• Net Investment Income: $26.4 million in Q2.

• Net Income: $15.4 million in Q2.

• Distributable Income: $0.20 per share with an 88% payout ratio.

• Book Value Per Share: $8.42, approximately 15% above the weighted average trading price in Q2.

• Portfolio Size: Over $1 billion at quarter end.

• Weighted Average Loan-to-Value (LTV): 62.3% in Q2.

• Weighted Average Interest Rate (WAIR): 9.8% in Q2.

• Floating Rate Loans: 87% of the portfolio at quarter end.

• New Mortgage Investments: $137 million advanced in Q2.

• Mortgage Portfolio Repayments: $111.5 million in Q2.

• Net Mortgage Portfolio Balance: $960 million average in Q2, down from $1.2 billion in Q2 last year.

• Interest Expense: $5.4 million in Q2, down from $7 million in the same period last year.

• Regular Dividends Declared: $14.3 million or $0.17 per share.

• Credit Facility Balance: $307 million at the end of Q2.

• New Debenture Issuance: $46 million with a 7.5% coupon.

• Warning! GuruFocus has detected 12 Warning Signs with TBCRF.

Release Date: August 01, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Timbercreek Financial Corp (TBCRF) reported improved sequential results with net investment income of $26.4 million and net income of $15.4 million in Q2.

• The company successfully redeployed capital into high-quality loans, expanding the portfolio to over $1 billion.

• The payout ratio was maintained at a healthy 88%, demonstrating the company's ability to generate consistent cash flows and dividends.

• The portfolio remains conservatively invested with 85.6% in first mortgages and a weighted average LTV of 62.3%.

• Recent Bank of Canada rate cuts have created improved market conditions, positioning Timbercreek Financial Corp (TBCRF) for growth in the second half of 2024.

Negative Points

• The average net mortgage investment portfolio balance was 19% lower than the previous year, impacting year-over-year income comparisons.

• Interest income was affected by a lower portfolio balance, with net investment income down from $31.5 million in the prior year.

• The weighted average interest rate decreased slightly, reflecting the impact of recent interest rate cuts.

• Three new exposures entered stage 2 this quarter, indicating ongoing challenges with certain loans.

• The portfolio's mix of cash-flowing properties decreased to 83.4%, down from previous quarters.

Q & A Highlights

Q: Can you describe the deals in the pipeline and how they are building for the second half compared to the first two quarters? A: Geoff Mctait, Managing Director - Canadian Originations and Global Syndications, explained that the pipeline is broad-based and diversified geographically, with opportunities in Montreal, Toronto, and Vancouver. The early phase pipeline includes $500 million of opportunities, with a focus on multifamily and industrial spaces, as well as some retail, land, and construction opportunities.

Q: How does the current deal pipeline compare to previous years like 2019? A: Geoff Mctait noted that while the transaction velocity is not quite at 2019 levels, the current profile is preferable with lower leverage and reset valuations. The pipeline is predominantly refinancing rather than acquisition financing, with room for growth as the market normalizes.

Q: How will recent Bank of Canada rate cuts affect the weighted average interest rate and pricing environment? A: Scott Rowland, Chief Investment Officer, stated that while the weighted average interest rate will fall, there might be margin expansion as rates decrease. The multifamily space remains competitive, but there is potential for margin expansion as rates continue to decrease.

Q: What factors cause a loan to move from stage 2 to stage 3? A: Tracy Johnston, Chief Financial Officer, explained that loans typically move to stage 3 when they are in arrears for over 90 days, among other factors.

Q: Regarding the Edmonton condo portfolio, can we expect provisions to flow back into the income statement upon resolution? A: Tracy Johnston indicated that some release of provisions is possible, but it is too early to determine the extent. Scott Rowland added that any recovery would be positive, but they are comfortable with the current exposure.

Q: Why has the resolution of the medical office building in Ottawa taken so long? A: Scott Rowland explained that the delay is due to a re-leasing plan and exploring potential sale options. They are actively working on entitlement work and expect to bring it to market by the end of the year, with resolution anticipated by Q1 or Q2 2025.

Q: Is the current portfolio mix between cash-flowing properties and others intentional? A: Scott Rowland confirmed that the current mix is intentional, reflecting strategic decisions to invest in land and construction loans with lower LTVs. They expect to return to a more traditional mix as the rate cycle progresses.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.