Manhattan Bridge Capital, Inc. — 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018; comparisons are primarily with fiscal 2017. The company is a REIT-focused real estate lender originating short-term, generally fixed-rate first-mortgage loans to property investors in the New York metropolitan area.
Financial performance and position
| Metric | 2018 | 2017 |
|---|---|---|
| Revenue | $7.225 million | $5.919 million |
| Interest income | $6.168 million | $5.016 million |
| Origination fees | $1.057 million | $0.903 million |
| Interest and financing-cost amortization | $1.699 million | $1.227 million |
| General and administrative expenses | $1.322 million | $1.227 million |
| Net income | $4.204 million | $3.439 million |
| Basic and diluted EPS | $0.48 | $0.42 |
| Net cash from operating activities | $4.361 million | $3.462 million |
- Revenue rose 22.1% and net income rose 22.2%. Net margin was approximately 58.2% in both years; the filing reports no separate interest-margin measure.
- Loan principal outstanding grew to $54.836 million from $45.124 million. The portfolio comprised 132 loans, versus 120; average loan balance was $415,000 versus $376,000. Weighted-average contractual rate declined to 11.38% from 12.30%.
- Loans originated totaled $51.859 million, compared with $37.872 million; repayments totaled $42.147 million, compared with $27.503 million. Unfunded construction-loan commitments increased to $7.265 million from approximately $5.28 million.
- Year-end cash was $204,000, with an additional $151,000 of restricted cash. Total assets were $55.903 million, total liabilities $23.822 million, and stockholders’ equity $32.081 million.
- Debt included $16.622 million outstanding under a $25 million revolving credit line and $6 million face amount of 6% senior secured notes (reported net of financing costs at $5.453 million). Approximately $8.4 million of credit-line availability remained. The credit-line rate was 6.52% at year-end and is variable.
- Operating cash flow was $4.361 million; investing activities used $9.713 million, principally reflecting loan originations net of collections; financing activities provided $5.571 million, including $9.883 million of net public-offering proceeds. Dividends paid were approximately $3.999 million.
Material changes, outlook and commentary
- The company completed a July 2018 public offering, including partial exercise of the underwriter’s option, raising approximately $10.8 million gross and $9.9 million net. The resulting share issuance increased equity capital.
- The revolving credit facility was increased by $5 million to $25 million in July 2018. Management reported compliance with its covenants at December 31, 2018.
- The company repurchased 8,112 shares in the fourth quarter for $48,743 under a program authorizing purchases of up to 100,000 shares. The program does not obligate the company to buy shares.
- Management said cash, offering proceeds, credit availability and operating cash flows should be sufficient for the next 12 months, while working-capital needs are expected to rise as the company pursues growth. No quantified earnings or revenue guidance is provided.
- Management describes a continuing opportunity in small real-estate loans but emphasizes that originations and profits are constrained by available capital. It reported no defaults or foreclosures since beginning lending in 2007; this is historical experience, not assurance of future performance. Approximately $11.638 million of year-end loans were paid off after year-end.
- Material risks include concentrated exposure to New York-area real estate, illiquid collateral, borrower refinancing and repayment risk, no loan-loss reserve, variable-rate borrowing costs against primarily fixed-rate loans, credit-line covenants and refinancing availability, and dependence on the CEO and CFO. The company also relies on REIT qualification and an Investment Company Act exemption.
- Related-party financing: the CEO and entities he controls provided short-term loans during 2018 at 6%; these loans were repaid by July. The filing reports $10,509 of interest paid to the CEO and related entities.
- The company reported no legal proceedings. The auditor issued an unqualified opinion on the financial statements. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor did not attest to internal-control effectiveness.
Important facts for investors to verify
- Reconcile the growth in loan balances and post-year-end repayments with current portfolio size, borrower status, extensions and remaining unfunded construction commitments.
- Review credit-line borrowing-base headroom, covenants, maturity and extension terms, variable-rate exposure, and the impact of any LIBOR transition on borrowing costs.
- Assess collateral values, geographic and property-type concentration, loan extensions and repayment sources, particularly given the absence of loan-loss reserves.
- Confirm dividend coverage, REIT distribution requirements and restrictions imposed by the credit facility; declared but unpaid dividends were $1.159 million at year-end.
- Consider dilution from the 2018 offering, the CEO’s 26.2% ownership and control, related-party lending, and the notes’ collateral, coverage covenant and 2021 holder redemption right.