Manhattan Bridge Capital, Inc. — 2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017; comparisons are with 2016. The company is a REIT-focused real estate finance business originating short-term first-mortgage loans, primarily to real estate investors in the New York metropolitan area.
Business and operating context
Loans are generally fixed-rate, interest-only, and due within 12 months, with personal guarantees and first-mortgage collateral. Typical stated rates are 11%–14%; acquisition loans are generally limited to 75% of appraised property value. At year-end, the portfolio comprised 120 loans with $45.124 million principal earning interest, versus 97 loans and $34.755 million in 2016. All collateral was in the New York metropolitan area. The company reported no defaults or foreclosures since beginning lending in 2007.
Financial performance and position
| Metric | 2017 | 2016 |
|---|---|---|
| Total revenue | $5.919 million | $4.649 million |
| Interest income | $5.016 million | $3.845 million |
| Origination fees | $0.903 million | $0.803 million |
| Interest and financing-cost expense | $1.227 million | $0.780 million |
| General and administrative expense | $1.227 million | $1.006 million |
| Net income | $3.439 million | $2.837 million |
| Basic and diluted EPS | $0.42 | $0.37 |
| Operating cash flow | $3.462 million | $3.052 million |
Revenue grew 27.3% and net income grew 21.2%. Net margin was approximately 58.1%, down from 61.0%, as interest/financing costs and operating expenses rose faster than revenue. Lending revenues were $5.919 million and lending expenses were $1.230 million, as presented in the operating data.
Investing cash use was $10.370 million, principally reflecting $37.872 million of loan originations less $27.503 million of collections. Financing provided $6.948 million, mainly from $10.432 million net line-of-credit proceeds, partly offset by $3.289 million of dividends and $0.172 million of share repurchases. Cash was $136,441 at year-end, compared with $96,299.
Total assets were $45.897 million and stockholders’ equity was $22.247 million. Debt was approximately $22.9 million on a gross basis: $16.915 million drawn on the revolving credit facility and $6.0 million face value of notes. The notes’ carrying value was $5.377 million after deferred financing costs. The $20 million credit line had approximately $3.1 million of availability at year-end. Unfunded construction-loan commitments were approximately $5.281 million.
Material changes and shareholder distributions
- The loan portfolio’s interest-earning principal increased approximately 29.8% year over year; originations rose to $37.872 million from $36.657 million, while repayments fell to $27.503 million from $32.806 million.
- In 2017, the revolving facility was expanded to $20 million, extended to February 2021, and amended to include Flushing Bank as a lender. Its December 31 rate, including the agency fee, was 5.819%; the rate fluctuates.
- Quarterly dividends declared in 2017 totaled $0.415 per share, compared with $0.375 in 2016. The board declared a $0.12-per-share dividend in February 2018, payable April 16, 2018. The company says it intends to distribute at least 90% of REIT taxable income.
- The company repurchased 33,102 shares during 2017 for $172,156 under a buyback authorization that expired March 14, 2018.
- A privately held investment was written down by $20,000 in 2017; its reported year-end value was $15,000.
Outlook, risks, and other disclosures
Management expected cash, operating cash flow, and the credit facility to fund operations for the next 12 months, while noting working-capital needs were expected to rise as the company pursued growth. Management cited ongoing demand for small real estate loans and its local market expertise, but provided no quantified earnings or lending guidance.
- Key exposures include geographic concentration in the New York metropolitan area, illiquid loans, property-value and borrower-credit risk, reliance on refinancing or property sales for repayment, and the absence of loan-loss reserves. The filing states that no impairments or impairment provisions existed at year-end.
- Variable-rate borrowing costs may rise while most loan yields are fixed. Credit-facility covenants, collateral-advance limits, and dividend restrictions could constrain liquidity, growth, or distributions. The company reported compliance with facility covenants at December 31, 2017.
- REIT qualification requires ongoing tax, asset, ownership, and distribution tests; failure could result in corporate-level taxes. The company also relies on an Investment Company Act exemption and could face significant consequences if it failed to qualify.
- CEO Assaf Ran beneficially owned 31.09% of shares at year-end and is central to loan sourcing, underwriting, and approval. His personal guarantee of the credit facility was amended to a maximum of $500,000 plus enforcement costs.
- Related-party bridge loans from Mr. Ran totaled $860,000 during 2017 and were repaid in August. Three subsequent loans totaling $950,000 were repaid in February 2018.
- The independent 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
- Loan-level maturity extensions, repayment experience, collateral valuations, and the status of the $5.281 million in unfunded construction commitments.
- Current borrowing availability, covenant headroom, collateral eligibility, and the effect of rising benchmark rates on funding costs and loan spreads.
- Cash available for REIT distributions relative to taxable income, debt restrictions, and dividend obligations.
- Portfolio concentration by borrower, property, and local market; the filing reports no individual loan, borrower, or affiliated group above 10% at year-end.
- Whether post-year-end repayments, including $7.568 million of loans reported as paid off, were redeployed and how they affect portfolio income and liquidity.