Greystone Housing Impact Investors LP (NYSE:GHI) Q2 2025 Earnings Call Transcript

Greystone Housing Impact Investors LP (NYSE:GHI) Q2 2025 Earnings Call Transcript August 8, 2025

Operator: Greetings, and welcome to Greystone Housing Impact Investor Call Second Quarter 2025 Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to your host, Jesse Coury. Thank you. You may begin.

Jesse A. Coury: Thank you. I would like to welcome everyone to the Greystone Housing Impact Investors LP, NYSE ticker symbol GHI, Second Quarter of 2025 Earnings Conference Call. After management presents its overview of Q2 2025, you will be invited to participate in a question and answer session. As a reminder, this conference call is being recorded. During this conference call, comments made regarding GHI, which are not historical facts, are forward-looking statements and are subject to risks and uncertainties that could cause the actual future events or results to differ materially from these statements. Such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements can be identified by the use of words like may, should, expect, plan, intend, focus and other similar terms. You are cautioned that these forward-looking statements speak only as of today’s date. Changes in economic, business, competitive, regulatory and other factors could cause our actual results to differ materially from those expressed or implied by the projections or forward-looking statements made today. For more detailed information about these factors and other risks that may impact our business, please review the periodic reports and other documents filed from time to time by us with the Securities and Exchange Commission. Internal projections and beliefs upon which we base our expectations may change, but if they do, you will not necessarily be informed.

Today’s discussion will include non- GAAP measures and will be explained during this call. We want to make you aware that GHI is operating under the SEC Regulation FD and encourage you to take full advantage of the question-and-answer session. Thank you for your participation and interest in Greystone Housing Impact Investors LP. I would now like to turn the call over to our Chief Executive Officer, Ken Rogozinski.

Kenneth C. Rogozinski: Good afternoon, everyone. Welcome to Greystone Housing Impact Investors LP Second Quarter 2025 Investor Call. Thank you for joining. I will start with an overview of our portfolio. Jesse Coury, our Chief Financial Officer, will then present the partnership’s financial results. I will wrap up with an overview of the market and our investment pipeline. Following that, we look forward to taking your questions. As far as the performance of the investment portfolio is concerned, we have had no forbearance requests for multifamily mortgage revenue bonds, and all of our borrowers are current on their principal and interest payments as of June 30, 2025. Physical occupancy on the underlying properties was 88.4% for the stabilized mortgage revenue bond portfolio as of June 30, 2025.

We continue to advance funds to borrowers under our debt investments during the second quarter, consistent with our funding commitments. Our Vantage joint venture equity investments consist of interest in 5 properties as of today, 4 were construction is complete and 1 site being evaluated for development or sale. For those properties in their initial lease-up phase, we continue to see good leasing activity. Lease terms at the properties that have been leasing for a longer period have been driven by local submarket conditions. As we have experienced in the past, the Vantage Group as the managing member of each project owning entity will position a property for sale upon stabilization. As previously announced, the Vantage at Helotes property was sold in May 2025.

We have 4 joint venture equity investments with the Freestone Development Group, 1 for a project in Colorado and 3 projects in Texas. One project has completed construction and has begun leasing units. Two projects are nearing construction completion and have begun leasing activities and one project has commenced site work. Our joint venture equity investment in Valage Senior Living Carson Valley, a 102-bed seniors housing property located in Minden, Nevada, has received its certificate of occupancy and began move-ins in the second quarter. The project is currently 49% occupied and is pre-leased to 55%, which matches the original underwriting for the transaction. Our joint venture equity investment in the Jessam at Hays Farm, a new construction 318-unit market rate multifamily property located in Huntsville, Alabama, is approaching construction completion and has begun leasing activities.

With that, I will turn things over to Jesse Coury, our CFO, to discuss the financial data for the second quarter of 2025.

Jesse A. Coury: Thank you, Ken. Earlier today, we reported earnings for our second quarter ended June 30, 2025. We reported a GAAP net loss of $7.1 million or $0.35 per unit, basic and diluted, and we reported cash available for distribution, or CAD, a non-GAAP measure, of positive $5.7 million or $0.25 per unit. Our second quarter GAAP net income was significantly impacted by provisions for credit losses and noncash unrealized losses on our interest rate derivatives, both of which are added back to net income or loss in our calculation of CAD. We reported a provision for credit losses of $9.1 million during the second quarter, which is added back to net loss in calculating CAD, consistent with our historical treatment of credit loss allowances.

The second quarter provision primarily relates to 3 nonprofit owner mortgage revenue bonds secured by properties in South Carolina. The nonprofit owner acquired the properties in 2022 and 2023 to undergo rehabilitation and conversion from market rate operations to rent-restricted affordable properties. The rehabilitation of each property has been completed and each property is working to stabilize operations. Property operating results have not met the originally underwritten levels and collateral values are less than originally expected. We are in active discussions with the owner about opportunities to improve property operations and potential refinancing and sales options to maximize the value of our mortgage revenue bond investments. We recorded unrealized losses on our interest rate swap portfolio of $2.1 million during the second quarter due to the fair value impact of movements in market interest rates.

Despite a decrease in the fair value of our interest rate derivatives, we expect this to have a minimal impact on our net cash flows as decreases in projected future swap settlement payments are expected to be offset by lower interest costs on our variable rate debt financing. Unrealized gains and losses are added back to net income to calculate CAD. Our book value per unit as of June 30 was on a diluted basis, $11.83, which is a decrease of $0.76 from March 31. The decrease is primarily a result of our reported GAAP net loss of $0.35 per unit and distributions declared of $0.30 per unit during the second quarter. I will note that our reported net book value includes our joint venture equity investments at carrying value and not fair value.

They are not mark-to-market. As a result, reported net book value excludes any potential gains or additional income that may be realized upon transactional events such as debt refinancing or sales of the underlying properties above our carrying value. As of market close yesterday, August 6, our closing unit price on the New York Stock Exchange was $10.71, which is a 9.5% discount to our net book value per unit as of June 30. Moving on to liquidity. We regularly monitor our liquidity to fund our investment commitments and to protect against potential debt deleveraging events if there are significant declines in asset values. As of June 30, we reported unrestricted cash and cash equivalents of $47.5 million. We also had approximately $86 million of availability on our secured lines of credit.

At our current liquidity levels, we believe that we are well positioned to fund our financing commitments. During the second quarter, we focused on amending our secured lines of credit to extend maturities and increase our available borrowing capacity. In June 2025, we amended our existing general line of credit that made structural changes to increase our operational flexibility. In addition, we extended the maturity date to June 2027 with two 1-year extension options available. Also in June, we entered into a new credit agreement for our acquisition line of credit to extend the maturity date and increase our borrowing capacity from $50 million to $80 million. We regularly monitor our overall exposure to potential increases in interest rates through an interest rate sensitivity analysis, which we report quarterly and is included on our — on Page 100 of our Form 10-Q.

The interest rate sensitivity table shows the impact on our net interest income given various changes in market interest rates and other various management assumptions. Our base case uses the forward SOFR yield curve as of June 30, which includes market anticipated SOFR rate declines over the next 12 months. The scenarios we present assume that there is an immediate shift in the yield curve and that we do nothing in response for 12 months. The analysis shows that an immediate 200 basis point increase in rates will result in a decrease in our net interest income and CAD of approximately $2 million or [ $0.086 ] per unit. Alternatively, assuming a 100 basis point decrease in interest rates across the curve will result in an increase in our net interest income and CAD of $1 million or approximately [ $0.043 ] per unit.

We consider ourselves largely hedged against significant fluctuations in our net interest income for market interest rate movements in all scenarios, assuming no significant credit issues. Our debt investments portfolio, consisting of mortgage revenue bonds, governmental issuer loans and property loans totaled $1.26 billion as of June 30 or 85% of our total assets. We own 83 mortgage revenue bonds as of June 30 that provide permanent financing for affordable multifamily seniors and skilled nursing properties across 13 states with concentrations in California, Texas and South Carolina. We own 4 governmental issuer loans as of June 30 that finance the construction or rehabilitation of affordable multifamily properties in 2 states. Such loans often have companion property loans or taxable governmental issuer loans that share the first mortgage lien.

During the second quarter, we funded approximately $41 million of our mortgage revenue bond, governmental issuer loan and related commitments, and we experienced redemptions and paydowns of approximately $64 million in the normal course. We also sold one governmental issuer loan and one taxable governmental issuer loan to our construction lending joint venture with BlackRock during the quarter, which are the first investments within that joint venture. Our outstanding future funding commitments for our mortgage revenue bond, governmental issuer loan and related investments was $26.3 million as of June 30 before related debt proceeds and excluding those investments that we expect to transfer to our construction lending joint venture with BlackRock.

These commitments will be funded over approximately 12 months and will add to our income-producing asset base. Our market rate joint venture equity investments portfolio consisted of 10 properties as of June 30, with a reported carrying value of approximately $154 million, exclusive of one investment, Vantage at San Marcos that is reported on a consolidated basis. Our remaining funding commitments for JV equity investments totaled $19.5 million as of June 30. All remaining commitments relate to sites being considered for future development, and we are not required to fund these commitments until a construction contract is signed and construction commences. In May 2025, the Vantage at Helotes property was sold to a local housing authority and a nonprofit entity, and we received proceeds of $17.1 million, inclusive of our $12.5 million of original cash equity investment in the project.

We reported $1.8 million of investment income and a $163,000 gain on sale for this transaction in the second quarter, resulting in approximately $0.08 of net income per unit and CAD per unit. Moving to our debt. Our debt financing facilities used to leverage our investments had an outstanding principal balance totaling approximately $1.3 billion as of June 30. This is down approximately $26 million from March 31. We manage and report our debt financing in 4 main categories on Page 94 of our Form 10-Q. Three of the 4 categories are designed such that our net return is generally insulated from changes in short-term interest rates. These categories account for $828 million or 80% of our total debt financing. The fourth category is fixed rate assets with variable rate debt with no designated hedging, which is where we are most exposed to interest rate risk in the near term.

This category represents $207 million or 20% of our total debt financing. Of this amount, $149 million is associated with mortgage revenue bond and governmental issuer loan investments that mature in the fourth quarter of 2025, which will repay the outstanding debt financing. As such, we expect the unhedged period to be relatively short. I’ll now turn the call back to Ken for his update on market conditions and our investment opportunities.

Kenneth C. Rogozinski: Thanks, Jesse. The second quarter of 2025 saw the continued underperformance of the U.S. municipal bond market. According to Bloomberg data, both investment-grade and high-yield tax-exempt bonds were by far the worst performing U.S. fixed income asset class during the first half of 2025, lagging all other major fixed income asset classes by a wide margin. At the time of last quarter’s call in May, 10-year MMD was at 3.33% and 30-year MMD was at 4.40%. At the end of June, those levels were at 3.26% and 4.54%, which were 7 basis points lower and 14 basis points higher, respectively, following the recent yield curve steepening trend. As of yesterday’s close, 10-year MMD was at 3.32% and 30-year MMD was at 4.67%.

The 10-year muni-to-treasury ratio is currently at 76% and the 30-year muni-to-treasury ratio is currently at 95%. Those levels are up from 66% and 84%, respectively, in late February, underscoring the recent underperformance of munis versus treasuries. As those current ratio levels indicate, July was another challenging month for the muni bond market with negative monthly returns for both the investment grade and the high-grade muni indices. As this past week showed, both the market and the Fed are still trying to gauge the impact of tariffs on the broader economy. The muni bond market emerged relatively unscathed from the One Big Beautiful Bill Act with no significant changes enacted as part of that legislation. There were some technical changes to the low-income housing tax credit program that may have a marginally positive impact on our lending business as part of that bill.

The initial round of the House and Senate appropriation bills for the Department of Housing and Urban Development have shown Congress’ willingness to continue to fully fund HUD’s core programs, notwithstanding the Trump administration’s desire to implement large-scale changes there. From a market technicals perspective, the trend of heavy issuance that began last year continued into the first half of 2025. The Barclays research team believes that munis have shifted to a new paradigm of heavy supply due to a number of factors. Cumulative costs of CapEx have increased dramatically, COVID money having been largely spent and issuer capitulation that lower rates do not seem imminent. Barclays has increased their 2025 muni bond issuance forecast by 10% to a total of $530 billion to $540 billion, with net issuance expected to be in the range of $175 billion to $200 billion.

Year-to-date issuance through the end of July was approximately $337 billion, with each of the last 4 months having averaged over $50 billion of new issuance. Year-to-date fund flows through the end of July were a positive $17.3 billion, with $4.2 billion going to traditional mutual funds and $13.1 billion going to ETFs. The average weekly secondary market trading volume for the past 12 months is up to $43 billion. The market ended the first half of 2025 with both the Muni Investment-grade Index and the Muni High Yield Index generating a total return of negative 0.5%. We continue to be excited about the new construction lending joint venture with BlackRock Impact Opportunities. As we have mentioned on our past quarterly calls, we have seen a pullback in affordable construction lending by commercial banks as a result of the broader pressures on their commercial real estate loan portfolios.

That has created a window of opportunity for us to deepen our relationships with existing sponsors and to establish new sponsor relationships as we step in to help fill that void. In July, we received an additional capital commitment to the joint venture of approximately $60 million from a second institutional investor. Having a dedicated pool of available capital for new low-income housing tax credit projects allows us to effectively manage that potential pipeline and to offer our clients timely transaction execution to meet their needs. With that, Jesse and I are happy to take your questions.

Q&A Session

Operator: [Operator Instructions] Our first question comes from Matthew Erdner with JonesTrading.

Matthew Erdner: Ken and Jesse, I appreciate the comments as always. So shifting the topic to muni bonds and just kind of the underperformance there. I’d love to pick your brain about kind of — as to why you think that is and if there’s something underlying from a fundamental perspective that’s kind of driving the underperformance relative to other asset classes. Any expansion that you could give there would be great.

Kenneth C. Rogozinski: Sure, Matt. I think a couple of things there. The first is I made reference just a short while ago in my comments to the elevated level of new supply that’s been coming into the marketplace. If you sort of think about the Barclays forecast of $175 billion to $200 billion of net new issuance this year and then look at the flows into the traditional muni mutual fund and ETF vehicles, you can see that there’s a pretty decent gap between those 2 levels. And that investment demand needs to come from some place. And in a lot of circumstances with new issue deals getting done, the underwriting firms have had to be more aggressive in terms of potentially making adjustments to interest rates on deals in order to get them done.

So I think that’s something that we’re going to continue to see in the more traditional investment-grade part of the curve. Shifting to the high-yield market, I think there have been a couple of overhangs on that market that are still waiting to play out. There are 2 sort of benchmark high-yield bond deals outstanding that are experiencing issues. One of them is the — I believe it’s a $1.2 billion deal for the Brightline train system down in Florida that is currently looking at the deferral of interest and some sort of potential work out there as well. And then the other is the American Dream mall transaction in Northern New Jersey by the Meadowlands. It was recently announced that the valuation of that mall had been cut basically in half for property tax purposes.

And so given the size of those transactions and the broad investment by the muni high-yield funds in those names, seeing that negative news on both of them, I think, has caused some concern in the muni high-yield investor community and people are really sort of buckling down and focusing on the credits in their portfolio. So I think at a high level, that’s the best color that I can give you as of right now. But I think we’ll have to see how things play out for the balance of the year, both in terms of new investment activity as well as issuance.

Matthew Erdner: I really appreciate the color there. That’s very helpful. And then second one for me, kind of turning to the BlackRock JV. Congrats on getting the first investment in there. Is there any, I guess, guidance that you could kind of give as to the pace of, I guess, placements into that JV that you guys are looking to achieve and just the kind of opportunities that are going to go into that fund if it varies from your kind of traditional line of business?

Kenneth C. Rogozinski: So in terms of the strategy for the joint venture, it’s really very similar to what we’ve historically done with our mortgage revenue bond and our governmental issuer loan investments where we’re providing construction financing on either new ground-up new construction or acquisition rehab 4% low-income housing tax credit transaction where the perm financing is being provided via a Freddie Mac tax-exempt loan forward commitment. So that’s the strategy. I think in terms of guidance on pace of deployment, that’s not something that we’ve historically done. But what I will say is just from a — sort of a calendar year perspective, since all of these projects need to receive allocations of private activity volume cap from their local state or local authorities, we typically see that pace pick up in the second half of the year as states have a better handle on their available amount of private activity volume cap and the projects that are ready to go there from that front.

So I think if you look historically at issuance trends, it’s really sort of been back-end loaded in the second half of the year, and we’d expect that to continue here into 2025.

Operator: Our next question comes from Chris Muller with Citizens JMP Securities.

Christopher Muller: So following up on the construction JV, is there anything you can share on how the new investor got involved? Was that something that you guys were looking to expand? Or did they approach you to get involved there?

Kenneth C. Rogozinski: It was, I think, a 2-way conversation that we had. They were evaluating investment alternatives in the muni bond sector. We continued our outreach after the BlackRock success to be able to try to expand the scope of the joint venture. And we kind of mutually found each other, started the dialogue and went, as you would expect, through a relatively lengthy diligence and negotiation process and then we’re ultimately successful in obtaining the second investment.

Christopher Muller: Got it. Well, I mean, it speaks volumes to you guys and the reputation you have. So congrats on that. And then I guess the other question I have. So it looks like you guys advanced $3.1 million of funds above the initial commitment amounts for 4 of the Vantage properties. So what drove that additional capital needs there? And does that additional investment change your guys’ economic interest in those projects at all?

Kenneth C. Rogozinski: So in terms of what drove that, it’s a combination of factors. As we’ve been talking about over the past couple of quarterly calls, we’ve seen an extension in the time period of us exiting those investments. And so in a number of situations, I think the biggest driver there is that we’re actually having to pay property taxes at the property level for longer than we had originally pro forma. So a fair amount of those additional capital contributions have been to make annual property tax payments that were due before a sale could be consummated where that was normally handled as a proration on the closing settlement statement with the buyer. In terms of percentage ownership interest, it doesn’t change the respective interest or the waterfall at all.

It is just counted as an additional capital contribution by us into the project owning entity and is treated on par with our original capital contributions. So no change of ownership interest or anything else. It’s just added to that basis in terms of the application of the waterfall under the individual property operating agreement at the time of sale.

Christopher Muller: Got it. And did the Vantage Partners have to contribute additional capital, too?

Kenneth C. Rogozinski: It’s been on a case-by-case basis in terms of additional capital contributions by them. We’ve had discussions with them about a larger participation by them since a number of the older Vantage transactions were done with 100% GHI capital. And they have been responsive to our request to participate when we’ve had that discussion with them.

Operator: [Operator Instructions] Our next question comes from John [indiscernible] a private investor.

Unidentified Analyst: Investor since 2010. Just wondering, with interest rates that migrated upwards and you’ve learned a hedge on those, is there any idea as interest rates go down to maybe let your hedges go off because it looks like as we go forward here, interest rates are going to be moderating. And does that enter into the thought process? And that’s the first question. Second would be, when do you see demand for multifamily housing pick up in this current environment?

Kenneth C. Rogozinski: John, I think to answer your first question, I think we, as a management team, have tried to really keep the partnership away from taking a particular view on rates one way or another. If you look at the — sort of the chart that Jesse mentioned about in his comments that buckets the 4 different categories of assets and how we have those assets funded, we’ve been very mindful about trying to run as much of a matched book as we can from that perspective. So I don’t see that strategy changing even as we see short-term rates going lower. I think that the expectation from our perspective is that we’ll see lower funding costs, but we’ll also be receiving lower payments from our counterparties on our interest rate swaps so that we’re basically net neutral in a declining rate environment.

And that was the goal of our hedging program, and I really don’t see that changing for us going forward. In terms of your second question about demand for multifamily, it depends on what you’re talking about from a demand perspective. If you’re talking about demand from institutional capital for investment in multifamily properties or if you’re talking about individual potential tenant demand in specific markets to lease units at our properties. If it’s the former, I think we continue to see, albeit muted, but continued activity in the multifamily investment space from institutional investors. There are asset sales, both existing assets as well as new construction assets being undertaken by sponsors across the country. And so from that perspective, while it’s been a more challenging environment versus what we saw in the 2021 to 2023 timeframe.

I think it’s — for a lot of investors, it’s always a good core asset class and that there is always some level of activity there. With regard to tenant leasing, as I mentioned during the introduction comments that I made in the deals that we still have in lease- up, we’re seeing good demand and good velocity there. And we’re also seeing good lease terms on the projects that have reached stabilization. So from that perspective, at least in the markets that we’re in from a JV equity perspective, we’re not seeing significant issues from that perspective.

Operator: We have reached the end of the question-and-answer session. I’d now like to turn the call back over to Ken Rogozinski for closing comments.

Kenneth C. Rogozinski: Thank you very much for joining us today. We look forward to chatting with everyone again next quarter.

Operator: This concludes today’s conference. You may disconnect your lines at this time, and we thank you for your participation.