Manhattan Bridge Capital, Inc. — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019; balance-sheet comparisons are with December 31, 2018. The unaudited company originates and services short-term, secured real-estate loans, primarily in the New York metropolitan area and Florida.
Key financial results
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $1.917 million | $1.891 million | $5.484 million | $5.224 million |
| Operating income | $1.147 million | $1.189 million | $3.347 million | $3.120 million |
| Net income | $1.150 million | $1.189 million | $3.355 million | $3.119 million |
| Basic and diluted EPS | $0.12 | $0.13 | $0.35 | $0.37 |
| Operating cash flow | Not separately presented for the quarter | $3.224 million | $3.236 million |
Q3 revenue rose 1.4%, while net income declined 3.3%; year-to-date revenue increased 5.0% and net income increased 7.6%. Q3 expense growth included higher general and administrative costs, up 15.8% year over year, and higher interest and debt-service costs, up 5.8%. For the nine-month period, interest and debt-service costs decreased 1.5%, while general and administrative expenses rose 5.8%.
Balance sheet, debt and liquidity
- At September 30, 2019, loans receivable were $59.723 million, up from $54.836 million at year-end 2018. Total assets were $61.178 million and stockholders’ equity was $33.119 million.
- Cash was $125,962; restricted cash was $337,512, mainly pending collections dedicated to reducing the credit line. Cash and restricted cash totaled $463,474.
- The Webster credit line had a $25 million limit and $21.864 million outstanding, at an approximately 6.02% rate on September 30. The line is secured, has covenants and cross-default provisions, and expires February 28, 2021, with a possible extension subject to lender consent.
- Senior secured notes carry a 6% coupon and mature in 2026. Their outstanding principal was $6 million; the balance-sheet carrying amount, net of financing costs, was $5.509 million.
- Management reported compliance with credit-line covenants, but disclosed a one-time Webster waiver of the Fixed Charge Ratio requirement as of September 30, 2019.
- Nine-month investing cash outflow was $4.872 million, reflecting $38.247 million of loan issuances less $33.375 million of collections. Financing cash inflow was $1.756 million, including $5.242 million of net credit-line proceeds and $3.477 million of dividends paid.
Portfolio, outlook and risks
- Loans generally have one-year terms, are secured by first mortgages and personal guarantees, and typically bear fixed interest of 10%–14%. The company reported approximately 140 loans under management.
- At September 30, all reported loans were classified as performing; the company reported no impairment provision and no borrower representing more than 10% of loans outstanding. It also disclosed loans originally due in 2016–2018 that remained outstanding while borrowers continued paying interest.
- Construction-loan commitments available for borrower drawdown subject to conditions totaled $7.188 million. Subsequent to quarter-end, $1.960 million of loans outstanding at September 30 was paid off.
- Management expects existing cash, the credit agreement and operating cash flows to fund operations for the next 12 months, while anticipating increased working-capital needs as it pursues portfolio growth. No quantified earnings or revenue guidance was provided.
- The company is a REIT and says it must distribute at least 90% of REIT taxable income annually to maintain its tax status. Key risks include limited funding for originations, competition, reliance on the CEO (including for occasional short-term loans), collateral valuation and borrower due diligence, borrower concentration, and potential lender-liability claims.
- Disclosure controls were assessed as effective, with no material change in internal control over financial reporting reported during the quarter. The filing states that the 2019 adoption of lease accounting did not have a material impact.
Important facts for investors to verify
- Loan-level performance, collateral values, extensions and collections, especially for loans past original maturity.
- Credit-line availability after collateral limits, the Fixed Charge Ratio waiver, covenant requirements and the facility’s 2021 expiry.
- Whether construction commitments are drawn and how the reported post-quarter loan payoffs affect liquidity and portfolio size.
- Dividend sustainability given REIT distribution requirements, low unrestricted cash and reliance on credit-line borrowing.
- Management’s CEO-dependence disclosure and the potential effect of borrower or collateral deterioration on loan losses.