Form 10-QSB
[ x ] QUARTERLY REPORT PURSUANT SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ending March 31, 2000
[ ] 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 ___
(i)
<PAGE>
UNITED MORTGAGE TRUST
INDEX TO FORM 10-QSB
Page Number
PART I -- FINANCIAL INFORMATION . . . . . . . . . . . . . .3
Item 1. Financial Statements . . . . . . . . . . . . . . . .2
Balance Sheets
March 31, 2000 and December 31, 1999. . . . . . . . 2
Statements of Income
Three Months Ending
March 31, 2000 and 1999. . . . . . . . . . . . . . .3
Statements of Cash Flows
Three Months Ending
March 31, 2000 and 1999. . . . . . . . . . . . . . .4
Notes to Financial Statements. . . . . . . . . . . . .5
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial Condition . . . . .7
PART II -- OTHER INFORMATION . . . . . . . . . . . . . . . 10
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . 10
SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . . .11
Accountants' Review Report . . . . . . . . . . . . . . . . 12
1
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. Financial Statements
<TABLE>
BALANCE SHEETS
MARCH 31, 2000 AND DECEMBER 31, 1999
<CAPTION>
March 31, December 31,
2000 1999
(unaudited) (audited)
ASSETS
<S> <C> <C>
Cash $ 79,676 $ 14,331
Investment in residential mortgages
and contracts for deed 24,199,501 21,877,468
Interim mortgages 4,334,288 4,199,632
Accrued interest receivable 436,495 244,381
Principal receivable 10,820 --
Receivable from affiliate (Note 4) 50,188 23,765
Equipment, less accumulated depreciation
of $1,906 and $1,776, respectively 2,090 2,219
Other assets 40,350 40,350
----------- -----------
Total Assets $29,153,408 $26,402,146
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Line of credit (Note 3) 5,000,000 5,000,000
Dividend payable 216,943 227,181
Accounts payable & accrued
liabilities 5,726 126
----------- -----------
Total Liabilities 5,222,669 5,227,307
----------- -----------
Shareholders' equity:
Shares of beneficial interest; $.01 par
Value; 100,000,000 shares authorized
1,339,260 and 1,185,544 shares
outstanding 13,393 11,856
Additional paid-in capital 23,793,452 21,047,321
Retained earnings 123,894 115,662
----------- -----------
Total Shareholders' Equity $23,930,739 $21,174,839
----------- -----------
Total liabilities & shareholders' equity $29,153,408 $26,402,146
=========== ===========
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
2
<PAGE>
<TABLE>
STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDING MARCH 31, 2000 AND 1999
<CAPTION>
March 31,
2000 1999
(unaudited) (unaudited)
<S> <C> <C>
Income:
Gain on sale of notes $ 4,018 $ 1,068
Interest income 816,341 484,450
-------- --------
820,359 485,518
-------- --------
Expense:
Salaries and wages 33,979 16,228
General and administrative 76,507 62,302
Interest expense 128,528 31,732
Expense reimbursement from
affiliate(Note 4) (54,188) (48,060)
-------- --------
184,826 62,202
-------- --------
Net income $635,533 $423,316
======== ========
Net income per share of beneficial
interest $0.49 $0.54
======== ========
Weighted average shares outstanding 1,289,010 778,380
========== ========
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
3
<PAGE>
<TABLE>
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDING MARCH 31, 2000 AND 1999
<CAPTION>
March 31,
2000 1999
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 635,533 $ 423,316
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 130 130
Net amortization of discount on
mortgage investments (15,785) (27,111)
Changes in assets and liabilities:
Accrued interest receivable (192,114) (23,649)
Other assets -- (35,000)
Accounts payable and accrued
liabilities 5,600 (1,439)
Net cash provided by operating ----------- ---------
activities: 433,364 336,247
----------- ---------
Cash flows from investing activities:
Investment in residential mortgages
and contracts for deed (2,517,366) (2,576,928)
Principal receipts on residential
mortgages and contracts for deed 273,794 153,006
Investment in interim mortgages (1,720,929) (2,532,075)
Principal receipts on interim mortgages 1,586,572 2,521,133
Loan acquisition costs (73,795) (78,462)
Net cash used in investing --------- ---------
activities: (2,451,724) (2,513,326)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of shares of
beneficial interest 2,747,668 1,268,314
Net borrowings on credit line -- 1,384,692
Receivable from affiliate (26,422) 1,743
Dividends (637,541) (376,688)
Net cash provided by financing ---------- ----------
activities: 2,083,705 2,278,061
---------- ----------
Net increase in cash 65,345 100,982
Cash at beginning of period 14,331 58,054
---------- ----------
Cash at end of period $ 79,676 $ 159,036
---------- ----------
Interest paid $ 128,528 $ 31,732
---------- ----------
<FN>
See accompanying notes to financial statements.
4
<PAGE>
</FN>
</TABLE>
UNITED MORTGAGE TRUST
Notes to Financial Statements
March 31, 2000
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 approval was given by
the Securities and Exchange Commission 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 ending December 31, 1999 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 ending March 31, 2000
are not necessarily indicative of the results that may be expected for
the year ending December 31, 2000.
5
<PAGE>
3. Line-of-Credit
The Company had a $1,500,000 line of credit maturing on October
28, 1999, which it increased to $5,000,000 on March 23, 1999. The
line-of-credit agreement expired on April 30, 2000. The lender
granted a 90-day extension of the $5,000,000 line-of-credit on April
30, 2000. The Trustees of the Company have agreed to renew the line-
of-credit for an additional twelve-month period at the end of the
90-day period. The line-of-credit was collateralized with the
assignment of certain Residential Mortgages. Interest was
calculated at 1-1/2 per cent above the bank's prime interest rate,
which translated to a 10.25% rate for the quarter ending March 31,
2000. The 90-day extension lowered the rate of interest to 1-1/4 per
cent above the bank's rate.
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 $54,188 and $48,060 in expense reimbursements for the three
months ending March 31, 2000 and 1999, 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 $73,795 and
$78,462 during the three months ending March 31, 2000 and 1999,
respectively. The fee is calculated at 3% of the unpaid principal
balance of the Residential Mortgages as of the purchase date.
The Company currently leases its office space from an affiliate
under the terms of a 36-month lease at $5,409 per month and
subleases a major portion of space to South Central Mortgage, Inc.
("SCMI"), a related party, for $4,668 per month. The sublease rental
rate is approximately five percent higher than the amount paid by
the Company. Rent expense amounted to $2,702 and $1,755 for the
quarters ended March 31, 2000 and 1999, respectively.
The Company has also entered into a Mortgage Servicing Agreement
with SCMI, incurring service fees of $28,317 and $14,915 during the
2000 and 1999 quarters, respectively.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE QUARTERS ENDED MARCH 31, 2000 AND 1999
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 table sets forth certain information about the
Mortgage Investments that we purchased during the periods set forth
below.
<TABLE>
<CAPTION>
Three Months Ending
March 31,
2000 1999
RESIDENTIAL MORTGAGES
<S> <C> <C>
Purchase price $1,299,000 $2,079,000
Total number 30 44
Number purchased from affiliates 20 28
Number purchased from other sources 10 16
Blended interest rate 11.35% 11.28%
Aggregate principal balance $1,516,000 $2,165,000
Average principal balance $50,500 $49,000
Remaining term in months (1) 353 351
Current yield (1) 11.82% 11.78%
Investment-to-value ratio (1)(2) 84.00% 85.07%
CONTRACTS FOR DEED
<S> <C> <C>
Purchase price $1,299,000 $ 498,000
Total number 29 12
Number purchased from affiliates 9 3
Number purchased from other sources 20 9
Blended interest rate 11.86% 11.77%
Aggregate principal balance $1,378,000 $ 509,000
Average principal balance 47,500 $42,500
Remaining term in months(1) 355 352
Current yield (1) 11.95% 12.04%
Investment-to-value ratio (1)(2) 89.60% 88.90%
INTERIM MORTGAGES
<S> <C> <C>
Dollars invested during period $1,720,929 $2,532,075
Total number participated in
during period 63 73
Number purchased from affiliates 63 73
Number purchased from other sources 0 0
Blended interest rate 12.75% 12.75%
Remaining term in months <12 months <12 months
Current yield at year-end (1) 12.93% 12.93%
Investment-to-value ratio (1)(2) 52% 50%
7
<PAGE>
<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 March 31, 2000 our mortgage portfolio in the aggregate
consisted of 390 Residential Mortgages and 158 Contracts for Deed. As
of the dates of purchase, the portfolio had an unpaid principal
balance of $24,500,000, and was purchased for a discounted price of
$23,600,000 (96.23% of the unpaid principal balance). The average loan
in the portfolio had a blended interest rate of 11.52%, an unpaid
principal balance of $45,000, a term remaining of 342 months, and a
current annual yield of 11.97%, and an investment-to-value ratio of
85.00%. As of March 31, 2000 we also had 98 active interim mortgages
with an outstanding principal balance of $4,334,288.
By comparison as of March 31, 1999, our mortgage portfolio in the
aggregate consisted of 281 Residential Mortgages and 41 Contracts for
Deed. As of the dates of purchase, the portfolio had an unpaid
principal balance of $13,950,463, and was purchased for a discounted
price of $13,249,293 (94.97% of the unpaid principal balance). The
average loan in the portfolio had a blended interest rate of 11.44%,
an unpaid principal balance of $43,324, a term remaining of 333
months, and a current annual yield of 12.04%, and an investment-to-
value ratio of 84.10%. As of March 31, 1999 we also had 115 active
interim mortgages with an outstanding principal balance of $3,295,965.
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.
8
<PAGE>
Our Mortgage Investments generated $820,359 and $485,518 of total
income during the quarters ending March 31, 2000 and 1999,
respectively, which represents a 69% increase. The rise 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 $239,014 in the 2000
quarter were offset by reimbursement from the Advisor or $54,188
compared to $110,262 in the 1999 quarter were offset by reimbursement
from the Advisor to us of $48,060. The 117% rise in the 2000 quarter
was attributed to an additional interest expense commensurate with and
substantially higher borrowing on our credit line.
Net income of $635,533 and $423,316 for the quarters ending
March 31, 2000 and 1999, respectively, represented a 50% increase.
Earnings per weighted average share were $0.49 and $0.54 for the 2000
and 1999 quarters. The decrease was attributed to an increase in
expenses.
As of March 31, 2000, 4.61% of our Mortgage Investments were in
default compared to 3.02% at the 1999 quarter's end. As a result of
the recourse provisions under which the Mortgage Investments were
purchased and due to the gain on resale of foreclosed properties, we
did not experience a loss of interest income due to the defaults in
either quarter.
Dividends declared and paid per share of beneficial interest for
the quarters ending March 31, 2000 and 1999 were $0.501 and $0.504,
respectively. Both quarters exceed a 10% annualized rate of return for
our shareholders.
9
<PAGE>
CAPITAL RESOURCES AND LIQUIDITY FOR THE QUARTERS ENDING MARCH 31, 2000
AND 1999
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 Residential Mortgages and Contracts for Deed to
purchase Mortgage Investments. During the 2000 quarter we sold
153,716 shares of beneficial interest for Gross Offering Proceeds of
$3,074,000 and Net Offering Proceeds (after the deduction of selling
commissions and fees) to us of $2,747,000. During the 1999 quarter we
sold 70,870 shares of beneficial interest for Gross Offering Proceeds
of $1,417,400 and Net Offering Proceeds (after the deduction of
selling commissions and fees) to us of $1,268,000. Net borrowing on
our line of credit did not change during the 2000 quarter but did in
the 1999 quarter by $1,384,692. Repayment of principal on our
Residential Mortgages and Contracts for Deed was $273,794 during the
2000 quarter and $153,006 during the 1999 quarter.
As of March 31, 2000 we had sold an aggregate of 1,329,260 for
Gross Offering Proceeds of $26,785,200 and Net Offering Proceeds to us
of $23,806,845. As of March 31, 1999, we had sold an aggregate total
of 795,141 Shares for Gross Offering Proceeds of $15,902,820 and Net
Offering Proceeds to us of $14,225,594. Total shares outstanding at
March 31, 2000 and 1999 respectively were 1,339,260 and 805,141, 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 March 31, 2000 was $5,000,000 and at March 31, 1999
was $2,869,000. The line-of-credit agreement expired on April 30,
2000. The lender granted a 90-day extension of the $5,000,000 line-
of-credit on April 30, 2000. The Trustees of the Company have agreed
to renew the line-of-credit for an additional twelve-month period at
the end of the 90-day period. The line-of-credit was collateralized
with the assignment of certain Residential Mortgages. Interest was
calculated at 1-1/2 per cent above the bank's prime interest rate,
which translated to a 10.25% rate for the quarter ending March 31,
2000. The 90-day extension lowered the rate of interest to 1-1/4 per
cent above the bank's rate.
10
<PAGE>
PART II - OTHER INFORMATION
None
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: May 15, 2000 /S/Christine A. Griffin
Christine A. Griffin
President
11
<PAGE>
ACCOUNTANTS' REVIEW REPORT
Board of Directors
United Mortgage Trust
We have reviewed the accompanying balance sheets of United
Mortgage Trust as of March 31, 2000 and the related statements of
income and cash flows for the three months then ended. These
financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards
established by the American Institute of Certified Public
Accountants. A review of interim financial information consists
principally of analytical procedures applied to financial data and
making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit in
accordance with generally accepted auditing standards, the objective
of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our reviews, we are not aware of any material
modifications that should be made to the accompanying financial
statements in order for them to be in conformity with generally
accepted accounting principles.
We have previously audited, in accordance with generally
accepted auditing standards, the balance sheet of United Mortgage
Trust as of December 31, 1999 and the related statements of earnings
and cash flows for the year then ended (not presented separately
herein), and in our report dated February 15, 2000, we expressed an
unqualified opinion on those financial statements. In our opinion,
the information set forth in the accompanying balance sheet as of
March 31, 2000, is fairly stated, in all material respects, in
relation to the balance sheet from which it has been derived.
Jackson & Rhodes P.C.
Dallas, Texas
May 5, 2000
12
