Greystone Housing Impact Investors LP quarterly report, Q1 FY2024

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Greystone Housing Impact Investors LP — Q1 2024 Form 10-Q

Reporting period: Three months ended March 31, 2024. The Partnership invests primarily in affordable-housing mortgage revenue bonds (MRBs), governmental issuer loans (GILs), property loans and joint-venture equity investments. Financial statements are unaudited.

Financial performance and position

  • Revenue: $22.37 million, down 10.3% from $24.94 million. Investment income was nearly flat at $19.27 million; other interest income fell to $3.00 million from $4.41 million. No property revenue was reported, following the December 2023 sale of Suites on Paseo.
  • Profit: Net income was $10.65 million, versus $16.79 million; net income available to Partners was $9.88 million versus $16.04 million. Basic and diluted earnings per BUC were $0.42, down from $0.59.
  • Key comparison: Q1 2023 included $15.37 million of gains on joint-venture investment sales, compared with $50,000 in Q1 2024. Q1 2024 also recorded a $6.27 million net benefit from derivative transactions, versus a $1.28 million expense in Q1 2023; derivative fair-value changes can make reported results volatile.
  • Comprehensive income: The Partnership reported a $1.42 million comprehensive loss, including $12.01 million of unrealized losses on securities and bond purchase commitments. Q1 2023 comprehensive income was $37.30 million, including $20.40 million of unrealized securities gains.
  • Interest expense and credit: Interest expense declined 17.3% to $13.80 million, primarily reflecting lower average debt balances and financing-cost amortization. The Partnership recorded an $806,000 recovery of credit-loss provisions; the allowance for loans and unfunded commitments was $3.29 million at quarter-end.
  • Cash flow: Operating activities provided $3.37 million, investing activities provided $76.77 million, and financing activities used $56.95 million. Cash, cash equivalents and restricted cash increased $23.19 million during the quarter to $70.93 million, including $56.26 million unrestricted and $14.67 million restricted.
  • Liquidity and capital: Total assets were $1.45 billion and total liabilities $1.03 billion at March 31, 2024. Partners’ capital was $339.83 million; redeemable preferred units had an $87.5 million redemption value. Secured lines of credit totaled $16.5 million outstanding, and net debt financing was $978.48 million. The reported leverage ratio was approximately 71%.
  • Cash Available for Distribution (CAD): The Partnership’s non-GAAP measure was $5.23 million, or $0.23 per BUC, versus $18.22 million, or $0.79 per BUC, a year earlier. Cash distributions declared were $0.368 per BUC, plus an additional BUC distribution valued at $0.07 per BUC.

Material changes and operating developments

  • Debt financing declined from $1.02 billion at year-end to $978.48 million at quarter-end. Investment principal repayments and redemptions included $72.32 million of property loans and $23.39 million of GILs; advances included $26.30 million on MRBs and $6.00 million on GILs.
  • Interest expense fell, but the quarter’s earnings comparison was substantially affected by the prior-year joint-venture property-sale gains. Q1 2024 joint-venture segment net income was $1.03 million, compared with $17.28 million in Q1 2023.
  • Unfunded investment commitments were $323.83 million at March 31, 2024, including $134.03 million for MRBs, $45.12 million for GILs, $53.58 million for taxable GILs and $54.33 million for equity investments. Management projected $236.43 million of funding in the remainder of 2024 and $87.40 million in 2025; actual timing may differ.
  • Stabilized non-consolidated MRB properties had weighted physical occupancy of 92.1%, versus 94.5% a year earlier; economic occupancy was 88.0%, versus 88.3%. Live 929 was 72% occupied, down from 94%, following lease-up and management issues; it was 30% pre-leased for fall 2024 as of April 30. The Partnership also cited operational issues at certain Avistar properties.
  • JV construction and lease-up remain exposed to higher interest costs. Management reported additional equity advances to certain ventures to cover cost overruns and interest, and expects further advances in 2024, with the amount uncertain. Such funding may reduce investment returns.

Outlook, risks and contingencies

  • Management said cash on hand and expected sources should be sufficient to meet liquidity needs over the next 12 months. Expected sources include operating receipts, investment redemptions, available credit and potentially additional debt or equity issuance; this is a forward-looking assessment.
  • Debt financing maturities were $143.34 million for the remainder of 2024 and $312.95 million in 2025. The 2024 amount includes the M31 TEBS facility’s July liquidity-commitment date; the filing says Freddie Mac cannot require redemption then, but fees or financing terms may change and the Partnership is evaluating alternatives. The Acquisition LOC, with no balance outstanding, matures in June 2024 and has extension options.
  • The General LOC had $16.5 million drawn and approximately $25 million of additional borrowing capacity under its borrowing base. The Partnership reported compliance with financing covenants, including a $6.3 million minimum liquidity covenant and $200 million minimum tangible net worth covenant.
  • Interest-rate exposure, collateral calls, inflation, property operating costs, real-estate values, construction and lease-up performance, refinancing access and investment redemptions are principal risks. A modeled immediate 100-basis-point increase in rates would reduce next-12-month net interest income by approximately $104,000, or $0.005 per BUC, under the filing’s assumptions.
  • Cash collateral posted with Mizuho was approximately $14.7 million at quarter-end; the Partnership posted a further $4.5 million in April following additional valuation declines. Continued market volatility could require more collateral.
  • As of March 31, borrowers on MRBs and GILs were generally current on contractual debt service; management reported no material pending legal proceedings. Live 929’s property loan was fully reserved and nonperforming; the Provision Center 2014-1 MRB was an exception to the statement that investments were current.
  • After quarter-end, the Partnership redeemed $10 million of Series A preferred units in April, acquired $33.73 million of MRBs for Woodington Gardens and arranged related financing, and in May sold the Brookstone MRB for gross proceeds of $8.3 million. It also entered an additional $19.5 million interest-rate swap in April.

Important facts for investors to verify

  • Whether scheduled 2024–2025 debt maturities and the M31 TEBS liquidity-commitment reset are refinanced or otherwise addressed on acceptable terms.
  • Whether projected funding of $323.83 million in commitments, and potential additional JV equity contributions, can be met without materially reducing liquidity or returns.
  • Progress in occupancy and operations at Live 929 and the cited Avistar properties, and whether the recent construction and lease-up projects meet stabilization and repayment conditions.
  • How changes in market rates and asset valuations affect collateral requirements, derivative results and the fair value of investments; most MRBs are valued using Level 3 estimates.
  • Whether CAD and cash distributions remain supported by recurring investment cash flows, given the difference between Q1 2024 CAD of $0.23 per BUC and declared cash distributions of $0.368 per BUC.