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Owens Realty Mortgage, Inc. Reports Second Quarter 2018 Financial Results

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Owens Realty Mortgage, Inc. Reports Second Quarter 2018 Financial Results

PR Newswire

WALNUT CREEK, Calif., Aug. 8, 2018 /PRNewswire/ -- Owens Realty Mortgage, Inc. (the "Company") (NYSE:ORM) today reported financial results for the second quarter ended June 30, 2018.

Owens Realty Mortgage, Inc. logo. (PRNewsFoto/Owens Realty Mortgage, Inc.) (PRNewsFoto/OWENS REALTY MORTGAGE, INC.)

Second Quarter 2018 Financial Highlights

  • Net income of $2,342,688, or $0.26 per fully-diluted common share
  • Book value of $22.32 per common share at June 30, 2018 as compared to $22.10 per common share at December 31, 2017
  • Declared a quarterly dividend of $0.20 per share of common stock

Second Quarter 2018 Operational Highlights

  • Originated five new loans in the quarter totaling $28,772,000 (note amount), received full or partial payoffs on seven loans totaling $19,797,000 and extended the maturity dates of two loans with principal balances aggregating $2,450,000
  • Average balance of performing loans for the three months ended June 30, 2018 as compared to the three months ended June 30, 2017 increased by approximately 9%
  • Sold five real estate properties (including two condominium units at Zalanta) for net proceeds totaling $3,745,000 (including a $570,000 note receivable) and net gain totaling $957,000
  • Repurchased 325,407 shares of Common Stock pursuant to the 2018 Repurchase Plan, at a total cost of approximately $5,293,000 (including commissions) and an average cost of $16.27 per share

Subsequent Events

  • Repurchased an additional 128,367 shares of Common Stock in July 2018 pursuant to the 2018 Repurchase Plan, at a total cost of approximately $2,174,000 (including commissions) and an average cost of $16.94 per share
  • In July 2018, the Company sold one of three improved residential lots located in Coeur D'Alene, Idaho for net sales proceeds of approximately $392,000 and gain of approximately $304,000

"During the second quarter, we continued to execute against our strategic plan and took a number of important steps in support of our efforts to deliver a consistent, competitive risk-adjusted return to stockholders. As a result of our continued loan portfolio growth, the Company increased its total revenues by $479,000, or 12.4%, from the same period last year. In addition, primarily due to our changes to the Management Fee and the elimination of the Servicing Fee and salary-related expense reimbursements, the Company was able to reduce its total expenses by $1,186,000, or 28.5%, from the same period in the prior year. Combined, these changes contributed to an increase in operating income of $1,665,000."

"The Company recently completed its annual meeting of shareholders, which included a contested election of directors.  Partially due to this process and the Board's addition of three additional, independent directors, the Board has increased its diversity and shareholder representation.  The Board is now made up of eight directors, six of which are independent, one of which is a direct representative of a shareholder and two of which were recommended for consideration as director candidates by the Company's largest shareholder at the request of the Board. In addition, the Chairman of the Board is now independent," said Bryan Draper, the Company's CEO.

Summary of Second Quarter 2018 Financial Results
The Company reported net income of $2,342,688, or $0.26 per fully-diluted common share, for the quarter ended June 30, 2018 as compared to net income of $12,755,947, or $1.24 per fully-diluted common share, for the quarter ended June 30, 2017. The decrease was primarily a result of the following:

  • A decrease in gain on sales of real estate of $12,920,000 during the three months ended June 30, 2018, as compared to the corresponding period in 2017, as a result of the sales of two real estate properties during the three months ended June 30, 2017, resulting in gain on sales of real estate totaling $13,878,000 (the largest of which was gain on the sale of the TSV land of approximately $13,211,000). We sold five properties (including two condominium units at ZRV) during the three months ended June 30, 2018, resulting in gain on sales of real estate totaling $957,000.
  • An increase in interest expense of $225,000 during the three months ended June 30, 2018, as compared to the corresponding period in 2017, due primarily to increased interest expense on the ZRV construction loan as construction was completed in mid-2017 and capitalization of interest was discontinued and also due to higher balances outstanding and a higher average interest rate on the CB&T line of credit during 2018.

These items that decreased net income during the three months ended June 30, 2018 were partially offset by the following:

  • An increase in interest and related income from loans of $445,000 for the three months ended June 30, 2018, as compared to the corresponding period in 2017, primarily due to an increase in the average balance of performing loans between the three months ended June 30, 2018 and 2017 of approximately 9% and due to discount and loan fee amortization on certain loans during 2018.
  • A decrease in management fees of $276,000 and servicing fees of $92,000 for the three months ended June 30, 2018, as compared to the corresponding period in 2017, due to the Amendment to the Management Agreement, effective April 1, 2018, that permanently changed the management fee calculation to a calculation based on stockholders' equity, eliminated servicing fees paid to the Manager and made additional changes to the compensation of the Manager. Management fees for the three months ended June 30, 2018 were approximately $398,000 lower than the fees that would have been payable to the Manager using the prior management fee calculation that was based on loan balances.
  • A decrease in general and administrative expense of $155,000 for the three months ended June 30, 2018, as compared to the corresponding period in 2017, due primarily to the elimination of the salary related expense reimbursements to the Manager beginning April 1, 2018 pursuant to the Amendment to the Management Agreement and also due to lower legal costs incurred by the Company as certain legal costs were covered by the Company's applicable insurance policy during the three months ended June 30, 2018, as compared to the corresponding period in 2017.
  • A decrease in depreciation and amortization of $98,000 for the three months ended June 30, 2018, as compared to the corresponding period in 2017, due to the sale of certain properties during 2017 and 2018 and the discontinuation of depreciation on certain properties that were moved to Held for Sale in 2017.
  • A decrease in impairment losses on real estate properties of $282,000 during the three months ended June 30, 2018, as compared to the corresponding period in 2017, due to a loss recorded on the marina property located in Bethel Island, California when it was listed for sale during 2017. We recorded no impairment losses during 2018.
  • An increase in income tax benefit (from income tax expense) of $842,000 for the three months ended June 30, 2018, as compared to the corresponding period in 2017, as a result of a larger increase in the valuation allowance recorded against deferred tax assets in 2017, due to higher construction costs and lower expected gains from the sales of the Zalanta assets in the future.
  • An increase in rental and other income from real estate properties net of expenses on such properties of $517,000 for the three months ended June 30, 2018 (from loss of $256,000 during the three months ended June 30, 2017 to income of $261,000 during the three months ended June 30, 2018) due primarily to the sale of certain properties with operating losses in 2017 and 2018.

We believe, from period to period in the near term, there could be fluctuations in earnings and net income resulting from the lag time between the sale of our real estate assets and deployment of the proceeds into new loan investments.

Quarter End Loan Portfolio Summary
The following tables set forth certain information regarding the Company's loan portfolio at June 30, 2018 and December 31, 2017.



June 30,
2018


December 31,
2017

By Property Type:





Commercial


$

151,874,720


$

127,873,281

Residential



12,112,703



13,170,795

Land



5,052,950



5,127,574



$

169,040,373


$

146,171,650

By Position:







Senior loans


$

165,651,572


$

142,782,492

Junior loans



3,388,801



3,389,158



$

169,040,373


$

146,171,650

The types of property securing the Company's commercial real estate loans are as follows:



June 30,
2018


December 31,
2017


Commercial Real Estate Loans:








Office


$

26,052,765


$

29,480,103


Retail



53,732,496



32,329,395


Storage



5,680,121



15,807,016


Apartment



28,361,685



24,582,181


Hotel



8,985,000



11,777,351


Parking garage



8,307,619




Industrial



4,039,250



2,690,000


Warehouse



3,000,000



3,000,000


Marina



3,580,000



3,580,000


Assisted care



7,097,113



1,650,000


Golf course



1,274,287



1,212,851


Restaurant



1,764,384



1,764,384




$

151,874,720


$

127,873,281


Loans by geographic location:



June 30, 2018


December 31, 2017



Balance


Percentage


Balance


Percentage

California


$

115,453,446


68.30%


$

110,884,117


75.86%

Arizona




—%



815,890


0.56%

Colorado



7,610,428


4.50%



4,380,616


3.00%

Hawaii



1,441,614


0.85%



1,450,000


0.99%

Illinois



1,364,384


0.81%



1,364,384


0.93%

Indiana



1,460,298


0.86%



388,793


0.27%

Michigan



8,985,000


5.32%



10,714,764


7.33%

Nevada



8,820,725


5.22%



1,653,107


1.13%

Ohio




—%



3,755,000


2.57%

Pennsylvania



5,447,113


3.22%




—%

Texas



16,275,792


9.63%



6,625,000


4.53%

Washington




—%



3,159,460


2.16%

Wisconsin



2,181,573


1.29%



980,519


0.67%



$

169,040,373


100.00%


$

146,171,650


100.00%

Quarter End Real Estate Property Portfolio

The following tables set forth certain information regarding the Company's real estate portfolio at June 30, 2018 and December 31, 2017.

Real Estate Held for Sale:



June 30,
2018


December 31,
2017


Residential


$

20,722,140


$

24,627,710


Land



9,847,107



14,389,620


Retail



7,670,204



7,632,893


Golf course



1,999,449



1,999,449


Marina



2,207,675



2,207,675


Office



2,468,007




Assisted care





5,253,125




$

44,914,582


$

56,110,472


Real Estate Held for Investment:



June 30,

2018


December 31,

2017


Retail


$

16,309,334


$

16,623,238


Land



6,561,023



2,018,068


Residential





2,356,995


Office





3,357,352




$

22,870,357


$

24,355,653


Conference Call
The Company will host a conference call to discuss the results on Thursday, August 9, 2018, at 10:00 a.m. PT / 1:00 p.m. ET.

To participate in the call, please dial (844) 850-0545 (United States) or (412) 317-5202 (International) and request the Owens Realty Mortgage call. A live webcast of the call will also be available on the Company's website at www.owensmortgage.com.  Please allow 10 minutes prior to the call to visit this site to download and install any necessary audio software.

An archive of the webcast will be available approximately one hour after completion of the live event and will be accessible on the Investor Relations section of the Company's website at www.owensmortgage.com until September 9, 2018.  To access the replay, dial (877) 344-7529 (United States) or (412) 317-0088 (International) and enter code: 10122841.

About Owens Realty Mortgage, Inc.
Owens Realty Mortgage, Inc., a Maryland corporation, is a specialty finance mortgage company organized to qualify as a real estate investment trust that focuses on the origination, investment, and management of small balance and middle-market commercial real estate loans. We provide customized, short-term acquisition and transition capital to commercial real estate investors that require speed and flexibility. Our primary objective is to provide investors with attractive current income and long-term shareholder value. Owens Realty Mortgage, Inc., is headquartered in Walnut Creek, California, and is externally managed and advised by Owens Financial Group, Inc.

Additional information can be found on the Company's website at www.owensmortgage.com.

Forward-Looking Statements
This press release includes "forward-looking statements" within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements about Owens Realty Mortgage Inc.'s plans, strategies, prospects, and anticipated events, including the maximum borrowings available under its credit facilities, anticipated construction progress and completion, potential leasing activities, repositioning and possible sale of real estate assets and anticipated benefits of the Amendment to the Management Agreement, are based on current information, estimates, and projections; they are subject to, risks and uncertainties, as well as known and unknown risks, which could cause actual results to differ from expectations, estimates and projections and, consequently, readers should not rely on these forward-looking statements as predictions of future events. Words such as "expect," "target," "assume," "estimate," "project," "budget," "forecast," "anticipate," "intend," "plan," "may," "will," "could," "should," "believe," "predicts," "potential," "continue," and similar expressions are intended to identify such forward-looking statements.

Readers are cautioned not to place undue reliance upon any forward-looking statements, which speak only as of the date made. The Company does not undertake or accept any obligation to release publicly any updates or revisions to any forward-looking statement to reflect any change in its expectations or any change in events, conditions or circumstances on which any such statement is based. Additional information concerning these, and other risk factors is contained in the Company's most recent filings with the Securities and Exchange Commission. All subsequent written and oral forward-looking statements concerning the Company or matters attributable to the Company or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements above.

Selected Financial Data:

OWENS REALTY MORTGAGE, INC.

Consolidated Balance Sheets

(UNAUDITED) 



June 30,


December 31,


2018


2017

ASSETS






Cash, cash equivalents and restricted cash

$

5,606,546


$

5,670,816

Loans, net of allowance for losses of $1,751,700 in 2018 and $1,827,806 in 2017


167,288,673



144,343,844

Interest and other receivables


1,279,875



2,430,457

Other assets, net of accumulated depreciation and amortization of $333,681 in 2018 and $309,686 in 2017


544,732



725,341

Deferred financing costs, net of accumulated amortization of $292,099 in 2018 and $265,276 in 2017




26,823

Deferred tax assets, net


3,041,512



3,207,322

Investment in limited liability company


2,140,444



2,140,545

Real estate held for sale


44,914,582



56,110,472

Real estate held for investment, net of accumulated depreciation of $2,358,186 in 2018 and $3,316,753 in 2017


22,870,357



24,355,653

   Total assets

$

247,686,721


$

239,011,273

LIABILITIES AND EQUITY






LIABILITIES:






Dividends payable

$

1,746,713


$

1,572,047

Due to Manager


236,934



277,671

Accounts payable and accrued liabilities


1,201,459



1,390,329

Deferred gains on sales of real estate




302,895

Forward contract liability – share repurchase




2,731,171

Lines of credit payable


29,612,700



1,555,000

Notes and loans payable on real estate


19,951,868



30,192,433

Total liabilities


52,749,674



38,021,546

Commitments and Contingencies (Note 14)






EQUITY:






Stockholders' equity:






Preferred stock, $.01 par value per share, 5,000,000 shares authorized, no shares issued and outstanding at June 30, 2018 and December 31, 2017




Common stock, $.01 par value per share, 50,000,000 shares authorized, 11,198,119 shares issued, 8,733,564 and 9,095,454 shares outstanding at June 30, 2018 and December 31, 2017


111,981



111,981

Additional paid-in capital


182,437,522



182,437,522

Treasury stock, at cost – 2,464,555 and 2,102,665 shares at June 30, 2018 and December 31, 2017


(37,490,700)



(31,655,119)

Retained earnings


49,878,244



50,095,343

Total stockholders' equity


194,937,047



200,989,727

   Total liabilities and equity

$

247,686,721


$

239,011,273

 

OWENS REALTY MORTGAGE, INC.

Consolidated Statements of Income

(UNAUDITED)



For the Three Months Ended


For the Six Months Ended


June 30, 2018


June 30, 2017


June 30, 2018


June 30, 2017

Revenues:












Interest and related income from loans

$

3,086,829


$

2,641,363


$

5,976,397


$

5,188,405

Rental and other income from real estate properties


1,210,152



1,179,835



2,280,388



2,126,206

Other income


49,063



46,092



81,179



90,084

Total revenues


4,346,044



3,867,290



8,337,964



7,404,695

Expenses:












Management fees to Manager


730,353



1,006,680



1,467,715



1,954,194

Servicing fees to Manager




91,516



95,143



177,654

General and administrative expense


390,738



545,872



919,934



1,029,686

Rental and other expenses on real estate properties


949,579



1,436,001



2,408,751



2,639,320

Depreciation and amortization


206,128



303,782



423,199



613,742

Interest expense


586,799



362,174



1,122,705



648,975

Provision for loan losses


114,633



137,244



34,368



175,280

Impairment losses on real estate properties




281,626





281,626

Total expenses


2,978,230



4,164,895



6,471,815



7,520,477

Operating income (loss)


1,367,814



(297,605)



1,866,149



(115,782)

Gain on sales of real estate, net


957,239



13,877,715



1,111,815



13,877,534

Income before income taxes


2,325,053



13,580,110



2,977,964



13,761,752

Income tax benefit (expense)


17,635



(824,163)



(165,810)



(814,127)

Net income

$

2,342,688


$

12,755,947


$

2,812,154


$

12,947,625













Per common share data:












Basic and diluted earnings per common share

$

0.26


$

1.24


$

0.31


$

1.26

Basic and diluted weighted average number of common shares outstanding


8,922,280



10,247,477



9,005,314



10,247,477

Dividends declared per share of common stock

$

0.20


$

0.10


$

0.36


$

0.18

 

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SOURCE Owens Realty Mortgage, Inc.

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