Manhattan Bridge Capital, Inc. — Q2 2018 Form 10-Q
Reporting period: Three and six months ended June 30, 2018; financial statements are unaudited. The company originates short-term, secured first-mortgage loans to real estate investors, primarily in the New York metropolitan area. It elected REIT tax treatment beginning in 2014.
Financial performance and position
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Revenue | $1.668 million | $1.401 million | $3.332 million | $2.731 million |
| Operating income | $949,388 | $851,938 | $1.930 million | $1.643 million |
| Net income | $949,388 | $840,066 | $1.930 million | $1.631 million |
| Diluted EPS | $0.12 | $0.10 | $0.24 | $0.20 |
| Operating and net margin | 56.9% | 60.8% operating; 60.0% net | 57.9% | 60.2% operating; 59.7% net |
At June 30, loans receivable were $51.85 million, up from $45.12 million at December 31, 2017. Cash was $129,490. Total assets were $52.72 million; total liabilities were $29.46 million; stockholders’ equity was $23.26 million.
For the first six months, operating cash flow was $2.03 million, investing cash outflow was $6.72 million, and financing cash inflow was $4.69 million. Cash declined by $6,951 to $129,490. The company paid $1.87 million in dividends. Its $20 million revolving credit facility was fully drawn at quarter-end; reported rate on June 30, including the agency fee, was 6.3435%. It also had $5.41 million of senior secured notes, net of financing costs, bearing 6% interest and due in 2026.
Material changes and notable items
- Revenue increased 19.1% in Q2 and 22.0% for the first half year over year, reflecting increased lending activity. Net income rose 13.0% and 18.3%, respectively.
- Interest and debt-service costs increased 48.6% in Q2 and 59.3% for the first half, primarily due to greater use of the credit line. Q2 general and administrative expense rose 13.0%; first-half expense rose 2.6%.
- Loan originations totaled $27.79 million and collections were $21.07 million in the first half. The company had $6.83 million of construction-loan commitments available for borrower draws subject to conditions.
- All loans were reported as performing, with no impairment provision. Loans originally due in 2016 and 2017 totaled $9.42 million; borrowers were paying interest, and the company had extended or renewed these loans. No single borrower exceeded 10% of the portfolio. A further $1.725 million of loans was paid off after quarter-end.
- During Q2, the CEO and controlled entities provided short-term loans; $2.43 million remained outstanding at quarter-end and was repaid July 11. A third-party $1 million loan at 12% was repaid July 12. Related-party loans bore 6%; aggregate interest expense on these short-term loans was about $19,000.
- On July 11, the revolving facility was increased to $25 million, with amended pricing and permission for limited equity repurchases. On July 24, the company completed a public offering of 1,428,572 shares at $7 per share, raising approximately $9.1 million net; underwriters received a 45-day option for up to 214,286 additional shares.
Outlook, risks and contingencies
Management expects cash balances, offering proceeds, the amended credit facility and operating cash flow to fund operations for the next 12 months, while anticipating higher working-capital needs as the loan portfolio grows. The company stated it was in compliance with credit-facility covenants at June 30. As a REIT, it generally must distribute at least 90% of taxable income annually to maintain qualification.
Key risks include limited lending capacity tied to available funding, competition for loans, dependence on the CEO (including potential short-term funding), collateral valuation and borrower-credit risks, borrower concentration, and possible lender-liability claims. The credit facility includes collateral, financial and operating covenants and cross-default provisions; the senior notes require mortgage loans and cash to cover at least 120% of note principal. The company disclosed no off-balance-sheet arrangements. Management judged disclosure controls effective and reported no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Whether post-quarter offering proceeds and the expanded credit line materially improved liquidity, and the amount of facility availability after the offering.
- Repayment status and collateral values for loans extended beyond their original maturity, including the $9.42 million originally due in 2016–2017.
- Portfolio performance, borrower and geographic concentration, and the conditions attached to the $6.83 million of construction commitments.
- The effects of higher borrowing costs and funding dependence on margins, dividend capacity and planned portfolio growth.
- REIT distribution requirements, the terms and dilution from the July share offering, and any exercise of the underwriters’ over-allotment option.