UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2015
OR
o 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)
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Delaware | 47-0810385 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
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1004 Farnam Street, Suite 400 | Omaha, Nebraska 68102 |
(Address of principal executive offices) | (Zip Code) |
(402) 444-1630 |
(Registrant’s telephone number, including area code) |
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 x NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES x NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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| | | |
Large accelerated filer o | Accelerated filer x | Non- accelerated filer o | Smaller reporting company o |
| | (do not check if a smaller reporting company) | |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o NO x
INDEX
PART I – FINANCIAL INFORMATION
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| | | |
| Financial Statements (Unaudited) | | |
| Condensed Consolidated Balance Sheets | |
| Condensed Consolidated Statements of Operations | |
| Condensed Consolidated Statements of Comprehensive Income (Loss) | |
| Condensed Consolidated Statements of Partners’ Capital | |
| Condensed Consolidated Statements of Cash Flows | |
| Notes to Condensed Consolidated Financial Statements | |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
| Quantitative and Qualitative Disclosures About Market Risk | |
| Controls and Procedures | |
PART II – OTHER INFORMATION
Forward-Looking Statements
This report (including, but not limited to, the information contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”) contains forward-looking statements. All statements other than statements of historical facts contained in this report, including statements regarding our future results of operations and financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. When used, statements which are not historical in nature, including those containing words such as “anticipate,” “estimate,” “should,” “expect,” “believe,” “intend,” and similar expressions, are intended to identify forward-looking statements. We have based forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. This report also contains estimates and other statistical data made by independent parties and by us relating to market size and growth and other industry data. This data involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. We have not independently verified the statistical and other industry data generated by independent parties which are contained in this report and, accordingly, we cannot guarantee their accuracy or completeness.
These forward-looking statements are subject to various risks and uncertainties, including those relating to:
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• | current maturities of our financing arrangements and our ability to renew or refinance such financing arrangements; |
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• | defaults on the mortgage loans securing our mortgage revenue bonds and mortgage-backed securities; |
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• | risks associated with investing in multifamily, student, senior citizen residential and commercial properties, including changes in business conditions and the general economy; |
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• | changes in short-term interest rates; |
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• | our ability to use borrowings to finance our assets; |
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• | current uncertain economic and credit market conditions; |
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• | changes in the United States Department of Housing and Urban Development Capital Fund Program; and |
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• | changes in 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 as a result of new information, future events or otherwise. 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 headings “Risk Factors” in Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014 and in Item 1A of Part II of this document.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
AMERICA FIRST MULTIFAMILY INVESTORS, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
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| | | | | | | | |
| | March 31, 2015 | | December 31, 2014 |
| | (UNAUDITED) | | |
Assets | | | | |
Cash and cash equivalents | | $ | 24,205,247 |
| | $ | 49,193,343 |
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Restricted cash | | 7,836,842 |
| | 11,685,729 |
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Interest receivable | | 5,806,290 |
| | 4,121,486 |
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Mortgage revenue bonds held in trust, at fair value (Notes 4 & 9) | | 426,022,847 |
| | 378,423,092 |
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Mortgage revenue bonds, at fair value (Note 4) | | 81,875,851 |
| | 70,601,045 |
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Public housing capital fund trusts, at fair value (Note 5) | | 60,272,941 |
| | 61,263,123 |
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Mortgage-backed securities, at fair value (Note 6) | | 14,884,339 |
| | 14,841,558 |
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Real estate assets: (Note 7) | | | | |
Land and improvements | | 15,590,493 |
| | 15,589,893 |
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Buildings and improvements | | 132,000,442 |
| | 131,910,221 |
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Real estate assets before accumulated depreciation | | 147,590,935 |
| | 147,500,114 |
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Accumulated depreciation | | (26,327,145 | ) | | (24,691,800 | ) |
Net real estate assets | | 121,263,790 |
| | 122,808,314 |
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Other assets (Note 8) | | 30,564,221 |
| | 31,301,527 |
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Total Assets | | $ | 772,732,368 |
| | $ | 744,239,217 |
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Liabilities | | | | |
Accounts payable, accrued expenses and other liabilities | | $ | 4,995,537 |
| | $ | 4,627,089 |
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Distribution payable | | 7,607,693 |
| | 7,617,390 |
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Debt financing (Note 9) | | 379,307,493 |
| | 345,359,000 |
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Mortgages payable (Note 10) | | 76,445,451 |
| | 76,707,834 |
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Derivative swap, at fair value (Note 12) | | 1,165,855 |
| | — |
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Total Liabilities | | 469,522,029 |
| | 434,311,313 |
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| | | | |
Commitments and Contingencies (Note 14) | |
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Partners' Capital | | | | |
General Partner (Note 2) | | 512,533 |
| | 578,238 |
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Beneficial Unit Certificate holders | | 323,952,314 |
| | 330,457,117 |
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Unallocated deficit of Consolidated VIEs | | (21,237,622 | ) | | (21,091,456 | ) |
Total Partners' Capital | | 303,227,225 |
| | 309,943,899 |
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Noncontrolling interest (Note 7) | | (16,886 | ) | | (15,995 | ) |
Total Capital | | 303,210,339 |
| | 309,927,904 |
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Total Liabilities and Partners' Capital | | $ | 772,732,368 |
| | $ | 744,239,217 |
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The accompanying notes are an integral part of the condensed consolidated financial statements.
AMERICA FIRST MULTIFAMILY INVESTORS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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| | | | | | | | |
| | For the Three Months Ended, |
| | March 31, 2015 | | March 31, 2014 |
Revenues: | | | | |
Property revenues | | $ | 5,106,369 |
| | $ | 3,951,216 |
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Investment income | | 7,979,784 |
| | 6,205,558 |
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Gain on mortgage revenue bond - redemption | | — |
| | 2,835,243 |
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Other interest income | | 224,540 |
| | 208,823 |
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Total revenues | | 13,310,693 |
| | 13,200,840 |
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Expenses: | | | | |
Real estate operating (exclusive of items shown below) | | 2,958,605 |
| | 2,100,293 |
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Depreciation and amortization | | 2,031,898 |
| | 1,613,346 |
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Interest | | 3,989,121 |
| | 2,169,549 |
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General and administrative | | 1,807,481 |
| | 1,270,926 |
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Total expenses | | 10,787,105 |
| | 7,154,114 |
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Net income | | 2,523,588 |
| | 6,046,726 |
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Net loss attributable to noncontrolling interest | | (891 | ) | | (103 | ) |
Net income - America First Multifamily Investors, L.P. | | $ | 2,524,479 |
| | $ | 6,046,829 |
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| | | | |
Net income (loss) allocated to: | | | | |
General Partner | | $ | 26,706 |
| | $ | 742,055 |
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Limited Partners - Unitholders | | 2,643,939 |
| | 5,417,545 |
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Unallocated loss of Consolidated Property VIEs | | (146,166 | ) | | (112,771 | ) |
Noncontrolling interest | | (891 | ) | | (103 | ) |
| | $ | 2,523,588 |
| | $ | 6,046,726 |
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Unitholders' interest in net income per unit (basic and diluted): | | | | |
Net income, basic and diluted, per unit | | $ | 0.04 |
| | $ | 0.10 |
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Distributions declared, per unit | | $ | 0.125 |
| | $ | 0.125 |
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Weighted average number of units outstanding, basic and diluted | | 60,252,928 |
| | 56,919,595 |
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The accompanying notes are an integral part of the condensed consolidated financial statements.
AMERICA FIRST MULTIFAMILY INVESTORS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
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| | | | | | | | |
| | For the Three Months Ended, |
| | March 31, 2015 | | March 31, 2014 |
Net income | | $ | 2,523,588 |
| | $ | 6,046,726 |
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Unrealized (loss) gain on securities | | (1,057,235 | ) | | 18,041,725 |
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Unrealized (loss) gain on bond purchase commitments | | (576,225 | ) | | 3,489,237 |
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Comprehensive income - America First Multifamily Investors, L.P. | | $ | 890,128 |
| | $ | 27,577,688 |
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| | | | |
Comprehensive income (loss) allocated to: | | | | |
General Partner | | $ | 10,372 |
| | $ | 957,364 |
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Limited Partners - Unitholders | | 1,026,813 |
| | 26,733,198 |
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Unallocated gain (loss) of Consolidated Property VIEs | | (146,166 | ) | | (112,771 | ) |
Noncontrolling interest | | (891 | ) | | (103 | ) |
Comprehensive income - America First Multifamily Investors, L.P. | | $ | 890,128 |
| | $ | 27,577,688 |
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The accompanying notes are an integral part of the condensed consolidated financial statements.
AMERICA FIRST MULTIFAMILY INVESTORS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL
FOR THE THREE MONTHS ENDED MARCH 31, 2015 and 2014
(UNAUDITED)
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| General Partner | | # of Units | | Beneficial Unit Certificate Holders | | Unallocated Deficit of Consolidated VIEs | | Non- controlling Interest | | Total | | Accumulated Other Comprehensive Income (Loss) |
Balance at January 1, 2015 | $ | 578,238 |
| | 60,252,928 |
| | $ | 330,457,117 |
| | $ | (21,091,456 | ) | | $ | (15,995 | ) | | $ | 309,927,904 |
| | $ | 51,698,418 |
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Distributions paid or accrued | (76,077 | ) | | | | (7,531,616 | ) | | — |
| | — |
| | (7,607,693 | ) | | — |
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Net income (loss) | 26,706 |
| | | | 2,643,939 |
| | (146,166 | ) | | (891 | ) | | 2,523,588 |
| | — |
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Unrealized loss on securities | (10,572 | ) | | | | (1,046,663 | ) | | — |
| | — |
| | (1,057,235 | ) | | (1,057,235 | ) |
Unrealized loss on bond purchase commitments | (5,762 | ) | | | | (570,463 | ) | | — |
| | — |
| | (576,225 | ) | | (576,225 | ) |
Balance at March 31, 2015 | $ | 512,533 |
| | 60,252,928 |
| | $ | 323,952,314 |
| | $ | (21,237,622 | ) | | $ | (16,886 | ) | | $ | 303,210,339 |
| | $ | 50,064,958 |
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| | | | | | | | | | | | | |
| General Partner | | # of Units | | Beneficial Unit Certificate Holders | | Unallocated Deficit of Consolidated VIEs | | Non- controlling Interest | | Total | | Accumulated Other Comprehensive Income |
Balance at January 1, 2014 | $ | 16,671 |
| | 51,052,928 |
| | $ | 223,573,312 |
| | $ | (20,455,896 | ) | | $ | (11,322 | ) | | $ | 203,122,765 |
| | $ | (20,128,314 | ) |
Sale of beneficial unit certificates | | | 9,200,000 |
| | 51,367,692 |
| | — |
| | — |
| | 51,367,692 |
| | — |
|
Redemption of mortgage revenue bond | (17,431 | ) | | | | (1,725,657 | ) | | — |
| | — |
| | (1,743,088 | ) | | (1,743,088 | ) |
Distributions paid or accrued | (763,409 | ) | | | | (7,531,616 | ) | | — |
| | — |
| | (8,295,025 | ) | | — |
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Net income (loss) | 742,055 |
| | | | 5,417,545 |
| | (112,771 | ) | | (103 | ) | | 6,046,726 |
| | — |
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Unrealized gain on securities | 180,417 |
| | | | 17,861,308 |
| | — |
| | — |
| | 18,041,725 |
| | 18,041,725 |
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Unrealized gain on bond purchase commitments | 34,892 |
| | | | 3,454,345 |
| | — |
| | — |
| | 3,489,237 |
| | 3,489,237 |
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Balance at March 31, 2014 | $ | 193,195 |
| | 60,252,928 |
| | $ | 292,416,929 |
| | $ | (20,568,667 | ) | | $ | (11,425 | ) | | $ | 272,030,032 |
| | $ | (340,441 | ) |
The accompanying notes are an integral part of the condensed consolidated financial statements.
AMERICA FIRST MULTIFAMILY INVESTORS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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| | | | | | | | |
| | For Three Months Ended, |
| | March 31, 2015 | | March 31, 2014 |
Cash flows from operating activities: | | | | |
Net income | | $ | 2,523,588 |
| | $ | 6,046,726 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | |
Depreciation and amortization expense | | 2,031,898 |
| | 1,613,346 |
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Non-cash loss on derivatives | | 899,873 |
| | 182,597 |
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Bond premium/discount amortization | | (36,933 | ) | | (62,008 | ) |
Gain on mortgage revenue bond - redemption | | — |
| | (2,835,243 | ) |
Changes in operating assets and liabilities, net of effect of acquisitions | | | | |
Increase in interest receivable | | (1,684,804 | ) | | (1,783,906 | ) |
Decrease in other assets | | 127,115 |
| | 918,897 |
|
Increase (decrease) in accounts payable and accrued expenses | | 311,641 |
| | (2,192,953 | ) |
Net cash provided by operating activities | | 4,172,378 |
| | 1,887,456 |
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Cash flows from investing activities: | | | | |
Capital expenditures | | (91,968 | ) | | (6,323,590 | ) |
Acquisition of mortgage revenue bonds | | (58,945,000 | ) | | (34,778,800 | ) |
Restructure and acquisition of interest rate derivative | | 10,500 |
| | (391,500 | ) |
Proceeds from the mortgage revenue bond - redemption | | — |
| | 18,744,294 |
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Restricted cash - debt collateral released (paid) | | 1,370,000 |
| | 2,000,000 |
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Restricted cash - TEBS financing facility | | 2,474,249 |
| | — |
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Principal payments received on mortgage revenue bonds | | 202,888 |
| | 1,778,734 |
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Increase in restricted cash | | (46,780 | ) | | (73,820 | ) |
Net increase in notes receivable | | (39,337 | ) | | — |
|
Net cash used in investing activities | | (55,065,448 | ) | | (19,044,682 | ) |
Cash flows from financing activities: | | | | |
Distributions paid | | (7,617,390 | ) | | (6,446,077 | ) |
Proceeds from the sale of beneficial unit certificates | | — |
| | 54,740,000 |
|
Payment of offering costs related to the sale of beneficial unit certificates | | — |
| | (3,372,308 | ) |
Proceeds from debt financing | | 48,285,000 |
| | 17,250,000 |
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Principal borrowings on mortgages payable | | — |
| | 7,976,690 |
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Principal payments on debt financing | | (25,761,768 | ) | | (17,013,000 | ) |
Principal payments on mortgages payable | | (262,383 | ) | | (113,919 | ) |
Principal borrowing on lines of credit | | 11,425,261 |
| | — |
|
Increase in liabilities related to restricted cash | | 46,780 |
| | 73,820 |
|
Debt financing costs | | (210,526 | ) | | (557,094 | ) |
Net cash provided by financing activities | | 25,904,974 |
| | 52,538,112 |
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Net (decrease) increase in cash and cash equivalents | | (24,988,096 | ) | | 35,380,886 |
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Cash and cash equivalents at beginning of period | | 49,193,343 |
| | 11,318,015 |
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Cash and cash equivalents at end of period | | $ | 24,205,247 |
| | $ | 46,698,901 |
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| | | | | | | | |
Supplemental disclosure of cash flow information: | | | | |
Cash paid during the period for interest | | $ | 2,833,471 |
| | $ | 1,798,217 |
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Distributions declared but not paid | | $ | 7,607,693 |
| | $ | 8,295,025 |
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Supplemental disclosure of non cash activities: | | | | |
Capital expenditures financed through accounts and notes payable | | $ | 56,806 |
| | $ | 3,475,757 |
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The accompanying notes are an integral part of the condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2015
(UNAUDITED)
1. Basis of Presentation
General
America First Multifamily Investors, L.P. (the “Partnership”) was formed on April 2, 1998, under the Delaware Revised Uniform Limited Partnership Act for the primary purpose of acquiring, holding, selling and otherwise dealing with a portfolio of mortgage revenue bonds which have been issued to provide construction and/or permanent financing for affordable multifamily, student housing, and senior citizen residential properties (collectively “Residential Properties”) and commercial properties. The Partnership expects and believes the interest earned on these mortgage revenue bonds is excludable from gross income for federal income tax purposes. As a result, most of the income earned by the Partnership is exempt from federal income taxes. The Partnership may also invest in other types of securities that may or may not be secured by real estate and may make property loans secured by multifamily residential properties which are financed by mortgage revenue bonds held by the Partnership. The Partnership generally does not seek to acquire direct interests in real property as long term or permanent investments. The Partnership may, however, acquire real estate securing its mortgage revenue bonds or property loans through foreclosure in the event of a default. 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 mortgage revenue bonds issued to finance these properties. The Partnership expects to sell its interest in these MF Properties in connection with the future syndication of low income housing tax credits under Section 42 of the Internal Revenue Code (“LIHTCs”) or to a tax-exempt organization and to acquire mortgage revenue bonds on these properties to provide debt financing to the new owners.
Our general partner is America First Capital Associates Limited Partnership Two (“AFCA 2” or “General Partner”). The general partner of AFCA2 is The Burlington Capital Group LLC (“Burlington”). The Partnership has issued Beneficial Unit Certificates (“BUCs”) representing assigned limited partner interests to investors (“unitholders”). The Partnership will terminate on December 31, 2050, unless terminated earlier under provisions of its Agreement of Limited Partnership.
The “Company” refers to the Partnership and the Consolidated VIEs (defined below). The condensed consolidated financial statements reported in this Form 10-Q include the financial position and results of operations of the Partnership, the MF Properties owned by various limited partnerships in which one of the Partnership’s wholly-owned subsidiaries holds a 99% limited partner interest, and two entities in which the Partnership does not hold an ownership interest but which own multifamily residential properties financed with mortgage revenue bonds held by the Partnership and which are treated as variable interest entities (“VIEs”) of which the Partnership has been determined to be the primary beneficiary (the “Consolidated VIEs”). On March 31, 2015, the consolidated subsidiaries of the Partnership (the “Consolidated Subsidiaries”) consist of:
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• | ATAX TEBS I, LLC, a special purpose entity owned and controlled by the Partnership, created in 2010 to hold mortgage revenue bonds in order to facilitate the Tax Exempt Bond Securitization (“TEBS”) Financing (“M24 TEBS Financing”) with Freddie Mac (Note 9). |
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• | ATAX TEBS II, LLC, a special purpose entity owned and controlled by the Partnership, created in 2014 to hold mortgage revenue bonds in order to facilitate the second TEBS Financing (“M31 TEBS Financing”) with Freddie Mac (Note 9). |
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• | Nine MF Properties which are either wholly or majority owned by subsidiaries of the Partnership. |
Stand alone financial information of the Partnership reported in this Form 10-Q includes only the assets, liabilities, and results of operations of the Partnership and the MF Properties (hereafter the “Partnership”) without the Consolidated VIEs. In the Company’s condensed consolidated financial statements, all transactions and accounts between the Partnership, the MF Properties and the Consolidated VIEs have been eliminated in consolidation. The General Partner does not believe that the consolidation of VIEs for reporting under accounting principles generally accepted in the United States of America (“GAAP”) impacts the Partnership’s status as a partnership for federal income tax purposes or the status of unitholders as partners of the Partnership, the treatment of the mortgage revenue bonds on the properties owned by Consolidated VIEs as debt, the nature of the interest payments, which it believes to be tax-exempt, received on the mortgage revenue bonds secured by the properties owned by Consolidated VIEs or the manner in which the Partnership’s income is reported to unitholders on IRS Form K-1.
The unallocated deficit of the Consolidated VIEs is primarily comprised of the accumulated historical net losses of the Consolidated VIEs since the applicable consolidation date. The unallocated deficit of the VIEs and the VIEs’ net losses subsequent to that date are not allocated to the General Partner and unitholders as such activity is not contemplated by, or addressed in, the Agreement of Limited Partnership.
The preparation of financial statements in conformity with 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 according to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted according to such rules and regulations, although management believes that the disclosures are adequate to make the information presented not misleading. The condensed consolidated financial statements should be read in conjunction with the condensed consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. These condensed consolidated financial statements and notes have been prepared consistently with the 2014 Form 10-K. In the opinion of management, all adjustments (consisting of normal and recurring accruals) necessary to present fairly the financial position as of March 31, 2015, and the results of operations for the interim periods presented have been made. The results of operations for the interim period are not necessarily indicative of the results to be expected for the full year.
2. Partnership Income, Expenses and Cash Distributions
The Agreement of Limited Partnership of the Partnership contains provisions for the distribution of Net Interest Income, Net Residual Proceeds and Liquidation Proceeds, for the allocation of income or loss from operations and for the allocation of income and loss arising from a repayment, sale, or liquidation of investments. Income and losses will be allocated to each unitholder on a periodic basis, as determined by the General Partner, based on the number of 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 BUCs held by each unitholder as of such date. For purposes of the Agreement of Limited Partnership, cash distributions, if any, received by the Partnership from its investment in MF Properties (Note 7) will be included in the Partnership’s Interest Income and cash distributions received by the Partnership from the sale of such properties will be included in the Partnership’s Residual Proceeds.
Cash distributions are currently made on a quarterly basis but may be made on a monthly or semiannual basis at the election of AFCA 2. On each distribution date, Net Interest Income is distributed 99% to the unitholders and 1% to AFCA 2 and Net Residual Proceeds are distributed 100% to unitholders except that Net Interest Income and Net Residual Proceeds representing contingent interest in an amount equal to 0.9% per annum of the principal amount of the mortgage revenue bonds on a cumulative basis (defined as Net Interest Income (Tier 2) and Net Residual Proceeds (Tier 2), respectively) are distributed 75% to the unitholders and 25% to AFCA 2.
3. Variable Interest Entities
The Partnership invests in mortgage revenue bonds which have been issued to provide construction and/or permanent financing for Residential Properties and commercial properties in their market areas. The Partnership owns 100% of these mortgage revenue bonds and each bond is secured by a first mortgage on the property. In certain cases, the Partnership has also made property loans to the property owners which are secured by second mortgages on these properties. Although Residential Properties financed with mortgage revenue bonds held by the Partnership is owned by a separate entity in which the Partnership has no equity ownership interest, the debt financing provided by the Partnership creates a variable interest in these ownership entities that may require the Partnership to report the assets, liabilities, and results of operations of these entities on a consolidated basis under GAAP. Under consolidation guidance, the Partnership must make an evaluation of these entities to determine if they meet the definition of a VIE.
At March 31, 2015 and December 31, 2014, the Partnership determined that eleven of the entities financed by mortgage revenue bonds owned by the Partnership were held by VIEs. These VIEs were Ashley Square, Bent Tree, Bruton Apartments, Cross Creek, Fairmont Oaks, Glenview Apartments, Harden Ranch, Montclair Apartments, Santa Fe Apartments, Tyler Park Apartments, and Westside Village Market. The Partnership then determined that it is the primary beneficiary of two of these VIEs: Bent Tree and Fairmont Oaks and has continued to consolidate these entities.
The Partnership does not hold an equity interest in these VIEs. Therefore, the assets of the VIEs cannot be used to settle the general commitments of the Partnership and the Partnership is not responsible for the commitments and liabilities of the VIEs. The primary risks to the Partnership associated with these VIEs relate to the entities’ ability to meet debt service obligations to the Partnership and the valuation of the underlying Residential Properties which serves as bond collateral.
The following is a discussion of the significant judgments and assumptions made by the Partnership in determining the primary beneficiary of the VIE and, therefore, whether the Partnership must consolidate the VIE.
Consolidated VIEs
In determining the primary beneficiary of these VIEs, the Partnership considers the activities of the VIE which most significantly impact the VIEs’ economic performance, who has the power to control such activities, the risks which the entities were designed to create, the variability associated with those risks and the interests which absorb such variability. The Partnership also considers the related party relationship of the entities involved in the VIEs. At March 31, 2015 and December 31, 2014, the Partnership determined it is the primary beneficiary of the Bent Tree and Fairmont Oaks VIEs. The capital structure of Bent Tree and Fairmont Oaks VIEs consists of senior debt, subordinated debt, and equity capital. The senior debt is in the form of a mortgage revenue bond and accounts for the majority of the VIEs’ total capital. As the bondholder, the Partnership is entitled to principal and interest payments and has certain protective rights as established by the bond documents. The equity ownership of the consolidated VIEs is ultimately held by corporations which are owned by four individuals, two of which are related parties. Additionally, each of these properties is managed by an affiliate of the Partnership, America First Properties Management Company, LLC (“Properties Management”) which is an affiliate of Burlington.
Non-Consolidated VIEs
The Company did not consolidate nine VIE entities (Ashley Square, Bruton Apartments, Cross Creek, Glenview Apartments Harden Ranch, Montclair Apartments, Santa Fe Apartments, Tyler Park Apartments, and Westside Village Market) as of March 31, 2015 based on its determination of the primary beneficiary of these nine VIE entities. As discussed below, while the capital structures of these VIEs resulted in the Partnership holding a majority of the variable interests in these VIEs, the Partnership determined it does not have the power to direct the activities of these VIEs that most significantly impact the VIEs’ economic performance and, as a result, is not the primary beneficiary of these VIEs.
The following table presents information regarding the classification of the assets at their carrying value and maximum exposure to loss held by the Partnership as of March 31, 2015, which constitute VIEs:
|
| | | | | | | | | | | | | | | |
| March 31, 2015 |
| Balance Sheet Classification | | Maximum Exposure to Loss |
| Mortgage Revenue Bond | | Property Loan | | Mortgage Revenue Bond | | Property Loan |
Ashley Square Apartments | $ | 5,642,269 |
| | $ | 1,482,000 |
| | $ | 5,144,000 |
| | $ | 7,635,520 |
|
Bruton Apartments | 19,443,819 |
| | — |
| | 18,145,000 |
| | — |
|
Cross Creek | 8,547,448 |
| | 3,586,115 |
| | 6,082,064 |
| | 3,586,115 |
|
Glenview Apartments | 6,855,286 |
| | — |
| | 6,723,000 |
| | — |
|
Harden Ranch | 9,920,953 |
| | — |
| | 9,300,000 |
| | — |
|
Montclair Apartments | 3,606,478 |
| | — |
| | 3,458,000 |
| | — |
|
Santa Fe Apartments | 4,856,631 |
| | — |
| | 4,736,000 |
| | — |
|
Tyler Park Apartments | 8,474,338 |
| | — |
| | 8,100,000 |
| | — |
|
Westside Village Market | 5,644,156 |
| | — |
| | 5,400,000 |
| | — |
|
| $ | 72,991,378 |
| | $ | 5,068,115 |
| | $ | 67,088,064 |
| | $ | 11,221,635 |
|
The mortgage revenue bonds are classified on the balance sheet as available for sale investments and are carried at fair value while property loans are presented on the balance sheet as Other assets and are carried at the unpaid principal less any loan loss reserves. See Note 4 for additional information regarding the mortgage revenue bonds and Note 8 for additional information regarding the property loans. The maximum exposure to loss for the mortgage revenue bonds is equal to the unpaid principal balance as of March 31, 2015. The difference between the mortgage revenue bond’s carrying value and the maximum exposure to loss is a function of the fair value of the bond. The difference between the property loan’s carrying value and the maximum exposure is the value of loan loss reserves that have been previously recorded against the outstanding property loan balances.
The following tables present the effects of the consolidation of the Consolidated VIEs on the Company’s Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Operations.
Condensed Consolidating Balance Sheets as of March 31, 2015 and December 31, 2014:
|
| | | | | | | | | | | | | | | | |
| | Partnership as of March 31, 2015 | | Consolidated VIEs as of March 31, 2015 | | Consolidation -Elimination as of March 31, 2015 | | Total as of March 31, 2015 |
Assets | | | | | | | | |
Cash and cash equivalents | | $ | 24,180,224 |
| | $ | 25,023 |
| | $ | — |
| | $ | 24,205,247 |
|
Restricted cash | | 7,350,135 |
| | 486,707 |
| | — |
| | 7,836,842 |
|
Interest receivable | | 6,476,392 |
| | — |
| | (670,102 | ) | | 5,806,290 |
|
Mortgage revenue bonds held in trust, at fair value | | 442,029,721 |
| | — |
| | (16,006,874 | ) | | 426,022,847 |
|
Mortgage revenue bonds, at fair value | | 81,875,851 |
| | — |
| | — |
| | 81,875,851 |
|
Public housing capital fund trusts, at fair value | | 60,272,941 |
| | — |
| | — |
| | 60,272,941 |
|
Mortgage-backed securities, at fair value | | 14,884,339 |
| | — |
| | — |
| | 14,884,339 |
|
Real estate assets: | | | | | | | | |
Land and improvements | | 13,754,093 |
| | 1,836,400 |
| | — |
| | 15,590,493 |
|
Buildings and improvements | | 110,742,966 |
| | 21,257,476 |
| | — |
| | 132,000,442 |
|
Real estate assets before accumulated depreciation | | 124,497,059 |
| | 23,093,876 |
| | — |
| | 147,590,935 |
|
Accumulated depreciation | | (15,513,016 | ) | | (10,814,129 | ) | | — |
| | (26,327,145 | ) |
Net real estate assets | | 108,984,043 |
| | 12,279,747 |
| | — |
| | 121,263,790 |
|
Other assets | | 41,298,994 |
| | 377,523 |
| | (11,112,296 | ) | | 30,564,221 |
|
Total Assets | | $ | 787,352,640 |
| | $ | 13,169,000 |
| | $ | (27,789,272 | ) | | $ | 772,732,368 |
|
| | | | | | | | |
Liabilities | | | | | | | | |
Accounts payable, accrued expenses and other liabilities | | $ | 4,623,103 |
| | $ | 22,479,786 |
| | $ | (22,107,352 | ) | | $ | 4,995,537 |
|
Distribution payable | | 7,607,693 |
| | — |
| | — |
| | 7,607,693 |
|
Debt financing | | 379,307,493 |
| | — |
| | — |
| | 379,307,493 |
|
Mortgage payable | | 76,445,451 |
| | 14,686,000 |
| | (14,686,000 | ) | | 76,445,451 |
|
Derivative swap | | 1,165,855 |
| | — |
| | — |
| | 1,165,855 |
|
Total Liabilities | | 469,149,595 |
| | 37,165,786 |
| | (36,793,352 | ) | | 469,522,029 |
|
Partners' Capital | | | | | | | | |
General Partner | | 512,533 |
| | — |
| | — |
| | 512,533 |
|
Beneficial Unit Certificate holders | | 317,707,398 |
| | — |
| | 6,244,916 |
| | 323,952,314 |
|
Unallocated loss of Consolidated VIEs | | — |
| | (23,996,786 | ) | | 2,759,164 |
| | (21,237,622 | ) |
Total Partners' Capital | | 318,219,931 |
| | (23,996,786 | ) | | 9,004,080 |
| | 303,227,225 |
|
Noncontrolling interest | | (16,886 | ) | | — |
| | — |
| | (16,886 | ) |
Total Capital | | 318,203,045 |
| | (23,996,786 | ) | | 9,004,080 |
| | 303,210,339 |
|
Total Liabilities and Partners' Capital | | $ | 787,352,640 |
| | $ | 13,169,000 |
| | $ | (27,789,272 | ) | | $ | 772,732,368 |
|
|
| | | | | | | | | | | | | | | | |
| | Partnership as of December 31, 2014 | | Consolidated VIEs as of December 31, 2014 | | Consolidation -Elimination as of December 31, 2014 | | Total as of December 31, 2014 |
Assets | | | | | | | | |
Cash and cash equivalents | | $ | 49,157,571 |
| | $ | 35,772 |
| | $ | — |
| | $ | 49,193,343 |
|
Restricted cash | | 11,141,496 |
| | 544,233 |
| | — |
| | 11,685,729 |
|
Interest receivable | | 4,791,828 |
| | — |
| | (670,342 | ) | | 4,121,486 |
|
Mortgage revenue bonds held in trust, at fair value | | 394,568,208 |
| | — |
| | (16,145,116 | ) | | 378,423,092 |
|
Mortgage revenue bonds, at fair value | | 70,601,045 |
| | — |
| | — |
| | 70,601,045 |
|
Public housing capital fund trusts, at fair value | | 61,263,123 |
| | — |
| | — |
| | 61,263,123 |
|
Mortgage-backed securities, at fair value | | 14,841,558 |
| | — |
| | — |
| | 14,841,558 |
|
Real estate assets: | | | | | | | | |
Land and improvements | | 13,753,493 |
| | 1,836,400 |
| | — |
| | 15,589,893 |
|
Buildings and improvements | | 110,706,173 |
| | 21,204,048 |
| | — |
| | 131,910,221 |
|
Real estate assets before accumulated depreciation | | 124,459,666 |
| | 23,040,448 |
| | — |
| | 147,500,114 |
|
Accumulated depreciation | | (14,108,154 | ) | | (10,583,646 | ) | | — |
| | (24,691,800 | ) |
Net real estate assets | | 110,351,512 |
| | 12,456,802 |
| | — |
| | 122,808,314 |
|
Other assets | | 41,958,914 |
| | 420,054 |
| | (11,077,441 | ) | | 31,301,527 |
|
Total Assets | | $ | 758,675,255 |
| | $ | 13,456,861 |
| | $ | (27,892,899 | ) | | $ | 744,239,217 |
|
| | | | | | | | |
Liabilities | | | | | | | | |
Accounts payable, accrued expenses and other liabilities | | $ | 4,123,346 |
| | $ | 22,225,477 |
| | $ | (21,721,734 | ) | | $ | 4,627,089 |
|
Distribution payable | | 7,617,390 |
| | — |
| | — |
| | 7,617,390 |
|
Debt financing | | 345,359,000 |
| | — |
| | — |
| | 345,359,000 |
|
Mortgages payable | | 76,707,834 |
| | 14,731,000 |
| | (14,731,000 | ) | | 76,707,834 |
|
Total Liabilities | | 433,807,570 |
| | 36,956,477 |
| | (36,452,734 | ) | | 434,311,313 |
|
Partners' Capital | | | | | | | | |
General Partner | | 578,238 |
| | — |
| | — |
| | 578,238 |
|
Beneficial Unit Certificate holders | | 324,305,442 |
| | — |
| | 6,151,675 |
| | 330,457,117 |
|
Unallocated deficit of Consolidated VIEs | | — |
| | (23,499,616 | ) | | 2,408,160 |
| | (21,091,456 | ) |
Total Partners' Capital | | 324,883,680 |
| | (23,499,616 | ) | | 8,559,835 |
| | 309,943,899 |
|
Noncontrolling interest | | (15,995 | ) | | — |
| | — |
| | (15,995 | ) |
Total Capital | | 324,867,685 |
| | (23,499,616 | ) | | 8,559,835 |
| | 309,927,904 |
|
Total Liabilities and Partners' Capital | | $ | 758,675,255 |
| | $ | 13,456,861 |
| | $ | (27,892,899 | ) | | $ | 744,239,217 |
|
Condensed Consolidating Statements of Operations for the three months ended March 31, 2015 and 2014:
|
| | | | | | | | | | | | | | | |
| Partnership For the Three Months Ended March 31, 2015 | | Consolidated VIEs For the Three Months Ended March 31, 2015 | | Consolidation -Elimination For the Three Months Ended March 31, 2015 | | Total For the Three Months Ended March 31, 2015 |
Revenues: | | | | | | | |
Property revenues | $ | 4,302,301 |
| | $ | 804,068 |
| | $ | — |
| | $ | 5,106,369 |
|
Investment income | 8,210,394 |
| | — |
| | (230,610 | ) | | 7,979,784 |
|
Other interest income | 224,540 |
| | — |
| | — |
| | 224,540 |
|
Total revenues | 12,737,235 |
| | 804,068 |
| | (230,610 | ) | | 13,310,693 |
|
Expenses: | | | | | | | |
Real estate operating (exclusive of items shown below) | 2,471,030 |
| | 487,575 |
| | — |
| | 2,958,605 |
|
Depreciation and amortization | 1,794,814 |
| | 243,729 |
| | (6,645 | ) | | 2,031,898 |
|
Interest | 3,994,156 |
| | 569,934 |
| | (574,969 | ) | | 3,989,121 |
|
General and administrative | 1,807,481 |
| | — |
| | — |
| | 1,807,481 |
|
Total expenses | 10,067,481 |
| | 1,301,238 |
| | (581,614 | ) | | 10,787,105 |
|
Net income (loss) | 2,669,754 |
| | (497,170 | ) | | 351,004 |
| | 2,523,588 |
|
Net loss attributable to noncontrolling interest | (891 | ) | | — |
| | — |
| | (891 | ) |
Net income (loss) - America First Multifamily Investors, L. P. | $ | 2,670,645 |
| | $ | (497,170 | ) | | $ | 351,004 |
| | $ | 2,524,479 |
|
|
| | | | | | | | | | | | | | | |
| | | | | | | |
| Partnership For the Three Months Ended March 31, 2014 | | Consolidated VIEs For the Three Months Ended March 31, 2014 | | Consolidation -Elimination For the Three Months Ended March 31, 2014 | | Total For the Three Months Ended March 31, 2014 |
Revenues: | | | | | | | |
Property revenues | $ | 3,150,344 |
| | $ | 800,872 |
| | $ | — |
| | $ | 3,951,216 |
|
Investment income | 6,438,835 |
| | — |
| | (233,277 | ) | | 6,205,558 |
|
Gain on mortgage revenue bond - redemption | 2,835,243 |
| | — |
| | — |
| | 2,835,243 |
|
Other interest income | 208,823 |
| | — |
| | — |
| | 208,823 |
|
Total revenues | 12,633,245 |
| | 800,872 |
| | (233,277 | ) | | 13,200,840 |
|
Expenses: | | | | | | | |
Real estate operating (exclusive of items shown below) | 1,650,647 |
| | 449,646 |
| | — |
| | 2,100,293 |
|
Depreciation and amortization | 1,382,626 |
| | 237,440 |
| | (6,720 | ) | | 1,613,346 |
|
Interest | 2,169,549 |
| | 557,884 |
| | (557,884 | ) | | 2,169,549 |
|
General and administrative | 1,270,926 |
| | — |
| | — |
| | 1,270,926 |
|
Total expenses | 6,473,748 |
| | 1,244,970 |
| | (564,604 | ) | | 7,154,114 |
|
Net income (loss) | 6,159,497 |
| | (444,098 | ) | | 331,327 |
| | 6,046,726 |
|
Net loss attributable to noncontrolling interest | (103 | ) | | — |
| | — |
| | (103 | ) |
Net income (loss) - America First Multifamily Investors, L. P. | $ | 6,159,600 |
| | $ | (444,098 | ) | | $ | 331,327 |
| | $ | 6,046,829 |
|
4. Investments in Mortgage Revenue Bonds
The mortgage revenue bonds owned by the Company have been issued to provide construction and/or permanent financing for Residential Properties and commercial properties and do not include the mortgage revenue bonds issued with respect to properties owned by Consolidated VIEs at March 31, 2015 and December 31, 2014. Mortgage revenue bonds are either held directly by the Company or are held in trusts created in connection with debt financing transactions (Note 9). The Company had the following investments in mortgage revenue bonds as of dates shown:
|
| | | | | | | | | | | | | | | | |
| | March 31, 2015 |
Description of Mortgage Revenue Bonds | | Cost adjusted for pay-downs | | Unrealized Gain | | Unrealized Loss | | Estimated Fair Value |
Arbors at Hickory Ridge (3) | | $ | 11,569,614 |
| | $ | 1,239,453 |
| | $ | — |
| | $ | 12,809,067 |
|
Ashley Square (1) | | 5,144,000 |
| | 498,269 |
| | — |
| | 5,642,269 |
|
Avistar at Chase Hill A Bond (3) | | 10,000,000 |
| | 1,226,837 |
| | — |
| | 11,226,837 |
|
Avistar at the Crest A Bond (3) | | 9,700,000 |
| | 1,054,230 |
| | — |
| | 10,754,230 |
|
Avistar at the Oaks A Bond (3) | | 7,800,000 |
| | 802,611 |
| | — |
| | 8,602,611 |
|
Avistar in 09 A Bond (3) | | 6,735,000 |
| | 787,493 |
| | — |
| | 7,522,493 |
|
Avistar on the Boulevard A Bond (3) | | 16,525,000 |
| | 1,795,997 |
| | — |
| | 18,320,997 |
|
Avistar on the Hills A Bond (3) | | 5,389,000 |
| | 554,521 |
| | — |
| | 5,943,521 |
|
Bella Vista (1) | | 6,490,000 |
| | 573,067 |
| | — |
| | 7,063,067 |
|
Bridle Ridge (1) | | 7,625,000 |
| | 595,665 |
| | — |
| | 8,220,665 |
|
Brookstone (1) | | 7,469,357 |
| | 1,652,619 |
| | — |
| | 9,121,976 |
|
Bruton Apartments (2) | | 18,145,000 |
| | 1,298,819 |
| | — |
| | 19,443,819 |
|
Concord at Gulfgate A Bond (2) | | 17,060,000 |
| | 1,417,004 |
| | — |
| | 18,477,004 |
|
Concord at Little York A Bond (2) | | 12,480,000 |
| | 820,061 |
| | — |
| | 13,300,061 |
|
Concord at Williamcrest A Bond (2) | | 18,020,000 |
| | 1,184,094 |
| | — |
| | 19,204,094 |
|
Copper Gate Apartments (3) | | 5,220,000 |
| | 390,143 |
| | — |
| | 5,610,143 |
|
Cross Creek (1) | | 6,082,064 |
| | 2,465,384 |
| | — |
| | 8,547,448 |
|
Decatur Angle (2) | | 23,000,000 |
| | 727,260 |
| | — |
| | 23,727,260 |
|
Greens Property A Bond (3) | | 8,348,000 |
| | 943,736 |
| | — |
| | 9,291,736 |
|
Harden Ranch A Bond (3) | | 6,960,000 |
| | 623,129 |
| | — |
| | 7,583,129 |
|
Lake Forest (1) | | 8,856,000 |
| | 1,037,354 |
| | — |
| | 9,893,354 |
|
Live 929 Apartments (2) | | 40,874,690 |
| | 4,154,777 |
| | — |
| | 45,029,467 |
|
Pro Nova 2014-1 and 2014-2 (2) | | 20,092,423 |
| | 889,777 |
| | — |
| | 20,982,200 |
|
Ohio Properties A Bonds (1) | | 14,383,000 |
| | 2,328,438 |
| | — |
| | 16,711,438 |
|
Runnymede (1) | | 10,440,000 |
| | 1,297,483 |
| | — |
| | 11,737,483 |
|
Southpark (1) | | 11,861,623 |
| | 3,599,239 |
| | — |
| | 15,460,862 |
|
The Palms at Premier Park Apartments (3) | | 20,125,232 |
| | 2,005,005 |
| | — |
| | 22,130,237 |
|
The Suites on Paseo A Bond (2) | | 35,450,000 |
| | 2,901,583 |
| | — |
| | 38,351,583 |
|
Tyler Park Apartments A Bond (3) | | 6,075,000 |
| | 383,329 |
| | — |
| | 6,458,329 |
|
Westside Village Market A Bond (3) | | 3,970,000 |
| | 250,505 |
| | — |
| | 4,220,505 |
|
Woodlynn Village (1) | | 4,390,000 |
| | 244,962 |
| | — |
| | 4,634,962 |
|
Mortgage revenue bonds held in trust | | $ | 386,280,003 |
| | $ | 39,742,844 |
| | $ | — |
| | $ | 426,022,847 |
|
(1) Mortgage revenue bonds owned by ATAX TEBS I, LLC, Note 9
(2) Mortgage revenue bonds held by Deutsche Bank in a secured financing transaction, Note 9
(3) Mortgage revenue bonds owned by ATAX TEBS II, LLC, Note 9
|
| | | | | | | | | | | | | | | | |
| | March 31, 2015 |
Description of Mortgage Revenue Bonds | | Cost adjusted for pay-downs | | Unrealized Gain | | Unrealized Loss | | Estimated Fair Value |
Avistar at Chase Hill B Bond | | $ | 965,000 |
| | $ | 88,486 |
| | $ | — |
| | $ | 1,053,486 |
|
Avistar at the Crest B Bond | | 759,000 |
| | 69,600 |
| | — |
| | 828,600 |
|
Avistar at the Oaks B Bond | | 554,000 |
| | 50,841 |
| | — |
| | 604,841 |
|
Avistar in 09 B Bond | | 457,000 |
| | 41,939 |
| | — |
| | 498,939 |
|
Avistar on the Boulevard B Bond | | 451,000 |
| | 41,357 |
| | — |
| | 492,357 |
|
Concord at Gulfgate B Bond | | 2,125,000 |
| | 592,323 |
| | — |
| | 2,717,323 |
|
Concord at Little York B Bond | | 960,000 |
| | 252,586 |
| | — |
| | 1,212,586 |
|
Concord at Williamcrest B Bond | | 2,800,000 |
| | 736,708 |
| | — |
| | 3,536,708 |
|
Glenview Apartments | | 6,723,000 |
| | 132,286 |
| | — |
| | 6,855,286 |
|
Greens Property B Bond | | 945,059 |
| | 249,820 |
| | — |
| | 1,194,879 |
|
Harden Ranch B Bond | | 2,340,000 |
| | — |
| | (2,176 | ) | | 2,337,824 |
|
Heritage Square | | 11,705,000 |
| | 295,073 |
| | — |
| | 12,000,073 |
|
Montclair Apartments | | 3,458,000 |
| | 148,478 |
| | — |
| | 3,606,478 |
|
Ohio Properties B Bonds | | 3,570,720 |
| | 644,819 |
| | — |
| | 4,215,539 |
|
Renaissance | | 12,675,000 |
| | 762,823 |
| | — |
| | 13,437,823 |
|
Santa Fe Apartments | | 4,736,000 |
| | 120,631 |
| | — |
| | 4,856,631 |
|
The Suites on Paseo B Bond | | 5,500,000 |
| | — |
| | — |
| | 5,500,000 |
|
Tyler Park B Bond | | 2,025,000 |
| | — |
| | (8,991 | ) | | 2,016,009 |
|
Vantage at Harlingen | | 6,692,000 |
| | 260,386 |
| | — |
| | 6,952,386 |
|
Vantage at Judson | | 6,049,000 |
| | 485,432 |
| | — |
| | 6,534,432 |
|
Westside Village B Bond | | 1,430,000 |
| | — |
| | (6,349 | ) | | 1,423,651 |
|
Mortgage revenue bonds | | $ | 76,919,779 |
| | $ | 4,973,588 |
| | $ | (17,516 | ) | | $ | 81,875,851 |
|
|
| | | | | | | | | | | | | | | | |
| | December 31, 2014 |
Description of Mortgage Revenue Bonds | | Cost adjusted for pay-downs | | Unrealized Gains | | Unrealized Loss | | Estimated Fair Value |
Arbors at Hickory Ridge (3) | | $ | 11,570,933 |
| | $ | 1,792,303 |
| | $ | — |
| | $ | 13,363,236 |
|
Ashley Square (1) | | 5,159,000 |
| | 486,559 |
| | — |
| | 5,645,559 |
|
Avistar at Chase Hill A Bond (3) | | 10,000,000 |
| | 1,196,800 |
| | — |
| | 11,196,800 |
|
Avistar at the Crest A Bond (3) | | 9,700,000 |
| | 1,419,692 |
| | — |
| | 11,119,692 |
|
Avistar at the Oaks A Bond(3) | | 7,800,000 |
| | 869,622 |
| | — |
| | 8,669,622 |
|
Avistar in 09 A Bond (3) | | 6,735,000 |
| | 750,885 |
| | — |
| | 7,485,885 |
|
Avistar on the Boulevard A Bond (3) | | 16,525,000 |
| | 2,418,599 |
| | — |
| | 18,943,599 |
|
Avistar on the Hills A Bond (3) | | 5,389,000 |
| | 743,520 |
| | — |
| | 6,132,520 |
|
Bella Vista (1) | | 6,490,000 |
| | 625,571 |
| | — |
| | 7,115,571 |
|
Bridle Ridge (1) | | 7,655,000 |
| | 659,249 |
| | — |
| | 8,314,249 |
|
Brookstone (1) | | 7,468,888 |
| | 1,360,589 |
| | — |
| | 8,829,477 |
|
Bruton Apartments (2) | | 18,145,000 |
| | 1,455,955 |
| | — |
| | 19,600,955 |
|
Copper Gate Apartments (3) | | 5,220,000 |
| | 563,656 |
| | — |
| | 5,783,656 |
|
Cross Creek (1) | | 6,074,817 |
| | 2,542,262 |
| | — |
| | 8,617,079 |
|
Decatur Angle (2) | | 23,000,000 |
| | 919,540 |
| | — |
| | 23,919,540 |
|
Greens Property A Bond (3) | | 8,366,000 |
| | 1,005,119 |
| | — |
| | 9,371,119 |
|
Harden Ranch A Bond (3) | | 6,960,000 |
| | 511,421 |
| | — |
| | 7,471,421 |
|
Lake Forest (1) | | 8,886,000 |
| | 1,003,614 |
| | — |
| | 9,889,614 |
|
Live 929 Apartments (2) | | 40,895,739 |
| | 3,797,745 |
| | — |
| | 44,693,484 |
|
Pro Nova 2014-1 and 2014-2 (2) | | 20,095,169 |
| | 1,043,431 |
| | — |
| | 21,138,600 |
|
Ohio Properties A Bonds (1) | | 14,407,000 |
| | 2,444,034 |
| | — |
| | 16,851,034 |
|
Runnymede (1) | | 10,440,000 |
| | 1,385,910 |
| | — |
| | 11,825,910 |
|
Southpark (1) | | 11,842,206 |
| | 3,743,692 |
| | — |
| | 15,585,898 |
|
The Palms at Premier Park Apartments (3) | | 20,152,000 |
| | 2,680,619 |
| | — |
| | 22,832,619 |
|
The Suites on Paseo (2) | | 35,450,000 |
| | 3,193,691 |
| | — |
| | 38,643,691 |
|
Tyler Park Apartments A Bond (3) | | 6,075,000 |
| | 345,060 |
| | — |
| | 6,420,060 |
|
Westside Village Market A Bond (3) | | 3,970,000 |
| | 225,496 |
| | — |
| | 4,195,496 |
|
Woodlynn Village (1) | | 4,390,000 |
| | 376,706 |
| | — |
| | 4,766,706 |
|
Mortgage revenue bonds held in trust | | $ | 338,861,752 |
| | $ | 39,561,340 |
| | $ | — |
| | $ | 378,423,092 |
|
(1) Mortgage revenue bonds owned by ATAX TEBS I, LLC, Note 9
(2) Mortgage revenue bonds held by Deutsche Bank in a secured financing transaction, Note 9
(3) Mortgage revenue bonds owned by ATAX TEBS II, LLC, Note 9
|
| | | | | | | | | | | | | | | | |
| | December 31, 2014 |
Description of Mortgage Revenue Bonds | | Cost adjusted for pay-downs | | Unrealized Gain | | Unrealized Loss | | Estimated Fair Value |
Avistar at Chase Hill B Bond | | $ | 965,000 |
| | $ | 144,769 |
| | $ | — |
| | $ | 1,109,769 |
|
Avistar at the Crest B Bond | | 759,000 |
| | 124,286 |
| | — |
| | 883,286 |
|
Avistar at the Oaks B Bond | | 554,000 |
| | 54,325 |
| | — |
| | 608,325 |
|
Avistar in 09 B Bond | | 457,000 |
| | 50,608 |
| | — |
| | 507,608 |
|
Avistar on the Boulevard B Bond | | 451,000 |
| | 73,851 |
| | — |
| | 524,851 |
|
Greens Property B Bond | | 945,638 |
| | 376,203 |
| | — |
| | 1,321,841 |
|
Glenview Apartments | | 6,723,000 |
| | — |
| | — |
| | 6,723,000 |
|
Harden Ranch B Bond | | 2,340,000 |
| | — |
| | (1,501 | ) | | 2,338,499 |
|
Heritage Square | | 11,705,000 |
| | 1,109,125 |
| | — |
| | 12,814,125 |
|
Montclair Apartments | | 3,458,000 |
| | — |
| | — |
| | 3,458,000 |
|
Ohio Properties B Bonds | | 3,573,430 |
| | 668,542 |
| | — |
| | 4,241,972 |
|
Renaissance | | 12,675,000 |
| | 1,055,807 |
| | — |
| | 13,730,807 |
|
Santa Fe Apartments | | 4,736,000 |
| | — |
| | — |
| | 4,736,000 |
|
Tyler Park Apartments B Bond | | 2,025,000 |
| | — |
| | (17,395 | ) | | 2,007,605 |
|
Vantage at Harlingen | | 6,692,000 |
| | 707,813 |
| | — |
| | 7,399,813 |
|
Vantage at Judson | | 6,049,000 |
| | 717,230 |
| | — |
| | 6,766,230 |
|
Westside Village Market B Bond | | 1,430,000 |
| | — |
| | (686 | ) | | 1,429,314 |
|
Mortgage revenue bonds | | $ | 65,538,068 |
| | $ | 5,082,559 |
| | $ | (19,582 | ) | | $ | 70,601,045 |
|
In March 2015, the Partnership acquired the approximate $35.6 million B bond related to The Suites on Paseo at a fair market value of $5.5 million.
In January 2015, the Partnership acquired six mortgage revenue bonds. They are as follows:
| |
• | The Partnership purchased approximately $17.1 million par value Series 2015A and approximately $2.1 million par value of Series 2015B mortgage revenue bonds. These mortgage revenue bonds are secured by Concord at Gulfgate Apartments, a 288 unit multifamily residential property located in Houston, Texas. |
| |
• | The Partnership purchased approximately $12.5 million par value Series 2015A and approximately $1.0 million par value of Series 2015B mortgage revenue bonds. These mortgage revenue bonds are secured by Concord at Little York Apartments, a 276 unit multifamily residential property located in Houston, Texas. |
| |
• | The Partnership purchased approximately $18.0 million par value Series 2015A and approximately $2.8 million par value of Series 2015B mortgage revenue bonds. These mortgage revenue bonds are secured by Concord at Williamcrest Apartments, a 288 unit multifamily residential property located in Houston, Texas. |
These three Series A mortgage revenue bonds each carry an annual interest rate of 6.0% and mature on February 1, 2032. The three Series B mortgage revenue bonds each carry an annual interest rate of 12.0% and mature on March 1, 2032. In February 2015, the Partnership borrowed approximately $33.3 million under three Tender Option Bond (“TOB”) Trusts under the existing TOB structure securitizing these mortgage revenue bonds (Note 9).
The properties securing the Company’s mortgage revenue bonds are geographically dispersed throughout the United States with significant concentrations in California and Texas. As of March 31, 2015 and December 31, 2014, the concentration in California, as a percentage of principal outstanding, was approximately 19% and 18%, respectively. As of March 31, 2015 and December 31, 2014, the concentration in Texas, as a percentage of principal outstanding, was approximately 45% and 38%, respectively.
Valuation - As all of the Company’s investments in mortgage revenue bonds are classified as available-for-sale securities, they are carried on the balance sheet at their estimated fair values. As of March 31, 2015, the weighted average base rate of the mortgage revenue bonds reported in the condensed consolidated financial statements was approximately 6.0% per annum. Due to the limited market for the mortgage revenue bonds, these estimates of fair value do not necessarily represent what the Company would actually receive in a sale of the mortgage revenue bonds. There is no active trading market for the mortgage revenue bonds and price quotes for the mortgage revenue bonds are not generally available. As of March 31, 2015, all of the Company’s mortgage revenue bonds were valued using discounted cash flow and yield to maturity analyses performed by management. Management’s valuation encompasses judgment in its application. The key assumption in management’s yield to maturity analysis is the range of effective yields on the individual mortgage revenue bonds. The effective yield analysis for each mortgage revenue bond considers the current market yield on similar mortgage revenue bonds as well as the debt service coverage ratio of each underlying property serving as collateral for the mortgage revenue bond. At March 31, 2015, the range of effective yields on the individual mortgage revenue bonds was 4.8% to 9.6% per annum. At December 31, 2014, the range of effective yields on the individual mortgage revenue bonds was 4.7% to 8.3% per annum. Additionally, the Company calculated the sensitivity of the key assumption used in calculating the fair values of these mortgage revenue bonds. Assuming a 10% adverse change in the key assumption, the effective yields on the individual mortgage revenue bonds would increase to a range of 5.2% to 10.5% per annum and would result in additional unrealized losses on the mortgage revenue bond portfolio of approximately $32.6 million. This sensitivity analysis is hypothetical and is as of a specific point in time. The results of the sensitivity analysis may not be indicative of actual changes in fair value and should be used with caution. If available, the general partner may also consider price quotes on similar mortgage revenue bonds or other information from external sources, such as pricing services. Pricing services, broker quotes and management’s analyses provide indicative pricing only.
Unrealized gains or losses on these mortgage revenue bonds are recorded in accumulated other comprehensive income (loss) to reflect changes in their estimated fair values resulting from market conditions and fluctuations in the present value of the expected cash flows from the underlying properties. As of March 31, 2015, Harden Ranch B, Tyler Park Apartments B, and Westside Village Market B mortgage revenue bond investments have been in unrealized loss positions for greater than twelve months.
5. Public Housing Capital (“PHC”) Fund Trust Certificates
The Company owns 100% of the Residual Participation Receipts (“LIFERs”) in three tender option bond trusts (“PHC TOB Trusts”). At March 31, 2015, the PHC TOB Trusts own approximately $59.3 million of Public Housing Capital Fund Certificates (“PHC Certificates”) issued by three trusts (“PHC Trusts”) sponsored by Deutsche Bank (“DB”). The assets held by the PHC Trusts consist of custodial receipts evidencing loans made to a number of local public housing authorities. Principal and interest on these loans are payable by the respective public housing authorities out of annual appropriations to be made to the public housing authorities by the United States Department of Housing and Urban Development (“HUD”) under HUD’s Capital Fund Program established under the Quality Housing and Work Responsibility Act of 1998 (the “Capital Fund Program”). The PHC Trusts have a first lien on these annual Capital Fund Program payments to secure the public housing authorities’ respective obligations to pay principal and interest on their loans. The loans payable by the public housing authorities are not debts of, or guaranteed by, the United States of America or HUD. Interest payable on the public housing authority debt held by the PHC Trusts is exempt from federal income taxes. The PHC Certificates issued by each of the PHC Trusts have been rated investment grade by Standard & Poor’s.
The Company determined that the three PHC TOB trusts are VIEs and that the Company was the primary beneficiary of each of the three PHC TOB trusts. As a result, the Company reports the PHC TOB Trusts on a consolidated basis and the SPEARS as debt financing. In determining the primary beneficiary of these specific VIEs, the Company considered who has the power to control the activities of the VIEs which most significantly impact their financial performance, the risks that the entity was designed to create, and how each risk affects the VIE. The indenture for the PHC TOB trusts stipulates that the Company has the sole right to cause the PHC TOB trusts to sell the PHC Certificates. If they were sold, the extent to which the VIEs will be exposed to gains or losses would result from decisions made by the Company.
The Company had the following investments in the PHC Certificates on March 31, 2015 and December 31, 2014:
|
| | | | | | | | | | | | | | | | |
Description of Public Housing Capital Fund Trust Certificates | | Cost adjusted for amortization of premium and discounts | | Unrealized Gain | | Unrealized Loss | | Estimated Fair Value at March 31, 2015 |
Public Housing Capital Fund Trust I | | $ | 27,379,187 |
| | $ | 484,160 |
| | $ | — |
| | $ | 27,863,347 |
|
Public Housing Capital Fund Trust II | | 12,011,169 |
| | — |
| | (40,868 | ) | | 11,970,301 |
|
Public Housing Capital Fund Trust III | | 20,483,912 |
| | — |
| | (44,619 | ) | | 20,439,293 |
|
| | $ | 59,874,268 |
| | $ | 484,160 |
| | $ | (85,487 | ) | | $ | 60,272,941 |
|
|
| | | | | | | | | | | | | | | | |
Description of Public Housing Capital Fund Trust Certificates | | Cost adjusted for amortization of premium and discounts | | Unrealized Gain | | Unrealized Loss | | Estimated Fair Value at December 31, 2014 |
Public Housing Capital Fund Trust Certificate I | | $ | 27,414,100 |
| | $ | 933,789 |
| | $ | — |
| | $ | 28,347,889 |
|
Public Housing Capital Fund Trust Certificate II | | 11,999,721 |
| | 152,293 |
| | — |
| | 12,152,014 |
|
Public Housing Capital Fund Trust Certificate III | | 20,474,100 |
| | 289,120 |
| | — |
| | 20,763,220 |
|
| | $ | 59,887,921 |
| | $ | 1,375,202 |
| | $ | — |
| | $ | 61,263,123 |
|
Valuation - As all of the Company’s investments in PHC Certificates are classified as available-for-sale securities, they are carried on the balance sheet at their estimated fair values. As of March 31, 2015, the weighted average base rate of the PHC Trust Certificates was approximately 5.0% per annum. Due to the limited market for the PHC Certificates, these estimates of fair value do not necessarily represent what the Company would actually receive in a sale of the PHC Certificates. The estimates of the fair values of these PHC certificates is based on a yield to maturity analysis which begins with the current market yield rate for a “AAA” rated tax-free municipal bond for a term consistent with the weighted-average life of each of the Public Housing Capital Fund trusts adjusted largely for unobservable inputs the General Partner believes would be used by market participants. Management’s fair value estimates encompass judgment. Management’s estimates are compared to external pricing services when available.
At March 31, 2015 and December 31, 2014 the range of effective yields on the PHC Certificates were 4.2% to 5.4% per annum. Additionally, the Company calculated the sensitivity of the key assumption used in calculating the fair values of these PHC Certificates. Assuming a 10% adverse change in the key assumption, the effective yields on the PHC Certificates would increase to a range of 4.9% to 6.3% per annum and would result in additional unrealized losses on the PHC Certificates of approximately $2.3 million. This sensitivity analysis is hypothetical and is as of a specific point in time. The results of the sensitivity analysis may not be indicative of actual changes in fair value and should be used with caution. If available, the general partner may also consider other information from external sources, such as pricing services. Pricing services and management’s analysis provide indicative pricing only.
The following table sets forth certain information relating to the PHC Certificates held in the PHC TOB Trusts on March 31, 2015 and December 31, 2014:
|
| | | | | | | | | | | |
| | Average Remaining Lives (Years) | | Investment Rating | | Weighted Average Interest Rate over Life | | Principal Outstanding March 31, |