Greystone Housing Impact Investors LP — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparative period is Q1 2022. The Partnership invests primarily in mortgage revenue bonds (MRBs), governmental issuer loans (GILs), and property loans financing affordable housing, and also invests in market-rate multifamily joint ventures and property assets. Financial statements are unaudited.
Financial results and position
| Metric | Q1 2023 | Q1 2022 / prior date |
|---|---|---|
| Total revenues | $24.94 million | $19.21 million |
| Net income | $16.79 million | $26.26 million |
| Net income available to Partners | $16.04 million; $0.60 per BUC | $25.55 million; $1.01 per BUC |
| Cash provided by operating activities | $0.20 million | $9.31 million |
| Cash used in investing activities | $35.90 million | $31.64 million |
| Cash provided by financing activities | $31.38 million | $32.86 million |
| Cash, cash equivalents and restricted cash | $88.32 million | $92.64 million at Dec. 31, 2022 |
| Total assets | $1.633 billion | $1.567 billion at Dec. 31, 2022 |
| Total liabilities | $1.186 billion | $1.149 billion at Dec. 31, 2022 |
| Debt financing, secured lines of credit and mortgages | $1.152 billion carrying value | $1.116 billion at Dec. 31, 2022 |
Investment income rose 34% to $19.30 million, and other interest income rose to $4.41 million. Interest expense increased to $17.97 million from $3.94 million, including higher variable-rate borrowing costs, higher average borrowings, financing-cost write-offs, and adverse derivative fair-value changes. The Partnership also recorded $15.37 million of gains on sales of unconsolidated investments. Net income declined despite higher revenue, in large part because financing costs rose and sale gains were lower than in the prior-year quarter. Net income includes significant realized gains; a single operating margin is therefore not a useful comparison.
Comprehensive income was $37.30 million, versus a loss of $22.31 million in Q1 2022, primarily reflecting a $20.40 million unrealized securities gain in 2023 compared with a $47.75 million unrealized loss in 2022. These fair-value movements generally do not affect current cash flows.
Management’s non-GAAP cash available for distribution (CAD) was $18.22 million, or $0.81 per BUC, versus $21.66 million, or $0.96 per BUC. The declared distribution was $0.37 per BUC, compared with $0.323 per BUC in Q1 2022. CAD is management-defined and is not directly comparable across companies.
Material changes and operating developments
- Revenue increased about 30%, driven principally by higher GIL balances and rates, MRB advances, other interest income, and interest earned on cash balances.
- Interest expense rose by about $14.0 million. The affordable multifamily MRB segment reported a loss of $0.80 million, compared with income of $6.97 million in Q1 2022.
- Market-rate joint venture sales generated $15.37 million of gains, mainly from Vantage at Stone Creek and Vantage at Coventry. The comparable 2022 quarter included the Vantage at Murfreesboro sale.
- The Partnership sold its interests in the 50/50 MF Property in December 2022. This reduced property revenue and operating expenses year over year; the related approximately $6.6 million sale gain remains deferred pending collection of principal on an unsecured property loan.
- At March 31, 2023, the portfolio included $848.5 million of MRBs held in trust, $18.9 million of MRBs held directly, $315.5 million of net GILs, and $162.8 million of net property loans. Total investment funding commitments were $394.3 million.
- The Partnership adopted the CECL expected-credit-loss standard on January 1, 2023, reducing partners’ capital by approximately $5.9 million. The reported allowance for credit losses at quarter-end was approximately $5.9 million, including reserves for unfunded commitments.
Liquidity, debt and outlook
Unrestricted cash was $52.1 million at quarter-end. The Partnership reported a 73% leverage ratio against a maximum set by its Board at 80%. Its $40 million General LOC had $6.5 million drawn and $33.5 million of stated remaining availability, subject to its borrowing base; it matured in June 2023 and had extension options. The $50 million Acquisition LOC was undrawn. Management stated that cash and expected sources of liquidity should be sufficient to meet obligations over the next 12 months, while noting reliance on operating receipts, refinancing, asset sales, and access to financing.
Contractual debt maturities were approximately $82.3 million for the remainder of 2023, $396.8 million in 2024, and $293.1 million in 2025. Variable-rate borrowing costs increased materially. The filing’s sensitivity analysis estimates that an immediate 100-basis-point increase in short-term rates would reduce net interest income over the next 12 months by approximately $0.41 million, assuming no management response and the stated market assumptions.
Two holders had given notice to redeem Series A Preferred Units: $20 million in August 2023 and, after quarter-end, $10 million in October 2023. The units carry a 3% distribution rate and redemption is at $10 per unit plus declared unpaid distributions. The filing identifies no formal earnings or distribution guidance. Management reported that all MRB and GIL debt service was current except the Provision Center 2014-1 MRB, for which $3.7 million of liquidation proceeds had been received and approximately $0.93 million of additional proceeds were expected.
Risks, contingencies and unusual items
- Rising rates, inflation, possible recession, and tighter credit conditions may raise funding and construction costs, reduce property cash flows or valuations, and constrain refinancing and new investment activity. Management noted that some construction projects had interest costs above initial capitalized-interest estimates, though developers used reserves, deferred fees, or contributed cash to meet obligations.
- Construction and lease-up performance remains important: seven of 13 GIL properties had commenced leasing by quarter-end. Management reported no material construction cost overruns or material supply-chain disruptions to date.
- The MRB portfolio has geographic concentration, with Texas, California, and South Carolina representing 35%, 25%, and 22% of MRB principal, respectively. MRB fair values are Level 3 estimates using significant unobservable inputs; a 10% adverse change in effective yields was estimated to produce an additional $21.25 million unrealized loss.
- Funding commitments, collateral and refinancing requirements, and potential preferred-unit redemptions create liquidity demands. Certain trust financings also contain collateral, covenant, and potential deleveraging requirements. The Partnership reported covenant compliance and no collateral-posting requirement at March 31, 2023.
- The Partnership reported no pending legal proceeding expected to have a material effect and no material change to previously disclosed risk factors other than added risks related to banking-sector disruption. It reported no cash or borrowing relationship with Silicon Valley Bank, Signature Bank, or First Republic Bank.
- Effective controls and procedures were reported as of quarter-end, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the June 2023 General LOC maturity was extended or refinanced, and the status of the substantial 2024–2025 debt maturities.
- Whether the announced $20 million and $10 million preferred-unit redemptions were completed and how they were funded.
- Actual timing and funding of the $394.3 million investment commitments, including construction progress, lease-up, and adequacy of interest reserves.
- Subsequent credit performance, CECL allowance assumptions, and any changes in property risk ratings or non-accrual status.
- Realized proceeds from remaining property and joint-venture sales, including collection of the deferred 50/50 MF Property gain and final Provision Center liquidation proceeds.
- Changes in interest rates, derivative values, collateral requirements, liquidity, and portfolio concentration after March 31, 2023.