Greystone Housing Impact Investors LP (GHI) Earnings Call Transcript & Summary

Greetings and welcome to the Q2 2026 earnings call for Greystone Housing Impact Investors LP. [Operator Instructions] Please note that this conference is being recorded. I would now like to turn the conference over to Eric Nielsen, Interim CFO. Thank you, Eric. You may begin.

I would like to welcome everyone to the Greystone Housing Impact Investors LP, NYSE ticker symbol GHI, second quarter of 2026 earnings conference call. [Operator Instructions] 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 may 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 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.

Good morning, everyone. Welcome to Greystone Housing Impact Investors LP's second quarter 2026 investor call. Thank you for joining. I will start with an overview of our portfolio and investment strategy. Eric Nielsen, our Interim 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 we've mentioned on our previous calls, we are pursuing a strategy to reposition our investment portfolio. Specifically, we are focused on exiting our remaining investments in market-rate multifamily JV equity investments, maximizing value to our unitholders from those exits. We will then reinvest the capital returned to us from those exits into additional high-quality, tax-exempt mortgage revenue bond investments that are expected to provide longer-term, stable, tax-advantaged earnings, which we believe will provide long-term value for our unitholders. We believe this change in investment strategy provides three key benefits to our unitholders. First, by their nature, our tax-exempt mortgage revenue bond investments earn stable returns based on the net interest spread between the bond interest rate and our related debt financing rate. As a result, we expect increasingly stable earnings as compared to the uneven returns on joint venture equity investments due to that income being recognized primarily upon property sales. Second, in recent years, the majority of income allocated to our unitholders has been taxable because of the taxable income from joint venture equity investment sales. As we allocate more capital to tax-exempt mortgage revenue bond investments, we expect that the proportion of income allocated to our unitholders that is tax-exempt for federal income tax purposes will increase in the long term. In the near term, potential gains from sales of our remaining market-rate multifamily JV equity investments will continue to generate taxable income for unitholders. Third, we are investing capital in a proven investment class that is core to our operations and also leverages the strong relationships and knowledge base of Greystone's other lending platforms. We currently have eight market-rate multifamily JV equity investments that have completed construction and are either in lease-up or stabilized. Overall occupancy is increasing for these investments in their initial lease-up phase. On assets that have reached stabilization, we have seen some variability in occupancy as local market factors impact demand and rent levels. Decisions regarding when to sell an individual property are made by our joint venture partners based on their views of the local market conditions and current leasing trends. We currently have two market-rate multifamily JV equity investments that are sites for potential development. Our joint venture partners are evaluating the highest and best use for the development sites, which may include a sale of the land or the commencement of construction. Our remaining funding commitments for these investments will be terminated if the land is sold. Meanwhile, we continue to see strong investment opportunities for our traditional investments in tax-exempt mortgage revenue bonds associated with affordable multifamily properties, as well as for seniors housing and skilled nursing properties. Based on strong lending relationships across affordable housing, seniors housing, and skilled nursing business lines, are also providing investment opportunities for the partnership. We believe these opportunities will allow us to redeploy the capital returned from the market-rate multifamily JV equity investment sales events soon after the capital is received. We at the Board of Managers acknowledge that it will take some time to cycle our capital out of our market-rate JV equity investments and into tax-exempt mortgage revenue bond investments. We currently report minimal earnings related to our JV equity investments during the holding period. We expect that the reinvestment of capital from sales of JV equity investments into tax-exempt mortgage revenue bond investments will increase the partnership's recurring earnings in the long run. We look forward to providing additional details on our progress in this effort in future communications and on future earnings calls. With that, I will turn things over to Eric Nielsen, our Interim CFO, to discuss the financial data for the second quarter of 2026.

Thank you, Ken. For our second quarter ended June 30th, we reported a net loss of $1.5 million, or $0.11 per unit, basic and diluted. We reported cash available for distribution, or CAD, a non-GAAP measure of $2.4 million, or $0.10 per unit. A significant driver of our reported GAAP net loss for the second quarter is our proportionate share of losses from non-Vantage JV equity investments of approximately $3.2 million, or $0.14 per unit. As we previously mentioned, we are required to report our proportionate share of losses of such JV equity investments under GAAP. These are not impairments or realized losses to the partnership. Approximately $2 million, or 62% of total reported losses, relate to depreciation and amortization expenses at the respective JV equity investment entities, with the remaining reported losses related to interest expense and property operating expenses. We add back our share of property operating losses to net income when calculating CAD, as such losses are not direct expenses to the partnership. And we expect such losses, which are largely funded by the individual property development budget, to be recovered upon future transactional events. Our book value per unit as of June 30th was on a diluted basis. I will note that this metric is based on our joint venture equity investments marked at net carrying value. As a result, it does not include any potential gains or additional income that may be realized upon sale or recovery of our share of GAAP operating losses that I previously described, that are also expected to be recovered upon sale. As the market closed yesterday, August 10th, our closing unit price on the New York Stock Exchange was $5.71, which is a 49% discount to our net book value per unit as of June 30th. 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 30th, we reported unrestricted cash and cash equivalents of $30.9 million. We had approximately $34.2 million of availability on our secured lines of credit. We also have a significant amount of investments scheduled to mature in the remainder of 2026, which is a lot of money. [ Chapter repayment ] of the related debt financing will provide additional liquidity. Potential sales of our JV equity investments would provide additional liquidity for investment purposes. At our current liquidity levels, we believe that we are well positioned to meet our future funding commitments. 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 page 103 of our Form 10-Q. The interest rate sensitivity table shows the impact on our net interest income and CAD given various changes in market interest rates and other various management assumptions. Our base case uses the forward SOFR yield curve as of June 30th, which includes market-anticipated SOFR rate declines over the next 12 months. 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 100 basis point increase in rates will result in a decrease in our net interest income and CAD of approximately $1 million, or $0.045 per unit. Conversely, a 100 basis point decrease in rates across the curve will result in an increase in our net interest income and CAD of approximately $1 million or $0.045 per unit. We consider ourselves largely hedged against significant fluctuations in our net interest income from market interest rate movements in all scenarios, assuming no significant credit issues. Our debt investment portfolio consisting of mortgage revenue bonds, governmental issuer loans, and property loans totaled $927.5 million as of June 30th, or 67% of our total assets. We owned 80 mortgage revenue bonds as of June 30th that provide financing for affordable multifamily, seniors, and skilled nursing properties across 12 states with concentrations in California and Texas. We own two governmental issuer loans as of June 30th that finance the construction or rehabilitation of affordable multifamily properties. During the second quarter, we acquired a $29 million taxable MRB. Our outstanding future funding commitments for our MRB, GIL, and related investments totaled $9 million as of June 30th before related debt proceeds and excluding investments 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. During June and July of 2026, we originated two GIL investments totaling $66 million in investment commitments. Once closed, we then transferred these investments, together with a separate property loan, to our construction lending JV with BlackRock. In aggregate, these three investments represented $95.9 million of commitments and reflect our ongoing ability to source and execute affordable multifamily real estate debt. Our overall mortgage investment portfolio performed steadily during the second quarter. All MRB and GIL investments are current on principal and interest payments as of June 30, 2026. Physical occupancy for the stabilized mortgage revenue bond portfolio was 85.8% as of June 30th, which is essentially flat to occupancy as of March 31st. Relatively lower physical occupancy rates are due to properties in Texas where local markets are experiencing higher vacancies due to recent increases in multifamily unit supply. We expect occupancies will recover once available units are absorbed and new supply deliveries decline in the near term. Physical occupancy for the non-Texas stabilized MRB portfolios was 93% as of June 30th. As mentioned in our last call, we completed the deed in lieu of foreclosure process on four South Carolina MRB properties during the first quarter of 2026. We believe that by owning and managing the properties directly, we can maximize the value of our investments. The original mortgage revenue bonds were redeemed, the related tender option bond funding trusts were collapsed, and the partnership now owns the underlying multifamily properties directly with first mortgage financing provided by a group of [ two debtors ]. We have retained a third-party property manager to operate the properties on a day-to-day basis under our oversight. We are actively managing the assets and are being assisted in that effort by Greystone's corporate asset management team. We use various debt financing facilities used to leverage our debt investments. Our outstanding debt financing had an outstanding principal balance totaling approximately $826 million as of June 30th, which is down approximately $104 million from March 31st. We manage and report our debt financing in four main categories on page 96 of our Form 10-Q. Three of the four categories are designed such that our net return is generally insulated from changes in short-term interest rates. These categories account for $700 million, or 85% 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 approximately $127 million or 15% of our total debt financing. Of this amount, approximately $38 million is associated with debt investments that are scheduled to mature by December 2026, which will repay the associating outstanding debt financing. As such, we expect the unhedged period to be relatively short. Ken previously provided updates on our 10 market-rate multifamily JV equity investments. In addition, we have two market-rate seniors housing JV equity investments in Nevada. Remaining funding commitments for market-rate multifamily JV equity investments totaled $19.5 million as of June 30th, all related to sites being considered for future development. We will not fund these commitments until a construction contract is signed and construction commences. The managing member may also choose to sell the site and terminate our related funding commitments. We have an outstanding funding commitment of $4 million for our Village at Mount Rose Seniors Housing investment. During July 2026, the three Vantage properties located in Texas, Vantage at Hutto, Vantage at Fair Oaks, and Vantage at McKinney Falls, secured a new debt facility to refinance their original construction and bridge loans. We believe this refinancing strengthens the properties' financial position and provides increased flexibility as our joint venture partner continues to evaluate potential sales of these assets. Additionally, the partnership was relieved from the limited guarantee agreements associated with the Vantage at McKinney and Vantage at Hutto bridge loans. And I'll turn the call over to Ken for his update on market conditions and our investment pipeline.

Thanks, Eric. The first seven months of 2026 have seen a marginally positive performance from the U.S. municipal bond market, notwithstanding the higher level of interest rates in the broader fixed income markets. The muni high-grade and high-yield indices had a tough performance in July, but both managed to stay in the black on a year-to-date basis. As of July 31st, the Muni High Grade Index showed a 0.4% return for 2026, along with a 2.5% return for the High Yield Index. At the end of June, 10-year MMD was at 2.95%, and 30-year MMD was at 4.19%, which is a lot for 20 and 30 basis points lower, respectively, versus March's levels. As of yesterday's close, 10-year MMD was at 3.24%, and 30-year MMD was at 4.45%, reflecting higher levels from second quarter end due to inflation uncertainty stemming from the current conflict in the Middle East. The 10-year muni-to-Treasury ratio is currently 69%. The 30-year muni-to-Treasury ratio is currently 85%, close to the same level since the time of our last call. The MMD housing bond interest rate scale, which is used to mark our core mortgage revenue bonds to market, is correlated to those two broader muni bond market indices. For seven months of 2026, there has been $343 billion of gross new issuance, slightly behind last year's record pace, and almost $52 billion in fund inflows, well ahead of last year's pace. The market's ability to handle this higher than historical average level of new issue activity is a good sign for the overall secondary market liquidity in muni bonds, like the mortgage revenue bonds owned by the partnership. The HUD appropriation bill fully funding the department's programs, in many cases at expenditure levels higher than the previous year, for the remainder of the federal fiscal year was passed by Congress and signed by President Trump. The federal Low-Income Housing Tax Credit program is beginning to adjust to the new rules set forth in the [ One Big Beautiful Bill Act ]. Deals in our pipeline are seeing larger allocations of taxable debt as part of their capital stack. There continue to be challenges with demand and pricing in the Low-Income Housing Tax Credit market. We are working closely with our colleagues on the Greystone Real Estate Capital team to be able to deliver a full debt and equity solution to our affordable housing sponsor clients. With that, Eric and I are happy to take your questions.

Thank you. We'll now be conducting a question and answer session. [Operator Instructions] Our first questions come from the line of Jason Weaver with Jones Trading. Please proceed with your questions.

Good morning, guys. First, with the portfolio rotation well underway now, I realize it's difficult to forecast, but what inning would you say we're in along this path? And has the timeline extended due to those refinancing transactions?

Thanks for your question, Jason. I think we're still very early in the ballgame. We haven't reported a sale of a joint venture equity investment since Q2 of last year when the Vantage at Helotes transaction was sold. So in terms of just the implementation of the strategy and the recycling of capital, we really haven't had a lot of capital to recycle at this point in time in terms of moving from JV equity investments into traditional tax-exempt mortgage revenue bond investments. We have seen the roll-off of some of our governmental issuer loan investments as they've reached maturity. In particular, the three phases of the Poppy Grove transaction that all converted to perm during the second quarter of 2026. So we've seen some reinvestment of that capital, but I think until we show some of the JV equity exits that we are working with our partners to try to implement, I think that's when you'll really see the redeployment into those traditional mortgage revenue bond opportunities that we've been talking about.

Would you say that the construction lending JV is becoming sort of the primary origination vehicle and is there potential for that JV to grow in size or are you discussing others with additional sponsors?

That's an interesting point to make, Jason. I think when you look at our reporting and you look at our balance sheet, you are going to see a shift in that LIHTC construction lending business. Historically, we had kept all of those GIL investments on our balance sheet, funded them with traditional tender option bond debt facilities. Now with the joint venture that we have, that's actually an off-balance sheet vehicle for us. So what Eric mentioned in his results or earlier in the call about originations that had been closed during Q2 and subsequent last month, you're not seeing those flow through the partnership's balance sheet. They are going into this off-balance sheet vehicle. So our expectation is that the large majority of our construction lending on construction Low-Income Housing Tax Credit deals that used to show up on our balance sheet as GILs is now really going to be showing up in the BlackRock joint venture vehicle. So that's going to be a little different moving forward as we scale that. That joint venture right now owns four assets that have all been funded with tender option bond debt facilities in a gross principal commitment amount of roughly $120 million all across those four investments. So we will expect to see that grow in size as we continue to move through the pipeline that we currently have of deals in closing, deals in underwriting, and deals that we have on their application.

Got it. Thank you. And then just one more, if I might. The South Carolina multifamily properties, where would you say a stabilized yield shakes out on those properties, or was Q2 representative of that?

I think from a performance perspective, we're still doing what we need to do to reposition those properties. There was a transition in the property management companies. We've retained Asset Living out of Atlanta as the property manager for all four of those assets. There's been some turnover at the individual property level in terms of the management teams there that we're continuing to work through. As you'd expect, there's also some repositioning that needs to go on there, and we're evaluating opportunities for capital improvements at those properties that we believe will improve rent and leasing potential there. So it's really only been four months at this point in time that we had operational control of all four assets. And so we're continuing to move through that process there.