Greystone Housing Impact Investors LP(GHI) - 2018 Q4 - Annual Report

Part I Item 1. Business The Partnership primarily invests in mortgage revenue bonds for affordable housing, operating through four segments with a leveraged acquisition strategy - The Partnership's core business involves acquiring mortgage revenue bonds (MRBs) for affordable multifamily, student, senior, and commercial housing projects12 Portfolio Snapshot as of December 31, 2018 | Investment Type | Count/Units | Principal Amount (approx.) | | :--- | :--- | :--- | | Mortgage Revenue Bonds (MRBs) | 77 bonds | $677.7 million | | - Residential Properties Financed | 63 properties | N/A | | - Rental Units Financed | 10,650 units | N/A | | Public Housing Capital Fund (PHC) Certificates | 3 certificates | $49.6 million | | Owned Multifamily Properties (MF Properties) | 2 properties | N/A | | - Rental Units Owned | 859 units | N/A | - The Partnership operates through four segments: Mortgage Revenue Bond Investments, MF Properties, Public Housing Capital Fund Trust, and Other Investments22 - The business strategy emphasizes leveraged acquisition of MRBs and other investments, with a maximum leverage of 75% of total assets and 60% as of December 31, 201825 42 Item 1A. Risk Factors The Partnership faces diverse risks including tax rate changes, illiquid investments, rising interest rates, debt financing, and regulatory shifts - Changes in U.S. corporate tax rates may negatively affect tax credit markets, increasing borrowing costs and limiting MRB investment capacity62 - Investments in MRBs, PHC Certificates, and property loans are relatively illiquid, lacking an established trading market, which could lead to losses upon sale67 - Rising interest rates could adversely impact the Partnership by increasing variable-rate debt interest expense and decreasing fixed-rate asset market values65 66 - Debt financing through securitization programs (TEBS, TOB Trusts) carries risks including rising interest rates, subordination of residual interests, and potential termination, which may result in asset liquidation and losses84 85 87 - Interest on MRBs or PHC Certificates could be deemed taxable by the IRS, leading to taxable income distributions for Unitholders117 118 - Freddie Mac's federal conservatorship and potential reforms pose a significant risk, as the Partnership's TEBS financing relies on Freddie Mac's investment-grade rating and ongoing operations122 123 Item 1B. Unresolved Staff Comments The Partnership reports no unresolved staff comments from the Securities and Exchange Commission - None130 Item 2. Properties The Partnership operates from Omaha, Nebraska, owning two multifamily properties and land with a total carrying value of approximately $64.6 million Real Estate Assets as of December 31, 2018 | Property Name | Location | Units | Carrying Value ($) | | :--- | :--- | :--- | :--- | | Suites on Paseo | San Diego, CA | 384 | $42,156,631 | | The 50/50 MF Property | Lincoln, NE | 475 | $32,935,907 | | Land held for development | KS, SC, NE | N/A | $1,776,197 | | Total Real Estate Assets (net) | | | $64,596,348 | Item 3. Legal Proceedings The Partnership is involved in ordinary litigation but reports no material pending legal proceedings expected to adversely affect its financial condition - The Partnership is not party to any material pending legal proceedings that are expected to have a material adverse effect on its consolidated financial condition, cash flows, or results of operations134 Item 4. Mine Safety Disclosures This item is not applicable to the Partnership - Not Applicable135 Part II Item 5. Market for Registrant's Common Equity, Related Security Holder Matters and Issuer Purchases of Equity Securities The Partnership's BUCs trade on NASDAQ, with 60.4 million outstanding as of December 31, 2018, and distributions are discretionary - The Partnership's BUCs are traded on the NASDAQ Global Select Market under the symbol "ATAX"138 - As of December 31, 2018, 60,426,177 BUCs were outstanding, held by approximately 12,000 holders of record138 - Distributions on BUCs are at the discretion of the General Partner and rank junior to Series A Preferred Units distributions139 - Under the 2015 Equity Incentive Plan, 2,276,442 BUCs remained available for future issuance as of December 31, 2018140 Item 6. Selected Financial Data Selected financial data shows decreased total assets but increased total revenues and net income, with BUC holders' interest in net income per BUC rising to $0.60 Selected Financial Data (2017-2018) | Metric | 2018 | 2017 | | :--- | :--- | :--- | | Total Assets ($) | $982,713,246 | $1,069,767,999 | | Total Debt, Net ($) | $568,777,140 | $643,868,521 | | Total Revenues ($) | $81,355,576 | $70,381,545 | | Net Income ($) | $41,139,529 | $30,662,851 | | BUC Holders' Interest in Net Income per BUC ($) | $0.60 | $0.44 | | Distributions Declared per BUC ($) | $0.50 | $0.50 | Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The Partnership achieved significant net income growth in 2018, driven by strong segment performance and robust liquidity, with increased Cash Available for Distribution Segment Net Income Comparison (in thousands USD) | Segment | 2018 | 2017 | % Change | | :--- | :--- | :--- | :--- | | Mortgage Revenue Bond Investments | $22,048 | $15,439 | 42.8% | | Public Housing Capital Fund Trust | $406 | $840 | -51.7% | | MF Properties | $3,677 | $9,668 | -62.0% | | Other Investments | $15,009 | $4,645 | 223.1% | - The Mortgage Revenue Bond segment's revenue increase was driven by a $1.1 million increase in contingent interest, a $2.8 million increase in other interest income from property loan redemptions, and a $3.1 million increase in other income from early MRB redemptions158 - The decrease in the MF Properties segment's net income was primarily due to a lower gain on sale of real estate assets ($4.1 million in 2018 vs. $17.8 million in 2017) as fewer properties were sold168 - The Partnership's primary liquidity sources include operating cash flows, unsecured lines of credit, BUC and Series A Preferred Unit issuances, and asset sales, used for distributions, expenses, debt service, and new investments234 243 Cash Available for Distribution (CAD) per BUC | Metric | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | Total CAD ($) | $43,567,768 | $36,098,781 | $30,204,080 | | Total CAD per BUC, Basic ($) | $0.73 | $0.60 | $0.50 | | Distributions Declared per BUC ($) | $0.50 | $0.50 | $0.50 | Item 7A. Quantitative and Qualitative Disclosures About Market Risk The Partnership's primary market risks are interest rate and credit risk, mitigated by interest rate caps, with a notable geographic concentration in its MRB portfolio - Primary market risks are identified as interest rate risk and credit risk, mainly related to MRB and PHC Certificate investments and associated debt financing288 - Credit risk primarily involves potential default on MRBs and property loans, which are non-recourse obligations dependent on underlying property cash flows290 Geographic Concentration of MRB Portfolio (Principal Outstanding) | State | Dec 31, 2018 | Dec 31, 2017 | | :--- | :--- | :--- | | Texas | 43% | 44% | | California | 18% | 20% | | South Carolina | 17% | 16% | - The Partnership uses interest rate cap agreements to mitigate exposure to interest rate fluctuations on its variable-rate financing facilities, holding nine such agreements as of December 31, 2018299 Interest Rate Sensitivity Analysis (Change in Net Interest Income, USD) | Change in Interest Rates | Impact on Net Interest Income ($) | | :--- | :--- | | -25 basis points | +$122,692 | | +50 basis points | -$243,384 | | +100 basis points | -$485,099 | | +200 basis points | -$968,825 | Item 8. Financial Statements and Supplementary Data This section presents the Partnership's audited consolidated financial statements for 2016-2018, with PwC issuing an unqualified opinion on financial statements and internal control - The independent registered public accounting firm, PricewaterhouseCoopers LLP, issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting as of December 31, 2018307 Consolidated Balance Sheet Highlights (as of Dec 31, USD) | Account | 2018 | 2017 | | :--- | :--- | :--- | | Total Assets ($) | $982,713,246 | $1,069,767,999 | | Total Liabilities ($) | $583,897,129 | $661,613,403 | | Total Partners' Capital ($) | $304,465,741 | $313,840,270 | Consolidated Statement of Operations Highlights (Year Ended Dec 31, USD) | Account | 2018 | 2017 | | :--- | :--- | :--- | | Total Revenues ($) | $81,355,576 | $70,381,545 | | Total Expenses ($) | $48,092,660 | $51,452,851 | | Net Income ($) | $41,139,529 | $30,662,851 | | Net Income per BUC ($) | $0.60 | $0.44 | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure This item is not applicable to the Partnership - Not applicable539 Item 9A. Controls and Procedures The CEO and CFO concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2018, with no material changes during Q4 2018 - The CEO and CFO concluded that the Partnership's disclosure controls and procedures were effective as of December 31, 2018539 - Management concluded that the Partnership's internal control over financial reporting was effective as of December 31, 2018, based on the COSO framework541 - No material changes in internal control over financial reporting occurred during the fourth quarter of 2018540 Item 9B. Other Information The Partnership reports no other information for this item - None543 Part III Item 10. Directors, Executive Officers and Corporate Governance The Partnership is managed by Burlington Capital LLC, with Chad L. Daffer as CEO and Craig S. Allen as CFO, and an Audit Committee comprising three independent members - The Partnership is managed by its general partner, AFCA 2, controlled by Burlington Capital LLC, whose executive officers and Board of Managers serve the Partnership546 - The Partnership's executive officers are Chad L. Daffer (CEO) and Craig S. Allen (CFO)546 - Burlington's Board of Managers includes an Audit Committee with three independent members: Patrick J. Jung, Walter K. Griffith, and Michael O. Johanns, with Mr. Jung designated as the 'audit committee financial expert'548 563 Item 11. Executive Compensation Executive compensation for CEO Chad L. Daffer and CFO Craig S. Allen is determined by Burlington, with the Partnership providing equity awards under its 2015 Equity Incentive Plan - Compensation for named executive officers, Chad L. Daffer (CEO) and Craig S. Allen (CFO), is determined and paid by Burlington, with the Partnership providing reimbursement and equity awards565 566 2018 Summary Compensation Table (Equity Awards, USD) | Name and Principal Position | Year | Unit Awards ($) | Total ($) | | :--- | :--- | :--- | :--- | | Chad L. Daffer, CEO | 2018 | 435,293 | 435,293 | | Craig S. Allen, CFO | 2018 | 353,233 | 353,233 | - The 2015 Equity Incentive Plan allows for various awards, with 2,276,442 BUCs available for future issuance as of December 31, 2018572 576 Item 12. Security Ownership of Certain Beneficial Owners and Management As of February 26, 2019, no single person beneficially owned more than 5% of BUCs, while Burlington's executive officers and Managers collectively owned approximately 2.5% - No single person is known to beneficially own more than 5% of the Partnership's BUCs586 - As of February 26, 2019, all current executive officers and Managers of Burlington collectively beneficially owned 1,524,330 BUCs, representing 2.5% of the class588 Item 13. Certain Relationships and Related Transactions, and Director Independence The Partnership's general partner is AFCA 2, controlled by Burlington, with all significant related party transactions detailed in Note 21 of the consolidated financial statements - The Partnership's general partner, AFCA 2, is controlled by Burlington, and all significant related party transactions are detailed in Note 21 of the consolidated financial statements591 592 Item 14. Principal Accountant Fees and Services The Audit Committee engaged PwC as the independent auditor, with total fees of approximately $1.19 million in 2018 and $1.28 million in 2017 for audit and tax services Accountant Fees Billed by PwC (USD) | Fee Type | 2018 | 2017 | | :--- | :--- | :--- | | Audit Fees ($) | $995,563 | $1,082,277 | | Tax Fees ($) | $193,978 | $193,663 | | Total Fees ($) | $1,189,541 | $1,275,940 | - The Audit Committee's policy requires pre-approval for all audit and permissible non-audit services provided by the independent registered public accounting firm, with all 2018 services pre-approved594 Part IV Item 15. Exhibits and Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed with the Annual Report, including governance documents, material contracts, and certifications - This item lists all financial statements, financial statement schedules, and exhibits filed with the Annual Report597 598 - Filed exhibits include governance documents, material contracts (e.g., TEBS financing, credit agreements), equity plan documents, and Sarbanes-Oxley certifications599 600 601 603