Timbercreek Financial Corp
TSX:TF
Earnings Call Analysis
Q4-2023 Analysis
Timbercreek Financial Corp
The company displayed robust financial stability with a reported Q4 net income of $15 million, showing a slight increase from the $14.8 million in the same quarter of the previous year. This was accompanied by a consistent lender fee income of $1.8 million. Notably, the provisions for mortgage investment losses saw a decrease to $1.8 million, owing this to a $1.6 million recovery from previously categorized high-risk loans that returned to a more stable status and were fully repaid without losses. A significant marker of financial health was the issuance of a special dividend of $0.0575 per share for shareholders, on top of a stable annual dividend payment of $0.69 per share, pointing to the company's confidence in its earnings and commitment to delivering shareholder value.
Market transactions witnessed a slowdown towards the end of Q1 2024, but with signs of thawing, leading to an increase in the pipeline of opportunities as Q2 approached. This suggested a gradual return to normal transaction levels paralleled to historical recovery patterns following market cycles. The company expressed a readiness to capture rising opportunities, signaling an intention to potentially adjust its portfolio mix by up to 10%, leaning into more non-income-producing loans which present attractive conditions due to current market dynamics.
The mortgage investment portfolio ended the year with a net value of $946 million, faced with a decrease that was anticipated due to elevated repayments and a strategic cautious approach. Nevertheless, the company's shareholders' equity increased modestly to $701 million, and book value per share saw a slight uptick from $8.33 at the end of 2022 to $8.45 before the special dividend payout. This financial positioning, along with the renewal of a credit facility, provided the company with substantial flexibility for capital deployment and growth as commercial real estate activity gains momentum.
The company's management maintained a positive outlook, anticipating a more normalized rate environment ahead, differing from the low-rate environment of the past several years. This outlook supported the decision to issue a special dividend rather than a regular dividend increase, reflecting confidence in upcoming opportunities and a desire to reward shareholders. This stance, combined with the diligence in managing tax earnings, distributable income, and loan transitions between stages, showcased the company’s strategic financial management and anticipation of market normalization.
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Good day, ladies and gentlemen. Welcome to Timbercreek Financial's fourth quarter earnings call. [Operator Instructions] 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, 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 Johnston, CFO; and Geoff McTait, 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; net income of $66.4 million, up from $55.9 million last year; and DI of $70.4 million or $0.84 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 3 months. Last year, we took a more cautious approach to underwriting and focused on delevering. 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?
Thanks, Blair, and 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 of 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 WAIR 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 WAIR was 10%, down slightly from 10.1% exiting Q3. The higher WAIR drove strong interest income from the portfolio. However, the higher debt costs have also placed a strain on certain borrowers as we've discussed throughout 2023. 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 stressed balance sheets coming out of COVID, now face 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. The 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 rate 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 volume should broadly rise, and this is an attractive environment for Timbercreek 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, B.C., 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 7 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 3 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 that gave us an original inventory balance of $23.7 million. Our broker is actively working to sell the remaining in 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 continued 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 2 office properties and 1 retail property with the same sponsor in Calgary. Recall that these assets were in Stage 2 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 our forbearance, we anticipate this exposure will return to Stage 2 and would likely stay there for the foreseeable future while we focus on leasing and optimizing the asset to realize full repayment. In terms of Stage 2 assets, there are 2 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, an additional structure has been implemented and 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 '24 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 7-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 is 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 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?
Thanks, Scott, and good afternoon, everyone. Blair has commented on several of the full year highlights, so I'll focus on the main highlights of the fourth quarter. As Blair mentioned, we reported healthy income levels throughout 2023. Q4 net investment income on financial assets measured at amortized costs was $29.7 million compared with $31.3 million in the prior year. We benefited from a higher WAIR year-over-year positively impacting the variable rate loans, offset by a lower average balance in net mortgage investment. Fair value gain and other income on financial assets measured at fair value through profit or loss decreased modestly from a gain of $0.7 million in Q4 2022 to a gain of $0.5 million in Q4 2023. We reported a small amount in net rental income from real estate properties of $327,000, which is from the real estate properties inventory acquired in August via the credit bid process. Net rental income was partially offset by net rental loss from land inventory. Provisions for mortgage investment losses were $1.8 million for Q4 2023, down from $2.8 million in last year's Q4. The reduction is largely driven by the recovery of $1.6 million in provisions from Stage 3 loans, which are now in Stage 1, and have subsequently been fully repaid with no losses. Offsetting this is an increase in Stage 2 and 3 loan loss provisions of $1.4 million, which includes provisions for interest not yet earned. Lender fee income of $1.8 million was consistent with Q4 2022. Q4 net income increased to $15 million compared to $14.8 million in Q4 last year, and Q4 basic and diluted earnings per share were $0.18 versus $0.18 and $0.17, respectively, in the prior year. After adjusting for net unrealized fair value gains and losses on financial assets measured at fair value for profit or loss, Q4 adjusted net income was $14.7 million, the same as the prior year. We also reported solid quarterly distributable income and adjusted distributable income both for the fourth quarter and full year. Q4 DI was $17.5 million or $0.21 per share versus $0.22 in last year's Q4, and Q4 payout ratio on DI was very healthy at 82%. As Blair highlighted, full year DI was $70.4 million or $0.84 per share, up from $66.2 million or $0.79 per share last year, representing a payout ratio of 81.9% on distributable income. In light of the strong full year income result and in addition to paying $0.69 per share in dividends through the year, we announced a special dividend of $0.0575 per share for shareholders of record as of March 5, 2024. Turning now to the balance sheet highlights. The net value of the mortgage portfolio, excluding syndications, was $946 million at the end of the year, a decrease of about $123 million from the third quarter of this year. This decrease reflects the higher repayments in the period, which we expected, the general slowdown in market transactions and the cautious approach to underwriting Scott referenced in his remarks. At year-end, we had $92.6 million of net real estate inventory, including land inventory of just over $30.6 million and net real estate properties inventory of $62 million, which is the 3 senior living facilities acquired in August 2023, as Scott discussed earlier. We exchanged a mortgage investment of $64.4 million for ownership of the underlying collateral. The gross asset of $131 million is recognized in real estate properties inventory of the balance sheet, with a corresponding liability for the syndicate's 50% share of the asset. You will find a detailed breakdown of this in note 5 of the financial statements. The enhanced return portfolio decreased by $10.3 million to $62.7 million from $72.9 million at Q4 2022, mainly reflecting lower repayments. The balance on the credit facility for mortgage investments was $260 million at the end of 2023, meaningfully lower than $405 million at the end of Q3 2023, reflecting the higher repayments in the quarter and a more cautious underwriting cost share. We are pleased to have completed a renewal of our credit facility earlier this month, including a revolver of $510 million and an accordion option of up $100 million. The credit facility gives us ample room to continue to deploy capital accretively as activity in the commercial real estate market accelerates. Shareholders' equity increased modestly to $701 million at year-end, up from $699 million at year-end 2022. The company's book value per share was $8.45 at year-end before payment of the special dividend in March 2024 versus the book value per share of $8.33 at the end of 2022. As the normal course issuer bid program, we repurchased for cancellation 332,600 common shares this past quarter. For the full year, we acquired 878,000 shares at an average price of $7.09. We will continue to evaluate opportunities to use this program to acquire shares [ previously ]. I'll now turn the call back to Scott for closing remarks.
Thanks, Tracy. As you've heard, we were cautious throughout most of last year, given the conditions in the market. We allowed our leverage to come down on the gross book to decrease, while we worked on several challenging loans, given the environment. We made substantial progress on these stage loans and expect realization and/or resolution on others during 2024. Our team continues to demonstrate the ability to effectively navigate these situations that unfortunately occur in the later stages of the cycle. And while high interest rates have caused some loan challenges, on the other hand, the broader portfolio has been resilient, and we generated record net investment income and strong distributable income and earnings. In fact, we generated enough excess income in 2023 to pay a special dividend. We entered 2024 cautiously positive, with the knowledge that cycles end and conditions are favorable for improvement. With interest rate stability, we expect buyers and sellers to regain confidence in the market, which should translate to higher transaction levels broadly and new opportunities for the Timbercreek portfolio. As the market resets, we feel good about our competitive position and our ability to deploy capital to grow the portfolio in productive investments tied to high-quality assets. As interest rates begin to come down, we continue to believe our monthly dividends will provide a compelling risk-adjusted return for our shareholders. With that, that completes our prepared remarks, and we will now open the call to questions.
[Operator Instructions] Jaeme, your line is open.
So first question is just on the optimistic or, I guess, maybe more optimistic growth outlook. I kind of agree with where you're coming from on some of those bullet points, but just wondering, how are you guys thinking about the -- I guess, the trajectory of the portfolio? So if we look at the last year, it's been declining quarter-over-quarter. Some of these drivers like, let's say, lower interest rates, may not be a factor until later this year. So perhaps the question is do you anticipate seeing growth in the portfolio in the first half of the year? Or is this something that's a bit more delayed as some of these positive factors flow through over time?
Yes. Thanks for the question. I think what we're seeing, and Geoff's here as well so I'll certainly let him comment, but I'll just start with, I think 2023, Jaeme, was a lot of uncertainty, right? Because you've got buyers and sellers sort of looking -- have a bit of a staring contest at each other to see where the market was going to go, how high interest rates were going to lead, and it just sort of causes that mismatch between the buyer and the seller. And so you see that transaction activity fall in the market. So even though we may not get these interest rate cuts until later in the year, generally speaking, at least the buyers and so -- what we're hearing and seeing in our pipeline is a little bit of a confidence on the buyer side, that, okay. Interest rates are at least at a peak and likely to come down. And just psychologically, that's enough movement, right, to sort of thaw that ice, which will lead to increased transactions. So having said that, like, I think, I would say Q1 is still -- was still a little slow, but I think we're sort of seeing an increase in the pipeline as we get to sort of the end of Q1, I think as we project into Q2, we sort of see it as a continual snowball effect to get back to sort of normal levels, which is very consistent with how we would sort of see ourselves coming out of any cycle historically. I don't know, Geoff, if you want to add any comments to that?
Yes. No, I think that's exactly right. I mean, I think generally speaking, Q1, as we've said many times before, obviously, tends to be a slower quarter more typically, irrespective of the broader environment. And so where and when such allocations and more conventional lower cost of capital comes out of the gate and tends to deploy quite quickly initially, I think that we are still seeing that reality play through, and that's affecting transactional activity like early on in '24. But again, to Scott's point, I think the expectations for transactional activity to pick up even ahead of a formal reduction in the rate reality should lead to what was last year, yes, slow year, transactionally speaking. Obviously, we continue to benefit from refinancing opportunities, and we'll do so on a going-forward basis, but with pickup in transactional activity, we do expect to see a meaningful increase in flow for our business as well.
Jaeme, it's Blair. I'll just jump in with maybe 2 points, and one is probably almost stating the obvious, but I mean, you want the repayments at this point in the cycle, don't you, so you can turn around and make new loans with current valuations. And that kind of leads into the second one, which is if you look at our average LTV, it's been drifting lower for a little while. And as the book turns over and we're -- the V, obviously, in that calculation is current values. As rates come down, that will leave Geoff and the team some room to move that back up a few points towards the historical average, which helps on winning business as well. So just sort of tied in with Scott and Geoff's comments about flow.
Okay. Understood on all of that. Second question is just around the commentary of pushing more into non-income-producing loans. And if you can kind of give us a little bit of perspective, I guess. Today, it's around, say, 15%. What level are you comfortable with? What kind of spread do you anticipate getting on non-income-producing loans versus the more -- like the income-producing loans. Just like how are we factoring that into -- obviously, you're talking about risk-adjusted returns on this, but walk us through some of those dynamics.
That's a good question, and that's a reference in the MD&A. I think I wrote that. So what it is, actually, if we look at the market, it's an interesting market right now, right? As we get to this transitional point. We are historically, call it, to your point, Jaeme, 85%, 90% focused on income-producing loans. It's the bread and butter of what we do and will continue to do. And we historically -- we've always had a portion of the book in non-income producing, which I'll broadly define that as construction, land and some sort of condo inventory type of product. And we, historically, although we do specific deals that we like the risk-return dynamics, when the market gets a little frothy, it's just a product that we don't lean into. When we look at the market today -- although we're experienced in this product, right? When you look at the market today, given circumstances, there's some really attractive opportunities in the market. So this is -- these are deals that are lower LTV or higher-priced or a stronger sponsor that is in the market looking for sort of a bridge loan on their position because an existing lender is over -- their balance sheet is too high with these type of loans. So I think for us, it's just -- we're exploring some opportunities that we historically just -- we're just seeing that right risk-return profile that we would think it makes sense to add to our position. So that said, when we say that, nothing too dramatic. I would sit there and say, are we going to add 5%, 5% to 10% max, to this, is where my head would be at, Jaeme. So do we go to an 80-20 mix, 75-25 as an absolute max? But it will very much be driven by the opportunity. Like we want to be opportunistic in 2024. This is one of those great vintages to lean into coming out of the cycle where we're very happy to put loans on the book this year, and we'll do it where we think we can get that best compelling opportunity. And then that said, if we're not satisfied and we don't -- we're not comfortable with the situation, we're more than happy to keep the mix at the historical norm. But just a little bit of a telegraphing that we may see some opportunities, you might see a bit of a swing on that ratio in the near term.
Yes. And then the only thing I would just add further, I think to address the one sort of residual question you had there. I mean, in general, for this -- these non-income-producing asset classes, where and when you step in at points in the market where, again, the more conventional lenders are saturated or overallocated per se, it does allow you to reduce the leverage point at which you're lending into these spaces and increase the spread, right? So land is a good example where the market on a normal course basis, could be 65% or 70% of value in the prime 1.50% sort of range. When we step into a space where, again, it's largely saturated, we tend to cap LTVs on land at 50%, and you can really push pricing 100 to 150 basis points beyond that kind of conventional spread in these moments in time where and when there's opportunity, right? So I'd say it's 10% leverage less than the income side and 100-plus basis points on pricing as a guide.
So I think there's a moment in time, right, it's just where we like to be opportunistic, and we just think this is an opportunity. How long that will last? I mean we'll see when interest rates come down and things continue to stabilize. It might be a 6-month, 9-month window, but we're not going to shy away from it if we think that it's compelling.
Okay. And somewhat tied to that question is would you expect to see higher lender fees attached to these types of properties? I've seen a little bit of a pickup here in recent quarters on the lender fees received. Is that -- what -- maybe what's driving that? And then again, do you expect to get higher lender fees from non-income...
Yes, not necessarily, because we're still looking at sort of first mortgage opportunities here, pretty -- I think you get more in the overall coupon, but...
Yes, I mean it's possible you get another 25 bps on a fee, but it tends to be more on the face rate of the coupon before [indiscernible] seen that increase.
Okay. [indiscernible].
I was just going to say the higher fees typically come when you do sort of more second mortgages, junior debt, but that's not what we're looking to pivot into.
Got it. Okay. So yes, last question then was just going to be on the provision in the quarter. Obviously, we had the recovery in the, I guess, the 7 loans, and it sounds like things are progressing well, but a step-up in the provisioning this quarter relative to the last 3 quarters, maybe describe what's driving that. Obviously, interest accruals is a piece of it, but there's another portion there that would be tied to expectations of future losses. And so a little bit more color maybe on what was driving the increase.
Yes, sure, Jaeme. It's a couple of functions, one of which is just kind of at year-end looking more closely at the underlying valuations of the collateral at today's value. So there's a bit of reflection on that. In some cases, just really the cost of holding the property. So in the case of the inventory loans with the receiver, there's just drag the longer that we hold that. That was part of the increase. And then just what most of it really is, is just reflecting the LTVs and underlying valuations on the loans themselves, which generally drove a bit of an increase of provision.
Okay. And all of that would be recoverable, I guess, aside from the cost of holding the properties. Is that correct?
Yes. And the way the model works is that you are expected to recognize expected lifetime losses. So in the case of condo inventory, for example, you might put an 18-month period on that, but we might be out of it in 6 months. So in that case, we would provision for 18 months of receiver cost and the like, which may not actually come to fruition.
Rasib, your line is open. Please go ahead.
If I could start off with the special dividend, so a positive surprise this quarter. Just wondering what led to the decision of a special this year, I guess, when you haven't done so in the past? And more specifically like balancing between issuing a special or redirecting that I guess, excess earnings towards more buybacks or even, I guess, at a stretch, increasing the regular dividend. Could you give more color around that decision?
Sure. It's Blair. So I mean, obviously, mix are built to be flow-through vehicles. And generally speaking, you need to pay what you earn. We're very pleased that we were able to generate record net income this year. And at a basic level, we discussed with the Board what the logical conclusion was to do with that cash, and concluded that our investors would be pleased to receive an incremental amount. So that's kind of the short answer. As to a special versus a dividend increase, as we've been talking about for the past 15 minutes or whatever the case may be, we're very optimistic about what lies ahead both this year and going forward as we end up in a more normalized rate environment as contrasted to the super low rate environment that we've all been in for 6, 7 years, whatever the case may be, more. So we'd love to talk about increasing the regular dividend at some point in time, but it's just -- there's no -- in our view and the Board's view, there's no need to do that right now. The market -- there are some other examples, obviously, in the market of specials at year-end, and we're just happy to be able to offer our shareholders something similar.
Okay. Understood. And just to confirm, when you were sizing the special dividend, do you look at IFRS earnings or distributable income when deciding on the size of the special?
We look at both. Obviously, distributable income is what we look to operationally as a cash measure. But really, the [ mix test ] is actually based on tax earnings, which is a little bit different than IFRS and DI in that it's when losses and such are realized and some other timing differences. So that said, we look at all of those earnings together, and they generally trend around the same amount. But as we get compliant, it looks at tax earnings, ultimately.
Okay. Understood. If I could shift to your Stage 2 and Stage 3 loans. So good progress this quarter, and I appreciate the extra disclosure in the MD&A as always. On the group selection loans, the one under CCAA proceedings, I just wanted to confirm with the new JV partner in the mix, is this pretty much a done deal? Or do you need something else to happen for this to close? And then secondly, once it is closed, are you able to share maybe a rough time line on when do you think the asset could be completed and then sold eventually down the road?
Yes. So I mean the JV with the new partner, that deal was closed. We are under forbearance terms essentially to bring the loan back on site, which is essentially tied to the discharge of some residual liens that came that were put on title through this extended CCAA process. That process is well underway. Significant progress has been made in that respect. Meaningful cash has been posted in escrow as it relates to crude interest going and other costs related to this transaction through the CCAA period. So that one is lined up. It's a done deal. It's just a matter of course. Construction has resumed. We have not resumed advances under our normal facility ahead of liens being discharged and everything else, but that is moving forward and in very good shape. So the expectation there is that this project will be complete and ready for lease, call it, July, which is a critical date in the Quebec market, but that's an expectation, and then -- expectation to be refinanced shortly thereafter in that position. So... And then the other asset, we are -- third-party manager has been in place now for a number of months. We've seen significant improvement in terms of the ongoing operations with the change in management, both from a lease-up perspective, rent growth standpoint, expense reduction perspective, and we've seen, I think as was mentioned in some of the earlier comments, kind of that in-place running yield has been increasing nicely with the change in management. And certainly, management was a critical issue in the prior challenges for this asset as well as we continue to explore a potential sale. And that's ongoing.
Okay. Understood. And just my last question. Correct me if I'm wrong, but I think there was this transition from Stage 2 to Stage 3 loans, the 2 office properties and 1 retail property against the same sponsor in Calgary. Could you give more color as to why just these 3 assets transitioned? Because I believe the 1 office property is still in Stage 2. So just some more color on what led to transition, and then is there any risk of the one that's still there in Stage 2? Any risk of that going into Stage 3 or so?
So it all ties back to the signing of forbearance agreements. So these are -- they're separate loans. So the one that went from -- that stayed in Stage 2, we signed the forbearance agreements, so we have a deal with the borrower, projected cash, there's a new -- sort of a new structure involved in the loan. And so just as that sort of stabilized, and it's a 2-year forbearance agreement, so there's plenty of times that worked in to stabilize the asset. And there's a path forward, right, a defined path forward. So that keeps that in Stage 2. The other 2 loans, which has the 2 office buildings in a retail building, those loans, we're negotiating the forbearance agreement, and we just haven't -- we're close, we just haven't finalized -- we don't have a signed contract. And because of that, because this loan is technically in arrears, staging is a very -- there's qualitative test, there's a very quantitative test as well. When you get beyond x number of days, it pushes into Stage 3. So because we haven't finalized a forbearance agreement, it, a matter of course, moved to Stage 3. And again, our expectation is we will sign an agreement. And if we do so, those loans would go back to Stage 2 for Q1. And so -- and therefore, the one that is in Stage 2 that has a signed forbearance agreement, we expect that should stay in Stage 2. And that will stay in Stage 2 until we sort of stabilize the property and/or the exit strategy. Tracy, anything to add to that?
No, I think you covered it well.
[Operator Instructions] If there are no more questions, I will turn the call back to Blair for final remarks.
Great. Thank you, operator. And as usual, we appreciate everyone's time dialing in and listening to the update. Certainly happy with what we were able to report today, and look forward to doing so in 90 days again. Have a good afternoon.
Thank you, everyone.
Cheers.