Builders Capital Mortgage Corp.
TSX VENTURE : BCF

Builders Capital Mortgage Corp.

May 27, 2015 08:00 ET

Builders Capital Mortgage Corp. Reports 2015 First Quarter Results, Private Placement

Company maintains steady performance improvement trend in fifth full quarter of operations

CALGARY, ALBERTA--(Marketwired - May 27, 2015) - Builders Capital Mortgage Corp. (TSX VENTURE:BCF) (Builders Capital or the company) today released financial results for the three months ended March 31, 2015, the first quarter of the company's 2015 fiscal year and its fifth full quarter as a publicly traded mortgage investment corporation (MIC).

Financial Results

Mortgage revenue for the first three months of 2015 was $965,000, representing annualized gross revenue of 16.1% of the weighted average gross share capital, up from $786,410, or 13.6% of gross share capital, in the same period of 2014. The 2015 Q1 revenue consisted of $876,000 in interest and $89,000 in lender fees charged to borrowers. First quarter lender fee revenue exceeded management fee expense by $29,009, or 48%.

Consistent with expectations, first quarter operating expenses, excluding a provision for mortgage losses and interest, were $79,539, or 8.2% of revenue. This compares favourably to 2014 Q1 operating expenses of $87,682, which represented 11.1% of revenue.

Management set aside $70,090 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 first quarter was $775,000, or $0.32 per share, based on the weighted average number of shares outstanding for the period, up from $638,000, or $0.27 per share, in 2014. The 2015 income translates into earnings of $0.53 per Class A Non-Voting Share, compared to $0.46 per Class A Non-Voting Share for the first 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 cover ratio for the quarter was 2.7 times, compared to 2.3 times in Q1 2014.

"We are very pleased with the sustained positive trend in our financial results," said Sandy Loutitt, President of Builders Capital. "Our performance continues to track favourably 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 quarter and we turned over 35.7% of our capital. On an annualized basis, this equates to a full turnover of invested capital every 8.3 months. While somewhat slower than the 6.8 month turnover rate we achieved in our 2014 fiscal year, our first quarter turnover was still slightly better than our targeted nine-month capital turnover rate."

Mr. Loutitt said that the decrease in turnover during the three months was primarily due to the downturn in the Alberta economy. 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.

Mortgage Portfolio

At March 31, 2015, Builders Capital's mortgage portfolio consisted of 42 mortgage loans with an aggregate value of $27.9 million. During the quarter, mortgages were purchased or funded in the amount of $8.8 million and $7.5 million was received as proceeds of sale, or as repayments on loans. The respective acquisition and sale of $976,000 and $1.9 million in mortgages helped to ensure full cash utilization and propelled a $424,000 total net increase in the value of Builders Capital's portfolio. Of the 42 mortgages outstanding, one was in default and has had a foreclosure action commenced. 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

Subsequent to quarter-end, on April 8, 2015, based on income for the first quarter, the company's Board of Directors declared a dividend of $0.1973 per Class A Non-Voting share to shareholders of record on April 17, 2015. This distribution was paid on April 30, 2015 and is recorded as payable in the company's financial statements. 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.

On April 28, 2015, based on the income for the first quarter, the Board declared a dividend of $0.3945 per share to Class B Non-Voting Shareholders of record on that date. This distribution was paid on April 30, 2015.

Private Placement

Subsequent to quarter-end, on May 26, 2015, Builders Capital received subscription agreements to purchase 7,500 Class A Non-Voting Common Shares and 2,500 Class B Non-Voting Common Shares in the capital of the Builders Capital, both at a subscription price of $10 per share, for aggregate proceeds of $100,000. Builders Capital expects to close this private placement upon receipt of Final Acceptance from the TSX Venture Exchange.

Outlook

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 First 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 May 27, 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.

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