CALGARY, Alberta, Aug. 28, 2017 (GLOBE NEWSWIRE) -- 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, 2017. The three-month period represents the second quarter of the company’s 2017 fiscal year.
Second Quarter Financial Results
As expected, Builders Capital’s financial performance in Q2 was impacted by a continuation of economic difficulties in its primary southern Alberta marketplace. However, the company’s results reflect initial signs of stabilization in the region’s real estate markets. Mortgage revenue for the three months ended June 30, 2017 was $866,000, up by 1.1% from the $856,000 reported for the second quarter of 2016. The Q2 2017 revenue represents annualized gross revenue of 14.2% of weighted average gross share capital, compared to 14.7% for Q2 2016. It consisted of $794,000 in interest and $72,000 in lender fees charged to borrowers. The lender fees exceeded management fees paid to Builders Capital Management Corp., the company’s property manager, by 17.7%.
Second quarter operating expenses of $82,000, excluding a provision for mortgage losses and interest expense, were down from $90,000 last year and were in line with expectations.
The second quarter provision for loan losses was $125,000. This included $61,000 that was added to the amount planned following an unexpected foreclosure in British Columbia during the quarter. The foreclosure resulted in a $195,000 draw from the company’s allowance for doubtful accounts. Builders Capital will continue to monitor the allowance and will add amounts as required to rebuild its cushion for potential bad loans. The company bases its planned quarterly provisions for loan losses on an analysis of historical bad debts by its portfolio manager and a current analysis of the construction finance marketplace.
As expected, Builders Capital’s strategy of charging slightly lower rates to borrowers in order to ensure a full mortgage book and higher quality lending opportunities had a negative impact on second quarter comprehensive income. Results were also impacted by the increase in the company’s provision for mortgage losses. Due to the combined effect of these factors, second quarter comprehensive income decreased by 7.7% to $626,000, or $0.26 per share, from $678,000, or $0.29 per share, in Q2 2016. The Q2 2017 income translates to earnings of $0.42 per Class A Non-Voting Share, compared to earnings of $0.50 per Class A Non-Voting Share in the second quarter of 2016.
“Our strategic focus on providing short-term, course of construction financing to residential builders and our strict risk management practices kept us on track through the second quarter,” said Sandy Loutitt, President of Builders Capital. “We maintained a full mortgage book through the three months, increasing our turnover of invested capital to 29.6% from 28.6% a year ago. We also maintained a prudent approach to leverage, recording a modest 16.7% debt-to-equity ratio at quarter-end.”
For the six months ended June 30, 2017, revenue was $1.7 million, representing a 4.9% decrease from $1.8 million in the same period of 2016. First-half revenue comprised $1.5 million in interest and $133,000 in lender fees, representing annualized gross revenue of 13.9% of the weighted average gross share capital, compared to 15.1% in 2016. Lender fees for the six months exceeded management fees by 11.6%
Year-to-date operating expenses of $162,000 were down by 4.4% from $170,000 in 2016. These expenses represented 9.7% of revenue in both years.
For the six-month period, comprehensive income of $1.3 million, or $.52 per share, was down by 10.8% from $1.4 million, or $0.60 per share, in 2016. This translates to earnings of $0.87 per Class A Non-Voting Share, compared to earnings of $1.026 per Class A Non-Voting Share in the first half of 2016.
On May 31, 2017, as previously reported, Builders Capital closed a public offering for 219,975 Class A Non-Voting shares at $10.00 per share for gross proceeds of $2,199,750. The net proceeds of this offering were almost immediately required in general operations and were promptly invested in new mortgage loans.
Subsequent to the quarter-end, on July 25, 2017, the company closed a private placement for an additional 50,000 Class A Non-Voting shares at $10.00 per share for gross proceeds of $500,000. The net proceeds of this offering have also been invested in mortgage loans.
At March 31, 2017, Builders Capital’s mortgage portfolio consisted of 25 mortgage loans with an aggregate value of $26.6 million. All mortgage transactions conducted during the quarter were consistent with the company’s tight focus on financing short-term, wood-frame residential construction in strong urban markets. During the second quarter, $10.2 million in mortgages were funded and $2.2 million was received as loan repayments. The sale of $5.1 million in mortgages helped to create the required liquidity. No mortgages were purchased during the quarter.
On June 20, 2017, 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 June 30, 2017. This distribution was paid on July 31, 2017. The dividend amount was calculated to provide an annualized 8% return for the quarter on the $10.00 initial Class A Non-Voting Share price. Second quarter earnings generated by the company exceeded the amount required to pay planned Class A Non-Voting Share dividends by a healthy 1.9 times.
On July 25, 2017, again based on income for the second quarter, the Board declared a dividend of $0.2346 per share to Class B Non-Voting shareholders of record on that date. This distribution was also paid on July 31, 2017.
Builders Capital continues to see signs that the worst of the downturn in Alberta’s housing market may have passed. Recent data from the Canadian Real Estate Board (CREA) showed a 9.8% increase in Alberta residential sales activity in the first seven months of 2017 and a 3% increase for the month of July 2017, compared to the same periods in 2016. Also according to CREA, the provincial average price for homes sold in the first seven months of 2017 was 2% higher than a year earlier, although the July 2017 average price was 1.8% lower than it was in July 2016.
“While we believe it will take time for the Southern Alberta marketplace to fully recover, we are encouraged by the slightly higher oil prices forecast for later in 2017,” said Loutitt. “Across our western Canadian markets, we continue to believe that the levels of housing starts forecast by Canada Mortgage and Housing Corporation are more than adequate to support the growth of our business in the near term and we expect that margins on new construction will remain viable.”
Loutitt cautioned that, while the outlook is improving, the extended downturn has taken its toll on builders, particularly in the Alberta market, and it is possible that Builders Capital will need to take additional steps to collect on some of its mortgage assets over the coming months. However, the company is optimistic that it has weeded out the most significant vulnerabilities in its portfolio, and is confident in its ability to enforce current mortgages.
Builders Capital has multiple strategies in place to limit downside risk. The company takes a cautious approach to leverage and maintains a prudent debt-to-equity ratio. By investing only in short-term mortgages, it maintains the liquidity necessary to preserve capital. The company generally restricts mortgage lending to 75% of what it believes the fair market value of a property at any given time to be, ensuring that it holds a targeted minimum of 25% of the value of the project in owners' equity. Investors are also protected by the general allowance for doubtful accounts the company sets aside each quarter before paying dividends. Finally, safeguards built into Builders Capital’s share structure give public Class A Non-Voting shareholders priority on all capital, as well as income distributions, over Class B Non-Voting shareholders.
“We are pleased that are share structure is working as intended,” said Loutitt. “With Class B Non-Voting shareholders bearing a much greater proportion of the risk of income fluctuations, even if second quarter earnings had been only 47% of their actual figure, we would still have been in a position to pay Class A shareholders their full, planned quarterly dividend.”
“Going forward, we are confident of our ability to keep our capital fully utilized and to continue to grow our business,” he continued. “Given our current relatively small market share and the opportunities that exist to further expand our geographic footprint, we are well positioned to continue sourcing high-quality lending opportunities that appropriately balance risk while maintaining attractive returns for shareholders.”
A more detailed discussion of the company’s financial results can be found in Builders Capital’s second quarter 2017 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 28, 2017.
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.
For more information, please contact: John Strangway, Chief Financial Officer Telephone: (403) 685-9888 Email: firstname.lastname@example.org Website: www.builderscapital.ca