Main Street Capital's Q3 2019 Projected NII And NAV (Includes Current Recommendation And Price Target)

Summary

  • I am projecting MAIN will report a minor decrease in quarterly NII versus the prior quarter.
  • This NII decrease is mainly due to the continued decrease in LIBOR which negatively impacted the company’s floating-rate debt investments.
  • However, I am also projecting a modest increase in MAIN’s quarterly NAV. This is mainly due to projected quarterly NAV accretion directly associated with the issuance of common stock.
  • I am also projecting MAIN will have relatively unchanged spread fluctuations (which impact pricing/valuations) within most middle market/leveraged-loan investments.
  • Therefore, I believe MAIN’s results will, once again, be viewed as a “mixed bag”.  My MAIN buy, sell, or hold recommendation and current price target is within the “Conclusions Drawn” section.
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Author’s Note: Since several readers have recently asked about this topic (both in public and private), please see the following article in regards to my thoughts on Main Street Capital Corp.’s (NYSE:MAIN) dividend sustainability through the first half of 2020:

Main Street Capital's Dividend Sustainability Through June 2020 (Includes Special Periodic Dividend Projection)

Focus of Article:

The focus of this article is to provide a detailed projection of MAIN’s net investment income (“NII”) for the third quarter of 2019 and net asset value (“NAV”) per share as of 9/30/2019. Prior to results being provided to the public in early November (via the company’s quarterly press release), I would like to analyze MAIN’s quarterly NII and NAV as of 9/30/2019 and provide readers a general direction on how I believe this recent quarter has panned out. I believe this quarter has a heightened level of importance for readers due to the recent events that have impacted the business development company (“BDC”) sector. This mainly factors around the continued reversal in the London Interbank Offered Rate (LIBOR) and “subdued” volatility in middle market/leveraged-loan investments (little net change in quarterly spreads) which had muted impacts to asset valuations in broadly syndicated/leveraged loans where credit risk remained low (prices were basically “flat”). This includes impacts from the Tax Cuts and Jobs Act (“TCJA”). I will also include my quarterly earnings per share (“EPS”) (also known as “net increase (decrease) in net assets resulting from operations”) projection. My BUY, SELL, or HOLD recommendation and current price target for MAIN will be in the “Conclusions Drawn” section of this article.

Side Note: Predicting certain accounting figures within the BDC sector is usually more difficult when compared to other sectors due to the fair market value (“FMV”) fluctuations that occur within a company’s investment portfolio each quarter. Specifically, the following MAIN accounts are typically more difficult to project in any given quarter: 1) unrealized appreciation (depreciation) on investments; 2) realized gain (loss) on investments; and 3) income tax benefit (provision). As such, there are several assumptions used when performing this type of analysis. This especially holds true when there is a “spike” in credit spreads across broader markets during any given quarter. Such events directly impact underlying asset valuations. In addition, MAIN’s actual reported values may differ materially from my projected values within this article due to unforeseen circumstances. This could occur because management deviates from a company’s prior business strategy and pursues a new strategy that was not previously disclosed or anticipated. This could also occur when the company has a “one-time” extraordinary event which was previously unforeseen or disclosed. Readers should be aware of these possibilities.

All projections within this article are my personal estimates and should not solely be used for any investor’s buying or selling decisions. All actual reported figures that are above the mean of my account projections will be deemed an “outperformance” in my judgment. All actual reported figures that are below the mean of my account projections will be deemed an “underperformance” in my judgment.

Overview of MAIN’s NAV as of 9/30/2019:

Due to the fact that several figures needed to project/calculate MAIN’s NAV as of 9/30/2019 come directly from the company’s consolidated statement of operations, Table 1 is provided below. Table 1 shows MAIN’s consolidated statement of operations from a nine-months ended time frame. One must calculate certain account figures from the first, second, and third quarters of 2019 for purposes of projecting a suitable NAV as of 9/30/2019.

Table 1 – MAIN Projected Nine-Months Ended Consolidated Statement of Operations (Q1 + Q2 + Q3 2019)

MAIN Projected Nine-Months Ended Consolidated Statement of Operations(Source: Table created by me, including all calculated figures and projected valuations)

Having provided Table 1 above, we can now begin to calculate MAIN’s projected NAV as of 9/30/2019. This projection is calculated in Table 2 below.

Table 2 – MAIN Nine-Months Ended NAV Projection (NAV as of 9/30/2019)

MAIN Nine-Months Ended NAV Projection(Source: Table created by me, including all calculated figures and projected valuations. All figures, with the exception of the number of outstanding shares of common stock and NAV per share figure/range, are in 000s)

Using Table 2 above as a reference, let us take a look at the calculation for MAIN’s projected NAV as of 9/30/2019. Unless otherwise noted, all figures below are for the “nine-months ended” time frame. Let us look at the following figures (in corresponding order to the “Ref.” column shown in Table 2 next to the September 30, 2019, column): A) Operations; B) Stockholder Transactions; and C) Capital Share Transactions.

A) Operations:

  • Net Increase in Net Assets From Operations Estimate of $122.0 Million; Range $92.0 - $152.0 Million
  • Confidence Within Range = Moderate to High
  • See Red Reference “A” in Table 2 Above Next to the September 30, 2019 Column

This “net increase (decrease) in net assets from operations” figure consists of the following three amounts that come directly from MAIN’s consolidated statement of operations: 1) net investment income (see blue reference “A” in Table 2 above); 2) net realized gain (loss) on investments (see blue reference “B” in Table 2 above); and 3) net unrealized appreciation (depreciation) on investments (see blue reference “C” in Table 2 above). It should be noted a fourth amount, MAIN’s income tax benefit (provision) (see blue reference “D” in Table 2 above), is also included but is excluded from the detailed discussion below due to the underlying nature of the account (accrued taxes). Since I have refrained from writing a quarterly consolidated statement of operations projection article for MAIN, I will summarize what I believe occurred within these three amounts during the third quarter of 2019. Let us first discuss MAIN’s NII account.

1) Net Investment Income:

  • Estimate of $118.1 Million; Range $113.1 - $123.1 Million
  • Confidence Within Range = Moderate to High
  • See Blue Reference “A” in Tables 1 and 2 Above Next to the September 30, 2019 Column

MAIN reported NII of $39.5 and $39.6 million for the first and second quarters of 2019, respectively. I am projecting MAIN will report NII of $39.0 million for the third quarter of 2019. Using Tables 1 and 2 above as a reference, when combined this is a projected NII of $118.1 million for the nine-months ended 9/30/2019. As previously stated in prior MAIN/BDC articles, during calendar year 2018 there was a continued rise in the U.S. London Interbank Offered Rate which benefited MAIN’s floating-rate debt investments (net increase in stated rate through LIBOR “resets”). This was the main reason why MAIN’s weighted average annualized yield gradually increased during 2018. As of 12/31/2017, MAIN had a weighted average annualized yield of 9.98%. As of 12/31/2018, MAIN’s weighted average annualized yield increased to 10.79%. As such, along with a gradual increase in MAIN’s investment portfolio, the company had gradually increased its quarterly interest income.

However, as a direct result of the Federal Open Market Committee’s (“FOMC”) more “dovish” rhetoric regarding overall U.S. monetary policy (first a “halt” to further Federal [Fed] Funds Rate increases over the foreseeable future and more recently a quarter-point decrease in July and September 2019 and also a likely quarter-point cut by the end of the year), U.S. LIBOR across the 1-, 3-, 6-, and 12-month maturities continued to reverse course during the third quarter of 2019 and net decreased by (38), (23), (15), and (15) basis points (“bps”), respectively. As readers can see, U.S. LIBOR has now basically “priced in” an additional quarter-point Fed Funds Rate cut by the end of 2019 with its movement during the third quarter of 2019 and October 2019. Simply put, with the recent two 25 bps cuts to the Fed Funds Rate during 2019 (and another possible 25 bps cut by the end of 2019), the FOMC has taken “prompt action” when it comes to the recent partially inverted yield curve (to combat the growing fear of a future recession). As stated throughout my mortgage real estate investment trust (mREIT) articles for years, there is a very strong, direct relationship between the Fed Funds Rate and U.S. LIBOR.

As a direct result of broader market volatility during the fourth quarter of 2018, middle market (“MM”) and leveraged loan (“LL”) lending “dried up” during the first quarter of 2019. This general trend had alleviated a bit during the second quarter of 2019 but only modestly. In other words, late 2018-early 2019 volatility caused “market jitters” when it comes to originating/refinancing high yield bonds/loans during the first half of 2019. However, with the decrease in overall rates/yields during the third quarter of 2019 taking a greater precedence, loan activity, as a whole, increased across broader credit markets. A majority of such activity centered around refinancing existing debt. With the continued drop in rates/yields over “higher-rated” institutional loans continuing into the fourth quarter of 2019, I do not see this trend abating over the next several months. I believe MAIN was not “immune” to these broader trends regarding the amount of loan originations during the quarter. At the least, I believe several portfolio companies requested/desired to refinance existing loans with MAIN. If MAIN did not accommodate this type of request (say due to current market trends in rates not being as attractive as before), I believe sector peers would like compete for this “new business”.

Per MAIN’s Securities and Exchange Commission (“SEC”) filings, management disclosed the company had a couple new loan originations and existing add-on debt investments (that were “publicly” disclosed) during the quarter. When including projected refinanced loans, I am projecting MAIN had approximately $80 million of loan originations and add-on debt investments while having approximately ($50) million of portfolio debt sales/repayments/restructurings during the third quarter of 2019. When combined, I am projecting MAIN’s total debt investment portfolio increased approximately $30 million for the quarter (prior to all quarterly FMV fluctuations and scheduled principle payments).

Countering this projected minor increase in MAIN’s investment portfolio, as alluded to earlier, a majority of the company’s investment portfolio had floating-rate debt investments attached to LIBOR which were negatively impacted by both semi-annual and quarterly resets. As of 6/30/2019, approximately 75% of MAIN’s debt investments were floating rate in nature while 25% bore fixed rates. As such, this is a key factor/trend that leads me to project a minor decrease in MAIN’s interest income for the third quarter of 2019 when compared to the prior quarter ($46.6 million versus $47.2 million).

I am also projecting MAIN will report a relatively unchanged quarterly dividend income when compared to the prior quarter ($12.5 million versus $12.8 million). MAIN’s recently reduced dividend income (“hone in” on the third quarter of 2018) mainly centered around CBT Nuggets, LLC (CBT Nuggets). During late 2017-early 2018, CBT Nuggets provided above-average dividend distributions to shareholders; mainly through its investment in certain cryptocurrencies. As the cryptocurrency “craze” fell off during the latter half of 2018, CBT Nugget’s distributions to MAIN notably decreased as well. However, I believe the recent decrease in CBT Nugget’s dividend income will continue to be offset by multiple portfolio companies during MAIN’s third quarter of 2019. This projection is mainly based on the notion of continued strong operating performance from a majority of MAIN’s control and affiliate investments and the recent benefit, from a taxation standpoint, of the recent passage of the TCJA. Simply put, most portfolio companies have experienced a modest-notable reduction in their tax liabilities as a direct result of the amended Internal Revenue Code (“IRC”). For many portfolio companies, I believe this reduced tax liability will equate to higher free cash flow, improved earnings, and ultimately an increased probability of higher dividend distributions to MAIN and other equity owners.

I am also projecting MAIN will experience a minor increase in interest expense when compared to the prior quarter. This is mainly due to the fact MAIN issued $250 million of fixed-rate unsecured 5.20% notes (2024 Notes) last quarter. Management stated the 2024 Notes would initially lower the debt on MAIN’s credit facility. However, MAIN’s credit facility bore a weighted average interest rate of approximately (125) bps lower during the third quarter of 2019 when compared to the recently issued 2024 Notes. In addition, I am projecting MAIN will have a relatively unchanged share-based compensation expense, fee offset in relation to the external investment manager, and non share-based compensation while having a minor decrease in the company’s general + administrative expenses when compared to the prior quarter. Now, let us discuss MAIN’s net realized gain (loss) on investments account.

2) Net Realized Gain (Loss) on Investments:

  • Estimate of ($9.5) Million; Range ($19.5) – $0.5 Million
  • Confidence Within Range = Moderate
  • See Blue Reference “B” in Tables 1 and 2 Above Next to the September 30, 2019 Column

MAIN reported a net realized loss on investments of ($11.4) and ($2.6) million for the first and second quarters of 2019, respectively. I am projecting MAIN will report a net realized gain on investments of $4.5 million for the third quarter of 2019. Using Table 2 above as a reference, when combined, this is a projected net realized loss on investments of ($9.5) million for the nine-months ended 9/30/2019.

The net realized loss of ($11.4) million for the first quarter of 2019 was mainly due to a gain within Boss Industries, LLC (“Boss”) offset by losses within Charlotte Russe, Inc. (Charlotte Russe), Pernix Therapeutics Holdings, Inc (Pernix), and prepaid SBIC Debentures (extinguishment of debt; unrealized to realized classification). The net realized loss of ($2.6) million for the second quarter of 2019 was mainly due to a loss of ($5.3) million within SiTV, LLC (SiTV) partially offset by a gain of $2.3 million within irth Solutions, LLC (irth Solutions).

Regarding my projection for the third quarter of 2019, in early July 2019, MAIN publicly disclosed the company fully exited its equity investment in Lamb Ventures, LLC (“Lamb”) for a net realized gain of approximately $6.0 million. I am also projecting MAIN had several minor net realized gains (losses) that had a net impact of ($1.5) million during the third quarter of 2019.

3) Net Unrealized Appreciation (Depreciation) on Investments:

  • Estimate of $23.1 Million; Range $8.1 – $38.1 Million
  • Confidence Within Range = Moderate
  • See Blue Reference “C” in Tables 1 and 2 Above Next to the September 30, 2019 Column

MAIN reported net unrealized appreciation on investments of $16.4 and $4.6 million for the first and second quarters of 2019, respectively. I am projecting MAIN will report net unrealized appreciation on investments of $2.1 million for the third quarter of 2019. Using Table 2 above as a reference, when combined, this is a projected net unrealized appreciation on investments of $23.1 million for the nine-months ended 9/30/2019. This account takes into consideration the quarterly FMV fluctuations that occur within MAIN’s investment portfolio. This account’s projection is formed from a very detailed and visually large investment portfolio model that will be omitted from this article due to the sheer size of the tabulated data (also above and beyond information that is provided via a “free to the public” article).

First, contrary to what occurred within pockets of debt markets during the calendar third quarter of 2018 where pricing experienced modest decreases (for instance government-guaranteed investments such as U.S. Treasuries and mortgage-related agency securitizations), most MM and upper middle market (“UMM”) loan prices with low credit risk experienced less severe/more muted valuation fluctuations (especially floating-rate loans; lower durations). However, this relationship completely “reversed course” during the calendar fourth quarter of 2018. Government-guaranteed investments experienced a “surge” in pricing as volatility across most credit markets “spiked” (rush to safety). Outside this minor pocket, there was a quick, sharp reduction in asset valuations across most other investing sectors. This included, but was not limited to, institutional loans/corporate-grade bonds, high yield bonds, broadly syndicated loans, leveraged loans, and U.S. equities. MM and UMM investments were not “immune” to this trend either as yields spiked during the quarter (spreads widened). As yields increase, pricing typically decreases (underlying notion there could eventually be an increase in credit risk; indication of recessionary fears).

However, during the calendar first quarter of 2019, both government-guaranteed investments and broader market investments experienced an increase in pricing. This included institutional loans/corporate-grade bonds, high yield bonds, broadly syndicated loans, leveraged loans, and U.S. equities. A similar trend occurred within MM and UMM investments with low credit risk as prices rebounded from the sharp decrease experienced during the prior quarter. This same generalized trend occurred, to a lesser extent, during the calendar second quarter of 2019, with most of the types of investments listed above. However, when it comes to MM and LL investments, lower-rated credits experienced a minor-modest widening of spreads (which I stated to readers, as it occurred, in several BDC articles). Some of this widening narrowed during the final few weeks of the quarter. Still, there was some pressure on pricing which did impact the sector to some extent. During the calendar third quarter of 2019, most MM and LL investments with low credit risk experienced a relatively unchanged price fluctuation on a net basis. As such, these types of lower-rated investments slightly underperformed when compared to higher-rated/institutional loans.

Second, some portfolio companies have continued to directly benefit from a reduced effective tax rate due to the passage of the TCJA. Upon enactment of the TCJA, the U.S. corporate income tax rate for C-Corps. was lowered from 35% to 21%. A key provision of this reduction is that this cut is permanent in nature. Most pass-through entities (S-Corps./partnerships/limited liability companies/etc.) also had positive changes to their pass-through income tax rate (exclusions apply; for instance “service” companies as defined by the Internal Revenue Code [IRC]). In a nutshell, a lower effective tax rate typically equates to a higher enterprise value (“EV”) for most portfolio companies. For BDCs with an equity investment in these types of entities, I previously correctly anticipated an overall increase in the underlying FMV of these portfolio companies during 2018 (prior to the calendar fourth quarter of 2018’s volatility). While this increased FMV may not be the case in every single equity investment a BDC holds, I believe it is a general assumption a majority of companies benefit from the recent passage of the TCJA. While I am projecting less of an increase in overall equity valuations during 2019 (initial “true-up” occurred during 2018), I still believe a continued lower effective tax rate going forward will solidify higher valuations.

I believe the following MAIN control portfolio companies continued to have strong operational performance heading into the third quarter of 2019: 1) Café Brazil, LLC (Café Brazil); 2) CBT Nuggets, LLC (CBT Nuggets; even with the recent gradual decrease in valuation); 3) Charps, LLC (Charps); 4) GRT Rubber Technologies, LLC (GRT Rubber); 5) Gulf Manufacturing, LLC (“Gulf”); 6) Harrison Hydra-Gen, Ltd. (Harrison); 7) Jensen Jewelers of Idaho, LLC (Jensen); 8) KBK Industries, LLC (“KBK”); 9) MSC Adviser I, LLC (MSC Adviser I); 10) NAPCO Precast, LLC (“NAPCO”); 11) OMi Holdings, Inc. (“OMi”); 12) Pegasus Research Group, LLC (Pegasus); and 13) River Aggregates, LLC (River Aggregates).

Third, MAIN still had a handful of investments that continued to experience heightened credit risk during the third quarter of 2019. The following MAIN portfolio companies had debt investments on non-accrual status as of 6/30/2019: 1) Access Media Holdings, LLC (Access Media); 2) Datacom, LLC (Datacom); 3) Guerdon Modular Holdings, Inc. (Guerdon; new non-accrual); 4) Rocacela, LLC (Rocacela); 5) Clarius BIGS, LLC (Clarius); 6) Joerns Healthcare, LLC (Joerns; new-non-accrual); and 7) Ospemifene Royalty Sub LLC (Ospemifene). I would also point out, within previous articles, I correctly identified Guerdon, Joerns, SiTV (a previous non-accrual that was recently exited for a realized loss; see above), and Quality Lease as continuing to have weak/weakening operating performance and had a heightened probability of eventually being put on non-accrual status. These assumptions, at the very least, were first provided to readers several quarters in advance of each portfolio company’s respective non-accrual date.

In addition, I believe the following portfolio companies have continued to exhibit/have recently exhibited heightened credit risk: 1) American Teleconferencing Services, Ltd. (American Teleconferencing); 2) Bluestem Brands, Inc. (Bluestem; will likely be put on non-accrual status); 3) Evergreen Skills Lux S.á r.l. (Evergreen); 4) Grupo Hima San Pablo, Inc. (Grupo Hima); 5) HW Temps, LLC (HW Temps); 6) Hydrofarm Holdings LLC (Hydrofarm); 7) Isagenix International, LLC (Isagenix); 8) Permian Holdco 2, Inc. (Permian); 9) Pier 1 Imports, Inc. (Pier 1); and 10) TOMS Shoes, LLC (“TOMS”).

I am also keeping an eye on all oil and gas investments since some peers are experiencing some issues with refinancing existing debt and/or issuing new debt at attractive terms upon maturity. As of 6/30/2019, I classified 4.86% of MAIN’s portfolio had debt and equity investments within the oil and gas sector (including certain investments in the energy sector which had “oil and gas” characteristics and/or services linked to the sector). I have calculated Apollo Investment Corp. (AINV), Ares Capital Corp. (ARCC), FS KKR Capital Corp. (FSK), Gladstone Investment Corp. (GAIN), Golub Capital BDC Inc. (GBDC), Medley (MDLY) Capital Corp. (MCC), Newtek Business Services Corp. (NEWT), Oaktree (OAK) Strategic Income Corp. (OCSI), Oaktree Specialty Lending Corp. (OCSL), PennantPark Floating Rate Capital Ltd. (PFLT), Prospect Capital Corp. (PSEC), Solar Capital, Ltd. (SLRC), Blackrock (BLK) TCP Capital Corp. (TCPC), and TPG Specialty Lending, Inc. (TSLX) had a 5.58%, 3.36%, 3.81%, 0.00%, 0.75%, 6.46%, 0.00%, 4.83%, 4.02%, 0.00%, 3.05%, 0.88%, 0.00%, and 3.75% exposure to the oil and gas sector as of 6/30/2019, respectively.

Let us now combine the three amounts described above (including one additional account not discussed) to come up with a projected net increase (decrease) in net assets from operations figure for the nine-months ended 9/30/2019. When combining NII of $118.1 million, a net realized loss on investments of ($9.5) million, net unrealized appreciation on investments of $23.1 million, and an income tax provision of ($9.8) million, I am projecting MAIN had an increase in net assets from operations of $122.0 million (rounded) for the nine-months ended 9/30/2019 (see red reference “A” in Table 2 above).

B) Stockholder Transactions:

  • Net Decrease in Net Assets From Stockholder Transactions Estimate of ($126.9) Million; Range ($131.9) – ($121.9) Million
  • Confidence Within Range = High
  • See Red Reference “B” in Table 2 Above Next to the September 30, 2019 Column

MAIN’s “net increase (decrease) in net assets from stockholder transactions” figure is the equivalent to the company’s “distributions to stockholders from net investment company taxable income (“ICTI”)” figure. This is a fairly simple calculation. This is MAIN’s dividend distributions for the first, second, and third quarters of 2019.

I am projecting the number of outstanding shares of common stock as of 7/17/2019, 8/19/2019, and 9/18/2019 was 63.1, 63.3, and 63.6 million, respectively. As such, I am projecting a total of 0.9 million shares of common stock, net, were issued during the third quarter of 2019. This mainly consists of common stock being issued under MAIN’s “at-the-market” (“ATM”) equity offering plan.

The monthly common stock dividend for July, August, and September 2019 was $0.205 per share. When calculated, I am projecting monthly dividend distributions totaling ($36.7) million during the third quarter of 2019. When these dividend distributions are combined with the six-months ended dividend distributions of ($90.2) million, I am projecting MAIN had a decrease in net assets from stockholder transactions of ($126.9) million for the nine-months ended 9/30/2019 (see red reference “B” in Table 2 above).

C) Capital Share Transactions:

  • Net Increase in Net Assets From Capital Share Transactions Estimate of $87.5 Million; Range $77.5 – $97.5 Million
  • Confidence Within Range = Moderate to High
  • See Red Reference “C” in Table 2 Above Next to the September 30, 2019 Column

This “net increase (decrease) in net assets from capital share transactions” figure consists of the following five amounts: 1) issuance of common stock, net of offerings costs + underwriting fees; 2) share-based compensation + amortization of Board of Director’s (“BoD”) deferred compensation; 3) issuance of common stock under dividend reinvestment plan; 4) purchase of vested stock (employee payroll tax withholding); and 5) repurchases of common stock. Out of these five accounts, I am projecting there was activity within three accounts during the third quarter of 2019.

Originally discussed within MAIN’s distributions to stockholders from net ICTI figure, I am projecting 0.9 million shares of common stock were issued under the company’s ATM equity offering and dividend reinvestment plans for the third quarter of 2019. I am projecting MAIN will report an issuance of common stock under the company’s ATM equity offering, share-based compensation, and dividend reinvestment plan figure of $25.6, $2.1, and $4.3 million for the third quarter of 2019, respectively.

When calculated, I am projecting MAIN will report an issuance of common stock under the company’s ATM equity offering, share-based compensation, dividend reinvestment plan, and purchase of vested stock figure of $70.4, $7.3, $13.2, and ($3.4) million for the nine-months ended 9/30/2019, respectively. When combining these four accounts, I am projecting MAIN had an increase in net assets from capital share transactions of $87.5 million for the nine-months ended 9/30/2019 (see red reference “C” in Table 2 above).

Conclusions Drawn:

To sum up all the information discussed above, I projected MAIN will report the following NII per share for the third quarter of 2019:

My Projected MAIN NII for Q3 2019 = $0.619 Per Share

My Projected NII Q3 2019 Range = $0.594 – $0.644 Per Share

I also projected MAIN will report the following NAV per share as of 9/30/2019:

My Projected MAIN NAV as of 9/30/2019 = $24.50 Per Share

My Projected NAV as of 9/30/2019 Range = $24.20 – $24.80 Per Share

This projection is a $0.33 per share increase from MAIN’s NAV as of 6/30/2019. This modest (at or greater than 1% but less than 2.5%) NAV increase can be attributed to the following projected quarterly per share changes:

Table 3 - My Projected MAIN Quarterly NAV Per Share Changes

My Projected MAIN Quarterly NAV Per Share Changes(Source: Table created by me, including all calculated figures and projected valuations; figures may not “foot” due to rounding)

Using Table 3 above as a reference, I am projecting MAIN’s net increase in net assets resulting from operations (also known as EPS) was $0.67 per share for the third quarter of 2019. In comparison, I am projecting MAIN had dividend distributions of ($0.615) per share for the quarter. I am also projecting MAIN had $0.27 per share of NAV accretion in relation to the company’s ATM equity offering and dividend reinvestment plan. After adding these three amounts together, a $0.33 per share NAV increase for the third quarter of 2019 is obtained.

A less enhanced NAV increase (or a NAV decrease) would be deemed an underperformance in my opinion. A more enhanced NAV increase versus my projection would be deemed an outperformance, in my opinion.

I believe MAIN’s results will be viewed as a “mixed bag” per se. I believe MAIN’s minor quarterly NII decrease will be viewed as “unattractive” from some market participants who have not followed recent sector trends. However, I believe MAIN’s projected modest NAV increase will be viewed as “attractive” from most market participants; even if the vast majority of the net increase is through accretive equity/share issuances.

My BUY, SELL, or HOLD Recommendation:

From the analysis provided above, including additional factors not discussed within this article, I currently rate MAIN as a SELL when the company’s stock price is trading at or greater than a 72.5% premium to my projected NAV as of 9/30/2019 ($24.50 per share), a HOLD when trading at greater than a 52.5% but less than a 72.5% premium to my projected NAV as of 9/30/2019, and a BUY when trading at or less than a 52.5% premium to my projected NAV as of 9/30/2019. These ranges are unchanged when compared to my last MAIN article (approximately 1.5 months ago).

Therefore, I currently rate MAIN as a HOLD (however close to my SELL range). As such, I currently believe MAIN is appropriately valued from a stock price perspective (not overvalued, not undervalued). My current price target for MAIN is approximately $42.25 per share. This is currently the price where my recommendation would change to a SELL. The current price where my recommendation would change to a BUY is approximately $37.35 per share.

Final Note: Each investor's BUY, SELL, or HOLD decision is based on one's risk tolerance, time horizon, and dividend income goals. My personal recommendation will not fit each reader’s current investing strategy. The factual information provided within this article is intended to help assist readers when it comes to investing strategies/decisions.

Current BDC Sector Stock Disclosures:

On 9/6/2017, I re-entered a position in PSEC at a weighted average purchase price of $6.765 per share. On 10/16/2017 and 11/6/2017, I increased my position in PSEC at a weighted average purchase price of $6.285 and $5.66 per share, respectively. When combined, my PSEC position has a weighted average purchase price of $6.077 per share. This weighted average per share price excludes all dividends received/reinvested. Each PSEC trade was disclosed to readers in real time (that day) via the StockTalks feature of Seeking Alpha. I currently have a HOLD recommendation on PSEC (however close to my BUY range).

On 6/5/2018, I initiated a position in TSLX at a weighted average purchase price of $18.502 per share. On 6/14/2018, I increased my position in TSLX at a weighted average purchase price of $17.855 per share. My second purchase was approximately double the monetary amount of my initial purchase. When combined, my TSLX position has a weighted average purchase price of $18.071 per share. This weighted average per share price excludes all dividends received/reinvested. Each TSLX trade was disclosed to readers in real time (that day) via the StockTalks feature of Seeking Alpha. I currently have a HOLD recommendation on TSLX.

On 10/12/2018, I initiated a position in ARCC at a weighted average purchase price of $16.40 per share. On 12/10/2018, 12/18/2018, and 12/21/2018, I increased my position in ARCC at a weighted average purchase price of $16.195, $15.305, and $14.924 per share, respectively. When combined, my ARCC position has a weighted average purchase price of $15.293 per share. This weighted average per share price excludes all dividends received/reinvested. Each ARCC trade was disclosed to readers in real time (that day) via the StockTalks feature of Seeking Alpha. I currently have a HOLD recommendation on ARCC.

On 10/12/2018, I initiated a position in SLRC at a weighted average purchase price of $20.655 per share. On 12/18/2018, I increased my position in SLRC at a weighted average purchase price of $19.66 per share, respectively. When combined, my SLRC position has a weighted average purchase price of $19.909 per share. This weighted average per share price excludes all dividends received/reinvested. Each SLRC trade was disclosed to readers in real time (that day) via the StockTalks feature of Seeking Alpha. I currently have a BUY recommendation on SLRC.

On 3/13/2019, I initiated a position in GAIN at a weighted average purchase price of $11.625 per share. On 6/6/2019, I increased my position in GAIN at a weighted average purchase price of $11.085 per share. When combined, my GAIN position has a weighted average purchase price of $11.257 per share. This weighted average per share price excludes all dividends received/reinvested. Each GAIN trade was disclosed to readers in real time (that day) via the StockTalks feature of Seeking Alpha. I currently have a HOLD recommendation on GAIN.

On 10/2/2019, I re-entered a position in NEWT at a weighted average purchase price of $21.635 per share. On 10/7/2019, I increased my position in NEWT at a weighted average purchase price of $20.95 per share. When combined, my NEWT position has a weighted average purchase price of $21.121 per share. This weighted average per share price excludes all dividends received/reinvested. Each NEWT trade was disclosed to readers in real time (that day) via the StockTalks feature of Seeking Alpha. I currently have a BUY recommendation on NEWT.

All trades/investments I have performed over the past several years have been disclosed to readers in real time (that day at the latest) via the StockTalks feature of Seeking Alpha (which cannot be changed/altered). Through this resource, readers can look up all my prior disclosures (buys/sells) regarding all companies I cover here at Seeking Alpha (see my profile page for a list of all stocks covered). Through StockTalk disclosures, at the end of September 2019, I had an unrealized/realized gain “success rate” of 84.1% and a total return (includes dividends received) success rate of 97.7% out of 44 total positions (updated monthly; multiple purchases/sales in one stock count as one overall position until fully closed out). I have yet to realize a “total loss” in any of my past positions. Both percentages experienced a minor increase in September due to the partial reversal of the previous sell-off within the mREIT sector; mainly due to a partial easing of fears of narrowing net spreads and higher prepayments. I encourage other Seeking Alpha contributors to provide real time buy and sell updates for their readers which would ultimately lead to greater transparency/credibility.

I have recently expanded my services to subscribers of the REIT Forum to include, on top of continuous intra-quarter CURRENT BV per share projections on all 21 mREIT stocks I currently cover, additional data/analytics, continuous sector recommendation ranges, and exclusive mREIT articles. In the future, similar types of services may be provided through this Marketplace service for all 15 BDC stocks I currently cover.

This article was written by

Scott Kennedy profile picture
20.57K Followers
Author of The REIT Forum
The #1 REIT Service For Those Targeting Strong Total Returns
Note: I am currently "teaming up" with Colorado Wealth Management to provide weekly CURRENT BV and NAV per share projections on all 20 mREIT and 15 BDC stocks I currently cover. These very informative (and “premium”) projections are provided through Colorado's S.A. Marketplace service, The REIT Forum. In addition, this includes additional data/analytics, continuous sector recommendations (including ranges), and exclusive mREIT and BDC "rapid fire" chat notes immediately after earnings (followed by subsequent earnings assessment articles).


Below are the stocks I currently cover (as of Summer 2022):


Stocks Covered (20 mREITs; 15 BDCs): AGNC, AINV, AAIC, ARCC, ARR, BXMT, CHMI, CIM, CMO, DX, EFC, FSK (formerly FSIC), GAIN, GBDC, GPMT, IVR, MAIN, MFA, MITT, NEWT, NLY, NRZ, NYMT, OCSL (formerly FSC), ORC, ORCC, PFLT, PMT, PSEC, SLRC, TCPC, TSLX, TWO, TPVG (NEW), and WMC.

I cannot cover ABR or STWD in the mREIT sector due to indirect conflicts of interest.

Note: So, readers have continued to reach out and ask what I provide within Colorado Wealth Management’s Marketplace Service, the REIT Forum. I provide the following benefits vs. what I provide to the public:

1) Quarterly earning assessments of all 35 mREIT + BDC peers I cover. This includes rapid-fire "chat notes" the same day of earnings for each covered stock; followed by a detailed assessment article.

2) Subscribers can ask questions / engage in discussions with me daily via the REIT Forum chat feature (each weeknight and during the day on weekends). I answer all questions on the two sectors I cover. The REIT Forum’s chat feature takes precedence over my public responses and personal messages from non-subscribers.

3) Each week, I provide a “weekly recommendation” article (with tables for illustrative purposes) so readers can quickly find out which mREIT and BDC stocks have moved “in and out” of my BUY, SELL, or HOLD recommendation range. I believe this is highly valuable information that can lead to enhanced total returns or minimize an investor’s total losses.

4) For my mREIT articles, subscribers get “early looks” for all public articles I provide. This typically ranges from 2-3 days prior to public publication. For investors looking to “jump on” some of my ideas, prior to the general public being aware of such ideas, this is valuable.

5) Within the REIT Forum mREIT articles, subscribers are provided with one, or a combination of, the following benefits: a) additional tables; b) additional topics; and/or c) sector recommendation tables which are updated weekly using my CURRENT projected BVs for all 20 sector peers I cover. This includes access to sector “risk ratings”.

6) For my BDC articles, subscribers get “early looks” at all public articles I provide. This typically ranges from 2-3 days prior to public publication. For investors looking to “jump on” my ideas, prior to the general public being aware of such ideas, this is also valuable.

7) Within the REIT Forum BDC articles, subscribers are provided with one, or a combination of, the following benefits: a) additional tables; b) additional topics; and/or c) sector recommendation tables which are updated weekly using my CURRENT projected NAVs for all 15 sector peers I cover. This includes access to sector “risk ratings”.

8) In the future, I will be providing, for each BDC I cover, specific investment portfolio risk ratings, grouped on a scale of 1-5. This includes risk ratings on over 1000+ underlying portfolio companies. In addition, I will be providing monthly credit upgrades / downgrades on specific underlying portfolio companies. By having access to this valuable information, subscribers are provided “an edge” when it comes to assessing future BDC performance (which directly impacts stock price valuations).

9) I provide “real-time” chat messages regarding all purchase and sale decisions I make within my personal portfolio for the two sectors I cover. Over the past several years, I have provided such disclosures, for free, via the StockTalks feature of S.A. (for transparency and credibility). However, since this provides additional value for subscribers, I “transitioned” these real-time disclosures to subscribers of the REIT Forum. I will continue to disclose publicly all stock purchase and sale decisions. However, they will only be within each applicable sector article which won’t be in real-time (could be a few days later or could be a few weeks until readers see what moves I made outside the REIT Forum).

I hope this provides some additional clarity on what I specifically provide to Colorado’s the REIT Forum Marketplace service.

Summer 2017 PRO Promotion Recipient

StockTalk Unrealized/Realized Gain "Success Rate" as of 5/31/2022 (62 Past and Present mREIT + BDC Positions): 90.3%

StockTalk Total Return "Success Rate" as of 5/31/2022: 93.5%

I am a Certified Public Accountant (CPA) and Certified in Financial Forensics (CFF). I have also been a member of the American Institute of Certified Public Accountants (AICPA) for 24 years. My current title is partner at a national accounting firm. I have audit, tax, and consulting experience with entities in the following sectors: closed-end funds, energy, financials, healthcare, homebuilders, pharmaceuticals, private equity, REITs, and telecoms. I also have experience with C-corps., estates, high net worth individuals, LLCs, LLPs, S-corps., and trusts. I am an active investor. My investing fundamentals are based on both qualitative and quantitative information. By using my financial / analytical skills, I create specific investing ideas / strategies based on valuations and total returns. The two main sectors I currently provide articles on are mortgage real estate investment trusts (mREITs) and business development companies (BDCs).

Disclaimer: I cannot own and will not give an opinion on any investments my current employer has any direct or indirect professional services with (accounting, audit, tax, consulting, etc.). As such, most large-cap stocks are "off the table" regarding my articles. All accounting insight, analysis, and opinions stated within any articles I write (in regards to a specified stock) are entirely from my own personal research and analysis. I believe my articles are both informative and in some cases educational.

Note: A growing number of readers/investors, analysts, and representatives of firms have requested to be provided with my "spreadsheets/models" to help better understand certain companies/sectors. My researched data is several files of 350+ spreadsheets/models containing both stocks I write about on S.A. and stocks I choose to not write about on S.A. To reduce the repeated requests to provide such data, these spreadsheets/models are ALL linked together. As such, all current and future requests to "share" my data/models will be politely declined. Thanks for your understanding regarding this matter.

I appreciate my loyal readers and I’ll continue to try to provide high quality, in-depth articles.

Commonly Asked Questions:

Question 1): If you are only paid per article, why make your articles so long / detailed?

- I like to provide the “nuts and bolts” of a company. As such, I strive for my articles to have some sort of “hard to obtain” facts / figures. From this data, I like to fully discuss / analyze specific topics within a particular stock. This mainly consists of a quarterly projection article and a series of articles on a company’s dividend sustainability. In certain instances, I also write articles in regards to specific, material events that occur during a quarter.

- I believe a company’s quarterly results and upcoming dividend declarations are two of the most important topics readers are requesting information on. My analysis takes the “average” article several steps further to allow readers to have access to information that is rare to public viewership.

Question 2): How come you only write 1-2 articles a week (would like to see more)?

- As stated in my profile above, I have a full-time professional career. I write / analyze stocks in my free time. To provide these types of high quality / in-depth articles, I can’t see writing more than 2 articles a week. I believe “quality” should always be a higher priority versus “quantity”.

- As many readers should know by now (if you’ve followed me for a while), I'm not here for the monetary rewards. If that was the case, I’d write 5+ weekly articles and provide little to no engagement in each article’s comment section. I believe the comments section is as important as the article themselves b/c readers have a wide range of questions in relation to each article or the sector in general.

Question 3): What do you personally gain from writing these articles?

- I am not here trying to promote a company, book, or website. There’s nothing wrong with that. That’s just not what I’m about. I’m here for the “average Joe”.

- When I decided to write these articles, I based it on the notion I am filling a “special niche” per se. Using skills that have been built up over my professional career, my articles usually provide unique information that most writers either a) don’t have the technical expertise to provide or b) don’t bother providing due to the time it takes to compile such data. As such, I believe the S.A. community benefits from my articles. I solely do this b/c it’s a passion of mine and I like helping readers have accurate, reliable data that is not readily available. Yes, I understand this may seem “hard to believe” in this day and age.

Question 4): How come you do not write about more stocks?

- To give readers the level of detail that I provide in my articles, I amass large amounts of data every quarter (or even weekly). As a direct result, a large amount of time is consumed by obtaining / analyzing this data.

- If I expanded the stocks I research, it would most likely take away the quality of other articles I currently am writing about. Again, this gets back to the “quality vs. quantity” metric.

- There is a fairly large range of stocks / investment vehicles I cannot write about / provide an opinion on due to various conflicts of interests (regarding my professional career). This is a topic I take VERY seriously.
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Disclosure: I am/we are long ARCC, GAIN, GAINM, NEWT, PSEC, SLRC, TSLX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I currently have no position in MAIN, AINV, BDCL, BDCS, BIZD, FSK, GBDC, MCC, MDLY, OAK, OCSI, OCSL, PFLT, or TCPC.

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