Timbercreek Financial Corp

TSX:TF

Good day, ladies and gentlemen. Welcome to Timbercreek Financial's First 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, everybody. Thanks for joining us to discuss the first quarter financial results. I'm joined as usual by Scott Rowland, CIO; Tracy Johnston, CFO; and Geoff McTait, 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 distributable income of $0.19 per share at a payout ratio of 93% and EPS was $0.18 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've successfully navigated macro issues of all types, 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 [ $8.28 ] 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.

We 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 Geoff to comment on the originations activity and lending environment. Looking at the portfolio of 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 towards 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. 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 WAIR is also reverting towards a longer-term average. For example, since 2016, which captures a few rate environments, the average WAIR exit rate is 7.9%.

Rates coming down, we are seeing a corresponding decrease in interest expense on the credit facility, supporting a healthy net interest margin. Portfolio WAIR 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, B.C., 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 3 senior living facilities previously recorded as assets held for sale, freeing up capital were 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 before historical averages.

On that note, I'll ask Geoff 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 time lines 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 WAIR returning to historical levels as Scott mentioned. In addition to the improved market environment, we're beginning to see increased activity resulting from Timbercreek Capital status as a CMHC approved lender.

Recently, Mike Sagert was appointed Executive Director to lead this program. Mike is an industry veteran and are 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 borrower 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 Tracy to review the financial highlights. Tracy.

Thanks, Geoff, 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 million 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 3 years with and without ECLs, you will see it has been quite stable as has DI per share. Over the medium term, quarterly DI per share has been between $0.17 and $0.21 averaging just over $0.19 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 0 net real estate held for sale as we close the sale of 3 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, Geoff 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 Geoff 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.

[Operator Instructions] The first question comes from Graham Ryding.

Can you maybe just elaborate on -- it sounds like you have some confidence on your Stage 2 and 3 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.

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

Yes. This is Scott. I concur with exactly what Blair just said, $80 million more in the near term, which is some significant movement for us. We've worked on those files for around over a year. A few smaller files should make material headway in the coming quarters. And our -- 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.

Great. Just what about the other unsuppressed pressure in the condo market right now. Is that feeding through at all into the multifamily space either in valuations, vacancy, demand from investors to deploy capital, any commentary there?

Yes, we can -- maybe I'll take a stab at it and then turn it to Geoff as well. And the condo market, like is interesting, right? It's sort of different in different cities. We're like so specific condo market, Toronto comes to mind 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 noncommercial real estate side, right? That is on owner-occupied single units, of which Timbercreek 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 sometimes they're older assets, right, like not brand-new product, less so Graham. That market is more stable, rents tend to be lower and remain well occupied.

I think Geoff, anything to add.

Yes. I mean I think those are all fair comments. I mean, obviously, the -- what we are seeing incrementally on the -- on the development land side of the world is that 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.

And I think the last comment I made is, I want to make on this is it's interesting. Again, I'll come back to Toronto, because it's the largest market and the sort of classes that you have right now. 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 project is going into the ground or being built, which is interesting.

And if you start looking through the numbers, forecast sort of 2, 3 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. The problems you have right now, which share some vacancy and maybe you're seeing some higher end rents coming off. More than likely going to be in a very supply and balance market in 2, 3 years' time. So as we go out and do lending, again, most of it doesn't affect us because it serves a little bit of a different business than what we're in day to day. We feel -- we feel this pretty good about, in general, again, people needing to rent in these markets.

Okay. Perfect. And then beyond multi [indiscernible] any or perhaps even with specific verticals within multi -- any sort of opportunities you're seeing developing in this market that perhaps going around 3 to 6 months ago?

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 to some of these sort of tariff-related impacts, export-related impact. 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 the 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 3, 6 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.

The next call or next caller is Stephen Boland.

Okay. Just following on Graham's question, just you've got 39 loans maturing in 2025. Should we then just expect like multi-res, 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?

Yes, that's a good question. So I'll start with the first part is, yes, we certainly expect normal repayment activity as we -- 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, the very rough rule of thumb for us, call it 2/3 multifamily and 1/3 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 geographies, particular weakness. I mean, listen, if we go back a few years ago, we were more concerned about some of the Calgary and Edmonton, that was because of the supply issues more affecting office and other asset classes. So I kind of like -- we kind of like look at the country in thirds still right now, like 1/3 out West, 1/3 in Ontario, 1/3 in Quebec in the East. Really, we were just keeping -- I wouldn't say a 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 and making sure we feel we're in a good position.

So 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 Geoff.

Yes. 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 at the class or geographic location, what is the liquidity and demand for that specific asset class in that specific location. Again, our focus will always be sort of primary market focused and dip into the secondary in the multi-res space where and when we can rationalize the opportunity and the liquidity therein. But again, a very fundamental part of our analysis of every deal. Again, we aren't -- we don't have big access across anything per se. It's unique circumstances underlying and then fundamentally even in some of the primary markets, we may pull back just based on the outcome of that analysis.

And I guess, as I'm listening to Geoff there, honestly, after it's been -- we had a difficult couple of years, right, in the market. Coming out of COVID and then rising rates was tough on borrowers. We're actually -- if I had to like a macro comment, I actually think we're quite optimistic that loans that we're doing in sort of the 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.

And just, sorry, a quick follow-up. Just covenants, balance sheet, you're comfortable you can achieve your kind of goals this year with the existing balance sheet.

Yes. Steve. It's Tracy. Yes. Yes. I think we obviously monitor it closely, but still comfortable with where we're trending on things.

The next question comes from Jaeme.

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 shelf longer term? Maybe just a little bit of color on some of those conversations you're having with potential clients.

Yes. Listen. I mean, I think the Q4, Q1 pipelines were very robust. And for sure, within that Q1 reality, we did see time lines to close these transactions push. I would say the vast majority of them, it is literally just a -- instead of a Q1 close, they're pushing into Q2. And fundamentally, that captive volume for us in our pipelines and deals that we've worked on will fund. I think with the Trump tariff reality and the uncertainty that came with it. I think the Q1 pipeline softened a little bit.

Again, I think that's an interim wait-and-see period as things flush out on that basis. But fundamentally, again, I don't think it's something that is 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 a lot of noise around that reality and what that will ultimately mean. But fundamentally, in particular, in the multi-residential space, it continues to be an actively traded asset class.

Okay. And is there -- is it primarily or only a shift from the potential borrowers? Or has Timbercreek made any adjustments in how they view the world as a result of some of this uncertainty.

So I mean it's certainly -- it's -- the borrowers to a degree. Again, for us, it is a fundamental question underlying the analysis that we're undertaking. Again, I think it's a different analysis depending on the asset class specifics. And as you get into industrial as an example, where and when you are digging in much further to understand the underlying operations of that tenant and is it a North America-based business, is a Canadian specifically domestic business?

How are those things going to impact that tenant's ability to pay. So it is something that we are absolutely considering and focusing on. I think we don't have -- candidly, all the answers at this point as we're trying to figure our way through it. But it's 100% of focus of what we're thinking through and trying to understand, yes, how is it impacting cost? How is it impacting tenants? How is that 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.

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 makes -- 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 -- generally speaking, you have, whatever, 30% equity from the borrower in front of you.

And we're looking at baseline values that are, call it, 15 or pick the asset class, right? On average, call it, I don't know, 15%, 18% lower than they were 2 years ago. So that 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 a lot to flow. There are lots of businesses that are -- that are going to thrive as rates return to sort of a more normal -- or they have returned to a more normalized environment.

And are you seeing like your competitive position improve in this environment? Or is everybody sort of making the same decisions.

Listen, I think -- I mean it's always interesting where and when you go through a transitional period or a period of uncertainty in terms of how the market adjusts. And I think, again, we are we're not turning the titanic here. We can be pretty nimble and we can adjust fairly quickly. And I think what we're seeing and probably tail end of Q1 where you -- the rest of the market hasn't necessarily adjusted as quickly.

And so again, we're winning our share of business. We've lost 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 again, fundamentally, those are one-offs, not the norm. We continue to compete favorably within the -- within our market comp set and continue to win our fair share of deals. But I think it's -- I don't know if we're necessarily getting a significantly outsized market share, but we're certainly maintaining our 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's -- 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 phases 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 different portfolios around with different construction. So we feel -- we feel good about our ability to compete there, sort of where we're sitting today.

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

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

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.