Manhattan Bridge Capital, Inc. — Q1 2017 Form 10-Q
Business context and reporting period
For the three months ended March 31, 2017, the company originated, serviced and managed short-term, first-mortgage loans to real estate investors, primarily in the New York metropolitan area. It operates as a REIT and generally makes loans secured by real estate and supported by personal guarantees.
Financial results and position
| Metric | Q1 2017 / March 31, 2017 | Comparable / prior period |
|---|---|---|
| Revenue | $1.330 million | $1.105 million, Q1 2016 |
| Net income | $791,149 | $695,324, Q1 2016 |
| Basic and diluted EPS | $0.10 | $0.10, Q1 2016 |
| Operating cash flow | $754,725 | $711,036, Q1 2016 |
| Cash and cash equivalents | $120,659 | $96,299, December 31, 2016 |
| Restricted cash | $202,061 | None reported, December 31, 2016 |
| Loans receivable | $35.204 million total | $34.755 million, December 31, 2016 |
| Webster line of credit | $7.217 million | $6.483 million, December 31, 2016 |
| Senior secured notes, net of financing costs | $5.321 million | $5.302 million, December 31, 2016 |
| Working capital | Approximately $19.832 million | Approximately $20.250 million, December 31, 2016 |
Interest income was $1.106 million and origination fees were $223,425. Operating costs and expenses totaled $538,456; income before tax was $791,149. The implied net margin was approximately 59.5%, versus approximately 63.0% in Q1 2016. No income tax expense was recorded in Q1 2017.
Operating cash flow was positive, while investing activities used $449,000 as loan originations exceeded collections. Financing activities used $281,365, including $813,503 of dividends, partly offset by $734,199 of net line-of-credit proceeds. Loan balances comprised $26.700 million short-term and $8.505 million long-term. The company reported no loan impairments or provisions.
Changes versus Q1 2016 and year-end 2016
Revenue increased 20.4% and net income increased 13.8% year over year, which management attributed mainly to increased lending activity; higher financing costs and general and administrative expenses offset some revenue growth. Interest and deferred financing costs rose 28.9% to approximately $232,000. General and administrative expense rose 34.2% to approximately $306,000, primarily due to a special officer bonus and higher payroll, accounting, meals and travel costs. Compared with December 31, 2016, total assets increased to $36.055 million from $35.334 million, while working capital declined, primarily due to lower short-term loans.
Outlook, risks and notable items
- Management expected cash balances, the Webster credit line and operating cash flows to fund operations for the next 12 months, while anticipating higher working-capital needs as the loan portfolio grows. No specific earnings or revenue guidance was provided.
- The $14 million Webster credit facility runs through February 27, 2018; $7.217 million was outstanding and its stated rate was 5.73222% at quarter-end. The company reported compliance with its covenants. The CEO personally guarantees the facility, which has cross-default provisions.
- The $6 million senior secured notes bear 6% interest and mature in 2026, with specified redemption rights and collateral coverage requirements. The company guarantees the subsidiary issuer’s obligations.
- The loan portfolio had no borrower representing more than 10% of outstanding loans. However, $4.667 million of construction-loan commitments remained available for borrower drawdown subject to conditions. Some long-term loans were extended well beyond original maturities; borrowers were paying interest, according to the filing.
- Subsequent to quarter-end, $1.260 million of loans outstanding at March 31 was paid off. A board-authorized buyback of up to 100,000 shares had not been used by the filing date.
- Key disclosed risks include borrower and collateral credit risk, portfolio illiquidity, competition, dependence on the CEO, limited REIT management experience, loan-origination funding constraints, and REIT distribution and tax requirements. The filing cautions that past absence of defaults does not assure future collectability.
Important facts for investors to verify
- Loan performance, collateral valuations and repayment status of extended loans, particularly loans originally due in 2013–2016.
- Availability and covenant capacity under the Webster facility as it approaches its February 2018 expiration, and compliance with the senior-note collateral coverage requirements.
- Funding and expected draw timing for the $4.667 million of construction-loan commitments, alongside planned portfolio growth and dividend distributions.
- The effect of the special officer bonus and other expense increases on recurring profitability.