Prospect Capital Corporation

Good day and welcome to the Prospect Capital Fourth Quarter Fiscal Earnings Release and Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to John Berry, Chairman and CEO. Please go ahead.

Thank you, Matt. Joining me on the call today are Greer Isaac, our President and Chief Operating Officer, and Kristen Van Dask, our Chief Financial Officer. Kristen.

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'll turn the call back over to John.

Thank you, Kristen. In the June quarter, our net investment income, or NII, was $73.2 million, or 19 cents, per common share, exceeding our distribution rate per common share by a penny. Our basic net income was 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 for common share, a 31% return on net asset value. Our NAV stood at $9.81 for per common share in June, up 43 cents and 5 percent 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, six 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 under leveraged balance sheet, as has been the case for us for multiple quarters. Over the past three 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. Prospects balance sheet is highly differentiated from peers with 100% of prospects funding coming from unsecured and non-recourse debt, which has been the case for us for over 14 years. Unsecured debt was 84% of prospects 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 six cents 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've now crossed the four-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 24 cents per share. Our NII covered distributions in the June 2020 fiscal year and have exceeded distributions in the 2021 fiscal year by 3 cents per share. We are also announcing continued preferred shareholder distributions on the heels of successful launches of our 1,000,005.5% preferred program and 150 million, 5.35% listed preferred. We've 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-five independent broker-dealer system as well as top wire house 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 one-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 five- 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 Greer.

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've continued to prioritize senior and secure 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 one 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 5.01 times 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 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've 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, this structured credit portfolio experiences 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 gap 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 1.5 times. Our subordinate 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 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've 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 Kristen.

Thanks, Greer. We believe our prudent leverage, diversified access to matched book funding, substantial majority of unencumbered assets, waiting 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-control 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 an 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 here 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 five-year maturity. We currently have 1.1575 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 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 five 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 ladder 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 inter-notes, $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 intern notes. 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 30th, 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, Kristen. We can now answer any questions.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Our first question will come from Fenina O'Shea with Wells Fargo. Please go ahead.

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, I'll take that question. Thank you very much. Tower continues to perform well. We've now owned that business as majority shareholder in conjunction with the management team and CEO. We own about 80% of the business and the management team about 20%. And the business is doing well in terms of loan growth and originations and muted charge-offs with its multi-state 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 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 banks 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?

Yes, very much. And just to follow on the REIT, I think, Greer, you mentioned that you expect or plan on a bit of rotation there into new properties and so forth. There's been a lot of equity gains in NP 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 seller's market, and we have been selectively monetizing assets and have a fairly rigorous approach that we go through each quarter in which we run an 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'll 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 coming. teed up for exit in various stages of that process. We'll 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 treasuries. 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 seven to 12-year financing, a lot of times 10-year plus fixed rate And so if 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're looking at other diversified tenants. areas as well and they're just areas we think are attractive within real estate to meet our yield and total return criteria. We do 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-a-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 thoughtfully. We've been at this a long time. We've seen the negative part of the cycle and we're very cautious about credit quality. But originations are picking up. We've 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'll pause there and see if anyone else on our end wants to, if John wants to supplement for Tower or for a real estate business. John?

Well, the only thing I would add to what you said, Greer, is that none of this happens without careful management and ad prospect. Ted Fowler has run our real estate group for a year. And those results are a great compliment to Ted. And with respect to First Tower, managing that investment are Edward Schumann and Denis Aschenko. 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've 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're proud of them. They're 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. Yeah, just two questions. First, we'll follow up on the REIT. Looking at the Michigan self-storage portfolio, which is what was exited in 2020, I mean, total proceeds a little over $100 million. Looks to me like original cost was about $65. So very nice return there. But a big delta, this is a request for more disclosure, to be blunt. A big delta, obviously, between the market value and what it was carried at, which obviously factors into valuation of REIT. And internally, you have estimates of that. We don't see that. It makes it quite difficult, obviously, to evaluate the valuation as it's carried on your balance sheet, how conservative or aggressive you're 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 LEAP balance sheet. But anyway, that's a request. Then one other one, if I can. The dividend paid in 2020 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, you know, intercompany loans? I mean, where's 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?

Sure. 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 valuations. expert valuation firms. So, Gifford Fong, Duff & Phelps, Lincoln. We make sure that those valuation firms, CVRE is another, have all the information that we have. That they have all the information that they ask for. That they have information they don't even ask for. Those firms then perform evaluations according to their own lights. Our job is to manage that process, make sure it is conducted properly. I'm not sure what internal evaluations you're referencing because I'm not aware of any. I'm 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're saying that you don't look at the market value of the REIT assets in per 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'm not saying that. I'm saying that I am unaware of a set of 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. But we don't have an internal schedule of shadow valuations. Here's what we think things are really worth. It's just on a property by property basis, if we're considering selling a property, we will hone in on what we think is possible out there. And as I 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. It's a rigorous process. It's disciplined. We follow it every quarter. From time to time, things are sold for more than where they're 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. Because clearly in the self-storage portfolio sold for a lot more than it was carried at, obviously enough. And I would presume that on various assets, your estimated market value, this is not a shadow value or anything like that. What you think and what you tell the valuation consoles differs from the carrying value for obvious reasons, right? I mean, the carrying value is cost less depreciation, right? So there's a big gap. The disclosure on that, what the estimated market value of a property is, rather than what the historic depreciated carrying value is, would be really helpful. That's my point.

I understand the question. Let's take a look at that, Robert. It's a reasonable request. Let's see what we can do on that front. Historically, we don't do sub-valuation disclosures and take, let's take First Tower, for example, and if it 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 and the aggregate. NPRC is obviously a larger holding. I understand why you'd want to see perhaps a little bit more. We do have bottoms up numbers. How else could you sum and aggregate to the total? That is true. I'll check on Michigan. You say there was a significant gain versus our marks. Let's go check on that. I know there's significant gain versus cost.

To be clear, I didn't say versus marks. I meant versus original cost.

Oh, well, yes, that's true. That's true across the board. I mean, when you generate 20% to 30% plus IRRs on deals, we're 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 profits 30-ish percent IRRs, and then you add the leverage benefit of that, and it's even greater. So that's a significant booster, and we view it as a very attractive risk-adjusted reward because it's a highly predictable investment. You've done 10 renovations and know exactly what the cost is and exactly what the rent bump is, and that gives you confidence to do 10 more and rinse and repeat. So we'll 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 tend to exceed it by a little bit, but in general, it hasn't been some massive decoupling, I think, from where we've 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 paying or willing to pay at that moment in time. I would point out, I'm not saying we won't disclose the asset by asset valuation. There is, in the practitioner's 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'm not paying more than that. So that's an unintended consequence of excess disclosure and Robert that practitioners go through we go through that we like to avoid doesn't mean we're gonna stop disclosing items but it is something to to be mindful of you know for example sometimes when we've aggregated syndicated positions there have been someone said hey we should put every trade we put out there one second later well that's obviously not a good thing if you're trying to build a position reasonably quietly in something so these things are a balancing act and what's good for shareholders we'll evaluate that request, which is a reasonable one, but which may have some unintended consequences, and we'll get back to you.

Yeah, I understand the conflict issue, but as you said, the wheat is really big within your portfolio.

Right, 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. 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 be some reason to do that transaction to be beneficial in what someone expects over the long term but short-term economically a push but tax wise you get to take a deduction for the asset sold at 95 that maybe you paid 99 for And that creates a tax shield benefit coming out of the portfolio. So we've seen that dynamic. It particularly increases in more macro-volatile types of years. Calendula 2020 was one such year, of course, because of the virus and a lot of volatility associated with it. 2015 and 2016 with what was going on predominantly in energy. It would have been other periods, but there's always some type of dynamic that can cause this tax deductibility benefit. Volatility ends up 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're on, for historical reasons, a bit off calendar quarter cycle in August tax year, different from our June fiscal and certainly a calendar year. year, which most and many entities use for their own tax reporting. But I think we're cautiously optimistic we'll have a similar type of dynamic for return of capital going forward. It's a bit hard to quantify, but that dynamic, also comp 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 Berry 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 is now concluded. Thank you for attending today's presentation.