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Firm Capital Mortgage Investment Corp. Q1-2020 Earnings, Price Target Update

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Firm Capital Mortgage Investment Corp.(FC-TSX) is a non-bank provider of residential and commercial real estate finance. They provide short-term bridge and conventional real estate financing, including construction, mezzanine and equity investments. Their investment objective is the preservation of capital while providing shareholders with a stable stream of monthly dividends. The income is earned from interest payments on loans secured by real estate. Their yield objective is to produce a return on shareholders' equity in excess of 400 basis points over the average one-year Government of Canada Treasury bill yield. Firm Capital specializes in providing equity, construction and bridge financing to the builder, developer and real estate owner marketplace. A key risk to sustaining distributions is to successfully source, short maturity loans with strong collateral. Also the short term nature of the portfolio loans exposes them to interest rate renewal risks.

The average loan to value ratio is estimated at 80% and the average term to maturity is under two years, 75% of mortgages are first mortgages, 70% of mortgages on in Ontario, mainly the Greater Toronto area. The shorter term structure of the loan portfolio focuses on a segment of the mortgage market that is underserved by the larger lending institutions. Approximately 90% of income is earned from interest on mortgages; the balance is from fees and special income.

Firm Capital Mortgage Investment Corp is structured as a Mortgage Investment Corp. under Section 130 of the Canadian Income Tax Act. This structure permits distributions made to shareholders to be a deduction from income. Firm Capital's dividend policy is to pay out substantially all of their earnings otherwise the income retained is taxable at Firm Capital. Their yield objective is to produce a return on shareholders' equity in excess of 400 basis points over One Year Government of Canada Treasury bill yields.

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