TSX Symbol FC
TORONTO,
March 15, 2013 /CNW/ - Firm Capital
Mortgage Investment Corporation (the "Corporation") (TSX FC), today
released its financial statements for the quarter and fiscal year
ended December 31, 2012.
PROFIT & RETURN ON EQUITY
Profit for the fourth quarter ended December 31, 2012 increased by 6% to $4,071,325 as compared to $3,843,403 for the same period last year.
Basic weighted average profit per share for the fourth quarter
ended December 31, 2012 was
$0.243, which is lower in comparison
to the $0.256 reported for the fourth
quarter ended December 31, 2011. For
the year ended December 31, 2012,
profit increased by 14% to $16,755,292 as compared to $14,659,462 for the year ended December 31, 2011. Basic weighted average
profit per share for the year ended December
31, 2012 of $0.999 was
slightly higher in comparison to the $0.995 for the year ended December 31, 2011. Profit for the year ended
December 31, 2012 represented an
annualized return on shareholders' equity of 9.83%. This return on
shareholders' equity represents 874 basis points per annum over the
average Government of Canada One Year Treasury Bill yield and is
well in excess of the Corporation's stated target yield objective
of 400 basis points per annum over the average One Year Treasury
Bill yield.
DIVIDENDS:
For the twelve months ended December 31, 2012, the Corporation paid dividends
totaling $16,755,292 versus
$14,659,462 for the twelve months
ended December 31, 2011. The
Corporation distributed 100% of its profits to shareholders.
INVESTMENT PORTFOLIO HIGHLIGHTS:
Details on the Corporation's investment
portfolio as at December 31, 2012 are
as follows:
- Total gross investment portfolio equals $297,217,271
- Conventional first mortgages, being those mortgages with loan
to values less than 75%, comprise 62.3% of our total
portfolio.
- Approximately 70% of the portfolio matures within 12 months.
This results in a continuously revolving portfolio, allowing
management to assess market conditions.
- The average face interest rate on the portfolio is 9.03% per
annum.
- Regionally, the portfolio is diversified approximately as
follows: Ontario 74.6%,
Alberta 15.1%, Quebec 8.2% and British Columbia 2.1%.
- Investment portfolio breakdown by loan size is as follows:
|
|
|
|
|
Amount |
Number of
Investments |
% |
Total Amount |
% |
$0 - $2,500,000 |
98 |
71% |
$ |
83,230,849 |
28% |
$2,500,001 - $5,000,000 |
22 |
16% |
|
75,932,651 |
26% |
$5,000,001 - $7,500,000 |
10 |
7% |
|
56,508,748 |
19% |
$7,500,000 + |
9 |
6% |
|
81,545,023 |
27% |
|
139 |
100% |
$ |
297,217,271 |
100% |
IMPAIRMENT PROVISION:
Management has always taken a proactive approach
to the loan impairment provision. This is a prudent approach to
protecting our Shareholders' equity. Impairment provisions
increased by $200,000 over 2011 to
$3,180,000 representing 1.1% of the
gross loan portfolio.
UNRECOGNIZED INCOME COLLECTED:
As at December 31,
2012, the Corporation has banked non-refundable fee income
of $520,055, which will be recognized
as income over the term of the corresponding investments.
FINANCING UPDATE
On March 4, 2013,
the Corporation entered into an agreement to sell, on a bought deal
basis, to a syndicate of underwriters, $20,000,000 aggregate principal amount of 4.75%
convertible unsecured subordinated debentures due March 31, 2020 (the "Debentures") at a price of
$1,000 per Debenture. The
Corporation has granted the underwriters an over-allotment option
to purchase up to $3,000,000
additional aggregate principal amount of Debentures, exercisable,
in whole or in part, at any time until 30 days following the
closing of the offering. The Debentures will bear interest at
a rate of 4.75% per annum, payable semi-annually in arrears on the
last day of March and September in each year commencing
September 30, 2013, and will mature
on March 31, 2020 (the "Maturity
Date"). The Debentures will be convertible at the holder's
option into common shares of the Corporation (the "Shares") at any
time prior to the earlier of the Maturity Date and the date fixed
for redemption at a conversion price of $15.80 per Share (the "Conversion Price"),
subject to adjustment in certain circumstances.
DIVIDEND AND SHARE PURCHASE PLAN:
The Corporation has in place a Dividend
Reinvestment Plan (DRIP) and Share Purchase Plan that is available
to its Shareholders. The plans allows participants to have their
monthly cash dividends reinvested in additional shares at a 2%
discount to market and grants participants the right to purchase,
without commission, additional shares, up to a maximum of
$12,000 per annum.
ABOUT THE CORPORATION
The Corporation, through its Mortgage Banker,
Firm Capital Corporation, is a non-bank lender providing
residential and commercial short-term bridge and conventional real
estate financing, including construction, mezzanine and equity
investments. The Corporation's investment objective is the
preservation of Shareholders' equity, while providing Shareholders
with a stable stream of monthly dividends from investments. The
Corporation 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 Shareholders. Full reports
of the financial results of the Corporation for the year are
outlined in the audited financial statements and the related
management discussion and analysis of Firm Capital, available on
the SEDAR website at www.sedar.com. In addition, supplemental
information is available on Firm Capital's website at
www.firmcapital.com.
Forward-Looking Statements
This news release contains forward-looking
statements within the meaning of applicable securities laws
including, among others, statements concerning our objectives, our
strategies to achieve those objectives, our performance, our
mortgage portfolio and our distributions, as well as statements
with respect to management's beliefs, estimates, and intentions,
and similar statements concerning anticipated future events,
results, circumstances, performance or expectations that are not
historical facts. Forward-looking statements generally can be
identified by the use of forward-looking terminology such as
"outlook", "objective", "may", "will", "expect", "intent",
"estimate", "anticipate", "believe", "should", "plans" or
"continue" or similar expressions suggesting future outcomes or
events. Such forward-looking statements reflect management's
current beliefs and are based on information currently available to
management.
These statements are not guarantees of future
performance and are based on our estimates and assumptions that are
subject to risks and uncertainties, including those described in
our Annual Information Form under "Risk Factors" (a copy of which
can be obtained at www.sedar.com), which could cause our actual
results and performance to differ materially from the
forward-looking statements contained in this circular. Those
risks and uncertainties include, among others, risks associated
with mortgage lending, dependence on the Corporation's manager and
mortgage banker, competition for mortgage lending, real estate
values, interest rate fluctuations, environmental matters,
shareholder liability and the introduction of new tax rules.
Material factors or assumptions that were applied in drawing a
conclusion or making an estimate set out in the forward-looking
information include, among others, that the Corporation is able to
invest in mortgages at rates consistent with rates historically
achieved; adequate mortgage investment opportunities are presented
to the Corporation; and adequate bank indebtedness and bank loans
are available to the Corporation. Although the
forward-looking information continued in this new release is based
upon what management believes are reasonable assumptions, there can
be no assurance that actual results and performance will be
consistent with these forward-looking statements.
All forward-looking statements in this news
release are qualified by these cautionary statements. Except
as required by applicable law, the Corporation undertakes no
obligation to publicly update or revise any forward-looking
statement, whether as a result of new information, future events or
otherwise.
Financial Statements of
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Years Ended December 31, 2012 and
2011
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Balance Sheets
(In Canadian dollars)
|
|
|
|
|
|
As at |
|
December 31, 2012 |
|
|
December 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
Amounts receivable and prepaid
expenses (note 4) |
$ |
3,026,057 |
|
$ |
3,478,338 |
Investment portfolio (note 5) |
|
294,037,271 |
|
|
271,048,591 |
|
|
|
|
|
|
Total assets |
$ |
297,063,328 |
|
$ |
274,526,929 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders'
Equity |
|
|
|
|
|
|
|
|
|
|
|
Bank indebtedness (note 6) |
$ |
24,379,151 |
|
$ |
37,763,021 |
Accounts payable and accrued
liabilities |
|
1,741,192 |
|
|
1,354,639 |
Unearned income |
|
520,055 |
|
|
556,991 |
Shareholder dividend payable |
|
2,300,218 |
|
|
2,008,118 |
Loans payable (note 7) |
|
9,045,731 |
|
|
15,649,081 |
Convertible debentures (note 8) |
|
82,698,573 |
|
|
69,134,395 |
Total liabilities |
|
120,684,920 |
|
|
126,466,245 |
|
|
|
|
|
|
Shareholders' Equity |
|
176,700,234 |
|
|
148,382,510 |
Deficit |
|
(321,826) |
|
|
(321,826) |
Total shareholders' equity |
|
176,378,408 |
|
|
148,060,684 |
|
|
|
|
|
|
Commitments (note 5) |
|
|
|
|
|
Contingent liabilities (note 15) |
|
|
|
|
|
Subsequent events (note 20) |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders'
equity |
$ |
297,063,328 |
|
$ |
274,526,929 |
See accompanying notes to financial statements
On behalf of the Directors:
"Eli Dadouch"
"Jonathan Mair"
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Statements of Comprehensive Income
Years ended December 31, 2012 and
2011
(In Canadian dollars)
|
|
|
|
|
|
|
|
|
|
2012 |
|
|
2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees earned |
|
$ |
27,321,896 |
|
$ |
22,562,666 |
|
|
|
27,321,896 |
|
|
22,562,666 |
|
|
|
|
|
|
|
Corporation manager interest
allocation (note 13) |
|
|
2,138,032 |
|
|
1,784,991 |
Interest expense (note 14) |
|
|
7,189,428 |
|
|
5,348,266 |
General and administrative
expenses |
|
|
1,039,144 |
|
|
769,947 |
Impairment loss on investment
portfolio (note 5) |
|
|
200,000 |
|
|
- |
|
|
|
10,566,604 |
|
|
7,903,204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income and
profit for the year |
|
$ |
16,755,292 |
|
$ |
14,659,462 |
|
|
|
|
|
|
|
Profit per share (note 10): |
|
|
|
|
|
|
Basic |
|
$ |
0.999 |
|
$ |
0.995 |
Diluted |
|
$ |
0.989 |
|
$ |
0.981 |
|
|
|
|
|
|
|
|
See accompanying notes to financial statements
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Statements of Changes in Equity
Years ended December 31, 2012 and
2011
(In Canadian dollars)
|
|
|
|
|
|
|
|
|
|
2012 |
|
|
2011 |
|
|
|
|
|
|
|
Shareholders' equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares (note 9): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
|
$ |
147,200,878 |
|
$ |
137,343,502 |
|
|
|
|
|
|
|
Proceeds from issuance of shares |
|
|
22,447,040 |
|
|
764,376 |
|
|
|
|
|
|
|
Offering costs |
|
|
(1,014,560) |
|
|
- |
|
|
|
|
|
|
|
Conversion of debentures to
shares |
|
|
6,349,000 |
|
|
9,093,000 |
|
|
|
|
|
|
|
Balance, end of year |
|
$ |
174,982,358 |
|
$ |
147,200,878 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity component of convertible
debentures (note 8): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
|
$ |
1,181,632 |
|
$ |
774,000 |
|
|
|
|
|
|
|
Conversion of debentures to
shares |
|
|
(153,756) |
|
|
(202,368) |
|
|
|
|
|
|
|
Equity component of debentures issued
during the year |
|
|
690,000 |
|
|
610,000 |
|
|
|
|
|
|
|
Balance, end of year |
|
$ |
1,717,876 |
|
$ |
1,181,632 |
|
|
|
|
|
|
|
Total shareholders'
equity |
|
$ |
176,700,234 |
|
$ |
148,382,510 |
|
|
|
|
|
|
|
Deficit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit, beginning of year |
|
$ |
(321,826) |
|
$ |
(321,826) |
|
|
|
|
|
|
|
Dividends to shareholders (note
11) |
|
|
(16,755,292) |
|
|
(14,659,462) |
|
|
|
|
|
|
|
Comprehensive income and profit for
the year |
|
|
16,755,292 |
|
|
14,659,462 |
|
|
|
|
|
|
|
Deficit, end of year |
|
$ |
(321,826) |
|
$ |
(321,826) |
|
|
|
|
|
|
|
Total Shareholders' Equity |
|
$ |
176,378,408 |
|
$ |
148,060,684 |
|
|
|
|
|
|
|
Shares issued and outstanding (note
9) |
|
|
17,425,884 |
|
|
15,213,018 |
See accompanying notes to financial statements
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Statements of Cash Flows
Years ended December 31, 2012 and
2011
(In Canadian dollars)
|
|
|
|
|
|
|
|
|
|
|
|
2012 |
|
|
2011 |
|
|
|
|
|
|
|
|
Cash provided by (used
in): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
activities: |
|
|
|
|
|
|
|
|
Comprehensive income and
profit for the year |
|
|
$ |
16,755,292 |
|
$ |
14,659,462 |
|
Adjustments for: |
|
|
|
|
|
|
|
|
|
Interest Expense (net of implicit
interest rate and accrued interest) |
|
|
|
6,278,736 |
|
|
4,812,094 |
|
|
Change in impairment loss on
investment portfolio |
|
|
|
200,000 |
|
|
- |
|
|
Implicit interest rate in excess of
coupon rate - convertible debentures |
|
|
|
247,853 |
|
|
91,487 |
|
|
Deferred finance cost amortization -
convertible debentures |
|
|
|
662,839 |
|
|
482,190 |
|
Net changes in non-cash
operating items: |
|
|
|
|
|
|
|
|
|
Increase (decrease) in accrued
interest |
|
|
|
(211,679) |
|
|
(449,418) |
|
|
Decrease (increase) in amounts
receivable and prepaid expenses |
|
|
|
452,281 |
|
|
(1,106,775) |
|
|
Increase (decrease) in accounts
payable and accrued liabilities |
|
|
|
386,552 |
|
|
(127,941) |
|
|
Increase (decrease) in unearned
income |
|
|
|
(36,936) |
|
|
184,477 |
Net cash flows from
operating activities |
|
|
|
24,734,938 |
|
|
18,545,576 |
|
|
|
|
|
|
|
|
Financing
activities: |
|
|
|
|
|
|
|
|
Proceeds from issuance of
shares |
|
|
|
22,447,040 |
|
|
764,376 |
|
Proceeds from convertible
debentures issued |
|
|
|
20,485,000 |
|
|
25,738,000 |
|
Debenture offering
costs |
|
|
|
(946,270) |
|
|
(1,305,453) |
|
Offering costs |
|
|
|
(1,014,560) |
|
|
- |
|
Funding/repayment of
loans payable (net) |
|
|
|
(6,603,350) |
|
|
11,359,832 |
|
Cash interest paid |
|
|
|
(6,067,057) |
|
|
(4,362,676) |
|
Dividends to shareholders
paid during the year |
|
|
|
(16,463,193) |
|
|
(14,779,189) |
Net cash flows from
financing activities |
|
|
|
11,837,610 |
|
|
17,414,890 |
|
|
|
|
|
|
|
|
Investing
activities: |
|
|
|
|
|
|
|
|
Funding of
investments |
|
|
|
(203,555,247) |
|
|
(235,636,265) |
|
Discharge of
investments |
|
|
|
180,366,569 |
|
|
166,918,603 |
Net cash flows used in
investing activities |
|
|
|
(23,188,678) |
|
|
(68,717,662) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank indebtedness,
beginning of year |
|
|
|
(37,763,021) |
|
|
(5,005,825) |
Net (increase) decrease
in bank indebtedness for the year |
|
|
|
13,383,870 |
|
|
(32,757,196) |
Bank indebtedness, end of
year |
|
|
$ |
(24,379,151) |
|
$ |
(37,763,021) |
|
|
|
|
|
|
|
|
Cash flows from
operating activities include: |
|
|
|
|
|
|
|
|
Interest received |
|
|
$ |
25,176,412 |
|
$ |
20,195,020 |
See accompanying notes to financial statements
FIRM CAPITAL MORTGAGE INVESTMENT CORPORATION
Notes to Financial Statements
Years ended December 31, 2012 and
2011
(in Canadian dollars)
Firm Capital Mortgage Investment Corporation (the "Corporation"),
through its mortgage banker, Firm Capital Corporation, in a
non-bank lender providing mainly residential and commercial
short-term bridge and conventional real estate financing, including
construction, mezzanine and equity investments. The shares of
the Corporation are listed on the Toronto Stock Exchange under the
symbol "FC". The Corporation is a Canadian mortgage
investment corporation and the registered office of the Corporation
is 1244 Caledonia Road,
Toronto,
Ontario, M6A 2X5. FC Treasury Management Inc. is the
Corporation's manager.
1. Organization of the Corporation:
On November 30, 2010, Firm Capital
Mortgage Investment Trust (the "Trust") entered into a plan of
arrangement ("Reorganization"), whereby the Trust was converted
from an income trust structure into the public corporation, Firm
Capital Mortgage Investment Corporation, effective January 1, 2011. The Corporation was
incorporated pursuant to the Laws of the Province of Ontario on October 22,
2010 for the purposes of participating in the
Reorganization.
Pursuant to the Reorganization, units of the Trust were
exchanged on a one-for-one basis for common shares of the
Corporation. Holders of units therefore became the sole
shareholders of the Corporation effective January 1, 2011.
As part of the Reorganization, the Trust was wound up and its
assets were distributed to the Corporation. The
Reorganization was treated as a change in business form rather than
a change in control, and therefore, has been accounted for as a
continuity of interest. The carrying amounts of assets,
liabilities, and shareholders' equity in the financial statements
of the Trust immediately prior to the Reorganization were the same
as the carrying values of the Corporation immediately following the
Reorganization.
2. Basis of presentation:
These financial statements were approved by the Board of
Directors on March 14, 2013.
(a) Statement of compliance:
The financial statements of the Corporation have been prepared
by management in accordance with International Financial Reporting
Standards ("IFRS").
(b) Basis of measurement:
The financial statements have been prepared on the historical
cost basis, except for financial instruments classified as fair
value through profit or loss, which are measured at fair value.
(c) Functional and presentation currency:
These financial statements are presented in Canadian dollars,
which is the Corporation's functional currency.
(d) Use of estimates and judgements:
The preparation of the financial statements requires management
to make estimates that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the period. Actual results could
differ from those estimates.
In making estimates, management relies on external information
and observable conditions where possible, supplemented by internal
analysis as required. Those estimates and judgements have
been applied in a manner consistend with prior periods and there
are no known trends, commitments, events or uncertainties that we
believe will materially affect the methodology or assumptions
utilized in making those estimates and judgements in these audited
financial statements. The estimates and judgements used in
determining the recorded amount for assets and liabilities in the
financial statements include the following:
Investment impairment - The most significant estimates that the
Corporation is required to make relate to the impairment of the
investments (notes 3(a) and 5). These estimates may include
assumptions regarding local real estate market conditions, interest
rates and the availability of credit, cost and terms of financing,
the impact of present or future legislation or regulation, prior
encumbrances and other factors affecting the investments and
underlying security of the investments. These assumptions are
limited by the availability of reliable comparable data, economic
uncertainty, ongoing geopolitical concerns and the uncertainty of
predictions concerning future events. Illiquid credit markets
and volatile equity markets have combined to increase the
uncertainty inherent in such estimates and assumptions.
Accordingly, by their nature, estimates of impairment are
subjective and do not necessarily result in precise
determinations. Should the underlying assumptions change, the
estimated fair value could vary a material amount.
3. Summary of significant accounting policies:
The Corporation's accounting policies and its standards of
financial disclosure set out below are in accordance with IFRS and
have been applied consistently to all periods presented in these
financial statements.
(a) Investment portfolio:
The Investment portfolio is classified as loans and receivable
investments. Such investments are recognized initially at
cost plus any directly attributable transaction costs.
Subsequent to initial recognition, the investment loans are
measured at amortized cost using the effective interest method,
less any impairment losses.
The investments are assessed at each reporting date to determine
whether there is objective evidence of impairment. A
financial asset is impaired if objective evidence indicates that a
loss event has occurred after the initial recognition of an asset,
and that the loss event had a negative effect on the estimated
future cash flows of that asset that can be estimated reliably.
An impairment loss in respect of investments measured at
amortized cost is calculated as the difference between its carrying
amount and the present value of the estimated future cash flows
discounted at the asset's original effective interest rate.
Losses are recognized in the statement of comprehensive income and
reflected in an allowance account against the investments.
Interest on the impaired asset continues to be recognized through
the unwinding of the discount if it is considered
collectable. When a subsequent event causes the amount of
impairment loss to decrease, the decrease in impairment loss is
reversed through profit or loss.
(b) Revenue recognition:
(i) Interest and fee income: Interest income is accounted for on
the accrual basis. Commitment fees received are amortized
over the expected term of the investment.
(ii) Non-conventional mortgages: Special profit and
interest participations earned by the Corporation on
non-conventional mortgages are recognized and included in interest
and fees earned only once the receipt of such amounts is
certain.
(c) Share-based compensation:
The Corporation has share-based compensation plans (i.e.
incentive option plan) which are described in note 9(b). The
expense of equity-settled incentive option plans are measured based
on fair value of the awards of each tranche at the grant
date. The expense is recognized on a proportionate basis
consistent with the vesting features of each tranche of the
grant.
(d) Income taxes:
The Corporation is a mortgage investment corporation ("MIC")
pursuant to the Income Tax Act (Canada). As such, the Corporation is
entitled to deduct from its taxable income dividends paid to
shareholders during the year or within 90 days of the end of the
year to the extent the dividends were not deducted
previously. The Corporation intends to maintain its status as
a MIC and intends to distribute sufficient dividends in the year
and in future years to ensure that the Corporation is not subject
to income taxes. Accordingly, for financial statement
reporting purposes, the tax deductibility of the Corporation's
dividends results in the Corporation being effectively exempt from
taxation and no provision for current or future income taxes is
required.
(e) Financial assets and liabilities:
Financial assets include the Corporation's amounts receivable
and investment portfolio. Financial liabilities include bank
indebtedness, accounts payable and accrued liabilities, shareholder
dividend payable, loans payable, unearned income, and convertible
debentures.
Recognition and measurement of financial instruments
The Corporation determines the classification of its financial
assets and liabilities at initial recognition. Financial
instruments are recognized initially at fair value and in the case
of financial assets and liabilities carried at amortized cost,
adjusted for directly attributable transaction costs.
(f) Compound financial instruments:
Compound financial instruments issued by the Corporation
comprise convertible debentures that can be converted into shares
of the Corporation at the option of the holder, and the number of
shares to be issued does not vary with changes in their fair
value. The liability component of a compound financial
instrument is recognized initially at the fair value of a similar
liability that does not have an equity conversion option. The
equity component is recognized initially as the difference between
the fair value of the compound financial instrument as a whole and
the fair value of the liability component. Any directly
attributable transaction costs are allocated to the liability and
equity components in proportion to their initial carrying
amounts. Subsequent to the initial recognition, the liability
component of a compound financial instrument is measured at
amortized cost using the effective interest method. The
equity component of a compound financial instrument is not
re-measured subsequent to initial recognition. Interest,
dividends, losses and gains relating to the financial liability are
recognized in profit or loss. Distributions to the equity
holders are recognized in equity, net of any tax benefit.
(g) Hybrid financial instruments:
Hybrid financial instruments comprise of convertible debentures
which contain an embedded derivative related to the conversion
feature to Trust units from its issuance to June 8, 2010. The embedded derivative is
measured at fair value at initial recognition, and subsequently at
every reporting period with fair value changes recorded in profit
or loss. The difference between the consideration received
and fair value of the embedded derivatives, is attributed to the
debt host contract at initial recognition which is subsequently
measured at amortized cost using the effective interest method.
(h) Share capital:
Common shares are classified as equity. Incremental costs
directly attributable to the issue of common shares are recognized
as a deduction from equity.
(i) Basic and diluted per share calculation:
The Corporation presents basic and diluted profit per share data
for its common shares. Basic per share amounts are calculated
by dividing the profit and loss attributable to common shareholders
of the Corporation by the weighted average number of common shares
outstanding during the year. Diluted per share amounts are
calculated using the "if converted method" and are determined by
adjusting the profit or loss attributable to common shareholders
and the weighted average number of common shares outstanding,
adjusted for the effects of all dilutive potential convertible
debentures and granted incentive option plan
(j) Future changes in accounting policies:
IFRS 7 - Financial Instruments: Disclosures ("IFRS 7"), as
amended by the IASB in October 2010,
requires entities to provide the disclosures for all transferred
financial assets that are not derecognized and for a continuing
involvement in a transferred financial asset, existing at the
reporting date, irrespective of when the related transfer
transaction occurred. The amendment is effective for annual
periods beginning on or after January 1,
2012. IFRS 7 was further amended by the IASB in
December, 2011. The amendment requires entities to provide
disclosures related to offsetting financial assets and
liabilities. The amendment is effective for annual periods
beginning on or after January 1,
2014.
IFRS 9 - Financial Instruments ("IFRS 9") will replace IAS 39 -
Financial Instruments: Recognition and Measurement ("IAS
39"). IFRS 9 uses a single approach to determine whether a
financial asset is measured at amortized cost or fair value,
replacing the multiple classification options in IAS 39. The
approach in IFRS 9 is based on how an entity manages its financial
instruments and the contractual cash flow characteristics of the
financial assets. IFRS 9 was amended by the IASB in October,
2010 to provide guidance on the classification and reclassification
of financial liabilities, their measurement, and the presentation
of gains and losses on financial liabilities designated as at fair
value through profit or loss. When an entity elects to
measure a financial liability at fair value, gains or losses due to
changes in the credit risk of the instrument must be recognized in
other comprehensive income. IFRS 9 is effective for annual
periods beginning on or after January 1,
2015.
The Corporation is currently evaluating the impact of these new
and amended standards on this financial statements.
4. Amounts receivable and prepaid expenses:
The following is a breakdown of amounts receivable and prepaid
expenses as at December 31, 2012 and
December 31, 2011.
|
|
|
|
|
|
|
|
|
2012 |
|
|
|
2011 |
|
|
|
|
|
|
|
Interest receivable |
$ |
2,672,621 |
|
|
$ |
2,779,473 |
Prepaid expenses |
|
127,472 |
|
|
|
152,478 |
Fees receivable |
|
169,733 |
|
|
|
134,876 |
Special income receivable |
|
- |
|
|
|
411,511 |
Accounts receivable |
|
56,231 |
|
|
|
- |
|
|
|
|
|
|
|
Amounts receivable and prepaid expenses |
$ |
3,026,057 |
|
|
$ |
3,478,338 |
5. Investment portfolio:
The following is a breakdown of the investment portfolio as at
December 31, 2012 and December 31, 2011:
|
|
|
|
|
|
|
|
|
|
December 31, 2012 |
|
December 31, 2011 |
|
|
|
|
|
|
|
|
Conventional first mortgages |
|
$ |
185,038,057 |
62.26% |
|
$ |
186,641,808 |
68.11% |
Conventional non-first mortgages |
|
|
34,472,723 |
11.60% |
|
|
41,927,607 |
15.30% |
Related investments |
|
|
34,916,788 |
11.75% |
|
|
19,958,571 |
7.28% |
Discounted Debt Investments |
|
|
9,370,300 |
3.15% |
|
|
1,441,850 |
0.53% |
Non-conventional mortgages |
|
|
33,419,403 |
11.24% |
|
|
24,058,755 |
8.78% |
Total investments (at amortized
cost) |
|
$ |
297,217,271 |
100.00% |
|
$ |
274,028,591 |
100.00% |
|
|
|
|
|
|
|
|
Impairment provision |
|
|
(3,180,000) |
|
|
|
|
(2,980,000) |
|
|
|
|
|
|
|
|
|
|
Investment portfolio |
|
$ |
294,037,271 |
|
|
|
$ |
271,048,591 |
|
|
Conventional first mortgages are loans secured by a first
priority mortgage charge with loan to values not exceeding
75%. Conventional non-first mortgages are loans with mortgage
charges not registered in first priority with loan to values not
exceeding 75%. Related investments are loans that may not
necessarily be secured by mortgage charge security.
Discounted debt investments are loans purchased from arms-length
third parties at a discount to their face value.
Non-conventional mortgages are loans that in some cases have loan
to values that exceed or may exceed 75% and are investments that
are the source of all special profit participation earned by the
Corporation.
Investment portfolio is stated at amortized cost. The
impairment provision in the amount of $3,180,000 as at December
31, 2012 represents the total amount of management's
estimate of the shortfall between the investment principal balances
and the estimated recoverable amount from the security under the
loans.
The loans comprising the Investment portfolio bear interest at
the weighted average rate of 9.03% per annum (2011 - 9.06% per
annum) and mature between 2013 and 2016.
The un-advanced funds under the existing investment portfolio
(which are commitments of the Corporation) amounted to $43,212,906 as at December
31, 2012 (December 31, 2011 -
$30,845,331).
Principal repayments based on contractual maturity dates are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
204,866,166 |
2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
74,992,947 |
2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
16,001,658 |
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
1,356,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
297,217,271 |
Borrowers who have open loans have the option to repay principal
at any time prior to the maturity date.
6. Bank indebtedness:
The Corporation has entered into credit arrangements of which
$24,379,151 as at December 31, 2012 (December 31, 2010 - $37,763,021) has been drawn. Interest on
bank indebtedness is predominantly charged at a formula rate that
varies with bank prime and may have a component with a fixed
interest rate established based on a formula linked to Bankers
Acceptance rates. The credit arrangement comprises a
revolving operating facililty, a component of which is a demand
facility and a component of which has a committed term to
September 30, 2013. Bank
indebtedness is secured by a general security agreement. The
credit agreement contains certain financial covenants that must be
maintained. As at December 31,
2012 and December 31, 2011,
the Corporation was in compliance with all financial covenants.
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-rescourse basis and bear
interest at rates ranging from 4.70% to 6.45% as at December 31, 2012 (December 31, 2011 - 3.50% to 6.45%). The
Corporation's principal balance outstanding under the mortgages for
which a first priority charge has been granted is $15,353,601 as at December
31, 2012 (December 31, 2011 -
$26,334,738).
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
8,898,405 |
2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
147,326 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
9,045,731 |
8. Convertible debentures:
|
|
|
Year-Ended |
|
Year-Ended |
|
December 31,
2012 |
|
December 31,
2011 |
|
Total Debentures |
|
Total Debentures |
|
|
|
|
Liability component, beginning of year |
$ |
69,134,395 |
|
$ |
53,628,803 |
Issued |
18,848,730 |
|
23,822,547 |
Conversions of debentures to shares |
(6,349,000) |
|
(9,093,000) |
Adjustment to fair value of conversion option |
153,756 |
|
202,368 |
Implicit interest rate in excess of coupon
rate |
247,853 |
|
91,487 |
Deferred finance cost amortization |
662,839 |
|
482,190 |
|
Liability component, end of year |
$ |
82,698,573 |
|
$ |
69,134,395 |
The breakdown of the Total Debentures
for the year ended December 31, 2012 presented in the above table
is as follows: |
|
|
6.00% |
|
5.75% |
|
5.40% |
|
5.25% |
|
|
|
Convertible |
|
Convertible |
|
Convertible |
|
Convertible |
|
|
|
Debenture |
|
Debenture |
|
Debenture |
|
Debenture |
|
TOTAL |
|
Liability component, beginning of year |
$ |
15,225,091 |
|
$ |
30,021,130 |
|
$ |
23,888,174 |
|
- |
|
$ |
69,134,395 |
Issued |
- |
|
- |
|
- |
|
$ |
18,848,730 |
|
18,848,730 |
Conversions |
(6,349,000) |
|
- |
|
- |
|
- |
|
(6,349,000) |
Adjustment to fair value of conversion |
153,756 |
|
|
|
|
|
|
|
153,756 |
Implicit interest rate in excess of coupon
rate |
61,718 |
|
29,136 |
|
93,733 |
|
63,266 |
|
247,853 |
Deferred finance cost amortization |
171,457 |
|
212,020 |
|
173,934 |
|
105,428 |
|
662,839 |
|
Liability component, end of year |
$ |
9,263,022 |
|
$ |
30,262,286 |
|
$ |
24,155,841 |
|
$ |
19,017,424 |
|
$ |
82,698,573 |
Maturity Date |
Jun 30, 2013 |
|
Oct 31, 2017 |
|
Feb 28, 2019 |
|
Mar 31, 2019 |
|
|
|
The breakdown of the Total Debentures
for the year ended December 31, 2011 is as follows: |
|
|
6.00% |
|
5.75% |
|
5.40% |
|
|
|
|
Convertible |
|
Convertible |
|
Convertible |
|
|
|
|
Debenture |
|
Debenture |
|
Debenture |
|
TOTAL |
|
|
Liability component, beginning of year |
$ |
23,886,736 |
|
$ |
29,742,067 |
|
- |
|
$ |
53,628,803 |
|
Issued |
- |
|
- |
|
$ |
23,822,547 |
|
23,822,547 |
|
Conversions |
(9,093,000) |
|
- |
|
- |
|
(9,093,000) |
|
Adjustment to fair value of conversion option |
202,368 |
|
|
|
|
|
202,368 |
|
Implicit interest rate in excess of coupon
rate |
57,998 |
|
30,117 |
|
3,372 |
|
91,487 |
|
Deferred finance cost amortization |
170,989 |
|
248,946 |
|
62,255 |
|
482,190 |
|
|
|
|
|
|
|
|
|
|
|
Liability component, end of year |
$ |
15,225,091 |
|
$ |
279,063 |
|
$ |
23,888,174 |
|
$ |
69,134,395 |
|
|
|
|
|
|
|
|
|
|
In 2012, $6,349,000 (2011 -
$9,093,000) of 6.00% debentures were
converted by the debenture holders to 540,323 shares of the
Corporation.
In the third quarter of 2011, the Corporation completed a public
offering of 25,738, 5.40% convertible unsecured subordinated
debentures at a price of $1,000 per
debenture for gross proceeds of $25,738,000. The debentures mature on
February 28, 2019 and interest is
paid semi-annually on February 28 and
August 31. The debentures are
convertible at the option of the holder at any time prior to the
maturity date at a conversion price of $14.35. The debentures may not be redeemed
by the Corporation prior to August 31,
2014. On and after August 31,
2014, but prior to February 29,
2016, the debentures are redeemable at a price equal to the
principal, plus accrued interest, at the Corporation's option on
not more than 60 days' and not less than 30 days notice, provided
that the weighted average trading price of the shares on the
Toronto Stock Exchange for the 20 consecutive trading days ending
five trading days preceding the date on which the notice of
redemption is given is not less than 125% of the conversion
price.
On and after February 29, 2016 and
prior to the maturity date, the debentures are redeemable at a
price equal to the principal amount plus accrued interest, at the
Corporation's option on not more than 60 days' and not less than 30
days prior notice. On redemption or at maturity, the
Corporation may, at its option, elect to satisfy its obligations to
pay or a portion of the principal amount of the debenture by
issuing that number of shares of the Corporation obtained by
dividing the principal amount being repaid by 95% of the weighted
average trading price of the shares for the 20 consecutive trading
days ending on the fifth trading day preceding the redemption or
maturity date.
The convertible
debentures were allocated into liability and equity components on
the date of issuance as follows: |
|
Liability |
$ |
25,128,000 |
|
Equity |
610,000 |
|
Principal |
$ |
25,738,000 |
|
In the first quarter of 2012, the Corporation completed a public
offering of 20,485, 5.25% convertible unsecured subordinated
debentures at a price of $1,000 per
debenture for gross proceeds of $20,485,000. The debentures mature on
March 31, 2019 and interest is paid
semi-annually on March 31 and
September 30. The debentures
are convertible at the option of the holder at any time prior to
the maturity date at a conversion price of $14.80. The debentures may not be redeemed
by the Corporation prior to March 31,
2015. On or after March 31,
2015, but prior to March 31,
2016, the debentures are redeemable at a price equal to the
principal, plus accrued interest, at the Corporation's option on
not more than 60 days' and not less than 30 days' notice, provided
that the weighted average trading price of the shares on the
Toronto Stock Exchange for the 20 consecutive trading days ending
five trading days preceding the date on which the notice of
redemption is given is not less than 125% of the conversion
price. On or after March 31,
2016 and prior to the maturity date, the debentures are
redeemable at a price equal to the principal amount plus accrued
interest, at the Corporation's option on not more than 60 days' and
not less than 30 days' prior notice. On redemption or at
maturity, the Corporation may, at its option, elect to satisfy its
obligation to pay all or a portion of the principal of the
debenture by issuing that number of shares of the Corporation
obtained by dividing the principal amount being repaid by 95% of
the weighted average trading price of the shares for the 20
consecutive trading days ending on the fifth trading day preceding
the redemption or maturity date.
The convertible
debentures were allocated into liability and equity components on
the date of issuance as follows: |
|
Liability |
$ |
19,795,000 |
|
Equity |
690,000 |
|
Principal |
$ |
20,485,000 |
|
As at December 31, 2012,
debentures payable bear interest at weighted average effective rate
of 5.55% (2011 - 5.68%) per annum. Notwithstanding the
carrying value of the convertible debentures, the principal balance
outstanding to the debenture holders is $86,668,000 as at December
31, 2012 (2011 - $72,532,000).
9. Shareholders' equity:
On January 1, 2011, all outstanding
units were exchanged on a one-for-one basis for common shares of
the Corporation, as described in Note 1. The beneficial
interests in the Corporation are represented by a single class of
shares which are unlimited in number. Each share carries a
single vote at any meeting of shareholders and carries the right to
participate pro rata in any dividends.
(a) Shares issued and
outstanding: |
|
The following shares were issued and
outstanding as at December 31, 2012: |
|
|
|
# of shares |
|
Amount |
|
|
|
|
|
Balance, beginning of year |
|
15,213,018 |
|
$ |
147,200,878 |
|
|
|
|
|
New shares from conversion of debentures |
|
540,323 |
|
6,349,000 |
|
|
|
|
|
New shares from public offering |
|
1,541,000 |
|
20,726,450 |
|
|
|
|
|
New shares issued during the period under Dividend
Reinvestment Plan |
|
131,543 |
|
1,720,590 |
|
|
|
|
|
Offering costs |
|
- |
|
(1,014,560) |
Balance, end of year |
|
17,425,884 |
|
$ |
174,982,358 |
|
The following shares were issued and outstanding as
at December 31, 2011: |
|
# of shares |
|
Amount |
|
|
|
|
Balance, beginning of year |
14,377,333 |
|
$ |
137,343,502 |
|
|
|
|
New shares from conversion of debentures |
773,861 |
|
9,093,000 |
|
|
|
|
New shares issued during the year under Dividend
Reinvestment Plan |
61,824 |
|
764,376 |
Balance, end of year |
15,213,018 |
|
$ |
147,200,878 |
In the first quarter of 2012, the Corporation completed a public
offering of 1,541,000 shares at $13.45 per share.
(b) Incentive option plan:
As at December 31, 2012, no options
remained outstanding (December 31,
2011 - NIL).
(c) Dividend reinvestment plan and direct share purchase plan:
The Corporation has a dividend reinvestment plan and direct share
purchase plan for its shareholders which allows participants to
reinvest their monthly cash dividends in additional Corporation
shares at a share price equivalent to the weighted average price of
shares for the preceding five-day period.
10. Per share amounts:
(a) Profit per share calculation:
The following table reconciles the numerators and denominators of
the basic and diluted profit per share for the years ended
December 31, 2012 and 2011.
Basic profit per share
calculation: |
|
|
2012 |
|
2011 |
Numerator for basic profit per
share: |
|
Profit |
$ |
16,755,292 |
|
$ |
14,659,462 |
|
|
|
|
Denominator for basic
profit per share: |
|
|
|
|
Weighted average shares |
16,769,964 |
|
14,730,516 |
|
|
|
|
Basic profit per share |
$ |
0.999 |
|
$ |
0.995 |
|
Diluted profit per share calculation: |
|
|
2012 |
|
2011 |
Numerator for diluted profit per
share: |
|
|
|
|
Profit: |
$ |
16,755,292 |
|
$ |
14,659,462 |
|
Interest on convertible debentures |
5,661,059 |
|
4,069,958 |
|
|
|
|
Net profit for diluted profit per
share |
$ |
22,416,351 |
|
$ |
18,729,420 |
|
|
|
|
Denominator for diluted profit per
share: |
|
|
|
Weighted average shares |
16,769,964 |
|
14,730,516 |
Net shares that would be issued: |
|
|
|
|
Assuming debentures are converted |
5,890,066 |
|
4,362,472 |
Diluted weighted average
shares |
22,660,030 |
|
19,092,988 |
Diluted profit per share |
$ |
0.989 |
|
$ |
0.981 |
11. Dividends:
The Corporation intends to make dividend payments to the
shareholders on a monthly basis on or about the 15th day of each
month. The operating policies of the Corporation set
out that the Corporation intends to distribute to shareholders
within 90 days after the year end at least 100% of the net income
of the Corporation determined in accordance with the Income Tax Act
(Canada), subject to certain
adjustments.
For the year ended December 31, 2012,
the Corporation recorded dividends of $16,755,292 (2011 - $14,659,462) to its shareholders. Dividends were
$0.999 per share (2011 - $0.99 per share).
12. Income taxes:
The Income Tax Act (Canada)
contains legislation (the "SIFT Rules") affecting the tax treatment
of "specified investment flow-through" ("SIFT") trusts. A
SIFT includes a publicly traded trust. The SIFT Rules
provided for a transition period until 2011 for publicly traded
trusts like the Trust, which existed prior to November 1, 2006. Under the SIFT Rules,
distributions of certain types of income by a SIFT are not
deductible in computing the SIFT's taxable income, and a SIFT is
subject to tax on such income at a rate that is substantially
equivalent to the general tax rate applicable to a Canadian
corporation. The SIFT Rules do not apply to a corporation
that qualifies as a mortgage investment corporation under the
Income Tax Act (Canada). The
Trust completed the necessary tax restructuring to qualify as a
mortgage investment corporation effective January 1, 2011.
13. Related party transactions and balances:
The Corporation's Manager (a company controlled by some of the
directors) receives an allocation of interest, referred to as
Corporation Manager spread interest, calculated at 0.75% per annum
of the Corporation's daily outstanding performing investment
balances. For the year ended December 31,
2012, this amount was $2,138,032 (2011 - $1,784,991). Included in accounts payable and
accrued liabilities at December 31,
2012 are amounts payable to the Corporation's Manager of
$179,141 (December 31, 2011 - $204,988).
The total directors' fee paid for the year was $173,250 (2011 - $183,000). This amount has been fully settled
during the year. The listing of the members of the board of
directors is shown in the annual report. The key management
personnel are also directors of the Corporation and receive
compensation from the Corporation Manager. The directors held
370,080 shares in the Corporation as at the end of the financial
year.
The Mortgage Banker (a company controlled by a director)
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 Corporation's investments; 75% of all the commitment
and renewal fees generated from the Corporation's investments; and
25% of all the special profit income generated from the
non-conventional investments after the Corporation 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 $285,000 for the year ended December 31, 2012 (2011 - $238,000). The Mortgage Banker also retains
all overnight float interest and incidental fees and charges
payable by borrowers on the Corporation's investments. The
Corporation's share of commitment and renewal fees is recorded in
income and for the year ended December 31,
2012 was $1,099,552 (2011 -
$1,038,317) and applicable special
profit income for the year ended December
31, 2012 was $1,152,785 (2011
- $353,081).
The Corporation's Management Agreement and Mortgage Banking
Agreement contains provisions for the payment and termination fees
to the Corporation Manager and Mortgage Banker in the event that
the respective agreements are either terminated or not renewed.
Several of the Corporation's investments are shared with other
investors of the Mortgage Banker, which may include members of
management of the Mortgage Banker and/or Officers or directors of
the Corporation. The Corporation ranks equally with other
members of the syndicate as to receipt of principal and income.
Mortgage investments totalling $13,500,000 (December 31,
2011 - $15,560,000) were
issued to borrowers controlled by certain directors of the
Corporation. Each investment is dealt with in accordance with the
Corporation's existing investment and operating policies and is
personally guaranteed by the related directors.
Key management compensation:
Aggregate compensation for key management personnel (all being
short term employee benefits) was $1,329,271 in 2012, all of which was paid by the
Mortgage Banker and nothing by the Corporation.
14.Interest expense: |
|
|
|
2012 |
|
|
2011 |
|
|
|
|
|
Bank interest expense |
$ |
898,795 |
|
|
$ |
900,741 |
Loans payable interest expense |
629,574 |
|
|
377,567 |
Debenture interest expense |
5,661,059 |
|
|
4,069,958 |
Interest expense |
$ |
7,189,428 |
|
|
$ |
5,348,266 |
Deferred finance cost amortization - convertible
debentures |
(662,839) |
|
|
(444,685) |
Implicit interest rate in excess of coupon rate -
convertible debentures |
(247,853) |
|
|
(91,487) |
Change in accrued interest |
(211,679) |
|
|
(449,418) |
Cash
Interest Paid |
$ |
6,067,057 |
|
|
$ |
4,362,676 |
15. Contingent liabilities:
The Corporation is involved in certain litigation arising out of
the ordinary course of investing in loans. Although such
matters cannot be predicted with certainty, management believes the
claims are without merit and does not consider the Corporation's
exposure to such litigation to have an impact on these financial
statements.
16. Fair value of financial instruments:
The fair values of amounts receivable, bank indebtedness, accounts
payable and accrued liabilities and shareholder dividend payable
approximate their carrying values due to their short-term
maturities.
The fair value of investment portfolio approximates its carrying
value as the majority of the loans are repayable in full at any
time without penalty, and have floating interest rates.
The fair values of loans payable approximate their carrying values
due to the fact that the majority of the loans are: (i) repayable
in full, at any time upon the borrower under the underlying loan
that secures the loan payable repaying their loan without penalty,
and (ii) have floating interest rates linked to bank prime.
The fair value of convertible debentures, including their
conversion option, has been determined based on the closing price
of the debentures of the Corporation on the Toronto Stock Exchange
for the respective date. The fair value has been estimated at
December 31, 2012 to be $87,541,693 (2011 - $73,722,648). This is a level 1 input which
is based on a quoted price in an active market.
17. Risk management:
(a) Interest rate risk:
The Corporation's operations are subject to interest rate
fluctuations. The interest rate on the majority of the
investments is set at the greater of a floor rate and a formula
linked to bank prime. The floor interest rate mitigates the
effect of a drop in short term market interest rates while the
floating component linked to bank prime allows for increased
interest earnings where short term market rates increase.
The Corporation's debt comprises bank indebtedness, loans payable
and convertible debentures, with the bank indebtedness and loans
payable bearing interest based on bank prime and/or based on short
term Bankers Acceptance interest rates as a benchmark.
At December 31, 2012, if interest
rates at that date had been 100 basis points lower or higher, with
all other variables held constant, comprehensive income and equity
for the year would be affected as follows:
|
Carrying Value |
|
-1% |
|
+1% |
Financial assets |
|
|
|
|
|
|
Amounts receivable and prepaid expenses |
3,026,057 |
|
- |
|
- |
|
Investment portfolio |
294,037,271 |
|
$ |
(39,485) |
|
$ |
524,539 |
|
|
|
|
|
|
Financial liabilities |
|
|
|
|
|
|
Bank indebtedness |
24,379,151 |
|
243,792 |
|
(243,792) |
|
Accounts payable and accrued liabilities |
1,741,191 |
|
- |
|
- |
|
Shareholder dividend payable |
2,300,218 |
|
- |
|
- |
|
Loans payable |
9,045,731 |
|
71,217 |
|
(71,217) |
|
Convertible debentures |
82,530,325 |
|
- |
|
- |
|
|
|
|
|
|
Total increase |
|
|
$ |
275,524 |
|
$ |
209,530 |
(b) Credit and operational risks:
Any instability in the real estate sector and an adverse change in
economic conditions in Canada
could result in declines in the value of real property securing the
Corporation's investments. The Corporation mitigates this
risk by adhering to the investment and operating policies set out
in its Declaration of Corporation. The Corporation's maximum
exposure to credit risk is represented by the fair values of
amounts receivable and the investment portfolio.
(c) Liquidity risk:
The Corporation's liquidity requirements relate to its obligations
under its bank indebtedness, loans payable, convertible debentures
and its obligations to make future advances under its existing
portfolio. Liquidity risk is managed by ensuring that the sum
of (i) availabililty under the Corporation's bank borrowing line,
(ii) the sourcing of other borrowing facilities, and (iii)
projected repayments under the existing investment portfolio,
exceeds projected needs (including funding of further advances
under existing and new investments).
As at December 31, 2012, the
Corporation had not utilized its full leverage availability, being
a guideline of 60% of its first mortgage investments.
Un-advanced committed funds under the existing investment portfolio
amounted to $43,212,906 as at
December 31, 2012 (December 31, 2011 - $30,845,331). These commitments are
anticipated to be funded from the Corporation's credit facility and
borrower repayments. The Corporation has a revolving line of
credit with its principal banker to fund the timing differences
between investment advances and investment repayments. The
bank borrowing line is a committed facility with a maturity date of
September 30, 2013. If the loan
is not renewed on September 30, 2013,
the terms of the facility allow for the Corporation to repay the
balance owed on September 30, 2013
within 12 months. In the current economic climate and capital
market conditions, there are no assurances that the bank borrowing
line will be renewed or that it could be replaced with another
lender if not renewed. If it is not extended at maturity,
repayments under the Corporation's investment portfolio would be
utilized to repay the bank indebtedness. There are
limitations in the availability of funds under the revolving line
of credit. The Corporation's investments and predominantly
short-term in nature, and as such, the continual repayment by
borrowers of existing investments creates liquidity for ongoing
investments and funding commitments. Loans payable relate to
borrowings on specific investments within the Corporation's
portfolio and only have to be repaid once the specific loan is paid
out by the Borrower.
If the Corporation is unable to continue to have access to its bank
borrowing line and loans payables, the size of the Corporation's
investment portfolio will decrease and the income historically
generated through holding a larger portfolio by utilizing leverage
will not be earned.
Contractual obligations as at December 31,
2012 are due as follows:
|
Total |
|
Less than 1 year |
|
1 - 3 years |
|
4 - 6 years |
Bank indebtedness |
$ |
24,379,151 |
|
$ |
24,379,151 |
|
- |
|
- |
Accounts payable anaccrued liabililties |
1,741,192 |
|
1,741,192 |
|
- |
|
- |
Shareholder dividend payable |
2,300,218 |
|
2,300,218 |
|
- |
|
- |
Loans payable |
9,045,731 |
|
- |
|
9,045,731 |
|
- |
Convertible debentures |
86,300,000 |
|
8,634,000 |
|
- |
|
77,666,000 |
Subtotal - Liabilities |
$ |
123,766,292 |
|
$ |
37,054,561 |
|
$ |
9,045,731 |
|
$ |
77,666,000 |
Future advances undeportfolio |
43,212,906 |
|
43,212,906 |
|
|
|
|
Liabilities and contractual obligations |
$ |
166,979,198 |
|
$ |
80,267,467 |
|
$ |
9,045,731 |
|
$ |
77,666,000 |
The bank indebtedness and loans payable are liabilities
resulting from the funding of the Corporation's investments.
Repayment of investments results in a direct and corresponding pay
down of the bank indebtedness and/or loans payable. The
obligations for future advances under the Corporation's investment
portfolio are anticipated to be funded from the Corporation's
credit facility and borrower repayments. Upon funding of
same, the funded amount forms part of the Corporation's
investments.
Interest payments on loans payable (assuming outstanding amounts
and the bank prime interest rate remain unchanged) would be
$457,994 for less than 1 year,
$915,988 for 1 to 3 years and
$1,373,982 for 4 to 6 years.
Interest payments on debentures (assuming the amounts remain
unchanged) would be $4,532,307 for
less than 1 year, $8,805,594 for 1 to
3 years and $13,078,881 for 4 to 6
years.
(d) Capital risk management:
The Corporation defines capital as being the funds raised through
the issuance of publicly traded securities of the
Corporation. The Corporation's objectives when managing
capital/equity are:
- to safeguard the Corporation's ability to continue as a going
concern, so that it can continue to provide returns for
shareholders, and
- to provide an adequate return to shareholders by obtaining an
appropriate amount of debt, commensurate with the level of risk
The Corporation manages the capital/equity structure and makes
adjustments to it in light of changes in economic conditions.
In order to maintain or adjust the capital structure, the
Corporation may issue new shares or repay bank indebtedness (if
any) and loans payable. The Corporation's investment guidelines,
which can be varied at the discretion of the Board of Directors,
incorporate various guideline restrictions and investment operating
policies. The Corporation's guideline states that the
Corporation (i) will not invest more than 10% of the amount of its
capital in any single conventional first mortgage where the loan to
value on such loan is less than 60%, (ii) will not invest more than
8% of the amount of its capital in any single conventional first
mortgage where the loan to value on such loan is between 60% and
70%, (iii) will not invest more than 5% of the amount of its
capital in any single conventional first mortgages where the loan
to value on such loan exceeds 70%, (iv) will not invest more than
2.5% of the amount of its capital in any single non-conventional
mortgage or conventional investment that it is not a first
mortgage, and (v) will only borrow funds in order to acquire or
invest in investments in amounts up to 60% of the book value of the
Corporation's portfolio of conventional first mortgages.
The Corporation is required by its Bank lender to maintain various
covenants, including minimum equity amount, interest coverage
ratios, indebtedness as a percentage of the performing first
mortgage portfolio size and indebtedness to total assets. The
Corporation has complied with all such Bank covenants.
20. Subsequent events:
On March 4, 2013, the Corporation
entered into an agreement to sell, on a bought deal basis, to a
syndicate of underwriters, $20,000,000 aggregate principal amount of 4.75%
convertible unsecured subordinated debentures due March 31, 2020 (the "Debentures") at a price of
$1,000 per Debenture. The
Corporation has granted the underwriters an over-allotment option
to purchase up to $3,000,000
additional aggregate principal amount of Debentures, exercisable,
in whole or in part, at any time until 30 days following the
closing of the offering. The Debentures will bear interest at
a rate of 4.75% per annum, payable semi-annually in arrears on the
last day of March and September in each year commencing
September 30, 2013, and will mature
on March 31, 2020 (the "Maturity
Date"). The Debentures will be convertible at the holder's
option into common shares of the Corporation (the "Shares") at any
time prior to the earlier of the Maturity Date and the date fixed
for redemption at a conversion price of $15.80 per Share (the "Conversion Price"),
subject to adjustment in certain circumstances.
The offering is scheduled to close on or about March 28, 2013, and is subject to regulatory
approval.
SOURCE Firm Capital Mortgage Investment Corporation