Greystone Housing Impact Investors LP (filed as America First Multifamily Investors, L.P.) — Q3 2018 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2018. Financial statements are unaudited. The Partnership invests primarily in mortgage revenue bonds (MRBs) financing affordable multifamily and student housing, alongside property, public-housing certificate and development investments.
Financial performance and position
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Total revenues | $26.0 million | $16.2 million | $58.2 million | $48.5 million |
| Net income | $17.9 million | $3.5 million | $27.2 million | $15.0 million |
| Net income available to partners | $17.2 million | $3.0 million | $25.1 million | $13.7 million |
| Basic and diluted income per unit | $0.25 | $0.05 | $0.38 | $0.21 |
| Distributions declared per unit | $0.125 | $0.125 | $0.375 | $0.375 |
- Revenue and earnings drivers: Q3 revenue included $4.2 million of contingent interest and $5.2 million of other interest income, largely tied to Lake Forest redemptions and recovery of previously unrecognized loan interest. The quarter also included a $4.1 million Jade Park sale gain, reported separately from revenue.
- Cash flow: For the nine months, operating activities provided $18.0 million and investing activities provided $7.5 million; financing activities used $71.4 million. Cash, cash equivalents and restricted cash fell $45.9 million to $25.7 million.
- Debt and liquidity: September 30 borrowings comprised $544.7 million of debt financing, $28.5 million on unsecured lines and $27.7 million of mortgages and other secured financing. The Partnership reported an approximately 62% leverage ratio and compliance with applicable covenants. Management said cash and expected sources would meet liquidity needs over the next 12 months and expected to refinance debt maturing within that period.
- Assets and capital: Total assets were $1.001 billion, down from $1.070 billion at December 31, 2017. Redeemable Series A preferred units had approximately $94.5 million of redemption value and a 3% distribution rate.
- Non-GAAP cash available for distribution (CAD): $17.4 million, or $0.29 per unit, in Q3 and $28.6 million, or $0.48 per unit, for the nine months, compared with $5.4 million/$0.09 and $19.6 million/$0.33, respectively, in 2017. CAD is not GAAP and may not be comparable across companies.
Material changes versus prior periods
- Nine-month revenue rose about 20% and net income rose about 81% year over year. Q3 earnings growth was especially affected by Lake Forest-related income and the Jade Park gain; it should not be read as solely recurring growth.
- Recurring MRB investment income benefited from bonds acquired in 2017–18, partly offset by redemptions and principal paydowns. Interest expense reflected higher average rates, while lower debt balances and derivative fair-value changes partly offset the increase.
- MRB fair-value movements and bond purchase commitments drove a $24.1 million unrealized securities loss for the nine months. Comprehensive income was consequently only $1.7 million, versus $47.0 million in the prior-year period.
- The Partnership sold Jade Park for $13.45 million, recognizing a $4.05 million gain, and redeemed the Lake Forest MRB and recovered approximately $4.6 million of previously unrecognized Lake Forest loan interest. It also invested substantially more in unconsolidated entities: carrying value increased to $80.3 million from $39.6 million at year-end.
- It closed a new Freddie Mac M45 TEBS financing, with approximately $221.5 million of Class A certificates sold, converting a group of MRBs to long-term fixed-rate financing. Reported debt financing declined overall to $544.7 million from $558.3 million at year-end.
Outlook, risks and unusual items
- No earnings or distribution guidance was provided. Management’s stated expectation was to refinance debt coming due within the next 12 months; contractual debt maturities include $18.5 million for the remainder of 2018 and $168.8 million in 2019. The unsecured non-operating line balance was also subject to a near-term due date, with extension options.
- Interest-rate exposure remains material. The filing estimates that an immediate 100-basis-point increase would reduce net interest income over the next 12 months by approximately $588,000, based on stated assumptions. Most MRB and PHC certificate fair values use Level 3 inputs and third-party pricing models.
- MRB principal was concentrated in Texas (47%), California (17%) and South Carolina (16%). Key disclosed risks include refinancing availability and cost, borrower defaults, interest-rate changes, property performance, counterparties, housing-program appropriations and potential LIHTC recapture.
- The Partnership recorded $1.14 million of PHC certificate impairment for the nine months and a $150,000 impairment on Gardner, Kansas development land. PHC certificate repayment depends on public-housing authority payments funded through HUD appropriations; the loans are not obligations guaranteed by the U.S. government or HUD.
- Guarantees include a reported $23.7 million exposure tied to the Vantage at Panama City Beach construction loan and $1.6 million tied to Vantage at Stone Creek; the Coventry construction loan had no outstanding balance at quarter-end. The filing also describes potential trust-financing guarantees, with maximum exposure of approximately $548.3 million before proceeds from collateral, and states the Partnership has not expected a shortfall reimbursement.
- Management reported no material change in previously disclosed risk factors, effective disclosure controls and no material quarterly change in internal control over financial reporting. In October, the Bella Vista MRB was redeemed, the remaining interest-rate swap was terminated, and Gardner land was listed for sale.
Important facts for investors to verify
- How much of reported earnings and CAD came from Lake Forest recoveries, the Jade Park sale and other nonrecurring or contingent items, versus recurring portfolio income.
- Plans and available capacity to refinance the 2018–19 maturities, including the unsecured line and relevant debt facilities, and the impact of any refinancing on rates and liquidity.
- Current property performance and borrower debt-service coverage, particularly for non-stabilized properties and the Texas-concentrated MRB portfolio.
- Assumptions underlying Level 3 bond valuations and PHC certificate impairment, and sensitivity of carrying values to market yields and housing-program funding.
- Remaining guarantee commitments and conditions that could cause claims, including construction-loan guarantees and trust-financing obligations.