Manhattan Bridge Capital, Inc. — Q3 2018 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2018; financial statements are unaudited. The company originates and manages short-term, secured real-estate loans, primarily first mortgages in the New York metropolitan area. It elected REIT tax treatment beginning in 2014.
Financial performance
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $1.891 million | $1.591 million | $5.224 million | $4.322 million |
| Operating income | $1.189 million | $0.972 million | $3.120 million | $2.615 million |
| Net income | $1.189 million | $0.961 million | $3.119 million | $2.592 million |
| Diluted EPS | $0.13 | $0.12 | $0.37 | $0.32 |
- Q3 revenue increased 18.9% and net income increased 23.7% year over year. For the nine months, revenue grew 20.9% and net income grew 20.3%.
- Interest income was $1.617 million in Q3 and $4.469 million year to date; origination fees were $0.275 million and $0.755 million, respectively.
- Interest and debt-service costs rose 21.9% in Q3 and 43.9% year to date, mainly due to greater use of the credit line. General and administrative costs increased 1.9% in Q3 and 2.4% year to date.
- Calculated net margin was approximately 62.8% in Q3 2018 versus 60.4% in Q3 2017, and approximately 59.7% for the first nine months of 2018 versus 60.0% in 2017.
Financial position, cash flow and funding
- At September 30, loans receivable were $58.51 million, up from $45.12 million at December 31, 2017; total assets were $61.16 million and stockholders’ equity was $33.36 million.
- Cash was $140,716, with a further $1.72 million classified as restricted cash, primarily pending application to the credit line. The company reported $3.24 million of operating cash flow for the first nine months, compared with $2.64 million a year earlier.
- Loan originations were $42.42 million and collections were $29.03 million, resulting in $13.39 million of net investing cash use. Financing provided $10.16 million, including $9.88 million net public-offering proceeds; dividends paid were $2.84 million.
- Borrowings included $21.72 million outstanding on a $25 million revolving credit facility and $5.43 million in senior secured notes, net of financing costs. The notes have $6 million face principal, bear 6% interest and mature in 2026. The revolving facility’s September 30 rate was 6.24%; the company said it was covenant-compliant.
Material developments and outlook
- A July 2018 amendment increased revolving-credit availability by $5 million to $25 million and revised pricing. The facility matures in 2021, with a possible extension subject to lender consent. The CEO’s personal guarantee is limited to $500,000 plus enforcement costs.
- The July public offering, including partial exercise of the underwriter’s over-allotment option in August, sold 1,428,572 shares at $7.00 per share and generated approximately $9.88 million net. Outstanding shares increased to 9,663,601 as of October 18, 2018.
- CEO Assaf Ran and related entities provided short-term loans totaling approximately $2.74 million during Q2; all were repaid by July 11. A separate $1 million third-party loan was repaid by July 12. The company incurred approximately $19,000 of interest on these loans, including approximately $9,000 paid to the CEO and related entities.
- Management expected cash, offering proceeds, the credit facility and operating cash flow to fund operations for the next 12 months, while warning that working-capital needs would rise as it pursued growth. No numerical earnings or revenue guidance was provided.
- The company had $7.64 million of construction-loan commitments available for borrower draws subject to conditions. It reported no impaired loans or historical defaults, but $8.51 million of loans had original due dates in 2016 or 2017; borrowers were paying interest and some loans had been extended. A subsequent $954,000 of loans was paid off.
- Management’s stated strategy is to grow the loan portfolio while protecting capital and supporting long-term shareholder returns through dividends. REIT status generally requires annual distributions of at least 90% of REIT taxable income.
- Key stated risks include dependence on available funding and the CEO, competition, inaccurate loan-yield or collateral assessments, borrower concentration, incomplete due diligence and potential lender-liability claims. Management said disclosure controls were effective and there were no material quarterly changes in internal control over financial reporting.
Important facts for investors to verify
- Loan portfolio credit quality, collateral valuations, repayment performance and extension terms, particularly for loans past their original maturity.
- Availability and covenants of the $25 million revolving facility, its variable-rate exposure, and the senior notes’ collateral-coverage and redemption provisions.
- Funding and timing of the $7.64 million construction commitments, restricted cash use, and management’s liquidity expectations as the portfolio grows.
- Share dilution and dividend sustainability following the offering, alongside the company’s REIT distribution requirements.
- Related-party funding arrangements and dependence on the CEO for business development and potential financing support.