Greystone Housing Impact Investors LP annual report, FY2022

Greystone Housing Impact Investors LP — 2022 Form 10-K

Reporting period: Fiscal year ended December 31, 2022. The partnership finances affordable multifamily and seniors housing primarily through mortgage revenue bonds (MRBs) and governmental issuer loans (GILs), alongside property loans, market-rate joint-venture equity investments and one student-housing property. The partnership changed its name from America First Multifamily Investors, L.P. effective December 5, 2022; its NYSE ticker is GHI.

Financial results and position

Metric	2022	2021
Total revenue	$81.1 million	$68.5 million
Net income	$65.6 million	$38.1 million
Net income per BUC	$2.62	$1.53
Cash Available for Distribution (CAD, non-GAAP)	$53.4 million; $2.37 per BUC	$39.7 million; $1.88 per BUC
Cash distributions declared per BUC	$1.709 in cash, plus $0.40 in additional BUCs	$1.469 in cash
Operating cash flow	$21.1 million	$33.9 million
Total assets	$1.567 billion	$1.386 billion
Total liabilities	$1.149 billion	$919.0 million

• Reported total revenue excludes $39.8 million of gains on sales of unconsolidated investments. Including those gains and other income, total revenues and other income were $120.9 million, up 44.0% from $84.0 million.
• Interest expense was $30.5 million, up 38.8%. In the Affordable Multifamily MRB segment, net interest income was $33.3 million and net interest spread was 3.2%, compared with $23.9 million and 2.9% in 2021.
• Cash and cash equivalents were $51.2 million, of which at least $5.0 million must be maintained under financing terms. Restricted cash was $41.4 million. The partnership reported total debt financing of $1.059 billion, secured lines of credit of $55.5 million and mortgages payable of $1.7 million.
• The partnership’s leverage ratio was approximately 73% at year-end; the board raised the maximum from 75% to 80% in February 2023. Remaining investment funding commitments were $428.3 million.
• Cash, cash equivalents and restricted cash declined by $59.3 million during 2022. Operating activities provided $21.1 million, investing activities used $278.6 million and financing activities provided $198.2 million.

Material changes versus 2021

• Net income rose 72.1%, while CAD increased about 34.5%. Higher interest income from larger GIL, property-loan and MRB balances, higher rates and recoveries of previously non-accruing loan interest contributed to growth.
• Joint-venture sale gains increased to $39.8 million from $15.5 million, chiefly from sales of Vantage at Murfreesboro, Westover Hills and O’Connor. These gains materially lifted GAAP earnings; CAD adjusts for certain non-cash and partnership-allocation items and should not be treated as a GAAP measure.
• Interest expense rose as debt balances and variable borrowing costs increased. The Federal Reserve raised short-term rates by 425 basis points in 2022. The partnership recorded a $69.4 million unrealized loss on securities in other comprehensive income, partly offsetting net income in comprehensive results.
• MRB principal outstanding increased to approximately $771.0 million from $697.6 million; GIL principal increased to $300.2 million from $184.8 million. Investment in unconsolidated entities rose to $115.8 million from $107.8 million, and property loans, net, to $175.1 million from $68.1 million.
• Quarterly net income was $3.2 million in Q4 2022, versus $18.5 million in Q3 2022 and $7.9 million in Q4 2021. Q4 revenue was $22.0 million, versus $20.0 million in Q4 2021.

Outlook, risks and notable items

• Management said cash on hand and expected cash flows and financing sources should meet liquidity needs over the next 12 months. No quantified earnings or distribution guidance was provided. The General LOC had $6.5 million drawn and $33.5 million available at year-end, with a June 2023 maturity and extension options. The $49.0 million Acquisition LOC balance was repaid in January 2023.
• A holder gave notice in February 2023 to redeem $20.0 million of Series A Preferred Units in August 2023. The partnership also issued $8.0 million of Series A-1 Preferred Units in February 2023. Series A and A-1 units carry a 3.0% stated distribution rate and holder redemption rights, subject to their terms.
• Management reported that MRB and GIL debt service was current at year-end except for the Provision Center 2014-1 MRB; it received $3.7 million of initial liquidation proceeds in January 2023 and expected further proceeds. Most stabilized MRB properties were current on debt service. Overall stabilized multifamily occupancy and economic occupancy were 94.5% and 87.6%, respectively, at year-end; several properties had weaker operating results. Six of 13 GIL properties had begun leasing.
• Management noted that rising variable-rate construction costs had exceeded capitalized interest reserves at some projects. Developers used other reserves, deferred fees or contributed cash to cover costs. The partnership identified no material construction cost overruns or material supply disruptions to date, but projects remain exposed to construction, lease-up and stabilization risks.
• Key risks include high leverage and refinancing needs; variable-rate funding costs, collateral calls and financing covenants; illiquid Level 3 MRB valuations; property defaults or inadequate refinancing and sale proceeds; concentration in Texas, California and South Carolina; reliance on Freddie Mac purchase commitments for GILs; inflation and recession risk; and potential tax-exempt status challenges. CECL credit-loss accounting became effective January 1, 2023 and may increase allowance volatility.
• The sale of The 50/50 MF Property in December 2022 produced a $6.6 million deferred gain, to be recognized as principal is collected on an unsecured property loan. The partnership reported no material pending legal proceedings. The auditor issued an unqualified opinion; its critical audit matter was valuation of Level 3 MRBs. The auditor did not attest to internal control over financial reporting.

Investor verification points

• Review CAD’s reconciliation to GAAP net income and the degree to which distributions are supported by recurring cash flows rather than property-sale proceeds or financing.
• Check the timing and refinancing or repayment plans for 2023–2025 debt maturities, including the General LOC, and assess the impact of the $20.0 million preferred-unit redemption and remaining commitments.
• Evaluate sensitivity to further rate changes, collateral requirements, debt covenants and the sustainability of the 73% leverage ratio after the board’s increase in the maximum limit.
• Assess construction and lease-up progress, interest-reserve adequacy, guarantor capacity, and the conditions attached to Freddie Mac GIL purchase commitments.
• Review the assumptions behind MRB fair values and credit-loss allowances, including CECL adoption, and monitor the Provision Center liquidation proceeds and collection of the deferred 50/50 property-sale gain.