10-Q 1 atax-10q_20190630.htm 6-30-19 FORM 0-Q atax-10q_20190630.htm

 

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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, 2019

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)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Beneficial Unit Certificates representing assignments of limited partnership interests in America First Multifamily Investors, L.P.

ATAX

The NASDAQ Stock Market, LLC

 

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit 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

 

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 

As of June 30, 2019, the registrant had 60,426,177 Beneficial Unit Certificates representing assignments of limited partnership interests in America First Multifamily Investors, L.P. outstanding.

 

 


 

INDEX

PART I – FINANCIAL INFORMATION

 

 

 

 


 

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 and student residential properties 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;

 

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 (“HUD”) Capital Fund Program;

 

geographic concentration within 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 year ended December 31, 2018.

All references to “we,” “us,” “our” and the “Partnership” in this document mean America First Multifamily Investors, L.P. (“ATAX”), its wholly-owned subsidiaries and its consolidated variable interest entities.

 

 

 

 


 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

AMERICA FIRST MULTIFAMILY INVESTORS, L.P.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

 

 

June 30, 2019

 

 

December 31, 2018

 

Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

13,821,980

 

 

$

32,001,925

 

Restricted cash

 

 

1,324,599

 

 

 

1,266,686

 

Interest receivable, net

 

 

7,219,825

 

 

 

7,011,839

 

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

 

 

700,955,326

 

 

 

645,258,873

 

Mortgage revenue bonds, at fair value (Note 6)

 

 

58,571,381

 

 

 

86,894,562

 

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

 

 

46,516,154

 

 

 

48,672,086

 

Real estate assets: (Note 8)

 

 

 

 

 

 

 

 

Land and improvements

 

 

4,971,665

 

 

 

4,971,665

 

Buildings and improvements

 

 

71,952,872

 

 

 

71,897,070

 

Real estate assets before accumulated depreciation

 

 

76,924,537

 

 

 

76,868,735

 

Accumulated depreciation

 

 

(13,906,894

)

 

 

(12,272,387

)

Net real estate assets

 

 

63,017,643

 

 

 

64,596,348

 

Investments in unconsolidated entities (Note 9)

 

 

96,825,273

 

 

 

76,534,306

 

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

 

 

7,593,377

 

 

 

15,961,012

 

Other assets (Note 12)

 

 

4,834,247

 

 

 

4,515,609

 

Total Assets

 

$

1,000,679,805

 

 

$

982,713,246

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Accounts payable, accrued expenses and other liabilities (Note 13)

 

$

8,226,042

 

 

$

7,543,822

 

Distribution payable

 

 

7,663,064

 

 

 

7,576,167

 

Unsecured lines of credit (Note 14)

 

 

23,200,000

 

 

 

35,659,200

 

Debt financing, net (Note 15)

 

 

519,348,651

 

 

 

505,663,565

 

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

 

 

27,127,554

 

 

 

27,454,375

 

Total Liabilities

 

 

585,565,311

 

 

 

583,897,129

 

 

 

 

 

 

 

 

 

 

Commitments and Contingencies (Note 18)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable Series A Preferred Units, approximately $94.5 million redemption value, 9.5 million

   issued and outstanding, net (Note 19)

 

 

94,368,401

 

 

 

94,350,376

 

 

 

 

 

 

 

 

 

 

Partnersʼ Capital:

 

 

 

 

 

 

 

 

General Partner (Note 1)

 

 

507,393

 

 

 

344,590

 

Beneficial Unit Certificates ("BUCs," Note 1)

 

 

320,238,700

 

 

 

304,121,151

 

Total Partnersʼ Capital

 

 

320,746,093

 

 

 

304,465,741

 

Total Liabilities and Partnersʼ Capital

 

$

1,000,679,805

 

 

$

982,713,246

 

 

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,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property revenues

 

$

2,034,796

 

 

$

2,403,142

 

 

$

4,028,425

 

 

$

4,739,654

 

Investment income

 

 

12,074,669

 

 

 

12,249,035

 

 

 

24,482,545

 

 

 

25,627,521

 

Contingent interest income

 

 

30,000

 

 

 

-

 

 

 

3,042,102

 

 

 

-

 

Other interest income

 

 

206,869

 

 

 

1,058,688

 

 

 

429,107

 

 

 

1,801,724

 

Other income

 

 

-

 

 

 

74,300

 

 

 

28,753

 

 

 

74,300

 

Total revenues

 

 

14,346,334

 

 

 

15,785,165

 

 

 

32,010,932

 

 

 

32,243,199

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate operating (exclusive of items shown below)

 

 

919,256

 

 

 

1,290,487

 

 

 

2,096,074

 

 

 

2,685,980

 

Impairment of securities

 

 

-

 

 

 

831,062

 

 

 

-

 

 

 

831,062

 

Depreciation and amortization

 

 

819,804

 

 

 

921,816

 

 

 

1,640,612

 

 

 

1,828,131

 

Interest expense (Note 2)

 

 

6,206,935

 

 

 

6,349,554

 

 

 

12,601,855

 

 

 

11,696,631

 

General and administrative

 

 

2,496,798

 

 

 

3,041,125

 

 

 

5,275,389

 

 

 

5,852,970

 

Total expenses

 

 

10,442,793

 

 

 

12,434,044

 

 

 

21,613,930

 

 

 

22,894,774

 

Income before income taxes

 

 

3,903,541

 

 

 

3,351,121

 

 

 

10,397,002

 

 

 

9,348,425

 

Income tax expense

 

 

17,351

 

 

 

13,000

 

 

 

58,999

 

 

 

6,000

 

Net income

 

 

3,886,190

 

 

 

3,338,121

 

 

 

10,338,003

 

 

 

9,342,425

 

Redeemable Series A Preferred Unit distributions and accretion

 

 

(717,763

)

 

 

(717,762

)

 

 

(1,435,526

)

 

 

(1,435,525

)

Net income available to Partners

 

$

3,168,427

 

 

$

2,620,359

 

 

$

8,902,477

 

 

$

7,906,900

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income available to Partners allocated to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General Partner

 

$

31,684

 

 

$

26,204

 

 

$

811,929

 

 

$

79,069

 

Limited Partners - BUCs

 

 

3,103,581

 

 

 

2,530,332

 

 

 

8,024,225

 

 

 

7,729,733

 

Limited Partners - Restricted units

 

 

33,162

 

 

 

63,823

 

 

 

66,323

 

 

 

98,098

 

 

 

$

3,168,427

 

 

$

2,620,359

 

 

$

8,902,477

 

 

$

7,906,900

 

BUC holders' interest in net income per BUC, basic and diluted

 

$

0.05

 

 

$

0.04

 

 

$

0.13

 

 

$

0.13

 

Weighted average number of BUCs outstanding, basic

 

 

60,426,177

 

 

 

59,937,300

 

 

 

60,426,177

 

 

 

60,030,817

 

Weighted average number of BUCs outstanding, diluted

 

 

60,426,177

 

 

 

59,937,300

 

 

 

60,426,177

 

 

 

60,030,817

 

 

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,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net income

 

$

3,886,190

 

 

$

3,338,121

 

 

$

10,338,003

 

 

$

9,342,425

 

Reversal of net unrealized losses on securities with

   other-than-temporary impairment

 

 

-

 

 

 

981,792

 

 

 

-

 

 

 

525,446

 

Unrealized gain (loss) on securities

 

 

14,920,081

 

 

 

4,065,221

 

 

 

23,064,008

 

 

 

(17,353,309

)

Unrealized loss on bond purchase commitments

 

 

-

 

 

 

(1,032,788

)

 

 

-

 

 

 

(2,007,855

)

Comprehensive income (loss)

 

 

18,806,271

 

 

 

7,352,346

 

 

 

33,402,011

 

 

 

(9,493,293

)

 

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

(UNAUDITED)

 

 

 

General Partner

 

 

# of BUCs -

Restricted and

Unrestricted

 

 

BUCs

- Restricted and

Unrestricted

 

 

Total

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

Balance as of December 31, 2018

 

$

344,590

 

 

 

60,691,467

 

 

$

304,121,151

 

 

$

304,465,741

 

 

$

58,978,042

 

Cumulative effect of accounting change (Note 2)

 

 

(2

)

 

 

-

 

 

 

(210

)

 

 

(212

)

 

 

-

 

Distributions paid or accrued ($0.125 per BUC):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Regular distribution

 

 

(53,812

)

 

 

-

 

 

 

(5,327,357

)

 

 

(5,381,169

)

 

 

-

 

Distribution of Tier 2 income (Note 3)

 

 

(753,025

)

 

 

-

 

 

 

(2,259,077

)

 

 

(3,012,102

)

 

 

-

 

Net income allocable to Partners

 

 

780,245

 

 

 

-

 

 

 

4,953,805

 

 

 

5,734,050

 

 

 

-

 

Restricted unit compensation expense

 

 

1,842

 

 

 

-

 

 

 

182,342

 

 

 

184,184

 

 

 

-

 

Unrealized gain on securities

 

 

81,439

 

 

 

-

 

 

 

8,062,488

 

 

 

8,143,927

 

 

 

8,143,927

 

Balance as of March 31, 2019

 

 

401,277

 

 

 

60,691,467

 

 

 

309,733,142

 

 

 

310,134,419

 

 

 

67,121,969

 

Distributions paid or accrued ($0.125 per BUC):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Regular distribution

 

 

(76,631

)

 

 

-

 

 

 

(7,586,433

)

 

 

(7,663,064

)

 

 

-

 

Net income allocable to Partners

 

 

31,684

 

 

 

-

 

 

 

3,136,743

 

 

 

3,168,427

 

 

 

-

 

Restricted unit compensation expense

 

 

1,862

 

 

 

-

 

 

 

184,368

 

 

 

186,230

 

 

 

-

 

Unrealized gain on securities

 

 

149,201

 

 

 

-

 

 

 

14,770,880

 

 

 

14,920,081

 

 

 

14,920,081

 

Balance as of June 30, 2019

 

$

507,393

 

 

 

60,691,467

 

 

$

320,238,700

 

 

$

320,746,093

 

 

$

82,042,050

 

 

 

 

General Partner

 

 

# of BUCs -

Restricted and

Unrestricted

 

 

BUCs

- Restricted and

Unrestricted

 

 

Total

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

Balance as of December 31, 2017

 

$

437,256

 

 

 

60,373,674

 

 

$

313,403,014

 

 

$

313,840,270

 

 

$

75,623,830

 

Cumulative effect of accounting change

 

 

(2,169

)

 

 

-

 

 

 

(214,779

)

 

 

(216,948

)

 

 

-

 

Distributions paid or accrued ($0.125 per BUC):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Regular distribution

 

 

(76,329

)

 

 

-

 

 

 

(7,556,616

)

 

 

(7,632,945

)

 

 

-

 

Net income allocable to Partners

 

 

52,865

 

 

 

-

 

 

 

5,233,676

 

 

 

5,286,541

 

 

 

-

 

Sale of BUCs, net of issuance costs

 

 

-

 

 

 

38,617

 

 

 

192,310

 

 

 

192,310

 

 

 

-

 

Repurchase of BUCs

 

 

-

 

 

 

(198,465

)

 

 

(1,256,654

)

 

 

(1,256,654

)

 

 

-

 

Restricted units awarded

 

 

-

 

 

 

239,102

 

 

 

-

 

 

 

-

 

 

 

-

 

Restricted units compensation expense

 

 

2,066

 

 

 

-

 

 

 

204,570

 

 

 

206,636

 

 

 

-

 

Unrealized loss on securities

 

 

(218,749

)

 

 

-

 

 

 

(21,656,127

)

 

 

(21,874,876

)

 

 

(21,874,876

)

Unrealized loss on bond purchase commitments

 

 

(9,751

)

 

 

-

 

 

 

(965,316

)

 

 

(975,067

)

 

 

(975,067

)

Balance as of March 31, 2018

 

 

185,189

 

 

 

60,452,928

 

 

 

287,384,078

 

 

 

287,569,267

 

 

 

52,773,887

 

Distributions paid or accrued ($0.125 per BUC):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Regular distribution

 

 

(76,330

)

 

 

-

 

 

 

(7,556,616

)

 

 

(7,632,946

)

 

 

-

 

Net income allocable to Partners

 

 

26,204

 

 

 

-

 

 

 

2,594,155

 

 

 

2,620,359

 

 

 

-

 

Repurchase of BUCs

 

 

-

 

 

 

(70,110

)

 

 

(440,959

)

 

 

(440,959

)

 

 

-

 

Restricted units awarded

 

 

-

 

 

 

70,110

 

 

 

-

 

 

 

-

 

 

 

-

 

Restricted units compensation expense

 

 

5,436

 

 

 

-

 

 

 

538,085

 

 

 

543,521

 

 

 

-

 

Unrealized gain on securities

 

 

45,216

 

 

 

-

 

 

 

4,476,351

 

 

 

4,521,567

 

 

 

4,065,221

 

Unrealized loss on bond purchase commitments

 

 

(10,328

)

 

 

-

 

 

 

(1,022,460

)

 

 

(1,032,788

)

 

 

(1,032,788

)

Reversal of net unrealized loss on securities

   with other-than-temporary impairment

 

 

5,254

 

 

 

-

 

 

 

520,192

 

 

 

525,446

 

 

 

981,792

 

Balance as of June 30, 2018

 

$

180,641

 

 

 

60,452,928

 

 

$

286,492,826

 

 

$

286,673,467

 

 

$

56,788,112

 

 

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,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

10,338,003

 

 

$

9,342,425

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization expense

 

 

1,640,612

 

 

 

1,828,131

 

Contingent interest realized on investing activities

 

 

(3,042,102

)

 

 

-

 

Impairment of securities

 

 

-

 

 

 

831,062

 

Loss (gain) on derivatives, net of cash paid

 

 

508,354

 

 

 

(1,127,589

)

Restricted unit compensation expense

 

 

370,414

 

 

 

750,157

 

Bond premium/discount amortization

 

 

(67,657

)

 

 

(33,987

)

Amortization of deferred financing costs

 

 

731,006

 

 

 

895,459

 

Deferred income tax expense (benefit) & income tax payable/receivable

 

 

172,965

 

 

 

(183,303

)

Change in preferred return receivable from unconsolidated entities, net

 

 

(3,005,017

)

 

 

(1,799,127

)

Changes in operating assets and liabilities

 

 

 

 

 

 

 

 

Increase in interest receivable

 

 

(207,986

)

 

 

(1,141,448

)

(Increase) decrease in other assets

 

 

734,903

 

 

 

(928,527

)

Decrease in accounts payable and accrued expenses

 

 

(1,051,467

)

 

 

(516,061

)

Net cash provided by operating activities

 

 

7,122,028

 

 

 

7,917,192

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(58,247

)

 

 

(431,784

)

Acquisition of mortgage revenue bonds

 

 

(19,250,000

)

 

 

(19,540,000

)

Contributions to unconsolidated entities

 

 

(17,285,950

)

 

 

(16,488,929

)

Principal payments received on mortgage revenue bonds

 

 

14,341,785

 

 

 

23,285,577

 

Principal payments received on taxable mortgage revenue bonds

 

 

23,953

 

 

 

30,526

 

Principal payments received on PHC Certificates

 

 

2,767,166

 

 

 

226,714

 

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

 

 

-

 

 

 

(2,660,649

)

Advances on property loans

 

 

-

 

 

 

(66,651

)

Principal payments received on property loans and contingent interest

 

 

11,409,737

 

 

 

650,000

 

Net cash used in investing activities

 

 

(8,051,556

)

 

 

(14,995,196

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Distributions paid

 

 

(17,386,938

)

 

 

(17,458,416

)

Repurchase of BUCs

 

 

-

 

 

 

(1,697,613

)

Proceeds from the sale of BUCs

 

 

-

 

 

 

233,633

 

Payment of offering costs related to the sale of BUCs

 

 

-

 

 

 

(4,678

)

Proceeds from debt financing

 

 

18,430,500

 

 

 

-

 

Principal payments on debt financing

 

 

(5,271,169

)

 

 

(16,924,182

)

Principal payments on mortgages payable

 

 

(373,843

)

 

 

(380,775

)

Principal borrowing on unsecured lines of credit

 

 

23,200,000

 

 

 

19,540,000

 

Principal payments on unsecured lines of credit

 

 

(35,659,200

)

 

 

(20,000,000

)

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

 

 

(26,397

)

 

 

17,168

 

Debt financing and other deferred costs

 

 

(105,457

)

 

 

(8,670

)

Net cash used in financing activities

 

 

(17,192,504

)

 

 

(36,683,533

)

Net decrease in cash, cash equivalents and restricted cash

 

 

(18,122,032

)

 

 

(43,761,537

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

33,268,611

 

 

 

71,583,329

 

Cash, cash equivalents and restricted cash at end of period

 

$

15,146,579

 

 

$

27,821,792

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid during the period for interest

 

$

11,297,205

 

 

$

11,702,009

 

Cash paid during the period for income taxes

 

 

155,000

 

 

 

162,963

 

Supplemental disclosure of noncash investing and financing activities:

 

 

 

 

 

 

 

 

Distributions declared but not paid for BUCs and General Partner

 

$

7,663,064

 

 

$

7,632,945

 

Distributions declared but not paid for Series A Preferred Units

 

 

708,750

 

 

 

708,750

 

Land contributed as investment in an unconsolidated entity

 

 

-

 

 

 

2,597,784

 

Capital expenditures financed through accounts payable

 

 

360

 

 

 

24,491

 

Deferred financing costs financed through accounts payable

 

 

35,969

 

 

 

19,626

 

 

 

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets to the total of the same such amounts shown in the condensed consolidated statements of cash flows:

 

 

 

June 30, 2019

 

 

June 30, 2018

 

Cash and cash equivalents

 

$

13,821,980

 

 

$

26,328,497

 

Restricted cash

 

 

1,324,599

 

 

 

1,493,295

 

Total cash, cash equivalents and restricted cash

 

$

15,146,579

 

 

$

27,821,792

 

 

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

(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”) that provide construction and/or permanent financing for affordable multifamily and student housing residential properties (collectively “Residential Properties”) and commercial properties. The Partnership may also invest in other types of securities that may or may not be secured by real estate and may make property loans secured by multifamily residential properties which may or may not be financed by MRBs held by the Partnership.   The Partnership may acquire real estate securing its MRBs or property loans through foreclosure in the event of a default or through the receipt of a fee simple deed in lieu of foreclosure.  In addition, the Partnership may acquire interests in multifamily and student residential properties (“MF Properties”) in order to position itself for future investments in MRBs that finance these properties or to operate the MF Properties until their “highest and best use” can be determined by management.

The Partnership’s general partner 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 partnership interests to investors (“BUC holders”). The Partnership has issued non-cumulative, non-voting, non-convertible Series A Preferred Units (“Series A Preferred Units”) that represent limited partnership interests in the Partnership under the Partnership’s First Amended and Restated Agreement of Limited Partnership dated September 15, 2015, as further amended (the “Amended and Restated LP Agreement”). The holders of the BUCs and Series A Preferred Units are referred to herein as “Unitholders.”     

 

2. Summary of Significant Accounting Policies

Consolidation

The “Partnership,” as used herein, includes America First Multifamily Investors, L.P., its consolidated subsidiaries and consolidated variable interest entities (Note 5). All intercompany transactions are eliminated.  As of June 30, 2019, the consolidated subsidiaries of the Partnership consist of:

 

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

 

ATAX TEBS II, LLC, a special purpose entity owned and controlled by the Partnership, created to hold MRBs to facilitate the 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 M33 TEBS Financing with Freddie Mac.

 

ATAX TEBS IV, LLC, a special purpose entity owned and controlled by the Partnership, created to hold MRBs to facilitate the M45 TEBS Financing with Freddie Mac.

 

ATAX Capital Fund I, LLC, a wholly-owned subsidiary of the Partnership, created to hold beneficial interests in Tender Option Bond (“TOB”) Trusts related to the Public Housing Capital Trusts Fund Trust (“PHC”) Certificates.

 

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

 

One wholly-owned corporation (“the Greens Hold Co”).  The Greens Hold Co owns 100% of The 50/50 MF Property and certain property loans.

The Partnership also consolidates variable interest entities (“VIEs”) for which it is deemed to be the primary beneficiary.  See Note 5 for information regarding the Partnership’s consolidated VIEs.

 

7


 

Lease Accounting

 

On January 1, 2019, the Partnership adopted the lease guidance in Accounting Standards Codification (“ASC”) 842.  The Partnership adopted ASC 842 at the required adoption date of January 1, 2019, using the transition method that allowed the Partnership to initially apply ASC 842 as of January 1, 2019 and recognize a cumulative-effect adjustment to the opening balance of partners’ capital in the period of adoption. No changes have been made to the condensed consolidated financial statements dated prior to the effective date related to the adoption of ASC 842.

 

Lessee Operating Leases  

 

The Partnership’s only material lessee lease is a ground lease at The 50/50 MF Property. Upon adoption of ASC 842, the Partnership elected the package of practical expedients in Accounting Standards Update (“ASU”) 2016-11, elected to not to apply ASC 842 to short-term leases and elected to combine lease and non-lease components when accounting for these lease arrangements.  On the date of adoption of ASC 842, the Partnership recognized operating lease right-of-use (“ROU”) assets of $1.7 million, operating lease liabilities of $2.2 million, and an immaterial cumulative adjustment to partners’ capital.  The Partnership used a discount rate of 6.6% to calculate the ROU asset and lease liability related to the ground lease.  The discount rate is based on the Partnership’s estimated incremental borrowing rate to borrow, on a fully collateralized basis, over a similar term for the amount of contractual lease payments. The incremental borrowing rate was estimated using market transactions adjusted for differences in the term and security.

 

The Partnership’s lessee ROU assets are reflected in other assets on the Partnership’s condensed consolidated balance sheet (see Note 12).  The Partnership’s lessee operating lease liabilities are reflected in accounts payable, accrued expenses and other liabilities on the Partnership’s condensed consolidated balance sheet (see Note 13).  See Note 13 for additional information on the Partnership’s ground lease.

 

Lessor Operating Leases

The Partnership’s lessor leases consist of tenant leases related to real estate assets, specifically at the MF Properties. Tenant leases also contain terms for non-lease revenues related to operations at the MF Properties, such as parking and food service revenues. The Partnership has elected to combine the lease and non-lease components when accounting for lessor leases. The unit lease component of the tenant lease is considered the predominant component, so all components of the tenant lease are accounted for under ASC 842. Tenant leases are typically for terms of 12 months or less and do not include extension options.  Lease revenue is recognized monthly and is reported within property revenues on the Partnership’s condensed consolidated statements of operations.  ASC 842 did not have a material impact on the Partnership’s accounting for its lessor arrangements with tenants at the MF Properties.

PHC Certificate Impairment

The Partnership periodically reviews the PHC Certificates for impairment. The Partnership evaluates whether declines in the fair value of the investments below amortized cost are other-than temporary. Factors considered include:

 

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 Standard & Poor’s, and

 

 

Volatility of the fair value of the security.

 


8


 

Reclassification

Certain prior year amounts have been reclassified for consistency with the current period presentation.

 

In the three and six months ended June 30, 2019, the Partnership reported amortization of deferred financing costs within interest expense in the Partnership’s condensed consolidated statements of operations.  Previously, “Amortization of deferred financing costs expense” had been reported as a separate line item in the Partnership’s condensed consolidated statement of operations.  Accordingly, for the three and six months ended June 30, 2018, the Partnership has included amortization of deferred financing costs expense within interest expense in conformity with the current reporting period presented herein. This reclassification has no effect on the Partnership’s reported net income or partners’ capital in the Partnership’s condensed consolidated financial statements for the periods presented.

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 (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted in accordance with such SEC 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, 2018. These condensed consolidated financial statements and notes have been prepared consistently with the 2018 Form 10-K, with the exception of new accounting standards that were adopted and reclassifications that are discussed herein. In the opinion of management, all adjustments (consisting of normal and recurring accruals) necessary to present fairly the Partnership’s financial position as of June 30, 2019, and the results of operations for the interim periods presented have been made. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. The accompanying condensed consolidated balance sheet as of December 31, 2018 was derived from the audited annual consolidated financial statements, but does not contain all the footnote disclosures from the annual consolidated financial statements.

 

Recently Issued Accounting Pronouncements

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 for financial assets, to include the use of reasonable and supportable forward-looking information to better estimate credit losses. The ASU is effective for the Partnership’s annual and interim periods beginning after December 15, 2019 and is to be applied using a modified-retrospective approach. The Partnership has completed its assessment of its items that are within the scope of the new ASU. The Partnership’s items within the scope of the ASU are property loans, receivables reported within other assets, financial guarantees and commitments. Also within the scope of the ASU are changes to the impairment model for available-for-sale debt securities, which includes the Partnership’s MRBs, PHC Certificates, and taxable MRBs.  The Partnership is currently evaluating the impact of the ASU to such items in the Partnership’s condensed consolidated financial statements.    

 

3. Partnership Income, Expenses and Cash Distributions  

The Amended and Restated LP Agreement of the Partnership 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 Series A Preferred Units and 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 Series A Preferred Units and BUCs held by each Unitholder on that date. Cash distributions are currently made on a quarterly basis.  

The holders of the Series A Preferred Units are entitled to distributions at a fixed rate of 3.0% per annum prior to payment of distributions to other Unitholders.

 

9


 

Net Interest Income (Tier 1) is allocated 99% to the limited partners and BUC holders as a class and 1% to the General Partner. Net Interest Income (Tier 2) and Net Residual Proceeds (Tier 2) are allocated 75% to the limited partners and BUC holders as a class and 25% to the General Partner.  Net Interest Income (Tier 2) and Net Residual Proceeds (Tier 2) in excess of the maximum allowable amount as set forth in the Amended and Restated LP Agreement are considered Net Interest Income (Tier 3) and Net Residual Proceeds (Tier 3) and are allocated 100% to the limited partners and BUC holders as a class.

 

4. Net income per BUC

The Partnership has disclosed basic and diluted net income per BUC on the Partnership’s condensed consolidated statements of operations. The unvested Restricted Unit Awards (“RUAs”) issued under the Partnership’s 2015 Equity Incentive Plan (the “Plan”) are considered participating securities. There were no dilutive BUCs for the three and six months ended June 30, 2019 and 2018.

 

5. Variable Interest Entities

Consolidated VIEs

The Partnership has determined the TOB, Term TOB, Term A/B and TEBS Financings are VIEs and the Partnership is the primary beneficiary. 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, Term TOB, Term A/B and TEBS Financings stipulate the Partnership has the sole right to cause the trusts to sell the underlying assets. If underlying assets were sold, the extent to which the VIEs will be exposed to gains or losses would result from decisions made by the Partnership.

As the primary beneficiary, the Partnership reports the TOB, Term TOB, Term A/B 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 the Term TOB, Term A/B Trusts and TEBS Financings as secured debt financings on the Partnership’s condensed consolidated balance sheets (see Note 15). The MRBs secured by the TOB, Term TOB, Term A/B and TEBS Financings are reported as assets on the Partnership’s condensed consolidated balance sheets (see Notes 6 and 7).

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 financial statements of these VIEs in the Partnership’s condensed consolidated financial statements.

The Partnership held variable interests in 16 and 17 non-consolidated VIEs as of June 30, 2019 and December 31, 2018, respectively. The following table summarizes the Partnership’s variable interests in these entities as of June 30, 2019 and December 31, 2018:

 

 

 

Maximum Exposure to Loss

 

 

 

June 30, 2019

 

 

December 31, 2018

 

Mortgage revenue bonds

 

$

30,520,000

 

 

$

51,791,000

 

Property loans

 

 

-

 

 

 

8,367,635

 

Investment in unconsolidated entities

 

 

96,825,273

 

 

 

76,534,306

 

 

 

$

127,345,273

 

 

$

136,692,941