Manhattan Bridge Capital, Inc. — FY2015 Form 10-K
Reporting period: Year ended December 31, 2015; comparisons are with FY2014. Manhattan Bridge Capital is a New York-based real estate finance company that originates, services and manages short-term first-mortgage loans to real estate investors, primarily in the New York metropolitan area. It elected REIT tax treatment beginning in 2014 and generally must distribute at least 90% of REIT taxable income.
Financial and operating results
| Metric | FY2015 | FY2014 |
|---|---|---|
| Revenue | $4.001 million | $2.904 million |
| Net income | $2.238 million | $1.455 million |
| Basic and diluted EPS | $0.33 | $0.29 |
| Operating cash flow | $2.122 million | $1.278 million |
| Cash and cash equivalents at year-end | $107,000 | $48,000 |
| Total assets at year-end | $31.656 million | $24.444 million |
| Total debt at year-end | $12.917 million | $10.169 million |
| Stockholders’ equity at year-end | $17.743 million | $13.866 million |
- Revenue rose 37.8%; interest income was $3.356 million and origination-fee revenue was $645,000. Net income increased 53.8%. Operating margin was approximately 56.7%, versus 50.3% in 2014; net margin was approximately 55.9%, versus 50.1%.
- Interest and debt-service-cost expense rose 22.7% to $691,000; general and administrative expenses increased 18.5% to $1.039 million. Income-tax expense was $1,595.
- Investing activities used $6.881 million, chiefly reflecting $21.609 million of loan originations offset by $14.737 million of collections. Financing activities provided $4.818 million, including net public-offering proceeds of $4.237 million; dividends paid were $2.129 million.
- Loans earning interest totaled $30.904 million at year-end, up from $24.032 million. The portfolio comprised 97 loans, all secured by New York-area properties. Weighted-average contractual interest rate was 12.3%, compared with 12.5%.
- Working capital was approximately $6.8 million, down from $8.8 million, primarily because more loans were classified as long-term. Long-term loans rose to $10.705 million, or 34.6% of the portfolio, from $4.894 million, or 20.4%.
Material changes, financing and distributions
- In February 2015, the company replaced its $7.7 million Sterling facility with a three-year Webster revolving credit line of up to $14 million, expiring February 27, 2018. Year-end borrowings were $11.821 million, with approximately $2.18 million available. The stated year-end borrowing rate was 5.1739%; the rate is variable and the facility is secured by mortgages and other collateral and personally guaranteed by the CEO.
- The company completed a 2015 public offering, including partial exercise of the over-allotment option, raising approximately $4.9 million gross and $4.2 million net. It also issued shares in a 2014 offering. These financings supported portfolio growth and increased the share count.
- Five short-term notes totaling approximately $1.096 million remained outstanding at year-end, bearing 8%–12% interest and maturing on or before February 11, 2017. The Webster agreement restricts renewing or extending these notes when due. Subsequent to year-end, $235,000 was repaid; the filing reports the remaining principal as $860,620.
- Quarterly cash dividends increased to $0.08 per share during 2015 and to $0.085 for payments declared for January and April 2016. The company reported 2015 distributions included non-qualified dividends and a return-of-capital component. The credit facility restricts dividends in specified circumstances.
Outlook, risks and unusual items
- Management expected cash, operating cash flows and the Webster facility to fund operations for the next 12 months, while anticipating higher working-capital needs as the business grows. It gave no specific earnings or loan-growth guidance.
- Management cited demand for small real-estate loans in its market and its ability to underwrite and fund quickly. These are management views, not assurances of future performance.
- Key risks include limited funding and facility availability; variable borrowing costs against generally fixed-rate loan yields; Webster covenants and collateral-based borrowing limits; and the need to refinance or repay maturing notes. A covenant breach could accelerate debt or restrict dividends and lending.
- Portfolio risks include concentration in one region and property market, illiquidity, borrower dependence on property sales or refinancing, and extensions beyond original maturities. Long-term loans were 34.6% of the portfolio at year-end. The company reported no defaults or foreclosures to date and no loan-loss reserve or impairment, but emphasized that past performance does not assure future collections.
- REIT qualification requires ongoing compliance and distributions; failure could result in corporate-level tax. Investment Company Act exemption and REIT status constrain asset choices and operations. The CEO owns approximately 34.6% of shares and is central to loan origination and underwriting.
- FY2015 included a $13,863 impairment loss on discontinued software and a $15,000 write-down of a private-company investment. Together these produced $28,863 of net other expense; FY2014 included $21,197 of other income from an option fee.
- The independent auditor issued an unqualified opinion on the financial statements. Management reported effective disclosure controls and internal control over financial reporting; the auditor did not express an opinion on internal-control effectiveness.
Investor verification priorities
- Review the maturity, repayment and collateral status of the $10.705 million in long-term loans, including the reported $6.155 million of year-end loans paid off after the balance-sheet date.
- Check current Webster availability, borrowing-base calculations, covenants, variable interest costs and dividend restrictions, along with repayment plans for the remaining short-term notes.
- Assess whether operating cash generation and available liquidity can support loan growth, distributions and required REIT distributions, given year-end cash of only $107,000.
- Confirm ongoing loan performance, collateral valuations and whether loss reserves may become necessary; the filing reports no reserves despite the portfolio’s extensions and regional concentration.
- Evaluate the effects of the 2015 equity issuance, future dilution, CEO control and dependence on key executives, and verify continued REIT and Investment Company Act compliance.