Greystone Housing Impact Investors LP (NYSE: GHI) has demonstrated resilience in the face of a dynamic market environment, delivering solid financial performance in the first quarter of 2024. The partnership reported net income of $10.6 million, or $0.42 per unit, and cash available for distribution (CAD) of $5.2 million, or $0.23 per unit, for the quarter.

The partnership's reported net income includes a $4.6 million non-cash unrealized gain on its interest rate swap portfolio, reflecting the impact of rising interest rates. Excluding this non-cash item, the partnership's operating performance remained strong, with the interest rate swaps providing a significant offset to the rising cost of its variable-rate debt financing.

Business Overview

Greystone Housing Impact Investors' investment portfolio continues to perform well, with no forbearance requests on its $1.22 billion in affordable multifamily mortgage revenue bonds, governmental issuer loans, and property loans. The physical occupancy of the underlying properties securing these investments stood at a healthy 92.1% as of March 31, 2024.

The partnership's joint venture equity investments, which total $145 million, have also demonstrated resilience. The four Vantage properties that have completed construction are seeing good leasing activity, and the partnership has not encountered any material supply chain or labor disruptions on the Vantage projects under construction. The partnership also has equity investments with the Freestone Development Group and Valage Senior Living, both of which have projects in various stages of development.

In December 2023, Greystone Housing Impact Investors sold its final MF property investment, the Suites on Paseo student housing project, marking the partnership's exit from direct real estate ownership. This strategic move allows the partnership to focus solely on its core investment activities in affordable multifamily and market-rate multifamily properties.

Financials

The partnership's book value per unit stood at $14.59 as of March 31, 2024, a decrease of $0.58 from the end of 2023. This decline was primarily due to a decrease in the fair value of the partnership's mortgage revenue bond portfolio, driven by the rise in interest rates during the quarter. However, the partnership's management team emphasizes that these fair value fluctuations have no direct impact on the partnership's operating cash flows, net income, or CAD, as it intends to hold these investments to maturity.

Liquidity

Greystone Housing Impact Investors' liquidity position remains strong, with $56.3 million in unrestricted cash and $75 million in available capacity on its secured lines of credit as of March 31, 2024. This liquidity, combined with the partnership's disciplined approach to managing interest rate risk, positions it well to fund its current financing commitments and pursue new investment opportunities.

The partnership's debt investment portfolio, which accounts for 83% of its total assets, decreased by $74 million during the first quarter, primarily due to paydowns and redemptions. In February 2024, the borrowers of three construction-related investments elected to prepay approximately $72 million of property loans prior to property completion, allowing the partnership to redeploy these funds.

Geographic Diversification

Greystone Housing Impact Investors' geographic diversification remains a key strength, with its mortgage revenue bond portfolio spread across 15 states. Texas, California, and South Carolina account for 31%, 27%, and 20% of the portfolio, respectively, providing exposure to various regional economic conditions.

Risks and Challenges

The partnership continues to navigate the evolving multifamily landscape, which has been impacted by rising interest rates and construction costs. The partnership's affordable housing developer clients are increasingly relying on governmental subsidies and other sources of soft money to make their transactions financially feasible. Greystone Housing Impact Investors remains committed to working with its clients to deliver the most cost-effective capital possible, including the utilization of Freddie Mac's tax-exempt loan forward commitment program.

Outlook

In terms of the partnership's joint venture equity investments, Greystone Housing Impact Investors believes that getting new projects underway now, while other sponsors face significant challenges, will position it well for successful exits in the next three to five years, when new supply may be limited. The partnership's new joint venture equity investments made in 2023 and 2024 reflect this strategic approach.

Greystone Housing Impact Investors' management team remains focused on maintaining a balanced investment portfolio, with a continued emphasis on its core affordable multifamily debt investments, while selectively pursuing joint venture equity opportunities that align with its long-term growth objectives. The partnership's strong liquidity position and disciplined risk management approach position it well to navigate the evolving market conditions and capitalize on new investment opportunities as they arise.

Conclusion

Overall, Greystone Housing Impact Investors' first-quarter 2024 results demonstrate the partnership's ability to adapt to changing market dynamics while delivering consistent financial performance for its unitholders. With a diversified investment portfolio, prudent risk management, and a commitment to its mission of providing affordable housing, the partnership is well-positioned to continue creating value for its stakeholders.