Owens Realty Mortgage, Inc.

www.owensmortgage.com

(925) 239-7001

Owens Realty Mortgage, Inc. Reports Third Quarter 2016 Financial Results

WALNUT CREEK, CA. – November 8, 2016 – Owens Realty Mortgage, Inc. (the "Company") (NYSE MKT: ORM) today reported financial results for the third quarter ended September 30, 2016.

Third Quarter 2016 Financial Highlights

·	Net income attributable to common stockholders of $15,732,661, or $1.54 per diluted share of common stock

·	Book value attributable to common stockholders of $21.28 per share of common stock at September 30, 2016 as compared to $19.03 per common share at December 31, 2015

·	Declared quarterly dividends of $0.08 per diluted share of common stock

·	FFO of $689,152, or $0.07 per diluted share of common stock and AFFO of $463,166 (see Non-GAAP Financial Measures)

Third Quarter 2016 Operational Highlights

·	Originated three new loans in the quarter totaling $2,655,000 (note amount), extended the maturity dates of two loans with principal balances totaling $2,485,000 and received full or partial payoffs on eight loans totaling $13,687,000

·

Sold four real estate properties for aggregate net proceeds of $79,256,000 (or $38,441,000 after repayment of debt and distribution to non-controlling interest) resulting in gain on sales of real estate totaling $20,195,000 (or $16,479,000 to the Company after $3,716,000 gain attributable to non-controlling interest)

·	Average balance of performing loans for the three months ended September 30, 2016 as compared to the three months ended September 30, 2015 increased by approximately 45%

·

In August 2016, Zalanta Resort at the Village, LLC and Zalanta Resort at the Village – Phase II, LLC (wholly owned subsidiaries of the Company) entered into a construction loan agreement with Western Alliance Bank that provides up to $31,000,000 to finance the construction of the new mixed-use retail and residential condominium building located in South Lake Tahoe, California

·

In September 2016, the Company entered into a purchase agreement to sell certain of the Tahoe Stateline Venture land, land improvements and entitlements (other than the existing retail buildings and improvements and certain land related thereto). The net purchase price is $42.5 million, including $10 million net in cash at closing and a $32.5 million note from the buyer due on March 31, 2017. The closing is subject to a number of conditions described in the purchase agreement, including, among others, completion of satisfactory due diligence by the buyer and the approval of a tentative map that is acceptable to buyer and the Company.  Accordingly, there is no guarantee that the closing will occur. The book value of the TSV property being sold was approximately $28,908,000 as of September 30, 2016

"The completion of the sale of our Miami property is significant. Not only did the sale generate a gain of $19,292,000 ($15,576,000 to the Company), it generated cash of $41,192,000 ($33,258,000 to the Company), allowed us to extinguish $32,881,000 in debt and added $1.52 per common share in book equity." said Bryan Draper, the Company's CEO. "Primarily as a result of the sale of this property, total real estate assets to total assets dropped from 54% as of June 30, 2016 to 44% as of September 30, 2016.  Development at our Zalanta project located in South Lake Tahoe, California continues, and we plan to complete construction of the 30 residential condominiums and retail space in the first part of 2017.  We recently returned a majority of the refundable reservation deposits to potential buyers, however, we have entered into contract on two of the units and expect sales activity to pick up as we near completion of the project. Although loan production in the quarter declined, we believe this was due to temporary liquidity tightening, and we are seeing much improved lending opportunities in the fourth quarter".

 

Summary of Third Quarter 2016 Financial Results

The Company reported net income attributable to common stockholders of $15,732,661, or $1.54 per basic and diluted share of common stock, for the quarter ended September 30, 2016 as compared to net income of $384,321, or $0.04 per basic and diluted share of common stock, for the quarter ended September 30, 2015. The increase was primarily a result of the following:

 

·

An increase in gain on sales of real estate of $20,195,000 during the three months ended September 30, 2016, as compared to 2015, due to the sales of four real estate properties during the three months ended September 30, 2016, resulting in gain on sales of real estate totaling $20,195,000 (or $16,479,000 net of $3,716,000 gain attributable to non-controlling interest). We sold no properties during the three months ended September 30, 2015.

·

An increase in interest income on loans of $884,000 during the three months ended September 30, 2016, as compared to 2015, due primarily to an increase in interest income from performing loans as the average balance of performing loans in the quarter ended September 30, 2016 increased approximately 45% as compared to the quarter ended September 30, 2015.

·	A decrease in depreciation and amortization expense of $221,000 during the three months ended September 30, 2016, as compared to 2015, primarily due to the discontinuation of depreciation on certain properties that were moved to Held for Sale during 2015 and 2016.

·

An increase in income tax benefit of $261,000 during the three months ended September 30, 2016, as compared to 2015, due to an adjustment in the expected timing of the property sales in the Zalanta taxable REIT subsidiary during the quarter, which increased the expected realization of state deferred tax assets.

The items that increased net income during the three months ended September 30, 2016 were partially offset by the following:

·	A decrease in rental and other income on real estate properties of $806,000 during the three months ended September 30, 2016, as compared to 2015, due primarily to the sale of four operating properties during 2015 and two in the beginning of 2016.

·	An increase in total management and service fees of $322,000 during the three months ended September 30, 2016, as compared to 2015, due to an increase in the average balance of loans in our portfolio of 57% for the three months ended September 30, 2016, as compared to 2015.

·

An increase in interest expense of $607,000 during the three months ended September 30, 2016, as compared to 2015, due to increased interest incurred on our lines of credit as the balances were higher during the three months ended September 30, 2016, due to an additional $3,830,000 advance taken on the Tahoe Stateline Venture loan during the third quarter of 2015 and due to the fact that interest incurred on the TOTB North loan could no longer be capitalized to the renovation project beginning in March 2016 as construction was completed.

 

 

·

An increase in impairment losses on real estate properties of $1,094,000 during the three months ended September 30, 2016, as compared to 2015, related to the Company signing an agreement to sell the medical office condominium property located in Gilbert, Arizona at a price that is less than the book value, resulting in an impairment loss of $1,094,000. We recorded no impairment losses during the three months ended September 30, 2015.

We believe, from period to period in the near term, there will be fluctuations in net income resulting from the lag time between the sale of our income-producing 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 September 30, 2016 and December 31, 2015.

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

 

Loans by geographic location:

Quarter End Real Estate Property Portfolio

The following tables set forth certain information regarding the Company's real estate portfolio at September 30, 2016 and December 31, 2015.

Real Estate Held for Sale:

Real Estate Held for Investment:

Conference Call

The Company will host a conference call to discuss the results on Wednesday, November 9, 2016, at 10:00 a.m. PT / 1:00 p.m. ET.

To participate in the call, please dial (877) 317-6016 (United States) or (412) 317-6016 (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 Company's website at www.owensmortgage.com for 30 days.  A dial-in replay of the call will also be available to those interested until December 9^th.  To access the replay, dial (877) 344-7529 (United States) or (412) 317-0088 (International) and enter code: 10095453.

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 ("REIT") 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, and repositioning and possible sale of real estate assets, 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)

 

 

OWENS REALTY MORTGAGE, INC.

Consolidated Statements of Income

 (UNAUDITED)

Non-GAAP Financial Measures

Funds from Operations and Adjusted Funds from Operations

We utilize supplemental non-GAAP measures of operating performance, including funds from operations ("FFO"), an industry-wide standard measure of REIT operating performance, and adjusted funds from operations ("AFFO"). We believe FFO and AFFO provide investors with additional information concerning our operating performance and a basis to compare our performance with those of other REITs. We determine FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts ("NAREIT"), as net income attributable to common stockholders (computed in accordance with GAAP), excluding real estate-related depreciation and amortization, impairment losses on depreciable real estate, gains or losses on the sales of depreciable real estate, and after adjustments for unconsolidated ventures.

We calculate AFFO by adding or subtracting from FFO the impact of non-cash accounting items, as well as gains/losses on sales of other real estate. We adjust for these items to analyze our ability to produce cash flow from on-going operations, which we use to pay dividends to our shareholders. Non-cash adjustments to FFO include the following: provisions for (reversals of) loan losses; amortization of deferred financing costs; depreciation of other assets; impairment of other real estate; accretion of loan discount; gain on foreclosure of loans; and straight-line rental adjustments.

Our calculations of FFO and AFFO may not be comparable to similar measures reported by other REITs. These non‐GAAP financial measures should not be considered as alternatives to net income as a measure of our operating performance or to cash flows computed in accordance with GAAP as a measure of liquidity, nor are they indicative of cash flows from operating and financial activities.

We urge investors to carefully review the GAAP financial information included as part of the Annual Report, as well as in the Company's Quarterly Reports on Form 10-Q and quarterly earnings releases.

The following table reconciles FFO and AFFO to the comparable GAAP financial measures:

# # #