Greystone Housing Impact Investors LP — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. The Partnership finances affordable multifamily and senior housing through mortgage revenue bonds (MRBs), governmental issuer loans (GILs) and property loans, and also invests in market-rate housing joint ventures and property assets.
Financial performance and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenues | $26.5 million | $22.6 million | $79.7 million | $59.0 million |
| Net income | $9.7 million | $18.5 million | $47.8 million | $62.4 million |
| Net income available to partners | $9.0 million | $17.8 million | $45.6 million | $60.2 million |
| Net income per BUC, basic and diluted | $0.39 | $0.77 | $1.84 | $2.51 |
| Cash Available for Distribution (non-GAAP) | $5.6 million; $0.25 per BUC | $11.7 million; $0.52 per BUC | $38.0 million; $1.67 per BUC | $50.1 million; $2.21 per BUC |
- Revenue drivers: Higher investment income and other interest income reflected increased investment balances, higher average rates and greater interest earned on cash. Revenue growth was partly offset by lower property revenue following the 2022 sale of The 50/50 MF Property.
- Profit comparison: Net income fell despite revenue growth, principally because gains on sales of unconsolidated investments were lower: $32,000 in Q3 2023 versus $10.6 million in Q3 2022, and $22.7 million for nine months versus $39.7 million. Interest expense also rose substantially.
- Interest costs and margins: Interest expense increased to $10.7 million in Q3 from $8.0 million and to $37.7 million for nine months from $18.8 million. Management cited higher variable borrowing rates and higher average debt balances. Nine-month net interest spread was 2.3%, versus 2.9% in 2022; Q3 spread was 2.3%, versus 3.1%.
- Comprehensive income: Q3 comprehensive loss was $38.3 million, including a $47.8 million unrealized securities loss. Nine-month comprehensive income was $8.7 million, compared with a $29.0 million loss in 2022. Management attributed MRB fair-value declines primarily to higher market interest rates, not credit losses.
- Cash flow and liquidity: Nine-month operating cash flow was $20.2 million; investing activities provided $22.7 million and financing activities used $28.7 million. Cash and cash equivalents were $58.9 million, with restricted cash of $47.9 million, at September 30. The Partnership reported $16.5 million drawn on its $40 million General LOC and no Acquisition LOC borrowings.
- Debt and capital: Debt financing was $1.081 billion, secured lines of credit $16.5 million and mortgages payable and other secured financing $26.5 million. Management reported a 72% leverage ratio. Contractual debt and mortgage maturities include $404.9 million in 2024; the General LOC matures in 2025. Redeemable preferred units had a $92.5 million redemption value.
- Commitments: Remaining investment commitments totaled $344.4 million at September 30, primarily for MRBs, GILs, taxable GILs, property loans and equity investments.
Material changes and operating developments
- Investment income for nine months increased 39% to $62.3 million; other interest income increased 62% to $13.7 million. Interest expense roughly doubled, reflecting increased rates and borrowing.
- MRBs held in trust increased to $842.8 million from $763.2 million at year-end 2022. Net GILs declined to $254.4 million from $300.2 million and net property loans to $115.4 million from $175.1 million, reflecting substantial repayments and redemptions.
- Three joint-venture property sales—Vantage at Stone Creek, Coventry and Conroe—generated $22.7 million of gains for the nine-month period. Fewer and smaller sale gains than in 2022 weighed on reported earnings.
- The Partnership adopted the CECL expected-credit-loss standard on January 1, 2023, recording a $5.9 million cumulative reduction to partners’ capital. At September 30, allowances included $1.6 million for GILs, $2.1 million for property loans and $0.8 million for unfunded commitments. A $1.9 million nine-month recovery of provision was recorded.
- The quarterly cash distribution declared was $0.37 per BUC; the Partnership also declared a supplemental distribution of $0.07 per BUC in additional BUCs. CAD was below cash distributions per BUC in both comparison periods.
Outlook, risks and unusual items
- Management said cash on hand and expected operating cash flows, asset repayments, refinancing and other financing sources should meet liquidity needs over the next 12 months. No specific earnings or CAD guidance was provided.
- Key risks include further rate increases, inflation and property operating-cost growth, refinancing or extension risk, collateral calls, access to capital, and possible declines in real estate values or occupancy. The Partnership said its investments and financing may be affected by economic and market volatility.
- In November 2023, after quarter-end, the Partnership completed a $61.5 million senior-certificate financing against residual interests in three TEBS financings. It received approximately $60.4 million net proceeds and used proceeds plus released restricted cash to repay approximately $82.5 million of Secured Notes principal and accrued interest. The new financing bears fixed interest at 7.125% and is non-recourse, according to the filing.
- Preferred-unit redemptions are a liquidity consideration: $20 million was redeemed in August and another $10 million in October 2023; a holder also gave notice to redeem $10 million in March 2024.
- Operating watchpoints include Live 929 student housing at 69% occupancy at September 30, down from 89% a year earlier, which management attributed to leasing and on-site management issues; and Bruton Apartments’ lower occupancy and higher bad-debt write-offs. Suites on Paseo was 100% occupied. The filing states that contractual debt service was current on the multifamily properties securing MRBs, while the Provision Center MRB relates to bankruptcy liquidation proceeds.
- Management reported no material changes to previously disclosed risk factors, effective disclosure controls, and no material internal-control changes during the quarter. It reported no pending legal proceedings expected to have a material effect.
Important facts for investors to verify
- Progress on 2024 debt maturities and the refinancing or repayment of GILs and related loans, including the timing and conditions of Freddie Mac purchases.
- Whether further preferred-unit redemption notices arise and how redemptions are funded alongside the $344.4 million of remaining investment commitments.
- Changes in collateral requirements, borrowing costs and the effect of the November TEBS residual financing on net interest expense and liquidity.
- Occupancy and operating trends at Live 929 and Bruton Apartments, and construction, lease-up and capitalized-interest needs across development investments.
- Assumptions behind Level 3 fair values and CECL allowances, including whether market-value declines remain rate-driven or indicate worsening credit conditions.
- CAD methodology and coverage of distributions; CAD is a non-GAAP measure and was below distributions per BUC in the reported periods.