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MMAB - MuniMae, LLC


Olmsted
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I previously brought this idea up in a different thread, but I think it is time for its own.  I have quoted my original thoughts below, interspersed with some actual sources.

 

MMAB.  I've been meaning to start a thread on this, but no time.  I'll add some actual numbers to this when I start the thread.  For now, a teaser.

 

The asset base is very complicated and the balance sheet needs numerous adjustments to arrive at  a real net asset value.  I believe this results in a lot of hidden value.  Further, management is incentivized to start realizing this hidden value, having been very aggressively buying shares over the last year, sometimes at prices as high as $1.30(ish). 

 

An incomplete list of the hidden value:

 

-Fair value of the muni bond portfolio (most of the company's assets) is above carrying value on the balance sheet.

 

Exhibit A adjusts our balance sheet to remove certain funds and ventures that are consolidated on our GAAP balance sheet... we have not included the incremental fair value associated with those bonds occurring since consolidation

http://seekingalpha.com/article/1853351-municipal-mortgage-and-equitys-ceo-discusses-q3-2013-results-earnings-call-transcript?part=single

 

How much is that "incremental fair value"? 

 

We had bonds with a book carrying value of $288.9 million comprised of multi-family tax exempt bonds and community development district bonds and as provided for in our disclosures we estimated the fair value of these bonds to be $321.4 million at September 30, 2013 which was $32.5 million higher than our book carrying value.

http://seekingalpha.com/article/1853351-municipal-mortgage-and-equitys-ceo-discusses-q3-2013-results-earnings-call-transcript?part=single

 

-Some of the debt is collateralized only by bonds on the balance sheet.  In essence, these bonds were sold, but didn't qualify for sales treatment.  The bonds that collateralize the debt are carried at less than the face of the debt - which means you can make an upward adjustment to net assets.

 

When going back through the 10Qs and Ks I cannot find the original numbers I had used.  Below explains some of the accounting issue - but it doesn't give the size of the related asset that is consolidated.  This isn't necessary for the thesis, and if I find it again I will update accordingly.

 

Included in the debt balance of $365 million on line 9 was $146.3 million related to the bond portfolio. This includes total return swap borrowings of $51.9 million and secured borrowings of $94.4 million because of bonds that were legally sold but held to receive sale accounting with a total annualized pay rate of about 5% as of September 30, 2013.

http://seekingalpha.com/article/1853351-municipal-mortgage-and-equitys-ceo-discusses-q3-2013-results-earnings-call-transcript?part=single

 

-There is owned real estate carried at what may be a lowball value.

-Ownership stakes in some solare facilities.

-The company owns a stake in an African housing company, the value of which is not immediately apparent on the balance sheet.

 

The most recent 10K puts their ownership of International Housing Solutions at 83%.  AUM was $230m as of the 2010 10K.

 

-Tax credits.  At least $20m, from low-income housing deals

 

$24m to be precise.  They do not start to expire until 2027.  Also, these are tax credits, not NOLs - so they should reduce any future taxable income on a 1:1 basis.

 

-NOLs!  A lot.  Like $1bn+

It is difficult to estimate these because of all the consolidated entities, the LLC-corporation conversion, and etc.  The 2010 10K has cumulative NOLs up to that point in time.  They are considerable.  When I asked IR for an update, they were somewhat vague and told me to look in the next 10K.  There is no intention to put the NOLs on the balance sheet at this point.

 

-I neglected to include ongoing share buybacks:

 

As of November 8, 2013 we repurchased 1.1 million common shares in average price of $1.34.

http://seekingalpha.com/article/1853351-municipal-mortgage-and-equitys-ceo-discusses-q3-2013-results-earnings-call-transcript?part=single

 

Just valuing the cash and bond portfolio (including the non-recourse debt), I get to an asset value net of debt around $2.30.  Everything else is upside.

 

Since I cannot find the failed-sale accounting/non-recourse debt adjustment at this time, let's just say ~$2 "real-world" equity per share plus a grab bag of goodies (NOLs, tax credits, intl housing, etc.) that are hard to value:

 

51.6m equity from the 30 Sept balance sheet, which is adjusted for consolidated entities (http://app.quotemedia.com/data/downloadFiling?webmasterId=101533&ref=9232728&type=PDF&symbol=MMAB&companyName=Municipal+Mortgage+%26+Equity+LLC&formType=8-K&dateFiled=2013-11-15)

 

+32.5m delta between fair value and carrying value of bond portfolio

 

42.2m shares outstanding

 

There are still a lot of moving parts, although we should have more transparency into the asset base as this transformation settles out.  What we do not have at the moment is really any visibility into what operations going forward will look like.  On the last conference call, when asked about the company's future plans, the CEO gave us some hints:

 

I should start by saying we are very much in the middle of certain strategic planning discussions at the Board level and ultimately the decisions about the future of the company will be made as a result of those conversations. But to sort of give you a sense of out of where opportunity where I think opportunity exist, first if you look back at the history of the company the most of what we have done has been in the multifamily space. And in particular multifamily rental space and we believe that, that is an area where we can mine our past relationships, mine our understanding of markets, our relationships with vendors. And that there will be opportunities for us there

http://seekingalpha.com/article/1853351-municipal-mortgage-and-equitys-ceo-discusses-q3-2013-results-earnings-call-transcript?part=single

 

This largely comes down to management, their competence, imagination, and networks.  But there are a lot of levers for management to pull, and a lot of value they can potentially generate.  Some risk, lots of opportunity.

 

By the way, thanks to @ErditCokaj for bringing this one back to my attention and discussing his analysis with me.  Any errors, of course, are my own.

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Nice digging on this one.  Looks really interesting.  What did they transform themselves from to get to where they are now? 

 

Well according to the last 10K before they imploded:

 

We operate through four business segments:

 

  •  Through our debt segment we (1) invest in tax exempt bonds and bond securitizations; (2) make taxable construction, supplemental and permanent loans; (3) provide loan servicing; and (4) originate loans that are ultimately sold to government sponsored enterprises (“GSEs”), such as the Federal National Mortgage Association (“Fannie Mae”), the Federal Home Loan Mortgage Corporation (“Freddie Mac”) and the Government National Mortgage Association (“Ginnie Mae”) or insured by agencies such as the Federal Housing Administration (“FHA”) and the U.S. Department of Housing and Urban Development (“HUD”). 

 

  •  Through our tax credit equity segment we provide tax credit equity syndication and asset management services 

 

  •  Through our structured finance segment we invest in other real estate-related securities, including equity investments in real estate operating partnerships, tax exempt and taxable bonds, bond securitizations and taxable loans. 

 

  •  Through our fund management segment we (1) provide loan origination, loan servicing, investment advisory, asset management and other related services and (2) invest in real estate operating partnerships. 

 

Our Debt Segment

 

Through our debt segment, we engage in a variety of real estate finance activities, including:

 

  •  Investing in tax exempt bonds and bond securitizations; 

 

  •  Originating taxable construction, supplemental and permanent loans; and 

 

  •  Originating, selling and servicing loans that we sell to GSEs. 

 

Some discerning readers pointed out a few items, which I attempt to address with the following follow-ups and clarifications:

 

-Some of the debt is collateralized only by bonds on the balance sheet.  In essence, these bonds were sold, but didn't qualify for sales treatment.  The bonds that collateralize the debt are carried at less than the face of the debt - which means you can make an upward adjustment to net assets.

 

When going back through the 10Qs and Ks I cannot find the original numbers I had used.  Below explains some of the accounting issue - but it doesn't give the size of the related asset that is consolidated.  This isn't necessary for the thesis, and if I find it again I will update accordingly.

 

This hints at the fact that most of the debt is recourse only to specific collateral, not to the parent.  I double-checked with IR and they confirmed that yes, the vast majority is non-recourse, but that some small proportion of their financing had provisions that could subject the parent to some liability.  It is difficult to put an exact number on these, but it is my understanding that they are essentially insignificant.

 

I previously brought this idea up in a different thread, but I think it is time for its own.  I have quoted my original thoughts below, interspersed with some actual sources.

 

-Tax credits.  At least $20m, from low-income housing deals

 

$24m to be precise.  They do not start to expire until 2027.  Also, these are tax credits, not NOLs - so they should reduce any future taxable income on a 1:1 basis.

 

Additionally, I was informed that there are ways the company could effectively sell these.  Transcaction costs might eat up around 10% of the value.  I have a somewhat involved paper that explains how this works for green-energy tax credits.  Although it is not a direct analogy, I would imagine the structures are somewhat similar - if there is interest I will post a link.

 

-There is owned real estate carried at what may be a lowball value.

 

We got some good news on Friday that highlighted the REO and hinted that it is probably undervalued:

 

A New York investment firm has purchased the 200-unit The Meadows apartment complex close to Bartlett for more than $9 million.

 

An entity affiliated with New York-based RCP General Inc. bought the 100,080-square-foot complex at 2154 Meadow Glade Lane in Memphis, north of Raleigh-Lagrange Road near Sycamore View, from an entity of Baltimore-based MuniMaE, according to public Shelby County deed transaction records.

 

Breaking down the purchase price, the buyer's RCP Meadows LLC paid $45,125 per unit to MuniMaE's SCA Meadows LP.

 

The Shelby County Assessor of Property appraised the property for tax purposes at $6.1 million.

http://m.bizjournals.com/memphis/news/2014/01/16/meadows-memphis-rcp-general-munimae.html?r=full

 

Keep in mind that the REO was foreclosed during the financial crisis and aftermath - so it is likely carried at distressed prices.

 

Other items: the IHS AUM number was more recent than I gave it credit for - it is a 2013 number.  Also, with the restructuring we should see much lower SG&A going forward - at least unless the company starts expanding or generating new business - corporate headcount is down significantly.

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  • 2 months later...

For those still watching, a belated update:

 

Equity/share at $2.02 (They sold the REO that previously contributed to the $2 estimate, now it is official)

Buyback authorized up to $1.92

 

They put some cash to work buying back bonds they used to own, layering some TRS to get good mid-teen returns.

 

Now we're just waiting to see what the next phase looks like.

 

Latest transcript:

http://munimae.investorroom.com/download/MMAB_051914.pdf

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  • 3 weeks later...

Hi Olmsted,

Thanks for this thread and telling about this stock. this has run up nicely in last few months and almost doubled. However based on the current numbers its still super cheap especially on the earnings basis and it seems it can go up 2-3 times easily from here also if these earnings are sustainable. And the buyback is also nice. I wonder why people like packer aren't interested in this, Is there any catch to it that I am not getting? Is the management trustworthy? Thanks a lot in advance I am really thankful for this stock :)

 

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Yes I am glad it is working out as well.  I still see this as a balance sheet-driven story, as the company's future business model is still yet to be unveiled.  The earnings picture is cloudy now from all the one-time events.

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  • 4 months later...

Q3 Earnings out

 

Highlights:

 

-Equity per share up to $11.06 (from $9.69 in Q2)

-$2.75M operating income - not including any one-time events (and with this company, there are always lots of those)

    -Cost base down nicely while we wait for cash to be put to work

-Repurchased 240K shares in Q3.  Buyback in place up to $11.01.

-Path forward has not changed: "The task ahead of us remains clear, we need to wisely reinvest the cash we have generated from asset sales in ways that allow us to take advantage of our net operating losses going forward.  We see both investment and business opportunities which we think will allow us to make prudent use of our cash and help us build and expand our existing business lines"

 

http://mmacapitalmanagement.investorroom.com/2014-11-10-MMA-Capital-Management-Announces-Third-Quarter-2014-Financial-Results-Business-Update-and-Investor-Conference-Call

 

Other updates

 

-Executed 5:1 reverse split

-Listed as MMAC on NASDAQ

-Did a clever transaction to sell its low-income housing tax credit business, creating ~$15.8M NAV from something held at $0 (although accounting rules defer this gain), while retaining an option to buy it back later:

 

http://mmacapitalmanagement.investorroom.com/2014-10-14-MMA-Capital-Announces-a-Series-of-Transactions-Related-to-its-Tax-Credit-Equity-Business

 

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  • MMA has re-entered the energy project finance business:
     

MMA Capital Management...announced the formation of a new subsidiary, MMA Energy Capital, LLC ("MMA Energy Capital"), that will partner with renewable energy developers, contractors and system owners to provide project capital necessary to develop and build world class renewable energy systems.  MMA Energy Capital will be headed by Managing Director Bob Hopper, a former executive with MMA Renewable Ventures and SunEdison.
 
MMA Energy Capital will provide custom solutions around construction debt, development capital and permanent debt that enable its customers to effectively develop and build projects with the certainty that their capital needs will be met through an efficient and collaborative process.  Our primary investment focus will be in the distributed solar power market where there continues to be a lack of capital to meet the rapid growth of the industry.
 
 
http://mmacapitalmanagement.investorroom.com/2014-12-15-MMA-Capital-Forms-MMA-Energy-Capital
 
http://www.mmaenergycapital.com/
 
The managing director, Bob Hopper, has a pretty good pedigree in the space:
 
  • Was a MuniMae employee in MMA Renewable Ventures.
  • Left, founded ClearPeak advisors
    • renewable energy project development, biz development, buy and sell side advisory services and market consulting

    [*]ClearPeak advisors was sold to Enfinity

    [*]Enfinity was bought by SunEdison

    [*]Left SunEdison for MMA Energy Capital

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MMAC keeps plugging along - Q4 / yearend results out:

 

http://mmacapitalmanagement.investorroom.com/2015-03-18-MMA-Capital-Management-Announces-Fourth-Quarter-and-Full-Year-2014-Financial-Results-Business-Update-and-Investor-Conference-Call

 

Management has been buying -

http://www.sec.gov/cgi-bin/own-disp?action=getissuer&CIK=0001003201

 

Company has been and will continue to repurchase -

"In the fourth quarter we bought back 118,700 shares, and our Board has expanded and extended our buyback plan by another 300,000 shares.  We will continue to repurchase shares at prices that we believe are competitive with other investment opportunities and, as such, the Board has approved purchases at prices up to $12.51, our GAAP fully diluted common equity per share at year-end."

 

Thanks for the idea Olmstead - this one has offered plenty of time to accumulate below book.

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  • 11 months later...

Conference call this afternoon, book value now at $18.62, repurchases and management share purchases continue almost daily -

 

http://mmacapitalmanagement.investorroom.com/2016-05-10-MMA-Capital-Management-Announces-First-Quarter-2016-Financial-Results-and-Investor-Conference-Call

 

"Lastly, the Board has authorized us to amend our repurchase plan to increase the maximum price at which we may buy back stock to our newly reported GAAP diluted common equity per share of $18.62"

 

 

http://www.sec.gov/Archives/edgar/data/1003201/000114420416100442/mmac-20160331x10q.htm

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They keep on finding value in their own backyard. Foreclosing on a non-performing bond netted them a nice gain on the sale of the underlying property.

 

They bought back another 200,000 shares in April and the first week of May, which should bump up book value by another 7 cents or so. Amazing what they are doing over there. I am surprised the stock is not up more today.

 

 

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  • 1 year later...

Results out -

 

There were 5,852,582 shares of common shares outstanding at August 3, 2017.

Common shareholders' equity - at end of period $127,547,000

 

https://www.sec.gov/Archives/edgar/data/1003201/000114420417041333/mmac-20170630x10q.htm

 

------

conference call on Thursday, August 10, 2017 at 8:30 a.m. ET

 

edit - added press release.  New repurchase limit is $24.94/sh

 

https://mmacapitalmanagement.investorroom.com/2017-08-09-MMA-Capital-Management-Announces-Second-Quarter-2017-Financial-Results-and-Investor-Conference-Call

 

 

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Results are out at MMAC, still an interesting operation run by some really good people...

 

https://mmacapitalmanagement.investorroom.com/2018-05-10-MMA-Capital-Management-Announces-First-Quarter-Results-and-Investor-Conference-Call

 

https://www.sec.gov/Archives/edgar/data/1003201/000114420418026794/mmac-20180331x10q.htm

 

"Diluted common shareholders’ equity (“Book Value”) per share increased $6.34 per share in the first quarter of 2018 to $30.82 at March 31, 2018. "

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This sure has been a home run. Well done, guys. I love these BV growth plays.

 

But....this is a debt-oriented company, in areas that seem shaky, no? Affordable housing ( with 1.1X debt service coverage per the 10-K) and renewable energy ( which seems beholden to tax incentives).

 

I notice that Falcone has been prominent since 1997, and CEO since 2005. So, he was instrumental in the blow-up a decade ago. How does that figure into people's thinking here? Just how risky is this?

 

 

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It has been a delightful investment.  About to report book value above $34 per share and available very recently in the $25's.  I don't think it is correct that Michael Falcone was involved with the company during the MuniMae blow up.  He was CEO of MMA Capital management since 2005, but MMA Capital management was not the same as MuniMae, the mess of a shell he took over.

** This is incorrect.  falcone was in fact involved with MuniMae - my apologies **

https://www.businesswire.com/news/home/20041209005690/en/MuniMae-Announces-CEO-Succession-Michael-L.-Falcone

 

As for how risky it is?  Who knows!  The people with the greatest grasp on the business continue to put more of their net worth into the shares and repurchase shares below book.  I'm holding for a while longer

 

By the way, Libs, are you "libertarians_2000" from back in the day?

 

This sure has been a home run. Well done, guys. I love these BV growth plays.

 

But....this is a debt-oriented company, in areas that seem shaky, no? Affordable housing ( with 1.1X debt service coverage per the 10-K) and renewable energy ( which seems beholden to tax incentives).

 

I notice that Falcone has been prominent since 1997, and CEO since 2005. So, he was instrumental in the blow-up a decade ago. How does that figure into people's thinking here? Just how risky is this?

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Sometimes people get religion.  I wrote this up on the VIC in the $2s (then sold in the $4s partly due to not being sure about Falcone).

 

Renta Corporacion in Spain is another case of a company run by a guy who blew up in the housing bubble (in this case, the one in Spain) who is now doing all the right things.  Full disclosure: I'm long Renta.

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<By the way, Libs, are you "libertarians_2000" from back in the day?>

 

Yessir. I've always appreciated your insights and wit, GFP, and am glad to have found you here.

 

Re MMAC, I found this really compelling a few years ago; I bought and quickly doubled up when the price / BV gap closed. Then I stupidly sold, thinking it was played out, at around $15.

 

It's still tempting, but I just don't quite get how they keep pulling these rabbits out of their hat to increase BV over and over again. And I don't know enough about their business to understand just how risky that debt service number

( 1.1X) is.

 

 

 

 

 

 

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