Greystone Housing Impact Investors LP quarterly report, Q1 FY2017

Business context and reporting period

This unaudited Form 10-Q covers the three months ended March 31, 2017. The filing identifies the registrant as America First Multifamily Investors, L.P. (ATAX), the affordable-housing investment partnership; the supplied company metadata uses Greystone Housing Impact Investors LP.

The Partnership invests primarily in mortgage revenue bonds (MRBs) financing affordable multifamily and student housing, and also holds multifamily properties, public housing capital fund certificates, property loans and equity interests in development projects.

Financial performance and position

Investment income rose to $11.47 million from $9.16 million. Interest expense increased to $5.44 million from $4.77 million; general and administrative expense rose to $3.13 million from $2.33 million. The filing does not present a conventional operating margin measure.

Cash available for distribution (CAD), a non-GAAP measure defined by the Partnership, was $8.30 million, or $0.14 per unit, versus $6.29 million, or $0.10 per unit. Distributions declared were unchanged at $0.125 per unit. CAD is not a substitute for GAAP earnings or operating cash flow and may not be comparable to other issuers’ measures.

Material changes versus the prior comparable period

• Q1 revenue increased 7.5%; investment income growth from MRB acquisitions and development investments was partly offset by lower property revenue.
• Net income included a $7.17 million gain on the March sale of the Partnership’s 99% interest in Northern View for approximately $13.75 million. The related tax expense was $2.46 million; the sale gain is not recurring operating revenue.
• The Partnership acquired $59.59 million of MRBs and reported a $19.0 million unrealized gain on securities in comprehensive income. Total comprehensive income was $26.56 million, compared with $16.22 million in Q1 2016.
• Debt financing increased by approximately $102.7 million from year-end, while unsecured and secured lines of credit had no balance at quarter-end. The Partnership issued $16.13 million of Series A preferred units and repurchased 144,748 BUCs for approximately $823,000.
• Property revenues declined 26.5%, reflecting prior sales, Northern View’s sale, and weaker ongoing revenue—particularly at the 50/50 MF Property—partly offset by Jade Park. The consolidated MF-property portfolio’s physical occupancy was 84%, versus 93% a year earlier.

Outlook, commentary, risks and unusual items

• Management said cash and expected cash sources should cover liquidity needs and debt obligations over the next 12 months. It anticipated refinancing financing arrangements coming due in 2017 with similar arrangements of terms longer than one year; this is an expectation, not a completed refinancing.
• Debt financing contractual maturities include $116.9 million in 2017. The M24 TEBS facility has a September 2017 termination option/date, and other facilities also have near-term maturities. Management reported covenant compliance at March 31, 2017.
• Management reported an overall leverage ratio of approximately 66% against its Board-established 70% constraint. Interest-rate sensitivity analysis estimated an approximately $1.21 million reduction in net interest income/CAD over 12 months under an immediate 100-basis-point increase, and $2.32 million under a 200-basis-point increase.
• MRB fair values rely on Level 3, unobservable inputs. A hypothetical 10% adverse yield change was estimated to produce $43.0 million of additional unrealized losses on MRBs and $1.9 million on public housing certificates.
• Texas represented approximately 50% of MRB principal outstanding, California 18%, and South Carolina 11%. Management stated it did not believe current regional conditions exposed the Partnership to adverse risk in these markets.
• Three property loans—Ashley Square, Cross Creek and Lake Forest—remained on nonaccrual. The loan-loss allowance was $7.10 million. Debt service on MRB-backed properties and the Partnership’s mortgages was reported current at quarter-end.
• The Partnership guaranteed a construction loan for Vantage at Panama City Beach, with a maximum available balance of $25.6 million; no amount was outstanding and the filing reported no exposure under the guarantee at quarter-end. Separately, guarantees associated with financing trusts could expose the Partnership to a gross shortfall of approximately $603.8 million before collateral proceeds, although management said it had never been required to reimburse a shortfall and did not expect to be required to do so. Other disclosed contingent guarantees had stated maximum exposures of approximately $2.8 million and $4.4 million; no amounts were accrued because management considered triggering events remote.
• Related-party activity included approximately $865,000 of administrative fees paid or accrued to the General Partner and approximately $921,000 in consulting fees paid to an affiliate for Term A/B financing origination. The filing also describes other affiliate management and placement fees.
• No specific earnings or distribution guidance was provided. The General Partner may change BUC distributions at its discretion; preferred-unit distributions, if declared, are fixed at 3% and are non-cumulative.

Important facts for investors to verify

1. How the Partnership refinances or otherwise addresses the $116.9 million of 2017 debt maturities and the M24 TEBS termination timing.
2. Whether the Northern View sale gain, higher investment income and reported CAD translate into sustainable recurring cash available for distributions.
3. Trends in occupancy and operations at the 50/50 MF Property, Jade Park, and non-stabilized bond-collateral properties.
4. Credit performance and recovery prospects for the three nonaccrual property loans, including adequacy of the existing allowance.
5. Exposure to rising rates, Level 3 fair-value assumptions, geographic concentration and financing-trust guarantees.
6. Terms and costs of related-party services, preferred-unit issuance, and the effect of leverage and preferred distributions on BUC holders.