GuruFocus -
- Net Investment Income: $25.4 million in Q3.
- Net Income: $14.1 million in Q3.
- Distributable Income: 18 per share with a payout ratio of 95%.
- Book Value: $8.42 per share.
- Portfolio Composition: 83.2% in cash-flowing properties; 60% in multi-residential real estate assets.
- First Mortgages: 87.1% of the portfolio.
- Weighted Average Loan-to-Value (LTV): 63.8% in Q3.
- Weighted Average Interest Rate: 9.3%, down from 9.8% in Q2.
- Floating Rate Loans: 86% of the portfolio.
- New Mortgage Investments: $106 million advanced in Q3.
- Mortgage Portfolio Repayments: $82.7 million in Q3.
- Net Mortgage Portfolio Balance: $983 million average in Q3, down 11% from last year.
- Interest Expense: $5.7 million in Q3, a 22% decrease from last year.
- Credit Facility Balance: $324 million at the end of Q3.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Timbercreek Financial Corp (TBCRF) reported stable cash flows and dividends despite reduced transaction volume in the commercial real estate markets.
- The company increased its overall portfolio of loan investments in each of the first three quarters of 2024.
- Net investment income for Q3 was $25.4 million, with a net income of $14.1 million.
- The portfolio remains conservatively invested, with first mortgages representing 87.1% of the portfolio.
- The company anticipates increased financing opportunities as market conditions improve and expects a widening spread between its dividend yield and other fixed income alternatives.
- The commercial real estate market activity remains muted, affecting transaction volumes.
- The weighted average interest rate decreased from 9.8% in Q2 to 9.3% in Q3, reflecting higher interest rate loans being repaid.
- The average net mortgage investment portfolio balance was 11% lower than the previous year.
- The payout ratio on distributable income was high at 95%, indicating limited room for dividend increases.
- There were movements within stage loans, with some loans advancing to stage 3, indicating potential risk in certain investments.
A: Geoff Mctait, Managing Director - Canadian Originations and Global Syndications, explained that the market in Canada has become increasingly brokered over the last few years. While they maintain strong relationships both directly and through brokers, the focus remains on building direct relationships even in brokered deals to ensure they have the opportunity to participate in competitive bids.
Q: Can you discuss the counterparty risk for the stage 2 and stage 3 loans, particularly the larger exposures?
A: Scott Rowland, Chief Investment Officer, noted that these loans are with well-known, large developers and operators with institutional quality. Despite market challenges, they have confidence in the borrowers' capabilities. Geoff Mctait added that these counterparties are operationally strong and have the capital strength to contribute economically to resolving stage situations.
Q: How far along is the process of high-yielding loans being paid off, and should we expect this prepayment activity to continue?
A: Scott Rowland indicated that the repayment activity has slowed down and they are forecasting a normal period for repayments in Q4. They believe they are through the majority of the high-yielding loan repayments, which were more significant earlier in the year.
Q: What is the visibility on Q4 repayment activity, and will it still produce growth despite typically higher repayments in Q4?
A: Scott Rowland acknowledged that Q4 is historically the highest quarter for repayments. However, current repayment levels are lower than historical averages, and funding rates are positive, suggesting potential growth despite the seasonal trend.
Q: How do the floors on new loans compare to those written in a higher interest rate environment?
A: Tracy Johnston, CFO, mentioned that about 77% of the portfolio has floors, with 50% currently at their floors. Scott Rowland added that floors are negotiated on a deal-by-deal basis, often influenced by the interest rate cycle and borrower expectations.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.