Business context and reporting period
Manhattan Bridge Capital, Inc. is a New York-based real estate finance company that originates, services and manages short-term, first-mortgage loans to real estate investors, primarily in the New York metropolitan area. This unaudited Form 10-Q covers the three and nine months ended September 30, 2014; balance-sheet comparisons are with December 31, 2013.
The company said it believed it met the requirements to elect REIT status for tax year 2014, but the filing describes an intention to elect, not confirmation that the election was completed.
Financial performance and position
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Revenue | $765,720 | $585,038 | $2,004,713 | $1,673,195 |
| Operating income | $417,841 | $293,034 | $1,065,312 | $798,330 |
| Net income | $429,019 | $193,921 | $1,058,264 | $524,991 |
| Basic / diluted EPS | $0.08 / $0.08 | $0.05 / $0.05 | $0.23 / $0.22 | $0.12 / $0.12 |
| Operating margin | 54.6% | 50.1% | 53.1% | 47.7% |
Margins are calculated from reported revenue and operating income. Net income reflects tax benefits or expenses, including a Q3 2014 tax benefit of $4,291 and a nine-month 2014 tax expense of $27,709.
- Revenue drivers: Loan interest income was $631,640 in Q3 and $1,657,076 year to date; origination fees were $134,080 and $347,637, respectively.
- Balance sheet at September 30: Total assets were $23.53 million, including $23.00 million in loans receivable. Cash was $60,083. Current liabilities were $9.64 million and reported working capital was approximately $8.43 million.
- Debt and liquidity: The company had $7.00 million drawn on its Sterling National Bank line of credit and $2.32 million in short-term loans, or $9.32 million combined. All reported liabilities were current. The line carried a rate of 2% above prime, subject to a 6% floor, and was secured by assigned mortgages and other collateral; the CEO provided a $7 million personal guarantee.
- Cash flows, nine months: Operating activities provided $782,778, investing activities used $8,308,384, and financing activities provided $6,564,666. Ending cash was $60,083, down from $1,021,023 at year-end 2013.
- Loan portfolio: Short-term loans were $17.76 million and long-term loans $5.24 million. No borrower represented more than 10% of outstanding loans. The company had $2.51 million in additional construction-loan commitments subject to conditions.
Material changes versus prior periods
- Q3 revenue increased 30.9% and nine-month revenue increased 19.8%, which management attributed to growth in lending operations. Nine-month total loans outstanding rose to $23.00 million from $15.40 million a year earlier.
- Net income increased 121% in Q3 and approximately doubled for the nine-month period. Lower income tax expense was a significant contributor to the year-to-date comparison: $27,709 in 2014 versus $294,000 in 2013.
- Q3 interest and debt-service costs increased 21.0% to $144,392; the nine-month amount increased 18.9% to $383,721, primarily reflecting borrowing to expand lending capacity.
- A July 2014 public offering of 1,754,386 shares at $2.85 per share raised $5.0 million gross and approximately $4.29 million net. Shares outstanding were 6,059,576 as of October 30, 2014.
- Nine-month dividends paid were $429,329, compared with $85,458 in the prior-year period.
Outlook, risks and unusual items
- Management expected cash balances, offering proceeds, the credit line and operating cash flows to fund operations for the next 12 months. No quantified earnings or revenue guidance was provided.
- The Sterling credit line was extended after quarter-end through December 13, 2014. Subsequent to quarter-end, the company also received a $100,000 short-term loan and $450,000 in CEO bridge loans, each at stated rates disclosed in the filing.
- Management reported no loan impairments or provisions at September 30, 2014, and said borrowers on certain substantially past-due loans were paying interest. The filing also disclosed that $475,000 of loans were paid off after quarter-end.
- The company’s real-estate buyback-option arrangement generated $20,661 of other income in the first nine months. The holder exercised the option to buy the remaining property for $146,821 on October 2, 2014.
- REIT status depends on meeting applicable requirements, including generally distributing at least 90% of taxable income. The company warned that it had no operating history as a REIT and that management lacked REIT-management experience.
- Other stated risks include limited funding for loan originations, competition, illiquid loans, borrower concentration, inaccurate collateral valuations, incomplete due diligence, potential lender-liability claims and dependence on the CEO. The company reported no defaults or non-collectible loans to date, but cautioned that future losses remain possible.
Important facts for investors to verify
- Whether the company completed its 2014 REIT election and can satisfy ongoing REIT qualification and distribution requirements.
- The credit line’s renewal and availability after its December 13, 2014 extension date, and the cost and terms of the company’s short-term and CEO-provided borrowings.
- Loan performance, collateral values, extensions and repayment prospects for long-term and past-maturity loans, as well as drawdowns against the $2.51 million construction-loan commitments.
- Whether lending growth can generate returns sufficient to cover rising funding costs and support cash needs and REIT distributions.