CALGARY, ALBERTA--(Marketwired - August 21, 2014) - Builders Capital Mortgage Corp. (TSX VENTURE:BCF) (Builders Capital or the company) today released financial results for the three months ended June 30, 2014, which represents the second quarter of the company's 2014 fiscal year and its second full quarter as a publicly-traded mortgage investment corporation (MIC).
Second Quarter Results
For the three months ended June 30, 2014, mortgage revenue was $882,831, representing annualized gross revenue of 15.0% of gross share capital. This revenue consisted of $826,181 in interest and $56,650 in lender fees charged to borrowers. Consistent with expectations, second quarter lender fees were more than double those earned in the first three months of the year, equating to 97% of management fees.
Also consistent with expectations, second quarter operating expenses, excluding the provision for mortgage losses, were $110,435, or 12.5% of revenues. This was somewhat higher than in the first quarter of the year, due primarily to higher interest expense as a result of increased use of Builders Capital's operating line of credit to fund mortgage draws during the busy spring construction season.
Management estimated a provision for loan losses of $66,138. This amount was based on an analysis of historical bad debts by Builders Capital Management Corp., which manages Builders Capitals' 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.
Total comprehensive income for the second quarter was $706,258, or $0.30 per share, based on the weighted average number of shares outstanding for the period. This translates into earnings of $0.51 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 2.6 times.
"With virtually all of our funds invested in mortgages to our target borrowers throughout Q2 and sufficient cash flows and net income to comfortably meet our targeted distributions, we continue to be pleased with our early financial performance as a public entity," said Sandy Loutitt, President of Builders Capital. "Total mortgage advances during the quarter of $9.2 million were in step with mortgage repayments of $9.3 million. We experienced no difficulties with borrowers and none of our loans were in default."
At June 30, 2014, Builders Capital's mortgage portfolio consisted of 34 mortgage loans with an aggregate value of $24.5 million. Of the 30 mortgages the company acquired at its start-up, nine with values totaling $7.2 million at December 31, 2013 were paid out during the quarter. To date, mortgages representing one-third of the total value of Builders Capitals' original portfolio have now been turned over. In addition, four mortgages that were advanced in the first quarter of this year with values totaling $3.1 million were paid out in the second quarter.
These paid-out mortgages were replaced by 16 new mortgages and progress draws by borrowers with ongoing projects on a number of existing mortgages. All of the transactions were consistent with Builders Capitals' tight focus on financing short-term, wood-frame residential construction in strong urban markets.
On June 20, 2014, Builders Capital declared a second quarter dividend of $0.1975 per Class A Non-Voting share to shareholders of record on June 30, 2014, payable on July 31, 2014. The dividend amount was calculated to provide an 8% return on the $10.00 initial Class A Non-Voting share price, prorated for the 91 days in the quarter. On an annual basis, this level of distribution is equivalent to $0.80 per Class A Non-Voting share.
Subsequent to quarter-end, on July 31, 2014, based on Q2 income, the Board declared a dividend of $0.3864 per share to Class B Non-Voting Shareholders of record on July 28, 2014, also payable on July 31, 2014.
Builders Capital expects that continued steady housing starts and strong employment growth in southern Alberta, its primary market, will drive robust demand for construction financing for at least the next several years. In addition to strengthening its position in Alberta, the company intends to extend lending to other western Canadian markets in the future.
"With a well-defined business focus, an established, full-service asset management platform and a strong team of experienced professionals who are proven performers, we are well-positioned to generate above average risk weighted returns in existing and new markets," said Loutitt. "In particular, healthy employment growth, a strengthening economy and high levels of net migration will make Saskatchewan a good market for expansion."
Loutitt noted that the prevailing low interest rates have been a double-edged sword, having both contributed to a strong housing market and an increased sensitivity to price among borrowers.
"Since our inception, we have had a sufficient number of quality lending opportunities to easily keep our capital fully utilized and we expect this to continue to be the case in the near term," he said. "Should increased competition or changing market conditions inhibit our ability to source new lending opportunities and continue to grow, we will reduce our rates, expand our marketing and hasten our entry to new geographic markets. We believe that these strategies will enable us to keep the company competitive, profitable and growing in the future."
A more detailed discussion of the company's financial results can be found in Builders Capitals' 2014 Second Quarter Management's Discussion and Analysis, which will be posted along with the unaudited interim condensed financial statements for the period on the company's website (www.builderscapital.ca) and SEDAR (www.sedar.com) on August 20, 2014.
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.