

 

 

3.76

%

Avistar at Wood Hollow - Series A

 

 

27,075,000

 

 

2017

 

February 2027

 

 

4.46

%

Avistar at Wilcrest - Series A

 

 

3,210,000

 

 

2017

 

February 2027

 

 

4.46

%

Avistar at Copperfield - Series A

 

 

8,500,000

 

 

2017

 

February 2027

 

 

4.46

%

Total Term A/B Trust Financing

 

$

106,810,000

 

 

 

 

 

 

 

 

 

 

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 gross principal terms of the new Term A/B Trusts:

 

Term A/B Trusts Securitization

 

Outstanding Term A/B

Trust Financing

 

 

Year

Acquired

 

Stated Maturity

 

Fixed Interest

Rate

 

Oaks at Georgetown - Series A

 

$

11,100,000

 

 

2017

 

March 2022

 

 

3.89

%

Oaks at Georgetown - Series B

 

 

4,690,000

 

 

2017

 

August 2018

 

 

3.76

%

Harmony Terrace - Series A

 

 

6,210,000

 

 

2017

 

March 2022

 

 

3.89

%

Harmony Terrace - Series B

 

 

6,290,000

 

 

2017

 

August 2018

 

 

3.76

%

Total Term A/B Trust Financing

 

$

28,290,000

 

 

 

 

 

 

 

 

 

21


 

 

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

 

Future Maturities

 

The Partnership’s contractual maturities of borrowings for the twelve-month periods ending December 31st for the next five years and thereafter are as follows: 

 

Remainder of 2018

 

$

20,670,553

 

2019

 

 

168,839,558

 

2020

 

 

113,138,107

 

2021

 

 

2,361,722

 

2022

 

 

61,286,487

 

Thereafter

 

 

179,374,563

 

Total

 

 

545,670,990

 

Deferred financing costs

 

 

(3,498,661

)

Total debt financing, net

 

$

542,172,329

 

 

 

15. Mortgages Payable and Other Secured Financing

 

The following represents the Partnerships’ Mortgages payable and other secured financing, net of deferred financing costs, at June 30, 2018 and December 31, 2017:

 

MF Property Mortgage Payables

 

Outstanding Mortgage

Payable at

June 30, 2018, net

 

 

Year

Acquired

or

Refinanced

 

Stated Maturity

 

Variable

/ Fixed

 

Reset

Frequency

 

Variable

Based Rate

 

 

Facility Fees

 

Period End

Rate

 

The 50/50 MF Property--TIF

   Loan

 

$

3,227,661

 

 

2014

 

December 2019

 

Fixed

 

N/A

 

N/A

 

 

N/A

 

 

4.65

%

The 50/50 MF Property--Mortgage

 

 

24,512,791

 

 

2013

 

March 2020

 

Variable

 

Monthly

 

 

4.75

%

(1)

N/A

 

 

4.75

%

Jade Park

 

 

7,472,337

 

 

2016

 

October 2021

 

Fixed

 

N/A

 

N/A

 

 

N/A

 

 

3.85

%

Total Mortgage Payable\Weighted

   Average Period End Rate

 

$

35,212,789

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4.55

%

 

(1)

Variable rate is based on the Wall Street Journal Prime Rate

 

MF Property Mortgage Payables

 

Outstanding Mortgage

Payable at

December 31, 2017, net

 

 

Year

Acquired

or

Refinanced

 

Stated Maturity

 

Variable

/ Fixed

 

Reset

Frequency

 

Variable

Based Rate

 

 

Facility Fees

 

Period End

Rate

 

The 50/50 MF Property--TIF

   Loan

 

$

3,358,370

 

 

2014

 

December 2019

 

Fixed

 

N/A

 

N/A

 

 

N/A

 

 

4.65

%

The 50/50 MF Property--Mortgage

 

 

24,713,256

 

 

2013

 

March 2020

 

Variable

 

Monthly

 

 

4.25

%

(2)

N/A

 

 

4.25

%

Jade Park

 

 

7,468,548

 

 

2016

 

October 2021

 

Fixed

 

N/A

 

N/A

 

 

N/A

 

 

3.85

%

Total Mortgage Payable\Weighted

   Average Period End Rate

 

$

35,540,174

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4.21

%

 

(2)

Variable rate is based on the Wall Street Journal Prime Rate

22


 

Future Maturities

 

The Partnership’s contractual maturities of borrowings for the twelve-month periods ending December 31st for the next five years and thereafter are as follows:

 

Remainder of 2018

 

$

389,007

 

2019

 

 

3,917,772

 

2020

 

 

24,221,375

 

2021

 

 

6,858,994

 

2022

 

 

-

 

Thereafter

 

 

-

 

Total

 

 

35,387,148

 

Deferred financing costs

 

 

(174,359

)

Total mortgages payable and other secured financings, net

 

$

35,212,789

 

 

 

16. Interest Rate Derivative Agreements

The following represents the interest rate derivatives, excluding interest rate swaps, at June 30, 2018 and December 31, 2017:

 

Purchase Date

 

Notional

Amount

 

 

Maturity Date

 

Effective

Capped

Rate (1)

 

 

Index

 

Variable Debt

Financing Facility

Hedged (1)

 

Counterparty

 

Fair Value as of June 30, 2018

 

July 2014

 

$

30,462,845

 

 

Aug 2019

 

 

3.0

%

 

SIFMA

 

M31 TEBS

 

Barclays Bank PLC

 

$

30

 

July 2014

 

 

30,462,845

 

 

Aug 2019

 

 

3.0

%

 

SIFMA

 

M31 TEBS

 

Royal Bank of Canada

 

 

30

 

July 2014

 

 

30,462,845

 

 

Aug 2019

 

 

3.0

%

 

SIFMA

 

M31 TEBS

 

SMBC Capital Markets, Inc

 

 

30

 

July 2015

 

 

27,515,500

 

 

Aug 2020

 

 

3.0

%

 

SIFMA

 

M33 TEBS

 

Wells Fargo Bank

 

 

6,004

 

July 2015

 

 

27,515,500

 

 

Aug 2020

 

 

3.0

%

 

SIFMA

 

M33 TEBS

 

Royal Bank of Canada

 

 

6,004

 

July 2015

 

 

27,515,500

 

 

Aug 2020

 

 

3.0

%

 

SIFMA

 

M33 TEBS

 

SMBC Capital Markets, Inc

 

 

6,004

 

June 2017

 

 

91,388,535

 

 

Aug 2019

 

 

1.5

%

 

SIFMA

 

M31 TEBS

 

Barclays Bank PLC

 

 

252,431

 

June 2017

 

 

82,546,501

 

 

Aug 2020

 

 

1.5

%

 

SIFMA

 

M33 TEBS

 

Barclays Bank PLC

 

 

755,358

 

Sept 2017

 

 

59,530,000

 

 

Sept 2020

 

 

4.0

%

 

SIFMA

 

M24 TEBS

 

Barclays Bank PLC

 

 

1,085

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

1,026,976

 

 

(1)

For additional details, see Note 21 to the Partnership's condensed consolidated financial statements.

 

Purchase Date

 

Notional

Amount

 

 

Maturity Date

 

Effective

Capped

Rate (1)

 

 

Index

 

Variable Debt

Financing Facility

Hedged (2)

 

Counterparty

 

Fair Value as of December 31, 2017

 

July 2014

 

$

30,652,294

 

 

Aug 2019

 

 

3.0

%

 

SIFMA

 

M31 TEBS

 

Barclays Bank PLC

 

$

169

 

July 2014

 

 

30,652,294

 

 

Aug 2019

 

 

3.0

%

 

SIFMA

 

M31 TEBS

 

Royal Bank of Canada

 

 

169

 

July 2014

 

 

30,652,294

 

 

Aug 2019

 

 

3.0

%

 

SIFMA

 

M31 TEBS

 

SMBC Capital Markets, Inc

 

 

169

 

July 2015

 

 

27,666,739

 

 

Aug 2020

 

 

3.0

%

 

SIFMA

 

M33 TEBS

 

Wells Fargo Bank

 

 

3,213

 

July 2015

 

 

27,666,739

 

 

Aug 2020

 

 

3.0

%

 

SIFMA

 

M33 TEBS

 

Royal Bank of Canada

 

 

3,213

 

July 2015

 

 

27,666,739

 

 

Aug 2020

 

 

3.0

%

 

SIFMA

 

M33 TEBS

 

SMBC Capital Markets, Inc

 

 

3,213

 

June 2017

 

 

91,956,883

 

 

Aug 2019

 

 

1.5

%

 

SIFMA

 

M31 TEBS

 

Barclays Bank PLC

 

 

160,174

 

June 2017

 

 

83,000,217

 

 

Aug 2020

 

 

1.5

%

 

SIFMA

 

M33 TEBS

 

Barclays Bank PLC

 

 

425,978

 

Sept 2017

 

 

59,935,000

 

 

Sept 2020

 

 

4.0

%

 

SIFMA

 

M24 TEBS

 

Barclays Bank PLC

 

 

923

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

597,221

 

 

(2)

For additional details, see Note 21 to the Partnership's condensed consolidated financial statements.

 

23


 

The Partnership has contracted for two interest rate swaps with DB. On a quarterly basis, the Partnership reassesses its interest rate swap positions. The Partnership has 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 June 30, 2018 and December 31, 2017:

 

Purchase Date

 

Notional

Amount

 

 

Effective

Date

 

Termination Date

 

Fixed Rate

Paid

 

 

Period End

Variable

Rate

Received

 

 

Variable Rate &

Index

 

Counterparty

 

June 30, 2018 - Fair Value of Liability

 

Sept 2014

 

$

22,741,097

 

 

Oct 2016

 

Oct 2021

 

 

1.96

%

 

 

1.46

%

 

70% 30-day LIBOR

 

Deutsche Bank

 

$

(36,986

)

Sept 2014

 

 

17,993,528

 

 

April 2017

 

April 2022

 

 

2.06

%

 

 

1.46

%

 

70% 30-day LIBOR

 

Deutsche Bank

 

 

(92,032

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(129,018

)

 

Purchase Date

 

Notional

Amount

 

 

Effective

Date

 

Termination Date

 

Fixed Rate

Paid

 

 

Period End

Variable

Rate

Received

 

 

Variable Rate &

Index

 

Counterparty

 

December 31, 2017 - Fair Value of Liability

 

Sept 2014

 

$

22,821,429

 

 

Oct 2016

 

Oct 2021

 

 

1.96

%

 

 

1.08

%

 

70% 30-day LIBOR

 

Deutsche Bank

 

$

(402,261

)

Sept 2014

 

 

18,051,775

 

 

April 2017

 

April 2022

 

 

2.06

%

 

 

1.08

%

 

70% 30-day LIBOR

 

Deutsche Bank

 

 

(424,591

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(826,852

)

 

The Partnership is required to fund a cash collateral account at DB for an amount greater than or equal to the fair value of the interest rate swaps. Such cash balances were approximately $162,000 and $850,000 at June 30, 2018 and December 31, 2017, respectively, and are reported within restricted cash on the condensed consolidated balance sheets.

 

The Partnership’s interest rate derivatives and interest rate swaps are not designated as hedging instruments and are recorded at fair value. Changes in fair value are included in current period earnings as interest expense on the condensed consolidated statements of operations. See Note 21 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.  

 

 

17. 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 commitments, 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.

24


 

The following table represents the bond purchase commitments at June 30, 2018 and December 31, 2017:

 

Bond Purchase Commitments

 

Commitment Date

 

Maximum

Committed

Amounts for

2018

 

 

Rate

 

 

Closing

Date (1)

 

Fair Value at

June 30, 2018

 

 

Fair Value at

December 31, 2017

 

Esperanza at Palo Alto

 

July 2015

 

$

-

 

 

 

5.80

%

 

Q2 2018

 

$

-

 

 

$

1,616,143

 

Village at Avalon

 

November 2015

 

 

16,400,000

 

 

 

5.80

%

 

Q4 2018

 

 

994,685

 

 

 

1,386,397

 

Total

 

 

 

$

16,400,000

 

 

 

 

 

 

 

 

$

994,685

 

 

$

3,002,540

 

 

(1)

The closing date for Esperanza at Palo Alto is actual and the closing date for Village at Avalon is estimated.

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 New Braunfels, LLC, both located in Texas. The Partnership’s remaining maximum commitments totaled approximately $1.2 million at June 30, 2018. See Note 10 for disclosures related to these property loans.

Other Guarantees & Commitments

In March 2018, the Partnership entered into a guaranty agreement whereby the Partnership has guaranteed payment of the construction loan of Vantage at Stone Creek, LLC. The Partnership will only have to perform on the guarantee upon a default by Vantage at Stone Creek, LLC. The guarantee is initially for the entire amount of the construction loan and decreases to 50% when the project receives a certificate of occupancy and 25% as certain debt service coverage levels are obtained by the borrower. The construction loan has a maximum available balance of $30.8 million. There was no outstanding balance on the construction loan and the Partnership had no exposure under the guarantee at June 30, 2018.

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. The outstanding balance on the construction loan was approximately $21.6 million at June 30, 2018, which is the Partnership’s current exposure under the guarantee. No amount has been accrued for this contingent liability because the likelihood of a guarantee claim is remote. The Partnership is also required to maintain minimum cash and net worth requirements, which were met as of June 30, 2018.

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 under the guarantee provision of the repurchase clause is approximately $2.6 million at June 30, 2018 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 under the guarantee provision of the repurchase clause is approximately $4.1 million at June 30, 2018 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 is approximately $127,000 at June 30, 2018. 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

25


 

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 $84,000 and $125,000 at June 30, 2018 and December 31, 2017. The Partnership reported expenses related to the agreement of approximately $42,000 for the three months ended June 30, 2018 and 2017. The Partnership reported expenses related to the agreement of approximately $84,000 for the six months ended June 30, 2018 and 2017.

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 PHC Certificates 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 $545.7 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.

 

 

18. Redeemable Series A Preferred Units

 

The Partnership has issued non-cumulative, non-voting, non-convertible Series A Preferred Units via private placements to five financial institutions. The Series A Preferred Units are redeemable in the future and represent limited partnership interests in the Partnership. The following table summarizes the outstanding Series A Preferred Units at June 30, 2018 and December 31, 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

October 2017

 

 

1,750,000

 

 

 

17,500,000

 

 

 

3.00

%

 

 

10.00

 

 

October 2023

Preferred Units at June 30, 2018 and December 31, 2017

 

 

9,450,000

 

 

$

94,500,000

 

 

 

 

 

 

 

 

 

 

 

 

 

19. 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 $544,000 and $439,000 for the three months ended June 30, 2018 and 2017, respectively. The compensation expense for RUAs totaled approximately $750,000 and $610,000 for the six months ended June 30, 2018 and 2017, respectively.

26


 

The following table represents nonvested RUAs at and for the six months ended June 30, 2018 and the year ended December 31, 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

 

 

(199,281

)

 

 

5.85

 

Nonvested at December 31, 2017

 

 

242,069

 

 

$

5.83

 

Granted

 

 

309,212

 

 

 

6.31

 

Nonvested at June 30, 2018

 

 

551,281

 

 

$

6.10

 

 

There was approximately $2.0 million of total unrecognized compensation expense related to nonvested RUAs granted under the Plan at June 30, 2018.  The remaining expense is expected to be recognized over a weighted-average period of 1.1 years. The total intrinsic value of nonvested RUAs was approximately $3.5 million at June 30, 2018.

 

 

20. Transactions with Related Parties

The following table summarizes transactions with related parties for the three and six months ended June 30, 2018 and 2017:

 

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Partnership administrative fees to General Partner (1)

 

$

927,000

 

 

$

905,000

 

 

$

1,849,000

 

 

$

1,770,000

 

MRB property administrative fees to General Partner (2)

 

 

18,000

 

 

 

37,000

 

 

 

43,000

 

 

 

52,000

 

Placement fees to General Partner (3)

 

 

530,000

 

 

 

-

 

 

 

1,598,000

 

 

 

938,000

 

Property management fees to an affiliate (4)

 

 

48,000

 

 

 

92,000

 

 

 

98,000

 

 

 

205,000

 

Origination fees to an affiliate (5)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

269,000

 

Consulting fees to an affiliate (6)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

921,000

 

Construction fees paid to an affiliate (7)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

(1)

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 disclosed amounts represent administrative fees paid or accrued during the period specified.

 

(2)

AFCA 2 receives administrative fees directly from the owners of properties financed by certain MRBs held by the Partnership.  These administrative fees equal 0.45% per annum of the outstanding principal balance of the MRBs. The disclosed amounts represent administrative fees paid during the period specified. The administrative fees are not Partnership expenses.

 

(3)

AFCA 2 earns placement fees in connection with the acquisition of certain MRBs, equity investments in unconsolidated entities and certain 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.

 

(4)

An affiliate of AFCA 2, Burlington Capital Properties, LLC (“Properties Management”), provides property management services for the MF Properties (excluding Suites on Paseo). The property management fees are reflected as real estate operating expenses in the Partnership’s condensed consolidated statements of operations.  

 

Properties Management also provides services to eight of the properties collateralizing MRBs of the Partnership. The property management fees are not Partnership expenses but are paid by the owners of the respective 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, as applicable.

 

(5)

An affiliate of AFCA 2, Farnam Capital Advisors, LLC (“Farnam Cap”), acts as an origination advisor to the borrowers when MRBs, investments in unconsolidated entities, certain property loans, and financing facilities are acquired by the Partnership. These origination fees were paid by the borrower and are not Partnership expenses, so they have not been reflected in the accompanying condensed consolidated financial statements.

 

(6)

Fees are paid to Farnam Cap related to consulting services when certain debt financing facilities are acquired by the Partnership.

 

(7)

An affiliate of AFCA 2, Burlington Capital Construction Services, LLC, is the general contractor for certain rehabilitation services for the Jade Park MF Property. There were no payments to this affiliate during the periods presented, but there was an existing contract at June 30, 2017. 

 

 

27


 

21. 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.

The following is a description of the valuation methodologies used for the Partnership’s 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 bond purchase commitments at June 30, 2018 and December 31, 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 the MRBs 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 the Partnership. Due to the judgments involved, the fair value measurements of the Partnership’s investments in MRBs and bond purchase commitments are categorized as a Level 3 input. At June 30, 2018, the range of effective yields on the individual MRBs was 3.2% to 8.5% per annum. At December 31, 2017, the range of effective yields on the individual MRBs and bond purchase commitments was 2.9% to 8.8% per annum.

Investments in Public Housing Capital Fund Trust Certificates  

The fair value of the Partnership’s investment in PHC Certificates at June 30, 2018 and December 31, 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 PHC 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 Certificate 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

28


 

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 MRBs

The fair value of the Partnership’s taxable MRBs at June 30, 2018 and December 31, 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 MRBs 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 MRB as well as other quantitative and qualitative characteristics including, but not limited to, market interest rates, legal structure of the borrower, subordination to other obligations, operating results of the underlying property, geographic location, and property quality. The taxable 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 the taxable MRBs 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 MRBs is categorized as a Level 3 input. At June 30, 2018, the range of effective yields on the individual taxable MRBs was 8.1% to 9.3% per annum. At December 31, 2017, the range of effective yields on the individual taxable MRBs was 7.9% to 9.2% per annum.

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 financings 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 June 30, 2018 are summarized as follows:

 

 

 

Fair Value Measurements at June 30, 2018

 

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

 

$

673,152,217

 

 

$

-

 

 

$

-

 

 

$

673,152,217

 

Mortgage revenue bonds

 

 

94,477,120

 

 

 

-

 

 

 

-

 

 

 

94,477,120

 

Bond purchase commitments (reported within

   other assets)

 

 

994,685

 

 

 

-

 

 

 

-

 

 

 

994,685

 

PHC Certificates

 

 

49,070,710

 

 

 

-

 

 

 

-

 

 

 

49,070,710

 

Taxable mortgage revenue bonds

   (reported within other assets)

 

 

2,357,952

 

 

 

-

 

 

 

-

 

 

 

2,357,952

 

Derivative contracts (reported within other

   assets)

 

 

1,026,976

 

 

 

-

 

 

 

-

 

 

 

1,026,976

 

Derivative swap liability

 

 

(129,018

)

 

 

-

 

 

 

-

 

 

 

(129,018

)

Total Assets and Liabilities at Fair Value, net

 

$

820,950,642

 

 

$

-

 

 

$

-

 

 

$

820,950,642

 

 

29


 

The following tables summarizes the activity related to Level 3 assets and liabilities for the three and six months ended June 30, 2018:

 

 

 

For the Three Months Ended June 30, 2018

 

 

 

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 April 1, 2018

 

$

755,959,454

 

 

$

2,027,473

 

 

$

48,939,254

 

 

$

2,397,825

 

 

$

852,702

 

 

$

810,176,708

 

Total gains (losses)

   (realized/unrealized)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Included in earnings (interest

   income and interest expense)

 

 

36,221

 

 

 

-

 

 

 

(850,336

)

 

 

-

 

 

 

6,386

 

 

 

(807,729

)

Included in other

   comprehensive (loss) income

 

 

4,077,300

 

 

 

(1,032,788

)

 

 

981,792

 

 

 

(12,079

)

 

 

-

 

 

 

4,014,225

 

Purchases

 

 

19,540,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

19,540,000

 

Settlements

 

 

(11,983,638

)

 

 

-

 

 

 

-

 

 

 

(27,794

)

 

 

38,870

 

 

 

(11,972,562

)

Ending Balance June 30, 2018

 

$

767,629,337

 

 

$

994,685

 

 

$

49,070,710

 

 

$

2,357,952

 

 

$

897,958

 

 

$

820,950,642

 

Total amount of gains (losses) for the period

   included in earnings attributable to

   the change in unrealized gains

   (losses) relating to assets or liabilities

   held on June 30, 2018

 

$

-

 

 

$

-

 

 

$

(831,062

)

 

$

-

 

 

$

6,386

 

 

$

(824,676

)

 

(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 Six Months Ended June 30, 2018

 

 

 

Fair Value Measurements Using Significant

 

 

 

Unobservable Inputs (Level 3)

 

 

 

Mortgage

Revenue Bonds (1)

 

 

Bond Purchase Commitments

 

 

PHC Certificates

 

 

Taxable Mortgage Revenue Bonds

 

 

Interest Rate Derivatives (2)

 

 

Total

 

Beginning Balance January 1, 2018

 

$

788,621,707

 

 

$

3,002,540

 

 

$

49,641,588

 

 

$

2,422,459

 

 

$

(229,631

)

 

$

843,458,663

 

Total gains (losses)

   (realized/unrealized)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Included in earnings (interest

   income, impairment of securities

   and interest expense)

 

 

72,535

 

 

 

-

 

 

 

(869,610

)

 

 

-

 

 

 

996,381

 

 

 

199,306

 

Included in other

   comprehensive (loss) income

 

 

(17,319,328

)

 

 

(2,007,855

)

 

 

525,446

 

 

 

(33,981

)

 

 

-

 

 

 

(18,835,718

)

Purchases

 

 

19,540,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

19,540,000

 

Settlements

 

 

(23,285,577

)

 

 

-

 

 

 

(226,714

)

 

 

(30,526

)

 

 

131,208

 

 

 

(23,411,609

)

Ending Balance June 30, 2018

 

$

767,629,337

 

 

$

994,685

 

 

$

49,070,710

 

 

$

2,357,952

 

 

$

897,958

 

 

$

820,950,642

 

Total amount of gains (losses) for the period

   included in earnings attributable to

   the change in unrealized gains

   (losses) relating to assets or liabilities

   held on June 30, 2018

 

$

-

 

 

$

-

 

 

$

(831,062

)

 

$

-

 

 

$

996,381

 

 

$

165,319

 

 

(1)

Mortgage revenue bonds includes both bonds held in trust as well as those held by the Partnership. The beginning balance also in includes the cumulative effect of accounting change related to the adoption of ASU 2017-08 effective January 1, 2018.

(2)

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

 

30


 

Assets and liabilities measured at fair value on a recurring basis at December 31, 2017 are summarized as follows:

 

 

 

Fair Value Measurements at December 31, 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

 

$

710,867,447

 

 

$

-

 

 

$

-

 

 

$

710,867,447

 

Mortgage revenue bonds

 

 

77,971,208

 

 

 

-

 

 

 

-

 

 

 

77,971,208

 

Bond purchase commitments (reported within

   other assets)

 

 

3,002,540

 

 

 

-

 

 

 

-

 

 

 

3,002,540

 

PHC Certificates

 

 

49,641,588

 

 

 

-

 

 

 

-

 

 

 

49,641,588

 

Taxable mortgage revenue bonds

   (reported within other assets)

 

 

2,422,459

 

 

 

-

 

 

 

-

 

 

 

2,422,459

 

Derivative contracts (reported within other

   assets)

 

 

597,221

 

 

 

-

 

 

 

-

 

 

 

597,221

 

Derivative swap liability

 

 

(826,852

)

 

 

-

 

 

 

-

 

 

 

(826,852

)

Total Assets and Liabilities at Fair Value, net

 

$

843,675,611

 

 

$

-

 

 

$

-

 

 

$

843,675,611

 

 

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

 

 

 

For the Three Months Ended June 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 April 1, 2017

 

$

758,905,896

 

 

$

2,620,393

 

 

$

55,851,799

 

 

$

4,179,205

 

 

$

(1,077,028

)

 

$

820,480,265

 

Total gains (losses)

   (realized/unrealized)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Included in earnings (interest

   income and interest expense)

 

 

53,235

 

 

 

-

 

 

 

(14,129

)

 

 

-

 

 

 

(181,420

)

 

 

(142,314

)

Included in other

   comprehensive (loss) income

 

 

10,059,745

 

 

 

544,779

 

 

 

390,701

 

 

 

(223,758

)

 

 

-

 

 

 

10,771,467

 

Purchases

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

496,800

 

 

 

496,800

 

Settlements

 

 

(889,218

)

 

 

-

 

 

 

(437,000

)

 

 

(23,976

)

 

 

-

 

 

 

(1,350,194

)

Ending Balance June 30, 2017

 

$

768,129,658

 

 

$

3,165,172

 

 

$

55,791,371

 

 

$

3,931,471

 

 

$

(761,648

)

 

$

830,256,024

 

Total amount of losses for the period

   included in earnings attributable to

   the change in unrealized gains or

   losses relating to assets or liabilities

   held on June 30, 2017

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

(181,420

)

 

$

(181,420

)

 

(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.

31


 

 

 

 

For the Six Months Ended June 30, 2017

 

 

 

Fair Value Measurements Using Significant

 

 

 

Unobservable Inputs (Level 3)

 

 

 

Mortgage

Revenue Bonds (1)

 

 

Bond Purchase

Commitments

 

 

PHC Certificates

 

 

Taxable Mortgage

Revenue 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)

 

 

106,590

 

 

 

-

 

 

 

(31,717

)

 

 

-

 

 

 

(302,769

)

 

 

(227,896

)

Included in other

   comprehensive (loss) income

 

 

30,230,298

 

 

 

765,723

 

 

 

(897,980

)

 

 

(125,264

)

 

 

-

 

 

 

29,972,777

 

Purchases

 

 

59,585,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

496,800

 

 

 

60,081,800

 

Settlements

 

 

(2,003,281

)

 

 

-

 

 

 

(437,000

)

 

 

(27,864

)

 

 

-

 

 

 

(2,468,145

)

Ending Balance June 30, 2017

 

$

768,129,658

 

 

$

3,165,172

 

 

$

55,791,371

 

 

$

3,931,471

 

 

$

(761,648

)

 

$

830,256,024

 

Total amount of losses for the period

   included in earnings attributable to

   the change in unrealized losses

   relating to assets or liabilities held on

   June 30, 2017

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

(302,769

)

 

$

(302,769

)

 

(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 reported as interest expense in the Partnership’s condensed consolidated statements of operations.

At June 30, 2018 and December 31, 2017, the Partnership utilized a third-party pricing service to determine the fair value of the Partnership’s financial liabilities, which are indicative of market prices. The valuation methodology of the Partnership’s third-party pricing service incorporates commonly used market pricing methods. It considers the underlying characteristics of each financial liability as well as other quantitative and qualitative characteristics including, but not limited to, market interest rates, legal structure, seniority to other obligations, operating results of the underlying assets, and asset quality. The financial liabilities 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 financial liabilities 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 the Partnership. Due to the judgments involved, the fair value measurements of the Partnership’s financial liabilities are categorized as a Level 3 input. The TEBS and variable-rate TOB debt financings are credit enhanced by Freddie Mac and DB, respectively. The table below summarizes the fair value of the financial liabilities at June 30, 2018 and December 31, 2017:

 

 

 

June 30, 2018

 

 

December 31, 2017

 

 

 

Carrying Amount

 

 

Fair Value

 

 

Carrying Amount

 

 

Fair Value

 

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt financing and LOCs

 

$

591,712,329

 

 

$

597,873,855

 

 

$

608,328,347

 

 

$

618,412,150

 

Mortgages payable and other secured financing

 

 

35,212,789

 

 

 

35,387,148

 

 

 

35,540,174

 

 

 

35,767,924

 

 

 

22. 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.

The Amended and Restated LP Agreement authorizes the Partnership to make investments in tax-exempt securities other than 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 and Other Investments, which are reported as separate segments.

32


 

 

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 allowances, are reported as such on the Partnership’s condensed consolidated balance sheets.  At June 30, 2018, the Partnership held 81 MRBs. The Residential Properties financed by MRBs contain a total of 10,988 rental units. In addition, one MRB (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 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) and the related debt financings.

 

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 ownership interest in the MF Property.  At June 30, 2018, the segment includes three MF Properties comprised of a total of 1,012 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 invests in unconsolidated entities (Note 9) and has issued property loans due from Vantage at Brooks LLC and Vantage at New Braunfels, LLC (Note 10).

 

33


 

The following table details certain key financial information for the Partnership’s reportable segments for the three and six months ended June 30, 2018 and 2017:

 

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Total revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage Revenue Bond Investments

 

$

11,098,140

 

 

$

11,059,940

 

 

$

23,168,696

 

 

$

21,648,438

 

MF Properties

 

 

2,477,442

 

 

 

3,306,722

 

 

 

4,813,954

 

 

 

7,099,137

 

Public Housing Capital Fund Trust

 

 

622,961

 

 

 

719,182

 

 

 

1,243,067

 

 

 

1,427,968

 

Other Investments

 

 

1,586,622

 

 

 

1,148,456

 

 

 

3,017,482

 

 

 

2,099,145

 

Total revenues

 

$

15,785,165

 

 

$

16,234,300

 

 

$

32,243,199

 

 

$

32,274,688

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage Revenue Bond Investments

 

$

5,265,140

 

 

$

4,938,029

 

 

$

9,782,760

 

 

$

9,509,484

 

MF Properties

 

 

408,131

 

 

 

534,245

 

 

 

798,832

 

 

 

1,059,832

 

Public Housing Capital Fund Trust

 

 

245,596

 

 

 

369,053

 

 

 

219,580

 

 

 

714,264

 

Other Investments

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total interest expense

 

$

5,918,867

 

 

$

5,841,327

 

 

$

10,801,172

 

 

$

11,283,580

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage Revenue Bond Investments

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

MF Properties

 

 

919,456

 

 

 

1,265,335

 

 

 

1,823,409

 

 

 

2,620,566

 

Public Housing Capital Fund Trust

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Other Investments

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total depreciation expense

 

$

919,456

 

 

$

1,265,335

 

 

$

1,823,409

 

 

$

2,620,566

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Partnership net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage Revenue Bond Investments

 

$

2,308,290

 

 

$

2,592,768

 

 

$

6,607,885

 

 

$

4,821,821

 

MF Properties

 

 

(95,425

)

 

 

18,047

 

 

 

(458,155

)

 

 

3,763,592

 

Public Housing Capital Fund Trust

 

 

(453,697

)

 

 

350,129

 

 

 

192,425

 

 

 

713,704

 

Other Investments

 

 

1,578,953

 

 

 

1,148,456

 

 

 

3,000,270

 

 

 

2,099,145

 

Partnership net income

 

$

3,338,121

 

 

$

4,109,400

 

 

$

9,342,425

 

 

$

11,398,262

 

 

The following table details total assets for the Partnership’s reportable segments at June 30, 2018 and December 31, 2017:

 

 

 

June 30, 2018

 

 

December 31, 2017

 

Total assets

 

 

 

 

 

 

 

 

Mortgage Revenue Bond Investments

 

$

892,881,652

 

 

$

937,565,390

 

MF Properties

 

 

82,642,061

 

 

 

83,514,758

 

Public Housing Capital Fund Trust Certificates

 

 

49,344,607

 

 

 

49,918,434

 

Other Investments

 

 

76,199,168

 

 

 

55,573,834

 

Consolidation/eliminations

 

 

(77,536,608

)

 

 

(56,804,417

)

Total assets

 

$

1,023,530,880

 

 

$

1,069,767,999

 

 

 

23. Subsequent Events

In July 2018, the maturity of the Term A/B Trust associated with the Courtyard Series B MRB was extended to August 2018.

In July 2018, the Partnership extended the maturity date of its two lines of credit with Bankers Trust to June 2020.

In July 2018, the Las Palmas Series B MRB was redeemed at a price equal to the Partnership’s carrying value plus accrued interest. Upon redemption, the Term A/B Trust associated with the MRB was collapsed and paid off in full at a price equal to the outstanding principal plus accrued interest.

34


 

In July 2018, the Jade Park MF Property met the criteria for classification as assets and liabilities held for sale. The Partnership expects to complete the sale of substantially all assets and related liabilities of Jade Park in the third quarter of 2018; however, there can be no assurance actual closing will occur. The table below summarizes the assets and liabilities of the Jade Park MF Property expected to be sold and included in the Partnership’s condensed consolidated balance sheet at June 30, 2018:

 

 

 

June 30, 2018

 

Cash and cash equivalents

 

$

237,516

 

Restricted cash

 

 

174,321

 

Land and improvements

 

 

2,292,035

 

Buildings and improvements

 

 

7,594,192

 

Real estate assets before accumulated depreciation

 

 

9,886,227

 

Accumulated depreciation

 

 

(757,835

)

Net real estate assets

 

 

9,128,392

 

Other assets

 

 

24,782

 

Total assets held for sale

 

$

9,565,011

 

 

 

 

 

 

Accounts payable, accrued expenses and other liabilities

 

$

158,662

 

 

In August 2018, the Partnership entered into a Capital on DemandTM Sales Agreement to offer and sell, from time to time at market prices on the date of sale, BUCs up to an aggregate offering price of $75 million.

 

 

35


 

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 June 30, 2018. See Note 2 and Note 5 to the Partnership’s condensed consolidated financial statements for further disclosure.

Critical Accounting Policies

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, 2017.  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.

 

 

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 residential properties (collectively “Residential Properties”) and commercial properties in their market areas. We expect and believe the interest received on these MRBs 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 Partnership’s Amended and Restated LP Agreement. We may acquire interests in MF Properties to position ourselves for future investments in MRBs issued to finance these properties and which we expect and believe will generate tax-exempt interest.

At June 30, 2018, the Partnership has four reportable segments: (1) Mortgage Revenue Bond Investments, (2) MF Properties, (3) Public Housing Capital Fund Trusts, and (4) Other Investments. 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 21 to the Partnership’s condensed consolidated financial statements for additional details.

Recent Investment Activity

The following table presents information regarding the investment activity of the Partnership for the first and second quarters of 2018 and 2017:

 

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 June 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage revenue bond acquisitions

 

1

 

$

19,540

 

 

N/A

 

 

N/A

 

 

6

Mortgage revenue bond redemptions

 

4

 

 

11,000

 

 

$

7,710

 

 

N/A

 

 

6, 14

Investments in unconsolidated entities

 

4

 

 

6,764

 

 

N/A

 

 

N/A

 

 

9

Property loan redemptions

 

3

 

 

500

 

 

N/A

 

 

N/A

 

 

10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended March 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage revenue bond redemptions

 

3

 

$

10,447

 

 

$

7,345

 

 

N/A

 

 

6, 14

Investments in unconsolidated entities

 

3

 

 

12,323

 

 

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

Investments 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

 

(1)

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

36


 

Recent Financing Activity

The following table presents information regarding the debt financing, derivative, Series A Preferred Units, and capital activity of the Partnership for first and second quarters of 2018 and 2017, exclusive of retired debt amounts listed in the investment activity table above: 

 

Recent Financing, Derivative and Capital Activity

 

#

 

Amount

(in 000's)

 

 

Secured

 

Maximum

SIFMA Cap

Rate (1)

 

 

Notes to the

Partnership's

condensed

consolidated financial

statements

For the Three Months Ended June 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net repayments on unsecured LOCs

 

1

 

$

460

 

 

No

 

N/A

 

 

13

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended March 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds on issuance of Beneficial Unit Certificates, net

   of issuance costs

 

1

 

$

192

 

 

N/A

 

N/A

 

 

N/A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate derivatives purchased

 

2

 

$

497

 

 

N/A

 

1.5%

 

 

16

Refinance of Mortgages Payables

 

2

 

 

-

 

 

Yes

 

N/A

 

 

15

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended March 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net repayments on unsecured LOCs

 

2

 

$

40,000

 

 

No

 

N/A

 

 

13

Repayments on secured LOC

 

1

 

 

20,000

 

 

Yes

 

N/A

 

 

N/A

Proceeds from new Term A/B Financings with DB

 

19

 

 

106,810

 

 

Yes

 

N/A

 

 

14

Net repayment on refinance of Term A/B Financings

   with DB

 

4

 

 

2,245

 

 

Yes

 

N/A

 

 

14

Proceeds from Redeemable Series A preferred unit

   issuances

 

2

 

 

16,131

 

 

N/A

 

N/A

 

 

18

 

(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.

 

The table below compares operating results for the Mortgage Revenue Bond Investments segment, reported in 000’s, for the periods indicated:

 

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

$ Change

 

 

% Change

 

 

2018

 

 

2017

 

 

$ Change

 

 

% Change

 

Mortgage Revenue Bond

   Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

$

11,098

 

 

$

11,060

 

 

$

38

 

 

 

0.3

%

 

$

23,169

 

 

$

21,648

 

 

$

1,521

 

 

 

7.0

%

Total interest expense

 

$

5,265

 

 

$

4,938

 

 

$

327

 

 

 

6.6

%

 

$

9,783

 

 

$

9,509

 

 

$

274

 

 

 

2.9

%

Net income

 

$

2,308

 

 

$

2,593

 

 

$

(285

)

 

 

-11.0

%

 

$

6,608

 

 

$

4,822

 

 

$

1,786

 

 

 

37.0

%

 

Total revenues for the three months ended June 30, 2018 were consistent with the same period in 2017 due to offsetting factors. The Partnership recognized an increase of approximately $1.0 million in recurring investment income from MRBs purchased during 2017 and 2018, offset by a decrease of approximately $941,000 in recurring investment income due to MRB redemptions and scheduled principal payments received during 2017 and 2018. The increase in total revenues for the six months ended June 30, 2018 as compared to the same period in 2017 is due to an increase of approximately $2.5 million in recurring investment income from MRBs purchased during 2017 and 2018, and additional interest income of approximately $764,000, offset by a decrease of approximately $1.8 million in recurring investment income due to MRB redemptions and scheduled principal payments received during 2017 and 2018.

 

37


 

The increase in interest expense for the three months ended June 30, 2018 compared to the same period in 2017 is due to a $458,000 increase in expense from an increase of approximately 33 basis points in the average interest rate, partially offset by a decrease of approximately $153,000 related to fair value adjustments for interest rate derivatives. The increase in interest expense for the six months ended June 30, 2018 as compared to the same period in 2017 is attributable to various factors. Interest expense increased by approximately $741,000 due to an increase of approximately 26 basis points in the average interest rate. Interest expense increased by approximately $472,000 due to an increase of approximately $27.9 million in average principal outstanding. These increases are offset by a decrease of approximately $940,000 related to fair value adjustments for interest rate derivatives.

 

The decrease in net income for the three months ended June 30, 2018 as compared to the same period in 2017 is due to the changes in total revenues and interest expense described above. The increase in net income for the six months ended June 30, 2018 as compared to the same period in 2017 is due to the changes in total revenues and interest expense described above, a decrease of approximately $404,000 in amortization of deferred financing costs, and a decrease of approximately $142,000 total salaries, benefits and stock option compensation costs.

 

Public Housing Capital Fund Trusts Segment

 

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

 

The table below compares operating results for the Public Housing Capital Fund Trust segment, reported in 000’s, for the periods indicated:

 

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

$ Change

 

 

% Change

 

 

2018

 

 

2017

 

 

$ Change

 

 

% Change

 

PHC Trusts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

$

623

 

 

$

719

 

 

$

(96

)

 

 

-13.4

%

 

$

1,243

 

 

$

1,428

 

 

$

(185

)

 

 

-13.0

%

Total interest expense

 

$

246

 

 

$

369

 

 

$

(123

)

 

 

-33.3

%

 

$

220

 

 

$

714

 

 

$

(494

)

 

 

-69.2

%

Net income (loss)

 

$

(454

)

 

$

350

 

 

$

(804

)

 

 

-229.7

%

 

$

192

 

 

$

714

 

 

$

(522

)

 

 

-73.1

%

 

The decrease in total revenues for the three and six months ended June 30, 2018 compared to the same periods in 2017 is the result of principal reductions of the PHC Certificates during 2017 of approximately $6.0 million. The decrease in total interest expense for the three months ended June 30, 2018 compared to the same periods in 2017 is due to a reduction of expense of approximately $147,000 related to fair value adjustments for interest rate swaps. The decrease in total interest expense for the six months ended June 30, 2018 compared to the same periods in 2017 is due to a reduction of expense of approximately $540,000 related to fair value adjustments for interest rate derivatives.

 

The decreases in net income for the three and six months ended June 30, 2018 compared to the same periods in 2017 is a due to the revenue and interest expense changes noted above and an impairment charge of approximately $831,000 recognized in the second quarter of 2018.

 

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. At June 30, 2018 and 2017, the Partnership and its Consolidated Subsidiaries owned three and six MF Properties, respectively, which contain a total of 1,012 and 1,710 rental units, respectively.

 

The table below compares operating results for the MF Properties segment, reported in 000’s, for the periods indicated:

 

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

$ Change

 

 

% Change

 

 

2018

 

 

2017

 

 

$ Change

 

 

% Change

 

MF Properties

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

$

2,477

 

 

$

3,307

 

 

$

(830

)

 

 

-25.1

%

 

$

4,814

 

 

$

7,099

 

 

$

(2,285

)

 

 

-32.2

%

Gain (loss) on sale of

   real estate assets, net

 

$

-

 

 

$

(16

)

 

$

16

 

 

N/A

 

 

$

-

 

 

$

7,153

 

 

$

(7,153

)

 

N/A

 

Total interest expense

 

$

408

 

 

$

534

 

 

$

(126

)

 

 

-23.6

%

 

$

799

 

 

$

1,060

 

 

$

(261

)

 

 

-24.6

%

Net income (loss)

 

$

(95

)

 

$

18

 

 

$

(113

)

 

 

-627.8

%

 

$

(458

)

 

$

3,764

 

 

$

(4,222

)

 

 

-112.2

%

 

38


 

The decrease in total revenues for the three months ended June 30, 2018 as compared to the same period in 2017 is due to a decrease of approximately $1.1 million in total from the sale of Northern View in March 2017 and the sales of Residences of Weatherford, Residences of DeCordova and Eagle Village in November 2017, offset by an increase of approximately $189,000 from increased occupancy at The 50/50 and Jade Park (see the discussion of occupancy later in this section). The decrease in total revenues for the six months ended June 30, 2018 as compared to the same period in 2017 is due to a decrease of approximately $2.5 million in total from the sale of Northern View in March 2017 and the sales of Residences of Weatherford, Residences of DeCordova and Eagle Village in November 2017, offset by an increase of approximately $196,000 from increased occupancy at The 50/50 (see the discussion of occupancy later in this section).

 

The gain on sale of real estate assets for the six months ended June 30, 2017 consists primarily of a $7.2 million gain on sale of Northern View in March 2017. There were no such transactions in the three or six months ended June 30, 2018.

 

The decrease in interest expense for the three and six months ended June 30, 2018 as compared to the same periods in 2017 is due primarily to a decrease in the average principal outstanding of approximately $15.6 million and $15.7 million, respectively, primarily from the settlement of mortgages payable on MF Properties sold in November 2017.

 

The decrease in net income for the three months ended June 30, 2018 as compared to the same periods in 2017 is due primarily to the changes in revenues, gain on sale of real estate assets, and interest expense described above, in addition to a decrease of approximately  $927,000 in real estate operating and depreciation expenses related to MF Property sales in 2017, offset by an increase of approximately $237,000 related to general expense increases and expense timing at the Suites on Paseo. The decrease in net income for the six months ended June 30, 2018 as compared to the same periods in 2017 is due primarily to the changes in revenues, gain on sale of real estate assets, and interest expense described above, in addition to a net decrease in income tax expenses of $2.4 million related to the gain on sale, a decrease in real estate operating and depreciation expenses totaling approximately $2.1 million related to MF Property sales in 2017, and a decrease in amortization expense of approximately $232,000 for in-place lease amortization at Jade Park in the first quarter of 2017 that did not occur in 2018. The remaining variance is due to various decreases in real estate operating expenses.

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.

 

The table below compares operating results for the Other Investments segment, reported in 000’s, for the periods indicated:

 

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

$ Change

 

 

% Change

 

 

2018

 

 

2017

 

 

$ Change

 

 

% Change

 

Other Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

$

1,587

 

 

$

1,148

 

 

$

439

 

 

 

38.2

%

 

$

3,017

 

 

$

2,099

 

 

$

918

 

 

 

43.7

%

Net income

 

$

1,579

 

 

$

1,148

 

 

$

431

 

 

 

37.5

%

 

$

3,000

 

 

$

2,099

 

 

$

901

 

 

 

42.9

%

 

The increase in total revenues and net income for the three months ended June 30, 2018 as compared to same period in 2017 is due to an increase of approximately $167,000 in income from additional equity contributions to unconsolidated entities during 2017 totaling approximately $14.1 million and an increase of approximately $268,000 in income from new investments in unconsolidated entities in 2018 totaling approximately $16.5 million. The increase in total revenues and net income for the six months ended June 30, 2018 as compared to same period in 2017 is due to an increase of approximately $605,000 in income from additional equity contributions to unconsolidated entities during 2017 totaling approximately $14.1 million and an increase of approximately $284,000 in income from new investments in unconsolidated entities in 2018 totaling approximately $16.5 million.

 

Discussion of the Residential Properties Securing our Mortgage Revenue Bonds and MF Properties

 

The following tables outline certain information regarding the Residential Properties collateralizing the Partnership’s MRBs and the MF Properties.   

39


 

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.  These Residential Properties have met the stabilization criteria (see footnote 3 below the table) at June 30, 2018. Debt service on the Partnership’s bonds for the non-consolidated stabilized properties was current at June 30, 2018. 

 

 

 

 

 

Number

 

 

 

 

 

Economic Occupancy (2)

 

 

 

 

 

of Units at

June 30,

 

 

Physical Occupancy (1)

at June 30,

 

 

For the Six Months Ended June 30,

 

Property Name

 

State

 

2018

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Non-Consolidated Properties-Stabilized (3)

 

Glenview Apartments

 

CA

 

 

88

 

 

 

99

%

 

 

98

%

 

 

97

%

 

 

99

%

Harden Ranch

 

CA

 

 

100

 

 

 

99

%

 

 

98

%

 

 

96

%

 

 

97

%

Harmony Court Bakersfield

 

CA

 

 

96

 

 

 

96

%

 

 

94

%

 

 

95

%

 

 

92

%

Montclair Apartments

 

CA

 

 

80

 

 

 

100

%

 

 

98

%

 

 

98

%

 

 

100

%

San Vicente

 

CA

 

 

50

 

 

 

100

%

 

 

98

%

 

 

95

%

 

 

98

%

Santa Fe Apartments

 

CA

 

 

89

 

 

 

98

%

 

 

97

%

 

 

96

%

 

 

103

%

Seasons at Simi Valley

 

CA

 

 

69

 

 

 

99

%

 

 

100

%

 

 

120

%

 

 

128

%

Seasons Lakewood

 

CA

 

 

85

 

 

 

98

%

 

 

99

%

 

 

103

%

 

 

107

%

Summerhill

 

CA

 

 

128

 

 

 

99

%

 

 

97

%

 

 

96

%

 

 

98

%

Sycamore Walk

 

CA

 

 

112

 

 

 

98

%

 

 

99

%

 

 

98

%

 

 

98

%

The Village at Madera

 

CA

 

 

75

 

 

 

97

%

 

 

97

%

 

 

97

%

 

 

97

%

Tyler Park Townhomes

 

CA

 

 

88

 

 

 

100

%

 

 

100

%

 

 

96

%

 

 

97

%

Westside Village Market

 

CA

 

 

81

 

 

 

100

%

 

 

100

%

 

 

99

%

 

 

96

%

Lake Forest Apartments

 

FL

 

 

240

 

 

 

94

%

 

 

85

%

 

 

93

%

 

 

88

%

Ashley Square Apartments (6)

 

IA

 

n/a

 

 

n/a

 

 

 

92

%

 

n/a

 

 

 

84

%

Brookstone Apartments

 

IL

 

 

168

 

 

 

97

%

 

 

99

%

 

 

95

%

 

 

96

%

Copper Gate

 

IN

 

 

128

 

 

 

98

%

 

 

98

%

 

 

96

%

 

 

94

%

Renaissance Gateway (7)

 

LA

 

 

208

 

 

 

95

%

 

 

98

%

 

 

102

%

 

 

106

%

Live 929 Apartments

 

MD

 

 

575

 

 

 

81

%

 

 

80

%

 

 

86

%

 

 

85

%

Woodlynn Village

 

MN

 

 

59

 

 

 

100

%

 

 

95

%

 

 

97

%

 

 

98

%

Greens of Pine Glen Apartments

 

NC

 

 

168

 

 

 

98

%

 

 

96

%

 

 

93

%

 

 

88

%

Silver Moon

 

NM

 

 

151

 

 

 

97

%

 

 

89

%

 

 

87

%

 

 

87

%

Ohio Properties (4)

 

OH

 

 

362

 

 

 

98

%

 

 

99

%

 

 

95

%

 

 

94

%

Bridle Ridge Apartments

 

SC

 

 

152

 

 

 

99

%

 

 

99

%

 

 

96

%

 

 

97

%

Columbia Gardens

 

SC

 

 

188

 

 

 

96

%

 

 

90

%

 

 

96

%

 

 

75

%

Companion at Thornhill Apartments

 

SC

 

 

178

 

 

 

100

%

 

 

97

%

 

 

88

%

 

 

86

%

Cross Creek Apartments

 

SC

 

 

144

 

 

 

99

%

 

 

96

%

 

 

93

%

 

 

95

%

Palms at Premier Park

 

SC

 

 

240

 

 

 

96

%

 

 

98

%

 

 

90

%

 

 

88

%

Village at River's Edge (5)

 

SC

 

 

124

 

 

 

98

%

 

n/a

 

 

 

99

%

 

n/a

 

Willow Run

 

SC

 

 

200

 

 

 

93

%

 

 

93

%

 

 

90

%

 

 

76

%

Arbors of Hickory Ridge

 

TN

 

 

348

 

 

 

92

%

 

 

89

%

 

 

84

%

 

 

81

%

Avistar at Chase Hill (6)

 

TX

 

n/a

 

 

n/a

 

 

 

75

%

 

n/a

 

 

 

72

%

Avistar at the Crest

 

TX

 

 

200

 

 

 

95

%

 

 

92

%

 

 

75

%

 

 

78

%

Avistar at the Oaks

 

TX

 

 

156

 

 

 

93

%

 

 

94

%

 

 

84

%

 

 

87

%

Avistar at the Parkway

 

TX

 

 

236

 

 

 

90

%

 

 

86

%

 

 

78

%

 

 

75

%

Avistar in 09

 

TX

 

 

133

 

 

 

92

%

 

 

98

%

 

 

88

%

 

 

83

%

Avistar on the Boulevard

 

TX

 

 

344

 

 

 

94

%

 

 

92

%

 

 

80

%

 

 

79

%

Avistar on the Hills

 

TX

 

 

129

 

 

 

95

%

 

 

98

%

 

 

89

%

 

 

87

%

Bella Vista Apartments

 

TX

 

 

144

 

 

 

92

%

 

 

98

%

 

 

86

%

 

 

92

%

Bruton Apartments

 

TX

 

 

264

 

 

 

95

%

 

 

93

%

 

 

87

%

 

 

92

%

Concord at Gulfgate

 

TX

 

 

288

 

 

 

95

%

 

 

96

%

 

 

87

%

 

 

90

%

Concord at Little York

 

TX

 

 

276

 

 

 

96

%

 

 

96

%

 

 

89

%

 

 

89

%

Concord at Williamcrest

 

TX

 

 

288

 

 

 

97

%

 

 

95

%

 

 

92

%

 

 

87

%

Crossing at 1415

 

TX

 

 

112

 

 

 

92

%

 

 

90

%

 

 

84

%

 

 

60

%

Decatur Angle

 

TX

 

 

302

 

 

 

88

%

 

 

88

%

 

 

82

%

 

 

87

%

Esperanza at Palo Alto (5)

 

TX

 

 

322

 

 

 

95

%

 

n/a

 

 

 

86

%

 

n/a

 

Heights at 515

 

TX

 

 

96

 

 

 

95

%

 

 

92

%

 

 

90

%

 

 

71

%

Heritage Square Apartments

 

TX

 

 

204

 

 

 

89

%

 

 

89

%

 

 

77

%

 

 

81

%

Oaks at Georgetown

 

TX

 

 

192

 

 

 

96

%

 

 

96

%

 

 

92

%

 

 

86

%

Runnymede Apartments

 

TX

 

 

252

 

 

 

99

%

 

 

100

%

 

 

95

%

 

 

96

%

South Park Ranch Apartments

 

TX

 

 

192

 

 

 

99

%

 

 

99

%

 

 

93

%

 

 

97

%

Vantage at Harlingen (6)

 

TX

 

n/a

 

 

n/a

 

 

 

95

%

 

n/a

 

 

 

73

%

Vantage at Judson

 

TX

 

 

288

 

 

 

94

%

 

 

97

%

 

 

84

%

 

 

86

%

15 West Apartments

 

WA

 

 

120

 

 

 

98

%

 

 

99

%

 

 

96

%

 

 

96

%

 

 

 

 

 

9,312

 

 

 

95

%

 

 

93

%

 

 

89

%

 

 

88

%

 

(1)

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

40


 

(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 $17.6 million of MRBs secured by Crescent Village, Willow Bend and Postwoods (the Ohio Properties, collectively).  Crescent Village is located in Cincinnati, Ohio, Willow Bend is located in Columbus, Ohio and Postwoods is located in Reynoldsburg, Ohio.

(5)

The property relates to an executed bond purchase commitment. The property was considered stabilized when the MRB was acquired.

(6)

The MRB associated with the property was redeemed in the fourth quarter of 2017, so the number of units and occupancy are not applicable as of and for the quarter ended June 30, 2018.

(7)

The physical and economic occupancy amounts are based on the latest available financial information, which is as of March 31, 2018.

 

Physical and economic occupancy increased slightly for the stabilized Residential Properties for 2018 as compared to 2017. The increase is due primarily to the stabilization of Columbia Gardens, Willow Run, Crossing at 1415 and Heights at 515 in the fourth quarter of 2017.

 

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.  These Residential Properties have not met the stabilization criteria (see footnote 3 below the table) at June 30, 2018. Debt service on the Partnership’s bonds for the non-consolidated non-stabilized properties was current at June 30, 2018

 

 

 

 

 

Number

 

 

 

 

 

Economic Occupancy (2)

 

 

 

 

 

of Units at

June 30,

 

 

Physical Occupancy (1) at

June 30,

 

 

For the Six Months Ended June 30,

 

Property Name

 

State

 

2018

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Non-Consolidated Properties-Non Stabilized (3)

 

Courtyard Apartments

 

CA

 

 

108

 

 

 

98

%

 

 

99

%

 

 

99

%

 

 

100

%

Harmony Terrace

 

CA

 

 

136

 

 

 

99

%

 

 

100

%

 

 

126

%

 

 

135

%

Las Palmas

 

CA

 

 

81

 

 

 

99

%

 

 

100

%

 

 

99

%

 

 

93

%

Montecito at Williams Ranch (4)

 

CA

 

 

132

 

 

 

97

%

 

n/a

 

 

 

92

%

 

n/a

 

Seasons San Juan Capistrano

 

CA

 

 

112

 

 

 

99

%

 

 

96

%

 

 

99

%

 

 

98

%

Vineyard Gardens (4)

 

CA

 

 

62

 

 

 

100

%

 

n/a

 

 

 

102

%

 

n/a

 

Rosewood Townhomes (4)

 

SC

 

 

100

 

 

 

71

%

 

n/a

 

 

 

79

%

 

n/a

 

South Pointe Apartments (4)

 

SC

 

 

256

 

 

 

75

%

 

n/a

 

 

 

82

%

 

n/a

 

Avistar at Copperfield

 

TX

 

 

192

 

 

 

95

%

 

 

72

%

 

 

82

%

 

 

67

%

Avistar at Wilcrest

 

TX

 

 

88

 

 

 

93

%

 

 

78

%

 

 

78

%

 

 

71

%

Avistar at Wood Hollow

 

TX

 

 

409

 

 

 

95

%

 

 

70

%

 

 

75

%

 

 

75

%

 

 

 

 

 

1,676

 

 

 

92

%

 

 

82

%

 

 

88

%

 

 

88

%

 

(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)

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 after the second quarter of 2017.

 

Physical and economic occupancy for the stabilized Residential Properties increased in 2018 as compared to 2017 due to increased occupancy at Avistar at Copperfield, Avistar at Wilcrest and Avistar at Wood Hollow as these properties are nearing the completion of rehabilitation projects begun in early 2017 and are nearing stabilization. The increase is also due to the addition of Vineyard Gardens and Montecito at Williams Ranch which have higher than average occupancy for rehabilitation properties. These increases are slightly offset by the addition of South Pointe Apartments and Rosewood Townhomes that have lower than average occupancy as they are in the middle of major rehabilitation projects.  

 

41


 

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 $35.2 million at June 30, 2018.  We report the assets, liabilities, and results of operations of these properties on a consolidated basis.  All the MF Properties have met the stabilization criteria (see footnote 3 below the table) at June 30, 2018. Debt service on our mortgages payable and other secured financing was current at June 30, 2018.

 

 

 

 

 

Number

 

 

 

 

 

Economic Occupancy (2)

 

 

 

 

 

of Units at

June 30,

 

 

Physical Occupancy (1) at

June 30,

 

 

For the Six Months Ended June 30,

 

Property Name

 

State

 

2018

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

MF Properties-Stabilized (3)

 

Suites on Paseo

 

CA

 

 

393

 

 

 

87

%

 

 

88

%

 

 

90

%

 

 

97

%

Jade Park

 

FL

 

 

144

 

 

 

94

%

 

 

81

%

 

 

92

%

 

 

75

%

Eagle Village (4)

 

IN

 

n/a

 

 

n/a

 

 

 

77

%

 

n/a

 

 

 

82

%

The 50/50

 

NE

 

 

475

 

 

 

94

%

 

 

72

%

 

 

81

%

 

 

72

%

Residences of DeCordova (4)

 

TX

 

n/a

 

 

n/a

 

 

 

99

%

 

n/a

 

 

 

93

%

Residences of Weatherford (4)

 

TX

 

n/a

 

 

n/a

 

 

 

100

%

 

n/a

 

 

 

97

%

 

 

 

 

 

1,012

 

 

 

92

%

 

 

81

%

 

 

87

%

 

 

85

%

 

(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)

The property was sold during the fourth quarter of 2017, so unit and occupancy amounts are not applicable as of and for the quarter ended June 30, 2018.

 

The overall increase in physical and economic occupancy for 2018 as compared to 2017 is due to improvements at Jade Park and The 50/50. The increase at Jade Park is due to lease-up efforts after completion of rehabilitation projects during late 2017. The increase at The 50/50 is due to marketing and pricing changes implemented by the Partnership and Properties Management for fall 2017 lease-up. These increases are somewhat offset by the sales of Residences at DeCordova and Residences of Weatherford in the fourth quarter of 2017 which had higher than average physical and economic occupancy.

Results of Operations

 

The tables and following discussions of the Partnership’s change in total revenues, other income and total expenses for the three and six months ended June 30, 2018 and 2017 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, 2017.

 

The table below compares revenues 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 June 30,

 

 

For the Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

$ Change

 

 

% Change

 

 

2018

 

 

2017

 

 

$ Change

 

 

% Change

 

Revenues and Other Income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property revenues

 

$

2,403

 

 

$

3,306

 

 

$

(903

)

 

 

-27.3

%

 

$

4,740

 

 

$

7,037

 

 

$

(2,297

)

 

 

-32.6

%

Investment income

 

 

12,249

 

 

 

12,174

 

 

 

75

 

 

 

0.6

%

 

 

25,627

 

 

 

23,644

 

 

 

1,983

 

 

 

8.4

%

Contingent interest income

 

 

-

 

 

 

87

 

 

 

(87

)

 

N/A

 

 

 

-

 

 

 

219

 

 

 

(219

)

 

N/A

 

Other interest income

 

 

1,059

 

 

 

667

 

 

 

392

 

 

 

58.8

%

 

 

1,802

 

 

 

1,312

 

 

 

490

 

 

 

37.3

%

Other income

 

 

74

 

 

 

-

 

 

 

74

 

 

 

100.0

%

 

 

74

 

 

 

62

 

 

 

12

 

 

 

19.4

%

Gain (loss) on sale of real

   estate assets, net

 

 

-

 

 

 

(16

)

 

 

16

 

 

N/A

 

 

 

-

 

 

 

7,153

 

 

 

(7,153

)

 

N/A

 

Total Revenues and Other

   Income

 

$

15,785

 

 

$

16,218

 

 

$

(433

)

 

 

-2.7

%

 

$

32,243

 

 

$

39,427

 

 

$

(7,184

)

 

 

-18.2

%

 

42


 

Discussion of the Total Revenues and Other Income for the Three Months Ended June 30, 2018 and 2017

 

Property revenues.  The decrease in property revenues for the three months ended June 30, 2018 as compared to the same period in 2017 is due to a decrease of approximately $1.1 million in total from the sale of Northern View in March 2017 and the sales of Residences of Weatherford, Residences of DeCordova and Eagle Village in November 2017. This is offset by an increase of approximately $104,000 from increased occupancy at The 50/50 (see the discussion of occupancy previously provided in this section).

 

Investment income.   Investment income includes interest earned on MRBs, PHC Certificates and other equity investments.  The increase in investment income for the three months ended June 30, 2018 as compared to the same period in 2017 is due to the following factors:

 

An increase of approximately $1.0 million in recurring investment income from approximately $121.3 million of MRBs purchased during 2017; and

 

A decrease of approximately $941,000 in recurring investment income due to MRB principal payments received and redemptions during 2017 and 2018 totaling approximately $53.0 million and $23.3 million, respectively.

 

Contingent interest income. There was no contingent interest income received for the three months ended June 30, 2018. For the three months ended June 30, 2017, contingent interest income was received from available excess cash at Lake Forest.

 

Other interest income. Other interest income is comprised primarily of interest income on property loans, taxable MRBs and cash equivalents. The increase in other interest income for the three months ended June 30, 2018 as compared to the same period in 2017 was primarily due to an increase of approximately $394,000 of additional interest income recognized in the second quarter of 2018.

 

Gain (loss) on sale of real estate assets.  There was no gain (loss) on sale reported for the three months ended June 30, 2018. The net loss reported for the three months ended June 30, 2017, is primarily from the sale of land in St. Petersburg, FL in May 2017.

 

Discussion of the Total Revenues and Other Income for the Six Months Ended June 30, 2018 and 2017

 

Property revenues.  The decrease in property revenues for the six months ended June 30, 2018 as compared to the same period in 2017 is due to a decrease of approximately $2.5 million in total from the sale of Northern View in March 2017 and the sales of Residences of Weatherford, Residences of DeCordova and Eagle Village in November 2017. This is offset by an increase of approximately $196,000 from increased occupancy at The 50/50 (see the discussion of occupancy previously provided in this section).

 

Investment income.   Investment income includes interest earned on MRBs, PHC Certificates and other equity investments.  The increase in investment income for the six months ended June 30, 2018 as compared to the same period in 2017 is due to the following factors:

 

An increase of approximately $2.5 million in recurring investment income from MRBs purchased during 2017 and 2018 totaling approximately $121.3 million and $19.5 million, respectively;

 

An increase of approximately $889,000 of income on additional equity contributions to unconsolidated entities made during 2017 and 2018 totaling approximately $14.1 million and $16.5 million, respectively;

 

An increase of approximately $370,000 of additional interest income recognized in 2018; and

 

A decrease of approximately $1.8 million in recurring investment income due to MRB principal payments received and redemptions during 2017 and 2018 totaling approximately $53.0 million and $23.3 million, respectively.

 

Contingent interest income. There was no contingent interest income received for the six months ended June 30, 2018. For the six months ended June 30, 2017, contingent interest income was received from available excess cash at Lake Forest.

 

Other interest income. Other interest income is comprised primarily of interest income on property loans, taxable MRBs and cash equivalents. The increase in other interest income for the six months ended June 30, 2018 as compared to the same period in 2017 was primarily due to an increase of approximately $180,000 in interest income from short-term investments and an increase of approximately $394,000 of additional interest income recognized in 2018.

43


 

Gain (loss) on sale of real estate assets.  There was no gain (loss) on sale reported for the six months ended June 30, 2018. The gain reported for the six months ended June 30, 2017, relates primarily to the sale of Northern View in March 2017.

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

Change in Total Expenses (in 000’s)

 

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

$ Change

 

 

% Change

 

 

2018

 

 

2017

 

 

$ Change

 

 

% Change

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate operating

   (exclusive of items shown

   below)

 

$

1,290

 

 

$

1,621

 

 

$

(331

)

 

 

-20.4

%

 

$

2,687

 

 

$

4,105

 

 

$

(1,418

)

 

 

-34.5

%

Impairment of securities

 

 

831

 

 

 

-

 

 

 

831

 

 

 

100.0

%

 

 

831

 

 

 

-

 

 

 

831

 

 

 

100.0

%

Depreciation and amortization

 

 

922

 

 

 

1,271

 

 

 

(349

)

 

 

-27.5

%

 

 

1,828

 

 

 

2,863

 

 

 

(1,035

)

 

 

-36.2

%

Amortization of deferred

   financing costs

 

 

431

 

 

 

563

 

 

 

(132

)

 

 

-23.4

%

 

 

895

 

 

 

1,303

 

 

 

(408

)

 

 

-31.3

%

Interest expense

 

 

5,919

 

 

 

5,841

 

 

 

78

 

 

 

1.3

%

 

 

10,801

 

 

 

11,284

 

 

 

(483

)

 

 

-4.3

%

General and administrative

 

 

3,041

 

 

 

2,876

 

 

 

165

 

 

 

5.7

%

 

 

5,853

 

 

 

6,007

 

 

 

(154

)

 

 

-2.6

%

Total Expenses

 

$

12,434

 

 

$

12,172

 

 

$

262

 

 

 

2.2

%

 

$

22,895

 

 

$

25,562

 

 

$

(2,667

)

 

 

-10.4

%

 

Discussion of the Total Expenses for the Three Months Ended June 30, 2018 and 2017

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 June 30, 2018 as compared to the same period in 2017 is due to the following factors:

 

A decrease of approximately $556,000 related to the sales of Northern View in March 2017 and the sales of Residences of Weatherford, Residences of DeCordova and Eagle Village in November 2017; and

 

An increase of approximately $237,000 related to general expense increases and expense timing at the Suites on Paseo.

 

Impairment of securities.  The impairment of securities for three months ended June 30, 2018 relates to the PHC Certificates. There were no such impairment charges in the same period in 2017.

 

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 June 30, 2018 as compared to the same period in 2017 is due to a decrease of approximately $372,000 in depreciation related to the sales of Northern View in March 2017 and the sales of Residences of Weatherford, Residences of DeCordova and Eagle Village in November 2017.

 

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 decrease in amortization of deferred financing costs for the three months ended June 30, 2018 as compared to the same period in 2017 is attributable to a decrease of approximately $115,000 in amortization related to the TEBS I debt financing. All deferred financing costs related to TEBS I were amortized over the original term and prior to extension of the facility in September 2017.

 

Interest expense. The increase in interest expense for the three months ended June 30, 2018 as compared to the same period in 2017 is attributable to the following factors:

 

An increase of approximately $557,000 due to an increase of approximately 33 basis points in the average interest rate;

 

A decrease of approximately $180,000 due to a decrease of approximately $17.4 million in average principal outstanding; and

 

A decrease of approximately $300,000 related to fair value adjustments for interest rate derivatives and swaps.

 

44


 

General and administrative expenses.  The increase in general and administrative expenses for the three months ended June 30, 2018 as compared to the same period in 2017 is due to an increase of approximately $200,000 in salaries and benefits.

 

Discussion of the Total Expenses for the Six Months Ended June 30, 2018 and 2017

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 six months ended June 30, 2018 as compared to the same period in 2017 is due to the following factors

 

A decrease of approximately $1.3 million related to the sales of Northern View in March 2017 and the sales of Residences of Weatherford, Residences of DeCordova and Eagle Village in November 2017; and

 

 

A decrease of approximately $113,000 related to rehabilitation costs incurred at Jade Park in 2017 that did not recur in 2018.

 

Impairment of securities.  The impairment of securities for six months ended June 30, 2018 relates to the PHC Certificates. There were no such impairment charges in the same period in 2017.

 

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 six months ended June 30, 2018 as compared to the same period in 2017 is due to the following factors:

 

A decrease of approximately $838,000 in depreciation related to the sales of Northern View in March 2017 and the sales of Residences of Weatherford, Residences of DeCordova and Eagle Village in November 2017; and

 

A decrease of approximately $232,000 in in-place lease amortization at Jade Park in the first quarter of 2017 that did not occur in 2018.

 

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 decrease in amortization of deferred financing costs for the six months ended June 30, 2018 as compared to the same period in 2017 is attributable to the following factors:

 

A decrease of approximately $203,000 in amortization related to a secured line of credit that matured in March 2017 and was not renewed; and

 

A decrease of approximately $231,000 in amortization related to the TEBS I debt financing. All deferred financing costs related to TEBS I were amortized over the original term and prior to extension of the facility in September 2017.

 

Interest expense. The decrease in interest expense for the six months ended June 30, 2018 as compared to the same period in 2017 is attributable to the following factors:

 

An increase of approximately $923,000 due to an increase of approximately 27 basis points in the average interest rate; and

 

A decrease of approximately $1.5 million related to fair value adjustments for interest rate derivatives and swaps.

General and administrative expenses.  The decrease in general and administrative expenses for the six months ended June 30, 2018 as compared to the same period in 2017 is due to a net decrease of approximately $142,000 in salaries, benefits and stock compensation costs.

Discussion of the Income Tax Expense for the Three and Six Months Ended June 30, 2018 and 2017

 

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 the Northern View MF Property in March 2017 and normal operating income of the remaining MF Properties are subject to federal and state income taxes and the Partnership recorded income tax expense of approximately $2.4 million for the six months ended June 30, 2017. The Greens Hold Co generated minimal taxable income for the three months ended June 30, 2018 and 2017 and for the six months ended June 30, 2018.

 

45


 

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 depreciation expense, amortization expense related to deferred financing costs, amortization of premiums and discounts, non-cash interest rate derivative expense or income, provision for loan losses, impairments on MRBs, PHC Certificates, real estate assets and property loans, deferred income taxes and Restricted Units compensation expense, to the Partnership’s net income (loss) as computed in accordance with GAAP. The Partnership also deducts Tier 2 income (see Note 3 to the Partnership’s consolidated financial statements) attributable to the Partnership as defined in the Amended and Restated LP Agreement and Redeemable Series A Preferred Unit distributions and accretion.  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.

 

The table below shows the calculation of CAD (and a reconciliation of the Partnership’s GAAP net income to CAD) for the three and six months ended June 30, 2018 and 2017:

 

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Partnership net income

 

$

3,338,121

 

 

$

4,109,400

 

 

$

9,342,425

 

 

$

11,398,262

 

Change in fair value of derivatives and interest rate

   derivative amortization

 

 

(6,386

)

 

 

181,420

 

 

 

(996,381

)

 

 

302,769

 

Depreciation and amortization expense

 

 

921,816

 

 

 

1,270,379

 

 

 

1,828,131

 

 

 

2,863,205

 

Impairment of securities

 

 

831,062

 

 

 

-

 

 

 

831,062

 

 

 

-

 

Amortization of deferred financing costs

 

 

430,687

 

 

 

562,585

 

 

 

895,459

 

 

 

1,302,823

 

Restricted units compensation

   expense

 

 

543,521

 

 

 

438,893

 

 

 

750,157

 

 

 

609,733

 

Deferred income taxes

 

 

-

 

 

 

(201,000

)

 

 

34,000

 

 

 

(365,000

)

Redeemable Series A Preferred Unit distribution and

   accretion

 

 

(717,762

)

 

 

(432,550

)

 

 

(1,435,525

)

 

 

(757,192

)

Tier 2 Income distributable to the General Partner (1)

 

 

-

 

 

 

(16,224

)

 

 

-

 

 

 

(1,120,625

)

Bond purchase premium (discount) amortization

   (accretion), net of cash received

 

 

(3,808

)

 

 

(26,741

)

 

 

(7,906

)

 

 

(50,248

)

Total CAD

 

$

5,337,251

 

 

$

5,886,162

 

 

$

11,241,422

 

 

$

14,183,727

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of Units outstanding, basic

 

 

59,937,300

 

 

 

59,862,969

 

 

 

60,030,817

 

 

 

59,950,328

 

Net income per Unit, basic

 

$

0.04

 

 

$

0.06

 

 

$

0.13

 

 

$

0.16

 

Total CAD per Unit, basic

 

$

0.09

 

 

$

0.10

 

 

$

0.19

 

 

$

0.24

 

Distributions per Unit

 

$

0.125

 

 

$

0.125

 

 

$

0.250

 

 

$

0.250

 

 

(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 June 30, 2018, the Partnership did not report any Tier 2 income distributable to the General Partner. For the three months ended June 30, 2017, the Partnership reported $87,000 from contingent interest received from Lake Forest, offset by a loss of approximately $22,000 on the sale of land in St. Petersburg, FL. For the six months ended June 30, 2018, the Partnership did not report any Tier 2 income distributable to the General Partner. For the six months ended June 30, 2017, the Partnership reported approximately $4.3 million of Tier 2 income from the gain on the sale of Northern View and approximately $219,000 from contingent interest received from Lake Forest, offset by a loss of approximately $22,000 on the sale of land in St. Petersburg, FL.

 

There was no non-recurring CAD per Unit earned by the Partnership for the three and six months ended June 30, 2018 and 2017.

 

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;

46


 

 

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.

Interest income is primarily comprised of fixed rate base interest payments received on our MRBs and PHC Certificates that provide consistent cash receipts throughout the year.  Certain MRBs may also generate payments of contingent interest to us from time to time when the underlying Residential Properties generate excess net cash flow from operations, excess proceeds from refinancing or from the sale of the property. For additional details, see the Partnership’s condensed consolidated statements 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 where the 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 MF 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, 2017.

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.

The Partnership had borrowed the following amounts at June 30, 2018:

 

Unsecured lines of credit - $49.5 million;

 

Debt financing, net - $542.2 million; and

 

Mortgages payable and other secured financing, net - $35.2 million.

In December 2017, the Partnership initiated an “at the market offering” to sell up to $75.0 million of BUCs at prevailing market prices on the date of sale. The Partnership sold 38,617 BUCs under the program for net proceeds of approximately $192,000, net of issuance costs, during the six months ended June 30, 2018. The “at the market offering” was terminated effective as of March 16, 2018 and there were no BUCs sold during the three months ended June 30, 2018.  

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 Partnership expenses. For additional details, see the Partnership’s condensed consolidated statement of cash flows in this Form 10-Q.

47


 

 

(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 three and six months ended June 30, 2018. In addition, we have fulfilled this requirement for the third quarter of 2018. Our $50.0 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. In July 2017, the term of the two unsecured lines of credit was extended by one year to June 2020.

 

(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 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 during the next twelve months 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, are paid at a fixed rate of 3.0% annually.  The Series A Preferred Units are non-cumulative, non-voting, and non-convertible.  

Distributions to the BUC holders may increase or decrease at the determination of the General Partner.  The per Unit cash available for distribution primarily depends 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 75% leverage constraint, as established by the Board of Managers (the “Board”) of Burlington, which is the general partner of the Partnership’s general partner. 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. Our overall leverage ratio was approximately 64% at June 30, 2018.  

Cash Flows

 

During the six months ended June 30, 2018, we used $43.8 million of cash, which was the net result of $7.9 million provided by operating activities, $15.0 million used in investing activities, and $36.7 million used in financing activities.

 

Cash provided by operating activities totaled $7.9 million for the six months ended June 30, 2018, which is consistent with cash provided by operating activities of $8.2 million for the six months ended June 30, 2017.

 

48


 

Cash used in investing activities totaled $15.0 million for the six months ended June 30, 2018, as compared to cash used in investing activities of $50.5 million for the six months ended June 30, 2017. The decrease in cash used is due primarily to approximately $40.0 million less cash used to acquire MRBs and an increase in MRB principal payments received of $21.3 million. These were offset by an increase in contributions to unconsolidated entities of $8.5 million and a decrease of $16.8 million of proceeds from the sale of real estate assets.  

 

Cash used in financing activities totaled $36.7 million for the six months ended June 30, 2018, as compared to cash provided by financing activities of $36.8 million for the six months ended June 30, 2017. The decrease is due to various factors. Net proceeds from debt financing and lines of credit activity was $42.3 million during 2017, as compared to a net repayment of $17.4 million during 2018. Furthermore, the Partnership received $16.1 million from issuances of Series A Preferred Units in 2017 whereas the Partnership has not issued any Series A Preferred Units in 2018.      

 

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, 2017, 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, payments on the MF Property mortgages payable and other secured financing, payments related to operating leases, and bond purchase commitments.

 

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, 2017, which is incorporated by reference herein, have only changed pursuant to the executed contracts during the six months ended June 30, 2018 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 2017 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. 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 PHC 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. 

49


 

The table below summarizes the sensitivity analysis metrics related to the investments in the MRBs and PHC Certificates at June 30, 2018:

 

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

 

$

767,629

 

 

 

3.2

%

-  8.5%

 

 

3.5

%

-    9.4%

 

$

24,160

 

PHC Certificates

 

 

49,071

 

 

 

5.2

%

-  5.9%

 

 

5.7

%

-    6.5%

 

 

1,541

 

 

 

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.  The table below summarizes the geographic concentrations in these states as a percentage of the total MRB principal outstanding:

 

 

 

June 30, 2018

 

 

December 31, 2017

 

Texas

 

 

46

%

 

 

44

%

California

 

 

18

%

 

 

20

%

South Carolina

 

 

16

%

 

 

16

%

 

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

The total costs of borrowing by investment type at June 30, 2018 were as follows:

 

The unsecured LOCs range between 5.0% and 5.3%;

 

The M24, M31, and M33 TEBS facilities range between 2.9% and 3.4%;

 

The Term TOB Trusts securitized by MRBs range between 4.0% and 4.4%;

 

The Term A/B Trusts securitized by MRBs range between 3.6% and 4.5%;

 

The TOB Trusts securitized by PHC Certificates range between 3.7% and 3.8%; and

 

The mortgages payable and other secured financings range between 3.9% and 4.8%.

 

We enter into interest rate cap agreements to mitigate our exposure to interest rate fluctuations on the variable rate financing facilities. The following table sets forth certain information regarding the Partnership’s interest rate cap agreements at June 30, 2018:

 

Purchase Date

 

Notional

Amount

 

 

Maturity Date

 

Effective

Capped

Rate (1)

 

 

Index

 

Variable Debt

Financing Facility

Hedged (1)

 

Counterparty

 

Fair Value as of June 30, 2018

 

July 2014

 

$

30,462,845

 

 

Aug 2019

 

 

3.0

%

 

SIFMA

 

M31 TEBS

 

Barclays Bank PLC

 

$

30

 

July 2014

 

 

30,462,845

 

 

Aug 2019

 

 

3.0

%

 

SIFMA

 

M31 TEBS

 

Royal Bank of Canada

 

 

30

 

July 2014

 

 

30,462,845

 

 

Aug 2019

 

 

3.0

%

 

SIFMA

 

M31 TEBS

 

SMBC Capital Markets, Inc

 

 

30

 

July 2015

 

 

27,515,500

 

 

Aug 2020

 

 

3.0

%

 

SIFMA

 

M33 TEBS

 

Wells Fargo Bank

 

 

6,004

 

July 2015

 

 

27,515,500

 

 

Aug 2020

 

 

3.0

%

 

SIFMA

 

M33 TEBS

 

Royal Bank of Canada

 

 

6,004

 

July 2015

 

 

27,515,500

 

 

Aug 2020

 

 

3.0

%

 

SIFMA

 

M33 TEBS

 

SMBC Capital Markets, Inc

 

 

6,004

 

June 2017

 

 

91,388,535

 

 

Aug 2019

 

 

1.5

%

 

SIFMA

 

M31 TEBS

 

Barclays Bank PLC

 

 

252,431

 

June 2017

 

 

82,546,501

 

 

Aug 2020

 

 

1.5

%

 

SIFMA

 

M33 TEBS

 

Barclays Bank PLC

 

 

755,358

 

Sept 2017

 

 

59,530,000

 

 

Sept 2020

 

 

4.0

%

 

SIFMA

 

M24 TEBS

 

Barclays Bank PLC

 

 

1,085

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

1,026,976

 

 

(1)

For additional details, see Note 21 to the Partnership's condensed consolidated financial statements.

50


 

The Partnership has contracted for two interest rate swaps with DB. On a quarterly basis, the Partnership reassesses its interest rate swap positions. The Partnership has 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 June 30, 2018:

 

Purchase Date

 

Notional

Amount

 

 

Effective

Date

 

Termination Date

 

Fixed Rate

Paid

 

 

Period End

Variable

Rate

Received

 

 

Variable Rate &

Index

 

Counterparty

 

June 30, 2018 - Fair Value of Liability

 

Sept 2014

 

$

22,741,097

 

 

Oct 2016

 

Oct 2021

 

 

1.96

%

 

 

1.46

%

 

70% 30-day LIBOR

 

Deutsche Bank

 

$

(36,986

)

Sept 2014

 

 

17,993,528

 

 

April 2017

 

April 2022

 

 

2.06

%

 

 

1.46

%

 

70% 30-day LIBOR

 

Deutsche Bank

 

 

(92,032

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(129,018

)

 

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

 

$

(1,699

)

 

$

(602

)

 

$

(9,691

)

 

$

(10,922

)

 

$

(11,749

)

TEBS Debt Financings

 

 

101,599

 

 

 

(99,065

)

 

 

(174,379

)

 

 

(279,330

)

 

 

(387,764

)

Other Investment Financings

 

 

79,470

 

 

 

(160,196

)

 

 

(324,081

)

 

 

(484,548

)

 

 

(644,245

)

Total

 

$

179,370

 

 

$

(259,863

)

 

$

(508,151

)

 

$

(774,800

)

 

$

(1,043,758

)

 

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 June 30, 2018, 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.

 

 

51


 

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 2017 Annual Report on Form 10‑K, which is incorporated by reference herein. There have been no material changes from these previously disclosed risk factors for the three and six months ended June 30, 2018.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On March 2, 2018, the Partnership announced that the Board of Managers of Burlington, which is the general partner of the Partnership’s General Partner, authorized a unit repurchase program for up to 268,575 of the Partnership’s outstanding BUCs.  Under the terms of the repurchase program, BUCs may be repurchased from time to time at the Partnership’s discretion on the open market, through block trades, or otherwise, subject to market conditions, applicable legal requirements, and other considerations.  The program does not have a stated expiration date and will continue until all the BUCs authorized under the program have been repurchased, or the program is otherwise modified or terminated by the Board in its sole discretion.  The Partnership repurchased 268,575 BUCs under the program for approximately $1.7 million during the six months ended June 30, 2018.

Information on the BUCs repurchased under the program during the three months ended June 30, 2018 is as follows:

 

Period

 

Total number of shares

(or units) purchased

 

 

Average price paid per

share (or unit)

 

 

Total number of shares

(or units) purchased as

part of publicly

announced plans or

programs

 

 

Maximum number (or

approximate dollar

value) of shares (or

units) that may yet be

purchased under the

plans or program

 

April 1 - April 30, 2018

 

 

-

 

 

$

-

 

 

 

-

 

 

 

70,110

 

May 1 - May 31, 2018

 

 

70,110

 

 

 

6.29

 

 

 

70,110

 

 

 

-

 

June 1 - June 30, 2018

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

70,110

 

 

$

-

 

 

 

70,110

 

 

 

 

 

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:

 

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 June 30, 2018 are filed herewith, formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets on June 30, 2018 and December 31, 2017, (ii) the Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2018 and 2017, (iii) the Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2018 and 2017, (iv) the Condensed Consolidated Statements of Partners’ Capital for the six months ended June 30, 2018 and 2017, (v) the Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2018 and 2017, and (vi) Notes to Condensed Consolidated Financial Statements. Such materials are presented with detailed tagging of notes and financial statement schedules.

 

52


 

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: August 6, 2018

 

By:

 

/s/ Chad L. Daffer

 

 

 

 

Chad L. Daffer

 

 

 

 

Chief Executive Officer

 

Date: August 6, 2018

 

By:

 

/s/ Craig S. Allen

 

 

 

 

Craig S. Allen

 

 

 

 

Chief Financial Officer

 

 

53