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America First Multifamily Investors LP  (NASDAQ:ATAX)
Q4 2018 Earnings Conference Call
Feb. 28, 2019, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

I would like to welcome everyone to America First Multifamily Investors LP, NASDAQ ticker symbol ATAX Fourth Quarter 2018 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. After management presents its overview of Q4 2018, you'll be invited to participate in the question-and-answer session. As a reminder, this conference call is being recorded.

On behalf of ATAX and its Management team, thank you and welcome to ATAX Fourth Quarter 2018 Earnings Conference Call. During this conference call, comments made regarding ATAX which are not historical facts are forward-looking statements and are subject to risks and uncertainties that could cause the actual future events or results to differ materially from these statements. Such forward-looking statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements can be identified by the use of words like may, should, expect, plan, intend, focus and other similar terms. You are cautioned that these forward-looking statements speak only as of today's date. Changes in economic, business, competitive, regulatory and other factors could cause ATAX actual results to differ materially from those expressed or implied by the projections or forward-looking statements made today.

For more detailed information about these factors and other risks that may impact the ATAX business, please review the periodic reports and other documents filed from time to time by ATAX with the Securities and Exchange Commission. Internal projections and beliefs upon which ATAX basis its expectations may change, but if they do, you will not necessarily be informed.

Today's discussion will include non-GAAP measures and will be explained during this call. We want to make you aware that ATAX is operating under the SEC Regulation FD and encourage you to take full advantage of the question-and-answer session. Thank you for your participation and interest in ATAX.

I would now like to turn the call over to Chad Daffer, Chief Executive Officer of ATAX.

Chad L. Daffer -- Chief Executive Officer

Thank you. Good afternoon and welcome to the ATAX fourth quarter 2018 earnings call. This afternoon, I'd like to share with you a few of my thoughts on the fourth quarter. The economy interest rates and a few notable transactions for the quarter. Then Craig Allen, ATAX' CFO will present at the Partnership financial results, then we're looking forward to taking your questions.

I'm very pleased to report strong fourth quarter closing -- a great year for the Partnership in 2018 earning $0.73 per unit of cash available for distribution for investors. More details will follow with Craig in just a minute. In the fourth quarter, economic data remains strong with gross domestic product above forecast of 2.6%, unemployment at historical low levels below 4% and improving wage growth. This prompting that FMOC -- fair -- excuse me, Federal Open Market Committee to increase Fed fund rates for the fourth time in 2018. Increasing short-term rates, resulting in higher cost of borrowing for the Partnership. FOMC events as that stated, they will be patient in determining future rate hikes, pending changes and economic data. Given this change in policy and with the old FOMC on hold, this enhances the possibilities of continued economic expansion and stable lending markets into 2019. both playing important roles in the strategic growth with the Partnership.

A few notable transactions occurred in December of 2018, with the sale of three Vantage Properties by the ATAX development partner. ATAX loans and equity investments were repaid at closing from sale proceeds. The properties were Vantage at Judson, Vantage at Corpus Christi and Vantage at New Braunfels. These investments dated back to 2014 with the strategic decision by Management to create new revenue streams for the Partnership. While staying true to our core credit discipline to multi-family housing.

To start with conceptual discussions with our partner in 2014, consent of our investors in 2015, execution of design, build and finance of projects in 2016, lease up and stabilization in 2017, with the ultimate sale and proof-of-concept in 2018. I'm proud of our ATAX team, very thought -- very thankful for our partners and pleased for our investors.

At this time, I'll turn it over to Craig Allen, CFO will present the Partnership financial results.

Craig S. Allen -- Chief Financial Officer

Thanks, Chad. What I'd like to do is, just walk you through some notable items on the balance sheet and the income statement and expand a little bit on what Chad had talked about regarding our CAD for the year and a little bit more on our Vantage transactions as well too. Over the past seven quarters to eight quarters, we've been able to be to realize net -- total assets of approximately $1 billion. We ended the year December 31st at about $983 million in total assets.

Mortgage revenue bonds, we continue to invest in mortgage revenue bonds, which account -- which make up a vast majority of our balance sheet. At 12, 31 of 2018 about 74.5% of our total assets were comprised of mortgage revenue bonds. And again, we keep referring back to when we began this growth trend or growth pattern back in 2012, 12, 31 of 2012, 35% of our assets were comprised of mortgage revenue bonds. So in that span of about six years, we've more than doubled the percentage of mortgage revenue bonds in our portfolio.

At the present time, we have about 77 mortgage revenue bond positions, totaling about $732 million. We are geographically dispersed from Washington in the Northwest to Florida in the Southeast, Maryland on the East Coast to California and Texas. We spend a reasonable amount of time taking a look at the geographic dispersion of our portfolio and again, we are centered predominantly in California, in Texas, Florida and then we're filling in as we get into the Mid-Atlantic states and in the Upper Northwest as well too.

For the year, we transacted four mortgage revenue bonds and acquired those with principal value of about $42 million on a year-to-date basis. And that's reflected in that 75% of assets that we talked about just a little bit ago. We had mortgage revenue bond redemptions that happened throughout the year as well too. For the year ended 12/31/2018 approximately $79 million of mortgage revenue bonds redeemed. They're about 14 bonds in total that were redeemed in the normal course of business.

Our MF Properties portfolio and that's real -- a multifamily real estate that ATAX owns in its portfolio, is approximately $64.6 million at December 31st of this year. We have MF Properties that are located, one in California, which is a student housing multifamily project as well as Nebraska and that is also a student housing asset.

Moving onto some transactions in the fourth quarter, we had transactions rather, substantial transactions and as Chad said, they were proof-of-concept transactions that began in late 2014 and early 2015 and each quarter thereafter, we've reported to you that, that we were beginning a diversification of our assets in our portfolio as we entered into the Vantage projects. Those were prototypical, 288 unit multifamily market rate projects.

We were -- we're fortunate in working with our partner advantage to realize three sales, one was a loan product for ATAX and that was Vantage at New Braunfels, a 288-unit project. The next was an equity investment that ATAX made in the first quarter of 2016, Vantage at Corpus Christi, and then another was a mortgage revenue bond that was redeemed and that was the Judson Mortgage Revenue Bond. So those are the -- were the three significant transactions that occurred in the fourth quarter of 2018.

A little bit more color on the investment in what we call, investment in unconsolidated entities or what we also refer to as Vantage. In -- on December 31st of 2018, we had nine projects. Those nine projects were approximately -- they represented approximately 2,600 units of multifamily units. Those nine projects are; three were located in Texas, two were located in Nebraska, two were located in Tennessee, one in South Carolina, and one in Florida.

Just as some background and some history in -- on December 31st of 2016, we had invested in three projects and all three of those projects were in Texas. Fast forward to 2017 at the end of the year in 2017, we had three projects in Texas, one in South Carolina, and one in Florida. And then again in 2018 we had nine projects. At the height, we've had 10 projects prior to the sale of Corpus Christi.

To give you an idea of how we've invested in these projects. We began -- to-date we've invested approximately $78 million of equity in the Vantage projects ranging from about $19 million of investment in 2016 to incrementally investing about $42 million in 2018. During that time period, we also invested in two Vantage projects in the form of loans, and this would be prior to making equity investments, that would be New Braunfels and Vantage at Brooks, and we've contributed about $15.9 million and both of those projects have sold, New Braunfels have sold in Q4 of 2018 and in our 10-K is the -- at footnote number 25, we disclose a subsequent event in which Vantage at Brooks successfully sold in January of 2019.

Each call -- in each earnings call we talk about our strategy of trying to move closer to a 100% fixed in our debt financing, knowing that, we probably will never get to the point that we are a 100% fixed rate and 0% variable. But what I thought I would do is, just real briefly tell you where we started in 2015, and where we are today. So in 2015, 68% of our debt was in variable rate product and 32% was in fixed rate product. Fast forward to 12, 31 of 2018, and our fixed rate is comprised of -- is 62% of debt, and our variable rate is 38% of debt. So we've almost completely switched those around, again, 68% variable and 15 -- 38% variable today. So again, the strategy was becoming more fixed rate and helping to control our interest rate sensitivity as well too.

That takes us into the results of our interest rate sensitivity analysis. We measure the interest rate sensitivity, all the way up to a 200 basis point increase in rates. As if that was done all at one time, and in a 12-month period, we did nothing to react to that increase. Going back to September 30th, 2017, the impact of the Fund at -- based upon a rate increase of 200 points, would result in a decrease in CAD of about $1.6 million or about $0.27.

Again fast forward to December 31st of 2018, the most recent quarter we just closed, and our interest rate sensitivity has decreased from negative $1.6 million down to only a negative $968,000 or a CAD impact of minus $0.16 cents. So we have been able to realize the strategy that we implemented and that we continue to try to improve upon of reducing that interest rate sensitivity by reducing that from a minus $0.27 to a $0.16.

On the revenue front. For the fourth quarter, we reported revenue of $23.1 million compared to $21.9 million in the fourth quarter of 2017. And on a year-to-date basis, $81.4 million versus $70.4 million in 2017, that's a revenue increase of about 16% year-over-year. Net income basics and diluted $0.22 for the quarter versus $0.23, so virtually no change quarter-over-quarter 2018 versus 2017. And on a year-to-date basis, 2018 we reported $0.60 per BUC compared to $0.44 per BUC for 2017.

Moving to CAD, Chad alluded to the very good year that we had related to cash available for distribution. On a quarterly basis, we were flat year-over-year because of strong transactional activity in Q4 of 2018 versus 2017. We reported $0.25 of CAD in Q4 of 2018. On a year-to-date basis, $0.73 per BUC in 2018 versus $0.60 in 2017. So a very good year -- year-over-year $0.73 versus $0.60.

Each call, we'd like to end by telling you what the net book value and underlying value of ATAX is and was. And again, just as a reminder, that book value does have some lumpiness, what we call, lumpiness in it. And that lumpiness can be the result of mark-to-markets that may occur. It can be a little bit lumpy due to the number of units outstanding at the time, can be a little bit lumpy doing -- due to some transactional activity as well too. At September 30th of 2018, we reported net book value of about $4.81. That's an increase as of December 31st of this year to $5.03 per BUC. So again, another positive trend that we have to report really due to the outstanding year that we had on a net income per share and as well as a BUC per unit basis as well too.

With that, we'd like to turn it over to you for questions, and we'd be happy to answer those that you may have at this time.

Questions and Answers:

Operator

(Operator Instructions) Our first questions comes from David Walrod with JonesTrading. Your line is open.

David Walrod -- JonesTrading Institutional Services -- Analyst

Good afternoon guys.

Chad L. Daffer -- Chief Executive Officer

David, good afternoon.

Craig S. Allen -- Chief Financial Officer

Hi, David.

David Walrod -- JonesTrading Institutional Services -- Analyst

Of your projects remaining with the Vantage program, how should we think about the pace of sales in 2019 going forward, it looks like according to your K that a handful have been completed although it was still in the process of being constructed. So how should we think about that?

Chad L. Daffer -- Chief Executive Officer

David, the strategy that we try to implement from the start and working with our partner was we thought that we have the capacity to expand and drive this part of our business, where we have four properties under construction, we'd have four properties in stabilization, we'd have four properties being teed up for sale and four properties -- four or more properties in the pipeline.

With the activity in the fourth quarter of '18, kind of with proof-of-concept in the first the -- that we have four properties that we put in the marketplace. Our partners sold three of those assets in the fourth quarter, one leaked into the first quarter of 2019. But I think as long as the market stay strong, interest rates stayed low and we can continue to stabilize these assets within a reasonable timeframe and the markets are strong. I'm optimistic that our partner and ourselves will come to the table and allow us to continue to take the premium out of the market when it presents itself. And so that's kind of the global strategy and that were kind of proofing that out here as is this how the effort evolved.

David Walrod -- JonesTrading Institutional Services -- Analyst

Okay, that's helpful. And then on the multifamily, can you talk about, I guess just how that's going and any potential asset sales in that -- from that bucket?

Chad L. Daffer -- Chief Executive Officer

No, we have -- we only have a couple left. Right now we're continuing to evaluate the options out on our student housing property out in San Diego, California, suites on for sale. We -- right now, I think we continue to improve on the operations of the property and we will probably evaluate that as for a potential sale of sometime after stabilization going into the fall -- semester. The other property is a long-term hold with really no interest in our part and moving out of that position.

David Walrod -- JonesTrading Institutional Services -- Analyst

Okay. And then my last question is just on the dividend, you guys have been very consistent. But obviously you've been now earning it. Can you just give us some updated thoughts on maybe how the board's thinking about the dividend?

Chad L. Daffer -- Chief Executive Officer

At this time, David, we had no discussions about increasing or decreasing the dividend at this time. Again this is the fourth year in a row since Craig and I and the new Management team has taken over the platform and we're optimistic about '19 with no discussions from the Board on either increasing or decreasing that distribution.

David Walrod -- JonesTrading Institutional Services -- Analyst

Okay, that's it from me. Thanks a lot guys.

Chad L. Daffer -- Chief Executive Officer

Thank you, David.

Operator

And our next question comes from the line of David Rothschild (ph) with -- he is a Private Investor. Your line is open.

David Rothschild -- -- Analyst

Yeah, my question would further reference the same on the dividend. I guess the other thing I would just ask is, you did the $0.73 in CAD, you think that can be consistent now going forward little bit or what's your outlook for 2019?

Chad L. Daffer -- Chief Executive Officer

David, the asset class that we deal in is obviously cyclical, we have -- we're at the late stages of an economic expansion, we'll continue to try and take premiums other positions in our Vantage product and in our MF product and grow our mortgage-backed book. This was an outstanding year for me to tell you that, that will be a consistent year going forward I think would be a stretch, but we're optimistic about being able to continue to meet the dividend year-over-year.

David Rothschild -- -- Analyst

Okay. Well, I guess I think as investor, I'd encourage you to please look at maybe increase in dividend just a small amount, because that's been flat for a lot of years? But thanks for the good work.

Chad L. Daffer -- Chief Executive Officer

Thank you, David.

Operator

Thank you. And our next question is from Ed Fleming (ph), he is also a Private Investor.

Ed Fleming -- -- Analyst

Chad, good afternoon. How are you?

Chad L. Daffer -- Chief Executive Officer

Good Ed, thank you.

Ed Fleming -- -- Analyst

So first of all, I want to congratulate you and your team on a great fourth quarter in 2018, it really looks to me like your multi-year focus on the mortgage revenue bond acquisitions as well as your Vantage developments, are really going quite well. From my perspective, unless I'm mistaken, it looks to me like ATAX's private best position that it's been in, I don't know how many years in terms of your ability to consistently generate CAD going forward. What are your thoughts on that?

Chad L. Daffer -- Chief Executive Officer

We've -- this was the fourth year we're -- confident about '19. Our business is transition since 2015, we took an effort on the kind of reposition the balance sheet with the efforts with our the Vantage partners and set and diversifying our income streams. We feel better about where we're at than we have in a long time on our total business. Our mortgage book business obviously is right now is under a little bit of pressure, as you look at our originations being down year-over-year, as we shared with our investors over the years that we will continue to underwrite and evaluate opportunities, but in the event that the marketplace does not give us opportunities that meet our credit profile or our leveraged yield targets, that we will back away from and not deploy capital.

So we will continue to look and try to diversify revenue streams to meet or exceed that 50% dividend target. And I think we're in a good place, I think the market stays strong, the economy continues to give us opportunities, we're optimistic about hopefully the yield curve will shift a little bit and give us a little bit of steepness and the opportunity to get back in and really drive the mortgage book growth. But I think overall I'm in an agreement with you that, we're in a good place as far as our performance, our access to capital and our asset class has been very strong obviously.

Ed Fleming -- -- Analyst

That's great, I appreciate it, keep going. I appreciate your dividends and your discipline in terms of your strategy. Thanks, Chad.

Chad L. Daffer -- Chief Executive Officer

Thank you, Ed.

Operator

(Operator Instructions) Our next question is from the line of Thomas Lundin (ph) with Oppenheimer. Your line is open.

Thomas Lundin -- Oppenheimer -- Analyst

Yes. Hi, Chad. How are you?

Chad L. Daffer -- Chief Executive Officer

Good, Thomas...

Thomas Lundin -- Oppenheimer -- Analyst

Congratulations -- Greetings, congratulations on a great year. Hey, could you shed some light on the ATM program, I see you began it in August last year, you terminated it. There any plans to reestablish it? And could you kind of expand on exactly what that is?

Chad L. Daffer -- Chief Executive Officer

No. I'd be glad to, thank you. The ATM program we implemented was obviously just to -- access capital on a lower cost basis on a common follow-on offering. We've had great relationship with our friends at JonesTrading and implementing this program and testing the market. As you've seen and heard of us discuss our CRA preferred over the last couple of years, there are certain rules and regulations that prohibit having two offerings in the marketplace at the same time, on a private basis. Therefore, as you can imagine, we're probably going to pursue the opportunities in the preferred market here in the months to come.

In order to do that, we need to terminate is a strong word, put the ATM on hold during what was -- as we pursue the CRA preferred equity that we'd placed in the past. I think, to-date, we're about $94.5 million in the preferred based on the current market value, we have another $25 million to $30 million that could possibly be placed. We just can't be in the market at the same time based on SEC regulations. So that's the reasons why we've been in and out. It's a great program and it gives us an opportunity to raise common on a much lower cost basis. We just can't be in the market for both products at the same time.

Thomas Lundin -- Oppenheimer -- Analyst

Okay. And another question, given the change, I guess in the mix of your portfolio, over the years you've had tax exempt dividends. Is there any negative effect because of the change in the mix of the portfolio?

Chad L. Daffer -- Chief Executive Officer

You would think -- on the surface you would say, yes. I think for the 2018, we're about 93% tax exempt about 7% taxable. As -- remember that the investment in our Vantage product is only about 10% of our balance sheet, therefore, it doesn't move the needle as great as you would think quarter-over-quarter, year-over-year. I don't think that we're going to try I mean, as we talk with investors and when we did the proxy back in 2015, allowing us to deploy capital into the Vantage like products, they were very confident and as long as we stayed in our core credit discipline, didn't drift into other type of asset classes that sometimes somewhere between 80% and 85% would be some type of an acceptable level for us on a taxable basis -- on a tax exempt basis and the balance of it, 15% to 20% being taxable. So that's the guidance that we receive from our -- some of our investors. I'd be interested in hearing your thoughts offline at some point in the future, if that would be acceptable to you, sir.

Thomas Lundin -- Oppenheimer -- Analyst

Okay. And then one last question, something small here. I noticed the impaired securities was up a good bit for 2018. Can you shed a little light on that? I think it was up about a...

Craig S. Allen -- Chief Financial Officer

Yeah, and this is Craig. We own some -- we own an investment called PHC Investments. And PHCs, we had to write those down on a permanent basis, took a small impairment charge during the year. We've had it and not credit related, we've had no interruption of cash flows from those investments. But it was just an adjustment due to non-credit related events in the marketplace.

Thomas Lundin -- Oppenheimer -- Analyst

Okay. Thank you, guys. Have a good year this year as well. Thank you very much.

Chad L. Daffer -- Chief Executive Officer

Thank you.

Craig S. Allen -- Chief Financial Officer

Thank you.

Operator

Since I'm not showing any further questions, this does conclude today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.

Duration: 29 minutes

Call participants:

Chad L. Daffer -- Chief Executive Officer

Craig S. Allen -- Chief Financial Officer

David Walrod -- JonesTrading Institutional Services -- Analyst

David Rothschild -- -- Analyst

Ed Fleming -- -- Analyst

Thomas Lundin -- Oppenheimer -- Analyst

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