TSX Symbol FC.UN
TORONTO, July 19 /CNW/ - Firm Capital Mortgage Investment Trust (the
"Trust") (TSX FC.UN), released today its financial statements for the second
quarter ended June 30, 2005.
Net earnings for the second quarter ended June 30, 2005 increased to
$2,549,995 from $2,332,186 for the same period last year. Weighted average
earnings per unit for the second quarter increased to $0.245 versus $0.229
last year. Net earnings for the six month period ended June 30, 2005 increased
to $4,947,840 from $4,505,645 for the same period last year. Weighted average
earnings per unit for the six month period ended June 30, 2005 increased to
$0.475 versus $0.470 last year. Net earnings represented an annualized return
on weighted average Unitholders' equity of 10.32% per annum. This return on
Unitholders' equity equates to 753 basis points per annum over the average One
Year Government of Canada Treasury Bill yield for the first six months of
2005, 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 June 30, 2005, the Trust's mortgage portfolio increased to
$131,270,942 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 Six Months Ended June 30, 2005
FIRM CAPITAL MORTGAGE INVESTMENT TRUST
Balance Sheets
June 30, 2005, with comparative figures for December 31, 2004 and
June 30, 2004
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June 30, 2005 Dec. 31, 2004 June 30, 2004
(Unaudited) (Audited) (Unaudited)
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Assets
Amounts receivable and
prepaid expenses $ 1,245,368 $ 1,510,577 $ 1,321,437
Mortgages (note 5) 131,270,942 120,347,225 112,577,075
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$132,516,310 $121,857,802 $113,898,512
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Liabilities and Unitholders'
Equity
Liabilities:
Bank indebtedness (note 6) $ 25,414,128 $ 15,080,493 $ 15,034,016
Accounts payable and accrued
liabilities 427,699 422,872 365,546
Unitholder distribution
payable 782,250 - 764,368
Loans payable (note 7) 9,685,621 10,466,973 3,997,203
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$ 36,309,698 $ 25,970,338 $ 20,161,133
Unitholders' equity (note 8): 96,206,612 95,887,464 93,737,379
Issued and outstanding:
10,430,001 units
(2004 - 10,191,582)
Commitments (note 4)
Contingent liabilities
(note 13)
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$132,516,310 $121,857,802 $113,898,512
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See accompanying notes to financial statements.
FIRM CAPITAL MORTGAGE INVESTMENT TRUST
Unaudited Statements of Earnings
Six Months ended June 30, 2005
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3 Month Period 6 Month Period
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
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Operating revenue:
Mortgage interest
and fees earned $ 3,320,630 $ 2,823,230 $ 6,401,175 $ 5,499,502
Operating expenses:
Trust manager
compensation
(note 12) 243,220 199,871 466,985 376,448
Interest 339,459 146,055 625,558 308,019
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582,679 345,926 1,092,543 684,467
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2,737,951 2,477,304 5,308,632 4,815,035
Trust expenses:
Trustee fees 31,250 37,500 62,500 62,500
Other 156,706 107,618 298,292 246,890
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187,956 145,118 360,792 309,390
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Net earnings for
the period $ 2,549,995 $ 2,332,186 $ 4,947,840 $ 4,505,645
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Net earnings per unit
(note 9)
Basic $ 0.245 $ 0.229 $ 0.475 $ 0.470
Diluted $ 0.245 $ 0.229 $ 0.475 $ 0.470
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See accompanying notes to financial statements.
FIRM CAPITAL MORTGAGE INVESTMENT TRUST
Statement of Unitholders' Equity
Six Months ended June 30, 2005
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June 30, Dec. 31, June 30,
2005 2004 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 4,947,840 9,329,096 4,505,645
Proceeds from issuance of units 63,508 27,201,872 24,867,489
Public offering costs - (1,471,087) (1,471,087)
Distributions to unitholders (4,692,200) (9,329,096) (4,321,347)
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Unitholders' equity,
end of period $ 96,206,612 $ 95,887,464 $ 93,737,379
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See accompanying notes to financial statements.
FIRM CAPITAL MORTGAGE INVESTMENT TRUST
Unaudited Statement of Cash Flows
Six Months ended June 30, 2005
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3 Month Period 6 Month Period
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
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Cash provided by
(used in):
Operating activities
Net earnings for
the period $ 2,549,995 $ 2,332,187 $ 4,947,840 $ 4,505,645
Net changes in non-
cash items
Decrease (increase)
in amounts
receivable and
prepaid expenses 55,682 (192,450) 265,209 (316,701)
Increase (decrease)
in accounts
payable and
accrued
liabilities 29,373 (49,633) 787,077 692,579
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2,635,050 2,090,104 6,000,126 4,881,523
Financing activities:
Proceeds from
issuance of units 39,348 29,024 63,508 24,867,489
Increase (decrease)
in bank
indebtedness 10,237,988 7,723,182 10,333,635 91,464
Increase (decrease)
in loans payable (720,694) 613,344 (781,352) 594,630
Public offering
costs - 1,092 - (1,471,087)
Distributions to
unitholders (2,346,482) (2,292,880) (4,692,200) (4,321,347)
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7,210,160 6,073,762 4,923,591 19,761,149
Investing activities:
Funding of
mortgages (26,572,942) (26,700,196) (46,910,260) (51,606,676)
Discharge of
mortgages 16,727,732 18,536,330 35,986,543 26,964,004
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(9,845,210) (8,163,866) (10,923,717) (24,642,672)
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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 $ 250,647 $ 100,018 $ 542,842 $ 323,989
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See accompanying notes to financial statements.
FIRM CAPITAL MORTGAGE INVESTMENT TRUST
Notes to Financial Statements
Six Months ended June 30, 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, bank
indebtedness, accounts payable and accrued liabilities,
unitholder distribution payable and loans payable approximate
their fair values due to their short-term nature.
The carrying value of the Trust's mortgages is their fair value
since the majority of the mortgages are, (i) short term in
nature, (ii) are open for repayment, and (iii) have an interest
rate floor that varies with the Bank Prime Rate of interest.
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.
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 June 30, 2005,
December 31, 2004 and June 30, 2004:
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June 30, 2005 Dec. 31, 2004 June 30, 2004
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Amount % Amount % Amount %
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Conventional
first
mortgages 111,089,089 83.9 101,537,769 83.6 94,718,711 83.4
Conventional
non-first
mortgages 11,740,887 8.9 8,592,537 7.1 9,916,402 8.7
Non-
conventional
mortgages 9,535,965 7.2 11,311,919 9.3 8,971,962 7.9
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132,365,942 100.0 121,442,225 100.0 113,607,075 100.0
Allowance for
loan losses 1,095,000 1,095,000 1,030,000
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131,270,942 120,347,225 112,577,075
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The mortgages are secured by real property, bear interest at the
weighted average rate of 9.73% (2004 - 9.81%) and mature between 2005
and 2010.
The continuity of allowance for loan losses is as follows:
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Six Months Ended June 30:
2005 2004
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Balance, beginning of period 1,095,000 1,030,000
Increase during the period - -
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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 $40,276,472 as at June 30, 2005 (2004 - $37,195,611).
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 $25,414,128
(2004 - $15,034,016) 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 4.65% to
6.85% (2004 - 5.35% 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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Six Months Ended June 30:
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 5,632 3,993
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Balance, end of period 10,430,001 10,191,582
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The Trust distributes 100% of the net income of the Trust
determined in accordance with the Income Tax Act (Canada) 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 were 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.
In the fourth quarter of 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 were 115,000 remaining authorized un-issued
options.
At the Trust's 2004 Annual Meeting, a further 300,000 options
were authorized, of which none have been issued. As such, there
are currently 415,000 options that have been authorized of which
no options have been issued.
(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.
9. Per unit amounts:
Basic earnings per unit has been computed using the weighted average
number of units outstanding during the six month period ended
June 30, 2005 of 10,425,788 (2004 - 9,596,046) and during the three
month period ended June 30, 2005 of 10,428,269 (2004 - 10,190,152).
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 six month period ended June 30, 2005 was 10,425,788 (2004 -
9,609,219) and for the three month period ended June 30, 2005 was
10,428,269 (2004 - 10,193,421).
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 June 30, 2005, the Trust recorded
distributions of $4,692,200 (2004 - $4,321,347) to its unitholders.
Distributions were $0.45 (2004 - $0.45) 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 June 30, 2005 this fee was $243,220 (2004 - $199,871) and was
$466,985 for the six months ended June 30, 2005 (2004 - $376,448).
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 such 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 six month period ended June 30, 2005 was $303,453 (2004
- $325,363) and for the three month period ended June 30, 2005 was
$196,123 (2004 - $183,228) and applicable special profit income for
the six month period ended June 30, 2005 was $243,709 (2004 -
$413,788) and for the three month period ended June 30, 2004 was
$78,627 (2004 - $107,890).
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 June 30, 2005 was $96,194 (June 30, 2004
- $119,753 & December 31, 2004 - $98,364) 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 $2,623,455 at June 30, 2005 (June 30, 2004 -
$2,599,000 & December 31, 2004 - $2,769,194) 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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