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Edited Transcript of ATAX earnings conference call or presentation 6-May-19 8:30pm GMT

Q1 2019 America First Multifamily Investors LP Earnings Call

Omaha May 14, 2019 (Thomson StreetEvents) -- Edited Transcript of America First Multifamily Investors LP earnings conference call or presentation Monday, May 6, 2019 at 8:30:00pm GMT

TEXT version of Transcript


Corporate Participants


* Chad L. Daffer

America First Multifamily Investors, L.P. - CEO

* Craig S. Allen

America First Multifamily Investors, L.P. - CFO




Operator [1]


I would like to welcome everyone to America First Multifamily Investors L.P.'s NASDAQ ticker symbol, ATAX, First Quarter 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 First 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 a risks and uncertainties that could cause the actual futures 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 are 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 amplified by the projections or forward-looking statements made today. For more detailed information about these factors and/or other risks that may impact ATAX 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 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, America First Multifamily Investors, L.P. - CEO [2]


Thank you, operator. Good afternoon, and welcome to the First Quarter 2019 ATAX Earnings Call. This afternoon, I'd like to share a few of my thoughts on the first quarter results, the economy, interest rates and the notable transaction.

Then Craig Allen, ATAX CFO, will present the first quarter partnership financial results, then we will look forward to taking your questions.

In the first quarter, the Partnership reported a 7.3% increase in total revenue to $17.7 million compared to the first quarter of 2018.

With a 9% decrease of general and administrative expenses or earning $0.11 cash available for distribution per BUC.

Economic debt balance remains strong at start 2019, with first quarter gross domestic product exceeding expectations at 3.2%.

Unemployment following a 3.8% with average hourly earnings increasing moderately by 1.37%.

With inflation muted, a near target of 2%, all numbers are supporting strong fundamental credits moving forward in Multifamily.

In January, the Federal Open Market Committee was Fed funds unchanged from the previous rate hike in December of 2018 at 2.25% to 2.5% with the yield curve continuing to flatten with 2-year and 10-year treasury spreads narrowing to 14 basis points.

Providing continued challenge and sourcing new bond investments with acceptable leverage yields facilitating growth for the Partnership in mortgage revenue bond segment.

In the first quarter, the Partnership recognized approximately $3 million of contingent interest income with the sale of Vantage at Brooks located in San Antonio, Texas.

This being the fourth Vantage asset sale in the past 2 quarters.

At this time, the Partnership has currently invested in 10 Vantage assets. These assets are in some phase of construction, stabilizations or evaluation for sale.

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


Craig S. Allen, America First Multifamily Investors, L.P. - CFO [3]


Thanks, Chad. What I'd like to do is walk you through some notable transactions on the balance sheet, talk to you a little bit about the income statement, and then end up with some discussion on book value.

Total assets as of March 31, 2019, increased by about $11 million to $993 million versus the $983 million at December 31 of last year.

Looking at our mortgage revenue bond portfolio, right now we own mortgage revenue bonds in 13 states throughout the United States, approximating about $739 million, that represents 79 mortgage revenue bonds, and also represents about 10,800 units under management.

Every quarter, we talk about the percentage of mortgage revenue bonds to total assets. At the end of March of '19, mortgage revenue bonds approximated a 74% of total assets.

Again, if we go all the way back to when we started these efforts of increasing ownership in mortgage revenue bonds back to December 31, 2012, about 35% of our total assets were comprised of mortgage revenue bonds.

During the first quarter of this year, we acquired 2 mortgage revenue bonds for about $6.1 million in total value.

Also, we had 1 bond redeemed in the first quarter for about $5.6 million, and then in the first week in April of 2019, we had a subsequent event where 1 additional mortgage revenue bond was redeemed for about $6.2 million, and that's in Note 24 in the Q1 10-Q.

Another aspect of our total assets is MF Properties or the properties that we own. Those -- we own 2 MF Property possessions in 2 different states, 1 in California, 1 in Nebraska. Both are student loan properties, making up about 859 units and the value of those is about $64 million.

Chad talked a little bit about our investment in Vantage products. It's found on the balance sheet and it's called investment in unconsolidated entities.

At March 31 of this year, we had about $85 million invested as equity investments in the unconsolidated entities. Though the $85 million was located in 9 states, 3 in Texas, 2 in Nebraska, 2 in Tennessee, 1 in South Carolina and 1 in Florida.

The $85 million represents about 2,598 units under management as well. Last quarter, we talked a little bit about our total equity dollars invested in the Vantage projects, since we started investing in 2016.

In the first quarter of 2019, we invested about $6.7 million of equity investments in the Vantage projects. And since inception, we have invested about $84.2 million in these assets.

We had a subsequent event that happened in April, in the first week in April of 2019, we acquired another Vantage project or we invested in another Vantage project, the Vantage at Conroe, a 288 unit multifamily project, located just north of Houston, Texas. It was kind of surrounded by the Sam Houston National Forest.

Our total equity commitment is about $9.1 million. When we consider the Vantage at Conroe investment, we have a total of about -- just shy of 2,900 units of Vantage project -- units under management, approximating about 21.1% of the total units that we are invested in between Vantage and the mortgage revenue bonds.

Chad spoke a little bit about a transaction that we did in the first quarter and that was a sale of Vantage at Brooks.

It was a 288 unit, multifamily project located in San Antonio, Texas. We invested in the Vantage at Brooks through a loan in October of 2015.

We recognized about $3 million of contingent interest in Q1 of this year. And that $3 million of contingent interest would be considered to be taxable income in 2019.

And much like the other sale events that have transpired at ATAX, again, that would be considered to be a taxable event.

Based upon this taxable event of $3 million in April, we paid approximately $753,000 in Tier 2 income to our general partner.

Every quarter, we look at the percentage of fixed versus variable rate debt as well, too. And really since 2015, we've had a concerted effort as we fine-tuned the balance sheet to shift our mix from variable to more fixed.

Back in 2015, we had about 68% of our debt that was variable. Today, we have about 37% that's variable, and about 60% -- just shy of 63%, so say 63% fixed 37% variable.

Again, we -- this has been a consorted effort to gradually take more of our debt financing portfolio and convert it from variable to fixed rate. And we think that up to this point, we have been fairly successful achieving that.

The other thing we look at every quarter is interest rate sensitivity. And interest rate sensitivity is on Page 48 of the March 10-Q.

What we do in the interest rate sensitivity table is we shock, if you will, our portfolio, and we measure what that shock looks like all the way to a 200 basis point increase in interest rates.

So this measures, if interest rates go up, all at once, 200 basis points, and for 12 months, we have ATAX do nothing to counteract the increase that we just felt.

Again, slightly hypothetical, but it's very similar to the shock treatment that banks do as well, too. So for Q1, the -- on a -- if we were to realize a 200 basis point increase in rates, our CAD or cash available for distribution would decrease about $1.4 million, $1.5 million or about $0.024 to $0.025 of CAD.

So again, well within the parameters that we as management considered to be acceptable, and it's something that we actively manage. And again, were rates to increase of that magnitude, clearly, we would take action to counteract that in some fashion.

Total revenue for the quarter was $17.7 million, an increase over the previous quarter in 2018, which was $16.5 million.

The net income per unit, both basic and diluted, we reported $0.08 per BUC in Q1 of 2019, versus $0.09 in Q1 of 2018.

The cash available for distribution is something that we look at, and we utilize internally, and then we communicate to you each quarter and then on an annual basis. For Q1 2019, we reported $0.11 per BUC compared to $0.10 per BUC for the same quarter in 2018.

So an increase of $0.01 per BUC. And then finally, each quarter, we present to you the book value and the underlying value of our equity.

At December -- excuse me, March 31, 2019, our book value was $5.13 per unit, an increase of $0.10 from December 31, 2018, when we reported $5.03 per BUC. At this time, we'd be happy to take your questions and answer them as you ask them.


Questions and Answers


Operator [1]


(Operator Instructions) And our first question comes from the line of [John Baum] with America First (inaudible).


Unidentified Analyst, [2]


Couple of -- I guess, the first question, it's kind of housekeeping.

I have been with you guys for about 5 years right now, and I noticed on this year's K1 that roughly about 25% of my distributions consisted of taxable interest income, and there were no ordinary or qualified dividends in contradistinction to 2017 and '16.

Is there any reason why the interest income component was so large relative to dividends and qualified dividends in prior years?


Craig S. Allen, America First Multifamily Investors, L.P. - CFO [3]


Sure. This is Craig. Yes, in 2018, we -- there was a sale of Vantage at New Braunfels. And the sale of Vantage at New Braunfels was considered to be contingent interest.

And much the same as the Vantage at Brooks sale that we just talked about in January of this year, that would be considered to be taxable income on the -- think of contingent interest as a gain on sale but yet not truly considered to be a gain.


Unidentified Analyst, [4]


For me to be able to calculate this year's relative interest, would I be able to take the contingent interest allocable to the limited partners, and divide by what the number of BUCs outstanding and multiply it by my amount of units, would that get me an approximation, at least as to what the interest would be relative to this contingent interest transaction?


Craig S. Allen, America First Multifamily Investors, L.P. - CFO [5]


Yes, I mean, that would be a rough way to calculate. For example, we've reported the contingent interest for the Vantage at Brooks sale in January. And you could -- what would be allocable and for ease of calculation, it would be divided by total units and then times your position, yes.


Unidentified Analyst, [6]


That's fair enough.


Chad L. Daffer, America First Multifamily Investors, L.P. - CEO [7]


You call us direct off-line, and then we'd be happy to try more...


Unidentified Analyst, [8]


Sure. I don't want to occupy too much longer in it, but see one other question, you got in -- it's kind of, broader range, right here. And I, kind of, asked this on prior quarters. You've got to perform as tran per BUC in your fast fact sheet, and that's a nice chart right there to, kind of, look back like 4, 5 years, and do cumulative income and CAD, et cetera.

And my quick calculations to your -- look like you got roughly, if you go back to December 2014, you've got $0.25 of cumulative CAD in excess of the distributions right there.

You guys kind of -- is it go into a bank, so to speak, in terms of where you stand, as you look forward on this?

Or, I guess, as I'm -- unless you have a unusual transaction where you got a sale of property or something else, your CAD tends to runs maybe $0.01 or $0.02 in excess -- distributions in excess of a CAD.

So how do I invest with, kind of, crank that handle into these transactions that boost up CAD, but are not -- what you might normally consider to be operating activity. I know, it's kind of a broad question, but I've been trying to zero in on that, and I'd let you take a shot at it.


Chad L. Daffer, America First Multifamily Investors, L.P. - CEO [9]


Yes, I think, John, I'll try to answer a number of questions there. But I think, since 2015, you can see that where CAD is, we've exceeded our payment of our distribution by CAD on a year-over-year basis. I'm talking with investors and the direction of our board and the management team. We've paid out the $0.50 and continue to reinvest anything over and above that for the benefit of the unitholders long term.

And I expect that will be continue to be the plan, as it's -- as we are executing currently. And I really don't foresee that changing anytime in the near future.


Unidentified Analyst, [10]


Okay, and then finally, if I take a look at the revenue side, and I mean, if we exclude contingent interest income this year, you probably would have fallen short on the -- net income would have dropped, and I guess CAD would have dropped a little bit there too. I tried to ask this before. But are property sales -- what property sales are considered to be normalized, so to speak? And what property sales would be outside the computation of CAD?


Chad L. Daffer, America First Multifamily Investors, L.P. - CEO [11]


Well, I think, since 2015, we've asked the voters to allow us to invest equity into -- direct equity into projects, so I think, any sale of those projects would be considered normalized in that point forward.

It's tough for us to predict sometimes with our asset class. Earnings can be a little bit lumpy. I don't know if that's a scientific term or not. But as we continue to invest in ATAX and in Vantage-like assets, and we have the ability to stabilize, construct stabilize and then evaluate them for sale, the quarter by which those units will be sold will be recognized.

And so sometimes, it moves a little quicker than others. And as you know, we have not given any kind of future guidance on if and when those assets would be up for sale or close.

We understand that it's a little bit tough to predict on an ongoing basis, not knowing which bond -- which assets or bonds in the portfolio may or may not be sold to recognize the gain or loss of each quarter.


Unidentified Analyst, [12]


Well, if you just trade arbitrage, you guys ever foresee a time when CAD from -- without any other real estate operations, CAD would equal the $0.125 per quarter. I mean, is that your game plan to kind of get there? Or what it would it take for CAD to equal the $0.125 per quarter, just on your interest-rate sensitive products and lending and borrowing?


Chad L. Daffer, America First Multifamily Investors, L.P. - CEO [13]


I think we don't try and differentiate between the 2. Our goal is $0.125 a quarter and $0.50 annually, John.


Operator [14]


(Operator Instructions) All right. It is at this time, I'm not showing any further questions on the phone line. So that does conclude today's question-and-answer session. Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. Everyone, have a great day.