Prospect Capital Corporation (NASDAQ:PSEC) Q1 2019 Earnings Conference Call Transcript

Nov 07, 2018 • 10:00 am ET

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Prospect Capital Corporation (NASDAQ:PSEC) Q1 2019 Earnings Conference Call Transcript

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Q & A
Operator
Operator

(Operator Instructions) And today's first question will be Leslie Vandegrift with Raymond James. Please go ahead with your question.

Analyst
Leslie Shea Vandegrift

Hi, good morning. Thank you for taking my questios. Dividend income this quarter was really healthy, $11 million from the private REIT and $3.5 million from Valley Electric, going forward is that a run rate or how much of that is sustainable?

Executive
John Francis Barry

Well, Leslie, as you know dividends from any operating company are less predictable than interest income, which is contractually stat. So I would say it's less predictable, but we would not be taking these dividends now unless we thought the companies were healthy enough to continue them. Grier?

Executive
Michael Grier Eliasek

Sure. To add to that on an expectation basis, we've seen substantial uptick in performance in both of those businesses, Valley and NPRC. NPRC obviously is a substantially larger operation for us. We would expect for Valley that dividend to continue, at least in the current quarter. And 2019 is looking quite promising as well, given the growing backlog nature of that business.

With NPRC, we currently expect these distributions to continue, not only for the current quarter but into each calendar quarter of 2019 as well. And we'll see if that's beyond that. We've had significant success with our value added renovation program and have delivered realized IRRs on a growing number of assets in excess of 20%. We have multiple transactions under purchase agreement that are in closing mode right now, three more to be exact, beyond the ones that articulated, in each case with non-refundable deposits and well on a way towards closing.

I suspect two of those have closed in the current quarter and another transaction in early 2019. And then, we're always optimizing the book. And in addition to purchasing and making new investments, we're looking at exiting -- increasingly just through an outright sale. Although, we have recast deals and we've examined refinancing options as well.

So, we are quite pleased with not only the historical performance of a real estate book but also the outlook and the pipeline of exits. At the same time, we're replenishing those with new originations. I think on a trailing 12-month basis, our new originations are almost identical to our exits that we have been well in excess of 2 times cash and cash multiples.

Analyst
Leslie Shea Vandegrift

Thank you. And right now on the market with right where they are and a few more investors moving into leverage lending, is there any industry-specific investments that have just been I guess crazy would be the word for it on deal terms for pricing in any industry that is new that's worth avoiding right now?

Executive
Michael Grier Eliasek

Well, I'll give my thoughts and then see if John can add to a bit. We try not to be so tops down in analysis to like where it would redline certain industries versus others. Having said that, there are some industries that are quite challenged that we tend not to do a whole lot in. Retail is one