Business context and reporting period
Greystone Housing Impact Investors LP’s unaudited Form 10-Q covers the quarter and six months ended June 30, 2023. The Partnership primarily finances affordable multifamily and seniors housing through mortgage revenue bonds (MRBs), governmental issuer loans (GILs) and property loans; it also invests in market-rate multifamily joint ventures and owns student housing property.
Key financial results and position
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenues | $28.3m | $17.2m | $53.2m | $36.4m |
| Net income | $21.3m | $17.6m | $38.1m | $43.9m |
| Net income available to Partners | $20.5m | $16.9m | $36.5m | $42.4m |
| Net income per BUC | $0.85 | $0.74 | $1.45 | $1.74 |
| Cash Available for Distribution (CAD), non-GAAP | $14.1m | $16.7m | $32.4m | $38.4m |
| CAD per BUC | $0.62 | $0.74 | $1.43 | $1.70 |
Total revenues exclude gains on sales of unconsolidated investments. Including those gains, revenue and other income was $35.6m for Q2 2023 and $75.9m for the first half of 2023. Six-month net income included $22.7m of gains on JV investment sales.
- Cash flow: Six-month operating cash flow was $13.0m, investing cash outflow $46.6m and financing cash inflow $46.0m. Cash, cash equivalents and restricted cash increased $12.4m to $105.0m; unrestricted cash was $59.2m and restricted cash $45.8m.
- Assets and debt: Total assets were $1.657bn at June 30, versus $1.567bn at year-end 2022. Debt financing, net, was $1.154bn; secured lines of credit were $12.5m and mortgages payable $1.7m. Management reported a 72% leverage ratio.
- Liquidity and commitments: The Partnership reported $364.3m of remaining investment commitments, including $157.9m projected for the remainder of 2023. These are funding commitments, not all immediately payable. Management said cash and expected sources should be sufficient to meet liquidity needs over the next 12 months.
- Distributions: A $0.37 per BUC quarterly cash distribution and supplemental $0.07 per BUC distribution in additional BUCs were declared; both were completed July 31, 2023.
Material changes versus prior comparable periods
- First-half total revenue rose 46% year over year, driven mainly by higher GIL balances and rates, new MRB advances, higher property-loan and taxable investment income, and greater interest earned on cash.
- Six-month interest expense rose to $27.0m from $10.7m, reflecting higher rates on variable-rate borrowings and higher average debt. The six-month net interest spread fell to 2.3% from 2.8%; for Q2 it was 2.4% versus 2.2%.
- Six-month gains on JV sales declined to $22.7m from $29.1m, contributing to the reduction in net income and CAD. Q2 included a $7.3m gain on the Vantage at Conroe sale; Q2 2022 included a $12.6m gain on Vantage at Westover Hills.
- Effective January 1, 2023, the Partnership adopted CECL expected-credit-loss accounting and recorded a $5.9m cumulative reduction to partners’ capital. At June 30, the total allowance, including unfunded commitments, was $5.1m. The first-half provision line was a $1.3m recovery, primarily reflecting shorter expected asset lives and updated model inputs.
- Preferred units increased to $112.5m redemption value from $94.5m at year-end, after $18.0m of Series A-1 issuance. Holders provided notice to redeem $20m in August 2023 and $10m in October 2023.
Outlook, commentary, risks and unusual items
- No specific full-year earnings or distribution guidance is provided. Management expects liquidity from cash, investment cash flows, asset repayments or sales, and financing; it may also issue equity or preferred units.
- Interest-rate exposure remains material. The filing estimates an immediate +100 basis-point rate shift would reduce annual net interest income by about $0.7m, or $0.03 per BUC, under its stated assumptions. Variable-rate debt costs and construction interest costs have increased; the Partnership uses swaps and caps but retains basis and market risks.
- Collateral calls are a liquidity risk: about $12.4m was posted with Mizuho from April through July 2023; approximately $9.5m was posted as of June 30. Further market declines could require additional collateral.
- Debt maturities are concentrated: $378.5m in 2024 and $307.6m in 2025, in addition to $75.2m of debt financing scheduled for the remainder of 2023. The General LOC was amended in July 2023, extending its maturity to June 2025; the Acquisition LOC matures in June 2024, subject to extension options.
- Management reported that underlying MRB and GIL debt service was current at June 30, except the Provision Center 2014-1 MRB, which is in liquidation; approximately $0.93m of further proceeds were expected. Construction and lease-up remain exposed to higher rates, operating costs and completion or stabilization conditions. Seven of 12 GIL properties had commenced leasing.
- Occupancy signals were mixed. The student property Suites on Paseo was 70% occupied at quarter-end but about 100% pre-leased for fall 2023, including a university master lease for 140 beds. Live 929 was 91% occupied but 63% pre-leased for fall, slightly behind the prior year. Bruton Apartments showed weaker occupancy and higher bad-debt write-offs.
- Other risks include property defaults and collateral values, refinancing and market access, geographic concentration in Texas, California and South Carolina, and possible redemption of preferred units. The Partnership reported no material change to previously disclosed risk factors and no pending legal matter expected to have a material effect.
Important facts for investors to verify
- Track CAD, cash distributions and the effect of JV sale timing; CAD is a non-GAAP measure and fell year over year in the first half.
- Review the $30m of preferred-unit redemption notices, available liquidity and the terms or renewal of credit facilities.
- Monitor 2024–2025 maturities, collateral requirements, variable-rate borrowing costs and hedge performance.
- Assess execution of the $364.3m remaining commitments, especially construction progress, stabilization and Freddie Mac forward-purchase conditions.
- Review credit-loss assumptions and property operating trends, including the CECL allowance, Bruton Apartments, student-housing leasing and the Provision Center liquidation.
- Consider the valuation uncertainty: MRBs and related commitments are Level 3 fair-value assets using significant unobservable inputs; management estimated a $23.3m additional unrealized loss under a 10% adverse yield assumption.