Scott Kennedy’s BDC Earnings Series: Assessing Gladstone Investment’s Performance For Q4 2023
Introduction section by Colorado Wealth Management Fund.
Article section by Scott Kennedy.
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Disclosures
Related to the stocks in this article:
CWMF is long: RITM-D, GPMT-A, DX-C, EFC-A, RITM-C, EFC-B, PMT-C, AGNCP, CIM-D, RITM-B, RITM, SLRC, GPMT, RC.
Scott Kennedy is long: RITM, RC, SLRC, GPMT, ARCC, GBDC, RITM-D, MITT-B, MITT-C, GAINL, ECCC.
The rest of this post is from Scott Kennedy.
Summary
This 8th earnings assessment article reviews GAIN’s NAV and adjusted NII performance during Q4 2023.
This article also discusses how GAIN’s quarterly change in NAV and adjusted NII “matched up” to expectations. Earnings remain a key driver to stock performance.
GAIN’s NAV was a notable underperformance while its adjusted NII was a minor-modest underperformance. A handful of GAIN's portfolio companies simply reported less unrealized appreciation/more severe depreciation versus expectations.
That said, no new non-accrual portfolio companies (as anticipated). No change in GAIN’s percentage recommendation ranges or risk rating. GAIN is currently deemed slightly overvalued (SELL).
GAIN reported a good (not great) quarter on adjusted NII but a weak quarter on NAV. This was basically due to GAIN’s quarterly special periodic dividends totaling $1.00 per share.
Introduction:
Hi subscribers. For new members, my name is Scott Kennedy and currently I fully cover 20 mortgage real estate investment trust (mREIT) and 15 business development company (“BDC”) common stocks within this Investing Group regarding research/data, subscriber questions, weekly projected book values/net asset values (BV/NAV), and common stock recommendation ranges. Colorado (“CO”) Wealth Management handles the mREIT preferred stocks and he and his team handles all other applicable REIT sectors outside the mREIT sector. CO also provides some mREIT common stock and BDC articles from time-to-time which are more of an “overview/introduction” discussion; typically based either on my or our combined research/data. This also includes some macroeconomic trends and data. My name is always attached to all Investing Group articles I personally wrote so there is no confusion for subscribers.
This REIT Forum article is part of a series of articles over a span of 6-7 weeks which will analyze my previously projected BV/NAV and core earnings (or core earnings equivalent)/net investment income (“NII”) figures and compare these metrics to each mREIT’s and BDC’s actual reported results, respectively. For readers who are familiar with my public mREIT and/or BDC articles, these types of articles are beneficial to readers who desire to pursue a more active investing strategy and/or want more “real time” thoughts/analysis.
I hope my services/contributions ultimately help enhance a subscriber’s total investment returns or minimize their total investment losses within the mREIT and BDC sectors. At the very least, I hope subscribers will gain more insight into the mREIT and BDC sectors by reading my/our exclusive REIT Forum articles.
1) GAIN’s NAV and Adjusted NII Calendar Q4 2023 Performance (Projected Versus Actual Results):
On 2/6/2024, Gladstone Investment Corp. (GAIN) reported the company’s earnings results for the calendar fourth quarter of 2023 (fiscal third quarter of 2024). Table 1 below provides GAIN’s NAV and earnings summary.
Table 1 – GAIN Calendar Q4 2023 NAV and Earnings Summary
Source: Taken Directly from the REIT Forum’s © Analytical Spreadsheets/Data
I provided the following commentary in regards to GAIN’s results for the calendar fourth quarter of 2023:
“Hi subscribers. I was able to review GAIN’s calendar Q4 2023 (fiscal Q3 2024) earnings results. GAIN's calendar Q4 2023 adjusted net investment income (“NII”) (which excludes the company’s accrued capital gains incentive fee; more indicative of operational performance and closer to net investment company taxable income [ICTI]) of $0.266 per share was a minor – modest underperformance versus my projection of $0.290 per share (range of $0.265 - $0.315 per share). GAIN’s calendar Q3 2023 adjusted NII was $0.239 per share. As such, I projected an adjusted NII increase of $0.051 per share. In actuality, GAIN reported an adjusted NII increase of $0.027 per share. As stated in other applicable sector notes, my preference is to use adjusted NII as this indicates GAIN’s “truer” operational performance during the quarter. The institutional analysts’ consensus average for the calendar fourth quarter of 2023 was adjusted NII of $0.265 per share. Let us discuss how GAIN slightly - modestly underperformed my quarterly adjusted NII expectations.
First, let us review GAIN’s quarterly investment activity. GAIN recorded loan originations funded at close and add-on investments of $68 million during the calendar fourth quarter of 2023. In comparison, I projected quarterly loan originations funded at close and add-on investments of $55 - $95 million (mean of $75 million). GAIN recorded loan prepayments/repayments/restructurings of ($78) million during the calendar fourth quarter of 2023. In comparison, I projected quarterly prepayments/repayments/restructurings of ($60) – ($100) million (mean of ($80) million). When calculated, excluding fair market value (“FMV”) fluctuations, GAIN decreased the company’s investment portfolio size by ($10) million during the calendar fourth quarter of 2023. In comparison, I projected GAIN would decrease the company’s investment portfolio size by a mean of ($5) million. So, a very similar investment portfolio size when compared to my expectations. When quantified, including the incentive fee offset from lower total pre-incentive fee income, this ultimately resulted in an adjusted NII underperformance of only ($0.003) per share when compared to my expectations.