Company Quick10K Filing
MMA Capital Management
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 6 $200
10-Q 2019-11-08 Quarter: 2019-09-30
10-Q 2019-08-09 Quarter: 2019-06-30
10-Q 2019-05-10 Quarter: 2019-03-31
10-K 2019-03-14 Annual: 2018-12-31
10-Q 2018-11-09 Quarter: 2018-09-30
10-Q 2018-08-09 Quarter: 2018-06-30
10-Q 2018-05-10 Quarter: 2018-03-31
10-K 2018-03-16 Annual: 2017-12-31
10-Q 2017-11-09 Quarter: 2017-09-30
10-Q 2017-08-09 Quarter: 2017-06-30
10-Q 2017-05-10 Quarter: 2017-03-31
10-K 2017-03-16 Annual: 2016-12-31
10-Q 2016-11-09 Quarter: 2016-09-30
10-Q 2016-08-09 Quarter: 2016-06-30
10-Q 2016-05-10 Quarter: 2016-03-31
10-K 2016-03-15 Annual: 2015-12-31
10-Q 2015-11-13 Quarter: 2015-09-30
10-Q 2015-08-12 Quarter: 2015-06-30
10-Q 2015-05-13 Quarter: 2015-03-31
10-K 2015-03-18 Annual: 2014-12-31
10-Q 2014-11-12 Quarter: 2014-09-30
10-Q 2014-08-14 Quarter: 2014-06-30
10-Q 2014-05-15 Quarter: 2014-03-31
10-K 2014-03-21 Annual: 2013-12-31
10-Q 2013-11-14 Quarter: 2013-09-30
10-Q 2013-08-14 Quarter: 2013-06-30
10-Q 2013-05-15 Quarter: 2013-03-31
10-K 2013-03-26 Annual: 2012-12-31
10-Q 2012-11-14 Quarter: 2012-09-30
10-Q 2012-08-14 Quarter: 2012-06-30
10-Q 2012-05-15 Quarter: 2012-03-31
10-K 2012-03-29 Annual: 2011-12-31
10-Q 2011-11-14 Quarter: 2011-09-30
10-Q 2011-08-15 Quarter: 2011-06-30
10-Q 2011-05-13 Quarter: 2011-03-31
10-K 2011-03-31 Annual: 2010-12-31
8-K 2020-01-03 Regulation FD, Exhibits
8-K 2019-12-20 Enter Agreement, Other Events, Exhibits
8-K 2019-11-08 Earnings, Exhibits
8-K 2019-09-19 Enter Agreement, Off-BS Arrangement, Regulation FD, Other Events, Exhibits
8-K 2019-08-09 Earnings, Exhibits
8-K 2019-07-29 Delisting, Officers
8-K 2019-05-21 Shareholder Vote
8-K 2019-05-10 Earnings, Exhibits
8-K 2019-03-14 Earnings, Exhibits
8-K 2019-01-01 Other Events, Exhibits
8-K 2018-12-20 M&A, Regulation FD, Exhibits
8-K 2018-11-20 Shareholder Vote, Other Events
8-K 2018-06-26 Officers, Other Events, Exhibits
8-K 2018-06-01 Enter Agreement, Exhibits
8-K 2018-05-22 Shareholder Vote
8-K 2018-03-09 Other Events
8-K 2018-01-08 Enter Agreement, M&A, Sale of Shares, Officers, Regulation FD, Other Events, Exhibits
MMAC 2019-09-30
Part I – Financial Information
Item 2. Management’S Discussion and Analysis of Financial Condition and Results of Operations
Item 1. Financial Statements
Note 1— Summary of Significant Accounting Policies
Note 2—Investments in Debt Securities
Note 3—Investments in Partnerships
Note 4—Loans Held for Investment (“Hfi”) and Loans Held for Sale (“Hfs”)
Note 5—Other Assets
Note 6—Debt
Note 7—Derivative Instruments
Note 8—Fair Value
Note 9—Guarantees and Collateral
Note 10—Commitments and Contingencies
Note 11—Equity
Note 12—Stock-Based Compensation
Note 13—Related Party Transactions and Transactions with Affiliates
Note 14—Income Taxes
Note 16—Segment Information
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II – Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 mmac-20190930ex31155a7ae.htm
EX-31.2 mmac-20190930ex31263bd3e.htm
EX-32.1 mmac-20190930ex321038402.htm
EX-32.2 mmac-20190930ex32206c6e2.htm

MMA Capital Management Earnings 2019-09-30

MMAC 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
NTP 340 318 90 0 0 0 0 340 0%
RFL 304 143 17 5 0 -3 -1 291 0% -259.0 -2%
CTO 302 578 380 84 59 29 57 522 71% 9.2 5%
PICO 228 177 2 17 0 1 1 219 0% 281.3 0%
ARL 214 818 507 82 0 168 223 433 0% 1.9 21%
MMAC 200 326 111 0 0 66 68 295 4.3 20%
GRIF 192 264 167 26 25 5 18 328 93% 18.5 2%
MLP 190 48 17 10 0 1 1 189 0% 250.5 2%
LEJU 166 417 175 0 0 0 0 18 0%
YRIV 99 393 220 0 0 -15 -2 93 -41.1 -4%

10-Q 1 mmac-20190930x10q.htm 10-Q mmac_Current_Folio_10Q

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September  30, 2019

 

OR

 

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________________ to __________________

Commission File Number 001‑11981

MMA CAPITAL HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware
(State or other jurisdiction of incorporation or organization)

52‑1449733
(I.R.S. Employer Identification No.)

3600 O’Donnell Street, Suite 600

Baltimore, Maryland 21224 
(Address of principal executive offices,

including zip code)

 

(443) 263‑2900
(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

 

 

 

 

 

 

Title of each class
Common Shares, no par value

Common Stock Purchase Rights

Trading Symbol(s)

MMAC

MMAC

Name of each exchange on which registered
Nasdaq Capital Market

Nasdaq Capital Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑   No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files) Yes ☑   No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.

 

 

 

 

 

 

 

Large accelerated filer

 

Accelerated filer

 

 

 

 

 

 

 

Non-accelerated filer

 

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act).  Yes ☐ No ☑

There were 5,763,623 shares of common shares outstanding at November 1, 2019.

 

 

 

 

MMA Capital Holdings, Inc.

Table of Contents

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS 

2

 

 

 

 

 

PART I – FINANCIAL INFORMATION 

3

 

 

 

 

 

 

Item 1.

Financial Statements (Unaudited)

22

 

 

 

 

 

 

 

(a)

Consolidated Balance Sheets at September  30, 2019 and December 31, 2018

22

 

 

 

 

 

 

 

(b)

Consolidated Statements of Operations for the three and nine months ended September  30, 2019 and September  30, 2018

23

 

 

 

 

 

 

 

(c)

Consolidated Statements of Comprehensive Income for the three and nine months ended September  30, 2019 and September  30, 2018

25

 

 

 

 

 

 

 

(d)

Consolidated Statements of Equity for the nine months ended September  30, 2019 and September  30, 2018

26

 

 

 

 

 

 

 

(e)

Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and September 30, 2018

28

 

 

 

 

 

 

 

(f)

Notes to Consolidated Financial Statements

30

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

4

 

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

63

 

 

 

 

 

 

Item 4.

Controls and Procedures

63

 

 

 

 

 

PART II – OTHER INFORMATION 

64

 

 

 

 

 

 

Item 1

Legal Proceedings

64

 

 

 

 

 

 

Item 1A.

Risk Factors

64

 

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

64

 

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities

64

 

 

 

 

 

 

Item 4.

Mine Safety Disclosures

64

 

 

 

 

 

 

Item 5.

Other Information

64

 

 

 

 

 

 

Item 6.

Exhibits

65

 

 

 

 

 

SIGNATURES 

S-1

 

 

 

1

Cautionary Statement Regarding Forward Looking Statements

This Quarterly Report on Form 10‑Q for the period ended September 30, 2019 (this “Report”) should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2018 (“2018 Annual Report”), filed with the United States (“U.S.”) Securities and Exchange Commission (“SEC”), to which reference is hereby made. This Report contains forward-looking statements intended to qualify for the safe harbor contained in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  Forward-looking statements often include words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “project,” “see,” “seek,” “should,” “will,” “would,” and similar words or expressions and are made in connection with discussions of future events and future operating or financial performance.

Forward-looking statements reflect our management’s expectations at the date of this Report regarding future conditions, events or results.  They are not guarantees of future performance.  By their nature, forward-looking statements are subject to risks and uncertainties.  Our actual results and financial condition may differ materially from what is anticipated in the forward-looking statements.  There are many factors that could cause actual conditions, events or results to differ from those anticipated by the forward-looking statements contained in this Report.  Risks that could cause our actual results to differ materially include, but are not limited to, changes in market rates of return, additional competitors entering the marketplace (which would reduce nominal rates of return from competition for new borrowers), limits on access to investible capital that would limit new investments that could be made by the Company, changes in the law and the Company’s dependence on a small, specialized team of the External Manager for underwriting activities, as well as the risks and uncertainties described in Part I, Item 1A. “Risk Factors” of our 2018 Annual Report.

Readers are cautioned not to place undue reliance on forward-looking statements in this Report or that we may make from time to time, and to consider carefully the factors discussed in Part I, Item 1A. “Risk Factors” of our 2018 Annual Report in evaluating these forward-looking statements.  We do not undertake to update any forward-looking statements contained herein, except as required by law.

2

PART I – FINANCIAL INFORMATION

MMA Capital Holdings, Inc.

Consolidated Financial Highlights

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of and for the three months ended

(in thousands, except per common share data)

    

September 30, 2019

    

June 30, 2019

    

March 31, 2019

    

December 31, 2018

Selected income statement data

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

$

2,131

 

$

2,630

 

$

1,679

 

$

2,260

Non-interest income

 

 

7,581

 

 

24,460

 

 

6,111

 

 

19,662

Other expenses

 

 

4,110

 

 

3,820

 

 

4,888

 

 

4,084

Net income before income taxes

 

 

5,602

 

 

23,270

 

 

2,902

 

 

17,838

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax (expense) benefit

 

 

(26)

 

 

(50)

 

 

(13)

 

 

54

Net income (loss) from discontinued operations, net of tax

 

 

 —

 

 

(1)

 

 

(7)

 

 

13,384

Net income

 

$

5,576

 

$

23,219

 

$

2,882

 

$

31,276

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share data

 

 

 

 

 

 

 

 

 

 

 

 

Net income:  Basic

 

$

0.95

 

$

3.95

 

$

0.49

 

$

5.34

       Diluted

 

 

0.95

 

 

3.95

 

 

0.49

 

 

5.25

 

 

 

 

 

 

 

 

 

 

 

 

 

Average shares:   Basic

 

 

5,887

 

 

5,884

 

 

5,882

 

 

5,859

 Diluted

 

 

5,887

 

 

5,884

 

 

5,882

 

 

5,954

 

 

 

 

 

 

 

 

 

 

 

 

 

Market and per common share data

 

 

 

 

 

 

 

 

 

 

 

 

Market capitalization

 

$

173,366

 

$

193,400

 

$

175,009

 

$

145,586

Common shares at period-end

 

 

5,889

 

 

5,887

 

 

5,884

 

 

5,882

Share price during period:

 

 

 

 

 

 

 

 

 

 

 

 

High

 

 

33.97

 

 

35.50

 

 

33.88

 

 

27.45

Low

 

 

28.05

 

 

30.00

 

 

20.02

 

 

25.00

Closing price at period-end

 

 

30.00

 

 

33.47

 

 

30.29

 

 

25.20

Book value per common share:  Basic and Diluted

 

 

37.29

 

 

36.46

 

 

36.11

 

 

36.20

 

 

 

 

 

 

 

 

 

 

 

 

 

Selected balance sheet data (period end)

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

10,837

 

$

10,590

 

$

28,773

 

$

28,243

Investments in debt securities

 

 

34,121

 

 

35,236

 

 

81,102

 

 

97,190

Investment in partnerships

 

 

222,567

 

 

185,679

 

 

159,145

 

 

155,079

Loans held for investment

 

 

87,267

 

 

80,878

 

 

67,299

 

 

67,299

All other assets

 

 

19,165

 

 

13,378

 

 

20,022

 

 

16,575

Total assets

 

$

373,957

 

$

325,761

 

$

356,341

 

$

364,386

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt

 

$

151,340

 

$

107,868

 

$

140,239

 

$

149,187

All other liabilities

 

 

3,022

 

 

3,267

 

 

3,635

 

 

2,289

Total liabilities

 

 

154,362

 

 

111,135

 

 

143,874

 

 

151,476

Common shareholders' equity

 

$

219,595

 

$

214,626

 

$

212,467

 

$

212,910

 

 

 

 

 

 

 

 

 

 

 

 

 

Rollforward of common shareholders' equity

 

 

 

 

 

 

 

 

 

 

 

 

Common shareholders' equity - at beginning of period

 

$

214,626

 

$

212,467

 

$

212,910

 

$

193,547

Net income

 

 

5,576

 

 

23,219

 

 

2,882

 

 

31,276

Other comprehensive loss

 

 

(673)

 

 

(21,143)

 

 

(3,140)

 

 

(13,288)

Common share repurchases

 

 

 —

 

 

 —

 

 

 —

 

 

(1,810)

Common shares issued and options exercised

 

 

 —

 

 

 —

 

 

 —

 

 

5,462

Cumulative change due to change in accounting principle

 

 

 —

 

 

 —

 

 

(267)

 

 

 —

Other changes in common shareholders' equity

 

 

66

 

 

83

 

 

82

 

 

(2,277)

Common shareholders' equity - at end of period

 

$

219,595

 

$

214,626

 

$

212,467

 

$

212,910

 

3

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

INTRODUCTION


Overview

MMA Capital Holdings, Inc. invests in debt associated with renewable energy infrastructure and real estate. Unless the context otherwise requires, and when used in this Report, the “Company,” “MMA,” “we,” “our” or “us” refers to MMA Capital Holdings,  Inc. and its subsidiaries. We were originally organized as a Delaware limited liability company in 1996 and converted to a Delaware corporation on January 1, 2019. 

We focus on investments with attractive risk-adjusted returns that generate positive environmental or social impacts, with an emphasis on renewable energy debt investments. Our assets and liabilities are organized into two portfolios:

·

Energy Capital – This portfolio includes indirect investments in loans that finance renewable energy projects and revolving debt that we utilize to leverage such investments; and

·

Other Assets and Liabilities (“OA&L”) – This portfolio includes our investments in bonds, certain loan receivables, cash, real estate-related investments, subordinated debt and the balance of the Company’s assets and liabilities (investments in bonds and related financings, which were previously identified as their own portfolio in each Quarterly Report on Form 10-Q that was filed in 2018, were reallocated to the OA&L portfolio as of December 31, 2018).

Given the depth of opportunities we see in the renewable energy market, our objective is to grow the Company’s return on equity by recycling equity out of existing investments in the OA&L portfolio that are generating lower returns, into the Energy Capital portfolio, which we believe will generate higher returns. In this regard, we actively seek out ways to support additional growth in the Energy Capital portfolio by optimizing how the Company is capitalized, including through the efficient deployment of leverage. As further discussed below, the Company established a revolving credit facility with various lenders in the third quarter of 2019 that was executed for purposes of leveraging its investments in the Energy Capital portfolio.

We  are externally managed by Hunt Investment Management, LLC (our “External Manager”), an affiliate of Hunt Companies, Inc. (Hunt Companies, Inc. and its affiliates are hereinafter referred to as “Hunt”). Refer to Notes to Consolidated Financial Statements – Note 13, “Related Party Transactions and Transactions with Affiliates,” for additional information.

We operate as a single reporting segment.

Energy Capital Portfolio

Overview

In our Energy Capital portfolio, we invest in loans that finance renewable energy projects to enable developers, design and build contractors and system owners to develop, build and operate renewable energy systems throughout North America. We generally invest in these loans, which include late-stage development, construction and permanent loans, through joint ventures (such joint ventures, together with our wholly owned subsidiary, Renewable Energy Lending, LLC (“REL”) are hereinafter referred to as the “Solar Ventures”).  In this regard, through our External Manager’s relationships, we invest in a large, segmented market that is growing and that we believe to be underserved, which has enabled us to achieve attractive risk-adjusted returns.

4

Lending Activities of the Solar Ventures

The Solar Ventures in which we have invested include: Solar Construction Lending, LLC (“SCL”); Solar Permanent Lending, LLC (“SPL”); Solar Development Lending, LLC (“SDL”); and REL.  Carrying value and income-related information related to investments that we have made in, or related to, the Solar Ventures are further discussed below. 

Our External Manager provides loan origination, servicing, asset management and other management services to the Solar Ventures, which typically  target loans that generate origination fees that range from 1.0% to 3.0% on committed capital and have fixed-rate coupons that range from 7.0% to 14.0%. These loans also generally range in size from $2 million to over $50 million, have durations between three months and five years, and are underwritten to generate internal rates of return (“IRR”) ranging from 10% to 15%, before expenses. 

Through September  30, 2019, the Solar Ventures made over 150 project-based loans that total $2.1 billion of debt commitments for the development of over 640 renewable energy project sites that,  when completed, will generate over 6.2 gigawatts of renewable energy.

The Solar Ventures closed $358.3 million of loan commitments during the third quarter of 2019 and, at September 30, 2019, loans funded through the Solar Ventures had an aggregate unpaid principal balance (“UPB”) of $362.7 million, a weighted-average remaining maturity of nine months and a weighted-average coupon of 10.8%.  At September 30, 2019, the Solar Ventures, of which the Company is a 50% member, had $446.8 million of unfunded loan commitments to borrowers,  which were anticipated to be funded primarily by capital within the Solar Ventures through a combination of idle capital and existing loan redemptions. To the extent capital within the Solar Ventures is not sufficient to meet their funding obligations additional capital contributions by the members of the Solar Ventures in proportion to their interests would be required.

Through September 30, 2019, 107 loans totaling $1.2 billion of commitments had been repaid, resulting in a weighted-average IRR (“WAIRR”) of 17.1% that was on average higher than originally underwritten. WAIRR is measured as the total return in dollars of all repaid loans divided by the total commitment amount associated with such loans, where (i) the total return for each repaid loan was calculated as the product of each loan’s IRR and its commitment amount and (ii) IRR for each repaid loan was established by solving for a discount rate that made the net present value of all loan cash flows equal zero. WAIRR has been higher than the net return on the Company's investments in the Solar Ventures because it is a measure of gross returns earned by the Solar Ventures on repaid loans and does not include the effects of: (i) operating expenses of the Solar Ventures; (ii) the preferred return earned by the Company’s former investment partner in REL through the second quarter of 2018; (iii) the amortization of the purchase premium paid by the Company to buyout our former investment partner and (iv) the opportunity cost of idle capital. 

5

Investments Related to the Solar Ventures

At September 30, 2019, the Company held 50%, 50%, 44.7% and 100% equity interests in SCL, SPL, SDL and REL, respectively. Additionally, the Company held a 5.1% equity interest in SDL at September 30, 2019, that was acquired in the second quarter of 2019 from Hunt through a transaction that was reported as a secured lending transaction. While cash paid to settle this purchase was recognized as a loan receivable and the acquired equity interest in SDL was deemed to be collateral that did not get financial statement recognition, the Company acquired all legal rights and obligations related to such 5.1% ownership interest.

During July 2019, the Company and its capital partner in SDL executed a  non-pro rata funding agreement pursuant to which our capital partner contributed 98% of a $30.0 million capital call and the Company contributed the balance. However, on September 20, 2019, the Company contributed 100% of a $28.8 million capital call, which caused the non-pro rata funding agreement with our capital partner in SDL to terminate.

Table 1 provides financial information about the carrying value of MMA’s investments related to the Solar Ventures at September  30, 2019 and December 31, 2018.

Table 1:  Carrying Values of the Company’s Investments Related to the Solar Ventures

 

 

 

 

 

 

 

 

 

 

 

 

 

At

 

At

 

September 30,

 

December 31,

(in thousands)

2019

 

2018

Equity investments in the Solar Ventures

$

194,647

 

$

126,339

Loan receivable from Hunt

 

19,968

 

 

 ─

Total carrying value

$

214,615

 

$

126,339

 

The carrying value of the Company’s equity investments in the Solar Ventures increased $68.3 million during the nine months ended September 30, 2019, as a result of $163.9 million of capital contributions and $14.3 million of equity in income earned, partially offset by $109.9 million of distributions received during the nine months ended September  30,  2019. See Notes to Consolidated Financial Statements – Note 3, “Investments in Partnerships,” for additional information.

The carrying value of the Company’s loan receivable from Hunt related to the Company’s acquisition of equity interests in SDL, which had an effective interest rate of 17.3%, increased $8.7 million since its origination on April 1, 2019, primarily as a result of net incremental funding associated with the loan to which the acquired interest in SDL relates. Refer to Notes to Consolidated Financial Statements – Note 13, “Related Party Transactions and Transactions with Affiliates,” for more information about this transaction.

Income from Investments Related to the Solar Ventures

The Company applies the equity method of accounting to its equity investments in the Solar Ventures. Accordingly, the Company recognizes its allocable share of the Solar Venture’s net income. Separately, the Company recognizes interest income associated with its loan receivable from Hunt using the interest method.

6

Table 2 summarizes income recognized by the Company in connection with investments related to the Solar Ventures for the periods presented.

Table 2:  Income Recognized from Investments Related to the Solar Ventures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

For the nine months ended

 

 

September 30,

 

September 30,

(in thousands)

  

2019

  

2018

  

2019

  

2018

Equity in income from the Solar Ventures

 

$

6,022

 

$

2,032

 

$

14,271

 

$

4,004

Interest income from the Hunt loan receivable

 

 

839

 

 

 ─

 

 

1,265

 

 

 ─

Total investment income

 

$

6,861

 

$

2,032

 

$

15,536

 

$

4,004

 

Refer to the comparative discussion of our Consolidated Results of Operations for more information about income that was recognized in connection with the Company’s investments related to the Solar Ventures.

Leveraging Investments Related to the Solar Ventures

On September 19, 2019, MMA Energy Holdings, LLC (“MEH” or “Borrower”), a wholly owned subsidiary of the Company, entered into a credit agreement with various lenders that initially provided for a $70.0 million revolving credit facility, which may be increased up to $125.0 million (the “Facility Amount”) after the initial closing date upon the joinder of additional lenders. The Facility Amount may be expanded by up to an additional $50.0 million, subject to the agreement of the participating lenders and satisfaction of certain other customary conditions. On October 11, 2019, the committed amount of the revolving credit facility increased to $100.0 million upon the joinder of two additional lenders.

Obligations associated with the revolving credit facility are guaranteed by the Company and are secured by specified assets of the Borrower and a pledge of all of the Company’s equity interest in the Borrower through pledge and security documentation. Availability and amounts advanced under the revolving credit facility, which may be used for various business purposes, are subject to compliance with a borrowing base comprised of assets that comply with certain eligibility criteria, and includes late-stage development, construction and permanent loans to finance renewable energy projects and cash.

Borrowing on the revolving credit facility bears interest at the one-month London Interbank Offered Rate (“LIBOR”), adjusted for statutory reserve requirements (subject to a 1.5% floor), plus a fixed spread of 2.75% per annum. The Borrower has also agreed to pay certain fees and expenses and to provide certain indemnities, all of which are customary for such financings. In certain circumstances where the interest rate is unable to be determined, including in the event LIBOR ceases to be published, the administrative agent to the credit agreement will select a new rate in its reasonable judgment. The maturity date of the credit agreement is September 19, 2022, subject to a 12-month extension solely to allow refinancing or orderly repayment of the facility. 

At September 30, 2019, the UPB and carrying value of amounts borrowed from the revolving credit facility was $45.0 million while the Company recognized $0.1 million of related interest expense in the Consolidated Statements of Operations during the three months ended September 30, 2019.  As of November 1, 2019, the UPB and carrying value of the revolving credit facility was $53.5 million. See Notes to Consolidated Financial Statements – Note 6, “Debt,” for more information.

Through the Company’s access to additional liquidity from the revolving credit facility, we expect to increase the overall amount of capital invested in the Solar Ventures, which is expected to result in meaningful growth in our income generated from the Solar Ventures. Moreover, we expect our returns to further improve as a result of leverage and a  reduction in both the time and amount of idle capital since our access to the revolving credit facility will enable our equity capital to be more fully invested.

7

OA&L Portfolio

In our OA&L portfolio, we manage the Company’s cash, investments in bonds, loan receivables, real estate-related investments, subordinated debt and other assets and liabilities of the Company.  An overview of the primary assets and liabilities within this portfolio follows.

Hunt Note

The Company has a secured loan receivable from Hunt (the “Hunt Note”) that had a carrying value of $67.0 million and bore interest at a rate of 5.0% per annum at September 30, 2019. The Hunt Note is prepayable at any time and will amortize in 20 equal quarterly payments of $3.35 million beginning on March 31, 2020.

Refer to Notes to Consolidated Financial Statements — Note 13, “Related Party Transactions and Transactions with Affiliates,” for more information.

Investments in Bonds 

At September 30, 2019, we held two unencumbered tax-exempt multifamily bond investments with a UPB and fair value of $6.2 million and $8.7 million, respectively. On November 6, 2019, one of our remaining tax-exempt multifamily bond investments, that had a UPB and fair value of $2.2 million and $2.8 million at September 30, 2019, respectively, was fully redeemed at its reported fair value.

The Company also has one unencumbered tax-exempt municipal bond that finances the development of infrastructure for a mixed-use town center development and is secured by incremental tax revenues generated from the development (this investment is hereinafter referred to as our “Infrastructure Bond”). At September 30, 2019, the Infrastructure Bond had a stated fixed interest rate of 6.3% and had a UPB and fair value of $27.2 million and $25.4 million, respectively.  

Real Estate-Related Investments

At September  30, 2019, we were an equity partner in four real estate-related investments consisting of (i) an 80.00% ownership interest in a joint venture that owns a mixed-use town center development and undeveloped land parcels and whose incremental tax revenues secure our Infrastructure Bond (hereinafter, the “Infrastructure Venture”) and (ii) three limited partner interests in partnerships that own affordable housing and in which our ownership interest ranged from 74.25% to 74.92%. The carrying value of these four investments was $20.4 million at September  30, 2019.

At September  30, 2019, the Company maintained an 11.85% ownership interest in the South Africa Workforce Housing Fund (“SAWHF”).  SAWHF is a multi-investor fund that will mature in April 2020 and is currently in the process of exiting its investments.  The carrying value of the Company’s investment in SAWHF was $7.5 million at September  30, 2019.

At September  30, 2019, we owned one direct investment in real estate consisting of a parcel of land that is currently in the process of infrastructure development.  This real estate is located just outside the city of Winchester in Frederick County, Virginia. During the first quarter of 2019, the Company invested $4.4 million for land improvements and the carrying value of this investment was $8.4 million at September  30, 2019.

Deferred Tax Assets

Deferred taxes arise from differences between assets and liabilities measured for financial reporting versus income tax return purposes.  Deferred tax assets (“DTAs”) are recognized if we assess that it is more likely than not that tax benefits, including net operating losses (“NOLs”) and other tax attributes, will be realized prior to their expiration.  

At December 31, 2018, the carrying value of our DTAs was $124.5 million although such assets were fully reserved at such reporting date because of management’s assessment that it was not more likely than not that the Company would realize its DTAs. We evaluate our DTAs for recoverability using a consistent approach that considers the relative impact

8

of negative and positive evidence, including our historical profitability and projections of future taxable income. The Company’s DTAs remain fully reserved at September  30, 2019. The Company believes there is more than a remote but less than likely chance that, within the next 12 months, the portion of DTAs for which a valuation allowance is maintained could materially change due to potential changes in the Company’s investment strategy and other factors.

Debt Obligations

At September 30, 2019, the debt obligations in our OA&L portfolio included the Company’s subordinated debt, notes payable and other debt used to finance the Company’s 11.85% ownership interest in SAWHF and debt obligation to the Morrison Grove Management, LLC (“MGM”) principals.

The carrying value and weighted-average yield of the Company’s debt obligations in the OA&L portfolio was $106.3 million and 4.2%, respectively, at September 30, 2019. Refer to Table 8, “Debt,” for more information.

Sources of Comprehensive Income from the OA&L Portfolio

 

The primary sources of comprehensive income associated with our OA&L portfolio include: interest income on loan receivables; interest expense associated with debt obligations; non-interest income from real estate-related investments, debt obligations and derivative instruments used for risk management purposes; and other expenses. Refer to “Consolidated Results of Operations,” for a comparative discussion of income and expenses recognized in connection with assets and liabilities of the OA&L portfolio.

9

SUMMARY OF FINANCIAL PERFORMANCE

 

Net Worth

Common shareholders’ equity increased  $5.0 million in the third quarter of 2019 to $219.6 million at September  30, 2019.  This change was primarily driven by $4.9 million of comprehensive income and $0.1 million of other increases in common shareholders’ equity.

Diluted common shareholders’ equity (“Book Value”) per share increased $0.83, or 2.3%, in the third quarter of 2019 to $37.29 at September  30, 2019.

Comprehensive Income

We recognized comprehensive income of $4.9 million in the third quarter of 2019, which consisted of $5.6 million of net income and $0.7 million of other comprehensive loss.  In comparison, we recognized $5.3 million of comprehensive income in the third quarter of 2018, which consisted of $8.6 million of net income and $3.3 million of other comprehensive loss.

Net income that we recognized in the third quarter of 2019 was primarily driven by equity in income from unconsolidated funds and ventures, net gains on bonds and net interest income.  Refer to “Consolidated Results of Operations,” for more information about changes in common shareholders’ equity attributable to net income.

Other comprehensive loss that we reported in the third quarter of 2019 was primarily attributable to the reclassification of fair value gains out of accumulated other comprehensive income (“AOCI”) and into our Consolidated Statements of Operations due to the redemption of certain bond investments during such reporting period. The impact of this reclassification was partially offset by net fair value gains that we recognized in AOCI during the third quarter of 2019 in connection with our bond investments.

10

CONSOLIDATED BALANCE SHEET ANALYSIS

 

This section provides an overview of changes in our assets, liabilities and equity and should be read together with our consolidated financial statements, including the accompanying notes to the financial statements.

Table 3 provides Consolidated Balance Sheets for the periods presented.  

Table 3:  Consolidated Balance Sheets

 

 

 

 

 

 

 

 

 

 

 

 

At

 

At

 

 

 

 

 

September 30,

 

December 31,

 

 

(in thousands, except per share data)

    

2019

    

2018

    

Change  

Assets  

  

 

 

  

 

 

  

 

 

Cash and cash equivalents

 

$

10,837

 

$

28,243

 

$

(17,406)

Restricted cash

 

 

6,115

 

 

5,635

 

 

480

Investments in debt securities

 

 

34,121

 

 

97,190

 

 

(63,069)

Investments in partnerships

 

 

222,567

 

 

155,079

 

 

67,488

Loans held for investment

 

 

87,267

 

 

67,299

 

 

19,968

Other assets

 

 

13,050

 

 

10,940

 

 

2,110

Total assets

 

$

373,957

 

$

364,386

 

$

9,571

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

Debt

 

$

151,340

 

$

149,187

 

$

2,153

Accounts payable and accrued expenses

 

 

2,689

 

 

2,289

 

 

400

Other liabilities

 

 

333

 

 

 —

 

 

333

Total liabilities

 

$

154,362

 

$

151,476

 

$

2,886

 

 

 

 

 

 

 

 

 

 

Basic and Diluted Common Shareholders' Equity

 

$

219,595

 

$

212,910

 

$

6,685

 

 

 

 

 

 

 

 

 

 

Basic and diluted common shares outstanding

 

 

5,889

 

 

5,882

 

 

 7

Basic and diluted common shareholders' equity per common share

 

$

37.29

 

$

36.20

 

$

1.09

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents decreased primarily due to net cash used in connection with investments made in the Solar Ventures.  

Investments in debt securities decreased primarily as a result of the sale and redemption of certain bond investments and the termination of all outstanding total return swap (“TRS”) agreements.

Investments in partnerships increased primarily as a result of net capital contributions of $54.0 million from the Company to the Solar Ventures and the recognition of  $14.3 million of equity in income in such investees.

Loans held for investment increased primarily as a result of the Company’s $11.3 million acquisition of Hunt’s ownership interest in SDL in the second quarter of 2019 that was accounted for as a secured lending arrangement. Since acquisition, the carrying value of this loan receivable increased by  $8.7 million as a result of the accrual of interest income and net incremental funding associated with the loan to which the acquired interest in SDL relates.

Debt increased primarily as a result of an advance from the revolving credit facility. This increase was largely offset by the effect of the aforementioned termination of TRS agreements, which prompted the redemption of all asset related debt that financed certain bond investments of the Company.    

11

CONSOLIDATED RESULTS OF OPERATIONS

 

This section provides a comparative discussion of our Consolidated Results of Operations and should be read in conjunction with our consolidated financial statements, including the accompanying notes.  See “Critical Accounting Policies and Estimates,” for more information concerning the most significant accounting policies and estimates applied in determining our results of operations.

Income (loss) that was attributable to certain businesses and assets that were conveyed by the Company on January 8, 2018 (the “Disposition”) were reclassified for all reporting periods and reported separately as “Net income (loss) from discontinued operations, net of tax.”

Net Income

Table 4 summarizes net income for the periods presented.

Table 4:  Net Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

 

 

 

For the nine months ended

 

 

 

 

 

September 30,

 

 

 

 

September 30,

 

 

 

(in thousands)

  

2019

  

2018

  

Change

  

2019

  

2018

  

Change

Net interest income

 

$

2,131

 

$

2,350

 

$

(219)

 

$

6,440

 

$

7,975

 

$

(1,535)

Non-interest income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity in income from unconsolidated funds and ventures

 

 

6,024

 

 

3,273

 

 

2,751

 

 

15,643

 

 

5,655

 

 

9,988

Net gains on bonds, derivatives and extinguishment of liabilities

 

 

1,477

 

 

7,260

 

 

(5,783)

 

 

22,397

 

 

11,622

 

 

10,775

Other income

 

 

80

 

 

28

 

 

52

 

 

112

 

 

189

 

 

(77)

Other expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other interest expense

 

 

(1,207)

 

 

(1,166)

 

 

(41)

 

 

(3,613)

 

 

(3,353)

 

 

(260)

Other expenses

 

 

(2,903)

 

 

(3,275)

 

 

372

 

 

(9,205)

 

 

(14,248)

 

 

5,043

Net income from continuing operations before income taxes

 

 

5,602

 

 

8,470

 

 

(2,868)

 

 

31,774

 

 

7,840

 

 

23,934

Income tax expense

 

 

(26)

 

 

(122)

 

 

96

 

 

(89)

 

 

(86)

 

 

(3)

Net income (loss) from discontinued operations, net of tax

 

 

 —

 

 

276

 

 

(276)

 

 

(8)

 

 

21,972

 

 

(21,980)

Net income

 

$

5,576

 

$

8,624

 

$

(3,048)

 

$

31,677

 

$

29,726

 

$

1,951

 

Net Interest Income

Net interest income represents interest income earned on our loans, investments in bonds and other interest-earning assets less our cost of funding associated with short-term borrowings and long-term debt that we use to finance such assets.

Net interest income decreased during the three months and nine months ended September 30, 2019, as compared to the three months and nine months ended September 30, 2018, primarily due to a decrease in the carrying value of bond investments that was driven by the disposition or redemption of various bond investments and the termination of all outstanding TRS agreements.  The impact of these transactions was partially offset by: (i) the recognition of $0.8 million and $1.3 million of interest income for the three months and nine months ended September 30, 2019, respectively, associated with a loan receivable that was recognized in connection with the Company’s acquisition of Hunt’s ownership interest in SDL and (ii) the recognition of additional interest income associated with the Hunt Note, the UPB of which increased $10.0 million during the fourth quarter of 2018.

12

Equity in Income from Unconsolidated Funds and Ventures

Equity in income from unconsolidated funds and ventures includes our portion of the income associated with certain funds and ventures in which we have an equity interest.

Table 5 summarizes equity in income from unconsolidated funds and ventures for the periods presented.

Table 5:  Equity in Income from Unconsolidated Funds and Ventures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

 

 

 

For the nine months ended

 

 

 

 

 

September 30,

 

 

 

 

September 30,

 

 

 

(in thousands)

  

2019

  

2018

  

Change

  

2019

  

2018

  

Change

Solar Ventures

 

$

6,022

 

$

2,032

 

$

3,990

 

$

14,271

 

$

4,004

 

$

10,267

U.S. real estate partnerships

 

 

124

 

 

1,770

 

 

(1,646)

 

 

1,141

 

 

1,996

 

 

(855)

SAWHF

 

 

(122)

 

 

(529)

 

 

407

 

 

231

 

 

(345)

 

 

576

Equity in income from unconsolidated funds and ventures

 

$

6,024

 

$

3,273

 

$

2,751

 

$

15,643

 

$

5,655

 

$

9,988

 

Equity in income from the Solar Ventures increased during the three months and nine months ended September 30, 2019, as compared to that reported for the three months and nine months ended September 30, 2018, primarily as a result of an increase in loan origination activity at SDL and SCL, which resulted in a year-over-year increase in the Company’s allocable share of net income in such ventures. The impact of this increase was partially offset by amortization expense recognized in connection with the purchase premium paid by the Company to buy out its former investment partner. Additionally, equity in income increased for the nine months ended September 30, 2019, due to the elimination of the preferred return previously earned by the former investment partner prior to the Company’s buyout of such partner’s interest on June 1, 2018.

Equity in income from U.S. real estate partnerships decreased during the three and nine months ended September 30, 2019, as compared to that reported for the three and nine months ended September 30, 2018, primarily as a result of (i) a reduction in 2019 of nonrecurring gains associated with the sale of investment properties by real estate partnerships in which we maintained an ownership interest and (ii) land license fees incurred by the Infrastructure Venture in connection with its holdings of undeveloped land parcels. 

Equity in income from the Company’s equity investment in SAWHF increased during the three and nine months ended September 30, 2019, as compared to that reported for the three and nine months ended September 30, 2018, primarily as a result of an increase in the fair value of real estate-related investments held by SAWHF.

Net Gains Relating to Bonds, Derivatives and Extinguishment of Liabilities

Net gains may include net realized and unrealized gains or losses relating to bonds, derivatives, real estate and other investments and loans as well as gains or losses realized by the Company in connection with the extinguishment of its recognized debt obligations (collectively referred to as “Net Gains”).

Net Gains for the three months ended September 30, 2019, decreased compared to those reported for the three months ended September 30, 2018, primarily due to: (i) a reduction in net gains recognized in connection with the sale or redemption of bond investments; (ii) net fair value losses recognized in 2019 related to interest rate derivative instruments; and (iii) a nonrecurring gain of $1.1 million that was recognized in 2018 in connection with the sale of the Company’s limited partner interest in a partnership that owned an affordable housing property.

Net Gains for the nine months ended September 30, 2019, increased compared to those reported for the nine months ended September  30, 2018, primarily due to a $21.3 million increase in holding gains that were realized in connection with sale or redemption of bond investments during the first nine months of 2019 as compared to the same period in 2018.  The impact of these transactions was partially offset by (i) a $9.5 million decrease in net fair value gains recognized in

13

connection with interest rate derivative instruments and (ii) a  nonrecurring gain of $1.1 million that was recognized in 2018 in connection with the sale of the Company’s limited partner interest in a partnership that owned affordable housing property.

Other Expenses

Other expenses include management fees and reimbursable expenses payable to our External Manager, general and administrative expense, professional fees, salaries and benefits and other miscellaneous expenses.

Table 6 summarizes other expenses for the periods presented.

Table 6:  Other Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

 

 

 

For the nine months ended

 

 

 

 

 

September 30,

 

 

 

 

September 30,

 

 

 

(in thousands)

  

2019

  

2018

  

Change

  

2019

  

2018

  

Change

External management fees and reimbursable expenses

 

$

(1,646)

 

$

(1,059)

 

$

(587)

 

$

(6,042)

 

$

(5,762)

 

$

(280)

General and administrative

 

 

(237)

 

 

(328)

 

 

91

 

 

(855)

 

 

(1,032)

 

 

177

Professional fees

 

 

(608)

 

 

(1,230)

 

 

622

 

 

(1,826)

 

 

(5,031)

 

 

3,205

Other expenses

 

 

(412)

 

 

(625)

 

 

213

 

 

(482)

 

 

(1,295)

 

 

813

Salaries and benefits

 

 

 ─

 

 

(33)

 

 

33

 

 

 —

 

 

(1,128)

 

 

1,128

Total other expenses

 

$

(2,903)

 

$

(3,275)

 

$

372

 

$

(9,205)

 

$

(14,248)

 

$

5,043

 

Other expenses for the three months ended September 30, 2019, declined compared to that reported for the three months ended September 30, 2018, primarily due to a decrease in (i) nonrecurring professional fees that were incurred in the third quarter of 2018 in connection with the disposition of the Company’s interest in MGM and (ii) losses recognized in connection with the remeasurement of foreign currency-denominated assets and liabilities into U.S. dollars for reporting purposes.  The impact of these items was partially offset by an increase in compensation-related expense reimbursements payable to the External Manager that was attributable to the fact that, in 2019, the annual cap was not reached until the third quarter while, in 2018, the annual cap on such expenses was met in the second quarter.

Other expenses for the nine months ended September 30, 2019, declined compared to that reported for the nine months ended September 30, 2018, primarily due to a decrease in: (i) nonrecurring professional fees that were incurred in 2018 in connection with the Disposition and the sale of our interests in MGM; (ii) salaries and benefits expense recognized in 2018 associated with stock options that were fully exercised as of December 31, 2018; (iii) nonrecurring impairment losses recognized in connection with certain equity investments in the first quarter of 2018; and (iv) losses recognized in connection with the remeasurement of foreign currency-denominated assets and liabilities into U.S. dollars for reporting purposes. 

Net Income (Loss) from Discontinued Operations

Net income (loss) from discontinued operations primarily includes income and expenses associated with businesses and assets that were sold by the Company in connection with the Disposition.

Net income from discontinued operations decreased for the three months ended September  30, 2019, compared to that reported for the three months ended September  30, 2018, primarily due to a decrease in nonrecurring income recognized in the third quarter of 2018 in connection with the disposition of the Company’s interests in MGM.  

Net income from discontinued operations decreased for the nine months ended September 30, 2019, compared to that reported for the nine months ended September 30, 2018, primarily due to a  decrease in nonrecurring net gains recognized in the first quarter of 2018 in connection with the Disposition. See Notes to Consolidated Financial Statements – Note 15, “Discontinued Operations,” for more information.

14

LIQUIDITY AND CAPITAL RESOURCES

 

This section supplements and updates information regarding liquidity and capital resources in our 2018 Annual Report. See “MD&A—Liquidity and Capital Resources” and “Risk Factors” in our 2018 Annual Report for additional information, including discussions of our primary sources and uses of funds and capital resources.

Liquidity

Summary of Cash Flows

Table 7 provides a consolidated view of the change in cash, cash equivalents and restricted cash of the Company for the periods presented, though 2018 changes in such balances that were attributable to consolidated funds and ventures (“CFVs”) are separately identified in such tabular disclosure.  However, changes in net cash flows that are discussed in the narrative that follows Table 7 are exclusive of changes in cash of the CFVs. The Disposition resulted in the deconsolidation from the Company’s Consolidated Balance Sheets in the first quarter of 2018 of all guaranteed Low-Income Housing Tax Credit (“LIHTC”) funds and derecognition of nearly all other CFVs that were recognized in our Consolidated Balance Sheets at December 31, 2017. 

At  September  30, 2019 and September 30, 2018, $6.1 million and $10.9 million, respectively, of amounts presented below in Table 7 represented restricted cash.

Table 7:  Net Decrease in Cash, Cash Equivalents and Restricted Cash

 

 

 

 

 

 

For the nine months ended

(in thousands)

    

September 30, 2019

Cash, cash equivalents and restricted cash at beginning of period

  

$

33,878

Net cash provided by (used in):

 

 

 

Operating activities

 

 

5,243

Investing activities

 

 

(60,255)

Financing activities

 

 

38,086

Net decrease in cash, cash equivalents and restricted cash

 

 

(16,926)

Cash, cash equivalents and restricted cash at end of period

 

$

16,952

 

 

 

 

 

 

 

 

 

 

 

 

 

For the nine months ended

 

 

September 30, 2018

(in thousands)

 

MMA

 

CFVs

 

Total

Cash, cash equivalents and restricted cash at beginning of period

  

$

75,632

  

$

24,554

  

$

100,186

Net cash used in:

 

 

 

 

 

 

 

 

 

Operating activities

 

 

(3,994)

 

 

 —

 

 

(3,994)

Investing activities

 

 

(41,814)

 

 

(24,554)

 

 

(66,368)

Financing activities

 

 

(3,324)

 

 

 —

 

 

(3,324)

Net decrease in cash, cash equivalents and restricted cash

 

 

(49,132)

 

 

(24,554)

 

 

(73,686)

Cash, cash equivalents and restricted cash at end of period

 

$

26,500

 

$

 —

 

$

26,500

 

Operating Activities

Cash flows from operating activities include, but are not limited to, interest income on our investments, income distributions from our investments in unconsolidated funds and ventures and advances on loans held for sale.

Net cash flows associated with operating activities increased by $9.2 million during the nine months ended September 30, 2019, as compared to the nine months ended September 30, 2018. This net increase was primarily driven by: (i) a $3.5 million increase in distributions received from the Company’s investment in partnerships that primarily related to the Solar

15

Ventures; (ii) a $1.5 million decrease in bond related interest expense as the amount of the Company’s bond related debt outstanding declined upon the settlement of sale and redemption transactions and termination of TRS agreements during the fourth quarter of 2018 and first nine months of 2019; (iii) the nonrecurring purchase of a $9.0 million senior loan during the first quarter of 2018 from a MGM affiliate that we designated as held for sale; and (iv) nonrecurring professional fees incurred in 2018 in connection with the Disposition transaction and the disposition of the Company’s interests in MGM. The effects of these items were partially offset by: (i) a decline in interest income on bonds as a result of the aforementioned sale and redemption transactions and the related termination of TRS agreements; (ii) a decrease in asset management fees received as a result of the Disposition; and (iii) an increase in net cash flows used to pay external management fees and reimbursable expenses due to a provision in the management agreement with the External Manager that specifies that, effective July 1, 2018, the basis for calculating the base management fee converts from a fixed fee to a stated fixed percentage of the Company’s diluted common shareholders’ equity.

Investing Activities

Net cash flows associated with investing activities include, but are not limited to: principal payments, capital contributions and distributions, advance of loans held for investment and sales proceeds from the sale of bonds, loans and real estate and other investments.

Net cash flows used in investing activities during the nine months ended September 30, 2019, increased by $18.4 million as compared to amounts used in investing activities during the nine months ended September 30, 2018. This net increase was primarily driven by a $119.4 million increase in capital contributions to the Company’s investments in partnerships during the first nine months of 2019 that primarily related to the Solar Ventures and an $11.3 million origination of a loan held for investment. The effects of these items were partially offset by: (i) a $70.8 million increase in capital distributions received from the Company’s investment in partnerships that primarily related to the Solar Ventures; (ii) a $20.1 million increase in principal payments and sale and redemption proceeds received on our bond-related investments; and (iii) the derecognition of $21.9 million of cash and restricted cash upon settlement of the Disposition during the first quarter of 2018.

Financing Activities

Net cash flows provided by financing activities during the nine months ended September 30, 2019, increased by $41.4 million as compared to amounts to the nine months ended September 30, 2018. This increase was primarily attributable to (i) a $32.8 million increase in proceeds from borrowings from the revolving credit facility that was established in the third quarter of 2019 and (ii) a $13.0 million and $4.1 million decrease in the amount of net cash flows used to repay borrowings and repurchase common shares, respectively, during the first nine months of 2019. The effects of these items were partially offset by $8.4 million of nonrecurring cash flows provided by the private placement of 250,000 of the Company’s common shares to Hunt during the first nine months of 2018.

Capital Resources

Our debt obligations primarily include liabilities that we recognized in connection with our subordinated debt, revolving credit facility and other notes payable. At December 31, 2018, our debt obligations also included liabilities in connection with the execution of TRS agreements that were used to finance a portion of our investments in bonds. The major types of debt obligations of the Company are further discussed below.

Table 8 summarizes the carrying values and weighted-average effective interest rates of the Company’s debt obligations that were outstanding at September  30, 2019 and December 31, 2018.

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Table 8:  Debt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At

 

At

 

 

September 30, 2019

 

December 31, 2018

 

  

 

 

 

Wtd. Avg.

 

 

 

 

Wtd. Avg.

 

 

 

 

 

Effective 

 

 

 

 

Effective 

 

 

Carrying

 

Interest

 

Carrying

 

Interest

(dollars in thousands)

    

Value (2)

    

Rate (2)

 

Value (2)

    

Rate (2)

Subordinated debt

 

$

96,045

 

3.5

%

 

$

97,722

 

3.7

%

Revolving credit facility obligations

 

 

45,000

 

6.9

 

 

 

 ─

 

 ─

 

Notes payable and other debt

 

 

6,295

 

14.7

 

 

 

7,210

 

14.7

 

Asset related debt (1)

 

 

4,000

 

5.0

 

 

 

44,255

 

3.9

 

Total debt

 

$

151,340

 

5.0

%

 

$

149,187

 

4.3

%


(1)

At September 30, 2019 and December 31, 2018, the carrying value of bond related debt was zero and $39.3 million, respectively. At September 30, 2019 and December 31, 2018, the carrying value of non-bond related debt was $4.0 million and $5.0 million, respectively.

(2)

Carrying value amounts and weighted-average interest rates reported in this table include the effects of any discounts, premiums and other cost basis adjustments. An effective interest rate represents an internal rate of return of a debt instrument that makes the net present value of all cash flows, inclusive of cash flows that give rise to cost basis adjustments, equal zero and in the case of (i) fixed rate instruments, is measured as of an instrument’s issuance date and (ii) variable rate instruments, is measured as of each date that a reference interest rate resets.

Subordinated Debt

At September 30, 2019 and December 31, 2018, the Company had subordinated debt obligations that had a total UPB of $88.5 million and $89.8 million, respectively. Such debt included four tranches that amortize over their contractual lives, are due to mature between March 2035 and July 2035 and require the Company to pay interest based upon 3-month LIBOR plus a fixed spread of 2.0%. See Notes to Consolidated Financial Statements – Note 6, “Debt,” for more information.

Revolving Credit Facility Obligations

At September 30, 2019, the Company had borrowed $45.0 million from the revolving credit facility and had the ability to borrow an additional $25.0 million at such reporting date. This debt obligation, which is guaranteed by the Company and is secured by specified assets of the Borrower and a pledge of all of the Company’s equity interest in the Borrower,  matures on September 19, 2022, and is subject to a 12-month extension solely to allow refinancing or orderly repayment of the debt obligation. The debt obligation bears interest equal to one-month LIBOR (subject to a 1.5% floor) plus a fixed spread of 2.75%. At September 30, 2019, the LIBOR base rate plus the fixed spread was 4.8%, while the weighted-average effective interest rate of the revolving credit facility was 6.9%.  See Notes to Consolidated Financial Statements – Note 6, “Debt,” for more information. 

Notes Payable and Other Debt

At September 30, 2019 and December 31, 2018, the Company had notes payable and other debt with a UPB of $6.4 million and $7.4 million, respectively. This debt, which is denominated in South African rand, was used to finance the Company’s 11.85% ownership interest in SAWHF. Such debt amortizes over its contractual life, is due to mature on September 8, 2020, and requires the Company to pay interest based upon the Johannesburg Interbank Agreed Rate (“JIBAR”) plus a fixed spread of 5.15%. At September 30, 2019, the JIBAR base rate was 6.81%, while the weighted-average effective interest rate of the Company’s debt obligation that was used to finance its ownership in SAWHF was 14.71%. See Notes to Consolidated Financial Statements – Note 6, “Debt,” for more information.

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Asset Related Debt

Asset related debt is debt that finances interest-bearing assets.  The interest expense associated with this debt is included within “Net interest income” on the Company’s Consolidated Statements of Operations.

Bond Related Debt

During the second quarter of 2019, all bond related debt obligations were fully redeemed. At December 31, 2018, the Company had bond related debt obligations that had a total UPB of $38.8 million and a weighted-average effective interest rate of 3.7%. These debt obligations financed a portion of the Company’s investments in bonds. See Notes to Consolidated Financial Statements – Note 6, “Debt,” for more information.

Non-bond Related Debt

At September 30, 2019 and December 31, 2018, the Company had a debt obligation to MGM principals with a UPB of $4.0 million and $5.0 million, respectively. This debt bears interest at 5.0%, amortizes over its contractual life and is due to mature on January 1, 2026. See Notes to Consolidated Financial Statements – Note 6, “Debt,” for more information.

Covenant Compliance

At September  30, 2019 and December 31, 2018, the Company was in compliance with all covenants under its debt arrangements.

Off-Balance Sheet Arrangements

At September  30, 2019 and December 31, 2018, the Company had no off-balance sheet arrangements. 

Other Contractual Commitments

The Company is committed to make additional capital contributions to certain of its investments in partnerships and ventures.  Refer to Notes to Consolidated Financial Statements - Note 3, “Investments in Partnerships,” for more information.

The Company had no unfunded loan commitments at September  30, 2019 and December 31, 2018.  Refer to Notes to Consolidated Financial Statements - Note 4, “Loans Held for Investment (“HFI”) and Loans Held for Sale (“HFS”),” for more information.

The Company uses derivative instruments to hedge interest rate and foreign currency risks.  Depending upon movements in reference interest and foreign exchange rates, the Company may be required to make payments to the counterparties to these agreements.  Refer to Notes to Consolidated Financial Statements – Note 7, “Derivative Instruments,” for more information about these instruments.

Other Capital Resources

Common Shares

On September 12, 2019, the Board authorized a 2019 share repurchase program (“2019 Plan”) for the repurchase of up to 100,000 common shares, at market prices up to the Company’s last reported diluted common shareholders’ equity per share, which was $36.46 as reported within the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2019. The Company then adopted a Rule 10b5-1 plan implementing the Board’s authorization, subject to volume limitations as defined by Rule 10b-18 under the Exchange Act. The 2019 Plan expires upon the earlier of the close of trading on December 31, 2019 or the repurchase of the authorized 100,000 common shares. Between October 1, 2019 and November 1, 2019, the Company repurchased 23,849 common shares at an average price of $31.06.

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Dividend Policy

The Board makes determinations regarding dividends based on our Manager’s recommendation, which is based on an evaluation of a number of factors, including our common shareholders’ equity, business prospects and available cash.  The Board does not believe paying a dividend is appropriate at the current time.

Tax Benefi