At this time, I would like to welcome everyone to American First Multifamily Investor LP’s, NASDAQ’s ticket symbol ATAX’s, Second Quarter 2016 Earnings Conference Call. During the presentation all participants will be in a listen-only mode. After the speakers’ remarks you will be invited to participate in a question-and-answer session.

As a reminder, this conference call is being recorded. At this time, I would like to turn the conference call over to Craig Allen, ATAX’s Chief Financial Officer..

Thank you. Welcome to ATAX’s second quarter 2016 earnings conference call. During the course of this conference call, comments we make regarding ATAX which are not historical facts are forward-looking statements and are subject to risk and uncertainties that could cause the actual events or results to differ materially from these statements.

Such forward-looking statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by the use of words like anticipate, believe, may, should, expect and other similar terms.

You are cautioned that these forward-looking statements speak only as of today’s date. Changes in economic, business, competitive, regulatory and other factors could cause our actual results to differ materially from those expressed or implied by the projections or forward-looking statements made today.

For more detailed information about these factors and other risks that may impact our business, please review the periodic reports and other documents filed with the SEC from time-to-time. Our internal projections and beliefs upon which we base our expectations may change, but we will not necessarily inform you if they do.

Today’s discussion will include non-GAAP measures, and we will explain these to you during the call. We thank you for the participation during this call today. And the format of our call will be that I will turn it over to Chad Daffer, our CEO, next. And he will review the partnership overview and execution of during the second quarter 2016.

I will then come back and discuss some highlights of the second quarter from a financial perspective. And then Chad will close out our remarks today with just some closing observations. So at this time I’d like to turn it over to Chad Daffer, CEO of ATAX..

Thank you, Craig. Welcome everyone to ATAX’s second quarter investor call. This afternoon I would like to provide my insight to our second quarter performance, talk a little bit about the partnership, our strategic plan and our portfolio activity, access to capital markets.

Then I’ll turn it back to Craig and he will talk about the disclosure of our second quarter. Partnership performance in the second quarter continues to improve. We had a nice increase in revenues, increases in net income, increases in CAD with our best quarter in many, many years.

Our strategic and portfolio activity is consistent with what we’ve discussed in the past about our goals for 2016, scrubbing the balance sheet and repositioning the portfolio. We started this effort back in the late part of 2015, eliminating the Variable Interest Entities segment with the sale of Fairmont Oaks and Bent Tree Apartments.

We continued this in Q1 2016 with the sale of half of our Pro Nova position and continued with the sale of our mortgage-backed securities positions. Starting in the second quarter of 2016 we had the sale of the Arboretum Apartments.

And I’m sure some of you have seen the press release just out last week with the sale of the Woodland Park Apartments in Topeka, Kansas. This effort is consistent with our strategic plan to reposition our balance sheet and generating the proceeds from the sale of these positions into our core discipline tax-exempt first mortgage bonds.

Capital markets in our ability to access we execute our business over the last couple years has changing dramatically as it relates to the regulatory environment with the banks that we interface with. Basel, Dodd-Frank, Volker all made many negative changes in how we can execute bond financing in our portfolio.

As I look back now, I see this as an opportunity as a barrier for entry for our competitors’ ability to come in and finance like positions.

As it relates to our debt and bond financing, after 10 years of our track record with little or low credit losses, leveraging our relationship with our partners in this trade, we have been able to create and develop many new structures and improve efficiency in a lower cost environ.

As it relates to common equity, with the growth of our platform and the track record we’ve delivered, discussion with many new banking relationships providing better distribution and possibility of providing additional research coverage is currently being discussed.

ATAX preferred stock, we continue our efforts to market the $100 million of the PPM that we’ve currently offered to the Street. We’re excited about the opportunity of expanding our investor base, talking with institutional clients about how we do our business, providing non-dilutive low-cost 3% capital to the platform.

To date through the end of the second quarter of 2016 we currently closed on $24 million of preferred stock. We look forward to a very strong demand and a lot of interest for the balance of the $76 million through the third quarter and fourth quarter of this year.

I hope this was informative and look forward to talking to you at the end of the third quarter. At this time, I’d like to turn it back to Craig Allen to discuss the financial disclosure for the second quarter of 2016..

Thanks, Chad. What I’d like to do is run through some significant transactions that have occurred during the second quarter of 2016. Talk to you a little bit about our mortgage revenue bonds, our MF properties, And then talk a little bit about our net income and our cash available for the for distribution.

For the second quarter of 2016 we had a few transactions that were notable. First, we increased our investment in the equity investment, the Vantage at Corpus Christie. We talked a little bit about this during our Q1 earnings call. And it provides us a means by which we can invest in an alternative investment.

And to date we have a little over $3 million invested in the Vantage at Corpus Christi. During the second quarter we also redeemed about $5.2 million worth of Series B mortgage revenue bonds, just in the normal course of business. And we reinvested those proceeds into ATAX operations.

As Chad mentioned, we did sell the Arboretum, an MF property, in the second quarter for $30.2 million resulting in about a $12.4 million gross gain before taxes and other expenses. Also we were able to reduce our mortgage payables and other financings as a result of the sale of the Arboretum.

We were able to reduce our mortgages payable by about $17 million during the quarter. Also during the quarter we reduced our operating line of credit with Bankers Trust from - which is $7.5 million in total. We reduced that to $0.

Each quarter we are required to clean that out and reduce the balance to $0 for 15 calendar days, at which time then we can utilize the line at any time during the quarter. In July 2016, as Chad mentioned, again we sold Woodland Park. And Woodland Park was another MF property.

We were able to sell Woodland Park for $15.7 million in gross proceeds before income tax and other expenses. In doing so, we were able to take the proceeds and reduce our mortgage payable and other secured financings by $7.5 million plus accrued interest with the remainder of the funds reinvested into operations.

Revenue for the first - for the second quarter of 2016 increased 9% from $13.7 million a year-ago to $14.9 million in Q2 of 2016. On a year-to-date basis revenue has increased almost 14% to $30 million. At present we own approximately $648 million worth of mortgage revenue bonds.

And we hold those mortgage revenue bonds with properties in 14 states throughout the U.S. And at present we have six states - $113 million worth of MF properties on our balance sheet. And we hold those in six states throughout the U.S. A couple items that we think are of note as well.

Total asset growth and the growth in our mortgage revenue bond portfolio. Again, we’ve talked to you about both of these in the past.

And while asset growth is important, we think more important than that is investment in our core discipline, restructuring and fine-tuning the balance sheet and the rate of return that we are able to achieve on those assets. At June 30, our total assets increased to about $946 million versus about $867 million in December of 2015.

As I indicated, our mortgage revenue bonds are about $648 million at June 30, 2016. But more important than that is that $684 million was almost 50% less than that on 12/31/2012 when 35.1% of our total asset base was mortgage revenue bonds compared to almost 69% of our mortgage - of our total assets being held in mortgage revenue bonds today.

So almost 100% increase in the number of mortgage revenue bonds that we hold at 6/30/2016. And finally, results of operations. Our net income increased 25% on a per unit basis to $0.15 per unit versus $0.12 per unit at June 30 and on a year-to-date basis we’ve reported an increase of almost 19% to $0.19 per unit versus $0.16 per unit.

Cash available for distribution, or CAD, is a measurement that we use inside of ATAX to determine the - it reflects not only the profitability but the reconciliation, if you will, from GAAP income to a non-GAAP measure of cash available for distribution.

Our CAD for the quarter increased 25% from $0.20 per unit in Q2 of 2016 - from $0.16 in Q2 of 2015. On a year-to-date basis our CAD has increased 24% to year-over-year.

So as Chad mentioned the results of the implementation of the strategy, the fine-tuning of our balance sheet, certain asset sales has resulted in an exceptional quarter and a year-to-date set of results, both on a net income per unit and a cash available for distribution.

From a CAD perspective we have many positive effects that we’ve realized during this year. And really, at the end of 2015 as well. Number one we’ve eliminated the consolidated VIE segment. Number two, we’ve eliminated the mortgage-backed securities segment. As Chad mentioned, we sold half of our position in the Pro Nova securities.

We’ve accessed and we’ve enhanced the availability of low cost financing to the fund. We’ve been able to monetize some of our owned assets, either through mortgage revenue bonds sales or the sale of our MF properties, and reinvested those proceeds back into the business. And we’ve been able also to increase the core earnings of the fund.

At this time I’d like to turn it back to Chad for some closing remarks..

Thank you, Craig. As we close the books on the second quarter of 2016, we continue to make improvements on the partnership performance. But I feel strongly we can do better. With the focus and discipline of our management team and the commitment to our investors, I am excited about the opportunities of Q3 and Q4 and the years to come.

Thank you all for your interest in ATAX. At this time, I’d like to take your questions..

Thank you. [Operator Instructions] And our first question comes from David Walrod from Ladenburg. Your line is now open..

Good afternoon..

Good afternoon, David.

How are you doing?.

Good, good. Couple of questions.

With the preferred issued, would you anticipate having the entire $100 million, I guess, distributed by the end of the year, or what’s kind of your timing on that?.

That’s our goal. As I mentioned earlier, we currently closed on about $24 million in Q1 and Q2 of 2016. We currently have four banks in some stage of either underwriting due diligence or credit approval. We’re anticipating and this is closing $30 million plus or minus in the third quarter with the balance to go in the fourth quarter.

We’ve been pleased with the interest. We’ve had large banks that have shown interest and wanting to manipulate the structure and/or the pricing that we’ve passed on. We’d like to try and stay very firm on our offering and hopefully do a number of transactions with different banks and hopefully grow an investor base. So it’s been a great trade.

Any time that we can bring low cost 3% capital that’s non-dilutive to our common shareholders. It’s been a very positive transaction. We just need to close it by year end, David..

Great.

And then the other question is, given the money that you’re raising there as well as the proceeds from your asset sales, how quickly are you able to redeploy that capital back into your investment portfolio?.

Right now we’re currently working on 10 deals for the third quarter, another half dozen deals for the fourth quarter. If all those would pass through credit approval and come to a closing there’s roughly a $110 million worth of bond proceeds that we look - and capital that we’d look to deploy.

We’re still showing even though with the competitive environment with the low interest environment, we’ve been fortunate enough to do business with some of the top developers in the country. So there’s a lot of competition that’s looking to do this business.

We’ve still been very fortunate to have those folks be loyal to us, and created what we think and awfully solid pipeline going forward..

Okay. Great. Thanks for your time..

Thank you, David..

Thank you. Our next question comes from Ben Chittenden from Oppenheimer. Your line is open..

Hey. Good afternoon, guys. And thanks for taking my questions..

Good afternoon, Ben..

So I guess a stepping back to the preferred issuance. You’ve kind of proven the product twice now. You’ve obviously been talking with banks for months at this point.

If we think beyond 2016 and beyond the $100 million that you’re committed to for this year, is there increased interest from bank counterparties to have that additional issuance in 2017 as well?.

The answer is yes. We are constrained under the PPM to a one to three type of ratio between our market cap and our offering of the preferred stock. So as our market cap hopefully goes up as our stock price reacts to some of these positive events that will give us greater flexibility and opportunity to add to that position.

Obviously from a strategic point of view any time that we can come to the market for non-dilutive 3% capital and we're not constrained by any of the outstanding documents or relationships we're going to try to pursue that..

Okay. And should we think about future - I mean, it seems like right now you've kind of got the funding lined up for the asset growth that you've got in the pipeline.

Is that the right way to think about it? Or to your point about what you just said, if you can go to the market and it's open, you'll kind of raise it and then deploy it opportunistically as the opportunities arise?.

I think there's a four different sources obviously maybe five depending on how you want to look at it, but obviously we've got the ability to come to the market on a common basis if and when needed.

We want to try and maximize the opportunity and deploy all the pref in front of that for the obvious reasons as it relates to cost of capital and dilutive nature of the structure. And so those two access the capital are wide open.

We're currently working with our friends in the Street on a couple different alternatives to attacking some bond securitization that we hope we will be able to share more information with you in the weeks and months to come that will create another liquidity event.

And then as we look to reposition our balance sheet obviously we're going to have sale proceeds for redeployment. So I think we have decent access to capital to fund the pipeline that we have in front of us at this time Ben..

Okay. So is it fair to assume that most of the MF properties will be sold? Or those are kind of opportunistically looking at, if they're available to sell, sell them.

But you don't mind holding them as well?.

No, I mean we're in the business of being long-term owners and operators in multifamily housing. So we’re totally comfortable in doing that. I think the real estate properties that we own. We got them on a number of different reasons either we acquired them because we thought there was an opportunistic value add play.

We foreclosed on a couple of developers. I mean the two transactions that we’ve worked on, they came to us in different ways and we exited those assets for different reasons. But we will manage each one of those assets for the highest and best use exit for the benefit of our investors going forward.

We're not highly motivated sellers, we're going to look at the cycle or we’re going to look at the market or we’re look at the asset. And then make the best decision we can to exit when the opportunity presents itself..

Okay, thanks. That's good color. And then my last one is just back to the deals you've kind of got lined up for the third and fourth quarter.

Can you talk at all about what the kind of the asset yields look? Maybe geographically where some of those are located? Or if there's any other color you can provide?.

I'd like to wait until we close and tell you what we’ve completed as opposed to what we're working on Ben..

Okay.

Is there any color on just like the market in general in terms of asset yields out there? Maybe not in terms of those deals specifically, but is there increased pressure, just given the rate environment? Is it still kind of 6%-plus on the asset side and 3% on the funding side?.

As far as market color, there’s multiple questions there. Let me take a shot at a couple of them. The market color I think that the interest rate environment in the aggressiveness of the agencies is obviously showing up on the doorstep of our developer relationships.

Because of that we're obviously under pressure to push the envelope on our coupon across the board with all products, all developers. We see the future to be somewhere in the high to mid 5s. We can make that work with the appropriate cost of our leverage and the structure.

The leverage structures that we're working on now as you can see are consistent to what we've done in the past. We are anywhere from variable rate modes, just under 2% to a fixed rate mode of you know north of three. So you know the short end of the curve is obviously very attractive today, but we're concerned about tomorrow and the months to come.

So you know we're aggressively looking at ways to bifurcate between variable rate mode and fixed rate mode and make sure that we're not having large exposure any fractures in the variable rate mode in the months to come or interest rate and volatility..

Okay, great. Thank you. That’s it for me..

Thank you, Ben..

Thank you. Our next question comes from Ian McBane from Talkot Capital. Your line is open..

Hey, good afternoon, guys..

Hello, Ian..

I was hoping to get an update on the Paseo property in San Diego..

No, I appreciate it, we spent a lot of time talking about in the last call I think the last time we’ve discussed the Paseo property I was working on three different tasks. As you know the reason in our underwriting back in 2013 we identified three weaknesses in the credit that we were concerned about.

We offered him a 50% loan to value and all three of those items in our credit underwrite proofed out and caused a foreclosure in August 2014. Those three things were occupancy, ability to operate a Bistro, and property tax.

Those are the three things since we become an active owner of the asset as opposed to a passive bond investor; we are right now currently going into the fall semester at 86% fully occupied. We feel that based on the August traffic and the closing ratio from previous years that we will end in the mid-90s to approaching 100.

So I think that concern is going away year-over-year. The other item was ability to run a Bistro. When we took over the active management of the Bistro, I was quick to learn that not only I, but nobody on-site could do a good job so we fired everybody and hired a third-party professional food service company.

Since then we continually showed improvements. We’ve made money in April and May. We lost a little money in June, but when we took over back in 2014 we were losing $30,000, $40,000 a month. So in my underwriting of the asset and a budget for 2016, 2017 if we can operate that flat and still deliver a quality food service product to our residents.

I’ll consider that a win and I think we’re making progress. The last item that was outstanding was the property tax. The property tax we’ve been consistently opposing the property tax over the last couple three years.

Just this summer, we’ve got it reduced for 2013, 2014, we’ve got it reduced for 2014, 2015 and we’ve currently got it reduced for 2016 going forward to $48 million. We think there’s still a little bit of negotiation on the number, but even if it is, it’s down $20 million from where we last started at $68 million.

The other part of the discussion about evaluation is exemption. We are currently negotiating with the County of the exemption as it relates to students, 5% is on the table. We think we can argue to it and defend a 30% exemption and hopefully we land somewhere in the middle.

So if we ended up with $45 million with the 15%, 20% exemption that’s real cost savings in our operating budget.

So I think we’re making progress, I’ve learned more about running a Bistro than I’d like to admit to anybody today, but I think we’re showing progress and I hope that we could season the financials based on this progress and we’d look to probably exit the asset sometime in 2017..

Okay. That’s great. Thanks a lot guys..

Thank you..

Thank you. Our next question comes from Robert Peyton from Burlington Capital. Your line is open..

Hey, Chad. I got on a little bit late. I didn’t catch much about the Arboretum sale and Woodland Park.

Can you kind of give us the gory details on those?.

Sure. The Arboretum was an asset that we sourced back in 2010. It was a fractured senior facility. It was a buy-in structure on a condo model. As we all know what happened in 2007, 2008, 2009 a lot of the folks who are living there had seen a lot of erosion in the retirement funds.

The property was probably 60 days away from a financial default on the outstanding debt. We proposed to the current condo owners a buyout. That buyout would equal our acquisition price for the asset not knowing what we were going to do with it, but we thought we could reposition the asset at some point in the very near future to an affordable asset.

As we got dirty and got our hands on the ground on property, we learned that this asset was just had a better and higher use, Bob. And over the last four years we’ve reposition the asset, we feel that the highest and best use is a market rate senior independent living facility.

And with the strength in the real estate market, we’ve seasoned the financials; we’ve cleaned up the asset. The market’s strong and we felt it was the opportune time to take it to the market for a fee simple sale. I think we had roughly a $12 million-plus gain.

It was a great trade for our investors and it showed a lot of our abilities from a real estate platform of being able to source, reposition, rehab and then manage the asset under a much different business model. So really proud of our team and on this transaction and it worked out very well for our investors..

Yes. Awesome. Thank you..

Woodland Park was a totally different transaction. This was an asset that we foreclosed on back from the credit crunch. We had a developer that didn’t perform under his development agreement. We enforced our rights and remedies and removed him and his team.

We deployed our folks to take over the property management, complete construction, stabilize the assets. Topeka Kansas is unique market that I’m not sure I want to participate in long-term and for that reason we’ve been waiting for the right time in the cycle to exit it that the highest and best use.

We collapsed to lower and all the - to set-asides under the affordability that we’ve originated the deal. So we can take it to a market rate execution, because of those two things we don’t think we picked.

You never can pick the top, but I think we picked an opportune time to exit the asset one and two, because we had the foresight to collapse the lower and set-aside we could take it to a market rate execution.

So what turned out to be a challenge from a financing perspective, we turn it into I think a $1.7 million, $1.6 million gain for our investors over time..

Okay..

So unique transactions, how we started and how we ended them were all different for different reasons, but at least on these two they came out to be very positive business for our investors..

Thank you..

Thank you. [Operator Instructions] And our next question will come from Dan Davis from Stifel. Your line is open..

Do you have a net asset value on a per unit basis for us?.

Yes. It’s about $5.34 per unit at the end of June..

Okay. All right. Thank you..

Thank you. And our next question comes from John Baum, Private Investor. Your line is open..

Hi, guys. Great quarter. Congratulations. Unitholder for a while.

Question regarding the exact composition at CAD I’ve been wandering through what’s presented in the financial information, but is there actually either in the PPM or some other document, how you set forth again the exact competition for CAD after net income?.

Yes. There is. So in the 10-Q, in fact you can find it in 10-Q on Page 48. It lays out the normal components whereby we would reconcile a GAAP net income to what we reported as CAD and also on our website typically a day or two after our earnings call, we will post a supplement and file that with the SEC as well too.

And it will give you a little bit more insight into just the composition of our portfolio and some other trends that are going on inside and which will also include a reconciliation of CAD to..

Excellent. And as you are looking at 48 right now of the Q and as I normally think about cash flow I guess from operations - from an operating income, you kind of look at net income add back for depreciation and amortization subtract for normalized CapEx.

I see you guys you add back for DNA and all amortization, but how do you account for maybe declines in market value prop et cetera. I guess I’m trying to get back to the maintenance aspect of - the cash maintenance aspect of operating its properties.

And when you every have a surprise, because I know maybe some quarters in prior years you guys are kind of like falling short of the CAD compared to - I mean the distribution was a little bit short for CAD. So are you like providing a surplus for that right now.

I guess I’m trying to wonder you try to get little closer to that exact computation go ahead?.

Sure. So what we do is in the past we’ve declared $0.125 per quarter as a distribution, $0.50 per year. What we do as we take a look at the CAD not only on a quarterly basis, but has this been mentioned before.

Sometimes there is some lumpiness in earnings and in operations I think that “lumpiness” has been removed over time as we began during 2015 and into 2016 to scrub the balance sheet to fine-tune that to the point now that we are you - we’ve earned our CAD in 2015. We are ahead of the goal and ahead of CAD versus distribution in 2016 as well too.

So the easiest answer is we kind of look at that on an annual basis. Our goal is always to achieve $0.50 and we don’t get to the point that we try to reserve or hold money back if you will. Again our goal is always to achieve and earn that $0.50..

Okay. And lastly in this market of really depressed interest rate and interest rate can’t go much lower.

I mean are you satisfied that in this low interest rate environment versus what you lend on versus what you have to take the CAD sustainable and reducing interest rate and if the rates starts to rise, is the win that you are backing in terms of computation of CAD?.

Yes. I think the short answer to that question is we do feel comfortable with that. I mean again interest rates, we’ve seen interest rates trend down lately. And obviously we perform a little bit better.

But if you look on Page 53 of our Q, when you’re able to do that Page 53 of the Q will show the impact of a decline of 25 basis points on our funding costs all the way up to a 200 basis point increase in our funding costs.

And again that would assume that over the next 12 months rates move at negative 25 basis points and then 50 basis point increases all the way up to plus 200 assuming that we do nothing in reaction to that as well too. Of course, that wouldn’t be the case, so if you were to look at the worst case in our environment.

It would be on Page 53 at the different levels of increases in interest rates and if we did nothing to react to that. Now in the meantime as Chad mentioned, we continue to look at increasing the Series A redeemable preferred units at a 3% coupon, which provides relatively stable funding for us.

In addition to that, we have tax exempt bond securitization opportunities to lock in our rates for, in essence, a 10-year period of time and then we’re also looking at some other alternatives to that would lengthen that liability cycle and in effect fix that interest rate. On the assets side, our interest rates are predominantly fixed.

So the true impact the - I guess again the short answer to your question is we feel very comfortable with the fact that even if rates rose 200 basis points and we did nothing about that. The impact on a CAD basis to the fund would be less than $0.04 per unit..

Excellent. You guys have done a fantastic job right here. And as a unitholder, returns are in excess of 10% on a federally tax-exempt basis. So keep up the good work and looking forward to buying more if it goes down. Again, thank you very much....

Thank you..

Thank you. And I’m showing no further questions at this time. On behalf of ATAX, I would like to thank you for attending the second quarter 2016 earnings call. Thank you and have a great day..