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America First Tax Exempt Investors (NASDAQ:ATAX)
Q2 2019 Earnings Call
Aug 05, 2019, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Hello, and I would like to welcome everyone to America First Multifamily Investors, L.P.'s NASDAQ ticker symbol ATAX second quarter of 2019 earnings conference call. [Operator instructions] As a reminder, this conference call is being recorded. On behalf of ATAX and its management team, thank you, and welcome to ATAX's second quarter of 2019 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's actual results to differ materially from those expressed or implied by the projections or forward-looking statements made today.

For a more detailed information about these factors and other risks that may impact ATAX's business, please review the periodic reports and other documents filed from the time to time by ATAX with the Securities and Exchange Commission. Internal projections and beliefs upon which ATAX bases its expectations may change. If they do, you will not necessarily be informed. Today's discussion will include non-GAAP measures.

And we'll explain 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 conference call over to Chad Daffer, chief executive officer of ATAX.

Chad Daffer -- Chief Executive Officer

Thank you. Good afternoon, and welcome to the second-quarter 2019 ATAX earnings call. This afternoon, I'd like to share my thoughts on the economy, interest rates, and a few notable trends and actions. Then Craig Allen, ATAX CFO, will present the partnership's second-quarter financial results.

At the end, we look forward to taking your questions. Economic data remain positive for the second quarter. Labor markets continue to perform well, with the unemployment rate at historically low levels. Economic expansion continues to be driven by strong household spending, with business spending starting to show some weakness, given the going concerns over U.S.

trade policy and the threat of slower global growth. Inflation continue to trend at the Federal Open Market Committee target of 2%. Given this data, the FMOC lowered the Fed funds rate for the first time, since December of 2008, by 25 basis points, citing uncertainty with global trade and weakness in the global economy. This mid-cycle rate cut was supportive of the committee's goals for max employment and price stability.

The U.S. Treasury market experienced a significant downward move in rates since the start of the first quarter. The two-year treasury opened the quarter at a yield of 2.33%, moving down by 72 basis points to a yield of 1.61%, with the 10-year treasury opening this quarter at 2.49%, moving down 72 basis points, as well, to 1.77%, maintaining the 2-10 spread consistently at 16 basis points. The flattening of the yield curve has allowed the partnership to extend maturities and convert from variable-rate mode to fixed-rate mode, leveraged on the mortgage -- on the revenue bond portfolio from 38% variable rate and 62% fixed rate on January 1 of this year to the current level of 26% variable rate and 74% fixed rate as of this call.

This continued follow-through of a strategy-defined set in motion in the fall of 2016, mitigating the exposure of the partnership's portfolio, the volatility, and variable rate interest rate cycles. At this time, I'd like to turn over the call to Craig Allen, ATAX CFO, for presentation of the second-quarter 2019 partnership financial performance. Craig?

Craig Allen -- Chief Financial Officer

Thank you, Chad. I'd like to walk you through the second quarter and point out a few highlights. It's been an exciting quarter for us. Chad's touched upon a few of the exciting events of the quarter, but I'll get a little bit more detail into those and give you some idea how that benefits you as a unitholder.

Our total assets at June 30th, 2019 were $1 billion. Looking back, when we started our effort of fine-tuning the balance sheet back on January 1st of 2015, our total assets were approximately $740 million. Since January 1st of 2015, we've increased total assets by about 35.3% to the present $1 billion. At June 30th, 2019, our mortgage revenue bonds to total assets remains constant at about 75%.

Back in December of 2012, just as a proxy to that number, we were at 35.1% of total mortgage revenue bonds to assets. At June 30th, we had mortgage revenue bonds that we've invested in, in approximately 13 states, comprised of 72 mortgage revenue bonds and about 10,337 units making up those mortgage revenue bonds. Mortgage revenue bond purchases during the quarter, we had two bonds that we purchased, for a total of about $13.2 million. And on a year-to-date basis thus far, four mortgage revenue bonds purchased, about $19.3 million in total.

Another aspect of the balance sheet that we look at each quarter are MF Properties or properties or real estate that we own as a fund. At the end of June, we remain unchanged with two MF Properties, one located in California, the Suites on Paseo, which is a student housing project -- multifamily project. And then we have another located in Lincoln, Nebraska, the 50/50. We have approximately $63 million to $64 million of total MF Properties.

And that represents about 859 units. Each quarter, we talk about our investment in unconsolidated entities or also referred to in previous quarters as our vantage investments. At June 30th, 2019, we've invested approximately $96.8 million in our vantage assets, representing about 2,886 units. That is comprised of 10 projects: four which are located in the state of Texas, two in the state of Nebraska, two in the state of Tennessee, one located in South Carolina, and one located in Florida.

One of the significant transactions that we had occur in Q2 of this year was a new investment banking relationship with Morgan Stanley. In May of this year, we engaged or executed a tender -- a term-tender option bond, or a TOB, debt financing with Morgan Stanley, and they became the second investment bank in which ATAX has the ability to do debt financing, thus increasing our liquidity options, as well. The total amount of the tender option bond financing was approximately $13.2 million and financed or leveraged the Village at Avalon mortgage revenue bond. In June of 2019, as Chad mentioned, our fixed rate debt financing was approximately 63.8% versus 36.2% variable rate financing.

If we go back to 2015, the ratios were inversed, where we had 31.8% of our debt financing that was fixed and 68.2% of our debt financing that was variable in nature. We had a few subsequent events of note that I'd like to talk to you a little bit about. The first is -- are the extension of our lines of credit. We have two lines of credit right now with Bankers Trust out of Des Moines, Iowa.

The first -- and we've had this relationship since May of 2015, and they provide ATAX with two sources of liquidity. The first is an acquisition line of credit, and that is an unsecured acquisition line in the amount of $50 million. We've extended that maturity out through June of 2021. Again, we've been repricing and amending.

Since 2015, we've issued an 8-K with relationship to the extension of the line of credit. And the use of this acquisition line of credit is: it provides us a short-term source of funding for our mortgage revenue bonds. In addition, we also extended the maturity to June of 2021 for our operating line of credit with Bankers Trust in the amount of $10 million. The next subsequent event was a new-debt financing option that we have with Mizuho Bank.

So Mizuho is an investment bank that we also entered into a tender-option bond debt financing with in July, and it is the third investment bank that provides us now debt financing and provides us greater liquidity options than in the previous quarter. We financed two mortgage revenue bonds during the quarter or in July with Mizuho in the amount of approximately $25.8 million, and we financed the sell point and rose with mortgage revenue bonds. In addition, we refinanced two TEBS debt financings with the Freddie Mac: M24 and M33 TEBS financing. We converted M24 and M33 from variable rate to fixed rate, and we extended the maturity date on M24 from -- to May of 2027 from August of 2019.

So we extended our maturities by about 7.3 years. And on M33, we extended from July 2020 to September of 2030, and, therefore, we extended the maturity about 9.4 years. This represents about $72.3 million of debt financing, and this occurred in July of 2019. In addition, we also extended, for five years, our M31 variable-rate debt financing with Freddie Mac.

And again, this was a TEBS financing. We extended this in June of 2019. We had a unilateral right to extend this from its origination date of July of 2014. So now, we've extended approximately $80.2 million worth of debt financing on M31 to 2024.So Chad touched upon this a little bit, but I thought it was important enough that I restate what he had mentioned, and that is at June 30th of 2019, approximately 64% of our debt was fixed rate and 36% to 36.2% was variable rate debt.

At July 31, 74% of our debt is now fixed rate and 26% is now variable rate. As opportunities present themselves into the future, we will continue to look at opportunities for diversification of our investment banking relationships, as well as opportunities to finance on a fixed versus a variable-rate basis. Each quarter, we talk about our interest rate sensitivity, as well. And on Page 54 of our Q2 10-Q, we show you our interest rate sensitivity table.

We always take a look at what would happen if interest rates were to increase 200 basis points. This quarter is no exception. And if interest rates were to increase by 200 basis points all simultaneously and we did nothing to react to that increase over a 12-month period, our net interest income will decrease by about $1.7 million or about CAD 2.08. We still find this within the acceptable limits because this reflects the maturity of some of our interest rate caps that will occur in August of 2019.

And again, for purposes of this analysis and this sensitivity, it assumes that we do nothing in response to that. Total revenue for the quarter was $14.3 million, and on a year-to-date basis, $32 million, flat on a comparable basis in 2018. Our total income per unit for Q2 was $0.05 per buck, compared to $0.04 per buck for the quarter ended June of last year 2018. On a year-to-date basis, 2019 and 2018 were the same at $0.13 per buck.

Our cash available for distribution, which we report every quarter to you, for Q2 of 2019, our CAD per unit or per buck was $0.08 versus $0.09 for the quarter ended June of 2018. On a year-to-date basis, 2019 and 2018, our CAD per buck was $0.19 in each of the first six months of 2019 and in 2018. And finally, each quarter, we tell you what our book value was per unit. And at the end of June of 2019, our net book value was $5.30 per buck compared to $5.03 per unit at 12/31 of '18.

With that, we'd be happy to take any questions that you might have at this time.

Questions & Answers:


Operator

[Operator instructions] One moment for our questions. [Operator instructions]

Chad Daffer -- Chief Executive Officer

We'd like to thank you all for your support of ATAX. We look forward to speaking with you at the next call. Thank you.

Operator

[Operator signoff]

Duration: 25 minutes

Call participants:

Chad Daffer -- Chief Executive Officer

Craig Allen -- Chief Financial Officer

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