Form 10-QSB
[ x ] QUARTERLY REPORT PURSUANT SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
[ ] TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number 333-10109
UNITED MORTGAGE TRUST
(Exact Name of Registrant as Specified in its
Governing Instruments)
(a Maryland trust) (IRS Employer Identification
Number 75-6496585)
1701 N. GREENVILLE, SUITE 403
RICHARDSON TX 75081
(972) 705-9805
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12
months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
<PAGE>
UNITED MORTGAGE TRUST
INDEX TO FORM 10-QSB
Page Number
PART I -- FINANCIAL INFORMATION . . . . . . . . . . . . . .3
Item 1. Financial Statements . . . . . . . . . . . . . . . .3
Balance Sheets
September 30, 1999 and December 31, 1998. . . . . .3
Statements of Income
Three Months and Nine Months Ended
September 30, 1999 and 1998. . . . . . . . . . . . .4
Statements of Cash Flows
Nine Months Ended
September 30, 1999 and 1998. . . . . . . . . . . . .5
Notes to Financial Statements. . . . . . . . . . . . .6
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial Condition . . . . .8
PART II -- OTHER INFORMATION . . . . . . . . . . . . . . . 12
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . 12
SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . . .12
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. Financial Statements
<TABLE>
BALANCE SHEETS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
<CAPTION>
SEPT. 30, DEC. 31,
1999 1998
(unaudited) (audited)
ASSETS
<S> <C> <C>
Cash $ 49,578 $ 58,054
Investment in residential mortgages
and contracts for deed 19,661,929 11,159,863
Interim mortgages 4,126,848 3,285,023
Accrued interest receivable 214,709 133,478
Receivable from affiliate (Note 4) 22,645 15,185
Equipment, less accumulated depreciation
of $1,646 and $1,256, respectively 1,596 1,986
Other assets 40,350 5,350
----------- -----------
Total Assets $24,117,655 $14,658,939
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Line of credit (Note 3) 5,000,000 1,484,308
Dividend payable 199,928 121,164
Accounts payable & accrued
liabilities 169 1,519
----------- -----------
Total Liabilities 5,200,097 1,606,991
----------- -----------
Shareholders' equity:
Shares of beneficial interest; $.01 par
Value; 100,000,000 shares authorized
1,046,629 and 734,271 shares
outstanding 10,466 7,343
Additional paid-in capital 18,755,921 12,974,938
Retained earnings 151,171 69,667
----------- -----------
Total Shareholders' Equity $18,917,558 $13,051,948
----------- -----------
Total liabilities & shareholders' equity $24,117,655 $14,658,939
=========== ===========
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF INCOME
FOR THE THREE MONTHS AND NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
<CAPTION>
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
1999 1998 1999 1998
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Income:
Interest income $683,567 $313,275 $1,754,784 $700,147
Gain (loss)on sale
of notes (12,032) 4,533 26,559 4,533
-------- -------- ---------- --------
671,535 317,808 1,781,343 704,680
-------- -------- ---------- --------
Expense:
Salaries and wages 26,134 16,148 64,722 29,832
General and administrative 66,673 45,311 189,091 162,082
Interest expense 114,706 7,416 231,663 17,222
Expense reimbursement
from affiliate(Note 4) (49,145) (41,223) (140,369) (150,161)
-------- -------- ---------- --------
158,368 27,652 345,107 58,975
-------- -------- ---------- --------
Net income $513,167 $290,156 $1,436,236 $645,705
======== ======== ========== ========
Net income per share of
beneficial interest $0.52 $0.52 $1.62 $1.60
======== ======== ========== ========
Weighted average shares
outstanding 995,116 555,169 886,583 404,269
======== ======== ========== ========
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
<CAPTION>
Sept. 30,
1999 1998
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,436,236 $ 645,705
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 390 525
Discount on mortgage investments
gain on sale of notes (40,124) (4,533)
Amortization of discount on
mortgage investments (71,973) (38,988)
Accrued interest receivable (81,231) (60,492)
Other assets (35,000) (6,365)
Accounts payable and accrued
liabilities (1,350) 4,174
Net cash provided by operating ----------- ---------
activities: 1,206,948 540,026
----------- ---------
Cash flows from investing activities:
Investment in residential mortgages
and contracts for deed (9,534,684) (5,586,840)
Principal receipts on residential
mortgages and contracts for deed 1,402,256 118,389
Investment in interim mortgages (7,143,937) (4,879,279)
Principal receipts on interim mortgages 6,302,113 2,871,414
Loan acquisition costs (257,540) (173,674)
Net cash used in investing --------- ----------
activities: (9,231,792) (7,649,990)
--------- ----------
Cash flows from financing activities:
Proceeds from issuance of shares of
beneficial interest 5,784,106 7,351,106
Net borrowings on credit line 3,515,691 293,000
Receivable from affiliate (7,460) 7,116
Dividends (1,275,969) (540,266)
Net cash provided by financing ---------- ----------
activities: 8,016,368 7,110,956
---------- ----------
Net increase in cash (8,476) 992
Cash at beginning of period 58,054 248
---------- ----------
Cash at end of period $ 49,578 $ 1,240
---------- ----------
Interest paid $ 231,663 $ 17,222
---------- ----------
<FN>
See accompanying note to financial statements.
</FN>
</TABLE>
<PAGE>
UNITED MORTGAGE TRUST
Notes to Financial Statements
September 30, 1999
1. Description of Business
The Company
United Mortgage Trust is a self administered real estate
investment trust (a "REIT") that invests in mortgages and contracts for
deed. Most, if not all, of the mortgages and contracts for deed that we
purchase are not insured or guaranteed by a federally owned or
guaranteed mortgage agency and involve borrowers who do not satisfy all
of the income ratios, credit record criteria, loan-to-value ratios,
employment history and liquidity requirements of conventional mortgage
financing. The advisor to the Company is Mortgage Trust Advisors, Inc.
(the "Advisor"), a Texas corporation.
Operations commenced on March 5, 1997 when the Securities and
Exchange Commission gave approval for the Company's initial public
offering of shares. The Company is currently offering up to 2,500,000
shares at an offering price of $20 per share.
2. Basis of Presentation
The accompanying unaudited financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB of
Regulation S-B. They do not include all information and footnotes
required by generally accepted accounting principles for complete
financial statements. However, except as disclosed herein, there has
been no material change in information disclosed in the notes to the
financial statements for the year Ended December 31, 1998 included in
the Company's 10-KSB filed with the Securities and Exchange Commission.
The interim unaudited financial statements should be read in
conjunction with those financial statements. In the opinion of
management, all adjustments considered necessary for a fair
presentation, consisting solely of normal recurring adjustments, have
been made. Operating results for the three months and nine months Ended
September 30, 1999 are not necessarily indicative of the results that
may be expected for the year Ended December 31, 1999.
3. Line of Credit
On March 23, 1999 the Company renewed and increased its Revolving
Loan Agreement (the "Agreement") with Legacy Bank of Texas (the
"Bank"), wherein the Company can borrow up to $5,000,000 on a revolving
basis for a term of one year from the date of the Agreement. Interest
on the outstanding principal balance of the loan is paid monthly at a
varying rate per annum of one and one-half percent (1-1/2%) in excess
of the Bank's prime rate of interest. The borrowing base in the
Agreement is an amount equal to fifty percent (50%) of the aggregate
unpaid principal of the Collateral pledged to the Bank. Collateral for
the Agreement is $10,000,000 unpaid principal balance of residential
mortgages owned by the Company. As security for the prompt satisfaction
of all obligations of the Agreement, the Company agreed to assign,
transfer and set over to the Bank all of its right, title and interest
in and to the Collateral. The outstanding balance of the Revolving Line
of Credit was $5,000,000 and $1,484,308 at September 30, 1999 and
December 31, 1998, respectively. The Company used the funds to purchase
Mortgage Investments.
4. Related Party Transactions
In 1997 the Company entered into a Funding Agreement with the
Advisor whereby the Advisor agreed to fund the Company's general and
administrative expenses. In connection with this Agreement, the Company
received $49,145 and $41,223 in expense reimbursement for the three
months ended September 30, 1999 and 1998, respectively, and $140,369
and $150,161 in expense reimbursements for the nine months ended
September 30, 1999 and 1998, respectively. In consideration of the
Agreement, the Company contributed to the Advisor an amount equal to
one-half of one percent (.5%) of the Company's average invested assets
for the immediately preceding month.
The Company also paid the Advisor Acquisition Fees of $81,442 and
$80,049 during the three months ended September 30, 1999 and 1998,
respectively, and $257,540 and $173,674 during the nine months ended
September 30, 1999 and 1998, respectively. The fee is calculated at 3%
of the unpaid principal balance of the Residential Mortgages as of the
purchase date.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS FOR THE THREE MONTHS AND NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
We were formed on July 12, 1996, however our business operations
commenced in March 1997 when the Securities and Exchange Commission
issued an order of registration for our initial public offering of
shares. The following tables set forth certain information about the
Mortgage Investments that we purchased during the three month and nine
month periods set forth below.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1999 1998
-------------------------
RESIDENTIAL MORTGAGES
<S> <C> <C>
Purchase price $1,354,822 $2,605,245
Total number 29 64
Number purchased from affiliates 22 37
Number purchased from other sources 7 27
Blended interest rate 11.35% 11.55%
Aggregate principal balance $1,408,853 $2,713,951
Average principal balance $48,581 $42,399
Remaining term in months (1) 342 329
Current yield (1) 11.80% 12.03%
Purchase price/principal balance (1) 96.16% 95.99%
Investment-to-value ratio (1)(2) 83.80% 84.00%
CONTRACTS FOR DEED
<S> <C> <C>
Purchase price $1,753,695 0
Total number 39 0
Number purchased from affiliates 10 0
Number purchased from other sources 29 0
Blended interest rate 11.89% 0
Aggregate principal balance $1,776,763 0
Average principal balance $44,967 0
Remaining term in months(1) 355 0
Current yield (1) 12.05% 0
Purchase price/principal balance (1) 98.70% 0
Investment-to-value ratio (1)(2) 87.00% 0
INTERIM MORTGAGES
<S> <C> <C>
Dollars invested during period $2,287,872 $2,559,179
Total number participated in
during period 61 76
Number purchased from affiliates 61 76
Number purchased from other sources 0 0
Blended interest rate 12.75% 13.86%
Remaining term in months <12 months <12 months
Current yield at year-end (1) 12.93% 13.67%
Purchase price/principal balance (1) 100% 100%
Investment-to-value ratio (1)(2) 52% 46%
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1999 1998
--------------------------
RESIDENTIAL MORTGAGES
<S> <C> <C>
Purchase price $4,257,885 $5,528,370
Total number 93 137
Number purchased from affiliates 63 92
Number purchased from other sources 30 45
Blended interest rate 11.29% 11.53%
Aggregate principal balance $4,432,877 $5,834,773
Average principal balance $47,665 $40,355
Remaining term in months (1) 336 331
Current yield (1) 11.75% 12.17%
Purchase price/principal balance (1) 96.05% 94.75%
Investment-to-value ratio (1)(2) 84.50% 83.54%
CONTRACTS FOR DEED
<S> <C> <C>
Purchase price $2,200,713 0
Total number 51 0
Number purchased from affiliates 26 0
Number purchased from other sources 25 0
Blended interest rate 11.88% 0
Aggregate principal balance $2,227,904 0
Average principal balance $43,684 0
Remaining term in months(1) 354 0
Current yield (1) 12.02% 0
Purchase price/principal balance (1) 98.78% 0
Investment-to-value ratio (1)(2) 88.00% 0
INTERIM MORTGAGES
<S> <C> <C>
Dollars invested during period $4,856,065 $4,884,571
Total number participated in
during period 144 158
Number purchased from affiliates 144 158
Number purchased from other sources 0 0
Blended interest rate 12.75% 13.34%
Remaining term in months <12 months <12 months
Current yield at year-end (1) 12.93% 13.16%
Purchase price/principal balance (1) 100% 100%
Investment-to-value ratio (1)(2) 52% 46%
<FN>
(1) These amounts were determined at the time the Mortgage Investments
were purchased.
(2) The investment-to-value ratio is determined at the time a Mortgage
Investment is acquired and is determined by dividing the amount paid
to acquire that Mortgage Investment by the value of the underlying
real estate that is security for that Mortgage Investment.
</FN>
</TABLE>
As of September 30, 1999, our mortgage portfolio in the aggregate
consisted of 341 Residential Mortgages and 110 Contracts for Deed. As
of the dates of purchase, the portfolio had an unpaid principal
balance of $19,899,168 purchased for a discounted price of $19,082,361
(95.90% of the unpaid principal balance). The average loan in the
portfolio had a blended interest rate of 11.49%, an unpaid principal
balance of $44,122, a term remaining of 339 months, a current annual
yield of 11.98%, and an investment-to-value ratio of 84.40%. As of
September 30, 1999 we had 116 active interim mortgages with a total
outstanding principal balance of $4,126,848. The average interim
mortgage had a blended interest rate of 12.75%, and unpaid principal
balance of $35,576, a term remaining of less than 12 months, a current
annual yield of 12.93%, and an investment-to-value of 52%.
By comparison, our portfolio as of September 30, 1998 consisted
of 209 Residential Mortgages and no Contracts for Deed with an unpaid
principal balance of $8,658,631, and was purchased for a discounted
price of $8,163,896 (94.29% of the unpaid principal balance). The
average loan in the portfolio had a blended interest rate of 11.48%,
an unpaid principal balance of $41,425, a term remaining of 323
months, a current annual yield of 12.18%, and an investment-to-value
ratio of 83.4%. As of September 30, 1998 we had 80 active Interim
Mortgages with a total outstanding principal balance of $2,885,140.
The average interim mortgage had a blended interest rate of 13.16%,
and unpaid principal balance of $36,064, a term remaining of less than
12 months, a current annual yield of 13.34%, and an investment-to-
value of 46%.
All of the properties that are security for the Residential
Mortgages and Interim Mortgages were located in Texas. Each of the
properties was adequately covered by a mortgagee title insurance
policy and hazard insurance.
THREE MONTHS PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
Our Mortgage Investments generated $671,535 and $317,808 of total
income during the quarters ended September 30, 1999 and 1998,
respectively. The 111% increase was attributed to the significant
addition of Mortgage Investments purchased using Net Offering Proceeds
derived from the sale of our Shares during the year proceeding the
current period. Expenses of $207,514 in the 1999 quarter were offset
by reimbursement from the Advisor to us of $49,145. Expenses of
$68,875 in the 1998 quarter were offset by reimbursement from the
Advisor of $41,223. The 201% rise in the 1999 quarter was attributed
to a significant increase in interest expense commensurate with
substantially higher borrowings on our credit line, and to a increase
in mortgage service fees generated by the larger portfolio of Mortgage
Investments.
Our net income of $513,167 and $290,156 for the quarters ended
September 30, 1999 and 1998, respectively, represented a 77% increase.
Earnings per weighted average share of beneficial interest were $0.52
for both the 1999 and 1998 quarters.
We declared and paid dividends per share of beneficial interest
for the quarters ended September 30, 1999 and 1998 of $0.50, which
exceeded a 10% annualized rate of return for our shareholders.
NINE MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
Our Mortgage Investments generated $1,781,343 and $704,680 of
total income for the nine-month periods ended September 30, 1999 and
1998, respectively. The 153% increase was attributed to the
significant addition of Mortgage Investments purchased using Net
Offering Proceeds derived from the sale of our Shares during the year
proceeding the current period. Expenses of $485,476 in the 1999 nine-
month period were offset by reimbursement from the Advisor to us of
$140,369. Expenses of $209,136 in the comparable 1998 period were
offset by reimbursement from the Advisor of $150,161. The 132% rise in
the 1999 period was attributed to a significant increase in interest
expense commensurate with substantially higher borrowings on our
credit line, and to a increase in mortgage service fees generated by
the larger portfolio of Mortgage Investments.
Our net income of $1,436,236 and $645,705 for the nine-month
periods ended September 30, 1999 and 1998, respectively, represented a
122% increase. Resulting earnings per weighted average share were
$1.62 compared to $1.60 for the respective periods.
We declared and paid dividends per share of beneficial interest
for the nine months ended September 30, 1999 and 1998 of $1.51 and
$1.55, respectively. During both quarters we exceeded a 10% annualized
rate of return for our shareholders.
As of September 30, 1999, 17 of our Mortgage Investments, or 3.0%
of our active portfolio of 567 loans, were in default. This compares
to 11 defaulted investments at September 30, 1998, or 3.81% of our
active portfolio of 289 loans. As a result of the recourse provisions
under which the Mortgage Investments were purchased, we did not
experience a loss of interest income due to the defaults in either
quarter.
CAPITAL RESOURCES AND LIQUIDITY FOR THE THREE MONTHS AND NINE MONTHS
ENDED SEPTEMBER 30, 1999 AND 1998
We utilize funds made available from the sale of our Shares,
funds made available on our bank line of credit and repayment of
principal on our Mortgage Investments to purchase Mortgage
Investments.
The following tables set forth certain information concerning
sources of capital during the three month and Nine month period ended
September 30, 1999 and 1998.
<TABLE>
<CAPTION>
THREE MONTH PERIODS
ENDED SEPTEMBER 30,
1999 1998
---------------------------
<S> <C> <C>
Shares issued 129,797 186,845
Number of new shareholders 57 88
Gross offering proceeds $2,595,940 $3,736,900
Net offering proceeds (after deduction
of selling commissions and fees) $2,323,141 $3,343,946
Principal receipts from Residential
Mortgages and Contracts for Deed $478,951 $100,416
Principal receipts from Interim Mortgages $1,819,074 $1,427,788
Net borrowing from credit line $622,661 $112,807
<CAPTION>
NINE MONTH PERIODS
ENDED SEPTEMBER 30,
1999 1998
---------------------------
<S> <C> <C>
Shares issued 312,358 405,754
Number of new shareholders 147 216
Gross offering proceeds $6,247,160 $8,115,080
Net offering proceeds (after deduction
of selling commissions and fees) $5,590,473 $7,261,747
Principal receipts from Residential
Mortgages and Contracts for Deed $1,402,256 $118,389
Principal receipts from Interim Mortgages $6,302,113 $2,871,414
Net borrowing from credit line $3,515,691 $293,000
We use a combination of Net Offering Proceeds, borrowing on our
credit line and payments of principal on our Mortgage Investments to
purchase new Mortgage Investments.
During the quarters ended September 30, 1999 and 1998 we
purchased 129 Mortgage Investments for a purchase price of $5,396,389
and 140 Mortgage Investments for a purchase price of $5,164,424,
respectively.
During the nine months ended September 30, 1999 and 1998 we
purchased 288 Mortgage Investments for a purchase price of $11,314,627
and 295 Mortgage Investments for a purchase price of $10,412,941,
respectively.
As of September 30, 1999, we had sold an aggregate total of
1,036,629 Shares for Gross Offering Proceeds of $20,732,580 and Net
Offering Proceeds to us of $18,547,759. Total shares outstanding at
September 30, 1999 were 1,046,629, which included 10,000 sold to the
Advisor before the public offering commenced. This compares to an
aggregate total of 598,262 Shares for Gross Offering Proceeds of
$11,965,240 and Net Offering Proceeds to us of $10,706,745 as of
September 30, 1998. Total shares outstanding at September 30, 1998
were 608,262, which included 10,000 sold to the Advisor before the
public offering commenced.
On March 23, 1999 we renewed and increased our Revolving Loan
Agreement (the "Legacy Agreement") with Legacy Bank of Texas, a Texas
State Bank ("Legacy"), wherein we could borrow up to $5,000,000 on a
revolving basis for a term of one year from the date of the agreement.
Interest on the outstanding principal balance of the loan was paid
monthly at a varying rate per annum which was one and one-half percent
(1-1/2%) above the "Wall Street Journal Prime" rate of interest. As
security for the prompt satisfaction of all obligations of the Legacy
Agreement, we pledged through collateral assignment $10,000,000 of
residential mortgages. The outstanding loan balance at September 30,
1999 was $5,000,000.
YEAR 2000 ISSUES
Certain computer programs and embedded logic devices that utilize
two digits rather than four to define the applicable year may fail to
properly recognize date sensitive information when the year changes to
2000 (the "Year 2000 Issue").
We are conducting a comprehensive review to determine if the Year
2000 Issue will affect our computer system. We currently believe that
we do not face "legacy" computer systems and software issues because
we commenced operations within the past five years. Thus, we do not
anticipate incurring internal Year 2000 Issue costs that would be
material to our financial position, results of operations, or cash
flows in future periods. Through September 30, 1999, we incurred less
than $1,000 of expenses in connection with our review of the Year 2000
Issue.
There can be no assurance, however, that our lenders, custodians,
loan servicers, vendors, clients and other third-party partners
(collectively, "Contract Parties") will resolve their own Year 2000
Issues in a timely manner, or that any failure by these contract
Parties to resolve such issues would not have an adverse effect on our
operations and financial condition. Each Contract Party is in turn
subject to the Year 2000 Issues of various third parties with which it
does business, making our exposure to the noncompliance of any
Contract Party difficult to assess. We believe we are devoting the
necessary resources to address all of the Year 2000 Issues over which
we have control. With respect to the Year 2000 Issues of Contract
Parties, over which we have no control, our contingency plan is to
identify replacement vendors, where possible.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K - None
During the period covered by this report, the Company filed
reports on Form 8-K dated April 30, 1999 and June 21, 1999 to report
the status of its offering of shares.
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunder duly authorized.
UNITED MORTGAGE TRUST
(Registrant)
Date: November 5, 1999 /S/Christine A. Griffin
Christine A. Griffin
President
</TABLE>
