TSX Symbol FC.UN
TORONTO, Aug. 3 /CNW/ - Firm Capital Mortgage Investment Trust (the
"Trust") (TSX FC.UN), released today its financial statements for the second
quarter ended June 30, 2006.
Net earnings for the second quarter ended June 30, 2006 increased to
$3,016,507 from $2,549,995 for the same period last year. Basic weighted
average earnings per unit for the second quarter amounted to $0.240 versus
$0.245 last year. Net earnings for the six month period ended June 30, 2006
increased to $6,010,975 from $4,947,840 for the same period last year. Basic
weighted average earnings per unit for the six month period ended June 30,
2006 increased to $0.478 versus $0.475 last year. Net earnings represented an
annualized return on weighted average Unitholders' equity of 10.09% per annum.
This return on Unitholders' equity equates to 596 basis points per annum over
the average One Year Government of Canada Treasury Bill yield for the first
six months of 2006, 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, 2006, the Trust's mortgage portfolio increased to
$191,470,952 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 Six Months Ended June 30, 2006
FIRM CAPITAL MORTGAGE INVESTMENT TRUST
Balance Sheets
June 30, 2006, with comparative figures for December 31, 2005 and June
30, 2005
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June 30, 2006 Dec. 31, 2005 June 30, 2005
(Unaudited) (Audited) (Unaudited)
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Assets
Amounts receivable and
prepaid expenses $ 1,716,753 $ 1,600,688 $ 1,245,368
Mortgages (note 4) 191,470,952 164,981,562 131,270,942
Deferred financing costs
- convertible debenture
(note 5) 1,145,911 - -
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$ 194,333,616 $ 166,582,250 $ 132,516,310
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Liabilities and Unitholders'
Equity
Liabilities:
Bank indebtedness (note 6)$ 32,250,495 $ 39,472,417 $ 25,414,128
Accounts payable and
accrued liabilities 392,401 433,464 329,536
Unearned income 333,715 316,467 98,163
Unitholder distribution
payable 943,333 - 782,250
Loans payable (note 7) 15,917,299 7,304,447 9,685,621
Convertible debenture
(note 8) 24,627,290 - -
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$ 74,464,533 $ 47,526,795 $ 36,309,698
Unitholders' equity
(note 9): 119,869,083 119,055,455 96,206,612
Issued and outstanding:
12,577,774 units
(2005 - 10,430,001)
Commitments (note 4)
Contingent liabilities
(note 15)
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$ 194,333,616 $ 166,582,250 $ 132,516,310
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See accompanying notes to financial statements.
FIRM CAPITAL MORTGAGE INVESTMENT TRUST
Unaudited Statements of Earnings
Six Months ended June 30, 2006
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3 Month Period 6 Month Period
June 30, June 30, June 30, June 30,
2006 2005 2006 2005
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Interest and fees
earned, net of
Trust Manager
Interest allo-
cation
(note 13) $ 4,209,221 $ 3,077,410 $ 8,016,572 $ 5,934,190
Less interest
expense (note 14) 1,022,607 339,459 1,684,701 625,558
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Net interest and
fee income 3,186,614 2,737,951 6,331,871 5,308,632
Expenses:
General and
administrative 170,107 187,956 320,896 360,792
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170,107 187,956 320,896 360,792
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Net earnings for
the period $ 3,016,507 $ 2,549,995 $ 6,010,975 $ 4,947,840
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Net earnings per
unit (note 10)
Basic $ 0.240 $ 0.245 $ 0.478 $ 0.475
Diluted $ 0.236 $ 0.245 $ 0.473 $ 0.475
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See accompanying notes to financial statements.
FIRM CAPITAL MORTGAGE INVESTMENT TRUST
Statement of Unitholders' Equity
Six Months ended June 30, 2006
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June 30, Dec. 31, June 30,
2006 2005 2005
(Unaudited) (Audited) (Unaudited)
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Trust units (note 9)
Balance, beginning of
period $ 119,055,455 $ 95,887,464 $ 95,887,464
Proceeds from issuance
of units 80,321 24,559,504 63,508
Public offering costs - (1,413,242) -
Unit based compensation - 21,729 -
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Balance, end of period $ 119,135,776 $ 119,055,455 $ 95,950,972
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Equity component of
convertible debenture
(note 8)
Balance, beginning of period - - -
Equity component of
convertible debentures issued 380,482 - -
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Balance, end of period 380,482 - -
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Cumulative earnings
Balance, beginning of
period $ 41,099,121 $ 30,632,510 $ 25,113,739
Net earnings 6,010,975 10,466,611 4,947,840
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Balance, end of period $ 47,110,096 $ 41,099,121 $ 30,061,579
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Cumulative distributions to
unitholders
Balance, beginning of
period $ 41,099,121 $ 30,632,510 $ 25,113,739
Distributions to
unitholders 5,658,149 10,466,611 4,692,200
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Balance, end of period $ 46,757,270 $ 41,099,121 $ 29,805,939
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Total unitholders equity $ 119,869,083 $ 119,055,455 $ 96,206,612
Units issued and
outstanding 12,577,774 12,570,072 10,430,001
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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, 2006
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3 Month Period 6 Month Period
June 30, June 30, June 30, June 30,
2006 2005 2006 2005
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Cash provided by
(used in):
Operating activities
Net earnings
for the period $ 3,016,507 $ 2,549,995 $ 6,010,975 $ 4,947,840
Net changes in
non-cash items
Deferred fin-
ancing cost
amortization 30,026 - 30,026 -
Implicit int-
erest rate
in excess of
coupon rate -
convertible
debenture 7,772 - 7,772 -
Decrease (in-
crease) in
amounts
receivable
and prepaid
expenses (37,302) 55,682 (116,066) 265,209
Increase
(decrease) in
accounts
payable and
accrued lia-
bilities (77,436) 29,373 919,518 787,077
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2,939,567 2,635,050 6,852,225 6,000,126
Financing activities:
Proceeds from
issuance of units 48,146 39,348 80,321 63,508
Proceeds from
convertible
debenture 25,000,000 - 25,000,000 -
Increase (de-
crease) in bank
indebtedness (13,863,714) 10,237,988 (7,221,922) 10,333,635
Increase (decrease)
in loans payable 916,199 (720,694) 8,612,852 (781,352)
Debenture offering
costs (1,175,937) (1,175,937) -
Distributions to
unitholders (2,829,544) (2,346,482) (5,658,149) (4,692,200)
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8,095,150 7,210,160 19,637,165 4,923,591
Investing activities:
Funding of
mortgages (36,710,113) (26,572,942) (73,347,203) (46,910,260)
Discharge of
mortgages 25,675,396 16,727,732 46,857,813 35,986,543
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(11,034,717) (9,845,210) (26,489,390) (10,923,717)
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Inrease in cash,
being cash,
beginning and end
of period $ - $ - $ - $ -
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Supplemental dis-
closure
Interest paid
(note 14) $ 1,078,207 $ 338,015 $ 1,665,936 $ 630,621
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See accompanying notes to financial statements.
FIRM CAPITAL MORTGAGE INVESTMENT TRUST
Notes to Financial Statements
Six Months ended June 30, 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) Convertible debentures
The Trust's convertible debentures are classified into debt and
equity components. The equity component represents the estimated
value of the conversion rights of the holders.
(c) Deferred financing costs
The costs incurred to issue the Trust's convertible debenture are
amortized over the term of the debenture and the amortization is
included in interest expense.
(d) 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 13. 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.
(e) 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.
(f) 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.
(g) Unit-based compensation:
The Trust has unit-based compensation plans which are described in
note 9. 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 June 30, 2006,
December 31, 2005 and June 30, 2005:
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June 30, 2006 Dec. 31, 2005 June 30, 2005
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Amount % Amount % Amount %
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Conventional
first
mortgages 157,234,539 81.7 135,295,004 81.5 111,089,089 83.9
Conventional
non-first
mortgages 20,491,448 10.6 16,148,324 9.7 11,740,887 8.9
Non-
conventional
mortgages 14,859,965 7.7 14,653,234 8.8 9,535,965 7.2
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192,585,952 100.0 166,096,562 100.0 132,365,942 100.0
Allowance for
loan losses 1,115,000 1,115,000 1,095,000
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191,470,952 164,981,562 131,270,942
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The mortgages are secured by real property, bear interest at the
weighted average rate of 9.40% (2005 - 9.73%) and mature between 2006
and 2010. Included with mortgages are two loans not directly secured
on real property totalling $3,439,500 (2005 - NIL).
The continuity of allowance for loan losses is as follows:
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Six Months Ended June 30:
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 $41,871,016 as at June 30, 2006 (June 30, 2005 - $40,276,472 &
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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2006 $ 67,126,599
2007 90,928,707
2008 20,779,451
2009 13,318,726
2010 432,469
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$192,585,952
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Borrowers who have open loans have the option to repay principal at
anytime prior to the maturity date.
5. Deferred financing costs:
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June 30, Dec. 31, June 30,
2006 2005 2005
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Deferred financing costs
- convertible debenture 1,175,937 - -
Accumulated amortization (30,026) - -
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1,145,911 - -
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6. Bank indebtedness:
The Trust has entered into credit arrangements of which $32,250,495
(June 30, 2005 - $25,414,128 & 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.
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 5.30% to
6.90% (2005 - 5.30% to 6.85%).
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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2006 $ 4,420,138
2007 7,274,775
2008 317,144
2009 3,905,242
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$15,917,299
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8. Convertible Debentures:
As at June 30, 2006, the Trust has one series of convertible
debentures outstanding;
Interest Conversion Interest
Principal($) Rate Price Payable Maturity
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Series A 25,000,000 6.0% $11.75 semi- June 30,
per unit annually 2013
The convertible debenture was allocated into liability and equity
components on the date of issuance as follows:
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Liability $25,000,000
Equity 380,482
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Principal $24,619,518
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The accretion of the liability component of the convertible
debenture, which increases the liability component from the initial
allocation on the date of issuance, is included in interest expense.
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Liability, April 24, 2006 $24,619,518
Implicit interest rate in excess of
Coupon rate 7,772
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Liability, June 30, 2006 $24,627,290
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9. 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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June 30, Dec. 31, June 30,
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 the
exercise of options
during the period - 2,130,000 -
New units issued during the
period under Distribution
Reinvestment Plan 7,702 15,703 5,632
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Balance, end of period 12,577,774 12,570,072 10,430,001
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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
the 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. The options vested on the
grant date.
(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 preceeding five day period.
10. 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, 2006 of 12,573,073 (June 30, 2005 - 10,425,788) and during the
three month period ended June 30, 2006 of 12,575,035 (June 30, 2005 -
10,428,269).
The diluted per unit information is calculated based on the weighted
average diluted number of units outstanding for the period,
considering the potential exercise of outstanding unit options and
the potential conversion of outstanding convertible debentures, to
the extent same are dilutive. The adjusted weighted average number of
units outstanding used for the computation of diluted earnings for
the six month period ended June 30, 2006 was 13,375,904 (June 30,
2005 - 10,425,788) and for the three month period ended June 30, 2006
was 14,138,306 (June 30, 2005 - 10,428,269).
11. 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 period January 1 to June 30, 2006, the Trust recorded
distributions of $5,658,149 (June 30, 2005 - $4,692,200) to its
unitholders. Distributions were $0.45 (June 30, 2005 - $0.45) per
unit.
12. 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.
13. 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
six months ended June 30, 2006 this amount was $666,713 (June 30,
2005 - $466,985), and for the three month period ended June 30, 2006
this amount was $350,398 (June 30, 2005 - $243,220), 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 $89,000 (2005 -
$62,000). 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 six month period ended June
30, 2006 was $307,536 (June 30, 2005 - $303,453) and for the three
month period ended June 30, 2006 was $191,849 (June 30, 2005 -
$196,123) and applicable special profit income for the six month
period ended June 30, 2006 was $196,128 (June 30, 2005 - $243,709)
and for the three month period ended June 30, 2006 was $78,627 (June
30, 2005 - $78,627).
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.
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 other members of the syndicate as to receipt of
principal and income.
Mortgages totalling $1,760,000 at June 30, 2006 (June 30, 2005 -
$2,623,455 & December 31, 2005 - $1,440,000) were issued to borrowers
controlled by certain Trustees of the Trust. Each mortgage is
personally guaranteed by the related Trustee.
14. Interest
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3 Month Period 6 Month Period
Three months ended June 30, June 30, June 30, June 30,
June 30; 2006 2005 2006 2005
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Bank interest
expense $ 498,717 $ 223,630 $ 998,213 $ 381,108
Loans payable
interest expense 210,749 115,829 373,347 244,450
Debenture interest
expense 313,141 - 313,141 -
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Interest Expense $ 1,022,607 $ 339,459 $ 1,684,701 $ 625,558
Deferred finance
cost amortization
- Convertible
debentures (30,026) - (30,026) -
Implicit interest
rate in excess
of coupon rate -
Convertible
debentures (7,772) - (7,772) -
Change in accrued
interest 93,398 (1,444) 19,033 5,063
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Cash interest
paid $ 1,078,207 $ 338,015 $ 1,665,936 $ 630,621
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15. 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.
16. Comparative figures:
Certain 2005 comparative figures have been reclassified to conform
with the financial statement presentation adopted in 2006.
>>
