Greystone Housing Impact Investors LP quarterly report, Q3 FY2021

Greystone Housing Impact Investors LP (ATAX) — 2021 Q3 Form 10-Q

Filing entity: America First Multifamily Investors, L.P. The filing covers the quarter and nine months ended September 30, 2021; financial statements are unaudited. The Partnership invests primarily in mortgage revenue bonds (MRBs), governmental issuer loans (GILs), related property loans, multifamily properties, and equity interests in multifamily developments.

Financial performance and position

Metric	Q3 2021	Q3 2020	Nine months 2021	Nine months 2020
Total revenues	$17.7 million	$13.8 million	$48.5 million	$42.1 million
Net income (loss)	$13.0 million	$(1.2) million	$30.2 million	$6.4 million
Net income (loss) available to Partners	$12.3 million	$(1.9) million	$28.1 million	$4.3 million
Net income (loss) per BUC	$0.19	$(0.03)	$0.42	$0.07
Cash provided by operating activities	—	—	$23.3 million	$12.6 million

Q3 revenue rose 27.8%; nine-month revenue rose 15.3%. Nine-month earnings included $15.2 million of gains from sales of unconsolidated investments. Q3 included a $7.0 million gain on the Bulverde investment sale. These gains are not recurring interest revenue.
Q3 total expenses were $11.7 million versus $15.1 million, chiefly reflecting the absence of the prior-year $3.5 million credit-loss provision on the Live 929 MRB and $0.8 million loan-loss provision. Nine-month expenses fell to $33.4 million from $37.0 million, despite higher interest expense and general and administrative costs.
Comprehensive income was $8.4 million in Q3 and $11.3 million for nine months, below net income in both comparisons primarily because of unrealized losses on securities. Nine-month unrealized losses on securities were $19.0 million.
Management’s non-GAAP cash available for distribution (CAD) was $13.3 million, or $0.22 per BUC, for Q3 and $30.3 million, or $0.50 per BUC, for nine months. Declared distributions were $0.11 per BUC in Q3 and $0.31 per BUC for nine months. The filing cautions that CAD is not standardized and is not a substitute for GAAP results.

Balance sheet, debt and liquidity

At September 30, total assets were $1.285 billion, up from $1.175 billion at December 31, 2020. Cash and cash equivalents were $91.5 million; restricted cash was $83.3 million. Restricted cash is not generally available for unrestricted use.
Debt financing, net, was $760.6 million; secured line borrowings were $6.5 million; and mortgages payable were $25.4 million. Total partners’ capital was $377.5 million, with $94.4 million of redeemable preferred units presented separately. Management reported a 66% overall leverage ratio.
Contractual debt-financing maturities include $222.4 million in 2023 and $158.1 million in 2024. The filing reports compliance with financing covenants at quarter-end.
The General secured line had a $40 million commitment, $6.5 million drawn and $33.5 million available, subject to borrowing-base and other limits. The $50 million Acquisition LOC was undrawn. The Partnership also reported $340.4 million in outstanding investment funding commitments, including $120.7 million for GILs and $152.1 million for property loans.
Operating cash flow was $23.3 million; investing activities used $64.6 million, reflecting substantial advances to GILs, property loans and unconsolidated entities; financing activities provided $93.1 million. Cash, cash equivalents and restricted cash increased by $51.8 million.

Material changes and management commentary

Investment income increased, supported by growth in GIL balances and income from unconsolidated investments. A $1.8 million contingent-interest payment followed the July redemption of the Rosewood Townhomes and South Pointe MRBs at a premium.
The Partnership sold interests in Vantage at Germantown, Powdersville and Bulverde during 2021, receiving approximately $55.1 million in total proceeds and recognizing gains. These sales materially contributed to reported nine-month earnings.
GIL assets increased to $166.0 million from $64.9 million at year-end 2020. The portfolio included construction-stage properties; remaining GIL commitments were $120.7 million.
The BUC offering completed in September generated approximately $31.2 million in net proceeds from 5,462,500 units. The Partnership also had an at-the-market BUC program, but reported no sales under it through September 30.
Management said cash on hand and expected sources should be sufficient for obligations and liquidity needs over the next 12 months. This assessment depends on operating receipts, financing access, investment performance and other assumptions; no earnings or distribution guidance was provided.

Risks, contingencies and unusual items

Provision Center 2014-1, a commercial-property MRB, is in Chapter 11 bankruptcy; the borrower stopped contractual payments. The Partnership recorded a $0.9 million credit-loss provision for the nine months. The MRB principal was $10.0 million at quarter-end, and the Partnership is evaluating restructuring, refinancing or sale options with other bondholders.
Live 929, the student-housing MRB, had recovered to 95% occupancy, but remained under a forbearance agreement covering certain covenants and deferred principal payments through December 2021. The Partnership had fully reserved its related property loan and had an MRB credit-loss allowance associated with Live 929 and Provision Center totaling $8.2 million.
COVID-19 continued to affect property operations and valuations. Management cited slight occupancy and operating declines at multifamily MRB properties overall, stronger recovery at Live 929 and Suites on Paseo, and below pre-pandemic occupancy at the 50/50 property. Construction supply-chain or cost pressures could affect projects, although no material disruptions or overruns were reported to date.
Interest-rate sensitivity analysis estimated that an immediate 100-basis-point increase could reduce net interest income over the following 12 months by approximately $2.9 million; a 200-basis-point increase could reduce it by approximately $5.1 million. These are scenario estimates, not forecasts.
MRB fair values rely on significant unobservable inputs and are classified as Level 3. A 10% adverse change in effective yields was estimated to create an additional $14.3 million unrealized loss. Geographic concentrations at September 30 included Texas (45% of MRB principal), California (19%) and South Carolina (12%).
Series A preferred units had an approximately $94.5 million redemption value; holders’ earliest redemption dates begin in March 2022. No redemption notices had been received by quarter-end. The Partnership also reported construction-loan guarantees and other commitments; no material pending legal proceeding was identified.
Subsequent to quarter-end, the Partnership entered a new Barclays TOB financing and committed to fund MRB and taxable MRB investments for a Los Angeles property.

Investor verification priorities

Separate recurring investment and interest income from sale gains and contingent-interest income when assessing earnings quality and distribution coverage.
Review the bankruptcy, collateral recovery and restructuring outcomes for Provision Center 2014-1, and payment/forbearance developments for Live 929.
Assess the $340.4 million investment commitments against available liquidity, borrowing-base limits, financing terms and the 2023–2024 maturity schedule.
Monitor Series A preferred-unit redemption notices and the Partnership’s plan to fund any redemptions, given the potential $94.5 million redemption value.
Verify how interest-rate changes, Level 3 valuation assumptions, geographic concentration and construction risks affect future cash flows and reported fair values.