Greystone Housing Impact Investors LP (ATAX) — 2019 Q3 Form 10-Q
Filing identity: The registrant filed under its then-current legal name, America First Multifamily Investors, L.P. Greystone acquired the general partner on September 10, 2019. Reporting period ended September 30, 2019; financial statements are unaudited.
Business context and reporting period
The Partnership invests primarily in mortgage revenue bonds (MRBs) financing affordable multifamily and student housing, alongside public housing capital fund certificates, property loans, equity interests in multifamily developments, and owned properties. At quarter-end, it held 76 MRBs supporting 10,871 residential units and owned two multifamily properties totaling 859 units.
Financial performance and position
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Total revenue | 2019: $14.9 million; 2018: $26.0 million | 2019: $46.9 million; 2018: $58.2 million |
| Net income | 2019: $9.7 million; 2018: $17.9 million | 2019: $20.0 million; 2018: $27.2 million |
| Net income available to partners | 2019: $9.0 million; 2018: $17.2 million | 2019: $17.9 million; 2018: $25.1 million |
| Net income per BUC, basic and diluted | $0.13 vs. $0.25 | $0.26 vs. $0.38 |
| Cash provided by operating activities | Nine months: $12.8 million, compared with $18.0 million in 2018 |
Third-quarter comprehensive income was $28.8 million, including $19.0 million of unrealized gains on securities. Nine-month comprehensive income was $62.2 million, including $42.1 million of unrealized securities gains. Cash available for distribution (CAD), a non-GAAP measure, was $12.5 million for the quarter and $23.7 million for nine months, down from $17.4 million and $28.6 million, respectively. Distributions declared were $0.125 per BUC quarterly, or $0.375 for the first nine months.
At September 30, total assets were $1.034 billion and partners’ capital was $341.6 million. Cash and cash equivalents were $40.8 million, plus $0.6 million restricted cash. Debt financing, net, was $538.8 million; unsecured lines of credit were $13.2 million; mortgages and other secured financing, net, were $27.0 million. Management reported an overall leverage ratio of approximately 61%. The $60 million unsecured credit facilities had $46.8 million available.
Material changes versus the prior comparable period
- Revenue and earnings declined: nine-month revenue fell 19.5% and net income fell 26.4% year over year. MRB investment revenue was lower, reflecting reduced bond volume and yields; interest income also lacked several significant 2018 redemption-related items.
- Third-quarter 2019 included a $10.5 million gain on sale of the Vantage at Panama City Beach investment. The Partnership received approximately $22.7 million from the sale and may receive up to a further $325,000 if specified contingencies are met in 2020.
- General and administrative expense rose to $7.0 million for the quarter and $12.3 million for nine months. A major factor was accelerated vesting of all outstanding restricted units when Greystone acquired the general partner, resulting in approximately $3.3 million of third-quarter compensation expense.
- Debt financing, net, increased from $505.7 million at year-end 2018 to $538.8 million; unsecured line borrowings declined from $35.7 million to $13.2 million. The Partnership refinanced M24 and M33 TEBS facilities into fixed-rate financing and added new Mizuho variable-rate TOB financings.
- Fair-value gains on securities lifted comprehensive income, but these were unrealized and did not represent operating cash receipts. Most investment fair values are Level 3 estimates using significant unobservable inputs.
Outlook, risks, contingencies, and unusual items
No specific earnings or distribution guidance was provided. Management expected to meet near-term liquidity needs with cash and operating cash flows and anticipated refinancing maturities within the next 12 months. It stated that available cash and expected sources should be sufficient to meet or refinance obligations over that period. Debt maturities include $9.4 million for the remainder of 2019 and $114.3 million in 2020; mortgage maturities add approximately $3.1 million and $23.9 million, respectively.
- Refinancing and interest-rate exposure: The Partnership depends on renewing or refinancing debt. Variable-rate facilities, including weekly-reset TOB financing, expose it to changes in market rates despite interest-rate caps. Its sensitivity analysis estimated that an immediate 100-basis-point rate increase would reduce net interest income by approximately $0.95 million over 12 months, under stated assumptions.
- Portfolio and valuation risks: MRB cash flows depend on the operating performance of underlying properties. The largest geographic concentrations were Texas (43% of MRB principal), California (18%), and South Carolina (17%). The Live 929 MRB had an unrealized loss attributed to weaker operating results and debt-service coverage; management considered it temporary. The filing also identifies HUD appropriation risk for PHC certificates.
- Credit and contingencies: Interest on the Cross Creek property loans was on nonaccrual; the loan had a $7.4 million allowance against an $11.1 million outstanding balance. Construction-loan guarantees had maximum exposure of $24.8 million for Vantage at Stone Creek and $5.3 million for Vantage at Coventry; management had accrued no liability, citing remote likelihood of claims. Other guarantees include potential tax-credit-related exposure and an indemnity with maximum exposure of approximately $36.0 million.
- Property and investment activity: The Partnership recorded a $75,000 impairment on land in Gardner, Kansas. It also reported no material change in previously disclosed risk factors and stated that disclosure controls were effective.
- Subsequent events: In October, the Partnership committed $7.4 million to the Vantage at O’Connor development and extended a Pro Nova 2014-1 financing maturity from October 2019 to January 2020.
Important facts for investors to verify
- Whether the Vantage at Panama City Beach sale proceeds and any contingent additional proceeds were realized as expected.
- Progress on refinancing near-term 2019–2020 debt maturities, particularly the $114.3 million of debt financing due in 2020 and the property mortgage maturities.
- Underlying property performance, loan collections, and the status of nonaccrual exposures, especially Cross Creek and Live 929.
- How much reported earnings and capital depend on unrealized Level 3 fair-value movements versus recurring cash income; review CAD alongside GAAP results.
- Whether the Partnership maintained distributions, leverage and financing covenant compliance, and whether guarantee exposures or HUD funding risks changed after quarter-end.