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MORTGAGE INVESTMENT |
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2012 |
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With a Very Attractive Yield through a Recurring Quarterly Distribution and Certain Tax Advantages, America First Tax Exempt Investors, L.P. (ATAX) is Addressing Two Important Investment Criteria |
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America First Tax Exempt Investors, L.P. was formed in 1998 for the primary purpose of acquiring a portfolio of federally tax-exempt mortgage revenue bonds that are issued by state and local housing authorities to provide construction and/or permanent financing of multifamily residential properties that provide affordable housing in their market areas. Interest paid on these 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 Company trades under the NASDAQ ticker symbol ATAX and maintains a website at www.ataxfund.com, where certain information about the Company is available.
Interview conducted by: Lynn Fosse, Senior Editor, CEOCFO Magazine, Published – July 2, 2012
Mr. Francis: The investment thesis of American First Tax Exempt Investors LP is capital preservation while providing a steady stream of quarterly distributions to our investors. The core investments, which are tax-exempt mortgage revenue bonds secured by multifamily residential properties, provide an income stream that is exempt from federal income taxes. We are currently paying out an annual distribution rate of $0.50 per share, and we have been paying out a distribution, if you include our predecessor fund, for 105 consecutive quarters.
Mr. Francis: We continue to identify and purchase tax-exempt mortgage revenue bonds. We just completed a successful follow-on equity raise and have identified two new investment classes in the real estate sector that also provide income exempt from federal taxation. In addition, these new investment classes will improve the credit profile of the Company, as they will have an investment grade rating by one of the nationally recognized securities ratings agencies. We are in the process of completing our diligence on these two new tax-exempt investment classes, which includes ensuring they have the appropriate investment grade rating and securing the appropriate financing arrangements to leverage these assets, among other things. We are optimistic we can close on these two new investment classes and grow the asset base of the Company.
Mr. Francis: One of the interesting things about ATAX is the vertical integration of the real estate segment of the General Partner of the Company. The Burlington Capital Group, LLC wholly owns its own property management company and its own construction management company. One of the steps executed when assessing the acquisition of a new mortgage revenue bond is to send an experienced team from the property management company to perform due diligence on the property. That team will walk apartment units and conduct in-market research on rents and vacancies for competing properties. The Company wants to make sure that we are satisfied with the collateral for the bond.
Mr. Francis: We have a tremendous amount of experience in the Burlington Capital Group, LLC’s property management company. That allows us to do things like benchmark the fixed property costs against similar properties we manage to ensure they are reasonable. The Company also gets an assessment of the management of the property by doing such things as blind shopping the property for comparative analysis with other properties in the local market. From time to time, we will buy a property that may need a renovation due to where it is in its life cycle. Through the Burlington Capital Group, LLC’s construction management company, we can estimate what that rehabilitation would cost. We can then use all of this information to help build a model and estimate the value of that bond. If our market research identifies potential issues for that property or we cannot purchase the mortgage revenue bond for a price we believe is fair, we will no longer pursue that acquisition.
Mr. Francis: We typically focus in the Midwest, Southeast, and Texas, as those regions are where we have had a great deal of experience and success.
Mr. Francis: We believe tax-exempt mortgage revenue bonds support an important initiative right now, which is affordable housing. With the current unemployment and under employment rates, we believe that state and local authorities will continue to issue new bonds to support affordable housing, and that is going to create opportunities for the fund.
Mr. Francis: We had a good first quarter for fiscal 2012. Our portfolio of tax- exempt mortgage revenue bonds is performing as expected. You will see that the Company also purchases multifamily (“MF”) properties. Those are multifamily apartment complexes, senior living, or student housing facilities that are in the same regions we described earlier. The MF properties position the Company for future investments in tax-exempt mortgage revenue bonds issued to finance those properties. We saw an increase overall in our economic occupancy rates of the underlying properties serving as collateral to our tax-exempt mortgage revenue bonds as well as the MF properties in the first quarter of 2012.
Mr. Francis: We feel like we are a unique investment opportunity in today’s market. Some of our competitors are no longer in this market as they did not manage leverage appropriately through the credit crisis or changed their investment thesis. The Company purposely reduced its leverage ratios during that time period and has been strategically increasing it since 2010. Our operating policy is to use securitizations and mortgages on MF properties and maintain a level of debt financing between 40% and 60% of the total asset base.
Another item of interest for
our Company is that over 90% of our income was federally tax-exempt for both
2011 and 2010. As a Partnership, all of our profits and losses are allocated
to our partners, included the holders of the Company’s shares, under the
terms of our Partnership Agreement. If you use a $5.38 stock price (which
was the Company’s closing stock price on June 20, 2012), use the $0.50
annual distribution rate, the annual distribution yield is over 9% and the
majority of that yield is exempt from federal taxation. Our Company
addresses two important investment criteria in that we have a very
attractive yield, and the majority of quarterly distributions of income are
exempt from federal taxation. Those two facts alone and our relative
stability suggest that we are appealing to investors that are looking for
yield and tax advantages.
CEOCFO: Do you do much investor outreach? Mr. Francis: Historically, our investor base has grown through word of mouth and the website. We were excited about the demand seen through our most recent equity raise and we continue to see new retail brokerage interest, especially when they have clients seeking a tax-advantageous yield.
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Our Company addresses two important investment criteria in that we have a very attractive yield, and the majority of quarterly distributions of income are exempt from federal taxation. Those two facts alone and our relative stability suggest that we are appealing to investors that are looking for yield and tax advantages. - Timothy Francis |
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