Calculated Partnerships And Financing Moves Pave The Way For Robust Growth And Stability

Key Takeaways

• The strategic focus on affordable housing and fixed-rate debt aims to stabilize earnings and free cash flow, enhancing net margins.
  
• Partnerships, especially with BlackRock, could boost investment activity and revenue, driven by demand for multifamily housing and strategic growth.
  
• High leverage, unrealized losses, and interest rate risks could threaten Greystone Housing's financial stability, margins, and future revenue growth.

Catalysts

Acquires, holds, sells, and deals in a portfolio of mortgage revenue bonds (MRBs) that are issued to provide construction and/or permanent financing for multifamily, student, and senior citizen housing; skilled nursing properties; and commercial properties in the United States.

• The partnership's new construction lending joint venture with BlackRock Impact Opportunities is expected to create a reliable source of capital for funding projects, potentially increasing Greystone Housing Impact Investors’ investment activity and boosting their earnings.
  
• With favorable market conditions and a continuing demand for affordable and multifamily housing, the commitment to funding current and future projects will likely lead to revenue growth as these investments mature and yield returns.
  
• The recent replacement of variable rate debt with fixed rate debt, such as the 2024 PFA Securitization Transaction, reduces exposure to interest rate risks, which could stabilize earnings and free cash flow, maintaining net margins.
  
• The strategic focus on construction and affordable housing deals aims for valuable exits 3-5 years down the line due to expected limited new supply, potentially translating into higher long-term returns and increased earnings.
  
• Scaling investment in the joint ventures with hopes of demonstrating potential to institutional investors, particularly through the BlackRock JV, could lead to strategic growth in investment partnerships, impacting revenue and enhancing shareholder value.

Greystone Housing Impact Investors Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Greystone Housing Impact Investors's revenue will grow by 98.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 41.2% today to 56.5% in 3 years time.
• Analysts expect earnings to reach $151.2 million (and earnings per share of $5.36) by about November 2027, up from $14.1 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 4.2x on those 2027 earnings, down from 19.4x today. This future PE is lower than the current PE for the US Diversified Financial industry at 18.5x.
• Analysts expect the number of shares outstanding to grow by 6.58% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.86%, as per the Simply Wall St company report.

Greystone Housing Impact Investors Future Earnings Per Share Growth

Risks

• The net loss reported for the third quarter of 2024, along with significant noncash unrealized losses due to interest rate derivatives, could negatively impact overall net margins and earnings.
  
• With the leverage ratio at 74%, a relatively high level, any adverse changes in the financial markets or borrowing costs could affect the partnership's financial stability and earnings.
  
• The ongoing unrealized losses on interest rate swaps, driven by declining SOFR swap rates, represent potential volatility in earnings, which may affect future net margins.
  
• Rising interest rates and subsequent valuation changes in investment portfolios may continue to pose a risk to the net income, affecting overall financial results.
  
• The discount of the stock's trading price to its net book value per unit indicates potential concerns from the market about future revenue growth and profitability.

Valuation

• The analysts have a consensus price target of $16.75 for Greystone Housing Impact Investors based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $17.5, and the most bearish reporting a price target of just $15.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $267.7 million, earnings will come to $151.2 million, and it would be trading on a PE ratio of 4.2x, assuming you use a discount rate of 10.9%.
  
• Given the current share price of $11.75, the analyst's price target of $16.75 is 29.9% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.