Q4 2023 New Mountain Finance Corp Earnings Call
Participants
John Kline; President and Chief Executive Officer; New Mountain Finance Corp
Kris Corbett; Chief Financial Officer, Treasurer; New Mountain Finance Corp
Steven Klinsky; Chairman of the Board; New Mountain Finance Corp
Laura Holson; Chief Operating Officer; New Mountain Finance Corp
Erik Zwick; Analyst; Hovde Group LLC
Bryce Rowe; Analyst; B Riley Securities Inc
Paul Johnson; Analyst; Keefe Bruyette & Woods Inc
Presentation
Operator
Good day and welcome to the New Mountain Finance Corporation fourth quarter 2023 earnings conference call. (Operator Instructions) Please note this event is being recorded.
I would now like to turn the conference over to John Kline, President and CEO of New Mountain Finance Corporation Please, go ahead, sir.
John Kline
Thank you, and good morning, everyone. Welcome to New Mountain Finance Corporation's fourth quarter 2023 earnings call. On the line here with me today are Steve Klinsky, Chairman of NMFC and CEO of New Mountain Capital; Laura Holson, Chief Operating Officerof of NMFC; and Kris Corbett, CFO and treasurer of NMFC.
We are pleased to officially welcome, Chris who joins us from Blackstone credit where he was the senior vice president and treasuere of Blackstone BDC's. Steve is going to make some introductory remarks, but before he does, I'd like to ask Chris to make some important statements regarding today's call.
Kris Corbett
Thanks, John. Good morning, everyone. Before we get into the presentation, I would like to advise everyone that today's call and webcast are being recorded. Please note that they are the property of New Mountain Finance Corporation and that any unauthorized broadcast in any form is strictly prohibited. Information about the audio replay of this call is available on our February 26th earnings press release.
I would also like to call your attention to the customary safe harbor disclosure in our press release and on Page 2 of the slide presentation regarding forward-looking statements. Today's conference call and webcast may include forward-looking statements and projections, and we ask that you refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from those statements and projections.
We do not undertake to update our forward-looking statements or projections unless required by law. To obtain copies of our latest SEC filings and to access the slide presentation that we will be referencing throughout this call, please visit our website at w. w. w. dot New Mountain Finance.com. At this time, I'd like to turn the call over to Steve Klinsky, NMFC's Charm Chairman, who will give some highlights beginning on page 5 of the slide presentation. Steve?
Steven Klinsky
Thanks, Chris. It's great to be able to address you all today, both as NMFC's Chairman and as a major fellow shareholder. Fourth quarter financial results were in line with preliminary estimates released in January. Adjusted net investment income for the quarter was $0.4 per share, more than covering our $0.32 per share regular dividend that was paid in cash on December 29th. Our earnings increased by $0.05 compared to Q4 of last year and were in line with Q3.
Our net asset value per share decreased slightly to $12.87, a $0.09 decline compared to last quarter. Excluding the impact of the $0.1 special dividend paid on December 29th, demonstrating continued stable credit performance across our portfolio. Given our earnings of $0.4 per share this quarter, we will make our fourth consecutive variable supplemental dividend payment.
The variable supplemental dividend for this quarter will be $0.04 per share, which is equal to half of the amount of our Q4 quarterly earnings in excess of our regular dividend of $0.32. NMFC will pay these distributions on March 29th to holders of record as of March 15th. The remainder of the excess earnings will remain on our balance sheet and may be paid out in the future.
For the year, we generated total dividends of $1.53 per share, inclusive of the $0.1 special dividend distribution paid in Q4 that was a result of realized gains from our investment in Haven Midstream Holdings. These cumulative dividends represent an annual distribution yield of over 12%. Looking forward to Q1. In addition, to our regular $0.32 dividend we expect to generate a variable supplemental dividend of at least $0.02 per share payable in the second quarter of 2024.
For this incremental payout is supported by expected strong credit performance and continued elevated base rates, which continue to be a substantial positive for our quarterly earnings. Subsequent to year end on February first, the company issued a $300 million 5-year investment grade bond with very strong execution for NMFC's first issuance of this kind, we would like to thank those investors who participated in the offering, and we remain focused on accessing this market for future liquidity needs.
We believe the strength of New Mountain and of NMFC. is driven by the quality of our team, New Mountain overall now numbers. 245 members and the firm has developed specialties, an attractive defensive growth that is a cyclical growth sectors such as life science, supplies, healthcare information technology, software, infrastructure services and digital engineering.
When pursuing our credit investing efforts, we utilize our extensive group of industry experts to provide unique knowledge and expertise that allows us to make very informed high-conviction underwriting decisions. Over the last year, we have continued to expand the quality of our overall team. New Mountain's private equity funds have never had a bankruptcy or missed an interest payment and the firm now manages over $50 billion of assets.
Similarly, NMFC has experienced only three basis points of average annualized net realized losses in its nearly 13 years as a public company. We believe our loans are well positioned overall in defensive growth industries that we think are right in all times and particularly attractive and less certain economic times.
Finally, we as management continue as major shareholders of NMFC, senior management and employee share ownership has been rising over time, and we now own approximately 13% of NMFC's NMFC's total shares. Personally.
With that, let me turn the call to John.
John Kline
Thank you, Steve. I would like to begin by offering some more details on our direct lending investment strategy and track record.
Starting on page 8, we highlight our disciplined INDUSTRY selection, which shows exposure to a diversified list of defensive non-cyclical sectors. These sectors and industry niches are characterized by durable growth drivers, predictable revenue streams, margin stability and great free cash flow conversion.
We have successfully avoided cyclical, volatile and secularly challenged industries, which could be riskier areas to invest given today's higher rate environment. And our strategy has been consistent over our nearly 13 years as a public company, and it allows us to operate with confidence in any economic environment.
Page 9 provides a high-level snapshot of our business where we show a long-term track record of delivering consistent enhanced yield to our shareholders by minimizing credit losses and distributing virtually all of our excess income to shareholders. Since our IPO in 2011, NMFC has returned over $1.2 billion to shareholders through our dividend program, generating an annualized return of approximately 10%.
Our current portfolio investment companies within high-quality industries that are performing well and where our last dollar of risk is approximately 40% of the purchase price paid for business. We lend primarily to businesses owned by financials, Arthur. Of course, our weaker names do not represent material future downside risks to our book value.
The updated heat map is shown in its entirety on Page 11. Given our portfolio's orientation towards defensive sectors like software, business services and health care, we believe our assets are well positioned to continue to perform no matter how the economic landscape develops.
Overall, we had positive credit migration in the quarter with one exception related to a small position in charismatic brands, a medical apparel distributor, which filed for Chapter 11 bankruptcy protection act after quarter end from Q3 to Q4.
This position declined in value by $13 million and is currently marked at $1 million of fair value. Positive credit developments include the full repayment at par of EaglePicher second lien during Q4, which was previously a yellow named markets mark and $0.7 and the full repayment at par during Q. one of our $37.5 million second lien position in Franklin Energy, a yellow rated name marked at $0.91 as of 1231.
Additionally, two companies moved from yellow to green during Q4 as a result of improved performance. As these paydowns and material positive credit movements demonstrate, we continue to believe that many of our non green names have the ability to migrate back to green over time.
Turning to page 12, we provide a graphical analysis of NAV changes during the quarter. Starting on the left, credit specific movements represented a $0.24 decrease in book value, the majority of which is represented by charismatic brands. Broad credit market movements were a $0.15 book value tailwind as credit spreads tightened during Q4 due to generally strong market conditions, while excess earnings, the aforementioned special dividend and other items bridge us to the 1287 book value as of 1231 first.
Page 13 addresses NMFC's nonaccrual performance. On the left side of the page, we show the current state of the portfolio where we have $3 billion of investments at fair value was $52 million or 1.7% of the portfolio currently on nonaccrual in Q4, Transcend Dea and Orange name with a fair value of just $7 million was placed on nonaccrual. While our investment in Antero was realized, leaving us with six companies on nonaccrual of the names on nonaccrual, most are from much older vintages have been written down materially and have a good chance of exiting the portfolio in the medium term.
On the right side of the page, we show our cumulative credit performance since IPO, where NMFC has made $9.3 billion of investments while realizing only while realizing losses of only $26 million. This represents an annualized net loss rate of approximately three basis points since IPO. This is consistent with our value proposition of preserving principle value and distributing nearly all of our net investment income through predictable quarterly dividends.
On page 14, we present NMFC's overall economic performance since IPO, showing that we have delivered consistent and compelling returns. Cumulatively, NMFC has earned $1.2 billion in net investment income while generating only $26 million of cumulative net realized losses and only [$15 million] of net unrealized depreciation netting to over $1.1 billion of value created for shareholders.
Page 18 shows the stock chart detailing MFC equity return since IPO. Over this period, intimacy has generated a compound annual return of approximately 10%, which represents a very strong cash flow oriented return well in excess of both the high yield index and an index of BDC peers who have been public, at least as long as we have.
I will now turn the call over to our Chief Operating Officer, Laura Holson, to discuss current portfolio constructions.
Laura Holson
Thanks, John. We continue to believe the outlook for 2024 in the sponsor-backed direct lending market is positive. Deal flow continues to be episodic, but there are pockets of activity in our defensive growth verticals where we have the opportunity to make loans at attractive yields while remaining very selective deal structures remain compelling with leverage meaningfully below peak levels and significant sponsor equity contributions representing the vast majority of the capital structures.
We remain bullish on the medium and long-term outlook for M&A activity, given the magnitude of dry powder for private equity and the ongoing need to return capital to LPs as well as more attractive financing markets for borrowers and the expectation for rate cuts, syndicated loan and high-yield markets have reopened. And we have seen modest spread compression related to the increased competition for fewer opportunities however, we expect the supply demand imbalance to normalize as soon as we see a more regular deal flow environment return.
Despite the reopening of the syndicated markets, the direct lending market generally remains the financing market of choice for sponsors as the majority of sponsors still recognize the benefits of the direct lending solution, including more certain execution, more flexibility around creating a bespoke capital structure and the ability to hand select lenders. In addition to new activity, a large portfolio of over 100 unique borrowers provides an ongoing opportunity set to make incremental loans to existing well-performing portfolio companies seeking to pursue accretive M&A.
Page 17 presents an interest rate analysis that provides insight into the effect of base rates on NMFC's earnings as a reminder, the MSE loan portfolio is 88% floating rate and 12% fixed rate, while our liabilities are 59% fixed rate and 41% floating rate as of year end.
Moving on to Page 18. In Q4, we saw an uptick in portfolio velocity. We originated $142 million of assets, offset by $257 million of repayments and sales as we continued to modestly delever towards the middle of our 1 to 1.25 times debt to equity range.
Our originations consisted of investments in our core defensive growth power, Allyes, such as veterinary services, enterprise software and infrastructure products. I'd highlight that four of our repayments were second lien positions, and we have line of sight into a few additional second-lien repayments as the portfolio continues to migrate more senior over time.
Turning to page 19, we show our asset mix where approximately 68% of our investments, inclusive of first-lien SLT.'s and net lease are senior in nature. As I mentioned, this continues to skew more senior over time. Second lien positions decreased from 17% last quarter to 15% this quarter. Our second lien exposure is largely a function of the length of our operating history.
As a reminder, our credit business began in 2008 and private equity firms primarily financed their buyouts with first lien second lien capital structures over time. This has largely been replaced by the unitranche structure and as a result, we expect the percentage of first lien and unitranche in our portfolio to continue to increase over time as long as the unitranche structure remains the preferred solution by sponsors, approximately 8% of the portfolio is comprised of our equity positions, the largest of which are shown on the right side of the page. As mentioned in prior quarters, we hope to monetize certain of these equity positions in the medium term and rotate those dollars into cash yielding assets.
Page 20 shows that the average yield of NMFC's portfolio has decreased from 11.8% in Q3 to 10.9% for Q4, primarily due to the downward shift in the base rate curve. Generally speaking, even though spreads are tighter yields remain attractive and support our net investment income target.
Page 21 highlights the scale and credit trends of our underlying borrowers. As you can see, the weighted average EBITDA of our borrowers has increased over the last several quarters to $155 million. This is primarily attributable to sequential EBITDA growth of the individual companies. We lend to and to a lesser extent, portfolio churn. While we first and foremost concentrate on how an opportunity maps against our defensive growth criteria and internal New Mountain knowledge, we believe that larger borrowers tend to be marginally safer, all else equal. We also show the relevant leverage and interest coverage stats across the portfolio portfolio company leverage and decreased slightly over the last two quarters, loan to values continue to be quite compelling and the current portfolio has an average loan-to-value of 42%. Interest coverage ratios have stabilized as expected, and the weighted average interest coverage on the portfolio was flat at 1.5 times a quarter. We've seen sponsors continue to proactively support company liquidity and continued M&A activity. This is a great indication that our portfolio consists of companies that are performing well and are able to attract additional investment at healthy valuations.
Finally, as illustrated on page 22, we have a diversified portfolio across 111 portfolio companies, the top 15 investments, inclusive of our SLP. funds and net lease account for approximately 43% of total fair value and represent our highest conviction.
Then I will now turn the call over to our Chief Financial Officer, Kris Corbett, to discuss our financial results.
Kris Corbett
Thank you, Laura, for more details, please refer to our annual report on Form 10-K that was filed yesterday with the SEC.
As shown on slide 23, the portfolio had approximately $3 billion in investments at fair value on December 31st and total assets of $3.2 billion with total liabilities of $1.8 billion, of which total statutory debt outstanding was $1.5 billion, excluding $300 million of drawn SBA guaranteed debentures. Net asset value of $1.3 billion or $12.87 per share was down slightly compared to the prior quarter. At quarter end, our statutory debt to equity ratio was 1.14 to 1 and 1.10 to 1 net of available cash on the balance sheet, consistent with the balance sheet deleveraging mentioned previously.
On slide 24, we show our quarterly income statement results. For the current quarter, we earned total investment income of $92.8 million, a 7% increase over prior year. Total net expenses were approximately $52.1 million, a 2% increase over prior year. As a reminder, the investment adviser has committed to a management fee of 1.25% for the 2024 calendar year. The investment adviser has also pledged to reduce its incentive fee if and as needed during this period to fully support the $0.32 per share regular quarterly dividend.
Based on our forward view of the earnings power of the business. We do not expect to use this pledge. It is important to note that the investment adviser cannot recoup fees previously waived. Our adjusted net investment income for the quarter was $0.4 per weighted average share, which meaningfully exceeded our Q4 regular dividend of $0.32 per share.
Our investment in NCRA., which had been previously marked down over prior periods was exited during the fourth quarter, crystallizing a realized loss. Consistent with our prior practices, we elected to rebate our shareholders $1.3 million of incentive fees related to PIC income accrued from Antero, which resulted in a $0.01 per share increase to our ENI for the quarter.
As shown on slide 25, we earned total investment income of $373.8 million for the year, which represents an increase of 23% over the prior year. Total net expenses of $214.9 million increased 21% over prior year. As slide 26 demonstrates 97% of our total investment income is recurring this quarter, given the minimal fees earned in Q4. You will see historically that over 90% of our quarterly income is recurring in nature. And on average, over 80% of our income is regularly paid in cash.
We believe this consistency shows the stability and predictability of our investment income. Importantly, over 99% of our quarterly noncash income is generated from our green rated names.
Turning to slide 27, the red line shows the coverage of our regular dividend this quarter. Adjusted net investment income exceeded our Q4 regular dividend by $0.08 per share for Q1 2024, our Board of Directors has again declared a regular dividend of $0.32 per share as well as a supplemental dividend of $0.04 per share.
On slide 28, we highlight our various financing sources and diversified leverage profiles. Taking into account SBA-guaranteed debentures, we have $2.6 billion of total borrowing capacity with $768 million available on our revolving lines, subject to borrowing base limitations. As a reminder, covenants under both our Wells Fargo and Deutsche Bank credit facilities are generally tied to operating performance of the underlying businesses that we lend to rather than the marks of our investments at any given time, which we think is particularly important during more volatile times.
Finally, on slide 29, we show our leverage maturity schedule. Over the last four months. We have had a number of positive developments with respect to our liabilities and liquidity profile, including successfully extending both our Wells Fargo and Deutsche Bank credit facilities, doubling and extending our management company revolver and issuing over $400 billion of unsecured notes, including a baby bond and our first investment grade bond. As a result, nearly 70% of our debt matures in or after 2027. In the future, we plan to be repeat issuers in the investment grade markets to further ladder our maturities in the most cost-efficient manner.
And with that, I would like to turn the call back over to John.
John Kline
Thank you, Chris. As we look forward to the rest of 2024, we remain confident in the continued strong performance of NMFC's portfolio and believe we are on track to continue to deliver great risk-adjusted returns to our shareholders. Once again, we'd like to thank all of our stakeholders for the ongoing partnership and support and look forward to maintaining our dialogue throughout the year.
I will now now turn it back to the operator to begin Q&A. Operator?
Question and Answer Session
Operator
(Operator Instructions)
Erik Zwick, Hovde Group.
Erik Zwick
Good morning, everyone. I wanted to start out with just because I was kind of looking through Slide 17 and thinking about the potential for rate cuts, short-term interest rate cuts later in the year. Wondering if you could just share your thoughts on that, a potential use of swaps to reduce the asset sensitivity of the balance sheet?
Laura Holson
Yes, sure. I'm happy to take those on. So I mean, obviously, I think we can all look at the forward flow for curve and see what's indicated on it and as it relates to rate cuts over the balance of 2024 and beyond, and we did tried to provide some insight as to what that could do from an earnings perspective, as you said, as outlined on page 17, and it is something that we've talked about when we look at kind of hedging both on the asset side and on the liability side.
And we've done based on the work that we've done, that it's just not economic really or practical to do on the asset side. And we are you are exploring it though on the liability side, specifically as it relates to our recent investment grade bond issuance, again, just given where we think rates are likely to be probably probably makes sense on the liability side, but that's kind of how we approach hedging both on the asset and liability side.
John Kline
One thing I'd add is if you do think we're heading into a lower base rate environment into '25. We think we have a major opportunity to refinance both our converts at all. And also it's notable that our baby bond is callable in late 25. So we think there's actually in a lower rate environment could be a really good opportunity to refinance some of those instruments at lower rates.
Erik Zwick
Understood. Thank you. And then actually, just looking at the next slide, as I look at the your spreads on the new originations versus what exited versus repayment, it looks like spreads are tightening a little bit, and that would be consistent with what is being absorbed in the market. So curious just about your thoughts in terms of kind of the direction for the weighted average yield for the portfolio over maybe the course of 2024?
John Kline
Sure. I can take a shot at that overall, as I'm sure you know, spreads are a little bit tighter at this moment in time, one of the biggest challenges we face as a direct lending industry is deal flow is a little bit lower right now than I think we all would like, but we think there's a big opportunity for deal flow to increase in the coming quarters, and we think that would be supportive of of good spreads in the market. So and that will be the first comment I would make that.
The second comment is that overall spreads are still pretty healthy. If you look at our spreads on the new deals that we've brought into the portfolio, they're still very good. And when you when you basically add a so for rate in the mid five to those spreads we think it represents really great risk-adjusted return on the repayments.
It would be fair to say that we are losing assets with higher spread, but we're also getting refinanced out of a lot of our second-lien portfolio. And we think there's a great opportunity to actually in this environment, originate new first lien and unitranche loans that have spreads almost as good as the second-lien loans while reducing the overall risk in the portfolio. So we feel like that as a positive trend and a potential real win for our shareholders.
Erik Zwick
You're right. That's a good point, and that's all I have today. Thanks for taking my questions.
John Kline
Thank you.
Operator
Bryce Rowe, B. Riley.
Bryce Rowe
Thanks, good morning, Dan. Maybe I'll maybe I'll start with some the leverage profile. Obviously, you all have been, I would guess, somewhat intentional about you seeing seeing leverage on the balance sheet come down here over the course of '24. You dealt any noted in your prepared remarks you've dealt with we had a good debt of maturities within the debt capital structure so you're trying to get a feel for where you think kind of leverage goes from here. Do you want to continue to work at lower or are we at a point now where maybe we'll see some stabilization?
John Kline
Sure. There were some quarters in the past where it felt like we were always at the high end and that wasn't necessarily intentional. Our our leverage target is stated as between one and 1.25 times on a statutory basis, and that truly is our target. So in general, we would seek to operate on average in the middle of the range, maybe upper middle of the range.
But just given all the portfolio movements that we face as portfolio managers, it's difficult to get too precise. So we feel very comfortable anywhere within that range and and different quarters will have different dynamics, but certainly being in the middle of the range feels very good. And I think we've conditioned all of our stakeholders to being on average in the middle to upper middle of the range.
Bryce Rowe
Okay. Okay. And then I guess a related question in terms of looking at deal flow and repayment activity over the last five or six quarters, is the, I guess, the slower pace of originations. Is that more a function of kind of deal environment than it is, you know, the I guess the desire to can it get closer to the middle middle pointed out of that leverage range?
John Kline
When I think about NMFC, we've been within the range for a little while. We don't have tremendous excess dry powder. We've able to access the ATM in small and small size. But in general the low velocity environment in terms of deal flow, I think has hurt our overall activity. Now we have private funds where we're actively investing and being more aggressive on the origination front. But going forward, I really see. I think there will be a big opportunity and we're seeing it real time. We're seeing a lot of repayments in the portfolio. We're seeing a lot of second liens repay. And that is going to enable that enable us to have plenty of dry powder to to invest into what we think will be a busier calendar going into Q2 and Q3.
Bryce Rowe
Okay. And then maybe one more for me. You noted improved internal risk ratings more for your debt debt investments moving into that green category relative to, I guess, negative migration. Can you talk a little bit about is there anything specific kind of driving that and portfolio companies pursue specific, just dealing with maybe some of the constraints here of the recent past and getting out and getting a handle on that? Just any commentary on that would be?
Laura Holson
So yes, when I think about the shift in the heat map. I know you had to name specifically move and into the green category this quarter and in one situation, one was kind of really recovering from some supply chain and some kind of post COVID hangover type issues. And really just overall performance has improved nicely on that particular name. And on the other name, which is a smaller name and similarly, just some idiosyncratic business performance has improved there as well.
And so I wouldn't say any kind of overarching trends. I mean, it's obviously been a challenging several years when you think about just all the headwinds faced by kind of the macro economy. And we continue to think our portfolio is really well positioned and 95% green. We think that that's reflective of just the defensive growth strategy and the conviction that with which we underwrite based on the platform. And that's and the depth of knowledge that we have in these sectors. And then that's just the underlying characteristics of these types of businesses, which generally, I think are more resilient. But hopefully that gives you a flavor for sort of the migration.
Bryce Rowe
Thanks, Laura. Thanks for your time.
Operator
Paul Johnson, KBW.
Mr. Johnson, however, it appears we don't have any audio from Mr. Johnson. (Operator Instructions) Also we have Mr. Johnston. Again, please proceed.
Paul Johnson
You can hear me okay?
Operator
Yes, certainly come through loud and clear now. Thank you.
Paul Johnson
Great. Thanks. Yes, my first question was just on the guide for next quarter or the implied guide of $0.36, obviously below this quarter's $0.4 or so. I'm just curious, is that just kind of due to the spread compression that we experienced this quarter or is there any kind of onetime items that would be running through G&A or anything like that?
John Kline
Sure. I can take that and congrats on the new role, Paul and two, when we think about the lower guidance, it's a bunch of little things at the margin. As I mentioned, we are seeing repayments in the portfolio. So our average leverage is a little bit lower. That's what we see right now. So we want to be conservative about our outlook from the we did. We are losing some income from charismatic brands, which we talked about on the call. And we also lost a little bit of income from Haven management fee. We no longer get that fee as we've exited that investment.
The leverage costs on our portfolio is a little bit higher than it has been. So that's just another little Nick to talk about. And the velocity of deal flow, which creates fee income is a little bit lower than we would expect at some point that should should come back and really help us from a net investment perspective. But right now, we see that as a little bit lower.
And then of course, there is a mix issue that you can see and we talked about on page 18 where we are being repaid on on a lot of and liens. And we we tend to find great opportunities in first lien and unitranche in this environment. And so at the margin, that's a little bit of a negative from an income perspective, but a huge positive from it's a risk perspective overall. So it's a bunch of little things that are contributing to that, that slight a slight decline in outlook but still feel very good about the outlook.
Paul Johnson
Got it. Appreciate that. That's very helpful. And then on the on the Haven equitization or monetization this quarter, I was wondering if you could just kind of walk me through that. I'm looking at your slide, you don't $0.01 gain, roughly from Haven, but you know, I'm not sure if it's the complete number or not, but $0.04 or so from tax charges. Is that all related to haven? I'm just kind of trying to parse out what the actual net gain was?
John Kline
Sure and floor, maybe I'll add some details, but the cadence is a little bit. It's not really this quarter's news. It's really something that we've we've exited over the course of '23 and there was Haven was the sort of the root of the special dividend of $0.1 where we had some some gains that we did have to pay out as it relates to the net investment income this quarter at Haven didn't have too big impact other than I think some tax-related items. And of course, the aforementioned mentioned special dividend Laura, let me know if I'm missing here, and I think that was a good summary.
Laura Holson
And so Paul, just on page 12, and I think where you're seeing the $0.01 that's just on the Q4 impact and then on book value. And as John said, the benefit of kind of the Haven monetization happened over the course of 2023 and you can see kind of that show up in page 35 on the realized gain ROE, which the vast majority of that does relate to Haven.
Paul Johnson
Got it. Appreciate that. Thanks. For clarifying that. Last one is just on kind of more broadly just on the net lease portfolio programmatically relevant to what's going on in the CRE market. I'm just wondering if I can kind of get your thoughts on the portfolio there, kind of how it's performing. I'd imagine most of those assets have been underwritten years ago in the middle of the run rate under a very different environment. Is there any sort of maturity risk in that look? And just I guess, how would that how would you describe that? How would you describe the differentiation between that net-lease portfolio and kind of the traditional CRE market?
John Kline
Sure. Well, the punch line is, and we talked about this a little bit, but it's a common question. I'm really happy you asked it. But generally, when we think about our net lease portfolio, we look at all of our borrowers. First of all, we have no tenant risk because we're very limited tenant risk because we essentially have long-term leases on what is mission critical real estate for our core tenants.
And our tenants are performing very well by and large, the type of real estate that we own and that we're leasing out to these tenants tends to be related to light manufacturing. And we have a lot of life sciences exposure, mission critical warehouse facilities and other sorts of of industrial type assets.
So when we think about the exact place you want to be in this environment in this commercial real estate environment, we just feel like our little portfolio couldn't be better positioned. The average length of the lease, I believe is close to 10 years.
I could follow up with an exact number. And as I mentioned, the tenant quality is high and the real estate criticality is also high. So and then I guess when we think about the valuation and how we feel about just the cash flows coming from from this portfolio.
This diversified portfolio, we feel very good. And in fact, as interest rates rates have risen, we've seen some valuation compression in the portfolio because the cap rates have gone up in the market and we've had to reflect that in the value where we hold these of these assets.
If any anything, we see some cap rates coming back down, which makes our assets more valuable on most of our assets. We have individual financing at the asset level, which tends to be fixed rate and that has provided pretty good, pretty good stability over or over the last couple of years.
And we value that fixed rate debt. And then, of course, long term, these cash flows are growing because in general, in general, we have 2% to 3% escalators on the the individual leases, which provides a really good good tailwind over long periods of time. And so we feel very good when we think about our worries in the world at this portfolio of properties is not high on my list.
Paul Johnson
And what are your thoughts about you kind of expect to sort of keep what you have in that book or is there more origination origination opportunities of your future? There is something we would expect to kind of roll off over time?
John Kline
Sure. Most of the really the new origination opportunities go to another dedicated fund when we think about the role that we played in in this net lease business that we have here. New Mountain is MSC really got the business off the ground and we continue to benefit from getting the business off the ground because we have these really long term assets that tend to grow in value with the with the lease escalators.
So I really see this portfolio as as being a little bit more static, but really valuable, really valuable source of income and potentially things go our way over long periods of time. I think it can be a source of principal gains for us, but we don't we're not actively investing in new new properties within NMFC. We're doing that in other private funds that we have here under the New Mountain umbrella.
Paul Johnson
Got it. Appreciate it. Thanks for taking my questions.
John Kline
Thanks, Paul.
Operator
Thank you. This concludes your question and answer session. I'd like to turn the conference back over to John Kline for closing remarks.
John Kline
Great. Well, thank you for joining us on our call, and we look forward to speaking you again very shortly. Have a great day.
Operator
Thank you, sir. This concludes today's conference call and thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.
