Company continues to deliver steady performance, exceeds targeted capital turnover rate
CALGARY, ALBERTA–(Marketwired – Aug. 20, 2015) – Builders Capital Mortgage Corp. (TSX VENTURE:BCF) (Builders Capital or the company) today released financial results for the three and six months ended June 30, 2015. The three-month period represents the second quarter of the company’s 2015 fiscal year and its sixth full quarter as a publicly traded mortgage investment corporation (MIC).
Second Quarter Financial Results
In the second quarter, Builders Capital continued to deliver strong and steady performance, exceeding its targeted capital turnover rate. Mortgage revenue was $965,000, representing annualized gross revenue of 15.8% of the weighted average gross share capital, up from $883,000, or 15% of gross share capital, in the same period of 2014. The 2015 Q2 revenue consisted of $885,000 in interest and $80,000 in lender fees charged to borrowers. Second quarter lender fee revenue exceeded management fees by $19,392, or 32%.
Consistent with expectations, second quarter operating expenses, excluding a provision for mortgage losses and interest, were $76,172, or 7.9% of revenue. This compares favourably to 2014 Q2 operating expenses of $87,437, which represented 9.9% of revenue.
Management set aside $70,770 to provide for loan losses for the three months. This amount was based on an analysis of historical bad debts by Builders Capital Management Corp., which manages Builders Capital’s mortgage portfolio, as well as current analysis of the construction finance marketplace. This is a collective provision and does not relate to any individual mortgage.
Comprehensive income for the second quarter was $773,000, or $0.32 per share, based on the weighted average number of shares outstanding for the period, up from $706,000, or $0.30 per share, in 2014. The 2015 income translates into earnings of $0.53 per Class A Non-Voting Share, compared to $0.51 per Class A Non-Voting Share for the second quarter of 2014. Given the dividend priority granted to Class A Non-Voting Shares held by the public, the effective Class A Non-Voting Share dividend coverage ratio for the quarter was 2.6 times, which equaled the ratio for Q2 2014.
Six-Month Financial Results
For the year-to-date, mortgage revenue was $1.9 million, representing annualized gross revenue of 15.9% of the weighted average gross share capital, up from $1.7 million, or 14.3% of gross share capital, in 2014. The 2015 first-half revenue consisted of $1.8 million in interest and $169,000 in lender fees charged to borrowers. For the six months, lender fee revenue exceeded management fees by $49,000, or 41%.
First-half operating expenses, excluding funds set aside to provide for mortgage losses and interest, totaled $155,993, or 8.1% of revenue. As with the quarterly result, this compares favourably to 2014 first-half operating expenses of $170,832, which represented 10.2% of revenue. Over the six months, Builders Capital accumulated $140,860 to provide for loan losses.
Comprehensive income for the first half was $1.5 million, or $0.64 per share, based on the weighted average number of shares outstanding for the period. This was up from $1.3 million, or $0.57 per share, last year. The 2015 income translates into six-month earnings of $1.06 per Class A Non-Voting Share, compared to $0.91 per Class A Non-Voting Share for the first half of 2014. Given the dividend priority granted to Class A Non-Voting Shares held by the public, the effective Class A Non-Voting Share dividend cover ratio for the six-month period was 2.7 times, compared to 2.5 times in Q2 2014.
“We continue to be very pleased with our financial results,” said Sandy Loutitt, President of Builders Capital. “Throughout the second quarter, the bulk of our funds were invested in mortgages to our target borrowers and we turned over 36.5% of our capital. On an annualized basis, this equates to a full turnover of invested capital every 8.2 months. While somewhat slower than the 6.8 month turnover rate we achieved in our 2014 fiscal year, this is still ahead of our targeted nine-month capital turnover rate.”
Mr. Loutitt said that the company’s capital turnover continues to be impacted by the economic downturn in Alberta, Builders Capital’s primary market. In addition to lengthening the time it takes borrowers to sell their completed inventory, the slower Alberta economy has made some builders more cautious about taking on new projects.
At June 30, 2015, Builders Capital’s mortgage portfolio consisted of 40 mortgage loans with an aggregate value of $26.4 million. All mortgage transactions conducted during the quarter were consistent with Builders Capital’s tight focus on financing short-term, wood-frame residential construction in strong urban markets. During the three months, mortgages were purchased or funded in the amount of $8.3 million. The same amount was received as proceeds of sale or as repayments on loans. The acquisition of $943,000 and sale of $1.7 million in mortgages helped to ensure full cash utilization and create liquidity as required.
Of the 40 mortgages outstanding, one was in default and the property was repossessed in June. Builders Capital expects that the mortgage default will ultimately result in a write-down of approximately $65,000 against the company’s general allowance for doubtful accounts.
On June 22, 2015, based on income for the second quarter, the company’s Board of Directors declared a dividend of $0.1995 per Class A Non-Voting share to shareholders of record on July 3, 2015. This distribution was paid on July 31, 2015. The dividend amount was calculated to provide a cumulative 8% return for the year on the $10.00 initial Class A Non-Voting share price.
Subsequent to the quarter-end, on July 27, 2015, again based on the income for the quarter, the Board declared a dividend of $0.3989 per share to Class B Non-Voting Shareholders of record on that date. This distribution was also paid on July 31, 2015.
While declining oil prices in the second half of 2014 and into 2015 have created some economic uncertainty in Alberta, which remains Builders Capital’s primary market for construction mortgages, the company believes that it is well positioned to continue to grow its mortgage portfolio throughout Western Canada and deliver attractive returns to shareholders.
“Overall, we are confident that the forecast levels of housing starts in our key markets are more than adequate to support the growth of our business in Alberta, as well as in Saskatchewan and British Columbia,” said Loutitt. “Given the size of the marketplace, our current relatively small market share and the opportunities that exist to expand our geographic footprint, we expect to be able to source sufficient quality lending opportunities to keep our capital fully utilized throughout the balance of 2015.”
Loutitt noted that a slower turnover of the company’s invested capital will equate to lower lender fees as mortgages with fixed terms will be more likely to remain outstanding until their full term expires, and the outstanding funds will not be available to write new loans. “We are not able to accurately predict whether, or how quickly, our turnover will return to 2014 levels,” he said. “In the meantime, we have a number of strategies in place to limit our downside risk.”
These include restricting mortgage lending to 75% of what the company believes the fair market value of a property at any given time to be, ensuring that it holds at least 25% of the value of the project in owner’s equity. In addition, the company takes a general allowance for doubtful accounts each quarter before paying dividends, allowing it to build a cushion of funds to further protect investors. Finally, by investing only in short-term mortgages, Builders Capital maintains the liquidity necessary to preserve capital.
A more detailed discussion of the company’s financial results can be found in Builders Capital’s 2015 Second Quarter Management’s Discussion and Analysis, which will be posted along with unaudited interim condensed financial statements for the quarter on the company’s website (www.builderscapital.ca) and SEDAR (www.sedar.com) on August 20, 2015.
About Builders Capital
Builders Capital is a mortgage lender providing short-term course of construction financing to builders of residential, wood-frame properties in Western Canada. The company was formed on March 28, 2013 but did not commence active operations until December 12, 2013, on the closing of its initial public offering, following which it acquired a portfolio of mortgages from two predecessor companies. Builders Capital’s investment objective is to generate attractive returns, relative to risk, in order to provide stable and steady distributions to shareholders while remaining focused on capital preservation and staying within the criteria mandated for mortgage investment corporations, as defined in the Income Tax Act.
As a MIC, Builders Capital is not subject to income tax provided that it distributes all of its taxable income as dividends to shareholders within 90 days of its December 31st year-end. Such dividends are generally treated by shareholders as interest income, so that each shareholder is in the same tax position as if their proportionate share of mortgage investments made by the company had been made directly by the shareholder.
This news release contains forward-looking statements within the meaning of applicable securities legislation, including statements with respect to management’s beliefs, estimates and intentions, and similar statements concerning anticipated future events, results, circumstances, performance or expectations that are not historical facts. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “outlook”, “objective”, “may”, “will”, “expect”, “intent”, “estimate”, “anticipate”, “believe”, “should”, “plans” or “continue” or similar expressions suggesting future outcomes or events. Such forward-looking statements reflect management’s current beliefs and are based on information currently available to management. These statements are not guarantees of future performance and are based on estimates and assumptions that are subject to risks and uncertainties which could cause actual results to differ materially from the forward-looking statements contained in this news release. These include, among other things, risks associated with mortgage lending, competition for mortgage lending, real estate values, interest rate fluctuations, environmental matters and the general economic environment. The company cautions that the foregoing list is not exhaustive, as other factors could adversely affect its results, performance or achievements. Readers are cautioned against undue reliance on any forward-looking statements. Although the forward-looking information contained in this news release is based upon what management believes are reasonable assumptions, there can be no assurance that actual results will be consistent with these forward-looking statements. Except as required by applicable law, Builders Capital undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
Chief Financial Officer