Greystone Housing Impact Investors LP (filing registrant: America First Multifamily Investors, L.P.; ATAX) — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The filing also reports unaudited fourth-quarter results. The partnership invests principally in mortgage revenue bonds (MRBs) financing affordable multifamily and student housing, with additional property and equity investments.
Key financial metrics
| Metric | 2019 | 2018 |
|---|---|---|
| Total revenues | $62.3 million | $81.4 million |
| Net income | $30.5 million | $41.1 million |
| BUC holders’ net income per unit | $0.42 | $0.60 |
| Cash distributions declared per BUC | $0.50 | $0.50 |
| Cash Available for Distribution (non-GAAP), per BUC | $0.57 | $0.73 |
| Net cash from operating activities | $18.0 million | $25.7 million |
Revenue including gains on asset sales was $78.5 million in 2019 versus $88.3 million in 2018. Net interest income in the MRB segment declined to $19.3 million from $27.1 million; the segment’s net interest margin was 2.8% versus 3.8%. Fourth-quarter 2019 revenue and other income was $21.1 million, net income was $10.4 million, and net income per BUC was $0.16.
At year-end, total assets were $1.029 billion, total liabilities $592.8 million, and redeemable Series A Preferred Units $94.4 million. Debt, including lines of credit and property mortgages, was approximately $576.2 million net; management’s leverage ratio was approximately 61%, against a stated 75% operating limit. Cash and cash equivalents were $42.3 million, with a further $0.9 million restricted. The partnership reported $46.8 million available across its unsecured credit lines. Interest expense was $24.7 million, compared with $24.9 million in 2018.
The portfolio included 76 MRBs with approximately $679.7 million principal, financing 66 residential properties with 10,871 units across 13 states. The partnership also held two multifamily properties with 859 units and equity investments in unconsolidated developments.
Material changes versus 2018
- Total revenues fell 23.4% and net income fell 25.9%. MRB-segment revenue declined 28.2%, principally reflecting lower investment income, fewer redemption-related proceeds and lower contingent interest.
- Contingent interest declined to $3.0 million from $9.3 million; other interest income declined to $0.9 million from $7.6 million. These comparisons reflect significant 2018 realizations, including Lake Forest and Vantage-related proceeds.
- Gains on sales of unconsolidated investments increased to $16.1 million from $2.9 million, including sales of Vantage at Panama City Beach and Vantage at Boerne. The 2018 Jade Park property-sale gain of $4.1 million did not recur.
- General and administrative expense rose to $15.6 million from $13.1 million. A change in control following Greystone’s acquisition of the general partner on September 10, 2019 accelerated vesting of restricted units and resulted in recognition of previously unrecognized compensation expense; total restricted-unit compensation expense was $3.6 million.
- Operating cash flow declined by $7.7 million. Investing cash flow was $23.2 million, down from $49.1 million, while financing cash outflow narrowed to $31.3 million from $113.1 million.
- Fixed-rate debt increased to 66.1% of debt financing from 62.3%, following refinancing of the M24 and M33 TEBS facilities into fixed-rate arrangements. New Mizuho and Morgan Stanley facilities diversified financing counterparties.
Outlook, risks and unusual items
- Management expected to maintain the $0.50 annual distribution per BUC, citing 2019 CAD of $0.57 per BUC, but cautioned that distributions are discretionary and may be reduced if cash generation is insufficient. CAD is a non-GAAP measure and may not be comparable across companies.
- Management expected to refinance or renew 2020 maturities and stated that cash and expected operating cash flows should meet liquidity needs over the following 12 months. At year-end, contractual debt obligations included $121.1 million due within one year and property mortgages of $26.8 million due in 2020. Refinancing is not assured.
- Subsequent events: the PHC Certificates were sold for approximately $43.3 million in January 2020 and related TOB debt was repaid; the Pro Nova financing was extended to May 2020; Gateway Village and Lynnhaven financings were extended to February 2021; and The 50/50 property mortgage was refinanced in February 2020, extending maturity to April 2027 at a fixed 4.35% rate.
- MRB interest and principal depend on cash flows and sale or refinancing proceeds from the underlying properties; the bonds are non-recourse and not general obligations of the issuing authorities. Portfolio concentration is notable: Texas represented 43% of MRB principal, California 18%, and South Carolina 17%.
- Interest-rate exposure remains material because most investment assets bear fixed rates while some debt resets at variable rates. Management’s sensitivity analysis estimated a $0.9 million reduction in net interest income over 12 months from an immediate 100-basis-point increase, subject to model assumptions.
- Live 929 had a cumulative unrealized loss tied to operating and debt-service-coverage declines; the bond was current at year-end, and a forbearance agreement was executed in January 2020. A $7.4 million allowance remained against the Cross Creek property loan; interest on certain property loans was on nonaccrual.
- The filing identifies risks from illiquid Level 3 valuations, refinancing and securitization covenant triggers, property construction and occupancy, HUD appropriation dependence for PHC Certificates, tax-exempt status, and related-party relationships. The partnership reported compliance with financing covenants at year-end and no material pending litigation expected to materially affect results.
Important facts for investors to verify
- Whether the 2020 debt maturities and renewals were refinanced on acceptable terms, and the resulting borrowing costs and covenant headroom.
- Whether recurring operating cash flow and CAD can support the $0.50 annual BUC distribution, excluding episodic sale gains and contingent interest.
- Current performance, valuation assumptions and credit status of the Live 929 bond and the Cross Creek loan allowance.
- Exposure to Texas and other concentrated markets, and occupancy, debt-service coverage and refinancing conditions at underlying properties.
- The effect of Greystone’s management transition, related-party fees and compensation costs, including continued independent oversight.
- Whether the PHC Certificate sale and subsequent repayment of related financing changed ongoing earnings, liquidity or leverage.