TSX Symbol FC.UN
TORONTO, Nov. 2 /CNW/ - Firm Capital Mortgage Investment Trust (the
"Trust") (TSX FC.UN), released today its financial statements for the third
quarter ended September 30, 2006.
Net earnings for the third quarter ended September 30, 2006 increased to
$3,150,562 from $2,675,700 for the same period last year. Basic weighted
average earnings per unit for the third quarter amounted to $0.250 versus
$0.240 last year. Net earnings for the nine month period ended September 30,
2006 increased to $9,161,537 from $7,623,540 for the same period last year.
Basic weighted average earnings per unit for the nine month period ended
September 30, 2006 increased to $0.729 versus $0.715 last year. Net earnings
represented an annualized return on weighted average Unitholders' equity of
10.24% per annum. This return on Unitholders' equity equates to 608 basis
points per annum over the average One Year Government of Canada Treasury Bill
yield for the first nine 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.
Unitholders should note that net earnings to September 30, 2006 exceeded
distributions by $672,472, being $0.0535 per unit. The Trust's policy is to
distribute this excess earnings to Unitholders as part of its December
distribution.
As at September 30, 2006, the Trust's mortgage portfolio increased to
$200,764,020 as compared to $164,981,562 as at December 31, 2005. The
portfolio continued to be heavily concentrated in first mortgages.
The Trust is pleased to announce that it has added Lawrence Shulman,
Chartered Accountant, as an Independent Trustee to its Board of Trustees and
to its Audit Committee. The addition of another Chartered Accountant to the
Trust's board, who has years of experience working in the real estate
industry, is deemed to be beneficial.
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 Statements of Earnings
FIRM CAPITAL MORTGAGE
INVESTMENT TRUST
For the Nine Months Ended September 30, 2006
FIRM CAPITAL MORTGAGE INVESTMENT TRUST
Balance Sheets
September 30, 2006, with comparative figures for December 31, 2005 and
September 30, 2005
-------------------------------------------------------------------------
Sept. 30, Dec. 31, Sept. 30,
2006 2005 2005
(Unaudited) (Audited) (Unaudited)
-------------------------------------------------------------------------
Assets
Amounts receivable and
prepaid expenses $ 1,798,555 $ 1,600,688 $ 1,305,680
Mortgages (note 4) 200,764,020 164,981,562 136,855,070
Deferred financing costs -
convertible debenture
(note 5) 1,104,681 - -
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$203,667,256 $166,582,250 $138,160,750
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Liabilities and Unitholders' Equity
Liabilities:
Bank indebtedness (note 6) $ 31,845,147 $ 39,472,417 $ 8,852,990
Accounts payable and
accrued liabilities 901,136 433,464 317,606
Unearned income 301,281 316,467 122,684
Unitholder distribution
payable 943,792 - 942,278
Loans payable (note 7) 24,786,944 7,304,447 8,511,197
Convertible debenture
(note 8) 24,637,998 - -
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$ 83,416,298 $ 47,526,795 $ 18,746,755
Unitholders' equity (note 9): 120,250,958 119,055,455 119,413,994
Issued and outstanding:
12,583,893 units (2005 - 12,563,710)
Commitments (note 4)
Contingent liabilities (note 15)
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$203,667,256 $166,582,250 $138,160,750
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See accompanying notes to financial statements.
FIRM CAPITAL MORTGAGE INVESTMENT TRUST
Unaudited Statements of Earnings
Nine Months ended September 30, 2006
-------------------------------------------------------------------------
3 Month Period 9 Month Period
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2006 2005 2006 2005
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Interest and fees
earned,net of
Trust Manager
Interest
allocation
(note 13) $ 4,590,249 $ 3,190,196 $ 12,606,821 $ 9,124,387
Less interest
expense (note 14) 1,214,744 373,465 2,899,444 999,023
-------------------------------------------------------------------------
Net interest and
fee income 3,375,505 2,816,731 9,707,377 8,125,364
Expenses:
General and
administrative 224,943 141,031 545,840 501,824
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Net earnings for
the period $ 3,150,562 $ 2,675,700 $ 9,161,537 $ 7,623,540
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Net earnings per
unit (note 10)
Basic $ 0.250 $ 0.240 $ 0.729 $ 0.715
Diluted $ 0.240 $ 0.240 $ 0.712 $ 0.715
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See accompanying notes to financial statements.
FIRM CAPITAL MORTGAGE INVESTMENT TRUST
Statement of Unitholders' Equity
Nine Months ended September 30, 2006
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Sept. 30, Dec. 31, Sept. 30,
2006 2005 2005
(Unaudited) (Audited) (Unaudited)
-------------------------------------------------------------------------
Trust units (note 9)
Balance, beginning of period $119,055,455 $ 95,887,464 $ 95,887,464
Proceeds from issuance of units 142,550 24,559,504 24,494,464
Public offering costs - (1,413,242) (1,392,204)
Unit based compensation - 21,729 -
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Balance, end of period $119,198,005 $119,055,455 $118,989,724
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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 $ 30,632,510
Net earnings 9,161,537 10,466,611 7,623,540
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Balance, end of period $ 50,260,658 $ 41,099,121 $ 38,256,050
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Cumulative distributions to
unitholders
Balance, beginning of period $ 41,099,121 $ 30,632,510 $ 30,632,510
Distributions to unitholders 8,489,065 10,466,611 7,199,269
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Balance, end of period $ 49,588,186 $ 41,099,121 $ 37,831,779
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Total unitholders equity $120,250,958 $119,055,455 $119,413,995
Units issued and outstanding 12,583,893 12,570,072 12,563,710
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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, 2006
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3 Month Period 9 Month Period
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2006 2005 2006 2005
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Cash provided by (used in):
Operating activities
Net earnings
for the period $ 3,150,562 $ 2,675,700 $ 9,161,537 $ 7,623,540
Net changes in
non-cash items
Increase in
allowance for
loan losses 80,000 - 80,000 -
Deferred
financing cost
amortization 41,230 - 71,255 -
Implicit
interest
rate in excess
of coupon rate -
convertible
debenture 10,707 - 8,480 -
Decrease
(increase)
in amounts
receivable
and prepaid
expenses (81,800) (60,311) (197,867) 204,898
Increase (decrease)
in accounts
payable and
accrued
liabilities 476,760 172,619 1,396,278 959,695
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3,677,459 2,788,008 10,529,683 8,788,133
Financing activities:
Proceeds from
issuance of units 62,229 24,430,956 142,550 24,494,604
Proceeds from
convertible
debenture - - 25,000,000 -
Increase (decrease)
in bank
indebtedness (405,348) (16,561,138) (7,627,270) (6,227,503)
Increase (decrease)
in loans
payable 8,869,645 (1,174,424) 17,482,497 (1,955,776)
Public offering
costs - (1,392,204) - (1,392,204)
Debenture offering
costs - - (1,175,937) -
Distributions to
unitholders (2,830,917) (2,507,070 (8,489,065) (7,199,269)
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5,695,609 2,796,12 25,332,775 7,719,712
Investing activities:
Funding of
mortgages (32,243,476) (33,305,301) (105,590,679) (80,215,561)
Discharge of
mortgages 22,870,408 27,721,173 69,728,221 63,707,716
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(9,373,068) (5,584,128) (35,862,458) (16,507,845)
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Increase in cash,
being cash,
beginning and
end of period $ - $ - $ - $ -
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Supplemental
disclosure
Interest paid
(note 14) $ 696,380 $ 411,048 $ 2,362,315 $ 1,041,668
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See accompanying notes to financial statements.
FIRM CAPITAL MORTGAGE INVESTMENT TRUST
Notes to Financial Statements
Nine Months ended September 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 and fee 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 September 30,
2006, December 31, 2005 and September 30, 2005:
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Sept. 30, 2006 Dec. 31, 2005 Sept. 30, 2005
Amount % Amount % Amount %
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Conventional
first
mortgages 164,286,753 81.3 135,295,004 81.5 117,713,173 85.3
Conventional
non-first
mortgages 24,272,972 12.0 16,148,324 9.7 11,049,682 8.0
Non-conven-
tional
mortgages 13,399,295 6.7 14,653,234 8.8 9,187,215 6.7
201,959,020 100.0 166,096,562 100.0 137,950,070 100.0
Allowance for
loan losses 1,195,000 1,115,000 1,095,000
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200,764,020 164,981,562 136,855,070
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The mortgages are secured by real property, bear interest at the
weighted average rate of 9.48% (2005 - 9.51%) and mature between 2006
and 2010. Included with mortgages is one loan not directly secured
on real property totalling $1,500,000 (2005 - NIL).
The continuity of allowance for loan losses is as follows:
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Nine Months Ended September 30:
2006 2005
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Balance, beginning of period 1,115,000 1,095,000
Increase during the period 80,000 -
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Balance - End of period 1,195,000 1,095,000
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The unadvanced funds under the existing mortgage portfolio amounted
to $38,355,338 as at September 30, 2006 (September 30, 2005 -
$42,236,057 & 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 $ 48,795,805
2007 113,261,489
2008 26,299,695
2009 13,172,357
2010 429,674
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$201,959,020
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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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Sept. 30, Dec. 31, Sept. 30,
2006 2005 2005
---------------------------------------------------------------------
Deferred financing costs
- convertible debenture 1,175,937 - -
Accumulated amortization (71,256) - -
1,104,681 - -
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6. Bank indebtedness:
The Trust has entered into credit arrangements of which $31,845,147
(September 30, 2005 - $8,852,990 & 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
8.50% (2005 - 4.65% 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 $ 3,706,385
2007 13,866,773
2008 729,655
2009 6,484,131
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$24,786,944
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8. Convertible Debentures:
As at September 30, 2006, the Trust has one series of convertible
debentures outstanding;
Inter-
Principal est Conversion Interest
($) Rate Price Payable Maturity
---------------------------------------------------------------------
Series A 25,000,000 6.0% $11.75 per unit semi-annually June 30,
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.
---------------------------------------------------------------------
Liabililty, April 24, 2006 $24,619,518
Implicit interest rate in
excess of Coupon rate 18,480
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Liability, September 30, 2006 $24,637,998
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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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Sept. 30, Dec. 31, Sept. 30,
2006 2005 2005
Amount Amount Amount
---------------------------------------------------------------------
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 2,130,000
New units issued during the
period under Distribution
Reinvestment Plan 13,821 15,703 9,341
Balance, end of period 12,583,893 12,570,072 12,563,710
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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 volatililty 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 nine month period ended
September 30, 2006 of 12,575,696 (September 30, 2005 - 10,662,511)
and during the three month period ended September 30, 2006 of
12,580,856 (September 30, 2005 - 11,126,482).
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 nine month period ended September 30, 2006 was 13,831,386
(September 30, 2005 - 10,662,511) and for the three month period
ended September 30, 2006 was 14,718,338 (September 30,
2005 - 11,126,482).
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 September 30, 2006, the Trust recorded
distributions of $8,489,065 (September 30, 2005 - $7,199,269) to its
unitholders. Distributions were $0.675 (September 30, 2005 - $0.675)
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
nine months ended September 30, 2006 this amount was $1,040,522
(September 30, 2005 - $729,717), and for the three month period ended
September 30, 2006 this amount was $373,808 (September 30, 2005 -
$262,733), 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 $50,000 (2005 -
$35,000). 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 nine month period ended
September 30, 2006 was $466,181 (September 30, 2005 - $380,210) and
for the three month period ended September 30, 2006 was $158,645
(September 30, 2005 - $76,757) and applicable special profit income
for the nine month period ended September 30, 2006 was $400,145
(September 30, 2005 - $395,306) and for the three month period ended
September 30, 2006 was $204,017 (September 30, 2005 - $160,597).
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 September 30, 2006 (September 30,
2005 - $1,440,000 & December 31, 2005 - $1,440,000) were issued to
borrowers controlled by certain Trustees of the Trust. Each mortgage
is dealt with in accordance with the Trust's existing investment and
operating policies and is personally guaranteed by the related
Trustee.
14. Interest
---------------------------------------------------------------------
3 Month Period 9 Month Period
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2006 2005 2006 2005
---------------------------------------------------------------------
Bank interest
expense $ 456,871 $ 256,203 $ 1,455,084 $ 637,310
Loans payable
interest
expense 330,936 117,262 704,282 361,712
Debenture
interest
expense 426,937 - 740,078 -
---------------------------------------------------------------------
Interest
Expense $ 1,214,744 $ 373,465 $ 2,899,444 $ 999,022
Deferred
finance cost
amortization -
Convertible
debentures (41,229) - (71,255) -
Implicit
interest rate
in excess of
coupon rate -
Convertible
debentures (10,707) - (18,480) -
Change in
accrued
interest (466,428) 37,583 (447,394) 42,646
---------------------------------------------------------------------
Cash interest
paid $ 696,380 $ 411,048 $ 2,362,315 $ 1,041,668
---------------------------------------------------------------------
---------------------------------------------------------------------
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.
>>
