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Edited Transcript of TF.TO earnings conference call or presentation 11-Mar-20 5:00pm GMT

Q4 2019 Timbercreek Financial Corp Earnings Call

TORONTO Mar 30, 2020 (Thomson StreetEvents) -- Edited Transcript of Timbercreek Financial Corp earnings conference call or presentation Wednesday, March 11, 2020 at 5:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Cameron Goodnough

Timbercreek Financial Corp. - CEO, President & Non-Independent Director

* Geoff McTait

Timbercreek Financial Corp. - Executive Director & Head of Origination - Canada

* Gigi Wong

Timbercreek Financial Corp. - CFO

* Scott Rowland

Timbercreek Financial Corp. - MD of Global Debt Investments

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Conference Call Participants

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* Graham Ryding

TD Securities Equity Research - Research Analyst of Financial Services

* Johann Rodrigues

Raymond James Ltd., Research Division - Equity Research Analyst

* Siddharth Rajeev

Fundamental Research Corp. - Head of Research & VP

* Stephan Boire

Echelon Wealth Partners Inc., Research Division - Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen. Welcome to Timbercreek Financial 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 Cam Goodnough. Please go ahead.

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Cameron Goodnough, Timbercreek Financial Corp. - CEO, President & Non-Independent Director [2]

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Thank you. Good morning, everyone, and thanks for joining us today to discuss Timbercreek Financial's Fourth Quarter and Full Year 2019 Financial Results. I'm joined by Gigi Wong, our CFO; Ugo Bizzarri, CIO of the Manager, Scott Rowland, Managing Director Debt Investments; and Geoff McTait, Executive Director and Head of Canadian Originations.

Today, we'll provide a brief overview of the fourth quarter financial results and the current position of the portfolio. We'll conclude with a market outlook and Q&A session.

As we anticipated on our third quarter call in November, it was a highly active fourth quarter for the company, both in terms of originations and repayment. In fact, at more than $380 million, it was a record quarter for new investments and advances. Transaction activity for Timbercreek Financial is typically stronger in the second half of the year, and this was certainly the case in 2019.

This activity level resulted in high turnover as well as strong fees and distributable income for the fourth quarter. Importantly, we delivered DI in line with our expectations, with the full year payout ratio landing within our targeted range. And we accomplished this key objective without deviating from our conservative portfolio positioning. The portfolio metrics will naturally move around a bit each quarter. But we remain predominantly invested in first mortgages on cash-flowing properties. Protecting capital continues to be our primary focus.

On the financial side, Q4 saw the extension of our $500 million credit facility through to December 2021. Besides term, the other significant change was the reduction of our borrowing rate by 25 basis points. Access to capital remains a core strength of the company, and we have confidence that this will remain the case going forward, providing the capacity required to meet our investment objectives.

Turning to Slide 7. We continue to have a high concentration of income-producing property in urban market with a strong weighting in multi-res. 86.8% of our investments were secured by income-producing assets at quarter end, which is down a bit from the third quarter but still leaves less than 15% in land and construction. Multi-unit residential increased almost 8% over the third quarter to 54.1% of the portfolio at year-end. This also caused an increase in the percentage of the portfolio in urban markets, which sat at 96%.

Given the strong fundamentals of the multi-res asset class, it remains a desirable segment and focus of our strategy. On this slide, you will see a few recent transactions, which are illustrative of the types of deals we are doing. The first one, the Montreal example, was a large first mortgage retirement transaction, where we retained a $22 million position after syndication, the loan allowed for the consolidation of equity ownership and continued lease-up. The second, the Edmonton deal, was a construction take out and stabilization loan. We retained a $15 million position after syndication on this recently completed purpose-built rental property.

Looking at our Q4 mortgage portfolio metrics against a multiyear trend line, stability and security remain key themes. The strong origination activity raised the net mortgage portfolio by $70 million over the third quarter to approximately $1.24 billion at the end of the year.

A few trends to highlight relative to Q3 results. We saw a modest decrease in the percentage of first mortgages, although we are still very conservatively positioned above 90%. As indicated on the prior slide, we increased our allocation of multi-res in the quarter. We continue to favor these lower-risk asset costs as does the broader market. A byproduct of this increased exposure is that our average LTV ticked up a little bit to 70.5% as lenders are generally more comfortable providing greater proceeds to this asset category relative to others.

The WAIR on the portfolio was 7.2% at the end of the period, down slightly from Q3, but within the historical range -- within our historical range since the merger. Term to maturity increased to 1.4 years due to the larger-than-normal 26% turnover rate with the higher average, reflecting the higher than normal new loans put in place in the fourth quarter rather than reflecting a change in the typical term of the loans that we do.

The next chart tells a clear story. It was an excellent fourth quarter for deal flow, translating to our highest quarterly investment levels since the merger. In a nutshell, the volumes we had anticipated for Q4 materialized. As part of this, we had been expecting a number of repayments in Q4, and we were able to use this capital to act on a well-developed pipeline.

Of note, we were fully repaid on 2 larger-than-average maturing deals. One was a Calgary hotel and the other a Saskatchewan retail mall. In total, we saw repayments of roughly $317 million, which drove an increase in portfolio turnover to 26%. While turnover may have been atypical, the strong pipeline allowed us to quickly roll the portfolio and drive lender fees and ultimately DI.

This next chart illustrates the portfolio -- this next page illustrates the portfolio diversification, one of the key ways we manage risk for investors. At year-end, we had 129 loans at an average size of just over $9.5 million. As indicated, multi-unit residential is our largest asset class. We saw an increase in the number of these investments from 64 at the year-end of 2018 to 79 by the end of 2019. Our clients are capitalizing on a significant long-term trend -- long-term need to address a shortage of housing in urban markets.

Let's now discuss a few of our portfolio investments that have either recently been mentioned in the press or discussed on prior calls. During the quarter, we completed the sale of a stage 3 asset to a retail-focused partner. As part of that transaction, we provided a new 3-year loan to facilitate their strategy. This asset experienced some positive leasing momentum in the second half of 2019 as it continues its 3-year leasing stabilization play.

Secondly, some of you may have seen a recent article regarding Cresford, a Canadian development company, which made mention of Timbercreek. It's important to clearly state that we cannot comment on allegations that are unproven and before the court. That said, we are monitoring the situation as part of our ongoing portfolio management process and do not believe that there is a material impact to mention. Firstly, our exposure is well below the amount indicated in The Globe article. Secondly, we are very comfortable given our position in the capital stack and low LTV level. And third, the loan is in good standing and not in default. We will continue to monitor this situation.

At this point, I'll turn it over to Gigi to review the financials in more detail.

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Gigi Wong, Timbercreek Financial Corp. - CFO [3]

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Thanks, Cam. Net investment income of $25.2 million was up slightly from Q4 2018, which was also a very strong quarter for the company as [you know]. Q4 2019 represented the highest quarterly net investment income over the past 2 years and reflects a strong deal activity and larger mortgage portfolio, offset somewhat by a reduction in weighted average interest rate.

For the full year, net investment income was up 4.6% to $99.4 million. Fourth quarter net income was $14.1 million compared with $15.3 million in the same period last year. Recall that, we recorded other income of $1.2 million in the comparable 2018 period related to an HST recovery. Excluding this, net income was consistent year-over-year. Earnings per share was $0.17 compared with $0.19 last year.

I'll now take a closer look at the earnings and cash available for distribution. As Cam mentioned, it was a good quarter for distributable income, our key performance measure. Transaction activity resulted in higher cash lender fees of $3.5 million compared to $2.4 million in Q4 2018. DI was $0.19 per share, consistent with Q3 2019 and compared with $0.20 per share in Q4 2018. Our payout ratio based on DI was 92.3%, bringing the full year payout ratio to 96.2%, which was in line with our expectations.

When you look at the quarterly trend in DI since the merger in 2016, it has been relatively stable between $0.17 to $0.20 per quarter. Please refer to the MD&A for a detailed reconciliation between DI and earnings per share.

Turning now to the balance sheet highlights at December 31. Since the end of 2018, our net mortgage assets have been essentially unchanged at just over $1.2 billion. The balance on our credit facilities declined to $490 million from $509 million at 2018 year-end. Now syndicated loan balance decreased to $427 million from $575 million at the end of 2018. Our leverage ratio was 45.8% at year-end, down modestly from the prior quarter. At the end -- at year-end, the enhanced return portfolio was at $78.2 million, down from $103 million in Q3 2019. The main change was the decrease in other investments as our securities team liquidated the marketable securities balance during the quarter.

I will now turn the call back to Cam for closing comments.

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Cameron Goodnough, Timbercreek Financial Corp. - CEO, President & Non-Independent Director [4]

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Thanks, Gigi. It was a solid year for the company, and we are pleased with the composition and quality of the portfolio. The global equity markets have been turbulent in recent weeks to put it mildly. While our current view is 2020 should be a net positive for Timbercreek Financial, the uncertainty surrounding COVID-19's full impact is a potential dampener. Setting aside the possibility of a macro slowdown, the commercial real estate market looks strong today, especially for the high-quality income-producing assets we target.

This creates the right conditions for our borrowers' ability to refinance and/or sell assets that have been enhanced. At the same time, it means more competitors and institutions want to put capital to work in these assets. Similar to 2019, we expect this activity to be more pronounced in the first half of 2020 as institutional players compete aggressively to put capital to work to meet their allocation targets. While our pipeline remains strong, we are seeing increased competition in the core-plus and high-yield market.

Sustained downward pressure on interest rates throughout 2020 may impact the company's WAIR, weighted average interest rate. However, the transitional lending market is not a commodity product, and therefore, pricing is less elastic and had somewhat stickier coupons. In addition, our largely floating rate book contains rate floors, which means we would need to see it rolling over of the loans before new rate levels impact the overall portfolio. Offsetting this pressure, of course, is the positive impact that lower rates have on commercial real estate activity levels more generally. And with increased transactions comes increased lending and fee opportunities for Timbercreek Financial.

In addition, we will benefit from a reduction in our cost of borrowing. Fortunately, our strong presence and reputation continues to allow us to win business and find attractive investment opportunities, including in our core multi-res segment. Timbercreek has the financial capacity, the agility and know-how to deliver on our investment objectives.

That completes our prepared remarks. With that, we will open the line to questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from Stephan Boire with Echelon Wealth Partners.

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Stephan Boire, Echelon Wealth Partners Inc., Research Division - Analyst [2]

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So Cam, I'm going to push a little bit more on your closing remarks. First, you -- obviously, you mentioned the current economic context. And in parallel to your portfolio turnover, that was -- that came in at 26% last quarter. Given the current market volatility and interest rate environment, what kind of turnover do you expect this year?

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Cameron Goodnough, Timbercreek Financial Corp. - CEO, President & Non-Independent Director [3]

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You said firstly. Is there a follow-up on or do you want us to address this first? Or do you want to go through your whole list?

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Stephan Boire, Echelon Wealth Partners Inc., Research Division - Analyst [4]

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No, no. I just got 2 questions. The other one is regarding the interest rate swap.

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Cameron Goodnough, Timbercreek Financial Corp. - CEO, President & Non-Independent Director [5]

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Okay. Let's hold that for a second there. Why don't I ask Geoff or Scott to talk a little bit about where we see volatility levels.

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Scott Rowland, Timbercreek Financial Corp. - MD of Global Debt Investments [6]

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Yes. And just specifically on turnover, first of all, I mean, looking at -- obviously, the fourth quarter was a very large turnover. Cam alluded to it. We did have 2 very large repayments that were actually approximately $90 million to $100 million on 2 assets, and those were assets that we were in negotiations on repayment of those assets starting basically in the summer of 2019 and didn't repay until the fourth quarter. So that was actually -- those were large assets for us and definitely took some time to negotiate and get those paid off. And so we had a lot of runway and time to sort of build a pipeline around that capital coming back. But I would say that is very much a onetime event. I would expect in 2020 more of a typical turnover ratio. And that's sort of -- that's 10% to 15% a quarter. So wouldn't expect changes there. And I think it was sort of a onetime occurrence.

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Geoff McTait, Timbercreek Financial Corp. - Executive Director & Head of Origination - Canada [7]

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Yes. I mean I think the lengthening of the weighted average lease term also benefits us through this period of uncertainty, right? We have floor rates in our existing structures and likely a little bit longer-term on the balance of the book as opposed to a bunch of stuff rolling in Q1 here. So I think it's positive for the business.

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Stephan Boire, Echelon Wealth Partners Inc., Research Division - Analyst [8]

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Okay. That's good. Thanks for the color on that. And as I mentioned earlier, my second question is regarding the interest rate swap, the 2-year swap that you guys acquired, I guess, last quarter. So I was wondering what was the rationale behind this. Again, it's easy to say now, given that the rates have come lower even, but what was the rationale behind this? And could you give us more color on the fact that the maturity is longer than your weighted average term of your entire portfolio? And maybe also, as I said, push on the closing remarks of Cam. How will that affect, I guess, the spread between your borrowing rates and the potentially decreasing weighted average interest rate of your portfolio?

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Cameron Goodnough, Timbercreek Financial Corp. - CEO, President & Non-Independent Director [9]

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Thanks. I think I'm glad you gave us the door out when you started with the 2020 hindsight caveat, which is obviously the case. I mean, when you're in November and December, I don't -- I'm not sure any of us were anticipating the COVID-19 or the impact it would have and the resulting decrease in rates. At the time, the thought process was really around diversifying funding sources, diversifying our risk parameters on short term versus longer term.

In terms of the length of the swap, it was done to match the term of the facility, which is a 2-year facility such that we didn't have any issues with a mismatch there. That speaks to kind of why the length and where our minds were at the time of putting in place. I think it's a lot harder question today to pontificate on what's going to happen to the global economy and what that's going to drive in terms of further rate reductions or our WAIR. And Geoff's alluded it to a little bit as has Scott, but there is -- we do have rate floors in place. We do have a fixed component to the book to the extent that rates lower continues to drive economic -- it should continue to drive the economic activity that supports our business and the turnover in our business. I think, Scott, you probably have 1 or 2 other things you want to add there?

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Scott Rowland, Timbercreek Financial Corp. - MD of Global Debt Investments [10]

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I mean, I would say 2 points. One is definitely working or we're obviously having lots of conversations with borrowers. Typically in the transitional income-producing assets that we lend into, when borrowers have a turnaround plan, and they're looking for a little more leverage. They're looking maybe for some additional dollars to help improve the assets. These loans tend to be fairly sticky in pricing, not at all, like similar to sort of a 5-year conventional institutional loan that is very price sensitive. So I think just at a high level, loans tend to stay a little stickier in pricing, which will help support WAIR.

And the other comment, too, I think I would make as a general observation is when we have these moments of volatility in the market, really see -- you can see cases with the institutional lenders who typically can become our competitors. So in a strong market, the institutional lenders will often step up. They'll step up their LTV bracket. They'll step up and take a little more risk and that could actually squeeze our business. So in times when we get this sort of volatility, we find the credit markets tightened. We find liquidity sometimes sort of disappears somewhat, and that actually enhances the gap for us, as private lenders. I mean when -- I would say that Timbercreek Financial started coming out of the credit crisis, it was frankly no different of a situation. I mean this is obviously a point in time, and no one's saying how long this will last, but it does create opportunities for us as well.

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Operator [11]

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The next question is from Graham Ryding with TD Securities.

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Graham Ryding, TD Securities Equity Research - Research Analyst of Financial Services [12]

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So first of all, the loan that was in default that is now no longer in stage 2. That's a positive development, good to see. Is -- it sounds like it's still a mortgage on your books. Is it the same size? Or any color on sort of what that has evolved into.

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Scott Rowland, Timbercreek Financial Corp. - MD of Global Debt Investments [13]

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Yes. Happy to add some color there. So the loan is still on our books. When we sold the asset to Trinity Asset Management, this new owner was the property manager we had put into place and has significant retail expertise. And so we are the ongoing lender, and we will help facilitate a leasing strategy for the asset.

A little update that we have already seen some positive momentum. We've signed 2 large new tenants or to take some of the inline space that was the old target space. Still some vacancy there. As well as we're going to be building out a new 10,000 square foot pad, and that is being anchored by a national coffee retailer with a drive-through. So essentially, it is an active leasing strategy with a very strong retail player, and happy to have it out of stage 3 and happy to have it as a new facility.

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Graham Ryding, TD Securities Equity Research - Research Analyst of Financial Services [14]

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Okay, great. I appreciate the color. And then the other one, Cam, I appreciate providing some color on the Cresford situation. And I recognize it's sensitive sort of what you can say. But when I look at your disclosure, it looks like construction loans within your multi-unit space there, I think it's 6 loans, about $27 million in total. Is that where this Cresford mortgage would fit in your portfolio?

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Scott Rowland, Timbercreek Financial Corp. - MD of Global Debt Investments [15]

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Yes. No. The answer to that is no. The Cresford exposure for us, we have it in a couple of different facilities. But one is sort of a pre-construction loan, so it would be classified differently. It would be classified as land. And again, our exposure there is small and with a very safe loan-to-value ratio. And there's another facility that I can think of that is existing, completely build, has a tendency. Again, we're in a very safe position in the capital stack.

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Graham Ryding, TD Securities Equity Research - Research Analyst of Financial Services [16]

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Great. Can you elaborate on sort of if they're forced first mortgages and what the loan to values are and what the size of the mortgages are?

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Scott Rowland, Timbercreek Financial Corp. - MD of Global Debt Investments [17]

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I think at this point, that is maybe a little specific, especially in light of what's going on. So I think just in general, we shouldn't give any sort of further comment at this point other than to say, again, we are in first mortgage positions at a very safe LTV.

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Graham Ryding, TD Securities Equity Research - Research Analyst of Financial Services [18]

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Okay. That's fair. And then just on the weighted average mortgage rate side, you provided some disclosure around -- your exit rate was 7.1%, but the new mortgages that you put on this quarter, I think, were 6.6%. Is there a read-through there that, given we're in a low rate environment, that that's potentially where your overall weighted average mortgage rate could trend towards sort of like high 6s or a mid-6% range?

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Cameron Goodnough, Timbercreek Financial Corp. - CEO, President & Non-Independent Director [19]

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There are a few other moving pieces there, obviously, Graham. And those numbers you have are post syndication amounts. And so they're -- I wouldn't read into that, there's a 50 basis point drop between those 2 numbers necessarily because it can move with our syndication activity, and you've seen our syndication activity has come off a little bit.

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Scott Rowland, Timbercreek Financial Corp. - MD of Global Debt Investments [20]

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Yes. And the other thing I would add is that -- and why the overall portfolio weighting went up 8% to residential. We did do, I would say, an overallocation of resis in the fourth quarter, which just tends to have a lower WAIR. But as we move back towards sort of a normalcy of our portfolio and do a little more weighted average into commercial, I would expect WAIR to improve as well. It was just fundamentally a little bit more resi than normal in the fourth quarter.

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Graham Ryding, TD Securities Equity Research - Research Analyst of Financial Services [21]

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Okay, fair enough. And if I could get greedy. Just one more. Your Alberta portfolio, I think it's 20% of your -- any color on what the loan-to-value is on average for that? That book of your business in terms of asset classes, is it consistent with your overall portfolio? Or what does the mix look like?

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Scott Rowland, Timbercreek Financial Corp. - MD of Global Debt Investments [22]

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Yes. Happy to give you some specific color. And I -- actually, even just today, just as an update, looking at the book this morning, our Alberta exposure is actually 17% as of today. It's just a little bit of a headline. The loan-to-value weighted average in Alberta is 62% for us, a little more conservative. And then the mix is -- to your point, is fairly similar with the headline being 52% in multi-family. And I can also say 95% of our loans are in Calgary and Edmonton.

So I look at Alberta over the last few years, I'd say this firm, we've taken a conservative view. I mean Alberta has been struggling for a while. So we do look very prudently at opportunities in Alberta. And obviously, with the recent news and events, we would just continue to be choosy and looking for the best opportunities in Alberta.

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Operator [23]

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The next question is from Sid Rajeev with Fundamental Research.

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Siddharth Rajeev, Fundamental Research Corp. - Head of Research & VP [24]

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Congratulations, gentlemen, on a highly active quarter. Outside the multi-res sector, which sector do you see potential for Timbercreek in 2020?

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Cameron Goodnough, Timbercreek Financial Corp. - CEO, President & Non-Independent Director [25]

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I'm going to ask Geoff to talk a little bit about other commercial markets and what he's seeing.

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Geoff McTait, Timbercreek Financial Corp. - Executive Director & Head of Origination - Canada [26]

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Yes, sure. I mean, I think, generally speaking, outside the multi-res sector, I think we're big believers in opportunities -- transitional opportunities in the office and industrial spaces in the primary markets across the country. Again, I think beyond that and somewhat aligned with the industrial space would be the self-storage space. We're seeing some better institutional players in those spaces that are both building and expanding and stabilizing facilities. And again, primary market locations, that's a changing industry at this point and a place where we'd like to be active.

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Siddharth Rajeev, Fundamental Research Corp. - Head of Research & VP [27]

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Okay. And do you mind talking a little bit about the LTV of multi-res versus other sectors, like what would be ideal LTV for the office and retail for you?

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Geoff McTait, Timbercreek Financial Corp. - Executive Director & Head of Origination - Canada [28]

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Yes. So again, for us, as we sort of think about things on more of a stabilized loan-to-value basis as we think about how we can exit or get refinanced or through sale, in general, there's, typically, I'd say, a 5% to, in some cases, 10% variance between where we'd be willing to go on a multi-res asset and where we'd like to end up on more of an industrial or office-type asset. So yes, I mean, I'd say, typically, in that 60% to 70% for commercial and maybe go as high as 80% for multifamily.

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Siddharth Rajeev, Fundamental Research Corp. - Head of Research & VP [29]

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Okay. And one last question. I know you don't want to give guidance, but by end of 2020, do you expect the portfolio size to be flat or higher?

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Cameron Goodnough, Timbercreek Financial Corp. - CEO, President & Non-Independent Director [30]

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That's a good question. I think that's going to depend a lot on what happens here in the next few weeks, few months in terms of the global slowdown and our ability to deploy. What we don't want to do is commit to increasing the portfolio size at this point. We want to make sure we're deploying the capital prudently. And more importantly, for us, is hitting our per-share numbers on an EPS and a DI basis.

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Scott Rowland, Timbercreek Financial Corp. - MD of Global Debt Investments [31]

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And just to add to that last answer is I think we look at making sure we keep the sort of the debt-to-equity ratio where we want it to be. And I think we really see how this year unfolds from a flow perspective. And as I alluded to earlier in the call, actually, historically, we've seen more opportunities sometimes come out of this location. And if that's the case, that's where we might see the opportunity for our book to grow.

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Operator [32]

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(Operator Instructions) The next question is from Johann Rodrigues with Raymond James.

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Johann Rodrigues, Raymond James Ltd., Research Division - Equity Research Analyst [33]

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I apologize if this has been asked I -- switching calls and joined a bit late, but I just wanted a bit more info on the floors and kind of the mechanics behind those and maybe what levels they're at. And would the floors on loans given out today and in the future be at a different level than deals that were signed 3 or 6 months ago?

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Scott Rowland, Timbercreek Financial Corp. - MD of Global Debt Investments [34]

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Sure. Happy to answer that. Floors are typically negotiated on a loan-by-loan basis. So for example, on the floating rate deals, we are often quoting those over prime and, typically, with the floor that is at that existing interest rate, right? So if it was a 6% whole mortgage loan, 200 basis points above prime, we would set the floor at that given interest rate.

Sometimes that's negotiated. I think we have some floors that were 0.25 point less but typically very close to the existing interest rate. As we flash forward, and we're negotiating new deals with a similar structure, floors are typically at the current rate or very close to it.

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Johann Rodrigues, Raymond James Ltd., Research Division - Equity Research Analyst [35]

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Sorry. They're at the current rate of the loan. So like a 6% loan, the floor would be 6%?

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Scott Rowland, Timbercreek Financial Corp. - MD of Global Debt Investments [36]

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Correct.

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Cameron Goodnough, Timbercreek Financial Corp. - CEO, President & Non-Independent Director [37]

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So you get the upside and the protection on decreasing rate environment. But as you put on a new loan in 2 months later in a 50 basis point lower rate or whatever it's going to be, it's going to have an impact. So that floor is going to be reflective of that new rate environment.

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Scott Rowland, Timbercreek Financial Corp. - MD of Global Debt Investments [38]

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Listen, we were very cognizant of that in that sort of a risk to us. And so it's really negotiated on every floating rate loan.

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Johann Rodrigues, Raymond James Ltd., Research Division - Equity Research Analyst [39]

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Right. So I mean, then are you guys the ones that push for floating rate and the borrowers push for fixed? Or...

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Scott Rowland, Timbercreek Financial Corp. - MD of Global Debt Investments [40]

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Yes, no, actually, both exist. But generally speaking, in this transitional market with loan terms sort of 2 years or less, most -- I would say the -- and Geoff, you can jump in, too, but I'd say, predominantly, the market is a floating rate market. Some people's fixed. But really, because the borrowers are investing in their assets, trying to create income is typically a transitional strategy. And they -- when they sort of finish their sort of value improvement plans, that's when they either look to sell the asset or take us out with more conventional, much-cheaper financing. Either of those activities, the borrowers looking for not to pay like a fixed rate, a yield-maintenance penalty. So they are -- therefore, they're interested in having sort of more of a floating open structure.

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Cameron Goodnough, Timbercreek Financial Corp. - CEO, President & Non-Independent Director [41]

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Operator, any further calls -- questions rather?

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Operator [42]

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There are no further questions at this time.

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Cameron Goodnough, Timbercreek Financial Corp. - CEO, President & Non-Independent Director [43]

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All right. With that, I'd like to thank everyone for taking the time to participate on the call today. Look forward to updating you on our first quarter results in May. And as usual, if there's additional questions or items that you want to speak about reach out to us directly. Thank you again.

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Operator [44]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating. And you may now disconnect.