Timbercreek Financial Corp.

In 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 Tamblyn. Please go ahead.

Thank you, operator. Good afternoon, everybody. Thanks for joining us to discuss the first quarter financial results. I'm joined as usual by Scott Rowland, CIO, Tracy Johnson, CFO, and Jeff McTague. our head of Canadian Originations and Global Syndications. As we discussed on the year-end call, we're seeing an overall improvement in business fundamentals in 2025, with BOC rate cuts spurring increased financing opportunities. It was a solid first quarter, highlighted by healthy income levels, allowing us to build on our long-term track record of stable monthly dividends. Of note, net investment income was $28.6 million. We generated a distributable income of $0.19 per share, at a payout ratio of 93%. And EPS was 18 cents a share, comfortably within the expected quarterly range. Transaction activity was solid in the first quarter, and the pipeline is building, as we forecasted at year end. While the broader market volatility from tariff disputes has caused delays in a few instances, our portfolio is expected to be well protected from any near-term implications. Over 18 years as a leading private lender in the transactional lending space, We have successfully navigated macro issues of all types to generate the attractive risk-adjusted yield our shareholders have come to expect. This track record speaks to the resiliency of our strategy and our core asset classes, but of course, by multi-residential. With this strong foundation, you can expect to see us actively communicating the TF story in coming quarters, highlighting that our dividend today represents roughly a 10% yield, more than 7% premium over short-term, Canadian bond yields. And at 828 per share, which is net of our ECL provisions, of course, our current book value is roughly 20% above the weighted average trading price in Q1. I'll ask Scott to take over for the portfolio review now.

Scott? Thanks, Blair, and good afternoon. I'll comment on portfolio metrics and provide a brief update on material progress on stage loans. I'll ask Jeff to comment on the originations activity and lending environment. Looking at the portfolio's KPIs, most were stable relative to recent periods and consistent with historical averages. At quarter end, 79.7% of our investments were in cash-flowing properties. Multi-residential real estate assets, apartment buildings, continue to comprise the largest portion of the portfolio at roughly 60%. As Blair highlighted, this core asset class has shown to be durable in periods of economic uncertainty. First mortgages represented 88.3% of the portfolio. As expected, we have seen this percentage trend upward toward 90%. Our weighted average LTV for Q1 was 66.2%, up from 63.3% in Q4, consistent with our plan to increase LTVs on new originations back to historical levels. The portfolio's weighted average interest rate was 8.7% in Q1 versus 8.9% in Q4 and 9.9% in Q1 last year. The decrease mainly reflects the Bank of Canada's policy rate cuts of 225 basis points between June 24 and March 25. The wear is also reverting toward a longer-term average. For example, since 2016, which captures a few rate environments, the average WARE exit rate is 7.9%. With rates coming down, we are seeing a corresponding decrease in interest expense on the credit facility, supporting a healthy net interest margin. Portfolio WARE is also protected by the high percentage of floating rate loans with rate floors, close to 85% of the portfolio at quarter end. Roughly 88% of the loans with floors are currently at their rate floors. In terms of the asset allocation by region, There were no major shifts to highlight, with approximately 92% of the capital invested in Ontario, BC, Quebec, and Alberta, and focused on urban markets. From an asset management perspective, we provided extensive disclosure on the stage loans at year end. Throughout 2025, you can expect us to update on material changes as we continue to pursue resolution and monetization of these loans. The overriding comment here is our team remains deeply engaged in these files, and they are progressing as planned. We successfully closed on the sale of three senior living facilities previously recorded as assets held for sale, bringing up capital we're recycling into higher yielding mortgages in our core asset types. We continue to expect that over the course of this fiscal year, this portion of the portfolio will decline toward historical averages. On that note, I'll ask Jeff to comment on the transaction activity in the portfolio.

Thanks, Scott. It was a good start to the year for new investments as we build back the portfolio to historical levels. The portfolio is 10% or $100 million higher than Q1 of last year. In Q1, we advanced nearly $150 million in new mortgage investments and advances on existing mortgages, all focused on low LTV multifamily investments. As Blair highlighted, the sudden and unexpected volatility in financial markets from tariff issues caused some borrowers to shift timelines modestly. However, we expect these delays to be transitory. Total mortgage portfolio repayments in the quarter were 136.8 million, resulting in a turnover ratio of 12.7%. We ended the period with the portfolio balance a bit under 1.1 billion, which was a modest decrease from Q4. Looking at these trends over the past several years, on this slide you see a recovery in volume in 2024 as activity returned to normalized levels. and the way of returning to historical levels as Scott mentioned. In addition to the improved market environment, we're beginning to see increased activity resulting from temporary capital status as a CMHC approved lender. Recently, Mike Sagert was appointed executive director to lead this program. Mike is an industry veteran and we're excited to work with him to grow this business line, which will bring benefits to our bridge lending business as well, allowing our team to deepen more relationships by providing a broader range of financing solutions. In summary, we're well positioned to deploy capital into high-quality loans this year. I will now pass the call over to Tracey to review the financial highlights. Tracey?

Thanks, Jeff, and good afternoon, everyone. As the team has highlighted, the portfolio has returned to a more typical size based on strong originations, and we are seeing this translate to top-line income and DI. Q1 net investment income on financial assets measured at amortized costs was $28.6 million, up from $27.9 million in Q4 and $24.6 million in Q1 of last year. We reported strong distributable income of $15.4 or $0.19 per share, compared with $15.8 million or $0.19 per share in Q1 last year. The payout ratio on DI was 92.8% this quarter. We recorded a reserve on net mortgage investments and other loans of $1.6 million, reflective of the changes in Stage 2 and Stage 3 loans. Net income increased to $14.8 million this quarter, and net income before ECL was $16.4 million versus $15.4 million in Q1 2024. Looking at quarterly EPS over the past three years with and without ECLs, you will see it has been quite stable, as has CI per share. Over the medium term, quarterly DI per share has been between 17 cents and 21 cents, averaging just over 19 cents per share over this time period. In short, the monthly dividend remains well covered. Let's quickly look at the balance sheet. The value of the net mortgage portfolio excluding syndications was just under 1.1 billion at the end of the quarter, an increase of about 100 million year over year. At quarter end, We had zero net real estate held for sale as we closed the sale of three senior living facilities that Scott mentioned earlier. The balance on the credit facility was $331 million at the end of Q1, down from $396 million at the end of Q4 based on the increased portfolio. The credit utilization rate at the end of the quarter was 83%. We have ample capacity to deploy new capital against the pipeline Jeff and team are building. I'll now turn the call back to Scott for closing comments.

Thanks, Tracy. We continue to have a positive outlook for 2025. Conditions in the commercial real estate market are stabilizing, which is good for overall transaction activity in our pipeline. And the CMHC lender status Jeff mentioned should act as a tailwind for our bridge loan business. Distributable income is strong, and we see this continuing. Lastly, we are taking the right steps to resolve the remaining stage loans and free up this capital for new investments. While the tariff-driven uncertainty has been impactful to a broad range of businesses, in the short term, our focus on multifamily lending keeps us well insulated. As said, our team continues to monitor developments closely and prepared to modify our investment parameters should conditions change materially. That completes our prepared remarks. With that, we will open the call to questions.

We will now take analyst questions. As a reminder, if you have a question, please click the raise hand button on the bottom right screen below. The first question comes from Graham Riding. Graham, your line is open. Please go ahead.

Hi. Can you hear me? Yeah. Hey, Graham. How are you doing, Graham? I got through this time great. Can you maybe just elaborate on, it sounds like you have some confidence on your stage two and three loans that they should improve. Can you just elaborate a little bit on whether that's specific visibility on some individual situations that you think should cure, or is it just more broad-based confidence in your ability to just navigate workout situations?

Yeah, I mean, as we, I guess we've discussed, it's Blair, I'm sorry, we have clear visibility to, you know, call it $80 million of resolutions this quarter. And that, you know, that's what we're happy to be, you know, on the record, if you will, about. On a broader level for the remaining, you know, Scott and Jeff can speak to this as well, of course, but for the remaining, you know, call it $220 million, you know, we'll continue to do what we've been doing and that's work towards, you know, resolutions that are helpful to our shareholders, which we remain confident of.

Scott, I concur with exactly what Blair just said. $80 million more in the near term, which there's some significant movement for us. You know, we've worked on those files for, you know, around over a year. A few smaller files should make material headway in the coming quarters. and we have a larger file in the Vancouver area that also I would think we should have material progress in by the end of the year.

Okay, great. Just one of the, you know, there's obviously pressure in the condo market right now. Is that feeding through at all into the multifamily space either in, you know, valuations, vacancy, demand from investors to deploy capital? Any commentary there?

Yeah, you know, we can, I mean, I'll take a stab at it and turn to Jeff as well. And the condo market, like, is interesting, right? It's sort of different in different cities. We're, like, so the specific condo market, Toronto comes to mind sort of first and foremost. which is somewhat frozen, right? And there is a lot of supply coming and there's some weakness in prices, housing prices. That's very much sort of on the non-commercial real estate side, right? That is on owner-occupied single units, of which Timber Creek Financial is not exposed to that market. When it comes to our sort of more bread and butter traditional multifamily, which for us is normally assets that were built you know, sometimes they're older assets, right? Like not brand new products. Less so, Graham. That market is more stable. The rents tend to be lower and remain well occupied. I mean, Jeff, anything to add?

Yeah, I mean, I think those are all fair comments. I mean, obviously the, you know, what we are seeing incrementally on the on the development land side of the world is that, you know, historically what we're tagged to be condo development sites are now being reconsidered as multi-condo sites. Again, newer product that doesn't compete generally with the product that we're primarily focused on, but fundamentally does help support multi-residential values versus condo for sale values.

I think the last comment I would make on this is, You know, it's interesting, and again, I'll come back to Toronto just because it's the largest market in the sort of classes that you have right now. You know, there's the uncertainty in the market, and you have a large number of supply that sort of hit the market in these individual condo units. But because of the sort of prices to build and some of these uncertainties, there's really no new projects going into the ground or being built, which is interesting. And if you start looking through the numbers forecast for two, three years from now, Toronto, you're going to see a very supply constrained market again. So it's an interesting thing for like, it's sort of an ebb and a flow, but you know, the problems that you have right now, which are some vacancy and maybe you're seeing some higher end rents coming off, you're more than likely going to be in a very supply imbalanced market in two, three years time. So as we go and do lending again, most of it doesn't affect us because it's sort of a little bit of a different business than what we're in day to day.

we feel we feel just pretty good about in general again people needing to rent um in the in these markets okay perfect and then beyond multi any uh or perhaps with specific verticals within multi any sort of opportunities you're seeing developing this market that perhaps weren't around um you know three to six months ago um

Listen, I think for us, we have a pretty balanced approach, right? Like we like to be sort of in that 60% plus multi-exposure. For the commercial asset classes, we sort of take a bit of a diversified view on that where we're going to do not as much office. We try to do some industrial. We do some retail. We do think retail is becoming a more favored asset class, especially stuff that's sort of grocery anchored. There hasn't been any new supply in a very long time, so you've seen some positivity there. We're probably keeping a bit of a closer eye to industrial right now, just depending on what happens with some of these sort of tariff-related impacts, export-related impacts. So we're having a lot of sort of risk conversations about that. We'll see if there's some opportunities that come out of there. And then I think lastly is just coming back to this sort of the condo, or some of these sort of development markets, land markets that have been impacted today. And we don't have a lot of exposure, but we're certainly talking about three, six months from now or sort of over the next 24 months. There might be some compelling opportunities for us to provide some capital to some strong sponsors who might need some additional capital than they normally would need in this type of a market. So we'll look to be opportunistic if we think it's a good deal for the TF shareholder.

Okay, excellent. That's it for me. Thank you.

The next caller is Stephen Boland. Stephen, your line is now open. Please go ahead.

Hi, everyone. Can you hear me okay?

Yeah, I see you.

Okay. Just following on Graham's question, just, you know, you've got 39 loans maturing in 2025. Should we then just expect like multi-res, you know, I know it's the vast majority of your loans anyhow, but I mean, is it going to be an exception to do other types of loans? And I guess the second question is just, are you seeing any particular softness or areas that you don't want to go to in terms of geography?

Yeah, that's a good question. So I'll start with the first part is, yeah, we certainly expect normal repayment activity. You know, as we, you know, again, somewhere in the neighborhood of half of our portfolio will roll in any given year. So we expect that to happen. When it comes to targeting asset classes, you know, the very rough rule of thumb for us called two thirds multifamily and a third in other commercial. Right? So we still believe that's a healthy mix for us. So we'll continue to support that mix. When it comes to geography, particular weakness, I mean, listen, if we go back a few years ago, we were more concerned about, you know, some of the, you know, Calgary and Edmonton because of the supply issues, more affecting office than other asset classes. We kind of like looking at the country in thirds still right now, like a third out west, a third in Ontario, a third in Quebec in the east. Really, I wouldn't say the particular geography we're trying to avoid at all or necessarily lean into. I think we're just very much looking at the supply and demand and the micro conditions around our investments. making sure we feel we're in a good position. So, you know, we're not going to lean into areas where we feel there's a lot of supply coming into a market. We're just going to continue to sort of do our sort of our standard operating procedure. I'm looking at Jeff.

Yeah, no, I mean, I think that's all fair. I mean, I think it really comes down to liquidity, right? And as we look at different opportunities, be it asset class or geographic location. It's, you know, what is the liquidity and demand for that specific asset class and that specific location. Again, our focus will always be sort of primary market focused, you know, and dip into the secondary and the multi-resurface, where and when we can, you know, rationalize the opportunity and the liquidity therein. But again, very fundamental part of our analysis of every deal. You know, again, we aren't, you know, we don't have big X's across anything per se. It's unique circumstances underlined. And then fundamentally, even in some of the primary markets, we may pull back just based on, you know, the outcome of that analysis.

And I guess as I'm listening to Jeff there, honestly, after it's been, we had a difficult couple of years right in the market, you know, coming out of COVID and then rising rates was tough on borrowers. We're actually, if I did like a macro comment, I actually think we're quite optimistic that loans that we're doing in sort of in that 2024, this year, 2025, we think these are good, we call them vintages, right? Good years to lend where values are down some, interest rates are coming down. So we think our borrowers are in a stronger position. And we see a lot of green lights on the board for new investing. We think these are going to be strong years for us to put money to work.

Sorry, quick follow-up, just forever. Just covenants, balance sheet, you're comfortable, you can achieve your goals this year with the existing balance sheet?

Yeah, I think we obviously monitor it closely, but still comfortable with where we're trending on things.

Okay, thanks very much.

The next question comes from Jamie. Jamie, please go ahead.

Hey, good afternoon. Hey, Jamie. First question, just on the, I guess, the market outlook around some of your clients or potential clients delaying some of their decisions. Are you starting to see any of that come back online or are these more shelved longer term? Maybe just a little bit of color on some of those conversations you're having with potential clients.

Yeah, listen, I mean, I think the, you know, Q4, Q1 pipelines were very robust. And, you know, for sure within that Q1 reality, we did see, you know, timelines to close these transactions push. I would say the vast majority of them, it is literally just a, you know, instead of a Q1 close, they're pushing into Q2. And, you know, fundamentally that... that captive volume for us and our pipelines on deals that we've worked on will fund. I think, you know, with the Trump tariff reality and the uncertainty that came with it, I think, you know, the Q1 pipeline softened a little bit. Again, I think that's a you know, an interim wait and see period as things flush out on that basis. But fundamentally, you know, again, I don't think it's, you know, something that is, you know, being shelved on a longer term basis just based on the trends for the Q2 pipeline today. It continues to be very active. And again, it's just, you know, a lot of noise, you know, around that reality and what that, you know, will ultimately mean. But fundamentally, in particular, in the multi-residential space, it continues to be a actively traded asset class.

Okay, and is it primarily or only a shift from the potential borrowers or has Timber Creek made any adjustments in how they view the world as a result of some of this uncertainty?

So, I mean, it certainly is the borrowers to a degree. Again, for us, it is a fundamental question underlying, you know, the analysis that we're undertaking. Again, I think it's a different analysis depending on the asset class specifics. And, you know, as you get into, you know, industrial as an example, where and when you are digging in much further to understand you know, the underlying operations of that tenant and, you know, is it a, you know, North America-based business? Is it a Canadian, specifically domestic business? You know, how are those things going to impact that tenant's ability to pay? So it is something that we are absolutely, you know, considering and focusing on. I think, you know, we don't have, you know, candidly all the answers at this point as we're trying to figure our way through it, but... 100% of focus of what we're thinking through and trying to understand, yeah, you know, how is it impacting costs? How is it impacting tenants? How is it impacting our borrowers? And then what does that mean from a loan structuring standpoint in terms of how much money we're prepared to lend? Yeah. And last one.

I just bet, I mean, we're, as you know, we're underwriting these loans as if we're buying the assets. I mean, that's the way that we lend, but of course we're not buying them. So we're looking at terms of leases or lease rates on turnover over the period of time, generally speaking, that we think we need to be invested. So we don't really have to have a 10-year view, which we would if we were owning them. And that's one of the benefits of, I think, of this business of being a transitional lender. You can generate equity-like returns in a position where you're, you know, you generally speaking, you have whatever, 30% equity from the borrower in front of you. And, um, we're looking at baseline values that are, are call it 15 or, you know, pick the asset class, right. On average, call it, I don't know, 15, 18% lower than they were two years ago. So that, you know, that, um, kind of what Scott was talking about a minute ago, why we feel pretty good and are not hammering on the brakes because we don't need to. There is still lots of flow. There are lots of businesses that are going to thrive as rates return to a more normalized or they have returned to a more normalized environment.

Are you seeing your competitive position improve in this environment or is everybody making the same decisions?

It's always interesting when you go through a transitional period or a period of uncertainty in terms of how the market adjusts. We're not turning the Titanic here. We can be pretty nimble and we can adjust fairly quickly. I think what we're seeing And probably, you know, tail end of Q1 where you, you know, the rest of the market hasn't necessarily adjusted as quickly. And so, again, we're winning our share of business. We've lost, you know, a subset of loans that we bid on based on what we believe to be irrational bids from other lenders who aren't quite necessarily as nimble as we are or necessarily as thoughtful in their analysis as we are. But, you know, again, fundamentally, those are... one-offs not the norm uh we continue to compete favorably within the uh within our you know our our market comp set and uh and continue to wear you know win our fair share of deals but i think it's um you know i don't know if we're necessarily you know getting a significantly outsized market share but we're certainly maintaining our you know a pretty standard and consistent historical execution rate

And then, I mean, obviously we compete on a cost of capital basis as well, right? And that I think is relevant. I mean, we've talked pretty openly about how we've been working through our legacy loans. And as Scott said, and we've all said, we're feeling pretty good about entering a phase of certainly stability and growth at the appropriate time. And without naming any names, it's not the case for everybody, whether they're public or private lenders. There are, you know, there are different portfolios around with different constructions. So, you know, we feel, you know, we feel good about our ability to compete there, sort of where we're sitting today.

Okay. And then last one, just the, the land inventory. Just curious as to, you know, an update on how you're viewing that and and the, the realizable value there. What gets you comfortable with that with that property?

Yeah. So on the, we are actually moving towards this, this is the year we're hoping to disposition most of it. a couple of deals that are close that i that are too close for me to sort of comment on at the moment um but we're hoping to move a portion of it soon and then maybe a significant portion um later this year maybe sooner than later so probably an update in the next in the next call but we do i am i'm feeling pretty good about the you know our basis and our ability to uh disposition at land inventory hopefully in 2025.

Okay, thank you. Thanks.

There are no other questions at this time, so I'll turn the meeting back to Blair for closing remarks.

All right, thank you, operator. Thanks, everyone, for joining us today. We certainly look forward to answering any subsequent questions that you may have, and we'll look forward also to talking in 90 days. Have a good afternoon.