MMA Capital Holdings, Inc.
Q3 2016 Earnings Call Transcript

Published: 10 Nov 2016

[Operator:]

Good morning, ladies and gentlemen, and welcome to the MMA Capital Management LLC Third Quarter 2016 Conference Call. My name is Allison and I will be your coordinator today. [Operator Instructions] Please note this call is being recorded. Some comments today will include forward-looking statements regarding future events and projections of financial performance of MMA Capital, which are based on current expectations. These comments are subject to significant risks and uncertainties, which include 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 these forward-looking statements. The Company undertakes no obligation to update any of the information contained in the forward-looking statements. I like to turn the call over to Mr. Michael Falcone, CEO of MMA Capital Management. Please go ahead.

[Michael Falcone:]

Thank you, Keith. Good morning, everyone and welcome. With me on the call today are Dave Bjarnason, our Chief Financial Officer; Executive Vice President, Gary Mentesana; and Senior Vice President, Megan Sophocles. Dave and I will deliver our prepared remarks after which we will all be available to take questions. The purpose of our call today is to review our third quarter 2016 results, and to provide an overall business update, including some insights into how we see our business moving forward. As we also recently announced closing on a new equity joint venture in our global lending business, we will take time to discuss our new transactions, in addition to covering our usual quarterly materials. With respect to our third quarter results, which Dave will review in detail later, we ended the quarter with a $132.1 million common equity, which represented $21.34 of equity per common share on our fully diluted basis. Increases of over 8% for the quarter and approximately a 22% increase year-to-date. The growth in diluted equity per share for the fourth quarter distributed by concentration of core operations and fair value adjustments to our bond portfolio. To end the quarter we also purchased approximately 65,000 of our common shares at an average price of $18.38 per share. We continue to buy back shares at a discount of fully diluted common equity per share realizing approximately $0.03 per share additional common equity from the program during the quarter. As previously discussed this program has proven to be an important lever in our efforts to increase shareholder's value. Following the increase in the reported equity per share for the quarter, we have been authorized by the board to increase the buyback price to $21.34 per share, the fully diluted common equity per share reported in third quarter financial statements. The increase to the buyback price will be implemented as soon as practical to our next open trading window and full compliance of security flaw. The number of factors to enter into our buyback price decision, we have always used the most recently coverage diluted per share as the maximum buyback price. In the future, but so far it has proven to be a reasonable way to acquire shares in a manner that's accretive to remaining shareholders or providing liquidity to acting shareholders. The products of US operations, we sell the advancement of the themes discussed in prior quarters. First in leverage bonds, our bond portfolio continues to perform at a high level. If there were no new defaults, underlying property performance continues to improve and the fair value of our holdings further increase relative to the unpaid principal balance plus investments. Our low income housing tax credit business also continues to meet or achieve our expectations. In the third quarter, we sold one of the directorial state investments we have acquired in the GE transaction. We also expect that our returns in the GE transaction will meet or exceed our initial expectations over the long term despite the fact that they will explain we have not yet recognized in 2016 in the asset management fees from or interest income associated with our loan to TCE Fund 1, given judgments we made about revenue recognition requirements not being satisfied as of September 30. Because our exception in this case is dynamic and is expected to change in future periods, this will rightfully lead to some lumpiness in our key recognition to our portfolio. Within our renewable energy finance business we originated $59 million of new commitments to the third quarter directly into our solar energy finance joint venture, where all funded loans are performing according to their contractual terms. At the end of the third quarter the net carrying value of our investments in this business was $93.5 million. As we announced yesterday we created a partnership with PSSP and affiliated PPG, to both expanse the size and breadth of our energy capital loan platform. We contributed $75 million of existing loans to the venture and PSSP contributed $5 million. PSSP will fund the next $420 million in capital acquired before we need to start matching capital at an 85

[Dave Bjarnason:]

Thank you, Mike. And good morning, everyone. As I provide you a review of our results I will refer to various tables and in item 2 of our Form 10-Q. As Mike mentioned common shares equity increase $9.9 million in the third quarter to $132.1 million. While diluted common shareholder equity per share increased to $21.34 per share which represented more than 8% increase on a quarter-over-quarter basis. The increase in the company's book value is driven by $6.9 million of uncomprehensive income and $4.2 million of net income and combined impact of which was partially offset by $1.2 million decrease that was attributable to share re-purchases that Mike mentioned earlier. Comprehensive income that we reported in the third quarter which is the sum of net income and other comprehensive income was $5.7 million higher than we reported in the second quarter of 2016. This increase was driven primarily by fair value adjustments of our bond portfolio, gains from the sales of real estate and interest income driven by the accelerated release of bond tearing value adjustments future repayments. I will talk a little bit more about each of these drivers shortly. Fair value adjustments to our bond portfolio accounted for the majority of the comprehensive income that we reported in the third quarter which one can see by viewing tables 5 which is located page 11 per file. As Mike mentioned the bon portfolio continued to perform at a high level at a third quarter as underlying property performance continues to improve. The fair value of the bond portfolio further increased to the unpaid principal balance of such investors. With respect to net income that is applicable to common shareholders, Table 7 of our filing which is located on Page 13 breaks down the drivers and amounts that we reported. There are a number of factors that played into changing the net income but I will only touch on the more consequential deeds. With respect to net interest income, that is applicable to common shareholders which is covered in more detail of Table 8 of our filing, this includes interest income associated with all interest bearing assets reduced by the interest expense associated with all debt obligations that we used to finance such assets. We reported $3.8 million in net interest income in third quarter of 2016 which represented $800,000 increase over what we reported in third quarter of 2015. And we reported $10 million of net interest income on year-to-date basis which represents $900,000 decrease compared to what we reported in the first nine months of 2015. The quarter-over-quarter increase in this case was driven by interest free loans which increased due to the company's origination funding of certain solo loans in 2016. The decrease in the year-to-date amount was driven by the reduction in the unpaid principal balance of these investments which declined from $226.4 million to $170.7 million during the twelve months ended September 30, 2016. Additionally auditors income reported in the third quarter, increased by about half a million dollars compared to what we reported in the second quarter of this year as a result of unscheduled principal payments received on such investments. With respect to seeing other income valid with other common shareholders which is covered in more detail in Table 9, this includes act of management season reimbursements, income on our preferred stock investment as well as other miscellaneous income. We reported $3.5 million of seeing other income in the third quarter this year and $9.2 million for the first nine months of 2016 which represented a decline in both cases compared to what we reported in the third quarter 2015 and for the first nine months of 2015. Both of these declines were attributable in large parts to redemption of our investments in the preferred stock in fourth quarter 2015 which led to no income being recognized on this investment in 2016. However, this impact was partially offset by asset management fees and reimbursements that came from key income from property management business in South Africa and reimbursements from a solid joint venture. Additionally, to reiterate the point that Mike made earlier, we did not recognize in the third quarter any asset management fees in connection of asset management services that we provided with TCE Fund 1 because revenue recognitions requirements weren't met. However, we reassessed each reporting period whether such fees are reasonably assured collections and therefore qualifies revenue recognition. With respect to other income interest expense which is covered in more detail in Table 10, this includes interest expense associated with our subordinated debt, as well as interest expense associated with senior debt is not finance related earnings assets. We reported of $1.1 million of other interest expense in the third quarter and $3.2 million in the first nine months of 2016 which represented a decline compared to both cases compared to what we have reported in the third quarter and for the first nine months of 2015. This decline was driven primarily by the termination in the fourth quarter 2015 of financing a search with our investment in preferred stock, which caused our interest expense to recognize this year and by the restructuring of subordinated debt in the second quarter of 2015 to produce our cost of funding on outstanding debt. With respect to operating expenses which are covered in more detail in Table 11, this includes salaries and benefits, general administrative expense, professional fees and other miscellaneous expense. We reported $6.4 million of operating expense in the third quarter and $18.9 million for the first nine months of this year which represented a decline in both case compared to what we reported in corresponding period of 2015. These declines were primarily driven by impairment losses that we recognized in 2015 on our current investment in the South African workhorse housing fund as well as driven by foreign currency gains recognized in 2016 as a result of the strengthening of the South African Rand against the U.S. dollar. There was also a onetime non-recurring fees that we incurred with the connection in restructuring our subordinated debt in the second quarter of 2015. The perspective net gains on the bond and other assets and liabilities which are covered in more detail in Table 12. These amounts include realized gains and losses associated with the sales of such assets and the only redemption of bonds and loans as well as include unrealized holding gains and losses associated with our derivative instruments results from fair value adjustments. We reported $2.4 million of net gains in the third quarter and $7 million for the first nine months of this year which represented a decline in both cases compared to what we reported in corresponding periods of 2015. In both cases, we recognized less gains from sales real estate in 2016 which a decline in the amount of gains from the only redemption in bond investments was also a contributing factor. With respect to equity and income from unsolicited funds and ventures which is covered in more detail in Table 13, this includes our portion of the income and loss associated with the non-consolidated funds and ventures in which we have equity interest. We reported $1.5 million of equity income from unconsolidated funds and ventures in the third quarter of 2016 which represented a $1.2 million increase over what we reported in third quarter of 2015. We reported $8.1 million of such income on a year-to-date basis which represented $7.7 million compared to what we reported in the first nine months of 2015. Both of these increases were primarily driven by our equity in income, our solar joint venture. Also driving the increase associated with year-to-date amounts was distribution that we received in the second quarter, associated with one of our investments and partnerships [indiscernible]. Before turning the call back over to Mike, I will briefly touch on the enclosure enhancements that we implemented in the third quarter as well as wanted to provide a quick update on the remediation efforts. With respect to our disclosures we implemented several changes to our filing this quarter. We introduced at the beginning of the management discussion and analysis or MD&A, our financial highlights table that previews our financial performance. We expanded the discussion about the company's business lines, for example, by providing more information about the terms of both seller financing provided too and the company's option to purchase the tax credit asset pays that acquired our business in 2014. And we also re-sequenced the MD&A, for example, by centralizing the discussion of the business in one section. Highlighting these changes I should also mention that we continue to review ways to communicate our ways of the intrinsic value of the company and if individual components help better frame the potential value that exists for our shareholders. As I mentioned before we consider various factors when evaluating how to best address. Request for this type of information, these factors include but are not limited to the PSSE sensitivity to the use of non-GAAP measures and our ability to produce and disclose quantitative estimates in a well-controlled manner. In this regard any of the disclosure changes that we had had introduced or that we have judgmentally elected got to make, taking these factors into consideration, nonetheless we will continue to review ways to improve the quality and relevance of the information we provide to the investors. Lastly and with respect to mediation efforts who made further progress in the third quarter, executing against the remediation plan of 2015 form 10-K. We implemented enhancements in general technology performance of GITCs of many of our electronic spreadsheets that are used for financial reporting purposes, while identified gaps in touch control over certain spreadsheets are in process of remediation. We also implemented procedural enhancements related to certain management of the new controls. But the remediation efforts are still in process for a portion in these types of controls. Lastly, personnel that are accountable for full controls over financial reporting, completed training related to the 2013 framework. All control enhancements have been implemented or expect to implement are subject to continue the valuation by management and testing by the company's registered public accountants. I forgot another update on the remediation efforts at our next investor conference call. With that, I will turn the call back over to Mike.

[Michael Falcone:]

Thanks, Dave. Consistent with prior calls, I want to spend a few minutes talking about our view of the business in the quarters ahead. We continue to focus on maximizing the value in our Affordable Housing business and growing our Renewable Energy business. As discussed on prior calls our returns from our interest in the former GE Low Income Housing Tax Credit business are heavily based on the ability to monetize the underlying portfolio of real estate over time. Additionally we now have access to the capital required to invest in the robust pipeline of good opportunities in the solar energy lending business and now with more capital across more lending platforms, we can expand address of our markets. We continue to see these joint ventures and the interest in fee based income streams they create passed for growth in the coming years. On additional item of notice, the current plan with respect to share buybacks, as it stands, the company adopted a 600,000 share buyback authorization for 2016 and as of this call has nearly completed the buyback which is just over 25,000 shares remaining for the year. The share threshold is focused on maintaining a margin of safety with respect to the tax rules surrounding our NOLs and certain change of control provisions in the tax loss. We believe that the buyback of our shares has been effective way to drive value for our continuing shareholders as seen by another incremental benefit of $0.03 of fully diluted common equity per share realized this quarter. The board has concluded that a buyback at our current trading price represents an attractive investment especially as we continued to trade below book value and the board continues to support the idea of an incremental return of capital to shareholders either buyback program. We will not address 2017 program until we complete the current authorization. Before we take questions from callers, I just want to reiterate that we remain focused on improving the per share value of the company to a combination of the growth of our fee based platforms, share buybacks and strategic asset investments. And we believe the current business landscape is favorable with respect to our plans. Even though these favorable conditions that persisted for some time, it is important for us to remain vigilant for potential rough patches ahead. While we hope the business finance remains benign, we certainly can expect current conditions persist adaptively which brings us to the elections. I am sure many of you are wondering how the election impacts our business. In short and not really helpful answer is that I don't really know. I can highlight some of the things we are looking at that could negatively impact us where they'd come to pass. In the US on the affordable housing side focused relates to the bond and the low income housing tax credit business, I think the things that we are watching are generally at the macro-economic level. Increases in interest rates and cap rates are seen as capitalist. The general economic conditions that drive housing demand would also be important. At the policy level, we have a few properties in the Low Income Housing Tax business with Section 8 contracts and changes in that program could prove troublesome. On the energy side my biggest worry about the new joint venture prior to the election was that too much capital would flood the space. I think because of policy uncertainty, that risk is actually lower. The other risks relates to our ability to find and source good deals. So long as the solar tax credit is allowed to run its current course as currently legislated we should be fine. Internationally the impact would be muted, we would follow the same macro-issues as our affordable housing business in US. In particular the capital flow changes as a result of the election, leaving the higher cap in discount rates in South Africa. Before wrapping up I want to emphasize what I said when I started speculating about the election impacts. Either educated guesses, our job is to monitor macro-economic and policy impacts and act to preserve and grow shareholder values. For better or worse we have all been through cycles before and have a sense of the playbook. Even with the uncertainty caused by the election we remain quite excited about our future. We remain committed to our shareholders, we thank you for your support. We will now open the call for questions. Operator?

[Operator:]

Yes, thank you. [Operator Instructions] And the first question comes from Gary Ribe with Macro Consulting. Please go ahead.

[Gary Ribe:]

Yes. Hi Mike, hi guys. Congratulations on the, looks like an interesting deal. I was just wondering if you could help us understand the economics of it a little better. So you guys are putting in some capital by picking up existing loans? Is that some combination stuff you are carrying on your balance sheet and something on your existing joint venture?

[Michael Falcone:]

Right.

[Gary Ribe:]

Okay. So it's something like $55 million?

[Michael Falcone:]

Gary, how about I let Gary Mentesana sort of do, a sort of overview of the economics, and then you can ask questions after he does that, does that make sense?

[Gary Ribe:]

Terrific.

[Gary Mentesana:]

Good morning. So we filed an 8-K and included as an exhibit the operating agreement that we have with TSSP and the economics - the detail of the economics can be found in there. We basically contributed $75 million of loans and member interest in what was our existing joint venture; and at closing TSSP contributed $5 million. Overtime as we have more investment opportunities with our recruit, TSSP will invest the next $420 million capital, and then if there are opportunities beyond that, we will basically be co-investors and probably invest 85% and reinvest 15%. The TSSP will receive a preferred dividend of 8% on their capital, and then we will share distribution of remaining cash net-operating flow after that split change as we achieve scale where we effectively get a higher - in fact, a leverage return after TSSP has invested $220 million.

[Gary Ribe:]

Okay. So you guys are putting up $75 million or so in capital, I think you guys said you are earning maybe low double-digit returns on that part of the investment. And I guess that you would hope to invest the TPG's capital at similar kinds of rates and maybe get a little leverage on that. Is that fair?

[Michael Falcone:]

It's basically, yes.

[Gary Ribe:]

Okay. And so - after the preferred dividend you guys are splitting the average in some - via some formula?

[Michael Falcone:]

Correct.

[Gary Ribe:]

It's a very good ROI perspective for them. I had a question about MGM, if you guys see - I noticed that you guys disclosed the value of that in the financial statements. And Dave, I want to complement you the disclosures have gotten much, much better over the last year, year and half since you took over. You disclosed that as $12 million or something on that order. But you also mentioned something about being able to exercise that option early, is that correct? Did I understand that correctly?

[Gary Mentesana:]

Hi, this is Gary. I can try to take a jab at that. So I think the disclosures that we have around MGM in addition to the loan investment that we have outstanding which is $13 million is relative to the option price, and today we have the ability to exercise the option to acquire all of MGM in the fall of 2019 at a price of $12 million. There is a bit of potential adjustment to that price to the extent that MGM achieves certain perks, it is not currently subject to something that we can exercise prior to the fall of 2019 but it would always be subject to agreement between two parties, if we wanted - if both of us wanted exercise prior to that.

[Gary Ribe:]

Okay. So it's a mutual option to exercise prior to '19. Okay, that's helpful. And then I guess you mentioned that you sold some properties from the GE deal, that you didn't recognize any revenue in the quarter - I understand you're trying to be as compliant as you can possibly be with GAAP; what else needs to happen where we recognize revenue on that - I thought that once the asset sales were going through - I think satisfied some of the revenue recognition requirements?

[Michael Falcone:]

You're doing an awfully good job of remembering past discussions. The issue on revenue recognition is as you described which is within the venture we need to basically sell properties or have pretty sure insight into when we're going to sell properties in order to recognize the asset management fees. The deal that we sold last quarter was the property - one of the five or six properties that we actually held outside of the venture. And so while it created gain on sale, it did not lead to the generation of fee income because it is not with venture. Part of that is mostly right, and itself getting some good nod.

[Dave Bjarnason:]

Yes, that's right. These real estate that we saw - we did in fact recognize revenue on - but as it relates to asset management services that we've rendered to the venture, as Mike referenced, we didn't recognize any revenue there. As we talk about the disclosure which is sort of part of revenue recognition requirement, we - really the GAAP looks at things, is whether that we can assert looking at the - our projections of cash flows on the venture whether or not we can assert that cash flows do to us or reasonably - so there is a number of factors that sort of go into that assessment ranging from the timing of when we expect to collect amounts that are legally due to us among other things. But again, it has to be - it's a very high bar that you have to hit to support - recognizing revenue area. And at this point we didn't feel that we were able to clear that problem but again that's something that we will continue to re-evaluate period to period. And so that's a helpful color or additional thoughts on that.

[Gary Ribe:]

No, it is. When you guys are basically done with the buyback for the year, I mean 25,000 shares is nothing. So I doubt you guys would go over the 10% for this year giving like - it's only six or seven weeks left in the year but we are upping that for '17 it's something that we can look forward to?

[Michael Falcone:]

I think it is subject to a board discussion I think that there is sort of the equation ends up being better uses of our capital than buying back shares and that's function of - where is the market for the shares and where is the market for other options. I think as a board we have been very pleased with the share buyback program, there is - I think certainly a bias to put in place the new program in 2017. But frankly, we in our earlier draft we actually thought about announcing that currently, but we decided that we are not done our business planning for 2017 and it would be a little premature to make any decisions about investing 2017 capital and share buyback plan until we finish the 2017 business planning. I think there is a sort of - to be made decision but there is certainly strong support for the program and board members.

[Gary Ribe:]

Okay, that makes a lot of sense. And then just one last one for me; looking at your P&L properly, it looks like you guys - the growth in equity this quarter with some combination of actual operating earnings and bond marks, is that right?

[Michael Falcone:]

Correct.

[Gary Ribe:]

Okay. So you guys are now operating at/or above breakeven pretty consistently quarter-to-quarter just on the scale you guys are getting in some of the businesses, the asset management businesses that you guys are operating in?

[Michael Falcone:]

Yes. I certainly think of it that way from a cash perspective, in terms of what I look at most closely. There is always some GAAP noise which sort of surprises me but I think in terms of operating cash perspective what you just described is true. From a GAAP perspective, it's a little harder to predict.

[Gary Ribe:]

Got it. Okay, that's it for me. Great job guys, have a good rest of the year.

[Operator:]

Our next question will come from Gabi Gliksberg, a Private Investor. Please go ahead.

[Gabi Gliksberg:]

Hi guys. I got a previous caller, disclosures are really improving in that depreciated. A couple of questions; regarding the buyback that you guys have announced that you get it subsequent to September 30. I just quickly looked up the historical volume of trades and Google Finance, obviously that's not the perfect resource but also the October purchases were above market. Do you guys buy your shares off market or not accurate response of trades?

[Michael Falcone:]

It's an accurate 10b5 plan. So, the…

[Gabi Gliksberg:]

But are those in the open market or is that privately negotiated?

[Michael Falcone:]

No, it can be five plan, it requires that you buy in the open market, you can't buy on an uptick, you - there are all sorts of trading rules around the 10b5. So we're buying at the market on any given day. We also - basically once we've put this plan in place, we get it over to a planned administrator and we're not involved in the decision making, really about day-to-day purchases. So whether in the course of the day, you get the best prices a day or the not best prices a day. We don't really have any control of that, it really is a function of - our all of the trading rules that are in place around the 10b5 plan being totally fouled.

[Gabi Gliksberg:]

I think it's worth looking into on your end just because there is actually only one day where there is any prices that would have come to 18, 17 I think; what you guys said was the average purchase price in October and it is only like some 25,000 shares or something. So it's like not mathematically possible from all the market shares to get to the ranges from what I'm seeing that obviously kind of preliminary brands.

[Michael Falcone:]

I certainly know that all the shares were brought on the open market and I certainly know they're all bought following the rules. So we double checked the math and looked at the data. I can say definitively is we're not doing off-market or private purchases of shares.

[Gabi Gliksberg:]

Got it. I made that the broker is charging something but - on some way related to that, I've seen that Michael and Gary - that not really been purchasing any shares now for the past six months, is there anything to be read from that or you guys are just next out for the year?

[Michael Falcone:]

The way our compensation plans work, it's that we have cash bonus and then we require just 30% of the pre-tax number on share purchases. And we've actually expanded that plan in the last year to include all members of senior management. Our - under our - circumstances about speak to mind. I guess Gary, when you include options, we probably own close to 10% little bit shares, so less than 10% shares. So we've got an awful lot of our networks tied up in the company. I will be buying shares again, I think Gary will be too, I think based on the performance this year we expect to receive bonuses. And so - I think it's sort of more timing although the course of the year with anything else.

[Gabi Gliksberg:]

Got it. Well, given that you had your amount - I mean it's a good thing but the executives competing against the company now for the buyback in 2017, so in records grow and hope you back in launch a buyback, some degree in the last two months of the year that might help me but it's under competing with each other. On the website, I saw you guys have that new investor slide deck and that's great. I don't know if that came out in the late 8-K and sought after going on to the website but it could be worse, putting out in the 8-K if you don't already. In the - in there, something I talked about the recent tax law changes that could impact the renewable energy finance business, I'm not familiar with what that is but is there - was there a specific change that negatively impacted that or is that sort of a warning about the potential changes in the future?

[Gary Mentesana:]

This is Gary. At the - independent over last year, there was an extension of the investment tax credit for the solar business, all solar, not just our business. And previously was indicated to some set I believe in 2016, basically the extension allows for both residential and commercial investment tax credit equal to 30% of the basis to invest in [indiscernible] property. And that was extended through 2019 and then it practically started to step down 26% in 2020, 22% in 2021. And after 2023, the residential credit drops to zero and commercial credit drops to 10%. That is certainly subject to revisiting, especially considering the election results but we're hopeful that's something that continues to enable us to deliver quality solar investments. But I think that's speaking material in the investor guidance.

[Gabi Gliksberg:]

I mean also that presentation, it doesn't mention anything about specifics on land that you guys own, anything like you searched for the roads and it's not on the PowerPoint at all. Do you think you guys can add that for the next quarter or maybe that is similar to properties that you have there, particularly meaningful, anything you can put specifics on there, on the GE portfolio what that contains beyond the number of properties. And lastly, that the growth option - I know you just mentioned that there is a little bit more disclosure around there, I'll have to redo that again but on site with a strike price on the timing of the option itself, was there anything more in terms of what the Morrison Grove company like you were?

[Michael Falcone:]

We would not disclose anything additionally in part because it's going to strive because there is sort of tension up around - sort of following GAAP rules in your disclosures. We will look at - I mean the sort of land assets which basically Savannah River and plus 150 are projects that we consider sort of negative assets and if that help to service dispose of or continuing dispose of those as soon as we can. Later why we choose not to conclude it but more we did with that, we'll also revisit at some disclosure of about the GE portfolio and MGM, both in the investor report and our overall disclosures. We have spent a fair amount of time this quarter working on what I would call the harmonization of our external filings through Qs and Ks. Our investor were full - and actually some of our board materials, in that we - materials sliced data in slightly different ways and all three of those things in the past. And we're not pretty much in a line across the board surely on the public part of those things we're heading down on the line there. I think some of - we're going to see for continued improvement in both areas. A good bit of that will continue to come in overtime as we sort of work through issues across data verification and taking material information upto serving actually verifiable standards from nearly careful and considered reporting. It is more in my projects. And so we're in the process of kind of working through some of that. So hopefully, we'll continue to get better and try to get an area that's focused on and I agree has done a nice job.

[Gabi Gliksberg:]

Thank you. And I mean with Morrison Grove, I don't know what normally transparency you have but maybe you could just talk about what the aspects are; I never said there is something like 300 affordable housing properties, yet it was unclear if it was a 5 unit property or 100 unit property? [Indiscernible] as opposed to telling us what you think is what I think will be helpful.

[Michael Falcone:]

We are, what happens to be one of the areas that we are focused on is verifying unit counts which, we certainly know the number of purposes of common day to day knowledge but we got to put in a process to verify the data for our accountants. And that's necessarily you might imagine.

[Gabi Gliksberg:]

Yes, I was just saying - potentially subject to some fertile rates that could change the price. I don't know if you have mentioned this in the filing but have they met or do you only find out in 2019?

[Michael Falcone:]

So, the basic hurdles have to do with an over performed income targets that get certain percentage of their over performance up to a million dollars or a million two. It gets measured at the end as accumulative income but if I were guessing today I would guess that they would earn some element of that brokerage.

[Gabi Gliksberg:]

Great. Thank you. That's all from me.

[Operator:]

[Operator Instructions] Our next question will come from Greg Bennett, a Private Investor. Please go ahead.

[Greg Bennett:]

Good morning guys. I am doing great. An accounting question on, in the filing you have mentioned GE transaction and about fees are crew and then I think you give a compounded rate of return of 6% or something, is that correct?

[Michael Falcone:]

That's correct. They approve legally but they don't approve it on our balance sheet.

[Greg Bennett:]

I was just going to ask you right now. These fees that are current which you say are occurring right now, they are following the business with the, it's performing to your expectations. It's not on your income statement, it's not on your balance sheet but each time you do need whatever the requirement is that you need to meet and that's going to flow through the income statement and the balance sheet and correct?

[Michael Falcone:]

Correct, that's the lumpiness that we spoke of.

[Greg Bennett:]

So I guess every quarter this business plan is going, as anticipated. That gets bigger or if you have a quarter if it's not going up as planned, is that the way to look at it?

[Michael Falcone:]

To use your language, absent realization from underlying sales will just continue to grow and will just continue to grow. The old balance plus the new quarter fees plus 6.5% on the old balance. That balance if you will continue to grow overtime. It gets reviews when we actually get paid cash and we recognize, so that's what happens legally. As a recognition item, we have to be able to project, I am going to use layman terms of so I am sure Dave will correct me, we have to be able to predict and in some ways control the receipt of the future of cash flow and one of the issues here is in most instances we're limited partners. We certainly are working general partners to get sales to take place. But we actually don't control the activities day to day, so it's hard for us to say definitely x, y or z will happen until it does. So with that we will start to see unless the deal is sort of really closing imminently, the revenues that we will recognize on our balance sheet or our income statement, look an awful lot like the cash that we actually collected within the joint venture which will have been the cash that we are used to receivable, as you described it and as I described what happens when we pull it there. So a) does that help and b) Dave was I close enough?

[Dave Bjarnason:]

I think that was summarized correctly. So you will have this sort of diversions if you will, legal view of what's happening in terms of the legal amounts that are due to us. And how that would then come through a reporting perspective and it might mention once there is a high level of certainty as it relates to cash flows that would become true to a company, it would be at that point in terms of making the valuation that we have certainty. What we have sufficient we will then recognize revenue, commensurate with the cash that we expect to collect in support of the data.

[Greg Bennett:]

Okay. So is the general partners aligned with your interest or General partners who is probably receiving this saying I want to delay this sale for as long as possible because I am getting feeling?

[Michael Falcone:]

It's some of those. If every partnership will be different in terms of the limited partners to sort of force sales or not, will either force them or approve them seems to be the two choices. And there are certainly a number of partners who were working with aggressively to get sales done and there are other partners who were aggressively prodding to get sales done. So there's a little bit of both in the mix as you might expect.

[Greg Bennett:]

But if I remember like, GE transaction, is that correct, something like that? So another thing in your disclosure, some of these have run their lives as far as the benefit or I think we have talked about this before, they have kind of run their life for the receiving the tax credit and full of the limited partners, and some of them still have the time to go for optimizing that, is that correct?

[Michael Falcone:]

That's correct.

[Greg Bennett:]

So would it be possible for you to disclose if you were kind of the potential for like a bond maturity, like 660 bonds which will be in 2017 or 2018 that will be 10 properties, that are eligible as it's going to happen but it's eligible for that transaction to take place?

[Michael Falcone:]

Yes, let's look at that. I think we certainly have the data and we could slow what really we would be disclosing the end of the appliance period, circumstance. The reason I say we want to look at is, I think we have said before. Of the 650 properties, probably 550 of them will have net economic value and the remaining 100 they may or may not have economic value but it could be 20 to 30 deals that could have economic value; and it's all said and done, it could be more, based on market circumstances. The one thing I'm pretty sure we can't disclose, this is what we think the good bucket looks like, this is what we think the bad bucket looks like, and this is the end of compliance in the good bucket. So what I would want to look at is where the end of compliance, and the good bucket, and the end of compliance overall roughly speaking aligned. Because otherwise, we could end up giving up data which is true, but misleading for the purpose that you want to use it for. Let's look at that and we'll put in the future or we won't, depending on how we think it's completing.

[Greg Bennett:]

Now I got another question. Going back to the span of income or your accrued income that you're receiving...

[Michael Falcone:]

Yes?

[Greg Bennett:]

That you only get based upon a transaction being done, when a transaction is done and you know that the likelihood or you actually have received your cash, and just in kind of 50 properties, there's 500 of them that are like - in leisure words are in a bad bucket, there's no economic value to them? Are you accruing fee income on the bad bucket and what's the likelihood if you're accruing that income on bad bucket? Is that in near-term is very high you're going to get paid?

[Michael Falcone:]

Think about it as two levels. There's a big partnership - let's call it TC Fund, there's that growth simplification. There's a partnership called TC Fund 1. That's where we accrue asset management fees. That partnership owns the 550 other partnerships. So the fee income is fee for service charges from MMA to TC Fund 1 that are accruing. It really has literally nothing to do with what's happening at the 550 properties below. We believe that the 'phantom receivables', in fact deductible or some large portion of it will be collectible and it will be collectible out of residual events out of some portion of the 550 [ph] to your properties.

[Gary Mentesana:]

Maybe just to add to that. As Mike mentioned, we don't look through the JV for the purpose of thinking about the cat or we just look at our contraction, our various interest that we have that we've disclosed in MD&A at the management fees and the service. And if you render it obviously being a prominent part of that, but we also have other interests. For example, the loans the company made back at the end of December will also evaluate and potentially approve interest in connection with a guarantee fee receivable that we have. So quite as Mike mentioned, we don't look through the JV, we really just look to the various contractual interest that we have, obviously the report.

[Greg Bennett:]

Okay and the quarter, what is the fee that this receivable phantom income fee, is that pretty much straight lines? When we look at your fourth quarter results, your third quarter results providing that transaction, is that the number that should be basically approving each quarter, provided that there's not cash receivable, deferred ideal perceived cash?

[Michael Falcone:]

As you started out, it is phantom. It's not sharing up on our GAAP books at all.

[Greg Bennett:]

Right.

[Michael Falcone:]

What we legally accrue changes every quarter. I guess the flat number doesn't accrue change, but the balance does and the legal accrual number.

[Gary Mentesana:]

If you look at Page 5 of our filing, we disclosed our [indiscernible] what that legal accrual balance is as Mike said, and another $3.2 million at the end of the third quarter. But as Mike mentioned, that balance will continue to grow to the extent that the company hasn't received any payments in satisfaction of other part or in full.

[Greg Bennett:]

Okay. So that's why $3 a share per year - possible income that you realize for the future? The $3.02 per quarter, $12 million a year...

[Dave Bjarnason:]

It's not $3.02 per quarter, that's the total balance that's outstanding today.

[Greg Bennett:]

Okay.

[Dave Bjarnason:]

That's $0.50 a share if you will. This is a disclosed number. It's not a number that's on our balance sheet in any way, shape or form.

[Greg Bennett:]

Right. I know you didn't think there's the total, you realized.

[Dave Bjarnason:]

$0.50 a share of the fees that are out there that could be realized in the future if properties are sold and if there's this usual value. I'm looking up. I wanted to make sure I disclaimed that enough. That's not money in the bank, but it stretches our imagination.

[Greg Bennett:]

Okay. Let me switch to different - you have a stock buyback, you pretty much have completed it for calendar year 2016. Are you locked just because of accounting rules of preserving the NOL or whatever? Are you locked out of the market after the 25,000 shares has been purchased between now and end of the year? Or could you avoid me saying that you're going to extend it, or you're going to increase it prior to 2017?

[Michael Falcone:]

The 25,000 share keys us within the sort of manageable Safe Harbor. Anything beyond that would create a transaction that would complicate the NOL preservation. I wouldn't say it was in pair of, but I would say it was greatly complicated. So I think in that respect, the board could meet in extraordinary circumstances, decide not to worry about the Safe Harbor and buy additional shares. I think in the normal course of events, I would not expect that to happen and I would expect that as the board considers the 2017 business plan and the alternative investment opportunities, the board will look at the share buyback as one of those investment opportunities. And as I said, they're certainly a bias in favor of the share buyback plan, but if we see five opportunities in front of us that we think are going to produce 100% return on equity in the share buyback, it's going to produce something on the share buyback might not happen, or it might be curtailed, but that analysis is under way and as you can see over the last couple of years, that strong support for the share buyback, it's pretty mature. But if you ask me what I expected, I would expected the board would give them the consideration to a 2017 plan.

[Greg Bennett:]

And the limitation like just 10%. Is that right? To preserve your NOL. Is that right? The maximum count?

[Michael Falcone:]

Correct. The maximum share buyback plan for next year would be in the neighborhood at 600,000 shares, I think. I can't remember. If you take that number at the beginning of the year or the end of the year. It could be anywhere from say 540,000 or 550,000 to 600,000 shares. The blend will naturally shrink as the share shrinks.

[Greg Bennett:]

Okay, good. Two more. For solar lending business, am I correct, basically it's solar lending business is going on simultaneously. Is that correct?

[Michael Falcone:]

I think the way to think of it is we have one operating subsidiary called MMA Energy Capital which is now originating long in the solar place in three distinct areas; construction loans which has been our focus in the past, especially the pre-development loans which are sort of pre-construction loans which we've done some of in the past, which has not been our area of focus; and permanent ones, which again - we've just started to do sort of five-year mid-term [ph] loans in the space. Our old joint venture partner owns a share in the businesses and we own a share in those businesses with TPG, our new joint venture partner. The difference being that sort of all joint venture expires in a couple of years or 18 months and the new joint venture will go for seven years.

[Greg Bennett:]

So the lose end - what we understand was low risk, short-term loans, essentially that were pre-development construction loans and that - when the target was restored, the owner of the solar asset - by now it wrapped around permanent, long-term permanent financing, and you all are paid back. So essentially in the construction land results, correct?

[Michael Falcone:]

That's correct. And we - that we grow focus on that business, yes.

[Greg Bennett:]

And new venture is the same business plan or are you…

[Michael Falcone:]

You can think of the new venture as owning half of the old venture for the next 18 months and then basically taking over the old venture after that period of time. And it is what capital for the table to expand the amount of capital's the available there and because of that additional capital, we're now also doing sort of five-years mid-term loans where we think the credit is good and we think there is value in doing those loans.

[Greg Bennett:]

So you're earning risk to poise your business plan and you're getting the five-year - is I'm asking to a near balance sheet that hide their loans?

[Michael Falcone:]

But even loan show up on the balance sheet will show basically an investment in the venture of $75 million. In terms of categorization of these permanent loans is being riskier, I wouldn't accept that categorization, I would accept them in different but often these loans are with entities that are raised S&P rating, A/AA whatever. So there is a range of credit that we look at but in most instances we see the credit quality in the margin being equal to if not better than the construction loan quality actually.

[Greg Bennett:]

This alone six advertise permanent loans finds here without - only on the asset? Like do you think it like a home mortgage, or is it securitized by all of the borrowers and FX?

[Michael Falcone:]

Think of it like a triple net lease on a warehouse for example. If you have a warehouse, you could have Joe's plumbing as your tenant or you could have GE as your tenant. If you're the lender, you're going to make a different loan to the warehouse where Joe's plumber as the tenant, vote versus the warehouse were GE is the tenant. And so basically, that's how we look at this business. We're looking at a mix of power purchasers and in my recent example there, the equivalent of the tenant in the warehouse and we make our loans based on the cash flows that we expect to have power purchase agreement to produce and based on the credit quality of the tenant. If GE is your power purchaser, you're likely to make a higher loan value, loan for five years than you are as Joe the plumber is your power purchaser.

[Greg Bennett:]

Have you heard that some states, some of the utility regulatory - I didn't see some states - are changing when you produce power? The owner of that solar asset is getting a retail price, not a wholesale price for putting power into the market? And that there are some states that are going to change in that where instead of getting the retail price for solar asset, you're going to get whatever the cost, the wholesale price is at the market and that's going to benefit the consumer, as the consumer is over paying now for your renewable energy?

[Michael Falcone:]

Well, I wouldn't accept your premise that the consumer is overpaying for renewable energy, we like contracted power purchase agreements. So the kind of things you're describing really don't impact the deals that we are looking at.

[Greg Bennett:]

Okay. I think that and some other states have already started the changes. Very good. So it looks to me if I had to project, [indiscernible] market between now and the end of the year. So the potential is that there's not going to be support for your stock price by the stock buyback program until before reauthorize it, but you're the next 45 days - your equity is already trading right now at 17% discount or 18% discount to put your new books any less. But anyway, we're long-term investors, so hopefully we don't want to jeopardize for us and then next year if you're back from the market, there will be support from the price of stock. At least that's my prediction, that your discount is pretty wide right now.

[Michael Falcone:]

We would agree that the discount is wide. I would note we bought 60,000 shares or so last quarter. We've actually bought - I can't say - 10,000 or 20,000 shares already this quarter. But I think last quarter we bought 60,000, this quarter I would expect that we would buy about 40,000. So that means we probably bought about 250,000 in each of the first two quarters. I don't exactly remember how it sort of broke down, but the share buy backs this quarter, it's not too dissimilar from the share buy backs in the third quarter.

[Greg Bennett:]

Thank you, Mike. Did you run out last year near the end of the year for buying that? Or were you able to buy back throughout the whole calendar year? Do you recall?

[Michael Falcone:]

I think we ended up with 10,000 or 15,000 shares that we could have bought last year that we did not.

[Greg Bennett:]

All right. Very good. Thank you for everything you've done. I appreciate it.

[Michael Falcone:]

You're welcome.

[Operator:]

Ladies and gentlemen, this will conclude our question-and-answer session. I would like to turn the conference back over to Mr. Michael Falcone for any closing remarks.

[Michael Falcone:]

Thank you, Allison. As always, I want to thank everybody for their support and I think the feedback we get on these calls is actually quite valuable as we think about how to talk about the company publicly. If you've seen some steps that we've taken, we try to get better there and we'll continue to do that with the quarters ahead. We are pretty excited about our new venture with PPG and as I said, we're pretty good about where the multi-family markets are in general and we're keeping a close eye on how things money change going forward. And we look forward to our next conversation. So thank you all very much and have a good day.

[Operator:]

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