Greystone Housing Impact Investors LP quarterly report, Q2 FY2020

Business context and reporting period

America First Multifamily Investors, L.P. (ticker ATAX; the entity named in this filing) filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2020. Its portfolio centers on mortgage revenue bonds (MRBs) financing affordable multifamily and student housing, alongside property loans, a governmental issuer loan (GIL), two owned properties and equity investments in multifamily developments.

Key financial metrics

Six-month operating cash flow was $8.94 million, investing cash flow was negative $3.41 million, and financing cash flow was negative $11.60 million. Cash, cash equivalents and restricted cash decreased $6.06 million to $37.12 million; unrestricted cash was $36.14 million. At June 30, total assets were $1.038 billion, total liabilities $596.20 million, and partners’ capital $347.89 million.

Debt financing was $538.95 million, unsecured lines of credit $18.70 million, and mortgages and other secured financing $26.39 million. Management reported a 62% overall leverage ratio. The $94.40 million redeemable Series A preferred units carry a 3% annual distribution rate.

Material changes versus the prior comparable period

• Q2 net income increased year over year, primarily as interest expense fell 21.2% to $4.89 million following refinancing and lower benchmark rates. General and administrative expense rose 14.0% to $2.85 million, and the quarter included a $465,000 provision for credit loss.
• First-half net income declined despite lower interest expense, reflecting a $1.82 million credit-loss provision, higher general and administrative expenses, and the absence of $3.0 million in contingent interest recognized in first-half 2019. The first half of 2020 also included a $1.42 million gain from selling PHC Certificates.
• In January, the Partnership sold its PHC Certificates for approximately $43.3 million and repaid related financing. In April, it terminated Deutsche Bank trust financings, paid a one-time termination fee of about $454,000, and replaced certain facilities with Mizuho variable-rate TOB financings.
• MRBs and property loans increased with new activity, including a $40 million GIL and advances on a related property loan for Scharbauer Flats. The Partnership also refinanced The 50/50 property’s mortgage and TIF loan at lower fixed rates and extended their maturities.
• Q2 comprehensive income was $25.56 million, including $20.97 million of unrealized gains on securities; these fair-value gains are not equivalent to cash income.

Outlook, commentary, risks and unusual items

Management said cash on hand and expected cash flows should be sufficient to meet liquidity needs and pay or refinance obligations over the next 12 months. It gave no numerical earnings guidance. In July, it extended Mizuho TOB maturities scheduled in 2021 to July 2023 and extended both unsecured credit lines to June 2022. These are subsequent events, not June 30 balance-sheet changes.

COVID-19 remained a significant uncertainty. Reported average rent collections at underlying residential properties were 94% in April, 93% in May, 90% in June and 93% in July. Management said all MRBs were current on contractual debt service at June 30 and it had received no MRB debt-service forbearance requests; however, the Pro Nova 2014-1 borrower requested forbearance. That commercial-property MRB drove the $1.82 million first-half credit-loss provision, citing debt-service shortfalls, the borrower’s request and risks to U.S. proton therapy centers. Live 929 was under covenant forbearance but current on debt service.

Management warned that weaker collections, unemployment, reduced government relief, university reopening changes, or construction and leasing delays could pressure collateral property cash flows, investments, distributions and financing access. Higher interest rates can also reduce net interest income: the filing’s sensitivity analysis estimates a $1.56 million decrease over 12 months for an immediate 100-basis-point increase, assuming no change in positions or risk management. Significant state concentrations include Texas (43% of MRB principal), California (17%) and South Carolina (17%).

Other notable exposures include approximately $22.5 million remaining on the Scharbauer property-loan commitment and construction-loan guarantees with maximum exposure of about $15.3 million for Vantage at Stone Creek and $23.6 million for Vantage at Coventry. As of July 31, total remaining investment funding commitments were reported at $94.3 million. Most MRB fair values rely on Level 3, unobservable inputs; the filing estimated that a 10% adverse change in effective yields would produce about $19.1 million of additional unrealized losses.

Important facts for investors to verify

• Track Pro Nova 2014-1’s forbearance discussions, debt-service performance and any further credit-loss provision.
• Check subsequent rental collections, COVID-19 effects on student-property occupancy, and whether government relief or university plans change.
• Confirm refinancing progress and compliance with covenants, particularly following the maturity extensions; review the timing and funding of near-term debt maturities.
• Assess liquidity against the $94.3 million of reported investment commitments, construction guarantees and distribution payments.
• Review assumptions behind Level 3 MRB valuations and distinguish unrealized fair-value gains from recurring earnings and cash available for distribution.