Timbercreek Financial Corp.

Thank you, Operator. Good afternoon, everyone. Thanks for joining us to discuss the first quarter financial results. I'm joined as usual by Scott Rowland, CIO, Tracy Johnston, CFO, and Jeff McDate, Head of Canadian Originations and Global Syndications. The second quarter delivered solid performance across key metrics. We expanded the portfolio from Q1 levels with significant year-over-year growth. We supported net investment income of $25.2 million. Distributable income was 18 cents per share, consistent with our historically quarterly range. As we signaled on our last earnings call, we resolved a material portion of Stage 2 and Stage 3 loans, close to $83 million since that time. And we're pleased to report that the renewal of our credit facility is nearly complete, featuring a substantial upsize and improved margin terms to support our plans for growth. Transaction activity was healthy in the second quarter, and the pipeline is building, despite some lingering effects from the broader macro environment. While this tariff-related uncertainty poses challenges for certain sectors, our focus on multifamily residential real estate, an essential and resilient asset class, positions us to deliver stable income and protect investor capital. As rates have stabilized in a more typical range, we've seen an overall improvement in market conditions for commercial real estate this year, creating a positive backdrop as we look to further growth in the portfolio. With improving fundamentals, we've increased our proactive engagement with the investment community, highlighting our cycle-tested track record, strengthening outlook, and the attractive yield. Our dividend is currently yielding roughly 9%, a more than 6% premium of our short-term Canadian bond yields. And at $8.26 per share, our current book value is roughly 18% above the weighted average trading price in Q2. I'll now ask Scott to cover the portfolio review. Scott?

Thanks, Blair, and good afternoon. I'll quickly cover the portfolio metrics and provide a brief update on key developments with the stage loans, and Jeff will comment on the originations activity and lending environment. In the portfolio KPIs, most were stable relative to recent periods and consistent with historical averages. At quarter end, 76.3% of our investments were in cash-flowing properties. Multi-residential real estate assets continue to comprise the largest portion of the portfolio at roughly 55%. As Blair highlighted, this core asset class has shown to be durable in periods of economic uncertainty. First mortgages represented 92% of the portfolio. The weighted average LTV for Q2 was 66%, similar to Q1. And the portfolio's weighted average interest rate was 8.6% in Q2 versus 8.7% in Q1 and 9.8% in Q2 last year. Decrease reflects the Bank of Canada's policy rate cuts, bringing the wear closer to a long-term average of roughly 8%. With rates coming down, we have seen a corresponding decrease in interest expense on the credit facility, supporting a healthy net interest margin. Portfolio wear is also protected by the high percentage of floating rate loans with rate floors above 87% of the portfolio at quarter end. Roughly 90% of the loans with floors are currently at their floor rates. In terms of asset allocation by region, there were no major shifts to highlight. Approximately 93% of the capital invested in Ontario, D.C., Quebec, and Alberta, and focused on urban markets. From an asset management perspective, it was a productive quarter as we resolved close to $83 million in Stage 2 and 3 loans since our last earnings call. Thanks to the team for their great work on these files. We are actively working towards the resolution and monetization of the outstanding Stage loans and continue to advance the remaining files. While challenges remain, we expect to see further progress over the coming quarters with the goal of ultimately returning this portion of the portfolio to historical norms. On that note, I'll ask Jeff to comment on the transaction activity within the portfolio.

Thanks, Scott. It was a solid quarter for new investments as we build back the portfolio to historical levels. The portfolio is 11% or $111 million higher than Q2 of last year. During the quarter, we advanced over $168 million in new mortgage investments, all targeting multifamily and industrial assets. Continued uncertainty from tariff issues caused some transaction delays, pushing more of our origination volume to the end of the quarter, while other deals have moved into the back half of 2025. Total mortgage portfolio repayments in the quarter were $132 million, resulting in a turnover ratio of 12.9%. We ended the period with a portfolio balance a bit over $1.1 billion, which was a $35 million increase from Q1. Looking at these trends over the past several years, you see a recovery in volume in 2024 as activity began its return to more normalized levels, along with the wear also returning to historical levels. While CRE transaction activity has improved, uncertainty tied to the Trump administration's tariff policies has continued to moderate the recovery somewhat, resulting in lengthier transaction timelines or deferred decisioning altogether. That said, the multifamily asset class most specifically remains the least impacted by this broader economic uncertainty, with the resiliency of the fundamentals supporting continued trades, which in conjunction with recent risk-off messaging from CMAC, generating continued opportunity in a conventional multifamily bridge and construction lending space. The market also continues to respond well to Timber Creek Capital's status as a CMAC-approved lender, with the prospect of an eventual term takeout option driving more bridge opportunities with existing clients and interest for both products from new prospects. In summary, despite delays to a more fulsome market recovery, our positioning in the market and strong client relationships continue to support our ability to deploy capital into high-quality loans in the second half of this fiscal year and shift to growth mode as transaction activity normalizes thereafter. I will now pass the call over to Tracy to review the financial highlights. Tracy?

Thanks, Jeff, and good afternoon, everyone. As we look at the main drivers of income, the portfolio has grown year over year, offset by the wear returning to a more typical range following the Bank of Canada rate cuts. Q2 net investment income on financial assets measured at amortized costs was $25.2 million, down from $28.6 million in Q1, and 26.4 million in Q2 last year. We reported distributable income of 14.6 million or 18 cents on a per share basis versus 16.3 million and 20 cents per share in Q2 last year. The payout ratio on DI was 97.8 this quarter. The payout ratio will bump around a bit quarter to quarter. However, we expect it to land in the 95% range over the full year. consistent with our past performance. In addition to the deployment leg that Jeff mentioned, the DI this quarter reflects a modest decrease in the weighted average lender fee this quarter, as one sizable transaction was structured with a back-end fee instead. We recorded a reserve of $2.1 million this quarter, driven by the extended holding period associated with the remaining Stage 2 and Stage 3 loans. Net income was 12.4 million this quarter, and net income before ECL was 14.5 million versus 15.3 million in Q2 2024. Looking at quarterly EPS over the past three years with and without ECLs, you will see it's been quite stable, as has DI 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. Looking quickly at the balance sheet, the value of the net mortgage portfolio, excluding syndications, was just over $1.1 billion at the end of the quarter, an increase of about $111 million year over year. The balance on the credit facility was $345 million at the end of Q2, up modestly from $331 million at the end of Q1. The credit utilization rate at the end of the quarter was 87%. We have ample capacity to deploy new capital against the pipeline Jeff and team are building. I will now turn the call back to Scott for closing comments.

Thanks, Tracy. We're encouraged by the results for the year to date and our outlook. The portfolio is growing, and we anticipate this continuing. Despite ongoing tariff-related macro volatility, commercial real estate conditions remain generally positive, and this is reflected in our growing pipeline. We are delivering a stable monthly dividend, currently yielding close to 9%. and we continue to resolve stage loans, freeing up this capital for new investments. That completes our prepared remarks. With that, we will open the call to questions.

We'll now take any analyst questions. If you have a question, please click the raise hand button on the bottom right-hand side of the screen. Our first question comes from Zach. Zach, your line is now open. Please go ahead.

Zach, you'll just need to unmute yourself.

I'll turn it to our next question, which is from Steven. Steven, your line is open. Please go ahead.

Can you hear me okay?

Good afternoon, Steven. Yeah. Great. Just remind me again, like, with the payout ratio, you know, 98%, if you can remind me, how close do you get to that 100% over time? Has it been up this high? Forgive me for not looking this up before, but I'm just curious about distributable income versus the payout ratio.

versus as part of the pay ratio. So let's just, if you're talking about distributed income ratio, just for a second, right? Yeah. As a MIG, right, we have to, for compliance reasons, right, we have to distribute 100% of our income that we earn, right? So 100% is sort of that theoretical target. But, of course, that's too high. So as a management team, we're typically targeting in the mid-90s for a payout ratio. That said, for sure, Quarter to quarter, there's variance, right? And that can be driven by, you know, the book was a slightly smaller one quarter, larger. Maybe we received some more fees in a given quarter. So you're going to have that variance. I can think of some quarters even where we were over 100, and certainly there were some quarters where we're in the mid-80s. I think it bounces around a bit. I think one of Tracy's remarks was, you know, this year we're sort of – we think we're going to average 95. This quarter is a little higher. It's a little elevated. I think going back to some of Jeff's comments where if I look at this past quarter, what sort of practically happened was we had some early repayments in the quarter, and then we had some – and normally those are replaced, you know, very quickly with new deals because of some of the Trump implications from Q1 – We had some deals that slipped. So we did get those deals. We did close the deals. We had a successful end of the quarter. So we actually ended the quarter up another $30 million. But net through the quarter, if you look at our average AUM, it was a little lower than we would have liked. And that sort of drives up that payout ratio to that higher 90s, which I would expect that to reverse that itself in Q3 based on the higher balance that we're starting Q3 with, if that makes sense.

Yeah, it does. I apologize if that was a confusing way to ask that question, but you should repeat. No, no, no. And maybe just, I think the goal is $1.3 billion to the end of 2025. Is that the public goal? I think you've said that before, right? Or maybe it's in the disclosure. I apologize again.

No, yep, that is where we think we'll be able to grow the book to by the end of the year.

And so that, you know, is, you know, 100, you know, Between $100, $150, $100, is it Q3, Q4? I presume in the winter, the seasonality does impact how much business you do towards the end of the year, I guess.

Yeah, in our business, too, as a private lender, we normally find for us in the first six months of the year, it's a more competitive market, right, because you have more of the traditional players. Some of the banks are trying, and life goes, trying to fill their books earlier in the year. So sometimes the private guys are a little more on the back foot. Summer can be a little slower. And normally that sort of final trimester, September to December, is a very strong period for a mix like ourselves.

I was just going to jump in there quickly. I agree with Scott, but I think just to clarify, the banks have a – Cheaper cost. They're lending deposits, right? And we're lending equity. So we just don't want to do deals earlier in the year at the pricing that the banks are going to do it rather than, you know, losing them per se.

Okay. Okay. That's all I have. Good quarter, guys. Thanks, Stephen.

We'll try again with Zach. Zach, your line is now open. You can go ahead and unmute yourself.

Hey, good afternoon. Hey, Jack.

Slowdown in multifamily construction activity expected over the next few years. Are you expecting a change in the asset mix with maybe greater weighting toward commercial assets?

Well, listen, we actually don't do a lot of construction loans at the gate just for, you know, in the multifamily space. We typically are lending on existing product. So the existing universe of income-producing assets. So although we do some construction, not a ton, I think for us, you know, we sort of target, you know, we're going to do sort of that 50% to 70% multi, and I don't think that that really changes. And I'm looking across at Jeff here. Maybe he'll comment as well. But we're kind of a two-thirds, one-third, and that one-third will be a variety of commercial asset classes. to fill the rest of the book.

Yeah, I think that's right, generally, for sure. The only other comment I would say, certainly, multifamily construction activity, you know, has declined nationally overall, but it's not an equivalent reality market-to-market. So, certainly, Toronto, Vancouver, you know, much, much softer in the current environment. There are other markets outside of those major geographies, and... where the economics still can make sense. There are still opportunities to continue to build on economically viable multi-residential construction deals. Obviously, with the fundamentals underlying, the reality, irrespective of the softness here, is still strong demand for and need for new supplies. So we're continuing to expect to see, you know, and again, it's got noted, it's a smaller allocation as it relates to our overall book, but we still do expect to see some construction activity and opportunities to lend into those opportunities. But the primary focus is on the income-producing existing assets.

Okay, got it. Appreciate it. And in the quarter, there was a non-cash transfer out of other loan investments. Can you provide a little bit more detail on that?

Yeah, so that was one of the Stage 2-3 loan resolutions. So there was a $20 million or so loan, $23 million loan, in other loans which then returned to performing so into stage one but as part of the the restructure of that it's um it moved from another loan like a mezzanine position to an actual mortgage position so it just moved up to mortgages so you'll see it there as a transfer it essentially is one of the resolutions we noted and returning to your performing loan

Okay, got it. And my last question, with the land inventory you're holding not producing any income, is there a greater urgency to sell this type of asset versus a fully developed stabilized property?

Urgency? It's a little different. I look at that particular land, which is sort of single-family residential development land. And for us, you know, really, you know, as soon as there's land, I can tell you there's, like, armor on it that we receive income that covers the taxes. And so we kind of sit there and say, hey, what's the – it's not the – you know, it doesn't generate the same sort of active yield that we would like. So, yes, I would like to move that position. But I look at the current environment and sort of the players we'd like to sell it to. This is a very challenging time in Ontario for some of these developers. So I think for us, I'm probably looking – This probably doesn't get sold. Between us, I would sit there and say I would have liked to have sold that land this year, but it's probably going to move into next year.

Understood. Thanks, everyone, for the caller. I'll turn it back.

Thanks, Zach. Thank you. The next call will come from James. James, your line is open. Please go ahead.

James, your line is open. You can go ahead.

You can hear me. Hey, James. Yeah, we've got you now. All right. Okay. So I just wanted to just get a little bit more color from you guys in terms of the loans. The loans are still impaired. And what gives you the confidence that you'll be able to get resolutions, not on all of them, but on some of them? Is it borrowers returning to current on their payments? Is it asset sales? Where are you seeing the pockets of positivity? And how do you expect that to play out?

Yeah. I think each of the loans that are left in staging sort of have a different story. I would sit there and say, you know, one of the larger ones is our exposure to Vancouver loans. the Vancouver retail assets, which is undergoing an entitlement process for, you know, to become multifamily development. That particular story is really tied to entitlement timing and approvals, which we are on track to, you know, before the end of the year to receive that final approval. It's been a process ongoing for a long time. But they're in those final stages. You have to get that entitlement approved before you'll look to move the assets. So for us, it's sort of – I think year-end is not so much – I think we'll be off that position. But year-end, I think we get to a position where then we can get that – the board can get those assets to market. That's probably sort of a Q1, Q2, 2026 off the books. But that is sort of meaningfully progressed by year-end. I can think of two or three other ones where there's various stages where we're moving forward with our various legal remedies. So, you know, a lot of the time getting ourselves into a position to get off of a file, you know, is moving it into the position that it can be sold or be cleaned up structurally. So there's two or three of the other smaller files that, you know, whether we put in a receiver or we're doing an active sales process, those are ongoing in sort of September, October. I can get us closer to resolution on some of those files by year-end. Good. Great.

That's good for me. Thanks, James.

Thanks. Our next call comes from Michael McHugh. Michael, your line is now open. You can go ahead.

Hi, guys. Thanks for taking my question. You mentioned the upsize of the credit facility and noticed that your cost of debt was down quarter on quarter. It looked like about 10 basis points. Just wondering about any new terms on the renewal or the upsize, what type of spread you might be paying, and if the upsize of this facility will allow you to reach that $1.3 billion portfolio goal. on its own without any additional funding sources.

Hi, Mike. It's Blair. Yeah, so your last question first, yes, it will provide sufficient capacity to get to the 1.3. You'd note if you went back a couple years and looked at our disclosures, The line was at $600 million for a period of time. So, you know, you can sort of use that as guidance if you want. It's not technically closed yet. It will close next week, and we'll sort of share the details then. But you can use that kind of for now. And generally speaking, we're not putting out what sort of the spread is, what the cost is. Cost of debt is what you saw. I'm actually not sure what you saw. Tracy might be looking right now because the reduction in, I guess the reduction in interest expenses just because of SOFR, or CORA, sorry, you'll see the reduction in our, you know, sort of contractual reduction in spread starting, well, you won't, you'll see a reduction in interest expenses because of the new facility starting next quarter, it increased modestly on the last renewal and the banks have been very supportive on this renewal in a variety of ways, including sort of being flexible on pricing. So we're really happy with the way it worked out, and it's very much part of generating more net income. Great.

Thanks for that detail. And obviously great progress on the Stage 2 and 3 resolutions in the quarter. Certainly positive momentum there. Just noted that there was a $9 million incremental add to Stage 3 under other mortgage investments. Just wondering if you have any detail on if that was a single loan or a combination of loans or just that movement in Stage 3 other investments.

Yeah, sure. Hi, Mike. I'll take that one. So that was a loan that was in stage two in Q1. And just purely by the passage of time and interest arrears, it moved into stage three. So this is one of the assets that we'll be looking at. It will be put up for sale in Q3, Q4.

Great. Thank you. And just one more quick one, if I may, and then I'll leave the queue. Just noticed that the average rate on new loans originally in the quarter was 7.5%, and the average rate on paid-off loans in the quarter was up in the nines, I think 9.3%. So just wondering what the outlook is there as sort of some of these lower-rate loans are coming on board, higher-rate loans are being paid off, and we're in a sort of to uncertain policy rate environment if you have any outlook on the war for the next couple quarters?

Yeah, I mean, listen, when I think of the where there, I mean, I think that is a fact, right? So we're going to have repayment of historically higher yielding loans will start to come off. New loans will obviously just come on naturally. But when we look at it, we look at it more on each loan as sort of what is the retained yield, right? So when we do a new loan, whether we're using our credit line or we're using a third-party A-note syndication, those prices on the credit line, the price on the third-party A-notes are also coming down, right? So we maintain a margin above, obviously, what we need to pay our dividend, right? So that's the analysis that we do. as we go. So it doesn't, like, over time, like, forward to the next few quarters, we will continue to see that wear compression. But we don't expect it to have a material impact on the DI ratio, if that makes sense.

Yeah, okay, great. Thanks. That's very helpful. That's all for me. Thanks for taking the time.

Thank you.

If there are any other questions at this time, we'll turn the meeting back to Blair for closing remarks.

Great. Thanks, everyone, for joining us today. As usual, look forward to speaking again when we release Q3. And, of course, if there are any questions in the interim, feel free to reach out to any of us. We'll be happy to chat. Have a good afternoon.