Manhattan Bridge Capital, Inc. — Q3 2017 Form 10-Q
Reporting period: Three and nine months ended September 30, 2017; financial statements are unaudited. The company originates, services and manages short-term, first-mortgage loans to real estate investors, principally in the New York metropolitan area.
Financial performance
| Metric | Three months 2017 | Three months 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Total revenue | $1.591 million | $1.169 million | $4.322 million | $3.440 million |
| Operating income | $972,000 | $725,000 | $2.615 million | $2.142 million |
| Net income | $961,000 | $725,000 | $2.592 million | $2.130 million |
| Net income per diluted share | $0.12 | $0.10 | $0.32 | $0.29 |
| Interest and debt-cost expense | $352,000 | $205,000 | $862,000 | $594,000 |
Quarterly revenue increased 36.1% and net income 32.6% year over year; nine-month revenue increased 25.6% and net income 21.7%. Growth reflected increased lending activity, partly offset by higher financing costs and operating expenses. Origination fees were $240,000 for the quarter and $675,000 for the nine months.
At September 30, loans receivable were $44.42 million, up from $34.76 million at December 31, 2016. Cash was $112,184; total assets were $45.17 million, liabilities $22.05 million and stockholders’ equity $23.12 million. The balance sheet reports a $16.17 million line-of-credit balance and $5.36 million of senior secured notes, net of financing costs; the notes’ stated principal was $6.0 million. The company reported a September 30 line rate of 5.485%, including the agency fee, and compliance with line covenants.
For the first nine months, operating cash flow was $2.64 million, investing cash flow was negative $9.67 million and financing cash flow was positive $7.04 million. Lending advances of $30.31 million were partly offset by $20.65 million in loan collections. Dividends paid were $2.46 million. The filing does not state a dividend per share for this period.
Material changes, outlook and risks
- Revenue growth accompanied expansion in the loan portfolio; interest and debt-cost expense rose 45.1% over the first nine months, and general and administrative expense rose 20.8%.
- In July and August, the credit facility was amended and expanded to $20 million, with Webster and Flushing Bank as lenders. Its term runs to February 2021, with a possible further extension subject to lender consent. CEO Assaf Ran’s personal guarantee was capped at $500,000 plus enforcement costs.
- The company had $5.35 million of additional construction-loan commitments available for borrower draws subject to conditions. After quarter-end, $1.34 million of loans outstanding at September 30 was paid off.
- Management said cash, the credit line and operating cash flows should fund operations for the next 12 months, while working-capital needs are expected to increase as the company pursues growth. No earnings or revenue guidance was provided.
- Management reported no loan impairments or defaults to date. However, some loans originated in 2014–2016 remained outstanding past original maturity; borrowers were paying interest and loans had been extended. There were no loans representing more than 10% of the portfolio. Credit, collateral valuation, borrower concentration, portfolio illiquidity, competition, funding availability and dependence on the CEO are disclosed risks.
- The company recorded a $20,000 year-to-date write-down of its privately held-company investment, reducing its carrying value to $15,000, due to delays in that company’s business plan.
- The company stated it qualified as a REIT and must generally distribute at least 90% of taxable income annually to maintain REIT status. It reported effective disclosure controls and no material change in internal control during the quarter.
Facts investors should verify
- Loan portfolio performance, maturity extensions, collateral coverage and the status of the $5.35 million construction commitments.
- Availability and covenant capacity under the $20 million facility, its variable interest cost and the company’s ability to service debt and fund portfolio growth.
- Cash dividend levels and REIT distribution requirements, alongside the company’s low reported cash balance.
- Whether the investment write-down or any later developments affect the privately held investment’s remaining value.