Manhattan Bridge Capital, Inc. — Q3 2016 Form 10-Q
Business context and reporting period. The company originates and manages short-term, first-mortgage loans to real estate investors, primarily in the New York metropolitan area. It operates as a REIT and reports results for the quarter and nine months ended September 30, 2016; financial statements are unaudited. The loan portfolio totaled $31.53 million, including $23.31 million of short-term and $8.22 million of long-term loans.
Financial performance
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | $1.169 million | $1.032 million | $3.440 million | $2.855 million |
| Operating income | $725,000 | $641,000 | $2.142 million | $1.662 million |
| Net income | $725,000 | $639,000 | $2.130 million | $1.645 million |
| Diluted EPS | $0.10 | $0.09 | $0.29 | $0.25 |
Q3 revenue increased 13.3% and net income 13.5% year over year; nine-month revenue rose 20.5% and net income 29.5%. Growth reflected increased lending activity. Nine-month interest and origination-fee revenue were $2.849 million and $591,000, respectively. Interest and debt-cost amortization rose 20.2% to $594,000 for the nine months, mainly due to the credit line and 2016 note issuance. General and administrative expense was nearly flat at $698,000. Operating margin was approximately 62% for both nine-month periods; nine-month net margin was approximately 62% in 2016 versus 58% in 2015.
Cash, liquidity, debt and capital
- At September 30, cash and cash equivalents were $159,000, with a further $919,000 of restricted cash primarily earmarked for credit-line reduction. Working capital was approximately $20.07 million, versus $6.81 million at year-end 2015.
- Nine-month operating cash flow was $2.303 million, compared with $1.497 million in 2015. Investing activities used $631,000, as loan originations of $24.300 million were largely offset by $23.672 million of collections. Financing activities used $1.620 million.
- Webster credit-line borrowings were $4.263 million at a September 30 rate of 5.27438%; the facility allows up to $14 million and matures February 27, 2018. The company also issued $6 million of 6% senior secured notes due April 2026; the company guarantees them and pledged its MBC Funding II shares as security. The balance-sheet carrying amount, net of financing costs, was $5.284 million.
- 2016 financing included approximately $9.539 million of net public-offering proceeds. The August common-stock offering raised approximately $4.2 million net. Nine-month dividends paid were $1.892 million. Shares outstanding were 8,113,749 at September 30; 8,135,036 were reported as outstanding October 26.
Material changes, outlook and risks
- The company said current cash, operating cash flows and available credit should fund operations for the next 12 months, while working-capital needs are expected to rise as it pursues growth. No earnings or revenue guidance was provided.
- At quarter-end, $4.595 million of additional construction-loan commitments could be drawn when specified conditions are met. No borrower represented more than 10% of outstanding loans.
- Management reported no loan impairments or defaults to date, but several long-term loans were originally due in 2013–2015. Borrowers were paying interest at quarter-end; $1.868 million of long-term loans were repaid after quarter-end. The company cautioned that future loans could default or become uncollectible.
- The company wrote down its privately held-company investment by $10,000 during the nine-month period, leaving a reported value of $40,000, citing delays in that investee’s business plan.
- Key risks include limited operating history as a REIT, dependence on funding availability and the CEO, illiquid and concentrated loan exposures, collateral valuation and borrower due-diligence risks, competition, and lender-liability claims. The company must generally distribute at least 90% of REIT taxable income to maintain REIT status.
- The Great Neck office lease was extended through September 30, 2021, with monthly rent increasing gradually from approximately $3,500 to $3,900 during the extension term. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Loan-level collateral values, maturity extensions, borrower payment status and subsequent collections, especially for loans originally due in 2013–2015.
- Availability under the Webster facility, covenant headroom, floating-rate exposure and the effect of the note guarantee and pledged subsidiary shares.
- Funding and timing of the $4.595 million construction commitments, and whether portfolio growth can support returns after higher financing costs.
- REIT taxable income, distribution requirements and the sustainability of dividends; reported dividends paid are not a forecast.
- The post-quarter repayment of $1.868 million of long-term loans and any subsequent changes in liquidity or credit quality.