TSX Symbol FC.UN
TORONTO, Nov. 3 /CNW/ - Firm Capital Mortgage Investment Trust (the
"Trust") (TSX FC.UN), released today its financial statements for the third
quarter ended September 30, 2005.
Net earnings for the third quarter ended September 30, 2005 increased to
$2,675,700 from $2,429,245 for the same period last year. Weighted average
earnings per unit for the third quarter increased to $0.240 versus $0.238 last
year. Net earnings for the nine month period ended September 30, 2005
increased to $7,623,540 from $6,934,890 for the same period last year.
Weighted average earnings per unit for the nine month period ended
September 30, 2005 increased to $0.715 versus $0.707 last year. Net earnings
represented an annualized return on weighted average Unitholders' equity of
10.35% per annum. This return on Unitholders' equity equates to 748 basis
points per annum over the average One Year Government of Canada Treasury Bill
yield for the first nine 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 September 30, 2005, the Trust's mortgage portfolio increased to
$136,855,070 as compared to $120,347,225 as at December 31, 2004. 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 Nine Months Ended September 30, 2005
<<
FIRM CAPITAL MORTGAGE INVESTMENT TRUST
Balance Sheets
September 30, 2005, with comparative figures for December 31, 2004 and
September 30, 2004
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Sept. 30, Dec. 31, Sept. 30,
2005 2004 2004
(Unaudited) (Audited) (Unaudited)
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Assets
Amounts receivable and prepaid
expenses $ 1,305,680 $ 1,510,577 $ 1,232,967
Mortgages (note 5) 136,855,070 120,347,225 110,878,279
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$138,160,750 $121,857,802 $112,111,246
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Liabilities and Unitholders' Equity
Liabilities:
Bank indebtedness (note 6) $ 8,852,990 $ 15,080,493 $ 5,795,238
Accounts payable and accrued
liabilities 317,606 324,508 290,288
Unearned income 122,684 98,364 99,218
Unitholder distribution payable 942,278 - 768,531
Loans payable (note 7) 8,511,197 10,466,973 10,732,529
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$ 18,746,755 $ 25,970,338 $ 17,685,804
Unitholders' equity (note 8): 119,413,995 95,887,464 94,425,442
Issued and outstanding:
12,563,710 units (2004 -
10,247,076)
Commitments (note 5)
Contingent liabilities (note 13)
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$138,160,750 $121,857,802 $112,111,246
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See accompanying notes to financial statements.
FIRM CAPITAL MORTGAGE INVESTMENT TRUST
Unaudited Statements of Earnings
Nine Months ended September 30, 2005
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3 Month Period 9 Month Period
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2005 2004 2005 2004
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Operating revenue:
Mortgage
interest and
fees earned $ 3,452,929 $ 3,012,292 $ 9,854,104 $ 8,511,794
Less: Trust
manager interest
spread (note 12) 262,733 216,669 729,717 593,117
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3,190,196 2,795,623 9,124,387 7,918,677
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Operating expenses:
Interest 373,465 233,421 999,023 541,440
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2,816,731 2,562,202 8,125,364 7,377,237
Trust expenses:
Trustee fees 31,250 31,250 93,750 93,750
Other 109,781 101,707 408,074 348,597
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141,031 132,957 501,824 442,347
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Net earnings for
the period $ 2,675,700 $ 2,429,245 $ 7,623,540 $ 6,934,890
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Net earnings per
unit (note 9)
Basic $ 0.240 $ 0.238 $ 0.715 $ 0.707
Diluted $ 0.240 $ 0.238 $ 0.715 $ 0.706
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See accompanying notes to financial statements.
FIRM CAPITAL MORTGAGE INVESTMENT TRUST
Statement of Unitholders' Equity
Nine Months ended September 30, 2005
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Sept. 30, Dec. 31, Sept. 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 7,623,540 9,329,096 6,934,890
Proceeds from issuance of units
(note 8) 24,494,464 27,201,872 25,424,360
Public offering costs (1,392,204) (1,471,087) (1,471,087)
Distributions to unitholders (7,199,269) (9,329,096) (6,619,400)
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Unitholders' equity, end of
period $119,413,995 $ 95,887,464 $ 94,425,442
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See accompanying notes to financial statements.
FIRM CAPITAL MORTGAGE INVESTMENT TRUST
Unaudited Statement of Cash Flows
Nine Months ended September 30, 2005
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3 Month Period 9 Month Period
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2005 2004 2005 2004
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Cash provided by
(used in):
Operating activities
Net earnings for
the period $ 2,675,700 $ 2,429,245 $ 7,623,540 $ 6,934,890
Net changes in
non-cash items
Decrease
(increase) in
amounts
receivable and
prepaid
expenses (60,311) 88,470 204,898 (228,231)
Increase
(decrease) in
accounts
payable and
accrued
liabilities 172,619 23,960 959,695 (47,829)
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2,788,008 2,541,675 8,788,133 6,658,830
Financing activities:
Proceeds from
issuance of
units 24,430,956 556,871 24,494,464 25,424,360
Increase (decrease)
in bank
indebtedness (16,561,138) (9,238,778) (6,227,503) (9,147,314)
Increase (decrease)
in loans
payable (1,174,424) 6,735,326 (1,955,776) 7,329,956
Public offering
costs (1,392,204) - (1,392,204) (1,471,087)
Distributions to
unitholders (2,507,070) (2,293,890) (7,199,269) (5,850,869)
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2,796,120 (4,240,471) 7,719,712 16,285,046
Investing activities:
Funding of
mortgages (33,305,301) (23,018,546) (80,215,561) (74,625,223)
Discharge of
mortgages 27,721,173 24,717,342 63,707,716 51,681,347
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(5,584,128) 1,698,796 (16,507,845) (22,943,876)
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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 $ 270,829 $ 221,771 $ 813,671 $ 545,760
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See accompanying notes to financial statements.
FIRM CAPITAL MORTGAGE INVESTMENT TRUST
Notes to Financial Statements
Nine Months ended September 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,
which is represented by the cost of the mortgages, net of
provision, 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, subject to a floor rate.
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. The change in accounting policy is
applied prospectively, whereby 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 September 30,
2005, December 31, 2004 and September 30, 2004:
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Sept. 30, 2005 Dec. 31, 2004 Sept. 30, 2004
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Amount % Amount % Amount %
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Conventional
first
mortgages 117,713,173 85.3 101,537,769 83.6 94,033,135 84.0
Conventional
non-first
mortgages 11,049,682 8.0 8,592,537 7.1 9,393,858 8.4
Non-conventional
mortgages 9,187,215 6.7 11,311,919 9.3 8,481,286 7.6
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137,950,070 100.0 121,442,225 100.0 111,908,279 100.0
Allowance for
loan losses 1,095,000 1,095,000 1,030,000
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136,855,070 120,347,225 110,878,279
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The mortgages are secured by real property, bear interest at the
weighted average rate of 9.51% (2004 - 9.56%) and mature between 2005
and 2010.
The continuity of allowance for loan losses is as follows:
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Nine Months Ended
September 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 $42,236,057 as at September 30, 2005 (September 30, 2004 -
$31,443,803 - December 31, 2004 - $36,109,426).
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 $8,852,990
(September 30, 2004 - $5,795,238 & December 31, 2004 - $15,080,493)
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 - 4.25% 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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Sept. 30, Dec. 31, Sept. 30,
2005 2004 2004
Amount Amount Amount
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Balance, beginning of period 10,424,369 8,017,589 8,017,589
New units from public offering
during the period 2,130,000 2,170,000 2,170,000
New units issued during the
period under Distribution
Reinvestment Plan 9,341 11,780 6,987
New units issued during the
period from Exercise of Options - 225,000 52,500
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Balance, end of period 12,563,710 10,424,369 10,247,076
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The Trust distributes 100% of its annual earnings to Unitholders
determined in accordance with the Income Tax Act (Canada) subject to
certain adjustments. 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 nine month period ended
September 30, 2005 of 10,662,511 (2004 - 9,803,114) and during the
three month period ended September 30, 2005 of 11,126,482
(2004 - 10,212,750).
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 nine month period ended September 30, 2005 was 10,662,511
(2004 - 9,818,716) and for the three month period ended September 30,
2005 was 11,126,482 (2004 - 10,217,400).
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 September 30, 2005, the Trust recorded
distributions of $7,199,269 (2004 - $6,619,400) to its unitholders.
Distributions were $0.675 (2004 - $0.675) 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,
is entitled to an annual amount of spread interest income payable by
the mortgagors of the Trust's mortgage investments equal to 0.75% per
annum of the Trust's daily outstanding performing mortgage investment
balances. For the quarter ended September 30, 2005 this amounted to
$262,733 (2004 - $216,669) and was $729,717 for the nine months ended
September 30, 2005 (2004 - $593,117).
The Mortgage Banker (a company controlled by a trustee) pursuant to
the Mortgage Banking Agreement and Declaration of Trust, receives
certain fees as follows: spread interest income 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 nine month period ended September 30, 2005
was $380,210 (2004 - $457,618) and for the three month period ended
September 30, 2005 was $76,757 (2004 - $132,255) and applicable
special profit income for the nine month period ended September 30,
2005 was $395,306 (2004 - $647,701) and for the three month period
ended September 30, 2004 was $160,597 (2004 - $233,914).
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 either paid out of the mortgage in full or the
mortgage is renewed. The related deferred income amount as at
September 30, 2005 was $24,445 (September 30, 2004 - $99,218;
December 31, 2004 - $98,364).
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 $1,440,000 at September 30, 2005 (September 30,
2004 - $2,594,000 & December 31, 2004 - $2,769,194) were issued to
borrowers controlled by certain Trustee(s) 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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