TSX Symbol FC.UN
TORONTO, May 4 /CNW/ - Firm Capital Mortgage Investment Trust (the
"Trust") (TSX FC.UN), released today its financial statements for the first
quarter ended March 31, 2006.
Net earnings for the first quarter ended March 31, 2006 increased to
$2,994,467 from $2,397,845 for the same period last year. Net earnings per
unit based on the weighted average number of units outstanding during the
first quarter totaled $0.24 versus $0.23 last year. Net earnings represented
an annualized return on weighted average Unitholders' equity of 10.06% per
annum. This return on Unitholders' equity equates to 611 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, 2006, the Trust's mortgage portfolio increased to
$180,436,235 as compared to $164,981,562 as at December 31, 2005. The
portfolio continued to be heavily concentrated in first mortgages.
The Trust has in place a Distribution Reinvestment Plan (DRIP) and Unit
Purchase Plan that is available to its Unitholders. The plans allow
participants to have their monthly cash distributions reinvested in additional
Trust units and grants participants the right to purchase additional units.
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, 2006
<<
FIRM CAPITAL MORTGAGE INVESTMENT TRUST
Balance Sheets
March 31, 2006, with comparative figures for
December 31, 2005 and March 31, 2005
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March 31, Dec. 31, March 31,
2006 2005 2005
(Unaudited) (Audited) (Unaudited)
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Assets
Amounts receivable and
prepaid expenses $ 1,679,452 $ 1,600,688 $ 1,301,050
Mortgages (note 4) 180,436,235 164,981,562 121,425,732
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$182,115,687 $166,582,250 $122,726,782
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Liabilities and Unitholders' Equity
Liabilities:
Bank indebtedness (note 5) $ 46,114,209 $ 39,472,417 $ 15,176,140
Accounts payable and
accrued liabilities 461,035 433,464 302,395
Unearned income 342,868 316,467 96,194
Unitholder distribution
payable 942,982 - 781,987
Loans payable (note 6) 15,001,100 7,304,447 10,406,315
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$ 62,862,194 $ 47,526,795 $ 26,763,031
Unitholders' equity (note 7): 119,253,493 119,055,455 95,963,751
Issued and outstanding:
12,573,090 units (2005 - 10,426,495)
Commitments (note 4)
Contingent liabilities (note 12)
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$182,115,687 $166,582,250 $122,726,782
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See accompanying notes to financial statements.
FIRM CAPITAL MORTGAGE INVESTMENT TRUST
Unaudited Statements of Earnings
Three Months ended March 31, 2006
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3 Month Period 3 Month Period
March 31, 2006 March 31, 2005
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Interest and fees earned, net of
Trust Manager
Interest allocation (note 11) $ 3,807,350 $ 2,856,781
Less interest expense 662,094 286,099
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Net interest income 3,145,256 2,570,682
Expenses:
General and administrative 150,789 172,837
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150,789 172,837
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Net earnings for the period $ 2,994,467 $ 2,397,845
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Net earnings per unit (note 8)
Basic $ 0.238 $ 0.230
Diluted $ 0.238 $ 0.230
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See accompanying notes to financial statements.
FIRM CAPITAL MORTGAGE INVESTMENT TRUST
Statement of Unitholders' Equity
Three Months ended March 31, 2006
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March 31, Dec. 31, March 31,
2006 2005 2005
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(Unaudited) (Audited) (Unaudited)
Trust units (Note 7)
Balance, beginning of period $119,055,455 $ 95,887,464 $ 95,935,784
Proceeds from issuance
of units 32,175 24,559,504 24,160
Public offering costs - (1,413,242) -
Unit based compensation - 21,729 -
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Balance, end of period $119,087,630 $119,055,455 $ 95,911,624
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Cumulative earnings
Balance, beginning of period $ 41,099,121 $ 30,632,510 $ 20,165,899
Net earnings 2,994,467 10,466,611 2,397,845
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Balance, end of period $ 44,093,588 $ 41,099,121 $ 22,563,744
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Cumulative distributions
to unitholders
Balance, beginning of period $ 41,099,121 $ 30,632,510 $ 20,165,899
Distributions to unitholders 2,828,604 10,466,611 2,345,718
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Balance, end of period $ 43,927,725 $ 41,099,121 $ 22,511,617
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Total unitholders equity $119,253,493 $119,055,455 $ 95,963,751
Units issued and outstanding 12,573,090 12,570,072 10,426,495
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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, 2006
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3 Month Period 3 Month Period
March 31, 2006 March 31, 2005
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Cash provided by (used in):
Operating activities
Net earnings for the period $ 2,994,467 $ 2,397,845
Net changes in non-cash items
Decrease (increase) in amounts
receivable and prepaids (78,764) 209,527
Increase (decrease) in accounts
payable and accrued liabilities 996,954 757,704
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3,912,657 3,365,076
Financing activities:
Proceeds from issuance of units 32,175 24,160
Increase (decrease) in bank indebtedness 6,641,792 95,647
Increase (decrease) in loans payable 7,696,653 (60,658)
Distributions to unitholders (2,828,604) (2,345,718)
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11,542,016 (2,286,569)
Investing activities:
Funding of mortgages (36,637,090) (22,337,318)
Discharge of mortgages 21,182,417 19,258,811
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(15,454,673) (1,078,507)
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Increase in cash, being cash, beginning
and end of period $ - $ -
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Supplemental disclosure
Interest paid $ 562,019 $ 291,795
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See accompanying notes to financial statements.
FIRM CAPITAL MORTGAGE INVESTMENT TRUST
Notes to Financial Statements
Three Months ended March 31, 2006
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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, 2005. 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 2005 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, and is
recorded net of the Trust Manager interest spread described in
note 11. Commitment fees received are amortized over the
expected term of the mortgage.
(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 and
loans payable approximate their fair values due to their short-
term nature.
(e) Unit-based compensation:
The Trust has unit-based compensation plans which are described
in note 8. The Trust accounts for its unit-based compensation
using the fair value method, under which compensation expense is
measured at the grant date and recognized over the vesting
period.
4. Mortgages
The following is a breakdown of the mortgages as at March 31, 2006,
December 31, 2005 and March 31, 2005:
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March 31, 2006 Dec. 31, 2005 March 31, 2005
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Amount % Amount % Amount %
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Conventional
first
mortgages 150,287,099 82.8 135,295,004 81.5 102,975,857 84.1
Conventional
non-first
mortgages 17,747,437 9.8 16,148,324 9.7 8,982,519 7.3
Non-conventional
mortgages 13,516,699 7.4 14,653,234 8.8 10,562,356 8.6
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181,551,235 100.0 166,096,562 100.0 122,520,732 100.0
Allowance for
loan losses 1,115,000 1,115,000 1,095,000
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180,436,235 164,981,562 121,425,732
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The mortgages are secured by real property, bear interest at the
weighted average rate of 9.30% (2005 - 9.74%) and mature between 2006
and 2010. Included with mortgages are two loans not directly secured
on real property totalling $2,291,500 (2005 - nil).
The continuity of allowance for loan losses is as follows:
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Three Months Ended March 31:
2006 2005
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Balance, beginning of period 1,115,000 1,095,000
Increase during the period - -
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Balance - End of period 1,115,000 1,095,000
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The unadvanced funds under the existing mortgage portfolio amounted
to $38,485,249 as at March 31, 2006 (March 31, 2005 - $33,818,669 &
December 31, 2005 - $43,810,378).
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 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,
subject to an interest rate floor, thereby partially mitigating the
interest rate risk. Interest on loans payable is matched to specific
mortgage investments, thereby ensuring positive interest rate spread.
Principal repayments based on contractual maturity dates are as
follows:
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Period ended December 31
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2006 $ 80,986,071
2007 71,634,877
2008 16,647,844
2009 11,847,204
2010 435,239
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$ 181,551,235
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Borrowers on open loans have the option to repay principal at anytime
prior to maturity dates.
5. Bank indebtedness:
The Trust has entered into credit arrangements of which $46,114,209
(March 31, 2005 - $15,176,140 & December 31, 2005 - $39,472,417) 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. The credit agreement contains certain financial covenants
that must be maintained.
6. 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 5.30% to
6.85% (2005 - 4.50% to 6.85%). Interest expense on loans payable for
the quarter ended March 31, 2006 was $162,598 (March 31, 2005 -
$128,621 & December 31, 2005 - $458,867).
The loans are repayable at the earlier of the contractual expiry date
of the underlying mortgage investment and the date the underlying
mortgage is repaid. Repayments based on contractual maturity dates
are as follows:
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Period ended December 31
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2006 $ 5,630,740
2007 5,112,799
2008 318,572
2009 3,938,989
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$15,001,100
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7. 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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March 31, Dec. 31, March 31,
2006 2005 2005
Amount Amount Amount
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Balance, beginning of
period 12,570,072 10,424,369 10,424,369
New units from public
offering during the period - 2,130,000 -
New units issued during the
period under Distribution
Reinvestment Plan 3,018 15,703 2,126
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Balance, end of period 12,573,090 12,570,072 10,426,495
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(b) Incentive option plan:
In November, 2005, 415,000 options were issued to trustees,
directors, officers and employees of the Trust Manager and
Mortgage Banker, with an exercise price of $9.90 per unit. The
options are exercisable any time up to November 17, 2010. The
fair value of the unit options used to compute compensation
expense of $21,729 (which was recorded in the fourth quarter of
2005) is the estimated fair value of each option grant on the
grant date. This was calculated for the options granted during
2005 using the Black-Scholes option pricing model with the
following assumptions: expected distribution yield is 9.44%,
expected volatility is 8.83%; risk free interest rate is 3.96%;
and expected option life in years is 5.
(c) Distribution reinvestment plan and direct unit purchase plan:
The Trust has a distribution reinvestment plan and direct unit
purchase plan for its unitholders which allows participants to
reinvest their monthly cash distributions in additional trust
units at a unit price equivalent to the weighted average price of
units for the preceding five day period.
8. Per unit amounts:
Basic earnings per unit has been computed using the weighted average
number of units outstanding during the quarter ended March 31, 2006
of 12,571,072 (2005 - 10,425,074).
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, 2006 was 12,577,556 (2005 - 10,425,074).
9. 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),
subject to certain adjustments, to Unitholders.
For the quarter ended March 31, 2006, the Trust recorded
distributions of $2,828,604 (2005 - $2,345,718) to its unitholders.
Distributions were $0.225 (2005 - $0.225) per unit.
10. 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.
11. Related party transactions and balances:
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 an allocation of mortgage interest referred to as Trust
Manager spread interest, calculated as 0.75% per annum of the Trust's
daily outstanding performing mortgage investment balances. For the
quarter ended March 31, 2006 this amount was $316,315 (2005 -
$223,764), and was deducted from interest and fees earned.
The Mortgage Banker (a company controlled by a Trustee), pursuant to
the Mortgage Banking Agreement and Declaration of Trust, receives
certain fees from the borrowers 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 its
investments. Interest and fee income is net of the loan servicing
fees paid to the Mortgage Banker of approximately $42,000 (2005 -
$30,000). 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 recorded in income for the quarter ended March 31, 2006
was $115,686 (2005 - $107,331) and applicable special profit income
for the quarter ended March 31, 2006 was $100,066 (2005 - $167,406).
The Trust Management Agreement and Mortgage Banking Agreement
contains 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.
The Trust 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, 2006 was $7,458 (2005 - $96,194) 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 NIL at March 31, 2006 (2005 - $2,713,722) were
issued to borrowers controlled by certain Trustees of the Trust.
Each mortgage is personally guaranteed by the related Trustee.
12. Contingent liabilities:
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.
13. Comparative figures:
Certain 2004 comparative figures have been reclassified to conform
with the financial statement presentation adopted in 2005.
14. Subsequent event:
On April 24, 2006 the Trust closed an offering of $25 million
aggregate principal amount of convertible unsecured subordinated
debentures due June 30, 2013. The debentures bear interest at 6.00%
per annum and are convertible at the option of the holder into units
of the Trust at any time prior to maturity or redemption by the
Trust, at a conversion price of $11.75 per unit. The net proceeds of
the offering of approximately $23,800,000 were used to repay
indebtedness owing under the Trust's operating facility.
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