- MMA Capital Management (MMAC) is essentially a pile of assets (mostly tax advantaged low income housing bonds) selling well below their true net asset value.
- In 2015, the company has been recognizing large gains by selling off low basis real estate acquired during the financial crisis via foreclosure and then starting up a solar energy lending business with a JV partner where they'll ultimately park $50MM dollars while also earning a management fee.
- Cost accounting, consolidation rules, and it's inability to recognize the sale of the LIHTC business for GAAP purposes has artificially reduced the reported book value of the company.
- Some of my earlier posts from 2014: http://clarkstreetvalue.blogspot.com/2014/10/mma-capital-update-new-name-up-listing.html, http://clarkstreetvalue.blogspot.com/2014/03/municipal-mortgage-equity.html
MMA Capital released their Q3 results on Friday (11/13), they're hosting a call on Thursday (11/19) so if there's anything new that comes out of that I'll update this post as well. The company's reported book value is up to $15.55/share, this time last year it was $9.25/share, the increase is mostly a result of monetizing low basis real estate, but if you take the time to read the 10-Q (not an easy read), there are two additional items that happened after 9/30 that increase their book value even higher making the current share price a bargain even after an impressive run this year.
Preferred Stock Investment
MMA Capital owned $36.6MM in preferred shares in a mortgage servicer, it had been held on the books for $31.4MM, but in the 10-Q, MMAC revealed that it been redeemed at par:
On October 30, 2015, the Company's investment in preferred stock were fully redeemed by the issuer at par value of $36.6 million and, as a result, the Company terminated the two aforementioned total return swaps and will recognize a gain of $5.2 million during the fourth quarter of 2015. Refer to Note 6, "Debt", for more information.Now $5.2MM might not seem like a lot, but on an $89MM market cap it's pretty significant, it's an additional $0.79/share in book value and also reduces the company's debt, and confusing TRS arrangements.
IHS Bankruptcy Estate
International Housing Solutions is MMAC's South African investment/property manager arm, up until recently there was a small minority ownership that was collapsed and wrapped up into MMAC during the second quarter. In the latest 10-Q, another sizable gain occurred:
On November 12, 2015, the Company reached an agreement to acquire at a significant discount from the bankruptcy estate of one of the co-founders of IHS, all interests held by such estate in the Company's subsidiaries or affiliates, including notes payable and other debt obligations of the Company that had a carrying value in the Consolidated Balance Sheets of approximately $4.4 million as of September 30, 2015. Among other provisions, such purchase agreement provides for the release and discharge of the company from its payment obligations associated with such deb instruments. As a result, and based on all consideration to be exchanged under the agreement, the Company will recognize during the fourth quarter of 2015 a net gain in its Consolidated Statements of Operations that is estimated to be between $3.0 million and $3.5 million.Let's call it $3MM on the low side, or another $0.45 per share in book value. So without anything additional, and assuming no big market disruptions/losses, we know the year book value will be at least $16.79 per share. It's trading at $13.79 or 82% of that adjusted/current book value.
Additional Items Not Included in GAAP Book Value:
- $418.2MM in NOLs, at a 35% tax rate that could be worth ~$145MM, more than the entire company. It's hard to imagine them utilizing in current form, but on previous conference calls they've emphasized their understanding of its potential value and back in May adopted a Rights Plan to reduce the change of control risk.
- In 2014, they sold their LIHTC asset management business to Morrison Grove Management, but retained the yield guarantee and included an option to purchase Morrison Grove starting in 2019. They provided seller financing to Morrison Grove, the balance of which is now $13 million, but that's off balance sheet (I forget the reason, either the yield guarantee or the option to buy). The option to buy the company in 2019 could be valuable in itself and another operating business to generate taxable income.
- The carrying amount of their remaining real estate is $25.1 million, they estimate it to be worth $29.2 million, it could be worth more as they've put some of their real estate into JV's with developers who are re-purposing the assets and hopefully generating more value.
The same management that created all this mess is still in place, MMA Capital seems to be the one example of management knowing where all the bodies were buried and actually being able to extract significant value out for shareholders. There's still a lot to be done, the ongoing businesses are basically break even, they still need to develop a sustainable business plan to move from being valued as an NAV pile to more of an operating business. The new MMA Energy Capital business might be a step in that direction.
Disclosure: I own shares of MMAC