Prospect Capital Corporation (PSEC) Q4 2021 Earnings Report, Transcript and Summary

Good day and welcome to the Prospect Capital Fourth Quarter Fiscal Earnings Release and Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to John Barry, Chairman and CEO. Please go ahead.

Thank you, Matt. Joining me on the call today are Grier Eliasek, our President and Chief Operating Officer and Kristin Van Dask, our Chief Financial Officer. Kristin?

Thanks, John. This call is the property of Prospect Capital Corporation. Unauthorized use is prohibited. This call contains forward-looking statements within the meaning of the securities laws that are intended to be subject to Safe Harbor protection. Actual outcomes and results could differ materially from those forecasts due to the impact of many factors. We do not undertake to update our forward-looking statements unless required by law. For additional disclosure, see our earnings press release and our 10-K filed previously and available on the Investor Relations tab on our website, prospectstreet.com. Now, I will turn the call back over to John.

Thank you, Kristin. In the June quarter, our net investment income, or NII, was $73.2 million, or $0.19 per common share, exceeding our distribution rate per common share by $0.01. Our basic net income attributable to common shareholders was $242.4 million or $0.62 per common share as the value of our portfolio increased for the fifth consecutive quarter due to a combination of positive company-specific and macro factors. In the June 2021 fiscal year, we earned basic net income attributable to common shareholders of $962.1 million, or $2.51 per common share, a 31% return on net asset value. Our NAV stood at $9.81 per common share in June, up $0.43 and 5% from the prior quarter, our fifth quarter in a row delivering NAV growth. Our NAV per common share is now at its highest level since September 2015, 6 years ago. We have outperformed our peers during the past multiple quarters of macro volatility as a direct result of our previous de-risking, not chasing leverage and other risk management controls. We are staying true to the strategy that has served us well since 1988, controlling and reducing portfolio and balance sheet risk to protect capital entrusted to us and to protect the ability of such capital to generate earnings for our shareholders. In the June quarter, our net debt-to-equity ratio was 55.9%, down 1.8% from March 2020 and down 60 basis points from the March 2021 quarter as we continue to run an underleveraged balance sheet, as has been the case for us for multiple quarters. Over the past 3 years, other listed BDCs overall have increased leverage, with the typical listed BDC now at around 109% debt to equity or over 50 percentage points higher than Prospect. Prospect has not increased debt leverage, instead electing lower risk from lower debt leverage with a cautious approach given macro dynamics. In May 2020, we moved our minimum 1940 Act regulatory asset coverage to 150%, equivalent to 200% debt to equity, which not only increased our cushion, but also gave us flexibility to pursue our recently announced junior capital perpetual preferred equity issuance, which counts toward 40 Act asset coverage, but which gets significant equity treatment by our rating agencies. We have no plans to increase our actual drawn debt leverage beyond our historical target of 0.7 to 0.85 debt to equity and we are currently significantly below such target range. Prospect’s balance sheet is highly differentiated from peers with 100% of Prospect’s funding coming from unsecured and non-recourse debt, which has been the case for us for over 14 years. Unsecured debt was 84% of Prospect’s total debt in June 2021 or about 23 percentage points higher than around 61% for the typical listed BDC. Our unsecured and diversified funding profile provides us with significantly lower risk and significantly more investment strategy and balance sheet flexibility than many of our BDC peers. On the cash shareholder distribution front, we are pleased to report the Board’s declaration of continued steady monthly distribution. We are announcing monthly cash common shareholder distributions of $0.06 per share for each of September and October. These two months represent the 49th and 50th in a row consecutive stable per share dividend rate as we have now crossed the 4-year mark for stable monthly unchanging cash shareholder distributions. Consistent with past practice, we plan on our next set of shareholder distribution announcements in November. Our goal over the long-term is to maintain and ideally grow this steady monthly cash shareholder distribution as we seek to provide low volatility stability to our shareholders amidst a macro market backdrop that delivers greater volatility elsewhere. Since our IPO over 17 years ago through our October 2021 distribution at the current share count, we will have paid out $18.96 per common share to original shareholders, aggregating approximately $3.4 billion in cumulative distributions to all common shareholders. Since October 2017, our NII per common share has aggregated $2.94, while our shareholder distributions per share have aggregated $2.70, causing our NII to exceed distributions since 2017 by $0.24 per share. Our NII covered distributions in the June 2020 fiscal year and have exceeded distributions in the 2021 fiscal year by $0.03 per share. We are also announcing continued preferred shareholder distributions on the heels of successful launches of our $1 billion 5.5% preferred program and $150 million 5.35% listed preferred. We have raised over $337 million in preferred stock to-date, with strong support from institutional investors, RIAs and broker-dealers, including the recent addition of a top 5 independent broker-dealer system as well as top wirehouse and regional broker-dealer systems. We are currently focused on multiple initiatives to enhance our NII and reduce risk, including: number one, our $1 billion perpetual preferred equity program; number two, our recent $150 million 5.35% listed perpetual preferred stock issuance; number three, a greater utilization of our cost efficient revolving credit facility, with an incremental cost of approximately 1.44% at today’s 1-month LIBOR; number four, retirement of higher cost liabilities, including multiple recent successful tender offers and repurchases, thank you, John, nicely; number five, issuing lower cost notes, including 5 to 30-year senior unsecured note issuances, with coupons of approximately 2.5% to 4%; and number six, increased originations of senior secured debt and selected equity investments to deliver targeted risk-adjusted yields and total returns as we deploy available capital from our current underleveraged balance sheet. We believe there is no greater alignment between management and shareholders than for management to purchase a significant amount of stock, particularly when management has purchased stock on the same basis as other shareholders in the open market as we have. Prospect management is the largest shareholder in Prospect and has never sold a share. Senior management and employee insider ownership is currently 28% of shares outstanding, representing approximately $1.1 billion of our net asset value. Thank you. I will now turn the call over to Grier.

Thank you, John. Our scale platform, with around $7 billion of assets and undrawn credit, continues to deliver solid performance in the current challenging environment. Our experienced team consists of around 100 professionals, representing one of the largest middle-market investment groups in the industry. With our scale, longevity, experience and deep bench, we continue to focus on a diversified investment strategy that spans third-party, private equity sponsor-related lending, direct non-sponsor lending, Prospect-sponsored operating and financial buyouts, structured credit and real estate yield investing. Consistent with past cycles, we expect during the next downturn to see an increase in secondary opportunities, coupled with wider spread primary opportunities with a pullback from other investment groups, particularly highly leveraged ones. This diversity allows us to source a broad range and high volume of opportunities, then select in a disciplined bottoms-up manner the opportunities we deem to be the most attractive on a risk-adjusted basis. Our team typically evaluates thousands of opportunities annually and invests in a disciplined manner in a low single-digit percentage of such opportunities. Our non-bank structure gives us the flexibility to invest in multiple levels of the corporate capital stack with a preference for secured lending and senior loans. As of June 2021, our portfolio at fair value comprised 50.9% secured first lien debt; 15.8% other senior secured debt; 12.2% subordinated structured notes with underlying secured first lien collateral; and 21.1% unsecured debt, other debt and equity investments combined, resulting in 78.9% of our investments being assets, with underlying secured debt benefiting from borrower-pledged collateral. Prospect’s approach is one that generates attractive risk-adjusted yields and our performing interest-bearing investments were generating an annualized yield of 11.7% as of June, down 0.1% from the prior quarter. We achieved an increase of 0.4% from June 2020 despite a headwind from the past year decline in LIBOR, though we expect reasonable stability now due to our LIBOR floors. We also hold equity positions in certain investments that can act as yield enhancers or capital gains contributors as such positions generate distributions. We have continued to prioritize senior and secured debt with our originations to protect against downside risk, while still achieving above-market yields through credit selection discipline and a differentiated origination approach. As of June, we held 124 portfolio companies, up 1 from the prior quarter, with a fair value of $6.2 billion, an increase of $318 million from the prior quarter. We also continue to invest in a diversified fashion across many different portfolio company industries with a preference for avoiding cyclicality and with no significant industry concentration. The largest is 17.7%. As of June, our asset concentration in the energy industry stood at 1.3%. Our concentration in the hotel, restaurant and leisure sector stood at 0.4%. And our concentration in the retail industry stood at 0%. Non-accruals as a percentage of total assets stood at approximately 0.6% in June, down 0.1% from the prior quarter and down 0.3% from June of 2020. Our weighted average middle-market portfolio net leverage stood at 5.01x EBITDA, substantially below our reporting peers. Our weighted average EBITDA per portfolio company stood at $89.1 million in June, an increase of $7.2 million from March as we continue to achieve solid profit growth with our portfolio of companies. Originations in the June quarter aggregated $307 million. We also experienced $156 million of repayments and exits as a validation of our capital preservation objective, resulting in net originations of $150 million. During the June quarter, our originations comprised 77.4% middle-market lending; 18.9% real estate; 1.8% subordinated structured notes; 1.7% middle-market lending and buyouts; and 0.2% other. To-date, we have deployed significant capital in the real estate arena through our private REIT strategy, largely focused on multifamily workforce, stabilized yield acquisitions with attractive 10 plus year financing. NPRC, our private REIT, has real estate properties that have benefited over the last several years from rising rents, strong occupancies, high collections, suburban work from home dynamics, high-returning value-added renovation programs and attractive financing recapitalizations, resulting in an increase in cash yields as a validation of this income growth business alongside our corporate credit businesses. NPRC as of June has exited completely 34 properties at an average IRR of 23.4%, with an objective to redeploy capital into new property acquisitions including with repeat property manager relationships. We currently have multiple other property exits in process that we expect to add to our growing track record of positive realization. Our structured credit business has delivered attractive cash yields, demonstrating the benefits of pursuing majority stakes, working with world-class management teams, providing strong collateral underwriting through primary issuance and focusing on attractive risk-adjusted opportunities. As of June, we held $756 million across 39 non-recourse subordinated structured notes investments. These underlying structured credit portfolios comprised around 1,700 loans and a total asset base of around $17 billion. As of June 2021, the structured credit portfolio experienced a trailing 12-month default rate of 100 basis points, down 71 basis points from the prior quarter and representing 25 basis points less than the broadly syndicated market default rate of 125 basis points. In the June quarter, this portfolio generated an annualized cash yield of 19.1% and GAAP yield of 14.2%. As of June, our subordinated structured credit portfolio has generated $1.33 billion in cumulative cash distributions to us, representing around 95% of our original investment. Through June, we’ve also exited nine investments totaling $263 million, with an average realized IRR of 16.7% and cash-on-cash multiple of 1.5x. Our subordinated structured credit portfolio consists entirely of majority-owned positions. Those positions can enjoy significant benefits compared to minority holdings in the same tranche. In many cases, we receive fee rebates because of our majority position. As a majority holder, we control the ability to call a transaction in our sole discretion in the future, and we believe such options add substantial value to our portfolio. We have the option of waiting years to call a transaction in an optimal fashion rather than when loan asset valuations might be temporarily low. We, as majority investor, can refinance liabilities on more advantageous terms, remove bond baskets in exchange for better terms from debt investors in the deal and extend or reset the investment period to enhance value. We completed 30 refinancings and resets since December 2017. So far in the current September 2021 quarter, we’ve booked $351 million in originations and experienced $165 million of repayments for $186 million of net originations. Our originations have consisted of 97.2% middle market lending and 2.8% real estate. Thank you. I’ll now turn the call over to Kristin.

Thanks, Grier. We believe our prudent leverage, diversified access to matched book funding, substantial majority of unencumbered assets weighting toward unsecured fixed rate debt, avoidance of unfunded asset commitments and lack of near-term maturities demonstrate both balance sheet strength as well as substantial liquidity to capitalize on attractive opportunities. Our company has locked in a ladder of liabilities extending 30 years into the future. Today, we have zero debt maturing until July 2022. Our total unfunded eligible commitments to non-controlled portfolio companies, totals approximately $52 million or 0.8% of our assets. Our combined balance sheet cash and undrawn revolving credit facility commitments currently stand at over $800 million. We are a leader and innovator in our marketplace. We were the first company in our industry to issue a convertible bond, develop a notes program, issue under a bond ATM, acquire another BDC and many other lists of firsts. In 2020, we also added our programmatic perpetual preferred issuance to that list of firsts, followed by our listed perpetual preferred as another first year in 2021. Shareholders and unsecured creditors alike should appreciate the thoughtful approach differentiated in our industry, which we have taken toward construction of the right-hand side of our balance sheet. As of June 2021, we held approximately $4.48 billion of our assets as unencumbered assets, representing approximately 71% of our portfolio. The remaining assets are pledged to Prospect Capital funding, where in April 2021, we completed an upsizing and extension of our revolver to a refreshed 5-year maturity. We currently have $1.175 billion of commitments from 36 banks, an increase of six lenders from before and demonstrating strong support of our company from the lender community. The facility revolves until April 2025, followed by a year of amortization with interest distributions continuing to be allowed to us. Our drawn pricing is now LIBOR plus 2.05%, a decrease of 15 basis points from before. Our undrawn pricing between 35% and 60% utilization has been reduced by 30 basis points. We also now have an improvement in our borrowing base due to a change in concentration baskets, which we estimate increased our borrowing base by approximately $150 million. Of our floating rate assets, 92.5% have LIBOR floors with a weighted average LIBOR – weighted average floor of 1.61%. Outside of our revolver and benefiting from our unencumbered assets, we have issued at Prospect Capital Corporation, including in the past 5 years, multiple types of investment-grade unsecured debt, including convertible bonds, institutional bonds, baby bonds and program notes. All of these types of unsecured debt have no financial covenants, no asset restrictions and no cross defaults with our revolver. We enjoy an investment-grade BBB negative rating from S&P, an investment-grade Baa3 rating from Moody’s, an investment-grade BBB negative rating from Kroll, an investment-grade BBB rating from Egan-Jones and an investment-grade BBB low rating from DBRS. We recently received the latter investment-grade rating, taking us to five investment-grade ratings more than any other company in our industry. We have now tapped the unsecured term debt market on multiple occasions to ladder our maturities and to extend our liability duration out 30 years. Our debt maturities extend through 2051. With so many banks and debt investors across so many debt tranches, we have substantially reduced our counterparty risk over the years. In the June 2021 quarter, we completed successful redemptions, tender offerings and repayments retiring $243 million of our InterNotes, $71 million of our 2028 notes and $1 million of our 2023 notes. In the current September quarter, we have retired $154 million of our InterNotes. In the June 2021 quarter, we issued $300 million in unsecured debt maturing in November 2026 with a coupon of 3.364%. We have continued to substitute more expensive term debt with significantly lower cost revolving credit with an incremental 1.45% cost and our newly issued 3.364% 2026 notes. We also have continued with our weekly programmatic InterNotes issuance on an efficient funding basis. To date, we have raised over $337 million in aggregate issuance of our perpetual preferred stock across our preferred program and listed preferred. We now have seven separate unsecured debt issuances aggregating $1.4 billion, not including our program notes, with maturities extending to June 2029. As of June 2021, we had $509 million of program notes outstanding with staggered maturities through October 2043. At June 30, 2021, our weighted average cost of unsecured debt financing was 4.86%, a decrease of 0.36% from March 31, 2021, and a decrease of 0.88% from June 30, 2020. In 2020, we added a shareholder loyalty benefit to our dividend reinvestment plan, or DRIP, that allows for a 5% discount to the market price for DRIP participants. As many brokerage firms either do not make DRIPs automatic or have their own synthetic DRIPs with no such 5% discount benefit, we encourage any shareholder interested in DRIP participation to contact your broker. Make sure to specify you wish to participate in the Prospect Capital Corporation DRIP plan through DTC at a 5% discount and obtain confirmation of same from your broker. Our preferred holders can also elect to DRIP at a price per share of $25. Shareholders participating in our common stock DRIP for our fiscal year ended June 30, 2021, received a return 7.2% greater than non-participating shareholders for a total return of over 85%. Now I’ll turn the call back over to John.

Thank you, Kristin. We can now answer any questions.

[Operator Instructions] Our first question will come from Finian O’Shea with Wells Fargo. Please go ahead. Finian O’Shea: Hi, everyone. Good morning. Congrats on the quarter. Just first question on First Tower, we’ve seen continued strength there translating to other income. Can you give us some color on what’s driving the other income? And should we view it as such or something more sustainable?

Okay. This is Grier. I’ll take that question. Thank you very much. Tower continues to perform well. We’ve now owned that business for – as majority shareholder in conjunction with the management team and CEO, we own about 80% of the business and the management team at about 20%. And the business is doing well in terms of loan growth and originations and muted charge-offs with its multistate approach. Really, it’s continuing the same aspects that worked well for this A loan installment lender for decades and enjoys low volatility benefits across cycles. That’s a big reason that attracted us to acquire the business in the first place in a tax-efficient manner. We have successfully, in the past year, navigated through expansion and growth on the right-hand side of the balance sheet for that business by growing on a net basis our account of bank lenders as well as the size of the ABL facility, and there are banks that have been financing Tower for decades at this point, very happy with the credit performance. Other income, your question will merge from time to time with this business in conjunction with those periodic refinancing and upfront fees that we will charge to the business as a secured first lien term, primarily cash flow lender to the business, and you saw that occur for Tower in the past quarter. But largely, that comes down the wash over time because any such income will come out of what otherwise could be distributed to us on a junior basis as an equity holder in the business. So it tends to not have a meaningful effect to income over time but can cause some short-term upward moves in income like what we saw in the quarter just ended. Is that helpful? Finian O’Shea: Yes, very much. And just a follow-on on the REIT, I think, Grier, you mentioned that you expect or plan on a bit of rotation there into new properties and so forth. There is been a lot of equity gains in REIT. Do you expect to keep the size as a percent of the portfolio level or perhaps realize and distribute some of those gains?

So NPRC, our REIT real estate business has delivered significant returns. As you pointed out, we’ve had 34 exits predominantly in multifamily, but also with other diversified tenant properties like on the self-storage side of things that is similar in nature to multifamily with diversified tenants. Consistent with many markets out there, it’s a sellers’ market. And we have been selectively monetizing assets and have a fairly rigorous approach that we go through each quarter in which we run, in NPV and foregone IRR optimization, on every single asset in our real estate book figuring out whether it’s better to divest an asset on the price we hope and expect to get, or hold the asset with continued status quo value-add renovation optimization, or hold the asset and do some sort of refinancing or recapitalization that could potentially return additional capital to us. So we will take the highest hold versus an exit and compare those for NPVs and foregone IRRs. And then, of course, we have to go out and see if there are buyers willing to pay what we think, based on that optimization. And generally speaking, that’s come in even more positively than our expectations, given how strongly this asset class has performed and how much capital it is attracting. So we do have other deals teed up for exit in various stages of that process. We have more to report on that undoubtedly in the coming months and quarters. And we’re also looking at new deals where underwritten returns can also benefit from drops in 10-year treasury. So we look at those opportunistically when there are such drops because we take a very conservative financing profile towards new originations in wanting to lock in generally 7-year to 12-year financing, a lot of times 10-year plus fixed rate. And so we can lock in that financing based on a low relative to historical and recent periods treasury, then that’s beneficial. You saw that occur and we closed a flurry of transactions at the end of 2020, for example. And we are looking at other diversified tenant areas as well or just areas that we think are attractive within real estate to meet our yield and total return criteria. We do you have capacity to grow this business a little bit on a percentage basis, but really, just replenishing what we have after exit keeps us busy. I think the bigger aspect is that we intend on growing our overall balance sheet vis-à-vis our highly successful preferred program. So, we could potentially add in conjunction with our preferred and significantly under-leveraged debt balance sheet relative to our own internal conservative targets and definitely peers. That combination gives us over $2 billion of additional firepower as that preferred comes then to grow the balance sheet. Not immediately, prudently and selectively and sagely. We have been at this a long time. We have seen the negative part of the cycle, and we are very cautious about credit quality. But originations are picking up. We have already originated on a gross and net basis here just over halfway through the September quarter what we did for all of the June quarter. And we cautiously hope and expect that pace to pick up post-Labor Day and into the fall months as well. So, just maintaining its existing share within real estate would cause dollars to grow from where they are today. Maybe I will pause there and see if anyone else in our end wants to – if John wants to supplement for Tower or for real estate business. John?

Well, the only thing I would add to what you said, Grier, is that none of this happens without careful management. And at Prospect, Ted Fowler has run our real estate group for a year, and those results are a good complement to Ted. And with respect to First Tower, managing that investment are Edward Shuman and Denis Echtchenko. But the person who gets the biggest award of all is Frank Lee, who has been running First Tower for over a decade, I think, 12 years since we have owned First Tower. And I believe for another 15 years prior to our propitious purchase. And I feel that sometimes the daily efforts of our employees and our managers at the portfolio level and their teams, Jody and others at First Tower, are forgotten when people just look at the numbers. We have great people. We are proud of them. They are doing a wonderful job for our shareholders. And we believe they will continue to do a wonderful job as we go forward. So, thank you very much. I believe that’s the end of the Q&A. Is that right?

We have another question.

Okay.

Our next question will come from Robert Dodd with Raymond James. Please go ahead.

Hi guys. And yes, just two questions. First one, follow-up on the REIT, looking at the Michigan self-storage portfolio is what was exited in 2020. I mean total proceeds, a little over $100 million, looks to me like original cost was about $65 million. So, a very nice return there. But a big delta, this is a request for more disclosure that we have won a big delta obviously between the market value and what it was carried at, which obviously factors into valuation of REIT. And it’s – internally, you have estimates for that. We don’t see that. It makes it quite difficult, obviously, to evaluate the valuation of the REIT as it’s carried on your balance sheet, how conservative or aggressive you are being on that front. So, just a request for more disclosure maybe about estimated market value of some of those assets because the exits in 2020 were well above, obviously, original purchase price. And that’s visible on the REIT balance sheet. Anyway, that’s a request. Then one other one, if I can. For the dividend paid in 2020, it looks about a third of that was return of capital, which tends to imply a big mismatch between taxable income and GAAP NII. Can you give us any color on what’s generating that mismatch? Is it the CLOs? Is it intercompany loans? I mean where is that mismatch coming from? And should we expect a big continued mismatch between NII and taxable and the implication of what that does for the dividend coming from return of capital, which has different tax consequences?

Yes. Okay. Robert, thank you very much. Let me take the first question first. As bears repeating, our valuations are the result of a valuation process, which is rigorous, is consistent, is repeated every quarter and which is managed by external unaffiliated third-party expert valuation firms, so Gifford Fong, Duff & Phelps, Lincoln. We make sure that those valuation firms, CVR is another, have all the information that we have, that they have all the information that they ask for, that they have the information they don’t even ask for. Those firms then perform valuations as they – according to their own lights. Our job is to manage that process, make sure it is conducted properly. We – I am not sure what internal valuations you are referencing because I am not aware of any. I am not aware of any effort at our company to do valuations outside of that process. So as a result, when evaluation...

Sorry to butt in, John. You are saying that you don’t look at the market value of the REIT assets in the quarter and decide whether to sell them, that the market value of the assets are never evaluated internally, except at the end of quarters?

No, I am not saying that. I am saying that I am unaware of a set of shadow value – internal shadow valuation papers or memos or anything like that. I certainly haven’t seen it. Now what we do, do is we do look at what we think we might be able to sell an asset for when we have some information, which we typically share with the valuation expert. That could be a bid, it could be a letter. It could be an indication of interest, it could be a broker indication of value, all of which we share with these valuation experts. When we consider selling an asset, we try to ascertain as best we can the value that we think we will receive. And that can be based on a number of inputs, which we do share with the valuation expert when we have those. So – but we don’t have an internal schedule of shadow valuations. Here is what we think things are really worth. It’s just on a property-by-property basis. If we are considering selling a property, we will hone in on what we think is possible out there. And as I have said, we share whatever information we have with the valuation expert. So, I don’t know what else you would want us to do. We certainly aren’t going to step up and start to disagree with the process that we have with a rigorous process. It’s disciplined. We follow it every quarter. From time-to-time, things are sold for more than where they are valued. From time-to-time, I would expect things will be sold for less than their value.

Maybe if I can jump in. Robert, I thought your question was a little bit different, maybe I misunderstood it. But I thought your question was you simply wanted to see published in our Qs and Ks the valuation of each asset in our real estate book, not just a single aggregated number for all of those assets.

That is more what I was aiming towards, Grier, like what – because clearly, in the self-storage portfolio sold for a lot more than it was carried obviously enough. And I would presume that on various assets, your estimated market value is not a shadow value or anything like that. What do you think and what you tell the valuation consultants defers from the carrying value for obvious reasons, right? I mean the carrying value is cost less depreciation, right? So, there is a big gap. The disclosure on that like what the estimated market value of the company is rather than what the historic depreciated carrying value is would be really helpful was my point.

I understand the question. Let’s take a look at that, Robert. It’s a reasonable request. We will see what we can do on that front. I mean, historically, we don’t do sort of sub-valuation disclosures and take – let’s take First Tower, for example. And if they were in five or six different states, let’s value the business of every single state or value two different lines of business, we just value the business in the aggregate. NPRC is obviously a larger holding. I understand why you want to see perhaps a little bit more. We do have bottoms-up numbers, how could you sum in aggregate to the total. That is true. I will check on Michigan. I am not – you said there was a significant gain versus our mark. Let’s go check on that. I know there is a significant gain versus cost.

I didn’t think this is mark versus regional cost that we…?

Well, yes, that’s true. That’s true board. I mean when you generate 20% to 30% plus IRRs on deals, we are getting significant gains versus original cost. And that’s a function of buying smart and in a disciplined fashion as well as our value-add CapEx renovation, which usually generates unlevered 30%-ish IRRs. And then you add the leverage benefit of that, and it’s even greater. So, that’s a significant booster and we view as very attractive risk-adjusted reward, because it’s a highly predictable investment, you have done 10 renovations and know exactly what the cost is and exactly what the rent bump is, then that gives you confidence to do 10 more in rents and repeat. So, we will check on the disclosures. In terms of – I thought you had a question about realization versus the most recent mark. In general, we haven’t been crazily far off. We have tend to exceed it by a little bit. But in general, we have – there hasn’t been some massive decoupling, I think, from where we have realized versus where we think the value is. Every valuation, as we all know, is an estimate as opposed to a precise number. And the answer depends on what someone is saying you are willing to pay at that moment in time. I would point out, I am not saying we won’t disclose the asset-by-asset valuation. There is – in the practitioners world in which we participate, some awkwardness and balancing act in that buyers often do look at marks of public companies, investment companies, BDCs. They say, hey, you say the price is x for any asset. Now let me – some buyers – now let me say that’s a ceiling. And you say it’s not worth more than that, so I am not paying more than that. So, that’s an unintended consequence of excess disclosure, Robert that practitioners go through, we go through that we would like to avoid. Doesn’t mean we are going to stop disclosing items, but it is something to be mindful of. For example, as soon as when we have aggregated syndicated positions, there have been some and said, hey, we should put every trade we put out there one second later. Well, that’s obviously not a good thing for trying to build a position reasonably quietly in something. So, these things are a balancing act and what’s good for shareholders. We will evaluate that request, which is a reasonable one, but which may have some unintended consequences, and we will get back to you.

Yes. I understand the conflict issue, but as you said, REIT is really big within your portfolio, so...

Right. In terms of your question about return of capital from a tax standpoint which of course is a great thing. I mean that’s tax efficiency massively right there, who would want to – how about a zero tax rate on a third or so of the distribution, bringing down the weighted average tax rate for those shareholders that are tax-paying entities and individuals. The biggest reason for that is our structured credit portfolio, which it turns out, has shown itself over many years now to be significantly tax efficient. And the reason for that is if you have – and it’s an actively managed active CLO reinvestment deal portfolio. So, if you sell an asset at 95 and then you turn around and purchase another asset at 95, maybe economically, it’s a push – or obviously, there will be some reason to do that transaction to be beneficial and what someone expects over the long-term. But short-term, economically a push, but tax-wise, you get to take a deduction for the assets sold at 95 that maybe you paid 99 for. And that creates a tax shield benefit coming out of the portfolio. So, we have seen that dynamic at particularly increases in more macro volatile types of years. Calendar year 2020 was one such year, of course, because of the virus and a lot of volatility associated with it. 2015 and ‘16, with what was going on predominantly in energy, would have been other periods. But there is always some type of dynamic that can cause this tax deductibility benefit. And volatility ends up net-net being a plus for this particular asset class because your financing is locked in and you get the ability to purchase assets and trade and buy at a discount. And then ultimately, potentially, receive par upon early prepayment or just prepayment through principal repayments and excess cash flow sweeps. Add to that, volatility benefit, the tax deductibility aspect. What will be the case going forward, it’s a little bit hard to model, I think. And also in part because we are on, for historical reasons, a bit off calendar quarter cycle and August tax year, different from our June fiscal and certainly a calendar year, which most and many entities use for their own tax reporting. But I think it’s – we are cautiously optimistic. We will have similar type of dynamic for return of capital going forward. It’s a bit hard to quantify. But that dynamic also comped versus peers that don’t have the multi-line approach that we do makes us more tax efficient than many other companies. So, thank you for pointing out that benefit, Robert.

Sure. Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to John Barry for any closing remarks.

Okay. It’s high noon. Thank you everyone. Have a wonderful afternoon. See you in a quarter. Bye.

Thanks, all. Bye now.

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