Timbercreek Financial Corp.

Good day, ladies and gentlemen. Welcome to Timber Creek Financial's fourth quarter earnings call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question and answer session for analysts. Analysts are asked to raise their hand to register for a question. As a reminder, today's call is being recorded. I would now like to turn the meeting over to Blair Tansen. Please go ahead.

Thank you, operator. Good afternoon, everyone. Thanks for joining us to discuss the fourth quarter and year-end financial results. As usual, I'm joined by Scott Rowland, CIO, Tracy Johnson, CFO, and Jeff McDate, Head of Canadian Originations and Global Syndications. It was another solid quarter for the company, closing out a strong year financially. The 2023 financial highlights included record net investment income of $124.2 million versus $109.8 million last year, That income of 66.4 million, up from 55.9 million last year, and DI of 70.4 million, or 84 cents per share, representing a healthy payout ratio of 81.9% on DI. In addition to continuing our long track record of stable monthly dividends, the strong income performance enabled us to report a special dividend. These results underscore the strong underlying fundamentals of our portfolio, and our ability to generate substantial income, earnings per share, and sustainable dividends. As we highlighted over the past several earnings calls, these results were achieved while we navigated a challenging period of the real estate cycle, caused by the rapid rise in interest rates and general economic weakness. These conditions placed strain on certain borrowers, resulting in a higher balance in our Stage 2 and 3 loans. Advancing these situations towards repayment was a key focus in 2023, And through active management, we made material progress, as Scott will expand on. We continue to expect recovery of our invested capital and remain highly confident in the book value of the portfolio, which sat at $8.45 per share at year end, which is approximately 22% above the weighted average trading price over the past three months. Last year, we took a more cautious approach to underwriting and focused on delivering, delivering, excuse me, Going forward, as the interest rate outlook stabilizes, we expect to see increased activity in the commercial real estate sector and higher transaction volume within our portfolio. As Scott will discuss, we believe that we are entering an advantageous period from a competitive perspective. We're in a very strong liquidity position to grow the portfolio back towards its historical size on a very attractive risk-adjusted basis. With that, I'll turn it over to Scott to discuss the portfolio trends and market conditions. Scott.

Hey, thanks, Blair. Good afternoon, everyone. I'll comment on the portfolio metrics, the progress with Stage 2 and Stage 3 loans, and our view on the lending environment going forward. Looking at the portfolio KPIs, at year end, 86% of our investments were in cash-flowing properties, compared with 86.5% at the end of Q3. Multi-residential real estate assets, apartment buildings, continue to comprise the largest portion of the portfolio at 56.5% at year-end, compared to 58.2% at the end of Q3. The portfolio remains conservatively invested. First mortgages represented 88.9% of the portfolio, compared to 92.2% in Q3. Our weighted average loan-to-value for Q4 was 65.6%, down from the prior quarter, which was 67%, as new loans were funded at lower LTV, while loans with higher LTV were discharged in the fourth quarter. Portfolio's weighted average interest rate, or WARE, was 10%, up slightly from 9.9% in Q3 and from 9.7% in Q4 last year. The year-over-year increase is due to the impact of central bank rate hikes on our floating rate loans, which represented 86% of the portfolio at quarter end. Our Q4 exit wear was 10% down slightly from 10.1 exiting Q3. The higher wear drove strong interest income from the portfolio. However, the higher debt costs have also placed strain on certain borrowers, as we've discussed throughout 2023. In context, the prime rate in Canada reached 7.2% in July 23, a cumulative increase of 4.75% over 16 months from the first increase in March 22. This meant that real estate owners, many of which already faced stress balance sheets coming out of COVID, now faced the additional strain of much higher debt service payments. However, the outlook is improving, and I'll come back to this theme in a moment. In terms of the new funding activity in the quarter, we invested $77.3 million in new mortgage investments and additional advances on existing mortgages. Originations in the quarter were largely centered on low LTV multifamily assets. Total mortgage portfolio repayments were much higher in the quarter at $199.7 million, leading to a significant increase in portfolio turnover to 19.2% compared to 6% in Q3 23. As we anticipated, borrowers were able to execute on their exit plans, either seek term financing or sales. A higher turnover is beneficial in that it increases the percentage of the portfolio invested at current valuation metrics and generates additional fee revenue as new loans are made and the portfolio grows back to its historical levels. We were intentionally cautious through much of 2023, adjusting the pace of new investments while still ensuring sufficient lending to maintain a healthy payout ratio. That said, we ended the year on a note of optimism that the interest rates cycle has sort of stopped to increase and reached their peak, and inflation levels were returning to normal. This sets the stage for rate cuts that are expected to begin as early as April, or at some point during the latter part of 2024. As stability returns to the cost of debt, commercial real estate transaction volumes should broadly rise, and this is an attractive environment for Timber Creek to regrow the portfolio. Looking at asset allocation, there were no material changes from Q3 with respect to geographic concentration. The majority of the portfolio is tied to assets in urban markets in Ontario, BC, Quebec, and Alberta. As Blair mentioned, we've made meaningful progress on the Stage 2 and Stage 3 loans in the portfolio. So let me spend a few minutes on the status of these. I would remind you we have expanded disclosure in these loans in our MD&A as well. First, I'm happy to announce that in January, we completed the sale of the portfolio of seven multifamily Stage 3 loans in Quebec. These were the largest of the Stage loans, representing a balance of $146.1 million. We were fully repaid all principal and accrued interest in January 24, and the associated allowance for expected credit loss of $1.6 million was fully reversed in Q4 2023. We've also made progress on the multifamily asset under construction that was part of the same CCAA process. The asset remained in stage three at year end. However, a purchaser was selected through the bid process run by the monitor. The new purchaser will join the existing joint venture owner to complete the construction of the asset. The borrowers have executed a forbearance agreement, which includes the requirement for the borrowers to inject more equity into the project. We are on track for this to be a performing loan in Q1 2024, including being made current on interest arrears, and we ultimately expect full repayment of this loan. The Stage 3 assets at quarter end also include $15.6 million in condo inventory against an original inventory balance of $23.7 million. Our broker is actively working to sell the remaining condo inventory. With the assumption that interest rates will start to decline in 2024, we anticipate sales activity to increase this year. During Q4, we continue to advance the Stage 3 medical office building in Ottawa, which represents $9 million. We engaged a new property manager last year to manage the leasing strategy. At the same time, we're exploring redevelopment potential with excess density and potentially targeting a sales process in 2024. Stage 3 assets also include 38.5 million net mortgage investments in two office properties and one retail property with the same sponsor in Calgary. Recall that these assets were in stage two last quarter. We continue to be in discussions with the sponsorship group to execute on a forbearance agreement along with potential plans for the near-term sale of one of the assets. We expect to have a more fulsome update with our Q1 2024 financial results. While the Calgary office market has been challenging for many years, some positive absorption, planned office conversions to multifamily, and the high price of oil are all contributing to some optimism for the market. Upon execution of a forbearance, we anticipate this exposure will return to stage two and will likely stay there for the foreseeable future while we focus on leasing and optimizing the asset to realize full repayment. In terms of stage two assets, there are two loans to highlight. The first is an income-producing office asset in Calgary with the same sponsor as previously mentioned. A forbearance agreement on this loan has been signed and additional structure has been implemented that will provide time to stabilize the asset. In addition, bullet repayments on the loan representing approximately 20% of exposure are slated to occur from non-Calgary-related asset sales in 2024 and 2025. The second Stage 2 entry relates to an income-producing multifamily asset in Edmonton. The loan was extended in Q4 23 for a seven-month period to enable the borrower to either sell the property or seek CMHC financing. We continue to expect full principal repayment on the loan. Lastly, I would highlight high-quality senior living complex in real estate inventory. Our team has been working closely with the property manager, and we've seen improvement in the asset, including an increase in the cash yield. The plan is to continue to stabilize performance and seek a third-party sale in due course. We do not expect principal losses on our ultimate disposition of this investment. In summary, while there is work to be done, our team has made great progress over the past several quarters on the Stage 2 and 3 loans, with full repayment on the largest of these loans already in 2024. We're confident both in the quality of the underlying assets and our ability to recover our investment through active management. We are experienced, aligned, and highly focused on ensuring the best outcomes for our shareholders. I will now pass the call over to Tracy to review the financial results. Tracy.