Greystone Housing Impact Investors LP — Q2 2022 Form 10-Q Summary
Filing identity: The filing is for America First Multifamily Investors, L.P. (NASDAQ: ATAX), the registrant name shown on the Form 10-Q. Financial statements are unaudited. The quarter and six-month periods ended June 30, 2022.
Business context
The Partnership invests primarily in mortgage revenue bonds (MRBs), governmental issuer loans (GILs) and property loans financing affordable housing, and also holds multifamily properties and noncontrolling interests in market-rate multifamily development ventures. Its results can vary materially with property sales, investment redemptions, interest rates and fair-value changes.
Key financial metrics
| Metric | Three months ended June 30, 2022 | Six months ended June 30, 2022 |
|---|---|---|
| Revenue, before gains on investment sales | $17.2 million | $36.4 million |
| Gain on sale of unconsolidated investments | $12.6 million | $29.1 million |
| Net income | $17.6 million | $43.9 million |
| Net income available to partners | $16.9 million | $42.4 million |
| Net income per BUC | $0.75 | $1.79 |
| Comprehensive income (loss) | $(2.4) million | $(24.7) million |
| Cash provided by operating activities | Not presented by quarter | $14.3 million |
| Cash, cash equivalents and restricted cash at period end | $149.6 million, including $104.6 million unrestricted cash |
For the six months, investing activities used $96.5 million and financing activities provided $79.8 million; cash, cash equivalents and restricted cash declined by $2.3 million. Q2 net income included a $12.6 million investment-sale gain; first-half net income included $29.1 million of such gains. Results therefore include significant gains from venture exits, rather than only recurring investment income.
Interest expense was $6.8 million in Q2, up 26.5% year over year; for the first half it was $10.7 million, up 1.2%. The affordable multifamily segment reported net interest income of $6.5 million and a 2.5% net interest spread in Q2, versus $6.0 million and 3.0% a year earlier. For the first half, net interest income was $17.1 million and spread 3.4%, versus $11.8 million and 3.0%. The filing attributes results partly to changes in investment balances, borrowing costs and derivative fair values; it does not provide a single consolidated operating margin.
At June 30, total assets were $1.442 billion, total liabilities $1.024 billion, redeemable preferred units $94.4 million and partners’ capital $323.9 million. Debt financing was $931.3 million, secured lines of credit $39.5 million and mortgages/other secured financing $26.4 million. The Partnership’s stated leverage ratio was approximately 70%, against a Board-set maximum of 75%. Cash distributions declared were $0.57 per BUC for Q2, including a $0.20 supplemental distribution, and $0.90 per BUC for the first half.
Material changes versus prior comparable periods
- Q2 net income rose to $17.6 million from $10.3 million; first-half net income increased to $43.9 million from $17.3 million. Higher venture-sale gains were a major contributor.
- First-half total revenue increased to $36.4 million from $30.8 million. Management cited higher GIL balances and rates, additional property-loan and taxable-bond income, and receipts on loans previously in nonaccrual status, partly offset by MRB paydowns and venture exits.
- MRB fair-value marks produced a $67.6 million unrealized loss in first-half 2022, versus a $14.4 million loss in the prior-year period. These marks reduced comprehensive income but do not directly affect bond cash flows or distributions.
- Total debt financing increased to $931.3 million from $820.1 million at year-end 2021; debt plus secured lines and mortgages totaled approximately $997.1 million, versus approximately $892.6 million.
- On April 1, the Partnership completed a one-for-three reverse BUC split. Per-unit figures in the filing have been adjusted retroactively.
Outlook, commentary and risks
- Outlook: No specific earnings guidance was provided. Management expects cash on hand and operating cash flows, together with normal-course financing and refinancing, to meet liquidity needs over the next 12 months. This is subject to investment funding, debt service, distributions and possible preferred-unit redemptions.
- Interest rates and refinancing: The filing notes rapid Federal Reserve rate increases, inflation and fixed-income market volatility. Higher short-term rates generally raise costs on variable-rate debt. Contractual debt-financing maturities include $262.6 million in 2023 and $312.9 million in 2024, creating meaningful refinancing needs. Management reports covenant compliance at June 30.
- Liquidity and commitments: Remaining investment commitments totaled $286.1 million, including estimated funding of $128.6 million for the remainder of 2022. Actual timing may differ. The Partnership also had $90 million of total secured LOC commitments, subject to borrowing-base and other terms.
- Portfolio and credit risks: MRBs, GILs and property loans depend principally on underlying property cash flows and are generally not obligations of the issuing government authorities. Texas, California and South Carolina represented 41%, 26% and 10% of MRB principal, respectively. Most underlying properties were current on contractual debt service; Provision Center 2014-1 remained the exception.
- Operations: Management reported slight occupancy and operating-result pressure at some MRB properties associated with COVID-19, but stated debt service remained current and reserves were available. It reported no material supply-chain disruptions or construction cost overruns to date. Student-housing occupancy and leasing improved; two owned properties were 100% and 97% pre-leased for fall as of late July.
- Unusual and subsequent events: In July, Vantage at O’Connor was sold; the Partnership received approximately $19.4 million and expects to record a roughly $10.6 million gain in Q3, before final settlements and expenses. The Magnolia Heights GIL and property loan were placed into a TOB financing, with proceeds used to repay the Acquisition LOC. The LOC was amended in July, including an extension of maturity to June 2024 and a change to its interest-rate terms. Provision Center’s collateral was sold out of bankruptcy in July; proceeds to the Partnership remain subject to final accounting. If proceeds equal the reported June carrying value, management estimates a roughly $5.7 million realized loss for CAD purposes, with no additional GAAP net-income impact because the loss was previously recognized.
- Preferred units: Holders may have redemption rights beginning in 2023, subject to notice requirements. No redemption notices had been received as of June 30. Redemption could increase liquidity demands.
Most important facts for investors to verify
- How much of reported earnings and distributions is supported by recurring investment cash flow versus venture-sale gains and other nonrecurring items.
- The timing and terms of refinancing the substantial 2023–2024 debt maturities, and the sensitivity of borrowing costs and collateral requirements to further rate changes.
- Actual funding pace for the $286.1 million of remaining investment commitments and the Partnership’s available liquidity after debt service and distributions.
- Final proceeds from the Provision Center bankruptcy sale and the ultimate effect on cash available for distribution.
- Property operating performance, including construction and lease-up progress, occupancy trends, and credit conditions in concentrated states and at properties with weaker economic occupancy.
- Whether preferred-unit holders exercise redemption rights and whether the July Acquisition LOC amendment changes financing flexibility or costs as expected.