TSX Symbol FC.UN
TORONTO, May 11 /CNW/ - Firm Capital Mortgage Investment Trust (the
"Trust") (TSX FC.UN), released today its financial statements for the first
quarter ended March 31, 2005.
Net earnings for the first quarter ended March 31, 2005 increased to
$2,397,845 from $2,173,458 for the same period last year. Net earnings per
unit based on the weighted average number of units outstanding during the
first quarter totaled $0.23 versus $0.24 last year. Net earnings represented
an annualized return on weighted average Unitholders' equity of 10.00% per
annum. This return on Unitholders' equity equates to 720 basis points per
annum over the average One Year Government of Canada Treasury Bill yield for
the quarter and is well in excess of the Trust's target yield objective of 400
basis points per annum over the One Year Treasury Bill yield.
As at March 31, 2005, the Trust's mortgage portfolio increased to
$121,425,732 as compared to $120,347,225 as at December 31, 2004. The
portfolio continued to be heavily concentrated in first mortgages.
The Trust, through its Mortgage Banker, Firm Capital Corporation, is a
non-bank lender providing residential and commercial short-term bridge and
conventional real estate finance, including construction, mezzanine and equity
investments. The Trust's investment objective is the preservation of
Unitholders' equity, while providing Unitholders with a stable stream of
monthly distributions from investments. The Trust achieves its investment
objectives by pursuing a strategy of growth through investments in selected
niche markets that are under-serviced by large lending institutions. Lending
activities to date continue to develop a diversified mortgage portfolio,
producing a stable return to Unitholders.
Additional information about the Trust, including the Management's
Discussion and Analysis relating to the financial statements, will be
available on the SEDAR website at www.sedar.com.
NOTICE UNDER NATIONAL INSTRUMENT 51-102
National Instrument 51-102: Continuous Disclosure Requirements requires
that these interim financial statements be accompanied by this notice which
indicates that these financial statements have not been reviewed by the
auditors of Firm Capital Mortgage Investment Trust.
<<
Unaudited Financial Statements of
FIRM CAPITAL MORTGAGE
INVESTMENT TRUST
For the Three Months Ended March 31, 2005
FIRM CAPITAL MORTGAGE INVESTMENT TRUST
Balance Sheets
March 31, 2005, with comparative figures for December 31, 2004 and
March 31, 2004
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March 31, 2005 Dec. 31, 2004 March 31, 2004
(Unaudited) (Audited) (Unaudited)
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Assets
Amounts receivable and prepaid
expenses $ 1,301,050 $ 1,510,577 $ 1,128,987
Mortgages (note 4) 121,425,732 120,347,225 104,413,209
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$122,726,782 $121,857,802 $105,542,196
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Liabilities and Unitholders'
Equity
Liabilities:
Bank indebtedness (note 5) $ 15,176,140 $ 15,080,493 $ 7,310,834
Accounts payable and accrued
liabilities 398,589 422,872 415,387
Unitholder distribution payable 781,987 - 764,160
Loans payable (note 6) 10,406,315 10,466,973 3,383,859
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26,763,031 25,970,338 11,874,240
Unitholders' equity (note 7): 95,963,751 95,887,464 93,667,956
Issued and outstanding:
10,426,495 units
(2004 - 10,188,798)
Commitments (note 4)
Contingent liabilities (note 12)
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$122,726,782 $121,857,802 $105,542,196
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See accompanying notes to financial statements.
FIRM CAPITAL MORTGAGE INVESTMENT TRUST
Unaudited Statements of Earnings
Three Months ended March 31, 2005
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3 Month Period 3 Month Period
March 31, 2005 March 31, 2004
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Operating revenue:
Mortgage interest and fees earned $ 3,080,545 $ 2,676,272
Operating expenses:
Trust manager compensation (note 11) 223,764 176,577
Interest 286,099 161,965
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509,863 338,542
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2,570,682 2,337,730
Trust expenses:
Trustee fees 31,250 25,000
Other 141,587 139,272
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172,837 164,272
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Net earnings for the period $ 2,397,845 $ 2,173,458
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Net earnings per unit (note 8)
Basic $ 0.230 $ 0.241
Diluted $ 0.230 $ 0.241
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See accompanying notes to financial statements.
FIRM CAPITAL MORTGAGE INVESTMENT TRUST
Statement of Unitholders' Equity
Three Months ended March 31, 2005
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March 31, 2005 Dec. 31, 2004 March 31, 2004
(Unaudited) (Audited) (Unaudited)
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Unitholders' equity, beginning
of period $ 95,887,464 $ 70,156,679 $ 70,156,679
Net earnings for the period 2,397,845 9,329,096 2,173,458
Proceeds from issuance of units 24,160 27,201,872 24,838,465
Public offering costs - (1,471,087) (1,472,179)
Distributions to unitholders (2,345,718) (9,329,096) (2,028,467)
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Unitholders' equity, end of
period $ 95,963,751 $ 95,887,464 $ 93,667,956
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See accompanying notes to financial statements.
FIRM CAPITAL MORTGAGE INVESTMENT TRUST
Unaudited Statement of Cash Flows
Three Months ended March 31, 2005
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3 Month Period 3 Month Period
March 31, 2005 March 31, 2004
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Cash provided by (used in):
Operating activities
Net earnings for the period $ 2,397,845 $ 2,173,458
Net changes in non-cash items
Decrease (increase) in amounts
receivable and prepaid expenses 209,527 (124,251)
Increase (decrease) in accounts payable
and accrued liabilities 757,704 742,212
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3,365,076 2,791,419
Financing activities:
Proceeds from issuance of units 24,160 24,838,465
Increase (decrease) in bank indebtedness 95,647 (7,631,718)
Increase (decrease) in loans payable (60,658) (18,714)
Public offering costs - (1,472,179)
Distributions to unitholders (2,345,718) (2,028,467)
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(2,286,569) 13,687,387
Investing activities:
Funding of mortgages (20,337,318) (24,906,480)
Discharge of mortgages 19,258,811 8,427,674
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(1,078,507) (16,478,806)
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Net increase in cash and cash equivalents
during the period $ - $ -
Cash and cash equivalents (overdraft),
beginning of period - -
Cash and cash equivalents, end of period $ - $ -
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Supplemental disclosure
Interest paid $ 291,795 $ 223,971
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See accompanying notes to financial statements.
FIRM CAPITAL MORTGAGE INVESTMENT TRUST
Notes to Financial Statements
Three Months ended March 31, 2005
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1. Organization of Trust:
Firm Capital Mortgage Investment Trust (the "Trust") is a closed-end
trust created for the benefit of the unitholders, pursuant to the
Declaration of Trust dated July 13, 1999, as amended and restated.
Pursuant to the Declaration of Trust, the Trust's Mortgage Banker is
Firm Capital Corporation and the Trust Manager is FC Treasury
Management Inc.
2. Basis of Presentation:
The unaudited interim period financial statements were prepared in
accordance with Canadian generally accepted accounting principles
("GAAP") and follow the same accounting policies and methods of
application with those used in the preparation of the audited
financial statements for the year ended December 31, 2004, except as
indicated in Note 4. Under Canadian GAAP, additional disclosure is
required in annual financial statements and accordingly the interim
financial statements should be read together with the audited
financial statements and the accompanying notes included in Firm
Capital Mortgage Investment Trust's 2004 Annual Report.
3. Summary of significant accounting policies:
(a) Mortgages
Mortgages are stated at fair value. Fair value is the amount of
consideration that would be agreed upon in an arm's length
transaction between knowledgeable, willing parties who are under
no compulsion to act. An allowance for loan losses is recorded
against the portfolio where fair value is determined to be less
than the original value.
(b) Revenue recognition
(i) Interest income
Interest income is accounted for on the accrual basis.
(ii) Non-conventional mortgages:
Special profit participations earned by the Trust on non-
conventional mortgages are recognized upon receipt of such
amounts.
(c) Use of estimates:
The preparation of financial statements requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the year. Actual
results could differ from those estimates.
(d) Financial instruments:
The carrying values of the Trust's amounts receivable, mortgages,
bank indebtedness, accounts payable and accrued liabilities,
unitholder distribution payable and loans payable approximate
their fair values due to their short-term nature.
4. Change in accounting policy
Effective January 1, 2005, the Trust adopted AcG 18 relating to the
measurement of its investments. Under this new standard, mortgages
are measured at fair value. Previously they were recorded at cost. In
accordance with the requirements of this standard, the change in
accounting policy is not applied retroactively and amounts presented
for prior periods have not been restated for this change. This change
in accounting policy has not resulted in any change in the carrying
value of the mortgages.
5. Mortgages
The following is a breakdown of the mortgages as at March 31, 2005,
December 31, 2004 and March 31, 2004:
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March 31, 2005 Dec. 31, 2004 March 31, 2004
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Amount % Amount % Amount %
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Conventional
first
mortgages 102,975,856 84.1 101,537,769 83.6 91,605,019 86.9
Conventional non-
first mortgages 8,982,519 7.3 8,592,537 7.1 8,070,138 7.6
Non-conventional
mortgages 10,562,356 8.6 11,311,919 9.3 5,768,053 5.5
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122,520,732 100.0 121,442,225 100.0 105,443,210 100.0
Allowance for
loan losses 1,095,000 1,095,000 1,030,000
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121,425,732 120,347,225 104,413,210
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The mortgages are secured by the underlying properties, bear interest
at the weighted average rate of 9.74% (2004 - 9.71%) and mature
between 2004 and 2009.
The continuity of allowance for loan losses is as follows:
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Three Months Ended March 31:
2005 2004
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Balance, beginning of period 1,095,000 1,030,000
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Balance - End of period 1,095,000 1,030,000
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The unadvanced funds under the existing mortgage portfolio amounted
to $33,818,669 as at March 31, 2005 (2004 - $31,177,470).
Credit risk arises from the possibility that mortgagors may
experience financial difficulty and be unable to fulfill their
mortgage commitments. In accordance with the operating policies of
the Declaration of Trust, the Trust mitigates the risk of credit loss
by ensuring that its mix of mortgages is diversified between
conventional first, conventional second and non-conventional
mortgages, and by limiting its exposure to any one mortgagor.
Where appropriate, management makes specific provisions for loan
losses. Specific provisions are determined on an item by item basis
and reflect the estimated realizable amount of a mortgage.
Interest rate risk arises from a mismatch of terms on borrowings to
terms on the mortgage investments. The bank indebtedness bears
interest at a floating rate that fluctuates with bank prime. A
significant portion of the investment portfolio is short term in
nature and also bears interest that fluctuates with bank prime,
thereby mitigating the interest rate risk. Interest on loans payable
is matched to specific mortgage investments, thereby ensuring
positive interest rate spread.
6. Bank indebtedness:
The Trust has entered into credit arrangements of which $15,176,140
(2004 - $7,310,834) has been drawn. Interest on bank indebtedness is
predominately charged at rates that vary with bank prime and may have
a component with a fixed interest rate established based on a formula
linked to Bankers Acceptance rates. Bank indebtedness is secured by a
general security agreement.
7. Loans Payable:
First priority charges on specific mortgage investments have been
granted as security for the loans payable. The loans mature on dates
consistent with those of the underlying mortgages. The loans are on a
non-recourse basis and bear interest at rates ranging from 4.50% to
6.85% (2004 - 6.05% to 6.95%).
8. Unitholders' equity:
The beneficial interests in the Trust are represented by a single
class of units which are unlimited in number. Each unit carries a
single vote at any meeting of unitholders and carries the right to
participate pro rata in any distributions.
(a) The following units are issued and outstanding:
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Three Months Ended March 31
2005 2004
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Balance, beginning of period 10,424,369 8,017,589
New units from public offering during
the period - 2,170,000
New units issued during the period under
Distribution Reinvestment Plan 2,126 1,209
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Balance, end of period 10,426,495 10,188,798
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The Trust distributes 100% of its annual net earnings to
unitholders. As such, unitholders' equity at year end represents
net proceeds received by the Trust from the issuance of units
since its inception.
(b) Incentive option plan:
340,000 options have been authorized, of which, 232,500 options
were issued in October, 1999 to trustees, directors, officers and
employees of the Trust Manager and Mortgage Banker, with an
exercise price of $10 per unit. All of the issued options were
exercisable any time during the initial five-year period of the
Trust ending on October 6, 2004.
For the year ended December 31, 2004, 225,000 options were
exercised for total proceeds to the Trust of $2,250,000 and
7,500 expired. Effective October 6, 2004, there are no
outstanding issued options and there are 115,000 remaining
authorized un-issued options.
9. Per unit amounts:
Basic earnings per unit has been computed using the weighted average
number of units outstanding during the quarter ended March 31, 2005
of 10,425,074 (2004 - 9,019,522).
Diluted earnings per unit has been computed using the treasury stock
method for stock options. The adjusted weighted average number of
units outstanding used for the computation of diluted earnings for
the quarter ended March 31, 2005 was 10,425,074 (2004 - 9,029,167).
10. Distributions:
The Trust makes distributions to the unitholders on a monthly basis
on or about the 15th day of each month other than January and on
December 31 in each calendar year. The Declaration of Trust provides
that the Trust will distribute at least 100% of the net income of the
Trust determined in accordance with the Income Tax Act (Canada) to
the unitholders.
For the period January 1 to March 31, 2005, the Trust recorded
distributions of $2,345,718 (2004 - $2,028,467) to its unitholders.
Distributions were $0.225 (2004 - $0.225) per unit.
11. Income taxes:
The Trust is taxed as a mutual fund trust for income tax purposes.
Pursuant to the Declaration of Trust, the Trust is required to
distribute its income for income tax purposes each year to such an
extent that it will not be liable for income tax under Part 1 of the
Income Tax Act (Canada). Therefore, no provision for income taxes is
required on income earned by the Trust.
12. Related party transactions:
Transactions with related parties are in the normal course of
business and are recorded at the exchange amount, which is the amount
of consideration established and agreed to by the related parties,
and represents fair market value.
The Trust Manager (a company controlled by some of the trustees),
pursuant to the Trust Management Agreement and Declaration of Trust,
receives compensation of 0.75% per annum of the Trust's daily
outstanding performing mortgage investment balances. For the quarter
ended March 31, 2005 this fee was $223,764 (2004 - $176,577).
The Mortgage Banker (a company controlled by a trustee), pursuant to
the Mortgage Banking Agreement and Declaration of Trust, receives
certain fees as follows: loan servicing fees equal to 0.10% per annum
on the principal amount of each of the Trust's mortgage investments;
75% of all the commitment and renewal fees generated from the Trust's
mortgage investments and 25% of all the special profit income
generated from the non-conventional mortgage investments after the
Trust has yielded a 10% per annum return on these investments. The
Mortgage Banker also retains all overnight float interest and
incidental fees and charges payable by borrowers on the Trust's
mortgage investments. The Trust's share of commitment and renewal
fees for the quarter ended March 31, 2005 was $107,331 (2004 -
$142,135) and applicable special profit income for the quarter ended
March 31, 2005 was $167,406 (2004 - $305,898).
The Trust has acquired or invested in mortgages that originally
formed part of a portfolio of loans acquired by a syndicate in which
the Trust is a participant. The Trust's share of any profit earned on
the sales of the subject mortgages to the Trust is not recognized
until the Trust is paid out of the mortgages in full. The related
deferred income amount as at March 31, 2005 was $96,194 (2004 -
$127,122) and is included in accounts payable and accrued
liabilities.
Several of the Trust's mortgages are shared with other investors of
the Mortgage Banker, which may include members of management of the
Mortgage Banker and/or Officers or Trustees of the Trust. The Trust
ranks equally with, or in priority to, other members of the syndicate
as to receipt of principal and income.
Mortgages totalling $2,713,722 at March 31, 2005 (2004 - $4,874,172)
were issued to borrowers controlled by certain Trustees of the Trust.
Each mortgage is personally guaranteed by the related Trustee.
13. Contingent liabilities:
(a) The Trust is involved in certain litigation arising out of the
ordinary course of investing in mortgages. Although such matters
cannot be predicted with certainty, management believes the
claims are without merit and does not consider the Trust's
exposure to such litigation to have an impact on these financial
statements.
(b) The Trust Management Agreement and Mortgage Banking Agreement
contain provisions for the payment of termination fees to the
Trust Manager and Mortgage Banker in the event that the
respective agreements are either terminated or not renewed.
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