Despite a not-so-strong performance in the third quarter, real estate finance company Terra Firma Capital said that the coronavirus recession had failed to take the wind out of its sails.
Publishing its three and nine-month financial results on Wednesday, the publicly-traded finance firm reported that its revenues decreased 1.3% to $4.1 million in the first three months of 2020, compared to $4.2 million during the same period a year ago. Terra Firma’s nine-month profit also dipped 1.3% to $11.9 million versus its $12 revenue in 2019.
Overall, the firm’s adjusted net income and comprehensive income dropped 2.6% to $884,000.
Terra Firma CEO Glenn Watchorn expects the coronavirus-induced housing boom to have a delayed effect on the company.
“While the US housing sector continues to be one of the few shining stars during the COVID-19 crisis, the benefit to the company will have a delayed effect given the faster repayments from borrowers experiencing higher sales volumes and the halt in new originations in the first half of the year for precautionary measures,” he said. “These higher sales volumes are, however, leading to a significant increase in the demand for new housing lots and in turn, financing for new land developments.”
The decrease in revenue was partially offset by an increase in interest and fees of $1.2 million from new loans funded after September 30. As for the nine-month period, $3.1 million of interest and fees from new loans made up for the decrease, along with $481,000 of additional interest earned from existing loans.
Terra Firma – which provides customized debt and equity solutions to the real estate industry in Canada and the United States – said it has preserved a strong balance sheet and ample liquidity with $3.8 million of cash and $18.0 million of the available line of credit.
“Consequently, the company’s pipeline of new transactions has increased significantly since the end of Q2 2020, as evidenced by the $36 million of new originations closed in Q3 2020, of which $28 million has been funded,” Watchorn said.
The firm halted all origination activities during the first half of the year due to COVID-19 – resuming originations only at the start of Q3. Its total investments fell 12.6% ($17.8 million) to $123.7 million, primarily due to the net repayments of loan investments and finance leases.
Despite the slight downturn, Watchorn said he’s happy with the Q3 results and is “very optimistic” that the company will be able to grow its assets under management and net income significantly over the next year. Terra Firma revealed that it is looking at an opportunity to fund distressed assets through a debt fund, which is anticipated to be operational in Q4.
“We continue to follow strong protocols to safeguard our employees and capital during this pandemic and are proceeding with originations using a defensive approach given the inherent economic uncertainty in short to medium term in both the US and Canada,” Watchorn said.
Other Q3 2020 financial highlights:
- The principal balance of the company’s loan and mortgage syndications from $82.9 million at Sept. 30, 2019, to $69.5 million at Sept. 30, 2020, decreased by $13.4 million or 16.2%.
- The net income and comprehensive income for the three-month period ended September 30, 2020, was $1.1 million or $0.20 per basic and diluted share compared to the $1.0 million or $0.18 per basic and diluted share reported for the same period last year.
- The net income and comprehensive income for the nine-month period ended September 30, 2020, was $1.3 million or $0.24 per basic and diluted share compared to the $2.2 million or $0.38 per basic and diluted share reported for the same period last year.
- The net income for the three and nine months period was impacted primarily by an additional provision for loan investment and other receivable losses, the share of loss from investment in associates, along with the unrealized foreign exchange losses from the devaluation of the Canadian dollar and resulting increase in provision for income for the purposes of Canadian taxes.