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Section 1: 8-K


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________
FORM 8-K
CURRENT REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1933
Date of Report (Date of earliest event reported):  August 8, 2018
 
OWENS REALTY MORTGAGE, INC.
(Exact Name of Registrant as Specified in its Charter)
 
 
 
 
 
Maryland
 
000-54957
 
46-0778087
(State or Other Jurisdiction
 
(Commission
 
(IRS Employer
of Incorporation)
 
File Number)
 
Identification No.)
 
 
 
 
 
2221 Olympic Boulevard
 
 
 
 
Walnut Creek, California
 
 
94595
(Address of Principal Executive Offices)
 
(Zip Code)
Registrant's telephone number, including area code: (925) 935-3840
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
 
 
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company
 

 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
 


Item 2.02 Results of Operations and Financial Condition

On August 8, 2018, Owens Realty Mortgage, Inc. (the "Company") issued a press release announcing, among other things, the Company's financial results for the second fiscal quarter ended June 30, 2018. A copy of this press release is furnished as Exhibit 99.1 and incorporated herein by reference.

The information in this Item 2.02 of Form 8-K, including all accompanying exhibits, is being furnished and shall not be deemed to be "filed" for the purposes of Section 18 of the Securities and Exchange Act of 1934 (the "Exchange Act"), or otherwise subject to the liability of such section, nor shall such information be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act, regardless of the general incorporation language of such filing, except as shall be expressly set forth by specific reference in such filing.
Item 7.01 Regulation FD Disclosure

Concurrent with the issuance of the press release furnished as Exhibit 99.1, an updated investor slide presentation titled "Real Estate Portfolio Report" that provides information about the Company's real estate asset portfolio was posted in the "Investor Relations" area of the Company's website.

Forward-Looking Statements

This Current Report (including information included or incorporated by reference herein) may contain "forward-looking statements" within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995 and other federal securities laws. Forward-looking statements about the Company's business, financial condition and prospects, and anticipated events, including the items discussed in this Current Report, 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 materially differ from the forward-looking statements made in this Current Report 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 and expressly disclaims 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, except as required by law. Additional information concerning these and other risk factors is contained in the Company's most recent filings with the Securities and Exchange Commission including those appearing under the heading "Item 1A. Risk Factors" in the Company's most recent Annual Report on Form 10-K and each subsequent Quarterly Report on Form 10-Q. 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.
 
 


 
Item 9.01 Financial Statements and Exhibits 

(d) Exhibits.

 
Exhibit
No.
Description
 
 
 



SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 
 
OWENS REALTY MORTGAGE, INC.,
a Maryland corporation
 
 
Date: August 8, 2018
By: /s/ Bryan H. Draper
 
Name: Bryan H. Draper
 
Title:   President and Chief Executive Officer
 



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Section 2: EX-99.1




For Immediate Release

Contact:                 Investor Relations
Owens Realty Mortgage, Inc.
www.owensmortgage.com
(925) 239-7001
Owens Realty Mortgage, Inc. Reports Second Quarter 2018 Financial Results

WALNUT CREEK, CA. – August 8, 2018 – Owens Realty Mortgage, Inc. (the "Company") (NYSE American: ORM) today reported financial results for the second quarter ended June 30, 2018.

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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