Full Year 2020 Alaris Equity Partners Income Trust Earnings Call
Good morning, ladies and gentlemen, and welcome to the Lewis equity Partners income Trust fourth quarter 2020 earnings call at this time and note that all lines are in a listen only mode, but following the presentation. We will conduct a question and answer session and the fact anytime during the call you require immediate assistance. Please press star.
Zero for the operator also note that the call is being recorded on the Wednesday March 10, 2021, and I would like to turn the conference over to Mr. Darryl.
C of O CFO I'm sorry. Please go ahead.
Thank you Sylvia and good morning, ladies and gentlemen, welcome to the less equity partners conference call and webcast to discuss financial results for the three and 12 months ended December 31, 2020, all of the brief corporate update I'm, Darren Driscoll Chief Financial Officer of Larry.
I'm joined on this call by Steve King President and CEO.
After a short presentation from Steve and either will be of question answer session.
Some of you placed on mute until then to avoid background noise.
Before we begin I'd like to remind our listeners that all amounts given are in Canadian dollars unless otherwise noted.
There is a caution of the comments made today may contain forward looking information.
Forward looking information is based upon a number of important factors and assumptions and as a result actual results could differ materially.
Additional information concerning the underlying factors assumptions and risks is available in the last night's press release, and our MD&A for the period under the headings forward looking statements and risk factors copies of which are available on SEDAR at www, SEDAR dot com as well as our website.
The <unk> data is also presented it may differ from the way other companies present such data.
And as with forward looking statements. Please refer of last Night's press release, and our MD&A for the period.
For more clarification regarding non <unk> measures alright.
Alright after that very important notice after an.
Extraordinarily busy last number of.
Months, we were really quite anxious to get our results out so I'll share it with some highlights before passing it off to see Q4 revenue of $32 million.
The $27 million normalized EBITDA was boosted by the chemical catch up which resulted in a 100% of their contract the distributions in 2020.
The body contours paid there of Q2 deferred distributions in Q4, so now they were 100% caught up by year end.
And we receive common dividends from member and carry electric.
Obviously caused the bump from our recent guidance.
'twenty revenue for the year of $109 6 million of normalized EBITDA of $85 7 million marginally off prior year results to the impacts of Covid, mostly on the.
The planet fitness.
But also of large redemption first thing of January yet the Spi.
Obviously the deployment for 2020, certainly back back year end loaded.
From our own book a year ago, we only missed 4% of revenue after the entire pandemic year, which was which consists of nine months of the planet fitness distributions. The small amount of Providence, partially offset by a big recovery from chemical.
Record deployment of the last 12 months of $350 million and includes five new partners three follow on investments.
Run rate revenue today that translates into run rate revenue today of 136 million.
Just over $3 of share and that's compared to $108 million in the $2 70 per share for the prior year.
Run rate EBITDA of $124 million or $2.77 per share.
Compared to $98 8 million and $2 40 per share a year ago.
The payout ratio of today is at its lowest historical level of between 65 and 70%.
And the statements Youll see a significant increase in fair value of December 31.
Over $23 million or 52 of share.
The biggest one for chemical up six 5 billion U S. AMR was up 5 million Canadian on the Prefs and common basically restoring what was written down in Q1 does that business came charging back.
Planet fitness up $2 8 million of U S with the restart of partial distributions in January and I would include debt the fair value for planet fitness is still not accounting for full distributions that we do expect to start in July and starting to catch up and paid distributions from January 2022, So we'll reflect that when it happens.
Action was also up a couple of millions of U S and other smaller increases were LMS better resources and fleet and I would add that there were no fair value of decreases in Q4.
A re class from unrealized loss to realized loss of the quarter due to Providence occurred we wrote off Providence to nil in March.
And the bank foreclosed late in 2020, so there's no impact to earnings or EBITDA in the quarter or annually, but it's just a nuance from an accounting standpoint.
The big changes on the boring fracs to match our growth in one year. Our EBITDA has gone from 90 to almost $125 million. Our banking syndicate has been extremely supportive and responses from.
From right around the uncertain times around March April and May to just recently to support significant new deployment.
Since yearend, we've increased the facility from $330 million of $400 million, while adding a seventh bank to our syndicate.
Also we have the covenant flexibility over the next six months to navigate around deployment and the potential redemptions of kimco and federal resources.
We added common shares on our recent deployment of FMC, Edgewater and brown and settle since yearend and added disclosure in our MD&A is our expectations are very different in each case.
But from other of the planet fitness, we do expect cash yield on those shares over the long term.
We assume a small amount of the common distributions of our run rate, but since sort of discretionary it's hard to build that and until we see of regular pattern.
From a partner update standpoint, we are extremely proud of our portfolio.
Generally only a few percent less revenue than forecast the year ago and the revenue generated has a weighted average ECR of now over one seven times at its highest ever point.
That's up from about one five times.
Year ago.
Our ECR SaaS, we now have 15 of our 20 companies at 75% with an ECR of well over one five and six over two times and that's compared to a year ago nine of the 16 over one five and only three of over two times. So a massive improvement in the overall portfolio.
Another year of weighted average increase of the performance metrics of around 1% and I certainly would not expect of that back.
Back in April.
Based on all the unaudited information more companies with positive resets of negative, which this year is quite an accomplishment.
Planet fitness restarted partial distributions in January of the paying 40% of contracted amounts and.
As I mentioned on track to restart full distributions in July and I think on share, but nothing of assured at this point, but.
If they continue with their current pace that would knock about 5% off of our payout ratio overall couldn't be happier with the performance of our partners in 2020 throughout the pandemic.
A couple of unique items worth expanding on Kimco has continued its successful run revenue and EBITDA at all time high levels Theyre paying us full distribution inclusive of the 6% Max reset.
And with our support are actively looking for sources to take us out it could be $80 million to $100 million Canadian.
Keep in mind as the company that a year ago was not being at the current distributions and haven't been in for a lengthy period of time of the several years of uncertainty.
And after some significant write ups in 2020 still sits at only just over $40 million of U S on our books.
Alex span all of that in U S dollars, we of FES preferred shares on our books of $26 million from notes of 14 in <unk> of two.
The redemption price of the press is 35 over that 26 book value.
Plus the face value of the loans and <unk> of $18 million and that's the minimum of 53 million USD, an IRA or press release. There were also $20 million of unpaid distributions that are contractually owed auto redemption, but not on our books as well as an equity kicker of renegotiated a few years back.
Nothing is assured.
The transpires, we will certainly collect are contracted and growing yield and unpaid distributions over time, rather than in a redemption of debt.
I should note that the kimco redemption would have almost no impact on our payout ratio because of the all of the unlocked value I just described.
It wouldn't have any impact immediately based but based on our typical deal terms, we'd be able to redeploy the $100 million and received $14 million of revenue compared to the $6 million Canadian we currently receive from Kimco and.
The incredible story of full credit to the Kimco management forgetting this business ready for what has turned out to be of transformational period for the company.
Federal resources of another company that is exploring a redemption of alternatives nothing imminent, nor assured but of redemption would be at over $10 million U S above our book value and well over $100 million Canadian and resulted in above average IRR over the term of the investment.
Both of these would be tremendously successful results.
And provide over $200 million of Canadian of proceeds that would reduce our debt levels and more importantly provide additional capital for him for investment in 2021 of 2022.
I know this year was the conversion to an income trust and the name change to the Larish equity partners on September one.
Which resulted in a number of very interesting accounting impacts that are explained in detail in the notes of our financial statements.
The trust conversion has also allowed us to retain more capital internally by reducing admin expenses related to our day operating subsidiaries in the Netherlands, and more importantly, reducing our effective tax rate on U S revenue returning us to an overall tax rate comparable to where we were of pre 2019, and therefore lowering our payout ratio.
A couple of improvements to our disclosure worth mentioning.
Starting in Q3, we condensed the partner fair value of table in note four to show the base currency to try to take some of the FX noise away.
<unk> made a significant change again in Q3 to our partners section of the MBA, where we now summarize key points in a single table and then provide commentary on those partners where additional explanation is warranted.
And finally in the MD&A, we've added additional disclosure around our use of common shares why we've added that sort of ex investment strategy and our expectations around each company.
Hope you find all of these changes useful.
In our press release contains our first official commentary on our ESG of land. We are engaged external advisors to assist us in developing the ESG policy over the next 12 months.
We've taken great pride and paying close attention to all of these issues throughout our company history and look forward of formalizing our thoughts in the next 12 months or so.
Our outlook for 'twenty or 'twenty, one based on all of that recent deployment.
Some of it late in Q1, obviously, our cost of revenue of $32 5 million.
Our G&A did spike in 2020 due to the trust of conversion and some additional legal bills. We do expect a more normal G&A expense run rate in 2021 of around $12 5 million.
So that's all I have from a financial update standpoint, I'll now of toss it over to Steve King before we go to question and answer.
Great. Thanks, Darren obviously.
Huge changes in our company since the last time, we spoke in November after after our Q3.
Without a doubt the busiest period of time, and our 17 year history yet of <unk>.
So the $350 million of deployment as Darren mentioned over the last 12 months.
At least 50% higher than any previous 12 months period in our history.
Theres a few different reasons for that growth I'll go through them all so the people who can understand and.
And also kind of figure out kind of where we're going and the opportunities ahead for us.
One of the things that we saw I guess in the short term during the pandemic was.
The banks, especially in the U S, which is our primary market being much tighter in terms of their of their lending.
The capabilities in.
So that made it much more difficult on the private equity investors that we compete against as they use high levels of debt and their typical proposals.
Also safe to say that the entrepreneurs that we that we market to and that we want to partner with where more of debt averse than the than that.
Typically would be during a time like that.
So that made our our structure very.
Kind of.
Well suited for that kind of a market, where we don't use debt in a typical transaction.
The next factor is something that we also saw coming out of the great recession in 2009, which is cash.
Coming out of difficult times entrepreneurs and this is the way.
Any good entrepreneur is wired.
They see more opportunity.
Coming out of tough times and so the most expensive.
The security that you can issue as a company, whether you're public or private.
It is common shares they participate in all of growth.
And so for an entrepreneur coming out of a trough.
Don't want to issue Tom as many common shares if they can limit the number of common shares of the issue they're going to do that so.
Our structure of preferred shares.
For the majority of our of our investment certainly favored.
That kind of environment and still does.
The final reason, though for our success, which I think is by far the biggest one is the tweaks that we've made in our in our offering to entrepreneurs over the last couple of years in particular and that is ironically enough. Given my line. My last paragraph is adding some common equity along with our preferred shares and.
That has had a number of different impacts.
The us for our shareholders and also for the entrepreneurs that are that we market to.
So the first thing that it does for us.
Of our shareholders as it really balances the risk profile of our investments.
Even though oil from we've been doing the us for 17 years. So we've got a really good book on on our kind of risk profile and our return profile.
And it's been good we've had an IRR of compounding at 17% of year over the 17 years, but we can think of many situations over that period, where our company has had large swings one way or the other hand, sometimes in both both ways.
The single partnership.
Evidence would be a good example of that where they had just absolutely enormous growth for a period of time, the had EBITDA of over $200 million of year.
And if we would've had common equity along with our press, we probably could have taken out as much money in common dividends during that time as our entire cost base.
If not quite a bit more.
<unk>.
And so now Providence was.
Unable to sustain that that kind of level of <unk> they lost their business.
Eventually because of Covid.
And so our downside is 100%.
We would of had some securities that would have given us more upside to match the the risk that that would have made the risk balanced much better.
And we can think of several opportunities that we've had over the last 17 years, where things like that happen not to the same extent of Providence, but.
At the same kind of thing where we could have reduced our risks increased our return by having a blend of of perhaps in common.
The second thing with adding some common shares of that.
They will typically pay of cash yield as Darren mentioned, the only one in our portfolio of six common equity investments that we have that we don't expect near term dividends is planet fitness. They have I'm not going to say unlimited growth opportunities, but they have a lot of growth opportunities to open new clubs they need all of the capital that they.
You can get to do that.
With that being said the the multiples being paid for these kind of the companies just continues to go up and up and up so we do expect a very nice overall return on the planet fitness common equity on exit whenever that happens, but for the most part these common shares will pay dividends.
An incredible example of this is Cary electric of 97 year old family owned business. They would not give up control, but they would give us a small minority amount in fact, they really liked that we were going to own the same class of shares that they owned even in the minority way.
And so we invested $17 million in carry of $16, one and prep shares 900 Grand in in.
In common shares and in year, one we got of $340000 cash dividend on the 900000 dollar cost base comment so of 38% yield in year, one and obviously, that's that's an extraordinary outcome, but.
With that being said based on Kerry's projections for this year, but that number is expected to be significantly higher for.
For 2021.
So we believe that the cash yield as well as the potential gains on exit will significantly increase our overall returns over the course of time.
And the final advantage and probably the biggest one to be quite honest as the impact of tab on our ability to deploy capital and this is something that we've seen over the last nine months.
In Technicolor so.
The many deals are I would say the majority of deals that we see out there from the advisory network in the U S require more of the capital structure to be replaced than what just straight preferred shares would be prudent for so in order to compete on those deals we need to go further into the capital structure.
And the inclusion of some common equity along with our press allows us to do that we have been eliminated from.
The kind of deal processes.
The dozens and dozens of occasions, just because of our inability to rate of big enough check.
We couldnt go far enough with just press.
The other part of it is and this I think has been kind of of kind.
Kind of a secret.
The two are two our success here is it's also just eliminated a misconception of stigma of if you will amongst entrepreneurs and their advisors that are preferred shares or debt and not equity.
And because they have of yield attached to them a lot of entrepreneurs, who maybe don't have a background in finance they would just view it as as debt and that would hurt us in our in our proposals now that we're coming in with the blend of common and press. They are clearly seeing us as the equity partner that we are.
But two classes of shares one being significantly cheaper not being the press then the comment so in order to get to where perhaps they're happy to give us the minority stake of the company in the common.
And our win rate on proposals has.
Gone through the roof over of over the last year. So.
That one I think is probably one of the biggest reasons for our success.
So all in all of the tweaking of our business.
Been a large factor in our success over the last 12 months.
Amazing to think that even if we don't deploy and other dollar for the rest of this year that our EBITDA per share.
We will have grown by around 20% 21 over $2000.
Not even any including any expected increases from our partners like planet fitness.
So even with doing two equity offerings of the capital deployment has been.
Nicely accretive for our shareholders.
And one of the great things from me I've been doing this for a long time I've always had the long term goal of having no no partner more than 10% of our revenue stream and we're almost there higher of our biggest is just around 12% now.
And.
Lots to come on the future as well, we've got an expanded credit line for.
<unk> now more than $25 million of excess free cash flow per year that we can compounded the into growth going forward.
And as Darren mentioned, where we're extremely anxious and excited about potentially of crystallizing two very large gains in our portfolio and kimco and federal resources that will use to fund more growth as well.
I can't and the stock without thanking our incredible team here at <unk>.
The closed five new partnerships to follow ons corporate reorient to addressed two equity offerings and manage the relationships with 20 different partners through a pandemic. It's by far the biggest achievement that I witnessed in our 17 years higher staff of worked around the clock subject themselves to mandatory quarantines after traveling to the U S. All in order to.
To achieve these results for our shareholders. So I couldn't be more thankful. So sylvie, we'll turn it over to the questions. At this time. Thank you Mr. King Ladies and gentlemen, if you do have a question. Please slowly.
Star followed by one of you touched on the phone you will then hear a sweet home from acknowledging your request and should you wish to withdraw your question simply press Star followed by two and if you are using the speaker phone. We do ask that you. Please lift the handset before pressing Andy keys.
Please go ahead of press Star one now if you have any questions.
And your first question will be from Scott Robinson at RBC. Please go ahead.
Hi, good morning.
Morning.
My first question is regarding the potential redemption of the federal resources.
Given the size of that investment do you think there's less of the need to try and sell kimco now or maybe potentially wait to get more credit for the EBITDA that is generated over the past year.
Before selling it how should we think about that.
Well just to be clear Scott the company isn't for sale.
So this.
This would be a situation.
Unlike we've ever seen in our 17 years to be quite honest, where the company is growing so much and paid off.
All of their debt.
They've just got a huge amount of of cash flow. So they could they could fund this redemption out of cash in.
And a fairly modest amount of senior debt on their other companies. So obviously, that's that's a much lower cost of capital typically.
We're being.
Sure.
We're just selling along with the the founder but in this case.
They can get rid of us with the with just the Jeep senior debt. So very easy for them. So this isn't something that we're in control of but something that I am.
Happy to do because this would be a very very large return for us we have more than enough opportunities out there as we've seen as seen over the last nine months.
To replace it so we're here to make money for our shareholders.
I think thats going to be very good for our balance sheet and funding our future growth. So we don't have to come back to the market again.
And I would tell you on.
Kimco Theres, just so much unlocked value.
Thats why we are we are pushing those of those redemption options.
All of that 20 million of unpaid distributions.
The untapped value of difference in the fair value of it we don't get back.
Except on a redemption value of that would take a number of years to collect overtime and so by far it's in our best interests everybody's best interest to.
Two to get that in and again pay down debt and provide more capital.
Got it thank you.
And I guess my second question is on capital deployment, and perhaps if you could try and quantify.
The impact that this common equity option has given you guys.
Goodbye.
Think about how you describe the business before.
It may be a few years ago, you submit it call it a $1 billion worth of LOI for investments.
Would that be like today that now you have common equity like are you able to perhaps.
Submit like $1 2 billion or like how is that sort of impacted the broader landscape of your capital deployment opportunities yes.
Yes, that's a tough one to put a number on yet I think we need a little bit more time to see what normal years are like obviously the 2020 was was not a normal year at all of what we saw very little deal flow.
Kind of from from March until August and then it started to really pickup so it's a little tough to tell right now what I can tell you, though is just our win rate our win rate has been I would say at least double what it has been historically on the deals that we have bid on.
No.
So that's the exciting part because I think it is a double whammy I think we can bid on more and we seem to be winning a higher percentage. So I.
I'm excited to see what.
You know what the rest of this year looks like and Thats again like I mentioned, it's why we are excited about federal resources and kimco and not.
And not fighting that we've got lots of opportunities ahead of us.
Perfect. Thank you.
Welcome. Thank you.
You next question will be from Scott Thompson.
CIBC. Please go ahead.
Thank you and the good morning, gentlemen.
The question about the resets are the 1% of average that you referenced sounds kind of low given the economic recovery underway.
This.
Services from on the part of of.
Either you or or your investment partners or both.
Does it.
Hardly the portfolio of resistance of the.
Early stages of the pandemic.
It resets or kind of more normal course.
Yes, Scott I'd say it's.
It is.
The fact that it's up I think is an incredible staff you had companies like planet fitness and body contours that were shut down for three months and so there's no way they're going to have a.
Same store sales increase you had others that did have some restrictions of the softness we did have others like LMS.
Federal resources and chemical of that we're at the top of the collar and we ended up with more increases of decrease but if you'd asked me from my estimate last April or May I would've said down 5% to 6%. So the fact that its up is of great stat and and.
And.
Certainly is pointing towards the very good at 2022 reset because you do have some big hitters that debt that did have at least 234 months of softness in 2021.
Sorry, I think Scott two it's fair to say that a lot of the recovery has been has been very late in the year and into 2021. So.
I think if you will.
Look at GDP numbers.
As a whole, obviously theyre going to be well down in 'twenty.
<unk> 2020 versus 2019 and people expecting a big recovery of this year.
I think the same goes for our portfolio.
Yes, I think given the uncertainty that's probably the prudence.
Thanks, Tom in the next quarter I'll turn it over the others.
Thank you Ned.
The next question will be from Jeff Fenwick Cormack Securities. Please go ahead.
Hi, good morning, everyone.
Jeff.
So just one follow up on the resets there guys the.
The one I wanted to ask that with BCC I think in the MD&A. You said, it's just the negative reset, but you didnt give that didnt give the number there and I guess, maybe you are just finalizing the the yearend figures from them, but is there is the expectation of sort of near the lower end of the collar.
Yes, we are literally just going through that process because it is the same.
The next sale there were a whole bunch of different things we have to look at from clinic closures of how that fit into the calculation. So we were the overall revenue was almost back to historical numbers. The EBITDA was up but the same I guess.
Clinic revenue will be will be down and we do think it will be closer to that to the bottom end, but that is included in our 1%.
The weighted average.
Calculation, yes, a lot of the improvements in their EBITDA, Jeff was because of their costs were so much lower in the.
They spent a significant amount of less on advertising would be the key area that was quite a bit less of them. So they've they've made more money than they ever have.
On slightly fewer sales, but at the April was really well going into this next year or two where they are.
They won't have a three months period debt that they were closed down for and they are still expecting too.
The less on the advertising because they found that they were probably overspending of couple of years ago. So.
The good things ahead for for BCC.
Okay. Thanks, that's helpful. And then I wanted to ask about your credit facility I mean, you've done a good job there of renegotiating that higher and the flexibility around the covenants.
And I guess, one thought that I had is just as youre getting bigger.
More diversified adding more people into that syndicates.
And sort of battle tested through the last year here I'm surprised they've left the.
The normalized let's call it debt to EBITDA number is still down the two and a half and then do you think that's something down the road here you might have had been a flexibility on negotiating higher as well.
Yes, it's hard to say I mean, I do think that we still are unique.
Group, we have pushed that from gosh. It was one of half a couple of years ago. So we have made good strides I don't think we want to be much higher than that quite frankly, we want to keep.
Our conservative balance sheet.
And the growth has really come.
From the debt.
Of the increased.
EBITDA, we've had so of three times the 125 as Youre almost at the at the peak so no.
No.
We've got the short term flexibility that we need.
Is there a chance for a longer term flexibility.
I'll have the phone my Pal dominant kept the HSBC, but I think we're in pretty good we're in pretty good spot, where we are and always need for the next certainly 12 months or so.
Okay, and then I wanted to move over to the dividend policy here.
Kind of.
Settling into a little more normalized environment here things are progressing well line I know there is a couple of the.
The redemptions that may come in that are larger, but just sort of philosophically. How you think EBIT the dividend here going forward or are you going to return to being a.
The more consistent I guess dividend.
The increase as the book continues to grow here I know you've set of lower payout ratio, but it looked pretty comfortable certainly on that.
On that perspective, so how are you thinking about the pulse of the policy here as you go through 2021.
I guess, Jeff we're going to keep an open mind on it.
Our stock has been bizarrely volatile.
Given our fundamentals.
And so it does give you pause.
The.
With the stock that goes up and down as much as ours.
You don't want to be is beholden to the capital markets to fund your growth as you would if you were properly traded and.
So that does kind of.
Make us favor continuing to lower the payout ratio more and more so that we can fund all of our growth internally.
Internally, so with that being said.
We're coming out of a very volatile time in a very volatile market. So I do want to keep an open mind on that I think if our stock trades, where it should trade and isn't as volatile I think I would look to start increasing that dividend again.
Okay. Thanks for that color I'll re queue.
Thank you next question will be from Gary Ho at today's all day. Please go ahead.
Thanks, Dan and good morning.
Steve just going back to your common equity investment topics here, so I see that you're including a few million dollars annual run rate revenue guidance, maybe you can comment how sustainable that is and what are some of the key contributors to that looking out.
Kind of point of sale.
Some of the lumpiness that might be with.
Some of those come of investments.
Yes, we've tried to make the the.
The run rate estimate very conservative Gary that's one area of that we always will be conservative on it.
The surprise with.
With the with extra dividends coming in because they are less.
Obviously, not they're not structured.
And so they are less predictable you never know when the company could have a huge growth opportunity pop up where they divert some of that capital away from common dividends and into growth. So we will always be conservative on that.
Things will change as well like Brown and settled as one of our largest.
Common equity investments.
They have a small amount of debt on their balance sheet and between us and the other common shareholders, which is management, we've decided that the next kind of year year and a half we will be.
Net.
Paying off all of that debt and then after that point the dividend will be substantial so right now we don't have anything and therefore it but.
That's just a good example of.
Decisions that will be made by each company's boards.
I think it will be pretty conservative Darrin I don't know if you're one of them.
I think that all of the also each company does have different dividend.
Dividend track Records.
The it monthly of some quarterly some annually and so it won't be irregular for building into your models it won't be.
If we say $2 million of our run rate it won't be $500000 of quarter I assure you.
A little tougher to track, but I think eventually you'll just get used to seeing that here's when these companies pay in and we will record that when they are when they are paid so a little tough to predict but we certainly as Steve mentioned I think that $2 million is.
Net to be very conservative.
Got it and then Steve maybe.
I'm not sure have you done the work.
In your previous comments you have mentioned that you guys did do some common in your prior investments.
The IRR RMB.
I think right now you said, 17%, but what would that have been if you guys are the best it I don't know another 10% common in some of those previous the exits.
Yeah, I haven't done that analysis Gary.
Certainly looking at our our table of of exits over the years.
It would have been the substantial.
I look back at.
<unk>, Mark and the sequel in mid Atlantic Healthcare and some of some of these companies that ended up selling for very high multiples.
And.
The common shareholders did unbelievably well certainly two to three times higher IRR, then we had as preferred shareholders.
So just anecdotally.
I would I would.
<unk> venture a guess on what our blended IRR would be but certainly the the comment on would have been significantly higher than the ones, where we've had losses.
The percentage of losses on the common would have been probably pretty similar to that so.
Yes.
It certainly is going to pay off for us and obviously already has with our deployment.
Got it and then maybe for Darren few value of accounting for the comments.
Similar to the press I E.
Just using a discount on the projected dividend stream to come up with with the.
Fair value movements quarter to quarter.
No as it turns out it's a much more difficult process Gary.
The press or easy I'd say <unk> got a fixed dividend that goes up or down and you guess that you have of discount rate of your back into and you have of growth rate you assume and it's a much easier.
Mathematical equation for the common.
You can't just say, it's based on the dividend and we're looking at basically the weighted average cost of capital for the individual company. We're looking at their forecast we're looking at.
The the multiple set that industry trades in and so it is a.
A far more involved and so.
My our accounting team is quite looking forward to Q1, and Q2 is how we stack up more and more common investments that'll be quite an exercise and again, we are learning as we go working through with KPMG, but certainly are far more involved than the than the press just so many more assumptions going into it.
That are that are also not just the company's visit that would have some external influence as well.
Got it Okay and then just my last question on planet fitness and update.
The current run rate with the memberships down kind of 12% is that supported of the ramping up the distribution back up to a 100% and I guess in the discussions with lenders.
And of fitness can support.
C of distribution up to 80% can.
Can you go up to that or is it all lowered or nothing arrangement here.
We need.
You need the company to be onside the leverage covenant that's been put in place since I'll certainly they are on track at the at this level to do so if they are on track on sides of our leverage Covenant then that the concept you describe that sort of.
Ratchet.
If theres only enough cash flow to pay 80 or 90% on their fixed charge coverage ratio than they could do that.
If they are on sizes of our leverage we believe that they will be able to pay that full amount with some with the room, but again that is one that over the next few months, we're watching very closely we like what we're seeing we love the fact that.
The U S is way ahead of us.
I guess I don't love. The fact that it's good for our planet fitness the hit rate ahead of us from a vaccination standpoint.
And so people are returning to gyms in the states are opening up.
But that is one that.
Could have some near term volatility, but we're certainly we certainly like what we're seeing every every week has been has seen progress on the week before and they are their membership numbers.
One of the biggest impacts on the way down was mandatory masks.
So it's one thing to actually close the gyms. It was quite another to make people workout and masks. So.
The states.
<unk>.
Going against the mandatory mask restrictions as we're starting to see is a big factor for them, but we are even before that they don't have any states in their system that have gone no masks yet but.
It will be a big driver for them, but as I say each each week has been better than the week before.
For the last many weeks they've gone from.
I think the minus 15, five two to minus 12% of that that is the number that we can live with to get our whole distributions.
Okay, that's great to hear.
Thank you very much thanks, Craig.
Your next question will be from Zachary Eversheds at National Bank. Please go ahead.
And Brian Congrats on the quarter.
Okay.
The kimco and said looking at redeeming debt.
The in key picking away other any other partners that have been building of net cash position that might be used for partial redemption.
No nothing of the.
Federal resources is really an outlier there.
Their business.
Quadrupled.
The last cut.
A couple of years. So they are the only one that would have sort of the ability to do that and it is just there is a small contractual sweeps. So it'll just be a few million dollars of year asset as cash flow allows but no nobody else in that in that situation you look back over our 17 years and.
We are coming in for.
A fairly significant chunk of the capital structure and the amount that can only be handled by equity.
And so thats why we havent been redeemed just by refinancing.
Other than.
Once which was <unk>.
And of the role which took the 13 years to do.
And now potentially resources every other.
The redemption that we've had has been a full sale of the business. So yes it.
It's typically a very difficult thing to take us out of just with debt and when somebody looks at alternatives on the equity side, we remain the cheapest equity partners that they can find so thats net.
Kind of how we think of things that haven't gone over the last 17 years.
Appreciate that.
And then still on the topic of redemption.
Kimco the rider.
<unk> value is a pretty wide range of what factors go into that calculation.
Yes, so that the.
The $20 million swing is the how.
How much of those unpaid distributions we get the.
The 53 in our press release is basically R. R.
Redemption value of the press of 35, and the face value of the notes and the AAR of of another 18, so that's $53 million.
Get to $73 million collecting all of those unpaid distributions and I think you could even get higher than that with the with the warrant that we have in place, but those of our numbers. We were comfortable putting in is the range and then it will just stay will depend on.
What they can get from that.
The financing source and we're going to be involved in that.
And that conversation, but this is one again with so much unlocked value of that we are in.
Encouraging the management to go to do and they have lots of the game that by doing so as well.
I think fair to say that we probably wouldn't close on a transaction that ended up with us getting paid debt the bottom of that range and I don't think the the management team would do something at that level of it.
Great color, Thanks, I'll turn the other.
Yes.
Thank you.
As a reminder, ladies and gentlemen, if you do have any questions. Please slowly press star followed by one day.
Next is a follow up from Scott Robinson with RBC. Please go ahead.
Hi, Thanks, guys, just one quick follow up.
The SCR, so we've seen a decent pickup in mining activity and interest in Ontario over the last few months can you perhaps provide some color. The SCR is positioning of the market.
And then maybe also talk a bit about what the upside from that investment could look like in terms of cash flow.
So potentially help fair value should we see sustained levels of activity there.
Yes, we are.
Thrilled with what we're seeing out of SCR of the.
Thats again brothers have done a tremendous job managing through that.
Very volatile last number of years, but the last 12 months has been.
Exceptionally good each month, we get in is a little better than the next they are of service provider of they've got long term customer relationships with the big guys, but are also adding new customer relationships as we speak so.
I think certainly in the near term have significant upside.
We have changed the way we have.
Calibrated the SCR investment so they are paying us.
Basically of fixed amount of $4 2 million of year and then there is of cash flow sweep depending on on the results of the business.
Of that can allow us to go even above our contracted amount to try to get back some of those amounts of our missed historically so.
The fair value of our flex now that this is debt.
Net.
The concept is brand new starting in January here, and so I think youll see by Q2 Q3, what are we seeing as far as that sweep amount how is that of factoring our long term outlook, but.
They are their numbers of our coverage ratio has increased.
Significantly as has the revenue and EBITDA.
And do you have handy the amount of distribution of that have been.
Deferred or canceled over the last few years for that.
Yes, we it's a little under 20, but again, we have no. This is not this is a little different in this this is snow.
False of there so that is of the amount they contractually OS.
If there is upside of there'll be able to share that with us if there isn't we just won't get it and that that's the deal that we were happy to strike, we obviously need to make sure we're aligned with management and the and not piling up a bunch of of unpaid things in front of them they've done everything we've asked they've been terrific partners and again, if if if.
Things go the way they think they are well both share of that upside.
More so than our typical <unk>.
<unk> up or down 5% to 6% would.
Got it thanks, that's it from me.
Thanks Scott.
Thank you.
And at this time Mr. <unk>, we have no further questions. Please proceed.
Okay. Thanks, Sylvia and thanks, everybody for tuning in the as I always happy to answer any other questions offline. If people have them better ecstatic to have reported what we reported last night and look forward to updating you again in three months.
Thank you Sir.
Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending and at this time, we do ask that you. Please disconnect your lines.
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