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EX-31.1 - EXHIBIT 31.1 - MMA Capital Holdings, Inc.mmac-20150930xex311.htm
EX-32.1 - EXHIBIT 32.1 - MMA Capital Holdings, Inc.mmac-20150930xex321.htm
EX-31.2 - EXHIBIT 31.2 - MMA Capital Holdings, Inc.mmac-20150930xex312.htm
EX-32.2 - EXHIBIT 32.2 - MMA Capital Holdings, Inc.mmac-20150930xex322.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

 

 

 

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

 

 


For the quarterly period ended September  30, 2015

OR

 

 

 

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

 

For the transition period from __________________ to __________________

 

Commission File Number 001-11981

MMA CAPITAL MANAGEMENT, LLC
(Exact name of registrant as specified in its charter)

 

 

 

Delaware
(State or other jurisdiction of incorporation or organization)

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

621 East Pratt Street, Suite 600

Baltimore, Maryland
(Address of principal executive offices)

21202
(Zip Code)

 

(443) 263-2900
(Registrant's telephone number, including area code)

 

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

 

 

Title of each class
Common Shares, no par value

Name of each exchange on which registered
NASDAQ Capital Market

 

Securities registered pursuant to Section 12(g) of the Act: None

 

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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files) Yes No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

 

 

 

 

 

 

Large accelerated filer

 

Accelerated filer

 

 

 

 

 

 

 

Non-accelerated filer

 

Smaller reporting company

 

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

 

There were 6,552,179 shares of common shares outstanding at November 6, 2015.

 

 

 


 

 

 

 

MMA Capital Management, LLC

 

TABLE OF CONTENTS

 

 

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS 

 

 

Part I - FINANCIAL INFORMATION 

 

 

 

Item 1. Financial Statements 

 

 

(a) Consolidated Balance Sheets as of September 30, 2015 and December 31, 2014 

 

 

(b) Consolidated Statement of Operations for the three months and nine months ended September 30, 2015 and 2014 

 

 

(c) Consolidated Statements of Comprehensive Loss for the three months and nine months ended September 30, 2015 and 2014 

 

 

(d) Consolidated Statements of Equity for the nine months ended September 30, 2015 

 

 

(e) Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 and 2014 

 

 

(f) Notes to Consolidated Financial Statements 

 

 

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 

43 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk 

58 

 

 

Item 4. Controls and Procedures 

58 

 

 

PART II - OTHER INFORMATION 

59 

 

 

Item 1. Legal Proceedings 

59 

 

 

Item 1A.   Risk Factors 

59 

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 

59 

 

 

Item 3. Defaults Upon Senior Securities 

60 

 

 

Item 4. Mine Safety Disclosures 

60 

 

 

Item 5. Other Information 

60 

 

 

Item 6. Exhibits 

60 

 

 

SIGNATURES S-1 

S-1

 

 

Exhibits 

E-1

 

 

 

 

i


 

Cautionary Statement Regarding Forward Looking Statements

This Quarterly Report on Form 10-Q for the period ended September  30, 2015 (this “Report”) contains forward-looking statements intended to qualify for the safe harbor contained in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  Forward-looking statements often include words such as “may,” “will,” “should,” “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “seek,” “would,” “could,” and similar words or expressions and are made in connection with discussions of future operating or financial performance. 

Forward-looking statements reflect our management’s expectations at the date of this Report regarding future conditions, events or results.  They are not guarantees of future performance.  By their nature, forward-looking statements are subject to risks and uncertainties.  Our actual results and financial condition may differ materially from what is anticipated in the forward-looking statements.  There are many factors that could cause actual conditions, events or results to differ from those anticipated by the forward-looking statements contained in this Report.  They include the factors discussed in Part 1, Item 1A. Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 (“2014 Form 10-K”).

Readers are cautioned not to place undue reliance on forward-looking statements in this Report or that we make from time to time, and to consider carefully the factors discussed in Part I, Item 1A. Risk Factors” of the 2014 Form 10-K in evaluating these forward-looking statements.  We have not undertaken to update any forward-looking statements.

 

 

1


 

 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

MMA Capital Management, LLC

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At

 

 

 

 

September 30,

 

At

 

2015

 

December 31,

 

(Unaudited)

 

2014

ASSETS

 

 

 

 

 

Cash and cash equivalents

$

56,894 

 

$

29,619 

Restricted cash (includes $21,283 and $24,186 related to CFVs)

 

30,477 

 

 

50,189 

Bonds available-for-sale (includes $177,318 and $144,611 pledged as collateral)

 

218,058 

 

 

222,899 

Investments in partnerships (includes $189,295 and $231,204 related to CFVs)

 

239,880 

 

 

259,422 

Investment in preferred stock (includes $25,000 and $31,371 pledged as collateral)

 

31,371 

 

 

31,371 

Other assets (includes $12,076 and $161 pledged as collateral and $9,539 and $11,128
   related to CFVs)

 

47,856 

 

 

75,246 

Total assets

$

624,536 

 

$

668,746 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

Debt (includes $6,712 and $6,712 related to CFVs)

$

275,522 

 

$

290,543 

Accounts payable and accrued expenses

 

5,276 

 

 

5,538 

Unfunded equity commitments to Lower Tier Property Partnerships related to CFVs

 

8,229 

 

 

9,597 

Other liabilities (includes $27,601 and $31,831 related to CFVs)

 

42,301 

 

 

41,870 

Total liabilities

$

331,328 

 

$

347,548 

 

 

 

 

 

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

Noncontrolling interests in CFVs, IHS and IHS PM (net of zero and $575 of subscriptions
   receivable)

$

188,328 

 

$

229,714 

Common shareholders’ equity:

 

 

 

 

 

Common shares, no par value (6,607,051 and 7,162,221 shares issued and outstanding

 

 

 

 

 

  and 71,137 and 66,106 non-employee directors' and employee deferred shares
  issued at September 30, 2015 and December 31, 2014, respectively)  

 

38,575 

 

 

35,032 

Accumulated other comprehensive income 

 

66,305 

 

 

56,452 

Total common shareholders’ equity

 

104,880 

 

 

91,484 

Total equity 

 

293,208 

 

 

321,198 

Total liabilities and equity

$

624,536 

 

$

668,746 

 

The accompanying notes are an integral part of these consolidated financial statements.

2


 

 

MMA Capital Management, LLC

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

For the nine months ended

 

September 30,

 

September 30,

 

2015

 

2014

 

2015

 

2014

Interest income

 

 

 

 

 

 

 

 

 

 

 

Interest on bonds

$

3,131 

 

$

5,240 

 

$

9,733 

 

$

13,029 

Interest on loans and short-term investments

 

396 

 

 

208 

 

 

1,940 

 

 

569 

Total interest income

 

3,527 

 

 

5,448 

 

 

11,673 

 

 

13,598 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

 

 

 

 

 

 

 

 

 

Bond related debt

 

318 

 

 

347 

 

 

1,023 

 

 

2,111 

Non-bond related debt

 

305 

 

 

179 

 

 

585 

 

 

563 

Total interest expense

 

623 

 

 

526 

 

 

1,608 

 

 

2,674 

Net interest income

 

2,904 

 

 

4,922 

 

 

10,065 

 

 

10,924 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest revenue

 

 

 

 

 

 

 

 

 

 

 

Income on preferred stock investment 

 

1,326 

 

 

1,326 

 

 

3,934 

 

 

3,935 

Asset management fees and reimbursements

 

1,924 

 

 

1,794 

 

 

4,920 

 

 

2,657 

Other income 

 

656 

 

 

692 

 

 

2,189 

 

 

1,586 

Revenue from CFVs

 

209 

 

 

3,841 

 

 

409 

 

 

14,501 

Total non-interest revenue

 

4,115 

 

 

7,653 

 

 

11,452 

 

 

22,679 

Total revenues, net of interest expense

 

7,019 

 

 

12,575 

 

 

21,517 

 

 

33,603 

 

 

 

 

 

 

 

 

 

 

 

 

Operating and other expenses

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

1,300 

 

 

3,400 

 

 

6,204 

 

 

10,462 

Salaries and benefits

 

4,232 

 

 

2,973 

 

 

11,415 

 

 

9,398 

General and administrative

 

719 

 

 

737 

 

 

2,355 

 

 

2,594 

Professional fees

 

718 

 

 

1,507 

 

 

2,743 

 

 

3,872 

Other expenses

 

2,267 

 

 

1,940 

 

 

4,096 

 

 

3,595 

Expenses from CFVs

 

10,890 

 

 

17,296 

 

 

29,220 

 

 

41,604 

Total operating and other expenses

 

20,126 

 

 

27,853 

 

 

56,033 

 

 

71,525 

 

 

 

 

 

 

 

 

 

 

 

 

Net gains (losses) on sale of real estate

 

4,296 

 

 

(18)

 

 

9,918 

 

 

(18)

Net gains on bonds

 

626 

 

 

7,450 

 

 

5,001 

 

 

8,218 

Net gains on derivatives and loans

 

1,523 

 

 

1,761 

 

 

3,436 

 

 

1,779 

Net gains on extinguishment of liabilities

 

 ─

 

 

1,476 

 

 

 ─

 

 

1,878 

Net gains transferred into net income from AOCI due to real estate foreclosure

 

 ─

 

 

 ─

 

 

 ─

 

 

2,003 

Equity in income (losses) from unconsolidated funds and ventures

 

281 

 

 

(182)

 

 

374 

 

 

(436)

Net gains related to CFVs

 

 ─

 

 

12,627 

 

 

 ─

 

 

16,779 

Equity in losses from Lower Tier Property Partnerships of CFVs

 

(3,919)

 

 

(4,346)

 

 

(16,266)

 

 

(18,812)

Net (loss) income from continuing operations before income taxes

 

(10,300)

 

 

3,490 

 

 

(32,053)

 

 

(26,531)

Income tax expense

 

(146)

 

 

(1,919)

 

 

(278)

 

 

(171)

Net income from discontinued operations, net of tax

 

83 

 

 

3,903 

 

 

244 

 

 

17,941 

Net (loss) income 

 

(10,363)

 

 

5,474 

 

 

(32,087)

 

 

(8,761)

Loss allocable to noncontrolling interests:

 

 

 

 

 

 

 

 

 

 

 

Net losses allocable to noncontrolling interests in CFVs and IHS:

 

 

 

 

 

 

 

 

 

 

 

Related to continuing operations

 

13,780 

 

 

7,138 

 

 

42,252 

 

 

32,412 

Related to discontinued operations

 

 ─

 

 

 ─

 

 

 ─

 

 

150 

Net income allocable to common shareholders  

$

3,417 

 

$

12,612 

 

$

10,165 

 

$

23,801 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

3


 

 

MMA Capital Management, LLC

CONSOLIDATED STATEMENTS OF OPERATIONS – (continued)

(Unaudited)

(in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

For the nine months ended

 

September 30,

 

September 30,

 

2015

 

2014

 

2015

 

2014

Basic income per common share:

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

$

0.50 

 

$

1.17 

 

$

1.42 

 

$

0.74 

Income from discontinued operations

 

0.01 

 

 

0.52 

 

 

0.04 

 

 

2.33 

Income per common share

$

0.51 

 

$

1.69 

 

$

1.46 

 

$

3.07 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted income per common share:

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

$

0.48 

 

$

1.12 

 

$

1.42 

 

$

0.74 

Income from discontinued operations

 

0.01 

 

 

0.50 

 

 

0.04 

 

 

2.33 

Income per common share

$

0.49 

 

$

1.62 

 

$

1.46 

 

$

3.07 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

Basic

 

6,746 

 

 

7,454 

 

 

6,970 

 

 

7,760 

Diluted

 

7,091 

 

 

7,772 

 

 

6,970 

 

 

7,760 

 

The accompanying notes are an integral part of these consolidated financial statements.

4


 

 

MMA Capital Management, LLC

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

For the nine months ended

 

September 30,

 

September 30,

 

2015

 

2014

 

2015

 

2014

Net income allocable to common shareholders

$

3,417 

 

$

12,612 

 

$

10,165 

 

$

23,801 

Net loss allocable to noncontrolling interests

 

(13,780)

 

 

(7,138)

 

 

(42,252)

 

 

(32,562)

Net (loss) income

$

(10,363)

 

$

5,474 

 

$

(32,087)

 

$

(8,761)

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss) allocable to common
   shareholders

 

 

 

 

 

 

 

 

 

 

 

Bond related changes:

 

 

 

 

 

 

 

 

 

 

 

Unrealized net gains

$

8,332 

 

$

3,370 

 

$

14,077 

 

$

11,184 

Reversal of net unrealized losses (gains) on sold or redeemed bonds

 

386 

 

 

(6,450)

 

 

(3,480)

 

 

(7,228)

Reclassification of unrealized losses to operations due to impairment

 

 ─

 

 

113 

 

 

179 

 

 

113 

Reversal of unrealized gains from AOCI to Net Income due to
   foreclosure

 

 ─

 

 

 ─

 

 

 ─

 

 

(2,003)

Net change in other comprehensive income due to bonds

 

8,718 

 

 

(2,967)

 

 

10,776 

 

 

2,066 

Income tax benefit

 

 ─

 

 

458 

 

 

 ─

 

 

 ─

Foreign currency translation adjustment

 

(833)

 

 

(134)

 

 

(923)

 

 

(221)

Other comprehensive income (loss) allocable to common
   shareholders

$

7,885 

 

$

(2,643)

 

$

9,853 

 

$

1,845 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss allocable to noncontrolling interests:

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

$

 ─

 

$

(8,032)

 

$

24 

 

$

(9,366)

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income to common shareholders 

$

11,302 

 

$

9,969 

 

$

20,018 

 

$

25,646 

Comprehensive loss to noncontrolling interests 

 

(13,780)

 

 

(15,170)

 

 

(42,228)

 

 

(41,928)

Comprehensive loss

$

(2,478)

 

$

(5,201)

 

$

(22,210)

 

$

(16,282)

 

 

The accompanying notes are an integral part of these consolidated financial statements.

5


 

 

MMA Capital Management, LLC

CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Equity Before AOCI

 

AOCI

 

Total Common Shareholders’ Equity

 

Noncontrolling Interest in CFVs and IHS  

 

Total Equity

 

 

Number

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2015

 

 

7,228 

 

$

35,032 

 

$

56,452 

 

$

91,484 

 

$

229,714 

 

$

321,198 

Net income (loss)

 

 

 ─

 

 

10,165 

 

 

 ─

 

 

10,165 

 

 

(42,252)

 

 

(32,087)

Other comprehensive income

 

 

 ─

 

 

 ─

 

 

9,853 

 

 

9,853 

 

 

24 

 

 

9,877 

Contributions

 

 

 ─

 

 

 ─

 

 

 ─

 

 

 ─

 

 

575 

 

 

575 

Distributions

 

 

 ─

 

 

 ─

 

 

 ─

 

 

 ─

 

 

(106)

 

 

(106)

Purchases of shares in a subsidiary

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(including price adjustments on
prior purchases)

 

 

 ─

 

 

(547)

 

 

 ─

 

 

(547)

 

 

373 

 

 

(174)

Common shares (restricted and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

deferred) issued under employee

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and non-employee director share
plans  

 

 

41 

 

 

472 

 

 

 ─

 

 

472 

 

 

 ─

 

 

472 

Common share repurchases

 

 

(591)

 

 

(6,547)

 

 

 ─

 

 

(6,547)

 

 

 ─

 

 

(6,547)

Balance, September 30, 2015

 

 

6,678 

 

$

38,575 

 

$

66,305 

 

$

104,880 

 

$

188,328 

 

$

293,208 

 

The accompanying notes are an integral part of these consolidated financial statements.

6


 

 

MMA Capital Management, LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the nine months ended

 

 

September 30,

 

 

2015

 

2014

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net loss

 

$

(32,087)

 

$

(8,761)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Provisions for credit losses and impairment (1) 

 

 

25,237 

 

 

20,555 

Net equity in losses from equity investments in partnerships (1) 

 

 

15,892 

 

 

19,248 

Net gains on bonds

 

 

(5,001)

 

 

(8,218)

Net gains on real estate

 

 

(10,075)

 

 

(17,653)

Net gains on derivatives and loans

 

 

(657)

 

 

(349)

Advances on and originations of loans held for sale

 

 

(6,752)

 

 

 ─

Net gains related to CFVs

 

 

 ─

 

 

(15,987)

Net gains due to initial real estate consolidation and foreclosure

 

 

 ─

 

 

(2,003)

Subordinate debt effective yield amortization and interest accruals

 

 

2,122 

 

 

5,321 

Depreciation and other amortization (1) 

 

 

1,847 

 

 

7,310 

Foreign currency loss (1) 

 

 

365 

 

 

3,525 

Stock-based compensation expense

 

 

1,702 

 

 

1,808 

Change in asset management fees payable related to CFVs

 

 

(4,448)

 

 

 ─

Other 

 

 

64 

 

 

(5,824)

Net cash used in operating activities

 

 

(11,791)

 

 

(1,028)

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

Principal payments and sales proceeds received on bonds and loans held for investment

 

 

29,255 

 

 

9,587 

Advances on and originations of loans held for investment

 

 

(1,045)

 

 

(8,125)

Advances on and purchases of bonds

 

 

(15,123)

 

 

(8,380)

Investments in property partnerships and real estate (1) 

 

 

(27,002)

 

 

(24,537)

Proceeds from the sale of real estate and other investments

 

 

37,533 

 

 

61,195 

Decrease in restricted cash and cash of CFVs

 

 

19,907 

 

 

21,216 

Capital distributions received from investments in property partnerships (1) 

 

 

6,410 

 

 

13,922 

Net cash provided by investing activities

 

 

49,935 

 

 

64,878 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

Proceeds from borrowing activity

 

 

32,743 

 

 

 ─

Repayment of borrowings

 

 

(37,232)

 

 

(75,478)

Purchase of treasury stock

 

 

(6,547)

 

 

(6,938)

Other

 

 

167 

 

 

(1,621)

Net cash used in financing activities

 

 

(10,869)

 

 

(84,037)

Net increase (decrease) in cash and cash equivalents

 

 

27,275 

 

 

(20,187)

Cash and cash equivalents at beginning of period

 

 

29,619 

 

 

66,794 

Cash and cash equivalents at end of period

 

$

56,894 

 

$

46,607 

 

(1)

Majority of the activity was related to CFVs.

 

The accompanying notes are an integral part of these consolidated financial statements.

7


 

 

MMA Capital Management, LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS– (continued)

(Unaudited)

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the nine months ended

 

 

September 30,

 

 

2015

 

2014

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

 

 

 

 

 

 

Interest paid

 

$

6,091 

 

$

10,171 

Income taxes paid

 

 

224 

 

 

302 

 

 

 

 

 

 

 

Non-cash investing and financing activities:

 

 

 

 

 

 

Unrealized gains (losses) included in other comprehensive income

 

 

9,877 

 

 

(7,521)

Debt and liabilities extinguished through sales and collections on bonds and loans

 

 

17,140 

 

 

22,552 

Increase in debt through loan fundings

 

 

4,886 

 

 

 ─

Increase in real estate assets and decrease in bond assets due to foreclosure or initial
   consolidation of funds and ventures

 

 

 ─

 

 

11,058 

Decrease in common equity and increase in noncontrolling equity due to purchase of
   noncontrolling interest

 

 

397 

 

 

2,849 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

8


 

 

MMA Capital Management, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

NOTE 1— DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION 

 

MMA Capital Management, LLC, the registrant, was organized in 1996 as a Delaware limited liability company.  When used in this Quarterly Report on Form 10-Q for the period ended September 30, 2015 (this “Report”), the “Company,” “MMA,” “we,” “our,” or “us” may refer to the registrant, the registrant and its subsidiaries, or one or more of the registrant’s subsidiaries depending on the context of the disclosure.

 

Description of the Business

 

The Company uses its experience and expertise to partner with institutional capital to create attractive and impactful alternative investment opportunities, to manage them well and to report on them effectively.  Beginning in 2015, the Company operates through three reportable segments – United States (“U.S.”) Operations, International Operations and Corporate Operations. 

 

U.S. Operations

 

Our U.S. Operations consists of three business lines: Leveraged Bonds, Low-Income Housing Tax Credits (“LIHTCs”) and Other Investments and Obligations.

 

The Leveraged Bonds business line finances affordable housing and infrastructure in the U.S.  This business line manages the vast majority of the Company’s bonds and bond related investments (“bonds”) and associated financings.  The bond portfolio is comprised primarily of multifamily tax-exempt bonds, but also includes other real estate related bond investments. 

 

Our LIHTC business consists primarily of a secured subordinate loan receivable from Morrison Grove Management, LLC (“MGM”) and an option to purchase MGM beginning in 2019. 

 

The Other Investments and Obligations business line includes legacy assets targeted for eventual disposition and serves as our research and development unit for new business opportunities in the U.S., which has resulted in the creation of a renewable energy finance business that operates as MMA Energy Capital, LLC (“MEC”).

 

International Operations

 

We manage our International Operations through a wholly owned subsidiary, International Housing Solutions S.à r.l. (“IHS”).  IHS’s strategy is to raise, invest in, and manage private real estate funds.  IHS currently manages three funds: the South Africa Workforce Housing Fund (“SAWHF”), which is a multi-investor fund and is fully invested; IHS Residential Partners I, which is a single-investor fund targeted at the emerging middle class in South Africa; and IHS Fund II, which is a multi-investor fund targeting investments in affordable housing, including green housing projects, within South Africa and Sub-Saharan Africa.  During the second quarter of 2015, IHS and a South African property management company formed a company in South Africa, IHS Property Management Proprietary Limited (“IHS PM”), to provide property management services to the properties of IHS-managed funds.  IHS owns 60% of IHS PM and the third party property manager owns the remaining 40%.

 

Corporate Operations

 

Our Corporate Operations segment is responsible for accounting, reporting, compliance and planning, which are fundamental to our success as a global fund manager and publicly traded company in the U.S.

 

Use of Estimates

 

The preparation of the Company’s financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, commitments and contingencies, and revenues and expenses.  Management has made significant estimates in certain areas, including the determination of fair values for bonds, derivative financial instruments, guarantee obligations, and certain assets and liabilities of consolidated funds and ventures (“CFVs”).  Management has also made significant estimates in the determination of impairment on bonds and real estate investments.  Actual results could differ materially from these estimates.

 

9


 

 

Basis of Presentation and Significant Accounting Policies

 

The consolidated financial statements include the accounts of the Company and of entities that are considered to be variable interest entities in which the Company is the primary beneficiary, as well as those entities in which the Company has a controlling financial interest, including wholly owned subsidiaries of the Company.  All intercompany transactions and balances have been eliminated in consolidation.  Equity investments in unconsolidated entities where the Company has the ability to exercise significant influence over the operations of the entity, but is not considered the primary beneficiary, are accounted for using the equity method of accounting.

 

New Accounting Guidance

 

Accounting for Consolidation

 

In February 2015, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis,” which amends current guidance related to the consolidation of legal entities such as limited partnerships, limited liability corporations and securitization structures.  The guidance removed the specialized consolidation model surrounding limited partnerships and similar entities and amended the requirements that such entities must meet to qualify as voting interest entities.  In addition, the guidance eliminated certain of the conditions for evaluating whether fees paid to a decision maker or service provider represented a variable interest.  The new guidance is effective for us on January 1, 2016 with early adoption permitted.  The Company is currently evaluating the potential impact of the new guidance on our consolidated financial statements.

 

Accounting for Debt Issuance Costs

 

On April 7, 2015, the Company adopted ASU No. 2015-03, “Interest – Imputation of Interest (Subtopic 835-30):  Simplifying the Presentation of Debt Issuance Costs.”  This guidance provides an amendment to the accounting guidance related to the presentation of debt issuance costs and is effective for fiscal years beginning after December 15, 2015 with early adoption allowed.  This guidance is applied retrospectively to all prior periods.  Under the new guidance, debt issuance costs related to a note shall be reported in the Consolidated Balance Sheets as a direct deduction from the face amount of that note.  In this regard, debt issuance costs shall not be classified separately from related debt obligations as a deferred charge.  Therefore, as a result of adopting this guidance, the Company reclassified in its Consolidated Balance Sheets $2.9 million of debt issuance costs at December 31, 2014, from “Other Assets” to “Debt, thereby decreasing the carrying value of our recognized debt obligations for presentational purposes.

 

NOTE 2BONDS AVAILABLE-FOR-SALE

 

Bonds Available-for-Sale

The Company’s bond portfolio is comprised primarily of multifamily tax-exempt bonds, but also includes other real estate related bond investments. 

 

Multifamily tax-exempt bonds are issued by state and local governments or their agencies or authorities to finance multifamily rental housing; typically however, the only source of recourse on these bonds is the collateral, which is either a first mortgage or a subordinate mortgage on the underlying properties. 

 

The Company’s investments in other real estate related bonds include municipal bonds that are issued to finance the development of community infrastructure that supports mixed-use and commercial developments and that are secured by incremental tax revenues generated from the development.  Investments in other real estate related bonds also include senior investments in a trust collateralized by a pool of tax-exempt municipal bonds that finance a variety of non-profit projects such as hospitals, healthcare facilities, charter schools and airports, as well as a subordinate investment in a collateralized mortgage backed security that finances multifamily housing. 

 

The weighted average pay rate on the Company’s bond portfolio was 5.5% and 5.2% at September 30, 2015 and December 31, 2014, respectively.  Weighted average pay rate represents the cash interest payments collected on the bonds as a percentage of the bonds’ average unpaid principal balance (“UPB”) for the preceding 12 months for the population of bonds at September 30, 2015 and December 31, 2014, respectively.

10


 

 

The following tables provide information about the UPB, amortized cost, gross unrealized gains, gross unrealized losses and fair value (“FV”) associated with the Company’s investments in bonds that are classified as available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At

 

 

September 30, 2015

 

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

FV as a %

(in thousands)

 

UPB

 

Cost (1)

 

Gains

 

Losses

 

Value  

 

of UPB

Multifamily tax-exempt bonds

 

$

164,020 

 

$

101,931 

 

$

54,393 

 

$

 ─

 

$

156,324 

 

95% 

Other real estate related bond
   investments

 

 

62,385 

 

 

48,117 

 

 

13,617 

 

 

 ─

 

 

61,734 

 

99% 

Total

 

$

226,405 

 

$

150,048 

 

$

68,010 

 

$

 ─

 

$

218,058 

 

96% 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At

 

 

December 31, 2014

 

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

FV as a %

(in thousands)

 

UPB

 

Cost (1)

 

Gains

 

Losses (2), (3)

 

Value  

 

of UPB

Multifamily tax-exempt bonds

 

$

192,068 

 

$

126,897 

 

$

41,145 

 

$

(858)

 

$

167,184 

 

87% 

Other real estate related bond
   investments

 

 

57,056 

 

 

38,768 

 

 

16,947 

 

 

 ─

 

 

55,715 

 

98% 

Total

 

$

249,124 

 

$

165,665 

 

$

58,092 

 

$

(858)

 

$

222,899 

 

89% 

 

(1)

Consists of the UPB, unamortized premiums, discounts and other cost basis adjustments, as well as other-than-temporary impairments (“OTTI”) recognized in earnings.

(2)

At December 31, 2014, $0.6 million represents the non-credit loss component for certain unrealized losses deemed to be OTTI and $0.3 million represents unrealized losses that were not considered OTTI.

(3)

Comprised of bonds in a gross unrealized loss position for less than 12 consecutive months that had a fair value of $1.8 million at December 31, 2014, as well as bonds in a gross unrealized loss position for more than 12 consecutive months that had a fair value of $6.0 million at December 31, 2014.

See Note 9, “Fair Value Measurements,” which describes factors that contributed to the $4.8 million decrease in the reported fair value of the Company’s bond portfolio during the nine months ended September 30, 2015

 

Maturity

 

Principal payments on the Company’s investments in bonds are based on contractual terms that are set forth in the offering documents for such investments.  If principal payments are not required to be made prior to the contractual maturity of a bond, its UPB is required to be paid in a lump sum payment at contractual maturity or at such earlier time as may be provided under the offering documents.  At September 30, 2015, six bonds (that have a combined amortized cost of $15.0 million and combined fair value of $24.9 million) were non-amortizing with principal due in full between November 2044 and August 2048.  The remaining bonds are amortizing with stated maturity dates between September 2017 and June 2056.

11


 

 

Bonds with Prepayment Features

 

The contractual terms of substantially all of the Company’s investments in bonds include provisions that permit the bonds to be prepaid at par after a specified date that is prior to the stated maturity date.  The following table provides information about the UPB, amortized cost and fair value of the Company’s investments in bonds that were prepayable at par at September 30, 2015, as well as stratifies such information for the remainder of the Company’s investments based upon the periods in which such instruments become prepayable at par:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

UPB

 

Amortized Cost

 

Fair Value

September 30, 2015

 

$

57,475 

 

$

38,117 

 

$

54,499 

October 1 through December 31, 2015

 

 

 ─

 

 

 ─

 

 

 ─

2016

 

 

 ─

 

 

 ─

 

 

 ─

2017

 

 

 ─

 

 

 ─

 

 

 ─

2018

 

 

2,000 

 

 

675 

 

 

2,041 

2019

 

 

 ─

 

 

 ─

 

 

 ─

Thereafter

 

 

166,686 

 

 

111,012 

 

 

161,268 

Bonds that may not be prepaid

 

 

244 

 

 

244 

 

 

250 

Total 

 

$

226,405 

 

$

150,048 

 

$

218,058 

 

Non-Accrual Bonds

 

The fair value of the Company’s investments in bonds that were on non-accrual status was $40.5 million and $43.6 million at September 30, 2015 and December 31, 2014, respectively.  During the period in which such bonds were on non-accrual status, the Company recognized interest income on a cash basis of $0.4 million and $3.4 million for the three months ended September 30, 2015 and 2014, respectively, and $1.2 million and $4.6 million for the nine months ended September 30, 2015 and 2014, respectively.  Interest income not recognized during the period in which these investments in bonds were on non-accrual status was $0.4 million and $0.9 million for the three months ended September 30, 2015 and 2014, respectively, and $1.3 million and $2.3 million for the nine months ended September 30, 2015 and 2014, respectively. 

 

Bond Aging Analysis

 

The following table provides information about the fair value of the Company’s investments in bonds that are classified as available-for-sale and that were current with respect to principal and interest payments, as well as the fair value of bonds that were past due with respect to principal or interest payments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At

 

At

 

 

September 30,

 

December 31,

(in thousands)

 

2015

 

2014

Total current

 

$

177,575 

 

$

179,315 

30-59 days past due

 

 

 ─

 

 

 ─

60-89 days past due

 

 

 ─

 

 

 ─

90 days or greater

 

 

40,483 

 

 

43,584 

Total

 

$

218,058 

 

$

222,899 

 

Bond Sales and Redemptions

 

The Company recognized cash proceeds in connection with sales and redemptions of its investments in bonds of $10.9 million and $7.4 million for the nine months ended September 30, 2015 and 2014, respectively. 

 

12


 

 

The following table provides information about net realized gains that were recognized in connection with the Company’s investments in bonds at the time of their sale or redemption (in the Consolidated Statements of Operations as a component of “Other expenses” and “Net gains on bonds”): 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

For the nine months ended

 

 

September 30,

 

September 30,

(in thousands)

 

2015

 

2014

 

2015

 

2014

Net impairment recognized on bonds held at each period-end

 

$

 ─

 

$

(113)

 

$

 ─

 

$

(113)

Net impairment recognized on bonds sold/redeemed during

 

 

 

 

 

 

 

 

 

 

 

 

each period

 

 

 ─

 

 

 ─

 

 

(179)

 

 

 ─

Gains recognized at time of sale or redemption

 

 

626 

 

 

7,450 

 

 

5,001 

 

 

8,218 

Total net gains on bonds

 

$

626 

 

$

7,337 

 

$

4,822 

 

$

8,105 

 

NOTE 3—INVESTMENTS IN PREFERRED STOCK

The Company’s investments in preferred stock are prepayable at any time and represent an interest in a private national mortgage lender and servicer that specializes in affordable and market rate multifamily housing, senior housing and healthcare.  At September 30, 2015, the carrying value of the Company’s investments in preferred stock was $31.4 million and the UPB and estimated fair value was $36.6 million with a weighted average pay rate of 14.4%.  The Company accounts for its investment in preferred stock using the cost method of accounting and tests such investment for impairment at each balance sheet date.  The Company did not recognize any impairment losses associated with its investment in preferred stock for the nine months ended September 30, 2015 and 2014.

 

As of September 30, 2015, a significant portion of our investment in preferred stock ($25.0 million) was the referenced asset in two total return swap agreements that expire on March 31, 2016.   

 

On October 30, 2015, the Company’s investments in preferred stock were fully redeemed by the issuer at a  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.

 

NOTE 4—INVESTMENTS IN PARTNERSHIPS

The following table provides information about the carrying value of the Company’s investments in partnerships.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At

 

At

 

 

September 30,

 

December 31,

(in thousands)

 

2015

 

2014

Investments in U.S. real estate partnerships

 

$

22,454 

 

$

22,529 

Investments in IHS-managed funds

 

 

3,053 

 

 

5,689 

Investment in a solar joint venture

 

 

25,078 

 

 

 ─

Investments in Lower Tier Property Partnerships (“LTPPs”) related to CFVs (1)

 

 

189,295 

 

 

231,204 

Total investments in partnerships

 

$

239,880 

 

$

259,422 

(1)

See Note 15, “Consolidated Funds and Ventures,” for more information. 

Investments in U.S. Real Estate Partnerships

 

At September 30, 2015, $16.3 million of the reported carrying value of investments in U.S. real estate partnerships pertains to an equity investment made by the Company in a real estate venture that was formed during the fourth quarter of 2014.  The Company accounts for this investment using the equity method of accounting.  The Company made an initial contribution of $8.8 million, which represented 80% of the real estate venture’s initial capital.  The Company has rights to a preferred return on its capital contribution, as well as rights to share in excess cash flows of the real estate venture.

 

At September 30, 2015, the majority of the remaining balance ($6.1 million) of investments in U.S. real estate partnerships pertains to an equity investment that represents a 33% ownership interest in a partnership that was formed to take a deed-in-lieu of foreclosure on land that was collateral for a loan held by the Company.  The Company accounts for this investment using the equity method of accounting

13


 

 

The following table provides information about the total assets and liabilities of the U.S. real estate partnerships in which the Company held an equity investment: 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At

 

At

 

 

September 30,

 

December 31,

 

 

2015

 

2014

(in thousands)

 

 

 

 

 

 

Total assets

 

$

86,018 

 

$

83,021 

Total liabilities

 

 

39,222 

 

 

34,856 

 

The following table provides information about the net loss recognized by the Company in connection with its equity investment in U.S. real estate partnerships:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

For the nine months ended

 

 

September 30,

 

September 30,

(in thousands)

 

2015

 

2014