MMA Capital Holdings, Inc.
Q1 2018 Earnings Call Transcript

Published: 16 May 2018

[Operator:]

Good morning, ladies and gentlemen, and welcome to the MMA Capital Management, LLC 2018 First Quarter Financial Results and Business Update Conference Call. My name is Keith, and I will be your coordinator for today. [Operator Instructions] Some comments today will include forward-looking statements regarding future events and projections of financial performance of MMA Capital Management, which are based on current expectations. Comments are subject to significant risks and uncertainties, which includes those identified in the company's filings with the Securities and Exchange Commission that could cause actual results to differ materially from those expressed in those forward-looking statements. The company undertakes no obligation to update any information contained in the forward-looking statements. I'll now turn the call over to Mr. Michael Falcone, CEO of MMA Capital Management, LLC.

[Michael Falcone:]

Thank you, Keith. Good morning, everyone, and welcome. With me on the call today are Dave Bjarnason, Chief Financial Officer; Executive Vice President, Gary Mentesana; and Senior Vice President, Megan Sophocles. For our call this morning, Dave and I will deliver our prepared remarks, after which we will be available to take questions. The purpose of today's call is to review MMA Capital Management's first quarter 2018 financial results and to provide an overall business update. With respect to the financial results, which Dave will review in detail later, company ended the quarter with $178.4 million of common shareholders' equity, which represents an increase of $40.8 million or 29.7% for the quarter. Diluted common shareholder equity per share or book value per share came in at $30.82, an increase of $6.34 or 25.9% for the quarter, which reflects the impact on book value per share of both continuing operations and the strategic transaction that closed with the Hunt Companies, and we will -- and who we will refer to as Hunt in our remarks to follow, exclusive of the MGM transaction, which is yet to close. The net increase in common shareholders' equity in the quarter was driven by $27.5 million of comprehensive income, which was primarily driven by the sale of our Low-Income Housing Tax Credit business and other interest to Hunt. This increase was also driven by $13.3 million of other increases to common shareholders' equity that resulted from both the issuance to Hunt of 125,000 shares for $33 per share in cash and the adoption of new accounting standards. Overall, the Hunt transaction represented the most significant driver behind the first quarter increase in common shareholders' equity. And company also saw quarterly increases in net interest income and net gains, although, as Dave will further discuss, the trends from continuing operations were also marked by increases in operating expenses and decreases in equity and income from our unconsolidated funding ventures. However, certain of these decreases resulted from nonrecurring items that were anticipated in our financial planning process. During the first quarter, the company did not have a share buyback plan in place. However the board adopted a 2018 share buyback authorization in March that became effective in April and is currently set at 125,000 shares, with the buyback price limit of $30. Since the share buyback plan started in April, the company has purchased approximately 45,000 shares at an average price of $27.80 per share. All of which will be reflected in the company's second quarter results. With respect to our continuing operations more broadly, we have refined how we think about and report on our investing activities in light of the Hunt transaction. To that end, our investments are now organized into three portfolios, Leveraged Bonds, Energy Capital and other assets and liabilities that we are reporting as a single segment based on various factors that include, but are not limited to the fact that we know longer allocate costs or track net income across each portfolio. As we think about and report on these today, our Leveraged Bonds portfolio consist of bonds and related financing associated with affordable housing. Similarly, the Energy Capital portfolio consists primarily of renewable energy investments that we made in our Solar Ventures, while the other assets and liabilities portfolio includes a note from Hunt and all remaining assets and liabilities of the company. The Leveraged Bond and Energy Capital portfolios are expected to deliver consistent and hopefully, growing returns, especially in the case of the Energy Capital joint ventures. The other assets and liabilities portfolio is meant to capture some of the assets that we think contain unrealized value, such as the land development deals and our inexpensive subordinated debt obligations and it's generally associated with non-income-producing assets that with the exception of the Hunt note are expected to produce some lumpy income overtime. With that said, let me briefly touch on these three portfolios in more detail. The properties underlying the Leveraged Bond portfolio continued to perform well as there were no new defaults for the weighted average debt service coverage and collection rate of our holdings held steady during the quarter. That said, the fair value of our bond investments decreased in the first quarter, primarily as a result of an increase in cap and discount rates, which was the fair value of our multifamily tax exempt subordinated cash flows bonds to decline. At March 31, 2018, this portfolio of UPB and fair value were $230 million and $232 million, respectively, while at December 31, 2017, its UPB and fair value were $231 million and $236 million, respectively. Excluding the effects of subordinated cash flow bonds and other bonds, as reported in Table one of our filing, the portfolio's weighted average pay rate and debt service coverage ratios were 6.21% and 1.10x coverage, respectively, for both the year-end and first quarter. In our Energy Capital portfolio, the carrying value of our equity investments in Solar Ventures was $86.1 million at March 31, down from $97 million at the beginning of the year. This net decrease was driven in large part by distributions received in the first quarter. Company's investments in these joint ventures are expected to continue to be a source of future investment income and an opportunity to put additional capital to work in what we hope will continue to be a growth area. Lastly, the other assets and liabilities portfolios includes three new limited partner investments in Low-Income Housing Tax Credit funds that the company acquired during the first quarter, as well as the Hunt note and land development deals. With the exception of the Hunt note, we do not expect the assets in this portfolio will contribute consistently to quarterly income, but we will continue to seek ways to maximize these assets to eventually realize what we believe to be their full market value. Finally, before turning the call over to Dave, I'd also like to provide a quick update on various elements of the Hunt transaction, given the changes to our business model and subsequent transactions. As we disclosed in the company's January announcement of the transaction and in our subsequent Form 10-K filing, the company expected to recognize an estimated $32 million increase in common shareholders' equity in the first quarter of 2018 in connection with the sale of various assets and businesses to Hunt during the quarter. The final number recognized in the transaction in the quarter worked out to be approximately $33 million. Also as discussed previously, the company continues to differ approximately $14 million of additional income, while recognition will be triggered should Hunt decide to take an assignment of the agreements to acquire Morrison Grove Management and certain related assets and subject to the terms of such agreements to consummate the acquisition of the MGM LIHTC business. In saying this, I should continue to mention that such estimated additional income to be recognized may differ from amounts that may ultimately be recognized in our financial statements, given that there are certain purchase price adjustments and transaction-related expenses that are not factored into our estimate, although these adjustments are not expected to be material. Separately, Hunt agreed to acquire from us 250,000 common shares in two equal installments, with the first purchase occurring at $33 per share and the second to occur at $34 per share, for an average of $33.50 per share. We previously reported that Hunt successfully closed on the first purchase, acquiring 125,000 shares in exchange for $4,125,000 of cash on March 9, 2018. Pursuant to the transaction terms, the final purchase must be completed by July 9, 2018. With that, I'll turn the call over to Dave, who will discuss the financial results in greater detail, before I revisit the changes to our business from the Hunt transaction. Dave?

[Dave Bjarnason:]

Thanks, Mike, and good morning, everyone. In the first quarter, as mentioned, we recognized the net increase in common shareholders' equity of $40.8 million to $178.4 million. In this regard, diluted common shareholders' equity per share increased to $30.82 per share, which represented a $6.34 per share increase on a quarter-over-quarter basis. Increases in common shareholders' equity and diluted book value per share were primarily driven by $27.5 million of comprehensive income that we recognized in the first quarter. Comprehensive income that we reported in the first quarter, which exceeded what we reported in the fourth quarter by $19.8 million, included $18.3 million in net income and $9.2 million in other comprehensive income. We also recognized $13.3 million of other changes to common shareholders' equity in the first quarter. As mentioned, these changes included a $9.2 million cumulative catch-up adjustment to retained earnings and we recognized on January 1 up on the adoption of new revenue recognition standards, as well as included $4.1 million that we recognized in connection with the issuance of 125,000 common shares to Hunt. From a liquidity and capital resources perspective, we ended the first quarter with $33.4 million of cash and cash equivalents, which decreased $2.2 million since December 31, 2017. Our total liabilities and non-controlling interests also decreased in the first quarter by $159 million. While this decrease was primarily due to the deconsolidation of guaranteed LIHTC funds and other consolidated funds and ventures. One of several important facts of Hunt transaction. Excluding the impact of deconsolidation, the unpaid principal balance of debt decreased in the first quarter by $4.3 million to $205.1 million. Although weighted average effective interest rate of such obligations increased by 10 basis points to 3.4%. As mentioned, the Hunt transaction was the most significant driver of comprehensive income in the first quarter. We transferred our LIHTC business and other interest that are identified on Page 4 of our Form 10-Q in exchange for a $57 million note plus various true-up adjustments and recognized $33.2 million of comprehensive income upon settlement of such transaction. $20.4 million of this amount was reported as net income to common shareholders from discontinued operations, while the balance of such increase was reported as other comprehensive income. In completing the Hunt transaction and not including the company's agreements to acquire MGM and certain related assets, the company's assets and liabilities now primarily consist of investments in bonds and other debt obligations that finance affordable housing and infrastructure in the United States, investments in partnerships including our investments in renewable energy, U.S. real estate partnerships, and our 11.85% ownership interest in the South Africa Workforce Housing Fund, the $57 million note receivable from Hunt, derivative financial instruments that are used to hedge interest rate and foreign currency exchange risk of the company and other assets and liabilities, including real estate investments, the company's subordinated debt and net operating losses at March 31, 2018 remain subject to a full valuation allowance. As mentioned, the Hunt transaction also caused the deconsolidation of all guaranteed LIHTC funds and other consolidated funds and ventures in the company's financial statements, which has significantly simplified our financial statements and should make such information easier to understand. Given these changes in the company's balance sheet, the remaining assets and liabilities of the company have, as Mike mentioned, been organized into three portfolios, Leveraged Bonds, Energy Capital and other assets and liabilities. Additionally, effective the first quarter of 2018, we operate as a single reporting segment. As a result, we no longer present the results of operations through three reporting segments, but at December 31, 2017, consisted of U.S. Operations, International Operations and Corporate Operations. You'll also notice in our Form 10-Q that for prepared reporting purposes, revenues, expenses, assets and liabilities associated with conveyed interests have been classified as discontinued operations. This said, I'll now briefly touch on other performance drivers of company's first quarter results, including for instance the company's portfolios. With respect to our Leveraged Bond portfolio, we reported $2.9 million of net fair value losses in the first quarter, relating to our bond-related investments. Most of these losses were attributable to our subordinated cash flow of multifamily tax exempt bonds, given increases in terminal cap and discount rates and infrastructure bond investments given increases in market yields. By comparison, the net change in fair value of Leveraged Bond portfolio was relatively flat in the fourth quarter. Net fair value losses on bond related investments were softened by net fair value gains that we recognized in connection with interest rate swaps and caps that we used to hedge interest rate risks associated with the Leveraged Bond portfolio and the floating rate subordinated debt of the company. We recognized $2 million of net fair value gains on our interest rate hedge positions in the first quarter, an increase of $1.5 million compared with the net fair value gains that we recognized on these hedge positions in the fourth quarter. Increase in three month U.S. dollar LIBOR was the primary driver for net fair value gains on these positions. From yield perspective, we recognized $2.5 million of interest income in the first quarter related to our bond investments. This represents $400,000 increase compared to interest income that we recognized in the fourth quarter. This increase was driven primarily by the deconsolidation of two property partnerships in the first quarter that in turn led to the recognition of two bond investments that were previously eliminated in consolidation. Consequently, the unpaid principal balance of our bond investments increased, thereby driving reported interest income higher on these positions. Our cost of funding associated with on balance sheet debt obligations with the Leveraged Bond portfolio, which had a carrying value of $96.8 million at March 31, 2018, was $600,000 in the first quarter and increased marginally since year-end due to reclassification of TRS-related debt obligations and asset-related debt. With respect to our Energy Capital portfolio, we're continuing to see positive returns in the first quarter from investments in our Solar Ventures at March 31, 2018, in unpaid principal balance of loans that were fund through the Solar Ventures was $205.5 million, while loans outstanding at a weighted average maturity and coupon of 10 months at 8.9%, respectively. In this regard, our related equity investments in these ventures had a carrying value of $86.1 million at March 31, which as Mike mentioned, decreased $10.9 million in the first quarter as a result of distributions received. This said, in the first quarter, we recognized $400,000 of equity income from these ventures, which represented a $1.8 million decrease compared to the amount of equity and income of our Solar Ventures that we recognized in the fourth quarter. This decrease was driven primarily by declines in interest fee and other income of the Solar Ventures taken into account the volume of redemptions, the preferred return due to one of our capital partners and other factors. With respect to other assets and liabilities, we recognized $1 million of other interest of interest income in the first quarter in connection with cash, loans and other short-term investments of this portfolio, which represented a $900,000 increase compared to the amount of interest income that we recognized on these investments in the fourth quarter. An increase that was driven primarily by the recognition in the first quarter of both $57 million note that we took back from Hunt and a $9 million senior loan that we acquired from an MGM affiliate. Across the funding associated with debt obligations in this portfolio was $1 million for the first quarter, which was unchanged compared to the fourth quarter, as incremental increases in the cost of funding associated with our subordinated debt and debt that finances our equity investment in the South Africa Workforce Housing Fund were offset by decreases in other interest expense that, as previously mentioned, were due to the reclassification of TRS-related debt to asset-related debt. Fee and other income of $200,000 was steady on a quarter-over-quarter basis. Lastly, equity and income associated with real estate-related investments was $400,000 in the first quarter. These investments, which had a total carrying value of $36.3 million at March 31, 2018, included our 11.85% ownership interest in the South Africa Workforce Housing Fund and ownership interest in a mixed-use town center development and four limited partnership interests in affordable housing. With respect to our core operating expenses, which include salaries and benefits, certain management fees and reimbursable expenses, general and administrative expenses, professional fees and other expenses, we recognized $8.2 million of such expenses in the first quarter. This represents a $3.1 million increase compared to what we reported in the fourth quarter. This increase was tied to several factors. Professional fees increased by $1 million, primarily as a result of nonrecurring costs that we incurred in connection with Hunt transaction. The market price for the company's common share is valued in the first quarter increasing by $2.90 per share because the amount of stock compensation expense that we recognized to increase. And the company recognized $2.5 million of external management and reimbursable expenses to Hunt in the first quarter, which was comprised of $1 million of base management fees and $1.5 million of reimbursable expenses. However excluding the impacts of stock compensation expense, salaries and benefits expense decreased by $2 million on a quarter-over-quarter basis, due to the transfer of employees to the company's external manager. It also bears noting that our external management agreement features an annual cap on reimbursable costs that pertaining to compensation-related expenses of certain employees with external manager. In this regard, this cap if hit in future quarters would limit the amount of annual -- the annual amount of reimbursable expenses payable by the company to the external manager. With that, I will turn the call back over to Mike.

[Michael Falcone:]

Thanks, Dave. As we've discussed on our calls earlier this year, one of the goals of the Hunt transaction was to achieve increased organizational and reporting simplicity, which has begun to take shape, as evidenced in our first quarter results. Going forward, we expect to continue to invest primarily in debt related to affordable housing and renewable energy. We also expect to underwrite other debt-focused investment and opportunities that are brought to the company due to the origination reach of the Hunt organization. All subject to the appropriate risk return profile, generally targeting total returns in the low teens with the focus on real assets or debt related to real assets, which we think will produce social and environmental impacts. Before we take questions from our callers, I just wanted to reiterate that we remain focused on improving the per share value of the company and maximizing returns for shareholders. We are excited about the future, remain committed to our shareholders, and we thank you for your support. We'll now open the call to questions. Operator?

[Operator:]

[Operator Instructions] And the first question comes from Greg Venit with Morgan Stanley.

[Greg Venit:]

The loan growth in the businesses that you are concentrating on right now, the solar energy. What was the loan growth from, let's say, the fourth quarter to the end of the first quarter? Was that in there? Did you state that you had increased your loan portfolio to 5%?

[Michael Falcone:]

So we make the loans through the ventures and the ventures we ended up having basically more loans pay off in the first quarter than we put on the books. It's kind of a seasonal phenomenon that we started to see. Gary, do you know the exact numbers, or Megan?

[Gary Mentesana:]

Well, there wasn't any loan growth.

[Michael Falcone:]

Yes, it was -- bottom line was -- there was more repayments than there were new loans in the quarter. And that was not a surprise to us. But the exact amount of the loans -- the decline in the loan portfolio.

[Dave Bjarnason:]

As of March 31st, the carrying value of MMA Capital Management investment in Solar Ventures was $86.1 million, and that was a decline of almost $11 million during the quarter. And as Mike mentioned it, it's not entirely clear as to why it happened, but it has routinely happened where there are more redemptions in the first quarter than originations. But we're confident that given the pipeline, we'll seek growth in that portfolio going forward.

[Greg Venit:]

So you're halfway through the second quarter right now. Are you seeing the loan portfolio recharge?

[Dave Bjarnason:]

I don't think that we have, kind of, made that information public yet, but we do see a pretty healthy pipeline that is, kind of, in the process of getting originated.

[Greg Venit:]

And then you -- the way the loans -- I'm trying to read your notes here. It sounds like your partner, this is on page 6, it says, the partner -- our partner makes a 100% of incremental capital contributions to REL. It has funded 85% of the equity invested and will receive a 100% of capital distributions from REL until it's received a return of all of its contributed capital. I'm just wondering, how does that work? That means, is that, you're basically on subordinated position to their capital, or they get paid, they get all their capital out and have an option, whether they want to leave it in or not leave it in? Or how does that work?

[Gary Mentesana:]

Go ahead, Mike.

[Michael Falcone:]

Yes. Go ahead, Gary.

[Gary Mentesana:]

So basically the Solar Ventures are capitalized in a manner, whereby, the construction loans are subject to a 50% capital interest from one of our joint venture partners. The other 50% sleeve consist of a joint venture between MMA Capital and another joint venture partner. MMA Capital's investment in that, through REL as you mentioned, was $75 million at closing, which took place in November '16. And from that point forward, that joint venture partner contributes the remaining dollars up until $425 million. And then after that, it would go 85%, then 15% MMA. And you're correct, MMA Capital Management $75 million is subordinate to that joint venture partner. That was done. So based upon the assumption that, if we were able to achieve scale, MMA Capital Management would be entitled to a promote. We have not yet reached that scale necessary to trigger the promote. The joint venture partner to date has invested only $59 million, and that joint venture partner is due a preferred dividend of 8% for the first two years on that drawn equity. And then basically our returns are proportional to one another, until we get to the level of promote.

[Michael Falcone:]

Okay. So the one thing I would add to that Gary is, so the REL bucket is basically a fixed bucket at plus or minus $75 million. There's a third bucket, which is sort of, let's call it the other loan bucket. It's technically Solar Development Lending, where the amount of capital committed tends to go up and down and that's the difference between the $75 million and the 86 million at quarter-end and the 96 million or 97 million at year-end. So there's a little bit of variation relative to loans in that bucket, which consists of either preconstruction loans or construction loans. And for some reason, one partner wants to do, but the other partner doesn't. So we have some flexibility to move things around to do deals that we think are the deal that one of our partners doesn't think they are. So that's why we see a little bit of variability in the capital committed to that business.

[Greg Venit:]

The reason for not selling it up more or getting more, is there a reason for that? And it sounds like you have, what $400 million of available capital on your 90 million or 89 million, 86 million?

[Michael Falcone:]

Yes, at this point, it's the ebb and flow of deals and the ramp up of the -- the origination hasn't been probably as quick as we thought it would be two years ago. But when we look at sort of the last year's budgeted origination versus actual, we pretty much hit what we expected to hit. I think one of the things that has happened is, we expected to do more perm loans, or really, mini-perm loans, five year loans, which would kind of stack year-over-year. And because of the sort of rate environment for those kinds of loans, we've done less of those. We've done [indiscernible] we had three on the books and two have paid off. I'm not even sure, we did any perm loans last year. And so we lose a little bit on that sort of stacking, where you do 100 million this year, you do 100 million next year, you do 100 million the year after that, and suddenly, you have a $300 million portfolio, whereas, with construction loans, you do 100 million, you do 100 million, and you do 100 million and you have a $100 million portfolio. So I think it's not the total volume that has been different than we expected, it's the nature of those loans and primarily the fact that the rate environment on the perm loans has gotten more competitive than we thought it would be. And so we've chosen not to do those loans right now.

[Greg Venit:]

Okay. The State of California is talking about having every new home built there with solar. Is that too small of a business, where you would be assisting a homebuilder and putting up financing the solar for brand-new homes. And then when the home is sold then maybe get paid off or have you thought about that at all? Or are you aware of that?

[Michael Falcone:]

So there are a couple of things going on in California. First is, that proposed ruling by the CPUC, or that ruling by the CPUC hasn't been turned into rules yet, but it does seem to apply to both single-family and multifamily below three stories. And obviously, through the broader Hunt organization, we do a lot of multifamily lending in California. Whether or not those will be scalable, it kind of remains to be seen. The articles I've read in at this point, we can all go on the Internet and figure out what's what, but that's about all we can do. The articles that I've read would seem to imply that there might be an opportunity to structure some of those deals as leases, as well as simply putting them on people's rooftops. And there are various lease structures, including something called PACE loans, which are basically tax lien kind of loans. So it's possible that there's sort of opportunity there. I'd say the short answer is, that's probably too soon to tell where that opportunity might be. There's also -- and California has also put in place another subsidy program for affordable -- existing affordable housing, pretty good multifamily affordable housing that we are taking a look at which has gotten less publicity, which again, may or may not produce opportunities, given the fact that we believe at the intersection of affordable housing and clean energy, it would be silly for us not to try to understand the program now.

[Greg Venit:]

Okay. So switching to another subject, Morrison Grove. Is that a transaction that will or will not happen this calendar year? Your acquisition of Morrison Grove and then whether it gets picked up by the Hunt organization?

[Michael Falcone:]

So while we are now employees of the Hunt organization, I can't really speak for Hunt relative to whether Morrison Grove will close or not close. I think there's certainly economic incentive for it to close. But I can't speak for Hunt in that regard. The issue there that we're sort of grinding through is that Morrison Grove did tax-based financial statements over time. And in order to close, we need to convert those statements into GAAP statements. And that's a prerequisite to closing, that's an ongoing operation. And we'd certainly like to see -- expect to see that done this summer or this -- maybe this calendar year. But it's sort of hard to know because we've got a -- there's some consolidation accounting that needs to be looked at. There are some fair value accounting that's been looked at. So there is a fair bit of work to be done there, that is a prerequisite. But yes, we would -- we think it's important to get that behind us one way or the other in order to clean up MMA balance sheet and move forward.

[Greg Venit:]

So with the Morrison Grove come through the MMA balance sheet then go over to Hunt, or does it just -- does Morrison Grove just pass over to the Hunt organization without complicating MMA's balance sheet?

[Michael Falcone:]

Right now, it could go either way. But I think, the transaction was structured so that, if Hunt chooses to close on it, it can go right to the Hunt organization and create the $14 million gain for MMA that we referenced. But otherwise, it clean, to use your words, the MMA balance sheet.

[Greg Venit:]

So the things on our balance sheet right now that are affiliated with Morrison Grove that would be cleared off the balance sheet to make our balance sheet -- MMA's balance sheet cleaner?

[Michael Falcone:]

Going to leave that one to Dave.

[Dave Bjarnason:]

Yes, Greg, the short answer is yes. Among other things we have, deferred revenue on our balance sheet, as Mike mentioned, should this transaction be consummated down the road that would be released from our balance sheet, which has been plays into the game that Mike talked about, that would be recognized in the event of settlement.

[Greg Venit:]

And there's, I guess, two transactions that occurred, I think, it's two. One is that you acquired a $9 million senior note from them. And then it also says, I think, that you acquired a property from Morrison Grove during the quarter. Hunt gets the note, I guess, the $9 million senior note, if the deal goes through. But you all keep the property, is that so, am I reading that right?

[Dave Bjarnason:]

Yes, that's correct. So MMA bought the $9 million note. And if Hunt elects to take assignment of the MGM transaction, Hunt will pay MMA for that note. And then...

[Greg Venit:]

That's not part of the $14 million?

[Dave Bjarnason:]

No, it is not.

[Michael Falcone:]

But there is no gain associated with that. That was third-party debt on the MGM books that we figured why pay the third-party what is an attractive rate. We'll buy that debt and own it. It's essentially a short term invest -- we think about it about as a short-term investment for MMAC putting capital to work. And then, when the transaction closes, we would expect to sell that to Hunt as part of the transaction. And that -- while that would return $9 million of cash to us, it would not -- it's already baked into the $14 million gain number.

[Greg Venit:]

And the property that you acquired, what was the purpose of that?

[Michael Falcone:]

So I think you're referencing an investment that we basically bought out a limited partnership interest from one of the original Low-Income Housing Tax Credit equity investors from the Morrison Grove funds. And the investor wanted liquidity, we thought that the price was going to be attractive from a risk-and-reward perspective. We don't think it's going to be reasonably long term. The underlying properties that make up the value of that investment are starting to go through the process of a marketing effort. And as those properties get sold, we expect to recover not only the investment, but the profit associated with that investment over the not so distant future.

[Dave Bjarnason:]

And I think there is an important timing issue to understand there. That was an opportunity that came up relatively late in the fourth quarter, when the Hunt transaction was pretty much fully negotiated, but wasn't yet clear that it was going to close. So, rather than try to wrap that transaction into the Hunt transaction, we basically put them on separate courses. And at the 11th hour of the party that said they had to close by year-end, sort of decided that it was in fact better for them to close the first week of January. So we actually bought that transaction before the Hunt transaction closed. And in general, I would -- because of the complications that sort of equity transactions like that bring to our book, I would expect that we would -- in the future, we would rarely do those kinds of transactions at MMAC. And we want to focus on the debt opportunities on a going-forward basis. So in some ways that purchase of an LP interest was the last gasp of the old-school business that we had at sort of mining that portfolio for opportunities. Having now essentially sold the mine to Hunt, I wouldn't expect that we would see a lot of those on the MMA books going forward.

[Greg Venit:]

What was the value of the -- did you disclose the value of what the acquisition was for that from a partnership interest or maybe give me the raw number, maybe it does...

[Dave Bjarnason:]

Yes, Greg, I think if you go to page 37 of our filing, yes, we provided -- yes, we provide various disclosures with respect to our investments and partnerships. And I believe -- give me a second. So in the subsection entitled investments in U.S. real estate partnerships, you will find it disclosed in there.

[Greg Venit:]

There's $900,000?

[Dave Bjarnason:]

Yes, give me 1 second. No, I think...

[Michael Falcone:]

No, that's not right. It's ballpark, it's $5 million.

[Dave Bjarnason:]

Yes. The third paragraph, Greg, talks about during the first quarter of 2018 that, that paragraph begins with that language so.

[Greg Venit:]

Okay. 3.3 million.

[Dave Bjarnason:]

Yes.

[Greg Venit:]

Okay. The real estate that you own right now, the main real estate that you own right now is the Virginia property in Winchester, is that right?

[Michael Falcone:]

It's the Russell 150 project in Winchester and it's the Spanish Fort project in Mobile.

[Greg Venit:]

Yes. The property in Virginia, how far along are they as far -- I think, the state was putting infrastructure in to allow for access to your property, how far along are they?

[Michael Falcone:]

Well, there is access to the property existing. I mean, it does have significant road frontage. But there's another road that's going to come over the interstate and sort of intersect with that road. That road is now nearly fully designed. And if it hasn't gone out to bid already, it's due to go out to bid in the next month or so. And we would expect construction on the new road to be starting this summer.

[Greg Venit:]

So the development of the Russell 150 that was, I think, it's residential housing that would allow them to cross over the highway?

[Michael Falcone:]

It's mix use. There's a big house, there's a big multifamily parcel. There are some commercial parcels. There are some, call it, convenience store kind of parcels. So it's a little bit of everything.

[Greg Venit:]

Any interest in that, or as far as monetization?

[Michael Falcone:]

Yes. We have plenty of interest in it.

[Greg Venit:]

It's not the right price?

[Michael Falcone:]

Yes. No, I meant, that was maybe a bad joke. But we are looking at whether it makes sense to monetize that property now or to hold it and to continue to develop it. That sort of process of trying to sort through what price is available to us in the market is one that will probably be ongoing over the course of rest of this year. Whether we will conclude now, it's a good time or whether we will continue to sort of develop it out remains to be seen. I think, we've said, relative to both Spanish Fort and Russell, we view our role here is to sort of figure out how to maximize value and move on and that's what we're trying to do.

[Greg Venit:]

When you say develop, Mike, are you talking about just doing infrastructure development like putting the roads and sewers and then selling lots or develop the lots to develop or eat on that actually?

[Michael Falcone:]

We will go as far as we need to go to maximize value. But I think our preference would be to do as little work as we can in terms of investment in those properties in order to get maximum value. But we are not drawing a line in the sand and saying, we won't do infrastructure or we won't do vertical development because I think that puts us in a weaker negotiating stance as we look to create value from the property. But we either directly or with partners know how to get these things from empty ground to built product and essentially in the case of Russell have been doing everything that a land developer would do up until this point. At some point in the future, if we had to become a vertical developer, it wouldn't be our first choice, but we will do it if that was the way to maximize value.

[Greg Venit:]

Okay. And update on Spanish Fort, you have quite a bit of capital over what $20 million between the bond and of the -- ownership of the real estate.

[Michael Falcone:]

Correct. We have a bond and ownership of the real estate.

[Greg Venit:]

Is there any improvement down there, or is it...

[Michael Falcone:]

There is -- there has been slow progress. I would say, we haven't had the sort of development home run that we would like to have to sort of jumpstart things. But there has been sort of slow and steady progress there. And we're continuing to work hard to try to grind through to get that property in a position where the value is realized. And really monetized, right. Again, that's a -- we don't -- that's in the other assets and liabilities bucket is a bucket that on the asset side, it's really for the most part nonstrategic assets, which we are holding in order to maximize value so.

[Greg Venit:]

So the growth driver really going forward is lending essentially for -- in the solar area, is that correct?

[Michael Falcone:]

I would say that there are sort of two elements to it. Lending in the solar area and lending in the multifamily affordable housing arena. Right now, when we look at sort of risk reward, making investments in 17-year bonds on the tax exempt side is not something that we find particularly attractive. So we're not out originating new long-term investments in the affordable bond business. We are looking at one-off opportunities to buy existing bonds and what we believe that there is sort of other real estate debt, which the Hunt organization is originating, which may be attractive for MMAC shareholders to invest in. But we haven't done any of those deals yet. We've been -- we've found a couple that were interesting that they haven't gone forward for whatever reason. So I think our expectation is that something will hit there that's essentially in the multifamily debt space. And I think those two areas are where we will see opportunity in the short term. But at some point, right, the yield curve will return to somewhat normal pattern. And as rates start to get up to where we think they have peaked, it will be interesting again to do the longer-term bonds. Right now, we just think we're in a wrong point of the interest rate cycle to do long-term bonds.

[Greg Venit:]

Longer-term taxable bonds?

[Michael Falcone:]

Tax-exempt.

[Greg Venit:]

With a net loss carry-forward of $40 million or $140 million or whatever, why would you pay in tax-free bonds?

[Michael Falcone:]

The way we finance those deals where the total return swap, we actually end up getting taxable in -- we get relatively low cost financing by essentially swapping the bonds with capital partners. So they get the tax-exempt return, and we get relatively cheap financing because of that. But the income that comes to us for the bonds that are total return swaps is taxable.

[Greg Venit:]

Okay. Is that how it is right now for the 20 bond portfolio you're at?

[Michael Falcone:]

There is some portion of the portfolio is pledged, in which case, we own the tax-exempt income. But the vast majority of the portfolio is in the total return swap, which gets within taxable income.

[Greg Venit:]

Okay. All right. I think -- so do you see yourself picking up, I guess, is there -- would you say that the Hunt organization, is there a clear mandate as far as what their plans are for MMA, what -- how they're going to use the vehicle? I mean, there is some other publicly traded companies that Hunt has transferred -- I should say swapped or transferred some of their portfolios over in order to use the public vehicle. Do you see that happening with MMA?

[Michael Falcone:]

Right now, our plan is to grow the investments that MMA has been traditionally involved in, the affordable housing business, the tax exempt affordable housing business and the clean energy business. There may be other real estate loans that are originated by the larger Hunt company group, which we may choose to invest in. Some of those loans may end up stopping on the Hunt balance sheet on the way to MMA, although we got through those mechanics purely enough. But right now that we don't see MMA is becoming a repository of old Hunt assets, if you will.

[Operator:]

[Operator Instructions] As there are no more questions at the present time, I'd really like to turn the call to Mr. Falcone for any closing comments.

[Michael Falcone:]

Thanks, Keith. Again, I'd just like to thank our shareholders for all their support. I think the Hunt transaction was an important transaction for us in the first quarter, certainly kept us busy. And as the year turns, moves forward here, we're looking forward to turning back to core businesses, focus on the core business of making and managing loans in the energy space and in affordable housing space. And we're looking forward to the opportunities that will present as we go forward. So thank you all very much. And we look forward to another call here in a few more months. Thank you.

[Operator:]

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.