Q3 2020 MMA Capital Holdings Inc Earnings Call

Okay Conference call. My name is on <unk> and I will be your coordinator for today at this time all participants are in listen only mode. We will facilitate a question and answer session at the end of the conference call.

Some comments today will include forward looking statements regarding future events and projections of financial performance.

And then they can.

Which are based on current expectations.

These comments are subject to significant risks.

Oh, sorry piece, which include those identified in the Companys filings with the Securities Exchange Commission that could cause.

Actual results to differ materially from those expressed.

As you know the forward looking statements the original.

Cautioned not to place undue.

Reliance on these forward looking statements, which speak only of the date hereof. The company undertakes no obligation to update any of the information contained in the forward looking statement [laughter].

I would now like to turn the call over to Mr. Gary.

No no to sauna C O of unlimited capital Holdings. Please go ahead.

Thank you Emily good morning, everyone and welcome with.

With me on the call today are Dave you want to send or Chief financial Officer, and Megan Sophocles or senior Vice President and Treasurer.

As with many businesses during kobin.

Our offices remain closed and we're taking this call from remote locations, we apologize in advance for any connectivity issues or inconvenience that make calls.

The purpose of our call today is to review and make capital holdings, 2023rd quarter financial results and provide an overall business update.

Our third quarter report was.

And with the FCC on Monday, and an updated investor presentation is available on our website.

For our call today I will begin my prepared remarks with a brief overview of our quarterly results followed by a summary of our investments in debt.

I will then turn the call over to Dave for a more detailed review of our financial performance.

Before we wrap.

Wrapping up our prepared remarks and open the call for questions I'll provide a general update of the Companys CEO selection process as well as operating and capital plans for the near term as we continue to navigate a period of great uncertainty for the U.S. and global economies.

With respect to the financial results, we reported that the company's adjusted.

Book value per share increased by 71 cents to $38, an eight cents during the third quarter.

As Dave will further discuss this 1.9% increase was primarily driven by our core investments in renewable energy.

The company's investments in loans to finance the development and construction of renewable energy projects in the United States.

Represented approximately 70% of the company's total assets at quarter end nearly.

Nearly all of which are made through the solar ventures, where the company invests alongside an institutional capital partner.

At September Thirtyth, the carrying value of the company's renewable energy investments was $363.7 million approximately the same is that.

Ordered at June Thirtyth.

Year to date in the carrying value of these investments has increased $74.1 million, primarily due to net contributions of $45.8 million and $27.6 million of investor investment related income.

As you will see in table three of our filing the company recognized.

$9.3 million of income related to its renewable energy investments during the quarter.

On a trailing 12 month basis, we have realized an unlevered net return on these investments of 11.1% for the period ended September Thirtyth.

Compared to 11.8% for the period ended June 30.

This.

Before ventures closed $92.3 million of commitments across five loans during the third quarter of 2020.

As compared to $247.5 million across 12 loans during the second quarter of 2020.

While origination volume during the first nine months of 2020 also declined by $162.1 million.

To $626.9 million compared to the first nine months of 2019.

Solar met ventures remained substantially invested year to date.

While we continue to believe that there are ample opportunities to invest in renewable energy and other infrastructure assets with attractive risk adjusted return to also meet our environmental and.

Social investment goals.

Declines in origination volumes. During these periods were primarily driven by the amount of available capital and a desire to not over extend the company's liquidity.

Given our share of unfunded loan commitments at the solar ventures and other business needs.

As reflected in table one of our filing.

September Thirtyth 2020 loans funded by the solar ventures had an aggregate unpaid principal balance or you PB and fair value of $745.8 million, a weighted average remaining maturity of seven months and weighted average coupon of 10% which were substantially unchanged since June thirtyth.

As discussed on prior calls, we typically target loans that generate origination fees ranging from 1% to 3% on committed capital and coupons on funded loan balances ranging from 7% to 14%.

Throughout the quarter, the company's renewable energy investments continued to perform substantially is underwritten.

And today.

Project schedules and loan pay offs have only been modestly impacted by corporate banking and the general economy.

However, it should be noted that certain components of the national and some local renewable energy finance markets, such as the electric reliability Council of Texas or ERCOT.

Have been and make further via.

Second by changing market dynamics, resulting in supply and demand imbalances, particularly particularly for tax equity investments.

These market dynamics may materially and negatively impact solar ventures loan portfolio in a variety of ways, including but not limited to the availability and pricing of tax equity.

He's been a deterioration of underlying project value. If the project has merchant exposure and the price of electricity falls due to competition or waning demand.

Solar ventures concentration in some of the affected markets could further impact when and how capital invested in late stage development and construction loans repaid and reinvested.

At September Thirtyth 2020, 54% of the total U.P.B. of outstanding loans in solar ventures was associated with a single sponsor and finance projects located in ERCOT.

All but two of the underlying renewable energy projects in the solar ventures portfolio, both of which are in our caught and whose related financing had an aggregate.

It would be up $365.9 million as usual and customary takeouts in place as generally required loan agreements negotiations.

The negotiations were actively proceeding to obtain such commitments for the remaining two projects.

Given the prevailing macroeconomic conditions on.

Certainty in the financial markets and our dependence on a functioning renewable energy finance market, we remain focused on our investment and liquidity management programs.

To that end, we ended the quarter with $21.8 million of unrestricted cash and $16.3 million of capacity under our revolving credit facility.

We will close.

We will continue to closely monitor loan performance and expected sources of repayment.

While we explore ways to optimize the company's capitalization, including an additional debt capital where appropriate.

Turning to other assets to carrying the net carrying value of our real estate related investments, including our investment.

In debt Securities was $59.6 million at September Thirtyth substantially the same as there was recorded at June Thirtyth.

The offsetting adjustments, resulting from increases in capitalized investments in our real property offset by noncash equity losses of the Spanish sport joint venture to Dude depreciation.

<unk> and other noncash expenses.

There were not any material changes during the quarter in these non core investments, which consist of investments in Spanish Fort, Alabama, Winchester, Virginia.

Subordinate multifamily housing bond and our legacy South African business.

As stated on prior calls we do not expect these.

These assets will contribute consistently to quarterly income.

And we will continue to pursue opportunities to recycle capital from this part of the company's balance sheet at attractive levels.

Lastly at September Thirtyth, the company had debt, which will be $231.6 million that was carried at 230.

$38.4 million, a decrease in new pp at $7.1 million in the quarter, primarily as result of the pay down number for Baltic debt.

This debt had a weighted average effective interest rate of 3.9% at an estimated fair value of $188.2 million at September Thirtyth.

As of quarter end the company was in compliance with all of its debt covenants.

With that I'll turn the call over to Dave who will discuss our quarterly financial results in greater detail Dave.

Thanks, Gary and good morning, everyone as I provide an overview of our results I will refer to various tables in two of our form 10-Q.

Company ended the third quarter with $277.6 million of common shareholder shareholders' equity or book value.

Well adjusted book value was 221, and a half million dollars.

Book value increased $3.1 million or 50 cents per share in the third quarter, well adjusted book value increased $4.3 million.

Or 71 cents per share during the same period in.

In comparison book value decreased $3.2 million or 58 cents per share in the second quarter.

While adjusted book value decreased by $1.1 million or 22 cents per share during that period.

The third quarter increase in book value was primarily driven by 3 million.

In dollars comprehensive income, which included $2.9 million net income and $100000 of other comprehensive income.

Solid returns from renewable energy investments was a key performance driver in the third quarter.

The company recognized $9.2 million of equity in income in the solar ventures.

Increased reported year to date returns on these investments to $27.5 million.

Returns on these investments, though decreased by $4.5 million compared to the second quarter with the difference primarily tied to mark to market adjustments recognized by the solar ventures.

As we discussed on the Investor call in August the company recognized that share or three.

With $9 million of net fair value gains on the loan portfolio in the second quarter.

On the third quarter, the solar ventures did not recognize any consequential mark to market adjustments as the U.P.B. of the loan portfolio remained indicative of its fair value at September Thirtyth.

Concerning other investments and derivative positions interest income.

Point bonds loans, and other short term investments which totaled.

Half a million dollars in the third quarter.

It was relatively comparable to the second quarter.

Returns on the company's equity investments in the Spanish for joint venture in South African workforce housing fund, which netted to $300000 of equity in losses in the third quarter was also.

Come on relatively comparable to the second quarter.

And net losses, and other investments and derivatives, which was approximately $350000 decreased $400000 on a quarter over quarter basis, primarily as a result of a decrease in the magnitude of net fair value losses related to interest rate derivatives.

Given changes in reference interest rates.

And with respect to the company's expenses its cost of funding, which totaled $2.2 million in the third quarter decreased slightly compared to the second quarter given decreases in both LIBOR and you PBF draws made from the company's revolving credit facility.

While all other expenses, which totaled $2.7 million in the third quarter.

Also decreased $9.5 million or by approximately 78% prime.

Primarily because no investment related impairments, which totaled $9 million in the second quarter.

Were recognized in the third quarter.

The annual cap on compensation related expense reimbursements was also reached in the third quarter, which caused external management related costs to come in.

$100000 compared to second quarter.

While gionee professional fees and other operating expenses were in the aggregate relatively comparable to the second quarter.

Liquidity and capital resources perspective, the company had $39 million of cash cash equivalents and restricted cash at the end of the third quarter 17.

$17.2 million.

Six which was restricted.

As reported in table eight of our filing the total amount of the company's cash cash equivalents restricted cash increased $26.2 million in the first nine months of the year, which.

Which was primarily driven by $37.4 million of net cash flows provided by financing activities, including from financing transactions that CLO.

Closed in the second quarter involving the Companys infrastructure bond investment and direct investment in real estate.

Additionally, the company generated net cash flows from operating activities of $4.3 million and $10.7 million in the third quarter and first nine months of the year respectively.

With that I will turn the call back over to Gary.

Thanks, Dave.

Before we get to the Q and I I wanted to provide an update on our continuing response to COVID-19, as well as capital plans and CEO selection process.

With respect to corporate operations and the performance of the external manager in response to COVID-19, we continue to report no disruption.

Once in connections in connection with the company's business operations.

Business continuity task force continues to monitor the potential reopening upon offices.

With the safety of our employees for front of our mines and the current rise of COVID-19 cases across much of the United States, We anticipate that we will continue.

Turning to our remote work model through the end of 2020.

Any subsequent decisions related to the opening up any office will be consistent with the local timing and operational guidelines set by the jurisdiction where the office is located.

With respect to our capital allocation plans there remains a balance of near term conservatism.

In long term optimism.

In the near term, we believe our liquidity position since the beginning of COVID-19 downturn have successfully provided adequate liquidity to fulfill our current obligations, including any funding requirements at solar ventures without needing to pursue additional capital market activities.

That said the write.

Trinity become available to write cost, we could always pivot back to the capital markets at that time you.

We will continue to deliberate.

We will continue to be deliberate in the pace of originating new investments by focusing on high quality loan opportunities. While also continuing to manage outstanding cap commitments.

Without significant additional.

Operating costs in the company.

With respect to our C. O selection I first want to thank Mike Bell County for his 37 years of contributions to the company.

And his mentorship to me over the past 32 years well.

While it is certainly different to not interact with Mike Daly. He remains a significant shareholder and committed to the success of the company.

Kathryn position on the board.

As for Mikes permanent replacement the external manager.

He is engaged in the selection process and anticipate providing a candidate for the boards consideration and approval at the appropriate time until.

Until then I will continue in the CEO role and will seek to maximize our current results of operations and facilities facility.

New continuity as we move forward.

As noted above we continue to believe that the long term economic thesis they bring the transition to infrastructure related investments remain very much intact. If there are opportunities for high return investments work to complete the recycling of capital from various legacy assets in the infrastructure investments, including.

Taking renewable energy.

We remain poised to take advantage of those opportunities.

In closing even this in this uncertain moment in time, we remain excited about the future committed to our shareholders. We thank you for your continued support.

We will now open the call to questions Emily.

We will now begin the question and answer session.

Good question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your headset before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.

Our first question comes from Mark.

Private Investor. Please go ahead.

Gary Mark gum, and Palm Beach, Florida listening to the presentation hard to absorb all the numbers, but thank you for everything and sorry, I haven't seen him serving that actually heavy actual meeting physical meetings, but anyway, two questions its hard to absorb but from what.

What I gather the income on the portfolio.

The 11% returns should be around $40 million $37 million, something like that and if the shares or $5.7 million, that's something like a $6 earnings per share and a if.

That's anywhere near correct, one correct me and two.

So why now can't there be dividends Thats My question. Thank you.

Sure Good morning, Mark and nice to hear from you again.

So I think your numbers are generally.

Generally correct, Dave can correct me, if I'm wrong, but the 11.1%.

Return that we generate.

It's generated through the renewable energy portfolio is accurate.

And obviously the shares outstanding are accurate at $5.7 million.

Sure I think that.

Sure, Yes, so I think that the answer to your question.

With respect to not only dividends, but the general.

General capital return policy is one that.

The board continues to assess but just considering how much uncertainty there is in the marketplace.

We feel like it's prudent to be cautious with respect to.

Initiating a dividend, which obviously has some long term components as well as the share buyback.

Planet that's at this point in time.

We remain optimistic about the future and we currently have the ability to.

Increase our investments in renewable energy debt and that's kinda evidenced by the fact that we are currently not as a 50% industrial member in the joint ventures.

And where we obviously need to balance all of that with the ability to both reinvest create returns and the fact there's.

The other wells out there that can shelter the income we're keeping that in mind too. So we.

We will continue to assess that and it is very much.

From the mine to the board is kind of something to keep track of going forward.

Second part of your question about the labor It got to.

We'll have confusion on the book value question, but if it is 37 $38 per share in the market as summer are now in 27 or so dollars than would have been 22 or so I know you can't answer the question, but why is there such a discount.

Sure. So we'll leave it as a rhetorical question.

Yeah, I mean, we we share a youre and probably many investors concerned about the disconnect between the share price and adjusted book value per share right share price today is roughly 75%.

A duck adjusted book.

Value per share, which is basically book value.

Excluding the deferred tax asset.

There, obviously could be ways to get some traction.

With the share price if a dividend were initiated but we at.

At this point in time, there is a lot of uncertainty.

In the marketplace.

Sure we are alone with trading at a discount to book on.

Which has been.

Magnified since the beginning of cobot, but.

Again.

I appreciate the rhetorical question, but we do share your concern.

Thank you hope to see in Baltimore and screen number summer.

Sounds good thanks Mark.

Once again, if you have a question. Please press Star then one.

This concludes our question and answer session I would like to turn the conference back over to Gary Mentesana for.

Any closing remarks. Please go ahead.

Thank you very much Emily.

Thank you all very much for your continued support these are certainly.

Unprecedent.

The times that we're all living through and we look forward to the future. We think it is.

Full of opportunities for the company and we thank you very much for continuing to stand by us.

Okay. Thank you very much.

This conference has.

It is concluded. Thank you for attending today's presentation you may now disconnect.