atax-10q_20200331.htm

 

 

 

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 March 31, 2020 

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.)

 

 

 

14301 FNB Parkway, Suite 211, Omaha, Nebraska

 

68154

(Address of principal executive offices)

 

(Zip Code)

 

 

 

(402) 952-1235

(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 March 31, 2020, the registrant had 60,545,204  Beneficial Unit Certificates representing assignments of limited partnership interests in America First Multifamily Investors, L.P. outstanding.

 

 


 

INDEX

PART I – FINANCIAL INFORMATION

 

Item 1

 

Financial Statements (Unaudited)

 

4

 

 

Condensed Consolidated Balance Sheets

 

4

 

 

Condensed Consolidated Statements of Operations

 

5

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss)

 

6

 

 

Condensed Consolidated Statements of Partners’ Capital

 

7

 

 

Condensed Consolidated Statements of Cash Flows

 

8

 

 

Notes to Condensed Consolidated Financial Statements

 

9

Item 2

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

36

Item 3

 

Quantitative and Qualitative Disclosures About Market Risk

 

51

Item 4

 

Controls and Procedures

 

53

 

 

 

 

 

PART II – OTHER INFORMATION

  Item 1A

 

Risk Factors

 

54

Item 2

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

55

Item 6

 

Exhibits

 

55

 

SIGNATURES

 

 

 

56

 

 

 


 

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 and contained in this report, and, accordingly, we cannot guarantee their accuracy or completeness. In addition, projections, assumptions and estimates of our future performance and the future performance of the industries 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, 2019 and in this report.

These forward-looking statements are subject, but not limited, to various risks and uncertainties, including those relating to:

 

current maturities of our financing arrangements and our ability to renew or refinance such financing arrangements;

 

defaults on the mortgage loans securing our mortgage revenue bonds (“MRBs”);

 

the competitive environment in which we operate;

 

risks associated with investing in multifamily, student, senior citizen residential properties and commercial properties;

 

changes in business conditions and the general economy, including the current and future impact of the novel coronavirus (“COVID-19”) on business operations, employment and government-mandated relief and mitigation measures;

 

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 (“IRC”);

 

geographic concentration within the MRB portfolio held by the Partnership; 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.

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. See Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of this Report for additional details.

 

 

 

 


 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

AMERICA FIRST MULTIFAMILY INVESTORS, L.P.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

 

 

March 31, 2020

 

 

December 31, 2019

 

Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

35,158,156

 

 

$

42,308,153

 

Restricted cash

 

 

600,646

 

 

 

877,828

 

Interest receivable, net

 

 

7,905,503

 

 

 

7,432,433

 

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

 

 

734,245,836

 

 

 

743,587,715

 

Mortgage revenue bonds, at fair value (Note 6)

 

 

26,836,439

 

 

 

30,009,750

 

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

 

 

-

 

 

 

43,349,357

 

Real estate assets: (Note 8)

 

 

 

 

 

 

 

 

Land and improvements

 

 

4,900,465

 

 

 

4,906,130

 

Buildings and improvements

 

 

72,052,740

 

 

 

72,011,533

 

Real estate assets before accumulated depreciation

 

 

76,953,205

 

 

 

76,917,663

 

Accumulated depreciation

 

 

(16,064,714

)

 

 

(15,357,700

)

Net real estate assets

 

 

60,888,491

 

 

 

61,559,963

 

Investments in unconsolidated entities (Note 9)

 

 

98,643,727

 

 

 

86,981,864

 

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

 

 

7,999,094

 

 

 

7,999,094

 

Other assets (Note 12)

 

 

5,238,370

 

 

 

5,062,351

 

Total Assets

 

$

977,516,262

 

 

$

1,029,168,508

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

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

 

$

9,465,120

 

 

$

9,036,167

 

Distribution payable

 

 

7,604,401

 

 

 

7,607,984

 

Unsecured lines of credit (Note 14)

 

 

12,540,000

 

 

 

13,200,000

 

Debt financing, net (Note 15)

 

 

500,385,429

 

 

 

536,197,421

 

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

 

 

26,689,992

 

 

 

26,802,246

 

Total Liabilities

 

 

556,684,942

 

 

 

592,843,818

 

 

 

 

 

 

 

 

 

 

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)

 

 

94,395,439

 

 

 

94,386,427

 

 

 

 

 

 

 

 

 

 

Partnersʼ Capital:

 

 

 

 

 

 

 

 

General Partner (Note 1)

 

 

601,172

 

 

 

735,128

 

Beneficial Unit Certificates ("BUCs," Note 1)

 

 

325,834,709

 

 

 

341,203,135

 

Total Partnersʼ Capital

 

 

326,435,881

 

 

 

341,938,263

 

Total Liabilities and Partnersʼ Capital

 

$

977,516,262

 

 

$

1,029,168,508

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

4


 

AMERICA FIRST MULTIFAMILY INVESTORS, L.P.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

 

 

For the Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Revenues:

 

 

 

 

 

 

 

 

Investment income

 

$

11,543,423

 

 

$

12,407,876

 

Property revenues

 

 

1,952,247

 

 

 

1,993,629

 

Contingent interest income

 

 

12,043

 

 

 

3,012,102

 

Other interest income

 

 

228,422

 

 

 

222,238

 

Other income

 

 

-

 

 

 

28,753

 

Total revenues

 

 

13,736,135

 

 

 

17,664,598

 

Expenses:

 

 

 

 

 

 

 

 

Real estate operating (exclusive of items shown below)

 

 

1,175,374

 

 

 

1,176,818

 

Provision for credit loss (Note 6)

 

 

1,357,681

 

 

 

-

 

Depreciation and amortization

 

 

709,438

 

 

 

820,808

 

Interest expense

 

 

6,017,968

 

 

 

6,394,920

 

General and administrative

 

 

2,898,526

 

 

 

2,778,591

 

Total expenses

 

 

12,158,987

 

 

 

11,171,137

 

Other Income:

 

 

 

 

 

 

 

 

Gain on sale of securities

 

 

1,416,023

 

 

 

-

 

Income before income taxes

 

 

2,993,171

 

 

 

6,493,461

 

Income tax expense

 

 

11,414

 

 

 

41,648

 

Net income

 

 

2,981,757

 

 

 

6,451,813

 

Redeemable Series A Preferred Unit distributions and accretion

 

 

(717,763

)

 

 

(717,763

)

Net income available to Partners

 

$

2,263,994

 

 

$

5,734,050

 

 

 

 

 

 

 

 

 

 

Net income (loss) available to Partners allocated to:

 

 

 

 

 

 

 

 

General Partner

 

$

(53,404

)

 

$

780,245

 

Limited Partners - BUCs

 

 

2,312,216

 

 

 

4,920,644

 

Limited Partners - Restricted units

 

 

5,182

 

 

 

33,161

 

 

 

$

2,263,994

 

 

$

5,734,050

 

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

 

$

0.04

 

 

$

0.08

 

Weighted average number of BUCs outstanding, basic

 

 

60,754,179

 

 

 

60,426,177

 

Weighted average number of BUCs outstanding, diluted

 

 

60,754,179

 

 

 

60,426,177

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

5


 

AMERICA FIRST MULTIFAMILY INVESTORS, L.P.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

 

 

 

For the Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Net income

 

$

2,981,757

 

 

$

6,451,813

 

Reversal of net unrealized gains on sale of securities

 

 

(1,408,804

)

 

 

-

 

Reversal of net unrealized loss on securities to

  provision for credit loss

 

 

372,169

 

 

 

-

 

Unrealized gain (loss) on securities

 

 

(7,057,736

)

 

 

8,143,927

 

Comprehensive income (loss)

 

$

(5,112,614

)

 

$

14,595,740

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

6


 

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, 2019

 

$

735,128

 

 

 

60,835,204

 

 

$

341,203,135

 

 

$

341,938,263

 

 

$

99,308,677

 

Distributions paid or accrued ($0.125 per BUC):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Regular distribution

 

 

(80,501

)

 

 

-

 

 

 

(7,969,618

)

 

 

(8,050,119

)

 

 

-

 

Distribution of Tier 2 loss (income) (Note 3)

 

 

80,501

 

 

 

-

 

 

 

365,218

 

 

 

445,719

 

 

 

-

 

Net income allocable to Partners

 

 

(53,404

)

 

 

-

 

 

 

2,317,398

 

 

 

2,263,994

 

 

 

-

 

Repurchase of BUCs

 

 

-

 

 

 

(290,000

)

 

 

(2,106,673

)

 

 

(2,106,673

)

 

 

-

 

Restricted units awarded

 

 

-

 

 

 

290,000

 

 

 

-

 

 

 

-

 

 

 

-

 

Restricted unit compensation expense

 

 

391

 

 

 

-

 

 

 

38,677

 

 

 

39,068

 

 

 

-

 

Unrealized loss on securities

 

 

(70,577

)

 

 

-

 

 

 

(6,987,159

)

 

 

(7,057,736

)

 

 

(7,057,736

)

Reversal of net unrealized gains on

   sale of securities

 

 

(14,088

)

 

 

-

 

 

 

(1,394,716

)

 

 

(1,408,804

)

 

 

(1,408,804

)

Reversal of net unrealized loss on securities to

  provision for credit loss

 

 

3,722

 

 

 

-

 

 

 

368,447

 

 

 

372,169

 

 

 

372,169

 

Balance as of March 31, 2020

 

$

601,172

 

 

$

60,835,204

 

 

$

325,834,709

 

 

$

326,435,881

 

 

$

91,214,306

 

 

 

 

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 13)

 

 

(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

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

 

7


 

AMERICA FIRST MULTIFAMILY INVESTORS, L.P.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

 

For the Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

2,981,757

 

 

$

6,451,813

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization expense

 

 

709,438

 

 

 

820,808

 

Gain on sale of investment in securities

 

 

(1,416,023

)

 

 

-

 

Provision for credit loss

 

 

1,357,681

 

 

 

-

 

Contingent interest realized on investing activities

 

 

(12,043

)

 

 

(3,012,102

)

(Gain) loss on derivatives, net of cash paid

 

 

(25,201

)

 

 

353,127

 

Restricted unit compensation expense

 

 

39,068

 

 

 

184,184

 

Bond premium/discount amortization

 

 

(27,923

)

 

 

(52,456

)

Debt premium amortization

 

 

(10,111

)

 

 

-

 

Amortization of deferred financing costs

 

 

358,908

 

 

 

361,305

 

Deferred income tax expense & income tax payable/receivable

 

 

6,914

 

 

 

310,496

 

Change in preferred return receivable from unconsolidated entities, net

 

 

(1,391,572

)

 

 

(1,556,390

)

Changes in operating assets and liabilities

 

 

 

 

 

 

 

 

Increase in interest receivable

 

 

(473,070

)

 

 

(663,475

)

(Increase) decrease in other assets

 

 

(105,961

)

 

 

722,938

 

Increase (decrease) in accounts payable and accrued expenses

 

 

352,242

 

 

 

(354,666

)

Net cash provided by operating activities

 

 

2,344,104

 

 

 

3,565,582

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(86,209

)

 

 

(54,337

)

Acquisition of mortgage revenue bonds

 

 

-

 

 

 

(6,050,000

)

Contributions to unconsolidated entities

 

 

(10,270,291

)

 

 

(6,594,286

)

Principal payments received on mortgage revenue bonds

 

 

4,470,529

 

 

 

6,831,237

 

Principal payments received on taxable mortgage revenue bonds

 

 

2,138

 

 

 

1,954

 

Proceeds from sale of PHC Certificates

 

 

43,349,357

 

 

 

-

 

Principal payments received on PHC Certificates

 

 

-

 

 

 

2,767,166

 

Principal payments received on property loans and contingent interest

 

 

12,043

 

 

 

11,379,737

 

Net cash provided by investing activities

 

 

37,477,567

 

 

 

8,281,471

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Distributions paid

 

 

(8,316,733

)

 

 

(8,284,917

)

Repurchase of BUCs

 

 

(2,106,673

)

 

 

-

 

Proceeds from debt financing

 

 

-

 

 

 

5,263,500

 

Principal payments on debt financing

 

 

(36,013,217

)

 

 

(2,976,289

)

Principal payments on mortgages payable

 

 

(120,958

)

 

 

(104,685

)

Principal payments on unsecured lines of credit

 

 

(660,000

)

 

 

-

 

Decrease in security deposit liability related to restricted cash

 

 

(30,549

)

 

 

(10,455

)

Debt financing and other deferred costs

 

 

(720

)

 

 

-

 

Net cash used in financing activities

 

 

(47,248,850

)

 

 

(6,112,846

)

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

(7,427,179

)

 

 

5,734,207

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

43,185,981

 

 

 

33,268,611

 

Cash, cash equivalents and restricted cash at end of period

 

$

35,758,802

 

 

$

39,002,818

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid during the period for interest

 

$

4,880,193

 

 

$

5,514,997

 

Cash paid during the period for income taxes

 

 

4,500

 

 

 

-

 

Supplemental disclosure of noncash investing and financing activities:

 

 

 

 

 

 

 

 

Distributions declared but not paid for BUCs and General Partner

 

$

7,604,401

 

 

$

8,393,271

 

Distributions declared but not paid for Series A Preferred Units

 

 

708,750

 

 

 

708,750

 

Capital expenditures financed through accounts payable

 

 

3,959

 

 

 

850

 

Deferred financing costs financed through accounts payable

 

 

103,300

 

 

 

4,843

 

 

 

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

 

 

 

March 31, 2020

 

 

March 31, 2019

 

Cash and cash equivalents

 

$

35,158,156

 

 

$

38,210,497

 

Restricted cash

 

 

600,646

 

 

 

792,321

 

Total cash, cash equivalents and restricted cash

 

$

35,758,802

 

 

$

39,002,818

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

 

8


 

AMERICA FIRST MULTIFAMILY INVESTORS, L.P.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

1. Basis of Presentation

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 have been issued to provide construction and/or permanent financing for affordable multifamily and student housing residential properties (collectively “Residential Properties”) and commercial properties. The Partnership expects and believes the interest earned on these MRBs is excludable from gross income for federal income tax purposes.  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 to 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, student and senior citizen 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 sole general partner is America First Capital Associates Limited Partnership Two (“AFCA 2” or “General Partner”).  The general partner of AFCA 2 is Greystone AF Manager LLC (“Greystone Manager”), a wholly owned subsidiary of Greystone & Co., Inc. (collectively with its affiliates, “Greystone”).  

The Partnership has issued Beneficial Unit Certificates (“BUCs”) representing assigned limited partner interests to investors (“BUC holders”). The Partnership has also issued non-cumulative, non-voting, non-convertible Series A Preferred Units (“Series A Preferred Units”) that represent limited interests in the Partnership under the Partnership’s First Amended and Restated Agreement of Limited Partnership dated September 15, 2015, as further amended (the “Partnership Agreement”). The Series A Preferred Units are redeemable in the future and represent limited partnership interests in the Partnership pursuant to subscription agreements with five financial institutions (see Note 19). 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.  The consolidated subsidiaries of the Partnership for the periods presented 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 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, a real estate asset, and certain property loans; and

 

The Suites on Paseo MF Property, a real estate asset, is owned directly by the Partnership.

The Partnership also consolidates variable interest entities (“VIEs”) in which the Partnership is deemed to be the primary beneficiary.

9


 

Impairment of Mortgage Revenue Bonds

The Partnership periodically reviews its MRBs for impairment.  The Partnership evaluates whether unrealized losses are considered other-than-temporary impairments based on various factors including:

 

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;

 

Adverse conditions specifically related to the security, its collateral, or both;

 

Volatility of the fair value of the security;

 

The likelihood of the borrower being able to make payments;

 

Failure of the issuer to make scheduled interest or principal payments; and

 

Recoveries or additional declines in fair value after the balance sheet date.

While the Partnership evaluates all available information, it focuses specifically on whether the security’s estimated fair value is below amortized cost.

If a MRB’s estimated fair value is below amortized cost, and the Partnership has the intent to sell or may be required to sell the MRB prior to the time that its value recovers or until maturity, the Partnership will record an other-than-temporary impairment through earnings equal to the difference between the MRB’s carrying value and its fair value, and will establish an allowance for credit loss. If the Partnership does not expect to sell an other-than-temporarily impaired MRB, only the portion of the other-than-temporary impairment related to credit losses is recognized through earnings as a provision for credit loss, with the remainder recognized as a component of other comprehensive income (loss).  In determining the provision for credit loss, the Partnership compares the present value of cash flows expected to be collected to the MRB’s amortized cost basis.

The recognition of other-than-temporary impairment, provision for credit loss, and the potential impairment analysis are subject to a considerable degree of judgment, the results of which, when applied under different conditions or assumptions, could have a material impact on the Partnership’s condensed consolidated financial statements. If the Partnership experiences deterioration in the values of its MRB portfolio, the Partnership may incur other-than-temporary impairments or provision for credit losses that could negatively impact the Partnership’s financial condition, cash flows, and reported earnings. During the three months ended March 31, 2020, there was a provision for credit loss reported by the Partnership related to one MRB (see Note 6).  There were no other-than-temporary impairment charges or provision for credit loss reported during the three months ended March 31, 2019.

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 Partnership’s 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, 2019. These condensed consolidated financial statements and notes have been prepared consistently with the 2019 Form 10-K. In the opinion of management, all adjustments (consisting of normal and recurring accruals) necessary to present fairly the Partnership’s financial position as of March 31, 2020, 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, 2019 was derived from the audited annual consolidated financial statements but does not contain all the footnote disclosures from the annual consolidated financial statements.

 

10


 

A novel strain of coronavirus (“COVID-19”) was reported to have surfaced in Wuhan, China in December 2019, and has since spread globally, including to every state in the United States. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020, the United States declared a national emergency with respect to COVID-19. The COVID-19 outbreak is disrupting supply chains and affecting production, sales and employment across a range of industries. The extent of the impact of COVID-19 on the Partnership’s operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, the impact on the underlying borrowers of MRBs, tenants at the MF Properties and operations of the Partnership’s investments in unconsolidated entities, all of which are uncertain and cannot be predicted at this time. In addition, market volatility may cause fluctuations in the valuation of the Partnerships’ MRBs, taxable MRBs, MF Properties and investments in unconsolidated entities. The extent to which COVID-19 will impact the Partnership’s financial condition or results of operations is uncertain.

 

Recently Issued Accounting Pronouncements

 

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments – Credit Losses (Topic 326).”  ASU 2016-13 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.  ASU 2016-13 also includes changes to the impairment model for available-for-sale debt securities, such as the Partnership’s MRBs and taxable MRBs.  In November 2019, the FASB issued ASU 2019-10 which amended the mandatory effective dates of certain ASUs, including ASU 2016-13, based on an entity’s filing status.  As a smaller reporting company, the Partnership’s mandatory effective date for ASU 2016-13 is now January 1, 2023, and the Partnership has elected to defer adoption until that date.  The delay in implementing ASU 2016-13 will allow the Partnership to take advantage of any additional guidance that may come out from the FASB on implementing ASU 2016-13. The effective date may be sooner if the Partnership becomes an accelerated filer in the future. Prior to the issuance of ASU 2019-10, the Partnership had completed an initial assessment of the items that are within the scope of ASU 2016-13. Furthermore, the Partnership began developing data collection processes, assessment procedures and internal controls required to implement ASU 2016-13. The Partnership will continue to develop data collection processes, assessment procedures and internal controls that will be required when it does implement ASU 2016-13, and to evaluate the impact on the Partnership’s consolidated financial statements.

 

 

3. Partnership Income, Expenses and Cash Distributions  

The Partnership Agreement contains provisions for the distribution of Net Interest Income, Net Residual Proceeds and Liquidation Proceeds, for the allocation of income or loss from operations, and for the allocation of income and loss arising from a repayment, sale, or liquidation of investments.  Income and losses will be allocated to each Unitholder on a periodic basis, as determined by the General Partner, based on the number of 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.

For purposes of the Partnership Agreement, income and cash received by the Partnership from its investments in MF Properties, investments in unconsolidated entities, and property loans will be included in the Partnership’s Net Interest Income, and cash distributions received by the Partnership from the sale or redemption of such investments will be included in the Partnership’s Net Residual Proceeds.  

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.

 

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 Partnership 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 “2015 Plan”) are considered participating securities. There were no dilutive BUCs for the three months ended March 31, 2020 and 2019.

 

11


 

5. Variable Interest Entities

Consolidated Variable Interest Entities (“VIEs”)

The Partnership has determined the Tender Option Bond (“TOB”), Term TOB, Term A/B and TEBS Financings are VIEs and the Partnership is the primary beneficiary. In determining the primary beneficiary of each VIE, the Partnership considered which party has the power to control the activities of the VIE which most significantly impact its 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 the 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 Floater Certificates related to the TOB Financings, and the Class A Certificates related to the Term TOB, Term A/B 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, and the PHCs secured by the TOB 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 17 non-consolidated VIEs as of March 31, 2020 and December 31, 2019. The following table summarizes the Partnership’s variable interests in these entities as of March 31, 2020 and December 31, 2019:

 

 

 

Maximum Exposure to Loss

 

 

 

March 31, 2020

 

 

December 31, 2019

 

Mortgage revenue bonds

 

$

24,647,000

 

 

$

30,455,000

 

Investment in unconsolidated entities

 

 

98,643,727

 

 

 

86,981,864

 

 

 

$

123,290,727

 

 

$

117,436,864

 

 

The maximum exposure to loss for the MRBs is equal to the cost adjusted for paydowns. The difference between an MRB’s carrying value on the Partnership’s condensed consolidated balance sheets and the maximum exposure to loss is a function of the unrealized gains or losses on the MRB. 

 

The maximum exposure to loss for investments in unconsolidated entities is equal to the Partnership’s carrying value.

 

12


 

6. Investments in Mortgage Revenue Bonds

MRBs owned by the Partnership provide construction and/or permanent financing for Residential Properties and a commercial property.  MRBs are either held directly by the Partnership or are held in trusts created in connection with debt financing transactions (Note 15). The Partnership had the following investments in MRBs as of March 31, 2020 and December 31, 2019:

 

 

 

March 31, 2020

 

Description of Mortgage Revenue Bonds Held in Trust

 

State

 

Cost Adjusted for

Paydowns and

Allowances

 

 

Cumulative

Unrealized Gain

 

 

Cumulative

Unrealized Loss

 

 

Estimated Fair Value

 

Courtyard - Series A (5)

 

CA

 

$

10,126,458

 

 

$

1,428,563

 

 

$

-

 

 

$

11,555,021

 

Glenview Apartments - Series A (4)

 

CA

 

 

4,521,529

 

 

 

687,871

 

 

 

-

 

 

 

5,209,400

 

Harmony Court Bakersfield - Series A (5)

 

CA

 

 

3,692,247

 

 

 

487,054

 

 

 

-

 

 

 

4,179,301

 

Harmony Terrace - Series A (5)

 

CA

 

 

6,834,955

 

 

 

1,002,038

 

 

 

-

 

 

 

7,836,993

 

Harden Ranch - Series A (3)

 

CA

 

 

6,681,530

 

 

 

1,094,025

 

 

 

-

 

 

 

7,775,555

 

Las Palmas II - Series A (5)

 

CA

 

 

1,675,475

 

 

 

234,810

 

 

 

-

 

 

 

1,910,285

 

Montclair Apartments - Series A (4)

 

CA

 

 

2,449,565

 

 

 

415,776

 

 

 

-

 

 

 

2,865,341

 

Montecito at Williams Ranch Apartments - Series A (7)

 

CA

 

 

7,667,712

 

 

 

1,457,424

 

 

 

-

 

 

 

9,125,136

 

San Vicente - Series A (5)

 

CA

 

 

3,454,740

 

 

 

452,745

 

 

 

-

 

 

 

3,907,485

 

Santa Fe Apartments - Series A (4)

 

CA

 

 

2,967,556

 

 

 

503,697

 

 

 

-

 

 

 

3,471,253

 

Seasons at Simi Valley - Series A (5)

 

CA

 

 

4,271,321

 

 

 

818,274

 

 

 

-

 

 

 

5,089,595

 

Seasons Lakewood - Series A (5)

 

CA

 

 

7,280,713

 

 

 

999,919

 

 

 

-

 

 

 

8,280,632

 

Seasons San Juan Capistrano - Series A (5)

 

CA

 

 

12,258,343

 

 

 

1,683,537

 

 

 

-

 

 

 

13,941,880

 

Summerhill - Series A (5)

 

CA

 

 

6,357,990

 

 

 

809,791

 

 

 

-

 

 

 

7,167,781

 

Sycamore Walk - Series A (5)

 

CA

 

 

3,548,939

 

 

 

527,404

 

 

 

-

 

 

 

4,076,343

 

The Village at Madera - Series A (5)

 

CA

 

 

3,053,775

 

 

 

402,832

 

 

 

-

 

 

 

3,456,607

 

Tyler Park Townhomes - Series A (3)

 

CA

 

 

5,820,554

 

 

 

685,637

 

 

 

-

 

 

 

6,506,191

 

Vineyard Gardens - Series A (7)

 

CA

 

 

3,990,400

 

 

 

751,127

 

 

 

-

 

 

 

4,741,527

 

Westside Village Market - Series A (3)

 

CA

 

 

3,803,721

 

 

 

590,032

 

 

 

-

 

 

 

4,393,753

 

Brookstone (1)

 

IL

 

 

7,399,317

 

 

 

1,923,740

 

 

 

-

 

 

 

9,323,057

 

Copper Gate Apartments (3)

 

IN

 

 

5,005,000

 

 

 

565,018

 

 

 

-

 

 

 

5,570,018

 

Renaissance - Series A (4)

 

LA

 

 

10,969,168

 

 

 

1,774,107

 

 

 

-

 

 

 

12,743,275

 

Live 929 Apartments (7), (8)

 

MD

 

 

39,907,484

 

 

 

-

 

 

 

(403,464

)

 

 

39,504,020

 

Woodlynn Village (1)

 

MN

 

 

4,172,000

 

 

 

10,156

 

 

 

-

 

 

 

4,182,156

 

Gateway Village (2)

 

NC

 

 

2,600,000

 

 

 

431,554

 

 

 

-

 

 

 

3,031,554

 

Greens Property - Series A (3)

 

NC

 

 

7,910,000

 

 

 

702,514

 

 

 

-

 

 

 

8,612,514

 

Lynnhaven Apartments (2)

 

NC

 

 

3,450,000

 

 

 

462,437

 

 

 

-

 

 

 

3,912,437

 

Silver Moon - Series A (4)

 

NM

 

 

7,746,418

 

 

 

1,311,816

 

 

 

-

 

 

 

9,058,234

 

Village at Avalon - Series A (6)

 

NM

 

 

16,274,407

 

 

 

3,132,378

 

 

 

-

 

 

 

19,406,785

 

Ohio Properties - Series A (1)

 

OH

 

 

13,823,998

 

 

 

46,555

 

 

 

-

 

 

 

13,870,553

 

Bridle Ridge (1)

 

SC

 

 

7,275,000

 

 

 

54,595

 

 

 

-

 

 

 

7,329,595

 

Columbia Gardens (5)

 

SC

 

 

13,023,898