Manhattan Bridge Capital, Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. The company originates short-term, generally first-mortgage-secured loans to real estate investors, principally in the New York metropolitan area and Florida. Figures below are in U.S. dollars.
Financial performance
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $1.741 million | $1.779 million | $3.452 million | $3.567 million |
| Operating income | $1.095 million | $1.082 million | $2.108 million | $2.200 million |
| Net income | $1.097 million | $1.084 million | $2.113 million | $2.205 million |
| Basic and diluted EPS | $0.11 | $0.11 | $0.22 | $0.23 |
| Operating margin | 62.9% | 60.8% | 61.1% | 61.7% |
| Net margin | 63.0% | 60.9% | 61.2% | 61.8% |
Q2 revenue decreased 2.1%, while net income rose 1.2%; lower interest expense more than offset the revenue decline. First-half revenue fell 3.2% and net income fell 4.2%. Management attributed lower revenue to reduced rates and origination points, competition, and weaker loan demand. First-half general and administrative expense increased 11.0%, including higher legal, payroll, bank and director costs and a CFO bonus; interest and debt-service costs decreased 11.4%.
Balance sheet, cash flow and capital
- At June 30, loans receivable were $55.86 million, total assets $57.04 million, cash $194,026 and stockholders’ equity $32.85 million. Cash at December 31, 2019 was $118,407.
- Borrowings included $18.08 million outstanding on the revolving credit line and $5.57 million in senior secured notes, net of deferred financing costs. The credit line was increased to $32.5 million and extended to February 28, 2023; its June 30 rate was approximately 4.16%. The company reported covenant compliance.
- For the six months, operating cash flow was $1.99 million, investing cash outflow $2.36 million, and financing cash inflow $446,000. Loan originations were $21.80 million and collections were $19.46 million; dividends paid totaled $2.22 million.
- The company reported $6.58 million of construction-loan commitments available for draw when conditions are met. Management expects cash, operating cash flows and credit availability to fund operations for the next 12 months.
- The company repurchased 31,999 shares for approximately $152,000 under a program authorizing purchases of up to 100,000 shares. A $0.10-per-share dividend, totaling $962,685, was paid July 15, 2020.
Portfolio, outlook and risks
Management reported approximately 130 loans under management and said no borrower represented more than 10% of the portfolio. All loans were classified as performing, with no impairment provision recorded. Two long-term borrowers received COVID-related forbearances deferring two to three months of interest to scheduled payoff; approximately $30,000 of interest was involved. Approximately $400,000 of loans outstanding at quarter-end was paid off after the balance-sheet date. The filing also lists loans originally due in 2016–2019; investors should distinguish extensions and forbearances from timely repayment.
The company continued originating and servicing loans but observed slower capital deployment and lower demand. Management said it had not been materially affected by COVID-19 as of the filing, but warned that worsening conditions could delay interest collections, reduce collateral values, require extensions and materially affect results. Management provided no quantified earnings or revenue guidance. The company’s REIT status requires annual distribution of at least 90% of REIT taxable income to maintain qualification.
Other disclosed risks include dependence on available funding and its CEO, competition, collateral valuation and borrower due-diligence risk, borrower concentration, lender-liability claims, and credit-line covenants. The notes are 6% senior secured debt; noteholders have an option to require redemption on April 22, 2021, subject to notice during November 22, 2020–January 22, 2021.
Important facts for investors to verify
- Loan-level payment status, extensions and collateral values, especially for loans with earlier stated maturity years and the two forbearance borrowers.
- Credit-line borrowing-base availability and covenant headroom; the $32.5 million facility limit is not necessarily fully available.
- Whether noteholders exercise the April 2021 redemption right and the resulting liquidity and refinancing requirements.
- How COVID-19, lower loan demand, competition and interest-rate changes affect originations, loan yields, collections and dividends.
- Dividend coverage against earnings and REIT distribution requirements, alongside the company’s low reported cash balance and loan commitments.