CALGARY, Alberta, May 30, 2017 (GLOBE NEWSWIRE) -- Builders Capital Mortgage Corp. (TSX VENTURE:BCF) (Builders Capital or the company) today released financial results for the three months ended March 31, 2017. The three-month period represents the first quarter of the company’s 2017 fiscal year.
First Quarter Financial Results
As expected, Builders Capital’s financial performance in Q1 was impacted by a continuation of economic difficulties in its primary southern Alberta marketplace. Mortgage revenue for the three months ended March 31, 2017 was $802,000, down by 10.7% from the $898,000 reported in Q1 2016. The Q1 2017 revenue represents annualized gross revenue of 13.7% of gross share capital, compared to 15.6% in 2016. It consisted of $740,000 in interest and $62,000 in lender fees charged to borrowers. The lender fees exceeded management fees paid to Builders Capital Management Corp., the company’s property manager, by 5%.
First quarter operating expenses of $80,000, excluding a provision for mortgage losses and interest expense, remained unchanged year-over-year and were in line with expectations.
Management set aside $79,000 during the quarter to provide for potential loan losses. This amount was based on an analysis of historical bad debts by Builders Capital Management Corp., which manages the company’s mortgage portfolio, as well as a current analysis of the construction finance marketplace.
As expected, weakness in the southern Alberta real estate market continued to have a negative impact on comprehensive income. Results were also impacted by a 1% decline in the average interest rates the company charges as its focuses on building a higher-quality, lower-risk mortgage portfolio. For the first three months of 2017 comprehensive income was $627,000, or $0.27 per share, compared to $726,000, or $0.31 per share, in Q1 2016. The Q1 2017 income translates to earnings of $0.197 per Class A Non-Voting Share, compared to earnings of $0.3667 per Class A Non-Voting Share in the first quarter of 2016.
“Our strategic focus on providing short-term, course of construction financing to residential builders and adherence to strict risk management strategies kept us on a steady course through the first quarter,” said Sandy Loutitt, President of Builders Capital. “Our turnover of invested capital increased to 29% from 19% a year ago. We also closed the quarter with a full mortgage book and maintained our prudent approach to leverage, recording a conservative 6.5% debt-to-equity ratio at quarter-end.”
Mortgage Portfolio
At March 31, 2017, Builders Capital’s mortgage portfolio consisted of 31 mortgage loans with an aggregate value of $24.7 million. All mortgage transactions conducted during the year were consistent with the company’s tight focus on financing short-term, wood-frame residential construction in strong urban markets. During the first quarter of 2017, $6.1 million in mortgages were purchased or funded and $5.6 million was received as proceeds of sale or loan repayments. The acquisition of $6.1 million in mortgages and sale of $5.6 million in mortgages helped to ensure full cash utilization and create the required liquidity.
Distributions
On March 21, 2017, based on income for the year, the company’s Board of Directors declared a dividend of $0.1973 per Class A Non-Voting Share to shareholders of record on March 31, 2017. This distribution was paid on April 28, 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. First quarter earnings generated by the company exceeded the amount required to pay planned Class A Non-Voting Share dividends by a healthy 2.3 times.
On March 28, 2017, again based on income for the first quarter of 2017, the Board declared a dividend of $0.3119 per share to Class B Non-Voting shareholders of record on that date. This distribution was also paid on April 28, 2017.
Financing Activity
The company is in the process of raising capital and in December 2016 filed a preliminary prospectus. Subsequent to the quarter end on May 26, 2017, the company received a receipt for the final prospectus and is now working to close the offering, which is expected to generate proceeds of approximately $4 million. As discussed further in the prospectus, which is available on the company’s website at www.builderscapital.ca and on SEDAR at www.sedar.com, Builder’s Capital is seeking these funds to acquire additional mortgages, provide working capital and generally grow the business.
Outlook
The company is seeing early signs that the worst of the downturn in Southern Alberta’s housing sector may have passed. Recent data from the Canadian Real Estate Board (CREA) showed a 14.3% increase in Alberta residential sales activity in the first four months of 2017 and a 6.5% increase for the month of April 2017, compared to the same periods in 2016. Also according to CREA, the provincial average price for homes sold in the first four months of 2017 was 2.6% higher than it was a year earlier, with the April 2017 average price being 3.4% higher than it was in April 2016. The Conference Board of Canada’s Metropolitan Outlook: Spring 2017, meanwhile, is projecting economic growth of 2.3% for the city of Calgary in 2017. This would represent the first economic growth experienced by the city in three years.
While the company believes it will take time for a market recovery to fully materialize, particularly given continued weakness in oil prices, it continues to believe that the levels of housing starts forecast by Canada Mortgage and Housing Corporation in its western Canadian markets are more than adequate to support the growth of its business in the near term. It also expects that margins on new construction will remain viable.
“We are encouraged by the recent signs of improvement in the Alberta market and we are well positioned for an eventual recovery, particularly given our conservative balance sheet and our recent efforts to complete a capital raise to support future growth,” said Loutitt.
“While the outlook is improving, we caution that the extended downturn has taken its toll on builders in the Alberta market and it is possible that we will need to take additional steps to collect on some of our mortgage assets over the coming months. However, we are optimistic that we have weeded out the most significant vulnerabilities in the portfolio, and we are very confident in our ability to enforce our current mortgages. Going forward, we are continuing to source high-quality lending opportunities that appropriately balance risk while maintaining attractive returns for our shareholders.”
The company also has multiple strategies in place to further limit downside risk. Builders Capital takes a cautious approach to leverage and maintains a prudent debt-to-equity ratio. By investing only in short-term mortgages, the company maintains the liquidity necessary to preserve capital. It 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 owner’s 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.
“With Class B Non-Voting shareholders bearing a much greater proportion of the risk of income fluctuations, even if first quarter earnings had been only 44% of their actual figure, we would still have been in a position to pay Class A shareholders their full, planned quarterly dividend,” said Loutitt.
A more detailed discussion of the company’s financial results can be found in Builders Capital’s first 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 May 30, 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.
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.