Greystone Housing Impact Investors LP — Q1 2018 Form 10-Q
Registrant identity: The supplied filing is for America First Multifamily Investors, L.P. (ATAX), not Greystone Housing Impact Investors LP. Verify that this is the intended filing. Reporting period: three months ended March 31, 2018; financial statements are unaudited.
Business context
The Partnership invests primarily in mortgage revenue bonds (MRBs) financing affordable multifamily and other properties. It also holds public housing capital fund certificates, direct multifamily properties, property loans and equity interests in development projects. At quarter-end it reported 84 MRBs, three owned multifamily properties with 1,012 units, and investments in unconsolidated entities.
Financial performance and position
| Metric | Q1 2018 | Q1 2017 / comparison |
|---|---|---|
| Total revenues | $16.46 million | $16.04 million; up 2.6% |
| Net income | $6.00 million | $7.36 million; down 18.4% |
| Net income available to partners | $5.29 million; $0.09 per unit | $6.96 million; $0.10 per unit |
| Cash available for distribution (non-GAAP) | $5.90 million; $0.10 per unit | $8.30 million; $0.14 per unit |
| Distribution declared per unit | $0.125 | $0.125 |
| Operating cash flow | $2.87 million | $4.88 million |
| Comprehensive income (loss) | $(16.85) million | $26.56 million |
- Revenue growth reflected higher investment income, including income from bonds acquired in 2017 and equity investments. Property revenue declined after property sales. Q1 2017 also included a $7.17 million gain on sale of real estate; no comparable gain occurred in 2018, contributing to the lower year-over-year net income.
- Expenses were $10.46 million, down 21.9%, including lower property operating costs, depreciation, financing-cost amortization and general and administrative expenses. Interest expense fell to $4.88 million from $5.44 million, partly due to derivative fair-value effects.
- Net loss from unrealized valuation changes in securities and bond purchase commitments was approximately $22.85 million, driving the comprehensive loss despite positive net income.
- At March 31, total assets were $1.03 billion, down from $1.07 billion at year-end; partners’ capital was $287.6 million, down from $313.8 million. Cash and cash equivalents were $54.0 million, plus $1.1 million restricted cash.
- Debt financing was $550.4 million, unsecured lines of credit $50.0 million, and mortgages and other secured financing $35.5 million—about $635.9 million combined. Management reported an overall leverage ratio of approximately 64% and compliance with debt covenants.
- Cash used in financing was $18.56 million, mainly reflecting distributions, unit repurchases and debt principal payments. Cash declined by $16.51 million during the quarter.
Material changes and operating developments
- MRB redemptions totaled $10.45 million during the quarter; there were no MRB acquisitions, compared with $59.59 million of acquisitions in Q1 2017.
- Investments in unconsolidated entities increased to $52.81 million from $39.61 million, with new commitments for Vantage at Stone Creek and Vantage at Bulverde.
- The Partnership acquired Omaha land for development and contributed part of it to Vantage at Stone Creek. It also signed an agreement to sell Jade Park; the filing does not report completion of that sale in the quarter.
- In March, the Partnership repurchased 198,465 units for approximately $1.3 million under a program authorizing repurchases of up to 268,575 units. Its at-the-market unit offering was terminated effective March 16, 2018.
- Subsequent to quarter-end, several MRBs were redeemed in April and May, with associated Term A/B Trust financings repaid.
Outlook, risks and contingencies
- No quantitative earnings or distribution guidance is provided. Management stated it expects to refinance debt maturing within the next 12 months and believes available cash and other sources will meet liquidity needs over that period.
- Contractual debt maturities include $67.3 million for the remainder of 2018 and $130.9 million in 2019. Several trust financings mature in 2018; renewal or refinancing remains a key risk.
- Variable-rate exposure remains: management’s sensitivity analysis estimates that an immediate 100-basis-point increase in rates would reduce net interest income by approximately $647,000 over the next 12 months, assuming stated conditions and no mitigating actions.
- MRBs, PHC certificates and other key fair-value assets rely on Level 3, largely unobservable valuation inputs. A hypothetical 10% adverse yield change would produce an estimated additional $17.8 million loss on MRBs and $1.6 million on PHC certificates.
- Portfolio risks include geographic concentration (approximately 44% of MRB principal in Texas, 19% in California and 16% in South Carolina), property performance, mortgage defaults, interest-rate movements, and government housing-program funding.
- Potential contingent exposure includes up to approximately $554.3 million under guarantees related to trust financing shortfalls, before collateral proceeds; management said it has never been required to fund a shortfall and does not expect to be. A separate construction-loan guarantee for Vantage at Panama City Beach had $16.6 million outstanding exposure. No accrual was recorded because a claim was considered remote.
- Cross Creek property loans carried a $7.39 million allowance against an $11.10 million outstanding balance. Interest on certain property loans, including Cross Creek, was on nonaccrual status.
- Management reported effective disclosure controls and no material changes in internal control over financial reporting. It reported no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Confirm the registrant: the filing names America First Multifamily Investors, L.P., while the request names Greystone Housing Impact Investors LP.
- Review the refinancing plan and status of near-term maturities, especially the remainder-of-2018 and 2019 obligations and the stated subsequent redemptions.
- Assess whether recurring cash generation supports the $0.125 quarterly distribution: reported Q1 CAD was $0.10 per unit, and CAD is a non-GAAP measure.
- Examine MRB valuation assumptions, Level 3 exposure, interest-rate sensitivity and the realized performance of properties securing the bonds.
- Check progress and potential exposure for development commitments, guarantees, the Jade Park sale and the authorized unit-repurchase program.