Homburg Invest Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS
International Financial Reporting Standards
Nine Months Ended September 30, 2011
The following table presents the Company's contractual obligations at September 30, 2011, the majority of which are pre-petition. It is not possible to predict the outcome of the CCAA proceedings and, as such, the discharge of liabilities are subject to significant uncertainty.
(Millions) Payments Due by Period
Contractual Obligations
Within 1 year
1-2 years 2-3 years 3-4 years 4-5 years Later
Head and ground leases
15.4 15.3 15.3 15.2 14.6 145.0
Mortgages:
Normal principal installments (i)
21.1 19.5 16.4 16.5 12.5
Interest (i)
47.9 43.5 39.5 34.6 31.0
Principal maturities (iii)
332.9 28.6 108.6 56.3 464.1
Bonds and junior subordinated notes:
Interest (i)
47.5 38.7 26.8 13.8 7.9
Principal maturities (ii)
672.7
Non construction demand loans (iv)
16.6
Construction financing (v)
32.5
Other current and long term payables 11.0
Working capital deficit (vi) 25.7
1,223.3 145.6 206.6 80.1 122.3 609.1
The CCAA process outlined previously in Notes 1 and 2 could impact the amount of contractual obligations, and the time period they are
settled over, and these may be different than presented.
The Company's derivative instrument liability of $26.9 million has been excluded from the above table as this liability relates to financial
instruments that effectively fix the variable interest rate on certain mortgages, which is settled with the derivative instrument on a net basis.
Accordingly, interest obligations on such mortgages are shown at the effective fixed rate, which approximates the timing of the related cash
flows.
(i) The Company requires liquidity to meet the following obligations which ordinarily fall due in the next twelve months: mortgage principal
installments of $21.1 million; interest on mortgages and mortgage bonds of $47.9 million; interest on corporate non asset backed bonds
and junior subordinated notes of $47.5 million; capital spending requirements on the income property portfolio, expected to approximate
$5.0 million; and operating lease commitments of $15.4 million. Sources of finance towards these obligations include: cash on hand of
$46.8 million; net cash flow from operating activities before interest expense unrelated to development activities; cash generated from
continued sales of completed condominium development projects; the potential sale of certain income producing and development
properties, subject to reasonable prices being attained; and distributions received from CANMARC.
(ii) Through June 2012, the Company faces maturities of its mortgage bonds totalling €102,460 ($143,934), in addition to regularly scheduled
principal payments and maturities related to other mortgage debts.
(iii)
Mortgage principal maturities falling due within one year total $332.9 million, of which $0.4 million has been repaid subsequent to period end, $207.0 relates to loans in default of their lending covenants, $25.3 is expected to be renegotiated as part of the CCAA proceedings,
and $100.1 fall current under normal business operations. During the period, the Company temporarily ceased making scheduled principal payments of €0.2 ($0.3) on four mortgages totaling €45.6 ($64.0) with property fair values of €45.6 ($64.0) at September 30, 2011 related to certain underperforming properties in the Netherlands. The lenders' recourse in respect of these property mortgages is
limited to the assets of the limited partnerships holding these loans. The Company is in discussions to renegotiate the amortizations of these loans with the lenders. Subsequent to period end these mortgages have been brought current.
(iv) The Company's non construction demand loans of $16.6 million are secured by first or second charges over various investment properties not to exceed 65% of fair value.
(v) The Company has $228.6 million invested in investment properties under development and properties under development for resale that are not yet income producing. These development properties have been financed with first mortgage construction financing as well as
unsecured debt totaling $32.5 million at September 30, 2011. The Company's reduced liquidity raises uncertainty with respect to the future development of certain land holdings and development projects. For properties under development for resale, where the current fair value is below the carrying value an impairment charge has been recorded. There is a risk that further delays in development
projects could result in additional costs that may not ultimately be recoverable, and the potential for further impairment charges and/or fair value adjustments.
(vi) The working capital deficit of $25.7 million consists of cash of $46.8 million, related party receivable of $7.4 million, and trade receivables of $26.1 million, less payables of $91.3 million, income taxes payable of $7.1 million, related party payable of $7.5 million,
and notes payables of $0.2 million, and arises in the normal course of operations as receivables from tenants are generally on shorter payment terms than trade payables to suppliers.
(vii) The Company's junior subordinated notes, with a principal balance of $55.8, were in default of the interest coverage ratio and the net worth covenant ratio during the period ended September 30, 2011. Mortgage principal maturities also include a loan in the amount of
$232.3 million which was in default of its lending covenant at September 30, 2011. Accordingly, these principal maturities have been classified as falling due within one year.
As a result of the CCAA proceedings, all actions to enforce or otherwise effect payment or repayment of liabilities arising prior to the Petition Date are stayed as of the Petition Date. Absent further order of the Court, no party may take any action to recover on pre-petition claims
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