Greystone Housing Impact Investors LP (ATAX) — 2019 Q2 Form 10-Q
Filing identity: The filing is under the registrant’s then-name, America First Multifamily Investors, L.P. It covers the quarter and six months ended June 30, 2019; financial statements are unaudited.
Business context and reporting period
The Partnership invests primarily in mortgage revenue bonds (MRBs) financing affordable multifamily and student housing, alongside public housing capital fund certificates, multifamily properties, property loans and equity investments in development partnerships. At June 30, it held 76 MRBs financing 10,871 rental units, plus two directly owned multifamily properties with 859 units.
Financial performance and position
- Second quarter: Revenue was $14.35 million, down 9.1% year over year. Net income was $3.89 million versus $3.34 million; income available to partners was $3.17 million versus $2.62 million. Net income per BUC was $0.05 versus $0.04. GAAP net margin was approximately 27.1%, compared with 21.1%.
- First half: Revenue was $32.01 million versus $32.24 million. Net income rose to $10.34 million from $9.34 million; income available to partners was $8.90 million versus $7.91 million. Net income per BUC was $0.13 in both periods. GAAP net margin was approximately 32.3%, versus 29.0%.
- Cash flow: For the first half, operating activities provided $7.12 million; investing activities used $8.05 million and financing activities used $17.19 million. Cash, cash equivalents and restricted cash decreased $18.12 million to $15.15 million, including $13.82 million of unrestricted cash.
- Balance sheet and debt: Total assets were $1.001 billion and total liabilities $585.6 million. Interest-bearing debt comprised $519.3 million of debt financings, $23.2 million drawn on unsecured credit lines and $27.1 million of mortgages and other secured financing—approximately $569.7 million in total. Redeemable Series A Preferred Units were $94.4 million, presented separately from liabilities. Management reported an overall leverage ratio of approximately 61%.
- Liquidity and distributions: The Partnership had $60 million of unsecured credit commitments, with $23.2 million outstanding at quarter-end. The non-operating line had approximately $36.8 million available; there was no operating-line availability at quarter-end. BUC distributions remained $0.125 quarterly ($0.25 for the half year). Cash Available for Distribution (CAD), a non-GAAP measure, was $4.61 million for Q2 and $11.18 million for the first half, versus $5.34 million and $11.24 million, respectively; first-half CAD per BUC was $0.19 against distributions of $0.25 per BUC.
Material changes versus comparable periods
- Quarterly revenue declined mainly with lower MRB volume, reduced property revenue following the September 2018 sale of Jade Park, and lower other interest income. Lower expenses—including no repeat of the $831,000 PHC certificate impairment recorded in Q2 2018—more than offset the revenue decline, lifting quarterly net income.
- First-half MRB segment net income fell 34.5% to $4.33 million, reflecting lower revenue and higher interest expense. The increase in consolidated first-half net income was supported by $3.04 million of contingent interest recognized on the January 2019 Vantage at Brooks loan redemption; the resulting contingent interest is a nonrecurring item.
- Comprehensive income included a $14.92 million unrealized securities gain in Q2 and a $23.06 million gain for the first half, versus a $17.35 million first-half unrealized loss in 2018. These fair-value movements are distinct from operating cash flow.
- MRBs held in trust increased to $701.0 million from $645.3 million at year-end, while directly held MRBs declined to $58.6 million from $86.9 million. Investments in unconsolidated entities rose to $96.8 million from $76.5 million.
Outlook, commentary, risks and unusual items
- Management expected to meet near-term liquidity needs from cash, operating receipts and refinancing, and said it expected to refinance debt and mortgages maturing within 12 months. Contractual debt-financing maturities at June 30 included $173.7 million for the remainder of 2019; subsequent transactions materially changed some maturities.
- After quarter-end, the Partnership refinanced M24 and M33 TEBS facilities into fixed rates of 3.05% and 3.24%, extending stated maturities to May 2027 and September 2030. It also extended both unsecured lines of credit to June 2021 and entered into new TOB financings; proceeds helped repay the operating line.
- Management described efforts to increase fixed-rate financing and diversify lenders. Interest-rate sensitivity analysis estimated that an immediate 100-basis-point increase would reduce next-12-month net interest income by approximately $982,000, assuming stated modeling conditions and no mitigating actions.
- Key risks include refinancing and renewal of financing facilities, interest-rate exposure, borrower defaults, real-estate operating conditions, geographic concentration, HUD appropriation risk for PHC-related cash flows, and access to capital. Texas, California and South Carolina represented 43%, 18% and 17% of MRB principal, respectively. Most investments are valued using Level 3 inputs; management’s sensitivity analysis estimated $23.1 million of additional MRB unrealized losses under its specified 10% adverse effective-yield scenario.
- Guarantees for construction loans and certain tax-credit-related obligations remained contingent; no amounts were accrued because management considered claims remote. Management reported compliance with financing covenants. The filing reported no material change in risk factors from the 2018 Form 10-K and no material change in internal control over financial reporting.
Important facts for investors to verify
- Confirm execution and terms of the July 2019 refinancings, line-of-credit extensions and new TOB facilities, and reconcile them with the large remainder-of-2019 maturity schedule.
- Assess whether recurring operating cash generation and CAD can support distributions, given first-half distributions per BUC exceeded CAD per BUC.
- Review the $3.04 million contingent-interest contribution to first-half earnings and the sensitivity of recurring results to MRB balances, financing costs and fair values.
- Monitor property performance and credit exposure, especially the Cross Creek loan allowance, nonaccrual property-loan interest, and the lower occupancy and rehabilitation status of certain collateral properties.
- Evaluate the assumptions behind Level 3 asset valuations, the reported 61% leverage ratio and exposure to federal housing-program appropriations.