Manhattan Bridge Capital, Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; this filing reports annual results, not standalone fourth-quarter results. The company is a REIT that originates and services short-term first-mortgage loans to real estate investors, principally in the New York metropolitan area.
Financial performance and position
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $7.340 million | $7.225 million |
| Interest income / origination fees | $6.186 million / $1.154 million | $6.168 million / $1.057 million |
| Operating income | $4.498 million | $4.202 million |
| Net income | $4.495 million | $4.204 million |
| Basic and diluted EPS | $0.47 | $0.48 |
| Operating cash flow | $4.432 million | $4.361 million |
| Cash at year-end | $118,000 | $204,000 |
| Loans receivable | $53.485 million | $54.836 million |
Revenue increased 1.6% and net income increased 6.9%. Approximate operating margin rose to 61.3% from 58.2%; net margin was approximately 61.2% versus 58.2%. Interest and deferred-financing-cost expense fell 3.8% to $1.635 million, while general and administrative expense fell 9.0% to $1.203 million. EPS declined despite higher net income, alongside a higher weighted-average share count following the 2018 offering.
Investing activities provided $1.366 million, compared with $9.713 million used in 2018, as loan collections exceeded originations in 2019. Financing activities used $6.034 million, including $4.636 million of dividends paid and $1.389 million of net credit-line repayments.
Year-end debt comprised $15.233 million outstanding on the revolving line and $5.528 million of notes, net of deferred financing costs; the notes have $6.0 million face principal. Total liabilities were $22.500 million, equity was $31.943 million, and assets were $54.443 million. The company reported $5.072 million in unfunded construction-loan commitments. It was in compliance with credit-line covenants at year-end.
Portfolio and changes versus 2018
- Loans originated were $48.054 million, down from $51.859 million; repayments were $49.420 million, up from $42.147 million. Outstanding interest-earning principal declined to $53.485 million from $54.836 million.
- The portfolio comprised 135 loans versus 132. Weighted-average contractual interest rate fell to 10.91% from 11.38%; average loan balance was $396,000 versus $415,000.
- Approximately 99.3% of loans by count were secured by properties in the New York metropolitan area, including New Jersey and Connecticut. Residential collateral represented 88% of interest earned; commercial and mixed-use collateral represented 5% and 7%, respectively.
- Management attributed revenue growth chiefly to higher origination fees from faster loan turnover. It cited lower LIBOR rates for reduced financing expense. G&A declined partly because a 2018 officer bonus did not recur and the CEO voluntarily waived $50,833 of salary for November and December 2019.
Outlook, risks and notable items
- Management said demand for small real-estate loans remained strong but was less robust than in prior years, and competition and greater market liquidity were pressuring margins. Its strategy is selective loan growth with capital preservation; no quantified earnings or revenue guidance was provided.
- Management expected available cash, operating cash flow and the credit facility to fund operations for the next 12 months, while also expecting working-capital needs to rise as it pursued growth.
- On February 25, 2020, the company expanded its credit line from $25 million to $32.5 million and extended it to February 28, 2023. The filing reported approximately $12.4 million of borrowing availability as of March 9, 2020. The amended facility permits up to $20 million of subsidiary bonds, subject to lender approval and a $10 million cap on notes secured by mortgage receivables.
- COVID-19 was identified as a potential business-disruption risk; the company said it had not yet directly affected operations as of the filing. Other key exposures include local real-estate concentration, collateral and borrower repayment risk, competition, limited funding and liquidity, variable-rate borrowing and LIBOR transition, credit-line covenants, REIT qualification and dependence on key executives.
- The company reported no defaults or foreclosures since commencing lending in 2007 and no loan impairments or loss reserves at year-end. This historical record does not assure future performance. A $15,000 write-off of a private-company investment was recorded in 2019.
- The REIT paid at least the required distribution threshold; 2019 distributions were characterized as 99.05% non-qualified dividends and 0.95% return of capital. The filing also disclosed a $1.159 million year-end dividend payable.
Investor verification priorities
- Review the complete financial statements and notes, including the timing and collectability of matured or extended loans; $10.644 million of year-end loans were paid off after year-end.
- Check current borrowing availability, facility utilization, collateral eligibility, covenant compliance and the effect of variable interest rates.
- Assess the $5.072 million construction-loan commitments, local property-market concentration and the company’s lack of loan-loss reserves.
- Verify dividend sustainability against REIT taxable income, operating cash flow, debt restrictions and liquidity needs.
- Monitor COVID-19 impacts, the LIBOR-to-alternative-rate transition, and the company’s reliance on its CEO and CFO.