Builders Capital Mortgage Corp.
TSX VENTURE : BCF

Builders Capital Mortgage Corp.

March 09, 2015 09:00 ET

Builders Capital Mortgage Corp. Reports 2014 Fourth Quarter and Year-End Results

Company outperforms financial forecast for first full fiscal year, executes successful entry to new western Canadian markets

CALGARY, ALBERTA--(Marketwired - March 9, 2015) - Builders Capital Mortgage Corp. (TSX VENTURE:BCF) (Builders Capital or the company) today released financial results for the three and 12 months ended December 31, 2014. The three-month period represents the fourth quarter of the company's 2014 fiscal year, its first full year as a publicly traded mortgage investment corporation (MIC).

Fourth Quarter Results

For the three months ended December 31, 2014, mortgage revenue was $967,975, representing annualized gross revenue of 16.0% of gross share capital. This revenue consisted of $891,589 in interest and $76,385 in lender fees charged to borrowers. Fourth quarter lender fee revenue exceeded management fee expense by $15,061, or 24.6%.

Consistent with expectations, fourth quarter operating expenses, excluding a provision for mortgage losses and interest, were $89,301, or 9.2% of revenue.

Management set aside $71,489 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 fourth quarter was $770,675, or $0.32 per share, based on the weighted average number of shares outstanding for the period. This translates into earnings of $0.53 per Class A Non-Voting Share. 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 quarter was 2.5 times.

During the fourth quarter, as planned, Builders Capital enhanced the geographic diversity of its portfolio, adding new mortgages in Saskatchewan and British Columbia. At year-end, the new mortgages in Saskatchewan represented 6% the portfolio's total value, while those in BC represented 5%. The remaining 89% of the portfolio was invested in mortgages in Alberta.

Full-Year Results

Mortgage revenue for the 12 months ended December 31, 2014 was $3.5 million, representing 14.8% of the weighted average gross amount of share capital employed in the year. This revenue consisted of $3.3 million in interest and $220,922 in lender fees charged to borrowers. Lender fees for the year represented 92% of management fees paid. As anticipated, since the initial basis of the company's operations was an acquired portfolio of existing mortgages on which lender fees had already been paid, the lender fees earned in the first half of 2014 were lower than management fees paid. Builders Capital expects that lender fees will continue to exceed management fees in the future.

Operating expenses for the year, excluding funds set aside to provide for loan losses and interest expense, were $342,477, or 9.7% of revenue, comparing favourably to the 10.5% of revenue forecast by the company in its IPO prospectus. The annual provision for loan losses amounted to $265,343.

Based on the weighted average number of shares outstanding at year-end, comprehensive income for the 12 months was $2.8 million, or $1.19 per share, which was slightly higher than projected. This translates into earnings of $2.00 per Class A Non-Voting Share. As with the quarterly result, the effective Class A Non-Voting Share dividend cover ratio for the year was 2.5 times.

"We are very pleased with our financial results for our first full fiscal year," said Sandy Loutitt, President of Builders Capital. "Our performance in 2014 tracks favourabaly against the financial forecast in our IPO prospectus on all counts. The bulk of our funds were invested in mortgages to our target borrowers throughout the 12 months and we achieved a full turnover of invested capital at the 6.9 month mark, well ahead of our goal to turn our capital approximately every nine months. We are also very pleased with the progress we made in the fourth quarter in expanding our geographic footprint."

Mortgage Portfolio

At December 31, 2014, Builders Capital's mortgage portfolio consisted of 43 mortgage loans with an aggregate value of $27.5 million. During the year, mortgages were purchased or funded in the amount of $43.4 million and $42.5 million was received as proceeds of sale, or as repayments on loans. The respective acquisition and sale of $4.9 million and $8.4 million in mortgages helped to ensure full cash utilization and propelled a $5.6 million total net increase in the value of Builders Capital's portfolio. The company experienced no difficulties with borrowers or loan defaults. All mortgage transactions conducted during the year were consistent with Builders Capital's tight focus on financing short-term, wood-frame residential construction in strong urban markets.

Distributions

On December 18, 2014, based on income for the third quarter, and considering the expected annual comprehensive income for 2014, the company's Board of Directors declared a dividend of $0.2016 per Class A Non-Voting Share to shareholders of record on December 31, 2014. This distribution was paid on January 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. In total, dividends of $1.1 million were declared in 2014 on the Class A Non-Voting Shares.

Subsequent to the year-end, on January 28, 2015, the Board declared a dividend of $0.4134 per share to Class B Non-Voting shareholders of record on that date. This distribution was paid on January 31, 2015. Dividends declared on the 972,076 Class B Non-Voting Shares in 2014 totaled $1.5 million.

Outlook

While declining oil prices in the second half of 2014 and into 2015 have created 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 and deliver attractive returns to shareholders.

"Our profitability is not driven by a sky-high real estate market, but rather a marketplace in which builders can be profitable," said Loutitt. "Construction costs have recently become inflated, particularly in Calgary. A correction in real estate prices will result in a drop in raw land costs and likely a concurrent drop in sub-trade costs as a result of decreased activity. Accordingly, we expect that margins on new construction will remain viable and we are optimistic that a smaller, but still profitable, construction marketplace in Alberta will allow us to keep our lending book in the province reasonably full. We also anticipate that some lenders will respond to the tighter economic environment by pulling back, providing an opportunity for us to increase market share."

Loutitt continued, "With a foothold now secured in both Saskatchewan and BC, we expect to steadily gain ground in each of these new markets as we access additional mortgage opportunities that satisfy our lending criteria. Overall, we believe that the levels of housing starts forecast by Canada Housing and Mortgage Corporation in Western Canada are more than adequate to support the growth of our business and will provide sufficient quality lending opportunities to keep our capital fully utilized."

Loutitt noted that Builders Capital has a number of strategies in place to limit its downside risk. Mortgage lending is generally restricted to 75% of what the company believes to be the fair market value of a property at any given time, ensuring that it holds at least 25% of the value of the project in owners' equity. 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 2014 Year-end Management's Discussion and Analysis, which will be posted along with the audited financial statements for the year on the company's website (www.builderscapital.ca) and SEDAR (www.sedar.com) on March 9, 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.

Forward-Looking Information

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.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Contact Information