Greystone Housing Impact Investors LP(GHI) - 2021 Q4 - Annual Report

PART I Business The Partnership invests in tax-exempt mortgage revenue bonds for affordable housing and other multifamily property assets Organization and Investment Types The Partnership primarily holds mortgage revenue bonds and governmental issuer loans, managed by an affiliate of Greystone & Co - The Partnership was formed to acquire mortgage revenue bonds (MRBs) and also invests in governmental issuer loans (GILs), with the interest expected to be federally tax-exempt[13] - The General Partner is America First Capital Associates Limited Partnership Two ("AFCA 2"), whose general partner is Greystone AF Manager LLC, an affiliate of Greystone & Co[14] Key Investment Holdings as of December 31, 2021 | Investment Type | Count | Aggregate Principal Amount | | :--- | :--- | :--- | | Mortgage Revenue Bonds (MRBs) | 75 | ~$697.7 million | | Governmental Issuer Loans (GILs) | 9 | ~$184.8 million | | JV Equity Investments | 12 | Not specified | | MF Properties | 2 | Not specified | Business Objectives and Strategy The strategy focuses on generating tax-advantaged returns through leveraged investments with a target maximum leverage of 75% - The primary business objectives include generating attractive returns, creating recurring income for distributions, passing through tax-advantaged income, and using leverage effectively[33] - The Partnership finances its assets through various leverage instruments, including Tax-Exempt Bond Securitization (TEBS), Tender Option Bond (TOB) Trusts, Secured Notes, and mortgages[38][39][46] - The Board of Managers has established a maximum leverage ratio of 75%; as of December 31, 2021, the Partnership's overall leverage ratio was approximately 69%[44] - In September 2021, the Partnership completed an underwritten public offering of 5,462,500 BUCs, raising gross proceeds of $33.3 million[51] Reportable Segments In December 2021, the Partnership restructured into five segments, including a new focus on seniors and skilled nursing properties - Effective December 1, 2021, the Partnership established a new segment structure with five reportable segments[52]: - Affordable Multifamily MRB Investments - Seniors and Skilled Nursing MRB Investments - MF Properties - Market-Rate Joint Venture Investments - Public Housing Capital Fund Trusts (ceased activity in Jan 2020) Recent Developments In 2021, the Partnership actively acquired new investments and raised capital through equity and debt financing 2021 Investment Activity Summary (in thousands) | Activity | Amount | | :--- | :--- | | Mortgage revenue bond acquisitions/advances | $69,673 | | Mortgage revenue bond redemptions | $43,830 | | Governmental issuer loan advances | $119,905 | | Investments in unconsolidated entities | $36,727 | | Return of investment in unconsolidated entities | $29,761 | | Property loan acquisitions/advances | $55,816 | 2021 Financing Activity Summary (in thousands) | Activity | Amount | | :--- | :--- | | Net borrowing on secured LOC | $45,714 | | Proceeds from TOB financings | $178,220 | | Proceeds on issuance of BUCs, net | $31,243 | Risk Factors The Partnership faces material risks related to asset illiquidity, leverage, interest rates, tax status, and regulatory changes - Business and Investment Risks: The Partnership's MRBs, GILs, and other investments are illiquid, and their performance is tied to the economic results of the underlying real estate properties, with risks including construction delays, geographic concentration, and the ongoing effects of COVID-19[77][80][96][108] - Debt Financing and Derivative Risks: The investment strategy involves significant leverage, which can amplify losses, and securitization programs carry risks of termination, collateral calls, and failure to meet financial covenants[77][125][126][133] - Ownership Risks: BUC holders face risks of changing cash distributions, dilution from future issuances, and subordination to Preferred Units in distributions and liquidation[78][136][138][144] - Tax and Regulatory Risks: A primary risk is that interest on MRBs or GILs could be determined to be taxable, and the Partnership must also maintain its partnership status for tax purposes and manage the LIBOR transition[79][171][173][180] Unresolved Staff Comments The Partnership reports no unresolved staff comments from the SEC - There are no unresolved staff comments[187] Properties The Partnership's primary assets are financial instruments, with direct real estate holdings totaling $59.7 million Net Real Estate Assets as of December 31, 2021 | Component | Carrying Value (in millions) | | :--- | :--- | | Real Estate Assets | $80.4 | | Less: Accumulated Depreciation | ($20.7) | | Net Real Estate Assets | $59.7 | Legal Proceedings The Partnership is not party to any material pending legal proceedings - The Partnership is not involved in any material pending legal proceedings[190] Mine Safety Disclosures This item is not applicable to the Partnership - Not Applicable[191] PART II Market for Registrant's Common Equity, Related Security Holder Matters and Issuer Purchases of Equity Securities The Partnership's BUCs trade on NASDAQ under 'ATAX', with distributions subordinate to Preferred Units - The Partnership's BUCs trade on the NASDAQ under the symbol "ATAX"[194] - As of December 31, 2021, there were 66,049,908 BUCs outstanding held by approximately 15,600 holders of record[194] - Future distributions are at the discretion of the General Partner, with distributions to BUCs being junior to distributions to Preferred Units[195] Management's Discussion and Analysis of Financial Condition and Results of Operations Net income increased significantly in 2021, driven by higher investment income and gains on asset sales Results of Operations by Segment Segment performance was led by strong growth in Affordable Multifamily and a significant gain in Market-Rate Joint Ventures Segment Net Income (Loss) Comparison (in thousands) | Segment | 2021 | 2020 | | :--- | :--- | :--- | | Affordable Multifamily MRB Investments | $8,620 | $719 | | Seniors and Skilled Nursing MRB Investments | $72 | $0 | | Market-Rate Joint Venture Investments | $30,056 | $6,488 | | MF Properties | ($648) | ($1,390) | | Public Housing Capital Fund Trusts | $0 | $1,391 | - The Market-Rate Joint Venture Investments segment recognized a $15.5 million gain on the sale of three unconsolidated entities[228] Consolidated Results of Operations Net income surged to $38.1 million in 2021 from $7.2 million in 2020, driven by higher revenue and lower credit loss provisions Consolidated Results of Operations (in thousands) | Metric | 2021 | 2020 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Revenues and Other Income | $83,959 | $56,945 | $27,014 | 47.4% | | Total Expenses | $45,795 | $49,656 | ($3,861) | -7.8% | | Net Income | $38,099 | $7,209 | $30,890 | 428.5% | - The increase in total revenues was primarily due to an $8.5 million increase in income from investments in unconsolidated entities and a $15.5 million gain on the sale of three of these investments[254][258] - The decrease in total expenses was mainly driven by a $5.5 million reduction in the provision for credit loss compared to 2020[259][260] Cash Available for Distribution (CAD) CAD more than doubled to $39.7 million in 2021, providing full coverage for declared distributions CAD and Distributions per BUC | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Total CAD (in millions) | $39.7 | $15.8 | | Total CAD per BUC | $0.64 | $0.26 | | Distributions declared, per BUC | $0.50 | $0.305 | Liquidity and Capital Resources The Partnership maintained a strong liquidity position with $68.3 million in unrestricted cash and a leverage ratio of 69% - As of December 31, 2021, the Partnership had unrestricted cash of approximately $68.3 million[272] - The Partnership has outstanding investment commitments of approximately $350.3 million as of December 31, 2021, with projected funding of $244.2 million in 2022[105][295][296] - Total contractual debt maturities for 2022 amount to approximately $64.9 million[304] - The Partnership's leverage ratio was approximately 69% as of December 31, 2021, below the maximum target of 75%[314] Critical Accounting Policies and Estimates Key accounting judgments involve VIE consolidation, fair value measurement of Level 3 assets, and impairment analysis - Key critical accounting policies requiring significant management judgment include[318][319][322][328]: - Variable Interest Entities (VIEs): Determining if the Partnership is the primary beneficiary, requiring consolidation - Fair Value of Financial Instruments: Valuing Level 3 assets like MRBs using third-party pricing services and internal models - Impairment Analysis: Assessing MRBs, GILs, property loans, and real estate assets for credit losses Quantitative and Qualitative Disclosures About Market Risk The Partnership's primary market risks are interest rate volatility and credit risk concentrated in specific geographic areas - The primary market risks are interest rate risk and credit risk[344] Interest Rate Sensitivity (Impact on Net Income over 12 months) | Rate Change | Impact (in millions) | | :--- | :--- | | +50 basis points | ($1.5) | | +100 basis points | ($2.7) | | +150 basis points | ($3.9) | | +200 basis points | ($5.0) | Geographic Concentration of MRB Principal | State | % of Total (Dec 31, 2021) | | :--- | :--- | | Texas | 41% | | California | 23% | | South Carolina | 11% | - The Partnership faces reinvestment risk, as proceeds from maturing investments may have to be reinvested in new assets that do not generate the same level of returns[357][358] Financial Statements and Supplementary Data The audited financial statements show significant asset growth and received an unqualified opinion from the auditor - The independent auditor, PricewaterhouseCoopers LLP, issued an unqualified opinion on the consolidated financial statements[360] - The critical audit matter identified was the valuation of Level 3 Mortgage Revenue Bonds, due to the significant management judgment required in determining their fair value[365][366] Consolidated Balance Sheet Summary (in millions) | Account | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Assets | $1,385.9 | $1,175.2 | | Total Liabilities | $919.0 | $721.1 | | Total Partners' Capital | $372.4 | $359.8 | Consolidated Statement of Operations Summary (in millions) | Account | 2021 | 2020 | | :--- | :--- | :--- | | Total Revenues | $68.5 | $55.5 | | Total Expenses | $45.8 | $49.7 | | Gain on sale of investments | $15.5 | $1.4 | | Net Income | $38.1 | $7.2 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure This item is not applicable - Not applicable[600] Controls and Procedures Management concluded that the Partnership's disclosure controls and internal control over financial reporting were effective - The CEO and CFO concluded that the Partnership's disclosure controls and procedures were effective as of December 31, 2021[601] - Management concluded that the Partnership's internal control over financial reporting was effective as of December 31, 2021[603] PART III Directors, Executive Officers and Corporate Governance The Partnership is managed by its general partner, an affiliate of Greystone, with a seven-member Board of Managers - The Partnership is managed by its general partner, AFCA 2, whose general partner is Greystone Manager, and the Board of Managers of Greystone Manager serves as the Partnership's directors[609] - The executive officers are Kenneth C. Rogozinski (CEO) and Jesse A. Coury (CFO)[610] - The Audit Committee consists of three independent members, two of whom are designated as "audit committee financial experts"[612][628] Executive Compensation Executive compensation is paid by Greystone Manager, with the Partnership providing direct compensation only via equity awards 2021 Summary Compensation | Name and Principal Position | Year | Unit Awards ($) | Total ($) | | :--- | :--- | :--- | :--- | | Kenneth C. Rogozinski, CEO | 2021 | 367,788 | 367,788 | | Jesse A. Coury, CFO | 2021 | 340,725 | 340,725 | - The compensation of named executive officers is determined by Greystone Manager, and the Partnership reimburses Greystone Manager for their services; direct compensation from the Partnership is limited to equity awards[634] Security Ownership of Certain Beneficial Owners and Management No beneficial owner holds more than 5% of BUCs, and management as a group holds less than 1% - No person is known to own more than 5% of the Partnership's BUCs[654] - All current executive officers and Managers of Greystone Manager as a group beneficially own 483,569 BUCs, which is less than 1% of the total outstanding BUCs[657] Certain Relationships and Related Transactions, and Director Independence The Audit Committee reviews all related party transactions with the General Partner and its affiliates - The Audit Committee of Greystone Manager reviews and approves all related party transactions[661] - The Partnership has transactions with its general partner and affiliates, including administrative fees and reimbursement of salaries, as detailed in Note 23 of the financial statements[571][663] Principal Accountant Fees and Services Total fees billed by the independent auditor, PwC, for 2021 were approximately $1.4 million Accountant Fees (2021 vs 2020) | Fee Type | 2021 | 2020 | | :--- | :--- | :--- | | Audit Fees | $994,341 | $852,728 | | Tax Fees | $397,960 | $326,284 | | All Other Fees | $2,963 | $2,763 | | Total | $1,395,264 | $1,181,775 | PART IV Exhibits and Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed as part of the Form 10-K - This section contains the list of financial statements, schedules, and exhibits filed with the 10-K report[667][669] Form 10-K Summary No Form 10-K summary was provided - None[676]