Greystone Housing Impact Investors LP quarterly report, Q2 FY2018

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Greystone Housing Impact Investors LP (formerly America First Multifamily Investors, L.P.) — Q2 2018 Form 10-Q

Reporting period: Quarter and six months ended June 30, 2018. The filing was submitted under the registrant’s then-current name, America First Multifamily Investors, L.P.

Business context

The Partnership invests primarily in mortgage revenue bonds (MRBs) financing affordable multifamily and student housing, and also holds public housing capital fund certificates, multifamily properties, property loans, and equity interests in development projects. At quarter-end it held 81 MRBs financing 10,988 residential units and owned three multifamily properties with 1,012 units.

Financial performance and condition

  • Q2 revenue: $15.8 million, down 2.8% from $16.2 million a year earlier. Net income was $3.34 million versus $4.11 million; net income available to Partners was $2.62 million versus $3.68 million. Unitholder income was $0.04 per unit versus $0.06.
  • First-half revenue: $32.2 million, essentially flat with $32.3 million in 2017. Partnership net income was $9.34 million versus $11.40 million; net income available to Partners was $7.91 million versus $10.64 million. The 2017 comparison included a $7.15 million real estate sale gain.
  • Cash flow: First-half operating cash flow was $7.9 million, investing cash outflow $15.0 million, and financing cash outflow $36.7 million. Cash, cash equivalents, and restricted cash totaled $27.8 million at June 30, 2018, down from $71.6 million at year-end 2017.
  • Assets and liquidity: Total assets were $1.024 billion, down from $1.070 billion at year-end. Cash and cash equivalents were $26.3 million, with $1.5 million restricted. The Partnership said cash and other available sources should be sufficient to meet liquidity needs over the next 12 months.
  • Debt and leverage: Outstanding unsecured lines of credit were $49.5 million, debt financing net of costs was $542.2 million, and mortgages and other secured financing net were $35.2 million. Management reported a 64% overall leverage ratio and compliance with applicable covenants. Preferred units had approximately $94.5 million redemption value.
  • Distributions and non-GAAP CAD: Declared distributions remained $0.125 per unit for the quarter and $0.25 for the first half. Cash available for distribution (CAD), a non-GAAP measure, was $5.34 million ($0.09 per unit) for Q2 and $11.24 million ($0.19 per unit) for the first half, below declared distributions per unit in both periods.

Material changes versus comparable periods

  • Q2 property revenue fell 27.3%, principally reflecting properties sold in 2017; higher occupancy at The 50/50 and Jade Park partly offset the decline. First-half property revenue fell 32.6% for similar reasons.
  • Investment income rose 8.4% for the first half, supported by MRBs acquired in 2017 and 2018 and higher income from unconsolidated investments; redemptions and scheduled principal payments partly offset the increases.
  • First-half 2018 results included an $831,000 impairment charge on public housing capital fund (PHC) certificates. The prior-year first half included the Northern View sale gain and related tax expense.
  • Comprehensive income was $7.35 million in Q2 versus $14.88 million in Q2 2017. For the first half, the Partnership reported a comprehensive loss of $9.49 million, compared with income of $41.37 million in 2017, largely reflecting a $17.35 million unrealized securities loss and a $2.01 million loss on bond purchase commitments.
  • MRB and PHC certificate fair values rely on Level 3 estimates. The Partnership’s sensitivity analysis estimated that a 10% adverse change in valuation yields would produce additional unrealized losses of approximately $24.2 million on MRBs and $1.5 million on PHC certificates.

Outlook, risks, contingencies, and unusual items

  • No specific earnings or distribution guidance was provided. Management anticipated refinancing debt maturities over the following 12 months and stated that available resources should meet near-term liquidity needs.
  • Near-term maturities included $20.7 million for the remainder of 2018 and $168.8 million in 2019. The two Bankers Trust lines of credit were extended after quarter-end, in July 2018, to June 2020.
  • Interest-rate exposure, refinancing and renewal risk, borrower defaults, property performance, Level 3 valuations, and concentrations in Texas, California, and South Carolina are material risks. Variable-rate financing costs had increased; the filing’s sensitivity analysis estimated a $1.04 million reduction in net interest income over 12 months under a 200-basis-point increase, all else equal.
  • Guarantees include up to $21.6 million of current exposure under the Vantage at Panama City Beach construction-loan guarantee. A separate Stone Creek construction-loan guarantee had no outstanding loan balance or exposure at quarter-end. Trust-related guarantees could expose the Partnership to up to approximately $545.7 million before collateral proceeds, although management said it did not expect to fund a shortfall.
  • In July 2018, Jade Park met the criteria for held-for-sale classification; a sale was expected in Q3, but closing was not assured. In August 2018, the Partnership entered into an at-the-market sales agreement for up to $75 million of BUCs.
  • The filing reported no material changes to previously disclosed risk factors. Management concluded disclosure controls were effective and reported no material quarterly change in internal control over financial reporting.

Most important facts for investors to verify

  • Whether Jade Park’s proposed sale closed, at what price, and with what effect on debt and earnings.
  • Progress refinancing or extending 2018–2019 maturities, including the status and terms of the July 2018 line-of-credit extensions.
  • Whether CAD and recurring cash generation support the declared distributions, given first-half CAD per unit below distributions per unit.
  • Subsequent MRB borrower performance, PHC certificate credit quality, and the assumptions behind Level 3 fair values and the recorded impairment.
  • Changes in guarantee exposure, development commitments, and any use of the new $75 million BUC sales agreement.